Zhenro Services Group Limited - Capital/Financing Update 2020

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

Application Proof of ZHENRO SERVICES GROUP LIMITED 正榮服務集團有限公司

(the “ Company ”)

(Incorporated in the Cayman Islands with limited liability)

WARNING

The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) and the Securities and Futures Commission (the “ Commission ”) solely for the purpose of providing information to the public in Hong Kong.

This Application Proof is in draft form. The information contained in it is incomplete and is subject to change which can be material. By viewing this document, you acknowledge, accept and agree with the Company, its sole sponsor, advisors or members of the underwriting syndicate that:

(a) this document is only for the purpose of providing information about the Company to the public in Hong Kong and not for any other purposes. No investment decision should be based on the information contained in this document;
(b) the publication of this document or supplemental, revised or replacement pages on the Stock Exchange’s website does not give rise to any obligation of the Company, its sole sponsor, advisors or members of the underwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that the Company will proceed with the offering;
(c) the contents of this document or supplemental, revised or replacement pages may or may not be replicated in full or in part in the actual final listing document;
(d) the Application Proof is not the final listing document and may be updated or revised by the Company from time to time in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
(e) this document does not constitute a prospectus, offering circular, notice, circular, brochure or advertisement offering to sell any securities to the public in any jurisdiction, nor is it an invitation to the public to make offers to subscribe for or purchase any securities, nor is it calculated to invite offers by the public to subscribe for or purchase any securities;
(f) this document must not be regarded as an inducement to subscribe for or purchase any securities, and no such inducement is intended;
(g) neither the Company nor any of its affiliates, its sole sponsor, advisors or members of its underwriting syndicate is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this document;
(h) no application for the securities mentioned in this document should be made by any person nor would such application be accepted;
(i) the Company has not and will not register the securities referred to in this document under the United States Securities Act of 1933, as amended, or any state securities laws of the United States;
(j) as there may be legal restrictions on the distribution of this document or dissemination of any information contained in this document, you agree to inform yourself about and observe any such restrictions applicable to you; and
(k) the application to which this document relates has not been approved for listing and the Stock Exchange and the Commission may accept, return or reject the application for the subject public offering and/or listing.

If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decisions solely based on the Company’s prospectus registered with the Registrar of Companies in Hong Kong, copies of which will be distributed to the public during the offer period.

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

IMPORTANT

IMPORTANT: If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.

ZHENRO SERVICES GROUP LIMITED 正榮服務集團有限公司

(Incorporated in the Cayman Islands with limited liability)

[ REDACTED ]

Number of [ REDACTED ] under : [ REDACTED ] Shares (subject to the the [ REDACTED ] [ REDACTED ] ) Number of [ REDACTED ] : [ REDACTED ] Shares (subject to reallocation) Number of [ REDACTED ] : [ REDACTED ] Shares (subject to reallocation and the [ REDACTED ] ) [ REDACTED ] : Not more than HK$ [ REDACTED ] per [ REDACTED ] and expected to be not less than HK$ [ REDACTED ] per [ REDACTED ] , plus brokerage of 1%, SFC transaction levy of 0.0027% and Stock Exchange trading fee of 0.005% (payable in full on application in Hong Kong dollars and subject to refund)

Nominal value : US$0.002 per Share Stock code : [ REDACTED ]

Sole Sponsor

[ REDACTED ]

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

A copy of this document, having attached thereto the documents specified in “Appendix V — Documents Delivered to the Registrar of Companies and Available for Inspection — A. Documents delivered to the Registrar of Companies” to this document, has been registered with the Registrar of Companies in Hong Kong as required by Section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility for the contents of this document or any other document referred to above. The final [ REDACTED ] is expected to be fixed by agreement between the [ REDACTED ] (on behalf of the [ REDACTED ]) and the Company on the [ REDACTED ], which is expected to be on or around [ REDACTED ] and in any event, not later than [ REDACTED ]. The [ REDACTED ] will be not more than HK$[ REDACTED ] per [ REDACTED ] and is currently expected to be not less than HK$[ REDACTED ]. If, for any reason, the final [ REDACTED ] is not agreed by [ REDACTED ] between the [ REDACTED ] (on behalf of the [ REDACTED ]) and the Company, the [ REDACTED ] will not proceed and will lapse.

The [ REDACTED ] have not been and will not be registered under the U.S. Securities Act or any state securities law in the United States and may not be offered, sold, pledged or transferred within the United States, or to or for the account or benefit of the U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in accordance with any applicable U.S. state securities laws. The [ REDACTED ] are being [ REDACTED ] and [ REDACTED ] only outside the United States in offshore transactions in reliance on Regulation S. Applicants for [ REDACTED ] are required to pay, on application, the maximum [ REDACTED ] of HK$[ REDACTED ] for each [ REDACTED ] together with brokerage fee of 1%, SFC transaction levy of 0.0027% and Stock Exchange trading fee of 0.005%, subject to refund if the [ REDACTED ] as finally determined is less than HK$[ REDACTED ].

The [ REDACTED ] (on behalf of the [ REDACTED ]), and with our consent, may, where considered appropriate, reduces the number of [ REDACTED ] and/or the indicative [ REDACTED ] range below that is stated in this document (which is HK$[ REDACTED ] to HK$[ REDACTED ]) at any time prior to the morning of the last day for lodging applications under the [ REDACTED ]. In such case, notices of the reduction in the number of [ REDACTED ] and/or the indicative [ REDACTED ] range will be published in [the South China Morning Post (in English) and the Hong Kong Economic Times (in Chinese)] as soon as practicable following the decision to make such reduction, and in any event not later than the morning of the day which is the last day for lodging applications under the [ REDACTED ]. Such notices will also be available on the website of our Company at http://www.zhenrowy.com and on the website of the Stock Exchange at www.hkexnews.hk . Further details are set forth in “Structure and Conditions of the [ REDACTED ]” and “How to Apply for [ REDACTED ]” in this document. If applications for [ REDACTED ] have been submitted prior to the day which is the last day for lodging applications under the [ REDACTED ], in the event that the number of [ REDACTED ] and/or the indicative [ REDACTED ] range is so reduced, such applications can subsequently be withdrawn.

Prior to making an investment decision, prospective investors should consider all of the information set out in this document, including the risk factors set out in “Risk Factors”.

The obligations of the [ REDACTED ] under the [ REDACTED ] are subject to termination by the [ REDACTED ] (on behalf of the [ REDACTED ]) if certain grounds for termination arise prior to 8:00 a.m. on the [ REDACTED ]. Such grounds are set out in “[ REDACTED ] — [ REDACTED ] Arrangements and Expenses — [ REDACTED ] — Grounds for Termination”.

[ REDACTED ]

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

EXPECTED TIMETABLE[(1)]

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

EXPECTED TIMETABLE[(1)]

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

EXPECTED TIMETABLE[(1)]

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

This document is issued by Zhenro Services Group Limited solely in connection with the [ REDACTED ] and does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the [ REDACTED ] by this document pursuant to the [ REDACTED ] . This document may not be used for the purpose of, and does not constitute, an offer or invitation in any other jurisdiction or in any other circumstances. No action has been taken to permit a [ REDACTED ] of the [ REDACTED ] or the distribution of this document in any jurisdiction other than Hong Kong. The distribution of this document and the [ REDACTED ] of the [ REDACTED ] in other jurisdictions are subject to restrictions and may not be made except as permitted under the applicable securities laws of such jurisdictions pursuant to registration with or authorization by the relevant securities regulatory authorities or an exemption therefrom.

You should rely only on the information contained in this document and the [ REDACTED ] to make your investment decision. The Company has not authorized anyone to provide you with information that is different from what is contained in this document. Any information or representation not made in this document must not be relied on as having been authorized by the Company, the Sole Sponsor, the [ REDACTED ] , the [ REDACTED ] , any of their respective directors, officers, representatives, employees, agents or professional advisors or any other person or party involved in the [ REDACTED ] .

	Page
EXPECTED TIMETABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	i
CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	iv
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
WAIVERS FROM STRICT COMPLIANCE WITH THE REQUIREMENTS
UNDER THE LISTING RULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	64
INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] . . . . . . .	67

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] . . . . . . . . . . . .	74
CORPORATE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	77
INDUSTRY OVERVIEW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	80
REGULATORY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	91
HISTORY, REORGANIZATION AND CORPORATE STRUCTURE . . . . . . . . . .	106
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	123
RELATIONSHIP WITH CONTROLLING SHAREHOLDERS . . . . . . . . . . . . . . .	184
CONNECTED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	192
DIRECTORS AND SENIOR MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . .	204
SUBSTANTIAL SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	220
SHARE CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	222
FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	225
FUTURE PLANS AND [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	286
[REDACTED]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	290
STRUCTURE AND CONDITIONS OF THE [REDACTED] . . . . . . . . . . . . . . . . .	301
HOW TO APPLY FOR [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	312
APPENDIX IA – ACCOUNTANTS’ REPORT . . . . . . . . . . . . . . . . . . . . . .	IA-1
APPENDIX IB – ACCOUNTANTS’ REPORT . . . . . . . . . . . . . . . . . . . . . .	IB-1
APPENDIX II – UNAUDITED PRO FORMA FINANCIAL
INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
APPENDIX III – SUMMARY OF THE CONSTITUTION OF THE
COMPANY AND CAYMAN ISLANDS COMPANIES
LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV – STATUTORY AND GENERAL INFORMATION . . . . . .	IV-1
APPENDIX V – DOCUMENTS DELIVERED TO THE REGISTRAR
OF COMPANIES AND AVAILABLE FOR
INSPECTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY

This summary aims to give you an overview of the information contained in this document. Since it is a summary, it does not contain all the information that may be important to you. You should read this document in its entirety before you decide to invest in the [ REDACTED ] .

There are risks associated with any investment. Some of the particular risks in investing in the [ REDACTED ] are set out in “Risk Factors”in this document. You should read that section carefully before you decide to invest in the [ REDACTED ] .

OVERVIEW

We are a nationwide, fast-growing and comprehensive property management service provider in China, offering diversified property management services for residential and non-residential properties. We pride ourselves in having provided property management services in China for over 15 years, and we believe that our extensive industry experience differentiates us from many of our competitors. In 2019, we were ranked 22nd among the 2019 Top 100 Property Management Companies in China (2019中國物業服務百強企業第22名) in terms of overall strength[1] (2019) by CIA. According to CIA, we are one of the fastest-growing property management companies in China, ranked fourth and seventh in terms of growth rate of revenue and net profit for 2018, respectively, among the top 30 of the 2019 Top 100 Property Management Companies.[1]

As of September 30, 2019, we had 136 projects under management in 34 cities that span across four major regions in China, namely, the Yangtze River Delta Region, the Western Straits Region, the Midwest Region and the Bohai Rim Region. As of the same date, the projects managed by us had a total GFA of approximately 21.0 million sq.m. and a total contracted GFA of approximately 34.4 million sq.m.

Our business serves a wide range of properties, including residential and non-residential properties such as government and public facilities, office buildings, industrial parks and schools. We embrace our principle of “providing heartfelt and personalized services with a sense of companionship” (服務為你,陪伴由心) in developing and providing our property management services, which emphasizes high-quality services that we are committed to offering to our customers. According to Yihan Zhiku, we were recognized as one of the Top Ten of the 2019 Community Service Providers in China by Growth (2019中國社區服務商成長性10 強) and one of the Top 20 of the 2019 Community Service Providers in China by Brand Value (2019中國社區服務商品牌價值20強) in 2019.

We maintained a long-term and cooperative relationship with Zhenro Property Group and we believe the relationship coupled with our ability to expand our project portfolio through engagement with third-party property developers or property owners attributed to our fast growth in terms of revenue and net profit during the Track Record Period. Our revenue increased by 67.2% from RMB272.9 million in 2017 to RMB456.3 million for 2018, and increased by 61.2% from RMB320.6 million for the nine months ended September 30, 2018 to RMB516.9 million for the same period in 2019. Our net profit increased by 94.6% from RMB20.3 million in 2017 to RMB39.5 million in 2018, and also increased significantly from RMB28.5 million for the nine months ended September 30, 2018 to RMB74.3 million for the same period in 2019.

Note:

(1) CIA publishes the ranking of the Top 100 Property Management Companies in China in terms of overall strength each year. CIA prepares such ranking by assessing the relevant key factors of each company including but not limited to, management scale, operational performance, service quality, growth potential and social responsibility. Our rankings based on the growth rate of revenue and net profit may be different from the rankings of overall strength. See “Industry Overview — Background and Methodologies of CIA” for more details.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY

OUR BUSINESS MODEL

We have three business lines, namely, (i) property management services, (ii) value-added services to non-property owners and (iii) community value-added services, forming an integrated service offerings to our customers that cover the entire value chain of property management.

Property management services . We provide a wide range of property management services to property developers, property owners and residents. Our property management services primarily include (i) cleaning services, (ii) security services, (iii) landscaping services and (iv) repair and maintenance services at both residential and non-residential properties.
Value-added services to non-property owners . We offer a comprehensive range of property-related business solutions to non-property owners, which primarily include property developers. Our value-added services to non-property owners primarily consist of (i) sales assistance services (involving assistance to property developers in showcasing and marketing their properties, cleaning and maintenance, security and visitor management), (ii) additional tailored services customized to meet specific needs of our customers on an as-needed basis, (iii) housing repair services, (iv) preliminary planning and design consultancy services and (v) pre-delivery inspection services.
Community value-added services . We provide community value-added services to property owners and residents. Our community value-added services primarily include (i) home-living services, (ii) car park management, leasing assistance and other services and (iii) common area value-added services to improve the living experience of our customers and to maintain and enhance the value of their properties.

We believe our property management service business line serves as the basis for us to generate revenue, expand our business scale, and increase our customer base for our community value-added services to property owners and residents. Our value-added services to non-property owners help us gain early access to property development projects and establish and cultivate business relationships with the property developers, giving us a competitive advantage in securing engagements for property management services. The comprehensive range of our community value-added services business line helps us to enhance our relationship with customers and improve their satisfaction and loyalty. We believe that our three business lines will continue to enable us to gain greater market shares and expand business presence in China.

The table below sets forth a breakdown of our total revenue by business line for the years or periods indicated:

For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 146,823 53.9 248,058 54.3 110,352 40.4 149,591 32.8 15,683 5.7 58,659 12.9 272,858 100.0 456,308 100.0	For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 146,823 53.9 248,058 54.3 110,352 40.4 149,591 32.8 15,683 5.7 58,659 12.9 272,858 100.0 456,308 100.0	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
2017 RMB’000 % 146,823 53.9 110,352 40.4 15,683 5.7 272,858 100.0		2018 2019 RMB’000 % RMB’000 % (Unaudited) 184,220 57.5 252,520 48.9 98,950 30.8 189,671 36.6 37,392 11.7 74,709 14.5 320,562 100.0 516,900 100.0	2019
RMB’000 146,823 110,352 15,683 272,858	RMB’000 248,058 149,591 58,659 456,308	RMB’000 184,220 98,950 37,392 320,562		% 48.9 36.6 14.5
				100.0

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY

The growth in our revenue during the Track Record Period was primarily due to a general increase in revenue from our three business lines. In particular, our revenue from property management services increased from RMB146.8 million for 2017 to RMB248.1 million for 2018, and further increased to RMB252.5 million for the nine months ended September 30, 2019, which was mainly due to an increase in our total GFA under management as a result of an increase in the number of projects managed by us as we expanded our business scale. The table below sets forth a breakdown of our GFA under management by the dates indicated and revenue from property management services for the periods indicated by type of property:

	As of or for theyear	ended December 31, 2018 GFA Revenue sq.m.’000 RMB’000 % 11,385 168,562 68.0 1,195 79,496 32.0 12,580 248,058 100.0	ended December 31, 2018 GFA Revenue sq.m.’000 RMB’000 % 11,385 168,562 68.0 1,195 79,496 32.0 12,580 248,058 100.0	As	of or for the nine months ended September 30,	of or for the nine months ended September 30,	of or for the nine months ended September 30,	of or for the nine months ended September 30,
	2017 Revenue RMB’000 % 116,100 79.1 30,723 20.9 146,823 100.0				2018 Revenue RMB’000 % (Unaudited) 126,991 68.9 57,229 31.1 184,220 100.0		2019
GFA sq.m.’000 8,654 792 9,446		GFA sq.m.’000 11,385 1,195 12,580		GFA sq.m.’000 10,722 1,024 11,746		GFA sq.m.’000 13,129 7,840 20,969	Revenue
	RMB’000 116,100 30,723 146,823		RMB’000 168,562 79,496 248,058				RMB’000 % (Unaudited) 160,959 63.7 91,561 36.3 252,520 100.0
								100.0

During the Track Record Period, we managed properties developed by Zhenro Property Group as well as properties developed by third-party property developers. The table below sets forth a breakdown of our total GFA under management as of the dates and revenue generated from property management services for the periods indicated:

	As of or for theyear	As of or for theyear	ended December 31,	ended December 31,	ended December 31,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,
	2017			2018			2018	GFA sq.m.’000 10,051 10,918 20,969	2019
GFA	Revenue		GFA	Revenue		GFA	Revenue		Revenue RMB’000 % (Unaudited) 170,918 67.7 81,602 32.3 252,520 100.0
sq.m.’000 7,282 2,164	RMB’000 129,438 17,385	% 88.2 11.8	sq.m.’000 9,366 3,214	RMB’000 178,359 69,699	% 71.9 28.1	sq.m.’000 8,791 2,955	RMB’000 % (Unaudited) 133,177 72.3 51,043 27.7 184,220 100.0
9,446	146,823	100.0	12,580	248,058	100.0	11,746	184,220			100.0

Notes:

(1) Includes projects solely developed by Zhenro Property Group and projects that Zhenro Property Group jointly developed with other property developers in which Zhenro Property Group held a controlling interest.
(2) Refers to projects solely developed by third-party property developers independent from Zhenro Property Group, as well as projects jointly developed by Zhenro Property Group and other property developers in which Zhenro Property Group did not hold a controlling interest.

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SUMMARY

During the Track Record Period, our success rate in tender bids for projects developed by Zhenro Property Group (excluding any property projects jointly developed by Zhenro Property Group and other property developers in which Zhenro Property Group did not have a controlling interest) was 100.0% for each of 2017, 2018 and the nine months ended September 30, 2019. Our tender success rate for managing properties developed by third-party property developers was approximately 22.7%, 50.9% and 27.6% for 2017, 2018 and the nine months ended September 30, 2019, respectively.

The table below sets forth our average property management fee by property developer for property management services for the periods indicated:

Zhenro Property Group(1) . . . . . . . . . . Third-party property developers(2). . . . Overall average property management fee. . . . . . . . . . . . . . .	For the year ended December 31, For the nine months ended September 30, 2017 2018 2018 2019 RMB per sq.m. per month 2.09 2.28 2.32 2.58 2.91 2.25 2.22 1.61 2.27 2.27 2.30 2.14	For the nine months ended September 30,	For the nine months ended September 30,
	2017 2.09 2.91 2.27		2019
			2.58 1.61 2.14

Notes:

(1) Includes projects solely developed by Zhenro Property Group and projects that Zhenro Property Group jointly developed with other property developers for which Zhenro Property Group held a controlling interest.
(2) Refers to projects solely developed by third-party property developers independent from Zhenro Property Group, as well as projects jointly developed by Zhenro Property Group and other property developers for which Zhenro Property Group did not hold a controlling interest.

The increase in the average property management fee charged on projects developed by Zhenro Property Group during the Track Record Period was primarily due to the fact that we were able to charge higher property management fees for our services to certain new properties delivered for our management in 2018 and the first nine months of 2019 given our well-established track record and enhanced brand name and also due to the fact that certain office buildings under our management in 2018 and the first nine months of 2019 were located in prime locations in first- and second-tier cities such as Shanghai and Suzhou. The decrease in the average property management fee charged on projects developed by third-party property developers from 2017 to 2018 was primarily due to our continuous efforts in diversifying our income source by providing services to third-party property developers at competitive prices. The average property management fee charged on projects developed by third-party property developers decreased in the nine months ended September 30, 2019 as compared to the same period in 2018, primarily due to the fact that certain new projects under our management were of relatively new property type for us, such as industrial parks, but were located in third- and fourth-tier cities where the average property management fees were relatively low as compared to those of other properties in our project portfolio. The average property management fees charged on projects developed by Zhenro Property Group were lower than those charged on projects developed by third-party property developers in 2017, primarily because a substantial portion of projects developed by third-party property developers were non-residential properties with relatively higher average property management fees as compared to those of residential properties.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY

The following table sets forth the breakdown of our cost of sales by business line for the periods indicated:

For the year ended December 31,	For the year ended December 31,	For the year ended December 31,	For the year ended December 31,	For the nine months ended September 30, 2018 2019 RMB’000 % RMB’000 % (Unaudited) 147,137 62.4 194,087 56.4 67,589 28.7 123,505 35.9 20,902 8.9 26,499 7.7 235,628 100.0 344,091 100.0	For the nine months ended September 30, 2018 2019 RMB’000 % RMB’000 % (Unaudited) 147,137 62.4 194,087 56.4 67,589 28.7 123,505 35.9 20,902 8.9 26,499 7.7 235,628 100.0 344,091 100.0
2017		2018 RMB’000 % 198,564 59.2 103,795 31.0 32,966 9.8 335,325 100.0		2019
RMB’000 116,878 76,722 8,939	% 57.7 37.9 4.4 100.0		% 59.2 31.0 9.8 100.0		% 56.4 35.9 7.7
202,539					100.0

During the Track Record Period, our cost of sales increased for each of our three business lines, which were generally in line with the expansion of our business during the same period. See “Financial Information — Description of Certain Combined Statements of Profit or Loss and Other Comprehensive Income — Cost of Sales” on the breakdown of the main components of the costs of sales and “Financial Information — Results of Operations — Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018” and “Financial Information — Results of Operations — Year Ended December 31, 2018 Compared to Year Ended December 31, 2017” for analysis on the period-to-period changes.

The following table sets forth our gross profit and gross profit margin by business line for the periods indicated:

For the year ended December 31, 2017 2018 Gross profit Gross profit margin Gross profit Gross profit margin RMB’000 % RMB’000 % 29,945 20.4 49,494 20.0 33,630 30.5 45,796 30.6 6,744 43.0 25,693 43.8 70,319 25.8 120,983 26.5	For the year ended December 31, 2017 2018 Gross profit Gross profit margin Gross profit Gross profit margin RMB’000 % RMB’000 % 29,945 20.4 49,494 20.0 33,630 30.5 45,796 30.6 6,744 43.0 25,693 43.8 70,319 25.8 120,983 26.5	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
2017 Gross profit Gross profit margin RMB’000 % 29,945 20.4 33,630 30.5 6,744 43.0 70,319 25.8		2018 2019 Gross profit Gross profit margin Gross profit Gross profit margin RMB’000 % RMB’000 % (Unaudited) 37,083 20.1 58,433 23.1 31,361 31.7 66,166 34.9 16,490 44.1 48,210 64.5 84,934 26.5 172,809 33.4	2019
Gross profit RMB’000 29,945 33,630 6,744 70,319	Gross profit RMB’000 49,494 45,796 25,693 120,983	Gross profit RMB’000 37,083 31,361 16,490 84,934		Gross profit margin
				% 23.1 34.9 64.5 33.4

Our gross profit and overall gross profit margin experienced an upward trend during the Track Record Period, primarily reflecting greater economies of scales, the growth of our community value-added services and the implementation of our cost control measures. Our gross profit margin increased from the nine months ended September 30, 2018 to the same period in 2019, primarily due to the increase in gross profit from community value-added services. The gross profit margins for our community value-added services are higher than those for the other two business lines, primarily because community value-added services, such as car parks management, leasing assistance and other services and common area value-added services, are generally less labor-intensive than property management services and value-added services to non-property owners and therefore have lower costs. The general increase during the Track Record Period was mainly due to (i) an increase in car park management, leasing

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SUMMARY

assistance and other services as a result of our continued business expansion since we launched this service in the Western Straits Region in the second half of 2018 and (ii) an increase in GFA under management for our common area value-added services as a result of our marketing efforts.

OUR CUSTOMERS AND SUPPLIERS

Our customers primarily consist of property developers, property owners and residents. During the Track Record Period, our largest customer was Zhenro Property Group, to whom we provided property management services and value-added services to non-property owners. In 2017, 2018 and the nine months ended September 30, 2019, revenue generated from our services provided to Zhenro Property Group amounted to RMB91.5 million, RMB122.9 million and RMB136.3 million, respectively, accounting for 33.5%, 26.9% and 26.4% of our total revenue, respectively. In 2017, 2018 and the nine months ended September 30, 2019, revenue from our five largest customers amounted to RMB107.4 million, RMB151.8 million and RMB157.3 million, respectively, accounting for 39.4%, 33.3% and 30.4% of our total revenue for the same periods, respectively. See “Business — Customers” for more details.

For all three of our business lines, our suppliers are primarily subcontractors located in China which provide cleaning, security, landscaping and certain repair and maintenance services. In 2017 and 2018 and the nine months ended September 30, 2019, purchases from our five largest suppliers amounted to RMB9.3 million, RMB12.8 million and RMB12.7 million, respectively, accounting for 17.1%, 11.4% and 10.7% of our total purchases for the same periods, respectively. See “Business — Suppliers” for more details.

OUR COMPETITIVE STRENGTHS

We believe that our success is primarily attributable to the following competitive strengths:

a nationwide, fast-growing and comprehensive property management service provider;
significant growth opportunities brought about by our long-term cooperative relationship with Zhenro Property Group;
dual-property type business model, diversified project portfolio and balanced business development;
high customer satisfaction and strong brand name achieved through provision of quality services;
standardized operational procedures, digitalization of operations and effective cost control measures; and
experienced management team supported by a professional and quality human resources system.

OUR BUSINESS STRATEGIES

We intend to implement the following strategies to further strengthen our market position in China’s property management industry:

expand our project portfolio, explore strategic investment, acquisition and cooperation opportunities and grow our business scale and market share;
stay innovative and continue to develop diversified value-added services;
further enhance operational efficiency with upgraded information technology systems to maximize cost efficiency; and
continue to attract, train and retain talent.

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SUMMARY

SUMMARY OF KEY FINANCIAL INFORMATION

The following tables set out our summary of financial information for the years or periods indicated and should be read together with the combined financial information set out in the Accountants’ Report in Appendices IA and IB to this document, including the accompanying notes, and the information set out in the section headed “Financial Information” in this document.

Selected Items of Combined Statements of Profit or Loss and Other Comprehensive Income

Revenue. . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . Profit before tax . . . . . . . . . . . . . . Profit and total comprehensive income for the year/period. . . .	For the year ended December 31, For the nine months ended September 30, 2017 2018 2018 2019 RMB’000 (Unaudited) 272,858 456,308 320,562 516,900 70,319 120,983 84,934 172,809 27,703 53,266 38,351 99,518 20,297 39,524 28,535 74,259	For the nine months ended September 30,	For the nine months ended September 30,
	2017 272,858 70,319 27,703 20,297		2019

We experienced rapid growth in revenue, profit and profit for the year or period during the Track Record Period, which was in line with the increases in our aggregate GFA under management and our contracted GFA. Our gross profit margin also increased during the Track Record Period, primarily reflecting the increase in the gross profit margin of our community value-added services. See “Financial Information — Key Factors Affecting Our Results of Operations” in this document for more details.

Selected Items of Combined Statements of Financial Position

Non-current assets . . . . . . . . . . . . . Current assets . . . . . . . . . . . . . . . . Total assets. . . . . . . . . . . . . . . . . . Current liabilities. . . . . . . . . . . . . . Net current assets . . . . . . . . . . . . Net Assets . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . .	As of December 31, As of September 30, 2019 2017 2018 RMB’000 (Unaudited) 40,707 42,931 136,951 686,577 808,162 873,770 727,284 851,093 1,010,721 209,640 293,965 374,815 476,937 514,197 498,955 14,496 54,020 93,159 14,496 54,020 93,159	As of September 30, 2019
	2017 40,707 686,577 727,284 209,640 476,937 14,496 14,496

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SUMMARY

Selected Items of Combined Statements of Cash Flows

Net cash inflow from operating activities . . . . . . . . . . . . . . . . . . . . Net cash inflow/(outflow) from investing activities . . . . . . . . . . . . . Net cash outflow from financing activities . . . . . . . . . . . . . . . . . . . . Net increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . . Cash and cash equivalents as of the beginning of year/period . . . . . . . . Cash and cash equivalents as of the end of year/period . . . . . . . . . . . .	For the year ended December 31, For the nine months ended September 30, 2017 2018 2018 2019 RMB’000 (Unaudited) 68,462 34,053 15,411 33,071 14,715 (56,232) (25,465) 61,308 (50,058) (29,007) (35,926) (69,239) 33,119 (51,186) (45,980) 25,140 67,910 101,029 101,029 49,843 101,029 49,843 55,049 74,983
	2017 68,462 14,715 (50,058) 33,119 67,910 101,029

Net cash inflow from operating
activities . . . . . . . . . . . . . . . . . . . .
Net cash inflow/(outflow) from
investing activities . . . . . . . . . . . . .
Net cash outflow from financing
activities . . . . . . . . . . . . . . . . . . . .
Net increase/(decrease) in cash and
cash equivalents . . . . . . . . . . . . . .
Cash and cash equivalents as of the
beginning of year/period . . . . . . . .
Cash and cash equivalents as of the
end of year/period . . . . . . . . . . . .

For the year ended
December 31,
For the nine months
ended September 30,
2017
2018
2018
2019
RMB’000
(Unaudited)
68,462
34,053
15,411
33,071
14,715
(56,232)
(25,465)
61,308
(50,058)
(29,007)
(35,926)
(69,239)
33,119
(51,186)
(45,980)
25,140
67,910
101,029
101,029
49,843
101,029
49,843
55,049
74,983

2017
68,462
14,715
(50,058)
33,119
67,910
101,029

Summary of Key Financial Ratios

The following table set forth our key financial ratios as of the dates or for the periods indicated:

Return on equity(1) (%) . . . . . . . . . . . . . . . Return on total assets(2) (%) . . . . . . . . . . . Current ratios(3) (times) . . . . . . . . . . . . . . . Gross profit margin (%). . . . . . . . . . . . . . . Net profit margin (%) . . . . . . . . . . . . . . . .	As of or for the year ended December 31, 2017 2018 140.0 73.2 2.8 4.6 3.3 2.7 25.8 26.5 7.4 8.7	As of or for the year ended September 30, 2019 (Unaudited) 106.3(4) 9.8(4) 2.3 33.4 14.4
	2017 140.0 2.8 3.3 25.8 7.4

Notes:

(1) Equals profit for the period divided by total equity as of the end of that period and multiplied by 100%.

(2) Equals profit for the period divided by total assets as of the end of that period and multiplied by 100%.

(3) Equals current assets divided by current liabilities as of the same date.

(4) These ratios have been annualized to be comparable to those of prior years but are not indicative of the actual results.

See “Financial Information — Key Financial Ratios” in this document for further analysis of key financial ratios in the table above.

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SUMMARY

CONTROLLING SHAREHOLDERS, CONTINUING CONNECTED TRANSACTIONS AND OUR [ REDACTED ] INVESTOR

Immediately upon completion of the [ REDACTED ] and the [ REDACTED ] and without taking into account any Shares which may be issued pursuant to the exercise of the [ REDACTED ] and the options which may be granted under the Share Option Scheme, WeiZheng, WeiYao and WeiTian, which are wholly-owned by Mr. ZR Ou, will, in aggregate, directly own approximately [ REDACTED ] of the total number of issued Shares. Hence, WeiZheng, WeiYao, WeiTian and Mr. ZR Ou will be our Controlling Shareholders under the Listing Rules.

During the Track Record Period, we were engaged by Zhenro Property Group (and its associates) and Zhenro Group, to provide (i) pre-delivery property management services for their residential property projects before the delivery of such properties to the property owners; and (ii) management and related services to their property projects and their display units, sales offices and community clubhouses as well as commercial properties operated by them. Despite the above, we believe that we are capable of carrying on our business independently of our Controlling Shareholders and their respective close associates (other than our Group) after [ REDACTED ]. Our revenue generated from customers other than Zhenro Property Group (and its associates) and Zhenro Group, accounted for 54.3%, 61.7% and 61.6%, respectively, of our total revenue in each of the years ended December 31, 2017, 2018 and the nine months ended September 30, 2019.

It is expected that our Group will continue to be engaged for provision of services to Zhenro Property Group after [ REDACTED ]. Details of such continuing connected transactions are set out in “Connected Transactions”.

Sky Bridge, our [ REDACTED ] investor, acquired 5% of the equity interest in Fujian Zhenro at a consideration of RMB2,524,380 on January 21, 2019, which was transferred to our Company in consideration of the issue of 5% of the then number of issued shares of our Company on November 7, 2019. See “History, Reorganization and Corporate Structure — [ REDACTED ] Investment” for details.

[ REDACTED ] [(1)]

Market capitalization of our Shares(2) . . . . . . . . . . . . . . . . . Unaudited pro forma adjusted combined net tangible assets per Share(3) . . . . . . . . . . . . . . . . . . . .	Based on an [REDACTED] of HK$[REDACTED] per [REDACTED] [REDACTED] [REDACTED]	Based on an [REDACTED] of HK$[REDACTED] per [REDACTED]
		[REDACTED] [REDACTED]

(1) All statistics in the table are based on the assumption that none of the [ REDACTED ] and the options which may be granted under the Share Option Scheme is exercised.

(2) The calculation of market capitalization is based on [ REDACTED ] Shares expected to be in issue immediately upon completion of the [ REDACTED ].

(3) The unaudited pro forma adjusted combined net tangible assets per Share is calculated after making the adjustments referred to in “Appendix II — Unaudited Pro Forma Financial Information”.

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SUMMARY

DIVIDEND

We did not declare any dividend to our shareholders during the Track Record Period. Declaration of dividends is subject to the discretion of our Directors, depending on our results of operations, financial condition, cash requirements and availability and other factors which our Directors may consider relevant. There can be no assurance that we will be able to declare any dividend in the amount set out in any plan of the Board or at all. We currently do not have any dividend policy or intention to declare or pay any dividends in the near future. See “Financial Information — Dividends” for more information.

[ REDACTED ]

We estimate that we will receive [ REDACTED ] of approximately HK$[ REDACTED ] from the [ REDACTED ], after deducting the [ REDACTED ] commissions and other estimated expenses payable by us in connection with the [ REDACTED ], assuming that the [ REDACTED ] is not exercised, without taking into account any Shares which may be issued upon exercise of any options which may be granted under the Share Option Scheme and assuming an [ REDACTED ] of HK$[ REDACTED ] per Share (being the mid-point of the indicative [ REDACTED ] range set forth on the cover page of this document). We intend to use such [ REDACTED ] from the [ REDACTED ] for the purposes and in the amounts set forth below:

approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used to pursue strategic acquisition and investment opportunities and further develop strategic partnerships to expand the depth and breadth of our geographic coverage and business scale, among which (i) approximately [ REDACTED ]%, or HK$[ REDACTED ], will be used to acquire other property management companies which meet our selection criteria; and (ii) approximately [ REDACTED ]%, or HK$[ REDACTED ], will be used to acquire property management companies with community products and services that are complementary to ours;
approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used to further develop our information management systems;
approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used to further develop our “Rong Wisdom” (榮智慧) Service Platform to increase the efficiency in the provision of our new and existing property management services, improving our service coverage and quality and creating greater customer satisfaction; and
approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used for general business operations and working capital.

See “Future Plans and [ REDACTED ]” for more information.

RECENT DEVELOPMENTS AND NO MATERIAL ADVERSE CHANGE

As compared to our total contracted GFA of approximately 34.4 million sq.m. as of September 30, 2019, we had an aggregate contracted GFA of 36.2 million sq.m. as of November 30, 2019, including properties developed by Zhenro Property Group with an aggregate contracted GFA of 21.3 million sq.m. and properties developed by third-party property developers with an aggregate contracted GFA of 15.0 million sq.m. Among such aggregate contracted GFA as of November 30, 2019, the aggregate GFA delivered for our management was 22.6 million sq.m., including properties developed by Zhenro Property Group with an aggregate GFA of 10.8 million sq.m. and properties developed by third-party property developers with an aggregate GFA of 11.8 million sq.m.

After due and careful consideration, our Directors confirmed that, since September 30, 2019 and up to the date of this document, there has been no material adverse change in our financial or trading position, indebtedness, mortgage, contingent liabilities, guarantees or prospects.

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SUMMARY

[ REDACTED ] EXPENSES

The total amount of [ REDACTED ] expenses that will be borne by us in connection with the [ REDACTED ], including [ REDACTED ] commissions, is estimated to be RMB[ REDACTED ] (based on the mid-point of the indicative [ REDACTED ] range, before the exercise of the [ REDACTED ]), of which RMB[ REDACTED ] is expected to be accounted for as a deduction from equity upon completion of the [ REDACTED ]. The remaining fees and expenses of RMB[ REDACTED ] were or are expected to be charged to our profit or loss account, of which approximately RMB[ REDACTED ] was charged for the nine months ended September 30, 2019, and approximately RMB[ REDACTED ] is expected to be charged subsequent to the end of the Track Record Period and upon completion of the [ REDACTED ]. The professional fees and/or other expenses related to the preparation of [ REDACTED ] are currently in estimates for reference only and the actual amount to be recognized is subject to adjustment based on audit and the then changes in variables and assumptions. Our Directors expect that our [ REDACTED ] expenses will have a material adverse impact on our financial performance for year ending December 31, 2019.

NON-COMPLIANCE MATTERS

During the Track Record Period, certain of our subsidiaries and branches failed to timely make full social insurance contributions, make required filings for, or set up, the housing provident fund accounts and/or timely make full housing provident fund contributions for certain of our eligible employees according to the relevant PRC regulations. See “Business — Legal Proceedings and Compliance — Compliance” for more information regarding the above non-compliance matter.

RISK FACTORS

Our operations involve certain risks, some of which are beyond our control. These risks can be broadly categorized into: (i) risks relating to our business and industry; (ii) risks relating to conducting business in the PRC; and (iii) risks relating to the [ REDACTED ]. Some of the risks generally associated with our business and industry include the following:

our future growth may not materialize as planned, and any failure to manage our future growth effectively may have a material adverse effect on our business, financial position and results of operations;
we cannot assure you that we can secure new or renew our existing property management service agreements on favorable terms, or at all;
our future acquisitions may not be successful;
a majority of our revenue is generated from property management services we provide to projects developed by Zhenro Property Group, which is our connected person and we do not have control over;
a majority of our operations is concentrated in the Yangtze River Delta Region, the Western Straits Region and the Midwest Region, and our business could be adversely affected in the event of any adverse development in government policies or business environment in those region; and
we may experience fluctuations in our labor and subcontracting costs, and the increase in labor and subcontracting costs could harm our business and reduce our profitability.

These risks are not the only significant risks that may affect the value of our Shares. You should carefully consider all of the information set forth in this document and, in particular, should evaluate the specific risks set forth in “Risk Factors” in this document deciding whether to invest in our Shares.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DEFINITIONS

In this document, unless the context otherwise requires, the following words and expressions have the following meanings. Certain technical terms are explained in “Glossary” in this document.

“Accountants’ Report”
the accountants’ report from the Reporting Accountants, the text of which is set out in Appendices IA and IB to this document

[ REDACTED ]

“Articles of Association” or “Articles”
the amended and restated articles of association of our Company conditionally adopted on [●], 2020 which will come into effect upon [ REDACTED ], as amended, supplemented or otherwise modified from time to time, a summary of which is set out in Appendix III to this document
“associate(s)”
has the meaning ascribed to it under the Listing Rules
“Audit Committee”
the audit committee of the Board
“Board”
the board of Directors
“business day”
any day (other than a Saturday, Sunday or public holiday) on which banks in Hong Kong are generally open for business
“BVI”

the British Virgin Islands

[ REDACTED ]

“Cayman Islands Companies Law” or “Companies Law”
the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands

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DEFINITIONS

“CCASS”
the Central Clearing and Settlement System established and operated by HKSCC
“CCASS Clearing Participant” a person admitted to participate in CCASS as a direct clearing participant or general clearing participant
“CCASS Custodian Participant” a person admitted to participate in CCASS as a custodian participant
“CCASS Investor Participant”
a person admitted to participate in CCASS as an investor participant who may be an individual or joint individuals or a corporation
“CCASS Operational Procedures” the operational procedures of HKSCC in relation to CCASS, containing the practices, procedures and administrative requirements relating to the operation and functions of CCASS as from time to time in force
“CCASS Participant” a CCASS Clearing Participant, a CCASS Custodian Participant or a CCASS Investor Participant
“Changsha Aitao”
Changsha Aitao Property Services Co., Ltd. (長沙市愛濤物業服務有限公司), a company established in the PRC with limited liability on March 6, 2018 and an indirect wholly-owned subsidiary of our Company
“China” or “PRC”
the People’s Republic of China, but for the purpose of this document and for geographical reference only and except where the context requires, excluding Taiwan, the Macau Special Administrative Region and Hong Kong
“CIA”
China Index Academy, our industry consultant and an Independent Third Party
“CIA Report”
an independent market research report prepared by CIA, which was commissioned by our Company for the purpose of this document
“Circular 37”
the Notice of the SAFE on Issues Concerning Foreign Exchange Administration of the Overseas Investment and Financing and the Round-Tripping Investment Made by Domestic Residents through Special-Purpose Companies (《國家外匯管理局關於境內居民通過特殊目的公司境外投融資及返程投資外匯管理有關問題的通知》)

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DEFINITIONS

“close associate(s)”

“Companies Ordinance”
“Companies (Winding Up and Miscellaneous Provisions) Ordinance”
“Company Law” or “PRC Company Law”
“Company” or “our Company”
“connected person(s)”
“Controlling Shareholder(s)”
“core connected person(s)”
“Deed of Indemnity”
“Deed of Non-competition
“Director(s)” or “our Directors”
“EIT”
has the meaning ascribed to it under the Listing Rules
the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
the Company Law of the PRC (《中華人民共和國公司法》), as amended, supplemented and otherwise modified from time to time
Zhenro Services Group Limited (正榮服務集團有限公司), an exempted company incorporated in the Cayman Islands with limited liability on December 17, 2018
has the meaning ascribed to it under the Listing Rules
has the meaning ascribed to it under the Listing Rules, and unless the context requires otherwise, refers to Mr. ZR Ou, WeiZheng, WeiYao and WeiTian
has the meaning ascribed to it under the Listing Rules

the deed of indemnity dated [●], 2020 and executed by our Controlling Shareholders in favor of our Company (for ourselves and as trustee for our subsidiaries), details of which are set out in “Statutory and General Information – E. Other information – 1. Tax and other indemnities” in Appendix IV to this document

the deed of non-competition dated [●], 2020 and executed by our Controlling Shareholders in favor of our Company, details of which are set out in “Relationship with Controlling Shareholders – Deed of Non-competition” in this document
the director(s) of our Company
the PRC enterprise income tax

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DEFINITIONS

“EIT Law” the Enterprise Income Tax Law of the PRC (《中華人民共和國企業所得稅法》), as amended, supplemented or otherwise modified from time to time
“Extreme Conditions”
extreme conditions caused by a super typhoon as announced by the Government of Hong Kong
“Fujian Zhenro” Fujian Zhenro Property Services Co., Ltd. (福建正榮物業服務有限公司), a company established in the PRC with limited liability on March 8, 2013 and an indirect wholly-owned subsidiary of our Company
“Future Prosperity (BVI)”
Future Prosperity Holdings Limited, a company incorporated in the BVI with limited liability on January 22, 2018 and a direct wholly-owned subsidiary of our Company
“Future Prosperity (HK)”
Future Prosperity (HK) Limited, a company incorporated in Hong Kong with limited liability on February 20, 2018 and an indirect wholly-owned subsidiary of our Company
“Fuzhou Huihua”
Fuzhou Huihua Corporate Management Consultancy Co., Ltd. (福州匯華企業管理諮詢有限公司), a company established in the PRC with limited liability on January 31, 2019 and an indirect wholly-owned subsidiary of our Company
“Fuzhou Zhenro”
Fuzhou Zhenro Property Management Co., Ltd. (福州正榮物業管理有限公司), a company established in the PRC with limited liability on September 17, 2010 and an indirect wholly-owned subsidiary of our Company

[ REDACTED ]

“Group”, “our Group”, “our”, “we” or “us”
our Company and our subsidiaries or, where the context so requires, in respect of the period before our Company became the holding company of our present subsidiaries, the business operated by such subsidiaries or their predecessors (as the case may be)

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DEFINITIONS

“HKICPA”	Hong Kong Institute of Certified Public Accountants
“HKSCC”	Hong Kong Securities Clearing Company Limited, a
	wholly-owned subsidiary of Hong Kong Exchanges and
	Clearing Limited
“HKSCC Nominees”	HKSCC Nominees Limited, a wholly-owned subsidiary
	of HKSCC
“Hong Kong” or “HK”	the Hong Kong Special Administrative Region of the
	PRC
“Hong Kong dollars” or “HK$”	Hong Kong dollars, the lawful currency of Hong Kong

[ REDACTED ]

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DEFINITIONS

“Hubei Changfang Zhenro” Hubei Changfang Zhenro Property Services Co., Ltd. (湖北長房正榮物業服務有限公司), a company established in the PRC with limited liability on July 30, 2018 and an indirect non-wholly owned subsidiary of our Company, which is owned as to 51% by Zhenro Property Services and 49% by Hubei Hongda Property Management Co., Ltd. (湖北宏達物業管理有限公司), an Independent Third Party (other than being a substantial shareholder of Hubei Changfang Zhenro) “IFRS” International Financial Reporting Standards “Independent Third Party(ies)” an individual(s) or a company(ies) who or which is/are not connected with (within the meaning of the Listing Rules) any Directors, chief executive or substantial shareholders of our Company or our subsidiaries, or any of their respective associates (within the meaning of the Listing Rules)

[ REDACTED ]

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DEFINITIONS

“Jiangsu Aitao” Jiangsu Aitao Property Management Co., Ltd. (江蘇愛濤物業管理有限公司), a company established in the PRC with limited liability on February 12, 2001 and an indirect wholly-owned subsidiary of our Company
“Jiangsu Sutie” Jiangsu Sutie Property Management Co., Ltd. (江蘇省蘇鐵物業管理有限責任公司), a company established in the PRC with limited liability on January 4, 2001 and an indirect non-wholly owned subsidiary of our Company, which is owned as to 70% by Fujian Zhenro, 15% by Li Wende (黎文德) and 15% by Tang Weibing (唐偉兵), both Independent Third Parties (other than being substantial shareholders and directors of Jiangsu Sutie)
“Jiangxi Meishi”
Jiangxi Meishi Property Brokerage Co., Ltd. (江西美時房地產經紀有限公司), a company established in the PRC with limited liability on June 6, 2019 and an indirect wholly-owned subsidiary of our Company
“Latest Practicable Date”
December 28, 2019, being the latest practicable date for the purpose of ascertaining certain information in this document prior to its publication

[ REDACTED ]

“Listing Committee”
the listing sub-committee of the board of directors of the Stock Exchange

[ REDACTED ]

“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange, as amended, supplemented or otherwise modified from time to time
“M&A Rules”
the Rules on the Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (《關於外國投資者併購境內企業的規定》)
“Main Board”
the stock exchange (excluding the option market) operated by the Stock Exchange which is independent from and operated in parallel with GEM of the Stock Exchange

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DEFINITIONS

“Memorandum of Association” or the amended and restated memorandum of association of “Memorandum” our Company, conditionally adopted on [●], 2020 which will come into effect upon [ REDACTED ], a summary of which is set out in Appendix III to this document
“MOF” the Ministry of Finance of the PRC (中華人民共和國財政部)
“MOFCOM” the Ministry of Commerce of the PRC (中華人民共和國商務部)
“MOHURD” or “Ministry of the Ministry of Housing and Urban-Rural Development Construction” of the PRC (中華人民共和國住房和城鄉建設部) or its predecessor, the Ministry of Construction of the PRC (中華人民共和國建設部)
“Mr. GQ Ou” Mr. Ou Guoqiang (歐國強), a shareholder of our Company and son of Mr. ZR Ou
“Mr. ZR Ou” Mr. Ou Zongrong (歐宗榮), one of our Controlling Shareholders and father of Mr. GQ Ou
“NDRC” the National Development and Reform Commission of the PRC (中華人民共和國國家發展和改革委員會)
“Nomination Committee” the nomination committee of the Board “NPC” the National People’s Congress of the PRC (中華人民共和國全國人民代表大會)

[ REDACTED ]

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DEFINITIONS

[ REDACTED ]

“PBOC”

“PRC GAAP”
“PRC Government”
“PRC Legal Advisors”
the People’s Bank of China (中國人民銀行), the central bank of the PRC

generally accepted accounting principles in the PRC

the central government of the PRC and all governmental subdivisions (including provincial, municipal and other regional or local government entities) and organizations of such government or, as the context requires, any of them
Commerce & Finance Law Offices, the legal advisors to our Company as to PRC law in connection with the [ REDACTED ]

[ REDACTED ]

“Province” or “province”
“Regulation S”
“Remuneration Committee”
“Renminbi” or “RMB”

each being a province or, where the context requires, a provincial level autonomous region or municipality under the direct supervision of the PRC Government

Regulation S under the U.S. Securities Act

the remuneration committee of the Board

the lawful currency of the PRC

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DEFINITIONS

“Reorganization”	the reorganization of the Group in preparation of the
	[REDACTED], details of which are set out in “History,
	Reorganization and Corporate Structure –
	Reorganization” in this document
“Reporting Accountants”	Ernst & Young, the reporting accountants of our
	Company
“SAFE”	the State Administration of Foreign Exchange of the PRC
	(中華人民共和國國家外匯管理局)
“SAIC”	the State Administration for Industry and Commerce of
	the PRC (中國國家工商行政管理總局), which was
	consolidated into the SAMR in March 2018, including, as
	the context may require, its local counterparts
“SAMR”	the State Administration for Market Regulation of the
	PRC （中國國家市場監督管理總局）
“SAT”	the State Administration of Taxation of the PRC (中華人
	民共和國國家稅務總局)
“SCNPC”	the Standing Committee of the NPC
“Securities and Futures	the Securities and Futures Commission of Hong Kong
Commission” or “SFC”
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong), as amended, supplemented or
	otherwise modified from time to time

“Share Option Scheme” the share option scheme conditionally approved and adopted by our Company on [●], 2020, the principal terms of which are summarized in “Statutory and General Information – D. Share Option Scheme” in Appendix IV in this document “Share(s)” ordinary share(s) with nominal value of US$0.002 each in the share capital of our Company, which are to be traded in Hong Kong dollars and [ REDACTED ] on the Main Board

“Shareholder(s)”

holder(s) of the Share(s)

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DEFINITIONS

“Sky Bridge”
Sky Bridge Limited, a company incorporated in the BVI with limited liability on August 16, 2017, whose background is set out in “History, Reorganization and Corporate Structure – [ REDACTED ] Investment – Information regarding [ REDACTED ] Investor” in this document
“State Council” the State Council of the PRC (中華人民共和國國務院)

[ REDACTED ]

“Stock Exchange” The Stock Exchange of Hong Kong Limited
“subsidiary(ies)”
has the meaning ascribed to it under the Listing Rules
“substantial shareholder(s)”
has the meaning ascribed to it under the Listing Rules
“Suzhou Keli”
Suzhou Keli Property Brokerage Co., Ltd. (蘇州可立房產經紀有限公司), a company established in the PRC with limited liability on July 10, 2019 and an indirect whollyowned subsidiary of our Company
“Takeovers Code”
the Hong Kong Code on Takeovers and Mergers issued by the SFC, as amended, supplemented or otherwise modified from time to time
“Track Record Period”
the period comprising the two years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019
“U.S. Government”
the federal government of the United States, including its executive, legislative and judicial branches
“U.S. Securities Act”
the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder

[ REDACTED ]

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DEFINITIONS

“United States”, “USA” or the United States of America, its territories, its “U.S.” possessions and all areas subject to its jurisdiction “US$”, “USD” or “$” U.S. dollars, the lawful currency of the United States “VAT” the PRC value-added tax “WeiQiang” WeiQiang Holdings Limited (偉強控股有限公司), a company incorporated in the BVI with limited liability on December 13, 2018, which is wholly-owned by Mr. GQ Ou and a shareholder of our Company “WeiTian” WeiTian Holdings Limited (偉天控股有限公司), a company incorporated in the BVI with limited liability on December 13, 2018, which is wholly-owned by Mr. ZR Ou and is one of our Controlling Shareholders “WeiYao” WeiYao Holdings Limited (偉耀控股有限公司), a company incorporated in the BVI with limited liability on December 13, 2018, which is wholly-owned by Mr. ZR Ou and is one of our Controlling Shareholders “WeiZheng” WeiZheng Holdings Limited (偉正控股有限公司), a company incorporated in the BVI with limited liability on December 13, 2018, which is wholly-owned by Mr. ZR Ou and is one of our Controlling Shareholders

[ REDACTED ]

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DEFINITIONS

“Yichun Shouweida”
Yichun Shouweida Engineering Services Co., Ltd. (宜春市首維達工程服務有限公司), a company established in the PRC with limited liability on January 15, 2015 and an indirect wholly-owned subsidiary of our Company
“Zhenro Group” Zhenro Group Company and its subsidiaries but excluding our Group and Zhenro Property Group
“Zhenro Group Company” Zhenro Group Co., Ltd. (正榮集團有限公司) (formerly known as Fujian Zhenro Group Co., Ltd. (福建正榮集團有限公司)), a company established in the PRC with limited liability on August 31, 1994 and is owned as to 91.9% by Mr. ZR Ou and 8.1% by Mr. GQ Ou
“Zhenro Properties”
Zhenro Properties Group Limited (正榮地產集團有限公司), an exempted company incorporated in the Cayman Islands with limited liability on July 21, 2014, whose shares are listed on the Stock Exchange (stock code: 6158), and which is indirectly owned as to approximately 54.60% by Mr. ZR Ou, 4.99% by Mr. GQ Ou and 0.10% by Mr. Huang Xianzhi (the chairman of our Board and our non-executive Director)
“Zhenro Property Group”

Zhenro Properties and its subsidiaries

“Zhenro Property Management”
Zhenro Property Management Services Co., Ltd. (正榮物業管理服務有限公司), a company established in the PRC with limited liability on April 24, 2019 and an indirect wholly-owned subsidiary of our Company
“Zhenro Property Services”
Zhenro Property Services Co., Ltd. (正榮物業服務有限公司) (formerly known as Jiangxi Zhenro Property Management Co., Ltd. (江西正榮物業管理有限公司)), a company established in the PRC with limited liability on February 2, 2000 and an indirect wholly-owned subsidiary of our Company
“Zhenro Services (BVI)”

Zhenro Services China Limited (正榮服務中國有限公司), a company incorporated in the BVI with limited liability on December 19, 2018 and a direct wholly-owned subsidiary of our Company

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			DEFINITIONS
“Zhenro	Services	(HK)”	Zhenro Services Hong Kong Limited (正榮服務香港有限
			公司), a company incorporated in Hong Kong with
			limited liability on December 24, 2018 and an indirect
			wholly-owned subsidiary of our Company
“%”			percent

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GLOSSARY

This glossary of technical terms used in this document in connection with us and our business. Some of these terms and their meanings may not correspond to standard industry meanings or usage of such terms.

“average property management fee(s)”
calculated as the tax inclusive revenue from property management services during a specific period, divided by the total GFA under management during the same period and adjusted by (a) the average proportion of our GFA under management to revenue-bearing GFA during the Track Record Period, and (b) the actual number of months under management for each property
“Bohai Rim Region”
an economic region in China encompassing Beijing, Tianjin, Hebei province, Shandong province, Liaoning province, Henan province and parts of Jiangsu province, including but not limited to Tianjin, Jinan, Louyang and Zhengzhou, for the purpose of this document
“CAGR”
compound annual growth rate
“Midwest Region”
an economic region in China encompassing all of the provinces located in central and western parts of China, including but not limited to Chongqing, Jiangxi, Hunan, Hubei and Shaanxi
“commercial property(ies)” for purposes of this document, property(ies) designated for commercial use
“commission basis”
“communal/common area(s)”
a revenue-generating modal whereby we collect a percentage of the total amount of property management fees that our customers pay on a monthly basis shared areas in residential properties such as lobbies, hallways, stairways, car parks, elevators and gardens, among others
“contracted GFA”
GFA managed or to be managed by our Group under our operating property management service agreements, including both GFA under management and undelivered GFA
“GDP”
gross domestic product

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GLOSSARY

“GFA”
“GFA under management”
“lump sum basis”
“PBOC Benchmark Rate”
“properties developed by thirdparty property developers”
“residential communities” or “residential properties”
“retention rate”

gross floor area

GFA of properties that have been delivered, or are ready to be delivered by property developers, to property owners, for which we are already collecting property management fees in relation to contractual obligations to provide our services

a revenue-generating model for our property management business line whereby we charge a pre-determined property management fee per sq.m. for all units (whether sold or unsold) on a monthly basis which represents the “all-inclusive” fees for all of the property management services provided by our employees and subcontractors. Property developers, property owners and residents will be responsible for paying our property management fees for the sold and unsold units respectively on a monthly basis

the exchange rate for foreign exchange transactions set daily by the PBOC based on the previous day’s PRC inter-bank foreign exchange rates and with reference to prevailing exchange rates on the world financial markets

properties solely developed by third-party property developers independent from Zhenro Property Group, as well as properties jointly developed by Zhenro Property Group and other property developers for which Zhenro Property Group did not hold a controlling interest
properties which are purely residential or mixed-use properties containing residential units and ancillary facilities that are non-residential in nature such as commercial or office units but excluding pure commercial properties

the aggregate number of our contracted projects as of the end of the period divided by the aggregate number of our contracted projects plus the number of projects we ceased to manage during the same period

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GLOSSARY

“revenue-bearing GFA”

the portion of our GFA under management for which we charge property management fees, which equals our GFA under management excluding the GFA of common areas, such as public facilities, visitor parking lots and swimming pools

“sq.m.” square meter(s)
“Rong Wisdom” (榮智慧) Service Platform
an internal and integrated service platform used by the Group
“Top 100 Property Management Companies”
an annual ranking of China-based property management companies by overall strength published by CIA solely or jointly with other institution(s) based on a number of key indicators, including management scale, operational performance, service quality, growth potential and social responsibility of such companies in the preceding year, which comprised 100, 100, 210, 200, 200 and 220 companies respectively, for rankings published in 2014, 2015, 2016, 2017, 2018 and 2019, respectively. The number of companies for each of 2016, 2017, 2018 and 2019 exceeded 100 as multiple companies with the same or very close scores were assigned the same ranking
“Western Straits Region”

an economic region in China primarily encompassing Fujian province, parts of Zhejiang province, Jiangxi province and Guangdong province, including but not limited to Fuzhou, Wenzhou, Putian, Pingtan, Nanping, Quanzhou, Sanming, Zhangzhou, for the purpose of this document

“Yangtze River Delta Region”
an economic region in China encompassing Shanghai, parts of Zhejiang province and parts of Jiangsu province, including but not limited to Nanjing, Suzhou, Jiaxing, Taizhou, Chuzhou, Lu’an, Nantong and Wuhu, for the purpose of this document

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FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking statements and information relating to the Company and its subsidiaries that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. When used in this document, the words “aim,” “anticipate,” “believe,” “can,” “continue,” “could,” “forecast,” “expect,” “going forward,” “intend,” “ought to,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would” and the negative of these words and other similar expressions, as they relate to our Group or our management, are intended to identify forward-looking statements. Such statements reflect the current views of our management with respect to future events, operations, liquidity and capital resources, some of which may not materialize or may change. These statements are subject to certain risks, uncertainties and assumptions, including the other risk factors as described in this document. You are strongly cautioned that reliance on any forward-looking statements involves known and unknown risks and uncertainties. The risks and uncertainties facing the Company which could affect the accuracy of forward-looking statements include, but are not limited to, the following:

our operations and business prospects;
future developments, trends and conditions in the industry and markets in which we operate;
our strategies, plans, objectives and goals and our ability to successfully implement these strategies, plans, objectives and goals;
our ability to identify and integrate suitable acquisition targets;
general economic, political and business conditions in the markets in which we operate;
the effects of the global financial markets and economic crisis;
changes to the regulatory environment and general outlook in the industry and markets in which we operate;
our ability to control or reduce costs;
our dividend policy;
the amount and nature of, and potential for, future development of our business;
capital market developments;
the actions and developments of our competitors;

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FORWARD-LOOKING STATEMENTS

changes or volatility in interest rates, foreign exchange rates, equity prices or other rates or prices in the industry and markets in which we operate;
certain statements in sections headed “Business” and “Financial Information” in this document with respect to trends in prices, volumes, operations and margins, overall market trends, risk management and exchange rates; and
other statements in this document that are not historical facts.

This document also contains market data and projects that are based on a number of assumptions. The markets may not grow at the rates projected by the market data, or at all. The failure of the markets to grow at the projected rates may materially and adversely affect our business and the market price of our Shares. In addition, due to the rapidly changing nature of the PRC economy and the property management industry, projections or estimates relating to the growth prospects or future conditions of the markets are subject to significant uncertainties. If any of the assumptions underlying the market data prove to be incorrect, actual results may differ from the projections based on these assumptions.

We do not guarantee that the transactions and events described in the forward-looking statements in this document will happen as described, or at all. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risks and uncertainties set forth in “Risk Factors” in this document. You should read this document in its entirety and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements made in this document relate only to events as of the date on which the statements are made or, if obtained from third-party studies or reports, the dates of the respective studies or reports. Since we operate in an evolving environment where new risks or uncertainties may emerge from time to time, you should not rely upon forward-looking statements as predictions of future events. We undertake no obligation, beyond what is required by law, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made, even when our situation may have changed.

Subject to the requirements of applicable laws, rules and regulations, we do not have any and undertake no obligation to update or otherwise revise the forward-looking statements in this document, whether as a result of new information, future events or otherwise. As a result of these and other risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this document might not occur in the way we expect or at all. Accordingly, you should not place undue reliance on any forward-looking information. All forward-looking statements in this document are qualified by reference to the cautionary statements in this section.

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RISK FACTORS

Potential investors should carefully consider each of the risks described below and all of the other information contained in this document, including the Accountants’ Report included in Appendices IA and IB, before deciding to invest in the [ REDACTED ] . Our business, financial condition, results of operations or prospects may be materially and adversely affected by any of these risks. You should pay particular attention to the fact that we are a company incorporated in the Cayman Islands and that our principal operations are conducted in China and are governed by in a legal and regulatory environment that in some respects differ significantly from that of other countries. The trading price of the [ REDACTED ] could decline due to any of these risks, as well as additional risks and uncertainties not presently known to us, and you may lose all or part of your investment.

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

Our future growth may not materialize as planned

We have been seeking to expand our existing business through scaling and organic growth as well as acquisitions of other property management companies to expand our project portfolio and obtain larger market shares. As of December 31, 2017 and 2018 and September 30, 2019, the projects we were contracted to manage an aggregate GFA of 9.4 million sq.m., 12.6 million sq.m. and 21.0 million sq.m., respectively, covering 34 cities across 4 major regions in China, namely, the Yangtze River Delta Region, the Western Straits Region, the Midwest Region and the Bohai Rim Region. For further details, see the section entitled “Business — Property Management Services” in this document. However, we base our expansion plans on our assessment of market prospects, thus we cannot assure you that our assessment will prove to be correct or that our business will grow as planned. Our expansion plans may be affected by a number of factors, most of which are beyond our control. Such factors include but are not limited to:

changes in China’s economic conditions in general and the real estate market and property management industry in particular;
changes in disposable personal income in the PRC;
changes in government policies and regulations;
changes in the supply of and demand for property management services, value-added services to non-property owners, community value-added services and other services;
our ability to generate sufficient liquidity internally and obtain external financing;
our ability to recruit and train competent employees;

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RISK FACTORS

our ability to select and work with suitable and reliable subcontractors and suppliers;
our ability to understand the needs of property owners and residents in the properties where we provide property management services, value-added services to nonproperty owners, community value-added services and other services;
our ability to adapt to new markets where we have no prior experience and in particular, whether we can adapt to the administrative, regulatory, cultural and tax environments in such markets;
our ability to leverage our brand name and to compete successfully in new markets, particularly against the incumbent players in such markets who might have more resources and experience than us; and
our ability to improve our administrative, technical, operational and financial infrastructure.

Subject to uncertainties and risks which are mostly beyond our control, we cannot assure you that our future growth will materialize or that we will be able to manage our future growth effectively. Our business, financial condition, results of operations and growth prospects could be materially and adversely affected if our future plans fail to achieve positive results.

We cannot assure you that we can secure new or renew our existing property management service agreements on favorable terms, or at all.

We believe that our ability to expand our portfolio of property management service agreements is key to the sustainable growth of our business. During the Track Record Period, we generally obtained new property management service agreements by participating in tenders. The selection of a property management company depends on a number of factors, including but not limited to, service quality, pricing level and operational history of the property management company. We cannot assure you that we will be able to procure new property management service agreements on favorable terms, or at all. Our efforts may be hindered by factors beyond our control, which may include, among others, changes in general economic conditions, evolving government regulations as well as supply and demand dynamics within the property management industry.

During the Track Record Period, we entered into preliminary management service agreements with property developers during later stages of property development. Such agreements are transitional in nature and facilitate the transfer of legal and actual control of the properties from property developers to property owners. Preliminary property management service agreements typically expire when property owners’ associations are established and new property management service agreements are entered into. For more information, see “Business — Property Management Service Agreements — Key Terms of Dealing with Property Developers” in this document. To continue managing the property, we would have to

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RISK FACTORS

enter into a new property management service agreements with the property owners’ associations. There is no guarantee that property owners’ associations will enter into a new property management service agreements with us instead of our competitors. We may therefore bear the risk of termination of rendering services of the existing projects as a result of the set-up of property owners’ associations. Our customers select us based on parameters such as quality and cost, and we cannot assure you that we will always be able to balance them on favorable terms for both sides.

Even where we succeed in entering into property management service agreements with property owners’ associations, we cannot guarantee that they will be renewed upon expiration. It is also possible that they may be terminated for cause. In such cases, we would no longer be able to provide community value-added services to residential communities who have terminated our engagements, in addition to our property management services. There is no guarantee that we would be able to find other business opportunities and enter into alternative property management service agreements on favorable terms, or at all. Moreover, as both termination and non-renewal may be detrimental to our reputation, we may experience material adverse effects to our brand value. We believe that our brand value is essential to our ability to procure new property management service agreements. Failure to cultivate our brand value may diminish our competitiveness within the industry and lead to an adverse effect on our growth prospects and results of operations.

Our future acquisitions may not be successful and we may face difficulties in integrating acquired operations with our existing operation.

We have, to a certain extent, expanded our business through acquisitions during the Track Record Period, and plan to continue to evaluate opportunities to acquire other property management companies and/or other businesses and integrate their operations into our business to further expand our business scale and service and geographical coverage. However, there can be no assurance that we will be able to identify suitable opportunities. Even if we manage to identify suitable opportunities, we may not be able to complete the acquisitions on terms favorable or acceptable to us, in a timely manner, or at all. The inability to identify suitable acquisition targets or complete acquisitions could materially and adversely affect our competitiveness and growth prospects.

In addition, acquisitions and integration of acquired operations with our existing operation involve uncertainties and risks, including, without limitation:

potential ongoing financial obligations and unforeseen or hidden liabilities;
inability to apply our business model or standardized operational processes on the acquisition targets;
difficulties in integrating acquired operations with our existing business;

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RISK FACTORS

failure to achieve the intended objectives, benefits or revenue-enhancing opportunities;
failure to protect and maintain the acquired rights relating to brand names and/or other material intellectual property rights; and
diversion of resources and management attention.

Approximately [ REDACTED ]%, or HK$[ REDACTED ], of the [ REDACTED ] raised from the [ REDACTED ] will be used to pursue selective strategic investment and acquisition opportunities and further develop strategic partnerships. See “Future Plans and [ REDACTED ] — [ REDACTED ]” in this document for more details. If we fail to identify suitable acquisition opportunities or our future acquisition transactions fail to consummate for other reasons which may be beyond our control, our [ REDACTED ] from the [ REDACTED ] may not be effectively used.

A majority of our revenue is generated from property management services we provide to projects developed by Zhenro Property Group, which is our connected person and we do not have control over.

During the Track Record Period, a majority portion of our revenue was derived from property management service provided to projects developed by Zhenro Property Group. In 2017 and 2018 and for the nine months ended September 30, 2019, our revenue generated from our property management services provided in relation to projects developed by Zhenro Property Group accounted for approximately 88.2%, 71.9% and 67.7%, respectively, of our total revenue for the same periods, representing 77.1%, 74.4% and 47.9% of our total GFA under management, respectively. However, we do not have control over the Zhenro Property Group’s management strategy, nor the macroeconomic or other factors that affect their business operations and financial positions. Any adverse development in the business or financial positions of Zhenro Property Group or its ability to develop and maintain properties may materially and adversely affect our ability to procure new property management services. In addition, such service contracts with Zhenro Property Group are subject to expiration and may not be renewed successfully. We may also fail to diversify our customer base. As a result, we cannot assure you that we will be able to procure service agreements from alternative sources to make up the shortfall in a timely manner or on favorable terms, or at all, which could materially and adversely affect our business, financial conditions and results of operations.

A significant portion of our operations is concentrated in the Yangtze River Delta Region, the Western Straits Region and the Midwest Region, and our business could be adversely affected in the event of any adverse development in government policies or business environment in these regions.

We focus on cities with high population densities in economically developed regions, and the majority of our operations are concentrated in the Yangtze River Delta Region, the Western Straits Region and the Midwest Region. As of December 31, 2017 and 2018 and September 30, 2019, we managed an aggregate GFA of approximately 9.1 million sq.m., 12.3 million sq.m.

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and 20.5 million sq.m., respectively, of properties in the Yangtze River Delta Region, the Western Straits Region and the Midwest Region, which accounted for approximately 96.7%, 97.5% and 97.9%, respectively, of our total GFA of properties under our management as of such dates. Our revenue generated from property management services in the Yangtze River Delta Region, the Western Straits Region and the Midwest Region accounted for approximately 97.0%, 96.6% and 97.2% of our total revenue in 2017, 2018 and the nine months ended September 30, 2019, respectively. Given such concentration, any material adverse social, economic or political development in or any natural disaster or epidemic affecting the Yangtze River Delta Region, the Western Straits Region and the Midwest Region will materially and adversely affect our business, financial position and results of operations.

We may face fluctuations in our labor and subcontracting costs, and the increase in labor and subcontracting costs could harm our business and reduce our profitability.

The property management industry in the PRC is labor intensive. For the years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019, our labor costs accounted for 72.8%, 66.4% and 65.0% of our total cost of sales, respectively. We delegate certain services such as security services, cleaning services, landscaping services and repairs and maintenance services to independent third-party subcontractors. During the same periods, our subcontracting costs represented 13.7%, 16.4% and 19.3% of our total cost of sales, respectively. Since our labor and subcontracting costs together accounted for a significant portion of our cost of sales, we believe that controlling and reducing our labor and subcontracting costs is crucial for us to maintain and improve our profit margins as well as other operating costs.

We face pressure from rising labor and subcontracting costs due to various factors, including but not limited to:

increases in minimum wages . The minimum wage in the regions where we operate has generally increased in recent years, which has a direct impact on our labor costs as well as the fees we pay to our third-party subcontractors.
increases in headcount . As we expand our operations, the headcount of our property management staff, sales and marketing staff and administrative staff may increase. We may also need to retain and continuously recruit qualified employees to meet our growing demand for talent, which might further increase our total headcount. Any increases in headcount would also increase our costs in relation to, among others, recruiting, salaries, employee benefits, training, social insurance and housing provident fund contributions.
delay in implementing technological solutions, procedure standardization and operation automation as well as other measures to reduce our reliance on manual labor and cost of sales . There is usually a lapse in time between our commencement of property management services for a particular property and any implementation of our technological solutions, management digitalization, service

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professionalization, procedure standardization and operation automation measures to that property to reduce our reliance on manual labor and cost of services. Before we carry out such measures and upgrades, our ability to mitigate the impact of labor cost increase is limited.

We cannot assure you that we will be able to control our costs or improve our efficiency. Any failure in effectively controlling our costs may have a material and adverse impact on our business, financial position and results of operations.

We may fail to effectively anticipate or control our costs in providing our property management services, for which we generally charge our customers on a lump sum basis.

During the Track Record Period, we primarily generated revenue from our property management services under the lump-sum fee model, which accounted for approximately 99.8%, 99.7% and 99.7% of our total revenue generated from property management services in 2017 and 2018 and the nine months ended September 30, 2019, respectively. On a lump sum basis, we charge property management fees at a monthly pre-determined fixed lump sum price per sq.m., representing “all-inclusive” fees for the property management services provided. These management fees do not necessarily correspond with the actual amount of property management costs we incur. The amount we recognize as revenue is the full amount of property management fees we charge to the property owners or property developers, and the amount we recognize as our cost of sales is the actual costs we incur in connection with rendering our services. For more information on our fee model and relevant accounting policy, see “Business — Property Management Fees — Property Management Fees Charged on a Lump Sum Basis” and “Financial Information — Significant Accounting Policies and Accounting Estimates and Judgments — Revenue recognition” in this document.

In the event that we fail to accurately anticipate our actual costs prior to negotiating and entering into our property management service agreements, and our fees are insufficient to sustain our profit margins, we would not be entitled to collect additional amounts from our customers. We also cannot guarantee that we will be able to adequately control our costs in the course of providing our property management services. Any losses we incur may materially and adversely affect our results of operations.

If we are unable to raise property management fee rates and there is a shortfall of working capital after deducting the property management costs, we would cut costs to reduce the shortfall. However, our ability to mitigate against such losses through cost-saving initiatives, such as automation measures aimed at reducing labor costs and energy-saving measures aimed at reducing energy costs, may not be successful, and our cost-saving efforts may adversely affect the quality of our property management services, which in turn would further reduce the owners’ willingness to pay us higher property management fees. Such events could adversely impact our reputation, profitability, results of operations and financial position.

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We are exposed to risks associated with third-party subcontractors to perform certain services to our customers.

We delegate property management services, such as security services, cleaning services, landscaping services, repair and maintenance services, to independent third-party subcontractors. For the years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019, our subcontracting costs amounted to approximately RMB27.8 million, RMB55.1 million and RMB66.3 million, respectively, representing approximately 13.7%, 16.4%, and 19.3% of our total cost of sales for the same periods, respectively. We select our third-party subcontractors based on factors such as their qualifications, industry reputation, credit, service quality and price competitiveness. We also impose internal quality control measures on our subcontractors such as routine internal examination, independent third-party assessment and customer feedback assessment. See “Business — Quality Control — Quality Control of Subcontractors” in this document for further details. However, we cannot assure you that they will always perform in accordance with our expectations. They may act in ways contrary to our or our customers’ instructions, their contractual obligations and our quality standards and operational procedures. We may also fail to monitor their performance as directly and effectively as with our own employees. As a result, we are subject to risks associated with being responsible for any sub-standard performance by our third-party subcontractors, including but not limited to litigation, reputational damage, disruptions to our business, termination or non-renewal of our service agreements and monetary claims from our customers. We may also incur extra costs in order to monitor or replace third-party subcontractors which do not perform in accordance with our expectations, or mitigate or compensate damages incurred by such third-party subcontractors.

In addition, we may be unable to renew our existing subcontracting contracts upon expiration, or fail to seek suitable replacement in a timely manner, or on favorable terms, or at all. We also do not have control over our subcontractors to maintain qualified, experienced and sizable teams, or renew their qualifications. In any event that our independent third-party subcontractors fail to perform their contractual obligations properly and in a timely manner, our work process could be interrupted which could potentially result in a breach of contract between our customers and us. Any of such events could materially and adversely affect our service quality, reputation and performance, as well as our business, financial condition and results of operations.

We are exposed to risks associated with failing to detect and prevent fraud, negligence or other misconduct (accidental or otherwise) committed by our employees, subcontractors or third parties.

We have established risk management and internal control systems consisting of policies and procedures that we believe will contribute to the continued success of our business. See “Business — Internal Control and Risk Management” for more details. However, we cannot guarantee that they will always enable us to detect, prevent and take remedial measures in

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relation to fraud, negligence or other misconduct (accidental or otherwise) committed by our employees, subcontractors or third parties in a timely and effective manner. Examples of such behavior include crimes such as theft, vandalism and bribery during tenders.

Although we have limited control over the behavior of any of these parties, we may be viewed as at least partially responsible for their conduct on contractual or tortious grounds. We may become, or be joined as, a defendant in litigation or other administrative or investigative proceedings and be held accountable for injuries or damages sustained by our customers or third parties. To the extent that we cannot recover related costs from the employees, subcontractors or third parties involved, we may experience material adverse effects on our business, financial position and results of operations. We may also attract negative publicity and incur damages to our reputation and brand value.

We may recognize impairment losses for goodwill recorded in connection with our acquisitions.

In connection with our acquisition of Jiangsu Aitao, we recorded a goodwill of RMB19.5 million as of December 31, 2017, which accounted for 2.7% of our total assets as of December 31, 2017. This reflects the difference between the total cash consideration of RMB20.0 million paid for Jiangsu Aitao and its total fair value of identifiable net assets of RMB0.5 million. In connection with our acquisition of 70% of the equity interests of Jiangsu Sutie, we recorded a goodwill of RMB40.0 million as of September 30, 2019, which accounted for 4.0% of our total assets as of September 30, 2019. This reflects the difference between the total cash consideration of RMB70.0 million paid for Jiangsu Sutie and its total fair value of identifiable net assets of RMB42.8 million.

We generally test goodwill for impairment annually. Impairment losses are recognized when the carrying amount of an asset exceeds its estimated recoverable amount. In making impairment assessments, estimated future cash flows are discounted to their present value using a pre-tax discount rate reflecting current market assessments of the time value of money and the risks specific to the asset. Changes in the assumptions made with respect to estimated future cash flows or pre-tax discount rates may lower the estimated recoverable amount of an asset in comparison to its carrying amount. For more information, see “Financial Information — Significant Accounting Policies, Judgment and Estimates — Significant Accounting Policies — Goodwill” in this document. However, our ability to generate cash flow from our acquired assets will depend on our ability to realize the intended objectives, potential benefits or other revenue-enhancing opportunities that motivated our acquisitions, such as the acquisitions of Jiangsu Aitao and Jiangsu Sutie, as well as our ability to effectively integrate their business operations with our own. In the event that we are unsuccessful in achieving the aforementioned, we may have to record impairment losses to our goodwill. This may in turn result in an adverse effect on our financial position and results of operations.

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We may not be able to collect property management fees from property owners and property developers which could incur impairment losses on our trade receivables.

We may encounter difficulties in collecting property management fees from property owners especially in communities with relatively high vacancy rate. We cannot assure you that our collection measures will be effective or enable us to accurately predict our future collection rate. As of September 30, 2019, our outstanding trade receivables amounted to approximately RMB140.5 million. For the years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019, we recorded average trade receivable turnover days of 30 days, 35 days and 52 days, respectively. During the same periods, our collection rate of property management fees, calculated by dividing the property management fees we actually received during a period by the total property management fees payable to us accumulated during the same period, was 91.6%, 92.0% and 75.4%, respectively. For further information, please refer to sections entitled “Financial Information — Description of Selected Items of Combined Statements of Financial Position — Trade Receivables” in this document. Even though we seek to collect overdue property management fees through a number of collection measures, we cannot assure you that such measures will be effective or enable us to accurately predict our future collection rate.

As of December 31, 2017 and 2018 and September 30, 2019, our allowance for impairment of trade receivables amounted to RMB2.9 million, RMB5.0 million and RMB12.4 million, respectively. Although our management’s estimates and the related assumptions have been made in accordance with information available to us, such estimates or assumptions are subject to further adjustment if new information becomes known. See the section entitled “Financial Information — Significant Accounting Policies, Judgments and Estimates — Significant Accounting Judgments and Estimates — Impairment of trade receivables” in this document for further details. In the event that the actual recoverability is lower than expected, or that our past allowance for impairment of trade receivables becomes insufficient in light of any new information, we may need to provide for an additional allowance for impairment of trade receivables, which may adversely affect our cash flow position and our ability to meet our working capital requirements, and therefore materially and adversely affect our business, financial position and results of operations.

The collection of our trade receivables is subject to seasonal fluctuations.

We experienced seasonal fluctuations in the collection of our trade receivables during the Track Record Period and expect to continue experiencing such seasonal fluctuations going forward. Our collection rate with respect to property management fees was 75.4% for the nine months ended September 30, 2019, which was lower in comparison to our collection rate of 91.6% in 2017 and 92.0% in 2018, respectively. In general, our trade receivable amounts increase throughout the year and decrease toward the end of the year when property owners and residents generally clear their outstanding property management fee balances. As of September 30, 2019, we had RMB140.5 million in trade receivable amounts as compared to RMB54.0 million as of December 31, 2018. In addition, for the nine months ended September 30, 2019, our average turnover days of trade receivables was 52 days as compared to 35 days in 2018.

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See “Financial Information — Description of Selected Items of Combined Statements of Financial Position — Trade Receivables” for more details. Consequently, a comparison of our outstanding trade receivables and collection rates between different points in time within a single financial year and any comparison of trade receivables turnover days for an interim period with that of a full financial year may not be necessarily meaningful and should not be relied upon as indicators of our financial performance. Seasonal fluctuations in our collection rates and trade receivables require that we manage our liquidity carefully so as to provide our business with adequate cash for operations. Any inability to ensure adequate liquidity could cause us to incur higher financing costs and hamper our ability to expand and grow our operations, which could in turn materially and adversely affect our business, financial position and results of operations.

Our strategic plan to diversify our services may not succeed as planned, and therefore our overall growth strategy may not work as expected.

We have diversified our services by providing various value-added services to meet the evolving needs of our customers, whether they are property owners or non-property owners. For more information, please see the section entitled “Business — Our Business Model” in this document. In particular, we aim to further expand our business coverage under our three main business lines, namely, property management services, value-added services to non-property owners and community value-added services, including but not limited to enhancing our existing services and exploring opportunities to offer new community value-added services, such as community retail services, elderly care and community health services, to increase accessibility and improve user experience and plan to attract further use by residents of the properties we manage as well as local vendors. See “Business — Our Business Strategies — Stay innovative and continue to develop diversified value-added service offerings” for more information.

However, our value-added services are still expanding and evolving depending on the circumstances of the project and our accumulated experiences in the relevant local market. With a relatively limited operating history and experience in certain regions, we may face unknown risks, rising expenses and fierce competition in the market. We cannot assure you that we will be able to grow our business as planned. The potential growth of our value-added services depends on our ability to continue to attract new users as well as to increase the spending and repeat purchase rate of existing users. We may fail to cater for various consumer preferences, or anticipate product trends that will appeal to existing potential customers. We may also be unfamiliar with the new business operations in new markets, and fail to effectively promote our new services to new markets. New products and services, or entrance into new markets, may also require substantial time, resources and capital, and profitability targets. We also may not have the same level of familiarity with the practices for provision of new services or relationships with our strategic partners, third-party subcontractors and other suppliers as we do in the property management industries. We may not be able to recruit sufficient qualified

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personnel to support the growth of our value-added services. In addition, we may have limited ability to leverage on our brand name in the relevant industries in the way that we have done so in the property management industry, which could put us in a less competitive position in the new market.

Furthermore, we cannot assure you that our investment in our value-added business can be recovered in a timely manner, or at all, or our results of return would be more competitive than that of other comparable companies. Our development of and investment in our diversified service platform may be subject to PRC laws and regulations governing license approval and renewal. See the section entitled “Regulatory Overview — Legal Supervision over the Internet Information Services” in this document for further details. We cannot assure you that we can obtain or renew our license on time, if at all. We cannot guarantee that our future strategic development plan, which is based upon our forward-looking assessment of market prospect and customer preference, will always turn out to be successfully. A number of factors beyond our control may also affect our plan for the diversified services, which include changes in the PRC’s economic conditions in general, government policies and regulations on relevant industries and changes in supply and demand for our services. Any of the foregoing could adversely affect our reputation, business, cash flows, financial position and results of operations.

We are susceptible to changes in regulatory landscapes of the PRC property management and PRC real estate industries.

The PRC property management industry and our operations are substantially affected by the relevant regulatory environment and measures. In particular, the fees that property management companies may charge in connection with property management services are strictly regulated and supervised by relevant PRC authorities. We seek to comply with the regulatory regime of the property management service in conducting our business operations. In December 2014, the NDRC issued the Circular of NDRC on the Opinion on Liberalizing Price Controls in Certain Services (《國家發展改革委員會關於放開部分服務價格意見的通知》) (改發價格[2014]2755號), which requires the relevant provincial authorities to relax the price control policies in relation to the property management services for non-affordable housing. Property management fees for affordable housing, housing-reform properties and properties in older residential areas and management fees under preliminary property management service agreements remain subject to price guidance imposed by provincial level price administration departments and the administrative departments of housing and urbanrural development. The PRC Government may also promulgate new laws and regulations in relation to property management fees from time to time. For further information, please refer to the section entitled “Regulatory Overview — Fees Charged by Property Management Enterprises” in this document.

Although we experienced rapid revenue and profit growth during the Track Record Period, we cannot assure you that we can sustain such growth in the future. Our profitability depends partially on our ability to control costs and operating expenses, which may increase as we expand our business. In addition, we may continue to devote significant resources to develop our value-added services through our online service community, which require substantial capital, personnel and technological support. This initiative could negatively impact our short-term profitability and cash flows. If our business expansion prove ineffective, and we fail to increase revenue, or if our cost and operating expense grow faster than our revenue, our business, financial position and results of operations may be negatively affected.

We have indebtedness and may incur additional indebtedness in the future, which may materially and adversely affect our financial condition and results of operations.

We incurred certain indebtedness during the Track Record Period. As of December 31, 2017 and 2018 and September 30, 2019, our bank and other borrowings amounted to approximately RMB500.0 million, RMB520.0 million and RMB551.3 million, respectively. As of the Latest Practicable Date, we have repaid a total amount of bank and other borrowings in the amount of RMB521.3 million. See “Description of Selected Items of Combined Statements of Financial Position — Interest-bearing Bank and Other Borrowings” for more details. Our indebtedness could have an adverse effect on us, for example, by increasing our vulnerability to adverse developments in general economic or industry conditions, such as significant increases in interest rates; and limiting our flexibility in the planning for, or reacting to, changes in our business or the industry in which we operate. We have indebtedness and may incur additional indebtedness in the future, and we may not be able to generate sufficient cash to satisfy our existing and future debt obligations.

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Our ability to generate sufficient cash to satisfy our outstanding and future debt obligations will depend upon our future operating performance, which will be affected by, among other things, prevailing economic conditions, PRC governmental regulation, the demand for properties in the regions we operate and other factors, many of which are beyond our control. We may not generate sufficient cash flow to pay our anticipated operating expenses and to service our debts, in which case we will be forced to adopt an alternative strategy that may include actions such as reducing or delaying capital expenditures, disposing of our assets, restructuring or refinancing our indebtedness or seeking equity capital. If we are unable to fulfill our repayment obligations under our borrowings, or are otherwise unable to comply with the restrictions and covenants in our current or future bank loans and other agreements, there could be a default under the terms of these agreements. In the event of a default under these agreements, the lenders may accelerate the repayment of outstanding debt or, with respect to secured borrowings, enforce the security interest securing the loan. Any cross-default and acceleration clause may also be triggered as a result. If any of these events occur, we cannot assure you that our assets and cash flow would be sufficient to repay all of our indebtedness, or that we would be able to obtain alternative financing on terms that are favorable or acceptable to us. As a result, our cash flow, cash available for distributions, financial condition and results of operations may be materially and adversely affected.

Negative publicity, including adverse information on the Internet, about us, our Shareholders and affiliates, our brand, management, vendors as well as products and services provided by us may have a material adverse effect on our business, reputation and the trading price of our Shares.

There could be from time to time negative publicity about us, our Shareholders and affiliates, our brand, management, vendors as well as products and services provided by us. Negative reviews on the properties managed by us, products and services provided by us, our business operations and management may appear in the form of Internet postings and other media sources from time to time and we cannot assure you that other types of negative publicity will not arise in the future. For example, if our services fail to satisfy our customers, our customers may disseminate negative opinions about our services through popular social platforms. Partner vendors for our service may also be subject to negative publicity for quality of their products and services or other public relation incidents with respect to such vendors, which may adversely affect the sales of their products or services on us and indirectly affect our reputation. Any such negative publicity, regardless of veracity, could materially and adversely affect our business, our reputation and the trading price of our Shares.

Damage to the common areas of our managed properties may adversely affect our business, financial position and results of operations.

The common areas of the properties we manage may suffer damage as a result of events beyond our control, including but not limited to natural disasters, accidents or intentional damage. Although PRC law mandates that each residential community establish a special fund to pay the repair and maintenance costs of common areas, there is no guarantee that there will be sufficient sums in those special funds. Where the damage is caused by natural disasters such

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as earthquakes, floods or typhoons, or accidents or intentional harm such as fires, the damage caused may be extensive. At times additional resources may have to be allocated to assist police and other governmental authorities in investigating criminal actions that may have been involved.

As the property management service provider, we may be viewed as responsible for restoring the common areas and assisting any investigative efforts. In the event that there is any shortfall in the special funds necessary to cover all the costs involved, we may have to compensate for the difference with our own resources first. We would need to collect the amount of the shortfall from the property owners later. To the extent that our attempts are unsuccessful, we may experience material adverse effects on our business, financial position and results of operations. As we intend to continue growing our business, the likelihood of such occurrences may rise in proportion to any increases in the number of our managed properties.

We are exposed to interruptions and security risks in relation to third-party online payment platforms, including but not limited to, security breaches and identity theft, which may result in disruption of our operations and customer complaints, and may expose us to the risk of litigation which could materially and adversely affect our business, financial position, results of operations and our reputation.

We accept payments via various payment methods, including by not limited to online payments through third-party payment platforms. These online payments involve the transmission of confidential information such as credit card numbers, personal information and billing addresses over public networks. A secured transmission of confidential information would be essential to maintain consumer confidence. As the prevalence of using online payment methods increases, associated online crimes will likely increase as well. We have no control over the security measures taken by providers of our third-party platforms. In the event that the security and integrity of these third-party platforms are compromised, we may experience material adverse effects on our ability to process our revenue derived from our property management services, community value-added services and other value-added services provided through our service platforms. In addition, increasing and enhancing our security measures and efforts as well as legal compliance during the use of the third-party payment platforms may impose additional costs and expenses but still not guarantee complete safety and compliance. We are exposed to litigation and possible liability in relation to security breaches of the online payment platforms for failing to secure confidential user information. Even if a security breach did not occur on the online payment platforms that we use, if an Internet or mobile network security breach were to occur, the perceived security of online payment platforms in general may be adversely affected and cause users to be reluctant to further use our online services. Any leak of confidential information or data, breach of network security or other misappropriation or misuse of personal information could cause interruptions in the operations of our business and subject us to increased costs, litigation and other liabilities, which could materially and adversely affect our business, financial position, results of operations and our reputation.

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We are exposed to interruptions and security risks in relation to our information technology systems, which may result in disruption of our operations.

We rely on our information technology systems to manage key operational functions. For example, we rely on on our “Rong Wisdom” (榮智慧) Service Platform to, among others, maintain quality control, which involves the collection and management of customer inquiries, requests and feedbacks, and organizing and tracking of our responses, follow-ups and conducting and recording internal assessments on service issues. See “Business — Quality Control — Quality Control of Our Property Management Services” for more information. We operate under a comprehensive internal management system where information related to human resources and financials is processed automatically. However, we cannot guarantee that damages or interruptions caused by power outages, computer viruses, hardware and software failures, telecommunication failures, fires, natural disasters, security breaches and other similar occurrences relating to our information technology systems will not occur in the future. If we fail to detect any system error or malfunction, continue to upgrade our information technology systems and network infrastructure, or take other measures to improve the efficiency of our information technology systems, system interruptions or delays could occur, which could adversely affect our operating results. In addition, occasional system interruptions and delays may occur to our “Rong Wisdom” Service Platform or any other customer service systems that make our services unavailable or difficult to access, and prevent us from promptly responding or providing services to our customers, which could reduce the attractiveness of our services and even incur losses to our customers who may bring legal proceedings against us. Moreover, we may incur significant costs in restoring any damaged information technology systems or to comply with any relevant data protection requirements under the relevant PRC laws and regulations. Failures in or disruptions to our information technology systems and loss or leakage of confidential information could cause transaction errors, processing inefficiencies and the loss of customers and sales. We may thus experience material adverse effects on our business and results of operations.

Our success depends on the continued services of our Directors, senior management and other qualified employees.

Our continued success is highly dependent upon the efforts of our Directors, senior management and other qualified employees who are experienced in property management and related industries. If a material number of our qualified employees leaves and we are unable to promptly hire and integrate a suitable replacement, our business, financial position and results of operations may be materially and adversely affected. In addition, the future growth of our business will depend, in part, on our ability to attract and retain qualified personnel in all aspects of our business, including corporate management and property management personnel. If we are unable to attract and retain these qualified personnel, our growth may be limited and our business, financial position and operating results could be materially and adversely affected.

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Our failure to protect our intellectual property rights could have a negative impact on our business and competitive position.

Our intellectual properties are our crucial business assets, which are key to our customer loyalty and essential to our future growth. The success of our business depends substantially upon our continued ability to use our trade names and trademarks to increase brand recognition and to develop our business brands. Please refer to the section entitled “Business — Our Brands” and “Business — Intellectual Property” in this document for further information. Unauthorized reproduction or infringement of our trade names or trademarks could diminish the value of our brands as well as our market reputation and competitive advantages. The unauthorized third party may use our intellectual property in ways that damage our reputation and brand names, such as providing services that are at lower standards or handling customer relationship in bad manner.

We rely on a combination of trademarks, confidentiality procedures and contractual provisions as well as legal registration to protect our intellectual property rights. Nevertheless, we cannot guarantee that such measures provide full protection. Policing unauthorized use of proprietary information can be difficult and expensive. In addition, the intellectual property laws and regulations are still immature as compared with most developed countries, and therefore the enforceability, scope and validity of laws governing intellectual property rights in the PRC are uncertain and still evolving, which could involve substantial risks to us. If we fail to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights, it could have a material adverse effect on our business, results of operations and financial position.

We may fail to obtain or renew required permits, licenses, certificates or other relevant PRC governmental approvals necessary for our business operations.

We are required to obtain governmental approvals in the form of permits, licenses and certificates to provide our services. Generally, they are only issued or renewed after certain conditions have been satisfied. We cannot assure you that we will not encounter obstacles toward fulfilling such conditions that delay us in obtaining or renewing, or result in our failure to obtain or renew, the required governmental approvals. Moreover, we anticipate that the PRC Government and relevant authorities will promulgate new policies in relation to the conditions for issuance or renewal from time to time. We cannot guarantee that such new policies will not present unexpected obstacles toward our ability to obtain or renew the required permits, licenses and certificates or that we will be able to overcome these obstacles in a timely manner, or at all. Loss of or failure to obtain or renew our permits, licenses and certificates may stall our business operations, possibly leading to material adverse effects on our business and results of operations.

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Our insurance may not sufficiently cover, or may not cover at all, losses and liabilities we may encounter during the ordinary course of operation.

We purchase and maintain insurance policies that we believe to be aligned with the standard commercial practice in our industry and as required under relevant laws and regulations. See the section headed “Business — Insurance” in this document for further information. However, we cannot assure that our insurance coverage will be sufficient or available to cover damage, liabilities or losses we may incur in the ordinary course of our business. We do not carry any business interruption insurance or litigation insurance as aligned with the customary market practice in the PRC. In additional, there are certain losses for which insurance is not available in the PRC on commercially practicable terms, such as losses suffered due to business interruptions, earthquakes, typhoons, flooding, war or civil disorder. If we are held responsible for any such damages, liabilities or losses and there is an insufficiency or unavailability of insurance, we could suffer significant costs and diversion of our resources, and thereby materially and adversely affect our business, financial condition and results of operation.

Failure to make adequate contributions to social insurance and housing provident funds for our employees as required by the PRC regulations may subject us to penalties.

During the Track Record Period, we failed to timely make full social insurance contributions for certain of our eligible employees. We also failed to make required filings regarding the housing provident fund accounts with the relevant government authorities or set up housing provident fund accounts for certain of our eligible employees, and timely make full housing provident fund contributions for certain of our eligible employees. As such, we may be subject to late fees and fines for our insufficient contributions to the social insurance plans and housing provident fund as well as non-registration of an account for housing provident fund. As of the Latest Practicable Date, we had not received any notice from the local government authorities regarding any claim for inadequate contribution of our current and former employees. We have made provision in the amounts of RMB1.9 million, RMB4.5 million and nil to our combined statements of profit or loss and other comprehensive income during the years of 2017 and 2018 and the first nine months of 2019, respectively. According to the relevant PRC laws and regulations, (i) for outstanding social insurance fund contributions that we did not fully pay within the prescribed deadlines, the relevant PRC authorities may demand that we pay the outstanding social insurance contribution within a stipulated deadline and we may be liable for a late payment fee equal to 0.05% of the outstanding contribution amount of each day of delay; if we fail to make such payments within a stipulated deadline, we may be liable to a fine of one to three times of the outstanding contribution amount; and (ii) for the housing provident fund registration that we fail to complete before the prescribed deadline, the relevant government authorities may demand that we complete the housing provident fund registration by a stipulated deadline. If we fail to rectify by that deadline, we may be subject to a fine ranging from RMB10,000 to RMB50,000 for each non-compliant subsidiaries or branches and, for outstanding housing provident fund contributions that we did not fully pay within the prescribed period, the relevant government authorities may demand that we pay the outstanding housing provident fund contributions by

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RISK FACTORS

a stipulated deadline. If we fail to rectify by that deadline, we may be subject to an order from the relevant People’s court for compulsory enforcement. See “Business — Legal Proceedings and Compliance — Compliance” for more information. We cannot assure that the relevant local government authorities will not require us to pay the outstanding amount within a specific time limit or impose late or additional fees or fines on us, which may materially and adversely affect our financial condition and results of operation.

We may be involved in legal and other disputes and claims from time to time during the ordinary course of operation.

We may, from time to time, be involved in disputes with and subject to claims by property developers, property owners and residents as well as local property management companies, to whom we provide property management services. Disputes may also arise if they are dissatisfied with our services. In addition, property owners may take legal action against us if they perceive that our services are inconsistent with our contractual service standards. Furthermore, we may from time to time be involved in disputes with and subject to claims by other parties involved in our business, including our third-party subcontractors, suppliers and employees, or other third parties who sustain injuries or damages while visiting properties under our management. All of these disputes and claims may lead to legal or other proceedings or cause negative publicity against us, thereby resulting in damage to our reputation, substantial costs and diversion of resources and management’s attention from our business activities. Any such dispute, claim or proceeding may have a material adverse effect on our business, financial position and results of operations.

Uncertainties related to the recoverability of our deferred tax assets could materially and adversely affect our results of operations.

We recorded deferred tax assets of RMB5.6 million, RMB5.7 million, and RMB7.6 million, as of December 31, 2017 and 2018 and September 30, 2019, respectively. We periodically assess the probability of the realization of deferred tax assets, using significant judgments and estimates with respect to, among other things, historical operating results, expectations of future earnings and tax planning strategies. In particular, deferred tax assets can only be recognized to the extent that it is probable that future taxable profits will be available against which the unused tax credits can be utilized. However, there is no assurance that our expectation of future earnings could be accurate due to factors beyond our control, such as general economic conditions and negative development of the regulatory environment, in which case, we may not be able to recover our deferred tax assets which thereby could have an adverse effect on our results of operations.

Any claims by third parties alleging possible infringement of their intellectual property rights would have a material adverse effect on our business, brand value and reputation.

We may become subject to claims from competitors or third parties alleging intellectual property infringement in our ordinary course of business from time to time. Any claims or legal proceedings brought against us in relation to such issues, with or without merit, could result

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in substantial costs and divert capital resources and management attention. In the event of an adverse determination, we may be compelled to pay substantial damages or to seek licenses from third parties and pay ongoing royalties on unfavorable terms. Moreover, regardless of whether we prevail, intellectual property disputes may damage our brand value and reputation in the eyes of current and potential customers and within our industry.

We may be subject to fines for any inability to comply with national environmental, health and safety standards.

We are subject to extensive and increasingly stringent environmental protection, health and labor safety laws, regulations and decrees that impose fines for violation of such laws, regulations or decrees. In addition, there is a growing awareness of environmental, health and labor safety issues, and we may sometimes be expected to meet a standard which is higher than the compulsory requirements. We cannot guarantee that more stringent environmental protection, health and labor safety requirements or standards will not be imposed in the future. We cannot assure you that our procedures and training will be completely effective in satisfying all relevant environmental and safety requirements. If we are unable to comply with existing or future environmental, health and labor safety laws and regulations or are unable to meet public expectations in relation to relevant matters, our reputation may be damaged or we may be required to pay penalties or fines or take remedial actions and our operations may be suspended, any of which may materially and adversely impact our business, financial position, results of operations and growth prospects.

Risks relating to natural disasters, epidemics, acts of terrorism or war in the PRC and globally may materially and adversely affect our business.

Natural disasters, epidemics, acts of terrorism or war or other factors that are beyond our control may materially and adversely affect the economy, infrastructure and livelihood of people in the areas where we have or plan to have business operations. In particular, due to their geographic regions, some of these areas are susceptible to the threat of floods, earthquakes, sandstorms, snowstorms, fires or droughts, power shortages or failures, as well as potential wars, terrorist attacks or epidemics such as Ebola, SARS, H1N1, H5N1 and H7N9. Any of such events could result in tremendous proprietary damages and losses, personnel injuries and live losses, as well as disruption or destruction of our business operations. Therefore, any of these and other factors that are beyond our control may create uncertainties within the overall economic environment, thereby causing our business to suffer in ways that we cannot predict, which could materially and adversely affect our business, financial condition and results of operations.

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RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC

The PRC economic, political and social conditions as well as government policies could affect our business, results of operation, financial position and prospects.

Our major business, assets and operations are located in the PRC. Therefore, our business, results of operation, financial position and prospects are, to a large extent, subject to the economic, political, social and legal conditions in the PRC. The economy of the PRC differs from the economies of most developed countries in many respects, including, among other things, structure, level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources.

The PRC has transformed from a planned economy to a market oriented economy since 1978. While the PRC economy has grown significantly in the past four decades, growth has been uneven, both geographically and among the various sectors of the economy. The PRC Government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also negatively affect our operations. For example, our financial position and results of operations may be adversely affected by the PRC Government’s control over capital investment, price controls or any changes in tax regulations or foreign exchange controls that are applicable to us. In addition, many of the reform measures are unprecedented or experimental and are expected to be modified from time to time. Other political, economic and social factors may lead to further adjustment. Going forward, our business may, from time to time, be subject to the transforming economic situations and legal environment in the PRC. In particular, demand for our services and our business, financial position and results of operations may be adversely affected by:

political instability or changes in social conditions in the PRC;
changes in laws, regulations or policies or the interpretation of laws, regulations or policies;
measures which may be introduced to control inflation or deflation;
Changes in interest rates or market disruptions experienced in overseas markets that directly or indirectly affect the capital markets of the PRC;
changes in the rate or method of taxation; and
imposition of additional restrictions on currency conversion and remittances abroad.

Furthermore, there is no assurance that the substantial growth in the PRC economy in the previous decades will continue or continue at the same pace. In May 2017, Moody’s Investors Service downgraded China’s sovereign credit rating for the first time since 1989 and changed its outlook from stable to negative, citing concerns on the country’s rising levels of debt and

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expectations of slower economic growth. In recent years, the trade war between the U.S. and China further slows down the growth of the PRC economy and gives rise to uncertainties on the global economy. Should the trade war materially impact the PRC economy, the purchasing power and needs of our customers could be negatively affected. The full impact of relevant events remains to be seen, but the perceived weaknesses in China’s economic development model, if proven and left unchecked, would have profoundly adverse implications.

We may be subject to a tax rate of 25% on our global income if we are deemed to be a PRC resident enterprise under the EIT Laws.

Under the EIT Law, an enterprise established outside of the PRC may be considered a “PRC resident enterprise” and will generally be subject to the uniform enterprise income tax rate of 25% on its global income if its “de facto management body” is located in the PRC. “De factor management body” is defined as the organizational body that effectively exercise management and control over such aspects as the business operations, personnel, accounting and properties of the enterprise.

On April 22, 2009, SAT promulgated the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies (《關於境外註冊中資控股企業依據實際管理機構標準認定為居民企業有關問題的通知》) (“Circular 82”), as amended on January 29, 2014 and December 29, 2017, which sets out the standards and procedures for determining whether the “de facto management body” of an enterprise registered outside of the PRC and controlled by PRC enterprises or PRC enterprise groups is located within the PRC. Under Circular 82, a foreign enterprise controlled by a PRC enterprise or PRC enterprise group is considered a PRC resident enterprise if all of the following apply: (i) the senior management and core management departments in charge of daily business, operations are located mainly within the PRC; (ii) financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (iii) major assets, accounting books, company seals and minutes and files of board and shareholders’ meetings are located or kept within the PRC; and (iv) at least half of the enterprise’s directors with voting rights or senior management reside within the PRC. In addition, Circular 82 also requires that the determination of “de facto management body” shall be based on the principle that substance is more important than form. In addition to Circular 82, the SAT issued the Chinese-Controlled Offshore Incorporated Resident Enterprises Income Tax Regulation (Trial Implementation) (《境外註冊中資控股居民企業所得稅管理辦法(試行)》) (“Bulletin 45”), which took effect on September 1, 2011 and amended on June 1, 2015 and October 1, 2016 and June 15, 2018, which provides procedures and administrative details for the determination of resident status and administration of postdetermination matters. Although Circular 82 and Bulletin 45 explicitly provide that the above standards apply to enterprises which are registered outside of the PRC and controlled by PRC enterprises or PRC enterprise groups, Circular 82 may reflect SAT’s criteria for determining the tax residence of foreign enterprises in general. If we are deemed a PRC resident enterprise, we may be subject to the EIT rate of 25% which could adversely affect our financial position and results of operation.

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You may be subject to PRC income tax on dividends from us or on any gain realized on the transfer of our Shares under PRC law.

Under the EIT Law and its implementation rules, subject to any applicable tax treaty or similar arrangement between China and your jurisdiction of residence that provides for a different income tax arrangement, PRC withholding tax at the rate of 10% is normally applicable to dividends from PRC sources payable to investors that are non-PRC resident enterprises, which do not have an establishment or place of business in China, or which have such establishment or place of business if the relevant income is not effectively connected with the establishment or place of business. Any gains realized on the transfer of shares by such investors are subject to a 10% PRC income tax rate if such gains are regarded as income from sources within China unless a treaty or similar arrangement provides otherwise. Under the PRC Individual Income Tax Law (中華人民共和國個人所得稅法) and its implementation rules, dividends from sources within China paid to foreign individual investors who are not PRC residents are generally subject to a PRC withholding tax at a rate of 20% and gains from PRC sources realized by such investors on the transfer of shares are generally subject to a 20% PRC income tax rate, in each case, subject to any reduction or exemption set forth in applicable tax treaties and PRC laws.

As we conduct all of our business operations in China, it is unclear whether dividends we pay with respect to our Shares, or the gain realized from the transfer of our Shares, would be treated as income from sources within China and as a result be subject to PRC income tax if we are considered a PRC resident enterprise. If PRC income tax is imposed on gains realized from the transfer of our Shares or on dividends paid to our non-PRC resident investors, the value of your investment in our Shares may be materially and adversely affected. Furthermore, our Shareholders whose jurisdictions of residence have tax treaties or arrangements with China may not qualify for benefits under such tax treaties or arrangements.

Governmental control of currency conversion may limit our ability to use capital effectively.

The PRC Government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. Please see the section entitled “Regulatory Overview — Regulations Relating to Foreign Exchange” in this document. We receive all our revenue in Renminbi. Under our current structure, our income is primarily derived from dividend payments from our PRC subsidiaries. The foreign exchange control system may prevent us from obtaining sufficient foreign currency to satisfy our currency demands. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends or other payments to our shareholders, or otherwise satisfy our foreign currency denominated obligations, if any.

The PRC Government may also at its discretion restrict access in the future to foreign currencies for current account transactions. Under existing PRC foreign exchange regulations, payments of certain current account items can be made in foreign currencies without prior approval from the local branch of SAFE by complying with certain procedural requirements.

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However, approval from appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of indebtedness denominated in foreign currencies. The restrictions on foreign exchange transactions under capital accounts could also affect our ability to obtain foreign exchange through debt or equity financing, including by means of loans or capital contribution from us.

Payment of dividends is subject to restrictions under PRC law.

Under PRC law, dividends can only be paid out of distributable profit of a PRC company. Distributable profit is our profit as determined under PRC GAAP, whichever is lower, less any recovery of accumulated losses and appropriations to statutory and other statutory funds we are required to make. As a result, we may not have sufficient or any distributable profit that allows us to make dividend distributions to our Shareholders, especially during the periods for which our financial statements indicate that out operations have been unprofitable. Any distributable profit not distributed in a given year is retained and available for distribution in subsequent years.

Fluctuation in the value of the Renminbi may have a material adverse effect on our business.

A substantial portion of our business is conducted in Renminbi. However, following the [ REDACTED ], we may also maintain a significant portion of the proceeds in Hong Kong dollars before they are used in our PRC operations. The value of the Renminbi against the US dollar, Hong Kong dollar and other currencies may be affected by changes in the PRC’s policies and international economic and political developments. As a result of these and any future changes in currency policy, the exchange rate may become volatile, the Renminbi may be revalued further against the US dollar or other currencies or the Renminbi may be permitted to enter into a full or limited free float, which may result in an appreciation or depreciation in the value of the Renminbi against the US dollar or other currencies. Fluctuations in exchange rates may adversely affect the value, translated or converted into US dollars or Hong Kong dollars, which are pegged to the US dollar, of our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable to us by our PRC subsidiaries. An appreciation of the Renminbi against the US dollar or the Hong Kong dollar would make any new Renminbi-denominated investments or expenditures more costly to us, to the extent that we need to convert US dollars or Hong Kong dollars into Renminbi for such purposes.

Regulations relating to offshore investment activities by PRC residents may subject us to fines or sanctions imposed by the PRC Government, including restrictions on the ability of our PRC subsidiaries to pay dividends or make distributions to us and our ability to increase our investment in our PRC subsidiaries.

The [ REDACTED ] of our [ REDACTED ] is higher than the consolidated net tangible assets per Share immediately prior to the [ REDACTED ]. Therefore, if we distribute our net tangible assets to our Shareholders immediately following the [ REDACTED ], purchasers of our [ REDACTED ] in the [ REDACTED ] will experience an immediate dilution in unaudited pro forma adjusted consolidated net tangible assets and will receive less than the amount they paid for their Shares.

In order to expand our business, we may consider [ REDACTED ] and issuing additional Shares in the future. We may also raise additional funds to finance future acquisitions or expansions of our business operations by issuing new Shares or other securities of our Company in the future. As a result, purchasers of our [ REDACTED ] may experience dilution in the net tangible assets value per Share of their investments in the [ REDACTED ] and such newly issued Shares or other securities may confer rights and privileges that have priority over those of the then Shareholders.

There has been no prior public market for the Shares and the liquidity and market price of our Shares may be volatile.

Prior to completion of the [ REDACTED ], there has been no public market for our [ REDACTED ]. The initial [ REDACTED ] for our Shares was the result of negotiations among us and the [ REDACTED ] and the [ REDACTED ] may differ significantly from the market price for our Shares following the [ REDACTED ]. We have applied for [ REDACTED ] of and permission to deal in our Shares on the Stock Exchange. There is no assurance that the [ REDACTED ] will result in the development of an active, liquid public trading market for our Shares. The market price of our Shares may drop below the [ REDACTED ] at any time after completion of the [ REDACTED ].

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The liquidity and market price of our [ REDACTED ] may be volatile, which may result in substantial losses for investors subscribing for or purchasing our [ REDACTED ] pursuant to the [ REDACTED ] .

The price and trading volume of our [ REDACTED ] may be volatile as a result of the following factors, as well as others, which are discussed in this “Risk Factors” section or elsewhere in this document, some of which are beyond our control:

variations in our financial position and/or results of operations;
unexpected business interruptions resulting from, among others, natural disasters or power shortage;
our inability to compete effectively in the market;
major changes in our key personnel or senior management;
loss of visibility in the markets due to lack of regular coverage of our business;
strategic alliances or acquisitions;
changes in laws and regulations in China;
changings in securities analysts’ estimates of our financial condition and/or results of operations, regardless of the accuracy of information on which their estimates are based;
changings in investors’ perception of us and the investment environment generally;
our inability to abortion or maintain regulatory approval for the operations of our vocational school;
fluctuations in stock market price and volume;
announcement made by us or our competitors;
changes in pricing adopted by our competitors;
political, economic, financial and social developments in China and Hong Kong and in the global economy; and
involvement in material litigation.

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RISK FACTORS

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related or disproportionate to the operating performance of particular companies. For instance, during the global economic downturn and financial market crisis begun around the middle of 2008, the global stock markets witnessed drastic price drops with heavy unprecedented selling pressure. Many stocks fell significantly from their peaks in 2007 and there were similar stock price movements were observed in the second half of 2011 as certain recent adverse financial developments have affected the global securities and financial markets. These developments include a general global economic downturn, substantial volatility in equity securities markets, and volatility and tightening of liquidity in credit markets. While it is difficult to predict how long these conditions will last, they could continue to present risks for an extended period of time, in interest expenses on our bank borrowings, or reduction of the amount of banking facilities currently available to us. If we experience such fluctuations, results of operations and financial position could be materially and adversely affected. Moreover, market fluctuations may also materially and adversely affect the market price of our [ REDACTED ].

Future issues, offers or sales of our Shares may adversely affect the prevailing market price of our [ REDACTED ] .

Future issues of the Shares by our Company or the disposal of the Shares by any of our Shareholders or the perception that such issues or sale may occur, may negatively affect the prevailing market price of the [ REDACTED ]. The market price of our Shares could decline as a result. Our Shareholders may experience dilution in their holdings in the event we issue additional securities in future offerings. Moreover, future sales or perceived sales of a substantial amount of our [ REDACTED ] or other securities relating to our [ REDACTED ] in the public market may adversely affect our ability to raise capital in the future at a time and at a price which we deem appropriate.

The market price of our [ REDACTED ] when trading begins could be lower than the [ REDACTED ] as a result of, among other things, adverse market conditions or other adverse developments that could occur between the time of sale and the time trading begins.

The final [ REDACTED ] will be determined on the [ REDACTED ]. However, the [ REDACTED ] will not commence trading on the Stock Exchange until they are delivered. As a result, investors may not be able to sell or otherwise deal in the [ REDACTED ] during that period. Accordingly, holders of the [ REDACTED ] are subject to the risk that the price of the [ REDACTED ] when trading begins could be lower than the [ REDACTED ] as a result of adverse market conditions or other adverse developments that may occur between the time of sale and the time trading begins.

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RISK FACTORS

We may not declare dividends on our [ REDACTED ] in the future.

Any declaration of dividends will be proposed and determined by our Board of Directors, and the amount of any dividends will depend on various factors, including but not limited to, our results of operations, financial performance, profitability, business development, prospects, capital requirements, economic outlook and other factors that our Directors deem relevant. We cannot guarantee that dividends of any amount will be declared or distributed in any year. For further information, please refer to the section entitled “Financial Information — Dividends and Distributive Reserves” in this document.

Our Controlling Shareholder or management has substantial control over our Company and its interests may not be aligned with the interests of the other Shareholders.

Prior to and immediately following the completion of the [ REDACTED ], our Controlling Shareholder will remain having substantial control over its interests in the issued share capital of our Company. Subject to the Articles of Association, the Companies Ordinance and the Listing Rules, the Controlling Shareholder by virtue of its controlling beneficial ownership of the share capital of our Company, will be able to exercise significant control and exert significant influence over our business or otherwise on matters of significance to us and other Shareholders by voting at the general meeting of the Shareholders and at Board meetings. Therefore, our Controlling Shareholder will have significant influence on the outcome of any corporate transaction or other matters submitted to our Shareholders for approval, including mergers, consolidations, sales of all or substantially all of our assets, election of Directors and other significant corporate actions. The interests of the Controlling Shareholder may differ from the interests of other Shareholders and the Shareholders are free to exercise their votes according to their interests. To the extent that the interests of the Controlling Shareholder conflict with the interests of other Shareholders, the interests of other Shareholders can be disadvantaged and harmed.

Our management has significant discretion as to how to use the [ REDACTED ] of the [ REDACTED ] , and you may not necessarily agree with how we use them.

Our management may use the [ REDACTED ] from the [ REDACTED ] in ways that you may not agree with or that do not yield a favorable return to our Shareholders. By investing in our Shares, you are entrusting your funds to our management, upon whose judgment you must depend, for the specific uses we will make of the [ REDACTED ] from this [ REDACTED ]. For more information, see “Future Plans and [ REDACTED ]” in this document.

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RISK FACTORS

Investors may experience difficulties in enforcing their Shareholder rights because we are incorporated in the Cayman Islands, and the protection afforded to minority Shareholders under Cayman Islands law may be different from that under the laws of Hong Kong or other jurisdictions.

Our Company is incorporated in the Cayman Islands and its affairs are governed by our Memorandum, Articles of Association, the Cayman Islands Companies Law and the common law of the Cayman Islands. The laws of the Cayman Islands may differ from those of Hong Kong or those of other jurisdictions where investors may be located. As a result, minority Shareholders may not enjoy the same rights as those afforded under the laws of Hong Kong or in other jurisdictions. A summary of the Cayman Islands Companies Law on protection of minority shareholders is set out in “Summary of the Constitution of the Company and Cayman Islands Companies Law — 3. Cayman Islands Companies Law — (f) Protection of Minorities and Shareholders’ Suits” in Appendix III to this document.

Since there will be a gap of several days between the pricing and trading of our [ REDACTED ] , the price of our [ REDACTED ] could fall below the [ REDACTED ] when trading commences.

The [ REDACTED ] of our Shares will be determined on the [ REDACTED ], which is expected to be on or around [ REDACTED ]. However, our Shares will not commence trading on the Stock Exchange until the [ REDACTED ], which is expected to be [ REDACTED ]. Accordingly, investors may not be able to sell or deal in our Shares during the period between the [ REDACTED ] and the [ REDACTED ]. Our Shareholders are subject to the risk that the price of our Shares could fall before trading begins, as a result of adverse market conditions or other adverse developments that could occur between the [ REDACTED ] and the [ REDACTED ].

The accuracy of certain facts and other statistics with respect to China, the PRC economy and our relevant industries in this document which are derived from various official government sources and third-party sources cannot be guaranteed.

Certain facts and other statistics in this document relating to China, the PRC economy and the industries relevant to us have been derived from various official government publications, from CIA and publicly available sources. However, we cannot guarantee the quality or reliability of these sources. They have not been prepared or independently verified by us or any of our affiliates or advisors and, therefore, we make no representation as to the accuracy of such facts and statistics. Due to possibly flawed or ineffective collection methods or discrepancies between published information and market practice and other problems, the facts and statistics herein may be inaccurate or may not be comparable to facts and statistics produced for other economies. As a result, prospective investors should consider carefully how much weight or importance they should attach to or place on such facts or statistics.

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RISK FACTORS

Investors should read the entire document carefully and should not consider any particular statements in published media reports without carefully considering the risks and other information contained in this document.

There may be coverage in the media regarding the [ REDACTED ] and our operations. There had been, prior to the publication of this document, and there may be, subsequent to the date of this document but prior to the completion of the [ REDACTED ], press and media coverage regarding us and the [ REDACTED ], which contained, among other matters, certain financial information, projections, valuations and other forward-looking information about us and [ REDACTED ]. We do not accept any responsibility for the accuracy or completeness of the information and make no representation as to the appropriateness, accuracy, completeness or reliability of any information disseminated in the media. To the extent that any of the information in the media is inconsistent or conflicts with the information contained in this document, we disclaim it. Accordingly, prospective investors should read the entire document carefully and should not rely on any of the information in press articles or other media coverage. Prospective investors should only rely on the information contained in this document and [ REDACTED ] to make investment decisions about us.

Forward-looking information in this document is subject to risks and uncertainties.

This document contains forward-looking statements and information relating to us and our operations and prospects that are based on our current beliefs and assumptions as well as information currently available to us. When used in this document, the words “anticipate,” “believe,” “estimate,” “expect,” “plans,” “prospects,” “going forward,” “intend” and similar expressions, as they relate to us or our business, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to risks, uncertainties and various assumptions, including the risk factors described in this document. Should one or more of these risks or uncertainties materialize, or if any of the underlying assumptions prove incorrect, actual results may diverge significantly from the forward-looking statements in this document. Whether actual results will conform with our expectations and predictions is subject to a number of risks and uncertainties, many of which are beyond our control, and reflect future business decisions that are subject to change. In light of these and other uncertainties, the inclusion of forward-looking statements in this document should not be regarded as representations that our plans or objectives will be achieved, and investors should not place undue reliance on such forward-looking statements. All forwardlooking statements contained in this document are qualified by reference to the cautionary statements set out in this section. We do not intend to update these forward-looking statements in addition to our on-going disclosure obligations pursuant to the Listing Rules or other requirements of the Stock Exchange.

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WAIVERS FROM STRICT COMPLIANCE WITH THE REQUIREMENTS UNDER THE LISTING RULES

In preparation for the [ REDACTED ], our Group has sought the following waivers from strict compliance with the relevant provisions of the Listing Rules.

MANAGEMENT PRESENCE IN HONG KONG

Pursuant to Rule 8.12 of the Listing Rules, an issuer must have a sufficient management presence in Hong Kong, which normally means that at least two of its executive directors must be ordinarily residents in Hong Kong. We do not have a sufficient management presence in Hong Kong for the purpose of satisfying the requirement under Rule 8.12 of the Listing Rules. We have applied for a waiver from strict compliance with Rule 8.12 of the Listing Rules primarily on the basis that, as our headquarters and principal business operations are located in the PRC, our management is best able to attend to its function by being based in the PRC. We have applied to the Stock Exchange for, and the Stock Exchange [has granted] us a waiver from strict compliance with Rule 8.12 of the Listing Rules subject to, among others, the following conditions:

(1) pursuant to Rule 3.05 of the Listing Rules, we have appointed two authorized representatives, Mr. Huang Liang (黃亮) (“ Mr. Huang ”), our executive Director, and Mr. Liu Chang (劉暢) (“ Mr. Liu ”), our chief financial officer and joint company secretary, who will act as our Company’s principal channel of communication with the Stock Exchange. Although Mr. Huang and Mr. Liu reside in the PRC, they possess valid travel documents and are able to renew such travel documents when they expire to travel to Hong Kong. In addition, Mr. Lei Kin Keong (李健強) (“ Mr. Lei ”), our joint company secretary who is an ordinarily resident in Hong Kong, has been appointed as the alternate to the two authorized representatives. Each of our authorized representatives and the alternate authorized representative will be available to meet with the Stock Exchange in Hong Kong within a reasonable time frame upon the request of the Stock Exchange and will be readily contactable by telephone, facsimile and email. Each of our authorized representatives and the alternate authorized representative is authorized to communicate on our behalf with the Stock Exchange. Our Company has been registered as a non-Hong Kong Company under Part 16 of the Companies Ordinance and Mr. Lei has also been authorized to accept service of legal process and notices in Hong Kong on behalf of our Company;
(2) both our authorized representatives and the alternate authorized representative have means to contact our Directors (including our independent non-executive Directors) promptly at all times as and when the Stock Exchange wishes to contact our Directors for any matters. Our Directors who are not ordinarily residents in Hong Kong possess or can apply for valid travel documents to visit Hong Kong and will be able to meet with the Stock Exchange within a reasonable period of time, when required. Each of our Directors has provided his mobile phone number, residential phone number, fax number and email address to our authorized representatives and the alternate authorized representative. In the event that a Director expects to travel,

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WAIVERS FROM STRICT COMPLIANCE WITH THE REQUIREMENTS UNDER THE LISTING RULES

he will endeavor to provide the phone number of the place of his accommodation to our authorized representatives and the alternate authorized representative or maintain an open line of communication via his mobile phone. Each of our Directors, the authorized representatives and the alternate authorized representative has also provided his mobile number, office phone number, fax number and email address to the Stock Exchange;

(3) pursuant to Rule 3A.19 of the Listing Rules, we have appointed Guotai Junan Capital Limited as our compliance advisor, which will have access at all times to our authorized representatives, Directors, senior management and other officers of our Company, and will act as an additional channel of communication between the Stock Exchange and us; and
(4) meetings between the Stock Exchange and our Directors could be arranged through our authorized representatives or the compliance advisor, or directly with our Directors within a reasonable time frame. Our Company will promptly inform the Stock Exchange of any changes of our authorized representatives and/or the compliance advisor.

JOINT COMPANY SECRETARIES

According to Rules 3.28 and 8.17 of the Listing Rules, the secretary of our Company must be a person who has the requisite knowledge and experience to discharge the functions of the company secretary and is either (i) a member of the Hong Kong Institute of Chartered Secretaries, a solicitor or barrister as defined in the Legal Practitioners Ordinance (Chapter 159 of the Laws of Hong Kong) or a certified public accountant as defined in the Professional Accountants Ordinance (Chapter 50 of the Laws of Hong Kong); or (ii) an individual who, by virtue of his academic or professional qualifications or relevant experience, is, in the opinion of the Stock Exchange, capable of discharging the functions of company secretary.

We have appointed Mr. Liu and Mr. Lei as our joint company secretaries. Mr. Liu is the chief financial officer of our Company. His biographical information is set out in “Directors and Senior Management” in this document. Mr. Lei is a member of The Hong Kong Institute of Certified Public Accountants, an associate of The Hong Kong Institute of Chartered Secretaries and an associate of The Institute of Chartered Secretaries and Administrators, who therefore meets the requirements under Rules 3.28 and 8.17 of the Listing Rules. Since Mr. Liu does not possess a qualification stipulated in Rule 3.28 of the Listing Rules, he is not able to solely fulfill the requirements as a company secretary of a [ REDACTED ] issuer stipulated under Rules 3.28 and 8.17 of the Listing Rules.

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WAIVERS FROM STRICT COMPLIANCE WITH THE REQUIREMENTS UNDER THE LISTING RULES

Accordingly, we have applied to the Stock Exchange for, and the Stock Exchange [has granted] us, a waiver from strict compliance with the requirements under Rules 3.28 and 8.17 of the Listing Rules in relation to the appointment of Mr. Liu as our joint company secretary. In order to provide support to Mr. Liu, we have appointed Mr. Lei as a joint company secretary to provide assistance to Mr. Liu, for a three-year period from the [ REDACTED ] so as to enable him to acquire the relevant experience (as required under Rule 3.28(2) of the Listing Rules) to duly discharge his duties.

Such waiver will be revoked immediately if and when Mr. Lei ceases to provide such assistance. We will liaise with the Stock Exchange before the end of the three-year period to enable it to assess whether Mr. Liu, having had the benefit of Mr. Lei’s assistance for three years, will have acquired relevant experience within the meaning of Rule 3.28 of the Listing Rules so that a further waiver will not be necessary.

CONTINUING CONNECTED TRANSACTIONS

We have entered into certain transactions which will constitute continuing connected transactions for our Company under the Listing Rules after [ REDACTED ]. We have applied to the Stock Exchange for, and the Stock Exchange [has granted] us, a waiver from strict compliance with the announcement requirement under Chapter 14A of the Listing Rules in respect of the continuing connected transactions as disclosed in “Connected Transactions – A. Continuing connected transactions subject to the reporting, annual review and announcement requirements but exempt from independent shareholders’ approval requirement” in this document and a waiver from strict compliance with the announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules in respect of the continuing connected transactions as disclosed in “Connected Transactions – B. Continuing connected transactions subject to the reporting, annual review, announcement and independent shareholders’ approval requirements” in this document. See “Connected Transactions” in this document for details.

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INFORMATION ABOUT THIS DOCUMENT AND THE [ REDACTED ]

[ REDACTED ]

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DIRECTORS AND PARTIES INVOLVED IN THE [ REDACTED ]

DIRECTORS Name *Executive Directors* Mr. Huang Liang (黃亮) Mr. Huang Sheng (黃聖) *Non-executive Directors* Mr. Huang Xianzhi (黃仙枝) Mr. Chan Wai Kin (陳偉健) *Independent non-* *executive Directors* Mr. Ma Haiyue (馬海越) Mr. Au Yeung Po Fung (歐陽寶豐) Mr. Zhang Wei (張偉)	Address Room 1003 No.4 Lane 500 Zaozhuang Road Pudong New District Shanghai PRC Room 301 No. 18 Lane 1088 Zhuluxi Road Xujing Town Qingpu District Shanghai PRC No. 201 Huamei Road Minhang District Shanghai PRC Flat H, 7/F Block 7, Woodland Crest 33 Tin Ping Road Sheung Shui New Territories Hong Kong Room 2003, No. 1168 West Yan’an Road Changning District Shanghai PRC Flat F, 28/F Block 2, Broadview Court 11 Shum Wan Road Aberdeen Hong Kong Flat SC, 48/F, Tower 1 Festival City Phase 3 1 Mei Tin Road Tai Wai New Territories Hong Kong	Nationality
		Chinese Chinese Chinese Chinese Chinese Chinese Chinese

See “Directors and Senior Management” in this document for further details of our Directors and senior management members.

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DIRECTORS AND PARTIES INVOLVED IN THE [ REDACTED ]

PARTIES INVOLVED IN THE [ REDACTED ]

Sole Sponsor CCB International Capital Limited 12/F, CCB Tower 3 Connaught Road Central Central Hong Kong

[ REDACTED ]

Legal advisors to our Company As to Hong Kong law:

Sidley Austin

Level 39 Two International Finance Centre 8 Finance Street Central Hong Kong

As to PRC law:

Commerce & Finance Law Offices

6/F, NCI Tower A12 Jianguomenwai Avenue Chaoyang District Beijing PRC

As to Cayman Islands law:

Walkers (Hong Kong)

15/F, Alexandra House 18 Chater Road Central Hong Kong

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DIRECTORS AND PARTIES INVOLVED IN THE [ REDACTED ]

Legal advisors to the As to Hong Kong law: Sole Sponsor and the [ REDACTED ] Wilson Sonsini Goodrich & Rosati Suite 1509, 15/F, Jardine House 1 Connaught Place Central Hong Kong As to PRC law:

Jingtian & Gongcheng

34/F, Tower 3, China Central Place 77 Jianguo Road Chaoyang District Beijing 100025 PRC

Auditor and reporting Ernst & Young accountants Certified Public Accountants 22nd Floor, CITIC Tower 1 Tim Mei Avenue Central Hong Kong

Principal banks

China Construction Bank Putian Licheng Branch No. 818 Shengli North Road Licheng District Putian City, Fujian Province PRC

China Construction Bank Nanchang Qingyunpu Branch No. 626 Jinggangshan Avenue Nanchang City, Jiangxi Province PRC

Bank of China Jiangsu Province Branch No. 148 Zhongshan South Road Nanjing City, Jiangsu Province PRC China Construction Bank Shanghai Caoyang Road Branch No. 534 Caoyang Road, Putuo District Shanghai PRC

Industrial and Commercial Bank of China Hongqiao Business District Branch Building 9, Lane 666, Shenhong Road Minhang District Shanghai PRC

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INDUSTRY OVERVIEW

The information in this section is derived from an independent report prepared by CIA. The industry report prepared by CIA is based on information from its database, publicly available sources, industry reports, data obtained from interviews and other sources. We believe that the sources of the information in this section are appropriate sources for such information and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading or that any part has been omitted that would render such information false or misleading. The information has not been independently verified by us, the Sole Sponsor, the [ REDACTED ] , the [ REDACTED ] , any of its directors, officers, affiliates, advisors or representatives, or any other party (other than CIA) involved in the [ REDACTED ] . We, the Sole Sponsor, the [ REDACTED ] , the [ REDACTED ] , any of its directors, officers, affiliates, advisors or representatives, and any other party (other than CIA) involved in the [ REDACTED ] make no representation as to the completeness, accuracy or fairness of such information and accordingly such information should not be unduly relied upon.

BACKGROUND AND METHODOLOGIES OF CIA

We purchased the right to use and quote various data from publications of CIA at a total cost of RMB800,000. CIA has extensive experiences researching and tracking the PRC property management industry, and has conducted research on the Top 100 Property Management Companies since 2008. In conducting its research, CIA primarily evaluates property management companies that have managed at least ten properties or have an aggregate GFA of 500,000 sq.m. or more in the previous three years. CIA uses research parameters and assumptions and gathers data from multiple primary and secondary sources, including (i) published statistics, websites and marketing materials of property management companies; (ii) surveys and data from the China Real Estate Index System and the China Real Estate Statistics Yearbooks; (iii) public data from governmental authorities; and (iv) data gathered for Top 100 Property Management Companies in China from 2008 to 2019 and Top 100 Property Management Companies by Brand Value from 2013 to 2018. In addition, since 2008, CIA has published the ranking of China’s Top 100 Property Management Companies in terms of overall strength, primarily by evaluating data from the previous year in relation to management scale, operational performance, service quality, growth potential and social responsibility of the property management companies under consideration. CIA assesses the growth potential of property management companies primarily in terms of growth rate of revenue, growth rate of total GFA under management, contracted but undelivered GFA, the total number of employees and employee composition.

Data analysis in this section includes data and information on the Top 100 Property Management Companies as ranked by CIA. In determining such rankings, CIA may assign the same ranking to multiple companies with the same or very close scores, and therefore it is possible that more than 100 companies may be classified as being among the Top 100 Property Management Companies in the industry. CIA may, upon specific request, prepare further

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INDUSTRY OVERVIEW

rankings within the Top 100 Property Management Companies for certain indices. We requested CIA to assess us for the Top 100 Property Management Companies based on CAGRs for GFA under management, revenue and net profit from 2013 to 2018 for the purpose of the [ REDACTED ]. For more information on CIA’s methodologies and the number of property management service providers ranked among the Top 100 Property Management Companies for each year between 2014 and 2018, see “Glossary — Top 100 Property Management Companies” in this document. In preparing the CIA Report, CIA assumed that: (i) the social, economic and political conditions in China and the world will remain stable during the forecast period; (ii) government policies on the property management industry in China will remain unchanged during the forecast period; (iii) all published data by the relevant statistics bureaus are accurate; and (iv) all collected information relating to residential sales transactions from the relevant local housing administrative bureaus are accurate.

Our Directors confirm that, after making reasonable inquires, there is no material adverse change in the market information since the date of the CIA Report which may qualify, contradict, misrepresent or otherwise adversely affect the accuracy and completeness of the information in this section in material respects.

THE PRC PROPERTY MANAGEMENT INDUSTRY

Overview

The history of the PRC property management industry may be traced back to the early 1980s with the establishment of the first property management company in China. Since then, the PRC Government has sought to construct and update a regulatory framework for the PRC property management industry in parallel to its growth. The PRC Government promulgated an increasing number of regulations over the years, with the aim to establish an open market system for the property management industry that served to promote its rapid growth and development. PRC property management companies now provide services in relation to a wide range of properties in addition to residential properties, such as office buildings, shopping centers, industrial parks, schools and hospitals, among others.

Major Fee Models in the PRC Property Management Industry

In the PRC, property management companies generate revenue from property management services. In addition, property management companies may also generate revenue from other value-added services, including, among others, consultancy services, engineering services and community value-added services such as common area operation, housekeeping and cleaning, property agency, finance, elderly care and nursing services.

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INDUSTRY OVERVIEW

In the PRC, property management fees may be charged either on a lump sum basis or a commission basis. The lump-sum fee model for property management fees is the dominant fee model in the property management industry in China, especially for residential properties. The lump-sum fee model can bring efficiency by dispensing certain collective decision-making procedures for large expenditures by property owners and residents and incentivizing property management service providers to optimize their operations to enhance profitability. In contrast, the commission model is increasingly adopted for non-residential properties, allowing property owners to become more involved in their property management and service providers to be more closely supervised.

Overview of the Top 100 Property Management Companies

In recent years, following rapid urbanization and continuous growth in per capita disposable income, the GFA and number of properties managed by the Top 100 Property Management Companies have increased rapidly. The average total GFA of properties managed by the Top 100 Property Management Companies increased to 37.1 million sq.m. in 2018 from 17.5 million sq.m. in 2014, representing a CAGR of 20.7%. The average number of properties managed by the Top 100 Property Management Companies increased to 192 as of December 31, 2018 from 94 as of December 31, 2014, representing a CAGR of 19.5%. As a result of the growth in GFA and number of properties under management, the average revenue of the Top 100 Property Management Companies increased to RMB886.2 million in 2018 from approximately RMB425.0 million in 2014, representing a CAGR of 20.2%.

The following chart presents the rise in median GFA under management, median number of properties and market share for the Top 100 Property Management Companies in the years indicated:

==> picture [228 x 113] intentionally omitted <==

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

40 37.1 40%
38.9%
31.6
30 28.4% 29.4% 32.4% 30%
27.3
23.6
20 15.1 17.5 19.5% 15.4 16.6 17.8 19.2 20%
16.3%
10 8.5 9.4 10%
0 0%
2013 2014 2015 2016 2017 2018
Average GFA under management Average number of projects under management Market share
(million sq.m.) (in tens)
----- End of picture text -----

Source: CIA

According to CIA, the geographical coverage of the Top 100 Property Management Companies has also expanded in recent years. The average number of cities in which the Top 100 Property Management Companies had operations increased to 29 as of December 31, 2018 from 24 as of December 31, 2014, representing a CAGR of 4.8%.

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INDUSTRY OVERVIEW

Among the properties under management, residential properties account for the largest share in terms of total GFA under management. The chart below sets forth the total GFA of each type of properties managed by the Top 100 Property Management Companies as of December 31, 2018:

==> picture [254 x 171] intentionally omitted <==

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

70 73.94 80%
60
60%
50
40
40%
30
20
20%
10 7.11 6.03 5.13 2.54 1.58 1.22 2.45
0 0%
2015 2016 2017 2018
GFA under management in 2018 Percentage of GFA under management in 2018
(sq.m. in billions)
Residential properties OfficesCommercial propertiesIndustrial parks SchoolsPublic properties HospitalsOther properties
----- End of picture text -----

Source: CIA

While residential properties still account for the largest percentage of the total GFA of properties under management, property management companies have sought to diversify the types of properties under their management. The total GFA of non-residential properties managed by the Top 100 Property Management Companies increased by 11.7% to approximately 2,131.7 million sq.m. as of December 31, 2018 from approximately 1,908.0 million sq.m. as of December 31, 2017.

Driven by customer demand and intense competition, property management companies have invested to improve their service quality and paid more attention on their customers’ requirements. In terms of traditional property management services, property management companies have introduced variations of the concept of one-stop services, such as “steward service” (“管家服務”) and “all-round service” (“全方位服務”), all of which are aimed to provide comprehensive and one-stop solutions to help customers to meet various needs in their daily life. In terms of value-added services, some of the property management companies have established an online and offline community service platform in their efforts to integrate their management and labor resources and diversify offerings of products and services. Improved service quality and diversified services helped to maintain or increase the customer retention rates of the Top 100 Property Management Companies.

According to CIA, the Top 100 Property Management Companies primarily grow their profitability by offering traditional property management services and value-added services. By diversifying their services, adopting upgraded technology and standardization procedures and becoming more automated, the Top 100 Property Management Companies have generally been able to reduce their operating costs and increase their cost efficiency. According to the CIA Report, the operating cost ratio of the Top 100 Property Management Companies was 77.7% and 76.4% in 2017 and 2018, respectively.

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INDUSTRY OVERVIEW

Industry Growth Drivers

The growth of the PRC property management industry depends on various key drivers. We discuss certain key growth drivers below.

Favorable Policies

In June 2003, the PRC Government promulgated the Regulations on Property Management (《物業管理條例》), establishing a regulatory framework for the property management industry in China. Since then, a number of laws and rules have come into effect regulating various aspects of the property management industry and numerous policies enacted to promote its development. These include, but are not limited to, the Circular of the NDRC on the Opinions of Relaxing Price Controls in Certain Services (《國家發展和改革委關於放開部分服務價格意見的通知》) and the Guidance on Accelerating the Development of the Resident Service Industry to Promote the Upgrading of Consumption Structure (《關於加快發展生活性服務業促進消費結構升級的指導意見》). Furthermore, various provincial and municipal governments have issued their own laws and rules to construct the regulatory frameworks for the local property management industries. We expect that the PRC property management industry will continue to grow on a national scale through government encouragement under the various regulatory frameworks.

The favorable policies promulgated have also allowed significant market potential for non-residential properties. For example, in July 2017 the General Office of the State Council promulgated the Guidance on Establishing Management Systems for Modern Hospitals (《關於建立現代醫院管理制度的指導意見》), which recommended that hospitals, with a view to their specific needs and characteristics, establish management systems that facilitate their smooth and successful operation. It encouraged hospitals to explore the use of one-stop service platforms for that purpose. We believe that such policies will encourage a growing number of owners and managers of non-residential properties to explore the market for professional property management service providers. For more information on laws and regulations related to the property management industry, see “Regulatory Overview” in this document.

Growth in Demand

According to the CIA, China’s significant growth in urbanization and per capita disposable income has been the principal driver for the growth of the property management industry. The urbanization rate (being the projected average rate of change of the size of the urban population over the given period of time) in China increased from 31.9% as of December 31, 1997 to 59.6% as of December 31, 2018. The PRC property management industry is expected to continue to grow in tandem with a rising level of urbanization of the country. Moreover, China’s rapid economic growth has spurred continuous growth in the per capita disposable income for urban population, which increased to RMB39,251 per annum as of December 31, 2018, representing a CAGR of 7.8% since December 31, 2013. Chinese consumers increasingly demand better living conditions and quality property management services, which is another underlying reason for the growth of the PRC property management

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INDUSTRY OVERVIEW

industry. In addition, we believe the emerging middle-to high-income class in the PRC and their growing spending power will have a significant influence on the development of mid-to high-end property management services in the PRC through their demand for more quality products and services.

Growth in Supply

Following rapid urbanization and continuous growth in per capita disposable income, the supply of commercial housing properties in the PRC also surged. The total GFA of commodity properties sold increased from approximately 1,305.5 million sq.m. as of December 31, 2013 to approximately 1,716.5 million sq.m. as of December 31, 2018, representing a CAGR of 5.6%.

Trends in the PRC Property Management Industry

Increased Market Concentration

After decades of development, some of the Top 100 Property Management Companies have accelerated their services innovation and business expansion. In addition, the market continues to become more concentrated. In the competitive PRC property management industry, large-scale property management companies actively improve their strategic layout and accelerate their expansion in order to increase their market share and achieve better results of operations, primarily through organic growth as well as mergers and acquisitions. The chart below sets forth the total GFA of property management companies in China, the total GFA managed by the Top 100 Property Management Companies and the aggregate market share of the Top 100 Property Management Companies in terms of the total GFA managed in the years indicated:

==> picture [284 x 168] intentionally omitted <==

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

38.9%
25 sq.m. in billions 40%
32.4% 21.1
18.5
20 17.5 19.5 30%
28.4% 29.4%
15
20%
10 8.2
6.3
5.5
5.0 10%
5
0 0
2015 2016 2017 2018
GFA of properties under Total GFA under Market share of the Top
management nationwide management 100 Property Management
Companies
----- End of picture text -----

Source: CIA

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INDUSTRY OVERVIEW

Increasing Adoption of Information Technology in Business and Diversified Services

Many property management companies reduced labor costs and enhanced profitability by leveraging information technologies such as cloud application, e-commerce, Internet of Things (“物聯網”), big data and artificial intelligence. For example, artificial intelligence technologies such as smart entrance pass, smart building management, smart energy management, patrol robots, delivery robots and consultancy robots largely reduced the labor costs of property management companies. In addition, by adopting new technologies and using e-service platforms, property management companies could effectively integrate and allocate resources to provide more diversified community value-added services and further expand their services to common space management, community finance, property agency and housekeeping. As a result, the revenue generated from value-added services increasingly becomes an important source of revenue for property management companies.

Increasing demand for Professional Staff

On one hand, with the rapid technology developments, the property management companies need to recruit more qualified professional talents with management and technological skills. On the other hand, property management companies also increasingly outsource labor-intensive aspects of their operations such as cleaning, landscaping and security to subcontractors while placing greater emphasis on recruiting and training professional and skilled employees to facilitate the implementation of smart management and information technologies and promote innovations to maintain their leading market positions.

Increasing Cooperation and Platform Sharing among Industry Participants

With the transition to standardization and automation in the property management industry, more large-scale property management companies started to provide consultancy services to other property management companies and property developers to expand their geographic presence, showcase their services and abilities, enhance their brand reputation and promote their online service platforms. Such services include property management consulting, automation consulting, engineering consulting and sharing of online service platforms.

Market Potential of Non-Residential Properties

According to CIA, PRC property management companies have been seeking to diversify their management portfolios and include, in addition to residential properties, non-residential properties such as industrial parks, hospitals and schools. In general, property management companies may charge more property management fees for non-residential properties than residential properties. For example, average property management fee rates for residential properties was RMB2.3 per sq.m. per month in 2018. In comparison, average property management fee rates for commercial property, office building, industrial parks and schools in 2018 were RMB7.0 per sq.m. per month, RMB7.8 per sq.m. per month, RMB3.6 per sq.m. per month and RMB3.6 per sq.m. per month, respectively. According to CIA, there is significant market potential for non-residential properties because of (i) the continuous promulgation of

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INDUSTRY OVERVIEW

various favorable laws and rules in relation to the management of non-residential properties, facilitating the formation of a stable regulatory framework, and (ii) a growing number of owners or operators of non-residential properties delegate their property management to professional service providers in the market.

Growing Focus on Service Quality

According to CIA, consumers place growing emphasis on service quality in selecting their property management service providers. Rather than basing their choices solely on cost considerations, consumers weigh the proposed fees against service quality to determine how to make the best-value purchase. The growth of a middle-to high-income class of consumers that is more willing to pay premiums for quality and increase their discretionary spending has spurred demand for better living conditions. Moreover, high-caliber property management services enhances the value of properties. The Top 100 Property Management Companies have responded to this trend by, among other steps optimizing their traditional property management services and upgrading the quality of their services by applying technological solutions.

HISTORICAL PRICE TRENDS

Property management companies constantly balance ever-rising labor costs with the necessity of providing quality services. A property management business relies on the availability of cheap and abundant manual labor. However, according to CIA, inflation has arisen the overall amount of consumer spending, wages and other related labor costs in recent years. Such change places additional pressure on property management companies seeking to expand their business operations. In achieving so, they would need to expand their workforce.

According to CIA, property management companies may reduce their overall cost of sales by innovating with technological solutions and appropriately increasing the proportion of services performed by subcontractors. In recent years, the Top 100 Property Management Companies have actively experimented with and employed technological solutions to automate their business operations. By doing so, the Top 100 Property Management Companies are able to increase operational efficiency and raise service quality. According to CIA, subcontracting allows property management companies to reduce overall labor costs as well as leveraging the expertise of subcontractors in their respective fields to enhance service efficiency.

According to CIA, both the labor and subcontracting costs of Top 100 Property Management Companies increased in both absolute amount and percentage of cost of sales from 2016 to 2018. The average cost of sales of the Top 100 Property Management Companies was approximately RMB576.5 million and RMB677.4 million in 2017 and 2018, respectively. The ratio of labor cost to cost of sales of the Top 100 Property Management Companies was 55.8% and 57.8% in 2017 and 2018, respectively. Moreover, the number of subcontractors of Top 100 Property Management Companies has increased by 30.2% from approximately 0.4 million in 2016 to approximately 0.5 million in 2018.

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INDUSTRY OVERVIEW

COMPETITION

Competitive Landscape

The property management market in China is becoming increasingly concentrated. Our property management services primarily compete with large national, regional and local property management companies.

Major property management companies in China experienced steady growth in GFA under management in the past years. Large-scale property management companies gained more advantages in the recent years as they experience fast growth in GFA under management. Major property management companies in China have also experienced steady improvement in profitability due to the increase in GFA under management and effective cost control measures.

According to CIA, in 2019, we were ranked 22nd among the 2019 Top 100 Property Management Companies in terms of overall strength. According to CIA, we are one of the fastest-growing property management companies in China, ranked fourth and seventh in terms of growth rate of revenue and net profit for 2018, respectively, among the top 30 of the 2019 Top 100 Property Management Companies. We were also ranked third among the 2019 Top 100 Property Management Companies in China in terms of the proportion of the revenue generated from value-added services to the total revenue based on the relevant operating data for 2018 by the CIA.

Ranking of Our Group among the Top 100 Property Management Companies in China in terms of overall strength for selected years from 2013 to 2019

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Year
2013 2018 2019
0
10
22
20
29
30
40
50
60
70 77
80
90
Ranking
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Source: the CIA Report

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INDUSTRY OVERVIEW

The graph below shows the comparison of our growth rate of revenue and net profit for 2018[(1)] and the average growth rate of revenue and profit for 2018[(1)] of the 2019 Top 100 Property Management Companies.

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100% 94.60%
80%
67.23%
60%
40%
25.95%
19.41%
20%
0%
Year-on-year growth Year-on-year growth
rate of revenue rate of net profit
the Top 100 Property Management Companies Our Group
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Source: the CIA Report

Note:

(1) The growth rate of revenue and net profit is calculated by using the following formula: Revenue/net profit of 2018 - Revenue/net profit of 2017 Growth rate = x 100.0% Revenue/net profit of 2018

Entry Barriers

According to CIA, there are a few barriers to enter into the property management industry, including:

Brand. The Top 100 Property Management Companies, including ourselves, have built up their brand reputation through decades of services and operations. In contrast, new participants, without any established brand or cultivated business relationship with industry participants, face increasing difficulty in penetrating the market.
Capital requirement . Intensive capital investment is required as the property management companies adopt automation and intelligent technologies to improve their management efficiency through equipment purchase, smart community management and information technology system. Capital availability possesses high barriers to new participants with limited financing ability.

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INDUSTRY OVERVIEW

Specialization of operations, management and talents . To better control costs and ensure service quality, property management companies need to standardize and automate their operations to improve their capacity in managing more properties. Large-scale property management companies have more resources to invest in the standardization and automation of their operations than new participants. Furthermore, the wide application of the Internet and modern technologies in the property management industry demands more and more specialized talents. New and small scale property management companies are faced with increasing difficulties in competing against larger companies in recruiting and retaining qualified employees.

Our Competitive Strengths

Some of our key competitive strengths include: (i) we are a nationwide, fast-growing, and comprehensive property management service provider in China; (ii) our long-term relationship with Zhenro Property Group brings us significant support and development capacity; (iii) we have a diversified project portfolio and balanced business development; (vi) we have a known reputation and received wide market recognition through our quality services; (v) we have standardized operation management and effective cost control mechanism; and (v) we have an experienced management team and sophisticated recruitment and training programs for our talents. For more information, see “Business — Competitive Strengths” in this document.

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REGULATORY OVERVIEW

Our business operations are subject to extensive supervision and regulation by the PRC Government. This section sets out a summary of the material laws, regulations and policies to which we are subject.

LEGAL SUPERVISION OVER PROPERTY MANAGEMENT SERVICES

Foreign Invested Property Management Enterprises

According to the Provisions on Guiding the Orientation of Foreign Investment (《指導外商投資方向規定》) (No. 346 Order of the State Council) (issued by the State Council on February 11, 2002 and came into effect on April 1, 2002), foreign investment projects are divided into four categories, namely “encouraged”, “permitted”, “restricted” and “prohibited” categories. Foreign investment projects of the encouraged, restricted and prohibited categories are listed in the Catalogue of Industries for Guiding Foreign Investment (《外商投資產業指導目錄》). Foreign investment projects that are not of the encouraged, restricted and prohibited categories belong to the permitted foreign investment projects which are not listed in the Catalogue of Industries for Guiding Foreign Investment.

Pursuant to the Interim Administrative Measures for the Record-filing of the Establishment and Modifications of Foreign Investment Enterprises (“Interim Administrative Measures”) (《外商投資企業設立及變更備案管理暫行辦法》) promulgated by Ministry of Commerce on October 8, 2016, amended on July 30, 2017 and June 29, 2018, Interim Administrative Measures shall apply to the establishment and modifications of foreign investment enterprises that are not subject to the approval under the special entry management measures. Where the establishment of foreign investment enterprise falls within the scope of Interim Administrative Measures, when the representatives of the enterprise go through the registration procedures for the establishment with the competent administrations for industry commerce and market supervision, they shall file the recording-filing information with the foreign investment comprehensive administration information system in accordance with Interim Administrative Measures.

On December 30, 2019, the Ministry of Commerce and the State Administration of Market Regulation issued the Measures for the Reporting of Foreign Investment Information (《外商投資信息報告辦法》), which came into effect on January 1, 2020 and replaced Interim Administrative Measures. Since January 1, 2020, for foreign investors carrying out investment activities directly or indirectly in China, the foreign investors or foreign-invested enterprises shall submit investment information to the commerce authorities pursuant to these measures.

On March 15, 2019, the National People’s Congress approved the Foreign Investment Law of the PRC (《中華人民共和國外商投資法》), which came into effect on January 1, 2020 and replaced the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-Invested Enterprise Law, and became the legal foundation for foreign investment in the PRC. On December 26, 2019, the State Council issued the Regulations on Implementing the Foreign Investment Law of the PRC (《中華人民共和國外商投資法實施條例》), which came into effect on January 1, 2020

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and replaced the Regulations on Implementing the Sino-Foreign Equity Joint Venture Enterprise Law, Provisional Regulations on the Duration of Sino-Foreign Equity Joint Venture Enterprise Law, the Regulations on Implementing the Wholly Foreign-Invested Enterprise Law and the Regulations on Implementing the Sino-foreign Cooperative Joint Venture Enterprise Law.

The Foreign Investment Law sets out the basic regulatory framework for foreign investments and proposes to implement a system of pre-entry national treatment with a negative list for foreign investments, pursuant to which (i) foreign natural persons, enterprises or other organizations (collectively the “foreign investors”) shall not invest in any sector forbidden by the negative list for access of foreign investment, (ii) for any sector restricted by the negative list, foreign investors shall conform to the investment conditions provided in the negative list, and (iii) sectors not included in the negative list shall be managed under the principle that domestic investment and foreign investment shall be treated equally. The Foreign Investment Law also sets forth necessary mechanisms to facilitate, protect and manage foreign investments and proposes to establish a foreign investment information report system in which foreign investors or foreign-funded enterprises shall submit the investment information to competent departments of commerce through the enterprise registration system and the enterprise credit information publicity system.

According to the Special Administrative Measures for Access of Foreign Investment (Negative List) (Edition 2019) (《外商投資准入特別管理措施(負面清單)(2019年版)》) issued by the NDRC and the MOFCOM on June 30, 2019 and came into effect on July 30, 2019, the property management service does not fall into such categories which foreign investment is restricted or prohibited.

Qualification of Property Management Enterprises

According to the Regulations on Property Management (《物業管理條例》) (No. 379 Order of the State Council) issued by the State Council on June 8, 2003, came into effect on September 1, 2003 and revised on August 26, 2007 and February 6, 2016, a qualification system for companies engaging in property management activities has been adopted.

According to the Decision of the State Council on Canceling the Third Batch of Administrative Licensing Items Designated by the Central Government for Implementation by Local Governments (《國務院關於第三批取消中央指定地方實施行政許可事項的決定》) issued by the State Council on January 12, 2017 and came into effect on the same day, second class or below property management company qualifications acknowledged by Provincial and municipal government departments of Housing and Urban-Rural Development were canceled.

According to the Decision of the State Council on Canceling a Group of Administrative Licensing Items (《國務院關於取消一批行政許可事項的決定》) issued by the State Council on September 22, 2017 which came into effect on the same day, qualification accreditation for property management enterprises of Level One was canceled.

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REGULATORY OVERVIEW

According to the Notice of the General Office of Ministry of Housing and Urban-Rural Development on Effectively Implementing the Work of Canceling the Qualification Accreditation for Property Management Enterprises (《住房城鄉建設部辦公廳關於做好取消物業服務企業資質核定相關工作的通知》) issued by the General Office of Ministry of Housing and Urban-Rural Development on December 15, 2017 and came into effect on the same day, application, change, renewal or re-application of the qualifications of property management enterprises shall not be accepted, and the qualifications obtained already shall not be a requirement for property management enterprises to undertake new property management projects.

On March 19, 2018, the State Council issued Decision of the State Council to Amend and Repeal Certain Administrative Regulations (《國務院關於修改和廢止部分行政法規的決定》) (Order of the State Council No. 698), according to which the Regulations on Property Management (《物業管理條例》) was amended. The Regulations on Property Management (2018 revision) (《物業管理條例》) (2018年修正) has removed the qualification accreditation of the property management enterprises.

Appointment of Property Management Companies

According to the Property Law of the PRC (《中華人民共和國物權法》) (No. 62 Order of the President of the PRC) issued by the National People’s Congress on March 16, 2007 and came into effect on October 1, 2007, property owners can either manage the buildings and ancillary facilities by themselves or engage a property management company or custodians. As regards the property management company or any other custodians hired by the developer, property owners are entitled to alter it in accordance with law. Property management companies or other custodians shall manage the buildings and ancillary facilities within the area of the building as agreed with the property owners, and shall be subject to the supervision by them.

According to the Regulations on Property Management (2018 revision) (《物業管理條例》) (2018年修正), a general meeting of the property owners of a community can engage or dismiss the property management companies with affirmative votes of owners who own more than half of the total GFA of the exclusive area of the community and who account for more than half of the total number of the property owners. Property owners’ association, on behalf of the general meeting, shall sign property management contract with property management companies engaged at the general meeting. Before the engagement of a property management company by property owners and a general meeting of the property owners, a written preliminary service contract should be entered into between the property developer and the selected and engaged property management company. The preliminary property management contract may stipulate the contract duration. If the property management contract signed by the property owners’ association and the property management company comes into force within the term of preliminary property management, the preliminary property management contract automatically terminates. Property developers of residential buildings shall enter into preliminary property management service agreements with property management enterprises through tender process in accordance with the Regulations on Property Management.

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REGULATORY OVERVIEW

Entities engaged in providing commercial Internet information service shall apply for a license for value-added telecommunication services of Internet information services. As for the operation of non-commercial Internet information services, record-filing is required. Internet information service provider shall provide services within the scope of their licenses or filing. Non-commercial Internet information service providers shall not provide services with charge of payment. In case an Internet information service provider changes its services, website address, etc., it shall apply for approval or filing 30 days in advance at the relevant government department.

Where an entity provides commercial Internet information service without a license or provides service beyond the scope of the license, provincial telecommunication administrative department shall order it to make correction within a prescribed time limit. Where there are illegal gains, such gains shall be confiscated; and a fine more than three times but less than five times of such gains shall be imposed. Where there is no illegal gain or the gain is less than RMB50,000, a fine of RMB100,000 to RMB1 million shall be imposed. Where the circumstance is serious, the website shall be ordered to shut down. Where an entity provides non-commercial Internet information service without a filing, provincial telecommunication administrative department shall order it to make corrections within a prescribed time limit and to shut down the website if it refused to make corrections.

LEGAL SUPERVISION OVER REAL ESTATE BROKERAGE BUSINESS

According to the Urban Real Estate Administration Law of the PRC (《中華人民共和國城市房地產管理法》), issued by the Standing Committee of the National People’s Congress on July 5, 1994, came into effect on January 1, 1995 and revised on August 30, 2007, August 27, 2009 and August 26, 2019, real estate intermediate service agencies include real estate consultants, real estate evaluation agencies, real estate brokerage agencies, etc. Real estate intermediate agencies shall meet the following conditions: (1) have their own name and organization; (2) have a fixed business site; (3) have the necessary assets and funds; (4) have a sufficient number of professionals; (5) other conditions specified by laws and administrative regulations.

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REGULATORY OVERVIEW

According to the Administrative Measures for Real Estate Brokerage (《房地產經紀管理辦法》), issued by the MOHURD, NDRC and Ministry of Human Resources and Social Security on January 20, 2011, came into effect on April 1, 2011 and revised on March 1, 2016, real estate brokerage refers to the acts of providing intermediary and agency services to and collecting commissions from clients by real estate brokerage institutions and real estate brokers for the purpose of promoting real estate transactions. Sufficient number of real estate agents shall be equipped to establish real estate brokerage agencies and their branches. Real estate brokerage agencies and their branches shall go to the competent housing and urban-rural development (real estate) authority for handling the filing formalities within 30 days from the date of receiving business licenses.

LEGAL SUPERVISIONS OVER LABOR PROTECTION IN THE PRC

According to the Labor Law of the PRC (《中華人民共和國勞動法》) which was issued by the Standing Committee of the National People’s Congress on July 5, 1994, came into effect on January 1, 1995 and amended on August 27, 2009 and December 29, 2018, employers shall develop and improve their rules and regulations in accordance with the law to ensure that workers enjoy their labor rights and perform their labor obligations. Employers shall develop and improve the system of labor safety and sanitation, strictly implement the national protocols and procedures on labor safety, guard against labor safety accidents and reduce occupational hazards. Labor safety and sanitation facilities shall meet the relevant national standards. Employers must provide workers with the necessary labor protection equipment that meets the safety and hygiene conditions stipulated under national regulations by the State, and conduct regular health checks for workers who engage in operations with occupational hazards. Laborers engaged in special operations must have received specialized training and obtained the pertinent qualifications.

According to the Labor Contract Law of the PRC (《中華人民共和國勞動合同法》) issued by the Standing Committee of the National People’s Congress on June 29, 2007, came into effect on January 1, 2008 and revised on December 28, 2012, came into effect on July 1, 2013 and the Implementation Regulation on Labor Contract Law of the PRC (《中華人民共和國勞動合同法實施條例》) (No. 535 Order of the State Council), promulgated by the State Council on September 18, 2008 and became effect on the same day, regulate both parties through a labor contract, namely the employers and the employees, and contain specific articles involving the terms of the labor contract. Meanwhile, it is stipulated that labor contracts must be concluded in written forms, upon reaching an agreement after due negotiation, an employer and an employee may enter into a fixed-term labor contract, a non-fixed-term labor contract or a labor contract that concludes upon the completion of certain work assignments. After reaching an agreement upon due negotiation with employees or by fulfilling other circumstances in line with legal conditions, an employer may legally terminate a labor contract and dismiss its employees. Labor contracts concluded before the enactment of Labor Contract Law and existing during its effective term shall continue to be honored. With respect to

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REGULATORY OVERVIEW

circumstances where an employment relationship has already been established without the conclusion of a written labor contract before the enactment of Labor Contract Law, the written labor contract shall be concluded within one month from the date on the enactment of Labor Contract Law.

According to the Social Insurance Law of PRC (《中華人民共和國社會保險法》), which was promulgated by the Standing Committee of the National People’s Congress on October 28, 2010 and became effective on July 1, 2011 and further amended on December 29, 2018, employees shall participate in basic pension insurance, basic medical insurance and unemployment insurance. Basic pension, medical and unemployment insurance contributions shall be paid by both employers and employees. Employees shall also participate in work-related injury insurance and maternity insurance. Work-related injury insurance and maternity insurance contributions shall be paid by employers rather than employees. An employer shall make registration with the local social insurance agency in accordance with the provisions of the Social Insurance Law of PRC. For employers failing to conduct social insurance registration, the administrative department of social insurance shall order them to make corrections within a prescribed time limit; if they still fail to do so within the time limit, employers shall have to pay a penalty over one time but no more than three times of the amount of the social insurance premium payable by them, and their executive staffs and other directly responsible persons shall be fined RMB500 to RMB3,000. Also, it has consolidated the legal obligations and liabilities of employers who fail to promptly contribute social insurance contributions in full amount, those employers shall be ordered by the social insurance collection agency to make or supplement contributions within a designated period, and shall be subject to a late payment fine computed from the due date at the rate of 0.05% per day of the outstanding contribution amount; where payment is not made within the designated period, the relevant administrative authorities shall impose a fine ranging from one to three times of the outstanding contribution amount.

According to the Regulations on the Administration of Housing Provident Fund (《住房公積金管理條例》), issued by the State Council on April 3, 1999 and became effective on the same day, and was amended on March 24, 2002 and March 24, 2019, the housing provident fund contributions made by an individual employee and housing provident fund contributions made by his or her employer shall be owned by the individual employee. Employers shall timely pay the housing provident fund in full and overdue or insufficient payment shall be prohibited. Employers shall process the housing fund payments and deposit registrations with the housing provident fund administrative center. For enterprises who violate the laws and regulations and fail to apply for housing provident fund deposit registration or open housing provident fund accounts for their employees, the housing provident fund administrative center shall order the relevant enterprises to make corrections within a designated period. Those enterprises failing to process registration provident fund accounts for their employees within the designated period shall be subject to a fine ranging from RMB10,000 to RMB50,000. When enterprises violate those provisions and fail to pay the housing provident fund in full amount as due, the housing provident fund administrative center will order such enterprises to pay up

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REGULATORY OVERVIEW

the amount within a prescribed period; if those enterprises still fail to comply with the regulations upon the expiration of the above-mentioned time limit, further application will be made to the People’s Court for mandatory enforcement.

REGULATIONS RELATING TO INTELLECTUAL PROPERTY

Trademark Law

Trademarks are protected by the Trademark Law of the PRC (《中華人民共和國商標法》), issued by the Standing Committee on August 23, 1982, came into effect on March 1, 1983 and amended on February 22, 1993, October 27, 2001, August 30, 2013 and April 24, 2019 and the Implementation Regulation of the PRC trademark Law (《中華人民共和國商標法實施條例》), adopted by the State Council on April 29, 2014 and came into effect on May 1, 2014). The trademark Office under the SAMR handles trademark registration and grants registered trademarks for a validity period of 10 years. Trademarks may be renewable every ten years where a registered trademark needs to be used after the expiration of its validity period. Trademark registrants may license, authorize others to use their registered trademark by signing up a trademark license contract. The trademark license agreements shall be submitted to the trademark office for recording. For trademarks, trademark law adopts the principle of “prior application” with respect to trademark registration. Where a trademark under registration application is identical with or similar to another trademark that has, in respect of the same or similar commodities or services, been registered or, after preliminary examination and approval, this application for such trademark registration may be rejected. Anyone applying for trademark registration shall not prejudice the existing right first obtained by anyone else, or forestall others by improper means in registering a trademark which others have already begun to use and enjoyed certain degree of influence.

Copyright Law

The Copyright Law of the PRC (《中華人民共和國著作權法》), issued by the Standing Committee of the National People’s Congress on September 7, 1990, came into effect on June 1, 1991 and revised on October 27, 2001 and February 26, 2010, providing that works of Chinese citizens, legal persons or other organizations, which include, works of literature, art, natural sciences, social sciences, engineering technologies and computer software created in writing or oral or other forms, whether published or not, enjoy copyright in their works. Copyright holders may enjoy multiple rights, which include the right of publication, the right of authorship and the right of reproduction.

The Computer Software Copyright Registration Measures (《計算機軟件著作權登記辦法》), promulgated by the National Copyright Administration on February 20, 2002, and came into effect on the same day, regulates registrations of software copyright, the exclusive licensing contracts for software copyright and transfer contracts of software copyright. The National Copyright Administration of PRC shall be competent authority for the registration and management of national software copyright and the Copyright Protection Center of China is the software registration organization authority. The Copyright Protection Center of China shall

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grant registration certificates to the computer software copyright applicants which conforms to the regulations of both the Computer Software Copyright Registration Measures and the Regulations on Protection of Computers Software (《計算機軟件保護條例》), issued by the State Council on June 4, 1991, and amended on December 20, 2001, and further revised on January 8, 2011 and January 30, 2013.

Provisions of the Supreme People’s Court on Certain Issues Concerning the Application of Law in the Trail of Civil Cases Involving Disputes over Infringement of the Right of Dissemination through Information Networks (《最高人民法院關於審理侵害信息網絡傳播權民事糾紛案件適用法律若干問題的規定》), issued by the Supreme People’s Court on December 17, 2012 and came into effect on January 1, 2013, provides that web users or web service providers who, through information networks, create works, performances, or audio-video products in which the right holders enjoy the transmission right of information network without due authorization, they shall be deemed to have infringed upon the transmission right of information network by the people’s court.

Domain Name

The Measures on the Administration of Domain Names (《互聯網域名管理辦法》), issued by the Ministry of Industry and Information Technology on August 24, 2017 and came into effect on November 1, 2017, the Ministry of Industry and Information Technology shall be responsible for managing Internet network domain names in PRC. The principle of “first-to-file” is adopted for domain name services. The applicant of domain name registration shall provide the agency of domain name registration with the true, accurate and complete information relating to the domain name to be applied for, and sign the registration agreements as well. Upon the completion of the registration process, the applicant will become the holder of the relevant domain name.

LEGAL REGULATIONS OVER TAX IN THE PRC

Income Tax

According to the Enterprise Income Tax Law of the PRC (《中華人民共和國企業所得稅法》) (the “EIT Law”), promulgated by the National People’s Congress on March 16, 2007 and came into effect on January 1, 2008 and revised on February 24, 2017 and December 29, 2018 and the Implementation Regulations on the Corporate Income Tax Law (《企業所得稅法實施條例》) (“Implementation Regulations of the EIT Law”), issued by the State Council on December 6, 2007, came into effect on January 1, 2008 and was amended on April 23, 2019, the tax rate of 25% will be applied to the income related to all PRC enterprises, foreign-invested enterprises and foreign enterprises which have established production and operation facilities in the PRC. These enterprises are classified into as either resident enterprises or non-resident enterprises. Enterprises which are established in accordance with the law of the foreign country or region, but whose actual administration institutions (referring

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to the institutions conducting substantive and all-around management and control over the enterprises production, operation, personnel, accounting matters, finance, etc.) are in PRC, are deemed as resident enterprises. Thus, the tax rate of 25% applies to their income from both inside and outside PRC.

According to the EIT Law and the Implementing Regulations of the EIT Law, for dividends payable to investors that are non-resident enterprises (who do not have organizations or places of business in the PRC, or that have organizations and places of business in PRC but to whom the relevant income tax is not effectively connected), 10% of the PRC withholding tax shall be paid, unless there are any applicable tax treaties are reached between the jurisdictions of non-resident enterprises and the PRC which may reduce or provide exemption to the relevant tax. Similarly, any gain derived from the transfer of shares by such investor, if such gain is regarded as income derived from sources within the PRC, shall be subject to 10% PRC income tax rate (or a lower tax treaty rate (if applicable)).

According to the Arrangements between the PRC and Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (《內地和香港特別行政區關於對所得避免雙重徵稅和防止偷漏稅的安排》), issued by State Administration of Taxation on August 21, 2006 and became effective on December 8, 2006, a company incorporated in Hong Kong will be subject to withholding a 25% interest or more in a PRC company, its dividend obtained from the company incorporated in the PRC shall be taxed with a lower tax rate of 5% as the withholding tax in accordance with the laws and regulations. According to the Announcement of the State Administration of Taxation on Issues Relating to “Beneficial Owner” in Tax Treaties (《國家稅務總局關於稅收協定中“受益所有人”有關問題的公告》), which was issued by State Administration of Taxation on February 3, 2018 and came into effect on April 1, 2018, a beneficial ownership analysis will be used based on a substance-over form principle to determine whether or not to grant tax treaty benefits.

According to the Announcement on Several Issues concerning the Enterprise Income Tax on Income from the Indirect Transfer of Assets by Non-Resident Enterprises (《關於非居民企業間接轉讓財產企業所得稅若干問題的公告》) (“Announcement”), issued by State Administration of Taxation on February 3, 2015 came into effect on the same day, and revised on October 17, 2017 and December 29, 2017, where a non-resident enterprise indirectly transfers equities and other assets of a PRC resident enterprise to avoid the enterprise income tax payment obligation by making an arrangement with no reasonable business purpose, such indirect transfer shall be redefined and recognized as a direct transfer in accordance with the provisions of the EIT Law. Where the enterprise income tax on the income from the indirect transfer of real estate or equities shall be paid in accordance with the provisions of this Announcement, the entity or individual that directly assumes the obligation to make relevant payments to the transferor according to the provisions of the relevant laws or as agreed upon in the contract shall be the withholding agent.

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REGULATORY OVERVIEW

Value-added Tax

According to the Temporary Regulations on Value-Added Tax (《中華人民共和國增值稅暫行條例》), issued on December 13, 1993 by the State Council, came into effect on January 1,1994 and last amended on November 19, 2017 and the Detailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-Added Tax (《中華人民共和國增值稅暫行條例實施細則》), issued on December 25, 1993 by the Ministry of Finance, and became effective on the same day and revised on December 15, 2008 and October 28, 2011 (collectively, the “VAT Law”), taxpayers who engaged in the sale of goods, the provision of processing, repairing and replacement services, sell service, intangible assets or immovables or import goods within the territory of the PRC must pay value-added tax. Other than those specified listed in the VAT law, tax rate for selling services or intangible assets is 6%.

Furthermore, in accordance with the Notice on Fully Launch of the Pilot Scheme for the Conversion of Business Tax to Value-Added Tax (《關於全面推開營業稅改徵增值稅試點的通知》), issued by the Ministry of Finance and the State Administration of Taxation on March 23, 2016, came into effect on May 1, 2016, the state started to fully implement the pilot program from business tax to value-added tax on May 1, 2016. All taxpayers of business tax in construction industry, real estate industry, financial industry and living service industry have been included in the scope of the pilot and should pay value-added tax instead of business tax.

City Maintenance and Construction Tax and Educational Surcharges

According to the Notice on Unifying the System of Urban Maintenance and Construction Tax and Education Surcharge Paid by Domestic and Foreign-invested Enterprises and Individuals (《關於統一內外資企業和個人城市維護建設稅和教育費附加制度的通知》), issued by the State Council on October 18, 2010 and came into effect on December 1, 2010, since December 1, 2010, the Temporary Regulation on Urban Maintenance and Construction Tax of the PRC (《中華人民共和國城市維護建設稅暫行條例》) issued in 1985 and the Temporary Provisions on the Collection of Educational Surcharges (《徵收教育費附加的暫行規定》) issued in 1986 and other rules and regulations issued by the State Council and other competent departments since 1985 and 1986 in charge of relevant financial and tax authorities shall apply to foreign-invested enterprises, foreign enterprises and foreign individuals.

According to the Temporary Regulation on Urban Maintenance and Construction Tax of the PRC (《中華人民共和國城市維護建設稅暫行條例》), issued by the State Council on February 8, 1985, retroactive to January 1, 1985 and revised on January 8, 2011, entities and individuals who pay consumption tax, value-added tax and business tax shall pay city maintenance and construction tax. The payment of city maintenance and construction tax is based on the actual amount of consumption tax, value-added tax and business tax paid by the entities and individuals and shall be paid at the same time along with the above taxes. If the location of the taxpayer is in city downtown area, the tax rate shall be 7%; if the location of the taxpayer is in a county or town, the tax rate shall be 5%; the tax rate shall be 1% for taxpayer located out of city downtown area, country or town.

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REGULATORY OVERVIEW

According to the Temporary Provisions on the Collection of Educational Surcharges (《徵收教育費附加的暫行規定》), issued by the State Council on April 28, 1986, came into effect on July 1, 1986 and revised on June 7, 1990, August 20, 2005 and January 8, 2011, the tax rate of education surcharges shall be 3% of the actual amount of consumption tax, value-added tax and business tax paid by the entities and individuals and paid at the same time along with the above taxes.

REGULATIONS RELATING TO FOREIGN EXCHANGE

According to the PRC Foreign Currency Administration Rules (《中華人民共和國外匯管理條例》) (the “SAFE Regulations”), promulgated by the State Council on January 29, 1996, came into effect on April 1, 1996 and amended on January 14, 1997 and August 5, 2008, the RMB is generally freely convertible for current account items, including the distribution of dividends, trade and service related foreign exchange transactions, but not for capital account items, such as direct investment, loan, repatriation of investment and investment in securities outside the PRC, unless the prior approval of the SAFE is obtained.

Pursuant to the Notice of the State Administration of Foreign Exchange on Issues concerning Foreign Exchange Administration of the Overseas Investment and Financing and the Round-tripping Investment Made by Domestic Residents through Special-Purpose Companies (《國家外匯管理局關於境內居民通過特殊目的公司境外投融資及返程投資外匯管理有關問題的通知》) (“Circular 37”), promulgated by SAFE and which became effective on July 4, 2014, (a) a PRC resident (“PRC Resident”) shall register with the local SAFE branch before he or she contributes assets or equity interests in an overseas special purpose vehicle (“Overseas SPV”), that is directly established or controlled by the PRC Resident for the purpose of conducting investment or financing; and (b) following the initial registration, the PRC Resident is also required to register with the local SAFE branch for any major change, in respect of the Overseas SPV, including, among other things, a change of the Overseas SPV’s PRC Resident shareholder(s), name of the Overseas SPV, term of operation, or any increase or reduction of the Overseas SPV’s registered capital, share transfer or swap, and merger or division. Pursuant to SAFE Circular No. 37, failure to comply with these registration procedures may result in penalties.

Pursuant to the Circular of the State Administration of Foreign Exchange on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies (《關於進一步簡化和改進直接投資外匯管理政策的通知》) (“Circular 13”), which was promulgated on February 13, 2015 and with effect from June 1, 2015, the foreign exchange registration under domestic direct investment and the foreign exchange registration under overseas direct investment are directly reviewed and handled by banks in accordance with the Circular 13, and the SAFE and its branches shall perform indirect regulation over the foreign exchange registration via banks.

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REGULATORY OVERVIEW

REGULATION RELATING TO M&A RULES

According to the Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (《關於外國投資者併購境內企業的規定》) (“M&A Rule”), which was promulgated on August 8, 2006 and became effective on September 8, 2006, and was later amended on June 22, 2009, which provided that the scenarios qualify as an acquisition of a domestic enterprise by a foreign investor.

In addition, according to the Interim Administrative Measures, where a non-foreigninvested enterprise changes into a foreign-invested enterprise due to acquisition, consolidation by merger or otherwise, which is subject to record-filing as stipulated in the Interim Administrative Measures, it shall complete the record-filing formalities for incorporation and submit the Incorporation Application in accordance with the Interim Administrative Measures.

Since January 1, 2020, Interim Administrative Measures was replaced by the Measures for the Reporting of Foreign Investment Information (《外商投資信息報告辦法》), in accordance with which, for foreign investors carrying out investment activities directly or indirectly in China, the foreign investors or foreign-invested enterprises shall submit investment information to the commerce authorities.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

OUR HISTORY AND DEVELOPMENT

History

Our history can be traced back to 2000, when Zhenro Property Services was established in China by Mr. ZR Ou and Zhenro Group to provide property management services for residential property projects of Zhenro Group. We started providing property management services for residential property projects of Zhenro Property Group (then part of Zhenro Group prior to the listing of Zhenro Properties on the Stock Exchange in January 2018) in Fujian Province in 2004. Throughout the years, we had accumulated extensive experience in providing quality property management services for residential properties in the PRC. In addition to providing property management services for the residential property projects of Zhenro Property Group, we started providing property management services for the residential property projects of other third-party property developers in 2017, which have further established our market reputation as a quality property management service provider among a broader base of customers.

While residential properties have historically attributed to a large portion of our revenue, we also seek to diversify our portfolio of managed properties to include other types of properties. In 2017, we started providing property management services for non-residential properties. The non-residential properties under our management include government and public facilities, office buildings, industrial parks and schools. In addition to the provision of property management services, our scope of services also includes the provision of a comprehensive range of value-added services, including value-added services to non-property owners and community value-added services to property owners and residents.

We pride ourselves on being a nationwide, fast-growing and comprehensive property management service provider capable of preserving and enhancing the value of our customers’ properties. Headquartered in Shanghai since 2016, our geographic presence spanned over 34 cities and covered four major regions in the PRC as of September 30, 2019. The number of projects under our management grew from 90 with a total GFA of approximately 9.4 million sq.m as of December 31, 2017, to 136 with a total GFA of 21.0 million sq.m as of September 30, 2019. The total number of projects which we were contracted to manage increased from 117 with a total contracted GFA of approximately 16.2 million sq.m as of December 31, 2017, to 214 with a total contracted GFA of 34.4 million sq.m as of September 30, 2019. In 2019, we were ranked 22nd among the Top 100 Property Management Companies in China in terms of overall strength by CIA.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Business Development Milestones

The following table sets out a summary of our Group’s major business development milestones:

Year Milestone 2000 Zhenro Property Services was established in China. 2004 We started providing property management services for property projects developed by Zhenro Property Group in Fujian province.
2006 One of our managed projects, namely, Zhenro Landscape Villa (正榮•麗景山莊), was recognized as a National Property Management Demonstration Residential Community (全國物業管理示範住宅社區) by the Ministry of Housing and Urban-Rural Development of the PRC.
2007 We started providing value-added services to non-property owners. 2010 We became one of the council members on China Property Management Association (中國物業管理協會).
2011 We obtained Level One Property Management Qualification (一級物業服務企業資質) from the Ministry of Housing and Urban-Rural Development of the PRC.

We obtained the Industry Outstanding Contributor Award (行業突出貢獻獎) from the China Property Management Association.

2015 One of our managed projects, namely, Zhenro Yupin Lanwan (正榮•御品蘭灣), was recognized as the 2015 Provincial Property Management Model Residential District (2015年度全省物業管理示範住宅小區) by the Department of Housing and Urban-Rural Development of Fujian Province.
2016 One of our managed projects, namely, Zhenro Yupin Shijia (正榮•御品世家), was recognized as the 2016 Provincial Property Management Model Residential District (2016年度全省物業管理示範住宅小區) by the Department of Housing and Urban-Rural Development of Fujian Province.
2017 We completed the acquisition of Jiangsu Aitao and expanded our project portfolio to include certain new types of non-residential properties such as government and public facilities.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Year

Milestone

We started providing property management services to third-party property developers other than Zhenro Property Group.

We started providing community value-added services to property owners and residents.

2018 We were recognized as one of the 2018 Best 20 of China’s Property Management Enterprises by Brand Value (2018年中國物業管理企業品牌價值20強) and 2018 Best 30 of China’s Property Management Enterprises by Overall Strength (2018年中國物業管理企業綜合實力30 強) by China Real Estate Association (中國房地產業協會).

2019 We completed the acquisition of Jiangsu Sutie and further expanded our project portfolio to include new types of non-residential properties, such as schools.

We were ranked 22nd among Top 100 Property Management Companies in China (2019中國物業服務百強企業) in terms of overall strength by CIA.

Our managed project, namely Nanjing Zhenro Runfeng Garden (南京正榮潤峯花園), was recognized as China Property Service Industry Model Unit (2019年中國物業服務行業示範基地) by CIA.

We were ranked 17th among the 2019 Community Service Providers in China (2019中國社區服務商成長性十強) by Yihan Zhiku.

OUR CORPORATE DEVELOPMENTS

Our Company was incorporated in the Cayman Islands under the Cayman Islands Companies Law as an exempted company with limited liability on December 17, 2018, and became the holding company and [ REDACTED ] vehicle of our Group upon completion of the Reorganization. See “– Reorganization” below for details.

Our operating subsidiaries in the PRC

As of the Latest Practicable Date, our business operations had been carried out by our operating subsidiaries established or acquired by our Group in the PRC. Set out below are the major corporate developments including major changes in the equity interests in our operating subsidiaries in the PRC during the Track Record Period:

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Fujian Zhenro

Fujian Zhenro is the intermediate holding company of our operating subsidiaries in the PRC and is the centralized management platform for our operations. It was established in the PRC with limited liability on March 8, 2013 with a registered capital of RMB10,000,000, fully paid up by cash, and was wholly-owned by Zhenro Group Company as of the date of its establishment.

As part of the Reorganization, Zhenro Group Company transferred 5% of its equity interest in Fujian Zhenro to Future Prosperity (HK) on January 29, 2019 and 95% of its equity interest in Fujian Zhenro to Fuzhou Huihua on February 27, 2019. See “– Reorganization” below for details.

Zhenro Property Services

Zhenro Property Services is principally engaged in the provision of property management services. It was established in the PRC with limited liability on February 2, 2000 with an initial registered capital of RMB800,000, fully paid up by cash, and was owned as to 60% by Mr. ZR Ou and 40% by Jiangxi Zhenro Property Development Co., Ltd. (江西省正榮房地產開發有限公司), a then wholly-owned subsidiary of Zhenro Group Company.

Subsequent to a series of equity transfers, since April 25, 2013, Zhenro Property Services has been wholly-owned by Fujian Zhenro. On August 18, 2015, its registered capital has been increased to RMB50,000,000, fully paid up by cash. There has been no change in the equity interest in Zhenro Property Services since then.

Jiangxi Meishi

Jiangxi Meishi was established to engage in provision of property agency services. It was established in the PRC with limited liability on June 6, 2019 with a registered capital of RMB2,000,000 to be fully paid up pursuant to the articles of association of Jiangxi Meishi. Since its establishment, Jiangxi Meixi has been wholly-owned by Zhenro Property Services.

Yichun Shouweida

Yichun Shouweida was established to engage in our utilities installation and maintenance services. It was established in the PRC with limited liability on January 15, 2015 with a registered capital of RMB1,000,000, fully paid up by cash. Since its establishment, Yichun Shouweida has been wholly-owned by Zhenro Property Services.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Hubei Changfang Zhenro

Hubei Changfang Zhenro is principally engaged in the provision of property management services. It was established in the PRC with limited liability on July 30, 2018 with a registered capital of RMB5,000,000 to be fully paid up pursuant to the articles of association of Hubei Changfang Zhenro. Since its establishment, Hubei Changfang Zhenro has been owned as to 51% by Zhenro Property Services and 49% by Hubei Hongda Property Management Co., Ltd. (湖北宏達物業管理有限公司), an Independent Third Party (other than being a substantial shareholder of Hubei Changfang Zhenro).

Suzhou Keli

Suzhou Keli was established to engage in provision of property agency services. It was established in the PRC with limited liability on July 10, 2019 with a registered capital of RMB1,000,000 to be fully paid up pursuant to the articles of association of Suzhou Keli. Since its establishment, Suzhou Keli has been wholly-owned by Zhenro Property Services.

Zhenro Property Management

Zhenro Property Management was established to engage in provision of property management services. It was established in the PRC with limited liability on April 24, 2019 with a registered capital of RMB50,000,000 to be fully paid up pursuant to the articles of association of Zhenro Property Management. Since its establishment, Zhenro Property Management has been wholly-owned by Fujian Zhenro.

Fuzhou Zhenro

Fuzhou Zhenro is principally engaged in the provision of property management services. It was established in the PRC with limited liability on September 17, 2010 with a registered capital of RMB1,000,000, fully paid up by cash, and was wholly-owned by Zhenro Property Services as of the date of its establishment.

Due to internal restructuring, on June 8, 2013, Zhenro Property Services transferred its entire equity interest in Fuzhou Zhenro to Fujian Zhenro at a consideration of RMB1,000,000, which was determined based on the amount of the registered capital of Fuzhou Zhenro at the time of the equity transfer. Upon completion of such equity transfer, Fuzhou Zhenro has been wholly-owned by Fujian Zhenro since then.

Changsha Aitao

Changsha Aitao is principally engaged in the provision of property management services. It was established in the PRC with limited liability on March 6, 2018 with a registered capital of RMB5,000,000 to be fully paid up pursuant to the articles of association of Changsha Aitao. Since its establishment, Changsha Aitao has been wholly-owned by Jiangsu Aitao.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Acquisitions during the Track Record Period

Jiangsu Aitao

Jiangsu Aitao was established in the PRC with limited liability on February 12, 2001 and is principally engaged in the provision of property management services. For the purpose of expanding into the market of non-residential property management, including the management of government and public facilities in which Jiangsu Aitao has been managing, on August 9, 2017, Fuzhou Zhenro entered into a state-owned property rights transfer agreement with Jiangsu Holly Corporation (江蘇弘業股份有限公司), an Independent Third Party, pursuant to which Fuzhou Zhenro acquired 35% of the equity interest of Jiangsu Aitao from Jiangsu Holly Corporation through public auction (the “ First Acquisition ”), at a consideration of RMB7,000,000.16, which was the price of the 35% equity interest of Jiangsu Aitao in the open bid auction. The consideration was settled in full on August 11, 2017 and the First Acquisition was completed on August 24, 2017. Upon completion of the First Acquisition, Jiangsu Aitao was owned as to 65% by Pu Ming (蒲明) (a director of Jiangsu Aitao) and 35% by Fuzhou Zhenro. On September 21, 2017, Fuzhou Zhenro entered into an equity transfer agreement with Pu Ming, pursuant to which Fuzhou Zhenro acquired the remaining 65% of the equity interest of Jiangsu Aitao from Pu Ming (the “ Second Acquisition ”) at a consideration of RMB13,000,000, which was determined with reference to the auction price of the First Acquisition. The consideration was settled on October 25, 2017 and the Second Acquisition was completed on October 20, 2017. Upon the completion of the First Acquisition and the Second Acquisition, Jiangsu Aitao became wholly-owned by Fuzhou Zhenro.

Jiangsu Sutie

Jiangsu Sutie was established in the PRC with limited liability on January 4, 2001 and is principally engaged in the provision of property management services. For the purpose of further expanding to the market of non-residential property management including the management of schools in which Jiangsu Sutie has been managing, on June 15, 2019, Fujian Zhenro entered into an equity transfer agreement with Li Wende (黎文德) (a director of Jiangsu Sutie) and Tang Weibing (唐偉兵) (a director of Jiangsu Sutie), pursuant to which Fujian Zhenro acquired a total of 70% of the equity interest in Jiangsu Sutie from Li Wende and Tang Weibing at a total consideration of RMB70,000,000, which was determined after arm’s length negotiation with reference to the net asset value of Jiangsu Sutie as at December 31, 2018 as well as its business prospects having regard to its client base and project portfolio. Fujian Zhenro took control over the management of Jiangsu Sutie on January 1, 2019. The consideration of such acquisition was agreed to be settled in three installments: (1) the first installment of RMB49,000,000 was settled on July 4, 2019; (2) the second installment of RMB14,000,000 to be settled within 15 days of, among others, the issue of the audited report for the year ending December 31, 2019 of Jiangsu Sutie; and (3) the remaining balance of RMB7,000,000 to be settled within 15 days of, among others, the issue of the audited report for the year ending December 31, 2020 of Jiangsu Sutie. Upon the completion of such equity transfers, Jiangsu Sutie became owned as to 70% by Fujian Zhenro, 15% by Li Wende and 15% by Tang Weibing.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

REORGANIZATION

In preparation for the [ REDACTED ], we underwent the Reorganization pursuant to which our Company became the holding company and [ REDACTED ] vehicle of our Group and our PRC operations were transferred to our Company.

The following chart sets forth our shareholding structure immediately before the Reorganization:

==> picture [390 x 259] intentionally omitted <==

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

Mr. GQ Ou Mr. ZR Ou
8.1% 91.9%
Zhenro Group Company
(PRC)
100%
Fujian Zhenro
(PRC)
100%
100%
Fuzhou Zhenro
Zhenro Property Services
(PRC)
(PRC)
100%
Jiangsu Aitao
100% 51% (PRC)
Yichun Showeida Hubei Changfang Zhenro [(1)] 100%
(PRC) (PRC)
Changsha Aitao
(PRC)
----- End of picture text -----

Note:

(1) Hubei Changfang Zhenro is owned as to 51% by Zhenro Property Services and 49% by Hubei Hongda Property Management Co., Ltd. (湖北宏達物業管理有限公司), an Independent Third Party (other than being a substantial shareholder of Hubei Changfang Zhenro).

Incorporation of BVI holding companies

WeiZheng, WeiYao and WeiTian were incorporated in the BVI with limited liability on December 13, 2018 to act as the holding companies for Mr. ZR Ou’s interest in our Company. As of the date of their incorporations, each of WeiZheng, WeiYao and WeiTian was authorized to issue a maximum of 50,000 shares of US$1 each. On the date of their incorporations, one fully-paid share of each of WeiZheng, WeiYao and WeiTian was issued and allotted to Mr. ZR Ou at par and each of WeiZheng, WeiYao and WeiTian then became wholly-owned by Mr. ZR Ou.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

On the same date, WeiQiang was incorporated in the BVI with limited liability to act as the holding company for Mr. GQ Ou’s interest in our Company. As of the date of its incorporation, WeiQiang was authorized to issue a maximum of 50,000 shares of US$1 each. On the date of its incorporation, one fully-paid share of WeiQiang was issued and allotted to Mr. GQ Ou at par and WeiQiang then became wholly-owned by Mr. GQ Ou.

Incorporation of our Company

Our Company was incorporated in the Cayman Islands as an exempted company with limited liability on December 17, 2018 to act as the holding company and [ REDACTED ] vehicle of our Group. As of the date of its incorporation, the authorized share capital of our Company was US$950,000 divided into 950,000 shares of US$1 each. On the date of its incorporation, one fully-paid share of our Company was issued and allotted at par to an initial subscriber, an Independent Third Party, and such share was transferred to WeiQiang at a consideration of US$1 on the same date. On the same date, 683,050 shares, 95,000 shares, 95,000 shares and 76,949 shares of US$1 each were issued and allotted to WeiZheng, WeiYao, WeiTian and WeiQiang, respectively. Upon completion of such issues and allotments, the shareholding of our Company was as follows:

Shareholders WeiZheng WeiYao WeiTian WeiQiang Total	Number of shares 683,050 95,000 95,000 76,950 950,000	Percentage shareholding 71.9% 10.0% 10.0% 8.1%
		100%

On October 18, 2019, the authorized share capital of our Company was increased from US$950,000 to US$1,000,000 by the creation of additional 50,000 shares of US$1 each, and following which the authorized share capital of our Company was US$1,000,000 divided into 1,000,000 shares of US$1 each.

Incorporation of Zhenro Services (BVI)

Zhenro Services (BVI) was incorporated in the BVI with limited liability on December 19, 2018 as our intermediate holding company of our Group in the BVI. As of the date of its incorporation, Zhenro Services (BVI) was authorized to issue a maximum of 50,000 shares of US$1 each. On the date of its incorporation one fully-paid share of Zhenro Services (BVI) was issued and allotted to our Company at par and Zhenro Services (BVI) then became wholly-owned by our Company.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Incorporation of Zhenro Services (HK)

Zhenro Services (HK) was incorporated in Hong Kong with limited liability on December 24, 2018 as our intermediate holding company of our Group in Hong Kong. On the date of its incorporation, one share of Zhenro Services (HK) was issued and allotted to Zhenro Services (BVI) at a subscription price of HK$1 and Zhenro Services (HK) then became wholly-owned by Zhenro Services (BVI).

Acquisition of 5% equity interest in Fujian Zhenro by Future Prosperity (HK)

See “– [ REDACTED ] Investment – Investment by Sky Bridge” below for details. Upon its completion on January 29, 2019, Fujian Zhenro became owned as to 95% by Zhenro Group Company and 5% by Future Prosperity (HK).

Establishment of Fuzhou Huihua and acquisition of 95% equity interest in Fujian Zhenro

Fuzhou Huihua is our intermediate holding company in the PRC. It was established in the PRC with limited liability on January 31, 2019 with a registered capital of RMB5,000,000 to be fully paid up pursuant to the articles of association of Fuzhou Huihua. Since its establishment, Fuzhou Huihua has been wholly-owned by Zhenro Services (HK).

On February 27, 2019, Zhenro Group Company transferred its 95% equity interest in Fujian Zhenro to Fuzhou Huihua at a consideration of RMB47,963,315, which was determined after arm’s length negotiations among the parties and with reference to the appraised net asset value of Fujian Zhenro of RMB50.5 million as of November 30, 2018 by an independent valuer. The consideration was settled in full on April 2, 2019. Upon completion of such equity transfer, Fujian Zhenro has been owned as to 95% by Fuzhou Huihua and 5% by Future Prosperity (HK) since then.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Acquisition of Future Prosperity (BVI)

On November 7, 2019, Sky Bridge transferred 1,000 shares of Future Prosperity (BVI), representing the entire issue share capital of Future Prosperity (BVI), to our Company in consideration of the issue of 50,000 shares of our Company of US$1 each to Sky Bridge. Upon completion of such share transfer, each of Future Prosperity (BVI), Future Prosperity (HK) and Fuzhou Zhenro became our wholly-owned subsidiary and the shareholding of our Company became as follows:

Shareholders WeiZheng WeiYao WeiTian WeiQiang Sky Bridge Total	Number of shares 683,050 95,000 95,000 76,950 50,000 1,000,000	Approximate percentage shareholding 68.3% 9.5% 9.5% 7.7% 5.0%
		100%

See “– Corporate structure immediately after the completion of the Reorganization and the [ REDACTED ] Investment” below for our corporate structure upon the completion of the Reorganization and the [ REDACTED ] Investment.

[ REDACTED ] INVESTMENT

Investment by Sky Bridge

On January 21, 2019, Future Prosperity (HK) entered into an equity transfer agreement with Zhenro Group Company, pursuant to which Future Prosperity (HK) acquired 5% equity interest in Fujian Zhenro from Zhenro Group Company at a consideration of RMB2,524,380 which was fully paid by cash on March 19, 2019.

As of January 21, 2019, Future Prosperity (HK) was a direct wholly-owned subsidiary of Future Prosperity (BVI), which was in turn wholly-owned by Sky Bridge.

On November 7, 2019, Sky Bridge entered into a share swap agreement with our Company, pursuant to which Sky Bridge transferred 1,000 shares of Future Prosperity (BVI), representing the entire issue share capital of Future Prosperity (BVI), to our Company in consideration of the issue of 50,000 shares of US$1 each by our Company to Sky Bridge.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Details of Sky Bridge’s investment (the “[ REDACTED ] Investment ”) are set forth below:

Name of [ REDACTED ] investor:

Sky Bridge

Date of agreement:

January 21, 2019

Amount of consideration paid:

RMB2,524,380 (equivalent to approximately HK$2.8 million) (through its investment in Fujian Zhenro)

Basis of determination of the consideration:

After arm’s length negotiations among the parties and with reference to the appraised net asset value of Fujian Zhenro of RMB50.5 million as of November 30, 2018 by an independent valuer

Consideration payment date:

March 19, 2019

Cost per Share[(1)] :

Approximately RMB[ REDACTED ] (equivalent to approximately HK$[ REDACTED ])

Discount to mid-point of the [ REDACTED ] range[(1)] :

Approximately [ REDACTED ]%

Use of proceeds:

As the [ REDACTED ] Investment was effected by way of equity transfer between Future Prosperity (HK) and Zhenro Group Company, the consideration was paid to Zhenro Group Company and no proceeds were received by our Group

Shareholding in our Company immediately after the completion of the [ REDACTED ] Investment[(1)] :

Shareholding in our Company immediately after the completion of the [ REDACTED ][(1),][(2)] :

Approximately [ REDACTED ]%

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Strategic benefits to our Group:

Our Directors are of the view that the [ REDACTED ] Investment will strengthen the shareholder base of our Company. In addition, by considering the experience of the shareholders of Sky Bridge in the capital market, particularly its investment in real estate industry, and its business network, our Directors believe that the [ REDACTED ] Investment will benefit our Group’s business development and the shareholders of Sky Bridge can provide insights and recommendation in formulating our strategy in future business expansion and acquisitions and development into various regional markets

Special rights:

Sky Bridge is not entitled to any special rights under the [ REDACTED ] Investment

Notes:

(1) Calculated on the basis of the number of Shares to be held by Sky Bridge immediately after the completion of the [ REDACTED ].
(2) Assuming that the [ REDACTED ] is not exercised and taking no account of any Shares to be issued upon the exercise of any options that may be granted under the Share Option Scheme.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Information regarding the [ REDACTED ] Investor

Sky Bridge was incorporated in the BVI with limited liability on August 16, 2017. It is a wholly-owned subsidiary of Wide China Trading Limited (華博貿易有限公司), which is a company incorporated in Hong Kong, which is in turn a wholly-owned subsidiary of Fujian Huamin Import and Export Co., Ltd. (福建華閩進出口有限公司) (“ Fujian Huamin ”), a company established in the PRC with limited liability on June 13, 1986. Fujian Huamin is a foreign trading company in Fujian and is owned as to 40.09% by Fujian Huatian Investment Co., Ltd. (福建華田投資有限公司) (“ Fujian Huatian ”), 17.99% by Fujian Huagong Investment Co., Ltd. (福建華工投資有限公司) (“ Fujian Huagong ”), 17.25% by Fujian Huahui Investment Co., Ltd. (福建華會投資有限公司) (“ Fujian Huahui ”), 10% by Fujian Huiyuan International Exhibition Co., Ltd. (福建薈源國際展覽有限公司) (“ Fujian Huiyuan ”), 5% by Fujian Huamin Industrial Co., Ltd. (福建華閩實業有限公司) (“ Fujian Huamin Industrial ”), 4.93% by Mr. Liu Pingshan (劉平山) and 4.74% by Mr. Wang Zhiming (王志明), respectively, all being Independent Third Parties. Fujian Huatian is an investment company established in the PRC and owned as to 51% by Mr. Liu Pingshan and 49% by Mr. Wang Zhiming, both of whom are Independent Third Parties respectively. Each of Fujian Huagong and Fujian Huahui is an investment company established in the PRC and owned by individual employees of Fujian Huamin Industrial who are Independent Third Parties. Fujian Huiyuan is a company established in the PRC and is principally engaged in the organization of the exhibitions. It is owned as to 55% by Mr. Ruan Weixing (阮衛星) and 45% by Mr. Li Jian (李儉), both of whom are Independent Third Parties, respectively. Fujian Huamin Industrial is a company established in the PRC and is principally engaged in the development of public facilities and foreign trading. It is ultimately owned by the State-Owned Assets Supervision and Administration Commission of the People’s Government of Fujian Province (福建省人民政府國有資產監督管理委員會).

Lock-up and Public Float

As Sky Bridge is not a core connected person of the Company and the [ REDACTED ] Investment was not financed directly or indirectly by any core connected persons of the Company, Shares held by Sky Bridge will be counted towards the public float after the [ REDACTED ].

Sky Bridge has agreed that, it will not, at any time during the period from November 7, 2019, being the date of the share swap agreement, to the date falling six months following the [ REDACTED ], dispose of any of the Shares directly or indirectly held by it.

Compliance with Interim Guidance

The Sole Sponsor is of the view that the terms of the [ REDACTED ] Investment by Sky Bridge are in compliance with (i) the Guidance Letter HKEx-GL-29-12 issued by the Stock Exchange in January 2012 and as updated in March 2017; and (ii) the Guidance Letter HKEx-GL43-12 issued by the Stock Exchange in October 2012 and as updated in July 2013 and March 2017.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

CORPORATE STRUCTURE IMMEDIATELY AFTER THE COMPLETION OF THE REORGANIZATION AND THE [ REDACTED ] INVESTMENT

The following chart sets forth our corporate and shareholding structure immediately after the completion of the Reorganization and the [ REDACTED ] Investment, but before the completion of the [ REDACTED ] and the [ REDACTED ]:

==> picture [417 x 390] intentionally omitted <==

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

Mr. GQ Ou Mr. ZR Ou
100% 100% 100% 100%
WeiQiang WeiZheng WeiYao WeiTian Sky Bridge
(BVI) (BVI) (BVI) (BVI) (BVI)
7.7% 68.3% 9.5% 9.5% 5%
Our Company
(Cayman Islands)
100% 100%
Future Prosperity (BVI) Zhenro Services (BVI)
(BVI) (BVI)
100% 100%
Future Prosperity (HK) Zhenro Services (HK)
(Hong Kong) (Hong Kong)
100% Offshore
Fuzhou Huihua Onshore
(PRC)
5% 95%
Fujian Zhenro
(PRC)
100% 100% 100% 70%
Zhenro PropertyServices Zhenro PropertyManagement [(1)] Fuzhou Zhenro Jiangsu Sutie [(5)]
(PRC) (PRC)
(PRC) (PRC)
100%
100% 100% 100% 51% Jiangsu Aitao
(PRC)
Jiangxi Yichun Hubei Changfang
Suzhou Keli [(3)] Meishi [(2)] Shouweida Zhenro [(4)] 100%
(PRC) (PRC) (PRC) (PRC) Changsha Aitao
(PRC)
----- End of picture text -----

Notes:

(1) Zhenro Property Management was established in the PRC on April 24, 2019.
(2) Jiangxi Meishi was established in the PRC on June 6, 2019.
(3) Suzhou Keli was established in the PRC on July 10, 2019.
(4) Hubei Changfang Zhenro is owned as to 51% by Zhenro Property Services and 49% by Hubei Hongda Property Management Co., Ltd. (湖北宏達物業管理有限公司), an Independent Third Party (other than being a substantial shareholder of Hubei Changfang Zhenro).
(5) Jiangsu Sutie is owned as to 70% by Fujian Zhenro, 15% by Li Wende and 15% by Tang Weibing, both Independent Third Parties (other than being substantial shareholders and directors of Jiangsu Sutie).

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

SUBDIVISION OF SHARES AND INCREASE IN AUTHORIZED SHARE CAPITAL

On [●], 2020, each of our issued and unissued shares of US$1.00 each was subdivided into 500 Shares of US$0.002 each. Our authorized share capital was further increased from US$1,000,000 to US$[40,000,000] by the creation of additional [19,500,000,000] Shares, such that following the subdivision of shares and the increase in authorized share capital, the authorized share capital of our Company was US$[40,000,000] divided into [20,000,000,000] Shares of US$0.002 each.

[ REDACTED ]

Pursuant to the written resolutions of our Shareholders passed on [●], 2020, conditional on the share premium account of our Company being credited as a result of the [ REDACTED ], our Directors are authorized to capitalize an amount of US$[ REDACTED ] standing to the credit of the share premium account of our Company by applying such sum towards the paying up in full at par a total of [ REDACTED ] Shares for issue and allotment to holders of Shares whose names appear on the register of members of our Company on the date of passing such resolutions in proportion (as near as possible without involving fractions so that no fraction of a share shall be issued and allotted) to their then existing respective shareholding in our Company.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

CORPORATE STRUCTURE IMMEDIATELY AFTER THE COMPLETION OF THE [ REDACTED ] AND THE [ REDACTED ]

The following chart sets forth our corporate and shareholding structure upon immediately after completion of the [ REDACTED ] and the [ REDACTED ] (assuming that the [ REDACTED ] is not exercised and taking no account of any Shares to be issued upon the exercise of any options that may be granted under the Share Option Scheme):

										Public	Public
Mr. GQ Ou				Mr. ZR Ou						Shareholders
	100%
			100%		100%		100%
WeiQiang		WeiZheng		WeiYao		WeiTian		Sky Bridge
(BVI)		(BVI)		(BVI)		(BVI)		(BVI)
	[REDACTED]%		[REDACTED]%		[REDACTED]%		[REDACTED]%		[REDACTED]%		[REDACTED]%

					Our Company
					(Cayman Islands)

==> picture [417 x 285] intentionally omitted <==

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

100% 100%
Future Prosperity (BVI) Zhenro Services (BVI)
(BVI) (BVI)
100% 100%
Future Prosperity (HK) Zhenro Services (HK)
(Hong Kong) (Hong Kong)
100% Offshore
Fuzhou Huihua Onshore
(PRC)
5% 95%
Fujian Zhenro
(PRC)
100% 100% 100% 70%
Zhenro PropertyServices Zhenro PropertyManagement Fuzhou Zhenro Jiangsu Sutie [(2)]
(PRC) (PRC) (PRC) (PRC)
100%
100% 100% 100% 51% Jiangsu Aitao
(PRC)
Suzhou Jiangxi Yichun Hubei Changfang
Keli Meishi Shouweida Zhenro [(1)] 100%
(PRC) (PRC) (PRC) (PRC) Changsha Aitao
(PRC)
----- End of picture text -----

Notes:

(1) Hubei Changfang Zhenro is owned as to 51% by Zhenro Property Services and 49% by Hubei Hongda Property Management Co., Ltd. (湖北宏達物業管理有限公司), an Independent Third Party (other than being a substantial Shareholder of Hubei Changfang Zhenro).
(2) Jiangsu Sutie is owned as to 70% by Fujian Zhenro, 15% by Li Wende and 15% by Tang Weibing, both Independent Third Parties (other than being substantial shareholders and directors of Jiangsu Sutie).

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

PRC REGULATORY REQUIREMENTS

Our PRC Legal Advisors have advised that the acquisition of 5% equity interest in Fujian Zhenro by Future Prosperity (HK) from Zhenro Group Company (the “ First Transfer ”) is subject to the M&A Rules and the Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises (the “ Interim Administrative Measures ”) (外商投資企業設立及變更備案管理暫行辦法). Fujian Zhenro has obtained the record-filing receipt for the incorporation of foreign-invested enterprises (外商投資企業設立備案回執) and the new business license for the First Transfer pursuant to the M&A Rules and the Interim Administrative Measures. Upon completion of the First Transfer, Fujian Zhenro became a sino-foreign joint venture enterprise. For the acquisition of 95% equity interest in Fujian Zhenro by Fuzhou Huihua from Zhenro Group Company (the “ Second Transfer ”), our PRC Legal Advisors have advised that since Zhenro Group Company transferred 95% equity interest in Fujian Zhenro to Fuzhou Huihua after Fujian Zhenro was converted into a sino-foreign joint venture enterprise, the Second Transfer is the equity transfer in a foreign invested enterprise, and thus, the M&A Rules are not applicable to the Second Transfer. Instead, the Second Transfer shall comply with the Rules on the Changes of Shareholding of Foreign-invested Enterprise Investor (外商投資企業投資者股權變更的若干規定) (the “ Rules ”) and the Interim Administrative Measures, and Fujian Zhenro has obtained the record-filing receipts for the change of foreign-invested enterprises (外商投資企業變更備案回執) and the new business license for Second Transfer pursuant to the Rules and the Interim Administrative Measures. Our PRC Legal Advisors are of the view that the First Transfer has been completed in accordance with the M&A Rules and Interim Administrative Measures, the Second Transfer has been completed in accordance with the Rules and the Interim Administrative Measures.

Our PRC Legal Advisors have confirmed that all the equity transfers and increases in registered capital in respect of the PRC companies in our Group as described above have obtained all necessary government approvals and permits and the government procedures involved are in accordance with the applicable PRC laws and regulations. Our PRC Legal Advisors have also confirmed that we have obtained all necessary approvals from relevant PRC regulatory authorities required for the implementation of the Reorganization.

As advised by our PRC Legal Advisors, Mr. ZR Ou and Mr. GQ Ou have completed the registrations on January 16, 2019 as required by Circular 37 and Circular 13.

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BUSINESS

You should read this document in its entirety before you decide to invest in the [ REDACTED ] , and not rely solely on key or summarized information. The financial information in this section has been extracted without material adjustment from the Accountants ’ Report set out in Appendices IA and IB to this document. All market statistics quoted in this document, unless otherwise specified, are from the CIA Report. For the qualifications of CIA as well as details of the industry report, see “ Industry Overview ” in this document.

OVERVIEW

We are a nationwide, fast-growing and comprehensive property management service provider in China, offering diversified property management services for residential and non-residential properties. According to CIA, we were ranked 22nd among the 2019 Top 100 Property Management Companies in China in terms of overall strength[1] (2019中國物業服務百強企業第22名) in 2019. According to CIA, we are one of the fastest-growing property management companies in China, ranked fourth and seventh in terms of growth rate of revenue and net profit for 2018, respectively, among the top 30 of the 2019 Top 100 Property Management Companies.[1] According to Yihan Zhiku, we were recognized as one of the Top Ten of the 2019 Community Service Providers in China by Growth (2019中國社區服務商成長性10強) in 2019.

Having been providing property management services in China for over 15 years, we believe that our extensive industry experience differentiates us from many of our competitors. As of September 30, 2019, we had expanded our business portfolio to four major regions in China, namely, the Yangtze River Delta Region, the Western Straits Region, the Midwest Region and the Bohai Rim Region. We believe that these four major regions are among the most populated and economic prosperous regions in China with high economic growth prospects. We adopted a growth strategy to further expand our market presence in existing cities in which we operate and to enter into new cities in the four major regions that we consider to be of high economic growth potential. As of September 30, 2019, we had 136 projects under our management, covering 34 cities in the four major regions, with a total GFA of approximately 21.0 million sq.m. and a total contracted GFA of approximately 34.4 million sq.m.

Note:

(1) CIA publishes the ranking of the Top 100 Property Management Companies in China in terms of overall strength each year. CIA prepares such ranking by assessing the relevant key factors of each company, including but not limited to, management scale, operational performance, service quality, growth potential and social responsibility. Our rankings based on the growth rate of revenue and net profit may be different from the rankings of overall strength. See “Industry Overview — Background and Methodologies of CIA” for more details.

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BUSINESS

We provide diversified property management services for both residential and nonresidential properties through our three main business lines, namely, property management services, value-added services to non-property owners and community value-added services. We have established a long-term cooperative relationship with Zhenro Property Group and provided services to all of the residential properties developed by Zhenro Property Group (excluding any property projects jointly developed by Zhenro Property Group with other parties and property projects in which Zhenro Property Group did not have a controlling interest) during the Track Record Period. In addition to residential properties, our project portfolio also includes non-residential properties, such as government and public facilities, office buildings, industrial parks and schools. We strive to build our own property management service ecosystem with diversified, comprehensive and high-quality services that encompass the entire value chain of property management. Our services primarily include the following:

Property management services . We provide a wide range of property management services to property developers, property owners and residents. Our property management services primarily include (i) cleaning services, (ii) security services, (iii) landscaping services and (iv) repair and maintenance services at both residential and non-residential properties.
Value-added services to non-property owners . We offer a comprehensive range of property-related business solutions to non-property owners, which primarily include property developers. Our value-added services to non-property owners primarily consist of (i) sales assistance services (involving assistance to property developers in showcasing and marketing their properties, cleaning and maintenance, security and visitor management), (ii) additional tailored services customized to meet specific needs of our customers on an as-needed basis, (iii) housing repair services, (iv) preliminary planning and design consultancy services and (v) pre-delivery inspection services.
Community value-added services . We provide community value-added services to property owners and residents. Our community value-added services primarily include (i) home-living services, (ii) car park management, leasing assistance and other services and (iii) common area value-added services to improve the living experience of our customers and to maintain and enhance the value of their properties.

As a result of our efficient operation and quality services, we experienced continual and rapid growth during the Track Record Period. Our revenue increased by 67.2% from RMB272.9 million in 2017 to RMB456.3 million in 2018, which is higher than the average revenue growth rate of 19.4% for the Top 100 Property Management Companies for the same period reported by CIA. Our revenue increased by 61.2% from RMB320.6 million for the nine months ended September 30, 2018 to RMB516.9 million for the same period in 2019. Our net profit increased by 94.6% from RMB20.3 million in 2017 to RMB39.5 million in 2018, which is higher than the average net profit growth rate of 26.0% for the Top 100 Property Management Companies for the same period reported by CIA. Our net profit increased significantly from RMB28.5 million in the nine months ended September 30, 2018 to RMB74.3 million for the same period in 2019.

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BUSINESS

COMPETITIVE STRENGTHS

We believe that our success is primarily attributable to the following competitive strengths:

A nationwide, fast-growing and comprehensive property management service provider

We have been a property management service provider in China for over 15 years. We have based our headquarters in Shanghai and developed our business to cover four major regions in China, namely, the Yangtze River Delta Region, the Western Straits Region, the Midwest Region and the Bohai Rim Region. According to CIA, the aggregate GDP for the four major regions in which we operate accounted for approximately 87.5% of the national GDP of China in 2018. Closely following the relevant national and local development policies and regulations, we have continued to expand our business scale, enlarge our comprehensive service offering that cater to both residential and non-residential properties in the four major regions and improve our service quality.

As of September 30, 2019, we had a total of 136 projects under management with a total GFA under management of approximately 21.0 million sq.m. and a total contracted GFA of 34.3 million sq.m., covering 34 cities within these four major regions. During the Track Record Period, we strategically focused on our business developments in the Yangtze River Delta Region and the Western Straits Region among the four major regions. As of September 30, 2019, we had an aggregate GFA under management of approximately 16.7 million sq.m. and an aggregate contracted GFA of approximately 24.5 million sq.m. in these two regions, accounting for approximately 79.7% and 71.3% of our total GFA under management and total contracted GFA as of the same date, respectively.

Our property management business experienced rapid growth during the Track Record Period. Our total GFA under management increased from approximately 9.4 million sq.m. as of December 31, 2017 to approximately 12.6 million sq.m. as of December 31, 2018, and further increased to approximately 21.0 million sq.m. as of September 30, 2019. Our revenue and net profit increased by 67.2% and 94.6% from 2017 to 2018, respectively, which outpaced the respective average growth rate for revenue and net profit of 19.3% and 26.0% of the Top 100 Property Management Companies in China for the same period, according to CIA. Our revenue and net profit for the nine months ended September 30, 2019 increased significantly as compared with the same period in 2018 and also exceeded the total revenue and net profit for the year ended December 31, 2018.

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BUSINESS

Our competitive market position, fast business expansion and comprehensive service offering are also evidenced by the numerous industry accolades that we received over the years. In 2019, we were ranked 22nd among the 2019 Top 100 Property Management Companies in China in terms of overall strength (2019中國物業服務百強企業第22名) in 2019. In the same year, we received the “2019 China Property Management Leading Brand in Market-oriented Operation” award (2019中國物業服務市場化運營領先品牌) from CIA. In 2019, we were recognized as one of the Top Ten Community Service Providers by Growth (2019中國社區服務商成長性10強) by Yihan Zhiku. In addition, we were recognized as one of the 2019 Top 50 Most Valuable Brands of Property Management Service (2019中國物業服務企業品牌價值50 強) by the China Property Management Association in 2019. See “— Awards and Recognitions” for more of our awards and recognitions.

We believe that our rapid business growth and well-established market position in China will continue to enable us to capture more market share in the property management industry.

Focusing on standardization of our procedures, digitalization of our operations, and our cost control measures, we are able to provide consistent and cost-effective services to improve customer experience, achieve operational efficiency and generate sustainable profits.

We have established a centralized system to improve the standardization of our procedures. Based on our management experiences, information and knowledge built on issues previously encountered and resolved, we have formulated procedures to ensure that our service quality is regularly monitored and reviewed. Also, for properties under our management, we have adopted a series of measures to ensure that our performance meets the standards set forth in the respective property management service agreements and our customers’ expectations. For example, we have further divided the four main services under our property management services, namely, cleaning services, security services, landscaping services and repair and maintenance services, into 48 sub-services and formulated detailed service standards and operating procedures for each of the 48 sub-services to ensure that our service quality meet high-quality standards. In addition, we provide differentiated services including “Service 1.0,” “Service 2.0” and “Service 2.0+,” which can be tailored to different customers’ needs and budgets. See “— Property Management Services — Scope of Services” for more information.

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BUSINESS

Through continuous investment in information technology, we are gradually undergoing the process of transforming from a labor-intensive property management service provider to an enterprise better equipped with digitalized systems to provide more diversified property management services. For example, we have adopted digital vehicle barrier gates to reduce the number of security service personnel. We also upgraded our equipment management system to combine and centralize the management, maintenance and monitoring of our equipment, thereby reducing our staff costs while increasing operational efficiency.

Furthermore, we have improved our cost management and control capabilities by taking various measures to reduce costs while satisfying the conditions and requirements of each individual project, including, among other things, human resources, utility and material use. Our measures include, among others, (i) outsourcing front-line services roles, such as cleaning and security services, (ii) optimizing project organizational structure and personnel by consolidating the resources and personnel allocated for geographically adjacent projects, and (iii) reducing utility and labor costs through application of advanced technology, facility and equipment upgrade, and energy conservation management.

Attributable to the successful implementation of our standardized operational procedures, digitalization of our operations and cost control measures, our cost of sales accounts for approximately 74.2% and 73.5% of our total revenue in 2017 and 2018, respectively, which were lower than the average of the cost of sales to total revenue of 77.7% and 76.4% the Top 100 Property Management Companies for the same years, respectively. The percentage of our cost of sales to total revenue further decreased to approximately 66.6% for the first nine months of 2019.

We believe that our standardized operational procedures, digitalization of operations and cost control measures will continue to help us further reduce costs and improve our profitability.

Experienced management team supported by a professional and quality human resources system

Our management team has extensive experience in the property management industry. Our executive Directors and key senior management personnel have more than 10 years of experience in the property development and management industry on average, and we consider them instrumental to our long-term success and business growth. As of September 30, 2019, all of our core management team members held a bachelor’s degree or above, and more than 40% of them held a master’s degree or above.

We also place a strong emphasis on attracting and retaining talented employees. We have implemented “Rong Star” (“榮之星”) program for newly-recruited fresh graduates to help them grow into industry professionals and build up our talent reserve. We have developed our “Rong Commander” (“榮之將”) program for our project managers and personnel with similar roles to improve their professional expertise, management capabilities and broaden their visions in preparation for more senior management roles. In addition, we have also formulated the “Spark

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Plan” (“星火計劃”) for our marketing and promotion team members and “Leader Plan” (“領軍計劃”) for our value-added service personnel. See “— Employees — Training” for more information. These internal trainings feature differentiated employee cultivation and performance assessment which tailor to the needs of different positions from entry-level staff to more senior management personnel with varying skill sets and career pursuits. We believe these programs help build a more cohesive corporate culture and train more professional and qualified employees needed for our further business expansion.

We consider talent reserve as one of the key factors to our sustainable growth. To this end, we utilize various resources to meet our demand for talents. We have established internal talent referral policies to encourage our employees to introduce more talents to us. We also offer hiring bonus to incentivize regional branches to attract suitable talents. In addition, we host introduction meetings on campuses and hold interview sessions at reputable universities across China to recruit talented graduates.

Through the above-mentioned programs and policies, we ensure that we have a deep talent pool for our continuous business expansion.

BUSINESS STRATEGIES

We intend to build upon our existing market positions and further expand our business nationwide. We are committed to becoming one of the top ten property management service providers in terms of overall strength in China in mid- to long-term. To achieve this goal, we have formulated a business strategy entitled the “1234 Plan.” Under this plan, “one” represents our mid- to long-term goal of becoming one of the top ten property management service providers in China in terms of overall strength; “two” represents our dual-property type business model; “three” represents the three core capabilities that we deem instrumental to our future success, namely, teamwork, operational efficiency and ability to innovate; and “four” represents the four major regions in which we currently operate and intend to further expand. More specifically, we intend to implement the following strategies:

Expand our project portfolio, explore strategic investment, acquisition and cooperation opportunities and grow our business scale and market share

We aim to further increase our business scale and strengthen our market position in China’s property management industry. We intend to implement the following strategies to achieve this goal:

Engage more projects and further diversify our project portfolio through multiple channels . We plan to continue to apply our dual-property type business model and further diversify our project portfolio. We plan to leverage our experiences from successful mergers and acquisitions in the past, and continue to seek investment and acquisition opportunities to penetrate into new markets with growth potential. We believe that suitable investments and acquisitions will help us to further increase the breadth of our service offering and geographic coverage of our project portfolio.

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Also, we may be subject to higher costs or risks when organically expanding into a new market due to the differences in local policies, customs, market conditions and strategic investment in or acquisitions of suitable and local property management companies can be alternative means of efficient expansion into new markets to save our costs and time. We plan to further acquire other property management companies that meet our selection criteria, which include, among others, service offering, geographic coverage, financial stability, growth potential, qualifications in service areas that we consider profitable or compatible with our expansion strategy, such as property management companies that engage in community retail business, or property management companies with specialty management experiences in elderly care and community health care services. We plan to use approximately [ REDACTED ]% of the [ REDACTED ] from the [ REDACTED ] for strategic mergers or acquisitions. For more information, see “Future Plans and [ REDACTED ]”. As of the Latest Practicable Date, we did not have any specific investment or acquisition target that meets our criterion;

Expand our services to cover more types of non-residential properties. We will continue to cooperate with, among others, third-party property developers to organically expand our property management and offer value-added services to more types of non-residential properties, such as hospitals and airports;
Increase geographical coverage by increasing market presence in the four major regions. We will continue to reinforce our existing market presence in the four major regions and also expand into new cities in the same regions that have considerable customer spending power. We believe that our strong management capabilities and extensive industry experiences will help us continue to grow in terms of geographical coverage and stay competitive; and
Capitalize on our brand value. We plan to further enhance and capitalize on our brand value. For example, we intend to continue to promote our brand image by organizing various social events, such as media releases and industry and community publicity events. We plan to continue to provide differentiated service packages targeting the diverse needs of our customers while enhancing our relevant brands associated with various services. For example, we plan to introduce our brand for residential property management services, “Rong Service” (榮服務), to new cities and/or property types as appropriate. See “— Our Brands” below for more information.

We believe that these measures will enable us to further expand our market presence and increase our market shares. See “Future Plans and [ REDACTED ]” for our intended use of [ REDACTED ] from the [ REDACTED ].

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Stay innovative and continue to develop diversified value-added services

As our business is closely linked with the needs and preferences of our customers’ daily lives, we believe that it is vital for us to continue to improve our service quality and offer pertinent value-added services that best meet our customers’ preferences and requirements. Therefore, in addition to our focus on elevating operational efficiency, we intend to further improve our ability to innovate and offer the “right” services, particularly value-added services, to our customers to increase customer satisfaction.

We seek to leverage our experience and expand our offerings of value-added services to property owners and residents to tailor to their needs better throughout the value chain of property development. For example, we may provide residents with housekeeping services, car washing and parcel storage and delivery services. For older residential properties, we may offer home renovation and furnishing services, among others. For non-residential properties, we may offer various value-added services, such as plant leasing services, shared office space leasing services, lunch catering and food delivery and external wall and air-conditioning unit cleaning services.

As our property portfolio becomes more diversified, we will further offer more customized value-added services to meet the differentiated needs of our customers and further increase our customer satisfaction in order to diversify our income sources and enhance profitability.

Further enhance operational efficiency with upgraded information technology systems to maximize cost efficiency

We aim to continue to provide quality services to our customers through operational standardization and upgrades of our information technology systems to enable us to strengthen our operational efficiency and control our cost effectively. Specifically, we plan to further implement our operational standardization procedures and improve our management efficiency and operational capabilities through the following measures:

We will continue to optimize our quality management system in accordance with our business needs. We plan to further upgrade the quality management system at our headquarters and relevant regional branches to allow more close communications between the front-line service teams with back office support as well as the relevant feedback and training programs which may, in turn, facilitate greater communications and more stringent quality control;
We aim to achieve better quality control and operational efficiency by further implementing and improving our cost control measures, such as consolidating the resources and personnels allocated to geographically adjacent projects; and

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We plan to formulate internal templates and guidance on how to synergize acquired companies with our existing operations upon completion of mergers and acquisitions. We started to conduct periodic post-completion evaluations six months after the completion of our acquisition projects to gather relevant feedbacks and gain valuable insights from our business integration experience.

In addition, we plan to upgrade our internal information technology system for property management to provide more comprehensive and intelligent technology solutions and support more data analytical needs. These upgraded property management systems will be designed to enhance our information collection and issue responding systems to better meet customers’ needs and increase our operational efficiency. We believe that such upgrades, combined with the improvements mentioned above, will further facilitate the smooth running of our daily operations and ensure heightened quality control and effective operations from our headquarters on managed properties.

Continue to attract, train and retain talent

We will continue to devote resources to recruit, develop and retain qualified talent in various positions and functions. In terms of talent recruitment, we will continue to further cultivate our brand image in the industry and explore diversified talent recruitment channels. In terms of talent cultivation, we will continue to combine internal and external resources to further enhance our training programs. In terms of talent retention, we plan to gradually enrich our existing internal training programs to further facilitate our employees’ career progression. We expect also to continue exploring different opportunities of external training and continuing education. For our employees with outstanding performance, we may also offer them opportunities of internal transfers, rotation and promotions. We will also optimize our human resource management and provide competitive remuneration and benefit packages that will help us attract talented employees with teamwork spirit and advancement potential.

We will continue to promote the principle of “providing heartfelt and personalized services with a sense of companionship” (“服務為你,陪伴由心”) as part of our corporate culture to create a sense of community among our employees. We believe such values will enable our talented employees to grow with us and help us achieve sustainable growth in the long-term.

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OUR BUSINESS MODEL

During the Track Record Period, we generated revenue primarily from three business lines.

Property management services

We provide a wide range of property management services to property developers, residents and property owners, which primarily comprise (i) cleaning services , (ii) security services, (iii) landscaping services and (iv) repair and maintenance services. These services are provided to both residential and non-residential properties.

Value-added services to nonproperty owners

We offer a comprehensive range of property-related business solutions to non-property owners, mainly including property developers. Our value-added services to non-property owners primarily consist of (i) sales assistance services which involve helping property developers in showcasing and marketing their properties, including cleaning and maintenance, security and visitor management, (ii) additional tailored services customized to meet specific needs of our customers on an as-needed basis, (iii) housing repair services, (iv) preliminary planning and design consultancy services that help property developers to further improve property designs to better meet the needs of end-users and (v) pre-delivery inspection services.

Community value-added services

We provide community value-added services to property owners and residents which primarily consist of a wide range of services provided to the community members, including (i) home-living services, (ii) car park management, leasing assistance and other services, and (iii) common area value-added services to improve their living experiences and to maintain and enhance the value of their properties.

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The table below sets forth a breakdown of our total revenue by business line for the periods indicated:

For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 146,823 53.9 248,058 54.3 110,352 40.4 149,591 32.8 15,683 5.7 58,659 12.9 272,858 100.0 456,308 100.0	For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 146,823 53.9 248,058 54.3 110,352 40.4 149,591 32.8 15,683 5.7 58,659 12.9 272,858 100.0 456,308 100.0	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
2017 RMB’000 % 146,823 53.9 110,352 40.4 15,683 5.7 272,858 100.0		2018 2019 RMB’000 % RMB’000 % (Unaudited) 184,220 57.5 252,520 48.9 98,950 30.8 189,671 36.6 37,392 11.7 74,709 14.5 320,562 100.0 516,900 100.0	2019
RMB’000 146,823 110,352 15,683 272,858	RMB’000 248,058 149,591 58,659 456,308	RMB’000 184,220 98,950 37,392 320,562		% 48.9 36.6 14.5
				100.0

PROPERTY MANAGEMENT SERVICES

Overview

As of December 31, 2017 and 2018 and September 30, 2019, our total GFA under management was approximately 9.4 million sq.m., 12.6 million sq.m. and 21.0 million sq.m., respectively. In 2017 and 2018 and the nine months ended September 30, 2018 and 2019, revenue generated from property management services provided in relation to projects developed by Zhenro Property Group amounted to RMB129.4 million, RMB178.4 million, RMB133.2 million and RMB170.9 million, respectively, accounting for 88.2%, 71.9%, 72.3% and 67.7%, respectively, of our total revenue generated from property management services for those same periods.

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The table below sets forth a breakdown of our total GFA under management as of the dates indicated, and revenue generated from property management services by the type of property developer for the periods indicated:

	As of or for theyear	As of or for theyear	ended December 31,	ended December 31,	ended December 31,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,
	2017			2018			2018			2019
GFA	Revenue		GFA	Revenue		GFA	Revenue		GFA	Revenue
sq.m.’000 7,282 2,164	RMB’000 129,438 17,385	% 88.2 11.8	sq.m.’000 9,366 3,214	RMB’000 178,359 69,699	% 71.9 28.1	sq.m.’000 8,791 2,955	RMB’000 % (Unaudited) 133,177 72.3 51,043 27.7 184,220 100.0		sq.m.’000 10,051 10,918	RMB’000 % (Unaudited) 170,918 67.7 81,602 32.3 252,520 100.0
9,446	146,823	100.0	12,580	248,058	100.0	11,746	184,220	100.0	20,969	252,520	100.0

Notes:

(1) Includes projects solely developed by Zhenro Property Group and projects that Zhenro Property Group jointly developed with other property developers in which Zhenro Property Group held a controlling interest.
(2) Refer to projects solely developed by third-party property developers independent from Zhenro Property Group, as well as projects jointly developed by Zhenro Property Group and other property developers in which Zhenro Property Group did not hold a controlling interest.

The growth in our total GFA under management and the number of projects managed by us were primarily attributable to our continuous efforts to expand our business pursuant to our “1234 Plan.” We managed to grow our total GFA under management for projects developed by third-party property developers from nil as of January 1, 2017 to approximately 10.9 million sq.m. as of September 30, 2019. The revenue generated from managing projects developed by third-party property developers increased from RMB17.4 million in 2017 to RMB69.7 million in 2018, and by 59.9% from RMB51.0 million for the nine months ended September 30, 2018 to RMB81.6 million for the same period in 2019. The number of projects under our management that were developed by Zhenro Property Group grew from 37 as of December 31, 2017 to 46 as of September 30, 2019; and the number of projects under our management that were developed by third-party property developers grew from 53 as of December 31, 2017 to 90 as of September 30, 2019.

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The table below sets forth a breakdown of our total GFA under management as of the dates indicated, and total revenue generated from property management services as well as their respective percentage of our total revenue generated from property management services for the periods indicated, by geographic region:

As of or for theyear ended December 31,	As of or for theyear ended December 31,	As of or for theyear ended December 31,	As of or for theyear ended December 31,	As of or for theyear ended December 31,	As of or for theyear ended December 31,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,
	2017			2018			2018			2019
GFA	Revenue		GFA	Revenue		GFA	Revenue		GFA	Revenue
sq.m.’000 3,500 2,533 3,106 307	RMB’000 52,119 45,945 44,299 4,460	% 35.5 31.3 30.2 3.0	sq.m.’000 5,253 3,209 3,799 319	RMB’000 124,849 61,106 53,566 8,537	% 50.3 24.6 21.6 3.5	sq.m.’000 4,980 2,951 3,496 319	RMB’000 % (Unaudited) 90,656 49.2 46,566 25.3 40,672 22.1 6,326 3.4 184,220 100.0		sq.m.’000 8,191 8,515 3,821 442	RMB’000 % (Unaudited) 142,948 56.6 57,530 22.8 44,907 17.8 7,135 2.8 252,520 100.0
9,446	146,823	100.0	12,580	248,058	100.0	11,746	184,220	100.0	20,969	252,520	100.0

Notes:

(1) Cities in which we provide property management services to projects in the Yangtze River Delta Region include Shanghai, Nanjing, Suzhou, Hefei, Jiaxing, Taizhou, Chuzhou, Lu’an, Nantong and Wuhu.
(2) Cities in which we provide property management services to projects in the Western Straits Region include Fuzhou, Putian, Pingtan, Nanping, Quanzhou, Sanming and Zhangzhou.
(3) Cities in which we provide property management services to projects in the Midwest Region include Nanchang, Yichun, Changsha, Wuhan, Xi’an, Ganzhou, Suizhou, Xiangyang, Yueyang and Chongqing.
(4) Cities in which we provide property management services to projects in the Bohai Rim Region include Tianjin, Jinan, Xuzhou, Huai’an, Louyang, Suqian and Zhengzhou.

As of September 30, 2019, our total contracted GFA of undelivered projects was approximately 13.4 million sq.m.

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The table below sets forth the expiration schedule of our property management service agreements for projects under our management as of September 30, 2019:

Contracted GFA

under management sq.m.’000 % 7,092 33.8 6,578 31.4 2,500 11.9 4,799 22.9 13,877 66.2 20,969 100.0	Number of agreements	Number of agreements
sq.m.’000 7,092 6,578 2,500 4,799 13,877 20,969	Number 37 29 31 39 99 136	% 27.2
		21.3 22.8 28.7
		72.8
		100.0

Note:

(1) Property management service agreements without fixed terms are typically (i) agreements entered into with property developers before a property owners’ association is set up, and (ii) agreements entered into with certain property developers, owners or residents with whom we had property management service agreements that had fixed terms, but such terms expired and will generally terminate once a property owners’ association has been set up and a new property management service agreement between such property owners’ association and a property management company becomes effective. We face certain risks if such property management agreements are terminated or not renewed. See “Risk Factors — Risks Relating to Our Business and Industry — We cannot assure you that we can secure new or renew our existing property management service agreements on favorable terms, or at all” for further discussion.

In 2017, 2018 and the nine months ended September 30, 2019, our retention rate for property management service agreements was 100.0%, 95.6% and 95.5%, respectively.

Scope of Services

We provide the following major categories of property management services:

Cleaning services . We provide cleaning services for property units and common areas which may include staircases, hallways, clubhouses and basements. We generally provide such services through third-party subcontractors.

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Security services . We seek to ensure that the properties we manage are safe and in good order. The security services we provide on a daily basis include, among others, traffic management, patrolling, video surveillance, car park security, emergency response, entry control and visitor management. We provide our security services primarily through third-party subcontractors and technological solutions such as surveillance cameras.
Landscaping services . We provide landscaping services which mainly include pruning, plant watering and fertilization for the greenery of our managed properties. We generally provide such services through third-party subcontractors.
Repair and maintenance services . We are generally responsible for ensuring elevator systems, power supply and distribution systems, water supply and drainage systems, fire extinguishing systems and other facilities and equipment located in common areas are in good working order. We provide repair and maintenance services through our own employees and third-party subcontractors.

While providing our property management services, we keep and update records in relation to property owners and residents, as well as respond to and record complaints and feedback on our services. See “— Quality Control — Feedback and Complaint Management” below for more information. From time to time, we may also organize social events for the benefit of property owners and residents at the properties we manage. As of September 30, 2019, we employed 3,548 on-site personnel to provide property management service and engaged 116 selected subcontractors to provide certain property management services, mainly including cleaning services, security services, landscaping services and repair and maintenance services.

Portfolio of Properties under Management

We manage residential and non-residential properties. The non-residential properties under our management include, but are not limited to, government and public facilities, office buildings, industrial parks and schools. While residential properties have generated and are expected to continue to generate a large portion of our revenue, we continuously seek to provide diversified service offerings to non-residential properties.

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The table below sets forth a breakdown of our total GFA under management as of the dates indicated and revenue from property management services for the periods indicated by the type of property:

	As of or for the year ended December 31,	As of or for the year ended December 31,	As of or for the year ended December 31,	As of or for the year ended December 31,			As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,
	2017			2018			2018			2019
GFA	Revenue	Number of projects	GFA	Revenue	Number of projects	GFA	Revenue	Number of projects	GFA	Revenue	Number of projects
sq.m.’000 8,654 792	RMB’000 % 116,100 79.1 30,723 20.9	43 47	sq.m.’000 11,385 1,195	RMB’000 % 168,562 68.0 79,496 32.0	55 54	sq.m.’000 10,722 1,024	RMB’000 % (Unaudited) 126,991 68.9 57,229 31.1	49 52	sq.m.’000 13,129 7,840	RMB’000 % (Unaudited) 160,959 63.7 91,561 36.3	68 68
9,446	146,823 100.0	90	12,580	248,058 100.0	109	11,746	184,220 100.0	101	20,969	252,520 100.0	136

Notes:

(1) In 2017 and 2018 and the nine months ended September 30, 2018 and 2019, the proportion of our revenue generated from managing residential properties developed by Zhenro Property Group to our total revenue generated from managing residential properties was 97.9%, 92.5%, 92.8% and 88.9%, respectively. The proportion of our revenue generated from managing residential properties developed by third-party property developers to our total revenue generated from managing residential properties was 2.1%, 7.5%, 7.2% and 11.1%, respectively, for the same periods.

As of December 31, 2017 and 2018 and September 30, 2018 and 2019, the proportion of our GFA under management for residential properties developed by Zhenro Property Group to our total GFA under management for residential properties was 83.3%, 80.2%, 80.5% and 74.6%, respectively. The proportion of our GFA under management for residential properties developed by third-party property developers to our total GFA under management for residential properties was 16.7%, 19.8%, 19.5% and 25.4%, respectively, as of the same dates.

(2) In 2017 and 2018 and the nine months ended September 30, 2018 and 2019, the proportion of our revenue generated from managing non-residential properties developed by Zhenro Property Group to our total revenue generated from managing non-residential properties was 51.3%, 28.2%, 26.8% and 30.4%, respectively. The proportion of our revenue generated from managing non-residential properties developed by third-party developers to our total revenue generated from managing non-residential properties was 48.7%, 71.8%, 73.2% and 69.6%, respectively, for the same periods.

As of December 31, 2017 and 2018 and September 30, 2018 and 2019, the proportion of our GFA under management for non-residential properties developed by Zhenro Property Group to our total GFA under management for non-residential properties was 8.8%, 19.8%, 15.6% and 3.2%, respectively. The relatively low proportion of our GFA under management for non-residential properties developed by Zhenro Property Group was mainly a result of increased total GFA under our management for non-residential properties following our acquisition of Jiangsu Aitao in September 2017. The proportion of our GFA under management for non-residential properties developed by third-party property developers to our total GFA under management for non-residential properties was 91.2%, 80.2%, 84.4% and 96.8%, respectively, as of the same dates.

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During the Track Record Period, we generated a substantial portion of our revenue from managing residential properties. Our total GFA under management for residential properties grew from approximately 8.7 million sq.m. as of December 31, 2017 to approximately 13.1 million sq.m. as of September 30, 2019.

While remaining focused on property management for residential properties, we also sought to diversify our portfolio of managed properties to include a wide range of non-residential properties. We have been contracted to manage government and public facilities, office buildings, industrial parks and schools. As a result, the proportion of our revenue generated from non-residential projects to our total revenue generated from managing properties increased from 20.9% in 2017 to 32.0% in 2018 and further to 36.3% for the nine months ended September 30, 2019. We believe that as we accumulate experience and recognition for the quality of our property management services to both residential and non-residential properties, we will be able to continue to diversify our portfolio of properties under management and further enlarge our customer base.

Growth of Our Project Portfolio

As of December 31, 2017 and 2018 and September 30, 2019, we were contracted to manage 117, 175 and 214 projects, respectively. 90, 109 and 136 of these contracted projects were under our management as of the same dates, respectively, contributing to an increase in our total GFA under management from approximately 9.4 million sq.m. as of December 31, 2017 to 12.6 million sq.m. as of December 31, 2018, and further to 21.0 million sq.m. as of September 30, 2019. As of December 31, 2017 and 2018 and September 30, 2019, we were contracted to manage 57, 88 and 110 projects developed by third-party property developers, respectively. We have been growing our project portfolio during the Track Record Period primarily by obtaining new property management service agreements. Going forward, we intend to continue to increase our business scale and market share through organic growth as well as strategic investment and acquisition. See “— Business Strategies — Expand our project portfolio, explore strategic investment, acquisition and cooperation opportunities and grow our business scale and market share” above for more information.

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The table below presents the movement of our contracted GFA and GFA under management during the Track Record Period:

	As of	or for	the year	ended December 31,	ended December 31,	As	of or for the nine months ended September 30,	of or for the nine months ended September 30,	of or for the nine months ended September 30,	of or for the nine months ended September 30,
	2017			2018			2018		2019
	Contracted	GFA	under	Contracted	GFA under	Contracted		GFA under	Contracted	GFA under
	GFA	management		GFA	management	GFA		management	GFA	management
					sq.m.’000
As of the beginning of
the year/period . . .	10,163		5,382	16,212	9,446		16,212	9,446	24,871	12,580
New engagements(1) . .	3,889		1,904	8,819	3,294		4,789	2,340	8,600	7,156
Acquisitions(2) . . . . .	2,160		2,160	–	–		–	–	1,574	1,574
Terminations(3) . . . . .	–		–	(160)	(160)		(40)	(40)	(664)	(341)
As of the end of
the year/period . . .	16,212		9,446	24,871	12,580		20,961	11,746	34,381	20,969

Notes:

(1) Primarily include (i) preliminary property management service agreements for new projects developed by property developers and (ii) property management service agreements for residential or non-residential communities to replace their previous property management service providers. The renewed agreements are not regarded as the new engagements that we entered into during such year or period. The newly engaged GFA under management includes the newly delivered GFA we contracted in previous year or period.
(2) Refer to new GFA we obtained through our acquisitions of certain property management companies during the Track Record Period.
(3) Primarily include our non-renewal of certain property management service agreements as we reallocated our resources to more profitable engagements to optimize our project portfolio.

Property Management Fees

We adopt two fee models under which we charge property management fees on a lump sum basis or commission basis. During the Track Record Period, a substantial portion of our property management fees were charged on a lump sum basis, with the remainder charged on a commission basis. In 2017 and 2018 and the nine months ended September 30, 2018 and 2019, 99.8%, 99.7%, 99.8% and 99.7% of our revenue generated from property management services was charged on a lump sum basis, respectively, while 0.2%, 0.3%, 0.2% and 0.3% of our revenue generated from property management services was charged on a commission basis for those same periods, respectively. As of December 31, 2017 and 2018 and September 30, 2019, 97.8%, 98.3% and 99.0% of our total GFA under management was charged on a lump sum basis, respectively, while 2.2%, 1.7% and 1.0% of our total GFA under management was charged on a commission basis as of the same dates, respectively. See “Risk Factors — Risks Relating to Our Business and Industry — We may fail to effectively anticipate or control our costs in providing our property management services, for which we generally charge our customers on a lump sum basis” for discussion of the related risks.

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The following table sets forth a breakdown of our total GFA under management by fee model as of the dates indicated and revenue generated from property management services by fee model for the periods indicated:

	As of or for theyear	As of or for theyear	ended December 31,	ended December 31,	ended December 31,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,
	2017			2018			2018			2019
GFA	Revenue RMB’000 % 146,523 99.8 300 0.2 146,823 100.0		GFA	Revenue		GFA	Revenue		GFA	Revenue
sq.m.’000 9,237 209		% 99.8 0.2	sq.m.’000 12,371 209	RMB’000 247,408 650	% 99.7 0.3	sq.m.’000 11,537 209	RMB’000 % (Unaudited) 183,861 99.8 359 0.2 184,220 100.0		sq.m.’000 20,760 209	RMB’000 % (Unaudited) 251,722 99.7 798 0.3 252,520 100.0
9,446		100.0	12,580	248,058	100.0	11,746		100.0	20,969	252,520	100.0

We take into account a number of factors in determining whether to charge fees on a lump sum or commission basis, including, but not limited to, local regulations, personalized requirements specified by property developers or property owners’ associations, local market conditions and the nature and characteristics of individual properties, and determine the fee model on a case-by-case basis.

The following diagram illustrates the major differences between managing residential properties under the two fee models:

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

Tender process and preliminary property
management service agreement [(1)]
Property developer Our Group
Provide property management services
Property owners engage us through
the property owners’ general
meeting and we provide property
management services to property
owners [(2)]
Sell Property
properties management
Lump sum basis : all property management service agreement [(2)]
fees are recognized as our revenue and
expenses are borne by our Group
Commission basis : a pre-determined
percentage of property management fees is
recognized as our revenue and the remainder
is used as working capital to cover the expenses
for managing such properties, which are borne
by the customers
Property owners’
Property owners association
Establish property owners’ association
through property owners’ general meeting
Differences
Similarities
Pay property management fees
Provide property management services
----- End of picture text -----

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Notes:

(1) The property developer can enter into a preliminary property management service agreement with us and such agreement is legally binding on the property owners.
(2) The property owners can select to engage us through the property owners’ general meeting. Once we are selected, the property owners’ general meeting can authorize the property owners’ association to enter into a property management service agreement with us on behalf of the property owners and such contract is legally binding on all the property owners belonging to the relevant property.

Property Management Fees Charged on a Lump Sum Basis

During the Track Record Period, we derived a substantial portion of our revenue from property management service agreements on a lump sum basis. Our revenue from property management service agreements on a lump sum basis represented approximately 99.8%, 99.7%, 99.8% and 99.7% of our total revenue from property management services in 2017, 2018 and the nine months ended September 30, 2018 and 2019, respectively. Under the lump-sum fee model, we charge a fixed and “all-inclusive” fee for our property management services which we provide through our employees and subcontractors, and our property management fees are charged on an annual, quarterly or monthly basis, depending on the terms of our property management service agreements. We are entitled to retain the full amount of property management fees collected from property developers, property owners and residents as revenue and bear the costs incurred in providing our property management services. According to CIA, the lump-sum fee model is the prevailing method of collecting property management fees in China, especially in relation to residential properties. See “Industry Overview — The PRC Property Management Industry — Major Fee Models in the PRC Property Management Industry” in this document for further information.

Prior to negotiating and entering into our property management service agreements, we seek to prepare, as accurate as possible, an estimate of our cost of sales. Our cost of sales primarily includes labor costs, subcontracting costs, utility costs, costs for maintenance of public facilities, office expenses and other expenses. As we bear such expenses ourselves, our profit margins are affected by our ability to lower our cost of sales. In the event that our cost of sales is higher than anticipated, we may not be able to collect additional amounts from our customers to sustain our profit margins. See “Risk Factors — Risks Relating to Our Business and Industry — We may fail to effectively anticipate or control our costs in providing our property management services, for which we generally charge our customers on a lump sum basis” in this document for further discussion. During the Track Record Period, we did not incur any material loss in managing properties whose fees were charged on a lump sum basis.

Property Management Fees Charged on a Commission Basis

During the Track Record Period, we derived revenue from a limited number of property management service agreements under a commission basis. Our revenue from property management service agreements under commission basis represented approximately 0.2%, 0.3%, 0.2% and 0.3% of our total revenue from property management services in 2017, 2018 and the nine months ended September 30, 2018 and 2019, respectively. Under the commission

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fee model, we generally collect a pre-determined percentage of the total amount of property management fees payable by our customers on a quarterly basis, which generally represent approximately 10.0% of the property management fees payable to us under the relevant property management service agreement. We recognize the commission fee as revenue, while the remainder is used as working capital to cover the costs we incur in providing our property management services. Such costs are borne by customers who pay us property management fees.

When we contract to manage residential communities on a commission basis, we essentially act as an agent of the property owners and residents. As the management offices of these residential communities have no separate bank accounts, all transaction related to such management offices are settled through our treasury function. As of the end of a reporting period, if the working capital of a management office accumulated in our treasury function is insufficient to cover the expenses the management office has incurred as of that reporting period and paid through our treasury function to arrange for property management services at the relevant resident community, the shortfall is recognized as long-term receivable subject to impairment. During the Track Record Period, none of the non-residential properties we had been contracted to manage was charged on a commission basis.

Under the commission fee model, we are not entitled to any excess of the property management fees paid by property owners, residents or property developers (after deducting the fees receivables by us as the property manager) over the costs and expenses associated with the provision of services to the property. Therefore, we do not recognize any direct cost under property management service agreements charged on a commission basis in general. Such costs are borne by the property owners, residents and property developers.

Tender Process

The majority of our property management service agreements are obtained by participating in tenders, a process whereby property developers or property owners’ associations evaluate and select from multiple property management service providers. Invitations to tenders are usually issued by property developers for properties under development, or from property owners’ associations for residential communities that wish to replace their existing property management service providers. Under PRC laws and regulations, property management companies are required to obtain preliminary property management service agreements for residential properties through participation in the tender process. If there are fewer than three bidders for any small-scale properties, the property developer can select and hire qualified property management company by directly entering into an agreement with the approval of the real estate administrative department of the relevant district or county government where the property is located. See “Regulatory Overview — Appointment of Property Management Companies” in this document for more information on the relevant legal requirements on tender processes. A tender process is also required for engaging property management service providers for services over a designated amount in relation to non-residential properties owned by the PRC government agencies, institutions or organizations according to the Government Procurement Law of the PRC (《政府採購法》) and relevant laws and regulations.

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The flow chart below illustrates each stage of the typical tender process for obtaining property management service agreements:

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Receiving invitation or notice regarding the tender process or bidding opportunity
Establishing a project management team responsible for the bid
Participating and submitting documents required for pre-qualification
Researching relevant details of the property/properties involved and preparing budget estimates
Participating and submitting tender bids outlining, among others, our plans, costs and qualifications
Tender evaluation
Award of contract or rejection
Signing the property management service agreement and filing such agreement
with relevant local authority, or analyzing reasons behind the rejection
----- End of picture text -----

For properties developed by Zhenro Property Group and other property developers, we also participate in the tender process as required by relevant PRC laws and regulations before being awarded property management service agreement, which is a standard tender process regulated by applicable PRC laws and regulations. During the Track Record Period, our bidding success rate in tendering bids for projects developed by Zhenro Property Group was 100.0% for each of 2017, 2018 and the nine months ended September 30, 2019. This high tender bid success rate with respect to projects developed by Zhenro Property Group during the Track Record Period was primarily attributable to, among others, (i) our long-standing relationship and established track record of providing property management services to Zhenro Property Group, which has helped to reduce communication costs between Zhenro Property Group and us, and (ii) the fact that we share a deep understanding about Zhenro Property Group’s property projects and a similar service philosophy with Zhenro Property Group, which has enabled us to offer services that better meet Zhenro Property Group’s needs and

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requirements for its property projects. In 2017 and 2018 and the nine months ended September 30, 2019, our bidding success rate for projects developed by third-party property developers was 22.7%, 50.9% and 27.6%, respectively. We had a higher bidding success rate in 2018 mainly because we bid for more projects with third-party property developers with which we had already established service track record. In the first nine months of 2019, we enhanced our efforts to expand business scale by participating in more bidding process.

Property Management Service Agreements

We generally enter into preliminary property management service agreements with property developers. A preliminary property management service agreement is a type of property management service agreement that we enter into at the construction and pre-delivery stage of property development projects.

In relation to residential properties that have already been delivered but the property owners’ associations have not been established, we provide property management services to property owners and residents pursuant to the preliminary property management service agreements that we entered into with the property developer.

In relation to residential properties that have already been delivered and property owners’ associations have been established, we enter into property management service agreements with property owners’ associations on behalf of property owners. For non-residential properties, we enter into property management service agreements with the property owners. During the Track Record Period, a majority of our revenue from property management services was generated from preliminary property management service agreements entered into with property developers.

The table below sets forth a breakdown of our total contracted GFA and GFA under management as of the dates indicated, and revenue generated from property management services at different stages of our property management services for the periods indicated:

	As of or for the year	As of or for the year	ended December 31,	ended December 31,		As of or for the nine months ended September 30, 2019	As of or for the nine months ended September 30, 2019	As of or for the nine months ended September 30, 2019
	2017			2018
Contracted GFA	GFA under management	Revenue	Contracted GFA	GFA under management	Revenue	Contracted GFA	GFA under management	Revenue
16,212	9,446

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Notes:

(1) Include stages at which projects have been delivered but without the property owners’ association having been established.
(2) Include property management projects where we rendered services after property owners’ associations were established. See “— Key Terms of Dealing with Property Developers” below.

Key Terms of Dealing with Property Developers

Our preliminary property management service agreements with property developers typically include the following key terms:

Scope of services . A typical preliminary property management service agreements with property developer sets out the required services by phase, including cleaning services, security services, landscaping services and repair and maintenance services. We also provide other customized services for specific assets.
Performance agreement standards . The preliminary property management service agreements set forth the scope and expected standards, such as the frequency with which certain types of services are performed (for example, how often elevator maintenance is carried out) for our property management services.
Property management fees . The preliminary property management service agreements would set forth the amount of property management fees payable, either on a lump sum or commission basis. The property developer is responsible for paying the property management fees for the units that remain unsold. For overdue property management fees, property developers pay an overdue penalty as specified in the agreement, and we may issue demand letter or attorney letter, or resort to litigation, as remedial measures.
Property developer’s obligations . The property developer is primarily responsible for, among others, ensuring that its property buyers understand and commit to their obligations in relation to the payment of property management fees after property delivery, and providing us with office facilities and other support necessary for carrying out our contractual obligations.
Term of service and termination . Our preliminary property management service agreements generally have fixed terms of approximately three years, but will specify that they automatically terminate when a property owners’ association is established and a new property management service agreement is entered into. Such preliminary property management service agreements will also specify that if they expire and no property owners’ association has been established, then we may negotiate with the property developer to enter into a supplemental preliminary property management service agreement. Preliminary property management service agreements without fixed terms will generally terminate once a property owners’ association is established and a new property management service agreement is entered into. Our

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preliminary property management service agreements may be terminated by the property developers if we fail to satisfy our contractual obligations and/or directly cause any reputational damage or economic losses to our customers, and fail to solve the relevant issue within a specified time period.

Dispute resolution . Parties to the property management service agreement are typically required to resolve any contractual disputes through negotiations first before resorting to litigation or arbitration.

After delivery of the projects by property developers to the property owners, property owners may form and operate property owners’ associations to manage the projects. The Property Law of the PRC, the Regulations on Property Management and the Guidance Rules of the Owners’ Meeting and the Property Owners’ Association stipulate that property owners’ associations may be established at property owners’ meeting by a vote of at least half of the property owners who own over half of the delivered GFA in the residential community.

Once our preliminary property management service agreements have expired, we may negotiate with the newly-formed property owners’ associations for the terms of new property management service agreements. As of September 30, 2019, 11 residential projects under our management established property owners’ associations, accounting for 16.2% of the total number of residential projects under our management. The property owners’ associations are independent from us. In order to secure and continue to secure property management service agreements, we must consistently provide quality services at competitive prices. According to the Regulations on Property Management, property owners’ associations may hire or dismiss property management service providers by votes from more than half of the property owners who own over half of the GFA of delivered projects at the property owner meeting, provided that such decision will not constitute a violation of applicable law or a breach of the respective contract. The property owners’ meeting may either hire a new property management service provider through the tender process or select one based on specific standards to do with terms and conditions of service, quality and price. See “Regulatory Overview — Appointment of Property Management Companies” in this document for more information.

Property owners and residents were legally obligated to pay us property management fees, since we continued rendering services to those property management projects during the negotiation period. If, upon the expiration of the initial term of the preliminary property management service agreements, the property owners’ association has not been formed or a new property management service agreement has not been entered into between the property owners’ association and us, the preliminary property management service agreements typically will be renewed automatically until a new property management service agreement with the property owners’ association is entered into. In cases where we have signed preliminary property management service agreements without fixed terms and no property owners’ association is formed after delivery of the projects, or after the expiration of the preliminary property management service agreements with fixed terms, where property owners did not hire new service provider and we continued to provide property management services, property owners and residents are also legally obligated to pay property management fees directly to us for the services we continue to render.

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Key Terms of Dealing with Property Owners’ Associations

Our property management service agreements with property owners’ associations typically include the following key terms:

Scope of services . We typically agree to provide property management services including cleaning services, security services, landscaping services and repair and maintenance services. We also include value-added services and customized services, which property owners or residents may request by paying additional fees to us.
Performance standards . The property management service agreement would set forth the expected standards for our property management services, including the areas to which our services relate, as well as the frequency of performance of services such as inspecting and maintaining facilities such as elevator systems, power supply and distribution systems, water supply and drainage systems and fire extinguishing systems.
Property management fees . The property management fee would be payable either on a lump sum or commission basis by property owners and residents according to the relevant service agreement. When payable on a lump sum basis, our property management fees are generally charged by GFA. For overdue property management fees, property owners and residents pay an overdue penalty as specified in the service agreement. If we have agreed to providing property management service of car parks, the property management service agreement will also detail the fees payable for such services.
Rights and obligations of property owners and residents . The property owners’ association is primarily responsible for, among others, ensuring that property owners and residents understand and commit to their obligations in relation to the payment of property management fees, providing us with office facilities and other support necessary for carrying out our contractual obligations and reviewing or supervising plans and budgets that we may draw up in relation to our services.
Terms of service and termination . Our property management service agreements generally have a fixed term of three years. Certain of these agreements provide that, if no new agreement had been entered into between the relevant property owners’ association and other property management company upon the expiration of an existing agreement, the term of the agreement at issue shall be extended till the new property management service agreement between the relevant property owners’ association and the newly engaged property management company become effective. During the Track Record Period and up to the Latest Practicable Date, neither we nor any property owners’ association have unilaterally terminated any property management service agreement before the end of their terms. Our property

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management service agreements may be terminated by property owners’ associations if we fail to meet the quality standards set out in the agreements and fail to rectify the issue within a specified time period.
Dispute resolution . Parties to the property management service agreement are typically required to resolve any contractual disputes through negotiations first before resorting to litigation or arbitration.

Under PRC law, property owners’ associations represent the interests of property owners in matters concerning property management. Decisions that are within the authorized scope of the property owners’ association are binding on all property owners. Agreements between property owners’ associations and property management service providers are valid and legally binding on all property owners concerned, irrespective of whether or not the property owners are individual parties to such contracts. Thus, we have legal claim rights against property owners for outstanding property management fees. Property owners and residents have the right to be informed of and to supervise the use of public funds, review our annual budget and any plans we prepare in relation to topping-up the public funds or our property management services in general. Property owners are jointly liable with the residents of their properties for the payment of property management fees.

Our Pricing Policy

We generally price our services by taking into account factors, such as characteristics, locations, our budget, target profit margins, property owners’ and residents’ profiles and the scope and quality of our services. We regularly evaluate our financial information to assess whether we are collecting sufficient property management fees to sustain our profit margins. During renewal negotiations for our property management service agreements, we may raise our property management fee rates as a condition precedent for continuing our services.

The price administration and construction administration departments of the State Council are jointly responsible for supervision over and administration of fees charged for property management and related services, and we are also subject to pricing controls issued by the PRC Government. In December 2014, the NDRC issued the Circular of the NDRC on the Opinions of Liberalizing Price Controls in Certain Services (《國家發展和改革委員會關於放開部分服務價格意見的通知》) (the “Price Control Liberalization Circular”), which required provincial-level price administration authorities to liberalize the price control or guidance policies on residential properties, with certain exceptions. See “Regulatory Overview — Fees Charged by Property Management Enterprises” in this document. We expect that pricing controls on residential properties will relax over time as relevant local authorities pass regulations to implement the Price Control Liberalization Circular. See “Risk Factors — Risks Relating to Our Business and Industry — We may fail to effectively anticipate or control our costs in providing our property management services, for which we generally charge our customers on a lump sum basis” in this document.

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Payment and Credit Terms

We may charge property management fees on an annual, quarterly or monthly basis, depending on the terms of our property management service agreements. The fees for property management services are typically due for payment by property owners and residents upon our issuance of a demand note. We typically demand payment for our property management services upon receipt of the demand note by property owners and residents which, according to CIA, is consistent with the property management industry norm in the PRC. We primarily accept payments for property management fees by cash or through online transfers, bank card, auto-pay or third-party payment platforms. To facilitate the timely collection of property management fees and other payments, we may send payment reminders to property developers, property owners and residents in writing on a quarterly basis. In relation to the collection of outstanding property management fees, we remind our customers of the outstanding amount by sending quarterly demand letters to such customers. If the outstanding fees remain unpaid six months after the original due date, we may issue a demand letter through attorneys via registered mail, and may file a lawsuit against such customer to claim the outstanding amounts. Concurrently, we will at least issue one demand letter per year to ensure that we fulfill requirements under PRC statutes of limitations, which impose a three-year deadline by which we may sue for outstanding property management fees. For more information on our trade receivables and related risks thereof, see “Financial Information — Description of Selected Items of Combined Statements of Financial Position — Trade Receivables” and “Risk Factors — Risks Relating to Our Business and Industry — We may not be able to collect property management fees from property owners and property developers which could incur impairment losses on our trade receivables” in this document. To the extent permitted under PRC law, we charge property owners and residents for utility fees in relation to water and electricity consumed by common areas, in proportion to the total GFA under management that they occupy and in addition to agreed-upon property management fees.

VALUE-ADDED SERVICES TO NON-PROPERTY OWNERS

We also provide a series of value-added services to non-property owners, primarily property developers. In 2017, 2018 and the nine months ended September 30, 2018 and 2019, our revenue generated from our value-added services to non-property owners amounted to approximately RMB110.4 million, RMB149.6 million, RMB99.0 million and RMB189.7 million, respectively, accounting for approximately 40.4%, 32.8%, 30.8% and 36.6% of our total revenue for the same periods, respectively. Our value-added services to non-property owners primarily include but are not limited to the following services:

Sales Assistance Services

We may be contracted by property developers at an early stage of property development to provide sales assistance services. We help property developers with their preparation of marketing activities and recognize revenue based on the fees we charge, which are determined according to the cost we may incur.

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We deploy our staff to assist property developers with their marketing activities on-site which may include, cleaning, security, maintenance of display units, visitor management and hospitality services. We enter into a sales-assistance service agreement with the property developer for such work, and the contract is generally set to expire when the property developer notify us that our sales assistance services are no longer required. Under our sales assistance service agreements, we are obligated to follow the service standards specified by our customers, while our customers are obligated to provide us with the facilities and equipment necessary to provide our services. We provide our sales assistance services through our own employees and subcontractors. To improve standardization and service quality, we have also formulated an internal “5S” management system for the sales assistance services to standardize and regulate approximately 142 specific services therein from five aspects that include service content, sight, smell and taste, sound, and customer satisfaction.

Additional Tailored Services

We may be contracted by property developers to provide additional tailored services, including, among others, cleaning, security and other similar services directly to such customers as may be required by such customers for their properties or in relation to particular areas or facilities of their properties. We offer our additional tailored services through our employees and our subcontractors. We provide these additional tailored services in separately signed agreements, and we collect fees for our additional tailored services by charging a profit mark-up on top of our costs. During the Track Record Period, we provided additional tailored services only to property developers.

Housing Repair Services

We offer housing repair services in relation to newly completed residential and non-residential properties. After delivery, property owners or residents may discover quality issues with newly-completed properties such as leaks and cracked walls. The property developer would then liaise with us to resolve those quality issues. We provide these services through our own employees and subcontractors, and our fees are charged based on GFA and price per sq.m.

Preliminary Planning and Design Consultancy Services

We provide preliminary planning and design consultancy services to property developers who expect to use our expertise to improve their sales and marketing performance. Our services include on-site consultations during the construction phase to help identity quality issues or improve understanding of the expectation of the end-users for the property, so that the property developers can better design the property to meet the needs of the end-users. We also help the property developer assess various planning documents and offer insight on the design and construction plans of the properties, including those related to landscaping, fire safety systems and waste disposal and drainage systems. We also provide on-site inspection assistance services during the construction to help monitor the construction progress and identify and follow up on any quality issues that need to be fixed. We generally enter into separate

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agreements with property developers for our preliminary planning and design consultancy services and such agreements may detail in the fee arrangements. We charge our fees for these services by GFA and price per sq.m. for our preliminary planning and design consultancy services.

Pre-delivery Inspection Services

We may be employed by property developers to conduct routine quality inspection of properties once the construction services have been completed. In such cases, our work may include deploying staff or experts on-site to conduct quality checks based on the quality guidelines provided by the property developers, assess any quality issues, report to the property developer and conduct follow-up visits to ensure that the issues have been resolved to our customer’s satisfaction.

COMMUNITY VALUE-ADDED SERVICES

Leveraging our experience and in property management, we provide community value-added services to property owners and residents of our managed properties to address their lifestyle needs, enhance their living experience and create a healthier and more convenient community which may, in turn, elevate our brand name and increase customer loyalty to us. The community value-added services are offered primarily through our daily contact and interactions with the property owners and residents which include, but not limited to, home-living services, car park management, leasing assistance and other services, property agency services and common area value-added services.

In 2017 and 2018 and the nine months ended September 30, 2018 and 2019, our revenue generated from our community value-added services amounted to approximately RMB15.7 million, RMB58.7 million, RMB37.4 million and RMB74.7 million, respectively, representing 5.7%, 12.9%, 11.7% and 14.5% of our total revenue for the same periods, respectively.

Home Living Services

We offer home-living services to improve the living experiences of residents, which may include cleaning, group purchase, turnkey furnishing and home maintenance and utility fee collection services.

Cleaning . Our cleaning services mainly include collecting waste produced from property construction and/or interior decoration. These services are provided through our subcontractors and our fees are charged by GFA.
Group purchases . We generally provide group purchases of products to property owners and residents in our residential communities. Products primarily include groceries, which can usually be priced at a discount for bulk purchase, so the residents can enjoy the benefit of living in a property community managed by us.

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Turnkey furnishing services . We generally provide property owners and residents the option of having us acquiring the needed furnishing for their properties. The services may include purchases and arrangement on the installation of furniture, home appliances and accessories according to the property owner or the resident’s preferences and budget. Our fees may vary based on the scope of service determined by the property owner or resident and we charge the property owners and residents for service costs on top of the costs of the products purchased. We generally enter into separate agreements with property owners and residents, which set out the specific arrangements including completion dates and general description of the products and services provided by us.
Home maintenance services . We offer home maintenance services to property owners and residents who want to clean the property unit before moving in or when moving out, and/or conduct repair and installation of home appliances and fixtures. We also provide services in relation to maintenance of water pipelines. Our services are generally made through subcontractors. We directly work with property owners and residents who requested such services and charge the property owners and residents for our services in according to pricing schedules, which may vary depending on the property.
Utility fee collection services . We pay charges for water, electricity and heating on behalf of property owners and residents in certain residential communities. Residential communities situated in the northern region of China generate heating charges as distinguished from electricity charges in the colder seasons of the year, when central heating is turned on regionally as part of the national infrastructure. We charged no fee for our utility fee collection services during the Track Record Period.

Car Park Management, Leasing Assistance and Other Services

We manage and assist in the lease of car parks as well as other services. The property ownership rights of most car parks for which we provide such services belong to property developers and property owners. Our management services generally include entry or exit control, surveillance and collection of parking fees. The parking fees collected by us are made either on a periodic basis according to the relevant property management service agreements or one-off basis. Pursuant to the relevant property management service agreements, the parking fees are typically collected on a monthly basis. For leasing of car parks, we assist in the leasing of the right to use the car parks, and other services which include preparation of marketing activities, decoration of parking spaces, as well as assistance with display units.

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Common Area Value-Added Services

We provide property owners with certain value-added services such as advertising in common areas, for example, basements and outer wall advertising spaces and rental of common areas. We profit from our common area value-added services by collecting a portion of the fees in accordance with an agreed-upon percentage. We enter into separate agreements with service buyers in relation to such services.

Property Agency Services

We plan to provide property agency services to property owners and property developers in relation to properties and parking spaces that involve assisting in the searches for tenants or buyers, marketing and liaising and coordination with potential tenants or buyers. We have established a subsidiary in Jiangxi in June 2019 and a subsidiary in Jiangsu in July 2019 to develop our property agency services, and we completed the registration in December and September 2019, respectively. We intend to leverage our relationships with property owners and residents in various residential communities to reach potential tenants and buyers. Once potential tenants or buyers are accepted by the property owner, we will help guide the property owner to close the sale or lease transaction. We will generally charge our services on a fixed rate commission calculated as a percentage of sale price or rental income according to the contract associated with the sale or lease agency service between the property owner and us. Our fees typically will be incurred and paid by property owners or the buyers according to the relevant sale or lease contract between the property owner or the buyer and us.

OUR BRANDS

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We market our services under mainly three brands, and each is catered to a specific customer group. Certain brands include sub-brands which are designed to indicate the expected scope and standards of services provided. We believe that these brands help us to provide unified and clear messages about the type and level of services that we provide and enable us to maximize our market share by leveraging this differential positioning strategy to attract different customer groups:

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“Rong Service” ( 榮服務 ). Our “Rong Service” includes properties management services offered to residential properties with a goal to meet key aspects of daily life essential needs of residents. In addition, we provide tailored services based on a variety of factors, including the characteristics of the property we manage, clients’ income level, local norms and customers’ preferences. Currently, we offer three levels of services packages to residents, including “Rong Services 1.0,” which is mainly targeted at customers’ with their first home purchase, “Rong Services 2.0,” which is mainly targeted at for customers with home upgrade needs, and “Rong Services 2.0+,” which is mainly targeted at high-end communities;
“Rong Enjoy” ( 榮享家 ). Our “Rong Enjoy” brand includes our value-added services with a goal to build a sense of community among property owners and residents to enrich their living experiences. We provide a variety of value-added services, which we categorized as “Value-added Services Big Eight Home” (增值服務八大家), including, “Sweet Home” (美築美家) referring to one-stop home decoration and renovation services, “Home Butler” (房管家) referring to housing agency services, “Home for A Life” (生活家) referring to group purchase, and flower purchase, “Home Delivery” (到家) referring to our cleaning, repair and maintenance services, “Healthy Home” (健康家) referring to our home appliance cleaning, air purification, and senior center services, “Tech Home” (科技家) referring to our smart maintenance and living facilities, and vehicle automatic identification system, “Educational Home” (教育家) referring to our facilities and events for children in the community, and “Eventful Home” (活動家) referring to our theme parties, family events and other social events we organize for the owners and residents in the community; and
“Rong Business” ( 榮商辦 ). Our “Rong Business” brand includes our properties management services to commercial properties, office buildings and other types of non-residential properties with a goal to evoke prestige and eminence and raise the asset value of the properties we serve. We offer facility and equipment maintenance, and service planning and execution for commercial complex.

SALES AND MARKETING

The marketing departments at our headquarters and regional level are primarily responsible for developing our overall marketing strategy and objectives, conducting market research, and maintaining client relationships development. The marketing department at our headquarters is responsible for formulating our overall marketing strategies, contemplating related company policies in relation to marketing and sales, facilitating training and collaboration among branches and subsidiaries. The branches are responsible for the execution of our marketing strategies, conducting business development, managing our efforts in relation to tender bids and exploring other expansion possibilities.

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Our subsidiaries and branches are generally responsible for implementing the sales and marketing strategies devised by our investment management and development department. They are also expected to explore and establish information channels within their respective localities for business development and market research purposes. Such information channels may include, for example, websites or other platforms on which property developers or property owner associations announce tender opportunities, uncovering business opportunities by way of recommendation or frequent communication with customers and other industry players, and organizing promotional events to showcase our service offerings.

We actively strive to form new and maintain existing business relationships with potential customers, particularly property developers. From time to time we will also organize events to promote or showcase our service offerings during holidays or other occasions as we see fit.

CUSTOMERS

Overview

Our customer base primarily consists of property developers, property owners and residents. We assess prospective customers by evaluating key factors such as estimated costs involved with property management, historical fee collection rates, projected profitability as well as whether the property was previously managed on a lump sum or commission basis. We collect customer data to the extent necessary for us to provide services. Employees of any business department or branch shall sign into the data system with their respective employee ID and password. Processing, sorting, management, and use of data shall be carried out in accordance with our data privacy and data security policies. The table below sets forth the main types of our major customers for each of our three business lines:

Business Lines Property management services . . . . . . . Value-added services to non-property owners . . . . . . . . . . . . . . . . . . . . . . . Community value-added services . . . . .	Major Customers
	Property developers, property owners and residents Non-property owners, the majority of whom are property developers Property owners and residents

In 2017, 2018 and the nine months ended September 30, 2019, revenue from our five largest customers amounted to RMB107.4 million, RMB151.8 million and RMB157.3 million, respectively, accounting for 39.4%, 33.3% and 30.4% of our total revenue for the same periods, respectively. During the Track Record Period, our largest customer was Zhenro Property Group, to whom we provided property management services and value-added services to non-property owners. In 2017, 2018 and the nine months ended September 30, 2019, revenue generated from our services provided to Zhenro Property Group amounted to RMB91.5 million, RMB122.9 million and RMB136.3 million, respectively, accounting for 33.5%, 26.9% and 26.4% of our total revenue, respectively. The transactions with Zhenro Group, Zhenro

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Property Group and their respective associates constituted connected transactions. Other than Zhenro Group, Zhenro Property Group and their respective associates, our five largest customers during the Track Record Period were Independent Third Parties. During the Track Record Period and as of the Latest Practicable Date, save as disclosed in this document, none of our Directors, their respective close associates or our Shareholders who, to the best knowledge of our Directors, owned more than 5% of the total number of issued Shares held any interest in any of our five largest customers. None of our largest five customers during the Track Record Period was our largest five suppliers.

See “Connected Transactions,” “Relationship with Controlling Shareholders” and “Risk Factors — Risks Relating to Our Business and Industry — A majority of our revenue is generated from property management services we provide to projects developed by Zhenro Property Group, which is our connected person and we do not have control over” in this document for more information.

Our Top Five Customers

The following table sets forth details of our top five customers in 2017:

Ranking 1. 2. 3. 4. 5.	Customer Zhenro Property Group Customer A Customer B(2) Customer C(3) Customer D(4)	Major services provided Property management and value-added services Property management and value-added services Property management and value-added services Property management and value-added services Property management and value-added services	Commencement of business relationship 2004 2017(1) 2017 2017 2017	Credit term By month By quarter By quarter By year By year	Transaction amount(5) RMB’000 91,509 6,268 3,598 3,048 2,969	Percentage of our total revenue
						% 33.5 2.3 1.3 1.1 1.1

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Note:

(1) Refers to the year we acquired Jiangsu Aitao which commenced its business relationship with Customer A in 2008.
(2) Zhenro Property Group held 20.0% interest in Customer B.
(3) Zhenro Property Group held 49.0% interest in Customer C.
(4) Zhenro Property Group held 50.0% interest in Customer D.
(5) Refers to the transaction amount with the relevant customer before tax.

The following table sets forth details of our top five customers in 2018:

Ranking 1. 2. 3. 4. 5.	Customer Zhenro Property Group Customer A Zhenro Group Customer E Customer F	Major services provided Property management and value-added services Property management and value-added services Value-added services Property management and value-added services Property management and value-added services	Commencement of business relationship 2004 2017(1) 2018 2017(1) 2017(1)	Credit term By month By quarter By quarter By quarter By quarter	Transaction amount(2) RMB’000 122,932 14,505 5,717 5,226 3,406	Percentage of our total revenue
						% 26.9 3.2 1.3 1.1 0.7

Note:

(1) Refers to the year we acquired Jiangsu Aitao which commenced its business relationship with Customer A and Customer F in 2008 and with Customer E in 2012.
(2) Refers to the transaction amount with the relevant customer before tax.

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The following table sets forth details of our top five customers in the nine months ended September 30, 2019:

Rank 1. 2. 3. 4. 5.	Customer Zhenro Property Group Customer A Customer C(2) Customer E Customer D(3)	Major services provided Property management and value-added services Property management and value-added services Property management and value-added services Property management and value-added services Property management and value-added services	Commencement of business relationship 2004 2017(1) 2017 2017(1) 2017	Credit term By month By quarter By year By quarter By year	Transaction amount(4) RMB’000 136,326 10,378 3,628 3,628 3,371	Percentage of our total revenue
						% 26.4 2.0 0.7 0.7 0.7

Note:

(1) Refers to the year we acquired Jiangsu Aitao which commenced its business relationship with Customer A in 2008 and with Customer E in 2012.
(2) Zhenro Property Group held 49.0% interest in Customer C.
(3) Zhenro Property Group held 50.0% interest in Customer D.
(4) Refers to the transaction amount with the relevant customer before tax.

We generally grant our customers with credit terms of 90 days and receive the payment through wire transfer. See “— Property Management Services — Property Management Service Agreements” in this document for the key terms of our service contracts.

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SUPPLIERS

Overview

For all three of our business lines, our suppliers are primarily subcontractors located in China which provide cleaning, security, landscaping and certain repair and maintenance services. We outsource those services to lower our cost of sales and improve our service quality. Our subcontractors specialize in the services they perform and operate in an efficient manner. We believe that such subcontracting arrangements allow us to leverage the human resources and technical expertise of our subcontractors, reduce our labor costs and enhance our overall profitability. In 2017 and 2018 and the nine months ended September 30, 2019, our subcontracting costs amounted to RMB27.8 million, RMB55.1 million and RMB66.3 million, respectively, accounting for 13.7%, 16.4% and 19.3%, respectively, of our total cost of sales for the same periods.

All of our five largest suppliers during the Track Record Period were subcontractors that were Independent Third Parties. As of the Latest Practicable Date, none of our Directors, their respective close associates or our Shareholders who, to the best knowledge of our Directors, owned more than 5% of the total number of issued Shares held any interest in any of our five largest suppliers. In 2017 and 2018 and the nine months ended September 30, 2019, purchases from our five largest suppliers amounted to RMB9.3 million, RMB12.8 million and RMB12.7 million, respectively, accounting for 17.1%, 11.4% and 10.7% of our total purchases for the same periods, respectively.

The following table sets forth details of our top five suppliers in 2017:

Rank 1. 2. 3. 4. 5.	Subcontractor Supplier A Supplier B Supplier C Supplier D Supplier E	Major services provided Cleaning services Cleaning services Cleaning services Cleaning services Cleaning services	Commencement of business relationship Transactional amount(1) RMB’000 2015 4,166 2016 1,592 2017 1,399 2017 1,266 2014 911	Percentage of total purchases
				% 7.6 2.9 2.6 2.3 1.7

Note:

(1) Refers to the transaction amount with the relevant supplier before tax.

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The following table sets forth details of our top five suppliers in 2018:

Rank 1. 2. 3. 4. 5.	Subcontractor Supplier A Supplier F Supplier G Supplier D Supplier H	Major services provided Cleaning services Security services Cleaning services Cleaning services Repair and maintenance services	Commencement of business relationship 2015 2017 2017 2017 2017	Transaction amount(1) RMB’000 4,249 2,550 2,389 1,885 1,727	Percentage of total purchases
					% 3.8 2.3 2.1 1.7 1.5

Note:

(1) Refers to the transaction amount with the relevant supplier before tax.

The following table sets forth details of our top five suppliers in the nine months ended September 30, 2019:

Rank 1. 2. 3. 4. 5.	Subcontractor Supplier F Supplier I Supplier G Supplier J Supplier K	Major services provided Security services Security services Cleaning services Repair and maintenance services Security services	Commencement of business relationship Transactional amount(1) RMB’000 2017 3,583 2018 3,223 2017 2,031 2018 1,965 2019 1,938	Percentage of total purchases
				% 3.0 2.7 1.7 1.7 1.6

Note:

(1) Refers to the transaction amount with the relevant supplier before tax.

Our five largest suppliers generally grant us credit terms ranging from 5 days to 30 days, and payment to our suppliers are typically settled by wire transfers.

Selection and Management of Our Subcontractors

In general, our headquarters is responsible for supervising and reviewing the selection, management and evaluation of our subcontractors and makes the relevant policy decisions in this aspect of our business operations. Our subsidiaries and branches support our headquarters

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in their supervision, review and decision-making processes. In hiring subcontractors, our subsidiaries and branches may send invitations to tender to subcontractors on the pre-approved list and assess their tender submissions based on criteria such as service quality, industry reputation, price, past performance and cooperativeness.

We regularly monitor and evaluate our subcontractors. Managers for each property management project are expected to inspect the work of subcontractors on a monthly basis and record any issues they detect. We have also established internal policies and procedures for managing complaints received about services provided by our subcontractors. We formally review and evaluate our subcontractors on a weekly basis, except for cleaning and security services, which we conduct daily check for the relevant work carried out on the projects managed by us, and followed up with a review on a weekly basis.

Key Terms of Our Subcontracting Agreements

Our subcontracting agreements typically include the following key terms:

Term . Such agreements are typically signed for one-year terms and may be renewed by mutual consent. We will consider re-engaging the subcontractors based on the quality of their services.
Performance standards . The subcontracting agreement would set forth the scope and expected standards of the subcontractor’s services, including the areas to which the subcontracting services relate. For subcontracting agreements in relation to services such as repair and maintenance of elevators and fire extinguishing systems, we may specify our expected standards as to their conditions and the types of inspections we require. We also require our subcontractors to adhere to our internal policies, such as those to do with quality standards, safety, reporting times, uniforms and etiquette guidelines.
Our rights and obligations . Generally, we have both the right and obligation to supervise and evaluate our subcontractors. We are also responsible for providing them with the necessary support for the completion of their services, which may include, for example, the use of office facilities without charge. We generally pay subcontracting fees on a monthly or quarterly basis, depending on what is agreed on in the contract. We are entitled to collect damages for breach of contract or deduct subcontracting fees if our subcontractors fail to adhere to our performance scope and standards.
Rights and obligations of subcontractors . Our subcontractors are responsible for obtaining all licenses, permits and certificates necessary for conducting their business operations in accordance with applicable laws and regulations. They also undertake to provide their services in accordance with the scope, frequency and standards of quality prescribed in the relevant subcontracting agreements.

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Risk allocation . Our subcontractors manage their own employees, with whom we have no employment relationship. Our subcontractors are responsible for compensating their own employees who suffer damages to person or property in the course of providing the contracted services. They are also responsible for damages to, or losses of, any person or property arising out of the default of such subcontractor in the course of providing the contracted services.
Procurement of raw materials . Our subcontractors will generally procure their own tools and other raw materials required for providing their contracted services, unless specified otherwise in the agreement. Where our subcontractors need to procure certain raw materials for us, such as components to fire extinguishing systems or elevators, they are required to obtain our permission beforehand.
Termination and renewal . We monitor and assess the performance of subcontractors regularly. Generally, we have the right to terminate the agreement if our subcontractors fail to adhere to their rights and obligations, make repeated mistakes or if we receive multiple complaints from our customers in relation to their services. Proposals to renew the agreement are generally made in writing 30 days before the contract expires.

QUALITY CONTROL

We prioritize quality in our services and believe quality control is crucial to our long-term success and future prosperity. We have established a comprehensive quality control procedure, which includes, (i) a professional quality control team primarily responsible for implementing and maintaining service standards, standardizing service procedures and supervising service quality throughout our operational processes to ensure consistent adherence to such standards, coordinating training to our employees and carrying out regular inspections on the performance of our services; (ii) an internal quality control scheme closely aligned with our business strategy, which is based on our employees’ past experience, industry expertise and recommendations and has been kept upgraded according to our personnel’s feedbacks and our management’s assessment in a timely manner; and (iii) quarterly quality check conducted jointly by us and third-party organizations.

Quality Control of Our Property Management Services

We obtained the ISO 9001:2015 international quality management system certification, the ISO 14001 environment management system certification and the OHSAS 18001 professional health and safety management system certification in October 2017. See “— Occupational Health, Safety and Environmental Matters” below for more details. As advised by our PRC legal advisors, our Directors confirm that, as of the Latest Practicable Date, we had obtained all material licenses, permits, certificates and approvals from relevant authorities for our operations in the PRC. We are required to renew such licenses, permits and certificates from time to time. We do not expect any difficulties in such obtaining such renewals as long as we meet the applicable requirements and conditions set by relevant laws and regulations.

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To ensure the effective and consistent delivery of our high quality services, we have established various procedures and systems to monitor and maintain the quality of our services across all our managed projects.

“Rong Wisdom” ( 榮智慧 ) Service Platform . We utilize our integrated “Rong Wisdom” Service Platform to monitor and maintain quality control. This internal service platform includes a number of applications that enable us to, among others, collect and manage customer inquiries, requests and feedbacks, organize and track our responses and follow-ups and conduct and record internal assessments on relevant issues. Our “Rong Wisdom” Service Platform uses a third-party instant messaging software commonly used by our customers to communicate with our customers. This communication channel transmits inquires, requests and complaints from our customers to our internal system, which are then promptly reviewed and handled by our personnel;
“2157” customer complaint management procedures . We adopt standardized procedures to manage customers’ complaints under a system that is internally named as the “2157 system.” “Two” represents the two-hour limit of providing a response upon receiving a customer’s compliant. Within the first two hours, our standard procedures require our trained personnel to contact the customer and acknowledge receipt of the complaint. Our personnel would also discuss with the customer to understand the relevant background of the issue and propose a preliminary solution to the extent possible. On an as-needed basis, the personnel may also contact the relevant department, such as repair and maintenance, to schedule assistance to resolve the issue. “One” represents the one-day timeframe during which we generally expect to provide an agreed solution to the customer, and complete our relevant internal procedures with respect to filing of the complaint and related response and/or follow-ups. As part of the filing process, the relevant personnel at the regional brands also file reports with the relevant department at our headquarters for records. “Five” represents the five-day timeframe during which we generally expect to complete the procedures of handling a regular customer complaint, and conduct a preliminary customer satisfaction survey. “Seven” represents the sevenday timeframe for providing the final solution to the customer. In the event that the issue persists beyond seven days, our procedures require us to conduct follow-up with the customer and provide regular updates every seven days to ensure a workable solution is formulated for the customer. The relevant department at our headquarters normally conduct calls to follow-up with the customer to ensure;
Four-dimensional monitoring system . We have established a four-dimensional monitoring system. The first dimension is a linear system that involve the quality control personnel at the property, regional branch and headquarters levels. Weekly evaluation is carried out at the project level, monthly or quarterly evaluation of relevant projects is carried out at the regional branch level, and the projects are sampled and inspected by the quality control personnel at the headquarters level from time to time. The second dimension involves external review of our property

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projects by property developers that we work with on a biannual basis. The third dimension involves the external and on-site review of properties managed by us by an external evaluator, FG Consulting Co., Ltd. (北京賽惟諮詢有限公司), on an anonymous basis. The fourth dimension involves the collection of customer evaluation responses of our services by CIA and our review thereof. Through this system, we maintain regular and close supervision of our service quality and optimize our customers’ experiences.

Customer feedback collection . We keep tracking our customers’ feedbacks on our service quality. We have established a customer service office and a service supervision hotline to ensure that our customers have easy and convenient access to our service quality control center and that our property management staff can tackle with customers’ concerns and complaints in a timely and effective manner. We require all requests and complaints from our customers be responded to and solved with a specific timeline. We also have designated “customer experience officer” to closely interact with customers and collect their feedback and opinions. See the subsection headed “— Feedback and Complaint Management” below for further details. We also encourage our personnel to collect customer reviews in various ways, including, among other things, on-site visits and customer meetings and anonymous customer surveys; and
Independent third-party surveys . We involve independent professional institutions, such as FG Consulting Co., Ltd. and CIA, which assist us to assess our service quality by independently conducting mystery customer surveys and customer satisfaction surveys.

To ensure consistent and high-quality services, we strive to standardize our property management services across all our managed projects. In addition, in order to leverage experiences of our team members, we implemented the “Half Step Plan” (“跬步計劃”), under which we collect exemplary cases of excellent services and publish internally on a monthly basis. We believe that such internal publicity would encourage our team members to learn from the examples and further improve the quality of our services. Also see “— Competitive Strengths — Standardized operational processes and effective cost control measures” for more information.

Quality Control of Subcontractors

To ensure and maintain the quality of service provided by our subcontractors, we have established internal rules and procedures to monitor our selection of, cooperation with and inspections on the subcontractors. We have developed our own procurement management procedures and guidelines (招標採購管理規程) and engage our subcontractors in accordance with standardized procedures as stipulated. We generally include in the agreements with subcontractors detailed quality standards for the services to be provided and termination clauses in the event of the subcontractors’ underperformance. For instance, if our subcontractors fail to meet the pre-agreed standards on the personnel attendance, competency,

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service quality assessment or safety management, we have the contractual rights to terminate the cooperation. We also establish policies in relation to subcontracting in certain subcontracting business, such as our security and cleaning subcontractors management rules (保安保潔供應商外包細則), to give detailed guidance over our consistent management during our cooperation with our subcontractors.

We regularly evaluate the performance of our subcontractors. Details of our internal quality control measures on the subcontractors are set as below:

Internal management review . We conduct regular inspections and assessment on the performance of our subcontractors on a daily, weekly, monthly or seasonal basis, depending on the scale of the projects and areas involved. In addition, we conduct, from time to time, special inspections on specific business at the headquarter level;
Third-party assessment . We invite guests unbeknownst to our employees to evaluate our service quality on-site and the services provided by subcontractors; and
Customer feedback collection . We keep tracking our customers’ feedback in relation to our subcontractors’ performance through our customer surveys and 400 service supervision hotline.

We have the contractual right to adjust the subcontracting fees and decide whether to continue our subcontracting contract depending on the outcomes of such surveys. If the subcontractor fails to meet our quality standards, we will require the subcontractor to take necessary rectification measures, or may terminate our cooperation with the subcontractor.

Quality Control of Third-party Vendors

We implement a variety of measures and policies to ensure the quality of the products and services offered by third-party vendors, such as selecting vendors based on our internal quality control policy and screening candidate vendors before entering into cooperation agreements with them. The vendors are also required to indemnify us for losses incurred due to their defective products or underperforming services. We also have the right to replace a third-party vendor in the event of underperformance.

Feedback and Complaint Management

We believe that our customers are crucial to our business and value their feedbacks and suggestions. During the ordinary course of our business operations, we receive feedback, suggestions and complaints, such as report of loss of properties and request for repair of public facilities, from property owners and residents of the properties we manage from time to time regarding our quality and effectiveness of services. In order to manage our customers’ feedbacks and complaints in an timely and effectively manner, we have established 400 service hotline to record, process and respond to the feedback, suggestions and complaints and conduct follow-up reviews of the results of our responses. We have established a 400 service hotline

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for residents living in the residential properties we manage, which has been up and running since 2017. Through the hotline, our customers can file complaints and provide feedbacks, and report any issues with their orders on products advertised on our service platform. We have also implemented our “2157” customer complaint management procedures to help ensure that issues raised by our customers are handled and resolved in a timely manner. See “— Quality Control — Quality control of Our Property Management Services” above for more details. In order to provide better customer experience and enhance our customer service, we require all requests and complaints from our customers be responded to and solved with a specific timeline. Requests and complaints that do not get addressed within the specified timeline will be escalated in our management system and will be ultimately addressed. If necessary, we will arrange on-site visits to the complainants to understand the nature of the complaints. We will revisit our customers within five days after their problems get resolved, and thus ensure that the results are satisfactory to our customers and their confidence in our services is restored. In cases where the problem is not solved within five days, we will closely track the outstanding issue and provide feedbacks to customers every seven days.

During the Track Record Period, we did not experience any customer complaints about our services or products that would have a material adverse impact on our operations or financial results.

INTELLECTUAL PROPERTY

We regard our intellectual property rights material to our business. As of the Latest Practicable Date, we had registered one domain name and filed registration application for a total of 13 trademarks in the PRC and Hong Kong. See “Statutory and General Information — B. Further Information about Our Business — 2. Intellectual property rights of our Group” in Appendix IV to this document for more information. As of the Latest Practicable Date, we were not aware of any infringement which could have a material adverse effect on our business operations by our Group against any intellectual property rights of any third party or by any third party against any intellectual property rights of our Group, or any disputes with third parties with respect to intellectual property rights.

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AWARDS AND RECOGNITIONS

The following tables set forth some of our awards received as of the Latest Practicable Date:

Year 2019 2019 2019 2019 2019 2019 2019 2019 2019	Award/Recognition Ranked 22nd among the 2019 Top 100 Property Management Companies in China in terms of overall strength (2019中國物業服務百強企業第 22名) 2019 Marketing Operational Leading Brand of China Property Service Companies (2019中國物業服務市場化運營領先品牌企業) 2019 China Property Service Industry Model Unit (2019年中國物業服務行業示範基地) for our Nanjing Zhenro Runfeng Garden (南京正榮潤峯花園) Ranked 17th among the 2019 Community Services Providers in China (2019中國社區服務商第17名) Recognized as one of the Top Ten of the 2019 Community Services Providers in China by Growth (2019中國社區服務商成長性十強) Recognized as one of the Top 20 of the 2019 Community Services Providers in China by Brand Value (2019中國社區服務商品牌價值20 強) Recognized as one of the 2019 Top 50 Most Valuable Brands of Property Management Service (2019中國物業服務企業品牌價值50強) Recognized as one of the 2019 Leading Companies in Residential Property Services (2019住宅物業服務領先企業) 2019 Nanjing Property Management Model Project (2019年度南京市物業管理示範項目) for our managed project, Zhenro Runjin City Project (正榮潤錦城項目)	Awarding entity
		CIA CIA CIA Yihan Zhiku (億翰智庫) Yihan Zhiku Yihan Zhiku China Property Management Institute (中國物業管理協會) China Property Management Institute Nanjing Municipal Bureau of Housing Security and Management (南京市住房保障和房產局)

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Year 2019 2018 2018 2018 2018 2018 2018 2018 2018	Award/Recognition 2019 Nanchang Property Management Model Project (2019年度南昌市物業管理示範項目) for our managed project, Zhenro Yufeng Project (正榮御峰小區) Ranked 29th among the 2018 Top 100 Property Management Companies in China (2018中國物業服務百強企業第29名) 2018 China Property Service Industry Model Units (2018年中國物業服務行業示範基地) for: • Putian Zhenro Runcheng (莆田正榮潤城); and • Shanghai Hongqiao Zhenro Centre (上海虹橋正榮中心) Recognized as one of the Top 18 of the 2018 Community Services Providers in China (2018 中國社區服務商18強) Recognized as one of the Top Ten of the 2018 Community Services Providers in China by Growth (2018中國社區服務商•成長性十強) Recognized as one of the Top Ten of the 2018 Community Services Providers in China by Creativity (2018中國社區服務商•創新性十強) Recognized as one of the Top 50 of the 2018 Community Services Providers in China by Customer Satisfaction Model Company (2018中國社區服務商•客戶滿意度模範企業50強) Recognized as one of the 2018 Best 20 of China’s Property Management Enterprises by Brand Value (2018年中國物業管理企業品牌價值20強) Recognized as one of the 2018 Best 30 of China’s Property Management Enterprises by Overall Strength (2018年中國物業管理企業綜合實力30強)	Awarding entity
		Nanchang Property Management Association (南昌市物業管理協會) CIA CIA Yihan Zhiku Yihan Zhiku Yihan Zhiku Yihan Zhiku China Real Estate Association (中國房地產業協會) China Real Estate Association

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Year 2018 2016 2015	Award/Recognition Ranked 22nd among the 2018 Top 100 Community Management Companies by Overall Strength (2018年物業服務企業百強綜合排名第 22位) Recognized as the 2016 Provincial Property Management Model Residential District (2016 年度全省物業管理示範住宅小區) for our Zhenro Yupin Shijia (正榮•御品世家) Recognized as the 2015 Provincial Property Management Model Residential District (2016 年度全省物業管理示範住宅小區) for our Zhenro Yupin Lanwan (正榮•御品蘭灣)	Awarding entity
		China Property Management Institute Department of Housing and Urban-Rural Development of Fujian Province (福建省住房和城鄉建設廳) Department of Housing and Urban-Rural Development of Fujian Province

COMPETITION

The property management industry in the PRC is intensely competitive and highly fragmented with a few sizeable companies and numerous small-sized market participants. Sizeable companies with professional knowledge, financial strength and background or affiliation with property developers are more competitive and are at a more advantageous position in the market. Therefore, although the PRC property management industry has relatively low entry barriers for the mid-tier and low-end segments, we believe that there are relatively higher entry barriers for the high-end segment.

As a reputable player in comprehensive property management segment, according to the CIA report, we primarily compete against large national, regional and local property management companies. We believe the core competitiveness lies in factors including, among other things, quality of services, business operation, price, financial resources, brand recognition and reputation. In 2019, we were ranked 22nd among the 2019 Top 100 Property Management Companies in China in terms of overall strength.

For more details about the industry and markets that we operate in, please refer to the section entitled “Industry Overview” in this document.

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OCCUPATIONAL HEALTH, SAFETY AND ENVIRONMENTAL MATTERS

We are subject to PRC laws in relation to labor, safety and environment protection matters. We have established occupational safety and sanitation systems, implemented the ISO 14001 and OHSAS 18001 standards in our operations, and provided employees with workplace safety trainings on a regular basis to increase their awareness of work safety issues. During the Track Record Period and up to the Latest Practicable Date, we had complied with PRC laws in relation to workplace safety in all material respects and had not had any incidents which have materially and adversely affected our operations.

We consider the environmental protection important and are committed to operating our business in compliance with applicable environmental protection laws and regulations. We have implemented reasonable measures in the operation of our businesses to comply with all applicable requirements. Given the nature of our operations, we do not believe we are subject to material environmental liability risk or compliance costs. During the Track Record Period and up to the Latest Practicable Date, no fines or penalties for non-compliance of PRC environmental laws had been imposed on us, and we have not been subject to any material administrative penalties due to violation of environmental laws in the PRC.

INSURANCE

We believe that our insurance coverage is in line with the industry practice in the PRC and is sufficient to cover our current operation. We maintain insurance policies against major risks and liabilities arising from our business operations, primarily including (i) liability insurance to cover liabilities for property damages or personal injury suffered by third parties arising out of or related to our business operations, and (ii) employer’s liability insurance for damages in relation with workplace injuries, accidents and occupational hazard involving our employees.

We are covered by property and liability insurance policies with coverage features that we believe are customary for similar companies in the PRC. However, our insurance coverage may not adequately protect us against certain operating risks and other hazards, which may result in adverse effects on our business. For more details, please refer to the section entitled “Risk Factors — Our insurance may not sufficiently cover, or may not cover at all, losses and liabilities we may encounter associated during the ordinary course of operation” in this document.

EMPLOYEES

We believe that our quality personnel is our key to success and future development. We place strong emphasis on recruiting and training quality personnel. We recruit talent from various sources, such as universities, third-party recruitment agency and other companies, and provide on-going training and promotion opportunities to our staff members.

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As of September 30, 2019, we had a total of 3,940 full time employees in the PRC. The following table sets forth a breakdown of our employees by function as of September 30, 2019:

Function Senior management . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance management . . . . . . . . . . . . . . . . . . . . . . . . . . Quality management . . . . . . . . . . . . . . . . . . . . . . . . . . . Engineering management . . . . . . . . . . . . . . . . . . . . . . . Value-added services . . . . . . . . . . . . . . . . . . . . . . . . . . Market development . . . . . . . . . . . . . . . . . . . . . . . . . . . Human resources and administration . . . . . . . . . . . . . . . Property management services for residential properties(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property management services for non-residential properties(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Number of employees 15 60 58 62 62 47 88 1,456 2,092 3,940	% of our total employees
		0.3 1.5 1.5 1.6 1.6 1.2 2.2 37.0 53.1
		100.0

Note:

(1) Refer to our on-site property management services staff.

The following table sets forth a breakdown of our employees by geographic location as of September 30, 2019:

Geographic location Yangtze River Delta Region. . . . . . . . . . . . . . . . . . . . . . . . Western Straits Region . . . . . . . . . . . . . . . . . . . . . . . . . . . Midwest Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bohai Rim Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Number of employees 1,971 903 836 230 3,940	% of our total employees
		50.1 22.9 21.2 5.8
		100.0

As of the Latest Practicable Date, our employees did not form any labor union. During the Track Record Period and up to the Latest Practicable Date, we did not experience any significant difficulties in recruiting suitable employees for our business operations. Neither did we have any material disputes with our employees, or experience any strike, labor disputes or industrial actions that may have a material adverse effect on our business, financial position and results of operations.

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Recruiting

We rely on high quality personnel for our consistent delivery of high quality service. We endeavor to hire the best talented employees in the market by offering competitive wages, bonus, benefits, systematic training opportunities and internal upward mobility. Our recruiting processes primarily comprise the following stages:

Recruitment . We recruit our candidates through various sources, including online advertisements, universities, third-party recruiting agencies and employee referrals;
Screening and selection . Our screening and selection processes primarily include (i) review and screening of resumes by our human resources department, (ii) selection of resumes by the recruiting department, and (iii) face-to-face interviews by the human resources department and the relevant recruiting department;
Internal review . Once qualified candidates are selected, we set salary levels based on our budgets and candidates’ qualifications and submit to management for internal review and approval; and
Offer . Once a candidate is internally approved, we send offer letter with salary package to the candidate.

Training

We provide various systematic and extensive training programs to our employees. Our employee training programs primarily cover key areas in our business operations, which provide continuous training to our existing employees at different levels to specialize and strengthen their skill sets. Our employee training programs are primarily classified into the following categories:

For the growth of our businesses . We offer various training programs relating to our businesses so our employees would be more familiar with our operations and businesses, including trainings to improve the quality of our property management services, trainings relating to value-added services and trainings to facilitate the development of our Company. Such training programs cover areas and topics including but not limited to service optimization and diversification, quality control, supervision and management, digitalization, compliance and risk management.
For the growth of our employees . We value our employees’ personal development. We provide personnel training for new employees, management talents, department managers, property managers and senior management with different focuses. For instance, we provide training programs including “Rong Star” (“榮之星”) for newly-recruited fresh graduates, “Rong Commander” (“榮之將”) for our project managers and similar roles, “Spark Plan” (“星火計劃”) for our marketing and promotion team, and “Leader Plan” (“領軍計劃”) for our value-added service team.

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Through detailed assignment explanation, service skills practice, one-on-one coaching and performance evaluation, we aim to improve the overall skill level of our team members and better assist us to achieve our goals for market development and value-added services.

OUR BANK ACCOUNT AND CASH MANAGEMENT POLICY

We have a bank account and cash management system to manage the cash inflows and outflows of our branches in their ordinary course of business in accordance with PRC laws and regulations. We have established a cash management policy to monitor the work process of our branches, including but not limited to, requiring the approval of opening bank account and cash payments from our headquarters, setting the upper cash limit on hand for our branches, setting deadlines for depositing their cash received in the bank accounts, taking stock of the bank accounts and checking the cash balances daily as well as reconciliating the accounts weekly to lower the risks associated with cash management. We also encourage our branches to settle their transactions through bank transfers to enhance the safety of funds management. We have detailed cash management policy to regulate our cash management and bank deposits management to ensure security and the reasonable use of our cash. Details of our cash management policy are set out as follows:

Cash flow transactions

Cash handling policies and internal control measures

Receipt of property management fees, rent or other service fees from our customers

We have designated cashiers charged with cash collection at relevant properties. They will verify that the cash collected is the correct amount, deposit the cash collected to our bank account and submit report to our online management system on a daily basis. We require our branches to have separate bank accounts for cash inflow in relation to payments of property management fees, rent or other service fees and to deposit all cash they received in their bank accounts in a timely manner.

Payments made to our suppliers by our branches

Such payment shall be submitted by related personnel in writing and pre-approved by the responsible supervising personnel according to the authority assigned to them by our internal manual. Once approved, the relevant payments shall be wired through online bank accounts by internal accountants of our branches.

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Cash flow transactions

Cash handling policies and internal control measures

Cash transfers from our branches to our centralized bank account

We transfer the cash deposited in the bank accounts of our branches to our centralized bank account through a bank-corporation direct transfer channel.

Cash transfers from our centralized bank account to our branches

We set a cash level for the bank accounts of our branches and adjust the cash level as necessary and appropriate to facilitate the business operation of our branches. In the event that the actual cash levels at the bank accounts of our branches fall below the pre-determined cash level, we transfer cash from our Company’s centralized bank account to the bank accounts of our branches to supplement the shortfall for our regular operation.

Cash inventory and deposits

Our branches are required to reconcile and check bank balances on a daily basis. Our headquarters conduct bank balance and deposit check on a weekly basis and, where there is any inconsistency, require our branches to investigate and provide explanation and take punitive measures accordingly.

INTERNAL CONTROL AND RISK MANAGEMENT

We have implemented various risk management policies and measures to identify, assess, manage and monitor risks arising from our operations. Risks identified by our management team, internal and external reporting mechanism, remedial measures and contingency management have been codified in our policies. For details of the major risks identified by our management, see the section entitled “Risk Factors — Risks Relating to Our Business and Industry” in this document.

In addition, we face various financial risks, including but not limited to interest rate, price, credit and liquidity risks that arise during our ordinary course of business. See “Financial Information — Market Risks” in this document for further discussion.

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In connection with the [ REDACTED ], we engaged an independent internal control consultant to review our internal controls and to provide us with relevant recommendations associated with their findings, based on an agreed scope covering controls and procedures in the following aspects: our services, risk assessment system, environmental control, management structure, communication and supervision system, regulatory compliance, financial reporting and accounting procedures, management of suppliers and procurement, cash and treasury management, human resources and salary management, tax payments, informational technology systems, insurance, fix assets, application of licenses and permission and other general control measures. Meanwhile, we have implemented rectification and improvement measures to respond to the findings and recommendations. The internal control consultant has also completed the follow-up with the remedial and improvement measures implemented by us as scheduled; and we have not received any additional recommendations from the internal control consultant as of the Latest Practicable Date. We have also adopted various policies to ensure compliance with the Listing Rules, including those in relation to risk management, continuing connected transactions and information disclosure. Taking into consideration of the above, our Directors are of the view that our enhanced internal control measures are adequate and effective for our current business environment.

PROPERTIES

As of the Latest Practicable Date, we owned two properties in the PRC with an aggregated GFA of approximately 6,991.0 sq.m., which we held for self-use or lease. We have obtained the building title certificates for both properties we own.

As of the Latest Practicable Date, we also leased ten properties in various locations with an aggregated GFA of approximately 1,847.5 sq.m. for use as office, business operations and staff accommodation.

As of the Latest Practicable Date, we had not registered the lease agreement for one of our leased properties, which is used as office premise with a total GFA of approximately 70.6 sq.m., with the local housing administration authority as required under PRC law, primarily due to lack of cooperation from the landlord in providing title certificate and proof of ownership and registering the lease agreement, which were beyond our control. According to the relevant PRC laws and regulations, we might be ordered to rectify this failure to register by competent authority and if we fail to rectify within a prescribed period, a penalty of RMB1,000 to RMB10,000 may be imposed on us as a result. In the event that we are required to relocate from such leased property, given the nature of our operation, we believe that it would not be difficult for us to identify and relocate to an alternative premise and relocation would not result in any material disruptions to our business. Although we may incur additional relocation costs, our Directors are of the view that this would not have any material impact on our business, financial position and results of operations. As of the Latest Practicable Date, we had not received any notice from any regulatory authority with respect to potential administrative penalties or enforcement actions as a result of our failure to register the lease agreement described above. Our PRC Legal Advisors have also advised us that the failure to register the

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lease agreement would not affect the validity of the lease agreement, and our Directors are of the view that such non-registration would not have a material adverse effect on our business operations or constitute a material legal obstacle for the [ REDACTED ].

We had no single property with a carrying amount of 15% or more of our total assets as of the Latest Practicable Date and, therefore, we did not need to prepare a valuation report with respect to our property interests in reliance upon the exemption provided by section 6(2) of the Companies (Exemption of Companies and Prospectus from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong).

LEGAL PROCEEDINGS AND COMPLIANCE

Legal Proceedings

We may be involved in legal proceedings or disputes in the ordinary course of business from time to time, such as contract disputes with our customers and suppliers. As of the Latest Practicable Date, there were no litigation or arbitration proceedings or administrative proceedings pending or threatened against us or any of our Directors which would have a material adverse effect on our business, financial position or results of operations.

Compliance

Save for the following historical non-compliance incident, our Directors are of the view that we had complied with all relevant laws and regulations in all material respects during the Track Record Period and up to the Latest Practicable Date.

Non-compliance incident

During the Track Record Period, we failed to (i) register with the relevant government authorities within a prescribed period for housing provident fund and set up the relevant housing provident fund accounts for some employees of our subsidiaries and branches; and (ii) make full contribution to the social insurance and housing provident funds for some of our employees of our subsidiaries and branches as required under the relevant PRC laws and regulations.

Reasons for non-compliance

The non-compliance incident took place mainly because (i) some of our employees chose not to make contribution to the social insurance and housing provident funds as they preferred not to bear their portion of the relevant contribution; and (ii) our staff who were responsible for such matters of our subsidiaries and branches did not adequately understand the local regulatory requirements where we operated.

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Legal consequences and potential penalties

According to the relevant PRC laws and regulations, (i) for outstanding social insurance fund contributions that we did not fully pay by the prescribed deadlines, the relevant PRC authorities may demand us to pay the outstanding social insurance contributions by a stipulated deadline and we may be liable for a late payment fee equals to 0.05% of the outstanding contribution amount of each day of delay; if we fail to make such payments by a stipulated deadline, we may be liable to a fine of one to three times of the outstanding contribution amount; and (ii) for the housing provident fund registration that we fail to complete before the prescribed deadline, the relevant government authorities may demand us to complete the housing provident fund registration by a stipulated deadline. If we fail to rectify by that deadline, we may be subject to a fine ranging from RMB10,000 to RMB50,000 for each non-compliant subsidiary or branch and, for outstanding housing provident fund contributions that we did not fully pay within the prescribed period, the relevant government authorities may demand us to pay the outstanding housing provident fund contributions by a stipulated deadline. If we fail to rectify by that deadline, we may be subject to an order from the relevant People’s court for compulsory enforcement.

Remedies and rectification measures taken and internal control measures adopted

As of the Latest Practicable Date, we had established and registered accounts for housing provident funds for all of our PRC subsidiaries and branches for which we had any employees.

Our Directors are of the view that such non-compliance would not have a material and adverse effect on our business and results of operations, considering that: (i) as of the Latest Practicable Date, we had not received any notification from the relevant government authorities requiring us to pay any shortfalls or imposing any penalties with respect to social insurance and housing provident funds; (ii) we were not aware of any employee complaints nor have we received any demand or court filings or notices from any current or former employees regarding any outstanding social insurance or housing provident fund contributions as of the Latest Practicable Date; (iii) we had made the provisions in the amount of RMB1.9 million, RMB4.5 million and nil, respectively, for 2017, 2018 and the nine months ended September 30, 2019 on our financial statements in respect of potential liabilities arising from such non-compliance; (iv) our undertaking to complete the necessary registration or make contributions within a prescribed period if we receive any request from the relevant government authorities; (v) our Controlling Shareholders provide an indemnity in favor of our Group to indemnify against any claims, charges, fines and other liabilities arising from such non-compliance; and (vi) based on the foregoing, our PRC Legal Advisors had advised us that the likelihood that we would be penalized for such non-compliance by the relevant government authorities is remote.

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In addition, we adopted various internal policies and procedures to ensure that we establish the relevant accounts and make full contribution relating to social insurance and housing provident funds under the relevant PRC laws and regulations. These internal policies and procedures include: (i) regularly communicating with relevant government authorities or agencies to ensure that our calculation and payment methods are in accordance with the relevant laws and regulations; (ii) regularly consulting external counsel to adequately understand and interpret the relevant PRC laws and regulations and timely identify any non-compliance issues, (iii) preparing periodic reports regarding our contribution progress, including contribution amounts, for review by our Board, and (iv) conducting internal trainings for our Directors, members of our senior management and relevant personnel responsible for complying with the social insurance and housing provident fund plans. Based on the above, our Directors are of the view that we have implemented adequate and effective enhanced internal control measures internally.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

OVERVIEW

Immediately upon completion of the [ REDACTED ] and the [ REDACTED ] and without taking into account any Shares which may be issued pursuant to the exercise of the [ REDACTED ] and the options which may be granted under the Share Option Scheme, WeiZheng, WeiYao and WeiTian, which are wholly-owned by Mr. ZR Ou, will, in aggregate, directly own approximately [ REDACTED ]% of the total number of issued Shares. Hence, WeiZheng, WeiYao, WeiTian and Mr. ZR Ou will be our Controlling Shareholders under the Listing Rules.

Mr. ZR Ou was the founder of Zhenro Group, under which Zhenro Property Group and our Group were established. He has over 20 years of experience in the property development and construction industries. Mr. ZR Ou is currently the chairman and a director of Zhenro Group Company and apart from his interests in Zhenro Group, Zhenro Property Group and our Group, he is engaged in various private equity investment and other non-real estate business. Throughout the history of our Group, the operations and management of our Group have been entrusted to our Management Team, led by Mr. Huang Liang and Mr. Huang Sheng, our executive Directors, so as to allow Mr. ZR Ou to focus on his other business interests. WeiZheng, WeiYao and WeiTian are companies incorporated in the BVI with limited liabilities and are Mr. ZR Ou’s wholly-owned investment holding companies incorporated for the purpose of holding Mr. ZR Ou’s interest in our Group.

DELINEATION OF BUSINESS

Our Group is primarily engaged in the provision of property management services for residential and non-residential properties, value-added services to non-property owners and community value added-services.

Apart from our business, Mr. ZR Ou, through Zhenro Group Company of which he owned as to approximately 91.9%, has investments in businesses including, among others, highway construction and operation, land reclamation and financial investments, which have no competition with our Group.

Mr. ZR Ou is also beneficially interested in approximately 54.6% of the total number of issued shares of Zhenro Properties, the shares of which are listed on the Stock Exchange (stock code: 6158). Zhenro Properties, through its subsidiaries and associates, is principally engaged in the businesses of property development, property leasing and commercial operational services. In particular, the commercial operational services of Zhenro Property Group focus on marketing and leasing portfolio management of shopping malls and other commercial spaces for mixed-complexes operated under its brand name of “Zhenro”, which does not form part of our business. Zhenro Property Group does not engage in the provision of security, cleaning, landscaping, repairs and maintenance services (the “ Services ”), which require close attention in the day-to-day affairs of the managed properties and experience and expertise in their maintenance controls and facilities management. The Services, which are limited and ancillary to its commercial operation services, are outsourced by Zhenro Property Group to other service

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

providers and are not provided as a standalone business of Zhenro Property Group. Given the difference between the business of our Group and the business of the companies controlled by our Controlling Shareholders, including Zhenro Group and Zhenro Property Group, our Directors are of the view that there is a clear business delineation. As a result, none of the business of the companies controlled by our Controlling Shareholders would compete or is expected to compete, directly or indirectly, with the business of our Group which would require disclosure under Rule 8.10 of the Listing Rules.

During the Track Record Period, our Group was engaged by Zhenro Property Group (and its associates) and Zhenro Group, to provide the Services for their property projects. Specifically, we were engaged by them to provide (i) pre-delivery property management services for their residential property projects before the delivery of such properties to the property owners; and (ii) management and related services for their property projects and their display units, sales offices and community clubhouses as well as commercial properties operated by them. It is expected that our Group will continue to be engaged for the provision of such services after [ REDACTED ]. Details of such continuing connected transactions are set out in “Connected Transactions” in this document.

To ensure that competition will not exist in the future, each of our Controlling Shareholders [has entered into] the Deed of Non-Competition in favor of our Company to the effect that each of them will not, and will procure each of their respective close associates not to, directly or indirectly participate in, or hold any right or interest, or otherwise be involved in any business which may be in competition with our business, further details of which are set out in “– Deed of Non-Competition” below.

Save as disclosed above, as of the Latest Practicable Date, none of our Controlling Shareholders, our Directors and their respective close associates had any interest in any business which competes or is likely to compete, either directly or indirectly with our Company’s business which would require disclosure under Rule 8.10 of the Listing Rules.

INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS

We believe that we are capable of carrying on our business independently of our Controlling Shareholders and their respective close associates (other than our Group) after [ REDACTED ] for the following reasons:

Management Independence

Our Board comprises two executive Directors, two non-executive Directors and three independent non-executive Directors. Save for the two non-executive Directors, namely (i) Mr. Huang Xianzhi who is a director and president of Zhenro Group Company and an executive director, chairman of the board and chief executive officer of Zhenro Properties; and (ii) Mr. Chan Wai Kin who is an executive director of Zhenro Properties, there is no overlap of directors and members of the senior management between our Group and our Controlling Shareholders (and their respective close associates).

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

Each of our Directors is aware of his fiduciary duties as a Director, which require, among other things, that he acts for the benefit and in the best interests of our Company and does not allow any conflict between his duties as a Director and his personal interests. In the event that there is a potential conflict of interest arising out of any transaction to be entered into between our Group and any of the Directors or their respective close associates, the interested Director(s) shall abstain from voting at the relevant board meetings of our Company in respect of such transactions and shall not be counted in the quorum. In addition, we have an independent senior management team to carry out the business operations of our Group independently from our Controlling Shareholders.

Based on the reasons above, our Directors are of the view that our Group is capable of managing our business independently from our Controlling Shareholders and their respective close associates after the [ REDACTED ].

Operational Independence

We engage in our businesses independently from our Controlling Shareholders and their close associates, with the independent right to make operational decisions and implement such decisions.

In respect of our property management services, we generally secure our preliminary property management service agreements through a standard tender process regulated by applicable PRC laws and regulation. Our Group does not enjoy a preferential right to be engaged as the preliminary property management service provider for property projects developed by Zhenro Property Group, and our tender bids are considered on the same basis with the tender bids submitted by other property management service providers during the tender process. We undergo the same tender process to secure preliminary property management service agreements with respect to residential property projects developed by third party property developers. See “Business – Property Management Services – Tender Process” in this document for details.

At the post-delivery stage, the property management services are provided by us directly to the property owners, and the property owners, after conducting their own evaluation procedures through the property owners’ general meetings, have the right to engage (or dismiss) the property management services provider. Both our Group and Zhenro Property Group do not have any decisive influence over the engagement or dismissal decision of the relevant property management services provider by property owners’ association.

As of December 31, 2017 and 2018 and September 30, 2019, the proportion of our GFA under management for projects solely developed by Zhenro Property Group and projects jointly developed with other property developers in which projects Zhenro Property Group held a controlling interest to our total GFA under management was approximately 77.1%, 74.4% and 47.9%, respectively. Despite the above, we are able to maintain a diversified customer base, primarily through continuing our property management services to property owners after the delivery of residential properties, as well as participating in the selection or tender processes conducted by other independent third party property developers and other potential customers

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

which we identify in the market and by pursuing strategic acquisition and investment opportunities. As such, the majority of our customers are independent property owners other than Zhenro Property Group (and its associates) and Zhenro Group as well as other third party property developers. Our revenue generated from customers other than Zhenro Property Group (and its associates) and Zhenro Group accounted for approximately 54.3%, 61.7% and 61.6%, respectively, of our total revenue in each of the years ended December 31, 2017, 2018 and the nine months ended September 30, 2019.

We have been growing our property management services portfolio during the Track Record Period primarily by obtaining new property management service agreements as well as through acquisitions of other companies engaged in the provision of property management services with portfolio which we considered having promising growth potential. Going forward, we intend to increase our business scale and market share through organic growth by participating in the selection or tender processes conducted by other independent third party property developers and other potential customers which we identify in the market and by pursuing strategic acquisition and investment opportunities. We believe that, with our strong business development capabilities and market reputation as a quality property management service provider, the revenue contribution attributable to independent property owners and property developers as compared to our total revenue will continue to increase due to the increment in revenue derived from (i) independent individual property owners of the residential property projects currently under development by Zhenro Property Group which we have been engaged for providing property management services, which is expected to account for the majority of our Group’s revenue; and (ii) property developers other than Zhenro Property Group as a result of our Group’s increased efforts in participating in the selection or tender process conducted by independent third party property developers and other potential customers and acquisitions of property management projects.

Licenses required for operation

We have full rights, hold and enjoy the benefit of all relevant licenses and permits, have sufficient capital and employees necessary to make all decisions on, and to carry out, our own business operation independent from our Controlling Shareholders and their respective close associates and will continue to do so after [ REDACTED ].

Access to customers, suppliers and business partners

Our Group has a large and diversified base of customers that are unrelated to our Controlling Shareholders and/or their respective close associates. We have independent access to such customers, our suppliers as well as our other business partners.

Employees

We have our independent team of quality personnel, among whom have rich industry experience in property management and are qualified with property management related certificates. We recruit our employees independently and primarily through various channels, such as universities, third-party recruitment agency and other companies.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

Connected transactions with our Controlling Shareholders

Details of the continuing connected transactions between our Group and our Controlling Shareholders or their associates which will continue after the completion of the [ REDACTED ] are set out in “Connected Transactions” in this document. All such transactions shall be based on tender process in accordance with the relevant laws and regulations or determined after arm’s length negotiations and on normal commercial terms or better. In determining the fees for services between our Group and our Controlling Shareholders or their associates, factors such as the nature, size and location of the property projects, the service scopes, and the anticipated operational costs (including labor costs, material costs and administrative costs) are taken into consideration, with reference to the rates generally offered by us to Independent Third Parties in respect of comparable services, the fees for similar services and types of projects in the market and the pricing terms as recommended by the relevant government authorities. In addition, the fees and terms offered for our Controlling Shareholders or their associates and offered for other third parties for the same types of transactions are similar.

Financial Independence

All loans, advances and balances due to or from the Controlling Shareholders or their close associates which were not arising out of the ordinary course of business have been fully settled as of the Latest Practicable Date. All share pledges and guarantees provided by or to the Controlling Shareholders or their close associates on the borrowings of our Group have also been fully released as of the Latest Practicable Date.

In addition, we have our own internal control and accounting systems, accounting and finance department, independent treasury function for cash receipts and payment and independent access to third party financing. Accordingly, we believe we are able to maintain financial independence from our Controlling Shareholders and their respective close associates.

DEED OF NON-COMPETITION

Each of our Controlling Shareholders [has irrevocably and unconditionally undertaken] to us in the Deed of Non-Competition that he/it will not, and will procure his/its close associates (other than members of our Group) not to directly or indirectly be involved in or undertake any business (other than our business) that directly or indirectly competes, or may compete, with our business, which includes providing property management services to residential and non-residential properties, value-added services to non-property owners and community value-added services to property owners and residents (collectively referred to as the “ Restricted Businesses ”), or hold shares or interest in any companies or business that compete directly or indirectly with the business engaged by our Group from time to time, or conduct any Restricted Businesses, except where our Controlling Shareholders and their close associates hold less than 5% of the total issued share capital of any company (whose shares are listed on the Stock Exchange or any other stock exchange) which is engaged in any business that is or may be in competition with any business engaged by any member of our Group and they do not control 10% or more of the composition of the board of directors of such company.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

Further, each of our Controlling Shareholders [has undertaken] that if any new business investment/other business opportunity relating to the Restricted Businesses (the “ Competing Business Opportunity ”) is identified by/made available to him/it or any of his/its close associates, he/it shall, and shall procure that his/its close associates shall, refer such Competing Business Opportunity to our Company on a timely basis by giving written notice (the “ Offer Notice ”) within 30 Business Days of identifying the target company (if relevant), the nature of the Competing Business Opportunity, the investment or acquisition costs and all other details reasonably necessary for our Company to consider whether to pursue such Competing Business Opportunity.

Upon receiving the Offer Notice, our Company shall seek approval from a board committee comprising independent non-executive Directors who do not have an interest in the Competing Business Opportunity (the “ Independent Board ”) as to whether to pursue or decline the Competing Business Opportunity (any Director who has actual or potential interest in the Competing Business Opportunity shall abstain from attending (unless their attendance is specifically requested by the Independent Board) and voting at, and shall not be counted in the quorum for, any meeting convened to consider such Competing Business Opportunity). The Independent Board shall consider the financial impact of pursuing the Competing Business Opportunity offered, whether the nature of the Competing Business Opportunity is consistent with our Group’s strategies and development plans and the general market conditions of our business. If appropriate, the Independent Board may appoint independent financial advisors and legal advisors to assist in the decision making process in relation to such Competing Business Opportunity. The Independent Board shall, within 30 Business Days of receipt of the written notice referred above, inform our Controlling Shareholders in writing on behalf of our Company its decision whether to pursue or decline the Competing Business Opportunity.

The relevant Controlling Shareholder shall be entitled but not obliged to pursue such Competing Business Opportunity if he/it has received a notice from the Independent Board declining such Competing Business Opportunity or if the Independent Board failed to respond within such 30 business days’ period mentioned above. If there is any material change in the nature, terms or conditions of such Competing Business Opportunity pursued by the relevant Controlling Shareholder, he/it shall refer such revised Competing Business Opportunity to our Company as if it were a new Competing Business Opportunity.

The Deed of Non-Competition will lapse automatically if our Controlling Shareholders and their respective close associate cease to hold, whether directly or indirectly, 30% or above of our Shares with voting rights or our Shares cease to be [ REDACTED ] on the Stock Exchange.

Each of our Controlling Shareholders [has further undertaken] to us that he/it will provide and procure his/its close associates to provide on best endeavor basis, all information necessary for the annual review by our independent non-executive Directors for the enforcement of the Deed of Non-Competition. They will make an annual declaration in our annual report on the compliance with the Deed of Non-Competition in accordance with the principle of voluntary disclosure in the corporate governance report.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

In order to promote good corporate governance practices and to improve transparency, the Deed of Non-Competition includes the following provisions:

our independent non-executive Directors shall review, at least on an annual basis, the compliance with the Deed of Non-Competition by our Controlling Shareholders;
we will disclose the decisions on matters reviewed by the independent nonexecutive Directors (including the reasons for not taking up the Competing Business Opportunity referred to our Company) and the review by our independent non-executive Directors on the compliance with, and the enforcement of, the Deed of Non-Competition in our annual report or by way of announcement to the public in compliance with the requirements of the Listing Rules; and
in the event that any of our Directors and/or their respective close associates has material interests in any matter to be deliberated by our Board in relation to the compliance and enforcement of Deed of Non-Competition, he/it may not vote on the resolutions of our Board approving the matter and shall not be counted towards the quorum for the voting pursuant to the applicable provisions in the Articles of Association.

CORPORATE GOVERNANCE MEASURES

Each of our Controlling Shareholders and his/its respective close associates may not compete with us as provided in the Deed of Non-Competition. Each of our Controlling Shareholders has confirmed that it fully comprehends his/its obligations to act in our Shareholders’ best interests as a whole. Our Directors believe that there are adequate corporate governance measures in place to manage existing and potential conflicts of interest. In order to further avoid potential conflicts of interest, we have implemented the following measures:

(a) as part of our preparation for the [ REDACTED ], we have amended our Articles of Association to comply with the Listing Rules. In particular, our Articles of Association provided that, unless otherwise provided, a Director shall not vote on any resolution approving any contract or arrangement or any other proposal in which such Director or any of his associates have a material interest nor shall such Director be counted in the quorum present at the meeting;
(b) a Director with material interests shall make full disclosure in respect of matters that may have conflict or potentially conflict with any of our interest and abstain from the board meetings on matters in which such Director or his associates have a material interest, unless the attendance or participation of such Director at such meeting of the Board is specifically requested by a majority of the independent non-executive Directors;

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

(c) we are committed that our Board should include a balanced composition of executive Directors, non-executive Directors and independent non-executive Directors. We have appointed independent non-executive Directors and we believe our independent non-executive Directors possess sufficient experience and they are free of any business or other relationship which could interfere in any material manner with the exercise of their independent judgment and will be able to provide an impartial, external opinion to protect the interests of our public Shareholders. Details of our independent non-executive Directors are set out in “Directors and Senior Management – Board of Directors – Independent non-executive Directors” in this document;
(d) we have appointed Guotai Junan Capital Limited as our compliance advisor, which will provide advice and guidance to us in respect of compliance with the applicable laws and the Listing Rules including various requirements relating to Directors’ duties and corporate governance;
(e) as required by the Listing Rules, our independent non-executive Directors shall review any connected transactions annually and confirm in our annual report that such transactions have been entered into in our ordinary and usual course of business, are either on normal commercial terms or on terms no less favorable to us than those available to or from independent third parties and on terms that are fair and reasonable and in the interests of our Shareholders as a whole; and
(f) on an annual basis, our independent non-executive Directors will review the non-compete undertakings provided by our Controlling Shareholders and their compliance with such undertakings.

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CONNECTED TRANSACTIONS

OVERVIEW

Pursuant to Chapter 14A of the Listing Rules, the directors, substantial shareholders and chief executive of our Company and our subsidiaries (other than the directors, substantial shareholders and chief executive of our insignificant subsidiaries), any person who was a director of our Company or our subsidiaries within 12 months preceding the [ REDACTED ] and any of their respective associates will be connected persons of our Company upon [ REDACTED ].

Our Group has entered into a number of continuing transactions with our connected persons in our ordinary and usual course of business. Upon completion of the [ REDACTED ], the transactions disclosed in this section will constitute continuing connected transactions under Chapter 14A of the Listing Rules.

A. CONTINUING CONNECTED TRANSACTIONS SUBJECT TO THE REPORTING, ANNUAL REVIEW AND ANNOUNCEMENT REQUIREMENTS BUT EXEMPT FROM THE INDEPENDENT SHAREHOLDERS’ APPROVAL REQUIREMENT

1. Zhenro Properties Pre-Delivery Property Management Services

During the Track Record Period, our Group has been engaged by Zhenro Property Group by way of tender in accordance with the relevant PRC laws and regulations to provide pre-delivery property management services for the residential property projects developed by Zhenro Property Group before the delivery of such properties to property owners. Zhenro Property Group also paid to us property management fees as set out in the preliminary property management service agreements for the units that remain unsold in their residential property projects.

On December 31, 2019, our Company (for ourselves and on behalf of our subsidiaries) entered into a pre-delivery property management services framework agreement with Zhenro Properties (for itself and on behalf of its subsidiaries) (the “ Zhenro Properties Pre-Delivery Property Management Services Framework Agreement ”), pursuant to which, our Group agreed to provide pre-delivery property management services for residential property projects developed by Zhenro Property Group before the delivery of such properties to property owners, including but not limited to security, cleaning, landscaping, repair and maintenance of common area and shared facilities (the “ Zhenro Properties Pre-Delivery Property Management Services ”), for a term of three years from January 1, 2020 to December 31, 2022, which may be renewed as the parties may mutually agree, subject to compliance with the requirements under Chapter 14A of the Listing Rules and all other applicable laws and regulations.

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CONNECTED TRANSACTIONS

The following sets forth the principal terms of the Zhenro Properties Pre-Delivery Property Management Services Framework Agreement:

(i) our Group shall, where we are selected by Zhenro Property Group following the tender processes in accordance with the relevant PRC laws and regulations, provide Zhenro Properties Pre-Delivery Property Management Services according to the tender documents and definitive management agreements to be entered into between members of our Group and Zhenro Property Group from time to time;
(ii) the management fees payable by Zhenro Property Group shall be determined based on the fee quotes to be submitted by our Group under the relevant tender bids. The fees quotes shall take into account the nature, size and location of the property projects, the service scopes and the anticipated operational costs (including labor costs, material costs and administrative costs), with reference to the rates generally offered by us to Independent Third Parties in respect of comparable services, the fees for similar services and types of projects in the market and the pricing terms as recommended by the relevant government authorities; and
(iii) the definitive management agreements to be entered into between members of our Group and Zhenro Property Group shall only contain provisions which are, in all material aspects, consistent with the binding principles, guidelines, terms and conditions set out in the Zhenro Properties Pre-Delivery Property Management Services Framework Agreement.

Reasons for the transaction

Before newly developed properties are delivered to future property owners, a property developer usually seeks to engage a property management company by entering into preliminary property management service agreements. The primary purpose is to ensure the availability of property management services before the property owners’ association could be lawfully established which could enter into a new property management service agreement between the relevant property owners’ association and the selected property management service provider directly. These property management services typically include security, cleaning, landscaping, repair and maintenance of common area and shared facilities. The property developer is also generally responsible for paying the property management fees for the units that remain unsold.

We had been engaged by Zhenro Property Group for the provision of the Zhenro Properties Pre-Delivery Property Management Services for its residential property projects by way of tender in accordance with the relevant PRC laws and regulations during the Track Record Period and as of the Latest Practicable Date, taking into account various factors such as our credentials, fee quotes and quality of services. In case where there were units that remain unsold for its residential property projects, Zhenro Property Group was also responsible for paying the applicable property management fees as set out in the relevant preliminary property management service agreements for the units that remain unsold.

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CONNECTED TRANSACTIONS

The transactions contemplated under the Zhenro Properties Pre-Delivery Property Management Services Framework Agreement shall be on normal commercial terms or better and in accordance with the term that are fair and reasonable and in the interests of our Company and our Shareholders as a whole. In the case where there are units that remain unsold for its residential property projects, the fees payable by Zhenro Property Group shall be determined on the same basis as other third-party property owners in the same residential property projects.

Historical transaction amounts

For the two years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019, the transaction amounts for the Zhenro Properties Pre-delivery Property Management Services provided by our Group to Zhenro Property Group amounted to approximately RMB14.5 million, RMB24.4 million and RMB8.9 million, respectively.

Annual caps

Our Directors estimate that the maximum amount of service fees payable by Zhenro Property Group to us in relation to the Zhenro Properties Pre-Delivery Property Management Services for the three years ending December 31, 2022 will not exceed RMB20.0 million, RMB22.0 million and RMB24.0 million, respectively.

Our Directors have considered the following factors in arriving at the above annual caps which are considered to be reasonable and justifiable in the circumstances:

(i) the historical transaction amounts and growth trend of Zhenro Properties PreDelivery Property Management Services during the Track Record Period;
(ii) the historical proportion of contracted sales GFA to total GFA available for sale for residential property projects developed by Zhenro Property Group during the Track Record Period;
(iii) the projected revenue in respect of residential property projects developed by Zhenro Property Group for the year ending December 31, 2020 for which our Group had been engaged to provide Zhenro Properties Pre-Delivery Property Management Services as of December 31, 2019 prior to the delivery of the properties to the property owners;
(iv) the number of residential property projects which we anticipate we may be engaged to provide Zhenro Properties Pre-Delivery Property Management Services for based on the total GFA under development of Zhenro Property Group as of December 31, 2019; and

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CONNECTED TRANSACTIONS

(v) the projected increase in demand for Zhenro Property Pre-Delivery Property Management Services as a result of the projected growth in the number of residential property projects of Zhenro Property Group for the three years ending December 31, 2022 with reference to its total GFA for properties under development and total GFA for properties held for future development.

Implications under the Listing Rules

Zhenro Properties is indirectly owned as to approximately 54.6% by Mr. ZR Ou, one of our Controlling Shareholders, and is therefore an associate of Mr. ZR Ou and thus a connected person of our Company upon [ REDACTED ]. Accordingly, the transactions under the Zhenro Properties Pre-Delivery Property Management Services Framework Agreement will constitute continuing connected transactions for our Company upon [ REDACTED ].

Since each of the applicable percentage ratios under the Listing Rules in respect of the annual caps for the Zhenro Properties Pre-Delivery Property Management Services Framework Agreement are expected to be more than 0.1% but less than 5% on an annual basis, the transactions under the Zhenro Properties Pre-Delivery Property Management Services Framework Agreement will be subject to the reporting, annual review and announcement requirements but exempt from independent shareholders’ approval requirement under Chapter 14A of the Listing Rules.

2. Mr. ZR Ou Pre-Delivery Property Management Services

On [●], 2020, our Company (for ourselves and on behalf of our subsidiaries) entered into pre-delivery property management services framework agreement with Mr. ZR Ou (the “ Mr. ZR Ou Pre-Delivery Property Management Services Framework Agreement ”), pursuant to which, our Group agreed to provide to Mr. ZR Ou’s associates (excluding Zhenro Property Group but including its associates) (the “ Associates ”) pre-delivery property management services for residential property projects developed by the Associates before the delivery of such properties to property owners including but not limited to security, cleaning, landscaping, repair and maintenance of common area and shared facilities (the “ Mr. ZR Ou Pre-Delivery Property Management Services ”), for a term commencing on the [ REDACTED ] and ending on December 31, 2022, which may be renewed as the parties may mutually agree, subject to compliance with the requirements under Chapter 14A of the Listing Rules and all other applicable laws and regulations.

The following sets forth the principal terms of the Mr. ZR Ou Pre-Delivery Property Management Services Framework Agreement:

(i) our Group shall, where we are selected by the Associates following the tender processes in accordance with the relevant PRC laws and regulations, provide Mr. ZR Ou Pre-Delivery Property Management Services to the Associates according to the tender documents and definitive management agreements to be entered into between our Group and the relevant Associates from time to time;

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CONNECTED TRANSACTIONS

(ii) the management fees payable by the Associates shall be determined based on the fee quotes to be submitted by our Group under the relevant tender bids. The fees quotes shall take into account, the nature, size and location of the property projects, the service scopes and the anticipated operational costs (including labor costs, material costs and administrative costs), with reference to the rates generally offered by us to Independent Third Parties in respect of comparable services, the fees for similar services and types of projects in the market and the pricing terms as recommended by the relevant government authorities; and
(iii) the definitive management agreements to be entered into between members of our Group and the relevant Associates shall only contain provisions which are, in all material aspects, consistent with the binding principles, guidelines, terms and conditions set out in the Mr. ZR Ou Pre-Delivery Property Management Services Framework Agreement.

Reasons for the transaction

Before newly developed properties are delivered to future property owners, a property developer usually seeks to engage a property management company by entering into preliminary property management service agreements. The primary purpose is to ensure availability of property management services before the property owners’ association could be lawfully established which could enter into a new property management service agreement between the relevant property owners’ association and the selected property management service provider directly. These property management services typically include security, cleaning, landscaping, repair and maintenance of common area and shared facilities. The property developer is also generally responsible for paying the property management fees for the units that remain unsold.

It is anticipated that we may be engaged by the Associates, particularly the associates of Zhenro Properties, for the provision of pre-delivery property management services for their residential property projects by way of tender in accordance with the relevant PRC laws and regulations, taking into account various factors such as our credentials, fee quotes and quality of services. In the case where there may be units that remain unsold for their residential property projects, the Associates, particularly the associates of Zhenro Properties, will also be responsible for paying the applicable property management fees as set out in the relevant preliminary management service agreements for the units that remain unsold.

The transactions contemplated under the Mr. ZR Ou Pre-Delivery Property Management Services Framework Agreement shall be on normal commercial terms or better and in accordance with the terms that are fair and reasonable and in the interests of our Company and our Shareholders as a whole. In the case where there are units that remain unsold for their residential property projects, the fees payable by the Associates shall be determined on the same basis as other third-party property owners in the same residential property projects.

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Historical transaction amounts

For the two years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019, there was no Mr. ZR Ou Pre-delivery Property Management Services provided by our Group to the Associates.

Annual caps

Our Directors estimate that the maximum amount of service fees payable by the Associates to us in relation to the Mr. ZR Ou Pre-Delivery Property Management Services for the three years ending December 31, 2022 will not exceed approximately RMB1.2 million, RMB2.8 million and RMB3.1 million, respectively.

Our Directors have considered the following factors in arriving at the above annual caps which are considered to be reasonable and justifiable in the circumstances:

(i) the projected revenue in respect of residential property projects under development by the Associates for the year ending December 31, 2020 for which our Group had been engaged to provide Mr. ZR Ou Pre-Delivery Property Management Services prior to the delivery of the properties to the property owners;
(ii) the estimated proportion of contracted sales GFA to total GFA available for sale for residential property projects to be developed by the Associates for the three years ending December 31, 2022 with reference to the proportion for residential property projects of similar locations, nature and scale;
(iii) the number of residential property projects which we anticipate we may be engaged to provide the Mr. ZR Ou Pre-Delivery Property Management Services for based on the total GFA under development of the Associates as of December 31, 2019; and
(iv) the projected increase in demand for Mr. ZR Ou Pre-Delivery Property Management Services as a result of the projected growth in the number of the residential property projects of the Associates for the three years ending December 31, 2022.

Implications under the Listing Rules

Mr. ZR Ou is one of our Controlling Shareholders and thus he and his associates are connected person of our Company upon [ REDACTED ]. Accordingly, the transactions under the Mr. ZR Ou Pre-Delivery Property Management Services Framework Agreement will constitute continuing connected transactions for our Company upon [ REDACTED ].

Since each of the applicable percentage ratios under the Listing Rules in respect of the annual caps for the Mr. ZR Ou Pre-Delivery Property Management Services Framework Agreement are expected to be more than 0.1% but less than 5% on an annual basis, the

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CONNECTED TRANSACTIONS

transactions under the Mr. ZR Ou Pre-Delivery Property Management Services Framework Agreement will be subject to the reporting, annual review and announcement requirements but exempt from the independent Shareholders’ approval requirement under Chapter 14A of the Listing Rules.

B. CONTINUING CONNECTED TRANSACTIONS SUBJECT TO THE REPORTING, ANNUAL REVIEW, ANNOUNCEMENT AND INDEPENDENT SHAREHOLDERS’ APPROVAL REQUIREMENTS

1. Zhenro Properties Management Services

During the Track Record Period, our Group has been engaged by Zhenro Property Group to provide management and related services to their residential property projects and their display units, sales offices and community clubhouses as well as commercial properties operated by Zhenro Property Group. We had also provided certain value-added services to Zhenro Property Group, such as sales assistance services, house repair services, preliminary planning and design consultancy services and pre-delivery inspection services.

On December 31, 2019, our Company (for ourselves and on behalf of our subsidiaries) entered into a management services framework agreement with Zhenro Properties (for itself and on behalf of its subsidiaries) (the “ Zhenro Properties Management Services Framework Agreement ”), pursuant to which, our Group agreed to provide to Zhenro Property Group management and related services including but not limited to cleaning, landscaping, concierge, maintenance of public order, security services, and other related value-added services to the residential property projects of Zhenro Property Group and their display units, sales offices and community clubhouses as well as commercial properties operated by Zhenro Property Group (the “ Zhenro Properties Management Services ”), for a term of three years from January 1, 2020 to December 31, 2022, which may be renewed as the parties may mutually agree, subject to compliance with the requirements under Chapter 14A of the Listing Rules and all other applicable laws and regulations.

The following sets forth the principal terms of the Zhenro Properties Management Services Framework Agreement:

(i) our Group shall provide Zhenro Properties Management Services to Zhenro Property Group according to the definitive management agreements to be entered into between members of our Group and Zhenro Property Group from time to time;
(ii) the fees to be charged under the Zhenro Properties Management Services Framework Agreement shall be determined after arm’s length negotiations, taking into account the nature, age, infrastructure features, size, location and neighborhood profile of the commercial or residential property projects, the service scopes to be provided and the anticipated operational costs (including labor costs, material costs

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CONNECTED TRANSACTIONS

and administrative costs) with reference to the rates generally offered by us to Independent Third Parties in respect of comparable services and fees for similar services and types of projects in the market; and

(iii) the definitive management agreement to be entered into between members of our Group and Zhenro Property Group shall only contain provisions which are, in all material aspects, consistent with the binding principles, guidelines, terms and conditions set out in the Zhenro Properties Management Services Framework Agreement.

Reasons for the transaction

Due to the foot traffic at the display units, sales offices and community clubhouses of property projects, property developers typically engage property management companies to provide constant management services such as cleaning, security, maintenance and concierge services. Our Group had been engaged by Zhenro Property Group as the management services provider for its residential property projects and their display units, sales offices and community clubhouses as well as the commercial properties operated by Zhenro Property Group during the Track Record Period and up to the Latest Practicable Date, taking into account various factors such as our credentials, fee quote and quality of services.

The transactions contemplated under the Zhenro Properties Management Services Framework Agreement shall be on normal commercial terms or better and in accordance with the terms that are fair and reasonable and in the interests of our Company and our Shareholders as a whole.

Historical transaction amounts

For the two years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019, the transaction amounts for the Zhenro Properties Management Services provided by our Group to Zhenro Property Group amounted to approximately RMB82.5 million, RMB105.9 million and RMB135.6 million, respectively.

Annual caps

Our Directors estimate that the maximum amount of service fees payable by Zhenro Property Group to us in relation to the Zhenro Properties Management Services for the three years ending December 31, 2022 will not exceed RMB250.0 million, RMB280.0 million and RMB310.0 million, respectively.

Our Directors have considered the following factors in arriving at the above annual caps which are considered to be reasonable and justifiable in the circumstances:

(i) the historical transaction amounts and growth trend of Zhenro Properties Management Services during the Track Record Period;

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CONNECTED TRANSACTIONS

(ii) the projected revenue in respect of the commercial properties operated by Zhenro Property Group for which our Group had been engaged to provide Zhenro Properties Management Services as of December 31, 2019;
(iii) the projected revenue in respect of the residential property projects under development by Zhenro Property Group for the year ending December 31, 2020 for which our Group had been engaged to provide Zhenro Properties Management Services as of December 31, 2019 with reference to the total GFA available for sale, geographical locations, facilities, human resources allocation and scope of services;
(iv) the number of property projects which we anticipate that we may be engaged to provide Zhenro Properties Management Services for based on the total GFA under development of Zhenro Property Group as of December 31, 2019; and
(v) the projected increase in demand for Zhenro Property Management Services as a result of the projected growth in the number of the residential property projects of Zhenro Property Group for the three years ending December 31, 2022 with reference to its total GFA for properties under development and total GFA for properties held for future development.

Implications under the Listing Rules

Zhenro Properties is indirectly owned as to approximately 54.6% by Mr. ZR Ou, one of our Controlling Shareholders and is therefore an associate of Mr. ZR Ou and thus a connected person of our Company upon [ REDACTED ]. Accordingly, the transactions under the Zhenro Properties Management Services Agreement will constitute continuing connected transactions for our Company upon [ REDACTED ].

Since each of the applicable percentage ratios under the Listing Rules in respect of the annual caps for the Zhenro Properties Management Services Framework Agreement are expected to be more than 5% on an annual basis, the transactions under the Zhenro Properties Management Services Framework Agreement will be subject to the reporting, annual review, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

2. Mr. ZR Ou Management Services

During the Track Record Period, our Group has been engaged by the Associates, particularly the associates of Zhenro Properties, to provide management and related services to their property projects and their display units, sales offices and community clubhouses. We had also provided certain value-added services to the Associates, particularly the associates of Zhenro Properties, such as sales assistance services, house repair services, preliminary planning and design consultancy services and pre-delivery inspection services.

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CONNECTED TRANSACTIONS

On [●], 2020, our Company (for ourselves and on behalf of our subsidiaries) entered into a management services framework agreement with Mr. ZR Ou (the “ Mr. ZR Ou Management Services Framework Agreement ”), pursuant to which, our Group agreed to provide to the Associates management and related services including but not limited to cleaning, landscaping, concierge, maintenance of public order, security services, and other related value-added services to the property projects of the Associates and their display units, sales offices and community clubhouses (the “ Mr. ZR Ou Management Services ”), for a term commencing on the [ REDACTED ] and ending on December 31, 2022, which may be renewed as the parties may mutually agree, subject to compliance with the requirements under Chapter 14A of the Listing Rules and all other applicable laws and regulations.

Reasons for the transaction

Due to the foot traffic at the display units, sales offices and community clubhouses of property projects, property developers typically engage property management companies to provide constant management services such as cleaning, security, maintenance and concierge services. In addition, such management services are also in need by property operators to ensure that the day-to-day affairs of their managed properties are closely attended by management service provider. Our Group had been engaged by the Associates, particularly the associates of Zhenro Properties, as the management services provider for their property projects and their display units, sales offices and community clubhouses during the Track Record Period and up to the Latest Practicable Date, taking into account various factors such as our credentials, fee quote and quality of services.

The transactions contemplated under the Mr. ZR Ou Management Services Framework Agreement shall be on normal commercial terms or better and in accordance with the terms that are fair and reasonable and in the interests of our Company and our Shareholders as a whole.

Historical transaction amounts

For the two years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019, the transaction amounts for the Mr. ZR Ou Management Services provided by our Group to the Associates amounted to approximately RMB35.1 million, RMB55.1 million and RMB66.1 million, respectively.

Annual caps

Our Directors estimate that the maximum amount of service fees payable by the Associates to us in relation to the Mr. ZR Ou Management Services for the three years ending December 31, 2022 will not exceed RMB125.0 million, RMB135.0 million and RMB150.0 million, respectively.

Our Directors have considered the following factors in arriving at the above annual caps which are considered to be reasonable and justifiable in the circumstances:

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CONNECTED TRANSACTIONS

(i) the historical transaction amounts and growth trend of Mr. ZR Ou Management Services during the Track Record Period;
(ii) the projected revenue in respect of the property projects under development by the Associates for the year ending December 31, 2020 for which our Group had been engaged to provide Mr. ZR Ou Management Services as of December 31, 2019 with reference to the total GFA available for sale, geographical locations, facilities, human resources allocation and scope of services;
(iii) the number of property projects which we anticipate that we may be engaged to provide Mr. ZR Ou Management Services for based on the total GFA under development of the Associates as of December 31, 2019; and
(iv) the projected increase in demand for Mr. ZR Ou Management Services as a result of the projected growth in the number of the property projects of the Associates for the three years ending December 31, 2022.

Implications under the Listing Rules

Mr. ZR Ou is one of our Controlling Shareholders and thus he and his associates are connected persons of our Company upon [ REDACTED ]. Accordingly, the transactions under the Mr. ZR Ou Management Services Agreement will constitute continuing connected transactions for our Company upon [ REDACTED ].

Since each of the applicable percentage ratios under the Listing Rules in respect of the annual caps for the Mr. ZR Ou Management Services Framework Agreement are expected to be more than 5% on an annual basis, the transactions under the Mr. ZR Ou Management Services Framework Agreement will be subject to the reporting, annual review, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

APPLICATION FOR WAIVER

The transactions described under “– A. Continuing connected transactions subject to the reporting, annual review and announcement requirements but exempt from independent shareholders’ approval requirement” above constitute our continuing connected transactions under the Listing Rules which are subject to the reporting, annual review and announcement requirements but exempt from the independent shareholders’ approval requirement of the Listing Rules.

The transactions described under “– B. Continuing connected transactions subject to the reporting, annual review, announcement and independent shareholders’ approval requirements” above constitute our continuing connected transactions under the Listing Rules which are subject to the reporting, annual review, announcement and independent shareholders’ approval requirements of the Listing Rules.

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CONNECTED TRANSACTIONS

In respect of these continuing connected transactions, pursuant to Rule 14A.105 of the Listing Rules, we have applied for, and the Stock Exchange [has granted], waivers exempting us from strict compliance with (i) the announcement requirement under Chapter 14A of the Listing Rules in respect of the continuing connected transactions as disclosed in “– A. Continuing connected transactions subject to the reporting, annual review and announcement requirements but exempt from independent shareholders’ approval requirement” above and (ii) the announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules in respect of the continuing connected transactions as disclosed in “– B. Continuing connected transactions subject to the reporting, annual review, announcement and independent shareholders’ approval requirements” above, subject to the condition that the aggregate amounts of the continuing connected transactions for each financial year shall not exceed the relevant amounts set forth in the respective annual caps (as stated above).

DIRECTORS’ VIEWS

Our Directors (including our independent non-executive Directors) consider that all the continuing connected transactions described under “– A. Continuing connected transactions subject to the reporting, annual review and announcement requirements but exempt from independent shareholders’ approval requirement” above and “– B. Continuing connected transactions subject to the reporting, annual review, announcement and independent shareholders’ approval requirements” above have been and will be carried out: (i) in the ordinary and usual course of our business; (ii) on normal commercial terms or better; and (iii) in accordance with the respective terms that are fair and reasonable and in the interests of our Company and our Shareholders as a whole.

Our Directors (including our independent non-executive Directors) are of the view that the annual caps of the continuing connected transactions under “– A. Continuing connected transactions subject to the reporting, annual review and announcement requirements but exempt from independent shareholders’ approval requirement” above and “– B. Continuing connected transactions subject to the reporting, annual review, announcement and independent shareholders’ approval requirements” above are fair and reasonable and are in the interests of our Shareholders as a whole.

SOLE SPONSOR’S VIEW

The Sole Sponsor is of the view (i) that the continuing connected transactions described in “– A. Continuing connected transactions subject to the reporting, annual review and announcement requirements but exempt from independent shareholders’ approval requirement” above and “– B. Continuing connected transactions subject to the reporting, annual review, announcement and independent shareholders’ approval requirements” above have been and will be entered into in the ordinary and usual course of our business, on normal commercial terms or better, that are fair and reasonable and in the interests of our Company and our Shareholders as a whole, and (ii) that the proposed annual caps of such continuing connected transactions are fair and reasonable and in the interests of our Company and our Shareholders as a whole.

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DIRECTORS AND SENIOR MANAGEMENT

BOARD OF DIRECTORS

Our Board currently consists of seven Directors comprising two executive Directors, two non-executive Directors and three independent non-executive Directors. The powers and duties of our Board include convening general meetings and reporting our Board’s work at our Shareholders’ meetings, determining our business and investment plans, preparing our annual financial budgets and final reports, formulating proposals for profit distributions and exercising other powers, functions and duties as conferred by the Articles. We [have entered] into service agreements with each of our executive Directors. We [have also entered] into letters of appointment with each of our non-executive Directors and independent non-executive Directors.

The following table sets forth certain information in respect of members of our Board and senior management of our Company:

Members of our Board

Name Age Mr. Huang Liang (黃亮) 45 Mr. Huang Sheng (黃聖) 42 Mr. Huang Xianzhi (黃仙枝) 51 Mr. Chan Wai Kin (陳偉健) 39	Date of joining our Group December 2016 August 2019 December 2019 December 2019	Date of appointment as Director December 2018 December 2019 December 2019 December 2019	Existing position in our Group Executive Director and chief executive officer of our Company Executive Director, vice president of our Company and vice president of Zhenro Property Services Chairman of our Board and non-executive Director Non-executive Director	Roles and responsibilities in our Group
				Responsible for the overall operational management and strategic planning of our Group Responsible for the overall operational management, marketing and brand maintenance of our Group Responsible for providing strategic advice and recommendations on the operations and management of our Group Responsible for providing strategic advice and recommendations on the operations and management of our Group

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Name Age Mr. Ma Haiyue (馬海越) 42 Mr.Au Yeung Po Fung (歐陽寶豐) 52 Mr. Zhang Wei (張偉) 44	Date of joining our Group [●] [●] [●]	Date of appointment as Director [●] [●] [●]	Existing position in our Group Independent non-executive Director Independent non-executive Director Independent non-executive Director	Roles and responsibilities in our Group
				Responsible for providing independent advice on the operations and management of our Group Responsible for providing independent advice on the operations and management of our Group Responsible for providing independent advice on the operations and management of our Group

Members of our senior management

Name Age Mr. Ren Xiaoguang (任曉光) 42 Mr. Liu Chang (劉暢) 42 Mr. Xi Deshuai (席得帥) 39	Date of joining our Group December 2016 May 2019 November 2016	Date of appointment to current position December 2016 May 2019 November 2016	Existing position in our Group Vice president of Zhenro Property Services Chief financial officer and joint company secretary of our Company General manager of Fujian area of our Group	Roles and responsibilities in our Group
				Responsible for the risk control and overall business management of our Group Responsible for the overall management of the investment and financial affairs of our Group Responsible for the daily management and operations in Fujian area

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Executive Directors

Mr. Huang Liang (黃亮) , aged 45, was appointed as our executive Director and chief executive officer on December 6, 2019. He joined our Group as the general manager of Zhenro Property Services in December 2016. He also holds directorships in our various subsidiaries. He is primarily responsible for the overall operational management and strategic planning of our Group. Mr. Huang has over 11 years of experience in the PRC real estate industry. Prior to joining our Group, Mr. Huang served in various positions at Alcatel Shanghai Bell Co., Ltd. (上海貝爾阿爾卡特股份有限公司), a communication service provider, from September 2001 to July 2008, and at Shanghai Vanke Real Estate Company (上海萬科房地產有限公司), a real estate developer and a subsidiary of China Vanke Co., Ltd. (萬科企業股份有限公司) a joint stock company principally engaged in the property development and property services whose shares are listed on the Main Board of the Stock Exchange (H share stock code: 2202) and the Shenzhen Stock Exchange (A share stock code: 00002), from August 2008 to March 2011. From March 2011 to March 2013, he worked at Tibet Xinchengyue Property Management Co., Ltd. (西藏新城悅物業服務股份有限公司) (formerly known as Jiangsu Xincheng Property Services Co., Ltd. (江蘇新城物業服務有限公司)), a property management services provider and a subsidiary of Xinchengyue Holdings Limited (新城悅控股有限公司), whose shares are listed on the Main Board of the Stock Exchange (stock code: 1755), during which he had served as the general manager mainly responsible for its overall operational management. During the period from April 2013 to April 2016, he had worked as the general manager of the property management department at Yango Group Co., Ltd (陽光城集團股份有限公司), a company principally engaged in property development whose shares are listed on the Shenzhen Stock Exchange (stock code: 000671), and Thaihot Group Co., Ltd. (泰禾集團股份有限公司), a company principally engaged property development whose shares are listed on the Shenzhen Stock Exchange (stock code: 000732), where he was responsible for the operational management of the companies. From April 2016 to December 2016, he served as the general manager of Jiangsu Zhongnan Property Services Co., Ltd (江蘇中南物業服務有限公司), a company principally engaged in property management and a subsidiary of Zhongnan City Construction Investment Co., Ltd (中南城市建設投資有限公司).

Mr. Huang has acted as the vice chairman of Fujian Province Estate Management Association (福建省物業管理協會) since December 2017. He was appointed as a member of Industrial Development Research Committee (產業發展研究委員會) under China Property Management Institute (中國物業管理協會) in October 2019.

Mr. Huang obtained a bachelor’s degree in engineering from Huazhong University of Science and Technology (華中科技大學), in the PRC in July 1996 and a master’s degree in business administration from Wuhan University (武漢大學) in the PRC in June 2002. He was approved as a Certified Property Manager (全國物業管理師) by Shanghai Municipal Human Resources and Social Security Bureau in February 2012. He was qualified as a Certified Commercial Investment Member (“ CCIM ”) (國際註冊商業房地產投資師) of the CCIM Institute in January 2015. In January 2019, he received the award of “2018 China Extraordinary Manager” (2018年度中國傑出經理人)” granted by the 13th Chinese New Employer Brand Committee (中國第十三屆新僱主品牌年會組委會). He also successfully completed the Wharton & E-House Real Estate Executive Program at the Wharton School of the University

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DIRECTORS AND SENIOR MANAGEMENT

of Pennsylvania in April 2019. In May 2019, he obtained an advanced-level certificate of property manager (物業經理高級證書) from Trade Association of Shanghai Property Management (上海市物業管理行業協會) (“ TASPM ”). In December 2019, he received the award of “2019 China Top 10 Property Management Companies’ Annual CEO” (2019中國十大物業年度CEO) in “2019 (Third) China Real Estate New Era Grand Ceremony” (2019(第三屆)中國地產新時代盛典) jointly held by Leju Finance (樂居財經), Sina Finance (新浪財經), China Entrepreneur (中國企業家), Fangchan.com (中房網) and China Property Management Institute (中國物業管理協會).

Mr. Huang Sheng (黃聖) , aged 42, was appointed as our executive Director on December 6, 2019. He joined our Group in August 2019 as the vice president of Zhenro Property Services and he is primarily responsible for the overall operational management, marketing and brand maintenance of our Group. Mr. Huang has over 18 years of experience in the property management industry. Prior to joining our Group, from July 2001 to May 2017, he worked at Shanghai Vanke Property Service Co., Ltd. (上海萬科物業服務有限公司), a property management services provider and a subsidiary of China Vanke Co., Ltd. (萬科企業股份有限公司), a joint stock company principally engaged in the property development and property services whose shares are listed on the Main Board of the Stock Exchange (H share stock code: 2202) and on the Shenzhen Stock Exchange (A share stock code: 00002), where he served in various positions including quality specialist, quality supervisor, project manager, assistant general manager, vice general manager and general manager, mainly responsible for the overall management and brand improvement. From May 2017 to April 2019, he worked as the general manager of property management department of Yango Group Co., Ltd. (陽光城集團股份有限公司), a company principally engaged in the business of property development in PRC whose shares are listed on the Shenzhen Stock Exchange (stock code: 000671). From June 2019 to August 2019, he worked as the chief executive officer at Guangdong Esteem Property Services Ltd. (廣東康景物業服務有限公司), a company principally engaged in property management services and a subsidiary of Hopson Development Holdings Limited (合生創展集團有限公司) whose shares are listed on the Main Board of the Stock Exchange (stock code: 754), where he was mainly responsible for its overall management.

Mr. Huang was also appointed as a vice chairman of the Fourth Council and the Fifth Council of TASPM in March 2013 and March 2015, respectively. He was recognized as “Outstanding Contributor at the 20th Anniversary of the Establishment of TASPM” (上海市物業管理行業協會成立20周年傑出貢獻個人) by the TASPM in January 2015. In December 2017, he was also appointed as the vice chairman of Fujian Province Estate Management Association.

Mr. Huang obtained a bachelor’s degree in economics from Shijiazhuang University of Economics (石家莊經濟學院) (now known as Hebei GEO University (河北地質大學)) in the PRC in June 2001.

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DIRECTORS AND SENIOR MANAGEMENT

Non-executive Directors

Mr. Huang Xianzhi (黃仙枝) , aged 51, was appointed as the chairman of our Board and non-executive Director on December 6, 2019. He is primarily responsible for providing strategic advice and recommendations on the operations and management of our Group. Mr. Huang has over 20 years of experience in the PRC real estate industry. Prior to joining our Group, from October 1998 to October 2014, Mr. Huang served in various positions in Zhenro Group Company, including the chief financial officer, the assistant to the chief executive officer, the vice president primarily responsible for financial affairs and the executive vice president where he was responsible for overall management, consecutively. He has been a director and president of Zhenro Group Company since November 2014. Mr. Huang has served as an executive director and the chairman of the board of Zhenro Properties Holdings Company Limited (正榮地產控股股份有限公司), a subsidiary of Zhenro Properties, since March 2016. Since September 2017, he has served as an executive director and chairman of the board in Zhenro Properties primarily responsible for the overall management of the investment strategies and business development. He has also acted as the chief executive officer of Zhenro Properties since November 2019.

Mr. Huang graduated from Jimei Advanced Specialized Institute of Finance and Economics (集美財政高等專科學校) (now known as Jimei University (集美大學)) in the PRC in July 1989, where he majored in investment economics. He also obtained a master’s degree in business administration from The Open University of Hong Kong in Hong Kong in November 2012. Mr. Huang was conferred the accountant qualification in December 1997 by the Ministry of Finance of the PRC (中華人民共和國財政部). Mr. Huang was awarded the “Outstanding Professional Manager in China for the Year of 2008” (2008年度中國傑出職業經理人) by the International Human Resources Management Association (國際人力資源管理協會), Editorial Department of Business Reviews of Peking University (北大商業評論編輯部) and Professional Magazine of the Ministry of Human Resources and Social Security (人力資源和社會保障部職業雜誌社) in October 2008, and “Chief Accountant in China for the Year of 2011” (2011中國總會計師年度人物) by China Association of Chief Financial Officers (中國總會計師協會) in December 2011. He was awarded “Figure with Contributions to China Real Estate Brands in 2015” (2015中國房地產品牌貢獻人物) jointly by Enterprise Research Institute of the Development Research Center of the State Council (國務院發展研究中心企業研究所), Property Research Institute of Tsinghua University (清華大學房地產研究所) and CIA in September 2015. He received “Top 100 Figures with Contributions to China Real Estate Industry in 2016” (2016中國房地產百強貢獻人物) award from China Real Estate TOP10 Research Group (中國房地產TOP10研究組) in March 2016. He was awarded “Contributor of China Top 100 Real Estate Entrepreneurs” (中國房地產百強企業貢獻人物) by China Real Estate TOP10 Research Group (中國房地產TOP10研究組) in March 2018. In August 2018, he was recognized as “China Real Estate Influential Figure for the Year of 2018” (2018中國年度影響力地產人物) in China Real Estate Fashion Awards (中國地產風尚大獎) by Boao Real Estate Forum (博鰲房地產論壇). In September 2018, he was awarded “Leaders in the China Real Estate Industry for the Year of 2018” (2018中國房地產領軍人物) by China Real Estate Association (中國房地產業協會).

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Mr. Chan Wai Kin (陳偉健) , aged 39, was appointed as a non-executive Director on December 6, 2019. He is primarily responsible for providing strategic advice and recommendations on the operations and management of our Group. Mr. Chan has over 10 years of experience in accounting and financial matters. Prior to joining our Group, from April 2012 to February 2014, he worked at Golden Wheel Tiandi Holdings Company Limited (金輪天地控股有限公司), a company principally engaged in property development whose shares are listed on the Main Board of the Stock Exchange (stock code: 1232), where he served as executive director and chief financial officer from April 2012 to September 2013 mainly responsible for overseeing financial management and regulatory compliance, company secretary from April 2012 to August 2013 and non-executive director from September 2013 to February 2014. From February 2014 to March 2015, he worked as chief financial officer and company secretary, mainly responsible for financial reporting and investors related matters, at Times China Holdings Limited (時代中國控股有限公司) (formerly known as “Times Property (Holdings) Co., Limited (時代地產控股有限公司)”), a property developer whose shares are listed on the Main Board of the Stock Exchange (stock code: 1233). From March 2015 to August 2018, he worked at Seazen Group Limited (新城發展控股有限公司) (formerly known as “Future Land Development Holdings Limited”), a property developer whose shares are listed on the Main Board of the Stock Exchange (stock code: 1030), where he served as joint company secretary from March 2015 to March 2018, executive director from March 2015 to August 2018, mainly responsible for overseeing the financial management and capital market related matters. Since September 2018, he has worked at Zhenro Properties where he has served as executive director and vice president since September 2018, chief financial officer since November 2018, mainly responsible for corporate financing management.

Mr. Chan obtained a bachelor’s degree in business science from Indiana University Bloomington in the United States in May 2005. He has been a member of the Hong Kong Institute of Certified Public Accountants since July 2009. He obtained a master’s degree in business administration at the University of Chicago Booth School of Business in the United States in March 2017.

Independent non-executive Directors

Mr. Ma Haiyue (馬海越) , aged 42, was appointed as our independent non-executive Director on [●] and he is primarily responsible for providing independent advice on the operations and management of our Group. Mr. Ma has over 17 years of experiences in financing and auditing. Prior to joining our Group, from May 2002 to November 2004, Mr. Ma worked at Ernst & Young Da Hua. From November 2004 to July 2017, Mr. Ma held various positions at KPMG Huazhen LLP, including as an audit manager from November 2004 to June 2007, an audit senior manager from July 2007 to September 2011 and an audit partner from October 2011 to July 2017. From July 2017 to June 2018, Mr. Ma served as an executive director at the investment banking division of Morgan Stanley Huaxin Securities Co., Ltd.. He has worked at Venus Medtech (Hangzhou) Inc. (杭州啟明醫療器械股份有限公司), a company principally engaged in manufacture and research and development of medical device and listed

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on the Main Board of the Stock Exchange (stock code: 2500), where he has served as chief financial officer mainly responsible for its finance management since June 2018 and also a joint company secretary since July 2019.

Mr. Ma obtained a bachelor’s degree in economics from Shanghai University of Finance and Economics (上海財經大學) in the PRC in June 1998. Mr. Ma is a member of the Chinese Institute of Certified Public Accountants.

Mr. Au Yeung Po Fung (歐陽寶豐) , aged 52, was appointed as our independent non-executive Director on [●] and he is primarily responsible for providing independent advice on the operations and management of our Group. Mr. Au Yeung has extensive work experience in the real estate industry. He held various senior management positions in the following companies in the real estate industry:

Name of company Powerlong Real Estate Holdings Limited (寶龍地產控股有限公司) Sun Hung Kai Properties Limited (新鴻基地產開發有限公司) Fosun Industrial Holdings Limited (復星地產控股有限公司) (a subsidiary of Fosun International Limited (復星國際有限公司))	Principal business Commercial real estate development and investment, property management and hotel development Development of properties for sale and investment Global real estate investment and management	Place of listing and stock code Main Board of the Stock Exchange (stock code: 1238) Main Board of the Stock Exchange (stock code: 16) Main Board of the Stock Exchange (stock code: 656)	Position Chief financial officer Chief financial officer at Sun Hung Kai Real Estate Agency Ltd (新鴻基地產代理有限公司), a subsidiary of Sun Hung Kai Properties Limited (Mainland operations) Vice president and chief financial officer	Period of service
				November 2007 to October 2011 October 2011 to December 2013 February 2014 to August 2014

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Name of company Sansheng Holdings (Group) Co. Ltd. (三盛控股(集團)有限公司) Beijing Huahong Jiye Investment Group Co., Ltd. (北京華鴻基業投資集團有限公司) Shanghai Huadong Properties (Group) Limited (上海華董地產(集團)有限公司)	Principal business Property development and investment Investment development and property development Property development	Place of listing and stock code Main Board of the Stock Exchange (stock code: 2183) N/A N/A	Position Chief financial officer and vice president of Sansheng Real Estate Group Vice president Vice president	Period of service
				August 2017 to January 2018 March 2018 to October 2018 February 2019 to present

In addition, Mr. Au Yeung holds or had held directorships in the following listed companies:

Name of company Kiu Hung International Holdings Limited (僑雄國際控股有限公司) China LNG Group Limited (中國天然氣集團有限公司) GR Properties Limited (國銳地產有限公司) Shanshan Brand Management Co., Ltd. (杉杉品牌運營股份有限公司) Redsun Properties Group Limited (弘陽地產集團有限公司)	Principal business Toys, resources and leisure-related business Asset management and new energy development Property development and management Design, marketing and sales of formal and casual business menswear Real estate development	Place of listing and stock code Main Board of the Stock Exchange (stock code: 381) Main Board of the Stock Exchange (stock code: 931) Main Board of the Stock Exchange (stock code: 108) Main Board of the Stock Exchange (stock code: 1749) Main Board of the Stock Exchange (stock code: 1996)	Position Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director	Period of service
				May 2016 to September 2016 July 2016 to September 2019 July 2017 to present May 2018 to present June 2018 to present

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Name of company eBroker Group Limited (電子交易集團有限公司) Zhongliang Holdings Group Company Limited (中梁控股集團有限公司) Sinic Holdings (Group) Company Limited (新力控股(集團)有限公司)	Principal business Financial technology solution provider Property development, property management, property leasing and management consulting Property development and property leasing	Place of listing and stock code GEM of the Stock Exchange (stock code: 8036) Main Board of the Stock Exchange (stock code: 2772) Main Board of the Stock Exchange (stock code: 2103)	Position Independent non-executive director Independent non-executive director Independent non-executive director	Period of service
				June 2018 to present June 2019 to present August 2019 to present

While Mr. Au Yeung is currently holding directorships in six other companies listed on the Stock Exchange as disclosed above, our Directors are of the view that Mr. Au Yeung will be able to devote sufficient time to discharge his duties and responsibilities as an independent non-executive Director given that: (i) his roles in other listed companies primarily require him to oversee their management independently, rather than to allocate substantial time on the participation of the day-to-day management and operations of their respective businesses; (ii) he has demonstrated that he is capable of devoting sufficient time to discharge his duties owed to each of these listed companies by attending board meetings and board committee meetings of these listed companies during their latest financial year, as disclosed in the annual reports of the relevant listed companies; (iii) he has acquired extensive management experience and developed substantial knowledge on corporate governance through his directorships in other listed companies, which is expected to facilitate the proper discharge of his duties and responsibilities as an independent non-executive Director; and (iv) he has confirmed that he will have sufficient time to fulfill his duties as an independent non-executive Director notwithstanding his existing independent non-executive directorships in six other listed companies.

Mr. Au Yeung graduated from The Hong Kong Polytechnic (currently known as The Hong Kong Polytechnic University) in Hong Kong in November 1990 with a bachelor’s degree in business studies. He was admitted as a fellow of The Association of Chartered Certified Accountants in November 2000, a fellow of the Hong Kong Society of Accountants (currently known as the Hong Kong Institute of Certified Public Accountants (HKICPA)) in May 2003, and a fellow of the Institute of Chartered Accountants in England and Wales in July 2015. Mr. Au Yeung was also certified as a chartered financial analyst (CFA) of the CFA Institute in September 2006.

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During the period between 1998 and 2001, Mr. Au Yeung was a director of Uniford Asia Limited, a company incorporated in Hong Kong and dissolved by striking off pursuant to section 291 of the then Companies Ordinance (Chapter 32 of the Laws of Hong Kong) (as in force before March 3, 2014) on May 18, 2001. Mr. Au Yeung has confirmed that such company was not in operation and was solvent at the time of dissolution. Mr. Au Yeung has further confirmed that there was no fraudulent act or misfeasance on his part leading to the striking off of such company and he is not aware of any actual or potential claim that had been or will be made against him as a result of the striking off of such company.

Mr. Zhang Wei (張偉) , aged 44, was appointed as our independent non-executive Director on [●] and he is primarily responsible for providing independent advice on the operations and management of our Group. Prior to joining our Group, from December 2011 to January 2015, he served as director at asset management department at Legend Holdings Corporation (聯想控股股份有限公司), a company principally engaged in strategic investment business, whose shares are listed on the Main Board of the Stock Exchange (stock code: 3396). From January 2015, he worked as the general manager of legal department at China Vanke Co., Ltd. (萬科企業股份有限公司), a joint stock company principally engaged in the property development and property services whose shares are listed on the Main Board of the Stock Exchange (H share stock code: 2202) and on the Shenzhen Stock Exchange (A share stock code: 00002). Since July 2018, he has served as an independent non-executive director at Appotronics Corporation Limited (深圳光峰科技股份有限公司), a company principally engaged in laser display technology development, whose shares are listed on the Shanghai Stock Exchange (stock code: 688007). Since February 2019, he has worked at 360 Security Technology Inc. (三六零安全科技股份有限公司), an internet and mobile security product and service provider listed on the Shanghai Stock Exchange (stock code: 601360), where he served as the vice president and chief legal consultant mainly responsible for legal affairs.

Mr. Zhang obtained a bachelor’s degree in law and a master’s degree in civil and commercial law from Zhongnan University of Economics and Law (中南財經政法大學) (formerly known as Zhongnan University of Law (中南政法大學)), the PRC in July 1996 and June 2000, respectively. He also obtained a master’s degree and a juris doctor’s degree from the Indiana University School of Law, the United States in May 2004 and August 2007, respectively. Mr. Zhang also holds the New York qualification certificate to practice as an attorney and counselor at law, conferred by the Appellate Division of the Supreme Court of the State of New York in the United States in April 2008.

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SENIOR MANAGEMENT

Mr. Ren Xiaoguang (任曉光) , aged 42, joined our Group in December 2016 as the vice president of Zhenro Property Services. He is primarily responsible for risk control and overall business management of our Group. Mr. Ren has over 12 years of experience in PRC real estate industry. Prior to joining our Group, from August 2007 to December 2016, he worked at China Resources Land (Shanghai) Property Management Co., Ltd. (華潤置地(上海)物業管理有限公司), a company principally engaged in the business of the real estate agency and property management, where he served as the managing director mainly responsible for its operational management. He was appointed as the councilor of Zhenro Public Welfare Foundation (正榮公益基金會) and China Property Management Institute (中國物業管理協會) in January 2017 and May 2019, respectively.

Mr. Ren obtained a bachelor’s degree in law from Fudan University (復旦大學) in the PRC in July 2000. He was conferred the real estate (intermediate economist qualification (房地產(中級)經濟師) by the Ministry of Personnel of the PRC in November 2003. He was also recognized as a property manager by the Shanghai Human Resources and Social Security Bureau in February 2012 and a registered property manager by MOHURD in June 2014.

Mr. Liu Chang (劉暢) , aged 42, was appointed as the chief financial officer of our Group on May 10, 2019. He joined our Group in May 2019 and he is primarily responsible for the overall management of the investment and financial affairs of our Group. Mr. Liu has over 18 years of experience in financial management. Prior to joining our Group, from July 2001 to November 2004, he worked as budget supervisor, mainly responsible for budget management at Kingdee Software (China) Company Limited (金蝶軟件(中國)有限公司), a company principally engaged in the development of computer hardware and software. From November 2004 to November 2009, he worked as financial director of Southeast Asia Region, mainly responsible for the overall financial management at Huawei Technologies Co, Ltd (華為技術有限公司), a company principally engaged in the provision of information and communication technology solutions. From November 2009 to April 2015, he worked as assistant executive president, mainly responsible for group strategy management and capital operation at GCL-Poly Energy Holdings Limited (保利協鑫能源控股有限公司), an energy supplier whose shares are listed on the Main Board of the Stock Exchange (stock code: 3800). From April 2015 to May 2016, he worked as chief financial officer, mainly responsible for financial management, capital operation and internal control at Shenzhen Noposion Agrochemicals Co., Ltd (深圳諾普信農化股份有限公司), a company principally engaged in developing the agricultural biological high-tech products and services whose shares are listed on the Shenzhen Stock Exchange (stock code: 002215). From June 2016 to April 2018, he worked as chief financial officer, mainly responsible for the overall financial management at Colour Life Service Group Co., Limited (彩生活服務集團有限公司), a company principally engaged in property management whose shares are listed on the Main Board of the Stock Exchange (stock code: 1778). From April 2018 to May 2019, he worked as chief financial officer, mainly responsible for overall financial management at Ever Sunshine Lifestyle Services Group Ltd. (永升生活服務集團有限公司), a property management services provider listed on the Main Board of the Stock Exchange (stock code: 1995).

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Mr. Liu obtained a bachelor’s degree in economics from Xi’an Jiaotong University (西安交通大學) in the PRC in July 2001 and a master degree in business administration from the University of Manchester in the United Kingdom in June 2016. He was recognized as a fellow member of the Association of International Accountants in the United Kingdom in December 2013 as well as a fellow member of Institute of Public Accountants in Australia in January 2014.

Mr. Xi Deshuai (席得帥) , aged 39, was appointed as the general manager of Fujian area of our Group on November 1, 2016. He joined our Group in November 2016 and he is primarily responsible for the daily management and operations of our business in Fujian area. Mr. Xi has over 12 years of experience in public relationships for PRC real estate industry. Prior to joining our Group, from September 2007 to February 2012, he worked as customer service supervisor, mainly responsible projects delivery and brand management at Chengdu Shenchangcheng Real Estate Co., Ltd. (成都深長城地產有限公司), a real estate developer and a subsidiary of Shenzhen Centralcon Investment Holding Co., Ltd. (深圳市中洲投資控股股份有限公司), company listed on the Shenzhen Stock Exchange (stock code: 000042). From April 2012 to September 2013, he worked as customer service manager, mainly responsible for customer service management at Chengdu Shangjin Property Co., Ltd. (成都上錦置業有限公司), a wholly-owned subsidiary of Shanghai Forte Land Co. Ltd. (復地(集團)股份有限公司), a real estate development company. From October 2013 to April 2015, he worked as planning manager at the marketing management department of South Asia Real Estate Group Co., Ltd. (南益地產集團有限公司), a real estate development company, where he was mainly responsible for customer service management. From June 2015 to October 2016, he joined Zhenro Properties Holdings Company Limited (正榮地產控股股份有限公司), a wholly-owned subsidiary of Zhenro Properties, as customer relationship director and was later promoted to vice general manager of customer relationship department mainly responsible for customer service management.

Mr. Xi obtained a bachelor’s degree in law from Yunnan Normal University (雲南師範大學) in the PRC in July 2004 . He obtained a master’s degree in arts from Yunnan University (雲南大學) in the PRC in July 2007. Mr. Xi completed a part-time program and received a postgraduate diploma in service design and experience strategy from the Institute for China Business of the School of Professional and Continuing Education of the University of Hong Kong in Hong Kong in July 2016.

Saved as disclosed above, none of our Directors or senior management members has been a director of any listed companies during the three years immediately preceding the Latest Practicable Date.

Save as disclosed above, to the best of the knowledge, information and belief of our Directors having made all reasonable enquiries, there was no information relating to our Directors that is required to be disclosed pursuant to paragraphs (b) to (v) of Rule 13.51(2) of the Listing Rules or any other matters concerning any Director that needs to be brought to the attention of our Shareholders as of the Latest Practicable Date.

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JOINT COMPANY SECRETARIES

Mr. Liu Chang (劉暢) , aged 42, was appointed as our joint company secretary on December 6, 2019. For details of his background, see “– Senior Management” above.

Mr. Lei Kin Keong (李健強) , aged 43, was appointed as our joint company secretary on December 6, 2019. Mr. Lei has over 19 years of accounting, auditing and company secretary experience. From August 2000 to March 2013, Mr. Lei worked for various accounting firms and companies in Hong Kong responsible for audit accounting and financial reporting work. From May 2013 to February 2017, Mr. Lei worked as the company secretary at China Biotech Services Holdings Limited (formerly known as Rui Kang Pharmaceutical Group Investments Limited), an investment holding company whose shares are listed on GEM of the Stock Exchange (stock code: 8037)). From January 2018 to July 2018, he worked as the company secretary and financial controller at Boill Healthcare Holdings Limited (formerly known as Ngai Shun Holdings Limited), a company principally engaged in foundation business whose shares are listed on the Main Board of the Stock Exchange (stock code: 1246), where he was responsible for financial reporting, corporate compliance and company secretarial matters. Since April 2019, Mr. Lei has served as the joint company secretary of Ruichang (China) Media Group Limited (stock code: 1640), an advertising service provider and China Tianbao Group Development Company Limited (stock code: 1427), a real estate developer, both of which are listed on the Main Board of the Stock Exchange. Since December 30, 2019, he has served as the joint company secretary of Bank of Guizhou Co., Ltd. a company listed on the Main Board of the Stock Exchange (stock code: 6199). He is currently an assistant vice president of SWCS Corporate Services Group (Hong Kong) Limited which is principally engaged in the provision of company secretarial services, and has assisted in discharging company secretarial responsibilities in various companies listed on the Stock Exchange.

Mr. Lei graduated from the Hong Kong Polytechnic University with a bachelor’s degree in arts majoring in accountancy in December 2006. He is also a non-practicing member of The Hong Kong Institute of Certified Public Accountants, an associate of The Hong Kong Institute of Chartered Secretaries and an associate of The Institute of Chartered Secretaries and Administrators.

BOARD COMMITTEES

Our Board has established the Audit Committee, the Remuneration Committee and the Nomination Committee and delegated various responsibilities to these committees, which assist our Board in discharging its duties and overseeing particular aspects of our Group’s activities.

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Audit committee

Our Group has established the Audit Committee on [●], 2020 with written terms of reference in compliance with Rule 3.21 of the Listing Rules and paragraph C.3 of the Corporate Governance Code (the “ CG Code ”) as set out in Appendix 14 to the Listing Rules. The Audit Committee consists of three members, namely, Mr. Ma Haiyue, Mr. Chan Wai Kin and Mr. Zhang Wei. Mr. Zhang Wei has been appointed as the chairman of the Audit Committee, and Mr. Ma Haiyue has the appropriate professional qualifications or related financial management expertise as required under Rule 3.10(2) of the Listing Rules.

The primary duties of the Audit Committee include, but are not limited to, (i) reviewing and supervising our financial reporting process and internal control system of our Group, risk management and internal audit; (ii) providing advice and comments to our Board; and (iii) performing other duties and responsibilities as may be assigned by our Board.

Remuneration committee

Our Group has established the Remuneration Committee on [●], 2020 with written terms of reference in compliance with Rule 3.25 of the Listing Rules and paragraph B.1 of the CG Code as set out in Appendix 14 to the Listing Rules. The Remuneration Committee consists of three members, namely Mr. Au Yeung Po Fung, Mr. Huang Liang and Mr. Zhang Wei. Mr. Au Yeung Po Fung has been appointed as the chairman of the Remuneration Committee.

The primary duties of the Remuneration Committee include, but are not limited to (i) establishing, reviewing and providing advices to our Board on our policy and structure concerning remuneration of our Directors and senior management and on the establishment of a formal and transparent procedure for developing policies concerning such remuneration; (ii) determining the terms of the specific remuneration package of each Director and senior management member; and (iii) reviewing and approving performance-based remuneration by reference to corporate goals and objectives resolved by our Directors from time to time.

Nomination committee

Our Group has established the Nomination Committee on [●], 2020 with written terms of reference in compliance with paragraph A.5 of the CG Code as set out in Appendix 14 to the Listing Rules. The Nomination Committee consists of three members, namely Mr. Huang Xianzhi, Mr. Ma Haiyue and Mr. Au Yeung Po Fung. Mr. Huang Xianzhi has been appointed as the chairman of the Nomination Committee.

The primary duties of the Nomination Committee include, but are not limited to, (i) reviewing the structure, size and composition of our Board on a regular basis and making recommendations to our Board regarding any proposed changes to the composition of our Board; (ii) identifying, selecting or making recommendations to our Board on the selection of individuals nominated for directorship, and ensuring the diversity of our Board members; (iii) assessing the independence of our independent non-executive Directors; and (iv) making recommendations to our Board on relevant matters relating to the appointment, re-appointment and removal of our Directors and succession planning for our Directors.

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CORPORATE GOVERNANCE

Our Directors recognize the importance of incorporating elements of good corporate governance in the management structures and internal control procedures of our Group so as to achieve effective accountability.

Our Company has adopted the code provisions stated in the CG Code. Our Company is committed to the view that our Board should include a balanced composition of executive Directors and independent non-executive Directors so that there is a strong independent element on our Board, which can effectively exercise independent judgment.

BOARD DIVERSITY POLICY

Our Board has adopted a board diversity policy which sets out the objective and approach to achieve diversity of our Board. Our Group recognizes the benefits of having a diversified Board and sees increasing diversity at the Board level as an essential element in supporting the attainment of our Group’s strategic objectives and sustainable development. Our Group seeks to achieve diversity of our Board through the consideration of a number of factors, including but not limited to professional experience, skills, knowledge, education background, gender, age and ethnicity. Our Directors have a balanced mix of experiences, including overall management, brand improvement, business development, legal, finance, auditing and accounting experiences. Furthermore, the ages of our Directors range from 39 years old to 52 years old. The education background of our Directors ranges from economics and business administration to law, with degrees awarded by education institutions in PRC and Hong Kong to the United States.

After [ REDACTED ], the Nomination Committee will review the board diversity policy and its implementation from time to time to ensure its implementation and monitor its continued effectiveness, and the same will be disclosed in our corporate governance report in accordance with the Listing Rules after [ REDACTED ]. While our Directors recognize that gender diversity at the Board level can be improved given its current composition of all-male Directors, we will continue to apply the principle of appointments based on merits with reference to board diversity as a whole. We will take steps to promote gender diversity at all levels of our Company.

COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT

Our Directors and members of our senior management receive compensation from our Company in the form of fees, salaries, bonuses and other benefits in kind such as contributions to pension plans. The aggregate remuneration (including fees, salaries, contributions to pension schemes, bonus, share-based payments, retirement benefits scheme, allowance and other benefits in kind) paid to our Directors for the two years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019 was approximately RMB0.8 million, RMB0.9 million, and RMB1.8 million, respectively. Save as disclosed above, no other amounts have been paid or are payable by any member of our Group to our Directors during the Track Record Period.

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The aggregate amount of fees, salaries, contributions to pension schemes, bonus, share-based payments, retirement benefits scheme, allowance and other benefits in kind paid to our five highest paid individuals in respect of the two years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019 was approximately RMB3.4 million, RMB4.3 million and RMB6.1 million, respectively.

No remuneration was paid by us to our Directors or the five highest paid individuals as an inducement to join or upon joining us or as a compensation for loss of office in respect of the two years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019. Further, none of our Directors had waived or agreed to waive any remuneration during the same periods.

Under the arrangement currently in force, the aggregate remuneration (including fees, salaries, contributions to pension schemes, bonus, share-based payments, retirement benefits scheme, allowances and other benefits in kind) of our Directors for the year ending December 31, 2020 is estimated to be no more than RMB7.5 million. Our Board will review and determine the remuneration and compensation packages of our Directors and senior management and, following the [ REDACTED ], will receive recommendation from the Remuneration Committee which will take into account salaries paid by comparable companies, time commitment and responsibilities of our Directors and performance of our Group.

COMPLIANCE ADVISOR

Our Company has appointed Guotai Junan Capital Limited as our compliance advisor pursuant to Rule 3A.19 of the Listing Rules. Pursuant to Rule 3A.23 of the Listing Rules, our compliance advisor will advise our Company in the following circumstances:

before the publication of any regulatory announcement, circular or financial report;
where a transaction, which might be a notifiable or connected transaction, is contemplated, including shares issues and share repurchases;
where our Company proposes to use the [ REDACTED ] of the [ REDACTED ] in a manner different from that detailed in this document or where our business activities, developments or results deviate from any forecast, estimate or other information in this document; and
where the Stock Exchange makes an inquiry of our Company under Rule 13.10 of the Listing Rules.

The term of the appointment of our compliance advisor shall commence on the [ REDACTED ] and end on the date on which our Company distribute our annual report in respect of our financial results for the first full financial year commencing after the [ REDACTED ].

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SUBSTANTIAL SHAREHOLDERS

So far as our Directors are aware, the following persons will, immediately prior to and following the completion of the [ REDACTED ] and the [ REDACTED ] (without taking into account any Shares which may be issued pursuant to the exercise of the [ REDACTED ] or any option which may be granted under the Share Option Scheme), have interests or short positions in our Shares or underlying Shares which would be required to be disclosed to us under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who is, directly or indirectly, interested in 10% or more of the issued voting shares of our Company:

Name of Shareholder Mr. ZR Ou(2) WeiZheng(2) WeiYao(2) WeiTian(2) Ms. Lin Shuying (林淑英)(3) Mr. GQ Ou(4) WeiQiang(4) Ms. Li Xi (李熹)(5)	Nature of interest Interest in controlled corporation Beneficial owner Beneficial owner Beneficial owner Interest of spouse Interest in controlled corporation Beneficial owner Interest of spouse	Shares held as of the date of this document immediately prior to the completion of the [REDACTED] and the [REDACTED](1) Number Approximate Percentage 436,525,000 Shares (L) 87.3% 341,525,000 Shares (L) 68.3% 47,500,000 Shares (L) 9.5% 47,500,000 Shares (L) 9.5% 436,525,000 Shares (L) 87.3% 38,475,000 Shares (L) 7.7% 38,475,000 Shares (L) 7.7% 38,475,000 Shares (L) 7.7%	Shares held immediately following the completion of the [REDACTED] and the [REDACTED](1)(2)
			Number Approximate Percentage [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Notes:

(1) The letter “L” denotes the person’s long position in our Shares.
(2) Each of WeiZheng, WeiYao and WeiTian is wholly-owned by Mr. ZR Ou. By virtue of the SFO, Mr. ZR Ou is deemed to be interested in the Shares in which WeiZheng, WeiYao and WeiTian are interested.
(3) Ms. Lin Shuying is the spouse of Mr. ZR Ou. By virtue of the SFO, Ms. Lin Shuying is deemed to be interested in the Shares in which Mr. ZR Ou is interested.

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SUBSTANTIAL SHAREHOLDERS

(4) WeiQiang is wholly-owned by Mr. GQ Ou. By virtue of the SFO, Mr. GQ Ou is deemed to be interested in the Shares in which WeiQiang is interested.
(5) Ms. Li Xi is the spouse of Mr. GQ Ou. By virtue of the SFO, Ms. Li Xi is deemed to be interested in the Shares in which Mr. GQ Ou is interested.

If the [ REDACTED ] is fully exercised, the interest of Mr. ZR Ou, WeiZheng, WeiYao, WeiTian, Ms. Lin Shuying, Mr. GQ Ou, WeiQiang and Ms. Li Xi in our Shares will be approximately [ REDACTED ] respectively.

Except as disclosed in this document, our Directors are not aware of any person who will, immediately following the completion of the [ REDACTED ] and the [ REDACTED ] (without taking into account any Shares which may be issued pursuant to the exercise of the [ REDACTED ] or any option which may be granted under the Share Option Scheme), have beneficial interests or short positions in any Shares or underlying Shares, which would be required to be disclosed to us under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who is, directly or indirectly interested in 10% or more of the issued voting shares of any member of our Group. Our Directors are not aware of any arrangement which may at a subsequent date result in a change of control of our Company.

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SHARE CAPITAL

The following is a description of the authorized and issued share capital of our Company in issue and to be issued as fully paid or credited as fully paid immediately before and following the completion of the [ REDACTED ] and the [ REDACTED ] (without taking into account any Shares which may be issued upon the exercise of the [ REDACTED ] or any option which may be granted under the Share Option Scheme):

Nominal value (US$)

Authorized share capital:

[20,000,000,000] Shares of US$0.002 each Issued and to be issued, fully paid or credited as fully paid: [500,000,000] Shares in issue as of the date of this document [REDACTED] Shares to be issued pursuant to the [REDACTED] [REDACTED] Shares to be issued under the [REDACTED] [REDACTED] Total	[40,000,000] [1,000,000] [REDACTED] [REDACTED]
	[REDACTED]

ASSUMPTIONS

The above table assumes that the [ REDACTED ] becomes unconditional and the issue of Shares pursuant to the [ REDACTED ] and the [ REDACTED ] are made. It takes no account of any Shares which may be issued and allotted pursuant to the exercise of the [ REDACTED ] or any Shares which may be issued or bought back by us pursuant to the general mandates granted to our Directors to issue or buy back Shares as described below.

RANKINGS

The [ REDACTED ] will be ordinary shares in the share capital of our Company and will carry the same rights in all respects with all Shares in issue or to be issued as mentioned in this document and, in particular, will rank in full for all dividends or other distributions declared, made or paid on the Shares in respect of a record date which falls after the date of this document save for the entitlement under the [ REDACTED ].

SHARE OPTION SCHEME

Our Company has conditionally adopted the Share Option Scheme. The principal terms of the Share Option Scheme are summarized in “Statutory and General Information – D. Share Option Scheme” in Appendix IV to this document.

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SHARE CAPITAL

GENERAL MANDATE TO ISSUE AND ALLOT NEW SHARES

Subject to the [ REDACTED ] becoming unconditional, our Directors have been granted a general mandate to issue, allot and deal with Shares in the share capital of our Company with a total number of issued shares of not more than the sum of:

(1) 20% of the total number of Shares in issue immediately following the completion of the [ REDACTED ] and the [ REDACTED ] (excluding Shares which may be issued and allotted pursuant to the exercise of the [ REDACTED ] or any option which may be granted under the Share Option Scheme); and
(2) the total number of Shares bought back by our Company (if any) pursuant to the general mandate to buy back Shares granted to our Directors referred to below.

Our Directors may, in addition to the Shares which they are authorized to issue under this general mandate, issue, allot or deal with Shares under a rights issue, scrip dividend scheme or similar arrangement.

This general mandate will remain in effect until the earliest of:

(i) the conclusion of the next annual general meeting of our Company; or
(ii) the expiration of the period within the next annual general meeting of our Company is required by the Articles or any applicable laws to be held; or
(iii) the date on which such general mandate is varied or revoked by an ordinary resolution of our Shareholders in general meeting.

Further information on this general mandate is set out in “Statutory and General Information – A. Further information about our Company – 4. Written resolutions of the Shareholders passed on [●], 2020” in Appendix IV to this document.

GENERAL MANDATE TO BUYBACK SHARES

Subject to the [ REDACTED ] becoming unconditional, our Directors have been granted a general mandate to exercise all the powers of our Company to buy back Shares with a total number of Shares of not more than 10% of the total number of Shares in issue immediately following the completion of the [ REDACTED ] and the [ REDACTED ] (excluding Shares which may be issued and allotted pursuant to the exercise of the [ REDACTED ] or any option which may be granted under the Share Option Scheme).

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SHARE CAPITAL

This mandate only relates to buybacks made on the Stock Exchange or any other stock exchange on which the Shares are listed (and which is recognized by the SFC and the Stock Exchange for this purpose), and which are in accordance with the Listing Rules. A summary of the relevant Listing Rules is set out in “Statutory and General Information – A. Further information about our Company – 6. Buyback by our Company of our own securities” in Appendix IV to this document.

This general mandate to buy back Shares will remain in effect until the earliest of:

(i) the conclusion of the next annual general meeting of the Company; or
(ii) the expiration of the period within which the next annual general meeting of our Company is required by the Articles or any applicable laws to be held; or
(iii) the date on which such general mandate is varied or revoked by an ordinary resolution of our Shareholders in general meeting.

CIRCUMSTANCES UNDER WHICH GENERAL MEETING AND CLASS MEETING ARE REQUIRED

Our Company has only one class of Shares, namely ordinary shares, each of which carries the same rights as the other Shares.

As a matter of the Cayman Islands Companies Law, an exempted company is not required by law to hold any general meeting or class meeting. The holding of general meeting or class meeting is prescribed under the articles of association of a company. Accordingly, our Company will hold general meetings as prescribed under the Articles, a summary of which is set out in “Summary of the constitution of the Company and Cayman Islands Companies Law” in Appendix III to this document.

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FINANCIAL INFORMATION

You should read the following discussion and analysis in conjunction with our audited combined financial statements, including the notes thereto set forth in the Accountants’ Report set out in Appendices IA and IB to this document. The Accountants’ Report has been prepared in accordance with IFRS, which may differ in material aspects from generally accepted accounting principles in other jurisdictions.

The following discussion and analysis and other parts of this document contain forward-looking statements that reflect our current views with respect to future events and financial performance that involve risks and uncertainties. These statements are based on assumptions and analysis made by us in light of our experience and perception of historical events, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. In evaluating our business, you should carefully consider the information provided in “Risk Factors,” “Forward-looking Statements” and elsewhere in this document.

OVERVIEW

We are a nationwide, fast-growing and comprehensive property management service provider in China, offering diversified property management services for residential and non-residential properties. According to CIA, we were ranked 22nd among the 2019 Top 100 Property Management Companies in China in terms of overall strength[1] (2019中國物業服務百強企業第22名) in 2019. According to CIA, we are one of the fastest-growing property management companies in China, ranked fourth and seventh in terms of growth rate of revenue and net profit for 2018, respectively, among the top 30 of the 2019 Top 100 Property Management Companies.[1] According to Yihan Zhiku, we were recognized as one of the Top Ten of the 2019 Community Service Providers in China by Growth (2019中國社區服務商成長性10強) in 2019.

As a result of our efficient operation and quality services, we experienced continual and rapid growth during the Track Record Period. Our revenue increased by 67.2% from RMB272.9 million in 2017 to RMB456.3 million in 2018, which is higher than the average revenue growth rate of 19.4% for the Top 100 Property Management Companies for the same period reported by CIA. Our revenue increased by 61.2% from RMB320.6 million for the nine months ended September 30, 2018 to RMB516.9 million for the same period in 2019. Our net profit increased by 94.7% from RMB20.3 million in 2017 to RMB39.5 million in 2018, which is higher than the average net profit growth rate of 26.0% for the Top 100 Property

Note:

(1) CIA publishes the ranking of the Top 100 Property Management Companies in China in terms of overall strength each year. CIA prepares such ranking by assessing the relevant key factors of each company, including but not limited to, management scale, operational performance, service quality, growth potential and social responsibility. Our rankings based on the growth rate of revenue and net profit may be different from the rankings of overall strength. See “Industry Overview — Background and Methodologies of CIA” for more details.

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FINANCIAL INFORMATION

Management Companies for the same period reported by CIA. Our net profit increased significantly from RMB28.5 million in the nine months ended September 30, 2018 to RMB74.3 million for the same period in 2019.

BASIS OF PRESENTATION

Our Company was incorporated in Cayman Islands under the Cayman Islands Companies Law as an exempted company with limited liability on December 17, 2018. Pursuant to the Reorganization which is further explained in “History, Reorganization and Corporate Structure — Reorganization” in this document, our Company became the holding company of the companies now comprising our Group. The companies currently comprising our Group were under the common control of our Controlling Shareholders before and after the Reorganization.

The historical financial information of our Group has been prepared in accordance with the IFRS and on a combined basis. The combined statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of our Group include the results and cash flows of the companies currently comprising our Group from the earliest date presented or since the date when our Group’s subsidiaries and/or businesses first came under the common control of our Controlling Shareholders, whichever is the shorter period. The combined statements of financial position of our Group have been prepared to present the assets and liabilities of the subsidiaries and/or businesses using the existing book values from our Controlling Shareholders’ perspective. No adjustments have been made to reflect fair values, or to recognize any new assets or liabilities as a result of the Reorganization. Equity interests in subsidiaries and/or businesses held by parties other than our Controlling Shareholders and changes therein prior to the Reorganization are presented as non-controlling interests in equity by applying the principles of merger accounting. For more information on the basis of presentation of our financial information included herein, see Note 2 in the Accountants’ Report in Appendices IA and IB to this document.

KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our results of operations and financial position have been and will continue to be affected by a number of factors, including those set out in “Risk Factors” in this document and those discussed below:

Our GFA under Management

Business Mix

During the Track Record Period, our financial condition and results of operations were affected by our business mix. Our profit margins vary across our three business lines, namely, property management services, value-added services to non-property owners and community value-added services. Any change in the structure of revenue contribution from our three business lines or change in profit margin of any business line may have a corresponding impact on our overall gross profit margin.

The table below sets forth the revenue contribution by business line for the periods indicated:

For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 146,823 53.9 248,058 54.3 110,352 40.4 149,591 32.8 15,683 5.7 58,659 12.9 272,858 100.0 456,308 100.0	For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 146,823 53.9 248,058 54.3 110,352 40.4 149,591 32.8 15,683 5.7 58,659 12.9 272,858 100.0 456,308 100.0	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
2017 RMB’000 % 146,823 53.9 110,352 40.4 15,683 5.7 272,858 100.0		2018 2019 RMB’000 % RMB’000 % (Unaudited) 184,220 57.5 252,520 48.9 98,950 30.8 189,671 36.6 37,392 11.7 74,709 14.5 320,562 100.0 516,900 100.0	2019
RMB’000 146,823 110,352 15,683 272,858	RMB’000 248,058 149,591 58,659 456,308	RMB’000 184,220 98,950 37,392 320,562		% 48.9 36.6 14.5
				100.0

The table below sets forth the gross profit margin by business line for the periods indicated:

Property management services . . . . . . Value-added services to non-property owners . . . . . . . . . . . . . . . . . . . Community value-added services . . . . Overall gross profit margin . . . . . . .	For the year ended December 31, For the nine months ended September 30, 2017 2018 2018 2019 % (Unaudited) 20.4 20.0 20.1 23.1 30.5 30.6 31.7 34.9 43.0 43.8 44.1 64.5 25.8 26.5 26.5 33.4	For the nine months ended September 30,	For the nine months ended September 30,
	2017 20.4 30.5 43.0 25.8		2019

In general, the gross profit margins of our community value-added services were higher than those of (i) our property management services and (ii) value-added services to non-property owners. The relatively high gross profit margins for our community value-added services during the Track Record Period were primarily due to the fact that the other two

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FINANCIAL INFORMATION

business lines are more labor-intensive than community value-added services. Our overall gross profit margin increased throughout the Track Record Period, primarily reflecting economies of scale as we expanded the project portfolio under our management, the growth of our community value-added services and our implementation of effective cost control measures. We have taken various cost-saving measures to control our costs, primarily including employing technological solutions to replace manual labor and control labor costs and standardizing operational procedures associated with our various services. See “— Key Factors Affecting Our Results of Operations — Ability to Mitigate the Impact of Rising Labor Costs” below for more details.

Ability to Mitigate the Impact of Rising Labor Costs

Since property management is labor intensive, labor costs constitute a substantial portion of our cost of sales. During the Track Record Period, our labor costs increased considerably as a result of the expansion of our business, increases in our average salary and increases in the market prices for labor. In 2017, 2018 and the nine months ended September 30, 2019, our labor costs recorded under our cost of sales were RMB147.5 million, RMB222.5 million and RMB223.7 million, respectively, accounting for 72.8%, 66.4% and 65.0% of our cost of sales in the same periods, respectively. Historically, labor costs negatively affected our gross profit margin. To cope with rising labor costs, we continue to implement a number of cost control measures, such as creating detailed cost control plans tailored to each project, employing technological solutions to replace manual labor and control labor costs, subcontracting certain labor-intensive tasks to third parties while maintaining close supervision over their services, optimizing our staffing structure and schedules to improve efficiency and standardizing operational procedures associated with our various services. In 2017, 2018 and the nine months ended September 30, 2019, we incurred subcontracting costs of RMB27.8 million, RMB55.1 million and RMB66.3 million, respectively, representing 13.7%, 16.4% and 19.3%, respectively, of our cost of sales in the same periods. The increase in subcontracting costs during the Track Record Period was also attributable to (i) the expansion of our business and (ii) our enlarged outsourcing scale, in both absolute amount and proportion, as a result of our cost control measures. See “Business — Suppliers” in this document for further discussion.

Competition

We primarily compete against national, regional and local property management companies, particularly those affiliated with property developers in China. According to CIA, Zhenro Property Group’s market position as a reputable property developer in the PRC real estate industry provides a strong foundation for our growth. In recent years, the percentage of our GFA under management for projects developed by Zhenro Property Group to our overall portfolio has decreased, while the percentage of our GFA under management for projects developed by third-party property developers has increased. This demonstrates that while we are able to enjoy the support from Zhenro Property Group, we are also capable of searching for, and taking advantage of, market opportunities independently. According to CIA, we were ranked 22nd among the 2019 Top 100 Property Management Companies in China in terms of overall strength, representing a leap of seven places upwards from the 29th place among the

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FINANCIAL INFORMATION

2018 Top 100 Property Management Companies in 2018. See “Business — Competition” and “Industry Overview — Competition” in this document for more information. Our ability to compete effectively against our competitors and strengthen our market position depends on our ability to enhance our competitive strengths. If we fail to compete effectively and grow our GFA under management, we may lose our existing market position and experience decreased revenue and weakened profitability.

SIGNIFICANT ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

When reviewing our combined financial statements, you should consider (i) our significant accounting policies, (ii) the judgments and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. Our significant accounting policies, judgments and estimates, which are important for an understanding of our financial condition and results of operations, are set forth in detail in Note 2 and Note 3 in the Accountants’ Report in Appendices IA and IB, respectively, to this document. We set forth below those accounting policies and estimates that we believe involve the most significant estimates and judgments used in the preparation of our financial statements.

Significant Accounting Policies

Revenue recognition

Revenue from contracts with customers is recognized when control of goods or services is transferred to the customers at an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

When the consideration in a contract includes a variable amount, the amount of consideration is estimated to which we will be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.

When the contract contains a financing component which provides the customer a significant benefit of financing the transfer of goods or services to the customer for more than one year, revenue is measured at the present value of the amount receivable, discounted using the discount rate that would be reflected in a separate financing transaction between our Group and the customer at contract inception. When the contract contains a financing component which provides us a significant financial benefit for more than one year, revenue recognized under the contract includes the interest expense accreted on the contract liability under the effective interest method. For a contract where the period between the payment by the customer and the transfer of the promised goods or services is one year or less, the transaction price is not adjusted for the effects of a significant financing component, using the practical expedient in IFRS 15.

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FINANCIAL INFORMATION

(i) Property management services. We charged property management fees in respect of the property management services on a lump sum basis and on a fixed remuneration basis.

On a lump sum basis, we are entitled to retain the full amount of received property management fees. From the property management fees, we shall bear expenses associated with, among others, staff, cleaning, security, landscaping and repair and maintenance services and general overheads covering the common areas. During the term of the contract, if the amount of property management fees we collected is not sufficient to cover all the expenses incurred, we are not entitled to request the property owners to pay the shortfall. Accordingly, on a lump sum basis, we recognize as revenue as the full amount of property management fees we charged to the property owners and property developers. These services are performed by an indeterminate number of acts over a specified period of time. Accordingly, revenue is recognized on a straight-line basis over the specified period unless there is evidence that some other methods better represents the stage of completion, and the costs of services is recognized as incurred in connection with performing such services.

On a fixed remuneration basis, we are entitled to a fixed amount of management fees which the property owners and property developers are obligated to pay over a specific contract period. The remainder of the management fee is used as property management working capital to cover the property management expenses associated with the property management work. In the event of a surplus of working capital after deducting the relevant property management expenses, the surplus is generally repayable to the customer. In the event of a shortfall of working capital to pay for the relevant property management expenses, we may need to make up for the shortfall and pay on behalf of the community management offices first, with a right to recover from the residents subsequently. On a fixed remuneration basis, we essentially act as an agent of the property owners and property developers and accordingly, we only recognize as its revenue the predetermined property management fees on a straight-line basis over the specified contract period.

(ii) Value-added services to non-property owners. Value-added services to non-property owners mainly includes planning and design consultancy services to property developers, which is recognized at a point in time when such consultancy services have been provided; and we have a present right to payment for the services or other property management service providers for sales assistance services which mainly include cleaning, security, maintenance of display units, visitor management and hospitality services to property developers at the pre-delivery stage which are recognized as over the scheduled period on a straight-line basis because the customer simultaneously receives and consumes the benefits provided by us.

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FINANCIAL INFORMATION

(iii) Community value-added services. Revenue from community value-added services is recognized when the related services are rendered and the customer simultaneously receives and consumes the benefits provided by us.

In addition, we also record other income which mainly include interest income, which is recognized on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Goodwill

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognized for non-controlling interests and any fair value of our previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognized in profit or loss as a gain on bargain purchase.

We generally perform an impairment test on our goodwill on annual basis. For the purpose of the impairment test, goodwill is allocated to each of our cash-generating units (the “CGU”), or groups of CGU, that is expected to benefit from the synergies of the business combination, which represent the lowest level at which the goodwill is monitored for internal management purposes, irrespective of whether our other assets or liabilities are assigned to those CGUs.

The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of the value in use and the fair value less cost of disposal. Where the recoverable amount of the CGU is less than the carrying amount, an impairment loss is recognized and not subsequently reversed.

Other intangible assets (other than goodwill)

Other intangible assets acquired separately are measured on initial recognition at cost. The cost of other intangible assets acquired in a business combination is the fair value as of the date of acquisition. The useful lives of other intangible assets are assessed to be either finite or indefinite. Other intangible assets with finite lives are subsequently amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an other intangible asset with a finite useful life are reviewed at least as of each financial year end.

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FINANCIAL INFORMATION

Other intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such other intangible assets are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis.

Customer relationship

Customer relationship is stated at cost less any impairment losses and is amortized on the sum of the years digits basis over their estimated useful lives of ten years.

Significant Accounting Judgments and Estimates

The preparation of our Group’s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures. The key judgments and assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

Impairment of goodwill

We determine whether goodwill is impaired at least on of annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires us to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows. As of December 31, 2017 and 2018 and September 30, 2019, the carrying amount of goodwill was RMB19.5 million, RMB19.5 million and RMB59.5 million, respectively. Further details are in Note 15 and Note 16 to the Accountants’ Report in Appendices IA and IB to this document, respectively.

Provision for expected credit losses (“ECL”) on trade receivables

We use a provision matrix to calculate ECLs for trade receivables. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns, including by geography, customer type and rating, as well as coverage by letters of credit and other forms of credit insurance.

The provision matrix is initially based on our Group’s historical observed default rates. We will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic conditions such as gross domestic products are expected to deteriorate over the next year which can lead to an increased number of defaults in the manufacturing sector, the historical default rates are adjusted. At each reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed.

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FINANCIAL INFORMATION

The assessment of the correlation among historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and forecast economic conditions. Our historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. The information about the ECLs on our trade receivables is disclosed in Note 18 and Note 19 to the Accountants’ Report in Appendices IA and IB to this document, respectively.

Impairment of non-financial assets (other than goodwill)

Our Group assesses whether there are any indicators of impairment for all non-financial assets as of December 31, 2017 and 2018 and September 30, 2019. The non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. Impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value-in-use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

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FINANCIAL INFORMATION

DESCRIPTION OF CERTAIN COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

The following table sets forth a summary of our combined statements of profit or loss and other comprehensive income for the periods indicated. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period.

Revenue . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . .
Other income and gains . . . . . . .
Administrative expenses . . . . . .
Impairment losses of financial
assets, net. . . . . . . . . . . . . . . .
Fair value gains on investment
properties . . . . . . . . . . . . . . . .
Finance costs, net . . . . . . . . . . .
Share of profits and losses of
an associate . . . . . . . . . . . . . .
Profit before tax. . . . . . . . . . . .
Income tax expense . . . . . . . . . .
Profit and total comprehensive
income for the year/period. .
Attributable to:
Owners of our Company . . . .
Non-controlling interests . . . .

For the year ended
December 31,
For the nine months
ended September 30,
2017
2018
2018
2019
RMB’000
(Unaudited)
272,858
456,308
320,562
516,900
(202,539)
(335,325)
(235,628)
(344,091)
70,319
120,983
84,934
172,809
713
3,522
862
2,105
(41,093)
(68,627)
(44,119)
(66,271)
(2,174)
(2,462)
(3,213)
(7,308)
–
–
–
600
(39)
(52)
(39)
(2,250)
(23)
(98)
(74)
(167)
27,703
53,266
38,351
99,518
(7,406)
(13,742)
(9,816)
(25,259)
20,297
39,524
28,535
74,259
20,297
39,612
28,535
72,197
–
(88)
–
2,062

2017
272,858
(202,539)
70,319
713
(41,093)
(2,174)
–
(39)
(23)
27,703
(7,406)
20,297
20,297
–

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FINANCIAL INFORMATION

Revenue

During the Track Record Period, we derived our revenue primarily from the following three business lines:

Property management services, which primarily comprise (i) cleaning services, (ii) security services, (iii) landscaping services and (iv) repair and maintenance services to property developers, property owners and residents. Such business line contributed to 53.9%, 54.3%, 57.5% and 48.9% of our total revenue for 2017, 2018 and the nine months ended September 30, 2018 and 2019, respectively. Our property management services are provided for residential and non-residential properties, and the latter includes, but is not limited to, government and public facilities, office buildings, industrial parks and schools;
Value-added services to non-property owners, which primarily comprise (i) sales assistance services, (ii) additional tailored services, (iii) housing repair services, (iv) preliminary planning and design consultancy services and (v) pre-delivery inspection services. Such business line contributed to 40.4%, 32.8%, 30.8% and 36.6% of our total revenue for 2017, 2018 and the nine months ended September 30, 2018 and 2019, respectively. Our value-added services to non-property owners are primarily provided to property developers which require certain additional tailored services for their residential and/or non-residential properties; and
Community value-added services, which primarily comprise (i) home-living services, (ii) car park management, leasing assistance and other services and (iii) common area value-added services. Such business line contributed to 5.7%, 12.9%, 11.7% and 14.5% of our total revenue for 2017, 2018 and the nine months ended September 30, 2018 and 2019, respectively. Our community value-added services are provided to property owners and residents to improve their living experiences and to preserve and enhance the value of their properties.

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FINANCIAL INFORMATION

The following table sets forth the breakdown of our revenue by business line for the periods indicated:

For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 146,823 53.9 248,058 54.3 110,352 40.4 149,591 32.8 15,683 5.7 58,659 12.9 272,858 100.0 456,308 100.0	For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 146,823 53.9 248,058 54.3 110,352 40.4 149,591 32.8 15,683 5.7 58,659 12.9 272,858 100.0 456,308 100.0	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
2017 RMB’000 % 146,823 53.9 110,352 40.4 15,683 5.7 272,858 100.0		2018 2019 RMB’000 % RMB’000 % (Unaudited) 184,220 57.5 252,520 48.9 98,950 30.8 189,671 36.6 37,392 11.7 74,709 14.5 320,562 100.0 516,900 100.0	2019
RMB’000 146,823 110,352 15,683 272,858	RMB’000 248,058 149,591 58,659 456,308	RMB’000 184,220 98,950 37,392 320,562		% 48.9 36.6 14.5
				100.0

Revenue from property management services

Revenue from our property management services, which primarily include cleaning services, security services, landscaping services and repair and maintenance services, increased during the Track Record Period, primarily driven by the increase in our total GFA under management as a result of our business expansion through organic growth as well as acquisition. During the Track Record Period, we experienced a steady growth in our GFA under management, which was 9.4 million sq.m., 12.6 million sq.m. and 21.0 million sq.m. as of December 31, 2017 and 2018 and September 30, 2019, respectively.

Property management fees may be charged on either a lump sum or a commission basis. The lump-sum fee model is the dominant method of collecting property management fees in China. It dispenses with certain collective decision-making procedures among property owners and residents for making large expenditures, which instead are required under the commission fee model. Another advantage of the lump-sum fee model is that it incentivizes property management companies to optimize their cost structure and streamline their business operations to enhance profitability, which is conducive to the development of the PRC property management industry as a whole. During the Track Record Period, we charged property management fees under the lump sum basis for almost all of the properties under our management. We expect property management fees charged on a lump sum basis to continue to account for substantially all of our revenue from property management services in the foreseeable future.

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FINANCIAL INFORMATION

The following table sets forth a breakdown of our total GFA under management as of the dates indicated, and revenue from our property management services for the periods indicated, by fee model:

As of or for the year	As of or for the year	ended December 31,	ended December 31,	As of or	for the nine months ended	for the nine months ended	September 30,
	2017		2018		2018		2019
GFA	Revenue	GFA	Revenue	GFA	Revenue	GFA	Revenue
sq.m.’000 9,237 209	RMB’000 % 146,523 99.8 300 0.2 146,823 100.0	sq.m.’000 12,371 209	RMB’000 % 247,408 99.7 650 0.3 248,058 100.0	sq.m.’000 11,537 209	RMB’000 % (Unaudited) 183,861 99.8 359 0.2 184,220 100.0	sq.m.’000 20,760 209	RMB’000 % (Unaudited) 251,722 99.7 798 0.3 252,520 100.0
9,446		12,580		11,746		20,969

During the Track Record Period, we derived a majority of our revenue from managing projects developed by Zhenro Property Group. In 2017, 2018 and the nine months ended September 30, 2018 and 2019, revenue from property management services provided to projects developed by Zhenro Property Group amounted to RMB129.4 million, RMB178.4 million, RMB133.2 million and RMB170.9 million, respectively, accounting for 88.2%, 71.9%, 72.3% and 67.7%, respectively, of our total revenue derived from property management services for the same periods. In general, the decrease in our percentage of total revenue from managing projects developed by Zhenro Property Group during the Track Record Period was primarily due to our continuous efforts to expand our customer base and manage more projects developed by third-party property developers.

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FINANCIAL INFORMATION

The table below sets forth a breakdown of our total GFA under management as of the dates indicated, and revenue from property management services for the periods indicated, by type of property developer:

As of or for the year ended December 31, As of or for the nine months ended September 30,

	2017 Revenue RMB’000 % 129,438 88.2 17,385 11.8 146,823 100.0		2018 Revenue RMB’000 % 178,359 71.9 69,699 28.1 248,058 100.0			2019	2019
GFA sq.m.’000 7,282 2,164 9,446		GFA sq.m.’000 9,366 3,214 12,580		GFA sq.m.’000 8,791 2,955 11,746	GFA sq.m.’000 10,051 10,918 20,969	Revenue
	RMB’000 129,438 17,385 146,823		RMB’000 178,359 69,699 248,058			RMB’000 % (Unaudited) 170,918 67.7 81,602 32.3 252,520 100.0
							100.0

Notes:

(1) Includes projects solely developed by Zhenro Property Group and projects that Zhenro Property Group jointly developed with other property developers for which Zhenro Property Group held a controlling interest.
(2) Refers to projects solely developed by third-party property developers independent from Zhenro Property Group, as well as projects jointly developed by Zhenro Property Group and other property developers for which Zhenro Property Group did not hold a controlling interest.

During the Track Record Period, a majority of our revenue from property management services was derived from residential properties, which accounted for 79.1%, 68.0%, 68.9% and 63.7%, respectively, of our total revenue from property management services in 2017, 2018 and the nine months ended September 30, 2018 and 2019. The general decrease in the percentage of revenue derived from managing residential properties during the Track Record Period was primarily due to the increase in our total GFA under management for nonresidential properties we acquired through continuous organic growth and acquisitions.

As of or for the year ended December 31, As of or for the nine months ended September 30,

	2017 Revenue RMB’000 % 116,100 79.1 30,723 20.9 146,823 100.0		2018 Revenue RMB’000 % 168,562 68.0 79,496 32.0 248,058 100.0			2019	2019
GFA sq.m.’000 8,654 792 9,446		GFA sq.m.’000 11,385 1,195 12,580		GFA sq.m.’000 10,722 1,024 11,746	GFA sq.m.’000 13,129 7,840 20,969	Revenue
	RMB’000 116,100 30,723 146,823		RMB’000 168,562 79,496 248,058			RMB’000 % (Unaudited) 160,959 63.7 91,561 36.3 252,520 100.0
							100.0

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FINANCIAL INFORMATION

Notes:

(1) In 2017, 2018 and the nine months ended September 30, 2018 and 2019, the proportion of our revenue generated from managing residential properties developed by Zhenro Property Group to our total revenue generated from managing residential properties was 97.9%, 92.5%, 92.8% and 88.9%, respectively. The proportion of our revenue generated from managing residential properties developed by third-party property developers to our total revenue generated from managing residential properties was 2.1%, 7.5%, 7.2% and 11.1%, respectively, for the same periods.

(2) In 2017, 2018 and the nine months ended September 30, 2018 and 2019, the proportion of our revenue generated from managing non-residential properties developed by Zhenro Property Group to our total revenue generated from managing non-residential properties was 51.3%, 28.2%, 26.8% and 30.4%, respectively. The proportion of our revenue generated from managing non-residential properties developed by third-party property developers to our total revenue generated from managing non-residential properties was 48.7%, 71.8%, 73.2% and 69.6%, respectively, for the same periods.

To facilitate our management, we divide our geographic coverage into four major regions in China, namely, the Yangtze River Delta Region, Western Straits Region, Midwest Region and Bohai Rim Region. The table below sets forth a breakdown of our total GFA under management as of the dates and revenue for the periods indicated by geographic region:

	As of or for theyear	ended December 31, 2018 GFA Revenue sq.m.’000 RMB’000 % 5,253 124,849 50.3 3,209 61,106 24.6 3,799 53,566 21.6 319 8,537 3.5 12,580 248,058 100.0	ended December 31, 2018 GFA Revenue sq.m.’000 RMB’000 % 5,253 124,849 50.3 3,209 61,106 24.6 3,799 53,566 21.6 319 8,537 3.5 12,580 248,058 100.0	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,	As of or for the nine months ended September 30,
	2017 Revenue RMB’000 % 52,119 35.5 45,945 31.3 44,299 30.2 4,460 3.0 146,823 100.0				2018 Revenue RMB’000 % (Unaudited) 90,656 49.2 46,566 25.3 40,672 22.1 6,326 3.4 184,220 100.0		2019
GFA sq.m.’000 3,500 2,533 3,106 307 9,446		GFA sq.m.’000 5,253 3,209 3,799 319 12,580		GFA sq.m.’000 4,980 2,951 3,496 319 11,746		GFA sq.m.’000 8,191 8,515 3,821 442 20,969	Revenue
	RMB’000 52,119 45,945 44,299 4,460 146,823		RMB’000 124,849 61,106 53,566 8,537 248,058				RMB’000 % (Unaudited) 142,948 56.6 57,530 22.8 44,907 17.8 7,135 2.8 252,520 100.0
								100.0

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FINANCIAL INFORMATION

Notes:

(1) Cities in which we provide property management services to projects in the Yangtze River Delta Region include Shanghai, Nanjing, Suzhou, Hefei, Jiaxing, Taizhou, Chuzhou, Lu’an, Nantong and Wuhu.
(2) Cities in which we provide property management services to projects in the Western Straits Region include Fuzhou, Putian, Pingtan, Nanping, Quanzhou, Sanming and Zhangzhou.
(3) Cities in which we provide property management services to projects in the Midwest Region include Nanchang, Yichun, Changsha, Wuhan, Xi’an, Ganzhou, Suizhou, Xiangyang, Yueyang and Chongqing.
(4) Cities in which we provide property management services to projects in the Bohai Rim Region include Tianjin, Jinan, Xuzhou, Huai’an, Louyang, Suqian and Zhengzhou.

Revenue from value-added services to non-property owners

We provide value-added services to non-property owners, which are primarily property developers, primarily including (i) sales assistance services which primarily include cleaning, security, maintenance of pre-sale display units and sales offices and visitor management for property developers during their pre-sale activities, (ii) additional tailored services such as temporary security services arranged on a by-order basis, (iii) housing repair services, (iv) preliminary planning and design consultancy services and (v) pre-delivery inspection services. The increase in our different value-added services to non-property owners is generally in line with our business expansion. The following table sets forth a breakdown of our revenue from value-added services to non-property owners for the periods indicated:

For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 88,477 80.2 117,061 78.2 11,966 10.8 12,266 8.2 7,537 6.8 13,455 9.0 853 0.8 4,754 3.2 1,519 1.4 2,055 1.4 110,352 100.0 149,591 100.0	For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 88,477 80.2 117,061 78.2 11,966 10.8 12,266 8.2 7,537 6.8 13,455 9.0 853 0.8 4,754 3.2 1,519 1.4 2,055 1.4 110,352 100.0 149,591 100.0	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
2017 RMB’000 % 88,477 80.2 11,966 10.8 7,537 6.8 853 0.8 1,519 1.4 110,352 100.0		2018 2019 RMB’000 % RMB’000 % (Unaudited) 78,261 79.2 139,346 73.4 7,861 7.9 26,891 14.2 8,493 8.6 16,832 8.9 3,014 3.0 4,907 2.6 1,321 1.3 1,695 0.9 98,950 100.0 189,671 100.0	2019
RMB’000 88,477 11,966 7,537 853 1,519 110,352	RMB’000 117,061 12,266 13,455 4,754 2,055 149,591	RMB’000 78,261 7,861 8,493 3,014 1,321 98,950		% 73.4 14.2 8.9 2.6 0.9
				100.0

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FINANCIAL INFORMATION

Revenue from community value-added services

We provide community value-added services to property owners and residents of the properties managed by us. Our services primarily consist of (i) car park management, leasing assistance and other services, (ii) home-living services which mainly include services such as cleaning, group purchase, turnkey furnishing, home maintenance and utility fee collection services, and (iii) common area value-added services such as advertising in, and rental of, common areas. The following table sets forth a breakdown of our revenue from community value-added services for the periods indicated:

For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 2,187 13.9 26,565 45.3 12,677 80.9 29,571 50.4 819 5.2 2,523 4.3 15,683 100.0 58,659 100.0	For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 2,187 13.9 26,565 45.3 12,677 80.9 29,571 50.4 819 5.2 2,523 4.3 15,683 100.0 58,659 100.0	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
2017 RMB’000 % 2,187 13.9 12,677 80.9 819 5.2 15,683 100.0		2018 2019 RMB’000 % RMB’000 % (Unaudited) 18,543 49.6 49,477 66.2 17,030 45.5 17,220 23.1 1,819 4.9 8,012 10.7 37,392 100.0 74,709 100.0	2019
RMB’000 2,187 12,677 819 15,683	RMB’000 26,565 29,571 2,523 58,659	RMB’000 18,543 17,030 1,819 37,392		% 66.2 23.1 10.7
				100.0

Cost of Sales

Our cost of sales primarily consists of (i) labor costs, (ii) subcontracting costs, (iii) utility costs, (iv) costs for maintenance of public facilities, (v) office expenses and (vi) others which mainly include costs for purchasing materials used in our repair and maintenance services.

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FINANCIAL INFORMATION

The following table sets forth a breakdown of the components of our cost of sales for the periods indicated:

For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 147,489 72.8 222,512 66.4 27,821 13.7 55,089 16.4 5,177 2.6 18,702 5.6 10,028 5.0 12,601 3.8 8,563 4.2 18,478 5.5 3,461 1.7 7,943 2.3 202,539 100.0 335,325 100.0	For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 147,489 72.8 222,512 66.4 27,821 13.7 55,089 16.4 5,177 2.6 18,702 5.6 10,028 5.0 12,601 3.8 8,563 4.2 18,478 5.5 3,461 1.7 7,943 2.3 202,539 100.0 335,325 100.0	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
2017 RMB’000 % 147,489 72.8 27,821 13.7 5,177 2.6 10,028 5.0 8,563 4.2 3,461 1.7 202,539 100.0		2018 2019 RMB’000 % RMB’000 % (Unaudited) 164,752 69.8 223,748 65.0 34,541 14.7 66,298 19.3 11,440 4.9 15,807 4.6 8,161 3.5 14,518 4.2 12,236 5.2 10,710 3.1 4,498 1.9 13,010 3.8 235,628 100.0 344,091 100.0	2019
RMB’000 147,489 27,821 5,177 10,028 8,563 3,461 202,539	RMB’000 222,512 55,089 18,702 12,601 18,478 7,943 335,325	RMB’000 164,752 34,541 11,440 8,161 12,236 4,498 235,628		% 65.0 19.3 4.6 4.2 3.1 3.8
				100.0

During the Track Record Period, the main components of our cost of sales were labor costs and subcontracting costs. The increase in our labor costs during the Track Record Period was mainly due to the increase in the average employee salary. Subcontracting costs mainly include the fees incurred for the services outsourced to subcontractors, such as security, cleaning, landscaping, as well as repairs and maintenance. The increase in subcontracting costs during the Track Record Period was mainly due to (i) the increase in our GFA under management primarily resulting from the expansion of our property management service business and (ii) the increase in the amount and proportion of services that we outsourced to qualified subcontractors as a result of our cost control measures.

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FINANCIAL INFORMATION

For illustrative purposes only, we set out below a sensitivity analysis of our cost of sales, as well as profit and total comprehensive income for the periods indicated with reference to the fluctuation of labor costs and subcontracting costs during the Track Record Period. The following table demonstrates the impact of the hypothetical increase in labor costs and subcontracting costs on our cost of sales, as well as profit and total comprehensive income, while all other factors remain unchanged:

Profit and total comprehensive income for the year/period . . . . . . . . . . . . . . . . . . . . . . . . Assuming 5% increase in our aggregate of labor costs and subcontracting costs Increase/(decrease) in cost of sales . . . . . . . . . . . Increase/(decrease) in profit and total comprehensive income for the year/period . . . . . . . . . . . . . . . Assuming 10% increase in our aggregate of labor costs and subcontracting costs Increase/(decrease) in cost of sales . . . . . . . . . . . Increase/(decrease) in profit and total comprehensive income for the year/period . . . . . . . . . . . . . . .	For the year ended December 31,	For the year ended December 31,	For the nine months ended September 30,	For the nine months ended September 30,
	2017	2018	2018	2019
	20,297 8,766 (6,574) 17,531 (13,148)

The following table sets forth the breakdown of our cost of sales by business line for the periods indicated:

For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 116,878 57.7 198,564 59.2 76,722 37.9 103,795 31.0 8,939 4.4 32,966 9.8 202,539 100.0 335,325 100.0	For the year ended December 31, 2017 2018 RMB’000 % RMB’000 % 116,878 57.7 198,564 59.2 76,722 37.9 103,795 31.0 8,939 4.4 32,966 9.8 202,539 100.0 335,325 100.0	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
2017 RMB’000 % 116,878 57.7 76,722 37.9 8,939 4.4 202,539 100.0		2018 2019 RMB’000 % RMB’000 % (Unaudited) 147,137 62.4 194,087 56.4 67,589 28.7 123,505 35.9 20,902 8.9 26,499 7.7 235,628 100.0 344,091 100.0	2019
RMB’000 116,878 76,722 8,939 202,539	RMB’000 198,564 103,795 32,966 335,325	RMB’000 147,137 67,589 20,902 235,628		% 56.4 35.9 7.7
				100.0

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FINANCIAL INFORMATION

Gross Profit and Gross Profit Margin

Our overall gross profit margin in 2017, 2018 and the nine months ended September 30, 2018 and 2019 was 25.8%, 26.5%, 26.5% and 33.4%, respectively. Our overall gross profit margins are affected by the gross profit margin for each of our business lines as well as fluctuations in our business mix. Our gross profit margin experienced an upward trend during the Track Record Period, primarily reflecting greater economies of scale, the growth of our community value-added services and the implementation of our cost control measures. Our gross profit margin increased from the nine months ended September 30, 2018 to the same period in 2019, primarily due to the increase in contribution to gross profit from community value-added services which recorded higher gross profit margin than the other two business lines during the Track Record Period. We have taken various cost-saving measures to control our costs, primarily including employing technological solutions to replace manual labor and control labor costs and standardizing our procedures for various services.

The following table sets forth our gross profit and gross profit margin by business line for the periods indicated:

For the year ended December 31, 2017 2018 Gross profit Gross profit margin Gross profit Gross profit margin RMB’000 % RMB’000 % 29,945 20.4 49,494 20.0 33,630 30.5 45,796 30.6 6,744 43.0 25,693 43.8 70,319 25.8 120,983 26.5	For the year ended December 31, 2017 2018 Gross profit Gross profit margin Gross profit Gross profit margin RMB’000 % RMB’000 % 29,945 20.4 49,494 20.0 33,630 30.5 45,796 30.6 6,744 43.0 25,693 43.8 70,319 25.8 120,983 26.5	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
2017 Gross profit Gross profit margin RMB’000 % 29,945 20.4 33,630 30.5 6,744 43.0 70,319 25.8		2018 2019 Gross profit Gross profit margin Gross profit Gross profit margin RMB’000 % RMB’000 % (Unaudited) 37,083 20.1 58,433 23.1 31,361 31.7 66,166 34.9 16,490 44.1 48,210 64.5 84,934 26.5 172,809 33.4	2019
Gross profit RMB’000 29,945 33,630 6,744 70,319	Gross profit RMB’000 49,494 45,796 25,693 120,983	Gross profit RMB’000 37,083 31,361 16,490 84,934		Gross profit margin
				% 23.1 34.9 64.5 33.4

Property Management Services

Gross profit margin for our property management services is largely affected by the consolidated effect of the average fee per sq.m. per month we charge for our property management services and our cost of sales per sq.m. per period (which is usually charged on a monthly basis) for providing such services. The average property management fees that we charge for property management services amounted to approximately RMB2.27 per sq.m. per month, RMB2.27 per sq.m. per month, RMB2.30 per sq.m. per month and RMB2.14 per sq.m.

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FINANCIAL INFORMATION

per month in 2017, 2018 and the nine months ended September 30, 2018 and 2019, respectively. Our gross profit margin for property management services decreased slightly from 20.4% in 2017 to 20.0% in 2018. The gross profit margin for this business line increased from 20.1% in the nine months ended September 30, 2018 to 23.1% for the same period in 2019, primarily attributable to greater economies of scale and our implementation of cost control measures, such as outsourcing of certain labor-intensive services, employing technological solutions to control labor costs and standardizing our operational procedures in relation to our various services.

The following table sets forth our gross profit and gross profit margin from property management services by type of property developer for the periods indicated:

For the year ended December 31, 2017 2018 Gross profit Gross profit margin Gross profit Gross profit margin RMB’000 % RMB’000 % 26,537 20.5 36,052 20.2 3,408 19.6 13,442 19.3 29,945 20.4 49,494 20.0	For the year ended December 31, 2017 2018 Gross profit Gross profit margin Gross profit Gross profit margin RMB’000 % RMB’000 % 26,537 20.5 36,052 20.2 3,408 19.6 13,442 19.3 29,945 20.4 49,494 20.0	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
2017 Gross profit Gross profit margin RMB’000 % 26,537 20.5 3,408 19.6 29,945 20.4		2018 2019 Gross profit Gross profit margin Gross profit Gross profit margin RMB’000 % RMB’000 % (Unaudited) 26,956 20.2 40,433 23.7 10,127 19.8 18,000 22.1 37,083 20.1 58,433 23.1	2019
Gross profit RMB’000 26,537 3,408 29,945	Gross profit RMB’000 36,052 13,442 49,494	Gross profit RMB’000 26,956 10,127 37,083		Gross profit margin
				% 23.7 22.1 23.1

Notes:

(1) Includes projects solely developed by Zhenro Property Group and projects that Zhenro Property Group jointly developed with other property developers for which Zhenro Property Group held a controlling interest.
(2) Refer to projects solely developed by third-party property developers independent from Zhenro Property Group, as well as projects jointly developed by Zhenro Property Group and other property developers for which Zhenro Property Group did not hold a controlling interest.

Our gross profit for property management services increased during the Track Record Period. Our gross profit margin for property management services related to projects developed by Zhenro Property Group remained relatively stable in 2017 and 2018, and increased from 20.2% for the nine months ended September 30, 2018 to 23.7% for the same period in 2019, primarily due to an increase in GFA under our management for projects developed by Zhenro Property Group mainly in the Western Straits Region and Yangtze River Delta Region. Our

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FINANCIAL INFORMATION

gross profit margin for property management services related to projects developed by third-party property developers decreased from 19.6% for 2017 to 19.3% for 2018, primarily because we priced our services competitively to expand our services to third-party property developers to gain more market share. Our gross profit margin for property management services related to projects developed by third-party property developers increased from 19.8% for the nine months ended September 30, 2018 to 22.1% for the same period in 2019, primarily due to our expanded business scale and increased adoption of technological solutions to reduce labor costs for our property management services.

The table below sets forth our average property management fee for property management services by property developer for the periods indicated:

Zhenro Property Group(1) . . . . . . . . . . Third-party property developers(2). . . . Overall average property management fee. . . . . . . . . . . . . . .	For the year ended December 31, For the nine months ended September 30, 2017 2018 2018 2019 RMB per sq.m. per month 2.09 2.28 2.32 2.58 2.91 2.25 2.22 1.61 2.27 2.27 2.30 2.14	For the nine months ended September 30,	For the nine months ended September 30,
	2017 2.09 2.91 2.27		2019
			2.58 1.61 2.14

Notes:

(1) Includes projects solely developed by Zhenro Property Group and projects that Zhenro Property Group jointly developed with other property developers for which Zhenro Property Group held a controlling interest.
(2) Refers to projects solely developed by third-party property developers independent from Zhenro Property Group, as well as projects jointly developed by Zhenro Property Group and other property developers for which Zhenro Property Group did not hold a controlling interest.

The increase in the average property management fee for property management services charged on projects developed by Zhenro Property Group during the Track Record Period was primarily due to the fact that we were able to charge higher property management fees for our services to certain new properties delivered for our management in 2018 and the first nine months of 2019 given our well-established track record and enhanced brand name and also due to the fact that certain office buildings under our management in 2018 and the first nine months of 2019 were located in prime locations in first- and second-tier cities such as Shanghai and Suzhou. The decrease in the average property management fee charged on projects developed by third-party property developers from 2017 to 2018 was primarily due to our continuous efforts in diversifying our income source by providing services to new third-party property developers at competitive prices. The average property management fee charged on projects developed by third-party property developers decreased in the nine months ended September 30, 2019 as compared to the same period in 2018 primarily due to the fact that certain new projects under our management were of relatively new property type for us, such as industrial

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FINANCIAL INFORMATION

parks, but were located in third- and fourth-tier cities where the average property management fees were relatively low as compared to those of other properties in our project portfolio. The average property management fees charged on projects developed by Zhenro Property Group were lower than those charged on projects developed by third-party property developers during the Track Record Period, primarily because a substantial portion of projects developed by third-party property developers were non-residential properties with relatively higher average property management fees as compared to residential properties.

The table below sets forth the range of monthly property management fees charged for projects developed by Zhenro Property Group and third-party property developers during the Track Record Period by property type:

Residential properties . . . . . . . . . . . . . . . . . . . . . . . . . . Non-residential properties(1). . . . . . . . . . . . . . . . . . . . . .	Zhenro Property Group Third-party property developers RMB per sq.m. per month 0.89–4.34 0.75–4.00 13.83–39.13 0.23–51.83	Third-party property developers

Note:

(1) Non-residential properties include commercial properties and public properties, among others.

The table below sets forth the range of property management fees charged for commercial properties and public properties developed by Zhenro Property Group and third-party property developers during the Track Record Period:

Commercial properties(1) . . . . . . . . . . . . . . . . . . . . . . . . Public properties(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Zhenro Property Group Third-party property developers RMB per sq.m. per month 13.83–39.13 0.23–20.68 – 0.88–51.83	Third-party property developers

Notes:

(1) Include office buildings and industrial parks.

(2) Include government and public facilities, as well as schools.

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Value-added services to non-property owners

Gross profit margin for our value-added services to non-property owners was 30.5%, 30.6%, 31.7% and 34.9%, respectively, in 2017, 2018 and the nine months ended September 30, 2018 and 2019. The gross profit margin for our value-added services to non-property owners was relatively stable from 2017 and 2018, and increased from the first nine months of 2018 to the same period of 2019 primarily due to the increase in our business scale and our continued efforts to reduce costs and improve operation efficiency.

Community value-added services

Gross profit margin for our community value-added services was 43.0%, 43.8%, 44.1% and 64.5%, respectively, for 2017, 2018 and nine months ended September 30, 2018 and 2019. The gross profit margins for our community value-added services are higher than those for the other two business lines, primarily because community value-added services, such as car parks management, leasing assistance and other services and common area value-added services, are generally less labor-intensive than property management services and value-added services to non-property owners and therefore have lower costs. The general increase during the Track Record Period was mainly due to (i) an increase in car park management, leasing assistance and other services as a result of our continued business expansion since we launched this service in the Western Straits Region in the second half of 2018 and (ii) an increase in GFA under management for our common area value-added services as a result of our marketing efforts.

Other Income and Gains

Our other income and gains primarily consist of (i) interest income, (ii) non-recurring government grants, (iii) gains on disposal of items of property, plant and equipment and (iv) others. Others mainly included income from preferential tax policies introduced in the first nine months of 2019 for, among others, property management industry, which allowed us to record increases in tax deductions as other income, and income from fees charged on property owners and residents for their violations of agreed terms regarding conducting renovation work at properties under our management.

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The following table sets forth a breakdown of our other income and gains for the periods indicated:

Interest income . . . . . . . . . . . . . . . Government grants. . . . . . . . . . . . . Gain on disposal of items of property, plant and equipment . . Others . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . .	For the year ended December 31, For the nine months ended September 30, 2017 2018 2018 2019 RMB’000 (Unaudited) 384 641 431 873 156 2,701 341 765 1 – – – 172 180 90 467 713 3,522 862 2,105	For the nine months ended September 30,	For the nine months ended September 30,
	2017 384 156 1 172 713		2019
			2,105

Administrative Expenses

Our administrative expenses primarily consist of (i) staff costs, (ii) office expenses, (iii) [ REDACTED ] expenses, (iv) depreciation and amortization, (v) consulting service expenses in relation to tender process, (vi) sales tax and surcharges, (vii) marketing and promotion expenses and (viii) others which mainly relate to the expenses incurred for employee activities and repairs and maintenance. In 2017, 2018 and the nine months ended September 30, 2018 and 2019, we recorded administrative expenses of RMB41.1 million, RMB68.6 million, RMB44.1 million and RMB66.3 million, respectively. The increase in our administrative expenses during the Track Record Period was in line with our business expansion.

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FINANCIAL INFORMATION

The table below sets forth a breakdown of our administrative expenses for the periods indicated:

For the year ended December 31,	For the year ended December 31,	For the year ended December 31,	For the year ended December 31,	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,	For the nine months ended September 30,
2017		2018		2018		2019
RMB’000 27,539 4,823 [REDACTED] 682 4,120 1,455 910 1,564	% 67.1 11.7 [REDACTED] 1.7 10.0 3.5 2.2 3.8	RMB’000 46,701 6,911 [REDACTED] 1,554 4,337 2,262 2,876 3,986	% 68.0 10.1 [REDACTED] 2.3 6.3 3.3 4.2 5.8	RMB’000 30,701 3,250 [REDACTED] 1,087 2,406 1,341 2,249 3,085			% 58.4 12.0 [REDACTED] 5.8 5.1 3.7 2.8 3.3
41,093	100.0	68,627	100.0	44,119	100.0	66,271	100.0

Impairment Losses on Financial Assets, Net

Our net impairment losses of financial assets primarily are provisions for losses arising from potential bad debts in respect of our trade receivables and other receivables in the ordinary course of business. In 2017, 2018 and the nine months ended September 30, 2018 and 2019, we recorded impairment losses on financial assets of RMB2.2 million, RMB2.5 million, RMB3.2 million and RMB7.3 million, respectively, generally corresponding to the increase in trade receivables which are typically subject to seasonal fluctuations. See “Risk Factors — Risks Relating to Our Business and Industry — The collection of our trade receivables is subject to seasonal fluctuations” for further discussion.

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FINANCIAL INFORMATION

Finance Costs, Net

Our net finance costs mainly include interest expense on our bank and other borrowings. In 2017, 2018 and the nine months ended September 30, 2018 and 2019, our net finance costs amounted to RMB39,000, RMB52,000, RMB39,000 and RMB2.3 million, respectively.

The following table sets forth a breakdown of our net finance costs for the periods indicated:

Interest on bank and other borrowings . . Interest expense on lease liabilities . . . . Less: Interests charged to a related company controlled by our Controlling Shareholder . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . .	For the year ended December 31, For the nine months ended September 30, 2017 2018 2018 2019 RMB’000 (Unaudited) 44,250 47,292 35,469 54,948 39 52 39 580 (44,250) (47,292) (35,469) (53,278) 39 52 39 2,250
	2017 44,250 39 (44,250) 39

The increase in our interest expenses was primarily attributable to the increase in our interest-bearing bank and other borrowings during the Track Record Period and the increased interest expenses on lease liabilities in the first nine months of 2019 relating to an office premise we rented in Shanghai. See “— Indebtedness — Other Borrowings” and “— Related Party Transactions” in this document for further discussion on interest charged to the related party.

Share of Profits and Losses of an Associate

Share of profits and losses of an associate represents the losses we shared from our investment in Nanjing Aitao Fenghui Co., Ltd (“Nanjing Aitao”) (南京愛濤豐匯物業管理有限公司) during the Track Record Period. Nanjing Aitao is a company primarily engaging in property management services in Nanjing.

Income Tax Expense

Income tax expenses consist of current and deferred taxes payable in the PRC by our Company and our subsidiaries.

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FINANCIAL INFORMATION

The following table sets forth a breakdown of the income tax expenses for the periods indicated:

Current tax Current income tax . . . . . . . . . . . Deferred tax Charged to profit or loss . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . .	For the year ended December 31, For the nine months ended September 30, 2017 2018 2018 2019 RMB’000 (Unaudited) 9,556 14,152 11,499 27,663 (2,150) (410) (1,683) (2,404) 7,406 13,742 9,816 25,259
	2017 9,556 (2,150) 7,406

In 2017, 2018 and the nine months ended September 30, 2018 and 2019, our effective income tax rates, calculated as income tax expenses divided by profit before tax, were approximately 26.7%, 25.8%, 25.6% and 25.4%, respectively. These effective income tax rates are slightly higher than the PRC statutory corporate income tax rate of 25.0%, primarily due to the decrease in proportion of certain non-tax-deductible expenses, such as certain advertising expenses and business development expenses, to our total income tax expenses during the Track Record Period. During the Track Record Period and up to the Latest Practicable Date, we had paid all applicable taxes when due and there were no matters in dispute or unresolved with any tax authorities.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Revenue

Our total revenue increased by 61.2% to RMB516.9 million for the nine months ended September 30, 2019 from RMB320.6 million for the same period in 2018, primarily due to our overall business growth.

Property management services. Our revenue from property management services increased by 37.1% to RMB252.5 million for the nine months ended September 30, 2019 from RMB184.2 million for the same period in 2018, primarily due to an increase in our total GFA under management from 11.7 million sq.m. as of September 30, 2018 to 21.0 million sq.m. as of September 30, 2019 as a result of our

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FINANCIAL INFORMATION

business expansion through organic growth as well as strategic acquisitions, partially offset by a decrease in the average property management fee from RMB2.30 per sq.m. per month for the nine months ended September 30, 2018 to RMB2.14 per sq.m. per month for the same period in 2019, mainly due to the fact that certain new projects under our management were located in third- and fourth-tier cities where the average property management fees were relatively low than those of other properties in our project portfolio.

Value-added services to non-property owners. Our revenue from value-added services to non-property owners increased by 91.7% to RMB189.7 million for the nine months ended September 30, 2019 from RMB99.0 million for the same period in 2018, primarily because of the overall business growth, especially the increases in revenue generated from (i) sales assistance services due to the increase in our pre-sales for property project developed by Zhenro Property Group and (ii) additional tailored services, resulting from increased demand on renovation and repair services at properties under our management.
Community value-added services. Our revenue from community value-added services increased significantly to RMB74.7 million for the nine months ended September 30, 2019 from RMB37.4 million for the same period in 2018, primarily due to the increases in the revenue derived from (i) our car park management, leasing assistance and other services as a result of our continued business expansion since we launched this service in the Western Straits Region in the second half of 2018 and (ii) common area value-added services resulting from our enhanced business development efforts.

Cost of sales

Our total cost of sales increased by 46.0% to RMB344.1 million for the nine months ended September 30, 2019 from RMB235.6 million for the same period in 2018, primarily due to the increases in (i) labor cost as a result of our business scale-up and (ii) subcontracting costs as we continued to subcontract certain services to third parties to optimize our cost efficiency. Our cost of sales increased at a rate slower than our revenue, primarily due to economies of scale and our efforts to control costs by further utilizing our information technology system.

Gross profit and gross profit margin

As a result of the foregoing, our total gross profit increased significantly to RMB172.8 million for the nine months ended September 30, 2019 from RMB84.9 million for the same period in 2018, primarily due to our continued business expansion. Our gross profit margin increased to 33.4% for the nine months ended September 30, 2019 from 26.5% for the same period in 2018, primarily reflecting economies of scales, the implementation of our cost control measures and the increased revenue contribution from our community value-added services which have relatively high gross profit margin as compared to the other two business lines.

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FINANCIAL INFORMATION

Property management services. Our gross profit for property management services increased by 57.6% to RMB58.4 million for the nine months ended September 30, 2019 from RMB37.1 million for the same period in 2018. Gross profit margin for property management services improved to 23.1% for the nine months ended September 30, 2019 from 20.1% in the same period in 2018, primarily due to economies of scale and effective cost control measures, such as outsourcing labor-intensive services, further adopting technological solutions to control labor costs and standardizing procedures to streamline our operations.
Value-added services to non-property owners . Our gross profit for value-added services to non-property owners increased significantly to RMB66.2 million for the nine months ended September 30, 2019 from RMB31.4 million for the same period in 2018. Gross profit margin for value-added services to non-property owners increased to 34.9% for the nine months ended September 30, 2019 from 31.7% in the same period in 2018, primarily due to economies of scale and effective cost control measures.
Community value-added services. Our gross profit for community value-added services increased significantly to RMB48.2 million for the nine months ended September 30, 2019 from RMB16.5 million for the same period in 2018, with gross profit margin for community value-added services increasing significantly from 44.1% for the nine months ended September 30, 2018 to 64.5% for the same period in 2019, primarily due to the increase in car park management, leasing assistance and other services we provided as a result of our continued business expansion since we launched this service in the Western Straits Region in the second half of 2018 and an increase in GFA under management for which we provided common area value-added services as these services are less labor-intensive and thus have higher gross margins.

Other income and gains

Our other income and gains increased significantly to RMB2.1 million for the nine months ended September 30, 2019 from RMB0.9 million for the same period in 2018, primarily due to increases in tax deductions recorded as other income under preferential tax policies introduced in the first nine months for the PRC property management industry.

Administrative expenses

Our administrative expenses increased by 50.2% to RMB66.3 million for the nine months ended September 30, 2019 from RMB44.1 million for the same period in 2018, primarily due to (i) an increase in our staff costs as a result of an increase in the headcount of our administrative staff, reflecting our efforts to retain and attract qualified and experienced personnel, and (ii) [ REDACTED ] expenses incurred in relation to the [ REDACTED ].

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FINANCIAL INFORMATION

Impairment losses of financial assets, net

Our net impairment losses of financial assets increased significantly to RMB7.3 million for the nine months ended September 30, 2019 from RMB3.2 million for the same period in 2018, primarily due to the continuous increase in our total trade receivables in line with our business growth.

Fair value gain on investment properties

We recorded RMB0.6 million and nil in fair value gains on investment properties for the nine months ended September 30, 2019 and 2018, respectively. The fair value gains in the first nine months of 2019 was due to our acquisition of Jiangsu Sutie and the consolidation of its investment properties.

Finance costs, net

Our net finance costs increased significantly to RMB2.3 million for the nine months ended September 30, 2019 from RMB0.04 million for the same period in 2018, primarily due to the increase in our interest-bearing bank and other borrowings and the increased interest expenses on lease liabilities relating to an office premise we rented in Shanghai in the nine months ended September 30, 2019.

Share of profits and losses of an associate

Our share of losses of an associate amounted to RMB0.2 million and RMB0.07 million for the nine months ended September 30, 2019 and 2018, respectively, mainly relating to losses resulting from the acquisition of our associate, Nanjing Aitao.

Income tax expenses

Our income tax expenses increased significantly to RMB25.3 million for the nine months ended September 30, 2019 from RMB9.8 million for the same period in 2018, primarily due to our increased profit before tax.

Profit for the period

As a result of the foregoing, our profit for the period increased significantly to RMB74.3 million for the nine months ended September 30, 2019 from RMB28.5 million for the same period in 2018.

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FINANCIAL INFORMATION

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Revenue

Our revenue increased by 67.2% to RMB456.3 million in 2018 from RMB272.9 million in 2017, primarily due to an increase in revenue from property management services and to a lesser extent, increases in revenue from value-added services to non-property owners and community value-added services.

Property management services. Our revenue from property management services increased by 69.0% to RMB248.1 million in 2018 from RMB146.8 million in 2017, primarily due to an increase in our total GFA under management from 9.4 million sq.m. as of December 31, 2017 to 12.6 million sq.m. as of December 31, 2018 as a result of our business expansion through organic growth as well as strategic acquisitions. Our average property management fee remained stable at RMB2.27 per sq.m. per month for 2017 and 2018.
Value-added services to non-property owners. Our revenue from value-added services to non-property owners increased by 35.6% to RMB149.6 million in 2018 from RMB110.4 million in 2017, primarily due to (i) an increase in sales assistance services in relation to increased projects develop by Zhenro Property Group which were ready to sell and (ii) an increase in housing repair services primarily due to an increase in demand from property developers for repair services of their newlycompleted residential and non-residential properties after delivery.
Community value-added services. Our revenue from community value-added services increased significantly to RMB58.7 million in 2018 from RMB15.7 million in 2017, primarily due to the overall growth in such segment, mainly reflecting (i) an increase in car park management, leasing assistance and other services mainly due to the introduction of leasing assistance and other services to projects in the Western Straits Region in the second half of 2018 and (ii) an increase in home-living services as a result of our efforts to expand the type of certain services, such as cleaning, turnkey furnish and home maintenance.

Cost of Sales

Our cost of sales increased by 65.6% to RMB335.3 million in 2018 from RMB202.5 million in 2017, primarily due to (i) the increase in our labor costs as a result of the increase in the general increase in the salary of our staff, and (ii) efforts to subcontract certain services. Our cost of sales increased at a rate slower than our revenue, primarily due to economies of scale and by further adopting technological solutions to reduce manual labor.

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FINANCIAL INFORMATION

Gross profit and gross profit margin

As a result of the foregoing, our gross profit increased by 72.0% to RMB121.0 million in 2018 from RMB70.3 million in 2017. Our gross profit margin increased to 26.5% for the year ended December 31, 2018 from 25.8% for the year ended December 31, 2017.

Property management services. Our gross profit from property management services increased significantly to RMB49.5 million in 2018 from RMB29.9 million in 2017, primarily due to economies of scale. Our gross profit margin for our property management services remained relatively stable at 20.4% and 20.0% in 2017 and 2018, respectively.
Value-added services to non-property owners. Our gross profit from value-added services to non-property owners increased by 36.2% to RMB45.8 million in 2018 from RMB33.6 million in 2017. Our gross profit margin for value-added services to non-property owners remained stable in 2017 and 2018.
Community value-added services. Our gross profit from community value-added services increased significantly to RMB25.7 million in 2018 from RMB6.7 million in 2017. Our gross profit margin for community value-added services remained relatively stable at 43.0% and 43.8% in 2017 and 2018, respectively.

Other income and gains

Our other income and gains increased significantly to RMB3.5 million in 2018 from RMB0.7 million in 2017 primarily due to a government grant of approximately RMB2.5 million to our subsidiary, Zhenro Property Service Co. Ltd. (Nanchang Branch) (正榮物業服務有限公司南昌分公司), in 2018, as part of the local government’s policy to promote the property management industry.

Administrative expenses

Our administrative expenses increased by 67.0% to RMB68.6 million in 2018 from RMB41.1 million in 2017, primarily due to the increase in staff costs as a result of increased headcount of our administrative staff, in line with our efforts to retain and attract qualified and experienced personnel during the year.

Impairment losses of financial assets, net

Our net impairment losses of financial assets remained relatively stable at RMB2.5 million and RMB2.2 million in 2018 and 2017, respectively, primarily due to the continuous increase in our total trade receivables during the same years.

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FINANCIAL INFORMATION

Finance costs, net

Our net finance costs increased to RMB52,000 in 2018 from RMB39,000 in 2017 as a result of increased bank and other borrowings.

Share of profits and losses of an associate

Our share of losses of an associate increased to RMB98,000 in 2018 from RMB23,000 in 2017 as a result of an increase in interest expenses on lease liabilities resulting from increased leases.

Income tax expenses

Our income tax expenses increased significantly to RMB13.7 million in 2018 from RMB7.4 million in 2017 as a result of the increase in our profit before tax in 2018.

Profit for the year

As a result of the foregoing, our profit for the year increased significantly to RMB39.5 million in 2018 from RMB20.3 million in 2017.

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FINANCIAL INFORMATION

DESCRIPTION OF SELECTED ITEMS OF COMBINED STATEMENTS OF FINANCIAL POSITION

The following table sets forth a summary of our combined statements of financial position as of the dates indicated:

Non-current assets Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other intangible assets. . . . . . . . . . . . . . . . . . . . Investment properties . . . . . . . . . . . . . . . . . . . . Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . Rights-of-use assets . . . . . . . . . . . . . . . . . . . . . Investments in an associate . . . . . . . . . . . . . . . . . Total non-current assets. . . . . . . . . . . . . . . . . . Current assets Due from related companies . . . . . . . . . . . . . . . . Trade receivables . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . Prepayments and other receivables . . . . . . . . . . . . Total current assets. . . . . . . . . . . . . . . . . . . . . Current liabilities Other payables and accruals . . . . . . . . . . . . . . . . Interest-bearing bank and other borrowings . . . . . . . Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . Trade payables . . . . . . . . . . . . . . . . . . . . . . . . Due to related companies . . . . . . . . . . . . . . . . . . Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities. . . . . . . . . . . . . . . . . . . Non-current liabilities Interest-bearing bank and other borrowings . . . . . . Deferred tax liabilities. . . . . . . . . . . . . . . . . . . . Other payables . . . . . . . . . . . . . . . . . . . . . . . . Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . Total non-current liabilities. . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity attributable to owners of our Company Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share capital. . . . . . . . . . . . . . . . . . . . . . . . . . Non-controlling interests . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . .	As of December 31, 2017 2018 RMB’000 19,507 19,507 11,405 11,150 – – 5,580 5,698 3,033 4,844 713 1,361 469 371 40,707 42,931 534,227 659,300 33,029 54,021 101,029 49,843 18,292 44,998 686,577 808,162 179,812 224,143 – 20,000 8,492 22,332 17,149 23,314 3,767 3,387 420 789 209,640 293,965 500,000 500,000 2,851 2,559 – – 297 549 503,148 503,108 14,496 54,020 14,496 54,108 – – – (88) 14,496 54,020	As of September 30, 2019
	2017 19,507 11,405 – 5,580 3,033 713 469 40,707 534,227 33,029 101,029 18,292 686,577 179,812 – 8,492 17,149 3,767 420 209,640 500,000 2,851 – 297 503,148 14,496 14,496 – – 14,496
		(Unaudited) 59,537 33,128 21,400 7,619 6,384 8,679 204
		136,951
		620,967 140,546 74,983 37,274
		873,770
		271,917 32,500 30,683 29,180 6,584 3,951
		374,815
		518,750 10,429 7,000 6,568
		542,747
		93,159

		78,341 – 14,818
		93,159

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FINANCIAL INFORMATION

Investment Properties

We recorded investment properties in the amount of nil, nil and RMB21.4 million as of December 31, 2017 and 2018 and September 30, 2019, respectively, primarily due to the acquisition of car parks at a commercial building through Jiangsu Aitao in 2019 based on the property valuation by independent valuer.

Goodwill

We recorded goodwill in the amount of RMB19.5 million, RMB19.5 million and RMB59.5 million as of December 31, 2017 and 2018 and September 30, 2019, respectively, in connection with our acquisition of Jiangsu Aitao in 2017 and Jiangsu Sutie in 2019. The amount of goodwill reflects (i) the difference between the total acquisition consideration of RMB20.0 million and Jiangsu Aitao’s total fair value of identifiable net assets of RMB0.5 million and (ii) the difference between the total acquisition consideration of RMB70.0 million for 70% equity interest in Jiangsu Sutie and the fair value of relevant identifiable net assets of RMB30.0 million. The purchase price of RMB20.0 million for Jiangsu Aitao and RMB70.0 million for Jiangsu Sutie were determined after arm’s length negotiations and after taking into account the assets and liabilities and the prospects.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. We typically perform impairment test on an annual basis. We performed an impairment test of goodwill as of December 31, 2017 and 2018 and September 30, 2019. See “— Significant Accounting Policies, Judgments and Estimates — Significant Accounting Policies — Goodwill” and Note 15 and Note 16 to the Accountants’ Report in Appendices IA and IB, respectively, to this document for further details. Also see “Risk Factors — Risks Relating to Our Business and Industry — We may recognize impairment losses for goodwill recorded in connection with our acquisitions” for discussion on related risks.

Other intangible Assets

Our other intangible assets primarily consist of customer relationships and software. Our other intangible assets remained relatively stable at RMB11.4 million and RMB11.2 million as of December 31, 2017 and 2018, respectively. Our other intangible assets increased to RMB33.1 million as of September 30, 2019, primarily due to the customer relationships gained in relation to our acquisition of Jiangsu Sutie.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

Trade Receivables

The table below sets forth a breakdown of the trade receivables as of the dates indicated:

Trade receivables from third parties . . . . . . . . . . . . . . . . . . . Less: allowance for impairment . . . . . . . . . . Net trade receivables . . . . . . . . . . . . . . . . . .	As of December 31, 2017 2018 RMB’000 35,973 59,002 (2,944) (4,981) 33,029 54,021	As of September 30, 2019
	2017 35,973 (2,944) 33,029
		(Unaudited) 152,962 (12,416)
		140,546

Trade receivables mainly relate to income from provision of property management services under lump sum basis, value-added services to non-property owners and community value-added services from Independent Third Parties. Property management services income under lump sum basis is received in accordance with the terms of the relevant property management service agreements.

The following table sets forth our trade receivable turnover days for the periods indicated:

Average trade receivable turnover days(1) . . .	For the year ended December 31, 2017 2018 30 35	For the nine months ended September 30, 2019
	2017 30
		52

(1) Average trade receivable turnover days for a certain period equals average trade receivables divided by revenue for the period and then multiplied 365 for one-year period or by 274 for the nine-month period. Average trade receivables are calculated as trade receivables at the beginning of the period plus trade receivables at the end of the period, divided by two.

Average trade receivables turnover days indicate the average time required for us to collect cash payments from provision of services. The increase in our trade receivables turnover days from 30 days for 2017 to 35 days for 2018 was primarily due to the increase in trade receivables from provision of property management services to property owners and in line with our business expansion. The increase in average trade receivables turnover days to 52 days for the nine months ended September 30, 2019 from 35 days for 2018 was primarily due to the relatively lower collection rates in the first three quarters of a year resulting from the payment patterns of property owners and residents in the PRC while, according to CIA, payments are usually settled in the last month of a year. See “Risk Factors — Risks Relating to our Business and Industry — The collection of our trade receivables is subject to seasonal fluctuations” in this document for further discussion.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

The following table sets forth an aging analysis of the trade receivables as of the dates indicated, based on the invoice date and net of allowance for impairment:

Within one year . . . . . . . . . . . . . . . . . . . . . . . One to two years . . . . . . . . . . . . . . . . . . . . . . Two to three years . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	As of December 31, 2017 2018 RMB’000 30,727 48,494 1,962 5,334 340 193 33,029 54,021	As of September 30, 2019
	2017 30,727 1,962 340 33,029
		(Unaudited) 124,329 15,062 1,155
		140,546

The table below sets forth the movements in the allowance for impairment of trade receivables as of the dates indicated:

As of the beginning of year/period . . . . . . . . Impairment losses, net . . . . . . . . . . . . . . . . . . As of the end of year/period . . . . . . . . . . . .	As of December 31, 2017 2018 RMB’000 (875) (2,944) (2,069) (2,037) (2,944) (4,981)	As of September 30, 2019
	2017 (875) (2,069) (2,944)
		(Unaudited) (4,981) (7,435)
		(12,416)

As of November 30, 2019, RMB63.5 million, or 45.2% of our trade receivables as of September 30, 2019, were subsequently settled.

Due from Related Parties

See “— Related Party Transactions” below for more details.

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FINANCIAL INFORMATION

Prepayment and Other Receivables

The table below sets forth the breakdown of our prepayments and other receivables as of the dates indicated:

Prepayments on behalf of customers to utility suppliers . . . . . . . . . . . . . . . . . . . Other prepayments. . . . . . . . . . . . . . . . . . . . . Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advance to staffs. . . . . . . . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	As of December 31, 2017 2018 RMB’000 3,542 5,739 3,905 7,676 2,471 3,068 834 1,644 7,870 27,626 18,622 45,753 (330) (755) 18,292 44,998	As of September 30, 2019 (Unaudited) 7,413 17,222 8,391 2,811 2,065 37,902 (628) 37,274
	2017 3,542 3,905 2,471 834 7,870 18,622 (330) 18,292

Our prepayments and other receivables mainly represent (i) prepayments on behalf of customers to utility suppliers, (ii) other prepayments which mainly include prepayments for utilities and materials used for our services, (iii) deposits made in relation to tender processes, (iv) advance to staff mainly includes the advance we made to our employees for their portion of the social insurance and housing provident fund contributions before such contributions can be deducted from their salaries, and (v) other receivables. See “Business — Property Management Services — Property Management Fees” for more details on the collection of payments that we made on behalf of property owners and residents.

Our prepayment and other receivables increased significantly from RMB18.3 million as of December 31, 2017 to RMB45.0 million as of December 31, 2018, primarily attributable to due to (i) an increase in other receivables which included cash advances of RMB20.0 million to independent third parties, which were suppliers of Zhenro Group Company (the then holding company of our Group), and (ii) an increase in other prepayments for utilities and materials for mainly sales assistance services to property developers as a result of more property pre-sales projects contracted to us. Our prepayment and other receivables decreased to RMB37.3 million as of September 30, 2019, primarily due to the settlement of the above-mentioned cash advances in the first nine months of 2019, partially offset by increase in other prepayments as a result of our business expansion.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

Trade Payables

Trade payables primarily represent our obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers, including purchases of materials and utilities and purchases from subcontractors. We are typically granted credit terms of one month from suppliers.

The following table sets forth an aging analysis of the trade payables as of the dates indicated, based on the invoice date:

Within three months . . . . . . . . . . . . . . . . . . . Three to twelve months . . . . . . . . . . . . . . . . . Over one year . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	As of December 31, 2017 2018 RMB’000 15,408 18,971 1,518 2,981 223 1,362 17,149 23,314	As of September 30, 2019
	2017 15,408 1,518 223 17,149
		(Unaudited) 27,827 300 1,053
		29,180

Our trade payables increased by 35.9% from RMB17.1 million as of December 31, 2017 to RMB23.3 million as of December 31, 2018, which further increased by 25.2% to RMB29.2 million as of September 30, 2019, primarily due to the increase in trade payables in relation to property management services provided to Zhenro Property Group as a result of the scale-up of our business.

Average trade payables turnover days(1) . . . . . . . .	For the year ended December 31, 2017 2018 18 22	For the nine months ended September 30, 2019
	2017 18
		21

Note:

(1) Average trade payables turnover days for a period equals average trade payables divided by cost of sales for the period and then multiplied by 365 for a one-year period or by 274 for a nine-month period. Average trade payables are calculated as trade payables at the beginning of the period plus trade payables at the end of the period, divided by two.

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FINANCIAL INFORMATION

Our average trade payable turnover days indicate the average time we take to make payments to suppliers, which remained relatively stable during the Track Record Period and within the typical credit terms granted to us.

As of November 30, 2019, RMB19.1 million, or 65.3% of our trade payables as of September 30, 2019 were subsequently settled.

Other Payables and Accruals

Our other payables and accruals primarily consist of (i) contract liabilities, (ii) payrolls and welfare payables, (iii) receipts on behalf of community residents for utilities and waste management collected from property owners or residents, (iv) investment payables mainly relating to our acquisition of Jiangsu Sutie in the first nine months of 2019, (v) other tax payables which mainly include VAT, (vi) deposits received mainly from subcontractors in relation to their participation in our tender process and (vii) others.

The following table sets forth the breakdown of our other payables and accruals as of the dates indicated:

Current Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . Payroll and welfare payables . . . . . . . . . . . . . . . . . Receipts on behalf of community residents. . . . . . . . . Investment payables. . . . . . . . . . . . . . . . . . . . . . . Deposits received . . . . . . . . . . . . . . . . . . . . . . . . Other tax payables. . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current Investment payables. . . . . . . . . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	As of December 31, 2017 2018 RMB’000 63,207 89,301 64,719 73,926 35,827 34,831 – – 3,932 6,839 6,853 10,898 5,274 8,348 179,812 224,143 – – 179,812 224,143	As of September 30, 2019
	2017 63,207 64,719 35,827 – 3,932 6,853 5,274 179,812 – 179,812
		(Unaudited) 85,895 78,603 50,007 14,000 12,556 18,098 12,758
		271,917
		7,000
		278,917

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

Our other payables and accruals increased from RMB179.8 million as of December 31, 2017 to RMB224.1 million as of December 31, 2018, primarily due to the increases in (i) contract liabilities as a result of the property management fees we received in advance of the performance under the property management service agreements and (ii) payroll and welfare payables for increased salary and bonus payables to our employees in line with our business expansion. Our other payables and accruals increased to RMB278.9 million as of September 30, 2019, primarily due to (i) increase in investment payables resulting from the outstanding consideration for our acquisition of Jiangsu Sutie in the first nine months of 2019, and (ii) receipts on behalf of community residents due to the expansion of our community value-added services from 2018 to the first nine months of 2019.

Interest-Bearing Bank and Other Borrowings

As of December 31,2017 and 2018 and September 30 and November 30, 2019, we had outstanding bank and other borrowings of RMB500.0 million, RMB520.0 million, RMB551.3 million and RMB551.3 million, respectively. See “— Indebtedness” below for further discussions.

CURRENT ASSETS AND CURRENT LIABILITIES

The following table sets out current assets and current liabilities as of the dates indicated:

Current assets Trade receivables. . . . . . . . . . . . . . . Due from related companies . . . . . . . . Prepayment and other receivables. . . . . Cash and cash equivalents . . . . . . . . . Total current assets. . . . . . . . . . . . . Current liabilities Trade payables . . . . . . . . . . . . . . . . Other payables and accruals . . . . . . . . Due to related companies. . . . . . . . . . Interest-bearing bank and other borrowings . . . . . . . . . . . . . . . . . Tax payable . . . . . . . . . . . . . . . . . . Lease liabilities . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . Net current assets. . . . . . . . . . . . . .	As of December 31, As of September 30, 2019 As of November 30, 2019 2017 2018 RMB’000 (Unaudited) 33,029 54,021 140,546 169,550 534,227 659,300 620,967 624,163 18,292 44,998 37,274 33,263 101,029 49,843 74,983 80,332 686,577 808,162 873,770 907,308 17,149 23,314 29,180 37,461 179,812 224,143 271,917 257,207 3,767 3,387 6,584 16,014 – 20,000 32,500 32,500 8,492 22,332 30,683 34,440 420 789 3,951 683 209,640 293,965 374,815 378,305 476,937 514,197 498,955 529,003	As of November 30, 2019
	2017 33,029 534,227 18,292 101,029 686,577 17,149 179,812 3,767 – 8,492 420 209,640 476,937
		907,308
		37,461 257,207 16,014 32,500 34,440 683
		378,305
		529,003

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

Our net current assets increased by 6.0% from RMB499.0 million as of September 30, 2019 to RMB529.0 million as of November 30, 2019, mainly attributable to (i) an increase in trade receivables, primarily due to the relatively lower collection rates in September and October of a year resulting from the payment patterns of property owners and residents in the PRC while, according to CIA, the payments are usually settled in the last month of a year and (ii) a decrease in other payables and accruals as a result of the decreased deposits received from subcontractors and the decreased receipts collected from property owners or resident for payment of utilities and waste management on their behalf.

Our net current assets decreased by RMB15.2 million from RMB514.2 million as of December 31, 2018 to RMB499.0 million as of September 30, 2019, mainly attributable to (i) a significant increase in our other payables and accruals relating to investment payables for acquisition of Jiangsu Sutie and (ii) an increase in interest-bearing bank and other borrowings, which was partially offset by (i) an increase in trade receivables and (ii) an increase in cash and cash equivalents.

Our net current assets increased by RMB37.3 million from RMB476.9 million as of December 31, 2017 to RMB514.2 million as of December 31, 2018, mainly attributable to (i) an increase in trade-related amount due from related companies in line with our business expansion, (ii) an increase in trade receivables and (iii) an increase in prepayments and other receivables, which was partially offset by (i) a decrease in cash and cash equivalent, (ii) an increase in other payables and accruals, mainly reflecting the increase in contract liabilities, (iii) an increase in interest-bearing bank and other borrowings, and (iv) an increase in tax payables.

LIQUIDITY AND CAPITAL RESOURCES

Our principal use of cash has been for working capital purposes. Our main source of liquidity has been generated from cash flow from operations. In the foreseeable future, we expect cash flow from operations to continue to be our principal source of liquidity and we may use a portion of the [ REDACTED ] from the [ REDACTED ] to finance some of our capital requirements.

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FINANCIAL INFORMATION

Cash Flow

The following table sets forth selected cash flow data from our combined statements of cash flows for the periods indicated:

For the year ended
December 31,
For the nine months
ended September 30,
2017
2018
2018
2019
RMB’000
(Unaudited)
68,462
54,053
15,411
13,071
14,715
(76,232)
(25,465)
81,308
(50,058)
(29,007)
(35,926)
(69,239)
33,119
(51,186)
(45,980)
25,140
67,910
101,029
101,029
49,843
101,029
49,843
55,049
74,983

2017
68,462
14,715
(50,058)
33,119
67,910
101,029

Net cash from operating activities

Our cash flow from operating activities primarily reflects (i) profit before tax adjusted for non-cash and non-operating items, (ii) the effects of movements in working capital, (iii) interests received, (iv) interests paid and (v) tax paid.

In the nine months ended September 30, 2019, our net cash from operating activities was RMB13.1 million, consisting of cash generated from operations of RMB35.1 million and interests received of RMB0.9 million, partially offset by tax and interest paid of RMB21.2 million and RMB1.7 million, respectively. Operating cash inflow before changes in working capital was RMB114.2 million, primarily attributable to profit before tax of RMB99.5 million. Changes in working capital contributed a cash outflow in the amount of RMB79.1 million, consisting primarily of (i) an increase in trade receivables of RMB90.6 million and (ii) an increase in amounts due from related companies of RMB16.5 million, partially offset by an increase in other payables and accruals of RMB12.7 million.

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FINANCIAL INFORMATION

In 2018, our net cash from operating activities was RMB54.1 million, consisting of cash generated from operations of RMB53.7 million and interests received of RMB0.6 million, partially offset by tax paid of RMB0.3 million. Operating cash inflow before changes in working capital was RMB58.2 million, primarily attributable to profit before tax of RMB53.3 million. Changes in working capital contributed a cash outflow in the amount of RMB4.5 million, consisting primarily of (i) an increase in prepayments and other receivables of RMB7.1 million, (ii) an increase in amounts due from related companies of RMB25.4 million, and (iii) an increase in trade receivables of RMB23.0 million, partially offset by an increase in other payables and accruals of RMB44.3 million.

In 2017, our net cash from operating activities was RMB68.5 million, consisting of cash generated from operations of RMB72.5 million and interests received of RMB0.4 million, partially offset by tax paid of RMB4.4 million. Operating cash inflow before changes in working capital was RMB30.9 million, primarily attributable to profit before tax of RMB27.7 million. Changes in working capital contributed a cash inflow in the amount of RMB41.6 million, consisting primarily of (i) an increase in other payables and accruals of RMB24.2 million, mainly relating to contract liabilities relating to our property management services, (ii) a decrease in prepayments and other receivables of RMB18.0 million, and (iii) an increase in trade payables of RMB12.8 million relating to property management services provided to Zhenro Property Group, partially offset by (i) an increase in trade receivables of RMB8.5 million and (ii) an increase in amounts due from related companies of RMB5.9 million.

Net cash from/(used in) investing activities

During the Track record period, our cash used in investing activities mainly consists of advances to related companies, decrease in the other payables, purchase of items of property, plant and equipment and the one-off [ REDACTED ] expenses paid for the [ REDACTED ]. Our cash from investing activities mainly consists of repayment from related companies and interest income received from a related company.

In the nine months ended September 30, 2019, our net cash from investing activities was RMB81.3 million. The net cash inflow was primarily attributable to the repayment from related companies of RMB205.6 million and interest income we received from a related company of RMB53.3 million, partially offset by (i) advances to related companies of RMB150.8 million, and (ii) an amount of RMB44.0 million paid for acquisition of a subsidiary.

In 2018, our net cash used in investing activities was RMB76.2 million. The net cash outflow primarily reflected advances to related companies of RMB125.1 million, partially offset by (i) interests received from a related company of RMB47.3 million and (ii) repayment from related parties of RMB25.4 million.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

In 2017, our net cash from investing activities was RMB14.7 million. The net cash inflow was primarily attributable to interests received from a related company of RMB44.3 million, partially offset by (i) advances to related companies of RMB15.4 million and (ii) an amount of RMB14.9 million paid for acquisition of a subsidiary.

Net cash used in financing activities

In the nine months ended September 30, 2019, our net cash used in financing activities was RMB69.2 million, primarily reflecting (i) our interest paid in an amount of RMB53.3 million and (ii) capital contribution relating to our reorganization of RMB48.0 million, partially offset by new bank loans of RMB31.8 million.

In 2018, our net cash used in financing activities was RMB29.0 million, primarily reflecting our interest paid in an amount of RMB47.3 million, partially offset by new bank loans of RMB20.0 million.

In 2017, our net cash used in financing activities was RMB50.1 million, primarily reflecting (i) our interest paid in an amount of RMB44.3 million and (ii) repayment to related companies of RMB10.0 million, partially offset by advances from related companies of RMB4.6 million.

WORKING CAPITAL

Our Directors are of the view that, after taking into account the financial resources available to us, including the estimated [ REDACTED ] of the [ REDACTED ], available banking facilities to us and our internally generated funds, we have sufficient working capital to satisfy our requirements for at least the next 12 months following the date of this document.

INDEBTEDNESS

As of December 31, 2017 and 2018, September 30, 2019 and November 30, 2019, our indebtedness consisted of total bank and other borrowings, which amounted to RMB500.0 million, RMB520.0 million, RMB551.3 million and RMB551.3 million, respectively. As of the Latest Practicable Date, we had repaid RMB530.0 million of our bank and other borrowings.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

The following table sets forth the components of our interest-bearing bank and other borrowings as of the dates indicated:

Current Bank loans – secured . . . . . . . . . . . . . . . Current portion of long-term bank loans – secured . . . . . . . . . . . . . . . . . . . . . – unsecured . . . . . . . . . . . . . . . . . . . . Non-current Bank loans – secured . . . . . . . . . . . . . . . . . . . . . – unsecured . . . . . . . . . . . . . . . . . . . . Other borrowing – secured . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . . .	As of December 31, As of September 30, November 30, 2017 2018 2019 2019 RMB’000 (Unaudited) – 20,000 30,000 30,000 – – 1,000 1,000 – – 1,500 1,500 – – 11,000 11,000 – – 7,750 7,750 500,000 500,000 500,000 500,000 500,000 520,000 551,250 551,250	As of	As of
			November 30,
	2017 – – – – – 500,000 500,000		2019
			551,250

The table below sets forth a repayment schedule of the interest-bearing bank and other borrowings as of the dates indicated:

Repayable within one year . . . . . . . . . . . . Repayable within two to five years . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . . .	As of December 31, As of September 30, November 30, 2017 2018 2019 2019 RMB’000 (Unaudited) – 20,000 32,500 32,500 500,000 500,000 518,750 518,750 500,000 520,000 551,250 551,250	As of	As of
			November 30,
	2017 – 500,000 500,000		2019
			551,250

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

Bank Borrowings

As of December 31, 2017 and 2018, September 30, 2019 and November 30, 2019, we had bank loans in the amount of nil, RMB20.0 million, RMB51.3 million and RMB51.3 million, respectively. As of the Latest Practicable Date, we had repaid RMB30.0 million of our bank loans, which carried interest rates ranging from 5.7% to 6.5%. As of November 30, 2019, we had a bank loan of RMB12.0 million which is secured by a pledge of the entire equity interest of Jiangsu Aitao, and was originally guaranteed by, among others, Zhenro Group, and such guarantee had been released. See “Relationship with Controlling Shareholders — Independence from Our Controlling Shareholders — Financial Independence” for more information. Save for the above-mentioned bank loan of RMB12.0 million which was used for the acquisition of Jiangsu Aitao, our other bank borrowings were used for our general business operation and working capital.

Other Borrowing

As of December 31, 2017 and 2018, September 30, 2019 and November 30, 2019, we recorded other borrowing of RMB500.0 million, RMB500.0 million, RMB500.0 million and RMB500.0 million, respectively. As of the Latest Practicable Date, we had repaid the outstanding other borrowings of RMB500.0 million.

We entered into a trust financing arrangement with an independent third-party trust company, in 2016 for a principal amount of RMB500.0 million with an interest rate of 9.0% to 14.0%. This amount was pledged by our rights of receiving certain property management fees in future years, a pledge over the entire equity interest of Zhenro Property Services and guaranteed by Mr. ZR Ou, Ms. Lin Shuying and Zhenro Group Company. We advanced the entire amount to our related party, Zhenro Group, in 2016, and Zhenro Group had repaid the outstanding amount to us in full as of the Latest Practicable Date.

The above-mentioned advance to Zhenro Group involved the lending of money that might not be in compliance with the General Lending Provisions (《貸款通則》), a regulation promulgated by the PBOC in 1996. According to the General Lending Provisions, only financial institutions may legally engage in the business of extending loans, and loans as between companies that are not financial institutions are prohibited. The PBOC may impose penalties on the lender that is not a financial institution in the amount equivalent to one to five times of the income generated (being interests charged) from the loan advancing activities. However, according to the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases (《最高人民法院關於審理民間借貸案件適用法律若干問題的規定》) (the “Provisions”) promulgated on August 6, 2015 and effective on September 1, 2015, borrowing agreements are valid if extended for the purposes of business operations. PRC courts will support a company’s claim for interest in respect of such loans as long as the annual interest rate does not exceed 24%. As confirmed by our Directors, (i) the above-mentioned advance to Zhenro Group was for the purposes of business operations and the interests received were equal to the interests we paid to the trust company from which we borrowed the money, (ii) we have repaid the amount to that trust

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FINANCIAL INFORMATION

company in full as of the Latest Practicable Date, (iii) we had not received any benefit in relation to the above-mentioned advance, and (iv) we had not received any notice of claim or penalty relating to such advance from any relevant authority. Based on the above, we are advised by our PRC Legal Advisors, under normal circumstances, the possibility that the PBOC would impose a fine in respect of the above-mentioned advance pursuant to the General Lending Provision is low.

Our Directors confirm that we did not have any defaults in the payment of trade and non-trade payables or bank and other borrowings during the Track Record Period and up to the Latest Practicable Date. As of November 30, 2019, we did not have any unutilized facility. During the Track Record Period and up to the Latest Practicable Date, our Directors confirm that we did not (i) experience any difficulty in obtaining credit facilities, (ii) experience any withdrawal of banking facilities by a bank or receive any request to make an early repayment, or (iii) default in payment or breach any financial covenants of our bank and other borrowings.

Commitments and Contingent Liabilities

As of November 30, 2019, being the latest practicable date for the purpose of the indebtedness statement, we were not involved in any material legal, arbitration or administrative proceedings that, if adversely determined, we expected would materially adversely affect our business, financial position or results of operations. Except as disclosed herein and apart from intra-group liabilities, we did not have any outstanding loan capital, debt securities, debentures, bank overdrafts, liabilities under acceptances or acceptance credits or hire purchase commitments guarantees or other material contingent liabilities or any covenant in connection therewith as of the latest date for liquidity disclosure, being the latest practicable date for the purpose of the indebtedness statement. As of the same date, we had not guaranteed the indebtedness of any Independent Third Parties. Save as otherwise disclosed in this document, our Directors confirm that there has been no material change in our indebtedness, capital commitments and contingent liabilities since November 30, 2019 and up to the Latest Practicable Date.

CAPITAL EXPENDITURES

Our capital expenditures represent additions to property, plant and equipment and other intangible assets, such as software. Our total capital expenditures increased significantly from RMB1.6 million in 2017 to RMB3.8 million in 2018, primarily due to addition of properties, plant and equipment associated with the expansion of our business scale For the nine months ended September 30, 2019, our capital expenditure amounted to RMB2.8 million, primarily our purchases of certain software relating to our fee collection system, “Rong Wisdom” Service Platform and property agency services.

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FINANCIAL INFORMATION

The table below sets forth the amount of capital expenditures incurred during the Track Record Period.

Additions to properties, plants and equipment . . . . . . . . . . . . . . . . . . . . Other intangible assets . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . . .	For the year ended December 31, For the nine months ended September 30, 2017 2018 2018 2019 RMB’000 (Unaudited) 1,624 2,893 2,172 2,207 – 942 – 603 1,624 3,835 2,172 2,810	For the nine months ended September 30,	For the nine months ended September 30,
	2017 1,624 – 1,624		2019
			2,810

For the year ending December 31, 2019, our estimated total capital expenditure is approximately RMB3.5 million, respectively, attributable to our purchase and/or upgrade of information technology systems, which we plan to finance through our operating cash flow.

Our actual capital expenditures may differ from the amounts set forth above due to various factors, including our future cash flows, results of operations and financial condition, economic conditions in the PRC, the availability of financing on terms acceptable to us, technical or other problems in obtaining or installing equipment, changes in the regulatory environment in the PRC and other factors.

OFF-BALANCE SHEET ARRANGEMENTS

We had no material off-balance sheet arrangements as of September 30, 2019, being the date of our most recent financial statement, and as of the Latest Practicable Date.

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FINANCIAL INFORMATION

KEY FINANCIAL RATIOS

The following table set forth our key financial ratios as of the dates or for the periods indicated:

Return on equity(1) (%) . . . . . . . . . . . . . . . Return on total assets(2) (%) . . . . . . . . . . . Current ratios(3) (times) . . . . . . . . . . . . . . . Gross profit margin (%). . . . . . . . . . . . . . . Net profit margin (%) . . . . . . . . . . . . . . . .	As of or for the year ended December 31, 2017 2018 140.0 73.2 2.8 4.6 3.3 2.7 25.8 26.5 7.4 8.7	As of or for the year ended September 30, 2019
	2017 140.0 2.8 3.3 25.8 7.4
		(Unaudited) 106.3(4) 9.8(4) 2.3 33.4 14.4

Notes:

(1) Equals profit for the period divided by total equity as of the end of that period and multiplied by 100%.
(2) Equals profit for the period divided by total assets as of the end of that period and multiplied by 100%.
(3) Equals current assets divided by current liabilities as of the same date.
(4) These ratios have been annualized to be comparable to those of prior years but are not indicative of the actual results.

Return on Equity

Our return on equity increased from 73.2% in 2018 to 106.3% for the nine months ended September 30, 2019, mainly due to our improved profitability.

Our return on equity decreased from 140.0% in 2017 to 73.2% in 2018, mainly due to a faster growth rate of total equity as compared to net profit during the year resulting from the accumulation of retained earnings from 2017 to 2018.

Return on Total Assets

Our return on total assets increased from 4.6% as of December 31, 2018 to 9.8% as of September 30, 2019, mainly due to improved profitability in the nine months ended September 30, 2019.

Our return on total assets increased from 2.8% as of December 31, 2017 to 4.6% as of December 31, 2018, mainly due to the expansion of our business scale and the continuous increase of our profitability from 2017 to 2018, partially offset by the increase in our total assets resulting from the acquisition of Jiangsu Aitao.

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FINANCIAL INFORMATION

Current Ratio

Our current ratio decreased during the Track Record Period, primarily due to continued increases in contract liabilities resulting from the expansion of our business scale.

Gross Profit Margin

Our gross profit margin increased during the Track Record Period, primarily reflecting economies of scale, the growth of our community value-added services and successful implementation of our cost control measures. See “— Description of Certain Combined Statements of Profit or Loss and Other Comprehensive Income — Gross Profit and Gross Profit Margin” in this document for further discussion.

Net Profit Margin

Our net profit margin increased during the Track Record Period, primarily due to improved profitability for the reasons discussed under “— Key Financial Ratio — Gross Profit Margin” above.

MARKET RISKS

We are exposed to a variety of market risks, including interest rate risk, credit risk and liquidity risk, as set out below. We manage and monitor these exposures to ensure appropriate measures are implemented on a timely and effective manner. As of the Latest Practicable Date, we did not hedge or consider necessary to hedge any of these risks. For further details, including relevant sensitivity analysis, please see Note 32 in Appendix IA and Note 33 in Appendix IB to this document.

Interest Rate Risk

Our exposure to risk for changes in market interest rates relates primarily to our interest-bearing bank and other borrowings. We do not use derivative financial instruments to hedge interest rate risk, and obtains all bank borrowings with a fixed rate.

Credit Risk

We are exposed to credit risk in relation to our trade and other receivables, borrowings, interest receivables due from related parties and cash and cash equivalents. The carrying amounts of our trade and other receivables, borrowings, interest receivables due from related parties cash and cash equivalents represent our maximum exposure to credit risk in relation to financial assets.

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FINANCIAL INFORMATION

For the trade and other receivables due from related parties, we expect that the credit risk associated is considered to be low, since the related parties have a strong capacity to meet contractual cash flow obligation in the near term. Thus, the impairment provision recognized during the Track Record Period was nil for the trade and other receivables due from related parties.

For credit exposures to loans and interest due from related parties, we had not encountered any significant difficulties in collecting from related parties in the past, and are not aware of any significant financial difficulties by the related parties.

For cash and cash equivalents, we expect that there is no significant credit risk since they are substantially deposited at state-owned banks or other medium-to-large sized banks. We do not expect that there will be any significant losses from non-performance by those counterparties.

Liquidity Risk

We aim to maintain a balance between continuity of funding and flexibility through the use of interest-bearing bank and other borrowings. Cash flows are closely monitored on an ongoing basis.

The following table sets forth maturity profile of our financial liabilities as of December 31, 2017 and 2018 and September 30, 2019 based on the contractual undiscounted payments.

As of December 31, 2017 Trade payables . . . . . . . . . . . . . . . Other payables and accruals . . . . . Interest-bearing bank and other borrowings. . . . . . . . . . . . . . . . . Lease liabilities. . . . . . . . . . . . . . . Due to related parties . . . . . . . . . .	Less than three months or on demand 17,149 45,033 11,250 107 3,767 77,306	More than three months but less than one year Over one year RMB’000 – – – – 33,750 780,000 322 793 – – 34,072 780,793	Total
			17,149 45,033 825,000 1,222 3,767
			892,171

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FINANCIAL INFORMATION

As of December 31, 2018 Trade payables . . . . . . . . . . . . . . . Other payables and accruals . . . . . Interest-bearing bank and other borrowings. . . . . . . . . . . . . . . . . Lease liabilities. . . . . . . . . . . . . . . Due to related parties . . . . . . . . . . As of September 30, 2019 Trade payables . . . . . . . . . . . . . . . Other payables and accruals . . . . . Interest-bearing bank and other borrowings. . . . . . . . . . . . . . . . . Lease liabilities . . . . . . . . . . . . . . Due to related companies . . . . . . .	Less than three months or on demand 23,314 50,018 17,715 202 3,387 94,636 29,180 75,321 38,773 2,241 6,584 152,099	More than three months but less than one year Over one year RMB’000 – – – – 73,145 710,000 604 1,503 – – 73,749 711,503 (Unaudited) – – 14,000 7,000 64,044 757,646 2,088 7,382 – – 80,132 772,028	Total
			23,314 50,018 800,860 2,309 3,387
			879,888

			29,180 96,321 860,463 11,711 6,584
			1,004,259

RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability, directly or indirectly, control the other party or exercise significant influence over the other party in making financial and operation decisions. Parties are also considered to be related if they are subject to common control. Members of key management and their close family member of us are also considered as related parties. For a detailed discussion of related party transactions, see Note 29 in Appendix IA and Note 30 to the Appendix IB to this document.

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FINANCIAL INFORMATION

Significant Related Party Transactions

During the Track Record Period, we had the following significant transactions with related parties:

Provision of property management services and value-added service to non-property owners

In 2017, 2018 and the nine months ended September 30, 2019, we recorded revenue from provision of property management services and value-added service to non-property owners to related parties in the amount of RMB132.0 million, RMB185.4 million, RMB210.6 million, respectively.

Interest income received from related parties

In 2017, 2018 and the nine months ended September 30, 2019, we recorded interest received from related parties in the amount of RMB44.3 million, RMB47.3 million and RMB53.3 million, respectively.

Rental fee expense

In 2017, 2018 and the nine months ended September 30, 2019, we recorded rental fee to related parties in the amount of RMB1.0 million, RMB0.5 million and RMB1.4 million, respectively.

Balances with Related Parties

The table below sets forth the balances with related parties as of the dates indicated:

Amounts due from related parties Trade related: Companies controlled by our Controlling Shareholder . . . . . . . . . . . . . . . . . . . . . . Joint ventures and associates of a fellow subsidiary . . . . . . . . . . . . . . . . . . . . . . . Non-trade related: Companies controlled by our Controlling Shareholder . . . . . . . . . . . . . . . . . . . . . .	As of December 31, As of September 30, 2017 2018 2019 RMB’000 (Unaudited) 8,745 23,578 39,313 1,394 11,920 12,692 524,088 623,802 568,962 534,227 659,300 620,967	As of December 31, As of September 30, 2017 2018 2019 RMB’000 (Unaudited) 8,745 23,578 39,313 1,394 11,920 12,692 524,088 623,802 568,962 534,227 659,300 620,967
	2017 8,745 1,394 524,088 534,227
		(Unaudited) 39,313 12,692 568,962
		620,967

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FINANCIAL INFORMATION

Amounts due to related parties Trade related: Companies controlled by our Controlling Shareholder . . . . . . . . . . . . . . . . . . . . . . Non-trade related: Companies controlled by our Controlling Shareholder . . . . . . . . . . . . . . . . . . . . . .	As of December 31, As of September 30, 2017 2018 2019 RMB’000 (Unaudited) 929 1,455 3,049 2,838 1,932 3,535 3,767 3,387 6,584	As of December 31, As of September 30, 2017 2018 2019 RMB’000 (Unaudited) 929 1,455 3,049 2,838 1,932 3,535 3,767 3,387 6,584
	2017 929 2,838 3,767
		(Unaudited) 3,049 3,535
		6,584

Our Directors are of the view that the related party transactions were conducted on a normal commercial terms and were fair and reasonable as a whole, and would not distort our track record results or make the historical results not reflective of our future performance. See “— Description of Selected Items of Combined Statements of Financial Position — Indebtness — Other Borrowings” for further discussion on the amount due from Zhenro Group during the Track Record Period. Our Directors confirm that all related party balances that are non-trade in nature will be fully settled prior to the [ REDACTED ]. For further details on related party balances and transactions, please refer to Note 29 in Appendix IA and Note 30 to Appendix IB to this document.

DIVIDENDS

We did not pay or declare any dividend during the Track Record Period. We have no fixed dividend policy and, subject to the compliance with the relevant laws of the Cayman Islands and our constitutional documents, our Company may have the right to declare dividends in any currency to be paid to the shareholders in general meeting, but no dividend may be declared in excess of the amount recommended by our Board.

Our Board may declare dividends in the future after taking into account our results of operations, financial condition, cash requirements and availability and other factors as it may deem relevant at such time. Any declaration and payment as well as the amount of dividends will be subject to our constitutional documents and the Companies Law. In addition, our Directors may from time to time pay such interim dividends as our Board considers to be justified by our profits and overall financial requirements, or special dividends of such amounts and on such dates as they think appropriate. No dividend shall be declared or payable except

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FINANCIAL INFORMATION

out of our profits, retained earnings or share premium, subject to a solvency test being satisfied. Our future declarations of dividends will be at the absolute discretion of our Board. Any dividend distribution will also be subject to the approval of the Shareholders in the Shareholders’ meeting.

Future dividend payments will also depend upon the availability of dividends received from our subsidiaries in China. PRC laws require that dividends be paid only out of net profits calculated according to PRC accounting principles, which differ in many aspects from generally accepted accounting principles in other jurisdictions, including IFRS. PRC laws also require enterprises incorporated in the PRC to set aside at least 10% of their after-tax profits based on the relevant accounting standards set out by the PRC regulatory authorities at the end of each year to fund certain statutory reserves until the statutory reserves reach and remain at or above 50% of the relevant PRC entity’s registered capital. Distributions from our subsidiaries may also be restricted if they incur debt or losses, or in accordance with any restrictive covenants in bank credit facilities or other agreements that we or our subsidiaries may enter into in the future.

DISTRIBUTABLE RESERVES

As of September 30, 2019, our Group had retained profits of RMB78.3 million under IFRS, as reserves available for distribution to our equity shareholders.

DISCLOSURE PURSUANT TO RULES 13.13 TO 13.19 OF THE LISTING RULES

Except as otherwise disclosed in this document, we confirm that, as of the Latest Practicable Date, we were not aware of any circumstances that would give rise to a disclosure requirement under Rules 13.13 to Rules 13.19 of the Listing Rules.

[ REDACTED ] EXPENSES

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FINANCIAL INFORMATION

UNAUDITED PRO FORMA ADJUSTED COMBINED NET TANGIBLE ASSETS

The following unaudited pro forma adjusted combined net tangible assets prepared in accordance with Rule 4.29 of the Listing Rules are set out to illustrate the effect of the [ REDACTED ] on the combined net tangible assets of our Group attributable to the owners of our Company as of September 30, 2019 as if the [ REDACTED ] had taken place on that date.

The unaudited pro forma adjusted combined net tangible assets have been prepared for illustrative purposes only and, because of its hypothetical nature, may not give a true picture of the combined net tangible assets of our Group had the [ REDACTED ] been completed as of September 30, 2019 or at any future dates. It is prepared based on the combined net assets of our Group as of September 30, 2019 as set out in the Accountant’s Report of our Group, the text of which is set out in Appendix IB to this document, and adjusted as described below. The unaudited pro forma statement of adjusted combined net tangible assets does not form part of the Accountants’ Report.

Based on an [REDACTED] of HK$[REDACTED] per Share . . . . . . Based on an [REDACTED] of HK$[REDACTED] per Share . . . . .	Unaudited combined net tangible liabilities attributable to owners of our Company as of September 30, 2019(1) RMB’000 (14,324) (14,324)	Estimated [REDACTED] from the [REDACTED](2) RMB’000 [REDACTED] [REDACTED]	Unaudited pro forma adjusted combined net tangible assets attributable to owners of our Company as of September 30, 2019(3) RMB’000 [REDACTED] [REDACTED]	Unaudited pro forma adjusted combined net tangible assets per Share(4)(5) RMB HK$ [REDACTED] [REDACTED] [REDACTED] [REDACTED]
				RMB [REDACTED] [REDACTED]

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FINANCIAL INFORMATION

(1) The unaudited combined net tangible liabilities attributable to owners of our Company as of September 30, 2019 is extracted from the Accountant’s Report set out in Appendix IB to this document which is based on the unaudited combined net assets of our Group attributable to owners of our Company as of September 30, 2019 of RMB78.3 million, with adjustments for other intangible assets and goodwill as of September 30, 2019 of RMB33.1 million and RMB59.5 million, respectively.
(2) The estimated net proceeds from the [ REDACTED ] are based on the indicative [ REDACTED ] of HK$[ REDACTED ] and HK$[ REDACTED ] per Share after deduction of the estimated [ REDACTED ] fees and other related expenses payable by us, and takes no account of any shares which may be issued upon the exercise of the [ REDACTED ].
(3) The unaudited pro forma adjusted combined net tangible assets per Share is arrived at after the adjustments referred to in the preceding paragraphs and on the basis that [ REDACTED ] Shares were in issue assuming that the [ REDACTED ] has been completed on September 30, 2019 but takes no account of any shares which may be issued upon the exercise of the [ REDACTED ].
(4) For the purpose of this unaudited pro forma statement of adjusted combined net tangible assets, the balance stated in Renminbi are converted into Hong Kong dollars at the rate of HK$1.00 to RMB0.89714. No representation is made that Renminbi amounts have been, could have been or may be converted to Hong Kong dollars, or vice versa, at that rate.
(5) Save as disclosed above, no adjustment has been made to the unaudited pro forma adjusted combined net tangible assets to reflect any trading results or other transactions of our Group entered into subsequent to September 30, 2019. In particular, the unaudited pro forma adjusted combined net tangible assets per Share has not taken into account the dividend declared and paid after the Track Record Period.

DIRECTORS’ CONFIRMATION ON NO MATERIAL AND ADVERSE CHANGE

After due and careful consideration, our Directors confirm that, up to the date of this document, save as disclosed in this document, there has been no material and adverse change in our financial and trading position or prospects since September 30, 2019, and there is no event since September 30, 2019 that would materially affect the information shown in the Accountant’s Report, the text of which is set forth in Appendices IA and IB to this document.

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FUTURE PLANS AND [ REDACTED ]

FUTURE PLANS AND PROSPECTS

See “Business — Our Business Strategies” for a detailed description of our future plans.

[ REDACTED ]

We estimate that we will receive [ REDACTED ] of approximately [ REDACTED ] from the [ REDACTED ], after deducting the [ REDACTED ] commissions and other estimated expenses payable by us in connection with the [ REDACTED ], assuming that the [ REDACTED ] is not exercised and assuming an [ REDACTED ] of HK$[ REDACTED ] per Share (being the mid-point of the indicative [ REDACTED ] range set forth on the cover page of this document). We intend to use such [ REDACTED ] from the [ REDACTED ] for the purposes and in the amounts set forth below:

approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used to pursue selective strategic investment and acquisition opportunities and further develop strategic partnerships to expand our business scale and the depth and breadth of our geographic coverage, among which, (i) approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used to acquire other property management companies which meet our selection criteria, which include, among others, service offering, geographic coverage, financial stability, growth potential and qualifications in service areas that we consider profitable or compatible with our expansion strategy, such as high-quality residential property management companies, property management companies with specialty management experiences in certain commercial areas or property management companies with service experience in certain governmental sectors; and (ii) approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used to acquire property management companies with community products and services that are complementary to those of ours, including, among others, companies engaged in community retail services, elderly care and community health services. We will establish stringent approval systems and procedures for reviewing target companies, due diligence results and investment proposals and approvals. We will involve our relevant departments, such as market and development department, legal department, quality control department, construction management department and human resources department to participate and provide feedback in the target selection process. The ultimate decision will be made by our strategic investment and development committee which is formed by selected members of our management. For more information on our investment and acquisition strategies, see “Business — Business Strategies — Expand our project portfolio, explore strategic investment, acquisition and cooperation opportunities and grow our business scale and market share” in this document. As of the Latest Practicable Date, we had not identified or committed to any investment or acquisition targets for our use of [ REDACTED ] from the [ REDACTED ];

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FUTURE PLANS AND [ REDACTED ]

approximately [ REDACTED ]%, or approximately HK$[ REDACTED ] will be used to further develop our information management systems, among which, (i) approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used to purchase new and upgrade existing hardware to improve our operational efficiency and support our business expansion, and purchase customized software systems, such as intelligent software to manage car parks or smart detection and monitoring systems; (ii) approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used to develop and optimize our internal project management systems, such as software to streamline our internal procedures in relation to customer services, quality control, labor and subcontractor management and fee collection, to help reduce our labor and utility costs and improve operational efficiency; and (iii) approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used to develop internal management systems for mainly our human resources and finance departments for better organization and communications of relevant internal information, such as the management of recruitment details, employee’s remuneration and benefit, labor contracts and employees’ training and evaluations for human resources department, thereby further improve our management consistency and operational efficiency;
approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used to further develop our “Rong Wisdom” (榮智慧) Service Platform to increase efficiency in the provision of our new and existing property management services, improve our service coverage and quality and create greater customer satisfaction, among which, (i) approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will mainly be used to enhance our operational and management efficiency to provide additional community value-added services, such as community retail services, elderly care and community health services, to property owners and residents; (ii) approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used to purchase systems and upgraded technologies to better collect, store and analyze big data gathered in our provision of property management services, as we believe such information and analysis will enhance our understanding of customers’ requirements and needs and further improve our services to achieve greater customer satisfaction; and (iii) approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used to optimize communication channels between our customers and us to allow for more seamless and timely interactions, thereby enhancing customer satisfaction and operational efficiency; and
approximately [ REDACTED ]%, or approximately HK$[ REDACTED ], will be used for general business operations and working capital.

The above allocation of the [ REDACTED ] will be adjusted on a pro rata basis in the event that the [ REDACTED ] is fixed at a higher or lower level compared to the mid-point of the estimated [ REDACTED ] range or the [ REDACTED ] is exercised.

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FUTURE PLANS AND [ REDACTED ]

If the [ REDACTED ] is determined at HK$[ REDACTED ] per [ REDACTED ], being the high end of the indicative [ REDACTED ] range stated in this document, we will receive additional [ REDACTED ] of approximately HK$[ REDACTED ]. If the [ REDACTED ] is fixed at HK$[ REDACTED ] per [ REDACTED ], being the low end of the indicative [ REDACTED ] range stated in this document, the [ REDACTED ] we receive will be reduced by approximately HK$[ REDACTED ].

If the [ REDACTED ] is exercised in full, we estimate that the additional [ REDACTED ] from the [ REDACTED ] of these additional Shares will be approximately HK$ [ REDACTED ], after deducting the [ REDACTED ] commissions and other estimated expenses payable by us in connection with the [ REDACTED ], assuming an [ REDACTED ] of HK$[ REDACTED ] per Share, being the mid-point of the indicative [ REDACTED ] range.

To the extent that the [ REDACTED ] from the [ REDACTED ] are not immediately applied to the purposes stated above, and to the extent permitted by applicable laws and regulations, we intend to deposit the [ REDACTED ] into accounts with licensed financial institutions. We will make a formal announcement in the event that there is any change in our use of [ REDACTED ] from the purposes stated above or in our allocation of the [ REDACTED ] in the proportions stated above.

Bases and Assumptions

Our future plans and business strategies are based on the following general assumptions:

we will have sufficient financial resources to meet the planned capital expenditure and business development requirements during the period to which our future plans relate;
there will be no material changes in the funding requirement for each of our future plans described in this document from the amount as estimated by our Directors;
there will be no material changes in existing laws and regulations, or other government policies relating to our Group, our industry or the political or market environment in which we operate;
there will be no material changes in the existing accounting policies from those stated in the Accountants’ Report in Appendices IA and IB as of and for the years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019;
the [ REDACTED ] will be completed in accordance with and as described in the section headed “Structure of the [ REDACTED ]” in this document;
there will be no material changes in the bases or rates of taxation applicable to our activities;

– 288 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FUTURE PLANS AND [ REDACTED ]

we will continue our business operations in the same manner as we had operated during the Track Record Period;
our operations including our future plans will not be interrupted by any force majeure, unforeseeable factors, extraordinary items or economic changes in respect of, among others, inflation and interest rate, in the PRC;
there will be no disasters, natural, political or otherwise, which would not materially disrupt our business or operations; and
we will not be materially affected by the risk factors as set our in the “Risk Factors” in this document.

– 332 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

– 333 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA ACCOUNTANTS’ REPORT

The following is the text of a report on Zhenro Services Group Group Limited, prepared for the purpose of incorporation in this document received from the reporting accountants of our Company, Ernst & Young, Certified Public Accountants, Hong Kong.

The Directors

Zhenro Services Group Limited

CCB International Capital Limited

Dear Sirs,

We report on the historical financial information of Zhenro Services Group Limited (the “Company”) and its subsidiaries (together, the “Group”) set out on pages IA-4 to IA-57, which comprises the combined statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group for each of the years ended 31 December 2017 and 2018 (the “Relevant Periods”), and the combined statements of financial position of the Group as at 31 December 2017 and 2018 and the statements of financial position of the Company as at 31 December 2018 and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages IA-4 to IA-57 forms an integral part of this report, which has been prepared for inclusion in the document of the Company dated [ REDACTED ] (the “Document”) in connection with the initial [ REDACTED ] of the shares of the Company on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

DIRECTORS’ RESPONSIBILITY FOR THE HISTORICAL FINANCIAL INFORMATION

The directors of the Company are responsible for the preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of presentation and the basis of preparation set out in notes 2.1 and 2.2 to the Historical Financial Information, respectively, and for such internal control as the directors determine is necessary to enable the preparation of the Historical Financial Information that is free from material misstatement, whether due to fraud or error.

– IA-1 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IA

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 Accountants’ Reports on Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of presentation and the basis of preparation set out in notes 2.1 and 2.2 to the Historical Financial Information, respectively, in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the Historical 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, the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of the financial position of the Group as at 31 December 2017 and 2018 and the Company as at 31 December 2018 and of the financial performance and cash flows of the Group for each of the Relevant Periods in accordance with the basis of presentation and the basis of preparation set out in notes 2.1 and 2.2 to the Historical Financial Information, respectively.

– IA-2 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IA

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF SECURITIES ON THE STOCK EXCHANGE AND THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page IA-4 have been made.

Dividends

We refer to note 11 to the Historical Financial Information which states that no dividends have been paid by the Company in respect of the Relevant Periods.

No historical financial statements for the Company

As at the date of this report, no statutory financial statements have been prepared for the Company since its date of incorporation.

Yours faithfully,

Certified Public Accountants

Hong Kong [●] 2020

– IA-3 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IA

I HISTORICAL FINANCIAL INFORMATION

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The financial statements of the Group for the Relevant Periods, on which the Historical Financial Information is based, were audited by Ernst & Young in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA (the “Underlying Financial Statements”).

The Historical Financial Information is presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand (RMB’000) except when otherwise indicated.

COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . Other income and gains . . . . . . . . . . . . . . . . . . . . . 5 Administrative expenses . . . . . . . . . . . . . . . . . . . . Impairment losses on financial assets, net . . . . . . . Finance costs, net . . . . . . . . . . . . . . . . . . . . . . . . . 7	Year ended 31 December 2017 2018 RMB’000 RMB’000 272,858 456,308 (202,539) (335,325) 70,319 120,983 713 3,522 (41,093) (68,627) (2,174) (2,462) (39) (52)	Year ended 31 December 2017 2018 RMB’000 RMB’000 272,858 456,308 (202,539) (335,325) 70,319 120,983 713 3,522 (41,093) (68,627) (2,174) (2,462) (39) (52)
	2017 RMB’000 272,858 (202,539) 70,319 713 (41,093) (2,174) (39)
Finance expense. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . .	(44,289) 44,250	(47,344) 47,292
Share of profits and losses of an associate. . . . . . . PROFIT BEFORE TAX . . . . . . . . . . . . . . . . . . . . . 6 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . 10 PROFIT AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR. . . . . . . . . . . . . . . Attributable to: Owners of the parent . . . . . . . . . . . . . . . . . . . . . Non-controlling interests . . . . . . . . . . . . . . . . . . EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . 12	(23) 27,703 (7,406) 20,297 20,297 – 20,297 N/A	(98) 53,266 (13,742) 39,524 39,612 (88) 39,524 N/A

– IA-4 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

COMBINED STATEMENTS OF FINANCIAL POSITION

Notes
NON-CURRENT ASSETS
Property, plant and equipment . . . . . . . . . . . . . . . .
13
Right-of-use assets. . . . . . . . . . . . . . . . . . . . . . . . .
14
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
Other intangible assets. . . . . . . . . . . . . . . . . . . . . .
16
Investments in an associate . . . . . . . . . . . . . . . . . .
17
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . .
24
Total non-current assets . . . . . . . . . . . . . . . . . . . . .
CURRENT ASSETS
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . .
18
Due from related companies . . . . . . . . . . . . . . . . .
29
Prepayments and other receivables. . . . . . . . . . . . .
19
Cash and cash equivalents . . . . . . . . . . . . . . . . . . .
20
Total current assets . . . . . . . . . . . . . . . . . . . . . . . .
CURRENT LIABILITIES
Trade payables. . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
Other payables and accruals. . . . . . . . . . . . . . . . . .
22
Due to related companies. . . . . . . . . . . . . . . . . . . .
29
Interest-bearing bank and other borrowings . . . . . .
23
Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
Total current liabilities. . . . . . . . . . . . . . . . . . . . . .
NET CURRENT ASSETS . . . . . . . . . . . . . . . . . .
TOTAL ASSETS LESS CURRENT
LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . .
NON-CURRENT LIABILITIES
Interest-bearing bank and other borrowings . . . . . .
23
Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . .
24
Total non-current liabilities . . . . . . . . . . . . . . . . . .
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EQUITY
Equity attributable to owners of the parent
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
Non-controlling interests . . . . . . . . . . . . . . . . . . .
TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . .

31 December
2017
2018
RMB’000
RMB’000
3,033
4,844
713
1,361
19,507
19,507
11,405
11,150
469
371
5,580
5,698
40,707
42,931
33,029
54,021
534,227
659,300
18,292
44,998
101,029
49,843
686,577
808,162
17,149
23,314
179,812
224,143
3,767
3,387
–
20,000
8,492
22,332
420
789
209,640
293,965
476,937
514,197
517,644
557,128
500,000
500,000
297
549
2,851
2,559
503,148
503,108
14,496
54,020
–
–
14,496
54,108
14,496
54,108
–
(88)
14,496
54,020

2017
RMB’000
3,033
713
19,507
11,405
469
5,580
40,707
33,029
534,227
18,292
101,029
686,577
17,149
179,812
3,767
–
8,492
420
209,640
476,937
517,644
500,000
297
2,851
503,148
14,496
–
14,496
14,496
–
14,496

– IA-5 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

COMBINED STATEMENTS OF CHANGES IN EQUITY

Attributable to owners of the parent

As at 1 January 2017 . . . Profit and total comprehensive income for the year . . . . . . . . Transfer to statutory surplus funds . . . . . . . As at 31 December 2017 and 1 January 2018 . . . Profit and total comprehensive income for the year . . . . . . . . Transfer to statutory surplus funds . . . . . . . Issue of shares . . . . . . . As at 31 December 2018 .	Issued capital	Merger reserve*	Statutory surplus reserves*	Retained profits/ (accumulated losses)*	Total	Non- controlling interests
	RMB’000 Note 25 – – – – – – –**	RMB’000 Note 26(a) 10,000 – – 10,000 – – –	RMB’000 Note 26(b) 37 – 2,417 2,454 – 4,286 –
	–	10,000	6,740	37,368	54,108

These reserve accounts represent the total combined reserves of RMB14,496,000 and RMB54,108,000 in the combined statements of financial position as at 31 December 2017 and 2018, respectively.
** Amount less than RMB1,000.

– IA-6 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

COMBINED STATEMENTS OF CASH FLOWS

Note
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments for:
Financial costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
Share of profits and losses of an associate . . . . . . . . . .
17
Depreciation of property, plant and equipment . . . . . . .
6, 13
Depreciation of right-of-use assets . . . . . . . . . . . . . . .
6, 14
Amortisation of other intangible assets . . . . . . . . . . . .
6, 16
Impairment of trade receivables . . . . . . . . . . . . . . . . .
6, 18
Impairment of other receivables. . . . . . . . . . . . . . . . .
6, 19
Increase in trade receivables . . . . . . . . . . . . . . . . . . . .
Decrease/(increase) in prepayments and
other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease/(increase) in due from related companies . . . . . .
Increase in due to related companies . . . . . . . . . . . . . . .
Increase in trade payables . . . . . . . . . . . . . . . . . . . . . .
Increase in other payables and accruals . . . . . . . . . . . . .
Cash generated from operations. . . . . . . . . . . . . . . . .
Interests received. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash flows from operating activities . . . . . . . . . . .
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of items of property, plant and equipment . . . . .
13
Proceeds from disposal of items of property,
plant and equipment . . . . . . . . . . . . . . . . . . . . . . . .
Interests received from a related company . . . . . . . . . . .
7
Purchase of other intangible assets . . . . . . . . . . . . . . . .
16
Acquisition of a subsidiary . . . . . . . . . . . . . . . . . . . . .
27
Increase in prepayments and other receivables
. . . . . . . .
Advances to related companies . . . . . . . . . . . . . . . . . . .
Repayment from related companies . . . . . . . . . . . . . . . .
Net cash flows from/(used in) investing activities . . . . .
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related companies . . . . . . . . . . . . . . . . .
Repayment to related companies . . . . . . . . . . . . . . . . . .
New bank loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Principal portion of lease payments . . . . . . . . . . . . . . . .
14
Net cash flows used in financing activities . . . . . . . . . .

Year ended 31 December
2017
2018
RMB’000
RMB’000
27,703
53,266
39
52
(384)
(641)
23
98
686
1,057
392
730
292
1,197
2,069
2,037
105
425
30,925
58,221
(8,471)
(23,029)
18,029
(7,131)
(5,914)
(25,359)
976
526
12,784
6,165
24,175
44,331
72,504
53,724
384
641
(4,426)
(312)
68,462
54,053
(1,624)
(2,893)
2
25
44,250
47,292
–
(942)
(14,900)
–
–
(20,000)
(15,397)
(125,077)
2,384
25,363
14,715
(76,232)
4,578
1,907
(9,959)
(2,813)
–
20,000
(44,250)
(47,292)
(427)
(809)
(50,058)
(29,007)

2017
RMB’000
27,703
39
(384)
23
686
392
292
2,069
105
30,925
(8,471)
18,029
(5,914)
976
12,784
24,175
72,504
384
(4,426)
68,462
(1,624)
2
44,250
–
(14,900)
–
(15,397)
2,384
14,715
4,578
(9,959)
–
(44,250)
(427)
(50,058)

– IA-7 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

Note
NET INCREASE IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . .
CASH AND CASH EQUIVALENTS AT END OF
YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANALYSIS OF BALANCES OF CASH AND CASH
EQUIVALENTS
Cash and bank balances . . . . . . . . . . . . . . . . . . . . . . .
20
CASH AND CASH EQUIVALENTS AS STATED IN
THE COMBINED STATEMENTS OF FINANCIAL
POSITION AND STATEMENTS OF CASH FLOWS. .

Year ended 31 December
2017
2018
RMB’000
RMB’000
33,119
(51,186)
67,910
101,029
101,029
49,843
101,029
49,843
101,029
49,843

2017
RMB’000
33,119
67,910
101,029
101,029
101,029

– IA-8 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IA

STATEMENT OF FINANCIAL POSITION OF THE COMPANY

CURRENT ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments and other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NON-CURRENT ASSETS Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CURRENT LIABILITIES Other payables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL ASSETS LESS CURRENT LIABILITIES. . . . . . . . . . . . . . . . . NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EQUITY Equity attributable to owners of the parent Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 December 2018
	RMB’000 – –
	–
	–
	–
	– –
	–
	–
	–

	– –
	–

The Company was incorporated in the Cayman Islands on 17 December 2018. On its date of incorporation, 1 ordinary share of US$1 was allotted and fully paid (note 25).

– IA-9 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IA

II NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. CORPORATE INFORMATION

The Company is an exempted company incorporated in the Cayman Islands. The registered office address of the Company is Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman KY1-9008, Cayman Islands.

The Company is an investment holding company. During the Relevant Periods, the subsidiaries now comprising the Group were involved in the provision of property management services. The then Parent Company of the Group is 正榮集團有限公司 (“Zhenro Group Company”) (the “Then Parent Company”) before the Reorganisation.

The Company and its subsidiaries now comprising the Group underwent the Reorganisation which was completed on 7 November 2019 as set out in the paragraph headed “History, Reorganisation and Corporate Structure” in the Document. Apart from the Reorganisation, the Company has not commenced any business or operation since its incorporation.

As at the date of this report, the Company had direct or indirect interests in its subsidiaries, all of which are private limited liability companies (or, if incorporated outside Hong Kong, have substantially similar characteristics to a private company incorporated in Hong Kong), the particulars of which are set out below:

Name Notes Directly held: Future Prosperity Holdings Limited (“Future Prosperity (BVI)”). . . . . . . . (1) Zhenro Services China Limited (“Zhenro Services (BVI)”). . . . . . . . (1) Indirectly held: Future Prosperity (HK) Limited (“Future Prosperity (HK)”) . . . . . . . . (1) Zhenro Services Hong Kong Limited (“Zhenro Services (HK)”) . . (1)	Place and date of incorporation/ establishment and place of operations British Virgin Islands (“BVI”)/ 22 January 2018 BVI/ 19 December 2018 Hong Kong/ 20 February 2018 Hong Kong/ 24 December 2018	Nominal value of registered share capital USD50,000 USD1 HKD1 HKD1	Percentage of equity attributable to the Company 100% 100% 100% 100%	Principal activities
				Investment holding Investment holding Investment holding Investment holding

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ACCOUNTANTS’ REPORT

Name Notes 福州匯華企業管理諮詢有限公司 Fuzhou Huihua Corporate Management Consultancy Co., Ltd. (“Fuzhou Huihua”) . . . . . . (1) 福建正榮物業服務有限公司Fujian Zhenro Property Service Co., Ltd. (“Fujian Zhenro”) . (2) 正榮物業服務有限公司Zhenro Property Services Co., Ltd. (“Zhenro Property Services”) . . . . . . (3) 福州正榮物業管理有限公司Fuzhou Zhenro Property Management Co., Ltd. (“Fuzhou Zhenro”) . (1) 江西美時房地產經紀有限公司Jiangxi Meishi Property Brokerage Co., Ltd. (“Jiangxi Meishi”) . (1) 湖北長房正榮物業服務有限公司Hubei Changfang Zhenro Property Services Co., Ltd. (“Hubei Changfang Zhenro”)* . . . . . (1) 宜春市首維達工程服務有限公司Yichun Shou Weida Engineering Services Co., Ltd. (“Yichun Shouweida”). . . . . (1) 江蘇愛濤物業管理有限公司Jiangsu Aitao Property Management Co., Ltd. (“Jiangsu Aitao”) . . (4)	Place and date of incorporation/ establishment and place of operations PRC/Mainland China/ 31 January 2019 PRC/Mainland China/ 8 March 2013 PRC/Mainland China/ 2 February 2000 PRC/Mainland China/ 17 September 2010 PRC/Mainland China/ 6 June 2019 PRC/Mainland China/ 30 July 2018 PRC/Mainland China/ 15 January 2015 PRC/Mainland China/ 21 February 2001	Nominal value of registered share capital RMB5,000,000 RMB10,000,000 RMB50,000,000 RMB1,000,000 RMB2,000,000 RMB5,000,000 RMB1,000,000 RMB10,000,000	Percentage of equity attributable to the Company 100% 100% 100% 100% 100% 51% 100% 100%	Principal activities
				Investment holding Property management Property management Property management Property agency/ brokerage Property management Utilities installation and maintenance services Property management

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ACCOUNTANTS’ REPORT

Name Notes 長沙愛濤物業管理有限公司Changsha Aitao Property Services Co., Ltd. (“Changsha Aitao”) . . . . . . . . (1) 江蘇省蘇鐵物業管理有限責任公司 Jiangsu Sutie Property Management Co., Ltd. (“Jiangsu Sutie”)*. . . . . . . (1)* 正榮物業管理服務有限公司Zhenro Property Management Services Co., Ltd. (“Zhenro Property Management”) . . . (1) 蘇州可立房產經紀有限公司Suzhou Keli Property Brokerage Co., Ltd. (“Suzhou Keli”). . . . . . . . . (1)	Place and date of incorporation/ establishment and place of operations PRC/Mainland China/ 6 March 2018 PRC/Mainland China/ 4 January 2001 PRC/Mainland China/ 24 April 2019 PRC/Mainland China/10 July 2019	Nominal value of registered share capital RMB5,000,000 RMB11,000,000 RMB50,000,000 RMB1,000,000	Percentage of equity attributable to the Company 100% 70% 100% 100%	Principal activities
				Property management Property management Property management Property agency services

Fuzhou Huihua is registered as a wholly-foreign-owned enterprise under PRC law.
** These companies are subsidiaries of non-wholly-owned subsidiaries of the Company and, accordingly, are accounted for as subsidiaries by virtue of the Company having control over it.
(1) No audited financial statements have been prepared and issued for these entities for the years ended 31 December 2017 and 2018 as these companies are not subject to any statutory audit requirement under the relevant rules and regulations.
(2) The statutory financial statements for the year ended 31 December 2017 prepared in accordance with PRC generally accepted accounting principles and regulations have been audited by Wuxi Donglin Certified Public Accountants Co., Ltd (無錫東林會計師事務所有限公司), which is a certified public accounting firms registered in the PRC.
(3) The statutory financial statements for the years ended 31 December 2017 and 2018 prepared in accordance with PRC generally accepted accounting principles and regulations have been audited by Wuxi Donglin Certified Public Accountants Co., Ltd (無錫東林會計師事務所有限公司) and Fujian Guanglian Certified Public Accountants Co., Ltd (福建廣聯會計師事務所有限公司), respectively, which are certified public accounting firms registered in the PRC.
(4) The statutory financial statements for the year ended 31 December 2018 prepared in accordance with PRC generally accepted accounting principles and regulations have been audited by Beijing Yongtuo Certified Public Accountants LLP Jiangsu Branch (北京永拓會計師事務所(特殊普通合夥)江蘇分所), which is a certified public accounting firm registered in the PRC.

The English names of all group companies registered in the PRC represent the best efforts made by the management of the Company to translate the Chinese names of these companies as they do not have official English names.

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APPENDIX IA

2.1 BASIS OF PRESENTATION

Pursuant to the Reorganisation, as more fully explained in the paragraph headed “Reorganisation” in the section headed “History, Reorganisation and Corporate Structure” in the Document, the Company became the holding company of the companies now comprising the Group subsequent to the end of the Relevant Periods on 7 November 2019. The companies now comprising the Group were under the common control of the Controlling Shareholder before and after the Reorganisation. Accordingly, for the purpose of this report, the Historical Financial Information has been prepared on a combined basis by applying the principles of merger accounting as if the Reorganisation had been completed at the beginning of the Relevant Periods.

The combined statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group for the Relevant Periods include the results and cash flows of all companies now comprising the Group from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control of the Controlling Shareholder, where this is a shorter period. The combined statements of financial position of the Group as at 31 December 2017 and 2018 have been prepared to present the assets and liabilities of the subsidiaries and/or businesses using the existing book values from the Controlling Shareholder’s perspective. No adjustments are made to reflect fair values, or recognise any new assets or liabilities as a result of the Reorganisation.

Equity interests in subsidiaries and/or businesses held by parties other than the Controlling Shareholder and changes therein, prior to the Reorganisation are presented as non-controlling interests in equity in applying the principles of merger accounting.

All intra-group transactions and balances have been eliminated on consolidation.

2.2 BASIS OF PREPARATION

The Historical Financial Information has been prepared in accordance with International Financial Reporting Standards (“IFRSs”) which comprise all standards and interpretations approved by the International Accounting Standards Board (the “IASB”). All IFRSs effective for the accounting period commencing from 1 January 2018 and 1 January 2019, together with the relevant transitional provisions, have been early adopted by the Group in the preparation of the Historical Financial Information throughout the Relevant Periods.

The Historical Financial Information has been prepared under the historical cost convention.

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised IFRSs and IFRIC interpretation that have been issued but are not yet effective, in the Historical Financial Information:

Amendments to IFRS 3 Definition of a Business[1] Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture[3] IFRS 17 Insurance Contracts[2] Amendments to IAS 1 and IAS 8 Definition of Material[1]

1 Effective for annual periods beginning on or after 1 January, 2020

2 Effective for annual periods beginning on or after 1 January, 2021

3 No mandatory effective date yet determined but available for adoption

None of above amendments to IFRSs has had a significant financial effect on these financial statements.

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2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company.

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).

When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group’s voting rights and potential voting rights.

The results of subsidiaries are included in the Company’s profit or loss to the extent of dividends received and receivable.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described in the accounting policy for subsidiaries below. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investments retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.

Investment in an associate

An associate is an entity in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

The Group’s investment in an associate is stated in the combined statement of financial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

The Group’s share of the post-acquisition results and other comprehensive income of associates is included in the combined statement of profit or loss and combined other comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the combined statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s investments in the associates, except where unrealised losses provide evidence of an impairment of the assets transferred. Goodwill arising from the acquisition of associates or joint ventures is included as part of the Group’s investments in associates.

When an investment in an associate is classified as held for sale, it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations .

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Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at fair value with changes in fair value recognised in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargain purchase.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.

Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

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APPENDIX IA

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly
Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of Relevant Periods.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at the end of each of the Relevant Periods as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the statement of profit or loss in the period in which it arises, (only if there are revalued assets in the financial statements) unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

A party is considered to be related to the Group if:

(a) the party is a person or a close member of that person’s family and that person
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group;

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(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Group are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a);
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and
(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to Group or to the parent of the Group.

Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. When an item of property, plant and equipment is classified as held for sale or when it is part of a disposal group classified as held for sale, it is not depreciated and is accounted for in accordance with IFRS 5. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment over its estimated useful life. The principal annual rates used for this purpose are as follows:

Machinery	10%
Electronic equipment	20%
Motor vehicles	20%
Leasehold improvement	33%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the statement of profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

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APPENDIX IA

Investment properties

Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the end of the reporting period.

Gains or losses arising from changes in the fair values of investment properties are included in profit or loss in the year in which they arise.

Any gains or losses on the retirement or disposal of an investment property are recognised in profit or loss in the year of the retirement or disposal.

Other intangible assets (other than goodwill)

Other intangible assets acquired separately are measured on initial recognition at cost. The cost of other intangible assets acquired in a business combination is the fair value at the date of acquisition. The useful lives of other intangible assets are assessed to be either finite or indefinite. Other intangible assets with finite lives are subsequently amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an other intangible asset with a finite useful life are reviewed at least at each financial year end.

Other intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such other intangible assets are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis.

Software

Purchased software is stated at cost less any impairment loss and is amortised on the straight-line basis over their estimated useful lives of 5 years.

Customer relationship

Customer relationship is stated at cost less any impairment losses and is amortised on the sum of the years digits basis over their estimated useful lives of ten years.

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs.

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ACCOUNTANTS’ REPORT

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

The Group applies the available practical expedients where in it:

uses a single discount rate to a portfolio of leases with reasonably similar characteristics;
applies the short-term leases exemptions to leases with a lease term that ends within 12 months at the date of initial application; or
excludes the initial direct costs from the measurement of the right-of-use asset at the date of initial application.

Investments and other financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient of not adjusting the effect of a significant financing component, the Group initially measures a financial asset at its fair value, plus in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15 in accordance with the policies set out for “Revenue recognition” below.

In order for a financial asset to be classified and measured at amortised cost or fair value through other comprehensive income, it needs to give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding.

The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

Financial assets at amortised cost (debt instruments)

The Group measures financial assets at amortised cost if both of the following conditions are met:

The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows.
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

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ACCOUNTANTS’ REPORT

Financial assets at amortised cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s combined statement of financial position) when:

The rights to receive cash flows from the asset have expired; or
The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets

The Group recognises an allowance for ECLs for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

General approach

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

At each reporting date, the Group assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information that is available without undue cost or effort, including historical and forward-looking information.

The Group considers a financial asset in default when contractual payments are 30 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

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APPENDIX IA

ACCOUNTANTS’ REPORT

Financial assets at amortised cost are subject to impairment under the general approach and they are classified within the following stages for measurement of ECLs except for trade receivables which apply the simplified approach as detailed below.

Stage 1 – Financial instruments for which credit risk has not increased significantly since initial recognition and for which the loss allowance is measured at an amount equal to 12-month ECLs
Stage 2 – Financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-impaired financial assets and for which the loss allowance is measured at an amount equal to lifetime ECLs
Stage 3 – Financial assets that are credit-impaired at the reporting date (but that are not purchased or originated credit-impaired) and for which the loss allowance is measured at an amount equal to lifetime ECLs

Simplified approach

For trade receivables that do not contain a significant financing component, the Group applies the simplified approach in calculating ECLs. Under the simplified approach, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as loans and borrowings and payables as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Group’s financial liabilities include other payables, amounts due to the related companies and interest-bearing bank and other borrowings.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Loans and borrowings

After initial recognition, interest-bearing bank and other borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in profit or loss.

Derecognition of financial liabilities

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in profit or loss.

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ACCOUNTANTS’ REPORT

APPENDIX IA

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is generally not the case with master netting agreements unless one party to the agreement defaults and the related assets and liabilities are presented gross in the statement of financial position.

Cash and cash equivalents

For the purpose of the combined statements of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the combined statements of financial position, cash and cash equivalents comprise cash on hand and at banks which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the Relevant Periods of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in profit or loss.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the Relevant Periods, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the Relevant Periods between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business consolidation and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilised, except:

when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business consolidation and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

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ACCOUNTANTS’ REPORT

APPENDIX IA

in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each of the Relevant Periods and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each Relevant Periods and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the Relevant Periods.

Deferred tax assets and deferred tax liabilities are offset if and only if the Group has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Government grants

Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed.

Revenue recognition

Revenue from contracts with customers

Revenue from contracts with customers is recognised when control of goods or services is transferred to the customers at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.

When the consideration in a contract includes a variable amount, the amount of consideration is estimated to which the Group will be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved.

When the contract contains a financing component which provides the customer a significant benefit of financing the transfer of goods or services to the customer for more than one year, revenue is measured at the present value of the amount receivable, discounted using the discount rate that would be reflected in a separate financing transaction between the Group and the customer at contract inception. When the contract contains a financing component which provides the Group a significant financial benefit for more than one year, revenue recognised under the contract includes the interest expense accreted on the contract liability under the effective interest method. For a contract where the period between the payment by the customer and the transfer of the promised goods or services is one year or less, the transaction price is not adjusted for the effects of a significant financing component, using the practical expedient in IFRS 15.

(a) Property management services

The Group charged property management fees in respect of the property management services on a lump sum basis and on a fixed remuneration basis.

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APPENDIX IA

ACCOUNTANTS’ REPORT

On a lump sum basis, the Group are entitled to retain the full amount of received property management fees. From the property management fees, the Group shall bear expenses associated with, among others, staff, cleaning, garbage disposal, gardening and landscaping, security and general overheads covering the common areas. During the term of the contract, if the amount of property management fees the Group collected is not sufficient to cover all the expenses incurred, the Group is not entitled to request the property owners to pay the shortfall.

Accordingly, on a lump sum basis, the Group recognises as revenue as the full amount of property management fees the Group charged to the property owners and property developers.

These services are performed by an indeterminate number of acts over a specified period of time. Accordingly, revenue is recognised on a straightline basis over the specified period unless there is evidence that some other methods better represents the stage of completion, and the costs of services is recognised as incurred in connection with performing such services.

On a fixed remuneration basis, the Group is entitled to a fixed amount of management fees which the property owners and property developers are obligated to pay over a specific contract period. The remainder of the management fee is used as property management working capital to cover the property management expenses associated with the property management work. In the event of a surplus of working capital after deducting the relevant property management expenses, the surplus is generally repayable to the customer. In the event of a shortfall of working capital to pay for the relevant property management expenses, the Group may need to make up for the shortfall and pay on behalf of the community management offices first, with a right to recover from the residents subsequently.

On a fixed remuneration basis, the Group essentially acts as an agent of the property owners and property developers and accordingly, the Group only recognises as its revenue the predetermined property management fees on a straight-line basis over the specified contract period.

(b) Value-added services to non-property owners

Value-added services to non-property owners mainly includes preliminary planning and design consultancy services to property developers which is recognised at a point in time when such consultancy services have been provided and the Group has a present right to payment for the services or other property management service providers and cleaning, security, greening and repair and maintenance services to property developers at the pre-delivery stage which are recognised as over the scheduled period on a straight-line basis because the customer simultaneously receives and consumes the benefits provided by the Group.

(c) Community value-added services

Revenue from community value-added services is recognised when the related services are rendered and the customer simultaneously receives and consumes the benefits provided by the Group.

(d) Other income

Interest income is recognised on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Dividend income is recognised when the shareholders’ right to receive payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.

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APPENDIX IA

ACCOUNTANTS’ REPORT

Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the Group has received a consideration (or an amount of consideration that is due) from the customer. If a customer pays the consideration before the Group transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract.

Contract costs

Other than the costs which are capitalised as inventories, property, plant and equipment and other intangible assets, costs incurred to fulfil a contract with a customer are capitalised as an asset if all of the following criteria are met:

(a) The costs relate directly to a contract or to an anticipated contract that the entity can specifically identify.
(b) The costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance obligations in the future.
(c) The costs are expected to be recovered.

The capitalised contract costs are amortised and charged to the statement of profit or loss on a systematic basis that is consistent with the pattern of the revenue to which the asset related is recognised. Other contract costs are expensed as incurred.

Other employee benefits

Pension scheme

The employees of the Group’s subsidiaries and schools which operate in Mainland China are required to participate in a central pension scheme operated by the local municipal government. The subsidiaries and schools operating in Mainland China are required to contribute a certain percentage of their payroll costs to the central pension scheme. The contributions are charged to profit or loss as they become payable in accordance with the rules of the central pension scheme.

Dividends

Final dividends are recognised as a liability when they are approved by the shareholders in a general meeting.

Interim dividends are simultaneously proposed and declared, because the Company’s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared.

Foreign currencies

The Historical Financial Information is presented in RMB, which is the Company’s functional currency because the Group’s principal operations are carried out in Mainland China. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of each of the Relevant Periods. Differences arising on settlement or translation of monetary items are recognised in profit or loss.

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APPENDIX IA

ACCOUNTANTS’ REPORT

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively).

The functional currencies of certain overseas subsidiaries are currencies other than RMB. As at the end of each of the Relevant Periods, the assets and liabilities of these entities are translated into RMB at the exchange rates prevailing at the end of the Relevant Periods and their statements of profit or loss are translated into RMB at the weighted average exchange rates for the year.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements.

Current and deferred tax

Significant judgement is required in interpreting the relevant tax rules and regulations so as to determine whether the Group is subject to corporate income tax. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of the tax liabilities. Such changes to tax liabilities will impact the tax expense in the period that such determination is made. Further details of current and deferred tax are set out in note 25 to the Historical Financial Information.

Classification between investment properties and owner-occupied properties

The Group determines whether a property qualifies as an investment property, and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group. Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately or leased out separately under a finance lease, the Group accounts for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as an investment property.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

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APPENDIX IA

ACCOUNTANTS’ REPORT

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows. As at 31 December 2017 and 2018, the carrying amount of goodwill is RMB19,507,000 and RMB19,507,000, respectively. Further details are given in note 15 to the Historical Financial Information.

Provision for expected credit losses on trade receivables

The Group uses a provision matrix to calculate ECLs for trade receivables. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e., by geography, customer type and rating, and coverage by letters of credit and other forms of credit insurance).

The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic conditions (i.e., gross domestic products) are expected to deteriorate over the next year which can lead to an increased number of defaults in the manufacturing sector, the historical default rates are adjusted. At each reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.

The assessment of the correlation among historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. The information about the ECLs on the Group’s trade receivables is disclosed in note 18 to the financial statements, respectively.

Impairment of non-financial assets (other than goodwill)

The Group assesses whether there are any indicators of impairment for all non-financial assets at the end of each of the Relevant Periods. The non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. Impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value-in-use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

Estimation of fair value of investment properties

The valuation of the investment properties involved estimated and assumption on items such as the selection of comparable properties and market price.

In the absence of current prices in an active market for similar properties, the Group considers information from a variety of sources for estimation of fair value of investment properties, including:

(a) current prices in an active market for properties of a different nature, condition or location, adjusted to reflect those differences;
(b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and
(c) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

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ACCOUNTANTS’ REPORT

APPENDIX IA

Useful lives and residual values of items of property, plant and equipment

In determining the useful lives and residual values of items of property, plant and equipment, the Group has to consider various factors, such as technical or commercial obsolescence arising from changes or improvements in the production and provision of services, or from a change in the market demand for the product or service output of the asset, expected usage of the asset, expected physical wear and tear, care and maintenance of the asset, and legal or similar limits on the use of the asset. The estimation of the useful life of the asset is based on the experience of the Group with similar assets that are used in a similar way. Additional depreciation is made if the estimated useful lives and/or residual values of items of property, plant and equipment are different from previous estimation. Useful lives and residual values are reviewed at the end of each of the Relevant Periods based on changes in circumstances. Further details of the property, plant and equipment are set out in note 13 to the Historical Financial Information.

4. OPERATING SEGMENT INFORMATION

The Group is principally engaged in the property management business. Information reported to the Group’s chief operating decision maker, for the purpose of resource allocation and performance assessment, focuses on the operating results of the Group as a whole as the Group’s resources are integrated and no discrete operating segment information is available. Accordingly, no operating segment information is presented.

Geographical information

During the Relevant Periods, the Group operated within one geographical location because all of its revenue was generated in the Mainland China and all of its long-term assets/capital expenditure were located/incurred in the Mainland China. Accordingly, no geographical information is presented.

Information about major customers

For the years ended 31 December 2017 and 2018, revenue from Zhenro Properties (as defined in note 29) and its subsidiaries (“Zhenro Properties Group”) contributed 33.5% and 26.9% of the Group’s revenue, respectively. Other than the revenue from Zhenro Properties Group, no revenue derived from sales to a single customer or a group of customers under common control accounted for 10% or more of the Group’s revenue for each of the Relevant Periods.

5. REVENUE, OTHER INCOME AND GAINS

Revenue represents income from the property management services, value-added services to non-property owners and community value-added services during each of the Relevant Periods.

An analysis of revenue and other income and gains is as follows:

Revenue from contracts with customers Property management services . . . . . . . . . . . . . . . . . . . . Value-added services to non-property owners . . . . . . . . . . . Community value-added services . . . . . . . . . . . . . . . . . . .	Year ended 31 December	Year ended 31 December
	2017 RMB’000 146,823 110,352 15,683 272,858	2018
		RMB’000 248,058 149,591 58,659
		456,308

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APPENDIX IA

ACCOUNTANTS’ REPORT

Revenue from contracts with customers

(i) Disaggregated revenue information

Segments For the year ended 31 December 2017 Type of goods or services Rendering of services . . . . . . . . . . Total revenue from contracts with customers. . . . . . . . . . . . . . . . Geographical markets Mainland China . . . . . . . . . . . . . Timing of revenue recognition Revenue recognised over time . . . . Revenue recognised at a point in time . . . . . . . . . . . . . . . . . . . Total revenue from contracts with customers. . . . . . . . . . . . . . . . For the year ended 31 December 2018 Type of goods or services Rendering of services . . . . . . . . . . Total revenue from contracts with customers. . . . . . . . . . . . . . . . Geographical markets Mainland China . . . . . . . . . . . . . Timing of revenue recognition Revenue recognised over time . . . . Revenue recognised at a point in time . . . . . . . . . . . . . . . . . . . Total revenue from contracts with customers. . . . . . . . . . . . . . . .	Property management services RMB’000 146,823 146,823 146,823 146,823 – 146,823 248,058 248,058 248,058 248,058 – 248,058	Value-added services to non-property owners RMB’000 110,352 110,352 110,352 97,366 12,986 110,352 149,591 149,591 149,591 119,639 29,952 149,591	Community value-added services RMB’000 15,683 15,683 15,683 13,244 2,439 15,683 58,659 58,659 58,659 26,424 32,235 58,659	Total
				RMB’000 272,858
				272,858

				272,858

				257,433 15,425
				272,858

				456,308
				456,308

				456,308

				394,121 62,187
				456,308

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APPENDIX IA

ACCOUNTANTS’ REPORT

The following table shows the amounts of revenue recognised in the Relevant Periods that were included in the contract liabilities at the beginning of the Relevant Periods:

Revenue recognised that was included in contract liabilities at the beginning of the year: Property management services . . . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 RMB’000 26,589 26,589	2018
		RMB’000 59,629
		59,629

(ii) Performance obligations

For property management services and community value-added services, the Group recognises revenue in the amount that equals to the right to invoice which corresponds directly with the value to the customer of the Group’s performance to date. The Group has elected the practical expedient for not to disclose the remaining performance obligations for these types of contracts. The majority of the property management service contracts do not have a fixed term. The term of the contracts for pre-delivery and consulting services is generally set to expire when the counterparties notify the Group that the services are no longer required.

For Value-added services to non-property owners, they are rendered in a short period of time and there is no unsatisfied performance obligation at the end of the respective periods.

Other income Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Government grants . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains Gain on disposal of items of property, plant and equipment . .	Year ended 31 December	Year ended 31 December
	2017 RMB’000 384 156 172 712 1 713	2018
		RMB’000 641 2,701 180
		3,522 –
		3,522

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APPENDIX IA

ACCOUNTANTS’ REPORT

6. PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after charging/(crediting):

Notes Cost of services provided. . . . . . . . . . . . . . . . . . . Depreciation of property, plant and equipment . . . . . . 13 Depreciation of right-of-use assets . . . . . . . . . . . . . . 14 Amortisation of other intangible assets . . . . . . . . . . . 16 Auditor’s remuneration . . . . . . . . . . . . . . . . . . . . . Impairment of financial assets, net Impairment of trade receivables, net . . . . . . . . . . . 18 Impairment of other receivables, net . . . . . . . . . . . 19 Gain on disposal of items of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . Employee benefit expense (including directors’ and chief executive’s remuneration (note 8)*): Wages, salaries and other allowances . . . . . . . . . . . Pension scheme contributions and social welfare. . . .	Year ended 31 December	Year ended 31 December
	2017 RMB’000 202,539 686 392 292 37 2,069 105 1 141,088 33,940 175,028	2018
		RMB’000 335,325 1,057 730 1,197 539 2,037 425 – 214,158 55,055
		269,213

* Amount of RMB147,489,000 and RMB222,512,000 of employee benefit expenses were included in costs of services during the years ended 31 December 2017 and 2018.

7. FINANCE COSTS

An analysis of finance costs is as follows:

Interest on bank and other borrowings . . . . . . . . . . . . . . . Less: Interests charged to a related company controlled by the Controlling Shareholder . . . . . . . . . . . . . . . . . . . . . . . Interest expense on lease liabilities . . . . . . . . . . . . . . . . .	Year ended 31 December	Year ended 31 December
	2017 RMB’000 44,250 (44,250) 39 39	2018
		RMB’000 47,292 (47,292) 52
		52

8. DIRECTORS’ AND CHIEF EXECUTIVE’S REMUNERATION

The Company did not have any chief executive, executive director, non-executive directors and independent non-executive directors at any time during the Relevant Periods as the Company was incorporated on 17 December 2018, and they were appointed on 6 December 2019.

Subsequent to the end of Relevant Periods, Mr. Huang Liang and Mr. Huang Sheng were appointed as executive directors of the Company and Mr. Chan Wai Kin was appointed as non-executive director of the Company on 6 December 2019, respectively. Mr. Huang Xianzhi was appointed as non-executive director and the chairman of the board of the Company on 6 December 2019.

– IA-31 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

Certain of the directors received remunerations from the group entities now comprising the Group prior to their appointment as the directors of the Company. Details of the remuneration received or receivable by the directors from the Group entities are as follows:

Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other emoluments: Salaries, allowances and benefits in kind . . . . . . . . . . . . Performance related bonuses . . . . . . . . . . . . . . . . . . . . Pension scheme contributions and social welfare. . . . . . . .	Year ended 31 December	Year ended 31 December
	2017 RMB’000 – 627 54 86 767	2018
		RMB’000 – 752 54 109
		915

(a) Independent non-executive directors

Subsequent to the end of Relevant Periods, Mr. Au Yeung Po Fung, Mr. Ma Haiyue and Mr. Zhang Wei were appointed as independent non-executive directors of the Company on [●] 2020. There was no emolument payable to the independent non-executive directors during the Relevant Periods.

(b) Executive directors and non-executive directors

Year ended 31 December 2017

Executive directors: Mr. Huang Liang . . . . Mr. Huang Sheng . . . Non-executive directors: Mr. Huang Xianzhi . . . Mr. Chan Wai Kin . . .	Fees RMB’000 – – – – – –	Salaries, allowances and benefits in kind RMB’000 627 – 627 – – –	Performance- related bonuses RMB’000 54 – 54 – – –	Pension scheme contributions and social welfare RMB’000 86 – 86 – – –	Total remuneration
					RMB’000 767 –
					767

					– –
					–

– IA-32 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

Year ended 31 December 2018

Executive directors: Mr. Huang Liang . . . . Mr. Huang Sheng . . . Non-executive directors: Mr. Huang Xianzhi . . . Mr. Chan Wai Kin . . .	Fees RMB’000 – – – – – –	Salaries, allowances and benefits in kind RMB’000 752 – 752 – – –	Performance- related bonuses RMB’000 54 – 54 – – –	Pension scheme contributions and social welfare RMB’000 109 – 109 – – –	Total remuneration
					RMB’000 915 –
					915

					– –
					–

There was no arrangement under which a director or the chief executive waived or agreed to waive any remuneration during the Relevant Periods.

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees for the years ended 31 December 2017 and 2018 included 1 directors and 1 director, respectively, details of whose remuneration are set out in note 8 above. Details of the remuneration for the years ended 31 December 2017 and 2018 of the remaining 4 and 4 highest paid employees who are neither a director nor chief executive of the Company, respectively, are as follows:

Salaries, allowances and benefits in kind . . . . . . . . . . . . . . Performance related bonuses . . . . . . . . . . . . . . . . . . . . . Pension scheme contributions and social welfare . . . . . . . . .	Year ended 31 December	Year ended 31 December
	2017 2,091 270 310 2,671	2018
		2,653 196 511
		3,360

The number of non-director and non-chief executive highest paid employees whose remuneration fell within the following bands is as follows:

Nil to HK$500,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$500,001 to HK$1,000,000 . . . . . . . . . . . . . . . . . . . . HK$1,000,001 to HK$1,500,000 . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Year ended 31 December	Year ended 31 December
	2017 2 2 – 4	2018
		– 4 –
		4

– IA-33 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IA

10. INCOME TAX

The Group is subject to income tax on an entity basis on profits arising in or derived from the tax jurisdictions in which members of the Group are domiciled and operate. Pursuant to the rules and regulations of the Cayman Islands and British Virgin Islands, the Group’s subsidiaries incorporated in the Cayman Islands and British Virgin Islands are not subject to any income tax. The Group’s subsidiary incorporated in Hong Kong was not liable for income tax as it did not have any assessable profits arising in Hong Kong during the Relevant Periods.

PRC corporate income tax has been provided at the rate of 25% on the taxable profits of the Group’s PRC subsidiaries for the Relevant Periods.

Some subsidiaries are qualified as small low-profit enterprises and thus subject to a preferential tax rate of 10% for the Relevant Periods.

Current – Mainland China: Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax (note 24) . . . . . . . . . . . . . . . . . . . . . . . . . Total tax charge for the year . . . . . . . . . . . . . . . . . . . . .	Year ended 31 December	Year ended 31 December
	2017 RMB’000 9,556 (2,150) 7,406	2018
		RMB’000 14,152 (410)
		13,742

A reconciliation of tax expense applicable to profit before tax at the statutory rate for the jurisdictions in which the Company and its subsidiaries are domiciled to the income tax expense at the effective tax rate for each of the Relevant Periods is as follows:

Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At the statutory income tax rate . . . . . . . . . . . . . . . . . . . Losses attributable to an associate . . . . . . . . . . . . . . . . . . Expenses not deductible for tax. . . . . . . . . . . . . . . . . . . . Tax charge at the Group’s effective rate . . . . . . . . . . . . . .	Year ended 31 December	Year ended 31 December
	2017 RMB’000 27,703 6,927 6 473 7,406	2018
		RMB’000 53,266
		13,317 25 400
		13,742

The share of tax attributable to associate amounting to RMB(6) and RMB(25) during the years ended 31 December 2017 and 2018, respectively, are included in “Share of profits and losses of associates” in the combined statement of profit or loss.

11. DIVIDENDS

No dividends have been paid or declared by the Company since its incorporation.

12. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful due to the Reorganisation and the presentation of the results of the Group for the Relevant Periods on the basis as disclosed in note 2.1 to the Historical Financial Information.

– IA-34 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

13. PROPERTY, PLANT AND EQUIPMENT

31 December 2017 At 31 December 2016 and 1 January 2017: Cost . . . . . . . . . . . . . . . . Accumulated depreciation . . . Net carrying amount . . . . . . At 1 January 2017, net of accumulated depreciation . . . Additions . . . . . . . . . . . . . Acquisition of a subsidiary (note 27) . . . . . . . . . . . . Disposals . . . . . . . . . . . . . Depreciation provided during the year (note 6) . . . . . . . At 31 December 2017, net of accumulated depreciation . . . At January 2017: Cost . . . . . . . . . . . . . . . . Accumulated depreciation . . . Net carrying amount . . . . . . 31 December 2018 At 31 December 2017 and 1 January 2018: Cost . . . . . . . . . . . . . . . . Accumulated depreciation . . . Net carrying amount . . . . . . At 1 January 2018, net of accumulated depreciation . . . Additions . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . Depreciation provided during the year (note 6) . . . . . . . At 31 December 2018, net of accumulated depreciation . . . At 31 December 2018: Cost or valuation . . . . . . . . Accumulated depreciation . . . Net carrying amount . . . . . . . .	Machinery RMB’000 197 (48) 149 149 207 2 – (21) 337 406 (69) 337 406 (69) 337 337 201 (9) (50) 479 597 (118) 479	Electronic equipment RMB’000 2,953 (1,365) 1,588 1,588 1,248 104 (1) (519) 2,420 4,303 (1,883) 2,420 4,303 (1,883) 2,420 2,420 2,073 (9) (794) 3,690 6,351 (2,661) 3,690	Motor vehicles RMB’000 477 (363) 114 114 12 139 – (86) 179 628 (449) 179 628 (449) 179 179 20 (7) (16) 176 496 (320) 176	Leasehold improvement RMB’000 – – – – 157 – – (60) 97 157 (60) 97 157 (60) 97 97 599 – (197) 499 756 (257) 499	Total RMB’000 3,627 (1,776) 1,851 1,851 1,624 245 (1) (686) 3,033 5,494 (2,461) 3,033 5,494 (2,461) 3,033 3,033 2,893 (25) (1,057) 4,844 8,200 (3,356) 4,844

– IA-35 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

14. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

The Group leases certain of its building for its office. The lease term is three years to ten years.

The movements in right-of-use assets during each of the Relevant Periods are as follows:

Right-of-use assets Carrying amount at the beginning of the year . . . . . . . . . . . Addition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation provided during the year (note 6) . . . . . . . . . . Carrying amount at the end of the year . . . . . . . . . . . . . . . Lease liabilities Carrying amount at the beginning of the year . . . . . . . . . . . Addition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest during the year. . . . . . . . . . . . . . . . . . . . . . . . . Payments during the year . . . . . . . . . . . . . . . . . . . . . . . Carrying amount at the end of the year . . . . . . . . . . . . . . . Portion classified as: Current lease liabilities . . . . . . . . . . . . . . . . . . . . . . . Non-current lease liability . . . . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 2018 RMB’000 RMB’000 663 713 442 1,378 (392) (730) 713 1,361 31 December	2018
		RMB’000 713 1,378 (730)
		1,361

	2017 RMB’000 663 442 39 (427) 717 420 297	2018
		RMB’000 717 1,378 52 (809)
		1,338

		789 549

The Group recognised rental expense from short-term lease of RMB458,000 and RMB1,848,000 for the years ended 31 December 2017 and 2018, respectively.

15. GOODWILL

Cost and net carrying amount at the beginning of the year . . . Acquisition of a subsidiary (note 27) . . . . . . . . . . . . . . . . Cost and net carrying amount at the end of the year . . . . . . .	31 December	31 December
	2017 RMB’000 – 19,507 19,507	2018
		RMB’000 19,507 –
		19,507

Impairment testing of goodwill

During the Relevant Periods, the Group completed the acquisition of Jiangsu Aitao for a consideration of RMB20,000,000, which resulted in the recognition of goodwill of RMB19,507,000.

– IA-36 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

For the purpose of impairment testing, the Group’s goodwill acquired through the above business combination was related to the subsidiary which was regarded as a cash-generating unit (“CGU”). The recoverable amount of this CGU has been determined based on a value-in-use calculation using cash flow projections based on financial budgets covering a five-year period prepared by management.

As at 31 December 2017

CGU Principal business Jiangsu Aitao Property management *As at 31 December 2018* CGU Principal business Jiangsu Aitao Property management	Goodwill RMB’000 19,507 Goodwill RMB’000 19,507	Annual revenue growth rate 5-7% Annual revenue growth rate 3-7%	Discount rate 15.0% Discount rate 14.6%	Terminal growth rate
				3% Terminal growth rate
				3%

Assumptions were used in the value-in-use calculations of the above mentioned CGU for the Relevant Periods. The following describes each key assumption on which management had based its cash flow projections of the CGU to undertake impairment testing of goodwill:

Discount rate – The discount rate used is before tax and reflects specific risks relating to the relevant unit.

Annual revenue growth rate – The predicted revenue growth rate of CGU for the five years subsequent to the date of assessment is one of the assumptions used in the value-in-use calculations.

Details of the headroom measured by excess of the recoverable amount over the carrying amount of the CGU as at 31 December 2017 and 2018 are set out as follows:

Jiangsu Aitao	31 December	31 December
	2017 RMB’000 5,143	2018
		RMB’000 12,889

Management has undertaken sensitivity analysis on the impairment test of goodwill. The following table sets forth the hypothetical changes to discount rate or annual revenue growth rate that would, in isolation, have removed the remaining headroom respectively as at 31 December 2017 and 2018:

As at 31 December 2017 Increase in discount rate Decrease in annual revenue growth rate As at 31 December 2018 Increase in discount rate Decrease in annual revenue growth rate	Jiangsu Aitao
	2.2% 2.6% 5.1% 8.8%

– IA-37 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

At the end of each of the Relevant Periods, the directors of the Company considered there was no reasonably possible change in the key assumptions mentioned above would cause the carrying amount of CGU to exceed its recoverable amount. The directors of the Company determined that there was no impairment of its CGU.

16. OTHER INTANGIBLE ASSETS

31 December 2017 At the beginning of the year Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation. . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . Carrying amount of the beginning of the year . . . Acquisition of a subsidiary (note 27). . . . . . . Amortisation provided during the year . . . . . . Carrying amount of the end of the year . . . . . At the end of the year: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation (note 6) . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . 31 December 2018 At the beginning of the year Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation. . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . Carrying amount of the beginning of the year . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . Amortisation provided during the year . . . . . . Carrying amount of the end of the year . . . . . At the end of the year: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation (note 6) . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . .	Softwares RMB’000 – – – – – – – – – – – – – – 942 (27) 915 942 (27) 915	Customer Relationship RMB’000 – – – – 11,697 (292) 11,405 11,697 (292) 11,405 11,697 (292) 11,405 11,405 – (1,170) 10,235 11,697 (1,462) 10,235	Total RMB’000 – – – – 11,697 (292) 11,405 11,697 (292) 11,405 11,697 (292) 11,405 11,405 942 (1,197) 11,150 12,639 (1,489) 11,150

– IA-38 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

17. INVESTMENT IN AN ASSOCIATE

Share of net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . Particulars of the Group’s associate is as follows:	31 December	31 December
	2017 RMB’000 469	2018
		RMB’000 371

Name 南京愛濤豐匯物業管理有限公司 (“Ai Tao Feng Hui”)	Particulars of issued shares held RMB500,000	Place of registration and business PRC/Mainland China	Percentage of ownership interest attributable to the Group 48%	Principal activities
				Property management

The following table illustrates the aggregate financial information of the Group’s associate that is not individually material:

Share of the associate’s loss for the year . . . . . . . . . . . . . . Share of the associate’s total comprehensive loss . . . . . . . . . Aggregate carrying amount of the Group’s investment in the associate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 RMB’000 (23) (23) 469	2018
		RMB’000 (98) (98) 371

18. TRADE RECEIVABLES

Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 RMB’000 35,973 (2,944) 33,029	2018
		RMB’000 59,002 (4,981)
		54,021

Trade receivables mainly arise from property management service, value-added services to non-property owners and community value-added services.

Property management services, value-added services to non-property owners and community value-added services is received in accordance with the terms of the relevant agreements, which is due for payment upon the issuance of demand note.

– IA-39 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

An ageing analysis of the trade receivables as at the end of each of the Relevant Periods, based on the invoice date and net of loss allowance, is as follows:

Within 1 year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 to 2 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 to 3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 RMB’000 30,727 1,962 340 – 33,029	2018
		RMB’000 48,494 5,334 193 –
		54,021

The movements in the loss allowance for impairment of trade receivables are as follows:

At beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment losses, net (note 6). . . . . . . . . . . . . . . . . . . . Amount written off as uncollectible . . . . . . . . . . . . . . . . . At end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 RMB’000 (875) (2,069) – (2,944)	2018
		RMB’000 (2,944) (2,037) –
		(4,981)

Impairment under IFRS 9

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written off if past due for more than three years and are not subject to enforcement activity.

Set out below is the information about the credit risk exposure on the Group’s trade receivables using a provision matrix:

31 December 2017

Expected credit loss rate . . . . . Gross carrying amount (RMB’000) . . . . . . . . . . . . Expected credit losses (RMB’000) . . . . . . . . . . . .			Past due
	Current 3.7% 31,913 1,186	1 to 2 years 14.4% 2,291 329	2 to 3 years 60.1% 850 510	Over 3 years 100% 919 919	Total
					8.2% 35,973 2,944

– IA-40 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

31 December 2018

Expected credit loss rate . . . . . Gross carrying amount (RMB’000) . . . . . . . . . . . . Expected credit losses (RMB’000) . . . . . . . . . . . .			Past due
	Current 6.7% 52,004 3,510	1 to 2 years 11.2% 6,009 675	2 to 3 years 53.9% 419 226	Over 3 years 100% 570 570	Total
					8.4% 59,002 4,981

19. PREPAYMENTS AND OTHER RECEIVABLES

Prepayments on behalf of customers to utility suppliers . . . . . Other prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advance to staffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 RMB’000 3,542 3,905 2,471 834 7,870 18,622 (330) 18,292	2018
		RMB’000 5,739 7,676 3,068 1,644 27,626
		45,753 (755)
		44,998

The movements in the loss allowance for impairment of prepayment and other receivables are as follows:

At beginning of year Impairment losses, net (note 6) Amount written off as uncollectible At end of year	31 December	31 December
	2017 RMB’000 (225) (105) – (330)	2018
		RMB’000 (330) (425) –
		(755)

Expected credit losses are estimated by applying a loss rate approach with reference to the historical loss record of the Group. The loss rate is adjusted to reflect the current conditions and forecasts of future economic conditions, as appropriate. The loss rate applied for where there are no comparable companies as at 31 December 2017 was 2.2% and that as at 31 December 2018 was 2.0%.

– IA-41 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

20. CASH AND CASH EQUIVALENTS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 RMB’000 101,029	2018
		RMB’000 49,843

At 31 December 2017 and 2018, the cash and bank balances of the Group denominated in RMB amounted to RMB101,029,000 and RMB49,843,000, respectively. The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

The Group collects deposits from profitable operating activities in the common areas of the community in accordance with the relevant rules and regulations in the PRC.

Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default. The carrying amounts of the cash and cash equivalents approximated to their fair values.

21. TRADE PAYABLES

An aging analysis of the trade payables as at the end of the Relevant Periods, based on the invoice date, is as follows:

Within 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 RMB’000 15,408 1,518 223 17,149	2018
		RMB’000 18,971 2,981 1,362
		23,314

The trade payables are non-interest-bearing and are normally settled on 90-day terms.

As at 31 December 2017 and 2018, the carrying amounts of trade payables approximated their fair values.

22. OTHER PAYABLES AND ACCRUALS

Notes Current portion Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . (a) Deposits received . . . . . . . . . . . . . . . . . . . . . . . . Receipts on behalf of community residents. . . . . . . . . Payroll and welfare payable . . . . . . . . . . . . . . . . . . Other tax payables. . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 RMB’000 63,207 3,932 35,827 64,719 6,853 5,274 179,812	2018
		RMB’000 89,301 6,839 34,831 73,926 10,898 8,348
		224,143

– IA-42 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

Notes:

Details of contract liabilities as at the end of each of the Relevant Periods are as follows:

Short-term advances received from customers Property management services . . . . . . . . . . . . . . . . . . . . Total contract liabilities . . . . . . . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 RMB’000 63,207 63,207	2018
		RMB’000 89,301
		89,301

The Group receives payments from customers based on billing schedules as established in the property management contracts. A portion of payments are usually received in advance of the performance under the contracts which are mainly from property management services. According to the business model of the Group, for revenue recognised from the provision of property management services, all such revenue was carried forward from contract liabilities during the Relevant Periods.

23. INTEREST-BEARING BANK AND OTHER BORROWINGS

December 2017 Maturity RMB’000 – – 2022 500,000 500,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	December 2017 Maturity RMB’000 – – 2022 500,000 500,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31	December 2018
Maturity – 2022 . . . . . . . . . . . . . . . . . .		Effective interest rate (%) 5.7 14.0 2017	RMB’000 20,000
			500,000
			520,000

	. . . . . . . . . . . .		2018
			RMB’000 20,000 500,000
			520,000

The Group’s interest-bearing bank and other borrowings are denominated in RMB with fixed interest rate.

As at 31 December 2017 and 2018, the Group’s other borrowing of RMB500,000,000 and RMB500,000,000 borrowed from an independent third-party trust company was pledged by the future years’ right of receiving management fees from certain properties under its management and 100% equity interests of Zhenro Property Services, and also guaranteed by Mr. Ou Zongrong, Ms. Lin Shuying and Zhenro Group Company (note 30). The other borrowing has been fully repaid and the related pledge and guarantees have been released subsequently.

As at 31 December 2018, the Group’s bank borrowings of RMB20,000,000 were guaranteed by Zhenro Group Compan (note 30). The bank borrowings have been settled and the related guarantee has been released subsequently.

– IA-43 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

The management of the Company has assessed that the fair values of interest-bearing bank and other borrowings approximate to their carrying amounts largely due to the fact that such borrowings were made between the Group and independent third party financial institutions based on prevailing market interest rates.

24. DEFERRED TAX

Deferred tax assets

At 1 January 2017. . . . . . . . . . . . . . . Deferred tax credited to profit or loss during the year (note 10) . . . . . . . . . Acquisition of a subsidiary (note 27) . . . At 31 December 2017 . . . . . . . . . . . . Deferred tax credited/(charged) to profit or loss during the year (note 10) . . . . At 31 December 2018 . . . . . . . . . . . .	Impairment of financial assets RMB’000 275 543 312 1,130 615 1,745	Losses available for offsetting against future taxable profits RMB’000 2,535 996 – 3,531 (1,616) 1,915	Accrued expenses RMB’000 381 538 – 919 1,119 2,038	Total
				RMB’000 3,191 2,077 312
				5,580 118
				5,698

Deferred tax Liabilities

At 1 January 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of a subsidiary (note 27) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax charged to profit or loss during the year (note 10) . . . . . . . . . . . . . . . . . . At 31 December 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax charged to profit or loss during the year (note 10) . . . . . . . . . . . . . . . . . . At 31 December 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Amortisation on intangible assets
	RMB’000 – 2,924 (73)
	2,851 (292)
	2,559

For presentation purposes, certain deferred tax assets and liabilities have been offset in the combined statements of financial position. The following is an analysis of the deferred tax balances for financial reporting purposes:

Net deferred tax assets recognised in the combined statements of financial position . . . . . . . . . . . . . . . . . . Net deferred tax liabilities recognised in the combined statements of financial position . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 RMB’000 5,580 2,851	2018
		RMB’000 5,698
		2,559

– IA-44 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. The requirement is effective from 1 January 2008 and applies to earnings after 31 December 2007. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China and the jurisdiction of the foreign investors. For the Group, the applicable rate is 10%. The Group is therefore liable for withholding taxes on dividends distributed by those subsidiaries established in Mainland China in respect of earnings generated from 1 January 2008.

At 31 December 2017 and 2018, no deferred tax has been recognised for withholding taxes that would be payable on the unremitted earnings that are subject to withholding taxes of the Group’s subsidiaries established in Mainland China. This is because the Company controls the dividend policy of the Mainland China subsidiaries and the directors determined that such retained earnings are not likely to be distributed in the foreseeable future.

Deferred tax assets have not been recognised in respect of the following items:

Tax losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 December	31 December
	2017 RMB’000 2,171	2018
		RMB’000 –

The Group had unutilised tax losses arising in the PRC of approximately RMB2,171,000 and nil as at 31 December 2017 and 2018, respectively, that will expire in one to five years for offsetting against future taxable profits of the entities in which the losses arose.

25. SHARE CAPITAL

Authorised: 950,000 of ordinary shares of US$1.00 each . . . . . . . . . . Issued and fully paid: 1 ordinary share of US$1.00 each . . . . . . . . . . . . . . . . .	2017 RMB’000 – –	2018
		RMB’000 6,555

		–

The Company was incorporated in the Cayman Islands on 17 December 2018 with an authorised share capital of US$950,000.00 divided into 950,000 shares of US$1.00 par value each. Upon its incorporation, one fully-paid share of our Company was issued and allotted at par to an initial subscriber, an an independent third party, and such share was transferred to WeiQiang Holdings Limited (“WeiQiang”) at a consideration of US$1 on the same date. On the same date, 683,050 shares, 95,000 shares, 95,000 shares and 76,949 shares of US$1 each were issued and allotted to WeiZheng Holdings Limited (“WeiZheng”), WeiYao Holdings Limited (“WeiYao”), WeiTian Holdings Limited (“WeiTian”) and WeiQiang, respectively. WeiZheng, WeiYao and WeiTian were incorporated in the BVI with limited liability and wholly-owned by Mr, Ou Zongrong. WeiQiang was incorporated in the BVI with limited liability and wholly-owned by Mr, Ou Guoqiang.

On 18 October 2019, the authorised share capital of the Company was increased from US$950,000 to US$1,000,000 by the creation of additional 50,000 shares of US$1 each, such that following the increase in authorised share capital, the authorised share capital of the Company was US$1,000,000 divided into 1,000,000 shares of US$1 each.

On 7 November 2019, Sky Bridge Limited (“Sky Bridge”) transferred 1,000 shares of Future Prosperity (BVI), representing the entire issue share capital of Future Prosperity (BVI), to the Company in consideration of the issue of 50,000 shares of the Company of US$1 each to Sky Bridge. Upon completion of such transfer, each of Future Prosperity (BVI), Future Prosperity (HK) and Fuzhou Zhenro became the wholly-owned subsidiary of the Company.

– IA-45 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IA

26. RESERVES

The amounts of the Group’s reserves and the movements therein for the Relevant Periods are presented in the combined statements of changes in equity of the Historical Financial Information.

(a) Merger reserve

The merger reserve of the Group represents the issued capital of the then holding company of the companies now comprising the Group and the capital contributions from the equity holders of certain subsidiaries now comprising the Group before the completion of the Corporate Restructuring and the Reorganisation.

(b) Statutory surplus reserve

In accordance with the PRC Company Law and the articles of association of the subsidiaries established in the PRC, the Group is required to appropriate 10% of its net profits after tax, as determined under the Chinese Accounting Standards, to the statutory surplus reserve until the reserve balance reaches 50% of its registered capital. Subject to certain restrictions set out in the relevant PRC regulations and in the articles of association of the Group, the statutory surplus reserve may be used either to offset losses, or to be converted to increase share capital, provided that the balance after such conversion is not less than 25% of the registered capital of the Group. The reserve cannot be used for purposes other than those for which it is created and is not distributable as cash dividends.

27. BUSINESS COMBINATION

31 December 2017

On 21 September 2017, the Group acquired a 100% interest in Jiangsu Aitao from independent third parties with a cash consideration of RMB20,000,0000. Jiangsu Aitao is engaged in the provision of property management and other community services. The acquisition was made as part of the Group’s strategy to expand its market share of property management operation in the PRC.

The fair value of identifiable assets acquired and liabilities assumed at the completion date of acquisition were as follows:

Notes
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayments and other receivables . . . . . . . . . . . . . . . . . . . . . . . .
Investment in an associate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . .
13
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Total identifiable net assets at fair value . . . . . . . . . . . . . . . . . . . .
Goodwill on acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
Satisfied by Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fair value
recognised on
acquisition
RMB’000
5,100
14,268
13,617
492
245
11,697
312
(2,063)
(40,102)
(149)
(2,924)
493
19,507
20,000

– IA-46 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

An analysis of the net inflow of cash and cash equivalents in respect of the above acquisition is as follows:

Total cash consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total cash and bank balances acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net outflow of cash and cash equivalents in respect of the acquisition. . . . . . . . . .	RMB’000 (20,000) 5,100
	(14,900)

Since the acquisition, the entity acquired contributed totally RMB21,738,000 to the Group’s revenue and a profit of RMB1,750,000 to the combined profit for the year ended 31 December 2017. Had the combination taken place at the beginning of the year, the combined revenue of the Group and the combined profits of the Group for the year ended 31 December 2017 would have been RMB169,126,000 and RMB24,111,000, respectively.

28. NOTES TO THE COMBINED STATEMENT OF CASH FLOWS

At 1 January 2017 . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . Interest expenses . . . . . . . . . . . . . . Cash flows from operating activities . . Cash flows from investing activities . . Cash flows from financing activities . . At 31 December 2017 . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . Interest expenses . . . . . . . . . . . . . . Cash flows from operating activities . . Cash flows from investing activities . . Cash flows from financing activities . . At 31 December 2018 . . . . . . . . . . . .	Interest payables RMB’000 – – – – 44,250 (44,250) – – – – 47,292 (47,292) –	Interest- bearing bank and other borrowings RMB’000 500,000 – – – – – 500,000 – – – – 20,000 520,000	Due to related parties RMB’000 8,172 – – 976 – (5,381) 3,767 – – 526 – (906) 3,387	Lease liabilities
				RMB’000 663 442 39 – – (427)
				717

				1,378 52 – – (809)
				1,338

29. RELATED PARTY TRANSACTIONS

(a) Name of related party and relationship with the Group

Name of related party
Mr. Ou Zongrong . . . . . . . . . . . . . . . . . . . . . .
Mr. Ou Guoqiang . . . . . . . . . . . . . . . . . . . . . .
Ms. Lin Shuying . . . . . . . . . . . . . . . . . . . . . .
Zhenro Group Company. . . . . . . . . . . . . . . . . .
正榮集團有限公司
(“Zhenro Group Company”) . . . . . . . . . . . . . .
正榮地產集團有限公司
(“Zhenro Properties”) . . . . . . . . . . . . . . . . . .

Relationship with the Group

Controlling Shareholder
A shareholder of the Company and son of
Mr. Ou Zongrong
Spouse of Mr. Ou Zongrong
Company controlled by the Controlling Shareholder
Company controlled by the Controlling Shareholder
Company controlled by the Controlling Shareholder

– IA-47 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

Name of related party

正榮地產控股股份有限公司 (“Zhenro Property Holdings”) . . . . . . . . . . . . . 閩侯正榮正升置業發展有限公司 (“Minhou Zhengsheng”) . . . . . . . . . . . . . . . . 正榮(福州)投資發展有限公司 (“Fuzhou Investment”) . . . . . . . . . . . . . . . . . 正榮(馬尾)置業發展有限公司 (“Mawei Real Estate”) . . . . . . . . . . . . . . . . . 正升(福州)置業發展有限公司 (“Fuzhou Zhengsheng”). . . . . . . . . . . . . . . . . 正泰(福州)置業發展有限公司 (“Fuzhou Zhengtai”) . . . . . . . . . . . . . . . . . . 福州市馬尾區正榮房地產開發有限公司 (“Mawei Property”) . . . . . . . . . . . . . . . . . . . 正榮(閩侯)投資發展有限公司 (“Minhou Investment”) . . . . . . . . . . . . . . . . . 襄陽市長房正創置業有限公司 (“Xiangyang Zhengchuang”). . . . . . . . . . . . . . 滁州正宏置業發展有限公司 (“Chuzhou Zhenghong”) . . . . . . . . . . . . . . . . 福建力沃置業有限公司 (“Fujian Liwo”) . . . . . . . . . . . . . . . . . . . . . 閩侯正榮正升置業發展有限公司 (“Minhou Zhengsheng”) . . . . . . . . . . . . . . . . 正榮(福州)投資發展有限公司 (“Fuzhou Investment”) . . . . . . . . . . . . . . . . . 正榮(馬尾)置業發展有限公司 (“Mawei Real Estate”) . . . . . . . . . . . . . . . . . 正升(福州)置業發展有限公司 (“Fuzhou Zhengsheng”). . . . . . . . . . . . . . . . . 正泰(福州)置業發展有限公司 (“Fuzhou Zhengtai”) . . . . . . . . . . . . . . . . . . 福州市馬尾區正榮房地產開發有限公司 (“Mawei Property”) . . . . . . . . . . . . . . . . . . . 正榮(閩侯)投資發展有限公司 (“Minhou Investment”) . . . . . . . . . . . . . . . . . 正榮(閩侯)置業發展有限公司 (“Minhou Real Estate”). . . . . . . . . . . . . . . . . 正榮(福州)置業發展有限公司 (“Fuzhou Real Estate”) . . . . . . . . . . . . . . . . . 福州正榮商業管理有限公司 (“Fuzhou Zhenro Commerce”) . . . . . . . . . . . . 贛州市正碧置業發展有限公司 (“Ganzhou Zhengbi”) . . . . . . . . . . . . . . . . . . 合肥正茂置業發展有限公司 (“Hefei Zhengmao”). . . . . . . . . . . . . . . . . . . 合肥正裕置業發展有限公司 (“Hefei Zhengyu”). . . . . . . . . . . . . . . . . . . . 濟南正啟置業有限公司 (“Jinan Zhengqi”) . . . . . . . . . . . . . . . . . . . . 嘉興榮昱置業有限公司 (“Jiaxing Rongyu”) . . . . . . . . . . . . . . . . . . . 嘉興卓驌房地產開發有限公司 (“Jiaxing Zhuosu”) . . . . . . . . . . . . . . . . . . . 南昌世歐房地產開發有限公司 (“Nanchang Shiou”) . . . . . . . . . . . . . . . . . . .

ACCOUNTANTS’ REPORT

Relationship with the Group

Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder

– IA-48 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

Name of related party Relationship with the Group 南昌正榮(新加坡)置業有限公司 Company controlled by the Controlling Shareholder (“Nanchang Real Estate”) . . . . . . . . . . . . . . . 南昌正榮紅谷投資發展有限公司 Company controlled by the Controlling Shareholder (“Nanchang Honggu”) . . . . . . . . . . . . . . . . . 南昌正榮新建投資發展有限公司 Company controlled by the Controlling Shareholder (“Nanchang Xinjian”) . . . . . . . . . . . . . . . . . . 南昌正榮正創置業有限公司 Company controlled by the Controlling Shareholder (“Nanchang Zhengchuang”) . . . . . . . . . . . . . . 南昌正榮正興置業有限公司 Company controlled by the Controlling Shareholder (“Nanchang Zhenro Zhengxing”) . . . . . . . . . . . 南昌駿越房地產開發有限公司 Company controlled by the Controlling Shareholder (“Nanchang Junyue”) . . . . . . . . . . . . . . . . . . 南京正榮德信房地產開發有限公司 Company controlled by the Controlling Shareholder (“Nanjing Dexin”) . . . . . . . . . . . . . . . . . . . . 南京正榮房地產開發有限公司 Company controlled by the Controlling Shareholder (“Nanjing Property”) . . . . . . . . . . . . . . . . . . 南京正榮江濱投資發展有限公司 Company controlled by the Controlling Shareholder (“Nanjing Investment”) . . . . . . . . . . . . . . . . . 南京正榮置業發展有限公司 Company controlled by the Controlling Shareholder (“Nanjing Development”) . . . . . . . . . . . . . . . 南京糧榮信房地產開發有限公司 Company controlled by the Controlling Shareholder (“Nanjing Liangrongxin”) . . . . . . . . . . . . . . . 正榮(南平)置業發展有限公司 Company controlled by the Controlling Shareholder (“Nanping Real Estate”) . . . . . . . . . . . . . . . . 嘉興榮坤置業有限公司 Company controlled by the Controlling Shareholder (“Jiaxing Rongkun”) . . . . . . . . . . . . . . . . . . 正榮山田(平潭)投資發展有限公司 Company controlled by the Controlling Shareholder (“Pingtan Investment”) . . . . . . . . . . . . . . . . . 正榮山田(平潭)置業發展有限公司 Company controlled by the Controlling Shareholder (“Pingtan Real Estate”) . . . . . . . . . . . . . . . . . 正榮山田正泰(平潭)置業發展有限公司 Company controlled by the Controlling Shareholder (“Zhenro Shantian Zhengtai”) . . . . . . . . . . . . . 正升(平潭)置業發展有限公司 Company controlled by the Controlling Shareholder (“Pingtan Zhengsheng”) . . . . . . . . . . . . . . . . 正鼎(福清)置業發展有限公司 Company controlled by the Controlling Shareholder (“Fuqing Zhengding”). . . . . . . . . . . . . . . . . . 正茂(平潭)置業發展有限公司 Company controlled by the Controlling Shareholder (“Pingtan Zhengmao”) . . . . . . . . . . . . . . . . . 正欣(平潭)置業發展有限公司 Company controlled by the Controlling Shareholder (“Pingtan Zhengxin”) . . . . . . . . . . . . . . . . . . 正榮(莆田)金融財富中心開發有限公司 Company controlled by the Controlling Shareholder (“Zhenro Putian Financial Wealth”) . . . . . . . . . 正榮(莆田)投資發展有限公司 Company controlled by the Controlling Shareholder (“Putian Investment”) . . . . . . . . . . . . . . . . . . 正榮玉湖(莆田)開發有限公司 Company controlled by the Controlling Shareholder (“Putian Yuhu”) . . . . . . . . . . . . . . . . . . . . . 正榮正宏(莆田)置業發展有限公司 Company controlled by the Controlling Shareholder (“Zhenro Zhenghong Putian”) . . . . . . . . . . . . . 正豐(莆田)置業發展有限公司 Company controlled by the Controlling Shareholder (“Putian Zhengfeng”) . . . . . . . . . . . . . . . . . . 正榮財富(福建)置業有限公司 Company controlled by the Controlling Shareholder (“Putian Fortune Center”) . . . . . . . . . . . . . . . 正潤(莆田)置業發展有限公司 Company controlled by the Controlling Shareholder (“Putian Zhengrun”). . . . . . . . . . . . . . . . . . . 正榮(莆田)房地產開發有限公司 Company controlled by the Controlling Shareholder (“Putian Property”) . . . . . . . . . . . . . . . . . . .

– IA-49 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

Name of related party

正榮(莆田)置業發展有限公司 (“Putian Real Estate”) . . . . . . . . . . . . . . . . . 正榮(莆田)商業管理有限公司 (“Zhenro Putian Commerce”) . . . . . . . . . . . . . 石獅市正升置業發展有限公司 (“Shishi Zhengsheng”) . . . . . . . . . . . . . . . . . 正榮御楓(上海)置業發展有限公司 (“Shanghai Yufeng”) . . . . . . . . . . . . . . . . . . 正榮御品(上海)置業發展有限公司 (“Shanghai Yupin”) . . . . . . . . . . . . . . . . . . . 正榮御天(上海)置業發展有限公司 (“Shanghai Yutian”) . . . . . . . . . . . . . . . . . . . 正榮御園(上海)置業發展有限公司 (“Shanghai Yuyuan”) . . . . . . . . . . . . . . . . . . 正榮御尊(上海)置業發展有限公司 (“Shanghai Yuzun”) . . . . . . . . . . . . . . . . . . . 正榮新產業發展有限公司 (“Zhenro new industrial”) . . . . . . . . . . . . . . . 正榮商業管理有限公司 (“Zhenro Commerce”) . . . . . . . . . . . . . . . . . 上海榮顧創業投資有限公司 (“Shanghai Royi”) . . . . . . . . . . . . . . . . . . . . 正榮集團蘇南(蘇州)投資有限公司 (“Suzhou Investment”) . . . . . . . . . . . . . . . . . 正榮蘇南(蘇州)房地產有限公司 (“Suzhou Property”). . . . . . . . . . . . . . . . . . . 正榮蘇南(蘇州)置業發展有限公司 (“Suzhou Real Estate”) . . . . . . . . . . . . . . . . . 正榮蘇通(蘇州)房地產開發有限公司 (“Suzhou Sutong”). . . . . . . . . . . . . . . . . . . . 蘇州正利置業有限公司 (“Suzhou Zhengli”) . . . . . . . . . . . . . . . . . . . 天津正榮正宏置業發展有限公司 (“Wuhan Zhengtai”) . . . . . . . . . . . . . . . . . . . 正榮(天津)置業發展有限公司 (“Tianjin Real Estate”) . . . . . . . . . . . . . . . . . 蘇州正瑞置業發展有限公司 (“Suzhou Zhengrui Real Estate”) . . . . . . . . . . . 武漢正榮正泰置業有限公司 (“Wuhan Zhengro Zhengtai”) . . . . . . . . . . . . . 西安正海置業有限公司 (“Xian Zhenghai”) . . . . . . . . . . . . . . . . . . . . 襄陽市長房正創置業有限公司 (“Xiangyang Zhengchuang”). . . . . . . . . . . . . . 徐州正銘置業發展有限公司 (“Xuzhou Zhengming”) . . . . . . . . . . . . . . . . . 江西省正榮房地產開發有限公司 (“Jiangxi Real Estate”) . . . . . . . . . . . . . . . . . 宜春金投置地有限公司 (“Yichun Jintou”) . . . . . . . . . . . . . . . . . . . . 長沙正榮正泰置業發展有限公司 (“Changsha Zhenro Zhengtai”) . . . . . . . . . . . . 正榮(長沙)置業有限公司 (“Changsha Real Estate”) . . . . . . . . . . . . . . . 鄭州新榮桂置業有限公司 (“Zhengzhou Xinronggui”). . . . . . . . . . . . . . .

ACCOUNTANTS’ REPORT

Relationship with the Group

– IA-50 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

Name of related party

Relationship with the Group

武漢正榮正升置業有限公司 Joint venture of Zhenro Property (“Wuhan Zhenro Zhengsheng”) . . . . . . . . . . . . 合肥碧榮房地產有限公司 Joint venture of Zhenro Property (“Hefei Birong”) . . . . . . . . . . . . . . . . . . . . . 濟南弘碧置業有限公司 Joint venture of Zhenro Property (“Jinan Hongbi”). . . . . . . . . . . . . . . . . . . . . 蘇州奧遠房地產開發有限公司 Joint venture of Zhenro Property (“Suzhou Aoyuan”) . . . . . . . . . . . . . . . . . . . 蘇州程瑞置業有限公司 Joint venture of Zhenro Property (“Suzhou Chengrui”) . . . . . . . . . . . . . . . . . . 蘇州廣坤房地產開發有限公司 Joint venture of Zhenro Property (“Suzhou Guangkun”). . . . . . . . . . . . . . . . . . 蘇州領瑞置業有限公司 Joint venture of Zhenro Property (“Suzhou Lingrui”) . . . . . . . . . . . . . . . . . . . 蘇州融輝置業有限公司 Joint venture of Zhenro Property (“Suzhou Ronghui”) . . . . . . . . . . . . . . . . . . . 蘇州正豐置業發展有限公司 Joint venture of Zhenro Property (“Suzhou Zhengfeng”) . . . . . . . . . . . . . . . . . 天津中儲恒豐置業有限公司 Joint venture of Zhenro Property (“Tianjin Zhongchu”) . . . . . . . . . . . . . . . . . . 常熟建瀚置地有限公司 Associate of Zhenro Property (“Changzhou Jianhan”) . . . . . . . . . . . . . . . . . 嘉興榮聿置業有限公司 Associate of Zhenro Property (“Jiaxing Rongyu”) . . . . . . . . . . . . . . . . . . . 昆山卓彌房地產開發有限公司 Associate of Zhenro Property (“Kunshan Zhuomi”) . . . . . . . . . . . . . . . . . . 南京招榮房地產開發有限公司 Associate of Zhenro Property (“Nanjing Zhaorong”). . . . . . . . . . . . . . . . . . 南京卓泓晟房地產開發有限公司 Associate of Zhenro Property (“Nanjing Zhuohongsheng”) . . . . . . . . . . . . . . 蘇州灝溢房地產開發有限公司 Associate of Zhenro Property (“Suzhou Haoyi”) . . . . . . . . . . . . . . . . . . . . 蘇州市冠達房地產開發有限公司 Associate of Zhenro Property (“Suzhou Guanda”) . . . . . . . . . . . . . . . . . . . 蘇州正創置業發展有限公司 Associate of Zhenro Property (“Suzhou Zhengchuang”) . . . . . . . . . . . . . . . . 蘇州正璽房地產開發有限公司 Associate of Zhenro Property (“Suzhou Zhengxi”) . . . . . . . . . . . . . . . . . . . 徐州雅豐房地產開發有限公司 Associate of Zhenro Property (“Xuzhou Yafeng”) . . . . . . . . . . . . . . . . . . . 張家港保稅區耀輝房地產開發有限公司 Associate of Zhenro Property (“Zhangjiagang Yaohui”) . . . . . . . . . . . . . . . .

– IA-51 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

(b) In addition to the transactions detailed elsewhere in these financial statements, the Group had the following transactions with related parties during the Relevant Periods:

Advances to related companies Companies controlled by the Controlling Shareholder. . . . . Repayment from related companies Companies controlled by the Controlling Shareholder. . . . . Advances from related companies Companies controlled by the Controlling Shareholder. . . . . Repayment to related companies Companies controlled by the Controlling Shareholder. . . . . Property management service and value-added service from related companies (i) . . . . . . . . . . . . . . . . . . . . . Companies controlled by the Controlling Shareholder. . . . . Joint ventures and associates of a fellow subsidiary . . . . . . Rental fee to related companies (i) Companies controlled by the Controlling Shareholder. . . . . Interest income (ii) A company controlled by the Controlling Shareholder . . . .	Year ended 31 December	Year ended 31 December
	2017 RMB’000 59,647 46,634 4,578 9,959 97,000 35,131 132,131 976 44,250	2018
		RMB’000 172,369

		72,655

		1,907

		2,813

		136,368 49,046
		185,414

		526

		47,292

(i) These transactions were carried out in accordance with the terms and conditions mutually agreed by the parties involved.
(ii) During the year ended 31 December 2017 and 2018, the Group made advances to Zhenro Group Company, which are unsecured and charged interest of 9% to 14% per annum with a term of 1 year.

(c) Other transactions with related parties

As at 31 December 2017 and 2018, the Group’s other borrowing of RMB500,000,000 and RMB500,000,000 was guaranteed by Mr. Ou Zongrong, Ms. Lin Shuying and Zhenro Group Company (note 23). The other borrowing has been fully repaid and the related pledge and guarantees have been released subsequently.

As at 31 December 2018, the Group’s bank borrowings of RMB20,000,000, were guaranteed by Zhenro Group Company (note 23). The bank borrowings have been settled and the related guarantee has been released subsequently.

– IA-52 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

(d) Outstanding balances with related parties

Due from related companies: Trade related Companies controlled by the Controlling Shareholder . . . . . . Joint ventures and associates of a fellow subsidiary . . . . . . . Due from related companies: Non-trade related Companies controlled by the Controlling Shareholder . . . . . . Due to related companies: Trade related Companies controlled by the Controlling Shareholder . . . . . . Due to related companies: Non-trade related Companies controlled by the Controlling Shareholder . . . . . .	31 December 2017 RMB’000 8,745 1,394 10,139 524,088 929 2,838	31 December
		2018
		RMB’000 23,578 11,920
		35,498

		623,802

		1,455

		1,932

For amounts due from related parties, balances arising from operating activities are RMB35,498,000 as at 31 December 2018, with RMB27,869,000 of aging within one year and RMB7,629,000 of aging over one year, RMB10,139,000 with aging within one year as at 31 December 2017. The credit periods granted to related parties are mainly 3 months. The Group has assessed that the credit risk of these receivables has not increased significantly since initial recognition and measured the impairment under the general approach based on 12-month expected credit loss, and has assessed that the expected credit losses are immaterial.

For amounts due to related parties, balances arising from operating activities are RMB1,455,000 as at 31 December 2018, with RMB526,000 of aging within one year and RMB929,000 of aging over one year, RMB929,000 with aging within one year as at 31 December 2017.

(e) Compensation of key management personnel of the Group

Short term employee benefits . . . . . . . . . . . . . . . . . . . . . Pension scheme contributions and social welfare . . . . . . . . . Total compensation paid to key management personnel . . . . .	Year ended 31 December	Year ended 31 December
	2017 RMB’000 3,132 379 3,511	2018
		RMB’000 4,391 644
		5,035

Further details of directors’ emoluments are included in note 8 to the financial statements.

– IA-53 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IA

30. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of each of the Relevant Periods are as follows:

31 December 2017

Financial assets

Financial assets included in prepayment and other receivables (note 19). . . . . . . . . Trade receivables (note 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due from related companies (note 29) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents (note 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Financial assets at amortised cost
	RMB’000 14,387 33,029 534,227 101,029
	682,672

Financial liabilities

Trade payables (note 21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial liabilities included in other payables and accruals (note 22) . . . . . . . . . .
Lease liabilities (note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing bank and other borrowings (note 23) . . . . . . . . . . . . . . . . . . . .
Due to related parties (note 29). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial
liabilities at
amortised cost

RMB’000
17,149
45,033
717
500,000
3,767

566,666

31 December 2018

Financial assets

Financial assets included in prepayment and other receivables (note 19). . . . . . . . . Trade receivables (note 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due from related companies (note 29) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents (note 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Financial assets at amortised cost
	RMB’000 37,322 54,021 659,300 49,843
	800,486

– IA-54 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

Financial liabilities

Financial liabilities included in other payables and accruals (note 22) . . . . . . . . . .
Interest-bearing bank and other borrowings (note 23) . . . . . . . . . . . . . . . . . . . .
Due to related parties (note 29). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liabilities (note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade payables (note 21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial
liabilities at
amortised cost

RMB’000
50,018
520,000
3,387
1,338
23,314

598,057

31. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

Management has assessed that the fair values of cash and cash balances, amounts with related companies, trade receivables, financial assets included in prepayments and other receivables, trade payables, financial liabilities included in other payables and accruals, interest-bearing bank and other borrowings approximate to their carrying amounts largely due to the short term maturities of these instruments.

The Group’s corporate finance team headed by the finance manager is responsible for determining the policies and procedures for the fair value measurement of financial instruments. The corporate finance team reports directly to the board of directors of the Company. At each reporting date, the corporate finance team analyses the movements in the values of financial instruments and determines the major inputs applied in the valuation. The valuation is reviewed and approved by the chief financial officer. The valuation process and results are discussed with the board of directors twice a year for interim and annual financial reporting.

32. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments mainly include financial assets included in trade receivables, due from related companies, financial assets included in prepayments and other receivables, cash and cash equivalents, trade payables, due to related companies, financial liabilities included in other payables and accruals, which arise directly from its operations. The Group has other financial assets and liabilities such as lease liabilities and interest-bearing bank and other borrowings. The main purpose of these financial instruments is to raise finance for the Group’s operations.

The main risks arising from the Group’s financial instruments are interest rate risk, credit risk and liquidity risk. Generally, the Group introduces conservative strategies on its risk management. To keep the Group’s exposure to these risks to a minimum, the Group has not used any derivatives and other instruments for hedging purposes. The Group does not hold or issue derivative financial instruments for trading purposes. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below:

(a) Interest rate risk

The Group’s exposure to risk for changes in market interest rates relates primarily to the Group’s interest-bearing bank and other borrowings set out in note 23. The Group does not use derivative financial instruments to hedge interest rate risk, and obtains all bank borrowings with a fixed rate.

(b) Credit risk

The Group is exposed to credit risk in relation to its trade receivables and other receivables, investments in principal guaranteed deposits, and cash and cash equivalents.

The Group expects that there is no significant credit risk associated with investments in principal guaranteed deposits, and cash and cash equivalents, since they are substantially deposited at state-owned banks and other medium or large-sized listed banks. Management does not expect that there will be any significant losses from non-performance by these counterparties.

– IA-55 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

The Group expects that the credit risk associated with trade receivables and other receivables due from related parties is considered to be low, since the related parties have a strong capacity to meet contractual cash flow obligation in the near term. Thus, the impairment provision recognised during the Relevant Periods was nil for the trade receivables and other receivables due from related parties.

As at 31 December 2017 and 2018, all pledged deposits and cash and cash equivalents were deposited in high-credit-quality financial institutions without significant credit risk. These financial assets were not yet past due and their credit exposure is classified as stage 1.

As at 31 December 2017 and 2018, the Group classified financial assets included in prepayments, other receivables and other assets as stage 1 as the credit quality is considered to be “normal” when they are not past due and there is no information indicating that the financial assets had a significant increase in credit risk since initial recognition

(c) Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of interest-bearing bank and other borrowings. Cash flows are closely monitored on an ongoing basis.

The maturity profile of the Group’s financial liabilities as at the end of reporting period, based on the contractual undiscounted payments, was as follows:

31 December 2017

Trade payables . . . . . . . . . . . . . . Other payables and accruals . . . . . . Interest-bearing bank and other borrowings . . . . . . . . . . . . . . . Lease liabilities . . . . . . . . . . . . . Due to related parties . . . . . . . . . .	Less than 3 months or on demand RMB’000 17,149 45,033 11,250 107 3,767 77,306	More than 3 months and within 1 year RMB’000 – – 33,750 322 – 34,072	Over 1 year RMB’000 – – 780,000 793 – 780,793	Total
				RMB’000 17,149 45,033 825,000 1,222 3,767
				892,171

31 December 2018

Trade payables . . . . . . . . . . . . . . Other payables and accruals . . . . . . Interest-bearing bank and other borrowings . . . . . . . . . . . . . . . Lease liabilities . . . . . . . . . . . . . Due to related parties . . . . . . . . . .	Less than 3 months or on demand RMB’000 23,314 50,018 17,715 202 3,387 94,636	More than 3 months and within 1 year RMB’000 – – 73,145 604 – 73,749	Over 1 year RMB’000 – – 710,000 1,503 – 711,503	Total
				RMB’000 23,314 50,018 800,860 2,309 3,387
				879,888

(d) Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

– IA-56 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IA

ACCOUNTANTS’ REPORT

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes, within net debt, interest-bearing bank and other borrowings, less cash and cash equivalents. Capital represents equity attributable to owners of the parent. The gearing ratios as at the end of each of the Relevant Periods were as follows:

Interest-bearing bank and other borrowings . . . . . . . . . . . . Less: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . Net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity attributable to owners of the parent. . . . . . . . . . . . . Gearing ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Year ended 31 December 2017 2018 RMB’000 RMB’000 500,000 520,000 (101,029) (49,843) 398,971 470,157 14,496 54,108 2,752.3% 868.9%
	2017 RMB’000 500,000 (101,029) 398,971 14,496 2,752.3%

33. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company, the Group or any of the companies now comprising the Group in respect of any period subsequent to 31 December 2018.

– IA-57 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB ACCOUNTANTS’ REPORT

The Directors

Zhenro Services Group Limited

CCB International Capital Limited

INTRODUCTION

We have reviewed the interim financial information set out on pages IB-3 to IB-47, which comprises the combined statement of financial position of Zhenro Services Group Limited (the “Company”) and its subsidiaries (together, the “Group”) as at 30 September 2019, and the related combined statements of profit or loss and other comprehensive income, changes in equity and cash flows for the nine-month period then ended, and a summary of significant accounting policies and other explanatory notes. The directors of the Company are responsible for the preparation and presentation of this interim financial information in accordance with Hong Kong Accounting Standard 34 “Interim Financial Reporting” (“HKAS 34”). Our responsibility is to express a conclusion on this interim financial information based on our review. Our report is made 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.

SCOPE OF REVIEW

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Hong Kong Institute of Certified Public Accountants. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

– IB-1 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IB

CONCLUSION

Based on our review which does not constitute an audit, for the purpose of this report, nothing has come to our attention that causes us to believe that the interim financial information is not prepared, in all material respects, in accordance with HKAS 34.

Certified Public Accountants

Hong Kong [●] 2020

– IB-2 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IB

I INTERIM FINANCIAL INFORMATION

COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . Other income and gains . . . . . . . . . . . . . . . . . . . . . 5 Administrative expenses . . . . . . . . . . . . . . . . . . . . Impairment losses on financial assets, net . . . . . . . Fair value gains on investment properties . . . . . . . 15 Finance costs, net . . . . . . . . . . . . . . . . . . . . . . . . . 7	Nine months ended 30 September 2019 2018 RMB’000 RMB’000 (unaudited) (unaudited) 516,900 320,562 (344,091) (235,628) 172,809 84,934 2,105 862 (66,271) (44,119) (7,308) (3,213) 600 – (2,250) (39)	Nine months ended 30 September 2019 2018 RMB’000 RMB’000 (unaudited) (unaudited) 516,900 320,562 (344,091) (235,628) 172,809 84,934 2,105 862 (66,271) (44,119) (7,308) (3,213) 600 – (2,250) (39)
	2019 RMB’000 (unaudited) 516,900 (344,091) 172,809 2,105 (66,271) (7,308) 600 (2,250)
Finance expense . . . . . . . . . . . . . . . . . . . . . . . . . . Finance income . . . . . . . . . . . . . . . . . . . . . . . . . .	(55,528) 53,278	(35,508) 35,469
Share of profits and losses of an associate. . . . . . . PROFIT BEFORE TAX . . . . . . . . . . . . . . . . . . . . . 6 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . 10 PROFIT AND TOTAL COMPREHENSIVE INCOME FOR THE PERIOD. . . . . . . . . . . . . Attributable to: Owners of the parent . . . . . . . . . . . . . . . . . . . . . Non-controlling interests . . . . . . . . . . . . . . . . . . EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . 12	(167) 99,518 (25,259) 74,259 72,197 2,062 74,259 N/A	(74) 38,351 (9,816) 28,535 28,535 – 28,535 N/A

– IB-3 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

COMBINED STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Property, plant and equipment . . . . . . . . . . . . 13 Right-of-use assets. . . . . . . . . . . . . . . . . . . . . 14 Investment properties. . . . . . . . . . . . . . . . . . . 15 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Other intangible assets. . . . . . . . . . . . . . . . . . 17 Investment in an associate . . . . . . . . . . . . . . . 18 Deferred tax assets . . . . . . . . . . . . . . . . . . . . 25 Total non-current assets . . . . . . . . . . . . . . . . . CURRENT ASSETS Trade receivables . . . . . . . . . . . . . . . . . . . . . . 19 Due from related companies . . . . . . . . . . . . . 30 Prepayments and other receivables. . . . . . . . . 20 Cash and cash equivalents . . . . . . . . . . . . . . . 21 Total current assets . . . . . . . . . . . . . . . . . . . . CURRENT LIABILITIES Trade payables. . . . . . . . . . . . . . . . . . . . . . . . 22 Other payables and accruals. . . . . . . . . . . . . . 23 Due to related companies. . . . . . . . . . . . . . . . 30 Interest-bearing bank and other borrowings . . 24 Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . 14 Total current liabilities. . . . . . . . . . . . . . . . . . NET CURRENT ASSETS . . . . . . . . . . . . . . TOTAL ASSETS LESS CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . NON-CURRENT LIABILITIES Other payables. . . . . . . . . . . . . . . . . . . . . . . . 23 Interest-bearing bank and other borrowings . . 24 Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . 14 Deferred tax liabilities . . . . . . . . . . . . . . . . . . 25 Total non-current liabilities . . . . . . . . . . . . . . NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . EQUITY Equity attributable to owners of the parent Share capital . . . . . . . . . . . . . . . . . . . . . . . . . 26 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Non-controlling interests . . . . . . . . . . . . . . . TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) 6,384 8,679 21,400 59,537 33,128 204 7,619 136,951 140,546 620,967 37,274 74,983 873,770 29,180 271,917 6,584 32,500 30,683 3,951 374,815 498,955 635,906 7,000 518,750 6,568 10,429 542,747 93,159 – 78,341 78,341 14,818 93,159	31 December 2018 RMB’000 (audited) 4,844 1,361 – 19,507 11,150 371 5,698 42,931 54,021 659,300 44,998 49,843 808,162 23,314 224,143 3,387 20,000 22,332 789 293,965 514,197 557,128 – 500,000 549 2,559 503,108 54,020 – 54,108 54,108 (88) 54,020

– IB-4 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

COMBINED STATEMENTS OF CHANGES IN EQUITY

Attributable to owners of the parent

As at 31 December 2018 and 1 January 2019 (audited) . . . . . . . . . . Profit and total comprehensive income for the period . . . . . . . Acquisition of a subsidiary (note 28) . . . Transfer to statutory surplus funds . . . . . . . Capital distribution to the then equity holder . . . . As at 30 September 2019 (unaudited). . . . . . . . . As at 31 December 2017 and 1 January 2018 (audited) . . . . . . . . . . Profit and total comprehensive income for the period . . . . . . . Transfer to statutory surplus funds . . . . . . . As at 30 September 2018 (unaudited). . . . . . . . .	Issued capital RMB’000 Note 26 – – – – – – – – – –	Merger reserve* RMB’000 Note 27(a) 10,000 – – – (47,964) (37,964) 10,000 – – 10,000	Statutory surplus reserves* RMB’000 Note 27(b) 6,740 – – 8,153 – 14,893 2,454 – 3,236 5,690	Retained profits* RMB’000 37,368 72,197 – (8,153) – 101,412 2,042 28,535 (3,236) 27,341	Total RMB’000 54,108 72,197 – – (47,964) 78,341 14,496 28,535 – 43,031	Non- controlling interests RMB’000 (88) 2,062 12,844 – – 14,818 – – – –	Total equity
							RMB’000 54,020 74,259 12,844 – (47,964)
							93,159

							14,496 28,535 –
							43,031

These reserve accounts represent the total combined reserves of RMB78,341,000 in the combined statements of financial position as at 30 September 2019.
** Amount less than RMB1,000.

– IB-5 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

COMBINED STATEMENTS OF CASH FLOWS

Notes
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments for:
Financial costs . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . .
5
Share of profits and losses of an associate . . . . .
18
Fair value gains on investment properties. . . . . .
Depreciation of property, plant and equipment . .
6, 13
Depreciation of right-of-use assets . . . . . . . . . . .
6, 14
Amortisation of other intangible assets. . . . . . . .
6, 17
Impairment of trade receivables . . . . . . . . . . . . .
6, 19
Impairment of other receivables . . . . . . . . . . . . .
6, 20
Increase in trade receivables . . . . . . . . . . . . . . . . .
Decrease/(increase) in prepayments and other
receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in due from related companies . . . . . . . . .
Increase in due to related companies . . . . . . . . . . .
Increase in trade payables . . . . . . . . . . . . . . . . . . .
Increase in other payables and accruals . . . . . . . . .
Cash generated from operations . . . . . . . . . . . . .
Interests received. . . . . . . . . . . . . . . . . . . . . . . . . .
Interests paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash flows from operating activities. . . . . . .
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of items of property, plant and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from disposal of items of property, plant
and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of other intangible assets . . . . . . . . . . . .
Interests received from a related company . . . . . . .
Acquisition of a subsidiary . . . . . . . . . . . . . . . . . .
Decrease in prepayments and other receivables . . .
Advances to related companies . . . . . . . . . . . . . . .
Repayment from related companies . . . . . . . . . . . .
Net cash flows from/(used in) investing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Nine months ended
30 September
2019
2018
RMB’000
RMB’000
(unaudited)
(unaudited)
99,518
38,351
2,250
39
(873)
(431)
167
74
(600)
–
1,467
885
2,133
447
2,847
878
7,435
3,269
(127)
(56)
114,217
43,456
(90,570)
(58,635)
9,496
(11,543)
(16,507)
(18,786)
1,594
409
4,166
4,644
12,679
55,738
35,075
15,283
873
431
(1,670)
–
(21,207)
(303)
13,071
15,411
(2,207)
(2,172)
23
19
(603)
–
53,278
35,469
(44,023)
–
20,000
–
(150,791)
(58,781)
205,631
–
81,308
(25,465)

2019
RMB’000
(unaudited)
99,518
2,250
(873)
167
(600)
1,467
2,133
2,847
7,435
(127)
114,217
(90,570)
9,496
(16,507)
1,594
4,166
12,679
35,075
873
(1,670)
(21,207)
13,071
(2,207)
23
(603)
53,278
(44,023)
20,000
(150,791)
205,631
81,308

– IB-6 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

Note
CASH FLOWS FROM FINANCING
ACTIVITIES
Principal portion of lease payments . . . . . . . . . . . .
New bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of bank loans. . . . . . . . . . . . . . . . . . . .
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital distribution to the then equity holder. . . . .
Advances from related companies . . . . . . . . . . . . .
Repayment to related companies . . . . . . . . . . . . . .
Net cash flows used in financing activities . . . . .
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at
beginning of period . . . . . . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS AT END
OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances . . . . . . . . . . . . . . . . . . . . .
21
CASH AND CASH EQUIVALENTS AS
STATED IN THE COMBINED
STATEMENTS OF FINANCIAL POSITION
AND STATEMENTS OF CASH FLOWS . . . .

Nine months ended
30 September
2019
2018
RMB’000
RMB’000
(unaudited)
(unaudited)
(850)
(505)
31,750
–
(500)
–
(53,278)
(35,469)
(47,964)
–
3,301
48
(1,698)
–
(69,239)
(35,926)
25,140
(45,980)
49,843
101,029
74,983
55,049
74,983
55,049
74,983
55,049

2019
RMB’000
(unaudited)
(850)
31,750
(500)
(53,278)
(47,964)
3,301
(1,698)
(69,239)
25,140
49,843
74,983
74,983
74,983

– IB-7 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IB

STATEMENT OF FINANCIAL POSITION OF THE COMPANY

CURRENT ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments and other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NON-CURRENT ASSETS Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CURRENT LIABILITIES Other payables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL ASSETS LESS CURRENT LIABILITIES. . . . . . . . . . . . . . . . . NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EQUITY Equity attributable to owners of the parent Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30 September 2019
	RMB’000 – –
	–
	–
	–
	–
	–
	–
	–
	–

	– –
	–

The Company was incorporated in the Cayman Islands on 17 December 2018. On its date of incorporation, 1 ordinary share of US$1 was allotted and fully paid (note 26).

– IB-8 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IB

II NOTES TO THE INTERIM FINANCIAL INFORMATION

1. CORPORATE INFORMATION

The Company is an investment holding company. During the nine months ended 30 September 2019 (the “Reporting Period”), the subsidiaries now comprising the Group were involved in the provision of property management services. The Then Parent Company of the Group is 正榮集團有限公司 (“Zhenro Group Company”) (the “Then Parent Company”) before the Reorganisation.

As at the end of Reporting Period, the Company had direct or indirect interests in its subsidiaries, all of which are private limited liability companies (or, if incorporated outside Hong Kong, have substantially similar characteristics to a private company incorporated in Hong Kong), the particulars of which are set out below:

Name Notes Directly held: Future Prosperity Holdings Limited (“Future Prosperity (BVI)”) . . . . . . . . . (1) Zhenro Services China Limited (“Zhenro Services (BVI)”) . . . . (1) Indirectly held: Future Prosperity (HK) Limited (“Future Prosperity (HK)”) . . . (1) Zhenro Services Hong Kong Limited (“Zhenro Services (HK)”) . . . . . . . . . . (1) 福州匯華企業管理諮詢有限公司Fuzhou Huihua Corporate Management Consultancy Co., Ltd. (“Fuzhou Huihua”)* . . (1) 福建正榮物業服務有限公司Fujian Zhenro Property Service Co., Ltd. (“Fujian Zhenro”) . . . . . . . . . (2)	Place and date of incorporation/ establishment and place of operations Nominal value of registered share capital British Virgin Islands (“BVI”)/ 22 January 2018 USD50,000 BVI/ 19 December 2018 USD1 Hong Kong/ 20 February 2018 HKD1 Hong Kong/ 24 December 2018 HKD1 PRC/Mainland China/ 31 January 2019 RMB5,000,000 PRC/Mainland China/ 8 March 2013 RMB10,000,000	Percentage of equity attributable to the Company 100% 100% 100% 100% 100% 100%	Principal activities
			Investment holding Investment holding Investment holding Investment holding Investment holding Property management

– IB-9 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

Name Notes 正榮物業服務有限公司 Zhenro Property Services Co., Ltd. (“Zhenro Property Services”) . . . . . . . . (3) 福州正榮物業管理有限公司Fuzhou Zhenro Property Management Co., Ltd. (“Fuzhou Zhenro”) . . . . . . . . . (1) 江西美時房地產經紀有限公司Jiangxi Meishi Property Brokerage Co., Ltd. (“Jiangxi Meishi”) . . . . . . . . . (1) 湖北長房正榮物業服務有限公司Hubei Changfang Zhenro Property Service Co., Ltd. (“Hubei Changfang Zhenro”) . . . . . . . (1) 宜春市首維達工程服務有限公司Yichun Shou Weida Engineering Services Co., Ltd. (“Yichun Shouweida”) . . . . . . (1) 江蘇愛濤物業管理有限公司Jiangsu Aitao Management Co., Ltd. (“Jiangsu Aitao”). . . . (4) 長沙愛濤物業管理有限公司Changsha Aitao Property Services Co., Ltd. (“Changsha Aitao”) . . . . . . . . . . (1) 江蘇省蘇鐵物業管理有限責任公司Jiangsu Sutie Property Management Co., Ltd. (“Jiangsu Sutie”) . . (1) 正榮物業管理服務有限公司Zhenro Property Management Service Co., Ltd. (“Zhenro Property Management”) . . . . . (1)	Place and date of incorporation/ establishment and place of operations Nominal value of registered share capital PRC/Mainland China/ 2 February 2000 RMB50,000,000 PRC/Mainland China/ 17 September 2010 RMB1,000,000 PRC/Mainland China/ 6 June 2019 RMB2,000,000 PRC/Mainland China/ 30 July 2018 RMB5,000,000 PRC/Mainland China/ 15 January 2015 RMB1,000,000 PRC/Mainland China/ 21 February 2001 RMB10,000,000 PRC/Mainland China/ 6 March 2018 RMB5,000,000 PRC/Mainland China/ 4 January 2001 RMB11,000,000 PRC/Mainland China/ 24 April 2019 RMB50,000,000	Percentage of equity attributable to the Company 100% 100% 100% 51% 100% 100% 100% 70% 100%	Principal activities
			Property management Property management Property agency /brokerage Property management Utilities installation and maintenance services Property maintenance Property management Property management Property management

– IB-10 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

Name Notes 蘇州可立房產經紀有限公司Suzhou Keli Property Brokerage Co., Ltd. (“Suzhou Keli”) . . . . . . . . . . (1)	Place and date of incorporation/ establishment and place of operations PRC/Mainland China/ 10 July 2019	Nominal value of registered share capital RMB1,000,000	Percentage of equity attributable to the Company 100%	Principal activities
				Property agency services

Fujian Huihua is registered as a wholly-foreign-owned enterprise under PRC law.
** These companies are subsidiaries of non-wholly-owned subsidiaries of the Company and, accordingly, are accounted for as subsidiaries by virtue of the Company having control over it.
(1) No audited financial statements have been prepared and issued for these entities for the years ended 31 December 2017 and 2018 as these companies are not subject to any statutory audit requirement under the relevant rules and regulations.
(2) The statutory financial statements for the year ended 31 December 2017 prepared in accordance with PRC generally accepted accounting principles and regulations have been audited by Wuxi Donglin Certified Public Accountants Co., Ltd (無錫東林會計師事務所有限公司), which is a certified public accounting firms registered in the PRC.
(3) The statutory financial statements for the years ended 31 December 2017 and 2018 prepared in accordance with PRC generally accepted accounting principles and regulations have been audited by Wuxi Donglin Certified Public Accountants Co., Ltd (無錫東林會計師事務所有限公司) and Fujian Guanglian Certified Public Accountants Co., Ltd (福建廣聯會計師事務所有限公司), respectively, which are certified public accounting firms registered in the PRC.
(4) The statutory financial statements for the year ended 31 December 2018 prepared in accordance with PRC generally accepted accounting principles and regulations have been audited by Beijing Yongtuo Certified Public Accountants LLP Jiangsu Branch (北京永拓會計師事務所(特殊普通合夥)江蘇分所), which is a certified public accounting firm registered in the PRC.

– IB-11 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IB

2 BASIS OF PRESENTATION

Pursuant to the Reorganisation, as more fully explained in the paragraph headed “Reorganisation” in the section headed “History, Reorganisation and Corporate Structure” in the Document, the Company became the holding company of the companies now comprising the Group subsequent on 7 November 2019. The companies now comprising the Group were under the common control of the Controlling Shareholder before and after the Reorganisation. Accordingly, for the purpose of this report, the Historical Financial Information has been prepared on a combined basis by applying the principles of merger accounting as if the Reorganisation had been completed at the beginning of the earliest period presented.

The combined statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group for the Reporting Period include the results and cash flows of all companies now comprising the Group from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control of the Controlling Shareholder, where this is a shorter period. The combined statements of financial position of the Group as at 30 September 2019 have been prepared to present the assets and liabilities of the subsidiaries and/or businesses using the existing book values from the Controlling Shareholder’s perspective. No adjustments are made to reflect fair values, or recognise any new assets or liabilities as a result of the Reorganisation.

All intra-group transactions and balances have been eliminated on consolidation.

3. BASIS OF PREPARATION AND ACCOUNTING POLICY

The unaudited interim financial information for the Reporting Period has been prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants.

The unaudited interim financial information do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s Historical Financial Information for the years ended 31 December 2017 and 2018.

The accounting policies applied in the preparation of the interim financial information are consistent with those used in the Group’s Historical Financial Information for the years ended 31 December 2017 and 2018.

The interim financial information has been prepared under the historical cost convention, except for investment properties which have been measured at fair value.

4. OPERATING SEGMENT INFORMATION

Geographical information

Information about major customers

For the the nine months ended 30 September 2018 and 2019, revenue from Zhenro Properties (as defined in note 30) and its subsidiaries (“Zhenro Properties Group”) contributed 28.5% and 26.4% of the Group’s revenue, respectively. Other than the revenue from Zhenro Properties Group, no revenue derived from sales to a single customer or a group of customers under common control accounted for 10% or more of the Group’s revenue for each of the Relevant Periods.

– IB-12 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

5. REVENUE, OTHER INCOME AND GAINS

Revenue represents income from the property management services, value-added services to non-property owners and community value-added services during the nine months ended 30 September 2018 and 2019.

An analysis of revenue and other income and gains is as follows:

Revenue from contracts with customers Property management services . . . . . . . . . . . . . . . . . . . . Value-added services to non-property owners . . . . . . . . . . . Community value-added services . . . . . . . . . . . . . . . . . . .	Nine months ended 30 September	Nine months ended 30 September
	2019 RMB’000 (unaudited) 252,520 189,671 74,709 516,900	2018
		RMB’000 (unaudited) 184,220 98,950 37,392
		320,562

Revenue from contracts with customers

(i) Disaggregated revenue information

Segments For the nine months 30 September 2019 (unaudited) Type of goods or services Rendering of services . . . . . . . . . . Total revenue from contracts with customers. . . . . . . . . . . . . . . . Geographical markets Mainland China . . . . . . . . . . . . . Timing of revenue recognition Revenue recognised over time . . . . Revenue recognised at a point in time . . . . . . . . . . . . . . . . . . . Total revenue from contracts with customers. . . . . . . . . . . . . . . .	Property management services RMB’000 252,520 252,520 252,520 252,520 – 252,520	Value-added services to non-property owners RMB’000 189,671 189,671 189,671 144,509 45,162 189,671	Community value-added services RMB’000 74,709 74,709 74,709 21,784 52,925 74,709	Total
				RMB’000 516,900
				516,900

				516,900

				418,813 98,087
				516,900

– IB-13 –

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APPENDIX IB

ACCOUNTANTS’ REPORT

Segments For the nine months 30 September 2018 (unaudited) Type of goods or services Rendering of services . . . . . . . . . . Total revenue from contracts with customers. . . . . . . . . . . . . . . . Geographical markets Mainland China . . . . . . . . . . . . . Timing of revenue recognition Revenue recognised over time . . . . Revenue recognised at a point in time . . . . . . . . . . . . . . . . . . . Total revenue from contracts with customers. . . . . . . . . . . . . . . .	Property management services RMB’000 184,220 184,220 184,220 184,220 – 184,220	Value-added services to non-property owners RMB’000 98,950 98,950 98,950 80,012 18,938 98,950	Community value-added services RMB’000 37,392 37,392 37,392 14,716 22,676 37,392	Total
				RMB’000 320,562
				320,562

				320,562

				278,948 41,614
				320,562

The following table shows the amounts of revenue recognised in the nine months ended 30 September 2018 and 2019 that were included in the contract liabilities at the beginning of the nine months ended 30 September 2018 and 2019:

Revenue recognised that was included in contract liabilities at the beginning of the period: Property management services . . . . . . . . . . . . . . . . . . . .	Nine months ended 30 September	Nine months ended 30 September
	2019 RMB’000 (unaudited) 63,185 63,185	2018
		RMB’000 (unaudited) 44,722
		44,722

(ii) Performance obligations

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APPENDIX IB

ACCOUNTANTS’ REPORT

For value-added services to non-property owners, they are rendered in a short period of time and there is no unsatisfied performance obligation at the end of the respective periods.

Other income and gains Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Government grants . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Nine months ended 30 September	Nine months ended 30 September
	2019 RMB’000 (unaudited) 873 765 467 2,105	2018
		RMB’000 (unaudited) 431 341 90
		862

6. PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after charging/(crediting):

Notes Cost of services provided. . . . . . . . . . . . . . . . . . . Depreciation of property, plant and equipment . . . . . . 13 Depreciation of right-of-use assets . . . . . . . . . . . . . . 14 Amortisation of other intangible assets . . . . . . . . . . . 17 Auditor’s remuneration . . . . . . . . . . . . . . . . . . . . . Impairment of financial assets, net Impairment of trade receivables, net . . . . . . . . . . . 19 Impairment of other receivables, net . . . . . . . . . . . 20 Employee benefit expense (including directors’ and chief executive’s remuneration (note 8)*): Wages, salaries and other allowances . . . . . . . . . . . Pension scheme contributions and social welfare. . . .	Nine months ended 30 September	Nine months ended 30 September
	2019 RMB’000 (unaudited) 344,091 1,467 2,133 2,847 941 7,435 (127) 203,508 58,915 262,423	2018
		RMB’000 (unaudited) 235,628 885 447 878 404 3,269 (56) 155,482 39,971
		195,453

Amount of RMB223,748,000 of employee benefit expenses were included in costs of services during nine months ended 30 September 2019 (nine months ended 30 September 2018: RMB164,752,000).

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APPENDIX IB

ACCOUNTANTS’ REPORT

7. FINANCE COSTS

An analysis of finance costs is as follows:

Interest on bank and other borrowings . . . . . . . . . . . . . . . Less: Interests charged to a related company controlled by the Controlling Shareholder . . . . . . . . . . . . . . . . . . . . . . . Interest expense on lease liabilities . . . . . . . . . . . . . . . . .	Nine months ended 30 September	Nine months ended 30 September
	2019 RMB’000 (unaudited) 54,948 (53,278) 580 2,250	2018
		RMB’000 (unaudited) 35,469 (35,469) 39
		39

8. DIRECTORS’ AND CHIEF EXECUTIVE’S REMUNERATION

The Company did not have any chief executive, executive director, non-executive directors and independent non-executive directors at any time during the nine months ended 30 September 2018 and 2019 as they were appointed on 6 December 2019.

Subsequent to the end of Reporting Period, Mr. Huang Liang and Mr. Huang Sheng were appointed as executive directors of the Company and Mr. Chan Wai Kin was appointed as non-executive director of the Company on 6 December 2019, respectively. Mr. Huang Xianzhi was appointed as non-executive director and the chairman of the board of the Company on 6 December 2019.

Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other emoluments: Salaries, allowances and benefits in kind . . . . . . . . . . . . Performance related bonuses . . . . . . . . . . . . . . . . . . . . Pension scheme contributions and social welfare. . . . . . . .	Nine months ended 30 September	Nine months ended 30 September
	2019 RMB’000 (unaudited) – 1,125 570 106 1,801	2018
		RMB’000 (unaudited) – 564 41 79
		684

(a) Independent non-executive directors

Subsequent to the end of Reporting Period, Mr. Au Yeung Po Fung, Mr. Ma Haiyue and Mr. Zhang Wei were appointed as independent non-executive directors of the Company on [●] 2020. There was no emolument payable to the independent non-executive directors during the Reporting Period.

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APPENDIX IB

ACCOUNTANTS’ REPORT

(b) Executive directors and non-executive directors

Nine months ended 30 September 2019 (unaudited)

Executive directors: Mr. Huang Liang . . . . Mr. Huang Sheng . . . . Non-executive directors: Mr. Huang Xianzhi . . . Mr. Chan Wai Kin . . .	Fees RMB’000 – – – – – –	Salaries, allowances and benefits in kind RMB’000 900 225 1,125 – – –	Performance- related bonuses RMB’000 570 – 570 – – –	Pension scheme contributions and social welfare RMB’000 86 20 106 – – –	Total remuneration
					RMB’000 1,556 245
					1,801

					– –
					–

Nine months ended 30 September 2018 (unaudited)

Executive directors: Mr. Huang Liang . . . . Mr. Huang Sheng . . . . Non-executive directors: Mr. Huang Xianzhi . . . Mr. Chan Wai Kin . . .	Fees RMB’000 – – – – – –	Salaries, allowances and benefits in kind RMB’000 564 – 564 – – –	Performance- related bonuses RMB’000 41 – 41 – – –	Pension scheme contributions and social welfare RMB’000 79 – 79 – – –	Total remuneration
					RMB’000 684 –
					684

					– –
					–

There was no arrangement under which a director or the chief executive waived or agreed to waive any remuneration during the nine months ended 30 September 2019 and 2018.

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APPENDIX IB

ACCOUNTANTS’ REPORT

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees for the year ended 30 September 2019 included 1 (nine months ended 30 September 2018: 1) director, details of whose remuneration are set out in note 8 above. Details of the remuneration for the year ended 30 September 2019 of the remaining 4 (nine months ended 30 September 2018: 4) highest paid employees who are neither a director nor chief executive of the Company are as follows:

Salaries, allowances and benefits in kind . . . . . . . . . . . . . . Performance related bonuses . . . . . . . . . . . . . . . . . . . . . Pension scheme contributions and social welfare . . . . . . . . .	Nine months ended 30 September	Nine months ended 30 September
	2019 (unaudited) 3,191 1,016 382 4,589	2018
		(unaudited) 2,001 160 331
		2,492

The number of non-director and highest paid employees whose remuneration fell within the following bands is as follows:

Nil to HK$500,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$500,001 to HK$1,000,000 . . . . . . . . . . . . . . . . . . . . HK$1,000,001 to HK$1,500,000 . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Nine months ended 30 September	Nine months ended 30 September
	2019 (unaudited) – 2 2 4	2018
		(unaudited) 2 2 –
		4

10. INCOME TAX

During the nine months ended 30 September 2019, PRC corporate income tax has been provided at the rate of 25% on the taxable profits of the Group’s PRC subsidiaries (nine months ended 30 September 2018: 25%).

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APPENDIX IB

ACCOUNTANTS’ REPORT

Some subsidiaries are qualified as small low-profit enterprises and thus subject to a preferential tax rate of 10% during the nine months ended 30 September 2019 (nine months ended 30 September 2018: 10%).

Current – Mainland China: Charge for the period . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax (note 25) . . . . . . . . . . . . . . . . . . . . . . . . . Total tax charge for the period . . . . . . . . . . . . . . . . . . . .	Nine months ended 30 September	Nine months ended 30 September
	2019 RMB’000 (unaudited) 27,663 (2,404) 25,259	2018
		RMB’000 (unaudited) 11,499 (1,683)
		9,816

Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At the statutory income tax rate . . . . . . . . . . . . . . . . . . . Losses attributable to an associate . . . . . . . . . . . . . . . . . . Expenses not deductible for tax. . . . . . . . . . . . . . . . . . . . Tax charge at the Group’s effective rate . . . . . . . . . . . . . .	Nine months ended 30 September	Nine months ended 30 September
	2019 RMB’000 (unaudited) 99,518 24,881 42 336 25,259	2018
		RMB’000 (unaudited) 38,351 9,588 18 210
		9,816

The share of tax attributable to associate amounting to RMB(42,000) during the nine months ended 30 September 2019 (nine months ended 30 September 2018: RMB(18,000)) are included in “Share of profits and losses of associates” in the combined statement of profit or loss.

11. DIVIDENDS

No dividends have been paid or declared by the Company since its incorporation.

12. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful due to the Reorganisation and the presentation of the results of the Group for the Reporting Period on the basis as disclosed in note 2 to the unaudited interim financial information.

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APPENDIX IB

ACCOUNTANTS’ REPORT

13. PROPERTY, PLANT AND EQUIPMENT

30 September 2019 (unaudited) At 31 December 2018 and 1 January 2019: Cost or valuation . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . Net carrying amount . . . . . . . . . . . At 1 January 2019, net of accumulated depreciation . . . . . . . Additions . . . . . . . . . . . . . . . . . Acquisition of a subsidiary (note 28) . . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . . . Depreciation provided during the period (note 6) . . . . . . . . . . . . At 30 September 2019, net of . . . . accumulated depreciation . . . . . . . At 30 September 2019: Cost or valuation . . . . . . . . . . . . Accumulated depreciation . . . . . . . Net carrying amount . . . . . . . . . . 31 December 2018 At 31 December 2017 and 1 January 2018: Cost . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . Net carrying amount . . . . . . . . . . At 1 January 2018, net of accumulated depreciation . . . . . . Additions . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . Depreciation provided during the year . . . . . . . . . . . . . . . At 31 December 2018, net of accumulated depreciation . . . . . . . At 31 December 2018: Cost or valuation . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . Net carrying amount . . . . . . . . . . .	Machinery	Electronic equipment	Motor vehicles	Leasehold improvement
	479	3,690	176	499

– IB-20 –

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APPENDIX IB

ACCOUNTANTS’ REPORT

14. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

The Group leases certain of its building for its office. The lease term is three years to ten years.

The movements in right-of-use assets are as follows:

Right-of-use assets Carrying amount at the beginning of the period/year. . . . . . . Addition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation provided during the period/year . . . . . . . . . . . Carrying amount at the end of the year/period. . . . . . . . . . . Lease liabilities Carrying amount at the beginning of the period/year. . . . . . . Addition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest during the period/year . . . . . . . . . . . . . . . . . . . . Payments during the period/year . . . . . . . . . . . . . . . . . . . Carrying amount at the end of the period/year . . . . . . . . . . Portion classified as: Current lease liabilities . . . . . . . . . . . . . . . . . . . . . . . Non-current lease liability . . . . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) 1,361 9,451 (2,133) 8,679 30 September 2019 RMB’000 (unaudited) 1,338 9,451 580 (850) 10,519 3,951 6,568	31 December 2018
		RMB’000 (audited) 713 1,378 (730)
		1,361

		31 December 2018
		RMB’000 (audited) 717 1,378 52 (809)
		1,338

		789 549

The Group recognised rental expense from short-term lease of RMB1,263,000 for the nine months ended 30 September 2019.

15. INVESTMENT PROPERTIES

30 September 2019 (unaudited)
Carrying amount at 1 January 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of a subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain from a fair value adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying amount at 30 September 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

RMB’000
–
20,800
600

21,400

– IB-21 –

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APPENDIX IB

ACCOUNTANTS’ REPORT

The Group’s investment properties are situated in Mainland China. The Group’s investment properties were revalued on 30 September 2019 based on valuations performed by Jones Lang LaSalle Corporate Appraisal and Advisory Limited (“JLL”), an independent professionally qualified valuer, at RMB21,400,000. The Group’s senior finance manager and the chief financial officer decide, after approval from the board of directors of the Company, to appoint which external valuer to be responsible for the external valuations of the Group’s properties. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. The Group’s senior finance manager and the chief financial officer have discussions with the valuer on the valuation assumptions and valuation results when the valuation is performed for financial reporting.

Fair value hierarchy

The following table illustrates the fair value measurement hierarchy of the Group’s investment properties:

Recurring fair value measurement for: Commercial properties . . . . . . . . . . . . . .	Fair value measurement as	Fair value measurement as	at 30 September 2019 using	at 30 September 2019 using
	Quoted prices in active markets (Level 1)	Significant observable inputs (Level 2)	Significant unobservable inputs (Level 3)	Total
	RMB’000 –	RMB’000 –	RMB’000 21,400	RMB’000 21,400

During the Relevant Periods, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3.

Below is a summary of the valuation technique used and the key inputs to the valuation of investment properties:

Car park	Valuation technique Direct comparison method- based market observable transaction of and similar car park and adjusted to reflect the conditions of the subject property	Significant unobservable inputs Market unit price per lot (the higher of the market unit price, the higher of the value)	Range or weighted average
			RMB207,000 to RMB282,000

A significant increase in the market unit price per lot would result in a significant increase in the fair value of the investment properties.

A significant increase (decrease) in the estimated rental value and the market rent growth rate per annum in isolation would result in a significant increase (decrease) in the fair value of the investment properties. A significant increase (decrease) in the long term vacancy rate and the discount rate in isolation would result in a significant decrease (increase) in the fair value of the investment properties. Generally, a change in the assumption made for the estimated rental value is accompanied by a directionally similar change in the rent growth per annum and the discount rate and an opposite change in the long term vacancy rate.

– IB-22 –

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APPENDIX IB

ACCOUNTANTS’ REPORT

16. GOODWILL

Cost and net carrying amount at the beginning of the year . . . Acquisition of a subsidiary (note 28) . . . . . . . . . . . . . . . . Cost and net carrying amount at the end of the period/year . .	30 September 2019 RMB’000 (unaudited) 19,507 40,030 59,537	31 December 2018
		RMB’000 (audited) 19,507 –
		19,507

Impairment testing of goodwill

During the Relevant Periods, the Group completed the acquisition of Jiangsu Sutie for a consideration of RMB70,000,000, which resulted in the recognition of goodwill of RMB40,030,000.

For the purpose of impairment testing, the Group’s goodwill acquired through business combinations was related to the two subsidiaries which were regarded as cash-generating units (“CGUs”). The recoverable amounts of these CGUs have been determined based on a value-in-use calculation using cash flow projections based on financial budgets covering a five-year period prepared by management.

As at 30 September 2019 (unaudited)

CGU Jiangsu Aitao Jiangsu Sutie	Principal business Property management Property management	Goodwill RMB’000 19,507 40,030	Annual revenue growth rate 3~7% 5~8%	Discount rate 14.3% 14.3%	Terminal growth rate
					3% 3%

As at 31 December 2018

CGU Jiangsu Aitao	Principal business Property management	Goodwill RMB’000 19,507	Annual revenue growth rate 3~7%	Discount rate 14.6%	Terminal growth rate
					3%

Assumptions were used in the value-in-use calculations of the above mentioned CGUs for the Relevant Periods. The following describes each key assumption on which management had based its cash flow projections of the CGUs to undertake impairment testing of goodwill:

Discount rate – The discount rate used is before tax and reflects specific risks relating to the relevant unit.

Annual revenue growth rate – The predicted revenue growth rate of CGUs for the five years subsequent to the date of assessment is one of the assumptions used in the value-in-use calculations.

– IB-23 –

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APPENDIX IB

ACCOUNTANTS’ REPORT

Details of the headroom measured by excess of the recoverable amount over the carrying amount of the CGUs as at 30 September 2019 and 31 December 2018 are set out as follows:

Jiangsu Aitao . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jiangsu Sutie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) 20,425 4,916 25,341	31 December 2018
		RMB’000 (audited) 12,899 –
		12,899

As at 30 September 2019 Increase in discount rate . . . . . . . . . . . . . . . . . . . . . . . . Decrease in annual revenue growth rate. . . . . . . . . . . . . . . As at 31 December 2018 Increase in discount rate . . . . . . . . . . . . . . . . . . . . . . . . Decrease in annual revenue growth rate. . . . . . . . . . . . . . .	Jiangsu Aitao 7.5% 12.4% 5.1% 8.8%	Jiangsu Sutie
		0.9% 1.3% NA NA

At the end of each of the Relevant Periods, the directors of the Company considered there was no reasonably possible change in the key assumptions mentioned above would cause the carrying amount of each CGU to exceed its recoverable amount. The directors of the Company determined that there was no impairment of any of its CGUs.

– IB-24 –

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APPENDIX IB

ACCOUNTANTS’ REPORT

17. OTHER INTANGIBLE ASSETS

30 September 2019 (unaudited) At the beginning of the year Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . Carrying amount of the beginning of the period . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of a subsidiary (note 28) . . . . . . . . . . Amortisation provided during the period (note 6) . . . Carrying amount of the end of the period . . . . . . . At the end of the period: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . 31 December 2018 (audited) At the beginning of the year Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation . . . . . . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . . Carrying amount of the beginning of the year . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortisation provided during the year . . . . . . . . . Carrying amount of the end of the year . . . . . . . . . At the end of the year: Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortisation (note 6) . . . . . . . . . . . . Net carrying amount . . . . . . . . . . . . . . . . . . . .	Softwares RMB’000 942 (27) 915 915 603 – (154) 1,364 1,545 (181) 1,364 Softwares RMB’000 – – – – 942 (27) 915 942 (27) 915	Customer Relationship RMB’000 11,697 (1,462) 10,235 10,235 – 24,222 (2,693) 31,764 35,919 (4,155) 31,764 Customer Relationship RMB’000 11,697 (292) 11,405 11,405 – (1,170) 10,235 11,697 (1,462) 10,235	Total RMB’000 12,639 (1,489) 11,150 11,150 603 24,222 (2,847) 33,128 37,464 (4,336) 33,128 Total RMB’000 11,697 (292) 11,405 11,405 942 (1,197) 11,150 12,639 (1,489) 11,150

– IB-25 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

18. INVESTMENT IN AN ASSOCIATE

Share of net assets. . . . . . . . . . . . . . . . . . . . . Particulars of the Group’s associate is as follows: Name Particulars of issued shares held 南京愛濤豐匯物業管理有限公司(“Ai Tao Feng Hui”) . . . . RMB500,000	30 September 2019 RMB’000 (unaudited) . . . . . . . 204 Place of registration and business Percentage of ownership interest attributable to the Group PRC/Mainland China 48%	31 December 2018
		RMB’000 (audited) 371

		Principal activities
		Property management

The following table illustrates the aggregate financial information of the Group’s associate that is not individually material:

Share of the associate’s loss for the period/year. . . . . . . . . . Share of the associate’s total comprehensive loss . . . . . . . . . Aggregate carrying amount of the Group’s investment in the associate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TRADE RECEIVABLES Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) (167) (167) 204 30 September 2019 RMB’000 (unaudited) 152,962 (12,416) 140,546	31 December 2018
		RMB’000 (audited) (98) (98) 371

		31 December 2018
		RMB’000 (audited) 59,002 (4,981)
		54,021

19. TRADE RECEIVABLES

Trade receivables mainly arise from property management service, value-added services to non-property owners and community value-added services.

– IB-26 –

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APPENDIX IB

ACCOUNTANTS’ REPORT

An ageing analysis of the trade receivables as at the end of Reporting Period, based on the invoice date and net of loss allowance, is as follows:

Within 1 year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 to 2 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 to 3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) 124,329 15,062 1,155 – 140,546	31 December 2018
		RMB’000 (audited) 48,494 5,334 193 –
		54,021

The movements in the loss allowance for impairment of trade receivables are as follows:

At beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment losses/(reversal of impairment), net (note 6) . . . . Amount written off as uncollectible . . . . . . . . . . . . . . . . . At 30 September 2019 . . . . . . . . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) (4,981) (7,435) – (12,416)	31 December 2018
		RMB’000 (audited) (2,944) (2,037) –
		(4,981)

Impairment under IFRS 9

Set out below is the information about the credit risk exposure on the Group’s trade receivables using a provision matrix:

30 September 2019 (unaudited)

Current Expected credit loss rate . . 6.7% Gross carrying amount (RMB’000) . . . . . . . . . 133,246 Expected credit losses (RMB’000) . . . . . . . . . 8,917	Past due 1 to 2 year 2 to 3 years Over 3 years Total 9.6% 53.5% 100% 8.1% 16,656 2,483 577 152,962 1,594 1,328 577 12,416

– IB-27 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

31 December 2018 (audited)

Current Expected credit loss rate . . 6.7% Gross carrying amount (RMB’000) . . . . . . . . . 52,004 Expected credit losses (RMB’000) . . . . . . . . . 3,510	Past due 1 to 2 year 2 to 3 years Over 3 years Total 11.2% 53.9% 100% 8.4% 6,009 419 570 59,002 675 226 570 4,981

20. PREPAYMENTS AND OTHER RECEIVABLES

Prepayments on behalf of customers to utility suppliers . . . . . Other prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advance to staffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) 7,413 17,222 8,391 2,811 2,065 37,902 (628) 37,274	31 December 2018 RMB’000 (audited) 5,739 7,676 3,068 1,644 27,626 45,753 (755) 44,998

Other receivables are unsecured, non-interest-bearing and have no fixed terms of repayment.

The movements in the loss allowance for impairment of other receivables are as follows:

At beginning of period/year . . . . . . . . . . . . . . . . . . . . . . Impairment losses, net (note 6). . . . . . . . . . . . . . . . . . . . Amount written off as uncollectible . . . . . . . . . . . . . . . . . At end of period/year . . . . . . . . . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) (755) 127 – (628)	31 December 2018 RMB’000 (audited) (330) (425) – (755)

– IB-28 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

21. CASH AND CASH EQUIVALENTS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) 74,983	31 December 2018
		RMB’000 (audited) 49,843

At 30 September 2019, the cash and bank balances of the Group denominated in RMB amounted to RMB74,983,000. The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorized to conduct foreign exchange business.

The Group collects deposits from profitable operating activities in the common areas of the community in accordance with the relevant rules and regulations in the PRC.

22. TRADE PAYABLES

An aging analysis of the trade payables as at 30 September 2019, based on the invoice date, is as follows:

Within 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) 27,827 300 1,053 29,180	31 December 2018
		RMB’000 (audited) 18,971 2,981 1,362
		23,314

The trade payables are non-interest-bearing and are normally settled on 90-day terms.

As at 30 September 2019, the carrying amounts of trade payables approximated their fair values.

– IB-29 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

23. OTHER PAYABLES AND ACCRUALS

Notes Current portion Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . (a) Deposits received . . . . . . . . . . . . . . . . . . . . . . . . Receipts on behalf of community residents. . . . . . . . . Payroll and welfare payables . . . . . . . . . . . . . . . . . Investment payables. . . . . . . . . . . . . . . . . . . . . . . (b) Other tax payables. . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current portion Investment payables. . . . . . . . . . . . . . . . . . . . . . . (b)	30 September 2019 RMB’000 (unaudited) 85,895 12,556 50,007 78,603 14,000 18,098 12,758 271,917 7,000 278,917	31 December 2018
		RMB’000 (audited) 89,301 6,839 34,831 73,926 – 10,898 8,348
		224,143 –
		224,143

Notes:

(a) Details of contract liabilities are as follows:

Short-term advances received from customers Property management services . . . . . . . . . . . . . . . . Total contract liabilities . . . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) 85,895 85,895	31 December 2018
		RMB’000 (audited) 89,301
		89,301

(b) As set out in note 28, the Group acquired 70% interests in Jiangsu Sutie from independent third parties with a cash consideration of RMB70,000,000 on 1 January 2019. Pursuant to the share transfer agreement, this cash consideration will be settled by installment over three years.

– IB-30 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

24. INTEREST-BEARING BANK AND OTHER BORROWINGS

30 September 2019	30 September 2019	30 September 2019	31	December 2018	December 2018	December 2018
Effective interest rate (%) 5.7-6.5 5.7 5.2	Maturity (unaudited) 2019-2020 2020 2020	RMB’000 30,000 1,000 1,500	Effective interest rate (%) 5.7 – –	Maturity (audited) 2019 – –		RMB’000 20,000 – –
14.0 5.7 5.2	2022 2024 2024	32,500	14.0 – –	2022 – –		20,000
		500,000 11,000 7,750				500,000 – –
	. . . . . . . . . . . . . . . .	518,750				500,000
		551,250				520,000

		. . . . . . . . . .
					RMB’000 (audited) 20,000 500,000
					520,000

The Group’s borrowings are all denominated in RMB and bore interest at fixed rates except for bank borrowings of RMB31,250,000 and nil that bore interest at floating rates as at 30 September 2019 and 31 December 2018, respectively.

As at 30 September 2019 and 31 December 2018, the Group’s other borrowing of RMB500,000,000 and RMB500,000,000 borrowed from an independent third-party trust company was pledged by the future years’ right of receiving management fees from certain properties under its management and 100% equity interests of Zhenro Property Services, and also guaranteed by Mr. Ou Zongrong, Ms. Lin Shuying and Zhenro Group Company (note 30).

The above other borrowing has been fully repaid and the related pledge and the guarantees have been released subsequently.

As at 30 September 2019, the Group’s bank borrowings of RMB12,000,000 were pledged by 100% equity interests of Jiangsu Aitao and guaranteed by Zhenro Group Company (note 30). The guarantee has been released subsequently.

As at 30 September 2019 and 31 December 2018, the Group’s bank borrowings of RMB30,000,000 and RMB20,000,000 were guaranteed by Zhenro Group Company (note 30). The bank borrowings have been been fully repaid and the related guarantee has been released subsequently.

– IB-31 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

The management of the Company has assessed that the fair values of interest-bearing borrowings approximate to their carrying amounts largely due to the fact that such borrowings were made between the Group and independent third party financial institutions based on prevailing market interest rates.

25. DEFERRED TAX

Deferred tax assets

Impairment of financial assets	Losses available for offsetting against future taxable profits	Accrued expenses
RMB’000 1,130 615		RMB’000 919 1,119
1,745	1,915	2,038

143 1,827	– 307
3,715	2,222	1,785

		Fair value changes of Investment properties

– IB-32 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

Net deferred tax assets recognised in the combined statements of financial position . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax liabilities recognised in the combined statements of financial position . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) 7,619 10,429	31 December 2018
		RMB’000 (audited) 5,698

		2,559

The Group’s investment properties are held under a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time. Therefore, in determining the Group’s deferred taxation on investment properties, the directors have determined that the presumption that investment properties measured using the fair value model are recovered through sale is rebutted. Accordingly, the Group recognises deferred tax in respect of the changes in fair value of the investment properties based on management’s best estimate assuming future tax consequences through usage of such properties of rental purpose, rather than through sale.

At 30 September 2019, no deferred tax has been recognised for withholding taxes that would be payable on the unremitted earnings that are subject to withholding taxes of the Group’s subsidiaries established in Mainland China. This is because the Company controls the dividend policy of the Mainland China subsidiaries and the directors determined that such retained earnings are not likely to be distributed in the foreseeable future.

26. SHARE CAPITAL

Authorised: 950,000 of ordinary shares of US$1.00 each . . . . . . . . . . Issued and fully paid: 1 ordinary share of US$1.00 each . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) 6,555 –	31 December 2018
		RMB’000 (audited) 6,555

		–

– IB-33 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

The Company was incorporated in the Cayman Islands on 17 December 2018 with an authorized share capital of US$950,000.00 divided into 950,000 shares of US$1.00 par value each. Upon its incorporation, one fully-paid share of our Company was issued and allotted at par to an initial subscriber, an independent third party, and such share was transferred to WeiQiang Holdings Limited (“WeiQiang”) at a consideration of US$1 on the same date. On the same date, 683,050 shares, 95,000 shares, 95,000 shares and 76,949 shares of US$1 each were issued and allotted to WeiZheng Holdings Limited (“WeiZheng”), WeiYao Holdings Limited (“WeiYao”), WeiTian Holdings Limited (“WeiTian”) and WeiQiang, respectively. WeiZheng, WeiYao and WeiTian were incorporated in the BVI with limited liability and wholly-owned by Mr, Ou Zongrong. WeiQiang was incorporated in the BVI with limited liability and wholly-owned by Mr. Ou Guoqiang.

On 18 October 2019, the authorized share capital of the Company was increased from US$950,000 to US$1,000,000 by the creation of additional 50,000 shares of US$1 each, such that following the increase in authorized share capital, the authorized share capital of the Company was US$1,000,000 divided into 1,000,000 shares of US$1 each.

27. RESERVES

The amounts of the Group’s reserves and the movements therein for the Relevant Periods are presented in the combined statements of changes in equity of the Historical Financial Information.

(a) Merger reserve

(b) Statutory surplus reserve

– IB-34 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

28. BUSINESS COMBINATION

1 January 2019

On 1 January 2019, the Group acquired a 70% interest in Jiangsu Sutie from independent third parties with a cash consideration of RMB70,000,000. Jiangsu Sutie is engaged in the provision of property management and other community services. The acquisition was made as part of the Group’s strategy to expand its market share of property management operation in the PRC.

Notes
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayments and other receivables . . . . . . . . . . . . . . . . . . . . . . . .
Investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . .
13
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
Total identifiable net assets at fair value . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill on acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
Satisfied by cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fair value
recognised on
acquisition
RMB’000
4,977
3,390
1,645
20,800
823
24,222
143
(1,700)
(1,095)
(1,895)
(8,496)
42,814
(12,844)
40,030
70,000

An analysis of the net inflow of cash and cash equivalents in respect of the above acquisition is as follows:

Total cash consideration Consideration to be paid subsequent to 30 September 2019 Total cash and bank balances acquired Net inflow of cash and cash equivalents in respect of the acquisition	RMB’000 (70,000) 21,000 4,977 (44,023)

Since the acquisition, the entity acquired contributed RMB23,705,000 to the Group’s revenue and RMB5,442,000 combined profit for the nine months ended 30 September 2019.

– IB-35 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

29. NOTES TO THE COMBINED STATEMENT OF CASH FLOWS

At 1 January 2019 . . . . . . . . . . . . . . . Additions. . . . . . . . . . . . . . . . . . . . . Interest expenses . . . . . . . . . . . . . . . . Cash flows from operating activities . . . . Cash flows from investing activities . . . . Cash flows from financing activities . . . . At 30 September 2019. . . . . . . . . . . . .	Interest payables RMB’000 – – – – 53,278 (53,278) –	Lease liabilities RMB’000 1,338 9,451 580 – – (850) 10,519	Interest- bearing bank and other borrowings RMB’000 520,000 – – – – 31,250 551,250	Due to related parties
				RMB’000 3,387 – – 1,594 – 1,603
				6,584

30. RELATED PARTY TRANSACTIONS

(a) Name of related party and relationship with the Group

Name of related party Mr. Ou Zongrong . . . . . . . . . . . . . . . . . . . . Mr. Ou Guoqiang . . . . . . . . . . . . . . . . . . . . Ms. Lin Shuying . . . . . . . . . . . . . . . . . . . . . Zhenro Group Company . . . . . . . . . . . . . . . . 正榮地產集團有限公司 (“Zhenro Properties”) . . . . . . . . . . . . . . . . 正榮地產控股股份有限公司 (“Zhenro Property Holdings”) . . . . . . . . . . . 閩侯正榮正升置業發展有限公司 (“Minhou Zhengsheng”) . . . . . . . . . . . . . . . 正榮(福州)投資發展有限公司 (“Fuzhou Investment”). . . . . . . . . . . . . . . . 正榮(馬尾)置業發展有限公司 (“Mawei Real Estate”) . . . . . . . . . . . . . . . . 正升(福州)置業發展有限公司 (“Fuzhou Zhengsheng”) . . . . . . . . . . . . . . . 正泰(福州)置業發展有限公司 (“Fuzhou Zhengtai”) . . . . . . . . . . . . . . . . . 福州市馬尾區正榮房地產開發有限公司 (“Mawei Property”). . . . . . . . . . . . . . . . . . 正榮(閩侯)投資發展有限公司 (“Minhou Investment”) . . . . . . . . . . . . . . . 襄陽市長房正創置業有限公司 (“Xiangyang Zhengchuang”) . . . . . . . . . . . . 滁州正宏置業發展有限公司 (“Chuzhou Zhenghong”). . . . . . . . . . . . . . . 福建力沃置業有限公司 (“Fujian Liwo”) . . . . . . . . . . . . . . . . . . . . 閩侯正榮正升置業發展有限公司 (“Minhou Zhengsheng”) . . . . . . . . . . . . . . . 正榮(福州)投資發展有限公司 (“Fuzhou Investment”). . . . . . . . . . . . . . . .

Relationship with the Group Controlling Shareholder A shareholder of the Company and son of Mr. Ou Zongrong Spouse of Mr. Ou Zongrong Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder

– IB-36 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

Name of related party

正榮(馬尾)置業發展有限公司 (“Mawei Real Estate”) . . . . . . . . . . . . . . . . 正升(福州)置業發展有限公司 (“Fuzhou Zhengsheng”) . . . . . . . . . . . . . . 正泰(福州)置業發展有限公司 (“Fuzhou Zhengtai”) . . . . . . . . . . . . . . . . . 福州市馬尾區正榮房地產開發有限公司 (“Mawei Property”). . . . . . . . . . . . . . . . . . 正榮(閩侯)投資發展有限公司 (“Minhou Investment”) . . . . . . . . . . . . . . . 正榮(閩侯)置業發展有限公司 (“Minhou Real Estate”) . . . . . . . . . . . . . . . 正榮(福州)置業發展有限公司 (“Fuzhou Real Estate”) . . . . . . . . . . . . . . . 福州正榮商業管理有限公司 (“Fuzhou Zhenro Commerce”) . . . . . . . . . . . 贛州市正碧置業發展有限公司 (“Ganzhou Zhengbi”) . . . . . . . . . . . . . . . . 合肥正茂置業發展有限公司 (“Hefei Zhengmao”) . . . . . . . . . . . . . . . . . 合肥正裕置業發展有限公司 (“Hefei Zhengyu”) . . . . . . . . . . . . . . . . . . 濟南正啟置業有限公司 (“Jinan Zhengqi”). . . . . . . . . . . . . . . . . . . 嘉興榮昱置業有限公司 (“Jiaxing Rongyu”) . . . . . . . . . . . . . . . . . . 嘉興卓驌房地產開發有限公司 (“Jiaxing Zhuosu”) . . . . . . . . . . . . . . . . . . 南昌世歐房地產開發有限公司 (“Nanchang Shiou”) . . . . . . . . . . . . . . . . . 南昌正榮(新加坡)置業有限公司 (“Nanchang Real Estate”) . . . . . . . . . . . . . . 南昌正榮紅谷投資發展有限公司 (“Nanchang Honggu”) . . . . . . . . . . . . . . . . 南昌正榮新建投資發展有限公司 (“Nanchang Xinjian”) . . . . . . . . . . . . . . . . 南昌正榮正創置業有限公司 (“Nanchang Zhengchuang”). . . . . . . . . . . . . 南昌正榮正興置業有限公司 (“Nanchang Zhenro Zhengxing”) . . . . . . . . . 南昌駿越房地產開發有限公司 (“Nanchang Junyue”). . . . . . . . . . . . . . . . . 南京正榮德信房地產開發有限公司 (“Nanjing Dexin”) . . . . . . . . . . . . . . . . . . 南京正榮房地產開發有限公司 (“Nanjing Property”) . . . . . . . . . . . . . . . . . 南京正榮江濱投資發展有限公司 (“Nanjing Investment”) . . . . . . . . . . . . . . . 南京正榮置業發展有限公司 (“Nanjing Development”) . . . . . . . . . . . . . . 南京糧榮信房地產開發有限公司 (“Nanjing Liangrongxin”) . . . . . . . . . . . . . . 正榮(南平)置業發展有限公司 (“Nanping Real Estate”) . . . . . . . . . . . . . . . 嘉興榮坤置業有限公司 (“Jiaxing Rongkun”) . . . . . . . . . . . . . . . . .

ACCOUNTANTS’ REPORT

Relationship with the Group

– IB-37 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

Name of related party

Relationship with the Group

正榮山田(平潭)投資發展有限公司 Company controlled by the Controlling Shareholder (“Pingtan Investment”). . . . . . . . . . . . . . . . 正榮山田(平潭)置業發展有限公司 Company controlled by the Controlling Shareholder (“Pingtan Real Estate”) . . . . . . . . . . . . . . . 正榮山田正泰(平潭)置業發展有限公司 Company controlled by the Controlling Shareholder (“Zhenro Shantian Zhengtai”) . . . . . . . . . . . 正升(平潭)置業發展有限公司 Company controlled by the Controlling Shareholder (“Pingtan Zhengsheng”) . . . . . . . . . . . . . . . 正鼎(福清)置業發展有限公司 Company controlled by the Controlling Shareholder (“Fuqing Zhengding”) . . . . . . . . . . . . . . . . 正茂(平潭)置業發展有限公司 Company controlled by the Controlling Shareholder (“Pingtan Zhengmao”) . . . . . . . . . . . . . . . . 正欣(平潭)置業發展有限公司 Company controlled by the Controlling Shareholder (“Pingtan Zhengxin”) . . . . . . . . . . . . . . . . 正榮(莆田)金融財富中心開發有限公司 Company controlled by the Controlling Shareholder (“Zhenro Putian Financial Wealth”) . . . . . . . 正榮(莆田)投資發展有限公司 Company controlled by the Controlling Shareholder (“Putian Investment”) . . . . . . . . . . . . . . . . 正榮玉湖(莆田)開發有限公司 Company controlled by the Controlling Shareholder (“Putian Yuhu”) . . . . . . . . . . . . . . . . . . . . 正榮正宏(莆田)置業發展有限公司 Company controlled by the Controlling Shareholder (“Zhenro Zhenghong Putian”) . . . . . . . . . . . 正豐(莆田)置業發展有限公司 Company controlled by the Controlling Shareholder (“Putian Zhengfeng”) . . . . . . . . . . . . . . . . 正榮財富(福建)置業有限公司 Company controlled by the Controlling Shareholder (“Putian Fortune Center”) . . . . . . . . . . . . . . 正潤(莆田)置業發展有限公司 Company controlled by the Controlling Shareholder (“Putian Zhengrun”) . . . . . . . . . . . . . . . . . 正榮(莆田)房地產開發有限公司 Company controlled by the Controlling Shareholder (“Putian Property”) . . . . . . . . . . . . . . . . . . 正榮(莆田)置業發展有限公司 Company controlled by the Controlling Shareholder (“Putian Real Estate”) . . . . . . . . . . . . . . . . 正榮(莆田)商業管理有限公司 Company controlled by the Controlling Shareholder (“Zhenro Putian Commerce”). . . . . . . . . . . . 石獅市正升置業發展有限公司 Company controlled by the Controlling Shareholder (“Shishi Zhengsheng”) . . . . . . . . . . . . . . . . 正榮御楓(上海)置業發展有限公司 Company controlled by the Controlling Shareholder (“Shanghai Yufeng”) . . . . . . . . . . . . . . . . . 正榮御品(上海)置業發展有限公司 Company controlled by the Controlling Shareholder (“Shanghai Yupin”) . . . . . . . . . . . . . . . . . . 正榮御天(上海)置業發展有限公司 Company controlled by the Controlling Shareholder (“Shanghai Yutian”) . . . . . . . . . . . . . . . . . 正榮御園(上海)置業發展有限公司 Company controlled by the Controlling Shareholder (“Shanghai Yuyuan”) . . . . . . . . . . . . . . . . . 正榮御尊(上海)置業發展有限公司 Company controlled by the Controlling Shareholder (“Shanghai Yuzun”) . . . . . . . . . . . . . . . . . 正榮新產業發展有限公司 Company controlled by the Controlling Shareholder (“Zhenro new industrial”) . . . . . . . . . . . . . . 正榮商業管理有限公司 Company controlled by the Controlling Shareholder (“Zhenro Commerce”) . . . . . . . . . . . . . . . . 上海榮顧創業投資有限公司 Company controlled by the Controlling Shareholder (“Shanghai Royi”) . . . . . . . . . . . . . . . . . . 正榮集團蘇南(蘇州)投資有限公司 Company controlled by the Controlling Shareholder (“Suzhou Investment”). . . . . . . . . . . . . . . . 正榮蘇南(蘇州)房地產有限公司 Company controlled by the Controlling Shareholder (“Suzhou Property”) . . . . . . . . . . . . . . . . .

– IB-38 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

Name of related party

正榮蘇南(蘇州)置業發展有限公司 (“Suzhou Real Estate”) . . . . . . . . . . . . . . . 正榮蘇通(蘇州)房地產開發有限公司 (“Suzhou Sutong”) . . . . . . . . . . . . . . . . . . 蘇州正利置業有限公司 (“Suzhou Zhengli”). . . . . . . . . . . . . . . . . . 天津正榮正宏置業發展有限公司 (“Wuhan Zhengtai”) . . . . . . . . . . . . . . . . . 正榮(天津)置業發展有限公司 (“Tianjin Real Estate”). . . . . . . . . . . . . . . . 蘇州正瑞置業發展有限公司 (“Suzhou Zhengrui Real Estate”) . . . . . . . . . 武漢正榮正泰置業有限公司 (“Wuhan Zhengro Zhengtai”) . . . . . . . . . . . 西安正海置業有限公司 (“Xian Zhenghai”) . . . . . . . . . . . . . . . . . . 襄陽市長房正創置業有限公司 (“Xiangyang Zhengchuang”) . . . . . . . . . . . . 徐州正銘置業發展有限公司 (“Xuzhou Zhengming”) . . . . . . . . . . . . . . . 江西省正榮房地產開發有限公司 (“Jiangxi Real Estate”) . . . . . . . . . . . . . . . 宜春金投置地有限公司 (“Yichun Jintou”) . . . . . . . . . . . . . . . . . . . 長沙正榮正泰置業發展有限公司 (“Changsha Zhenro Zhengtai”) . . . . . . . . . . . 正榮(長沙)置業有限公司 (“Changsha Real Estate”) . . . . . . . . . . . . . . 鄭州新榮桂置業有限公司 (“Zhengzhou Xinronggui”) . . . . . . . . . . . . . 武漢正榮正升置業有限公司 (“Wuhan Zhenro Zhengsheng”) . . . . . . . . . . 合肥碧榮房地產有限公司 (“Hefei Birong”) . . . . . . . . . . . . . . . . . . . 濟南弘碧置業有限公司 (“Jinan Hongbi”) . . . . . . . . . . . . . . . . . . . 蘇州奧遠房地產開發有限公司 (“Suzhou Aoyuan”) . . . . . . . . . . . . . . . . . . 蘇州程瑞置業有限公司 (“Suzhou Chengrui”) . . . . . . . . . . . . . . . . . 蘇州廣坤房地產開發有限公司 (“Suzhou Guangkun”) . . . . . . . . . . . . . . . . 蘇州領瑞置業有限公司 (“Suzhou Lingrui”) . . . . . . . . . . . . . . . . . . 合肥碧榮房地產有限公司 (“Nanjing Property”) . . . . . . . . . . . . . . . . . 蘇州融輝置業有限公司 (“Suzhou Ronghui”) . . . . . . . . . . . . . . . . . 合肥碧榮房地產有限公司 (“Nanjing Property”) . . . . . . . . . . . . . . . . . 濟南弘碧置業有限公司 (“Jinan Hongbi”) . . . . . . . . . . . . . . . . . . . 蘇州奧遠房地產開發有限公司 (“Suzhou Aoyuan”) . . . . . . . . . . . . . . . . . . 蘇州程瑞置業有限公司 (“Suzhou Chengrui”) . . . . . . . . . . . . . . . . .

ACCOUNTANTS’ REPORT

Relationship with the Group

Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Company controlled by the Controlling Shareholder Joint venture of Zhenro Property Joint venture of Zhenro Property Joint venture of Zhenro Property Joint venture of Zhenro Property Joint venture of Zhenro Property Joint venture of Zhenro Property Joint venture of Zhenro Property Joint venture of Zhenro Property Joint venture of Zhenro Property Joint venture of Zhenro Property Joint venture of Zhenro Property Joint venture of Zhenro Property Joint venture of Zhenro Property

– IB-39 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

Name of related party

Relationship with the Group

蘇州廣坤房地產開發有限公司 Joint venture of Zhenro Property (“Suzhou Guangkun”) . . . . . . . . . . . . . . . . 蘇州融輝置業有限公司 Joint venture of Zhenro Property (“Suzhou Ronghui”) . . . . . . . . . . . . . . . . . 蘇州領瑞置業有限公司 Joint venture of Zhenro Property (“Suzhou Lingrui”) . . . . . . . . . . . . . . . . . . 蘇州正豐置業發展有限公司 Joint venture of Zhenro Property (“Suzhou Zhengfeng”) . . . . . . . . . . . . . . . . 天津中儲恒豐置業有限公司 Joint venture of Zhenro Property (“Tianjin Zhongchu”) . . . . . . . . . . . . . . . . 常熟建瀚置地有限公司 Associate of Zhenro Property (“Changzhou Jianhan”) . . . . . . . . . . . . . . . 嘉興榮聿置業有限公司 Associate of Zhenro Property (“Jiaxing Rongyu”) . . . . . . . . . . . . . . . . . . 昆山卓彌房地產開發有限公司 Associate of Zhenro Property (“Kunshan Zhuomi”) . . . . . . . . . . . . . . . . . 南京招榮房地產開發有限公司 Associate of Zhenro Property (“Nanjing Zhaorong”) . . . . . . . . . . . . . . . . 南京卓泓晟房地產開發有限公司 Associate of Zhenro Property (“Nanjing Zhuohongsheng”) . . . . . . . . . . . . 蘇州灝溢房地產開發有限公司 Associate of Zhenro Property (“Suzhou Haoyi”) . . . . . . . . . . . . . . . . . . . 蘇州市冠達房地產開發有限公司 Associate of Zhenro Property (“Suzhou Guanda”) . . . . . . . . . . . . . . . . . . 蘇州正創置業發展有限公司 Associate of Zhenro Property (“Suzhou Zhengchuang”) . . . . . . . . . . . . . . 蘇州正璽房地產開發有限公司 Associate of Zhenro Property (“Suzhou Zhengxi”) . . . . . . . . . . . . . . . . . 徐州雅豐房地產開發有限公司 Associate of Zhenro Property (“Xuzhou Yafeng”) . . . . . . . . . . . . . . . . . . 張家港保稅區耀輝房地產開發有限公司 Associate of Zhenro Property (“Zhangjiagang Yaohui”) . . . . . . . . . . . . . . 福建省莆田市澄峰圍墾開發有限公司 Associate of Zhenro Group Company (“Fujian Chengfeng weiken”). . . . . . . . . . . .

– IB-40 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

(b) In addition to the transactions detailed elsewhere in these financial statements, the Group had the following transactions with related parties during the nine months ended 30 September 2019:

Advances to related companies Companies controlled by the Controlling Shareholder. . . . . Repayment from related companies Companies controlled by the Controlling Shareholder. . . . . Advances from related companies Companies controlled by the Controlling Shareholder. . . . . Repayment to related companies Companies controlled by the Controlling Shareholder. . . . . Property management service and value added service revenue (i) Companies controlled by the Controlling Shareholder. . . . . Joint ventures and associates of a fellow subsidiary . . . . . . Rental expense (i) Companies controlled by the Controlling Shareholders . . . . Interest income (ii) A company controlled by the Controlling Shareholders . . . .	Nine months ended 30 September	Nine months ended 30 September
	2019 RMB’000 (unaudited) 204,069 258,909 102 26 153,810 56,746 210,556 1,425 53,278	2018
		RMB’000 (unaudited) 94,250

		35,469

		48

		–

		101,417 35,072
		136,489

		409

		35,469

(i) These transactions were carried out in accordance with the terms and conditions mutually agreed by the parties involved.
(ii) During the nine months ended 30 September 2019, the Group made advances to Zhenro Group Company, which are unsecured and charged interest of 14% per annum with a term of 1 year.

(c) Other transactions with related parties

As at 30 September 2019 and 31 December 2018, the Group’s other borrowing of RMB500,000,000 and RMB500,000,000 was guaranteed by Mr. Ou Zongrong, Ms. Lin Shuying and Zhenro Group Company (note 24). The other borrowing has been fully repaid and the related guarantees have been released subsequently.

As at 30 September 2019, the Group’s bank borrowings of RMB12,000,000 were guaranteed by Zhenro Group Company (note 24). The related guarantee has been released subsequently.

As at 30 September 2019 and 31 December 2018, the Group’s bank borrowings of RMB30,000,000 and RMB20,000,000 were guaranteed by Zhenro Group Company (note 24). The bank borrowings have been fully repaid and the related guarantee has been released subsequently.

– IB-41 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

(d) Outstanding balances with related parties

Due from related companies: Trade related Companies controlled by the Controlling Shareholder . . . . . . Joint ventures and associates of a fellow subsidiary . . . . . . . Due from related companies: Non-trade related Companies controlled by the Controlling Shareholder . . . . . . Due to related companies: Trade related Companies controlled by the Controlling Shareholder . . . . . . Due to related companies: Non-trade related Companies controlled by the Controlling Shareholder . . . . . .	30 September 2019 RMB’000 (unaudited) 39,313 12,692 52,005 568,962 3,049 3,535	31 December 2018
		RMB’000 (audited) 23,578 11,920
		35,498

		623,802

		1,455

		1,932

For amounts due from related parties, balances arising from operating activities are RMB52,005,000 as at 30 September 2019, with RMB36,741,000 of aging within one year and RMB15,264,000 of aging over one year, balances arising from operating activities are RMB35,498,000 as at 31 December 2018, with RMB27,869,000 of aging within one year and RMB7,629,000 of aging over one year. The credit periods granted to related parties are mainly 3 months. The Group has assessed that the credit risk of these receivables has not increased significantly since initial recognition and measured the impairment under the general approach based on 12-month expected credit loss, and has assessed that the expected credit losses are immaterial.

For amounts due to related parties, balances arising from operating activities are RMB3,049,000 as at 30 September 2019, with RMB1,594,000 of aging within one year and RMB1,455,000 of aging over one year, balances arising from operating activities are RMB1,455,000 as at 31 December 2018, with RMB526,000 of aging within one year and RMB929,000 of aging over one year.

(e) Compensation of key management personnel of the Group

Short term employee benefits . . . . . . . . . . . . . . . . . . . . . Pension scheme contributions and social welfare . . . . . . . . . Total compensation paid to key management personnel . . . . .	Nine months ended 30 September	Nine months ended 30 September
	2019 RMB’000 (unaudited) 6,459 683 7,142	2018
		RMB’000 (unaudited) 3,195 457
		3,652

Further details of directors’ emoluments are included in note 8 to the financial statements.

– IB-42 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

31. PARTLY-OWNED SUBSIDIARY WITH MATERIAL NON-CONTROLLING INTERESTS

Details of the Group’s subsidiary that has material non-controlling interests are set out below:

Jiangsu Sutie:

Percentage of equity interest held by non-controlling interests . . . . . . . . . . . . . . . Profit for the period allocated to non-controlling interests . . . . . . . . . . . . . . . . . Accumulated balances of non-controlling interests . . . . . . . . . . . . . . . . . . . . . .	30 September 2019
	RMB’000 (unaudited) 30%

	1,633

	14,477

The following tables illustrate the summarised financial information of the above subsidiary. The amounts disclosed are before any inter-company eliminations:

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profit for the nine months ended 30 September 2019 . . . . . . . . . . . . . . . . . . . . Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flows from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase/(decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . .	30 September 2019
	RMB’000 (unaudited) 23,705 18,263 5,442

	14,634 44,527 (2,816) (8,090)

	580
	580

– IB-43 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

ACCOUNTANTS’ REPORT

APPENDIX IB

32. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments are as follows:

30 September 2019 (unaudited)

Financial assets

Financial assets included in prepayment and other receivables (note 20). . . . . . . . . Trade receivables (note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due from related companies (note 30) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents (note 21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Financial assets at amortised cost
	RMB’000 20,052 140,546 620,967 74,983
	856,548

Financial liabilities

Financial liabilities included in other payables and accruals (note 23) . . . . . . . . . .
Interest-bearing bank and other borrowings (note 24) . . . . . . . . . . . . . . . . . . . .
Due to related parties (note 30). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liabilities (note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade payables (note 22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial
liabilities at
amortised cost

RMB’000
96,321
551,250
6,584
10,519
29,180

693,854

The carrying amounts of each of the categories of financial instruments as at the end of each of the Relevant Periods are as follows:

31 December 2018 (audited)

Financial assets

Financial assets included in prepayment and other receivables (note 20). . . . . . . . . Trade receivables (note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due from related companies (note 30) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents (note 21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Financial assets at amortised cost
	RMB’000 37,322 54,021 659,300 49,843
	800,486

– IB-44 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

Financial liabilities

Financial
liabilities at
amortised cost

RMB’000
50,018
520,000
3,387
1,338
23,314

598,057

33. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments mainly include financial assets included in trade receivables, due from related companies, financial assets included in prepayments and other receivables, cash and cash equivalents, trade payables, due to related companies, financial liabilities included in other payables and accruals, which arise directly from its operations. The Group has other financial assets and liabilities such as interest-bearing bank and other borrowings. The main purpose of these financial instruments is to raise finance for the Group’s operations.

(a) Interest rate risk

The Group’s exposure to risk for changes in market interest rates relates primarily to the Group’s interest-bearing bank and other borrowings set out in note 24. The Group does not use derivative financial instruments to hedge interest rate risk, and obtains all bank borrowings with a fixed rate.

(b) Credit risk

The Group is exposed to credit risk in relation to its trade receivables and other receivables, investments in principal guaranteed deposits, and cash and cash equivalents.

– IB-45 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

The Group expects that the credit risk associated with trade receivables and other receivables due from related parties is considered to be low, since the related parties have a strong capacity to meet contractual cash flow obligation in the near term. Thus, the impairment provision recognised during the Reporting Period was nil for the trade receivables and other receivables due from related parties.

As at 31 December 2018 and 30 September 2019, all pledged deposits and cash and cash equivalents were deposited in high-credit-quality financial institutions without significant credit risk. These financial assets were not yet past due and their credit exposure is classified as stage 1.

As at 31 December 2018 and 30 September 2019, the Group classified financial assets included in prepayments, other receivables and other assets as stage 1 as the credit quality is considered to be “normal” when they are not past due and there is no information indicating that the financial assets had a significant increase in credit risk since initial recognition.

(c) Liquidity risk

The maturity profile of the Group’s financial liabilities as at the end of reporting period, based on the contractual undiscounted payments, was as follows:

30 September 2019 (unaudited)

Trade payables . . . . . . . . . . . . . . Other payables and accruals . . . . . . Interest-bearing bank and other borrowings . . . . . . . . . . . . . . . Lease liabilities . . . . . . . . . . . . . Due to related parties . . . . . . . . . .	Less than 3 months or on demand RMB’000 29,180 75,321 38,773 2,241 6,584 152,099	more than 3 months and within 1 year RMB’000 – 14,000 64,044 2,088 – 80,132	over 1 year RMB’000 – 7,000 757,646 7,382 – 772,028	Total
				RMB’000 29,180 96,321 860,463 11,711 6,584
				1,004,259

31 December 2018 (audited)

Trade payables . . . . . . . . . . . . . . Other payables and accruals . . . . . . Interest-bearing bank and other borrowings . . . . . . . . . . . . . . . Lease liabilities . . . . . . . . . . . . . Due to related parties . . . . . . . . . .	Less than 3 months or on demand RMB’000 23,314 50,018 17,715 202 3,387 94,636	more than 3 months and within 1 year RMB’000 – – 73,145 604 – 73,749	over 1 year RMB’000 – – 710,000 1,503 – 711,503	Total
				RMB’000 23,314 50,018 800,860 2,309 3,387
				879,888

(d) Capital management

– IB-46 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IB

ACCOUNTANTS’ REPORT

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes, within net debt, interest-bearing bank and other borrowings less cash and cash equivalents. Capital represents equity attributable to owners of the parent. The gearing ratios as at 30 September 2019 were as follows:

Interest-bearing bank and other borrowings . . . . . . . . . . . . Less: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . Net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity attributable to owners of the parent. . . . . . . . . . . . . Gearing ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30 September 2019 RMB’000 (unaudited) 551,250 (74,983) 476,267 78,341 607.9%	31 December 2018 RMB’000 (audited) 520,000 (49,843) 470,157 54,108 868.9%

35. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company, the Group or any of the companies now comprising the Group in respect of any period subsequent to 30 September 2019.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

A. UNAUDITED PRO FORMA ADJUSTED COMBINED NET TANGIBLE ASSETS

The following unaudited pro forma adjusted combined net tangible assets has been prepared in accordance with Rule 4.29 of the Listing Rules and with reference to Accounting Guideline 7 “ Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars ” issued by the HKICPA for illustration purpose only, and is set out below to illustrate the effect of the [ REDACTED ] on our combined net tangible assets as of 30 September 2019 as if it had taken place on that date.

The unaudited pro forma adjusted combined net tangible assets attributed to the owners of the Company has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Group had the [ REDACTED ] been completed as of 30 September 2019 or any future date. It is prepared based on our combined net tangible assets as of 30 September 2019 as set out in the Accountants’ Report as set out in the Accountants’ Report Appendix I to the document, and adjusted as described below. The unaudited pro forma adjusted combined net tangible assets does not form part of the Accountants’ Report as set out in Appendix I to the document.

Based on an [REDACTED] of HK$[REDACTED] per Share Based on an [REDACTED] of HK$[REDACTED] per Share	Unaudited combined net tangible liabilities attributable to owners of our Company as of 30 September 2019 RMB’000 (Note 1) (14,324) (14,324)	Estimated [REDACTED] from the [REDACTED] RMB’000 (Note 2) [REDACTED] [REDACTED]	Unaudited pro forma adjusted combined net tangible assets RMB’000 [REDACTED] [REDACTED]	Unaudited pro forma adjusted combined net tangible assets per Share
				RMB HK$ (Note 3) (Note 4) [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Notes:

(1) The unaudited combined net tangible assets attributable to owners of the Company as of 30 September 2019 is extracted from the Accountants’ Report, which is based on the unaudited combined equity attributable to owners of the Company as of 30 September 2019 of approximately RMB78.3 million after deducting other intangible assets of RMB33.1 million and goodwill of RMB59.5 million, respectively.

(2) The estimated [ REDACTED ] from the [ REDACTED ] are based on the [ REDACTED ] of HK$[ REDACTED ] per Share or HK$[ REDACTED ] per Share, after deduction of the [ REDACTED ] and other related expenses payable by the Group and do not take into account of any Shares which may be issued upon the exercise of the [ REDACTED ]. The estimated [ REDACTED ] from the [ REDACTED ] are converted from Hong Kong dollars into Renminbi at an exchange rate of HK$1.0 to RMB0.89714.

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APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

(3) The unaudited pro forma adjusted combined net tangible assets attributable to owners of the Company per Share is calculated based on [ REDACTED ] Shares in issue immediately following the completion of the [ REDACTED ] and does not take into account of any Shares which may be issued upon the exercise of the [ REDACTED ].
(4) The unaudited pro forma adjusted consolidated net tangible assets per Share is converted into Hong Kong dollars at an exchange rate of HK$1.0 to RMB0.89714.

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APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

[ REDACTED ]

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APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

[ REDACTED ]

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APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX III

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

Set out below is a summary of certain provisions of the Memorandum and Articles of Association of the Company and of certain aspects of Cayman Islands Companies Law.

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on December 17, 2018 under the Cayman Islands Companies Law. The Company’s constitutional documents consist of its Amended and Restated Memorandum of Association ( Memorandum ) and its Amended and Restated Articles of Association ( Articles ).

1. MEMORANDUM OF ASSOCIATION

(a) The Memorandum provides, inter alia, that the liability of members of the Company is limited and that the objects for which the Company is established are unrestricted (and therefore include acting as an investment company), and that the Company shall have and be capable of exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate whether as principal, agent, contractor or otherwise and, since the Company is an exempted company, that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands.
(b) By special resolution the Company may alter the Memorandum with respect to any objects, powers or other matters specified in it.

2. ARTICLES OF ASSOCIATION

The Articles were adopted on [date]. A summary of certain provisions of the Articles is set out below.

(a) Shares

(i) Classes of shares

The share capital of the Company consists of ordinary shares.

(ii) Variation of rights of existing shares or classes of shares

Subject to the Cayman Islands Companies Law, if at any time the share capital of the Company is divided into different classes of shares, all or any of the special rights attached to any class of shares may (unless otherwise provided for by the terms of issue of the shares of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. The provisions of the Articles relating to general meetings shall mutatis mutandis apply to every such separate general meeting,

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APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

but so that the necessary quorum (other than at an adjourned meeting) shall be not less than two persons together holding (or, in the case of a shareholder being a corporation, by its duly authorized representative) or representing by proxy not less than one-third in nominal value of the issued shares of that class. Every holder of shares of the class shall be entitled on a poll to one vote for every such share held by him, and any holder of shares of the class present in person or by proxy may demand a poll.

Any special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

(iii) Alteration of capital

The Company may, by an ordinary resolution of its members: (a) increase its share capital by the creation of new shares of such amount as it thinks expedient; (b) consolidate or divide all or any of its share capital into shares of larger or smaller amount than its existing shares; (c) divide its unissued shares into several classes and attach to such shares any preferential, deferred, qualified or special rights, privileges or conditions; (d) subdivide its shares or any of them into shares of an amount smaller than that fixed by the Memorandum; (e) cancel any shares which, at the date of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so canceled; (f) make provision for the allotment and issue of shares which do not carry any voting rights; (g) change the currency of denomination of its share capital; and (h) reduce its share premium account in any manner authorized and subject to any conditions prescribed by law.

(iv) Transfer of shares

Subject to the Cayman Islands Companies Law and the requirements of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”), all transfers of shares shall be effected by an instrument of transfer in the usual or common form or in such other form as the Board may approve and may be under hand or, if the transferor or transferee is a Clearing House or its nominee(s), under hand or by machine imprinted signature, or by such other manner of execution as the Board may approve from time to time.

Execution of the instrument of transfer shall be by or on behalf of the transferor and the transferee, provided that the Board may dispense with the execution of the instrument of transfer by the transferor or transferee or accept mechanically executed transfers. The transferor shall be deemed to remain the holder of a share until the name of the transferee is entered in the register of members of the Company in respect of that share.

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APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

The Board may, in its absolute discretion, at any time and from time to time remove any share on the principal register to any branch register or any share on any branch register to the principal register or any other branch register.

Unless the Board otherwise agrees, no shares on the principal register shall be removed to any branch register nor shall shares on any branch register be removed to the principal register or any other branch register. All removals and other documents of title shall be lodged for registration and registered, in the case of shares on any branch register, at the relevant registration office and, in the case of shares on the principal register, at the place at which the principal register is located.

The Board may, in its absolute discretion, decline to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or on which the Company has a lien. It may also decline to register a transfer of any share issued under any share option scheme upon which a restriction on transfer subsists or a transfer of any share to more than four joint holders.

The Board may decline to recognize any instrument of transfer unless a certain fee, up to such maximum sum as the Stock Exchange may determine to be payable, is paid to the Company, the instrument of transfer is properly stamped (if applicable), is in respect of only one class of share and is lodged at the relevant registration office or the place at which the principal register is located accompanied by the relevant share certificate(s) and such other evidence as the Board may reasonably require is provided to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).

The register of members may, subject to the Listing Rules, be closed at such time or for such period not exceeding in the whole 30 days in each year as the Board may determine.

Fully paid shares shall be free from any restriction on transfer (except when permitted by the Stock Exchange) and shall also be free from all liens.

(v) Power of the Company to purchase its own shares

The Company may purchase its own shares subject to certain restrictions and the Board may only exercise this power on behalf of the Company subject to any applicable requirement imposed from time to time by the Articles or any code, rules or regulations issued from time to time by the Stock Exchange and/or the Securities and Futures Commission of Hong Kong.

Where the Company purchases for redemption a redeemable Share, purchases not made through the market or by tender shall be limited to a maximum price and, if purchases are by tender, tenders shall be available to all members alike.

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APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

(vi) Power of any subsidiary of the Company to own shares in the Company

There are no provisions in the Articles relating to the ownership of shares in the Company by a subsidiary.

(vii) Calls on shares and forfeiture of shares

The Board may, from time to time, make such calls as it thinks fit upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment of such shares made payable at fixed times. A call may be made payable either in one sum or by installments. If the sum payable in respect of any call or installment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding 20% per annum as the Board shall fix from the day appointed for payment to the time of actual payment, but the Board may waive payment of such interest wholly or in part. The Board may, if it thinks fit, receive from any member willing to advance the same, either in money or money’s worth, all or any part of the money uncalled and unpaid or installments payable upon any shares held by him, and in respect of all or any of the monies so advanced the Company may pay interest at such rate (if any) not exceeding 20% per annum as the Board may decide.

If a member fails to pay any call or installment of a call on the day appointed for payment, the Board may, for so long as any part of the call or installment remains unpaid, serve not less than 14 days’ notice on the member requiring payment of so much of the call or installment as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment. The notice shall name a further day (not earlier than the expiration of 14 days from the date of the notice) on or before which the payment required by the notice is to be made, and shall also name the place where payment is to be made. The notice shall also state that, in the event of non-payment at or before the appointed time, the shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, nevertheless, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares together with (if the Board shall in its discretion so require) interest thereon from the date of forfeiture until payment at such rate not exceeding 20% per annum as the Board may prescribe.

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APPENDIX III

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

(b) Directors

(i) Appointment, retirement and removal

At any time or from time to time, the Board shall have the power to appoint any person as a Director either to fill a casual vacancy on the Board or as an additional Director to the existing Board subject to any maximum number of Directors, if any, as may be determined by the members in general meeting. Any Director so appointed to fill a casual vacancy shall hold office only until the first general meeting of the Company after his appointment and be subject to re-election at such meeting. Any Director so appointed as an addition to the existing Board shall hold office only until the first annual general meeting of the Company after his appointment and be eligible for re-election at such meeting. Any Director so appointed by the Board shall not be taken into account in determining the Directors or the number of Directors who are to retire by rotation at an annual general meeting.

At each annual general meeting, one third of the Directors for the time being shall retire from office by rotation. However, if the number of Directors is not a multiple of three, then the number nearest to but not less than one third shall be the number of retiring Directors. The Directors to retire in each year shall be those who have been in office longest since their last re-election or appointment but, as between persons who became or were last re-elected Directors on the same day, those to retire shall (unless they otherwise agree among themselves) be determined by lot.

No person, other than a retiring Director, shall, unless recommended by the Board for election, be eligible for election to the office of Director at any general meeting, unless notice in writing of the intention to propose that person for election as a Director and notice in writing by that person of his willingness to be elected has been lodged at the head office or at the registration office of the Company. The period for lodgment of such notices shall commence no earlier than the day after despatch of the notice of the relevant meeting and end no later than seven days before the date of such meeting and the minimum length of the period during which such notices may be lodged must be at least seven days.

A Director is not required to hold any shares in the Company by way of qualification nor is there any specified upper or lower age limit for Directors either for accession to or retirement from the Board.

A Director may be removed by an ordinary resolution of the Company before the expiration of his term of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and the Company may by ordinary resolution appoint another in his place. Any Director so appointed shall be subject to the “retirement by rotation” provisions. The number of Directors shall not be less than two.

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APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

The office of a Director shall be vacated if he:

(aa) resign;
(bb) dies;
(cc) is declared to be of unsound mind and the Board resolves that his office be vacated;
(dd) becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors generally;
(ee) he is prohibited from being or ceases to be a director by operation of law;
(ff) without special leave, is absent from meetings of the Board for six consecutive months, and the Board resolves that his office is vacated;
(gg) has been required by the stock exchange of the Relevant Territory (as defined in the Articles) to cease to be a Director; or
(hh) is removed from office by the requisite majority of the Directors or otherwise pursuant to the Articles.

From time to time the Board may appoint one or more of its body to be managing director, joint managing director or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the Board may determine, and the Board may revoke or terminate any of such appointments. The Board may also delegate any of its powers to committees consisting of such Director(s) or other person(s) as the Board thinks fit, and from time to time it may also revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may from time to time be imposed upon it by the Board.

(ii) Power to allot and issue shares and warrants

Subject to the provisions of the Cayman Islands Companies Law, the Memorandum and Articles and without prejudice to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached to it such rights, or such restrictions, whether with regard to dividend, voting, return of capital or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the Board may determine). Any share may be issued on terms that, upon the happening of a specified event or upon a given date and either at the option of the Company or the holder of the share, it is liable to be redeemed.

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APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

The Board may issue warrants to subscribe for any class of shares or other securities of the Company on such terms as it may from time to time determine.

Where warrants are issued to bearer, no certificate in respect of such warrants shall be issued to replace one that has been lost unless the Board is satisfied beyond reasonable doubt that the original certificate has been destroyed and the Company has received an indemnity in such form as the Board thinks fit with regard to the issue of any such replacement certificate.

Subject to the provisions of the Cayman Islands Companies Law, the Articles and, where applicable, the rules of any stock exchange of the Relevant Territory (as defined in the Articles) and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount.

Neither the Company nor the Board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others whose registered addresses are in any particular territory or territories where, in the absence of a registration statement or other special formalities, this is or may, in the opinion of the Board, be unlawful or impracticable. However, no member affected as a result of the foregoing shall be, or be deemed to be, a separate class of members for any purpose whatsoever.

(iii) Power to dispose of the assets of the Company or any of its subsidiaries

While there are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries, the Board may exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Cayman Islands Companies Law to be exercised or done by the Company in general meeting, but if such power or act is regulated by the Company in general meeting, such regulation shall not invalidate any prior act of the Board which would have been valid if such regulation had not been made.

(iv) Borrowing powers

The Board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and uncalled capital of the Company and, subject to the Cayman Islands Companies Law, to issue debentures, debenture stock, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

APPENDIX III

(v) Remuneration

The Directors shall be entitled to receive, as ordinary remuneration for their services, such sums as shall from time to time be determined by the Board or the Company in general meeting, as the case may be, such sum (unless otherwise directed by the resolution by which it is determined) to be divided among the Directors in such proportions and in such manner as they may agree or, failing agreement, either equally or, in the case of any Director holding office for only a portion of the period in respect of which the remuneration is payable, pro rata. The Directors shall also be entitled to be repaid all expenses reasonably incurred by them in attending any Board meetings, committee meetings or general meetings or otherwise in connection with the discharge of their duties as Directors. Such remuneration shall be in addition to any other remuneration to which a Director who holds any salaried employment or office in the Company may be entitled by reason of such employment or office.

Any Director who, at the request of the Company, performs services which in the opinion of the Board go beyond the ordinary duties of a Director may be paid such special or extra remuneration as the Board may determine, in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration and such other benefits and allowances as the Board may from time to time decide. Such remuneration shall be in addition to his ordinary remuneration as a Director.

The Board may establish, either on its own or jointly in concurrence or agreement with subsidiaries of the Company or companies with which the Company is associated in business, or may make contributions out of the Company’s monies to, any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or former Director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and former employees of the Company and their dependents or any class or classes of such persons.

The Board may also pay, enter into agreements to pay or make grants of revocable or irrevocable, whether or not subject to any terms or conditions, pensions or other benefits to employees and former employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or former employees or their dependents are or may become entitled under any such scheme or fund as mentioned above. Such pension or benefit may, if deemed desirable by the Board, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement.

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APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

(vi) Compensation or payments for loss of office

Payments to any present Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually or statutorily entitled) must be approved by the Company in general meeting.

(vii) Loans and provision of security for loans to Directors

The Company shall not directly or indirectly make a loan to a Director or a director of any holding company of the Company or any of their respective close associates, enter into any guarantee or provide any security in connection with a loan made by any person to a Director or a director of any holding company of the Company or any of their respective close associates, or, if any one or more of the Directors hold(s) (jointly or severally or directly or indirectly) a controlling interest in another company, make a loan to that other company or enter into any guarantee or provide any security in connection with a loan made by any person to that other company.

(viii) Disclosure of interest in contracts with the Company or any of its subsidiaries

With the exception of the office of auditor of the Company, a Director may hold any other office or place of profit with the Company in conjunction with his office of Director for such period and upon such terms as the Board may determine, and may be paid such extra remuneration for that other office or place of profit, in whatever form, in addition to any remuneration provided for by or pursuant to any other Articles. A Director may be or become a director, officer or member of any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration or other benefits received by him as a director, officer or member of such other company. The Board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise in favor of any resolution appointing the Directors or any of them to be directors or officers of such other company.

No Director or intended Director shall be disqualified by his office from contracting with the Company, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realized by any such contract or arrangement by reason only of such Director holding that office or the fiduciary relationship established by it. A Director who is, in any way, materially interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the earliest meeting of the Board at which he may practically do so.

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APPENDIX III

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

There is no power to freeze or otherwise impair any of the rights attaching to any share by reason that the person or persons who are interested directly or indirectly in that share have failed to disclose their interests to the Company.

A Director shall not vote or be counted in the quorum on any resolution of the Board in respect of any contract or arrangement or proposal in which he or any of his close associate(s) has/have a material interest, and if he shall do so his vote shall not be counted nor shall he be counted in the quorum for that resolution, but this prohibition shall not apply to any of the following matters:

(aa) the giving of any security or indemnity to the Director or his close associate(s) in respect of money lent or obligations incurred or undertaken by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries;
(bb) the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his close associate(s) has/have himself/themselves assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;
(cc) any proposal concerning an offer of shares, debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director or his close associate(s) is/are or is/are to be interested as a participant in the [ REDACTED ] or sub-[ REDACTED ] of the offer;
(dd) any proposal or arrangement concerning the benefit of employees of the Company or any of its subsidiaries, including the adoption, modification or operation of either: (i) any employees’ share scheme or any share incentive or share option scheme under which the Director or his close associate(s) may benefit; or (ii) any of a pension fund or retirement, death or disability benefits scheme which relates to Directors, their close associates and employees of the Company or any of its subsidiaries and does not provide in respect of any Director or his close associate(s) any privilege or advantage not generally accorded to the class of persons to which such scheme or fund relates; and
(ee) any contract or arrangement in which the Director or his close associate(s) is/are interested in the same manner as other holders of shares, debentures or other securities of the Company by virtue only of his/their interest in those shares, debentures or other securities.

– III-10 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

APPENDIX III

(c) Proceedings of the Board

The Board may meet anywhere in the world for the despatch of business and may adjourn and otherwise regulate its meetings as it thinks fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have a second or casting vote.

(d) Alterations to the constitutional documents and the Company’s name

To the extent that the same is permissible under Cayman Islands law and subject to the Articles, the Memorandum and Articles of the Company may only be altered or amended, and the name of the Company may only be changed, with the sanction of a special resolution of the Company.

(e) Meetings of member

(i) Special and ordinary resolutions

A special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or by proxy or, in the case of members which are corporations, by their duly authorized representatives or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given.

Under Cayman Islands Companies Law, a copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within 15 days of being passed.

An “ordinary resolution”, by contrast, is a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of members which are corporations, by their duly authorized representatives or, where proxies are allowed, by proxy at a general meeting of which notice has been duly given.

A resolution in writing signed by or on behalf of all members shall be treated as an ordinary resolution duly passed at a general meeting of the Company duly convened and held, and where relevant as a special resolution so passed.

– III-11 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

(ii) Voting rights and right to demand a poll

Subject to any special rights, restrictions or privileges as to voting for the time being attached to any class or classes of shares at any general meeting: (a) on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorized representative shall have one vote for every share which is fully paid or credited as fully paid registered in his name in the register of members of the Company but so that no amount paid up or credited as paid up on a share in advance of calls or installments is treated for this purpose as paid up on the share; and (b) on a show of hands every member who is present in person (or, in the case of a member being a corporation, by its duly authorized representative) or by proxy shall have one vote. Where more than one proxy is appointed by a member which is a Clearing House (as defined in the Articles) or its nominee(s), each such proxy shall have one vote on a show of hands. On a poll, a member entitled to more than one vote need not use all his votes or cast all the votes he does use in the same way.

At any general meeting a resolution put to the vote of the meeting is to be decided by poll save that the chairman of the meeting may, pursuant to the Listing Rules, allow a resolution to be voted on by a show of hands. Where a show of hands is allowed, before or on the declaration of the result of the show of hands, a poll may be demanded by (in each case by members present in person or by proxy or by a duly authorized corporate representative):

(A) at least two members;
(B) any member or members representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or
(C) a member or members holding shares in the Company conferring a right to vote at the meeting on which an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

Should a Clearing House or its nominee(s) be a member of the Company, such person or persons may be authorized as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorized, the authorization shall specify the number and class of shares in respect of which each such person is so authorized. A person authorized in accordance with this provision shall be deemed to have been duly authorized without further evidence of the facts and be entitled to exercise the same rights and powers on behalf of the Clearing House or its nominee(s) as if such person were an individual member including the right to vote individually on a show of hands.

Where the Company has knowledge that any member is, under the Listing Rules, required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such member in contravention of such requirement or restriction shall not be counted.

– III-12 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

(iii) Annual general meetings

The Company must hold an annual general meeting each year other than the year of the Company’s adoption of the Articles. Such meeting must be held not more than 15 months after the holding of the last preceding annual general meeting, or such longer period as may be authorized by the Stock Exchange at such time and place as may be determined by the Board.

(iv) Notices of meetings and business to be conducted

An annual general meeting of the Company shall be called by at least 21 days’ notice in writing, and any other general meeting of the Company shall be called by at least 14 days’ notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and must specify the time, place and agenda of the meeting and particulars of the resolution(s) to be considered at that meeting and, in the case of special business, the general nature of that business.

Except where otherwise expressly stated, any notice or document (including a share certificate) to be given or issued under the Articles shall be in writing, and may be served by the Company on any member personally, by post to such member’s registered address or (in the case of a notice) by advertisement in the newspapers. Any member whose registered address is outside Hong Kong may notify the Company in writing of an address in Hong Kong which shall be deemed to be his registered address for this purpose. Subject to the Cayman Islands Companies Law and the Listing Rules, a notice or document may also be served or delivered by the Company to any member by electronic means.

Although a meeting of the Company may be called by shorter notice than as specified above, such meeting may be deemed to have been duly called if it is so agreed:

(i) in the case of an annual general meeting, by all members of the Company entitled to attend and vote thereat; and
(ii) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting holding not less than 95% of the total voting rights in the Company.

All business transacted at an extraordinary general meeting shall be deemed special business. All business shall also be deemed special business where it is transacted at an annual general meeting, with the exception of certain routine matters which shall be deemed ordinary business.

Extraordinary general meetings shall also be convened on the requisition of one or more members holding at the date of deposit of the requisition, not less than one tenth of the paid up capital of the Company having the right of voting at general meetings.

– III-13 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

APPENDIX III

(v) Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, and continues to be present until the conclusion of the meeting.

The quorum for a general meeting shall be two members present in person (or in the case of a member being a corporation, by its duly authorized representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class.

(vi) Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member 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 and shall be entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. On a poll or on a show of hands, votes may be given either personally (or, in the case of a member being a corporation, by its duly authorized representative) or by proxy.

The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing, or if the appointor is a corporation, either under seal or under the hand of a duly authorized officer or attorney. Every instrument of proxy, whether for a specified meeting or otherwise, shall be in such form as the Board may from time to time approve, provided that it shall not preclude the use of the two-way form. Any form issued to a member for appointing a proxy to attend and vote at an extraordinary general meeting or at an annual general meeting at which any business is to be transacted shall be such as to enable the member, according to his intentions, to instruct the proxy to vote in favor of or against (or, in default of instructions, to exercise his discretion in respect of) each resolution dealing with any such business.

– III-14 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

(f) Accounts and audit

The Board shall cause proper books of account to be kept of the sums of money received and expended by the Company, and of the assets and liabilities of the Company and of all other matters required by the Cayman Islands Companies Law (which include all sales and purchases of goods by the company) necessary to give a true and fair view of the state of the Company’s affairs and to show and explain its transactions.

The books of accounts of the Company shall be kept at the head office of the Company or at such other place or places as the Board decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any right to inspect any account, book or document of the Company except as conferred by the Cayman Islands Companies Law or ordered by a court of competent jurisdiction or authorized by the Board or the Company in general meeting.

The Board shall from time to time cause to be prepared and laid before the Company at its annual general meeting balance sheets and profit and loss accounts (including every document required by law to be annexed thereto), together with a copy of the Directors’ report and a copy of the auditors’ report, not less than 21 days before the date of the annual general meeting. Copies of these documents shall be sent to every person entitled to receive notices of general meetings of the Company under the provisions of the Articles together with the notice of annual general meeting, not less than 21 days before the date of the meeting.

Subject to the rules of the stock exchange of the Relevant Territory (as defined in the Articles), the Company may send summarized financial statements to shareholders who have, in accordance with the rules of the stock exchange of the Relevant Territory, consented and elected to receive summarized financial statements instead of the full financial statements. The summarized financial statements must be accompanied by any other documents as may be required under the rules of the stock exchange of the Relevant Territory, and must be sent to those shareholders that have consented and elected to receive the summarized financial statements not less than 21 days before the general meeting.

The Company shall appoint auditor(s) to hold office until the conclusion of the next annual general meeting on such terms and with such duties as may be agreed with the Board. The auditors’ remuneration shall be fixed by the Company in general meeting or by the Board if authority is so delegated by the members.

The members may, at any general meeting convened and held in accordance with the Articles of the Company, remove the auditors by special resolution at any time before the expiration of the term of office and shall, by ordinary resolution, at that meeting appoint new auditors in its place for the remainder of the term.

The auditors shall audit the financial statements of the Company in accordance with generally accepted accounting principles of Hong Kong, the International Accounting Standards or such other standards as may be permitted by the Stock Exchange.

– III-15 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

APPENDIX III

(g) Dividends and other methods of distribution

The Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the Board.

Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide:

(i) all dividends shall be declared and paid according to the amounts paid up on the shares in respect of which the dividend is paid, although no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share;
(ii) all dividends shall be apportioned and paid pro rata in accordance with the amount paid up on the shares during any portion(s) of the period in respect of which the dividend is paid; and
(iii) the Board may deduct from any dividend or other monies payable to any member all sums of money (if any) presently payable by him to the Company on account of calls, installments or otherwise.

Where the Board or the Company in general meeting has resolved that a dividend should be paid or declared, the Board may resolve:

(aa) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the members entitled to such dividend will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment; or
(bb) that the members entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the Board may think fit.

Upon the recommendation of the Board, the Company may by ordinary resolution in respect of any one particular dividend of the Company determine that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to members to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, bonus or other sum payable in cash to the holder of shares may be paid by check or warrant sent through the post. Every such check or warrant shall be made payable to the order of the person to whom it is sent and shall be sent at the holder’s or joint holders’ risk and payment of the check or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other monies payable or property distributable in respect of the shares held by such joint holders.

– III-16 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX III

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

Whenever the Board or the Company in general meeting has resolved that a dividend be paid or declared, the Board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.

The Board may, if it thinks fit, receive from any member willing to advance the same, and either in money or money’s worth, all or any part of the money uncalled and unpaid or installments payable upon any shares held by him, and in respect of all or any of the monies so advanced may pay interest at such rate (if any) not exceeding 20% per annum, as the Board may decide, but a payment in advance of a call shall not entitle the member to receive any dividend or to exercise any other rights or privileges as a member in respect of the share or the due portion of the shares upon which payment has been advanced by such member before it is called up.

All dividends, bonuses or other distributions unclaimed for one year after having been declared may be invested or otherwise used by the Board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends, bonuses or other distributions unclaimed for six years after having been declared may be forfeited by the Board and, upon such forfeiture, shall revert to the Company.

No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company.

The Company may exercise the power to cease sending checks for dividend entitlements or dividend warrants by post if such checks or warrants remain uncashed on two consecutive occasions or after the first occasion on which such a check or warrant is returned undelivered.

(h) Inspection of corporate records

For so long as any part of the share capital of the Company is [ REDACTED ] on the Stock Exchange, any member may inspect any register of members of the Company maintained in Hong Kong (except when the register of members is closed) without charge and require the provision to him of copies or extracts of such register in all respects as if the Company were incorporated under and were subject to the Hong Kong Companies Ordinance.

(i) Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles concerning the rights of minority members in relation to fraud or oppression. However, certain remedies may be available to members of the Company under Cayman Islands law, as summarized in paragraph 3(f) of this Appendix.

– III-17 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

APPENDIX III

(j) Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution.

Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares:

(i) if the Company is wound up and the assets available for distribution among the members of the Company are more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, then the excess shall be distributed pari passu among such members in proportion to the amount paid up on the shares held by them respectively; and
(ii) if the Company is wound up and the assets available for distribution among the members as such are insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up on the shares held by them, respectively.

If the Company is wound up (whether the liquidation is voluntary or compelled by the court), the liquidator may, with the sanction of a special resolution and any other sanction required by the Cayman Islands Companies Law, divide among the members in specie or kind the whole or any part of the assets of the Company, whether the assets consist of property of one kind or different kinds, and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be so divided and may determine how such division shall be carried out as between the members or different classes of members and the members within each class. The liquidator may, with the like sanction, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator thinks fit, but so that no member shall be compelled to accept any shares or other property upon which there is a liability.

(k) Subscription rights reserve

Provided that it is not prohibited by and is otherwise in compliance with the Cayman Islands Companies Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of the shares to be issued on the exercise of such warrants, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of such shares.

– III-18 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

3. CAYMAN ISLANDS COMPANIES LAW

The Company was incorporated in the Cayman Islands as an exempted company on December 17, 2018 subject to the Cayman Islands Companies Law. Certain provisions of Cayman Islands Companies Law are set out below but this section does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of the Cayman Islands Companies Law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar.

(a) Company operations

An exempted company such as the Company must conduct its operations mainly outside the Cayman Islands. An exempted company is also required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorized share capital.

(b) Share capital

Under Cayman Islands Companies Law, a Cayman Islands company may issue ordinary, preference or redeemable shares or any combination thereof. Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called the “share premium account”. At the option of a company, these provisions may not apply to premiums on shares of that company allotted pursuant to any arrangements in consideration of the acquisition or cancelation of shares in any other company and issued at a premium. The share premium account may be applied by the company subject to the provisions, if any, of its memorandum and articles of association, in such manner as the company may from time to time determine including, but without limitation, the following:

(i) paying distributions or dividends to members;
(ii) paying up unissued shares of the company to be issued to members as fully paid bonus shares;
(iii) any manner provided in section 37 of the Cayman Islands Companies Law;
(iv) writing-off the preliminary expenses of the company; and
(v) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company.

– III-19 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

Notwithstanding the foregoing, no distribution or dividend may be paid to members out of the share premium account unless, immediately following the date on which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course of business.

Subject to confirmation by the court, a company limited by shares or a company limited by guarantee and having a share capital may, if authorized to do so by its articles of association, by special resolution reduce its share capital in any way.

(c) Financial assistance to purchase shares of a company or its holding company

There are no statutory prohibitions in the Cayman Islands on the granting of financial assistance by a company to another person for the purchase of, or subscription for, its own, its holding company’s or a subsidiary’s shares. Therefore, a company may provide financial assistance provided the directors of the company, when proposing to grant such financial assistance, discharge their duties of care and act in good faith, for a proper purpose and in the interests of the company. Such assistance should be on an arm’s-length basis.

(d) Purchase of shares and warrants by a company and its subsidiaries

A company limited by shares or a company limited by guarantee and having a share capital may, if so authorized by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a member and, for the avoidance of doubt, it shall be lawful for the rights attaching to any shares to be varied, subject to the provisions of the company’s articles of association, so as to provide that such shares are to be or are liable to be so redeemed. In addition, such a company may, if authorized to do so by its articles of association, purchase its own shares, including any redeemable shares; an ordinary resolution of the company approving the manner and terms of the purchase will be required if the articles of association do not authorize the manner and terms of such purchase. A company may not redeem or purchase its shares unless they are fully paid. Furthermore, a company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any issued shares of the company other than shares held as treasury shares. In addition, a payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless, immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.

Shares that have been purchased or redeemed by a company or surrendered to the company shall not be treated as canceled but shall be classified as treasury shares if held in compliance with the requirements of Section 37A(1) of the Cayman Islands Companies Law. Any such shares shall continue to be classified as treasury shares until such shares are either canceled or transferred pursuant to the Cayman Islands Companies Law.

– III-20 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

A Cayman Islands company may be able to purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. Thus there is no requirement under Cayman Islands law that a company’s memorandum or articles of association contain a specific provision enabling such purchases. The directors of a company may under the general power contained in its memorandum of association be able to buy, sell and deal in personal property of all kinds.

A subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares.

(e) Dividends and distributions

Subject to a solvency test, as prescribed in the Cayman Islands Companies Law, and the provisions, if any, of the company’s memorandum and articles of association, company may pay dividends and distributions out of its share premium account. In addition, based upon English case law which is likely to be persuasive in the Cayman Islands, dividends may be paid out of profits.

For so long as a company holds treasury shares, no dividend may be declared or paid, and no other distribution (whether in cash or otherwise) of the company’s assets (including any distribution of assets to members on a winding up) may be made, in respect of a treasury share.

(f) Protection of minorities and shareholders’ suits

It can be expected that the Cayman Islands courts will ordinarily follow English case law precedents (particularly the rule in the case of Foss v. Harbottle and the exceptions to that rule) which permit a minority member to commence a representative action against or derivative actions in the name of the company to challenge acts which are ultra vires, illegal, fraudulent (and performed by those in control of the Company) against the minority, or represent an irregularity in the passing of a resolution which requires a qualified (or special) majority which has not been obtained.

Where a company (not being a bank) is one which has a share capital divided into shares, the court may, on the application of members holding not less than one-fifth of the shares of the company in issue, appoint an inspector to examine the affairs of the company and, at the direction of the court, to report on such affairs. In addition, any member of a company may petition the court, which may make a winding up order if the court is of the opinion that it is just and equitable that the company should be wound up.

In general, claims against a company by its members must be based on the general laws of contract or tort applicable in the Cayman Islands or be based on potential violation of their individual rights as members as established by a company’s memorandum and articles of association.

– III-21 –

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

(g) Disposal of assets

There are no specific restrictions on the power of directors to dispose of assets of a company, however, the directors are expected to exercise certain duties of care, diligence and skill to the standard that a reasonably prudent person would exercise in comparable circumstances, in addition to fiduciary duties to act in good faith, for proper purpose and in the best interests of the company under English common law (which the Cayman Islands courts will ordinarily follow).

(h) Accounting and auditing requirements

A company must cause proper records of accounts to be kept with respect to: (i) all sums of money received and expended by it; (ii) all sales and purchases of goods by it and (iii) its assets and liabilities. Proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company’s affairs and to explain its transactions.

If a company keeps its books of account at any place other than at its registered office or any other place within the Cayman Islands, it shall, upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law (2013 Revision) of the Cayman Islands, make available, in electronic form or any other medium, at its registered office copies of its books of account, or any part or parts thereof, as are specified in such order or notice.

(i) Exchange control

There are no exchange control regulations or currency restrictions in effect in the Cayman Islands.

(j) Taxation

Pursuant to section 6 of the Tax Concessions Law (2018 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Cabinet that:

(i) no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to the Company or its operations; and
(ii) no tax be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable by the Company:
(aa) on or in respect of the shares, debentures or other obligations of the Company; or
(bb) by way of withholding in whole or in part of any relevant payment as defined in section 6(3) of the Tax Concessions Law (2018 Revision).

– III-22 –

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APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

The undertaking for the Company is for a period of 30 years from December 3, 2019.

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save for certain stamp duties which may be applicable, from time to time, on certain instruments.

(k) Stamp duty on transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies save for those which hold interests in land in the Cayman Islands.

(l) Loans to directors

There is no express provision prohibiting the making of loans by a company to any of its directors. However, the company’s articles of association may provide for the prohibition of such loans under specific circumstances.

(m) Inspection of corporate records

The members of a company have no general right to inspect or obtain copies of the register of members or corporate records of the company. They will, however, have such rights as may be set out in the company’s articles of association.

(n) Register of members

A Cayman Islands exempted company may maintain its principal register of members and any branch registers in any country or territory, whether within or outside the Cayman Islands, as the company may determine from time to time. There is no requirement for an exempted company to make any returns of members to the Registrar of Companies in the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection. However, an exempted company shall make available at its registered office, in electronic form or any other medium, such register of members, including any branch register of member, as may be required of it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law (2017 Revision) of the Cayman Islands.

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APPENDIX III

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

(o) Register of Directors and officer s

Pursuant to the Cayman Islands Companies Law, the Company is required to maintain at its registered office a register of directors, alternate directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within 30 days of any change in such directors or officers, including a change of the name of such directors or officers.

(p) Winding up

A Cayman Islands company may be wound up by: (i) an order of the court; (ii) voluntarily by its members; or (iii) under the supervision of the court.

The court has authority to order winding up in a number of specified circumstances including where, in the opinion of the court, it is just and equitable that such company be so wound up.

A voluntary winding up of a company (other than a limited duration company, for which specific rules apply) occurs where the company resolves by special resolution that it be wound up voluntarily or where the company in general meeting resolves that it be wound up voluntarily because it is unable to pay its debt as they fall due. In the case of a voluntary winding up, the company is obliged to cease to carry on its business from the commencement of its winding up except so far as it may be beneficial for its winding up. Upon appointment of a voluntary liquidator, all the powers of the directors cease, except so far as the company in general meeting or the liquidator sanctions their continuance.

In the case of a members’ voluntary winding up of a company, one or more liquidators are appointed for the purpose of winding up the affairs of the company and distributing its assets.

As soon as the affairs of a company are fully wound up, the liquidator must make a report and an account of the winding up, showing how the winding up has been conducted and the property of the company disposed of, and call a general meeting of the company for the purposes of laying before it the account and giving an explanation of that account.

When a resolution has been passed by a company to wind up voluntarily, the liquidator or any contributory or creditor may apply to the court for an order for the continuation of the winding up under the supervision of the court, on the grounds that: (i) the company is or is likely to become insolvent; or (ii) the supervision of the court will facilitate a more effective, economic or expeditious liquidation of the company in the interests of the contributories and creditors. A supervision order takes effect for all purposes as if it was an order that the company be wound up by the court except that a commenced voluntary winding up and the prior actions of the voluntary liquidator shall be valid and binding upon the company and its official liquidator.

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APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANIES LAW

For the purpose of conducting the proceedings in winding up a company and assisting the court, one or more persons may be appointed to be called an official liquidator(s). The court may appoint to such office such person or persons, either provisionally or otherwise, as it thinks fit, and if more than one person is appointed to such office, the court shall declare whether any act required or authorized to be done by the official liquidator is to be done by all or any one or more of such persons. The court may also determine whether any and what security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the court.

(q) Reconstructions

Reconstructions and amalgamations may be approved by a majority in number representing 75% in value of the members or creditors, depending on the circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the courts. Whilst a dissenting member has the right to express to the court his view that the transaction for which approval is being sought would not provide the members with a fair value for their shares, the courts are unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management, and if the transaction were approved and consummated the dissenting member would have no rights comparable to the appraisal rights (i.e. the right to receive payment in cash for the judicially determined value of their shares) ordinarily available, for example, to dissenting members of a United States corporation.

(r) Take-overs

Where an offer is made by a company for the shares of another company and, within four months of the offer, the holders of not less than 90% of the shares which are the subject of the offer accept, the offeror may, at any time within two months after the expiration of that four-month period, by notice require the dissenting members to transfer their shares on the terms of the offer. A dissenting member may apply to the Cayman Islands courts within one month of the notice objecting to the transfer. The burden is on the dissenting member to show that the court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority members.

(s) Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, save to the extent any such provision may be held by the court to be contrary to public policy, for example, where a provision purports to provide indemnification against the consequences of committing a crime.

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STATUTORY AND GENERAL INFORMATION

APPENDIX IV

A. FURTHER INFORMATION ABOUT OUR COMPANY

1. Incorporation of our Company

Our Company was incorporated in the Cayman Islands under the Cayman Islands Companies Law as an exempted company with limited liability on December 17, 2018. Our Company has established its principal place of business in Hong Kong at 40th Floor, Sunlight Tower, No. 248 Queen’s Road East, Wanchai, Hong Kong and was registered with the Registrar of Companies in Hong Kong as a non-Hong Kong company under Part 16 of the Companies Ordinance on December 30, 2019. Mr. Lei Kin Keong has been appointed as the authorized representative of our Company for the acceptance of service of process and notices on behalf of our Company in Hong Kong.

As our Company was incorporated in the Cayman Islands, we are subject to the Cayman Islands Companies Law, the Memorandum and the Articles. A summary of certain provisions of the Memorandum and Articles and relevant aspects of the Cayman Islands Companies Law is set out in “Summary of the constitution of the Company and Cayman Islands Companies Law” in Appendix III to this document.

2. Changes in the share capital of our Company

As of the date of incorporation of our Company, the authorized share capital of our Company was US$950,000.00 divided into 950,000 shares of US$1 each. Upon its incorporation, one fully-paid share of US$1 each of our Company was issued and allotted to an initial subscriber who is an Independent Third Party on December 17, 2018, which was then transferred to WeiQiang at the consideration of US$1 on the same date. On the same date, 683,050 shares, 95,000 shares, 95,000 shares and 76,949 shares of US$1 each of our Company, all fully paid, were issued and allotted to WeiZheng, WeiYao, WeiTian and WeiQiang, respectively.

On October 18, 2019, the authorized share capital of our Company was increased from US$950,000 divided into 950,000 shares of US$1 each to US$1,000,000 divided into 1,000,000 shares of a US$1 each by the creation of additional 50,000 shares of US$1 each, and following which, the authorized share capital of our Company was US$1,000,000 divided into 1,000,000 shares of US$1 each.

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APPENDIX IV

STATUTORY AND GENERAL INFORMATION

Pursuant to the written resolutions of the Shareholders passed on [●], 2020, each of our issued and unissued shares of US$1 each was subdivided into 500 Shares of US$0.002 each. Our authorized share capital was further increased from US$1,000,000 to US$[40,000,000] by the creation of additional [19,500,000,000] Shares, and following such increase, the authorized share capital of our Company was US$[40,000,000] divided into [20,000,000,000] Shares of US$0.002 each.

Immediately following completion of the [ REDACTED ] and the [ REDACTED ] and without taking into account any Shares which may be issued upon the exercise of the [ REDACTED ] or any option which may be granted under the Share Option Scheme, the issued share capital of our Company will be [ REDACTED ] divided into [ REDACTED ] Shares, all fully paid or credited as fully paid, and [ REDACTED ] Shares will remain unissued.

Save as disclosed above and as mentioned in “– 4. Written resolutions of the Shareholders passed on [●], 2020” below, there has been no alteration in the share capital of our Company since its incorporation.

3. Changes in the share capital of our subsidiaries

Our subsidiaries are set out in the Accountants’ Report, the text of which is set out in Appendices IA and IB to this document.

Save as disclosed in “History, Reorganization and Corporate Structure” in this document, there has been no alteration in the share capital of our subsidiaries during the two years preceding the date of this document.

4. Written resolutions of the Shareholders passed on [ ● ], 2020

Pursuant to the written resolutions passed by the Shareholders on [●], 2020, among other matters:

(a) we approved and conditionally adopted the amended and restated Memorandum which will become effective upon [ REDACTED ];
(b) we approved and conditionally adopted the amended and restated Articles which will become effective upon [ REDACTED ];
(c) our Company’s issued and unissued shares of US$1 each were subdivided into 500 Shares of US$0.002 each with immediate effect, and following which, the authorized share capital of our Company was US$1,000,000 divided into 500,000,000 Shares of US$0.002 each;

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APPENDIX IV

STATUTORY AND GENERAL INFORMATION

(d) upon completion of the subdivision of shares in paragraph (c) above, the authorized share capital of our Company was increased from US$1,000,000 divided into 500,000,000 Shares to US$[40,000,000] divided into [20,000,000,000] Shares by the creation of an additional [19,500,000,000] Shares;
(e) conditional on (aa) the Listing Committee granting the approval for the [ REDACTED ] of, and permission to deal in, the Shares in issue and Shares to be issued and allotted pursuant to the [ REDACTED ], the [ REDACTED ] and as mentioned in this document including the Shares which may be issued and allotted pursuant to the exercise of the [ REDACTED ] and any option which may be granted under the Share Option Scheme; (bb) the [ REDACTED ] having been duly determined; and (cc) the obligations of the [ REDACTED ] under the [ REDACTED ] becoming unconditional and not being terminated in accordance with the terms of such agreement (or any conditions as specified in this document), in each case on or before the dates and times specified in the [ REDACTED ]:
(i) the [ REDACTED ] was approved and our Directors were authorized to issue and allot the [ REDACTED ] pursuant to the [ REDACTED ];
(ii) the [ REDACTED ] was approved;
(iii) the rules of the Share Option Scheme, the principal terms of which are set out in “D. Share Option Scheme” below in this appendix, were approved and adopted and our Directors were authorized to grant options to subscribe for Shares thereunder and to allot, issue and deal with Shares pursuant to the exercise of options granted under the Share Option Scheme;
(iv) conditional on the share premium account of our Company being credited as a result of the [ REDACTED ], our Directors were authorized to capitalize US$[ REDACTED ] standing to the credit of the share premium account of our Company by applying such sum in paying up in full at par [ REDACTED ] Shares for issue and allotment to holders of Shares whose names appear on the register of members of our Company on the date of passing this resolution in proportion (as near as possible without involving fractions so that no fraction of a share shall be allotted and issued) to their then existing respective shareholdings in our Company;
(v) a general unconditional mandate was given to our Directors to issue, allot and deal with (including the power to make an offer or agreement, or grant securities which would or might require Shares to be issued and allotted), otherwise than pursuant to a rights issue or pursuant to any scrip dividend schemes or similar arrangements providing for the allotment and issue of Shares in lieu of the whole or part of a dividend on Shares in accordance with the Articles or pursuant to a specific authority granted by the Shareholders in general meeting, unissued Shares not exceeding the aggregate of 20% of the

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APPENDIX IV

STATUTORY AND GENERAL INFORMATION

number of issued Shares immediately following the completion of the [ REDACTED ] and [ REDACTED ] (but taking no account of any Shares which may be issued and allotted pursuant to the exercise of the [ REDACTED ] or any option which may be granted under the Share Option Scheme), such mandate to remain in effect until the conclusion of the next annual general meeting of our Company, or the expiration of the period within which the next annual general meeting of our Company is required by the Articles or any applicable laws to be held, or until revoked or varied by an ordinary resolution of the Shareholders in general meeting, whichever occurs first;

(vi) a general unconditional mandate was given to our Directors authorizing them to exercise all powers of our Company to buy back on the Stock Exchange or on any other approved stock exchange on which the securities of our Company may be [ REDACTED ] and which is recognized by the SFC and the Stock Exchange for this purpose such number of Shares as will represent up to 10% of the number of issued Shares immediately following the completion of the [ REDACTED ] and the [ REDACTED ] (but taking no account of any Shares which may be allotted and issued pursuant to the exercise of the [ REDACTED ] or any option which may be granted under the Share Option Scheme), such mandate to remain in effect until the conclusion of the next annual general meeting of our Company, or the expiration of the period within which the next annual general meeting of our Company is required by the Articles or any applicable laws to be held, or until revoked or varied by an ordinary resolution of the Shareholders in general meeting, whichever occurs first; and
(vii) the general unconditional mandate mentioned in paragraph (v) above was extended by the addition to the number of issued Shares which may be issued and allotted or agreed conditionally or unconditionally to be allotted and issued by our Directors pursuant to such general mandate of an amount representing the total number of issued Shares bought back by our Company pursuant to the mandate to buy back Shares referred to in paragraph (vi) above.

5. Reorganization

In preparation for the [ REDACTED ], the companies comprising our Group underwent the Reorganization and our Company became the holding company of our Group. For further details with regard to the Reorganization, see “History, Reorganization and Corporate Structure” in this document.

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STATUTORY AND GENERAL INFORMATION

APPENDIX IV

6. Buyback by our Company of our own securities

This section includes information required by the Stock Exchange to be included in this document concerning the buyback by our Company of our own securities.

(a) Provisions of the Listing Rules

The Listing Rules permit companies with a primary listing on the Stock Exchange to purchase their shares on the Stock Exchange subject to certain restrictions.

(i) Shareholders’ approval

The Listing Rules provide that all proposed buybacks of shares (which must be fully paid in the case of shares) by a company with a primary listing on the Stock Exchange must be approved in advance by an ordinary resolution of its shareholders in general meeting, either by way of general mandate or by specific approval of a particular transaction.

Note: Pursuant to the written resolutions passed by the Shareholders on [●], 2020, a general unconditional mandate (the “ Buyback Mandate ”) was granted to our Directors authorizing the buyback of shares by our Company on the Stock Exchange, or on any other stock exchange on which the securities of our Company may be [ REDACTED ] and which is recognized by the SFC and the Stock Exchange for this purpose, with the total number of Shares not exceeding 10% of the total number of Shares in issue and to be issued as mentioned herein, at any time until the conclusion of the next annual general meeting of our Company, the expiration of the period within which the next annual general meeting of our Company is required by an applicable law or the Articles to be held or when such mandate is revoked or varied by an ordinary resolution of our Shareholders in general meeting, whichever is the earliest.

(ii) Source of funds

Buybacks must be funded out of funds legally available for the purpose in accordance with the Articles and the Cayman Islands Companies Law. A listed company may not buyback its own shares on the Stock Exchange for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Stock Exchange from time to time.

(iii) Core connected persons

The Listing Rules prohibit our Company from knowingly repurchasing the Shares on the Stock Exchange from a “core connected person”, which includes a director, chief executive or substantial shareholder of our Company or any of the subsidiaries or a close associate of any of them and a core connected person shall not knowingly sell Shares to our Company.

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APPENDIX IV

STATUTORY AND GENERAL INFORMATION

(b) Reasons for buybacks

Our Directors believe that it is in the best interests of our Company and our Shareholders as a whole for our Directors to have a general authority from our Shareholders to enable our Company to buyback Shares in the market. Such buybacks may, depending on the market conditions and funding arrangements at the time, lead to an enhancement of our Company’s net asset value per Share and/or earnings per Share and will only be made when our Directors believe that such buybacks will benefit our Company and our Shareholders.

(c) Funding of buyback

In buying back Shares, our Company may only apply funds legally available for such purpose in accordance with our Articles, the Listing Rules and the applicable laws of the Cayman Islands.

It is presently proposed that any buyback of Shares will be made out of the profits of our Company, the share premium amount of our Company or the proceeds of a fresh issue of Shares made for the purpose of the buyback or, subject to the Cayman Islands Companies Law, out of capital and, in the case of any premium payable on the purchase over the par value of the Shares to be bought back must be provided for, out of either or both of the profits of our Company or from sums standing to the credit of the share premium account of our Company or, subject to the Cayman Islands Companies Law, out of capital.

On the basis of the current financial position of our Group as disclosed in this document and taking into account the current working capital position of our Company, our Directors consider that, if the Buyback Mandate were to be exercised in full, it might not have a material adverse effect on the working capital and/or the gearing position of our Group as compared to the position disclosed in this document. However, our Directors do not propose to exercise the Buyback Mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements or the gearing levels of our Group which in the opinion of our Directors are from time to time appropriate for our Group.

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STATUTORY AND GENERAL INFORMATION

APPENDIX IV

(d) Share capital

The exercise in full of the Buyback Mandate, on the basis of [ REDACTED ] Shares in issue immediately after the [ REDACTED ] (but not taking into account of our Shares which may be issued pursuant to the exercise of the [ REDACTED ] or any option which may be granted under the Share Option Scheme), would result in up to [ REDACTED ] Shares being bought back by our Company during the period until:

(i) the conclusion of the next annual general meeting of our Company;
(ii) the expiration of the period within which the next annual general meeting of our Company is required by any applicable law or the Articles to be held; or
(iii) the date on which the Buyback Mandate is revoked or varied by an ordinary resolution of our Shareholders in general meeting, whichever occurs first.

(e) General

None of our Directors nor, to the best of their knowledge having made all reasonable enquiries, any of their close associates (as defined in the Listing Rules), has any present intention if the Buyback Mandate is exercised to sell any Share(s) to our Company or our subsidiaries.

Our Directors [have] undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Buyback Mandate in accordance with the Listing Rules and the applicable laws of the Cayman Islands.

If as a result of a buyback of Shares pursuant to the Buyback Mandate, a Shareholder’s proportionate interest in the voting rights of our Company increases, such increase will be treated as an acquisition for the purposes of the Takeovers Code. Accordingly, a Shareholder or a group of Shareholders acting in concert, depending on the level of increase of the Shareholders’ interest, could obtain or consolidate control of our Company and may become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code as a result of any such increase. Save as disclosed above, our Directors are not aware of any consequence that would arise under the Takeovers Code as a result of a buyback pursuant to the Buyback Mandate.

If the Buyback Mandate is fully exercised immediately following completion of the Capitalization Issue and the [ REDACTED ] (but not taking into account our Shares which may be issued pursuant to the exercise of the [ REDACTED ] or any option which may be granted under the Share Option Scheme), the total number of Shares which will be bought back pursuant to the Buyback Mandate will be [ REDACTED ] Shares, being 10% of the total number of Shares based on the aforesaid assumptions. The percentage shareholding of our Controlling Shareholders will be increased to approximately [ REDACTED ]% of the issued share capital of our Company immediately following the full exercise of the

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APPENDIX IV

STATUTORY AND GENERAL INFORMATION

Buyback Mandate. Any buyback of Shares which results in the number of Shares held by the public being reduced to less than the prescribed percentage of our Shares then in issue could only be implemented with the approval of the Stock Exchange to waive the Listing Rules requirements regarding the public float under Rule 8.08 of the Listing Rules. However, our Directors have no present intention to exercise the Buyback Mandate to such an extent that, in the circumstances, there is insufficient public float as prescribed under the Listing Rules.

No core connected person of our Company has notified our Group that he/she/it has a present intention to sell Shares to our Company, or has undertaken not to do so, if the Buyback Mandate is exercised.

B. FURTHER INFORMATION ABOUT OUR BUSINESS

1. Summary of material contracts

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

(a) an equity transfer agreement dated January 21, 2019 and entered into between Future Prosperity (HK) and Zhenro Group Company, pursuant to which Future Prosperity (HK) acquired 5% of the equity interest in Fujian Zhenro at a consideration of RMB2,524,380;
(b) an equity transfer agreement dated January 28, 2019 and entered into between Fuzhou Huihua and Zhenro Group Company, pursuant to which Fuzhou Huihua acquired 95% of the equity interest in Fujian Zhenro at a consideration of RMB47,963,315;
(c) a share swap agreement dated November 7, 2019 and entered into between Sky Bridge and our Company, pursuant to which Sky Bridge transferred 1,000 shares of Future Prosperity (BVI) to our Company in exchange for the issue of 50,000 shares of our Company;
(d) the Deed of Non-competition;
(e) the Deed of Indemnity; and
(f) the [ REDACTED ].

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STATUTORY AND GENERAL INFORMATION

APPENDIX IV

2. Intellectual property rights of our Group

(a) Trademarks

As of the Latest Practicable Date, our Group was the applicant of the following applications for trademarks which, in the opinion of our Directors, are or may be material to our business:

		Application		Name of	Place of	Date of
No.	Trademark	Number	Class	Applicant	Application	Application
1.		305012991	36, 37, 39,	Fujian Zhenro	Hong Kong	August 1,
			44, 45			2019
2.		305012982	37, 39,	Fujian Zhenro	Hong Kong	August 1,
			44, 45			2019
3.		305012973	36, 37, 39,	Fujian Zhenro	Hong Kong	August 1,
			44, 45			2019

==> picture [45 x 11] intentionally omitted <==

==> picture [43 x 12] intentionally omitted <==

==> picture [43 x 11] intentionally omitted <==

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APPENDIX IV STATUTORY AND GENERAL INFORMATION

(b) Domain names

As of the Latest Practicable Date, our Group had registered the following domain name which are material to our business:

Name of Date of No. Domain name Registered Proprietor Registration Expiry Date 1. zhenrowy.com Zhenro Property May 24, 2016 May 24, 2026 Services

C. FURTHER INFORMATION ABOUT OUR DIRECTORS AND SUBSTANTIAL SHAREHOLDERS

1. Directors

(a) Disclosure of Interests – Interests and short positions of the Directors and the chief executive of our Company in the Shares, underlying Shares and debentures of our Company and its associated corporations

Immediately following completion of the [ REDACTED ] and the [ REDACTED ] and assuming that the [ REDACTED ] or any option which may be granted under the Share Option Scheme is not exercised, none of our Directors or chief executives of our Company will have interests or short positions in the shares, underlying shares and debentures of our Company or our associated corporations (within the meaning of Part XV of the SFO) which will be required to be notified to our 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 which will be required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which will be required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers to be notified to our Company and the Stock Exchange, once our Shares are [ REDACTED ].

(b) Particulars of service agreements and letters of appointment

Each of our executive Directors [has entered] into a service agreement with our Company for a term of three years commencing from the [ REDACTED ], which may be terminated by not less than three months’ notice in writing served by either party on the other.

Each of our non-executive Director and independent non-executive Directors [has entered] into a letter of appointment with our Company for a term of three years commencing from the [ REDACTED ], which may be terminated by not less than three months’ notice in writing served by either party on the other.

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STATUTORY AND GENERAL INFORMATION

(c) Directors’ remuneration

Each of our executive Directors, being Mr. Huang Liang and Mr. Huang Sheng, is entitled to a salary of RMB1,425,000 and RMB1,350,000, respectively, and shall be paid on the basis of a twelve-month year. During the two years ended December 31, 2018 and the nine months ended September 30, 2019, the aggregate remuneration (including fees, salaries, bonus, share-based payments, contributions to retirement benefits schemes, allowances and other benefits in kind) paid to our Directors was approximately RMB0.8 million, RMB0.9 million and RMB1.8 million, respectively. For details, please refer to Note 8 of the Accountants’ Report set out in Appendices IA and IB to this document.

Each of our non-executive Directors and independent non-executive Directors [has been appointed] for a term of three years. We intend to pay a director’s fee of RMB200,000 per annum to each of Mr. Huang Xianzhi, Mr. Chan Wai Kin, Mr. Ma Haiyue, Mr. Au Yeung Po Fung and Mr. Zhang Wei. Save for directors’ fees, none of our independent non-executive Directors is expected to receive any other remuneration for holding their office as non-executive Directors or independent non-executive Directors.

Under the arrangement currently in force, the aggregate remuneration (including fees, salaries, bonus, share-based payments, contributions to retirement benefits scheme, allowances and other benefits in kind) of our Directors for the year ending December 31, 2020 is estimated to be no more than RMB7.5 million.

2. Substantial shareholders

So far as our Directors are aware, immediately following the completion of the [ REDACTED ] and the [ REDACTED ] assuming that the [ REDACTED ] or any option which may be granted under the Share Option Scheme is not exercised, the following persons (other than our Directors and chief executives of our Company) will have or be deemed or taken to have an interest and/or short position in our Shares or the underlying Shares which would fall to be disclosed under the provisions of Division 2 and 3 of Part XV of the SFO, or who will be, directly or indirectly, interested in 10% or more of the issued voting shares of any other member of our Group:

Interest in our Company

Name of Shareholder Mr. ZR Ou(2)	Nature of interest Interest in controlled corporation	Shares held immediately following the completion of the [REDACTED] and [REDACTED](1)(4)
		Number Percentage [REDACTED] Shares (L) [REDACTED]%

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STATUTORY AND GENERAL INFORMATION

Shares held immediately following the completion of the [ REDACTED ] and Name of Shareholder Nature of interest [ REDACTED ] [(1)(4)] Number Percentage WeiZheng[(2)] Beneficial owner [ REDACTED ] [ REDACTED ]% Shares (L) WeiYao[(2)] Beneficial owner [ REDACTED ] [ REDACTED ]% Shares (L) WeiTian[(2)] Beneficial owner [ REDACTED ] [ REDACTED ]% Shares (L) Ms. Lin Shuying Interest of spouse [ REDACTED ] [ REDACTED ]% (林淑英)[(3)] Shares Mr. GQ Ou[(4)] Interest in controlled [ REDACTED ] [ REDACTED ]% corporation Shares (L) WeiQiang[(4)] Beneficial owner [ REDACTED ] [ REDACTED ]% Shares (L) Ms. Li Xi (李熹)[(5)] Interest of spouse [ REDACTED ] [ REDACTED ]% Shares (L)

Notes:

(1) The letter “L” denotes the person’s long position in the relevant Shares.
(2) Each of WeiZheng, WeiYao and WeiTian is wholly-owned by Mr. ZR Ou. By virtue of the SFO, Mr. ZR Ou is deemed to be interested in the Shares in which WeiZheng, WeiYao and WeiTian are interested.
(3) Ms. Lin Shuying is the spouse of Mr. ZR Ou. By virtue of the SFO, Ms. Lin Shuying is deemed to be interested in the Shares in which Mr. ZR Ou is interested.
(4) WeiQiang is wholly-owned by Mr. GQ Ou. By virtue of the SFO, Mr. GQ Ou is deemed to be interested in the Shares in which WeiQiang is interested.
(5) Ms. Li Xi is the spouse of Mr. GQ Ou. By virtue of the SFO, Ms. Li Xi is deemed to be interested in the Shares in which Mr. GQ Ou is interested.
(6) If the [ REDACTED ] is fully exercised, the interest of Mr. ZR Ou, WeiZheng, WeiYao, WeiTian, Ms. Lin Shuying, Mr. GQ Ou, WeiQiang and Ms. Li Xi in our Shares will be approximately [ REDACTED ]%, [ REDACTED ]%, [ REDACTED ]%, [ REDACTED ]%, [ REDACTED ]%, [ REDACTED ]%, [ REDACTED ]% and [ REDACTED ]%, respectively.

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Interest in other members of our Group

	Name of member	Nature of	Percentage of
Name of shareholder	of our Group	interest	equity interest
Hubei Hongda Property	Hubei Changfang	Beneficial owner	49%
Management Co., Ltd.	Zhenro
(湖北宏達物業管理有限公司)
Li Wende (黎文德)	Jiangsu Sutie	Beneficial owner	15%
Tang Weibing (唐偉兵)	Jiangsu Sutie	Beneficial owner	15%

3. Agency fees or commissions received

Save as disclosed in this document, no commissions, discounts, brokerages or other special terms were granted in connection with the issue or sale of any capital of any member of our Group within the two years immediately preceding the date of this document.

4. Disclaimers

Save as disclosed in this document:

(a) none of our Directors or chief executive of our Company has any interest or short position in our shares, underlying shares or debentures of our Company or any of its associated corporation (within the meaning of the SFO) which will have to be notified to our Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO or which will be required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which will be required to be notified to our Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers once our Shares are [ REDACTED ];
(b) none of our Directors or experts referred to under “– E. Other information – 8. Qualifications and consents of experts” below has any direct or indirect interest in the promotion of our Company, or in any assets which have within the two years immediately preceding the date of this document been acquired or disposed of by or leased to any member of our Group, or are proposed to be acquired or disposed of by or leased to any member of our Group;
(c) none of our Directors is materially interested in any contract or arrangement subsisting at the date of this document which is significant in relation to the business of our Group taken as a whole;
(d) none of our Directors has any existing or proposed service contracts with any member of our Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation));

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(e) taking no account of Shares which may be taken up under the [ REDACTED ], none of our Directors knows of any person (not being a Director or chief executive of our Company) who will, immediately following completion of the [ REDACTED ], have an interest or short position in our Shares or underlying Shares of our Company which would fall to be disclosed to our Company under the provisions of Divisions 2 and 3 of Part XV of SFO or be interested, directly or indirectly, in 10% or more of the issued voting shares of any member of our Group;
(f) none of the experts referred to under “– E. Other information – 8. Qualifications and consents of experts” below has any shareholding in any member of our Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of our Group; and
(g) so far as is known to our Directors as of the Latest Practicable Date, none of our Directors, their respective close associates (as defined under the Listing Rules) or Shareholders of our Company who are interested in more than 5% of the total number of issued Shares has any interests in the five largest customers or the five largest suppliers of our Group.

D. SHARE OPTION SCHEME

The following is a summary of the principal terms of the Share Option Scheme conditionally adopted by the written resolutions of our Shareholders passed on [●], 2020.

(a) Purpose

The Share Option Scheme is a share incentive scheme prepared in accordance with Chapter 17 of the Listing Rules and is established to recognize and acknowledge the contributions that the Eligible Participants (as defined in paragraph (b) below) had or may have made to our Group. The Share Option Scheme will provide the Eligible Participants an opportunity to have a personal stake in our Company with the view to achieving the following objectives:

(i) motivate the Eligible Participants to optimize their performance efficiency for the benefit of our Group; and
(ii) attract and retain or otherwise maintain an on-going business relationship with the Eligible Participants whose contributions are or will be beneficial to the long-term growth of our Group.

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(b) Who may join

The Board may, at its discretion, offer to grant an option to the following persons (collectively the “ Eligible Participants ”) to subscribe for such number of new Shares as the Board may determine at an exercise price determined in accordance with paragraph (f) below:

(i) any full-time or part-time employees, executives or officers of our Company or any of our subsidiaries;
(ii) any directors (including independent non-executive directors) of our Company or any of our subsidiaries; and
(iii) any advisors, consultants, suppliers, customers, distributors and such other persons who in the sole opinion of the Board will contribute or have contributed to our Company or any of our subsidiaries.

Upon acceptance of the option, the grantee shall pay HK$1.00 to our Company by way of consideration for the grant.

(c) Acceptance of an offer of Options

An option shall be deemed to have been granted and accepted by the grantee and to have taken effect when the duplicate offer document constituting acceptances of the options duly signed by the grantee, together with a remittance in favor of our Company of HK$1.00 by way of consideration for the grant thereof, is received by our Company on or before the relevant acceptance date. Such remittance shall in no circumstances be refundable. Any offer to grant an option to subscribe for Shares may be accepted in respect of less than the number of Shares for which it is offered provided that it is accepted in respect of a board lot for dealing in Shares on the Stock Exchange or an integral multiple thereof and such number is clearly stated in the duplicate offer document constituting acceptance of the option. To the extent that the offer to grant an option is not accepted by any prescribed acceptance date, it shall be deemed to have been irrevocably declined.

Subject to paragraphs (l), (m), (n), (o) and (p), an Option shall be exercised in whole or in part and, other than where it is exercised to the full extent outstanding, shall be exercised in integral multiples of such number of Shares as shall represent one board lot for dealing in Shares on the Stock Exchange for the time being, by the grantee by giving notice in writing to our Company stating that the Option is thereby exercised and the number of Shares in respect of which it is exercised. Each such notice must be accompanied by a remittance for the full amount of the Exercise Price for our Shares in respect of which the notice is given. Within 21 days after receipt of the notice and the remittance and, where appropriate, receipt of the certificate by the auditors to our Company or the approved independent financial advisor as the case may be pursuant to paragraph (r), our Company shall allot and issue the relevant number of Shares to the grantee credited as fully paid and issue to the Grantee certificates in respect of our Shares so allotted.

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The exercise of any Option shall be subject to our Shareholders in general meeting approving any necessary increase in the authorized share capital of our Company.

(d) Maximum number of Shares

The maximum number of Shares in respect of which options may be granted under the Share Option Scheme and under any other share option schemes of our Company must not in aggregate exceed 10% of the total number of Shares in issue immediately following completion of the [ REDACTED ], being [ REDACTED ] Shares (excluding any Shares which may be issued pursuant to the exercise of the [ REDACTED ]), excluding for this purpose Shares which would have been issuable pursuant to options which have lapsed in accordance with the terms of the Share Option Scheme (or any other share option schemes of our Company). Subject to the issue of a circular by our Company and the approval of our Shareholders in general meeting and/or such other requirements prescribed under the Listing Rules from time to time, the Board may:

(i) renew this limit at any time to 10% of our Shares in issue as at the date of the approval by our Shareholders in general meeting; and/or
(ii) grant options beyond the 10% limit to Eligible Participants specifically identified by the Board. The circular issued by our Company to our Shareholders shall contain a generic description of the specified Eligible Participants who may be granted such options, the number and terms of the options to be granted, the purpose of granting options to the specified Eligible Participants with an explanation as to how the options serve such purpose, the information required under Rule 17.02(2)(d) and the disclaimer required under Rule 17.02(4) of the Listing Rules.

Notwithstanding the foregoing and subject to paragraph (r) below, the maximum number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other share option schemes of our Company at any time shall not exceed 30% of our Shares in issue from time to time. No options shall be granted under any schemes of our Company (including the Share Option Scheme) if this will result in the 30% limit being exceeded. The maximum number of Shares in respect of which options may be granted shall be adjusted, in such manner as the auditors of our Company or an approved independent financial advisor shall certify to be appropriate, fair and reasonable in the event of any alteration in the capital structure of our Company in accordance with paragraph (r) below whether by way of consolidation, capitalization issue, rights issue, sub-division or reduction of the share capital of our Company but in no event shall exceed the limit prescribed in this paragraph.

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(e) Maximum number of options to any one individual

The total number of Shares issued and which may fall to be issued upon exercise of the options granted under the Share Option Scheme and any other share option schemes of our Company (including both exercised and outstanding options) to each Eligible Participant in any 12-month period up to the date of grant shall not exceed 1% of our Shares in issue as at the date of grant. Any further grant of options in excess of this 1% limit shall be subject to:

(i) the issue of a circular by our Company containing the identity of the Eligible Participant, the numbers of and terms of the options to be granted (and options previously granted to such participant), the information as required under Rules 17.02(2)(d) and the disclaimer required under 17.02(4) of the Listing Rules; and
(ii) the approval of our Shareholders in general meeting and/or other requirements prescribed under the Listing Rules from time to time with such Eligible Participant and his associates (as defined in the Listing Rules) abstaining from voting. The numbers and terms (including the exercise price) of options to be granted to such participant must be fixed before our Shareholders’ approval and the date of the Board meeting at which the Board proposes to grant the options to such Eligible Participant shall be taken as the date of grant for the purpose of calculating the subscription price of our Shares. The Board shall forward to such Eligible Participant an offer document in such form as the Board may from time to time determine (or, alternatively, documents accompanying the offer document which state), among others:
(aa) the Eligible Participant’s name, address and occupation;
(bb) the date on which an Option is offered to an Eligible Participant which must be a date on which the Stock Exchange is open for the business of dealing in securities;
(cc) the date upon which an offer for an Option must be accepted;
(dd) the date upon which an Option is deemed to be granted and accepted in accordance with paragraph (c);
(ee) the number of Shares in respect of which the Option is offered;
(ff) the subscription price and the manner of payment of such price for our Shares on and in consequence of the exercise of the Option;
(gg) the date of the notice given by the grantee in respect of the exercise of the Option; and
(hh) the method of acceptance of the Option which shall, unless the Board otherwise determines, be as set out in paragraph (c).

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(f) Price of Shares

Subject to any adjustments made as described in paragraph (r) below, the subscription price of a Share in respect of any particular option granted under the Share Option Scheme shall be such price as the Board in its absolute discretion shall determine, save that such price must be at least the higher of:

(i) the official closing price of our Shares as stated in the Stock Exchange’s daily quotation sheets on the date of grant, which must be a day on which the Stock Exchange is open for the business of dealing in securities;
(ii) the average of the official closing prices of our Shares as stated in the Stock Exchange’s daily quotation sheets for the five business days immediately preceding the date of grant; and
(iii) the nominal value of a Share.

(g) Granting options to connected persons

Any grant of options to a director, chief executive or substantial shareholder (as defined in the Listing Rules) of our Company or any of their respective associates (as defined in the Listing Rules) is required to be approved by the independent non-executive Directors (excluding any independent non-executive Director who is the grantee of the Options). If the Board proposes to grant options to a substantial shareholder or any independent non-executive Director or their respective associates (as defined in the Listing Rules) which will result in the number of Shares issued and to be issued upon exercise of options granted and to be granted (including options exercised, canceled and outstanding) to such person in the 12-month period up to and including the date of such grant:

(i) representing in aggregate over 0.1% or such other percentage as may be from time to time provided under the Listing Rules of our Shares in issue; and
(ii) having an aggregate value in excess of HK$5 million or such other sum as may be from time to time provided under the Listing Rules, based on the official closing price of our Shares at the date of each grant, such further grant of options will be subject to the issue of a circular by our Company and the approval of our Shareholders in general meeting on a poll at which all connected persons (as defined in the Listing Rules) of our Company shall abstain from voting in favor, and/or such other requirements prescribed under the Listing Rules from time to time. Any vote taken at the meeting to approve the grant of such options shall be taken as a poll.

The circular to be issued by our Company to our Shareholders pursuant to the above paragraph shall contain the following information:

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(i) the details of the number and terms (including the exercise price) of the options to be granted to each selected Eligible Participant which must be fixed before our Shareholders’ meeting and the date of Board meeting for proposing such further grant shall be taken as the date of grant for the purpose of calculating the exercise price of such options;
(ii) a recommendation from the independent non-executive Directors (excluding any independent non-executive Director who is the grantee of the options) to the independent Shareholders as to voting;
(iii) the information required under Rule 17.02(2)(c) and (d) and the disclaimer required under Rule 17.02(4) of the Listing Rules; and
(iv) the information required under Rule 2.17 of the Listing Rules.

(h) Restrictions on the times of grant of Options

A grant of options may not be made after inside information has come to the knowledge of our Company until it has been published pursuant to the requirements of the Listing Rules and Part XIVA of the SFO. In particular, no options may be granted during the period commencing one month immediately preceding the earlier of:

(i) the date of the Board meeting (as such date to first notified to the Stock Exchange in accordance with the Listing Rules) for the approval of our Company’s annual results half-year, quarterly or other interim period (whether or not required under the Listing Rules); and
(ii) the deadline for our Company to publish an announcement of its annual results or half-year, or quarterly or other interim period (whether or not required under the Listing Rules) and ending on the date of actual publication of the results announcement, and where an option is granted to a Director:
(iii) no options shall be granted during the period of 60 days immediately preceding the publication date of the annual results or, if shorter, the period from the end of the relevant financial year up to the publication date of the results; and
(iv) during the period of 30 days immediately preceding the publication date of the quarterly results (if any) and half-year results or, if shorter, the period from the end of the relevant quarterly or half-year period up to the publication date of the results.

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(i) Rights are personal to grantee

An option is personal to the grantee and may be exercised or treated as exercised, as the case may be, in whole or in part. No grantee shall in any way sell, transfer, charge, mortgage, encumber or create any interest (legal or beneficial) in favor of any third party over or in relation to any option or attempt so to do (save that the grantee may nominate a nominee in whose name our Shares issued pursuant to the Share Option Scheme may be registered). Any breach of the foregoing shall entitle our Company to cancel any outstanding options or any part thereof granted to such grantee.

(j) Time of exercise of Option and duration of the Share Option Scheme

An option may be exercised in accordance with the terms of the Share Option Scheme at any time after the date upon which the option is deemed to be granted and accepted and prior to the expiry of 10 years from that date. The period during which an option may be exercised will be determined by the Board in its absolute discretion, save that no option may be exercised more than 10 years after it has been granted. No option may be granted more than 10 years after the date of approval of the Share Option Scheme. Subject to earlier termination by our Company in general meeting or by the Board, the Share Option Scheme shall be valid and effective for a period of 10 years from the date of its adoption.

(k) Performance target

A grantee may be required to achieve any performance targets as the Board may then specify in the grant before any options granted under the Share Option Scheme can be exercised.

(l) Rights on ceasing employment or death

If the grantee of an option ceases to be an employee of our Company or any of its subsidiaries

(i) by any reason other than death or termination of his employment on the grounds specified in paragraph (m) below, the grantee may exercise the option up to the entitlement of the grantee as at the date of cessation (to the extent not already exercised) within a period of one month from such cessation; or
(ii) by reason of death, his personal representative(s) may exercise the option within a period of 12 months from such cessation, which date shall be the last actual working day with our Company or the relevant subsidiary whether salary is paid in lieu of notice or not, failing which it will lapse.

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(m) Rights on dismissal

If the grantee of an option ceases to be an employee of our Company or any of its subsidiaries on the grounds that he has been guilty of serious misconduct, or in relation to an employee of our Group (if so determined by the Board) on any other ground on which an employee would be entitled to terminate his employment at common law or pursuant to any applicable laws or under the grantee’s service contract with our Group, or has been convicted of any criminal offense involving his integrity or honesty, his option will lapse and not be exercisable after the date of termination of his employment.

(n) Rights on takeover

If a general offer is made to all our Shareholders (or all such Shareholders other than the offeror and/or any person controlled by the offeror and/or any person acting in concert with the offeror (as defined in the Takeovers Codes)) and such offer becomes or is declared unconditional during the option period of the relevant option, the grantee of an option shall be entitled to exercise the option in full (to the extent not already exercised) at any time within 14 days after the date on which the offer becomes or is declared unconditional.

(o) Rights on winding-up

In the event a notice is given by our Company to its members to convene a general meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind-up our Company, our Company shall forthwith give notice thereof to all grantees and thereupon, each grantee (or his legal personal representative(s)) shall be entitled to exercise all or any of his options (to the extent not already exercised) at any time not later than two business days prior to the proposed general meeting of our Company referred to above by giving notice in writing to our Company, accompanied by a remittance for the full amount of the aggregate subscription price for our Shares in respect of which the notice is given, whereupon our Company shall as soon as possible and, in any event, no later than the business day immediately prior to the date of the proposed general meeting, allot the relevant Shares to the grantee credited as fully paid and register the grantee as holder thereof.

(p) Rights on compromise or arrangement between our Company and its members or creditors

If a compromise or arrangement between our Company and its members or creditors is proposed for the purposes of a scheme for the reconstruction of our Company or its amalgamation with any other companies pursuant to the laws of jurisdictions in which our Company was incorporated, our Company shall give notice to all the grantees of the options on the same day as it gives notice of the meeting to its members or creditors summoning the meeting to consider such a scheme or arrangement and any grantee may by notice in writing to our Company accompanied by a remittance for the full amount of the aggregate subscription price for our Shares in respect of which the notice is given (such notice to be received by our Company not later than two business days prior to the proposed meeting), exercise the option

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to its full extent or to the extent specified in the notice and our Company shall as soon as possible and in any event no later than the business day immediately prior to the date of the proposed meeting, allot and issue such number of Shares to the grantee which falls to be issued on such exercise of the option credited as fully paid and register the grantee as holder thereof.

With effect from the date of such meeting, the rights of all grantees to exercise their respective options shall forthwith be suspended. Upon such compromise or arrangement becoming effective, all options shall, to the extent that they have not been exercised, lapse and determine. If for any reason such compromise or arrangement does not become effective and is terminated or lapses, the rights of grantees to exercise their respective options shall with effect from such termination be restored in full but only upon the extent not already exercised and shall become exercisable.

(q) Ranking of Shares

Our Shares to be allotted upon the exercise of an option will not carry voting rights until completion of the registration of the grantee (or any other person) as the holder thereof. Subject to the aforesaid, Shares allotted and issued on the exercise of options will carry the same rights in all respects and shall have the same voting, dividend, transfer and other rights, including those arising on liquidation as attached to the other fully-paid Shares in issue on the date of exercise.

(r) Effect of alterations to capital

In the event of any alteration in the capital structure of our Company whilst any option may become or remains exercisable, whether by way of capitalization issue, rights issue, open offer, consolidation, sub-division or reduction of share capital of our Company, or otherwise howsoever, such corresponding alterations (if any) shall be made in the number or nominal amount of Shares subject to any options so far as unexercised and/or the subscription price per Share of each outstanding option as the auditors of our Company or an independent financial advisor shall certify in writing to the Board to be in their/his opinion fair and reasonable in compliance with Rule 17.03(13) of the Listing Rules and the note thereto and the supplementary guidance issued by the Stock Exchange on September 5, 2005 and any future guidance and interpretation of the Listing Rules issued by the Stock Exchange from time to time and the note thereto. The capacity of the auditors of our Company or the approval independent financial advisor, as the case may be, in this paragraph is that of experts and not arbitrations and their certificate shall, in absence of manifest error, be final and conclusive and binding on our Company and the grantees.

Any such alterations will be made on the basis that a grantee shall have the same proportion of the issued share capital of our Company for which any grantee of an Option is entitled to subscribe pursuant to the Options held by him before such alteration and the aggregate subscription price payable on full exercise of any option is to remain as nearly as possible the same (and in any event not greater than) as it was before such event. No such

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alteration will be made the effect of which would be to enable a Share to be issued at less than its nominal value. The issue of securities as consideration in a transaction is not to be regarded as a circumstance requiring any such alterations.

(s) Expiry of option

An option shall lapse automatically and not be exercisable (to the extent not already exercised) on the earliest of:

(i) the date of expiry of the option as may be determined by the Board;
(ii) the expiry of any of the periods referred to in paragraphs (l), (m), (n), (o) or (p);
(iii) the date on which the scheme of arrangement of our Company referred to in paragraph (p) becomes effective;
(iv) subject to paragraph (o), the date of commencement of the winding-up of our Company;
(v) the date on which the grantee ceases to be an Eligible Participant by reason of such grantee’s resignation from the employment of our Company or any of our subsidiaries or the termination of his or her employment or contract on any one or more of the grounds that he or she has been guilty of serious misconduct, or has been convicted of any criminal offense involving his or her integrity or honesty, or in relation to an employee of our Group (if so determined by the Board), or has been insolvent, bankrupt or has made compositions with his/her creditors generally or any other ground on which an employee would be entitled to terminate his employment at common law or pursuant to any applicable laws or under the grantee’s service contract with our Group. A resolution of the Board to the effect that the employment of a grantee has or has not been terminated on one or more of the grounds specified in this paragraph shall be conclusive; or
(vi) the date on which the Board shall exercise our Company’s right to cancel the option at any time after the grantee commits a breach of paragraph (i) above or the options are canceled in accordance with paragraph (u) below.

(t) Alteration of the Share Option Scheme

The Share Option Scheme may be altered in any respect by resolution of the Board except that:

(i) any alteration to the advantage of the grantees or the Eligible Participants (as the case may be) in respect of the matters contained in Rule 17.03 of the Listing Rules; and

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(ii) any material alteration to the terms and conditions of the Share Option Scheme or any change to the terms of options granted, shall first be approved by our Shareholders in general meeting provided that if the proposed alteration shall adversely affect any option granted or agreed to be granted prior to the date of alteration, such alteration shall be further subject to the grantees’ approval in accordance with the terms of the Share Option Scheme. The amended terms of the Share Option Scheme shall still comply with Chapter 17 of the Listing Rules and any change to the authority of the Board in relation to any alteration to the terms of the Share Option Scheme must be approved by Shareholders in general meeting.

(u) Cancelation of Options

Subject to paragraph (i) above, any cancelation of options granted but not exercised must be approved by the grantees of the relevant options in writing. For the avoidance of doubt, such approval is not required in the event any Option is canceled pursuant to paragraph (m).

(v) Termination of the Share Option Scheme

Our Company may by resolution in general meeting or the Board at any time terminate the Share Option Scheme and in such event no further option shall be offered but the provisions of the Share Option Scheme shall remain in force to the extent necessary to give effect to the exercise of any option granted prior thereto or otherwise as may be required in accordance with the provisions of the Share Option Scheme. Options granted prior to such termination but not yet exercised at the time of termination shall continue to be valid and exercisable in accordance with the Share Option Scheme.

(w) Administration of the Board

The Share Option Scheme shall be subject to the administration of the Board whose decision as to all matters arising in relation to the Share Option Scheme or its interpretation or effect (save as otherwise provided herein) shall be final and binding on all parties.

(x) Condition of the Share Option Scheme

The Share Option Scheme is conditional on:

(i) the Listing Committee of the Stock Exchange granting the [ REDACTED ] of and permission to deal in our Shares which may fall to be issued pursuant to the exercise of options to be granted under the Share Option Scheme;
(ii) the obligations of the [ REDACTED ] under the [ REDACTED ] becoming unconditional (including, if relevant, as a result of the waiver of any such condition(s)) and not being terminated in accordance with the terms of the [ REDACTED ] or otherwise;

– IV-24 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

STATUTORY AND GENERAL INFORMATION

APPENDIX IV

(iii) the commencement of dealings in our Shares on the Stock Exchange.

If the conditions in paragraph (x) above are not satisfied within two calendar months from the Adoption Date:

(i) the Share Option Scheme shall forthwith determine;
(ii) any option granted or agreed to be granted pursuant to the Share Option Scheme and any offer of such a grant shall be of no effect; and
(iii) no person shall be entitled to any rights or benefits or be under any obligations under or in respect of the Share Option Scheme or any option granted thereunder.

(y) Disclosure in annual and interim reports

Our Company will disclose details of the Share Option Scheme in its annual and interim reports including the number of options, date of grant, exercise price, exercise period and vesting period during the financial year/period in the annual/interim reports in accordance with the Listing Rules in force from time to time.

(z) Present status of the Share Option Scheme

As at the Latest Practicable Date, no option had been granted or agreed to be granted under the Share Option Scheme.

Application has been made to the Listing Committee of the Stock Exchange for the [ REDACTED ] of and permission to deal in our Shares which may fall to be issued pursuant to the exercise of the options to be granted under the Share Option Scheme, being [ REDACTED ] Shares in total.

E. OTHER INFORMATION

1. Tax and other indemnities

Our Controlling Shareholders have entered into the Deed of Indemnity with and in favor of our Company (for ourselves and as trustee for each of our subsidiaries) to provide indemnities on a joint and several basis in respect of, among other matters, (i) any liability for estate duty under the Estate Duty Ordinance (Chapter 111 of the Laws of Hong Kong), or legislation similar thereto in Hong Kong or any jurisdictions outside Hong Kong which might be incurred by any member of our Company on or before the [ REDACTED ]; (ii) any claims, penalties or other indebtedness resulting from any insufficient contribution to social insurance and housing provident funds during the Track Record Period as disclosed in “Business – Legal Proceedings and Compliance – Compliance”; (iii) any non-registration of our lease agreements during the Track Record Period as disclosed in “Business – Properties”; and (iv) other taxation

– IV-25 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IV

STATUTORY AND GENERAL INFORMATION

which may be suffered by any member of our Group in respect of, among other things, any income, profits or gains earned, accrued or received on or before the [ REDACTED ], save (a) to the extent that specific provision or reserve has been made for such taxation in the audited combined financial statements of our Group as set out in Appendix IA or IB; (b) to the extent that the liability for such taxation would not have arisen but for any act or omission of, or delay by, any member of our Group after the [ REDACTED ]; and (c) to the extent such loss arises or is incurred only as a result of a retrospective change in law or regulations or the interpretation or practice thereof by any relevant authority coming into force after the [ REDACTED ].

2. Litigation

As of the Latest Practicable Date, no member of our Group was engaged in any litigation or arbitration of material importance and, so far as our Directors are aware, no litigation or claim of material importance is pending or threatened by or against any member of our Group.

3. Sole Sponsor

The Sole Sponsor satisfies the independence criteria applicable to sponsor set out in Rule 3A.07 of the Listing Rules. The Sole Sponsor will receive an aggregate fee of US$500,000 for acting as the sponsor for the [ REDACTED ].

The Sole Sponsor has made an application on our Company’s behalf to the Listing Committee of the Stock Exchange for the approval for the [ REDACTED ] of, and permission to deal in, all the Shares in issue and to be issued as mentioned in this document. All necessary arrangements have been made for the Shares to be admitted into CCASS.

4. Preliminary expenses

The preliminary expenses incurred and paid by our Company relating to the incorporation of our Company were approximately HK$59,500.

5. No material adverse change

Saved as disclosed in this document, our Directors confirm that there has been no material adverse change in our Group’s financial or trading position since September 30, 2019 (being the date on which the latest audited combined financial information of our Group was prepared).

6. Promoter

Our Company has no promoter. Within the two years immediately preceding the date of this document, no cash, securities or other benefit has been paid, allotted or given nor are any proposed to be paid, allotted or given to any promoters in connection with the [ REDACTED ] and the related transactions described in this document.

– IV-26 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IV STATUTORY AND GENERAL INFORMATION

7. Taxation of holders of Shares

(a) Hong Kong

The sale, purchase and transfer of Shares registered with our Company’s Hong Kong branch register of members will be subject to Hong Kong stamp duty, the current rate charged on each of the purchaser and seller is 0.1% of the consideration or, if higher, the fair value of the Shares being sold or transferred. Profits from dealings in the Shares arising in or derived from Hong Kong may also be subject to Hong Kong profits tax.

(b) Cayman Islands

Under the present Cayman Islands law, there is no stamp duty payable in the Cayman Islands on transfer of Shares.

(c) Consultation with professional advisors

Intending holders of the Shares are recommended to consult their professional advisors if they are in doubt as to the taxation implications of holding or disposing of or dealing in the Shares. It is emphasized that none of our Company, our Directors or the other parties involved in the [ REDACTED ] will accept responsibility for any tax effect on, or liabilities of, holders of Shares resulting from their holding or disposal of or dealing in Shares or exercise of any rights attaching to them.

8. Qualifications and consents of experts

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

Name

Qualifications

CCB International Capital Licensed corporation to conduct Type 1 (Dealing in Limited securities), Type 4 (Advising on securities) and Type 6 (Advising on corporate finance) regulated activities as defined under the SFO

Ernst & Young Certified public accountants

Walkers (Hong Kong) Legal advisors to our Company as to Cayman Islands law

Commerce & Finance Law Legal advisors to our Company as to the PRC law Offices

China Index Academy Industry consultant

– IV-27 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

STATUTORY AND GENERAL INFORMATION

APPENDIX IV

9. Consents of experts

Each of the experts named in “– 8. Qualifications and consents of experts” above has given and has not withdrawn its written consent to the issue of this document with the inclusion of its reports, letters, opinions, summaries of opinions and/or references to its names included herein in the form and context in which they respectively appear.

10. Interests of experts in our Company

None of the persons named in “– 8. Qualifications and consents of experts” above is interested beneficially or otherwise in any Shares or shares of any member of our Group or has any right or option (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any shares or securities in any member of our Group.

11. Binding effect

This document shall have the effect, in an application is made in pursuance of it, of rendering all persons concerned bound by all of the provisions (other than the penal provisions) of sections 44A and 44B of the Companies (Winding Up and Miscellaneous Provisions) Ordinance so far as applicable.

12. Miscellaneous

(a) Within the two years immediately preceding the date of this document:
(i) save as disclosed in “History, Reorganization and Corporate Structure” in this document, no share or loan capital of our Company or any of our subsidiaries has been issued or agreed to be issued fully or partly paid either for cash or for a consideration other than cash;
(ii) no share or loan capital of our Company or any of our subsidiaries is under option or is agreed conditionally or unconditionally to be put under option;
(iii) no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any capital of our Company or any of our subsidiaries; and
(iv) no commission has been paid or payable subscribing, agreeing to subscribe or procuring subscription or agreeing to procure subscription for any shares in our Company or any of our subsidiaries;
(b) no founder, management or deferred Shares nor any debenture in our Company or any of our subsidiaries have been issued or agreed to be issued;

– IV-28 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IV

STATUTORY AND GENERAL INFORMATION

(c) there has not been any interruption in the business of our Group which may have or has had a significant effect on the financial position of our Group in the 12 months preceding the date of this document;
(d) the [ REDACTED ] of our Company will be maintained in the Cayman Islands by [ REDACTED ] and a [ REDACTED ] of our Company will be maintained in Hong Kong by [ REDACTED ]. Unless our Directors otherwise agree, all transfer and other documents of title of Shares must be lodged for registration with and registered by our Company’s [ REDACTED ] in Hong Kong and may not be lodged in the Cayman Islands. All necessary arrangements have been made to enable the Shares to be admitted to CCASS;
(e) no company within our Group is presently listed on any stock exchange or traded on any trading system;
(f) our Directors have been advised that under Cayman Islands Companies Law the use of a Chinese name by our Company does not contravene the Cayman Islands Companies Law;
(g) our Company has no outstanding convertible debt securities or debentures; and
(h) there is no restriction affecting the remittance of profits or repatriation of capital into Hong Kong and from outside Hong Kong.

13. Bilingual document

The English language and Chinese language versions of this document are being published separately in reliance upon the exemption provided by section 4 of the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong). In case of any discrepancies between the English language version and Chinese language version of this document, the English language version shall prevail.

– IV-29 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION

A. DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES

The documents attached to a copy of this document and delivered to the Registrar of Companies in Hong Kong for registration were (a) a copy of each of the [ REDACTED ]; (b) the written consents referred to in “Statutory and General Information – E. Other Information – 8. Qualifications and consents of experts” in Appendix IV to this document; and (c) a copy of each of the material contracts referred to in “Statutory and General Information – B. Further information about our business – 1. Summary of material contracts” in Appendix IV to this document.

B. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of Sidley Austin at Level 39, Two International Finance Centre, 8 Finance Street, Central, Hong Kong during normal business hours from 9:30 a.m. to 5:30 p.m. up to and including the date which is 14 days from the date of this document:

(a) the Memorandum of Association and the Articles of Association;
(b) the Accountants’ Report prepared by Ernst & Young, the text of which is set out in Appendices IA and IB to this document;
(c) the report from Ernst & Young in respect of the unaudited pro forma financial information, the text of which is set out in Appendix II to this document;
(d) the audited combined financial statements of our Group for the two years ended December 31, 2017 and 2018 and the nine months ended September 30, 2019;
(e) the legal opinion issued by Commerce and Finance Law Offices, our legal advisors as to PRC law, in respect of certain general corporate matters and property interests of our Group;
(f) the letter of advice issued by Walkers (Hong Kong), our legal advisors as to Cayman Islands law, summarizing the constitution of our Company and certain aspects of Cayman Islands Companies Law referred to in Appendix III to this document;
(g) the industry report issued by CIA;
(h) the Cayman Islands Companies Law;
(i) the rules of the Share Option Scheme;

– V-1 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION

(j) copies of the material contracts referred to in “Statutory and General Information – B. Further information about our business – 1. Summary of material contracts” in Appendix IV to this document;
(k) service agreements and letters of appointment entered into between our Company and each of the Directors (as applicable); and
(l) the written consents referred to in “Statutory and General Information – E. Other information – 8. Qualifications and consents of experts” in Appendix IV to this document.

– V-2 –

AI assistant

Zhenro Services Group Limited — Capital/Financing Update 2020

51096_rns_2020-01-02_f5bf56d5-3924-44b3-b1b2-8b7e5b20834f.pdf

Application Proof of ZHENRO SERVICES GROUP LIMITED 正榮服務集團有限公司

WARNING

IMPORTANT

ZHENRO SERVICES GROUP LIMITED 正榮服務集團有限公司

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CONTENTS

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SUMMARY

OVERVIEW

OUR BUSINESS MODEL

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OUR CUSTOMERS AND SUPPLIERS

OUR COMPETITIVE STRENGTHS

OUR BUSINESS STRATEGIES

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SUMMARY OF KEY FINANCIAL INFORMATION

Selected Items of Combined Statements of Profit or Loss and Other Comprehensive Income

Selected Items of Combined Statements of Financial Position

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Selected Items of Combined Statements of Cash Flows

Summary of Key Financial Ratios

Notes:

SUMMARY

CONTROLLING SHAREHOLDERS, CONTINUING CONNECTED TRANSACTIONS AND OUR [ REDACTED ] INVESTOR

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DIVIDEND

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RECENT DEVELOPMENTS AND NO MATERIAL ADVERSE CHANGE

SUMMARY

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NON-COMPLIANCE MATTERS

RISK FACTORS

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GLOSSARY

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FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS

RISK FACTORS

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

Our future growth may not materialize as planned

RISK FACTORS

We cannot assure you that we can secure new or renew our existing property management service agreements on favorable terms, or at all.

RISK FACTORS

Our future acquisitions may not be successful and we may face difficulties in integrating acquired operations with our existing operation.

Zhenro Services Group Limited Capital/Financing Update 2020