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 registered dealer in securities, bank manager, solicitor, professional accountant or other professional advisers.

If you have sold or transferred all your shares in MECOM Power and Construction Limited, you should hand this circular together with the accompanying form of proxy at once to the purchaser or 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 Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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MECOM Power and Construction Limited 澳能建設控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1183)

CONTINUING CONNECTED TRANSACTIONS

(1) PROJECT AND SUPPLY WORKS — REVISION OF EXISTING ANNUAL CAPS AND SETTING OF NEW ANNUAL CAPS;

AND

(2) FACILITY MANAGEMENT SERVICES — REVISION OF EXISTING

ANNUAL CAPS

AND

NOTICE OF EGM

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

A letter from the Board is set out on pages 6 to 34 of this circular. A letter from the Independent Board Committee is set out on pages 35 to 36 of this circular. A letter from Frontpage Capital Limited is set out on pages 37 to 69 of this circular.

A notice convening the EGM to be held at Suite 2902, 29th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong on Monday, 10 December 2018 at 10 a.m. is set out on pages 76 to 79 of this circular. A form of proxy for use at the EGM is also enclosed. Such form of proxy is also published on the websites of The Stock Exchange of Hong Kong Limited (www.hkexnews.hk) and the Company (www.mecommacau.com).

Whether or not you intend to attend the EGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to Tricor Investor Services Limited, the branch share registrar of the Company in Hong Kong, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof if you so wish.

22 November 2018

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . .	35
LETTER FROM FRONTPAGE CAPITAL LIMITED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
APPENDIX — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	70
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	76

– i –

DEFINITIONS

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

‘‘Announcement’’

the announcement of the Company dated 31 July 2018 in relation to, among other things, the revision of existing annual caps and setting of new annual caps for the continuing connected transactions in relation to the Project and Supply Works and Facility Management Services

‘‘associate(s)’’ has the meaning ascribed thereto under the Listing Rules
‘‘Board’’
the board of Directors
‘‘close associate(s)’’

has the meaning ascribed thereto under the Listing Rules

‘‘COD Resorts’’
COD Resorts Limited, a company incorporated in Macau with limited liability
‘‘Company’’
MECOM Power and Construction Limited, an exempted company incorporated in the Cayman Islands with limited liability whose Shares are listed on the Main Board of the Stock Exchange (stock code: 1183)
‘‘connected person(s)’’

has the meaning ascribed thereto under the Listing Rules

‘‘controlling shareholder(s)’’

has the meaning ascribed thereto under the Listing Rules

‘‘Director(s)’’ the director(s) of the Company
‘‘EGM’’
the extraordinary general meeting of the Company to be convened and held on Monday, 10 December 2018, the notice of which is set out on pages 76 to 79 of this circular, and any adjournment thereof for the purpose of considering, and if thought fit, approving, among other things, the Project and Supply Works and the Facility Management Services as well as the Proposed Annual Caps
‘‘EHY Construction and EHY Construction and Engineering Company Limited, a Engineering’’ company incorporated in Macau with limited liability and an indirect wholly-owned subsidiary of the Company
‘‘Facility Management Services’’
collectively, Melco Facility Management Services and SC Facility Management Services
‘‘Group’’

the Company and its subsidiaries

– 1 –

DEFINITIONS

‘‘HK$’’
‘‘Hong Kong’’
‘‘Independent Board Committee’’
‘‘Independent Financial Adviser’’ or ‘‘Frontpage Capital’’
‘‘Independent Shareholders’’
‘‘independent third party’’
‘‘King Dragon’’
‘‘Latest Practicable Date’’
‘‘Listing’’
‘‘Listing Rules’’
‘‘Macau’’
Hong Kong dollars, the lawful currency of Hong Kong
the Hong Kong Special Administrative Region of the People’s Republic of China
the independent board committee of the Board comprising all the independent non-executive Directors, namely Ms. Chan Po Yi, Patsy, Mr. Cheung Kiu Cho, Vincent and Dr. Ngan Matthew Man Wong, established to advise the Independent Shareholders in respect of the transactions in relation to the Project and Supply Works and the Facility Management Services, the Proposed Annual Caps and the Waiver
Frontpage Capital Limited (富比資本有限公司), the independent financial adviser of the Company and a corporation licensed to conduct Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO
all Shareholders other than the Shareholders with a material interest in transactions in relation to the Project and Supply Works (including the transactions contemplated under the New COD Framework Agreement) and/or the Facility Management Services
a third party who is independent of the Company and the connected persons of the Company
King Dragon Ventures Limited, a company incorporated in the British Virgin Islands with limited liability which was whollyowned by Mr. Ho as at the Latest Practicable Date
19 November 2018, being the latest practicable date before printing of this circular for ascertaining information contained herein
the listing of the Shares of the Company on the Main Board of the Stock Exchange
the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
the Macau Special Administrative Region of the People’s Republic of China

– 2 –

DEFINITIONS

‘‘MECOM Holding’’
‘‘Melco Facility Management Services’’
‘‘Melco Group’’
‘‘Melco Hotels’’
‘‘Melco International’’
‘‘Melco Project and Supply Works’’
‘‘Melco Project Owners’’
‘‘Model Code’’
‘‘MOP’’
‘‘Mr. Ho’’
‘‘Mr. Lam’’
‘‘Mr. Lao’’

MECOM Holding Limited, a limited liability company incorporated in the British Virgin Islands on 28 April 2017 and the controlling shareholder of the Company

facilities management, alteration and maintenance works and services for the Melco Hotels time to time

Melco International and its subsidiaries
hotel resorts and other business properties in Macau owned and/or operated by the Melco Project Owners and/or their affiliates including, without limitation, (i) City of Dreams, an integrated hotel resort in Cotai, Macau; (ii) Altira Macau, a casino hotel located at Taipa, Macau, (iii) Flower City, a business property located at Taipa, Macau, and (iv) various Mocha Clubs situated at different locations in Macau
Melco International Development Limited, a company incorporated in Hong Kong with limited liability and the shares of which are listed on the Main Board of the Stock Exchange (stock code: 200)
structural steelworks, civil engineering construction, and fitting out and renovation works for the Melco Hotels from time to time
collectively, Altira Resorts Limited, COD Resorts, Golden Future (Management Services) Limited and Melco Resorts (Macau) Limited
the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Listing Rules
Macanese pataca, the lawful currency of Macau
Mr. Ho, Lawrence Yau Lung, a substantial shareholder of the Company
Mr. Lam Kuok Wa, a member of the senior management of the Group and one of the controlling shareholders of the Company
Mr. Lao Ka Wa, a member of the senior management of the Group and one of the controlling shareholders of the Company

– 3 –

DEFINITIONS

‘‘New COD Framework Agreement’’
‘‘Project and Supply Works’’
‘‘Proposed Annual Caps’’
‘‘Prospectus’’
‘‘SC Companies’’
‘‘SC Facility Management Services’’
‘‘SC Hotel’’
‘‘SC Project and Supply Works’’
‘‘SC Project Owner’’
‘‘SFO’’
‘‘Share(s)’’
‘‘Shareholder(s)’’
‘‘Stock Exchange’’
‘‘subsidiaries’’
‘‘substantial shareholder(s)’’
the term contract dated 31 July 2018 entered into between EHY Construction and Engineering as the contractor and COD Resorts as the employer in relation to Melco Project and Supply Works as may be ordered by or on behalf of COD Resorts from time to time
collectively, Melco Project and Supply Works and SC Project and Supply Works
collectively, the Proposed Annual Caps I (including the Revised Annual Cap I for 2018 and the New Annual Caps for 2019, 2020 and 2021) and the Proposed Annual Caps II
the prospectus of the Company dated 1 February 2018 in relation to the Listing
Studio City Developments Limited and Studio City Hotels Limited, which are companies incorporated in Macau with limited liability
facilities management, alteration and maintenance works and services for the SC Hotel from time to time
Studio City, a hotel resort in Cotai, Macau owned and/or operated by Studio City Hotels Limited and/or its affiliates
structural steelworks, civil engineering construction, and fitting out and renovation works for the SC Hotel from time to time

Studio City Hotels Limited

Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

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

the holder(s) of the Shares

The Stock Exchange of Hong Kong Limited

has the meaning ascribed to it under the Listing Rules
has the meaning ascribed to it under the Listing Rules

– 4 –

DEFINITIONS

‘‘Waiver’’

the waiver from strict compliance with Rules 14A.34 and 14A.51 of the Listing Rules in respect of the Waiver CCTs

‘‘Waiver CCTs’’

collectively, the transactions in relation to (i) the SC Project and Supply Works to the SC Companies for the year ending 31 December 2019; (ii) the Melco Facility Management Services to the Melco Project Owners for the Melco Hotels for the three years ending 31 December 2020; and (iii) the SC Facility Management Services to the SC Project Owner for the three years ending 31 December 2020, which are not yet covered by any written agreements as at the Latest Practicable Date

‘‘%’’ per cent.

In this circular, the exchange rate of HK$1 = MOP1.03 has been adopted for currency translation, where applicable. Such exchange rate is used for illustrative purpose only and does not constitute any representation that any amount in HK$ or MOP has been, could have been or may be converted at such a rate or any other rate.

– 5 –

LETTER FROM THE BOARD

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MECOM Power and Construction Limited 澳能建設控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1183)

Executive Directors: Mr. Kuok Lam Sek (Chairman) Mr. Sou Kun Tou (Chief executive officer and deputy chairman)

Independent Non-executive Directors:

Ms. Chan Po Yi, Patsy Mr. Cheung Kiu Cho, Vincent Dr. Ngan Matthew Man Wong

Registered Office: Conyers Trust Company (Cayman) Limited Cricket Square Hutchins Drive PO Box 2681 Grand Cayman, KY1-1111 Cayman Islands

Headquarters and principal place of business in Macau: Units Q, R and S 6/F Praça Kin Heng Long-Heng Hoi Kuok Kin Fu Kuok No. 258 Alameda Dr. Carlos D’Assumpção Macau

Principal place of business in Hong Kong: Room 1909–13, 19th Floor Tai Yau Building 181 Johnston Road Wanchai, Hong Kong

22 November 2018

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

(1) PROJECT AND SUPPLY WORKS — REVISION OF EXISTING ANNUAL CAPS AND SETTING OF NEW ANNUAL CAPS;

AND

(2) FACILITY MANAGEMENT SERVICES — REVISION OF EXISTING

ANNUAL CAPS

AND

NOTICE OF EGM

– 6 –

LETTER FROM THE BOARD

I. INTRODUCTION

References are made to (A) the section headed ‘‘Connected Transactions’’ in the Prospectus in respect of, among other things, (i) the Group’s supply of the Melco Project and Supply Works to COD Resorts; (ii) the Group’s supply of the SC Project and Supply Works to the SC Companies; (iii) the Group’s supply of the Melco Facility Management Services to the Melco Project Owners; and (iv) the Group’s supply of the SC Facility Management Services to the SC Project Owner, which constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules; and (B) the Announcement. The transactions under (i) and (ii) (i.e. the provision of the Project and Supply Works) are aggregated, and those under (iii) and (iv) (i.e. the provision of the Facility Management Services) are aggregated, pursuant to the Listing Rules.

Based on the latest information available to the Company, the Board proposes to adopt the Proposed Annual Caps I (for the provision of the Project and Supply Works) and the Proposed Annual Caps II (for the provision of the Facility Management Services) subject to approval by the Independent Shareholders. In addition, the Company has applied for, and the Stock Exchange has granted, the Waiver in respect of the Waiver CCTs subject to approval by the Independent Shareholders. Details of the Proposed Annual Caps and the Waiver are set forth below.

The purpose of this circular is to provide you with, among other things, (i) information on the transactions contemplated under the Project and Supply Works and Facility Management Services, the Proposed Annual Caps and the Waiver; (ii) the recommendation of the Independent Board Committee to the Independent Shareholders in respect of, among other things, the Proposed Annual Caps and the Waiver; (iii) the advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of, among other things, the Proposed Annual Caps and the Waiver; and (iv) other information as required under the Listing Rules.

II. PROJECT AND SUPPLY WORKS

As set out in the Prospectus, the Group provides structural steelworks, civil engineering construction, and fitting out and renovation works on a project-by-project basis to certain connected persons of the Company in the ordinary course of business of the Group, namely (i) the provision of the Melco Project and Supply Works to COD Resorts for the Melco Hotels and (ii) the provision of the SC Project and Supply Works to the SC Companies for the SC Hotel.

Scope of the Project and Supply Works

The scope of the Project and Supply Works includes structural steelworks, civil engineering construction, and fitting out and renovation works for the Melco Hotels and/or the SC Hotel. Structural steelworks services generally involve the provision of customised and target-oriented steel structure erection services which generally consist of structural steelworks, concreting and builder works, using a suitable combination of each to produce an efficient structure. Civil engineering construction services generally involve demolition works, ground investigation field works, site formation works, foundation works, substructures and superstructures, roads and drainage. Fitting out and renovation works generally involve the

– 7 –

LETTER FROM THE BOARD

provision of alteration, renovation and upgrading works of various types, including preparation of shop drawings, modification, removal and installation of equipment, and general renovation works.

Project contracts

The tables below summarise the Melco Project and Supply Works and the SC Project and Supply Works that were ongoing as at the Latest Practicable Date:

Melco Project and Supply Works

Date of contract
Parties
Scope of work
1.
30 October 2016
(a)
EHY Construction and
Engineering
(b)
COD Resorts Limited
Provision of site management
services
2.
20 July 2017
(a)
EHY Construction and
Engineering
(b)
COD Resorts Limited
Demolition and structural
modification works
3.
(i)
11 October 2017
(ii)
23 January 2018
(iii) 9 February 2018
(iv) 3 April 2018
(v)
6 April 2018
(vi) 4 May 2018
(vii) 30 May 2018
(a)
EHY Construction and
Engineering
(b)
COD Resorts Limited
Supply and installation and
delivery of furniture at one
of the Melco Hotels
4.
(i)
17 October 2017
(ii)
6 March 2018
(iii) 12 March 2018
(iv) 29 March 2018
(v)
3 April 2018
(a)
EHY Construction and
Engineering
(b)
COD Resorts Limited
Supply and installation and
delivery of furniture at the
Melco Hotels
5.
25 May 2018
(a)
EHY Construction and
Engineering
(b)
COD Resorts Limited
Demolition and structural works
for escalators
6.
6 June 2018
(a)
EHY Construction and
Engineering
(b)
COD Resorts Limited
Supply, installation and delivery
of furniture at one of the
Melco Hotels
Total:

Estimated remaining
contract sum and
variation orders
Anticipated time of
completion
MOP1.8 million
Third quarter of 2018
(Note)
MOP2.4 million
Third quarter of 2018
(Note)
MOP0.7 million
Fourth quarter of 2018
MOP0.1 million
Fourth quarter of 2018
MOP2.4 million
Fourth quarter of 2018
MOP1.9 million
Fourth quarter of 2018
MOP9.3 million

Note: The projects were substantially completed in the third quarter of 2018.

– 8 –

LETTER FROM THE BOARD

SC Project and Supply Works

Date of contract
Parties
Scope of work
1.
1 November 2017
(a)
EHY Construction and
Engineering
(b)
Studio City Hotels
Limited
Provision of stagehands, riggers
support and bearing
lubrication services
2.
(i)
25 October 2017
(ii)
15 November 2017
(iii) 17 November 2017
(iv) 21 November 2017
(v)
29 November 2017
(a)
EHY Construction and
Engineering
(b)
Studio City
Developments Limited
Supply, installation and delivery
of furniture and lighting at
the SC Hotel
Total:

Estimated remaining
contract sum and
variation orders
Anticipated time of
completion
MOP1.3 million
Fourth quarter of 2018
MOP0.5 million
Fourth quarter of 2018
MOP1.8 million

The salient terms of the project contracts in relation to Project and Supply Works have been set out in the section headed ‘‘Business — Customers — Salient terms of project contracts with customers’’ on pages 167 to 168 of the Prospectus.

The Group has also entered into the New COD Framework Agreement with COD Resorts for the provision of additional Melco Project and Supply Works. Please see ‘‘III. New COD Framework Agreement’’ below for details.

Potential projects

The Company envisages that the Group may potentially provide SC Project and Supply Works for the SC Hotel to the SC Companies during the year ending 31 December 2019 with the estimated annual transaction amount of approximately MOP41.9 million which are not yet covered by any existing written contracts or framework agreement(s) but are included in the Proposed Annual Caps I. Such potential transactions form part of the Waiver CCTs. The Group will ensure that such potential transactions, if they materialise, will be within the scope set out under ‘‘II. Project and Supply Works — Scope of the Project and Supply Works’’ above and the terms of such transactions will be determined in compliance with the pricing policy set out under ‘‘II. Project and Supply Works — Pricing Policy’’ below subject to the approval by the Board (including the independent non-executive Directors).

Pricing policy

– 9 –

LETTER FROM THE BOARD

subcontracting costs, which account for approximately 90% of the total costs. The principal materials primarily include steel, fabricated steel, metal, power systems, cement and fitting out materials such as pipes, wires and cables.

In determining the terms of each tender, the Group typically conducts a preliminary costing and pricing analysis based on the data and information in our database which collects detailed financial information of the projects the Group has undertaken, such as revenue, profits, costs and expenses on manpower, subcontractors, materials, machineries and equipment required for each project and the prevailing market prices of the same. In this connection, the Group’s finance department will collect the detailed financial information of similar projects that the Group has undertaken in the past, such as costs and expenses on manpower, materials, subcontractors, machineries and equipment of such projects, while the Group’s tendering team will collect the specification of similar projects that the Group has undertaken in the past, such as the nature and quantity of materials required and the amount of work to be undertaken by the Group’s subcontractors and/or construction workers. If the information in the Group’s database is not sufficient to make a feasible costing analysis, the Group will then secure quotations from its suppliers of materials and subcontractors to facilitate the Group’s cost estimation and budgeting so as to lock up the price of materials and/or subcontractors. As part of the Group’s internal control policy, the Group will typically obtain three quotations from its suppliers of materials and/or subcontractors before securing a purchase order. For the purpose of selecting the appropriate subcontractor to complete the assigned works, the Group generally provides the potential subcontractors with detailed method of works setting out methods of delivering and distributing materials and for accessing, installing, finishing and protecting the works so as to ensure the safety and quality standards are maintained all the times throughout the construction of the project. Such potential subcontractors are required to submit their programme, labour and plant forecast, submission and material delivery schedule for our consideration and tender preparation. The Group’s tendering team will work out the composition of members of management and project teams and the manpower, subcontractors (if applicable), materials and equipment required for the project and prepare a tender proposal, which will then be submitted to the Group’s management team for approval. Based on the above, the Group will put together a draft tender proposal in accordance with the tender document after its approved analysis. The Group may make cost adjustments where necessary based on its past experience on the possibility of having variation orders and prevailing market conditions.

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LETTER FROM THE BOARD

pricing trend of raw materials, the amount of work to be undertaken by the Group’s subcontractors, and the likelihood of any material deviation of the actual cost from the Group’s estimation having regard to the price trend of key cost components and the prevailing market conditions. In determining the actual gross profit margin to be achieved for a project to be tendered for, the tendering team of the Group will analyse the range of target gross profit margin of past tenders secured by the Group which are similar in terms of technical aspect, project size and construction schedule. In addition, the tendering team of the Group will perform market assessment such as the expected trend on major cost components, the Group’s competitiveness and the prevailing market conditions. The tender proposal (including the actual gross profit margin to be achieved) will then be submitted to the management team of the Group for approval. Such internal assessment and approval process is adopted by the Group for its projects in general, including the projects with the Melco Group and other customers which are independent third parties.

For reference, the gross profit margin for the Group’s structural steelworks, civil engineering construction and fitting out and renovation works was approximately 28.4%, 25.6% and 21.2% for projects with independent third parties, and approximately 20.8%, 31.7% and 22.2% for projects with the Melco Group, for the three years ended 31 December 2017, respectively, signifying a general downward trend. In 2018, the Group is required to adopt a more competitive pricing strategy in tendering for projects due to intense market competition, and also to subcontract some of the works in order to complete the works in a timely manner due to shortage of construction workers in Macau, both of which represent downward pressure on the Group’s profit margin. Thus, although historically the Group was able to achieve a higher gross profit margin, the Directors believe that the general target to achieve a gross profit margin of around 15% for the Project and Supply Works as stated above is fair and reasonable and the actual gross profit margin to be achieved for each project as determined based on the internal approval process as described above will be no more favourable to the Melco Group than those available to independent third parties.

The above costing and pricing analysis and tender preparation process are undertaken with a view to ensuring that the underlying transactions will be conducted in the ordinary course of the Group’s business and the terms in the tender proposal will be normal commercial terms and no more favourable to COD Resorts and/or the SC Companies than terms available to other independent project owners.

Variation orders

It is envisaged that from time to time and as required, individual variation orders may be entered into between the Group (on one hand) and COD Resorts, the SC Companies and/or their respective affiliates (on the other hand). Each individual variation order will set out the scope of, and the fee (if any) for, the Project and Supply Works and any detailed specifications which may be relevant to the services. The terms of the orders will be on normal commercial terms and will be no more favourable to COD Resorts and/or the SC Companies than those available to other independent project owners. As these variation orders

– 11 –

LETTER FROM THE BOARD

will be entered into in connection with and will be of similar nature with the Project and Supply Works, they do not constitute new categories of connected transactions as far as Listing Rules are concerned.

III. NEW COD FRAMEWORK AGREEMENT

On 31 July 2018, EHY Construction and Engineering (an indirect wholly-owned subsidiary of the Company and as the contractor) entered into the New COD Framework Agreement with COD Resorts (as the employer) for the provision of additional Melco Project and Supply Works for the Melco Hotels for a term from 1 July 2018 to 30 June 2021 (both days inclusive) subject to individual works order(s) as may be issued by or on behalf of COD Resorts from time to time and a maximum contract amount of HK$600 million (equivalent to approximately MOP618 million) for all the works orders (including variation orders) as may be issued thereunder.

Details of the principal terms of the New COD Framework Agreement are set out below:

Date

31 July 2018

Parties

(i) EHY Construction and Engineering as the contractor
(ii) COD Resorts Limited as the employer

Term

1 July 2018 to 30 June 2021, subject to early termination by either party by giving prior written notice to the other party.

Subject matter

EHY Construction and Engineering typically enters into individual contracts with COD Resorts for the provision of Melco Project and Supply Works on project-by-project basis after going through a tendering process.

Pursuant to the New COD Framework Agreement, EHY Construction and Engineering as the contractor shall provide the Melco Project and Supply Works for the Melco Hotels, including structural works to be executed, services to be performed and/or goods to be supplied (including all temporary work of every kind required or reasonably inferable for the construction, completion and maintenance of the aforesaid works) as may be ordered by or on behalf of COD Resorts from time to time pursuant to the written order(s) signed by the project manager of COD Resorts (or such project manager’s representative) and served on EHY

– 12 –

LETTER FROM THE BOARD

Construction and Engineering. Each works order shall specify, among others, the valuation (including a schedule of rates), specifications and contract drawings for the works to be performed by EHY Construction and Engineering.

The aggregate contract amount of all works orders (including variation orders) issued under the New COD Framework Agreement during its term shall be capped at HK$600 million (equivalent to approximately MOP618 million). The maximum contract amount of HK$600 million has been determined after arm’s length negotiation between the parties taking into account, among other matters, (i) the historical transaction amount of Melco Project and Supply Works provided by EHY Construction and Engineering to COD Resorts; (ii) the contracts awarded to EHY Construction and Engineering by COD Resorts in relation to Melco Project and Supply Works that were mainly commenced in 2017 and mainly completed in 2018; (iii) the number and scale of additional alteration and addition (A&A) projects which may be demanded by COD Resorts over the next three years; and (iv) an additional buffer for any further variation orders and requests from the Melco Group as set out under ‘‘V. Proposed annual caps for the Project and Supply Works and its basis of determination’’ below. The Company expects the bulk of the underlying contracts will be entered into in 2019 and 2020 as the renovation and rebranding of one of the Melco Hotels has just commenced. The amount of work to rebrand and renovate is expected to involve (i) demolition of existing facilities such as partition, facade, mechanical, electrical and plumbing systems; (ii) structural modifications; (iii) new fittings and partition of hotel rooms; and (iv) installation of new facade. As the rebranding and renovation is expected to be large scale in nature, a significant annual cap would be needed if the Group successfully secures some of the aforesaid works.

In the event that EHY Construction and Engineering, in its reasonable opinion, determines that the annual caps for the provision of the Melco Project and Supply Works (including but not limited to those to be provided under the New COD Framework Agreement) as may be announced by the Company and (where required) approved by the Shareholders pursuant to the Listing Rules from time to time for any accounting year may be exceeded, EHY Construction and Engineering may issue a written notice to the project manager of COD Resorts to withhold acceptance or performance of any further works order under the New COD Framework Agreement that may cause the relevant annual caps to be exceeded pending compliance by the Company with the applicable requirements under the Listing Rules.

Pricing and payment terms

The Group will adopt the pricing policy as set out under ‘‘II. Project and Supply Works — Pricing policy’’ above in relation to the preparation of tender proposals for the provision of Melco Project and Supply Works as contemplated under the New COD Framework Agreement. It is expected that EHY Construction and Engineering will submit tender proposals in response to the inquiries or invitations from COD Resorts from time to time, and works orders will be awarded to EHY Construction and Engineering by COD Resorts after

– 13 –

LETTER FROM THE BOARD

going through a competitive tendering process, where the terms and conditions of the works order will be based on the relevant tender proposal and/or award in line with the New COD Framework Agreement.

Pursuant to the New COD Framework Agreement, EHY Construction and Engineering shall submit to the project manager of COD Resorts, on a monthly basis, signed statement(s) of any claim for interim payments in respect of the services provided and/or the works completed and other sums due to EHY Construction and Engineering under the relevant works order(s). The project manager of COD Resorts will verify such payment request and shall within 14 days issue a payment certificate to EHY Construction and Engineering to certify the services performed and/or works completed by EHY Construction and Engineering, following which COD Resorts shall pay to EHY Construction and Engineering the amount due within 21 days.

IV. HISTORICAL TRANSACTION AMOUNTS FOR PROJECT AND SUPPLY WORKS

The Group’s revenue derived from the Melco Project and Supply Works and the SC Project and Supply Works for the three years ended 31 December 2017 and the six months ended 30 June 2018 are set out as follows:

Revenue derived from the Melco Project and Supply Works Revenue derived from the SC Project and Supply Works Total	For the year ended 31 December 2015 5.7 47.6 53.3	For the year ended 31 December 2016 5.7 12.0 17.7	(MOP in million) For the year ended 31 December 2017 For the six months ended 30 June 2018 (Unaudited) 336.1 111.0 38.6 12.9 374.7 123.9	(MOP in million) For the year ended 31 December 2017 For the six months ended 30 June 2018 (Unaudited) 336.1 111.0 38.6 12.9 374.7 123.9
				123.9

The existing annual caps for the Project and Supply Works for the year ending 31 December 2018 had not been exceeded as at 30 June 2018.

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LETTER FROM THE BOARD

V. PROPOSED ANNUAL CAPS FOR THE PROJECT AND SUPPLY WORKS AND ITS BASIS OF DETERMINATION

Based on the latest information available to the Company and in light of the entering into of the New COD Framework Agreement, the Board is of the view that the existing annual cap for the provision of the Melco Project and Supply Works and the SC Project and Supply Works for the year ending 31 December 2018 as set out in the Prospectus will not be sufficient and there is a need to set new annual caps for the provision of the Melco Project and Supply Works and the SC Project and Supply Works for the years ending 31 December 2019, 2020 and 2021.

The Board has resolved to propose the revision of the existing annual cap for the year ending 31 December 2018 (the ‘‘Revised Annual Cap I for 2018’’), and further propose the adoption of the new annual caps for the years ending 31 December 2019, 2020 and 2021 (the ‘‘New Annual Caps I for 2019, 2020 and 2021’’, together with the Revised Annual Cap I for 2018, the ‘‘Proposed Annual Caps I’’) as follows, in each case for approval by the Independent Shareholders by way of separate resolutions at the EGM:

(MOP in million)

Transactions in relation to the Melco Project and Supply Works Transactions in relation to the SC Project and Supply Works Total Notes:	Existing annual caps For the year ending 31 December 2018 115.4 13.0 128.4		Proposed annual caps For the year ending 31 December 2019 For the year ending 31 December 2020 For the year ending 31 December 2021 1 360.5 (Note 6) 288.4 (Note 7) 170.8 (Notes 1 and 8) 3 41.9 (Note 4 and 5) Nil Nil 402.4 288.4 170.8
		For the year ending 31 December 2018 181.0 (Notes and 2) 18.2 (Notes and 5) 199.2

The proposed annual caps for the years ending 31 December 2018 and 2021 are revised from MOP243.6 million and MOP108.2 million as stated in the Announcement to MOP181.0 million and MOP170.8 million, respectively. The revision is made due to the change in circumstances, including, without limitation, the change in schedule for potential projects for one hotel under Melco Hotels.

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LETTER FROM THE BOARD

The increase in the annual cap for the year ending 31 December 2018 in respect of the Melco Project and Supply Works amounts to approximately MOP65.6 million, in respect of which approximately MOP45.6 million is attributable to potential transactions under the New COD Framework Agreement and approximately MOP20.0 million is attributable to new and expected variation orders on existing contracts (as set out on page 8 of this circular) after the Listing. The potential transactions under the New COD Framework Agreement include the tender-submitted projects with an expected aggregate initial contract sum of MOP32.6 million for, among others, renovation and fitting out works for the kitchen facilities, swimming pool, lighting and electrical system for City of Dreams and Altira Macau in Taipa, Macau which are expected to commence in the fourth quarter of 2018. The increase attributable to new and expected variation orders of approximately MOP20 million has taken into account (i) the variation orders and requests received from the Melco Group after the Listing of MOP13.4 million and (ii) an additional buffer of MOP6.6 million, representing approximately 5% of the total value of existing secured and ongoing contracts for the year ending 31 December 2018, for any further variation orders and requests from the Melco Group as mentioned below. As the 5% buffer has been determined with reference to the actual variation orders and requests received from the Melco Group after the Listing (amounted to MOP13.4 million) which represented approximately 12% of the total contract amount of MOP111.1 million under the existing annual cap, the Directors consider such buffer to be fair and reasonable.
The increase in the annual cap for the year ending 31 December 2018 in respect of the SC Project and Supply Works amounts to approximately MOP5.2 million, which is attributable to new and expected variation orders on existing contracts after the Listing. Such increase has taken into account (i) the variation orders and requests received from the Melco Group after the Listing and (ii) an additional buffer for any further variation orders and requests from the Melco Group as mentioned below.
The proposed annual cap for the year ending 31 December 2019 has taken into account (i) a tender-submitted project for certain refurbishment work for the SC Hotel with an estimated initial contract sum of MOP2.6 million; and (ii) the remaining amount of approximately MOP39.3 million which represented the expected renovation works for the entrance area, retail area and entertainment facilities of the SC Hotel to be commenced at different times in 2019 subject to the requirements of the SC Project Owner with the aggregate initial contract sum of up to MOP50 million based on the current estimate of the management team of the Group and the historical transaction amounts for SC Project and Supply Works for the year ended 31 December 2017 of MOP38.6 million and the proposed annual cap for the year ending 31 December 2018 of MOP18.2 million.
The proposed annual caps for the transactions in relation to the SC Project and Supply Works for the years ending 31 December 2018 and 2019 are revised from MOP417.4 million and MOP373.4 million as stated in the Announcement to MOP18.2 million and MOP41.9 million, respectively. The revision is made due to the change in circumstances, including, without limitation, the reduction in the expected amount of continuing connected transactions arising from the provision of SC Project and Supply Works as a result of the change in the arrangement by which the Group intends to participate in a potential project for the SC Project and Supply Works.
This comprises (i) the estimated initial contract sum of approximately MOP257.5 million for potential projects for demolition of existing facilities (amounting to approximately MOP89.0 million), structural modifications (amounting to approximately MOP58.5 million) and new fittings and partitioning of hotel rooms (amounting to approximately MOP110.0 million) for one hotel under Melco Hotels which are located in Taipa, Macau; and (ii) the possible variation orders of MOP103.0 million in aggregate based on approximately 40% of the estimated initial contract value of such projects with reference to the actual variation orders (which amounted to approximately 40% of the initial contract sum) received by the Group for Melco Project and Supply Works that were ongoing as at the Latest Practicable Date. As the 40% buffer has been determined with reference to the historical ratio of the actual variation orders to the initial contract sum for Melco Project and Supply Works that were ongoing up to the Latest Practicable Date, the Directors consider that the above estimated amount of variation orders to be fair and reasonable.

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LETTER FROM THE BOARD

This comprises (i) the estimated initial contract sum of approximately MOP206.0 million for potential projects for new fittings and partitioning of hotel rooms (amounting to approximately MOP124.0 million) and installation of new facade (amounting to approximately MOP82.0 million) for one hotel under Melco Hotels which is located in Taipa, Macau; and (ii) the possible variation orders of MOP82.4 million in aggregate based on approximately 40% of the estimated initial contract value of such projects with reference to the actual variation orders (which amounted to approximately 40% of the initial contract sum) received by the Group for Melco Project and Supply Works that were ongoing as at the Latest Practicable Date. As the 40% buffer has been determined with reference to the historical ratio of the actual variation orders to the initial contract sum for Melco Project and Supply Works that were ongoing up to the Latest Practicable Date, the Directors consider that the above estimated amount of variation orders to be fair and reasonable.
This comprises (i) the estimated initial contract sum of approximately MOP122.0 million for potential projects for installation of new facade for one hotel under Melco Hotels which is located in Taipa, Macau; and (ii) the possible variation orders of MOP48.8 million in aggregate based on approximately 40% of the estimated initial contract value of such projects with reference to the actual variation orders (which amounted to approximately 40% of the initial contract sum) received by the Group for Melco Project and Supply Works that were ongoing as at the Latest Practicable Date. As the 40% buffer has been determined with reference to the historical ratio of the actual variation orders to the initial contract sum for Melco Project and Supply Works that were ongoing up to the Latest Practicable Date, the Directors consider that the above estimated amount of variation orders to be fair and reasonable.

The Proposed Annual Caps I (including the revision of the existing annual caps for the year ending 31 December 2018 and the adoption of the new annual caps for the years ending 31 December 2019, 2020 and 2021) have been determined primarily based on the following factors: (i) the aggregate contracted amount of approximately MOP9.3 million and MOP1.8 million for the Melco Project and Supply Works and SC Project and Supply Works, respectively, which had been secured by the Group up to the Latest Practicable Date and in respect of which revenue is expected to be recognised during the year ending 31 December 2018; (ii) the tenders to be secured in respect of transactions contemplated under the New COD Framework Agreement in respect of the four years ending 31 December 2021, including new projects to be launched by the Melco Hotels for the years ending 31 December 2018, 2019, 2020 and 2021; (iii) the potential new projects that the Company will bid for which will be launched by the SC Companies; and (iv) a sufficient buffer for both the Melco Project and Supply Works and SC Project and Supply Works to ensure smooth running of the projects taking into account (a) the certification and payment schedule between the Group (on one hand) and COD Resorts and/or the SC Companies (on the other hand) pursuant to the underlying contracts, which may accelerate or delay recognition of revenue by the Group; (b) potential increase in materials and labour costs leading to an increase in the project sum, having regard to the inflation rate in Macau during the last five years and the general upward trend of material and labour costs in Macau as seen in recent year; and (c) ad-hoc requests, redecoration and changes to the original plans or contracted scope of work of the Melco Hotels and/or the SC Hotel that the Company cannot presently foresee.

If the transactions in relation to the Melco Project and Supply Works and SC Project and Supply Works for any of the above years exceed the relevant Proposed Annual Caps I, the Company will fully comply with all the relevant requirements as stipulated under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

VI. FACILITY MANAGEMENT SERVICES

As set out in the Prospectus, the Group provides facility management, alteration and maintenance works and services on a project-by-project basis to certain connected persons of the Company in the ordinary course of business of the Group, namely (i) the provision of the Melco Facility Management Services to the Melco Project Owners for the Melco Hotels and (ii) the provision of the SC Facility Management Services to the SC Project Owner for the SC Hotel.

Scope of the Facility Management Services

The scope of Facility Management Services includes facilities management, alteration and maintenance works and services for the Melco Hotels and/or the SC Hotel, which generally involve the provision of facilities operation and maintenance management, alteration, upgrading and maintenance works of various buildings, properties and their components and high voltage power substations and systems and emergency repairs.

Project contracts

The tables below summarise the Melco Facility Management Services and the SC Facility Management Services that were ongoing as at the Latest Practicable Date:

Melco Facility Management Services

					Estimated remaining
					contract sum and	Anticipated time of
	Date of contract	Parties		Scope of work	variation orders	completion
1.	6 October 2017	(a)	EHY Construction and	Provision of operation and	MOP69.0 million	Second quarter of 2020
			Engineering	maintenance services for		(Note)
		(b)	COD Resorts Limited	energy centres and
				mechanical, electrical and
				plumbing systems of hotel
				complex
2.	6 October 2017	(a)	EHY Construction and	Provision of operation and	MOP30.4 million	Second quarter of 2020
			Engineering	maintenance services for		(Note)
		(b)	Altira Resorts Limited	energy centres and
				mechanical, electrical and
				plumbing systems of hotel
				complex
3.	1 November 2017	(a)	EHY Construction and	Provision of door maintenance	MOP4.6 million	Fourth quarter of 2019
			Engineering	services for hotel complex		(Note)
		(b)	COD Resorts Limited
4.	1 January 2018	(a)	EHY Construction and	Provision of maintenance and	MOP3.2 million	Fourth quarter of 2019
			Engineering	repair services of office		(Note)
		(b)	Golden Future
			(Management Services)
			Limited

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LETTER FROM THE BOARD

Date of contract
Parties
Scope of work
5.
1 November 2017
(a)
EHY Construction and
Engineering
(b)
Altira Resorts Limited
Provision of door maintenance
services for hotel complex
6.
1 December 2017
(a)
EHY Construction and
Engineering
(b)
Altira Resorts Limited
Provision of maintenance
services for lighting system
of hotel complex
7.
29 September 2017
(a)
EHY Construction and
Engineering
(b)
COD Resorts Limited
Provision of maintenance
services for uninterruptible
power supply system of
hotel complex
8.
20 June 2018
(a)
EHY Construction and
Engineering
(b)
COD Resorts Limited
Provision of repair and
maintenance services for
hotel rooms, guest lift lobby,
guest floor corridor and
gaming area at the Melco
Hotels
9.
20 June 2018
(a)
EHY Construction and
Engineering
(b)
Altira Resorts Limited
Provision of repair and
maintenance services for
hotel rooms, guest lift lobby,
guest floor corridor and
gaming area at one of the
Melco Hotels
10.
10 October 2018
(a)
EHY Construction and
Engineering
(b)
Melco Resorts (Macau)
Limited
Provision of electrical and
mechanical maintenance
services at Mocha sites
Total:

Estimated remaining
contract sum and
variation orders
Anticipated time of
completion
MOP1.3 million
Fourth quarter of 2019
(Note)
MOP480,000
Fourth quarter of 2019
(Note)
MOP125,000
Fourth quarter of 2019
MOP3.1 million
Fourth quarter of 2019
MOP1.0 million
Fourth quarter of 2019
MOP1.5 million
Fourth quarter of 2020
MOP114.7 million

Note: The parties have options to renew the term of services for a further term of two years, subject to the parties agreeing to such renewal and the applicable requirements of the Listing Rules.

SC Facility Management Services

					Estimated remaining
					contract sum and	Anticipated time of
	Date of contract	Parties		Scope of work	variation orders	completion
1.	6 October 2017	(a)	EHY Construction and	Provision of operation and	MOP46.5 million	Third quarter of 2020
			Engineering	maintenance services for		(Note)
		(b)	Studio City Hotels	energy centres and
			Limited	mechanical, electrical and
				plumbing systems of hotel
				complex

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LETTER FROM THE BOARD

Date of contract
Parties
Scope of work
2.
1 November 2017
(a)
EHY Construction and
Engineering
(b)
Studio City Hotels
Limited
Provision of door maintenance
services for hotel complex
3.
17 January 2018
(a)
EHY Construction and
Engineering
(b)
Studio City Hotels
Limited
Provision of repair and
maintenance services for
hotel rooms, guest lift lobby,
guest floor corridor and
gaming area at the SC Hotel
4.
13 September 2017
(a)
EHY Construction and
Engineering
(b)
Studio City Hotels
Limited
Provision of maintenance
services of partition wall at
the SC Hotel
5.
29 September 2017
(a)
EHY Construction and
Engineering
(b)
Studio City Hotels
Limited
Provision of maintenance
services for uninterruptible
power supply system of
hotel complex
Total:

Estimated remaining
contract sum and
variation orders
Anticipated time of
completion
MOP4.4 million
Fourth quarter of 2019
(Note)
MOP0.2 million
Fourth quarter of 2019
MOP181,740
Fourth quarter of 2019
MOP52,000
Fourth quarter of 2019
MOP51.3 million

Note: The parties have options to renew the term of services for a further term of two years, subject to the parties agreeing to such renewal and the applicable requirements of the Listing Rules.

The salient terms of the project contracts in relation to Facility Management Services have been set out in the section headed ‘‘Business — Customers — Salient terms of project contracts with customers’’ on pages 170 to 171 of the Prospectus.

Potential projects

The Company envisages that the Group may potentially provide Melco Facility Management Services for the Melco Hotels to the Melco Project Owners and SC Facility Management Services for the SC Hotel to the SC Project Owner during the years ending 31 December 2018, 2019 and 2020 with an aggregate annual transaction amount of approximately MOP0.7 million, MOP9.1 million and MOP18.4 million respectively which are not yet covered by any existing written contracts but are included in the Proposed Annual Caps II. Such potential transactions form part of the Waiver CCTs. The Group will ensure that such potential transactions, if they materialise, will be within the scope set out under ‘‘VI. Facility Management Services — Scope of the Facility Management Services’’ above and the terms of such transactions will be determined in compliance with the pricing policy set out under ‘‘VI. Facility Management Services — Pricing Policy’’ below subject to the approval by the Board (including the independent non-executive Directors).

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LETTER FROM THE BOARD

Pricing policy

The price for the Facility Management Services to be charged by the Group is determined on a project-by-project basis through the tendering process, and is priced on a cost-plus basis. In formulating prices for the Facility Management Services, the Group takes into account the costs for carrying out the services with reference to the nature and complexity of the projects, maintenance schedules, labour costs and other factors. The major cost components for the provision of the Facility Management Services are direct labour costs and subcontracting costs, which account for approximately 90% of the total costs.

In determining the terms of each tender, the Group typically conducts a preliminary costing and pricing analysis based on the data and information in our database which collects detailed financial information of the projects the Group has undertaken, such as revenue, profits, costs and expenses on manpower, subcontractors (if applicable), materials, machineries and equipment required for each project and the prevailing market prices of the same. In this connection, the Group’s finance department will collect the detailed financial information of similar projects that the Group has undertaken in the past, such as costs and expenses on manpower, materials, subcontractors, machineries and equipment of such projects, while the Group’s tendering team will collect the specification of similar projects that the Group has undertaken in the past, such as the nature and quantity of materials required and the amount of work to be undertaken by the Group’s subcontractors and/or construction workers. If the information in the Group’s database is not sufficient to make a feasible costing analysis, the Group will then secure quotations from its suppliers of materials and subcontractors (if applicable) to facilitate the Group’s cost estimation and budgeting so as to lock up the price of materials and/or subcontractors. As part of the Group’s internal control policy, the Group will typically obtain three quotations from its suppliers of materials and/or subcontractors before securing a purchase order. For the purpose of selecting the appropriate subcontractor to complete the assigned works, the Group generally provides the potential subcontractors with detailed scope of work and the frequency of maintenance services. The Group’s tendering team will work out the composition of members of management and project teams and the manpower, subcontractors (if applicable), materials and equipment required for the project and prepare a tender proposal, which will then be submitted to the Group’s management team for approval. Based on the above, the Group will put together a draft tender proposal in accordance with the tender document after its approved analysis. The Group may make cost adjustments where necessary based on its past experience on the possibility of having variation orders and prevailing market conditions.

The Group typically prepares its tender proposal based on a certain percentage of markup over its estimated cost, with a general target to achieve a gross profit margin of around 10% which also applies to the projects of facilities management, alteration and maintenance works and services for other customers who are independent third parties of the Group. The Group will review such target at least annually and from time to time based on the data and information in its database with reference to the prevailing market conditions. The percentage of markup may vary from project to project, having taken into account factors including the

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LETTER FROM THE BOARD

nature and scale of the project, the prospect of obtaining future contracts from such customer, any potential positive publicity on the Group by undertaking the project, the amount of work to be undertaken by the Group’s subcontractors (if applicable), and the likelihood of any material deviation of the actual cost from the Group’s estimation having regard to the price trend of key cost components and the prevailing market conditions. In determining the actual gross profit margin to be achieved for a project to be tendered for, the tendering team of the Group will analyse the range of target gross profit margin of past tenders secured by the Group which are similar in terms of technical aspect, project size and works schedule. In addition, the tendering team of the Group will also perform market assessment such as the expected trend on major cost components, the Group’s competitiveness and the prevailing market conditions. The tender proposal (including the actual gross profit margin to be achieved) will then be submitted to the management team of the Group for approval. Such internal assessment and approval process is adopted by the Group for its projects in general, including the projects with the Melco Group and other customers which are independent third parties.

For reference, the gross profit margin for the Group’s facilities management, alteration and maintenance works and services was approximately 23.7%, 27.8% and 13.6% for projects with independent third parties, and nil, nil and 13.2% for projects with the Melco Group, for the three years ended 31 December 2017, respectively, signifying a general downward trend. Historically, the facility management, alteration and maintenance works and services provided by the Group in the past three years mainly involved installation and maintenance of high tension electrical and power systems, but the expected Facility Management Services to be provided to the Melco Group included maintenance of a large number of smaller items such as doors, ventilation and air conditioning system, plumbing and drainage, etc. for which the Group typically could not command a high profit margin. In addition, the Group also finds it increasingly costly to employ additional local workers due to the Macau government’s limitation on the number of foreign workers, resulting in the Group having to engage subcontractors to complete some of the tasks at a reduced profit to the Group. Thus, although historically the Group was able to achieve a higher gross profit margin, the Directors believe that the general target to achieve a gross profit margin of around 10% for the Facility Management Services as stated above is fair and reasonable and the actual gross profit margin to be achieved for each project as determined based on the internal approval process as described above will be no more favourable to the Melco Group than those available to independent third parties.

The above costing and pricing analysis and tender preparation process are undertaken with a view to ensuring that the underlying transactions will be conducted in the ordinary course of the Group’s business and the terms in the tender proposal will be normal commercial terms and no more favourable to the Melco Project Owners and/or the SC Project Owner than terms available to other independent project owners.

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LETTER FROM THE BOARD

Variation orders

It is envisaged that from time to time and as required, individual variation orders may be required to be entered into between the Group (on one hand) and the Melco Project Owners, the SC Project Owner and/or their respective affiliates (on the other hand) during the course of the provision of Facility Management Services by the Group. Each individual variation order will set out the scope of, and the fee (if any) for, the maintenance and repair services required and any detailed specifications which may be relevant to the services. The Group will ensure that the terms of the orders will be on normal commercial terms and will be no more favourable to the Melco Project Owners and/or the SC Project Owner than is available to other independent project owners. As these variation orders will be entered into in connection with and will be of similar nature with the Facility Management Services, they do not constitute new categories of connected transactions as far as Listing Rules are concerned.

VII. HISTORICAL TRANSACTION AMOUNTS FOR FACILITY MANAGEMENT SERVICES

The Group’s revenue derived from the Melco Facility Management Services and the SC Facility Management Services for the three years ended 31 December 2017 and the six months ended 30 June 2018 are set out as follows:

(MOP in million)

Revenue derived from the Melco Facility Management Services Revenue derived from the SC Facility Management Services Total	For the year ended 31 December 2015 Nil Nil Nil	For the year ended 31 December 2016 Nil Nil Nil	For the year ended 31 December 2017 16.7 4.3 21.0	For the six months ended 30 June 2018 (Unaudited) 18.2 10.7
				28.9

The existing annual caps for the Facility Management Services for the year ending 31 December 2018 had not been exceeded as at 30 June 2018.

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LETTER FROM THE BOARD

VIII.PROPOSED ANNUAL CAPS FOR FACILITY MANAGEMENT SERVICES AND ITS BASIS OF DETERMINATION

Based on the latest information available to the Company, the Board is of the view that the existing annual caps for Melco Facility Management Services and SC Facility Management Services for the years ending 31 December 2018, 2019 and 2020 as set out in the Prospectus will not be sufficient. The Board has resolved to propose the revision of the existing annual caps for the years ending 31 December 2018, 2019 and 2020 (the ‘‘Proposed Annual Caps II’’) as follows for approval by the Independent Shareholders at the EGM:

(MOP in million)

Transactions in relation to the Melco Facility Management Services Transactions in relation to the SC Facility Management Services Total	For the year ending 31 December 2018 2019 2020 Existing annual caps Proposed annual caps Existing annual caps Proposed annual caps Existing annual caps Proposed annual caps 30.4 56.2 (Note 1) 28.8 56.9 (Note 3) 12.7 56.3 (Note 5) 19.8 26.1 (Note 2) 19.4 28.7 (Note 4) 12.8 31.8 (Note 6) 50.2 82.3 48.2 85.6 25.5 88.1

Notes:

The increase in the annual cap for the year ending 31 December 2018 in respect of the Melco Facility Management Services amounts to approximately MOP25.8 million. Such increase has taken into account (i) the operation and maintenance services for energy centres, mechanical, electrical and plumbing systems and door maintenance services to be provided for Morpheus in the City of Dreams in Taipa, Macau of approximately MOP6.6 million; (ii) the variation orders received from the Melco Project Owners after the Listing in the aggregate amount of MOP14.3 million; and (iii) an additional buffer of MOP4.9 million to ensure smooth running of the projects, taking into account any further variation orders and new requests from the Melco Project Owners and other factors mentioned in the paragraph below. The Directors consider that the above estimated buffer amount to be fair and reasonable.
The increase in the annual cap for the year ending 31 December 2018 in respect of the SC Facility Management Services amounts to approximately MOP6.3 million. Such increase has taken into account the variation orders received from the SC Project Owner after the Listing in the aggregate amount of MOP6.3 million.

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LETTER FROM THE BOARD

The increase in the annual cap for the year ending 31 December 2019 in respect of the Melco Facility Management Services amounts to approximately MOP28.1 million. Such increase has taken into account (i) the operation and maintenance services for energy centres, mechanical, electrical and plumbing systems and door maintenance services to be provided for Morpheus in the City of Dreams in Taipa, Macau of approximately MOP12.2 million; (ii) the variation orders received from the Melco Project Owners after the Listing in the aggregate amount of MOP3.5 million; (iii) the estimated initial contract sum of MOP9.1 million for various maintenance services for City of Dreams, Altira Macau and various Mocha Clubs in Macau based on tenders submitted by the Group that are ongoing as at the Latest Practicable Date with expected project commencement in the first quarter of 2019; and (iv) an additional buffer of MOP3.3 million to ensure smooth running of the projects, taking into account any further variation orders and new requests from the Melco Project Owners and other factors mentioned in the paragraph below. The Directors consider that the above estimated buffer amount to be fair and reasonable.
The increase in the annual cap for the year ending 31 December 2019 in respect of the SC Facility Management Services amounts to approximately MOP9.3 million. Such increase has taken into account (i) the estimated initial contract sum of MOP7.0 million for various maintenance services for Studio City in Macau based on tenders submitted by the Group that are ongoing as at the Latest Practicable Date with expected project commencement in the first quarter of 2019; and (ii) an additional buffer of MOP2.3 million to ensure smooth running of the projects, taking into account any further variation orders and new requests from the SC Project Owner and other factors mentioned in the paragraph below. The Directors considered that the above estimated buffer amount to be fair and reasonable.
The increase in the annual cap for the year ending 31 December 2020 in respect of the Melco Facility Management Services amounts to approximately MOP43.6 million. Such increase has taken into account (i) the operation and maintenance services for energy centres, mechanical, electrical and plumbing systems and door maintenance services to be provided for Morpheus in the City of Dreams in Taipa, Macau of approximately MOP12.2 million; (ii) the variation orders received from the Melco Project Owners after the Listing of MOP0.8 million; (iii) the extension of service term for a further term of two years under the existing written agreements (as set out on pages 18 to 19 of this circular) of approximately MOP15.7 million; (iv) the estimated initial contract sum of MOP8.4 million for various maintenance services for City of Dreams, Altira Macau and various Mocha Clubs in Macau based on tenders submitted by the Group that are ongoing as at the Latest Practicable Date with expected project commencement in the first quarter of 2019; and (v) an additional buffer of MOP6.5 million to ensure smooth running of the projects, taking into account any further variation orders and new requests from the Melco Project Owners and other factors mentioned in the paragraph below. The Directors consider that the above estimated buffer amount to be fair and reasonable.
The increase in the annual cap for the year ending 31 December 2020 in respect of the SC Facility Management Services amounts to approximately 19.0 million. Such increase has taken into account (i) the extension of service term for a further term of two years under the existing written agreements (as set out on pages 19 to 20 of this circular) of approximately MOP5.8 million; (ii) the estimated initial contract sum of MOP6.3 million for various maintenance services for Studio City in Macau based on tenders submitted by the Group that are ongoing as at the Latest Practicable Date with expected project commencement in the first quarter of 2019; and (iii) an additional buffer of MOP6.9 million for any further variation orders and new requests from the SC Project Owner. Such buffer is determined with reference to the actual variation orders amounting to MOP6.3 million for SC Facility Management Services received from the SC Project Owner after the Listing, and after taking into account the possible general inflation in Macau up to 2020. The Directors considered that the above estimated buffer amount to be fair and reasonable.

The Proposed Annual Caps II have been determined primarily based on the following factors: (i) the aggregate contracted amounts of approximately MOP114.7 million and MOP51.3 million for the Melco Facility Management Services and SC Facility Management Services respectively which had been secured by the Group up to the Latest Practicable Date and in respect of which revenue is expected to be recognised in the three years ending 31 December 2020; (ii) the expected new

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LETTER FROM THE BOARD

facility management and maintenance projects in respect of the Melco Hotels and the SC Hotel for the years ending 31 December 2018, 2019 and 2020, including the potential new projects that the Company will bid for which will be launched by the SC Companies; (iii) the recently opened hotel under Melco Hotels which the Group is targeting to provide the full suite of facility management services, such as plumbing, ventilation and electrical systems; and (iv) a sufficient buffer for both the Melco Facility Management Services and SC Facility Management Services to ensure smooth running of the projects, taking into account (a) the wear and tear of the systems, equipment and facilities within the Melco Hotels and the SC Hotel over time; (b) the increasing frequency of maintenance works and emergency works as a result of (a) above; (c) the increase in ad-hoc purchase of parts and components needed to be replaced as a result of (a) above; (d) potential increase in materials and labour costs leading to an increase in the project sum, having regard to the inflation rate in Macau during the last five years and the general upward trend of material and labour costs in Macau as seen in recent years; and (e) ad-hoc requests and changes to the original plans of or contracted scope of services required by the Melco Project Owners and/or the SC Project Owner that the Company cannot presently foresee.

If the transactions in relation to the Melco Facility Management Services and SC Facility Management Services for any of the above years exceed the relevant Proposed Annual Caps II, the Company will fully comply with all the relevant requirements as stipulated under Chapter 14A of the Listing Rules.

IX. INTERNAL CONTROL MEASURES

To safeguard the interest of the Group and the Shareholders under the continuing connected transactions in relation to the Project and Supply Works and Facility Management Services, the Company has adopted the following internal control measures:

a. the relevant management personnel of the Group will closely monitor the transactions in relation to the Project and Supply Works and Facility Management Services such as active monitoring of the progress of the underlying projects and the process by which the works and/or services performed by the Group will be certified by the relevant project owner(s) or manager(s) for payment purposes, as well as the tenders submitted to and the contracts awarded by the Melco Group on monthly basis, to ensure that the total transaction amount does not exceed the stipulated annual caps;
b. prior to submitting tenders/quotations for the Project and Supply Works (including the works anticipated under the New COD Framework Agreement) and/or Facility Management Services, the relevant management personnel of the Group shall ensure that the terms are negotiated on an arm’s length basis, are in compliance with the pricing policy of the Group as set out under ‘‘II. Project and Supply Works — Pricing Policy’’ and ‘‘VI. Facility Management Services — Pricing Policy’’ above, and are normal commercial terms that are no more favourable to the relevant connected persons than the terms with independent project owners. To ensure that the Group will conduct its costing and pricing analysis and adjust its markup on the estimated costs (where appropriate) with reference to normal commercial terms and the prevailing market conditions, the

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LETTER FROM THE BOARD

Group will collect information on the costs and expenses of similar projects undertaken by the Group in preceding years and obtain necessary update information by seeking quotations for major materials (such as steel) or subcontracting services from at least three suppliers or subcontractors (as the case may be) based on the specific circumstances and requirements of the upcoming projects to be tendered/quoted for.

c. depending on the terms and conditions of the contracts, individual variation orders may be required to be entered into between the Group and the Melco Group during the course of the provision of the Project and Supply Works and/or Facility Management Services by the Group. The value of the variation works is generally priced in accordance with the pre-agreed fee rate for variation works of a similar nature to those works as stated in the relevant contract of the project. If the variation order involves works which fall outside the scope of the relevant contract, a new fee pertaining to such variation works will have to be agreed. The relevant management personnel of the Group will ensure that the fees for the services required and any detailed specifications which may be relevant to the services shall be set out in each individual variation order, and that such terms will be normal commercial terms and no more favourable to the relevant connected persons than those available to independent project owners;
d. the relevant management personnel of the Group will conduct regular checks to review and assess whether the transactions contemplated under the Project and Supply Works and/or Facility Management Services are conducted in accordance with the terms set out in the underlying tender document(s), framework agreement(s) (including the New COD Framework Agreement) work order(s) and/or variation order(s) and whether the consideration for the transactions are fair and reasonable and in accordance with the pricing policies set out in such transaction documents;
e. prior to submitting tenders to, and/or entering into any agreements, work orders, and/or variation orders with, the Melco Group for any projects or services which falls outside the list of properties as identified by the Company or the scope of the Project and Supply Works as set out in ‘‘II. Project and Supply Works — Scope of the Project and Supply Works’’ above or the scope of the Facility Management Services as set out in ‘‘IV. Facility Management Services — Scope of the Facility Management Services’’ above, the relevant management personnel of the Group shall seek for the prior approval of the board of directors of the Company, including the independent non-executive directors of the Company. The board of directors of the Company shall ensure that the Company will comply with the applicable requirements under Chapter 14A of the Listing Rules in respect of such transactions, including (where applicable) compliance with the reporting, written agreement, announcement and/or shareholders’ approval requirements thereunder, prior to entering into such transactions. The board of directors of the Company shall consult with the compliance adviser of the Company and other external advisers (such as legal advisers), where appropriate, on a timely basis to ensure that necessary actions will be taken by the Company to comply with the Listing Rules;

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LETTER FROM THE BOARD

f. the Company’s external auditors will conduct an annual review of the transactions in relation to the Project and Supply Works and Facility Management Services to ensure the transaction amounts are within the annual caps and the transactions are in accordance with the terms of the underlying tender document(s), framework agreement(s) (including the New COD Framework Agreement) works order(s) and/or variation order(s); and
g. the independent non-executive Directors will conduct quarterly reviews of the status of the transactions in relation to the Project and Supply Works and Facility Management Services to ensure that the Group has complied with its internal approval process, the terms of the underlying tender document(s), framework agreement(s) (including the New COD Framework Agreement) works order(s) and/or variation order(s), and the relevant requirements under the Listing Rules.

The Directors are of the view that the above internal control measures are appropriate in ensuring that the transactions in relation to the Project and Supply Works and Facility Management Services will be conducted on normal commercial terms, will not be prejudicial to the interests of the Company and its minority Shareholders and in compliance with the relevant requirements under Chapter 14A of the Listing Rules.

X. REASONS FOR AND BENEFIT OF THE CONTINUING CONNECTED TRANSACTIONS

In light of the nature of the Macau civil engineering market that large projects are concentrated in the hands of a limited number of major entities and the fact that the Melco Group is a major casino owner and operator in Macau, the Group will continue to focus on developing and maintaining business relationship with its major customers, including the Melco Group and other major project owners and business partners in Macau, so as to capture project opportunities and create value for the Shareholders. In considering any potential new projects, the Group will take into account its available capacity in terms of financial resources and manpower to undertake such projects within the required timeframe, the profitability of such projects, the opportunity cost of forgoing other potential projects, as well as the long term development needs of the Group. The Directors consider that it is prudent for the Group to take a balanced approach by carefully assessing the potential project opportunities available from different project owners (including, among others, the Melco Group) and at the same time keep in view the level of the Group’s reliance on any single project owner (including, among others, the Melco Group), so as to balance profitability with the need to maintain an appropriately diversified revenue base with reference to the Group’s prevailing conditions and market trends.

The Board is of the view that the continuing connected transactions in relation to the Project and Supply Works (including those contemplated under the New COD Framework Agreement) and the Facility Management Services, including the Waiver CCTs, are essential to the business development of, and beneficial to, the Company. In forming such view, the Board has taken into account the following factors: (i) the Company expects to continue and maintain long-term business relationship with the Melco Group; and (ii) the revenue received by the Group from the Melco Group will continue to provide an additional, reliable and stable source of income for the Group.

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LETTER FROM THE BOARD

The Board believes that the Company will not become reliant on the Melco Group in terms of revenue and profits given that, (a) the revenue attributable to the Melco Group for each of the years ending 31 December 2018, 2019, 2020 and 2021 is targeted to be maintained to be no more than 50%, (b) the Group is actively negotiating with other customers on potential new projects and has a track record of securing new projects with other customers, (c) the Group’s services can be provided to other customers, and (d) the Group has demonstrated that it was profitable during the years ended 31 December 2015 and 2016 when relatively insignificant revenue was attributable to the Melco Group.

The Board (including the independent non-executive Directors) considers that: (i) the transactions in relation to the Project and Supply Works (including those contemplated under the New COD Framework Agreement) and the Facility Management Services, including the Waiver CCTs, are conducted on normal commercial terms which are no less favourable to the Company than those available from independent third parties, are entered into in the ordinary and usual course of business of the Company, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (ii) the Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

XI. LISTING RULES IMPLICATIONS

As at the Latest Practicable Date, each of the Melco Project Owners and the SC Companies was an indirect subsidiary of Melco International, which in turn was owned as to approximately 54.06% (including beneficial interest, interest of his controlled corporations and interest of a trust in which he is one of the beneficiaries and taken to have interest by virtue of the SFO) by Mr. Ho, one of the substantial shareholders of the Company. As such, each of the Melco Project Owners and the SC Companies is an associate of Mr. Ho and therefore a connected person of the Company, and the provision of the Project and Supply Works and the provision of the Facility Management Services constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As the transactions in relation to the Melco Project and Supply Works and the SC Project and Supply Works are similar in nature, the transactions thereunder are aggregated pursuant to the Listing Rules.

As the transactions in relation to the Melco Facility Management Services and the SC Facility Management Services are similar in nature, the transactions thereunder are aggregated pursuant to the Listing Rules.

As the highest applicable percentage ratio (as defined in Rule 14.07 of the Listing Rules) in respect of each of the Proposed Annual Caps I (for provision of the Project and Supply Works) and the Proposed Annual Caps II (for provision of the Facility Management Services) exceeds 5%, the Project and Supply Works and the Facility Management Services as well as the Proposed Annual Caps I and the Proposed Annual Caps II are subject to the reporting, annual review, announcement, circular and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

None of the Directors had a material interest in the transactions under the Project and Supply Works (including the transactions under the New COD Framework Agreement) and the Facility Management Services and the Proposed Annual Caps and hence no Director was required to abstain from voting on the Board resolutions approving the entering into of the transactions under the Project and Supply Works (including the transactions under the New COD Framework Agreement) and the Facility Management Services and the Proposed Annual Caps.

XII. WAIVER FROM STRICT COMPLIANCE WITH RULES 14A.34 AND 14A.51 OF THE LISTING RULES

Background and reasons

Pursuant to Rules 14A.34 and 14A.51 of the Listing Rules and the listing decision HKEx-LD82-1 published by the Stock Exchange, the Company is required to enter into written agreement(s) for continuing connected transactions, including the Waiver CCTs which are potential transactions yet to materialise and not covered by a written framework agreement but are included in the Proposed Annual Caps and are therefore subject to the shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Group has made efforts and requested the Melco Group to enter into written framework agreement(s) in respect of all the continuing connected transactions with the Melco Group to facilitate compliance with the applicable requirements under the Listing Rules. Despite the Group’s effort and request, other than the New COD Framework Agreement in respect of the Melco Project and Supply Works, no written framework agreement in respect of the Waiver CCTs has been entered into so far or is expected to be entered into going forward.

The Waiver CCTs are and will be essential to the business development of, and beneficial to, the Company. In forming such view, the Company has taken into account the following factors: (i) the Company expects to continue and maintain long-term business relationship with the Melco Project Owners and the SC Companies; and (ii) the revenue received by the Group from the Melco Group will continue to provide a reliable and stable source of income for the Group. The Company expects that there will continue to be transactions in relation to the Project and Supply Works and the Facility Management Services between the Group and the Melco Group for the years to come. If the Group were unable to enter into the Waiver CCTs because of the refusal or inability of the Melco Group to sign any written framework agreement, this would be detrimental to the Group’s interests.

The Melco Group is only connected with the Company by virtue of being an associate of Mr. Ho who is a substantial shareholder of the Company. Neither Mr. Ho nor the Melco Group is involved in the operation or management of the Group, and the Group has its own management team and operational capabilities. The Waiver CCTs, if materialise, will be continuing connected transactions with a group of connected persons who does not have a controlling shareholding interest in or management control over the Group. None of the Directors or the controlling shareholders of the Company has a material interest in the Waiver CCTs. Melco International is a listed company and the transactions between the Group and the

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LETTER FROM THE BOARD

Melco Group are subject to their respective internal approval processes and, where applicable, competitive tendering. The Waiver CCTs are and will be genuine commercial transactions that are or will be conducted in the ordinary and usual course of business of the Group and made on normal commercial terms which are no less favourable to the Group than terms available from independent third parties, and are fair and reasonable and in the interests of the shareholders of the Company as a whole. There is no concern of the Melco Group unduly influencing the Company’s action to the detriment of the other shareholders of the Company.

This Circular would contain sufficient information about the Waiver CCTs that would enable the Shareholders to make a properly informed assessment on the Waiver CCTs, including the framework for determining the terms of the Waiver CCTs. The information in this circular would be comparable to normal cases where a framework agreement in respect of the Waiver CCTs was signed and the terms disclosed in this circular.

It will be unduly burdensome for the Company to strictly comply with Rules 14A.34 and 14A.51 of the Listing Rules and the waiver from strict compliance with Rules 14A.34 and 14A.51 in respect of the Waiver CCTs will not result in undue risks to the Shareholders and the potential investors of the Company.

As such, the Company applied to the Stock Exchange for the Waiver and it has been conditionally granted by the Stock Exchange on 15 November 2018.

Conditions to the Waiver

According to the Waiver, the Waiver CCTs will be exempted from the requirements under Rules 14A.34 and 14A.51 of the Listing Rules, subject to and on the conditions set out below:

(a) the Company will adopt the pricing policies and internal control measures as set out in ‘‘IX. Internal control measures’’ above to safeguard the interest of the Company and its shareholders under the Waiver CCTs;
(b) in respect of the written agreements to be entered into between the Group and the Melco Group for the Waiver CCTs as and when they materialise, to the extent that the underlying transaction is outside the established framework as set out in this circular, the Company will publish an announcement and will re-comply with the applicable continuing connected transaction requirements under Chapter 14A of the Listing Rules;
(c) details of the Waiver CCTs will be disclosed in the Company’s future annual reports in accordance with Rule 14A.49 of the Listing Rules;
(d) other than Rule 14A.34 and Rule 14A.51 of the Listing Rules, the Company will fully comply with all other applicable requirements in respect of continuing connected transactions under Chapter 14A of the Listing Rules. The Company will

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LETTER FROM THE BOARD

fully comply with the disclosure, board of directors’ approval and independent nonexecutive directors’ confirmation requirements under Chapter 14A of the Listing Rules. The Company’s external auditors will conduct an annual review of the Waiver CCTs to ensure the transaction amounts are within the annual caps and the Waiver CCTs are in accordance with the terms of the underlying tender document(s), framework agreement(s) and/or works order(s); and

(e) the Waiver will be subject to approval by the Independent Shareholders at the EGM.

XIII. INFORMATION OF THE PARTIES TO THE CONTINUING CONNECTED TRANSACTIONS

The Group is a renowned integrated construction engineering contractor and power substations contractor in Macau.

EHY Construction and Engineering is an indirect wholly-owned subsidiary of the Company and was incorporated in Macau on 7 September 2010. EHY Construction and Engineering is principally engaged in (i) structural steelworks, civil engineering construction, and fitting out and renovation works; (ii) high voltage power substation construction and its system installation works; and (iii) facilities management, alteration and maintenance works and services.

Each of the Melco Project Owners, namely Altira Resorts Limited, COD Resorts Limited, Golden Future (Management Services) Limited and Melco Resorts (Macau) Limited, is a company incorporated in Macau with limited liability. To the best of the knowledge, information and belief of the Directors, after having made all reasonable enquiries, as at the Latest Practicable Date, each of the Melco Project Owners was (i) an indirect subsidiary of Melco International; and (ii) principally engaged in integrated entertainment resort development and related operations.

Each of the SC Companies, namely Studio City Developments Limited and Studio City Hotels Limited, is a company incorporated in Macau with limited liability. To the best of the knowledge, information and belief of the Directors, after having made all reasonable enquiries, as at the Latest Practicable Date, each of the SC Company was (i) an indirect subsidiary of Melco International; and (ii) principally engaged in integrated entertainment resort development and related operations.

XIV. RECOMMENDATION

The Directors (including members of the Independent Board Committee whose opinion and recommendations are contained in the ‘‘Letter from the Independent Board Committee’’ in this circular, having been advised in this regard by the Independent Financial Adviser) consider that (i) the transactions in relation to the Project and Supply Works (including those contemplated under the New COD Framework Agreement) and Facility Management Services as described in this circular (including, without limitation, the Waiver CCTs as described under ‘‘II. Project and Supply Works — Potential projects’’ and ‘‘VI. Facility Management Services — Potential projects’’) are conducted on normal commercial terms which are no less favourable to the Company than those

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LETTER FROM THE BOARD

available from independent third parties, are entered into in the ordinary and usual course of business of the Company, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (ii) the Proposed Annual Caps and the Waiver are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (including members of the Independent Board Committee whose opinion and recommendations are contained in the ‘‘Letter from the Independent Board Committee’’ in this circular, having been advised in this regard by the Independent Financial Adviser) recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM for approving the adoption of the Proposed Annual Caps and the Waiver.

You are advised to read the letter from the Independent Board Committee and the letter from the Independent Financial Adviser mentioned above before deciding how to vote on the resolutions to be proposed at the EGM.

XV. EGM

The EGM will be held at Suite 2902, 29th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong on Monday, 10 December 2018 at 10 a.m.. A notice to convene the EGM is set out on pages 76 to 79 of this circular.

At the EGM, ordinary resolutions will be proposed for the Independent Shareholders to consider and, if thought fit, approve the adoption of the Proposed Annual Caps and the Waiver.

A form of proxy for use at the EGM is also enclosed with this circular. Such form of proxy is also published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.mecommacau.com). Whether or not you intend to attend the EGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to Tricor Investor Services Limited, the branch share registrar of the Company in Hong Kong, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof if you so wish.

The proposed resolutions at the EGM will be taken by way of poll. An announcement on the poll results will be made by the Company after the EGM in the manner prescribed under Rule 13.39(5) of the Listing Rules.

As Mr. Ho has indirect shareholding interest in each of the Melco Project Owners and the SC Companies which are parties to the continuing connected transactions in relation to the Project and Supply Works and Facility Management Services, and King Dragon, which held 240,000,000 Shares representing 20% of the issued share capital of the Company as at the Latest Practicable Date, is wholly-owned by Mr. Ho, therefore King Dragon is deemed to have material interest in the relevant resolutions on transactions in relation to the Project and Supply Works and the Facility Management Services, the Proposed Annual Caps and the Waiver to be proposed at the EGM and shall abstain from voting on the relevant resolutions at the EGM. Save as disclosed above, to the

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best of the knowledge, information and belief of the Directors, having made all reasonable enquiries, none of the other Shareholders has a material interest in the relevant resolutions on the Proposed Annual Caps and the Waiver to be proposed at the EGM and is required to abstain from voting on the relevant resolutions at the EGM.

In order to be eligible to attend and vote at the EGM, all transfer forms accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not later than 4:30 p.m. on Friday, 7 December 2018.

XVI. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out on pages 70 to 75 of this circular.

Yours faithfully,

By order of the Board

MECOM Power and Construction Limited Kuok Lam Sek

Chairman and executive Director

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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MECOM Power and Construction Limited 澳能建設控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1183)

To the Independent Shareholders

22 November 2018

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

(1) PROJECT AND SUPPLY WORKS — REVISION OF EXISTING ANNUAL CAPS AND SETTING OF NEW ANNUAL CAPS;

AND

(2) FACILITY MANAGEMENT SERVICES — REVISION OF EXISTING ANNUAL CAPS

We refer to the circular of the Company (the ‘‘Circular’’) dated 22 November 2018 and of which this letter forms part. Unless the context requires otherwise, terms and expressions defined in the Circular shall have the same meanings in this letter.

We have been appointed by the Board to form the Independent Board Committee to advise the Independent Shareholders as to whether the Proposed Annual Caps are fair and reasonable as far as the Independent Shareholders are concerned and to recommend whether or not the Independent Shareholders should vote for the resolutions to be proposed at the EGM to approve the transactions in relation to the Project and Supply Works and the Facility Management Services, the Proposed Annual Caps and the Waiver. The details of such transactions, the Proposed Annual Caps and the Waiver are set out in the ‘‘Letter from the Board’’ on pages 6 to 34 of the Circular. Independent Financial Adviser has been appointed to advise the Independent Shareholders and the Independent Board Committee in this regard.

Details of the advice and the principal factors and reasons that Independent Financial Adviser has taken into consideration in rendering its advice are set out in the ‘‘Letter from Frontpage Capital Limited’’ on pages 37 to 69 of the Circular. Your attention is also drawn to the ‘‘Letter from the Board’’ in the Circular and the additional information set out in the appendix thereto.

Having taken into account the terms of the transactions in relation to the Project and Supply Works and Facility Management Services and the Proposed Annual Caps and the advice of Independent Financial Adviser, in particular the principal factors, reasons and recommendation as set out in its letter, we are of the opinion that (i) the transactions in relation to the Project and

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Supply Works (including those contemplated under the New COD Framework Agreement) and Facility Management Services as described in the Circular (including, without limitation, the Waiver CCTs as described under ‘‘II. Project and Supply Works — Potential projects’’ and ‘‘VI. Facility Management Services — Potential projects’’ in the ‘‘Letter from the Board’’ of the Circular) are conducted on normal commercial terms which are no less favourable to the Company than those available from independent third parties, are entered into in the ordinary and usual course of business of the Company, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (ii) the Proposed Annual Caps and the Waiver are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

We, therefore, recommend that you vote in favour of the resolutions to be proposed at the EGM to approve the transactions in relation to the Project and Supply Works and the Facility Management Services, the Proposed Annual Caps and the Waiver.

Yours faithfully,

For and on behalf of the Independent Board Committee

MECOM Power and Construction Limited

Ms. Chan Po Yi, Patsy Mr. Cheung Kiu Cho, Vincent Dr. Ngan Matthew Man Wong Independent non-executive Directors

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LETTER FROM FRONTPAGE CAPITAL LIMITED

The following is the text of the letter of advice from 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.

22 November 2018

To the Independent Board Committee and the Independent Shareholders of MECOM Power and Construction Limited

Dear Sirs or Madams,

CONTINUING CONNECTED TRANSACTIONS

(1) PROJECT AND SUPPLY WORKS — REVISION OF EXISTING ANNUAL CAPS AND SETTING OF NEW ANNUAL CAPS; AND

(2) FACILITY MANAGEMENT SERVICES — REVISION OF EXISTING ANNUAL CAPS

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the revision of existing annual caps and setting of new annual caps of the transactions contemplated under to the Project and Supply Works and the Facility Management Services, the Proposed Annual Caps and the Waiver. Details of such transactions, the Proposed Annual Caps and the Waiver are set out in the ‘‘Letter from the Board’’ (the ‘‘Board Letter’’) contained in the circular of the Company dated 22 November 2018 issued to the Shareholders (the ‘‘Circular’’), of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular, unless the context requires otherwise.

Reference is made to the Company’s announcement dated 31 July 2018 and the Prospectus. The Group provides structural steelworks, civil engineering construction, and fitting out and renovation works on a project-by-project basis to certain connected persons of the Company in the ordinary and usual course of business of the Group, namely (i) the provision of Melco Project and Supply Works to COD Resorts for the Melco Hotels and (ii) the provision of SC Project and Supply Works to the SC Companies for the SC Hotel. The Group also provides facility management, alteration and maintenance works and services on a project-by-project basis to certain connected persons of the Company in the ordinary and usual course of business of the Group, namely (i) the provision of the Melco Facility Management Services to the Melco Project Owners for the Melco Hotels and (ii) the provision of the SC Facility Management Services to the SC Project Owner for the SC Hotel.

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LETTER FROM FRONTPAGE CAPITAL LIMITED

As each of the Melco Project Owners and the SC Companies is an associate of Mr. Ho, and therefore a connected person of the Company, the provision of the Project and Supply Works and the provision of the Facility Management Services constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising Ms. Chan Po Yi, Patsy, Mr. Cheung Kiu Cho, Vincent and Dr. Ngan Matthew Man Wong, being all the independent non-executive Directors, has been established to advise the Independent Shareholders in respect of the transactions in relation to the Project and Supply Works and the Facility Management Services, the Proposed Annual Caps and the Waiver. Our role as independent financial adviser is to give our opinion and recommendation as to whether the transactions in relation to the Project and Supply Works and the Facility Management Services and the Proposed Annual Caps are on normal commercial terms, in the ordinary and usual course of business of the Company, and together with the Waiver, are fair and reasonable insofar as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

BASIS OF OUR OPINION

In formulating our opinion and recommendation, we have considered, among other things, (i) terms of the New COD Framework Agreement; (ii) the Prospectus; (iii) 2017 annual report of the Group; and (iv) other information as set out in the Circular.

We have also relied on all relevant information, opinions and facts supplied and representations made to us by the Company, the Directors and the representatives of the Company. We have assumed that all such information, opinions, facts and representations provided to us or contained or referred to in the Circular, for which the Directors and the representatives of the Company are fully responsible, are true and accurate in all respects as at the date hereof and may be relied upon. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company, and the Company has confirmed that no material facts have been withheld or omitted from the information provided and referred to in the Circular, which would make any statement therein misleading.

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 independent verification of the information provided by the Directors and the representatives of

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LETTER FROM FRONTPAGE CAPITAL LIMITED

the Company, nor have we conducted any form of in-depth investigation into the businesses, affairs, operations, financial position or future prospects of the Company, the Melco Group, the Melco Project Owners, the SC Companies or any of their respective subsidiaries or associates.

OUR INDEPENDENCE

We are not connected with the Directors, chief executive and substantial shareholders of the Company, the Melco Group, the Melco Project Owners, the SC Companies or any of their respective subsidiaries or associates and do not have any shareholding, direct or indirect, in any member of the Company or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Company as at the Latest Practicable Date. No arrangement exists whereby we will receive any benefits from the Company or the directors, chief executive and substantial shareholders of the Company, the Melco Group, the Melco Project Owners, the SC Companies or any of their respective subsidiaries or associates for our services to the Company in connection with this appointment aside from our professional fees.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating and giving our opinion to the Independent Board Committee and the Independent Shareholders in relation to the transactions in relation to the Project and Supply Works and the Facility Management Services, the Proposed Annual Caps and the Waiver, we have taken into account the following principal factors:

I. BACKGROUND

Information of the Group

The Group is a renowned integrated construction engineering contractor and power substations contractor in Macau. The indirect wholly-owned subsidiary of the Company, EHY Construction and Engineering, is principally engaged in (i) structural steelworks, civil engineering construction, and fitting out and renovation works; (ii) high voltage power substation construction and its system installation works; and (iii) facilities management, alteration and maintenance works and services.

Information of the Melco Project Owners

Each of the Melco Project Owners, namely Altira Resorts Limited, COD Resorts, Golden Future (Management Services) Limited and Melco Resorts (Macau) Limited, is a company incorporated in Macau with limited liability. To the best of the knowledge, information and belief of the Directors, after having made all reasonable enquiries, as at the Latest Practicable Date, each of the Melco Project Owners is (i) an indirect subsidiary of Melco International; and (ii) principally engaged in integrated entertainment resort development and related operations.

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LETTER FROM FRONTPAGE CAPITAL LIMITED

Information of the SC Companies

Each of the SC Companies, namely Studio City Developments Limited and Studio City Hotels Limited, is a company incorporated in Macau with limited liability. To the best of the knowledge, information and belief of the Directors, after having made all reasonable enquiries, as at the Latest Practicable Date, each of the SC Companies is (i) an indirect subsidiary of Melco International; and (ii) principally engaged in integrated entertainment resort development and related operations.

Background

As disclosed in the Prospectus, the Group has been providing construction services and facility management services to properties owned or operated by Melco Project Owners or SC Companies. These services provided are: (i) the provision of the Melco Project and Supply Works to COD Resorts; (ii) the provision of the SC Project and Supply Works to the SC Companies; (iii) the provision of the Melco Facility Management Services to the Melco Project Owners; and (iv) the provision of the SC Facility Management Services to the SC Project Owner, all of which constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

II. PROJECT AND SUPPLY WORKS

Project and Supply Works

The scope of the Project and Supply Works includes structural steelworks, civil engineering construction, and fitting out and renovation works. Structural steelworks services generally involve the provision of customised and target-oriented steel structure erection services which generally consist of structural steelworks, concreting and builder works, using a suitable combination of each to produce an efficient structure. Civil engineering construction services generally involve demolition works, ground investigation field works, site formation works, foundation works, substructures and superstructures, roads and drainage. Fitting out and renovation works generally involve the provision of alteration, renovation and upgrading works of various types, including preparation of shop drawings, modification, removal and installation of equipment, and general renovation works.

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Pricing Basis:

The price for the Project and Supply Works to be charged by the Group is determined on a project-by-project basis through the tendering process, after taking into account the nature and complexity of the projects, technical requirements, construction schedule, subcontracting work, material and labour costs and other factors. The major cost components for the provision of the Project and Supply Works are material costs, direct labour costs and subcontracting costs, which account for approximately 90% of the total costs. The principal materials primarily include steel, fabricated steel, metal, power systems, cement and fitting out materials such as pipes, wires and cables.

In determining the terms of each tender, the Group typically conducts a preliminary costing and pricing analysis based on the data and information in their database which collects detailed financial information of the projects the Group has undertaken, such as revenue, profits, costs and expenses on manpower, subcontractors, materials, machineries and equipment required for each project and the prevailing market prices of the same. In this connection, the Group’s finance department will collect the detailed financial information of similar projects that the Group has undertaken in the past, such as costs and expenses on manpower, materials, subcontractors, machineries and equipment of such projects, while the Group’s tendering team will collect the specification of similar projects that the Group has undertaken in the past, such as the nature and quantity of materials required and the amount of work to be undertaken by the Group’s subcontractors and/or construction workers. If the information in the Group’s database is not sufficient to make a feasible costing analysis, the Group will then secure quotations from its suppliers of materials and subcontractors to facilitate the Group’s cost estimation and budgeting so as to lock up the price of materials and/or subcontractors. As part of the Group’s internal control policy, the Group will typically obtain three quotations from its suppliers of materials and/or subcontractors before securing a purchase order. For the purpose of selecting the appropriate subcontractor to complete the assigned works, the Group generally provides the potential subcontractors with detailed method of works setting out methods of delivering and distributing materials and for accessing, installing, finishing and protecting the works so as to ensure the safety and quality standards are maintained all the times throughout the construction of the project. Such potential subcontractors are required to submit their programme, labour and plant forecast, submission and material delivery schedule for the Group’s consideration and tender preparation. The Group’s tendering team will work out the composition of members of management and project teams and the manpower, subcontractors (if applicable), materials and equipment required for the project and prepare a tender proposal, which will then be submitted to the Group’s management team for approval. Based on the above, the Group will put together a draft tender proposal in accordance with the tender document after its approved analysis. The Group may make cost adjustments where necessary based on its past experience on the possibility of having variation orders and prevailing market conditions.

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The Group typically prepares its tender proposal based on a certain percentage of markup over its estimated cost, with a general target to achieve a gross profit margin of around 15% which also applies to the projects of structural steelworks, civil engineering construction, and fitting out and renovation works for other customers who are independent third parties of the Group. The Group will review such target at least annually and from time to time based on the data and information in its database with reference to the prevailing market conditions. The percentage of markup may vary from project to project, having taken into account factors including the nature and scale of the project, the prospect of obtaining future contracts from such customer, any potential positive publicity on the Group by undertaking the project, the pricing trend of raw materials, the amount of work to be undertaken by the Group’s subcontractors, and the likelihood of any material deviation of the actual cost from the Group’s estimation having regard to the price trend of key cost components and the prevailing market conditions. In determining the actual gross profit margin to be achieved for a project to be tendered for, the tendering team of the Group will analyse the range of target gross profit margin of past tenders secured by the Group which are similar in terms of technical aspect, project size and construction schedule. In addition, the tendering team of the Group will also perform market assessment such as the expected trend on major cost components, the Group’s competitiveness and the prevailing market conditions. The tender proposal (including the actual gross profit margin to be achieved) will then be submitted to the management team of the Group for approval. Such internal assessment and approval process are adopted by the Group for its projects in general, including the projects with the Melco Group and other customers who are independent third parties.

The Group is of the view that the above costing and pricing analysis and tender preparation process are undertaken with a view to ensure that the underlying transactions will be conducted in the ordinary course of the Group’s business and the terms in the tender proposal will be normal commercial terms and no more favourable to COD Resorts and/or the SC Companies than terms available to other independent project owners. As the pricing basis of the Project and Supply Works is similar to the New COD Framework Agreement, we have

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provided our analysis of the pricing basis of both existing Project and Supply Works and the New COD Framework Agreement below under the section ‘‘New COD Framework Agreement — Pricing Basis’’.

Variation orders:

We are of the view that variation orders are common in all construction related projects, as construction drawings cannot accurately anticipate all occurrences on construction sites, especially when natural elements such as weather and ground conditions can affect the construction progress and requirements. Furthermore, constructed items may not look as perfect as architects’ drawings hence requiring further alteration or variation orders to reach the intended effect. As such, the Group is frequently requested to perform variation orders under existing contracts as shown in the list of projects under the Board Letter. As the existing annual caps for the Project and Supply Works is not sufficient to cover the remaining portion of the outstanding contracts and variation orders that the Group needs to perform in order to honor their commitment under the aforesaid contracts and variation orders, the Group needs to increase its annual caps. Therefore, we are of the view that the need of the Group to increase its annual caps to complete its obligations under existing contracts and variation order is in the ordinary and usual course of business, fair and reasonable, and in the interest of the Company and Shareholders as a whole.

New COD Framework Agreement

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Details of the principal terms of the New COD Framework Agreement are set out below:

Date: 31 July 2018

Parties: (1) EHY Construction and Engineering as the contractor; and

(2) COD Resorts Limited as the employer

Term:

1 July 2018 to 30 June 2021, subject to early termination by either party by giving prior written notice to the other party.

Details of the Transactions:

The aggregate contract amount of all works orders (including variation orders) issued under the New COD Framework Agreement during its term shall be capped at HK$600 million (equivalent to approximately MOP618 million). The maximum contract amount of HK$600 million has been determined after arm’s length negotiation between the parties taking into account, among other matters, (i) the historical transaction amount of Melco Project and Supply Works provided by EHY Construction and Engineering to COD Resorts; (ii) the contracts awarded to EHY Construction and Engineering by COD Resorts in relation to Melco Project and Supply Works that were mainly commenced in 2017 and mainly completed in 2018; (iii) the number and scale of additional alteration and addition (A&A) projects which may be demanded by COD Resorts over the next three years; and (iv) an additional buffer for any further variation orders and requests from the Melco Group as set out under ‘‘Annual Caps of the Project and Supply Works’’ below. The Company expects the bulk of the underlying contracts will be entered into in 2019 and 2020 as the renovation and rebranding of one of the Melco Hotels has just commenced. The amount of work to rebrand and renovate is expected to involve (i) demolition of existing facilities such as partition, facade, mechanical, electrical and plumbing systems; (ii) structural modifications; (iii) new fittings and partition of hotel rooms; and (iv) installation of new facade. As the rebranding and renovation is expected to be large scale in nature, a significant annual cap would be needed if the Group successfully secures some of the aforesaid works.

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Pricing Basis:

The Group will adopt the pricing policy as set out under existing Project and Supply Works as stated above in relation to the preparation of tender proposals for the provision of Melco Project and Supply Works as contemplated under the New COD Framework Agreement.

It is expected that EHY Construction and Engineering will submit tender proposals in response to the inquiries or invitations from COD Resorts from time to time, and works orders will be awarded to EHY Construction and Engineering by COD Resorts after going through a competitive tendering process, where the terms and conditions of the works order will be based on the relevant tender proposal and/or award in line with the New COD Framework Agreement.

In order to assess the fairness and reasonableness of the pricing basis of the Project and Supply Works and the New COD Framework Agreement, we have discussed with the Company in order to understand how they have arrived at the quotation for each works order involving structural steelworks, civil engineering construction and fitting out and renovation as some of these works order involved a large number of items and the work scope differ between projects and are not directly comparable. According to the Company, prices quoted by them are based on the cost of materials and labour that they have obtained internally or from suppliers and subcontractors as stated above. Utilizing this cost, they then factor in a reasonable mark up to ensure that the Group earns a reasonable margin. However, they cannot mark up all items within a contract with the same margin as certain items provided that are common in nature will command a much lower margin. As such, they will provide a higher

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mark up on other less common items or items that they believe that the customers are more acceptable to incur a higher cost in order to achieve the overall margin that they desire. Based on a rough estimate, they would generally try to achieve a 15% gross profit margin of the supplies or construction cost in aggregate. However, if they are faced with tough competition for a particular project, they may need to lower such gross profit margin target in order to secure a particular project or tender. In addition, the market environment also dictates the margins that they can command as during industry downturn, there will be more contractors or subcontractors who did not manage to secure any projects, who may be more willing to lower their margins or even breakeven in order to secure contracts to keep their business running.

We have reviewed their quotations, works order and tenders accepted by COD Resorts and/or the SC Companies, and due to the varied nature of the work and the different work scope, we are of the view that it is reasonable that a cost plus reasonable margin approach should be used in pricing in their tenders. As such, we have attempted to compare the prices to their cost to ascertain if the pricing was fair and reasonable. Therefore, we have obtained random samples from each of material, labour and subcontracting charges incurred by the Group and compared them to their relevant works order or tenders. With regards to the samples provided, we also ensured that each item consists of three quotations or historical cost as per their internal control policy. In respect of supply of materials, we noted that the Group marked up various common furniture at a low gross profit margin while unique or customised furniture was charged at a higher mark up. As a result, they managed to achieve an overall gross profit margin that sometimes met their targeted 15% while some were slightly lower. Similarly, based on the invoices and billings provided, we noted that labour and certain subcontracting charges were also marked up at rates above and below the gross profit margin of 15% that they have hoped for. As such, we are of the view that the pricing mechanism of the Company, which uses a cost plus reasonable margin approach on varying services, items and specification, is on normal commercial terms, fair and reasonable, and in the interest of the Company and Shareholders as a whole.

We have also reviewed the historical performance of the Group’s structural steelworks, civil engineering construction, and fitting out and renovation works, and noted that based on the annual results of the Group and the Prospectus, the Group had a gross profit margin of 27.5%, 26.0%, and 21.9% for the three years ended 31 December 2017, respectively. Based on the historical contracts, the Group managed to achieve gross profit margins ranging from 2% to 95%, with some contracts experiencing losses. Although the average gross profit margin for each of these three financial years ended 31 December 2017 were higher than their target of 15%, it was trending lower as the Company is experiencing increased competition. We have discussed with the Company and noted that due to the recent competitive environment, they have to adopt a more competitive pricing strategy in tendering projects. Furthermore, they are also experiencing a shortage of construction workers in Macau and the Macau government initiative to encourage more local hire by reducing imported workers. This in turn has forced the Group to subcontract some of their works to complete the jobs in a timely manner at the cost of lower profit. Aside from the downward trend of the gross profit margin, we have also noted that based on the Company’s latest interim report for the six months ended 30 June

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2018, the gross profit margin of the Group has declined to 15.0% as compared to 18.8% for the corresponding period in 2017 possibly due to the aforesaid factors above. Therefore, we are agreeable with the Company that the Group has been under pricing pressure and it will be difficult for them to achieve similar gross profit margins that they have achieved historically. Having considered that the targeted markup falls within the range of historical gross profit margin, we are of the view that the pricing basis of the Company, which attempts to mark up the cost of their materials, labour and subcontracting charges at various gross profit margin to target an average of 15% is on normal commercial terms, fair and reasonable, and in the interest of the Company and Shareholders as a whole.

Internal control system for the continuing connected transactions under the Project and Supply Works:

The Group has implemented internal control procedures for the quotation and tender of projects within the Group. These procedures and guidance include, tender strategy guide, tender procedures, guidance for variation orders and tender analysis reporting. Please refer to section below titled ‘‘Internal Control Procedures and Corporate Governance of the Group’’ for details of the internal control procedures of the Group.

Annual Caps of the Project and Supply Works:

Set out below is a summary of the historical annual caps and the amounts of projects undertaken by the Group to the Melco Project Owners and the SC Companies and their associates for the following periods:

	Historical figures for	Historical figures for	the	following	periods
					6 months
	Year ended 31 December				ended 30 June
	2015	2016		2017	2018
	(MOP in	(MOP in	(MOP in		(MOP in
	million)	million)		million)	million)
Historical annual caps of	—(1)	—(1)		—(1)	128.4(2)
the Project and Supply
Works
Historical transaction	5.7	5.7		336.1	111.0
amount of the Melco
Project and Supply
Works
Historical transaction	47.6	12.0		38.6	12.9
amount of the SC Project
and Supply Works
Total historical amount of	53.3	17.7		374.7	123.9
the Project and Supply
Works

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Notes:

(1) As the Company was listed on 13 February 2018, there was no annual caps for the past 3 financial years ended 31 December 2017.
(2) This annual cap is for the full financial year ended 31 December 2018, of which MOP115.4 million was allocated to Melco Project and Supply Works and MOP13.0 million was allocated to SC Project and Supply Works.

Set out below are the proposed annual caps for the transactions contemplated under the Project and Supply Works for the following periods:

	Proposed	annual caps for the following	annual caps for the following	periods
		Year ending 31 December
	2018	2019	2020	2021(1)
	(MOP in	(MOP in	(MOP in	(MOP in
	million)	million)	million)	million)
Proposed new annual caps for	181.0	360.5	288.4	170.8
the Melco Project and
Supply Works
Proposed new annual caps for	18.2	41.9	Nil	Nil
the SC Project and Supply
Works
Proposed new annual caps for	199.2	402.4	288.4	170.8
the Project and Supply
Works

Note:

(1) The New COD Framework Agreement has a tenure up to 30 June 2021, while the annual cap is considered for the full financial year ending 31 December 2021 to coincide with the financial year.

We have discussed with the Company to understand the increase and changes to their existing annual caps. According to the Company, they have historically determined their annual caps on the basis of secured contracts without taking into consideration the potential variation order or delays in the project payments. As such, as the projects progresses, new variation order arises and the Company now face total potential outstanding contracts that exceeded their existing annual caps. In addition, exacerbating the situation are potential new contracts that the Company targets to secure from both the Melco Project Owners and the SC Companies. As a result, the Company is now revising the existing annual caps and applying for additional annual caps to meet the need of both outstanding contracts and variation orders and also future contracts and variation orders that are expected to be secured under existing contracts and the New COD Framework Agreement. The Company will apply for additional annual caps and re-comply with the Listing Rules requirement if it secures further new Project and Supply Works from both the Melco Project Owners and the SC Companies.

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We have also reviewed the complete list of historical transaction amount of the Project and Supply Works, which includes both the Melco Project and Supply Works and the SC Project and Supply Works. We noted that a significant number of projects that the Group secured from Melco Hotels and SC Hotel involved ad-hoc modification or upgrades to existing buildings and other alteration and addition works, and some of which might not be readily anticipated. These projects included demolition and structural modification, addition of structure such as porte cochere, entrance, internal fittings of the buildings including doors, furniture, signage, and other miscellaneous works. We also noted that there were significant variation orders arising from the existing contracts of the Melco Project and Supply Works and the SC Project and Supply Works. As construction projects typically involved unexpected discoveries during the construction phase, changes were typically made to the initial plans and variation orders were frequently added to the initial contracts. Furthermore, the recent typhoon Hato and Mangkhut caused damage to properties and construction in progress and as a result, variation orders were added to replace the damaged parts and components.

In determining the MOP181.0 million of the Melco Project and Supply Works for the year 2018, the Company has added new contracts and variation orders secured after listing amounting to MOP13.4 million, a buffer of MOP6.6 million for additional variation orders and new works orders to be received under existing contracts and potential transactions under the New COD Framework Agreement amounting to approximately MOP45.6 million. We have reviewed the new contracts and variation orders and noted that they were secured after the Listing. We have also reviewed the tenders submitted for new projects under the New COD Framework Agreement amounting to MOP32.6 million, which consist of renovation and fitting out works for the kitchen facilities, swimming pool, lighting and electrical system for City of Dreams and Altira Macau in Taipa, Macau. These contracts being tendered ranges between MOP1.0 million and MOP7.0 million. As for the remaining MOP13.0 million of the MOP45.6 million, the Company wishes to maintain sufficient buffer to tender for any additional projects. We are of the view that the MOP13.0 million buffer of the New COD Framework Agreement is reasonable as two projects of those currently being tendered could easily fulfill this additional buffer allocated. As for the buffer for variation orders of existing contracts of MOP6.6 million, it represents 5.4% of existing contracts secured, which is used to accommodate for any changes in plans and also cost increase in materials that the Company could pass on to COD Resorts. We are of the view that the 5.4% buffer is fair and reasonable as the Company has recorded 12% in variation orders for the historical contracts that it had secured from COD Resorts after the Listing.

As for the Melco Project and Supply Works for the years 2019, 2020 and 2021, the proposed annual caps arises out of projects expected to be secured under the New COD Framework Agreement. Based on the New COD Framework Agreement, the Company expects bulk of the contracts will occur in 2019 and 2020 as the renovation and rebranding of one of the old hotels under the Melco Hotels is expected to commence. The amount of work to rebrand and renovate is expected to involve (i) demolition of existing facilities such as partition, facade, mechanical, electrical and plumbing systems; (ii) structural modifications; (iii) new fittings and partition of hotel rooms; and (iv) installation of new facade. As the

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rebranding and renovation is expected to be large scale in nature, a significant annual cap would be needed to capture the aforesaid works if the Company successfully secures some of the works involving renovating the hotel. We have reviewed historical contracts involving Project and Supply Works at various parts of the Melco Hotels in particular the project involving one of the new Melco Hotels. The historical contract for managing this project was MOP74.1 million and it was not inclusive of variation orders of approximately MOP63.5 million, and the contract for fitting out works for the internal atrium of one of the new Melco Hotels was approximately MOP128.4 million. Assuming the Company secures the project involving rebranding of one of the old hotels under the Melco Hotels, which involves significant renovation and fitting out works, they target to complete contracts amounting to approximately MOP257.5 million and MOP206.0 million in 2019 and 2020, respectively.

We have reviewed the breakdown of the MOP257.5 million of works expected in 2019, which includes MOP89.0 million of demolition of existing facilities, MOP58.5 million of structural modifications and MOP110.0 million of new fittings and partitioning of the hotel rooms. We have looked at the historical construction works undertaken by the Group and noted that they have undertaken a demolition and structural modification work at one of the corridors and bubble area that cost MOP51.7 million when aggregated together with its variation orders, as well as a construction of a porte cochere at one of the Melco Hotels that costs MOP29.9 million when aggregated together with its variation orders. Based on the historical contracts, we noted that aside from carrying out demolition work, the contracts also required them to remove demolished debris calculated in tonnes and setup preliminaries such as safety equipment and toilets for workers prior to commencing any works involved. We also noted that structural steel and materials accounted for a significant portion of the contracts. Therefore we are of the view that allocating MOP89.0 million and MOP58.5 million for demolition of existing facilities and structural modifications, respectively, is fair and reasonable. We have also looked at the fitting out of the atrium of the new hotel under the Melco Hotels, which was contracted at MOP128.4 million. Considering the rebranding of the old hotel under the Melco Hotels, which is almost 10 years old, would require extensive replacement of old fittings, furniture and redecoration, it is fair and reasonable to allocate MOP110.0 million for fitting out and partitioning for the old hotel under the Melco Hotels. In determining if the fitting out of the rooms requires such amount, we have calculated the gross floor area of the hotel and multiply by an estimated fit out cost. Based on the published hotel information, there are 322 rooms including suites. In order to be conservative, we used the smallest standard room which is estimated at 42 square meter per room and arrives at a total estimated gross floor area of approximately 13,524 square meter. Utilising this estimated gross floor area, we then calculated the cost of fitting out using the cost extracted from the ‘‘Construction Cost Handbook — China & Hong Kong 2018’’ published by Arcadis Asia Limited, which is a global engineering design and consultancy firm. Based on the aforesaid handbook, the fit out cost for a 5 star hotel guest room starts at the lowest rate of HK$14,000 per square meter. As such, the estimated overall cost to fit out the hotel would be at least HK$189.3 million, which does not include re-partitioning cost. If the new fittings and partitioning of hotel rooms of 2019 and 2020 are added together, the Company would have allocated MOP234.0 million for this item. Assuming fitting out alone is approximately

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HK$189.3 million or approximately MOP195.0 million, then the balance of MOP39.0 million is assumed for the re-partitioning of the hotel rooms, which we are of the view that is fair and reasonable considering historical structural modification contracts secured by the Group are higher than this amount.

As for the breakdown of MOP206.0 million of works expected in 2020, new fittings and partitioning of hotel rooms is expected to amount to approximately MOP124.0 million and the installation of new facade of approximately MOP82.0 million. As discussed in the paragraph above, we are of the view that the amount of annual cap allocated for the new fittings and partitioning of hotel rooms of approximately MOP124.0 million is fair and reasonable. In addition, we also noted that the external facade renovation is estimated to commence after the interior has been done or is almost completed, which we are of the view that is fair and reasonable as it is logical to complete the inside of the building first to prevent interruption to the outside if exterior works are progressing. The annual cap of MOP82.0 million allocated for the facade is also fair and reasonable as we noted the Group was contracted for the SC Hotel entrance project at MOP35.1 million. Therefore, we are of the view that if the whole exterior of a hotel tower needs to be refreshed and not just a single entrance, it would incur significantly more to repaint and replace any exterior designs. Similarly, we also considered the cladding of the interior atrium of the new hotel under the Melco Hotels whereby the cost to fitting out was contracted at an initial contract sum of approximately MOP128.4 million, which is similar in nature as it is also a fit out of a tall building’s wall structure from the inside. Therefore, we are of the view that the it is reasonable to allocate almost MOP204.0 million annual caps for redecorating the exterior and the facade of a tall hotel building. As MOP82.0 million is allocated in the year 2020, with the remaining cost to be incurred to upgrade the exterior and the facade of the hotel to be brought over to the year 2021 at MOP122.0 million, which is the only item allocated for the proposed annual caps of the year 2021. Depending on the final plan or design that the Melco Hotels choose, and the types of materials involved, the cost of the external facade could be significant if the external facade of the whole tower is to be replaced.

We noted that the initial contract sum of existing contracts secured by the Company from the Melco Project Owners for the financial year ended 31 December 2016 amounted to approximately MOP265.4 million, which was mostly billed and recognised as revenue during the financial year ended 31 December 2017. Therefore, it is fair and reasonable for the Company to allocate the bulk of the contract secured or to be secured in a delayed manner as it is understandable that construction contracts need significant planning and billing or certification will only occur after the works are performed thus a certain delay in timing is expected.

In order to be prudent, the Company has included a buffer of approximately 40% (which is equivalent to the historical variation order amount) to arrive at buffers of approximately MOP103.0 million, MOP82.4 million and MOP48.8 million for the three years ending 31 December 2021, respectively. We also noted that the existing contracts on hand had an initial contract sum of approximately MOP322.7 million, which incurred variation orders of

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approximately MOP129.9 million or approximately 40.2% of the initial contract sum. We are of the view that these buffers are required for (i) the uncertainty that frequently occurs in construction where design changes are required when they were not accounted for misjudged during the drawing/planning phase; (ii) uncertainty due to natural disaster or elements of nature that affects the construction phase; (iii) delays in the construction progress as each phase maybe dependent on the earlier stages to be completed before they can commence leading to a larger cap required for the uncompleted jobs accumulated from the previous years; (iv) changes to the design or materials used after the customer finds the resulting effect is not as good as they have anticipated; and (v) the similar levels of variation orders have been requested in historical transaction by the same customer. Therefore, having a sufficient buffer is required because of variation orders that the Group may have to fulfill as customers usually expect the same contractor/subcontractor to perform any new variation orders related to existing projects, and failing to do so may mean that the Group is not performing up to the customers’ expectations. As such, we are of the view that it is fair and reasonable, and in the interest of the Company and Shareholders as a whole for the Company to utilise its historical variation order of 40% of the original contract sum to estimate its possible future amount of variation orders in order to ensure that the Company is capable of fulfilling the expectations of their customers.

As for the SC Project and Supply Works, the Company has included contracts and variation orders amounting to MOP3.4 million after Listing and a buffer of MOP1.8 million for any future additional variation orders to arrive at the Revised Annual Cap I for 2018 of MOP18.2 million. We have reviewed the existing contracts on hand for SC Project and Supply Works and noted that the historical variation orders is approximately 17.8% of the initial contract sum. Furthermore, as at 30 June 2018, the existing annual cap of the SC Project and Supply Works of MOP13.0 million has been fully utilized at approximately MOP12.9 million. Based on the remaining contracts on hand and new variation orders, the Group expects to record approximately MOP16.4 million for the financial year ending 31 December 2018. Therefore, the existing annual cap is insufficient to cater for the SC Project and Supply Works. We are of the view that taking a MOP1.8 million buffer over the remaining contracts on hand and new variation orders is fair and reasonable as the Group has registered additional variation orders exceeding MOP3.1 million since its Listing and could possibly experience the same during the remaining period for the financial year ending 31 December 2018.

As for the SC Project and Supply Works of MOP41.9 million for the financial year ending 31 December 2019, the Company is targeting to bid for construction projects in relation to the alteration required by SC Hotel. Based on the tender submitted of MOP2.6 million that we have reviewed, the Company is tendering for a refurbishment of the walls for the SC Hotel. We have discussed with the Company and noted that there is no immediate work to bid on for the SC Hotel. However, the Company foresees that SC Hotel will require certain amount of work performed on their property annually based on their experience. We understood that buildings and its interior fittings are subject to wear and tear, and it will require constant maintenance to ensure that its conditions meet the requirement of the property owner. We have also noted that the Group has historically performed services in relation to

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the SC Project and Supply Works in the amount of MOP38.6 million for the financial year ended 31 December 2017. Therefore, we agree with the Company’s assessment that an annual cap of similar size should be allocated in the event tender opportunities arise from the SC Hotel. We have also looked at previous projects undertaken by the Group, such as the contract works for design and build of the north-east entrance of the SC Hotel, which has an initial contract sum of MOP34.0 million and a final bill approximately equals to MOP40.7 million. Furthermore, other contracts of the group such as the construction of porte cochere and other structural demolition and modification runs at in excess of MOP20.0 million each even before considering variation orders. While it is possible for the Company to wait for a firm invitation for tender before ascertaining its annual caps, it would be commercially impractical for the Company to do so in light of (i) the frequent small alterations and repair works contracts aside from larger contracts; (ii) the timing requirement if projects are awarded on an urgent basis; and (iii) costly for the Company to seek Independent Shareholders approval for every contract awarded. As such we are of the view that the annual caps of the SC Project and Supply Works for the year ending 31 December 2019 of MOP41.9 million, which is almost in line with the amount of historical contracts secured and references historical contract amount is fair and reasonable as the SC Hotel will be comfortable to award contracts of similar size to the Group as they have performed contracts of similar size before.

Having considered the factors above, in particular (i) the Revised Annual Cap I for 2018 is based on the existing annual caps of contracts and variation orders secured plus new contracts secured or to be secured; (ii) the New Annual Caps for 2019, 2020 and 2021 will include quotation or tender documents prepared by the Company based on the expected bill of quantities of projects to be tendered on and calculated by engineers and verified by quantity surveyors, consultants or architects of the customer thus having a very reasonable basis in terms of price and quantity; (iii) the Company has referred to previous projects as a basis in determining their Proposed Annual Caps I, and (iv) the buffer and assumptions used are based on historical performance, we are of the view that the transactions in relation to the Project and Supply Works are conducted in the ordinary and usual course of business, and on normal commercial terms, and the Revised Annual Cap I for 2018 and the New Annual Caps I for 2019, 2020 and 2021 for the Project and Supply Works, are fair and reasonable and in the interest of the Company and Shareholders as a whole.

Reasons for and Benefits of the Project and Supply Works:

The Group is a renowned integrated construction engineering contractor and power substation contractor in Macau. It is principally engaged in (i) structural steelworks, civil engineering construction, and fitting out and renovation works; (ii) high voltage power substation construction and its system installation works; and (iii) facilities management, alteration and maintenance works and services, through its indirect wholly-owned subsidiary, EHY Construction and Engineering.

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The Project and Supply Works provides the Group with income, which would otherwise be earned by its competitors. As Macau is a small location, large scale construction projects are limited and are usually attributable to the booming casino industry in Macau. As disclosed in the Prospectus, the Group has been generating most of its revenue from hotel and/or casinorelated projects, thus it is well positioned to take advantage of the growth in this industry, which would otherwise be lost once the islands are fully constructed and all the major casinos and hotels occupy the key land area in Taipa or the Cotai Strip. Furthermore, Melco International, through its subsidiaries, is an established player in the leisure, gaming and entertainment sectors in Macau, which could give additional credibility to the Group’s contracting abilities thereby securing more contracts in the future. Therefore, maintaining a close and long-term business relationship with the Melco Project Owners and the SC Companies will not only continue to provide an additional, reliable and stable source of income for the Group, but will also enhance the image and/or ability of the Group.

In conjunction with the Macau government initiative to encourage the casinos to support more of local small and medium enterprises (‘‘SME’’) as stated in their ‘‘The Five-Year Development Plan of the Macao Special Administrative Region (2016-2020)’’ and to increase large gaming enterprises’ expenditure on local products and services from 41% in 2015 to 50% or above in 2020, all major casino operators have some form of program that supports local SME. For example, SJM Holdings Limited launched its Macau SME Procurement Partnership Programme in 2016, MGM China Holdings Limited started its SME Engagement Program in 2015 and Sands China Limited has its Local Small, Medium and Micro Suppliers Support Programme launched in 2015. As the Company increases its reputation as a reliable contractor or subcontractor, these programs provides the opportunity for the Company to capture businesses from other casinos with the credentials it has built by serving the hotels and casino operated by subsidiaries of Melco International.

Having reviewed the factors above, we are of the view that (i) the transactions in relation to the Project and Supply Works and the New COD Framework Agreement are entered into in the ordinary and usual course of business of the Company, on normal commercial terms, fair and reasonable, and are in the interest of the Company and Shareholders as a whole, and (ii) the Revised Annual Cap I for 2018 and the New Annual Caps I for 2019, 2020 and 2021 are fair and reasonable and in the interest of the Company and Shareholders as a whole.

III. FACILITY MANAGEMENT SERVICES

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Details of the Transactions:

Since the Listing, the Group has entered into 3 new agreements under the Melco Facility Management Services. In addition, the Company noted that the provision of facility management, alteration and maintenance works and services often involved ad-hoc parts and components replacement that the Group is required to source for both the Melco Hotels and the SC Hotel. As a result of the aforesaid 3 new agreements and the need to supply replacement parts and components to both the Melco Hotels and the SC Hotel, the Company foresees that the existing annual caps for the year ending 31 December 2018, 2019 and 2020 may not be sufficient to meet the demands of both the Melco Hotels and the SC Hotel. As a result, the Company intends to revise the existing annual cap for the years ending 31 December 2018, 2019 and 2020.

Pricing Basis:

In determining the terms of each tender, the Group typically conducts a preliminary costing and pricing analysis based on the data and information in their database which collects detailed financial information of the projects the Group has undertaken, such as revenue, profits, costs and expenses on manpower, subcontractors (if applicable), materials, machineries and equipment required for each project and the prevailing market prices of the same. In this connection, the Group’s finance department will collect the detailed financial information of similar projects that the Group has undertaken in the past, such as costs and expenses on manpower, materials, subcontractors, machineries and equipment of such projects, while the Group’s tendering team will collect the specification of similar projects that the Group has undertaken in the past, such as the nature and quantity of materials required and the amount of work to be undertaken by the Group’s subcontractors and/or construction workers. If the information in the Group’s database is not sufficient to make a feasible costing analysis, the Group will then secure quotations from its suppliers of materials and subcontractors (if applicable) to facilitate the Group’s cost estimation and budgeting so as to lock up the price of materials and/or subcontractors. As part of the Group’s internal control policy, the Group will typically obtain three quotations from its suppliers of materials and/or subcontractors before securing a purchase order. For the purpose of selecting the appropriate subcontractor to complete the assigned works, the Group generally provides the potential subcontractors with detailed scope of work and the frequency of maintenance services. The Group’s tendering team will work out the composition of members of management and project teams and the manpower, subcontractors (if applicable), materials and equipment required for the project and

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prepare a tender proposal, which will then be submitted to the Group’s management team for approval. Based on the above, the Group will put together a draft tender proposal in accordance with the tender document after its approved analysis. The Group may make cost adjustments where necessary based on its past experience on the possibility of having variation orders and prevailing market conditions.

For reference, the gross profit margin for the Group’s facilities management, alteration and maintenance works and services was approximately 23.7%, 27.8% and 13.6% for projects with independent third parties, and nil, nil and 13.2% for projects with the Melco Group, for the three years ended 31 December 2017, respectively, signifying a general downward trend. Historically, the facility management, alteration and maintenance works and services provided by the Group in the past three years mainly involved installation and maintenance of high tension electrical and power systems, but the expected Facility Management Services to be provided to the Melco Group included maintenance of a large number of smaller items such as doors, ventilation and air conditioning system, plumbing and drainage, etc. for which the Group typically could not command a high profit margin. In addition, the Group also finds it increasingly costly to employ additional local workers due to the Macau government’s limitation on the number of imported workers, resulting in the Group having to engage subcontractors to complete some of the tasks at a reduced profit to the Group. Thus, although historically the Group was able to achieve a higher gross profit margin, the Directors believe that the general target to achieve a gross profit margin of around 10% for the Facility

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Management Services as stated above is fair and reasonable and the actual gross profit margin to be achieved for each project as determined based on the internal approval process as described above will be no more favourable to the Melco Group than those available to independent third parties.

The above costing and pricing analysis and tender preparation process are undertaken with a view to ensure that the underlying transactions will be conducted in the ordinary course of the Group’s business and the terms in the tender proposal will be normal commercial terms and no more favourable to the Melco Project Owners and/or the SC Project Owner than terms available to other independent project owners.

In order to assess the fairness and reasonableness of the pricing basis of the Facility Management Services, we have discussed with the Company to understand how they have arrived at the quotation for each services provided. According to the Company, prices quoted by them are based on the cost of materials and labour that they have obtained internally or from suppliers and subcontractors. Utilising this cost, they then factor in a reasonable mark up to ensure that the Group earns a reasonable gross profit margin. Based on a rough estimate, they would try to mark up the service cost by 10%, or accept a lower gross profit margin if intense competition exists. In this respect, parts and components required to be purchased by the Group to perform the Facility Management Services are also marked up at an approximate similar gross profit margin. However, common items that can be sourced easily such as lubricants, paints, glue, etc, are normally marked up at a much lower gross profit margin, which they will attempt to compensate by charging higher on other items. In ascertaining their mark ups, we have obtained samples of quotations of monthly maintenance charges billed to the Melco Project Owners and the SC Project Owner, and compared them to the subcontracting charges billed by subcontractors performing the maintenance works. We noted that the average gross profit margin achieved by the Group was higher than the 10% target that the Group hoped for. However, some of the recent contracts facing stiff competition were marked down to remain competitive.

We have also reviewed the historical performance of the Group and noted that based on the annual results of the Group and the Prospectus, the Group had a gross profit margin of 23.7%, 27.8%, and 13.5% for the three years ended 31 December 2017 respectively, which is higher than the targeted 10% gross profit margin that the Company tries to achieve. We have discussed with the Company and noted that historically, facility management services contracts that we have reviewed mainly involved installation and maintenance of high tension electrical and power systems. However, under the current Melco Facility Management Services, we noted the scope of services within the contracts secured includes maintenance of a large number of smaller items such as doors, ventilation and air conditioning system, plumbing and drainage, and etc, that the Company could not command a high margin. In addition, the Company also finds it increasing costly to employ additional local workers as compared to imported workers that the Macau government has reduced in numbers, resulting

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in the Group having to engage subcontractors to complete some of the tasks at a reduced profit. As a result of the foregoing, the gross profit margin has declined as compared to their historical performance.

We have also reviewed the rates and charges of the newly signed contracts under the Proposed Annual Caps II. Although some of the items involved are similar to existing contracts, but due to different scale, models or complexity, the unit rates charged are different. Therefore, we have compared their labour costs and subcontracting cost to their billings and noted the Group still maintains a certain gross profit margin, although sometimes it might be lower than their target. As such, we are of the view that the pricing basis of the Company, which targets a 10% mark up when possible and still maintains a gross profit when being competitive, is on normal commercial terms, fair and reasonable, and in the interest of the Company and Shareholders as a whole.

Internal control system for the continuing connected transactions under the Facility Management Services:

The Group has implemented a guide to tender and pricing for the facility management services within the Group. Please refer to section below titled ‘‘Internal Control Procedures and Corporate Governance of the Group’’ for details of the internal control procedures of the Group.

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Annual Caps of the Facility Management Services:

Set out below is a summary of the historical annual caps and the historical amounts of Facility Management Services provided by the Group to the Melco Hotels and the SC Hotel for the following periods:

Historical figures for the following periods

				6 months
	Year	ended 31 December		ended 30 June
	2015	2016	2017	2018
	(MOP in	(MOP in	(MOP in	(MOP in
	million)	million)	million)	million)
				(Unaudited)
Historical transaction	—(1)	—(1)	16.7	18.2
amount of the Melco
Facility Management
Services
Historical transaction	—(1)	—(1)	4.3	10.7
amount of the SC
Facility Management
Services
Total transaction amount	—(1)	—(1)	21.0	28.9
of the Facility
Management Services

Note:

(1) There was no Facility Management Services for the financial years ended 31 December 2015 and 2016.

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Set out below are the proposed annual caps for the transactions contemplated under the Facility Management Services for the following periods:

	Historical annual	caps for the following	periods
	Year ending 31 December
	2018	2019	2020
	(MOP in	(MOP in	(MOP in
	million)	million)	million)
Historical annual caps for the
Melco Facility Management
Services	30.4	28.8	12.7
Historical annual caps for the SC
Facility Management Services	19.8	19.8	12.8
Total historical annual caps for
the Facility Management
Services	50.2	48.2	25.5
	Proposed new annual caps for
	the	following periods
	Year ending 31 December
	2018	2019	2020
	(MOP in	(MOP in	(MOP in
	million)	million)	million)
Proposed new annual caps for the
Melco Facility Management
Services	56.2	56.9	56.3
Proposed new annual caps for the
SC Facility Management
Services	26.1	28.7	31.8
Total proposed annual caps for
the Facility Management
Services	82.3	85.6	88.1

The historical annual caps of the Facility Management Services was arrived at after aggregating all existing services contracts at the time of determination prior to the Listing. Prior to 2017, the Company did not provide the Facility Management Services to the Melco Hotels and the SC Hotel. However, after the Listing, the Group managed to secure additional services contracts with the Melco Hotels, as well as additional services contracts with Morpheus Hotel, a new hotel under the Melco Hotels. Aside from providing facilities management, alteration and maintenance works and services for the Melco Hotels and the SC

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Hotel from time to time, the Group also charges the Melco Hotels and the SC Hotel for parts and consumables used in conjunction with the provision of facilities management, alteration and maintenance works and services. As a result, the Company discovered that the cost of parts, components and consumables used does account for a reasonable portion of the historical annual caps of the Facility Management Services. As such, the Company has resolved to increase the annual caps in order to accommodate for the sales of parts, components and consumables used.

In determining the Proposed Annual Caps II, the Company has aggregated the expected service fees to be billed by the Group per annum, including service fees expected to be earned from the recently signed facilities management agreements. Under the Melco Facility Management Services, the Group has secured three additional contracts since Listing for the provision of technical and maintenance personnel at the City of Dreams, Altira Macau and Mocha Clubs. We have reviewed these three contracts and noted they are expected to contribute approximately MOP3.5 million per annum in aggregate for the full year, with tenures starting from July 2018 and ending on the last day of 2020. We have also reviewed the new contracts secured with Morpheus Hotel which are expected to contribute MOP12.2 million per year and have a tenure of 2 years starting July 2018 and an option for renewal. Under the contracts secured with Morpheus Hotel, the Group is expected to maintain the heating, ventilation and air-conditioning system, plumbing, electrical systems and their snow garden equipment and operations.

In arriving at the proposed annual cap of MOP56.2 million for the Melco Facility Management Services for the year ending 31 December 2018, the Company has taken into account the existing annual cap of MOP30.4 million, together with MOP6.6 million expected from the facility management services contracts with Morpheus Hotel, MOP14.3 million consisting of variation orders, including MOP1.4 million from two of the three new contracts secured with the City of Dreams and Altira Macau, and an additional buffer of MOP4.9 million. As a result, the total proposed annual cap for Melco Facility Management Services for the year ending 31 December 2018 is expected to be MOP56.2 million. The MOP4.9 million buffer represents approximately 9.6% of existing contracts on hand. Based on historical facility management services contracts, the amount of variation orders was approximately 10.5%. Therefore, we are of the view that the aggregated proposed annual cap of MOP56.2 million of the Melco Facility Management Services for 2018 that is based on existing secured contracts and a buffer lower than the historical amount, is fair and reasonable and in the interest of the Company and Shareholders as a whole.

In arriving at the proposed annual cap of MOP56.9 million for the Melco Facility Management Services for the year ending 31 December 2019, the Company has taken into account the existing annual cap of MOP28.8 million, together with MOP12.2 million expected from the facility management services contracts with Morpheus Hotel, MOP3.5 million from the three new contracts secured with the City of Dreams, Altira Macau and Mocha Clubs, and an additional MOP9.1 million of tenders submitted ranging from MOP0.2 million to MOP4.0 million per annum for the provision of services at the Melco Hotels. Based on the tenders

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submitted that we have reviewed, we noted that these facility management services consist of maintenance of rides and their mechanical systems, provision of cleaning services and also the maintenance of other mechanical and electrical systems. The tenure of these contracts ranges from 2 year to 3 years. The Company also adopted a buffer of MOP3.3 million to allow for smooth running of the Melco Facility Management Services as occasional variation orders may arise that needs to be addressed immediately. Having reviewed the existing contracts and the projects tendered for, we are of the view that the aggregated proposed annual cap of MOP56.9 million of the Melco Facility Management Services for 2019 based on existing contracts and contracts being tendered plus a small buffer is fair and reasonable and in the interest of the Company and Shareholders as a whole.

In arriving at the proposed annual cap of MOP56.3 million for the Melco Facility Management Services for the year ending 31 December 2020, the Company has taken into account the existing annual cap of MOP12.7 million, together with MOP12.2 million expected from the facility management services contracts with Morpheus Hotel, MOP0.8 million from one of the three new contracts secured, which is with Mocha Clubs. We have reviewed the contracts amounting to MOP15.7 million that are expected to be renewed when they expire in 2019 and/or 2020. These contracts include maintenance of doors, lighting systems, energy centers, and the maintenance of miscellaneous sections of the hotels and they range from MOP0.2 million to MOP16.8 million per annum. Having reviewed the nature of the contracts, we are of the view that the services provided under the aforesaid contracts are recurring in nature and in light of the high requirement of a 5-star hotel group such as the Melco Hotels, it would be fair and reasonable for them to renew these contracts upon their expiry to prevent any disruption to their operations. In addition, the new contracts currently being tendered as mentioned in the paragraph above if successful are expected to contribute to the additional annual cap requirement in 2020, which would require another annual cap of MOP8.4 million. The Company has adopted a buffer of MOP6.5 million and we are of the view that this amount is fair and reasonable as it represents 13.0% of the proposed annual cap for 2020, which is almost in line with the variation orders received by the Company based on historical variation orders of facility management services.

In arriving at the proposed annual cap of MOP26.1 million for the SC Facility Management Services for the year ending 31 December 2018, the Company has taken into account the existing annual cap of MOP19.8 million and added in new variation orders of MOP6.3 million. We have reviewed the existing SC Facility Management Services agreements and also the variation orders and noted that the amount is in line with the proposed annual caps. As such we are of the view that the proposed annual cap for SC Facility Management Services for the year 2018 is fair and reasonable and in the interest of the Company and Shareholders as a whole.

In arriving at the proposed annual cap of MOP28.7 million for the SC Facility Management Services for the year ending 31 December 2019, the Company has taken into account the existing annual cap of MOP19.4 million together with MOP7.0 million annual cap for various maintenance services that the Group is currently tendering for. We have reviewed

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the tenders submitted and noted that they consist of maintenance of structure and cleaning services. The tenure of these tenders submitted ranges from 2 years to 3 years and their fees chargeable per annum ranges from MOP0.3 million to slightly over MOP4.0 million. The Company also included a small buffer of MOP2.3 million to ensure that any ad-hoc services can be served immediately. We are of the view that the proposed annual cap for SC Facility Management Services for the year 2019 is fair and reasonable and in the interest of the Company and Shareholders as a whole as it follows the annual caps of contracts secured and also contracts to be secured with a small buffer.

In arriving at the proposed annual cap of MOP31.8 million for the SC Facility Management Services for the year ending 31 December 2020, the Company has taken into account the existing annual cap of MOP12.8 million and together with MOP5.8 million of the annual cap arising from the renewal of existing contracts. We have reviewed the contracts expiring in 2019 and noted their contract amount is in line with their tenure and the services provided involved maintenance of doors and provision of technical personal for the maintenance of the power center. In view of the tenders submitted as stated in the paragraph above, the Company will need to allocate MOP6.3 million of annual caps if they materialise. The Company also allocated MOP6.9 million as buffer to accommodate any new facility management services or variation orders that might arise. Having reviewed the existing contracts and the tenders submitted, we are of the view that the proposed annual cap of SC Facility Management Services for the year 2020, which is based on documented contracts and tenders is fair and reasonable, and in the interest of the Company and Shareholders as a whole.

Aside from the potential services to be secured, we have also reviewed all the services to be provided that form the basis under the Facility Management Services and noted that most of the items/services provided involved multitude of small items such as maintenance of doors, ventilation and air conditioning system, plumbing and drainage and etc. Significant items represented under the Facility Management Services among the Melco Hotels are electrical and mechanical systems, UPS (uninterruptible power supply) and heating and air conditioning systems, which are reasonable as these items are complex and critical of the smooth operation of the hotels/casino.

Having considered that each of the proposed annual caps under the Melco Facility Management Services and the SC Facility Management Services were derived based on (i) secured contracts; (ii) contracts whereby the Group has submitted tenders; (iii) renewal of existing contracts and contracts tendered for are based on their respective expiration and their renewal can be assumed to be required as buildings owners would normally retain existing service providers instead of constantly changing to prevent disruption to the smooth running of the building; and (iv) small buffers are allocated in the event of ad-hoc urgent services required or variation orders, we are of the view that the Proposed Annual Caps II are determined in the ordinary and usual course of business, fair and reasonable, and in the interest of the Company and Shareholders as a whole.

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IV. INTERNAL CONTROL PROCEDURES AND CORPORATE GOVERNANCE OF THE GROUP

In order to safeguard the interest of the Group and the Shareholders under the continuing connected transactions in relation to the Project and Supply Works and the Facility Management Services, the Company will implement the following internal control measures:

a. the relevant management personnel of the Group will closely monitor the transactions in relation to the Project and Supply Works and the Facility Management Services such as active monitoring of the progress of the underlying projects and the process by which the works and/or services performed by the Group will be certified by the relevant project owner(s) or manager(s) for payment purposes, as well as the tenders submitted to and the contracts awarded by the Melco Group on monthly basis, to ensure that the total transaction amount does not exceed the stipulated annual caps;
b. prior to submitting tenders/quotations for the Project and Supply Works (including the works anticipated under the New COD Framework Agreement) and/or Facility Management Services, the relevant management personnel of the Group shall ensure that the terms are negotiated on an arm’s length basis, are in compliance with the pricing policy of the Group as set out in the Board Letter under ‘‘II. Project and Supply Works — Pricing Policy’’ and ‘‘VI. Facility Management Services — Pricing Policy’’, and are normal commercial terms that are no more favourable to the relevant connected persons than the terms with independent project owners. To ensure that the Group will conduct its costing and pricing analysis and adjust its markup on the estimated costs (where appropriate) with reference to normal commercial terms and the prevailing market conditions, the Group will collect information on the costs and expenses of similar projects undertaken by the Group in preceding years and obtain necessary update information by seeking quotations for major materials (such as steel) or subcontracting services from at least three suppliers or subcontractors (as the case may be) based on the specific circumstances and requirements of the upcoming projects to be tendered/quoted for;
c. depending on the terms and conditions of the contracts, individual variation orders may be required to be entered into between the Group and the Melco Group during the course of the provision of the Project and Supply Works and/or Facility Management Services by the Group. The value of the variation works is generally priced in accordance with the pre-agreed fee rate for variation works of a similar nature to those works as stated in the relevant contract of the project. If the variation order involves works which fall outside the scope of the relevant contract, a new fee pertaining to such variation works will have to be agreed. The relevant management personnel of the Group will ensure that the fees for the services required and any detailed specifications which may be relevant to the services shall be set out in each individual variation order, and that such terms will be normal commercial terms and no more favourable to the relevant connected persons than those available to independent project owners;

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d. the relevant management personnel of the Group will conduct regular checks to review and assess whether the transactions contemplated under the Project and Supply Works and/or Facility Management Services are conducted in accordance with the terms set out in the underlying tender document(s), framework agreement(s) (including the New COD Framework Agreement), works order(s) and/or variation order(s) and whether the consideration for the transactions are fair and reasonable and in accordance with the pricing policies set out in such transaction documents;
e. prior to submitting tenders to, and/or entering into any agreements, work orders, and/or variation orders with, the Melco Group for any projects or services which falls outside the list of properties as identified by the Company or the scope of the Project and Supply Works as set out in the Board Letter under ‘‘II. Project and Supply Works — Scope of the Project and Supply Works’’ or the scope of the Facility Management Services as set out in the Board Letter under ‘‘IV. Facility Management Services — Scope of the Facility Management Services’’, the relevant management personnel of the Group shall seek for the prior approval of the board of directors of the Company, including the independent non-executive Directors of the Company. The Board shall ensure that the Company will comply with the applicable requirements under Chapter 14A of the Listing Rules in respect of such transactions, including (where applicable) compliance with the reporting, written agreement, announcement and/or shareholders’ approval requirements thereunder, prior to entering into such transactions. The Board shall consult with the compliance adviser of the Company and other external advisers (such as legal advisers), where appropriate, on a timely basis to ensure that necessary actions will be taken by the Company to comply with the Listing Rules;
f. the Company’s external auditors will conduct an annual review of the transactions in relation to the Project and Supply Works and Facility Management Services to ensure the transaction amounts are within the annual caps and the transactions are in accordance with the terms of the underlying tender document(s), framework agreement(s) (including the New COD Framework Agreement), works order(s) and/or variation order(s); and
g. the independent non-executive Directors will conduct quarterly reviews of the status of the transactions in relation to the Project and Supply Works and Facility Management Services to ensure that the Group has complied with its internal approval process, the terms of the underlying tender document(s), framework agreement(s) (including the New COD Framework Agreement), works order(s) and/or variation order(s), and the relevant requirements under the Listing Rules.

In order to ascertain that there is sufficient internal control when the Company performs costing analysis, we have obtained three pricing samples of each random product used in their tenders to ensure that the Group has sufficient internal controls in terms of determining their costing. Based on their internal database, purchase orders, quotations or recent invoices received, we noted that the Group managed to rely on the cost accurately when entering the pricing into their tenders. There was no incident of pricing of products, services or sub-

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contracting charges that was entered into their tenders below the quotation of the market price. As such, we are of the view that the Group has sufficient internal control in determining the costing of their products and services.

In considering whether the internal control measures which the Group has been adopting as set out above are adequate and effective, we have conducted a walkthrough analysis of the internal control systems and obtained relevant supporting documents including, amongst others, relevant quotations of similar services offered to other customers of the Group, the periodical assessment of the level of annual caps usage, the approvals from the relevant management personnel of the Group when quotations are made during the tendering process, tender analysis reports prepared prior to submitting a tender and the review performed by the external auditors and the independent non-executive Directors to ensure that the Company is in compliance of the Listing Rules in this aspect. Based on the documents we have reviewed, we noted that the tender documents were prepared by personnel of the Group and each tender was reviewed, signed and approved by senior management for submission.

We have also reviewed the tendering guidelines and the variation orders guidelines whereby each tender quotation requires assessment of prices quoted by suppliers with margins marked up having sufficient room for further negotiation. We have also obtained sample of their tender assessment score card which the Company uses to determine whether a particular project to be tendered meets the profitability and risk profile demanded by the Company. In light of the above, we are of the view that the internal control measures are adequate and effective in ensuring that the Project and Supply Works and Facility Management Services have been and will be conducted on normal commercial terms and that the relevant Proposed Annual Caps will not be exceeded and also that the internal control measures adopted by the Group are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

V. WAIVER FROM STRICT COMPLIANCE WITH RULES 14A.34 AND 14A.51 OF THE LISTING RULES

Background and reasons

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Despite the Group’s effort and request, other than the New COD Framework Agreement in respect of the Melco Project and Supply Works, no written framework agreement in respect of the Waiver CCTs has been entered into so far or is expected to be entered into going forward.

The Waiver CCTs are and will be essential to the business development of, and beneficial to, the Company. In forming such view, the Company has taken into account the following factors: (i) the Company expects to continue and maintain a long-term business relationship with the Melco Project Owners and the SC Companies; and (ii) the revenue received by the Group from the Melco Group will continue to provide a reliable and stable source of income for the Group. The Company expects that there will continue to be transactions in relation to the Project and Supply Works and the Facility Management Services between the Group and the Melco Group for the years to come. If the Group were unable to enter into the Waiver CCTs because of the refusal or inability of the Melco Group to sign any written framework agreement, this would be detrimental to the Group’s interests.

Further details of the Waiver CCTs are disclosed in the Board Letter under ‘‘XII. Waiver from Strict Compliance with Rules 14A.34 and 14A.51 of the Listing Rules’’.

Independent Financial Adviser’s view on the Waiver CCTs

In forming our view on whether the Waiver CCTs are in the ordinary and usual course of business, on normal commercial terms, fair and reasonable and in the interest of the Company and Shareholders as a whole, we have reviewed (i) sample contracts entered into between the Group and the Melco Project Owners and the SC Companies; (ii) email communications between the Melco Group and the Company and discussed with the Company on the impact of the Company if they are unable to enter into a framework agreement with the Melco Group.

It is stated in the Board Letter that the pricing policies and internal control measures are in place to safeguard the interest of the Company and Shareholders as a whole. We noted that pricing policies of contracts secured by the Group are based on a cost plus basis, assessed by engineers and quantity surveyors, consultants or architects of the customer, in particular those that are submitted for tender are being scrutinised in detail and therefore have a very reasonable quantity and price.

Based on the documents we have reviewed, we noted that the work orders under the Project and Supply Works and Facility Management Services are properly documented, identified and recorded. Whether the contracts are negotiated or tendered, they involved detailed bill of quantities or detailed itemized quotation. Furthermore, if a contract is secured by way of bidding, the preparation of the bidding documents is even more detailed. We have also noted that the contracts entered into between the Group and the Melco Project Owners or the SC Companies are lengthy and cover all aspect of construction as well as obligations of both parties. Therefore, we are of the view that there is sufficient documentation to regulate the scope and the activities of continuing connected transactions that may occur between the Group and the Melco Project Owners or the SC Companies.

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LETTER FROM FRONTPAGE CAPITAL LIMITED

We have also reviewed the communication between the Group and the Melco Group and noted that they are not prepared to enter into a framework agreement to cover both the Melco Project Owners and the SC Companies as they could not find a commercial justification to do so. We noted that the continuing connected transactions do not affect the Melco Group as the Group is not a connected person of the Melco Group. Hence it is not in their time and interest to enter into a framework agreement that does not serve any purpose for them. We are of the view that the Melco Group being a large listed conglomerate may need approvals from various personnel or departments before they are allowed to enter into an agreement hence it becomes a costly effort for them.

If the Company is unable to obtain the Waiver, the Company would be required to comply with Listing Rules every time they successfully secure a contract from the Melco Project Owners or the SC Companies. As the continuing connected transactions are accumulative, this would imply that they would be required to issue a circular and hold an extraordinary general meeting every time to comply with the Listing Rules. Furthermore, they will be required to abstain from conducting any business under any new contracts that they enter into until approval from Independent Shareholders have been obtained, which may result in them breaching their contract or deter the Melco Project Owners or the SC Companies from conducting business with the Group. In addition, it would be time consuming and costly to comply with the Listing Rules in the absence of the Waiver.

Having considered the above, in particular (i) there has been and there will be written agreements containing detailed pricing and quantity entered into between the Group and the Melco Project Owners or the SC Companies for every project, which in substance has the same effect as Rule 14A.34 but retrospectively; (ii) the Melco Group’s reluctance to enter into a framework agreement and that the Melco Group is a listed company with strict internal controls and compliance requirements; (iii) it will be very costly for the Company to comply with the Listing Rules in the absence of the waiver; and (iv) the Group will risk losing the Melco Project Owners and the SC Companies as its client if they find it cumbersome to conduct business with the Group, which will be detrimental to the Group as the revenue generated represents a significant portion of the Group’s revenue, we are of the view that the Waiver is fair and reasonable and in the interest of the Company and Shareholders as a whole.

RECOMMENDATION

Based on the above principal factors and reasons, and in view of the Proposed Annual Caps are (i) based on existing secured contracts plus a reasonable buffer for variation orders and future contracts; (ii) the prices offered by the Group will be marked up from their cost of goods and services thus ensuring that the Group will always earn a gross profit; and (iii) the Project and Supply Works (including those contemplated under the New COD Framework Agreement) and the Facility Management Services will generate additional revenue for the Group, we consider that the terms of the continuing connected transactions in relation to the Project and Supply Works (including those contemplated under the New COD Framework Agreement) and the Facility Management Services, and the transactions contemplated thereunder, and the Proposed Annual Caps

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LETTER FROM FRONTPAGE CAPITAL LIMITED

are on normal commercial terms, in the ordinary and usual course of business of the Group, and together with the Waiver are fair and reasonable, and in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend and we also recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the Project and Supply Works (including those contemplated under the New COD Framework Agreement), the Facility Management Services, the Proposed Annual Caps and the Waiver.

Yours faithfully, For and on behalf of Frontpage Capital Limited Chai Yee Choong Director

Note: Mr. Chai Yee Choong is a licensed person registered with the Securities and Futures Commission of Hong Kong and a responsible officer of Frontpage Capital Limited to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance. He has more than 10 years of experience in corporate finance.

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GENERAL INFORMATION

APPENDIX

I. RESPONSIBILITY STATEMENT

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

II. DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying Shares and debentures of the Company and its associated corporations (as defined in Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or which were required to be entered in the register kept under section 352 of the SFO, or required to be notified to the Company and the Stock Exchange in accordance with the Model Code were as follows:

(i) Interest in Shares of the Company

			Approximate
			percentage of
		Number of	shareholding
		Shares	interest
Name of Director	Nature of Interest	(Note 1)	(Note 2)
Mr. Kuok Lam Sek	Interest of the controlled	600,960,000 (L)	50.08%
(Note 3)	corporation
Mr. Sou Kun Tou	Interest of the controlled	600,960,000 (L)	50.08%
(Note 3)	corporation

Notes:

(1) The letter ‘‘L’’ denotes the person’s long position in the Shares.
(2) Based on 1,200,000,000 Shares in issue as at the Latest Practicable Date.
(3) MECOM Holding is owned as to 35% by Mr. Kuok Lam Sek, 35% by Mr. Sou Kun Tou, 15% by Mr. Lam and 15% by Mr. Lao, respectively. Mr. Kuok Lam Sek, Mr. Sou Kun Tou, Mr. Lam and Mr. Lao are parties acting in concert.

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GENERAL INFORMATION

APPENDIX

(ii) Interest in underlying shares of the Company

			Approximate
		Number of	percentage of
		underlying	shareholding
		shares	interest
Name of Director	Nature of Interest	(Note 1)	(Note 2)
Ms. Chan Po Yi, Patsy	Beneficial interest	200,000 (L)	0.02%
Mr. Cheung Kiu Cho,	Beneficial interest	200,000 (L)	0.02%
Vincent
Dr. Ngan Matthew Man	Beneficial interest	200,000 (L)	0.02%
Wong

Notes:

(1) The interests in the underlying shares are in relation to the share options granted under the share option scheme of the Company.
(2) Based on 1,200,000,000 Shares in issue as at the Latest Practicable Date.

(iii) Interest in associated corporation of Company

	Name of associated		Interest	Percentage
Name	corporation	Nature of interest	in shares	holding
Mr. Kuok	MECOM Holding	Beneficial owner and	100	100%
Lam Sek		interest held
(Note)		jointly with
		another person
Mr. Sou Kun	MECOM Holding	Beneficial owner and	100	100%
Tou (Note)		interest held
		jointly with
		another person

Notes: MECOM Holding is owned as to 35% by Mr. Kuok Lam Sek, 35% by Mr. Sou Kun Tou, 15% by Mr. Lam and 15% by Mr. Lao, respectively. Mr. Kuok Lam Sek, Mr. Sou Kun Tou, Mr. Lam and Mr. Lao are parties acting in concert.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had interests or short positions in the Shares, underlying shares and debentures of the Company or any associated corporations (as defined in Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or

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GENERAL INFORMATION

APPENDIX

deemed to have under such provisions of the SFO), or which were required to be entered in the register kept under section 352 of the SFO, or required to be notified to the Company and the Stock Exchange in accordance with the Model Code.

III. SUBSTANTIAL SHAREHOLDERS’ INTERESTS

As at the Latest Practicable Date, so far as was known to the Directors or chief executive of the Company and as required by Divisions 2 and 3 of Part XV of the SFO to be disclosed to the Company or as recorded in the register required to be kept under Section 336 of the SFO, the interests or short positions of persons other than the Directors and chief executive of the Company in the Shares and underlying shares of the Company were as follows:

			Approximate
		Total Number	percentage of
Name of Substantial		of Shares	shareholding
Shareholder	Nature of Interest	(Note 1)	interest
Mr. Lam (Note 2)	Interest of the controlled	600,960,000 (L)	50.08%
	corporation
Mr. Lao (Note 2)	Interest of the controlled	600,960,000 (L)	50.08%
	corporation
MECOM Holding	Beneficial owner	600,960,000 (L)	50.08%
Mr. Ho (Note 3)	Interest of the controlled	240,000,000 (L)	20%
	corporation
King Dragon	Beneficial owner	240,000,000 (L)	20%

Notes:

(1) The letter ‘‘L’’ denotes the person’s long position in the Shares.
(2) MECOM Holding is owned as to 35% by Mr. Kuok Lam Sek, 35% by Mr. Sou Kun Tou, 15% by Mr. Lam and 15% by Mr. Lao, respectively. Mr. Kuok Lam Sek, Mr. Sou Kun Tou, Mr. Lam and Mr. Lao are parties acting in concert.
(3) King Dragon is beneficially and wholly-owned by Mr. Ho. By virtue of the SFO, Mr. Ho is deemed to be interested in the Shares held by King Dragon.

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

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GENERAL INFORMATION

APPENDIX

IV. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered or proposed to enter into a service contract with any member of the Group which will not expire or is not determinable within one year without payment of compensation (other than statutory compensation).

V. DIRECTORS’ EMPLOYMENT WITH SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, none of the Directors were in the employment with the companies which had interests or short positions in the Shares or underlying shares which are required to be notified to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO.

VI. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or their respective close associates was considered by the Company to have interests in businesses which compete with, or might compete with, either directly or indirectly, the businesses of the Group.

VII. DIRECTORS’ INTERESTS IN ASSETS OF THE GROUP

As at the Latest Practicable Date, so far as the Directors were aware, none of the Directors or their respective close associates had any direct or indirect interests in any assets which have been acquired, disposed of or leased to, or which were proposed to be acquired, disposed of or leased to, any member of the Group since 31 December 2017, being the date to which the latest published audited consolidated financial statements of the Company were made up.

VIII. DIRECTORS’ INTERESTS IN CONTRACTS OR ARRANGEMENTS OF THE GROUP

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

IX. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2017, being the date to which the latest published audited financial statements of the Company were made up.

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GENERAL INFORMATION

APPENDIX

X. EXPERT
(1) The following are the qualifications of the expert who has given its opinions or advice which is contained in this circular:

Name

Qualification

Frontpage Capital Limited

A corporation licensed to conduct Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

(2) As at the Latest Practicable Date, the above expert did not have any shareholding directly or indirectly in any member of the Group or any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(3) As at the Latest Practicable Date, the above expert had no direct or indirect interest in any assets which had been, since 31 December 2017 (being the date to which the latest published audited financial statements of the Company were made up), acquired, disposed of by, or leased to any member of the Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group.
(4) The above expert has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and the reference to its name included herein in the form and context in which it appears.

XI. MISCELLANEOUS

(1) The registered office of the Company is at Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands.
(2) The headquarters and principal place of business of the Company in Macau is at Units Q, R and S, 6/F Praça Kin Heng Long-Heng Hoi Kuok, Kin Fu Kuok, No. 258 Alameda Dr. Carlos D’Assumpção, Macau, and the principal place of business of the Company in Hong Kong is at Room 1909–13, 19th Floor, Tai Yau Building, 181 Johnston Road, Wanchai, Hong Kong.
(3) The company secretary of the Company is Ms. Tam Wing Yee. Ms. Tam Wing Yee is admitted as a certified public accountant by Hong Kong Institute of Certified Public Accountants.
(4) The Hong Kong share registrar of the Company is Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

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GENERAL INFORMATION

APPENDIX

XII. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at Suite 2902, 29th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong during normal business hours for a period of 14 days from the date of this circular (excluding Saturdays, Sundays and any public holidays):

(a) the memorandum and articles of association of the Company;
(b) a copy of the New COD Framework Agreement;
(c) the letter from the Independent Financial Adviser as set out in the section headed ‘‘Letter from Frontpage Capital Limited’’ of this circular;
(d) the written consent of referred to in the paragraph headed ‘‘X. EXPERT’’ in this Appendix; and
(e) this circular.

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NOTICE OF EGM

==> picture [191 x 47] intentionally omitted <==

MECOM Power and Construction Limited 澳能建設控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1183)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the ‘‘EGM’’) of MECOM Power and Construction Limited (the ‘‘Company’’) will be held at Suite 2902, 29th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong on Monday, 10 December 2018 at 10 a.m. for the purposes of considering and, if thought fit, passing with or without modifications, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

‘‘THAT
(a) the transactions in relation to the Melco Project and Supply Works and the SC Project and Supply Works (each as defined in the Company’s circular dated 22 November 2018 (the ‘‘Circular’’)) and the proposed annual caps thereof for the year ending 31 December 2018 as stated in the Circular (the ‘‘Revised Annual Caps I for 2018’’) be and are hereby approved, confirmed and ratified; and
(b) any one director of the Company be and is hereby authorised to execute, perfect, deliver (including under seal where applicable) all such documents and deeds, and to do or authorise doing all such acts, matters and things, as he may in his absolute discretion consider necessary, expedient or desirable to give effect to and implement and/or complete all matters in connection with the transactions relating to the Melco Project and Supply Works and the SC Project and Supply Works for the year ending 31 December 2018 not exceeding the Revised Annual Caps I for 2018.’’
‘‘THAT
(a) the transactions in relation to the Melco Project and Supply Works and the SC Project and Supply Works (each as defined in the Circular) (including the Waiver CCTs (as defined in the Circular) and the scope and pricing policy thereof as described in the Circular) and the proposed annual caps thereof for each of the years ending 31 December 2019, 2020 and 2021 as stated in the Circular (the ‘‘New Annual Caps I for 2019, 2020 and 2021’’) be and are hereby approved, confirmed and ratified; and

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NOTICE OF EGM

(b) any one director of the Company be and is hereby authorised to execute, perfect, deliver (including under seal where applicable) all such documents and deeds, and to do or authorise doing all such acts, matters and things, as he may in his absolute discretion consider necessary, expedient or desirable to give effect to and implement and/or complete all matters in connection with the transactions relating to the Melco Project and Supply Works and the SC Project and Supply Works (including the Waiver CCTs) for the years ending 31 December 2019, 2020 and 2021 not exceeding the New Annual Caps I for 2019, 2020 and 2021.’’
‘‘THAT
(a) the transactions in relation to the Melco Facility Management Services and the SC Facility Management Services (each as defined in the Circular) (including the Waiver CCTs (as defined in the Circular) and the scope and pricing policy thereof as described in the Circular) and the proposed annual caps thereof for each of the years ending 31 December 2018, 2019 and 2020 as stated in the Circular (the ‘‘Revised Annual Caps II for 2018, 2019 and 2020’’) be and are hereby approved, confirmed and ratified; and
(b) any one director of the Company be and is hereby authorised to execute, perfect, deliver (including under seal where applicable) all such documents and deeds, and to do or authorise doing all such acts, matters and things, as he may in his absolute discretion consider necessary, expedient or desirable to give effect to and implement and/or complete all matters in connection with the transactions relating to the Melco Facility Management Services and the SC Facility Management Services (including the Waiver CCTs) for the years ending 31 December 2018, 2019 and 2020 not exceeding the Revised Annual Caps II for 2018, 2019 and 2020.’’
‘‘THAT
(a) the waiver from strict compliance with Rules 14A.34 and 14A.51 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited in respect of the Waiver CCTs (as defined in the Circular) (the ‘‘Waiver’’) be and is hereby approved, confirmed and ratified; and

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NOTICE OF EGM

(b) any one director of the Company be and is hereby authorised to execute, perfect, deliver (including under seal where applicable) all such documents and deeds, and to do or authorise doing all such acts, matters and things, as he may in his absolute discretion consider necessary, expedient or desirable to give effect to and implement and/or complete all matters in connection with the Waiver.’’

On behalf of the Board MECOM Power and Construction Limited Kuok Lam Sek

Chairman and executive Director

Hong Kong, 22 November 2018

Registered office: Headquarters and principal place Conyers Trust Company (Cayman) Limited of business in Macau: Cricket Square Units Q, R and S Hutchins Drive 6/F Praça Kin Heng Long-Heng Hoi Kuok PO Box 2681 Kin Fu Kuok Grand Cayman, KY1-1111 No. 258 Alameda Dr. Carlos D’Assumpção Cayman Islands Macau

Principal place of business in Hong Kong: Room 1909–13, 19th Floor Tai Yau Building 181 Johnston Road Wanchai, Hong Kong

Notes:

A shareholder entitled to attend and vote at the above meeting is entitled to appoint another person as his/her proxy to attend and vote instead of him/her; a proxy need not be a shareholder of the Company.
In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the vote(s) of the other joint holder(s), and for this purpose seniority shall be determined as that one of the said persons so present whose name stands first on the register in respect of such share shall alone be entitled to vote in respect thereof.
In order to be valid, a form of proxy must be deposited at the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong together with the power of attorney or other authority (if any) under which it is signed (or a certified copy thereof) not less than 48 hours before the time appointed for the holding of the above meeting or any adjournment thereof. The completion and return of the form of proxy shall not preclude shareholders of the Company from attending and voting in person at the above meeting (or any adjournment thereof) if they so wish.

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NOTICE OF EGM

In order to be eligible to attend and vote at the above meeting, all transfer forms accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not later than 4:30 p.m. on Friday, 7 December 2018.
In case the EGM is anticipated to be affected by black rainstorms or tropical cyclone with warning signal no. 8 or above, please refer to the website of Hong Kong Exchanges and Clearing Limited at http://www.hkexnews.hk and the Company’s website at http://www.mecommacau.com for announcement on bad weather arrangement for the EGM.
The form of proxy in connection with the EGM is enclosed herewith.

As at the date of this notice, the executive Directors are Mr. Kuok Lam Sek and Mr. Sou Kun Tou; the independent non-executive Directors are Ms. Chan Po Yi, Patsy, Mr. Cheung Kiu Cho, Vincent and Dr. Ngan Matthew Man Wong.

– 79 –

AI assistant

MECOM Power and Construction Limited — Proxy Solicitation & Information Statement 2018

49751_rns_2018-11-21_872fad89-3530-46da-b239-ed54d251f40f.pdf

MECOM Power and Construction Limited 澳 能 建 設 控 股 有 限 公 司

CONTINUING CONNECTED TRANSACTIONS

(1) PROJECT AND SUPPLY WORKS — REVISION OF EXISTING ANNUAL CAPS AND SETTING OF NEW ANNUAL CAPS;

AND

ANNUAL CAPS

AND

NOTICE OF EGM

CONTENTS

DEFINITIONS

DEFINITIONS

MECOM Power and Construction Limited 澳 能 建 設 控 股 有 限 公 司

CONTINUING CONNECTED TRANSACTIONS

ANNUAL CAPS

AND

NOTICE OF EGM

I. INTRODUCTION

II. PROJECT AND SUPPLY WORKS

Scope of the Project and Supply Works

Project contracts

Melco Project and Supply Works

SC Project and Supply Works

Potential projects

Pricing policy

LETTER FROM THE BOARD

Variation orders

III. NEW COD FRAMEWORK AGREEMENT

Date

Parties

Term

Subject matter

Pricing and payment terms

IV. HISTORICAL TRANSACTION AMOUNTS FOR PROJECT AND SUPPLY WORKS

V. PROPOSED ANNUAL CAPS FOR THE PROJECT AND SUPPLY WORKS AND ITS BASIS OF DETERMINATION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

VI. FACILITY MANAGEMENT SERVICES

Scope of the Facility Management Services

Project contracts

Melco Facility Management Services

LETTER FROM THE BOARD

SC Facility Management Services

Potential projects

Pricing policy

Variation orders

VII. HISTORICAL TRANSACTION AMOUNTS FOR FACILITY MANAGEMENT SERVICES

VIII.PROPOSED ANNUAL CAPS FOR FACILITY MANAGEMENT SERVICES AND ITS BASIS OF DETERMINATION

(MOP in million)

LETTER FROM THE BOARD

LETTER FROM THE BOARD

IX. INTERNAL CONTROL MEASURES

LETTER FROM THE BOARD

X. REASONS FOR AND BENEFIT OF THE CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

XI. LISTING RULES IMPLICATIONS

XII. WAIVER FROM STRICT COMPLIANCE WITH RULES 14A.34 AND 14A.51 OF THE LISTING RULES

Background and reasons

Conditions to the Waiver

XIII. INFORMATION OF THE PARTIES TO THE CONTINUING CONNECTED TRANSACTIONS

XIV. RECOMMENDATION

LETTER FROM THE BOARD

XV. EGM

LETTER FROM THE BOARD

XVI. ADDITIONAL INFORMATION

MECOM Power and Construction Limited Kuok Lam Sek

MECOM Power and Construction Limited 澳 能 建 設 控 股 有 限 公 司

CONTINUING CONNECTED TRANSACTIONS

(1) PROJECT AND SUPPLY WORKS — REVISION OF EXISTING ANNUAL CAPS AND SETTING OF NEW ANNUAL CAPS;

AND

(2) FACILITY MANAGEMENT SERVICES — REVISION OF EXISTING ANNUAL CAPS

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

For and on behalf of the Independent Board Committee

MECOM Power and Construction Limited

CONTINUING CONNECTED TRANSACTIONS

(1) PROJECT AND SUPPLY WORKS — REVISION OF EXISTING ANNUAL CAPS AND SETTING OF NEW ANNUAL CAPS; AND

(2) FACILITY MANAGEMENT SERVICES — REVISION OF EXISTING ANNUAL CAPS

INTRODUCTION

LETTER FROM FRONTPAGE CAPITAL LIMITED

MECOM Power and Construction Limited Proxy Solicitation & Information Statement 2018

MECOM Power and Construction Limited 澳能建設控股有限公司

MECOM Power and Construction Limited 澳能建設控股有限公司

MECOM Power and Construction Limited 澳能建設控股有限公司

MECOM Power and Construction Limited 澳能建設控股有限公司