Shenguan Holdings (Group) Limited - Proxy Solicitation & Information Statement 2017

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

If you have sold or transferred all your shares in Shenguan Holdings (Group) Limited , you should at once hand this circular and the accompanying proxy form to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

==> picture [100 x 46] intentionally omitted <==

SHENGUAN HOLDINGS (GROUP) LIMITED 神冠控股（集團）有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 00829)

CONTINUING CONNECTED TRANSACTION RENEWAL OF FRAMEWORK AGREEMENT FOR THE PURCHASE OF CATTLE INNER SKIN AND NOTICE OF EXTRAORDINARY GENERAL MEETING

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

==> picture [155 x 32] intentionally omitted <==

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

A letter from the Board is set out on pages 5 to 14 of this circular. A letter from the Independent Board Committee is set out on pages 15 and 16 of this circular. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 17 to 30 of this circular.

A notice convening the EGM to be held at Regus Conference Centre, 35th Floor, Central Plaza, 18 Harbour Road, Wan Chai, Hong Kong on Friday, 29 December 2017 at 11:00 a.m. is set out on pages EGM-1 and EGM-2 of this circular. A proxy form is also enclosed. Whether or not you are able to attend the EGM or any adjourned meeting in person, you are requested to complete and return the accompanying proxy form in accordance with the instructions printed thereon and return the same to the Hong Kong branch share registrar and transfer office of the Company, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof (as the case may be). Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof if you so wish.

6 December 2017

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix — General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

DEFINITIONS

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

“Announcement”

the announcement of the Company dated 9 November 2017

“associate(s)” has the meaning ascribed to it under the Listing Rules
“Board” the board of Directors
“business day(s)”

any day on which the Stock Exchange is open for the business of dealing in securities

“Class I Cattle Inner Skin”

the in-house standard which was established by the Group by modifying the industrial standard of the cattle skin industry used to examine the cattle outer skin and is applied to examine cattle inner skin products received by the Group

“Company”

Shenguan Holdings (Group) Limited (神冠控股(集團)有限公司), a company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 00829)

“connected person(s)”

has the meaning ascribed to it under the Listing Rules

“controlling shareholder(s)” has the meaning ascribed to it under the Listing Rules
“Director(s)” the director(s) of the Company

“EGM”

the extraordinary general meeting of the Company to be held at Regus Conference Centre, 35th Floor, Central Plaza, 18 Harbour Road, Wan Chai, Hong Kong on Friday, 29 December 2017 at 11:00 a.m. to consider and, if thought fit, approve, among others, the Zhiguan Framework Agreement, the Transactions and Proposed Annual Caps thereunder

“Equity Interest Holders”

Ms. Zhou, Rong Zhibiao (容志彪), Mr. Wen, Ms. Cai, Mr. Ru, Mr. Mo, Mr. Shi, Mr. Zhou, Ms. Zhou Yuchan, Luo Jiaming (羅嘉鳴), Quan Chuwa (全楚娃), Lu Xin (陸欣), Tan Qixia (譚綺霞) and Ms. Sha

– 1 –

DEFINITIONS

“Former Framework Agreement”
“Group”
“Guangxi Zhiguan”
“HK$”
“Hong Kong”
“Independent Board Committee”
“Independent Financial Adviser” or “Fortune Financial Capital Limited”
“Independent Shareholders”
“Independent Third Party(ies)”
“Latest Practicable Date”
“Listing Rules”
“Mr. Mo”
the framework agreement dated 30 October 2015 entered into between the Company and Guangxi Zhiguan for the purchase of cattle inner skin by the Group from Guangxi Zhiguan for a period commencing from 1 November 2015 to 31 December 2017

the Company and its subsidiaries

廣西志冠實業開發有限公司 (Guangxi Zhiguan Industrial Development Co., Limited*), a company established in the PRC with limited liability on 8 June 2012

Hong Kong dollars, the lawful currency of Hong Kong

the Hong Kong Special Administrative Region of the PRC
the committee established by the Board, comprising the three independent non-executive Directors
Fortune Financial Capital Limited, a corporation licensed to carry on type 6 (advising on corporate finance) regulated activity under the SFO
Shareholders (other than the Equity Interest Holders and any of their respective associates and, if any, any other Shareholders who have a material interest and are required to abstain from voting at the EGM pursuant to the Listing Rules) who do not have to abstain from voting in the EGM under the Listing Rules
an individual(s) or a company(ies) who or which is/are not connected with (within the meaning of the Listing Rules) any Director, chief executive or substantial shareholder (within the meaning of the Listing Rules) of the Company, its subsidiaries or any of their respective associates
1 December 2017, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

the Rules Governing the Listing of Securities on the Stock Exchange

Mr. Mo Yunxi (莫運喜先生), an executive Director

– 2 –

DEFINITIONS

Mr. Ru Xiquan (茹希全先生),茹希全先生),), an executive Director

“Mr. Ru” Mr. Ru Xiquan (茹希全先生),茹希全先生),), an executive Director “Mr. Sha” Mr. Sha Shuming (沙曙明先生), the spouse of Ms. Zhou

“Mr. Shi” Mr. Shi Guicheng (施貴成先生), an executive Director “Mr. Wen” Mr. Wen Jinpei (溫錦培先生), a senior management of the Group

“Mr. Zhou” Mr. Zhou Junli (周峻立先生), the nephew of Ms. Zhou

“Ms. Cai” Ms. Cai Yueqing (蔡月卿女士), a senior management of the Group

“Ms. Sha” Ms. Sha Lifei (沙麗飛女士), the sister of Mr. Sha

“Ms. Zhou”

Ms. Zhou Yaxian (周亞仙女士), the chairman of the Board, an executive Director and one of the controlling shareholders of the Company

“Ms. Zhou Yuchan” Ms. Zhou Yuchan (周玉嬋女士), the sister of Ms. Zhou

“percentage ratios” has the meaning ascribed to it under the Listing Rules

“PRC”

the People’s Republic of China, which for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and Taiwan

“Proposed Annual Caps” the proposed annual caps for the annual amounts payable by the Group in the relevant financial periods for the Transaction(s) under the Zhiguan Framework Agreement

“RMB”

Renminbi, the lawful currency of the PRC

“SFO”

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

“Share(s)”

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

“Shareholder(s)” the holder(s) of Shares

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

– 3 –

DEFINITIONS

“subsidiary(ies)”
has the meaning ascribed to it under the Listing Rules
“Transaction(s)”
the continuing connected transactions contemplated under the Zhiguan Framework Agreement
“Zhiguan Framework Agreement”
the conditional framework agreement dated 9 November 2017 entered into between the Company and Guangxi Zhiguan, in relation to the purchase of cattle inner skin by the Group from Guangxi Zhiguan for a period of three years commencing from 1 January 2018 to 31 December 2020
“80% Requirement”
for each type of cattle inner skin supplied by Guangxi Zhiguan, at least 80% of every quantity unit of each type of cattle inner skin supplied must be of Class I Cattle Inner Skin
“%” per cent
In this circular, English names of the PRC established entities, departments, facilities or titles are only translations of their official Chinese names and are included for identification purpose only. In case of inconsistency, the Chinese names prevail.

– 4 –

LETTER FROM THE BOARD

==> picture [100 x 45] intentionally omitted <==

SHENGUAN HOLDINGS (GROUP) LIMITED 神冠控股（集團）有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 00829)

Executive Directors: Ms. Zhou Yaxian Mr. Shi Guicheng Mr. Ru Xiquan Mr. Mo Yunxi

Non-executive Director:

Registered Office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Dato’ Sri Low Jee Keong

Independent non-executive Directors: Mr. Tsui Yung Kwok Mr. Meng Qinguo Mr. Yang Xiaohu

Principal Place of Business in Hong Kong: Room 2902, Sino Plaza 255–257 Gloucester Road Causeway Bay Hong Kong

6 December 2017

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTION RENEWAL OF FRAMEWORK AGREEMENT FOR THE PURCHASE OF CATTLE INNER SKIN AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement in relation to, among others, the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder.

The purposes of this circular are, among others, (i) to provide you with, among other things, details of the terms of the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder; (ii) to set out the letter of advice from the Independent

– 5 –

LETTER FROM THE BOARD

Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder; (iii) to set out the recommendation and advice of the Independent Board Committee after taking into consideration of the advice from the Independent Financial Adviser in relation to the terms of the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder; and (iv) to provide you with the notice of the EGM.

BACKGROUND

Reference is made to the announcement of the Company dated 30 October 2015 in relation to, among others, the continuing connected transactions under the Former Framework Agreement between the Company and Guangxi Zhiguan for the supply of cattle inner skin. The Former Framework Agreement will expire on 31 December 2017. As the Company and Guangxi Zhiguan intend to continue to carry out the relevant transaction, the Zhiguan Framework Agreement was entered into on 9 November 2017 to renew the above former agreement.

THE ZHIGUAN FRAMEWORK AGREEMENT

Date:

9 November 2017

Parties:

(1) The Company; and
(2) Guangxi Zhiguan

Summary of principal terms:

Condition precedent

The Zhiguan Framework Agreement is subject to and conditional upon the approval of the Zhiguan Framework Agreement, the Transactions contemplated thereunder and the corresponding Proposed Annual Caps by the Independent Shareholders at the EGM in accordance with the Listing Rules.

In case where the condition precedent cannot be fulfilled on or before 23 December 2017 (or a later date as agreed between the Company and Guangxi Zhiguan), the Zhiguan Framework Agreement shall be terminated, and, except in relation to any default occurred prior to such termination, none of the parties shall have any rights or remedies against the other thereunder.

– 6 –

LETTER FROM THE BOARD

Duration and other terms

Pursuant to the Zhiguan Framework Agreement, Guangxi Zhiguan agrees to supply cattle inner skin to the Group for a period of three years commencing from 1 January 2018 to 31 December 2020. Pursuant to the Zhiguan Framework Agreement, the Company has absolute discretion to nominate any one or more of its subsidiaries to conduct the Transactions under the Zhiguan Framework Agreement.

For each type of cattle inner skin supplied by Guangxi Zhiguan, at least 80% of every quantity unit of each type of cattle inner skin supplied must be of Class I Cattle Inner Skin. Class I Cattle Inner Skin is the Group’s in-house standard which applies to classify cattle inner skin with reference to their quality. Factors to be taken into account when determining whether the skin is Class I Cattle Inner Skin include the thickness, area, length and intactness of the skin.

For each Transaction with Guangxi Zhiguan, the purchase price will be settled by the Group before the 20th day of the subsequent month after the Group has received and examined to the Group’s satisfaction the cattle inner skin from Guangxi Zhiguan.

Pricing Principles

The purchase prices to be payable by the Group under the Zhiguan Framework Agreement are determined with reference to the market price of the cattle inner skin. In determining the market price, the parties will make reference to the prices for cattle inner skin offered by two to three independent suppliers, the difference in the location of cattle inner skin suppliers, transportation costs, quality of cattle inner skin of other independent suppliers and the capability of independent suppliers in satisfying the 80% Requirement. For the avoidance of doubt, the terms to be offered by Guangxi Zhiguan to the Group shall be no less favourable than those offered by independent suppliers.

Historical Transaction Amounts

The table below sets out the existing annual cap amounts for the purchase of cattle inner skin by the Group from Guangxi Zhiguan under the Former Framework Agreement for the period from 1 November 2015 to 31 December 2015, the year ended 31 December 2016 and the year ending 31 December 2017:

				For the
				period from
				1 November	For the	For the
				2015 to	year ended	year ending
				31 December	31 December	31 December
				2015	2016	2017
Existing	annual	cap	amounts	RMB30,000,000	RMB90,000,000	RMB100,000,000

– 7 –

LETTER FROM THE BOARD

The table below sets out the actual transaction amounts for the purchase of cattle inner skin by the Group from Guangxi Zhiguan under the Former Framework Agreement for the period from 1 November 2015 to 31 December 2015, the year ended 31 December 2016 and the nine months ended 30 September 2017:

			For the
			period from
			1 November	For the	For the nine
			2015 to	year ended	months ended
			31 December	31 December	30 September
			2015	2016	2017
Actual	transaction	amounts	RMB6,942,000	RMB47,855,000	RMB42,448,000

Proposed Annual Caps and Basis of Determination

The Directors expect that, pursuant to the Zhiguan Framework Agreement, for the three years ending 31 December 2018, 31 December 2019 and 31 December 2020, the aggregate amount of the purchase of cattle inner skin by the Group from Guangxi Zhiguan will not exceed the Proposed Annual Caps set out below:

For the	For the	For the
year ending	year ending	year ending
31 December	31 December	31 December
2018	2019	2020

Proposed Annual Caps RMB103,240,000 RMB137,970,000 RMB161,780,000

The above annual caps have been determined with reference to:

(i) the historical transaction amounts for the period from 1 November 2015 to 31 December 2015, the year ended 31 December 2016 and the nine months ended 30 September 2017;
(ii) the estimated demand by the Group for cattle inner skin taking into account the plans of the Group to increase the production quantity of collagen sausage casing products at a rate of approximately 10%, 6.07% and 8.57% respectively from 2018 to 2020 as compared to prior year after considering the increase in the sales volume of the Group’s edible collagen sausage casing products by 12.2% for the six months ended 30 June 2017 as compared to the six months ended 30 June 2016;
(iii) the proportion of the cattle inner skin to be supplied by Guangxi Zhiguan and by independent suppliers taking into account the increase in the proportion of cattle inner skin to be supplied by Guangxi Zhiguan out of the total cattle inner skin to be purchased by the Group from 60% in 2018 to 70% in 2020 after considering the

– 8 –

LETTER FROM THE BOARD

quality of cattle inner skin, cost and operation efficiency and proximity to the Group’s production base. As at 30 September 2017, Guangxi Zhiguan contributed 47% to the total supply of the Group’s cattle inner skin. The Directors expect that the total suppliers of cattle inner skin for the Group for the three years ending 31 December 2020 will be four; and

(iv) the estimated price of the cattle inner skin for the three years ending 31 December 2020 taking into account the historical average purchase and processing cost for cattle inner skin of the Group from 2015 to 2017 with a variation from decrease of approximately 15.98% to increase of 11.07% and included a potential buffer of approximately 8% to 10% in the average purchase and processing cost of the cattle inner skin for the three years ending 31 December 2020.

Reasons for and benefits of entering into the Zhiguan Framework Agreement

Guangxi Zhiguan is a well-managed enterprise with fully-established environmental protection facilities, advanced plant and equipment and strong supply capabilities. Its production base situated in Wuzhou is close to the production base of the Group and therefore could supply fresh cattle inner skin (mainly imported skin) within short time limit. This helps to improve the Group’s cattle inner skin operation management.

Notwithstanding the entering into of the Zhiguan Framework Agreement, the Directors consider that the Group is not dependent on Guangxi Zhiguan for the supply of cattle inner skin because (i) cattle inner skin is only a major but not the only raw material of the Group’s finished products; (ii) the cattle inner skin required by the Group for its production is not unique in nature and the supply of cattle inner skin in the market is abundant and readily available from other independent suppliers in the PRC; (iii) the 80% Requirement will reduce the overall costs associated with the processing of cattle inner skin while the quality of the Group’s finished products would not be adversely affected after considering the independent cattle inner skin supplier who cannot satisfy the 80% Requirement at a reasonable cost; (iv) the Group has established relationships with different suppliers who can easily substitute each other in terms of the supply of cattle inner skin; (v) the supply by Guangxi Zhiguan as contemplated under the Zhiguan Framework Agreement is not on an exclusive basis, which provides the Group with sufficient independence and flexibility; and (vi) the Zhiguan Framework Agreement did not impose any fixed procurement requirement or restrictive obligation against the Company on the procurement of cattle inner skin from other suppliers.

The Directors (including the independent non-executive Directors) consider that the entering into of the Zhiguan Framework Agreement will enable the Group to ensure the supply of high quality cattle inner skin, which is a major raw material for the production of collagen sausage casings, and that (i) the terms of the Zhiguan Framework Agreement and the Transactions contemplated thereunder are in the ordinary and usual course of business of the Group, on normal commercial terms and no less favourable to the Group than those of Independent Third Parties, and (ii) the terms of the Zhiguan Framework Agreement, the

– 9 –

LETTER FROM THE BOARD

Transactions contemplated thereunder and the corresponding Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Internal control measures

To ensure that the Transactions contemplated under the Zhiguan Framework Agreement will be conducted in accordance with the terms of the Zhiguan Framework Agreement, on normal commercial terms or better terms, and in accordance with the pricing policy of the Company, the Group has adopted the following internal control measures to monitor the Transactions contemplated under the Zhiguan Framework Agreement:

The purchase department of the Company will be responsible for identifying suitable suppliers of cattle inner skin. During the selection process, at least two quotations from two independent suppliers will be sought for comparison and only the quotation with the most favourable terms will be selected. The purchase department manager will be responsible for seeking quotation from at least two independent suppliers for the supply of cattle inner skin. In seeking and comparing such quotations, the purchase department manager will take into account the price, delivery time and transportation costs, quality of cattle inner skin, total cost for purchase and process of cattle inner skin and the historical capability in satisfying the 80% Requirement. The purchase department manager will submit all quotations obtained to the vice-president of the Group who oversees the purchase department for his approval in order to ensure only the quotation with the most favourable terms is selected. In addition, all individual contracts for the sale and purchase of cattle inner skin will be notified to the finance department of the Group, which keeps record of connected party transactions and oversees and controls such transactions. When the cattle inner skin is delivered to the Group’s factory, the quality assurance department of the Group will conduct sample checks on the cattle inner skin to ascertain as to whether the 80% Requirement is fulfilled. The management of the Company will ensure that the Transactions under the Zhiguan Framework Agreement will be conducted in accordance with the terms of the Zhiguan Framework Agreement, on normal commercial terms or better terms, and in accordance with the pricing policy of the Company. The independent non-executive Directors and the auditors of the Company will review and confirm the continuing connected transactions contemplated under the Zhiguan Framework Agreement in accordance with the Listing Rules on an annual basis.

INFORMATION ON THE PARTIES

The Group is principally engaged in the manufacture and sale of edible collagen sausage casing products, pharmaceutical products, food products, skin care and health care products and bioactive collagen products in the PRC.

– 10 –

LETTER FROM THE BOARD

Guangxi Zhiguan is principally engaged in the processing and sale of cattle skin as raw materials, sale and purchase of and import and export of cattle skin business. Set out below is a summary of the equity interest holding structure of Guangxi Zhiguan as at the Latest Practicable Date:

Name of the Equity Interest Holders Ms. Zhou Rong Zhibiao (容志彪) Mr. Wen Ms. Cai Mr. Ru Mr. Mo Mr. Shi Mr. Zhou Ms. Zhou Yuchan Luo Jiaming (羅嘉鳴) Quan Chuwa (全楚娃) Lu Xin (陸欣) Tan Qixia (譚綺霞) Ms. Sha Total:	Equity interest in Guangxi Zhiguan 51% 35% 1% 1% 1% 1% 1% 2% 2% 1% 1% 1% 1% 1%
	100%

To the best of the knowledge, belief and information of the Directors, and having made reasonable enquiries, each of Rong Zhibiao, Luo Jiaming, Quan Chuwa, Lu Xin and Tan Qixia is an Independent Third Party.

Pursuant to Article 50 of the Food Safety Law (食品安全法) of the PRC (effective since 1 October 2015), any manufacturer of food products has to check whether the supplier holds Food Production Licence (食品生產許可證) and Product Certification (產品合格證明) when making purchase of food ingredients, food additive and food related products. If such suppliers cannot provide the above conformity proof, the manufacturer of food products has to conduct food safety tests in accordance with food safety standards. Manufacturer of food products are not allowed to purchase or use food ingredients, food additives and food-related products that do not meet food safety standards. Therefore, pursuant to Article 50 of the Food Safety Law (食品安全法) of the PRC, the quality assurance department of the Group will conduct food safety tests in accordance with food safety standards on food ingredients supplied by those suppliers who cannot provide the conformity proof (Food Production Licence (食品生產許可證) and the Product Certification (產品合格證明)) before their usage. Therefore, purchasing such products from suppliers who hold the Food Production Licence (食品生產許可證) and the Product Certification (產品合格證明) can reduce the risks and costs of conducting food safety tests due to the supervision of relevant government agencies.

– 11 –

LETTER FROM THE BOARD

Guangxi Zhiguan applied for the Food Production Licence (食品生產許可證) under the Measures for the Administration for Food Production Licensing (食品生產許可管理辦法) and Food Safety Law (食品安全法) of the PRC on a voluntary basis and was granted with such licence, effective until November 2022, by the Wuzhou Bureau for Administrative Examination and Approval (梧州市行政審批局), the local issuing authority of the China Food and Drug Administration (國家食品藥品監督管理總局) where Guangxi Zhiguan is located. During the term of the aforesaid licence, Guangxi Zhiguan is required to maintain and follow the standards in relation to plants, equipment and operation policies on food safety under the Measures for the Administration for Food Production Licensing (食品生產許可管理辦法) (as amended from time to time) and is subject to regular inspections to be carried out by the relevant governmental authorities. To the best of the Directors’ knowledge after making reasonable enquires, Guangxi Zhiguan is the only supplier who has been granted the Food Production Licence (食品生產許可證) among all suppliers of cattle inner skin of the Group as at the Latest Practicable Date. In each Transaction, Guangxi Zhiguan will submit to the Group the Product Certification (產品合格證明) issued in accordance with the PRC governmental supervision requirements.

LISTING RULES IMPLICATIONS

As Ms. Zhou is holding more than 30% equity interest in Guangxi Zhiguan, Guangxi Zhiguan is a connected person of the Company under the Listing Rules. The Transactions contemplated under the Zhiguan Framework Agreement therefore constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As the applicable percentage ratios (other than the profits ratio) in respect of the corresponding Proposed Annual Caps for the Zhiguan Framework Agreement, on an annual basis, exceed 5%, the Transactions contemplated thereunder are subject to the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Other than Ms. Zhou, Mr. Ru, Mr. Mo and Mr. Shi who had abstained from voting, no Director had a material interest in the Zhiguan Framework Agreement which would require him to abstain from voting on the relevant Board resolutions.

All Equity Interest Holders and any of their respective associates will abstain from voting in relation to the proposed resolutions approving the Zhiguan Framework Agreement, the Transactions contemplated thereunder and the corresponding Proposed Annual Caps at the EGM. As at the Latest Practicable Date, the total number of Shares held by all the Equity Interest Holders and their respective associates is 2,256,582,100.

An Independent Board Committee has been established to advise the Independent Shareholders in relation to the terms of the Zhiguan Framework Agreement, the Transactions and the Proposed Annuals Caps thereunder. Fortune Financial Capital Limited has been appointed as the independent financial adviser to advise the Independent Board Committee and Independent Shareholders in this respect.

– 12 –

LETTER FROM THE BOARD

EGM

The EGM will be held at Regus Conference Centre, 35th Floor, Central Plaza, 18 Harbour Road, Wan Chai, Hong Kong on Friday, 29 December 2017 at 11:00 a.m. to consider and, if thought fit, approve, among others, the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder. A notice convening the EGM is set out on pages EGM-1 and EGM-2 of this circular. A proxy form for use at the EGM is enclosed with this circular. Whether or not you intend to attend the EGM or any adjournment thereof, you are requested to complete the enclosed proxy form in accordance with the instructions printed thereon and return the same to the Hong Kong branch share registrar and transfer office of the Company, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment if you so wish.

Any connected person of the Company with a material interest in the Transactions, and any Shareholder with a material interest in the Transactions and its associates, shall not vote upon the proposed resolutions in respect of the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder at the EGM. Accordingly, all Equity Interest Holders and any of their respective associates will abstain from voting in relation to the relevant proposed resolutions at the EGM.

In accordance with Rule 13.39(4) of the Listing Rules, the chairman of the EGM will direct that the proposed resolution set out in the notice convening the EGM be voted by poll, except where the chairman of the EGM, in good faith, decides to allow a resolution which relates to purely a procedural or administrative matter to be voted on by a show of hands. The Company will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Listing Rules.

The register of members of the Company will be closed from Friday, 22 December 2017 to Friday, 29 December 2017 (both days inclusive), during which period no transfer of shares will be effected. In order to determine the entitlement to attend and vote at the EGM, all share transfers accompanied by the relevant share certificates, must be lodged with the Hong Kong branch share registrar and transfer office of the Company, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not later than 4:30 p.m. on Thursday, 21 December 2017.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on pages 15 and 16 of this circular which contains its recommendation to the Independent Shareholders. The Independent Board Committee, having considered the terms of the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder, as well as the advice of the Independent Financial Adviser set out in the “Letter from the Independent Financial Adviser” on pages 17 to 30 of this circular, concurs with the opinion of the Independent Financial Adviser that (i) the terms of the Zhiguan Framework Agreement and the

– 13 –

LETTER FROM THE BOARD

Transactions contemplated thereunder are in the ordinary and usual course of business of the Group, on normal commercial terms and no less favourable to the Group than those of Independent Third Parties, and (ii) the terms of the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM.

GENERAL

Your attention is drawn to the letter from the Independent Board Committee set out on pages 15 and 16 of this circular, the letter from the Independent Financial Adviser set out on pages 17 to 30 of this circular, and the general information set out in the appendix to this circular.

Yours faithfully, By order of the Board Shenguan Holdings (Group) Limited Zhou Yaxian Chairman

– 14 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [100 x 45] intentionally omitted <==

SHENGUAN HOLDINGS (GROUP) LIMITED 神冠控股（集團）有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 00829)

6 December 2017

To the Independent Shareholders,

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTION RENEWAL OF FRAMEWORK AGREEMENT FOR THE PURCHASE OF CATTLE INNER SKIN

We refer to the circular of the Company dated 6 December 2017 (the “ Circular ”) of which this letter forms part. Terms defined in the Circular have the same meanings when used herein unless the context otherwise requires.

We have been appointed to form this Independent Board Committee to consider the terms of the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder and to advise the Independent Shareholders as to whether, in our opinion, the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder are in the ordinary and usual course of business of the Group, on normal commercial terms, fair and reasonable so far as the Company and the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

We wish to draw your attention to the letter from the Board and letter of advice from the Independent Financial Adviser set out on pages 5 to 14 and pages 17 to 30 of the Circular respectively.

Having considered the terms of the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder, and having taken into account the principal factors and reasons considered by the Independent Financial Adviser, its conclusion and advice, we concur with the opinion of the Independent Financial Adviser that (i) the terms of the Zhiguan Framework Agreement and the Transactions contemplated thereunder are in the ordinary and usual course of business of the Group, on normal commercial terms and no less favourable to the Group than those of Independent Third Parties, and (ii) the terms of the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

– 15 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder.

Yours faithfully,

For and on behalf of the Independent Board Committee

Mr. Tsui Yung Kwok Mr. Meng Qinguo Independent non-executive Directors

Mr. Yang Xiaohu

– 16 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders prepared for the purpose of incorporation in this circular.

==> picture [257 x 53] intentionally omitted <==

Fortune Financial Capital Limited

35th Floor

Office Tower Convention Plaza 1 Harbour Road, Wanchai Hong Kong

6 December 2017

To: The Independent Board Committee and the Independent Shareholders of Shenguan Holdings (Group) Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTION RENEWAL OF FRAMEWORK AGREEMENT FOR THE PURCHASE OF CATTLE INNER SKIN

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 terms of the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps thereunder, details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular of the Company dated 6 December 2017 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

Reference is made to the announcement of the Company dated 30 October 2015 in relation to the continuing connected transaction under the Former Framework Agreement between the Company and Guangxi Zhiguan for the supply of cattle inner skin by Guangxi Zhiguan. The Former Framework Agreement will expire on 31 December 2017. As the Company and Guangxi Zhiguan intend to continue to carry out the relevant transactions, the Zhiguan Framework Agreement was entered into on 9 November 2017 to renew the transactions contemplated under the Former Framework Agreement, subject to the approval by the Independent Shareholders for the Zhiguan Framework Agreement, the Transactions and the Proposed Annual Caps being obtained in accordance with the requirements under Chapter 14A of the Listing Rules.

– 17 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at the Latest Practicable Date, Guangxi Zhiguan was owned as to 51% by Ms. Zhou, an executive Director and the controlling shareholder of the Company who was interested in approximately 68.56% of the entire issued share capital of the Company. As such, Guangxi Zhiguan is an associate of Ms. Zhou and a connected person of the Company and the transactions contemplated under the Zhiguan Framework Agreement constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) in respect of the Proposed Annual Caps exceed 5%, the transactions contemplated under the Zhiguan Framework Agreement and the Proposed Annual Caps are subject to the annual reporting, annual review, announcement, circular and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee, comprising Mr. Tsui Yung Kwok, Mr. Meng Qinguo and Mr. Yang Xiaohu (all being the independent non-executive Directors), was established to (a) advise the Independent Shareholders on whether the terms of the Zhiguan Framework Agreement and the transactions contemplated thereunder and the Proposed Annual Caps are (i) fair and reasonable; (ii) on normal commercial terms or better and in the ordinary and usual course of business of the Group; and (iii) in the interests of the Company and its Shareholders as a whole; and (b) make recommendation to the Independent Shareholders on how to vote on the resolutions to be proposed at the EGM to approve the Zhiguan Framework Agreement and the transactions contemplated thereunder and the Proposed Annual Caps. We, Fortune Financial Capital Limited, was appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

Pursuant to Rule 13.39(4) of the Listing Rules, any vote of shareholders at a general meeting must be taken by poll and Rule 14A.36 of the Listing Rules requires any shareholder who has a material interest in the underlying transactions to abstain from voting on related resolutions. As the Equity Interest Holders have material interests in the transactions contemplated under the Zhiguan Framework Agreement, they are required to abstain from voting on the proposed resolutions relating to the Zhiguan Framework Agreement and the transactions contemplated thereunder and the Proposed Annual Caps at the EGM.

During the past two years, we have not acted as an independent financial adviser to the independent board committee and/or independent shareholders of the Company. As at the Latest Practicable Date, there was no relationship or interest between (a) Fortune Financial Capital Limited and (b) the Company and its respective subsidiaries and associates that could reasonably be regarded as a hindrance to our independence as defined under Rule 13.84 of the Listing Rules to act as the independent financial adviser to the independent board committee and/or independent shareholders of the Company.

– 18 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

In formulating our recommendation 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 and the management of the Company. We have assumed that all information and representations provided by the Directors and the management of the Company, for which they are solely and wholly responsible, are true, accurate and complete in all material respects and not misleading or deceptive at the time when they were provided or made and will continue to be so up to the date of the Circular. 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 enquires and careful considerations by the Directors and there is no other fact not contained in the Circular the omission of which would make any such statement contained in the Circular misleading. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading. We have not, however, carried out any independent verification of the information provided by the Directors and the management of the Company nor have we conducted any independent investigation into the business, financial conditions and affairs or the prospect of the Group or any of their associates.

The Directors have collectively and individually accepted full responsibility, including particulars given in compliance with the Listing Rules, for the purpose of giving information with regard to the Company. The Directors have confirmed, after having made all reasonable enquires, which 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 is no other matter the omission of which would make any statement herein or the Circular misleading.

This letter is issued to the Independent Board Committee and the Independent Shareholders solely in connection with their consideration regarding the Zhiguan Framework Agreement and the transactions contemplated thereunder and the Proposed Annual Caps.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation to the Independent Board Committee and the Independent Shareholders in respect of the Zhiguan Framework Agreement and the transactions contemplated thereunder and the Proposed Annual Caps, we have taken the following principal factors and reasons into consideration:

(a) Background and reasons for entering into of the Zhiguan Framework Agreement

(i) Information about the Company

The Company and its subsidiaries are principally engaged in manufacture and sales of edible collagen sausage casing products, pharmaceutical products, food products, skin care and health care products and bioactive collagen products in the PRC.

– 19 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Information about the Guangxi Zhiguan

Guangxi Zhiguan was established in the PRC with limited liability on 8 June 2012 and is principally engaged in processing and sale of cattle skin as raw materials, sale and purchase of and import and export of cattle skin business. Guangxi Zhiguan applied for the Food Production Licence (食品生產許可證) under the Measures for the Administration for Food Production Licensing (食品生產許可管理辦法) and Food Safety Law (食品安全法) of the PRC on a voluntary basis and were granted with such licence by the Wuzhou Bureau for Administrative Examination and Approval (梧州市行政審批局), the local issuing authority of the China Food and Drug Administration (國家食品藥品監督管理總局) where Guangxi Zhiguan is located, which is effective until November 2022. During the term of the aforesaid licence, Guangxi Zhiguan is required to maintain and follow the standards in relation to plants, equipment and operation policies on food safety under the Measures for the Administration for Food Production Licensing (食品生產許可管理辦法) (as amended from time to time) and is subject to regular inspections to be carried out by the relevant governmental authorities. To the best of the Directors’ knowledge after making reasonable enquires, Guangxi Zhiguan was the only supplier who has been granted the Food Production Licence* (食品生產許可證) among all suppliers of cattle inner skin of the Group as at the Latest Practicable Date.

As at the Latest Practicable Date, Ms. Zhou held 51% equity interest in Guangxi Zhiguan.

(iii) Reasons for entering into of the Zhiguan Framework Agreement

Cattle inner skin is one of the major raw materials for the production of collagen sausage casings. Pursuant to the interim report for the six months period ended 30 June 2017 (the “ 2017 Interim Report ”), the sales volume of the Group’s edible collagen sausage casing products accounted for over 90% of the Group’s revenue and increased by 12.2% year-on-year during the reporting period. The Group also launched new products that can be applied to more types of sausage fillings to cater for the market in the first half of 2017. The entering into of the Zhiguan Framework Agreement ensures a stable source of cattle inner skin supply for the business operation of the Group which would enable the Group to capture business opportunities and efficiently manage its manufacturing arrangements and customer orders.

Under the Zhiguan Framework Agreement, Guangxi Zhiguan has to fulfil the 80% Requirement. As advised by the management of the Company, (i) the quality of cattle inner skin directly affects the processing and production cost and the production volume of collagen sausage casing products; and (ii) although we noted from our review on the supply contracts and purchase orders for cattle inner skin among independent suppliers and the Group that certain suppliers also supplied each type of cattle inner skin as supplied by Guangxi Zhiguan to the Group, no other cattle inner skin supplier of the Group is willing to include the 80% Requirement in the relevant

– 20 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

supply contracts or purchase orders at a reasonable cost that is acceptable to the Company. By entering into of the Zhiguan Framework Agreement, the Group can secure large volume of consistently high quality cattle inner skin on no less favorable terms than those offered by independent suppliers of cattle inner skin.

According to the discussion with management of the Company, certain cattle inner skin required by the Group cannot be sourced from nearby suppliers in a cost-effective manner. However, given the close proximity of the business operations of Guangxi Zhiguan to the major operating subsidiaries of the Company, high quality cattle inner skin supplied by Guangxi Zhiguan can be delivered to the Group’s production base within a short period of time. By shortening the transportation time, freshness of the cattle inner skin can be guaranteed, wastage of raw material can be minimised and the cost of storage can be reduced. Accordingly, the arrangement under the Guangxi Zhiguan Framework Agreement could provide assurance on the quality and safety of cattle inner skin to be procured by the Group.

The procurement arrangements regarding the purchase of cattle inner skin from Guangxi Zhiguan have been in place since 2015. As Guangxi Zhiguan (i) adopts relatively high standards of operation policies on food safety as stipulated under the Measures for the Administration for Food Production Licensing (食品生產許可管理辦法) and Food Safety Law (食品安全法) of the PRC, (ii) is able to supply cattle inner skin to the Group under the 80% Requirement not offered by other suppliers of the Group, (iii) is located in close proximity to the manufacture facilities of the Group which significantly lowers the costs associated with transportation and maintains the freshness of the raw materials supplied as compared to other suppliers of the Group, and (iv) offers no less favourable terms under the Zhiguan Framework Agreement when compared with other suppliers of the Group, the proposed purchase from Guangxi Zhiguan will secure a constant supply of high quality cattle inner skin which enhances the overall operations efficiency of the Group.

The Zhiguan Framework Agreement is non-exclusive in nature, such that the Group will not be prohibited from purchasing similar products from the Independent Third Parties, which provides the Group with the flexibility to use the supplier who can provide the most favourable transaction terms. In this regard, the Group will adopt certain internal control measures (further details are set out in the section headed “ (d) Internal control measures ” below) to ensure the transaction terms to be determined are on normal commercial terms and no less favourable than those available from other independent suppliers of the Group, to govern the conduct of the Transactions and to safeguard the interests of the Independent Shareholders.

Having considered the principal business and operations of the Group and various factors stated above, we concur with the view of the Directors that the entering into of the Zhiguan Framework Agreement is in the ordinary and usual course of the business of the Group and in the interest of the Company and the Shareholders as a whole.

– 21 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Principal terms of the Zhiguan Framework Agreement

We set out below a summary of the principal terms of the Zhiguan Framework Agreement:

Date : 9 November 2017 Parties : The Company as the purchaser Guangxi Zhiguan as the seller Nature of the transaction : Purchase of cattle inner skin in bulk by the purchaser from the seller. The details of each purchase order, including price and delivery arrangement, are to be separately agreed in accordance with the principles laid down in the Zhiguan Framework Agreement. Effective period : 1 January 2018 to 31 December 2020 (both days inclusive) Pricing principles : The purchase prices to be payable by the Group under the Zhiguan Framework Agreement shall be determined with reference to the market price of the cattle inner skin.

In determining the market price, the parties shall make reference to the prices for cattle inner skin offered by two to three Independent Third Party suppliers, the difference in the location of cattle skin suppliers, transportation costs, quality of cattle inner skin of other Independent Third Party suppliers and the capability of Independent Third Party suppliers in satisfying the 80% Requirement.

Payment term : For each transaction with Guangxi Zhiguan, the purchase price will be settled by the Group before the 20th day of the subsequent month after the Group has received and examined to the Group’s satisfaction the cattle inner skin from Guangxi Zhiguan.

– 22 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Condition precedent : The Zhiguan Framework Agreement is conditional upon the approval of the Zhiguan Framework Agreement, the transactions contemplated thereunder and the Proposed Annual Caps by the Independent Shareholders at the EGM in accordance with the Listing Rules. Other terms : Guangxi Zhiguan must fulfil the 80% Requirement. The terms to be offered under the Zhiguan Framework Agreement by Guangxi Zhiguan to the Group shall not be less favourable than those offered by Independent Third Party suppliers.

Fairness and reasonableness of the pricing principles as set under the Zhiguan Framework Agreement

The purchase price for the relevant transaction to be payable by the Group under the Zhiguan Framework Agreement shall be determined with reference to the market price of the cattle inner skin, whilst the market price of the cattle inner skin is determined with reference to (i) prices for cattle inner skin offered by two to three Independent Third Party suppliers; (ii) the difference in the locations of cattle skin suppliers; (iii) transportation costs; (iv) quality of cattle inner skin provided by other Independent Third Party suppliers; and (v) the capability of Independent Third Party suppliers in satisfying the 80% Requirement.

As advised by the management of the Company, the Group had purchased cattle inner skin from four cattle inner skin suppliers in 2017 (the “ 2017 Suppliers ”), i.e. Guangxi Zhiguan and three other Independent Third Party suppliers. It is expected that such arrangements will continue during the term of the Zhiguan Framework Agreement.

To assess the fairness and reasonableness of the price determination as mentioned above, we have discussed with the management of the Company and were advised that the Group will invite quotations from the 2017 Suppliers for the supply of different categories of cattle inner skin before the conclusion of any purchase orders of cattle inner skin. As part of the Company’s internal control measures, at least two quotations from two independent suppliers must be sought for comparison. The purchase department manager of the Group will review all quotations submitted and select the supplier with the most favourable quotation after taking into consideration the price, delivery time and transportation costs, quality of cattle inner skin and the historical capability in satisfying the 80% Requirement as a whole. The Group will satisfy itself in respect of the total cost for purchase and process of cattle inner skin to the Group and ensure that the terms of the relevant purchase under the Zhiguan Framework Agreement shall be no less favourable than those procure from Independent Third Party suppliers.

– 23 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In order to substantiate the above, we have reviewed (i) the breakdown analysis on the estimated output volume of collagen extracted from cattle inner skin; and (ii) historical purchase order summary jointly prepared by the production department and purchase department of the Group.

In relation to the breakdown analysis on the estimated output volume of collagen extracted from cattle inner skin, we noticed that the average volume of collagen extracted from cattle inner skin supplied under the 80% Requirement as guaranteed by Guangxi Zhiguan is approximately 7.86% higher than the average volume of collagen extracted from cattle inner skin supplied without the 80% Requirement by Independent Third Party suppliers.

The historical purchase order summary sets out details of the unit price and class of cattle inner skin to be supplied, transportation terms and whether the supplier is subject to the 80% Requirement for the period commencing on 1 January 2017 and ending on 31 October 2017. We noted from the historical purchase order summany that the unit price charged by Guangxi Zhiguan to certain categories of the cattle inner skin were not the lowest among the 2017 Suppliers. Nonetheless, the total cost for purchase and process of cattle inner skin from Guangxi Zhiguan was lower as compared to other cattle inner skin suppliers according to evaluation and assessment jointly performed by the purchase department and production department of the Group.

We have also been provided with copies of (i) contracts for cattle inner skin entered into between each of the 2017 Suppliers and the Group; and (ii) invoices issued by each of the 2017 Suppliers to the Group for the sale of purchase of cattle inner skin. We noted that relevant information has been reflected in the abovementioned historical purchase order summary.

Having considered the above and the internal control measures adopted by the Group as set out in the section headed “ Internal control measures ” in the Letter from the Board, and given the fact that there is no open market price in the PRC for cattle inner skin, we are of the view that the pricing principles in relation to the purchase of cattle inner skin from Guangxi Zhiguan are fair and reasonable.

Fairness and reasonableness of the payment term as set under the Zhiguan Framework Agreement

The purchase price of the cattle inner skin will be settled by the Group before the 20th day of the subsequent month after the Group has received and examined to the Group’s satisfaction the cattle inner skin from Guangxi Zhiguan. We were advised by the Company that it is the standard payment term adopted by the Company, thus the same payment term has been applied to all suppliers of cattle inner skin of the Group.

– 24 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have reviewed copies of contracts for similar products between the Group and independent suppliers of cattle inner skin provided by the Company and noted that the payment term stipulated thereunder is in line with the above policy. Accordingly, we are of the view that the payment term under the Zhiguan Framework Agreement is on normal commercial terms and no less favourable to the Group when compared to those offered by other independent suppliers of cattle inner skin of the Group.

Based on our review on the Zhiguan Framework Agreement, we are not aware of any other term contained in the Zhiguan Framework Agreement which is unfavourable to the Group.

Having taken into account all the factors presented above, and together with the internal control measures in place as discussed in the section headed “ (d) Internal control measures ” below, we are of the opinion that the terms of the Zhiguan Framework Agreement are on normal commercial terms or better and in the ordinary and usual course of business of the Group, fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

(c) The Proposed Annual Caps

We set out below the Proposed Annual Caps for the Transactions for each of the years ending 31 December 2018, 2019 and 2020:

	For the year	For the year	For the year
	ending	ending	ending
	31 December	31 December	31 December
	2018	2019	2020
	(RMB)	(RMB)	(RMB)
Proposed Annual Caps under the
Zhiguan Framework
Agreement	103,240,000	137,970,000	161,780,000

As set out in the Letter from the Board, in determining annual caps under the Zhiguan Framework Agreement, the Company has made reference to (i) the actual transaction amounts for the period from 1 November 2015 to 31 December 2015, the year ended 31 December 2016 and the nine months ended 30 September 2017 under the Former Framework Agreement; (ii) the estimated demand of the Group for the cattle inner skin; (iii) the proportion of the cattle inner skin to be supplied by Guangxi Zhiguan and by independent suppliers; and (iv) the estimated price of the cattle inner skin for the three years ending 31 December 2020.

With reference to the section headed “Historical Transaction Amounts” in the Letter from the Board, an increasing trend is noticed in the historical actual transaction amounts for the purchase of cattle inner skin under the Former Framework Agreement.

– 25 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As stated in the 2017 Interim Report, the sales volume of the Group’s edible collagen sausage casing products increased by 12.2% during the reporting period as compared to the six months ended 30 June 2016. The Group also launched new products in 2017. As advised by the management of the Company, the Group will continue to expand the range of its collagen-based products for diversification purpose and gradually develop as the largest supplier of collagen raw materials. The inventory level of collagen sausage casing products of the Group as at 31 December 2016 decreased by approximately 10.25% as compared to the inventory level as at 31 December 2015 and recorded a further decrease of approximately 14.19% as at 30 September 2017 when compared to the inventory level as at 31 December 2016. We have discussed with the Directors on the demand for the collagen-based products, the inventory level and business prospects of the Group and were given to understand that the Group’s demand for cattle inner skin is expect to increase mainly due to the increase in production of collagen sausage casing products and to satisfy the growth of the Company.

We have also obtained the Group’s procurement plan for cattle inner skin for its business operation for the three years ending 31 December 2020 which includes breakdowns regarding (i) the expected production quantity of collagen sausage casing products; (ii) the expected proportion of cattle inner skin to be supplied by Guangxi Zhiguan; (iii) the historical and expected average cost of the cattle inner skin used in producing collagen sausage casing products; and (iv) the expected increase in prices of cattle inner skin.

Further to the discussion with the management of the Company and our review on the Group’s procurement plan for cattle inner skin, we understood that the Company have considered the following factors in determining the Proposed Annual Caps: (i) the expected production quantity of collagen sausage casing products will increase at an annual rate of approximately 10%, 6.07% and 8.57%, respectively, for each of the three financial years ending 2020; (ii) four cattle inner skin suppliers will be engaged during the term of the Zhiguan Framework Agreement; (iii) approximately 47% of the total cattle inner skin purchased by the Group were supplied by Guangxi Zhiguan for the nine months ended 30 September 2017 and the Group plans to increase the proportion of cattle inner skin to be supplied by Guangxi Zhiguan to approximately 60% in 2018 and further increase to approximately 70% in each of the year 2019 and 2020 after taking into account the quality of cattle inner skin and cost and operation efficiency; and (iv) the Company has estimated a potential increase in the price and the associated processing costs of cattle inner skin of approximately 8% to 10% in each of the three years ending 31 December 2020. We have also reviewed the historical purchase order summary and the historical costs associated with the processing of cattle inner skin by the Group and noted that there was a recent increase in the price and associated processing costs of cattle inner skin of approximately 11.07% for 2017 when compared to that of 2016.

The Proposed Annual Caps represent an increase of approximately 33.64% for the year ending 31 December 2019 as compared to the proposed cap for the year ending 31 December 2018 and a further increase of approximately 17.26% for the year ending 31

– 26 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

December 2020 as compared to the proposed cap for the year ending 31 December 2019. By taking into consideration the combined effect of (i) the aforesaid increase in the expected production quantity of collagen sausage casing products; (ii) the potential increase in the proportion of cattle inner skin to be supplied by Guangxi Zhiguan as detailed above; (iii) the number of suppliers of cattle inner skin of the Group during the term of the Zhiguan Framework Agreement; and (iv) the estimation of a potential increase in the price and associated processing costs of cattle inner skin of approximately 8% to 10% in each of the three years ending 31 December 2020 as abovementioned, we concur with the view of the Directors that (i) the estimated increase of the transaction amount for each of the three financial years ending 31 December 2020 is justifiable; and (ii) the Proposed Annual Caps are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

However, Shareholders should note that the Proposed Annual Caps relate to future events and are estimated based on assumptions which may or may not remain valid during the term of the Zhiguan Framework Agreement, thus they do not represent a forecast of revenue to be generated from the Transactions. Consequently, we express no opinion as to how closely the actual amounts to be generated under the Transactions correspond with the Proposed Annual Caps.

(d) Nature of products supplied by Guangxi Zhiguan

The Directors considered that the Group is not dependent on Guangxi Zhiguan for the supply of cattle inner skin because (i) cattle inner skin is not the only major raw material of the Group’s finished products; (ii) the cattle inner skin required by the Group for its production is not unique in nature and the supply of cattle inner skin in the market is abundant and readily available from other independent suppliers in the PRC; (iii) the 80% Requirement will reduce the overall costs associated with the processing of cattle inner skin while the quality of end products of the Group would not be affected; (iv) the Group has established relationships with different suppliers who can easily substitute each other in terms of the supply of cattle inner skin; (v) the supply by Guangxi Zhiguan as contemplated under the Zhiguan Framework Agreement is not on an exclusive basis, which provides the Group with sufficient independence and flexibility; and (vi) the Zhiguan Framework Agreement did not impose any fixed procurement requirement or restrictive obligation on the Company on the procurement of cattle inner skin from other suppliers. Accordingly, the Company may adjust its procurement policies in respect of cattle inner skin from time to time.

Although the Group plans to procure approximately 60% of the total cattle inner skin to be purchased by the Group from Guangxi Zhiguan in year 2018 and further increase to approximately 70% in each of the years 2019 and 2020, we concur with the view of the Directors that the entering into of the Zhiguan Framework Agreement would not pose reliance issue on the supply of cattle inner skin by Guangxi Zhiguan after taken into consideration (i) certain independent cattle inner skin suppliers also supplied each type of cattle inner skin as supplied by Guangxi Zhiguan to the Group; (ii) cattle inner skin is not the only major raw material of the Group’s finished products; (iii) the Company will

– 27 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

procure cattle inner skin from Guangxi Zhiguan only if Guangxi Zhiguan offers no less favourable terms under the Zhiguan Framework Agreement when compared with other independent suppliers of the Group; (iv) the Company is not restricted to purchase cattle inner skin from any suppliers; and (v) our review on (a) the historical purchase order summary jointly prepared by the production department and purchase department of the Group showed the reduce in overall costs associated with the processing of cattle inner skin when 80% Requirement is imposed; (b) the previous purchase contracts with other independent suppliers of cattle inner skin showed that other independent cattle inner skin suppliers also supplied each type of cattle inner skin as supplied by Guangxi Zhiguan to the Group; and (c) the Zhiguan Framework Agreement which does not impose any procurement requirement or restrictive obligation on the Company regarding its procurement of cattle inner skin from other suppliers.

(e) Internal control measures

As stated in the Letter from the Board, the Company has adopted a number of internal control measures to ensure that the transactions contemplated under the Zhiguan Framework Agreement will be conducted in accordance with the terms of the Zhiguan Framework Agreement, on normal commercial terms or better, and in accordance with the pricing policy of the Company, which include:

the purchase department of the Company will be responsible for identifying suitable suppliers of cattle inner skin and the purchase department manager will be primarily responsible for inviting quotations from at least two independent suppliers for the supply of cattle inner skin. In comparing such quotations, the purchase department manager will apply the abovementioned pricing principles of the Group as detailed under the section “Fairness and reasonableness of the pricing principles as set under the Zhiguan Framework Agreement” above, which include (i) the price; (ii) the difference in the locations of cattle skin suppliers; (iii) transportation costs; (iv) quality of cattle inner skin provided by other Independent Third Party suppliers; and (v) the capability of Independent Third Party suppliers in satisfying the 80% Requirement. The purchase department manager will submit the all quotations obtained to the vice-president of the Group who oversees the purchase department for his approval in order to ensure only the quotation with the most favourable terms is selected;
all individual contracts for the sale and purchase of cattle inner skin will be notified to the finance department of the Group, who keeps record of connected party transactions and oversees and controls such transactions; and
the management of the Company will ensure that the Transactions will be conducted in accordance with the terms of the Zhiguan Framework Agreement, on normal commercial terms or better, and in accordance with the pricing policy of the Company.

– 28 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on our review on the historical purchase order summary jointly prepared by the production department and purchase department of the Group which is expected to remain in use throughout the term of the Zhiguan Framework Agreement, we are of the view that the abovementioned internal control measures have been effectively implemented.

In addition, as advised by the management of the Company, the Company will comply at all times with the applicable provisions under Rules 14A.34, 14A.51 to 14A.54 of the Listing Rules in respect of the Zhiguan Framework Agreement and transactions contemplated thereunder.

Pursuant to Rules 14A.55 to 14A.59 of the Listing Rules, the Zhiguan Framework Agreement and transactions contemplated thereunder are subject to the following annual review requirements:

(a) the independent non-executive Directors must review the Transactions and confirm in the annual report whether the Transactions have been entered into:
(i) in the ordinary and usual course of business of the Group;
(ii) on normal commercial terms or better; and
(iii) according to the agreement governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole;
(b) the Company must engage its auditors to report on the Transactions every year. The auditors must provide a letter to the Board confirming whether anything has come to their attention that causes them to believe that the Transactions:
(i) have not been approved by the Board;
(ii) were not, in all material respects, in accordance with the pricing policies of the Group if the transactions involve the provision of goods or services by the Group;
(iii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and
(iv) have exceeded the Proposed Annual Caps;
(c) the Company must provide a copy of the auditors’ letter to Stock Exchange at least 10 business days before the bulk printing of its annual report;
(d) the Company must allow, and ensure that the counterparties to the Transactions allow, the auditors sufficient access to their records for the purpose of reporting on the Transactions; and

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(e) the Company must promptly notify the Stock Exchange and publish an announcement if the independent non-executive Directors and/or the auditors of the Company cannot confirm the matters as required. Stock Exchange may require the Company to re-comply with the announcement and shareholders’ approval requirements and may impose additional conditions.

Given the above, we are of the view that there are appropriate measures in place to govern the Company in carrying out the Zhiguan Framework Agreement and transactions contemplated thereunder and safeguard the interests of the Shareholders.

RECOMMENDATION

Having considered the principal factors and reasons discussed above, we are of the view that the terms of the Zhiguan Framework Agreement and the Proposed Annual Caps are on normal commercial terms or better and in the ordinary and usual course of business of the Group, fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

Accordingly, we advise the Independent Shareholders, and recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the proposed resolution(s) at the EGM in respect of the Zhiguan Framework Agreement and the Proposed Annual Caps.

Yours faithfully, For and on behalf of

FORTUNE FINANCIAL CAPITAL LIMITED Alan Chung Managing Director

Mr. Chung is a responsible officer under the SFO to engage in type 6 (advising on corporate finance) regulated activities. He has around 16 years of experience in corporate finance.

– 30 –

GENERAL INFORMATION

APPENDIX

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 OF DIRECTORS AND CHIEF EXECUTIVE

Save as disclosed below, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required pursuant to (a) Divisions 7 and 8 of Part XV of the SFO, to be notified to the Company and the Stock Exchange; or (b) section 352 of the SFO, to be entered in the register required to be kept by the Company under such provision; or (c) the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules, to be notified to the Company and the Stock Exchange:

(a) Long positions in the Shares, underlying Shares and debentures of the Company

Name of Director Ms. Zhou Dato’ Sri Low Jee Keong (“Dato’ Sri Low”) Mr. Shi Mr. Ru Mr. Mo	Number of Shares Approximate % of shareholding as at the Latest Practicable Date Beneficial interests Interests in controlled corporation Total 200,000 2,234,436,000 (Note 1) 2,234,636,000 68.56% – 78,936,000 (Note 2) 78,936,000 2.42% 800,000 – 800,000 0.02% 800,000 – 800,000 0.02% 800,000 – 800,000 0.02%

– 31 –

GENERAL INFORMATION

APPENDIX

Notes:

Ms. Zhou holds 100% interest in Shenguan Biology Science & Technology Investment Company Limited (“ Hong Kong Shenguan ”) which holds 100% interest in Glories Site Limited (“ Glories Site ”), which holds approximately 65.45% interest in Rich Top Future Limited (“ Rich Top Future ”). Hong Kong Shenguan also holds 100% interest in Xian Sheng Limited (“ Xian Sheng ”). Therefore, Ms. Zhou is deemed or taken to be, interested in all the Shares which are beneficially owned by Hong Kong Shenguan, Rich Top Future and Xian Sheng for the purpose of the SFO.
Dato’ Sri Low holds 100% interest in Wealthy Safe Management Limited (“ Wealthy Safe ”), which holds 78,936,000 Shares. Therefore, Dato’ Sri Low is deemed or taken to be, interested in all the Shares held by Wealthy Safe for the purpose of the SFO.
(b) Aggregate long positions in the shares, underlying shares and debentures of associated corporations of the Company

				Approximate
				% of
				shareholding
				as at
	Name of		Number and	the Latest
	associated		class of	Practicable
Name of Director	corporation	Nature of interest	securities	Date
Ms. Zhou	Rich Top Future	Interest in controlled	65,454	65.45%
		corporation
		(Note 1)
Dato’ Sri Low	Rich Top Future	Interest in controlled	20,835	20.84%
		corporation
		(Note 2)

Notes:

Ms. Zhou holds 100% interest in Hong Kong Shenguan which holds 100% interest in Glories Site, which holds approximately 65.45% interest in Rich Top Future.
Dato’ Sri Low holds 100% interest in Brighten Lane Limited, which holds approximately 20.84% interest in Rich Top Future.

– 32 –

GENERAL INFORMATION

APPENDIX

3. COMMON DIRECTORS

The following is a list of Directors who, as at the Latest Practicable Date, were also directors of the companies which had interests or short positions 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:

Name of common director Name of company Ms. Zhou Hong Kong Shenguan Glories Site Xian Sheng Rich Top Future Dato’ Sri Low Rich Top Future

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors, the interests of substantial shareholders in the Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept under section 336 of the SFO were as follows:

Long positions in the Shares and underlying Shares

Name of substantial
shareholder
Rich Top Future
Xian Sheng
Glories Site
Hong Kong Shenguan
Mr. Sha

Number of Shares
Approximate
% of
shareholding
as at the
Latest
Practicable
Date
Beneficial
interests
Family
interests
Interests in
controlled
corporation
Total
1,936,434,000
–
–
1,936,434,000
59.41%
248,540,000
–
–
248,540,000
7.63%
–
–
1,936,434,000
(Note 1)
1,936,434,000
59.41%
49,462,000
–
2,184,974,000
(Note 2)
2,234,436,000
68.56%
–
2,234,636,000
(Note 3)
–
2,234,636,000
68.56%

– 33 –

GENERAL INFORMATION

APPENDIX

Notes:

Glories Site holds approximately 65.45% interest in Rich Top Future. Therefore, Glories Site is deemed or taken to be, interested in all the Shares which are beneficially owned by Rich Top Future for the purpose of the SFO.
Hong Kong Shenguan holds 100% interest in Glories Site, which holds approximately 65.45% interest in Rich Top Future. Hong Kong Shenguan also holds 100% interest in Xian Sheng. Therefore, Hong Kong Shenguan is deemed or taken to be, interested in all the Shares which are beneficially owned by Rich Top Future and Xian Sheng for the purpose of the SFO.
Ms. Zhou holds 100% interest in Hong Kong Shenguan and Hong Kong Shenguan holds 100% interest in Glories Site, which holds approximately 65.45% interest in Rich Top Future. Hong Kong Shenguan also holds 100% interest in Xian Sheng. Therefore, Ms. Zhou is deemed or taken to be, interested in all the Shares which are beneficially owned by Hong Kong Shenguan, Rich Top Future and Xian Sheng for the purpose of the SFO. Ms. Zhou beneficially owns 200,000 Shares. Mr. Sha is the spouse of Ms. Zhou and therefore, Mr. Sha is deemed or taken to be, interested in all the Shares in which Ms. Zhou is interested for the purpose of the SFO.

5. COMPETING INTEREST

Save as disclosed on page 38 of the annual report 2016 of the Company dated 17 March 2017 (the “ Annual Report ”), as at the Latest Practicable Date, none of the Directors or their respective associates was considered to have any interest in a business which competed or may compete with the business of the Group.

6. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, each of the independent non-executive Directors has entered into a service contract with the Company for a term of two years commencing from 13 October 2017 and may be terminated by either party by giving at least three months’ written notice (the “ INED Service Contracts ”).

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group, other than contracts expiring or terminable by the employer within one year without payment of compensation other than statutory compensation.

7. DIRECTORS’ INTERESTS IN CONTRACTS, ASSETS AND ARRANGEMENTS OF SIGNIFICANCE

Save as disclosed on pages 14 and 15 of the interim report 2017 of the Company dated 18 August 2017 (the “ Interim Report ”), as at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had been, since 31 December 2016, being the date to which the latest published audited consolidated financial statements of the Company were made up, acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

Save as disclosed on pages 39 to 41 of the Annual Report, as at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement which is significant in relation to the business of the Group.

– 34 –

GENERAL INFORMATION

APPENDIX

8. MATERIAL ADVERSE CHANGE

Reference is made to the profit warning announcement of the Company dated 14 July 2017 in relation to the expected decrease of approximately 50–60% in its net profit for the six months ended 30 June 2017 (the “ Reporting Period ”). As disclosed in such announcement, such decrease was mainly due to (i) during the Reporting Period, although the sales volume of collagen casings increased as compared to the same period in 2016 (the “ Previous Period ”), the average selling price decreased due to the overall decline in prices of the products in this industry and the Group’s endeavour to lower the inventory level. The decrease in average selling price caused a drop in the gross profit margin as compared to the Previous Period; (ii) during the Previous Period, the Group had recorded a compensation income from contract in progress of RMB25,643,000. There was no similar income recorded for the Reporting Period; and (iii) other factors that had caused the decrease of the Group’s net profit included expenses incurred for development of new products and businesses during the Reporting Period.

Please refer to the relevant announcement and Interim Report for further details. Save as disclosed above, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2016, being the date to which the latest published audited consolidated accounts of the Company were made up.

9. EXPERT AND CONSENT

The following is the qualification of the expert who has given opinion or advice which is contained in this circular:

Name				Qualification
Fortune	Financial	Capital	Limited	A corporation licensed to carry on type 6
				(advising on corporate finance) regulated
				activity under the SFO

The Independent Financial Adviser has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and/or reports and references to its name, in the form and context in which they respectively appear.

As at the Latest Practicable Date, the Independent Financial Adviser did not have any shareholding, directly or indirectly, in any member of the Group, nor had any right (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, the Independent Financial Adviser did not have any direct or indirect interest in any asset which had been, since 31 December 2016, being the date to which the latest published audited consolidated financial statements of the Company were made up, acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

– 35 –

GENERAL INFORMATION

APPENDIX

10. MISCELLANEOUS

(a) The registered office of the Company is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands, and the principal place of business of the Company in Hong Kong is at Room 2902, Sino Plaza, 255–257 Gloucester Road, Causeway Bay, Hong Kong.
(b) The Hong Kong branch share registrar and transfer office of the Company is Tricor Investor Services Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(c) The company secretary of the Company is Mr. Ng Yuk Yeung.
(d) Save as otherwise stipulated in this circular, the English text of this circular shall prevail over the Chinese text in the event of inconsistency.

11. DOCUMENTS AVAILABLE FOR INSPECTION

A copy of the following documents is available for inspection at principal place of business in Hong Kong of the Company at Room 2902, Sino Plaza, 255–257 Gloucester Road, Causeway Bay, Hong Kong during normal business hours on any business day from the date of this circular up to and including the date of the EGM:

(a) Former Framework Agreement;
(b) Zhiguan Framework Agreement;
(c) the letter from the Independent Board Committee, the text of which is set out in the section headed “Letter from the Independent Board Committee” of this circular;
(d) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out in the section headed “Letter from the Independent Financial Adviser” of this circular;
(e) the consent letter of the Independent Financial Adviser referred to in the paragraph headed “9. Expert and consent” in this appendix;
(f) the INED Service Contracts; and
(g) this circular.

– 36 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [100 x 45] intentionally omitted <==

SHENGUAN HOLDINGS (GROUP) LIMITED 神冠控股（集團）有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 00829)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of Shenguan Holdings (Group) Limited (神冠控股(集團)有限公司) (the “ Company ”) will be held at Regus Conference Centre, 35th Floor, Central Plaza, 18 Harbour Road, Wan Chai, Hong Kong on Friday, 29 December 2017 at 11:00 a.m. for the purpose of considering and, if thought fit, passing with or without amendments the following as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT

(a) the entering into of the framework agreement (the “ Zhiguan Framework Agreement ”) (as defined and described in the circular of the Company dated 6 December 2017 (the “ Circular ”), a copy of which marked “A” is tabled before the EGM and initialled by the chairman of the EGM for identification purpose) by the Company and 廣西志冠實業開發有限公司 (Guangxi Zhiguan Industrial Development Co., Limited) on 9 November 2017 in relation to the purchase of cattle inner skin and the transactions contemplated thereunder and the implementation thereof, be and are hereby approved, ratified and confirmed;
(b) the proposed annual caps in respect of the Zhiguan Framework Agreement for each of the three years ending 31 December 2018, 31 December 2019 and 31 December 2020 (the “ Zhiguan Proposed Caps ”), details of which are set out in the Circular, be and are hereby approved;
(c) any one or more director(s) of the Company be and are hereby authorised for and on behalf of the Company to, amongst other matters, sign, execute and deliver or to authorize the signing, execution and delivery of all such documents and deeds as such director(s) may consider necessary, expedient or desirable to give effect to or otherwise in connection with the Zhiguan Framework Agreement, the transactions contemplated thereunder and the Zhiguan Proposed Caps.”

By Order of the Board Shenguan Holdings (Group) Limited Zhou Yaxian Chairman

Hong Kong, 6 December 2017

– EGM-1 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

A member of the Company entitled to attend and vote at the EGM convened by the above notice is entitled to appoint one or, if he holds two or more shares, more proxies to attend and vote in his stead. A proxy need not be a member of the Company. On a poll, votes may be given either personally or by proxy.
The instrument appointing a proxy shall be in writing under the hand of the appointer or of his attorney duly authorised in writing or, if the appointer is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same.
To be valid, the instrument appointing a proxy and (if required by the Board) the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, shall be delivered to the Hong Kong branch share registrar and transfer office of the Company, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof.
No instrument appointing a proxy shall be valid after expiration of 12 months from the date named in it as the date of its execution, except at an adjourned meeting or on a poll demanded at the EGM or any adjournment thereof in cases where the EGM was originally held within 12 months from such date.
In the case of joint holders of a share, any one of such joint holders may vote at the EGM, either in person or by proxy, in respect of such share as if he/she/it were solely entitled thereto. If more than one of such joint holders are present at the EGM, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.
Completion and delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the EGM or any adjournment thereof if the member so wish and in such event, the instrument appointing a proxy should be deemed to be revoked.
For the purpose of determining the entitlement to attend and vote at the EGM, the transfer books and register of members of the Company will be closed from 22 December 2017 (Friday) to 29 December 2017 (Friday) (both days inclusive). During such period, no share transfers will be effected. In order to qualify for attending the EGM, all transfer documents, accompanied by the relevant share certificates, must be lodged with the Hong Kong branch share registrar and transfer office of the Company, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not later than 4:30 p.m. on 21 December 2017 (Thursday).
Voting on the above resolution will be taken by poll.
A proxy form for use at the EGM is enclosed.
As at the date of this notice, the board of the Company comprises (a) four executive directors, namely Ms. Zhou Yaxian, Mr. Shi Guicheng, Mr. Ru Xiquan and Mr. Mo Yunxi; (b) one non-executive director, namely Dato’ Sri Low Jee Keong; and (c) three independent non-executive directors, namely Mr. Tsui Yung Kwok, Mr. Meng Qinguo and Mr. Yang Xiaohu.

– EGM-2 –

AI assistant

Shenguan Holdings (Group) Limited — Proxy Solicitation & Information Statement 2017

49494_rns_2017-12-05_4ee11a61-773a-4299-87f9-ba6a3aa6d3de.pdf

SHENGUAN HOLDINGS (GROUP) LIMITED 神冠控股（集團）有限公司

CONTINUING CONNECTED TRANSACTION RENEWAL OF FRAMEWORK AGREEMENT FOR THE PURCHASE OF CATTLE INNER SKIN AND NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

SHENGUAN HOLDINGS (GROUP) LIMITED 神冠控股（集團）有限公司

CONTINUING CONNECTED TRANSACTION RENEWAL OF FRAMEWORK AGREEMENT FOR THE PURCHASE OF CATTLE INNER SKIN AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

BACKGROUND

THE ZHIGUAN FRAMEWORK AGREEMENT

Date:

Parties:

Summary of principal terms:

Condition precedent

Duration and other terms

Pricing Principles

Historical Transaction Amounts

LETTER FROM THE BOARD

Proposed Annual Caps and Basis of Determination

LETTER FROM THE BOARD

Reasons for and benefits of entering into the Zhiguan Framework Agreement

Internal control measures

INFORMATION ON THE PARTIES

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

EGM

RECOMMENDATION

LETTER FROM THE BOARD

GENERAL

SHENGUAN HOLDINGS (GROUP) LIMITED 神冠控股（集團）有限公司

CONTINUING CONNECTED TRANSACTION RENEWAL OF FRAMEWORK AGREEMENT FOR THE PURCHASE OF CATTLE INNER SKIN

Yours faithfully,

Fortune Financial Capital Limited

CONTINUING CONNECTED TRANSACTION RENEWAL OF FRAMEWORK AGREEMENT FOR THE PURCHASE OF CATTLE INNER SKIN

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

(a) Background and reasons for entering into of the Zhiguan Framework Agreement

(i) Information about the Company

(ii) Information about the Guangxi Zhiguan

(iii) Reasons for entering into of the Zhiguan Framework Agreement

(b) Principal terms of the Zhiguan Framework Agreement

(c) The Proposed Annual Caps

(d) Nature of products supplied by Guangxi Zhiguan

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(e) Internal control measures

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS OF DIRECTORS AND CHIEF EXECUTIVE

(a) Long positions in the Shares, underlying Shares and debentures of the Company

APPENDIX

3. COMMON DIRECTORS

4. SUBSTANTIAL SHAREHOLDERS

Long positions in the Shares and underlying Shares

5. COMPETING INTEREST

6. DIRECTORS’ SERVICE CONTRACTS

7. DIRECTORS’ INTERESTS IN CONTRACTS, ASSETS AND ARRANGEMENTS OF SIGNIFICANCE

8. MATERIAL ADVERSE CHANGE

9. EXPERT AND CONSENT

10. MISCELLANEOUS

11. DOCUMENTS AVAILABLE FOR INSPECTION

SHENGUAN HOLDINGS (GROUP) LIMITED 神冠控股（集團）有限公司

(Stock Code: 00829)

ORDINARY RESOLUTIONS

“ THAT

NOTICE OF EXTRAORDINARY GENERAL MEETING

More from Shenguan Holdings (Group) Limited

Shenguan Holdings (Group) Limited Proxy Solicitation & Information Statement 2017