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 licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in BEIJING CAPITAL INTERNATIONAL AIRPORT CO., LTD. , you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer 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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(1) CONTINUING CONNECTED TRANSACTIONS (I) SUPPLEMENTAL AGREEMENT IN RELATION TO THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT

AND

(II) REVISION OF ANNUAL CAPS UNDER THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT (AS AMENDED BY THE SUPPLEMENTAL AVIATION SECURITY AGREEMENT)

AND

(2) PROPOSAL FOR THE APPOINTMENT OF AN EXECUTIVE DIRECTOR

AND

(3) PROPOSAL FOR THE APPOINTMENT OF A SUPERVISOR REPRESENTING THE SHAREHOLDERS

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

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

A letter from the Board is set out on pages 4 to 19 of this circular. A letter from the Independent Board Committee is set out on pages 20 to 21 of this circular. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 22 to 41 of this circular.

The Company will convene the EGM at 9:00 a.m. on Thursday, 16 December 2021 at the Conference Room, Room 112, the Office Building of the Company, No. 9 Siwei Road, Capital Airport, Beijing, the PRC. The notice convening the EGM was despatched to the Shareholders on 29 October 2021. A supplemental notice in relation to the EGM was despatched to the Shareholders on 26 November 2021.

The Company has despatched the reply slips for the EGM on 29 October 2021. Shareholders who intend to attend the EGM should have completed and returned the reply slips in accordance with the instructions printed thereon as soon as possible and in any event by not later than Thursday, 25 November 2021.

Whether or not you are able to attend the meeting, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 24 hours before the time appointed for holding of the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so wish.

30 November 2021

		Pages
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from	the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Letter from	the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Appendix I	– Biographies of the Candidiates Proposed for Appointment as an Executive
	Director and a Supervisor Representing the Shareholders . . . . . . . . . .	42
Appendix II	– General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44

DEFINITIONS

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

“2019 Announcement” the announcement of the Company dated 30 October 2019 in respect of the Supply of Aviation Safety and Security Guard Services Agreement, the transactions contemplated thereunder and its original annual caps
“2019 Circular” the circular of the Company dated 3 December 2019 in respect of the Supply of Aviation Safety and Security Guard Services Agreement, the transactions contemplated thereunder and its original annual caps
“associate(s)” has the same meaning as ascribed to it in the Listing Rules “Aviation Security Company” Capital Airport Aviation Security Co., Ltd., a limited liability company incorporated in the PRC which is a wholly-owned subsidiary of the Parent Company
“Beijing Capital Airport” Beijing Capital International Airport
“Board” the board of Directors
“CAAC” the Civil Aviation Administration of China
“CAAC North China the CAAC North China Regional Administration Administration”

“Company” Beijing Capital International Airport Company Limited (北京首都國際機場股份有限公司), a sino-foreign joint stock limited company incorporated in the PRC with limited liability, and the H Shares of which are listed on the Stock Exchange “connected person(s)” has the same meaning as ascribed to it in the Listing Rules “controlling shareholder” has the same meaning as ascribed to it in the Listing Rules “COVID-19” novel coronavirus “Daxing Airport” Beijing Daxing International Airport “Director(s)” the director(s) of the Company “Domestic Share(s)” ordinary domestic share(s) of nominal value of RMB1.00 each in the registered share capital of the Company

DEFINITIONS

“EGM”

the extraordinary general meeting of the Company to be held at 9:00 a.m. on Thursday, 16 December 2021 to consider and approve, among other things, (i) the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps; (ii) the proposed appointment of an executive Director; and (iii) the proposed appointment of a supervisor representing the Shareholders

“H Share(s)”
overseas listed foreign share(s) of nominal value of RMB1.00 each in the registered share capital of the Company
“Independent Board Committee”
an independent committee of the Board comprising all independent non-executive Directors, namely Mr. Jiang Ruiming, Mr. Liu Guibin, Mr. Zhang Jiali and Mr. Stanley Hui Hon-chung, established to advise the Independent Shareholders in respect of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps
“Independent Financial Adviser” or “Opus Capital”
Opus Capital Limited, a licensed corporation to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in respect of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps
“Independent Shareholder(s)”
Shareholder(s) other than the Parent Company, its associates and any Shareholder who has a material interest in the transactions contemplated under the Supplemental Aviation Security Agreement
“Latest Practicable Date”
26 November 2021, being the latest practicable date prior to printing of this circular for the purpose of ascertaining certain information referred to in this circular
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange
“Nomination Committee” the nomination committee of the Company
“Parent Company”
Capital Airports Holdings Limited (首都機場集團有限公司) (formerly known as Capital Airports Holding Company（首都機場集團公司）), an enterprise established in the PRC and the controlling shareholder of the Company

“Parties”

the parties to the Supplemental Aviation Security Agreement, namely the Company and Aviation Security Company

DEFINITIONS

“PRC”	the People’s Republic of China
“RMB”	Renminbi, the lawful currency of the PRC
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Share(s)”	ordinary share(s) of RMB1.00 each in the registered share capital of
	the Company, which comprise H Share(s) and Domestic Share(s)
“Shareholder(s)”	holder(s) of the Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Supervisory Committee”	the supervisory committee of the Company
“Supplemental Aviation Security	the supplemental agreement dated 18 October 2021 in relation to
Agreement”	the Supply of Aviation Safety and Security Guard Services
	Agreement entered into between the Company and Aviation
	Security Company
“Supply of Aviation Safety and	the supply of aviation safety and security guard services agreement
Security Guard Services	dated 30 October 2019 entered into between the Company and
Agreement”	Aviation Security Company, details of which were set out in the
	2019 Announcement and the 2019 Circular
“Terminal One”	the passenger terminal numbered one which forms part of Beijing
	Capital Airport
“Terminal Three”	the passenger terminal numbered three which forms part of Beijing
	Capital Airport
“%”	per cent

For identification purposes only
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LETTER FROM THE BOARD

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Executive Directors: Mr. Liu Xuesong Mr. Han Zhiliang Mr. Zhang Guoliang

Non-executive Directors:

Mr. Gao Shiqing Mr. Jia Jianqing Mr. Song Kun

Registered office: Capital Airport, Beijing The PRC

Principal place of business in Hong Kong: 37/F, One Taikoo Place Taikoo Place 979 King’s Road Hong Kong

Independent Non-executive Directors:

Mr. Jiang Ruiming Mr. Liu Guibin Mr. Zhang Jiali Mr. Stanley Hui Hon-chung

30 November 2021

To the Shareholders

Dear Sir or Madam,

(1) CONTINUING CONNECTED TRANSACTIONS

(I) SUPPLEMENTAL AGREEMENT IN RELATION TO THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT AND

(II) REVISION OF ANNUAL CAPS UNDER THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT (AS AMENDED BY THE SUPPLEMENTAL AVIATION SECURITY AGREEMENT) AND

(2) PROPOSAL FOR THE APPOINTMENT OF AN EXECUTIVE DIRECTOR AND
(3) PROPOSAL FOR THE APPOINTMENT OF A SUPERVISOR REPRESENTING THE SHAREHOLDERS
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LETTER FROM THE BOARD

INTRODUCTION

Reference is made to (i) the announcement of the Company dated 18 October 2021 in respect of the Supplemental Aviation Security Agreement and the revision of annual caps under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement); and (ii) the announcement of the Company dated 19 November 2021 in respect of the proposed appointments of Mr. Wang Changyi (王長益先生) (“ Mr. Wang ”) as an executive Director of the eighth session of the Board and Mr. Liu Chunchen (劉春晨先生) (“ Mr. Liu ”) as a supervisor representing the Shareholders of the eighth session of the Supervisory Committee.

The purpose of this circular is to provide you with (i) details of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder; (ii) details of the revision of annual caps under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement); (iii) details of the proposed appointments of an executive Director and a supervisor representing the Shareholders; (iv) the letter of recommendation from the Independent Board Committee in connection with the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps; and (v) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in connection with the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps.

I. SUPPLEMENTAL AGREEMENT IN RELATION TO THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT

Background

Reference is made to the 2019 Announcement and the 2019 Circular.

As disclosed in the 2019 Announcement and the 2019 Circular, on 30 October 2019, the Company entered into the Supply of Aviation Safety and Security Guard Services Agreement with Aviation Security Company, pursuant to which Aviation Security Company agreed to provide aviation safety and security guard services to the Company at Beijing Capital Airport for a term of three years commencing from 1 January 2020 to 31 December 2022. Under the terms of the Supply of Aviation Safety and Security Guard Services Agreement, the annual service fee was determined with reference to the actual fees paid for the preceding year and subject to adjustments based on, among other things, the growth rate of passenger throughput at Beijing Capital Airport.

LETTER FROM THE BOARD

robust, the estimated amount of service fee payable pursuant to the existing terms of the Supply of Aviation Safety and Security Guard Services Agreement is insufficient to cover the actual costs for providing such services. Therefore, on 18 October 2021, the Company and Aviation Security Company entered into the Supplemental Aviation Security Agreement to amend certain terms of the Supply of Aviation Safety and Security Guard Services Agreement, including the terms regarding the calculation and payment of service fee.

Material terms of the Supplemental Aviation Security Agreement

Set out below are the material terms of the Supplemental Aviation Security Agreement:

Date

18 October 2021

Parties

(a) the Company; and

(b) Aviation Security Company.

Effective date

The Supplemental Aviation Security Agreement shall become effective on the date of approval by the Independent Shareholders at the EGM.

Consideration and payment

(a) Adjustment to the calculation method of the service fee

In respect of the annual service fee payable by the Company to Aviation Security Company for the provision of aviation safety and security guard services for the two years ending 31 December 2022, such service fee shall be calculated based on actual costs, which comprise all the (i) labour costs, (ii) operating costs and (iii) relevant taxes relating to the services provided by Aviation Security Company to the Company pursuant to the Supplemental Aviation Security Agreement. The actual amount of service fee is subject to adjustment based on a reward and punishment mechanism comprised of (i) performance appraisal and (ii) rewards for cost control.

Pursuant to the terms and conditions of the Supplemental Aviation Security Agreement, the Parties shall determine the estimated costs to be incurred by Aviation Security Company for each year in advance after considering factors including but not limited to the safety targets and the demand for aviation safety inspection and security guard services. Thereafter, the Company (either solely or jointly with Daxing Airport) will appoint an independent third party auditing firm to conduct financial audits in relation to the actual performance of the Supplemental Aviation Security Agreement to

LETTER FROM THE BOARD

confirm the actual amount of the service fee. The financial audits shall be conducted on an annual basis, which shall commence in the fourth quarter each year and shall be completed by 31 January in the following year.

The basic components of the annual service fee are as follows:

(i)	Labour costs	:	The labour costs comprise the labour costs of
			operating personnel, frontline management
			personnel, and head office management
			personnel engaged by Aviation Security
			Company for the provision of aviation safety
			and security guard services to the Company. In
			particular, as the head office of Aviation
			Security Company concurrently provides
			management services for the aviation security
			work of both Beijing Capital Airport and
			Daxing Airport, the labour costs incurred by
			the head office of Aviation Security Company
			shall be apportioned between the Company and
			Daxing Airport as to 60% and 40%,
			respectively, which is determined by the
			respective portion of total employees of
			Aviation Security Company allocated to
			provide relevant services to Beijing Capital
			Airport and Daxing Airport;
(ii)	Operating costs	:	The operating costs comprise back office
			e x p e n s e s ( e . g . p o w e r a n d e n e r g y
			consumption, repair expenses, and rental
			expenses), other expenses (e.g. daily expenses
			and logistics expenses), business expenses,
			non-cash expenses and expenses for anti-
			epidemic supplies. For similar reasons stated
			above, the operating costs incurred by the head
			office of Aviation Security Company shall be
			apportioned between the Company and the
			Daxing Airport as to 60% and 40%,
			respectively; and
(iii)	Relevant taxes	:	The amount of relevant taxes shall be
			determined in accordance with the
			requirements of the PRC.

The amount of annual service fee may be adjusted based on the following reward and punishment mechanism:

LETTER FROM THE BOARD

(i) Performance appraisal:

Annual performance appraisals shall be conducted in respect of the unsafe incidents attributable to Aviation Security Company and its fulfillment of the performance benchmarks, which comprise of (i) benchmarks based on results and (ii) benchmarks based on the management and control procedures. For instance, the benchmarks include whether Aviation Security Company has caused any aviation security incident as a result of its failure to ensure that the relevant staff could effectively discharge their responsibilities, and whether Aviation Security Company fails to allocate security personnel in accordance with the industry regulations and contractual requirements, etc.

A sliding scale of penalties will be imposed based on the nature and severity of noncompliance (if any) with the benchmarks. In respect of each instance of non-compliance by Aviation Security Company, based on the results of the performance appraisal, a penalty shall be imposed on Aviation Security Company such that the amount of annual service fee payable to Aviation Security Company shall be deducted by the following amount depending on the gravity of breaches:

(i)	Level 1 (for the most severe	:	RMB2,000,000 to RMB5,000,000
	type of non-compliance)
(ii)	Level 2	:	RMB500,000 to RMB1,000,000
(iii)	Level 3	:	RMB100,000 to RMB500,000
(iv)	Level 4 (for the least severe	:	RMB10,000 to RMB100,000
	type of non-compliance)

In the event of repeated instances of non-compliance, additional penalties shall be imposed and the amount for each additional penalty shall be gradually increased within the applicable range of penalty amount for the corresponding type of non-compliance.

(ii) Rewards for cost control:

Aviation Security Company shall actively implement cost control measures by way of reasonable optimisation of human resources to save costs, provided that the extent of aviation safety and operating efficiency of Beijing Capital Airport is not compromised.

If the proportion of labour cost saved [(Note][1)] by Aviation Security Company due to its management innovation and change of business model is within 10%, then Aviation Security Company shall be rewarded with an amount equivalent to 20% of the amount of labour cost saved (i.e. the difference between the estimated labour cost and the actual labour cost). The amount of reward will be confirmed by the Parties after the annual financial audit and will be valid for the current year only.

LETTER FROM THE BOARD

Meanwhile, if the proportion of labour cost saved [(Note][1)] is more than 10%, no reward will be payable to the Aviation Security Company and the above reward mechanism will not be applicable. This mechanism aims to ensure that a reasonably realistic amount of estimated labour cost will be pre-determined by the Parties so that rewards will not be unduly granted to Aviation Security Company as a result of over-estimate of labour cost. Based on safety targets and the Company’s demand for aviation safety and security guard services, it is anticipated that the actual amount of labour cost for the provision of aviation safety and security guard services at Beijing Capital Airport for the year ending 31 December 2021 should not deviate from the estimated amount of labour cost by more than 10%. Furthermore, the demand for aviation safety and security guard services for the year ending 31 December 2022 is expected to remain stable. Accordingly, 10% has been set as the threshold for determining the amount of reward to Aviation Security Company during the term of the Supplemental Aviation Security Agreement.

Note 1: The proportion of labour cost saved shall be calculated as follows: (estimated labour cost-actual labour cost)/estimated labour cost.

(b) Adjustment to the payment arrangement of the service fee

The service fee shall be prepaid by the Company to Aviation Security Company by the end of each month, with the amount of monthly prepayment to be determined with reference to the estimated amount of annual service fee in the following manner:

The amount of monthly [2)] = (Estimated amount of annual service fee x 95%)/12 [(Note] prepayment of service fee

Note 2: The Company may adjust the amount of monthly prepayment (as agreed with Aviation Security Company) based on the scale of adjustment of business for each year, preliminary financial audit and the actual progress of payment. In determining the estimated amount of annual service fee, the Parties will anticipate the scale of adjustment of the number of frontline staff of Aviation Security Company and thereby calculate the estimated amount of labour costs for each year, by taking into account adjustment factors such as the forecast of business volume at Beijing Capital Airport and the need for safeguard of aviation security.

By the end of January in the following year, upon completion of the above-mentioned financial audit in respect of the actual amount of service fee payable by the Company to Aviation Security Company, the Parties shall settle the balance of service fee as follows:

Actual amount of annual service fee for each year – Total Balance of = amount of monthly prepayment of service fee for the service fee corresponding year

Save as disclosed above, the other material terms of the Supply of Aviation Safety and Security Guard Services Agreement remain unchanged. For details of the other material terms of the Supply of Aviation Safety and Security Guard Services Agreement, please refer to the 2019 Announcement and the 2019 Circular.

LETTER FROM THE BOARD

Pricing policy and internal control

As a result of the amendments to the terms of the Supply of Aviation Safety and Security Guard Services Agreement made by the Supplemental Aviation Security Agreement, the reward and punishment mechanism to be implemented by the Company and Aviation Security Company will not be benchmarked against the standards of passengers’ waiting time for security inspection. Instead, the amount of penalties and rewards will be determined with reference to (i) performance appraisal, and (ii) rewards for cost control as set out above. Save as the aforementioned adjustment to the benchmark of the reward and punishment mechanism, the pricing policy in respect of the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement) follows that set out in the 2019 Announcement and the 2019 Circular and the amount of service fee payable from the Company to Aviation Security Company will be based on the actual costs, which comprise all the (i) labour costs, (ii) operating costs and (iii) relevant taxes relating to the services provided by Aviation Security Company to the Company.

The internal control of the pricing policy in respect of the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement) follows that set out in the 2019 Announcement and the 2019 Circular.

II. REVISION OF ANNUAL CAPS UNDER THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT (AS AMENDED BY THE SUPPLEMENTAL AVIATION SECURITY AGREEMENT)

In view of factors such as stricter requirements of aviation security, change in scope of services, prevention and control of COVID-19 pandemic, and increase in labour costs, the Board anticipates that the demand for aviation safety inspection and security guard services at Beijing Capital Airport will remain robust and, as a result, the original annual caps for the two years ending 31 December 2022 under the Supply of Aviation Safety and Security Guard Services Agreement will not be sufficient to meet the estimated amount of service fee payable by the Company to Aviation Security Company. Accordingly, the Company proposed to revise the annual caps for the service fee payable by the Company to Aviation Security Company for the two years ending 31 December 2022 under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement).

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LETTER FROM THE BOARD

Historical transaction amounts

The following table shows the historical figures of the total service fee paid or payable by the Company to Aviation Security Company in respect of the provision of aviation safety and security guard services:

					For the year
	For the year ended		For	the year ended	ending 31
	31 December 2019		31 December 2020		December 2021
		(RMB’000)		(RMB’000)	(RMB’000)
Service fee for the
provision of
aviation safety
and security guard
services		714,143_(Note 3)_		667,082	475,472_(Note 4)_
Annual caps		806,042_(Note 3)_		703,490	673,140

Note 3: These figures refer to the historical transaction amount and annual cap for the year ended 31 December 2019 under the former supply of aviation safety and security guard services agreement dated 25 October 2017 entered into between the Company and Aviation Security Company and are set out here for illustrative purpose only.
Note 4: This figure refers to the service fee payable by the Company to Aviation Security Company for the provision of aviation safety and security guard services for the nine months ended 30 September 2021.

Revised annual caps

The Board proposed to revise the annual caps for the service fee payable by the Company to Aviation Security Company under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement).

Accordingly, the Company proposed to revise the annual caps for the service fee payable to Aviation Security Company as follows:

			For	the year ending	For the year ending
			31	December 2021	31 December 2022
				(RMB’000)	(RMB’000)
Original	annual	caps		673,140	733,530
Revised	annual	caps		924,480	924,480

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LETTER FROM THE BOARD

The above revised annual caps have been determined with reference to the following factors:

(i) the adjustment to the scope of aviation safety and security guard services for the two years ending 31 December 2022, after considering the requirements of aviation security, the prevention and control of the COVID-19 pandemic, and the safeguard of security for the 2022 Winter Olympic Games in Beijing;
(ii) the estimated amount of labour costs to be incurred by Aviation Security Company for the year ending 31 December 2021, after taking into account the adjustment of salaries for various types of personnel engaged by Aviation Security Company in connection with the provision of aviation safety and security guard services at Beijing Capital Airport;
(iii) the estimated amount of operating costs to be incurred by Aviation Security Company for the year ending 31 December 2021, after taking into account the additional expenses required to comply with the stricter requirements for aviation safety and to provide a broader scope of aviation safety and security guard services to the Company;
(iv) the relevant taxes for the year ending 31 December 2021; and
(v) the labour costs and operating costs to be incurred by Aviation Security Company are expected to remain stable and the relevant taxes are unlikely to change for the year ending 31 December 2022.

III. REASONS FOR AND BENEFITS OF ENTERING INTO THE SUPPLEMENTAL AVIATION SECURITY AGREEMENT AND THE REVISION OF ANNUAL CAPS

Despite the impact of the COVID-19 pandemic and the diversion effect of Daxing Airport on the passenger throughput at Beijing Capital Airport, as the demand for aviation safety and security guard services at Beijing Capital Airport remains robust, it is expected that the existing method for determining the amount of service fee under the Supply of Aviation Safety and Security Guard Services Agreement (which is linked to the growth rate of passenger throughput) will not be sufficient to cover the actual costs for the provision of the relevant services.

The demand for aviation safety and security guard services at Beijing Capital Airport has increased due to the following factors:

(i) Relatively inelastic business demand: Since 2020, the Company has carried out certain downsizing measures based on the adjustment of demand for security businesses at Beijing Capital Airport, including the closure of Terminal One and the relocation of international security inspection counters at Terminal Three, but the overall demand for staff on duty, which mainly consists of (i) staff in the positions of passengers’ security inspection, (ii) staff in the positions responsible for the security of daily operation and (iii) staff in management positions, has basically remained at a similar level. For the period from 1 January 2020 to 30 September 2021, the average total number of staff providing various types of aviation security services at Beijing Capital Airport was maintained at a level ranging from approximately 4,850 to
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LETTER FROM THE BOARD

approximately 4,930. While the number of staff has decreased for positions that are directly affected by the decrease in passenger throughput (e.g. the security inspection of passengers), the number of staff in other positions responsible for the security of daily operations of Beijing Capital Airport (e.g. the monitoring and maintenance of aircrafts, the patrol of aviation security, the security inspection of staff, and the guarding of passageways) has increased. As compared with the average total number of staff for the corresponding positions for the year ended 31 December 2020, the average total number of staff in the positions of passengers’ security inspection for the nine months ended 30 September 2021 has decreased by approximately 250 persons and the average total number of staff in the positions responsible for the security of daily operations at Beijing Capital Airport for the nine months ended 30 September 2021 has increased by approximately 170 persons, while the average total number of staff in management positions remains unchanged. Furthermore, due to the specialised qualifications of passenger security inspection personnel and the need to maintain adequate number of staff to address the uncertainties arising from the COVID-19 pandemic, it is currently expected that the demand for such passenger security inspection personnel will be stable and therefore the number of staff in such position will not decrease substantially.

(ii) Stricter requirements of aviation safety: Since 2020, the CAAC and the CAAC North China Administration have repeatedly stressed the special status and vital importance of aviation security in the Beijing region and imposed stricter requirements of aviation security, and at the same time, they have strengthened supervision, inspection and administrative governance in this regard. As a result, certain new security businesses have been developed at Beijing Capital Airport, including the new patrol for aviation safety of airfield and terminals, corridor bridge no.2 and other businesses.
(iii) Increase in costs related to the prevention and control of COVID-19 pandemic: Currently, as the COVID-19 pandemic remains highly widespread outside the PRC, coupled with the occurrence of sporadic cases and local clusters of epidemics within the PRC, the prevention and control of the COVID-19 pandemic remains difficult and complicated. As “China’s First Gateway”, Beijing Capital Airport has been subject to tremendous pressure for pandemic prevention and control and shall consistently safeguard the national gateway with prompt response and effective measures. Additional positions of aviation security personnel have been created in order to implement the work requirements of CAAC and Beijing Municipality relating to pandemic prevention and control, for examples, temperature checks at the entrance and exit of terminals, inspection of “Health Kit” (健康寶) and the “Two Centralised” special security lanes for cabin crew and employees of international airlines.
(iv) Need for safeguard of security during the Winter Olympic Games in Beijing: The safeguard of security during the 2022 Winter Olympic Games in Beijing will also lead to an increase in relevant costs and the specific business demand will be adjusted based on the requirements of the final arrival and departure procedures.
(v) Increase in labour costs: The security personnel at Beijing Capital Airport are at the front line of the prevention and control of the COVID-19 pandemic, working for a prolonged period of time in an environment with high infection risk, major responsibility for safety and the challenging task of pandemic prevention and control. Moreover, in response to the
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LETTER FROM THE BOARD

development of the COVID-19 pandemic, the inspection standards and procedures in relation to pandemic control are being enhanced or adjusted on an ongoing basis, which has continuously increased the work pressure and psychological stress of employees. This has not been fully reflected in the income level of employees and leads to higher pressure of staff turnover. In order to maintain staff stability, the Company needs to adjust the wage level of the security personnel with reference to the reasonable increase of labour costs in Beijing.

As a result, the methods of calculation and payment of service fee payable from the Company to Aviation Security Company need to be adjusted pursuant to the Supplemental Aviation Security Agreement. The original annual caps for the service fee payable for the two years ending 31 December 2022 under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement) also need to be revised in order to meet the estimated amount of service fee payable by the Company to Aviation Security Company for the corresponding periods.

The Directors (including the independent non-executive Directors) are of the view that the Supplemental Aviation Security Agreement is entered into after arm’s length negotiations, on normal commercial terms and in the ordinary and usual course of business of the Company, and the transactions contemplated under the Supplemental Aviation Security Agreement (including the revised annual caps) are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

IV. BOARD’S APPROVAL

The Supplemental Aviation Security Agreement and the transactions contemplated thereunder (including the revised annual caps) have been approved by the Board. As at the Latest Practicable Date, there are no overlapping directors between the Company on one hand, and the Parent Company and Aviation Security Company on the other hand.

Certain executive and non-executive Directors concurrently served as the Chairman of the Supervisory Committee and deputy general managers of the Parent Company only, and there was no overlapping senior management between the Company on one hand, and Aviation Security Company on the other hand.

Moreover, none of the Directors personally had any material interest in the transactions contemplated under the Supplemental Aviation Security Agreement. Therefore, none of the Directors had abstained from voting at the Board meeting to approve the Supplemental Aviation Security Agreement and the transactions contemplated thereunder (including the revised annual caps).

V. INFORMATION OF THE PARTIES

The Company

The Company is principally engaged in the operation of the Beijing Capital Airport. It is a non-wholly owned subsidiary of the Parent Company.

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LETTER FROM THE BOARD

The Parent Company

The Parent Company is principally engaged in the provision of ground support services for domestic and international aviation enterprises and the provision of operation and management services, counter and premises rental services, car parking management, housing rental, property management, advertising agency services and other businesses to its subsidiaries. The ultimate beneficial owner of the Parent Company is CAAC, which is a state bureau administered by the Ministry of Transport of the PRC.

Aviation Security Company

Aviation Security Company is principally engaged in the provision of aviation safety and security guard services to airports in the PRC, which include, among other things, security inspection on passengers, baggage, air cargoes, air mails and passageways; field inspections for special and chartered aircrafts; security guard on passageways in terminal areas; explosion-proof inspection in front of the terminals; and aircraft security guard. To the best knowledge, information and belief of the Directors having made all reasonable enquiries, as at the Latest Practicable Date, Aviation Security Company is a wholly-owned subsidiary of the Parent Company.

VI. LISTING RULES IMPLICATIONS

Since Aviation Security Company is a wholly-owned subsidiary of the Parent Company, Aviation Security Company is a connected person of the Company.

Accordingly, the transactions contemplated under the Supplemental Aviation Security Agreement constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

Pursuant to Rule 14A.54 of the Listing Rules, as the Supplemental Aviation Security Agreement constitutes a material change to continuing connected transactions, and the Company proposes to revise the annual caps contemplated under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement), the Company is required to re-comply with the announcement and Shareholders’ approval requirements (if applicable) under Chapter 14A of the Listing Rules.

Since the highest applicable percentage ratio (as defined in Rule 14.07 of the Listing Rules) in respect of the revised annual caps under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement) is more than 5%, the Supplemental Aviation Security Agreement and the transactions contemplated thereunder (including the revised annual caps) are subject to the reporting, annual review, announcement and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

VII. PROPOSAL FOR THE APPOINTMENT OF AN EXECUTIVE DIRECTOR

The Board proposed the appointment of Mr. Wang as an executive Director at the EGM, the granting of authorisation to the Board to determine his respective remuneration and the granting of authorisation to the Board to arrange for service contract granted by the Company to such Director upon such terms and conditions as the Board shall think fit, and to do all such acts and things to effect such matters.

As part of the Company’s process for the appointment of a Director, (i) a written notice of intention to nominate a candidate as an executive Director, and (ii) the candidate’s written consent indicating acceptance of nomination shall be delivered to the Company, not earlier than the day after the despatch of the supplemental notice of the EGM and not later than seven days prior to the date of the EGM.

Mr. Wang has been nominated by the Parent Company as a candidate for executive Director. Such nomination from the Parent Company was considered and approved by the Nomination Committee for consideration and election by the Shareholders at the EGM.

An ordinary resolution will be proposed at the EGM in respect of the proposed appointment of Mr. Wang as a new executive Director. Upon approval of the appointment of Mr. Wang as an executive Director at the EGM, Mr. Wang will serve a term commencing from the date of the forthcoming EGM of the Company and ending on the expiry of the term of the eighth session of the Board (i.e. the date of the 2022 annual general meeting of the Company).

The biographical details of Mr. Wang proposed for election at the EGM as an executive Director of the eighth session of the Board are set out in Appendix I to this circular.

The Company will make further announcement in respect of the appointment of Mr. Wang after passing of the relevant resolution at the EGM in compliance with the requirements of the Listing Rules.

VIII. PROPOSAL FOR THE APPOINTMENT OF A SUPERVISOR REPRESENTING THE SHAREHOLDERS

The Board further proposed the appointment of Mr. Liu as a supervisor representing the Shareholders of the eighth session of the Supervisory Committee at the EGM, the granting of authorisation to the Board to determine his respective remuneration and the granting of authorisation to the Board to arrange for appointment letter granted by the Company to such supervisor representing the Shareholders upon such terms and conditions as the Board shall think fit, and to do all such acts and things to effect such matters.

An ordinary resolution will be proposed at the EGM in respect of the proposed appointment of Mr. Liu as a new supervisor representing the Shareholders of the eighth session of the Supervisory Committee. Upon approval of the appointment of Mr. Liu as a supervisor representing the Shareholders at the EGM, Mr. Liu will serve a term commencing from the date of the forthcoming EGM of the Company and ending on the expiry of the term of the eighth session of the Supervisory Committee (i.e. the date of the 2022 annual general meeting of the Company).

The biographical details of Mr. Liu proposed for election at the EGM as a supervisor representing the Shareholders of the eighth session of the Supervisory Committee are set out in Appendix I to this circular.

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LETTER FROM THE BOARD

The Company will make further announcement in respect of the appointment of Mr. Liu after passing of the relevant resolution at the EGM in compliance with the requirements of the Listing Rules.

IX. EGM

The EGM will be convened at 9:00 a.m. on Thursday, 16 December 2021 at the Conference Room, Room 112, the Office Building of the Company, No. 9 Siwei Road, Capital Airport, Beijing, the PRC to consider and, if thought fit, pass resolutions to approve (i) the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps; (ii) the proposed appointment of an executive Director; and (iii) the proposed appointment of a supervisor representing the Shareholders. The relevant resolutions will be proposed by way of ordinary resolutions at the EGM for approval by the Independent Shareholders.

The notice convening the EGM and the proxy forms and reply slips for the EGM were despatched to the Shareholders on 29 October 2021. A supplemental notice and the relevant revised proxy form in relation to the EGM (the “ Revised Proxy Form ”) was despatched to the Shareholders on 26 November 2021.

IMPORTANT NOTE: The Revised Proxy Form was despatched to the Shareholders on 26 November 2021. The Revised Proxy Form shall supersede and replace the previous proxy form enclosed with the notice of the EGM dated 29 October 2021 (the “ Previous Proxy Form ”) and the Previous Proxy Form shall be deemed invalid. Shareholders who have signed and returned the Previous Proxy Form should complete and return the Revised Proxy Form in accordance with the instructions provided in the supplemental notice of the EGM dated 26 November 2021. Completion and return of the Revised Proxy Form will not preclude a Shareholder from attending and voting in person at the EGM or any adjournment thereof if he/she so desire.

To be valid, the Revised Proxy Form must be completed in accordance with the instructions printed thereon and deposited, together with the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power of attorney or other authority, at the Company’s H Share registrar in Hong Kong, Hong Kong Registrars Limited at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon not less than 24 hours before the time scheduled for holding of the EGM or any adjournment thereof (as the case may be).

The reply slip for the EGM published by the Company on 29 October 2021 is still valid for use in respect of the proposed resolutions set out in the supplemental notice of the EGM. Shareholders for H Shares who intend to attend the EGM should have delivered the reply slip to the Company’s H Share registrar, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (facsimile no.: 852-2865 0990), on or before Thursday, 25 November 2021. The reply slip may be delivered in person, by post or facsimile.

Pursuant to Rule 13.39(4) of the Listing Rules, any vote of Shareholders at a general meeting must be taken by poll. The Chairman of the EGM shall therefore demand that voting on the resolutions set out in the notice of the EGM and the supplemental notice of the EGM be taken by way of poll pursuant to Article 74 of the Articles of Association.

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LETTER FROM THE BOARD

On a poll, every Shareholder present in person or by proxy or (being a corporation) by its duly authorised representative shall have one vote for each Share registered in his/her/its name in the register of members. A Shareholder entitled to more than one vote needs not cast all his/her/its votes in the same manner.

X. APPOINTMENT OF INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

Pursuant to the Listing Rules, the Independent Board Committee (comprising all the independent nonexecutive Directors) has been formed to advise the Independent Shareholders and Opus Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on (i) whether the terms of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps are fair and reasonable; (ii) whether the transactions contemplated under the Supplemental Aviation Security Agreement are on normal commercial terms or better and in the ordinary and usual course of business of the Company, and whether they are in the interest of the Company and the Shareholders as a whole; and (iii) how to vote on the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps.

A letter from the Independent Board Committee to the Independent Shareholders is set out on pages 20 to 21 of this circular.

A letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 22 to 41 of this circular.

XI. CONNECTED PERSONS WHO ARE REQUIRED TO ABSTAIN FROM VOTING ON THE RESOLUTIONS

Pursuant to Rule 14A.36 of the Listing Rules, any Shareholder with a material interest in the Supplemental Aviation Security Agreement and the transactions contemplated thereunder is required to abstain from voting on the relevant resolution(s) at the EGM.

As at the Latest Practicable Date, the Parent Company is the controlling shareholder of the Company, holding 2,699,814,977 Domestic Shares, representing approximately 58.96% of the issued share capital of the Company, and Aviation Security Company is a wholly-owned subsidiary of the Parent Company. As such, the Parent Company and its associates, holding 2,699,814,977 Domestic Shares, representing approximately 58.96% of the issued share capital of the Company, must abstain from voting at the EGM on the resolution(s) approving the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps.

As at the Latest Practicable Date and to the best knowledge and belief of the Directors, save as disclosed in this circular, none of the other Shareholders must abstain from voting on the relevant resolutions at the EGM.

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LETTER FROM THE BOARD

XII. BOOK CLOSURE PERIOD

The register of Shareholders is temporarily closed from Tuesday, 16 November 2021 to Thursday, 16 December 2021 (both days inclusive), during which period no transfer of Shares will be registered. Shareholders of the Company whose names appear on the register of Shareholders on Thursday, 16 December 2021 are entitled to attend and vote at the EGM.

In order to qualify for the entitlement to attend and vote at the EGM, holders of H Shares whose transfers have not been registered shall deposit the transfer documents together with the relevant share certificates at the Company’s H Share registrar, Hong Kong Registrars Limited at Shops 1712-1716, 17/F Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong at or before 4:30 p.m. on Thursday, 25 November 2021.

XIII. RECOMMENDATION

The Board (including the independent non-executive Directors) considers that the resolutions to be proposed at the EGM, as set out in the notice of the EGM dated 29 October 2021 and the supplemental notice of EGM dated 26 November 2021, are in the interest of the Company and the Shareholders as a whole, and accordingly, recommends the Shareholders to vote in favour of the resolutions to be proposed at the EGM.

Your attention is also drawn to the recommendation of the Independent Board Committee as set out on pages 20 to 21 of this circular and the letter of advice from the Independent Financial Adviser as set out on pages 22 to 41 of this circular.

XIV. ADDITIONAL INFORMATION

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

Yours faithfully, By order of the Board of Beijing Capital International Airport Co., Ltd. Meng Xianwei

Secretary to the Board

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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30 November 2021

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

(I) SUPPLEMENTAL AGREEMENT IN RELATION TO THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT AND

(II) REVISION OF ANNUAL CAPS UNDER THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT (AS AMENDED BY THE SUPPLEMENTAL AVIATION SECURITY AGREEMENT)

We refer to the circular issued by the Company to the Shareholders dated 30 November 2021 (the “ Circular ”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed by the Board as the Independent Board Committee to advise the Independent Shareholders on (i) whether the terms of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps are fair and reasonable; (ii) whether the transactions contemplated under the Supplemental Aviation Security Agreement are on normal commercial terms or better and in the ordinary and usual course of business of the Company, and whether they are in the interest of the Company and the Shareholders as a whole; and (iii) how to vote on the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps. Opus Capital has been appointed as the Independent Financial Adviser to advise the Independent Shareholders and us in this respect.

We wish to draw your attention to the letter from the Board as set out on pages 4 to 19 of the Circular and the letter from the Independent Financial Adviser as set out on pages 22 to 41 of the Circular, which contain, among other things, their advice and recommendations on (i) whether the terms of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps are fair and reasonable; (ii) whether the transactions contemplated under the Supplemental Aviation Security Agreement are on normal commercial terms or better and in the ordinary and usual course of business of the Company, and whether they are in the interest of the Company and the Shareholders as a whole; and (iii) how to vote on the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps, and the advice and recommendation of the Independent Financial Adviser, we are of the view that the terms of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps are fair and reasonable, on normal commercial terms or better and in the ordinary and usual course of business of the Company, and in the interest of the Company and the Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to approve the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps.

Yours faithfully,

For and on behalf of the Independent Board Committee Beijing Capital International Airport Co., Ltd. Mr. Jiang Ruiming, Mr. Liu Guibin, Mr. Zhang Jiali and Mr. Stanley Hui Hon-chung Independent non-executive Directors

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps, which has been prepared for the purpose of inclusion in this circular.

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18th Floor, Fung House 19-20 Connaught Road Central Central, Hong Kong 30 November 2021

To: the Independent Board Committee and the Independent Shareholders Beijing Capital International Airport Co., Ltd.

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

(I) SUPPLEMENTAL AGREEMENT IN RELATION TO THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT AND

(II) REVISION OF ANNUAL CAPS UNDER THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT (AS AMENDED BY THE SUPPLEMENTAL AVIATION SECURITY AGREEMENT)

INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Supplemental Aviation Security Agreement, as well as the transactions contemplated thereunder, including the revised annual caps (collectively, the “ Continuing Connected Transactions ”), details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular of the Company to the Shareholders dated 30 November 2021 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless otherwise defined or the context requires otherwise.

Background of the supplemental agreement in relation to the Supply of Aviation Safety and Security Guard Services Agreement

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Due to the negative impact on international travel brought about by the COVID-19 pandemic and the diversion of flights to Daxing Airport, the passenger throughput at Beijing Capital Airport has been severely affected. In respect of the passenger throughput for the six months ended 30 June 2021, while it represented an increase of approximately 40% when compared with the six months ended 30 June 2020, it also represented a decrease of approximately 63% when compared with the six months ended 30 June 2019 (i.e. before the outbreak of the COVID-19 pandemic and the commencement of operations of Daxing Airport). Despite the significant decrease in the passenger throughput at Beijing Capital Airport due to the COVID-19 pandemic and the diversion of flights to Daxing Airport, given that the demand for aviation safety and security guard services at Beijing Capital Airport remains robust, the estimated amount of service fee payable pursuant to the existing terms of the Supply of Aviation Safety and Security Guard Services Agreement is insufficient to cover the actual costs for providing such services. Therefore, on 18 October 2021, the Company and Aviation Security Company entered into the Supplemental Aviation Security Agreement to amend certain terms of the Supply of Aviation Safety and Security Guard Services Agreement, including the terms regarding the calculation and payment of service fee.

Background of the revision of annual caps under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement)

In view of factors such as stricter requirements of aviation security, change in scope of services, prevention and control of COVID-19 pandemic, and increase in labour costs, the Board anticipates that the demand for aviation safety and security guard services at Beijing Capital Airport will remain robust and, as a result, the original annual caps for the two years ending 31 December 2022 under the Supply of Aviation Safety and Security Guard Services Agreement will not be sufficient to meet the estimated amount of service fee payable by the Company to Aviation Security Company. Accordingly, the Company proposed to revise the annual caps for the service fee payable by the Company to Aviation Security Company for the two years ending 31 December 2022 under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement).

Since Aviation Security Company is a wholly-owned subsidiary of the Parent Company, Aviation Security Company is a connected person of the Company.

Accordingly, the transactions contemplated under the Supplemental Aviation Security Agreement constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

Pursuant to Rule 14A.54 of the Listing Rules, as the Supplemental Aviation Security Agreement constitutes a material change to continuing connected transactions, and the Company proposes to revise the annual caps contemplated under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement), the Company will be required to re-comply with the announcement and Shareholders’ approval requirements (if applicable) of Chapter 14A of the Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Supplemental Aviation Security Agreement and the transactions contemplated thereunder (including the revised annual caps) has been approved by the Board. As at the Latest Practicable Date, there are no overlapping directors between the Company on one hand, and the Parent Company and Aviation Security Company on the other hand.

Certain executive and non-executive Directors concurrently serve as the general manager and deputy general managers of the Parent Company only, and there is no overlapping senior management between the Company on one hand, and Aviation Security Company on the other hand.

Moreover, none of the Directors personally has any material interest in the transactions contemplated under the Supplemental Aviation Security Agreement. Therefore, none of the Directors has abstained from voting at the Board meeting to approve the Supplemental Aviation Security Agreement and the transactions contemplated thereunder (including the revised annual caps).

As at the Latest Practicable Date and to the best knowledge and belief of the Directors, save as disclosed in the Circular, none of the other Shareholders must abstain from voting on the relevant resolution(s) at the EGM.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Jiang Ruiming, Mr. Liu Guibin, Mr. Zhang Jiali and Mr. Stanley Hui Hon-chung, has been established to advise the Independent Shareholders on: (i) whether the terms of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps, are fair and reasonable; (ii) whether the transactions contemplated under the Supplemental Aviation Security Agreement are on normal commercial terms or better and in the ordinary and usual course of business of the Company, and whether they are in the interests of the Company and the Shareholders as a whole; and (iii) how to vote

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

on the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps. Our appointment as the Independent Financial Adviser in this respect has been approved by the Independent Board Committee.

OUR INDEPENDENCE

We were appointed as the Independent Financial Adviser to advise the independent shareholders of the Company in respect of (i) the continuing connected transactions contemplated under Flexible Retail and F&B Resources Usage Agreement, the Domestic Retail Resources Usage Agreement (as varied by the Flexible Retail and F&B Resources Usage Agreement), as well as the transactions contemplated thereunder, including the relevant annual caps, details of which are set out in the circular of the Company dated 8 October 2021; and (ii) the continuing connected transactions contemplated under the supply of power and energy agreement and the international retail management agreement and their respective annual caps, details of which are set out in the circular of the Company dated 4 December 2020 (collectively, the “ Past Appointments ”). The Past Appointments are completed and independent to our current appointment.

As at the Latest Practicable Date, save for the Past Appointments, we did not have any relationship with, or interest in, the Company, the Parent Company, Aviation Security Company or other parties that could reasonably be regarded as relevant to our independence. During the two years immediately prior to this letter, save for the Past Appointments, we have not: (i) acted as an Independent Financial Adviser to the Company; (ii) provided any services to the Company; or (iii) had any relationship with the Company. Apart from the normal professional fees paid or payable to us in connection with the Past Appointments and the current appointment as the Independent Financial Advisor, no arrangements exist whereby we had received or will receive any fees or benefits from the Company, the Parent Company, Aviation Security Company or other parties that could reasonably be regarded as relevant to our independence. Accordingly, we consider that we are independent pursuant to Rule 13.84 of the Listing Rules.

BASIS OF OUR OPINION

In formulating our advice and recommendation to the Independent Board Committee and the Independent Shareholders, we have reviewed, amongst other things:

(i) the Supply of Aviation Safety and Security Guard Services Agreement;
(ii) the Supplemental Aviation Security Agreement;
(iii) the interim report of the Company for the six months ended 30 June (“ HY ”) 2021 (the “ 2021 Interim Report ”);
(iv) the annual report of the Company for the year ended 31 December (“ FY ”) 2020 (the “ 2020 Annual Report ”); and
(v) other information as set out in the Circular.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations made to us by the Company, the Directors and the management of the Group (collectively, the “ Management ”). We have assumed that all information and representations contained or referred to in the Circular and provided to us by the Management, for which they are solely and wholly responsible, are true, accurate and complete in all material respects and not misleading or deceptive at the time when they were provided or made and continued to be so up to the Latest Practicable Date.

We have also assumed that all statements of belief, opinion, expectation and intention made by the Management in the Circular were reasonably made after due enquiries and careful consideration and there are no other facts not contained in the Circular, the omission of which make any such statement contained in the Circular misleading. We have no reason to suspect that any relevant information has been withheld, or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Management, which have been provided to us.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. However, we have not carried out any independent verification of the information provided to us by the Management, nor have we conducted any independent investigation into the business, financial conditions and affairs of the Group or its future prospects.

The Directors jointly and severally accept full responsibility for the Circular and confirm, having made all reasonable enquiries that to the best of their knowledge and belief, the information contained in the 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 in the Circular misleading.

This letter is issued to the Independent Board Committee and the Independent Shareholders solely in connection for their consideration of the terms of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps, and except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the terms of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps, we have taken into consideration the following principal factors and reasons:

1. Information on the Parties

1.1. The Company

The Company is principally engaged in the operation of the Beijing Capital Airport. It is a non-wholly owned subsidiary of the Parent Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1.2. The Parent Company

1.3. Aviation Security Company

2. Supplemental Aviation Security Agreement

2.1. Material terms

Set out below are the material terms of the Supplemental Aviation Security Agreement:

Date

18 October 2021

Parties

(a) the Company; and

(b) Aviation Security Company.

Effective date

The Supplemental Aviation Security Agreement shall become effective on the date of approval by the Independent Shareholders at the EGM.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Consideration and payment

(a) Adjustment to the calculation method of the service fee

The basic components of the annual service fee are as follows:

(i) Labour costs : The labour costs comprise the labour costs of operating personnel, frontline management personnel, and head office management personnel engaged by Aviation Security Company for the provision of aviation safety and security guard services to the Company. In particular, as the head office of Aviation Security Company concurrently provides management services for the aviation security work of both Beijing Capital Airport and Daxing Airport, the labour costs incurred by the head office of Aviation Security Company shall be apportioned between the Company and Daxing Airport as to 60% and 40%, respectively, which is determined by the respective portion of total employees of Aviation Security Company allocated to provide relevant services to Beijing Capital Airport and Daxing Airport;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Operating costs : The operating costs comprise back office e x p e n s e s ( e . g . p o w e r a n d e n e r g y consumption, repair expenses, and rental expenses), other expenses (e.g. daily expenses and logistics expenses), business expenses, non-cash expenses and expenses for antiepidemic supplies. For similar reasons stated above, the operating costs incurred by the head office of Aviation Security Company shall be apportioned between the Company and the Daxing Airport as to 60% and 40%, respectively; and (iii) Relevant taxes : The amount of relevant taxes shall be determined in accordance with the requirements of the PRC.

The amount of annual service fee may be adjusted based on the following reward and punishment mechanism:

(i) Performance appraisal:

A sliding scale of penalties will be imposed based on the nature and severity of non-compliance (if any) with the benchmarks. In respect of each instance of non-compliance by Aviation Security Company, based on the results of the performance appraisal, a penalty shall be imposed on Aviation Security Company such that the amount of annual service fee payable to Aviation Security Company shall be deducted by the following amount depending on the gravity of breaches:

(i) Level 1 (for the most : RMB2,000,000 to RMB5,000,000 severe type of noncompliance) (ii) Level 2 : RMB500,000 to RMB1,000,000

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) Level 3 : RMB100,000 to RMB500,000 (iv) Level 4 (for the least : RMB10,000 to RMB100,000 severe type of noncompliance)

(ii) Rewards for cost control:

If the proportion of labour cost saved (Note 1) by Aviation Security Company due to its management innovation and change of business model is within 10%, then Aviation Security Company shall be rewarded with an amount equivalent to 20% of the amount of labour cost saved (i.e. the difference between the estimated labour cost and the actual labour cost). The amount of reward will be confirmed by the Parties after the annual financial audit and will be valid for the current year only.

Note 1:

The proportion of labour cost saved shall be calculated as follows:

(estimated labour cost-actual labour cost)/estimated labour cost.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Adjustment to the payment arrangement of the service fee

The amount of monthly[2)] prepayment = (Estimated amount of annual service fee x 95%)/12[(Note] of service fee

Note 2:

The Company may adjust the amount of monthly prepayment (as agreed with Aviation Security Company) based on the scale of adjustment of business for each year, preliminary financial audit and the actual progress of payment. In determining the estimated amount of annual service fee, the Parties will anticipate the scale of adjustment of the number of frontline staff of Aviation Security Company and thereby calculate the estimated amount of labour costs for each year, by taking into account adjustment factors such as the forecast of business volume at Beijing Capital Airport and the need for safeguard of aviation security.

By the end of January in the following year, upon completion of the abovementioned financial audit in respect of the actual amount of service fee payable by the Company to Aviation Security Company, the Parties shall settle the balance of service fee as follows:

Actual amount of annual service fee for each year – Total Balance of = amount of monthly prepayment of service fee for the service fee corresponding year

2.2. Pricing policy

As stated in the Letter from the Board, as a result of the amendments to the terms of the Supply of Aviation Safety and Security Guard Services Agreement made by the Supplemental Aviation Security Agreement, the reward and punishment mechanism to be implemented by the Company and Aviation Security Company will not be benchmarked against the standards of passengers’ waiting time for security inspection. Instead, the amount of penalties and rewards will be determined with reference to (i) performance appraisal, and (ii) rewards for cost control as set out above. Save as the aforementioned adjustment to the benchmark of the reward and punishment mechanism, the pricing policy in respect of the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement) follows that set

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

out in the 2019 Announcement and the 2019 Circular and the amount of service fee payable from the Company to Aviation Security Company will be based on the actual costs, which comprise all the (i) labour costs, (ii) operating costs and (iii) relevant taxes relating to the services provided by Aviation Security Company to the Company.

Assessment

Adjustment to the payment arrangement of the service fee

In assessing the adjustment to the payment arrangement of the service fee, we have given due regard to the payment arrangement currently adopted by Aviation Security Company to its clients other than the Company.

As stated in “General Information” in the appendix to the Circular, the Parent Company is currently engaged in the aeronautical and non-aeronautical businesses of Daxing Airport and currently engaging Aviation Security Company to provide services similar to the aviation safety and security guard services provided by it to the Company at Beijing Capital Airport. After our enquiry to the Management, we understand that the aforesaid adjusted payment arrangement of the service fee to be prepaid by the Company to Aviation Security Company is the same arrangement currently adopted by Aviation Security Company to the Parent Company for the services provided to Daxing Airport.

Reward and punishment mechanism

In assessing the amendment of the reward and punishment mechanism to be implemented by the Company and Aviation Security Company which will, instead of benchmarking against the standards of passengers’ waiting time for security inspection, be determined with reference to: (i) performance appraisal; and (ii) rewards for cost control, we have considered:

(i) the rationale of adopting the reward and punishment mechanism is for the motivation of high quality services to be provided by Aviation Security Company as advised by the Management;
(ii) the reward and punishment mechanism can be regarded as a performance indicator to the services to be provided by Aviation Security Company;
(iii) the benchmark of the reward and punishment mechanism should be related to the determination basis of the service fee payable by the Company to Aviation Security Company;
(iv) the method for determining the amount of service fee payable from the Company to Aviation Security Company will be adjusted from basing on the growth rate of passenger throughput under the Supply of Aviation Safety and Security Guard Services Agreement to the actual costs, which comprise all the (i) labour costs, (ii) operating costs and (iii) relevant taxes relating to the services provided by
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Aviation Security Company to the Company pursuant to the Supplemental Aviation Security Agreement. After our enquiry to the Management, we understand that such adjusted method for determining the amount of service fee payable by the Company to Aviation Security Company is the same method currently adopted by Aviation Security Company to the Parent Company for the services provided to Daxing Airport;

(v) the sliding scale of penalties to be imposed to the performance appraisal will be based on the nature and severity of non-compliance (if any) in respect of the unsafe incidents attributable to Aviation Security Company is considered to be fair and reasonable as it is directly related to the performance of the services provided by Aviation Security Company under the Supply of Aviation Safety and Security Guard Services Agreement which are mainly related to aviation safety and security guard business as stated in the 2019 Circular;
(vi) if there is any unsafe incidents (regardless of whether the nature of the unsafe incidents is related to safety or COVID-19 pandemic) attributable to Aviation Security Company, it will increase the relevant costs of Aviation Security Company to deal with the unsafe incidents and the penalties applied serves to motivate Aviation Security Company to minimise the possibility of the arise of any unsafe incidents;
(vii) in the event of repeated instances of non-compliance, additional penalties will be imposed and the amount for each additional penalty shall be gradually increased within the range of penalty amount for the corresponding type of noncompliance; and
(viii) the adoption of the rewards for cost control is considered to be fair and reasonable: (a) as it provides a motivation to Aviation Security Company to implement cost control measures to save costs which will, in turn, reduce the service fee payable from the Company to Aviation Security Company; (b) if the proportion of labour cost saved is more than 10%, no reward will be payable to the Aviation Security Company and the reward mechanism for cost control will not be applicable which aims to ensure that the a reasonably realistic amount of estimated labour cost will be pre-determined by the Parties so that rewards will not be unduly granted to Aviation Security Company as a result of over-estimate of labour cost to present any potential abuse of the reward mechanism; and (c) the amount of reward will be confirmed by the Company and Aviation Security Company after the annual financial audit and will be valid for the current year only.

In view of the above, we consider the adjustment to the payment arrangement of the service fee and the amendment of the reward and punishment mechanism to be implemented by the Company and Aviation Security Company under the Supplemental Aviation Security Agreement are fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.3. Internal control

As stated in the Letter from the Board, the internal control of the pricing policy in respect of the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement) follows that set out in the 2019 Announcement and the 2019 Circular.

As extracted from the 2019 Circular, the Company has implemented a management system to monitor the pricing standards for the transactions under the Supply of Aviation Safety and Security Guard Services Agreement to ensure that the terms are on normal commercial terms as follows:

(i) Prior to the entering into of the Supply of Aviation Safety and Security Guard Services Agreement, the aviation security department [(Note)] of the Company verified the unit labour costs (which are initially determined in line with the historical amount of unit labor costs under the Former Supply of Aviation Safety and Security Guard Services Agreement, followed by cross-checks against the fees charged by Aviation Security Company to other independent third parties for similar services, as well as site visits to various airports in the PRC for comparison of the service fees charged by the aviation security providers to other airports against that charged by the Aviation Security Company to the Company), and attended to the negotiation, signing and execution of the Supply of Aviation Safety and Security Guard Services Agreement. Thereafter, the aviation security department [(Note)] of the Company is also responsible for the subsequent monitoring and ratings in respect of the transactions contemplated under the Supply of Aviation Safety and Security Guard Services Agreement. The finance department of the Company and the secretariat to the Board are responsible for gathering information of connected transactions and monitoring the implementation of connected transactions, with a view to conducting assessment of the fairness of the transaction terms and pricing terms.
(ii) Prior to the signing of the definitive agreements and the implementation of the transactions contemplated under the Supply of Aviation Safety and Security Guard Services Agreement, the principal officers in the aviation security department [(Note)] of the Company who are responsible for handling the above-mentioned matters shall lodge applications with the aviation security department [(Note)] , the finance department, legal services department and the secretariat to the Board. Such applications would only be approved upon a preliminary review conducted by the managers of the above respective departments of the Company, followed by a final review at the general manager office meeting in accordance with the relevant internal control policies of the Company. After the above internal review process based on different functions of various departments of the Company has been completed, the relevant definitive agreements will be considered and approved by the Board.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) The independent non-executive Directors have reviewed and would continue to review the transactions under the Supply of Aviation Safety and Security Guard Services Agreement in accordance with the Listing Rules to ensure that such transactions are entered into on normal commercial terms, are fair and reasonable, and are carried out pursuant to its contractual terms.
(iv) The auditors of the Company will conduct annual review on the transactions under the Supply of Aviation Safety and Security Guard Services Agreement in relation to the pricing policies and annual caps contemplated thereunder in accordance with the Listing Rules.
Note: As advised by the Company, the aviation security department was formerly named as quality and safety department.
2.4. Revision of annual caps under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement)

Historical transaction amounts

	For the year	For the year	For the year
	ended	ended	ended
	31 December	31 December	31 December
	2019	2020	2021
	(RMB’000)	(RMB’000)	(RMB’000)
Service fee for the
provision of
aviation safety
and security
guard services	714,143 (Note 3)	667,082	475,472 (Note 4)
Annual caps	806,042 (Note 3)	703,490	673,140

Note 3: These figures refer to the historical transaction amount and annual cap for the year ended 31 December 2019 under the former supply of aviation safety and security guard services agreement dated 25 October 2017 entered into between the Company and Aviation Security Company and are set out here for illustrative purpose only.
Note 4: This figure refers to the service fee payable by the Company for the provision of aviation safety and security guard services for the nine months ended 30 September 2021.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Revised annual caps

As stated in the Letter from the Board, the Board proposed to revise the annual caps for the service fee payable by the Company to Aviation Security Company under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement).

Accordingly, the Company proposed to revise the annual caps for the service fee payable to Aviation Security Company as follows:

			For	the year ended	For the year ended
			31	December 2021	31 December 2022
				(RMB’000)	(RMB’000)
Original	annual	Caps		673,140	733,530
Revised	annual	Caps		924,480	924,480

Basis for revised annual caps

The above revised annual caps have been determined with reference to the following factors:

(i) the adjustment to the scope of aviation safety and security guard services for FY2021 and FY2022, after considering the requirements of aviation security, the prevention and control of the COVID-19 pandemic, and the safeguard of security for the 2022 Winter Olympic Games in Beijing;
(ii) the estimated amount of labour costs to be incurred by Aviation Security Company for FY2021, after taking into account the adjustment of salaries for various types of personnel engaged by Aviation Security Company in connection with the provision of aviation safety and security guard services at Beijing Capital Airport;
(iii) the estimated amount of operating costs to be incurred by Aviation Security Company for FY2021, after taking into account the additional expenses required to comply with the stricter requirements for aviation safety and to provide a broader scope of aviation safety and security guard services to the Company;
(iv) the relevant taxes for FY2021; and
(v) the labour costs and operating costs to be incurred by Aviation Security Company are expected to remain stable and the relevant taxes are unlikely to change for FY2022.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Assessment

In assessing the fairness and reasonableness of the revised annual caps, we have obtained from the Management and reviewed a calculation working paper (the “ Revised Annual Caps Calculation ”) and the relevant supporting information and documents which set out the calculation of the revised annual caps. The Revised Annual Caps Calculation includes, among others, the major information as below:

(i) the estimation of labour costs for FY2021;
(ii) the estimation of operating costs for FY2021; and
(iii) the relevant taxes.

Based on the information provided, the estimation of labour costs for FY2021 amounted to approximately RMB743.3 million which is mainly calculated by considering: (i) the total number of employees with different seniority such as operating personnel, frontline management personnel and head office management personnel of approximately 4,850 and (ii) the average annual salary of all employees with different seniority amounted to approximately RMB153,000. We noted that the labour costs incurred by the head office of Aviation Security Company will be apportioned between the Company and Daxing Airport as to 60% and 40% respectively as set out in the Letter from the Board. We have made enquiry to the Management and understand that the aforesaid apportionment of labour costs incurred by the head office of Aviation Security Company is determined by the portion of total employees of Aviation Security Company allocated to provide services to Beijing Capital Airport and Daxing Airport. We also noted that the total number of employees allocated to provide services to Beijing Capital Airport remained relatively stable of approximately 5,000 people in FY2019, FY2020 and FY2021. We further obtained the actual amount of labour costs incurred by Aviation Security Company in HY2021 of approximately RMB413.4 million which accounted for approximately 55.6% of the estimation.

As shown in the Revised Annual Caps Calculation, the estimation of the operating costs amounted to approximately RMB128.8 million. We noted from the information provided that the aforementioned operating costs of approximately RMB128.8 million mainly includes: i) explosion prevention and anti-epidemic supplies expense of more than RMB35 million; ii) repair expense of more than RMB23 million; iii) personal protection equipment of more than RMB15.9 million; and iv) other expenses (e.g. daily expenses and logistics expenses). After our enquiry with the Management, we understand that the apportionment of operating costs incurred by the head office of Aviation Security Company is consistently applied in the estimation. We obtained the actual amount of operating costs incurred by Aviation Security Company in HY2021 of approximately RMB46.0 million which accounted for approximately 35.7% of the estimation. We further understand that the Company has allocated approximately RMB11.7 million, representing approximately 9.1% of the estimation, for the preparation of The 2022 Winter Olympics. For the estimation of The 2022 Winter Olympics, we have obtained the notice of award for the bidding of leasing security inspection equipment issued by the Company to Aviation Security Company amounted to RMB2.8 million which accounted

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

for approximately 23.9% of the aforementioned estimation of approximately RMB11.7 million. An amount of approximately RMB25 million is reserved as a buffer which accounted for approximately 2.7% of the revised annual cap for FY2021.

For the relevant taxes, we noted that a tax rate of 6% is consistently applied in the estimation of the revised annual caps for both FY2021 and FY2022.

Finally, we understand from the Management that the revised annual cap for FY2022 remains unchanged as compared with that for FY2021 as the labour costs and operating costs are expected to be stable and the relevant taxes are unlikely to change in FY2022.

In view of the above, in particular: (i) the actual amount of labour costs incurred by Aviation Security Company in HY2021 accounted for approximately 55.6% of the estimation of labour costs for FY2021; (ii) the actual amount of operating costs incurred by Aviation Security Company in HY2021 accounted for approximately 35.7% of the estimation of operating costs for FY2021; (iii) the Company has allocated approximately RMB11.7 million, representing approximately 9.1% of the estimation of operating cost for FY2021; (iv) the remaining amount of approximately RMB25 million is reserved as a buffer which accounted for approximately 2.7% of the revised annual cap for FY2021; and (v) the revised annual cap for FY2022 remains unchanged, we consider the revised annual caps are fair and reasonable.

3. Reasons for and benefits of entering into the Supplemental Aviation Security Agreement and the revision of annual caps

As stated in the Letter from the Board, despite the impact of the COVID-19 pandemic and the diversion effect of Daxing Airport on the passenger throughput at Beijing Capital Airport, as the demand for aviation safety and security guard services at Beijing Capital Airport remains robust, it is expected that the existing method for determining the amount of service fee under the Supply of Aviation Safety and Security Guard Services Agreement (which is linked to the growth rate of passenger throughput) will not be sufficient to cover the actual costs for the provision of the relevant services.

The demand for aviation safety and security guard services at Beijing Capital Airport has increased due to the following factors:

(i) Relatively inelastic business demand: Since 2020, the Company has carried out certain downsizing measures based on the adjustment of demand for security businesses at Beijing Capital Airport, including the closure of Terminal One and the relocation of international security inspection counters at Terminal Three, but the overall demand for staff on duty, which mainly consists of (i) staff in the positions of passengers’ security inspection, (ii) staff in the positions responsible for the security of daily operation and (iii) staff in management positions, has basically remained at a similar level. For the period from 1 January 2020 to 30 September 2021, the average total number of staff providing various types of aviation security services at Beijing Capital Airport was maintained at a level ranging from approximately 4,850 to approximately 4,930. While the number of staff has decreased for positions that are directly affected by the decrease in passenger throughput (e.g. the security inspection of passengers), the number of staff in other positions responsible for the security of daily operations of Beijing
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Capital Airport (e.g. the monitoring and maintenance of aircrafts, the patrol of aviation security, the security inspection of staff, and the guarding of passageway has increased. As compared with the average total number of staff for the corresponding positions for FY2020, the average total number of staff in the positions of passengers’ security inspection for the nine months ended 30 September 2021 has decreased by approximately 250 persons and the average total number of staff in the positions responsible for the security of daily operations at Beijing Capital Airport for the nine months ended 30 September 2021 has increased by approximately 170 persons, while the average total number of staff in management positions remains unchanged. Furthermore, due to the specialised qualifications of passenger security inspection personnel and the need to maintain adequate number of staff to address the uncertainties arising from the COVID-19 pandemic, it is currently expected that the demand for such passenger security inspection personnel will be stable and therefore the number of staff in such position will not decrease substantially.

(ii) Stricter requirements of aviation safety: Since 2020, the CAAC and the CAAC North China Administration have repeatedly stressed the special status and vital importance of aviation security in the Beijing region and imposed stricter requirements of aviation security, and at the same time, they have strengthened supervision, inspection and administrative governance in this regard. As a result, certain new security businesses have been developed at Beijing Capital Airport, including the new patrol for aviation safety of airfield and terminals, corridor bridge no.2 and other businesses.
(iii) Increase in costs related to the prevention and control of COVID-19 pandemic: Currently, as the COVID-19 pandemic remains highly widespread outside the PRC, coupled with the occurrence of sporadic cases and local clusters of epidemics within the PRC, the prevention and control of the COVID-19 pandemic remains difficult and complicated. As “China’s First Gateway”, Beijing Capital Airport has been subject to tremendous pressure for pandemic prevention and control and shall consistently safeguard the national gateway with prompt response and effective measures. Additional positions of aviation security personnel have been created in order to implement the work requirements of CAAC and Beijing Municipality relating to pandemic prevention and control, for examples, temperature checks at the entrance and exit of terminals, inspection of “Health Kit” (健康寶) and the “Two Centralised” special security lanes for cabin crew and employees of international airlines.
(iv) Need for safeguard of security during the Winter Olympic Games in Beijing: The safeguard of security during the 2022 Winter Olympic Games in Beijing will also lead to an increase in relevant costs and the specific business demand will be adjusted based on the requirements of the final arrival and departure procedures.
(v) Increase in labour costs: The security personnel at Beijing Capital Airport are at the front line of the prevention and control of the COVID-19 pandemic, working for a prolonged period of time in an environment with high infection risk, major responsibility for safety and the challenging task of pandemic prevention and control. Moreover, in response to the development of the COVID-19 pandemic, the inspection standards and procedures in relation to pandemic control are being enhanced or adjusted on an ongoing basis, which has continuously increased the work pressure and psychological stress of employees. This has not
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

been fully reflected in the income level of employees and leads to higher pressure of staff turnover. In order to maintain staff stability, the Company needs to adjust the wage level of the security personnel with reference to the reasonable increase of labour costs in Beijing.

Assessment

For the adjustment of the method for determining the amount of service fee which will adjust from linking to the growth rate of passenger throughput under the Supply of Aviation Safety and Security Guard Services Agreement to the demand for aviation safety and security guard services at Beijing Capital Airport under the Supplemental Aviation Security Agreement, we have considered, in particular: (i) the service fee payable by the Company to Aviation Security Company for the provision of aviation safety and security guard services to be calculated based on actual costs, which comprise all the labour costs, operating costs and relevant taxes; (ii) decrease in the passenger throughput at Beijing Capital Airport due to the COVID-19 pandemic does not reduce the prevention and control of COVID-19 pandemic especially Beijing Capital Airport is the airport in the capital of the PRC; (iii) the standard of safeguard of security during the Winter Olympic Games in Beijing is not directly related to the passenger throughput; (iv) the calculation basis is based on the actual costs incurred by Aviation Security Company without considering any premium and the Company (either solely or jointly with Daxing Airport) will appoint an independent third party auditing firm to conduct financial audits in relation to the actual performance of the Supplemental Aviation Security Agreement to confirm the actual amount of the service fee.

In view of the above, we consider the service fee payable by the Company to Aviation Security Company for the provision of aviation safety and security guard services to be calculated based on actual costs pursuant to the Supplemental Aviation Security Agreement is fair and reasonable.

RECOMMENDATION

We have considered the above principal factors and reasons and, in particular, having taken into account the following in arriving at our opinion:

(i) the transactions contemplated under the Supplemental Aviation Security Agreement are in the ordinary and usual course of business of the Company;
(ii) the terms of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps are fair and reasonable and in the interests of the Company and Shareholders as a whole; and
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) the determination of the revised annual caps are fair and reasonable.

Having considered the above, we are of the view that; (i) the terms of the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps, are fair and reasonable; (ii) the transactions contemplated under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement) are on normal commercial terms or better and in the ordinary and usual course of business of the Company, and are in the interest of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend, and we ourselves recommend, the Independent Shareholders to vote in favour of the resolutions to approve the Supplemental Aviation Security Agreement and the transactions contemplated thereunder, including the revised annual caps to be proposed at the EGM.

Yours faithfully, For and on behalf of Opus Capital Limited Li Lan Executive Director

Mr. Li Lan is an Executive Director of Opus Capital Limited and is a person licensed under the SFO as a responsible officer to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities. Mr. Li Lan has over 15 years of experience in the corporate finance industry.

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APPENDIX I BIOGRAPHIES OF THE CANDIDATES PROPOSED FOR APPOINTMENT AS AN EXECUTIVE DIRECTOR AND A SUPERVISOR REPRESENTING THE SHAREHOLDERS

The biographical details of the candidates proposed for appointment as an executive Director and a supervisor representing the Shareholders, respectively, are as follows:

CANDIDATE FOR APPOINTMENT AS AN EXECUTIVE DIRECTOR

Mr. Wang Changyi , aged 57, graduated from Tianjin University with a Bachelor’s degree in infrastructure management and engineering, and holds a Master’s degree in public management from Peking University. From August 1987 to January 1998, Mr. Wang successively served as a cadre and a principal officer of the Infrastructure Management Division, as well as a principal officer and the deputy director of the Standards and Technology Division of the Airport Management Department for Infrastructure Projects, of the CAAC. From January 1998 to August 2003, he successively served as the deputy director, the deputy director (at director-level) and the director of the Director General Office under the General Office of CAAC. From August 2003 to August 2011, he successively served as the deputy director of the General Office, the vice director-general (at deputy department director level) of the Comprehensive Department and the vice director-general of the Airport Department of CAAC. He was the secretary of the Party committee of the Civil Aviation Medical Center of CAAC (Civil Aviation General Hospital) from August 2011 to December 2013. From December 2013 to October 2018, he served as the director-general (at department director level) of the Development and Planning Department of CAAC. He served as the director-general, and a member of the standing committee and the deputy secretary of the Party committee of the CAAC Northwest Regional Administration from October 2018 to April 2021. He has been a director, the chairman of the board, and a member and the secretary of the Party committee of the Parent Company since April 2021.

Save as disclosed above, as of the Latest Practicable Date, Mr. Wang (i) had not held any directorships in any other public companies the securities of which are listed on any securities market in Hong Kong or overseas in the past three years; (ii) did not have any relationship with any directors, supervisors, senior management, or substantial or controlling shareholder of the Company; (iii) did not hold any other positions in the Company; and (iv) did not have any interests in the shares of the Company within the meaning of Part XV of the SFO.

If elected, Mr. Wang will enter into a service contract with the Company for a term commencing from the date of conclusion of the forthcoming EGM and ending on the expiry of the term of the eighth session of the Board, and is subject to retirement by rotation and re-election at the general meeting in accordance with articles of association of the Company. Mr. Wang will not receive any emolument as a Director of the Company.

Save as disclosed above, as of the Latest Practicable Date, there was no other matter concerning the appointment of Mr. Wang as an executive Director that needs to be brought to the attention of the Shareholders, and there was no other matter which shall be disclosed pursuant to Rule 13.51(2)(h) to (v) of the Listing Rules.

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BIOGRAPHIES OF THE CANDIDATES PROPOSED FOR APPOINTMENT AS AN EXECUTIVE DIRECTOR AND A SUPERVISOR REPRESENTING THE SHAREHOLDERS

APPENDIX I

CANDIDATE FOR APPOINTMENT AS A SUPERVISOR REPRESENTING THE SHAREHOLDERS

Mr. Liu Chunchen , aged 56, is a senior engineer. Mr. Liu graduated from Tongji University, majoring in highway and urban road, and obtained postgraduate qualifications. From August 1988 to June 1995, Mr. Liu successively served as an officer of the Construction Department of the CAAC Shenyang Administration, an officer and a deputy director officer of the Airport Management Department for Infrastructure of the CAAC Northeastern Administration. He served as the deputy director-general of the Airport Management Department for Infrastructure of the CAAC Northeastern Administration from June 1995 to July 2001, during which he served as the section chief (at deputy chief level) of the Engineering Section of Yuning Building Project Construction Headquarters from March 1996 to April 1998 and studied economic management at the Party School of the Liaoning Provincial Party Committee from March 1996 to July 1998. From July 2001 to November 2003, he served as the section chief of the Planning Section of the CAAC Northeastern Administration. From November 2003 to September 2006, he served as the director (at director-level) and the secretary of the Party committee of the CAAC Jilin Safety Supervision and Management Office. From September 2006 to March 2009, he served as the director (at deputy department director level) and the secretary of the Party committee of the CAAC Jilin Safety Supervision and Management Office. From March 2009 to September 2011, he served as the director-general and the secretary of the Party committee of the CAAC Jilin Safety Supervision Administration. From September 2011 to March 2018, he served as the deputy director-general and a member of the standing committee of the Party committee of the CAAC Northeastern Regional Administration. From March 2018 to August 2019, he served as the director-general of the Airport Department of CAAC. He served as the commissioner of safety supervision of civil aviation of CAAC and the director-general of the Airport Department of CAAC concurrently from August 2019 to April 2021. He has been a director, the general manager and the deputy secretary of the Party committee of the Parent Company since April 2021.

Save as disclosed above, as of the Latest Practicable Date, Mr. Liu (i) had not held any directorships in any other public companies the securities of which are listed on any securities market in Hong Kong or overseas in the past three years; (ii) did not have any relationship with any directors, supervisors, senior management, or substantial or controlling shareholder of the Company; (iii) did not hold any other positions in the Company; and (iv) did not have any interests in the shares of the Company within the meaning of Part XV of the SFO.

If elected, Mr. Liu will enter into an appointment letter with the Company for a term commencing from the date of conclusion of the forthcoming EGM and ending on the expiry of the term of the eighth session of the supervisory committee of the Company, and is subject to retirement by rotation and reelection at the general meeting in accordance with the articles of association of the Company. Mr. Liu will not receive any emolument as a supervisor representing the Shareholders of the Company.

Save as disclosed above, as of the Latest Practicable Date, there was no other matter concerning the appointment of Mr. Liu as a supervisor representing the Shareholders of the Company that needs to be brought to the attention of the Shareholders, and there was no other matter which shall be disclosed pursuant to Rule 13.51(2)(h) to (v) of the Listing Rules.

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GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(a) Interests and short positions of Directors, supervisors and chief executives in the Shares, underlying Shares or debentures of the Company and its associated corporations

To the best knowledge of the Directors, supervisors and chief executives of the Company, as at the Latest Practicable Date, none of the Directors, supervisors or chief executives of the Company had interests and short positions in the Shares, underlying Shares and/or debentures (as the case may be) of the Company or any of its associated corporations (within the meaning of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any such Directors, supervisors or chief executives is taken or deemed to have under such provisions of the SFO) or which were required to be entered into the register required to be kept by the Company under section 352 of the SFO or which were otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules.

(b) Interests and short positions of substantial shareholders in the Shares, underlying Shares or debentures of the Company and its associated corporations

To the best knowledge of the Directors, supervisors and chief executives of the Company, as at the Latest Practicable Date, the interest and short positions of the substantial shareholders in the issued share capital of the Company which will be required, pursuant to section 336 of the SFO, to be entered into the register referred to therein, or holding 5% or above in the issued share capital of the Company which will be required to be notified to the Company were as follows:

					Approximate	Approximate
					percentage of	percentage of
					the relevant	the total
Name of		Class of			class of	issued Shares
Shareholder	Notes	Shares	Capacity	Number of Shares	Shares (%)	(%)
Capital Airports	1	Domestic	Beneficial owner	(L) 2,699,814,977	100	58.96
Holdings Limited
T. Rowe Price		H	Beneficial owner	(L) 210,726,000	11.21	4.60
Associates, Inc.
and its Affiliates

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APPENDIX II

GENERAL INFORMATION

					Approximate	Approximate
					percentage of	percentage of
					the relevant	the total
Name of		Class of			class of	issued Shares
Shareholder	Notes	Shares	Capacity	Number of Shares	Shares (%)	(%)
Causeway Capital	2	H	Investment manager	(L) 188,316,000	10.02	4.11
Management LLC
Citigroup Inc.		H	Interest of corporation	(L) 158,050,401	8.40	3.45
			controlled by
			substantial	(S) 3,143,044	0.16	0.07
			shareholder
				(P)154,993,094	8.24	3.38
BlackRock, Inc.		H	Interest of corporation	(L) 138,833,635	7.39	3.03
			controlled by
			substantial	(S) 19,538,000	1.04	0.43
			shareholder
Aberdeen Asset	2	H	Investment manager	(L) 114,868,000	6.11	2.51
Management PLC
and its associates
Mr. Jiang Jinzhi	3	H	Interest of corporation	(L) 105,602,000	5.62	2.31
(蔣錦志)			controlled by
			substantial
			shareholder
The Bank of New		H	Interest of corporation	(L) 101,684,470	5.41	2.22
York Mellon			controlled by
Corporation			substantial	(P) 99,992,300	5.32	2.18
			shareholder
Hermes Investment		H	Beneficial owner	(L) 94,613,662	5.03	2.07
Funds PLC
Brown Brothers		H	Agent	(L) 94,393,357	5.02	2.06
Harriman & Co.
				(P) 94,393,357	5.02	2.06

(L): Long Position

(S): Short Position

(P): Lending Pool

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GENERAL INFORMATION

APPENDIX II

Notes:

Capital Airports Holdings Limited was incorporated in the PRC and is the controlling shareholder of the Company. Mr. Liu Xuesong, the chairman of the Board and an executive Director, is the Chairman of the Supervisory Committee of Capital Airports Holdings Limited. Mr. Han Zhiliang, an executive Director and the general manager of the Company, is the deputy general manager of Capital Airports Holdings Limited. Mr. Gao Shiqing, a non-executive Director, is the deputy general manager of Capital Airports Holdings Limited. Mr. Jia Jianqing, a non-executive Director, is the deputy general manager of Capital Airports Holdings Limited. Mr. Song Kun, a non-executive Director, is the deputy general manager of Capital Airports Holdings Limited.
These Shares are held in the capacity of investment manager.
Based on the disclosure form dated 24 February 2021 of Mr. Jiang Jinzhi (being the latest disclosure form filed up to the Latest Practicable Date), as at 24 February 2021, among his interests in the Shares of the Company, (i) 90,476,000 Shares in total were held by Greenwoods China Alpha Master Fund and Golden China Master Fund; and (ii) 15,126,000 Shares were held by Shanghai Greenwoods Asset Management Company Limited. Each of Greenwoods China Alpha Master Fund and Golden China Master Fund was indirectly wholly-owned by Invest Partner Group Limited through Greenwoods Asset Management Hong Kong Limited. Invest Partner Group Limited was directly held as to 84.5% by Mr. Jiang Jinzhi. Shanghai Greenwoods Asset Management Company Limited was wholly-owned by Xizang Jingning Corporate Management Company Limited, which was directly held as to 84.5% by Mr. Jiang Jinzhi.
The information in the above table is based on information publicly available to the Company as at the Latest Practicable Date.
The numbers in the above table have been subject to rounding adjustments. Any discrepancies in the numbers are due to roundings.

As at the Latest Practicable Date, save as disclosed above and to the best knowledge of the Directors, supervisors and chief executives of the Company, (i) no person had any interests or short positions in the Shares or underlying Shares of the Company which were required, pursuant to Section 336 of the SFO, to be entered into the register referred to therein, or holding 5% or above in the issued share capital of the Company which would be required to be notified to the Company; and (ii) none of the Directors, supervisors and chief executives of the Company was also a director or employee of a company which has an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. DIRECTORS’ AND SUPERVISORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any existing or proposed service contract with the Company, which does not expire or is not determinable by the Company within one year without payment of compensation (other than statutory compensation).

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GENERAL INFORMATION

APPENDIX II

4. MATERIAL ADVERSE CHANGES

Reference is made to the profit warning announcement of the Company dated 4 August 2021 and the interim results announcement and the interim report of the Company for the six months ended 30 June 2021 published on 25 August 2021 and 10 September 2021, respectively. The Company recorded a net loss after tax of RMB840,935,000, representing an increase of 13.9% as compared with the net loss after tax of RMB737,998,000 for the same period of the previous year. The net loss for the six months ended 30 June 2021 was mainly attributable to the continuous impact of the COVID-19 pandemic, which caused uncertainty in respect of the rebound of the international passenger throughput at the Beijing Capital Airport. As the impact of the pandemic on international passenger throughput was minimal in January 2020, the international passenger throughput at the Beijing Capital Airport for the six months ended 30 June 2021 still showed a trend of sharp decline as compared with the same period of the previous year, which in turn resulted in a significant decrease in the related non-aeronautical revenue as compared with the same period of the previous year.

Save as disclosed above, as at the Latest Practicable Date, there was no other material adverse change in the financial or trading position of the Company since 31 December 2020, being the date to which the latest published audited financial statements of the Company were made up.

5. INTEREST IN ASSETS AND CONTRACTS

As at the Latest Practicable Date, none of the Director or supervisors of the Company had any interest, direct or indirect, in any asset which have been acquired or disposed of by or leased to the Company or are proposed to be acquired or disposed of by or leased to the Company since 31 December 2020, being the date to which the latest published audited financial statements of the Company were made up.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company was materially interested in any contract or arrangement subsisting as at the date of this circular, which was significant in relation to the business of the Company.

6. COMPETING INTEREST

As disclosed in section 2(b) of this appendix, as at the Latest Practicable Date, one executive Director concurrently held the position of chairman of the Supervisory Committee of the Parent Company, and one executive Director and three non-executive Directors concurrently held the position of deputy general manager in the Parent Company, which is the controlling shareholder of the Company. As such, these Directors are deemed to have interests in the Parent Company pursuant to Rule 8.10 of the Listing Rules.

The Parent Company is currently engaged in the aeronautical and non-aeronautical businesses of Daxing Airport as a result of the approval in writing on 28 June 2018 by the Company which has retained the option to purchase the assets of Daxing Airport in accordance with the requirements set out in the deed of non-competition dated 26 October 1999 entered into between the Company and the Parent Company. Therefore, the Parent Company is competing with the Company which is engaged in the operation of the

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GENERAL INFORMATION

APPENDIX II

aeronautical and non-aeronautical businesses of Beijing Capital Airport. For further details, please refer to the inside information announcement of the Company dated 28 June 2018 and pages 36 to 37 of the annual report of the Company for the year ended 31 December 2020 published on 28 April 2021.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or their respective close associates had any competing interest (as would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them were a controlling shareholder of the Company for the purpose of the Listing Rules).

7. EXPERT AND CONSENT

The following sets out the qualification of the expert which has given its opinion or advice as contained in this circular:

Name

Qualification

Opus Capital a corporation licensed by the SFC to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

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 references to its name, opinion, logo and qualification, in the form and context in which they are included.

As at the Latest Practicable Date, the above expert:

(a) did not have any shareholding, direct or indirect, in the Company or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in the Company; and
(b) did not have any interest, direct or indirect, in any assets which had been acquired or disposed of by or leased to the Company, or which were proposed to be acquired or disposed of by or leased to the Company, since 31 December 2020, being the date to which the latest published audited financial statements of the Company were made up.

8. DOCUMENTS ON DISPLAY

Copies of the following documents are available for inspection on the Stock Exchange's website and the Company’s website for 14 days from the date of this circular:

(a) the Supplemental Aviation Security Agreement;
(b) the Supply of Aviation Safety and Security Guard Services Agreement;
(c) the letter of advice from Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders;
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GENERAL INFORMATION

APPENDIX II

(d) the consent letter from the Independent Financial Adviser referred to in the paragraph headed “Expert and Consent” in this appendix; and
(e) this circular.
49 -

AI assistant

Nanfang Communication Holdings Limited — Proxy Solicitation & Information Statement 2021

50041_rns_2021-11-30_0e1fe371-4f67-4968-bed4-7f0f63e83c6b.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

(1) CONTINUING CONNECTED TRANSACTIONS (I) SUPPLEMENTAL AGREEMENT IN RELATION TO THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT

AND

AND

CONTENTS

DEFINITIONS

DEFINITIONS

Non-executive Directors:

To the Shareholders

LETTER FROM THE BOARD

INTRODUCTION

I. SUPPLEMENTAL AGREEMENT IN RELATION TO THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT

Background

Material terms of the Supplemental Aviation Security Agreement

Date

Parties

Effective date

Consideration and payment

(a) Adjustment to the calculation method of the service fee

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(i) Performance appraisal:

(ii) Rewards for cost control:

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Pricing policy and internal control

II. REVISION OF ANNUAL CAPS UNDER THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT (AS AMENDED BY THE SUPPLEMENTAL AVIATION SECURITY AGREEMENT)

LETTER FROM THE BOARD

Historical transaction amounts

Revised annual caps

III. REASONS FOR AND BENEFITS OF ENTERING INTO THE SUPPLEMENTAL AVIATION SECURITY AGREEMENT AND THE REVISION OF ANNUAL CAPS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

IV. BOARD’S APPROVAL

V. INFORMATION OF THE PARTIES

The Company

The Parent Company

Aviation Security Company

VI. LISTING RULES IMPLICATIONS

VII. PROPOSAL FOR THE APPOINTMENT OF AN EXECUTIVE DIRECTOR

VIII. PROPOSAL FOR THE APPOINTMENT OF A SUPERVISOR REPRESENTING THE SHAREHOLDERS

IX. EGM

X. APPOINTMENT OF INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

XI. CONNECTED PERSONS WHO ARE REQUIRED TO ABSTAIN FROM VOTING ON THE RESOLUTIONS

LETTER FROM THE BOARD

XII. BOOK CLOSURE PERIOD

XIII. RECOMMENDATION

XIV. ADDITIONAL INFORMATION

CONTINUING CONNECTED TRANSACTIONS

(I) SUPPLEMENTAL AGREEMENT IN RELATION TO THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT AND

(II) REVISION OF ANNUAL CAPS UNDER THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT (AS AMENDED BY THE SUPPLEMENTAL AVIATION SECURITY AGREEMENT)

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Yours faithfully,

CONTINUING CONNECTED TRANSACTIONS

(I) SUPPLEMENTAL AGREEMENT IN RELATION TO THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT AND

(II) REVISION OF ANNUAL CAPS UNDER THE SUPPLY OF AVIATION SAFETY AND SECURITY GUARD SERVICES AGREEMENT (AS AMENDED BY THE SUPPLEMENTAL AVIATION SECURITY AGREEMENT)

INTRODUCTION

Background of the supplemental agreement in relation to the Supply of Aviation Safety and Security Guard Services Agreement

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Background of the revision of annual caps under the Supply of Aviation Safety and Security Guard Services Agreement (as amended by the Supplemental Aviation Security Agreement)

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

THE INDEPENDENT BOARD COMMITTEE

OUR INDEPENDENCE

BASIS OF OUR OPINION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Information on the Parties

1.1. The Company

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1.2. The Parent Company

1.3. Aviation Security Company

2. Supplemental Aviation Security Agreement

2.1. Material terms

Date

18 October 2021

Parties

Effective date

Nanfang Communication Holdings Limited Proxy Solicitation & Information Statement 2021