Sunray Engineering Group Limited — Interim / Quarterly Report 2021

Aug 13, 2021

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) take no responsibility for the contents of this announcement, 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 announcement.

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Sunray Engineering Group Limited 新威工程集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8616)

FIRST QUARTERLY RESULTS ANNOUNCEMENT FOR THE THREE MONTHS ENDED 30 JUNE 2021

The board (the “ Board ”) of directors (the “ Directors ”) of Sunray Engineering Group Limited (the “ Company ”) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries for the three months ended 30 June 2021. This announcement, containing the full text of the first quarterly report of the Company for the three months ended 30 June 2021 (the “ 2021 First Quarterly Report ”), complies with the relevant requirements of the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the “ GEM Listing Rules ”) in relation to information to accompany preliminary announcement of first quarterly results. The printed version of the 2021 First Quarterly Report will be despatched to the shareholders of the Company and available for viewing on the websites of the Stock Exchange at www.hkexnews.hk and of the Company at www.sunray.com.hk in due course in the manner as required by the GEM Listing Rules.

By Order of the Board Sunray Engineering Group Limited Lam Ka Wing Chairman and Executive Director

Hong Kong, 13 August 2021

– 1 –

As at the date of this announcement, the Board comprises two executive Directors, namely Mr. Lam Ka Wing and Ms. Wong Pui Yee Edith; and three independent non-executive Directors, namely Ms. Cho Mei Ting, Mr. Ho Ka Kit and Mr. Ng Kwun Wan.

This announcement, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM 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: (1) the information contained in this announcement is accurate and complete in all material respects and not misleading or deceptive; and (2) there are no other matters the omission of which would make any statement herein or this announcement misleading.

This announcement will remain on the “Latest Listed Company Information” page of the GEM website at www.hkgem.com for at least 7 days from the date of its posting and on the Company’s website at www.sunray.com.hk.

– 2 –

CHARACTERISTICS OF GEM OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE “STOCK EXCHANGE”)

GEM has been positioned as a market designed to accommodate small and mid-sized companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration.

Given that the companies listed on GEM are generally small and mid-sized companies, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.

Hong Kong Exchanges and Clearing Limited and the Stock Exchange take no responsibility for the contents of this report, 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 report.

This report, for which the directors (collectively the “Directors” and individually a “Director”) of Sunray Engineering Group Limited (the “Company”) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the “GEM 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 report is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this report misleading.

CONTENTS

CONTENTS
Corporate Information	2
Financial Highlights	3
Unaudited Condensed Consolidated Statement
of Profit or Loss and Other Comprehensive
Income	4
Unaudited Condensed Consolidated Statement of
Changes in Equity	5
Notes to the Unaudited Condensed Consolidated
Financial Statements	6
Management Discussion and Analysis	12
Other Information	17

CORPORATE INFORMATION

BOARD OF DIRECTORS

Executive Directors

Mr. Lam Ka Wing (Chairman and Chief Executive Officer) Ms. Wong Pui Yee Edith

Independent non-executive Directors

Mr. Ng Kwun Wan Ms. Cho Mei Ting Mr. Ho Ka Kit

AUDIT COMMITTEE

Mr. Ng Kwun Wan (Chairman) Ms. Cho Mei Ting Mr. Ho Ka Kit

REMUNERATION COMMITTEE

Ms. Cho Mei Ting (Chairlady) Mr. Ho Ka Kit Mr. Ng Kwun Wan

NOMINATION COMMITTEE

Mr. Ho Ka Kit (Chairman) Ms. Cho Mei Ting Mr. Ng Kwun Wan

COMPANY SECRETARY

Mr. Lo Kai Yeung Kenneth (Member of the HKICPA)

COMPLIANCE OFFICER

Ms. Wong Pui Yee Edith

AUTHORISED REPRESENTATIVES

Mr. Lam Ka Wing Mr. Lo Kai Yeung Kenneth

PRINCIPAL BANKER

Bank of China (Hong Kong) Limited Bank of China Tower 1 Garden Road Central Hong Kong

China Construction Bank (Asia) Corporation Limited CCB Tower 3 Connaught Road Central Central Hong Kong

AUDITOR

Deloitte Touche Tohmatsu

Certified Public Accountants Registered Public Interest Entity Auditor 35/F, One Pacific Place 88 Queensway Hong Kong

LEGAL ADVISERS AS TO HONG KONG LAW

Hastings & Co. 5/F, Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

COMPLIANCE ADVISER

Alpha Financial Group Limited Room A, 17/F Fortune House 61 Connaught Road Central Central Hong Kong

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE

Tricor Investor Services Limited Level 54, Hopewell Centre 183 Queen’s Road East Hong Kong

CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Ocorian Trust (Cayman) Limited P.O. Box 1350 Clifton House 75 Fort Street Grand Cayman KY1-1108 Cayman Islands

CAYMAN ISLANDS REGISTERED OFFICE

P.O. Box 1350 Clifton House 75 Fort Street Grand Cayman KY1-1108 Cayman Islands

PRINCIPAL PLACE OF BUSINESS IN HONG KONG Unit 803–804, 8/F. Laford Centre 838 Lai Chi Kok Road Cheung Sha Wan Kowloon, Hong Kong

WEBSITE

www.sunray.com.hk

STOCK CODE

08616

2

SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT

FINANCIAL HIGHLIGHTS

HIGHLIGHTS

• The revenue of the Group amounted to approximately HK$48.8 million for the three months ended 30 June 2021, representing an increase of approximately 47.4% as compared to that of approximately HK$33.1 million for the three months ended 30 June 2020.

• The gross profit amounted to approximately HK$15.0 million for the three months ended 30 June 2021, representing an increase of approximately 14.5% as compared to that of approximately HK$13.1 million for the three months ended 30 June 2020.

• The net profit increased from approximately HK$902,000 for the three months ended 30 June 2020 to approximately HK$3.2 million for the three months ended 30 June 2021.

• Basic and diluted earnings per share was HK$0.32 cents for the three months ended 30 June 2021 (three months ended 30 June 2020: HK$0.10 cents).

• The Board does not recommend the payment of any dividend for the three months ended 30 June 2021 (three months ended 30 June 2020: Nil).

SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT 3

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the three months ended 30 June 2021

The board of Directors (the “Board”) of the Company is pleased to announce the unaudited condensed consolidated financial results of the Company and its subsidiaries (collectively the “Group”) for the three months ended 30 June 2021, together with the comparative figures for the corresponding period in 2020, as follows:

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Three months ended 30 June
Notes 2021 2020
HK$’000 HK$’000
(Unaudited) (Unaudited)
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Revenue 3 Cost of sales and services Gross profit Other income 4 Other gains and losses 5 Selling and distribution costs Administrative expenses Finance costs 6 Listing expenses Profit before taxation 7 Income tax expense 8 Profit and total comprehensive income for the period Profit and total comprehensive income for the period attributable to: – Owners of the Company Earnings per share Basic and diluted (HK cents) 9	48,798 (33,833) 14,965 42 202 (2,799) (8,215) (37) — 4,158 (970) 3,188 3,188 0.32	33,143 (20,012) 13,131 382 (254) (1,377) (9,472) (22) (926) 1,462 (560) 902 902 0.10

SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT

4

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the three months ended 30 June 2021

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Share Share Legal Other Capital Retained
capital premium reserve reserve contribution profits Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
(Note i)
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At 31 March 2020 (audited)	—	—	24	49	36,724	86,704	123,501
Capitalisation issue (Note ii)	7,500	(7,500)	—	—	—	—	—
Issue of shares upon share
offer (Note iii)	2,500	38,555	—	—	—	—	41,055
Profit and total comprehensive
income for the period	—	—	—	—	—	902	902
At 30 June 2020 (unaudited)	10,000	31,055	24	49	36,724	87,606	165,458
At 31 March 2021 (audited)	10,000	31,055	24	49	36,724	93,346	171,198
Profit and total comprehensive
income for the period	—	—	—	—	—	3,188	3,188
At 30 June 2021 (unaudited)	10,000	31,055	24	49	36,724	96,534	174,386

Notes:

• (i) In accordance with Article 377 of the Commercial Code of Macau Special Administrative Region, the subsidiaries registered in Macau are required to transfer part of their profits of the accounting period of not less than 25% to legal reserve, until the amount reaches an amount equal to half of the respective share capital.

• (ii) The Company capitalised an amount of HK$7,499,999.99 standing to the credit of the share premium account of the Company towards paying in full at par a total of 749,999,999 shares for allotment and issue to the shareholders of the Company on 23 April 2020 (the “Capitalisation Issue”). Such shares rank pari passu in all respects with then existing issued shares of the Company.

• (iii) On 23 April 2020, the Company issued a total of 250,000,000 new shares of par value of HK$0.01 each at offer price of HK$0.24 per share, by way of the public offer and placing. Of the gross total proceeds of HK$60,000,000, HK$2,500,000 representing the par value was credited to the Company’s share capital, and HK$57,500,000 before reduction of issue costs of HK$18,945,000, was credited to the share premium account.

SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT 5

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended 30 June 2021

1. GENERAL

The Company was incorporated and registered as an exempted company with limited liability in the Cayman Islands under the Companies Law Chapter 22 of the Cayman Islands on 12 February 2019. The address of the Company’s registered office is P.O. Box 1350, Clifton House, 75 Fort Street, Grand Cayman KY1-1108, Cayman Islands and the Company’s principal place of business is Unit 803-804, 8/F., Laford Centre, 838 Lai Chi Kok Road, Cheung Sha Wan, Kowloon, Hong Kong.

Upon completion of a group reorganisation (the “Group Reorganisation”) on 29 March 2019, the Company has become the holding company now comprising the Group. Details of the Group Reorganisation are set out in the Company’s prospectus dated 31 March 2020 (the “Prospectus”) in connection with the initial listing of shares of the Company on GEM of the Stock Exchange (the “Listing”). Since 23 April 2020 (the “Listing Date”), the Company has been listed on GEM of the Stock Exchange.

The Company is an investment holding company. The Company and its subsidiaries are principally engaged in provision of building protection works and supply of building protection products. The Company’s immediate and ultimate holding company is Ultra Success Industries Limited (“Ultra Success”), a limited liability company incorporated in the British Virgin Islands (“BVI”). The ultimate controlling shareholder of the Group is Mr. Lam Ka Wing (“Mr. Lam”).

The unaudited condensed consolidated financial statements are presented in HK$, which is also the functional currency of the Company.

The condensed consolidated financial statements for the three months ended 30 June 2021 (the “First Quarterly Financial Statements”) are unaudited but were reviewed by the audit committee of the Company (the “Audit Committee”) and approved for issue by the Board on 13 August 2021.

6 SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended 30 June 2021

2. BASIS OF PREPARATION

The First Quarterly Financial Statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) which collective term includes all applicable individual HKFRSs, Hong Kong Accounting Standards and Interpretations issued by Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and the accounting principles generally accepted in Hong Kong. The First Quarterly Financial Statements also comply with the applicable disclosure requirements of the GEM Listing Rules. The First Quarterly Financial Statements should be read in conjunction with the Company’s consolidated financial statements for the year ended 31 March 2021 (the “2021 Annual Report”), which have been prepared in accordance with HKFRSs issued by the HKICPA.

The accounting policies and methods of computation applied in the preparation of the First Quarterly Financial Statements are consistent with those applied in preparing the 2021 Annual Report except for the adoption of new or revised standards, amendments and interpretations issued by the HKICPA mandatory for annual periods beginning 1 April 2021. The adoption of these new or revised standards, amendments and interpretations did not result in any substantial changes to the accounting policies of the Group. In addition, the Group has not early adopted any new standard, interpretation or amendment that has been issued but is not yet effective for the current accounting period.

The First Quarterly Financial Statements have been prepared on the historical cost basis.

Accounting estimates and assumptions are used in the preparation of financial statements. Although these estimates are based on management’s best knowledge and judgment of current events and actions, actual results may ultimately different from those estimates and assumptions. In preparing the First Quarterly Financial Statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the 2021 Annual Report.

SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT 7

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended 30 June 2021

3. REVENUE

Revenue represents the fair value of amounts received and receivable from provision of building protection works and supply of building protection products.

An analysis of the Group’s revenue is as follows:

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Three months ended 30 June
2021 2020
HK$’000 HK$’000
(Unaudited) (Unaudited)
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Contract revenue from provision of building protection works, recognised over time: Residential buildings Community facilities (Note) Commercial buildings Contract revenue from supply of building protection products, recognised at a point in time	6,585 9,537 15,575 31,697 17,101 48,798	9,788 3,582 7,057 20,427 12,716 33,143

Note: Community facilities include hospitals, police offices, museums, sports centres and other community facilities.

All the Group’s provision of building protection works are made directly with customers which are mainly construction companies and contractors in Hong Kong. The duration of building protection works normally varies from 1 to 4 years. The Group’s customers of building protection products are mainly located in Hong Kong and Macau.

8

SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended 30 June 2021

4. OTHER INCOME

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||||
|---|---|---|
|Three months ended 30 June|
|2021|2020|
|HK$’000|HK$’000|
|(Unaudited)|(Unaudited)|
|Bank interest income|2|5|
|Government subsidies (Note)|—|285|
|Sundry income|40|92|
|42|382|

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Note: The government subsidies recognised during the three months ended 30 June 2020 are mainly related to the Employment Support Scheme in respect of COVID-19-related subsidies from Hong Kong Government.

5. OTHER GAINS AND LOSSES

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||||
|---|---|---|
|Three months ended 30 June|
|2021|2020|
|HK$’000|HK$’000|
|(Unaudited)|(Unaudited)|
|Net exchange gain|129|22|
|Gain (loss) on disposal of property and equipment|73|(276)|
|202|(254)|

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6. FINANCE COSTS

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||||
|---|---|---|
|Three months ended 30 June|
|2021|2020|
|HK$’000|HK$’000|
|(Unaudited)|(Unaudited)|
|Interest expenses on lease liabilities|37|22|

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SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT 9

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended 30 June 2021

7. PROFIT BEFORE TAXATION

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Three months ended 30 June
2021 2020
HK$’000 HK$’000
(Unaudited) (Unaudited)
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||||
|---|---|---|
|Profit before taxation has been arrived at after charging:|
|Directors’ emoluments|2,649|1,908|
|Other staff costs|6,842|6,291|
|Retirement benefit schemes contributions for other staff|236|188|
|Total staff costs|9,727|8,387|
|Auditor’s remuneration|150|150|
|Cost of inventories recognised as an expense|20,056|11,636|
|Depreciation of property and equipment|350|416|
|Depreciation of right-of-use assets|665|488|

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8. INCOME TAX EXPENSE

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||||
|---|---|---|
|Three months ended 30 June|
|2021|2020|
|HK$’000|HK$’000|
|(Unaudited)|(Unaudited)|
|Hong Kong Profits Tax|970|560|

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The Group is subject to income tax on an entity basis on profits arising in or derived from the jurisdictions in which members of the Group are domiciled and operate.

On 21 March 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the “Bill”) which introduces the two-tiered profits tax rates regime. The Bill was signed into law on 28 March 2018 and was gazetted on the following day. Under the two-tiered profits tax rates regime, the first HK$2,000,000 of profits of qualifying group entity will be taxed at 8.25%, and profits above HK$2,000,000 of that qualifying group entity will be taxed at 16.5%. Accordingly, Hong Kong Profits Tax of the qualifying entity is calculated in accordance with the two-tiered profits tax rates regime. The profits of other group entities in Hong Kong not qualifying for the two-tiered profits tax rates regime continue to be taxed at the flat rate of 16.5%.

No provision for Macau Complementary Tax is made as the Group has no estimated assessable profits exceeding Macau Pataca 600,000 for both periods.

10 SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended 30 June 2021

9. EARNINGS PER SHARE

The calculation of basic and diluted earnings per share attributable to owners of the Company is based on the following data:

	Three months ended 30 June	Three months ended 30 June
	2021	2020
	HK$’000	HK$’000
	(Unaudited)	(Unaudited)
Earnings: Earnings for the purpose of calculating basic and diluted earnings per share (profit for the period attributable to owners of the Company)	3,188	902
	’000	’000
Number of shares (Note): Weighted average number of ordinary shares for the purpose of calculating basic and diluted earnings per share	1,000,000	939,560

Note: The weighted average number of ordinary shares for the purpose of calculating basic earnings per share for the three months ended 30 June 2020 includes (i) 1 ordinary share in issue upon incorporation; (ii) 749,999,999 new ordinary shares issued pursuant to the Capitalisation Issue, as if all these shares had been in issue throughout the three months ended 30 June 2020, and (iii) 189,560,440 shares, representing the weighted average of 250,000,000 new ordinary shares issued upon completion of the Listing.

There were no potential ordinary shares in issue during both periods and, therefore, diluted earnings per share are same as the basic earnings per share.

10. DIVIDENDS

The Board does not recommend the payment of any dividend for the three months ended 30 June 2021 (three months ended 30 June 2020: Nil).

SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT 11

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS REVIEW

The Group is a Hong Kong-based building protection solution provider and its solutions integrate the provision of building protection works; and the supply of building protection products. Building protection works generally refer to the selection and use of appropriate building protection products in a building for protection against water, thermal, acoustic and fire.

The Group’s building protection works focus on waterproofing works and are complemented by flooring works and joint sealant works.

The supply of building protection products refers to identifying, sourcing, promoting and distributing suitable building protection products to the Group’s customers to meet their varying needs and requirements. The building protection products supplied by us include waterproofing products, tiling products, flooring and other products.

FINANCIAL REVIEW

Revenue

The table below sets forth a breakdown of the Group’s revenue by the type of services for the period indicated:

	Three months ended 30 June	Three months ended 30 June	Three months ended 30 June	Three months ended 30 June
	2021		2020
	HK$’000	%	HK$’000	%
	(Unaudited)		(Unaudited)
Provision of building protection works Supply of building protection products	31,697 17,101 48,798	65.0 35.0 100.0	20,427 12,716 33,143	61.6 38.4 100.0

The Group’s revenue increased from approximately HK$33.1 million for the three months ended 30 June 2020 to approximately HK$48.8 million for the three months ended 30 June 2021, representing an increase of approximately HK$15.7 million, or 47.4%. Such increase in revenue was primarily due to the increase in revenue generated from both the provision of building protection works and the supply of building protection products.

Provision of building protection works

Revenue recognised:

	Three months ended 30 June	Three months ended 30 June
	2021	2020
	HK$’000	HK$’000
	(Unaudited)	(Unaudited)
Public sector projects Private sector projects Total	9,833 21,864 31,697	9,602 10,825 20,427

12 SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT

MANAGEMENT DISCUSSION AND ANALYSIS

Number of projects by the range of amounts of recognised revenue:

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Three months ended 30 June
2021 2020
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HK$1,000,000 or above HK$100,000 to below HK$1,000,000 Below HK$100,000 Total	4 29 218 251	9 29 197 235

The revenue recognised from the provision of building protection works increased from approximately HK$20.4 million for the three months ended 30 June 2020 to approximately HK$31.7 million for the three months ended 30 June 2021. Such increase was mainly attributable to the increase in number of projects awarded to the Group and the increase in revenue derived from relatively large projects during the three months ended 30 June 2021.

Supply of building protection products

Revenue by types of building protection products

The following table sets forth the breakdown of the Group’s revenue by types of building protection products for the period indicated:

	Three months ended 30 June	Three months ended 30 June	Three months ended 30 June	Three months ended 30 June
	2021		2020
	HK$’000	%	HK$’000	%
	(Unaudited)		(Unaudited)
Waterproofing products Tiling products Flooring and other products Total revenue from supply of building protection products	10,518 6,215 368 17,101	61.5 36.3 2.2 100.0	9,176 3,436 104 12,716	72.2 27.0 0.8 100.0

The revenue recognised from the supply of building protection products increased from approximately HK$12.7 million for the three months ended 30 June 2020 to approximately HK$17.1 million for the three months ended 30 June 2021. Such increase was mainly attributable to the increase in demand from customers in Hong Kong for waterproofing and tiling products.

SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT 13

MANAGEMENT DISCUSSION AND ANALYSIS

Cost of Sales and Services

Cost of sales and services increased from approximately HK$20.0 million for the three months ended 30 June 2020 to approximately HK$33.8 million for the three months ended 30 June 2021, representing an increase of approximately HK$13.8 million, or 69.0%. Such increase in cost of sales and services was mainly due to the increase in material costs and direct staff costs.

Gross Profit and Gross Profit Margin

Gross profit increased from approximately HK$13.1 million for the three months ended 30 June 2020 to approximately HK$15.0 million for the three months ended 30 June 2021, representing an increase of approximately HK$1.9 million, or 14.5%. Gross profit margin decreased from approximately 39.6% for the three months ended 30 June 2020 to approximately 30.7% for the three months ended 30 June 2021. Such decrease in gross profit margin was mainly due to (i) the increase in number of workers hired by the Group for relatively large projects; (ii) the increase in overall construction costs; and (iii) some of the Group’s building protection work projects on hand with higher gross profit margin were at their ending phase, with revenue already recognised in prior years.

Other Income, Gains and Losses

Other income decreased from approximately HK$382,000 for the three months ended 30 June 2020 to approximately HK$42,000 for the three months ended 30 June 2021. Other losses, on a net basis, amounted to approximately HK$254,000 for the three months ended 30 June 2020, and other gains, on a net basis, amounted to approximately HK$202,000 for the year ended 30 June 2021. Such change in other gains and losses was mainly attributable to the increase in exchange gain for the three months ended 30 June 2021.

Selling and Distribution Costs

Selling and distribution costs increased from approximately HK$1.4 million for the three months ended 30 June 2020 to approximately HK$2.8 million for the three months ended 30 June 2021, representing an increase of approximately HK$1.4 million, or 100.0%. Such increase in selling and distribution costs was mainly attributable to the increase in transportation and storage cost.

Administrative Expenses

Administrative expenses decreased from approximately HK$9.5 million for the three months ended 30 June 2020 to approximately HK$8.2 million for the three months ended 30 June 2021, representing a decrease of approximately HK$1.3 million, or 13.7%. Such decrease in administrative expenses was mainly attributable to the decrease in professional fee for the three months ended 30 June 2021.

Listing Expenses

Listing expenses decreased from approximately HK$926,000 for the three months ended 30 June 2020 to nil for the three months ended 30 June 2021.

Finance Costs

Finance costs for the three months ended 30 June 2021 amounted to approximately HK$37,000 which was derived from the lease liabilities.

14

SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT

MANAGEMENT DISCUSSION AND ANALYSIS

Income Tax Expenses

Income tax expenses increased from approximately HK$560,000 for the three months ended 30 June 2020 to approximately HK$970,000 for the three months ended 30 June 2021. Such increase was is in line with the increase in profit before income tax (excluding listing expenses) as a result of the combined effect of the increase in revenue and the decrease in administrative expenses.

Profit and Total Comprehensive Income for the Period

As a result of the foregoing, profit and total comprehensive income increased from approximately HK$902,000 for the three months ended 30 June 2020 to approximately HK$3.2 million for the three months ended 30 June 2021.

DIVIDEND

The Board does not recommend the payment of any dividend for the three months ended 30 June 2021 (three months ended 30 June 2020: Nil).

USE OF PROCEEDS

The Company’s shares were successfully listed on GEM of the Stock Exchange on 23 April 2020. The net proceeds after deducting the underwriting commission and related listing expenses payable by the Company (the “Net Proceeds”) were approximately HK$21.6 million. As disclosed in the 2021 Annual Report, there was a delay in the planned use of the unutilised Net Proceeds in relation to the purchase of additional machinery and equipment for 12 months, and such unutilised Net Proceeds are expected to be fully utilised by 31 March 2022. Save as the above-mentioned adjustments, there was no change in the intended use of the Net Proceeds and the expected timetable as previously disclosed in the Prospectus.

The table below sets forth the breakdown of the intended use and the timeline for utilisation of the Net Proceeds as at the date of this report:

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Amount Remaining
Intended Approximate utilised as at balance as at
use of Net percentage of the date of the date of
Proceeds Net Proceeds this report this report Expected timetable
HK$’000 % HK$’000 HK$’000
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Acquire additional machinery and equipment for building protection works Expand workforce Strengthen the Group’s financial position for payment of upfront cost Expand the Group’s building protection product mix and continue to develop its own-brand “DP ChemTech” and “DP” products	2,110 6,280 6,700 6,510 21,600	9.8 29.1 31.0 30.1 100.0	970 4,150 6,700 756 12,576	1,140 From Listing Date to 31 March 2022 2,130 From Listing Date to 31 March 2023 — — 5,754 From Listing Date to 31 March 2023 9,024

15

SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT

MANAGEMENT DISCUSSION AND ANALYSIS

The implementation plans for business strategies and the use of net proceeds as stated in the Prospectus were based on the best estimation and assumption of future market conditions made by the Group at the time of preparing the Prospectus. The Group implemented its business strategies and applied the Net Proceeds based on the actual developments of the Group’s business and industry, as well as market conditions.

PROSPECTS

The impacts of COVID-19 epidemic (the “Epidemic”) have caused pressure worldwide and dampened the development of various industries, with no exception for the construction industry. Due to the sudden and rapid spread of the Epidemic, a series of enhanced precautionary and control measures have been undertaken by the governments across the world including Hong Kong and Macau. The significant reduction of social and business activities and the subsequent quarantine measures have adversely affected the economy in Hong Kong, including the slowdown in the progress of construction projects. As a result, some of the Group’s building protection works in the construction sites have been held up or delayed, such influences might continue until the Epidemic is contained and this would affect the operational and financial performance of the Group.

The Group estimates that the degree of COVID-19 impact would be dependent on the outcome of various preventive measures and the duration of the Epidemic. The Group is closely monitoring the market development and continuously evaluating the financial impact of the COVID-19 situation. Given the unpredictability of future development of COVID-19, the impacts to the Group could not be reasonably and accurately estimated at this stage. However, for the time being, the Group’s building protection work projects on hand are in steady progress and the Group did not experience any shortages or difficulties in the supply of building protection products.

Since the outbreak of the Epidemic in early 2020, the Group has implemented measures, including frequent workspace cleaning with disinfectant, ensuring the wearing of surgical masks of all staff at work, and conducting body temperature test to protect the health and safety of the employees. The Group will continue to closely monitor the development of the Epidemic and will take necessary actions to control costs and drive efficiency to maintain profitability and competitiveness in the market.

Going forward, the Group will continue to strengthen its market position by expanding its workforce and competing for more building protection work projects in Hong Kong. The Directors remain confident in the prospect of the Group and are committed in creating long-term and sustainable value for the Company and its shareholders.

ENVIRONMENT POLICIES AND PERFORMANCE

The Group is committed to enhancing environmental protection to minimise the impact of its activities on the environment. It is the policy of the Group to promote clean operation and strive to make the most efficient use of resources in its operations, and minimising wastes and emission.

As a building protection solution provider, the Group will continue to monitor its business operations in order to ensure that it does not have any significant adverse effect on the environment and that the Group’s environment protection measures are adequate to ensure compliance with all applicable laws or regulations in Hong Kong.

As at the date of this report, no prosecution, penalty or punishment has been imposed upon the Group for the violation of any applicable environmental laws or regulations.

16 SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT

OTHER INFORMATION

DIRECTORS’ INTERESTS IN COMPETING BUSINESS

During the three months ended 30 June 2021 and up to the date of this report, none of the Directors, the controlling shareholders and the substantial shareholders of the Company or their respective close associates (as defined under the GEM Listing Rules) had any business or interests in a business that competes or may compete, either directly or indirectly, with the business of the Group and any other conflicts of interest which any such person has or may have with the Group.

INTERESTS AND SHORT POSITIONS OF DIRECTORS AND CHIEF EXECUTIVE IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATION

As at 30 June 2021, the interests or short positions of each of the Directors and the chief executive of the Company in the shares, underlying shares or debentures of the Company or any associated corporation (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of Laws of Hong Kong) (“SFO”)) which (a) would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which such Directors and chief executive of the Company were taken or deemed to have under such provisions of the SFO); or (b) would be required, pursuant to Section 352 of the SFO, to be recorded in the register referred to therein; or (c) would be required, pursuant to Rule 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by directors to be notified to the Company and the Stock Exchange, were as follows:

Long positions in the shares of the Company (the “Shares”)

Name of Directors	Nature of interest/holdingcapacity	Number of Shares held	Percentage of shareholding
Mr. Lam(1)	Interest in a controlled corporation	750,000,000	75%
Ms. Wong Pui Yee Edith	Interest of spouse	750,000,000	75%
(“Mrs. Lam”)(2)

Notes:

1. These Shares are registered in the name of Ultra Success, a company which is wholly-owned by Mr. Lam. Under the SFO, Mr. Lam is deemed to be interested in all the Shares registered in the name of Ultra Success.

2. These Shares represent the Shares held indirectly by Mr. Lam, the spouse of Mrs. Lam, as ultimate beneficial owner.

SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT 17

OTHER INFORMATION

Long positions in the shares of associated corporation

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||||||
|---|---|---|---|---|
|Number of|
|Name of associated|Nature of interest/|ordinary share|Percentage of|
|Name of Director|corporation|holding capacity|held|shareholding|
|Mr. Lam|Ultra Success|Beneficial owner|1|100%|

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Save as disclosed above, as at 30 June 2021, none of the Directors or the chief executive of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required (i) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and/or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) pursuant to section 352 of the SFO, to be recorded into the register required to be kept therein; or (iii) pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by directors to be notified to the Company and the Stock Exchange.

INTERESTS AND SHORT POSITIONS OF THE SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATION

As at 30 June 2021, so far as it is known to the Directors, the following persons (not being a Director or chief executive of the Company) had or were deemed to have interests in shares or underlying shares of the Company which (i) were recorded in the register required to be kept by the Company under Section 336 of the SFO, or (ii) which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO and the GEM Listing Rules, or (iii) who were deemed to be, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

Long position in the Shares

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||||||
|---|---|---|---|---|
|Number of|Percentage of|
|Name of shareholder|Nature of interest/holding capacity|Shares held|shareholding|
|Ultra Success|Beneficial owner|750,000,000|[(Note)]|75%|

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Note: Ultra Success is a company incorporated in the BVI and is wholly-owned by Mr. Lam. Mr. Lam is deemed to be interested in all Shares held by Ultra Success for the purpose of SFO. Mrs. Lam, the spouse of Mr. Lam, is also deemed to be interested in all the Shares held by Mr. Lam under the SFO.

Save as disclosed above, as at 30 June 2021, the Directors have not been notified by any person who had interests or short positions in the Shares or underlying Shares or debentures of the Company as recorded in the register required to be kept pursuant to Section 336 of the SFO, or which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO.

18 SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT

OTHER INFORMATION

SHARE OPTION SCHEME

A share option scheme (the “Share Option Scheme”) has been conditionally adopted by the Company on 18 March 2020 and became effective on the Listing Date. The terms of the Share Option Scheme are in accordance with the provisions of Chapter 23 of the GEM Listing Rules.

There were no outstanding options as at 30 June 2021. No options had been granted, agreed to be granted, exercised or cancelled or lapsed under the Share Option Scheme since the Listing Date and up to the date of this report.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

Neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company’s listed securities during the three months ended 30 June 2021.

CORPORATE GOVERNANCE

The Directors recognise the importance of good corporate governance in management and internal procedures to promote and ensure accountability. The Company’s corporate governance practices are based on principles and code provisions of the Corporate Governance Code as set out in Appendix 15 to the GEM Listing Rules (the “CG Code”). During the three months ended 30 June 2021, the Company’s corporate governance practices have been complied, except for the following code provision A.2.1 of the CG Code.

Chairman and Chief Executive Officer

Under code provision A.2.1 of the CG Code, the roles of chairman and chief executive officer should be separate and should not be performed by the same individual. During the three months ended 30 June 2021, Mr. Lam was the chairman of the Board and the chief executive officer of the Group. In view of the fact that Mr. Lam has been operating and managing the Group since its establishment, the Directors believe that it is in the best interest of the Group to have Mr. Lam taking up both roles for effective management and business development. Therefore, the Board considers that deviation from code provision A.2.1 of the CG Code is appropriate in such circumstance.

SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted a Code of Ethics and Securities Transactions on terms no less exacting than the required standard of dealings set out in Rules 5.48 to 5.67 of the GEM Listing Rules as its own code of conduct regarding securities transactions by Directors. Having made specific enquiry of all Directors, all Directors confirmed that they had complied with the required standard of dealings and the Code regarding securities transactions during the three months ended 30 June 2021.

INTERESTS OF THE COMPLIANCE ADVISER

As notified by compliance adviser of the Company, Alpha Financial Group Limited (the “Compliance Adviser”), as at 30 June 2021, save for the compliance adviser’s agreement entered into between the Company and the Compliance Adviser dated 18 March 2020, neither the Compliance Adviser nor any of its directors, employees or close associates (as defined under the GEM Listing Rules) had any interests in the Group which is required to be notified to the Company pursuant to Rule 6A.32 of the GEM Listing Rules.

SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT 19

OTHER INFORMATION

AUDIT COMMITTEE

The Company established the Audit Committee on 18 March 2020 with written terms of reference in compliance with the GEM Listing Rules. The Audit Committee is responsible for reviewing and providing supervision over the Group’s financial reporting process, risk management and internal control system, and providing advice to the Board.

This report and the First Quarterly Financial Statements have been reviewed by the Audit Committee. The Audit Committee is of the opinion that the unaudited condensed consolidated financial statements of the Group for the three months ended 30 June 2021 have been prepared in compliance with the applicable accounting standards and the GEM Listing Rules and that adequate disclosure have been made.

By Order of the Board Sunray Engineering Group Limited Lam Ka Wing Chairman

Hong Kong, 13 August 2021

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SUNRAY ENGINEERING GROUP LIMITED ｜ 2021 FIRST QUARTERLY REPORT