WEIli Holdings Limited - Proxy Solicitation & Information Statement 2015

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Daiwa Associate Holdings Limited, you should at once hand this circular and the enclosed proxy form to the purchaser or the transferee, or to the bank, stockbroker or other agent through whom the sale 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 on the whole or any part of the contents of this circular.

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

DAIWA ASSOCIATE HOLDINGS LIMITED 台和商事控股有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock code: 1037)

(I) VERY SUBSTANTIAL DISPOSAL, CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE DISPOSAL OF ENTIRE ISSUED SHARE CAPITAL OF DAIWA BVI LIMITED
(II) PROPOSED DECLARATION OF SPECIAL DIVIDEND

(III) SPECIAL MANDATE IN RELATION TO THE PROPOSED SUBSCRIPTION OF NEW SHARES AND

(IV) NOTICE OF SPECIAL GENERAL MEETING

Financial Adviser to Daiwa Associate Holdings Limited

Independent financial adviser to the Independent Board Committee and Independent Shareholders

Capitalised terms used on this cover shall have the same meanings as those defined in this circular, unless the content requires otherwise. A letter from the Board is set out on pages 10 to 36 of this circular.

A letter from the Independent Board Committee is set out on page 37 of this circular.

A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and Independent Shareholders is set out on pages 38 to 67 of of this circular.

A notice convening the SGM to be held at 11th Floor, Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong at 3:00 p.m. on Monday, 19 October 2015 is set out on pages SGM-1 to SGM-4 of this circular. Whether or not you intend to attend the meeting or any adjournment thereof, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof to the branch share registrar of the Company in Hong Kong, Tricor Abacus Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, for registration not later than 3:00 p.m. on Saturday, 17 October 2015. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting or any adjournment meeting if you so wish.

30 September 2015

For identification purpose only

	Page
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . .	37
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . .	38
Appendix I — Financial Information of the Group. . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II — Financial Information of the Disposal Group. . . . . . . . . . . . .	II-1
Appendix III — Unaudited Pro Forma Financial Information of
the Remaining Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
Appendix IV — Letters from the Reporting Accountant and
the Independent Financial Adviser on Profit Estimates. . .	IV-1
Appendix V — Property Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Appendix VI — General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
Notice of the SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SGM-1

— i —

EXPECTED TIMETABLE

Below is an indicative timetable showing the key dates of the relevant events:

Event Time and Date (1)	2015
Latest time and date for lodging forms of proxy for the SGM . . . . . . . . .	3:00 p.m.
	17 October
Time and date of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3:00 p.m.
	19 October
Publication of an announcement regarding
the poll results of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19 October
Assuming all the Resolutions proposed at the SGM are passed:
Last day of dealings in the Shares cum-entitlement to the
Special Dividend (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20 October
First day of dealings in the Shares ex-entitlement to the
Special Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22 October
Latest time for lodging transfers of the Shares with the registrar
in order to be qualified for the Special Dividend . . . . . . . . . . . . . . . . . . .	23 October
Closure of register of members (both days inclusive) for determining
the entitlement to the Special Dividend . . . . . . . . . . . . . . . . . . . . . . . . . .	26 October to
	27 October
Record Date for determining the entitlements of the qualifying
Shareholders to the Special Dividend. . . . . . . . . . . . . . . . . . . . . . . . .	27 October
Expected date of completion of the Sale and Purchase Agreement,
Disposal Agreement and Subscription Agreements (3). . . . . . . . . . . . . . .	29 October
Expected date of despatch of the cash cheque for the proposed Special
Dividend to the qualifying Shareholders . . . . . . . . . . . . . . . . . . . . . . . . .	4 November

Notes:

Dates and deadlines stated in this circular for events in the timetable above are indicative only and may be extended or varied. Any changes to the expected timetable will be announced as appropriate. All times and dates refer to Hong Kong local time.
The distribution of the Special Dividend is subject to the Disposal Completion and the Sale and Purchase Completion.
Pursuant to the Sale and Purchase Agreement, Disposal Agreement and Subscription Agreements, the respective completion shall take place on a date which shall be (A) the later of (i) five Business Days after the date on which the last of the conditions to the Sale and Purchase Agreement, Disposal Agreement and Subscription Agreements has been satisfied (or, as appropriate waived) or (ii) to the extent the Special Dividend has been declared by the Company, two Business Days after the Record Date; or (B) such other date as may be agreed in writing between the parties under the Sale and Purchase Agreement.

— ii —

DEFINITIONS

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

“acting in concert”

has the same meaning ascribed to it under the Takeovers Code

“Asia-IO Holdings BVI”

Asia-IO Holdings Limited, a company incorporated in the BVI with limited liability and controlled by Mr. Denis Tik Yang Tse

“Asia-IO Holdings BVI Subscription Agreement”

the subscription agreement dated 29 April 2015 entered into between the Company and Asia-IO Holdings BVI in relation to the subscription for 43,439,139 Subscription Shares

“Asia-IO Holdings Cayman”

Asia-IO Holdings Limited, an exempted limited liability company incorporated in the Cayman Islands and controlled by Mr. Denis Tik Yang Tse

“associate”

has the same meaning ascribed to it under the Listing Rules

“Bermuda”
the Islands of Bermuda
“Board” the board of Directors

“Business Day(s)” a day on which the banks are open for business in Hong Kong, other than Saturdays, Sundays and public holidays and/or a day on which the Stock Exchange is open for the transaction of business (as defined under the Takeovers Code)

“BVI”

the British Virgin Islands

“Certificate”

the written certificate to be issued by a qualified accountant to be jointly appointed by the Company and the Disposal Purchaser showing the net asset value of the Disposal Group as at the Completion Accounts Date

“China Capital”

China Capital Holdings Investment Limited, a company incorporated in the BVI, and is owned as to 60% by Mr. Lau and as to 40% by Ms. Chan and holding 133,948,541 Shares (representing approximately 30.64% of the existing issued capital of the Company as at the Latest Practicable Date)

— 1 —

DEFINITIONS

“Company”
Daiwa Associate Holdings Limited, a company incorporated in Bermuda with limited liability, the Shares of which are listed on the Main Board of the Stock Exchange with the stock code 1037
“Completion Accounts”
the management consolidated balance sheet of the Disposal Group as at the Completion Accounts Date and the management consolidated profit and loss account of the Disposal Group for the period from 1 April 2015 to the Completion Accounts Date, both prepared in accordance with Hong Kong Financial Reporting Standard and reviewed by a qualified accountant jointly appointed by the Company and the Disposal Purchaser, to be delivered at Disposal Completion
“Completion Accounts Date” the date of the Completion Accounts, being 31 August 2015
“connected person”
has the meaning ascribed to it in the Listing Rules
“controlling shareholder” has the meaning ascribed to it in the Listing Rules
“Director(s)”
the director(s) of the Company, from time to time
“Disposal”

the disposal of the entire issued share capital of the Disposal Company pursuant to the Disposal Agreement

“Disposal Agreement”

the sale and purchase agreement dated 29 April 2015 (as supplemented by the supplemental agreement dated 27 July 2015) entered into between the Company as vendor and the Disposal Purchaser as purchaser in respect of the Disposal

“Disposal Business”
the business carried out by the Disposal Group which principally involves Hong Kong and the PRC distribution and trading of electronic components, central management of properties holding, and Canada computer distribution
“Disposal Company”
Daiwa BVI Limited, a company incorporated in the BVI with limited liability, which upon the completion of the Group Restructuring and prior to the Disposal Completion is a wholly-owned subsidiary of the Company
“Disposal Completion”
the completion of the sale and purchase of the Disposal Shares pursuant to the Disposal Agreement
“Disposal Completion Date”
the date on which the Disposal Completion shall take place, which shall be the Sale and Purchase Completion Date

— 2 —

DEFINITIONS

“Disposal Condition(s)”
the condition(s) precedent to the Disposal Completion, further details of which are set out in the sub-section headed “B. Disposal Agreement, Special Deal and Special Dividend — Conditions precedent to the Disposal Agreement” in the section headed “Letter from the Board” of this circular
“Disposal Consideration”
HK$95.0 million (subject to adjustment) pursuant to the Disposal Agreement
“Disposal Group”
the Disposal Company and its subsidiaries
“Disposal Purchaser”
C h a m p i o n S u c c e s s H o l d i n g s L i m i t e d , a c o m p a n y incorporated in the BVI with limited liability and the issued share capital of which is wholly-owned by Mr. Lau
“Disposal Shares” an aggregate of 10,000 shares with a par value of US$1 each in the share capital of the Disposal Company, representing 100% of the issued share capital of the Disposal Company, legally and beneficially owned by the Company immediately prior to the Disposal Completion
“Disposal Subsidiaries”
the subsidiaries of the Company which operate the Disposal Business and held by the Disposal Company upon the completion of the Group Restructuring
“Executive”
Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director
“Group”

the Company and its subsidiaries

“Group Restructuring”
the proposed group restructuring of the Group to facilitate the Disposal
“Hong Kong”

the Hong Kong Special Administrative Region of the PRC

“Huatai”
Huatai Financial Holdings (Hong Kong) Limited, a licensed corporation to carry out type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO, being the financial adviser to the Offeror
“Huatai Principal Investment” Huatai Principal Investment I Limited, being one of the Subscribers, a company incorporated in the BVI with limited liability and beneficially owned by Huatai

— 3 —

DEFINITIONS

“Huatai Principal Investment Subscription Agreement”
the subscription agreement dated 29 April 2015 entered into between the Company and Huatai Principal Investment in relation to the subscription of 36,861,972 Subscription Shares
“Independent Board the independent committee of the Board comprising all Committee” the independent non-executive Directors, namely Dr. Barry John Buttifant, Mr. Choi Yuk Fan and Dr. Liu Ngai Wing, which has been established by the Company to make recommendations to the Independent Shareholders in respect of (i) the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend to be voted by the Independent Shareholders at the SGM and (ii) the Share Offer Shareholders in respect of whether the Share Offer is fair and reasonable for acceptance or not
“Independent Financial Messis Capital Limited, the independent financial adviser, Adviser” or “Messis Capital” appointed by the Independent Board Committee to advise (i) the Independent Board Committee to make recommendation to the Independent Shareholders in respect of the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend to be voted by the Independent Shareholders at the SGM and (ii) the Share Offer Shareholders in respect of whether the Share Offer is fair and reasonable for acceptance or not
“Independent Shareholders” Shareholders other than (i) the Selling Shareholders, (ii) the Offeror, its associates and parties acting in concert with it, (iii) the Subscribers, their respective associates and parties acting in concert with them, and (iv) those who are involved in or interested in all of the Special Deal, the Sale and Purchase Agreement, the Subscription Agreements and the Special Dividend
“Joint Announcement”
the announcement dated 7 August 2015 jointly issued by the Company and the Offeror in relation to, among others, the Sale and Purchase Agreement, the Special Deal, the Disposal Agreement, the Special Dividend, the Subscription Agreements and the Share Offer
“Last Trading Day”
29 April 2015, being the last trading day for the Shares immediately prior to the suspension in the trading of the Shares on the Stock Exchange pending the publication of the Joint Announcement
“Latest Practicable Date”
29 September 2015, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

— 4 —

DEFINITIONS

“Leading Trade”

Leading Trade Limited, a company incorporated in the BVI, owned as to 50% by Mr. Lau and as to 50% by Ms. Chan and holding 76,147,995 Shares (representing approximately 17.42% of the existing issued capital of the Company as at the Latest Practicable Date)

“Listing Committee”

the Listing Committee of the Stock Exchange

“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange
“MOU” the memorandum of understanding dated the MOU Date entered into between Mr. Lau, Ms. Chan and Asia-IO Holdings BVI in relation to the possible sale and purchase of all or part of the Shares held by the Selling Shareholders
“MOU Announcement”
the announcement dated 13 February 2015 issued by the Company in relation to the entering into of the MOU for the possible sale and purchase of all or part of the Shares held by the Selling Shareholders
“MOU Date” 12 February 2015
“Mr. Lau”

Mr. Lau Tak Wan, the executive Director and president of the Company, and who is personally holding 26,071,426 Shares (representing approximately 5.96% of the existing issued capital of the Company), and jointly holding 3,625,000 Shares with Ms. Chan (representing approximately 0.83% of the existing issued capital of the Company as at the Latest Practicable Date)

“Ms. Chan”
Ms. Chan Yuen Mei, Pinky, the executive Director and spouse of Mr. Lau, who is personally holding 1,428,567 Shares (representing approximately 0.32% of the existing issued capital of the Company), and jointly holding 3,625,000 Shares with Mr. Lau (representing approximately 0.83% of the existing issued capital of the Company as at the Latest Practicable Date)
“Offer Document”
the offer and response document (in either composite or separate form) together with the form of acceptance and transfer to be despatched to the Shareholders pursuant to the Share Offer
“Offer Period”
has the meaning ascribed to it in the Takeovers Code
“Offer Share(s)”

all the Share(s) in issue, other than those Shares already owned or agreed to be acquired by the Offeror and parties acting in concert with it

— 5 —

DEFINITIONS

“Offeror”
“Offeror Subscription Agreement”
“Overseas Shareholders”
“PRC”
“Proposed Directors”
“Record Date”
“Remaining Business”
“Remaining Group”
“Remaining Subsidiaries”
“Resolutions”
“Sale and Purchase Agreement”
Asia-IO Acquisition Fund, L.P., a Cayman Islands exempted limited partnership
the subscription agreement dated 29 April 2015 entered into between the Company and the Offeror in relation to the subscription for 144,698,889 Subscription Shares
Shareholder(s) whose addresses, as shown on the register of members of the Company, are outside Hong Kong
the People’s Republic of China, for the purpose of this circular, excluding Hong Kong, Macau Special Administrative Region of the People’s Republic of China and Taiwan
Mr. John Lap Shun Hui, Mr. Mark Yi-Pin Chien, Mr. Denis Tik Yang Tse, Mr. James Young Sang Ryu, Mr. Stephen Tin Lok Tang, Mr. Laurie Kan and Mr. Timothy Chen, further details of which are set out in the sub-section headed “G. Proposed change to Board composition” in the section headed “Letter from the Board” of this circular
27 October 2015 (or such other date as determined by the Board), being the date for determining the entitlements of the Shareholders to the proposed Special Dividend

the business to be carried on by the Remaining Group immediately after the Disposal Completion, which principally involves manufacturing and trading of diodes, electronic manufacturing services, and manufacturing of telecom and radio frequency devices, plastic components and wire

the Group (excluding the Disposal Group) immediately after the Disposal Completion
the remaining subsidiaries of the Company upon the completion of the Group Restructuring which include all current subsidiaries of the Company other than the Disposal Group
all resolutions required under the relevant laws and regulations to effect the Disposal Agreement, the Special Dividend, the Subscription Agreements and transactions contemplated thereunder to be voted by the Independent Shareholders at the SGM
the conditional sale and purchase agreement dated 29 April 2015 entered into between the Selling Shareholders and the Offeror in respect of the Sale Shares as amended by the Supplemental Agreement

— 6 —

DEFINITIONS

“Sale and Purchase Completion”
the completion of the sale and purchase of the Sale Shares pursuant to the Sale and Purchase Agreement
“Sale and Purchase Completion Date”
the date on which the Sale and Purchase Completion shall take place, which shall be (A) the later of (i) five Business Days after the date on which the last of the Sale and Purchase Conditions has been satisfied or waived (the “Conditions Satisfaction Date”) and (ii) to the extent the Special Dividend has been declared by the Company on or prior to the Conditions Satisfaction Date, two Business Days after the Record Date; or (B) such other date as may be agreed in writing between the parties to the Sale and Purchase Agreement
“Sale and Purchase Condition(s)”

the condition(s) precedent to the Sale and Purchase Completion, further details of which are set out in the sub-section headed “A. Sale and Purchase Agreement — Conditions precedent to the Sale and Purchase Agreement” in the section headed “Letter from the Board” of this circular

“Sale and Purchase Long Stop Date”
30 November 2015, which date may be extended from time to time by mutual written consent of the Offeror and Mr. Lau, being the representative of the Selling Shareholders
“Sale Shares”
an aggregate of 241,221,529 Shares, legally and beneficially owned by the Selling Shareholders
“Selling Shareholders”

Mr. Lau, Ms. Chan, China Capital and Leading Trade, holding in aggregate 241,221,529 Shares (representing approximately 55.17% of the existing issued capital of the Company as at the Latest Practicable Date)

“SFC”
the Securities and Futures Commission
“SFO”
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended from time to time
“SGM”
a special general meeting of the Company to be convened for the purpose of considering and, if thought fit, approving, among other things, the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder and the Special Dividend
“Shareholder(s)” holder(s) of Shares
“Shares”
the ordinary shares of HK$0.10 each in the share capital of the Company

— 7 —

DEFINITIONS

“Share Offer” the possible unconditional mandatory cash general offer to be made by Huatai on behalf of the Offeror for all the Offer Shares pursuant to Rule 26.1 of the Takeovers Code
“Share Offer Completion”

the completion of the Share Offer

“Share Offer Price”
the price at which the Share Offer will be made, being HK$1.144 per Share
“Share Offer Shareholders” Shareholders other than the Offeror and parties acting in concert with it
“Special Deal” the Disposal contemplated under the Disposal Agreement which constitutes a special deal for the Company under Rule 25 of the Takeovers Code
“Special Dividend” the proposed declaration of dividend in the amount of HK$0.23 per Share to the Shareholders on the Record Date as a Disposal Condition precedent to the Disposal Completion and before the Sale and Purchase Completion
“Special Mandate” the specific mandate granted by the Shareholders at the SGM authorisng the Board to allot and issue 225,000,000 Shares to the Subscribers (or its nominee(s)) at the Subscription price
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Subscribers”
the Offeror, Asia-IO Holdings BVI and Huatai Principal Investment
“Subscription” the subscription for the Subscription Shares by the Subscribers pursuant to the Subscription Agreements
“Subscription Agreements” the Offeror Subscription Agreement, the Asia-IO Holdings BVI Subscription Agreement and the Huatai Principal Investment Subscription Agreement
“Subscription Completion”
completion of the Subscription pursuant to the Subscription Agreements
“Subscription Completion Date”
the date on which the Subscription Completion shall take place
“Subscription Condition(s)” the condition(s) precedent to Subscription Completion, further details of which are set out in the sub-section headed “C. Subscription Agreements — Conditions precedent to the Subscription Agreements” in the section headed “Letter from the Board” of this circular

— 8 —

DEFINITIONS

“Subscription Long on or before 180th day after the date of the Subscription Stop Date” Agreements (or such later date as may be agreed between the parties to the Subscription Agreements)
“Subscription Price” the subscription price of HK$1.144 per Subscription Share “Subscription Shares” total of 225,000,000 new Shares to be subscribed by the Subscribers and issued by the Company at the Subscription Price
“Supplemental Agreement” the supplemental sale and purchase agreement entered into between Mr. Lau, for and on behalf of the Selling Shareholders, and the Offeror on 22 September 2015 to amend certain terms of the Sale and Purchase Agreement
“Takeovers Code” the Hong Kong Code on Takeovers and Mergers “Trading Day” a day on which the Stock Exchange is open for trading in Hong Kong
“HK$” Hong Kong dollars, the lawful currency of Hong Kong “US$” United States dollars, the lawful currency of United States “%” per cent.

The English transliteration of the Chinese names in this circular, where indicated, is included for information only, and should not be regarded as the official English names of such Chinese names.

— 9 —

LETTER FROM THE BOARD

DAIWA ASSOCIATE HOLDINGS LIMITED 台和商事控股有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock code: 1037)

Board of Directors: Executive: LAU Tak Wan (President) CHAN Yuen Mei, Pinky (Vice-president) CHEUNG Wai Ho CHONG Wing Kam, James FUNG Wai Ching

Independent non-executive: Barry John BUTTIFANT LIU Ngai Wing CHOI Yuk FAN

Registered Office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Head office and principal place of business: 11th Floor, Block G East Sun Industrial Centre 16 Shing Yup Street Kwun Tong, Kowloon Hong Kong

30 September 2015

To the Shareholders

Dear Sir or Madam,

(I) VERY SUBSTANTIAL DISPOSAL, CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE DISPOSAL OF ENTIRE ISSUED SHARE CAPITAL OF DAIWA BVI LIMITED (II) PROPOSED DECLARATION OF SPECIAL DIVIDEND (III) SPECIAL MANDATE IN RELATION TO THE PROPOSED SUBSCRIPTION OF NEW SHARES AND (IV) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

In the Joint Announcement dated 7 August 2015, the Company and the Offeror jointly announced that:

(i) on 29 April 2015, the Selling Shareholders and the Offeror entered into the Sale and Purchase Agreement, pursuant to which the Selling Shareholders conditionally agreed to sell or procure the sale of the Sale Shares as (direct or indirect) beneficial owners and the Offeror conditionally agreed to acquire the Sale Shares, representing approximately 55.17% of the existing issued share capital of the Company as at the date of the Joint Announcement and up to the Latest Practicable Date;

— 10 —

LETTER FROM THE BOARD

(ii) on 29 April 2015, the Company and the Disposal Purchaser entered into the Disposal Agreement (as supplemented by a supplemental agreement dated 27 July 2015), pursuant to which the Company conditionally agreed to sell and the Disposal Purchaser conditionally agreed to purchase the Disposal Shares for a consideration of HK$95.0 million, which is subject to the adjustment on a dollar-for-dollar basis as the net asset value of the Disposal Group shown in the Certificate;
(iii) the Company proposed a special dividend HK$0.23 per Share to be distributed and paid in cash to the Shareholders whose names are registered on the register of members of the Company on the Record Date, subject to the approval of the Independent Shareholders having been obtained and the Disposal Completion having taken place; and
(iv) on 29 April 2015, the Company and the Subscribers entered into the Subscription Agreements pursuant to which the Company conditionally agreed to issue, and the Subscribers conditionally agreed to subscribe, in cash, for a total of 225,000,000 new Shares for an aggregate consideration of approximately HK$257.4 million.

The purpose of this circular is to provide you with details of, among others, (i) the Sale and Purchase Agreement, (ii) the Disposal Agreement and the Special Dividend, (iii) the Subscription Agreements, (iv) the recommendation of the Independent Board Committee to the Independent Shareholders, (v) the letter of advice from Messis Capital to the Independent Board Committee and the Independent Shareholders, (vi) the financial information of the Group, (vii) the financial information of the Disposal Group, (viii) the pro forma financial information of the Remaining Group, and (ix) the notice of the SGM.

A. SALE AND PURCHASE AGREEMENT

Date: 29 April 2015 (as supplemented by the Supplement Agreement dated 22 September 2015)

Parties:

vendors: the Selling Shareholders, namely, Mr. Lau, Ms. Chan, China Capital and Leading Trade, holding in aggregate 241,221,529 Shares (representing approximately 55.17% of the existing issued capital of the Company as at the Latest Practicable Date)

purchaser: Asia-IO Acquisition Fund, L.P.. For further information, please refer to the section headed “F. Information on the Subscribers and the Offeror”

Subject of the Sale and Purchase Agreement

Pursuant to the Sale and Purchase Agreement, the Selling Shareholders conditionally agreed to sell or procure the sale of the Sale Shares as (direct or indirect) beneficial owners and the Offeror conditionally agreed to acquire the Sale Shares, representing approximately 55.17% of the existing issued share capital of the Company as at the date of the Joint Announcement and up to the Latest Practicable Date.

— 11 —

LETTER FROM THE BOARD

The Offeror has confirmed that immediately before entering into of the Sale and Purchase Agreement, it and its beneficial owners were third parties independent of the Company and its connected persons. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the Offeror, its ultimate beneficial owners and parties acting in concert with it is a third party independent of and not connected with the Company and the Company’s connected persons.

Consideration for the Sale Shares under the Sale and Purchase Agreement

The consideration for the Sale Shares is approximately HK$275,957,429, equivalent to approximately HK$1.144 per Sale Share (the “ Consideration per Sale Share ”), which was determined after arm’s length negotiations between the Offeror and the Selling Shareholders taking into account, among other things, the net asset value of the Remaining Group as at 30 September 2014, the prospects of the Remaining Group, the closing price of the Shares on the MOU Date and the fact that the Offeror will upon the Sale and Purchase Completion obtain a controlling interest in the Company.

The consideration is payable by the Offeror in the following manner:

(i) HK$16,000,000 has been paid to the Selling Shareholders upon signing of the MOU (the “ Deposit ”);
(ii) HK$14,000,000 is payable to the Selling Shareholders on the Sale and Purchase Completion by releasing the escrow cashier orders; and
(iii) the balance of the Consideration, being approximately HK$245,957,429, is payable to the Selling Shareholders on the Sale and Purchase Completion by way of cashier orders.

If all the Sale and Purchase Conditions have been satisfied or duly waived (as the case may be) in accordance with the Sale and Purchase Agreement but the Sale and Purchase Completion does not take place solely due to the Offeror’s default of its obligations under the Sale and Purchase Agreement, the Selling Shareholders shall be entitled to terminate the Sale and Purchase Agreement pursuant to the terms therein, following which they shall be entitled to confiscate a total of HK$20 million (including the Deposit).

If all the Sale and Purchase Conditions have been satisfied or duly waived (as the case may be) in accordance with the Sale and Purchase Agreement but the Sale and the Purchase Completion does not take place solely due to the Selling Shareholders’ default of its obligations under the Sale and Purchase Agreement or if any of the Sale and Purchase Conditions has not been satisfied as a result of any of the Selling Shareholders fails to use all reasonable endeavours to ensure the satisfaction of the Sale and Purchase Conditions, the Offeror shall be entitled to terminate the Sale and Purchase Agreement pursuant to the terms therein, following which (i) the Selling Shareholders shall refund the Deposit to the Offeror in full without any set off, restriction or condition and without any deduction or withholding; (ii) the Selling Shareholders shall pay the Offeror an additional compensation (as liquidated damages) of HK$5 million; and (iii) the relevant escrow cashier orders shall be released to the Offeror.

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LETTER FROM THE BOARD

If the Sale and Purchase Completion does not take place or is not capable of taking place because of any other reason other than the Offeror’s or the Selling Shareholders’ sole default of their respective obligations under the Sale and Purchase Agreement, the Selling Shareholders shall refund the Deposit to the Offeror after deducting an amount of HK$1 million, being the agreed cost and expenses incurred by the Selling Shareholders relating to the transactions contemplated under the Sale and Purchase Agreement but without any other set off, restriction or condition and without any deduction or withholding and the relevant escrow cashier orders shall be released to the Offeror.

Pursuant to the Sale and Purchase Agreement, Mr. Lau, being the warrantor, warrants to the Offeror that, among other things, the net asset value of the Remaining Group as of the Sale and Purchase Completion Date shall be no less than HK$50 million.

Conditions precedent to the Sale and Purchase Agreement

The Sale and Purchase Completion is conditional in all respects upon fulfilment (or, as appropriate, waiver by the Offeror as described below) of the following conditions:

(a) all consents, approvals, permits, authorisations or clearance (as the case may be) from the applicable governmental authorities which are required for the execution, the implementation and the completion of the Group Restructuring and the Disposal having been obtained, including without limitation, that the SFC consenting to the Disposal as a “special deal” under Rule 25 (special deals with favourable conditions) of the Takeovers Code with conditions no more onerous than those set out in Note 4 to Rule 25;
(b) the Independent Shareholders having passed the Resolutions in accordance with all applicable requirements under the Listing Rules and the Takeovers Code and all other requirements imposed by the Stock Exchange and the SFC, without any amendment to approve:
i) the Disposal Agreement and the transactions contemplated thereunder;
ii) the Special Dividend; and
iii) the Subscription Agreements and the transactions contemplated thereunder;
(c) the Group Restructuring having been completed pursuant to the restructuring plan;
(d) the Disposal Agreement having become unconditional (save for the condition for the Sale and Purchase Agreement to become unconditional);
(e) all the conditions precedent to the Subscription Agreements having become unconditional (save for the condition for the Sale and Purchase Agreement to become unconditional);

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LETTER FROM THE BOARD

(f) neither the Company nor any Selling Shareholders has received any notification with respect to, or has otherwise become aware of, any matter or circumstance arising from the transactions contemplated under (or relevant to) the Sale and Purchase Agreement which would, or would reasonably be expected to, (i) threaten the Company’s ability to continue to maintain its listing status; (ii) lead to the withdrawal of the listing status of the Company; or (iii) lead to the delisting of the Company from the Main Board of the Stock Exchange; and
(g) the warranties under the Sale and Purchase Agreement remaining true and accurate in all material respects (or all respects as applicable) and not misleading in any material respect (or all respects as applicable) as at the Sale and Purchase Completion.

The Selling Shareholders shall use all reasonable endeavours to ensure the satisfaction of the Sale and Purchase Conditions. Any of the Sale and Purchase Conditions set out as (e), (f) and (g) above may be waived by the Offeror in writing at any time on or before 5:00 p.m. on the Sale and Purchase Long Stop Date.

As at the Latest Practicable Date, save for Sale and Purchase Condition (c) above had been fulfilled, none of the above Sale and Purchase Condition had been satisfied.

Sale and Purchase Completion

The Sale and Purchase Completion shall take place on the Sale and Purchase Completion Date. Further announcement will be made as soon as practicable in relation to the Sale and Purchase Completion.

B. DISPOSAL AGREEMENT, SPECIAL DEAL AND SPECIAL DIVIDEND

The Disposal Agreement

Date: 29 April 2015 (as supplemented by the supplemental agreement dated 27 July 2015)

Parties:

vendor: the Company, being the ultimate beneficial owner of the Disposal Company purchaser: Champion Success Holdings Limited, a company incorporated in the BVI with limited liability

As at the Latest Practicable Date, the Disposal Company was a wholly-owned subsidiary of the Company which was owned as to approximately 55.17% by the Selling Shareholders. Mr. Lau is beneficially interested in the entire issued share capital of the Disposal Purchaser.

As such, the Disposal Purchaser is a connected person of the Company under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

The Disposal also constitutes a special deal on the part of the Company under Note 4 to Rule 25 of the Takeovers Code.

Subject of the Disposal Agreement

Pursuant to the Disposal Agreement, the Company conditionally agreed to sell and the Disposal Purchaser conditionally agreed to purchase the Disposal Shares for a consideration of HK$95.0 million, which is subject to the adjustment on a dollar-fordollar basis as the net asset value of the Disposal Group shown in the Certificate.

The material property interests of the Disposal Group are set out in Appendix V to this circular, such includes five properties held by the Disposal Group, of which (i) one property is located in Hong Kong and held for owner-occupation; (ii) three properties are located in the PRC and held for investment purpose, of which the Group’s legal advisers have opined that the ownership of these three properties in PRC are legal and valid; and (iii) one property is located in Canada and held for investment purpose. For further details of these property interests, including their location, use and approximate area, market value in existing state as at 31 July 2015, please refer to Appendix V to this circular.

Directors with a material interest in the Disposal Agreement, being Mr. Lau and Ms. Chan, have abstained from voting on the relevant board resolution.

Upon the Disposal Completion, the Disposal Group will become wholly-owned by the Disposal Purchaser and cease to be subsidiaries of the Company.

Consideration for the Disposal under the Disposal Agreement

The Disposal Consideration of HK$95.0 million, which is subject to the adjustment on a dollar-for-dollar basis as the net asset value of the Disposal Group shown in the Certificate and was determined after taking into account, among others, the expected net assets of the Disposal Group at Disposal Completion and the future prospects of the Disposal Business, shall be paid to the Company in cash by the Disposal Purchaser or its nominee on the Disposal Completion.

For financial information of the Disposal Group for the years ended 31 March 2013, 2014 and 2015, including the unaudited combined income statements, unaudited combined statements of changes in equity, unaudited combined balance sheets and unaudited combined statements of cash flows, please refer to financial information of the Disposal Group set out in Appendix II to this circular. As set out in Appendix II to this circular, (i) the combined equity of the Disposal Group (excluding non-controlling interests) decreased substantially from approximately HK$158.6 million as at 31 March 2014 to approximately HK$123.2 million as at 31 March 2015, representing a decrease of approximately 22.3%; and (ii) the net cash used in operating activities totalled to approximately HK$44.8 million.

When determining the Disposal Consideration, the Board has considered the following factors (i) the Disposal Group recorded decreasing revenue since year ended 31 March 2013; (ii) the uncertainties around the Disposal Group’s future prospects; (iii) substantial decrease in equity attributable to equity holders of

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LETTER FROM THE BOARD

Disposal Company for the year ended 31 March 2015; (iv) significant net cash outflow from operating activities for the year ended 31 March 2015; (v) the expected forthcoming federal interest rate hikes, which if consummated, may lead to possible raise in borrowing costs in U.S. dollars and Hong Kong dollars thus increasing the costs of financing of the Disposal Group; (vi) the slowdown in the overall PRC economy and consumer market which may have an adverse impact on the demand of the Disposal Group’s products; and (vii) the increasingly competitive landscape of the electronic components distribution business in Hong Kong and the PRC may lead to a more challenging operating environment and reduce the Disposal Group’s bargaining power given the availability of similar products in the market for the customers to choose from.

Conditions precedent to the Disposal Agreement

The Disposal Completion is conditional upon the fulfillment of the following conditions:

(a) the passing by the Independent Shareholders at the SGM to approve (i) the Disposal Agreement and transactions contemplated hereunder; and (ii) the payment of the Special Dividend;
(b) the consent of the Executive in relation to the Disposal Agreement and transactions contemplated hereunder as a “special deal” under Rule 25 of the Takeovers Code having been obtained and not revoked prior to the Disposal Completion;
(c) all necessary consents and approvals required to be obtained on the part of the Disposal Purchaser in respect of the Disposal Agreement and the transactions contemplated hereby having been obtained and remaining in full force and effect;
(d) all necessary consents and approvals required to be obtained on the part of the Company in respect of the Disposal Agreement and the transactions contemplated hereby having been obtained and remaining in full force and effect;
(e) the Sale and Purchase Agreement having become unconditional (save for the condition for the Disposal Agreement to become unconditional);
(f) the Group Restructuring having been completed in a manner satisfactory to the Disposal Purchaser; and
(g) the warranties under the Disposal Agreement remaining true and accurate in all material respects.

Save for the Disposal Condition (g) which the Disposal Purchaser may waive at any time by notice, none of the Disposal Conditions above is capable of being waived by any party hereto. The Company and the Disposal Purchaser shall use their respective best endeavors to procure the fulfillment of the Disposal Conditions.

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LETTER FROM THE BOARD

If the Disposal Conditions set out above have not been satisfied (or, as appropriate, waived) on or before 4:00 p.m. on the 180th day after the date of the Disposal Agreement, or such other date as the Disposal Purchaser and the Company may agree, the Disposal Agreement shall cease and determine (save for otherwise agreed) and thereafter neither party shall have any obligations and liabilities towards each other thereunder save for any antecedent breaches of the terms thereof.

As at the Latest Practicable Date, save for Disposal Condition (f) above had been fulfilled, none of the above Disposal Conditions had been satisfied.

Disposal Completion

Upon fulfilment (or, as appropriate, waiver) of all the Disposal Conditions, the Disposal Completion shall take place on the Disposal Completion Date. The parties agree that the Disposal Completion and the Sale and Purchase Completion shall take place contemporaneously.

Information on the Disposal Group and the Disposal Business

The Disposal Company, namely Daiwa BVI Limited, is a wholly-owned subsidiary of the Company prior to the Disposal Completion. Upon the Disposal Completion, the Disposal Group will continue operating the Disposal Business which primarily involves Hong Kong and the PRC distribution and trading of electronic components, central management of properties holding and Canadian computer distribution.

As set out in Appendix II to this circular, (i) the unaudited loss of the Disposal Group for the year ended 31 March 2014 and 2015 amounted to approximately HK$0.8 million and HK$43.6 million, respectively; and (ii) the unaudited net asset value of the Disposal Group as at 31 March 2015 was approximately HK$123.4 million.

Information on the Remaining Group and the Remaining Business

Information in relation to the operations of the Remaining Group following the Disposal Completion contained under this section is reproduced from the Joint Announcement for the information purposes. Information reproduced from the Joint Announcement reflects the situation as of the date of the Joint Announcement. To the best of the Directors’ knowledge and belief after all reasonable enquiries, there is no material change to the information contained in this section since the date of the Joint Announcement.

Following the Disposal Completion, the Remaining Group will continue operating the Remaining Business which principally involves manufacturing and trading of diodes, electronic manufacturing services, and manufacturing of telecom and radio frequency devices, plastic components and wire.

In particular, the Remaining Group has been engaged in the manufacturing of telecommunication modules for infrastructures and mobile phone base stations as well as diodes for 20 years. It has the current production base located in the Heyuan factory, which includes approximately 16,500 square meters production floor and

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LETTER FROM THE BOARD

approximately 5,200 square meters domicile, and is equipped with the surfacemount technology (“ SMT ”) production lines and semi-automatic assembly lines with about 450 workers. It has been engaged in long term business relationship with its existing major customers, which include global suppliers of electronic component or telecommunication modules (the “ Global Customers ”). The Remaining Group has sold the aforesaid products to these Global Customers for more than 15 years, and received steady and recurrent orders from these Global Customers for the past years.

After the Disposal Completion and Subscription Completion, the Remaining Group (i) will remain its production base at its current location; (ii) intends to increase the automation facilities of the production and replace old machineries (e.g. old diodes machineries and SMT production lines) by new plant, equipment and technologies. Furthermore, while the top five customers of the Remaining Group for the past three years ended 31 March 2015 remained fairly consistent and stable, the Company expects (a) no change to the business scope with these top five customers; and (b) to maintain the similar level of turnover from its existing business operation in the foreseeable future after the Disposal Completion and the Subscription Completion.

The Offeror considers the Company’s Remaining Business, being primarily the manufacturing capabilities in discrete components, an attractive foundation to build a business, including, among others, the provision of smart manufacturing solutions (“ SMS ”) that addresses various demands in the value chain of the electronics manufacturing ecosystem. This value proposition is particularly synergistic with the core business of one of the Offeror’s anchor limited partners, which is affiliated with the world’s largest electronics manufacturing services provider. Under the Offeror’s intended business strategy, the Company will target and provide SMS to electronics manufacturers to upgrade their manufacturing lines with the use of “Internet-ofThings” (“ loT ”) modules. Subject to market and industry conditions and the Offeror’s overall strategic planning, the Offeror intends to leverage the Remaining Group’s manufacturing capabilities in diodes and radio frequency modules, and to utilize idle capacity in the SMT production line to develop smart sensor devices and IoT devices to be used in SMS.

After the Share Offer Completion, the Offeror will review the businesses of the Group, including among others, the Group’s relationships with its customers and suppliers, products portfolio, assets, corporate and organizational structure, capitalization, operations, policies, management and personnel, to consider and determine what changes, if any, would be necessary, appropriate or desirable, long term and short term in order to organize the businesses and operations of the Company and to integrate the same within the group of the Offeror’s anchor limited partners, subject to compliance with any necessary disclosure and shareholders’ approval requirements under the Listing Rules.

Information on the Disposal Purchaser

The Disposal Purchaser, an investment holding company, is a company incorporated in the BVI with limited liability and the issued share capital of which is wholly-owned by Mr. Lau.

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LETTER FROM THE BOARD

Reason for and benefits of the Disposal

Pursuant to the Sale and Purchase Agreement, it is conditionally agreed between the Selling Shareholders and the Offeror that the Disposal Group shall be disposed of by the Company to the Disposal Purchaser so that it will no longer be part of the Remaining Group after the Disposal Completion and the Sale and Purchase Completion.

The Disposal Completion shall take place contemporaneously with the Sale and Purchase Completion. The main reason for separating the Disposal Business and the Remaining Business through the Group Restructuring is that, during the negotiations between the parties to the Sale and Purchase Agreement, the Offeror has expressed its intention to retain the Remaining Business and to dispose of the Disposal Business while Mr. Lau has expressed his intention to retain the Disposal Business.

The Group Restructuring and the Special Dividend are pre-conditions for achieving the Disposal Completion.

Having considered the above as well as the expected forthcoming federal interest rate hikes, the slowdown in the PRC market, the increasingly competitive landscape of the electronic components distribution business and the overall prospects of the Disposal Group, the Board is of the view that the Disposal is in the interests of the Company and the Shareholders as a whole.

The Special Dividend and the Share Offer will provide an opportunity for the other Shareholders to realise their investment in the Company at a combined price of HK$1.374 per Share (being the sum of the Special Dividend per Share of HK$0.23 and the Share Offer Price of HK$1.144 per Offer Share), which represents a slight premium of approximately 4.09% over the last closing price of HK$1.32 per Share on the MOU Date.

The Disposal Agreement was negotiated between the Board (excluding the interested Directors and the independent non-executive Directors) and the Disposal Purchaser on an arm’s length basis and based on normal commercial terms. The Disposal Consideration of HK$95.0 million (which is subject to the adjustment on a dollar-for-dollar basis as the net asset value of the Disposal Group shown in the Certificate) was determined mainly by the expected net asset value of the Disposal Group at Disposal Completion and the future prospects of the Disposal Business. It is expected that the Group will not record a material gain or loss arising from the Disposal.

The Board (excluding the interested Directors who were not present in the relevant meeting of the Board and the independent non-executive Directors) is of the view that since (i) the use of price earnings multiples with any low profit figure would produce a consideration that would be significantly less than the net asset value of the Disposal Group; (ii) the assets of the Disposal Group mainly comprise cash and cash equivalents, inventories, accounts receivable, plant and equipment; and (iii) the net asset value of the Disposal Group will be reviewed by the qualified accountant jointly appointed by the Company and the Disposal Purchaser in accordance with the terms of the Disposal Agreement, the net asset value of the Disposal Group provides a reasonable and non-subjective basis for the determination of the Disposal Consideration.

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LETTER FROM THE BOARD

Having considered the reasons for and the benefits of the Disposal set out above and the future prospects of the Disposal Business, the Board (excluding the Independent Board Committee, the opinion of which is included in the letter from the Independent Board Committee in this circular) considers the Disposal, including the Disposal Consideration, to be fair and reasonable and in the interests of the Shareholders as a whole.

Use of proceeds from the Disposal

The gross proceeds from the Disposal of HK$95.0 million (which is subject to the adjustment on a dollar-for-dollar basis as the net asset value of the Disposal Group shown in the Certificate) will be utilised by the Company mainly for the payout of the Special Dividend and the balance will be applied towards working capital of the Group. Details of the Special Dividend are set out in the following section.

Special Dividend

Upon the Disposal Completion, the Company proposes a special dividend of HK$0.23 per Share to be distributed and paid in cash to the Shareholders whose names are registered on the register of members of the Company on the Record Date, subject to the approval of the Independent Shareholders having been obtained and the Disposal Completion having taken place. As set out in the section headed “B. Disposal Agreement, Special Deal and Special Dividend — Conditions precedent to the Disposal Agreement” above, the Disposal Completion is conditional upon, among other things, the Company having obtained the Independent Shareholders’ approval of the proposed Special Dividend.

Based on 437,239,448 Shares in issue as at the Latest Practicable Date, the special dividend payable to the Shareholders on the Record Date shall amount to approximately HK$100.6 million, out of which, the Selling Shareholders, being the beneficial owners of approximately 55.17% of the issued share capital of the Company as at the Latest Practicable Date and assuming no change to their shareholding from the Latest Practicable Date to the Record Date, are entitled to receive a special dividend in the total sum of approximately HK$55.5 million.

The Special Dividend of HK$0.23 per Share will provide a substantial and immediate cash realisation to Shareholders from the outcome of the Disposal.

In determining the amount of the Special Dividend, the Board, having considered the financial resources available to the Group and the Remaining Group and the future working capital needs of the Remaining Group, considers that the amount of the Special Dividend is appropriate.

Shareholders please refer to the expected timetable in the section headed “Expected Timetable” of this circular in respect of the Record Date, the Special Dividend payout date and closure of register of members of the Company for determining the Shareholder’s entitlement to the proposed Special Dividend. Registered Shareholders as at the Record Date will be entitled to the Special Dividend, even though such Shareholders may subsequently accept the Share Offer.

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LETTER FROM THE BOARD

Financial effects of the Disposal

Earnings

Upon the completion of the Disposal, the combined income statements of the Disposal Group will no longer be consolidated to the consolidated income statement of the Group going forward. For further details, please refer to the unaudited pro forma consolidated income statement of the Remaining Group as set out in Appendix III to this circular.

Assets and liabilities

Upon the completion of the Disposal, the combined balance sheet of the Disposal Group will no longer be consolidated to the consolidated balance sheet of the Group going forward. As stated in the unaudited pro forma consolidated balance sheet of the Remaining Group as set out in Appendix III to this circular, assuming that the Disposal had been completed on 31 March 2015, the total assets of the Remaining Group (having taken into account of the payment of Special Dividend and completion of the Subscription Agreement) would increase from approximately HK$355.6 million to approximately HK$396.9 million, and the total liabilities of the Remaining Group (having taken into account of the payment of Special Dividend and completion of the Subscription Agreement) would decrease from approximately HK$169.1 million to HK$60.1 million. Please refer to Appendix III to this circular for further details.

Save for the Disposal Agreement, as at the Latest Practicable Date, the Company has not entered into any other agreements, arrangements, understandings, intention or negotiations about any acquisition and/or disposal of assets or businesses, or termination and/or shrinking of any business of the Group, other than in its ordinary course of business.

Implications of the Disposal under the Listing Rules and the Takeovers Code

The Disposal Company is a wholly-owned subsidiary of the Company which is owned as to approximately 55.17% by the Selling Shareholders. Mr. Lau is beneficially interested in the entire issued share capital of the Disposal Purchaser. As such, the Disposal Purchaser is a connected person of the Company and the Disposal constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. As one of the applicable percentage ratios in respect of the Disposal is more than 75%, the Disposal constitutes a very substantial disposal for the Company pursuant to the Listing Rules, and is subject to reporting, announcement, circular and shareholders’ approval at the SGM.

The Disposal also constitutes a special deal on the part of the Company under Note 4 to Rule 25 of the Takeovers Code and requires the consent of the Executive. Such consent, if granted, will be subject to (i) the Independent Financial Adviser publicly stating that in its opinion the terms of the Special Deal is fair and reasonable; and (ii) the approval of the Special Deal by the Independent Shareholders by way of poll at the SGM. Shareholders including (i) the Selling Shareholders, (ii) the Offeror, its associates and parties acting in concert with it, (iii) the Subscribers, their respective associates and parties acting in concert with them, and (iv) any Shareholders who are involved in or interested in all of the Special Deal, the Sale and Purchase Agreement, the Subscription Agreements and the Special Dividend and any transactions contemplated thereunder will abstain from voting on the proposed resolutions in respect of the Special Deal at the SGM.

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LETTER FROM THE BOARD

The Company has submitted an application to the Executive for his consent under Note 4 to Rule 25 of the Takeovers Code in relation to the Special Deal.

C. SUBSCRIPTION AGREEMENTS

Date: 29 April 2015

Parties:

issuer: the Company subscribers: (i) The Offeror; (ii) Asia-IO Holdings BVI; and (iii) Huatai Principal Investment (each a “ Subscriber ” and collectively the “ Subscribers ”)

Subject of the Subscription Agreements

Pursuant to the Subscription Agreements, the Company has conditionally agreed to issue, and the Subscribers have conditionally agreed to subscribe, in cash, for a total of 225,000,000 new Shares (fully paid and free from all liens, charges, security interests, encumbrances and adverse claims) at the Subscription Price of HK$1.144 per Share for an aggregate consideration of HK$257,400,000, out of which the Offeror will subscribe for 144,698,889 new Shares for a consideration of approximately HK$165,535,529, Asia-IO Holdings BVI will subscribe for 43,439,139 new Shares for a consideration of approximately HK$49,694,375 and Huatai Principal Investment will subscribe for 36,861,972 new Shares for a consideration of approximately HK$42,170,096.

The Subscription Shares of 225,000,000 Shares to be subscribed for and issued pursuant to the Subscription Agreements shall rank pari passu in all respects with the Shares in issue at the date of allotment and in particular will rank in full for all dividends and other distributions declared, made or paid at any time after the date of allotment (excluding, for the avoidance of doubt, the entitlement to the Special Dividend).

The Subscription Agreements are entered into on the same terms and simultaneously between the Company and the Subscribers.

Asia-IO Holdings BVI and Huatai Principal Investment are parties acting in concert with the Offeror under the Takeovers Code.

Subscription Price

The Subscription Shares will be subscribed for by the Subscribers at the same Subscription Price of HK$1.144 per Share. The Subscription Price of HK$1.144 per Share represents:

a discount of approximately 74.12% to the closing price of the Shares of HK$4.42 per Share as quoted on the Stock Exchange on the Last Trading Day;

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LETTER FROM THE BOARD

a discount of approximately 72.70% to the ex-dividend closing price of HK$4.19 per Share as quoted on the Stock Exchange on the Last Trading Day after taking into account the Special Dividend of HK$0.23 per Share declared;
a discount of approximately 71.11% to the average closing price of the Shares of approximately HK$3.96 per Share for the last 5 consecutive Trading Days up to and including the Last Trading Day;
a discount of approximately 69.33% to the ex-dividend average closing price of approximately HK$3.73 per Share for the last 5 consecutive Trading Days up to and including the Last Trading Day after taking into account the Special Dividend of HK$0.23 per Share declared;
a discount of approximately 69.74% to the average closing price of the Shares of approximately HK$3.78 per Share for the last 10 consecutive Trading Days up to and including the Last Trading Day;
a discount of approximately 67.77% to the ex-dividend average closing price of approximately HK$3.55 per Share for the last 10 consecutive Trading Days up to and including the Last Trading Day after taking into account the Special Dividend of HK$0.23 per Share declared;
a discount of approximately 54.42% to the average closing price of the Shares of approximately HK$2.51 per Share for the last 30 consecutive Trading Days up to and including the Last Trading Day;
a discount of approximately 49.82% to the ex-dividend average closing price of approximately HK$2.28 per Share for the last 30 consecutive Trading Days up to and including the Last Trading Day after taking into account the Special Dividend of HK$0.23 per Share declared;
a discount of approximately 13.33% to the closing price of the Shares of approximately HK$1.32 per Share on the MOU Date;
a premium of approximately 4.95% over the ex-dividend closing price of HK$1.09 per Share on the MOU Date after taking into account the Special Dividend of HK$0.23 per Share declared;
a discount of approximately 60.96% to the closing price of the Shares of approximately HK$2.93 per Share on the Latest Practicable Date;
a discount of approximately 57.63% to the ex-dividend closing price of HK$2.70 per Share on the Latest Practicable Date after taking into account the Special Dividend of HK$0.23 per Share declared;
a premium of approximately 166.05% over the audited net asset value attributable to equity holders as at 31 March 2015 of approximately HK$0.43 per Share based on 437,239,448 Shares in issue as at the Latest Practicable Date; and

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LETTER FROM THE BOARD

a premium of approximately 472.00% over the audited net asset value attributable to equity holders as at 31 March 2015 of approximately HK$0.20 per Share (based on the audited net asset value attributable to equity holders of approximately HK$186.3 million as at 31 March 2015 and 437,239,448 Shares in issue as at the Latest Practicable Date) after taking into account the Special Dividend of HK$0.23 per Share declared.

The Subscription Price was negotiated on an arm’s length basis which has taken into account, among other things, the Share Offer Price, the net asset value of the Remaining Group as at 30 September 2014 and the prospects of the Remaining Group.

The Subscription Price is the same as the Share Offer Price and the Consideration per Sale Share. The Consideration per Sale Share was determined after arm’s length negotiations between the Offeror and the Selling Shareholders taking into account, among other things, the net asset value of the Remaining Group as at 30 September 2014, the prospects of the Remaining Group, the closing price of the Shares on the MOU Date and the fact that the Offeror will upon the Sale and Purchase Completion obtain a controlling interest in the Company. The movement of the Share price following the release of the MOU Announcement, the Joint Announcement up to and including the Latest Practicable Date was beyond the control of the involving parties and to a certain extent might be due to market speculation and/or reaction on the transactions disclosed in the MOU Announcement and the Joint Announcement as well as overall market sentiment.

Conditions precedent to the Subscription Agreements

The Subscription Completion is conditional upon the following conditions:

(a) the Listing Committee of the Stock Exchange granting listing of, and permission to deal in, all of the Subscription Shares;
(b) the Independent Shareholders approving the Subscription in accordance with all applicable requirements under the Listing Rules and the Takeovers Code and all other requirements imposed by the Stock Exchange and the SFC (including rules and requirements regarding certain Shareholders to abstain from voting in the relevant resolutions);
(c) the Sale and Purchase Agreement having become unconditional (save for the condition for the Subscription Agreements having become unconditional); and
(d) each of the Subscription Agreements entered into between the Company and the relevant Subscribers having become unconditional.

Each of the Subscription Agreements is inter-conditional upon one another and all the Subscription Completion shall take place contemporaneously.

In the event that the Subscription Conditions above are not fulfilled on or before the Subscription Long Stop Date (or such later date as may be agreed between the parties), the Subscription Agreements and all rights and obligations thereunder will cease and terminate.

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LETTER FROM THE BOARD

As at the Latest Practicable Date, none of the Subscription Conditions had been satisfied.

Special mandate

The Subscription Shares will be allotted and issued under the Special Mandate proposed to be sought from the Independent Shareholders by way of poll at the SGM.

An application will be made to the Listing Committee of the Stock Exchange for the listing of and permission to deal in the Subscription Shares.

Equity fund raising by the Company

The Company did not carry out any equity fund raising activities in the 12-month period immediately before the Latest Practicable Date.

Subscription Completion

The Subscription Completion is subject to the fulfillment of the Subscription Conditions, and shall take place on any Business Day after the Record Date and contemporaneously upon the Sale and Purchase Completion and the Disposal Completion.

The Company shall and will allot and issue the respective Subscription Shares to each Subscriber and promptly thereafter register each Subscriber as a member of the Company.

Reasons for the Subscription and use of the Subscription proceeds

The Offeror plans to build on the competence of the Remaining Business in discrete component manufacturing to expand into other potential opportunities, including the provision of information technology (“ IT ”) services (like SMS) that are in demand in the electronics manufacturing value chain. The gross proceeds of the Subscription of approximately HK$257.4 million will primarily be used to strengthen the engineering and managerial teams, increase the working capital base, upgrade the Company’s production and/or service capabilities, and to explore new business opportunities, details of which are set out as follows:

approximately HK$150 million to build and expand a dedicated team of sales, software development and system implementation professionals to further explore and expand the business opportunities of the Remaining Group. It is the intention of the Offeror to hire five senior management by the end of March 2016 who will oversee the operation and lead the fellow programmers, engineers, consultants and technicians to market and implement the SMS for potential customers. It is expected the Remaining Group will gradually expand such team to 300 people for project design, development and implementation by the end of 2017;

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LETTER FROM THE BOARD

approximately HK$80 million to strengthen the general working capital base which includes, among others, sales and marketing expenses for the proposed new SMS services, purchase of inventory and administrative expenses for expanding its offices; and
the balance of approximately HK$27 million for selective capacity expansion and upgrade of production facilities to accommodate the proposed production of smart sensor devices and “IoT” devices by the Remaining Business.

Subject to market and industry condition and the Offeror’s overall strategic planning, the Offeror intends to leverage the Remaining Group’s manufacturing capabilities in diodes and radio frequency modules, and to utilise idle capacity in the SMT production line to develop smart sensor devices and “IoT” devices to be used in SMS. SMS is an IT services business and the current plan is to market such solutions to the leading industrial companies in Asia (particularly electronics manufacturers) for the IT upgrade of their manufacturing processes. Provision of SMS by the Company would primarily demand managerial, consulting, sales and systems engineering personnel to design and implement system integration services for the manufacturer clients. This would rely more on the consultative sales, engineering and process design expertise to integrate self-developed or third-party software/devices. As a result, approximately HK$150 million to be raised from the Subscription is allocated for the recruitment of additional professionals.

Having considered that (i) the completion of Sale and Purchase Agreement, the Disposal, the Subscription and the distribution of Special Dividend are interconditional to each other and that the Subscription is part of the aforesaid transactions; (ii) the Subscription will provide capital to maintain and develop the Remaining Business of the Group upon the completion of the aforementioned agreements and thus Subscription Price was designed to be the same as the Consideration per Sale Share (the basis of which is referenced to the Remaining Group’s net asset value as of 30 September 2014); (iii) the reasons for the Subscription and use of Subscription proceeds as set out above; and (iv) the Subscription Price represents a premium of approximately 166.05% over the audited net asset value attributable to equity holders as at 31 March 2015 of approximately HK$0.43 per Share based on 437,239,448 Shares in issue, the Board (excluding the Independent Board Committee, the opinion of which is included in the letter from the Independent Board Committee in this circular) considers the Subscription Agreements, including the Subscription Price, to be fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Implications of the Subscription under the Listing Rules

Pursuant to the Sale and Purchase Agreement, the Offeror has agreed to acquire the Sale Shares, which represent approximately 55.17% of the issued share capital of the Company as at the Latest Practicable Date. The Subscription Completion shall take place contemporaneously with the Sale and Purchase Completion. As such, on the Subscription Completion Date (which is the same as the Sale and Purchase Completion Date), the Offeror will become a controlling shareholder of the Company

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LETTER FROM THE BOARD

and therefore the Offeror and its associates will become connected persons of the Company. The entering into of the Subscription Agreements between the Company and the Offeror and its associate, Asia-IO Holdings BVI, will therefore constitute connected transactions for the Company under Chapter 14A of the Listing Rules subject to the approval of the shareholders by way of poll at the SGM. As all three Subscription Agreements are inter-conditional upon one another, approval for all three Subscription Agreements will be sought from the Independent Shareholders by way of poll at the SGM. The Subscribers and their associates (if they are holding any Shares) are required to abstain from voting for the relevant resolutions to approve the Subscription Agreements and the transactions contemplated thereunder at the SGM.

As the Subscription Agreements and the Sale and Purchase Agreement are inter-conditional, the Selling Shareholders and their associates, despite not having any material interest in the Subscription, and any Shareholders who are involved in or interested in all of the Sale and Purchase Agreement, the Disposal Agreement, the Subscription Agreements and the Special Dividend and any transactions contemplated thereunder shall also abstain from voting on the resolutions to approve the Subscription Agreements and the transactions contemplated thereunder at the SGM.

Shareholding structure of the Company

The following table sets out the shareholding structure of the Company (assuming no other changes to the issued share capital of the Company from the Latest Practicable Date) (i) as at the Latest Practicable Date; (ii) immediately upon the Sale and Purchase Completion but before the Subscription Completion; and (iii) immediately upon the Sale and Purchase Completion and the Subscription Completion:

The Selling Shareholders The Offeror Asia-IO Holdings BVI_(Note) Huatai Principal Investment(Note)_ Subtotal of the Offeror and parties acting in concert with it Other Shareholders Total	(i) As at the Latest Practicable Date Number of Shares held Approximate % of Shares in issue 241,221,529 55.17 — — — — — — — — 196,017,919 44.83 437,239,448 100.00	(ii) Immediately upon Sale and Purchase Completion but before Subscription Completion Number of Shares held Approximate % of Shares in issue — — 241,221,529 55.17 — — — — 241,221,529 55.17 196,017,919 44.83 437,239,448 100.00	(iii) Immediately upon Sale and Purchase Completion and Subscription Completion Number of Shares held Approximate % of Shares in issue — — 385,920,418 58.28 43,439,139 6.56 36,861,972 5.57 466,221,529 70.40 196,017,919 29.60 662,239,448 100.00	(iii) Immediately upon Sale and Purchase Completion and Subscription Completion Number of Shares held Approximate % of Shares in issue — — 385,920,418 58.28 43,439,139 6.56 36,861,972 5.57 466,221,529 70.40 196,017,919 29.60 662,239,448 100.00
				100.00

Note:

Asia-IO Holdings BVI and Huatai Principal Investment are parties acting in concert with the Offeror under the Takeovers Code.

— 27 —

LETTER FROM THE BOARD

D. POSSIBLE UNCONDITIONAL MANDATORY CASH GENERAL OFFER FOR SHARES

To the best of the Directors’ knowledge and belief after all reasonable enquiries, as at the Latest Practicable Date, the Offeror and parties acting in concert with it did not hold any Shares in the share capital or voting rights of the Company. Assuming no other changes to the issued share capital of the Company from the Latest Practicable Date, the Offeror and parties acting in concert with it will be interested in a total of 241,221,529 Shares immediately after the Sale and Purchase Completion (but before the Subscription Completion), representing approximately 55.17% of the issued share capital of the Company. If the Subscription is approved by the Independent Shareholders and is to proceed, the Offeror and parties acting in concert with it will be interested in a total of 466,221,529 Shares immediately after the Sale and Purchase Completion and Subscription Completion, representing approximately 70.40% of the enlarged share capital of the Company.

As such, the Offeror will be required to make an unconditional mandatory cash general offer for all the issued Shares (other than those already owned or agreed to be acquired or subscribed by the Offeror and parties acting in concert with it) pursuant to Rule 26.1 of the Takeovers Code.

Referring to the Joint Announcement, subject to and upon the Sale and Purchase Completion, Huatai, on behalf of the Offeror and in compliance with the Takeovers Code, will make the Share Offer to acquire all the Offer Shares on the terms to be set out in the Offer Document in accordance with the Takeovers Code. Details of the terms and information related to the Share Offer are set out in the Joint Announcement under the section headed “D. Possible unconditional mandatory cash general offer for Shares”.

Pursuant to Rule 8.2 of the Takeovers Code, the Offer Document (together with relevant form(s) of acceptance) should be posted to the Shareholders within 21 days of the date of the Joint Announcement. In light of the expected time required for, among others, satisfying the pre-conditions for the Sale and Purchase Completion, Disposal Completion and Subscription Completion including the approvals by the Independent Shareholders at the SGM, an application has been made to the SFC pursuant to Rule 8.2 of the Takeovers Code for its consent and the consent has been granted by the Executive on 25 August 2015 to extend the latest time for the despatch of the Offer Document (together with relevant form(s) of acceptance) to within seven (7) days from the date of the completion of the pre-conditions to the making of the Share Offer or 2 November 2015, whichever is earlier.

E. INFORMATION ON THE GROUP

The Company is a company incorporated in Bermuda with limited liability and its Shares are listed on the Main Board of the Stock Exchange. The Group is principally engaged in the Disposal Business and the Remaining Business, which primarily involves distribution of electronic components, distribution of personal computer products and manufacturing of electronic products.

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LETTER FROM THE BOARD

The following table is a summary of certain financial information of the Group for each of the two financial years ended 31 March 2015 extracted from the published annual report of the Company for the year ended 31 March 2015 (the “ 2015 Annual Report ”).

	Year ended	31 March
	2014	2015
	Approximately,	Approximately,
	HK$ million	HK$ million
	(restated)	(audited)
	(Note)
Revenue	618.3	531.1
Gross profit	87.8	64.5
Profit/(loss) before tax	7.4	(30.0)
Profit/(loss) for the year attributable to equity holders
of the Company — continuing operations	5.0	(39.7)
Consolidated net equity attributable to equity holders
of the Company	239.6	186.3

Note: The comparative figures for the year ended 31 March 2014 were restated due to a change in measurement basis of investment properties, details of the which are set out in the 2015 Annual Report. During the same year, the measurement basis for the Group’s properties classified as property, plant and equipment was also changed and prospective application is required under the relevant Hong Kong Accounting Standard. Accordingly, there is a difference in measurement basis of these properties before and after 1 April 2014 as a result of the actual accounting policies adopted historically, details of which are set out in page II-9.

F. INFORMATION ON THE SUBSCRIBERS AND THE OFFEROR

Information contained under this section is reproduced from the Joint Announcement for the purpose of providing the Independent Shareholders with information on the Subscribers and the Offeror. Information reproduced from the Joint Announcement reflects the situation as of the date of the Joint Announcement. To the best of the Directors’ knowledge and belief after all reasonable enquiries, there is no material change to the information contained in this section since the date of the Joint Announcement.

The Subscribers to the Subscription Shares are (i) the Offeror, (ii) Asia-IO Holdings BVI and (iii) Huatai Principal Investment.

The Offeror, Asia-IO Acquisition Fund, L.P., a Cayman Islands exempted limited partnership, is a dedicated private equity fund organised for the specific purpose of investing in a controlling stake of the Company. The general partner of the Offeror is Asia-IO Acquisition GP Limited, a Cayman Islands exempted limited liability company, and the investment advisor of the Offeror is Asia-IO Holdings Cayman, a Cayman Islands exempted limited liability company. Asia-IO Holdings Cayman is a private equity firm that specialises in making private equity investments in Asia on a deal-bydeal basis. Both Asia-IO Holdings Cayman and Asia-IO Acquisition GP Limited are controlled by Mr. Denis Tik Yang Tse (for information on Mr. Tse, please refer to the section headed “G. Proposed change to Board composition” in the section headed “Letter from the Board” of this circular).

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LETTER FROM THE BOARD

The Offeror has raised capital from a number of anchor limited partners, including FSK Holdings Limited which contributes about 75% of the Offeror’s total commitment. FSK Holdings Limited is a Hong Kong-incorporated joint venture formed and currently indirectly controlled by companies in the IT sector, including (i) Hon Hai Precision Industry Co. Ltd. (incorporated in Taiwan and listed on the Taiwan Stock Exchange); (ii) SK Holdings Co., Ltd. (incorporated in Korea and listed on the Korea Stock Exchange); (iii) Foxconn Technology Company Limited (incorporated in Taiwan and listed on the Taiwan Stock Exchange); and (iv) Pan International Industry Corp. (incorporated in Taiwan and listed on the Taiwan Stock Exchange). The joint venture is to develop solutions and identify strategic opportunities to upgrade the manufacturing competence of the IT manufacturing industry. The remaining limited partners of the Offeror, who in aggregate contribute 25% of the Offeror’s total commitment, comprise high net-worth investors that are non-Hong Kong residents. None of such high net-worth investors holds more than 5% of the limited partnership interest in the Offeror.

The Offeror is also the purchaser in the Sale and Purchase Agreement.

Asia-IO Holdings BVI is a British Virgin Island private limited company controlled by Mr. Denis Tik Yang Tse which is the investment holding vehicle through which the Offeror’s investment advisor co-invests alongside the Offeror.

Huatai Principal Investment is an investment holding company, wholly owned by Huatai which is a wholly owned subsidiary and overseas business platform of Huatai Securities Co., Ltd., a leading integrated securities group in China, the shares of which are listed on the Stock Exchange and the Shanghai Stock Exchange.

G. PROPOSED CHANGE OF BOARD COMPOSITION

The Board is currently made up of eight Directors, comprising five executive Directors and three independent non-executive Directors.

It is expected that Mr. Lau and Mr. Fung Wai Ching will remain as executive Directors after the Share Offer Completion, whereas all the other Directors will resign. The Offeror intends to nominate seven new Directors to the Board including the following at such time as allowed under the Takeovers Code and any such appointment will be made in compliance with the Takeovers Code and the Listing Rules.

Executive Directors

Mr. John Lap Shun Hui is a veteran entrepreneur in the IT industry. In the mid1990s, Mr. Hui was one of the founders of technology company eMachines, Inc., which was sold to Gateway Inc. in 2004. In 2006, Mr. Hui acquired the European technology company Packard Bell BV, which was sold to Acer Inc. in 2009, and acquired InFocus, a digital display technology company in 2009. Mr. Hui is also the founder and chairman of Fuhu, Inc., creator of the Nabi Pad and other cloud-served software and products for children. Mr. Hui has an MBA from McMaster University.

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LETTER FROM THE BOARD

Mr. Mark Yi-Pin Chien is a director with Hon Hai Precision Industry Co. Ltd. (“Hon Hai”) and general manager of NPCEBG, a business group within Hon Hai with over US$25 billion annual revenues. Mr. Chien joined Hon Hai in 1991. He studied at Tamkang University.

Mr. Denis Tik Yang Tse is the director of both Asia-IO Holdings BVI and AsiaIO Holdings Cayman. He is most recently Head of Asia-Private Investments with Lockheed Martin Investment Management Company. He has fifteen years of private equity direct and fund investment experience in Asia, having worked with J.H. Whitney, CDIB Capital, and HSBC Private Equity (Asia), where he became the first Kauffman Fellow from an Asian venture firm. Mr. Tse is one of Chief Investment Officer “2014 Forty Under Forty”, and was named one of “Asia’s 25 most influential people in private equity” by Asian Investor in 2013. Mr. Tse has an MBA from INSEAD and a BSc (Hon.) from Northwestern University.

Mr. James Young Sang Ryu is the executive vice president and the head of business development group with SK Holdings Co., Ltd., a leading Korean total IT services provider that offers IT consulting, outsourcing, system integration and system maintenance and repair services since 1991. Mr. Ryu was formerly the senior vice president and head of corporate development Office with SK Telecom. Mr. Ryu graduated with an MBA from University of Washington and has an MS and a BS in Industrial Engineering from Seoul National University.

Independent non-executive Directors

Mr. Stephen Tin Lok Tang is the chief financial officer of Lunar Capital. He has over fourteen years of experience working on private equity and merger and acquisition transactions in the PRC and the Asia Pacific region. Prior to joining Lunar Capital, Stephen was a director with the Deloitte M&A Transaction Services. Stephen began his career at the Financial Services Group at Ernst & Young in Sydney, and subsequently relocated to Hong Kong and Beijing. Mr. Tang received a MCom in Advanced Finance and BCom from the University of New South Wales in Australia. He is a Chartered Accountant of the Institute of Chartered Accountants in Australia, a member of the Hong Kong Institute of Certified Public Accountants.

Mr. Laurie Kan is managing partner and founder of ON Capital, a private equity firm that specialises in investing in China since 2004. Prior to founding ON Capital, Mr. Kan established i100 Corporation in 1999, a start-up incubator that went on to list on the main board of the Hong Kong Stock Exchange. He had also served as president and executive director of Timeless Software, chief operating officer of CDC Corporation, founder of PointCast Asia, and had established Sina.com in Hong Kong. Mr. Kan spent the earlier years of his career successively at Apple Computer, Compaq Computer, and established Microsoft in Hong Kong and China. Mr. Kan graduated in business from Hong Kong Baptist College and from the Stanford Graduate School of Business’ Executive Program for Smaller Companies.

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LETTER FROM THE BOARD

Mr. Timothy Chen is vice-president for business development and strategy at VIA Technologies, a leading innovator of silicon and platform technologies for personal computers. He also serves as technical assistant to the president and chief executive of VIA. Mr. Chen began his career with VIA in 1996 in its Taiwan headquarters, where he managed the sales and marketing offices for Japan and Korea. In addition to his roles at VIA, he holds board and advisory positions at a number of technology companies such as Qifang, OpenMoko, WonderMedia, VIA Telecom, CatchPlay and Fugoo. Mr. Chen is involved in social ventures, social media, premium content providers and core hardware companies at the semiconductor and system level. He is also active as an angel investor. Mr. Chen holds a Bachelor’s degree in engineering from the University of California, Berkeley.

Any changes to the Board will be made in compliance with the Takeovers Code and the Listing Rules.

H. GROUP STRUCTURE

Prior to completion of Group Restructuring, the Group is principally engaged in the distribution of electronic components, distribution of personal computer products and manufacturing of electronic products. Upon the completion of the Group Reorganisation, (i) the Disposal Subsidiaries holds the Disposal Business which is principally involved in the Hong Kong and the PRC distribution and trading of electronic components, central management of properties holding, and Canada computer distribution; and (ii) the Remaining Subsidiaries holds the Remaining Business which is principally involved in the manufacturing and trading of diodes, electronic manufacturing services, and manufacturing of telecom and radio frequency devices, plastic components and wire. The Group Reorganisation has been completed as at Latest Practicable Date. As at the Latest Practicable Date, the principal operating subsidiaries of (i) the Disposal Group included Vastpoint Imtec Electronics Limited, Daiwa Distribution (B.C.) Inc. and Daiwa Distribution (Ontario) Inc.; and (ii) the Remaining Group included Daiwa Manufacturing Limited.

— 32 —

LETTER FROM THE BOARD

The Group structure immediately prior to the Disposal Completion, the Sale and Purchase Completion, the Subscription Completion and the Share Offer Completion is as follows:

==> picture [404 x 290] intentionally omitted <==

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

Selling Shareholders Other Shareholders
55.17% 44.83%
The Company
Remaining Subsidiaries Disposal Subsidiaries
Remaining Business: Disposal Business:
• manufacturing and • Hong Kong and the
trading of diodes, PRC distribution and
electronic manufacturing trading of electronic
services; components;
• manufacturing of telecom • central management of
and radio frequency properties holding;
devices, plastic
components and wire • Canada computer
distribution
----- End of picture text -----

— 33 —

LETTER FROM THE BOARD

The Group structure immediately after the Disposal Completion and the Sale and Purchase Completion, but prior to the Subscription Completion and the Share Offer Completion is as follows:

==> picture [390 x 243] intentionally omitted <==

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

Other
Disposal Purchaser Offeror
Shareholders
100% 55.17% 44.83%
Disposal Company The Company
Disposal Remaining
Subsidiaries Subsidiaries
Disposal Business Remaining Business
----- End of picture text -----

The Group structure immediately after the Disposal Completion, the Sale and Purchase Completion, the Subscription Completion and the Share Offer Completion is as follows:

==> picture [375 x 205] intentionally omitted <==

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

Offeror and parties
Other Shareholders
acting in concert with it
70.40% 29.60%
The Company
Remaining Subsidiaries
Remaining Business
----- End of picture text -----

— 34 —

LETTER FROM THE BOARD

I. GENERAL

SGM

The SGM will be held for the purpose of considering and, if thought fit, approving the Resolutions by way of poll at the SGM. The Selling Shareholders, the Offeror, the Subscribers, their respective associates and parties acting in concert with them and those who are involved in or interested in the Special Deal will abstain from voting on the Resolutions at the SGM.

As at the Latest Practicable Date, the Selling Shareholders hold an aggregate of 241,221,529 Shares, representing approximately 55.17% of the existing issued Shares.

Save for the interests in the Sale and Purchase Agreement and the Subscription Agreements, none of the Offeror and parties acting in concert with it held any Shares as at the Latest Practicable Date.

A notice convening the SGM is set out on pages SGM-1 to SGM-4 of this circular. A form of proxy for use at the SGM is enclosed herein. If you wish to appoint proxy(ies), you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to the Hong Kong Branch Share Registrar of the Company, Tricor Abacus Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding of the SGM (or any adjournment thereof). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM (or any adjournment thereof) if you so wish and in such event, the form of proxy shall be deemed to be revoked.

Independent Board Committee and Independent Financial Adviser

The Independent Board Committee comprising all the independent non-executive Directors has been formed to make a recommendation to (i) the Independent Shareholders in respect of the Special Deal, the Disposal Agreement and the Subscription Agreements and transactions contemplated thereunder, and the Special Dividend; and (ii) the Share Offer Shareholders in respect of whether the Share Offer is fair and reasonable for acceptance or not.

Messis Capital has been approved and appointed by the Independent Board Committee to advise the Independent Board Committee to make recommendation to (i) the Independent Shareholders in relation to the Special Deal, the Disposal Agreement and the Subscription Agreements and transactions contemplated thereunder, and the Special Dividend; and (ii) the Share Offer Shareholders in respect of whether the Share Offer is fair and reasonable for acceptance of not pursuant to Rule 2.1 of the Takeovers Code.

The advice of the Independent Financial Adviser and the recommendation of the Independent Board Committee in respect of the Special Deal, the Disposal Agreement and the Subscription Agreements and transactions contemplated thereunder and the Special Dividend as to whether such transactions are, or are not, fair and reasonable

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LETTER FROM THE BOARD

and as to the voting on the Resolutions are included in this circular as set out on pages 38 to 67 and on page 37, respectively. The advice of the Independent Financial Adviser and the recommendation of the Independent Board Committee in respect of the Share Offer, in particular, as to whether the Share Offer is, or is not, fair and reasonable and as to its acceptance, will be included in the Offer Document.

Recommendations

The Board (including the Independent Board Committee after taking into account the advice from the Independent Financial Adviser) considers that the terms of the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend are fair and reasonable and in the interests of the Independent Shareholders. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the Resolutions to be proposed at the SGM to approve the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend.

J. ADDITIONAL INFORMATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 37 of this circular which contains its views and recommendation to the Independent Shareholders in respect of the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend, based on the advice from the Independent Financial Adviser set out on pages 38 to 67 of this circular which contains their recommendation to the Independent Board Committee and the Independent Shareholders and the principal factors and reasons taken into consideration.

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

Yours faithfully, By Order of the Board Daiwa Associate Holdings Limited LAU Tak Wan President

— 36 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter of recommendation, prepared for the purpose of inclusion in this circular, from the Independent Board Committee to the Independent Shareholders in respect of the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend.

DAIWA ASSOCIATE HOLDINGS LIMITED

台和商事控股有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock code: 1037)

30 September 2015

To the Independent Shareholders

Dear Sir or Madam,

We refer to this circular of the Company dated 30 September 2015, of which this letter forms part. Unless specified otherwise, capitalised terms used herein shall have the same meanings as those defined in this circular. We have been appointed to advise the Independent Shareholders on whether the terms of the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend are fair and reasonable so far as the Independent Shareholders are concerned and whether the transactions contemplated thereunder are on normal commercial terms and in the interests of the Company and the Independent Shareholders as a whole, details of which are set out in the letter from the Board in this circular.

Messis Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. Details of their independent advice, together with the principal factors and reasons they have taken into consideration, are set out on pages 38 to 67 of this circular.

Having considered (i) the terms of the Disposal Agreement and the Subscription Agreements, and (ii) the advice of the Independent Financial Adviser, we are of the opinion that the terms of the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend are fair and reasonable so far as the Independent Shareholders are concerned and the transactions contemplated thereunder are on normal commercial terms and in the interests of the Company and the Independent Shareholders as a whole. We therefore recommend you to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend.

Yours faithfully,

Independent Board Committee

Dr. Barry John Buttifant, Mr. Choi Yuk Fan and Dr. Liu Ngai Wing Independent non-executive Directors

For identification purpose only

— 37 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter from the Independent Financial Adviser which sets out its advice to the Independent Board Committee and the Independent Shareholders for inclusion in this circular.

30 September 2015

To: The Independent Board Committee and the Independent Shareholders of Daiwa Associate Holdings Limited

Dear Sir/Madam,

(I) VERY SUBSTANTIAL DISPOSAL, CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE DISPOSAL OF ENTIRE ISSUED SHARE CAPITAL OF DAIWA BVI LIMITED (II) PROPOSED DECLARATION OF SPECIAL DIVIDEND AND (III) SPECIAL MANDATE IN RELATION TO THE PROPOSED SUBSCRIPTION OF NEW SHARES

INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend, details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular (the “ Circular ”) of the Company to the Shareholders dated 30 September 2015, of which this letter forms part. Terms used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

On 29 April 2015, the Selling Shareholders and the Offeror entered into the Sale and Purchase Agreement, pursuant to which the Selling Shareholders conditionally agreed to sell or procure the sale of the Sale Shares as (direct or indirect) beneficial owners and the Offeror conditionally agreed to acquire the Sale Shares for a consideration of approximately HK$276.0 million (equivalent to HK$1.144 per Sale Share). The Sale Shares represent approximately 55.17% of the existing issued share capital of the Company as at the Latest Practicable Date. A supplemental agreement to the Sale and Purchase Agreement was subsequently entered on 22 September 2015 to alter the sale and purchase completion date and the sale and purchase long stop date.

In addition, the Company and the Disposal Purchaser entered into the Disposal Agreement (as supplemented by a supplemental agreement dated 27 July 2015), pursuant to which the Company conditionally agreed to sell, and the Disposal Purchaser conditionally agreed to purchase, the Disposal Shares for a consideration of HK$95.0 million, which is subject to the adjustment on a dollar-for-dollar basis as the net asset value of the Disposal Group shown in the Certificate.

— 38 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Disposal Company is a wholly-owned subsidiary of the Company which is owned as to approximately 55.17% by the Selling Shareholders as at the Latest Practicable Date. Mr. Lau is beneficially interested in the entire issued share capital of the Disposal Purchaser. As such, the Disposal Purchaser is a connected person of the Company and the Disposal constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. The Disposal also constitutes a very substantial disposal for the Company pursuant to the Listing Rules, and therefore is subject to reporting, announcement, circular and shareholders’ approval at the SGM.

On 29 April 2015, the Company and the Subscribers also entered into the Subscription Agreements pursuant to which the Company conditionally agreed to issue, and the Subscribers conditionally agreed to subscribe, in cash, for a total of 225,000,000 new Shares at the Subscription Price of HK$1.144 per Share, representing a total consideration of approximately HK$257.4 million. The Offeror will subscribe for 144,698,889 new Shares for a consideration of approximately HK$165.5 million, AsiaIO Holdings BVI (an associate of the Offeror) will subscribe for 43,439,139 new Shares for a consideration of approximately HK$49.7 million and Huatai Principal Investment will subscribe for 36,861,972 new Shares for a consideration of approximately HK$42.2 million. Asia-IO Holdings BVI and Huatai Principal Investment are parties acting in concert with the Offeror under the Takeovers Code.

An Independent Board Committee comprising all independent non-executive Directors, namely, Dr. Barry John Buttifant, Mr. Choi Yuk Fan and Dr. Liu Ngai Wing, has been established by the Company for the purpose of, among other things, advising the Independent Shareholders in relation to the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend.

We have been approved and appointed by the Independent Board Committee to advise the Independent Board Committee to make recommendations to the Independent Shareholders in relation to the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend and the Share Offer (if materialise). Other than the appointment as the Independent Financial Adviser to the Independent Board Committee as stated above, we have no relationships or interests with the Company and any other parties that could reasonably be regarded as relevant to our independence. We are therefore independent from the Company pursuant to Rule 13.84 of the Listing Rules and our appointment by the Independent Board Committee is in compliance with Rule 2 of the Takeovers Code.

— 39 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR ADVICE

In arriving at our recommendation, we have relied on the information and facts provided by the Company and have assumed that any representations made to us are true, accurate and complete. We have also relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Directors and the management of the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information, representations and opinions which have been provided by the Directors and the management of the Company for which they are solely responsible for, are true and accurate at the time they were made and will continue to be accurate at the Latest Practicable Date. Should there be any subsequent material changes in such information, the Company should inform the Shareholders as soon as practicable in accordance with Rule 9.1 of the Takeovers Code. The Independent Shareholders will also be notified of any material changes to such information provided in the Circular and our opinion as soon as possible after the Latest Practicable Date.

The 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 and belief, 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 such statement contained in the Circular misleading. We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading. Having made all reasonable enquiries, the Directors have further confirmed that, to the best of their knowledge, they believe there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading. We have not, however, carried out any independent verification of the information provided by the Directors and management of the Company, nor have we conducted any independent investigation into the business and affairs of the Group.

— 40 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

A. The Disposal

In arriving at our opinion to the Independent Board Committee and the Independent Shareholders in respect of the Disposal, we have taken the following principal factors and reasons into consideration:

1. Background information of the Group

(a) Principal business

The Company is an investment holding company and its subsidiaries are principally engaged in (i) the electronic products manufacturing which principally involves manufacturing and trading of diodes, electronic manufacturing services, and manufacturing of telecom and radio frequency devices, plastic components and wire; (ii) the personal computer products distribution in Canada; and (iii) the electronic components distribution in Hong Kong and the PRC.

(b) Historical financial information

A summary of the consolidated financial results of the Group for the three financial years ended 31 March 2015 as extracted from the annual reports of the Company for the financial year ended 31 March 2014 (the “ Annual Report 2013/14 ”) and 31 March 2015 (the “ Annual Report 2014/15 ”) is as below.

Table 1: Consolidated income statement of the Group

	For the year ended 31	For the year ended 31	March
	2015	2014	2013
	Approximately	Approximately	Approximately
	HK$’ million	HK$’ million	HK$’ million
	(audited)	(restated)	(audited)
Revenue	531.1	618.3	547.9
Gross profit	64.5	87.8	68.7
Profit/(loss) before taxation	(30.0)	7.4	15.8
Profit/(loss) attributable to owners
of the Company from continuing
operations	(39.7)	5.0	13.9

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Table 2: Consolidated balance sheet of the Group

		As at 31 March
	2015	2014	2013
	Approximately	Approximately	Approximately
	HK$’ million	HK$’ million	HK$’ million
	(audited)	(restated)	(restated)
Total assets	355.6	454.4	454.4
Total liabilities	169.1	214.6	229.6
Net asset attributable to owners
of the Company	186.3	239.6	224.5

For the year ended 31 March 2014, the Group recorded a revenue of approximately HK$618.3 million, representing an approximately 12.8% increase when compared with the revenue of approximately HK$547.9 million recorded during the year ended 31 March 2013. According to the Annual Report 2013/14, the increase in turnover was mainly attributed by the increase in the turnover of the electronic products manufacturing segment from approximately HK$78.3 million during the year ended 31 March 2013 to approximately HK$159.1 million in 2014. The significant increase in turnover of electronic products manufacturing segment was mainly resulted from the re-engineering of the manufacturing business which ceased the production of less profitable products. The turnover of the electronic products manufacturing segment, personal computer products distribution segment and electronic components distribution segment were approximately HK$159.1 million, HK$282.2 million and HK$177.0 million respectively, representing approximately 25.7%, 45.6% and 28.7% of the total revenue. During the year ended 31 March 2014, the Group recorded profit attributable to owners of the Company of approximately HK$5.0 million compared with profit of approximately HK$13.9 million recorded during the year ended 31 March 2013. As at 31 March 2014, the Group had total assets, total liabilities and net assets attributable to owners of the Company of approximately HK$454.4 million, HK$214.6 million and HK$239.6 million respectively.

For the year ended 31 March 2015, the Group recorded a revenue of approximately HK$531.1 million, representing an approximately 14.1% decrease when compared with the revenue of approximately HK$618.3 million recorded during the year ended 31 March 2014. Such decrease was mainly attributed to the rapidly declining personal computer market in Canada, which represented the entire market of the Group’s personal computer products distribution segment in North America where approximately 51.7% of the Group’s revenue was generated for the year ended 31 March 2015, and the slowed down demand for electronic components in Hong Kong and the PRC. The turnover of the electronic products manufacturing segment, personal computer products distribution segment and electronic components distribution segment were approximately HK$132.5 million, HK$234.9 million and HK$163.7 million respectively, representing approximately 25.0%, 44.2% and 30.8% of

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the total revenue. During the year ended 31 March 2015, the Group recorded loss attributable to owners of the Company of approximately HK$39.7 million compared with profit of approximately HK$5.0 million recorded during the year ended 31 March 2014. The loss for the year ended 31 March 2015 as compared with a profit in the previous year was mainly resulted from (i) the impairment of the goodwill related to the personal computer market in Canada amounting to approximately HK$22.6 million due to significant decline in the personal computer products market in North America starting from the second half of year 2014 which continues through 2015; and (ii) the increase in general and administrative expenses from approximately HK$68.0 million for the year ended 31 March 2014 to HK$85.4 million for the year ended 31 March 2015. As at 31 March 2015, the Group had total assets, total liabilities and net assets attributable to owners of the Company of approximately HK$355.6 million, HK$169.1 million and HK$186.3 million respectively.

2. Background information of the Disposal Group

(a) Principal business

The Disposal Group is an indirect wholly-owned subsidiary of the Company prior to the Disposal Completion, and it is primarily operating the Disposal Business of distribution and trading of electronic components in Hong Kong and the PRC, central management of properties holding and Canadian computer distribution.

(b) Historical financial information

Set out below are the highlights of the unaudited combined financial results of the Disposal Group for the three years ended 31 March 2015, details of which are set out in Appendix II in the Circular:

	For the year ended 31	For the year ended 31	March
	2015	2014	2013
	Approximately	Approximately	Approximately
	HK$’ million	HK$’ million	HK$’ million
	(unaudited)	(unaudited)	(unaudited)
Revenue	400.8	460.4	469.6
Profit/(loss) before income tax	(33.3)	1.4	16.8
Profit/(loss) for the year from
continuing operation	(43.4)	(0.8)	14.8

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the summary of the unaudited combined assets and liabilities of the Disposal Group as at 31 March 2013, 2014 and 2015 respectively, details of which are set out in Appendix II in the Circular:

		As at	31 March
	2015		2014	2013
	Approximately	Approximately		Approximately
	HK$’ million	HK$’ million		HK$’ million
	(unaudited)	(unaudited)		(unaudited)
Non-current assets	49.3		161.1	165.8
Current assets	196.4		181.4	202.9
Total assets	245.7		342.5	368.7
Non-current liabilities	12.3		3.8	4.0
Current liabilities	110.0		179.9	199.9
Total liabilities	122.3		183.7	204.0
Total equity	123.4		158.8	164.7

Financial year ended 31 March 2014 vs financial year ended 31 March 2013

For the year ended 31 March 2014, the revenue of the Disposal Group slightly decreased by approximately 2.0% to approximately HK$460.4 million, down from that of approximately HK$469.6 million of the prior financial year. As advised by the Directors, the decrease in turnover was mainly attributable to the decrease in turnover of the electronic components distribution segment for the year ended 31 March 2014 due to the strong competition in PRC market, the negative effect of which was offset by the increase in turnover of the personal computer products distribution segment for the year ended 31 March 2014 due to the extension of business from the main stream personal computers market to tablets, portable devices and peripherals.

For the year ended 31 March 2013, the Disposal Group recorded a profit for the year from continuing operation of approximately HK$14.8 million. Excluding the gains on disposals of land use rights, investment properties and property, plant and equipment of approximately HK$17.5 million, a loss of approximately HK$2.7 million would have been recorded. A loss for the year from continuing operation of approximately HK$0.8 million was recorded for the year ended 31 March 2014.

As at 31 March 2014, the Disposal Group recorded net assets of approximately HK$158.8 million, compared to approximately HK$164.7 million as at 31 March 2013.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Financial year ended 31 March 2015 vs financial year ended 31 March 2014

For the year ended 31 March 2015, the revenue of the Disposal Group decreased by approximately 12.9% to approximately HK$400.8 million, down from that of approximately HK$460.4 million of the prior financial year. As advised by the Directors, the decrease in turnover was mainly attributable to the decrease in turnover of the personal computer products distribution segment and decrease in the turnover of the electronic components distribution segment for the year ended 31 March 2015. According to the Annual Report 2014/15, the personal computer market in Canada declined rapidly particularly in second half of year and the demand for electronic components slowed down in Hong Kong and the PRC.

The Group has re-examined the business prospects and assessed the value of the goodwill in the Group’s financial statements and has decided to write off all the goodwill related to the personal computer products distribution segment. The Disposal Group recorded loss for the year from continuing operation of approximately HK$43.4 million for the year ended 31 March 2015, compared to the loss for the year from continuing operation of approximately HK$0.8 million in the prior financial year.

As at 31 March 2015, the Disposal Group recorded net assets of approximately HK$123.4 million respectively, compared to approximately HK$158.8 million as at 31 March 2014.

The unaudited consolidated financial results are regarded as profit estimates and the Company’s auditor or the Company’s financial advisor are required to report on the unaudited combined financial information under Rule 10 of the Code on Takeovers and Mergers.

3. Background information of the Remaining Group

(a) Principal business

Upon completion of the Disposal, the Remaining Group will continue operating the Remaining Business, being the business segment of electronic products manufacturing which principally involves manufacturing and trading of diodes, electronic manufacturing services, and manufacturing of telecom and radio frequency devices, plastic components and wire.

(b) Historical financial information

During the three years ended 31 March 2013, 2014 and 2015, the Remaining Group was primarily made up of the electronic products manufacturing segment. As set out in Appendix I in the Circular, for the year ended 31 March 2014, the relevant segmental revenue increased

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

by approximately 103.2% to approximately HK$159.1 million from that of approximately HK$78.3 million of the prior financial year. The segmental profit of the electronic products manufacturing in the financial year ended 31 March 2014 was HK$ 7.3 million, compared to a loss of HK$0.2 million in the financial year ended 31 March 2013. It was stated in Appendix I that the profitability and efficiency of this segment was further enhanced through efforts of new management team, streamlining of production lines, stronger quality control, logistic and cost control system.

For the year ended 31 March 2015, the relevant segmental revenue decreased by approximately 16.7% to approximately HK$132.5 million, down from that of approximately HK159.1 million of the prior financial year. The segmental profit of the electronic products manufacturing decreased approximately 46.6% from approximately HK$7.3 million in the financial year ended 31 March 2014 to approximately HK$3.9 million in the financial year ended 31 March 2015. In view of the slowdown of electronic markets and the lengthening of payment from some customers, the Remaining Group has applied tighter controls over overdue accounts to minimise credit risk. This policy has led to lower business volumes.

4. Background of and reasons for the Disposal

As stated in the section headed Letter from the Board contained in the Circular, the Disposal Business primarily involves Hong Kong and the PRC distribution and trading of electronic components, central management of properties holding and Canadian personal computer products distribution. Pursuant to the Sale and Purchase Agreement, it is conditionally agreed between the Selling Shareholders and the Offeror that the Disposal Group shall be disposed of by the Company to the Disposal Purchaser so that it will no longer be part of the Remaining Group after the Disposal Completion and the Sale and Purchase Completion. According to the Letter from the Board, the Board is of the view that the Disposal is in the interests of the Company and the Shareholders as a whole having considered that, among other things, the respective intentions of the Offeror and Mr. Lau on the Remaining Business and the Disposal Business, the expected forthcoming federal interest rate hikes, the slowdown in the PRC market, the increasingly competitive landscape of the electronic components distribution business and the overall prospects of the Disposal Group.

Central management properties holding, relates to properties holding held by the Disposal Group in Hong Kong and the PRC. As advised by the management of the Company, properties in Hong Kong are used by the Disposal Group directly, while properties in the PRC are rented to independent third parties. No revenue is generated and the only income source is rental income from properties in the PRC to independent third parties. As advised by the management of the Company, such rental income is immaterial in terms of the Disposal Group’s revenue compared to the income generated from other business segments. Therefore, the focus of our analysis is placed on the Hong Kong and the PRC distribution and trading of electronic components and Canadian computer distribution, other than the central management of properties holding.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Regarding the electronic components distribution segment, according to the Annual Report 2014/15, the Company mainly acts as the authorised distributor of electronics components of renowned brands and major customers are manufacturers located in Hong Kong and the PRC. Products of this segment include diodes, transistors, integrated circuits (IC), power management devices, optical-electronics and illuminations as well as discrete components. Turnover of the electronic components distribution segment was approximately HK$163.7 million (2014: approximately HK$177.0 million) representing a decrease of approximately 7.5% when compared with the last financial year. The Group has spent considerable resources and expenses to develop new distribution lines and to further enhance the distribution networks in the PRC. However the competition in PRC market was strong and overall demand was declining, and performance of the Company does not show any observable improvement after the implementation of the aforementioned enhancement.

The Group’s customers use the products and services provided by the Group to manufacture finished products, such as electronic toys, power supply equipment, home appliances, and audio/video system. The demand from the Group’s customers, who are mainly from the PRC, and therefore, depends on the overall consumer demand for the finished products they manufacture. Although the electronic components are also sold to customers in Hong Kong, the customers mainly use the electronic components in the manufacturing of finished products in the PRC. As a result, the demand of these electronic components greatly depends on the manufacturing activity of the PRC. Although the PRC’s economy has maintained growth since the 1980s, the growth rate has been slowing down in recent years. According to the World Bank, the annual percentage growth rate of the gross domestic product (the “ GDP ”) in the PRC for 2012, 2013 and 2014 were approximately 7.8%, 7.7% and 7.4% respectively. The decreasing growth rate reflected the slowing down of the PRC’s economy development which may affect consumer confidence.

According to the statistics published by the Ministry of Industry and Information Technology of the People’s Republic of China on 23 July 2015, the total sales of electronic components in the PRC was approximately RMB833.5 billion from January 2015 to June 2015. The growth rate has further decreased by approximately 0.5 percentage point from approximately 7.7% in the first six months of 2014 to approximately 7.2% in the same period of 2015. On the other hand, the PRC’s export of electronic components was approximately RMB297.8 billion from January 2015 to June 2015. The total value of export of electronic components in the first six months of 2015 decreased by approximately 9.4% compared with the same period in 2014, which remains as the same level as the period for the first five months of 2014.

We consider that the aforesaid statistics indicates a further deterioration in the electronic components market in the PRC and therefore, we remain cautious about the outlook and prospects of the electronic components distribution segment.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Regarding the personal computer distribution segment, according to the Annual Report 2014/15, the role of PC distributors is diminishing and there was a trend that consumers began to purchase personal computer products directly from manufacturers through means of the internet instead of shopping in retail shops. Customers from this segment are expected to be migrated to the Group’s web sales.

According to an announcement titled “Gartner Says Worldwide PC Shipments declined 9.5 Percent in Second Quarter of 2015” published on 9 July 2015 by Gartner (“ Gartner’s Analysis ”), an American information technology research and advisory firm providing technology related insight and which is headquartered in the United States of America (the “ US ”) and listed on the New York Stock Exchange, worldwide PC shipments totaled approximately 68.4 million units in the second quarter of 2015, an approximate 9.5% decline from the second quarter of 2014. The Gartner’s Analysis suggests that the decline is mainly driven by temporary events, namely the price hike of PCs in market outside the US due to the appreciation of the US dollar against local currencies; unusually positive growth in desk-based computers sales last year due to the end of Windows XP support; and the attempts by PC vendors to clear inventory as much as possible before the Windows 10 launch which was scheduled for the third quarter of 2015. Although the Gartner’s Analysis suggested that these are not changing the PC market’s structure, there is no assurance if or when that the market will grow, after going through this decline. In the US, PC shipments totaled approximately 15.1 million units in the second quarter of 2015, an approximate 5.8% decline from the second quarter of 2014. The decline was led by a doubledigit decline of desk-based shipments, which offset single-digit growth of mobile PCs. According to Gartner’s Analysis, the desk-based PC shipment decline was the steepest since 2009 when the market then was hit by the economic crisis. According to a statistical report titled “Worldwide Smart Connected Device Shipment (2014 and 2019)” published by the International Data Corporation (the “ IDC ”) on 20 March 2015 (the “ IDC’s Research ”), a leading market research, analysis and advisory firm, the worldwide shipment volume of portable PC and desktop PC in 2014 is 174.3 million units and 133.9 million units respectively; while the year-to-year growth of portable PC and desktop PC in 2014 is -2.3% and -2.1% respectively. Further to the IDC’s Research, it is expected that the shipment volume of portable PC and desktop PC in 2019 will decrease slightly to 170.5 million units (year-to-year growth: -0.3%) and 121.0 million units (year-to-year growth: -1.0%) respectively, showing decreasing demand for PC worldwide. Based on our research, we noted that the reports, forecasts and other information published by Gartner and IDC, including those in relation to personal computer market, have been widely quoted by mainstream media worldwide. We have not identified any recent official statistics published by government bodies with respect to the shipment volume of personal computer both globally and in the US, while on the other hand, we have identified other articles from mainstream media, including established news agencies, that generally quoted and concluded with the findings as contained the reports and other information published by Gartner and IDC. Having considered the foregoing as well as the background of Gartner and IDC, being established and sizeable research organisation, notwithstanding that Gartner and IDC are private organisations and not of government background, we consider that Gartner and IDC and their announcement/report as mentioned above are reliable and authoritative, and such announcement/report are representative for our assessment of the prospect of personal computer market both globally and in North America.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Board (excluding the interested Directors and the independent nonexecutive Directors) has considered the prospects of the Disposal Business, which has not been profitable in recent years, and which recorded an unaudited loss of approximately HK$64.6 million for the year ended 31 March 2015. As stated in the Annual Report 2014/15, for the computer products distribution segment, the Group has re-examined the business prospects and also assessed the value of the goodwill in the Group’s financial statements, and after careful consideration and review of the valuation prepared by Roma Appraisals Limited for the sole purpose of goodwill impairment test pursuant to the applicable Hong Kong Accounting Standard, after re-examining the business prospects of the personal computer distribution segment, the management has decided to write off all the goodwill related to the personal computer distribution segment during the year ended 31 March 2015 which resulted in an impairment loss on goodwill of approximately HK$22.6 million for the year ended 31 March 2015. For further details on the write-off of the goodwill related to the personal computer distribution segment, please refer to the Annual Report 2014/15.

Notwithstanding the considerations the Board has taken into account in assessing the Disposal, in view of the uncertainty of the future prospects of the Disposal Business, which has been loss making in the recent years with an unaudited loss recorded, we consider that it is commercially justifiable, subject to value considerations, to dispose of the Disposal Business and the Disposal ought to be in the interests of the Company and the Shareholders as a whole.

5. Terms of the Disposal Agreement

(a) The Disposal Consideration

The consideration of the Disposal Agreement is HK$95 million, which is subject to the adjustment on a dollar-for-dollar basis as the net asset value of the Disposal Group shown in the Certificate and was determined after taking into account, amongst other matter, the expected net assets of the Disposal Group at Disposal Completion and the future prospects of the Disposal Business, and such consideration shall be paid to the Company in cash by the Disposal Purchaser or its nominee on the Disposal Completion.

According to the Letter from the Board contained in the Circular, the Board (excluding the interested Directors who were not present in the relevant meeting of the Board) is of the view that since (i) the use of price earnings multiples as a basis for valuation with any low profit figure would produce a consideration that would be significantly less than the net asset value of the Disposal Group; (ii) the assets of the Disposal Group mainly comprise cash and cash equivalents, inventories, accounts receivable, plant and equipment; and (iii) the net asset value of the Disposal Group will be reviewed by the qualified accountant jointly appointed by the Company and the Disposal Purchaser in accordance with the terms of the Disposal Agreement; the net asset value of the Disposal Group (which will be adjusted for the revaluation of the properties held by the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Disposal Group, the valuation report of which is set out in Appendix V to the Circular, save for a property in the PRC, of which the land use rights portion is recognised at cost less accumulated amortisation in the unaudited combined balance sheets of the Disposal Group pursuant to the applicable Hong Kong Accounting Standards. The valuation of such property was approximately HK$4.4 million as at 31 July 2015 according to the Valuation Report whereas the book value of such property was approximately HK$2.8 million as at 31 March 2015 as contained in the Annual Report 2014/15, representing a difference of approximately HK$1.5 million which we consider immaterial relative to the unaudited net asset value of the Disposal Group of approximately HK$123.4 million as at 31 March 2015) provides a reasonable and non-subjective basis for the determination of the Disposal Consideration.

Since the Disposal Consideration is determined on a dollar-for-dollar basis of the net asset value of the Disposal Group and properties owned by the Disposal Group constitutes a significant portion of the total assets of the Disposal Group, we have made reference to the valuation report of the properties in our consideration of the fairness and reasonableness of the Disposal Consideration.

The valuation report for the properties (the “Valuation Report”) is set out in Appendix V to the Circular. For our due diligence purpose, we reviewed and enquired Roma Appraisals Limited (the “Valuer”)’s qualification and experience in relation to the performance of the valuation. From the information provided by the Valuer, we noted that the director in charge of the valuation possesses over 4 years of relevant property valuation experience. Moreover, the Valuer has plenty of experience in performing valuation for transactions of listed companies as well as the initial public offering cases in Hong Kong. The Valuer confirmed that it is an independent third party to the Company. The Valuer also confirmed that all relevant material information provided by the Company had been incorporated in the Valuation Report and there were no other material relevant information or representations relating to the properties provided or made by the Company to the Valuer not having been included in the valuation. In addition, we also reviewed the terms of the Valuer’s engagement and noted that the scope of work is appropriate to the opinion required to be given and we are not aware of any limitation on the scope of work which might have an adverse impact on the degree of assurance given by the Valuation Report.

We also enquired the Valuer regarding the methodology, basis and assumptions adopted in the Valuation, details of which were contained in the Valuation Report. The Valuation has been prepared in accordance with The HKIS Valuation Standards (2012 Edition) published by The Hong Kong Institute of Surveyors effective from 1 January 2013. It is noted that the Valuation of the Property represents its market value which is intended to mean “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the Valuation Report, the valuation has been made on the assumption that the seller sells the property interests in the market without the benefit of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which could serve to affect the values of the property interests. As the properties are held under long term leasehold interests, it is assumed that the owner has free and uninterrupted rights to use the properties for the whole of the unexpired term of the leasehold interests. Furthermore, no allowance has been made in the Valuation Report for any charges, mortgages or amounts owing on any of the property interests valued nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect its value. Given that, according to the Valuation Report, as at the valuation date of 31 July 2015 (i) there were no encumbrances, restrictions and outgoings of an onerous nature relating to the properties; and (ii) the assumptions are made under common market practice, we consider that the aforesaid assumptions are fair and reasonable.

It is noted that direct comparison approach is adopted as the principal valuation methodology in determining the valuation. We were given to understand that direct comparison approach involves the analysis of recent market sales and rental evidences of similar properties to compare with the premises under valuation. Each comparable is analysed on the basis of its unit rate, each attribute of the comparable is then compared with the subject and where there is a difference, the unit rate is adjusted in order to arrive at the appropriate unit rate for the subject. Given that direct comparison approach is one of the most accepted valuation approach for valuing most of real estate according to the Valuer, and that comparables of recent market sales are of similar nature to the properties owned by the Disposal Group under recent market condition, we consider that it is appropriate to adopt direct comparison approach for the Valuation.

We were given to understand that in the course of the valuation, the Valuer has obtained from the Company information and advice on approved building plans, area schedule, identification of the properties and all other relevant matters, and has conducted inspection on the exterior and interior of the properties. The Valuer also conducted searches at the Land Registry to investigate titles to the property interest. The Valuer has examined all relevant basis and assumptions related to the valuation and presented all relevant information on the background of the properties, valuation methodologies, source of information, scope of works, major assumptions, comments and its conclusion in the Valuation Report. We have discussed and interviewed with the Valuer to understand the Valuation, including but not limited to the calculations and workings of the Valuation. In this regard, we have reviewed the supporting documents for the Valuation from the Valuer. During the course of our discussions with the Valuer, we have not identified any major factors which cause us to doubt the fairness, reasonableness and completeness of the principal basis and assumptions adopted in the Valuation.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having considered that the methodology, basis and assumptions adopted in the valuation are fair and reasonable, we are of the view that the value of the properties owned by the Disposal Group is fairly deduced and is fair and reasonable so far as the Independent Shareholders are concerned.

Considering the deteriorating financial performance of the Disposal Group that the Disposal Group has been loss making in the recent years, with loss for the year widening from approximately HK$2.2 million for the year ended 31 March 2014 to approximately HK$64.6 million for the year ended 31 March 2015, further details of which are contained in the paragraph headed “2. Background information of the Disposal Group – b. Historical financial information” above, we consider that it is not feasible to determine the consideration based on profit while alternatively, it is appropriate to determine the consideration based on net asset value of the Disposal Group (which will be adjusted for the revaluation of the properties held by the Disposal Group, the valuation report of which is set out in Appendix V to the Circular, save for a property in the PRC, of which the land use rights portion is recognised at cost less accumulated amortisation in the unaudited combined balance sheets of the Disposal Group pursuant to the applicable Hong Kong Accounting Standards. The valuation of such property was approximately HK$4.4 million as at 31 July 2015 according to the Valuation Report whereas the book value of such property was approximately HK$2.8 million as at 31 March 2015 as contained in the Annual Report 2014/15, representing a difference of approximately HK$1.5 million which we consider immaterial relative to the unaudited net asset value of the Disposal Group of approximately HK$123.4 million as at 31 March 2015).

Based on our discussion with the management of the Company, the Directors considered that, which we concurred, valuation on the Disposal Group prepared by an independent valuer is not required given that the Disposal Group has been loss making in recent years with future prospects being uncertain, while transactions for the sale and purchase of interests in companies of similar nature cannot be identified in the market, commonly adopted valuation approaches such as (a) income approach using discounted cash flow model which focuses on the economic benefits generated by the income producing capability of a business entity; or (b) market approach, mainly using guideline public company method and comparable transaction method, which values a business entity by comparing the prices at which interests in other companies of similar business nature are transacted in arm’s length transactions, are not appropriate. Alternatively, by determining the consideration based on the net asset value of the Disposal Group (which will be adjusted for the revaluation of the properties held by the Disposal Group, the valuation report of which is set out in Appendix V to the Circular), the value of the business entity is represented by the money that has been made available to acquire the business assets of the Disposal Group, comprising working capital, tangible and intangible assets as financed by the equity capital and debt of the Disposal Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As discussed in details in the paragraph headed “3. Historical performance of the Shares – (a) share price” in the letter below, on 26 November 2014, the Company issued an announcement (the “First Announcement”) that Mr. Lau was approached by several intermediaries about the possible sale of his shareholding interest in the Company, and on 28 November 2014, the Company published the interim result announcement for the six months ended 30 September 2014 (the “Interim Result 2014/15”) which showed weakening financial performance of the Group. Notwithstanding the deteriorating financial results, the closing price of the Shares increased from HK$0.98 per Share on 28 November 2014 to HK$1.41 per Share on 19 March 2015 and reached the highest of HK$4.75 per Share on 28 April 2015, followed by period of wide fluctuation, further analysis of which are set out in the paragraph headed “3. Historical performance of the Shares – (a) share price” in the letter below. We believe that the surge of the closing price of the Shares after 28 November 2014, i.e. the date of the publication of the announcement of Interim Result 2014/15, did not reflect the fundamentals of the Company. Therefore, we consider that the Share price during such period, i.e. from 28 November 2014 to the Latest Practicable Date, does not provide a fair and meaningful valuation of the Company and accordingly, it is not appropriate to determine the Disposal Consideration with reference to the market capitalisation of the Company based on the current Share price.

Based on the foregoing, we consider that, it is appropriate to determine the consideration based on net asset value of the Disposal Group (which will be adjusted for the revaluation of the properties held by the Disposal Group, the valuation report of which is set out in Appendix V to the Circular, save for a property in the PRC, of which the land use rights portion is recognised at cost less accumulated amortisation in the unaudited combined balance sheets of the Disposal Group pursuant to the applicable Hong Kong Accounting Standards. The valuation of such property was approximately HK$4.4 million as at 31 July 2015 according to the Valuation Report whereas the book value of such property was approximately HK$2.8 million as at 31 March 2015 as contained in the Annual Report 2014/15, representing a difference of approximately HK$1.5 million which we consider immaterial relative to the unaudited net asset value of the Disposal Group of approximately HK$123.4 million as at 31 March 2015), and valuation on the Disposal Group prepared by an independent valuer is not required.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Market Comparables

As discussed in the paragraph headed “2 Background information of the Disposal Group – (b) historical financial information” above, the Disposal Group is loss-making. In order to assess the fairness and reasonableness of the Disposal Consideration, we have attempted to use price-to-earning (the “ P/E Ratio ”) and price-to-book ratio (the “ P/B Ratio ”), being the two most commonly adopted valuation ratios, in our analysis. As the Disposal Group on a recalculated earnings basis recorded a loss for the year ended 31 March 2015, no earning figure is available for the calculation of the P/E Ratio of the Disposal Group and therefore, the P/E Ratio of the Disposal Group is considered not applicable, and the P/B Ratio has been used instead in our analysis. We have identified 4 companies (the “ Disposal Comparables ”) which (i) are principally engaged in distribution and trading of electronic components; and (ii) have their shares listed in Hong Kong. The Disposal Comparables represent a complete and an exhaustive list of companies meeting the aforementioned criteria as identified by us. We consider that while the nature and use of the electronic components distributed by the Disposal Comparables are not identical to those of the Disposal Group, the supply and demand of the electronic components, and therefore the fundamentals of such companies engaged in the distribution and trading of electronic components, are in general affected by similar macroeconomic factors including, but not limited to, global economy and outlook, prices of raw materials, production output of electronic components, demand from end users, i.e. electronic products manufacturers and as market demand for and consumption of electronic products, as well as business factors specific to companies engaged in distribution and trading of electronic components. Notwithstanding that the Disposal Group in itself is not a listed company, we consider that the P/B Ratios of the Disposal Comparables could offer meaningful analysis on the market valuation on companies engaged in similar business, i.e. distribution and trading of electronic components, given by the Hong Kong market. Based on the foregoing, we consider the Disposal Comparables as fair and representative comparables. For the purpose of our letter, we have conducted an analysis on the P/B Ratio on the Disposal Comparables, and compared the P/B Ratio of the Disposal Comparables to the P/B Ratio of the Disposal Group represented by the Disposal Consideration. Our analysis on the

Disposal Comparables is set out below.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Table 4: Analysis on Disposal Comparables

			Net asset
		Market	value
		capitalisation	attributable
		as at the	to the
		Latest	shareholders
Company		Practicable	of the	PB Ratio
(Stock code)	Principal business	Date	company	(Note 1)
		(HK$ million)	(HK$ million)	(times)
AV Concept Holdings Limited	(i) the semiconductor
(595)	distribution segment; (ii) the
	consumer electronic product
	segment; (iii) the venture
	capital segment; and (iv) the
	others segment	255.1	654.2	0.39
Willas-Array Electronics	(i) trading of electronic
(Holdings) Limited (854)	components; and (ii) trading
	and designing integrated
	circuits	226.5	657.6	0.34
S.A.S. Dragon Holdings	(i) distribution of electronic
Limited (1184)	components and
	semiconductors products;
	(ii) distribution of sports
	products; and (iii) rental
	income from investment
	properties	842.8	1,000.7	0.84
Mobicon Group Limited	(i) Electronic trading business;
(1213)	(ii) computer business; and
	(iii) cosmetic retail business	360.0	181.9	1.98
			Average	0.89
			Median	0.62
			Maximum	1.98
			Minimum	0.34
The Disposal_(Note 2)_				1.00

Source: website of the Stock Exchange (http://www.hkex.com.hk)

Note:

The P/B Ratio of the Disposal Comparables are calculated based on the market capitalisation of the respective Disposal Comparables as at the Latest Practicable Date divided by the equity attributable to owners of the respective Disposal Comparables as extracted from their respective latest published annual or interim results.
As the Disposal Consideration is subject to the adjustment on a dollar-for-dollar basis as the net asset value of the Disposal Group shown in the Certificate, the P/B Ratio of the Disposal Group represented by the Disposal Consideration is therefore 1.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated in the analysis above, the P/B Ratio of the Disposal Comparables range from a low end of approximately 0.34 times to a high end of approximately 1.98 times with the average being approximately 0.89 times. Accordingly, the P/B Ratio of the Disposal Group of 1.00 time is higher than the average and median of the P/B Ratio of the Disposal Comparables. As such, we consider the Disposal Consideration, with reference to the Implied P/ B Ratio, is fair and reasonable given the current market valuation of the Disposal Comparables.

6. Financial effects of the Disposal

Earnings

Upon the completion of the Disposal, the combined income statement of the Disposal Group will no longer be consolidated to the consolidated income statement of the Group going forward. As stated in the unaudited pro forma consolidated income statement of the Remaining Group as set out in Appendix III in the Circular, assuming that the Disposal had been completed on 31 March 2015, the loss for the year attributable to equity holders of the Company of approximately HK$39.7 million for the year ended 31 March 2015 would become a loss for the year attributable to equity holders of the Company of approximately HK$6.5 million. For further details, please refer to the unaudited pro forma consolidated income statement of the Remaining Group as set out in Appendix III to the Circular.

Net Assets

Upon the completion of the Disposal, the combined balance sheet of the Disposal Group will no longer be consolidated to the consolidated balance sheet of the Group going forward. As stated in the unaudited pro forma consolidated balance sheet of the Remaining Group as set out in Appendix III to the Circular, assuming that the Disposal and payment of the Special Dividend had been completed on 31 March 2015 (having taken into account of the payment of Special Dividend and completion of the Subscription Agreement), the total assets of the Remaining Group would increase from approximately HK$355.6 million to approximately HK$396.9 million, and the total liabilities of the Remaining Group would decrease from approximately HK$169.1 million to HK$60.1 million.

Please refer to Appendix III to the Circular for further details.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Cash resources

It is expected that the gross proceeds from the Disposal would be approximately HK$95.0 million (which is subject to the adjustment on a dollarfor-dollar basis as the net asset value of the Disposal Group shown in the Certificate). Subject to the Special Dividend becoming unconditional which is one of the conditions precedent to the Disposal Agreement, the Company intends to apply the net proceeds from the Disposal to finance the payment of the Special Dividend. The Special Dividend of HK$100.6 million will provide a substantial and immediate cash realisation to the Shareholders from the outcome of the Disposal. As stated in the Letter from the Board, any remaining balance of the gross proceeds from the Disposal after the payout of the Special Dividend will be applied towards working capital of the Group. Given that the proceeds from the Disposal will be mainly used for financing of the Special Dividend, it is expected that there will not be material change of cash resources before and after the Disposal.

B. Special Dividend

Based on 437,239,448 Shares in issue as at the Latest Practicable Date, the Special Dividend payable to the Shareholders on the Record Date shall amount to approximately HK$100.6 million, out of which, the Selling Shareholders, being the beneficial owners of approximately 55.17% of the issued share capital of the Company as at the Latest Practicable Date and assuming no change to their shareholding from the Latest Practicable Date to the Record Date, are entitled to receive the Special Dividend in the total sum of approximately HK$55.5 million.

As mentioned above, it is expected that the gross proceeds from the Disposal would be approximately HK$95 million. Subject to the Special Dividend becoming unconditional, the Company intends to apply the net proceeds from the Disposal to finance the payment of the Special Dividend. The Special Dividend of HK$0.23 per Share will provide a substantial and immediate cash realisation to Shareholders from the outcome of the Disposal. As stated in the Letter from the Board, the remaining balance of the gross proceeds from the Disposal after the payout of the Special Dividend will be applied towards working capital of the Group. In determining the amount of the Special Dividend, the Board, having considered the financial resources available to the Group and the Remaining Group and the future working capital needs of the Remaining Group, considers that the amount of the Special Dividend is appropriate.

We consider that the Disposal may provide the Shareholders a further opportunity to realise their investment in the Company in the form of the Special Dividend.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

C. The Subscription

Pursuant to the Subscription Agreements, the Company has conditionally agreed to issue, and the Subscribers have conditionally agreed to subscribe, in cash, for a total of 225,000,000 new Shares (fully paid and free from all liens, charges, security interests, encumbrances and adverse claims) at the Subscription Price of HK$1.144 per Share for an aggregate consideration of HK$257,400,000, out of which the Offeror will subscribe for 144,698,889 new Shares for a consideration of approximately HK$165,535,529; Asia-IO Holdings BVI will subscribe for 43,439,139 new Shares for a consideration of approximately HK$49,694,375; and Huatai Principal Investment will subscribe for 36,861,972 new Shares for a consideration of approximately HK$42,170,096. Asia-IO Holdings BVI and Huatai Principal Investment are parties acting in concert with the Offeror under the Takeovers Code.

1. Reasons for the Subscription

The Offeror plans to build on the competence of the Remaining Business in discrete component manufacturing to expand into other potential opportunities, including the provision of information technology services (like SMS) that are in demand in the electronics manufacturing value chain. The gross proceeds of the Subscription of approximately HK$257.4 million will primarily be used to strengthen the engineering and managerial teams, increase the working capital base, upgrade the Company’s production and/or service capabilities, and to explore new business opportunities, details of which are set out as follows:

approximately HK$150 million to build and expand a dedicated team of sales, software development and system implementation professionals to further explore and expand the business opportunities of the Remaining Group;
approximately HK$80 million to strengthen the general working capital base; and
the balance of approximately HK$27 million for selective capacity expansion and upgrade of production facilities for the Remaining Business.

Subject to market and industry condition and the Offeror’s overall strategic planning, the Offeror intends to leverage the Remaining Group’s manufacturing capabilities in diodes and radio frequency modules, and to utilise idle capacity in the SMT production line, to develop smart sensor devices and “Internet-of-Things” (“IoT”) devices to be used in SMS. SMS is an IT services business and the current plan is to market such solutions to the leading industrial companies in Asia (particularly electronics manufacturers) for the IT upgrade of their manufacturing processes. Provision of SMS by the Company would primarily demand managerial, consulting, sales and systems engineering personnel to design and implement system integration services for the manufacturer clients. This would rely more on the consultative sales, engineering and process design expertise to integrate self-developed or third-party software/devices. As a result, approximately HK$150 million to be raised from the Subscription is allocated for the recruitment of additional professionals.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have researched on the information from the public domain with respect to the development trend worldwide of the use of IT solutions in manufacturing process, also known as smart manufacturing. According to a report on advanced sensors, controls, and platforms for manufacturing (the “ASCPM Report”) published by the Advanced Manufacturing Office of the U.S. Department of Energy, a cabinet-level department of the government of the US that we consider reliable, in October 2014 which analyses the use of the IT solutions in manufacturing process, the application of IT solutions in manufacturing process aims to improve the efficiency, process flow and product quality for manufacturing. The ASCPM Report states that advancements in, among other things, information technologies and data analytics could provide unprecedented capabilities at an economical level.

In December 2014, the Chief Scientific Adviser of the UK Government Office for Science published a report on IoT, a system for smart manufacturing (the “IoT Report”). The IoT Report summaries the views of leading consultants worldwide on the development of IoT. Based on the IoT Report, according to McKinsey, IoT has the potential to add US$6.2 trillion to the global economy by 2025, while other consultants estimate US$1.9 trillion to US$14.4 trillion of global economic value added by 2020. Approximately 25% of global manufacturers are already using IoT technologies, and it is anticipated to grow to over 80% by 2025, leading to a potential global economic uplift of US$2.3 trillion in manufacturing alone.

Based on our research, we noted that the Advanced Manufacturing Office of the U.S. Department of Energy and the UK Government Office for Science are official bodies funded by the respective government which are dedicated to, among other things, research on and promote the regional and worldwide development on industrial technology. Having considered the government background of the aforesaid bodies, we consider that such official bodies and their reports as mentioned above are reliable and authoritative, and such reports are representative for our assessment of the worldwide trend of the application of IT solutions in manufacturing and the business prospectus of the Remaining Group in this regard. Based on the foregoing, we consider that the application of IT solutions in manufacturing is the global trend and there is considerable potential in demand from the manufacturing market for such IT solutions, including the smart sensor devices and IoT devices to be developed and marketed by the Remaining Group.

2. The Subscription Price

The Subscription Shares will be subscribed for by the Subscribers at the same Subscription Price of HK$1.144 per Share. The Subscription Price of HK$1.144 per Share represents:

a discount of approximately 74.12% to the closing price of the Shares of HK$4.42 per Share as quoted on the Stock Exchange on the Last Trading Day;
a discount of approximately 72.70% to the ex-dividend closing price of HK$4.19 per Share as quoted on the Stock Exchange on the Last Trading Day after taking into account the Special Dividend of HK$0.23 per Share declared;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

a discount of approximately 71.11% to the average closing price of the Shares of approximately HK$3.96 per Share for the last 5 consecutive Trading Days up to and including the Last Trading Day;
a discount of approximately 69.33% to the ex-dividend average closing price of approximately HK$3.73 per Share for the last 5 consecutive Trading Days up to and including the Last Trading Day after taking into account the Special Dividend of HK$0.23 per Share declared;
a discount of approximately 69.74% to the average closing price of the Shares of approximately HK$3.78 per Share for the last 10 consecutive Trading Days up to and including the Last Trading Day;
a discount of approximately 67.77% to the ex-dividend average closing price of approximately HK$3.55 per Share for the last 10 consecutive Trading Days up to and including the Last Trading Day after taking into account the Special Dividend of HK$0.23 per Share declared;
a discount of approximately 54.42% to the average closing price of the Shares of approximately HK$2.51 per Share for the last 30 consecutive Trading Days up to and including the Last Trading Day;
a discount of approximately 49.82% to the ex-dividend average closing price of approximately HK$2.28 per Share for the last 30 consecutive Trading Days up to and including the Last Trading Day after taking into account the Special Dividend of HK$0.23 per Share declared;
a discount of approximately 13.33% to the closing price of the Shares of approximately HK$1.32 per Share on the MOU Date;
a premium of approximately 4.95% to the ex-dividend closing price of HK$1.09 per Share on the MOU Date after taking into account the Special Dividend of HK$0.23 per Share declared;
a discount of approximately 60.96% to the closing price of the Shares of approximately HK$2.93 per Share on the Latest Practicable Date;
a discount of approximately 57.63% to the ex-dividend closing price of HK$2.70 per Share on the Latest Practicable Date after taking into account the Special Dividend of HK$0.23 per Share declared;
a premium of approximately 166.05% over the audited net asset value attributable to equity holders as at 31 March 2015 of approximately HK$0.43 per Share based on 437,239,448 Shares in issue as at the Latest Practicable Date; and
a premium of approximately 472.00% over the audited net asset value attributable to equity holders as at 31 March 2015 of approximately HK$0.20 per Share (based on the audited net asset value attributable to equity holders of approximately HK$186.3 million as at 31 March 2015 and 437,239,448 Shares in issue as at the Latest Practicable Date) after taking into account the Special Dividend of HK$0.23 per Share declared.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Subscription Price is the same as the consideration per Share for the Sale Shares under the Sale and Purchase Agreement as well as the Share Offer Price, which is HK$1.144 per Share.

3. Historical performance of the Shares

(a) Share Price

The chart of daily closing price of the Shares during the Review Period (as defined below) is as follows:

==> picture [358 x 207] intentionally omitted <==

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

Daily closing prices of the Shares during the Review Period
Share price (HK$)
5 Trading suspension
pending the publica � on of
4.5 the Joint Announcement
4
3.5
3
2.5 ��
2
1.5
1
0.5
0
Date
Subscrip � on Price Closing price
----- End of picture text -----

Source: website of the Stock Exchange (http://www.hkex.com.hk)

Notes: Trading in the Shares was suspended from 30 April 2015 to 7 August 2015 (both days inclusive) pending the publication of the Joint Announcement.

We have reviewed the movements in the closing price of the Shares for the period commencing from 1 August 2014, being the 12-month period prior to the date of the Joint Announcement and up to and including the Latest Practicable Date (the “ Review Period ”). We consider that the length of the Review Period to be reasonably long enough to illustrate the relationship between the historical trend of the closing price of the Shares. The chart above represents the daily movement in the closing prices of the Shares against the Subscription Price during the Review Period.

Prior the release of the Joint Announcement on 7 August 2015, the lowest and highest closing price of the Shares during the Review Period were HK$0.63 per Share recorded on 7 August 2014 and 11 August 2014 and HK$4.75 per Share recorded on 28 April 2015 respectively, as quoted on the Stock Exchange. The average daily closing price of the Shares during the Review Period before the release of the Joint Announcement is approximately HK$1.19 per Share. The Subscription Price of HK$1.144 per Share represents (i) a premium of approximately 81.6% from the lowest closing price; (ii) a discount of approximately 75.9% from the highest closing price; and (iii) a discount of approximately 3.9% from the average daily closing price during the Review Period before the release of the Joint Announcement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

During the period from 1 August 2014 to 25 November 2014, the closing price of the Share hovered between HK$0.77 per Share and HK$0.92 per Share. The closing price of the Share then surged from HK$0.74 per share on 25 November 2014 to HK$1.20 per Share on 26 November 2014, before dropping to HK$0.89 on 27 November 2014. According to the First Announcement dated 26 November 2014, Mr. Lau was approached by several intermediaries about the possible sale of his shareholding interest in the Company. According to the First Announcement, those approaches were only preliminary discussions and no further negotiation had been carried out and no agreement or memorandum had been entered into by Mr. Lau. Save as disclosed in the First Announcement, the Company was not aware of any other matters which resulted in the increases in price of the Share on that day.

On 28 November 2014, the Company published the Interim Result 2014/15 with respect to the financial results for the six months ended 30 September 2014. According to the Interim Result 2014/15, the revenue decreased from approximately HK$315.3 million for the six months ended 30 September 2013 to approximately HK$287.2 million for the six months ended 30 September 2014, representing a decrease of approximately 8.9%, while the profit for the period decreased from approximately HK$3.1 million for the six months ended 30 September 2013 to approximately HK$1.5 million for the six months ended 30 September 2014, representing a decrease of approximately 51.6%. Notwithstanding the weakening interim results, following the announcement of the Interim Result 2014/15, the closing price of the Shares increased from HK$0.98 per Share on 28 November 2014 to HK$1.41 per Share on 19 March 2015.

The closing price of the Share then surged from HK$1.41 per Share on 19 March 2015 to HK$2.00 per Share on 25 March 2015 and reached the highest of HK$4.75 per Share on 28 April 2015, before the trading of the Share was suspended from 30 April 2015 to 7 August 2015. During the said period, the closing price of the Share increased by approximately 49.0% to HK$3.8 per Share on 17 April 2015 from HK$2.55 per Share on 16 April 2015. According to the announcement of the Company dated 17 April 2015, save as disclosed in the announcements of the Company dated 13 February 2015, 13 March 2015 and 30 March 2015, respectively, regarding the entering into of the MOU dated 12 February 2015 between Mr. Lau and his associates with the potential purchaser in relation to a possible sale and purchase of the shares of the Company, the Board is not aware of any reasons for the price movement.

On the basis of the financial performance of the Group as reflected in the Interim Result 2014/15, we believe that the surge of the closing price of the Shares after the First Announcement published on 26 November 2014 and the announcement of Interim Result 2014/15 on 28 November 2014 did not reflect the fundamentals of the Company and the Share price during such period, i.e. from 28 November 2015 to the Latest Practicable Date, the share price movement during which was affected by market speculation in our view, does not serve a fair and meaningful indicator for assessing the Subscription Price, while the historical prices of the Shares since the beginning of the Review Period until prior to the release of the First Announcement more appropriately reflect the fundamentals of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Comparables analysis

For the purpose of assessing the fairness and reasonableness of the Subscription Price of HK$1.144 per Share, we have applied P/E Ratio and P/B Ratio in our analysis, being the two of the most commonly adopted valuation ratios for evaluating the value of a company. As the Group would have still recorded an unaudited pro forma consolidated loss for the year of approximately HK$6.5 million for the year ended 31 March 2015 as if the Disposal had been completed on 1 April 2014 with reference to the unaudited pro forma financial information of the Remaining Group as contained in the Appendix III to the Circular, no earning figure is available for the calculation of the P/E Ratio of the Group taking into account the effect of the Disposal and therefore, the P/E Ratio is considered not applicable, and the P/B Ratio has been used instead in our analysis. We have identified the companies (the “ Subscription Comparables ”) which (i) principally involved manufacturing and trading of electronic components; and (ii) have their shares listed on the Stock Exchange. Based on these criteria, we identified 4 Subscription Comparables. The Subscription Comparables represent a complete and an exhaustive list of companies meeting the aforementioned criteria as identified by us. We consider that while the Remaining Group and the Subscription Comparables are not closely similar in terms of, among others, financial performance, financial position and market capitalisation, and the nature and use of the electronic components manufactured by the Subscription Comparables are not identical to those of the Remaining Group, the supply and demand of the electronic components, and therefore the fundamentals of such companies engaged in the manufacturing and trading of electronic components, are in general affected by similar macro-economic factors including, but not limited to, global economy and outlook, prices of raw materials, demand from end users, i.e. electronic products manufacturers and market demand for and consumption of electronic products, as well as business factors specific to companies engaged in manufacturing and trading of electronic components. Based on the foregoing, we consider the Subscription Comparables as fair and representative comparables, the analysis of which is useful for assessing the fairness and reasonableness of the Subscription Price. The following table sets out the P/B Ratio of the Subscription Comparables based on their respective closing prices as at the Latest Practicable Date and their latest published financial information:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

		Market	Latest
		capitalisation	published net
		as at the	asset value
		Latest	attributable to
Company		Practicable	owner of the
(Stock code)	Principal business	Date	company	P/B Ratio
		(Note 1)	(Note 2)
		(HK$ million)	(HK$ million)	(times)
Capxon International	(i) manufacture and sale
Electronic Company	of capacitors; and (ii)
Limited (469)	manufacture and sale of
(Note 3)	aluminum foils	240.7	805.5	0.30
Mega Medical	Manufacture of and trading in
Technology Limited	electronic components in the
(876)	PRC and Hong Kong	1,855.7	211.5	8.77
Datronix Holdings	Manufacturing and trading of
Limited (889)	electronic components in
	both Hong Kong and oversea
	markets	416	723.3	0.58
Man Yue Technology	Manufacturing, selling and
Holdings Limited	distribution of electronic
(894)	components	371.9	1,569.2	0.24
			Average	2.47
			Median	0.44
			Maximum	8.77
			Minimum	0.24
The Subscription		500.2	79.4	6.30
(Note 4)			(Note 5)

Source: website of the Stock Exchange (http://www.hkex.com.hk)

Notes:

Unless otherwise specified, market capitalisation is calculated based on their respective closing price per share as quoted on the Stock Exchange on the Latest Practicable Date and their issued share capital.
Unless otherwise specified, net asset value attributable to the owners of the company refers to the latest published accounts.
The profit after tax and net asset value attributable to the owners of company was quoted in RMB. For illustrative purpose only, translation of RMB into HK$ has been made at the exchange rate of approximately RMB1 = HK$1.25.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

P/B Ratio of the Subscription is calculated based on the Subscription Price of HK$1.144 and the number of Shares as at the Latest Practicable Date.
The net asset value attributable to the owners of Company used for comparison was based on the total equity of the Group as at 31 March 2015 of approximately HK$186.5 million adjusted by the effect arising from the Disposal and the Special Dividend with reference to the unaudited pro forma financial information of the Remaining Group as contained in the Appendix III to the Circular.

Based on the above table, we noted that the P/B Ratio of the Subscription Comparables ranged from 0.24 times to 8.77 times as at the Latest Practicable Date, with a median and an average of approximately 0.44 times and 2.47 times respectively. The P/B Ratio of the Remaining Group implied by the Subscription Price are approximately 6.30 times which is above the median and average P/B Ratio of the Subscription Comparables as at the Latest Practicable Date.

As advised by the management of the Company, the Company had not sought to raise equity funds other than the Subscription prior to the entering into of the Subscription Agreement this year. Considering that the closing price of the Shares after the publication of the First Announcement published on 26 September 2014 and the announcement of Interim Result 2014/15 published on 28 November 2014 did not reflect the fundamentals of the Company, the share price movement during which was affected by market speculation in our view, we consider that the current Share price does not provide a fair and meaningful valuation of the Company, and the Company might not have been able to raise equity funds at a higher price than the Subscription Price. Coupled with the sluggish equity market in Hong Kong, with Hang Seng Index slumping from the peak of 28,433.59 on 27 April 2015 to as low as 20,583.52 on 7 September 2015 and closing at 20,556.60 as at the Latest Practicable Date, we consider that the Subscription remains an appropriate means to raise fund for the Group, in order to strengthen the Group’s engineering and managerial teams, increase the working capital base, upgrade the Company’s production and/or service capabilities, and to explore new business opportunities. Based on the foregoing and the analysis on the P/B Ratio of the Subscription Comparables, we are of the view that the Subscription Price remains fair and reasonable and is in the interest of the Company and its shareholders as a whole as at the Latest Practicable Date.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATIONS

In making our recommendation, we have taken into account, including but not limited to, the following factors:

the uncertainty of the future prospects of the Disposal Business which has not been profitable in the recent years;
the consideration for the Disposal Agreement is based on the net asset value of the Disposal Group shown in the Certificate as analysed in the paragraph headed “A. The Disposal – 5. Terms of the Disposal Agreement – (a)_The Disposal Consideration” above;
the P/B Ratio of the Disposal Group of 1.00 time is higher than the average and median of the P/B Ratio of the Disposal Comparable;
the Disposal may provide the Shareholders an opportunity to realise their investment in the Company in the form of the Special Dividend, which is a precondition to the Disposal Completion;
the application of IT solutions in manufacturing is the global trend and there is considerable potential in demand from the manufacturing market for IT solutions, including the smart sensor devices and IoT devices to be developed and marketed by the Remaining Group;
the Subscription Price is higher than historical prices of the Shares during the Review Period prior to the release of the First Announcement published on 28 November 2014, a period of which we consider more appropriately reflecting the fundamentals of the Group, whereas the historical prices of the Shares after the First Announcement published on 26 November 2014 and the announcement of Interim Result 2014/15 published on 28 November 2014, i.e. from 28 November 2015 to the Latest Practicable Date, did not reflect the fundamentals of the Company, the share price movement during which was affected by market speculation in our view as analysed in paragraph headed “C. The Subscription — 3. Historical performance of the Shares – (a) Share Price”;
the positive impact on the overall financial position of the Remaining Group; and
the P/B Ratio of the Remaining Group implied by the Subscription Price are approximately 6.30 times which is above the median and average P/B Ratio of the Subscription Comparables.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above, we are of the opinion that (i) the terms of the Disposal Agreement and the Subscription Agreements are on normal commercial terms and fair and reasonable so far as the Company and the Independent Shareholders are concerned, but the Disposal Agreement and the Subscription Agreements are not in the ordinary and usual course of business of the Group due to its ‘‘one-off’’ nature; and (ii) the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend are in the interests of the Company and the Shareholders as a whole. Accordingly, we would recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolution(s) to be proposed at the SGM to approve the Special Deal, the Disposal Agreement and the Subscription Agreements and the transactions contemplated thereunder, and the Special Dividend.

Yours faithfully, For and on behalf of Messis Capital Limited Robert Siu Managing Director

Note: Mr. Robert Siu is a licensed person registered with the Securities and Future Commission of Hong Kong and a responsible officer of Messis Capital Limited to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and has over 15 years of experience in corporate finance industry.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

I. FINANCIAL INFORMATION OF THE GROUP

Financial information on the Group for each of the three financial years ended 31 March 2015 is disclosed in the recent annual reports of the Company which have been published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.daiwahk.com):

pages 38 to 140 of the annual report of the Company for the year ended 31 March 2013
- (http://www.hkexnews.hk/listedco/listconews/SEHK/2013/0731/LTN20130731129.pdf)
pages 38 to 138 of the annual report of the Company for the year ended 31 March 2014
- (http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0731/LTN20140731121.pdf)
pages 40 to 142 of the annual report of the Company for the year ended 31 March 2015
- (http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0721/LTN20150721117.pdf)
II. INDEBTEDNESS

Statement of Indebtedness

Borrowings

At the close of business on 31 August 2015, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group has outstanding borrowings of approximately HK$68,492,000, details of which are set out as follows:

Trust receipt bank loans Short term bank borrowings Other bank borrowings	HK$’000 46,234 10,000 12,258
	68,492

As at 31 August 2015, except for a bank borrowing amount to approximately HK$11,835,000 which is secured by certain available-for-sale financial assets, all borrowings are unsecured.

Contingent liabilities

At the close of business on 31 August 2015, the Group did not have any significant contingent liabilities.

— I-1 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Save as aforesaid, at the close of business on 31 August 2015, the Group did not have any outstanding loan capital, bank overdrafts, loans, mortgages, charges or other similar indebtedness, or hire purchase of financial lease commitments, liabilities under acceptances or acceptance credits, guarantees or other material contingent liabilities.

III. WORKING CAPITAL

The Directors are of the opinion that taking into account the Group’s present internal resources, present available bank facilities and the net proceeds to be received from the Disposal, the Subscription Agreements, the payment of the Special Dividend and in the absence of unforeseen circumstances, the Group will, following completion of the Disposal Agreement and the Subscription Agreements and the payment of the Special Dividend, have sufficient working capital for its present requirements for the next twelve months from the date of this circular.

IV. MATERIAL ADVERSE CHANGE

The Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 March 2015, the date to which the latest audited consolidated financial statements of the Group were made up.

V. FINANCIAL AND TRADING PROSPECTS

Upon completion of the Disposal, the Remaining Group will continue to operate the Remaining Business which principally involves manufacturing and trading of diodes, electronic manufacturing services, and manufacturing of telecom and radio frequency devices, plastic components and wire. Please refer to the section headed “Information on the Remaining Group and the Remaining Business” set out in the letter from the Board for further details about the aforementioned business development plan of the Remaining Group.

VI. MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

Following the Disposal, the Remaining Group shall comprise the Company and its subsidiaries but exclude the Disposal Group. The management discussion and analysis of the Remaining Group for the three years ended 31 March 2015 are set out as follows:

(i) For the year ended 31 March 2013

Overview

During the year ended 31 March 2013, the Remaining Group was primarily made up of the contract electronic manufacturing services segment. In this respect, the Remaining Group was engaged in the professional production of telecommunication modules in mobile phone base stations, radar parts and electronic modules in automobiles as well as printed circuit board assembly for industrial purpose products. The electronic manufacturing services plant is equipped with high speed SMT production lines with nitrogen filled reflow furnaces, precise solder paste screen printer, etc. Process reliability can be

— I-2 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

ensured by the inhouse RoHS Scanning Systems and X-Ray Inspection Machine and antistatic clear room. As set out in the published annual report of the Company for the year ended 31 March 2013, the relevant segmental revenue was approximately HK$78.3 million with a segmental loss of approximately HK$0.2 million.

Liquidity and financial resources

As at 31 March 2013, the Remaining Group had cash and cash equivalents of approximately HK$6.4 million and total borrowings of approximately HK$36.0 million, of which the short term portion and long term portion were approximately HK$36.0 million and HK$nil, respectively. The gearing ratio, which is defined as total borrowings after netting off cash and cash equivalents (net debt), to total capital (being total equity plus net debt) was approximately 0.43. The liquidity ratio of current assets over current liabilities, was approximately 0.79 as at 31 March 2013.

Exchange rate exposure

Borrowings were mostly denominated in Hong Kong dollars and US dollars. The Remaining Group’s cash and cash equivalents were denominated in Hong Kong dollars, US dollars and Renminbi. The Remaining Group matched the payments and receipts of foreign currency arising from routine purchases and sales to control and minimise the financial costs and exchange rate risk. Most of the Remaining Group’s borrowings were interest bearing at floating rates which were based on the HIBOR rate or London LIBOR rate. As substantial part of trade payables and bank borrowings were denominated in Hong Kong and US dollars, the exchange rate risk of the Remaining Group is not expected to be material. The Remaining Group did not use derivative financial instruments for speculative purpose.

Significant investments, material acquisitions and disposals

On 23 November 2012, the Group entered into an agreement for the disposal of subsidiaries in electronics components distribution segment for approximately HK$67.3 million. Details of which are set out in the circular of the Company dated 31 December 2012. In addition, on 17 July 2012, the Company entered into an agreement to dispose certain property in Kwun Tong for approximately HK$20.5 million. Details of which are set out in the announcement of the Company dated 19 July 2012. Save as disclosed, the Remaining Group had no material acquisition and disposal during the year ended 31 March 2013.

Contingent liabilities and capital commitment

As at 31 March 2013, the Remaining Group had no significant contingent liabilities or capital commitment.

— I-3 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pledge of assets

There were no material charges on the assets of the Remaining Group as at 31 March 2013.

Employees and emolument policy

As at 31 March 2013, the Remaining Group employed approximately 620 employees. The Remaining Group’s remuneration policy is in line with the prevailing market practices and is determined on the basis of performance and experience of the individuals. Sales personnel are remunerated by salaries and incentives in accordance with the achievement of their sales target. General staff are offered year-end discretionary bonuses, which are based on the divisional performance and individual appraisals. The Remaining Group also provides a Mandatory Provident Fund or the retirement scheme organised under the Hong Kong Occupational Retirement Schemes Ordinance (the “ ORSO Scheme ”) and medical benefits to all Hong Kong employees.

Future plans for material investments, new businesses, acquisitions and disposals of capital assets

There was no specific plan for material investments, new businesses, acquisitions and disposals of material capital assets as at 31 March 2013.

(ii) For the year ended 31 March 2014

Overview

During the year ended 31 March 2014, the Remaining Group was primarily made up of the electronic products manufacturing segment. In this respect, through efforts of new management team, streamlining of production lines, stronger quality control, logistic and cost control system, the profitability and efficiency of this segment was further enhanced. Focus was placed in the professional production of telecommunication modules in infrastructures as well as assembly for industrial and commercial purpose products. The relevant plant is equipped with high speed SMT production lines with nitrogen filled reflow furnaces and precision quality assurance equipment in antistatic clean room. As set out in the published annual report of the Company for the year ended 31 March 2014, the relevant segmental revenue was approximately HK$159.1 million, an notable increase of approximately HK$80.8 million from approximately HK$78.3 million from 2013, with a segmental profit of approximately HK$7.3 million (2013: approximately HK$0.2 million loss).

Liquidity and financial resources

As at 31 March 2014, the Remaining Group had cash and cash equivalents of approximately HK$16.4 million and total borrowings of approximately HK$34.1 million, of which the short term portion and long term portion were approximately HK$34.1 million and HK$nil, respectively. The gearing ratio, which is defined as total borrowings after netting off cash and cash equivalents (net debt), to total

— I-4 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

capital (being total equity plus net debt) was approximately 0.22. The liquidity ratio of current assets over current liabilities, was approximately 1.49 as at 31 March 2014.

On 27 September 2013, the Group completed a placing of 43,000,000 new Shares at the placing price of HK$0.29 per Share. The gross proceeds received by the Group from the placing were HK$12,470,000, among which HK$4,300,000 was credited to the share capital account and the balance of HK$7,682,000 (net of professional fees of HK$488,000) was credited to the share premium account.

Exchange rate exposure

Significant investments, material acquisitions and disposals

The Remaining Group had no material acquisition and disposal during the year ended 31 March 2014.

Contingent liabilities and capital commitment

As at 31 March 2014, the Remaining Group had no significant contingent liabilities or capital commitment.

Pledge of assets

There were no material charges on the assets of the Remaining Group as at 31 March 2014.

Employees and emolument policy

As at 31 March 2014, the Remaining Group employed approximately 630 employees. The Remaining Group’s remuneration policy is in line with the prevailing market practices and is determined on the basis of performance and experience of the individuals. Sales personnel are remunerated by salaries and incentives in accordance with the achievement of their sales target. General staff are offered year-end discretionary bonuses, which are based on the divisional performance and individual appraisals. The Remaining Group also provides a Mandatory Provident Fund or ORSO Scheme and medical benefits to all Hong Kong employees.

— I-5 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Future plans for material investments, new businesses, acquisitions and disposals of capital assets

There was no specific plan for material investments, new businesses, acquisitions and disposals of material capital assets as at 31 March 2014.

(iii) For the year ended 31 March 2015

Overview

During the year ended 31 March 2015, the Remaining Group was primarily made up of the electronic products manufacturing segment. In view of the slowdown of electronic markets and the lengthening of payment from some customers, the Remaining Group had applied tighter control over overdue accounts to minimize credit risk from less creditable customers. This policy has led to a lower business volume with those customers. The operation of the non-profit making speaker box business unit was also ceased. The Remaining Group re-engineered the operation of its factory to enable to a more efficient production flow. Besides replacing labor efforts with automation machinery, the management team also improved the efficiency by introducing new production process and a tighter control of logistics expenses. Focus was placed on the professional production of telecommunication modules in mobile phone infrastructures as well as the production and assembly for industrial and commercial purpose electronics products. The plant is equipped with surfacemount technology production lines with nitrogen filled reflow furnaces and precision quality assurance equipment in antistatic clean room. As set out in the published annual report of the Company for the year ended 31 March 2015, the relevant segmental revenue was approximately HK$132.5 million, a slight decrease of approximately HK$26.6 million from HK$159.1 million from 2014, with a segmental profit of approximately HK$3.9 million (2014: approximately HK$7.3 million).

Liquidity and financial resources

As at 31 March 2015, the Remaining Group had cash and cash equivalents of approximately HK$18.6 million and total borrowings of approximately HK$23.6 million, of which the short term portion and long term portion were approximately HK$23.6 million and HK$nil, respectively. The gearing ratio, which is defined as total borrowings after netting off cash and cash equivalents (net debt), to total capital (being total equity plus net debt) was approximately 0.07. The liquidity ratio of current assets over current liabilities, was approximately 2.21 as at 31 March 2015.

Exchange rate exposure

— I-6 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

the Remaining Group’s borrowings were interest bearing at floating rates which were based on the HIBOR rate or London LIBOR rate. As substantial part of trade payables and bank borrowings were denominated in Hong Kong and US dollars, the exchange rate risk of the Remaining Group is not expected to be material. The Remaining Group did not use derivative financial instruments for speculative purpose.

Significant investments, material acquisitions and disposals

On 21 August 2014, the Group entered into an agreement for the disposal of a subsidiary and its assets of industrial park at Hi-tech Industrial Zone at Heyuan, Guangdong Province for a cash consideration of approximately HK$126.1 million and a rent-free occupation of certain portion of the factory for a period of 36 months from the date of disposal. Details of which are set out in the circular of the Company dated 24 September 2014. Save as disclosed, the Remaining Group had no material acquisition and disposal during the year ended 31 March 2015.

Contingent liabilities and capital commitment

As at 31 March 2015, the Remaining Group had no significant contingent liabilities or capital commitment.

Pledge of assets

There were no material charges on the assets of the Remaining Group as at 31 March 2015.

Employees and emolument policy

As at 31 March 2015, the Remaining Group employed approximately 470 employees. The Remaining Group’s remuneration policy is in line with the prevailing market practices and is determined on the basis of performance and experience of the individuals. Sales personnel are remunerated by salaries and incentives in accordance with the achievement of their sales target. General staff are offered year-end discretionary bonuses, which are based on the divisional performance and individual appraisals. The Remaining Group also provides a Mandatory Provident Fund or ORSO Scheme and medical benefits to all Hong Kong employees.

Future plans for material investments, new businesses, acquisitions and

disposals of capital assets

Please refer to the section headed “Information on the Remaining Group and the Remaining Business” set out in the letter from the Board for further details about the aforementioned business development plan of the Remaining Group.

— I-7 —

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

UNAUDITED COMBINED FINANCIAL INFORMATION OF THE DISPOSAL GROUP

Set out below are the unaudited combined balance sheets of the Disposal Group (as defined in Note 1) as at 31 March 2013, 2014 and 2015, and the unaudited combined income statements, the unaudited combined statements of comprehensive income, unaudited combined statements of changes in equity and unaudited combined statements of cash flows of the Disposal Group for the years ended 31 March 2013, 2014 and 2015, and certain explanatory notes (the “ Unaudited Combined Financial Information ”). The Unaudited Combined Financial Information has been presented on the basis set out in Note 2 and prepared in accordance with the accounting policies adopted by Daiwa Associate Holdings Limited (“the Company”) as shown in its annual report for the year ended 31 March 2015 and paragraph 68(2)(a)(i) of Chapter 14 of the Listing Rules. The Unaudited Combined Financial Information is prepared by the Directors solely for the purpose of inclusion in this Circular in connection with the Disposal. The Company’s reporting accountant was engaged to review the Unaudited Combined Financial Information of the Disposal Group set out on pages II-2 to II-11 in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” and with reference to Practice Note 750 “Review of Financial Information under the Hong Kong Listing Rules for a Very Substantial Disposal” issued by the Hong Kong Institute of Certified Public Accountants. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable the reporting accountant to obtain assurance that the reporting accountant would become aware of all significant matters that might be identified in an audit. Accordingly, the reporting accountant does not express an audit opinion. The reporting accountant has issued an unmodified review

report.

— II-1 —

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

A. UNAUDITED COMBINED INCOME STATEMENTS

Continuing operations
Revenue
Cost of sales
Gross profit
Administrative and selling expenses
Fair value loss on investment properties
Impairment loss on goodwill
Other gains/(losses), net
Other income
Provision for impairment of property,
plant and equipment
Gains/(losses) on disposals of land
use rights, investment properties and
property, plant and equipment
Operating profit/(loss)
Finance income
Finance costs
Profit/(loss) before income tax
Income tax expense
Profit/(loss) for the year from
continuing operations
Discontinuing operations
Loss for the year from discontinuing
operations
Profit/(loss) for the year

Unaudited
Year ended 31 March
2013
2014
2015
HK$’000
HK$’000
HK$’000
469,636
460,404
400,816
(414,196)
(405,510)
(360,154)
55,440
54,894
40,662
(59,302)
(59,464)
(78,275)
—
(1,107)
(26)
—
—
(22,559)
487
601
(1,744)
4,564
6,887
2,444
(1,154)
—
(726)
17,529
(41)
27,139
17,564
1,770
(33,085)
854
867
1,138
(1,658)
(1,272)
(1,317)
16,760
1,365
(33,264)
(1,928)
(2,152)
(10,123)
14,832
(787)
(43,387)
(38)
(58)
(240)
14,794
(845)
(43,627)

— II-2 —

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

B. UNAUDITED COMBINED STATEMENTS OF COMPREHENSIVE INCOME

Comprehensive income/(loss)
Profit/(loss) for the year
Other comprehensive (loss)/income
Items that may be reclassified to
profit or loss:
Currency translation differences
Fair value gain on available-for-sale
financial assets
Impairment of available-for-sale financial
assets
Items that will not be reclassified
subsequently to profit or loss:
Revaluation gain on land and buildings,
net of tax
Total comprehensive income/(loss)
for the year

Unaudited
Year ended 31 March
2013
2014
2015
HK$’000
HK$’000
HK$’000
14,794
(845)
(43,627)
(1,938)
(5,378)
(9,041)
377
331
143
225
—
—
16,261
—
17,163
29,719
(5,892)
(35,362)

— II-3 —

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

C. UNAUDITED COMBINED BALANCE SHEETS

ASSETS Non-current assets Goodwill Land use rights Investment properties Property, plant and equipment Available-for-sale financial assets Deferred income tax assets Other long-term assets Current assets Inventories Trade and notes receivables Prepayments, deposits and other receivables Amount due from ultimate holding company Tax recoverable Cash and cash equivalents Total assets EQUITY Combined equity Non-controlling interests	Unaudited As at 31 March 2013 2014 HK$’000 HK$’000 28,201 25,901 5,208 5,082 55,566 54,459 61,126 59,492 15,136 15,467 — 241 533 432 165,770 161,074 64,792 60,909 78,604 77,041 5,654 4,286 — — — — 53,837 39,168 202,887 181,404 368,657 342,478 164,477 158,585 215 215 164,692 158,800	2015 HK$’000 — 2,092 3,540 29,295 14,088 115 209
		49,339
		56,285 75,387 3,677 6,950 1,049 53,032
		196,380
		245,719

		123,223 215
		123,438

— II-4 —

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

LIABILITIES Non-current liabilities Deferred income tax liabilities Borrowings Current liabilities Borrowings Accruals and other payables Trade payables Amount due to ultimate holding company Tax payable Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	Unaudited As at 31 March 2013 2014 HK$’000 HK$’000 3,706 3,760 321 — 4,027 3,760 77,910 71,383 10,862 14,720 46,475 57,716 63,201 35,366 1,490 733 199,938 179,918 203,965 183,678 368,657 342,478 2,949 1,486 168,719 162,560	2015 HK$’000 12,311 — 12,311 51,243 16,689 42,038 — — 109,970 122,281 245,719 86,410 135,749

— II-5 —

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

D. UNAUDITED COMBINED STATEMENTS OF CHANGES IN EQUITY

			Unaudited	Unaudited
Share capital HK$’000 77 — — — — — 77 77 — — — 77 77 — — — — — 77	Property revaluation reserve HK$’000 — — — — — 16,261 16,261 16,261 — — — 16,261 16,261 — — — 17,163 (16,261) 17,163	Exchange reserve HK$’000 3,325 — (1,938) — — — 1,387 1,387 — (5,378) — (3,991) (3,991) — (9,041) — — — (13,032)	Available- for-sale financial assets revaluation reserve HK$’000 (690) — — 377 225 — (88) (88) — — 331 243 243 — — 143 — — 386	Retained earnings HK$’000 132,046 14,794 — — — — 146,840 146,840 (845) — — 145,995 145,995 (43,627) — — — 16,261 118,629	Combined equity HK$’000 134,758 14,794 (1,938) 377 225 16,261 164,477 164,477 (845) (5,378) 331 158,585 158,585 (43,627) (9,041) 143 17,163 — 123,223	Non- controlling interest HK$’000 215 — — — — — 215 215 — — — 215 215 — — — — — 215	Total HK$’000 134,973 14,794 (1,938) 377 225 16,261
							164,692

							164,692 (845) (5,378) 331
							158,800

							158,800 (43,627) (9,041) 143 17,163 —
							123,438

— II-6 —

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

E. UNAUDITED COMBINED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES
Profit/(loss) before income tax including
discontinued operations
Adjustments for:
Interest income
Finance costs
Depreciation
Amortisation
Impairment of goodwill
Impairment of trade receivables
Impairment of property, plant and
equipment
Provision for impairment of inventories
Fair value loss on investment properties
Impairment loss on available-for-sale
financial assets
(Gains)/losses on disposal of land
use rights and property, plant and
equipment
Changes in working capital
Inventories
Prepayments, deposits and other
receivables
Trade and notes receivables
Trade payables
Accruals and other payables
Cash generated from/(used in)
operations
Interest paid
Interest received
Tax paid
NET CASH GENERATED FROM/
(USED IN) OPERATING ACTIVITIES

Unaudited
Year ended 31 March
2013
2014
2015
HK$’000
HK$’000
HK$’000
16,722
1,307
(33,504)
(854)
(867)
(1,138)
1,658
1,272
1,317
2,977
3,278
1,982
126
126
94
—
—
22,559
274
327
—
1,154
—
726
903
1,392
2,881
—
1,107
26
—
—
1,522
(17,529)
41
(27,139)
5,431
7,983
(30,674)
(4,061)
2,491
1,743
(1,037)
1,469
832
9,584
1,236
1,654
(6,573)
11,241
(15,678)
3,207
3,858
1,969
6,551
28,278
(40,154)
(1,658)
(1,272)
(1,317)
854
867
1,138
(3,215)
(1,632)
(4,460)
2,532
26,241
(44,793)

— II-7 —

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

		Unaudited
	Year ended 31 March
	2013	2014	2015
	HK$’000	HK$’000	HK$’000
INVESTING ACTIVITIES
Purchase of property, plant and
equipment	(568) (1,653)		(1,242)
Purchase of land use rights	—	—	(2,112)
Additions to investment properties	—	—	(36)
Proceeds from disposal of land use rights
and property, plant and equipment	22,073	114	126,693
NET CASH GENERATED FROM/
(USED IN) INVESTING ACTIVITIES	21,505	(1,539)	123,303
FINANCING ACTIVITIES
Proceeds from bank borrowings	198,481	195,469	77,010
Repayment of borrowings	(199,166) (209,641)		(96,500)
Balance with ultimate holding company	1,239	(27,835)	(42,316)
NET CASH GENERATED FROM/
(USED IN) FINANCING ACTIVITIES	554	(42,007)	(61,806)
INCREASE/(DECREASE) IN CASH,
CASH EQUIVALENTS AND
BANK OVERDRAFTS	24,591	(17,305)	16,704
Exchange difference	(197) (895)		(1,998)
CASH, CASH EQUIVALENTS AND
BANK OVERDRAFTS
Balance at the beginning of the year	29,443	53,837	35,637
Balance at the end of the year	53,837	35,637	50,343

Cash, cash equivalents and bank overdrafts include the		following:
		Unaudited
		As at 31 March
	2013	2014	2015
	HK$’000	HK$’000	HK$’000
Cash and cash equivalents	53,837	39,168	53,032
Bank overdrafts	—	(3,531)	(2,689)
	53,837	35,637	50,343

— II-8 —

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

F. NOTES TO THE UNAUDITED COMBINED FINANCIAL INFORMATION

1. GENERAL INFORMATION

Daiwa Associate Holdings Limited (the “Company”) is a limited liability company incorporated in Bermuda on 3 February 1994 as an exempted company under Companies Act 1981 of Bermuda. The address of its registered office is Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda. The shares of the Company have been listed on the Main Board of The Stock Exchange of Hong Kong Limited since 14 April 1994. The Company and its subsidiaries (together, the “Daiwa Group”) are principally engaged in the electronic components distribution, electronic products manufacturing, and the personal computer products distribution.

Daiwa BVI Limited (“Daiwa BVI”) is a limited liability company incorporated in the British Virgin Islands. Daiwa BVI is principally involved in investment holding and is wholly owned by the Company.

On 29 April 2015 and subsequently on 27 July 2015 and 22 September 2015, the Company has entered into a sale and purchase agreement and supplemental agreements (together, the “Disposal Agreement”) with Champion Success Holdings Limited (“CSH”), an entity wholly owned by Mr. Lau Tak Wan (“Mr Lau”), pursuant to which the Company conditionally agreed to sell, upon the completion of an internal reorganisation (the “Reorganisation”), the Disposal Group which consists of businesses within the Daiwa Group that are collectively engaged in the businesses of distribution and trading of electronic components and computer products, and central property management (the “Disposal Business”), and an entity principally involved in the trading of electronic products of Daiwa Group’s manufacturing business, to CSH at a consideration of HK$95,000,000, subject to adjustment with reference to the net asset value of the Disposal Group as of the completion date of the Disposal. In addition, a dividend of HK$0.23 per share (totalling approximately HK$87.4 million based on the number of shares in issue as of 31 March 2015) will be declared by the Company as one of the conditions precedent for the completion of the Disposal.

Under the Reorganisation, the Company undertook to form the Disposal Group by transferring out entities engaged in electronic products manufacturing from Daiwa BVI. Upon completion of the Reorganisation on 26 April 2015, Daiwa BVI became the holding company of the Disposal Group.

2. BASIS OF PRESENTATION

The Unaudited Combined Financial Information is prepared in respect of the Disposal Group formed in accordance with the Reorganisation under the Disposal Agreement. It is therefore prepared on a basis that combines the results, assets and liabilities of entities comprising the Disposal Group for each of the three years ended 31 March 2013, 2014 and 2015. On such basis, the Unaudited Combined Financial Information sets out the combined financial position as of 31 March 2013, 2014 and 2015, and the combined results of operations and cash flows of entities comprising the Disposal Group for each of the three years then ended. The Unaudited Combined Financial Information is not necessarily indicative of results that would have occurred if the businesses of the Disposal Group had operated as a single reporting group during the years or of future results of the combined businesses.

3. BASIS OF PREPARATION

The Unaudited Combined Financial Information of the Disposal Group has been prepared in accordance with paragraph 14.68(2)(a)(i)(A) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rule”), and solely for the purpose of inclusion in the Company’s circular dated 30 September 2015.

The Unaudited Combined Financial Information has been prepared in accordance with the accounting policies adopted by Daiwa Group as set out in the annual report of the Company for the year ended 31 March 2015. The Daiwa Group adopted cost model as the measurement basis for its properties classified as property, plant and equipment during the years ended 31 March 2013 and 2014, which was changed to the revaluation model with effect from 1 April 2014 and prospective application is required under Hong Kong Accounting Standard 16 “Property, Plant and Equipment”. Accordingly, there is a difference in measurement basis of these properties before and after 1 April 2014 as a result of the actual accounting policies adopted historically for the preparation of the Group’s consolidated financial statements for each of the years ended 31 March 2013, 2014 and 2015. Apart from that, the accounting policies of the Daiwa Group have been consistently applied to all the years presented, unless otherwise stated.

The Unaudited Combined Financial Information does not contain sufficient information to constitute a complete set of financial statements as described in Hong Kong Accounting Standard 1 “Presentation of Financial Statements” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and should be read in connection with the annual report of the Company for the year ended 31 March 2015. Also, the Unaudited Combined Financial Information does not comply with Hong Kong Financial Reporting Standard (“HKFRS”) 1 “Firsttime Adoption of Hong Kong Financial Reporting Standards” issued by HKICPA.

— II-9 —

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

The following summarises the accounting and other principles applied in preparing the Unaudited Combined Financial Information:

Transactions and balances between entities included within the Disposal Group have been eliminated. All intra-group balances, transactions, income and expenses and profits and losses, including unrealised profits arising from intra-group transactions, have been eliminated on combination.
Transactions between other group entities of Daiwa Group and the Disposal Group have been presented in the appropriate caption of the Unaudited Combined Financial Information to which such transactions relate. Intercompany balances have been presented as either current receivables or current payables with related parties.
The net assets of the Disposal Group are represented by the cumulative contribution of the Company in the Group (shown as ‘‘Combined equity”).
As the Unaudited Combined Financial Information has been prepared on a combined basis, it is not possible to measure earnings per share.
Payments for overhead costs of HK$617,000, HK$701,000 and HK$1,073,000 to the Remaining Group for management oversight, administration, accounting, human resources and information technology support have been reflected in the Unaudited Combined Financial Information based on historical charges for the years ended 31 March 2013, 2014 and 2015 respectively. Recharge of rental costs of HK$3,731,000, HK$4,267,000 and HK$185,000 to the Remaining Group for the provision of factory and office premises have been reflected in the Unaudited Combined Financial Information based on historical charges in these respective years. They are not necessarily representative of the overhead costs and rental income that may arise in the future.
Tax charges in the Unaudited Combined Income Statements and the Unaudited Combined Statements of Comprehensive Income have been determined based on the tax charges recorded by the legal entities within the Disposal Group in their individual statutory accounts or management accounts, where applicable. Deferred tax assets and liabilities reflect the full historical deferred tax assets and liabilities recorded by the legal entities had they applied Hong Kong Financial Reporting Standards.

The Unaudited Combined Financial Information is presented in Hong Kong dollars.

The adoption of going concern assumption

During the year ended 31 March 2015, the Disposal Group has a net loss of HK$43,627,000 and has an operating cash outflow of HK$44,793,000. In addition, as at 31 March 2015, the Disposal Group has cash and cash equivalents and current bank borrowings of approximately HK$53,032,000 and HK$51,243,000 respectively. The bank borrowings mainly comprise trade finance loans and short-term bank borrowings and a majority of them are drawn from the banking facilities entered into with banks along with a subsidiary of the Company engaged in electronic manufacturing business not within the Disposal Group. Currently, the Company provided corporate guarantees in respect of all these bank facilities in favour of the banks. In addition, pursuant to certain of the current bank facilities agreements, the Daiwa Group is required to comply with certain restrictive financial covenants. With the expected completion of the Disposal, the corporate guarantee from the Company and therefore the existing banking facilities would no longer be available to the Disposal Group. This may cause the outstanding borrowings of the Disposal Group to become immediately repayable upon the completion of the Disposal. In addition, without these existing banking facilities, additional funding and working capital will be required by the Disposal Group to continue its business without significant curtailment.

This condition indicates the existence of uncertainties which may cast doubt on the Disposal Group’s ability to continue as a going concern. Notwithstanding this, the Unaudited Combined Financial Information is prepared on a going concern basis.

To prepare for the Disposal, directors of the Company have been in negotiation with banks to restructure the existing banking facilities. As of the date of the approval of this Unaudited Combined Financial Information, the Company has received a term sheet from a major banker, who agrees in principle, to provide total bank facilities of HK$38.8 million to the Disposal Group’s subsidiaries after the completion of the Disposal. Meanwhile, an indicative term sheet has also been received from another major banker, which would provide the Disposal Group with total bank facilities of HK$35 million subject to the completion of the bank’s final internal approval procedures. In addition, a financial support of HK$50 million conditional upon the completion of Disposal for a period of three years has been provided by Mr. Lau to the Disposal Group to enable it to meet its liabilities as and when they fall due.

— II-10 —

FINANCIAL INFORMATION OF THE DISPOSAL GROUP

APPENDIX II

The directors of the Company have reviewed the Disposal Group’s cash flow projections, which cover a period of twelve months from 31 March 2015. Based on these cash flow projections, the Group will have sufficient financial resources to meet its financial obligations as and when they fall due in the coming twelve months from 31 March 2015. Management’s projections include key assumptions with regard to the anticipated cash flows from the Group’s operations, expected availability of the banking facilities as detailed above; and the ability to obtain the financial support provided by Mr. Lau as needed. The directors of the Company, after due enquiries and considering the assumptions used in the projections described above, believe that the Disposal Group would have sufficient financial resources to meet its financial obligations as and when they fall due in the coming twelve months from 31 March 2015. Accordingly, the directors consider that it is appropriate to prepare the Unaudited Combined Financial Information on a going concern basis.

— II-11 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Bases

The unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) presented below is prepared to illustrate (a) the financial position of the Remaining Group as if the Disposal had been completed on 31 March 2015; and (b) the results and cash flows of the Remaining Group for the year ended 31 March 2015 as if the Disposal had been completed on 1 April 2014. The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only and because of its hypothetical nature, it may not purport to represent the true picture of the financial position of the Remaining Group as at 31 March 2015 or at any future date had the Disposal been completed on 31 March 2015 or the results and cash flows of the Remaining Group for the year ended 31 March 2015 or for any future period had the Disposal been completed on 1 April 2014.

The Unaudited Pro Forma Financial Information is prepared by the directors based on the audited consolidated balance sheet of the Group as at 31 March 2015, the audited consolidated income statement, the audited consolidated statement of comprehensive income and the audited consolidated statement of cash flows of the Group for the year ended 31 March 2015 extracted from the audited consolidated financial statements of the Group for the year ended 31 March 2015 as set out in the 2015 annual report of the Company, and the Unaudited Financial Information of the Disposal Group set out in Appendix II after giving effect to the pro forma adjustments described in the notes as set out on pages III-8 to III-10 to this circular and is prepared in accordance with Rules 4.29 and 14.68(2)(a)(ii) of the Listing Rules.

— III-1 —

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

1. Unaudited Pro Forma Consolidated Balance Sheet of the Remaining Group

ASSETS Non-current assets Property, plant and equipment Investment properties Land use rights Available-for-sale financial assets Deferred income tax assets Other long-term assets Current assets Inventories Trade and notes receivables Prepayments, deposits and other receivables Tax recoverable Cash and cash equivalents Total assets EQUITY Capital and reserves attributable to equity holders of the Company Share capital Share premium Reserves Non-controlling interests Total equity	The Group as at 31 March 2015 HK$’000 Note 1 39,546 3,540 2,092 14,088 115 3,564 62,945 116,250 92,286 11,396 1,049 71,669 292,650 355,595 43,724 — 142,577 186,301 215 186,516	HK$’000 Note 2 (29,295) (3,540) (2,092) (14,088) (115) (209) (49,339) (56,285) (75,387) (3,677) (1,049) (53,032) (189,430) (238,769) — — (123,223) (123,223) (215) (123,438)	Pro forma adjustments HK$’000 HK$’000 HK$’000 Notes 3 & 9 Note 4 Note 5 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 123,223 (100,565) 257,400 123,223 (100,565) 257,400 123,223 (100,565) 257,400 — — 22,500 — — 234,900 123,223 (100,565) — 123,223 (100,565) 257,400 — — — 123,223 (100,565) 257,400	HK$’000 Note 6(i) — — — — — — — — — — — — — — — — (6,367) (6,367) — (6,367)	Unaudited pro forma consolidated balance sheet of the Remaining Group as at 31 March 2015 HK$’000 10,251 — — — — 3,355
					13,606
					59,965 16,899 7,719 — 298,695
					383,278
					396,884

					66,224 234,900 35,645
					336,769 —
					336,769

— III-2 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

LIABILITIES Non-current liabilities Deferred income tax liabilities Current liabilities Borrowings Trade payables Accruals and other payables Amount due to the Disposal Group Tax payable Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	The Group as at 31 March 2015 HK$’000 Note 1 12,311 74,805 57,930 24,033 — — 156,768 169,079 355,595 135,882 198,827	HK$’000 Note 2 (12,311) (51,243) (42,038) (16,689) 6,950 — (103,020) (115,331) (238,769) (86,410) (135,749)	Pro forma adjustments HK$’000 HK$’000 HK$’000 Notes 3 & 9 Note 4 Note 5 — — — — — — — — — — — — — — — — — — — — — — — — 123,223 (100,565) 257,400 123,223 (100,565) 257,400 123,223 (100,565) 257,400	HK$’000 Note 6(i) — — — 5,500 — 867 6,367 6,367 — (6,367) (6,367)	Unaudited pro forma consolidated balance sheet of the Remaining Group as at 31 March 2015 HK$’000 —
					23,562 15,892 12,844 6,950 867
					60,115
					60,115

					396,884

					323,163

					336,769

— III-3 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

2. Unaudited Pro Forma Consolidated Income Statement of the Remaining Group

The Group for the year ended 31 March 2015 HK$’000 Note 1 Revenue 531,126 Cost of sales (466,600) Gross profit 64,526 Other income 2,298 Selling and distribution expenses (13,448) General and administrative expenses (85,371) Gains on disposals of land use rights, investment properties, and property, plant and equipment 27,139 Loss on disposal of subsidiaries — Fair value loss on investment properties (26) Impairment loss on goodwill (22,559) Other (losses)/gains, net (1,799) Operating (loss)/profit (29,240) Finance income 1,321 Finance costs (2,105) (Loss)/profit before income tax (30,024) Income tax expense (9,700) (Loss)/profit for the year attributable to equity holders of the Company (39,724)	Pro forma adjustments HK$’000 HK$’000 HK$’000 Note 6(ii) Note 8 Note 9 — (400,816) — — 360,154 — — (40,662) — — (2,259) — — 8,919 — (5,500) 70,137 — — (27,139) — — — (3,991) — 26 — — 22,559 — — 1,744 — (5,500) 33,325 (3,991) — (1,138) — — 1,317 — (5,500) 33,504 (3,991) (867) 10,123 — (6,367) 43,627 (3,991)	Unaudited pro forma consolidated income statement of the Remaining Group for the year ended 31 March 2015 HK$’000 130,310 (106,446)
		23,864 39 (4,529) (20,734) — (3,991) — — (55)
		(5,406) 183 (788)
		(6,011) (444)
		(6,455)

— III-4 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

3. Unaudited Pro Forma Consolidated Statement of Comprehensive Income of the Remaining Group

Comprehensive (loss)/income (Loss)/profit for the year Other comprehensive income/ (loss) Items that may be reclassified to profit or loss: Currency translation differences Fair value gain on available-for- sale financial assets Items that will not be subsequently reclassified to profit or loss: Revaluation gain of land and buildings, net of tax Other comprehensive income/ (loss) for the year, net of tax Total comprehensive (loss)/ income for the year	The Group for the year ended 31 March 2015 HK$’000 Note 1 (39,724) (9,041) 143 17,163 8,265 (31,459)	Pro forma adjustments HK$’000 HK$’000 HK$’000 Note 6(ii) Note 8 Note 9 (6,367) 43,627 (3,991) — 9,041 — — (143) — — (17,163) — — (8,265) — (6,367) 35,362 (3,991)	Unaudited pro forma consolidated statement of comprehensive income of the Remaining Group for the year ended 31 March 2015 HK$’000 (6,455) — — —
			—
			(6,455)

— III-5 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

4. Unaudited Pro Forma Consolidated Statement of Cash Flows of the Remaining Group

The Group for the year ended 31 March 2015 HK$’000 Note 1 Cash flows from operating activities Loss before income tax (30,024) Adjustments for: Interest income (1,321) Finance costs 2,105 Amortisation of land use rights 94 Depreciation 6,625 Provision for impairment of inventories 2,881 Impairment of trade receivables 1,321 Impairment of goodwill 22,559 Impairment of property, plant and equipment 726 Loss on disposal of subsidiaries — Gain on disposal of land use rights, investment properties and property, plant and equipment (27,139) Fair value loss on investment properties 26 Impairment loss on available-for sale financial assets 1,522 Operating loss before working capital changes (20,625)	HK$’000 Note 3 — — — — — — — — — — — — — —	Pro forma adjustments HK$’000 HK$’000 HK$’000 Note 4 Note 5 Note 8 — — 33,504 — — 1,138 — — (1,317) — — (94) — — (1,982) — — (2,881) — — — — — (22,559) — — (726) — — — — — 27,139 — — (26) — — (1,522) — — 30,674	HK$’000 Notes 6(iii) & 9 (9,491) — — — — — — — — 3,991 — — — (5,500)	Unaudited pro forma consolidated statement of cash flows of the Remaining Group for the year ended 31 March 2015 HK$’000 (6,011) (183) 788 — 4,643 — 1,321 — — 3,991 — — —
				4,549

— III-6 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

The Group for the year ended 31 March 2015 HK$’000 Note 1 Changes in working capital: Inventories (3,653) Trade and notes receivables 2,817 Prepayments, deposits and other receivables 3,606 Trade payables (29,885) Accruals and other payables 5,760 Cash used in operations (41,980) Interest paid (2,105) Interest received 1,321 Income tax paid (4,672) Net cash used in operating activities (47,436) Cash flows from investing activities Purchases of property, plant and equipment (2,859) Purchase of land use rights (2,112) Proceeds from disposal of land use rights, investment properties and property, plant and equipment 126,693 Addition to investment properties (36) Proceeds from disposal of subsidiaries — Net cash generated from investing activities 121,686	HK$’000 Note 3 — — — — — — — — — — — — — — 158,585 158,585	Pro forma adjustments HK$’000 HK$’000 HK$’000 Note 4 Note 5 Note 8 — — (1,743) — — (1,654) — — (832) — — 15,678 — — (1,969) — — 40,154 — — 1,317 — — (1,138) — — 4,460 — — 44,793 — — 1,242 — — 2,112 — — (126,693) — — 36 — — — — — (123,303)	HK$’000 Notes 6(iii) & 9 — — — — 5,500 — — — — — — — — — — —	Unaudited pro forma consolidated statement of cash flows of the Remaining Group for the year ended 31 March 2015 HK$’000 (5,396) 1,163 2,774 (14,207) 9,291
				(1,826) (788) 183 (212)
				(2,643)
				(1,617) — — — 158,585
				156,968

— III-7 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

The Group for the year ended 31 March 2015 HK$’000 Note 1 Cash flows from financing activities Net proceeds from issuance and placing of shares — Repayment from the Disposal Group — Dividend paid (21,862) Proceeds from bank borrowings 170,288 Repayment of bank borrowings (203,701) Net cash (used in)/generated from financing activities (55,275) Net increase in cash, cash equivalents and bank overdrafts 18,975 Cash, cash equivalents and bank overdrafts at 1 April 52,002 Effect of foreign exchange rate change on cash and cash equivalents, net (1,998) Cash, cash equivalents and bank overdrafts at 31 March 68,979	HK$’000 Note 3 — — — — — — 158,585 — — 158,585	Pro forma adjustments HK$’000 HK$’000 HK$’000 Note 4 Note 5 Note 8 — 257,400 — — — 42,316 (100,565) — — — — (77,010) — — 96,500 (100,565) 257,400 61,806 (100,565) 257,400 (16,704) — — (35,637) — — 1,998 (100,565) 257,400 (50,343)	HK$’000 Notes 6(iii) & 9 — — — — — — — — — —	Unaudited pro forma consolidated statement of cash flows of the Remaining Group for the year ended 31 March 2015 HK$’000 257,400 42,316 (122,427) 93,278 (107,201)
				163,366
				317,691 16,365 —
				334,056

Notes:

The respective amounts are extracted from the audited consolidated balance sheet of the Group as at 31 March 2015, and the audited consolidated income statement, the audited consolidated statement of comprehensive income and audited consolidated statement of cash flows of the Group for the year then ended, as set out in the published annual report of the Company for the year ended 31 March 2015.
These adjustments represent the exclusion of the assets and liabilities of the Disposal Group assuming the Disposal had taken place on 31 March 2015. The balances have been extracted from the unaudited financial information of the Disposal Group as at 31 March 2015, as set forth in Appendix II to this Circular.

Amount due to the Disposal Group represents balance previously eliminated upon the preparation of the Group’s consolidated financial statements for the year ended 31 March 2015.

— III-8 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

In the unaudited pro forma consolidated balance sheet, the adjustment represents the estimated consideration received in cash for the Disposal of HK$123.2 million. Pursuant to the Disposal Agreement, the amount of consideration is subject to adjustment with reference to the net asset value of the Disposal Group as of the Completion Accounts Date. Net asset value attributable to noncontrolling interest has been excluded for the purpose of pro forma adjustment in determining the estimated consideration.
In the unaudited pro forma consolidated statement of cash flows, the adjustment represents the estimated consideration received in cash for the Disposal of HK$158.6 million which is equal to the net asset value of the Disposal Group as of 1 April 2014 as if the Disposal had been completed on that date.
The adjustment represents the proposed Special Dividend paid to the shareholders on the Record Date in cash of HK$100.6 million at HK$0.23 per share in respect of the Company’s 437,239,448 ordinary shares in issue as of 31 March 2015.
The adjustment represents the estimated aggregate cash proceeds of HK$257.4 million received from the Offeror, Asia-IO Holdings BVI and Huatai Principal Investment as a result of their subscription of 144,698,889, 43,439,139 and 36,861,972 new shares (being 225,000,000 new shares in total with a par value of HK$0.1 per share) of the Company, respectively, each at a subscription price of HK$1.144 per share, pursuant to the Subscription Agreements. Of the total proceeds received, HK$22.5 million is credited to share capital account and the remaining amount of HK$234.9 million is credited to the share premium account.
(i) In the unaudited pro forma consolidated balance sheet, these adjustments represent the estimated expenses of approximately HK$5.5 million directly attributable to the Disposal and the estimated income tax liabilities of approximately HK$0.9 million arising from the Disposal, as if the Disposal had been completed on 31 March 2015.
(ii) In the unaudited pro forma consolidated income statement and the unaudited pro forma consolidated statement of comprehensive income, these adjustments represent the estimated expenses of approximately HK$5.5 million directly attributable to the Disposal and the estimated income tax liabilities of approximately HK$0.9 million arising from the Disposal, as if the Disposal had been completed on 1 April 2014.
(iii) In the unaudited pro forma consolidated statement of cash flows, the estimated direct expenses and income tax liabilities for the Disposal as referred above have been assumed as not yet paid, and are recorded as accruals and tax payable respectively.
Apart from Notes 2, 3, 4, 5 and 6(i) above, no other adjustment has been made to the unaudited pro forma consolidated balance sheet to reflect any trading results or other transactions of the Group entered into subsequent to 31 March 2015, including the fair value changes of the investment properties, if any.

— III-9 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

These adjustments represent the exclusion of the operating results and cash flows of the Disposal Group for the year ended 31 March 2015 as if the Disposal had been completed on 1 April 2014. The amounts have been extracted from the unaudited financial information of the Disposal Group for the year ended 31 March 2015 as set forth in Appendix II to this Circular.
Rental income of the Disposal Group received from the Remaining Group was classified as other income, and represents rental expense of the Remaining Group classified within its general and administrative expenses.
The adjustment represents the estimated loss on disposal assuming the Disposal had taken place on 1 April 2014 or 31 March 2015.

Estimated consideration for the Disposal_(Note 3)_ _Add:_Non-controlling interest _Less:_Carrying amount of net assets of the Disposal Group as at 1 April 2014/31 March 2015 Estimated gain on disposal before the release of exchange reserve attributable to the Disposal Group Release of exchange reserve attributable to the Disposal Group as at 1 April 2014/31 March 2015 Estimated loss on disposal	Disposal taken place on	Disposal taken place on
	1 April 2014 HK$’000 158,585 215 (158,800) — (3,991) (3,991)	31 March 2015 HK$’000 123,223 215 (123,438)
		— (13,032)
		(13,032)

The estimated loss on disposal is calculated as the difference between the estimated consideration for the Disposal, the carrying amount of the Disposal Group as at the respective date, the release of exchange reserve in relation to the Disposal.

The financial effects of the Disposal are to be determined based on the consideration and the carrying amount of net assets of the Disposal Group as at the completion date and are therefore subject to change upon the Disposal Completion.

Apart from notes 3, 4, 5, 6(ii), 6(iii), 8 and 9 above, no other adjustment has been made to the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows to reflect any trading results or other transactions of the Group entered into subsequent to 1 April 2014.
The above adjustments are not expected to have a continuing effect on the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows of the Remaining Group.

— III-10 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

B. REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The following is the text of a report received from PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

Independent Reporting Accountant’s Assurance Report on the Compilation of Unaudited Pro Forma Financial Information Included in a Circular

To the Directors of Daiwa Associate Holdings Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Daiwa Associate Holdings Limited (the “Company”) and its subsidiaries (collectively the “Group”) excluding Daiwa BVI Limited and its subsidiaries (the “Disposal Group”) (collectively the “Remaining Group”) by the directors for illustrative purposes only. The unaudited pro forma financial information of the Remaining Group consists of the unaudited pro forma consolidated balance sheet as at 31 March 2015, the unaudited pro forma consolidated income statement for the year ended 31 March 2015, the unaudited pro forma consolidated statement of comprehensive income for the year ended 31 March 2015, the unaudited pro forma consolidated statement of cash flows for the year ended 31 March 2015, and related notes (the “Unaudited Pro Forma Financial Information”) as set out on pages III-1 to III-10 of the Company’s circular dated 30 September 2015 (the “ Circular ”) in connection with the proposed disposal of the Disposal Group by the Company the proposed declaration of special dividend by the Company and the proposed, subscription of new shares in the Company (the “Transaction”). The applicable criteria on the basis of which the directors have compiled the Unaudited Pro Forma Financial Information are described on page III-1.

The Unaudited Pro Forma Financial Information has been compiled by the directors to illustrate the impact of the Transaction on the Group’s financial position as at 31 March 2015 and its financial performance and cash flows for the year ended 31 March 2015 as if the Transaction had taken place at 31 March 2015 and 1 April 2014, respectively. As part of this process, information about the Group’s financial position, financial performance and cash flows has been extracted by the directors from the Group’s financial statements for the year ended 31 March 2015, on which an audit report has been published.

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

— III-11 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

Reporting Accountant’s Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules and Rule 10 of the Code on Takeovers and Mergers in Hong Kong, on the Unaudited Pro Forma Financial Information and the unaudited pro forma consolidated loss of the Remaining Group for the year and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus”, issued by the HKICPA. This standard requires that the reporting accountant complies with ethical requirements and plans and performs procedures to obtain reasonable assurance about whether the directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of unaudited pro forma financial information included in a circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Transaction at 31 March 2015 and at 1 April 2014 would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors in the compilation of the Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

— III-12 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

The related pro forma adjustments give appropriate effect to those criteria; and
The Unaudited Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgment, having regard to the reporting accountant’s understanding of the nature of the company, the event or transaction in respect of which the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group;
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules; and
(d) so far as the accounting policies and calculations are concerned, we are satisfied that the unaudited pro forma consolidated loss of the Remaining Group for the year has been properly compiled on the basis set out under the heading “Bases” on page III-1 of the Circular, and is presented on a basis consistent, in all material respects, with the accounting policies adopted by the Group in preparing the consolidated financial statements of the Group for the year ended 31 March 2015.

PricewaterhouseCoopers Certified Public Accountants

Hong Kong, 30 September 2015

— III-13 —

LETTERS FROM THE REPORTING ACCOUNTANT AND THE INDEPENDENT FINANCIAL ADVISER ON PROFIT ESTIMATES

APPENDIX IV

UNAUDITED COMBINED FINANCIAL INFORMATION OF THE DISPOSAL GROUP FOR THE THREE YEARS ENDED 31 MARCH 2013, 2014 AND 2015

Set out below are certain unaudited combined financial information of the Disposal Group for the three years ended 31 March 2013, 2014 and 2015 which are extracted from pages II-2 to II-3 of this Circular.

The unaudited combined financial information is published during the offer period commencing 28 November 2014 in connection with the possible unconditional mandatory cash general offer by the Offeror to acquire all the shares in the Company and under the Rule 10 of the Code on Takeovers and Mergers. Accordingly, it is regarded as profit estimates and the Company’s auditor and the Company’s financial advisor are required to report on the unaudited combined financial information of the Disposal Group under Rule 10 of the Code on Takeovers and Mergers.

UNAUDITED COMBINED FINANCIAL INFORMATION OF THE DISPOSAL GROUP

		Unaudited
	Year	ended 31 March
	2013	2014	2015
	HK$’000	HK$’000	HK$’000
Gross profit	55,440	54,894	40,662
Operating profit/(loss)	17,564	1,770	(33,085)
Profit/(loss) before income tax	16,760	1,365	(33,264)
Profit/(loss) for the year from continuing
operations	14,832	(787)	(43,387)
Loss for the year from discontinued
operations	(38)	(58)	(240)
Profit/(loss) for the year	14,794	(845)	(43,627)
Total comprehensive income/(loss)
for the year	29,719	(5,892)	(35,362)

— IV-1 —

LETTERS FROM THE REPORTING ACCOUNTANT AND THE INDEPENDENT FINANCIAL ADVISER ON PROFIT ESTIMATES

APPENDIX IV

A. BASES

The Directors have prepared the unaudited combined financial information of the Disposal Group for the three years ended 31 March 2013, 2014 and 2015 as set out on page IV-1 based on the audited consolidated results of the Group for the three years ended 31 March 2013, 2014 and 2015 and the unaudited accounts of companies comprising the Disposal Group for the three years ended 31 March 2013, 2014 and 2015 as set out in Appendix II. The estimate has been prepared on a basis consistent in all material respects with the accounting policies adopted by the Group as described under “Basis of preparation” as set out on pages II-9 to II-11 to this Circular.

B. INDEPENDENT ASSURANCE REPORT TO THE BOARD OF DIRECTORS OF DAIWA ASSOCIATE HOLDINGS LIMITED

We have performed our work on the principal accounting policies adopted and the calculations used in the preparation of unaudited combined financial information of Daiwa BVI Limited and its subsidiaries (together the “Disposal Group”) for the years ended 31 March 2013, 2014 and 2015 (the “Unaudited Combined Financial Information”) as set out on page IV-1 of Daiwa Associate Holdings Limited (the “Company”, together with its subsidiaries, the “Group”)’s Circular. The Unaudited Combined Financial Information is published during the Offer Period commencing from 28 November 2014 in connection with the possible unconditional mandatory cash general offer by Asia-IO Acquisition Fund, L.P. to acquire all the shares in the Company. We understand it is required to be reported on under Rule 10 of the Code on Takeovers and Mergers.

Respective responsibilities of directors and ourselves

The directors of the Company are solely responsible for preparing the Unaudited Combined Financial Information on a basis consistent with the accounting policies adopted by the Group, as set out in the audited annual consolidated financial statements of the Group for the year ended 31 March 2015. This responsibility includes designing, implementing and maintaining internal controls relevant to the selection and application of appropriate accounting policies and the accurate calculations in the preparation of the Unaudited Combined Financial Information that is free from material misstatement.

It is our responsibility to report, as required by Rule 10 of the Code on Takeovers and Mergers, on whether, so far as the accounting policies and calculations are concerned, the Unaudited Combined Financial Information has been properly compiled on a basis consistent, in all material respects, with the accounting policies adopted by the Group, as set out in the audited annual consolidated financial statements of the Group for the year ended 31 March 2015, based on our reasonable assurance engagement, and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

— IV-2 —

LETTERS FROM THE REPORTING ACCOUNTANT AND THE INDEPENDENT FINANCIAL ADVISER ON PROFIT ESTIMATES

APPENDIX IV

Basis of conclusion

We conducted our work in accordance with Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” (“HKSAE 3000”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

Our work consisted primarily of procedures such as a) obtaining an understanding of the principal accounting policies adopted in the preparation of the Unaudited Combined Financial Information through inquires primarily of persons responsible for financial and accounting matters, b) obtaining an understanding of the internal controls relevant to the selection and application of appropriate accounting policies and the accurate calculations in the preparation of the Unaudited Combined Financial Information, c) comparing the principal accounting policies as adopted in the Unaudited Combined Financial Information with those set out in the audited annual consolidated financial statements of the Group for the year ended 31 March 2015, d) checking solely the arithmetical calculations relating to the financial numbers presented in the Unaudited Combined Financial Information, and such other procedures that we considered necessary in the circumstances in accordance with HKSAE 3000. Our work would not enable us to, and we do not, provide any assurance on the design or operational effectiveness of internal control relating to preparation of the Unaudited Combined Financial Information.

Our reasonable assurance engagement does not constitute an audit or review conducted in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA. Accordingly, we do not express an audit or review opinion on the Unaudited Combined Financial Information.

Conclusion

In our opinion, based on the foregoing, so far as the accounting policies and calculations are concerned, we are satisfied that the Unaudited Combined Financial Information has been properly compiled in accordance with the bases made by the directors of the Company as set out under the heading “Bases” on page IV-2 of the Circular and is presented on a basis consistent, in all material respects, with the accounting policies adopted by the Group, as described under the “Basis of preparation” as set out on pages II-9 to II-11 to the Circular.

PricewaterhouseCoopers

Certified Public Accountants Hong Kong, 30 September 2015

— IV-3 —

LETTERS FROM THE REPORTING ACCOUNTANT AND THE INDEPENDENT FINANCIAL ADVISER ON PROFIT ESTIMATES

APPENDIX IV

The following is the text of a report received from Messis Capital Limited, addressed to the Directors and prepared for the sole purpose of inclusion in this circular.

30 September 2015

The Directors Daiwa Associate Holdings Limited (the “ Company ”) 11th Floor, Block G East Sun Industrial Centre 16 Shing Yip Street Kwun Tong, Kowloon Hong Kong

Dear Sirs,

We refer to certain unaudited combined financial information of Daiwa BVI Limited and its subsidiaries (together the “ Disposal Group ”) for the years ended 31 March 2013, 2014 and 2015 (the “ Unaudited Combined Financial Information ”) as set out in Appendix II — Financial information of the Disposal Group of the circular of the Company dated 30 September 2015 (the “ Circular ”), for which the Directors are solely responsible. We note that the Unaudited Combined Financial Information is regarded as a profit forecast pursuant to Rule 10 of the Takeovers Code. Capitalised terms used herein have the same meanings as defined in the Circular unless otherwise stated.

We have obtained and reviewed the Unaudited Combined Financial Information including the unaudited financial information of the Disposal Group for the three years ended 31 March 2015 and other relevant information and documents which you as the Directors are solely responsible for and discussed with you and the senior management of the Company the information and documents provided by you which formed the key bases upon the Unaudited Combined Financial Information has been made. Although we have not performed any independent review of the preparation of the Unaudited Combined Financial Information, we have discussed with you the bases adopted by the Directors upon which the Unaudited Combined Financial Information has been calculated and the accounting policies and calculations adopted in arriving at the Unaudited Combined Financial Information and, in particular, discussed with you as to whether the Unaudited Combined Financial Information has been prepared on a basis consistent in all material respects with the accounting policies and calculations normally adopted by the Group.

In addition, we have considered, the report on the Unaudited Combined Financial Information by PricewaterhouseCoopers addressed to the Directors regarding bases adopted by the Directors upon which the Unaudited Combined Financial Information has been calculated and the accounting policies adopted and calculations upon which the Unaudited Combined Financial Information has been made as set out in Appendix II to the Circular.

Based on the above, we are satisfied that the Unaudited Combined Financial Information, for which you as the Directors are solely responsible, has been made with due care and consideration.

— IV-4 —

LETTERS FROM THE REPORTING ACCOUNTANT AND THE INDEPENDENT FINANCIAL ADVISER ON PROFIT ESTIMATES

APPENDIX IV

For the purpose of this letter, we have relied on and assumed the accuracy and completeness of all information provided to us and/or discussed with the Group. We have not assumed any responsibility for independently verifying the accuracy and completeness of such information or undertaken any independent evaluation or appraisal of any of the assets or liabilities of the Group. Save as provided in this letter, we do not express any other opinion or views on the Unaudited Combined Financial Information. The Board remains solely responsible for the Unaudited Combined Financial Information.

This letter is provided to the Company solely for the purpose of complying with Note 1(c) to Rules 10.1 and 10.2 and Rule 10.4 of the Takeovers Code and not for any other purpose. We do not accept any responsibility to any person(s), other than the Company, in respect of, arising out of, or in connection with this letter.

Your faithfully, For and on behalf of Messis Capital Limited Robert Siu Managing Director

— IV-5 —

LETTERS FROM THE REPORTING ACCOUNTANT AND THE INDEPENDENT FINANCIAL ADVISER ON PROFIT ESTIMATES

APPENDIX IV

The following is the text of a report received from Messis Capital Limited, addressed to the Directors and prepared for the sole purpose of inclusion in this circular.

30 September 2015

The Directors Daiwa Associate Holdings Limited (the “ Company ”) 11th Floor, Block G East Sun Industrial Centre 16 Shing Yip Street Kwun Tong, Kowloon Hong Kong

Dear Sirs,

We refer to the circular issued by the Company dated 30 September 2015 (the “Circular”), of which this letter forms part. Capitalised terms used herein have the same meanings as defined in the Circular unless otherwise stated.

We refer to the unaudited pro forma consolidated income statement of the Remaining Group as at 31 March 2015 as contained in the unaudited pro forma financial information of the Remaining Group (the “Unaudited Pro Forma Financial Information”) set out in section A of Appendix III to the Circular. We have discussed with the Directors the bases of preparation of the unaudited pro forma loss for the year attributable to equity holders of the Remaining Group as at 31 March 2015. We have also considered the report (the “Pro forma Report”) issued by PricewaterhouseCoopers, the reporting accountant of the Company, relating to the Unaudited Pro Forma Financial Information which include the unaudited pro forma loss for the year attributable to equity holders of the Remaining Group as at 31 March 2015 as set out in section B of Appendix III to the Circular. PricewaterhouseCoopers is satisfied that as far as the accounting policies and calculations are concerned (a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated on pages from III-1 to III-13 in the Pro forma Report; (b) such bases are consistent with the accounting policies adopted by the Group; and (c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Based on the above, we are satisfied that the disclosure relating to the unaudited pro forma loss for the year attributable to equity holders of the Remaining Group as at 31 March 2015 included in the Unaudited Pro Forma Financial Information, for which the Directors are solely responsible, has been made with due care and careful consideration.

For the purpose of this letter, we have relied on and assumed the accuracy and completeness of all information provided to us and/or discussed with the Group. We have not assumed any responsibility for independently verifying the accuracy and completeness of such information or undertaken any independent evaluation or appraisal of any of the assets or liabilities of the Group. Save as provided in this letter, we do not express any other opinion or views on the Unaudited Pro Forma Financial Information. The Board remains solely responsible for the Unaudited Pro Forma Financial Information.

— IV-6 —

LETTERS FROM THE REPORTING ACCOUNTANT AND THE INDEPENDENT FINANCIAL ADVISER ON PROFIT ESTIMATES

APPENDIX IV

Your faithfully, For and on behalf of Messis Capital Limited Robert Siu Managing Director

— IV-7 —

PROPERTY VALUATION

APPENDIX V

The following is the text of a letter and valuation report prepared for the purpose of incorporation in this circular received from Roma Appraisals Limited in connection with the valuation of the various properties held by the Disposal Group.

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

30 September 2015

Daiwa Associate Holdings Limited

11/F., Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tong, Hong Kong

Dear Sir/Madam,

RE: VARIOUS PROPERTIES IN HONG KONG, THE PEOPLE’S REPUBLIC OF CHINA AND CANADA

In accordance with your instructions for us to value the properties held by Daiwa Associate Holdings Limited (the “ Company ”) and/or its subsidiaries (together with the Company referred to as the “ Group ”) in Hong Kong, the People’s Republic of China (the “ PRC ”) and Canada, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the properties as at 31 July 2015 (the “ Date of Valuation ”) for the purpose of incorporation in the circular of the Company dated 30 September 2015.

1. BASIS OF VALUATION

Our valuations of the properties are our opinion of the market values of the concerned properties which we would define as intended to mean “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

Market value is understood as the value of an asset or liability estimated without regard to costs of sale or purchase (or transaction) and without offset for any associated taxes or potential taxes.

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PROPERTY VALUATION

APPENDIX V

2. PROPERTY CATEGORIZATION

In the course of our valuations, the properties owned by the Group are categorized into the following groups:

Group I (Property held by the Group for owner-occupation in Hong Kong);
Group II (Properties held by the Group for investment purpose in the PRC); and
Group III (Property held by the Group for investment purpose in Canada).

3. VALUATION METHODOLOGY

We have valued the properties by the direct comparison approach assuming sale of the properties in their existing states with the benefit of vacant possession and by making reference to comparable sales transactions as available in the relevant market.

4. TITLE INVESTIGATION

For the property in Hong Kong, we have carried out land searches at the Land Registry. However, we have not scrutinized all the original documents to verify ownership or to ascertain the existence of any lease amendments which may not appear on the copies handed to us.

For the property in Canada, we have carried out title search at the Ontario Land Registry. However, we have not scrutinized all the original documents to verify ownership or to ascertain the existence of any lease amendments which may not appear on the copies handed to us.

For the properties in the PRC, we have been provided with extracts of various documents and have been advised by the Group that no further relevant documents have been produced. However, we have not examined the original documents to verify the existing titles to the properties or any amendment, which may not appear on the copies handed to us. We do not accept a liability for any interpretation which we have placed on such information which is more properly the sphere of your legal adviser. In the course of our valuation of the properties in the PRC, we have relied to a very considerable extent on the information given by the Group and the Group’s PRC legal advisor, Jian Da Law Firm regarding the title to the properties in the PRC. All documents have been used for reference only.

We have also relied on the advice given by the Group that the Group has valid and enforceable titles to the properties which is freely transferable, and has free and uninterrupted right to use the same, for the whole of the unexpired term granted subject to the payment of annual government rent/land use fees and all requisite land premium/ purchase consideration payable have been fully settled.

5. VALUATION ASSUMPTIONS

Our valuations have been made on the assumption that the owners sell the properties in the market in their existing states without the benefit of deferred term contracts, leasebacks, joint ventures, management agreements or any similar arrangements which would serve to affect the values of such properties. In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the properties and no allowance has been made for the properties to be sold in one lot or to a single purchaser.

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PROPERTY VALUATION

APPENDIX V

6. SOURCE OF INFORMATION

In the course of our valuations, we have relied to a very considerable extent on the information provided by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, identification of properties, particulars of occupation, site/floor areas, ages of buildings and all other relevant matters which can affect the values of the properties. All documents have been used for reference only.

We have no reason to doubt the truth and accuracy of the information provided to us. We have also been advised that no material facts have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.

7. VALUATION CONSIDERATION

We have inspected the exterior and, where possible, the interior of certain properties. No structural survey has been made in respect of the properties. However, in the course of our inspections, we did not note any serious defects. We are not, however, able to report that the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the building services.

We have not carried out on-site measurement to verify the site/floor areas of the properties under consideration but we have assumed that the site/floor areas shown on the documents handed to us are correct. Except as otherwise stated, all dimensions, measurements and areas included in the valuation certificates are based on information contained in the documents provided to us by the Group and are therefore approximations.

No allowance has been made in our valuations for any charges, mortgages or amounts owing on the properties nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

Our valuations are prepared in compliance with the requirements set out in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, and in accordance with the HKIS Valuation Standards (2012 Edition) published by The Hong Kong Institute of Surveyors.

For the purpose of compliance with Rule 11.3 of the Code on Takeovers and Mergers and as advised by the Company, the potential tax liabilities which would arise on the disposal of the property interests held by the Group in the PRC, for the amount of market value minus the cost of purchase, comprise Chinese business tax (5% of net revenue), Chinese land appreciation tax (ranging from 30% to 60% of the appreciated amount), Chinese corporate income tax and Chinese stamp duty (0.05% of the consideration stated in sales contract). The exact amount of the tax payable upon realization of the relevant properties will be subject to the formal tax advice issued by the relevant tax authorities at the time of disposal by presenting the relevant transaction documents. As advised by the Company, the Group has intention to dispose of property Nos.2, 3 and 4, it is estimated that potential tax liabilities arising from the disposal of the subject properties is approximately RMB1,140,000. For property Nos.1 and 5, the Group has no intention to dispose of them, however, the likelihood of the potential tax liability being crystallized is remote.

— V-3 —

PROPERTY VALUATION

APPENDIX V

8. REMARKS

Unless otherwise stated, all monetary amounts stated in our valuations are in Hong Kong Dollars (HK$). The adopted exchange rate was the prevailing rate as at the Date of Valuation, being CAD1 to HK$5.9418 and RMB1 to HK$1.2486, and no significant fluctuation in exchange rate has been found between the Date of Valuation and the date of this report.

Our Summary of Values and Valuation Certificates are attached.

Yours faithfully, For and on behalf of Roma Appraisals Limited

Dr. Alan W K Lee

BCom(Property) MFin PhD(BA) MHKIS RPS(GP) AAPI CPV CPV(Business) Associate Director

Note: Dr. Alan W K Lee is a Registered Professional Surveyor (General Practice), a member of Hong Kong Institute of Surveyors and an Associate of Australian Property Institute. He has over 11 years’ valuation experience in Hong Kong, Macau, the PRC, the Asia Pacific Region, Canada and European countries.

Dr. Lee joined Roma Appraisals Limited in 2011 and he has worked with property valuation in Hong Kong, the PRC and Canada.

— V-4 —

PROPERTY VALUATION

APPENDIX V

SUMMARY OF VALUES

Group I — Property held by the Group for owner-occupation in Hong Kong

No. Property

Market Value in Existing State as at 31 July 2015

11th Floor of Block G, 12th Floor (Roof) of Blocks G and H and Car Park Space No.58, East Sun Industrial Building, No.16 Shing Yip Street, Kowloon, Hong Kong

HK$24,900,000

Sub-total: HK$24,900,000

Group II — Properties held by the Group for investment purpose in the PRC

Market Value in
Existing State as at
No. Property 31 July 2015 2. Flat A, Level 5, Tianfu Court, HK$1,110,000 Tianhe Plaza, No.268 Zhong Shan Main Road, Tianhe District, Guangzhou City, Guangdong Province, The PRC 中國廣東省廣州市天河區中山大道268 號天河廣場天富閣5 樓A 房
1. Unit 509, HK$4,350,000 No.389 Jin Wan Road, Pudong New District, Shanghai, The PRC 中國上海浦東新區金皖路389 號509 室
1. Unit 616, HK$2,430,000 No.389 Jin Wan Road, Pudong New District, Shanghai, The PRC

中國上海浦東新區金皖路389 號616 室

Sub-total:

HK$7,890,000

— V-5 —

PROPERTY VALUATION

APPENDIX V

Group III — Property held by the Group for owner-occupation in Canada

No. Property

Unit 3, Level 1, Metropolitan Toronto Condominium Plan No.862, Lots 12, 13 & 14 Pl 66m2022 as described in Schedule ‘A’ of Declaration D161640 Scarborough, City of Toronto, Ontario, Canada M1V 5E5

Market Value in Existing State as at 31 July 2015 HK$980,000

Sub-total: Grand total:	HK$980,000
	HK$33,770,000

— V-6 —

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Group I — Property held by the Group for owner-occupation in Hong Kong

Description and Tenure

No. Property Description and Tenure 1. 11th Floor of Block G, The property comprises 12th Floor (Roof) of various workshops on 11th Blocks G and H and Car Floor and 12th Floor and Park Space No.58, a carparking space on East Sun Industrial Ground Floor of a 12-storey Building, industrial building, known No.16 Shing Yip Street, as East Sun Industrial Kowloon, Centre, completed in 1977. Hong Kong As scaled from the 14/1240 equal and registered floor plan, undivided shares of and in the saleable area of the Kun Tong Inland Lot No.73. workshop portion of the property is approximately 13,540 sq.ft..

Market Value in Particulars of Existing State as at Occupancy 31 July 2015 The workshop portion of the HK$24,900,000 property is occupied by the Group for warehouse and ancillary office.

Kun Tong Inland Lot No.73 is held under Government Lease a term commencing on 1 July 1955 for 21 years renewable for 21 years and has been extended upon expiry until 30 June 2047 with a revised annual rent at 3% of the rateable value for the time being of the lot..

Notes:

For the 11th Floor of Block G of the property, the registered owner of the property is Cosmos Wires and Connectors Manufacturing Limited vide Memorial No.UB5113446 dated 9 November 1991.
For the 12th Floor (roof) of Blocks G and H of the property, the registered owner of the property is Westpac Digital Limited vide Memorial No.UB5113448 dated 9 November 1991.
For the Car Park Space No.58 of the property, the registered owner of the property is Daiwa Associate (H.K.) Limited vide Memorial No.UB5113448 dated 9 November 1991.
The property lies within an area zoned as “Other Specified Uses (BUSINESS)” under Kwun Tong South Outline Zoning Plan No.S/K14S/19.

Our inspection was performed by Dr. Alan Lee in September 2015.

— V-7 —

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Group II — Properties held by the Group for investment purpose in the PRC

No. Property
Flat A, Level 5, Tianfu Court, Tianhe Plaza, No.268 Zhong Shan Main Road, Tianhe District, Guangzhou City, Guangdong Province, The PRC

Description and Tenure

The property comprises a residential unit on the Level 5 of a 23-storey residential building in a residential development, known as Tianhe Plaza （天河廣場）, completed in about 1996.

Market Value in Particulars of Existing State as at Occupancy 31 July 2015 The property is subject to HK$1,110,000 a tenancy agreement for a term of 1 year commencing on 23 March 2015 and expiring on 22 March 2016 at a monthly rent of RMB2,700 exclusive of management fees and other outgoings.

The gross floor area 中國廣東省 (“GFA”) of the property is 廣州市天河區 about 81.04 sq.m.. 中山大道268 號天河廣場天富閣5 樓A 房 The land use rights of the property have been granted for a term expiring on 26 May 2065 for residential use.

Notes:

Pursuant to a Real Estate Title Certificate, Sui Fang Di Zheng Zi Di No.195693（穗房地證字第 195693 號）, issued by Guangzhou City Land Resources and Real Estate Administration Bureau（廣州市國土資源和房屋管理局）dated 9 October 1996, the property with a GFA of 81.04 sq.m. is legally owned by Orient Ford Investments Limited（東廣投資有限公司）for a term expiring on 26 May 2065 for residential use.
We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:
a. The ownership of the property is legal and valid;
b. The property conforms the usage stipulated in the Real Estate Title Certificate; and
c. The property can be sold, leased, occupied and used by Orient Ford Investments Limited（東廣投資有限公司）.
Our inspection was performed by Ms. Vinci Hou M Com with about 1-year property valuation experience in September 2015.

— V-8 —

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Market Value in Particulars of Existing State as at No. Property Description and Tenure Occupancy 31 July 2015 3. Unit 509, The property comprises an The property is subject to HK$4,350,000 No.389 Jin Wan Road, office unit on the Level 5 of a tenancy agreement for Pudong New District, a 7-storey office building, a term of 2 years and 7 Shanghai, known as Jinmen Plaza months commencing on The PRC （金門廣場）, completed in 21 May 2015 and expiring about 1994. on 20 December 2017 at a 中國上海浦東新區 monthly rent of RMB18,000 金皖路389 號509 室 The gross floor area inclusive of management (“GFA”) of the property is fees but exclusive of other about 424.02 sq.m.. outgoings. The land use rights of the property have been granted for a term expiring on 30 May 2042 for office use.

Notes:

Pursuant to a Shanghai Real Estate Title Certificate, Hu Fang Di Pu Zi (2007) Di No.103397（滬房地浦字 (2007) 第 103397 號）, issued by Shanghai Real Estate and Land Resources Administration Bureau（上海市房屋土地資源管理局）dated 17 December 2007, the property with a GFA of 424.02 sq.m. is legally owned by Daiwa Components (Shanghai) Limited（台和元器件（上海）有限公司）for a term expiring on 30 May 2042 for office use.
We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:
a. The ownership of the property is legal and valid;
b. The property conforms the usage stipulated in the Shanghai Real Estate Title Certificate; and
c. The property can be sold, leased, occupied and used by Daiwa Components (Shanghai) Limited.
Our inspection was performed by Ms Vinci Hon M Com in April 2015.

— V-9 —

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Market Value in Particulars of Existing State as at No. Property Description and Tenure Occupancy 31 July 2015 4. Unit 616, The property comprises an The property is subject HK$2,430,000 No.389 Jin Wan Road, office unit on the Level 6 of to a tenancy agreement Pudong New District, a 7-storey office building, for a term of 2 years Shanghai, known as Jinmen Plaza commencing on 1 June The PRC （金門廣場）, completed in 2015 and expiring on 31 about 1994. May 2017 at a monthly rent 中國上海浦東新區 of RMB10,000 exclusive of 金皖路389 號616 室 The gross floor area management fees and other (“GFA”) of the property is outgoings. about 236.79 sq.m.. The land use rights of the property have been granted for a term expiring on 30 May 2042 for office use.

Notes:

Pursuant to a Building Ownership Certificate, Hu Fang Shi Zi Di No.09312（滬房市字第 09312 號）, issued by Shanghai Real Estate Administration Bureau（上海市房屋管理局）dated 6 February 1995, the property with a GFA of 236.79 sq.m. is legally owned by Daiwa (Shanghai) Limited（台和商事（上海）有限公司）for a term expiring on 30 May 2042 for office use.
We have been provided with a legal opinion on the title to the property issued by the Group’s legal advisers, which contains, inter alia, the following information:
a. The ownership of the property is legal and valid;
b. The property conforms the usage stipulated in the Building Ownership Certificate; and
c. The property can be sold, leased, occupied and used by Daiwa (Shanghai) Limited（台和商事（上海）有限公司）.
Our inspection was performed by Ms. Vinci Hon M Com in April 2015.

— V-10 —

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Group III — Property held by the Group for investment purpose in Canada

Market Value in Particulars of Existing State as at No. Property Description and Tenure Occupancy 31 July 2015 5. Unit 3, Level 1, The property comprises The property is subject HK$980,000 Metropolitan Toronto a single storey industrial to a monthly tenancy Condominium Plan condo in a large scale at a monthly rent of No.862, Lots 12, 13 & 14 business park, known CAD1,420.55 (equivalent to Pl 66m2022 as described as Midland Business approximately HK$8,400) In Schedule ‘A’ Of Centre（美蘭工商業中心）, before tax. Declaration D161640 completed in about 1990’s. Scarborough, City of Toronto, The gross floor area Ontario, (“GFA”) of the property is Canada M1V 5E5 about 1,290 sq.ft.. The property rights are held under fee simple. Fee simple title means absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power and escheat.

Notes:

According to our recent title search, the registered owner of the property is Westpac Holdings Inc. vide Registration No.D367887 dated 16 February 1993.
The property is subject to a charge in favour of Canadian Imperial Bank of Commerce vide Registration No.D397051 dated 7 October 1993.
The property lies within an area zoned “Employment Industrial Zone (E)”, with a permitted maximum floor space index of 0.5 on a lot. In “Employment Industrial Zone (E)”, custom workshop; artist studio; office; warehouse; and wholesaling use are permitted.
Our inspection was performed by Ms. Winnie Ko, AD in Surveying, with over 3-year property experience in September 2015.

— V-11 —

GENERAL INFORMATION

APPENDIX VI

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 Group. 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.

Information and confirmation relating to the Offeror, Asia-IO Holdings BVI and Huatai Principal Investment, their respective associates and parties acting in concert with them set out in this circular have been duly extracted from the Joint Announcement or provided by the respective parties. The Directors jointly and severally accept responsibility for the correctness and fairness of reproduction or presentation of such information.

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

2. DISCLOSURE OF INTERESTS

(1) Interests and short positions the Directors and the chief executive of the Company in the securities of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of the Part XV of the SFO) (i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, were as follows:

(a) Long positions in the Shares

Name of Directors Mr. Lau Tak Wan (“Mr. Lau”) Ms. Chan Yuen Mei, Pinky (“Ms. Chan”) Mr. Cheung Wai Ho	Shares in issue
	Personal interests Corporate interests Other interests Total interests Approximate percentage 29,696,426 (Note 1) 210,096,536 (Notes 2 & 3) 1,428,567 241,221,529 55.17% 5,053,567 (Note 1) 210,096,536 (Notes 2 & 3) 26,071,426 241,221,529 55.17% 57,033 — — 57,033 0.013%

Notes:

3,625,000 Shares were jointly held by Mr. Lau and Ms. Chan (the spouse of Mr. Lau).
133,948,541 Shares were beneficially owned by China Capital. The issued share capital of China Capital is 60% owned by Mr. Lau and 40% owned by Ms. Chan.
76,147,995 Shares were beneficially owned by Leading Trade. The issued share capital of Leading Trade is 50% owned by Mr. Lau and 50% owned by Ms. Chan.

— VI-1 —

GENERAL INFORMATION

APPENDIX VI

(b) Long position in shares of associated corporations of the Company

Dominion International Limited, which is 50% owned by Mr. Lau, and 50% owned by Ms. Chan, holds the following interests in share of associated corporations of the Company:

	Number of
	non-voting
	deferred shares
	held
Cosmos Wires and Connectors Manufacturing Limited	50,000
Westpac Digital Limited	1
Vastpoint Industrial Limited	455,500
Daiwa Associate (H.K.) Limited	1,500,000

In addition, each of Mr. Lau and Ms. Chan beneficially owns 140,000 and 10,000 non-voting deferred shares respectively in Cosmotec Precision Industrial Limited.

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had or was deemed to have any interests or short positions in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) (i) where were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules.

(2) Persons who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO and substantial Shareholders

So far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, the following persons (not being Directors or chief executive of the Company) had, or were deemed to have, interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:

— VI-2 —

GENERAL INFORMATION

APPENDIX VI

Long Position in the Shares

			Approximate
			percentage or
	Number or		attributable
	attributable		percentage of
	number of	Nature of	shareholding
Name of Shareholder	Shares held	interests	(%)
China Capital_(Note 1)_	133,948,541	Beneficial	30.64%
		interests
Leading Trade_(Note 2)_	76,147,995	Beneficial	17.42%
		interests

Notes:

133,948,541 Shares were beneficially owned by China Capital. The issued share capital of China Capital is 60% owned by Mr. Lau and 40% owned by Ms. Chan.
76,147,995 Shares were beneficially owned by Leading Trade. The issued share capital of Leading Trade is 50% owned by Mr. Lau and 50% owned by Ms. Chan.

Save as disclosed above, as at the Latest Practicable Date, the Directors and the chief executive of the Company were not aware of any other person (other than the Directors and the chief executive of the Company) who had, or was deemed to have, interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors or the Proposed Directors had any existing or proposed service contract with any member of the Group or associated companies (i) which is not determinable by the Company within one year without payment of compensation, other than statutory compensation; (ii) which (including both continuous and fixed term contracts) had been entered into or amended within six months prior to the Latest Practicable Date; (iii) which were continuous contracts with a notice period of 12 months or more; or (iv) which were fixed term contracts with more than 12 months to run irrespective of the notice period.

— VI-3 —

GENERAL INFORMATION

APPENDIX VI

4. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given opinions or advice which are contained in this circular:

Name Qualification Messis Capital a licensed corporation under the SFO to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities PricewaterhouseCoopers Certified Public Accountants Roma Appraisals Limited Independent professional property valuer

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion therein a copy of its advice and/or references to its name, in the form and context in which they respectively appear.

As at the Latest Practicable Date, each of the above experts had no shareholding, direct or indirect, in any member of the Group nor any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, none of the above experts had any direct or indirect interests in any assets which have been, since 31 March 2015, being the date to which the latest published audited accounts of the Group were made up, acquired or disposed of by or leased to or proposed to be acquired or disposed of by or leased to any member of the Group.

5. CLAIMS AND LITIGATION

As at the Latest Practicable Date, a subsidiary of the Company had pending claims against a third party customer for long overdue accounts receivable. Save as the disclosed, neither the Company nor any of its subsidiaries were engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened by or against any member of the Group as at the Latest Practicable Date.

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors, the Proposed Directors nor their respective associates had any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

— VI-4 —

GENERAL INFORMATION

APPENDIX VI

7. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS AND ARRANGEMENT OF SIGNIFICANCE

(a) As at the Latest Practicable Date, save for the related party transactions as disclosed in note 39 of the financial statements of the Group for the financial year ended 31 March 2015, none of the Directors had any direct or indirect interests in any asset which had been acquired, or disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group since 31 March 2015, the date to which the latest published audited financial statements of the Group were made up.
(b) As at the Latest Practicable Date, save for the interests of Mr. Lau in the Disposal Agreement by virtue of his shareholding in the Disposal Purchaser and the related party transactions as disclosed in note 39 of the financial statements of the Group for the financial year ended 31 March 2015, none of the Directors nor the Proposed Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date which was significant in relation to any business of the Group.

8. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by the members of the Group within the two years preceding the date of this circular and are or may be material:

(a) the Disposal Agreement (including the supplemental agreement dated 27 July 2015);
(b) the Subscription Agreements;
(c) the agreement dated 21 August 2014 and entered into amongst Advance Creative Technology Limited, Daiwa Associate Limited (“ DAL ”), and Daiwa Associate (China) Limited, as vendors, Daiwa Trading (Guangdong) Limited (“ DT ”) as target and issuer, the Company as vendors’ guarantor, Vision Best Holdings Limited as purchaser, and Blue Sky Telecommunication Limited (“ Blue Sky ”) as subscriber in relation to (i) the proposed disposal of 98 shares in DT and all obligations, indebtedness and liabilities due, owing or incurred by DT to the vendors at the consideration of RMB100,000,000; and (ii) the subscription for 94 shares in DT by DAL and 2 shares in DT by Blue Sky at the aggregate subscription price of HK$2 and RMB2,000,000 respectively; and
(d) the conditional placing agreement entered into between the Company as issuer and Kingston Securities Limited as placing agent and dated 27 August 2013 in relation to the placing of 43,000,000 Shares at the placing price of HK$0.29 per Share.

— VI-5 —

GENERAL INFORMATION

APPENDIX VI

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours (except for Saturdays and public holidays) at the head office of the Company at 11th Floor, Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong from the date of this circular up to and including the date of the SGM:

(a) the memorandum of association of the Company and the Bye-laws;
(b) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 38 to 67 of this circular;
(c) the letter from the Independent Board Committee, the text of which is set out on page 37 of this circular;
(d) the annual reports of the Company for the two financial years ended 31 March 2014 and 31 March 2015;
(e) the reports from PricewaterhouseCoopers and Messis Capital respectively on the unaudited pro forma financial information on the Remaining Group as at and for the financial year ended 31 March 2015, the text of which is set out in Appendix III and Appendix IV to this circular;
(f) the reports from PricewaterhouseCoopers and Messis Capital respectively on the Unaudited Combined Financial Information of the Disposal Group for the three years ended 31 March 2015, the text of which is set out in Appendix IV to this circular;
(g) the property valuation report from Roma Appraisals Limited, the text of which is set out in Appendix V to this circular;
(h) copies of the material contracts referred to in the paragraph headed “Material contracts” in this Appendix;
(i) the written consent of the expert referred to in the paragraph headed “Experts and consents” in this Appendix; and
(j) this circular.

10. MISCELLANEOUS

(a) The registered office the Company is located at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda and the head office and principal place of business in Hong Kong is at 11th Floor, Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong.
(b) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Abacus Ltd. at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

— VI-6 —

GENERAL INFORMATION

APPENDIX VI

(c) The company secretary of the Company is Mr. Man Wai Chuen (“ Mr. Man ”). Mr. Man is a fellow member of both the Association of Chartered Certified Accountants and the Hong Kong Institute of Chartered Secretaries. Mr. Man is also an associate member of the Hong Kong Institute of Certified Public Accountants.
(d) The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

11. PROCEDURE TO DEMANDING A POLL

Pursuant to Bye-law 69 of the Bye-laws of the Company, at any general meeting a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the chairman of such meeting; or
(b) by at least three Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy and for the time being entitled to vote at the meeting; or
(c) by a Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or
(d) by a Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy and holding Shares conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right.

Pursuant to Rule 13.39 of the Listing Rules, any votes of the Shareholders at a general meeting must be taken by poll. Therefore, the chairman of the SGM will demand a poll for every resolution put forward at the SGM pursuant to Bye-law 69 of the Bye-laws.

The Company will appoint scrutineers to handle the vote-taking procedures at the SGM. The results of the poll will be published on the website of the Stock Exchange at http://www.hkexnews.hk and the Company’s website at http://www. daiwahk.com/ on or before the business day next following the SGM.

— VI-7 —

NOTICE OF THE SGM

DAIWA ASSOCIATE HOLDINGS LIMITED 台和商事控股有限公司 *

(incorporated in Bermuda with limited liability)

(Stock code: 1037)

NOTICE IS HEREBY GIVEN that the special general meeting (the “ Meeting ”) of Daiwa Associate Holdings Limited (the “ Company ”) will be held at 11th Floor, Block G, East Sun Industrial Centre, 16 Shing Yip Street, Kwun Tong, Kowloon, Hong Kong on Monday, 19 October 2015 at 3:00 p.m., for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolutions:

ORDINARY RESOLUTIONS

1. “ THAT

(A) subject to each of the other resolutions set out in this notice being passed, the conditional sale and purchase agreement dated 29 April 2015 (the “ Disposal Agreement ”, a copy of which has been produced to the Meeting marked “A” and signed by the chairman of the Meeting for the purposes of identification as supplemented by the supplemental agreement dated 27 July 2015 (the “ Supplemental Agreement ”), a copy of which has been produced to the Meeting marked “B” and signed by the chairman of the Meeting for the purposes of identification), entered into between the Company as vendor and Champion Success Holdings Limited as purchaser for the sale and purchase of the entire issued share capital in Daiwa BVI Limited for the cash consideration of HK$95 million (subject to the adjustment on a dollar-for-dollar basis for the net asset value of Daiwa BVI Limited as at 31 August 2015 as shown in the written certificate to be issued by a qualified accountant to be jointly appointed by the Company and Champion Success Holdings Limited), and the special deal contemplated thereunder be approved, confirmed and ratified, as the case may be.
(B) any one or more of the directors (the “ Directors ”) of the Company be authorised, for and on behalf of the Company and any member of its subsidiaries, to take all steps necessary or expedient in his/her/their opinion to approve and implement and/or give effect to the Disposal Agreement and the Supplemental Agreement and the transactions contemplated thereunder, including, among other things, to sign and deliver for and on behalf of the Company or its relevant subsidiary any and all documents necessary or desirable for giving effect to such agreements, or making non-material amendments thereto but including the authority to waive any conditions (save where they are stated not capable of being waived) and the authority to amend the time by which completions of such agreements are to take place.”

For identification purpose only

— SGM-1 —

NOTICE OF THE SGM

2. “ THAT

(A) subject to each of the other resolutions set out in this notice being passed, the conditional subscription agreement dated 29 April 2015 (the “ AsiaIO Acquisition Fund Subscription Agreement ”, a copy of which has been produced to the Meeting marked “C” and signed by the chairman of the Meeting for the purposes of identification), entered into between the Company as issuer and Asia-IO Acquisition Fund L.P. as subscriber in relation to the subscription for 144,698,889 new shares (the “ Subscription Share(s) ”) in the Company for the subscription price of HK$1.144 per Subscription Share, be approved, confirmed and ratified, as the case may be.
(B) subject to each of the other resolutions set out in this notice being passed, the conditional subscription agreement dated 29 April 2015 (the “ Asia-IO Holdings BVI Subscription Agreement ”, a copy of which has been produced to the Meeting marked “D” and signed by the chairman of the Meeting for the purposes of identification), entered into between the Company as issuer and Asia-IO Holdings Limited as subscriber in relation to the subscription for 43,439,139 Subscription Shares for the subscription price of HK$1.144 per Subscription Share, be approved, confirmed and ratified, as the case may be.
(C) subject to each of the other resolutions set out in this notice being passed, the conditional subscription agreement dated 29 April 2015 (the “ Huatai Principal Investment Subscription Agreement ” together with Asia-IO Acquisition Fund Subscription Agreement and Asia-IO Holdings BVI Subscription Agreement, collectively refer to the “ Subscription Agreements ”, a copy of which has been produced to the Meeting marked “E” and signed by the chairman of the Meeting for the purposes of identification), entered into between the Company as issuer and Huatai Principal Investment I Limited as subscriber in relation to the subscription for 36,861,972 Subscription Shares for the subscription price of HK$1.144 per Subscription Share, be approved, confirmed and ratified, as the case may be.
(D) any one or more of the Directors be authorised, for and on behalf of the Company, to take all steps necessary or expedient in his/her/their opinion to approve and implement and/or give effect to the Subscription Agreements and the transactions contemplated thereunder, including, among other things, to allot and issue the Subscription Shares pursuant to the Subscription Agreements and to sign and deliver for and on behalf of the Company any and all documents necessary or desirable for giving effect to such agreements, or making nonmaterial amendments thereto but including the authority to waive any conditions (save where they are stated not capable of being waived) and the authority to amend the time by which completions of such agreements are to take place.”

— SGM-2 —

NOTICE OF THE SGM

3. “ THAT ,

subject to each of the other resolutions set out in this notice being passed and upon (i) the completion of the sale and purchase agreement dated 29 April 2015 (as amended and supplemented by a supplemental agreement dated 22 September 2015) entered into between Mr. Lau Tak Wan, Ms. Chan Yuen Mei, Pinky, China Capital Holdings Investment Limited, Leading Trading Limited as vendors and Asia-IO Acquisition Fund L.P. as purchaser in relation to the sale and purchase of 241,221,529 shares of HK$0.1 each (the “ Shares ”) of the Company, (ii) the completion of the Disposal Agreements; and (iii) the completion of the Subscription Agreements, the proposed declaration and distribution of a special dividend of HK$0.23 for each Share held by shareholders (whose addresses, as shown on the register of the members of the Company, not outside Hong Kong on 27 October 2015 declared and paid out of the contributed surplus account of the Company be approved; and the Directors (or any one of them) be and is/are hereby authorised to do such acts or things and execute such documents (including but not limited to the affixing of the seal of the Company) which in their/his/her opinion may be necessary, desirable or expedient to carry out or to give effect to the transactions contemplated under this resolution.”

By order of the Board Daiwa Associate Holdings Limited LAU Tak Wan President

Hong Kong, 30 September 2015

— SGM-3 —

NOTICE OF THE SGM

Principal Place of Business in Hong Kong: 11/F Block G East Sun Industrial Centre 16 Shing Yip Street Kwun Tong, Kowloon, Hong Kong

Registered Office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Notes:

Any member of the Company entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person as his proxy to attend and vote instead of him. A member of the Company who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company.
Where there are joint holders of any Share, any one of such joint holder may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at any meeting, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding. Several executors or administrators of a deceased member of the Company in whose name any share stands shall, for the purposes of the bye-laws of the Company, be deemed joint holders thereof.
The instrument appointing a proxy and (if required by the Board) the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to the Hong Kong branch share registrar of the Company, Tricor Abacus Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote. Delivery of an instrument appointing a proxy shall not preclude a member of the Company from attending and voting in person at the Meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.

— SGM-4 —

AI assistant

WEIli Holdings Limited — Proxy Solicitation & Information Statement 2015

50558_rns_2015-09-30_b50ae8aa-a129-45fd-a7f3-cb0d0b85dcaa.pdf

DAIWA ASSOCIATE HOLDINGS LIMITED 台和商事控股有限公司 *

(III) SPECIAL MANDATE IN RELATION TO THE PROPOSED SUBSCRIPTION OF NEW SHARES AND

Independent financial adviser to the Independent Board Committee and Independent Shareholders

CONTENTS

EXPECTED TIMETABLE

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

The English transliteration of the Chinese names in this circular, where indicated, is included for information only, and should not be regarded as the official English names of such Chinese names.

DAIWA ASSOCIATE HOLDINGS LIMITED 台和商事控股有限公司 *

INTRODUCTION

LETTER FROM THE BOARD

A. SALE AND PURCHASE AGREEMENT

Parties:

Subject of the Sale and Purchase Agreement

Consideration for the Sale Shares under the Sale and Purchase Agreement

LETTER FROM THE BOARD

Conditions precedent to the Sale and Purchase Agreement

LETTER FROM THE BOARD

Sale and Purchase Completion

B. DISPOSAL AGREEMENT, SPECIAL DEAL AND SPECIAL DIVIDEND

The Disposal Agreement

Parties:

Subject of the Disposal Agreement

Consideration for the Disposal under the Disposal Agreement

LETTER FROM THE BOARD

Conditions precedent to the Disposal Agreement

LETTER FROM THE BOARD

Disposal Completion

Information on the Disposal Group and the Disposal Business

Information on the Remaining Group and the Remaining Business

LETTER FROM THE BOARD

Information on the Disposal Purchaser

Reason for and benefits of the Disposal

LETTER FROM THE BOARD

Use of proceeds from the Disposal

Special Dividend

Financial effects of the Disposal

Earnings

Assets and liabilities

Implications of the Disposal under the Listing Rules and the Takeovers Code

C. SUBSCRIPTION AGREEMENTS

Subject of the Subscription Agreements

Subscription Price

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Conditions precedent to the Subscription Agreements

Special mandate

Equity fund raising by the Company

Subscription Completion

Reasons for the Subscription and use of the Subscription proceeds

LETTER FROM THE BOARD

Implications of the Subscription under the Listing Rules

Shareholding structure of the Company

D. POSSIBLE UNCONDITIONAL MANDATORY CASH GENERAL OFFER FOR SHARES

E. INFORMATION ON THE GROUP

F. INFORMATION ON THE SUBSCRIBERS AND THE OFFEROR

G. PROPOSED CHANGE OF BOARD COMPOSITION

Executive Directors

Independent non-executive Directors

H. GROUP STRUCTURE

I. GENERAL

SGM

Independent Board Committee and Independent Financial Adviser

Recommendations

J. ADDITIONAL INFORMATION

DAIWA ASSOCIATE HOLDINGS LIMITED

Dear Sir or Madam,

Yours faithfully,

Independent Board Committee

(I) VERY SUBSTANTIAL DISPOSAL, CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE DISPOSAL OF ENTIRE ISSUED SHARE CAPITAL OF DAIWA BVI LIMITED (II) PROPOSED DECLARATION OF SPECIAL DIVIDEND AND (III) SPECIAL MANDATE IN RELATION TO THE PROPOSED SUBSCRIPTION OF NEW SHARES

WEIli Holdings Limited Proxy Solicitation & Information Statement 2015