Transmit Entertainment Limited - Proxy Solicitation & Information Statement 2015

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 Pegasus Entertainment Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for onward transmission to the purchaser or the transferee.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities nor is it calculated to invite any such offer.

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

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Pegasus Entertainment Holdings Limited 天馬影視文化控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1326)

(1) DISCLOSEABLE AND CONNECTED TRANSACTION; AND

(2) NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser

to the Independent Board Committee and the Independent Shareholders

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

A letter from the Board is set out on pages 5 to 23 of this circular. A letter of advice from the Independent Board Committee is set out on pages 24 to 25 of this circular. A letter of advice of Akron Corporate Finance Limited, the Independent Financial Adviser, containing its opinion and advice to the Independent Board Committee and the Independent Shareholders is set out on pages 26 to 55 of this circular.

A notice convening the EGM of the Company to be held at Rooms 1801–02, Westlands Centre, 20 Westlands Road, Quarry Bay, Hong Kong, on Friday, 29 May 2015 at 4:00 p.m. is set out on pages 88 to 89 of this circular.

A form of proxy for the EGM is enclosed. Whether or not you are able to attend the EGM, you are advised to read the notice and to complete and return the enclosed form of proxy, in accordance with the instructions printed thereon, to the Hong Kong branch share registrar and transfer office of the Company, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting. Completion and delivery of the form of proxy will not preclude you from attending and voting in person at the EGM if you so wish.

13 May 2015

CONTENTS

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . .		24
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . .		26
APPENDIX I	— VALUATION REPORT OF THE TARGET GROUP . . . . . . . . . . . .	56
APPENDIX II	— LETTER FROM THE REPORTING ACCOUNTANT
	IN RELATION TO THE FORECAST
	UNDERLYING THE VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . .	81
APPENDIX III	— GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	83
NOTICE OF EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . .		88

– i –

DEFINITIONS

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

‘‘Acquisition’’
the sale and purchase of the Sale Shares contemplated under the Agreement
‘‘Agreement’’

a sale and purchase agreement dated 6 March 2015 (as amended by a supplemental agreement dated 30 April 2015) entered into between the Purchaser as purchaser, the Company as the Purchaser’s holding company, the Vendor as vendor for the acquisition of the Sale Shares by the Purchaser at a total consideration of HK$68,000,000 which will be satisfied partly by cash and partly by the Company’s issue of the Consideration Shares to the Vendor

‘‘Board’’ board of Directors
‘‘Business Day(s)’’ a day (other than Saturdays or Sunday) on which banks are open for business in Hong Kong
‘‘BVI’’
British Virgin Islands
‘‘Chili Platinum’’ Chili Platinum Advertising and Magazine Publishing Limited (智理白金雜誌廣告出版有限公司), a company incorporated under the laws of Hong Kong and a whollyowned subsidiary of Favorable On
‘‘Company’’ Pegasus Entertainment Holdings Limited, a company incorporated under the laws of the Cayman Islands with limited liability and the shares of which are listed on the Stock Exchange (Stock Code: 1326)
‘‘Completion’’
actual completion of the sale and purchase of the Sale Shares in accordance with the Agreement
‘‘Connected Person(s)’’ has the meaning given to that term in the Listing Rules
‘‘Consideration Shares’’
being 46,000,000 new Shares to be issued and allotted at the issue price of HK$1.26 per Share, credited as fully paid, by the Company to partly satisfy the consideration for the Acquisition under the Agreement
‘‘Controlling Shareholder’’
has the meaning ascribed to it under the Listing Rules and unless the context requires otherwise, refer to Mr. Wong, Mr. Edmond Wong and Ms. Alvina Wong
‘‘Director(s)’’
director(s) of the Company

– 1 –

DEFINITIONS

‘‘EGM’’

‘‘Favorable On’’
‘‘Guangzhou Platinum’’
‘‘Group’’
‘‘HK$’’
‘‘Hong Kong’’
‘‘Independent Board Committee’’
‘‘Independent Financial Adviser’’ or ‘‘Akron’’
‘‘Independent Shareholders’’
‘‘Independent Third Party’’
‘‘Last Trading Day’’

extraordinary general meeting of the Company to be convened to approve, inter alia, the Agreement and the transactions contemplated thereunder and the issue of the Consideration Shares

Favorable On Global Investment Limited (嘉安環球投資有限公司), a company incorporated under the laws of the BVI and is owned as to 70% and 30% by Powerful Target and an Independent Third Party, respectively
廣州純鉑金廣告有限公司 (in English, for identification purpose only, Guangzhou Platinum Advertising Limited), a company established under the laws of the PRC with limited liability and an Independent Third Party
the Company and its subsidiaries
Hong Kong dollar(s), the lawful currency of Hong Kong

Hong Kong Special Administrative Region of the PRC

an independent committee of the Board which comprises Mr. Lam Kam Tong, Mr. Lo Eric Tien-cheuk and Mr. Tang Kai Kui Terrence, all independent non-executive Directors
Akron Corporate Finance Limited, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition
Shareholders other than the Vendor, Mr. Wong, Mr. Edmond Wong and Ms. Alvina Wong, who are required by the Listing Rules to abstain from voting on the Board resolutions proposed to be passed at the EGM for approving the Agreement and the transactions contemplated thereunder
a person or persons or a company or companies which, to the best of Directors’ knowledge, information and belief, having made all reasonable enquires, is not or are not our connected person(s) within the meaning ascribed under the Listing Rules
6 March 2015, being the last trading day of the Shares on the Stock Exchange immediately prior to the signing of the Agreement

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DEFINITIONS

‘‘Latest Practicable Date’’
11 May 2015, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
‘‘Listing Rules’’
the Rules Governing the Listing of Securities on the Stock Exchange
‘‘Mr. Edmond Wong’’
Mr. Wong Chi Woon, Edmond, an executive Director and a Controlling Shareholder. He is the son of Mr. Wong and the nephew of the Vendor
‘‘Mr. Wong’’
Mr. Wong Pak Ming, the brother of the Vendor, the father of Mr. Edmond Wong and Ms. Alvina Wong, the chairman of the Company, an executive Director and a Controlling Shareholder
‘‘Ms. Alvina Wong’’
Ms. Wong Yee Kwan, Alvina, an executive Director and a Controlling Shareholder. She is the daughter of Mr. Wong and the niece of the Vendor
‘‘Platinum Club Cooperation Agreement’’
a cooperation agreement dated 23 April 2014 entered into between Favorable On and Guangzhou Platinum in relation to the operation of a club to be established between the parties
‘‘Powerful Target’’
Powerful Target Investment Group Limited (中威投資集團有限公司), a company incorporated under the laws of the BVI and a wholly-owned subsidiary of the Target Company
‘‘Powerful Target Group’’
Powerful Target and its subsidiaries
‘‘Publication Cooperation Agreement’’
a cooperation agreement dated 23 April 2014 entered into between Favorable On and Guangzhou Platinum in relation to the publication of ‘‘Platinum of UnionPay’’ (銀聯白金)
‘‘Purchaser’’
Green Riches Holdings Limited, a company incorporated under the laws of the BVI and a wholly-owned subsidiary of the Company
‘‘PRC’’ People’s Republic of China
‘‘Sale Shares’’
such number of shares of HK$1.00 each in the capital of the Target Company representing the entire issued share capital of the Target Company immediately before completion of the Acquisition, which are legally and beneficially owned by the Vendor

– 3 –

DEFINITIONS

‘‘SFO’’ Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong)

‘‘Share(s)’’ ordinary share(s) of HK$0.01 each in the share capital of the Company
‘‘Shareholder(s)’’ holder(s) of the Share(s)
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘Target Company’’ Chili Advertising & Promotions Limited, a company incorporated under the laws of Hong Kong and the entire issued share capital of which is held by the Vendor as at the date of the Agreement
‘‘Target Group’’ the Target Company, Powerful Target, Favorable On and Chili Platinum
‘‘Valuation’’ valuation of the market value of the entire equity interest in the Target Group as at 31 December 2014 as assessed by the Valuer
‘‘Valuer’’ Roma Appraisals Limited, a qualified independent valuer registered in Hong Kong and is an Independent Third Party
‘‘Vendor’’
Ms. Wong Kit Fong, owner of the entire issued share capital of the Target Company, the sister of Mr. Wong and the aunt of Mr. Edmond Wong and Ms. Alvina Wong; and
‘‘%’’ per cent.

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LETTER FROM THE BOARD

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Pegasus Entertainment Holdings Limited 天馬影視文化控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1326)

Executive Directors:

Mr. Wong Pak Ming (Chairman) Ms. Wong Yee Kwan Alvina Mr. Wong Chi Woon Edmond

Independent non-executive Directors:

Mr. Lam Kam Tong Mr. Lo Eric Tien-cheuk Mr. Tang Kai Kui Terence

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

Principal place of business in Hong Kong: Rooms 1801–2 Westlands Centre 20 Westlands Road Quarry Bay Hong Kong 13 May 2015

To the Shareholders

Dear Sir or Madam,

(1) DISCLOSEABLE AND CONNECTED TRANSACTION; AND (2) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the announcement of the Company dated 6 March 2015 in relation to the Acquisition.

The Board is pleased to announce that, on 6 March 2015 (after trading hours), the Purchaser, a wholly-owned subsidiary of the Company, the Vendor and the Company entered into the Agreement pursuant to which the Vendor agrees to sell and the Purchaser agrees to purchase the Sales Shares, representing the entire issued share capital of the Target Company, at a total consideration of HK$68,000,000 to be paid to the Vendor partly by cash and partly by the Company’s issue of the Consideration Shares.

– 5 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among other things, (i) the letter from the Board containing details on the Acquisition and the transactions contemplated thereunder; (ii) the recommendation from the Independent Board Committee in respect of the Acquisition; (iii) the advice from Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders regarding the Acquisition; and (iv) the valuation report on the business of the Target Group.

THE AGREEMENT

Major terms of the Agreement are set out below.

Date: 6 March 2015

Parties: (1) the Purchaser, a wholly-owned subsidiary of the Company;

(2) the Company; and

(3) the Vendor.

As the entire issued share capital of the Target Company is legally and beneficially owned by the Vendor, the sister of Mr. Wong, an executive Director, the Vendor is therefore a connected person of the Company as defined under the Listing Rules.

Assets to be acquired

Pursuant to the Agreement, the Sale Shares will comprise all those issued shares of the Target Company held by the Vendor and represent the entire issued share capital of the Target Company.

Upon completion of the Acquisition, the Target Company will become an indirect whollyowned subsidiary of the Company. The Target Company is engaged in organising film advertising and promotion services. As at the Latest Practicable Date, it is interested in 70% of Chili Platinum, which is engaged in the business of magazine publication.

The shareholding structure of the Target Group will be illustrated in the subsequent section of this circular.

Consideration

The total consideration for the Sale Shares is HK$68,000,000 which will be satisfied upon Completion in the following manner:

(a) as to HK$10,040,000, will be paid in cash; and
(b) as to HK$57,960,000, by the Company’s issue of the Consideration Shares to the Vendor.

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LETTER FROM THE BOARD

The cash portion of the consideration will be funded by internal resources of the Group. The consideration for the Acquisition was based on normal commercial terms after arm’s length negotiations between the parties with reference to, among other things, (a) the Valuation in relation to the entire equity interest in the Target Group performed by the Valuer of HK$82,600,000; (b) the expected costs and expenses for the Acquisition; and (c) other factors set out in the paragraph headed ‘‘Reasons for entering into the Agreement’’ below. The Target Company was founded by Ms. Alvina Wong and an Independent Third Party. The entire share capital of the Target Company was then acquired by an Independent Third Party and subsequently acquired by Mr. Lam Sze Ho, Owen in March 2009 at a consideration of HK$500,000. In April 2013, Mr. Lam Sze Ho, Owen, the spouse of Ms. Alvina Wong, decided to focus on other business opportunities and transferred the entire share capital of the Target Company to the Vendor at a consideration of HK$1.00, provided that the Vendor will assume and perform the on-going contractual obligations of the Target Company such that the advertising and promotion contracts entered into between the Target Company and various Independent Third Parties can be performed in accordance with their agreed terms. In April 2013, the Vendor acquired entire share capital of the Target Company at a consideration of HK$1.00.

In mid-2014, Mr. Lee Yiu Hee (李耀熙), an Independent Third Party and the sole shareholder of Powerful Target, which in turn owned 70% of the entire issued share capital of Favorable On, had expressed his intention to the Vendor in selling his entire interest in Powerful Target. According to the Vendor, by then Favorable On had already entered into the Publication Cooperation Agreement and Platinum Club Cooperation Agreement with Guangzhou Platinum and Mr. Lee Yiu Hee, after reassessing his business investments, was thwarted by the high initial set up cost required to enter into the publication business and the costs and expenses for maintaining the business. On the other hand, the Vendor considered that an expansion of the Target Company’s business to include printed and digital media publication could provide an additional solid marketing channel to facilitate the marketing activities of the Target Company in the PRC market and hence, would be highly beneficial in aligning the business of the Target Company in accordance with its operation needs in the long run. In September 2014, after arm’s length negotiations, the Target Company acquired the entire issued share capital of Powerful Target from Mr. Lee Yiu Hee at a consideration of HK$1.00 which was determined with reference to the obligations of Favorable On under the Publication Cooperation Agreement, including the payment obligations of Favorable On during the whole term of the Publication Cooperation Agreement, to be assumed by the Target Company. After the acquisition of the Powerful Target Group, the business of the Target Company has extended beyond the provision of advertising and marketing services to include printed and digital media publication.

The Board has considered the benefits of the Acquisition to the Group as set out in the section headed ‘‘Reason for entering into the Agreement’’ below. In particular, the Group believes that the abovementioned expansion of the business of the Target Company will enhance its competitiveness and operational efficiency, and the Acquisition will also benefit the Group by providing more flexibility to formulate its advertising and promotion strategies as well as its competitiveness in the PRC media and cultural industry.

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LETTER FROM THE BOARD

The Valuation was based on discounted cash flow methodology under the income-based approach. As such, the Valuation constitutes a profit forecast under Rule 14.61 of the Listing Rules and the requirements under Rule 14.62 of the Listing Rules are applicable accordingly.

The principal assumptions upon which the profit forecast for the Target Group was made are set out in ‘‘Appendix I — Valuation Report of the Target Group’’ to this circular. The underlying assumptions (such as financial projections and the business plans of the Target Group) provided by the Board to the Valuer under the Valuation are based on historical figures, and the major revenues and cost forecast are supported by the underlying contracts and agreements. Accordingly the Board considered that the underlying assumptions under the Valuation provided to the Valuer are fair and reasonable.

In accordance with Rule 14.62 of the Listing Rules, the Company has engaged its auditor, Deloitte Touche Tohmatsu, as the reporting accountant who have reported to the Directors as set out in ‘‘Appendix II — Letter from the reporting accountant in relation to the forecast underlying the Valuation’’ to this circular. Also in accordance with Rule 14.62(3) of the Listing Rules, the Directors have confirmed that the forecast underlying the Valuation was made after due and careful enquiry.

The Board (including the independent non-executive Directors, after taking into consideration the advice and recommendation of the Independent Financial Adviser set on the pages 26 to 55 in this circular) considers that (i) the consideration of HK$68,000,000 is fair and reasonable; and (ii) the Agreement is on normal commercial terms and such terms are fair and reasonable, and the entering into the Agreement is in the interests of the Company and such terms the Shareholders as a whole.

Conditions precedent

Completion of the Agreement is subject to the fulfillment of, inter alia, the following conditions precedent:

(a) the Purchaser and its advisers having completed and satisfied in its absolute discretion with the results of the legal, financial, business and other due diligence investigation in respect of the assets, liabilities, business, prospects and other affairs of the Target Group as the Purchaser may in its sole and absolute discretion consider necessary or desirable;
(b) the Purchaser and its advisers having received and satisfied in its absolute discretion (in substance and form) a legal opinion issued by a firm of lawyers qualified to practise in Hong Kong covering such aspect of the laws of Hong Kong as the Purchaser may consider appropriate or relevant to the transactions contemplated by the Agreement;
(c) the approval by the Independent Shareholders at the EGM of the Agreement and the transactions contemplated thereunder (including without limitation the allotment and issue of the Consideration Shares) and all other consents and acts required under the Listing Rules having been obtained and completed;

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LETTER FROM THE BOARD

(d) the Listing Committee of the Stock Exchange having granted or having agreed to grant the listing of, and permission to deal in the Consideration Shares;
(e) if required, all approvals, consents, authorisations and licences (so far as are necessary) in relation to the transactions contemplated under the Agreement having been obtained from the relevant governmental authorities;
(f) the Purchaser being satisfied in its absolute discretion, from the date of the Agreement and at any time before Completion, that the warranties set out in the Agreement remain true and accurate in all material respects, not misleading or in breach in any material respect and that no events have suggested that there were any breach in any material respect of any Warranties or other provisions of the Agreement by the Vendor; and
(g) the Purchaser being satisfied in its absolute discretion, from the date of the Agreement to Completion, there has not been any material adverse change in respect of any member of the Group.

The Purchaser may at its absolute discretion at any time waive in writing any of the conditions precedent (save and except conditions (c) and (d)) and such waiver may be made subject to such terms and conditions as determined by the Purchaser. If all the conditions precedent have not been satisfied or waived by 5:00 p.m. on 30 June 2015, the Agreement will lapse and have no further effect and the parties will be released from all obligations under it.

COMPLETION

Completion shall take place on a date which is the fifth (5th) Business Day after the date on which the conditions precedent are satisfied or waived or such other date as the Vendor and the Purchaser may agree in writing.

THE CONSIDERATION SHARES

HK$57,960,000 of the total consideration under the Agreement will be satisfied by the issued of the Consideration Shares by the Company to the Vendor upon Completion. The issue price of the Consideration Shares of HK$1.26 per Consideration Share was determined after arm’s length negotiations between the parties with reference to the prevailing market price of the Share as at 6 March 2015 of HK$1.31 and represents: (i) a discount of approximately 3.8% to the closing price of HK$1.31 per Share as quoted on the Stock Exchange on the Last Trading Day; (ii) a discount of approximately 6.7% to the average closing price of HK$1.35 per Share as quoted on the Stock Exchange on the last five trading days immediately prior to the Last Trading Day; and (iii) a discount of approximately 62.6% to the closing price of HK$3.37 per Share as quoted on the Stock Exchange on 11 May 2015, being the Latest Practicable Date. The Board considers the issue price of HK$1.26 of the Consideration Shares is fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Consideration Shares represented approximately 8.4% of the issued share capital of the Company as at the Latest Practicable Date and approximately 7.8% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares. The Consideration Shares will be entitled to dividends, interim dividends or other distribution from the

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LETTER FROM THE BOARD

Completion Date. The Consideration Shares will be allotted and issued under the specific mandate to be sought from the Independent Shareholders at the forthcoming EGM, and when issued, will rank equally in all respects with the Shares in issue on the date of allotment and issuance, and free and clear of any pledges, liens, encumbrances and restrictions on transfer. An application will be made to the Stock Exchange for the listing of and permission to deal in the Consideration Shares.

Details of the shareholding structure of the Company as at the Latest Practicable Date and immediately after Completion, assuming that there is no other change in the share capital of the Company are set out below:

Shareholders Honour Grace Limited (Note) Mr. Wong Vendor Public Shareholders Total	As at the Latest Practicable Date No. of Shares Approximately % 300,000,000 54.95 4,180,000 0.76 7,292,000 1.34 234,528,000 42.95 546,000,000 100.00	Immediately after Completion and allotment and issuance of the Consideration Shares No of Shares Approximately % 300,000,000 50.68 4,180,000 0.70 53,292,000 9.00 234,528,000 39.62 592,000,000 100.00	Immediately after Completion and allotment and issuance of the Consideration Shares No of Shares Approximately % 300,000,000 50.68 4,180,000 0.70 53,292,000 9.00 234,528,000 39.62 592,000,000 100.00
			100.00

Note: Honour Grace Limited is owned as to 60% by Mr. Wong, 20% by Mr. Edmond Wong and 20% by Ms. Alvina Wong.

INFORMATION OF THE TARGET GROUP

The Target Company

The Target Company is a limited liability company incorporated in Hong Kong on 28 August 2000. The Target Company is a full service marketing agency principally engaged in the provision of advertising and marketing services since its incorporation, including, without limitation, event management, product advertisements, product branding as well as organising film advertising and promotion services.

The Target Company has been providing film advertising and promotion services to the Group since 2009. Details of the transactions between the Target Company and the Group had been disclosed in the paragraph headed ‘‘Continuing Connected Transactions — (3) Provision of film advertising and promotion services by Chili’’ of the Company’s prospectus dated 9 October 2012. In September 2014, the Target Company acquired three subsidiaries, namely, Powerful Target, Favorable On and Chili Platinum with a view to expand the business of the Target Group to include printed and digital media publication and the operation of a private members’ club.

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LETTER FROM THE BOARD

The Powerful Target Group

The Powerful Target Group is principally engaged in the printed and digital media publication business and the operation of a private members’ club.

Powerful Target

Powerful Target is an investment holding company incorporated under the laws of the BVI on 5 March 2014 and is wholly owned by the Target Company. Based on the information provided by the Vendor, Powerful Target does not have any asset other than its investment in Favorable On.

Favorable On

Favorable On is an investment holding company incorporated under the laws of the BVI on 16 January 2014 and is owned as to 70% by Powerful Target and as to 30% by an Independent Third Party. Based on the information provided by the Vendor, Favorable On does not have any asset other than its investment in Chili Platinum.

Chili Platinum

Chili Platinum is a limited liability company incorporated in Hong Kong on 7 February 2014. Chili Platinum is principally engaged in the publication of a monthly issued luxury lifestyle magazine, namely ‘‘Platinum of UnionPay’’ (銀聯白金), which features a wide range of the most updated news on luxurious lifestyle related products and services ranging from fashion, jewellery, entertainment, food and restaurants, leisure, to art and culture. The magazine is targeted to the high-end consumer market of Hong Kong, Macau and the PRC. Currently, the magazine is distributed to various high-end private clubs, golf clubs and hotels whilst selected content is also available online in a number of digital media in order to broaden the scope of potential audiences. It is expected that the magazine will be provided on a complementary basis to selected premium level cardholders of UnionPay in its target markets. As the magazine is and will only be distributed on a complementary basis, revenue from the magazine distribution business will be primarily derived from printed media and digital media advertisements placed by local or international luxury brands in the magazine.

‘‘Platinum of UnionPay’’ (銀聯白金) had been published by Guangzhou Platinum, an Independent Third Party, for over 10 years. According to the public information available, Guangzhou Platinum is wholly owned by 廣州銀聯網路支付有限公司 (in English, for identification purpose only, Guangzhou UnionPay Internet Payment Limited), which is in turn wholly owned by 銀聯商務有限公司 (in English, for identification purpose only, UnionPay Merchant Services Company Limited) (‘‘UnionPay Merchant’’), a subsidiary of a company established in the PRC which is primarily responsible for the promotion of its credit cards and the provision of payment and settlement services. Also according to the public information available, the parent company of UnionPay Merchant has approximately 4.6 billion bank cards issued globally with about 400 associate members worldwide, with its cards accepted in 150 countries and regions outside the PRC. During the years from 2012 to 2014, the issued bank cards was significantly increased from approximately 2.7 billion at the end of 2011 to approximately 4.6 billion in 2014, representing a compounded annual growth rate of

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LETTER FROM THE BOARD

approximately 19.4%. According to its transactions data available, the domestic transactions of its bank cards represented 47.7% of the total domestic consumption value in the PRC in 2014 and the global network processed transactions with a total volume of RMB41.0 trillion in 2014, representing a year-on-year increase of 27.3%. Under the prevailing laws and regulations in the PRC, enterprises with foreign ownership are prohibited from engaging in the publication of books, newspapers and periodicals. In view of the restrictions, the provisions of the Publication Cooperation Agreement entered into between the Powerful Target Group and Guangzhou Platinum have provided that Guangzhou Platinum will continue to act as the channel of publication of the magazine in the PRC; while the Powerful Target Group will be responsible for the publication and distribution of the magazine in Hong Kong and Macau. Since publication activities in the PRC, including contents approval and distribution activities, are carried out by Guangzhou Platinum, the Powerful Target Group is not required to obtain any license or permit in relation to its publication business. The magazine has been issued monthly since January 2003 and a total of 132 issues have been published so far. Based on the information provided by Guangzhou Platinum, approximately 3,000 copies of the magazine had been issued on average per month since March 2013.

In September 2014, the Target Company acquired the Powerful Target Group and its business. Soon after completion of the acquisition, a working team responsible for the publication and distribution of the magazine has been set up by the Target Company. Given the scale of the magazine and to ensure a smooth transition, it took the working team three months to prepare and select suitable contents for approval by Guangzhou Platinum, and the first publication in which the Target Group was involved was published and distributed in January 2015. As at the Latest Practicable Date, the Target Group had been involved in the latest five publications since January 2015. To the best knowledge information and belief of the Directors, having made all reasonable enquiries, Guangzhou Platinum and its ultimate beneficial owners are all Independent Third Parties.

Please refer to the paragraph headed ‘‘Major terms of the cooperation agreements’’ below for further details of the Publication Cooperation Agreement and the Platinum Club Cooperation Agreement.

Major terms of the cooperation agreements

Publication Cooperation Agreement:

Set out below are the major terms of the Publication Cooperation Agreement:

Date : 23 April 2014

Parties involved : 1. Guangzhou Platinum
Favorable On

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LETTER FROM THE BOARD

Major terms : Pursuant to the Publication Cooperation Agreement, Guangzhou Platinum and Favorable On had agreed to cooperate in the publication of ‘‘Platinum of Unionpay’’ (銀聯白金) and in developing and procuring potential advertising clients. Favorable On will take overall responsibility for the contents of the magazine, negotiating the terms of sponsorship and advertisements with potential customers, promoting and marketing the magazine, as well as the printing and publication of the magazine under the direction of Guangzhou Platinum.

Guangzhou Platinum will be responsible for approving the magazine’s contents and compliance with the relevant PRC laws, regulations and policies prior to its publication as well as the distribution activities in the PRC, whereas Favorable On will be responsible for the publication and distribution activities in other designated distribution areas.

Term : Subject to the termination clause as described below, the Publication Cooperation Agreement will be valid from the date of execution for a term of 4 years, and will be renewed automatically upon expiry unless being objected by the parties giving 30 Business Days’ notice prior to the expiry of any one 4-year period.
Monthly flat fees : As Favorable On will be responsible for the overall operation of and profit sharing the printed and digital media publication business, it will also be responsible for the payment of all the relevant expenses, including an agreed monthly flat fee of RMB50,000 payable to Guangzhou Platinum for approving the magazine’s contents and the distribution activities conducted in the PRC. If the profit after tax derived from the business exceeds the aggregate annual flat fee payable to Guangzhou Platinum, Favorable On will be entitled to 80% of such profit and Guangzhou Platinum will be entitled to the remaining 20% in excess of the aggregate annual flat fee. In contrast, if the profit after tax derived from the business is less than the aggregate annual flat fee payable to Guangzhou Platinum, Favourable On will be entitled to the entire profit after tax derived from the business.
Termination : The Publication Cooperation Agreement may be terminated by either party giving 30 Business Days’ notice prior to the expiry of any one 4-year period. If the financial information provided by Favorable On is inaccurate or misleading, Guangzhou Platinum is entitled to terminate the Publication Cooperation Agreement and claim damages arising therefrom if the profit distributable to Guangzhou Platinum is understated.

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LETTER FROM THE BOARD

Other terms : Guangzhou Platinum will be entitled to all copyrights and intellectual property of the magazine, including the name ‘‘Platinum of Unionpay’’ (銀聯白金) and approval rights to the magazine’s contents proposed by Favorable On.
Platinum Club Cooperation Agreement:

Set out below are the major terms of the Platinum Club Cooperation Agreement:

Date : 23 April 2014

Parties involved : 1. Guangzhou Platinum
Favorable On
Major terms : Pursuant to the Platinum Club Cooperation Agreement, Guangzhou Platinum and Favorable On have agreed to cooperate in establishing a club that organises functions and events tailored to the interest of the target audiences of ‘‘Platinum of Unionpay’’ (銀聯白金). Favorable On will take the overall responsibility in managing and operating the club as well as organising, promoting and marketing the activities and functions carried out by the club. Guangzhou Platinum will be responsible for approving the club activities proposed by Favorable On and compliance with the relevant PRC laws, regulations and policies as well as determining the overall strategic direction of the club.
Term : Subject to the termination clause as described below, the Platinum Club Cooperation Agreement will be valid from the date of execution for a term of 4 years, and will be renewed automatically upon expiry unless being objected by the parties giving 30 Business Days’ notice prior to the expiry of any one 4-year period.
Profit sharing : As Favorable On will be responsible for the overall operation of the club, it will also be responsible for the payment of all the relevant expenses. In return, Favorable On and Guangzhou Platinum will be entitled to 80% and 20% of the profit after tax derived from operation of the club respectively. Save as disclosed above, Favorable On does not have other commitments under the Platinum Club Cooperation Agreement.

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LETTER FROM THE BOARD

Termination : The Platinum Club Cooperation Agreement may be terminated by either party giving 30 Business Days’ notice prior to the expiry of any one 4-year period. If the financial information provided by Favorable On is inaccurate or misleading, Guangzhou Platinum is entitled to terminate the Platinum Club Cooperation Agreement and claim damages arising therefrom if the profit distributable to Guangzhou Platinum is understated.
Other terms : Guangzhou Platinum will be entitled to the ownership of the club and all intellectual property rights associated with the club as well as approval rights to the club activities proposed by Favorable On. If Favorable On conduct club activities without the prior approval of Guangzhou Platinum resulting in economic loss to the club or to Guangzhou Platinum, Guangzhou Platinum is entitled to claim full damages arising therefrom.

Recent business development

Publication Cooperation Agreement:

Based on the development plans agreed between Favorable On and Guangzhou Platinum, the average number of magazine distributed per month had been increased from approximately 3,000 copies in the past to approximately 10,000 copies since January 2015, which is the first publication in which the Target Group was involved in under the Publication Cooperation Agreement.

Given that the magazine is targeted to the high-end consumer market in Hong Kong, Macau, and the PRC and is currently distributed to various high-end private clubs, golf clubs and hotels, the increase in the number of issued copies will allow the Target Group to further expand the number of the magazine’s recipients which will be highly beneficial in extending the reach of the Target Group to new audiences in its target markets. In addition, the Group has invested resources and manpower to explore and develop various multimedia contents and social media platform to provide easier and quicker access to the magazine’s contents irrespective of geographical constrains. Not only selected contents of the magazine is available online on its official webpage and selected social media platform, in view of the ever growing popularity of mobile devices, the Target Group had also developed mobile applications for smartphones and tablets to further expand the magazine’s readership base with an aim to extend its geographical reach and reaching out to the younger generations. Further, it is expected that the magazine will be provided on a complementary basis to selected premium level cardholders of UnionPay in its target markets through the digital media platform by providing selected digital contents of the magazine as well as messages on the multimedia platform from which the recipients can hyperlink directly to their subscripted contents. Based on the current development plan, as ‘‘Platinum of Unionpay’’ (銀聯白金) is a luxury lifestyle magazine oriented to the high-end consumer markets, such qualified cardholders will mainly consist of high net worth individuals having investable assets of US$1 million or above in Hong Kong,

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LETTER FROM THE BOARD

Macau and the PRC. According to a market research conducted by RBC Wealth Management, as of 2014, there were approximately 758,000 and 124,000 high net worth individuals in the PRC and Hong Kong respectively.

With the establishment of the digital media platform, the Directors believe that the combined digital and print readership base will secure stable advertising revenue and keep the Target Group’s publication business gear towards a more competitive edge.

2. Platinum Club Cooperation Agreement

Based on the development plans agreed between Favorable On and Guangzhou Platinum, members of the club will primarily consist of the target audience of the magazine. As the Target Group has only been involved in five publications since January 2015, it is envisaged that the club will be established pursuant to the Platinum Club Cooperation Agreement once the publication business advance to a more stable stage when more market information and feedbacks are gathered from the target audience such that the operations of the club can be tailored to the needs of the high-end consumer market. Further, the Platinum Club Cooperation Agreement is a framework agreement which sets out only the basic terms of cooperation and responsibilities of the parties, and without prescribing a definite timeframe in establishing the club. In the circumstances, the Directors consider that it is in the best interest of the Group to focus on the publication of ‘‘Platinum of Unionpay’’ (銀聯白金) at the current stage and proceed with the development of the business as contemplated under the Platinum Club Cooperation Agreement when the Group has established a stronger client base and distribution network.

As at the Latest Practicable Date, the development of the club is at a preliminary stage. It is expected that a comprehensive and detailed development plan for the club which will include, among others, its mode of operation, capital commitment, revenue model or annual budget will be devised when the publication business is at a more mature stage. The definite development plan of the club will be subject to the negotiations between the Target Group and Guangzhou Platinum and further announcement will be made by the Company to update the Shareholders on the progress of the development of the club as and when appropriate in accordance with the Listing Rules.

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LETTER FROM THE BOARD

Shareholding structure of the Target Group

Set out below is the shareholding structure of the Target Group as at the Latest Practicable Date:

==> picture [215 x 264] intentionally omitted <==

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

Vendor
100%
Target Company
(Hong Kong)
100%
Powerful Target Independent Third
(BVI) Party
70% 30%
Favorable On
(BVI)
100%
Chili Platinum
(Hong Kong)
----- End of picture text -----

Financial information of the Target Group

The consolidated financial information of the Target Group for the two years ended 31 December 2013 and 31 December 2014 respectively and for the two months ended 28 February 2015, which has been prepared in accordance with the Hong Kong Financial Reporting Standards, are summarised as follows:

				For the
			two months
	For the year	ended		ended
	31 December		28 February
	2013	2014		2015
	HK$’000	HK$’000		HK$’000
	(audited)	(unaudited)		(unaudited)
Revenue	9,075	8,616		3,635
Profit/(Loss) before taxation	1,005	(509)		(525)
Profit/(Loss) after taxation	854	(655)		(647)
Profit/(Loss) after taxation and
non-controlling interest	854	(237)		(264)

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LETTER FROM THE BOARD

For the two years ended 31 December 2013 and 31 December 2014 respectively and for the two months ended 28 February 2015, approximately HK$1,207,000, HK$1,159,000 and HK$278,000 represented by 13.3%, 13.5% and 7.6% of the revenue of the Target Group was contributed by the Group.

For the year ended 31 December 2014, the Target Group recorded a loss after taxation of HK$655,000 compared to a profit after taxation of HK$854,000 for the corresponding period in 2013. Since the operating expenses, mainly consist of the initial set up cost and other oneoff expenses incurred prior to the Target Group’s first publication of the magazine during the year ended 31 December 2014 was immediately recognised, while the advertising income will only be recognised since January 2015 when the first issue of the magazine was published under the Publication Cooperation Agreement, the Target Group’s result for the year ended 31 December 2014 was adversely affected.

Generally, demand for advertisements and promotional campaigns tend to move in tandem with seasonal shopping and spending patterns. Hence, revenue generated from such activities tends to fluctuate and will not be evenly distributed over the financial year. Moreover, as revenue will only be recognised upon the relevant services have been provided by the Target Group, the results for the two months ended 28 February 2015 may not be indicative of the results of the full financial year.

As at 31 December 2014, the unaudited net asset value of the Target Group is HK$2,227,000.

Financial information of the Powerful Target Group

				For the
		For the	two months
		year ended		ended
	31 December		28 February
		2014		2015
		HK$’000		HK$’000
		(unaudited)		(unaudited)
Revenue		—		575
Loss before taxation		1,393		1,276
Loss after taxation		1,393		1,276
Loss after taxation and non-controlling interest		975		893

Based on the unaudited consolidated financial information of the Powerful Target Group, the unaudited consolidated net loss (both before and after taxation) for the year ended 31 December 2014 amounted to approximately HK$1,393,000. The unaudited net liabilities of the Powerful Target Group as at 31 December 2014 (including the non-controlling interest) amounted to approximately HK$1,393,000.

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LETTER FROM THE BOARD

Since the Powerful Target Group was established in 2014, financial information for the year ended 31 December 2013 is not available. Please refer to the section headed ‘‘Information of the Target Group’’ above for further corporate information on members of the Powerful Target Group.

As at the Latest Practicable Date, there had not been any transaction between the Powerful Target Group and the Target Company, and between the Powerful Target Group and the Group. Regarding the transactions between the Group and the Target Company, please refer to the paragraph below headed ‘‘Continuing Connected Transactions’’ for further details.

REASON FOR ENTERING INTO THE AGREEMENT

The Group is principally engaged in films and television series production, distribution, licensing of film rights, film exhibition and post-production.

Given the nature of the Group’s business and that the Group does not have an in-house film advertising team, the Group has been outsourcing the marketing activities of its film and television series productions to experienced professional parties. With a view to facilitate the Group’s development in film production and distribution business, the Directors believe that the acquisition of the Target Company, which has over 14 years of experience in the provision of film advertising and promotion services, will allow the Group to develop a professional inhouse advertising and promotion team, which will benefit the Group in terms of providing more flexibility to formulate and fine-tune its advertising and promotion strategies as well as improved cost effectiveness. Further, the Target Company has been providing such services to the Group since 2009 and throughout their history of cooperation, the Directors are satisfied with the quality of professional services rendered by the Target Company. Having established a long term relationship with the Target Company in numerous film and television series marketing campaigns, the Directors consider it is more cost-efficient to establish an in-house marketing team by acquiring the Target Company, which has extensive hands-on experience in organising film advertising and promotion services, as compared to establishing an in-house marketing team by hiring new staff which could entail substantial ongoing training and time to familiarise with the tailored marketing approach offered by the Target Company. Further, it is also difficult to establish an in-house marketing team that possesses that same level of experience and public media connections as the Target Company. Having considered the above, the Directors consider that acquiring the Target Company will offer enhanced operational efficiency and cost efficiency to the Group. The Group is optimistic that the expertise of the Target Company in film advertising and promotion will further strengthen its existing core business of film production and distribution by providing a more tailored approach in marketing the Group’s film productions to capture the opportunities offered by the golden development phrase of the PRC cultural industry.

Moreover, the Directors are optimistic about the future development of printed and digital media advertisement in the PRC market given the rapid economic growth in the PRC and the increasing number of high net worth consumers pursuing luxurious lifestyle related product and services. As such, the Directors consider that it is the right opportune to develop printed and digital media business by acquiring the Target Group, which is also engaged in the publication of a luxury lifestyle magazine, namely ‘‘Platinum of UnionPay’’ (銀聯白金), which covers a

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LETTER FROM THE BOARD

wide range of the most updated news on luxurious lifestyle related products and services ranging from fashion, jewellery, entertainment, food and restaurants, leisure, to art and culture, that targets the high-end consumer market of Hong Kong, Macau and the PRC. In view of the growing consumption of luxury products and services in the PRC, more international luxury brands are seizing the PRC market by strengthening their foothold in the PRC hence encouraging the advertising market for luxury products and services in the PRC. Given the principal target audiences of Chili Platinum’s publication are high net worth individuals and other elite groups of the PRC, being the selected premium level cardholders of UnionPay as well as members of various high-end private clubs, golf clubs and hotels that have high disposable income with desire of quality living standards, the Group considers that it has established considerable number of targeted readership base and has a strong competitive advantage within the industry. The Directors further consider that the printed and digital media platform will create synergy to the Group’s existing core business of film production and distribution by providing an additional solid marketing channel of the Group’s film and television series productions in the PRC market that will also give the Group a high degree of control on the marketing campaigns of its productions and to further expand its potential target audiences to the high-end consumer market of the PRC. The Group believes that the magazine publication business is an important step towards its expansion into a diversified cultural business.

The terms of the Agreement were determined after arm’s length negotiations between the parties. The Directors (including the independent non-executive Directors) consider that the terms of the Agreement are normal commercial terms and are fair and reasonable and the Acquisition is in the interests of the Company and Shareholders as a whole.

LISTING RULES IMPLICATIONS

The Target Company is wholly owned by the Vendor, the sister of Mr. Wong. The Vendor is therefore a connected person of the Company under Chapter 14A of the Listing Rules. As one of the applicable percentage ratios (as defined in the Listing Rules) in respect of the Acquisition is greater than 5% but less than 25% and the consideration exceeds HK$10,000,000, the Acquisition constitutes a discloseable and connected transaction for the Company under Chapter 14 and Chapter 14A of the Listing Rules and is subject to reporting, announcement and the Independent Shareholders’ approval requirements under the Listing Rules.

Since the Acquisition constitutes a connected transaction for the Company due to the connection between the Vendor, each of (1) Mr. Wong; (2) Mr. Edmond Wong, being the son of Mr. Wong and the nephew of the Vendor; and (3) Ms. Alvina Wong, the daughter of Mr. Wong and the niece of the Vendor, had abstained from voting on the relevant Board resolution in this aspect.

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LETTER FROM THE BOARD

Continuing Connected Transactions

Existing continuing connected transactions

Subsequent to Completion of the Acquisition, the Target Company will become an indirect wholly-owned subsidiary of the Company and will therefore cease to be a connected person of the Company. As such, the transactions between the Company and the Target Group as detailed in the paragraph headed ‘‘Continuing Connected Transactions — (3) Provision of film advertising and promotion services by Chili’’ of the Company’s prospectus dated 9 October 2012 after Completion will cease to be continuing connected transactions of the Company.

Details of the continuing connected transactions, being the expenses paid or payable to the Target Company for the provision of film advertising and promotion services during the relevant period since 2009 are as follows:

		For the	year ended	30 June
	2010	2011	2012	2013	2014
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Transaction amount
during the relevant
period	300	500	800	1,304	1,205
Annual cap for the
relevant period	—	—	—	2,500	3,500

New continuing connected transactions

Pure Project Limited is a company owned as to 99.99% by Mr. Wong and as to 0.01% by the Vendor, and is therefore a connected person of the Company under the Listing Rules. Pure Project Limited entered into a lease agreement with the Group on 1 October 2011 (as supplemented by an agreement dated 5 October 2012) in respect of a property located in Quarry Bay, Hong Kong which the Group uses as its Hong Kong office for a term commenced on 1 October 2011 and will expire on 30 June 2015 at a monthly rental of HK$40,000. In addition, Pure Project Limited also entered into a lease agreement (the ‘‘Chili Lease Agreement’’) with the Target Company on 30 September 2013 in respect of a property adjacent to the property leased to the Group which the Target Company uses as its Hong Kong office for a term commenced on 1 October 2013 and will expire on 30 September 2015 at a monthly rental of HK$17,000. Upon Completion, the Chili Lease Agreement between the Target Company and Pure Project Limited will become a continuing connected transaction of the Company. In view of the Chili Lease Agreement, the annual cap for the year ending on 30 June 2015 in respect of the rental payable by the Group to Pure Project Limited will need to be increased from the original annual cap of HK$500,000 to HK$517,000. The revised annual cap determine based on the monthly rental under the Chili Lease Agreement payable by the Group

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LETTER FROM THE BOARD

to Pure Project Limited after Completion. The Company will comply with all connected transaction requirements under Chapter 14A of the Listing Rules upon any variation or renewal of any of the lease agreements referred above.

EGM

The EGM will be convened and held for the Shareholders to consider and, if thought fit, to approve the Agreement and the transactions contemplated thereunder. Set out on pages 88 and 89 is a notice convening the EGM to be held at Rooms 1801–02, Westlands Centre, 20 Westlands Road, Quarry Bay, Hong Kong on Friday, 29 May 2015 at 4:00 p.m. at which the relevant resolution(s) will be proposed to the Independent Shareholders to consider and, if thought fit, approve the Acquisition and the transactions contemplated thereunder.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s share Registrar, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, 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 adjourned meeting. Completion and delivery of the form of proxy will not preclude you form attending and voting in person at the EGM or any adjourned meeting (as the case may be) if you so wish.

Any shareholder with a material interest in the Agreement and the transactions contemplated thereunder will not vote at the EGM. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Vendor holds 7,292,000 Shares, representing 1.34% of the issued share capital of the Company as at the Latest Practicable Date and is considered to be materially interested in the Acquisition. Further, Mr. Wong, Mr. Edmond Wong and Ms. Alvina Wong are also considered to be interested in the Acquisition by virtue of their relationship with the Vendor. As a result, the Vendor, Mr. Wong, Mr. Edmond Wong and Ms. Alvina Wong and their respective associates will abstain from voting on the relevant resolutions to be proposed at the EGM. Save as the Shareholders as disclosed above, to the best of the Directors’ knowledge, there is no Shareholder who has material interest in the Acquisition that shall abstain from voting at the EGM.

INDEPENDENT BOARD COMMITTEE

The EGM will be convened and held for the Shareholders to consider and, if thought fit, to approve the Agreement and the transactions contemplated thereunder. The Independent Board Committee comprising all independent non-executive Directors has been established to make recommendations to the Independent Shareholders regarding the Agreement and the transactions contemplated thereunder. Akron has been appointed by the Company as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in the same regard.

– 22 –

LETTER FROM THE BOARD

The text of the letter from the Independent Board Committee is set out on pages 24 to 25 of this circular, the text of the letter from Independent Financial Adviser containing its advise is set out on pages 26 to 55 of this circular.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on pages 24 to 25 of this circular. The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, the text of which is set out on pages 26 to 55 of this circular, considers that the Agreement is entered into upon normal commercial terms following arm’s length negotiations between the parties thereto and that the terms of the Agreement is fair and reasonable so far as the Independent Shareholders are concerned and the Acquisition is in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favor of the resolution to be proposed at the EGM to approve the Agreement and the transactions contemplated thereunder.

ADDITIONAL INFORMATION

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

Yours faithfully, On behalf of the Board Pegasus Entertainment Holdings Limited Wong Pak Ming Chairman

– 23 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [56 x 74] intentionally omitted <==

Pegasus Entertainment Holdings Limited 天馬影視文化控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1326)

13 May 2015

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION

We refer to the circular dated 13 May 2015 issued by the Company (the ‘‘Circular’’), of which this letter forms part. Terms used in this letter shall bear the same meanings as given to them in the Circular unless the context otherwise requires.

We have been appointed by the Board as members to form the Independent Board Committee to consider the Agreement and the transactions contemplated thereunder and to advise the Independent Shareholders as to whether the Agreement and the transactions contemplated thereunder 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, and to recommend how the Independent Shareholders should vote at the EGM. Akron Corporate Finance Limited (‘‘Akron’’) has been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard. Details of Akron’s advice, together with the principal factors taken into consideration in arriving at such advice, is set out on pages 26 to 55 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 5 to 23 to the Circular and the additional information set out in the appendices of the Circular.

Having taken into account of the advice of Akron, we consider that the Agreement was entered into upon normal commercial terms following arm’s length negotiations between the parties thereto, and that the terms of the Agreement are fair and reasonable so far as the Independent Shareholders are concerned, and the Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Accordingly,

– 24 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Agreement and the transactions contemplated thereunder.

Yours faithfully, the Independent Board Committee Lam Kam Tong Lo Eric Tien-Cheuk Tang Kai Kui Terence Independent Independent Independent non-executive Director non-executive Director non-executive Director

– 25 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter from Akron Corporate Finance Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition, for the purpose of inclusion in this circular.

==> picture [131 x 43] intentionally omitted <==

3808 China Resources Building 26 Harbour Road Wanchai, Hong Kong

13 May 2015

To: The Independent Board Committee and the Independent Shareholders

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTION

INTRODUCTION

We refer to our engagement as the independent financial adviser to the Independent Board Committee and the Independent Shareholders on the Acquisition, details of which are contained in the Letter from the Board (the ‘‘Letter from the Board’’) contained in the circular (the ‘‘Circular’’) of the Company to the Shareholders dated 13 May 2015, of which this letter forms part. Terms used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

On 6 March 2015, (after trading hours), the Purchaser, a wholly-owned subsidiary of the Company, the Vendor and the Company entered into the Agreement pursuant to which the Vendor agrees to sell and the Purchaser agrees to purchase the Sales Shares, representing the entire issued share capital of the Target Company, at a total consideration of HK$68 million to be paid to the Vendor partly by cash and partly by the Company’s issue of the Consideration Shares.

The Target Company is wholly owned by the Vendor, the sister of Mr. Wong. The Vendor is therefore a connected person of the Company under Chapter 14A of the Listing Rules. As one of the applicable percentage ratios (as defined in the Listing Rules) in respect of the Acquisition is greater than 5% but less than 25% and the consideration exceeds HK$10 million, the Acquisition constitution a discloseable and connected transaction for the Company under Chapter 14 and Chapter 14A of the Listing Rules and is subject to reporting, announcement and the independent shareholders’ approval requirements under the Listing Rules. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Vendor holds 7,292,000 Shares, representing 1.34% of the issued share capital of the Company as at the Latest Practicable Date and is considered to be

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

materially interested in the Acquisition. Further, Mr. Wong, Mr. Edmond Wong and Ms. Alvina Wong are also considered to be interested in the Acquisition by virtue of their relationship with the Vendor. As a result, the Vendor, Mr. Wong, Mr. Edmond Wong and Ms. Alvina Wong and their respective associates will abstain from voting on the relevant resolutions to be proposed at the EGM.

The Independent Board Committee comprising Mr. Lam Kam Tong, Mr. Lo Eric Tiencheuk and Mr. Tang Kai Kui Terence, all being independent non-executive Directors, has been formed to advise the Independent Shareholders on whether (i) the terms of the Agreement are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the Acquisition is in the interest of the Company and the Shareholders as a whole. We have been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

BASIS OF OUR ADVICE

In formulating our advice and recommendation to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true, complete and accurate in all material respects at the time when they were made and continue to be so as at the date of the despatch of the Circular. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiries and careful considerations.

We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us.

We consider that we have taken sufficient and necessary steps to form a reasonable basis and an informed view for our recommendation in compliance with Rule 13.80 of the Listing Rules. The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in the Circular misleading. We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our recommendation. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company nor have we considered the taxation implication on the Group or the Shareholders as a result of the transactions herein.

In addition, we have no obligation to update this opinion to take into account events occurring after the issue of this letter. Nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS CONSIDERED

The principal factors and reasons that we have taken into consideration in assessing the terms of the Acquisition and arriving at our opinion are set out as follows:

1. Business and financial information of the Group

The Group is principally engaged in films and television (‘‘TV’’) series production, distribution and licensing of film rights in Hong Kong, the PRC and South East Asia through its established distribution channels. During the six months ended 31 December 2014, the Group further expanded its business portfolio and began to participate in film exhibition and post-production. The Group has been producing films and TV series in Chinese language with the PRC as its major market.

(a) Financial performance for the six months ended 31 December 2014

According to the interim report of the Group for the six months ended 31 December 2014 (the ‘‘2014 Interim Report’’), the Group’s financial performance for the six months ended 31 December 2014 can be briefly summarised as follows.

Revenue and gross profit of the Group were approximately HK$40.2 million and HK$17.6 million respectively for the six months ended 31 December 2014, representing increases of approximately HK$7.3 million or 22.0% and HK$5.4 million or 43.9% respectively compared to the same period in 2013. According to the 2014 Interim Report, such increases was mainly due to the revenue arising from the film exhibition in the Cinema City Langham Place, the Group’s flagship cinema in Hong Kong which located in the prime area of Mongkok (a popular shopping and entertainment in Hong Kong). Gross profit margin for the six months ended 31 December 2014 was approximately 43.7%, which showed an increase from that of approximately 37.0% for the corresponding period of the previous financial year. This was mainly due to the revenue contributed by general-scale films during the six months ended 31 December 2014 as opposed to a large-scale film for corresponding period of 2013. Due to the relatively large cost involved, large scale production inherently has a lower gross profit margin. In addition, the gross profit margin for the film exhibition was approximately 50.0% whilst no such operation in the same period of 2013.

The Group’s loss and total comprehensive expense attributable to owners of the Company for the six months ended 31 December 2014 amounted to approximately HK$29.0 million as compared with profit and total comprehensive income attributable to owners of the Company amounted to approximately HK$4.5 million for the corresponding period of 2013. The loss for the period in 2014 compared to the profit in the same period of 2013 was primarily a result of the significant increase in selling and distribution expenses by approximately HK$34.3 million from approximately HK$1.8 million in 2013 to approximately HK$36.1 million in 2014. The surge in selling distribution expenses was mainly attributable to (i) cinema circuit distribution expenses of the film ‘‘Z Storm’’ (Z 風暴) of approximately HK$2.8 million and (ii) the rental expenses and management fee of the cinema for

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the film exhibition business commenced on 23 July 2014 of approximately HK$27.4 million whilst no such expenses were recorded for the same period of the previous financial period.

(b) Financial performance for the year ended 30 June 2014

According to the annual report of the Group for the year ended 30 June 2014 (the ‘‘2014 Annual Report’’), the Group’s financial performance for the year ended 30 June 2014 can be briefly summarised as follows.

Revenue and gross profit of the Group were approximately HK$134.8 million and HK$59.7 million respectively for the year ended 30 June 2014, representing decreases of approximately HK$57.8 million or 30.0% and HK$5.6 million or 8.5% respectively compared to those of the corresponding period in 2013. According to the 2014 Annual Report, the decrease in revenue was mainly to the fact that all the films released during the year 2014 were of general-scale, whilst during the corresponding period in 2013, the Group had released a large-scale film, which accounted for approximately 64.2% of the total revenue for year 2013.

The Group’s profit and total comprehensive income attributable to owners of the Company for the year ended 30 June 2014 amounted to approximately HK$26.4 million as compared with approximately HK$19.1 million for the corresponding period of 2013. The increase of profit for the year ended 30 June 2014 was primarily attributable to (i) an increase in other income and gain of approximately HK$2.6 million, (ii) share of results of an associate of approximately HK$4.7 million, (iii) decrease in selling and distribution and other expenses of approximately HK$10.6 million outweighed (iv) the decrease in gross profit of approximately HK$5.6 million and (v) increase in administrative expenses of approximately HK$5.1 million.

2. Business and financial information of the Target Group

As disclosed in the Letter from the Board, the Target Group comprises the Target Company, Powerful Target, Favorable On and Chili Platinum.

Target Company and Chili Platinum are the two operating arms of the Target Group. Upon development of the Target Group, based on projections made by the Target Group, Chili Platinum will eventually become the leading business segment of the Target Group in terms of revenue contribution.

The Target Company is a full service marketing agency principally engaged in the provision of advertising and marketing services since its incorporation, including, without limitation, event management, product advertisements, product branding as well as organising film advertising and promotion activities. The Target Company has been providing film advertising and promotion services to the Group since 2009. Details of the transactions between the Target Company and the Group had been disclosed in the paragraph headed ‘‘Continuing Connected Transactions — (3) Provision of film advertising and promotion services by Chili’’ of the Company’s prospectus dated 9 October 2012. In September 2014, the Target Company acquired three subsidiaries,

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namely, Powerful Target, Favorable On and Chili Platinum with a view to expand the business of the Target Group to include printed and digital media publication and the operation of a private members’ club. The Target Company is indirectly interested in 70% equity interest of Chili Platinum.

Powerful Target is an investment holding company and is wholly owned by the Target Company. Powerful Target does not have any asset other than its investment in the 70% equity interest of Favorable On.

Favorable On is an investment holding company and is owned as to 70% by Powerful Target and as to 30% by an independent third party. Favorable On does not have any asset other than its investment in the entire equity interest of Chili Platinum.

Currently, the Magazine is distributed to various high-end private clubs, golf clubs and hotels whilst selected content is also available online in a number of digital media in order to broaden the scope of potential audiences. The Magazine will be provided on a complementary basis to selected premium level cardholders of UnionPay in its target markets. The Magazine targets high-end consumer market of Hong Kong, Macau and the PRC. The principal target audiences of the Magazine are high net worth individuals and other elite groups of the PRC which have high disposable income with desire of quality living standards. The Magazine has been issued monthly since January 2003 and 132 issues have been published. As at the Latest Practicable Date, the Target Group has been involved in the latest five publications of the Magazine under the Publication Cooperation Agreement since January 2015.

As the Magazine is and will only be distributed on a complementary basis, revenue from the magazine distribution business will be primarily derived from printed media and digital media advertisements placed by local or international luxury brands in the Magazine.

Under the prevailing laws and regulations in the PRC, enterprises with foreign ownership are prohibited from engaging in the publication of books, newspapers and periodicals. Under the Publication Cooperation Agreement, Guangzhou Platinum, an Independent Third Party, which has been publishing the Magazine for over ten years, will continue to act as the channel of distribution of the Magazine and publication activities of the Magazine in the PRC, while the Target Group will be responsible for publication and distribution of the Magazine in Hong Kong and Macau, contents of the Magazine, negotiating the terms of sponsorship and advertisements with potential customers, promoting and marketing the Magazine, as well as the printing and publication of the Magazine under direction of Guangzhou Platinum. Since publication activities in the PRC, including contents approval and distribution activities are carried out by Guangzhou

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Platinum, the Target Group is not required to obtain any license or permit in relation to its publication business. The Publication Cooperation Agreement will continue for a term of four years and renewed automatically unless and until being terminated by either party prior to the expiry of any one 4-year period.

According to the Publication Cooperation Agreement, Guangzhou Platinum will be entitled to receive a monthly flat fee (the ‘‘Flat Fee’’) of RMB50,000 from the Target Group for approving the Magazine’s contents and the distribution activities conducted in the PRC. In addition to the Flat Fee, if the profit after tax derived from the Magazine exceeds the aggregate annual Flat Fee (the ‘‘Excess Amount’’), Guangzhou Platinum will be entitle to receive 20% of the Excess Amount. Therefore, the income generated to Guangzhou Platinum under the Publication Cooperation Agreement will correlate with the profit after tax derived from the Magazine.

We consider that there is no foreseeable obstacle in renewing the Publication Cooperation Agreement upon expiration after taking into account (i) substantial time and effort will be dedicated by the Target Group for on-going cooperation with Guangzhou Platinum and hence the Target Group will be familiar with the mode of cooperation, arrangements on division of responsibilities, selection of suitable magazine contents under the Publication Cooperation Agreement upon expiration of the Publication Cooperation Agreement; (ii) the Target Group will have developed the expertise and established a long term cooperation relationship with Guangzhou Platinum upon expiration of the Publication Cooperation Agreement. Therefore, the Target Group will be in an advantageous position as compared to other parties in managing the publication of the Magazine; and (iii) the Target Group’s development of the digital media platform to complement issue of the Magazine will further expand the target audiences of the Magazine in high-end consumer market irrespective of geographical constraints. In view of the digital media platform, the Magazine will become a more comprehensive advertising channels for advertisers. Thus, it will increase the attractiveness of the Magazine to advertisers. In addition, it will further contribute to the revenue and profits of the publication business of the Magazine and will be beneficial to Guangzhou Platinum in view of the profit sharing arrangement under the Publication Cooperation Agreement. Based on the foregoing, we consider that there exists a strong incentive for both parties to renew the Publication Cooperation Agreement. Hence, it is justifiable to assume that the Publication Cooperation Agreement will be renewed and the Target Group will continue as a going concern.

Given that Guangzhou Platinum is the key business partner of the Target Group, we have discussed with management of the Company and obtained background information of Guangzhou Platinum including but not limited to its shareholding structure, business operation and financial strength. We are given to understand that the holding company of Guangzhou Platinum is one of the well-known enterprise established in the PRC which is primarily responsible for the promotion of its credit cards and the provision of payment and settlement services (the ‘‘Card Company’’). According to public information available, the Card Company has issued 4.6 billion bank cards globally with about 400 associate members worldwide and with its cards accepted in 150 countries and regions outside the PRC. During the years from 2012 to 2014, the issued bank cards was significantly increased from approximately 2.7 billion at the end of 2011 to approximately

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4.6 billion in 2014, representing a compounded annual growth rate of approximately 19.4%. According to its transactions data available, the domestic transactions of its bank cards represented approximately 47.7% of the total domestic consumption value in the PRC in 2014 and the global network processed transactions with a total volume of approximately RMB41.0 trillion in 2014, representing a year-on-year increase of approximately 27.3%.

In view of (i) Guangzhou Platinum’s relation with the Card Company; (ii) extensive experience of Guangzhou Platinum in the publication of the Magazine and its established network in distribution of the Magazine; and (iii) readership base of the Magazine being high net worth individuals with high disposable income will be attractive to advertiser, thus facilitating advertising income generation to the Target Group under the Publication Cooperation Agreement.

As mentioned in the Letter from the Board, based on the unaudited financial information of the Target Group, the Target Group recorded an unaudited consolidated profit after tax of approximately HK$854,000 and a loss after tax of approximately HK$655,000 for the two years ended 31 December 2013 and 31 December 2014, respectively. The net loss of the Target Group recorded for year ended 31 December 2014 as compared with net profit in the corresponding period in 2013 was attributable to preliminary expenses amounting to approximately HK$1.39 million incurred in the commencement of business of the Chili Platinum. The unaudited consolidated net assets of the Target Group as at 31 December 2014 was approximately HK$2,227,000.

3. Reasons for and benefits of entering into the Acquisition

(a) Overview of the advertising and luxury market in the PRC

According to a report published in December 2014 by Zenith Optimedia Group Limited (‘‘ZenithOptimedia’’), an independent reputable global media research house with extensive experience in its profession, China was the world’s second largest advertising market in 2014. The estimated net advertising expenditures in China reached approximately US$45.5 billion in 2014, being the largest advertising market in Asia. ZenithOptimedia further forecasted that the total net advertising expenditures in China will reach approximately US$62.1 billion by 2017, representing a compound annual growth rate (‘‘CAGR’’) of approximately 10.9% from 2014 to 2017 compared to a forecasted decrease in net advertising expenditures in many other developed countries during the same period. It is forecasted that China will remain the second largest world’s advertising market in 2017, just behind the traditional global advertising leader, the United States.

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The table below shows the top ten advertising markets based on advertising expenditures in 2014 and 2017.

Top Ten Advertising Markets Based on Advertising Expenditures in 2014 and 2017

	2014		2017
	(US$ million)		(US$ million)
United States	176,006	United States	197,536
China	45,491	China	62,076
Japan	44,520	Japan	47,842
Germany	24,597	United Kingdom	26,475
United Kingdom	22,525	Germany	25,540
Brazil	16,686	Brazil	20,015
France	13,086	South Korea	14,918
Australia	12,317	Australia	13,060
South Korea	11,670	France	12,985
Canada	11,159	Argentina	12,545

Source: ZenithOptimedia

According to the 2013 China Luxury Report (‘‘Luxury Report’’) published by Fortune Character Institute, an organization specializing in lifestyle studies of the rich in China, Chinese is the largest consumer of the global luxury market, accounting for approximately 47% of the global luxury sales.

As the world’s largest group of luxury consumption, China has become the key target market for international luxury brands. The lucrative China market has also presented abundant opportunities for global luxury players to further establish their presence across the country. Therefore, many well-known international luxury brands are attracted to set up business in China. Some brands have already gained access to the market while others are struggling for an inroad, the competition between these international luxury brands is getting intense.

Due to the more intense competition, luxury goods players used a variety of ways to promote their brands, including customised services, direct local operation and more advertising, in order to maintain and consolidate their competitive position in China. To survive in the intense competition, luxury brands are apt to deploy advertising and marketing activities to increase market penetration as well as deepening their brand image when promoting in China. Luxury brands also seek to attract new customers by educating them about their brand’s heritage and culture. Advertising in magazine is one of the important media platforms for the international luxury brands to enhance the visibility of their brands and deepen the brand image.

Luxury brands are niche brands and their advertisements are tailored towards a specific consumer market. Advertisement of luxury brands are mostly featured in fashion magazines, business publications, airline in-flight magazines and other high-

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end publications. This is because these publications are the most widely read by the target audience. Therefore, it indicated the importance of the print media in the advertisement and its influence on the luxury consumer market.

In view of the growth potential of advertising expenditure in China and rising needs for luxury brands to strengthen its brand consciousness in China in order to secure a stronger foothold in the luxury market in China, the prospect of the China’s advertising industry which targets at luxury advertisers will be promising.

(b) Reasons for the Acquisition

The Ministry of Culture has issued the Doubling Plan for Cultural Industries of the 12th Five Year Plan that requires a doubled increase in production value of cultural industries at the end of 2015 comparing to that of in 2010. As set out in the 2014 Interim Report, in 2014, the film industry in the PRC has seen a very rapid pace of development with (i) total box office receipts exceeding RMB29.0 billion, representing a year-on-year rise of approximately 36.2%; and (ii) total number of cinema admissions increasing by approximately 34.5% to 830 million, which indicates that the PRC film market has entered a golden phase of development.

As stated in the 2014 Annual Report, at the end of May 2014, central government ministries and departments including the Ministry of Finance and State Administration of Taxation, in conjunction with the State Administration of Press, Publication, Radio, Film and Television issued the Notice on Certain Economic Policies for the Support of the Development of the Film Industry, which mainly provides for preferential tax policy as well as financing supports and subsidies for the film industry. This demonstrates the increasing support from the state towards the cultural industry after the announcement of the related policies stated in the 12th Five Year Plan by the PRC Government.

Given the continuing growth of the PRC cultural industry as well as the encouragement of the PRC Government as discussed above, the Group is confident in the PRC cultural industry’s outlook which is encouraging for industry participants.

We also note from the 2014 Interim Report that the Group took two major steps towards its expansion into a diversified cultural business. The Group has expanded its core business of film and TV series production and distribution and licensing of film rights to include (i) film exhibition (the ‘‘Film Exhibition Development’’); and (ii) post-production (the ‘‘Post-Production Development’’). In mid-November 2014, the Group’s flagship cinema had been opened for trial operation and officially commenced operation in January 2015. In September 2014, the Group established its in-house post-production arm through cooperating with a post-production house in Hong Kong with over twenty years of experience in the post-production industry to participate in digital media post-production operation with a view to forming an integrated film production chain so as to achieve economies of scale and synergies. Given that post-production is integral to the production process, the establishment of the in-house post-production arm will enable the Group to undertake post-production of its films which had previously been outsourced to external service providers.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As indicated in the 2014 Interim Report, in order to capture the opportunities offered by the rapid development of the PRC cultural market, the Group will continue to expand its production capacities.

Taking into account the Group’s business strategy in seeking business opportunities to expand its cultural business and the Film Exhibition Development and the Post-Production Development taken by the Group, we consider that the Acquisition is in line with the business strategy of the Group.

As set out in the Letter from the Board, given the nature of the Group’s business, the Group does not have an in-house film advertising team. The Group has been outsourcing the marketing activities of its film and TV series productions. Taking into account that the Target Company possesses over 14 years of experience in film advertising and promotion services and has been providing such services to the Group since 2009 it is anticipated that the Acquisition will allow the Group to develop a professional in-house advertising and promotion team, which will benefit the Group in terms of providing more flexibility to formulate and fine-tune its advertising and promotion strategies as well as improved cost effectiveness by providing a more tailored approach in marketing the Group’s film productions. Furthermore, the Acquisition will also enable the Group to participate in film advertising and promotion business to external customers for generating positive return to the Group under the golden development phrase of the PRC cultural industry as discussed above.

As discussed in the paragraph headed ‘‘Overview of the advertising and luxury market in the PRC’’, in view of (i) the anticipated growth in advertising expenditure in the PRC; (ii) the PRC is the largest consumer of the global luxury market; and (iii) competition among luxury brands for strengthening their foothold in the PRC, the Directors are optimistic about that the development of printed and digital media advertisement in the PRC, in particular, targeting the luxury advertisers.

As such, we concur with the Directors that it is the right time to develop printed and digital business by acquiring the Target Group, which is also engaged in the publication of the Magazine, a luxury lifestyle magazine with the view of earning advertising income from luxury advertisers under promising prospect of the PRC advertising market for luxury sector.

We note that the Magazine has established considerable number of targeted readership base, being selected premium level cardholders of UnionPay as well as members of various high-end private clubs, golf clubs and hotels that have high disposable income with desire of quality living standard. Capitalizing on the unique readership base of the Magazine, being the targeted consumers of luxury brands, we consider that the Magazine has a strong competitive advantage within the advertising market for luxury products and services.

Moreover, with unique readership base of the Magazine, it will create synergy to the Group’s existing core business of film production and distribution by providing an additional solid marketing channel of the Group’s film and TV series

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productions in the PRC market that will in turn give the Group a high degree of control on the marketing campaigns of its productions and to further expand its potential target audiences to the high-end consumer market of the PRC. The Group believes that the magazine publication business is an important step towards its expansion into a diversified cultural business.

Apart from the Publication Cooperation Agreement, the Platinum Club Cooperation Agreement is another major agreement of the Target Group. Although business development under the Platinum Club Cooperation Agreement is still at a preliminary stage, once the publication business of the Target Group advanced to a more stable stage, it is considered that the Platinum Club Cooperation Agreement will allow the Target Group to capture potential business opportunities associated with operation of the club. In this regards, the Platinum Club Cooperation Agreement represents an additional potential income stream of the Target Group.

Based on the foregoing, we are of the view that the Acquisition is not in the ordinary and usual course of business of the Group. Having considered (i) the upcoming development opportunities associated with advertising market for luxury products and services in the PRC as discussed under the paragraph headed ‘‘Overview of the advertising and luxury market in the PRC’’ above from the publication of a luxury lifestyle magazine; (ii) the support of the PRC Government in the cultural industry; (iii) the synergy effect of the Magazine to the Group’s existing business; and (iv) the Acquisition is in line with the business strategy of the Group, we concur with the Directors that the Acquisition is in the interest of the Group and its Shareholders as a whole.

4. Principal terms of the Agreement

Pursuant to the Agreement, total consideration for the Sale Shares is HK$68,000,000 (the ‘‘Consideration’’) which will be satisfied upon Completion in the following manner:

(i) as to HK$10,040,000, will be paid in cash; and
(ii) as to HK$57,960,000, by the Company’s issue of 46,000,000 Consideration Shares at the issue price of HK$1.26 per Consideration Share (the ‘‘Issue Price’’) to the Vendor.

We note that according to the 2014 Interim Report, the Group recorded cash and bank balances of approximately HK$27.7 million as at 31 December 2014 and recorded a net loss of approximately HK$29.0 million for the six months ended 31 December 2014. In addition, as stated in the 2014 Annual Report, the Group recorded net cash used in operating activities of approximately HK$25.1 million for the year ended 30 June 2014. In this connection, we consider that settlement of part of the Consideration by issuing the Consideration Shares to the Vendor instead of making cash payment will (i) minimize immediate cash outflow of the Group; and (ii) enable the Group to retain more cash for general working capital in the course of its business operations and business development, therefore, it will be in the interests of the Company and the Shareholders as a whole.

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(a) Evaluation of the Consideration

As set out in the Letter from the Board, the Consideration of HK$68,000,000 was based on normal commercial terms after arm’s length negotiations between the parties with reference to, among other things, (i) the preliminary valuation in relation to the entire equity interest in the Target Group performed by the Valuer of HK$82,600,000; (ii) the expected costs and expenses for the Acquisition; and (iii) other factors set out in the paragraph headed ‘‘Reasons for entering into the Agreement’’ as set out in the Letter from the Board.

We note that it is common market practice in Hong Kong to employ two methods to assess the fairness and reasonableness of the consideration for an acquisition of equity interest in a target company similar to the Acquisition, namely, (i) comparable company analysis; and (ii) comparison between consideration and valuation. For the reasons as stated below, we have chosen the second method over the first method for our evaluation of the Consideration.

(i) Comparable company analysis

Under this method, a number of companies are selected for comparison based on certain criteria such as: (i) the comparable companies are listed on the Stock Exchange; and (ii) the principal business activities of the comparable companies are similar to those of the target company.

After compiling an exhaustive list of comparable companies on a besteffort basis, the price-to-earnings ratio (the ‘‘P/E ratio’’) and price-to-book ratio (the ‘‘P/B ratio’’) of each of the comparable companies will be calculated and tabulated into two separate ranges. If the target company’s P/E ratio and P/B ratio as implied by the consideration falls within the respective range, the consideration is likely to be regarded as fair and reasonable.

Even if the target company is not listed on the Stock Exchange, comparable analysis can still be performed by deriving implied P/E ratio and implied P/B ratio for the target company. An implied P/E ratio is calculated based on the amount of the consideration divided by the target company’s net profit after taxation for the financial year as discounted by the equity interest to be acquired in the target company. The method to derive the implied P/B ratio, on the other hand, is almost the same as that of the implied P/E ratio except that the target company’s net profit after taxation is substituted by its net asset value.

However, the efficacy of the implied P/E ratio and the implied P/B ratio for comparable company analysis is premised on the fact that the target company has been engaged in similar business activities as those of the comparable companies; if not, no meaningful comparison can be made. We are given to understand that at present, the Target Group has two principal operating arms, namely the Target Company and Chili Platinum, which are responsible for film advertising and promotion business and magazine

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publication business respectively. We also note that in pursuing business development of the Target Group, Chili Platinum will gradually become the key operating subsidiary of the Target Group despite the fact that Chili Platinum has just commenced its business operation of magazine publication in January 2015. In view of the above, we have decided not to use comparable company analysis to assess the fairness and reasonableness of the Consideration as it may not be able to reflect the development prospect of the Target Group.

(ii) Comparison between the Consideration and the Valuation

The Company has engaged the Valuer, a qualified independent valuer, to conduct a business valuation of the Target Group. According to the valuation report prepared by the Valuer (the ‘‘Valuation Report’’), in preparing the Valuation, the Valuer adopted the discounted cash flow method using incomebased approach with reference to the projected future cash flows of the Target Group.

Details of the principal assumptions upon which the Valuation was based are set out in Appendix I to the Circular under the section headed ‘‘9. Cash Flow Projections’’ and ‘‘10. Major Assumptions’’.

In relation to the Valuer and its work as regards the Valuation as stated in the Valuation Report, we have taken all reasonable steps pursuant to note 1(d) to Rule 13.80 of the Listing Rules as follows:

(i) interviewing the Valuer including as to its expertise and any current or prior relationships with the Group, the Vendor and connected persons of either the Group or the Vendor;
(ii) reviewing the terms of engagement (having particular regard to the scope of work, whether the scope of work is appropriate to the opinion required to be given and any limitations on the scope of work which might adversely impact on the degree of assurance given by the Valuation Report, opinion or statement); and
(iii) assessing whether the representations made by the Group to the Valuer are in accordance with our knowledge.

As to the second method, we have compared the Consideration of HK$68,000,000 to the Valuation of HK$82,600,000 as at 31 December 2014, where the Consideration represents a discount of approximately 18% to the market value of the entire equity interest in Target Group.

We have reviewed the Valuation Report and discussed with the Valuer the methodology adopted and the basis and assumptions used in arriving at the Valuation. We understand that the Valuer has considered three classical appraisal approach to determine the Valuation, namely the asset-based approach (also known as the cost-based approach), the market-based approach and the

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income-based approach. We have enquired into and the Valuer explained that the income-based approach was adopted as (i) the asset-based approach has the disadvantage that it will understate the market value of a company as it does not take into consideration the future earning potential of the Target Group ; and (ii) most of the important assumptions of the comparable market transactions, such as discount or premium on the transaction prices or considerations, were hidden under the market-based approach.

Based on the result of our discussion and the reasons given by the Valuer as stated above, we concur with the Valuer and are of the view that the incomebased approached is an appropriate measure to evaluate the market value of the Target Group.

We understand that income-based approach focuses on the economic benefits due to the income producing capability of the Target Group. In this connection, the income-based approach estimates the future economic benefits of the Target Group and discounts them to their present values using a discount rate appropriate for the risks associated with realising those benefits.

Under the income-based approach, we understand that the Valuer had adopted the discounted cash flow method (‘‘DCF’’) to derive the future economic benefits of the Target Group into a present market value. We consider that DCF is suitable for the valuation of the Target Group since DCF eliminates the discrepancy in time value of money by using a discount rate that reflects all risks including intrinsic and extrinsic uncertainties in relation to the business.

Furthermore, we also note that in determining the Valuation, the Valuer had taken into consideration and relied on the projections of future cash flows of the Target Company (advertising and promotion service business only) and Chili Platinum (magazine business only) from 2015 to 2021 (the ‘‘Cash Flow Projections’’) prepared by the appointed personnel and management of the Company and the Target Group. The Valuer understood the assumptions adopted by the appointed personnel and management of the Company and the Target Group reflect their judgment of the ability of the Target Group to generate revenue from the market with due regard to published research data, current industry conditions, nature and prospect of the Target Group. Details of the Cash Flow Projections are set out in the valuation report of the Target Group (the ‘‘Valuation Report’’) as set out in Appendix I to the Circular under the section headed ‘‘9. Cash Flow Projections’’.

In arriving at the Cash Flow Projections, cash flow projections of the Target Company and Chili Platinum from 2015 to 2019 has been prepared. Thereafter, cash flows for subsequent years were then projected based on a terminal value as at 2020 by applying a terminal growth rate of 3%.

We understand that in estimating the cash flow projections for Chili Platinum, it did not include operation of club pursuant to the Platinum Club Cooperation Agreement (the ‘‘Club’’). Having considered that (i) the

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development of the Club is only at a preliminary stage; (ii) there is no definite timeframe in establishing the Club; and (iii) a more concrete development plan for the Club regarding, among others, its mode of operation, capital commitment, revenue model or annual budget will only be devised when the publication business is at a more mature stage, we consider that it will be more appropriate to take a more conservative approach for purpose of determining the Valuation by not including financial estimation of the Club in cash flow projection projections for Chili Platinum.

Furthermore, as set out in the Letter from the Board, it is envisaged that the Club will be established once the publication business of the Target Group advanced to a more stable stage when more market information and feedbacks are gathered from the target audience such that the operations of the Club can be tailored to the needs of the high-end consumer markets. Apart from profit sharing arrangement between the Target Group and Guangzhou Platinum under the Platinum Club Cooperation Agreement, no fixed fees have to be paid by the Target Group and the Target Group does not have any other commitment under the Platinum Club Cooperation Agreement. We are also given to understand that the Company will conduct further research on the earning potential and growth prospect of operation of the Club prior establishment of the Club. The Company will proceed with development of business of operation of the Club only when such development is considered to be beneficial to the Group with the view of allowing the Group to capture potential business opportunities and bringing in additional potential income stream to the Group associated with Club’s operation. The Company will not proceed to develop the business of operation of the Club in the event that such business will result in projected net cash outflow to the Target Group. Therefore, it is a conservative approach for purpose of determining the Valuation by not including financial estimation of the Club in the cash flow projections for the Target Group because the development of the Club will be subject to the Company’s research result of the earning potential and growth prospect of operation of the Club.

Upon our review of the Cash Flow Projections as set out in the Valuation Report, a major assumption for arriving at the Valuation, we further note that in assessing the fairness and reasonableness of the Cash Flow Projections, the Valuer has (i) reviewed historical financial statements and operating data of the Target Group, the terms and conditions of the Cooperation Agreements and the current rate card for the Magazine; (ii) discussed with the management of the Company and the Target Group about the bases of assumptions underlying the Cash Flow Projections and the business plan of the Target Group; and (iii) made reference to other public information, including but not limited to the number and type of advertisers and distribution channels of the Magazine, the historical revenue growth and profit margins of comparable companies, and rate cards of other magazines.

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In assessing the fairness and reasonableness of the key parameters and assumptions used to derive the Cash Flow Projections, our review work and key findings are summarized as follows:

(a) Revenue

The Target Company

Upon our review of the Cash Flow Projections, we note that advertising income of the Target Company is forecasted with reference to its audited revenue for the year ended 31 December 2014 with a CAGR of 5% for the period from 2014 to 2019. We note that according to the research report of ZenithOptimedia published in December 2014, the CAGR of advertising expenditure from 2014 to 2017 in China and in advanced Asia region (including Australia, Hong Kong, New Zealand, Singapore and South Korea) are approximately 10.9% and 5.1% respectively. Based on the foregoing, revenue growth of the Target Company is in line with market growth and are not excessive.

Chili Platinum

As stated in the Letter from the Board, the Magazine will be distributed on a complementary basis, therefore, revenue of Chili Platinum will be principally derived from advertisement placement in the Magazine (the ‘‘Advertising Income’’) which accounts for around 97% of revenue. As such, we consider that determination of Advertising Income with reference to number of advertising pages, occupancy rate of the advertising pages (the ‘‘Occupancy Rate’’), prices charged per page and the sales discount rate (the ‘‘Sales Discount’’) to be fair and reasonable.

We note that growth in Advertising Income is mainly driven by the expected increase in Occupancy Rate and the expected decrease in Sales Discounts. The Occupancy Rate is assumed to be 100% from 2016 and onwards and Sales Discounts is expected to decrease by 5% to 10% per annum. Having considered (i) principal target audiences of the Magazine comprises of high net worth individuals and the premium level cardholders of UnionPay (the ‘‘Premium Target Audience’’) which are targeted consumers of luxury brands; (ii) with Premium Target Audience being the readership base of the Magazine, it offers competitive advantage of the Magazine for gaining popularity as one of the leading luxury lifestyle magazines, this will facilitate the increase in the Occupancy Rate; (iii) growth potential of the premium level cardholders of UnionPay as illustrated from CAGR of global bank cards issued by UnionPay of approximately 19.4% from 2011 to 2014, this will facilitate the building up of readership base of the Magazine; and (iv) promising prospect of the China’s advertising industry which targets at luxury advertisers as discussed above, we consider that the basis and assumptions of arriving the Occupancy Rate and the Sales Discounts to be justifiable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In deriving the estimated Advertising Income, the management of the Target Group has also estimated the prices to be charged by Chili Platinum to the customers. We have reviewed the rate card of the Magazines and noted that the prices under the rate card are comparable to those offered by other luxury magazines.

To further assess the fairness and reasonableness of the expected prices to be charged by Chili Platinum, we have conducted the desktop research on the average market price of the advertising expenditure per advertising page by targeted sectors of advertisers of the Magazine (the ‘‘Average Market Price’’) for year ended 31 December 2013 and compared the Average Market Price with the estimated average price per advertising page to be charged by Chili Platinum (‘‘Estimated Average Price’’). The Average Market Price is arrived at with reference to the research report prepared by admanGo, an online platform providing competitive advertising monitoring in May 2014. We note that the Estimated Average Price demonstrates an upward trend during the projection period from 2015 to 2019. The Estimated Average Price in 2015 and 2019 increases from approximately 8.3% to 30.3% of the Average Market Price respectively and does not exceed the Average Market Price. Taking into account that the Magazine is new to the advertisers, thus offering high Sales Discounts can be an initiative to attract more potential customers to place advertisements in the Magazine. In view of growth momentum driven by the potential increase in premium level cardholders of UnionPay as discussed above for building up the readership base of the Magazine, we consider it is justifiable for a higher price to be charged by Chili Platinum.

Based on the foregoing, we are of the view that the bases and assumptions in arriving at the forecasted Advertising Income to be fair and reasonable.

(b) Cost of sales

Target Company

The forecast on cost of sales of the Target Company is made reference to its historical cost of sales, expected gross margins and general inflation. In estimating the costs sales of the Target Company, we note that around 5% annual growth is adopted. Such growth (i) is in line with the revenue growth of the Target Company; and (ii) exceeds the expected long-term inflation rate of Hong Kong of around 3.5% as forecasted by International Monetary Fund (the ‘‘IMF’’). Therefore, we consider the bases and assumptions used for the forecast on the cost of sales of the Target Company are fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Chili Platinum

The forecast on cost of sales of Chili Platinum mainly consists of the printing cost of the Magazine, annual flat approval fees and profit sharing payable to Guangzhou Platinum for approving the Magazine’s contents and the distribution activities conducted in the PRC. We have reviewed the printing invoices quoted from Independent Third Party for the Magazine’s printing cost and note the basis of estimating the printing cost is comparable to the those invoices quoted from Independent Third Party. We have also reviewed the terms of the Publication Cooperation Agreement and note that the basis of estimating the calculation of the approval fees and profit sharing payable to Guangzhou Platinum is made in accordance with the terms thereunder. Based on the review work performed by us, we are of the view that the bases and assumptions adopted in arriving at the forecast on cost of sales of Chili Platinum are fair and reasonable.

(c) Operating Expenses

Target Company

The forecast on operating expenses of the Target Company is determined with reference to its historical operating expenses and general inflation. An annual growth of 5% is adopted for operating expenses projection, which exceeds the expected long-term inflation rate of Hong Kong of around 3.5% as forecasted by IMF. Therefore, we consider the bases and assumptions used for the forecast on the operating expenses of the Target Company are fair and reasonable.

Chili Platinum

The operating expenses of Chili Platinum mainly consists of salary and allowances and the rent and rates for operating the Magazine. We are given to understand that the salary and allowances were estimated based on the labor force required for the operations of the Chili Platinum as determined with reference to its business plan. The rent and rates were estimated with reference to the tenancy agreement with the landlord and the actual amount paid in January 2015. We have also (i) reviewed the breakdown of actual salary and allowances as at January 2015; and (ii) reviewed the actual rent and rates paid in January 2015. During the course of our review, nothing comes to our attention that the bases and the assumptions used for estimating operating expenses of the Chili Platinum to be unreasonable.

Based on the foregoing, we are of the view that bases and assumptions adopted for the Cash Flow Projections are reasonably established.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Moreover, to discount the future cash flows of the Target Group, the Valuer has used the weighted average cost of capital (‘‘WACC’’) as the discount rate in the Valuation Report. WACC recognizes the weighted average cost of debt-funded capital and equity capital, which is the minimum required return that that a company must earn to satisfy its various capital providers including shareholders and debt holders.

We note that in the Valuation Report that in assessing the cost of equity, Capital Asset Pricing Model (‘‘CAPM’’) was employed, of which the cost of equity is calculated by reference to (i) risk free rate, being the yield of Hong Kong 10-year government bond; (ii) equity market risk premium in Hong Kong, being the difference between the expected market return in the stock market in Hong Kong and the risk free rate; (iii) average adjusted beta coefficient of five comparable listed companies on the Stock Exchange with business copes and operations similar to those of the Target Group (the ‘‘Business Comparables’’) as selected by the Valuer; and (iv) firm specific risk premium and size premium of the Target Group.

Having considered (i) cost of equity was derived using CAPM in the manner as discussed above; (ii) cost of debt, being the after-tax interest expense of the Target Group with reference made to Hong Kong prime rate plus spread and corporate tax rate in Hong Kong; (iii) weight of equity, being average of the debt-to-equity ratio of the five Business Comparables; and (iv) weight of debt, being one minus weight of equity, we are of the view that the bases in determining the WACC as the discount rate to be reasonable.

Apart from the Cash Flow Projections, we have also reviewed and noted that other major assumptions used in arriving at the Valuation as set out under the section headed ‘‘10. Major Assumptions’’ in the Valuation Report, including but not limited to (i) there is no major change in the taxation laws, political, legal, economic or financial conditions in Hong Kong and the PRC; (ii) the continuity of the Target Group; (iii) the Target Group will be operated in accordance with its scheduled development plan; and (iv) there is no major change in the prevailing interest rates and exchanges rates in Hong Kong and the PRC, are common assumptions which are consistent with normal market practice.

Shareholders should be aware of that Cash Flow Projections cannot be made with complete accuracy and are dependent on the assumptions made. Based on (i) our review of the Valuation Report, (ii) our discussion with the Valuer and work performed by the Valuer in its assessment of fairness and reasonableness of the Cash Flow Projections, upon which the Valuation is determined; (iii) our review of the Cash Flow Projections and our assessment in the fairness and reasonableness of the key parameters and assumptions used for deriving the Cash Flow Projections; and (iv) and other major assumptions used in arriving at the Valuation are in line with normal market practice, we have not identified any major factors which cause us to doubt the fairness and reasonableness of the methodologies adopted and the bases

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

and assumptions used in arriving at the Valuation. Having considered all of the above, we are of the opinion that the Valuation may provide a valid benchmark to assess the fairness and reasonableness of the Consideration.

As an additional analysis, to the best of our knowledge and as far as we are aware of, we have identified 11 acquisitions of equity interests as announced by other listed companies in Hong Kong during the period from 7 September 2014 up to the date of the Agreement, being a 6-month period prior to the date of Agreement, based on the following selection criteria: (i) business valuation was used as a basis for determining the consideration of acquisitions; and (ii) income-based approach using discounted cash flow method was employed in preparation of relevant business valuation (the ‘‘Consideration Comparables’’). Shareholders should note that the businesses, operations and prospects of the Group and the Target Group are not the same as the Consideration Comparables and the subject companies being acquired and we have not conducted any independent verification with regard to the businesses and operations of the Consideration Comparables and the subject companies being acquired. Taking into account that (i) the Consideration Comparables were transacted at time close to the signing of the Agreement, therefore, the terms of the Consideration Comparables are determined under similar market conditions and sentiments as the Agreement. Therefore, we consider that the Consideration Comparables could provide information on the general reference for the common market practice by listed companies in Hong Kong in determination of consideration of acquisitions with reference to business valuation; and (ii) there are reasonable number of Consideration Comparables for comparison purposes during the period, we consider the selection of six-month period prior to the date of the Agreement is appropriate for our analysis and the Consideration Comparables are fair and representative samples for our analysis.

Details of the Consideration Comparables are set out below:

				Discount of
				consideration to
				respective
				attributable
Date of		Principal business		business
announcement	Company name	(Note)	Stock code	valuation
3 March 2015	China Household	Trading of wooden products	692	0.0%
	Holdings Limited	and provision of interior
		design services, the sales
		of fabrics and garments
		and other related
		accessories, iron and
		titanium exploration,
		development and mining in
		the PRC.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Discount of
				consideration to
				respective
				attributable
Date of		Principal business		business
announcement	Company name	(Note)	Stock code	valuation
16 February 2015	Enterprise Development	Provision of integrated	1808	10.3%
	Holdings Limited	business software solutions
		and trading of listed
		securities.
21 January 2015	China Environmental	Recycling of waste paper,	986	0.0%
	Energy Investment	scrap metal and
	Limited	consumable wastes.
30 December 2014	Sinopec Kantons	Trading of crude oil and oil	934	0.0%
	Holdings Limited	products, the operation of
		crude oil and oil products
		terminals and their
		ancillary facilities,
		provision of logistics
		services including storage,
		logistics, transportation
		and terminal services and
		the distribution of oil and
		oil products and
		international logistics
		agency services on global
		basis.
29 December 2014	Beijing Jingneng Clean	Provision of gas-fired power	579	0.0%
	Energy Co., Limited	and operation of wind
		power, with a diversified
		clean energy portfolio
		including gas-fired power
		and heat energy, wind
		power, small to medium
		hydropower and other
		clean energy projects.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Discount of
				consideration to
				respective
				attributable
Date of		Principal business		business
announcement	Company name	(Note)	Stock code	valuation
17 December 2014	Yuexiu Transport	Investment, operation and	1052	3.5%
	Infrastructure Limited	management of toll
		expressways and bridges in
		Guangdong Province and
		other highgrowth provinces
		in the PRC.
3 November 2014	Sinoref Holdings	Manufacture and sale of	1020	2.2%
	Limited	advanced steel flow
		control products including
		subentry nozzle, stopper,
		tundish nozzle and ladle
		shroud.
16 October 2014	China Properties	Properties investment	736	24.4%
	Investment Holdings	business and the
	Limited	exploitation of a mine
		located in the Inner
		Mongolia, the PRC.
14 October 2014	Amax International	Investments in gaming and	959	14.0%
	Holdings Limited	entertainment related
		business.
26 September 2014	Synertone	Design, research &	1613	18.2%
	Communication	development, manufacture
	Corporation	& sales of specialized
		communication systems,
		equipment & systems
		technologies; providing
		total solution of
		communication system;
		provision of satellite
		bandwidth capacity &
		communication service
		application.

– 47 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Discount of
				consideration to
				respective
				attributable
Date of		Principal business		business
announcement	Company name	(Note)	Stock code	valuation
8 September 2014	China Environmental	Recycling of waste paper,	986	11.2%
	Energy Investment	scrap metal and
	Limited	consumable wastes.
			Maximum	24.4%
			Minimum	0.0%
			Average	7.6%
6 March 2015	The Company		1326	17.7%

Source: Website of the Stock Exchange (www.hkex.com.hk)

Note: The principal business of the Consideration Comparables are based on their respective latest published annual report or interim report.

As shown in the table above, we note that the discounts of consideration of the Consideration Comparables to the business valuation range from no discount to a discount of approximately 24.4% (the ‘‘Consideration Discount Range’’) with average discount of approximately 7.6%. The Consideration with a discount of approximately 17.7% to the Valuation falls within the Consideration Discount Range and is lower than the average discount of the Consideration Comparables. As such, we are of the opinion that the Consideration is fair and reasonable so far as the Independent Shareholders are concerned and the Acquisition are on normal commercial terms.

In view of the above analysis, we consider that the Consideration is fair and reasonable so far as the Group and the Independent Shareholders are concerned.

(b) Consideration Shares analysis

As stated in the Letter from the Board, part of the Consideration, in the amount of HK$57,960,000 will be satisfied by issue of 46,000,000 Consideration Shares at the Issue Price of HK$1.26 per Consideration Share upon Completion. The Issue Price represents:

(i) a discount of approximately 3.8% to the closing price of HK$1.31 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 6.7% to the average closing price of approximately HK$1.35 per Share as quoted on the Stock Exchange on the last five trading days immediately prior to the Last Trading Day;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) a discount of approximately 6.0% to the average closing price of approximately HK$1.34 per Share as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Day;
(iv) a discount of approximately 62.6% to the closing price of HK$3.37 per Share as quoted on the Stock Exchange on the Latest Practicable Date;

To assess the fairness and reasonableness of the Issue Price, we set out below the following analyses:

(i) Historical Share price analysis

We have reviewed the closing price level of the Shares during the period from 7 March 2014 (being the 12 months period prior to the Last Trading Day) to the Last Trading Day (the ‘‘Review Period’’). We consider that that review of Share price performance for a 12-month period is in line with normal market practice and will be able to reflect the trend of the Share price for recent period, we consider the Review Period to be a reasonable period of time in assessing the Share price performance of the Company. The chart below illustrates the closing price level of the Shares during the Review Period:

==> picture [446 x 199] intentionally omitted <==

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

1.800
1.600
1.400
1.200
1.000
Issue Price: HK$1.26
0.800
0.600
0.400
0.200
0.000
7/3/2014 7/4/2014 7/5/2014 7/6/2014 7/7/2014 7/8/2014 7/9/2014 7/10/2014 7/11/2014 7/12/2014 7/1/2015 7/2/2015
----- End of picture text -----

Source: The Stock Exchange

As shown in the chart above, during the Review Period, the closing price of the Shares ranged from the lowest of HK$0.80 per Share (recorded on 26 May 2014) to the highest of HK$1.64 per Share (recorded on 7 and 8 January 2015) (the ‘‘Historical Price Range’’), with average closing price of approximately HK$1.19 per Share. The Issue Price is within the Historical Price Range, which represents a premium of approximately 57.5% to the lowest closing price, discount of approximately 23.2% to the highest closing price and a premium of approximately 5.5% to the average closing price of the Shares during the Review Period.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As depicted in the chart above, after attaining a peak on 7 and 8 January 2015, the price of the Shares demonstrated a downward trend and closed at a level of HK$1.31 per Share on the Last Trading Day, representing a drop of approximately 20.1% from the peak in around two months.

(ii) Comparison with other issue of consideration shares

As part of our analyses, we have also searched for acquisitions from connected persons which involves issue of consideration shares (excluding issue of H shares) to satisfy all or part of the consideration conducted by listed companies in Hong Kong which were announced from 7 September 2014 up to the date of the Agreement, being a 6-month period prior to the date of Agreement (the ‘‘Comparables’’). To the best of our knowledge and as far as we are aware of, we have identified 11 transactions which met the said criteria. Shareholders should note that the businesses, operations and prospects of the Company are not the same as the Comparables and we have not conducted any independent verification with regard to the businesses and operations of the Comparables. Taking into account that (i) the Comparables were transacted at time close to the signing of the Agreement, therefore, the terms of the Comparables are determined under similar market conditions and sentiments as the Consideration Shares. Therefore, we consider that the Comparables could provide information on the general recent market practice which involves issue of consideration shares to connected persons by listed companies in Hong Kong; and (ii) there are reasonable number of Comparables for comparison purposes during the period, we consider the selection of six-month period prior to the date of the Agreement is appropriate for our analysis and the Comparables are fair and representative samples.

Set out below is the information of the Comparables.

				Issue price
			Issue price	premium over/
			premium over/	(discount to) the
			(discount to) the	average closing
			closing price on	price for the last
			the date of	five trading days
			agreement/the	prior to and
			last trading day	including the
Date of			prior to the date	date of
announcement	Company name	Stock code	of agreement	agreement
			(Approximate %)	(Approximate %)
23/1/2015	United Photovoltaics Group	686	1.98	2.79
	Limited
22/1/2015	Perfect Optronics Limited	8311	0.00	1.24

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Issue price
			Issue price	premium over/
			premium over/	(discount to) the
			(discount to) the	average closing
			closing price on	price for the last
			the date of	five trading days
			agreement/the	prior to and
			last trading day	including the
Date of			prior to the date	date of
announcement	Company name	Stock code	of agreement	agreement
			(Approximate %)	(Approximate %)
22/1/2015	China Public Procurement	1094	2.24	0.00
	Limited
8/12/2014	China Resources Land Limited	1109	(8.58)	(7.62)
13/11/2014	Zhuguang Holdings Group	1176	1.75	1.99
	Company Limited
3/11/2014	Longfor Properties Co. Ltd.	960	(3.34)	0.00
			(Note 1)
28/10/2014	China State Construction	3311	2.85	1.82
	International Holdings Limited
16/10/2014	Newtree Group Holdings Limited	1323	(9.77)	(9.70)
10/10/2014	Changfeng Axle (China)	1039	(29.03)	(23.26)
	Company Limited
10/10/2014	U Banquet Group Holding	8107	(11.39)	(13.37)
	Limited
16/9/2014	Peking University Resources	618	(40.40)	(40.90)
	(Holdings) Company Limited		(Note 1)	(Note 1)
		Maximum	2.85	2.79
		Minimum	(40.40)	(40.90)
		Average	(8.52)	(7.91)
6 March 2015	The Company	1326	(3.82)	(5.97)

Source: Website of the Stock Exchange (www.hkex.com.hk)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Note 1: Information was not disclosed in the corresponding announcements. Figures were computed based on the issue prices as disclosed in the corresponding announcements and the closing share prices of the respective companies as on the website of the Stock Exchange (www.hkex.com.hk).

As shown by the above table, the issue prices of the Comparables represented (i) a discount of approximately 40.40% to a premium of approximately 2.85% to/over the respective closing price of their shares on the last trading day prior to the relevant announcement/on the date of the relevant agreement (the ‘‘LTD Range’’) with an average discount of approximately 8.52%; and (ii) a discount of approximately 40.90% to a premium of approximately 2.79% to/over the respective closing price of their shares on the average closing price for the last five trading days prior to and including the date of relevant agreement (the ‘‘5-Day Market Range’’) with an average discount of approximately 7.91%. The Issue Price (i) represents a discount of approximately 3.82% to the closing price of the Shares on the date of Agreement is within the LTD Range and is lower than the average discount of the Comparables of approximately 8.52%; and (ii) represents a discount of approximately 5.97% to the closing price of the Shares for the last five trading days up to and including the Last Trading Day is within the 5-Days Market Range and is lower than the average discount of the Comparables of approximately 7.91%.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In light of (i) the fact that the Issue Price was determined with reference to the prevailing market prices of the Shares and was within the Historical Price Range and represented a premium to the average closing price of the Shares during the Review Period; and (ii) the results of the above comparison where the Issue Price falls within the LTD Range and the 5-Days Market Range of the Comparables, we consider that the Issue Price is fair and reasonable so far as the Independent Shareholders are concerned.

(a) Possible dilution effect on the shareholding interests of the existing public Shareholders

The table below demonstrates the shareholding structure of the Company as at the Latest Practicable Date and immediately after Completion and allotment and issuance of the Consideration Shares, assuming that there is no change in the shareholding structure of the Company from the Latest Practicable Date:

Shareholders Honour Grace Limited (Note) Mr. Wong Vendor Public Shareholders Total	As at the Latest Practicable Date No. of Shares Approximately % 300,000,000 54.95 4,180,000 0.76 7,292,000 1.34 234,528,000 42.95 546,000,000 100.00	Immediately after Completion and allotment and issuance of the Consideration Shares No. of Shares Approximately % 300,000,000 50.68 4,180,000 0.70 53,292,000 9.00 234,528,000 39.62 592,000,000 100.00	Immediately after Completion and allotment and issuance of the Consideration Shares No. of Shares Approximately % 300,000,000 50.68 4,180,000 0.70 53,292,000 9.00 234,528,000 39.62 592,000,000 100.00
			100.00

Note: Honour Grace Limited is owned as to 60% by Mr. Wong, 20% by Mr. Edmond Wong and 20% by Ms. Alvina Wong.

As demonstrated by the above table, the shareholding interests of the public Shareholders will be decreased from approximately 42.95% to 39.62% immediately after the Completion, representing a dilution of approximately 7.75%. In this regard, taking into account (i) the reasons for and benefits of the Acquisition as mentioned previously; (ii) the terms of the Agreement being fair and reasonable; and (iii) the issue of the Consideration Shares to partly settle the consideration of the Acquisition involves no cash outlay and would enable the Group to preserve its internal resources for general working capital and/or future business expansion, we are of the view that the said level of dilution to the shareholding interests of the public Shareholders as a result of the issue of the Consideration Shares is acceptable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Financial effect of the Acquisition on the Group

Upon Completion, the Target Company will be accounted for as a wholly-owned subsidiary of the Group. Therefore, results of the Target Group will be consolidated into the financial statements of the Group.

(i) Earnings

Upon Completion, the Target Company will become an indirect wholly-owned subsidiary of the Company. The future earnings of the Group will be affected by profitability of the Target Group. Taking into consideration the expected positive future business prospect of the Target Group in view of the optimistic prospect of the PRC cultural industries and magazine publishing business in capturing business opportunities in the PRC advertising market for luxury sector as discussed earlier, the Acquisition would likely to have a positive impact on the future earnings potential of the Group.

(ii) Net assets value

The unaudited net asset value of the Group as at 31 December 2014 was approximately HK$325.0 million.

As mentioned in Letter from the Board, the Target Group recorded unaudited net assets value of approximately HK$2.2 million as at 31 December 2014. Upon Completion, financial results of the Target Group will be consolidated into the Group’s financial statements. In addition, with the issue of the Consideration Shares, total equity of the Company will also be increased. As such, the Acquisition will improve the net asset value of the Group.

(iii) Cashflow

Cash and bank balance of the Group as at 31 December 2014 was approximately HK$27.7 million. Taking into account cash payment of approximately HK$10.0 million will be required for settling part of the Consideration, the Acquisition will have negative impact to the Group’s cash position. However, having considered (i) decrease in cash is an exchange for an investment in the Target Group for bringing in future income stream; (ii) the Acquisition represents an opportunity for the Group to diversify into film advertising and promotion industry and advertising industry for luxury sector through magazine publication which have optimistic prospect; and (iii) the potential synergy effects of the Acquisition with the Group’s existing core business of film production and distribution and licensing of film rights, we consider that the decrease in cash is acceptable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) Gearing

The gearing ratio was computed by dividing total borrowings by total equity of the Group. The Group did not record any borrowing as at 31 December 2014, as such gearing ratio of the Group as at 31 December 2014 is zero. According to the unaudited consolidated management accounts of the Target Group as at 31 December 2014, the Target Group did not have any borrowing as at 31 December 2014. Moreover, given the increase in net assets upon Completion, it is expected that there will not be material change to the gearing level of the Group.

It should be noted that the above analyses are for illustrative purposes only and does not purport to represent how the actual financial position of the Group will be on the date of Completion.

RECOMMENDATION

Having taken into account the principal factors and reasons referred to the above, we are of the opinion that (i) the nature of the Acquisition is not in the ordinary and usual course of business of the Group but is in line with the strategic development of the Group; (ii) the terms of the Agreement and the transactions contemplated thereby are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (iii) the entering into of the Agreement and the transactions contemplated thereby is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independence Shareholders, as well as the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the ordinary resolution in respect of approving the Acquisition.

Yours faithfully, For and on behalf of Akron Corporate Finance Limited Ross Cheung Managing Director

– 55 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX I

The following is the text of a report prepared for the purpose of incorporation in this circular from Roma Appraisals Limited, an independent valuer, in connection with the Valuation as at 31 December 2014 of the market value of 100% equity interest in the Target Group.

==> picture [85 x 49] intentionally omitted <==

Unit 3806, 38/F, China Resources Building, 26 Harbour Road, Wan Chai, Hong Kong Tel (852) 2529 6878 Fax (852) 2529 6806 E-mail [email protected] http://www.romagroup.com

13 May 2015

Pegasus Entertainment Holdings Limited

Rooms 1801–02, Westlands Centre, 20 Westlands Road, Quarry Bay, Hong Kong

Case Ref: KY/BV2279/OCT14

Dear Sir/Madam,

Re: Business Valuation of 100% Equity Interest in Chili Advertising & Promotions Limited and Its Subsidiaries

In accordance with the instructions from Pegasus Entertainment Holdings Limited (hereinafter referred to as the ‘‘Company’’) to us to conduct a business valuation on 100% equity interest in Chili Advertising & Promotions Limited (hereinafter referred to as the ‘‘Business Enterprise’’) and its subsidiaries (together with the Business Enterprise referred to as the ‘‘Target Group’’), we are pleased to report that we have made relevant enquiries and obtained other information which we considered relevant for the purpose of providing you with our opinion of the market value of 100% equity interest in the Target Group as at 31 December 2014 (hereinafter referred to as the ‘‘Date of Valuation’’).

This report states the purpose of valuation, scope of work, economic and industry overviews, an overview of the Target Group, basis of valuation, investigation and analysis, valuation methodology, major assumptions, limiting conditions, remarks and opinion of value.

1. PURPOSE OF VALUATION

This report is prepared solely for the use of the directors and management of the Company. In addition, Roma Appraisals Limited (hereinafter referred to as ‘‘Roma Appraisals’’) acknowledges that this report may be made available to the Company for public documentation purpose only.

Roma Appraisals assumes no responsibility whatsoever to any person other than the Company in respect of, or arising out of, the contents of this report. If others choose to rely in any way on the contents of this report they do so entirely at their own risk.

– 56 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX I

2. SCOPE OF WORK

Our valuation conclusion is based on the assumptions stated herein and the information provided by the management of the Company and/or its representative(s) (together referred to as the ‘‘Management’’).

In preparing this report, we have had discussions with the Management in relation to the development and prospect of the Target Group and the advertising and promotion services industry. As part of our analysis, we have reviewed such financial information and other pertinent data concerning the Target Group and the advertising and promotion services industry provided to us by the Management and have considered such information and data as attainable and reasonable.

We have no reason to believe that any material facts have been withheld from us. However, we do not warrant that our investigations have revealed all of the matters which an audit or more extensive examination might disclose.

We do not express an opinion as to whether the actual results of the business operation of the Target Group will approximate those projected because assumptions regarding future events by their nature are not capable of independent substantiation.

In applying these projections to the valuation of the Target Group, we are making no representation that the business expansion will be successful, or that market growth and penetration will be realized.

3. ECONOMIC OVERVIEW

3.1 Overview of the Economy in China

According to the National Bureau of Statistics of China, the nominal gross domestic product (‘‘GDP’’) of China in 2014 was RMB63,646.3 billion, an increase of 8.2% over last year. China was the third largest economy in the world, ranked after the European Union and the United States, in terms of nominal GDP measured by the International Monetary Fund (‘‘IMF’’) in 2014. Despite the global financial crisis in late 2008, the Chinese economy continued to be supported by the Chinese government through spending in infrastructure and real estates.

Throughout 2009, the global economic downturn reduced foreign demand for Chinese exports for the first time in many years. The government vowed to continue reforming the economy and emphasized the need to increase domestic consumption in order to make China less dependent on foreign exports. China’s economy rebounded quickly in 2010, outperforming all other major economies with robust GDP growth and the economy remained in strong growth since 2011. The Chinese government targeted to grow its GDP by around 7% for the period from 2011 to 2015. Figure 1 further illustrates the nominal GDP of China from 2010 to 2014.

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Figure 1 — China’s Nominal GDP from 2010 to 2014

billion RMB

==> picture [374 x 195] intentionally omitted <==

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

70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2010 2011 2012 2013 2014
----- End of picture text -----

Source: National Bureau of Statistics of China

Tackling inflation problem has long been the top priority of the Chinese government as high prices are considered as one of the causes of social unrest. For such a fastgrowing economy, the middle-class’ demand for food and commodities has been rising continuously. Inflation in China has been driven mainly by food prices, which have been stayed high in 2011. According to the National Bureau of Statistics of China, the consumer price index demonstrated an uptrend in the first half of 2011. Thanks to the government’s policies in suppressing commodity prices, the inflation slowed in the second half of 2011 and first half of 2012 and maintained at around 2% to 3% during 2013. During 2014, the inflation dropped and reached 1.5% in December 2014. Figure 2 shows the year-over-year change in consumer price index of China from January 2013 to December 2014.

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Figure 2 — Year-over-year Change in China’s Consumer Price Index from January 2013 to December 2014

==> picture [377 x 218] intentionally omitted <==

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

%
4.0
3.5
3.0
2.5
2.0
1.5
1.0
Jan Apr Jul Oct Jan Apr Jul Oct
2013 2014
----- End of picture text -----

Source: Bloomberg

China’s inflation rate was volatile during the past decade. According to the IMF, the inflation rate in China increased from 2.8% in 2006 to 6.5% in 2007, and then dropped to 1.2% and 1.9% in 2008 and 2009 respectively. The inflation rate increased to 4.6% in 2010 and maintained at 4.1% in 2011. The inflation dropped again to 2.5% in 2012 and 2013, and further to 2.3% in 2014. According to IMF’s forecast, the long-term inflation rate of China is expected to be around 3.0%. Figure 3 shows the historical trend of China’s inflation rate from 2005 to 2014.

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Figure 3 — China’s Inflation Rate from 2005 to 2014

==> picture [385 x 210] intentionally omitted <==

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

%
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
----- End of picture text -----

Source: IMF

3.2 Overview of the Economy in Hong Kong

Hong Kong has long been a free market economy highly dependent on international trade and finance. For this reason, it was heavily exposed to the global economic turmoil that began in 2008 which resulted in a sharp drop of the nominal GDP of Hong Kong in the first quarter of 2009. Since then, the economy of Hong Kong has been recovering. According to Bloomberg, the nominal GDP of Hong Kong in 2014 was approximately HK$2,246 billion, a 5.3% increase over 2013. Figure 4 and figure 5 illustrate the trend of Hong Kong’s nominal GDP over the past few quarters.

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Figure 4 — Hong Kong’s Quarterly Nominal GDP from the First Quarter of 2012 to the Fourth Quarter of 2014

HK$ million

==> picture [388 x 195] intentionally omitted <==

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

650,000
600,000
550,000
500,000
450,000
400,000
350,000
300,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2012 2013 2014
----- End of picture text -----

Source: Bloomberg

Figure 5 — Year Over Year Percentage Change of Hong Kong’s Quarterly Nominal GDP from the First Quarter of 2012 to the Fourth Quarter of 2014

==> picture [381 x 211] intentionally omitted <==

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

%
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2012 2013 2014
----- End of picture text -----

Source: Bloomberg

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According to IMF, the inflation rate in 2014 was 3.9%, while the long-term inflation rate is expected to be around 3.5%. Figure 6 shows the historical trend of Hong Kong’s inflation rate from 2005 to 2014.

Figure 6 — Hong Kong’s Inflation Rate from 2005 to 2014

==> picture [382 x 211] intentionally omitted <==

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

%
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
----- End of picture text -----

Source: IMF

4. INDUSTRY OVERVIEW

4.1 Overview of Advertising and Promotion Services Industry

Over the past few years, companies around the world are spending increasing amount of money on creating eyeball catching and innovative advertisements. While bringing insightful ideas in contents of advertisement, companies are also creative in the choice of advertising and promotion channels. Advertising can be accessed from traditional printed media to digital technology such as online platforms and mobile phone applications. According to ZenithOptimedia, a world leading global media services network, global advertising spending (‘‘adspend’’) growth in 2014 was estimated to be 5.1% over the last year, reaching US$48.8 billion, and the growth is predicted to be 4.9% in 2015. Figure 7 shows the share of global adspend by medium in 2014.

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Figure 7 — Share of Global Adspend by Medium in 2014

==> picture [107 x 188] intentionally omitted <==

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

0.5%
5.0%
6.8%
6.8%
7.3%
15.2%
18.8%
----- End of picture text -----

==> picture [68 x 126] intentionally omitted <==

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

Television
Desktop Internet
Newspapers
Magazines
Outdoor
Radio
Mobile Internet
Cinema
----- End of picture text -----

Source: ZenithOptimedia

Television is the most popular advertising channel, taking up almost 40% of global adspend in 2014. Internet advertising has been on the rise and catching up quickly. Adspend from printed media (newspapers and magazines) showed mild growth in recent years. Figure 8 shows the historical adspend by medium from 2012 to 2014.

Figure 8 — Historical Adspend by Medium from 2012 to 2014

==> picture [403 x 203] intentionally omitted <==

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

US$ million
25,000
20,000
15,000 Television
Internet
10,000 Printed Media
5,000
0
2012 2013 2014
----- End of picture text -----

Source: ZenithOptimedia

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According to ZenithOptimedia, the United States will lead the global market in adspend between 2014 and 2017. China has surpassed Japan and became the world’s second largest advertising market with estimated adspend of US$45 billion in 2014. Figure 9 showed the top ten advertising markets in 2014.

Figure 9 — Top Ten Advertising Markets in 2014

==> picture [389 x 250] intentionally omitted <==

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

US$ million
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
United States China Japan GermanyUnited Kingdom Brazil France AustraliaSouth Korea Canada
----- End of picture text -----

Source: ZenithOptimedia

5. OVERVIEW OF THE TARGET GROUP

The Business Enterprise is principally engaged in provision of advertising and promotion services. The Business Enterprise has three subsidiaries, namely Powerful Target Investment Group Limited (hereinafter referred to as ‘‘Powerful Target’’), Favorable On Global Investment Limited (hereinafter referred to as ‘‘Favorable On’’) and Chili Platinum Advertising and Magazine Publishing Limited (hereinafter referred to as ‘‘Chili Platinum’’).

Powerful Target is a wholly owned subsidiary of the Business Enterprise and is an investment holding company. Favorable On is owned as to 70% by Power Target and holds the entire equity interest in Chili Platinum. Chili Platinum is principally engaged in the publication of a monthly issued luxury lifestyle magazine, namely ‘‘Platinum of UnionPay’’ (銀聯白金), which features a wide range of updated news on luxurious lifestyle related products and services, ranging from fashion, jewelry, entertainment, food and restaurants, leisure, to art and culture. The magazine is targeted to the high-end consumer markets of Hong Kong, Macau and the People’s Republic of China (‘‘PRC’’). Currently, the magazine is being provided to various high-end private clubs, golf clubs and hotels. Selected contents are also available in a number of digital media.

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In April 2014, Favorable On entered into a publication cooperation agreement (‘‘Publication Cooperation Agreement’’) and platinum club cooperation agreement (hereinafter collectively referred to as the ‘‘Cooperation Agreements’’) with 廣州純鉑金廣告有限公司 (Guangzhou Platinum Advertising Limited (‘‘Guangzhou Platinum’’)). Pursuant to the Cooperation Agreements, Favorable On was granted the rights to operate and organize the businesses of the magazine ‘‘Platinum of UnionPay’’ (銀聯白金) and the platinum club of UnionPay, for a term of 4 years with automatic renewal terms.

6. BASIS OF VALUATION

Our valuation is based on a market value basis. According to the International Valuation Standards established by the International Valuation Standards Council in 2011, market value is defined as ‘‘the estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without ’’ compulsion .

7. INVESTIGATION AND ANALYSIS

Our investigation included discussions with members of the Management in relation to the development, operations and other relevant information of the Target Group. In addition, we have made relevant inquiries and obtained further information and statistical figures regarding the economy and industry as we considered necessary for the purpose of the valuation.

As part of our analysis, we have reviewed such financial information and other pertinent data concerning the Target Group provided to us by the Management and have considered such information and data as attainable and reasonable. We have also consulted other sources of financial and business information.

The valuation of the Target Group requires consideration of all pertinent factors, which may or may not affect the operation of the business and its ability to generate future investment returns. The factors considered in our valuation include, but are not necessarily limited to, the following:

. The nature and prospect of the Target Group;
. Financial information of the Target Group, including historical financial statements and operating data, which were the major bases for the cash flow projections;
. The valuation was prepared based on the business plan and financial projections of the Target Group as provided by the Management;
. The economic outlook in general and the specific economic environment and market elements affecting the business, industry and market;
. Terms and conditions of relevant business licenses and agreements held by the Target Group, including the Cooperation Agreements, have been considered in the cash flow projections;

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. The business risks of the Target Group such as the ability in maintaining competent technical and professional personnel; and
. Investment returns and market transactions of entities engaged in similar lines of business.

8. VALUATION METHODOLOGY

There are generally three accepted approaches to obtain the market value of the Target Group, namely the Market-Based Approach, Income-Based Approach and Asset-Based Approach. Each of these approaches is appropriate in one or more circumstances, and sometimes, two or more approaches may be used together. Whether to adopt a particular approach will be determined by the most commonly adopted practice in valuing business entities that are similar in nature.

8.1 Market-Based Approach

The Market-Based Approach values a business entity by comparing prices at which other business entities in a similar nature changed hands in arm’s length transactions. The underlying theory of this approach is that one would not pay more than one would have to for an equally desirable alternative. By adopting this approach, the valuer will first look for valuation indication of prices of other similar business entities that have been sold recently.

The right transactions employed in analyzing indications of value need to be sold at an arm’s length basis, assuming that the buyers and sellers are well informed and have no special motivations or compulsions to buy or to sell.

8.2 Income-Based Approach

The Income-Based Approach focuses on the economic benefits due to the income producing capability of the business entity. The underlying theory of this approach is that the value of the business entity can be measured by the present worth of the economic benefits to be received over the useful life of the business entity. Based on this valuation principle, the Income-Based Approach estimates the future economic benefits and discounts them to their present value using a discount rate appropriate for the risks associated with realizing those benefits.

Alternatively, this present value can be calculated by capitalizing the economic benefits to be received in the next period at an appropriate capitalization rate. This is subject to the assumption that the business entity will continue to maintain stable economic benefits and growth rate.

8.3 Asset-Based Approach

The Asset-Based Approach is based on the general concept that the earning power of a business entity is derived primarily from its existing assets. The assumption of this approach is that when each of the elements of working capital, tangible and intangible

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assets is individually valued, their sum represents the value of a business entity and equals to the value of its invested capital (‘‘equity and long term debt’’). In other words, the value of the business entity is represented by the money that has been made available to purchase the business assets needed.

This money comes from investors who buy stocks of the business entity (‘‘equity’’) and investors who lend money to the business entity (‘‘debt’’). After collecting the total amounts of money from equity and debt, and converted into various types of assets of the business entity for its operation, their sum equals the value of the business entity.

8.4 Business Valuation

In the process of valuing the Target Group, we have taken into account of the operation and the nature of the advertising and promotion services industry in which the Target Group is participating.

The Market-Based Approach was not adopted because most of the important assumptions of the comparable transactions, such as discount or premium on the transaction prices or considerations, were hidden. The Asset-Based Approach was also not adopted because it could not capture the future earning potential and thus market value of the Target Group. We have therefore considered the adoption of the Income-Based Approach in arriving at the market value of the Target Group.

8.4.1 Discounted Cash Flow

Under the Income-Based Approach, we have adopted the discounted cash flow (‘‘DCF’’) method, which is based on a simple reversal calculation to restate all future cash flows in present terms. The expected free cash flow for each year was determined as follows:

Expected Free Cash Flow = Net Profit + Depreciation – Change in Net – Working Capital Capital Expenditure

The present value of the expected free cash flows was calculated as follows:

PVCF = CF1/(1+r)[1] + CF2/(1+r)[2] + ⋯ + CFn/(1+r)[n]

In which PVCF = Present value of the expected free cash flows; CF = Expected free cash flow; r = Discount rate; and n = Number of years.

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We estimated the weighted average cost of capital (‘‘WACC’’) of the Target Group as a basic discount rate. WACC is the minimum required return that an entity must earn to satisfy its various capital providers including shareholders and debt holders. WACC calculation takes into account the relative weights of debt and equity. It is computed using the formula below:

WACC = We x Re + Wd x Rd x (1 – Tc)

In which Re = Cost of equity; Rd = Cost of debt; We = Weight of equity value to enterprise value;

Wd = Weight of debt value to enterprise value; and Tc = Corporate tax rate.

8.4.2 Cost of Debt

The cost of debt was estimated by the expected borrowing rate of the Target Group. Since the interest expenses paid on debts are tax-deductible for the Target Group, the cost of the Target Group to get debt funds is less than the required rate of return of the suppliers of the debt capital. The after-tax cost of debt was calculated by multiplying one minus the corporate tax rate by the cost of debt.

8.4.3 Cost of Equity

The cost of equity was estimated using the Capital Asset Pricing Model (‘‘CAPM’’), which describes the relationship between the risk of the Target Group and expected return to investors. It is calculated by the following formula:

Re = Rf + ß x Market Risk Premium + Other Risk Premium

In which Re = Cost of equity; Rf = Risk-free rate; and ß = Beta coefficient.

8.4.4 Discount Rate

In the process of estimating the WACC, we adopted several listed companies with business scopes and operations similar to those of the Target Group as comparable companies. The comparable companies were selected mainly with reference to the following selection criteria:

. The companies were principally engaged in provision of printed media advertising, event organizing and related services;
. The companies are operating mainly in Hong Kong and China;
. The companies were sufficient listing and operating histories; and
. The financial information of the companies is available to the public.

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Details of the comparable companies adopted were listed as follows:

Company		Listing
Name	Stock Code	Location	Business Description
Modern Media	72.HK	Hong Kong	The company operates as a publishing
Holdings			holding company. The company,
			through its subsidiaries, publishes and
			distributes magazines throughout the
			PRC and Hong Kong. The company
			also provides publishing consulting
			services.
SEEC Media	205.HK	Hong Kong	T h e c o m p a n y , t h r o u g h i t s
Group			subsidiaries, provides advertising
Limited			agency services.
Shifang Holding	1831.HK	Hong Kong	The company provides a wide range
Limited			of integrated print media and digital
			media services to advertisers. The
			company’s services include design,
			layout, content planning, and event
			organizing.
China 33 Media	8087.HK	Hong Kong	The company produces print media
Group			and audio programs for the Chinese
Limited			railway network. The materials are
			distributed and used on the trains.
			The company also owns the
			advertising rights to traffic control
			towers at Chinese airports.
Branding China	8219.HK	Hong Kong	The company is a marketing
Group			communications services provider
Limited			with a focus on well-known brands in
			the high value consumer goods
			sectors in the PRC which currently
			comprise mainly automobile and
			home fashion brands. The company
			provides one-stop branding services
			including advertising, PR and event
			m a r k e t i n g t o d o m e s t i c a n d
			international brands.

Source: Bloomberg

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During the process of comparable company selection, we did not aware of any listed companies closely comparable to the Target Group which publishes luxury style magazine, operates event clubs and provides advertising and promotion services. Thus, we searched for listed companies which were principally engaged in the provision of printed media advertising (resembling the magazine business), and event organizing and related services (resembling the club operation business and advertising and promotion service business). We considered the adopted comparable companies are comparable to the Target Group in the following ways:

. Main revenue streams of the comparable companies and the Target Group are advertising incomes, which are subject to similar demand and risk factors;
. The comparable companies and the Target Group have similar cost structure, mainly printing and distribution costs, and personnel costs; and
. The target market of both the comparable companies and the Target Group is the Greater China region.

In the build-up of the discount rate, we have applied size premium and firm specific risk premium to account for the effect of smaller size and shorter operating history of the Target Group as compared with the comparable companies.

Below is the summary of the key parameters of the WACC of the Target Group adopted as at the Date of Valuation:

Key Parameters (a) Risk-free Rate (b) Market Risk Premium (c) Beta Coefficient (d) Size Premium (e) Other Risk Premium (f) Cost of Equity (g) Cost of Debt (h) Weight of Equity Value to Enterprise Value (i) Weight of Debt Value to Enterprise Value (j) Corporate Tax Rate WACC (Rounded)	As at 31 December 2014 1.86% 10.24% 0.53 3.87% 3.00% 14.13% 10.00% 93.95% 6.05% 16.50%
	14.00%

Notes:

(a) The risk-free rate adopted was the yield rate of Hong Kong 10-year government bond as at the Date of Valuation as extracted from Bloomberg.
(b) The market risk premium adopted was the equity market risk premium in Hong Kong as at the Date of Valuation as extracted from Bloomberg.

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(c) The beta coefficient adopted was the average adjusted beta of the comparable companies as at the Date of Valuation as extracted from Bloomberg.
(d) The size premium adopted was the size premium for micro-cap companies with reference to the size premium study published in 2014 Valuation Handbook by Duff & Phelps, LLC.
(e) The other risk premium adopted was to reflect the business risks of the Target Group.
(f) The cost of equity was estimated based on Capital Asset Pricing Model (‘‘CAPM’’).
(g) The cost of debt adopted was with reference to Hong Kong prime rate plus spread as at the Date of Valuation.
(h) The weight of equity value to enterprise value adopted was derived from the average debtto-equity ratio of the comparable companies as at the Date of Valuation as extracted from Bloomberg.
(i) The weight of debt value to enterprise value adopted was derived from the average debt-toequity ratio of the comparable companies as at the Date of Valuation as extracted from Bloomberg.
(j) The corporate tax rate adopted was the corporate tax rate in Hong Kong.

Hence, we adopted the WACC of 14.00% as the discount rate for the Target Group as at the Date of Valuation.

8.4.5 Marketability Discount

Compared to similar interest in public companies, ownership interest is not readily marketable for closely held companies. Therefore, the value of a share of stock in a privately held company is usually less than an otherwise comparable share in a publicly held company. We have made reference to the result of the restricted stock study published in ‘‘A Companion Guide to the FMV Restricted Stock Study 2014 Edition’’ by FMV Opinions, Inc. According to the study, 714 private placement transactions of unregistered common stock issued by publicly traded companies from July 1980 through September 2013 were examined. The marketability discount was the percentage difference between the private placement price per share and the market trading price per share. The average discount for the 714 transactions (excluding premiums) was 21.10%, which was adopted as the marketability discount for the valuation of the Target Group.

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8.4.6 Sensitivity Analysis

To determine how the different values of an independent variable would impact a particular dependent variable under a given set of assumptions, we carried out a sensitivity analysis on the market value of the Target Group in respect of deviation in the discount rate from the status quo. The result of the sensitivity analysis was as follows:

Absolute Change	Applied	Market Value of
in Discount Rate	Discount Rate	the Target Group
		HK$
+2%	16.00%	69,200,000
+1%	15.00%	75,400,000
0%	14.00%	82,600,000
–1%	13.00%	91,300,000
–2%	12.00%	101,900,000

9. CASH FLOW PROJECTIONS

The valuation was based on the cash flow projection of the Business Enterprise (the advertising and promotion service business) and that of Chili Platinum (publication of ‘‘Platinum of UnionPay’’ (銀聯白金) business).

Since the Business Enterprise held 70% equity interest in Chili Platinum, separate cash flow projection for Chili Platinum (magazine business only) was adopted to arrive at the market value of the 70% equity interest in Chili Platinum (magazine business only), which was then added to the market value of the 100% equity interest in the Business Enterprise (advertising and promotion service business only) to arrive at the market value of the 100% equity interest in the Target Group. The setting up of the platinum club of UnionPay is in the preliminary stage and more concrete business plan will be available in accordance with the development progress of the publication of ‘‘Platinum of Unionpay’’ (銀聯白金). Without prescribing a definite timeframe in establishing the club, the Management considered there would be more appropriate not to include the valuation of the club at this stage to achieve a more conservative valuation of the Target Group as at the Date of Valuation. Hence, the cash flow projection for Chili Platinum did not include the operation of the platinum club of UnionPay.

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The Management has prepared cash flow projections from 2015 to 2019. Cash flows for subsequent years were projected based on a terminal value as at 2020 by applying a terminal growth rate of 3.00%. The cash flow projections adopted in the valuation are as follows:

Cash Flow Projection for the Business Enterprise (Advertising and Promotion Service Business Only):

Year Ended 31 December	2015	2016	2017	2018	2019	2020	2021
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
(a) Revenue	8,354	9,499	9,974	10,473	10,996	11,326	11,666
(b) Cost of Revenue	(5,732)	(6,565)	(6,894)	(7,238)	(7,600)	(7,828)	(8,063)
Gross Profit	2,622	2,933	3,080	3,234	3,396	3,498	3,603
Gross Profit Margin	31%	31%	31%	31%	31%	31%	31%
(c) Operating Expenses	(1,790)	(1,914)	(2,006)	(2,108)	(2,216)	(2,275)	(2,343)
Profit Before Tax	832	1,020	1,074	1,126	1,179	1,223	1,259
(d) Income Tax Expense	(137)	(168)	(177)	(186)	(195)	(202)	(208)
Net Profit	695	852	897	940	985	1,021	1,052
(e) Add: Depreciation Expense	11	13	15	18	21	14	15
(f) Less: Capital Expenditure	(10)	(11)	(13)	(15)	(18)	(14)	(15)
(g) Less: Change in Working Capital	226	(334)	58	32	34	28	22
Free Cash Flow	922	519	958	975	1,022	1,050	1,074
(h) Terminal Value as at Year 2020						9,764
Present Value of Free Cash Flow	863	427	690	616	567	511
Present Value of Terminal Value						4,749

Cash Flow Projection for Chili Platinum (Magazine Business Only):

Year Ended 31 December	2015	2016	2017	2018	2019	2020	2021
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
(a) Revenue	12,322	32,649	43,524	44,829	46,174	47,559	48,986
(b) Cost of Revenue	(7,819)	(12,702)	(15,761)	(16,302)	(16,862)	(17,368)	(17,889)
Gross Profit	4,503	19,946	27,763	28,528	29,312	30,191	31,097
Gross Profit Margin	37%	61%	64%	64%	63%	63%	63%
(c) Operating Expenses	(6,355)	(6,850)	(7,255)	(7,702)	(8,186)	(8,197)	(8,365)
Profit Before Tax	(1,852)	13,097	20,509	20,826	21,125	21,994	22,732
(d) Income Tax Expense	—	(2,161)	(3,384)	(3,436)	(3,486)	(3,629)	(3,751)
Net Profit	(1,852)	10,936	17,125	17,390	17,640	18,365	18,981
(e) Add: Depreciation Expense	349	534	622	738	874	665	608
(f) Less: Capital Expenditure	(1,500)	(349)	(534)	(622)	(738)	(665)	(608)
(g) Less: Change in Working Capital	462	241	(295)	(66)	17	11	4
Free Cash Flow	(2,541)	11,362	16,918	17,439	17,793	18,376	18,985
(h) Terminal Value as at Year 2020						172,589
Present Value of Free Cash Flow	(2,379)	9,334	12,189	11,021	9,864	8,939
Present Value of Terminal Value						83,955

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Notes:

(a) For the Business Enterprise advertising and promotion service business, future revenues were estimated by the Management based on historical operating data, existing customer contracts and expected growth in fees charged for advertising services. For Chili Platinum magazine business, future revenues were mainly estimated based on the expected prices charged and the occupancy rates for advertising of printed publication in ‘‘Platinum of UnionPay’’ (銀聯白金) and the number of anticipated advertising contents published in the digital media platform. We understood from the Management that they have made reference to the historical operating data in estimating the future revenues. Revenue of the printed publication was estimated based on the number of pages available for advertising, occupancy rate of the advertising pages, the price charged per page and the sales discount rate. Revenue of the publication in the digital media platform was estimated based on the assumptions that: (i) 20% of the advertising customers of the printed publication will place advertisements in the digital media platform; and (ii) the advertising expenses of such customers on the digital media platform will amount to 20% of their net advertising spending on printed publications. Based on the above assumptions, advertising revenue in the digital media platform is estimated to be approximately 3% of the total advertising revenue each year during the forecasted period. Breakdown of the major revenue components for the revenue of printed publication during the forecasted period between 2015 and 2019 (forecasted revenue for 2020 and onwards were estimated based on a terminal growth rate as described in note (h) below) is as follows:

Year Ended 31 December	2015	2016	2017	2018	2019
Average pages available
for advertising	1,458	1,560	1,560	1,560	1,560
Occupancy rate	10%–100%	100%	100%	100%	100%
Advertising revenue	12,800–	12,800–	12,800–	12,800–	12,800–
per page (HK$)	815,850	815,850	815,850	815,850	815,850
Sales discount rate	68%–94%	53%–79%	46%–72%	44%–71%	42%–70%

The number of occupied advertising pages was estimated based on the expected total number of available advertising pages in the magazine and the expected occupancy rate. The average advertising revenue per page, including the hard advertising contents such as advertisements directly published in the front and back covers and inside pages, and soft advertising contents such as advertisements in pictorial and editorial formats, was estimated based on the current rate card of ‘‘Platinum of UnionPay’’ (銀聯白金) and the expected sales discount rate in accordance with the available market information as mentioned in point (v) of this note below.

As advised by the Management, revenue growth would be mainly driven by the expected increase in occupancy rate of the advertising pages and the expected decrease in sales discount rate. For 2015, the Management estimated high sales discount rates for cover and inside pages ranged from about 68% to 94% to attract new advertisers. For later years, the sales discount rate was expected to decrease by 5% to 10% per annum to a stable level of about 42% to 70% in 2019. The occupancy rate of the advertising pages was assumed to be 100% from 2016 and onwards, as a result of the high sales discount rate and on the grounds that ‘‘Platinum of UnionPay’’ (銀聯白金) has been gaining higher popularity and would become one of the leading luxury lifestyle magazines.

For estimating the sales discount rate and the price charged per page, the Management has (i) considered the anticipated penetration of the magazine to the principal target audiences in high net worth individuals and the premium level cardholders of UnionPay through the cooperation party which provided a platform of considerable number of targeted readership base and a strong competitive advantage within the industry; (ii) considered a rapid growth potential of the premium level cardholders of UnionPay in accordance with the overall bank cards issuance growth rate in the past three years which could lead to the increase of the popularity and target audience of the magazine; (iii) taken into account of the expansion of the circulation from the average of approximately 3,000 copies in the past to approximately 10,000 copies in 2015. From 2016 onwards, the estimated circulation of printed copies will remain at the same level as 2015 as future circulation to selected premium level cardholders of UnionPay in its targeted markets, which mainly consist of high net worth individuals having investable assets of US$1 million or above in Hong Kong, Macau and the PRC, will be enhanced by utilizing the

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VALUATION REPORT OF THE TARGET GROUP

APPENDIX I

digital media platform. The Management estimated that the number of average monthly page view of the digital media platform will range from approximately 10,000 to 40,000 during the forecasted period between 2015 and 2019. According to a market research conducted by RBC Wealth Management in 2014, there were approximately 758,000 and 124,000 high net worth individuals in the PRC and Hong Kong respectively. Considering the market penetration of UnionPay bank cards and assuming such individuals are holders of UnionPay bank cards, it is expected that the digital media platform will provide a means to further extend the reach of the magazine; (iv) considered the continuing growth in building up the membership of the magazine itself; and (v) made reference to researches on the advertising expenditure per advertising page by industry. According to the research report prepared by admanGo, an online platform providing competitive advertising monitoring, in May 2014 as sourced from the prospectus of Winto Group (Holdings) Limited dated 30 January 2015, the advertising expenditure per advertising page by sectors of cosmetics and skincare, jewelry, watches and clock, and beauty, slimming and fitness in Hong Kong was approximately HK$97,200 to HK$108,100 for the year ended 31 December 2013.

The Management’s estimates also took into account the anticipated uptrend of China’s magazine advertising market. According to the research report prepared by Frost & Sullivan, a global consulting company, in December 2014 as sourced from the prospectus of Asiaray Media Group Limited dated 31 December 2014, the magazine advertising market in China was forecast to expand at annual growth rates ranged from 6.3% to 8.2% from 2014 to 2018.

In estimating the readership base of the digital media publication, the Management had also considered the readership statistics of similar digital media platforms providing online lifestyle contents, such as ShangLiuTatler, LifeStyle Magazine and Robb Report. According to Alexa.cn, an online portal providing website traffic statistics estimates, the monthly average daily page view of the aforementioned platforms ranged from 120 to 3,000, depending on the popularity of such online platform and the popularity of the contents offered.

(b) The cost of revenue was estimated by the Management with reference to the historical operating data. The Management also took into account other factors such as general inflation and expected gross margins. For the Business Enterprise advertising and promotion service business, the gross profit margin was expected to maintain at about 31%, which was based on the historical gross profit margin of the Business Enterprise. For Chili Platinum magazine business, the gross profit margin was expected to be about 37% in 2015 and over 60% thereafter. The expected increase in gross profit margin was due to the expected increase in occupancy rate of the advertising pages and the expected decrease in sales discount rate, which would drive up the revenue. As the majority of the direct costs would be fixed production costs, which were assumed to grow at 5% per annum, the increase in revenue would therefore result in increase in gross profit margin.
(c) Operating expenses referred to general administrative and salary expenses, which were estimated by the Management based on the historical operating data. The Management also took into account general inflation factor in projecting the expenses. For Chili Platinum magazine business, the operating expenses also included the license fees payable to Guangzhou Platinum as stipulated in the Cooperation Agreements.
(d) Income tax expenses were estimated based on Hong Kong corporate tax rate of 16.5%.
(e) Depreciation expenses were estimated based on straight-line depreciation of the existing fixed assets and the projected capital expenditure over the assumed useful life of 5 years.
(f) Capital expenditure referred to the maintenance capital expenditure for the refreshment of general office equipment and fixtures. For Chili Platinum, the Management estimated a start-up capital expenditure of HK$1,500,000 for the purpose of the development of digital media platform, based on the letter of intent entered into between the Target Group and a digital media platform developer.
(g) Working capital referred to current assets and liabilities of the Target Group, which were mainly receivables and payables. The changes in working capital for the Business Enterprise and Chili Platinum were projected based on the historical working capital ratios of the Business Enterprise.

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VALUATION REPORT OF THE TARGET GROUP

APPENDIX I

(h) The cash flows for years 2020 and 2021 were estimated based on a terminal growth rate of 3.00%, which was estimated with reference to the long-term forecast inflation rates in Hong Kong and China, which were 3.5% and 3.0% respectively according to the IMF. The terminal value as at year 2020 was estimated based on the formula: Free Cash Flow for Year 2021/(Discount Rate – Terminal Growth Rate).

As advised by the Management, the Target Group plans to make use of the digital media platform to reach more selected premium level cardholders of UnionPay, and traditional printed media format will be retained in the targeted distribution location such as high-end private clubs, golf clubs and hotels, therefore the Target Group is currently developing a digital media platform complementing the issue of magazine. The Target Group has entered into a letter of intent with a digital media platform developer for the development of websites and mobile applications. The estimated investment cost of the digital media platform has been included in the capital expenditure of the Target Group for 2015. The digital media platform is expected to commence operation in 2015. With the digital media platform, ‘‘Platinum of UnionPay’’ (銀聯白金) will become a more comprehensive advertising channel for advertisers. As UnionPay cards have been gaining worldwide popularity, the large potential cardholder base would be a huge advantage of ‘‘Platinum of UnionPay’’ (銀聯白金) to attract advertisers.

To assess the reasonableness of the cash flow projections, we have reviewed information provided by the Management, including but not limited to historical financial statements and operating data of the Target Group, the terms and conditions of the Cooperation Agreements and the current rate card for ‘‘Platinum of UnionPay’’ (銀聯白金). We have also discussed with the Management about the bases of assumptions underlying the cash flow projections and the business plan of the Target Group. We have also made reference to other public information, including but not limited to the number and type of advertisers and distribution channels of ‘‘Platinum of UnionPay’’ (銀聯白金), the historical revenue growth and profit margins of the comparable companies, and rate cards of other magazines.

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VALUATION REPORT OF THE TARGET GROUP

APPENDIX I

The market value of the 100% equity interest in the Target Group was derived as follows:

The Business Enterprise (Advertising and Promotion Service
Business Only)
Total Present Value of Free Cash Flows for the Period from 2015
to 2020 and the Terminal Value as at 2020
Adjustments for
Cash and Debt
Amounts Due to/from Other Parties
Non-Recurring Items (Temporary Accounts)
100% Equity Value (Marketable Basis)
100% Equity Value (Non-Marketable Basis) (Rounded)
Chili Platinum (Magazine Business Only)
Total Present Value of Free Cash Flows for the Period from 2015
to 2020 and the Terminal Value as at 2020
Adjustments for
Cash and Debt
Amounts Due to/from Other Parties
100% Equity Value (Marketable Basis)
100% Equity Value (Non-Marketable Basis)
70% Equity Value (Non-Marketable Basis) (Rounded)*
Market Value of the 100% Equity Interest in the Target Group

HK$’000
8,423
4,598
1,070
(649)
13,443
10,600
132,923
424
(3,052)
130,296
102,803
72,000
82,600

Note: Numbers may not add up due to rounding.

The remaining 30% equity interest was held by a non-controlling shareholder

10. MAJOR ASSUMPTIONS

We have adopted certain specific assumptions in our valuation and the major ones are as follows:

. The Target Group would be operated and developed as planned by the Management and the development would be in line with the financial projections adopted in this valuation (as stated in section 9 of this report);

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VALUATION REPORT OF THE TARGET GROUP

APPENDIX I

. The valuation was mainly based on the projections of the future cash flows as provided by the Management. The projections outlined in the financial information provided was assumed to be capable of reflecting future market conditions and economic fundamentals, and was assumed to be materialized;
. According to the terms of the Cooperation Agreements, the Cooperation Agreements will be automatically renewed for a period of 4 years upon expiration, unless being objected by either party. The Management considered that there is no foreseeable obstacle in renewing the Cooperation Agreements upon their expiration. In particular, based on the existing cooperation with Guangzhou Platinum, the working team of the Target Group dedicated to the publication of the magazine has spent substantial time and effort to familiarise with the mode of cooperation, arrangements on division of responsibilities, selection of suitable magazine contents and development of the multimedia platform including the mobile applications through various discussions and on-going implementation of business plans with Guangzhou Platinum. By the time of the expiration of the Cooperation Agreements, the Management believes that the contribution of the Target Group will become more significant as the digital media platform it developed will further contribute to the revenue and profits of the publication business as well as expanding the target audiences of the magazine in the high-end consumer market irrespective of geographical constrains. Further, having established a long term cooperation relationship upon the expiration of the Publication Cooperation Agreement, the Target Group will be in an advantageous position as compared to other perspective parties in managing the publication of the magazine considering the on-going cooperation between the Target Group and Guangzhou Platinum and the substantial time and expertise required to familiarise with the mode of cooperation under the Publication Cooperation Agreement. Based on the above considerations, the Management is optimistic that there exists a strong incentive for both parties to renew the Publication Cooperation Agreement. Hence, the valuation was conducted based on a going concern assumption;
. The Cooperation Agreements would be renewed without material changes in the major terms. As discussed with the Management, the terms of the Cooperation Agreements were determined based on arm’s length negotiation between Favorable On and Guangzhou Platinum. The current terms were considered fair and reasonable to both parties and there have not been any indications of and requests for changes to the terms of the Cooperation Agreements from both parties as at the Date of Valuation. It was considered reasonable to assume no material changes in major terms of the Cooperation Agreements upon renewal;
. Terminal growth rate of 3.00% was adopted with reference to the general inflation in Hong Kong and China;
. All relevant legal approvals and business certificates or licenses to operate the business in the localities in which the Target Group operates or intends to operate were assumed to be successfully obtained and renewable upon expiry with minimal costs;

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VALUATION REPORT OF THE TARGET GROUP

APPENDIX I

. There will be sufficient supply of technical staff in the industry in which the Target Group operates, and the Target Group will retain competent management, key personnel and technical staff to support its ongoing operations and developments;
. There will be no major change in the current taxation laws in the localities in which the Target Group operates or intends to operate and that the rates of tax payable shall remain unchanged and that all applicable laws and regulations will be complied with;
. There will be no major change in the political, legal, economic or financial conditions in the localities in which the Target Group operates or intends to operate, which would adversely affect the revenues attributable to and profitability of the Target Group; and
. Interest rates and exchange rates in the localities for the operation of the Target Group will not differ materially from those presently prevailing. The exchange rate adopted in the valuation was HK$1:RMB1.2497, which was the prevailing exchange rate as at the Date of Valuation as extracted from Bloomberg.

11. LIMITING CONDITIONS

The valuation reflects facts and conditions existing at the Date of Valuation. Subsequent events or circumstances have not been considered and we are not required to update our report for such events and conditions.

We would particularly point out that our valuation was based on the information such as the company background and business nature of the Target Group provided to us.

To the best of our knowledge, all data set forth in this report are reasonable and accurately determined. The data, opinions, or estimates identified as being furnished by others that have been used in formulating this analysis are gathered from reliable sources; yet, no guarantee is made nor liability assumed for their accuracy.

We have relied on the historical and/or prospective information provided by the Management and other third parties to a considerable extent in arriving at our opinion of value. The information has not been audited or compiled by us. We are not in the position to verify the accuracy of all information provided to us. However, we have had no reason to doubt the truth and accuracy of the information provided to us and to doubt that any material facts have been omitted from the information provided. No responsibilities for the operation and financial information that have not been provided to us are accepted.

We assumed that the Management is competent and perform duties under the company regulation. Also, ownership of the Target Group was in responsible hands, unless otherwise stated in this report. The quality of the Management may have direct impact on the viability of the business as well as the market value of the Target Group.

We have not investigated the title to or any legal liabilities of the Target Group and have assumed no responsibility for the title to the Target Group appraised.

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VALUATION REPORT OF THE TARGET GROUP

APPENDIX I

Our conclusion was derived from generally accepted valuation procedures and practices that rely substantially on the use of various assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained. The conclusion and various estimates may not be separated into parts, and/or used out of the context presented herein, and/or used together with any other valuation or study.

We assume no responsibility whatsoever to any person other than the directors and the Management in respect of, or arising out of, the content of this report. If others choose to rely in any way on the contents of this report, they do so entirely at their own risk.

The working papers and models for this valuation are being kept in our files and would be available for further references. We would be available to support our valuation if required. The title of this report shall not pass to the Company until all professional fee has been paid in full.

12. REMARKS

Unless otherwise stated, all monetary amounts stated in this valuation report are in Hong Kong Dollars (HK$).

We hereby confirm that we have neither present nor prospective interests in the Company, the Target Group and their associated companies, or the values reported herein.

13. OPINION OF VALUE

Based on the investigation and analysis stated above and on the valuation method employed, the market value of 100% equity interest in the Target Group as at the Date of Valuation, in our opinion, was reasonably stated as HK$82,600,000 (HONG KONG DOLLARS EIGHTY TWO MILLION AND SIX HUNDRED THOUSAND ONLY).

Yours faithfully, For and on behalf of Roma Appraisals Limited

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LETTER FROM THE REPORTING ACCOUNTANT IN RELATION TO THE FORECAST UNDERLYING THE VALUATION

APPENDIX II

ACCOUNTANT’S REPORT ON CALCULATIONS OF DISCOUNTED FUTURE ESTIMATED CASH FLOWS IN CONNECTION WITH THE VALUATION OF EQUITY INTEREST IN CHILI ADVERTISING & PROMOTIONS LIMITED AND ITS SUBSIDIARIES

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TO THE DIRECTORS OF PEGASUS ENTERTAINMENT HOLDINGS LIMITED

We have examined the calculations of the discounted future estimated cash flows on which the valuation prepared by Roma Appraisals Limited dated 13 May 2015, of 100% equity interest in Chili Advertising & Promotions Limited and its subsidiaries as at 31 December 2014 (the ‘‘Valuation’’) is based. The Valuation based on the discounted future estimated cash flows is regarded as a profit forecast under Rule 14.61 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and reference to the Valuation will be included in a circular dated 13 May 2015 to be issued by Pegasus Entertainment Holdings Limited (the ‘‘Company’’) in connection with the acquisition of 100% equity interest in Chili Advertising & Promotions Limited (the ‘‘Circular’’).

Directors’ responsibility for the discounted future estimated cash flows

The directors of the Company are responsible for the preparation of the discounted future estimated cash flows in accordance with the bases and assumptions determined by the directors and set out in Appendix I to the Circular (the ‘‘Assumptions’’). This responsibility includes carrying out appropriate procedures relevant to the preparation of the discounted future estimated cash flows for the Valuation and applying an appropriate basis of preparation; and making estimates that are reasonable in the circumstances.

Reporting accountant’s responsibility

It is our responsibility to form an opinion on the arithmetical accuracy of the calculations of the discounted future estimated cash flows on which the Valuation is based and to report solely to you, as a body, as required by Rule 14.62(2) of the Listing Rules, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Our engagement was conducted in accordance with Hong Kong Standard on Assurance Engagements 3000 ‘‘Assurance Engagements Other Than Audits or Reviews of Historical Financial Information’’ issued by the Hong Kong Institute of Certified Public Accountants. This standard requires that we comply with ethical requirements and plan and perform the assurance engagement to obtain reasonable assurance on whether the discounted future

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LETTER FROM THE REPORTING ACCOUNTANT IN RELATION TO THE FORECAST UNDERLYING THE VALUATION

APPENDIX II

estimated cash flows, so far as the calculations are concerned, have been properly compiled in accordance with the Assumptions. Our work does not constitute any valuation of Chili Advertising & Promotions Limited.

Because the Valuation relates to discounted future estimated cash flows, no accounting policies of the Company have been adopted in its preparation. The Assumptions include hypothetical assumptions about future events and management actions which cannot be confirmed and verified in the same way as past results and these may or may not occur. Even if the events and actions anticipated do occur, actual results are still likely to be different from the Valuation and the variation may be material. Accordingly, we have not reviewed, considered or conducted any work on the reasonableness and the validity of the Assumptions and do not express any opinion whatsoever thereon.

Opinion

Based on the foregoing, in our opinion, the discounted future estimated cash flows, so far as the calculations are concerned, have been properly compiled, in all material respects, in accordance with the Assumptions.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong 13 May 2015

– 82 –

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS BY DIRECTORS AND CHIEF EXECUTIVE

Interests in the Shares, underlying Shares, of the Directors and chief executive

Save as disclosed below, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in any shares, underlying shares and debentures of the Company or any of its associated corporations (as defined in Part XV of the SFO) which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or are required to be entered in the register maintained in accordance with Section 352 of the SFO, or are required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Listing Rules.

Name of director Company/ name of associated company Nature of interest (Long position) Mr. Wong Company Interest in a controlled corporation Company Beneficial owner Honour Grace Limited Beneficial owner	Number of Shares held 300,000,000 (Note) 4,180,000 304,180,000 9 shares of US$1.00 each	Approximately percentage or attributable percentage of shareholding to the Company/ associated company 54.95% 0.76%
		55.71% 60.00%

Note: These shares are registered in the name of Honour Grace Limited, the entire issued share capital of which is legally and beneficially owned as to 60% by Mr. Wong, 20% by Mr. Edmond Wong and 20% by Ms. Alvina Wong. Under the SFO, Mr. Wong is deemed to be interest in all the shares registered in the name of Honour Grace Limited.

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GENERAL INFORMATION

APPENDIX III

3. DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

Save as disclosed below, as at the Latest Practicable Date, the Directors were not aware of any person (other than the Directors or Chief Executives of the Company) who had any interest or short position in the shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

Name of shareholder Nature of interest (Long position) Honour Grace Limited Beneficial owner Mr. Wong Interest in a controlled corporation Beneficial owner Ms. Zee Ven Chu Lydia (Note 2) Deemed interest Yue Xiu Investment Fund Series Segregated Portfolio Company Beneficial owner Yue Xiu Asset Management Limited Investment manager	Number of Shares held 300,000,000 300,000,000 (Note 1) 4,180,000 304,180,000 304,180,000 43,680,000 43,680,000	Approximately percentage or attributable percentage of shareholding to the Company 54.95% 54.95% 0.76%
		55.71% 55.71% 8.00% 8.00%

Notes:

These shares are registered in the name of Honour Grace Limited, the entire issued share capital of which is legally and beneficially owned as to 60% by Mr. Wong, 20% by Mr. Edmond Wong and 20% by Ms. Alvina Wong. Under the SFO, Mr. Wong is deemed to be interest in all the shares registered in the name of Honour Grace Limited.
Ms. Zee Ven Chu Lydia, spouse of Mr. Wong, is deemed under the SFO to be interested in all the Shares in which Mr. Wong is deemed to be interested.

4. DIRECTORS’ SERVICE CONTRACTS

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

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GENERAL INFORMATION

APPENDIX III

5. DIRECTORS’ INTEREST IN COMPETING BUSINESSES

As at the Latest Practicable Date, none of the Directors or their respective associates was interested in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group as required to be disclosed pursuant to the Listing Rules.

6. MATERIAL INTERESTS AND CONTRACTS

As at the Latest Practicable Date, none of the Directors was materially interested in any subsisting contract or arrangement which is significant in relation to the business of the Group, and none of the Directors had any assets which have, since 30 June 2014 (being the date to which the latest published audited consolidated accounts of the Group were made up), been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of or leased to any member of the Group.

7. MATERIAL ADVERSE CHANGE

As disclosed in the announcement dated 23 September 2014, according to the lease agreement entered into between the Group and the landlord of the cinema located in Langham Place, a rent-free period of four months commencing from 23 July 2014 was offered by the landlord as compensation for the renovation period during which the cinema is not in operation. In light of the accounting principles, practices and policies adopted by the Group under the applicable accounting standards, such incentive provided by the landlord will be treated as a uniform reduction of rental expenses (that is, on a straight-line basis over the lease term). With the lease term having commenced on 23 July 2014, rental expenses will be immediately recognised under the abovementioned accounting treatment. However, revenue has only been generated after the cinema commences operation in the fourth quarter of 2014. As such, the Group’s results for the six months ended 31 December 2014 was adversely affected.

Save for the above, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 30 June 2014, being the date to which the latest audited financial statements of the Company were made up as at the Latest Practicable Date.

8. LITIGATION

No member of the Group is engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened against any member of the Group as at the Latest Practicable Date.

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GENERAL INFORMATION

APPENDIX III

9. QUALIFICATIONS AND CONSENTS OF EXPERTS

The following are qualifications of the expert who have given their opinions and advice which are included in this circular:

Name

Qualification

Akron Corporate Finance Limited

A licensed corporation to carry out type 6 (advising on corporate finance) regulated activity under the SFO

Roma Appraisals Limited Independent valuer

Deloitte Touche Tohmatsu Certified Public Accountant

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letters, reports and/or opinion, as the case may be, and references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, each of the above experts did not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, each of the above experts did not have, directly or indirectly, any interest in any assets which had since 30 June 2014 (being the date to which the latest published audited consolidated accounts of the Group were made up) been 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.

10. GENERAL

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

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the head office and principal place of business of the Company in Hong Kong at Rooms 1801–2, Westlands Centre, 20 Westlands Road, Quarry Bay, Hong Kong during normal business hours on any business day from the date of this circular up to and including the date of the EGM:

(a) the Agreement;
(b) the letter of recommendation from the Independent Board Committee to the Independent Shareholders, the text of which is set out on pages 24 to 25 of this circular;

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GENERAL INFORMATION

APPENDIX III

(c) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out from pages 26 to 55 of this circular;
(d) the valuation report prepared by Roma Appraisals Limited, the text of which is set out in Appendix I to this circular;
(e) the letter from Deloitte Touche Tohmatsu, the text of which is set out in Appendix II to this circular;
(f) the consent letter from Akron Corporate Finance Limited referred to in the paragraph headed ‘‘Qualifications and consents of experts’’ in this appendix;
(g) the consent letter from Roma Appraisals Limited referred to in the paragraph headed ‘‘Qualifications and consents of experts’’ in this appendix;
(h) the consent letter from Deloitte Touche Tohmatsu referred to in the paragraph headed ‘‘Qualifications and consents of experts’’ in this appendix; and
(i) this circular.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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Pegasus Entertainment Holdings Limited 天馬影視文化控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1326)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (‘‘EGM’’) of Pegasus Entertainment Holdings Limited (the ‘‘Company’’) will be held at Rooms 1801–02, Westlands Centre, 20 Westlands Road, Quarry Bay, Hong Kong at 4:00 p.m. on Friday, 29 May 2015 for the purposes of considering and, if thought fit, passing the following resolution as ordinary resolution:

ORDINARY RESOLUTION

(1) ‘‘THAT:

(a) the agreement dated 6 March 2015 (as amended by a supplemental agreement dated 30 April 2015) (the ‘‘Agreement’’) entered into between the Green Riches Holdings Limited, which is a direct wholly-owned subsidiary of the Company, as purchaser (the ‘‘Purchaser’’), the Company and Ms. Wong Kit Fong (the ‘‘Vendor’’) as vendor in relation to the acquisition of the entire issued share capital of Chili Advertising & Promotions Limited by the Purchaser, a copy of the which has been produced to this meeting marked ‘‘A’’ and signed by the Chairman of the meeting for the purpose of identification, and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the allotment and issue of 46,000,000 new ordinary shares of HK$0.01 each (the ‘‘Consideration Shares’’) in the share capital of the Company to the Vendor credited as fully paid at an issue price of HK$1.26 per Consideration Share pursuant to terms and conditions of the Agreement be and are hereby approved; and
(c) any one or more of the directors of the Company be and is/are hereby authorised to implement and take all steps and do all acts and things and execute all such documents (including under seal) which he/she/they consider necessary or expedient to give effect to the Agreement and the transactions contemplated thereunder including but not limited to the allotment and issue of the Consideration Shares.’’

By order of the Board Pegasus Entertainment Holdings Limited Wong Pak Ming Chairman

Hong Kong, 13 May 2015

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Registered office: Principal place of business in Hong Kong: Cricket Square Rooms 1801–2 Hutchins Drive Westlands Centre P.O. Box 2681 20 Westlands Road Grand Cayman KY1-1111 Quarry Bay Cayman Islands Hong Kong

Notes:

A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxy to attend and, subject to the provisions of the articles of association of the Company, vote in his stead. A proxy need not be a member of the Company. 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.
In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at the office of the Company’s branch registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the meeting or adjourned meeting. Completion and return a form of proxy will not preclude a member from attending in person and voting at the above meeting or any adjournment thereof, should you so wish.
In the case of joint holders of shares, any one such holders may vote at the meeting, either personally or by proxy, in respect of such shares as if he was solely entitled thereto, but if more than one of such joint holders are present at the meeting personally or by proxy, that one of the said persons so present whose name stands first in the register of members of the Company in respect of such shares shall alone be entitled to vote in respect thereof.
The voting on the resolutions at the EGM will be conducted by way of a poll.

– 89 –

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Transmit Entertainment Limited — Proxy Solicitation & Information Statement 2015

49852_rns_2015-05-12_382b88b3-010f-46ce-8932-7cf7d039229f.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Pegasus Entertainment Holdings Limited 天 馬 影 視 文 化 控 股 有 限 公 司

(1) DISCLOSEABLE AND CONNECTED TRANSACTION; AND

(2) NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser

to the Independent Board Committee and the Independent Shareholders

DEFINITIONS

‘‘EGM’’

Pegasus Entertainment Holdings Limited 天 馬 影 視 文 化 控 股 有 限 公 司

(1) DISCLOSEABLE AND CONNECTED TRANSACTION; AND (2) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

THE AGREEMENT

Assets to be acquired

Consideration

Conditions precedent

COMPLETION

THE CONSIDERATION SHARES

LETTER FROM THE BOARD

INFORMATION OF THE TARGET GROUP

The Target Company

The Powerful Target Group

Powerful Target

Favorable On

Chili Platinum

LETTER FROM THE BOARD

Major terms of the cooperation agreements

LETTER FROM THE BOARD

Recent business development

2. Platinum Club Cooperation Agreement

Shareholding structure of the Target Group

Financial information of the Target Group

Financial information of the Powerful Target Group

REASON FOR ENTERING INTO THE AGREEMENT

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

Continuing Connected Transactions

Existing continuing connected transactions

New continuing connected transactions

LETTER FROM THE BOARD

EGM

INDEPENDENT BOARD COMMITTEE

RECOMMENDATION

ADDITIONAL INFORMATION

Pegasus Entertainment Holdings Limited 天 馬 影 視 文 化 控 股 有 限 公 司

DISCLOSEABLE AND CONNECTED TRANSACTION

DISCLOSEABLE AND CONNECTED TRANSACTION

INTRODUCTION

BASIS OF OUR ADVICE

PRINCIPAL FACTORS CONSIDERED

1. Business and financial information of the Group

(b) Financial performance for the year ended 30 June 2014

2. Business and financial information of the Target Group

3. Reasons for and benefits of entering into the Acquisition

(a) Overview of the advertising and luxury market in the PRC

(b) Reasons for the Acquisition

4. Principal terms of the Agreement

(a) Evaluation of the Consideration

(i) Comparable company analysis

(ii) Comparison between the Consideration and the Valuation

(a) Revenue

The Target Company

Chili Platinum

(b) Cost of sales

Target Company

Chili Platinum

(c) Operating Expenses

Target Company

Chili Platinum

(b) Consideration Shares analysis

(ii) Comparison with other issue of consideration shares

(b) Financial effect of the Acquisition on the Group

(i) Earnings

(ii) Net assets value

(iii) Cashflow

(iv) Gearing

RECOMMENDATION

Transmit Entertainment Limited Proxy Solicitation & Information Statement 2015

Pegasus Entertainment Holdings Limited 天馬影視文化控股有限公司

Pegasus Entertainment Holdings Limited 天馬影視文化控股有限公司

Pegasus Entertainment Holdings Limited 天馬影視文化控股有限公司

Pegasus Entertainment Holdings Limited 天馬影視文化控股有限公司