THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in STEVE LEUNG DESIGN GROUP LIMITED, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or to the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or to 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.

This circular is for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for the Shares or other securities in the Company.

STEVE LEUNG DESIGN GROUP LIMITED 梁志天設計集團有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 2262)

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF THE EXTRAORDINARY GENERAL MEETING

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Board is set out on pages 5 to 20 of this circular. A letter from the Independent Board Committee is set out on pages 21 to 22 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 23 to 48 of this circular.

A notice convening the EGM to be held at Tactic Room II, 24/F, Admiralty Centre I, 18 Harcourt Road, Hong Kong on Wednesday, 14 November 2018 at 9 a.m. is set out on pages EGM-1 to EGM-2 of this circular.Whether or not you are able to attend the EGM in person, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East,Wanchai, 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. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof (as the case may be) should you so wish.

30 October 2018

	Pages
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . .	21
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . .	23
Appendix – Statutory and General Information. . . . . . . . . . . . . . . . . . . . . .	I-1
Notice of the EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

DEFINITIONS

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

“Board”

the board of Directors

“Company”
STEVE LEUNG DESIGN GROUP LIMITED (梁志天設計集團有限公司), an exempted company with limited liability incorporated in the Cayman Islands, the shares of which are listed on the Main Board of the Stock Exchange
“connected person(s)”
has the same meaning as ascribed to it under the Listing Rules
“controlling shareholder(s)” has the same meaning as ascribed to it under the Listing Rules
“Director(s)” director(s) of the Company
“Eagle Vision”
EAGLE VISION DEVELOPMENT LIMITED, a company incorporated in the BVI with limited liability on 2 January 2014 and beneficially owned as to 28.57% by GLORYEILD ENTERPRISES LIMITED, 28.57% by HEALTH CAPITAL ENTERPRISES LIMITED and 42.86% by PEACEMARK ENTERPRISES LIMITED
“EGM”
the extraordinary general meeting of the Company to be convened for the purposes of seeking the Independent Shareholders’ approval for (i) the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap
“Framework Agreement”
the interior design and interior decorating and furnishing services framework agreement dated 28 September 2018 entered into between Jangho Chuangxin and the Company
“Gangyuan Decoration”
北京港源建築裝飾工程有限公司 (Gangyuan Architectural Decoration Engineering Co., Ltd.), a company established in the PRC with limited liability, which is owned as to 26.25% by Jangho Co., 68.75% by Jangho Chuangzhan and 5% by Mr. Fu Jianping, a director of some of the Group’s subsidiaries, respectively

– 1 –

DEFINITIONS

“Gangyuan Design”

北京港源建築裝飾設計研究院有限公司 (Beijing Gangyuan Institute of Architectural Decoration Design and Research Co., Ltd.) (formerly known as 北京港源建築裝飾設計有限公司), a company established in the PRC with limited liability, which is owned as to 80% and 20% by 梁志天室內設計(北京)有限公司, an indirect wholly-owned subsidiary of the Company, and Gangyuan Decoration, respectively

“Gangyuan Design Annual Cap”
the annual cap of RMB7,000,000 in relation to the transactions contemplated under the Gangyuan Design Service Agreement for each of the three years ending 31 December 2020
“Gangyuan Design Service Agreement”
the design service agreement dated 13 June 2018 entered into between Gangyuan Design and Gangyuan Decoration, pursuant to which Gangyuan Decoration agreed to subcontract to Gangyuan Design the interior design services for the projects undertaken by Gangyuan Decoration during the term commencing from the date of the agreement and expiring on 31 December 2020, which is disclosed in the section headed “Connected Transactions” in the Prospectus
“Group”
the Company and its subsidiaries
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”
an independent committee of the Board comprising the independent non-executive Directors
“Independent Financial Adviser”
Lego Corporate Finance Limited, a corporation licensed to carry out Type 6 (advising on corporate finance) regulated activity under the SFO
“Independent Shareholder(s)” Shareholder(s) other than Mr. Liu and his associate(s), including Eagle Vision
“Independent Third Party(ies)”

any entity(ies) or person(s) who is/are not connected person(s) within the meaning ascribed thereto under the Listing Rules

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DEFINITIONS

“Jangho Chuangxin”
“Jangho Chuangzhan”
“Jangho Co.”
“Jangho Group”
“Jiangheyuan”
“Latest Practicable Date”
“Listing Rules”
“Main Board”
江河創新地產股份有限公司 (Jangho Chuangxin Real Estate Co., Ltd.*), a company established in the PRC with limited liability, which is owned, directly and indirectly, through Jiangheyuan, by Mr. Liu
北京江河創展管理諮詢有限公司 (Beijing Jangho Chuangzhan Management Consulting Company Limited) (formerly known as 北京江河創展投資管理有限公司 and 北京黔龍華資國際投資管理諮詢有限公司), a company established in the PRC with limited liability and a whollyowned subsidiary of Jangho Co. and one of the controlling shareholders of the Company
江河創建集團股份有限公司 (Jangho Group Co., Ltd.) (formerly known as 北京江河幕墻股份有限公司 (Beijing Jangho Curtain Wall Co., Ltd.) and 北京江河幕墻裝飾工程有限公司), a joint stock limited company established in the PRC on 4 February 1999 (the A shares of which have been listed on the Shanghai Stock Exchange (stock code: 601886) since 18 August 2011), and one of the controlling shareholders of the Company. As at the Latest Practicable Date, Mr. Liu, directly and indirectly, through his controlled company, Jiangheyuan, owned approximately 52.42% of the shares in Jangho Co.
Jangho Co. and its subsidiaries, excluding the members of the Group
北京江河源控股有限公司 (Beijing Jiangheyuan Holdings Co., Ltd.)* (formerly known as 北京江河源工貿有限責任公司), a company established in the PRC with limited liability, which is beneficially 85% and 15% owned by Mr. Liu and Ms. Fu (both being the controlling shareholders of the Company), respectively
Thursday, 25 October 2018
the Rules Governing the Listing of Securities on the Stock Exchange
the stock market (excluding the option market) operated by the Stock Exchange which is independent from and operated in parallel with GEM of the Stock Exchange

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DEFINITIONS

“Mr. Liu” Mr. Liu Zaiwang (劉載望), one of the controlling shareholders of the Company and the spouse of Ms. Fu “Ms. Fu” Ms. Fu Haixia (富海霞), one of the controlling shareholders of the Company and the spouse of Mr. Liu “PRC” The People’s Republic of China which, for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan “Prospectus” the prospectus issued by the Company dated 22 June 2018 “RMB” Renminbi, the lawful currency of the PRC “SFO” the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong) “Shareholder(s)” holder(s) of the share(s) of the Company “Stock Exchange” The Stock Exchange of Hong Kong Limited “subsidiary(ies)” has the same meaning as ascribed to it under the Listing Rules “Waiver” the waiver dated 15 June 2018 granted by the Stock Exchange to the Company from strict compliance with the announcement requirement under Rule 14A.35 of the Listing Rules in respect of the Gangyuan Design Service Agreement once the shares of the Company are listed on the Stock Exchange “%” per cent

* Literal translation of the Chinese name

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LETTER FROM THE BOARD

STEVE LEUNG DESIGN GROUP LIMITED 梁志天設計集團有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 2262)

Executive Directors:

Mr. Siu Man Hei (Chief Executive Officer) Mr.Yip Kwok Hung Kevin (Chief Financial Officer) Mr. Ding Chunya Ms. Kau Wai Fun

Non-executive Directors: Mr. Xu Xingli (Chairman) Mr. Xie Jianyu

Independent non-executive Directors: Mr. Liu Yi Mr. Sun Yansheng Mr. Tsang Ho Ka Eugene

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

Principal Place of Business in Hong Kong: 30/F Manhattan Place 23 Wang Tai Road Kowloon Bay Kowloon Hong Kong

30 October 2018

To the Shareholders

Dear Sir/Madam,

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF THE EXTRAORDINARY GENERAL MEETING

A. INTRODUCTION

As disclosed in the announcement of the Company dated 28 September 2018, for the purpose of expanding the interior design services and interior decorating and furnishing services of the Group in the PRC, on 28 September 2018 (after trading hours), the Company entered into the Framework Agreement with Jangho Chuangxin, pursuant to which the Company conditionally agreed to provide (1) interior design services; and (2) interior decorating and furnishing services (the “ Jangho Chuangxin Design Services ”) to Jangho Chuangxin and/or its subsidiaries.

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LETTER FROM THE BOARD

Reference is also made to the Prospectus. On 13 June 2018, Gangyuan Design entered into the Gangyuan Design Service Agreement with Gangyuan Decoration, pursuant to which Gangyuan Decoration agreed to subcontract to Gangyuan Design the interior design services for the projects undertaken by Gangyuan Decoration (the “ Gangyuan Design Services ”). While the Company has applied for, and the Stock Exchange has granted the Company, the Waiver, the Waiver is valid if none of the terms of the transactions contemplated under the Gangyuan Design Service Agreement is altered or if the Company does not enter into any new agreement with any connected persons in the future. In light of this, (i) the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap, when aggregated as a series of transactions, are therefore subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The purpose of this circular is to provide you with information regarding (i) further details of the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; (ii) further details of the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap; (iii) the letter from the Independent Board Committee to the Independent Shareholders; (iv) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders; and (v) the notice of the EGM.

B. THE JANGHO CHUANGXIN DESIGN SERVICES

1. Information about the Framework Agreement

Date 28 September 2018

Parties (1) the Company

(2) Jangho Chuangxin, a company owned directly and indirectly, through Jiangheyuan, by Mr. Liu

Duration Effective upon the date of obtaining the Independent Shareholders’ approval to 31 December 2020

Nature of transaction

The Group conditionally agrees to provide the following services to Jangho Chuangxin and/or its subsidiaries:

(1) interior design services; and
(2) interior decorating and furnishing services

Each of the Jangho Chuangxin Design Services so provided shall be effected and governed by the individual contracts to be entered into between Jangho Chuangxin or its subsidiaries and the Company or its subsidiaries in accordance with the terms of the Framework Agreement. If there is any conflict between the terms of such contract and the Framework Agreement, the latter shall prevail

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LETTER FROM THE BOARD

Annual cap

Payment terms

HK$25,000,000 (equivalent to approximately RMB22,000,000) for each of the three years ending 31 December 2020

Unless otherwise agreed between the parties to the individual contracts in which the payment terms shall be on fair and reasonable and normal commercial terms (or terms more favourable to the Group than those stipulated in the Framework Agreement), the payment terms for each of the Jangho Chuangxin Design Services as stated in the Framework Agreement are as below:

For interior design services

(1) 20% of the service fees shall be paid on the date of signing of the relevant contract;
(2) 20% of the service fees shall be paid within seven business days after confirming the concept design;
(3) 30% of the service fees shall be paid within seven business days after confirming the detail design;
(4) 20% of the service fees shall be paid within seven business days after submitting the project documentation; and
(5) the remaining 10% of the service fees shall be paid within seven business days after inspection and acceptance of the work

For interior decorating and furnishing services

(1) in relation to concept design and detail design only,
(a) 20% of the service fees shall be paid on the date of signing of the relevant contract;
(b) 40% of the service fees shall be paid within seven business days after confirming the concept design; and
(c) the remaining 40% of the service fees shall be paid within seven business days after confirming the detail design

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LETTER FROM THE BOARD

(2) in relation to the procurement, supply, installation and/or setting up of furniture, fittings and accessories only,
(a) 50% of the fees shall be paid on the date of signing of the relevant contract; and
(b) the remaining 50% of the fees shall be paid within seven business days after issuing the invoice but prior to the delivery of the furniture, fittings and accessories

Pricing basis

The fees under the individual contract shall be determined in accordance with:

(1) the pricing standard prescribed by the state price administration department (國家物價管理部門) or regional price administration department (地方物價管理部門) (the“ Prescribed Price ”);
(2) if there is no Prescribed Price available, the price should be determined on an arm’s length basis between Jangho Chuangxin and the Company and be on terms similar to, or more favourable (in terms of the interest of the Group) to the Group than those agreed between the Group and its Independent Third Party clients with reference to:
(a) comparative market prices (if available);
(b) costs incurred or to be incurred in relation to the relevant interior design services and interior decorating and furnishing services and subject to a reasonable gross profit margin requirement;
(c) in relation to the service fee for the provision of interior design services, such service fee shall be determined based on the reference unit price formulated by the Group, adjusted by factors such as the general discounts given to its long-term strategic clients or any other discount that is in the interest of the Group. For the avoidance of doubt, such discount shall be approximately 5%-10% of the total service fee;

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LETTER FROM THE BOARD

(d) in relation to the fee for the provision of interior decorating and furnishing services which may consist of the service fee for concept design and detail design and the fee for procurement, supply, installation and/or setting up of furniture, fittings and accessories,
i. the service fee for concept design and detail design shall be determined based on the reference unit price formulated by the Group, adjusted by factors such as the general discounts given to its longterm strategic clients or any other discount that is in the interest of the Group;
ii. the fee for the procurement, supply, installation and/or setting up of furniture, fittings and accessories shall be determined based on the reference price of similar procurement and location formulated by the Group with its Independent Third Party clients; and
iii. for the avoidance of doubt, a discount of approximately 50% of the service fee under the interior decorating and furnishing services shall be granted if the Group is engaged for its full services under interior decorating and furnishing services (i.e. concept design, detail design and procurement, supply, installation and/or setting up of furniture, fittings and accessories)

As at the Latest Practicable Date, there was no Prescribed Price governing the interior design services and the interior decorating and furnishing services provided by the Group.The Directors will observe, among other factors stated herein, the Prescribed Price should the Prescribed Price become applicable insofar as the Framework Agreement remains effective.

As provided for in the internal control measurements of the Group, in general, the gross profit margins of the interior design services and concept and detail design of interior decorating and furnishing services contemplated under the Framework Agreement and Gangyuan Design Services are expected to range from 40% to 60%, and the gross profit margin of the procurement, supply, installation and/or setting up of furniture, fittings and accessories of interior decorating and furnishing services contemplated under the Framework Agreement is expected to range from 20% to 40%. Such ranges of reasonable gross profit margin are set

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LETTER FROM THE BOARD

based on the previous trading history of the Group, the expertise and experience of the personnel involved and the prevailing market practice for interior design services and interior decorating and furnishing services. Insofar as the reasonable gross profit margins of interior design services and interior decorating and furnishing services can be maintained, the Group may provide a general discount of approximately 5%-10% as mentioned in 2(c) and a discount of approximately 50% as mentioned in 2d(iii) depending on the length of client relationship. For details, please refer to the section headed “E. Internal Control Measures in relation to the Framework Agreement and the Gangyuan Design Service Agreement” in this letter.

Furthermore, in general, the pricing policy for the reference unit price for interior design services and concept design and detail design service has taken into account the target margin of the Group, the historical service fee, anticipated design work and target market. Generally, in line with the marketing position and strategy in targeting high-end market of residential, private residence and hospitality projects, the unit price for private residence projects is the highest, followed by residential projects.The unit price for commercial projects is generally the lowest due to the relatively simpler design requirement.

In relation to the reference price of procurement, supply, installation and/or setting up of furniture, fittings and accessories, the Group normally charges on a cost-plus basis. The reference price has taken into account, among other things, the estimated procurement and travelling costs for the project and the target margin of the Group.

2. Proposed Annual Caps for the Framework Agreement

The proposed annual caps for the transactions contemplated under the Framework Agreement for the three years ending 31 December 2020 are HK$25,000,000, HK$25,000,000 and HK$25,000,000, respectively (equivalent to approximately RMB22,000,000, RMB22,000,000 and RMB22,000,000, respectively).

The proposed annual caps for the Framework Agreement were determined based on (i) the awarded contact sum; (ii) the potential contract sum; and (iii) the prevailing and expected market conditions as well as the input of the management, as stated below:

(i) the awarded contract sum and the actual sum of the said similar contracts. In 2018 until the Latest Practicable Date, the Group was awarded with six contracts but of similar nature with an aggregate contract sum (net of value added tax) being approximately HK$20.0 million (representing approximately RMB17.6 million) amongst which approximately HK$19.3 million is expected to be recognised in FY2018. At the same time, based on the previous transactions, the clients of the Group may (a) vary the agreed scope of services during the contractual term, leading to change in the total agreed and/or estimated contract sum; and (b) be awarded with ad hoc projects that may be engaged with Jangho Chuangxin and/or its subsidiaries. The total service fees incurred previously inclusive of these variation orders would generally be varied by approximately 5%-10%.

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LETTER FROM THE BOARD

(ii) the contracts under bidding and/or the preliminary quotations or estimate provided to the clients for the similar contracts. In 2018 until the Latest Practicable Date, the Group submitted three contracts for similar services with an aggregate contract sum (net of value added tax) of approximately HK$11.6 million (representing approximately RMB10.2 million); and
(iii) the prevailing and expected market conditions of the designed area as well as the input of the management based on their experience and expertise. Based on the section headed “Industry Overview” of the Prospectus, it is expected that the real estate market in the PRC and the demand for renovation projects, the interior design and decorating services market are expected to experience a growth in the near future.

3. Information about the Parties to the Framework Agreement

The Group is an internationally renowned and award-winning interior design services and interior decorating and furnishing services provider. Well recognised in the PRC, Hong Kong and the overseas, the Group is known for undertaking residential, private residence and hospitality projects which target the high-end market in the PRC and Hong Kong.

Jangho Chuangxin is principally engaged in property development and investments.

4. Reasons for and Benefits of Entering into the Framework Agreement

Pursuant to the Framework Agreement, the Group is required to provide interior design and interior decorating and furnishing services to Jangho Chuangxin and/or its subsidiaries.As disclosed in the Prospectus, the Group plans to further develop its interior design services and interior decorating and furnishing services which is in line with the Group’s ordinary and usual course of business.The Directors (excluding the independent non-executive Directors) believe that the Framework Agreement will facilitate such plan by capturing future business opportunities, expanding interior design and interior decorating and furnishing services of the Group and strengthening the Group’s visibility in respect of such services in the PRC.This will also expand the source of income stream of the Group.

Furthermore, the terms of the Framework Agreement were determined after arm’s length negotiations between the respective parties thereto. In light of the above, the Directors (excluding the independent non-executive Directors) are of the view that the Framework Agreement has been entered on normal commercial terms and in the ordinary and usual course of business of the Group, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

C. THE GANGYUAN DESIGN SERVICE AGREEMENT

1. Principal terms of the Gangyuan Design Service Agreement

Date

13 June 2018

Parties

(1) Gangyuan Decoration, which is owned as to 26.25% by Jangho Co., 68.75% by Jangho Chuangzhan and 5% by Mr. Fu Jianping, a director of some of the Group’s subsidiaries, respectively, as main contractor; and
(2) Gangyuan Design, which is owned as to 80% by 梁志天室內設計(北京)有限公司, a wholly-owned subsidiary of the Company, and 20% by Gangyuan Decoration, as subcontractor

Duration

From the date of the Gangyuan Design Service Agreement to 31 December 2020

Nature of transaction

Gangyuan Decoration agrees to subcontract to Gangyuan Design the interior design services for the projects undertaken by Gangyuan Decoration. Each of the Gangyuan Design Services so provided shall be effected and governed by the individual subcontracting contracts to be entered into between Gangyuan Design and Gangyuan Decoration in accordance with the terms of the Gangyuan Design Service Agreement. If there is any conflict between the terms of a subcontracting contract and the Gangyuan Design Service Agreement, the latter shall prevail

Pricing basis

The subcontracting fees for the Gangyuan Design Services shall be agreed by Gangyuan Decoration and Gangyuan Design under the individual subcontracting contracts and determined in accordance with:

(i) the Prescribed Price;

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LETTER FROM THE BOARD

(ii) if there is no Prescribed Price available, the price should be determined on an arm’s length basis between Gangyuan Design and Gangyuan Decoration and be on terms similar to, or more favourable (in terms of the interest of the Group) than those agreed between Gangyuan Design and its Independent Third Party customers with reference to:
a. comparative market prices (if available); and
b. costs incurred or to be incurred in relation to the relevant Gangyuan Design Services and subject to a reasonable gross profit margin requirement

Payment terms

Unless otherwise agreed, the Gangyuan Design Services shall be paid by Gangyuan Decoration to Gangyuan Design in the following manner:
20% of the service fees shall be paid on the date of signing of the relevant subcontracting contract;
40% of the service fees shall be paid within seven business days after Gangyuan Decoration confirming the detail design submitted by Gangyuan Design;
30% of the service fees shall be paid within seven business days after Gangyuan Decoration confirming the project documentation submitted by Gangyuan Design; and
the remaining 10% of the service fees shall be paid within seven business days after the inspection and acceptance of the work by Gangyuan Decoration

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LETTER FROM THE BOARD

Right of first refusal

If Gangyuan Decoration intends to subcontract any interior design services to any third party (other than any member of the Group) (the “ Subcontracting Services ”), Gangyuan Decoration shall give a written notice to Gangyuan Design (the “ Subcontracting Notice ”) at least 10 business days before entering into any agreement with such third party, setting out (i) the scope of the Subcontracting Services; and (ii) the fees of the Subcontracting Services. Within three business days upon receiving the Subcontracting Notice, Gangyuan Design shall at any time give a written notice to Gangyuan Decoration to exercise a right of first refusal to undertake the Subcontracting Services in accordance with the scope and fees as set out in the Subcontracting Notice. If Gangyuan Design waives such right of first refusal by way of written notice or did not exercise such right of first refusal by written notice within three business days upon receiving the Subcontracting Notice, Gangyuan Decoration may subcontract the Subcontracting Services to the third party under the scope and fees no more favourable than those as set out in the Subcontracting Notice

2. Gangyuan Design Annual Cap

The maximum annual transaction amounts for the Gangyuan Design Services for the three years ending 31 December 2020 are RMB7,000,000, RMB7,000,000 and RMB7,000,000, respectively.

The annual caps for the Gangyuan Design Service Agreement were determined based on:

(i) the historical transaction amount of the Previous Gangyuan Design Services subcontracted to Gangyuan Design by Gangyuan Decoration. For financial year ended 31 December 2016 and financial year ended 31 December 2017, the aggregated transaction amounts of the interior design service provided by Gangyuan Design to Gangyuan Decoration were approximately RMB3.0 million and RMB6.0 million, respectively. For the eight months ended 31 August 2018, the actual transactions amount attributable to Gangyuan Decoration was RMB3,035,026; and

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LETTER FROM THE BOARD

(ii) the expected business growth of the interior design services having regard to the market demand in the PRC. In addition to the intention of the Company and Gangyuan Decoration to remain a stable business cooperation during the period of the Gangyuan Design Service Agreement, based on the section headed “Industry Overview” of the Prospectus, it is expected that the real estate market in the PRC and the demand for renovation projects, the interior design and decorating services market are expected to experience a growth in the near future.

3. Information about the Parties to the Gangyuan Design Service Agreement

Gangyuan Decoration is principally engaged in the provision of contracting of fitting-out works in the PRC. Gangyuan Design is principally engaged in the interior design services in the PRC, specialising in the provision of professional design services for public projects and design service for mid-end customers in the PRC.

4. Reasons for and Benefits of Entering into the Gangyuan Design Service Agreement

Prior to entering into the Gangyuan Design Service Agreement, Gangyuan Design had been providing interior design service similar to Gangyuan Design Services to Gangyuan Decoration since the acquisition of 80% interest in Gangyuan Design in September 2016 (the “ Previous Gangyuan Design Services ”).The Previous Gangyuan Design Services had been conducted on normal commercial terms and in the ordinary and usual course of business of the Group. By providing the Gangyuan Design Services, Gangyuan Design could establish, maintain and develop a long-term relationship with Gangyuan Decoration and thereby procure a stable source of revenue for the Group.The continuous use of the Gangyuan Design Services by Gangyuan Decoration could assist in building the Group’s reputation in the PRC, which could in turn increase the market recognition of the Group’s interior design services in the PRC.

The Directors (excluding the independent non-executive Directors), are of the view that the Gangyuan Design Service Agreement and the Gangyuan Design Annual Cap were (i) negotiated on an arm’s length basis and on normal commercial terms or better; and are (ii) fair and reasonable and in the best interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

D. HISTORICAL TRANSACTION AMOUNT

The table below sets out the historical transaction amount of the service fees paid to the Group by associates of Mr. Liu:

			For the eight
	For the year ended		months ended
	31 December		31 August
	2016	2017	2018
	RMB	RMB	RMB
Gangyuan Decoration	2,978,395	6,009,286	3,035,026
			(Note1)
北京承達創建裝飾工程有限公司_(Note 2)_	–	77,550	–
北京中航油置業有限公司_(Note 2)_	–	943,396	–
北京花宇置業有限公司_(Note 2)_	–	1,113,208	–

Notes:

The amount includes the actual amount incurred pursuant to the Gangyuan Design Service Agreement and other transactions entered into between the Group and Gangyuan Decoration prior to the Gangyuan Design Service Agreement up to 31 August 2018.
Mr. Liu holds controlling interests over these related companies.Therefore, each of these companies are associates of Mr. Liu.

E. INTERNAL CONTROL MEASURES IN RELATION TO THE FRAMEWORK AGREEMENT AND THE GANGYUAN DESIGN SERVICE AGREEMENT

In order to ensure that the Jangho Chuangxin Design Services and the Gangyuan Design Services are provided under the terms similar to, or more favourable (in terms of the interest of the Group) than those agreed between the Group and its Independent Third Party customers when there is no Prescribed Price, the Group has adopted the following measures:

in general, the gross profit margins of the interior design services and concept design and detail design of interior decorating and furnishing services contemplated under the Framework Agreement and Gangyuan Design Services are expected to range from 40% to 60%, and the gross profit margin of the procurement, supply, installation and/or setting up of furniture, fittings and accessories of interior decorating and furnishing services contemplated under the Framework Agreement is expected to range from 20% to 40%.These gross profit margins are arrived at after considering, inter alia, the prevailing market conditions and the gross profit margins of similar transactions conducted between the Group and Independent Third Parties;

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LETTER FROM THE BOARD

the finance personnel with manager grade or above of the Group will conduct regular checks to review and assess whether the Jangho Chuangxin Design Services and the Gangyuan Design Services are conducted in accordance with the terms of the Framework Agreement and the Gangyuan Design Service Agreement, respectively, to ensure that the fees the Group charged for a specific Jangho Chuangxin Design Service or Gangyuan Design Service is fair and reasonable under the then prevailing market conditions and in accordance with the aforesaid pricing policy; and
the Company’s external auditor and the independent non-executive Directors will conduct an annual review of the performance of the continuing connected transactions of the Company, including the Jangho Chuangxin Design Services and the Gangyuan Design Services.

F. LISTING RULES IMPLICATIONS

As at the Latest Practicable Date, Gangyuan Decoration was a substantial shareholder of Gangyuan Design and a non-wholly owned subsidiary of Jangho Co., one of the controlling shareholders of the Company.Accordingly, Gangyuan Decoration is an associate of Jangho Co. and Mr. Liu under the Listing Rules and is regarded as a connected person of the Company.The Gangyuan Design Service Agreement and the transactions contemplated under the Gangyuan Design Service Agreement constitute continuing connected transactions of the Company under the Listing Rules. Reference is made to the Prospectus.While the Company has applied for, and the Stock Exchange has granted the Company, the Waiver, the Waiver is valid if none of the terms of the transactions contemplated under the Gangyuan Design Service Agreement is altered or if the Company does not enter into any new agreement with any connected persons in the future.

In light of the above, and as one or more of the applicable percentage ratios for the proposed annual caps of the transactions contemplated under the Framework Agreement, when aggregated with the Gangyuan Design Annual Cap, is more than 5%, but are less than 25% and the proposed annual caps of the transactions contemplated under the Framework Agreement and the Gangyuan Design Annual Cap are more than HK$10,000,000, (i) the

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LETTER FROM THE BOARD

Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap, are therefore subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

G. EGM

The notice of the EGM is set out on pages EGM-1 to EGM-2 of this circular.At the EGM, the Company proposes to seek the approvals of the Independent Shareholders relating to (i) the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap.

As Mr. Liu owns, directly and indirectly, Jangho Chuangxin, and Gangyuan Decoration is a non-wholly owned subsidiary of Jangho Co., one of the Company’s controlling shareholders and an associate of Mr. Liu, Mr. Liu and his associates will abstain from voting on the resolutions in relation to (i) the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap, at the EGM. At the EGM, votes will be taken by poll.

Save as disclosed above, to the best knowledge, information and belief of the Directors, having made all reasonable enquiries, no other Shareholder has a material interest in and is required to abstain from voting to approve (i) the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap, at the EGM.

The Independent Board Committee will advise the Independent Shareholders in relation to their voting on the resolutions relating to (i) the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap.

Lego Corporate Finance Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to (i) the Framework Agreement and its proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the Gangyuan Design Annual Cap.

A form of proxy for use at the EGM is enclosed with this circular and such form of proxy is also published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.sldgroup.com), respectively. Whether or not you are able to attend the EGM, please complete and sign the form of proxy in accordance with the instructions printed thereon and return it, together with the power of attorney or other authority (if any) under which it is

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LETTER FROM THE BOARD

signed or a certified copy of that power of attorney or authority, to the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East,Wan Chai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and delivery of the form of proxy will not preclude you from attending and voting at the EGM if you so wish and in such event, the form of proxy shall be deemed to be revoked.

H. RECOMMENDATION

The Board (including the independent non-executive Directors) is of the opinion that the terms of (i) the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap, are fair and reasonable so far as the Company is concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends that the Independent Shareholders vote in favour of the resolutions set out in the notice of the EGM for the approval of (i) the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap. The Board is also of the view that the Framework Agreement and the Gangyuan Design Service Agreement, have been entered into in the ordinary and usual course of business of the Group, and that the terms, as well as the the proposed annual caps of the Framework Agreement and the Gangyuan Design Annual Cap applicable thereto, are on normal commercial terms, fair and reasonable, and in the interests of the Company and the Shareholders as a whole.

Mr. Xu Xingli is currently the chief executive officer and the general manager of Jangho Co., one of the controlling shareholders of the Company. Mr. Xie Jiangyu holds directorship in Jangho Group. Mr.Yip Kwok Hung Kevin is a director of EagleVision. Save as disclosed, no other Director has a material interest in (i) Framework Agreement and its proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the Gangyuan Design Annual Cap, and the respective transactions contemplated thereunder and no other Director is required to abstain from voting in the board resolutions in relation to the resolution set out in the notice of EGM.

I. INDEPENDENT BOARD COMMITTEE

The Independent Board Committee, comprising all of the independent non-executive Directors, namely Mr. Liu Yi, Mr. Sun Yansheng and Mr. Tsang Ho Ka Eugene, has been formed to advise the Independent Shareholders in relation to their voting on the resolution in respect of (i) the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap.

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LETTER FROM THE BOARD

J. CLOSURE OF REGISTER OF MEMBERS

The share register of the Company will be closed from Friday, 9 November 2018 to Wednesday, 14 November 2018 (both days inclusive), during which no transfer of shares will be effected. In order to be entitled to attend the EGM and vote at the EGM, all completed share transfer forms accompanying with the relevant share certificates must be lodged with the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, not later than 4:30 p.m. on Thursday, 8 November 2018.The address of Computershare Hong Kong Investor Services Limited is Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.

K. ADDITIONAL INFORMATION

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

Yours faithfully, By order of the Board Xu Xingli Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

STEVE LEUNG DESIGN GROUP LIMITED 梁志天設計集團有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 2262)

30 October 2018

To the Independent Shareholders

Dear Sir/Madam,

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF THE EXTRAORDINARY GENERAL MEETING

We have been appointed as members of the Independent Board Committee to consider (i) the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; and (ii) the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap, details of which are set out in the Letter from the Board contained in this circular to the shareholders of the Company dated 30 October 2018 (the “ Circular ”), of which this letter forms part, and to advise you as to the fairness and reasonableness of the same. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having considered (i) the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; (ii) the Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap; and (iii) the advice and opinion of the Independent Financial Adviser in relation thereto as set out on pages 23 to 48 of the Circular, we are of the opinion that (i) the Framework Agreement was entered into in the ordinary and usual course of business with normal commercial terms; (ii) the transactions contemplated thereunder the Framework Agreement and its proposed annual caps are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole; (iii) the Gangyuan Design Service Agreement was entered into in the ordinary and usual course of business with normal commercial terms; and (iv) the transactions contemplated thereunder the Gangyuan Design Service Agreement and the Gangyuan Design Annual Cap are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We therefore recommend that you vote in favour of the resolution to be proposed at the EGM to approve the (i) the Framework Agreement and the transactions contemplated thereunder and the proposed annual caps; and (ii) Gangyuan Design Service Agreement and the transactions contemplated thereunder and the Gangyuan Design Annual Cap.

Yours faithfully, Independent Board Committee Liu Yi Sun Yansheng Independent Independent non-executive Director non-executive Director

Tsang Ho Ka Eugene Independent non-executive Director

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter of advice from Lego Corporate Finance Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of incorporation into this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the Gangyuan Design Service Agreement, the Gangyuan Design Annual Cap, the Framework Agreement, and the Jangho Chuangxin Annual Cap (as defined below).

==> picture [403 x 43] intentionally omitted <==

30 October 2018

To the Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the continuing connected transactions under the Gangyuan Design Service Agreement (including Gangyuan Design Annual Cap) and the Framework Agreement (including the proposed annual caps for the transactions contemplated thereunder for the three years ending 31 December 2020 (the “ Jangho Chuangxin Annual Cap ”)), details of which are set out in the “Letter from the Board” (the “ Letter ”) contained in the circular dated 30 October 2018 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part.Terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

For the purpose of expanding the interior design services and interior decorating and furnishing services of the Group in the PRC, on 28 September 2018, the Company entered into the Framework Agreement with Jangho Chuangxin, pursuant to which the Company conditionally agreed to provide (i) interior design services; and (ii) interior decorating and furnishing services (the “ Jangho Chuangxin Design Services ”) to Jangho Chuangxin and/or its subsidiaries.As disclosed in the Letter, on 13 June 2018, Gangyuan Design entered into the Gangyuan Design Service Agreement with Gangyuan Decoration, pursuant to which Gangyuan Decoration agreed to subcontract to Gangyuan Design the interior design services for the projects undertaken by Gangyuan Decoration (the “ Gangyuan Design Services ”).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at the Latest Practicable Date, Jangho Chuangxin was owned, directly and indirectly, by Mr. Liu, a controlling shareholder of the Company.Accordingly, Jangho Chuangxin is an associate of Mr. Liu and is regarded as a connected person of the Company.As a result, the entering into of the Framework Agreement and the transactions contemplated under the Framework Agreement constitute continuing connected transactions of the Company under the Listing Rules. As at the Latest Practicable Date, Gangyuan Decoration was a substantial shareholder of Gangyuan Design and a non-wholly owned subsidiary of Jangho Co., one of the controlling shareholders of the Company.Accordingly, Gangyuan Decoration is an associate of Jangho Co. and Mr. Liu under the Listing Rules and is regarded as a connected person of the Company.The Gangyuan Design Service Agreement and the transactions contemplated under the Gangyuan Design Service Agreement constitute continuing connected transactions of the Company under the Listing Rules. Furthermore, with reference to the Prospectus, while the Company has applied for, and the Stock Exchange has granted the Company, the Waiver, the Waiver is valid if none of the terms of the transactions contemplated under the Gangyuan Design Service Agreement is altered or if the Company does not enter into any new agreement with any connected persons in the future.

As the Gangyuan Design Service Agreement and the Framework Agreement are entered into between the Group and parties which are associates of Mr. Liu within a 12-month period, the transactions contemplated under the Gangyuan Design Service Agreement and the transactions contemplated under the Framework Agreement are aggregated as a series of transactions pursuant to Rule 14A.81 of the Listing Rules. In light of the above, and as one or more of the applicable percentage ratios for the Jangho Chuangxin Annual Cap, when aggregated with the Gangyuan Design Annual Cap, is more than 5%, but are less than 25% and the Jangho Chuangxin Annual Cap and the Gangyuan Design Annual Cap are more than HK$10,000,000, the transactions contemplated under the Gangyuan Design Service Agreement and the Framework Agreement are therefore subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. LiuYi, Mr. SunYansheng and Mr.Tsang Ho Ka Eugene, has been established to advise the Independent Shareholders in respect of the Gangyuan Design Service Agreement, the Framework Agreement and the transactions contemplated thereunder, and to advise the Independent Shareholders as to whether to vote in favour of the resolutions to be proposed at the EGM to approve the Gangyuan Design Service Agreement (including the Gangyuan Design Annual Cap) and the Framework Agreement (including the Jangho Chuangxin Annual Cap). As the Independent Financial Adviser, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders in such regard.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at the Latest Practicable Date, Lego Corporate Finance Limited did not have any relationship or interest with the Company or any other parties that could reasonably be regarded as relevant to the independence of Lego Corporate Finance Limited. During the past two years, Lego Corporate Finance Limited has been engaged as an independent financial adviser of Sundart Holdings Limited (Stock code: 1568) (“ Sundart ”), the shares of which are listed on the Stock Exchange and is one of the controlling shareholders of the Company in relation to (i) the major and connected transaction in respect of the acquisition of the entire issued share capital of 北京承達創建裝飾工程有限公司 (Sundart Engineering & Contracting (Beijing) Limited) by Sundart Engineering Investments Limited (承達工程投資有限公司), an indirect wholly-owned subsidiary of Sundart as transferee, from Jangho Curtain Wall Hongkong Limited (江河幕墻香港有限公司) and Jangho Co. as transferors; and (ii) the amendment to the deed of non-competition given by the controlling shareholders of Sundart in favour of Sundart (collectively, the “ Transactions* ”), details of which were disclosed in Sundart’s circular dated 30 June 2017. Jangho Curtain Wall Hongkong Limited (江河幕墻香港有限公司) and Jangho Co. are also controlling shareholders of the Company. Having considered that (i) our role in the Transactions were to give independent opinions and advices to the independent shareholders of Sundart regarding the fairness and reasonableness of the Transactions; (ii) we were independent from Sundart and its subsidiaries, and the parties to the Transactions; (iii) we have no substantial reliance on the normal professional fees being paid or payable to us in connection with the Transactions; and (iv) the Transactions were not related to the Group or the Gangyuan Design Service Agreement or the Framework Agreement, we are of the view that our appointment as Sundart’s independent financial adviser in respect of the Transactions would not affect our independence with the Group. Other than disclosed above, in the last two years, there was no engagement between the Group and Lego Corporate Finance Limited. Apart from normal professional fees being paid or payable to us in connection with this appointment as the Independent Financial Adviser, no arrangements exist whereby we have received or will receive any fees or benefits from the Group or Jangho Chuangxin or Gangyuan Decoration.Accordingly, we are qualified to give independent advice in respect of the terms of Gangyuan Design Service Agreement (including the Gangyuan Design Annual Cap) and the terms of the Framework Agreement (including the Jangho Chuangxin Annual Cap).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

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

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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation, we have considered the following principal factors and reasons:

1. Background of the Group, Jangho Chuangxin and Gangyuan Decoration

The Company was incorporated in the Cayman Islands with limited liability and the Group is primarily engaged in the provision of interior design services and interior decorating and furnishing services. The Group is known for undertaking residential, private residence and hospitality projects which target the high-end market in the PRC and Hong Kong.The Group mainly operates through three segments, namely interior design service, interior decorating and furnishing service and product design service. The interior design service segment is principally engaged in the provision of interior design and consultancy services which encompasses the designing of interior space through the interior design technics and artistic interpretation to visually and functionally enhance a property space. The interior decorating and furnishing service segment is principally engaged in the provision of interior decorating and consultancy services which encompasses the furnishing and optimisation of the resulting functional space to achieve the ambience desired by the client through the interior design services.The product design service segment is principally engaged in the provision of design and consultancy services which encompasses the aesthetic and functional designing of household and lifestyle products for well-known brands to boost market appeal. For the year ended 31 December 2017, the interior design service, interior decorating and furnishing service and product design service accounted for approximately 82.9%, 16.3% and 0.8% of the Group’s total revenue, respectively.

Jangho Chuangxin is a company incorporated in the PRC with limited liability and is principally engaged in property development and investments.

As disclosed in the Prospectus, Gangyuan Decoration is incorporated in the PRC with limited liability and is principally engaged in the provision of contracting of fitting-out works in the PRC.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. The Framework Agreement

2.1 Principal terms of the Framework Agreement

As disclosed in the Letter, for the purpose of expanding the interior design services and interior decorating and furnishing services of the Group in the PRC, the Company entered into the Framework Agreement with Jangho Chuangxin, pursuant to which the Company conditionally agreed to provide Jangho Chuangxin Design Services to Jangho Chuangxin and/or its subsidiaries. Set out below is a summary of the principal terms of the Framework Agreement.

Date:

28 September 2018

Parties:

(i) the Company; and
(ii) Jangho Chuangxin, a company owned directly and indirectly, through Jiangheyuan, by Mr. Liu.

Duration:

Effective upon the date of obtaining the Independent Shareholders’ approval to 31 December 2020

Nature of transaction:

The Group conditionally agrees to provide the following services to Jangho Chuangxin and/or its subsidiaries:

(i) interior design services; and
(ii) interior decorating and furnishing services.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pricing basis:

The fees under the individual contract shall be determined in accordance with:

(i) the pricing standard prescribed by the state price administration department (國家物價管理部門) or regional price administration department (地方物價管理部門) (the” Prescribed Price ”);
(ii) if there is no Prescribed Price available, the price should be determined on an arm’s length basis between Jangho Chuangxin and the Company and be on terms similar to, or more favourable (in terms of the interest of the Group) to the Group than those agreed between the Group and its Independent Third Party clients with reference to:
a. comparative market prices (if available);
b. costs incurred or to be incurred in relation to the relevant interior design services and interior decorating and furnishing services and subject to a reasonable gross profit margin requirement;
c. in relation to the service fee for the provision of interior design services, such service fee shall be determined based on the reference unit price formulated by the Group, adjusted by factors such as the general discounts given to its long-term strategic clients or any other discount that is in the interest of the Group. For the avoidance of doubt, such discount shall be approximately 5%-10% of the total service fee; and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

d. in relation to the fee for the provision of interior decorating and furnishing services which may consist of the service fee for concept design and detail design and the fee for procurement, supply, installation and/or setting up of furniture, fittings and accessories,
(i) the service fee for concept design and detail design shall be determined based on the reference unit price formulated by the Group, adjusted by factors such as the general discounts given to its long-term strategic clients or any other discount that is in the interest of the Group;
(ii) the fee for the procurement, supply, installation and/or setting up of furniture, fittings and accessories shall be determined based on the reference price of similar procurement and location formulated by the Group with its Independent Third Party clients; and
(iii) for the avoidance of doubt, a discount of approximately 50% of the service fee under the interior decorating and furnishing services shall be granted if the Group is engaged for its full services under interior decorating and furnishing services (i.e. concept design, detail design and procurement, supply, installation and/or setting up of furniture, fittings and accessories).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Payment terms:

For interior design services:

(1) 20% of the service fees shall be paid on the date of signing of the relevant contract;
(2) 20% of the service fees shall be paid within seven business days after confirming the concept design;
(3) 30% of the service fees shall be paid within seven business days after confirming the detail design;
(4) 20% of the service fees shall be paid within seven business days after submitting the project documentation; and
(5) the remaining 10% of the service fees shall be paid within seven business days after inspection and acceptance of the work.

For interior decorating and furnishing design service:

(1) in relation to concept design and detail design only,
(a) 20% of the service fees shall be paid on the date of signing of the relevant contract;
(b) 40% of the service fees shall be paid within seven business days after confirming the concept design; and
(c) the remaining 40% of the service fees shall be paid within seven business days after confirming the detail design.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(2) in relation to the procurement, supply, installation and/or setting up of furniture, fittings and accessories only,
(a) 50% of the fees shall be paid on the date of signing of the relevant contract; and
(b) the remaining 50% of the fees shall be paid within seven business days after issuing the invoice but prior to the delivery of the furniture, fittings and accessories.

Pursuant to the Framework Agreement, for each of the Jangho Chuangxin Design Services contemplated thereunder, the Group will enter into an individual contract with Jangho Chuangxin or its subsidiaries to govern the terms for each Jangho Chuangxin Design Services (which shall not override the terms of the Framework Agreement). As discussed with the Management, the entering into of the individual contract will enable the Group and Jangho Chuangxin to specify the nature and detailed services to be provided for each of the project by the Group and hence the parties to the individual contract could negotiate and determinate the terms of service based on the circumstance of each of the project to be undertaken by the Group under the individual contract.

Under the Framework Agreement, the fees in relation to the Jangho Chuangxin Design Services under each of the individual contracts shall be determined in accordance with (i) the pricing standard prescribed by the state price administration department (國家物價管理部門) or regional price administration department (地方物價管理部門) (i.e. the Prescribed Price); and (ii) if there is no Prescribed Price available, the price should be determined on an arm’s length basis between Jangho Chuangxin and the Company and be on terms similar to, or more favourable (in terms of the interest of the Group) to the Group than those agreed between the Group and its Independent Third Party clients with reference to (a) comparative market prices (if available); (b) costs incurred or to be incurred in relation to the relevant interior design services and interior decorating and furnishing services and subject to a reasonable gross profit margin requirement; and (c) the reference unit price formulated by the Group, adjusted by factors (if applicable) such as the general discounts given to its long-term strategic clients or any other discount that is in the interest of the Group.

As disclosed in the Letter, as at the Latest Practicable Date, there was no Prescribed Price governing the interior design services and the interior decorating and furnishing services provided by the Group.The Directors will observe, among other factors stated in the Letter, the Prescribed Price should the Prescribed Price become applicable insofar as the Framework Agreement remains effective. As further disclosed in the Letter, the range of reasonable gross profit margin is set based on the previous trading history of the Group, the expertise and experience of the personnel involved and the prevailing market practice for interior design services and interior decorating and furnishing services. For

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

details, please refer to the section headed “E. Internal Control Measures in relation to the Framework Agreement and the Gangyuan Design Service Agreement” in the Letter. Furthermore, in general, the pricing policy for the reference unit price for interior design services and concept design and detail design service has taken into account the target margin of the Group, the historical service fee, anticipated design work and target market. Generally, in line with the marketing position and strategy in targeting high-end market of residential, private residence and hospitality projects, the unit price for private residence projects is the highest, followed by residential projects. The unit price for commercial projects is generally the lowest due to the relatively simpler design requirement. In relation to the reference price of procurement, supply, installation and/or setting up of furniture, fittings and accessories, the Group normally charges on a cost-plus basis. The reference price has taken into account, among other things, the estimated procurement and travelling costs for the project and the target margin of the Group.

As disclosed in the Prospectus, when a potential project for the provision of interior design services and interior decorating and furnishing services is identified, a fee proposal is generally prepared by the Group based on (i) reference unit price formulated for different categories of projects and services; and (ii) design area, adjusted by factors such as the total scope and volume of work, the identity and the Group’s relationship with the client, the number of contracts awarded by the client at the relevant time and the then market conditions.We note that the pricing basis under the Framework Agreement was in line with the Group’s pricing policy.

We have reviewed in aggregate 13 sets of (i.e. three to five sets for each type of services similar to that to be provided under the Framework Agreement, being (i) interior design services; (ii) concept design and detailed design under the interior decorating and furnishing design services; and (iii) procurement, supply, installation and/or setting up of furniture, fittings and accessories under the interior decorating and furnishing design services) sample historical contracts (the “ Sample Jangho Chuangxin Contracts ”) entered into between the Group and its customers who are Independent Third Parties for similar services as the Jangho Chuangxin Design Services.As advised by the Management, the contracts issued by the Group to its customers were standardised for each type of services. Considering that the contracts were standardised, we are of the view that three sets of sample contracts for each type of services under the Framework Agreement are sufficient and representative for us to form our opinion in this letter. We noted that (i) the pricing basis stipulated in the Sample Jangho Chuangxin Contracts was in line with the pricing basis under the Framework Agreement; (ii) for the contracts of provision of interior design services, the discount on reference unit price offered by the Group to such independent customers were higher than the discount stipulated in the Framework Agreement of approximately 5% to 10%; and (iii) for the contracts of provision of interior decorating and furnishing services, the discount on reference unit price offered by the Group to such independent customers were higher than the discount stipulated in the Framework Agreement of approximately 50%.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have also reviewed individual contracts awarded by Jangho Chuangxin or its subsidiaries to the Group under the Framework Agreement. We noted that the pricing basis stipulated in the individual contracts awarded by Jangho Chuangxin was in line with that stipulated in the Framework Agreement.

Given that the fees under the individual contracts will be determined (i) in accordance with the pricing standard of the state or regional price administration department; or (ii) on arm’s length basis with reference to comparative market prices, costs, gross profit margin, and reference unit price of similar service contracts entered into between the Group and its Independent Third Party customers, we consider that the pricing basis is on normal commercial term, fair and reasonable so far as the Company and the Independent Shareholders are concerned and in the interest of the Group and the Shareholders as a whole.

The payment terms for each of the Jangho Chuangxin Design Serves include various instalments of payment as specifically stipulated under the Framework Agreement, unless otherwise agreed between the parties to the individual contracts in which the payment terms of each subcontract shall be on fair and reasonable and normal commercial terms (or terms more favourable to the Group than the ones stipulated in the Framework Agreement).

Based on our review of the Sample Jangho Chuangxin Contracts, we note that the payment terms under the Framework Agreement are similar to, or, in the interest of the Group, better than, the payments terms offered by the Group to Independent Third Party customers for the provision of similar services. We have also reviewed individual contracts awarded by Jangho Chuangxin or its subsidiaries to the Group under the Framework Agreement and noted that the payment terms under the individual contracts are similar to, or more favourable to the Group than, the payment terms stipulated in the Framework Agreement.

As disclosed in the Letter, in order to ensure that the Jangho Chuangxin Design Services pursuant to the Framework Agreement are provided under the terms similar to, or more favourable (in terms of the interest of our Group) than those agreed between the Group and its Independent Third Party customers when there is no Prescribed Price, the Group has adopted the following internal control measures:

(i) in general, the gross profit margins of the interior design services and concept design and detail design of interior decorating and furnishing services contemplated under the Framework Agreement are expected to range from 40% to 60%, and the gross profit margin of the procurement, supply, installation and/or setting up of furniture, fittings and accessories of interior decorating and furnishing services contemplated under the Framework Agreement is

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

expected to range from 20% to 40%.These gross profit margins are arrived at after considering, inter alia, the prevailing market conditions and the gross profit margins of similar transactions conducted between the Group and Independent Third Parties;

(ii) the finance personnel with manager grade or above of the Group will conduct regular checks to review and assess whether the Jangho Chuangxin Design Services are conducted in accordance with the terms of the Framework Agreement to ensure that the fees charged by the Group for a specific Jangho Chuangxin Design Service is fair and reasonable under the then prevailing market conditions and in accordance with the pricing basis under the Framework Agreement; and
(iii) the Company’s external auditor and independent non-executive Directors will conduct an annual review of the performance of the continuing connected transactions of the Company, including the Jangho Chuangxin Design Services.

We have reviewed the schedule prepared by the Management stating gross profit margin of individual contracts awarded by Jangho Chuangxin or its subsidiaries to the Group under the Framework Agreement and noted that (i) for individual contracts for the provision of interior design services, interior decorating and furnishing services, the gross profit margins are within the range of 40% to 60% or at a higher rate; and (ii) for individual contracts for the provision of procurement, supply, installation and furnishing services, the gross profit margins are within the range of 20% to 40% or at a higher rate.We have also reviewed the schedule prepared by the Management stating gross profit margin of the Sample Jangho Chuangxin Contracts and noted that the gross profit margin under the Group’s internal control measurements as per above are within the range of gross profit margins of similar transactions conducted between the Group and Independent Third Parties.

Having considered that (i) the Framework Agreement shall prevail over the individual contract in case there is any conflict between the terms of Framework Agreement and the individual contract; (ii) the pricing basis under the Framework Agreement is in line with the pricing policy of the Group and the pricing basis offered by the Group to its Independent Third Party customers; (iii) the payment term stipulated in the Framework Agreement is similar to, or in the interest of the Group, better than the payment terms offered by the Group to Independent Third Party customers for the provision of similar services; and (iv) internal control procedures are in place, we are of the view that the Framework Agreement (including the pricing basis and payment terms) are on normal commercial terms, fair and reasonable so far as the Company and the Independent Shareholders are concerned and are in the interest of the Company and the Independent Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.2 Reasons for and benefits of entering into the Framework Agreement

Pursuant to the Framework Agreement, the Group is required to provide interior design and interior decorating and furnishing services to Jangho Chuangxin and/or its subsidiaries. As disclosed in the Prospectus, the Group plans to further develop its interior design services and interior decorating and furnishing services which, as stated in the Letter, is in line with the Group’s ordinary and usual course of business. The Directors believe that the Framework Agreement will facilitate such plan by capturing future business opportunities, expanding interior design and interior decorating and furnishing services of the Group and strengthening the Group’s visibility in respect of such services in the PRC. This will expand the source of income of the Group as well.

As disclosed in the Letter, the terms of the Framework Agreement were determined after arm’s length negotiations between the respective parties thereto and the Directors are of the view that the Framework Agreement has been entered into on normal commercial terms and in the ordinary and usual course of business of the Group. As further disclosed in the Prospectus, the total revenue derived from the interior decorating and furnishing services of the Group increased from approximately 4.1% to 16.3% for the year ended 31 December 2015 to 31 December 2017. As such, the Group plans to further develop such services.According to the interim report of the Group for the six months ended 30 June 2018, interior design segment remained the primary business and main source of revenue of the Group representing approximately 82.7% of total revenue for that period while the interior decorating and furnishing services accounted for approximately 16.1% of its total revenue for that period, and achieved year-on-year top line growth of 98.7%.Therefore, the Jangho Chuangxin Design Services are in the ordinary and usual course of business of the Group.

Having considered that (i) the Framework Agreement is expected to allow the Group to expand the source of income of the Group; (ii) the Jangho Chuangxin Design Services are in the ordinary and usual course of business of the Group and are expected to generate revenue for the Group; and (iii) the Framework Agreement is expected to allow the Group to continue to develop and grow its interior design and decorating services in the PRC, we are of the view that the entering into the Framework Agreement is within the ambit of the businesses currently run by the Group and is therefore conducted in the ordinary and usual course of the Group’s businesses and the Framework Agreement is in the interests of the Group and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.3 The Jangho Chuangxin Annual Cap for the Framework Agreement

Set out below are the Jangho Chuangxin Annual Cap for each of the three years ending 31 December 2020:

For the year ending 31 December 2018 2019 2020

Jangho Chuangxin HK$25.0 million Annual Cap (equivalent to approximately RMB22.0 million)

As set out in the Letter, the Jangho Chuangxin Annual Cap for the Framework Agreement were determined based on (i) the awarded contact sum; (ii) the potential contract sum; and (iii) the prevailing and expected market conditions as well as the input of the management, as stated below:

(a) the awarded contract sum and the actual sum of the said similar contracts. In 2018 until the Latest Practicable Date, the Group was awarded with six contracts of similar nature with an aggregate contract sum (net of value added tax) being approximately HK$20.0 million (representing approximately RMB17.6 million) amongst which approximately HK$19.3 million is expected to be recognised in the year ending 31 December 2018. At the same time, based on the previous transactions, the clients of the Group may (a) vary the agreed scope of services during the contractual term, leading to change in the total agreed and/or estimated contract sum; and (b) be awarded with ad hoc projects that may be engaged with Jangho Chuangxin and/or its subsidiaries. The total service fees incurred previously inclusive of these variation orders would generally be varied by approximately 5%-10%;
(b) the contracts under bidding and/or the preliminary quotations or estimates provided to the clients for similar contracts. In 2018 until the Latest Practicable Date, the Group submitted three contracts for similar services with an aggregate contract sum (net of value added tax) of approximately HK$11.6 million (representing approximately RMB10.2 million); and
(c) the prevailing and expected market conditions of the designed area as well as the input of the management based on their experience and expertise. Based on the section headed “Industry Overview” of the Prospectus, it is expected that the real estate market in the PRC and the demand for renovation projects, the interior design and decorating services market are expected to experience a growth in the near future.

We have reviewed the individual contracts awarded by Jangho Chuangxin or its subsidiaries to the Group under the Framework Agreement (all such contracts are subject to the Independent Shareholders’ approval of relevant ordinary resolution at the EGM).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We note that the aggregated contract sum (net of value added tax) receivable by the Group for such contracts awarded amounted to approximately HK$20.0 million, among which approximately HK$19.3 million is expected to be recognised by the Group in the year ending 31 December 2018, and approximately HK$0.7 million is expected to be recognised by the Group in the year ending 31 December 2019, based on the individual project duration estimated by the Management. The revenue which is expected to be recognised for the year ending 31 December 2018 accounted for approximately 77.2% of the Jangho Chuangxin Annual Cap for such year. As advised by the Management, the remaining amount of approximately HK$5.7 million after deducting the expected revenue to be recognised pursuant to the awarded contracts from the Jangho Chuangxin Annual Cap is buffer for ad hoc projects that may be engaged with Jangho Chuangxin and/or is subsidiaries, if any.

We have also reviewed the draft individual contracts under bidding and preliminary quotations provided to the clients in relation to Jangho Chuangxin Design Services. We note that the aggregated contract sum (net of value added tax) receivable by the Group for such contracts under bidding and/or with preliminary quotations amounted to approximately HK$11.6 million, all of which is expected to be recognised for the year ending 31 December 2019. Based on (i) the current awarded contracts; (ii) the contracts under bidding; and (iii) the contracts under quotation stage in relation to the Jangho Chuangxin Design Services, the revenue expected to be recognised by the Group in the year ending 31 December 2019 amounted to approximately HK$12.3 million, and accounted for approximately 49.2% of the Jangho Chuangxin Annual Cap for such year.

We have discussed with the Management with respect to the estimated contract sum prepared by the Management for the Jangho Chuangxin Design Services. We note that the Managements estimate that the aggregate contract sum in relation to the Jangho Chuangxin Design Services for each of the three years ending 31 December 2018, 2019 and 2020 would remain stable at approximately HK$25.0 million considering that it is the intention of the Company and Jangho Chuangxin to remain a stable business cooperation during the period of the Framework Agreement.

As disclosed in the Prospectus, benefiting from the urbanisation process in the PRC as well as constantly improving income level, needs for real estate property as well as a better user experience and aesthetic attractiveness have driven the growth in the interior design and decorating services market in the PRC, expanding from approximately RMB143.2 billion in 2013 to RMB194.2 billion in 2017 at a compound annual growth rate (“ CAGR ”) of approximately 7.9% in terms of revenue.The growth momentum of interior design and decorating services market is expected to be consistent from 2018 to 2022 due to the constant growing real estate market in the PRC as well as the increasing demand of renovation projects.Accordingly, it is estimated that the size of interior design and decorating services market in the PRC will rise from approximately RMB209.6 billion in 2018 to approximately RMB274.0 billion in 2022 at a CAGR of approximately 6.9%. In

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

view of the market size of specialised interior design and decorating services in the PRC is expected to grow steadily, the Group will therefore place more effort on seizing opportunities arising from the abovementioned developments.

Based on the foregoing, we consider that the bases of determination of the Jangho Chuangxin Annual Cap under the Framework Agreement are fair and reasonable, and that the Jangho Chuangxin Annual Cap are acceptable.

The Jangho Chuangxin Annual Cap under the Framework Agreement was determined by the Management based on assumptions including the projects to be undertaken by the Group from Jangho Chuangxin and its subsidiaries. Accordingly, we express no opinion as to how closely the actual transaction amounts of the continuing connected transaction under the Framework Agreement in comparison to the Jangho Chuangxin Annual Cap.

3. The Gangyuan Design Service Agreement

3.1 Principal terms of the Gangyuan Design Service Agreement

As disclosed in the Prospectus, on 13 June 2018, Gangyuan Design entered into the Gangyuan Design Service Agreement with Gangyuan Decoration, pursuant to which Gangyuan Decoration agreed to subcontract to Gangyuan Design the Interior Design Services for the projects undertaken by Gangyuan Decoration (the “ Gangyuan Design Services ”) during the term commencing from the date thereof and expiring on 31 December 2020. Set out below is a summary of the principal terms of the Gangyuan Design Service Agreement.

Date: 13 June 2018

Parties: (i) Gangyuan Decoration, which is owned as to 26.25% by Jangho Co., 68.75% by Jangho Chuangzhan and 5% by Mr. Fu Jianping, a director of some of the Group’s subsidiaries, respectively, as main contractor; and
(ii) Gangyuan Design, which is owned as to 80% by 梁志天室內設計(北京)有限公司, a wholly owned subsidiary of the Company, and 20% by Gangyuan Decoration, as subcontractor.

Duration:

From the date of the Gangyuan Design Service Agreement to 31 December 2020

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Nature of transaction:

Gangyuan Decoration agrees to subcontract to Gangyuan Design the interior design services for the projects undertaken by Gangyuan Decoration. Each of the Gangyuan Design Services so provided shall be effected and governed by the individual subcontracting contracts to be entered into between Gangyuan Design and Gangyuan Decoration in accordance with the terms of the Gangyuan Design Service Agreement. If there is any conflict between the terms of a subcontracting contract and the Gangyuan Design Service Agreement, the latter shall prevail.

Pricing basis:

The subcontracting fees for the Gangyuan Design Services shall be agreed by Gangyuan Decoration and Gangyuan Design under the individual subcontracting contracts and determined in accordance with:

(i) the Prescribed Price;
(ii) if there is no Prescribed Price available, the price should be determined on an arm’s length basis between Gangyuan Design and Gangyuan Decoration and be on terms similar to, or more favourable (in terms of the interest of the Group) than those agreed between Gangyuan Design and its Independent Third Party customers with reference to:
(a) comparative market prices (if available); and
(b) costs incurred or to be incurred in relation to the relevant Gangyuan Design Services and subject to a reasonable gross profit margin requirement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Payment terms:

Unless otherwise agreed, the Gangyuan Design Services shall be paid by Gangyuan Decoration to Gangyuan Design in the following manner:

20% of the service fees shall be paid on the date of signing of the relevant subcontracting contract;
40% of the service fees shall be paid within seven business days after Gangyuan Decoration confirming the detail design submitted by Gangyuan Design;
30% of the service fees shall be paid within seven business days after Gangyuan Decoration confirming the project documentation submitted by Gangyuan Design; and
the remaining 10% of the service fees shall be paid within seven business days after the inspection and acceptance of the work by Gangyuan Decoration.

Right of first refusal:

If Gangyuan Decoration intends to subcontract any interior design services to any third party (other than any member of the Group) (the “ Subcontracting Services ”), Gangyuan Decoration shall give a written notice to Gangyuan Design (the “ Subcontracting Notice ”) at least ten business days before entering into any agreement with such third party, setting out (i) the scope of the Subcontracting Services; and (ii) the fees of the Subcontracting Services. Within three business Days upon receiving the Subcontracting Notice, Gangyuan Design shall at any time give a written notice to Gangyuan Decoration to exercise a right of first refusal to undertake the Subcontracting Services in accordance with the scope and fees as set out in the Subcontracting Notice. If Gangyuan Design waives such right of first refusal by way of written notice or did not exercise such right of first refusal by written notice within three business days upon receiving the Subcontracting Notice, Gangyuan Decoration may subcontract the Subcontracting Services to the third party under the scope and fees no more favourable than those as set out in the Subcontracting Notice.

Pursuant to the Gangyuan Design Service Agreement, for each of the Gangyuan Design Services contemplated thereunder, Gangyuan Decoration will enter into an individual subcontracting contract with Gangyuan Design to govern the terms for each Gangyuan Design Services (which shall not override the terms of the Gangyuan Design

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Service Agreement). As discussed with the Management, the entering into the individual subcontracting contract will enable Gangyuan Design and Gangyuan Decoration to specify the nature and detailed services to be provided for each of the project by Gangyuan Design and hence the parties to the individual subcontracting contract could negotiate and determinate the terms of service based on the circumstance of each of the project to be undertaken by Gangyuan Design under the individual subcontracting contract.

Under the Gangyuan Design Service Agreement, the fees in relation to the Gangyuan Design Services under each of the individual contracts shall be determined in accordance with (i) the pricing standard prescribed by the state price administration department (國家物價管理部門) or regional price administration department (地方物價管理部門) (i.e. the Prescribed Price); and (ii) if there is no Prescribed Price available, the price should be determined on an arm’s length basis between Gangyuan Decoration and Gangyuan Design and be on terms similar to, or more favourable (in terms of the interest of the Group) to the Group than those agreed between Gangyuan Design and its Independent Third Party customers with reference to (a) comparative market prices (if available); and (b) costs incurred or to be incurred in relation to the relevant Gangyuan Design Services and subject to a reasonable gross profit margin requirement.

As disclosed in the Prospectus, when a potential project for the provision of Interior Design Services is identified, a fee proposal is generally prepared by the Group based on (i) reference unit price formulated for different categories of projects and services; and (ii) design area, adjusted by factors such as the total scope and volume of work, the identity and the Group’s relationship with the client, the number of contracts awarded by the client at the relevant time and the then market conditions.We note that the pricing basis under the Gangyuan Design Service Agreement was in line with the Group’s pricing policy.

We have reviewed three sets of sample contracts (the “ Sample Gangyuan Design Contracts ”) entered into between Gangyuan Design and its customers who are Independent Third Parties for the provision of services similar to the Gangyuan Design Services (i.e. interior design services).As advised by the Management, the contracts issued by the Group to its customers were standardised for each type of services. Considering that the contracts were standardised, we are of the view that three sets of sample contracts are sufficient and representative for us to form our opinion in this letter. We noted that the pricing basis provided by Gangyuan Design to Independent Third Party customers is in line with the pricing basis stipulated in the Gangyuan Design Service Agreement.

Given that the subcontracting fees under the individual subcontracting contracts will be determined (i) in accordance with the pricing standard of the state or regional price administration department; or (ii) on arm’s length basis with reference to comparative market prices, costs, and profit margin between Gangyuan Design and its Independent

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Third Party customers, we consider that the pricing basis is on normal commercial terms, fair and reasonable so far as the Company and the Independent Shareholders are concerned and in the interest of the Group and the Shareholders as a whole.

The payment terms for each of the Gangyuan Design Serves include various instalments of payment as specifically stipulated under the Gangyuan Design Service Agreement, unless otherwise agreed between the parties to the individual subcontracting contracts in which the payment terms of each subcontracts shall be on fair and reasonable and normal commercial terms (or terms more favourable to the Group than the ones stipulated in the Gangyuan Design Service Agreement).

Based on our review of the Sample Gangyuan Design Contracts, we noted that the payment terms stipulated in the Gangyuan Design Service Agreement is similar to, or in the interest of the Group, better than the payment terms of the contracts entered into between Gangyuan Design and its Independent Third Party Customers.

As disclosed in the Letter, in order to ensure that the Gangyuan Design Services pursuant to the Gangyuan Design Service Agreement are provided under the terms similar to, or more favourable (in terms of the interest of our Group) than those agreed between the Group and its Independent Third Party customers when there is no Prescribed Price, our Group has adopted the following internal control measures:

(i) in general, the gross profit margin of the Gangyuan Design Services is expected to range from 40% to 60%. The gross profit margin is arrived at after considering, inter alia, the prevailing market conditions and the gross profit margin of similar transactions conducted between Gangyuan Design and Independent Third Parties;
(ii) the finance personnel with manager grade or above of the Group will conduct regular checks to review and assess whether the Gangyuan Design Services are conducted in accordance with the terms of the Gangyuan Design Service Agreement to ensure that the fees charged by the Group for a specific Gangyuan Design Service is fair and reasonable under the then prevailing market conditions and in accordance with the pricing basis under the Gangyuan Design Service Agreement; and
(iii) the Company’s external auditor and independent non-executive Directors will conduct an annual review of the performance of the continuing connected transactions of the Company, including the Gangyuan Design Services.

We have also reviewed the schedule prepared by the Management stating gross profit margin of the Sample Gangyuan Design Contracts and noted that the gross profit margin under the Group’s internal control measurements as per above are within the range of the gross profit margins of similar transactions conducted between the Group and Independent Third Parties.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having considered that (i) the Gangyuan Design Service Agreement shall prevail over the individual subcontracting contract in case there is any conflict between the terms of Gangyuan Design Service Agreement and the individual subcontracting contract; (ii) the pricing basis under the Gangyuan Design Services Agreement is in line with the pricing policy of the Group and the pricing basis offered by the Group to its Independent Third Party customers; (iii) the payment term stipulated in the Gangyuan Design Service Agreement is similar to, or, in the interest of the Group, better than the payment terms offered by the Group to Independent Third Party customers for the provision of similar services; and (iv) internal control procedures are in place, we are of the view that the Gangyuan Design Service Agreement (including the pricing basis and payment terms) are on normal commercial terms, fair and reasonable so far as the Company and the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole.

3.2 Reasons for and benefits of entering into the Gangyuan Design Services Agreement

As disclosed in the Letter, Gangyuan Decoration is principally engaged in the provision of contracting of fitting-out works in the PRC. Prior to entering into the Gangyuan Design Service Agreement, Gangyuan Design had been providing interior design service similar to Gangyuan Design Services to Gangyuan Decoration since the Company’s acquisition of 80% interest in Gangyuan Design in September 2016 (the “ Previous Gangyuan Design Services ”).The Previous Gangyuan Design Services had been conducted on normal commercial terms and in the ordinary and usual course of business of the Group. By providing the Gangyuan Design Services, Gangyuan Design could establish, maintain and develop a long-term relationship with Gangyuan Decoration and thereby procure a stable source of revenue for the Group.The continuous use of the Gangyuan Design Services by Gangyuan Decoration could assist in building the Group’s reputation in the PRC, which could in turn increase the market recognition of the Group’s Interior Design Services in the PRC.

Having considered that (i) the Gangyuan Design Service Agreement is expected to allow the Group to expand the source of income of the Group; (ii) the Gangyuan Design Services are in the ordinary and usual course of business of the Group and are expected to generate revenue for the Group; and (iii) the Gangyuan Design Service Agreement is expected to allow the Group to continue to develop and grow its interior design and decorating services in the PRC, we are of the view that the entering into the Gangyuan Design Service Agreement is within the ambit of the businesses currently run by the Group and is therefore conducted in the ordinary and usual course of the Group’s businesses and is in the interests of the Group and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3.3 The Gangyuan Design Annual Cap for the Gangyuan Design Service Agreement

Previous transactions and historical transaction amounts

As disclosed in the Prospectus, prior to entering into of the Gangyuan Design Service Agreement, Gangyuan Design had been providing the Previous Gangyuan Design Services to Gangyuan Decoration since the Company’s acquisition of 80% interest in Gangyuan Design in September 2016.

Set out below are the aggregate transaction amounts of the interior design service provided by Gangyuan Design to Gangyuan Decoration for each of the year ended 31 December 2016 and 2017 and the eight months ended 31 August 2018:

			For the
			eight months
For the year ended			ended
31 December			31 August
2016		2017	2018
RMB million	_RMB _	million	RMB million
(approximately)	(approximately)		(approximately)

Historical	transaction
amount		3.0	6.0	3.0

Gangyuan Design Annual Cap

Set out below are the Gangyuan Design Annual Cap for each of the three years ending 31 December 2020:

For the year ending 31 December 2018 2019 2020 Gangyuan Design RMB7.0 million Annual Cap (equivalent to approximately HK$8.0 million)

As set out in the Letter, the Gangyuan Design Annual Cap for the Gangyuan Design Service Agreement were determined based on:

(a) the historical transaction amount of the Previous Gangyuan Design Services subcontracted to Gangyuan Design by Gangyuan Decoration. For financial year ended 31 December 2016 and financial year ended 31 December 2017, the aggregated transaction amounts of the interior design service provided by Gangyuan Design to Gangyuan Decoration

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

were approximately RMB3.0 million and RMB6.0 million, respectively. For the eight months ended 31 August 2018, the actual transactions amount attributable to Gangyuan Decoration was RMB3,035,026; and

(b) the expected business growth of our interior design services having regard to the market demand in the PRC.As disclosed in section headed �Industry Overview� of the Prospectus, a steady growth at a CAGR of 5.5% is expected, as an increase from RMB11,747.0 billion in 2018 to RMB14,573.1 billion in 2022 is estimated. In addition to the intention of the Company and Gangyuan Decoration to remain a stable business cooperation during the period of the Gangyuan Design Service Agreement, with the expected further expansion of real estate investment, interior design and decorating services market is considered as one of the major beneficiaries of the encouraging outlook of the real estate market.

We note that the historical transaction amount of the Previous Gangyuan Design Services subcontracted to Gangyuan Design by Gangyuan Decoration amounted to approximately RMB6.0 million for the year ended 31 December 2017, representing approximately 85.7% of the Gangyuan Design Annual Cap for each year ending 31 December 2018.

We have discussed with the Management with respect to the Gangyuan Design Annual Cap and have been advised that, despite the revenue recognised in relation to the Gangyuan Design Services was approximately RMB3.0 million for the eight months ended 31 August 2018, considering that the Gangyuan Design Services are in the ordinary and usual course of business of the Group and are expected to generate revenue for the Group, the Management would like to set the Gangyuan Design Annual Cap with reference to the largest annual historical transaction amount for the two years ended 31 December 2017 so as to not limit the potential business opportunity and revenue that could be generated from the Gangyuan Design Services Agreement. In addition, we also note from the Management that it is the intention of the Company and Gangyuan Decoration to remain a stable business cooperation during the period of the Gangyuan Design Service Agreement, and hence, the Gangyuan Design Annual Cap was set to a stable amount during such period.

Based on the foregoing, we consider that the bases of determination of the Gangyuan Design Annual Cap under the Gangyuan Design Service Agreement are fair and reasonable, and that the Gangyuan Design Annual Cap are acceptable.

The Gangyuan Design Annual Cap under the Gangyuan Design Service Agreement were determined by the Management based on assumptions including the projects to be undertaken by the Group from Gangyuan Decoration and its subsidiaries.Accordingly, we

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express no opinion as to how closely the actual transaction amounts of the continuing connected transaction under the Gangyuan Design Service Agreement in comparison to the Gangyuan Design Annual Cap.

4. Annual review of the continuing connected transactions

Pursuant to Rules 14A.55 and 14A.56 of the Listing Rules, the continuing connected transactions under the Gangyuan Design Service Agreement and the Framework Agreement are subject to the following requirements:

(i) the independent non-executive Directors must confirm in the annual reports and accounts that the continuing connected transactions have been entered into:
in the ordinary and usual course of business of the Group;
on normal commercial terms or better; and
according to the agreement governing them on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole;
(ii) the Company must engage its auditors to report on the continuing connected transactions for each financial year of the Company and that the Company’s auditors must provide a letter to the Board confirming whether anything has come to their attention that causes them to believe that the continuing connected transactions:
have not been approved by the Board;
were not, in all material respects, in accordance with the pricing policy of the Group if the transaction involves the provision of goods or services by the Group;
were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and
have exceeded the annual caps.

In view of the continuing connection transactions will be subject to annual review of the independent non-executive Directors and the auditors of the Company, we are of the view that appropriate measures will be in place to govern the conduct of the continuing connected transactions and safeguard the interests of the Independent Shareholders.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having considered the principal factors and reasons as discussed above, we are of the opinion that the transaction contemplated under the Gangyuan Design Service Agreement and the Framework Agreement are entered into in the ordinary and usual course of business of the Group and (i) the terms of the Gangyuan Design Service Agreement (including the Gangyuan Design Annual Cap); and (ii) the terms of the Framework Agreement (including the Jangho Chuangxin Annual Cap) are on normal commercial terms, fair and reasonable so far as the Company and the Independent Shareholders are concerned, and are in the interests of the Company and the Shareholders as a whole.Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders and recommend to the Independent Shareholders to vote in favour of the ordinary resolutions to approve (i) the Gangyuan Design Service Agreement (including the Gangyuan Design Annual Cap); and (ii) the Framework Agreement (including the Jangho Chuangxin Annual Cap) at the EGM.

Yours faithfully, For and on behalf of Lego Corporate Finance Limited Kristie Ho Managing Director

Ms. Kristie Ho is a licensed person registered with the Securities and Futures Commission and a responsible officer of Lego Corporate Finance Limited to carry out Type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong). She has over 13 years of experience in the finance and investment banking industry.

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STATUTORY AND 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 aspects 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 AND CONFIRMATIONS

As at the Latest Practicable Date, the interests of the Directors or chief executive of the Company in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required to be (a) notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have taken under such provisions of the SFO); or (b) entered in the register required to be kept by the Company pursuant to Section 352 of the SFO; or (c) notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “ Model Code ”) as set out in Appendix 10 to the Listing Rules, were as follows:

			Approximate
		Number of	percentage of
	Nature of	shares	shareholding in
Name of Director	interest/Capacity	held(note 1)	issued shares
Siu Man Hei	Beneficial Owner	10,032,000	0.88%

Note:

All interests stated are long positions.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company nor their associates had any interest or short position 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 was required to be (a) notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have taken under such provisions of the SFO); or (b) entered in the register required to be kept by the Company pursuant to Section 352 of the SFO; or (c) notified to the Company and the Stock Exchange pursuant to the Model Code.

3. DIRECTORS’ INTEREST IN CONTRACTS AND ASSETS

(i) None of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Group, apart from their service contracts.

– I-1 –

STATUTORY AND GENERAL INFORMATION

APPENDIX

(ii) As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which have been, since the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

4. SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS HOLDING DISCLOSEABLE INTERESTS IN THE COMPANY

As at the Latest Practicable Date, as far as known to the Directors and chief executives of the Company, the following persons had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO, or who are directly or indirectly interested in 5% or more of the nominal value of any class of share capital carrying rights to vote at a general meeting under all circumstances:

			Approximate
		Number of	percentage of
	Nature of interest/	shares	shareholding in
Name of Shareholder	Capacity	held(Note 1)	issued shares
Eagle Vision Development Limited	Beneficial owner	598,500,000	52.50%
Peacemark Enterprises Limited_(Note 2)_	Interest in controlled	598,500,000	52.50%
	corporation
Jangho Hong Kong Holdings	Interest in controlled	598,500,000	52.50%
Limited_(Note 3)_	corporation
Jangho Co.(Note 4)	Interest in controlled	598,500,000	52.50%
	corporation
北京江河源控股有限公司	Interest in controlled	598,500,000	52.50%
(Beijing Jiangheyuan Holdings	corporation
Co., Ltd.)*(Note 5)
Mr. Liu Zaiwang (劉載望)(Note 6)	Interest in controlled	598,500,000	52.50%
	corporation
Ms. Fu Haixia (富海霞)(Note 7)	Interest of spouse	598,500,000	52.50%
Sino Panda Group Limited	Beneficial owner	256,500,000	22.50%
Mr. Leung Chi Tien Steve_(Note 8)_	Interest in controlled	256,500,000	22.50%
	corporation
Ms. Chan Siu Wan_(Note 9)_	Interest of spouse	256,500,000	22.50%
Gloryeild Enterprises Limited_(Note 10)_	Interest in 10% or more	171,000,000	15.00%
	of shares
Sundart Holdings Limited_(Note 11)_	Interest in 10% or more	171,000,000	15.00%
	of shares
Reach Glory International	Interest in 10% or more	118,845,000	10.43%
Limited_(Note 12)_	of shares
Health Capital Enterprises	Interest in 10% or more	171,000,000	15.00%
Limited_(Note 13)_	of shares
Gangyuan Architectural Decoration	Interest in 10% or more	171,000,000	15.00%
Hongkong Limited_(Note 14)_	of shares

– I-2 –

STATUTORY AND GENERAL INFORMATION

APPENDIX

			Approximate
		Number of	percentage of
	Nature of interest/	shares	shareholding in
Name of Shareholder	Capacity	held(Note 1)	issued shares
北京港源建築裝飾工程有限公司	Interest in 10% or more	171,000,000	15.00%
(Gangyuan Architectural Decoration	of shares
Engineering Co., Ltd.)(Note 15)*
北京江河創展管理諮詢有限公司	Interest in 10% or more	117,562,500	10.31%
(Beijing Jangho Chuangzhan	of shares
Management Consulting
Company Limited) (Note 16)

Notes:

All interests stated are long positions.
Eagle Vision is beneficially owned as to approximately 42.86% by Peacemark Enterprises Limited (“ Peacemark Enterprises ”) and therefore Peacemark Enterprises is deemed to be interested in the shares held by Eagle Vision under the SFO.
Peacemark Enterprises is wholly and beneficially owned by Jangho Hong Kong Holdings Limited (“ Jangho HK ”) and therefore Jangho HK is deemed to be interested in the shares indirectly held by Peacemark Enterprises through Eagle Vision under the SFO.
Jangho HK is wholly and beneficially owned by Jangho Co. and therefore Jangho Co. is deemed to be interested in the shares indirectly held by Jangho HK through Peacemark Enterprises and Eagle Vision under the SFO.
Ms. Fu, the spouse of Mr. Liu, is the sole director of Jiangheyuan.The board of directors of Jangho Co. is controlled by Jiangheyuan and therefore Jiangheyuan is deemed to be interested in the shares held by Jangho Co. through Jangho HK, Peacemark Enterprises and Eagle Vision under the SFO.
Jangho Co. is beneficially owned as to approximately 27.35% by Jiangheyuan (a company which is 85% and 15% beneficially owned by Mr. Liu and his spouse, Ms. Fu, respectively) and beneficially owned as to approximately 23.25% by Mr. Liu and therefore, Mr. Liu is deemed to be interested in the shares indirectly held by Jangho Co. through Jangho HK, Peacemark Enterprises and EagleVision under the SFO.
Ms. Fu is the spouse of Mr. Liu and is therefore deemed to be interested in the shares that Mr. Liu is interested in under the SFO.
Sino Panda Group Limited (“ Sino Panda ”) is wholly and beneficially owned by Mr. Leung Chi Lien Steve (“ Mr. Steve Leung ”) and therefore Mr. Steve Leung is deemed to be interested in the shares held by Sino Panda under the SFO.
Ms. Chan Siu Wan is the spouse of Mr. Steve Leung and is therefore deemed to be interested in the shares that Mr. Steve Leung is interested in under the SFO.
Eagle Vision was beneficially owned as to approximately 28.57% by Gloryeild Enterprises Limited (“ Gloryeild Enterprises ”). As such, the Company is indirectly owned as to 15.00% by Gloryeild Enterprises as at the Latest Practicable Date.
Gloryeild Enterprises was wholly and beneficially owned by Sundart Holdings Limited (“ Sundart Holdings ”).As such, the Company is indirectly owned as to approximately 15.00% by Sundart Holdings as at the Latest Practicable Date.

– I-3 –

STATUTORY AND GENERAL INFORMATION

APPENDIX

Sundart Holdings was beneficially owned as to approximately 69.50% by Reach Glory International Limited (“ Reach Glory ”). As such, the Company is indirectly owned as to approximately 10.43% by Reach Glory as at the Latest Practicable Date.
Eagle Vision was beneficially owned as to approximately 28.57% by Health Capital Enterprises Limited (“ Health Capital ”).As such, the Company is indirectly owned as to 15.00% by Health Capital as at the Latest Practicable Date.
Health Capital was wholly and beneficially owned by Gangyuan Architectural Decoration Hongkong Limited (“ Gangyuan HK ”). As such, the Company is indirectly owned as to approximately 15.00% by Gangyuan HK as at the Latest Practicable Date.
Gangyuan HK was wholly and beneficially owned by Gangyuan Decoration. As such, the Company is indirectly owned as to approximately 15.00% by Gangyuan Decoration as at the Latest Practicable Date.
Gangyuan Decoration was beneficially owned as to 68.75% by Jangho Chuangzhan.As such, the Company is indirectly owned as to approximately 10.31% by Jangho Chuangzhan as at the Latest Practicable Date.

Save as disclosed in this circular, the Directors and chief executive of the Company are not aware that there is any party who, as at the Latest Practicable Date, had an interest or a short position in the shares and underlying shares which would fall to be disclosed to the Company pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO or who are directly or indirectly interested in 5% or more of the nominal value of any class of share capital carrying rights to vote at a general meeting under all circumstances.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or was proposing to enter, into any service contract with the Company or its subsidiaries which was not expiring or might not be terminated by the Company within a year without payment of any compensation, other than statutory compensation.

6. COMPETING INTEREST

As at the Latest Practicable Date, so far as the Directors are aware, none of the Directors and his/her respective associate(s) was interested in any business apart from the Group’s business, which competes or is likely to compete, either directly or indirectly, with the Group’s business.

7. MATERIAL ADVERSE CHANGE

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

– I-4 –

STATUTORY AND GENERAL INFORMATION

APPENDIX

8. QUALIFICATION OF EXPERT AND CONSENT

The following are the qualifications of the expert who has provided opinion or advice contained in this circular:

Name

Qualification

Lego Corporate Finance Limited

a corporation licensed to carry out Type 6 (advising on corporate finance) regulated activity under the SFO
(a) Lego Corporate Finance Limited has given and has not withdrawn its written consents to the issue of this circular with inclusion of its letter (as the case may be) and the reference to its name included herein in the form and context in which they currently appear.
(b) As at the Latest Practicable Date, Lego Corporate Finance Limited did not hold any beneficial interest in the share capital of any member of the Group, nor did it have the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(c) As at the Latest Practicable Date, Lego Corporate Finance Limited did not have any direct or indirect interest in any assets which have been, since 31 December 2017 (being the date to which the latest published audited annual financial statements of the Company were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

9. OTHER INFORMATION

The English text of this circular shall prevail over the Chinese text in the event of inconsistency.

– I-5 –

STATUTORY AND GENERAL INFORMATION

APPENDIX

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the principal place of business of the Company in Hong Kong at 30/F Manhattan Place, 23 Wang Tai Road, Kowloon Bay, Kowloon, Hong Kong from the date of this circular up to and including Wednesday, 14 November 2018:

(a) the letter from the Board, full text of which is set out on pages 5 to 20 of this circular;
(b) the letter from the Independent Board Committee, full text of which is set out on pages 21 to 22 of this circular;
(c) the letter from the Independent Financial Adviser, full text of which is set out on pages 23 to 48 of this circular;
(d) the written consent of Lego Corporate Finance Limited referred to paragraph 8 of this appendix;
(e) the Framework Agreement;
(f) the Gangyuan Design Service Agreement; and
(g) this circular.

– I-6 –

NOTICE OF THE EGM

STEVE LEUNG DESIGN GROUP LIMITED 梁志天設計集團有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 2262)

Unless otherwise indicated, capitalised terms used in this notice shall have the same meanings as those defined in the circular published by STEVE LEUNG DESIGN GROUP LIMITED (the “ Company ”) dated 30 October 2018 (the “ Circular ”).

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of the Company will be held at Tactic Room II, 24/F,Admiralty Centre I, 18 Harcourt Road, Hong Kong on Wednesday, 14 November 2018 at 9 a.m., to consider and, if thought fit, approve the following:

ORDINARY RESOLUTIONS

“ THAT
(a) the Framework Agreement entered into between the Company and Jangho Chuangxin and the transactions contemplated thereunder (a copy of the Framework Agreement is tabled at the meeting and marked “A” and initialed by the chairman of the meeting for identification purpose) be and are hereby approved, confirmed and ratified;
(b) the proposed annual caps of the transactions contemplated under the Framework Agreement for each of the three financial years ending 31 December 2020 be and are hereby approved and confirmed; and
(c) any one Director, or any two Directors if the affixation of the common seal is necessary, be and is/are hereby authorised to sign and execute all documents, instruments and agreements and to do all such acts or things or prior actions deemed by him/her to be incidental to, ancillary to or in connection with the matters contemplated in the Framework Agreement and completion thereof.”
“ THAT
(a) the Gangyuan Design Service Agreement entered into between Gangyuan Design and Gangyuan Decoration and the transactions contemplated thereunder (a copy of the Gangyuan Design Service Agreement is tabled at the meeting and marked “B” and initialed by the chairman of the meeting for identification purpose) be and are hereby approved, confirmed and ratified;
(b) the Gangyuan Design Annual Cap for each of the three years ending 31 December 2020 be and are hereby approved and confirmed; and

– EGM-1 –

NOTICE OF THE EGM

(c) any one Director, or any two Directors if the affixation of the common seal is necessary, be and is/are hereby authorised to sign and execute all documents, instruments and agreements and to do all such acts or things or prior actions deemed by him/her to be incidental to, ancillary to or in connection with the matters contemplated in the Gangyuan Design Service Agreement and completion thereof.”

By order of the Board Xu Xingli Chairman

Hong Kong, 30 October 2018

Registered office: Cricket Square Hutchins Drive PO Box 2681 Grand Cayman KY1-1111 Cayman Islands

Principal place of business: 30/F Manhattan Place No. 23 Wang Tai Road Kowloon Bay, Kowloon Hong Kong

Notes:

(a) Any Shareholder entitled to attend and vote at the EGM is entitled to appoint a proxy to attend and vote on behalf of him/her.A proxy needs not be a Shareholder.A Shareholder who is the holder of two or more shares may appoint more than one proxy to represent him/her to attend and vote on his/her behalf. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.
(b) In order to be valid, a form of proxy together with the power of attorney or other authority, if any, under which it is signed or a certified copy of that power or authority, must be deposited at the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East,Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Delivery of the form of proxy shall not preclude a Shareholder from attending and voting in person at the EGM and, in such event, the form of proxy shall be deemed to be revoked.
(c) The share register of the Company will be closed from Friday, 9 November 2018 to Wednesday, 14 November 2018 (both days inclusive), during which no transfer of shares will be effected. In order to be entitled to attend the forthcoming EGM of the Company and vote at the EGM, all completed share transfer forms accompanying with the relevant share certificates must be lodged with the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, not later than 4:30 p.m. on Thursday, 8 November 2018. The address of Computershare Hong Kong Investor Services Limited is Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(d) Where there are joint registered holders of any shares, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such shares as if he were solely entitled thereto; but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present being the most, or, as the case may be, the more senior shall alone be entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the order in which the names of the joint holders stand in the register in respect of the relevant joint holding.

– EGM-2 –

AI assistant

Steve Leung Design Group Limited — Proxy Solicitation & Information Statement 2018

50482_rns_2018-10-29_d993364c-301f-4bd0-a583-0cb954703f35.pdf

STEVE LEUNG DESIGN GROUP LIMITED 梁志天設計集團有限公司

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF THE EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

STEVE LEUNG DESIGN GROUP LIMITED 梁志天設計集團有限公司

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF THE EXTRAORDINARY GENERAL MEETING

A. INTRODUCTION

LETTER FROM THE BOARD

B. THE JANGHO CHUANGXIN DESIGN SERVICES

1. Information about the Framework Agreement

LETTER FROM THE BOARD

Annual cap

Payment terms

For interior design services

For interior decorating and furnishing services

LETTER FROM THE BOARD

Pricing basis

LETTER FROM THE BOARD

LETTER FROM THE BOARD

2. Proposed Annual Caps for the Framework Agreement

3. Information about the Parties to the Framework Agreement

4. Reasons for and Benefits of Entering into the Framework Agreement

C. THE GANGYUAN DESIGN SERVICE AGREEMENT

1. Principal terms of the Gangyuan Design Service Agreement

Duration

Nature of transaction

Pricing basis

LETTER FROM THE BOARD

Payment terms

LETTER FROM THE BOARD

Right of first refusal

2. Gangyuan Design Annual Cap

3. Information about the Parties to the Gangyuan Design Service Agreement

4. Reasons for and Benefits of Entering into the Gangyuan Design Service Agreement

D. HISTORICAL TRANSACTION AMOUNT

E. INTERNAL CONTROL MEASURES IN RELATION TO THE FRAMEWORK AGREEMENT AND THE GANGYUAN DESIGN SERVICE AGREEMENT

LETTER FROM THE BOARD

F. LISTING RULES IMPLICATIONS

G. EGM

H. RECOMMENDATION

I. INDEPENDENT BOARD COMMITTEE

J. CLOSURE OF REGISTER OF MEMBERS

K. ADDITIONAL INFORMATION

STEVE LEUNG DESIGN GROUP LIMITED 梁志天設計集團有限公司

CONTINUING CONNECTED TRANSACTIONS AND NOTICE OF THE EXTRAORDINARY GENERAL MEETING

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background of the Group, Jangho Chuangxin and Gangyuan Decoration

2. The Framework Agreement

2.1 Principal terms of the Framework Agreement

2.2 Reasons for and benefits of entering into the Framework Agreement

2.3 The Jangho Chuangxin Annual Cap for the Framework Agreement

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. The Gangyuan Design Service Agreement

3.1 Principal terms of the Gangyuan Design Service Agreement

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3.2 Reasons for and benefits of entering into the Gangyuan Design Services Agreement

4. Annual review of the continuing connected transactions

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS AND CONFIRMATIONS

3. DIRECTORS’ INTEREST IN CONTRACTS AND ASSETS

4. SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS HOLDING DISCLOSEABLE INTERESTS IN THE COMPANY

APPENDIX

5. SERVICE CONTRACTS

6. COMPETING INTEREST

7. MATERIAL ADVERSE CHANGE

8. QUALIFICATION OF EXPERT AND CONSENT

Name

Qualification

9. OTHER INFORMATION

10. DOCUMENTS AVAILABLE FOR INSPECTION

STEVE LEUNG DESIGN GROUP LIMITED 梁志天設計集團有限公司

Steve Leung Design Group Limited Proxy Solicitation & Information Statement 2018