Weichai Power Co., Ltd. - Proxy Solicitation & Information Statement 2023

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, 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 overseas listed foreign shares (“ H Shares ”) in Weichai Power Co., Ltd., you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

濰柴動力股份有限公司 WEICHAI POWER CO., LTD.

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 2338)

(1) NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS,

(2) PRC CONTINUING CONNECTED TRANSACTIONS, AND

(3) NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent financial adviser to the independent board committee and the independent shareholders of Weichai Power Co., Ltd. on the Non-exempt Continuing Connected Transactions

Trinity Corporate Finance Limited

A letter from the Board is set out on pages 9 to 51 of this circular.

A letter from the Independent Board Committee to the Independent Shareholders on the Non-exempt Continuing Connected Transactions is set out on page 52 of this circular. A letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders on the Non-exempt Continuing Connected Transaction is set out on pages 53 to 95 of this circular.

A notice convening the EGM to be held at the Company’s conference room at 197, Section A, Fu Shou East Street, High Technology Industrial Development Zone, Weifang, Shandong Province, the PRC on 29 December 2023 at 2:50 p.m. is set out on pages 103 to 105 of this circular. Whether or not you intend to be present at the said meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the H-share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong (with respect to the holders of H Shares) no later than 24 hours before the time fixed for holding the relevant meeting or any adjournment thereof. Completion and delivery of the form of proxy will not prevent you from attending, and voting at, the relevant meeting or any adjournment thereof if you so wish. For holders of A Shares, please refer to the notice of the EGM published on the website of the Shenzhen Stock Exchange in respect of the eligibility of attendance, registration procedure, proxy and other relevant matters.

30 November 2023

CONTENTS

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE
ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS . . . . . . . .		52
LETTER FROM	THE INDEPENDENT FINANCIAL ADVISER
ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS . . . . . . . .		53
APPENDIX –	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	96
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		103

– i –

DEFINITIONS

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

“0.1% Threshold”

the thresholds referred to in Rule 14A.76(1)(a) of the Listing Rules

“5% Threshold”
the thresholds referred to in Rule 14A.76(2)(a) of the Listing Rules
“Associate(s)”

has the meaning ascribed to an “associate” under Rule 14A.06(2) of the Listing Rules, and further includes any company that constitutes a connected subsidiary of the Company pursuant to Rule 14A.16 of the Listing Rules due to such associate’s shareholding therein

“Board”

the board of Directors

“China” or “PRC”
the People’s Republic of China
“Chongqing Casting”
重慶市江津區重濰鑄造有限責任公司 (Chongqing City Jiangjin District Chongwei Casting Co. Ltd.*), a company established in the PRC which was subsequently deregistered
“Chongqing Weichai”
重慶濰柴發動機有限公司 (Chongqing Weichai Diesel Engine Company Limited) (formerly known as 重慶濰柴發動機廠 (Chongqing Weichai Diesel Engine Factory)), a company established in the PRC and a connected person of the Company
“Company”
濰柴動力股份有限公司 (Weichai Power Co., Ltd.), a company established in the PRC with limited liability
“connected person”
has the meaning ascribed thereto under the Listing Rules
“Continuing Connected Transaction(s)”

the transaction between the Group and the relevant parties as set out in the section headed “II. The Non-exempt Continuing Connected Transactions” in the letter from the Board contained in this circular

“Director(s)”

the director(s) of the Company

“EGM”

the extraordinary general meeting of the Company to be held on Friday, 29 December 2023, the notice of which is contained in this circular

– 1 –

DEFINITIONS

“Exempt Continuing Connected Transaction(s)”
“Existing Axles Supply Framework Agreement”
“Existing Cap(s)”
“Existing Transmissions Supply Framework Agreement”
“Existing Utility Services Purchase Agreements”

being the Continuing Connected Transaction(s) exempt from the circular, independent financial advice and shareholders’ approval requirements pursuant to Rule 14A.101 of the Listing Rules, or the proposed New Caps for which do not exceed the 5% Threshold and, accordingly, are not subject to the approval by the Independent Shareholders under the Listing Rules, and, where such New Caps exceed the 0.1% Threshold, are only subject to the reporting, announcement and annual review requirements of Chapter 14A of the Listing Rules

the axles supply framework agreement between Hande Axle and Yangzhou Yaxing dated 26 October 2012 (as supplemented by the supplemental agreements dated 21 March 2013, 28 March 2014, 30 March 2015, 28 March 2018 and 27 August 2020, respectively)

the existing cap(s) for the Continuing Connected Transactions and the PRC Continuing Connected Transactions set out in the sections headed “II. The Non-exempt Continuing Connected Transactions” and “III. PRC Continuing Connected Transactions” in the letter from the Board contained in this circular

the transmissions supply framework agreement entered into between SFGC and Yangzhou Yaxing dated 26 October 2012 (as supplemented by the supplemental agreements dated 21 March 2013, 28 March 2014, 30 March 2015, 28 March 2018 and 27 August 2020, respectively)

the utility services purchase agreements comprising:

(i) the utility services agreement between the Company and Weichai Holdings dated 17 November 2003 (as supplemented by the supplemental agreements dated 15 September 2004, 21 September 2005, 12 November 2006, 27 November 2008, 23 August 2010, 29 August 2013, 27 August 2015, 30 August 2016, 13 July 2018 and 27 August 2020, respectively); and

– 2 –

DEFINITIONS

(ii) the utility services agreement between the Company and Chongqing Weichai dated 17 November 2003 (as supplemented by the supplemental agreements dated 15 September 2004, 21 September 2005, 12 November 2006, 27 November 2008, 23 August 2010, 29 August 2013, 27 August 2015, 30 August 2016, 13 July 2018 and 27 August 2020, respectively)
“Existing Weichai Sale and the diesel engines, diesel engine parts and Processing Services Agreement” components, materials and related products sale and provision of processing services agreement between (i) the Company, Weichai After-sales Services and (ii) Weichai Holdings, Chongqing Casting, Weichai Import and Export and Chongqing Weichai dated 27 November 2008 (as supplemented by the supplemental agreements dated 23 August 2010, 29 August 2013, 30 August 2016, 30 August 2017, 13 July 2018 and 27 August 2020, respectively)
“Existing Weichai Westport the framework agreement in relation to the purchase Purchase Agreement” of gas engines, gas engine parts and related products by the Company (and its subsidiaries and/or associates) from Weichai Westport dated 25 December 2012 (as supplemented by the supplemental agreements dated 8 December 2014, 14 July 2017 and 27 August 2020, respectively)
“Existing Weichai Westport the framework agreement in relation to the supply of Supply Agreement” base engines, gas engine parts and related products by the Company (and its subsidiaries and/or associates) to Weichai Westport dated 25 December 2012 (as supplemented by the supplemental agreements dated 8 December 2014, 14 July 2017 and 27 August 2020, respectively)
“Existing Weichai Yangzhou Supply Framework Agreement”

the Weichai Power Diesel Engines Supply Framework Agreement and the Weichai Yangzhou Diesel Engines Supply Framework Agreement (as supplemented by the supplemental agreements dated 21 March 2013, 28 March 2014, 30 March 2015, 29 September 2016, 28 March 2018 and 27 August 2020, respectively)

“Group”

the Company and its subsidiaries, and “Group Company” means any of the same

– 3 –

DEFINITIONS

“Hande Axle”
“Hong Kong”
“Independent Board Committee”
“Independent Financial Adviser”
“Independent Shareholders”
“Latest Practicable Date”
“Listing Rules”
“New Axles Supply Framework Agreement”
“New Cap(s)”
陝西漢德車橋有限公司 (Shaanxi Hande Axle Co., Ltd.), a company established in the PRC and is held as to approximately 3.06% by the Company and as to approximately 94% by Shaanxi Zhongqi

Hong Kong Special Administrative Region of the PRC

a committee of the Board comprising Ms. Jiang Yan, Mr. Yu Zhuoping, Mr. Chi Deqiang, Mr. Zhao Fuquan and Mr. Xu Bing, being the independent non-executive Directors

Trinity Corporate Finance Limited, the independent financial adviser appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in respect of the Non-exempt Continuing Connected Transactions

Shareholders who are not required to abstain from voting at the EGM in respect of the Non-exempt Continuing Connected Transactions
27 November 2023, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
the Rules Governing the Listing of Securities on the Stock Exchange
the axles supply framework agreement entered into between Hande Axle and Yangzhou Yaxing on 30 August 2023 as more particularly set out in section II.2.(c) in the letter from the Board contained in this circular
the annual cap(s) to the Continuing Connected Transactions and the PRC Continuing Connected Transactions as set out in the sections headed “II. The Non-exempt Continuing Connected Transactions” and “III. PRC Continuing Connected Transactions” in the letter from the Board contained in this circular

– 4 –

DEFINITIONS

“New Framework Agreements”
“New Transmissions Supply Framework Agreement”
“New Utility Services Purchase Agreement”
“New Weichai Sale and Processing Services Agreement”
“New Weichai Westport Leasing Agreement”
“New Weichai Westport Logistics Agreement”
“New Weichai Westport Purchase Agreement”

the New Axles Supply Framework Agreement, New Transmissions Supply Framework Agreement, New Weichai Sale and Processing Services Agreement, New Weichai Westport Purchase Agreement, New Weichai Westport Supply Agreement and New Weichai Yangzhou Supply Framework Agreement, and “New Framework Agreement” means any of them

the transmissions supply framework agreement entered into between SFGC and Yangzhou Yaxing on 30 August 2023 as more particularly set out in section II.2.(b) in the letter from the Board contained in this circular

the framework agreement in relation to the purchase and/or connection of utilities entered into between Weichai Holdings and the Company on 30 August 2023 as more particularly set out in section headed “III. PRC Continuing Connected Transactions” in the letter from the Board contained in this circular

the diesel engines, diesel engines parts and components, materials and related products sale and provision of related services agreement entered into between the Company and Weichai Holdings on 30 August 2023 as more particularly set out in section II.1. in the letter from the Board contained in this circular

has the meaning as ascribed to it under the section headed “III. PRC Continuing Connected Transactions” in the letter from the Board contained in this circular

the framework agreement in relation to the purchase of gas engines, gas engine parts and related products entered into between the Company and Weichai Westport on 30 August 2023 as more particularly set out in section II.3.(b) in the letter from the Board contained in this circular

– 5 –

DEFINITIONS

“New Weichai Westport Supply Agreement”
“New Weichai Yangzhou Supply Framework Agreement”
“Non-exempt Continuing Connected Transaction(s)”
“PRC CCT Announcement”
“PRC Continuing Connected Transaction(s)”
“PRC New Framework Agreements”
“RMB”
“SFGC”

the framework agreement in relation to the supply of base engines, gas engine parts and related products entered into between the Company and Weichai Westport on 30 August 2023 as more particularly set out in section II.3.(a) in the letter from the Board contained in this circular

the diesel engines supply framework agreement entered into between the Company and Yangzhou Yaxing on 30 August 2023 as more particularly set out in section II.2.(a) in the letter from the Board contained in this circular

being the continuing connected transaction(s) at the Company level, the proposed new caps for which exceeds the 5% Threshold, and accordingly, will be subject to the reporting requirements, the announcement requirement and the annual review requirements under the Listing Rules, and approval from the Independent Shareholders at the EGM will be required

has the meaning ascribed thereto under the section headed “III. PRC Continuing Connected Transactions” in the letter from the Board contained in this circular

the transaction(s) set out under the section headed “III. PRC Continuing Connected Transactions” in the letter from the Board contained in this circular, which constitute continuing connected transactions of the Company under the relevant laws and regulations of the PRC and the Shenzhen Listing Rules and are subject to the approval by the independent Shareholders at the EGM
the New Utilities Purchase Agreement, New Weichai Westport Logistics Agreement and New Weichai Westport Leasing Agreement, and “PRC New Framework Agreement” means any of them
Renminbi, the lawful currency of the PRC
陝西法士特齒輪有限責任公司 (Shaanxi Fast Gear Co. Ltd.), a company established in the PRC and a 51% subsidiary of the Company

– 6 –

DEFINITIONS

“SFO”

“Shaanxi Zhongqi”
“Shandong Heavy Industry”
“Shareholder(s)”
“Shenzhen Listing Rules”
“Stock Exchange”
“Weichai After-sales Services”
“Weichai Holdings”
“Weichai Import and Export”
“Weichai Power Diesel Engines Supply Framework Agreement”
“Weichai Westport”

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

陝西重型汽車有限公司(Shaanxi Heavy Duty Motor Company Limited), a company established in the PRC and a subsidiary of the Company

山東重工集團有限公司 (Shandong Heavy Industry Group Co., Ltd.), a substantial shareholder and connected person of the Company holding the entire capital of Weichai Holdings

holder(s) of the shares in the Company

《股票上市規則》(“listing rules”) of the Shenzhen Stock Exchange

The Stock Exchange of Hong Kong Limited

濰柴（濰坊）後市場服務有限公司 (Weichai (Weifang) After-sales Market Services Co., Ltd.) (formerly known as 濰柴動力備品資源公司 (Weichai Power Reserves and Resources Company)), a company established in the PRC which used to be a subsidiary of the Company and has now been deregistered

濰柴控股集團有限公司 (Weichai Group Holdings Limited) (formerly known as 濰坊柴油機廠 (Weifang Diesel Engine Works)), a legal person established in the PRC, a substantial shareholder of the Company and a connected person of the Company

山東濰柴進出口有限公司 (Shandong Weichai Import and Export Co., Ltd.*), a company established in the PRC was, at the time of entering into the Existing Weichai Sale and Processing Services Agreement, wholly-owned by Weichai Holdings and a connected person of the Company

the diesel engines supply framework agreement entered into between the Company and Yangzhou Yaxing dated 26 October 2012

濰柴西港新能源動力有限公司 (formerly known as “濰柴動力西港新能源發動機有限公司”) (Weichai Westport Inc.), a company established in the PRC and a connected person of the Company

– 7 –

DEFINITIONS

“Weichai Yangzhou the diesel engines supply framework agreement Diesel Engines Supply entered into between Weichai Yangzhou and Framework Agreement” Yangzhou Yaxing dated 26 October 2012 “Yangzhou Yaxing” 揚州亞星客車股份有限公司 (Yangzhou Yaxing Motor Coach Co. Ltd.), a company established in the PRC, a subsidiary of Weichai Holdings and a connected person of the Company “%” cent

per cent

For identification purposes only

If there is any inconsistency between the Chinese name of the entities mentioned in this circular and their English translation, the Chinese version shall prevail.

– 8 –

LETTER FROM THE BOARD

濰柴動力股份有限公司 WEICHAI POWER CO., LTD.

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 2338)

Executive Directors: Tan Xuguang (Chairman) Zhang Quan (Vice Chairman) Ma Changhai Wang Decheng (Chief Executive Officer and general manager) Sun Shaojun Yuan Hongming Ma Xuyao

Non-executive Directors: Zhang Liangfu Richard Robinson Smith Michael Martin Macht

Independent Non-executive Directors: Jiang Yan Yu Zhuoping Chi Deqiang Zhao Fuquan Xu Bing

Registered office: 197, Section A Fu Shou East Street High Technology Industrial Development Zone Weifang Shandong Province The People’s Republic of China

Principal place of business in Hong Kong: Rooms 3407–3408 34th Floor, Gloucester Tower Landmark 15 Queen’s Road Central Central, Hong Kong

Supervisors: Wang Yanlei Wang Xuewen Zhao Yongchang

30 November 2023

To: Holders of H Shares Holders of A Shares

Dear Sir or Madam,

(1) NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS,

(2) PRC CONTINUING CONNECTED TRANSACTIONS, AND

(3) NOTICE OF EXTRAORDINARY GENERAL MEETING

I. INTRODUCTION

Reference is made to (i) the announcement of the Company dated 30 August 2023 in relation to inter alia, the entering into of the New Framework Agreements in respect of the Continuing Connected Transactions (being Non-exempt Continuing Connected Transactions); and (ii) the announcement of the Company dated 30 August 2023 in relation to the PRC Continuing Connected Transactions.

– 9 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among other things, further details on (i) the Continuing Connected Transactions (being Non-exempt Continuing Connected Transactions) and the advice of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Continuing Connected Transactions; and (ii) the PRC Continuing Connected Transactions.

II. THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Summary of the Continuing Connected Transaction and the proposed New Caps

The Non-exempt Continuing Connected Transactions include the following:

			Connected person’s
Name of		Name of Group	relationship with the	Nature of the connected
connected person		Company	Group	transaction with the Group
1.	Weichai Holdings	The Company (and its	Holder of 16.30% of the	Sale of diesel engines, diesel
	(and its	subsidiaries)	equity of the Company	engine parts and
	Associates)			components, materials,
				semi-finished products,
				hydraulic products and
				related products and
				provision of related
				services by the Company
				(and its subsidiaries) to
				Weichai Holdings (and its
				Associates)
2.	Yangzhou Yaxing	The Company (and its	Yangzhou Yaxing is	(a) Sale of engines, new
	(and its	subsidiaries)	indirectly held as to	energy powertrain and
	subsidiaries)		62.31% by Weichai	related products by the
			Holdings	Company (and its
				subsidiaries) to
				Yangzhou Yaxing (and
				its subsidiaries)
		SFGC_(note 1)_		(b) Sale of transmissions
				and related products by
				SFGC to Yangzhou
				Yaxing (and its
				subsidiaries)
		Hande Axle_(note 2)_		(c) Sale of axles and related
				products by Hande Axle
				to Yangzhou Yaxing
				(and its subsidiaries)

– 10 –

LETTER FROM THE BOARD

Connected person’s
Name of Name of Group relationship with the Nature of the connected connected person Company Group transaction with the Group 3. Weichai Westport The Company (and its Weichai Westport is held (a) Supply of base engines, subsidiaries and/or as to 51% by Weichai gas engine parts, utility associates) Holdings and labour services,
(a) Supply of base engines, gas engine parts, utility and labour services, technology development services and related products and services by the Company (and its subsidiaries and/or associates) to Weichai Westport
(b) Purchase of gas engines, gas engine parts, labour services and related products and services by the Company (and its subsidiaries and/or associates) from Weichai Westport

Notes:

SFGC is a 51% subsidiary of the Company.
Hande Axle is held as to approximately 3.06% by the Company and as to approximately 94% by Shaanxi Zhongqi, which is a 51% subsidiary of the Company.

A summary of the proposed New Caps for the Non-exempt Continuing Connected Transactions is set out below:

Connected person and details of the relevant Proposed New Caps Continuing Connected Transactions 2024 2025 2026 RMB RMB RMB 1. Weichai Holdings (and its Associates) Sale of diesel engines, diesel engine parts 6,503,000,000 6,725,000,000 7,102,000,000 and components, materials, semi-finished products, hydraulic products and related products and provision of related services by the Company (and its subsidiaries) to Weichai Holdings (and its Associates)

– 11 –

LETTER FROM THE BOARD

Connected person and details of the relevant	Connected person and details of the relevant	Connected person and details of the relevant		Proposed New	Caps
Continuing Connected Transactions			2024	2025		2026
			RMB	RMB		RMB
2.	Yangzhou Yaxing (and its subsidiaries)
	(a)	Sale of engines, new energy	83,000,000	117,000,000		145,000,000
		powertrain and related products by
		the Company and its subsidiaries to
		Yangzhou Yaxing and its subsidiaries
	(b)	Sale of transmissions and related	8,000,000	9,000,000		10,000,000
		products by SFGC to Yangzhou
		Yaxing and its subsidiaries
	(c)	Sale of axles and related products by	23,000,000	26,000,000		29,000,000
		Hande Axle to Yangzhou Yaxing and
		its subsidiaries
3.	Weichai Westport
	(a)	Supply of base engines, gas engine	896,000,000	906,000,000		935,000,000
		parts, utility and labour services,
		technology development services and
		related products and services by the
		Company (and its subsidiaries
		and/or associates) to Weichai
		Westport
	(b)	Purchase of gas engines, gas engine	4,644,000,000	4,656,000,000	4,704,000,000
		parts, labour services and related
		products and services by the
		Company (and its subsidiaries
		and/or associates) from Weichai
		Westport

Note:

For the purposes of ascertaining whether a Continuing Connected Transaction would exceed the 5% Threshold, the transactions under paragraphs 1, 2.(a), 2.(b), 2.(c) and 3.(a) have been aggregated and the transaction under paragraph 3.(b) has been aggregated with the transactions as disclosed in the announcement of the Company dated 27 January 2022.

The Company and its subsidiaries

The Company is principally engaged in the research and development, manufacture and sale of high-speed heavy-duty diesel engines and engine parts.

– 12 –

LETTER FROM THE BOARD

SFGC is principally engaged in the design, development, manufacture and sale services of motor vehicle parts and components such as vehicle transmission, gears and forgings. SFGC is a 51% subsidiary of the Company.

Hande Axle is principally engaged in the research and development, production, sale and services of vehicle axles and their parts and components. Hande Axle is held as to approximately 3.06% by the Company and as to approximately 94% by Shaanxi Zhongqi, which is a 51% subsidiary of the Company.

1. Continuing Connected Transactions between Weichai Holdings (and its Associates) and the Group

Weichai Holdings and its Associates

Weichai Holdings is principally engaged in the management, investment and the provision of general services. To the best knowledge, information and belief of the Directors and having made all reasonable enquiries, Weichai Holdings is wholly-owned by Shandong Heavy Industry. Shandong Heavy Industry is one of the leading automobile and equipment groups in the PRC, and in turn a state-owned enterprise organised under the laws of the PRC with limited liability, and is ultimately governed and controlled by the Shandong Provincial People’s Government* (山東省人民政府).

Weichai Holdings is a substantial shareholder of the Company, and is accordingly a connected person of the Company.

Sale of diesel engines, diesel engine parts and components, materials, semi-finished products, hydraulic products and related products and provision of related services by the Company (and its subsidiaries) to Weichai Holdings (and its Associates)

Agreement: New Weichai Sale and Processing Services Agreement Date: 30 August 2023 Parties: 1. The Company 2. Weichai Holdings Term: 1 January 2024 to 31 December 2026

Other terms and details:

The terms of the New Weichai Sale and Processing Services Agreement are substantially the same as those of the Existing Weichai Sale and Processing Services Agreement.

– 13 –

LETTER FROM THE BOARD

Pursuant to the New Weichai Sale and Processing Services Agreement, the Company and its subsidiaries (as the case may be) shall sell diesel engines, diesel engine parts and components, materials, semi-finished products, hydraulic products and related products and to provide the related services (as the case may be) to Weichai Holdings and its Associates (as the case may be) at market prices and/or prices agreed according to the principle of fairness and reasonableness, for a term of three years ending 31 December 2026. Depending on the terms of the definitive agreements to be entered into by the parties, the relevant price for the relevant products and/or services shall, as the case maybe, be settled on a monthly or quarterly basis or in accordance with the progress of the provision of the relevant products and/or services. Upon the expiry of the term of the agreement, the parties shall have an option to renew the agreement for a term of three years on a mutually agreed basis.

The price of the said products and services shall be determined according to the following mechanism: the sales department of the Group normally conducts market research and analysis regarding specific products on at least an annual basis, in which a number of factors, including the overall market prices, market shares, ordering situation and performance of major competitors of such products, are comprehensively considered, submits a price suggestion after its analysis to the Group’s price management department and the final prices are determined at arm’s length negotiation among the parties. The price management department of the Group regularly reviews the reasonableness of prices and makes amendments when necessary.

The table below summarises the Existing Caps for the Continuing Connected Transaction set out in this sub-section 1. for the three years ending 31 December 2023:

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	3,900,000,000	5,200,000,000	6,900,000,000

– 14 –

LETTER FROM THE BOARD

The table below summarises the actual transaction amounts involved for each of the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for the Continuing Connected Transaction set out in this sub-section 1. and the relevant utilisation rates of each of the relevant Existing Caps:

				For the
	For the year		For the year	nine months
		ended	ended	ended
	31	December	31 December	30 September
		2021	2022	2023
		RMB	RMB	RMB
		(audited)	(audited)	(unaudited)
Actual transaction amount	3,162,102,630		2,939,648,571	3,260,577,946
Utilisation rate (%)		81.1	56.5	47.3

The Group sells diesel engines, diesel engine parts and components, materials, semi-finished products, hydraulic products and related products and provides related services to Weichai Holdings and its associates pursuant to the Existing Weichai Sale and Processing Services Agreement. In 2022, impacted by the pandemic control policies, the recovery of the economy has been slower than expected. With the sluggish economic market conditions and the over satisfaction of demands in earlier years, there existed a large volume of vehicles in operation and the intention of purchasing new vehicles for replacement is generally weak. Such substantive drop in demands for vehicles had, in turn, affected the demand for engines. Based on the statistics published by the China Association of Automobile Manufacturers, the volume of sales of trucks in 2022 suffered a year-to-year drop of 32.6%, amongst which, the volume of sales of heavy duty trucks dropped by 51.8%. Affected by such market conditions as a whole, the sales of the Group had also dropped in 2022. Thereafter, for the nine months ended 30 September 2023, as the economy and society fully resumed normal operations and the effect of macro-policies unleashed significantly, the national economy began to rebound, and the heavy-duty truck market, in turn, performed generally well for the nine months ended 30 September 2023. Along with such improvement in market conditions, the sales of the Group to Weichai Holdings and its associates had also improved for the nine months ended 30 September 2023. The actual transaction amount for the nine months ended 30 September 2023 represents an increase of approximately 10.9% compared to that for the year ended 31 December 2022, and the annualised transaction amount for the year ending 31 December 2023 (based on the actual transaction amount for the nine months ended 30 September 2023) represents an increase of 47.9% compared to the historical transaction amount for the year ended 31 December 2022.

– 15 –

LETTER FROM THE BOARD

The Company estimates that the transaction amounts for the Continuing Connected Transaction set out in this sub-section 1. for the three years ending 31 December 2026 will not exceed RMB6,503,000,000, RMB6,725,000,000 and RMB7,102,000,000, respectively, and such amounts have accordingly been set as the proposed New Caps for this Continuing Connected Transaction.

Taking into account the existing utilisation rate of the relevant Existing Caps, the proposed New Cap of this Continuing Connected Transaction for the year ending 31 December 2024 have been adjusted downwards from that for the year ending 31 December 2023 from RMB6,900,000,000 to RMB6,503,000,000.

In addition, the above proposed New Caps have been estimated by the Company based on (i) the relevant historical transaction amounts, in particular, the annualised transaction amount for the year ending 31 December 2023 represents an increase of 47.9% compared to the historical transaction amount for the year ended 31 December 2022, (ii) the Company’s research of the market conditions and the expected sales plan of the Group for the three years ending 31 December 2026 that, in particular, (a) in respect of diesel engines, in line with the positive trend in the strategic development of smart agricultural equipment and the support of the relevant governmental policies, the sales of the Group to Weichai Holdings and its Associates for the nine months ended 30 September 2023 amounted a year-on-year growth of 50%. It is expected that the sales of diesel engines will further increase by 15% in 2024 as compared with the expected full year sales in 2023; (b) in respect of hydraulics products, with the development of new products in 2023 which is expected to be launched for use in 2024, the sales is expected to improve significantly by 127% in 2024 due to the mass production of such products and their auxiliary products and by a further 10% per annum for years 2025 and 2026 upon the Group’s expansion of the hydraulics markets; (c) the sales plans of the Group, in particular, in respect of the sales to Weichai Holdings and its Associates, to further improve its sales of construction equipment by 30% in 2024 as compared to that in 2023; and (iii) the estimate of the number of diesel engines, diesel engine parts and components, materials, semi-finished products and hydraulic products required by Weichai Holdings and its associates (as the case may be) in view of the implementation of the Group’s sales plan for the years 2024 to 2026, having taken into account the estimated marked conditions and export performance, the average unit prices of the same, and the costs of the related services to be provided.

Hence, based on the above factors and considering the forthcoming fluctuation of the market conditions coupled with the expected growth of the Group’s operations, after taking into account the low utilisation rate of the relevant Existing Caps for 2022, the Board proposed that the New Cap for the year ending 31 December 2024 be adjusted downwards to RMB6,503,000,000 from the Existing Cap of RMB6,900,000,000 for the year ending 31 December 2023. Further, taking into account and on the basis of all the aforesaid factors, it is estimated that the overall transaction amount of the said sale of products and services will grow by approximately 3.4% and 5.6% for each of the years ending 31 December 2025 and 31 December 2026, respectively.

– 16 –

LETTER FROM THE BOARD

The table below summarises the proposed New Caps for the Continuing Connected Transaction set out in this sub-section 1. for the three years ending 31 December 2026:

			2024	2025	2026
			RMB	RMB	RMB
Proposed	New	Cap	6,503,000,000	6,725,000,000	7,102,000,000

Having considered the basis of determination of the New Caps as set out above, which has taken into account the historical transaction amounts and the reasonable estimates regarding the future market conditions and business plans based on information currently available to the Board as detailed above, the Directors (including the independent non-executive Directors having considered the advice of the Independent Financial Adviser in respect of the Non-exempt Continuing Connected Transactions) are of the view that the relevant proposed New Caps for this Continuing Connected Transaction are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

As the highest percentage ratio calculated in accordance with the Listing Rules for this Continuing Connected Transaction for the three years ending 31 December 2026 (when aggregated with the proposed New Caps for the same period under sub-sections 2.(a), 2.(b), 2.(c) and 3.(a) herein) exceeds the 5% Threshold, this Continuing Connected Transaction constitutes a Non-exempt Continuing Connected Transaction of the Company for the relevant period, and the proposed New Caps for the relevant period are subject to the reporting and announcement requirements, the annual review requirements, and the independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since this Continuing Connected Transaction for the three years ending 31 December 2026 (on an aggregated basis) is a Non-exempt Continuing Connected Transaction, and the proposed New Caps for the relevant period are subject to the approval of the independent Shareholders, the New Weichai Sale and Processing Services Agreement is conditional upon the relevant resolution being passed at the EGM.

2. Continuing Connected Transactions between Yangzhou Yaxing (and its subsidiaries) and the Group

Yangzhou Yaxing and its subsidiaries are principally engaged in the development, manufacture and sale of passenger vehicles. Yangzhou Yaxing is indirectly held as to 62.31% by Weichai Holdings, a substantial shareholder of the Company and hence it is also ultimately governed and controlled by the Shandong Provincial People’s Government* (山東省人民政府). For further details of Weichai Holdings and its ultimate beneficial owner, please refer to section II.1 of this circular. Accordingly, Yangzhou Yaxing and its subsidiaries are associates of Weichai Holdings and connected persons of the Company.

– 17 –

LETTER FROM THE BOARD

(a) Sale of engines, new energy powertrain and related products by the Company and its subsidiaries to Yangzhou Yaxing and its subsidiaries

Agreement : New Weichai Yangzhou Supply Framework Agreement Date : 30 August 2023 Parties : 1. The Company 2. Yangzhou Yaxing Term : 1 January 2024 to 31 December 2026

Other terms and details:

The terms of the New Weichai Yangzhou Supply Framework Agreement are substantially the same as those of the Existing Weichai Yangzhou Supply Framework Agreements.

Pursuant to the New Weichai Yangzhou Supply Framework Agreement, the Company and its subsidiaries shall sell engines, new energy powertrain and related products to Yangzhou Yaxing and its subsidiaries at market prices and/or prices agreed according to the principle of fairness and reasonableness, for a term of three years ending 31 December 2026. Depending on the terms of the definitive agreements to be entered into by the parties, the relevant price for the relevant products shall, as the case maybe, be settled on a monthly or quarterly basis. Upon the expiry of the term of the agreement, the parties may renew the term for a period of three years on a mutually agreed basis.

The price of the said products shall be determined according to the following mechanism: the sales department of the Group normally conducts market research and analysis regarding specific products on at least an annual basis, in which a number of factors, including the overall market prices, market shares, ordering situation and performance of major competitors of such products, are comprehensively considered, submits a price suggestion after its analysis to the Group’s price management department and the final prices are determined at arm’s length negotiation among the parties. The price management department of the Group regularly reviews the reasonableness of prices and makes amendments when necessary.

– 18 –

LETTER FROM THE BOARD

The table below summarises the Existing Caps for the three years ending 31 December 2023 for the Continuing Connected Transaction set out in this sub-section 2.(a):

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	660,000,000	675,000,000	690,000,000

The table below summarises the actual transaction amounts involved for the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for the Continuing Connected Transaction set out in this sub-section 2.(a) and the relevant utilisation rates of each of the relevant Existing Caps:

			For the
	For the year	For the year	nine months
	ended	ended	ended
	31 December	31 December	30 September
	2021	2022	2023
	RMB	RMB	RMB
	(audited)	(audited)	(unaudited)
Actual transaction amount	4,740,694	19,783,354	52,622,983
Utilisation rate (%)	0.7	2.9	7.6

Yangzhou Yaxing and its subsidiaries purchase the said engines, new energy powertrain and related products from the Group as components for the production of passenger vehicles. During 2021, 2022 and the nine months ended 30 September 2023, with the development of the high-speed railway system, the demands for passenger vehicles had dropped, and, further, with the introduction and development of new energy vehicles, demands for passenger vehicles that uses conventional fuel have gradually been replaced by new energy vehicles. Such transformation of the passenger vehicles market, coupled with the impact of the pandemic control policies that resulted in a slow recovery of the economy during the period, resulted in a lower than expected sale of engines, new energy powertrain and related products by the Group to Yangzhou Yaxing and its subsidiaries.

The Company estimates that the transaction amount involved in this Continuing Connected Transaction as set out in this sub-section 2.(a) for the three years ending 31 December 2026 will not exceed RMB83,000,000, RMB117,000,000 and RMB145,000,000, respectively, and such amounts have accordingly been set as the proposed New Caps for this Continuing Connected Transaction.

– 19 –

LETTER FROM THE BOARD

As disclosed above, in 2021 and 2022, affected by the transformation of the passenger vehicles market, the level of sales made by the Group to Yangzhou Yaxing and its subsidiaries had been lower than expected. However, for the nine months ended 30 September 2023, the passenger vehicle market has rebound and the actual transaction amount has shown improvement.

In light of the abovementioned transformation of the passenger vehicles market, Yangzhou Yaxing and its subsidiaries have, in addition to the production of diesel passenger vehicles, formulated a business plan to produce new energy passenger vehicles, which therefore requires the supply of new battery, motor and electric control system. Based on the Company’s research of the market conditions, it is expected that Yangzhou Yaxing and its subsidiaries will maintain its market share of diesel passenger vehicles, whilst at the same time grasp the opportunity to expand its market share for new energy passenger vehicle, accordingly (i) with the demands for conventional diesel passenger vehicles of certain export markets (such as the Middle-East, other area of Asia Pacific and Africa) remaining high, it is expected that the sales of such conventional engines by SFGC to Yangzhou Yaxing and its subsidiaries will grow year-on-year by approximately 5% for each of the three years ending 31 December 2026, and (ii) with the promulgation of environmental policies and a clear trend of the gradual replacement of traditional vehicles with new energy vehicles, the Group estimates that the sales of the relevant new battery, motor and electric control system will show a more substantive growth, amounting to RMB50 million, RMB80 million and RMB100 million, respectively for each of the three years ending 31 December 2026.

Accordingly, taking into account (i) the expected increase in the demand for the said products by Yangzhou Yaxing and its subsidiaries from the Group, on the basis of an expected increase in the production volume of passenger vehicles adopting the new battery, motor and electric control system by Yangzhou Yaxing, and (ii) the sales plan of the Group for the coming three years having taken into consideration the expected market conditions, the Company expects that the transaction amount for this Continuing Connected Transaction would continue to increase steadily for the three years ending 31 December 2026.

The New Caps for this Continuing Connected Transaction have been prepared by the Company based on the relevant historical transaction amount and the abovementioned expectations. Taking into account all the aforesaid factors and the utilisation rate of the relevant Existing Caps for 2021 and 2022, the Board proposed that the New Cap for the year ending 31 December 2024 be adjusted downwards to RMB83,000,000 from the Existing Cap of RMB690,000,000 for the year ending 31 December 2023, and further, taking into account and on the basis of all the aforesaid factors, it is estimated that the overall transaction amount of the sale of the engines, new energy powertrain and related products by the Group to Yangzhou Yaxing and its subsidiaries on an annual basis will increase by approximately 41.0% and 23.9% for each of the two years ending 31 December 2026, respectively.

– 20 –

LETTER FROM THE BOARD

The table below summarises the proposed New Caps for the Continuing Connected Transaction as set out in this sub-section 2.(a) for the three years ending 31 December 2026:

			2024	2025	2026
			RMB	RMB	RMB
Proposed	New	Cap	83,000,000	117,000,000	145,000,000

As the highest percentage ratio calculated in accordance with the Listing Rules for this Continuing Connected Transaction for the three years ending 31 December 2026 (when aggregated with the proposed New Caps for the same period under sub-sections 1., 2.(b), 2.(c) and 3.(a) herein) exceeds the 5% Threshold, this Continuing Connected Transaction constitutes a Non-exempt Continuing Connected Transaction of the Company for the relevant period, and the proposed New Caps for the relevant period are subject to the reporting and announcement requirements, the annual review requirements, and the independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since this Continuing Connected Transaction for the three years ending 31 December 2026 (on an aggregated basis) is a Non-exempt Continuing Connected Transaction and the proposed New Caps for the relevant period are subject to the approval of the independent Shareholders, the New Weichai Yangzhou Supply Framework Agreement is conditional upon the relevant resolution being passed at the EGM.

(b) Sale of transmissions and related products by SFGC to Yangzhou Yaxing and its subsidiaries

Agreement : New Transmissions Supply Framework Agreement Date : 30 August 2023 Parties : 1. SFGC 2. Yangzhou Yaxing Term : 1 January 2024 to 31 December 2026

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LETTER FROM THE BOARD

Other terms and details:

The terms of the New Transmissions Supply Framework Agreement are substantially the same as those of the Existing Transmissions Supply Framework Agreement.

Pursuant to the New Transmissions Supply Framework Agreement, SFGC has agreed to sell transmissions and related products to Yangzhou Yaxing and its subsidiaries at market prices and/or prices agreed according to the principle of fairness and reasonableness for a term of three years ending 31 December 2026. Depending on the terms of the definitive agreements to be entered into by the parties, the relevant price for the relevant products shall, as the case maybe, be settled on a monthly or quarterly basis. Upon the expiry of the term of the agreement, the parties may renew the term for a period of three years on a mutually agreed basis.

The table below summarises the Existing Caps for the three years ending 31 December 2023 for the Continuing Connected Transaction set out in this sub-section 2.(b):

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	50,000,000	60,000,000	72,000,000

– 22 –

LETTER FROM THE BOARD

The table below summarises the actual transaction amounts involved for the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for this Continuing Connected Transaction set out in this sub-section 2.(b) and the relevant utilisation rates of each of the relevant Existing Caps:

			For the
	For the year	For the year	nine months
	ended	ended	ended
	31 December	31 December	30 September
	2021	2022	2023
	RMB	RMB	RMB
	(audited)	(audited)	(unaudited)
Actual transaction amount	1,516,814	1,287,275	5,088,948
Utilisation rate (%)	3.0	2.1	7.1

Yangzhou Yaxing and its subsidiaries purchase the said transmissions and related products from SFGC, which comprise mainly transmission for use in new energy vehicles, as one of the components for the production of passenger vehicles. During 2021 and 2022, impacted by the pandemic control policies, the recovery of the economy has been slower than expected, resulted in a lower than expected sale of transmissions and related products by SFGC to Yangzhou Yaxing and its subsidiaries. Thereafter, for the nine months ended 30 September 2023, as the economy and society fully resumed normal operations and the effect of macro-policies unleashed significantly, the national economy began to rebound, accordingly, the sales of transmissions and related products by SFGC to Yangzhou Yaxing and its subsidiaries had also improved significantly for the nine months ended 30 September 2023. The actual transaction amount for the nine months ended 30 September 2023 amounts to 395% of the historical transaction amount for the year ended 31 December 2022, and the annualised transaction amount for the year 2023 (based on the actual transaction amount for the nine months ended 30 September 2023) amounts to 527% of the historical transaction amount for the year ended 31 December 2022. It is expected that such an increasing trend will continue for the three months ending 31 December 2023.

The Company estimates that the transaction amount involved in this Continuing Connected Transaction as set out in this sub-section 2.(b) for the three years ending 31 December 2026 will not exceed RMB8,000,000, RMB9,000,000 and RMB10,000,000, respectively, and such amounts have accordingly been set as the proposed New Caps for this Continuing Connected Transaction.

– 23 –

LETTER FROM THE BOARD

In 2021 and 2022, affected by the substantive drop of the passenger vehicle market, the level of sales made by the Group to Yangzhou Yaxing and its subsidiaries had been lower than expected. However, along with the improvement in the economic environment, the market demands have recovered and will enter into a new round of replacement cycle. Affected by factors including the gradual release of demands in purchasing of new vehicles, it is expected that the passenger vehicles market will rebound. This is demonstrated by the improvement in the actual transaction amount for the nine months ended 30 September 2023. The sales of SFGC for the nine months ended 30 September 2023 demonstrated a growth of 45% as compared with the corresponding period in 2022, and in respect of certain of its customers, the aggregated orders placed for the nine months ended 30 September 2023 exceeds the orders placed in the full year of 2022. Based on such trend of recovery, it is expected that the market conditions will further improve in 2024.

Accordingly, taking into account (i) the expected increase in the sales of passenger vehicles by Yangzhou Yaxing and its subsidiaries according to the sales plan of Yangzhou Yaxing, (ii) the expected increase in the demand for the said transmissions and related products by Yangzhou Yaxing and its subsidiaries, and (iii) the sales plan of the Group for the coming three years having taken into consideration the expected market conditions, the Company expects that the transaction amount for this Continuing Connected Transaction would increase for the three years ending 31 December 2026. In particular, it is estimated that the transaction amount for the year ending 31 December 2024 will increase by approximately 15% to 20% compared to the estimated actual transaction amounts for the full year 2023.

In light of the above, the New Caps for this Continuing Connected Transaction have been prepared by the Company based on the relevant historical transaction amount and the abovementioned expectations. Taking into account the low utilisation rate of the relevant Existing Caps, the Board proposed that the New Cap for the year ending 31 December 2024 be adjusted downwards to RMB8,000,000 to reflect the latest actual transaction amounts, further, on the basis of all the aforesaid factors, it is estimated that the overall transaction amount of the sale of transmissions by SFGC to Yangzhou Yaxing and its subsidiaries on an annual basis will increase by approximately 12.5% and 11.1% for each of the two years ending 31 December 2026, respectively.

– 24 –

LETTER FROM THE BOARD

The table below summarises the proposed New Caps for the Continuing Connected Transaction as set out in this sub-section 2.(b) for the three years ending 31 December 2026:

			2024	2025	2026
			RMB	RMB	RMB
Proposed	New	Cap	8,000,000	9,000,000	10,000,000

As the highest percentage ratio calculated in accordance with the Listing Rules for this Continuing Connected Transaction for the three years ending 31 December 2026 (when aggregated with the proposed New Caps for the same period under sub-sections 1., 2.(a), 2.(c) and 3.(a) herein) exceeds the 5% Threshold, this Continuing Connected Transaction constitutes a Non-exempt Continuing Connected Transaction of the Company for the relevant period, and the proposed New Caps for the relevant period are subject to the reporting and announcement requirements, the annual review requirements, and the independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since this Continuing Connected Transaction for the three years ending 31 December 2026 (on an aggregated basis) is a Non-exempt Continuing Connected Transaction and the proposed New Caps for the relevant period are subject to the approval of the independent Shareholders, the New Transmissions Supply Framework Agreement is conditional upon the relevant resolution being passed at the EGM.

(c) Sale of axles and related products by Hande Axle to Yangzhou Yaxing and its subsidiaries

Agreement : New Axles Supply Framework Agreement Date : 30 August 2023 Parties : 1. Hande Axle 2. Yangzhou Yaxing Term : 1 January 2024 to 31 December 2026

– 25 –

LETTER FROM THE BOARD

Other terms and details:

The terms of the New Axles Supply Framework Agreement are substantially the same as those of the Existing Axles Supply Framework Agreement.

Pursuant to the New Axles Supply Framework Agreement, Hande Axle has agreed to sell the axles and related products to Yangzhou Yaxing and its subsidiaries at market prices and/or prices agreed according to the principle of fairness and reasonableness for a term of three years ending 31 December 2026. Depending on the terms of the definitive agreements to be entered into by the parties, the relevant price for the relevant products shall, as the case maybe, be settled on a monthly or quarterly basis. Upon the expiry of the term of the agreement, the parties may renew the term for a period of three years on a mutually agreed basis.

The price of the said products shall be determined according to the following mechanism: the sales department of the Group normally conducts market research and analysis regarding specific products, in which a number of factors, including the overall market prices on at least an annual basis, market shares, ordering situation and performance of major competitors of such products, are comprehensively considered, submits a price suggestion after its analysis to the Group’s price management department and the final prices are determined at arm’s length negotiation among the parties. The price management department of the Group regularly reviews the reasonableness of prices and makes amendments when necessary.

The table below summarises the Existing Caps for the three years ending 31 December 2023 for the Continuing Connected Transaction set out in this sub-section 2.(c):

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	77,000,000	90,000,000	101,000,000

– 26 –

LETTER FROM THE BOARD

The table below summarises the actual transaction amounts involved for the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for the Continuing Connected Transaction set out in this sub-section 2.(c) and the relevant utilisation rates of each of the relevant Existing Caps:

			For the
	For the year	For the year	nine months
	ended	ended	ended
	31 December	31 December	30 September
	2021	2022	2023
	RMB	RMB	RMB
	(audited)	(audited)	(unaudited)
Actual transaction amount	14,213,499	21,124,342	7,184,183
Utilisation rate (%)	18.5	23.5	7.1

Yangzhou Yaxing and its subsidiaries purchase the said axles and related products from Hande Axle, which comprise mainly axles for use in conventional fuel vehicles, as components for the production of passenger vehicles. In recent years, Hande Axle mainly supplies its products to heavy-duty trucks market, passenger vehicle market and the off-highway market, and Yangzhou Yaxing and its subsidiaries are key clients of Hande Axle in respect of its development of the passenger vehicle market. During 2021 and 2022, impacted by the pandemic control policies, the recovery of the economy has been slower than expected and the export sales remain under pressure, resulted in a lower than expected sale of axles and related products by Hande Axle to Yangzhou Yaxing and its subsidiaries. In the second half of 2022, impacted by the governmental policies on the grant of governmental subsidies for passenger vehicles, there has been a temporary surge in the demands in passenger vehicles, resulting in an increase in the sales and accordingly the actual transaction amount for the year ended 31 December 2022. With the market conditions in 2023 have generally recovered, it is expected that the market conditions will further improve in 2024.

The Company estimates that the transaction amount involved in this Continuing Connected Transaction as set out in this sub-section 2.(c) for the three years ending 31 December 2026 will not exceed RMB23,000,000, RMB26,000,000 and RMB29,000,000, respectively, and such amounts have accordingly been set as the proposed New Caps for this Continuing Connected Transaction.

– 27 –

LETTER FROM THE BOARD

Taking into account the low utilisation rate of the relevant Existing Caps, the proposed New Caps of this Continuing Connected Transaction have been adjusted downwards significantly from the Existing Caps, with the proposed New Cap for the year ending 31 December 2024 of RMB23,000,000 representing a decrease of 77.2% of the Existing Cap for the year ending 31 December 2023, which is determined with reference to the actual transaction amounts as benchmarks taking into account the expectation that the market conditions will further improve for the three years ending 31 December 2026 and the possibility of policy-driven temporary surges in market demands, and with the proposed New Cap for the year ending 31 December 2024 being comparable to the historical transaction amount for the year ended 31 December 2022.

Based on the Company’s research of the market conditions and the expected sales plan of the Group, in light of the abovementioned expected improving trend of market conditions, for the three years ending 31 December 2026, the Group estimates that Hande Axle will sell 2,000, 2,250 and 2,500 units of axles to Yangzhou Yaxing and its subsidiaries, respectively, which is comparable to the total number of axles sold in the year 2022 of approximately 2,500 units. Taking into account (i) the expected increase in the sales of passenger vehicles by Yangzhou Yaxing and its subsidiaries according to the sales plan of Yangzhou Yaxing, (ii) expected increase in the demand for axles and related products by Yangzhou Yaxing and its subsidiaries, and (iii) the sales plan of the Group for the coming three years having taken into consideration the expected market conditions, the Company expects that the transaction amount for this Continuing Connected Transaction would increase for the three years ending 31 December 2026.

The New Caps for this Continuing Connected Transaction have been prepared by the Company based on the relevant historical transaction amount and the abovementioned expectations. Taking into account the low utilisation rate of the relevant Existing Caps, the Board proposed that the New Cap for the year ending 31 December 2024 be adjusted downwards to RMB23,000,000 to reflect the latest actual transaction amounts, further, on the basis of all the aforesaid factors, it is estimated that the overall transaction amount of the sale of axles and related products by Hande Axle to Yangzhou Yaxing and its subsidiaries on an annual basis will increase by approximately 13.0% and 11.5% for each of the two years ending 31 December 2026, respectively.

The table below summarises the proposed New Caps for the Continuing Connected Transaction as set out in this sub-section 2.(c) for the three years ending 31 December 2026:

			2024	2025	2026
			RMB	RMB	RMB
Proposed	New	Cap	23,000,000	26,000,000	29,000,000

– 28 –

LETTER FROM THE BOARD

As the highest percentage ratio calculated in accordance with the Listing Rules for this Continuing Connected Transaction for the three years ending 31 December 2026 (when aggregated with the proposed New Caps for the same period under sub-sections 1., 2.(a), 2.(b) and 3.(a) herein) exceeds the 5% Threshold, this Continuing Connected Transaction constitutes a Non-exempt Continuing Connected Transaction of the Company for the relevant period, and the proposed New Caps for the relevant period are subject to the reporting and announcement requirements, the annual review requirements, and the independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since this Continuing Connected Transaction (on an aggregated basis) is a Non-exempt Continuing Connected Transaction, the New Axles Supply Framework Agreement and the proposed New Caps are subject to the relevant resolution being passed at the EGM.

3. Continuing Connected Transactions between Weichai Westport and the Group

Weichai Westport

Weichai Westport is principally engaged in the business of research and development, manufacture and sale of gas engines and parts used in motor vehicles, power generation and marine vessels and relevant parts and components, modification of gas engines, business consultation and services. Weichai Westport is held as to 51% by Weichai Holdings, a substantial Shareholder of the Company and hence, it is also ultimately governed and controlled by the Shandong Provincial People’s Government* (山東省人民政府). For further details of Weichai Holdings and its ultimate beneficial owner, please refer to section II.1 of this circular. Accordingly, Weichai Westport is a connected person of the Company.

– 29 –

LETTER FROM THE BOARD

(a) Supply of base engines, gas engine parts, utility and labour services, technology development services and related products and services by the Company (and its subsidiaries and/or associates) to Weichai Westport

Agreement: New Weichai Westport Supply Agreement Date: 30 August 2023 Parties: 1. The Company 2. Weichai Westport Term: 1 January 2024 to 31 December 2026

Other terms and details:

The terms of the New Weichai Westport Supply Agreement are substantially the same as those of the Existing Weichai Westport Supply Agreement.

Pursuant to the New Weichai Westport Supply Agreement, each of the Company and its subsidiaries and/or associates shall supply certain base engines, gas engine parts, utility and labour services, technology development services and related products and services to Weichai Westport, at market prices and/or prices agreed according to the principle of fairness and reasonableness, for a term of three years ending 31 December 2026. Base engines are basic form engines composed of parts that are applicable in a variety of types of engines, and may be modified or assembled into different types of engines by further processing. The Company and its subsidiaries and/or associates supply base engines to Weichai Westport, and Weichai Westport will process the base engines into gas engines (being engines using gas as fuel) and sell to its customers. Weichai Westport will also sell some of its gas engines back to the Company and its subsidiaries and/or associates, for the Company and its subsidiaries and/or associates to equip their vehicle products with gas engines or sell further to their customers such as gas-fuelled truck manufacturers. The purchase of gas engines and related products and services by the Company and its subsidiaries and/or associates from Weichai Westport also constitutes continuing connected transactions under the Listing Rules of the Group, and further details are provided under the section headed “3.(b) Purchase of gas engines, gas engine parts, labour services and related products and services by the Company (and its subsidiaries and/or associates) from Weichai Westport” of this circular.

Depending on the terms of the definitive agreements to be entered into by the parties, the relevant price for the relevant products and/or services shall, as the case maybe, be settled on a monthly or quarterly basis or in accordance with the progress of the provision of the relevant products and/or services. Upon the expiry of the term of the agreement, the parties may extend the term for three years on a mutually agreed basis.

– 30 –

LETTER FROM THE BOARD

The sale price of the said products and services is determined according to the following mechanism: the sales department of the Group normally conducts market research and analysis regarding specific products on at least an annual basis, in which a number of factors, including the overall market prices, market shares, ordering situation and performance of major competitors of such products, are comprehensively considered, submits a price suggestion after its analysis to the Group’s price management department and the final prices are determined at arm’s length negotiation among the parties. The price management department of the Group regularly reviews the reasonableness of prices and makes amendments when necessary.

The table below summarises the Existing Caps for the Continuing Connected Transaction set out in this sub-section 3.(a) for the three years ending 31 December 2023:

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	580,000,000	630,000,000	680,000,000

The table below summarises the actual transaction amounts involved for each of the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for the Continuing Connected Transaction set out in this sub-section 3.(a) and the relevant utilisation rates of each of the relevant Existing Caps:

				For the
	For the year		For the year	nine months
		ended	ended	ended
	31	December	31 December	30 September
		2021	2022	2023
		RMB	RMB	RMB
		(audited)	(audited)	(unaudited)
Actual transaction amount	293,254,311		340,999,228	296,673,212
Utilisation rate (%)		50.6	54.1	43.6

– 31 –

LETTER FROM THE BOARD

In 2021 and 2022, impacted by sluggish economic market conditions and the over satisfaction of demands in earlier years, the demand of purchasing new vehicles for replacement had been weak. Nonetheless, with lower domestic price of natural gas fuels compared with that of petrol or diesel, there has been a strong demand for natural gas-fuelled trucks in the ultimate market users, and accordingly, there has been a need to stock up inventory for the relevant gas machines and related products, resulting in the Group having been able to maintain stable sales during the period. For illustrative purposes, in August 2023, the sale of natural gas-fuelled trucks amounted to 18,900 units which represented a year-on-year increase of around 562%. Such demand in gas-fuelled trucks, coupled with the fact that the Group started development of its gas engine products early on and gained a competitive edge over its products, resulted in the Group improving its market share in the gas engine market in recent years.

The actual transaction amount of this Continuing Connected Transaction for the nine months ended 30 September 2023 is approximately RMB296,673,212, and that for the six months ended 30 June 2023 is approximately RMB169,479,501. The average monthly transaction amount for the three months of July to September 2023 represents an increase of approximately 50.1% compared to the average monthly transaction amount for the six months of January to June 2023. It is expected that the growing trend in the three months of July to September 2023 will continue for the three months of October to December 2023, and further taking into account the technology services fees which will only be settled in the fourth quarter of 2023, it is expected that the utilisation rate of the Existing Cap for the year ending 31 December 2023 will be higher than that for the years 2021 and 2022.

The Company estimates that the transaction amount of this Continuing Connected Transaction for the three years ending 31 December 2026 shall not exceed RMB896,000,000, RMB906,000,000 and RMB935,000,000, respectively, and the same have been accordingly set as the proposed New Caps for this Continuing Connected Transaction.

Based on the Company’s research of the market conditions and the expected sales plan of the Group, for the three years ending 31 December 2026, the Group estimates that (i) the sales of base engines by the Group to Weichai Westport will amount to approximately RMB200 million in 2024 with an annual growth rate of 5% to 10% in respect of each of the years thereafter, (ii) the sales of the gas engine parts by the Group to Weichai Westport will amount to approximately RMB100 million per annum. Further, in light of the Group’s more stringent requirements in respect of product quality and adjustments on the Group’s maintenance services policy, it is expected that the relevant maintenance services fees and technology development service fees to be provided by the Group to Weichai Westport for the three years ending 31 December 2026 will increase to approximately RMB330 million and approximately RMB270 million per annum, respectively.

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LETTER FROM THE BOARD

The proposed New Caps have been prepared by the Company primarily based on (i) the historical transaction amounts, in particular, that, as disclosed above given the strong demand for natural gas-fuelled trucks in the ultimate market users driven by the lower domestic price of lower natural gas fuels compared with that of petrol or diesel, the sales of gas engines by the Group in the first half of 2023 having increased substantially by approximately five times when compared with that of the corresponding period, and the related maintenance services provided by the Group to Weichai Westport in 2024 are therefore expected to increase substantially, (ii) the expectation that the actual transaction amount for the second half of 2023 will show further improvement given that the settlement in respect of the Group’s technology development services are expected to take place in the second half of 2023, (iii) the estimate of the volume of base engines, gas engine parts, utility and labour services, technology development services and related products and services required by Weichai Westport, and (iv) the average unit prices of such base engines, gas engine parts and related products. Taking into account and on the basis of all the aforesaid factors, it is estimated that the overall transaction amount of the sale of the Group’s base engines, gas engine parts, utility and labour services, technology development services and related products to Weichai Westport on an annual basis will increase mildly by approximately 1.1% and 3.2% for each of the two years ending 31 December 2026, respectively.

The table below summarises the proposed New Caps for the Continuing Connected Transaction as set out in this sub-section 3.(a) for the three years ending 31 December 2026:

			2024	2025	2026
			RMB	RMB	RMB
Proposed	New	Cap	896,000,000	906,000,000	935,000,000

As the highest percentage ratio calculated in accordance with the Listing Rules for this Continuing Connected Transaction for the three years ending 31 December 2026 (when aggregated with the proposed New Caps for the same period under sub-sections 1., 2.(a), 2.(b) and 2.(c) herein) exceeds the 5% Threshold, the Continuing Connected Transaction constitutes a Non-exempt Continuing Connected Transaction of the Company for the relevant period, and the proposed New Caps for the relevant period are subject to the reporting and announcement, the annual review requirements, and the independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

Since this Continuing Connected Transaction for the three years ending 31 December 2026 (on an aggregated basis) is a Non-exempt Continuing Connected Transaction and the proposed New Caps for the relevant period are subject to the approval of the independent Shareholders, the New Weichai Westport Supply Agreement is conditional upon the relevant resolution being passed at the EGM.

Pursuant to the requirements of the Shenzhen Listing Rules, this Continuing Connected Transaction has also been aggregated with the PRC Continuing Connected Transactions, and such transactions (including the relevant agreements) are subject to the approval of the independent Shareholders.

(b) Purchase of gas engines, gas engine parts, labour services and related products and services by the Company (and its subsidiaries and/or associates) from Weichai Westport

Agreement: New Weichai Westport Purchase Agreement Date: 30 August 2023 Parties: 1. The Company 2. Weichai Westport Term: 1 January 2024 to 31 December 2026

Other terms and details:

The terms of the New Weichai Westport Purchase Agreement are substantially the same as those of the Existing Weichai Westport Purchase Agreement.

Pursuant to the New Weichai Westport Purchase Agreement, the Company and its subsidiaries and/or associates shall purchase certain gas engines, gas engine parts, labour services and related products and services from Weichai Westport, at market prices and/or prices agreed according to the principle of fairness and reasonableness, for a term of three years ending 31 December 2026. Gas engines are engines using gas as fuel and are processed from base engines (being basic form engines). Weichai Westport purchases base engines and related products and services from the Company and its subsidiaries and/or associates, and process base engines into gas engines to further sell to its customers. The Company and its subsidiaries and/or associates also purchase gas engines from Weichai Westport to equip their vehicle products with gas engines or further sell to their customers such as gas-fuelled truck manufacturers. The sale of base engines by the Company and its subsidiaries and/or associates to Weichai Westport also constitutes continuing connected transactions under the Listing Rules of the Group, and further details are provided under the section headed “3.(a) Supply of base engines, gas engine parts, utility and labour services, technology development services and related products and services by the Company (and its subsidiaries and/or associates) to Weichai Westport” of this circular.

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LETTER FROM THE BOARD

The sale price of the said products and services is determined according to the following mechanism: the procurement department of the Company shall normally carry out market research and analysis on at least an annual basis, taking into account a number of factors (including the prices of at least one to two relevant products in the market in general, market share, orders situation and performance of major competitors in the market). The final price shall be determined based on arm’s length negotiations between the parties. The price management department shall review the reasonableness of the price on a regular basis and make adjustments where necessary.

The table below summarises the Existing Caps for the three years ending 31 December 2023 for the Continuing Connected Transaction set out in this sub-section 3.(b):

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	5,270,000,000	6,320,000,000	7,570,000,000

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LETTER FROM THE BOARD

The table below summarises the actual transaction amounts involved for each of the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for the Continuing Connected Transaction set out in this sub-section 3.(b) and the relevant utilisation rates of each of the relevant Existing Caps:

				For the
	For the year		For the year	nine months
		ended	ended	ended
	31	December	31 December	30 September
		2021	2022	2023
		RMB	RMB	RMB
		(audited)	(audited)	(unaudited)
Actual transaction amount	2,389,305,998		810,590,661	3,393,102,175
Utilisation rate (%)		45.3	12.8	44.8

In 2022, impacted by the pandemic control policies, the recovery of the economy has been slower than expected. With the sluggish economic market conditions in 2021 and the over satisfaction of demands in earlier years triggered by the stringent environmental policies implemented in the second half of 2021, which resulted in an exceptional surge of sales in 2021, there existed a large volume of vehicles in operation and the intention of purchasing new vehicles for replacement is generally weak. Such substantive drop in demands for vehicles had, in turn, affected the demand for engines. Nonetheless, with lower domestic price of natural gas fuels compared with that of petrol or diesel, there has been a strong demand for natural gas-fuelled trucks in the ultimate market users, and accordingly, there has been a need to stock up inventory for the relevant gas machines and related products, resulting in increase in the purchase of gas engines by the Group in the first half of 2023.

The Company estimates that the transaction amount of this Continuing Connected Transaction for the three years ending 31 December 2026 shall not exceed RMB4,644,000,000, RMB4,656,000,000 and RMB4,704,000,000, respectively, and the same have been accordingly set as the proposed New Caps for this Continuing Connected Transaction.

Taking into account the utilisation rate of the relevant Existing Caps, the proposed New Caps of this Continuing Connected Transaction have been adjusted downwards from the Existing Caps, with the proposed New Cap for the year ending 31 December 2024 of RMB4,644 million representing a decrease of 38.7% of the Existing Cap for the year ending 31 December 2023, and are determined with reference to the actual transaction amounts as benchmarks, in particular the actual transaction amount for the nine months ended 30 September 2023.

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LETTER FROM THE BOARD

Based on the Company’s research of the market conditions and the lower domestic price of natural gas fuels compared with that of petrol or diesel, there has been a strong demand for natural gas-fuelled trucks. Against such background, it is expected that the Group will continue to leverage on its competitive edge in its development of gas engine products, and result in a growth of 20% in the procurement of gas engines from Weichai Westport in 2024 compared with the estimated purchase amount in 2023 (such an estimation is based on the actual transaction amount of the first half of 2023), with milder growth for the two years ending 31 December 2026.

In 2021 and 2022, affected by the sluggish performance of the heavy duty vehicle industry, the amount of procurement made by our Group from Weichai Westport had been lower than expected. However, in the first half of 2023, with the improved economic conditions and having policies in place which resulted in a gradual release of demands, there has been increased factors favourable to the development of the industry, and hence it is expected that the heavy duty vehicle market will rebound. This is demonstrated by the improvement in the actual transaction amount for the nine months ended 30 September 2023. According to the sales projection of the Group’s heavy-duty vehicles (with gas engines installed) and gas engines, the Company expects that the transaction amount of the said gas engines, gas engine parts and related products purchased by the Group from Weichai Westport to maintain a steady growth for the three years ending 31 December 2026, in line with an increase in the volume of these products to be sold by the Group to third party customers after purchasing the relevant services to modify and assemble the same from Weichai Westport, and the national policies of the PRC and the Group’s development plans which are expected to be favourable to the market of the Group’s gas engines.

The proposed New Caps have been prepared by the Company primarily based on (i) the historical transaction amounts in particular, the actual transaction amount for the nine months ended 30 September 2023, (ii) the estimate of the volume of gas engines being approximately 100,800 units, 101,000 units and 102,000 units to be purchased by the Group from Weichai Westport at an average price of approximately RMB43,000 per unit, and (iii) the total transaction amount for the gas engine parts and related products and services being approximately RMB312 million per annum. Taking into account the relatively low utilisation rate of the relevant Existing Caps for 2021 and 2022, the Board proposed that New Cap for the year ending 31 December 2024 be adjusted downwards to RMB4,644 million from the Existing Cap of RMB7,570 million for the year ending 31 December 2023. Further, taking into account and on the basis of all the aforesaid factors, it is estimated that the overall transaction amount of the purchase of gas engines, gas engine parts, labour services and related products and services by the Group from Weichai Westport on an annual basis will increase mildly by approximately 0.3% and 1.0% for each of the two years ending 31 December 2026, respectively.

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LETTER FROM THE BOARD

The table below summarises the proposed New Caps for the Continuing Connected Transaction as set out in this sub-section 3.(b) for the three years ending 31 December 2026:

2024 2025 2026 RMB RMB RMB Proposed New Cap 4,644,000,000 4,656,000,000 4,704,000,000

As the highest percentage ratio calculated in accordance with the Listing Rules for this Continuing Connected Transaction for the three years ending 31 December 2026 exceeds the 5% Threshold when aggregated with the transactions as disclosed in the announcement of the Company dated 27 January 2022, this Continuing Connected Transaction constitutes a Non-exempt Continuing Connected Transaction of the Company for the relevant period, and the proposed New Caps for the relevant period are subject to the reporting and announcement requirements, the annual review requirements, and the independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since this Continuing Connected Transaction for the three years ending 31 December 2026 is a Non-exempt Continuing Connected Transaction and the proposed New Caps are subject to the approval of the independent Shareholders, the New Weichai Westport Purchase Agreement, is conditional upon the relevant resolution being passed at the EGM.

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LETTER FROM THE BOARD

4. Reasons for the Continuing Connected Transactions

Continuing Connected Transactions between Weichai Holding (and its associates) and the Group

The Company is principally engaged in the research and development, manufacture and sale of high-speed, heavy-duty diesel engines. Prior to the incorporation of the Company and the listing of the Shares on the Stock Exchange, the Company has had business relationships with certain entities. Under the Listing Rules, such entities have become connected persons of the Company since the listing of the Company and the transactions between the Company and such entities constitute continuing connected transactions of the Company. In respect of the Continuing Connected Transactions between the Company and Weichai Holdings, since their production facilities are located in close proximity to each other and in view of the PRC government’s policy not to duplicate construction of production and other facilities, certain Continuing Connected Transactions have been continuing since the listing of the Company on the Stock Exchange.

As the Company has conducted these Continuing Connected Transactions with the relevant entities for many years and the Company has built up a long term strategic and solid business relationship with these entities, the Directors (including the independent non-executive Directors having considered the advice of the Independent Financial Adviser in respect of the Non-exempt Continuing Connected Transactions) consider it beneficial to the Company to continue to conduct these Continuing Connected Transactions in order to ensure and maximise operating efficiency and stability of the operations of the Company. The Directors (including the independent non-executive Directors having considered the advice of the Independent Financial Adviser in respect of the Non-exempt Continuing Connected Transactions) are not aware of any disadvantage to the Group in continuing to conduct the Continuing Connected Transactions.

Continuing Connected Transactions between Yangzhou Yaxing (and its subsidiaries) and the Group

As at the date of this circular, Weichai Holdings is a substantial shareholder and a connected person of the Company. Since Yangzhou Yaxing is a subsidiary of Weichai Holdings, Yangzhou Yaxing and its subsidiaries are associates of Weichai Holdings and connected persons of the Company under Chapter 14A of the Listing Rules. The entering into of the New Framework Agreements between the Group and Yangzhou Yaxing and the transactions contemplated thereunder constitute continuing connected transactions of the Company.

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LETTER FROM THE BOARD

The Group is engaged in, inter alia , the manufacture and sale of diesel engines, transmissions, axles and related products. Yangzhou Yaxing and its subsidiaries are principally engaged in the development, manufacture and sale of passenger vehicles. Yangzhou Yaxing and its subsidiaries purchase engines, new energy powertrain and related products, transmissions and axles from the Group as components for the production of passenger vehicles. The sales of passenger vehicles by Yangzhou Yaxing and its subsidiaries are expected to increase according to its sales plan, and the demand for engines, new energy powertrain and related products, transmissions and axles and the proportion of vehicles of Yangzhou Yaxing utilising the Group’s products are also expected to increase. The Directors (including the independent non-executive Directors having considered the advice of the Independent Financial Adviser) consider that such Continuing Connected Transactions will create synergy potential and strategic benefits between Yangzhou Yaxing and the Group, and will also provide a secured source of revenue for the Group.

Continuing Connected Transactions between Weichai Westport and the Group

In respect of the Continuing Connected Transactions between the Group and Weichai Westport, the Board is of the view that (i) the sale of base engines, gas engine parts, utility and labour services, technology development services and related products and services to Weichai Westport; and (ii) the purchase of gas engines, gas engine parts and related products manufactured by Weichai Westport by modifying and utilising the base engines, gas engine parts, labour services and related products and services it purchased from the Group, and the onward sale of the gas engines, gas engine parts and related products by the Group to its customers will allow the Group to maintain a strong strategic and business relationship with Weichai Westport, thereby generating synergy potential and mutual economic benefits between the Group and Weichai Westport. The Board considers that such Continuing Connected Transactions under the relevant New Framework Agreements will also provide a secure source of revenue for the Group, and the Group will also be able to secure a stable and reliable supply of quality gas engines from Weichai Westport instead of sourcing from other market suppliers.

The Directors (including the independent non-executive Directors having considered the advice of the Independent Financial Adviser in respect of the Non-exempt Continuing Connected Transactions) are of the view that all the Continuing Connected Transactions, and the relevant proposed New Caps, are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

At the meeting of the Board on 30 August 2023 approving, inter alia , the Continuing Connected Transactions, the following Directors have abstained from voting on the resolutions in respect of certain Continuing Connected Transactions as follows, for the reasons of their respective interest and/or position (as the case may be) in the relevant connected persons:

Continuing Connected Transactions with Weichai Holdings (and its Associates) set out under section II.1. in this circular – Tan Xuguang, Zhang Quan, Ma Changhai, Wang Decheng and Sun Shaojun;

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LETTER FROM THE BOARD

Continuing Connected Transactions with Yangzhou Yaxing (and its subsidiaries) set out under section II.2. in this circular – Tan Xuguang, Zhang Quan, Ma Changhai, Wang Decheng and Sun Shaojun; and
Continuing Connected Transactions with Weichai Westport set out under section II.3. in this circular – Tan Xuguang, Zhang Quan, Ma Changhai, Wang Decheng and Sun Shaojun.

Save as disclosed, no other Directors have any material interest in the Continuing Connected Transactions.

5. Listing Rules implications

As the highest percentage ratio calculated in accordance with the Listing Rules for the Continuing Connected Transactions as set out in sub-sections II.1, II.2.(a), (b) and (c), and II.3.(a) and (b) of this circular exceeds the 5% Threshold on an aggregated basis, they constitute Non-exempt Continuing Connected Transactions of the Company and their respective New Framework Agreement and proposed New Caps will be subject to the reporting and announcement requirements, the annual review requirements, and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

6. Internal control measures

To safeguard the interests of the Company and the Shareholders as a whole, the Company has adopted certain internal control measures in respect of the Continuing Connected Transactions as elaborated below:

The Company’s board office shall carry out regular meetings on the management and control of connected transactions to monitor and ensure that all the relevant Continuing Connected Transactions are in compliance with the relevant rules and regulations and the terms of the relevant New Framework Agreements.
The Group has designated a team within its finance department to, on a monthly basis, collect data on the accumulated annual transaction amount of each Continuing Connected Transaction and compare such accumulated annual transaction amount of each Continuing Connected Transaction against the respective pre-approved cap, and such designated team directly reports to the financial controller of the Group with respect to the Continuing Connected Transactions. If any accumulated annual transaction amount of any such Continuing Connected Transaction exceeds 70% of the pre-approved annual cap, the relevant Continuing Connected Transaction shall be reported to the Company’s board office for monitoring, follow-up and, if necessary, revision of the annual cap in accordance with the requirements of the Listing Rules.

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LETTER FROM THE BOARD

The independent non-executive Directors, the internal audit team and the auditors of the Company shall review the transactions in relation to the New Framework Agreements on an annual basis and confirm in the annual reports the matters set out in Rules 14A.55 and 14A.56 of the Listing Rules, respectively.

In light of the above, the Board considers that the Company has adopted sufficient internal control measures to ensure that all Continuing Connected Transactions are conducted on normal commercial terms in accordance with the New Framework Agreements, and that the New Caps will not be exceeded.

III. PRC CONTINUING CONNECTED TRANSACTIONS

Reference is made to the announcement of the Company dated 30 August 2023 on the Stock Exchange (the “ PRC CCT Announcement ”), which announced, inter alia , that the Company has entered into the New Utility Services Purchase Agreement, New Weichai Westport Logistics Agreement and New Weichai Westport Leasing Agreement.

A summary of the proposed PRC Continuing Connected Transactions and the relevant new caps are set out below:

		Proposed new caps	Proposed new caps
		For the year	For the year	For the year
		ending	ending	ending
Details of the relevant PRC		31 December	31 December	31 December
Continuing Connected Transactions		2024	2025	2026
		RMB	RMB	RMB
Weichai Holdings (and its Associates)
Supply and/or connection of utilities
	by Weichai Holdings (and its
	Associates) to the Company (and its
	subsidiaries)	524,000,000	550,000,000	577,000,000
Weichai Westport
1.	Provision of logistics, storage, etc.
	services by the Company (and/or
	its associates) to Weichai Westport	20,000,000	20,000,000	20,000,000
2.	Leasing of factory buildings by the
	Company to Weichai Westport	14,000,000	14,000,000	14,000,000

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LETTER FROM THE BOARD

New Utility Services Purchase Agreement

As set out in the section headed II.1.(a) of the PRC CCT Announcement, the transactions contemplated under the New Utility Services Purchase Agreement constitute Exempt Continuing Connected Transactions and is, accordingly, not subject to the approval of the Independent Shareholders under Chapter 14A of the Listing Rules. However, according to the relevant laws and regulations of the PRC and the Shenzhen Listing Rules, such continuing connected transaction constitutes a PRC Continuing Connected Transaction and is required to be aggregated with certain Continuing Connected Transactions and is subject to approval at the EGM.

A summary of the salient terms of the New Utility Services Purchase Agreement is set out below for Shareholders’ information.

Supply and/or connection of utilities by Weichai Holdings (and its Associates) to the Company (and its subsidiaries)

Agreement: New Utility Services Purchase Agreement Date: 30 August 2023 Parties: 1. The Company 2. Weichai Holdings Term: 1 January 2024 to 31 December 2026

Other terms and details:

The terms of the New Utility Services Purchase Agreement are substantially the same as those of the Existing Utility Services Purchase Agreements.

Pursuant to the New Utility Services Purchase Agreement, Weichai Holdings (and its Associates) (as the case may be) shall provide the connection of (as the case may be) certain utility and energy services to the Group, namely, water, electricity, gas, steam, oxygen, nitrogen, compressed air, waste water treatment and supply of treated waste water, etc., for a term ending 31 December 2026. Upon the expiry of the term of the agreement, the parties shall have an option to renew the same for a term of three years on a mutually agreed basis.

The fees payable by the Group to Weichai Holdings (and its Associates) with respect to the provision and/or connection of the said utility and energy services are determined based on the actual usage by the Group or (where the actual usage cannot be determined) based on the proportion of sales made by each of the party and by reference to the market prices of such utilities. If only government published rates are available with respect to certain utilities, the fees payable would be determined by reference to the government published rates plus the wastage, depreciation and repair expenses incurred by Weichai Holdings (and its Associates) in relation thereto. If no market price or government

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LETTER FROM THE BOARD

published rates with respect to the above utility and energy services are available, the Group will pay the actual costs incurred by Weichai Holdings (and its Associates) in relation to the provision of such utility and energy services plus a service charge representing not more than 20% of such costs. The final fees are determined at arm’s length negotiation among the parties, and the price management department of the Group regularly reviews the reasonableness of fees and will make amendments when necessary. Depending on the terms of the definitive agreements to be entered into by the parties, the relevant price for the relevant services shall, as the case maybe, be settled on a monthly or quarterly basis or in accordance with the progress of the provision of the relevant services.

The Directors are of the view that the abovementioned methods and procedures under the pricing policies can ensure that this PRC Continuing Connected Transaction is conducted on normal commercial terms and not prejudicial to the interests of the Company and its minority Shareholders.

The table below summarises the Existing Caps for the three years ending 31 December 2023 for this PRC Continuing Connected Transaction:

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	750,000,000	790,000,000	831,000,000

The table below summarises the actual transaction amounts involved for each of the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for this PRC Continuing Connected Transaction and the relevant utilisation rates of each of the relevant Existing Caps:

				For the
	For the year		For the year	nine months
		ended	ended	ended
	31	December	31 December	30 September
		2021	2022	2023
		RMB	RMB	RMB
		(audited)	(audited)	(unaudited)
Actual transaction amount	348,715,097		269,642,032	295,974,094
Utilisation rate (%)		46.5	34.1	35.6

The Company estimates that the transaction amounts in respect of this PRC Continuing Connected Transaction for the three years ending 31 December 2026 will not exceed RMB524,000,000, RMB550,000,000 and RMB577,000,000, respectively, and such amounts have accordingly been set as the proposed New Caps for this PRC Continuing Connected Transaction.

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LETTER FROM THE BOARD

The above proposed New Caps have been estimated by the Company primarily based on (i) the relevant historical costs incurred plus a service charge by Weichai Holdings (and its Associates) representing not exceeding 20% of such costs, and (ii) the implementation of the Group’s procurement plan for the years 2024 to 2026. Taking into account the low utilisation rate of the relevant Existing Caps for 2021 and 2022, the Board proposed that the New Cap for the year ending 31 December 2024 be adjusted downwards to RMB524,000,000 from RMB831,000,000 for the year ending 31 December 2023. Further, taking into account and on the basis of all the aforesaid factors, it is estimated that the overall transaction amount of the said provision of services will increase by approximately 5.0% and 5.0% for each of the years ending 31 December 2025 and 31 December 2026, respectively.

The table below summarises the proposed New Caps for this PRC Continuing Connected Transaction for the three years ending 31 December 2026:

			2024	2025	2026
			RMB	RMB	RMB
Proposed	New	Cap	524,000,000	550,000,000	577,000,000

As the New Caps for this PRC Continuing Connected Transaction for the three years ending 31 December 2026 do not exceed the 5% Threshold, this PRC Continuing Connected Transaction constitutes an Exempt Continuing Connected Transaction of the Company under Chapter 14A of the Listing Rules and will be subject to the reporting, announcement and annual review requirements of Chapter 14A of the Listing Rules.

Since this PRC Continuing Connected Transaction for the three years ending 31 December 2026 is an Exempt Continuing Connected Transaction, the New Caps are not subject to the approval of independent Shareholders under the Listing Rules.

However, since this transaction constitutes a PRC Continuing Connected Transaction, pursuant to be requirements of the Shenzhen Listing Rules, such PRC Continuing Connected Transaction has been aggregated with certain Continuing Connected Transactions, and the relevant New Caps and the New Utility Services Purchase Agreement are subject to the approval by the independent Shareholders at the EGM.

For further details of the New Utility Services Purchase Agreement, please refer to (i) the announcement of the Company entitled《濰柴動力股份有限公司日常持續性關聯交易公告》(“Announcement of Weichai Power Co., Ltd. in respect of its Continuing Connected Transactions in the Ordinary Course of Business”) dated 30 August 2023 on the website of The Shenzhen Stock Exchange, and (ii) the section headed “1.(a) Supply and/or connection of utilities by Weichai Holdings (and its Associates) to the Company (and its subsidiaries)” of the PRC CCT Announcement.

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LETTER FROM THE BOARD

New Weichai Westport Logistics Agreement and New Weichai Westport Leasing Agreement

As set out in the section headed IV. of the PRC CCT Announcement, the transactions contemplated under each of the New Weichai Westport Logistics Agreement and New Weichai Westport Leasing Agreement are not subject to the reporting, announcement or Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules as the proposed new caps for such transactions do not exceed the 0.1% Threshold. However, pursuant to the relevant laws and regulations of the PRC and the Shenzhen Listing Rules, such continuing connected transactions constitute PRC Continuing Connected Transactions and are subject to approval at the EGM.

A summary of the New Weichai Westport Logistics Agreement and New Weichai Westport Leasing Agreement is provided as below for Shareholders’ information.

Name of		Connected person’s	Nature of the	Nature of the
connected	Name of Group	relationship with	connected transaction
person	Company	the Group	with	the Group
Weichai	The Company	Weichai Westport is	(a)	Provision of
Westport	(and/or its associates)	held as to 51% by		logistics, storage,
		Weichai Holdings, a		etc. services by the
		substantial		Company (and/or
		shareholder of the		its associates) to
		Company		Weichai Westport
			(b)	Leasing of factory
				buildings by the
				Company to
				Weichai Westport

A summary of the salient terms of the New Weichai Westport Logistics Agreement and New Weichai Westport Leasing Agreement is set out below for Shareholders’ information.

(a) Provision of logistics, storage, etc. services by the Company (and its subsidiaries) to Weichai Westport

Agreement: New Weichai Westport Logistics Agreement Date: 30 August 2023

Parties: 1. The Company 2. Weichai Westport

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LETTER FROM THE BOARD

Term:

1 January 2024 to 31 December 2026

Pursuant to the New Weichai Westport Logistics Agreement, the Company (and its subsidiaries) shall provide certain logistics and storage services to Weichai Westport for the transportation of certain products, for a term from 1 January 2024 to 31 December 2026, upon the expiry of which the parties may extend the term for three years on a mutually agreed basis.

The table below summarises the Existing Caps for the three years ending 31 December 2023 for this PRC Continuing Connected Transaction:

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	30,000,000	37,000,000	44,000,000

The table below summaries the actual transaction amounts involved for the two years ended 31 December 2022 (audited) and for the nine months ended 30 September 2023 (unaudited) for this PRC Continuing Connected Transaction and the relevant utilisation rates of each of the relevant Existing Caps:

			For the
	For the year	For the year	nine months
	ended	ended	ended
	31 December	31 December	30 September
	2021	2022	2023
	RMB	RMB	RMB
	(audited)	(audited)	(unaudited)
Actual transaction amount	8,371,314	1,638,196	5,038,635
Utilisation rate (%)	27.9	4.4	11.5

Taking into account the expected stable need of Weichai Westport in the relevant logistics and storage services from the Group in view of the expected recovery of the market conditions and business trend, the Company estimates that the transaction amount for the three years ending 31 December 2026 shall not exceed RMB20,000,000, RMB20,000,000 and RMB20,000,000 respectively, and the same have been accordingly set as the proposed New Caps for this PRC Continuing Connected Transaction.

– 47 –

LETTER FROM THE BOARD

The table below summarises the proposed New Caps for the PRC Continuing Connected Transaction as set out in this sub-section for the three years ending 31 December 2026:

		For the year	For the year	For the year
		ending	ending	ending
		31 December	31 December	31 December
		2024	2025	2026
		RMB	RMB	RMB
New	Cap	20,000,000	20,000,000	20,000,000

The proposed New Caps for this PRC Continuing Connected Transaction for the term from 1 January 2024 to 31 December 2026 do not exceed the 0.1% Threshold, and, accordingly, this PRC Continuing Connected Transaction is not subject to the reporting, announcement and independent shareholders’ approval requirements of the Listing Rules. Further, this PRC Continuing Connected Transaction is of a different nature from and carried out independently of the Continuing Connected Transactions. However, pursuant to the requirements of the Shenzhen Listing Rules, all the PRC Continuing Connected Transactions have been aggregated with the Continuing Connected Transactions and are subject to the approval of the independent Shareholders.

(b) Leasing of factory buildings by the Company to Weichai Westport

Agreement: New Weichai Westport Leasing Agreement Date: 30 August 2023 Parties: 1. The Company 2. Weichai Westport Term: 1 January 2024 to 31 December 2026

Pursuant to the New Weichai Westport Leasing Agreement, the Company has agreed to lease certain factory buildings to Weichai Westport for a term from 1 January 2024 to 31 December 2026. Upon expiry of the New Weichai Westport Leasing Agreement, the parties may renew the term for another three years on a mutually agreed basis.

The table below summarises the Existing Caps for the three years ending 31 December 2023 for this PRC Continuing Connected Transaction:

2021 2022 2023 RMB RMB RMB Existing Cap 9,000,000 9,000,000 9,000,000

– 48 –

LETTER FROM THE BOARD

			For the nine
	For the year	For the year	months
	ended	ended	ended
	31 December	31 December	30 September
	2021	2022	2023
	RMB	RMB	RMB
	(audited)	(audited)	(unaudited)
Actual transaction amount	7,089,075	6,888,384	6,115,578
Utilisation rate (%)	78.8	76.5	68.0

Considering the existing rentals payable by Weichai Westport for the leasing of factory buildings by the Company to Weichai Westport and the expected increase in rent in the future following market trends, the Company estimates that the transaction amount for the three years ending 31 December 2026 shall not exceed RMB14,000,000, RMB14,000,000 and RMB14,000,000 respectively, and the same have been accordingly set as the proposed New Caps for this PRC Continuing Connected Transaction.

The table below summarises the proposed New Caps for the PRC Continuing Connected Transaction as set out in this sub-section for the three years ending 31 December 2026:

		For the year	For the year	For the year
		ending	ending	ending
		31 December	31 December	31 December
		2024	2025	2026
		RMB	RMB	RMB
New	Cap	14,000,000	14,000,000	14,000,000

– 49 –

LETTER FROM THE BOARD

For further details of the New Weichai Westport Logistics Agreement and New Weichai Westport Leasing Agreement, please refer to (i) the announcement of the Company entitled《濰柴動力股份有限公司日常持續性關聯交易公告》(“Announcement of Weichai Power Co., Ltd. in respect of its Continuing Connected Transactions in the Ordinary Course of Business”) dated 30 August 2023 on the website of The Shenzhen Stock Exchange, and (ii) the section headed “IV. PRC Continuing Connected Transactions” of the PRC CCT Announcement.

IV. EGM

It was proposed that (i) the New Framework Agreements in respect of the Non-exempt Continuing Connected Transactions and the relevant New Caps; and (ii) the PRC New Framework Agreements in respect of the PRC Continuing Connected Transactions and the relevant new caps shall be considered and, if thought fit, approved at the EGM.

The EGM will be held at the Company’s conference room at 197, Section A, Fu Shou East Street, High Technology Industrial Development Zone, Weifang, Shandong Province, the PRC on Friday, 29 December 2023 to consider and, if thought fit, approve, inter alia, the matters as set out in the notice convening the EGM set out in pages 103 to 105 of this circular.

Weichai Holdings (which held 1,422,550,620 Shares representing approximately 16.30% of the issued Shares of the Company as at the Latest Practicable Date) and its associates will abstain from voting on the resolutions in respect of the Non-exempt Continuing Connected Transactions and PRC Continuing Connected Transactions. Save as the aforesaid, no Shareholder is required to abstain from voting in respect of any resolution in the EGM.

It is a requirement of the Listing Rules that the voting at the EGM must be taken by poll.

The form of proxy for use at the EGM is enclosed with this circular. Holders of A Shares may use the form of proxy published by the Company on the website of the Shenzhen Stock Exchange instead and refer to the procedures set out therein. Whether or not you intend to be present at the EGM, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong (with respect to the holders of H Shares) no later than 24 hours before the time fixed for holding the EGM or any adjournment thereof.

Completion and delivery of the form of proxy will not prevent you from attending and voting at the relevant meeting or any adjournment thereof if you so wish.

V. CLOSURE OF REGISTER OF HOLDERS OF H SHARES

The register of holders of H Shares of the Company will be closed from 22 December 2023 to 29 December 2023, both days inclusive, during which period no transfer of H Shares will be effected. In order to qualify for attending the EGM, all transfer documents of H Shares accompanied by the relevant share certificates must be lodged with Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on 21 December 2023.

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LETTER FROM THE BOARD

VI. RECOMMENDATIONS

Having considered the reasons set out herein, the Directors, including the independent non-executive Directors (having considered the advice of the Independent Financial Adviser in respect of the Non-exempt Continuing Connected Transactions), are of the opinion that the relevant New Caps and the terms of the New Framework Agreements in respect of the Continuing Connected Transactions are fair and reasonable, in the ordinary and usual course of business of the Group, on normal commercial terms (or better to the Group), and in the interests of the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the resolution regarding the same.

The Independent Board Committee comprising the independent non-executive Directors (namely, Ms. Jiang Yan, Mr. Yu Zhuoping, Mr. Chi Deqiang, Mr. Zhao Fuquan and Mr. Xu Bing) has been appointed to consider the Continuing Connected Transactions and the respective New Cap. The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the New Framework Agreements and the relevant New Caps. Your attention is drawn to (i) the letter setting out the advice from the Independent Board Committee to the Independent Shareholders, and (ii) the letter of advice from the Independent Financial Adviser setting out its advice to the Independent Board Committee and the Independent Shareholders in relation to the relevant New Caps and the New Framework Agreements, which are set out in this circular.

Further, the Board considers that the other resolutions to be proposed at the EGM in respect of the PRC Continuing Connected Transactions are in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors (including the independent non-executive Directors) recommend the Shareholders to vote in favour of the relevant resolutions which will be proposed at the EGM.

VII. FURTHER INFORMATION

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

Yours faithfully, For and on behalf of the Board of Directors Tan Xuguang Chairman

For identification purposes only

– 51 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

濰柴動力股份有限公司 WEICHAI POWER CO., LTD.

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 2338)

30 November 2023

To the Independent Shareholders of Weichai Power Co., Ltd.

Dear Sir or Madam,

NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders of Weichai Power Co., Ltd. to consider the New Framework Agreements and the relevant New Caps (as defined in the circular of the Company dated 30 November 2023 (the “ Circular ”)) in relation to the Non-exempt Continuing Connected Transactions, details of which are set out in the section headed “II. The Non-exempt Continuing Connected Transactions” in the “Letter from the Board” contained in the Circular. Unless the context otherwise requires, terms defined in the Circular shall have the same meanings when used in this letter.

Your attention is drawn to the “Letter from the Board”, the advice of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Non-exempt Continuing Connected Transactions as set out in the “Letter from the Independent Financial Adviser on the Non-exempt Continuing Connected Transactions” as well as other additional information set out in other parts of the Circular.

Having taken into account the advice of, and the principal factors and reasons considered by the Independent Financial Adviser in relation thereto as stated in its letter, we consider that the terms of the New Framework Agreements and the relevant New Caps are fair and reasonable and the Non-exempt Continuing Connected Transactions are conducted in the ordinary and usual course of the Company’s business and are on normal commercial terms or better, and in the interest of the Company and its shareholders as a whole. We therefore recommend that you vote in favour of the ordinary resolution to be proposed at the EGM to approve the New Framework Agreements and the relevant New Caps for the Non-exempt Continuing Connected Transactions.

Yours faithfully, The Independent Board Committee

Jiang Yan Yu Zhuoping Independent Independent non-executive Director non-executive Director Chi Deqiang Zhao Fuquan Xu Bing Independent Independent Independent non-executive Director non-executive Director non-executive Director

– 52 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

The following is the full text of the letter dated 30 November 2023 from Trinity Corporate Finance Limited, the Independent Financial Adviser, to the Independent Board Committee and the Independent Shareholders in respect of the provision of the Continuing Connected Transactions and the respective New Caps, prepared for the purpose of incorporation in this circular.

Trinity Corporate Finance Limited

Room 102B, 1/F, Building 5W, Hong Kong Science Park, New Territories, Hong Kong.

30 November 2023

To the Independent Board Committee and the Independent Shareholders of Weichai Power Co., Ltd.

Dear Sirs,

NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the Non-exempt Continuing Connected Transactions and the relevant New Caps, details of which are set out in the letter from the Board (the “ Letter from the Board ”) in the Company’s circular dated 30 November 2023 (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

The Board announced that on 30 August 2023, the Group entered into the New Framework Agreements in respect of the Continuing Connected Transactions as more particularly described in the Letter from the Board.

As the highest percentage ratio calculated in accordance with the Listing Rules for the Continuing Connected Transactions as set out in sub-sections II.1, II.2.(a), (b) and (c), and II.3.(a) and (b) in the Letter from the Board exceeds the 5% Threshold on an aggregated basis, such Continuing Connected Transactions constitute Non-exempt Continuing Connected Transactions of the Company and their respective New Framework Agreement and proposed New Caps will be subject to the reporting and announcement requirements, the annual review requirements, and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee, comprising all the independent non-executive Directors, (namely, Ms. Jiang Yan, Mr. Yu Zhuoping, Mr. Chi Deqiang, Mr. Zhao Fuquan and Mr. Xu Bing) has been appointed to consider the terms of the Non-exempt Continuing Connected Transactions and the relevant New Caps, and to advise the Independent Shareholders as to

– 53 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

whether the terms therein are fair and reasonable and on how to vote on the relevant resolution(s) at the EGM, taking into account the recommendations of the Independent Financial Adviser. Trinity Corporate Finance Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

As at the Latest Practicable Date, Trinity Corporate Finance Limited did not have any relationships or interests with the Company or any other parties that could reasonably be regarded as relevant to the independence of Trinity Corporate Finance Limited. In the last two years, Trinity Corporate Finance Limited has acted as an independent financial adviser to the then independent board committee and independent shareholders of the Company in relation to the discloseable and connected transaction in respect of Weichai Lovol Heavy Industry Co., Ltd. announced on 18 April 2022 (details of which were set out in the circular of the Company dated 16 May 2022), the non-exempt continuing connected transaction announced on 30 March 2022 (details of which were set out in the circular of the Company dated 26 May 2022) and the non-exempt continuing connected transaction in respect of Weichai Power Freshen Air Technology Co., Ltd. announced on 23 November 2022 (details of which were set out in the circular of the Company dated 8 December 2022). Apart from normal professional fees paid or payable to us in connection with such appointment, no arrangements exist whereby we had received or will receive any fees or benefits from the Company or any other party to the transactions, therefore we consider such relationship would not affect our independence.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the accuracy of the statements, information, opinions and representations contained or referred to in the Circular and the information and representations provided to us by the Company, the Directors and the management of the Company. We have no reason to believe that any information and representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have assumed that all information, representations and opinions contained or referred to in the Circular, which have been provided by the Company, the Directors and the management of the Company and for which they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be true as at the Latest Practicable Date and should there be any material changes to our opinion after the despatch of the Circular and up to the date of the EGM, Shareholders would be notified as soon as practicable.

All Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

We have not conducted any independent in-depth investigation into the business and affairs of the Group or any parties involved in the Non-exempt Continuing Connected Transactions.

– 54 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

In accordance with Rule 13.80 of the Listing Rules, to formulate our opinion, we have independently reviewed, inter alia, the 2022 annual report and 2023 interim results announcement of the Company, the historical transaction amounts, the Letter from the Board, the samples of transactions of the Company relating to the New Framework Agreements and the Group’s sales plan for 2024-26.

This letter is issued to the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Non-exempt Continuing Connected Transactions and the relevant New Caps and, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion regarding the Non-exempt Continuing Connected Transactions and the relevant New Caps, we have taken into account the following principal factors and reasons:

A. 1. Financial performance of the Company

As disclosed in the annual report of the Company for the financial year ended 31 December 2022, the Company’s revenue decreased by 20.5% as compared with that in the corresponding period of 2021 to approximately RMB175,158 million. Net profit attributable to the shareholders of the company amounted to approximately RMB4,905 million, representing a decrease of approximately 48.3% as compared with that in the corresponding period of 2021. Basic earnings per share was RMB0.57, representing a decrease of approximately 50.0% as compared with that in the corresponding period of 2021.

According to the Company’s interim results announcement for the six months ended 30 June 2023 (the “ 2023 Interim Results Announcement ”), the Company’s revenue amounted to approximately RMB106,135 million, an increase of approximately 22.3% and net profit attributable to the shareholders of the Company amounted to approximately RMB3,899 million, an increase of approximately 63.1% as compared with that in the corresponding period of 2022.

2. Outlook and prospects

According to the Chairman’s Statement set out in the Company’s 2023 Interim Results Announcement, the recovery of global economy has been characterised by prominent differentiation, and different economies and industries have shown an “unevenly hot and cold” trend. The domestic economic operation entered a plateau phase after experiencing a pulse recovery at the beginning of the year. Under the combined effect of economic recovery and improvement, continuous release of policy effect and lower base in the corresponding period of last year, there were more favorable factors for the development of the industry.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

However, affected by factors such as the complicated and severe international environment and insufficient domestic demand, the industry was still facing great pressure. From January to June 2023, the heavy-duty truck industry of China delivered a sales volume of 488,000 units, representing a year-on-year increase of 29%; the construction machinery industry delivered a sales volume of 379,000 units (including 188,000 units of diesel forklift trucks), representing a year-on-year decrease of 12%; the agricultural equipment industry delivered a sales volume of 227,000 units, representing a year-on-year decrease of 17.4%.

B. Principal Terms of the Non-exempt Continuing Connected Transactions

The Continuing Connected Transactions include the following which are Non-exempt Continuing Connected Transactions:

			Connected person’s
Name	of	Name of Group	relationship with the	Nature of the connected
connected person		Company	Group	transaction with the Group
1.	Weichai Holdings	The Company (and its	Holder of 16.30% of	Sale of diesel engines, diesel engine
	(and its Associates)	subsidiaries)	the equity of	parts and components, materials,
			the Company	semi-finished products, hydraulic
				products and related products and
				provision of related services by the
				Company (and its subsidiaries) to
				Weichai Holdings (and its
				Associates)
2.	Yangzhou Yaxing	The Company (and its	Yangzhou Yaxing is	(a) Sale of engines, new energy
	(and its	subsidiaries)	indirectly held as to	powertrain and related
	subsidiaries)		62.31% by Weichai	products by the Company (and
			Holdings	its subsidiaries) to Yangzhou
				Yaxing (and its subsidiaries)
		SFGC_(note 1)_		(b) Sale of transmissions and
				related products by SFGC to
				Yangzhou Yaxing (and its
				subsidiaries)
		Hande Axle_(note 2)_		(c) Sale of axles and related
				products by Hande Axle to
				Yangzhou Yaxing (and its
				subsidiaries)

– 56 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Name of connected person

Name of Group Company

Connected person’s relationship with the Nature of the connected Group transaction with the Group

Weichai Westport
The Company (and its subsidiaries and/or associates)
Weichai Westport is (a) Supply of base engines, gas held as to 51% by engine parts, utility and labour Weichai Holdings services, technology development services and related products and services by the Company (and its subsidiaries and/or associates) to Weichai Westport
(b) Purchase of gas engines, gas engine parts, labour services and related products and services by the Company (and its subsidiaries and/ or associates) from Weichai Westport

Notes:

SFGC is a 51% subsidiary of the Company.
Hande Axle is held as to approximately 3.06% by the Company and as to approximately 94% by Shaanxi Zhongqi, which is a 51% subsidiary of the Company.

C. Proposed New Caps

A summary of the proposed New Caps for the Non-exempt Continuing Connected Transactions is set out below:

Connected person and details of the relevant Proposed New Caps Continuing Connected Transactions 2024 2025 2026 RMB RMB RMB 1. Weichai Holdings (and its Associates) Sale of diesel engines, diesel engine parts and 6,503,000,000 6,725,000,000 7,102,000,000 components, materials, semi-finished products, hydraulic products and related products and provision of related services by the Company (and its subsidiaries) to Weichai Holdings (and its Associates)

– 57 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Connected person and details of the relevant	Connected person and details of the relevant	Connected person and details of the relevant		Proposed New	Caps
Continuing Connected Transactions			2024	2025		2026
			RMB	RMB		RMB
2.	Yangzhou Yaxing and its subsidiaries
	(a)	Sale of engines, new energy powertrain and	83,000,000	117,000,000		145,000,000
		related products by the Company and its
		subsidiaries to Yangzhou Yaxing and its
		subsidiaries
	(b)	Sale of transmissions by SFGC to Yangzhou	8,000,000	9,000,000		10,000,000
		Yaxing and its subsidiaries
	(c)	Sale of axles and related products by Hande	23,000,000	26,000,000		29,000,000
		Axle to Yangzhou Yaxing and its subsidiaries
3.	Weichai Westport
	(a)	Supply of base engines, gas engine parts,	896,000,000	906,000,000		935,000,000
		utility and labour services, technology
		development services and related products
		and services by the Company (and its
		subsidiaries and/or associates) to Weichai
		Westport
	(b)	Purchase of gas engines, gas engine parts,	4,644,000,000	4,656,000,000	4,704,000,000
		labour services and related products and
		services by the Company (and its
		subsidiaries and/or associates) from Weichai
		Westport

Note:

For the purposes of ascertaining whether a Continuing Connected Transaction would exceed the 5% Threshold, the transactions under paragraphs 1, 2.(a), 2.(b), 2.(c) and 3.(a) have been aggregated and the transaction under paragraph 3.(b) has been aggregated with the transactions as disclosed in the announcement of the Company dated 27 January 2022.
D. Details of the New Framework Agreements, Existing Caps and historical amounts of the Non-exempt Continuing Connected Transactions

The Company and its subsidiaries

The Company is principally engaged in the research and development, manufacture and sale of high-speed heavy-duty diesel engines and engine parts.

– 58 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

1. Continuing Connected Transactions between Weichai Holdings (and its Associates) and the Group

Weichai Holdings and its associates

Weichai Holdings is principally engaged in the management, investment and the provision of general services. To the best knowledge, information and belief of the Directors and having made all reasonable enquiries, Weichai Holdings is wholly-owned by Shandong Heavy Industry. Shandong Heavy Industry is one of the leading automobile and equipment groups in the PRC, and in turn a state-owned enterprise organized under the laws of the PRC with limited liability, and is ultimately governed and controlled by the Shandong Provincial People’s Government.

Weichai Holdings is a substantial shareholder of the Company, and is accordingly a connected person of the Company.

Agreement: New Weichai Sale and Processing Services Agreement Date: 30 August 2023 Parties: 1. The Company 2. Weichai Holdings Term: 1 January 2024 to 31 December 2026 Other terms and The terms of the New Weichai Sale and Processing details: Services Agreement are substantially the same as those of the Existing Weichai Sale and Processing Services Agreement.

– 59 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Price determination and internal control procedures

According to the Letter from the Board, the price of the said products shall be determined according to the following mechanism: the sales department of the Group normally conducts market research and analysis regarding specific products on at least an annual basis, in which a number of factors, including the overall market prices, market shares, ordering situation and performance of major competitors of such products, are comprehensively considered, submits a price suggestion after its analysis to the Group’s price management department and the final prices are determined at arm’s length negotiation among the parties. The price management department of the Group regularly reviews the reasonableness of prices and makes amendments when necessary.

We have reviewed the market research conducted by the Company on the comparison of pricing by product and by business segment with other major players in the same industry and also the monthly report on the impact of recent economic data and government policies on the industry outlook prepared by the Company, which demonstrated how the Company ascertained the market price and material terms during the price determination process. Also, we have reviewed the monthly monitoring report on the accumulated annual transaction amount of the Continuing Connected Transactions prepared by the Group’s finance department, which compared such accumulated annual transaction amount of each Continuing Connected Transaction against the respective pre-approved cap. We note that if any accumulated annual transaction amount of any such Continuing Connected Transaction exceeds 70% of the pre-approved annual cap, the relevant Continuing Connected Transaction shall be reported to the Company’s board office for monitoring, follow-up and, if necessary, revision of the annual cap in accordance with the requirements of the Listing Rules. On the basis of the above, we are of the view that (i) the Group’s internal control measures in place as stated above are effective; and (ii) such internal control measures have ensured the terms of the Continuing Connected Transactions will be no less favourable than those entered into between the Group and the independent third parties.

– 60 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

In addition, we have reviewed two samples of transactions selected from the transactions conducted with the Company’s related party, of which the selection criteria is being selected by the Company on a random basis, to confirm that the relevant transaction prices were at or better than normal commercial terms offered to independent third parties. As the selection criteria has adequately covered the transactions relating to the sale of diesel engines, diesel engine parts and components, materials, semi-finished products, hydraulic products and related products and provision of related services by the Company (and its subsidiaries) to Weichai Holdings (and its Associates), we consider that the selected sample size is adequate, sufficient, fair and representative in concluding our view that the above pricing policy was properly followed. In addition, we note that the Company’s independent non-executive Directors, the internal audit team and the auditors of the Company review the transactions in relation to the New Framework Agreements on an annual basis. Accordingly, we are of the view that the terms of the transactions between the Company and its related parties are fair and reasonable so far as the Company and the Independent Shareholders are concerned and the Company’s internal control measures are able to ensure that the Continuing Connected Transactions are made on terms no less favourable to the Group as compared to those available to independent third parties.

The Directors are of the view that the abovementioned methods and procedures under the pricing policies, which are consistent with those applied to independent third party customers, can ensure that this Continuing Connected Transaction is conducted on normal commercial terms and not prejudicial to the interests of the Company and its minority Shareholders and we concur that such methods and procedures will ensure that the Company will obtain terms, including market price, which are on normal commercial terms or better.

The table below summarises the Existing Caps for the Continuing Connected Transaction set out in this sub-section 1. for the three years ending 31 December 2023:

2021 2022 2023 RMB RMB RMB Existing Cap 3,900,000,000 5,200,000,000 6,900,000,000

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

The table below summarises the actual transaction amounts for each of the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for the Continuing Connected Transaction set out in this sub-section 1. and the relevant utilisation rates of each of the relevant Existing Caps:

			For the nine
	For the year	For the year	months
	ended	ended	ended
	31 December	31 December	30 September
	2021	2022	2023
	RMB	RMB	RMB
	(audited)	(audited)	(unaudited)
Actual transaction amount	3,162,102,630	2,939,648,571	3,260,577,946
Utilisation Rate (%)	81.08	56.53	63.01*

* Calculated after adjustment of the Existing Cap for nine months on a pro-rata basis.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

As shown above, the utilisation rates of the actual transaction amount compared to the Existing Caps for the two financial years ended on 31 December 2022 were relatively high at approximately 81.08% and 56.53% respectively, and the utilisation rate for the nine months ended 30 September 2023 was also within this range, at approximately 63.01% (after adjustment of the Existing Cap for nine months on a pro-rata basis). Having considered the utilisation rates of the Existing Caps for the two years ended 31 December 2022 and the nine months ended 30 September 2023, the Company has reduced the proposed New Cap for the year ending 31 December 2024 to RMB6,503,000,000 from RMB6,900,000,000 for the year ending 31 December 2023. We consider that such downward adjustment is fair and reasonable.

The Company estimates that the transaction amounts for the Continuing Connected Transaction set out in this sub-section 1. for the three years ending 31 December 2026 will not exceed RMB6,503 million, RMB6,725 million and RMB7,102 million, respectively, and such amounts have accordingly been set as the proposed New Caps for this Continuing Connected Transaction.

Basis of computation of New Caps

In addition, the above proposed New Caps have been estimated by the Company based on (i) the relevant historical transaction amounts, in particular, the annualised transaction amount for the year ending 31 December 2023 represents an increase of 47.9% compared to the historical transaction amount for the year ended 31 December 2022; (ii) the Company’s research of the market conditions and the expected sales plan of the Group for the three years ending 31 December 2026 that, in particular, (a) in respect of diesel engines, in line with the positive trend in the strategic development of smart agricultural equipment and the support of the relevant governmental policies, the sales of the Group to Weichai Holdings and its Associates for the nine months ended 30 September 2023 amounted a year-on-year growth of 50%. It is expected that the sales of diesel engines will further increase by 15% in 2024 as compared with the expected full year sales in 2023; (b) in respect of hydraulics products, with the development of new products in 2023 which is expected to be launched for use in 2024, the sales is expected to improve significantly by 127% in 2024 due to the mass production of such products and their auxiliary products and by a further 10% per annum for years 2025 and 2026 upon the Group’s expansion of the hydraulics markets; (c) the sales plans of the Group, in particular, in respect of the sales to Weichai Holdings and its Associates, to further improve its sales of construction equipment by 30% in 2024 as compared to that in 2023; and (iii) the estimate of the number of diesel engines, diesel engine parts and components, materials, semi-finished products and hydraulic products required by Weichai Holdings and its associates (as the case may be) in view of the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

implementation of the Group’s sales plan for the years 2024 to 2026, having taken into account the estimated market conditions and export performance, the average unit prices of the same, and the costs of the related services to be provided.

We have discussed with the Company and understand that in 2022, affected by the market conditions as elaborated above, there has been a relatively significant drop in the engine industry as a whole. In the first nine months of 2023, the actual transaction amount for the transaction has already amounted to RMB3,261 million, which the Board considers reflected a recovery of the relevant market conditions. Hence, based on the above factors and considering the forthcoming fluctuation of the market conditions coupled with the expected growth of the Group’s operations, after taking into account the low utilisation rate of the relevant Existing Caps for 2022, the Board proposed that the New Cap for the year ending 31 December 2024 be adjusted downwards to RMB6,503,000,000 from the Existing Cap of RMB6,900,000,000 for the year ending 31 December 2023. Further, taking into account and on the basis of all the aforesaid factors, it is estimated that the overall transaction amount of the said sale of products and services will grow by approximately 3.4% and 5.6% for each of the years ending 31 December 2025 and 31 December 2026, respectively.

The table below summarises the proposed New Caps for the Continuing Connected Transaction set out in this sub-section 1. for the three years ending 31 December 2026:

			2024	2025	2026
			RMB	RMB	RMB
Proposed	New	Cap	6,503,000,000	6,725,000,000	7,102,000,000

For our due diligence, we have reviewed the Group’s sales plan for 2024-2026 relating to the projection of the number of engines and related products to be sold and discussed with the management on the basis of the estimated transaction amounts. We are of the view that the proposed annual cap for the year ending 31 December 2024 of RMB6,503 million is the result of a combination of factors, comprising of the expected increase in sales incorporating the above year-on-year growth of 50% of the Group’s sales to Weichai Holdings and its Associates for the nine-month period ended 30 September 2023, an expected 15% increase in the sales of diesel engines for the year 2024, the expected launch of new hydraulics products in 2024 which will lead to 127% increase in its sales, and the expected improvement in the sales of construction equipment by 30% in 2024. Based on our discussion with the management on the basis of the estimated transaction amounts and also our work done on the samples as set out above, and having considered the basis of determination of the New Caps as set out above, which has taken into account the historical transaction amounts and the reasonable estimates regarding the future market conditions and business plans based on information currently available to the Board as detailed above, we consider such basis of the proposed New Caps is fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

As the highest percentage ratio calculated in accordance with the Listing Rules for this Continuing Connected Transaction for the three years ending 31 December 2026 (when aggregated with the proposed New Caps for the same period under sub-sections 2.(a), 2.(b), 2.(c) and 3.(a) herein) exceeds the 5% Threshold, this Continuing Connected Transaction constitutes a Non-exempt Continuing Connected Transaction of the Company for the relevant period, and the proposed New Caps for the relevant period are subject to the reporting and announcement requirements, the annual review requirements, and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since this Continuing Connected Transaction for the three years ending 31 December 2026 (on an aggregated basis) is a Non-exempt Continuing Connected Transaction, and the proposed New Caps for the relevant period are subject to the approval of the Independent Shareholders, the New Weichai Sale and Processing Services Agreement is conditional upon the relevant resolution being passed at the EGM.

2. Continuing Connected Transactions between Yangzhou Yaxing (and its subsidiaries) and the Group

Yangzhou Yaxing and its subsidiaries are principally engaged in the development, manufacture and sale of passenger vehicles. Yangzhou Yaxing is indirectly held as to 62.31% by Weichai Holdings, a substantial shareholder of the Company and hence it is also ultimately governed and controlled by the Shandong Provincial People’s Government. Accordingly, Yangzhou Yaxing and its subsidiaries are associates of Weichai Holdings and connected persons of the Company.

(a) Sale of engines, new energy powertrain and related products by the Company and its subsidiaries to Yangzhou Yaxing and its subsidiaries

Agreement: New Weichai Yangzhou Supply Framework Agreement Date: 30 August 2023 Parties: 1. The Company 2. Yangzhou Yaxing Term: 1 January 2024 to 31 December 2026 Other terms and The terms of the New Weichai Yangzhou Supply details: Framework Agreement are substantially the same as those of the Existing Weichai Yangzhou Supply Framework Agreements.

Pursuant to the New Weichai Yangzhou Supply Framework Agreement, the Company and its subsidiaries shall sell engines, new energy powertrain and related

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

products to Yangzhou Yaxing and its subsidiaries at market prices and/or prices agreed according to the principle of fairness and reasonableness, for a term of three years ending 31 December 2026. Depending on the terms of the definitive agreements to be entered into by the parties, the relevant price for the relevant products shall, as the case maybe, be settled on a monthly or quarterly basis. Upon the expiry of the term of the agreement, the parties may renew the term for a period of three years on a mutually agreed basis.

Price determination and internal control procedures

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

products by the Company and its subsidiaries to Yangzhou Yaxing and its subsidiaries, we consider that the selected sample size is adequate, sufficient, fair and representative in concluding our view that the above pricing policy was properly followed. In addition, we note that the Company’s independent non-executive Directors, the internal audit team and the auditors of the Company review the transactions in relation to the New Framework Agreements on an annual basis. Accordingly, we are of the view that the terms of the transactions between the Company and its related parties are fair and reasonable so far as the Company and the Independent Shareholders are concerned and the Company’s internal control measures are able to ensure that the Continuing Connected Transactions are made on terms no less favourable to the Group as compared to those available to independent third parties.

The table below summarises the Existing Caps for the three years ending 31 December 2023 for the Continuing Connected Transaction set out in this sub-section 2.(a):

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	660,000,000	675,000,000	690,000,000

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

The table below summarises the actual transaction amounts for the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for the Continuing Connected Transaction set out in this sub-section 2.(a) and the relevant utilisation rates of each of the relevant Existing Caps:

			For the nine
	For the year	For the year	months
	ended	ended	ended
	31 December	31 December	30 September
	2021	2022	2023
	RMB	RMB	RMB
	(audited)	(audited)	(unaudited)
Actual transaction amount	4,740,694	19,783,354	52,622,983
Utilisation Rate (%)	0.72	2.93	10.17*

* Calculated after adjustment of the Existing Cap for nine months on a pro-rata basis.

As shown above, the utilisation rates of the actual transaction amount compared to the Existing Caps for the two financial years ended 31 December 2022 were relatively low at approximately 0.72% and 2.93% respectively and the utilisation rate for the nine months ended 30 September 2023 was also low at approximately 10.17% (after adjustment of the Existing Cap for a nine-month period on a pro-rata basis). Having considered the utilisation rates of the Existing Caps for the two years ended 31 December 2022 and the nine months ended 30 September 2023, the Company has substantially reduced the Existing Cap of RMB690 million for the year ending 31 December 2023 to the New Cap of RMB83 million for the year ending 31 December 2024. We consider that this downward adjustment is fair and reasonable given the low historical utilisation rates as shown above.

The Company estimates that the transaction amount for this Continuing Connected Transaction as set out in this sub-section 2.(a) for the three years ending 31 December 2026 will not exceed RMB83,000,000, RMB117,000,000 and RMB145,000,000, respectively, and such amounts have accordingly been set as the New Caps for this Continuing Connected Transaction.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

We have discussed with the Company and understand that in 2021 and 2022, affected by the transformation of the passenger vehicles market, the level of sales made by the Group to Yangzhou Yaxing and its subsidiaries had been lower than expected. However, for the nine months ended 30 September 2023, the passenger vehicle market has rebound and the actual transaction amount has shown improvement.

Accordingly, taking into account (i) the expected increase in the demand for the said products by Yangzhou Yaxing and its subsidiaries from the Group, on the basis of an expected increase in the production volume of passenger vehicles adopting the new battery, motor and electric control system by Yangzhou Yaxing, and (ii) the sales plan of the Group for the coming three years having taken into consideration of the expected market conditions, the Company expects that the transaction amount for this Continuing Connected Transaction would continue to increase steadily for the three years ending 31 December 2026.

Basis of computation of New Caps

The New Caps for this Continuing Connected Transaction have been prepared by the Company based on the relevant historical transaction amount and the abovementioned expectations. Taking into account all the aforesaid factors and the utilisation rates of the relevant Existing Caps, the Board proposed that the New Cap for the year ending 31 December 2024 be adjusted downwards to RMB83,000,000 from the Existing Cap of RMB690,000,000 for the year ending 31 December 2023, and further, taking into account and on the basis of all the aforesaid factors, it is estimated that the overall transaction amount of the sale of the engines, new energy powertrain and related products by the Group to Yangzhou Yaxing and its subsidiaries on an annual basis will increase by approximately 41.0% and 23.9% for each of the two years ending 31 December 2026, respectively.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

The table below summarises the New Caps for the Continuing Connected Transaction as set out in this sub-section 2.(a) for the three years ending 31 December 2026:

			2024	2025	2026
			RMB	RMB	RMB
Proposed	New	Cap	83,000,000	117,000,000	145,000,000

Based on our discussion with the management on the basis of the estimated transaction amounts and also our work done on the samples as set out above, and having considered the basis of determination of the New Caps as set out above, which has taken into account the historical transaction amounts and the reasonable estimates regarding the future market conditions and business plans based on information currently available to the Board as detailed above, we consider such basis of the proposed New Caps is fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

As the highest percentage ratio calculated in accordance with the Listing Rules for this Continuing Connected Transaction for the three years ending 31 December 2026 (when aggregated with the proposed New Caps for the same period under sub-sections 1., 2.(b), 2.(c) and 3.(a) herein) exceeds the 5% Threshold, this Continuing Connected Transaction constitutes a Non-exempt Continuing Connected Transaction of the Company for the relevant period, and the proposed New Caps for the relevant period are subject to the reporting and announcement requirements, the annual review requirements, and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since this Continuing Connected Transaction for the three years ending 31 December 2026 (on an aggregated basis) is a Non-exempt Continuing Connected Transaction and the proposed New Caps for the relevant period are subject to the approval of the Independent Shareholders, the New Weichai Yangzhou Supply Framework Agreement is conditional upon the relevant resolution being passed at the EGM.

(b) Sale of transmissions and related products by SFGC to Yangzhou Yaxing and its subsidiaries

Agreement: New Transmissions Supply Framework Agreement Date: 30 August 2023 Parties: 1. SFGC 2. Yangzhou Yaxing Term: 1 January 2024 to 31 December 2026

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Other terms and The terms of the New Transmissions Supply details: Framework Agreement are substantially the same as those of the Existing Transmissions Supply Framework Agreement.

Price determination and internal control procedures

We have reviewed the market research conducted by the Company on the comparison of pricing by product and by business segment with other major players in the same industry and also the monthly report on the impact of recent economic data and government policies on the industry outlook prepared by the Company, which demonstrated how the Company ascertained the market price and the material terms during the price determination process. Also, we have reviewed the monthly monitoring report on the accumulated annual transaction amount of the Continuing Connected Transactions prepared by the Group’s finance department, which compared such accumulated annual transaction amount of each Continuing Connected Transaction against the respective pre-approved cap. We note that if any accumulated annual transaction amount of any such Continuing Connected Transaction exceeds 70% of the pre-approved annual cap, the relevant Continuing Connected Transaction shall be reported to the Company’s board office for monitoring, follow-up and, if necessary, revision of the annual cap in accordance with the requirements of the Listing Rules. On the basis of the above, we are of the view that (i) the Group’s internal control measures in place as stated above are effective; and (ii) such internal control measures have ensured the terms of the Continuing Connected Transactions will be no less favourable than those entered into between the Group and the independent third parties.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

In addition, we have reviewed two samples of transactions selected from the transactions conducted with the Company’s related party, of which the selection criteria is being selected by the Company on a random basis, to confirm that the relevant transaction prices were at or better than normal commercial terms offered to independent third parties. As the selection criteria has adequately covered the transactions relating to the sale of transmissions and related products by SFGC to Yangzhou Yaxing and its subsidiaries, we consider that the selected sample size is adequate, sufficient, fair and representative in concluding our view that the above pricing policy was properly followed. In addition, we note that the Company’s independent non-executive Directors, the internal audit team and the auditors of the Company review the transactions in relation to the New Framework Agreements on an annual basis. Accordingly, we are of the view that the terms of the transactions between the Company and its related parties are fair and reasonable so far as the Company and the Independent Shareholders are concerned and the Company’s internal control measures are able to ensure that the Continuing Connected Transactions are made on terms no less favourable to the Group as compared to those available to independent third parties.

The table below summarises the Existing Caps for the three years ending 31 December 2023 for the Continuing Connected Transaction set out in this sub-section 2.(b):

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	50,000,000	60,000,000	72,000,000

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

The table below summarises the actual transaction amounts for the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for this Continuing Connected Transaction set out in this sub-section 2.(b) and the relevant utilisation rates of each of the relevant Existing Caps:

			For the nine
	For the year	For the year	months
	ended	ended	ended
	31 December	31 December	30 September
	2021	2022	2023
	RMB	RMB	RMB
	(audited)	(audited)	(unaudited)
Actual transaction amount	1,516,814	1,287,275	5,088,948
Utilisation Rate (%)	3.03	2.15	9.42*

* Calculated after adjustment of the Existing Cap for nine months on a pro-rata basis.

Yangzhou Yaxing and its subsidiaries purchase the said transmissions and related products from SFGC, which comprise mainly transmission for use in new energy vehicles, as one of the components for the production of passenger vehicles. During 2021 and 2022, impacted by the pandemic control policies, the recovery of the economy has been slower than expected, resulted in a lower than expected sale of transmissions and related products by SFGC to Yangzhou Yaxing and its subsidiaries. Thereafter, for the nine months ended 30 September 2023, as the economy and society fully resumed normal operations and the effect of macro-policies unleashed significantly, the national economy began to rebound, accordingly, the sales of transmissions and related products by SFGC to Yangzhou Yaxing and its subsidiaries had also improved significantly for the nine months ended 30 September 2023. The actual transaction amount for the nine months ended 30 September 2023 amounted to approximately 395% of the historical transaction amount for the year ended 31 December 2022, and the annualised transaction amount for the year 2023 (based on the actual transaction amount for the nine months ended 30 September 2023) amounted to approximately 527% of the historical transaction amount for the year ended 31 December 2022. It is expected that such an increasing trend will continue for the three months ending 31 December 2023.

As shown above, the utilisation rates of the actual transaction amount compared to the Existing Caps for the two financial years ended 31 December 2022 were at approximately 3.03% and 2.15% respectively and the utilisation rate for the nine months ended 30 September 2023 was approximately 9.42% (after adjustment of the Existing Cap for nine-month period on a pro-rata basis). Due to the low utilisation rates of the Existing Caps for the two years ended 31 December 2022 and for the nine months ended 30 September 2023, the overall New Caps for the three years ending 31 December 2026 have been substantially reduced, including the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Existing Cap of RMB72 million for the year ending 31 December 2023 being substantially reduced to the proposed New Cap of RMB8 million for the year ending 31 December 2024. We consider that this downward adjustment is fair and reasonable.

The Company estimates that the transaction amount for this Continuing Connected Transaction as set out in this sub-section 2.(b) for the three years ending 31 December 2026 will not exceed RMB8,000,000, RMB9,000,000 and RMB10,000,000, respectively, and such amounts have accordingly been set as the proposed New Caps for this Continuing Connected Transaction.

We have discussed with the Company and understand that in 2021 and 2022, affected by the substantive drop of the passenger vehicle market, the level of sales made by the Group to Yangzhou Yaxing and its subsidiaries had been lower than expected. However, along with the improvement in the economic environment, the market demands have recovered and will enter into a new round of replacement cycle. Affected by factors including the gradual release of demands in purchasing of new vehicles, it is expected that the passenger vehicles market will rebound. This is demonstrated by the improvement in the actual transaction amount for the nine months ended 30 September 2023. The sales of SFGC for the nine months ended 30 September 2023 demonstrated a growth of 45% as compared with the corresponding period in 2022, and in respect of certain of its customers, the aggregated orders placed for the nine months ended 30 September 2023 exceeds the orders placed in the full year of 2022. Based on such trend of recovery, it is expected that the market conditions will further improve in 2024.

Accordingly, taking into account (i) the expected increase in the sales of passenger vehicles by Yangzhou Yaxing and its subsidiaries according to the sales plan of Yangzhou Yaxing, (ii) the expected increase in the demand for the said transmissions and related products by Yangzhou Yaxing and its subsidiaries, and (iii) the sales plan of the Group for the coming three years having taken into consideration of the expected market conditions, the Company expects that the transaction amount for this Continuing Connected Transaction would increase for the three years ending 31 December 2026. In particular, it is estimated that the transaction amount for the year ending 31 December 2024 will increase by approximately 15% to 20% compared to the estimated actual transaction amounts for the full year 2023.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Basis of computation of New Caps

In light of the above, the New Caps for this Continuing Connected Transaction have been prepared by the Company based on the relevant historical transaction amount and the abovementioned expectations. Taking into account the low utilisation rates of the relevant Existing Caps, the Board proposed that the New Cap for the year ending 31 December 2024 be substantially adjusted downwards to RMB8,000,000 to reflect the latest actual transaction amounts, further, on the basis of all the aforesaid factors, it is estimated that the overall transaction amount of the sale of transmissions by SFGC to Yangzhou Yaxing and its subsidiaries on an annual basis will increase by approximately 12.5% and 11.1% for each of the two years ending 31 December 2026, respectively.

The table below summarises the proposed New Caps for the Continuing Connected Transaction as set out in this sub-section 2.(b) for the three years ending 31 December 2026:

			2024	2025	2026
			RMB	RMB	RMB
Proposed	New	Cap	8,000,000	9,000,000	10,000,000

As the highest percentage ratio calculated in accordance with the Listing Rules for this Continuing Connected Transaction for the three years ending 31 December 2026 (when aggregated with the proposed New Caps for the same period under sub-sections 1., 2.(a), 2.(c) and 3.(a) herein) exceeds the 5% Threshold, this Continuing Connected Transaction constitutes a Non-exempt Continuing Connected Transaction of the Company for the relevant period, and the proposed New Caps for the relevant period are subject to the reporting and announcement requirements, the annual review requirements, and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since this Continuing Connected Transaction for the three years ending 31 December 2026 (on an aggregated basis) is a Non-exempt Continuing Connected Transaction and the proposed New Caps for the relevant period are subject to the approval of the Independent Shareholders, the New Transmissions Supply Framework Agreement is conditional upon the relevant resolution being passed at the EGM.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

(c) Sale of axles and related products by Hande Axle to Yangzhou Yaxing and its subsidiaries

Agreement: New Axles Supply Framework Agreement Date: 30 August 2023 Parties: 1. Hande Axle 2. Yangzhou Yaxing Term: 1 January 2024 to 31 December 2026 Other terms and The terms of the New Axles Supply Framework details: Agreement are substantially the same as those of the Existing Axles Supply Framework Agreement.

Pursuant to the New Axles Supply Framework Agreement, Hande Axle agreed to sell axles and related products to Yangzhou Yaxing and its subsidiaries at market prices and/or prices agreed according to the principle of fairness and reasonableness for a term of three years ending 31 December 2026. Depending on the terms of the definitive agreements to be entered into by the parties, the relevant price for the relevant products shall, as the case maybe, be settled on a monthly or quarterly basis. Upon the expiry of the term of the agreement, the parties may renew the term for a period of three years on a mutually agreed basis.

Price determination and internal control procedures

According to the Letter from the Board, the price of the said products shall be determined according to the following mechanism: the sales department of the Group normally conducts market research and analysis regarding specific products, in which a number of factors, including the overall market prices on at least an annual basis, market shares, ordering situation and performance of major competitors of such products, are comprehensively considered, submits a price suggestion after its analysis to the Group’s price management department and the final prices are determined at arm’s length negotiation among the parties. The price management department of the Group regularly reviews the reasonableness of prices and makes amendments when necessary.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Connected Transactions prepared by the Group’s finance department, which compared such accumulated annual transaction amount of each Continuing Connected Transaction against the respective pre-approved cap. We note that if any accumulated annual transaction amount of any such Continuing Connected Transaction exceeds 70% of the pre-approved annual cap, the relevant Continuing Connected Transaction shall be reported to the Company’s board office for monitoring, follow-up and, if necessary, revision of the annual cap in accordance with the requirements of the Listing Rules. On the basis of the above, we are of the view that (i) the Group’s internal control measures in place as stated above are effective; and (ii) such internal control measures have ensured the terms of the Continuing Connected Transactions will be no less favourable than those entered into between the Group and the independent third parties.

In addition, we have reviewed two samples of transactions selected from the transactions conducted with the Company’s related party, of which the selection criteria is being selected by the Company on a random basis, to confirm that the relevant transaction prices were at or better than normal commercial terms offered to independent third parties. As the selection criteria has adequately covered the transactions relating to the sale of axles and related products by Hande Axle to Yangzhou Yaxing and its subsidiaries, we consider that the selected sample size is adequate, sufficient, fair and representative in concluding our view that the above pricing policy was properly followed. In addition, we note that the Company’s independent non-executive Directors, the internal audit team and the auditors of the Company review the transactions in relation to the New Framework Agreements on an annual basis. Accordingly, we are of the view that the terms of the transactions between the Company and its related parties are fair and reasonable so far as the Company and the Independent Shareholders are concerned and the Company’s internal control measures are able to ensure that the Continuing Connected Transactions are made on terms no less favourable to the Group as compared to those available to independent third parties.

The table below summarises the Existing Caps for the three years ending 31 December 2023 for the Continuing Connected Transaction set out in this sub-section 2.(c):

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	77,000,000	90,000,000	101,000,000

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

The table below summarises the actual transaction amounts for the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for the Continuing Connected Transaction set out in this sub-section 2.(c) and the relevant utilisation rates of each of the relevant Existing Caps:

			For the nine
	For the year	For the year	months
	ended	ended	ended
	31 December	31 December	30 September
	2021	2022	2023
	RMB	RMB	RMB
	(audited)	(audited)	(unaudited)
Actual transaction amount	14,213,499	21,124,342	7,184,183
Utilisation Rate (%)	18.46	23.47	9.48*

* Calculated after adjustment of the Existing Cap for nine months on a pro-rata basis.

As shown above, the utilisation rates of the actual transaction amount compared to the Existing Caps for the two financial years ended 31 December 2022 were at approximately 18.46% and 23.47% respectively and the utilisation rate for the nine months ended 30 September 2023 was approximately 9.48% (after adjustment of the Existing Cap for nine-month period on a pro-rata basis).

The Company estimates that the transaction amount for this Continuing Connected Transaction as set out in this sub-section 2.(c) for the three years ending 31 December 2026 will not exceed RMB23,000,000, RMB26,000,000 and RMB29,000,000, respectively, and such amounts have accordingly been set as the proposed New Caps for this Continuing Connected Transaction. We consider that

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

the reduction in proposed New Caps is fair and reasonable given the relatively low utilisation rates as illustrated above.

Taking into account the low utilisation rate of the relevant Existing Caps, the proposed New Caps of this Continuing Connected Transaction have been adjusted downwards significantly from the Existing Caps, with the proposed New Cap for the year ending 31 December 2024 of RMB23,000,000 representing a decrease of approximately 77.2% of the Existing Cap for the year ending 31 December 2023, which is determined with reference to the actual transaction amounts as benchmarks taking into account the expectation that the market conditions will further improve for the three years ending 31 December 2026 and the possibility of policy-driven temporary surges in market demands, and with the proposed New Cap for the year ending 31 December 2024 being comparable to the historical transaction amount for the year ended 31 December 2022.

Based on the Company’s research of the market conditions and the expected sales plan of the Group, in light of the abovementioned expected improving trend of market conditions, for the three years ending 31 December 2026, the Group estimates that Hande Axle will sell 2,000, 2,250 and 2,500 units of axles to Yangzhou Yaxing and its subsidiaries, respectively, which is comparable to the total number of axles sold in the year 2022 of approximately 2,500 units. Taking into account (i) the expected increase in the sales of passenger vehicles by Yangzhou Yaxing and its subsidiaries according to the sales plan of Yangzhou Yaxing, (ii) expected increase in the demand for axles and related products by Yangzhou Yaxing and its subsidiaries, and (iii) the sales plan of the Group for the coming three years having taken into consideration of the expected market conditions, the Company expects that the transaction amount for this Continuing Connected Transaction would increase for the three years ending 31 December 2026.

Basis of computation of New Caps

The New Caps for this Continuing Connected Transaction have been prepared by the Company based on the relevant historical transaction amount and the abovementioned expectations. Taking into account the low utilisation rates of the relevant Existing Caps, the Board proposed that the New Cap for the year ending 31 December 2024 be adjusted downwards to RMB23,000,000 to reflect the latest actual transaction amounts, further, on the basis of all the aforesaid factors, it is estimated that the overall transaction amount of the sale of axles and related products by Hande Axle to Yangzhou Yaxing and its subsidiaries on an annual basis will increase by approximately 13.0% and 11.5% for each of the two years ending 31 December 2026, respectively.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

The table below summarises the proposed New Caps for the Continuing Connected Transaction as set out in this sub-section 2.(c) for the three years ending 31 December 2026:

			2024	2025	2026
			RMB	RMB	RMB
Proposed	New	Cap	23,000,000	26,000,000	29,000,000

As the highest percentage ratio calculated in accordance with the Listing Rules for this Continuing Connected Transaction for the three years ending 31 December 2026 (when aggregated with the proposed New Caps for the same period under sub-sections 1., 2.(a), 2.(b) and 3.(a) herein) exceeds the 5% Threshold, this Continuing Connected Transaction constitutes a Non-exempt Continuing Connected Transaction of the Company for the relevant period, and the proposed New Caps for the relevant period are subject to the reporting and announcement requirements, the annual review requirements, and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

3. Continuing Connected Transactions between Weichai Westport and the Group

Weichai Westport

Weichai Westport is principally engaged in the business of research and development, manufacture and sale of gas engines and parts used in motor vehicles, power generation and marine vessels and relevant parts and components, modification of gas engines, business consultation and services. Weichai Westport is held as to 51% by Weichai Holdings, a substantial Shareholder of the Company and hence, it is also ultimately governed and controlled by the Shandong Provincial People’s Government. Accordingly, Weichai Westport is a connected person of the Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

(a) Supply of base engines, gas engine parts, utility and labour services, technology development services and related products and services by the Company (and its subsidiaries and/or associates) to Weichai Westport

Agreement: New Weichai Westport Supply Agreement Date: 30 August 2023 Parties: 1. The Company 2. Weichai Westport Term: 1 January 2024 to 31 December 2026 Other terms and The terms of the New Weichai Westport Supply details: Agreement are substantially the same as those of the Existing Weichai Westport Supply Agreement.

Pursuant to the New Weichai Westport Supply Agreement, each of the Company and its subsidiaries and/or associates shall supply certain base engines, gas engine parts, utility and labour services, technology development services and related products and services to Weichai Westport, at market prices and/ or prices agreed according to the principle of fairness and reasonableness for a term of three years ending 31 December 2026. Base engines are basic form engines composed of parts that are applicable in a variety of types of engines, and may be modified or assembled into different types of engines by further processing. The Company and its subsidiaries and/or associates supply base engines to Weichai Westport, and Weichai Westport will process the base engines into gas engines (being engines using gas as fuel) and sell to its customers. Weichai Westport will also sell some of its gas engines back to the Company and its subsidiaries and/or associates, for the Company and its subsidiaries and/or associates to equip their vehicle products with gas engines or sell further to their customers such as gas-fuelled truck manufacturers. The purchase of gas engines and related products and services by the Company and its subsidiaries and/or associates from Weichai Westport also constitutes continuing connected transactions under the Listing Rules of the Group, and further details are provided under the section headed “3.(b) Purchase of gas engines, gas engine parts, labour services and related products and services by the Company (and its subsidiaries and/or associates) from Weichai Westport” of the Circular.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Price determination and internal control procedures

According to the Letter from the Board, the sale price of the said products and services is determined according to the following mechanism: the sales department of the Group normally conducts market research and analysis regarding specific products on at least an annual basis, in which a number of factors, including the overall market prices, market shares, ordering situation and performance of major competitors of such products, are comprehensively considered, submits a price suggestion after its analysis to the Group’s price management department and the final prices are determined at arm’s length negotiation among the parties. The price management department of the Group regularly reviews the reasonableness of prices and makes amendments when necessary.

In addition, we have reviewed two samples of transactions selected from the transactions conducted with the Company’s related party, of which the selection criteria is being selected by the Company on a random basis, to confirm that the relevant transaction prices were at or better than normal commercial terms offered to independent third parties. As the selection criteria has adequately covered the transactions relating to the supply of base engines, gas engine parts, utility and labour services, technology development services and related products and services by the Company (and its subsidiaries and/or associates) to Weichai Westport, we consider that the selected sample size is adequate, sufficient, fair and representative in concluding our view that the above pricing policy was properly followed. In addition, we note that the Company’s independent non-executive Directors, the internal audit team and the auditors of the Company review the transactions in relation to the New Framework Agreements on an annual basis. Accordingly, we are of the view that the terms of the transactions between the Company and its related

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

parties are fair and reasonable so far as the Company and the Independent Shareholders are concerned and the Company’s internal control measures are able to ensure that the Continuing Connected Transactions are made on terms no less favourable to the Group as compared to those available to independent third parties.

The table below summarises the Existing Caps for the Continuing Connected Transaction set out in this sub-section 3.(a) for the three years ending 31 December 2023:

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	580,000,000	630,000,000	680,000,000

The table below summarises the actual transaction amounts for each of the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for the Continuing Connected Transaction set out in this sub-section 3.(a) and the relevant utilisation rates of each of the relevant Existing Caps:

			For the nine
	For the year	For the year	months
	ended	ended	ended
	31 December	31 December	30 September
	2021	2022	2023
	RMB	RMB	RMB
	(audited)	(audited)	(unaudited)
Actual transaction amount	293,254,311	340,999,228	296,673,212
Utilisation Rate (%)	50.56	54.13	58.17*

* Calculated after adjustment of the Existing Cap for nine months on a pro-rata basis.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

demand for natural gas-fueled trucks in the ultimate market users, and accordingly, there has been a need to stock up inventory for the relevant gas machines and related products, resulting in the Group having been able to maintain stable sales during the period. For illustrative purposes, in August 2023, the sale of natural gas-fueled trucks amounted to 18,900 units which represented a year-on-year increase of around 562%. Such demand in gas-fueled trucks, coupled with the fact that the Group started development of its gas engine products early on and gained a competitive edge over its products, resulted in the Group improving its market share in the gas engine market in recent years.

As shown above, the utilisation rates of the actual transaction amounts compared to the Existing Caps for the two financial years ended 31 December 2022 were over half at approximately 50.56% and 54.13% respectively and the utilisation rate for the nine months ended 30 September 2023 was over half at approximately 58.17% (after adjustment of the Existing Cap for nine-month period on a pro-rata basis).

The Company estimates that the transaction amount of this Continuing Connected Transaction for the three years ending 31 December 2026 shall not exceed RMB896,000,000, RMB906,000,000 and RMB935,000,000 respectively, and the same have been accordingly set as the proposed New Caps for this Continuing Connected Transaction.

– 84 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Basis of computation of New Caps

The table below summarises the proposed New Caps for the Continuing Connected Transaction as set out in this sub-section 3.(a) for the three years ending 31 December 2026:

			2024	2025	2026
			RMB	RMB	RMB
Proposed	New	Cap	896,000,000	906,000,000	935,000,000

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

New Caps for the relevant period are subject to the reporting and announcement, the annual review requirements, and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since this Continuing Connected Transaction for the three years ending 31 December 2026 (on an aggregated basis) is a Non-exempt Continuing Connected Transaction and the proposed New Caps for the relevant period are subject to the approval of the independent Shareholders, the New Weichai Westport Supply Agreement is conditional upon the relevant resolution being passed at the EGM.

(b) Purchase of gas engines, gas engine parts, labour services and related products and services by the Company (and its subsidiaries and/or associates) from Weichai Westport

Agreement: New Weichai Westport Purchase Agreement Date: 30 August 2023 Parties: 1. The Company 2. Weichai Westport Term: 1 January 2024 to 31 December 2026 Other terms and The terms of the New Weichai Westport Purchase details: Agreement are substantially the same as those of the Existing Weichai Westport Purchase Agreement.

Pursuant to the New Weichai Westport Purchase Agreement, the Company and its subsidiaries and/or associates shall purchase certain gas engines, gas engine parts, labour services and related products and services from Weichai Westport, at market prices and/or prices agreed according to the principle of fairness and reasonableness for a term of three years ending 31 December 2026. Gas engines are engines using gas as fuel and are processed from base engines (being basic form engines). Weichai Westport purchases base engines and related products and services from the Company and its subsidiaries and/or associates, and process base engines into gas engines to further sell to its customers. The Company and its subsidiaries and/or associates also purchase gas engines from Weichai Westport to equip their vehicle products with gas engines or further sell to their customers such as gas-fuelled truck manufacturers. The sale of base engines by the Company and its subsidiaries and/or associates to Weichai Westport also constitutes continuing connected transactions under the Listing Rules of the Group, and further details are provided under the section headed “3.(a) Supply of base engines, gas engine parts, utility and labour services, technology development services and related products and services by the Company (and its subsidiaries and/or associates) to Weichai Westport” of the Circular.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Price determination and internal control procedures

According to the Letter from the Board, the sale price of the said products and services is determined according to the following mechanism: the procurement department of the Company shall normally carry out market research and analysis on at least an annual basis, taking into account a number of factors (including the prices of at least one to two relevant products in the market in general, market share, orders situation and performance of major competitors in the market). The final price shall be determined based on arm’s length negotiations between the parties. The price management department shall review the reasonableness of the price on a regular basis and make adjustments where necessary.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

is adequate, sufficient, fair and representative in concluding our view that the above pricing policy was properly followed. In addition, we note that the Company’s independent non-executive Directors, the internal audit team and the auditors of the Company review the transactions in relation to the New Framework Agreements on an annual basis. Accordingly, we are of the view that the terms of the transactions between the Company and its related parties are fair and reasonable so far as the Company and the Independent Shareholders are concerned and the Company’s internal control measures are able to ensure that the Continuing Connected Transactions are made on terms no less favourable to the Group as compared to those available to independent third parties.

The table below summarises the Existing Caps for the three years ending 31 December 2023 for the Continuing Connected Transaction set out in this sub-section 3.(b):

		2021	2022	2023
		RMB	RMB	RMB
Existing	Cap	5,270,000,000	6,320,000,000	7,570,000,000

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

The table below summarises the actual transaction amounts for each of the two years ended 31 December 2022 (audited) and the nine months ended 30 September 2023 (unaudited) for the Continuing Connected Transaction set out in this sub-section 3.(b) and the relevant utilisation rates of each of the relevant Existing Caps:

			For the nine
	For the year	For the year	months
	ended	ended	ended
	31 December	31 December	30 September
	2021	2022	2023
	RMB	RMB	RMB
	(audited)	(audited)	(unaudited)
Actual transaction amount	2,389,305,998	810,590,661	3,393,102,175
Utilisation Rate (%)	45.34	12.83	59.76*

* Calculated after adjustment of the Existing Cap for nine months on a pro-rata basis.

In 2022, impacted by the pandemic control policies, the recovery of the economy has been slower than expected. With the sluggish economic market conditions in 2021 and the over satisfaction of demands in earlier years triggered by the stringent environmental policies implemented in the second half of 2021, which resulted in an exceptional surge of sales in 2021, there existed a large volume of vehicles in operation and the intention of purchasing new vehicles for replacement is generally weak. Such substantive drop in demands for vehicles had, in turn, affected the demand for engines. Nonetheless, with lower domestic price of natural gas fuels compared with that of petrol or diesel, there has been a strong demand for natural gas-fueled trucks in the ultimate market users, and accordingly, there has been a need to stock up inventory for the relevant gas machines and related products, resulting in increase in the purchase of gas engines by the Group in the first half of 2023.

As shown above, the utilisation rates of the actual transaction amounts compared to the Existing Caps for the two financial years ended 31 December 2022 were approximately 45.34% and 12.83% respectively and the utilisation rate for the nine months ended 30 September 2023 was approximately 59.76% (after adjustment of Existing Cap for nine-month period on a pro-rata basis).

Taking into account the utilisation rate of the relevant Existing Caps, the proposed New Caps of this Continuing Connected Transaction have been adjusted

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

downwards from the Existing Caps, with the proposed New Cap for the year ending 31 December 2024 of RMB4,644 million representing a decrease of approximately 38.7% of the Existing Cap for the year ending 31 December 2023, and are determined with reference to the actual transaction amounts as benchmarks, in particular the actual transaction amount for the nine months ended 30 September 2023.

Based on the Company’s research of the market conditions and the lower domestic price of natural gas fuels compared with that of petrol or diesel, there has been a strong demand for natural gas-fueled trucks. Against such background, it is expected that the Group will continue to leverage on its competitive edge in its development of gas engine products, and result in a growth of 20% in the procurement of gas engines from Weichai Westport in 2024 compared with the estimated purchase amount in 2023 (such an estimation is based on the actual transaction amount of the first half of 2023), with milder growth for the two years ending 31 December 2026.

We have discussed with the Company and understand that in 2021 and 2022, affected by the sluggish performance of the heavy-duty vehicle industry, the amount of procurement made by the Group from Weichai Westport had been lower than expected. However, in the first half of 2023, with the improved economic conditions and having policies in place which resulted in a gradual release of demands, there has been increased factors favourable to the development of the industry, and hence it is expected that the heavy duty vehicle market will rebound. This is demonstrated by the improvement in the actual transaction amount for the nine months ended 30 September 2023. According to the sales projection of the Group’s heavy-duty vehicles (with gas engines installed) and gas engines, the Company expects that the transaction amount of the said gas engines, gas engine parts and related products purchased by the Group from Weichai Westport to maintain a steady growth for the three years ending 31 December 2026, in line with an increase in the volume of these products to be sold by the Group to third party customers after purchasing the relevant services to modify and assemble the same from Weichai Westport, and the national policies of the PRC and the Group’s development plans which are expected to be favourable to the market of the Group’s gas engines.

Basis of computation of New Caps

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Existing Cap of RMB7,570 million for the year ending 31 December 2023. Further, taking into account and on the basis of all the aforesaid factors, it is estimated that the overall transaction amount of the purchase of gas engines, gas engine parts, labour services and related products and services by the Group from Weichai Westport on an annual basis will increase mildly by approximately 0.3% and 1.0% for each of the two years ending 31 December 2026, respectively.

The table below summarises the proposed New Caps for the Continuing Connected Transaction as set out in this sub-section 3.(b) for the three years ending 31 December 2026:

2024 2025 2026 RMB RMB RMB Proposed New Cap 4,644,000,000 4,656,000,000 4,704,000,000

As the highest percentage ratio calculated in accordance with the Listing Rules for this Continuing Connected Transaction for the three years ending 31 December 2026 exceeds the 5% Threshold when aggregated with the transactions as disclosed in the announcement of the Company dated 27 January 2022, this Continuing Connected Transaction constitutes a Non-exempt Continuing Connected Transaction of the Company for the relevant period, and the proposed New Caps for the relevant period are subject to the reporting and announcement requirements, the annual review requirements, and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Since this Continuing Connected Transaction for the three years ending 31 December 2026 is a Non-exempt Continuing Connected Transaction and the proposed New Caps are subject to the approval of the Independent Shareholders, the New Weichai Westport Purchase Agreement is conditional upon the relevant resolution being passed at the EGM.

– 91 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

E. Reasons for and benefits of the Continuing Connected Transactions

According to the Letter from the Board, the reasons for the Company to enter into the New Framework Agreements are as follows:

Continuing Connected Transactions between Weichai Holdings (and its associates) and the Group

According to the Letter from the Board, as the Company has conducted these Continuing Connected Transactions with the relevant entities for many years and the Company has built up a long term strategic and solid business relationship with these entities, the Directors (including the independent non-executive Directors) consider it beneficial to the Company to continue to conduct these Continuing Connected Transactions in order to ensure and maximize operating efficiency and stability of the operations of the Company. The Directors (including the independent non-executive Directors) are not aware of any disadvantage to the Group in continuing to conduct the Continuing Connected Transactions.

Continuing Connected Transactions between Yangzhou Yaxing (and its subsidiaries) and the Group

As at the date of the Circular, Weichai Holdings is a substantial shareholder and a connected person of the Company. Since Yangzhou Yaxing is a subsidiary of Weichai Holdings, Yangzhou Yaxing and its subsidiaries are associates of Weichai Holdings and connected persons of the Company under Chapter 14A of the Listing Rules. The entering into of the New Framework Agreements between the Group and Yangzhou Yaxing and the transactions contemplated thereunder constitute continuing connected transactions of the Company.

The Group is engaged in, inter alia, the manufacture and sale of diesel engines, transmissions, axles and related products. Yangzhou Yaxing and its subsidiaries are principally engaged in the development, manufacture and sale of passenger vehicles. Yangzhou Yaxing and its subsidiaries purchase engines, new energy powertrain and

– 92 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

related products, transmissions and axles from the Group as components for the production of passenger vehicles. According to the Letter from the Board, the sales of passenger vehicles by Yangzhou Yaxing and its subsidiaries are expected to increase according to its sales plan, and the demand for engines, new energy powertrain and related products, transmissions and axles and the proportion of vehicles of Yangzhou Yaxing utilising the Group’s products are also expected to increase. The Directors (including the independent non-executive Directors) consider that such Continuing Connected Transactions will create synergy potential and strategic benefits between Yangzhou Yaxing and the Group, and will also provide a secured source of revenue for the Group.

Continuing Connected Transactions between Weichai Westport and the Group

The Directors (including the independent non-executive Directors) are of the view that all the Continuing Connected Transactions, and the relevant proposed New Caps, are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Accordingly, based on the above reasons and benefits for the Continuing Connected Transactions, we consider that the New Framework Agreements are on normal commercial terms or better and are fair and reasonable and are in the interests of the Company and the Independent Shareholders as a whole. We also consider the potential for the Company to maximize operating efficiency, obtain a secure source of revenue and potential synergistic benefits to be beneficial to the Company and the Independent Shareholders as a whole.

– 93 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

F. Internal Control Procedures

The internal control procedures for the respective New Framework Agreements have been set out in Section D above.

In addition, to safeguard the interests of the Company and the Shareholders as a whole, the Company has adopted certain internal control measures in respect of the Continuing Connected Transactions as elaborated below:

The Company’s board office shall carry out regular meetings on the management and control of connected transactions to monitor and ensure that all the relevant Continuing Connected Transactions are in compliance with the relevant rules and regulations and the terms of the relevant New Framework Agreements.
The Group has designated a team within its finance department to, on a monthly basis, collect data on the accumulated annual transaction amount of each Continuing Connected Transaction and compare such accumulated annual transaction amount of each Continuing Connected Transaction against the respective pre-approved cap, and such designated team directly reports to the financial controller of the Group with respect to the Continuing Connected Transactions. If any accumulated annual transaction amount of any such Continuing Connected Transaction exceeds 70% of the pre-approved annual cap, the relevant Continuing Connected Transaction shall be reported to the Company’s board office for monitoring, follow-up and, if necessary, revision of the annual cap in accordance with the requirements of the Listing Rules.
The independent non-executive Directors, the internal audit team and the auditors of the Company shall review the transactions in relation to the New Framework Agreements on an annual basis and confirm in the annual reports the matters set out in Rules 14A.55 and 14A.56 of the Listing Rules, respectively.

We have reviewed the monthly monitoring report on the accumulated annual transaction amount of the Continuing Connected Transactions prepared by the Group’s finance department as stated above and have discussed with the management on the implementation of the above internal control measures. We consider that such methods and procedures adopted by the Company, including and not limited to the collection of market information, conducting price consultations and inspection in the PRC market, negotiations taking into account of the market price and relevant product cost and regular review by the relevant department, will enable the Company to ensure that the terms and conditions of the Non-exempt Continuing Connected Transactions are conducted on normal commercial terms or better in accordance with the New Framework Agreements, and that the New Caps will not be exceeded.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ON THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

RECOMMENDATION

Having considered the principal factors and reasons referred to above, we are of the opinion that the terms of the Non-exempt Continuing Connected Transactions and the relevant New Caps are on normal commercial terms or better and in the ordinary and usual course of business of the Company and are fair and reasonable so far as the Independent Shareholders are concerned and the said terms are in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we would advise the Independent Shareholders and the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolution to approve the terms of the Non-exempt Continuing Connected Transactions and the relevant New Caps at the EGM.

Yours faithfully, For and on behalf of Trinity Corporate Finance Limited Joanne Pong Responsible Officer

– 95 –

APPENDIX

GENERAL INFORMATION

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

As at the Latest Practicable Date, the interests and short positions of the Directors and Supervisors in the shares, underlying shares and debentures of the Company notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or as recorded in the register required to be kept by the Company under section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (as if it were applicable also to the Supervisors of the Company) were as follows:

Interests in the Shares of the Company

Name of Director Capacity Tan Xuguang Beneficial owner Zhang Quan Beneficial owner Sun Shaojun Beneficial owner Yuan Hongming Beneficial owner Interest held by spouse	Number of A Shares held Number of H Shares held 58,842,596 (Note 1) – 13,684,324 (Note 1) – 13,684,324 (Note 1) – 1,000,440 – 444 – 1,000,884 –	Percentage of the issued share capital of the Company 0.67% 0.16% 0.16% 0.011% 0.000005%
		0.011%

– 96 –

APPENDIX

GENERAL INFORMATION

Notes:

These shares were derived from the previous domestic shares of the Company. The domestic shares were ordinary shares issued by the Company, with a Renminbi-denominated par value of RMB1.00 each, which were subscribed for and paid up in Renminbi or credited as fully paid up. These shares became “A” shares of the Company upon the “A” share listing of the Company on the Shenzhen Stock Exchange.
All the shareholding interests listed in the above table are “long” position.
The percentage shareholding is calculated on the basis of 8,726,556,821 issued shares of the Company as at the Latest Practicable Date (comprising 6,783,516,821 A Shares and 1,943,040,000 H Shares).

Interests in the shares of associated corporations of the Company

Name of Director Name of associated corporation Nature of interest Richard Robinson Smith KION Group AG (“KION”) Beneficial owner	Class and number of securities interested or deemed to be interested 50,000 ordinary shares	Approximate percentage interest in the entire issued share capital of associated corporation 0.04%

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, the chief executive nor the supervisors had an interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations that was notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or was recorded in the register required to be kept pursuant to Section 352 of the SFO, or as otherwise notified to the Company pursuant to the Model Code for Securities Transaction by Directors of Listed Issuers.

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APPENDIX

GENERAL INFORMATION

The register of substantial Shareholders maintained by the Company pursuant to Section 336 of the SFO (including interests filed with the Stock Exchange) shows that as at the Latest Practicable Date, the following persons (other than the Directors, the chief executive and the supervisors) had the following interests and short positions (if any) in the shares and underlying shares of the Company:

Name Capacity Long/Short position Number of A Shares Percentage of share capital comprising only A Shares Weichai Group Holdings Limited Beneficial owner Long 1,422,550,620 20.97% Shandong Heavy Industry Group Co., Ltd.(Note 1) Interest of controlled corporation Long 1,422,550,620 20.97% Brandes Investment Partners, LP_(Note 3) Investment manager Long – – Lazard Emerging Markets Equity Portfolio(Note 4) Investment manager Long – – Barclays PLC(Note 3) Person having a security interest in shares Long – – Interest of controlled corporation Long – – Interest of controlled corporation Short – – Morgan Stanley (Note 2)_ Interest of controlled corporation Long – – Interest of controlled corporation Short – –	Number of H Shares – – 78,578,612 23,707,500 525,552 25,453,050 25,978,602 24,102,475 49,335,508 42,078,545	Percentage of share capital comprising only H Shares – – 16.18% 5.86% 0.11% 5.24% 5.35% 4.96% 5.08% 4.33%	Percentage of total issued share capital 16.30% 16.30% 3.60% 1.30% 0.02% 1.17%
			1.19%

			1.10% 1.13% 0.96%

– 98 –

APPENDIX

GENERAL INFORMATION

Name Capacity Long/Short position Number of A Shares Percentage of share capital comprising only A Shares Lazard Asset Management LLC Investment manager Long – – Pzena Investment Management, LLC Investment manager Long – – Beneficial owner Long – – Citigroup Inc. Interest of controlled corporation Long – – Approved lending agent Long – – Interest of controlled corporation Short – – JPMorgan Chase & Co. Interest of controlled corporation Long – – Investment manager Long – – Person having a security interest in shares Long – – Approved lending agent Long – – Interest of controlled corporation Short – – BlackRock, Inc. Interest of controlled corporation Long – – Interest of controlled corporation Short – –	Number of H Shares 156,532,231 139,121,000 641,000 139,762,000 4,212,066 126,978,467 131,190,533 3,830,707 12,494,379 27,566,040 4,437,569 58,514,810 103,012,798 9,873,808 99,818,166 6,305,000	Percentage of share capital comprising only H Shares 8.06% 7.16% 0.03% 7.19% 0.21% 6.54% 6.75% 0.20% 0.64% 1.42% 0.23% 3.01% 5.30% 0.50% 5.14% 0.32%	Percentage of total issued share capital 1.79% 1.59% 0.01%
			1.60%

			0.04% 1.46%
			1.50%

			0.04% 0.14% 0.32% 0.05% 0.67%
			1.18%

			0.11% 1.14% 0.07%

– 99 –

APPENDIX

GENERAL INFORMATION

Notes:

Shandong Heavy Industry Group Co., Ltd., being a subsidiary of the State-owned Assets Supervision and Administration Commission of Shandong Province, held the entire share capital of Weichai Group Holdings Limited (formerly known as Weifang Diesel Engine Works).
The number of H shares (and the relevant shareholding percentages) reported above by the relevant substantial shareholder does not take into consideration the Company’s bonus share issuance on 21 July 2017 as there is no disclosure of interest obligation under the SFO where there is no change in percentage of shareholdings for a substantial shareholder.
The number of H shares (and the relevant shareholding percentages) reported above by the relevant substantial shareholder does not take into consideration the Company’s bonus share issuance on 21 July 2017 and 20 August 2015 as there is no disclosure of interest obligation under the SFO where there is no change in percentage of shareholdings for a substantial shareholder.
The number of H shares (and the relevant shareholding percentages) reported above by the relevant substantial shareholder does not take into consideration the Company’s bonus share issuance on 21 July 2017, 20 August 2015 and 17 August 2012 as there is no disclosure of interest obligation under the SFO where there is no change in percentage of shareholdings for a substantial shareholder.

Save as disclosed above, the Company had not been notified of any other relevant interests or short positions in the issued share capital of the Company as at the Latest Practicable Date.

As at the Latest Practicable Date, so far as is known to the Directors, the following Directors held offices in the substantial Shareholders set out above:

	Positions held in	Positions held in
Name of Director	Weichai Holdings	Shandong Heavy Industry
Tan Xuguang	Chairman	Chairman and general
		manager
Ma Changhai	General manager	–
Wang Decheng	Vice-chairman	–
Sun Shaojun	Director	Deputy general manager

3. ARRANGEMENTS AND MATTERS CONCERNING DIRECTORS

(a) None of the Directors has entered into any service contract with the Group, which is not expiring or determinable by the Group within one year without payment of compensation (other than the payment of statutory compensation).
(b) As at the Latest Practicable Date, none of the Directors was interested, directly or indirectly, in any assets which, since 31 December 2022, being the date to which the latest published audited consolidated financial statements of the Group were made up, had been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

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APPENDIX

GENERAL INFORMATION

(c) As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date and entered into by the Group since 31 December 2022, being the date to which the latest published audited consolidated financial statements of the Group were made up, and which was significant in relation to the business of the Group.
(d) As at the Latest Practicable Date, save for the directorship of Mr. Zhang Quan in 北汽福田汽車股份有限公司 (Beiqi Foton Motor Co., Ltd.) (“ Beiqi Foton ”), none of the Directors or their respective associates had any interest in a business which competed or might compete with the business of the Company. The Company has an approximately 1.22% interest in the shares of Beiqi Foton. Beiqi Foton is also a customer of the Company’s diesel engines. Beiqi Foton is engaged in the production of, inter alia, heavy-duty vehicles/trucks.

4. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2022, the date to which the latest audited consolidated financial statements of the Group were made up.

5. EXPERT

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

Name Qualification

Trinity Corporate Finance A corporation licensed to carry on regulated activity Limited type 6 (advising on corporate finance) under the SFO
(b) As at the Latest Practicable Date, the Independent Financial Adviser did not have any shareholding in the Company or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group, nor did it have any interest, direct or indirect, in any assets which had, since the date to which the latest published audited consolidated financial statements of the Group were made up, been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.
(c) The Independent Financial Adviser has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and references to its name in the forms and contexts in which they appear. The letter of the Independent Financial Adviser contained herein was issued on 30 November 2023 and was made by the Independent Financial Adviser for incorporation in this circular.

– 101 –

APPENDIX

GENERAL INFORMATION

6. GENERAL

In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

7. DOCUMENTS ON DISPLAY

Copies of the following documents will be published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.weichaipower.com) from the date of this circular up to and including the date of EGM.

(a) the New Framework Agreements;
(b) the letter from the Independent Board Committee, the text of which is set out in the circular;
(c) the letter from the Independent Financial Adviser, the text of which is set out in the circular; and
(d) the written consent from the expert referred to in the paragraph headed “5. Experts” in this appendix.

– 102 –

NOTICE OF EGM

濰柴動力股份有限公司 WEICHAI POWER CO., LTD.

(a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 2338)

NOTICE OF EXTRAORDINARY GENERAL MEETING OF THE SHAREHOLDERS OF WEICHAI POWER CO., LTD.

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of Weichai Power Co., Ltd. (the “ Company ”) will be held at the Company’s conference room at 197, Section A, Fu Shou East Street, High Technology Industrial Development Zone, Weifang, Shandong Province, the People’s Republic of China on 29 December 2023 at 2:50 p.m. for the purposes of considering and, if thought fit, approving the matters set out below. Unless the context otherwise requires, terms defined in the circular to the shareholders of the Company dated 30 November 2023, of which this notice forms part (the “ Circular ”) shall have the same meaning when used herein.

AS ORDINARY RESOLUTIONS

“ THAT the New Utility Services Purchase Agreement dated 30 August 2023 referred to in the section headed “III. PRC Continuing Connected Transactions” in the “Letter From the Board” contained in the Circular and the relevant New Caps (as defined in the Circular) be and are hereby approved.” (note I)
“ THAT the New Weichai Sale and Processing Services Agreement dated 30 August 2023 referred to in the section headed “II. The Non-Exempt Continuing Connected Transactions” in the “Letter From the Board” contained in the Circular and the relevant New Caps (as defined in the Circular) be and are hereby approved.” (note I)
“ THAT the New Weichai Yangzhou Supply Framework Agreement dated 30 August 2023 referred to in the section headed “II. The Non-Exempt Continuing Connected Transactions” in the “Letter From the Board” contained in the Circular and the relevant New Caps (as defined in the Circular) be and are hereby approved.” (note I)
“ THAT the New Transmissions Supply Framework Agreement dated 30 August 2023 referred to in the section headed “II. The Non-Exempt Continuing Connected Transactions” in the “Letter From the Board” contained in the Circular and the relevant New Caps (as defined in the Circular) be and are hereby approved.” (note I)
“ THAT the New Axles Supply Framework Agreement dated 30 August 2023 referred to in the section headed “II. The Non-Exempt Continuing Connected Transactions” in the “Letter From the Board” contained in the Circular and the relevant New Caps (as defined in the Circular) be and are hereby approved.” (note I)

– 103 –

NOTICE OF EGM

“ THAT the New Weichai Westport Supply Agreement dated 30 August 2023 referred to in the section headed “II. The Non-Exempt Continuing Connected Transactions” in the “Letter From the Board” contained in the Circular and the relevant New Caps (as defined in the Circular) be and are hereby approved.” (note I)
“ THAT the New Weichai Westport Purchase Agreement dated 30 August 2023 referred to in the section headed “II. The Non-Exempt Continuing Connected Transactions” in the “Letter From the Board” contained in the Circular and the relevant New Caps (as defined in the Circular) be and are hereby approved.” (note I)
“ THAT the New Weichai Westport Logistics Agreement dated 30 August 2023 referred to in the section headed “III. PRC Continuing Connected Transactions” in the “Letter From the Board” contained in the Circular and the relevant New Caps (as defined in the Circular) be and are hereby approved.” (note I)
“ THAT the New Weichai Westport Leasing Agreement dated 30 August 2023 referred to in the section headed “III. PRC Continuing Connected Transactions” in the “Letter From the Board” contained in the Circular and the relevant New Caps (as defined in the Circular) be and are hereby approved.” (note I)

By Order of the Board of Directors Weichai Power Co., Ltd. Tan Xuguang Chairman

Hong Kong, 30 November 2023

Notes:

(A) The Company will not process registration of transfers of H shares (being overseas listed foreign shares and ordinary shares) in the share capital of the Company with a Renminbi denominated par value of RMB1.00 each, which are subscribed and/or paid for in Hong Kong dollars and listed on The Stock Exchange of Hong Kong Limited (“ H Shares ”) from 22 December 2023 to 29 December 2023 (both days inclusive). Holders of H Shares whose names appear on the register of H Shares kept at Computershare Hong Kong Investor Services Limited on 29 December 2023 are entitled to attend and vote at the EGM following completion of the registration procedures. To qualify for attendance and voting at the EGM, documents on transfers of H Shares of the Company, accompanied by the relevant share certificates, must be lodged with the Company’s H-Share Registrar, not later than 4:30 p.m. on 21 December 2023. The address of the Company’s H-Share Registrar is as follows:

Computershare Hong Kong Investor Services Limited Shops 1712–1716, 17th Floor, Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

(B) Each holder of H Shares of the Company entitled to attend and vote at the EGM may, by completing the form of proxy of the Company, appoint one or more proxies to attend and vote at the EGM on his/her behalf. A proxy need not be a shareholder of the Company. With respect to any shareholder who has appointed more than one proxy, the proxy holders may only vote on a poll.

– 104 –

NOTICE OF EGM

(C) Holders of H Shares of the Company must use the form of proxy of the Company for appointing a proxy and the appointment must be in writing. The form of proxy must be signed by the relevant shareholder or by a person duly authorised by the relevant shareholder in writing (a “ power of attorney ”). If the form of proxy is signed by the person authorised by the relevant shareholder as aforesaid, the relevant power of attorney and other relevant documents of authorisation (if any) must be notarised. If a corporate shareholder appoints a person other than its legal representative to attend the EGM on its behalf, the relevant form of proxy must be affixed with the company seal/chop of the corporate shareholder or duly signed by its director or any other person duly authorised by that corporate shareholder as required by the Articles of Association of the Company.
(D) To be valid, the form of proxy and the relevant notarised power of attorney (if any) and other relevant documents of authorisation (if any) as mentioned in Note (C) above must be delivered to the Company’s H-Share Registrar, Computershare Hong Kong Investor Services Limited (address: 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong), not less than 24 hours before the time appointed for the EGM.
(E) For holders of A Shares (being ordinary shares) in the share capital of the Company with a Renminbi denominated par value of RMB1.00 each, which are traded in Renminbi and listed on the Shenzhen Stock Exchange (“ A Shares ”), please refer to the notice of the EGM published on the website of the Shenzhen Stock Exchange in respect of the eligibility of attendance, registration procedure, proxy and other relevant matters.
(F) A shareholder or his/her proxy should produce proof of identity when attending the EGM. If a corporate shareholder’s legal representative or any other person authorised by the board of directors or other governing body of such corporate shareholder attends the EGM, such legal representative or other person shall produce his/her proof of identity, and proof of designation as legal representative and the valid resolution or authorisation document of the board of directors or other governing body of such corporate shareholder (as the case may be) to prove the identity and authorisation of that legal representative or other person.
(G) Any proposal to appoint any person to the office of director of the Company at the EGM shall be given in writing and, notice in writing by that person of his consent to be elected as director shall be, lodged at the registered office of the Company at 197, Section A, Fu Shou East Street, High Technology Industrial Development Zone, Weifang, Shandong Province, the People’s Republic of China. The period for lodgement of such notices shall commence on (and include) the day after the date of this notice of the EGM and end on (and exclude) the date that is seven (7) days before the date of the EGM.
(H) The EGM is expected to last for not more than half a day. Shareholders who attend the EGM shall bear their own travelling and accommodation expenses.
(I) Weichai Holdings and its associates will abstain from voting at the EGM in respect of this resolution.

As at the date of this notice, the executive Directors of the Company are Mr. Tan Xuguang, Mr. Zhang Quan, Mr. Ma Changhai, Mr. Wang Decheng, Mr. Sun Shaojun, Mr. Yuan Hongming, and Mr. Ma Xuyao; the non-executive Directors of the Company are Mr. Zhang Liangfu, Mr. Richard Robinson Smith and Mr. Michael Martin Macht; and the independent non-executive Directors of the Company are Ms. Jiang Yan, Mr. Yu Zhuoping, Mr. Chi Deqiang, Mr. Zhao Fuquan and Mr. Xu Bing.

– 105 –

AI assistant

Weichai Power Co., Ltd. — Proxy Solicitation & Information Statement 2023

50534_rns_2023-11-29_55deb8a8-366c-4dda-89ab-0941453b27d6.pdf

濰柴動力股份有限公司 WEICHAI POWER CO., LTD.

(1) NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS,

(2) PRC CONTINUING CONNECTED TRANSACTIONS, AND

(3) NOTICE OF EXTRAORDINARY GENERAL MEETING

Trinity Corporate Finance Limited

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

濰柴動力股份有限公司 WEICHAI POWER CO., LTD.

(Stock Code: 2338)

(1) NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS,

(2) PRC CONTINUING CONNECTED TRANSACTIONS, AND

(3) NOTICE OF EXTRAORDINARY GENERAL MEETING

I. INTRODUCTION

LETTER FROM THE BOARD

II. THE NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Summary of the Continuing Connected Transaction and the proposed New Caps

LETTER FROM THE BOARD

The Company and its subsidiaries

3. Continuing Connected Transactions between Weichai Westport and the Group

Weichai Westport

4. Reasons for the Continuing Connected Transactions

5. Listing Rules implications

6. Internal control measures

III. PRC CONTINUING CONNECTED TRANSACTIONS

New Utility Services Purchase Agreement

New Weichai Westport Logistics Agreement and New Weichai Westport Leasing Agreement

(b) Leasing of factory buildings by the Company to Weichai Westport

IV. EGM

V. CLOSURE OF REGISTER OF HOLDERS OF H SHARES

VI. RECOMMENDATIONS

VII. FURTHER INFORMATION

濰柴動力股份有限公司 WEICHAI POWER CO., LTD.

(Stock Code: 2338)

NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Trinity Corporate Finance Limited

NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

A. 1. Financial performance of the Company

2. Outlook and prospects

B. Principal Terms of the Non-exempt Continuing Connected Transactions

Name of connected person

C. Proposed New Caps

The Company and its subsidiaries

Price determination and internal control procedures

Basis of computation of New Caps

Price determination and internal control procedures

Basis of computation of New Caps

Price determination and internal control procedures

Basis of computation of New Caps

Price determination and internal control procedures

Basis of computation of New Caps

3. Continuing Connected Transactions between Weichai Westport and the Group

Weichai Westport

Price determination and internal control procedures

Basis of computation of New Caps

Price determination and internal control procedures

Basis of computation of New Caps

E. Reasons for and benefits of the Continuing Connected Transactions

Continuing Connected Transactions between Weichai Holdings (and its associates) and the Group

Continuing Connected Transactions between Yangzhou Yaxing (and its subsidiaries) and the Group

Continuing Connected Transactions between Weichai Westport and the Group

F. Internal Control Procedures

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

Interests in the Shares of the Company

Interests in the shares of associated corporations of the Company

4. MATERIAL ADVERSE CHANGE

5. EXPERT

Name Qualification

6. GENERAL

7. DOCUMENTS ON DISPLAY

濰柴動力股份有限公司 WEICHAI POWER CO., LTD.

Weichai Power Co., Ltd. Proxy Solicitation & Information Statement 2023