RoboSense Technology Co., Ltd — Proxy Solicitation & Information Statement 2021

Jun 30, 2021

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, registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Luoyang Glass Company Limited *, you should at once hand this circular to the purchaser(s) or the transferee(s) or to the bank, licensed securities dealer, registered institution in securities or other agent through whom the sale or the transfer was effected for transmission to the purchaser(s) or the transferee(s).

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.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of Luoyang Glass Company Limited*.

＊

DISCLOSEABLE AND CONNECTED TRANSACTION – ACQUISITION OF 60% EQUITY INTEREST IN QINHUANGDAO NORTH GLASS CO., LTD.

Independent Financial Adviser to the Independent Board Committee and Independent Shareholders

Unless the context requires otherwise, capitalised terms used herein shall have the same meanings as those set out in the section headed “Definitions” of this circular.

A letter from the Board is set out on pages 1 to 39 of this circular.

A notice convening the EGM to be held at 9:00 a.m. on 21 July 2021 (Wednesday) at the conference room of the Company on 3rd Floor, No. 9 Tang Gong Zhong Lu, Xigong District, Luoyang Municipal, Henan Province, the PRC is set out on pages EGM-1 to EGM-3 of this circular.

The forms of proxy for use at the EGM were despatched to the Shareholders and published on the website of The Stock Exchange of Hong Kong Limited (http://www.hkexnews.hk) on 30 June 2021. Whether or not you are able to attend the EGM in person, you are requested to complete and return the forms of proxy in accordance with the instructions printed thereon to the Company’s share registrar in Hong Kong, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, or to the Company’s registered address at No. 9 Tang Gong Zhong Lu, Xigong District, Luoyang Municipal, Henan Province, the PRC as soon as possible and in any event not less than 24 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the forms of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

30 June 2021

• For identification purposes only

CONTENTS

			Page
DEFINITIONS.	. . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
LETTER FROM	THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . .		40
LETTER FROM	GRAM CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		42
APPENDIX I	–	ASSET VALUATION REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
APPENDIX II	–	R EPORT FROM THE REPORTING ACCOUNTANT OF
		THE COMPANY ON THE CALCULATIONS OF DISCOUNTED
		FUTURE ESTIMATED CASH FLOWS IN CONNECTION
		WITH THE ASSET VALUATION OF NORTH GLASS. . . . . . . . .	II-1
APPENDIX III	–	L ETTER FROM THE BOARD IN RELATION TO THE ASSET
		VALUATION REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV	–	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
NOTICE OF EGM. .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

DEFINITIONS

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

• “Acquisition” or “Share Transfer” the acquisition of the Target Equity Interest from Yaohua Group according to the terms and conditions under the Share Transfer Agreement by the Company

• “A Share(s)” domestic ordinary share(s) with a par value of RMB1.00 each in the share capital of the Company which are listed on the SSE and traded in RMB

• “associate(s)” has the meaning ascribed to it under the Listing Rules

• “Asset Valuer” Zhongjing Minxin (Beijing) Assets Appraisal Co., Ltd.,* (中京民 信（北京）資產評估有限公司), an independent professional valuer in the PRC

• “Asset Valuation Report” the asset valuation report of North Glass prepared by the Asset Valuer in respect of the appraisal value of the entire equity interest attributable to the shareholders of North Glass as of 30 November 2020, details of which are set out in Appendix I to this circular

• “Articles of Association” the articles of association of the Company, as amended from time to time

• “Bengbu Institute” CNBM Bengbu Design & Research Institute for Glass Industry Co., Ltd* ( 中建材蚌埠玻璃工業設計研究院有限公司 ), a company incorporated in the PRC with limited liability, the substantial shareholder of the Company and a wholly-owned subsidiary of Triumph Group

• “Board” the board of Directors of the Company

• “CLFG” China Luoyang Float Glass (Group) Company Limited* (中國洛 陽浮法玻璃集團有限責任公司), a company incorporated in the PRC with limited liability, and the substantial shareholder of the Company

• “CNBMG” China National Building Material Group Co., Ltd.* (中國建材集 團有限公司), a wholly state-owned enterprise incorporated in the PRC and an ultimate controlling shareholder of the Company

– ii –

DEFINITIONS

“Company” Luoyang Glass Company Limited (洛陽玻璃股份有限公司), a joint stock limited company incorporated in the PRC with limited liability, the H Shares and A Shares of which are listed on the main board of the Stock Exchange (stock code: 1108) and the SSE (stock code: 600876) respectively “Completion” the completion of the Acquisition according to the terms and conditions under the Share Transfer Agreement “connected person(s)” has the same meaning as ascribed to it under the Listing Rules “CSRC” the China Securities Regulatory Commission (中國證券監督管理 委員會) “Director(s)” director(s) of the Company, including the independent nonexecutive director(s) of the Company “EGM” the extraordinary general meeting of the Company to be convened at 9:00 a.m. on Wednesday, 21 July 2021 for the Independent Shareholders to consider and, if thought fit, approve, the Acquisition and the transactions contemplated thereunder “Handover Completion Date” the Registration Completion Date for the transfer of Target Equity Interest in North Glass “H Share(s)” the overseas listed foreign share(s) with a par value of RMB1.00 each in the share capital of the Company which are listed on the main board of Stock Exchange and traded in HK$ “HK$” Hong Kong dollars, the lawful currency of Hong Kong “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Huaguang Group” Anhui Huaguang Photoelectricity Materials Technology Group Co., Ltd. (安徽華光光電材料科技集團有限公司), a company incorporated in the PRC with limited liability

– iii –

DEFINITIONS

• “Independent Board Committee”

• the independent board committee of the Company comprising Mr. Jin Zhanping, Mr. Ye Shuhua, Mr. He Baofeng and Ms. Zhang Yajuan, being all the independent non-executive Directors of the Company, which is formed to advise the Independent Shareholders on the Acquisition and the transactions contemplated thereunder in accordance with the Listing Rules

• “Independent Financial Adviser” or “Gram Capital”

• Gram Capital Limited, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO, and the independent financial adviser appointed in accordance with Listing Rules to the Independent Board Committee and the Independent Shareholders on the Acquisition and the transactions contemplated thereunder

• “Independent Shareholders” Shareholders other than (i) Triumph Group and its associate(s); and (ii) all other parties (if any) who are materially interested or involved in the Share Transfer Agreement and the transactions thereunder

• “Latest Practicable Date” 24 June 2021, being the latest practicable date for the purpose of ascertaining certain information contained in this circular prior to its publication

• “Listing Rules”

• the Rules Governing the Listing of Securities on the Stock Exchange

• “North Glass” or “Target Company”

• Qinhuangdao North Glass Co., Ltd.* (秦皇島北方玻璃有限公司), a company incorporated in the PRC with limited liability, and a direct wholly-owned subsidiary of Yaohua Group as at the date of this circular

• “percentage ratios” has the same meaning as ascribed to it under the Listing Rules, as applicable to a transaction

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

• “RMB”

Renminbi, the lawful currency of the PRC

– iv –

DEFINITIONS

“Share(s)” ordinary share(s) of nominal value of RMB1.00 each in the share capital of the Company, including A Shares and H Shares “Shareholder(s)” the holder(s) of the Shares “Share Transfer Agreement” the agreement in relation to the acquisition of the Target Equity Interest in North Glass entered into between Yaohua Group and the Company on 29 April 2021 “SSE” the Shanghai Stock Exchange “Stock Exchange” The Stock Exchange of Hong Kong Limited “subsidiary(ies)” has the same meaning as ascribed to it under the Listing Rules “Target Equity Interest” the 60% equity interest in North Glass which Yaohua Group agreed to dispose of and the Company agreed to acquire pursuant to the Share Transfer Agreement “Triumph Group” Triumph Technology Group Co., Ltd. (凱盛科技集團有限公司), a company incorporated in the PRC with limited liability and an indirect controlling shareholder of the Company “Yaohua Group” China Yaohua Glass Group Corporation Co., Ltd. (中國耀華玻璃 集團有限公司), a company incorporated in the PRC with limited liability and a subsidiary controlled by Triumph Group which is an indirect controlling shareholder of the Company “%” per cent

For the purposes of this circular, unless the context otherwise requires or expressly specified, an exchange rate of RMB1.00 to HK$1.20 has been used for currency conversion, where applicable. Such exchange rate is for illustration purposes only and does not constitute any representation that any amount in RMB or HK$ has been, could have been or may be converted at such rate.

– v –

LETTER FROM THE BOARD

＊

Executive Directors:

Mr. Zhang Chong (Chairman) Mr. Xie Jun (Vice Chairman)

Mr. Ma Yan (General Manager)

Mr. Wang Guoqiang

• Mr. Zhang Rong

Registered and principal office:

No. 9 Tang Gong Zhong Lu Xigong District Luoyang Municipal Henan Province The PRC

Non-executive Directors:

Mr. Ren Hongcan

Mr. Chen Yong

Independent Non-executive Directors:

Mr. Jin Zhanping

Mr. Ye Shuhua

Mr. He Baofeng

Ms. Zhang Yajuan

30 June 2021

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION – ACQUISITION OF 60% EQUITY INTEREST IN QINHUANGDAO NORTH GLASS CO., LTD.

I. INTRODUCTION

References are made to the inside information announcement of the Company dated 30 December 2020 in relation to the entering into of cooperation framework agreements with connected persons of the Company and the announcement of the Company on the Acquisition dated 29 April 2021 (the

• “ Acquisition Announcement ”).

– 1 –

LETTER FROM THE BOARD

As disclosed in the Acquisition Announcement, the Company entered into the Share Transfer Agreement with Yaohua Group on 29 April 2021. Pursuant to the Share Transfer Agreement, the Company conditionally agreed to acquire and Yaohua Group conditionally agreed to dispose of 60% equity interest in North Glass at a consideration of RMB182,275,920 (equivalent to approximately HK$218,713,104). Upon Completion, North Glass will become a directly controlled subsidiary of the Company, and the financial results of North Glass will be consolidated into the financial statements of the Group.

The purpose of this circular is to provide you with details of, among others:

• (a) details of the Acquisition and the transactions contemplated thereunder;

• (b) the Asset Valuation Report;

• (c) a letter from the Independent Board Committee to Independent Shareholders containing its recommendation in respect of the Acquisition and the transactions contemplated thereunder;

• (d) a letter from Gram Capital to the Independent Board Committee and Independent Shareholders containing its recommendation in respect of the Acquisition and the transactions contemplated thereunder;

• (e) the notice of EGM, for the purpose of considering, and if thought fit, approving the Acquisition and the transactions contemplated thereunder.

II. ACQUISITION

The Company entered into the Share Transfer Agreement with Yaohua Group on 29 April 2021. Pursuant to the Share Transfer Agreement, the Company conditionally agreed to acquire and Yaohua Group conditionally agreed to dispose of 60% equity interest in North Glass at a consideration of RMB182,275,920 (equivalent to approximately HK$218,731,104).

Upon Completion, North Glass will become a directly controlled subsidiary of the Company, and the financial results of North Glass will be consolidated into the financial statements of the Group.

– 2 –

LETTER FROM THE BOARD

SHARE TRANSFER AGREEMENT

Set out below are the principal terms of the Share Transfer Agreement in respect of the Acquisition:

Date: 29 April 2021 Parties: (1) Yaohua Group (as the transferor); and

(2) the Company (as the transferee).

SHARE TRANSFER

Yaohua Group agreed to dispose of and the Company agreed to acquire 60% equity interest in North Glass. From the date on which the commercial and industrial registration of changes in the transfer of the Target Equity Interest is completed (“ Registration Completion Date ”), the Company will become the legal owner of the Target Equity Interest, and the percentage of equity interest held by Yaohua Group in North Glass will be changed from 100% to 40%.

SHARE TRANSFER PRICE AND PAYMENT METHOD

The transfer price of the Target Equity Interest was determined after arm’s length negotiations between the Company and Yaohua Group on normal commercial terms, with reference to, among others, the Asset Valuation Report of North Glass determining the appraisal value of the entire equity interest attributable to the shareholders of North Glass prepared by Zhongjing Minxin (Beijing) Assets Appraisal Co., Ltd.,* (中京民信（北京）資產評估有限公司), an independent Asset Valuer, based on the appraisal results of the cost method (asset-based method) as the appraisal conclusion. Accordingly, the appraisal value of the entire equity interest attributable to the shareholders of North Glass as of 30 November 2020 was approximately RMB303,793,200 (equivalent to approximately HK$364,551,840).

The full text of the Asset Valuation Report in respect of the appraisal value of the entire equity interest attributable to the shareholders of North Glass is set out in the Appendix I of the circular. The English version of the Asset Valuation Report is an unofficial translation of its Chinese version. In case of any discrepancy between the two versions, the Chinese version shall prevail.

– 3 –

LETTER FROM THE BOARD

Based on the aforementioned valuation results, it is determined that the transfer price of Target Equity Interest in North Glass is RMB182,275,920 (equivalent to approximately HK$218,731,104) (“ Share Transfer Price ”). The Company intends to pay the Share Transfer Price in cash by installment, which will be funded by the Company’s own funds. The Company shall pay the Share Transfer Price of the Target Equity Interest to Yaohua Group in the following ways:

The first installment:

The Company shall pay the Share Transfer Price of RMB170,000,000 (equivalent to approximately HK$204,000,000) to Yaohua Group within 15 working days from the effective date of the Share Transfer Agreement.

The second installment:

The Company shall pay the remaining balance of the Share Transfer Price to Yaohua Group within 15 working days from the date on which the Target Equity Interest is registered under the Company’s name (subject to the industrial and commercial registration).

Although the valuation benchmark date of the Asset Valuation Report was 30 November 2020, the Company was required to conduct audit, appraisal and approval procedure by the state-owned assets supervision authorities on that basis and the Asset Valuation Report is valid for one year. The Directors are of the view that there were no material changes in the macro-economy, the industry and North Glass during the 5-month period between the valuation benchmark date of the Asset Valuation Report and the date of entering into of the Share Transfer Agreement. Accordingly, it is fair and reasonable to adopt the appraisal results of the Asset Valuation Report as the basis for consideration, which is also in line with the practice for state-owned equity transactions in the PRC.

In the process of valuation, the Directors have discussed and analyzed with the Asset Valuer in relation to the valuation target, valuation scope, valuation methods, valuation basis, valuation assumptions and the setting of core parameters, etc., focusing on the reasons for the appreciation of the appraisal results on the valuation benchmark date, the reasonableness of the computation for the valuation, the sufficiency of the valuation procedures, the main condition of the assets of North Glass, the existence or non-existence of litigations, the production capacity and utilization of its equipment, its expected planning and other matters related to the Asset Valuation Report and determined that the valuation methods and valuation basis adopted in the Asset Valuation Report can give a fair view of the appraisal value of the entire equity interest of the shareholders of North Glass. In the review of the Asset Valuation Report for filing for record to CNBMG, the ultimate controlling shareholder of the Company, the Directors and Yaohua Group and the Asset Valuer have carefully discussed and analyzed issues involved in the audit opinions given by the experts audit committee and jointly completed the reply to such issues after checking and verifying the relevant information, etc. After such process, the Asset Valuation Report which is recognized by the Company and has gone through the procedures of filing for record is finally formed, and the Directors are of the view that it is fair and reasonable to adopt such valuation results as the basis for the Share Transfer Price.

– 4 –

LETTER FROM THE BOARD

In addition, the Directors have reviewed the audit report and valuation report issued by the auditor and the Asset Valuer and other professional institutions in relation to the Acquisition, communicated and discussed with the management on the background, necessity and reasonableness of the valuation of the Acquisition, and identified the valuation of comparable transactions in the market. In addition, the Company has appointed PRC lawyers to conduct a due diligence on North Glass, the scope of which includes but not limited to the general condition, its governance structure, businesses and qualifications, employment, taxation, litigations, etc. of North Glass, and the Directors have also reviewed the due diligence report and listened to the relevant professional opinions of PRC lawyers, and considered that North Glass has good sustainable business capacity and the business of the photovoltaic glass production project to be constructed is in line with the Company’s strategic layout in the photovoltaic glass business. The Company has also appointed management, finance and other relevant personnel of the Company to conduct an on-site inspection at the business address of North Glass, including an on-site visit to understand and inspect the operation, management and assets operation of North Glass. Based on the results of the inspection, the Directors are of the view that the assets operation condition of North Glass is satisfactory.

In evaluating the Acquisition, in addition to the audit, valuation, due diligence and the results of site visit in respect of North Glass, the Directors have also considered (i) the development and scale of the business of North Glass; (ii) the business of North Glass is conducive to the further expansion of the business scale of the Company and can create synergy effect; and (iii) the reasons and factors set out in the circular under “REASONS FOR AND BENEFITS OF THE ACQUISITION”.

HANDOVER

The Handover Completion Date of the transfer of the Target Equity Interest shall be the Registration Completion Date. Since the Handover Completion Date, the Company and its authorized persons will be entitled to take over North Glass, and be entitled to conduct production and operation activities or other disposals through North Glass as a shareholder. Upon the completion of the relevant handover matters, Yaohua Group, the Company and North Glass will jointly sign a handover agreement. At the same time, Yaohua Group and the Company will appoint an auditor to audit the financial position of North Glass for the period from 1 December 2020 to the Handover Completion Date and issue the corresponding audit report.

Yaohua Group and the Company will make their best efforts to assist and cooperate in the completion of formalities for the industrial and commercial registration of changes for the Share Transfer in a timely manner. Yaohua Group and the Company will reformulate the articles of association of North Glass in accordance with the Company Law of the People’s Republic of China and other relevant regulations. Yaohua Group undertakes to complete the industrial and commercial registration of changes for the Share Transfer within ten working days from the date of receipt of the first installment of payment from the Company.

– 5 –

LETTER FROM THE BOARD

During the period in which the Company and Yaohua Group hold 60% and 40% equity interest in North Glass, respectively, the members of the board of directors, board of supervisors and senior management of North Glass shall be arranged in the following ways:

• (i) North Glass shall establish a board of directors, comprising of three directors, including two to be nominated by the Company and one by Yaohua Group, who shall be elected at a general meeting of North Glass. The chairman of the board of directors shall be served by a director nominated by the Company, who shall also act as the legal representative of North Glass.

• (ii) North Glass shall establish a board of supervisors, comprising of three supervisors. The supervisors shall consist of representative of the shareholders and representative of the employees. There shall be two supervisors representing shareholders, including one to be nominated by Yaohua Group and one by the Company, who shall be elected at a general meeting of North Glass, and one supervisor representing employees, who shall be democratically elected by the employees of North Glass. The chairman of the board of supervisors shall be served by the supervisor nominated by Yaohua Group.

• (iii) The general manager of North Glass shall be nominated by the Company and appointed by the board of directors; the deputy general manager shall be nominated by the general manager as per the recommendation by shareholders of North Glass and appointed by the board of directors; the finance director shall be nominated by the general manager as per the recommendation by the Company and appointed by the board of directors of North Glass.

The profits and losses realized by North Glass after the audit and valuation benchmark date (being 30 November 2020) shall be borne or enjoyed by North Glass and indirectly borne or enjoyed by each shareholder in proportion to their respective equity interest upon Completion of the Share Transfer.

HANDLING OF CREDITOR’S RIGHTS AND DEBTS

Upon the Share Transfer, the qualification of North Glass as a legal person will subsist, and North Glass will continue to assume the creditor’s rights of North Glass upon the Share Transfer.

Yaohua Group shall ensure that Yaohua Group and its related parties have settled the debts owed by them to North Glass before the Registration Completion Date.

Upon the Share Transfer, the qualification of North Glass as a legal person will subsist, the debts recorded in the financial statements of North Glass as of the Handover Completion Date will continue to retain in North Glass, which will be repaid by North Glass upon the Share Transfer.

– 6 –

LETTER FROM THE BOARD

CONDITIONS PRECEDENT FOR SHARE TRANSFER AGREEMENT TO TAKE EFFECT

Share Transfer Agreement shall become effective from the date on which all the following conditions have been satisfied:

• (i) the Share Transfer Agreement has been signed by the legal representatives of Yaohua Group and the Company or their respective authorized representative(s), with company seals of both parties affixed thereon;

• (ii) the Share Transfer as contemplated under the Share Transfer Agreement has been approved at the general meeting of Yaohua Group; and

• (iii) the Share Transfer as contemplated under the Share Transfer Agreement has been approved at the general meeting of the Company.

PROFIT FORECAST IN RELATION TO THE VALUATION APPROACH ON THE EQUITY INTERESTS IN NORTH GLASS

Both the cost method (asset -based method) and income method have been adopted in the Asset Valuation Report prepared by the Asset Valuer and after analyzing and comparing the valuation results obtained by the two methods, one of the more appropriate valuation results is used as the valuation conclusion. Through the investigation of the financial situation, the analysis of historical business performance and future planning of North Glass, and combined with the consideration of the valuation target, the purpose of the valuation, the applicable types of values, after the comparative analysis, the Asset Valuer considered that the valuation result of the cost method can more comprehensively and reasonably reflect the value of the entire equity interest of the shareholders of the appraised entity, and therefore the valuation result of the cost approach was selected by the Asset Valuer as the final conclusion of the valuation on the value of the entire equity interest of the shareholders of North Glass. For further details in respect of the analysis and selection of the valuation results, please refer to the Asset Valuation Report in Appendix I of the circular.

As income method has been adopted as one of the valuation methods in the process of forming the conclusion of the valuation of the equity interests in North Glass in the Asset Valuation Report, the valuation under the income method is deemed as a profit forecast under Rule 14.61 of the Listing Rules. As such, the Company discloses the following details of the valuation in accordance to Rule 14.62 of the Listing Rules.

– 7 –

LETTER FROM THE BOARD

The Asset Valuation Report is prepared based on the following principal assumptions:

(I) Basic assumptions

1. Transaction assumption

Transaction assumption assumes that all assets to be valued are in the process of transaction, and the valuer will conduct the valuation with reference to a simulated market based on the transaction conditions of assets to be valued. The transaction assumption is the most fundamental prerequisite for the further implementation of the asset valuation.

2. Open market assumption

Open market assumption assumes that with respect to the asset traded or to be traded in the market, the asset transaction parties are equal and have opportunity and time to access to enough market information so as to make a rational judgment on the function, intended purpose and transaction price of the assets. The open market assumption is made on the basis that the assets are available for trading openly in the market.

3. Assumption on continuing operation

Assumption on continuing operation is based on the assumption that the appraised enterprise continues to operate in accordance with its original business purpose and operating methods after the valuation benchmark date.

(II) General assumptions

1. It is assumed that there are no material changes in the relevant existing laws, regulations and policies, and macroeconomic conditions of the PRC as well as in the local political, economic and social environment of such places where the parties to the transaction are operating after the valuation benchmark date;

2. It is assumed that, after the valuation benchmark date, the persons operating the appraised entity are accountable, and the management of the company is capable of performing their duties;

3. It is assumed that the appraised entity has fully complied with all relevant laws and regulations.

– 8 –

LETTER FROM THE BOARD

(III) Specific Assumptions

1. It is assumed that the accounting policies to be adopted by the appraised entity after the valuation benchmark date are basically consistent with the accounting policies adopted when the report is prepared in respect of key aspects;

2. It is assumed that the business scope and practice of the appraised entity will remain consistent with the current directions after the valuation benchmark date based on the existing management practice and management level of the appraised entity;

3. The type of the value is the market value, regardless of the impact of the economic behavior involved in the valuation purpose on the business operation of the enterprise;

4. It is assumed that the appraised entity will have even cash inflow and cash outflow after the valuation benchmark date;

5. This assessment assumes that the basic information and financial information provided by the client and appraised enterprise are true, accurate, and complete;

6. It is assumed that the 600T/D kiln currently in production by the appraised enterprise can continue to be used for production after the cold repair is completed and maintained through the kiln after strict maintenance.

The Board has reviewed the key assumptions upon which the profit forecast was based and is of the view that the profit forecast was made after due and careful enquiry.

WUYIGE Certified Public Accountants LLP has been engaged by the Company to review the arithmetical calculation and compilation of the discounted future estimated cash flows upon which the Asset Valuation Report prepared by the Asset Valuer were based.

A report from WUYIGE Certified Public Accountants LLP and a letter from the Board are included in Appendix II and Appendix III to this circular respectively for the purpose of Rule 14.62 of the Listing Rules.

– 9 –

LETTER FROM THE BOARD

SUPPLEMENTAL INFORMATION IN RELATION TO THE APPRECIATION IN THE APPRAISAL VALUE OF THE NET ASSETS OVER THE BOOK VALUE UNDER THE ADOPTION OF COST APPROACH IN THE VALUATION OF THE EQUITY INTERESTS IN NORTH GLASS

According to the Asset Valuation Report, the appraisal value of the net assets of North Glass arrived at in the valuation by the adoption of cost approach (asset-based approach) represents an appreciation of RMB118,519,800 over its book value. According to the opinions of the Asset Valuer, such appreciation was mainly due to:

• (I) Current assets: the appraisal value represents an appreciation of RMB13,375,665.13, which was due to that certain raw materials and commodities in stock were valued based on their market selling prices, and the appraisal value included some profits, which resulted in such appreciation.

• (II) Long-term equity investment: the appraisal value represents a depreciation of RMB100,871,925.24. According to the minutes of the 17th general manager office meeting of Yaohua Group (Yao Ji Ji Zi (2020) No. 17), Qinhuangdao Huazhou Glass Co., Ltd. (秦 皇島華洲玻璃有限公司) (“ Huazhou Company* ”), a long-term equity investment unit over which North Glass owns controlling rights, has gone through the procedure of deregistration. According to the Resolution of the Board of Directors of Yaohua Group and the Agreement on Assignment of Creditor’s Rights and Offsetting of Debt entered into among the shareholders, Yaohua Group, North Glass and the invested unit, Huazhou Company, after the offsetting of the creditor’s rights against the debts among the three parties, Huazhou Company has reported simplified deregistration procedures to the Qinhuangdao Haigang District Market Supervision and Administration Bureau (秦皇島市海港區市場監督管理 局). Since Huazhou Company is in the process of deregistration, the investment cannot be recovered in the future, so the valuation of the long-term equity investment in Huazhou Company involved in the benchmark date is zero.

• (III) Buildings and structures: the net appraisal value represents an appreciation of RMB51,451,808.73. The appreciation was mainly due to that: 1. the majority of the valued buildings and structures reported by the appraised entity were completed between 2010 to 2016, which were built in a relatively earlier age. During the construction period, the construction costs increased due to the significant increase in the prices of construction materials, especially the labour cost; 2. according to accounting system, the buildings and structures are depreciated every year, with a relatively low net book value, and the age over which the appraised entity provides for depreciation for the buildings and structures was shorter than the economic service life used in the valuation.

– 10 –

LETTER FROM THE BOARD

• (IV) Machinery and equipment: the net appraisal value represents a depreciation of RMB1,587,109.55. The depreciation of the net appraisal value is mainly due to that most of the production lines of the enterprise have been in use for many years and the life being applied for the calculation of depreciation of the book value of equipment is longer than the economic life being considered in the valuation. As a result, there is a slight difference between the net appraisal value and the book value, and therefore the relative net appraisal value is depreciated. At the same time, the valuation has also taken into account the comprehensive newness rate of the equipment actually put into use, and therefore the net appraisal value is depreciated.

• (V) Intangible assets: the land use rights in the valuation represents an appreciation of RMB42,452,925.97. By taking into account the purpose of the valuation and the specific conditions of the land parcel to be valued, the land use rights were valued using the benchmark land premium coefficient correction approach and the cost approaching method, and the average of the valuation results under both approaches was taken as the appraisal value. The appreciation was mainly due to that: 1. North Glass acquired the land in 2009 (the new real estate certificate for the land was issued in 2017), which was relatively early. The latest benchmark land price in Qinhuangdao City and the cost of acquiring industrial land in the recent years represent a significant increase as compared to the price at the time of the acquisition of the land; 2. under the accounting system, the book value of the land is amortized every year, resulting in a relatively low book value.

• (VI) Liabilities: the appraisal value of the liabilities represents a depreciation of RMB110,786,992.91, which is due to the valuation of nil for the current accounts with Huazhou Company, the subsidiary of North Glass, among other payables. According to the Resolution of the Board of Directors of China Yaohua Glass Group Co., Ltd. and the Agreement on Assignment of Creditor’s Rights and Offsetting of Debt, since Huazhou Company is in the process of deregistration procedures, North Glass does not have to pay such liabilities, and therefore the valuation of such liabilities was nil.

SUPPLEMENTAL INFORMATION IN RELATION TO THE CALCULATION OF THE VALUATION OF THE EQUITY INTERESTS IN NORTH GLASS BY THE ADOPTION OF INCOME APPROACH

Both the cost method (asset-based method) and income method have been adopted in the Asset Valuation Report prepared by the Asset Valuer and after analyzing and comparing the valuation results arrived at through the two methods, one of such valuation results which is considered as more appropriate is used as the valuation conclusion. The Asset Valuer has selected the valuation result under the cost approach as the final valuation conclusion in the valuation of the value of the entire equity interest of the shareholders of North Glass. As supplemental information to this circular, details of the calculation method, base and basis of the valuation conclusion arrived at through the income approach are set out below according to the opinion of the Asset Valuer:

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LETTER FROM THE BOARD

Forecast base is as follows:

The forecast of revenue, cost and expense of North Glass is prepared by the management of the enterprise through a comprehensive analysis based on the future planning of the enterprise, the actual operating data from January to November 2020 and the financial budget for 2021, in compliance with the relevant existing laws and regulations of the PRC, and in accordance with the national macro policies, the national and regional macroeconomic conditions and industry conditions, the development planning and operation plan of the company, the advantages, disadvantages, opportunities and risks, etc., especially the market environment faced by the company and its future development prospects and potentials.

Forecast basis includes the following aspects:

• (1) Making forecasts using historical data of the company and various financial, economic and technical indicators of similar enterprises and companies in the industry;

• (2) Making forecasts using relevant national laws and regulations and relevant national tax and financial policies;

• (3) Making reasonable forecasts using market, industry, and actual conditions of the company;

• (4) Making forecasts using the future development plans, fixed asset investment plans and operating plans of the company.

The key data forecasts are described as follows:

• (1) Designing revenue forecast statement (revenue and cost forecasts), mainly based on the actual revenue of the last two years, and referring to the revenue forecast statement, production plan and future development planning provided by the enterprise;

• (2) Identifying the main reasons for the historical growth of earnings of the enterprise and, on that basis, forecasting the change in growth in future years;

• (3) Referring to the financial plan and business plan of the enterprise and analyzing the factors that will have a significant impact on the enterprise’s earnings in the expected years;

• (4) Considering the current national industrial policy, the macro background of industry development, market demand and changing trends;

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LETTER FROM THE BOARD

• (5) The company’s operations are expected to enter a stable development period after 2025, with the increase in revenue, costs and capital expenditures, and working capital maintaining at the level of the previous year and the net cash flows remaining unchanged;

• (6) The impact of changes in various factors on the expected earnings is measured, compared and summarized, and then an earnings forecast statement is prepared.

The specific calculation process is as follows:

1. Operating income

The operating income is mainly derived from the sales revenue of glass products, while other business income is derived from the internal sales and processing services of related parties. The total operating income of the enterprise for the latest two years and one period are summarized as follows:

Monetary Unit: RMB

Operating income

Item Sales volume of glass products Unit selling price of glass products Sales revenue of glass products Income from other businesses Total operating income	2018 6,388,230.47 84.94 542,609,269.27 204,572,040.19 747,181,309.46	2019 5,897,160.52 75.83 447,173,425.90 6,234,365.02 453,407,790.92	January- November 2020 4,794,906.57 87.75 420,775,587.72 21,399,958.85 442,175,546.57

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LETTER FROM THE BOARD

The calculation of the above table shows that the operating income of the enterprise has experienced significant fluctuation. In general, it has been on a year-by-year declining trend. The decline in 2019 was due to the fact that the production of the 500t/d production line, one of the two float glass production lines, 500t/d and 600t/d, owned by the appraised enterprise was suspended in December 2018 due to the impact of market demand and cold repair period, and since such production line still requires maintenance, the cost has not decreased significantly, thus resulting in a loss in 2019. Production has not resumed as of the valuation benchmark date. Sales revenue in 2020 was at the same level as that of 2019.

The forecast of the operating income of the enterprise by classification for the future years is as follows:

(1) Analysis on the forecast of sales volume

The growth rate of glass production basically keeps pace with that of the construction areas of real estate, it is estimated that the construction areas of buildings are expected to grow at a rate of about 10% in 2021, and the demand for glass will remain high. The supply of glass production capacity is determined by newly-added, cold repair and production resumption capacity. The newly-added production capacity is determined by policies on newly-added production capacity. The general range of the cold repair and production suspension shall be determined by lifetime of the furnace. The price affects the specific cold repair time within the manufacturer’s range, and meanwhile is affected by the requirements of upgrading for environmental protection purpose. A cold repair generally takes less than six months, and if such cold repair takes more than six months, the likelihood of production resumption is low, therefore, the resumption of production depends on the production capacity of cold repair which takes less than six months.

For the supply-side reform in the glass industry, there are three trends: (1) to eliminate low-end production techniques and encourage enterprises to expand into the field of deep processing; (2) mergers and reorganization are encouraged to enhance the concentration and eliminate small factories in flat glass industry due to the low concentration in the industry; (3) the requirements on newly-added production capacity are more and more strict and the assessment is more quantitative, the newlyadded production capacity must be equivalent or reduced to replace the newly-added capacity. In 2015, the economic downturn weakened the demand in the industry,

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LETTER FROM THE BOARD

and the growth rate of the newly-added float glass production capacity decreased significantly. Since 2016, Document No.34 and other documents strictly banned filing and building of new cement clinker and plate glass projects which aim to expand production capacity. For a new project which is necessary to be constructed, reduction in or equivalent of production capacity is required to implement in replacement, which limits the increase in domestic production capacity of plate glass. Since 2015, the year-on-year growth rate of the total production capacity and in-production capacity of float glass has been within 5%, and the new supply in the industry has slowed down. Save for the current 375 float glass production lines, it is be difficult to have new production lines added in 2021.

To sum up, the demand in float glass market is booming in 2020. Due to the impact of elimination of excess capacity, it is expected that the market demand in float glass industry will still be greater than supply in the next few years, and taking into consideration the production capacity indicators of the two glass production lines of the enterprise (considering that it has been two years since the production of the 500t/d production line was suspended, and due to the influence by the development strategy of the enterprise, it is uncertain whether such production line will resume production in the future, thus in the valuation, no forecast of the future production and operation situation of such production line has been made), it is expected that the sales volume of the products of the appraised enterprise will approximate to the full capacity of a production line in the coming years.

(2) Forecast of unit selling price

Currently, the demand and supply in the float glass market is imbalanced, which is affected by the impact of eliminating excess capacity and the impact of the upward tendency of the real estate development market. The selling price in the float glass market increased significantly in 2020 under the upward tendency in 2019.

It is expected that the selling price of float glass in 2021 will remain at the same level as that in 2020, and will remain at the same in the following years with slight fluctuations.

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LETTER FROM THE BOARD

(3) Forecast of sales revenue

To sum up, the income from the main products businesses for the next few years is forecasted based on the above analysis, and the income from other businesses is forecasted mainly with reference to the level for historical years. Accordingly, the forecasts of the sales revenue are as follows:

Monetary Unit: RMB

Item Sales volume of glass products Unit selling price of glass products Sales revenue of glass products Income from other businesses Total operating income	December 2020 452,944.64 98.69 44,701,106.27 159,230.12 44,860,336.39	2021 4,460,673.53 98.69 440,223,870.45 17,247,351.18 457,471,221.63	2022 2,230,336.76 96.72 215,709,696.52 17,419,824.69 233,129,521.21	Operating income 2023 4,237,639.85 97.68 413,946,907.63 17,594,022.93 431,540,930.56	2024 4,280,016.25 98.66 422,267,240.47 17,769,963.16 440,037,203.63	2025 4,322,816.41 98.69 426,618,751.74 17,947,662.80 444,566,414.53	Perpetual period 4,235,086.45 98.69 417,960,682.21 17,947,662.80
							435,986,282.73

In particular, as the glass furnace and the production line of the enterprise will enter into cold repair period in 2022, the operating income for such year will significantly decrease due to the suspension of production caused by the cold repair. The forecast of the operating income for each year after 2025 is made based on the forecast of the operating income in 2025, taking into account the feature that glass furnace and the production line need to suspend production for cold repair once every ten years. The amount of the decrease in income due to the suspension of production for cold repair will be evenly shared in a certain proportion among the future years to comprehensively calculate the operating income.

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LETTER FROM THE BOARD

2. Forecast of operating cost

The historical operation cost of the company is as follows:

Monetary Unit: RMB

Operating cost

Item Raw materials Fuel and power Labor and benefits Manufacturing cost Total	2018 181,553,091.97 128,430,844.75 15,936,674.17 166,553,869.23 492,474,480.11	2019 179,067,822.44 126,672,762.51 15,718,517.98 164,273,923.16 485,733,026.09	January to November 2020 149,556,804.16 105,796,637.71 13,128,049.93 137,200,992.46
			405,682,484.26

The forecast of operating cost is made through the classification of the corresponding operating cost to each operating income, with reference to the average gross margin of each income in previous years. As calculated, the total gross margin of the appraised entity stabilizes at about 17%, thus in the valuation, it is forecasted that the gross margin of the company in the next few years will maintain such development tendency.

Based on the above situation, the forecast of the operating cost of the company in the future is as follows:

Monetary Unit: RMB

Item Raw materials Fuel and power Labor and benefits Manufacturing cost Total	December 2020 11,975,773.65 8,471,674.65 1,051,229.70 10,986,380.99 32,485,058.99	2021 139,978,646.70 99,021,039.23 12,287,282.24 128,414,145.77 379,701,113.95	2022 71,333,787.44 50,461,594.90 12,410,155.06 65,440,462.49 199,645,999.91	Operating cost 2023 132,044,405.42 93,408,348.76 11,590,817.00 121,135,401.19 358,178,972.37	2024 134,644,124.81 95,247,392.94 11,819,019.56 123,520,341.70 365,230,879.02	2025 Perpetual period 136,029,988.63 133,404,609.85 96,227,754.43 94,370,558.77 11,940,670.26 11,710,215.32 124,791,710.74 22,383,230.72 368,990,124.06 361,868,614.67	2025 Perpetual period 136,029,988.63 133,404,609.85 96,227,754.43 94,370,558.77 11,940,670.26 11,710,215.32 124,791,710.74 22,383,230.72 368,990,124.06 361,868,614.67
							361,868,614.67

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LETTER FROM THE BOARD

In particular, as the glass furnace and the production line of the enterprise will enter into cold repair period in 2022, the operating cost for such year will significantly decrease due to the suspension of production caused by the cold repair. The forecast of the operating cost for each year after 2025 is made based on the forecast of the operating cost in 2025, taking into account the feature that glass furnace and the production line need to suspend production for cold repair once every ten years. The amount of the decrease in cost due to the suspension of production for cold repair will be evenly shared in a certain proportion among the future years to comprehensively calculate the operating cost.

3. Forecast of taxes and surcharges

The business taxes are urban construction tax, education surcharge, land use tax, property tax, environmental protection tax and stamp tax, etc. In particular, the tax bases for land use tax, property tax, environmental protection tax, stamp tax and other all business taxes are the area of land, the original book value of housing and buildings, pollutant equivalents, the amount of the purchase and sales contracts for the current period and valued-add tax, respectively.

For details of the forecast results, please refer to the table below:

Tax category December 2020 Urban construction tax 112,615.02 Education surcharge 48,263.58 Local education surcharge 32,175.72 Land use tax 255,563.34 Property tax 172,863.70 Environmental protection tax 46,657.54 Stamp tax 482.64 Total 668,621.55	2021 707,707.98 303,303.42 202,202.28 650,148.80 737,037.15 279,945.23 3,033.03 2,883,377.89	2022 304,700.04 130,585.73 87,057.16 650,148.80 737,037.15 279,945.23 1,305.86 2,190,779.97	2023 667,593.82 286,111.64 190,741.09 650,148.80 737,037.15 279,945.23 2,861.12 2,814,438.84	2024 680,737.55 291,744.67 194,496.44 650,148.80 737,037.15 279,945.23 2,917.45 2,837,027.29	Monetary Unit: RMB 2025 Perpetual period 687,744.24 674,470.78 294,747.53 289,058.91 196,498.36 192,705.94 650,148.80 650,148.80 737,037.15 737,037.15 279,945.23 279,945.23 2,947.48 2,890.59 2,849,068.78 2,826,257.39	Monetary Unit: RMB 2025 Perpetual period 687,744.24 674,470.78 294,747.53 289,058.91 196,498.36 192,705.94 650,148.80 650,148.80 737,037.15 737,037.15 279,945.23 279,945.23 2,947.48 2,890.59 2,849,068.78 2,826,257.39
						2,826,257.39

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LETTER FROM THE BOARD

4. Forecast of selling expenses

The selling expenses comprise of depreciation, export expense, office expense, others, etc.

In forecasting, the selling expenses are divided into two parts, including the part that is directly related to the revenue and the part that is variable but not directly related to the revenue. The selling expenses that are directly related to the revenue generally increase as the selling revenue increases, and are forecasted by excluding the relevant exceptional impact factors and calculated based on the average ratio of such type of historical administrative expense item to revenue. The selling expenses that are not directly related to the revenue shall be calculated separately based on the actual situation of the expenses.

No forecast will be made for the incidental and non-operating expenses in the future.

For details of the forecast results, please refer to the table below:

Item December 2020 Salary 85,102.38 Depreciation 204.79 Packing expense 1,125,352.61 Office expense 18.18 Export expense 224,839.37 Others 4,116.64 Total 1,439,633.97	2021 1,031,440.82 2,457.49 6,379,501.52 12,377.33 656,434.69 49,893.68 8,132,105.53	2022 1,041,755.23 2,457.49 3,221,648.27 12,501.10 662,999.04 50,392.61 4,991,753.75	2023 1,052,172.78 2,457.49 6,507,729.50 12,626.12 669,629.03 50,896.54 8,295,511.46	2024 1,062,694.51 2,457.49 6,572,806.79 12,752.38 676,325.32 51,405.51 8,378,442.00	Monetary Unit: RMB 2025 Perpetual period 1,073,321.46 1,073,321.46 2,457.49 2,457.49 6,638,534.86 6,638,534.86 12,879.90 12,879.90 683,088.57 683,088.57 51,919.56 51,919.56 8,462,201.84 8,462,201.84	Monetary Unit: RMB 2025 Perpetual period 1,073,321.46 1,073,321.46 2,457.49 2,457.49 6,638,534.86 6,638,534.86 12,879.90 12,879.90 683,088.57 683,088.57 51,919.56 51,919.56 8,462,201.84 8,462,201.84
						8,462,201.84

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LETTER FROM THE BOARD

5. Forecast of administration expenses

The administration expenses mainly comprise salary and remuneration, office expense, travel expense, depreciation and amortization, etc.

In forecasting, the administration expenses are divided into two parts, including the part that is directly related to the revenue and the part that is variable but not directly related to the revenue. The administration expenses that are directly related to the revenue, e.g., travel expense, generally increase as the selling revenue increases, and are forecasted by excluding the relevant exceptional impact factors and calculated based on the average ratio of such type of historical administrative expense item to revenue. The administration expenses that are not directly related to the revenue, e.g., office expense, shall be calculated separately based on the actual situation of the expenses.

The current salary standard and the employee recruitment plan in the following several years shall be considered in the forecast of salary and the certain growth of annual salary per capita shall be considered in the future years.

As for the depreciation, it is expected that there will have no significant changes in the depreciation of the fixed assets in the future years. As such, the forecast of the depreciation in the future years shall be made with reference to the depreciation in 2019.

No forecast will be made for the incidental and non-operating expenses in the future.

For details of the forecast results, please refer to the table below:

						Monetary	Unit: RMB
Item	December 2020	2021	2022	2023	2024	2025	Perpetual period
Salary	1,358,439.46	3,074,324.76	3,105,068.01	3,136,118.69	3,167,479.88	3,199,154.68	3,087,504.18
Welfare	11,402.05	1,094,000.00	1,104,940.00	1,115,989.40	1,127,149.29	1,138,420.79	1,098,689.90
Depreciation	21,382.41	258,480.00	258,480.00	258,480.00	258,480.00	258,480.00	258,480.00
Office expense	4,555.91	120,000.00	121,200.00	122,412.00	123,636.12	124,872.48	120,514.43
Travel expense	10,649.77	60,000.00	60,600.00	61,206.00	61,818.06	62,436.24	60,257.22
Repair expense	750.00	2,302,146.89	16,835,328.82	2,302,146.89	2,325,168.36	2,348,420.04	2,266,460.18
Material consumption	0.00	100,000.00	101,000.00	102,010.00	103,030.10	104,060.40	100,428.69
Low-consumption
goods	0.00	10,000.00	10,100.00	10,201.00	10,303.01	10,406.04	10,042.87

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LETTER FROM THE BOARD

Item Trade union expense Labor protection Emission charges Audit fee Entertainment expense Amortization of intangible assets Social insurance and house fund Total	December 2020 27,207.39 110,573.97 0.00 0.00 144,687.42 45,552.75 25,789.18 1,760,990.31	2021 497,838.00 0.00 247,356.98 0.00 60,000.00 546,633.00 810,353.90 9,181,133.53	2022 502,816.38 0.00 249,830.55 0.00 60,600.00 546,633.00 818,457.44 23,775,054.20	2023 507,844.54 0.00 252,328.85 0.00 61,206.00 546,633.00 826,642.02 9,303,218.40	2024 512,922.99 0.00 254,852.14 0.00 61,818.06 546,633.00 834,908.44 9,388,199.45	2025 Perpetual period 518,052.22 499,972.20 0.00 0.00 257,400.66 248,417.38 0.00 0.00 62,436.24 60,257.22 546,633.00 546,633.00 843,257.52 813,827.83 9,474,030.31 9,171,485.10	2025 Perpetual period 518,052.22 499,972.20 0.00 0.00 257,400.66 248,417.38 0.00 0.00 62,436.24 60,257.22 546,633.00 546,633.00 843,257.52 813,827.83 9,474,030.31 9,171,485.10
							9,171,485.10

6. Forecast of finance expenses

The finance expenses mainly represent the interest expense, interest income and handling fees, etc.

The interest income and handling fees shall be forecasted mainly with reference to the proportion of that in the revenue for historical years.

The interest expense shall be forecasted based on the existing borrowings and the expected borrowing plan in the future.

For details of the forecast results, please refer to the table below:

Monetary Unit: RMB

Item Interest expense Interest income (“-”) Handling fees Total	December 2020 2,201,743.92 -72,427.51 18,827.16 2,148,143.57	2021 24,015,673.36 -580,899.28 604,220.14 24,038,994.22	Forecast year 2022 2023 24,015,673.36 24,015,673.36 -580,899.28 -580,899.28 604,220.14 604,220.14 24,038,994.22 24,038,994.22	2024 24,015,673.36 -580,899.28 604,220.14 24,038,994.22	2025 4,015,673.36 -580,899.28 604,220.14
					24,038,994.22

The finance expenses for each year after 2025 shall maintain at the same level as that of such year.

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LETTER FROM THE BOARD

7. Forecast of non-operating income and expenses

The amount of the non-operating income and non-operating expense in historical years was relatively small. Such income or expense in the historical years were irregular and lack of continuity and they are unable to be forecasted accurately in the future years. Therefore, no forecast will be made in the future years.

8. Forecast of gain on disposal of assets and other income

The gain on disposal of assets represents the gain from disposal of fixed assets and projects under construction. The amount in the historical years was relatively small and subject to a large number of uncertainties. Therefore, no forecast has been made here;

Other income represents various subsidies. There was no continuity in the occurrence of such income in the historical years and the contingency was relatively high. Therefore, no forecast has been made here.

9. Forecast of income tax

In accordance with the requirements under the Enterprise Income Tax Law of the People’s Republic of China and the Detailed Rules for the Implementation of the Enterprise Income Tax Law of the People’s Republic of China, the income tax rate of the appraised entity is 25%. The forecast of the income tax in the future years shall be made based on such tax rate.

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LETTER FROM THE BOARD

10. Forecast of depreciation and amortization

The depreciation and amortization represent the depreciation of fixed assets and the amortization of intangible assets and long-term deferred expenses. The asset depreciation and amortization shall be forecasted with reference to the historical depreciation and amortization standard and the increase in the fixed assets and intangible assets. For details, please refer to the table below:

Monetary Unit: RMB

Item Depreciation Amortization Total of depreciation and amortization	December 2020 1,574,350.80 91,666.43 1,666,017.23	2021 18,894,100.63 1,099,997.19 19,994,097.82	2022 18,894,100.63 1,099,997.19 19,994,097.82	2023 18,894,100.63 1,099,997.19 19,994,097.82	2024 18,894,100.63 1,099,997.19 19,994,097.82	2025 18,894,100.63 1,099,997.19
						19,994,097.82

The depreciation and amortization for each year after 2025 shall maintain at the same level as that of such year.

11. Forecast of capital expenditure

The capital expenditure comprises two parts, including:

• (1) the subsequent investment in the project under construction as at the valuation benchmark date;

• (2) the expenditure for replacing of the long-term assets to maintain the existing production scale;

As it has been two years since the 500t/d production line of the project under construction suspended its production as at the valuation benchmark date, and as affected by the development strategy of the enterprise, it is uncertain whether the production of such production line will resume in the future, no forecast has been made for the future investment

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LETTER FROM THE BOARD

in the project under construction and only forecast for the expenditure for replacing of the fixed assets to maintain its existing operation scale has been made. According to the pattern of fixed asset renewal of the enterprise, there is relatively low capital expenditure in the initial period of construction; with the proceeding of production and the increase in the wear of the fixed assets, the capital expenditure increases; regarding the maintaining of easy reproduction of the existing scale after the stable period, the capital expenditure is basically the same as the depreciation and the net value of the fixed assets maintains at a level of being basically stable.

Forecast of the capital expenditure is as follows:

Monetary Unit: RMB

Item	December 2020	2021	2022	2023	2024	2025	Perpetual period
Capital expenditure	1,261,231.48	15,136,668.84	23,294,097.82	15,136,668.84	15,136,668.84	15,136,668.84	19,994,097.82

12. Forecast of the increase in the working capital

The changes in working capital represent the cash appropriated for the provision of commercial credit and the cash, accounts receivable and accounts payable, inventories, etc. required to be maintained for the normal operation, with the changes in the operating activities of the company; and some other receivables and payables necessary in the operation. As there has been a relatively large fluctuation in the production and operation of the enterprise in recent years and no obvious pattern in the operating cycle, and the production line of the enterprise has been decreased from two original 500T/D and 600T/D production lines to one 600T/D production line, therefore, the working capital in the previous years could provide no effective reference. In the valuation, the average of the proportions of the net cash flows from the operating activities of the listed companies of the same type as the appraised enterprise in recent years in their respective operating income is taken as the proportion of the working capital of the appraised enterprise in its operating income. Then the working capital for the current year is calculated based on the operating income forecasted above.

Working capital in the current year = proportion of the working capital in the operating income × operating income for the current year

Changes in the working capital = working capital in the current year – working capital in the previous year

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LETTER FROM THE BOARD

For the forecast results, please refer to the working capital forecast table below:

Monetary Unit: RMB

Item	December 2020	2021	2022	2023	2024	2025	Perpetual period
Working capital	7,608,126.13	77,585,213.06	39,537,795.42	73,187,543.74	74,628,476.25	75,396,611.54	75,396,611.54
Changes in
working capital	142,718,355.99	69,977,086.92	-38,047,417.63	33,649,748.31	1,440,932.51	768,135.30	–

13. Free cash flow of the enterprise

The free cash flow of the enterprise for each year in the future is arrived at based on the result of each of the forecast above.

For the forecast results, please refer to the table below:

Monetary Unit: RMB

Item		December 2020	2021	2022	2023	2024	**2025 **	Perpetual period
I.	Operating income	44,860,336.39	457,471,221.63	233,129,521.21	431,540,930.56	440,037,203.63	444,566,414.53	435,986,282.73
	Less: Operating cost	32,485,058.99	379,701,113.95	199,645,999.91	358,178,972.37	365,230,879.02	368,990,124.06	361,868,614.67
	Business taxes and
	surcharges	668,621.55	2,883,377.89	2,190,779.97	2,814,438.84	2,837,027.29	2,849,068.78	2,826,257.39
	Selling expenses	1,439,633.97	8,132,105.53	4,991,753.75	8,295,511.46	8,378,442.00	8,462,201.84	8,462,201.84
	Administration expenses	1,760,990.31	9,181,133.53	23,775,054.20	9,303,218.40	9,388,199.45	9,474,030.31	9,171,485.10
	Finance expenses	2,148,143.57	24,038,994.22	24,038,994.22	24,038,994.22	24,038,994.22	24,038,994.22	24,038,994.22
	Impairment losses on assets	0.00	0.00	0.00	0.00	0.00	0.00	0.00
	Add: Ga ins from changes in fair
	value (“-” for loss)	0.00	0.00	0.00	0.00	0.00	0.00	0.00
	Investment income (“-” for
	loss)	0.00	0.00	0.00	0.00	0.00	0.00	0.00
II.	Operating profit (“-” for loss)	6,357,888.01	33,534,496.50	-21,513,060.82	28,909,795.28	30,163,661.67	30,751,995.31	29,618,729.52
	Add: Non-operating income	0.00	0.00	0.00	0.00	0.00	0.00	0.00
	Less: Non-operating expenses	0.00	0.00	0.00	0.00	0.00	0.00	0.00

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LETTER FROM THE BOARD

Item		December 2020	2021	2022	2023	2024	**2025 **	Perpetual period
III.	Total profit (“-” for total loss)	6,357,888.01	33,534,496.50	-21,513,060.82	28,909,795.28	30,163,661.67	30,751,995.31	29,618,729.52
	Less: Income tax expenses	0.00	8,383,624.13	0.00	7,227,448.82	7,540,915.42	7,687,998.83	7,404,682.38
IV.	Net profit (“-” for net loss)	6,357,888.01	25,150,872.38	-21,513,060.82	21,682,346.46	22,622,746.25	23,063,996.48	22,214,047.14
	Add: de preciation and
	amortization	1,666,017.23	19,994,097.82	19,994,097.82	19,994,097.82	19,994,097.82	19,994,097.82	19,994,097.82
	Interest expense	1,651,307.94	18,011,755.02	18,011,755.02	18,011,755.02	18,011,755.02	18,011,755.02	18,011,755.02
	Less: capital expenditure	1,261,231.48	15,136,668.84	23,294,097.82	15,136,668.84	15,136,668.84	15,136,668.84	19,994,097.82
	Less: increase in working capital	142,718,355.99	69,977,086.92	-38,047,417.63	33,649,748.31	1,440,932.51	768,135.30	0.00
V.	Operating cash flow	-134,304,374.29	-21,957,030.55	31,246,111.83	10,901,782.15	44,050,997.74	45,165,045.19	40,225,802.16

(II) Determination of the discount rate

According to the principle of consistent basis for the income amount and the discount rate, the basis to determine the income amount for this valuation is the amount of free cash flow of the enterprise and the weighted average cost of capital (WACC) is chosen as the discount rate.

E D Formula: WACC＝Ke× ＋Kd × ×(1-T) D+E D+E In the formula: Ke: Cost of equity capital; Kd: Cost of debt capital;

E: Equity capital;

D: Debt capital;

D＋E: Investment capital;

T: Income tax rate.

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LETTER FROM THE BOARD

Where:

Ke＝Rf＋β×ERP＋Rc

Rf: Risk-free rate of return;

β: Risk coefficient of enterprise;

ERP: Market risk premium;

Rc: Enterprise-specific risk adjustment coefficient.

1. Determination of the cost of equity capital Ke

Calculation of the cost of equity capital Ke is made by using Capital and Asset Pricing Model (CAPM).

• (1) Determination of risk-free rate of return Rf

We adopted the Yield to Maturate Rate of national debts as the risk-free rate of return Rf. We selected the national debts, of which the period was 10 years from its maturity date to the valuation benchmark date, taken the average of its Yield to Maturate Rate as the average yield, which in turn taken as the risk-free rate of return Rf. Through referring to Wind Information and calculating the average yield of the national debts with 10 years from the valuation benchmark date, we obtained the result of 3.26%.

– 27 –

LETTER FROM THE BOARD

• (2) Risk coefficient of enterprise β

The risk coefficient of enterprise β is calculated according to β of the similar companies listed on Shanghai and Shenzhen A-share stock markets inquired by Wind Information, and the specific determination process and calculation results of Beta are as follows:

				Capital
				structure for
				the most		Income	β asset
				recent	Target	tax rate	(unleveraged)
				period to the	capital	as at the	formula
			β-Equity	benchmark	structure:	benchmark	calculation
Number	Stock code	Stock name	(βL)	date: D/E	D/E	date	(βU)
1	601636.SH	Kibing Group	1.9146	0.0886		25.00%	1.7953
2	600876.SH	Luoyang Glass	1.6679	0.2505		25.00%	1.4041
3	600819.SH	Yaohua	1.3801	0.1939		25.00%	1.2049
		Pilkingyon
		Glass
4	600707.SH	IRICO	2.3674	0.6987		15.00%	1.4853
		Display
5	600586.SH	Jinjing	1.2785	0.2660	0.2265	15.00%	1.0427
		Science &
		Technology
6	600207.SH	Ancai	1.3807	0.0400		25.00%	1.3405
		HiTech
7	000012.SZ	CSG A	1.5408	0.2186		25.00%	1.3238
8	601865.SH	Flat	1.9511	0.0555		15.00%	1.8632
	Average			0.2265			1.4325

① First, the levered Beta of the similar companies listed on Shanghai and Shenzhen A-share stock markets was inquired by Wind Information, then the unlevered Beta of each company was calculated according to the following formula, and then the average unlevered Beta of the similar listed companies was calculated. The formula is as follows:

βL = (1＋(1－T)×D/E)×βU

In the formula: βL: Levered Beta;

βU: Unlevered Beta;

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LETTER FROM THE BOARD

• ② Determination of the appraised entity’s capital structure ratio based on the comparable companies’ average capital structure

• ③ Estimation on the Beta under the determined target capital structure ratio aforementioned of the appraised entity

Beta of the appraised entity is calculated by substituting the determined target capital structure ratio of the appraised entity to the following formula:

βL = βU×(1＋(1－T)×D/E)

In the formula: D/E: the target capital structure determined by the appraised entity;

• T: applicable income tax rate of the appraised entity;

βL = 1.4325×[1＋(1－25%)×0.2265] = 1.6758

• (3) Determination of market risk premium (ERP)

Market risk premium, also known as equity risk premium (ERP), is the rate of return required by investors above the risk-free interest rate for a market investment portfolio with sufficiently diversified risks.

The PRC stock market is an emerging and relatively closed market. On one hand, there is a short history of data, accompanied by a wide range of movements in the market due to strong speculative sentiment in the first few years of its establishment. On the other hand, stringent control over the flow of foreign exchange movements under the capital item is still implemented in the PRC, together with the special attribute of equity dissevering in the domestic market, the equity risk premium obtained directly using historical data is less reliable. In a sophisticated market, its overall equity risk premium can be determined directly through historical data analysis as it has a longer history of data. Therefore, internationally, the risk premium in the emerging markets is usually determined by adopting the risk premium in the established market with adjustments made.

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LETTER FROM THE BOARD

Market risk premium = mature stock market risk premium + country risk premium

Upon inquiry and calculation, the market risk premium (ERP) is 5.89%.

(4) Enterprise-specific risk excess returns Rc

As companies selected for the calculation of the risk coefficient are listed companies, compared with the comparable listed companies, the entity is an unlisted company and the excess returns arising from the company’s specific risks should be taken into account. Specifically, the appraised enterprise has a small business scale and is still subject to certain operational risks, and other specific risks exist in addition to excess returns on scale, such as the enterprise’s future annual earnings will be greatly affected by policy factors. The company-specific risk adjustment factor was determined to be 3% after comprehensive analysis.

(5) Determination of the cost of equity capital Ke

Pursuant to the parameters as determined above, the calculation formula of cost of equity capital is as follows:

Ke = Rf＋β×ERP＋Rc

• = 3.26%＋1.6758×5.89%＋3%

• = 16.13%

2. The cost of debt capital (kd)

The cost of debt capital Kd is in fact the expected rate of return on debt investment of the appraised enterprise, which is the rate of return on investment that a debt investor would expect to receive on its investment in the appraised enterprise. For the cost of debt capital Kd, the valuation is based on the LPR of 4.65% for more than 5 years published by the National Interbank Funding Centre as authorized by the People’s Bank of China on 20 December 2019, and the LPR of 4.65% for more than 5 years as published on 20 January 2020, with an average of the both of 4.65%. The financial expenses are appraised and calculated for this purpose.

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LETTER FROM THE BOARD

3. The calculation of WACC

As mentioned above, assuming D/E of the enterprise is 0.2265, it is arrived at that E/(D ＋E) is 0.8153 and D/(D＋E) is 0.1847; Kd is 4.65%.

WACC = Ke×E/(D＋E)＋Kd×D/(D＋E)×(1－T)

= 16.13%×0.8153＋4.65%×0.1847×(1－25%)

• = 13.79%

(III) The determination of free cash flow discount value of the enterprise

Based on the above-mentioned calculation of free cash flow and discount rate of the enterprise, the free cash flow discount value of the enterprise is obtained.

(IV) Interest-bearing debts

Interest-bearing debts refer to the debts that are interest-bearing on the book on the valuation benchmark date and generally comprise short-term borrowings, interest-bearing notes payable, long-term borrowings due within one year, long-term borrowings, etc., with the verified book value as the appraisal value of the interest-bearing debts. The valued interestbearing debts are short-term borrowings and long-term borrowings, and the appraisal value under the cost approach is RMB246,766,123.96.

(V) Surplus assets

The verified surplus assets are surplus monetary funds, which are determined as the balance by deducting the minimum retained amount of monetary funds from the monetary funds on the valuation benchmark date.

For the forecast of minimum retained amount of monetary funds, divide the cash-pay cost (operating cost, tax and surcharge, administration expenses, selling expenses and other expenses excluding depreciation and amortization) by the turnover rate. As the payment period for each of the cash-pay costs of the company is one month after its operation becomes stable, it is determined the cash-pay cost for one month is taken as the normal retained amount of the monetary funds.

As calculated, the value of the surplus assets is RMB18,866,847.81.

– 31 –

LETTER FROM THE BOARD

(VI) Non-operating assets

Non-operating assets represent assets that have no direct link to the income from the operating activities of the enterprise and the value of which is not included in the free cash flow discount value of the enterprise. That kind of assets do not generate profits, which increase asset size and reduce corporate profit margin. The non-operating assets evaluated in the appraisal are input tax to be deducted from other current assets, the amortization of long-term deferred expenses, long-term equity investments, projects under construction, buildings (structures) of 500T/D production line in fixed assets, the land occupied by the 500T/D production line and the land in Hainan to which it belongs in the intangible assets, other receivables that are not directly related to the income from operating activities. Cost approach is adopted for the valuation, and the appraisal value of the non-operating assets is RMB581,014,242.82.

(VII) Non-operating liabilities

Non-operating liabilities represent liabilities that have no direct link to the income generated from operating activities of the enterprise and the value of which is not included in the free cash flow discount value of the enterprise. The non-operating liabilities in the appraisal are interest payables, non-current liabilities due within one year, special payables and other payables that are not directly related to the income from operating activities. Cost approach is adopted for the valuation, and the appraisal value of the non-operating liabilities is RMB147,570,079.51.

(VIII) The value of the entire equity interest of the shareholders

As calculated, the value of the entire equity interest of the shareholders = free cash flow discount value of the enterprise + value of non-operating assets + surplus assets – nonoperating liabilities – interest-bearing debts = RMB298,944,840.49.

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LETTER FROM THE BOARD

Details of the above results are set out in the following table:

Monetary Unit: RMB

Item	December 2020	2021	2022	2023	2024	**2025 **	Perpetual period
Free cash flow of the enterprise	-134,304,374.29	-21,957,030.55	31,246,111.83	10,901,782.15	44,050,997.74	45,165,045.19	40,225,802.16
Discount rate	13.79%	13.79%	13.79%	13.79%	13.79%	13.79%	13.79%
Discount period (year)	0.04	0.58	1.58	2.58	3.58	4.58
Discount factor	0.99	0.93	0.82	0.72	0.63	0.55	4.01
Present value	-133,583,398.19	-20,363,208.87	25,466,220.51	7,808,397.51	27,727,841.77	24,983,810.04	161,360,290.57
Total present value of free cash
flow of the enterprise							93,399,953.34
Add: surplus assets							18,866,847.81
Non-operating assets							581,014,242.82
Less: interest-bearing debts							246,766,123.96
Non-operating liabilities							147,570,079.51
The value of the entire equity
interest of the shareholders							298,944,840.49

– 33 –

LETTER FROM THE BOARD

PARTIES TO THE SHARE TRANSFER AGREEMENT AND INFORMATION ON THE TARGET COMPANY

THE COMPANY

The principal activities of the Company are production and sales of information display glass and new energy glass. The scope of business includes development, production, manufacture and installation of information display glass, new energy glass, photoelectric material for functional-glass category and its processed products and components, relevant materials, mechanical equipment and its electric appliances and accessories, relevant technical consultancy and technical services, as well as sales and after-sales services of self-produced products.

YAOHUA GROUP

Yaohua Group is a subsidiary controlled by Triumph Group which is an indirect controlling shareholder (as defined under the Listing Rules) of the Company. Yaohua Group is a company incorporated in the PRC with limited liability, which is principally engaged in the sales and warehousing of glass and glass products, relevant mineral products and chemical products (excluding hazardous chemicals, precursor chemicals and monitored and controlled chemicals); import and export business (excluding goods that are subject to the state-run trade administration, application shall be made in accordance with the relevant state requirements for the import and export of goods that are subject to quotas and license); technical consultation and technical services related to the company. As at the Latest Practicable Date, the ultimate beneficial owner of Yaohua Group is CNBMG. CNBMG is a wholly state-owned enterprise incorporated in the PRC and the ultimate controlling shareholder of the Company, and is a comprehensive building materials industry group.

INFORMATION ON THE TARGET COMPANY

North Glass is a company incorporated in the PRC with limited liability. Its scope of business mainly covers production and sale of glass and glass products, refractory materials and ceramic products; import and export of goods and technologies; stevedoring services. Yaohua Group acquired 100% equity interest in North Glass in 2011 at the consideration of RMB322,269,875.12. As at the date of this circular, North Glass is held as to 100% by Yaohua Group. Upon Completion of the Acquisition, the Company will hold 60% equity interest in North Glass and Yaohua Group will hold the remaining 40% equity interest in North Glass.

– 34 –

LETTER FROM THE BOARD

FINANCIAL INFORMATION ON THE TARGET COMPANY

The following is the audited financial information of North Glass for the two financial years ended 31 December 2019 and 31 December 2020 and the unaudited financial information of North Glass for the three months ended 31 March 2021 prepared under the China’s Accounting Standards for Business Enterprises:

The audited net assets and total assets of North Glass as at 31 December 2019 and 2020 and the unaudited net assets and total assets of North Glass as at 31 March 2021 are set out below, respectively:

	As at 31	December	As at 31 March
	2019	2020	2021
	Audited	Audited	Unaudited
	(RMB)	(RMB)	(RMB)
	(approximately)	(approximately)	(approximately)
Net assets	180,142,900	238,328,400	212,023,400
Total assets	826,409,000	859,559,400	807,050,900

The audited net profit before and after taxation and operating income for the years ended 31 December 2019 and 2020 and the unaudited net profit before and after taxation and operating income for the three months ended 31 March 2021 are set out below, respectively:

			For the three
			months ended
	For the year ended	31 December	31 March
	2019	2020	2021
	Audited	Audited	Unaudited
	(RMB)	(RMB)	(RMB)
	(approximately)	(approximately)	(approximately)
Net profit before taxation	-94,577,400	77,779,800	13,180,300
Net profit after taxation	-94,577,400	77,779,800	13,180,300
Operating income	453,407,800	485,549,100	187,841,000

Immediately after Completion, North Glass will become a directly controlled subsidiary of the Company, and the financial results of North Glass will be consolidated into the financial statements of the Group.

– 35 –

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Acquisition is mainly for the purpose of regulating and avoiding related parties’ conduct which may constitute horizontal competition with the principal operations of the Company and its subsidiaries; at the same time, the acquisition of the controlling interest in North Glass will help the Company to optimize the layout of its photovoltaic glass business segment, expand its production scale and better meet the demands of downstream market. The Board is of the view that the Acquisition is in line with the Company’s overall development strategy, the Company’s long-term development goals and the interests of Shareholders.

The terms of Share Transfer Agreement have been determined after the arm’s length negotiations between the parties thereto. Based on the abovementioned, the Board, including the Independent Board Committee and excluding Mr. Zhang Chong, Mr. Xie Jun, Mr. Chen Yong and Mr. Ren Hongcan who are connected with the Triumph Group and have abstained from voting at the Board resolution on approving the Acquisition, after considering the above reasons and the suggestions of Gram Capital, considers that the terms of the Share Transfer Agreement are concluded in accordance with normal commercial terms, which is fair and reasonable and in the interests of the Group and the Shareholders as a whole.

LISTING RULES IMPLICATIONS

As at the Latest Practicable Date, Yaohua Group is a subsidiary controlled by Triumph Group which is an indirect controlling shareholder (as defined under the Listing Rules) of the Company. Therefore, Yaohua Group is regarded as a connected person of the Company under Chapter 14A of the Listing Rules. The transaction contemplated under the Acquisition constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

As one or more of the applicable percentage ratio(s) in respect of the Acquisition exceed 5% but lower than 25%, the Acquisition constitutes a discloseable and connected transaction of the Company under the Hong Kong Listing Rules, and thus is subject to the reporting, announcement, circular and Independent Shareholders’ approval requirements under the Hong Kong Listing Rules.

– 36 –

LETTER FROM THE BOARD

As Mr. Zhang Chong, an executive Director of the Company, and Mr. Chen Yong and Mr. Ren Hongcan, non-executive Directors of the Company, serve as senior management in Bengbu Institute, a wholly-owned subsidiary of Triumph Group, and Mr. Xie Jun, an executive Director of the Company, serves as a director and senior management in CLFG, a controlled subsidiary of Triumph Group, the aforesaid four Directors are therefore connected with Triumph Group and therefore not regarded as independent to make any recommendation to the Board, and thus they have abstained from voting on the approval of the Acquisition and the transactions thereunder at the Board meeting. Save as disclosed above, there are no other Directors who have material interest in the Acquisition, and hence no other Director has abstained from voting on such Board resolutions.

INDEPENDENT BOARD COMMITTEE

The Company has set up an Independent Board Committee composed of all independent non-executive Directors (i.e. Mr. Jin Zhanping, Mr. Ye Shuhua, Mr. He Baofeng and Ms. Zhang Yajuan), to consider the terms of the Acquisition and the transactions contemplated thereunder, and advise the Independent Shareholders on whether it is conducted in accordance with the normal commercial terms, fair and reasonable, and in the interests of the Company and the Shareholders as a whole. No member of the Independent Board Committee has any interest or participation in the transactions contemplated under the Acquisition.

Completion is subject to and conditional upon the fulfillment of the terms and conditions precedent set out in the Share Transfer Agreement and the Acquisition may or may not proceed. Shareholders and potential investors are advised to exercise caution when dealing in the securities of the Company.

III. EGM

The EGM will be held by the Company to consider and seek the approval of Independent Shareholders in respect of the resolution in relation to Acquisition and the transactions contemplated thereunder. At the EGM, voting on the proposed resolution will be conducted by way of poll.

Pursuant to Rule 14A.36 of the Listing Rules, any Shareholder who has a material interest in the transaction shall abstain from voting on the resolution. Since Triumph Group is the controlling shareholder of Yaohua Group, according to the Listing Rules, Triumph Group and its associates are interested in the Acquisition. Therefore, Triumph Group (the controlling shareholder of Yaohua Group) and its associates, which held or are entitled to exercise control over the voting rights in respect of 191,520,357 A Shares of the Company, accounting for approximately 34.91% of the issued share capital of the Company as at the Latest Practicable Date, will abstain from voting on the resolution on the Acquisition at the EGM. Save as disclosed above, as at the Latest Practicable Date, to the best of the Directors’ knowledge, no other Shareholders are required to abstain from voting on the resolution on the Acquisition at the EGM.

– 37 –

LETTER FROM THE BOARD

A notice convening the EGM to be held at 9:00 a.m. on 21 July 2021 (Wednesday) at the conference room of the Company on 3rd Floor, No. 9 Tang Gong Zhong Lu, Xigong District, Luoyang Municipal, Henan Province, the PRC is published by the Company on 30 June 2021 and is set out on pages EGM-1 to EGM-3 of this circular.

The forms of proxy for use at the EGM were dispatched on 30 June 2021 and published on the website of the Stock Exchange (http://www.hkexnews.hk). Whether or not you are able to attend the EGM in person, you are requested to complete and return the forms of proxy in accordance with the instructions printed thereon to the Company’s share registrar in Hong Kong, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, or to the Company’s registered address at No. 9 Tang Gong Zhong Lu, Xigong District, Luoyang Municipal, Henan Province, the PRC as soon as possible and in any event not less than 24 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the forms of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

IV. RECOMMENDATIONS

The Directors (including the Independent Board Committee and excluding Mr. Zhang Chong, Mr. Xie Jun, Mr. Chen Yong and Mr. Ren Hongcan who are connected with the Triumph Group and have abstained from voting at the Board resolution on approving the Acquisition) are of the view that although the Acquisition is not conducted in the ordinary and usual course of business of the Group, the Acquisition is carried out in accordance with normal commercial terms, the terms of the Share Transfer Agreement (including the Acquisition) and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Therefore, the Directors (including the Independent Board Committee) recommended that the Independent Shareholders vote in favour of the relevant ordinary resolutions to be proposed at the EGM to approve the Acquisition.

– 38 –

LETTER FROM THE BOARD

V. 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.

VI. ADDITIONAL INFORMATION

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

Yours faithfully,

By order of the Board

Luoyang Glass Company Limited* Zhang Chong

Chairman

• For identification purposes only

– 39 –

LETTER FROM INDEPENDENT BOARD COMMITTEE

＊

30 June 2021

To the Shareholders

Dear Sir or Madam,

－ DISCLOSEABLE AND CONNECTED TRANSACTION ACQUISITION OF 60% EQUITY INTEREST IN QINHUANGDAO NORTH GLASS CO., LTD.

We refer to the circular of the Company dated 30 June 2021 (the “ Circular ”), of which this letter forms part. Unless otherwise defined, capitalised terms used herein shall have the same meanings as those defined in the Circular.

We have been appointed as members of the Independent Board Committee to advise you on whether the Acquisition and the transactions contemplated thereunder are fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole. Details of the Acquisition are set out in the letter from the Board of the Circular. Gram Capital has been appointed as an Independent Financial Adviser to provide recommendations to the Independent Board Committee and Independent Shareholders on such contents.

We wish to draw your attention to the (i) “Letter from the Board”; (ii) “Letter from Gram Capital” to the Independent Board Committee and the Independent Shareholders, containing their advice on the terms of the Acquisition and the transactions contemplated thereunder; and (iii) other information set out in the appendices of the Circular.

Having considered the terms of the Share Transfer Agreement and the transactions (including the Acquisition) contemplated thereunder, and taken into account the advice of Gram Capital, in particular the factors, reasons and recommendations set out in the “Letter from Gram Capital” on pages 42 to 56 of the Circular, we are of the view that although the Share Transfer Agreement is not entered into in the ordinary

– 40 –

LETTER FROM INDEPENDENT BOARD COMMITTEE

and usual course of business of the Group, the Share Transfer Agreement (including the Acquisition) is entered into in accordance with the normal commercial terms, which is fair and reasonable so far as the Independent Shareholders are concerned, and the Acquisition is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant ordinary resolutions to be submitted at the EGM.

Yours faithfully,

For and on behalf of

Independent Board Committee

Mr. Jin Zhanping, Mr. Ye Shuhua, Mr. He Baofeng, Ms. Zhang Yajuan

Independent Non-executive Directors

• For identification purposes only

– 41 –

LETTER FROM GRAM CAPITAL

Set out below is the full text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and Independent Shareholders in respect of the Acquisition for the purpose of inclusion in this circular.

==> picture [219 x 42] intentionally omitted <==

Room 1209, 12/F. Nan Fung Tower 88 Connaught Road Central/ 173 Des Voeux Road Central Hong Kong

30 June 2021

To: The Independent Board Committee and the Independent Shareholders of Luoyang Glass Company Limited*

Dear Sir/Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION

IN RELATION TO

THE ACQUISITION OF 60% EQUITY INTEREST IN QINHUANGDAO NORTH GLASS CO., LTD.

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Acquisition, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular dated 30 June 2021 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

With reference to the Board Letter, the Company entered into the Share Transfer Agreement with Yaohua Group on 29 April 2021, pursuant to which the Company conditionally agreed to acquire and Yaohua Group conditionally agreed to dispose of 60% equity interest in the Target Company at a consideration of RMB182,275,920.

– 42 –

LETTER FROM GRAM CAPITAL

With reference to the Board Letter, the Acquisition constitutes a discloseable and connected transaction for the Company and is therefore subject to reporting, announcement, circular and independent shareholders’ approval requirements under the Chapter 14 and Chapter 14A of the Listing Rules.

The Independent Board Committee comprising Mr. Jin Zhanping, Mr. Ye Shuhua, Mr. He Baofeng and Ms. Zhang Yajuan, being all of the independent non-executive Directors, has been formed to advise the Independent Shareholders on (i) whether the terms of the Acquisition are on normal commercial terms and are fair and reasonable; (ii) whether the Acquisition is in the interests of the Company and the Shareholders as a whole and is conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolutions to approve the Acquisition at the EGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

INDEPENDENCE

We were not aware of any relationships or interests between Gram Capital and the Company during the past two years immediately preceding the Latest Practicable Date, or any other parties that could be reasonably regarded as a hindrance to Gram Capital’s independence to act as the Independent Financial Adviser.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. Our opinion is based on the Directors’ representation and confirmation that there is no undisclosed private agreement/arrangement or implied understanding with anyone concerning the Acquisition. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

– 43 –

LETTER FROM GRAM CAPITAL

We have not made any independent evaluation or appraisal of the assets and liabilities of the Target Company, and we have not been furnished with any such evaluation or appraisal, save as and except for the Asset Valuation Report in respect of the appraisal value of the entire equity interest attributable to the shareholder of the Target Company (the “ Valuation ”) prepared by 中京民信（北京）資產評估有限公 司 (Zhongjing Minxin (Beijing) Assets Appraisal Co., Ltd.*) (i.e. the Asset Valuer), an independent asset appraiser, as set out in Appendix I to the Circular. Since we are not experts in the valuation of assets or business, we have relied solely upon the Asset Valuation Report for the Valuation as at 30 November 2020.

The Circular, for which the Directors collectively and individually accept full responsibility for the information contained therein, includes particulars given in compliance with the Listing Rules for the purpose of giving information relating to the Group. The Directors, having made all reasonable enquiries, confirm 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 herein or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, the Vendor, the Yaohua Group, the Target Company or their respective subsidiaries or associates (if applicable), nor have we considered the taxation implication on the Group or the Shareholders as a result of the Acquisition. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.

– 44 –

LETTER FROM GRAM CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

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

Information on the Company

With reference to the Board Letter, the Company’s principal activities are production and sales of information display glass and new energy glass and its scope of business includes development, production, manufacture and installation of information display glass, new energy glass, photoelectric material for functional-glass category and its processed products and components, relevant materials, mechanical equipment and its electric appliances and accessories, relevant technical consultancy and technical services, as well as sales and after-sales services of self-produced products.

Set out below is a summary of the audited consolidated financial information of the Group for the two years ended 31 December 2020 as extracted from the Company’s annual report for the year ended 31 December 2020 (the “ 2020 Annual Report ”):

	For the year ended	For the year ended	Change from
	31 December 2020	31 December 2019	2019 to 2020
	RMB	RMB	%
Total operating revenue	3,045,614,913.68	1,854,842,208.09	64.20
– Information display glass	397,141,767.24	260,012,118.07	52.74
– New energy glass	2,558,869,152.90	1,540,235,330.52	66.13
– Other functional glass	55,782,581.15	–	N/A
– Other operations	33,821,412.39	54,594,759.50	(38.05)
Operating profit	461,918,784.89	70,388,559.63	556.24
Net profit attributable to the
Shareholders	327,361,858.49	53,999,883.71	506.23

As illustrated in the above table, the Group’s total operating revenue for the year ended 31 December 2020 (“ FY2020 ”) increased by approximately 64.20% as compared to that for the year ended 31 December 2019 (“ FY2019 ”), while the operating revenue from new energy glass accounted for approximately 84.02% and 83.04% for FY2020 and FY2019 respectively. With reference to the 2020 Annual Report, the aforesaid increase in total operating revenue was mainly due to the increase in sales volume and product price, resulting from the constant positive performance in photovoltaic glass market in 2020.

– 45 –

LETTER FROM GRAM CAPITAL

With reference to the 2020 Annual Report, solar photovoltaic glass will usher in the peak period of marketoriented construction. At present, PRC’s photovoltaic industry ranks in the forefront of the world in terms of manufacturing scale, industrialization technology level, application market expansion and industrial system construction. The constant growth in photovoltaic industry will bring sound expectations for the profitability of the photovoltaic glass business in the medium and long run. The Company, supported by technological innovation, continuously enhances and improves production process standard and equipment standard of related products to maintain its leading technological advantages, product competitive advantages and market advantages in the sectors of ultra-thin glass substrate business and new energy glass business through following the high-tech development direction, and implementing technological innovation, product innovation and market innovation, with a view to become a manufacturer of a new type of special functional glass with strong influence in the market and solutions.

Information on Yaohua Group

Yaohua Group is a subsidiary controlled by Triumph Group which is an indirect controlling shareholder (as defined under the Listing Rules) of the Company. Yaohua Group is a connected person of the Company.

Yaohua Group is a company incorporated in the PRC with limited liability, which is principally engaged in the sales and warehousing of glass and glass products, relevant mineral products and chemical products (excluding hazardous chemicals, precursor chemicals and monitored and controlled chemicals); import and export business (excluding goods that are subject to the state-run trade administration, application shall be made in accordance with the relevant state requirements for the import and export of goods that are subject to quotas and license); technical consultation and technical services related to the company.

As at the Latest Practicable Date, the ultimate beneficial owner of Yaohua Group is CNBMG. CNBMG is a wholly state-owned enterprise incorporated in the PRC and the ultimate controlling shareholder of the Company, and is a comprehensive building materials industry group.

– 46 –

LETTER FROM GRAM CAPITAL

Information on the Target Company

The Target Company is a company incorporated in the PRC with limited liability. Its scope of business mainly covers production and sale of glass and glass products, refractory materials and ceramic products; import and export of goods and technologies; and stevedoring services.

Set out below is the financial information of the Target Company for the two years ended 31 December 2020 and the three months ended 31 March 2021 as extracted from the Board Letter:

			For the three
	For the year ended	For the year ended	months ended
	31 December 2019	31 December 2020	31 March 2021
	(audited)	(audited)	(unaudited)
	(RMB)	(RMB)	(RMB)
	(approximately)	(approximately)	(approximately)
Operating income	453,407,800	485,549,100	187,841,000
Net (loss)/profit before taxation	(94,577,400)	77,779,800	13,180,300
Net (loss)/profit after taxation	(94,577,400)	77,779,800	13,180,300

Reasons for and benefits of the Acquisition

With reference to the Board Letter, the Acquisition is mainly for the purpose of regulating and avoiding related parties’ conduct which may constitute horizontal competition with the principal operations of the Company and its subsidiaries; at the same time, the Acquisition of the controlling interest in the Target Company will help the Company to optimise the layout of its photovoltaic glass business segment, expand its production scale and better meet the demands of downstream market.

As illustrated in the section headed “Information on the Company” above, the Group’s operating revenue from new energy glass segment accounted for 84.02% of the Group’s total operating revenue for FY2020. According to the 2020 Annual Report, the new energy glass segment mainly produces photovoltaic original glass and its further processed products. As advised by the Directors, the Acquisition is in line with the Company’s intention on expansion and development of the new energy glass segment to take advantage of the growing demands in renewable energy.

– 47 –

LETTER FROM GRAM CAPITAL

With reference to the National Bureau of Statistics of the PRC and a report dated 3 February 2021 published by the China Photovoltaic Industry Association, the total renewable energy generation in the PRC increased from 1,695.4 billion kWh for 2016 to 2449.0 billion kWh for 2020, representing a compound annual growth rate of approximately 9.63%, among which, the total photovoltaic energy generation as a percentage of the total renewable energy generation increased from 3.9% for 2016 to 10.7% for 2020. The new installed capacity of photovoltaic on-grid in the PRC amounted to 48.2 million kW for 2020, representing a year-on-year increase of 60.1% and the cumulative installed capacity of photovoltaic on-grid reached 253.43 million kW by the end of 2020, representing a year-on-year increase of 24.1%.

Having considered (i) the aforesaid reasons and benefits of the Acquisition; (ii) the Acquisition is in line with the Group’s development plans; and (iii) the prospect of the Group’s new energy glass segment, we concur with the Directors that, although the Acquisition is not conducted in the ordinary and usual course of business of the Group, the Acquisition is in the interest of the Company and its Shareholders as a whole.

Major terms of the Acquisition

Summarised below are the major terms of the Share Transfer Agreement, details of which are set out under the section headed “SHARE TRANSFER AGREEMENT” of the Board Letter.

Date: 29 April 2021 Parties: (1) Yaohua Group (as the transferor); and (2) the Company (as the transferee). Subject matter: Yaohua Group agreed to dispose of and the Company agreed to acquire 60% equity interest in the Target Company. Following the Handover Completion Date, the Company will become the legal owner of the Target Equity Interest and the percentage of equity interest held by Yaohua Group in the Target Company will be changed from 100% to 40%.

– 48 –

LETTER FROM GRAM CAPITAL

Share transfer price and payment method:

The transfer price of the Target Equity Interest was determined after arm’s length negotiations between the Company and Yaohua Group on normal commercial terms, with reference to, among others, the Valuation prepared by the Asset Valuer, based on the appraisal results of the cost method (assetbased method) as the appraisal conclusion. Accordingly, the appraisal value of the entire equity interest attributable to the shareholders of the Target Company as of 30 November 2020 was approximately RMB303,793,200.

It is determined that the transfer price of Target Equity Interest in the Target Company is RMB182,275,920 (being 60% of the aforementioned appraisal value) (the “ Consideration ”).

Completion:

Completion shall take place upon fulfilment of the conditions precedent as set out in the section headed “CONDITIONS PRECEDENT FOR SHARE TRANSFER AGREEMENT TO TAKE EFFECT” of the Board Letter.

The Consideration and the Valuation

To assess the fairness and reasonableness of the Consideration, we obtained the Asset Valuation Report prepared by the Asset Valuer from the Company and noted that the Valuation as at 30 November 2020 was approximately RMB303,793,200.

For our due diligence purpose, we reviewed and enquired into (i) the terms of engagement of the Asset Valuer with the Company; (ii) the Asset Valuer’s qualification in relation to the preparation of the Asset Valuation Report; and (iii) the steps and due diligence measures taken by the Asset Valuer for conducting the Asset Valuation Report. From the mandate letter and other relevant information provided by the Asset Valuer and based on our interview with them, we were satisfied with the terms of engagement of the Asset Valuer as well as their qualification for preparation of the Asset Valuation Report. The Asset Valuer also confirmed that they are independent to the Group, the Target Company and the Yaohua Group.

– 49 –

LETTER FROM GRAM CAPITAL

With reference to the Asset Valuation Report, (i) in view of the evaluation purpose and asset type of the evaluation, considering the role, characteristics and requirements of various evaluation methods, the Asset Valuer adopted the cost method (asset-based method) and income method for the evaluation; and (ii) the Asset Valuer concluded the Asset Valuation Report by adopting cost method (asset-based method). As confirmed by the Asset Valuer, the Asset Valuer has considered the three generally accepted business enterprise appraisal approaches to value, namely, income method, market method and cost method (assetbased method). Upon our further enquiry with the Asset Valuer, we understood that:

• (i) The use of market method requires (1) an active market with substantial amount of market reference and comparable indicators with those of the appraisee; and (2) parameters are able to obtain and quantify. Having considered the lack of comparable listed entities and transactions in the market, the Asset Valuer rejected the use of market method.

• (ii) Under income method, the Asset Valuer considers the assets’ expected profitability, which is able to reflect the overall value of the enterprise. In addition, the Target Company satisfies the prerequisites of: going concern assumption; future economic benefit to be recognised; and stable correlation between shareholders’ equity and enterprise operating income. Nevertheless, the Target Company recorded net losses during the two years ended 31 December 2017 and FY2019. Despite the Target Company’s recovery in 2020 (profit-making during FY2020), the recovery time and speed and future profitability of the Target Company are still uncertain. Accordingly, the Asset Valuer is of the view that it is more appropriate to adopt the result under cost method (asset-based method) for the Valuation.

• (iii) Under cost method (asset-based method), the value of identifiable assets and liabilities of the Target Company are considered when concluding the Valuation. As the appraised assets in the Valuation are in continuous state of use or presumed to be in continuous state of use, with sufficient historical information to support the Valuation under cost method (asset-based method), cost method (assetbased method) satisfies the needs of the Valuation.

As market method is impracticable for the Valuation, we reviewed and enquired into the Asset Valuer on the methodologies adopted and the basis and assumptions adopted in the Asset Valuation Report under both cost method (asset-based method) and income method in order for us to understand the Asset Valuation Report.

Under cost method (asset-based method), the Asset Valuer categorise the assets of the Target Company into (i) current assets (which comprise of monetary capital, accounts receivables, inventory and other current assets); (ii) long-term equity investments; (iii) fixed assets; (iv) project under construction; (v) intangible assets; and (vi) long-term deferred expenses.

– 50 –

LETTER FROM GRAM CAPITAL

We noted from the Asset Valuation Report that, to prepare the Asset Valuation Report under cost method (asset-based method), the Asset Valuer had:

• (i) obtained the asset evaluation declaration form, accounting statements, account books and vouchers and certain ownership certificates (“ Obtained Documents ”) provided by the Target Company;

• (ii) verified the accuracy and the existence of the assets and liabilities as listed in the Obtained Documents by conducting procedures such as on-site inspection, carried out letter verification for continuing transactions with counterparty of such transaction, reviewed ownership certificates to ascertain ownership of certain assets such as building and structures, motor vehicles and land-use rights (categorised under intangible assets);

• (iii) determined the recoverability of certain assets such as accounts receivables, inventories and long-term deferred expenses, if the recoverability of such assets is in doubt, the book value of these assets as stated in the Obtained Documents shall be adjusted accordingly;

• (iv) determined the replacement costs of reconstructing or repurchasing fixed assets with reference to the current market value for similar assets, as well as the capital costs of replacing these assets and the transportation costs and installation costs of bring these assets into their intended use; and

• (v) determined the newness rate of existing assets by adopting scoring approach and age limit approach to form the comprehensive newness rate with the weighting of the calculation results of the two approaches.

The appreciation of the Valuation over the book value of the Target Company’s net asset was mainly attributed to:

• (i) appreciation in current assets mainly due to certain raw materials and commodities in stock valued based on their market selling prices, and the appraisal value include some profits;

• (ii) depreciation in long-term equity investment mainly due to depreciation in investment in Qinhuangdao Huazhou Glass Co., Ltd. (秦皇島華洲玻璃有限公司, “ Huazhou Company ”), a long-term investment unit that had gone through the procedure of deregistration (the “ Deregistration* ”). Since Huazhou Company was in the process of Deregistration, the investment in Huazhou Company is deemed to be unrecoverable in the future and its appraisal value as at 30 November 2020 is nil;

• (iii) appreciation in buildings and structures (included in fixed assets), mainly due to (a) the construction of the Target Company’s building and structures were completed in an early age and construction costs of these buildings and structures, especially labour costs, have increased substantially since then; and (b) the expected useful lives of these buildings and structures for accounting depreciation purpose were shorter than their respective economic service lives used in the Valuation;

• (iv) appreciation in land use right (included in intangible assets), mainly due to significant increase in acquisition costs of industrial land and the benchmark land price in Qinhuangdao City, the PRC, as compared to the price at the time of the acquisition of the land use right by the Target Company; and

• (v) depreciation in liabilities, mainly due to the appraisal value of nil for the current accounts with Huazhou Company as a result of the arrangement under the Deregistration. For our due diligence purpose, we obtained the relevant documents regarding the Deregistration and noticed that the Deregistration was completed in February 2021.

– 51 –

LETTER FROM GRAM CAPITAL

We have no doubt on the above-mentioned book value adjustments.

Under the income method, the expected income of the Target Company in the future is estimated and discounted to its present value in order to determine the asset valuation. The appraised value of the asset is highly correlated to the effectiveness and the application of such asset and such value is proportional to its effectiveness, profitability and value. To prepare the Asset Valuation under income method, we noted the Asset Valuer had:

• (i) obtained the future annual income forecast data from the Target Company;

• (ii) adopted free cash flow modelling, in which expected income is the cash flow generated from the entire investment capital of the Target Company for several years in the future, then discounting to the value of operating assets at appropriate discount rate, adding the value of non-operating assets, surplus assets and less interest-bearing debts and non-operating liabilities;

• (iii) determined the discount rate using the weighted average cost of capital formula by adopting the capital asset pricing model and by adopting certain parameters, to calculate the cost of equity capital;

• (iv) verified the book value of interest-bearing debts, non-operating assets, non-operating liabilities and surplus assets to be added or deducted from the future annual income forecast data; and

• (v) applied the discount rate to arrive at the free cash flow discount value of the enterprise.

– 52 –

LETTER FROM GRAM CAPITAL

During our discussion with the Asset Valuer, we did not identify any major factor which caused us to doubt the fairness and reasonableness of the methodology, principal bases, assumptions and parameters adopted for the Asset Valuation Report.

With reference to the Board Letter, as income method was adopted as one of the valuation methods in the process of forming the conclusion of the Valuation in the Asset Valuation Report, the valuation under the income method is deemed as a profit forecast under Rule 14.61 of the Listing Rules. The Board has reviewed the key assumptions upon which the profit forecast was based and is of the view that the profit forecast was made after due and careful enquiry. WUYIGE Certified Public Accountants LLP has been engaged by the Company to review the arithmetical calculation and compilation of the discounted future estimated cash flows upon which the Asset Valuation Report prepared by the Asset Valuer were based. A report from WUYIGE Certified Public Accountants LLP and a letter from the Board are included in Appendix II and Appendix III to the Circular respectively for the purpose of Rule 14.62 of the Listing Rules.

The difference of valuation results between the income method and the cost method (asset-based method) is approximately RMB4.84 million (or approximately 1.60%). With reference to the Asset Valuation Report, the main reason for the aforesaid difference is that, in the estimation of future revenue indicators in the assessment of the income method, the Asset Valuer took into account various factors such as domestic and overseas macroeconomic conditions, industry conditions, management’s strategic adjustment measures, development plans and operational capabilities. The assessment of cost method (asset-based method) was based on the cost of assets according to the market values instead of historical costs of all asset and liability items within the scope of assessment, and through the addition of all identifiable assets estimated separately.

As aforementioned, the Target Company recorded net losses during the two years ended 31 December 2017 and FY2019. Despite the Target Company’s recovery in 2020 (profit-making during FY2020), the recovery time and speed and future profitability of the Target Company are still uncertain. In addition, as the appraised assets in the Valuation are in continuous state of use or presumed to be in continuous state of use, with sufficient historical information to support the Valuation under cost method (asset-based method), cost method (asset-based method) satisfies the needs of the Valuation. Accordingly, we concur with the Asset Valuer’s selection of the evaluation results under the cost method (asset-based method) as the final conclusion of the Valuation.

Among the three commonly adopted methodologies (i.e. market method, income method and cost method), (i) market method is impracticable for the Valuation; (ii) we reviewed and enquired into the Asset Valuer on the methodologies adopted and the basis and assumptions adopted in the Asset Valuation Report under both cost method (asset-based method) and income method; and (iii) we concur with the Asset Valuer’s selection of the evaluation results under the cost method (asset-based method) as the final conclusion of the Valuation. Accordingly, we do not consider other approaches to assess the Valuation.

Having considered (i) our independent work performed on the Asset Valuation Report as mentioned above; (ii) the difference of valuation results between the income method and the cost method (assetbased method) under the Asset Valuation Report is not substantial; and (iii) that the Consideration of RMB182,275,920 represents 60% of the Valuation of approximately RMB303,793,200 as at 30 November 2020, we are of the view that the Consideration is fair and reasonable.

– 53 –

LETTER FROM GRAM CAPITAL

Payment method

With reference to the Board Letter, the Company intends to pay the Consideration in cash by instalment, which will be funded by the Company’s own funds. The Company shall pay the Consideration of the Target Equity Interest to Yaohua Group in the following manner:

• (i) The first instalment: The Company shall pay RMB170,000,000 (equivalent to approximately HK$204,000,000) of the Consideration to Yaohua Group within 15 working days from the effective date of the Share Transfer Agreement.

• (ii) The second instalment: The Company shall pay the remaining balance of the Consideration to Yaohua Group within 15 working days from the date on which the Target Equity Interest is registered under the Company’s name (subject to the industrial and commercial registration).

As the Share Transfer Agreement shall become effective from the date on which all the conditions set out under the Board Letter (including approval at the Company’s general meeting) have been satisfied, we consider the above payment method to be fair and reasonable.

Handover

The Handover Completion Date of the Acquisition shall be the date on which the commercial and industrial registration of changes in the transfer of the Target Equity Interest is completed. From the audit and valuation benchmark date (being 30 November 2020) to the Handover Completion Date, the profit and loss realized by the Target Company shall be borne by the Target Company and indirectly borne or enjoyed by each shareholder in proportion to their respective equity interest upon Completion (i.e. 60% by the Company and 40% by Yaohua Group).

– 54 –

LETTER FROM GRAM CAPITAL

During the period in which the Company and Yaohua Group holds 60% and 40% equity interest in the Target Company, respectively, the members of the board of directors, board of supervisors and senior management of the Target Company shall be arranged in the following ways:

• (i) the Target Company shall establish a board of directors, comprising of three directors, including two to be nominated by the Company and one by Yaohua Group, who shall be elected at a general meeting of the Target Company. The chairman of the board of directors shall be served by a director nominated by the Company, who shall also act as the legal representative of the Target Company.

• (ii) the Target Company shall establish a board of supervisors, comprising of three supervisors. The supervisors shall consist of representative of the shareholders and representative of the employees. There shall be two supervisors representing shareholders, including one to be nominated by Yaohua Group and one by the Company, who shall be elected at a general meeting of the Target Company, and one supervisor representing employees, who shall be democratically elected by the employees of the Target Company. The chairman of the board of supervisors shall be served by the supervisor nominated by Yaohua Group.

• (iii) The general manager of the Target Company shall be nominated by the Company and appointed by the board of directors; the deputy general manager shall be nominated by the general manager as per the recommendation by shareholders of the Target Company and appointed by the board of directors; the finance director shall be nominated by the general manager as per the recommendation by the Company and appointed by the board of directors of the Target Company.

We consider that the above arrangements correspond to the Company’s controlling interest of 60% in Yaohua Group and are able to protect such interest of the Company.

Taking into account the above principal terms of the Acquisition, we consider that the terms of the Acquisition are fair and reasonable, on normal commercial terms and in the interest of the Company and the Shareholders as a whole.

Possible financial effects of the Acquisition

With reference to the Board Letter, immediately after Completion, the Target Company will become a directly controlled subsidiary of the Company, and the financial results of the Target Company will be consolidated into the financial statements of the Group. With reference to the Company’s first quarterly report for the three months ended 31 March 2021, the Group’s unaudited consolidated net assets attributable to Shareholders was RMB1,767,288,632.68 as at 31 March 2021. As confirmed by the Directors, the Acquisition would not result in material change in the net asset value attributable to the Shareholders.

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

– 55 –

LETTER FROM GRAM CAPITAL

RECOMMENDATION

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Acquisition are on normal commercial terms and are fair and reasonable; and (ii) although the Acquisition is not conducted in the ordinary and usual course of business of the Group, it is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the Acquisition and we recommend the Independent Shareholders to vote in favour of the resolutions in this regard.

Yours faithfully, For and on behalf of Gram Capital Limited Graham Lam Managing Director

Note: Mr. Graham Lam is a licensed person registered with the Securities and Futures Commission and a responsible officer of Gram Capital Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has over 25 years of experience in investment banking industry.

• For identification purpose only

– 56 –

ASSET VALUATION REPORT

APPENDIX I

This Asset Valuation Report is prepared in accordance with the PRC Asset Valuation Standards

ASSET VALUATION REPORT ON THE VALUE OF ALL EQUITY INTERESTS IN QINHUANGDAO NORTH GLASS CO., LTD.* INVOLVED IN THE PROPOSED TRANSFER OF EQUITY BY CHINA YAOHUA GLASS GROUP CO., LTD.

Jing Xin Ping Bao Zi [2021] No.005

– I-1 –

ASSET VALUATION REPORT

APPENDIX I

ZHONGJING MINXIN (BEIJING) ASSETS EVALUATION CO., LTD.*

20 JANUARY 2021

CONTENTS

Statement. .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-4
Summary. .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		I-5
Chapter I	Basic	Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-11
	I.	The Client, the Appraised Entity and Other Valuation Report Users . . . . . . . . .	I-11
	II.	Purpose of Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-16
	III.	Valuation Target and Valuation Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-17
	IV.	Type and Definition of Valuation Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-21
	V.	Valuation Benchmark Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-21
Chapter II	Basis	of Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-21
	I.	Economic Behaviour Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-21
	II.	Law and Regulation Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-21
	III.	Assessment Criteria Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-23
	IV.	Asset Ownership Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-24
	V.	Pricing Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-24
	VI.	Other Basis and Reference Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-25
Chapter III	Valuation Methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		I-26
	Section I Cost Approach (Asset-based Approach). . . . . . . . . . . . . . . . . . . . . . . . .		I-27
	I.	Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-27
	II.	Long-term Equity Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-29
	III.	Housing and Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-30
	IV.	Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-32
	V.	Projects under Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-41
	VI.	Intangible Assets – Land Use Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-41
	VII.	Long-term Unamortized Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-43
	VIII.	Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-44

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ASSET VALUATION REPORT

APPENDIX I

	Section II Income Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-44	Section II Income Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-44
	I.	Evaluation of Technical Ideas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-45
	II.	Free cash flow discount value of the enterprise . . . . . . . . . . . . . . . . . . . . . . . . . I-45
	III.	Interest-bearing Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-48
	IV.	Non-operating Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-48
	V.	Non-operating Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-48
	VI.	Surplus Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-48
Chapter IV	Implementation Process and Status of Valuation Procedures. . . . . . . . . . . . . . . . . I-49
	I.	Preliminary Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
	II.	Preparation of Valuation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
	III.	Conduction of Field Work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-49
	IV.	Collection of Information of Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-51
	V.	Valuation and Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-52
	VI.	Summary Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-52
	VII.	Submission of Valuation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-52
Chapter V	Valuation Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-53
	I.	Assumptions Adopted in the Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-53
	II.	Impact of Valuation Assumptions on Conclusion of the Valuation . . . . . . . . . . I-54
Chapter VI	Conclusion of the Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-55
	I.	Valuation Results of the Two Valuation Approaches. . . . . . . . . . . . . . . . . . . . . I-55
	II.	Analysis and Selection of Valuation Results . . . . . . . . . . . . . . . . . . . . . . . . . . . I-56
	III.	Conclusion of the Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-56
Chapter VII	Notes on Special Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-57
Chapter VIII Statement of Limitation on the Use of the Asset Valuation Report. . . . . . . . . . . . . I-61
Chapter IX	Date	of Valuation Report and Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-62
Appendices to the Asset Valuation Report:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-63

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ASSET VALUATION REPORT

APPENDIX I

STATEMENT

• I. This Asset Valuation Report was prepared in accordance with the Basic Rules for asset valuation issued by the Ministry of Finance and the Practice Guidelines for asset valuation as well as the Code of Ethics for asset valuation issued by the China Appraisal Society.

• II. This Asset Valuation Report shall only be used by the client, other users of the Asset Valuation Report stipulated in the asset valuation engagement contract, and users of the Asset Valuation Report (hereinafter referred to as other users of the Asset Valuation Report) as required by laws and administrative regulations. Save for the above, any other institutions or individuals may not use the Asset Valuation Report.

The client or other users of the Asset Valuation Report should use the Asset Valuation Report in accordance with the provisions of laws and administrative regulations and within the scopes as specified in the Asset Valuation Report. We, the asset valuation institution and the asset valuers take no responsibility if the Asset Valuation Report is not used in accordance with the provisions of laws and administrative regulations or beyond the scope of use.

We and the asset valuers advise that the client and other users of the Asset Valuation Report should correctly interpret and use the valuation conclusions, which are not equivalent to the realizable values of the valuation target and should not be considered as a guarantee for the realizable value of the valuation target.

• III. We and its asset valuers comply with the laws, administrative regulations and asset valuation standards, adhere to the principles of independence, objectivity and impartiality, and assume the responsibility for the issued Asset Valuation Report.

• IV. The list of assets and liabilities involved in the valuation target reported and confirmed with signatures, seals or other ways permitted by law by the client and the appraised entity; the client and the appraised entity shall be responsible for the authenticity, completeness and legality of the information provided by them in accordance with the law.

• V. We and the asset valuers have no existing or expected interests either in the valuation target as referred to in the Asset Valuation Report, or in the relevant parties, and have no prejudice against the relevant parties.

• VI. The analyses, judgements, and results in the Asset Valuation Report issued by us are subject to the assumptions and limiting conditions in the Asset Valuation Report. The users of the Asset Valuation Report shall take into full account the assumptions, limiting conditions and special notes specified in the Asset Valuation Report and their impact on the valuation conclusion.

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ASSET VALUATION REPORT

APPENDIX I

ASSET VALUATION REPORT

ON THE VALUE OF ALL EQUITY INTERESTS IN QINHUANGDAO NORTH GLASS CO., LTD.* INVOLVED IN THE PROPOSED TRANSFER OF EQUITY BY CHINA YAOHUA GLASS GROUP CO., LTD.

Jing Xin Ping Bao Zi [2021] No.005

SUMMARY

IMPORTANT NOTICE

The following content is extracted from the full text of the Asset Valuation Report. For the detailed information and correct understanding of the valuation conclusions of this valuation, please refer to the full text of the Asset Valuation Report.

Zhongjing Minxin (Beijing) Assets Evaluation Co., Ltd. was engaged by China Yaohua Glass Group Co., Ltd. to appraise the value of all equity interests in Qinghuangdao North Glass Co., Ltd. involved in the proposed transfer of equity of Qinghuangdao North Glass Co., Ltd. held by China Yaohua Glass Group Co., Ltd. to Luoyang Glass Company Limited, by way of adopting the cost approach (asset-based approach) and the income approach and carrying out necessary valuation procedures in accordance with the requirements of the laws, administrative regulations and asset valuation standards while adhering to the principles of independence, objectivity and impartiality.

The valuation target of the asset valuation is the equity value of all shareholders of Qinghuangdao North Glass Co., Ltd., and the scope of valuation is all the assets and liabilities of the company.

The type of value derived from this valuation conclusion is market value, which refers to an estimate of the value at which the valuation target would change hands in a normal and fair transaction on the valuation date between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both acting reasonably.

During the valuation, we checked and verified relevant information such as legal documents and financial records provided by Qinghuangdao North Glass Co., Ltd., checked and verified the assets and liabilities and carried out other necessary procedures.

After conduction analysis and comparison of the valuation results of the two approaches, the valuation results of cost approach is taken as the conclusion of valuation.

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ASSET VALUATION REPORT

APPENDIX I

Upon valuation, under the abovementioned valuation objective and based on the going concern presumption, the appraised value of all equity interests in Qinghuangdao North Glass Co., Ltd. as at 30 November 2020 in terms of market value was RMB303,793,200 with an increment of RMB118,519,800 over the carrying value of the net assets. The increase ratio was 63.97%. That was:

The book value of total assets of Qinghuangdao North Glass Co., Ltd. was RMB1,003,865,800, the appraised value was RMB1,011,598,600, the incremental value was RMB7,732,800, and the increase ratio was 0.77%; the book value of total liabilities was RMB818,592,400, the appraised value was RMB707,805,400, the appraised impairment was RMB110,787,000, and the impairment rate was 13.53%; the book value of net assets was RMB185,273,400, the appraised value was RMB303,793,200, the incremental value was RMB118,519,800, and the increase ratio was 63.97%.

The calculation of the value of all equity interest is set out in the following table:

Unit: RMB ten thousand

			Increase or
Items	Book	Appraised	Decrease	Increase
	Value	Value	in Value	ratio (%)
	A	B	C=B-A	D=C/A×100%
Current assets	67,933.18	69,270.75	1,337.57	1.97
Non-current Assets	32,453.40	31,889.11	-564.29	-1.74
Long-term equity investment	11,401.64	1,314.44	-10,087.19	-88.47
Fixed assets	15,699.83	20,977.45	5,277.61	33.62
Projects under construction	2,918.39	2,918.39
Intangible assets	2,043.54	6,288.83	4,245.29	207.74
Lo ng-term unamortized
expenses	390.00	390.00
Total assets	100,386.58	101,159.86	773.28	0.77
Current liabilities	56,602.96	45,524.26	-11,078.70	-19.57
Non-current liabilities	25,256.28	25,256.28
Total liabilities	81,859.24	70,780.54	-11,078.70	-13.53
Net assets (owner’s equity)	18,527.34	30,379.32	11,851.98	63.97

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ASSET VALUATION REPORT

APPENDIX I

Users of this report are advised to pay full attention to the following events:

I. HOUSING AND BUILDINGS:

As of the valuation benchmark date, certain housing and buildings of Qinghuangdao North Glass Co., Ltd. have yet to be issued with title certificates. The valuation was conducted on the assumption that the title of the building belongs to the appraised entity. The appraised value has not taken into account the costs to be incurred in future certification. The evaluation of the structure of the housing and building shall be subject to field investigation, and the building area shall be subject to the area verified or declared by the property title certificate provided by the enterprise. The valuer has verified that as the work amount of certain underground construction cannot be verified, the evaluation was based on the area declared by the enterprise. The appraised value shall be adjusted correspondingly in accordance with the building area verified by the property title certificate after the property title certificate has been obtained within the validity period of the report.

II. LAND USE RIGHTS:

• (I) According to the Certificate for the Use of State-owned Land (《國有土地使用證》) of the valuation target, the person owning land-use right of the valuation target Dong Fang Guo Yong (Basuo) Zi No. 430 is Qinhuangdao North Glass Group Co., Ltd. (the former name of the appraised entity). As of the valuation benchmark date, the land use certificate has not been registered for the change.

• (II) As of the valuation benchmark date, the valuation target has a mortgage. Specifically, Qinhuangdao North Glass Co., Ltd. entered into a mortgage contract with Shijiazhuang branch of Huaxia Bank Co., Ltd.* for the maximum amount of creditor’s rights. The mortgaged property is a piece of land with title certificate number Ji 2017 Qinhai Real Property Rights No. 0032391, and the period for determination of the creditor’s rights was till 22 July 2022.

• (III) According to the Statement of the North Company and the Great Wall Company on a Land History Issue (《北方公司與長城公司關於一宗土地歷史遺留問題的情況說明》) provided by the appraised entity, as the land at the original business address of the two companies was purchased and stored by the Municipal Land Storage and Exchange Center, the two parties agreed to consolidate land acquisition in the Northern Industrial Zone (current address is No. 61 Xigang North Road). Both parties agreed to proceed with the land separation procedures after the overall land certificate is issued. Since then, the owner of the title certificate (Ji 2017 Qinhai Real Property Rights No. 0032391) has been recorded as Qinhuangdao North Glass Co., Ltd., with a certificate area of 133,441.51m[2] . The land is adjacent to the North Company, and the Great Wall Company has been using and building factories and other buildings, but so far no land separation procedures has been carried out (the financial assets of North Company do not include the land, while the real estate certificate contains the land).

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ASSET VALUATION REPORT

APPENDIX I

On 8 January 2020, the Qinhuangdao Municipal surveying and mapping brigade conducted surveying and mapping of the land owned by the Great Wall Company. The map issued by the survey showed that its area was 10,409.11m[2] . In April 2020, the State-owned Assets Supervision and Administration Commission of Qinhuangdao Municipal issued the Approval on Handling the Land Transfer Procedures of Great Wall Company (Qin Guo Zi Fa [2020] No. 40): “Agreed the North Company shall handle the land transfer procedures in accordance with relevant regulations on state-owned land transfer.” Therefore, the actual land area owned by the North Company is 123,032.40 m[2] . In this valuation, the Ji 2017 Qinhai Real Property Rights No. 0032391 land is subject to the remaining area of 123,032.40m[2] .

III. INVENTORY:

In May 2012, the appraised entity and Beijing Shenglong Trading Co., Ltd. (北京晟隆商貿有限責 任公司) (the “Beijing Shenglong Company”) signed the Storage Agreement of Qinhuangdao North Company Outsourcing Warehouse (《秦皇島北方公司外協倉儲庫房儲貨協議》), stipulating that the Company shall deliver its produced glass to the warehouse of Beijing Shenglong Company, and Beijing Shenglong Company has the right to sell the glass in stock. The contract terminated on 30 June 2013. If there is still glass from the North Company in the warehouse, Beijing Shenglong shall purchase it in full and settle the payment in a lump sum. However, Beijing Shenglong has not delivered the glass payment. After that, the appraised entity sued the other party, requesting the other party for a payment of RMB22,179,800 for the glass. The case has passed the final judgment of Hebei High Court ((2020) Ji Min Zhong No. 21) in August 2020. The results of judgment are as follows: 1. Beijing Shenglong Trading Co., Ltd. and its affiliated company Beijing Shengbao Longyuan Glass Co., Ltd. (北京晟寶隆源玻璃有限公司) paid the Company the glass payment of RMB15,673,546.23 and related interest; 2. Wei Ming (魏鳴), Jiang Fengshan (姜鳳山) and Zhang Chunmei (張春梅), shareholders of Beijing Shenglong Trading Co., Ltd., shall bear joint and several liabilities for the debts determined in the judgment. As the relevant funds are currently still implemented and there is uncertainty in the recovery of the funds, the relevant product income and the corresponding accounts receivable have not been recognized, and the appraised entity has fully accrued an impairment provision of RMB22,179,800 for the inventory. In the valuation, as the finished products have no physical objects, the inventory involved in the litigation is evaluated as zero value, which does not include the contingent claim of the appraised entity to the party jointly and severally liable for the discharge of the obligation.

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ASSET VALUATION REPORT

APPENDIX I

IV. PROJECTS UNDER CONSTRUCTION:

As of the valuation benchmark date, the project under construction of Qinhuangdao North Glass Co., Ltd. — the equipment installation project is mainly for the enterprise’s 500t/d production line to be converted to the project under construction due to the suspension of cold repair. Subsequently, it was decided to suspend the cold repair due to the strategic adjustment of the enterprise group. Since the resumption time of the production line in the later period has not been clarified, the valuation method is based on the assumption that the normal production line continues to use, and considers certain economic depreciation factors of the production line for valuation.

V. LONG-TERM EQUITY INVESTMENT:

• (I) As of the valuation benchmark date, according to the minutes of the 17th general manager office meeting of China Yaohua Group Co., Ltd. (中國耀華集團有限公司) (Yao Ji Ji Zi (2020) No. 17), Qinhuangdao Huazhou Glass Co., Ltd. (秦皇島華洲玻璃有限公司), a long-term equity investment unit with controlling rights of Qinhuangdao North Glass Co., Ltd., went through the deregistration procedure. As of the valuation benchmark date, the net book value of Qinhuangdao Huazhou Glass Co., Ltd. was RMB146,578,324.31, mainly the creditor’s rights to shareholders. For the long-term equity investment and related creditor’s rights debt of the investment unit, according to the Resolution of the Board of Directors of China Yaohua Glass Group Co., Ltd. and Agreement on Assignment of Creditor’s Rights and Offsetting of Debt signed among the shareholders China Yaohua Glass Group Co., Ltd., Qinhuangdao North Glass Co., Ltd. and the invested unit Qinhuangdao Huazhou Glass Co., Ltd., after the three parties have offset their creditor’s rights debt, Qinhuangdao Huazhou Glass Co., Ltd. has submitted a simplified deregistration procedure to the Qinhuangdao Haigang District Market Supervision and Administration Bureau (秦皇島市海港區市場 監督管理局). Since Huazhou Company is in the process of deregistration procedures, the investment cannot be recovered in the future, so the long-term equity investment valuation of Huazhou Company involved in the valuation date is zero.

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ASSET VALUATION REPORT

APPENDIX I

• (II) As of the valuation benchmark date, Qinhuangdao North Glass Co., Ltd. has hired Qinhuangdao Zhicheng Assets Appraisal Co., Ltd. (秦皇島至誠資產評估有限公司) to evaluate the value of all equity interests of Qinhuangdao Great Wall Glass Industry Co., Ltd. (秦皇島長城玻璃工業有限公司), a long-term equity investment unit over which Qinhuangdao North Glass Co., Ltd. has no controlling rights, and Qinhuangdao Zhicheng Assets Appraisal Co., Ltd. has issued the Asset Valuation Report on the Value of all Equity Interests of Qinhuangdao Great Wall Glass Industry Co., Ltd. Verified by the Transfer of Equity of Qinhuangdao North Glass Co., Ltd. (Qin Cheng Ping Zi [2020] No. 11026) 《關於秦皇島北方玻璃有限公司因股權轉讓核實秦皇島長城玻璃工業有限公司股東全( 部權益價值評估項目的資產評估報告》(秦誠評字2020第11026號)). The valuation report has been filed by the State-owned Assets Supervision and Administration Commission of Qinhuangdao (秦皇島國資委), and the transfer of the equity has been completed on 25 December 2021, and the agreed transfer price determined according to the valuation results and the shareholding ratio is RMB13.1444 million. Therefore, the long-term equity investment was assessed at the agreed transfer price of RMB13.1444 million. On 7 January 2021, Qinhuangdao Great Wall Glass Industry Co., Ltd., a long-term equity holding company of Qinhuangdao North Glass Co., Ltd., changed its equity. Qinhuangdao North Glass Co., Ltd. transferred its 32.61% equity of Qinhuangdao Great Wall Glass Industry Co., Ltd. to individual Duan Zhenjiang (段振江). Qinhuangdao North Glass Co., Ltd. received the equity transfer price. So far, Qinhuangdao North Glass Co., Ltd. has withdrawn its longterm equity investment in Qinhuangdao Great Wall Glass Industry Co., Ltd*.

The summary shall only be used for the abovementioned valuation purpose, and shall be used by the client and the user of the Asset Valuation Report as required by laws and administrative regulations. The valuation conclusions are effective from 30 November 2020 to 29 November 2021 for a term of one year. However, during this period, if there is a major change in the conditions of the valuation target or major market volatility, the summary shall become invalid.

The summary shall not be extracted, quoted, or disclosed in public media, except as required by laws and administrative regulations.

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ASSET VALUATION REPORT

APPENDIX I

ASSET VALUATION REPORT

ON THE VALUE OF ALL EQUITY INTERESTS IN QINHUANGDAO NORTH GLASS CO., LTD.* INVOLVED IN THE PROPOSED TRANSFER OF EQUITY BY CHINA YAOHUA GLASS GROUP CO., LTD. Jing Xin Ping Bao Zi [2021] No.005

Zhongjing Minxin (Beijing) Assets Evaluation Co., Ltd. was engaged by China Yaohua Glass Group Co., Ltd. to appraise the value of all equity interests in Qinghuangdao North Glass Co., Ltd. involved in the proposed transfer of equity of Qinghuangdao North Glass Co., Ltd. held by China Yaohua Glass Group Co., Ltd. to Luoyang Glass Company Limited, by way of adopting the cost approach (asset-based approach) and the income approach and carrying out necessary valuation procedures in accordance with the laws, administrative regulations and asset valuation standards while adhering to the principles of independence, objectivity and impartiality.

Details of the asset valuation are reported as follows:

Chapter I Basic Information

I. THE CLIENT, APPRAISED ENTITY AND OTHER USERS OF THE VALUATION REPORT

(I) Overview of the client

Name : China Yaohua Glass Group Co., Ltd. Registered capital : RMB1,276.0806 million Type : Other limited liability company Legal representative : Tang Liwei Address : No. 61, Xigang North Road, Haigang District, Qinhuangdao City, Hebei Province Date of establishment : 21 September 1988 Duration of operation : 21 September 1988 to 26 June 2031 Scope of business : the sales and warehousing of glass and glass products, relevant mineral products and chemical products (excluding hazardous chemicals, precursor chemicals and monitored and controlled chemicals); import and export business (excluding goods that are subject to the state-run trade administration, application shall be made in accordance with the relevant state requirements for the import and export of goods that are subject to quotas and license); technical consultation and technical services related to the company.

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ASSET VALUATION REPORT

APPENDIX I

(II) Overview of the appraised entity

Name : Qinhuangdao North Glass Co., Ltd. Registered capital : RMB643.9037 million Type : Limited liability company (wholly-owned foreign-invested enterprise) Legal Representative : Chen Xing Address : No. 61, Xigang North Road, Haigang District, Qinhuangdao City Date of establishment : 20 December 1996 Duration of operation : Open tenor Scope of business : general business projects (except for prohibited and licensed business in the project): production and sales of glass and its products, refractory materials and ceramic products; import and export of goods and technologies; loading and unloading services.

1. Company profile and shareholding structure

Qinhuangdao North Glass Co., Ltd. (formerly known as Qinhuangdao North Glass Group Co., Ltd.) is a wholly-owned subsidiary of China Yaohua Glass Group Co., Ltd., located in the northern industrial zone of Qinhuangdao City, merged into China Yaohua Glass Group Co., Ltd. in 2012. North Company currently has two float glass production lines, 500t/d and 600t/d, mainly producing colored glass. The 500t/d production line was stopped for cold repair in December 2018 and has yet to be in normal production. The 600t/d production line has an annual output of more than 3.4 million heavy boxes, which can produce glass with a thickness of 3.2mm10mm, a plate width of 36602440, 36602140, 21401650, 33002140, 33002440, 24401830, etc. The main products are tea glass, tea film, dark gray glass, dark gray film and other color float glass. The products are suitable for curtain wall, hollow, tempering, mirror, doubling, household appliance panel, construction, decoration and other fields. They are sold to North China, Northeast, South China, Northwest and other places, and are exported to Southeast Asia, South America, Africa and many other countries and regions.

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ASSET VALUATION REPORT

APPENDIX I

As of the valuation benchmark date, the shareholding structure is as follows:

		Percentage
	Capital	of capital
Name of shareholder	Contribution	contribution
	(RMB’0,000)	(%)
China Yaohua Glass Group Co., Ltd. (中國耀華玻
璃集團有限公司)	64,390.37	100.00
Total	64,390.37	100.00

2. Organizational chart

==> picture [371 x 183] intentionally omitted <==

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

General Manager
Deputy Secretary of the General Party Chief Financial Deputy General Manager, Chief
Branch, Deputy General Manager, Officer Safety Officer
Chairman of the Labor Union, and
Manager of Tank Kiln Department
DepartmentTank Kiln DepartmentEquipment Power Management DepartmentGeneral DepartmentAccounting Management DepartmentSafety Warehousing Department DepartmentTechnology Production
----- End of picture text -----

3. Main assets

The main assets of the company are current assets and non-current assets, among which current assets include monetary funds, notes receivable, accounts receivable, prepayment, other receivables, inventories, etc., and non-current assets include longterm equity investments, fixed assets, projects under construction, intangible assets, long-term unamortized expenses and other non-current assets.

4. Main products and production and sales

As of the valuation benchmark date, the main business of Qinhuangdao North Glass Co., Ltd. was the production and sales of glass products. From 2018 to January to November 2020, sales revenues were RMB566.4852 million, RMB453.4078 million and RMB442.1755 million, respectively, and the net profit from 2018 to January to November 2020 was RMB23.8610 million, -RMB94.5752 million and RMB56.7064 million, respectively.

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ASSET VALUATION REPORT

APPENDIX I

5. The assets, liabilities and operating conditions of the company in the past three years

Assets and Liabilities

Units: RMB

	As at	As at	As at
	30 November	31 December	31 December
Item	2020	2019	2018
Total current assets	679,331,838.80	549,433,086.43	753,467,179.25
Long-term equity investment	114,016,364.04	96,315,707.48	125,990,785.01
Fixed assets	156,998,332.12	188,628,253.98	192,914,524.20
Projects under construction	29,183,920.97	40,534,729.88	120,199,168.55
Intangible assets	20,435,380.83	20,936,461.08	21,483,094.08
Long-term unamortized expenses	3,900,000.12	6,283,333.38	–
Other non-current assets	–	2,000,850.76	553,500.00
Total non-current assets	324,533,998.08	354,145,836.56	461,141,071.84
Total assets	1,003,865,836.88	903,578,922.99	1,214,608,251.09
Total current liabilities	566,029,596.88	645,250,166.42	914,934,925.61
Total non-current liabilities	252,562,828.72	129,761,746.18	52,188,000.25
Total liabilities	818,592,425.60	775,011,912.60	967,122,925.87
Total owners’ equity	185,273,411.28	128,567,010.39	247,485,325.22
Total liabilities and owners’ equity	1,003,865,836.88	903,578,922.99	1,214,608,251.09

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APPENDIX I

Income Statement

Units: RMB

	January to
Item	November 2020	2019	2018
Total operating income	442,175,546.57	453,407,790.92	566,485,220.72
Including: Operating costs	367,515,919.89	443,618,721.04	492,474,480.11
Business tax and surcharge	5,714,186.38	4,741,941.75	7,636,600.56
Selling expenses	7,910,253.38	14,368,157.40	13,147,712.00
Administration expenses	11,871,682.90	11,153,338.39	7,556,588.32
Financial expenses	25,072,816.42	16,233,505.08	23,365,603.35
Operating profit (“-” for loss)	22,745,060.00	-126,031,209.48	24,199,151.02
Add: Non-operating income	36,743,160.19	31,536,050.84	141,816.34
Less: Non-operating expenses	2,781,819.30	80,000.00	480,000.00
Total profit (“-” for total loss)	56,706,400.89	-94,575,158.64	23,860,967.36
Less: Income tax expenses	–	–	–
Net profit (“-” for net loss)	56,706,400.89	-94,575,158.64	23,860,967.36

The balance sheet dated 31 December 2018 and the 2018 income statement were audited by WUYIGE Certified Public Accountants LLP and the WUYIGE Shenzi [2019] No. 2-00638 unqualified audit report was issued. The balance sheet dated 31 December 2019 and the profit statement from January to December 2019 were audited by WUYIGE Certified Public Accountants LLP and the WUYIGE Shenzi [2020] No. 2-00230 unqualified audit report was issued. The balance sheet dated 30 November 2020 and the profit statement from January to November 2020 were audited by WUYIGE Certified Public Accountants LLP and the WUYIGE Shenzi [2021] No. 2-00035 unqualified audit report was issued.

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(III) Relationship between the client and the economic agent

The client is the controlling shareholder of the appraised entity.

• (IV) Other users of the valuation report

1. Other users of the valuation report stipulated in the asset valuation contract

Other users of the evaluation report are not stipulated in the asset valuation engagement contract.

2. Users of the Asset Valuation Report stipulated by laws and administrative regulations

Users of the asset valuation report stipulated by laws and administrative regulations shall comply with the relevant laws and administrative regulations.

II. PURPOSE OF VALUATION

China Yaohua Glass Group Co., Ltd. is intended to transfer shares held in Qinhuangdao North Glass Co., Ltd. to Luoyang Glass Co., Ltd.. As a result, China Yaohua Glass Group Co., Ltd. specially engaged Zhongjing Minxin (Beijing) Assets Appraisal Co., Ltd. to evaluate the value of total shareholders’ equity of Qinhuangdao North Glass Co., Ltd. involved in the economic activity, so as to provide the client with a reference basis for the value of equity transfer.

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III. TARGET AND SCOPE OF VALUATION

• (I) The valuation target is the total shareholders’ equity of Qinhuangdao North Glass Co., Ltd..

• (II) The scope of valuation is comprised of all assets and liabilities of Qinhuangdao North Glass Co., Ltd., including current assets, long-term equity investments, fixed assets, project under construction, intangible assets and long-term deferred expenses, current liabilities and non-current liabilities. As at the valuation benchmark date, the total book value of assets amounted to RMB1,003,865,800, the total liabilities amounted to RMB818,592,400, and the net assets amounted to RMB185,273,400.

Unit: RMB0’000

	Book value
Item	A
Current assets	67,933.18
Non-current assets	32,453.40
Including: Long-term equity investment	11,401.64
Fixed assets	15,699.83
Project under construction	2,918.39
Intangible assets	2,043.54
Long-term deferred expenses	390.00
Total assets	100,386.58
Current liabilities	56,602.96
Non-current liabilities	25,256.28
Total liabilities	81,859.24
Net assets (owner’s equity)	18,527.34

The assets and liabilities included in the evaluation scope have been audited by WUYIGE Certified Public Accountants LLP and the WUYIGE Shenzi [2021] No. 2-00035 unqualified audit report has been issued.

• (III) The entrusted valuation target and evaluation scope are consistent with the valuation target and evaluation scope involved in the economic behavior.

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(IV) Main physical assets

The physical assets of the appraised entity include inventory, equipment, building and structure and project under construction. The physical assets are as follows:

1. Inventory

The inventory of the appraised entity includes raw materials and finished products (commodities in stock). The raw materials are mainly the main and auxiliary raw materials purchased by the enterprise for the production of glass, which are stored in various specialized warehouses. The commodities in stock are glass of various specifications, with a total book value of 991,397.59 heavy boxes, of which 498,986.61 heavy boxes are stored in the Company’s warehouse on Xigang North Road, Haigang District, and another 492,410.98 heavy boxes are stored in the Company’s leased warehouses in different places. The Company’s existing inventory on Xigang North Road, Haigang District, holds normal sales product, while the inventory stored in an off-site leased warehouse, that is, book LKC glass, has been sold by the warehouse lessor on its own. Since the sale was not approved by the appraised entity, although the product has been taken away by the customer, was actually not settled and was listed on the finished product account, the appraised entity is currently conducting civil proceedings with the off-site warehouse lessor regarding this matter.

2. Equipment

The equipment fixed assets included in the evaluation are mainly production equipment used to produce related colored glass, veneer glass, coated glass, float glass, and float glass products, specially including: 500T/D online coated float glass production line and 600T/D energy-saving color float glass production line core equipment, control equipment, power distribution equipment and other auxiliary equipment, waste heat boilers, steam turbines, forklifts, single beam cranes, air compressors, power transmission and transformation equipment, various dry-type transformers, test and testing equipment, etc.

The vehicle equipment mainly includes 14 various loaders, forklifts and cars.

106 electronic equipment (sets) mainly includes all kinds of office computers, air conditioners, printers, copiers, cameras, monitoring system equipment, mass flow meters, ammonia nitrogen online analyzers, etc.

As at the valuation benchmark date, the equipment included in the evaluation scope can be used normally.

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3. Buildings and structures

The factory of Qinhuangdao North Glass Co., Ltd. is located in Qinhuangdao North Industrial Park, No. 61, Xigang North Road, Haigang District, Qinhuangdao City, with two production lines established. One is a 500T/d online coating production line, and the other is a 600T/d energy-saving colored float glass production line. The buildings and structures within the scope of evaluation are the 500T/d on-line coating production line, the 600T/d energy-saving colored float glass production line and its auxiliary housing facilities.

(1) Plant of 600T/d energy-saving colored float glass production line

The plant of the 600T/d energy-saving colored float glass production line was put into use in October 2010, with a design life of 50 years, a secondary structure level, and a 7-degree seismic fortification. The plant is divided into melting section, forming section and annealing section according to the technological process, with a total construction area of 16,305.38m[2] .

(2) 500T/d on-line coating production line

The completion time, layout, structure and building area of the 500T/d online coating production line plant are exactly the same as those of the 600T/d online coating production line plant. For details of its construction, please refer to the 600T/d online coating production line plant.

(3) Auxiliary rooms

The auxiliary rooms of the 500T/d online coating production line and the 600T/ d online coating production line are finished product warehouse, raw material system, hoisting warehouse, nitrogen station, air compressor station, office building, canteen, etc., with a total construction area of 32,247.06 square meters.

(4) Structures

There is a total of 62 structures within the scope of evaluation, including distribution material system engineering, chimneys, smoke towers, water towers, belt corridors, desulfurization and denitrification and dust removal closures, broken glass yards, fences, roads and other projects, belt corridor, propaganda windows of office buildings and houses that can’t apply for housing title certificates etc., which are equipped for the two production lines.

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4. Project under construction

The project under construction included in the evaluation is the project under construction of Qinhuangdao North Glass Co., Ltd., the equipment installation project is mainly the project under construction of the enterprise’s 500t/d production line due to the suspension of production and cold repair, with a total of 188 items.

(V) Intangible assets

Intangible assets include two transfers of land use rights. The land use rights are located at No. 61 Xigang North Road, Haigang District, Qinhuangdao City, and the south side of Basuo Village, Basuo Town, Dongfang City, Hainan Province, which are used for industrial land with an area of 123,032.40m[2] and 26,650m[2] , land use certificate numbers of Dongfang Guoyong (Basuo) No. 430 and Ji 2017 Qinhai Real Property Rights No. 0032391.

According to the Explanation of Qinhuangdao Beifang Co., Ltd. and CGWIC on a Land History Issue (《北方公司與長城公司關於一宗土地歷史遺留問題的情況說明》) provided by the appraised entity, since the land at the original business address of the two companies was purchased and stored by the Municipal Land Acquisition and Reserve Transaction Center, the two parties agreed to merge land acquisition in the Northern Industrial Zone (currently located at No. 61 Xigang North Road). Both parties agreed to proceed with the land separation procedures after the overall land certificate is issued. Since then, the owner of the ownership certificate (Ji 2017 Qinhai Real Property Rights No. 0032391) was recorded as Qinhuangdao North Glass Co., Ltd., with a certificate area of 133,441.51m[2] . With buildings including plants, the land is adjacent to the Qinhuangdao Beifang Co., Ltd. and has been used by CGWIC. However, the land separation procedures have not been completed so far (the Beifang Company’s financial assets do not include the land while the real estate certificate contains the land). On 8 January 2020, the Qinhuangdao City Surveying and Mapping Brigade conducted surveying and mapping of the land owned by the CGWIC, and the map issued by the survey showed that its area was 10,409.11m[2] . Therefore, the actual land area owned by Qinhuangdao Beifang Co., Ltd. is 123,032.40m[2] .

• (VI) Unrecorded asset included in the scope of evaluation

No assets without book records were found in the Asset Inventory and Evaluation List (《資 產清查評估明細表》) provided by the appraised entity.

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• (VII) No asset included on the account that is included in the scope of evaluation

In the Asset Evaluation List (《資產評估明細》) provided by the appraised entity, except for inventory-commodities in stock, the off-site inventory having no physical objects and the land use right certificate Ji 2017 Qinhai Real Property Rights No. 0032391 having an area of 133,441.51m[2] and an actual area of 123,032.40m[2] , no other assets are found on the account.

IV. TYPE OF VALUE AND DEFINITION

Through analysis on the purpose of the evaluation and the understanding of the market conditions on which the evaluation is based, the status of the valuation target itself, etc., we judge that the asset evaluation does not have any special restrictions and requirements on the appraisal market conditions and the use conditions of the valuation target, so the market value is adopted as the value type of evaluation conclusion.

The market value is the estimated value of the appraised target on the valuation benchmark date on which the valuation target is transacted on arms length basis by the willing purchaser and the willing vendor who act sensibly without being subject to any undue influence.

V. VALUATION BENCHMARK DATE

• (1) The valuation benchmark date for this project is 30 November 2020.

• (2) The above valuation benchmark date is selected by the client considering the realization of this economic behavior.

Chapter II BASIS OF VALUATION

I. BASIS OF ECONOMIC ACTIVITY

Minutes of the 20th General Manager Office Meeting of China Yaohua Glass Group Co., Ltd. (Yao Ji Zi (2020) No. 20)

II. BASIS OF LAWS AND REGULATIONS

• (1) The Company Law of the People’s Republic of China (passed at the 6th session of the 13th Standing Committee of the National People’s Congress on 26 October 2018);

• (2) The Enterprise Income Tax Law of the People’s Republic of China (passed at the 5th session of the 10th National People’s Congress on 16 March 2007);

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• (3) The Civil Code of the People’s Republic of China (adopted at the 3rd session of the 13th National People’s Congress on 28 May 2020);

• (4) The Land Administration Law of the People’s Republic of China (adopted at the 10th session of the 11th Standing Committee of the National People’s Congress on 28 August 2004);

• (5) The Law of the People’s Republic of China on the Administration of Urban Real Estate (passed at the 10th session of the 29th Standing Committee of the National People’s Congress on 30 August 2007);

• (6) The Enterprise State-owned Asset Law of the People’s Republic of China (passed at the 11th session of the 5th Standing Committee of the National People’s Congress on 28 October 2008);

• (7) The Asset Valuation Law of the People’s Republic of China (passed at the 12th session of the 21st Standing Committee of the National People’s Congress on 2 July 2016);

• (8) The Administrative Measures for Valuation of State-owned Assets (Order No. 91 of the State Council);

• (9) The Supervisory and Administrative Measures for Finance of the Asset Evaluation Industry (Order No. 86 of the Ministry of Finance);

• (10) The Supervisory and Administrative Measures of the Transactions of Enterprise State-owned Assets) (Order No. 32 of SASAC and the Ministry of Finance);

• (11) The Interim Measures for the Administration of Valuation of Enterprise State-owned Assets (Order No. 12 of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC));

• (12) The Detailed Rules for the Implementation of the Provisional Regulations of the People’s Republic of China on Value Added Tax (Order No. 50 of the Ministry of Finance and the State Administration of Taxation);

• (13) the Interim Regulations on the Supervision and Administration of State-owned Assets of Enterprises (Order No. 378 of the State Council);

• (14) The Interim Regulations of the People’s Republic of China on Urban Land Use Tax (adopted at the 163rd executive meeting of the State Council on 30 December 2006);

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• (15) The Notice on Strengthening the Administration of State-owned Assets Appraisal of Enterprises (Guo Zi Wei Chan Quan [2006] No. 274);

• (16) The Notice on Matters Concerning the Review of Valuation Report of the State-owned Assets of Enterprise (Guo Zi Chan Quan [2009] No. 941);

• (17) The Notice on Publishing the Guidelines for the Filing for Recordation of the Valuation Projects of Enterprise State-owned Assets (Guo Zi Fa Chan Quan [2013] No. 64);

• (18) The Notice on the Comprehensive Launch of the Pilot Program for the Change from Imposing Business Tax to Value-added Tax (Ministry of Finance, State Administration of Taxation, Caishui [2016] No. 36);

• (19) The Announcement on the Policies in relation to Deepening Value-added Tax Reform (Announcement No. 39 of 2019 of the Ministry of Finance, State Administration of Taxation and General Administration of Customs);

• (20) Other laws and regulations related to the evaluation.

III. BASIS OF VALUATION CRITERIA

• (1) Asset Valuation Basic Standards (Cai Zi [2017] No. 43);

• (2) Code of Professional Ethics for Assets Assessment (CAS [2017] No. 30);

• (3) Asset Valuation Practicing Standards — Asset Valuation Procedures (CAS [2018] No. 36);

• (4) Asset Valuation Practicing Standards — Asset Valuation Report (CAS [2018] No. 35);

• (5) Asset Valuation Practicing Standards — Contract on Asset Valuation Entrustment (CAS [2017] No. 33);

• (6) Asset Valuation Practicing Standards — Asset Valuation Files (CAS [2018] No. 37);

• (7) Asset Valuation Practicing Standards — Enterprise Value (CAS [2018] No. 38);

• (8) Asset Valuation Practicing Standards — Real Property (CAS [2017] No. 38);

• (9) Asset Valuation Practicing Standards — Machinery Equipment (CAS [2017] No. 39);

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• (10) Asset Valuation Practicing Standards — Engagement of Experts and Relevant Reports (CAS [2017] No. 35);

• (11) The Guidelines for the Enterprise State-owned Asset Valuation Reports (CAS [2017] No. 42);

• (12) Guidelines for Business Quality Control of Asset Valuation Institutions (CAS [2017] No. 46);

• (13) Guidance on Value Type for Asset Valuation (CAS [2017] No. 47);

• (14) Guidance on Legal Ownership of Asset Valuation Target (CAS [2017] No. 48);

• (15) Code for Real Estate Appraisal (National Standard GB/T50291-2015);

• (16) Regulations for Valuation on Urban Land (GB/T 18508-2014);

• (17) Other evaluation criteria and norms related to the evaluation.

IV. BASIS OF ASSET OWNERSHIP

• (1) Real estate ownership certificate, state-owned land use certificate, vehicle driving license;

• (2) Equipment and inventory purchase invoice contract, vehicle driving license.

V. PRICING BASIS

• (1) Manual of Data and Parameters Commonly Used in Asset Appraisal;

• (2) Implementation Rules of Interim Regulations on Value-Added Tax of the People’s Republic of China (Order No. 538 of the State Council of the People’s Republic of China) (promulgated on 10 November 2008);

• (3) Interim Regulations of the People’s Republic of China on Vehicle Purchase Tax (State Council Order [2000] No. 294);

• (4) Notice of the Ministry of Finance and the State Administration of Taxation on Comprehensively Launching the Pilot Program of Changing Sales Tax to Value-Added Tax (Caishui [2016] No. 36);

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• (5) The 2020 edition of the Mechanical and Electrical Products Global Quotation System, the 2020 edition of the Mechanical and Electrical Products Quotation Manual;

• (6) China Automobile Net, Sohu Automobile, Wanche Net, Pacific Automobile Net and other professional car price information websites;

• (7) Professional electronic equipment price information websites. such as ZOL Zhongguancun Online IT Product Quotation and IT168-IT Mainstream Information Platform on the assessment base date recently;

• (8) Notice of the People’s Government of Qinhuangdao City on Issuing the Administrative Measures for the Collection of Urban Infrastructure Supporting Fees in Qinhuangdao City (Qin Cai Shui [2017] No. 3);

• (9) Qinhuangdao City Land Grading and Valuation;

• (10) The future annual income forecast data provided by the appraised enterprise, etc.;

• (11) Financial data of listed companies in the industry inquired by WIND information;

• (12) The valuation benchmark date of the appraisal entity and the audit report of the first period in the past two years;

• (13) Relevant agreements and other relevant information.

VI. OTHER REFERENCE INFORMATION

• (1) Asset evaluation declaration form provided by the appraised entity;

• (2) Accounting statements, account books and vouchers on the valuation benchmark date provided by the appraised entity;

• (3) Explanation on Matters Related to Asset Evaluation provided by the appraised entity;

• (4) Accounting Standards for Business Enterprises issued by the Ministry of Finance.

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Chapter III VALUATION METHODS

The valuation methods commonly used in enterprise value evaluation include income approach, market approach and cost approach (asset-based approach). In accordance with the Asset Valuation Practicing Standards — Enterprise Value, when performing any appraisal of enterprise value, the suitability of the three basic asset valuation methods, namely, the income approach, the market approach and the cost approach (asset-based approach) shall be analyzed based on the purpose of valuation, the valuation target, the type of the value, suitability requirements of valuation methods, one or more basic methods of asset evaluation should be properly selected. State-owned Assets Supervision and Administration Commission Property Rights [2006] Document No. 274 stipulates that, “As for asset evaluation projects involving corporate value, when the evaluation is based on the premise of continuous operation, in principle, two or more methods are required for evaluation and listed in the evaluation report. After a full and comprehensive analysis based on the actual situation, one of the evaluation results is determined as the use of results of the evaluation report.”

The market approach for the valuation of an enterprise refers to the valuation method whereby the value of the valuation target is determined by comparing the valuation target with comparable listed companies or comparable transaction cases. The basic condition for using the market approach is as follows: there is a relatively active market, and market cases and indicators and parameters comparable to the valuation target can be collected and quantified. For market approach, it is difficult to adopt market approach due to the lack of comparable transaction cases.

Although the income approach in enterprise value evaluation does not directly use the reference in the actual market to explain the current fair market value of the valuation target, it is the fundamental basis for determining the current fair market value of the perspective of the expected profitability of the assets, which can fully reflect the overall value of the enterprise, and its evaluation conclusions are reliable and persuasive. At the same time, the enterprise has the prerequisites for applying the income approach to evaluate: continuous operation, future income periods can be determined, and there is a stable relationship between shareholder equity and business income.

The cost approach (asset-based approach) for the valuation of an enterprise refers to the valuation method whereby the value of the valuation target is determined by reasonable valuation of identifiable on- and offbalance sheet assets and liabilities on the basis of the balance sheet of the appraised entity on the valuation benchmark date. This evaluation project can meet the conditions required by the cost approach (assetbased approach), that is, the appraised asset is in a state of continued use or is assumed to be in a state of continued use, and has available historical data. Moreover, the cost approach (asset-based approach) can meet the requirements of the value type of the evaluation.

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Therefore, in view of the evaluation purpose and asset type of the evaluation, considering the role, characteristics and requirements of various evaluation methods, we adopt the cost approach (asset-based approach) and income approach for the evaluation. After analyzing and comparing the evaluation results obtained by the two methods, one of the more appropriate evaluation results is used as the evaluation conclusion.

Section I Cost Approach (Asset-based Approach)

The cost approach (asset-based approach) refers to the general term for various evaluation techniques that determine the value of the valuation target on the basis of a reasonable evaluation of the value of the assets and liabilities of the enterprise. The evaluation scope includes current assets, long-term equity investment, fixed assets, project under construction, intangible assets and long-term deferred expenses, as well as current liabilities and non-current liabilities. The evaluation method mainly adopts the replacement cost approach. The specific evaluation methods for various types of assets are as follows:

I. CURRENT ASSETS

Current assets include monetary capital, notes receivables, accounts receivables, prepayments, other receivables, inventories and other current assets.

(I) Monetary capital

Monetary capital include cash, bank deposits, and other monetary capital.

Cash: perform an on-site inventory, verify the cash balance on the evaluation base date using the reverse method, and check with the cash journal and general ledger cash account balance to determine the evaluation value with the verified amount.

Bank deposits and other currency capital: check the data obtained from the statement, balance adjustment statement and letter of proof with its book value, and determine the appraised value with the verified amount.

(II) Accounts receivables

Accounts receivables include notes receivable, accounts receivable, prepayments and other receivables.

Notes receivable: commercial acceptance bills issued by business entities; determine whether there is a possibility of bad debts receivable on the basis of consulting account books, investigating and understanding the relationship with the counterparty and the credit of the counterparty; determine the evaluation value of the bills receivable having become bad

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APPENDIX I

debts with evidence based on zero value, and determine the evaluation value of the normal notes receivable based on the verified book value, wherein the appraisers have verified the economic content, occurrence date and recoverable situation of each item, after verification, there is no possibility that it cannot be fully recovered, determine the appraisal value according to the verified book value.

Accounts receivable and other receivables: carry out letter verification for continuing transactions, affiliates and large sums of money, and confirm the appraisal value with the verified book value in accordance with the letter verification; for the money that has been confirmed as loss by conclusive evidence, determine the appraisal value by zero value; for other funds, investigate the credit and operation status of the opposite party, judge whether there is possible bad debt loss and estimate the amount of bad debt loss in combination with the account age, so as to verify the balance after deducting the estimated bad debt loss from the book value and confirm the evaluation value; for the bad debt provision, evaluate as zero since the bad debt problem has been considered in the evaluation.

Prepayments: carry out letter verification for continuing transactions, affiliates, and large sums of money, determine the appraisal value according to the value of the corresponding assets recoverable or the corresponding rights realizable bases on the letter verification; for the funds that cannot recover the corresponding assets or realize the corresponding rights, determine the appraisal value by zero value.

(III) Inventory

The inventory of the evaluation includes raw materials and commodities in stock.

1. Raw materials

The evaluation adopts cost approach. For the commodities recently purchased, where the turnover is relatively fast, there is no damage or backlog phenomenon, and the book price is close to the market price on the valuation benchmark, the verified book price is multiplied by the actual quantity to determine the appraisal value.

For those which have been purchased for a long time, the current market price is added to the relevant expenses, and the actual quantity is multiplied to determine the appraisal value. For those close to being scrapped but realizable, the appraisal value is determined by the current market realizable value. If there is no realizable value, the value shall be determined as zero.

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APPENDIX I

2. Finished products (commodities in stock)

For finished products (commodities in stock), the appraisal value is calculated according to the following formula (where part of the profit is determined in accordance with the sales situation):

Appraisal value = inventory quantity × ex-factory unit price without tax × [1- (all taxes + sales expenses + partial profits)/sales revenue]

(IV) Other current assets

Other current assets are input VAT that has not yet been deducted, and the appraiser determines the appraisal value based on the verified book value.

II. LONG-TERM EQUITY INVESTMENT

The long-term equity investment of the appraised entity includes a controlling equity investment and a non-controlling equity investment.

As for the controlling equity investment, the invested entity is going through the deregistration procedures and its assets are mainly the claims on the parent company. In accordance the Resolution of the Board of Directors of China Yaohua Glass Group Co., Ltd. (《中國耀華玻璃集團有限公司 董事會決議》) and the Debt Transfer and Debt Set-off Agreement (《債權轉讓與債務抵消協議書》) entered by shareholders including China Yaohua Glass Group Co., Ltd., Qinhuangdao North Glass Co., Ltd. and Qinhuangdao Huazhou Glass Co., Ltd., the investee, after the debt and creditor’s rights of the three parties are offset, Qinhuangdao Huazhou Glass Co., Ltd. has applied to the market supervision and Administration Bureau of Haigang District, Qinhuangdao City for a simple deregistration procedure, so the evaluation of the long-term equity investment involved on the base date is zero.

As for non-controlling equity investment, the transfer price is taken as the evaluation value since the equity has been transferred after the valuation benchmark date and before the issuance of the evaluation report.

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APPENDIX I

III. BUILDINGS AND STRUCTURES

According to Asset Appraisal Practicing Standards-Real Estate, Code for Real Estate Appraisal (National Standard of the People’s Republic of China GB/T 50291-2015) (system for determining real estate appraisal) and the Standards for Basic Terminology of Real Estate Appraisal (GB/ T 50899-2013) (description for determining real estate appraisal methods), the commonly used methods of real estate appraisal mainly include market comparison approach, income approach and cost approach. The choice of valuation method should be based on the purpose of valuation combined with the specific characteristics of the valuation target, the surrounding market conditions, and the applicability and operability of the valuation method, and comprehensive consideration should be taken into for selecting an appropriate valuation method.

The target of this evaluation is mainly for the self-use of the appraised entity. There are few transaction examples of similar housing buildings and structures without sufficient market basis while income cannot be generated separately, so it is not appropriate to use the market approach and the income approach for evaluation. Therefore, the replacement cost approach is adopted for evaluation.

The cost approach is to estimate the valuation target and reasonable value of the valuation target by obtaining the replacement cost of the appraisal target on the valuation benchmark date and deducting depreciation. The replacement cost is the normal value of using the building materials and construction technology on the valuation benchmark date to rebuild a new state building with the same function and utility as the valuation target at the price level on the valuation benchmark date.

The appraised value is derived from: appraisal value = replacement cost × newness rate

Where: replacement cost = construction and installation cost + preliminary engineering construction expenses and other expenses + cost of capital

(I) Determination of replacement cost

1. Determination of construction and installation cost

The construction and installation cost is generally calculated and determined by the project settlement adjustment method, analogy method and index adjustment method.

Since the appraised entity has provided the complete final account data of the valuation target, the construction and installation cost of this evaluation is determined by the reorganization project settlement adjustment method.

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Reconstruction of works settlement adjustment method is the adjustment of the (pre-) final account of original project based on the project completion data, drawings and final account data of the building to be appraised, that is, to determine the construction cost based on the direct cost of the (pre-) final account of the original project, by adjusting the price according to the prevailing local construction materials, labor, machinery unit price, and then comprehensively calculating the cost to the price level of the valuation benchmark date.

2. Preliminary and other cost

The preliminary and other cost of buildings consist of two parts, namely, the cost calculated by the proportion of project and the gross floor area, while the preliminary and other cost of structures shall be the part of the cost calculated by the proportion of project. Pursuant to the “Notice on Further Relaxation on Professional Services Charges for Construction Projects (Fa Gai Jia Ge [2015] No.299)” issued by the National Development and Reform Commission, the preliminary cost is determined according to experience with reference to the market situation.

3. Capital cost

Capital cost for this assessment is calculated based on the reasonable construction period of the construction project (i.e. the cost of raising funds or the opportunity cost of capital occupied by the buildings (structures) during the normal construction period, which is based on the sum of construction and installation costs and preliminary and other costs), while assuming that the investment in the buildings (structures) are reconstructed with an even amount of capital investment, the interest rate of funds is determined based on the loan prime rate (LPR) promulgated by the National Interbank Funding Center with authorization on the valuation benchmark date.

(II) Determination of newness rate

The newness rate of buildings is determined by adopting scoring approach and age limit approach, and the comprehensive newness rate is formed with the weighting of the calculation results of the two approaches, which is used to determine the newness rate of valuation subject, while the age limit approach is used to calculate the newness rate of structures.

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1. Scoring approach:

The standard score is determined according to each the structural part (including foundation, loaded structural parts, wall, exterior part, floor), decoration part (including interior and exterior walls, door, window, ceilings) and the equipment part (including water, heating, electricity, security) accounted for the proportion of building cost. The intact score rate of the whole building is determined according to score for the site survey result of the structure.

The calculation formula is as follows: newness rate = total score of structural part × weight of structural part + total score of decoration part × weight of decoration part + total score of equipment part × weight of equipment part

2. Service life approach:

The newness rate of building (structures) is determined according to the durable years and the remaining durable years. The calculation formula is as follows:

Newness rate = 1 – (utilized years/durable years) ×100%

3. Comprehensive newness rate:

The weight of the newness rate calculated by the age limit approach is 0.5, the weight of the newness rate calculated by the scoring approach is 0.5.

Comprehensive newness rate = 0.5× newness rate under the service life approach + 0.5× newness rate by scoring approach.

VI. EQUIPMENT

This assessment relates to machinery and equipment, vehicles and electronic equipment.

In accordance with the Practice Guidelines for Asset Valuation – Machinery and Equipment, the assessment of machinery and equipment shall generally be carried out by the cost approach, market approach and income approach. Appropriate approaches shall be adopted based on the relevant conditions such as the valuation target, value type and information collection.

The market approach is a valuation methodology which determines the value of the valuation target by comparing the valuation target with the existing transaction cases in the market and revising the comparative factors. The basic condition of using the market approach is that a more active trading market is needed, and the comparable indicators and parameters of the market cases

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and the valuation target can be collected and quantified. Due to difficulties in collecting detailed information of the case and the inability to understand the details of the transaction, market approach is not adopted.

The income approach refers to the valuation methodology which determines the value of the valuation target by capitalizing or discounting the expected revenue of the appraised assets. When using the income approach for assessment, the valued asset must have independent profitability or its profitability can be quantified, and the future income period can also be reasonably quantified. Due to the failure of quantifying the income of the machinery and equipment and other fixed assets in this assessment, income approach is not adopted.

The cost approach is resorting to reproduction or replacement of the valued assets. The price that any potential investors are willing to pay upon their decision of investment in certain assets shall not exceed the current construction cost of the assets during the acquisition and construction. This assessment project is able to satisfy the conditions required for the cost approach, i.e. the valued assets are in the condition for continuing use or assumed to be in the condition for continuing use with available historical information, thus cost approach is adopted.

The cost approach of fixed assets of equipment is to determine the appraised value of equipment by estimating the replacement cost of the new equipment and then deducting the physical depreciation, functional depreciation and economic depreciation, or based on the comprehensive determination of the newness rate. The basic calculation formula of cost approach is as follows:

Assessed value = complete replacement value × newness rate

(I) Determination of replacement costs

1. Determination of replacement costs of machinery and equipment

The calculation formula of the replacement cost of important machinery and equipment is as follows:

Replacement costs = purchase price of equipment + transportation and miscellaneous cost + installation and testing cost + joint trial operation cost + foundation cost + preliminary cost + capital cost – deductible input value-added tax

Since some projects, such as renovation of workshop and other structures, which are reflected in the listing of the machinery and equipment, has already been included in the assessment of the buildings (structures), the appraised value will not be repeated in the equipment this time.

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In determining the replacement cost of equipment, the cost of transportation and miscellaneous cost, installation and testing cost as stipulated in the prevailing market selling price of the equipment shall not be calculated repeatedly.

(1) Determination of purchase price of equipment

Valuers determine the replacement cost with appropriate adjustments by directly inquiring the sellers or the manufacturers about the prices, or referring to the price lists provided by various distributors, recent price information (2020 version of the Mechanical and Electrical Products Price Information Query System), the price information published on the internet (Alibaba, Makepolo, Chuli, China.cn and other websites) and considering the possible floating factors. In the event that the current market no longer disposes or unavailable to search for the purchase price with alternative standard equipment and general equipment, on the premise of fully considering the alternative factors, corresponding adjustments are determined through the market inquiry and the review to the relevant price manual.

(2) Determination of transportation and miscellaneous cost

Transportation and miscellaneous cost refers to the loading and unloading, transportation, storage and insurance incurred before the equipment arrives at the place of use, which is generally calculated by a certain ratio of the purchase price of the equipment. The calculation formula is as follows:

Transportation and miscellaneous cost = purchase price of the equipment with taxes included × rate of transportation and miscellaneous cost

(3) Determination of installation and testing cost

With reference to the Manual of Data and Parameters Commonly Used in Asset Appraisal, an appropriate fee rate is adopted.

Installation and testing cost = purchase price of the equipment with taxes included × rate of installation and testing cost

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(4) Determination of joint trial operation cost

If the value of the production line is evaluated, the operation of the entire production line shall be connected and adjusted after the completion of the testing of the independent equipment. With reference to the Manual of Data and Parameters Commonly Used in Asset Appraisal, an appropriate fee rate is adopted.

(5) Determination of foundation cost

With reference to the Manual of Data and Parameters Commonly Used in Asset Appraisal, an appropriate fee rate is adopted.

Foundation cost = purchase price of the equipment with taxes included × rate of foundation cost

The foundation of the equipment has been considered separately in the part of the building and structures, and will not be calculated repeatedly.

(6) Preliminary cost

Preliminary cost include management cost of the contractor, cost of investigation and design, cost of construction supervision and agent service cost for bidding. The relevant rate of preliminary cost shall be recorded according to the rate corresponding to the overall investment scale of the special glass production enterprise.

The calculation formula of preliminary cost is as follows:

Preliminary cost = (purchase price of the equipment with taxes included + transportation and miscellaneous cost + installation cost + joint trial operation cost + foundation cost) × rate of preliminary cost

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(7) Capital cost

According to the loan interest rate corresponding to the valuation benchmark date and the reasonable construction period, it shall be evenly invested according to the purchase price of the equipment, transportation and miscellaneous cost, foundation cost, installation and testing cost and preliminary and other cost. The calculation formula is as follows:

Capital cost = (purchase price of the equipment with taxes included + transportation and miscellaneous cost + installation cost + joint trial operation cost + foundation cost + preliminary cost) × reasonable construction cycle × loan interest rate/2

(8) Deductible input value-added tax

The appraised entity is a VAT-based general taxpayer. According to the relevant provisions of the “Notice on Adjusting Value-Added Tax Rates” (Caishui [2018] No. 32) issued by the Ministry of Finance and the State Administration of Taxation, the purchased production equipment is subject to the deductible input tax. The calculation formula is as follows:

Deductible input value-added tax = (purchase price of the equipment/ 1.13×13%) + (transportation and miscellaneous cost/1.09×9%) + (installation and testing cost/1.09×9%) + (joint trial operation cost/1.09×9%) + (foundation cost/1.09×9%) + (preliminary cost/1.06×6%)

General equipment mainly refers to the price of equipment which is relatively low in value and common in the market. As most of these types of equipment are common equipment, the transportation and miscellaneous cost, installation and testing cost are included in the purchase price of equipment and are not separately calculated. The calculation formula of replacement cost is as follows:

Replacement cost (excluding tax) = replacement cost of equipment with taxes included – deductible input value-added tax

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3. Determination of replacement costs for vehicles

• (1) The replacement cost of vehicle, such as construction machinery and forklift that are not on the road, is determined according to general equipment. The basic calculation formula of replacement cost is as follows:

Replacement cost (excluding tax) = replacement cost of equipment with taxes included – deductible input value-added tax

• (2) The replacement cost of general passenger vehicles is determined according to the market price of a vehicle with the same model number, the same basic configuration on the valuation benchmark date, plus vehicle purchase tax and other reasonable cost (such as license fees). The basic calculation formula of replacement cost is as follows:

Replacement cost = vehicle purchase price + vehicle purchase tax + other cost of vehicle – deductible input value-added tax

4. Determination of replacement costs of electronic equipment

The replacement cost of electronic equipment is determined by inquiring the quotation from the distributors and “ZOL Zhongguancun Online IT Product Quotation”, “IT168IT mainstream information platforms” and other professional electronic equipment price information websites. The replacement cost of equipment which the purchase price cannot be obtained by inquiries from market, manufacturer and relevant price data, is determined by the purchase price of similar equipment inquired through the above-mentioned methods with analogy approach and the adjustment based on the variation of the equipment. The calculation formula of replacement cost is as follows:

Replacement cost = purchase price of the equipment – deductible input value-added tax or

Replacement cost = purchase price of the equipment with taxes excluded (rounding)

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(2) Determination of newness rate

1. Determining the newness rate of machinery equipment

The newness rate of important machinery and equipment is determined by observation approach (i.e. investigation scoring approach), combined with age limit approach.

Newness rate = newness rate under the service life approach×40%+ newness rate by observation approach ×60%

Observation approach is the judgement made by the valuer based on experience on the technical status and extent of deterioration of the subject matter (such as vibration, noise, temperature, processing precision, production capacity, energy consumption and failure).

The calculation formula of newness rate under the service life approach is as follows:

Newness rate under the service life approach = Newness rate under the service life approach =	economic service life – serviced life ×100% economic service life Durableyears ×100% Durable years + Utilized years

The “Durable years” in the formula is the professional judgement made by the valuer based on the actual technical condition of the machinery and equipment taking into account the effective age of the machinery and equipment, and the value of “durable years” is positive.

For those equipment of smaller value, depreciate rate is determined primarily using the service life method. For that equipment featuring short life-span, rapid change in price and substantial functional depreciation, the newness rate is determined according to a combination of factors including the economic life of equipment and the technical upgrading cycle.

Newness rate = Newness rate under the service life approach =

economic service life – serviced life ×100% economic service life

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When the technological conditions of the equipment deviate significantly, causing a great difference between the actual newness rate and the Newness rate under the service life approach, the newness rate shall be calculated according to the following formula:

Newness rate = Newness rate under the service life approach =

Durable years ×100% Durable years + Utilized years

2. Determining the newness rate of electronic equipment

Electronic equipment is a kind of common equipment with small value, in which the newness rate is mainly determined by the service life approach, i.e. according to a combination of factors including the useful economic life of equipment and the technical upgrading cycle. The formula for determining the newness rate based on the useful life is:

Newness rate = Newness rate under the service life approach =

economic service life – serviced life ×100%

economic service life

3. Determining the newness rate of vehicles

• (1) For construction machinery and forklift:

• A. Newness rate under the service life approach:

The newness rate of vehicles in such depots or are not on roads is determined according to the general machinery and equipment. Therefore, the theoretical newness rate is the newness rate under the service life approach. The formula for calculating the newness rate under the service life approach is:

Theoretical newness rate = newness rate under the service life approach = (economic service life – serviced life) ÷ economic service life×100%

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B. Observed newness rate:

The observed newness rate is the judgement made based on the scoring of the analysis of the actual conditions of the vehicle or technical status and extent of deterioration, such as vibration, noise, temperature, processing precision, production capacity, energy consumption and failure.

• C. Comprehensive newness rate:

The final formula for calculating the comprehensive newness rate is:

Comprehensive newness rate = theoretical newness rate × 40% + adjustment coefficient × 60%

(2) For passenger vehicles:

Comprehensive newness rate is adopted for this kind of vehicles, the calculation formula is as follows:

Comprehensive newness rate = theoretical newness rate × adjustment coefficient

A. Theoretical newness rate

The mileage-based newness rate and newness rate under the service life are calculated based on the mileage of the vehicle and service life, respectively, to determine the theoretical newness rate in accordance with the lower principle. For the vehicles with no age limit, such as small and mini non-commercial passenger vehicles as stipulated in the Provisions on the Criteria for Compulsory Discard of Motor Vehicles, the theoretical newness rate shall be directly determined by mileage-based newness rate.

Newness rate under the service life approach = Mileage-based newness rate =	Designated serviced life – serviced life ×100% Designated mileage Designated mileage – Mileage alreadytraveled ×100% Designated mileage

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B. Adjustment coefficient

The adjustment factor shall be determined by means of investigation and identification.

The selection approach for the weight of the equipment’s newness rate is generally as follows: 50% of each of the weights of compulsory retirement standards in service life and other standards (such as workload) stipulated by the State; 40% for the weight of newness rate under service life approach (or workload approach) and 60% for the weight of newness rate under observation approach with no compulsory retirement standards in service life stipulated by the State. Due to the differences in the intensity and frequency of the use of equipment, the newness rate identified by on-site observation is relatively close to the actual technical condition of the equipment, therefore its weight is greater than that of service life approach (or workload approach).

V. PROJECTS UNDER CONSTRUCTION

The assessment of the projects under construction- equipment installation project mainly consisted of the 500t/d machinery and equipment that are suspended production or performed overhaul which are transferred from the fixed assets of the enterprise. Since the production line has been suspended for nearly two years, and according to the strategic adjustment of the enterprise, the specific time for the production line to resume normal production in the later stage is not yet clear, so this assessment approach is based on the assessment of the normal cost approach and takes into account a certain economic depreciation at the same time. The assessment formula of projects under construction- equipment installation project is as follows:

Assessed value = complete replacement value – physical depreciation – economic depreciation

VI. INTANGIBLE ASSETS- LAND USE RIGHTS

(I) Selection of assessment approach

The appraised land parcel is granted land with the prescribed use of industrial land. Pursuant to the Practice Guidelines for Asset Valuation-Real Estate and the Regulations for Valuation on Urban Land, combined with the purpose of this assessment and the specific circumstances of the appraised land parcel, the land use rights shall be assessed by the benchmark land premium coefficient correction approach and the cost approximation approach. The average value of these approaches is used as the appraised value.

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(II) Non-applicable assessment approaches

1. Market comparison approach

The valuer is not able to collect recent trading cases in the open market similar to the valuation target and therefore market comparison approach is not adopted.

2. Hypothetical development approach

Pursuant to the Regulations for Valuation on Urban Land, the hypothetical development approach is adopted for the valuation of land with investment development or redevelopment potential, and is applicable to the land appraisal of the real estate to be developed or redeveloped after the demolition and reconstruction. The valuation target is industrial land to be developed, and since there are few cases of sale and lease of industrial property after development, the value after completion of the development cannot be accurately predicted. Therefore, hypothetical development approach is not adopted.

3. Income approach

Due to the failure to obtain the objective annual total income and the total annual fee of the land parcel, and few transaction cases in the land leasing market and real estate leasing market in this region, the total land income of the valued target cannot be reasonably determined through the rent level in the locality and differences in persistence, objectivity and effectiveness in the income of the land parcel cannot be stripped out through operating income. Therefore, income capitalization approach is not adopted.

(III) The connotation and formula of the selected assessment approaches

1. The benchmark land premium coefficient correction approach

Land datum value coefficient method is a method that generates the price of the valuation target on the valuation base date by comparing the regional condition of the valuation target with the average condition of its region pursuant to the substitution principle, and processing the regional factor adjustment and other relevant adjustments according to the adjustment system of land datum value.

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Pursuant to the Regulations for Valuation on Urban Land and the result of the Qinhuangdao City Land Grading and Valuation, the coefficient correction of each factor is found in the land parcel price adjustment coefficients table in accordance with the condition of each factor of the valuation target respectively. The coefficient correction is calculated according to the following formula:

K = (1±K1)×(1±K2)×...... ×(1±Kn)

Where: K－the land parcel price adjustment coefficients

K1, K2......Kn are the coefficient correction of the parcels under the conditions of 1st, 2nd......nth factors

The calculation formula of the land parcel price:

Pls = Plb×K×adjusted date coefficient×adjusted service life coefficient×adjusted plot ratio coefficient×adjusted coefficient for the land use rights status±adjustment in relation to the progress of land development

Where: Pls － assessed land parcel price

Plb － the benchmark land prices of land parcel in the locality

2. The cost approximation approach

The cost approximation approach is to determine the price of land based on the sum of various expenses incurred for the development of land, plus a certain amount of profit, interest, tax payable and land appreciation gain.

The basic calculation formula is as follows:

Land price = land acquisition fee + relevant tax + land development fee + investment interest + investment profit + land appreciation gain

VII. LONG-TERM DEFERRED EXPENSES

Long-term deferred expenses are amortized expenses based on leasing. For long-term deferred expenses, the appraised value is determined by the corresponding assets or rights over long-term deferred expenses based on the verification of the expenditure and amortization policy in this assessment.

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VIII. LIABILITIES

Liabilities are short-term borrowings, notes payable, accounts payable, receipts in advance, salaries payable, taxes payable, interest payable, other payables, non-current liabilities due within one year, long-term borrowings, long-term payables and special payables.

In the assessment, all kinds of liabilities such as the business scope, the carrying amount, the date of occurrence, reasons for formation, basis of confirmation of the enterprise and the agreed terms and methods of repayment shall be investigated and verified. The main content, basis of provision, method of provision and amount of provision of all kinds of expected liabilities shall be examined and approved. Necessary investigations or inquiries in respect of important liabilities to the relevant personnel or to the other parties shall be conducted. Necessary analysis on the probability of the performance of a liability to determine whether there is a debt that is not required to reimburse or a provision that is not required to pay. Subject to the full consideration of the debt and the authenticity of the obligation, the amount of the liability verified is used as the appraised value.

Section II Income approach

Income approach is an asset assessment approach by estimating the expected income of the valuation asset in the future and discounting to its present value in order to determine the asset valuation.

The asset valuation determined by the income approach refers to the total amount of currency paid to obtain the expected income right to receive the asset. The appraised value of the assets is highly correlated to the effectiveness and the application of such assets. The value of an asset is proportional to its effectiveness, profitability and value.

The basic calculation formula of income approach is as follows:

==> picture [78 x 49] intentionally omitted <==

Where: P: appraised value

• N: income period

Rt: expected income for the t year

• r: discount rate

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I. ASSESSMENT TECHNOLOGY IDEA

Free cash flow modeling is adopted for this assessment of the income approach, in which the expected income is the cash flow generated from the entire investment capital of the Company (for all shareholders’ equity and interest-bearing debt). The value of total equity of shareholders is based on the free cash flow of the Company for several years in the future, then discounting it to the value of operating assets at appropriate discounting rate, adding the value of non-operating assets, surplus assets value, less the interest-bearing debts and non-operating liabilities.

The calculation formula is as follows:

The value of total equity of shareholders = free cash flow discount value of the enterprise – interestbearing debts + value of non-operating assets – non-operating liabilities + surplus assets value

II. FREE CASH FLOW DISCOUNT VALUE OF THE ENTERPRISE

Free cash flow discount value of the enterprise includes the discounted value of free cash flow during the specific forecast period and the discounted value of free cash flow after the specific forecast period.

(I) Specific forecast period

As the enterprise’s short-term earnings can be relatively reasonably forecasted while the forward earnings is relatively hard to reasonably forecasted, as per customary practice, this estimate divides the enterprise’s income period into two periods, specific forecast period and perpetual period. After considering the development plan and the investment of future capital expenditure of the estimated unit, combined with the investigation of the industry, specific forecast period is determined by comprehensive analysis. Taking into account the scale of the enterprise and changes in macroeconomic and market demand, specific forecast period is set to 2025.

(II) Income period

As at the Valuation Reference Date, the appraised entity was under normal operation. There are also no limitations on the useful life of the core assets that affect the enterprise’s operation on a going concern basis and on the sale and operation period of the enterprise and the duration of investor’s ownership, or such limitations can be released and extension can be applied to achieve sustainable use. Therefore, the income period may be determined on a going concern basis.

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(III) Free cash flow of the enterprise

The calculation formula of free cash flow of the enterprise is as follows:

==> picture [180 x 36] intentionally omitted <==

Where: P—free cash flow discount value of the enterprise

Fi—expected amount of free cash flow of enterprises in the coming i year

Fn—expected amount of free cash flow during perpetual period

r—discount rate

n—forecast period

The calculation formula of free cash flow of the enterprise is as follows:

Free cash flow of the enterprise = net profit after tax + depreciation and amortization + interest (after tax) – capital expenditure – increase in operating capital = revenue from principal businesses – cost of principal business + profit of other business – tax and surcharge – cost incurred during the period (administrative expenses, selling expenses, finance costs) + investment income + gain on disposals of assets + other income + non-operating income less expenses – income tax + depreciation and amortisation + interest (after tax) – capital expenditure – increase in operating capital

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(IV) Discount rate

According to the principle of consistent basis for the income amount and the discount rate, the basis to determine the income amount for this valuation is the net free cash flow of the enterprise and the weighted average cost of capital (WACC) is chosen as the discount rate.

Formula:

==> picture [192 x 33] intentionally omitted <==

Where: Ke: cost of equity capital;

Kd: debt capital cost;

E: equity capital;

D: debt capital；

D + E: invested capital;

T: Income Tax Rate.

The Capital Asset Pricing Model (CAPM) is adopted to calculate the cost of equity capital. The calculation formula is as follows:

==> picture [114 x 32] intentionally omitted <==

Where: Rf: risk-free interest rate;

ERP: market risk premium;

β: system risk coefficient of equity;

Rc: specific corporate risk adjustment coefficient.

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III. INTEREST-BEARING DEBTS

Interest-bearing debt refers to the debt that are interest-bearing on the valuation benchmark date and generally comprise short-term borrowings, interest-bearing notes payable, long-term borrowings due within one year, long-term borrowings, etc., with the verified book value as the appraised value of the interest-bearing debt. This assessment of interest-bearing debt is short-term borrowings and long-term borrowings.

IV. NON-OPERATING ASSETS

Non-operating assets represent assets that have no direct link to the operating income of the enterprise and value of which is not included in the free cash flow discount value of the enterprise. This kind of assets do not generate profits, which increase asset size and reduce corporate profit margin. Non-operating assets in this assessment are input tax to be deducted from other current assets, the amortization of long-term deferred expenses, long-term equity investments, projects under construction, buildings (structures) of 500T/D production lines in fixed assets, the land occupied by the 500T/D production line and the Hainan area to which it belongs in the intangible assets, other receivables that are not directly related to the income from operating activities. Cost approach is adopted for this assessment.

V. NON-OPERATING LIABILITIES

Non-operating liabilities represent liabilities that have no direct link to the income generated from operating activities of the enterprise and value of which is not included in the free cash flow discount value of the enterprise. Non-operating liabilities in the assessment are interest payables, non-current liabilities due within one year, special payables and other payables that are not directly related to the income from operating activities. Cost approach is adopted for this assessment.

VI. SURPLUS ASSETS

Surplus funds represent superfluous assets that have no direct link to and exceed the required amount for the operation of the enterprise, generally referring to surplus monetary capital.

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Chapter IV Implementation process and status of valuation

I. PRE-INVESTIGATION

After receiving the notice from the client, the Company shall arrange for the relevant responsible person to communicate with the client and the person in charge of the appraised entity and relevant personnel and conduct appropriate investigation. To understand the purpose of the assessment and the economic behavior, target and scope of the valuation, to understand the basic information of the valuation target, the specific types, distribution and characteristics of the assets included in the scope of assessment, to understand the industry, legal environment and accounting policies of the enterprise, and to understand the client’s consideration of the valuation benchmark date and the requirements for the completion date of the report. After comprehensive analysis and valuation, it is determined that the appraisal institution can independently assess the professional competence of the appraisal institution to undertake such appraisal, negotiate with the client and enter into the asset appraisal entrustment contract if the business risk is within the controllable scope.

II. PREPARATION OF APPRAISAL PLAN

Based on the needs of this assessment, the person in charge of the project shall be identified and the appraised asset appraiser and appraisal support personnel shall be arranged to form the appraisal project team. The assessment plan shall be prepared by the person in charge of the project and implemented after being reviewed by the responsible person of the appraisal organization.

The assessment plan covers the whole process of implementation assessment, such as on-site investigation, collection of evaluation information, evaluation of estimates, preparation and submission of evaluation reports, preliminary determination of the basic method used for assessing the estimates, and corresponding scheduling of the various stages of the evaluation.

III. CONDUCTION OF FIELD WORK

• (I) Arranging and providing guidance for the relevant personnel to complete the asset valuation schedule.

• (II) Submitting the due diligence list and collecting documents required for valuation, including property rights certificates of fixed assets and intangible assets, equipment purchase contracts or invoices and financial statements, audit reports in recent years, feasibility demonstration of investment or technical renovation projects, etc.

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• (III) Conducting asset inventory and verification in accordance with the requirements of the valuation criteria:

• Checking whether there are any errors, omissions or duplicates in the asset appraisal schedules completed by the enterprise, comparing the asset evaluation schedule with the financial general ledger category by category; Spot checking the key items of the assets or liabilities, checking the data recorded in the financial statements, and making the accounts and statements consistent;

• The assets of all kinds of physical assets listed in the inventory and valuation list of assets shall be carried out on the spot by means of a key full inspection and general spot check, so as to verify the quantity of all kinds of physical assets and ensure that the accounts, statements and objects consistent; At the same time, we conduct on-site inspections of building structures and key equipment to form detailed survey records, conduct conversations with asset management personnel and operational personnel, and inspect equipment operation logs and records of large and medium-sized repairs;

• Comparing with the land information, and checking the topography and geomorphology on the spot, and understand the surrounding area, environment, transportation and land development and utilization, practical use, etc.;

• Reviewing the investment agreements of the long-term equity investment, the articles of association of the investee, the capital verification report, the business license, the financial statements of the valuation benchmark date, etc., to understand the investment date, the original investment amount and the proportion of shareholding of the long-term equity investment;

• Verifying the issuance of letter confirmation for receivables in large and key amount, we understood the business transactions and the credit status of the counterparties, to consult the relevant agreements and contracts of major liabilities, to understand the duration of occurrence, the process of formation, and the situation of debt repayment;

• Consulting and identifying the property right certification documents and materials provided by the enterprise, ascertain the property right status of the fixed assets, and investigate the major matters that may affect the asset evaluation.

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• (IV) Forming an interview record after listening to the introduction of the relevant personnel of the appraised entity on the enterprise, key assets, history and current situation of the major products by the means of symposiums and interviews, and made an understanding of the production, operation and management of the enterprise.

• (V) Making a historical comparison, capacity measurement, horizontal comparison and trend analysis of the forecast data such as future main income, cost and profit in the “Future Operation and income Forecast statement” of the description of relevant items of relevant assets by the client and the appraised entity. In order to judge the possibility or realizability of its future realization, and the degree of availability in the valuation of income approach.

• (VI) Conducting research activities outside the appraised entity, including visiting the market or enquiring market information to understand the sales situation, price trend, market share and the corresponding situation of other enterprise products in the same industry, as well as the market competition situation; Understanding the relevant industrial policies, financial policies, market analysis of industry authorities or industry organizations, industry development opinions and industry statistics through the websites, professional publications and other media; visiting the construction management department and the real estate market to grasp information and materials of real estate and land prices, conduct market research in the form of telephone inquiries and on-site consultation, and obtain price information for equipment other than price manuals and media information.

IV. COLLECTION OF INFORMATION OF VALUATION

The collected valuation data was analyzed to judge the reliability, rationality and availability of each information with the principles of “refining and streamlining” and “seeking the truth”. After analysis and screening, all reasonable and reliable data are collected. The appraisal was classified according to the needs of the valuation work, which was to classify the appraisal information in the categories of current assets, long-term equity investments, fixed assets, construction in progress, intangible assets, long-term deferred expenses, liabilities and income approach.

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V. VALUATION AND ESTIMATION

Collected the information reflected by various types of appraisal data, and analyzed the various data and parameters that were needed for valuation, which could not be obtained directly in the process of valuation. These valuation approaches were then used to assess the estimates.

VI. SUMMARY ANALYSIS

The preliminary valuation results of various assets and liabilities in the cost approach (assetbased approach) were reviewed, and the valuation process and results of individual asset projects were modified appropriately if necessary. In the case of confirming that the valuation results of individual assets and liabilities were basically compliant and reasonable and there was no reassessment of the assets and liabilities, the valuation results of the cost approach (asset-based approach) were obtained. At the same time, we reviewed the whole process of the assessment of the income approach, the formation of various data, the selection of various parameters, and made appropriate adjustments to the individual data and parameters if necessary, so as to further improve the assessment and ensure the relative reasonableness of the valuation results. Then, the valuation results of the two approaches were fully analyzed and compared, and on the basis of comprehensively considering the reasonableness of different valuation approaches and their valuation results, as well as the quality and quantity of the data used, the valuation result of one of the approaches was determined as the valuation conclusion.

VII. SUBMISSION OF VALUATION REPORT

The Asset Valuation Report was drafted based on the valuation work and the preliminary draft of the Asset Valuation Report was formed after three-level review within the evaluation institution. It shall seek opinions from the entrusting party on the preliminary draft of the appraisal report, and shall make necessary communication with the entrusting party on relevant matters involved. Without prejudice to the independent judgment of the appraisal agency on the final appraisal conclusion, the entrusting party’s reasonable opinion or recommendation on the appraisal report shall be adopted. A formal Asset Valuation Report is then submitted to the entrusting party.

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ASSET VALUATION REPORT

APPENDIX I

Chapter V Valuation Assumptions

The basic objective of asset appraisal is to have a fair appraisal conclusion and all fair appraisal conclusions are binded by conditions. An important form of such binding conditions for asset appraisal is the asset appraisal assumptions.

I. THE ASSUMPTIONS USED IN THIS ASSESSMENT

(I) Basic assumptions

1. Transaction assumption

Transaction assumption assumes that all assets to be valued are in the process of transaction, and the valuer will conduct the valuation with reference to a simulated market based on the transaction conditions of assets to be valued. The transaction assumption is a fundamental prerequisite for the further implementation of the asset valuation.

2. Open market assumption

Open market assumption assumes that with respect to the asset traded or to be traded in the market, the transaction parties are equal and have opportunity and time to access enough market information so as to make a rational judgment on the function, intended purpose and transaction price of the assets. The open market assumption is made on the basis that the assets are available for trading openly in the market.

3. Assumption on continuing operation

Assumption on continuing operation is based on the assumption that the appraised enterprise continues to operate in accordance with its original business purpose and operating methods after the valuation benchmark date.

(II) General assumptions

1. It is assumed that there are no material changes in the relevant existing laws, regulations and policies, and macroeconomic conditions of the PRC as well as in the local political, economic and social environment of such places where the parties to the transaction are operating after the valuation benchmark date;

2. It is assumed that, after the valuation benchmark date, the persons operating the appraised entity under valuation is accountable, and the management is capable of performing their duties after the valuation benchmark date;

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APPENDIX I

1. It is assumed that the appraised entity has fully complied with all relevant laws and regulations.

(III) Specific Assumptions

1. It is assumed that the accounting policies to be adopted by the appraised entity after the valuation benchmark date are basically consistent with the accounting policies adopted when the report is prepared in respect of key aspects;

2. It is assumed that the business scope and practice of the appraised entity will remain consistent with the current directions after the valuation benchmark date based on the existing management practice and management level of the company;

3. The type of the value is the market value, regardless of the impact of the economic behavior involved in the valuation purpose on the business operation of the enterprise;

4. It is assumed that the appraised entity will have even cash inflow and cash outflow after the valuation benchmark date;

5. This assessment assumes that the basic information and financial information provided by the client and appraised enterprise are true, accurate, and complete;

6. It is assumed that the 600T/D kiln currently in production by the appraised enterprise can continue to be used for production after the cold repair is completed and maintained through the kiln after strict maintenance.

II. THE IMPACT OF THE ASSUMPTIONS OF THE VALUATION ON THE CONCLUSION OF THE VALUATION

The valuation conclusion of this Assets Valuation Report is established at the valuation benchmark date under the above assumptions, and in the event of a significant change in the above assumptions, the undersigning Asset Valuer and this valuation agency shall not be liable for deriving a different valuation conclusion as a result of the change in the assumptions.

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ASSET VALUATION REPORT

APPENDIX I

Chapter VI Conclusion of the Valuation

I. VALUATION RESULTS OF TWO APPROACHES

(I) Cost Approach (Asset-Based Approach) Valuation Results

The book value of total assets of Qinghuangdao North Glass Co., Ltd. was RMB1,003,865,800, the appraised value was RMB1,011,598,600, the incremental value was RMB7,732,800, and the increase ratio was 0.77%; the book value of total liabilities was RMB818,592,400, the appraised value was RMB707,805,400, the appraised impairment was RMB110,787,000, and the impairment rate was 13.53%; the book value of net assets was RMB185,273,400, the appraised value was RMB303,793,200, the incremental value was RMB118,519,800, and the increase ratio was 63.97%.

Table of Summary of Valuation Result

Unit: RMB0’000

	Book	Appraised	Appreciation/	Appreciation
Item	Value	Value	Depreciation	Rate％
	A	B	C=B-A	D=C/A×100%
Current assets	67,933.18	69,270.75	1,337.57	1.97
Non-current assets	32,453.40	31,889.11	-564.29	-1.74
Long-term equity investment	11,401.64	1,314.44	-10,087.19	-88.47
Fixed assets	15,699.83	20,977.45	5,277.61	33.62
Construction in progress	2,918.39	2,918.39
Intangible assets	2,043.54	6,288.83	4,245.29	207.74
Long-term deferred expenses	390.00	390.00
Total assets	100,386.58	101,159.86	773.28	0.77
Current liabilities	56,602.96	45,524.26	-11,078.70	-19.57
Non-current liabilities	25,256.28	25,256.28
Total liabilities	81,859.24	70,780.54	-11,078.70	-13.53
Net assets (Owner’s equity)	18,527.34	30,379.32	11,851.98	63.97

(II) Valuation result using the income approach

The book value of total assets, total liabilities and net assets of Qinhuangdao North Glass Co., Ltd. as of the valuation benchmark date were RMB1,003,865,800, RMB818,592,400, and RMB185,273,400.

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APPENDIX I

The total equity value of the shareholders as assessed by the income approach was RMB298,944,800, representing an appreciation rate of 61.35% as compared to the net appreciation of the book value of net assets of RMB113,671,400.

The details of the valuation results of the cost approach (asset-based approach) and the detailed process of the income approach valuation are set out in the detailed statement of assets and liabilities assessment and the calculation table of the income approach, respectively.

II. ANALYSIS AND SELECTION OF ASSESSMENT RESULTS

The difference of valuation results between the income approach and the cost approach is RMB4.8484 million, with a difference of -1.60%. In the estimation of future revenue indicators in the assessment of the income approach, we take into account various factors such as domestic and overseas macroeconomic conditions, industry conditions, management’s strategic adjustment measures, development plans and operational capabilities. The assessment of cost approach is based on the cost of assets according to the market values instead of historical costs of all asset and liability items within the scope of assessment, and through the addition of all identifiable assets estimated separately.

Due to the losses experienced by the appraised enterprises in recent years, with the recovery of the market situation in 2020, the operating scale and net income of the appraised enterprises will steadily rise to reach or close to the historical best level. However, due to the duration and the speed of the rebound and the sustainability of the subsequent profitability of the enterprise, it is not yet possible to make a clear judgment at the same time. Based on the above analysis, we consider that the data quality of the cost approach is better than the income approach.

The valuers combine the valuation target, the purpose of the appraisal, and the applicable types of values, through the investigation of the financial situation of the appraised enterprise, the analysis of historical business performance and future planning. After the comparative analysis, it is considered that the valuation result of the cost approach can more comprehensively and reasonably reflect the value of the whole equity of the shareholders of the appraised entity, so the valuation results of the cost approach are selected as the final conclusion of this evaluation.

III. CONCLUSION OF THE VALUATION

After implementing the above valuation procedures and methods, our conclusions are set out as follows: In the aforementioned valuation purpose, the market value of all shareholders’ rights and interests of Qinhuangdao North Glass Co., Ltd. on valuation benchmark date 30 November 2020 was RMB303.7932 million and the appreciation amount was RMB118.5198 million with appreciation rate of 63.97%.

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ASSET VALUATION REPORT

APPENDIX I

Chapter VII Notes on Special Matters

• I. In appraising the assets within the valuation scope, we have not considered the possible expenses and taxes to be assumed for the use of such assets, nor appreciation or depreciation of certain assets for tax purposes; Without the consideration of such matters as mortgage, guaranty that may be assumed, litigation compensation, etc. likely to be borne in the future and of the effect of additional payment by special transaction party.

II. HOUSING AND BUILDINGS

As of the valuation benchmark date, certain housing and buildings of Qinghuangdao North Glass Co., Ltd. have yet to be issued with title certificates. The valuation was conducted on the assumption that the title of the building belongs to the appraised entity. The appraised value has not taken into account the costs to be incurred in future certification. The evaluation of the structure of the housing and building shall be subject to field investigation, and the building area shall be subject to the area verified or declared by the property title certificate provided by the enterprise. The valuer has verified that as the work amount of certain underground construction cannot be verified, the evaluation was based on the area declared by the enterprise. The appraised value shall be adjusted correspondingly in accordance with the building area verified by the property title certificate after the property title certificate has been obtained within the validity period of the report.

III. LAND USE RIGHTS

• (I) According to the Certificate for the Use of State-owned Land (《國有土地使用證》) of the valuation target, the person owning land-use right of the valuation target Dong Fang Guo Yong (Basuo) Zi No. 430 is Qinhuangdao North Glass Group Co., Ltd.. As of the valuation benchmark date, the land use certificate has not been registered.

• (II) As of the valuation benchmark date, the valuation target has a mortgage. Specifically, Qinhuangdao North Glass Co., Ltd. entered into a mortgage contract with Shijiazhuang branch of Huaxia Bank Co., Ltd.* for the maximum amount of creditor’s rights. The mortgaged property is a piece of land with title certificate number Ji 2017 Qinhai Real Property Rights No. 0032391, and the period for determination of the creditor’s rights was till 22 July 2022.

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APPENDIX I

• (III) According to the Statement of the North Company and the Great Wall Company on a Land History Issue (《北方公司與長城公司關於一宗土地歷史遺留問題的情況說明》) provided by the appraised entity, as the land at the original business address of the two companies was purchased and stored by the Municipal Land Storage and Exchange Center, the two parties agreed to consolidate land acquisition in the Northern Industrial Zone (current address is No. 61 Xigang North Road). Both parties agreed to proceed with the land separation procedures after the overall land certificate is issued. Since then, the owner of the title certificate (Ji 2017 Qinhai Real Property Rights No. 0032391) has been recorded as Qinhuangdao North Glass Co., Ltd., with a certificate area of 133,441.51m[2] . The land is adjacent to the North Company, and the Great Wall Company has been using and building factories and other buildings, but so far no land separation procedures (the financial assets of North Company do not include the land, while the real estate certificate contains the land).

On 8 January 2020, the Qinhuangdao Municipal surveying and mapping brigade conducted surveying and mapping of the land owned by the Great Wall Company. The map issued by the survey showed that its area was 10,409.11m[2] . In April 2020, the State-owned Assets Supervision and Administration Commission of Qinhuangdao Municipal issued the Approval on Handling the Land Transfer Procedures of Great Wall Company (Qin Guo Zi Fa [2020] No. 40): “Agreed the North Company shall handle the land transfer procedures in accordance with relevant regulations on state-owned land transfer.” Therefore, the actual land area owned by the North Company is 123,032.40 m[2] . In this valuation, the Ji 2017 Qinhai Real Property Rights No. 0032391 land is subject to the remaining area of 123,032.40m[2] .

IV. INVENTORY

In May 2012, the appraised entity and Beijing Shenglong Trading Co., Ltd. (北京晟隆商貿有限責 任公司) (the “Beijing Shenglong Company”) signed the Storage Agreement of Qinhuangdao North Company Outsourcing Warehouse (《秦皇島北方公司外協倉儲庫房儲貨協議》), stipulating that the Company shall deliver its produced glass to the warehouse of Beijing Shenglong Company, and Beijing Shenglong Company has the right to sell the glass in stock. The contract terminated on 30 June 2013. If there is still glass from the North Company in the warehouse, Beijing Shenglong shall purchase it in full and settle the payment in a lump sum. However, Beijing Shenglong has not delivered the glass payment. After that, the appraised entity sued the other party, requesting the other party for a payment of RMB22,179,800 for the glass. The case has passed the final judgment of Hebei High Court ((2020) Ji Min Zhong No. 21) in August 2020. The results of judgment are as follows: 1. Beijing Shenglong Trading Co., Ltd. and its affiliated company Beijing Shengbao Longyuan Glass Co., Ltd. (北京晟寶隆源玻璃有限公司) paid the Company the glass payment of RMB15,673,546.23 and related interest; 2. Wei Ming (魏鳴), Jiang Fengshan (姜鳳山) and Zhang Chunmei (張春梅), shareholders of Beijing Shenglong Trading Co., Ltd., shall bear joint and several liabilities for the debts determined in the judgment. As the relevant funds are currently

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ASSET VALUATION REPORT

APPENDIX I

still implemented and there is uncertainty in the recovery of the funds, the relevant product income and the corresponding accounts receivable have not been recognized, and the appraised entity has fully accrued an impairment provision of RMB22,179,800 for the inventory. In the valuation, as the finished products have no physical objects, the inventory involved in the litigation is evaluated as zero value, which does not include the contingent claim of the appraised entity to the party jointly and severally liable for the discharge of the obligation.

V. PROJECTS UNDER CONSTRUCTION

As of the valuation benchmark date, the project under construction of Qinhuangdao North Glass Co., Ltd. — the equipment installation project is mainly for the enterprise’s 500t/d production line to be converted to the project under construction due to the suspension of cold repair. Subsequently, it was decided to suspend the cold repair due to the strategic adjustment of the enterprise group. Since the resumption time of the production line in the later period has not been clarified, the valuation method is based on the assumption that the normal production line continues to use, and considers certain economic depreciation factors of the production line for valuation.

VI. LONG-TERM EQUITY INVESTMENT

• (I) As of the valuation benchmark date, according to the minutes of the 17th general manager office meeting of China Yaohua Group Co., Ltd. (中國耀華集團有限公司) (Yao Ji Ji Zi (2020) No. 17), Qinhuangdao Huazhou Glass Co., Ltd. (秦皇島華洲玻璃有限公司), a long-term equity investment unit with controlling rights of Qinhuangdao North Glass Co., Ltd., went through the cancellation procedure. As of the valuation benchmark date, the net book value of Qinhuangdao Huazhou Glass Co., Ltd. was RMB146,578,324.31, mainly the creditor’s rights to shareholders. For the long-term equity investment and related creditor’s rights debt of the investment unit, according to the Resolution of the Board of Directors of China Yaohua Glass Group Co., Ltd. and Agreement on Assignment of Creditor’s Rights and Offsetting of Debt signed among the shareholders China Yaohua Glass Group Co., Ltd., Qinhuangdao North Glass Co., Ltd. and the invested unit Qinhuangdao Huazhou Glass Co., Ltd., after the three parties have offset their creditor’s rights debt, Qinhuangdao Huazhou Glass Co., Ltd. has submitted a simplified cancellation procedure to the Qinhuangdao Haigang District Market Supervision and Administration Bureau (秦皇島市海港區市場 監督管理局). Since Huazhou Company is in the process of cancellation procedures, the investment cannot be recovered in the future, so the long-term equity investment valuation of Huazhou Company involved in the valuation date is zero.

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ASSET VALUATION REPORT

APPENDIX I

• (II) As of the valuation benchmark date, Qinhuangdao North Glass Co., Ltd. has hired Qinhuangdao Zhicheng Assets Appraisal Co., Ltd. (秦皇島至誠資產評估有限公司) to evaluate the value of all equity interests of Qinhuangdao Great Wall Glass Industry Co., Ltd. (秦皇島長城玻璃工業有限公司), a long-term equity investment unit without controlling rights of Qinhuangdao Great Wall Glass Industry Co., Ltd., Qinhuangdao Zhicheng Assets Appraisal Co., Ltd. has issued the Asset Valuation Report on the Value of all Equity Interests of Qinhuangdao Great Wall Glass Industry Co., Ltd. Verified by the Transfer of Equity of Qinhuangdao North Glass Co., Ltd. (Qin Cheng Ping Zi [2020] No. 11026) (《關於秦皇島 北方玻璃有限公司因股權轉讓核實秦皇島長城玻璃工業有限公司股東全部權益價值評估 項目的資產評估報告》(秦誠評字2020第11026號)). The valuation report has been filed by the State-owned Assets Supervision and Administration Commission of Qinhuangdao (秦 皇島國資委), and the transfer of the equity has been completed on 25 December 2021, and the agreed transfer price determined according to the valuation results and the shareholding ratio is RMB13.1444 million. Therefore, the long-term equity investment was assessed at the agreed transfer price of RMB13.1444 million. On 7 January 2021, Qinhuangdao Great Wall Glass Industry Co., Ltd., a long-term equity holding company of Qinhuangdao North Glass Co., Ltd., changed its equity. Qinhuangdao North Glass Co., Ltd. transferred its 32.61% equity of Qinhuangdao Great Wall Glass Industry Co., Ltd. to individual Duan Zhenjiang (段振江). Qinhuangdao North Glass Co., Ltd. received the equity transfer price. So far, Qinhuangdao North Glass Co., Ltd. has withdrawn its long-term equity investment in Qinhuangdao Great Wall Glass Industry Co., Ltd.

The client and the users of the report are reminded to be aware of the abovementioned matters.

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APPENDIX I

Chapter VIII Statement of Limitation on the Use of the Asset Valuation Report

• I. This Asset Valuation Report shall only be used for the purposes of valuation as stated herein, and shall be used by the client and the users of the Asset Valuation Report as required by laws and administrative regulations.

• II. This asset valuation conclusion is valid for one year from 30 November 2020 to 29 November 2021. However, if there is material change in the conditions of the valuation target or there is material movement in the market during this period, the conclusion of this valuation will be invalid. We take no responsibility towards the client and the users of the Asset Valuation Report required by laws and administrative regulations who use the report after its valid period. We also take no responsibility for any usage of the report when the valuation target experiences material changes or the market experiences material movements.

• III. If the client or other users of Asset Valuation Report fails to use the Asset Valuation Report in accordance with the scope of use specified in the laws, administrative regulations and the Asset Valuation Report, the asset valuation institution and its valuers shall not be held liable.

• IV. With the exception of the client, the users of other Asset Valuation Report as stipulated in the asset valuation entrustment contract and the users of the Asset Valuation Report required by laws and administrative regulations, no other institution or individual shall become the user of the Asset Valuation Report.

• V. User of the Asset Valuation Report shall correctly interpret and use the valuation conclusion, which is not equivalent to the realizable value of the valuation target and should not be considered as a guarantee for the realizable value of the valuation target.

• VI. Without the consent of the Company, content of the assets valuation report must not be extracted, quoted or disclosed on public media, unless otherwise permitted by laws, administrative regulations or agreed among relevant parties.

• VII. The valuation conclusion shall not be used unless the Asset Valuation Report has been approved by SASAC (including the companies contributing funds).

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ASSET VALUATION REPORT

APPENDIX I

Chapter IX Date of Valuation Report and Others

• I. The date of this Asset Valuation Report is 20 January 2021. The date of Asset Valuation Report refers to the date on which the valuation conclusion is drawn.

• II. The Asset Valuation Report contains a number of appendices (see list of appendices), which are an important part of the Asset Valuation Report.

Zhongjing Minxin (Beijing) Assets Appraisal Co., Ltd. *

20 January 2021

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ASSET VALUATION REPORT

APPENDIX I

APPENDICES TO THE ASSET VALUATION REPORT:

• I. The Corresponding Economic Activity Document on the Valuation Purpose;

• II. The Special Audit Report of the Appraised Entity;

• III. Corporate Business Licenses of the Client and the Appraised Entity;

• IV. Major Ownership Proof Materials of the Valuation Target Involved;

• V. Explanation of the significant difference between the book value of assets and the appraisal conclusion;

• VI. Letters of Undertaking of the Client and the Appraised Entity;

• VII. Letters of Undertaking of the appraisal institution and the Signatory Asset Valuer;

• VIII. The legal person business license of the asset appraisal institution;

• IX. Announcement for the record of asset appraisal institutions;

• X. Qualification Certificate of the Signatory Asset Valuer;

• XI. The Asset Valuation Engagement Contract.

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APPENDIX II REPORT FROM THE REPORTING ACCOUNTANT OF THE COMPANY ON THE CALCULATIONS OF DISCOUNTED FUTURE ESTIMATED CASH FLOWS IN CONNECTION WITH THE ASSET VALUATION OF NORTH GLASS

The following is the text of a report received from WUYIGE Certified Accountants LLP for the purpose of incorporation in this circular.

ASSURANCE REPORT ON THE CALCULATIONS OF DISCOUNTED FUTURE ESTIMATED CASH FLOWS IN CONNECTION WITH THE ASSET VALUATION OF NORTH GLASS FROM THE REPORTING ACCOUNTANT OF THE COMPANY

To the Board of Directors of Luoyang Glass Company Limited:

We have been engaged to report on the arithmetical calculations of the discounted future cash flows used in the valuation report of the net asset value of Qinhuangdao North Glass Co., Ltd. (“ North Glass ”) as at 30 November 2020 (the “ Valuation ”), dated 20 January 2021, prepared by Zhongjing Min Xin (Beijing) Asset Appraisal Co., Ltd.

The Valuation based on the discounted future cash flows is regarded as a profit forecast under Rule 14.61 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”).

Directors’ Responsibility for the Discounted Future Cash Flows

The directors of the Company are responsible for the preparation of the discounted future cash flows in accordance with the bases and assumptions determined by the directors and as set out in the Valuation. This responsibility includes the design, implementation and maintenance of the internal controls related to the discounted future cash flows prepared for the Valuation and applying an appropriate basis of preparation and making estimates that are reasonable in the circumstances.

Our Responsibility

It is our responsibility to report, as required by Rule 14.62(2) of the Listing Rules, on the arithmetical calculations of the discounted future cash flows used in the Valuation.

We conducted our work with reference to Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information”. This standard requires that we comply with ethical requirements and plan and perform the assurance engagement to obtain reasonable assurance on whether the discounted future cash flows, so far as the arithmetical calculations are concerned, have been properly compiled in accordance with the bases and assumptions as set out in the Valuation. We have re-performed the arithmetical calculations and compared the compilation of the discounted future cash flows with the bases and assumptions.

– II-1 –

APPENDIX II REPORT FROM THE REPORTING ACCOUNTANT OF THE COMPANY ON THE CALCULATIONS OF DISCOUNTED FUTURE ESTIMATED CASH FLOWS IN CONNECTION WITH THE ASSET VALUATION OF NORTH GLASS

We are not reporting on the appropriateness and validity of the bases and assumptions on which the discounted future cash flows are based and our work does not constitute any valuation of North Glass or an expression of an audit or review opinion on the Valuation.

The discounted future cash flows do not involve the adoption of accounting policies. The discounted future cash flows depend on future events and on a number of assumptions which cannot be confirmed and verified in the same way as past results and not all of which may remain valid throughout the period. Our work has been undertaken for the purpose of reporting solely to you under Rule 14.62(2) of the Listing Rules and for no other purpose. We accept no responsibility to any other person in respect of, arising out of or in connection with our work.

Opinion

Based on the foregoing, in our opinion, the discounted future cash flows, so far as the arithmetical calculations are concerned, have been properly compiled in all material respects in accordance with the bases and assumptions made by the directors of the Company as set out in the Valuation.

WUYIGE Certified Public Accountants LLP.

Certified Public Accountants

7 June 2021

– II-2 –

LETTER FROM THE BOARD IN RELATION TO THE ASSET VALUATION REPORT

APPENDIX III

＊

The Stock Exchange of Hong Kong Limited 12/F, Two Exchange Square 8 Connaught Place Central Hong Kong

7 June 2021

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTION – ACQUISITION OF 60% EQUITY INTEREST IN QINHUANGDAO NORTH GLASS CO., LTD

We refer to the asset valuation report (“ Asset Valuation Report ”) dated 20 January 2021 prepared by Zhongjing Minxin (Beijing) Assets Appraisal Co., Ltd.,(中京民信（北京）資產評估有限公司) (the “ Asset Valuer ”) in relation to the valuation (the “ Valuation ”) of the entire equity interest attributable to Qinhuangdao North Glass Co., Ltd (秦皇島北方玻璃有限公司) (“ North Glass ”) with the valuation benchmark date of 30 November 2020. We have reviewed the Asset Valuation Report, one of the valuation methods adopted in the Valuation was the income method, which included the discounted future cash flows of North Glass, thus regarded as a profit forecast under Rule 14.61 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

We have discussed with the Asset Valuer about different aspects including the bases and assumptions based upon which the Valuation has been prepared and have reviewed the Valuation prepared by the Asset Valuer. We have also considered the report from WUYIGE Certified Public Accountants LLP regarding whether the profit forecasts, so far as the calculations are concerned, have been properly complied with the bases and assumptions set out in the Asset Valuation Report. We have noted that the calculations of the profit forecasts in the Valuation are mathematically accurate, and fulfilled the bases and assumptions set out in the Asset Valuation Report.

– III-1 –

LETTER FROM THE BOARD IN RELATION TO THE ASSET VALUATION REPORT

APPENDIX III

Pursuant to the requirements of Rule 14.62(3) of the Listing Rules, the Board of the Company confirmed that the Valuation prepared by the Asset Valuer has been made after due and careful enquiry.

Yours faithfully,

For and on behalf of the Board

Luoyang Glass Company Limited*

Zhang Chong

Chairman

• For identification purpose only

– III-2 –

GENERAL INFORMATION

APPENDIX IV

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 of the Directors, supervisors and chief executive of the Company

As at the Latest Practicable Date, none of the Directors, supervisors or chief executives of the Company had an interest or short position in any Shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which was required to be (i) 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 the Directors, supervisors or chief executives of the Company was taken or deemed to have under such provisions of the SFO); or (ii) pursuant to section 352 of the SFO, entered in the register kept by the Company; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.

As at the Latest Practicable Date, so far as the Directors were aware, none of the Directors or their respective close associates were considered to have interest in any business which competes or may compete with the business of the Group which would be required to be disclosed under Rule 8.10 of the Listing Rules as if each of them was a controlling Shareholder.

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any assets which had been acquired or disposed of by, or leased to any member of the Group, or were proposed to be acquired or disposed of by, or leased to any member of the Group since 31 December 2020, being the date to which the latest published audited consolidated financial statements of the Group were made up.

– IV-1 –

GENERAL INFORMATION

APPENDIX IV

None of the Directors is materially interested in any contract or arrangement subsisting at the Latest Practicable Date and which was significant in relation to the business of the Group taken as a whole.

(b) Substantial Shareholders’ and other Shareholders’ interests

As at the Latest Practicable Date, save as disclosed below, so far as is known to the Directors or chief executives of the Company, no other person had an interest or short position in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or were required to be notified to the Company and the Stock Exchange pursuant to section 324 of the SFO, or, who is, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

						Number of	Number of			Percentage
						underlying		Total	Percentage	of the total
						shares held		number	of the relevant	issued
				Number of		under equity		of Shares	issued class of	share capital of	Type of
Name			Capacity	Shares held	1	derivatives	1	interested 1	share capital	the Company	Share
									(%)	(%)
CNBMG	2		Interest in controlled	191,520,357 (L)			/	191,520,357 (L)	64.15	34.91	A Share
			corporation
Triumph	Group	2	Beneficial owner/	191,133,987 (L)			/	191,133,987 (L)	64.02	34.84	A Share
			interest in controlled
			corporation
Bengbu Institute			Beneficial owner	70,290,049 (L)			/	70,290,049 (L)	23.54	12.81	A Share
CLFG			Beneficial owner	111,195,912 (L)			/	111,195,912(L)	37.25	20.27	A Share
Note 1:			(L) – Long position

Note 2: CNBMG is the controlling shareholder of China National Building Company Limited* （中國 建材股份有限公司）, which is also the controlling shareholder of International Engineering. Triumph Group, a wholly-owned subsidiary of CNBMG, is the controlling shareholder of Bengbu Institute, CLFG and Huaguang Group.

Therefore, CNBMG is deemed to have the same interests in the Company as those owned by International Engineering, Bengbu Institute, CLFG, Triumph Group and Huaguang Group by virtue of the SFO; and Triumph Group is deemed to have the same interest in the Company as those owned by Bengbu Institute, CLFG and Huaguang Group by virtue of the SFO.

– IV-2 –

GENERAL INFORMATION

APPENDIX IV

As at the Latest Practicable Date, so far as is known to the Directors, supervisors and chief executives of the Company, the following Directors are directors or employees of the substantial shareholders set out above:

	Name of substantial
Name of Director	shareholder entity	Position held
Zhang Chong (executive	Bengbu Institute	Vice dean, General engineer
Director of the Company)
Xie Jun (executive Director of	CLFG	Le gal representative,
the Company)		Vice Chairman, Deputy
		secretary to the Party
		committee, General
		Manager, General engineer
Chen Yong (non-executive	Bengbu Institute	Vice dean, Chief accountant
Director of the Company)
Ren Hongcan (non-executive	Bengbu Institute	Deputy general engineer
Director of the Company)

Save as disclosed above, as at the Latest Practicable Date, so far as is known to the Directors, supervisors or chief executives of the Company, no other Director was a director or employee of a company which had an interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors or supervisors had any existing or proposed service contracts with any member of the Group (excluding contracts expiring or determinable by the Group within one year without payment of compensation, other than statutory compensation).

– IV-3 –

GENERAL INFORMATION

APPENDIX IV

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, to the best of the Directors’ knowledge, there has been no material adverse change in the financial or trading position of the Group since 31 December 2020, being the date to which the latest published audited consolidated financial statements of the Group were made up.

5. QUALIFICATION OF EXPERT

The following are the qualifications of the experts who have given opinion and advice, which are contained in this circular:

Name Qualification

Gram Capital Limited a licensed corporation to carry out type 6 (advising on corporate finance) regulated activity under the SFO

Zhongjing Minxin (Beijing) an independent professional valuer in the PRC Assets Appraisal Co., Ltd.,* (中京民信（北京）資產評估有 限公司)

WUYIGE Certified Public Certified Public Accountants Accountants LLP

6. CONSENT OF EXPERT

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or opinion (as the case may be) and reference to its letter and name in the form and context in which they appear.

– IV-4 –

GENERAL INFORMATION

APPENDIX IV

7. INTERESTS OF EXPERT

As at the Latest Practicable Date, each of the above experts had no shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group and had no direct or indirect interest in any assets which had been acquired or disposed of by, or leased to any member of the Group, or were proposed to be acquired or disposed of by, or leased to any member of the Group since 31 December 2020, being the date to which the latest published audited consolidated financial statements of the Group were made up.

8. MISCELLANEOUS

• (a) Mr. Ip Pui Sum is the company secretary of the Company. Mr. Ip is a certified public accountant in Hong Kong, a fellow member of the Association of Chartered Certified Accountants, and a member of the Hong Kong Institute of Certified Public Accountants, Chartered Institute of Management Accountants, Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Chartered Secretaries.

• (b) The address of the registered office and principal place of business of the Company is located at No. 9 Tang Gong Zhong Lu, Xigong District, Luoyang Municipal, Henan Province, the PRC.

• (c) The address of the Hong Kong Branch Share Registrar of H Shares is located at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

– IV-5 –

GENERAL INFORMATION

APPENDIX IV

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available from the date of this circular to (and including) the date of the EGM during normal office hours at the office of Li & Partners at 22nd Floor, World-Wide House, 19 Des Voeux Road Central, Hong Kong:

• (a) Share Transfer Agreement;

• (b) the letter from the Board, the full text of which is set out in the section headed “Letter from the Board” of this circular;

• (c) the letter from the Independent Board Committee to the Independent Shareholders, the full text of which is set out in the section headed “Letter from the Independent Board Committee” of this circular;

• (d) the letter from Gram Capital to the Independent Board Committee and the Independent Shareholders, the full text of which is set out in the section headed “Letter from Gram Capital” of this circular;

• (e) the written consents referred to in the paragraph headed “Consent of Expert” in this Appendix;

• (f) the Asset Valuation Report, the full text of which is set out in Appendix I of this circular; and

• (g) this circular.

– IV-6 –

NOTICE OF EGM

＊

NOTICE OF THE THIRD EXTRAORDINARY GENERAL MEETING 2021

NOTICE IS HEREBY given that the Third Extraordinary General Meeting 2021 (the “ EGM ”) of Luoyang Glass Company Limited (the “ Company ”) will be held at the conference room of the Company on 3rd Floor, No. 9 Tang Gong Zhong Lu, Xigong District, Luoyang Municipal, Henan Province, the People’s Republic of China (the “ PRC* ”) at 9:00 a.m. on 21 July 2021 (Wednesday) for the purpose of considering and, if thought fit, passing the following resolutions:

Ordinary Resolutions

1. To consider and approve the resolution in relation to the acquisition of 60% equity interest in Qinhuangdao North Glass Co., Ltd.* (秦皇島北方玻璃有限公司) by the Company and the transaction contemplated thereunder

2. To consider and approve the resolution in relation to the grant of authorisation to the Board of the Company to handle the relevant matters in relation to the acquisition of 60% equity interest in Qinhuangdao North Glass Co., Ltd.* (秦皇島北方玻璃有限公司) and the transaction contemplated thereunder

– EGM-1 –

NOTICE OF EGM

(For details of the above resolutions, please refer to the announcement of the Company dated 29 April 2021 in relation to the discloseable and connected transaction and the circular dated 30 June 2021 (the “ Circular ”). Unless otherwise specified, capitalized terms used in this notice shall have the same meanings as those defined in the Circular.)

By order of the Board

Luoyang Glass Company Limited* Zhang Chong Chairman

Luoyang, the PRC 30 June 2021

As at the date of this notice, the Board of the Company comprises five executive Directors: Mr. Zhang Chong, Mr. Xie Jun, Mr. Ma Yan, Mr. Wang Guoqiang and Mr. Zhang Rong; two non-executive Directors: Mr. Ren Hongcan and Mr. Chen Yong; and four independent non-executive Directors: Mr. Jin Zhanping, Mr. Ye Shuhua, Mr. He Baofeng and Ms. Zhang Yajuan.

• For identification purposes only

– EGM-2 –

NOTICE OF EGM

Notes:

1. Holders of the Company’s H Shares, whose names appear on the register of members maintained by Hong Kong Registrars Limited at the close of trading at 4:30 p.m. on 15 July 2021, are entitled to attend and vote at the EGM. The register of members of the Company’s H Shares will be closed from 16 July 2021 to 21 July 2021 (both days inclusive), during which period no transfer of H Shares will be effected in order to determine the list of holders of H Shares eligible to attend the EGM. Holders of H Shares of the Company who wish to attend the EGM must lodge all share transfer forms accompanied by the relevant H share certificates with the registrar of the Company’s H Shares, namely Hong Kong Registrars Limited at Shops 1712–1716, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong by 4:30 p.m. on 15 July 2021.

2. Any Shareholder entitled to attend and vote at the EGM may appoint a proxy or proxies (who need not be a Shareholder of the Company) to attend and vote at the EGM on his/her behalf. A proxy of a Shareholder who has appointed more than one proxy may only vote on a poll.

3. The principal Shareholder may appoint a proxy in written form (i.e. through the enclosed proxy form). The proxy form shall be signed by the principal or his attorney as authorised. In case that the proxy form is signed by the attorney of the principal, the power of attorney or other authorisation documents must be notarised by the notary public. The proxy form together with such power of attorney or other authorisation documents as notarised by the notary public must be lodged at the Company’s H share registrar in Hong Kong, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong or to the Company at No. 9 Tang Gong Zhong Lu, Xigong District, Luoyang Municipal, Henan Province, the PRC not less than 24 hours before the time appointed for the holding of the EGM or any adjournment thereof.

4. Shareholders or their proxies shall produce their proofs of identity when attending the EGM. A proxy of Shareholder who is appointed to attend the EGM shall produce the proxy form at the same time.

5. The EGM is expected to last for no more than one day. Shareholders and their proxies attending the EGM should be responsible for their own traveling and accommodation expenses.

6. The Company’s registered address is as follows:

No. 9 Tang Gong Zhong Lu, Xigong District Luoyang Municipal, Henan Province the People’s Republic of China Postal Code: 471009 Tel: 86–379–6390 8588 Fax: 86–379–6325 1984

1. Completion and return of the proxy form will not preclude Shareholders of the Company from subsequently attending and voting in person at the EGM or any adjourned meetings should you so wish.

– EGM-3 –