CHINA SHENLI CONSTRUCTION MATERIALS HOLDING ...

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

Application Proof of

CHINA SHENLI CONSTRUCTION MATERIALSHOLDING LIMITED

中國神力建材控股有限公司(Incorporated in the Cayman Islands with limited liability)

(the “Company”)

WARNING

The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (the“Exchange”) and the Securities and Futures Commission (the “Commission”) solely for the purpose of providinginformation 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 whichcan be material. By viewing this document, you acknowledge, accept and agree with the Company, its sponsor,advisers 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 Kongand not for any other purposes. No investment decision should be based on the information contained in thisdocument;

(b) the publication of this document or supplemental, revised or replacement pages on the Exchange’s websitedoes not give rise to any obligation of the Company, its sponsor, advisers or members of the underwritingsyndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that theCompany will proceed with the offering;

(c) the contents of this document or supplemental, revised or replacement pages may or may not be replicated infull 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 fromtime to time in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of HongKong Limited;

(e) this document does not constitute a prospectus, offering circular, notice, circular, brochure or advertisementoffering to sell any securities to the public in any jurisdiction, nor is it an invitation to the public to make offersto subscribe for or purchase any securities, nor is it calculated to invite offers by the public to subscribe foror purchase any securities;

(f) this document must not be regarded as an inducement to subscribe for or purchase any securities, and no suchinducement is intended;

(g) neither the Company nor any of its affiliates, advisers or underwriters 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 suchapplication be accepted;

(i) the Company has not and will not register the securities referred to in this document under the United StatesSecurities 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 informationcontained in this document, you agree to inform yourself about and observe any such restrictions applicableto you; and

(k) the application to which this document relates has not been approved for listing and the Exchange and theCommission 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 tomake their investment decisions solely based on the Company’s prospectus registered with the Registrar ofCompanies in Hong Kong, copies of which will be distributed to the public during the offer period.

If you are in any doubt about any of the contents of this document, you should seek independent professional advice

CHINA SHENLI CONSTRUCTION MATERIALSHOLDING LIMITED

中國神力建材控股有限公司(Incorporated in the Cayman Islands with limited liability)

[REDACTED]

Total Number of [REDACTED] : [REDACTED] Shares (subject to the[REDACTED] Option)

Number of [REDACTED] : [REDACTED] Shares (subject toadjustment)

Number of [REDACTED] : [REDACTED] Shares (subject to the[REDACTED] and adjustment)

[REDACTED] : Not more than HK$[REDACTED] perShare and is expected to be not less than[REDACTED] per Share, plus brokerageof 1.0%, SFC transaction levy of0.0027%, FRC transaction levy of0.00015% and a Stock Exchange tradingfee of 0.005% (payable in full on[REDACTED] in Hong Kong dollars andsubject to refund)

Nominal value : HK$0.01 per Share[REDACTED] : [REDACTED]

Sole Sponsor and [REDACTED]

[REDACTED]

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibilityfor the contents of this document, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arisingfrom 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 the paragraphheaded “Documents Delivered to the Registrar of Companies in Hong Kong and Available on Display” in Appendix V to this document, has been registered by the Registrarof 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 of Hong Kong and the Registrar of Companies in Hong Kong take no responsibility for the contents of this document or any otherdocuments referred to above.The [REDACTED] is expected to be determined by agreement between the [REDACTED] (for itself and on behalf of the [REDACTED]) and our Company on or before[REDACTED] or such later date as may be agreed between the parties. If, for any reason, the [REDACTED] (for itself and on behalf of the [REDACTED]) and ourCompany are unable to reach an agreement on the [REDACTED] by [REDACTED], the [REDACTED] will not proceed and will lapse immediately. The [REDACTED]will be not more than [REDACTED] per Share and is expected to be not less than [REDACTED] per Share, unless otherwise announced. Investors applying for the HongKong [REDACTED] must pay, on [REDACTED], the maximum [REDACTED] of [REDACTED] for each [REDACTED] together with brokerage of 1.0%, SFCtransaction levy of 0.0027%, FRC transaction levy of 0.00015% and Stock Exchange trading fee of 0.005% subject to refund if the [REDACTED] is lower than[REDACTED]. The [REDACTED] (for itself and on behalf of the [REDACTED]) may, with the consent of our Company, reduce the number of [REDACTED] being[REDACTED] under the [REDACTED] and/or the indicative [REDACTED] range below that stated in this document at any time prior to the morning of the last dayfor lodging [REDACTED] under [REDACTED]. In such a case, notices of such reduction will be published on the websites of the Stock Exchange at www.hkexnews.hkand the Company at www.chinashenli.cn as soon as practicable but in any event not later than the morning of the last day for lodging [REDACTED] under the[REDACTED].Prior to making an investment decision, prospective investors should carefully consider all of the information set out in this document, in particular, the risk factors setout in “Risk Factors” in this document.Pursuant to the termination provisions contained in the [REDACTED] in respect of the [REDACTED], the [REDACTED] (for itself and on behalf of the [REDACTED])has the right in certain circumstances, in its absolute discretion, to terminate the obligations of the [REDACTED] pursuant to the [REDACTED] at any time prior to 8:00a.m. on the [REDACTED]. Further details of the terms of the termination provisions are set out in “[REDACTED] – [REDACTED] – [REDACTED] – Grounds forTermination” in this document. It is important that you refer to that section for further details.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 [REDACTED],sold, pledged or transferred within the United States, or to, or for the account or benefit of U.S. persons, except that the [REDACTED] may be [REDACTED], sold ordelivered (i) within the United States in reliance on an exemption from registration under the U.S. Securities Act provided by, and in accordance with the restrictions of,Rule 144A under the U.S. Securities Act or another exemption from registration under the U.S. Securities Act; and (ii) in offshore transactions outside the United Statesin reliance on Regulation S under the U.S. Securities Act.

ATTENTIONWe have adopted a fully electronic [REDACTED] process for the [REDACTED] pursuant to Rule 12.11 of the Listing Rules. We will not provide printed copies ofthis document or printed copies of any [REDACTED] forms to the [REDACTED] in relation to the [REDACTED].This document is available at the website of the Stock Exchange at www.hkexnews.hk and our website at www.chinashenli.cn. If you require a printed copy of thisdocument, you may download and print from the website addresses above.

IMPORTANT

[REDACTED]

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

[REDACTED]

EXPECTED TIMETABLE

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[REDACTED]

EXPECTED TIMETABLE

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[REDACTED]

EXPECTED TIMETABLE

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This document is issued by the Company solely in connection with [REDACTED]and [REDACTED] and does not constitute an offer to sell or a solicitation of an offerto subscribe for or buy any security other than [REDACTED]. This document may notbe used for the purpose of, and does not constitute, an offer to sell or a solicitation ofan offer to buy any security in any other jurisdiction or in any other circumstances.

No action has been taken to permit a [REDACTED] of the [REDACTED] or thedistribution of this document in any jurisdiction other than Hong Kong. The distributionof this document and the offering and sale of the [REDACTED] in other jurisdictions aresubject to restrictions and may not be made except as permitted under the applicablesecurities laws of such jurisdictions pursuant to registration with or authorization by therelevant securities regulatory authorities or an exemption therefrom.

You should rely only on the information contained in this document to make yourinvestment decision. We have not authorized anyone to provide you with informationwhich is different from that contained in this document. Any information orrepresentation not included in this document must not be relied on by you as having beenauthorized by us, the Sole Sponsor, the [REDACTED], the [REDACTED], the[REDACTED], any of the [REDACTED], any of our or their respective directors,affiliates, advisors, agents or representatives or any person or party involved in the[REDACTED]. Information contained in our website, located at www.chinashenli.cn,does not form part of this document.

Page

EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

GLOSSARY OF TECHNICAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

INFORMATION ABOUT THIS DOCUMENT AND [REDACTED]. . . . . . . . . . . . 53

WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES . . . . 57

DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] . . . . . . . . . . . . 59

CORPORATE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

INDUSTRY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

REGULATORY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

HISTORY, REORGANISATION AND CORPORATE STRUCTURE . . . . . . . . . . 90

CONTENTS

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BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

RELATIONSHIP WITH CONTROLLING SHAREHOLDERS . . . . . . . . . . . . . . . 194

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES . . . . . . . . . . . . . . . 198

SUBSTANTIAL SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

SHARE CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

FUTURE PLANS AND [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270

[REDACTED]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272

STRUCTURE AND CONDITIONS OF THE [REDACTED] . . . . . . . . . . . . . . . . . 280

HOW TO APPLY FOR HONG KONG [REDACTED] . . . . . . . . . . . . . . . . . . . . . 290

APPENDIX I – ACCOUNTANT’S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . I-1

APPENDIX II – UNAUDITED [REDACTED] FINANCIAL INFORMATIONOF THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1

APPENDIX III – SUMMARY OF THE CONSTITUTION OF THECOMPANY AND CAYMAN ISLANDS COMPANY LAW . III-1

APPENDIX IV – STATUTORY AND GENERAL INFORMATION . . . . . . . . . IV-1

APPENDIX V – DOCUMENTS DELIVERED TO THE REGISTRAR OFCOMPANIES IN HONG KONG AND AVAILABLEON DISPLAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1

CONTENTS

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

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

OVERVIEW

We are a leading ready-mixed concrete producer in Zhengzhou, Henan Province.According to the F&S Report, we are the largest ready-mixed concrete producer in terms ofboth revenue and production volume in Henan Province for the year ended 31 December 2020,with a market share of approximately 3.3% and 3.2%, respectively, in Zhengzhou and a marketshare of approximately 1.2% and 1.1%, respectively, in Henan Province.

Since Shenli Batching Plant was established in 2003, we have been operating in theready-mixed concrete manufacturing industry for 18 years. As of the Latest Practicable Date,we operated three batching plants, namely the Shenli Batching Plant, the Shentong BatchingPlant and the Gangfa Batching Plant, which are strategically located in the northeastern,eastern and southeastern regions of Zhengzhou, where the level of construction activitiesremains high with a relatively large number of major construction projects. All of our batchingplants are equipped with the production facilities to produce ready-mixed concrete products ofall grade levels ranging from C10 to C100 as well as wet-mixed mortar products of all gradelevels ranging from M5 to M30. During the Track Record Period, our products primarilyincluded regular ready-mixed concrete products of grade levels from C15 to C60, which webelieve are most commonly used in real estate development and public infrastructureconstruction, according to the F&S Report. In addition to our ready-mixed concrete products,we produce and sell small amounts of wet-mixed mortar products from time to time at therequest of customers. We manufacture our products according to customer orders incompliance with the Concrete National Standard. To cater for the specific construction andtechnical needs, we offer the option of adding specific admixtures to the ready-mixed concreteand wet-mixed mortar mixes during the production process to achieve additional properties inaccordance with the construction needs. The ready-mixed concrete production industry in PRCis highly fragmented. Due to the curing nature of ready-mixed concrete products, which meansthey congeal within a short period of time, the geographical sales radius of each ready-mixedconcrete producer in the market is limited. We are responsible for delivery of our products toour customers, and we use third party transportation service providers to deliver our products.

We believe that our high product quality is essential to differentiating our products fromthe products of our competitors. We have a long-standing emphasis on production managementand quality control measures to ensure the quality of our products. Quality control measuresare implemented throughout our production process to ensure that every stage of productionadheres to our high quality standards, including tests on raw materials and finished products.We have established quality management systems designed and certified according toGB/T19001-2016 idt ISO9001:2015 standards. Our strong production know-how has alsoenabled us to customize our raw material mix to manufacture products with specific qualitiesto suit construction needs. In particular, we participated in the preparation of the DBJ41/T048-2016 Technical Specification for Application of Concrete made from Mixed Sand (《混合砂混凝土應用技術規程》) promulgated by the Housing and Urban-rural Development Department

SUMMARY

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of Henan Province (河南省住房和城鄉建設廳) in 2016. In 2019, we were responsible fordrafting the Standards on the Waste Water Recycling by Ready-mixed Concrete Manufacturers(《預拌混凝土生產企業廢水回收利用規範》), which was published on 21 August 2021 andimplemented on 1 February 2022 as the standard for the construction materials industry inChina. In 2019, we participated in the drafting of the Ready-mixed Concrete EnterpriseLaboratory Management Methods (《預拌混凝土企業實驗室管理規程》) which used as astandard of the China Building Material Association and is expected to be issued andimplemented in 2022. In 2021, we are participating in the drafting of the Guidelines for theManagement of Carbon Assets and Evaluation Requirements for Enterprises in the Cement andConcrete Industry (《水泥和混凝土行業企業碳資產管理指南與評價要求》) as the Standard ofthe China Bulk Cement Promotion and Development Association. We believe that thisevidenced the recognition of our production quality and technical know-how from bothindustry participants and government authorities. We believe that, with our stringent qualitycontrol measures and strong production know-how, we have been and will continue to be ableto achieve stable performance and quality for our products. Our products have been used inlandmark buildings, such as the Zhengzhou Greenland Plaza (鄭州綠地中心•千璽廣場), thetwin towers of the Zhengzhou Greenland Central Plaza (鄭州綠地中央廣場雙子塔), andCentral China FU Tower (中原福塔), which are the three tallest buildings ever built inZhengzhou.

Leveraging our strong production know-how, the rich industry experience of ourmanagement team, solid business relationships with our key suppliers and customers, and thestrategic locations of our batching plants in Zhengzhou, and benefiting from favourablegovernment policies and stringent quality control measures, we maintained our strong financialperformance and market-leading position for the two years ended 31 December 2019 and 2020.Despite the general downward pressure on the economy and construction activities caused bythe COVID-19, our revenue remained relatively stable at approximately RMB1,097.4 millionfor the year ended 31 December 2019 and approximately RMB1,086.5 million for the yearended 31 December 2020, respectively, while our net profit increased from approximatelyRMB93.2 million for the year ended 31 December 2019 to approximately RMB102.7 millionfor the year ended 31 December 2020. Due to the unprecedented flood that occurred inZhengzhou in July 2021 as well as an outbreak of COVID-19 following the flood, whichresulted in the disruption of construction activities for an extended period, our revenuedecreased from approximately RMB944.7 million for the nine months ended 30 September2020 to approximately RMB511.2 million for the nine months ended 30 September 2021, andour net profit decreased from approximately RMB92.1 million for the nine months ended 30September 2020 to approximately RMB42.8 million for the nine months ended 30 September2021. For more information, see “Financial Information – Discussion of Major Components ofConsolidated Statements of Comprehensive Income – Revenue” in this document.

OUR BUSINESS MODEL

We are primarily engaged in the production and sales of ready-mixed concrete products.We also produce and sell small amounts of wet-mixed mortar products from time to time uponour customers’ requests. We operate three batching plants, namely the Shenli Batching Plant,the Shentong Batching Plant and the Gangfa Batching Plant, which are equipped with theproduction facilities to provide a comprehensive range of ready-mixed concrete and wet-mixedmortar products to customers in the northeastern, eastern and southeastern regions ofZhengzhou.

SUMMARY

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A brief description of our operations is set out in the flowchart as follows:

By tender bidding By direct order

There are

usually multiple

batches of order

acceptance and

production for a

single project.

Customer’s order inquiry

Preparation of quotation

Private negotiation

Preparation of bid

Identification of

potential tender

Delivery of products to construction

project sites

Quality inspection and testing

Issuance of invoice

Production of products

Acceptance of orders

Procurement of raw materials

Design and testing

Contract preparation and signing

2B. Production and

delivery stage

Approximately one

hour and 30 minutes

2A. Preparation stage

Approximately

one to two months

2C. Post-delivery stage

Approximately seven

days to one month

2. Execution

phase

1. Engagement

phase

approximately

one to two

monthsSuccessfulUnsuccessful

OUR COMPETITIVE STRENGTHS

We believe that the following competitive strengths have contributed to our success andwill continue to strengthen our market position in the ready-mixed concrete industry inZhengzhou and Henan Province: (i) we are a leading ready-mixed concrete producer inZhengzhou and Henan Province in terms of both revenue and production volume with a wideproduct range, which we believe enables us to capture market growth potential and furtherstrengthen our market position; (ii) our batching plants are strategically located in Zhengzhouin line with city development plans and we benefit from favourable government policies for theready-mixed concrete industry; (iii) we have solid business relationships with our majorsuppliers and customers, most of whom are leading players in the construction industry andhave participated in large-scale projects for landmark buildings and public infrastructure inZhengzhou; (iv) our stringent quality control measures and strong production know-how helpus maintain high quality standards for our products; and (v) experienced and dedicatedmanagement team and production team with proven track record in ready-mixed concrete andmortar production.

SUMMARY

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OUR BUSINESS STRATEGIES

We intend to pursue the following business strategies: (i) expand our production capacity;(ii) continue to pursue environmentally friendly business solutions; (iii) develop our researchand development capabilities; and (iv) further strengthen our sales and market capability andincrease the market awareness and recognition of our brand.

OUR PRODUCTION FACILITIES

As of the Latest Practicable Date, we operated three batching plants, namely the ShenliBatching Plant, the Shentong Batching Plant and the Gangfa Batching Plant, which arestrategically located in the northeastern, eastern and southeastern regions of Zhengzhou, wherethe level of construction activities remains high with a relatively large number of majorconstruction projects. All of our batching plants are equipped with the production facilities toproduce ready-mixed concrete products of all grade levels ranging from C10 to C100 as wellas wet-mixed mortar products of all grade levels ranging from M5 to M30. Our three regionalbatching plants are equipped with a total of eight production lines, among which four have atheoretically highest possible production capacity of 180 m3 per hour each and the other foureach have a theoretically highest possible production capacity of 220 m3 per hour. As of theLatest Practicable Date, our Shenli Batching Plant, Shentong Batching Plant and GangfaBatching Plant had theoretically highest possible production capacities of 360 m3 per hour, 440m3 per hour and 800 m3 per hour, respectively.

The following table sets out the breakdown of the revenue, cost of sales, gross profit andnet profit derived from each of the batching plants during the Track Record Period:

Year ended 31 December Nine months ended 30 September

2019 2020 2020 2021

ShenliBatching

Plant

ShentongBatching

Plant

GangfaBatching

Plant Total(1)

ShenliBatching

Plant

ShentongBatching

Plant

GangfaBatching

Plant Total(1)

ShenliBatching

Plant

ShentongBatching

Plant

GangfaBatching

Plant Total(1)

ShenliBatching

Plant

ShentongBatching

Plant

GangfaBatching

Plant Total(1)

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)

Revenue 417,137 313,769 366,501 1,097,407 383,720 283,857 418,935 1,086,512 332,426 239,138 373,185 944,749 220,757 152,110 138,306 511,173Cost of sales 345,072 262,565 301,761 909,398 316,312 236,209 340,705 893,226 272,357 199,134 302,753 774,244 179,250 127,507 114,459 421,216

Gross profit 72,065 51,204 64,740 188,009 67,408 47,648 78,230 193,286 60,069 40,004 70,432 170,505 41,507 24,603 23,847 89,957

Net profit 34,068 26,145 38,469 98,682 41,677 17,814 42,235 101,726 35,671 16,576 39,608 91,855 23,244 13,411 6,075 42,730

Note:

(1) The total amount does not include profit or loss of the non-PRC companies for the relevant periods.

For more details of the financial performance of the batching plant operations, see“Financial Information – Discussion of Major Components of Consolidated Statements ofComprehensive Income” in this document.

SUMMARY

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SUMMARY OF HISTORICAL FINANCIAL INFORMATION

The table below sets forth a summary of our consolidated statement of profit or loss forthe periods indicated:

Year ended31 December

Nine months ended30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000

(Unaudited) (Unaudited)

Revenue 1,097,407 1,086,512 944,749 511,173Cost of Sales (909,409) (893,226) (774,244) (421,216)

Gross profit 187,998 193,286 170,505 89,957Distribution expenses (4,192) (4,248) (3,006) (3,811)Administrative expenses (32,261) (24,111) (14,345) (20,100)Net impairment losses on

financial assets (17,298) (25,620) (26,319) (9,390)Other income 26,389 30,438 22,483 17,788Other losses (3,531) (3,243) (2,773) (1,655)

Operating profit 157,105 166,502 146,545 72,789Finance income 163 227 193 1,068Finance costs (34,197) (34,237) (26,962) (19,557)

Finance cost – net (34,034) (34,010) (26,769) (18,489)

Profit before income tax 123,071 132,492 119,776 54,300Income tax expense (29,865) (29,813) (27,661) (11,534)

Profit for the year/period 93,206 102,679 92,115 42,766

The following table sets out a breakdown of our revenue by product category for theperiods indicated:


2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %


Ready-mixedConcrete

– C30 level or below 579,515 52.8 613,952 56.5 540,111 57.1 256,294 50.1– Above C30 level 517,309 47.1 470,811 43.3 403,059 42.7 254,468 49.8

Subtotal 1,096,824 99.9 1,084,763 99.8 943,170 99.8 510,762 99.9

Wet-mixed mortar 583 0.1 1,749 0.2 1,579 0.2 411 0.1

Total 1,097,407 100.0 1,086,512 100.0 944,749 100.0 511,173 100.0

SUMMARY

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The following table sets out the sales volume and average price (tax-exclusive) byproduct category for the periods indicated:


2019 2020 2020 2021

Salesvolume

Averageprice

per m3Sales

volume

Averageprice

per m3Sales

volume

Averageprice

per m3Sales

volume

Averageprice

per m3

m3 RMB m3 RMB m3 RMB m3 RMB

Ready-mixedConcrete

– C30 level or below 1,046,223.3 553.9 1,301,711.3 471.7 1,132,665.5 476.8 671,615.0 381.6– Above C30 level 868,365.9 595.7 912,799.6 515.8 773,868.5 520.8 596,770.8 426.4

Subtotal 1,914,589.2 572.9 2,214,510.9 489.8 1,906,534.0 494.7 1,268,385.8 402.7

Wet-mixed mortar 1,246.7 468.2 4,082.8 428.4 3,556.0 444.1 989.0 415.2

Total 1,915,835.9 572.8 2,218,593.7 489.7 1,910,090.0 494.6 1,269,374.8 402.7

Consolidated statements of financial position

As of 31 DecemberAs of

30 September2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

ASSETSNon-current assets 245,708 253,973 218,014

Current assets 807,089 985,675 842,416

Total assets 1,052,797 1,239,648 1,060,430

LIABILITIESNon-current liabilities 60,572 32,309 182,178

Current liabilities 696,511 803,186 456,330

Total liabilities 757,083 835,495 638,508

SUMMARY

– 6 –


Cash Flow Analysis

The following table sets forth our cash flows for the periods indicated.



2019 2020 2020 2021RMB’000 RMB’000 RMB’000 RMB’000


Net cash (used in)/generated fromoperating activities (43,314) 97,606 64,063 47,451

Net cash generated from/(used in) investing activities 4,173 (4,764) (3,793) (1,716)

Net cash generated from/(used in)financing activities 57,710 (64,755) (83,128) (86,866)

Net increase/(decrease) in cash andcash equivalents 18,569 28,087 (22,858) (41,131)

Cash and cash equivalentsat beginning of the year/period 43,046 61,615 61,615 89,702

Cash and cash equivalents at end ofthe year/period 61,615 89,702 38,757 48,571

OUR CUSTOMERS

Our customers primarily comprise construction contractors in Zhengzhou and itsproximity which purchase our products for use in construction projects.

The following table sets out the breakdown of our revenue by the nature of our customersfor the periods indicated:

Year ended 31 December Nine months ended 30 September2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %

(unaudited) (unaudited)

– State-ownedenterprises 512,123 46.7 574,618 52.9 502,138 53.2 240,008 47.0

– Private enterprises 585,284 53.3 511,894 47.1 442,611 46.8 271,165 53.0

Total 1,097,407 100.0 1,086,512 100.0 944,749 100.0 511,173 100.0

The following table sets out a breakdown of our revenue by nature of constructionprojects from which it is derived for the periods indicated:

Year ended 31 December Nine months ended 30 September2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %


– Infrastructure andmunicipal 270,045 24.6 359,114 33.0 322,686 34.1 145,664 28.5

– Residential 637,522 58.1 553,688 51.0 480,773 50.9 270,488 52.9– Commercial and

industrial 189,840 17.3 173,710 16.0 141,290 15.0 95,021 18.6

Total 1,097,407 100.0 1,086,512 100.0 944,749 100.0 511,173 100.0

SUMMARY

– 7 –


For the two years ended 31 December 2019 and 2020 and the nine months ended 30September 2021, our sales to our five largest customers accounted for approximately 36.9%,37.0% and 30.9%, respectively, of our total revenue for the respective year/period. Our salesto our largest customer accounted for approximately 10.2%, 12.7% and 10.7%, respectively, ofour total revenue for the respective year/period during the Track Record Period.

OUR SUPPLIERS

Our raw materials are readily available in Henan Province and the PRC. We do not relyon any particular supplier. During the Track Record Period and up to the Latest PracticableDate, we did not experience any significant difficulties in identifying alternative suppliers forour raw materials and we do not anticipate any difficulties in this regard in the foreseeablefuture. Furthermore, during the same period, we did not experience any material dispute withour suppliers, nor any disruption, shortage or delay in the supply of our raw materials whichmay materially and adversely affect our business, results of operations and financial condition.For the two years ended 31 December 2019 and 2020 and the nine months ended 30 September2021, our five largest suppliers in aggregate accounted for approximately 26.7%, 18.0% and22.8%, respectively, of our total purchases for the same periods. Our largest supplier accountedfor approximately 8.3%, 7.1% and 6.5%, respectively, of our total purchases for the sameperiods.

KEY FINANCIAL RATIOS

The following table sets forth our key financial ratios for the Track Record Period:

Year ended/As of 31 December

As of30 September

2019 2020 2021

Current ratio 1.16 1.23 1.85Quick ratio 1.14 1.22 1.83Gearing ratio 1.46 0.99 0.79Debt to equity ratio 1.25 0.77 0.67Net profit margin 8.5% 9.5% 8.4%Interest coverage ratio 4.59 times 4.86 times 3.72 timesReturn on equity 36.1% 29.3% 13.8%Return on total assets 10.3% 9.0% 5.0%

RISK FACTORS

Our operations and the [REDACTED] involve certain risks and uncertainties, some ofwhich are beyond our control and may affect your decision to invest in us and/or the value ofyour investment. See “Risk Factors” in this document for details. Some of the major risks weface include: (i) our business is subject to the macroeconomic conditions, levels ofconstruction, and real estate and infrastructure developments in the PRC, particularly theZhengzhou area; (ii) prices of raw materials may significantly impact our results of operations;(iii) we are susceptible to changes in the regulatory landscape of the PRC property market; and(iv) we are subject to credit risks in collecting the trade receivables due from our customers.

DIVIDENDS AND DIVIDEND POLICY

Any amount of dividend we pay will be at the discretion of our Directors and will dependon our future operations and earnings, capital requirements and surplus, general financialcondition, contractual restrictions and other factors which our Directors consider relevant. Anydeclaration and payment as well as the amount of dividend will be subject to our constitutionaldocuments and the Companies Act, and will be at the absolute discretion of our Board. OurShareholders in a general meeting may approve any declaration of dividends, which must notexceed the amount recommended by our Board. No dividend shall be declared or payableexcept out of our profits and reserves lawfully available for distribution. During the TrackRecord Period and up to the Latest Practicable Date, we had not declared or paid any dividendto our Shareholder and there is no assurance that dividends of any amount will be declared orbe distributed in any year. Currently we do not have a formal dividend policy or a fixeddividend distribution ratio.

SUMMARY

– 8 –


[REDACTED]

In accordance with the relevant accounting standards, [REDACTED] that are directlyattributable to issuance of [REDACTED] will be deducted from equity upon [REDACTED].The remaining [REDACTED] are either fully charged to profit or loss or charged to profit orloss on an apportioned basis. During the Track Record Period, we have incurred[REDACTED], including legal, professional and other fees, in connection with the[REDACTED]. We expect the total estimated amount of [REDACTED], including[REDACTED], with the assumption of an [REDACTED] of HK$[REDACTED] (being themid-point of the [REDACTED] range) would be approximately [REDACTED], of whichapproximately [REDACTED] was charged to our administrative expenses for the nine monthsended 30 September 2021. We expect an additional amount of approximately [REDACTED]and [REDACTED] to be further recognized in the consolidated statement of comprehensiveincome of the Group for the three months ended 31 December 2021 and the year ending 31December 2022, respectively, and approximately [REDACTED] to be deducted from equityupon the [REDACTED]. The [REDACTED] are subject to adjustment based on the actualamount incurred or to be incurred. Our Group’s financial performance and results of operationsfor the year ended 31 December 2021 may be adversely affected by the estimated[REDACTED] in relation to the [REDACTED].

[REDACTED]

Based on an[REDACTED]

of HK$[REDACTED]per Share

Based on an[REDACTED]

of HK$[REDACTED]per Share

Market capitalisation of our Shares(1) [REDACTED] [REDACTED]Unaudited [REDACTED] adjusted consolidated

net tangible asset value per Share(2) [REDACTED] [REDACTED]

Notes:

(1) All statistics in this table are based on the assumption on that the [REDACTED] is not exercised. Thecalculation of market capitalisation is based on [REDACTED] Shares expected to be issued and outstandingfollowing the completion of the Capitalisation Issue and the [REDACTED].

(2) The unaudited [REDACTED] adjusted consolidated net tangible asset value per Share as of 30 September2021 is calculated after making the adjustments referred to in Appendix II and based on [REDACTED] Sharesexpected to be issued and outstanding following the completion of the Capitalisation Issue and the[REDACTED].

[REDACTED]

We estimate that the [REDACTED] we will receive from the [REDACTED] (afterdeducting [REDACTED], fees and anticipated expenses payable by us in connection with the[REDACTED]) will be approximately [REDACTED] (equivalent to approximately[REDACTED]), assuming the [REDACTED] is not exercised and assuming an[REDACTED] of [REDACTED] per Share, being the mid-point of the [REDACTED] rangeof [REDACTED] to [REDACTED] per Share as stated in this document.

After deducting the issue expenses and assuming the [REDACTED] is not exercised, weintend to use the [REDACTED] from the [REDACTED] for the purpose and in the amountsset out below:

• approximately [REDACTED], or approximately [REDACTED] (equivalent toapproximately [REDACTED]), is expected to be used for constructing or acquiringa new batching plant containing two production lines each with a theorecticallyhighest possible production capacity of 300 m3 per hour. As of the Latest PracticableDate, we have not identified any target for acquisition;

SUMMARY

– 9 –


• approximately [REDACTED], or approximately [REDACTED] (equivalent toapproximately [REDACTED]), is expected to be used to repay our outstanding bankloans. See “Financial Information – Indebtedness – Borrowings” in this documentfor details of our outstanding bank loans;

• approximately [REDACTED], or approximately [REDACTED] (equivalent toapproximately [REDACTED]), for upgrading the environmental protection featuresof our production facilities; and

• approximately [REDACTED], or approximately [REDACTED] (equivalent toapproximately [REDACTED]), is expected to be used towards working capital andother general corporate purposes.

In the event that the [REDACTED] is set at the high-end or low-end of the[REDACTED] range and the [REDACTED] is not exercised at all, we will receive[REDACTED] of approximately [REDACTED] and [REDACTED], respectively. Under suchcircumstances, our intended [REDACTED] will be increased or decreased on a pro-rata basis.

RECENT DEVELOPMENTS AND NO MATERIAL ADVERSE CHANGE

Subsequent to the Track Record Period and up to the Latest Practicable Date, wecontinued to focus on production and sales of ready-mixed concrete and our businessoperations remained stabled. Our Directors confirmed that there were no material changes toour business model, revenue structure or cost structure.

From 1 October to 30 November, 2021, our sales volume of ready-mixed concrete was313,375m3, and the average selling price exclusive of tax for our products was RMB412.0 perm3, compared to a sales volume of 247,540 m3 and an average selling price exclusive of taxof RMB450.0 per m3 for the same period in 2020.

CONTROLLING SHAREHOLDERS

Immediately following completion of the Capitalisation Issue and [REDACTED],Copious Pride will directly hold [REDACTED] Shares, representing approximately[REDACTED] of the enlarged issued share capital of the Company (without taking intoaccount any Shares which may be allotted and issued pursuant to the exercise of the[REDACTED] and/or any option that may be granted pursuant to the Share Option Scheme).Copious Pride is wholly-owned by Mr. Song, the Chairman, an executive Director and the chiefexecutive officer of the Company. As Copious Pride and Mr. Song will continue to controlmore than 30% of the issued share capital of the Company upon [REDACTED], each ofCopious Pride and Mr. Song will be regarded as a Controlling Shareholder for the purpose ofthe Listing Rules. For further details, please refer to the section headed “Relationship withControlling Shareholders” in this document.

SHARE OPTION SCHEME

Our Company has conditionally adopted the Share Option Scheme. Details of theprincipal terms of the Share Option Scheme are summarised in the paragraph headed “D. ShareOption Scheme” in Appendix IV to this document.

SUMMARY

– 10 –


In this document, unless the context otherwise requires, the following terms shallhave the meanings set out below. Certain other terms are explained in “Glossary ofTechnical Terms” in this document.

“AIC” Administration of Industry and Commerce (工商行政管理機關) in the PRC or, where the context so requires,SAIC or its delegated authority at provincial, municipalor other local level

“Articles of Association” or“Articles”

the amended and restated articles of association of theCompany conditionally adopted on [●] 2021, which willbecome effective upon the [REDACTED], as amendedfrom time to time, a summary of which is contained inAppendix III to this document

“associate(s)” has the meaning ascribed thereto under the Listing Rules

“Audit Committee” the audit committee of the Company established by theBoard

“Board” the board of directors of the Company

“Business Day” any day (other than a Saturday or a Sunday) on whichbanks in Hong Kong are generally open for normalbanking business

“BVI” the British Virgin Islands

“Capitalisation Issue” the issue of [REDACTED] new Shares to be made uponCapitalisation of certain sums standing to the credit of theshare premium account of the Company upon completionof the [REDACTED] referred to in “A. Furtherinformation about the Company – 4. Written resolutionsof the Shareholders passed on [●]” in Appendix IV to thisdocument

“CCASS” the Central Clearing and Settlement System establishedand operated by HKSCC

“CCASS Clearing Participant” a person admitted to participate in CCASS as a directclearing participant or general clearing participant

“CCASS Custodian Participant” a person admitted to participate in CCASS as a custodianparticipant

DEFINITIONS

– 11 –


[REDACTED]

“CCASS Investor Participant” a person admitted to participate in CCASS as an investorparticipant who may be an individual or joint individualsor a corporation

“CCASS Operation Procedures” the operational procedures of HKSCC in relation toCCASS, containing the practices, procedures andadministrative requirements relating to the operation andfunctions of CCASS, as from time to time in force

“CCASS Participant” a CCASS Clearing Participant, CCASS CustodianParticipant or a CCASS Investor Participant

“China” or “PRC” the People’s Republic of China, but for the purposes ofthis document and for geographical reference only(unless otherwise indicated), excluding Hong Kong, theMacau Special Administrative Region of the PRC andTaiwan

“Chinese Government” or“PRC Government”

the central government of the PRC, including allgovernmental subdivisions (including provincial,municipal and other regional or local governmententities) and instrumentalities thereof or, where thecontext requires, any of them

“close associate(s)” has the meaning ascribed thereto under the Listing Rules

“Companies Act” the Companies Act (as revised) of the Cayman Islands, asamended, supplemented or otherwise modified from timeto time

DEFINITIONS

– 12 –


“Companies Ordinance” the Companies Ordinance, Chapter 622 of the Laws ofHong Kong, as amended, supplemented or otherwisemodified from time to time

“Companies (Winding Up andMiscellaneous Provisions)Ordinance”

the Companies (Winding Up and MiscellaneousProvisions) Ordinance (Chapter 32 of the Laws of HongKong), as amended, supplemented and otherwisemodified from time to time

“Company”, “the Company”,“we” or “us”

China Shenli Construction Materials Holding Limited (中國神力建材控股有限公司), a company incorporatedunder the laws of the Cayman Islands on 2 October 2018as an exempted company with limited liability, andexcept where the context otherwise requires, all of itssubsidiaries or where the context refers to any time priorto its incorporation, the business which its predecessorsor the predecessors of its present subsidiaries wereengaged in and which was subsequently assumed by it

“connected person(s)” has the meaning ascribed thereto in the Listing Rules

“connected transaction(s)” has the meaning ascribed thereto in the Listing Rules

“Controlling Shareholders” has the meaning ascribed thereto in the Listing Rules, andin case of the Company, means Copious Pride and Mr.Song; and “Controlling Shareholder” means any one ofthem

“Copious Pride” Copious Pride Limited (豐豪有限公司), a companyincorporated under the laws of the BVI with limitedliability on 11 July 2018 which is wholly-owned by Mr.Song and is one of our Controlling Shareholders

“core connected person(s)” has the meaning ascribed thereto in the Listing Rules

“COVID-19” corona virus disease 2019, an infectious disease causedby severe acute respiratory syndrome corona virus(SARS-CoV-2) and first identified in late 2019

“Covenantor(s)” or“Indemnifier(s)”

the Controlling Shareholders or any one of them

“CSRC” China Securities Regulatory Commission (中國證券監督管理委員會)

“Deed of Indemnity” the deed of indemnity dated [●] and executed by theControlling Shareholders in favor of the Company (forourselves and as trustee for each of the subsidiaries statedtherein), details of which are set out in “E. OtherInformation – 1. Tax and other indemnities” in AppendixIV to this document

“Director(s)” the director(s) of the Company

DEFINITIONS

– 13 –


“EIT Law” the PRC Enterprise Income Tax Law (中華人民共和國企業所得稅法) enacted by the NPC

“F&S Report” an independent industry report prepared by Frost &Sullivan, please refer to “Industry Overview” in thisdocument for its extract

“Frost & Sullivan” Frost & Sullivan (Beijing) Inc. (弗若斯特沙利文(北京)諮詢有限公司), an independent consulting firm thatprovides market research and analysis

“Gangfa Batching Plant” our concrete production facilities located in thesoutheastern part of Zhengzhou

“GDP” gross domestic product

[REDACTED] the [REDACTED] and the [REDACTED]

“Great Flourishing” Great Flourishing Limited (宏熙有限公司), a companyincorporated under the laws of BVI with limited liabilityon 22 August 2018 and is wholly-owned by Mr. Shi

“Group”, “the Group”, “our”,“we” or “us”

the Company and its subsidiaries at the relevant time, orwhere the context refers to any time prior to the Companybecoming the holding company of the presentsubsidiaries, the present subsidiaries and the businesscarried on by the subsidiaries or, as the case may be, thepredecessors

“Hainan Shenli” Hainan Shenli Concrete Co., Ltd.* (海南神力混凝土有限公司), a company established in the PRC with limitedliability on 20 April 2010, which was held as to 10% and90% by Henan Shenli and an Independent Third Partyprior to the disposal to an Independent Third Party on 14September 2018

“Henan Gangfa” Henan Gangfa New Construction Materials Co., Ltd.* (河南港發新型建材有限公司), a company established in thePRC with limited liability on 30 October 2017, and anindirect wholly-owned subsidiary of the Company

“Henan Shenli” Henan Shenli Concrete Co., Ltd.* (河南神力混凝土有限公司), a company established in the PRC with limitedliability on 14 November 2003 and an indirect wholly-owned subsidiary of the Company

DEFINITIONS

– 14 –


“Henan Shentong” Henan Shentong New Construction Materials Co. Ltd*(河南神通新型建材有限公司), a company established inthe PRC with limited liability on 29 December 2015, andan indirect wholly-owned subsidiary of the Company

“HK$” or “HK dollars” or“cents”

Hong Kong dollars and cents respectively, the lawfulcurrency of Hong Kong

“HKFRS” Hong Kong Financial Reporting Standards issued by theHong Kong Institute of Certified Public Accountants

“HKSCC” Hong Kong Securities Clearing Company Limited, awholly-owned subsidiary of Hong Kong Exchanges andClearing Limited

“HKSCC Nominees” HKSCC Nominees Limited

“Hong Kong” or “HK” The Hong Kong Special Administrative Region of thePRC

[REDACTED]

“IFRS” International Financial Reporting Standards

DEFINITIONS

– 15 –


“Independent Third Party(ies)” a person or persons or a company or companies which, tothe best of the Directors’ knowledge, information andbelief, having made all reasonable enquiries, is not or arenot our connected person(s) within the meaning ascribedunder the Listing Rules

[REDACTED]

“Jiuding Finance Lease” Henan Jiuding Financial Leasing Co., Ltd (河南九鼎金融租賃股份有限公司), a company established in the PRCwith limited liability on 23 March 2016

“Latest Practicable Date” [3 January] 2022, being the latest practicable date for theinclusion of certain information in this document prior toits publication

“Lijiate Printing” Zhengzhou Lijiate Printing Co., Ltd* (鄭州利佳特印務有限公司), a company established in the PRC with limitedliability on 28 January 2010, and an indirect wholly-owned subsidiary of the Company

[REDACTED]

“Listing Rules” the Rules Governing the Listing of Securities on TheStock Exchange of Hong Kong Limited, (as amended,supplemented or otherwise modified from time to time)

DEFINITIONS

– 16 –


“M&A Rules” the Provisions on Mergers and Acquisitions of DomesticEnterprises by Foreign Investors (關於外國投資者併購境內企業的規定), jointly promulgated by MOFCOM,SASAC, SAT, SAIC, CSRC and SAFE on 8 August 2006and amended by MOFCOM on 22 June 2009

“Main Board” the stock market (excluding the option market) operatedby the Stock Exchange which is independent from andoperated in parallel with GEM of the Stock Exchange

“Memorandum of Association”or “Memorandum”

the amended and restated memorandum of association ofthe Company adopted on [●], which will becomeeffective upon [REDACTED], as amended from time totime

“Million Prosper” Million Prosper Holdings Limited (萬旺控股有限公司), acompany incorporated under the laws of BVI with limitedliability on 3 August 2018 and is wholly-owned by theCompany

“Ministry of Finance” or “MOF” Ministry of Finance of the PRC (中華人民共和國財政部)

“MOFCOM” Ministry of Commerce of the PRC (中華人民共和國商務部) or its predecessor, the Ministry of Foreign Trade andEconomic Cooperation of the PRC (中華人民共和國對外貿易經濟合作部)

“MOHURD” the Ministry of Housing and Urban-Rural Developmentof the PRC (中國住房和城鄉建設部), formerly known asthe Ministry of Construction of the PRC (中國建設部)

“Mr. Du” Mr. Du Xinlin (杜新林先生), one of the founders and thesole director of Henan Gangfa

“Mr. Shi” Mr. Shi Junwei (時軍偉先生), formerly known as ShiYunxi (時運喜), one of our substantial Shareholders

“Mr. Song” Mr. Song Quanfa (宋全發先生), formerly known as SongQuanfa (宋全法), the Chairman, chief executive officer,executive Director and one of our ControllingShareholders

“Mr. Wang” Mr. Wang Ka (王卡先生), an executive Director

“Mr. Wong” Mr. Wong Chung Man (黃俊文先生), a Hong Kongpermanent resident, a [REDACTED]

“Mr. Yuan” Mr. Yuan Xinglong (袁興龍先生), one of the foundersand the supervisor of Henan Gangfa

DEFINITIONS

– 17 –


“Mr. Zhang” Mr. Zhang Yingcen (張瀛岑先生), a director and one ofthe beneficial owners of Tian Lun

“NBSC” National Bureau of Statistics of the People’s Republic ofChina (中華人民共和國國家統計局)

“NDRC” National Development and Reform Commission of thePRC (中華人民共和國國家發展和改革委員會)

“Noble Glory” Noble Glory Ventures Limited (貴榮創投有限公司), acompany incorporated in the BVI with limited liability on30 October 2018 and wholly-owned by Mr. Wong

“Nomination Committee” the nomination committee of the Company established bythe Board

“NPC” National People’s Congress of the People’s Republic ofChina (中華人民共和國全國人民代表大會), the nationallegislative body of the PRC

[REDACTED]

“Operating Subsidiary(ies)” the subsidiaries operating the Shenli Batching Plant, theShentong Batching Plant and the Gangfa Batching Plant,namely Henan Shenli, Henan Shentong and HenanGangfa, respectively

[REDACTED]

DEFINITIONS

– 18 –


“PBOC” the People’s Bank of China (中國人民銀行)

“PRC Company Law” the Company Law of the PRC (《中華人民共和國公司法》), as enacted by the Standing Committee of theEighth National People’s Congress on 29 December 1993and effective on 1 July 1994, as amended, supplementedor otherwise modified from time to time

“PRC GAAP” the generally accepted accounting principles in the PRC

“PRC Government” or “State” the central government of the PRC including allgovernment subdivisions (including provincial,municipal and other regional or local governmententities) and instrumentalities thereof or, where thecontext requires, any of them

“PRC Legal Advisers” King & Wood Mallesons, our legal advisers as to the lawsof the PRC

[REDACTED]

DEFINITIONS

– 19 –


[REDACTED]

“Regulation S” Regulation S under the U.S. Securities Act

“Remuneration Committee” the remuneration committee of the Company establishedby the Board

“Reorganisation” the reorganisation arrangements undergone by the Groupin preparation for the [REDACTED] as described in“History, Reorganisation and Corporate Structure” of thisdocument

“RMB” and “Renminbi” the lawful currency of the PRC

“SAFE” the State Administration of Foreign Exchange of thePRC (中華人民共和國國家外匯管理局), the PRCgovernmental agency responsible for matters relating toforeign exchange administration

“SAIC” the State Administration for Industry and Commerce ofthe PRC (中華人民共和國國家工商行政管理總局) (nowknown as the State Administration for Market Regulation(國家市場監督管理總局))

“Sanya Shenli” Sanya Shenli Concrete Limited* (三亞神力混凝土有限公司), a company established in the PRC with limitedliability on 18 October 2011, which was held as to 40%and 60% by Henan Shenli and an Independent ThirdParty prior to the disposal to an Independent Third Partyon 13 September 2018

“SASAC” the State-owned Assets Supervision and AdministrationCommission of the State Council (國務院國有資產監督管理委員會)

“SAT” the State Administration of Taxation of the PRC (中華人民共和國國家稅務總局)

“SFC” the Securities and Futures Commission of Hong Kong

“SFO” the Securities and Futures Ordinance (Chapter 571 of theLaws of Hong Kong), as amended, supplemented orotherwise modified from time to time

“Share(s)” ordinary share(s) in the share capital of the Company, ofa par value of HK$0.01 each

DEFINITIONS

– 20 –


“Share Option Scheme” the share option scheme conditionally approved andadopted by the Company on [●], the principal terms ofwhich are summarized in “D. Share Option Scheme” inAppendix IV to this document

“Shareholder(s)” holders of the Shares

“Shengangtong” Henan Shengangtong Construction Materials Co., Ltd.*(河南神港通建材有限公司), a company established in thePRC with limited liability on 19 February 2019, and anindirect wholly-owned subsidiary of the Company

“Shenli Batching Plant” our concrete production facilities located in thenortheastern part of Zhengzhou

“Shenli HK” Hong Kong Shenli Construction Materials Limited (香港神力建材有限公司), a company incorporated in HongKong with limited liability on 20 September 2018 and anindirect wholly-owned subsidiary of the Company

“Shentong Batching Plant” our concrete production facilities located in the easternpart of Zhengzhou

“Sole Sponsor”,[REDACTED]

Central China International Capital Limited, a licensedcorporation under the SFO to engage in type 1 (dealing insecurities) and type 6 (advising on corporate finance)regulated activities (as defined under the SFO), being thesole sponsor and [REDACTED]

“State Council” the State Council of the PRC (中華人民共和國國務院)

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“subsidiary(ies)” has the meaning ascribed thereto in section 15 of theCompanies Ordinance

“substantial shareholder(s)” has the meaning ascribed thereto in the Listing Rules

“Takeovers Code” The Codes on Takeovers and Mergers and Share Buy-backs issued by SFC (as amended, supplemented orotherwise modified from time to time)

“Tian Lun” Tian Lun Group Limited (天倫集團有限公司*), acompany incorporated in the BVI with limited liability on8 July 2003, one of the [REDACTED] of the Company

DEFINITIONS

– 21 –


“Tianfu Animal Husbandry” Zhengzhou Tianfu Animal Husbandry Co. Ltd* (鄭州天福牧業飼料有限公司), a company established in the PRCwith limited liability on 20 September 1999, which washeld as to 20% by Mr. Song before its deregistration on25 December 2018

“Track Record Period” the period comprising the two years ended 31 December2019 and 2020 and the nine months ended 30 September2021

[REDACTED]

“United States” or “U.S.” the United States of America

“U.S. Securities Act” the United States Securities Act of 1933, as amended,supplemented or otherwise modified from time to time

“US$” or “U.S. dollars” the lawful currency for the time being of the UnitedStates

“VAT” value-added tax

[REDACTED]

“%” per cent.

Certain amounts and percentage figures in this document have been subject to roundingadjustments. Unless otherwise stated, all the numerical figures are rounded to one decimalplace. Any discrepancy in any table between totals and sums of individual amounts listed in anytable are due to rounding. Accordingly, figures shown as totals in certain tables may not be anarithmetic aggregation of the figures preceding them.

The English translation of the original names in Chinese or another language of thenationals, entities, enterprises, organisations, institutions, government authorities,departments, facilities, awards, certificates, titles, laws and regulations concerned included inthis document which are marked with “*” is for identification purpose only. To the extent thatthere is any inconsistency, the original names in Chinese or another language shall prevail.

Words importing the singular include, where applicable, the plural and vice versa. Wordsimporting the masculine gender include, where applicable, the feminine and neuter genders.

Unless expressly stated or the context otherwise requires, all data in this document is asof the date of this document.

DEFINITIONS

– 22 –


This glossary of technical terms contains explanations of certain terms used in thisdocument as they relate to us and as they are used in this document in connection withour business or us. These terms and their meanings may not always correspond tostandard industry meaning or usage of these terms.

“13th Five-Year Plan” a series of national economic and social developmentpolicies and guidelines which were adopted by the PRCGovernment to determine and implement the objectivesof China’s economic and social development from 2016to 2020

“admixture” an ingredient of the concrete mix, to perform a variety offunctions such as retarding or accelerating the setting rateof the concrete, or reducing water content in the concrete

“aggregate” crushed stone and sand which are used as key rawmaterial for producing ready-mixed concrete

“Base Price” reference price(s) of the ready-mixed concrete product(s)set out in the Base Price Information of Major Materialsfor Construction Engineering in Zhengzhou (《鄭州市建設工程主要材料基準價格信息》), revisited anddetermined usually on a monthly basis by the ZhengzhouConstruction Engineering Standard Rating Station (鄭州市建築工程標準定額站)

“batching” the process of mixing in the context of concreteproduction

“CAGR” compound annual growth rate

“cement” a mixture of clinker, interground additives and gypsum. Itis a fine powder which sets to hard mass when mixed withwater as a result of hydration

“clinker” greyish-black pellets predominantly the size of marbles,which is a main ingredient in cement and producedlargely from limestone, clay and a variety of minerals andiron oxide at high temperatures which consists primarilyof hydraulic calcium silicates

“concrete” or “concrete mix” a mixture of aggregates, cement, ground slag, fly ash,admixture and water that will harden because of cement’shydration. The proportion of aggregates, cement, fly ash,ground slag, admixture and water to be mixed depends onthe type of concrete. Concrete is generally used in theconstruction industry

GLOSSARY OF TECHNICAL TERMS

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“Concrete National Standard” means the national standard GB/T14902-2012 (Ready-mixed Concrete) jointly issued by the GeneralAdministration of Quality Supervision, Inspection andQuarantine of the PRC and the StandardizationAdministration of China

“curing” a process that takes place immediately after the placingand finishing of concrete, where the concrete ismaintained at a desired level of moisture and temperaturefor a period of time dependent on the mix

“degree Celsius” or “°C” degree Celsius, a scale and unit of measurement fortemperature

“engineering supervisory agency” an agency which conducts supervision to contractors onconstruction quality, work schedule and funding for andon behalf the of the project developer in accordance withlaws, administrative regulations and relevant technicalstandards

“ERP” or “ERP system” ERP Enterprise Resource Planning system, an operationmodel for modern enterprise management. A integratedsystem applied across, corporations usually coveringcustomer relationship, project, inventory andprocurement, supply, production and other managementtasks, with a view to maximize resource efficiency andoptimize enterprise resources

“fly ash” means pulverized fuel ash, which is a product with acertain fineness made from or by winnowing andgrinding flue ash discharged from a power plant thatgenerate electricity using coal-fired furnaces, and used asa raw material used in the production of concrete servingas a partial replacement for cement

“green” the evaluation of product attributes such as “health,environmental protection and safety includes itemizedevaluation and comprehensive evaluation of raw materialutilisation, production process, construction process, useprocess and waste disposal process, which can besummarized as saving resources and energy, causing noharm to the environment, and even being beneficial to theenvironment

“ground slag” ground granulated blast furnace slag, a powder materialobtained by grinding the particles formed by quenchingmolten material discharged from the ironmaking blastfurnace and mainly composed of silicate and aluminate

“gypsum” a mineral consisting of hydrous calcium sulphate thatissued as a set-controlling agent


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“hydration” a process occurring when water is added to cement,which will then set and harden by reacting chemicallywith water

“ISO” the acronym for International Organization forStandardization, a worldwide federation of nationalstandards bodies, whose mission is to develop industrialstandards that facilitate international trade

“ISO9001” the requirements specified by the ISO for anenvironmental management system to enable anorganization to develop and implement a policy andobjectives which take into account legal requirementsand other requirements to which the organizationsubscribes, and information about significantenvironmental aspects

“kg” kilogram

“km” kilometers

“km2” square kilometers

“m” meters

“m2” square meters

“m3” cubic meters

“mm” millimeters

“mm2” square millimeters

“manufactured sand” rocks that are mechanically crushed and sieved intorocks, mine tailings and industrial waste particles with aparticle size of less than 4.75 mm, but excluding soft,weathered particles; also known as artificial sand

“mixer drum” apparatus installed on mixer truck, which can rotate andkeep mixing fresh ready-mixed concrete

“mortar” means a mixture of cement, sand, admixture and otherraw materials (water will be mixed for wet-mixed mortaronly. Wet-mixed mortar will harden because of cement’shydration). The proportion of raw materials to be mixeddepends on the type of mortar. Mortar is generally used inthe construction industry


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“Mortar National Standard” means the national standard GB/T25181-2019 (Ready-mixed Mortar) jointly issued by the GeneralAdministration of Quality Supervision, Inspection andQuarantine of the PRC and the StandardizationAdministration of China

“MPa” megapascal (one million pascals), a unit of pressure equalto 145.05 pound-force per square inch

“quality supervision station” also known as construction engineering qualitysupervision station (建設工程質量監督站) which is aninstitution established under the competent constructionauthorities at the provincial level to maintain supervisionand administration of the quality of construction projectsfor and on behalf of the government authorities. It ismainly responsible for managing the registration ofengineering supervisory agencies, monitoring the processof the acceptance and delivery of construction projects,and conducting reviews of the engineering quality ofconstruction projects as well as the performance ofparties involved in the project when necessary

“ready-mixed concrete” concrete produced at the batching plant, conveyed to thesite of using transport equipment, and delivered as amixture

“reinforcing bar” steel bar or mesh of steel wires used as a tension devicein reinforced concrete and reinforced masonry structuresto strengthen and hold the concrete in tension

“setting” the process for producing concrete whereby cement ismixed with water and the resulting paste hardens byhydration into a rigid solid

“test cube” cube made from fresh concrete for testing its gradestrength

“workability” the viscosity that the fresh ready-mixed concrete is ableto flow


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This document contains forward-looking statements, including, without limitation,words and expressions such as “expect”, “believe”, “plan”, “intend”, “project”,“anticipate”, “seek”, “may”, “will”, “would” and “could” or similar words orstatements, in particular, in the sections headed “Business” and “Financial Information”in this document in relation to future events, our future financial, business or otherperformance and development, the future development of our industry and the futuredevelopment of the general economy of our key markets.

These statements are based on numerous assumptions regarding our present and futurebusiness strategy and the environment in which we will operate in the future. Theseforward-looking statements reflecting our current views with respect to future events are nota guarantee of future performance and are subject to certain risks, uncertainties andassumptions, including the risk factors described in this document, and the following:

These forward-looking statements include, without limitation, statements relating to:

• our business prospects;

• future developments, trends and conditions in the industry and markets in which weoperate;

• our strategies, plans, objectives and goals;

• general economic conditions;

• changes to regulatory or operating conditions in the market in which we operate;

• our ability to control or reduce costs;

• our dividend policy;

• our capital expenditure plans;

• the amount and nature of, and potential for, future development of our business;

• capital market developments;

• the actions and developments of our competitors;

• certain statements in “Financial Information” in this document with respect to trendsin prices, volumes;

• operations, margins, overall market trends, risk management and exchange rates;and

• other statements in this document that are not historical fact.

FORWARD-LOOKING STATEMENTS

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We caution you that, subject to the requirements of applicable laws, rules and regulations,we do not have any obligation to update or otherwise revise the forward-looking statements inthis document, whether as a result of new information, future events or otherwise. As a resultof these and other risks, uncertainties and assumptions, the forward-looking events andcircumstances 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. Allforward-looking statements contained in this document are qualified by reference to thecautionary statements set out in this section.

In this document, statements of or references to the intentions of the Company or any ofthe Directors are made as of the date of this document. Any such intentions may potentiallychange in light of future developments.

FORWARD-LOOKING STATEMENTS

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Potential investors should carefully consider all the information set out in thisdocument and, in particular, should consider the following risks and specialconsiderations in connection with an investment in the Company before making anyinvestment decision in relation to the Company. The occurrence of any of the followingevents may have a material adverse effect on our business, results of operations, financialcondition and prospects. The trading price of the Shares could decline due to any of theserisks.

RISKS RELATING TO OUR BUSINESS

Our business is subject to the macroeconomic conditions, levels of construction, and realestate and infrastructure developments in the PRC, particularly the Zhengzhou area

Our principal product is ready-mixed concrete, which is mainly used in the constructionof commercial and residential buildings as well as infrastructure projects. As a result, ourbusiness depends heavily on the levels of construction activities in the geographical marketswe serve, which, in turn, are subject to the real estate and infrastructure developments andgeneral economic conditions in Zhengzhou, Henan Province, where our business is focused,and in the PRC in general.

Construction activities and real estate and infrastructure developments in the PRC aresensitive to economic fluctuations, market uncertainty and government policy guidance. Also,the PRC financial market has experienced significant fluctuations in recent years. We cannotassure you that such fluctuations will not negatively affect the overall economic condition, thereal estate and public infrastructure development or the construction industry in the PRC. Ourrevenue may be adversely affected if the PRC economy experiences slower growth, or if fixedasset investment or construction spending is reduced, including any reduction in real estate andpublic infrastructure investment. In addition, since we expect to continue our business inZhengzhou and its proximity in the future, our business is, and will likely continue to be,geographically concentrated and thus becomes particularly susceptible to the macroeconomicconditions, real estate market and government spending on public infrastructure in the regionwhere our business is focused. General national economic conditions, interest rates, inflationrates, the unemployment rate, demographic trends and GDP growth, among other factors, mayhave a significant impact on the performance and growth of the construction and real estateindustries as well as public infrastructure investments in the regional market and, consequently,the demand for our products.

In addition, we are, and will likely continue to be, susceptible to adverse changes ingovernment policies related to the PRC construction and real estate industries, including thosethat affect the supply of land for property development, project financing and taxation policy,as well as local government policies on public infrastructure development, government budgetsand regulation of private sector participation in the public infrastructure projects. During theTrack Record Period, the PRC government implemented various regulations and policies aimedat limiting the price levels of real estate properties in order to prevent the market frombecoming overheated. Such measures include, among other things, household registrationrequirements for the purchase of properties, restrictions on mortgages and higher interest or taxrates for property transactions in the secondary market. These policies may affect the level ofactivities in the PRC real estate industry, and in turn affect the level of construction activitiesin the PRC. We cannot assure you that the PRC government will not adopt additional policiesregarding the construction and real estate industries as well as public infrastructure investmentin the future. Negative government policy changes may have a material and adverse effect onour business, financial condition, results of operations and prospects.

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Prices of raw materials may significantly impact our results of operations.

Our business depends on our ability to obtain sufficient quantities of raw materials ofgood quality at acceptable prices in a timely manner. Cement, crushed stone, sand, fly ash andadmixture are the key raw materials in our production process. Any increase in the cost of theseraw materials may have a negative impact on our business, financial condition and results ofoperations.

The availability and prices of the raw materials depend on a number of factors, many ofwhich are beyond our control, such as general economic conditions, prevailing market demandand supply, and environmental regulations. On the other hand, market prices of our rawmaterials decreased in 2020 compared with 2019 in part due to lack of market demand as aresult of a decrease in construction activities due to slower economic growth due to COVID-19.

As such, our profit margin is, to a certain extent, dependent on our ability to maintain orreduce our procurement costs. In the event that the prices of the raw materials fluctuate underabnormal conditions and/or there is a shortage in supply, it may result in disruption to ourproduction schedule and could have a negative impact on our financial condition andprofitability. Furthermore, in line with industry practice, as we generally make reference to theBase Price in pricing our products and we have limited ability to raise the price of our products,we may not be able to pass the increased raw material costs to our customers. See “Our abilityto set or raise the prices of our products is limited. If the Base Price is not adjusted on a timelybasis to keep in line with the increase in our costs of production or if our competitors do notmake reference to the Base Price in pricing their products, our business, financial condition andresults of operation may be materially and adversely affected” below. As a result, our business,financial condition and results of operation may be materially and adversely affected.

We are susceptible to changes in the regulatory landscape of the PRC property market

As a leading ready-mixed concrete producer in Zhengzhou whose products are used in avariety of residential, infrastructural and commercial construction projects, our operations areaffected by the changing regulatory environment and specific measures affecting the PRCproperty market, including government control in relation to financing activities of propertydevelopers.

In the event that the relevant property developers in Zhengzhou are unable to obtainsufficient financing to support their expansion of business which results in a decrease ofnumber of construction projects and/or stagnation or halt of the ongoing construction projects,the demand for our products may be adversely affected.

We are subject to credit risks in collecting the trade receivables due from our customers

We generally grant credit periods of six months to a year depending on the relevantcustomer’s credit profile with us. As of 31 December 2019 and 2020 and 30 September 2021,our gross trade receivables amounted to approximately RMB722.1 million, RMB915.7 millionand RMB844.0 million, respectively. There can be no assurance that we will be able to collectall our trade receivables on time, or at all. As of 31 December 2019 and 2020 and 30 September2021, we made allowance for impairment losses on trade receivables of approximatelyRMB32.4 million, RMB58.0 million and 67.4 million, respectively. For details, see “FinancialInformation – Description of certain components of consolidated statements of financialposition – Trade and other receivables – Trade receivables” in this document. Any default or

RISK FACTORS

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delay in payment by our customers or our failure to collect trade receivables from them in timemay cause provisions for trade receivables to be made in the future, and may adversely affectour cash flow position and results of operations.

Cost of environmental and work safety compliance may adversely affect our businessoperations and financial results

Under laws and regulations regarding work safety, we are required to maintain safeproduction conditions and to protect the occupational health of our employees. We cannotassure you that there will not be any violation of our safety measures by our employees in thefuture. Any such violation may lead to occurrences of personal injuries and/or fatal accidentsat work sites, which may materially and adversely affect our business operations as well as ourfinancial position to the extent not covered by insurance policies. In addition, there is noassurance that the implementation of our enhanced safety measures can ensure our futurecompliance with the relevant work safety laws and regulations.

Our operations are also subject to numerous environmental laws and regulationspromulgated by the PRC government relating to water pollution, air pollution, supportingfacility and solid wastes, among others. Any violation of national and local environmentalprotection regulations may result in warnings, fines and orders to make rectification within aspecific period or orders to suspend production or to close down the business. See “RegulatoryOverview – Environmental Policy” in this document for details.

In recent years, the PRC government has strengthened its implementation ofenvironmental protection laws and regulations such as noise, air pollution control, and wastedisposal. In order to lower our risk of exposure to liability under environmental protection lawsand regulations, we have to implement environmentally responsible practices and maintainhigh environmental standards. There can be no assurance that our current and future operationswill not be affected by such requirements under environmental laws and regulations. We, ourcustomers, and our raw material suppliers have been requested by government authorities totemporarily halt operations during times of severe air pollution in the winter due to thecoal-burning activities in heat production facilities, which may disrupt our production, andcaused delays in our production and delivery schedules. See “Business – Our Customers –Seasonality” in this document for details. In addition, enhanced implementation ofenvironmental regulations for our upstream and downstream participants along the value chainmay result in indirect negative impact to our business. For instance, stricter enforcement ofenvironmental protection policies on regulation of air and noise pollution in construction sitescould lead to a decrease in our sales to our construction contractors. We may also sufferincreased costs of sales from procurement of raw materials when such suppliers experiencemore strict environmental compliance regulations.

Further, future changes in the scope, application and interpretation of the environmentallaws, regulations and government policies may increase our costs in connection with theinstallation of additional pollution control or other compliance related expenses substantially,which will in turn adversely affect our business and results of operations. Besides, should wefail to comply with environmental laws and regulations in the future, we may be subject tofines, penalties, clean-up costs or liabilities arising out of third-party civil or criminal claims.

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Our business is subject to seasonality and weather conditions

Our business is subject to seasonality. We typically record lower revenue in (i) Januaryand/or February due to the effect of the Chinese New Year holiday season during which mostof our customers’ construction projects are suspended; and (ii) during the indoor heating seasonin China which normally lasts from mid-November to mid-March when local authorities mayrequire us, our customers or our raw material suppliers to reduce and/or suspend productionactivities from time to time due to severe air pollution which tends to occur during the indoorheating season in the winter. For instance, according to the Guiding Opinions on Promoting theStable Growth, Structure Adjustment and Increasing Efficiency of the Building MaterialsIndustry (《關於促進建材工業穩增長調結構增效益的指導意見》) (Guo Ban Fa [2016] No.34) issued by the General Office of the State Council on 18 May 2016, the production ofcement clinker, an intermediate product for the production of cement and, one of the key rawmaterials for our products, should be reduced during the indoor heating season in China toreduce pollution to the atmosphere. Likewise, in Henan province, according to the Notice onStaggered Production of Cement and Brick Kiln Enterprises in Henan Province (《關於做好河南省水泥和磚瓦窯企業錯峰生產工作的通知》) (Yu Huan Gong Jian Ban [2020] No. 70)]issued by the Leading Group Office for Pollution Prevention and Control of Henan Province(河南省污染防治攻堅戰領導小組辦公室), the production of cement clinker and the operationof cement grinder should be reduced and/or suspended to reduce pollution. Our revenue is alsolikely to be affected when there is heavy rain in the summer months and outdoor constructionactivities have to be suspended. In recent years, due to more stringent implementation ofenvironmental policies, the local government has requested suspension of production activitiesmore frequently during times of severe air pollution. We, our customers and our raw materialsuppliers have all been affected from time to time by government-ordered reduction and/orsuspension of production activities and, as a result, we have experienced delays in ourproduction and delivery schedules. In such case, our customers would generally grant us anextension and we have not been held liable for such production and delivery delays as of theLatest Practicable Date. Nevertheless, there is no certainty that we will be always granted anextension, not incur additional costs or experience delays when conducting our businessoperations during the months when we are likely to be affected by such seasonal factors.

Due to the seasonality of our business, the results of any period of a year are notnecessarily indicative of the results that may be achieved for the full year. As such, comparisonof sales and operating results between different periods within a financial year may not bemeaningful and should not be relied upon as indicators of our performance. In addition, ouroperating results may vary from period to period and year to year.

Our sales are non-recurring in nature and we may have to go through a bidding orquotation process to secure new sales contracts. There is no assurance that we will be ableto retain our existing customers or obtain new sales contracts.

We do not have any long-term commitment from our customers. There is no guaranteethat our existing customers will continue to engage us for new sales contracts, and we have togo through a bidding or quotation process to secure new projects. Such process may be beyondour control, and the pricing of our competitors is uncertain and may turn out to be morefavourable that ours. Thus, there is no assurance that we will be able to secure new salescontracts from our future bid submission or price quotation.

It is critical for us to secure new sales contract at a level similar to or greater than ourcurrent business level on a continuing basis. In the event that we are unable to maintain ourbusiness relationships with existing customers or engage new customers to secure new sales,our business, sustainability and financial performance could be adversely affected.

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We do not have our own transportation team to deliver our raw materials and products

We are responsible for delivering our products to our customers’ designated constructionproject sites. Due to the curing nature of ready-mixed concrete products, the timely deliveryof our products to our customers is crucial, which depends, in turn, on an effectivetransportation system. For the two years ended 31 December 2019 and 2020 and the ninemonths ended 30 September 2020 and 2021, our freight expenses for delivery of our productsto our customers amounted to approximately RMB43.7 million, RMB52.8 million, RMB45.5million and RMB31.7 million, respectively.

During the Track Record Period and up to the Latest Practicable Date, we did not own anydelivery vehicle nor did we employ any driver for such vehicles. Instead, we entered intoframework agreements with third party transportation service providers for transportation ofour ready-mixed concrete products to project sites designated by our customers. Transportationprocess may be interrupted due to the reasons beyond our control, including weather, politicalunrest, social instability, strikes and road conditions (such as traffic accidents and fluctuationsin road traffic congestion level). Further, should the transportation service providers fail tocomply with the terms of or even terminate their agreements with us or violate any regulatoryrequirements, our products may not arrive in time, or at all. If our existing transportationservice providers fail to discharge their delivery obligations, we may not be able to find othersuitable transportation service providers as replacements on a timely basis, and even if suchservice providers are available, the cost of transportation may be increased. As a result, ourreputation, business, financial condition and results of operations may be adversely andmaterially affected.

Further, there is no assurance that the transportation service providers have maintainedsufficient insurance coverage for the provision of the service, if at all. As such, our customersmay have liability claims against us if there is loss or damage to our ready-mixed concreteproducts during delivery and the transportation service providers do not have any or sufficientinsurance coverage. Any such claims, regardless of whether they are ultimately successful,could cause us to incur litigation costs, harm our business reputation and disrupt ouroperations. If any such claims are ultimately successful, we could be required to pay substantialdamages, which could materially and adversely affect our business, financial condition andresults of operations.

Our ability to set or raise the prices of our products is limited. If the Base Price is notadjusted on a timely basis to keep in line with the increase in our costs of production orif our competitors do not make reference to the Base Price in pricing their products, ourbusiness, financial condition and results of operations may be materially and adverselyaffected

Our pricing policy makes reference to the Base Price of the respective grade level of ourready-mixed concrete products set out in the Base Price Information of Major Materials forConstruction Engineering in Zhengzhou (《鄭州市建設工程主要材料基準價格信息), which isin line with the industry practice. The Base Price is revisited usually on a monthly basis by theZhengzhou Construction Engineering Standard Rating Station (鄭州市建築工程標準定額站)taking into factors including, among other things, the prevailing market price of raw materials.See “Business – Our customers – Pricing policy” in this document for details. Furthermore,according to the F&S Report, it is the industry norm to price ready-mixed concrete productsat a discount from the Base Price instead of charging for a premium from the Base Price. See“Business – Our customers – Major terms of our sales contracts” in this document for details.

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Accordingly, the selling price of ready-mixed concrete is transparent and our ability to setor raise the prices of our products is limited. In the event that our costs of production such asraw material costs and direct labour costs increase and we are unable to pass such increasedcosts to our customers as a result of the failure of corresponding adjustment of the Base Pricein time, or at all, our business, financial condition and results of operations may be materiallyand adversely affected. In addition, there is no assurance that our competitors will use the BasePrice as reference in pricing their products. Their failure to do so may induce price competitionwithin the local industry and possibly lead to an overall reduction in profitability, and ourbusiness, financial condition and results of operations may be materially and adversely affectedas a result.

Our future plans are subject to uncertainties and risks and therefore may not materialize

We have set out our future plans in “Future plans and [REDACTED]” in this document.Whether our future plans can be implemented successfully may be beyond our control andfuture events may affect the implementation of our expansion plans, such as changes in generalmarket conditions and rules and regulations applicable to us.

Our ability to achieve our growth objectives depends heavily on the implementation ofour future business plans. There is no assurance that our future business plans will materializeas we originally expect or will be executed within the intended timeframe, or will result inrevenue or profit as projected. As these business plans inherently involve substantial time,investment, cash outflows and market risks, our profitability, operations, prospects and/orfinancial condition may deteriorate if any or all of our future plans cannot be accomplished.

Also, we may come across other opportunities to expand our business. In suchcircumstances, the [REDACTED] from the [REDACTED] may not be sufficient to developthese opportunities and we may need to obtain additional financing to fund our future capitalexpenses. If we are unable to secure adequate funds for our business needs in a timely manner,we may not be able to fully implement our future plans effectively and successfully.

We may not be successful in our research and development of new technologies for ourproduction, and our operating results may fluctuate from period to period depending onthe fulfillment of the capitalization criteria in respect of direct development expendituresincurred for our research and development projects

We recognize the need for the development of technologies in our production, such asenvironmentally friendly technologies, with a view to improving the functionalities of ourproducts and lowering our production cost. We plan to develop our research and developmentcapabilities as part of our business strategies. For details, see “Business – Our BusinessStrategies – Develop our research and development capabilities” in this document.

As such, we expect to invest certain amounts of human and capital resources to developor acquire technologies that will allow us to enhance our research and developmentcapabilities. However, the development process can be time-consuming and highly complex,and we cannot assure you that we will be able to successfully develop our products orproduction technologies that are innovative, practical, cost-effective, environmentally friendly,or such product or technology developed can be launched to the market with economicviability. If such products and technology cannot successfully be developed, we may not beable to recover the significant research and development costs and our business, prospects,financial condition and results of operations may be adversely affected.

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In addition, our operating results may fluctuate from period to period depending on thefulfillment of the capitalization criteria under our accounting policy in respect of directdevelopment expenditures incurred for our research and development activities. If our researchand development costs fail to satisfy such capitalization criteria, they will be accounted for asexpenses for the period during which they are incurred and our profitability and results ofoperations will be materially and adversely affected.

We may not be able to obtain financing on favourable terms to fund our operations,existing and future capital expenditure, acquisition and investment plans or meet otherfunding requirements

We need substantial amount of capital to meet our operational needs. To fund ouroperations, existing and future capital expenditure, acquisition and investment plans and meetother funding requirements, we need sufficient internal sources of liquidity or access toadditional financing from external sources. Our ability to obtain external financing in thefuture is subject to a variety of uncertainties, including:

• the future financial condition, operating results and cash flows;

• the condition of the global and domestic financial markets; and

• changes in the monetary policy of the PRC government with respect to bank interestrates and lending practices and conditions.

Deterioration, fluctuation, uncertainty or volatility in the capital markets or creditmarkets may limit our access to capital necessary for operating and expanding our business orcause us to bear a heavy burden in cost of capital as a result of an increase in effective interestrate, which could decrease our profitability and significantly reduce our financial flexibility.

In the event that our working capital is insufficient to meet our needs, we may have toseek additional financing. The availability of future banking facilities is subject to approval bythe lenders. If we are unable to obtain financing on favourable terms, or at all, our business,financial condition, results of operations and prospects may be adversely affected.

Our operations are subject to inherent risks, occupational hazards and unexpecteddisruption, which could cause us to incur substantial costs, damage to our reputation andloss of future business

Our ready-mixed concrete production operations routinely place our employees andothers in close proximity to heavy duty machineries and equipment and moving motor vehicles.Despite our implementation of safety policies and standardised ready-mixed concrete mixingmethods and production technologies, we continue to be subject to risks surrounding theseactivities, such as equipment failure and industrial accidents. These hazards may causepersonal injury or fatalities. For details, see “Business – Health and Safety” in this document.We cannot guarantee that material workplace accidents will not occur in the future despite oursafety policies and measures. Even if such accidents were not a result of our fault ornegligence, such accidents may still cause us to incur substantial costs, damage to ourreputation and loss of future business.

Further, our production process may be disrupted by events out of our control, includingearthquake, fire, drought or other natural disaster, political instability, riot or civil unrest,extended outage of critical utilities or transportation systems and terrorist attack. As such, wemay incur substantial additional expenses to repair or replace any damaged equipment orfacility. Our disruption or failure in meeting our production and delivery obligations maysignificantly affect our relationships with our customers. Our business, financial condition andresults of operations may be materially and adversely affected as a result.

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Between 16 July and 23 July 2021, Henan Province was affected by severe flooding,caused by a period of prolonged heavy rainfall. Record-breaking maximum rainfall of 201.9millimeters in an hour was observed in Zhengzhou. The PRC government authorities havereported that as a result of this natural disaster, 302 people died, 1.1 million people wererelocated, and 9.3 million people were affected, with the resulting economic damage estimatedto be in excess of RMB100 billion. According to meteorological analyses cited in variousgovernment news reports, the floods were made more likely by increases in extreme weathercaused by climate change in China. We cannot assure you that similar natural disasters will notoccur in the near future. If Zhengzhou or Henan Province is affected by natural disasters, ourbusiness operations will likely experience disruptions, and our financial condition, results ofoperations and prospects may be materially and adversely affected.

We may not always be able to maintain an effective quality control system for ourready-mixed concrete products. Any product deficiencies may cause us to lose ourcustomers and to be subject to product liabilities, and our business, financial conditionand results of operations may be materially and adversely affected

Our business depends on our ability to produce and deliver our ready-mixed concreteproducts of consistently high quality. Many of our products are subject to technical standardsand we may also be required to meet other specifications as requested by our customers fromtime to time.

The quality of our products is dependent on the effectiveness of our quality controlsystem, which in turn depends on a number of factors, including the design of the system, thequality control training program, and our ability to ensure that our employees adhere to ourquality control policies and guidelines. For more details, see “Business – Quality Control”.

There is no assurance that our quality control measures will be sufficient to identify thelatent defects in our ready-mixed concrete products, or that any failure of our quality controlsystem or non-adherence to the measures under such quality control system would not resultin the production of defective or sub-standard products, which may in turn impair ourreputation, cause delays in the delivery of our products and the need to replace defective orsub-standard products, and expose us to product liability claims. Under such circumstances,our business, financial condition and results of operations may be materially and adverselyaffected.

Our customers also place significant emphasis on product quality and reliability whenselecting us as their ready-mixed concrete supplier. If our products have deficiencies or fail tomeet our customers’ specifications, we may have to replace the defective products at our owncost and compensate our customers for any resulting losses. In this case, our customers maylose their trust in us, our reputation may be damaged, and we may lose our market share tocompetitors.

Furthermore, we may be exposed to product liability claims or legal proceedings relatingto personal injury or property damage if our products have latent quality issues. Third partiesthat suffered from such injury or damage may also bring claims or legal proceedings againstus on the basis that we facilitated the transaction of the defective products. As a result, we mayhave to expend resources to defend ourselves in the event that claims or legal proceedings areinstituted against us. Our reputation may be materially and adversely damaged as a result ofsuch proceedings, and our business prospects and results of operations may be adverselyaffected.

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In addition, the quality of our products depends on the quality of the raw materials thatwe purchase from third party suppliers. In the event that we become subject to product liabilityclaims or legal proceedings as a result of defective raw materials, we may attempt to enforceour rights against or seek compensation from the relevant suppliers pursuant to the purchaseagreements between such suppliers and us. Nevertheless, such attempts may be expensive,time-consuming and ultimately futile. Further, in such circumstances, there can be noassurance that we can eventually recover all losses and damages from our suppliers, if at all.

As of the Latest Practicable Date, we did not maintain any third-party liability insuranceor product liability insurance for our products. As a result, any material product liability claimor legal proceedings could have a material and adverse effect on our business, financialcondition and results of operations. Even unsuccessful claims could result in the expenditureof funds and managerial efforts in defending them and could have a negative impact on ourreputation.

We may not have adequate insurance coverage to cover our potential liability or lossesand as a result our business, financial condition, results of operations and prospects maybe materially and adversely affected

We face various risks in connection with our business and may lack adequate insurancecoverage or may have no relevant insurance coverage. In addition, in line with the industrypractice in the PRC, we do not maintain insurance in respect of litigation risks, businesstermination risks, liability insurance policies such as life insurance, public liability insurance,special equipment liability insurance, third party liability insurance and electricity supplyliability insurance. We only maintain property insurance for some of our production facilities.See “Business – Insurance” in this document for details. Any occurrence of these events mayresult in interruption of our operations and subject us to significant losses or liabilities. Inaddition, there are certain losses for which insurance is not available on commerciallyreasonable terms, such as losses suffered due to earthquake, war, civil unrest and certain otherforce majeure events. We do not maintain insurance to cover such losses in line with thegeneral business and industry practices. If we incur substantial losses or liabilities and ourinsurance coverage is unavailable or inadequate to cover such losses or liabilities, our business,financial condition and results of operations may be materially and adversely affected.

We may be involved from time to time in legal proceedings and commercial or contractualdisputes, which may have a material adverse effect on our business, results of operationsand financial condition

We may be involved from time to time in legal proceedings and commercial or contractualdisputes in the ordinary course of our business. Although there is no material adverseunresolved litigation, arbitration or administrative proceeding against us as of the LatestPracticable Date, we cannot assure you that we will not be involved in various legal and otherdisputes in the future, which may expose us to additional risks and losses. In addition, we mayhave to pay legal costs associated with such disputes, including fees relating to appraisal,execution and legal advisory services. Litigation and other disputes may lead to inquiries,investigations and proceedings by regulatory authorities and other governmental agencies andmay result in damage to our reputation, additional operating costs and diversion of resourcesand management’s attention from our core business. The disruption of our business due tojudgment, arbitration and legal proceedings against us or adverse adjudications in proceedingsagainst the Directors, senior management or key employees may have a material adverse effecton our reputation and our financial condition, results of operations and prospects.

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Property rights to some of our own structures or buildings may be found defective, andwe would face disruption to our business if we were required to find alternative premises

Pursuant to the Urban and Rural Planning Law of the PRC (《中華人民共和國城鄉規劃法》), the Construction Law of the PRC (《中華人民共和國建築法》), the AdministrativeMeasures for Building Engineering Construction (《建築工程施工許可管理辦法》) and theAdministration of the Quality of Construction Works Regulations (《建設工程質量管理條例》), various permits such as the approvals or permits for planning of construction projects,the permit for commencement of construction work and the certificates for completioninspections are required to be obtained at various stages of construction of structures orbuildings. When we constructed our buildings at our batching plants, we had not obtained someof the requisite certificates or permits for construction of such structures or buildings. As of theLatest Practicable Date, we had not obtained the building construction certificates orownership certificates for some of the structures or buildings erected at our batching plants. Asadvised by our PRC Legal Advisers, we may be subject to fines or may be ordered to demolishsuch structures or buildings within a prescribed timeframe. For further details, see “Business– Properties – Owned Properties” in this document.

If the title or the use of our own properties is challenged by the relevant land and planningadministration, we may be required to cease our use of the relevant buildings or structuresand/or may be ordered to demolish such structures or buildings within a prescribed timeframe.As a result, we may be forced to find alternative premises for relocation and incur additionalcosts as well as business interruption due to such relocation. There can be no assurance thatwe will be able find comparable alternative premises for relocation, or at all. If we are unableto find suitable premises for relocation in a timely manner, our business, financial condition,results of operations and prospects would be materially and adversely affected.

There is no assurance that we will be able to sucessfully renew the licences, permits andapprovals necessary for our operations

As of the Latest Practicable Date, we had obtained all relevant licences, permits andapprovals that are necessary for our production. Certain of these licences, permits andapprovals are generally valid for a limited period of time and are subject to periodic renewaland/or reassessment by the relevant authorities. We intend to apply for the renewal of theselicences, permits and approvals when required by applicable laws, rules and regulations.However, the standards of such renewal or reassessment may change from time to time. Thereis no assurance that we will be able to successfully renew all of these permits, licences andcertifications upon their expiration in the future. Any inability to obtain or renew any licences,permits or approvals that are material to our operations may severely disrupt, as well as preventus from conducting, our business. Furthermore, if any interpretation or implementation of therelevant regulations or new regulations requires us to obtain additional, permits or approvals,there is no assurance that we will successfully obtain them in the future. Even if we obtain suchpermits or approvals, there may be significant additional costs and expenses involved, whichmay materially and adversely affect our financial condition and results of operations.

Moreover, we are subject to regular inspections, examinations, inquiries and audits by theauthorities as part of the process of maintaining or renewing the various licences, permits orapprovals required for our production. In the event that we fail such inspections, our reputation,business, financial condition and results of operations may be materially and adverselyaffected.

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Our business depends on the retention and services of our executive directors, seniormanagement and a skilled labour force

Our success depends, to a large extent, on the continued services of our executivedirectors, senior management and key personnel. We depend on their experience and expertisein the concrete production industry, corporate and financial management, strategicdevelopment, and sales and marketing for the success of our business. If one or more of ourexecutive directors or senior management are unable or unwilling to continue theiremployment with us, we may be unable to identify and recruit suitable replacements in a timelymanner or at all. In addition, if any member of our senior management joins a competitor orforms a competing company, we may lose some of our know-how and customers.

Furthermore, recruiting and retaining a skilled labour force, particularly experiencedtechnicians and main mixer operators familiar with our production processes, are critical tomaintaining the quality of our products and improving our production processes. We cannotassure you that we will be able to attract or retain qualified personnel. If we are unable toattract and retain qualified employees, key personnel and senior management, our business,financial condition and results of operations may be materially and adversely affected.

We currently receive certain VAT refunds. Expiration of, or unfavourable changes to,these VAT refund policies could materially and adversely affect our results of operationsand financial condition

Pursuant to the Notice of the Value-Added Tax Preferential Policies for promoting theEmployment of the Disabled Persons (《關於促進殘疾人就業增值稅優惠政策的通知》) (CaiShui [2016] No. 52) and the measures for the Administration of Preferential Value-Added TaxPolicies for Promoting the Employment of Disabled Persons (《促進殘疾人就業增值稅優惠政策的管理辦法》) (SAT Bulletin [2016] No. 33) promulgated by the Ministry of Finance and/orthe State Administration of Taxation, certain subsidiaries of the Group are entitled to VATrefunds for hiring employees with disability. The incentive is currently in effect, and we are notaware of any intention of the PRC government to discontinue it. However, there can be noassurance that we will be able to continue to receive these tax incentives or VAT refunds onthe same terms, or at all, in the future. Discontinuation of, or unfavourable changes to, theseVAT refund policies in the future may adversely and materially affect our business, financialcondition and results of operations.

Our risk management and internal control systems may not fully protect us againstvarious risks inherent in our business

We have established risk management and internal control systems comprisingorganizational framework policies, risk management policies and risk control procedures.These systems are designed to help us manage our risk exposures, primarily our operationalrisks, legal risks and liquidity risks. However, we may not be successful in implementing ourrisk management and internal control systems. While we seek to continue to enhance our riskmanagement and internal control systems from time to time, we cannot assure you that our riskmanagement and internal control systems are adequate or effective notwithstanding our efforts,and any failure to address any potential risks and internal control deficiencies could materiallyand adversely affect our business, financial condition and results of operations.

Since our risk management and internal control systems depend on their effectiveimplementation by our employees, we cannot assure you that all of our employees will adhereto such policies and procedures, and the implementation of such policies and procedures mayinvolve human error. We are unable to guarantee that our internal control system will be

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effective in preventing the occurrence of corruption, bribery or other illegal activities.Moreover, our growth and expansion may affect our ability to implement stringent riskmanagement and internal control policies and procedures as our business evolves. If we fail totimely adopt, implement and modify, as applicable, our risk management and internal controlpolicies and procedures, our business, financial condition and results of operations could bematerially and adversely affected.

The outbreak of COVID-19 or any other severe communicable disease could adverselyaffect our financial position and results of operations

Our business could be materially and adversely affected by widespread epidemic ofCOVID-19 or other communicable disease such as Severe Acute Respiratory Syndrome(SARS), Middle East Respiratory Syndrome (MERS), H5N1 flu, H7N9 flu, H1N1 flu andEbola virus. Our operations could also be disrupted if any of our employees were suspected ofcontracting or contracted an epidemic disease, since this could require us to quarantine someor all of our employees and disinfect our corporate headquarters, batching plants or projectsites. Moreover, any such outbreak may also result in shortage of raw materials and labour andmay cause temporary suspension of our production or construction projects, which may resultin a material and adverse effect on our business, financial condition and results of operations.In addition, the outbreak of COVID-19 and the rapid spread of any new variants, such as thehighly-infectious Delta variant which was first reported in a number of cities in China(including Zhengzhou) in July 2021 and the Omicron variant which recently spread to anumber of cities in China (including Zhengzhou) in December 2021, may also severely affectand restrict the general level of economic activity in the Zhengzhou area, Henan Province orChina, as the government may impose regulatory or administrative measures quarantiningaffected areas or other measures to control or contain the relevant outbreak of the severecommunicable diseases. Any economic downturn and travel restrictions as a result of severecommunicable diseases may result in delay in payment from our customers and/or terminationof projects. Should any such events occur, our business, financial condition and results ofoperations may be materially and adversely affected.

RISKS RELATING TO OUR INDUSTRY

The ready-mixed concrete industry is heavily regulated and supervised by the PRCgovernment authorities. Any future change in the laws or regulations or enforcementpolicies in relation to the concrete production industry may materially and adverselyaffect our business, financial condition and results of operation

We are subject to regulations from various PRC government authorities, including, butnot limited to, MOFCOM, and the MOHURD at the state level and the Henan Housing andUrban-rural Construction Department (河南省住房和城鄉建設廳). These authorities areempowered to issue and implement regulations governing different aspects of the concreteproduction. Any change in existing laws and regulations, or their interpretation, that may affectour business or operations could require us to incur additional compliance costs or costly andtime-consuming changes to our operations, either of which could materially and adverselyaffect our business, financial condition and results of operations. See “Regulatory Overview”in this document for details of such laws and regulations.

The relevant government authorities may impose more stringent standards andrequirements in the future, which would increase our operational costs to meet such higherstandards. Given the magnitude, complexity and technicality of these laws and regulations,compliance with them or the establishment of effective monitoring systems may be onerous orrequire a significant amount of financial and other resources. As these laws and regulations

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continue to evolve, we cannot assure you that the PRC government will not impose additionallaws or regulations, compliance with which may cause us to incur significantly increased costs,which we may not be able to pass on to our customers. In addition, any changes in legislative,regulatory or industrial requirements may render certain of our existing wastewater treatmentsolutions obsolete. We may need to upgrade existing technologies and facilities to meet thestandards imposed by the relevant regulatory authorities, which will require higher financial,human and other resources. All these could materially and adversely affect our business,financial condition and results of operations.

We face intense competition in our industry, and failure to compete effectively may causeus to lose our market share

The ready-mixed concrete industry is fragmented. As such, we face intense competitionfrom a significant number of ready-mixed concrete productors in Zhengzhou and its proximity.Some of our competitors may have longer operating histories, stronger capital resources, largercustomer bases, stronger customer relationships, greater brand recognition, greater financial,technical, marketing and public relations resources or a wider range of services and productsthan we do. As a result, some of our competitors may be better positioned than we are todevelop superior services and products or to adapt to market trends. Our competitivenessdepends on our record of timely delivery of ready-mixed concrete products, our technicalcapabilities and know-how for quality concrete production as well as our customer services.Competitive pressures may require us to increase our costs and may adversely affect our profitmargins. Our failure to compete effectively may materially and adversely affect our business,financial condition, results of operation, market position and prospect.

The ready-mixed concrete industry is capital intensive, and our future growth depends toa large extent on our ability to obtain financing

The ready-mixed concrete industry in which we operate is capital intensive. We requirea significant amount of capital to build our batching plants, to purchase equipment and todevelop and implement new technologies to meet the evolving regulations and industrialstandards.

Our internally generated capital resources, the [REDACTED] from the [REDACTED]and our available bank facilities may not be sufficient to finance our capital expenditures andfuture growth. We may have to seek additional financing from third parties, including banks,venture capital firms, joint venture partners and other strategic investors. Our ability to arrangefor external financing and the cost of such financing are dependent on numerous factors, someof which are beyond our control, including general economic and capital market conditions,interest rates, credit availability from banks or other lenders, investor confidence, success ofour business, changes in existing PRC regulations, provision of tax and securities laws thatmay be applicable to our efforts to raise capital and political and economic condition in thePRC generally. Our ability to raise additional financing, particularly through loans and otherforms of financing activities, may be limited, as the Group may, in the future, be subject tovarious restrictions on our ability to incur additional debt and engage in other fund-raisingtransactions under the terms of the relevant outstanding indebtedness. In addition, the PRCGovernment has implemented a number of measures to control money supply growth and creditavailability.

There can be no assurance that the PRC government will not introduce other initiativesthat may further limit our access to capital, or that additional debt financing, either on ashort-term or a long-term basis, will be made available or, if available, that such financing willbe obtained on terms favourable to us. As a result, we may be increasingly reliant on cash

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generated from the sales of our ready-mixed concrete, as well as cash generated through anyequity or other financing activities, and there can be no assurance that such cash flows will besufficient to finance the future growth of our businesses, which may adversely affect ourbusiness, financial condition, results of operations and prospects.

RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC

Political, economic and legal developments in the PRC could affect our business

The political, economic and legal systems in the PRC differ from those in Hong Kong andmany other jurisdictions. Although the Chinese economy has been transitioning from a plannedeconomy to a more market-oriented economy for over 30 years, the PRC government hasretained significant control over economic growth by owning a substantial portion ofproductive assets, allocating resources, controlling capital investment, reinvestment andforeign exchange, setting monetary policies and offering preferential treatment to certainindustries or companies.

In recent years, the PRC government has implemented economic reforms emphasizing theuse of market forces to drive economic development, the reduction of state ownership ofproductive assets and the establishment of sound corporate governance. Changes in the PRC’spolitical, economic and social conditions, laws, regulations and policies may materially andadversely affect our business, results of operations and financial condition.

Although China has been one of the world’s fastest growing economies in recent years asmeasured by the GDP growth, China may not be able to sustain such a high growth rate.China’s GDP growth rate is expected to continue declining.

The global economy may deteriorate and adversely impact the Chinese economy. Anysignificant slowdown in the Chinese economy could materially and adversely affect ouroperations. In particular:

• Any slowdown in the economy may result in reduced demand for steel or chemicalproducts or may adversely impact our customers’ financial condition, which in turnwould reduce demand for our products;

• We may not be able to raise additional capital on favourable terms, or at all; and

• Trade and capital flows may further contract as a result of protectionist measures incertain markets, which could cause a further slowdown in economies and materiallyand adversely affect our business and prospects.

Concerns over liquidity issues, geopolitical issues, the availability and cost of credit andthe unemployment rate have resulted in adverse market conditions in China. In addition,consumer, corporate and government spending, business investment, capital market volatilityand inflation all affect the business and economic environment and the growth of theready-mixed concrete industry. These factors could adversely affect our business, results ofoperations and financial condition.

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The interpretation and enforcement of PRC laws and regulations involve uncertainties

Many laws and regulations in the PRC are promulgated in broad principles. The PRCgovernment has gradually implemented rules and refined and modified these laws andregulations. The interpretation of PRC laws and regulations may be influenced by policies thatreflect domestic political and social changes.

As central or local government agencies have recently adapted many laws, regulationsand legal requirements, their implementation, interpretation and enforcement may involveuncertainty due to the lack of established practices for reference. In addition, the legal systemin the PRC is a civil law system.

Unlike common law systems, prior court decisions have limited value as precedents incivil law systems. Depending on the relevant government agency or how an application or acase is presented to such agency, we may receive less favourable interpretations of law than ourcompetitors.

Any litigation in the PRC may be protracted and result in substantial legal costs anddiversion of resources and management attention. As the PRC legal system develops, thepromulgation of new laws or refinement and modification of existing laws may adversely affectforeign investors. Changes in legislation or the interpretation thereof may have a material andadverse effect upon our business, results of operations and financial condition.

Under the EIT Law, we may be classified as a PRC resident enterprise, which could resultin unfavourable tax consequences to us and our shareholders and have a material adverseeffect on our results of operations and the value of your investment

Under the EIT Law, effective from 1 January 2008, an enterprise established outsideChina with “de facto management bodies” within China is considered a “resident enterprise”for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterpriseincome tax rate on its worldwide income. In 2009, SAT issued the Notice Regarding theDetermination of PRC-Controlled Overseas Incorporated Enterprises as PRC Tax ResidentEnterprise on the Basis of De Facto Management Bodies (“SAT Circular 82”) (《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》), which providescertain specific criteria for determining whether the “de facto management body” of aPRC-controlled enterprise that is incorporated offshore is located in China. Further to SATCircular 82, the SAT issued the Administrative Measures for Enterprise Income Tax ofPRC-Controlled Offshore Incorporated Resident Enterprises (Trial) (“SAT Bulletin 45”) (《境外註冊中資控股居民企業所得稅管理辦法(試行)》), effective from 1 September 2011, toprovide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 clarifiedcertain issues in the areas of resident status determination, post-determination administrationand competent tax authorities’ procedures.

According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRCenterprise or a PRC enterprise group will be considered as a PRC tax resident enterprise byvirtue of having its “de facto management body” in China and will be subject to PRC enterpriseincome tax on its worldwide income only if all of the following conditions are met: (a) thesenior management and core management departments in charge of its daily operationsfunction have their presence mainly in China; (b) its financial and human resources decisionsare subject to determination or approval by persons or bodies in China; (c) its major assets,accounting books, company seals, and minutes and files of its board and shareholders’meetings are located or kept in China; and (d) more than half of the enterprise’s directors orsenior management with voting rights habitually reside in China.

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Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore incorporatedenterprises controlled by PRC enterprises or PRC enterprise groups and not those controlled byPRC individuals or foreigners, like us, the determination criteria set forth therein may reflectthe SAT’s general position on how the term “de facto management body” could be applied indetermining the tax resident status of offshore enterprises, regardless of whether they arecontrolled by PRC enterprises, individuals or foreigners.

If the PRC tax authorities determine that we or any of our non-PRC subsidiaries is a PRCresident enterprise for PRC enterprise income tax purposes, then we or any such non-PRCsubsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, which couldmaterially affect our financial performance. In addition, we will also be subject to PRCenterprise income tax reporting obligations.

If the PRC tax authorities determine that our company is a PRC resident enterprise forPRC enterprise income tax purposes, gains realized on the sale or other disposition of ordinaryshares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20%in the case of non-PRC individuals (in each case, subject to the provisions of any applicabletax treaty), if such gains are deemed to be from PRC sources. Any such tax may reduce thereturns on your investment in our ordinary shares.

There are significant uncertainties under the EIT Law relating to the withholding taxliabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to ouroffshore subsidiaries may not qualify to enjoy certain treaty benefits

Under the EIT Law and its implementation rules, the profits of a foreign-investedenterprise generated through operations, which are distributed to its immediate holdingcompany outside China, will be subject to a withholding tax rate of 10%. Pursuant to a specialarrangement between Hong Kong and China, such rate may be reduced to 5% if a Hong Kongresident enterprise owns more than 25% of the equity interest in the PRC company. Under theNotice of the State Administration of Taxation on Issues regarding the Administration of theDividend Provision in Tax Treaties (《國家稅務總局關於執行稅收協定股息條款有關問題的通知》) promulgated in 2009, the taxpayer needs to satisfy certain conditions to enjoy thebenefits under a tax treaty. These conditions include: (i) the taxpayer must be the beneficialowner of the relevant dividends, and (ii) the corporate shareholder to receive dividends fromthe PRC subsidiaries must have met the direct ownership thresholds during the 12 consecutivemonths preceding the receipt of the dividends. Further, the SAT promulgated theAnnouncement of the State Administration of Taxation on Issues Relating to “BeneficialOwner” 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》) in2018, which sets forth certain detailed factors in determining “beneficial owner” status.

Entitlement to a lower tax rate on dividends according to tax treaties or arrangementsbetween the PRC central government and governments of other countries or regions is subjectto the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under TaxTreaties (《非居民納稅人享受協定待遇管理辦法》), which provides that non-residententerprises are not required to obtain pre-approval from the relevant tax authority in order toenjoy the reduced withholding tax. Instead, non-resident enterprises may enjoy the taxpreferential treatment at the time of return filings or withholding and declaration through awithholding agent if it is eligible for the tax preferential treatment under the relevantprovisions of a tax treaty, simultaneously compiles and retains the relevant materials for futureinspection, subject to the follow-up administration by the relevant tax authorities. As a result,we cannot assure you that we will be entitled to any preferential withholding tax rate under taxtreaties for dividends received from our PRC subsidiaries.

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Heightened scrutiny over acquisitions by tax authorities in the PRC may negativelyimpact our operations, our acquisition or restructuring strategy or the value of yourinvestment in us

In February 2015, the SAT issued the Announcement of the SAT on Several Issuesconcerning the Enterprise Income Tax on Income from the Indirect Transfer of Assets byNon-Resident Enterprises (國家稅務總局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) (“SAT Circular 7”). SAT Circular 7 provided comprehensive guidelines relating to, andalso heightened the PRC tax authorities scrutiny over, indirect transfers by a non-residententerprise of taxable assets in the PRC.

Under SAT Circular 7, PRC tax authorities may reclassify the nature of an indirecttransfer of taxable assets in the PRC, when a non-resident enterprise transfers taxable assets inthe PRC indirectly by disposing of equity interests in an overseas holding company directly orindirectly holding such taxable assets in the PRC. PRC tax authorities may disregard theexistence of the overseas holding company and reclassify the transaction as a direct transfer ofthe PRC enterprise if such transfer is deemed without any other reasonable commercial purposeby the SAT. Although SAT Circular 7 contains certain exemptions, there is uncertainty as to theapplication of such exemptions under SAT Circular 7. The SAT Circular 7 may be determinedby the PRC tax authorities to be applicable to our offshore restructuring, or transfer of theShares. Furthermore, we and our non-resident subsidiaries may be required to spend valuableresources to comply with SAT Circular 7 for our previous and further transactions or disposalof the Shares, which may have a material and adverse effect on our financial conditions andresults of operations.

The SAT Circular on the Source of Deduction of Income Tax for Non-resident Enterprises(國家稅務總局關於非居民企業所得稅源泉扣繳有關問題的公告) (“SAT Circular 37”) effectiveon 1 December 2017 and abolished certain provisions in SAT Circular 7. Pursuant to SATCircular 37, where the party responsible to deduct such income tax did not or was unable tomake such deduction, the non-resident enterprise receiving such income should declare and paythe taxes that should have been deducted to the relevant tax authority.

We have conducted and may conduct acquisitions involving changes in corporatestructures. Historically, certain past shareholders transferred the shares to current shareholders.PRC tax authorities could, at their discretion, adjust any capital gains and impose tax returnfiling obligations on us or require us to assist their investigation of such acquisitions. Any PRCtax imposed on a transfer of the Shares or any adjustment of such gains would result inadditional costs and negatively impact the value of your investment in us.

Our Company is a holding company that relies on dividends from our subsidiaries forfunding

We are a holding company incorporated in the Cayman Islands and operate our corebusiness primarily through our subsidiaries in the PRC. Therefore, the availability of funds topay dividends to our Shareholders and to service our indebtedness depends on dividends fromthese subsidiaries. Any debts or losses that our subsidiaries incur may impair their ability topay dividends or other distributions to us.

As a result, our ability to pay dividends or other distributions and to service ourindebtedness will be restricted. PRC laws require that dividends be paid only out of net profitcalculated according to PRC’s generally accepted accounting principles, which differ fromthose in other jurisdictions, including IFRS and HKFRS. PRC laws also require foreign-invested PRC enterprises and PRC incorporated companies, such as our PRC subsidiaries, toset aside part of their net profit as statutory reserves. These statutory reserves are not availablefor distribution as cash dividends.

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In addition, restrictive covenants in bank credit facilities, convertible bond instruments orother agreements that we or our subsidiaries may enter into in the future, may also restrict theability of our PRC subsidiaries to make distributions to us. These restrictions may adverselyaffect our ability to pay dividends to our Shareholders and to service our indebtedness.

You may experience difficulty in effecting service of process upon us, our Directors orexecutive officers that reside in the PRC or enforcing judgments of non-PRC courtsagainst us or them in the PRC

We were incorporated in the Cayman Islands. We operate our business predominantly inChina and substantially all of our assets are located in China. Furthermore, most of ourDirectors and executive officers are either PRC citizens or residents, and substantially all ofthe assets of those persons are located in the PRC. It may be difficult for investors to effectservice of process upon those persons within the PRC or to enforce any judgments obtainedfrom non-PRC courts against them or us in the PRC. China has not entered into treatiesproviding for the reciprocal recognition and enforcement of judgments of courts with theCayman Islands, the United States, the United Kingdom, Japan and many other countries.Therefore, recognition and enforcement in China of judgments of a court in any of thesejurisdictions in relation to any matter not subject to a binding arbitration provision may bedifficult or impossible. In addition, the legal requirements for bringing an action against acompany by a shareholder in the PRC may significantly differ from those in Hong Kong orother jurisdictions where investors may be located. As a result, shareholders may not enjoy thesame rights as pursuant to the laws of Hong Kong or such other jurisdictions.

Most of our revenue is denominated in Renminbi, which is not freely convertible forcapital account transactions

We need to exchange our Renminbi reserves into foreign currency to pay dividends to ourShareholders. However, most of our revenue is denominated in Renminbi. Under PRC foreignexchange rules and regulations, payments of current account items, including profitdistributions, interest payments and operation-related expenditures, may be made in foreigncurrencies without prior approval but are subject to procedural requirements.

Strict foreign exchange control continues to apply to capital account transactions. Thesetransactions must be approved by or registered with SAFE and repayments of loan principal,direct capital investment and investments in negotiable instruments are also subject torestrictions. Accordingly, we might not be able to meet all of our foreign currency obligationsor to remit profits out of the PRC.

Fluctuations in exchange rates could have a material and adverse effect on our results ofoperations and the value of your investment

The value of Renminbi against the U.S. dollar, Hong Kong dollar and other currencies isaffected by changes in China’s political and economic conditions and by China’s foreignexchange policies, among other things. In July 2005, the PRC government changed itsdecades-old policy of pegging the value of the Renminbi to the U.S. dollar, and the exchangerate between Renminbi and the U.S. dollar has since fluctuated, and at times significantly andunpredictably. With the development of the foreign exchange market and progress towardsexchange rate liberalization and Renminbi internationalization, the PRC government may inthe future announce further changes to the exchange rate system and the Renminbi couldappreciate or depreciate significantly in value against the U.S. dollar. It is difficult to predicthow market forces or PRC or U.S. government policy may impact the exchange rate betweenRenminbi and the U.S. dollar in the future.

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There remains significant international pressure on the PRC government to adopt an evenmore flexible currency policy, which could result in a further and more significant appreciationof the Renminbi against the U.S. dollar or other currencies. Fluctuations in exchange rates mayadversely affect the value, translated or converted into foreign currencies, of our net assets,earnings and any declared dividends.

There are limited hedging instruments available in China to reduce our exposure toexchange rate fluctuations between the Renminbi and other currencies. To date, we have notentered into any hedging transactions in an effort to reduce our exposure to foreign currencyexchange risk. While we may decide to enter into hedging transactions in the future, theavailability and effectiveness of these hedges may be limited and we may not be able toadequately hedge our exposure or at all.

Inflation in the PRC could negatively affect our growth and profitability

The PRC economy has experienced rapid growth in recent years. Such growth can leadto growth in money supply and rising inflation. If prices for our products rise at a rate that isinsufficient to compensate for the rise in our costs due to inflation, our business and financialperformance may be materially and adversely affected.

The PRC government has imposed controls on bank credit, limits on loans for fixed assetsand restrictions on state bank lending in the past in order to control inflation. Such austeritypolicies can lead to a slowing of economic growth and could materially and adversely affectour business, growth and profitability.

RISKS RELATING TO THE [REDACTED]

The approval of the CSRC or other Chinese regulatory agencies may be required underthe PRC law in connection with the [REDACTED].

On 6 July 2021, the General Office of the Central Committee of the Communist Party ofChina and the General Office of the State Council jointly promulgated the Opinions on StrictlyCracking Down on Illegal Securities Activities in Accordance with the Law, pursuant to whichChinese regulators are required to accelerate rulemaking related to the overseas issuance and[REDACTED] of securities, and update the existing laws and regulations related to datasecurity, cross-border data flow, and management of confidential information.

Following the above regulatory guidance, on 24 December 2021, the CSRC issued theAdministrative Provisions of the State Council on Overseas Issuance and Listing of Securitiesby Domestic Enterprises (Draft for Comment) (《國務院關於境內企業境外發行證券和上市的管理規定(草案徵求意見稿)》) and the Administrative Measures for the Record-filing ofOverseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Comment)(《境內企業境外發行證券和上市備案管理辦法(徵求意見稿)》), which explicitly provide thatdomestic enterprises seeking to [REDACTED] their securities overseas would be requiredmake certain filings with the CSRC. If the foregoing regulations are finally adopted and madeeffective, we might be required to file with the CSRC for the [REDACTED] and[REDACTED], as uncertainties remain with respect to how the CSRC will implement suchregulations, we cannot assure you that the filing would fully comply with CSRC requirements.See “Regulatory Overview – Administration on Overseas Listing (Draft for Comment).”

As there are still uncertainties regarding the interpretation and implementation of suchregulatory guidance, we cannot assure you that we will be able to comply with new regulatoryrequirements relating to our future overseas capital-raising activities and we may becomesubject to more stringent requirements with respect to matters including data privacy and

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cross-border investigation and enforcement of legal claims. Notwithstanding the foregoing, asof the date of this document, we are not aware of any PRC laws or regulations currently ineffect requiring that we obtain permission from any PRC government authority to issuesecurities to foreign investors, and we have not received any inquiry, notice, warning, sanctionor any regulatory objection to this [REDACTED] from the CSRC or any other Chineseauthorities that have jurisdiction over our operations.

Based on the above and our understanding of the PRC laws and regulations currently ineffect as of the date of this document, we are not required to submit an application to therelevant Chinese authorities for the approval of the [REDACTED] and [REDACTED] and[REDACTED] of [REDACTED] on the Stock Exchange. However, there remains significantuncertainty as to the enactment, interpretation and implementation of regulatory requirementsrelated to overseas [REDACTED] and other capital markets activities. If it is determined inthe future that the approval of the CSRC or any other regulatory authority is required for[REDACTED], we may face sanctions by the CSRC or other PRC regulatory agencies if wefail to complete the relevant registration or record-filing formalities within the prescribed timelimits as required by the foregoing regulatory agencies. These regulatory agencies may imposefines and penalties on our operations in China, limit our operations in China or take otheractions that could have a material adverse effect on our business, financial condition, resultsof operations and prospects, as well as the [REDACTED] of our Shares. The CSRC or otherPRC regulatory agencies also may take actions requiring us, or making it advisable for us, tohalt the [REDACTED] before settlement and delivery of the Shares. In addition, if the CSRCor other regulatory agencies later promulgate new rules requiring that we obtain their approvalsfor the [REDACTED], we may be unable to obtain a waiver of such approval requirements,if and when procedures are established to obtain such a waiver. Any uncertainties and/ornegative publicity regarding such an approval requirement could have a material adverse effecton the [REDACTED] of [REDACTED].

There has been no previous [REDACTED] market for the Shares, and the liquidity andmarket price of the Shares may be volatile

Prior to the [REDACTED], there has been no [REDACTED] for the Shares. The initial[REDACTED] range for the Shares was the result of negotiations among us and the JointRepresentatives (on behalf of the [REDACTED]), and the [REDACTED] may differsignificantly from the [REDACTED] for the Shares following the [REDACTED]. We haveapplied for [REDACTED] of, and permission to [REDACTED], the Shares on the StockExchange. A [REDACTED] on the Stock Exchange, however, does not guarantee that anactive and liquid [REDACTED] for the Shares will develop, or if it does develop, will besustained following the [REDACTED], or that the [REDACTED] of the Shares will notdecline following the [REDACTED]. Furthermore, the price and trading volume of the Sharesmay be volatile. The following factors may affect the volume and price at which the Shares willtrade:

• market perception, or any change in the market perception, of the reasonableness ofour market capitalisation;

• actual or anticipated fluctuations in our revenue and operating results;

• news regarding recruitment or loss of key personnel by us or our competitors;

• announcements of competitive product developments, acquisitions, or strategicalliances in our industry;

• changes in earnings estimates or recommendations by financial analysts;

• potential litigation or regulatory investigations;

• general [REDACTED] conditions or other developments affecting us or ourindustry;

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• the operating and [REDACTED] performance of other companies, other industries,and other events or factors beyond our control; and

• the release of lock-up or other transfer restrictions on our outstanding Shares orsales or perceived sales of additional Shares by us or other shareholders.

Moreover, the securities market has from time to time experienced significant price andvolume fluctuations that were unrelated or not directly related to the operating performance ofthe underlying companies. These broad market and industry fluctuations may have a materialand adverse effect on the [REDACTED] and trading volume of the Shares.

Since there will be a gap of several days between [REDACTED] of the Shares, holders ofthe Shares are subject to the risk that the price of the Shares could fall during the periodbefore trading of the [REDACTED] begins

The [REDACTED] of the Shares is expected to be determined on the [REDACTED].However, the Shares will not commence [REDACTED] on the Stock Exchange until they aredelivered, which is expected to be the fifth Hong Kong business day after the [REDACTED].As a result, investors may not be able to [REDACTED] in the Shares during that period.Accordingly, holders of the Shares are subject to the risk that the price of the Shares could fallbefore [REDACTED] begins as a result of adverse market conditions or other adversedevelopments, that could occur between the time of sale and the time trading begins.

Future sales or perceived sales or conversion of substantial amounts of our securities inthe [REDACTED], could adversely affect the market price of the Shares and our abilityto raise capital in the future, or may result in dilution of your shareholding

The [REDACTED] of the Shares could decline as a result of future sales of substantialamounts of the Shares or other securities relating to the Shares in the [REDACTED] or the[REDACTED] of new Shares or other securities to interested investors in us, or the perceptionthat such sales or issuances may occur. Future sales, or perceived sales, of substantial amountsof our securities, including any future [REDACTED], could also materially and adverselyaffect our ability to raise capital in the future at a time and at a price which we deemappropriate. In addition, our Shareholders may experience dilution in their holdings to theextent we issue additional securities in future [REDACTED] to investors interested in us.Except as otherwise disclosed in this document, we have not reached any agreement withinterested investors or are subject to any obligations with respect to the issuance of oursecurities. Please refer to “Share Capital” in this document. A certain amount of the Sharescurrently outstanding will be subject to contractual and/or legal restrictions on resale for aperiod of time after completion of the [REDACTED]. Please refer to “[REDACTED] –[REDACTED] and expenses – [REDACTED] – [REDACTED] to the Stock Exchangepursuant to the Listing Rules and the [REDACTED]” in this document for more details. Afterthese restrictions lapse or if they are waived or breached, future sales or perceived sales ofsubstantial amounts of the Shares, or the possibility of such sales by us, could negativelyimpact the [REDACTED] of the Shares and our ability to raise equity capital in the future.

Since the [REDACTED] of the Shares is substantially higher than the consolidated nettangible book value per share, purchasers of the Shares in the [REDACTED] mayexperience immediate dilution upon such purchases

As the [REDACTED] of the Shares is higher than the consolidated net tangible assets pershare immediately prior to the [REDACTED], purchasers of the Shares in the [REDACTED]will experience an immediate dilution in [REDACTED] adjusted consolidated net tangible

RISK FACTORS

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assets. Our existing Shareholders will receive an increase in the [REDACTED] adjustedconsolidated net tangible asset value per share of their shares. In addition, holders of the Sharesmay experience further dilution of their interest if the [REDACTED] exercise the[REDACTED] or if we [REDACTED] additional shares in the future to raise additionalcapital.

If securities or industry analysts do not publish research reports about our business, orif they adversely change their recommendations regarding the Shares, the market priceand trading volume of the Shares may decline

The trading market for the Shares will be influenced by the research reports that industryor securities analysts publish about us or our business. If one or more of the analysts who coverus downgrade the Shares, the price of the Shares would likely decline. If one or more of theseanalysts cease coverage of us or fail to regularly publish reports on us, we could lose visibilityin the financial markets, which in turn could cause our stock price or trading volume to decline.

You may face difficulties in protecting your interests because we are incorporated underCayman Islands law

We are an exempted company incorporated under the laws of the Cayman Islands. Ourcorporate affairs are governed by our Memorandum of Association and Articles of Association,the Companies Act and the common law of the Cayman Islands. The rights of shareholders totake actions against the Directors, actions by minority shareholders and the fiduciary duties ofthe Directors to us under Cayman Islands law are to a large extent governed by the commonlaw of the Cayman Islands. The common law of the Cayman Islands is derived in part fromcomparatively limited judicial precedent in the Cayman Islands as well as from the commonlaw of England, the decisions of whose courts are of persuasive authority, but are not binding,on a court in the Cayman Islands. The rights of the Shareholders and the fiduciary duties of theDirectors under Cayman Islands law may not be as clearly established as they would be understatutes or judicial precedent in some other jurisdictions.

Shareholders of Cayman Islands exempted companies like us have no general rights underCayman Islands law to inspect corporate records or to obtain copies of lists of shareholders ofthese companies. The Directors have discretion under our Articles of Association to determinewhether or not, and under what conditions, our corporate records may be inspected by theShareholders, but are not obliged to make them available to the Shareholders. This may makeit more difficult for you to obtain the information needed to establish any facts necessary fora shareholder motion or to solicit proxies from other shareholders in connection with a proxycontest.

As a result of all of the above, our [REDACTED] Shareholders may have more difficultyin protecting their interests in the face of actions taken by management, members of the boardof directors or controlling shareholders than they would as [REDACTED] shareholders of acompany incorporated in Hong Kong or the United States.

Dividends declared in the past may not be indicative of our dividend policy in the futureand our dividend policy and distributions in the future are subject to various factors

For the two years ended 31 December 2019 and 2020 and the nine months ended 30September 2020 and 2021, no dividend had been declared or distributed to the shareholders.However, dividends paid in prior periods may not be indicative of future dividend payments.We cannot guarantee when, if and in what form dividends will be paid in the future. The Boardhas discretion in determining the frequency and amount of dividend distributions, which willbe subject to the approval of the Shareholders at the Shareholders’ meeting. A decision to

RISK FACTORS

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declare or to pay any dividends and the amount of any dividends will depend on variousfactors, including but not limited to our results of operations, cash flows and financialcondition, capital adequacy ratios, operating and capital expenditure requirements,distributable profits as determined under HKFRS, the Articles of Association, statutory andregulatory restrictions on the payment of dividends and other factors that the Board deemsrelevant. Please refer to the sub-section “Financial Information – Dividend” in this documentfor more details. There is no assurance that we will adopt the same dividend policy as we haveadopted in the past.

We may have significant discretion as to how we use the [REDACTED] from the[REDACTED] and you may not necessarily agree with how we use them

Our management may use the [REDACTED] from the [REDACTED] in ways you maynot agree with or that do not yield a favourable return to the Shareholders. We plan to use the[REDACTED] from the [REDACTED] pursuant to our plan as disclosed in “Future Plans and[REDACTED] – [REDACTED]” in this document. However, our management will havediscretion as to the actual utilisation of [REDACTED]. You are entrusting your funds to ourmanagement, upon whose judgment you must depend, for the specific uses we will make of the[REDACTED] from the [REDACTED].

Certain facts, forecasts and statistics contained in this document with respect to China,and its economy and concrete production industry are derived from various official orthird-party sources and may not be accurate, reliable, complete or up-to-date

We have derived certain facts, forecasts and other statistics in this document, particularlythose relating to China, the PRC economy and the industry in which we operate, frominformation provided by the PRC and other government agencies, industry associations,independent research institutes or other third-party sources. While we have taken reasonablecare in the reproduction of the information, it has not been prepared or independently verifiedby us, the [REDACTED] or any of our or their respective affiliates or advisors, and, therefore,we cannot assure you as to the accuracy and reliability of such facts, forecasts and statistics,which may not be consistent with other information compiled inside or outside China. Suchfacts, forecasts and statistics include the facts, forecasts and statistics used in the sectionsheaded “Risk Factors,” “Industry Overview” and “Business.” Because of possibly flawed orineffective collection methods or discrepancies between published information and marketpractice and other problems, the statistics herein may be inaccurate or may not be comparableto statistics produced for other economies, and you should not place undue reliance on them.Furthermore, we cannot assure you that they are stated or compiled on the same basis, or withthe same degree of accuracy, as similar statistics presented elsewhere. In all cases, you shouldconsider carefully how much weight or importance you should attach to or place on such facts,forecasts or statistics.

You should read the entire document carefully, and we strongly caution you not to placeany reliance on any information contained in press articles, forecasts, reports or othermedia regarding us or the [REDACTED]

There had been, prior to the publication of this document, and there may be, subsequentto the date of this document but prior to the completion of the [REDACTED], press and mediacoverage regarding us and the [REDACTED], which contained, among other things, certainfinancial information, projections, valuations and other forward-looking information about usand the [REDACTED]. We have not authorized the disclosure of any such information in thepress or media and do not accept responsibility for the accuracy or completeness of such pressarticles or other media coverage. We make no representations as to the appropriateness,

RISK FACTORS

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accuracy, completeness or reliability of any of the projections, valuations or other forward-looking information about us. To the extent such statements are inconsistent with, or conflictwith, the information contained in this document, we disclaim responsibility for them.Accordingly, prospective investors are cautioned to make their investment decisions on thebasis of the information contained in this document only and should not rely on any otherinformation.

You should rely solely upon the information contained in this document and any formalannouncements made by us in Hong Kong in making your investment decision regarding theShares. We do not accept any responsibility for the accuracy or completeness of anyinformation reported by the press or other media, nor the fairness or appropriateness of anyforecasts, views or opinions expressed by the press or other media regarding the Shares, the[REDACTED] or us. We make no representation as to the appropriateness, accuracy,completeness or reliability of any such data or publication. Accordingly, prospective investorsshould not rely on any such information, reports or publications in making their decisions asto whether to invest in our [REDACTED]. By applying to purchase the Shares in the[REDACTED], you will be deemed to have agreed that you will not rely on any informationother than that contained in this document.

RISK FACTORS

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[REDACTED]

INFORMATION ABOUT THIS DOCUMENT AND [REDACTED]

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[REDACTED]


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[REDACTED]


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[REDACTED]


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In preparation for the [REDACTED], we have sought the following waiver from strictcompliance with the relevant provisions of the Listing Rules.

MANAGEMENT PRESENCE IN HONG KONG

Rule 8.12 of the Listing Rules requires that a new applicant applying for the[REDACTED] must have a sufficient management presence in Hong Kong. This normallymeans that at least two of its executive directors must be ordinarily resident in Hong Kong.Since our principal business operations are located, managed and conducted in the PRC andwill continue to be based in the PRC, our executive Directors and members of the seniormanagement are and will continue to be based in the PRC as we believe it is more effectiveand efficient for our executive Directors and senior management to be based in a locationwhere we have significant operations. At present, none of our executive Directors is ordinarilyresident in Hong Kong. We therefore do not, and in the foreseeable future will not, have amanagement presence in Hong Kong for the purpose of satisfying the requirement under Rule8.12 of the Listing Rules. We have applied to the Stock Exchange for, [and obtained], a waiverfrom strict compliance with the requirements set out in Rule 8.12 of the Listing Rules subjectto the following conditions:

(a) pursuant to Rules 2.11, 3.05 and 19.36(6) of the Listing Rules, we have appointedand will continue to maintain two authorized representatives who will act as theprincipal channel of communication with the Stock Exchange. Our authorizedrepresentatives are Mr. Song and Ms. Lau Jeanie, in respect of which Ms. Lau Jeanieis the company secretary of the Company and a permanent resident in Hong Kong.Our authorized representatives will be available to meet with the Stock Exchange onreasonable notice as and when required and will be readily available by telephone,email and facsimile to promptly address the Stock Exchange’s enquiries. Theircontact details (including mobile, residential and office phone numbers, facsimilenumbers and email addresses) have also been provided to the Stock Exchange. Wewill inform the Stock Exchange in the event of any changes in the authorizedrepresentatives and/or their alternate(s);

(b) each of our authorized representatives is duly authorized to communicate on theCompany’s behalf with the Stock Exchange. Our authorized representatives will beable to contact the Directors promptly at all times as and when the Stock Exchangewishes to contact the Directors on any matters. Each of the Directors is in turnauthorized to communicate on the Company’s behalf with the Stock Exchange;

(c) all of the Directors have provided their contact details to the Stock Exchange. In theevent that a Director expects to travel or is out of office, he/she will provide thephone number of the place of accommodation or offer means of communications tothe authorized representatives;

(d) all of the Directors (except Mr. Tam Tak Kei Raymond, who is ordinarily residentin Hong Kong) have confirmed that they possess valid travel documents that allowthem to travel to Hong Kong to meet with the Stock Exchange within a reasonableperiod of time;

WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES

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(e) pursuant to Rule 3A.19 of the Listing Rules, we have appointed Central ChinaInternational Capital Limited as the compliance adviser who will, in addition to theauthorized representatives, act as an additional channel of communication with theStock Exchange for a period commencing on the [REDACTED] and ending on thedate on which we comply with Rule 13.46 of the Listing Rules in respect of thefinancial results for the first full financial year after the [REDACTED]. Thecompliance adviser will advise the Company on on-going compliance requirementson the Stock Exchange and other issues arising under the Listing Rules and otherapplicable laws and regulations in Hong Kong and have full access at all times tothe authorized representatives and Directors to ensure that it is in a position toprovide prompt response to any queries or requests from the Stock Exchange;

(f) meetings between the Directors and the Stock Exchange can be arranged through theauthorized representatives and/or compliance adviser, or directly with the Directorsupon reasonable notice; and

(g) we will retain professional advisers (including legal advisers and reportingaccountant) to advise on the on-going compliance obligations on the StockExchange and other issues arising under the Listing Rules and other applicable lawsand regulations in Hong Kong after [REDACTED].

WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES

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DIRECTORS

Name Residential address Nationality

Executive Directors

Mr. Song Quanfa(宋全發)

C17, Ying Xie Hua YuanNo. 138Zheng Bian RoadZhengzhou, Henan ProvinceThe PRC

Chinese

Ms. Huang Jin(黃進)

West, 5/F1 Dan, No. 5 BuildingWenhua LuchengFeng Qing Road, ZhengzhouHenan ProvinceThe PRC

Chinese

Mr. Wang Ka(王卡)

(204) Flat East, Floor 2, Unit 1No. 13 Building, Court 3Longxing JiayuanZhengzhou, Henan ProvinceThe PRC

Chinese

Independent non-executive Directors

Mr. Si Jintao(司金濤)

Flat 7, 4/F, Unit 1No. 10 Building, YongweihanlinjuNo. 6 Yard, Jiuru East RoadZhengdong New DistrictZhengzhou, Henan ProvinceThe PRC

Chinese

Ms. Zhang Liping(張利萍)

West, 1/F, Unit 2, No. 5 BuildingNo. 25 Yard, Hongqi RoadJinshui DistrictZhengzhou, Henan ProvinceThe PRC

Chinese

Mr. Tam Tak Kei Raymond(譚德機)

Flat A, 12/FKing Tien MansionTai Koo Shing, Hong Kong

Chinese

Further details of the Directors are set out in “Directors, Senior Management andEmployees” in this document.

DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED]

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Party Name and address

Sole Sponsor and[REDACTED]

Central China InternationalCapital Limited(a licensed corporation under the SFOto engage in type 1 (dealing in securities)and type 6 (advising on corporate finance)regulated activities)Suites 1505-08Two Exchange Square8 Connaught PlaceCentralHong Kong

[REDACTED]

Legal advisors to the Company As to Hong Kong law:Loong & Yeung SolicitorsRoom 1603, 16/FChina Building29 Queen’s Road CentralCentralHong Kong

As to PRC law:King & Wood Mallesons25/F Guangzhou Chow Tai FookFinance Centre6 Zhujiang East RoadZhujiang New TownTianhe DistrictGuangzhouPRC

As to Cayman Islands law:ApplebySuites 4201-3, 12, 42/FOne Island EastTaikoo Place18 Westlands RoadQuarry BayHong Kong


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Party Name and address

Legal advisors to the Sole Sponsor and[REDACTED]

As to Hong Kong law:Morgan, Lewis & BockiusSuites 1902-09, 19th FloorEdinburgh TowerThe Landmark15 Queen’s Road CentralHong Kong

As to PRC law:Beijing Dentons Law Offices, LLP16-21F, Tower BZT INTERNATIONAL CENTRENo. 10, Chaoyangmen NandajieChaoyang DistrictBeijingPRC

Reporting Accountant andIndependent Auditor

PricewaterhouseCoopersCertified Public AccountantsRegistered Public Interest Entity Auditor22/F, Prince’s BuildingCentralHong Kong

Industry consultant Frost & Sullivan (Beijing) Inc.Unit 2401-02, Level 24China World Office 21 Jianguomenwai AvenueChaoyang DistrictBeijingPRC

Receiving bank [REDACTED]


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Registered office PO Box 1350Windward 3Regatta Office ParkGrand CaymanKY1-1108Cayman Islands

Headquarters in the PRC 29/F, No. 37 BuildingNo. 138, Zheng Bian RoadJin Shui DistrictZhengzhouHenan Provincethe PRC

Principal place of business in Hong Kong 40/F, Dah Sing Financial Centre248 Queen’s Road EastWan ChaiHong Kong

Authorized representatives Mr. Song QuanfaMs. Lau Jeanie

Company secretary Ms. Lau Jeanie

Members of the Audit Committee Mr. Tam Tak Kei Raymond (Chairman)Ms. Zhang LipingMr. Si Jintao

Members of the Remuneration Committee Mr. Si Jintao (Chairman)Ms. Zhang LipingMr. Song QuanfaMr. Tam Tak Kei Raymond

Members of the Nomination Committee Mr. Song Quanfa (Chairman)Ms. Zhang LipingMr. Tam Tak Kei RaymondMr. Si Jintao

[REDACTED]

CORPORATE INFORMATION

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[REDACTED]

Principal bankers Bank of Zhengzhou Co., Ltd.,Agriculture East Road Sub-branchNo. 101, 1st Floor, 3 Building19 Dirun RoadZhengdong New DistrictZhengzhou, Henan Province, the PRC

Bank of Pingdingshan Co., Ltd.,Zhengzhou Branch6 Fengyi RoadJinshui DistrictZhengzhou, Henan Provincethe PRC

Zhengzhou Suburb Agricultural CreditCooperative, Zhacheng CreditCooperative100 Meters East to Intersection ofXiong Er He Road and Changhe StreetZhengdong New DistrictZhengzhou, Henan Provincethe PRC

Compliance adviser Central China InternationalCapital LimitedSuites 1505-08Two Exchange Square8 Connaught PlaceCentralHong Kong

Website of the Company www.chinashenli.cn(information contained in this website doesnot form part of this document)

CORPORATE INFORMATION

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The information presented in this section, unless otherwise indicated, is derivedfrom various official government publications and other publications and from the marketresearch report prepared by Frost & Sullivan, which was commissioned by us. We believethat the information has been derived from appropriate sources and we have takenreasonable care in extracting and reproducing the information. We have no reason tobelieve that the information is false or misleading in any material respect or that any facthas been omitted that would render the information false or misleading in any materialrespect. The information has not been independently verified by us, the Sole Sponsor orany of our or their respective directors, officers or representatives or any other personinvolved in the [REDACTED] nor is any representation given as to its accuracy orcompleteness. The information and statistics contained in this section may not beconsistent with other information and statistics compiled within or outside of China.

SOURCE OF INFORMATION

We have commissioned Frost & Sullivan, an independent market research and consultingcompany, to conduct an analysis of, and to prepare a report on the concrete industry in Chinaand Henan. The report prepared by Frost & Sullivan for us is referred to in the document asthe F&S Report. A total fee of RMB380,000 was paid to Frost & Sullivan for the preparationof the report, which we believe that it would not affect the fairness of the views andconclusions presented in the F&S Report and would reflect market rates for reports of this type.

Frost & Sullivan is a global consulting company founded in 1961 in New York and hasover 40 global offices with more than 2,000 industry consultants, market research analysts,technology analysts and economists.

RESEARCH METHODOLOGY

The F&S Report was prepared through both primary and secondary research obtainedfrom various sources using intelligence collection methodologies. Primary research involveddiscussing the status of the industry with certain leading industry participants across theindustry value chain and conducting interviews with relevant parties to obtain objective andfactual data and prospective predictions. Secondary research involved information integrationof data and publication from publicly available sources, including official data andannouncements from government agencies, and company reports, independent research reportsand data based on Frost & Sullivan’s own data base.

Basis and assumptions

In compiling and preparing the F&S Report, Frost & Sullivan has adopted the followingassumptions: (i) the social, economic and political environment in China and Henan are likelyto remain stable in the forecast period; and (ii) industry key drivers are likely to drive thegrowth of the concrete industry in China and Henan in the forecast period.

CHINA AND HENAN READY-MIXED CONCRETE INDUSTRY OVERVIEW

Introduction and Classification

Concrete is a mixture of cement, crushed stones, sand, pulverized fuel ash (fly ash),admixture and water that hardens over time because of cement’s hydration, and is generallyused in the construction industry. Ready-mixed concrete is mixed at local batching plants andthen delivered to the construction sites in trucks with revolving containers that constantly stir

INDUSTRY OVERVIEW

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and mix the concrete to prevent it from setting. It is often manufactured based on certainformula and engineering design mix to satisfy particular functions and strength requirements.Also known as commercial ready-mixed concrete, ready-mixed concrete is the most commonform of concrete due to reasonable costs and wide range of uses including buildings, bridgesand other infrastructure construction projects. Compared with field concrete which is mixedon-site, the use of ready-mixed concrete could allow more precise mixtures, large productionvolumes and reduce work site chaos.

Based on the strength grade, concrete can be categorised into various grades from C10,C15, C20 to C100 and the number after “C” refers to the maximum bearing load forready-mixed concrete products of this grade (measured by Mpa). In general, ready-mixedconcrete products with grades lower than C30 are used as non-load bearing elements andtemporary structures where relatively lower bearing strength and requirement on durability arerequired, such as concrete cushions for buildings, retaining walls for highways, foundation pitbackfilling and construction roads. C30 and C35 are currently the most commonly usedconcrete in China for real estate construction like residential buildings, office buildings andcommercial buildings. Ready-mixed concrete products with grade of C60 or even higher arecalled as high-strength concrete, which are primarily used as core load bearing elements forbuildings (especially for high-rise buildings) such as the construction of foundation piles.

Value Chain Analysis

There are primarily three categories of stakeholders throughout the ready-mixed concreteindustry in China, namely (i) upstream raw material suppliers; (ii) midstream ready-mixedconcrete manufacturers and (iii) downstream construction companies and real-estate projectowners.

The raw material suppliers provide various kinds of raw materials which are necessary forthe manufacturing of ready-mixed concrete products, such as cement, crushed stones, sand, flyash, admixture. Ready-mixed concrete manufacturers process raw materials to sellable goodsto downstream customers. It is not uncommon that ready-mixed concrete manufacturersprocure raw materials through third-party intermediaries. The main reasons are:

1. The producers of raw materials are widely distributed and involve a large number ofplayers, so the product quality and price are also distinctive. Direct procurementfrom producers of raw materials by ready-mixed concrete manufacturers willconsume a lot of manpower and material resources, but resorting to third-partyintermediaries is conducive to maintaining long-term supply of raw materials andprice stability.

2. The raw material manufacturer is not responsible for the product transportationprocess. If the ready-mixed concrete manufacturer builds its own transportationteam, it will have to bear a large amount of fixed costs. Unified procurement throughthird-party intermediaries can effectively reduce related costs.

3. Direct transactions with a large number of raw material manufacturers will increasethe financial difficulty of ready-mixed concrete manufacturers, requiring a largenumber of financial and purchasing personnel to complete the transaction. In orderto reduce related expenses, purchasing directly through third-party intermediariescan effectively reduce related labour costs.

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With a specific formula for raw material mixing, ready-mixed concrete is produced in abatching plant in a tailored manner considering the requirements of the construction work.There would a few steps of product tests and inspections for quality control purposes beforethe ready-mixed concrete is delivered to the construction site. Since ready-mixed concreteproducts normally cure less than two hours upon production at the batching plants (addingcertain amount of admixtures could effectively extend the duration of product freshness),batching plants are usually located within certain distance from construction sites (normallywithin 30km). Concrete batching plants serving regional market normally have higher grossprofit margins, whose large demand of concrete in nearby centralised areas contributes toeconomies of scale and lower cost in transportation, whereas field batching plants designatedto serve a specific construction project have lower profit margins due to reasons such as lowproduction/sales volume and absence of economies of scale, higher transportation expenses asthey are normally located in remote, mountain or rural areas with limited access.

As one of the most important construction materials, ready-mixed concrete products areapplied in nearly all construction scenarios including residential properties, commercial andoffice buildings, infrastructure projects (construction of road, highway, bridges, airports), andtogether with the development of the downstream application.

Market Size by Production Volume and Revenue of Ready-mixed Concrete Industry inChina, Henan and Zhengzhou

In 2020, the urbanisation rate of China amounted to 63.9% and it is expected to increasegradually from 64.8% in 2021 to 69.0% in 2025. Driven by the continuous urbanisation anddevelopment of construction of real estate and infrastructure in China, the demand forconstruction materials has been increasing continuously, thus boosting the expansion ofready-mixed concrete market in China. From 2016 to 2020, the production volume ofready-mixed concrete in China grew from 1,910.0 million m3 to 2,697.1 million m3,representing a CAGR of 9.0% (as the production of ready-mixed concrete is driven by salesprospects, the difference between production and sales volume is minimal). In line with thegrowing production volume of ready-mixed concrete, the market size by revenue ofready-mixed concrete industry in China grew from RMB626.5 billion to RMB1,246.6 billion,representing a CAGR of approximately 18.8%, according to Frost & Sullivan.

0

500

1,500

1,000

2,000

2,500

3,000

4,000

3,500

2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

1,910.02,041.3

2,212.9

2,550.02,697.1

2,888.63,073.5

3,257.93,433.8

3,605.5

626.5741.9

898.21,122.0

1,246.61,406.2

1,569.31,738.8

1,912.72,081.0

Million M3/

RMB Billion

CAGR 2016-2020

Market Size by Production Volume and Revenue of Ready-mixed Concrete Industry (China), 2016-2025E

9.0%

18.8%

Production Volume

Revenue

5.7%

10.3%

CAGR 2021E-2025E

Source: F&S Report

INDUSTRY OVERVIEW

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Going forward, the concrete industry is expected to continuously upgrade and developwith the increasing downstream demand. The production volume of ready-mixed concrete inChina is estimated to increase from 2,888.6 million m3 in 2021 to 3,605.5 million m3 in 2025,illustrating a CAGR of 5.7%. The total revenue of ready-mixed concrete in China is estimatedto develop at a CAGR of 10.3% from 2021 to 2025 and reach RMB2,081.0 billion in 2025,according to Frost & Sullivan.

Henan is the third most populous province in China, the urbanisation rate of whichincreased from 48.5% in 2016 to 55.4% in 2020 (lower than the national average of 63.9%),and is expected to amount to 63.2% by 2025. Also, the investment in the real estate and thesales area of buildings in Henan Province registered CAGRs of 5.9% and 5.7% from 2016 to2020 respectively, thus continuously boosting the demand for concrete and other constructionmaterials. The production volume of ready-mixed concrete in Henan Province grew from 146.6million m3 in 2016 to 197.2 million m3 in 2020, showing a CAGR of 7.7%. Along with thegrowing production volume of ready-mixed concrete in Henan Province, the total revenue ofHenan ready-mixed concrete industry increased from RMB44.0 billion in 2016 to RMB88.8billion in 2020, at a CAGR of 19.2%, according to Frost & Sullivan.

In the coming years, the investment in the real estate and the sales area of commodityhouses in Henan Province are expected to grow at CAGRs of 5.8% and 3.4% from 2021 to 2025respectively, thus promoting the development of construction projects of real estate andinfrastructure development. Moreover, the improvement of producing techniques and theupgrade of manufacturing equipment will also facilitate the development of ready-mixedconcrete industry in Henan Province, and help it expand further at a rate faster than the nationalaverage. The production volume of ready-mixed concrete in Henan Province is projected togrow from 213.4 million m3 in 2021 to 276.0 million m3 in 2025, illustrating a CAGR of 6.6%,and the share of Henan’s production volume in China is expected to reach 7.7% by 2025.Meanwhile, the market size by revenue of ready-mixed concrete in Henan Province is projectedto reach RMB133.2 billion in 2025, illustrating a CAGR of 11.2% from 2021 to 2025,according to Frost & Sullivan.

0

50

100

150

200

250

300

2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

146.6 152.4166.0

184.3197.2

213.4229.2

245.2260.2

276.0

44.0 54.471.0

88.0 88.8 87.0 94.0 103.4116.6

133.2

Million M3/

RMB Billion

CAGR 2016-2020

Market Size by Production Volume and Revenue of Ready-mixed Concrete Industry (Henan), 2016-2025E

7.7%

19.2%

Production Volume

Revenue

6.6%

11.2%

CAGR 2021E-2025E

Source: F&S Report

INDUSTRY OVERVIEW

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Zhengzhou is the capital city of Henan Province, which has experienced fasterdevelopment in construction of buildings and infrastructure compared to other cities in recentyears. The development of concrete industry in Zhengzhou is mainly driven by the growingdemand for the development and construction of Zhengdong New District, Airport EconomyZone and other areas of Zhengzhou. From 2016 to 2020, the production volume of ready-mixedconcrete in Zhengzhou increased from 48.6 million m3 to 68.6 million m3, demonstrating aCAGR of 9.0%. The percentage of Zhengzhou’s production volume of ready-mixed concretein Henan rose steadily from 33.2% to 34.8% during the same period. The revenue ofready-mixed concrete industry in Zhengzhou increased from RMB14.2 billion to RMB32.5billion, at a CAGR of 23.0%, according to Frost & Sullivan.

In the coming years, with the integration and development of Zhengzhou city area,Kaifeng and other nearby cities including Kaifeng, Xinxiang, Jiaozuo and Xuchang, mentionedin the “Integrated Transportation Development Plan for Zhengzhou Metropolitan Area(2020-2035)” (《鄭州都市圈交通一體化發展規劃(2020-2035年)》), a series of transportationand construction projects will be launched and therefore boost the demand for ready-mixedconcrete. The production volume of ready-mixed concrete in Zhengzhou is estimated toincrease from 74.1 million m3 in 2021 to 97.0 million m3 in 2025, at a CAGR of 7.0%. Themarket size by revenue of ready-mixed concrete industry in Zhengzhou is expected to increasefrom RMB33.2 billion in 2021 to RMB50.0 billion in 2025, at a CAGR of 10.8%, accordingto Frost & Sullivan.

0

50

30

20

10

40

60

70

80

90

100

2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

48.6 51.357.5

63.968.6

74.179.9

85.791.5

97.0

14.218.3

25.532.1 32.5 33.2 36.5

40.545.2

50.0

Million M3/

RMB Billion

CAGR 2016-2020

Market Size by Production Volume and Revenue of Ready-mixed Concrete Industry (Zhengzhou), 2016-2025E

9.0%

23.0%

Production Volume

Revenue

7.0%

10.8%

CAGR 2021E-2025E

Source: F&S Report

Penetration Rate of Ready-mixed Concrete Industry in China and Henan andComparison with developed provinces in Eastern China

With the development of economy and urbanisation and the increasing concrete demandfrom construction industry as well as the stringent control over the use of field concrete, thepenetration rates of ready-mixed concrete in China and Henan increased steadily from 44.2%and 38.4% in 2016 to 48.8% and 42.6% in 2020 respectively. Going forward, with furtherrestrictions on the use of field concrete and promotion of ready-mixed concrete, the penetrationrates of ready-mixed concrete in China and Henan are expected to further increase to 52.2%and 45.9% in 2025 respectively, according to Frost & Sullivan.

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The penetration rate of ready-mixed concrete was 42.6% in Henan Province in 2020,lower than the national level of 48.8%. Compared with the developed provinces in EasternChina, such as Jiangsu and Zhejiang, the gap in penetration rate is significant, indicating largepotentials to grow.

20

25

30

35

40

45

50

55

Penetration Rate of Ready-mix Concrete Industry (China and Henan), 2016-2025E Comparison of the Penetration Rates of Ready-

mixed Concrete between Henan Province and

Developed Provinces in Eastern China, 2020

38.4%39.2%

40.3%41.6%

42.6%43.5%

44.3% 45.0% 45.5% 45.9%

44.2%45.0%

46.2%47.6%

48.8%49.8%

50.6% 51.3% 51.8% 52.2%

2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

China Henan%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Henan Jiangsu Zhejiang

42.6%

78.0% 76.8%

Note: the penetration rate of ready-mixed concrete refers to the proportion of the production volume of ready-mixconcrete in the total production of volume of field concrete and ready-mixed concrete.

Source: F&S Report

Entry Barriers

(i) Capital Barrier

The concrete industry is a capital-intensive industry. It often requires concrete enterprisesto have sufficient capital strength for fixed asset investment and construction in the initial stageof the operation. Moreover, a large initial investment is needed for the purchase of machineryand enterprises are expected to invest more in manpower and other resources. Duringoperational process, working capital sufficiency is also critical for concrete enterprises sincethe credit period for customers tends to be longer than those from their suppliers. Companieswith scale advantages could increase their bargaining power with suppliers, conducive toreducing raw material costs. Thus, it is difficult for new entrants who have no sufficient capitalto support and maintain production lines to be competitive in the industry.

(ii) Technology barrier

With the improvement of the building quality requirements and the increasing number ofhigh-rise buildings, the performance and quality of concrete and other technical requirementsare increasing. Thus, enterprises need strong technical research and development capabilities,sites management ability and production management. While the country is vigorouslypromoting the upgrading and transformation of the building and construction materialsindustry, the concrete industry is facing the same technical transformation. Performancefeatures for environmental protection, energy saving and large-scale production all requireadvanced technologies. Also, driven by automation applied in equipment and manufacturingprocess, new entrants in the market are faced with higher technical barriers to keep track withadvanced production level within the industry. The lack of development experience also bringsthem more difficulties grasping the market trend and upgrading their technologies andmanufacturing equipment and machinery accordingly.

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(iii) Human Resource Barrier

Human resource serves as a differentiated factor in the ready-mixed concrete industry,both in labour supply and quality talents. Technical personnel helps the company to developR&D ability, optimize the manufacturing process and thus obtaining a competitive advantagefor the company. Simultaneously, ready-mixed concrete companies require experiencedmanagement team to increase the management efficiency in terms of production, organizationinnovation and corporate governance. New market players in the industry tend to havemanagement chaos, unsound management mechanism due to lack of management experiencewhen expanding businesses.

(iv) Operational Area Barrier

Since ready-mixed concrete must be delivered to the construction site within two hoursafter mixing, it has a specific service radius, generally within 30 km, which determines theregional operation characteristics of ready-mixed concrete. Therefore, companies with a smallscale of production sites and low logistics networks can hardly expand their business andaccumulate customer resources. From the perspective of costs, the distance between batchingplants and customer project sites significantly impacts transportation costs, production costsand labour costs. New entrants in the industry are faced with high barriers compared withexisting operating companies.

(v) Customer Resource Barrier

Since construction companies tend to choose enterprises with a reputation of providingoutstanding products and will maintain a stable business relationship, new entrants that do nothave any former engagement with the customers could face a business network barrier. A singleconcrete plant can only concentrate on a particular area, hence, customer stickiness is large inthe concrete industry. New market participants cannot enter the market easily since they haveto compete with enterprises that already established strong business relationship in the area.

Market Drivers

(i) Rising urbanisation and construction demand

The growing urbanisation rate and the rapid development of the construction industryhave driven the demand for building materials over the past few years.

The past five years have witnessed the urbanisation rate of China increasing from 57.4%to 63.9%, while there is still a gap between that of China and developed countries. In 2020, theurbanisation rates of Henan Province and Zhengzhou were 55.4% and 75.5%, respectively, farbehind first-tier cities. With more population flowing to urban areas, the demand forcommercial buildings, housing and public facilities will be pushed up, promoting thedevelopment of the ready-mixed concrete industry.

The development of the construction industry directly promotes the upstream ready-mixed concrete industry. From 2016 to 2020, the output value of the construction industryincreased from RMB19.4 trillion to RMB26.4 trillion at a CAGR of 8.0%, driven by aflourishing real estate market and increasingly growing infrastructure scale, municipal projectsand transportation infrastructure in particular.

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(ii) Upgrade of technology and manufacturing process

The continuous development of China’s economy keeps promoting the growth of theconstruction industry and demand for high strength concrete. More concrete enterprises areusing information technology, online monitoring equipment and automatic control technologyto achieve the accurate design of concrete performance and improve the quality control levelof concrete production and production efficiency. In 2020, the General Office of the Ministryof Industry and Information Technology issued the “Building Materials Industry SmartManufacturing Digital Transformation Action Plan 2021-2023)”, (《建材工業智能製造數字轉型行動計劃(2021–2023年)》), proposing to focus on forming integrated system solutions forcement products with centralised mixing and distribution, automatic molding control, andintelligent curing of products. Additionally, enterprises concentrate more on R&D developmentfor production process equipment, waste disposal and resource utilisation of environmental-friendly factories. The formation of automation and intelligent production of complete sets ofequipment will accelerate the production process for concrete enterprises, thus promoting thefuture development of the concrete industry.

Market Trends

(i) Industry consolidation

The concrete industry is highly fragmented, which leads to a low utilisation rate ofresources in the entire industry. In order to promote the development of the concrete industry,excess production reduction and industrial consolidation need to be carried out. In 2017, ChinaConcrete & Cement-based Products Association issued “Guidelines on elimination andupgrading premixed concrete industry” (《關於預拌混凝土行業淘汰落後與轉型升級指導意見》), which indicates specific objectives and measures on the production of concrete,including optimize industry structure, eliminate outdated production capacity, and accelerateindustrial consolidation. For example, a cement producer, Xinjiang Tianshan Cement Co., Ltd.has announced in March 2021 to acquire 100% equity China United Cement Corporation,approximately 99.9% of Southwest Cement Co., Ltd and 100% equity of Sinoma Cement Co.,Ltd. to expand business scale geographically, escalate production capacity and thus increase itsmarket power in the ready-mixed concrete market. Specifically, due to the limitedtransportation radius, concrete companies tend to merge or acquire companies who operate indifferent geographical locations to expand their business coverage and thus increase customerbases. By integrating existing resources and raising the industrial threshold, the concreteindustry will establish and maintain a standard system and speed up industry upgrading in thefuture.

(ii) Green management driven by government policies

Green management refers to practice the idea of environmental protection, energy saving,emission reduction into quality management of manufacturing process, including workingenvironment, equipment and facilities and quality control. Recently, governments issued aseries of policies and guidelines to promote green management in the ready-mixed concreteindustry, for example, the Department of Commerce of Henan Province released Opinions onAccelerating the Green Development of Bulk Cement (《關於加快推進散裝水泥綠色發展的意見》) in June 2021, proposing to foster green development of ready-mixed concrete, establishand improve environmental governance system, strictly execute environmental and corporategovernance criteria. In addition, with the low carbon economy flourishing, the manufacturingprocess and materials in the ready-mixed concrete production process aim to reduce waste loss,save energy and recycle used materials.

INDUSTRY OVERVIEW

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Product Price Analysis

According to Frost & Sullivan from 2016 to 2020, along with the developing constructionindustry, real estate market and acceleration of national infrastructure, the price of concreteover C30 grade level, C30 level or below and wet-mixed mortar in Zhengzhou experiencedsignificant growth, representing CAGRs of 13.1%,13.9% and 9.9%, respectively. Due to thehigher strength grade, the price of concrete over C30 grade level is highest, followed byconcrete of C30 grade level or below and wet-mixed mortar. Negatively impacted by theCovid-19 outbreak in 2020, the domestic demand for concrete slipped, along with the slumpedprice of major materials of ready-mixed concrete such as cement and sands, resulting in thedecrease in the price of concrete of over C30 grade level, of C30 grade level or below andwet-mixed mortar. In 2021, the Henan flood, caused by a period of prolonged heavy rainfallhas negatively impacted the local economic activities, especially in Zhengzhou. Many realestate developers and construction companies were forced to suspend their operations,decreasing the demand of ready-mixed concrete and thus causing a slump in its price.

Looking forward, simulated by the supportive government policies, the demand forconcrete in construction activities is expected to grow steadily, the prices of concrete of overC30, C30 grade level or below and wet-mixed mortar in Zhengzhou are expected to reachRMB473.2 per cubic meters, RMB435.9 per cubic meters and RMB378.7 per cubic meters in2025 respectively, according to Frost & Sullivan.

Price Analysis for Ready-mixed Concrete and Wet-mixed Mortar (Zhengzhou),2016-2025E

Product Type Unit 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

CAGR2016-2020

CAGR2021E-2025E

Concrete ofOver C30grade level RMB/M3 297.8 376.5 468.6 552.9 486.6 452.5 459.7 465.2 469.9 473.2 13.1% 1.1%

Concrete ofC30 gradelevel or below RMB/M3 262.4 335.2 431.1 516.5 441.6 416.0 422.2 427.7 432.4 435.9 13.9% 1.2%

Wet-mixedmortar RMB/M3 259.1 320.5 367.2 407.6 377.4 371.0 367.3 369.1 373.5 378.7 9.9% 0.5%

Note: All prices are exclusive of tax.

Source: F&S Report

The costs of producing ready-mixed concrete include raw material costs, labour cost andmanufacturing overheads.

INDUSTRY OVERVIEW

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Raw Material Price Analysis

In 2016, the implementation of the document “Guiding Opinions on Promoting StableGrowth of Building Materials Industry and Adjusting Structural Efficiency” (《關於促進建材工業穩增長調結構增效益的指導意見》) has stopped the approval process of any constructionof new cement plants by the end of 2020. The implementation of this policy enormouslypromoted restructuring and market consolidation of the cement industry for more sustainabledevelopment, while it caused a number of cement manufacturers with outdated productioncapacity to close down. Consequently, the production volume of cement in China decreasedfrom 2,410.3 million tonnes in 2016 to 2,400.0 million tonnes in 2020 and the price of cementin Zhengzhou increased from RMB325.0 per tonne to RMB465.7 per tonne during the sametime span as a result. In the coming years, with the increasing demand from real estate andinfrastructure development and the improvement of the supply-demand structure of cementindustry, the price of cement in Zhengzhou is expected to reach RMB439.0 per tonne in 2025,according to Frost & Sullivan.

Over the past few years, the rising demands from construction industry promoted thegrowth in raw material prices. Also, the Henan provincial government has been determined torectify environmental problems, so it has issued many policies to restrict the production of highpollution industries. Among them, cement and gravel industries are focused as high pollutionindustries, such as “Opinions of the General Office of the People’s Government of HenanProvince on Further Strengthening Sand Mining Management in River Courses” (《河南省人民政府辦公廳關於進一步加強河道采砂管理的意見》). From 2016 to 2020, the prices of sandand stones in Zhengzhou illustrated an increasing trend over the past few years. The prices ofmanufactured sand, river sand and crushed stones (10-20mm) in Zhengzhou increased fromRMB61.1 per tonne, RMB100.4 per tonne and RMB60.0 per tonne in 2016 to RMB136.0 pertonne, RMB213.5 per tonne and RMB113.9 per tonne in 2020, respectively. Going forward, theprices of manufactured sand, river sand and crushed stones (10-20mm) in Zhengzhou areexpected to reach RMB114.8 per tonne, RMB185.2 per tonne and RMB92.7 per tonnerespectively in 2025, according to Frost & Sullivan. Leading concrete producers with strongbargaining power can pass all the increase in purchase price of raw materials to downstreamcustomers in the selling price and therefore such increase in costs will not have any significantimpact to the operation. Increase in raw material costs will have a much larger impact to othersmall-scale concrete operators.

Annual Average Price for Cement, Manufactured Sand, River Sand andCrushed Stones(10-20mm) (Zhengzhou), 2016-2025E

Product Type Unit 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

CAGR2016-2020

CAGR2021E-2025E

Cement RMB/tonne 325.0 417.6 465.3 506.2 465.7 416.8 423.1 429.1 434.2 439.0 9.4% 1.3%Manufactured

Sand RMB/tonne 61.1 73.5 118.3 151.4 136.0 111.5 111.0 112.7 113.9 114.8 22.1% 0.7%River Sand RMB/tonne 100.4 129.4 200.3 224.7 213.5 177.2 176.6 179.6 182.3 185.2 20.8% 1.1%Crushed Stones

(10-20mm) RMB/tonne 60.0 80.2 120.5 134.0 113.9 90.0 89.7 91.2 92.1 92.7 17.4% 0.7%

Note: Manufactured sand is a substitute of natural sand such as river sand for concrete construction produced fromhard granite stone by crushing machines. All prices are exclusive of tax.

Source: F&S Report

INDUSTRY OVERVIEW

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COMPETITIVE LANDSCAPE ANALYSIS

Henan Top Five Ready-mixed Concrete Companies in terms of Production Volume andRevenue

In 2020, the production volume of ready-mixed concrete in Henan reached 197.2 millionm3. Henan’s ready-mixed concrete market is quite fragmented with approximately 500 players.The aggregate market share of top five companies by production volume of ready-mixedconcrete was 3.5% in 2020. The Company ranked the first in Henan ready-mixed concretemarket with a market share of 1.1% in terms of production volume. The following companiesare Company A, Company B, Company C and Company D whose market shares are 0.8%,0.6%, 0.5% and 0.5%, respectively.

Ranking

Top 5 Companies by Production Volume in Ready-mixed Concrete Industry (Henan), 2020

Market ShareCompany Production Volume (Million m3)

1China Shenli Construction

Materials Holding Limited

Company A

Company B

Company C

Company D

2

3

4

5

2.2

0.8%

1.1%

0.6%

0.5%

0.5%

1.5

1.2

1.1

1.0

Source: F&S Report

In 2020, the market size by revenue of ready-mixed concrete industry in Henan reachedRMB88.8 billion. Top five companies by revenue occupied an aggregate market share of 3.6%in 2020. The Company achieved revenue of RMB1,084.8 million and ranked the first in Henanready-mixed concrete market with a market share of 1.2%. The following companies areCompany A, Company B, Company C and Company D whose market shares are 0.8%, 0.6%,0.5% and 0.5%, respectively.

Ranking

Top 5 Companies by Revenue in Ready-mixed Concrete Industry (Henan), 2020

Market ShareCompany Revenue (Million RMB)



Company A

Company B

Company C

Company D

2

3

4

5

1,084.8

0.8%

1.2%

0.6%

0.5%

0.5%

671.5

550.2

477.1

453.6

Source: F&S Report

INDUSTRY OVERVIEW

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Zhengzhou Top Five Ready-mixed Concrete Companies in terms of Production Volumeand Revenue

In 2020, the production volume of ready-mixed concrete in Zhengzhou reached 68.6million m3. Zhengzhou’s ready-mixed concrete market is quite fragmented with approximately180 players. The aggregate market share of top five companies by production volume ofready-mixed concrete was 8.1% in 2020. The Company ranked the first in Zhengzhouready-mixed concrete market with a market share of 3.2% in terms of production volume. Thefollowing companies are Company D, Company E, Company F and Company G whose marketshares are 1.4%, 1.3%, 1.2% and 1.0%, respectively.

Ranking

Top 5 Companies by Production Volume in Ready-mixed Concrete Industry (Zhengzhou), 2020

Market ShareCompany Production Volume (Million m3)



Company D

Company E

Company F

Company G

2

3

4

5

2.2

1.4%

3.2%

1.3%

1.2%

1.0%

1.0

0.9

0.8

0.7

Source: F&S Report

In 2020, the market size by revenue of ready-mixed concrete industry in Zhengzhoureached RMB32.5 billion. Top five companies by revenue occupied an aggregate market shareof 7.9% in 2020. The Company ranked the first in Zhengzhou ready-mixed concrete marketwith a market share of 3.3%. The following companies are Company D, Company E, CompanyF and Company G whose market shares are 1.4%, 1.2%, 1.1% and 0.9%, respectively.

Ranking

Top 5 Companies by Revenue in Ready-mixed Concrete Industry (Zhengzhou), 2020

Market ShareCompany Revenue (Million RMB)



Company D

Company E

Company F

Company G

2

3

4

5

1,084.8

1.4%

3.3%

1.2%

1.1%

0.9%

453.6

396.9

362.2

298.4

Source: F&S Report

INDUSTRY OVERVIEW

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Competitor profiles

Company A is a private company that established in 2005 whose main business includingresearch, development, processing and sales of commercial concrete and special concrete.Company B is a private company that established in 2003, focusing on production and sales ofready-mixed concrete with grade levels ranging from C10 to C60 and various special concrete.For Company C, it is a private company established in 2010 and mainly focuses on research,development, production, sales and transportation of concrete and mortar. Company D is aprivate company that established in 2012 whose main business including production and salesof ready-mixed concrete and other construction materials. For Company E, it is a privatecompany that established in 2007 and mainly focuses on production and sales of ready-mixedconcrete, cement and other construction materials. Company F is a private company thatfocuses on production and sales of ready-mixed concrete since 2013. Company G is a privatecompany that established in 2007, and its major business is production and sales ofready-mixed concrete.

Competitive advantages

(i) Excellent product quality and advanced technologies

With a long-standing emphasis on production management and quality control measuresto ensure the high quality of its products, the Company ensures every stage of productionadheres to its high-quality standards, including raw materials testing and finished productsverification. In order to make sure that its quality control standards are effectively andefficiently applied, the Company regularly provides on-the-job training to employees.Therefore, the Company could achieve stable performance and quality metric for its productsamong the whole production process, and receive recurring purchaser orders from existingcustomers and maintain long-term business relationship with its customers. Also, the close andlong-standing relationship between the Company and suppliers guarantees the ability to haveaccess to various grades and specifications of raw materials, satisfying customers’ specificdemands and maintaining a stable supply. Besides, the Company is able to provide full rangeof ready-mixed concrete products with grade levels from C10 to C100 commonly used forinfrastructure and property constructions. Meanwhile, the technical and quality controldepartment is capable to develop the approximate mix of raw materials for final products.Therefore, the Company could fulfill customers’ specific needs on the quality and propertiesof its products on top of the compressive strength requirements.

(ii) Convenient production plants location

The Company has operated three production plants located in the northeastern, easternand southeastern regions of Zhengzhou, Henan Province, all of which are equipped with theready-mixed concrete producing facilities. With the benefit of governmental policy support forthe development of Zhengdong New District (鄭東新區) and Zhengzhou Airport EconomicZone (鄭州航空港經濟實驗區), the Company has extended its presence in two regions byestablishing the Shentong Batching Plant and the Gangfa Batching Plant to suit the growingreal estate and infrastructure constructions. Furthermore, the production facilities of theCompany are located in the development zones within and in the proximity of Zhengzhou. Inview of the nature of ready-mixed concrete products which are just set after 90 minutes fromtheir production, the Company enables to maintain the sales radius of each of productionfacilities, as well as the production plans of another ready-mixed concrete producer, withinapproximately 30 km in general. Thus, the Company is able to keep effective and convenientaccess to customers’ project sites and to expand customer base by having their projects in thesedevelopment zones.

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(iii) Long developing history, excellent customers and landmark construction

As an established ready-mixed concrete product supplier, the Company already hasaround 18 years of experience since the establishment in 2003. It has established stable andlong-term business relationship with major customers. According to Frost & Sullivan, ingeneral, construction contractors and property developers tend to cooperate with the ready-mixed concrete producers with whom they have kept a long-term and trusted businessrelationship. Taking advantage of high and consistent quality and in-depth understanding of theindustry, the Company’s products have been used in many large-scale construction anddevelopment projects for landmark buildings, including Zhengzhou Greenland Plaza (鄭州綠地中心•千璽廣場), the twin towers of the Zhengzhou Greenland Central Plaza (鄭州綠地中央廣場雙子塔), and Central China FU Tower (中原福塔), as well as public infrastructure inZhengzhou such as lines 4, 5, 6, 8 and 12 of Zhengzhou Metro. In addition, the Companyconducts regular customer visits to keep pace with their technical requirements and latestindustry practice, and works closely with its customers to develop and adjust the raw materialmix for the specialised products suitable for the needs of our customers. Therefore, theCompany maintains a good reputation among customers and a solid track record of serving inreputable real estate and infrastructure projects.

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This section provides an overview of the major PRC (People’s Republic of China) lawsand regulations relating to our business and operations, including laws and regulations onrunning concrete business in China, quality management, environmental protection as well aslabour issues. This section is an overview and is not an exhaustive analysis of the Chinese lawsrelating to our business and operations.

CONCRETE

The Construction Enterprise Qualification Certificate

According to the Regulations on Administration of Construction Enterprise Qualification(《建築業企業資質管理規定》) issued and executed on 22 January and 1 March 2015respectively, and newly revised on 22 December 2018 by the MOHURD, and according to theImplementation Opinions on Qualification Management Regulations and QualificationStandards for Construction Enterprise (《建築業企業資質管理規定和資質標準實施意見》)issued on 31 January 2015 and executed on 1 March 2015 by MOHURD, the competentdepartment of housing and urban-rural development of the State Council is responsible for theunified management of the qualifications of the national construction enterprises. Thecompetent department of housing and urban-rural development of the people’s governments ofprovinces, autonomous regions and municipalities directly under the Central Government areresponsible for the unified supervision and management of the qualifications of constructionenterprises within their respective administrative regions. An enterprise engaging inconstruction and other relevant construction projects may only carry out construction activitieswithin the scope of their respective qualifications.

According to the Regulations on Administration of Construction Enterprise Qualification,the contracting qualification of pre-mixed concrete shall be approved by the competentdepartment of housing and urban-rural development of the Municipal People’s Government inthe district where the enterprise is registered.

According to the Notice of the Ministry of Commerce, the Ministry of Public Security, theMinistry of Construction, and the Ministry of Communications on prohibiting the mixing ofconcrete on the site in urban areas within a time limit (《商務部、公安部、建設部、交通部關於限期禁止在城市城區現場攪拌混凝土的通知》) issued on 16 October 2003, in respect of 124cities including Beijing, on-site concrete mixing has been banned since 31 December 2003, andcities in other provinces (autonomous regions) have banned on-site concrete mixing since 31December 2005. Zhengzhou is one of the 124 cities on the lists. Concrete productionenterprises that have not been approved by the construction administrative department shall notprovide ready-mixed concrete to the society. Production enterprises engaged in ready-mixedconcrete should establish a complete quality control system, strictly implement relevantregulations in standardisation management, measurement management, process control, qualityinspection and other relevant aspects to ensure the quality of ready-mixed concrete.

Active Development of Ready-mixed Concrete

According to the Measures for the Administration of Bulk Cement (《散裝水泥管理辦法》) jointly issued on 29 March 2004 by the Ministry of Commerce, the Ministry of Finance,Ministry of Housing and Urban-Rural Development, National Railway Administration,Ministry of Transport, State Administration of Quality Supervision, Inspection and Quarantineof the People’s Republic of China, relevant departments of local people’s governments at orabove the county level shall encourage the development of ready-mixed concrete andready-mixed mortar. The mixing of concrete on site in urban areas shall be prohibited for alimited period according to actual conditions. The specific regulations shall be formulated by

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the State Council department in charge of commerce in conjunction with the State Councildepartment in charge of construction. Enterprises manufacturing ready-mixed concrete andready-mixed mortar must completely use bulk cement.

According to the Cement Industry Development Policy (《水泥工業產業發展政策》)issued and executed on 17 October 2006 by the National Development and ReformCommission, China encourages large-scale enterprises to vigorously develop bulk cement andactively develop ready-mixed concrete.

According to Several Opinions on Promoting the Application of High- performanceConcrete (《關於推廣應用高性能混凝土的若干意見》) issued and implemented by theMOHURD and the Ministry of Industry and Information Technology of the People’s Republicof China on 13 August 2014, China should establish high-performance concrete promotion andapplication work mechanism, optimize concrete’s product structure by improving thepromotion and application policies and related standards of high-performance concrete. To theend of the 13th Five-Year Plan, high-performance concrete should be widely used. At the endof the 13th Five-Year Plan, concrete with a strength level of C35 and above will account formore than 50% of the total amount of ready-mixed concrete. Concrete with a strength level ofC60 and above is promoted in super high-rise buildings and large-span structures as well as inprecast concrete component, prestressed concrete and concrete-filled steel tubes. In parts likethe base plate that use large-volume concrete, the high-blending admixture concrete ispromoted to be used so as to improve the comprehensive utilisation level of resources.

According to the Promotion Law of the People’s Republic of China on Circular Economy(《中華人民共和國循環經濟促進法》) issued on 29 August 2008 and implemented on 26October 2018 by the NPC Standing Committee, China encourages the use of non-toxic andharmless solid waste to produce building materials and encourages the use of bulk cement, andpromotes the use of ready-mixed concrete and ready-mixed mortar.

Restriction and Elimination of Aerated Concrete Production Lines

According to the Catalogue for Guiding Industry Restructuring (2019 Version) (《產業結構調整指導目錄(2019)》) executed on 1 January 2020 by the National Development andReform Commission, aerated concrete production lines of less than 150,000 m3 per year areclassified as “restricted industries”. The manual cutting aerated concrete production line andthe non-autoclaved curing aerated concrete production line belong to “eliminated industries”.

According to the Interim Provisions on Promoting Industry Restructuring (《促進產業結構調整暫行規定》) executed on 2 December 2005, any investments on newly built projectsthat belong to “restricted industries” are prohibited. Any relevant units and personnel whoviolate the provisions for investment and financing construction shall be held accountable.Enterprises whose existing production capacity belongs to the restricted industries are allowedto take measures to upgrade it within a certain period of time. For projects that belong to the“eliminated industries”, any investment is prohibited. All regions, departments and relevantenterprises shall take effective measures to eliminate the restricted projects within theprescribed time limit. The directly responsible personnel and relevant leaders that violate theabove regulations must be held accountable. The industries that do not belong to theencouraged category or the restricted category or the eliminated category, but conform to therelevant laws, regulations and policies of the state, shall belong to the permitted category,which shall not be listed into the Catalogue for Guiding Industry Restructuring. As advised byour PRC Legal Advisers, since our business does not belong to the encouraged category, therestricted category nor the eliminated category, our business shall be listed in the permittedcategory.

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Product Quality Management

According to the Law of the People’s Republic of China on Product Quality (《中華人民共和國產品質量法》) issued and executed on 29 December 2018 by the NPC StandingCommittee, the market regulation department of the State Council is responsible fornationwide product quality supervision. All the relevant departments under the State Councilare in charge of product quality supervision according to their respective responsibilities. Localadministrations for the market regulation at or above the county level are responsible forproduct quality supervision within their own administrative territories. The relevantdepartments of the local people’s governments at or above the county level are responsible forproduct quality supervision according to their respective responsibilities. If there are differentprovisions concerning the supervision departments of product quality, such provisions shall beapplied. Producers and sellers shall have their own proper regulations for the management ofproduct quality, rigorously implementing post-oriented quality regulations, quality liabilitiesand relevant measures for their assessment. Producers and sellers are responsible for theproduct quality according to the provisions of the law.

According to the Henan Provincial Provisions on Administration of Ready-mixedConcrete Quality issued on 7 February 2018 by Henan Provincial Department of Housing andUrban-Rural Development, concrete enterprises shall strictly implement relevant nationalconcrete standards, such as Ready-mixed Concrete (GB/T14902), Standard for Quality Controlof Concrete (GB50164), Code for acceptance of constructional quality of concrete structures(GB50204), Standard for evaluation of concrete compressive strength (GB/T50107),Specification for mix proportion design of ordinary concrete (JGJ55) and other existingrelevant national standards within the scope of qualification certificate and rigorously controlproduction quality.

ENVIRONMENTAL POLICY

General Provisions

According to the Environmental Protection Law of the People’s Republic of China (《中華人民共和國環境保護法》) (Revised in 2014) issued by the NPC Standing Committee on 24April 2014 and implemented on 1 January 2015, environmental protection is a basic statepolicy of China. The competent department of environmental protection under the StateCouncil shall supervise and manage environmental protection work throughout the country ina unified manner. The competent departments of environmental protection of the local people’sgovernments at the country level or above shall supervise and manage environmentalprotection work within their respective administrative areas in a unified manner.

The competent departments of environmental protection under the State Councilformulates the national environmental quality standards. The people’s governments ofprovinces, autonomous regions and municipalities may formulate local environmental qualitystandards for items not specified in the national environmental quality standards, which maybe more stringent than the national standards. The local environmental quality standards shallbe submitted to the competent department of environmental protection under the State Councilfor record.

According to the Administrative Measures for Pollutant Discharge Licensing (for TrialImplementation) (《排污許可管理辦法(試行)》) issued and took effect on 10 January 2018 andrevised on 22 August 2019 by the Ministry of Environmental Protection (“MEP”), the MEPshall lawfully formulate and issue the catalogue management of pollutant discharge licencesfor stationary pollution sources, and define the scope of stationary pollution sources included

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in pollutant discharge licensing management and the time limit for the application for pollutantdischarge licences. Enterprises, public institutions and other production operators (the“pollutant discharge entities”) included in the catalogue of classified management ofpollutant discharge licences for stationary pollution sources shall apply for and obtain apollutant discharge licence as per the prescribed time limit; and, it is temporarily unnecessaryfor pollutant discharge entities not included in the catalogue of classified management ofpollutant discharge licences for stationary pollution sources to apply for a pollutant dischargelicence. According to the Classification and Administration Lists of Pollutant DischargePermits for Stationary Pollution Sources (Version 2019) (《固定污染源排污許可分類管理名錄(2019年版)》) promulgated by the MEP on 20 December 2019, pollutant discharging units thatare subject to registration administration, such as cement product manufacturing, like us, donot need to apply for a pollutant discharging permit, but should fill in a pollutant dischargingregistration form on the National Platform for the Management of Pollutant DischargingPermits (全國排污許可證管理信息平台).

Specific Regulations

According to the Regulations on the Administration of Construction ProjectEnvironmental Protection (Revised in 2017) (《建設項目環境保護管理條例(2017修訂)》)issued on 16 July 2017 and executed on 1 October 2017 by the State Council of the People’sRepublic of China, for a construction project that requires environmental impact report,environmental impact statement, the construction unit should, prior to the start of constructionof the construction project, submit the construction project environmental impact report,environmental impact statement to competent departments of environmental protectionadministration with authority of examination and approval. In the event the environmentalimpact assessment documents of a construction project has not been reviewed by the approvingauthorities specified according to law, or approval is not granted after the review, theconstruction unit shall not commence the construction. A construction project for which anenvironment impact report or environment impact statement is formulated shall be put intoproduction or use only when its complementary environmental protection facilities passacceptance inspection. Where the environmental protection facilities have not undergoneacceptance inspection or passed acceptance inspection, the construction project shall not be putinto production or use.

According to the Law of the People’s Republic of China on Environmental ImpactAssessment (《中華人民共和國環境影響評價法》) issued on 28 October 2002, then revisedand executed on 29 December 2018 by the NPC Standing Committee, environmental impactassessment reports and environmental impact assessment report forms shall be submitted bythe construction unit to the competent department of environmental protection administrationwith approving power for approval in accordance with stipulations of the State Council of thePeople’s Republic of China. In the event the environmental impact assessment documents ofa construction project has not been reviewed by the approving authorities specified accordingto law, or approval is not granted after the review, the construction unit shall not commencethe construction. During project construction, the construction unit shall also implement theenvironmental protection countermeasures and measures raised in the approval comments ofthe approving authorities of environmental impact reports, environmental impact report formsand environmental impact documents.

According to the Construction Project Environmental Impact Assessment ClassificationManagement Directory (2017 Version) (《建設項目環境影響評價分類管理名錄(2017年版)》)issued by the Ministry of Ecology and Environment of People’s Republic of China on 29 June2017, which was executed on 1 September 2017 and revised on 28 April 2018, and theConstruction Project Environmental Impact Assessment Classification Management Directory

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(2021 Version)《建設項目環境影響評價分類管理名錄(2021年版)》) issued by the Ministry ofEcology and Environment of People’s Republic of China on 30 November 2020 and executedon 1 January 2021, for construction projects where commodity concrete processing may causemild environmental impacts, environmental impact report forms should be compiled to analyseor specifically evaluate the environmental impacts.

According to the Law of the People’s Republic of China on Prevention and Control ofWater Pollution (Revised in 2017) (《中華人民共和國水污染防治法(2017修正)》) issued on27 June 2017 and executed on 1 January 2018 by the NPC Standing Committee, environmentalimpact assessment shall be conducted legally on new construction, expansion or reconstructionprojects or construction projects and other marine facilities which directly or indirectlydischarge pollutants into water.

According to the Law of the People’s Republic of China on the Prevention and Controlof Atmospheric Pollution (2018 Amendment) (《中華人民共和國大氣污染防治法(2018修正)》), which was amended on 26 October 2018 by the NPC Standing Committee, enterprise,public institutions and other producers and operators that build projects having impact on theatmosphere environment shall conduct environmental impact assessment and disclose theenvironmental impact assessment documents in accordance with the law. Where they buildprojects with discharges of pollutants into the atmosphere, they shall comply with the standardsfor discharge of air pollutants as well as the requirements on the total emission control of keyair pollutants. If building materials enterprises discharge ashes and dust, sulfide and nitrideoxides in the production process, they shall adopt clean production techniques, install thesupporting facilities for dust removal, desulfurisation and denitrification, or take othermeasures such as technical transformation to control the discharge of air pollution.

According to the Law of the People’s Republic of China on Prevention and Control ofEnvironment Pollution Caused by Solid Wastes (《中華人民共和國固體廢物污染環境防治法》), which was issued and executed on 29 April 2020 and 1 September 2020 respectively bythe NPC Standing Committee, for the prevention and control of environmental pollution bysolid wastes, the State implements the principle that any entity or individual causing thepollution shall be responsible for it in accordance with law. The manufacturers, sellers,importers and users shall be responsible for the prevention and control of solid wastes pollutionproduced. Enterprises and public institutions shall rationally select and use raw materials,energies and other resources, and adopt advanced production techniques and equipment, so asto reduce the discharge and harm of industrial solid wastes.

LABOUR

Labour Protection

According to the Labour Contract Law of the People’s Republic of China (《中華人民共和國勞動合同法》) issued on 28 December 2012 and executed on 1 July 2013 by the NPCStanding Committee, written labour contracts shall be concluded by the employing units andlabourers to establish labour relationships. Where labour relationship has been established butno written labour contract concluded at the same time, the written labour contract shall beconcluded within one month of the date of use of labour services. Where the employing unitand labourers conclude labour contracts before the use of labour services, the labourrelationships shall be established from the date of use of labour services. An employer and anemployee may enter into a fixed-term labour contract, a non-fixed-term labour contract or alabour contract that concludes upon the completion of certain work assignment. After reachingan agreement upon due negotiation with employees or fulfilling other circumstances in line

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with legal conditions, an employer may legally terminate a labour contract and dismiss itsemployees. Labour contracts concluded before the issuance of Labour Law and subsistingduring its effective term shall continue to be acknowledged.

According to the Labour Law of the People’s Republic of China (2018 Amendment) (《中華人民共和國勞動法(2018修正)》) issued by the NPC Standing Committee on 29 December2018, the employing units must establish and improve the system of labour safety and health,strictly implement the national regulations and standards on labour safety and health, educateworkers on labour safety and health, prevent accidents in the process of labour and reduceoccupational hazards employers shall develop and improve their rules and regulations to ensurethat workers enjoy their labour rights and perform their labour obligations.

Employers must provide workers with the necessary labour protection equipment thatmeets the safety and hygiene conditions stipulated by the State, and conduct regular healthchecks for workers who engage in occupational hazards. Labourers engaged in specialoperations shall have received specialised training and obtained the pertinent qualifications.

According to the Interim Regulations on Collection and Payment of Social InsurancePremiums (《社會保險費徵繳暫行條例》), the Regulation on Work Injury Insurance (《工傷保險條例》), the Regulations on Unemployment Insurance (《失業保險條例》) and the TrialMeasures on Employee Maternity Insurance of Enterprises (《企業職工生育保險試行辦法》),enterprises in the PRC shall provide their employees with benefit plans,which include basicpension insurance, unemployment insurance, maternity insurance, work injury insurance andbasic medical insurance. Employers must carry out social insurance registration with localsocial insurance agency, provide social insurance and pay or withhold the relevant socialinsurance premiums for or on behalf of employees. According to the Social Insurance Law ofPRC (《中華人民共和國社會保險法》) (No. 35 Order of the President of the PRC), which waspromulgated by the NPC Standing Committee on 28 October 2010 and amended on 29December 2018, for employers failing to conduct social insurance registration, theadministrative department of social insurance shall order them to make corrections within aprescribed time limit; if they still fail to do so within the time limit, employers shall have topay a penalty over one time but no more than three times of the amount of the social insurancepremium payable by them, and their directly responsible executive staffs and other directlyresponsible persons shall be fined RMB500 to RMB3,000. Also, it has consolidated pertinentprovisions for basic pension insurance, unemployment insurance, maternity insurance, workinjury insurance and basic medical insurance, and the legal obligations and liabilities ofemployers who do not comply with relevant laws and provisions on social insurance have beenstipulated in detail.

According to the Regulations on the Administration of Housing Provident Fund (《住房公積金管理條例》) (Order No. 262 of the State Council) (issued by the State Council on 3April 1999 and became effective on the same day, and amended on 24 March 2002 and 24March 2019), the housing provident fund contributions by an individual employee and housingprovident fund contributions by his or her employer shall be owned by the individualemployee. Employers shall timely pay the housing provident fund in full and overdue orinsufficient payment shall be prohibited. Employers shall process the housing fund paymentand deposit registration in the housing provident fund administrative centre. For enterpriseswho violate the above laws and regulations and fail to apply for housing provident fund depositregistration or open housing provident fund accounts for their employees, the housingprovident fund administrative centre shall order the relevant enterprises to make correctionswithin a designated period. Those enterprises failing to process registration provident fundaccounts for their employees within the designated period shall be subject to a fine rangingfrom RMB10,000 to RMB50,000. When enterprises violate those provisions and fail to pay the

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housing provident fund in full amount as due, the housing provident fund administrative centrewill order such enterprises to pay up the amount within a prescribed period; if those enterprisesstill fails 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.

Safe Production

According to the Safety Production Law of the People’s Republic of China issued on 31August 2014 and newly amended on 1 June 2021 by the NPC Standing Committee, Entitieswhich engage in production and business operations must observe the aforesaid law and otherlaws and regulations concerning safety production, strengthen the administration of safetyproduction, establish and improve the system of responsibilities for safety production, andperfect the conditions for work safety to guarantee the work safety. Production operation unitsshall have in place production safety conditions as required by this Law, other relevant lawsand administrative regulations, as well as national standards or trade standards. Whoever failsto provide safety conditions shall not engage in production operation.

Relevant authorities of the State Council supervise and manage the work safety in theirrespective scope of administration according to the aforesaid law and regulation and otherrelevant laws and regulations, while local governmental authorities are responsible for thesupervision and administration of relevant safety production works within their respectiveterms of reference.

According to the Notice of the State Council on Further Strengthening Work Safety ofEnterprises (《國務院關於進一步加強企業安全生產工作的通知》) which was promulgated on19 July 2010 by the State Council, enterprises shall formulate strict work safety rules andadhere to the principle of “no safety, no production”. They shall reinforce on-site supervisionand examination of production, strictly investigate and punish the “three types of violations”,namely, acts of giving instructions that violate the relevant rules, failure to observe the relevantrules in, and violation of labour disciplines. Any enterprise that organises production in excessof its ability, labour intensity, and manpower, shall be ordered to suspend the production forrectification, and the said enterprise and its major responsible persons shall be imposed withfinancial penalties at the prescribed higher limit in accordance with the law.

FOREIGN INVESTMENT REGULATIONS

Negative list for foreign investment access

Pursuant to the Special Administrative Measures for Foreign Investment Access(Negative List) (Edition 2021) (《外商投資准入特別管理措施(負面清單)(2021年版)》) (the“Negative List”), promulgated by the NDRC and the MOFCOM on 27 December 2021 andbecame effective on 1 January 2022, to issue shares abroad and list and trade shares overseas,any domestic enterprise engaging in the fields prohibited by the Negative List shall obtain theconsent of the relevant competent authorities of the State, and the overseas investors shall notparticipate in the operation and management of the enterprise, and overseas investors’shareholding percentage shall be subject to the relevant provisions on administration ofdomestic securities investment by overseas investors. Our PRC Legal Advisers are of the viewthat our Group’s business is not specified in the Negative List.

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Foreign Investment

Pursuant to the Foreign Investment Law of the People’s Republic of China (《中華人民共和國外商投資法》) promulgated on 15 March 2019 and came into effect on 1 January 2020,and the Implementation Regulations for the Foreign Investment Law of the People’s Republicof China (《中華人民共和國外商投資法實施條例》) promulgated by the State Council on 26December 2019 and came into effect on 1 January 2020, the State implements a managementsystem of national treatment before the entry of foreign investment plus a negative list. Foreigninvestors shall not invest in areas where investment is prohibited under the negative list for theadmission of foreign investment. Foreign investors shall meet the conditions set forth in thenegative list for the admission of foreign investment to invest in the areas where investmentis restricted under the negative list. Management of foreign investment in the areas beyond thenegative list shall be implemented in accordance with the principle of equality betweendomestic and foreign investment. The relevant provisions of the Foreign Investment Law andits implementation regulations shall apply to investments within the territory of the PRC byforeign investment enterprises. If the investment conducted by investors from Hong KongSpecial Administrative Region and Macau Special Administrative Region, the ForeignInvestment Law and the Implementation Regulations for the Foreign Investment Law shallapply.

Pursuant to the Measures on Foreign Investment Enterprises Information Reporting (《外商投資信息報告辦法》), which were promulgated by the Ministry of Commerce of the PRCand the State Administration for Market Regulation on 30 December 2019 and came into effecton 1 January 2020, where a foreign investor directly or indirectly conducts investmentactivities within China, the foreign investor or foreign-invested enterprise shall submitinvestment information to the competent authorities of commerce in accordance with theMeasures on Foreign Investment Enterprises Information Reporting. If the investmentconducted by investors from Hong Kong Special Administrative Region, Macau SpecialAdministrative Region, Taiwan and Chinese citizens residing abroad, the Measures on ForeignInvestment Enterprises Information Reporting shall apply.

INTELLECTUAL PROPERTY

Trademark Law

In accordance with the PRC Trademark Law (中華人民共和國商標法), which waspromulgated on 23 August 1982, and newly amended by the Standing Committee of the NPCon 23 April 2019, the Trademark Office of the administrative department for industry andcommerce under the State Council shall be responsible for the registration and administrationof trademarks in China. The administrative department for industry and commerce under theState Council has established a Trademark Review and Adjudication Board to be responsiblefor handling trademark disputes. Any individual, legal person or other entity that needs toacquire the right to exclusive use of a trademark for the commodities produced, manufactured,processed, selected or marketed shall apply to the Trademark Office for trademark registration.

The period of validity of a registered trademark shall be ten years, starting from the daythe registration is approved. When it is necessary to continue using the registered trademarkupon expiration of period of validity, an application for renewal shall be made within 12months before the expiration. If such an application cannot be filed within that period, anextension period of six months may be granted. The period of validity for each renewal ofregistration shall be 10 years as of the next day of the previous period of validity. If theformalities for renewal have not been handled upon expiration of the aforesaid extensionperiod, the registered trademarks will be deregistered.

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Domain Name

The Measures on the Administration of Domain Names (《互聯網絡域名管理辦法》)(Order No. 43 of the Ministry of Industry and Information Technology) (issued by the Ministryof Industry and Information Technology on 24 August 2017 and came into effect on 1November 2017), the Ministry of Industry and Information Technology shall be responsible formanaging Internet network domain names in China. The principle of “first come, first file” isadopted for domain name registration. An applicant for domain name registration shall providethe agency of domain name registration with the true, accurate and complete informationrelating to the domain name to be applied for, and sign the registration agreements. Upon thegrant of a permit for the domain name, the applicant will become the holder of the right useof the relevant domain name within the validity period of its permit. The measures provide theregistration of domain names in China with the Internet country code of “.cn”.

SUPERVISION AND ADMINISTRATION OVER FOREIGN EXCHANGE

According to the Regulations on the Control of Foreign Exchange (外匯管理條例), whichwere promulgated by the State Council on 29 January 1996, came into effect on 1 April 1996and were amended on 14 January 1997 and 5 August 2008 and implemented on 5 August 2008,foreign exchange receipts of domestic institutions or individuals may be transferred to the PRCor deposited abroad. The conditions for transfer to the PRC or overseas deposit, time limit andother details will be specified by the foreign exchange control department of the State Council.Foreign exchange receipts for current account transactions may be retained or sold to financialinstitutions engaging in the settlement of foreign exchange in accordance with relevantregulations. Domestic institutions or individuals that make direct investments abroad or areengaged in the overseas distribution or trade of valuable securities or derivative productsshould register according to the provisions of the foreign exchange control department of theState Council. Relevant institutions or individuals should submit relevant documentation forexamination and approval or for record-filing prior to foreign exchange registration, if they arerequired to file with, or receive approval from, the competent administration departments inadvance as required by the State. The exchange rate for RMB follows a managed floatingexchange rate system based on market demand and supply.

According to the Circular of the State Administration of Foreign Exchange on Reformingand Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts(Hui Fa [2016] No.16) (《國家外匯管理局關於改革和規範資本項目結匯管理政策的通知》(匯發[2016]16號)), which was promulgated and implemented by the SAFE on 9 June 2016, thetentative percentage of foreign exchange settlement for foreign currency earnings in capitalaccount of domestic institutions is 100%, subject to adjustment of the SAFE in due time inaccordance with international revenue and expenditure conditions. The use of foreign exchangeincomes of capital accounts by domestic institutions shall follow the principles of authenticityand self-use within the business scope of enterprises. The foreign exchange incomes of capitalaccounts and capital in RMB obtained by the domestic institutions from foreign exchangesettlement shall not be used for the following purposes:

1. directly or indirectly used for the payment beyond the business scope of theenterprises or the payment prohibited by relevant laws and regulations;

2. directly or indirectly used for investment in securities or financial schemes otherthan bank guaranteed products unless otherwise provided by relevant laws andregulations;

3. used for granting loans to non-connected enterprises, unless otherwise permitted byits business scope; and

4. used for the construction or purchase of real estate that is not for self-use (except forthe real estate enterprises).

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According to the Circular of the State Administration of Foreign Exchange onFurther Promoting Cross-Border Trade and Investment Facilitation (Hui Fa [2019] No.28)(《國家外匯管理局關於進一步促進跨境貿易投資便利化的通知》(匯發[2019]28號)), whichwas promulgated and implemented by the SAFE on 23 October 2019, non-investmentforeign-funded enterprises are allowed to lawfully make domestic equity investments by usingtheir capital on the premise of no violation of the Negative List and the authenticity andcompliance with the regulations of domestic investment projects.

TAX

Enterprise 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”), which was promulgated by the NPC on 16 March 2007, newly amended andimplemented on 29 December 2018, and the Implementation Rules of the EIT Law (中華人民共和國企業所得稅法實施條例) (the “Implementation Rules”), which was promulgated by theState Council on 6 December 2007, amended and implemented on 23 April 2019, enterprisesare divided into resident enterprises and non-resident enterprises. Resident enterprises shallpay enterprise income tax on their incomes obtained in and outside the PRC at the rate of 25%.Non-resident enterprises which have established institutions or places of business in the PRCare subject to enterprise income tax for all incomes generated from such institutions or placesof business in the PRC and all incomes generated outside the PRC which are actually relatedto the institutions or places of business established in the PRC at the rate of 25%. Non-residententerprises with no institutions in the PRC, and non-resident enterprises whose incomes weregenerated without substantial connection with their institutions in the PRC, shall pay enterpriseincome tax on their incomes obtained in the PRC at a reduced rate of 10%.

According to the Arrangement between the PRC and Hong Kong Special AdministrativeRegion for the Avoidance of Double Taxation the Prevention of Fiscal Evasion with respect toTaxes 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),which was promulgated by the SAT on 21 August 2006 and came into effect on 1 January 2007,a company incorporated in Hong Kong will be subject to withholding tax at the lower rate of5% on dividends it receives from a company incorporated in the PRC if it holds a 25% interestor more in the PRC company.

Value-added Tax

Pursuant to the Notice of the Ministry of Finance and the State Administration of Taxationon Value-Added Tax Policies Concerning the Application of Low Tax Rates and SimplifiedTaxation Method for Certain Goods (《財政部、國家稅務總局關於部分貨物適用增值稅低稅率和簡易辦法徵收增值稅政策的通知》), promulgated by the MOF and the SAT on 19 January2009 and became effective on 1 January 2009, and then revised on 25 May 2012 and 13 June2014 with effect on 1 July 2014, and the Notice of the Ministry of Finance and the StateAdministration of Taxation on Simplifying Value-added Tax Rate Policies (《關於簡併增值稅徵收率政策的通知》), promulgated by the MOF and the SAT on 13 June 2014 and effective on1 July 2014, if general taxpayers sell concrete commodities (solely include cement concretemade of cement as the raw material), VAT shall be paid and calculated at the rate of 3% underthe simplified method.

REGULATORY OVERVIEW

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According to the Notice of the MOF and the SAT on Promoting the Value-added TaxPreferential Policies for Employment of Disabled Persons (Cai Shui [2016] No. 52) (財政部、國家稅務總局關於促進殘疾人就業增值稅優惠政策的通知》(財稅[2016]52號)), issued on 5May 2016, for companies and individual industrial and commercial households that employ thedisabled, such taxpayers shall be imposed to the method of “tax-impose-tax-refund” with aquota based on the number of the disabled resettled by the taxpayers, and for those taxpayersentitled to the preferential policies, the proportion of the disabled resettled in the month cannotbe less than 25% (including 25%), and the number of the disabled resettled cannot be less than10 (including 10) people. The taxpayers shall sign labour contracts or service agreements withthe disabled for more than one year (including one year) according to the laws, and thetaxpayers shall pay monthly social insurance (basic pension insurance, basic medicalinsurance, unemployment insurance, work injury insurance and maternity insurance, etc.) infull to the disabled, and pay monthly wages through banks not lower than the monthlyminimum wage standard approved by the Provincial People’s Government applicable to thetaxpayer’s districts or counties.

According to the Measures for the Implementation of the VAT Preferential Policies forPromoting the Employment of Disabled Persons (SAT Bulletin [2016] No. 33) (促進殘疾人就業增值稅優惠政策管理辦法》(國家稅務總局公告[2016]33號)), issued by the SAT on 27 May2016, companies and individual industrial and commercial households that employ the disabledare entitled to the preferential policies of “VAT-impose-VAT-refund” for resettlement of thedisabled, the provisions of these measures shall be applied. Taxpayers who apply for thepreferential tax policies for the first time shall provide the competent tax authorities with thefiling information.

ADMINISTRATION ON OVERSEAS LISTING (DRAFT FOR COMMENT)

On December 24, 2021, the CSRC published the Administrative Provisions of the StateCouncil on Overseas Issuance and Listing of Securities by Domestic Enterprises (Draft forComment) (《國務院關於境內企業境外發行證券和上市的管理規定(草案徵求意見稿)》) (the“Administrative Provisions”) and the Administrative Measures for the Record-filing ofOverseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Comment)(《境內企業境外發行證券和上市備案管理辦法(徵求意見稿)》) (the “AdministrativeMeasures”) on its official website. The Administrative Provisions and the AdministrativeMeasures are applicable to domestic enterprises that contemplate to issue and list securitiesoverseas, including direct overseas issuance and indirect overseas issuance. The[REDACTED] constitutes an [REDACTED] by us under the Administrative Provisions andthe Administrative Measures.

Pursuant to the Administrative Measures, when determining the overseas indirectissuance and listing by a domestic enterprise, the principle of substance over form shall befollowed. Where an issuer falls under the following circumstances, it shall be deemed as adomestic enterprise under the legal regime of the Administrative Provisions and theAdministrative Measures: (1) the revenue, total profits, total assets or net assets of the domesticenterprise in the latest accounting year account for more than 50% of the relevant data reflectedin the audited consolidated financial statements of the issuer for the same period; (2) themajority numbers of senior management in charge of the business operation and managementof the issuers are Chinese citizens or have habitual residences within the territory of the PRC,and the main places of business of the issuer are located in, or the business operation of theissuer are mainly carried out within, the territory of the PRC.

REGULATORY OVERVIEW

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Further, pursuant to the Administrative Provisions and the Administrative Measures, adomestic enterprise that offers and lists securities overseas shall go through the record-filingformalities and report the relevant information to the CSRC. Under the circumstance of anindirect overseas issuance, the PRC operation entity designated by the issuer shall submit filingmaterials to the CSRC within three working days from the submission date of its listingapplication documents for an initial [REDACTED] overseas. The filing materials include butnot limited to:(1) filing report and the relevant undertakings; (2) regulatory opinion, filing orapproval documents issued by the industry administrative authorities (if applicable); (3)security assessment review opinion issued by the relevant authorities (if applicable); (4) a PRClegal opinion; and (5) the document. Where the filing materials are complete and comply withthe prescribed requirements, the CSRC shall issue a notice of filing within 20 working days andannounce the filing information on its website. Where the filing materials are incomplete or donot comply with the prescribed requirements, the CSRC shall notify the applicant of thecontents to be supplemented within 5 working days upon receipt of the filing materials; thetimeframe for supplementing filing materials shall not be counted for the 20-working-dayreview period of the CSRC. In the event of the occurrence of any: (1) significant change inprincipal business or business licence or qualification; (2) significant change in equitystructure or change in controlling stake; or (3) significant adjustments to the listing plansubsequent to the record-filing and prior to the completion of the overseas listing, the issuershall promptly report the foregoing significant changes to the CSRC.

According to the Administrative Provisions, if an issuer fails to go through therecord-filing formalities, the CSRC or the relevant authorities of the State Council may issuea warning, impose a fine ranging from RMB1 million to RMB10 million, and even issue anorder to suspend the business operation, revoke the relevant business licence or permits to thedomestic enterprises, subject to the severity of the case; and the CSRC may further issue awarning and/or a fine ranging from RMB500,000 to RMB5 million to the controllingshareholder(s), actual controlling party, directors, supervisors or senior management of theissuer.

The period for soliciting opinions on the Administrative Provisions and theAdministrative Measures will continue until 23 January 2022, and as such neither theAdministrative Provisions nor the Administrative Measures had come into effect as at theLatest Practicable Date.

REGULATORY OVERVIEW

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BUSINESS DEVELOPMENT

Overview

We are an established ready-mixed concrete producer in Zhengzhou, Henan Province withapproximately 18 years of experience since the establishment of Henan Shenli in 2003. We areengaged in the production and sale of ready-mixed concrete products with grade levels rangingprimarily from C15 to C60, which the Directors believe are most commonly used in real estateand public-infrastructure development. In addition to our ready-mixed concrete products, weoccasionally produce and sell wet-mixed mortar products at the request of our customers. Weproduce our products according to customer orders and arrange timely delivery in compliancewith the Concrete National Standard. To cater for the specific construction and technical needs,we offer the option of adding specific admixtures to the ready-mixed concrete and wet-mixedmortar mixes during the production process to achieve additional properties in accordance withthe construction needs.

Our head office is located in Zhengzhou, the PRC. As of the Latest Practicable Date, weoperated three batching plants located in the northeastern, eastern and southeastern regions ofZhengzhou. All of our batching plants are equipped with the production facilities to produceready-mixed concrete products of all grade levels ranging from C10 to C100 as well aswet-mixed mortar products of all grade levels ranging from M5 to M30. During the TrackRecord Period, our products primarily included regular ready-mixed concrete products of gradelevels from C15 and C60. To take advantage of the government policy support for thedevelopment of Zhengdong New District and Zhengzhou Airport Economic Zone, we havestrengthened and extended our presence in these regions. In December 2015, Henan Shentongestablished the Shentong Batching Plant and in August 2018, we acquired Henan Gangfa whichestablished the Gangfa Batching Plant in October 2017. They cater for the growingconstruction activities of real estate and public infrastructure, and thus, the need forconstruction materials including ready-mixed concrete products in the regions.

Business Milestones

The following is a summary of our key business development milestones:

Year Major Events

November 2003 Establishment of Henan Shenli, which is our major operatingsubsidiary

March 2006 Henan Shenli was recognised as Advanced ConstructionEnterprise in Zhengzhou City in 2005 (2005年度鄭州市建築業先進企業) by the Zhengzhou City Construction Committee (鄭州市建設委員會)

April 2006 Henan Shenli was recognised as Leading Enterprise ofZhengzhou City Construction Inspection Industry Committee in2005 (2005年度鄭州市建設檢測行業協會先進單位) by theZhengzhou City Construction Inspection Industry Committee(鄭州市建設檢測行業協會)

February 2008 Henan Shenli was recognised as 2007 Advanced Equipment andBuilding Materials Management Enterprise in Zhengzhou City(2007年度鄭州市設備建材管理先進單位) by the ZhengzhouCity Construction Committee (鄭州市建設委員會)

HISTORY, REORGANISATION AND CORPORATE STRUCTURE

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Year Major Events

November 2008 Henan Shenli was recognised as China Distinctive SocialWelfare Enterprise (全國優秀福利企業)

January 2009 Henan Shenli was accredited with the WIT QualificationCertificate (萬泰認證資格證書) for achieving the GB/T19001-2008 idt ISO9001:2008 standard for the first time

September 2011 Henan Shenli was awarded the Enterprise Featured withBranding Building • High Quality • Trustworthiness in Henan(河南省“創品牌•重質量•守誠信單位”) by Henan QualityInformation Centre

September 2016 Henan Shenli participated in the preparation of theDBJ41/T048-2016 Technical Specification for Application ofConcrete made from Mixed Sand (《混合砂混凝土應用技術規程》) promulgated by the Housing and Urban-ruralDevelopment Department of Henan Province (河南省住房和城鄉建設廳)

December 2016 Henan Shenli was recognised as Excellent Supplier inConstruction Industry in Central Plains Area (中原建築行業優秀供應商)

June 2018 Henan Shenli were recognised as High-integrity Enterprise (誠信企業) issued by China Consumption Quality SecurityPromotion (中國消費質量安全萬里行)

November 2019 Henan Shenli were awarded the title of “Green ProductionDemonstration Enterprise in Concrete Industry in China from2017-2018 (2017-2018年度中國混凝土行業綠色生產示範企業)”by Review Committee of Green Production DemonstrationEnterprise in Concrete Industry in China (中國混凝土行業綠色生產示範企業評審委員會) and the Periodical Office of Concrete(《混凝土》雜誌社)

January 2020 Henan Shenli were recognised as 2019 Advanced Enterprise inConstruction System (2019年度建設系統先進企業) by theZhengzhou Urban and Rural Construction Bureau (鄭州市城鄉建設局)

December 2020 Henan Shenli were recognised as Henan Concrete “AAA”Credit Rating Enterprise from 2018-2019 (2018-2019年度河南省混凝土“AAA”級信用企業) by the Henan ProvinceConstruction Industry Association (河南省建築業協會)

August 2021 Henan Gangfa and Henan Shentong were awarded the title of“AAA” Credit Enterprise (“AAA”信用企業) by ZhengzhouUrban and Rural Construction Bureau (鄭州市城鄉建設局)


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CORPORATE DEVELOPMENT

The Company

The Company was incorporated in the Cayman Islands on 2 October 2018 as an exemptedcompany under the Companies Act in anticipation of [REDACTED]. Upon completion of theReorganisation, the Company became the holding company of the Group, which comprises thefollowing major operating subsidiaries and their respective corporate histories are set outbelow.

Our Major Operating Subsidiaries in the PRC

During the Track Record Period, we had conducted our businesses through our OperatingSubsidiaries that were established in the PRC. As of the Latest Practicable Date, we had thefollowing three Operating Subsidiaries, in addition to Shengangtong and Lijiate Printing,which were material to our financial performance and operating status during the Track RecordPeriod.

Henan Shenli

Henan Shenli is principally engaged in the production and sale of ready-mixed concreteproducts.

Henan Shenli was established in the PRC on 14 November 2003 with a registered capitalof RMB20,000,000. Henan Shenli was owned as to 79%, 20% and 1% by Mr. Song, Mr. Shiand Tianfu Animal Husbandry, respectively at the time of its establishment. Before theestablishment of Henan Shenli, Mr. Shi served as a sole proprietor from 1989 to October 2003.On 6 June 2004, Tianfu Animal Husbandry entered into an equity transfer agreement with Mr.Song, pursuant to which the former agreed to transfer its 1% equity interest in Henan Shenlito the latter at a consideration of RMB200,000. The aforesaid consideration was determinedwith reference to then registered capital of Henan Shenli and was settled by Mr. Song on 6 June2004. The aforesaid transfer was registered with the local counterpart of the SAIC andcompleted on 17 June 2004. Upon completion of the aforesaid equity transfer, Henan Shenliwas owned as to 80% and 20% by Mr. Song and Mr. Shi respectively. Mr. Shi was appointedas the supervisor of Henan Shenli since its establishment and ceased to act as a supervisor andappointed as its director on 25 January 2019. As Mr. Shi clearly expressed that he had nointerest in offshore management of the Group, he decided to remain as a director of HenanShenli to support the Group. Save for these positions in Henan Shenli, Mr. Shi had not beeninvolved in the management or daily operation of the Group up to the Latest Practicable Date.As confirmed by the Directors, Mr. Shi does not have any interest in other business thatcompetes or is likely to compete with the business of the Group during the Track Record Periodand up to the Latest Practicable Date.

Increment of registered capital

On 14 February 2014, the equity holders of Henan Shenli resolved to increase theregistered capital of Henan Shenli from RMB20,000,000 to RMB31,000,000, which was fullysettled by Mr. Song and Mr. Shi as to RMB8,800,000 and RMB2,200,000, respectively on 17February 2014. The aforesaid capital increment was registered with the local counterpart of theSAIC and completed on 21 February 2014. Upon completion of the above capital increment,Henan Shenli was owned as to 80% and 20% by Mr. Song and Mr. Shi, respectively.

Upon completion of the Reorganisation, Henan Shenli became a wholly-owned subsidiaryof the Company, details of which are set out in the paragraph headed “Reorganisation” belowin this section.


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Henan Shentong

Henan Shentong is principally engaged in the production and sale of ready-mixedconcrete products.

Taking advantage of the government policy to support the development in the regions,Henan Shentong was established in the PRC on 29 December 2015, with a registered capitalof RMB20,000,000, to strengthen and extend our presence in the Zhengdong New District andKaifeng. In order to minimise the risk of competition to Henan Shentong after knowing thatMr. Song and Mr. Shi would expand their business by establishing another concrete company,for precaution measures, on 1 December 2015, each of Mr. Song and Mr. Shi entered into anentrustment agreement with Mr. Wang respectively, pursuant to which Mr. Wang agreed to holdthe entire equity interest in Henan Shentong, for and on behalf of Mr. Song and Mr. Shi.

Mr. Wang joined Henan Shenli in January 2007 and served as an assistant to the generalmanager of Henan Shenli from January 2007 to November 2015. Mr. Wang was mainlyresponsible for handling sales, production and daily operations.

Except as disclosed above and in the section “Directors, Senior Management andEmployees”, Mr. Wang did not have other relationships or arrangements (business,employment, family, trust, fund flow, financing, guarantee or otherwise) with the Company andits subsidiaries, their shareholders, directors, senior management, or any of their respectiveassociates during the Track Record Period up to the Latest Practicable Date.

Increment of registered capital

On 3 March 2016, the equity holders of Henan Shentong resolved to increase theregistered capital of Henan Shentong from RMB20,000,000 to RMB30,000,000. The registeredcapital of RMB30,000,000 was fully settled (which was funded by Mr. Song and Mr. Shi) byMr. Wang for and on behalf of Mr. Song and Mr. Shi on 12 July 2018. The aforesaid capitalincrement was registered with the local counterpart of the SAIC on 16 March 2016.

Upon completion of the Reorganisation, Henan Shentong became a wholly-ownedsubsidiary of the Company, details of which are set out in the paragraph headed“Reorganisation” below in this section.

Henan Gangfa

Henan Gangfa is principally engaged in the production and sale of ready-mixed concreteproducts.

Henan Gangfa was established in the PRC on 30 October 2017, with a registered capitalof RMB30,000,000, and was owned as to 80% and 20% by Mr. Du and Mr. Yuan, respectivelyat that time.

Before the establishment of Henan Gangfa, each of Mr. Du and Mr. Yuan was anex-employee of Henan Shenli. Mr. Du was the production manager of Henan Shenli from July2004 to September 2011 and Mr. Yuan was the vice manager of laboratory of Henan Shenlifrom April 2004 to October 2011. Mr. Du worked in a shoe store from 2011 to 2016, which wasestablished by his spouse in 2011.


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From 2011 to 2016, Mr. Yuan worked as a sole proprietor and in December 2015,established a company with limited liability in the PRC, which was principally engaged inresearch and development, production and sales of electronic products. Mr. Du and Mr. Yuanjointly established Henan Gangfa as they wanted to develop their own concrete business basedon their belief that concrete industry in Henan province was profitable. Their sources offunding were from their personal savings and loans extended to them by their family members.As confirmed by the Directors and except as disclosed above, both of whom were IndependentThird Parties immediately before the Reorganisation.

In or around July 2018, an Independent Third Party who originally agreed to provide across guarantee to Henan Gangfa informed Mr. Du that he was not willing to provide the saidguarantee and the bank therefore refused to lend loans to him. Mr. Du and Mr. Yuan noticedthat the business of Henan Gangfa might not be sustainable as they were already in debt forthe construction of the Gangfa Batching Plant and were not able to secure new source ofworking capital by other financial means. As a result, Mr. Du and Mr. Yuan decided to disposeof all their equity interest in Henan Gangfa to Henan Shenli in August 2018. Upon completionof the Reorganisation, Henan Gangfa became a wholly-owned subsidiary of the Company,details of which are set out in the paragraph headed “Reorganisation” below in this section.

Lijiate Printing

Lijiate Printing was established in the PRC on 28 January 2010, with a registered capitalof RMB15,000,000. Lijiate Printing was owned as to 56%, 22% and 22% by founder A, founderB and founder C respectively who are all Independent Third Parties. As confirmed by theDirectors, there have been no past or present relationships or arrangements (business,employment, family, trust, fund flow, financing, guarantee or otherwise) among each offounder A, founder B and founder C and the Company and its subsidiaries, their shareholders,directors, senior management, or any of their respective associates.

In the second half of 2017, Mr. Du located a parcel of land suitable for concreteproduction in Zhengzhou Airport Economic Zone which was owned by Lijiate Printing. Afternegotiation, one of the equity holders of Lijiate Printing informed Mr. Du that Lijiate Printinghad no intention to lease the land parcel but to sell it to Mr. Du. As Mr. Du lacked sufficientfund to purchase the land parcel from Lijiate Printing, Mr. Du decided to contact Mr. SongZhengxian, who is Mr. Song’s son and a long term friend of him, for discussion of possiblefinancing to purchase Lijiate Printing.

Mr. Song Zhengxian, on the other hand, out of budget concern and risk assessment,decided not to lend money to Mr. Du directly but due to his long-term friendship with Mr. Duand Mr. Yuan, Mr. Song Zhengxian verbally agreed to acquire Lijiate Printing and lease thesaid land parcel to Henan Gangfa after the acquisition was completed. Based on Mr. SongZhengxian’s promise, Mr. Du established Henan Gangfa on 30 October 2017.

On 29 November 2017, Lijiate Printing was acquired as to 56% and 44% by Mr. SongZhengxian and an Independent Third Party (the “Lijiate Previous Equity Holder”),respectively. The Lijiate Previous Equity Holder is a personal friend and business partner ofMr. Song Zhengxian.


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After the acquisition of Lijiate Printing, Mr. Song Zhengxian leased the land parcel heldby Lijiate Printing to Henan Gangfa for construction of the Gangfa Batching plant at nilconsideration for the time being, hoping that Henan Gangfa would be able to repay the rentafter commencement of production by Henan Gangfa. Nonetheless, Mr. Du and Mr. Yuan wereunable to secure new source of working capital to fund the operations of Henan Gangfaafterwards and decided to dispose of their equity interest in Henan Gangfa to Henan Shenli inAugust 2018.

As of the Latest Practicable Date, (i) each of Mr. Song Zhengxian and the Lijiate PreviousEquity Holder held 32% equity interest in Henan Songzi Hotel Management Co., Ltd. (河南松子酒店管理有限公司), respectively and the Lijiate Previous Equity Holder was also itssupervisor; and (ii) Henan Songzi Hotel Management Co., Ltd. (河南松子酒店管理有限公司)held 30% equity interest in Shengde Commercial Factoring (Shenzhen) Co., Ltd. (盛德商業保理(深圳)有限公司).

As of the Latest Practicable Date, Lijiate Printing had not commenced any businessoperation.

Upon completion of the Reorganisation, Lijiate Printing became a wholly-ownedsubsidiary of the Company, details of which are set out in “Reorganisation” in this document.

Disposal of Minority Interests in Sanya Shenli and Hainan Shenli

Sanya Shenli

In order to focus on the business development of the Group in Zhengzhou, on13 September 2018, Henan Shenli (as vendor) entered into an equity transfer agreement withpurchaser A, an Independent Third Party, pursuant to which Henan Shenli agreed to sell andpurchaser A agreed to acquire 40% equity interest in Sanya Shenli, at a consideration ofRMB8,035,100.

The consideration was determined with reference to the appraised net asset value of SanyaShenli as of 31 July 2018 as assessed by an independent valuer and was settled by purchaserA on 21 September 2018.

Upon completion of the aforesaid equity transfer, Henan Shenli ceased to hold any equityinterest in Sanya Shenli. Before the disposal, Sanya Shenli was principally engaged in theproduction and sale of ready-mixed concrete products in Sanya, Hainan Province, the PRC.

Hainan Shenli

In order to focus on the business development of the Group in Zhengzhou, on14 September 2018, Henan Shenli (as vendor) entered into an equity transfer agreement withthe same purchaser in the disposal of Sanya Shenli, an Independent Third Party, pursuant towhich Henan Shenli agreed to sell and purchaser A agreed to acquire 10% equity interest inHainan Shenli, at a consideration of RMB1,000,000.

The consideration was determined with reference to the appraised net asset value ofHainan Shenli as of 31 July 2018 as assessed by an independent valuer, and was settled bypurchaser A on 8 October 2018.


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Upon completion of the aforesaid equity transfer, Henan Shenli ceased to hold any equityinterest in Hainan Shenli. Before the disposal, Hainan Shenli was principally engaged in theproduction and sale of ready-mixed concrete products in Haikou, Hainan Province, the PRC.

Except for the acquisitions of Sanya Shenli and Hainan Shenli above and as confirmed bythe Directors, there have not been any past or present relationships or arrangements (business,employment, family, trust, fund flow, financing, guarantee or otherwise) between purchaser A(or its ultimate beneficial owner) and the Group, the Group’s shareholders, directors, seniormanagement, or any of their respective associates.

REORGANISATION

In preparation of [REDACTED], the Group undertook the Reorganisation whichcomprises a series of restructuring steps pursuant to which the Company became the holdingcompany of the Group.

Set out below is the shareholding structure of the Group immediately prior to theReorganisation:–

10%40%

20%80%

Henan Shenli(PRC)

Sanya Shenli(PRC)

(Note 1)

Hainan Shenli(PRC)

(Note 2)

Mr. Song Mr. Shi

Notes:

1. Sanya Shenli was owned as to 40% and 60% by Henan Shenli and an Independent Third Party, respectively.

2. Hainan Shenli was owned as to 10% and 90% by Henan Shenli and an Independent Third Party, respectively.

(A) Acquisition of Henan Gangfa and Henan Shentong

• In order to strengthen and extend our presence in the Zhengzhou Airport EconomicZone by taking advantage of the government’s policy support for the developmentin the region and having noticed that Mr. Du was facing difficulties in securing newsource of working capital by other financial means and with an intention to disposeof the equity interest in Henan Gangfa, on 24 August 2018, each of Mr. Du and Mr.Yuan (each as transferor) entered into an equity transfer agreement with HenanShenli (as transferee), respectively, pursuant to which each of Mr. Du and Mr. Yuanagreed to sell, and Henan Shenli agreed to acquire, 80% and 20% equity interest inHenan Gangfa, at a consideration of RMB24,019,920 and RMB6,004,980,respectively. The consideration was determined with reference to the appraised netasset value of Henan Gangfa as of 31 July 2018 as assessed by an independentvaluer. The aforesaid transfer was registered with the local counterpart of the SAICon 27 August 2018. The consideration was settled on 4 September 2018.


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• Upon completion of the aforesaid equity transfer, Henan Gangfa became awholly-owned subsidiary of Henan Shenli. As Mr. Du and Mr. Yuan were thefounders of Henan Gangfa, they were familiar with its operations. Hence, it is moreadministratively convenient and cost effective for the Group to retain Mr. Du andMr. Yuan in the management team instead of deploying new staff members fromHenan Shenli to manage Henan Gangfa. Therefore, as of the Latest Practicable Date,Mr. Du and Mr. Yuan remained as the director and the supervisor of Henan Gangfa,respectively.

• As part of the Reorganisation, on 6 August 2018, Mr. Wang entered into anagreement with Mr. Song and Mr. Shi to terminate the entrustment agreemententered into among them. On 9 August 2018, Mr. Wang (as transferor) entered intoan equity transfer agreement with Mr. Song and Mr. Shi (each as transferee),pursuant to which Mr. Wang agreed to transfer his 80% equity interest in HenanShentong to Mr. Song and his 20% equity interest in Henan Shentong to Mr. Shi, theequity interest of which was held on behalf of Mr. Song and Mr. Shi, respectively.The aforesaid transfer was registered with the local counterpart of the SAIC andcompleted on 13 August 2018.

• On 11 September 2018, each of Mr. Song and Mr. Shi, as transferor, entered into anequity transfer agreement with Henan Shenli (as transferee), respectively, pursuantto which each of Mr. Song and Mr. Shi agreed to transfer his equity interest in HenanShentong to Henan Shenli, at a consideration of RMB24,000,000 andRMB6,000,000, respectively. The consideration was determined with reference tothe registered capital of Henan Shentong and settled on 14 December 2018. Theaforesaid transfer was registered with the local counterpart of the SAIC andcompleted on 13 September 2018.

• Upon completion of the aforesaid equity transfer, Henan Shentong became awholly-owned subsidiary of Henan Shenli.

(B) Acquisition of Lijiate Printing

• Taking into account that Gangfa Batching Plant is located at the land parcel held byLijiate Printing, on 12 September 2018, each of Mr. Song Zhengxian (i.e. son ofMr. Song) and the Lijiate Previous Equity Holder (each as vendor) entered into anequity transfer agreement with Henan Gangfa (as purchaser), pursuant to which Mr.Song Zhengxian and the Lijiate Previous Equity Holder agreed to sell 56% and 44%of their respective equity interest in Lijiate Printing to Henan Gangfa, at aconsideration of RMB8,115,016 and RMB6,376,084, respectively. Suchconsideration was determined with reference to the appraised net asset value ofLijiate Printing as of 31 July 2018 as assessed by an independent valuer. The slightloss on disposal of the equity interest in Lijiate Printing by Mr. Song Zhengxian andthe Lijiate Previous Equity Holder was incurred as (i) Mr. Song Zhengxian, who isthe son of Mr. Song, did not find it unacceptable transferring his interest in LijiatePrinting to Henan Gangfa at a lower consideration as compared with theconsideration paid by him for acquiring the same after considering the benefit of thefamily as a whole; and (ii) Mr. Song Zhengxian compensated the Lijiate PreviousEquity Holder personally by paying him the shortfall (between the considerationpaid by Henan Gangfa for his interest in Lijiate Printing and the consideration paidby him for acquiring the same) to facilitate the acquisition by Henan Gangfa. Theconsideration was settled on 26 December 2018. The aforesaid transfer wasregistered with the local counterpart of the SAIC and completed on 18 September2018.


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• Upon completion of the aforesaid equity transfer, Lijiate Printing became awholly-owned subsidiary of Henan Gangfa. As of the Latest Practicable Date, Mr.Song Zhengxian remained as the director and the legal representative of LijiatePrinting.

(C) Conversion of Henan Shenli to a Sino-Foreign Joint Venture Enterprise

• On 25 January 2019, the equity holders of Henan Shenli resolved to approve Mr.Wong’s capital injection into Henan Shenli in the amount of HK$2,000,000 andsubscription of 1% equity interest in Henan Shenli. The subscription price wasdetermined with reference to the appraised net asset value of Henan Shenli as of 31October 2018 as assessed by an independent valuer. The aforesaid subscription wasregistered with the local counterpart of the SAIC and completed on 31 January 2019.Mr. Wong settled HK$2,000,000 for the capital increment in Henan Shenli on 20March 2019 and the registered capital of Henan Shenli was increased toRMB31,313,100.

• Upon completion of the capital injection, Henan Shenli became a sino-foreign jointventure enterprise which was owned as to 79.2%, 19.8% and 1% by Mr. Song, Mr.Shi and Mr. Wong, respectively.

(D) Incorporation of the Offshore Holding Companies, the Company, the OffshoreSubsidiary and Hong Kong Subsidiary

• On 11 July 2018, Copious Pride was incorporated in the BVI with limited liabilityand was authorised to issue a maximum of 50,000 shares of a single class each witha par value of US$1.00. One fully paid share, representing all the issued share ofCopious Pride, was allotted and issued to Mr. Song on 24 September 2018.

• On 22 August 2018, Great Flourishing was incorporated in the BVI with limitedliability and was authorised to issue a maximum of 50,000 shares of a single classeach with a par value of US$1.00. One fully paid share, representing all the issuedshare of Great Flourishing, was allotted and issued to Mr. Shi on 2 October 2018.

• The Company was incorporated in the Cayman Islands on 2 October 2018 with anauthorised share capital of HK$380,000 divided into 38,000,000 ordinary shareswith a par value of HK$0.01 each. One fully-paid Share was allotted and issued tothe initial subscriber and transferred to Copious Pride on 2 October 2018. On 4December 2018, 79 Shares and 20 Shares were allotted and issued at par value toeach of Copious Pride and Great Flourishing, respectively. The Company was thenowned as to 80% and 20% by Copious Pride and Great Flourishing, respectivelyafter the above allotment of Shares.

• On 3 August 2018, Million Prosper was incorporated in the BVI with limitedliability and was authorised to issue a maximum of 50,000 shares of a single classwith a par value of US$1.00. On 11 October 2018, one fully paid share, representingall the issued share of Million Prosper, was allotted and issued to the Company andMillion Prosper became a wholly-owned subsidiary of the Company.


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• On 20 September 2018, Shenli HK was incorporated in Hong Kong with limitedliability with an issued share capital of HK$1 divided into one share, which wasissued and allotted to Mr. Song. On 19 November 2018, Mr. Song transferred his oneshare in Shenli HK to Million Prosper for a consideration of HK$1 and Shenli HKbecame a wholly-owned subsidiary of Million Prosper.

• The principal business of each of Copious Pride, Great Flourishing, the Company,Million Prosper and Shenli HK is investment holding.

(E) Establishment of Shengangtong

• On 19 February 2019, Shengangtong was established in the PRC as a whollyforeign-owned enterprise with a registered capital of HK$35,000,000. Shengangtongis a wholly-owned subsidiary of Shenli HK and an indirect wholly-owned subsidiaryof the Company. It is intended to act as a holding company in the PRC for PRCsubsidiaries which might be set up by the Group in the future.

• The principal business of Shengangtong is investment holding.

(F) Acquisition of 99% Equity Interest in Henan Shenli by Shengangtong

• On 22 February 2019, Shengangtong entered into an equity transfer agreement witheach of Mr. Song and Mr. Shi, pursuant to which, Shengangtong agreed to acquire,and Mr. Song and Mr. Shi agreed to sell their respective 79.2% and 19.8% equityinterest in Henan Shenli, at the consideration of RMB24,800,000 andRMB6,200,000, respectively. The consideration was determined with reference tothe registered capital of Henan Shenli. The aforesaid transfer was registered with thelocal counterpart of the SAIC and completed on 1 March 2019.

(G) Subscription by Tian Lun and Allotment and Issue of Shares to Copious Pride andGreat Flourishing

• On 28 March 2019, Tian Lun and the Company entered into [REDACTED]Agreement (Tian Lun), pursuant to which Tian Lun agreed to subscribe for 2,000Shares at the consideration of HK$20,000,000. On 1 April 2019, the subscriptionprice was settled by Tian Lun and 2,000 Shares were alloted and issued to Tian Lunon the same day.

• The subscription price for [REDACTED] Agreement (Tian Lun) was determinedwith reference to the appraised net asset value of Henan Shenli as of 31 October2018 as assessed by an independent valuer.

• On 1 April 2019, 14,320 Shares and 3,580 Shares were allotted and issued toCopious Pride and Great Flourishing at par value of the Shares, respectively. Afterthe aforementioned subscription of Shares by Tian Lun and the allotment andissuance of Shares to Copious Pride and Great Flourishing had been completed, theCompany was owned as to 72%, 18% and 10% by Copious Pride, Great Flourishingand Tian Lun, respectively.


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(H) Acquisition of 1% Equity Interest in Henan Shenli from Mr. Wong

• On 22 April 2019, Shenli HK (as purchaser) entered into an equity transferagreement with Mr. Wong (as vendor), pursuant to which, Mr. Wong agreed totransfer his 1% equity interest in Henan Shenli to Shenli HK. The amount ofconsideration payable by Shenli HK was RMB1,765,200 which was determined withreference to the appraised net asset value of Henan Shenli as of 31 October 2018 asassessed by an independent valuer. The consideration payable by Shenli HK to Mr.Wong was offset by the consideration payable to the Company as in Step (I) below.The aforesaid transfer was registered with the local counterpart of the SAIC andcompleted on 25 April 2019.

• Upon completion of the aforementioned equity transfer, Henan Shenli became anindirect wholly-owned subsidiary of the Company.

(I) Subscription of Shares of the Company by Noble Glory

• On 7 June 2019, the Company, Shenli HK, Mr. Wong and Noble Glory entered intoa subscription agreement, pursuant to which Noble Glory, which is a BVI companywith limited liability and wholly-owned by Mr. Wong, agreed to subscribe for 200Shares at the consideration of HK$2,000,000 which was determined with referenceto the appraised net asset value of Henan Shenli as of 31 October 2018 as assessedby an independent valuer. The consideration payable by Noble Glory was offset bythe consideration payable to Mr. Wong in Step (H) above.

Please refer to “History, Reorganisation and Corporate Structure – [REDACTED]” belowin this section for details of the [REDACTED].

[REDACTED]

Investment by Mr. Wong

Noble Glory is an investment-holding company incorporated under the laws of BVI andis directly wholly-owned by Mr. Wong, who is also its sole director. Mr. Wong has a bachelor’sdegree in electrical engineering from the Hong Kong University of Science and Technologyand a master’s degree in information technology from the Open University of Hong Kong, andpossesses considerable work experience in the field of information technology. Mr. Wong metMr. Feng Yi, the former non-executive Director, in or around 2014 and was introduced to Mr.Song through Mr. Feng.

The source of funding of the [REDACTED] made by Mr. Wong was from his personalsaving. Save for the [REDACTED], Mr. Wong has confirmed that (i) he has never beeninvolved in any dealing or transaction with the Directors, the Controlling Shareholders, anymember of our Group or any of their respective associates; (ii) he did not acquire any interestsin the Company with finance provided directly or indirectly by our connected person(s); and(iii) he does not take instructions from our connected person(s) in relation to the acquisition,disposal, voting or other disposal of our Shares registered in his name.


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Upon completion of [REDACTED] and the Capitalisation Issue, taking no account anyShare which may be issued upon exercise of the [REDACTED] and any option which may begranted under the Share Option Scheme, Mr. Wong, through Noble Glory, will be interested in[REDACTED]% of the issued share capital of the Company. Each of Mr. Wong and NobleGlory does not enjoy any special rights in connection with the [REDACTED].

The Shares held by Mr. Wong, through Noble Glory, will be considered as part of the[REDACTED] for the purpose of Rule 8.24 of the Listing Rules as (i) neither Mr. Wong norNoble Glory is a core connected person of the Company; (ii) the acquisition of the Shares byNoble Glory was not financed by a core connected person of the Company; and (iii) both Mr.Wong and Noble Glory are not accustomed to taking instructions from a core connected personof the Company for the voting or dispositions in respect of the Shares held by it.

To the best of the Directors’ knowledge, information and belief and having made allreasonable enquiries, each of Mr. Wong and Noble Glory had no past or present relationshipwith the Group and/or any connected persons of the Company (save for the [REDACTED]Arrangement (Mr. Wong)) at the time which Mr. Wong made a capital injection in the amountof HK$2,000,000 to Henan Shenli to subscribe for 1% equity interest on 25 January 2019.

Investment by Tian Lun

Tian Lun was a company incorporated in the BVI with limited liability on 8 July 2003 andwholly-owned by Gold Shine Development Limited (金輝發展有限公司), which is a companyincorporated in the BVI with limited liability and is controlled by Mr. Zhang. Tian Lun is thecontrolling shareholder of Tian Lun Gas Holdings Limited, the shares of which are listed onthe Main Board of the Stock Exchange (stock code: 1600). The principal business of Tian Lunincludes capital investment in both the PRC and Hong Kong.

Mr. Zhang was a long term friend of Mr. Song. To the best knowledge and belief of theDirectors, Tian Lun decided to invest in the Group in view of our possible business growth.

To the best of the Directors’ knowledge, information and belief and having made allreasonable enquiries, Mr. Zhang is an Independent Third Party.

The source of funding of the [REDACTED] made by Tian Lun was from its internalresources. Save for the [REDACTED], it is confirmed that (i) Tian Lun has never beeninvolved in any dealing or transaction with the Directors, our Controlling Shareholders, anymember of the Group or any of their respective associates; (ii) Tian Lun did not acquire anyinterests in the Company with finance provided directly or indirectly by our connectedperson(s); and (iii) Tian Lun does not take instructions from our connected person(s) in relationto the acquisition, disposal, voting or other disposal of the Shares registered in his name.

Upon completion of the [REDACTED] and the Capitalisation Issue, and without takinginto account any Share which may be issued upon exercise of the [REDACTED] and anyoption which may be granted under the Share Option Scheme, Tian Lun will be interested in[REDACTED]% of the issued share capital of the Company. Tian Lun does not enjoy anyspecial rights in connection with the [REDACTED].


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The following table sets forth key details of the [REDACTED]:

[REDACTED] [REDACTED]

Date of the agreements 28 March 2019 7 June 2019

Parties to the agreements (i) Tian Lun

(ii) The Company

(i) The Company

(ii) Mr. Wong

(iii) Shenli HK

(iv) Noble Glory

Date of Shares allotment 1 April 2019 7 June 2019

Number of Shares held uponcompletion of Reorganisation

2,000 Shares (before theCapitalisation Issue)

[REDACTED] Shares(immediately after theCapitalisation Issue)

200 Shares (before theCapitalisation Issue)

[REDACTED] Shares(immediately after theCapitalisation Issue)

Percentage of shareholdingupon [REDACTED] (withouttaking into account anyShares to be issued pursuantto the exercise of the[REDACTED] and/or anyoption which may be grantedunder the Share OptionScheme)


Amount of consideration paid HK$20,000,000 HK$2,000,000

Costs per Share paid [REDACTED] [REDACTED]

Discount to the Share Price(note 1)


Date on which the considerationwas fully settled

1 April 2019 20 March 2019 (note 2)

Lock-up Period From 3 January 2022 to 24months after the date of[REDACTED]

Nil

Information Right Nil Nil


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Use of Proceeds General working capital,including as partial paymentfor the acquisition of 99%equity interest in HenanShenli by Shengangtong,such proceeds have beenfully utilised

General working capital, suchproceeds have been fullyutilised

Strategic benefits brought tothe Company

Strengthened our capital;contributing experience inthe corporate field toenhance and monitor ourcorporate governance fromthe perspective of a minorityshareholder to communicatewith the Company and theDirectors via attendinggeneral meeting ofshareholders; introduction ofknowledge and experience inmanagement, operations anddevelopment of businessstrategy

Introduction of knowledge andexperience in informationtechnology

Note 1: The calculation is based on mid-point of our indicative price range for the [REDACTED] and takinginto account the Capitalisation Issue and [REDACTED] but excluding any Shares to be issued uponexercise of the [REDACTED] and/or any option which may be granted under the Share OptionScheme.

Note 2: The consideration of the [REDACTED] of Mr. Wong was paid on 20 March 2019 by way of cashwhen Mr. Wong made a capital injection in Henan Shenli. For more details, please refer to thesubsection headed “Reorganisation” in this section of the document.

The Sole Sponsor is of the view that the [REDACTED] as described above are incompliance with the Guidance Letters HKEx-GL29-12 and HKEx-GL43-12 issued by theStock Exchange as the considerations of Mr. Wong and Tian Lun under the [REDACTED]were fully settled on 20 March 2019 and 1 April 2019, respectively, which were before 28 cleardays prior to the date of the first submission of the [REDACTED] to the Stock Exchange inrelation to the [REDACTED], and no special rights were granted to the [REDACTED] thatwill survive after the [REDACTED] in respect of the [REDACTED].


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Set out below is the shareholding structure of the Group immediately after completion ofthe Reorganisation but before completion of the [REDACTED] and the Capitalisation Issue:–

100%

1%99%

100%

100%

100%

100%

100%

0.99%9.9%

100%

Tian Lun(BVI)

Noble Glory(BVI)

Company(Cayman Islands)

Million Prosper(BVI)

Shenli HK(HK)

Shengangtong(PRC)

Henan Shenli(PRC)

Henan Gangfa(PRC)

Henan Shentong(PRC)

Lijiate Printing(PRC)

Mr. Wong

17.82%

100%

Great Flourishing(BVI)

Mr. Shi

Offshore

Onshore

71.29%

100%

Copious Pride(BVI)

Mr. Song


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CAPITALISATION ISSUE AND [REDACTED]

The Company will issue [REDACTED] new Shares under the [REDACTED], andcertain new Shares to the existing Shareholders pursuant to the Capitalisation Issue, resultingin not less than [REDACTED] of the enlarged issued share capital of the Company beingoffered under the [REDACTED].

Set out below is the shareholding structure of the Group immediately after completion ofthe Capitalisation Issue and the [REDACTED] (without taking into account any Shares whichmay be issued upon the exercise of the [REDACTED] and/or any option which may be grantedunder the Share Option Scheme):

100%

1%99%

100%

100%

100%

100%

100%

100%

Tian Lun(BVI)

Noble Glory(BVI)

Company(Cayman Islands)

Million Prosper(BVI)

Shenli HK(HK)

Shengangtong(PRC)

Henan Shenli(PRC)

Henan Gangfa(PRC)

Henan Shentong(PRC)

Lijiate Printing(PRC)

Mr. Wong

100%

Great Flourishing(BVI)

Mr. Shi

Offshore

Onshore

[REDACTED]

100%

Copious Pride(BVI)

Mr. Song

[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]


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PRC REGULATORY REQUIREMENTS

SAFE Registration

Pursuant to the Circular of the SAFE on Foreign Exchange Administration of OverseasInvestment, Financing and Round trip Investments Conducted by Domestic Residents throughSpecial Purpose Vehicles (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) (the “SAFE Circular No. 37”), promulgated by SAFE andwhich became effective on 4 July 2014, (a) a PRC resident must register with the local SAFEbranch before he or she contributes assets or equity interests in an overseas special purposevehicle (the “Overseas SPV”) that is directly established or indirectly controlled by the PRCresident for the purpose of conducting investment or financing, and (b) following the initialregistration, the PRC resident is also required to register with the local SAFE branches for anymajor change, in respect of the Overseas SPV, including a change of Overseas SPV’s PRCresident shareholder(s), the name of the Overseas SPV, terms of operation, or any increase orreduction of the Overseas SPV’s capital, share transfer or swap, and merger or division.Pursuant to SAFE Circular No. 37, failure to comply with these registration procedures mayresult in penalties.

Pursuant to the Circular of the SAFE on Further Simplification and Improvement inForeign Exchange Administration on Director Investment (國家外匯管理局關於進一步簡化和改進直接投資外匯管理政策的通知) (the “SAFE Circular No. 13”), promulgated by SAFE andwhich became effective on 1 June 2015, the power to accept SAFE registration was delegatedfrom local SAFE to local banks where the assets or interest in the domestic entity was located.

As advised by our PRC Legal Advisers, all necessary SAFE registration under the SAFECircular No. 13 and SAFE Circular No. 37 have been completed.

THE M&A RULES

On 8 August 2006, six PRC regulatory authorities, including the MOFCOM, the SASAC,the SAT, the SAIC, the CSRC and the SAFE, jointly issued the M&A Rules which wereamended by the MOFCOM on 22 June 2009. Pursuant to the M&A Rules, a foreign investoris required to obtain necessary approvals when (i) a foreign investor acquires equity in adomestic non-foreign invested enterprise thereby converting it into a foreign-investedenterprise, or subscribes for new equity in a domestic enterprise through an increase ofregistered capital thereby converting it into a foreign-invested enterprise; or (ii) a foreigninvestor establishes a foreign-invested enterprise which purchases and operates the assets of adomestic enterprise, or which purchases the assets of a domestic enterprise and injects thoseassets to establish a foreign-invested enterprise. In the event that any domestic company,enterprise or natural person merges or acquires a domestic company that has affiliatedrelationship with it through an overseas company legally established or controlled by suchdomestic company, enterprise or natural person, the merger and acquisition applications shallbe submitted to the MOFCOM for approval and any circumvention on the requirementincluding domestic re-investment of a foreign invested enterprise is not allowed.

As advised by our PRC Legal Advisers, the Reorganisation is not subject to approvalsfrom the MOFCOM under the M&A Rules, and the [REDACTED] does not require approvalsfrom the CSRC and the MOFCOM under the M&A Rules.


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OVERVIEW

We are a leading ready-mixed concrete producer in Zhengzhou, Henan Province.According to the F&S Report, we are the largest ready-mixed concrete producer in terms ofboth revenue and production volume in Henan Province for the year ended 31 December 2020,with a market share of approximately 3.3% and 3.2%, respectively, in Zhengzhou and a marketshare of approximately 1.2% and 1.1%, respectively, in Henan Province.

Since Shenli Batching Plant was established in 2003, we have been operating in theready-mixed concrete manufacturing industry for 18 years. As of the Latest Practicable Date,we operated three batching plants, namely the Shenli Batching Plant, the Shentong BatchingPlant and the Gangfa Batching Plant, which are strategically located in the northeastern,eastern and southeastern regions of Zhengzhou, where the level of construction activitiesremains high with a relatively large number of major construction projects. All of our batchingplants are equipped with the production facilities to produce ready-mixed concrete products ofall grade levels ranging from C10 to C100 as well as wet-mixed mortar products of all gradelevels ranging from M5 to M30. During the Track Record Period, our products primarilyincluded regular ready-mixed concrete products of grade levels from C15 to C60, which webelieve are most commonly used in real estate development and public infrastructureconstruction, according to the F&S Report. In addition to our ready-mixed concrete products,we produce and sell small amounts of wet-mixed mortar products from time to time at therequest of customers. We manufacture our products according to customer orders incompliance with the Concrete National Standard. To cater for the specific construction andtechnical needs, we offer the option of adding specific admixtures to the ready-mixed concreteand wet-mixed mortar mixes during the production process to achieve additional properties inaccordance with the construction needs. The ready-mixed concrete production industry in PRCis highly fragmented. Due to the curing nature of ready-mixed concrete products, which meansthey congeal within a short period of time, the geographical sales radius of each ready-mixedconcrete producer in the market is limited. We are responsible for delivery of our products toour customers, and we use third party transportation service providers to deliver our products.

We believe that our high product quality is essential to differentiating our products fromthe products of our competitors. We have a long-standing emphasis on production managementand quality control measures to ensure the quality of our products. Quality control measuresare implemented throughout our production process to ensure that every stage of productionadheres to our high quality standards, including tests on raw materials and finished products.We have established quality management systems designed and certified according toGB/T19001-2016 idt ISO9001:2015 standards. Our strong production know-how has alsoenabled us to customize our raw material mix to manufacture products with specific qualitiesto suit construction needs. In particular, we participated in the preparation of the DBJ41/T048-2016 Technical Specification for Application of Concrete made from Mixed Sand (《混合砂混凝土應用技術規程》) promulgated by the Housing and Urban-rural Development Departmentof Henan Province (河南省住房和城鄉建設廳) in 2016. In 2019, we were responsible fordrafting the Standards on the Waste Water Recycling by Ready-mixed Concrete Manufacturers(《預拌混凝土生產企業廢水回收利用規範》), which was published on 21 August 2021 andimplemented on 1 February 2022 as the standard for the construction materials industry inChina. In 2019, we participated in the drafting of the Ready-mixed Concrete EnterpriseLaboratory Management Methods (《預拌混凝土企業實驗室管理規程》) which used as astandard of the China Building Material Association and is expected to be issued andimplemented in 2022. In 2021, we are participating in the drafting of the Guidelines for theManagement of Carbon Assets and Evaluation Requirements for Enterprises in the Cement andConcrete Industry (《水泥和混凝土行業企業碳資產管理指南與評價要求》) as the Standard ofthe China Bulk Cement Promotion and Development Association. We believe that this

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evidenced the recognition of our production quality and technical know-how from bothindustry participants and government authorities. We believe that, with our stringent qualitycontrol measures and strong production know-how, we have been and will continue to be ableto achieve stable performance and quality for our products. Our products have been used inlandmark buildings, such as the Zhengzhou Greenland Plaza (鄭州綠地中心•千璽廣場), thetwin towers of the Zhengzhou Greenland Central Plaza (鄭州綠地中央廣場雙子塔) and CentralChina FU Tower (中原福塔), which are the three tallest buildings ever built in Zhengzhou.

Leveraging our strong production know-how, the rich industry experience of ourmanagement team, solid business relationships with our key suppliers and customers, and thestrategic locations of our batching plants in Zhengzhou, and benefiting from favourablegovernment policies and stringent quality control measures, we maintained our strong financialperformance and market-leading position for the two years ended 31 December 2019 and 2020.Despite the general downward pressure on the economy and construction activities caused bythe COVID-19, our revenue remained relatively stable at approximately RMB1,097.4 millionfor the year ended 31 December 2019 and approximately RMB1,086.5 million for the yearended 31 December 2020, respectively, while our net profit increased from approximatelyRMB93.2 million for the year ended 31 December 2019 to approximately RMB102.7 millionfor the year ended 31 December 2020. Due to the unprecedented flood that occurred inZhengzhou in July 2021 as well as an outbreak of COVID-19 following the flood, whichresulted in the disruption of construction activities for an extended period, our revenuedecreased from approximately RMB944.7 million for the nine months ended 30 September2020 to approximately RMB511.2 million for the nine months ended 30 September 2021,respectively, and our net profit decreased from approximately RMB92.1 million for the ninemonths ended 30 September 2020 to approximately RMB42.8 million for the nine monthsended 30 September 2021. For more information, see “Financial Information – Discussion ofMajor Components of Consolidated Statements of Comprehensive Income – Revenue” in thisdocument.

OUR COMPETITIVE STRENGTHS

We believe that the following competitive strengths have contributed to our success andwill continue to strengthen our market position in the ready-mixed concrete industry inZhengzhou and Henan Province:

We are a leading ready-mixed concrete producer in Zhengzhou and Henan Province interms of both revenue and production volume with a wide product range, which webelieve enables us to capture market growth potential and further strengthen our marketposition

We are the largest ready-mixed concrete producer in Henan Province in terms of revenuefor the year ended 31 December 2020, according to the F&S Report, with a market share of3.3% and 1.2% in Zhengzhou and Henan Province, respectively. We also ranked first amongthe ready-mixed concrete producers in Henan Province in terms of production volume in 2020,according to the F&S Report, with a market share of 3.2% and 1.1% in Zhengzhou and HenanProvince, respectively.

Over the years, we have established ourselves as a quality ready-mixed concrete producerin Zhengzhou and Henan Province. As of the Latest Practicable Date, our three batching plantshave been serving construction sites located in the northeastern, eastern and southeasternregions of Zhengzhou, where there has been high level of construction activities. According tothe F&S Report, a batching plant can be categorised as (i) a regional batching plant or (ii) aproject batching plant, depending on its customer coverage. A regional batching plant generally

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serves construction projects within a regional market. A project batching plant usually servesa particular construction project only. Regional batching plants generally have higher grossprofit margins than project batching plants because the former normally (i) cover a largernumber of nearby construction projects, instead of a single project, which contributes to largersales volumes of ready-mixed concrete; and (ii) incur lower transportation costs in general asthey are usually located in urban areas with more construction activities nearby, whereas thelatter are mostly located in remote or rural areas where access to and from the batching plantsis more difficult.

In addition, our three regional batching plants are equipped with a total of eightproduction lines, among which four have a theoretically highest possible production capacityof 180 m3 per hour each and the other four each have a theoretically highest possibleproduction capacity of 220 m3 per hour. As of the Latest Practicable Date, our Shenli BatchingPlant, Shentong Batching Plant and Gangfa Batching Plant had theoretically highest possibleproduction capacities of 360 m3 per hour, 440 m3 per hour and 800 m3 per hour, respectively.According to the F&S Report, a batching plant with a theoretically highest possible productioncapacity of over 300 m3 per hour is regarded as a large scale batching plant in the ready-mixedconcrete industry. A large production capacity enables us to achieve higher productionefficiency as a result of the economies of scale as well as cater for large scale publicinfrastructure projects, certain parts of which may need to be completed within a short periodof time. Further, we believe that a large production capacity promotes our customers’confidence in us, particularly at times when our customers have tight construction schedulesand they need to be assured that we have the production capacity to satisfy their demand.

In 2020, ready-mixed concrete accounted for 42.6% of total concrete (including fieldconcrete and ready-mixed concrete) in Henan Province, which was lower than the nationalaverage of 48.8%, according to the F&S Report. Following the issuance of the Guidelines onEliminating Backward and Transforming and Upgrading Ready-mixed Concrete Industry (《關於預拌混凝土行業淘汰落後與轉型升級指導意見》) in 2017, outdated and environmentallydamaging production methodologies, such as field concrete production, have been graduallyphased out. According to the F&S Report, market consolidation is expected to drive thepenetration rate of ready-mixed concrete in Henan Province to reach 45.9% in 2025, which isexpected to benefit large enterprises with market leading positions like us.

Leveraging our extensive industry experience, established market position, strategicmarket coverage in Zhengzhou, wide range of ready-mixed concrete products and customizedraw material mixes to tailor-make products that suit our customers’ individual constructionneeds, we believe that we are well-positioned to capture the growth potential of theready-mixed concrete industry resulting from increasing urbanisation, growing demand andmarket consolidation, and to further increase our market share through strengthening ourmarket position in Zhengzhou and Henan Province.

Our batching plants are strategically located in Zhengzhou in line with city developmentplans and we benefit from favourable government policies for the ready-mixed concreteindustry

Henan Province is the third most populous province in the PRC, with an urbanisation rateof 55.4% in 2020, which was lower than the national average of 63.9%. According to the F&SReport, the urbanisation rate of Henan Province is expected to increase from 56.9% in 2021 to63.2% in 2025, as more people move to urban areas to look for better opportunities for jobs,education and medical care and enjoy higher living standards in general. It is also expected thatthe total construction value in Henan Province will grow from RMB1,385.7 billion in 2021 toRMB1,838.5 billion in 2025, representing a CAGR of 7.3% as a result of regional economic

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development driven by policy incentives. According to the F&S Report, the production volumeof ready-mixed concrete in Henan Province is projected to grow from 213.4 million m3 in 2021to 276.0 million m3 in 2025, representing a CAGR of 6.6%, while the market size by revenueof ready-mixed concrete in Henan Province is projected to grow from RMB87.0 billion in 2021to RMB133.2 billion in 2025, representing a CAGR of 11.2%.

Zhengzhou is the capital city of Henan Province and the most sought-after place ofresidence by affluent residents from other cities in Henan Province. The growing population inZhengzhou has led to a high number of public infrastructure projects of public transportation,office buildings, shopping malls, hotels, schools and hospitals, which in turn drives the demandfor ready-mixed concrete. In 2020, Zhengzhou accounted for approximately 34.8% of the totalproduction volume of ready-mixed concrete in Henan Province. According to the F&S Report,the total production volume of ready-mixed concrete in Zhengzhou is expected to increase from74.1 million m3 in 2021 to 97.0 million m3 in 2025 at a CAGR of 7.0%, and the market sizeby revenue of ready-mixed concrete industry in Zhengzhou is expected to increase fromRMB33.2 billion in 2021 to RMB50.0 billion in 2025 at a CAGR of 10.8%.

In addition, we have benefited from favourable government policies and guidelines suchas the Zhengzhou Metropolitan Spatial Plan (2018-2035) (鄭州大都市區空間規劃(2018-2035年)), which was approved at the end of 2018 and has been implemented since 2019. It aims totake the construction of central cities as the reference point to accelerate the development ofurban construction, support the construction of Zhengzhou as a national-level city in CentralChina, accelerate the construction of Zhengzhou metropolitan area and promote the integrateddevelopment of its surrounding cities. The “13th Five-Year Development Plan of ZhengzhouAirport Economic Comprehensive Experimental Zone” (鄭州航空港經濟綜合實驗區“十三五”發展規劃) has resulted in a large number of construction work opportunities. During thecurrent “14th Five-Year Development Plan” (“十四五”發展計劃), the Zhengzhou governmenthas been striving to accelerate the construction of an international comprehensivetransportation hub, a national advanced manufacturing base, a national historical and culturalcity, and a core demonstration area for ecological protection and high-quality development ofcivil construction in the Yellow River Basin. These construction plans provide significant andlasting market demand and are expected to drive the growth of the ready-mixed concreteproduct market, according to the F&S Report.

Our three batching plants, namely Shenli Batching Plant, Shentong Batching Plant andGangfa Batching Plant, are strategically located to meet demand for our products from thenortheastern, eastern and southeastern regions of Zhengzhou. We have had an establishedpresence in Zhengzhou since the establishment of, and the commencement of production ofShenli Batching Plant in 2003 and 2004, respectively. Shenli Batching Plant is located in thenortheastern part of Zhengzhou, close to the junction between Jinshui District of Zhengzhouand Zhengdong New District. Shentong Batching Plant is located in the eastern part ofZhengzhou, close to Zhengdong New District, and in the midpoint between Zhengzhoudowntown area and Kaifeng. Driven by a number of government initiatives, including theOutline for Establishing Zhengzhou as the National City Centre (2017-2035) (《鄭州建設國家中心城市行動綱要(2017-2035年)》), these regions have been undergoing sustainedconstruction activities and public infrastructure development. According to the F&S Report,the Zhengdong New District is expected to evolve into a national central city with five industryclusters covering (i) finance; (ii) technology; (iii) electronic commerce; (iv) administrativeservices, public cultural services and business bases; and (v) modern agriculture. Thecontinuing development of the Zhengdong New District is expected to further promote thelevel of fixed asset investment in the region. Further, according to the F&S Report, leveragingits proximity with the Zhengdong New District and its central location under the Zhengzhou-Kaifeng Integration regime, Shenli Batching Plant and Shentong Batching Plant are expected

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to further benefit from the development of both the Zhengdong New District and Kaifeng. Assuch, the increasing construction activities in real estate and public infrastructure in theseregions have driven, and are expected to continue to drive, the need for construction materials,including our ready-mixed concrete products. Gangfa Batching Plant is located in thesoutheastern part of Zhengzhou in the Zhengzhou Airport Economic Zone. As the first airporteconomic development zone approved by the State Council, the zone is positioned as aninternational aviation logistics centre and an important gateway to inland areas. The zone hasbeen included in the National 13th Five-Year Plan to be created as an international integratedtransportation hub in the PRC, according to the Development Plan of Modern ComprehensiveTransportation System of the 13th Five-Year Plan (《「十三五」現代綜合交通運輸體系發展規劃》) issued by the State Council in 2017. For more details of the geographical locations andbusiness landscape of our batching plants, see “Our production facilities – The batching plants”below. We believe that our presence in the region has enabled us to gain a first-moveradvantage, which provides a solid base for us to capture the market growth potential in theregion in the future.

We have solid business relationships with our major suppliers and customers, most ofwhom are leading players in the construction industry and have participated inlarge-scale projects for landmark buildings and public infrastructure in Zhengzhou

We have stable and long-standing business relationships with our major suppliers andcustomers. Our close business relationships with our major suppliers underpin our ability tohave ready access to different grades and specifications of raw materials, which suit thecompressive strength requirement and product specifications of our customers. We believe thatas a result of the long-standing business relationships with our major suppliers and our bulkpurchase volume, we have been able to maintain a stable supply of our raw materialscontinuously. We believe that our long-standing and stable relationships with our suppliershave also helped us strengthen our relationships with our customers and maintain ourcompetitiveness.

Further, we have maintained around 14 to 18 years of business relationships with most ofour top five customers during the Track Record Period. According to the F&S Report,construction contractors generally tend to stay with the ready-mixed concrete producers withwhom they have maintained a long-term relationship because the quality and reliability ofconcrete products are very important, as concrete is commonly used as a fundamentalcomponent in buildings to preserve their structural integrity. Many of our customers arestate-owned enterprises with large-scale operations and stringent requirements for productquality. The high and consistent quality of our products and our in-depth understanding of ourindustry, as well as the industry and operations of our customers, have enabled us tosuccessfully meet customer requirements and expand our customer base. Our products havebeen used by our customers in large-scale construction and development projects for landmarkbuildings, including the Zhengzhou Greenland Plaza (鄭州綠地中心•千璽廣場), the twintowers of the Zhengzhou Greenland Central Plaza (鄭州綠地中央廣場雙子塔) and CentralChina FU Tower (中原福塔), as well as public infrastructure projects in Zhengzhou such asLines 4, 5, 6, 8 and 12 of the Zhengzhou Metro.

We also believe that our responsive customer service is another important factor for us tobe able to retain and expand our customer base. We conduct regular customer visits to keepabreast of their technical needs as well as latest industry standards, which we believe hascontributed to the development of our customer relationships and our trusted brand reputation.Our solid track record of serving highly regarded customers responsible for construction ofreputable real estate and public infrastructure projects also helps with our marketing efforts.

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Due to our track record and solid market position, we are often invited by our customers toparticipate in bids and tender offers, and we believe that our reputation gives us competitiveadvantages in securing sales orders for new construction projects.

We believe that our strong business relationships with our major suppliers and customersprovide a solid basis for our future growth.

Our stringent quality control measures and strong production know-how help us maintainhigh quality standards for our products

We believe that our high product quality is essential to differentiating our products fromthe products of our competitors. We have had a long-standing emphasis on productionmanagement and quality control measures to ensure the quality of our products. Quality controlmeasures are implemented throughout our production process to ensure that every stage ofproduction adheres to our high quality standards, including tests on raw materials and finishedproducts. We have dedicated material testing laboratories and specialised equipment for thesetests. Our production process is also closely monitored by our quality control teams to ensurethat our raw material preparation and production know-how is fully and accurately applied inour production. As of the Latest Practicable Date, our technical and quality control teamcomprised 14 employees involved at various stages of our production process. We believe thatour commitment to stringent quality control has enabled us to produce quality products, whichhas earned us our reputation and recognition among our customers. For more details, see “–Quality Control” below.

Our products are ultimately used for construction of real estate and public infrastructureprojects, and reliability, durability and safety are of paramount importance to our customers.In view of this, having a high product quality standard recognized by professional accreditationentities is crucial. We have established quality management systems designed and certified bythe GB/T19001-2016 idt ISO9001:2015 standards. We pride ourselves on our capability tooffer a comprehensive range of products comprising ready-mixed concrete products of C10 toC100 grade levels and wet-mixed mortar products. Our strong production know-how has alsoenabled us to customize our raw material mix to produce products with specific qualities to suitparticular construction needs. In particular, we participated in the preparation of theDBJ41/T048-2016 Technical Specification for Application of Concrete made from Mixed Sand(《混合砂混凝土應用技術規程》) promulgated by the Housing and Urban-rural DevelopmentDepartment of Henan Province (河南省住房和城鄉建設廳) in 2016. In 2019, we wereresponsible for drafting the Standards on the Waste Water Recycling by Ready-mixed ConcreteManufacturers (《預拌混凝土生產企業廢水回收利用規範》), which was published on 21August 2021 and will be implemented on 1 February 2022 as the standard for the constructionmaterials industry in China. In 2019, we participated in the drafting of the Ready-mixedConcrete Enterprise Laboratory Management Methods (《預拌混凝土企業實驗室管理規程》)which used as a standard of the China Building Material Association and is expected to beissued and implemented in 2022. In 2021, we are participating in the drafting of the Guidelinesfor the Management of Carbon Assets and Evaluation Requirements for Enterprises in theCement and Concrete Industry (《水泥和混凝土行業企業碳資產管理指南與評價要求》) as theStandard of the China Bulk Cement Promotion and Development Association. We believe thatthis evidenced the recognition of our production qualities and technical know-how from bothindustry participants and government authorities.

We believe that, with our stringent quality control measures and strong productionknow-how, we are able to achieve stable performance and quality for our products. We havebeen receiving, and expect to continue to be able to receive, recurring purchaser orders fromour existing customers and maintain long-term business relationships with our customers.

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Experienced and dedicated management team and production team with proven trackrecord in ready-mixed concrete and mortar production

Our Directors and senior management possess relevant operational expertise andexperience, and are familiar with the ready-mixed concrete production industry. They havehelped us to successfully achieve a competitive position in the industry. Mr. Song, ourChairman, chief executive officer and executive Director, has over 18 years of experience inthe ready-mixed concrete production industry. As the founder of Henan Shenli, Mr. Song hasled the strategic development and daily operations of the Group since November 2003. Ms.Huang Jin, our executive Director and chief financial officer, joined the Group in May 2005and has been responsible for the overall accounting and financial management andimplementation of financial plan of our Group since then. Ms. Huang has over 20 years ofexperience in the financial and accounting field. She obtained an intermediate accountantqualification (中級會計師) in the PRC in May 1999. Mr. Wang, our executive Director, isresponsible for the overall business development and marketing management of the Group.

In addition, we have an experienced production team with the requisite technicalknowledge, skills and industry background. We hire qualified employees taking into accounttheir appropriate level of education and years of experience in a similar position, requiringbackground checks and onboarding procedures for each employee. Adhering to the principle of“training before work”, we provide training for employees to develop relevant skills withrespect to production, technology and safety before they assume their positions. We alsorequire each department to design an annual schedule of training courses, all of which aresubject to regular review on their effectiveness, for our employees to update their workingknowledge and skills. To ensure the effective execution of our human resources managementpolicy, we use important metrices such as attendance, technical skills, efficiency, teamworkand accuracy in the performance review of our employees. We believe that the technicalexpertise in ready-mixed concrete production and in-depth industry knowledge are ourvaluable assets. Under the leadership of our Directors and senior management, we willcontinue to capture market opportunities, enhance our relationships with customers andformulate and implement our strategies effectively.

OUR BUSINESS STRATEGIES

We aim to further strengthen our market position in the ready-mixed concrete industry inthe PRC. In anticipation of the future growth potential of the industry being fueled by risingdemand and market consolidation, we intend to continue to seek opportunities to realizesustainable growth of our business. To achieve our goal, we plan to focus on the followingstrategies:

Expand our production capacity

We intend to construct a new batching plant containing two production lines, each witha theoretically highest possible production capacity of 300 m3 per hour, in the northwesternpart of Zhengzhou where we currently do not have a presence. On 31 December 2021, ourGroup and the government of Jiayu Township, Xingyang city entered into a letter of intent withrespect to our proposed project to construct a production facility for environmentally friendlyready-mixed concrete for a proposed total investment of approximately RMB120.0 million. Itwas agreed that we would complete construction and commence production within two yearsof acquiring the land use rights. The letter of intent will terminate automatically withoutliability for either side if we fail to acquire the land use rights. Given the Xingyang city hasrecently become a part of Zhengzhou, the expansion of northwestern part of Zhengzhou hasbrought many new expansion and construction opportunities. Favourable governmentinitiatives such as the Outline for Establishing Zhengzhou as the National City Centre(2017-2035) issued by the Zhengzhou Municipal Government (鄭州建設國家中心城市行動綱要(2017-2035年)) clearly prioritizes the completion of the construction of Xingyang city as a

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reference point to accelerate the urbanisation of the whole region as soon as possible. Recently,on 8 January 2021, the initial urban planning of Xingyang city has been finalized followingrelevant technical studies and data research. Based on the government’s vision of the integrateddevelopment of Xingyang city and Shangjie District in Zhengzhou and its strategic plan todevelop Zhengzhou into a national city centre, we plan to seize the market opportunity forexpansion into the northwestern part of Zhengzhou.

In order to effectively implement our expansion strategy, we plan to build anenvironmentally friendly commercial batching plant, with two production lines with atheoretically highest possible production capacity of 300 m3 per hour. We expect to investapproximately HK$144 million (approximately RMB120 million) in the construction plan,including HK$[24] million (approximately RMB[20] million) from our internal resources. Theexpected annual production volume upon completion is estimated to be 900,000 m3, withapproximately 540,000 m3 in the first year of production, 720,000 m3 in the second year, and900,000 m3 per year thereafter. The estimated investment payback period after tax is 5.33 years(inclusive of the period of construction), which refers to the number of years needed for ourproducts to result in net cash inflows compared to the initial cash investment. The estimatedbreakeven period is 4.73 years (inclusive of the period of construction), which refers to the firstpoint in time at which our operating revenue is at least equal to our operating expenses.

The expected implementation timeline for our construction plan is as follows:

Project MilestonesExpected implementationtimeframe

Completing the acquisition of the subject land userights

October to December, 2022

Obtaining the administrative approval for ourplanned construction


Completing the tendering and purchase ofmachineries and equipment


Completing the construction and installation ofmachineries and equipment at the batching plantand reaching the requirement for completion-basedcheck and acceptance

January to December, 2023

Hiring and training of the production employees November to December, 2023

Production testing January, 2024

Application for qualifications and licences February to March, 2024

Official commencement of operation April to May, 2024

According to the feasibility study for the construction, the proposed construction of thecommercial batching plant is expected to experience positive growth in light of the favourableexisting and expected market conditions. Due to (i) the relatively stable price for commercialconcrete in Henan Province as a result of the steady increase in market demand year by year,(ii) new applications of commercial concrete following the development in technology andproduct quality and (iii) the abundance of raw materials required for production of suchcommercial concrete, the supply and demand of commercial concrete will continue to increase,the price of commercial concrete will continue to stabilize, and the profitability ofconcrete-mixing and production will not decrease.

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As of the Latest Practicable Date, we have obtained letters of intent from six of ourcustomers, with whom we have had long-term and stable relationships, for their formalexpression of interest in continuing to purchase from us after the construction of the phase onebatching plant.

Alternatively, we may also consider acquiring an existing batching plant in the targetgeographical market. We have preliminarily identified 20 potential batching plants in the targetgeographical market with a theoretically highest production capacity of 360 m3 to 440 m3 perhour. The selection criteria for our potential acquisition targets includes (i) the capacity of thebatching plant, which shall be not less than two production lines with a theoretically highestproduction capacity of no less than 180 m3 per hour each; (ii) the area of the land on which thebatching plant is located, which shall be not less than 35 mu (approximately 23,333 squaremeters); (iii) the land use rights is free of encumbrances and it could be freely leased or owned;and (iv) complete qualifications and certificates for production and environmental compliance.The batching plant is expected to commence production and operation upon completion ofacquisition. We expect to integrate our existing business network, professional staff andindustry resources with the operations of the target batching plant, in order to further expandour ready-mixed concrete operations to the target geographical market and develop newbusiness opportunities.

We intend to apply approximately [REDACTED] (equivalent to approximately[REDACTED]), representing approximately [REDACTED] of the [REDACTED] from the[REDACTED], for the construction or acquisition of a new batching plant. See “Future Plansand [REDACTED]” in this document for a more detailed description.

Continue to pursue environmentally friendly business solutions

We also intend to further upgrade the environmental protection features of our productionfacilities to minimize the impact of our operations on the environment. Specifically, we planto install a sand screener system, an exterior washing machine for concrete delivery trucks, anda solar power system. Environmental pollution may result from the discharge of residualconcrete during the production and delivery of our ready-mixed concrete products. We plan toinstall an upgraded sand screener system to separate sand aggregates and cement materialsfrom residual concrete for recycling. This upgraded sand screener system is expected to bemore efficient with higher processing capacity, lower energy consumption and better results ofseparation. Governmental environmental agencies require thorough cleaning of the exterior ofdelivery trucks before leaving production facilities to prevent dust contamination to publicroads. We plan to acquire an upgraded delivery truck exterior washing machine which is moreeffective, fully automated and requires lower maintenance costs. In line with the government’spolicy guidance for enterprises to adopt measures to reduce energy consumption and wastedischarge, our Gangfa Batching Plant plans to collaborate with third parties to install solarpower panels and establish its own solar power system for self use. We expect to useapproximately RMB3.0 million to install the sand screener system, approximately RMB3.6million to install the exterior washing machine for delivery trucks, and approximately RMB3.4million for the solar power system, for a total investment of approximately RMB10.0 million.

Taken together, we expect that the above environmentally friendly business solutions willrequire a total investment of approximately [REDACTED], which we expect to fund with[REDACTED] from the [REDACTED] of approximately [REDACTED] (equivalent toapproximately [REDACTED]), representing approximately [REDACTED] of the[REDACTED] from the [REDACTED].

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Develop our research and development capabilities

As our products are used for construction of public infrastructure, such as municipal roadsand urban rail transit systems, as well as real estate and commercial properties such asskyscrapers, our customers require stringent product quality standards in relation to safety,reliability and durability. Each construction project may require specific ready-mixed concretecharacteristics to suit different compressive strength, water repelling and appearancerequirements. In recent years, the PRC government at national and provincial levels haspromulgated a number of policies and measures to promote the use of environmentally friendlyconstruction materials. The General Office of the State Council issued the Guiding Opinionson Promoting the Steady Growth, Adjustment of Structure and Improvement of Benefits in theBuilding Materials Industry (《關於促進建材工業穩增長調結構增效益的指導意見》) in May2016, which require the relevant governmental agencies to implement the action plan forpromoting the production and application of green building materials and carry out theevaluation of green building materials. The MOHURD promulgated the Guiding Opinions onImproving the Quality Assurance System and Improving the Quality of Construction Projects(《關於完善品質保障體系提升建築工程品質的指導意見》) in September 2019, which requirethat the relevant governmental authorities shall promote green construction and reduce theadverse impact of construction on the environment through advanced technology and scientificmanagement. The NDRC promulgated the Circular on Issuing the 14th Five-year DevelopmentPlan of the National Development and Reform Commission for Circular Economy (《國家發展改革委關於印發“十四五”循環經濟發展規劃的通知》) in July 2021, which sets forth thegoal that by 2025, the recycling production method will be fully implemented, green designand clean production will be widely promoted, the comprehensive utilisation capacity ofresources will be significantly improved, and a resource circular industrial system will bebasically established. We intend to continue to upgrade our technologies and develop ourknow-how in environmentally friendly concrete, in order to adapt to market changes, respondto customers’ needs and further grow our market share.

Industry players in the ready-mixed concrete market are increasingly seekingsupplementary sources for aggregates from collecting and recycling building material wastefrom building renovation and demolition of related projects. Given the large quantity ofbuilding material waste produced each year in the PRC as a result of increasing level ofurbanisation and the related building renovation and demolition work, we believe that recycledaggregate concrete poses potential for cost savings in terms of raw material procurement.Further, using recycled aggregates in ready-mixed concrete could help to reduce environmentalpollution and wastes. Accordingly, the application of solid waste resources in ready-mixedconcrete production has been an important research topic with commercial value.

As part of our business strategies, we aim to deploy more resources to develop ourresearch and development capabilities through establishing a research and development centre.Toward this goal, we plan to purchase research and testing equipment and upgrade our existingequipment, develop our research and development team by hiring additional employees withrelevant experience in the application of solid waste resources in ready-mixed concreteproduction, as well as arrange for employee training and apply for patents. Our research anddevelopment efforts primarily focus on (i) the optimisation of raw materials mix through thesubstitution of existing materials or the addition of new admixtures to achieve desirabletechnical specifications to broaden the applications of or add new features to our products; (ii)the development of improved products preparation technologies; (iii) the testing andapplication of new admixtures; and (iv) the development of technologies that reduce theenvironmental impact of our production activities.

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We currently plan to carry out the following research projects:

Project Commercial applications

Expectedtimeframe forimplementation

Development of neutralizationreaction device in productionprocess of super absorbentresin

Used for neutralizationreactions in productionprocess of super absorbentresin.

January 2021-December 2023

Research on the preparationtechnology of high strengthvegetation concrete

Has good biocompatibility,which is conducive toecological environmentprotection.


Development project of dustremoval equipment for naturalexposed aggregate concreteproduction

Used for dust removal inproduction plants.


Research on preparationtechnology of nano mineralpowder composite aramid fiberreinforced recycled concrete

Improve the mechanicalproperties of recycledconcrete, which is conduciveto the promotion of newrecycled concrete.


Development of large volumeanti-radiation concrete in-moldtemperature control system

Control the in-moldtemperature of large volumeanti-radiation concrete.


Research on the application ofbarite in radiation-proofconcrete

Used for radiation-proofconcrete works.


Research on applicationtechnology of constructionwaste recycled concreteproducts

Reuse construction waste andprovide good environmentalbenefits.

November 2020-December 2023

Development of water absorptionand retention test system forsuper absorbent resin

Used for the water absorptionand retention test for superabsorbent resin products.


Experimental research on theimpact of replacing fly ashwith limestone powder onconcrete performance

Replace fly ash, which hasdecreasing productionvolume.


Research on preparationtechnology of highpermeability vegetationconcrete

New environmentally friendlymaterials, which areconducive to the normalgrowth of plants andmaintaining ecologicalbalance.


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We believe that developing industry-leading technological capabilities will help usexpand and strengthen our product portfolio by enhancing our existing products anddeveloping more specialised products, which in turn will help us expand our customer base,strengthen our brand name, and increase our market share. Through our research anddevelopment efforts, we intend to explore and develop technologies that will enable us toproduce certain products on a mass scale, as well as technologies that will promote the use ofour products in a wider range of applications and projects.

We intend to fund our planned research and development efforts with our internalresources generated from operating activities. We currently expect to incur approximatelyRMB7.5 million for the year ending 31 December 2022 and RMB4.3 million for the six monthsending 30 June 2023 in connection with our planned research and development projects.

Further strengthen our sales and marketing capability and increase the market awarenessand recognition of our brand

During the Track Record Period, we secured new projects mainly through direct orders bycustomers or by bidding with customers, and generally relied on our connections andrelationships with existing customers and customer referrals to secure new projects. We alsoregularly review bidding websites for our industry to identify bidding opportunities. Webelieve that we can broaden our client base and attract more orders from potential customersby strengthening our sales and marketing capabilities and increasing our marketing efforts topromote market awareness and recognition of our brand name and products.

Our planned marketing efforts include attending industry exhibitions in the PRC toshowcase our products and capabilities, such as the Leading Technologies and Management ofGreen Manufacturing Forum for Ready-mixed Concrete Industry and On-site Demonstration ofGreen and Smart Manufacturing for Concrete Enterprises (預拌混凝土行業綠色生產前沿技術及管理探討會暨混凝土企業綠色智能生產現場觀摩會) in Xiamen and the ExchangeConference on High Quality Development of China’s Concrete Industry 2020 and 2021 (2020年與2021年中國混凝土行業高質量發展交流會) in Shenyang and Hainan, respectively, whichwe believe will increase the market awareness and recognition of our brand name and ourproducts as well as allow us to gauge market trends and demands. We believe that regularlyattending industry exhibitions on trends and developments in the ready-mixed concreteindustry and related products would enable us to keep up-to-date with the latest industry trends,which would support and complement our marketing efforts, and facilitate our continuingefforts to provide our customers with innovative solutions and remain competitive.

We believe that increasing the headcount of our sales and marketing team will benefit usbecause we need additional qualified personnel to (i) help maintain our current customer baseas well as expand our reach to new potential customers in order to maximize our revenue andfurther strengthen our market position in light of the market opportunities arising from theincreasing level of urbanisation and construction activities in Zhengzhou and its proximity; and(ii) coordinate our sales and marketing activities across various business activities, promotecommunication among the sales and marketing team stationed at each of the batching plants,and implement our overall sales and marketing strategies in collaboration with our existingsales and marketing staff.

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OUR BUSINESS MODEL

We are primarily engaged in the production and sales of ready-mixed concrete products.We also produce and sell small amounts of wet-mixed mortar products from time to time uponour customers’ requests. We operate three batching plants, namely the Shenli Batching Plant,the Shentong Batching Plant and the Gangfa Batching Plant, which are equipped with theproduction facilities to provide a comprehensive range of ready-mixed concrete and wet-mixedmortar products to customers in the northeastern, eastern and southeastern regions ofZhengzhou.

A brief description of our operations is set out in the flowchart as follows:

By tender bidding By direct order

There areusually multiplebatches of orderacceptance andproduction for asingle project.

Customer’s order inquiry

Preparation of quotation

Private negotiation

Preparation of bid

Identification ofpotential tender

Delivery of products to constructionproject sites

Quality inspection and testing

Issuance of invoice

Production of products

Acceptance of orders

Procurement of raw materials

Design and testing

Contract preparation and signing

2B. Production and

delivery stage

Approximately one hour and 30 minutes


Approximatelyone to two months


Approximately sevendays to one month

2. Execution

phase

1. Engagement

phase

approximatelyone to twomonths

SuccessfulUnsuccessful

Notes:

(1) The timeframe above is for general reference only, and the actual time taken may vary from order toorder depending on the complexity of the products required and the requirements of individualcustomers.

(2) The operational procedures of design and verification are only applicable when specialised ready-mixedconcrete products carrying specific qualities are required by our customers to suit their individualconstruction needs. A customized raw material mix is generally required to attain such product qualities.

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OUR OPERATIONS

1. Engagement (商談) Phase

Our ready-mixed concrete product sales are generated through a tender bidding processor by direct orders from our customers. State-owned enterprises and private enterprises mayselect suppliers either through a tender process or by direct orders after negotiations. For thetwo years ended 31 December 2019 and 2020 and the nine months ended 30 September 2020and 2021, sales generated through a tender process represented approximately 40.6%, 45.8%,46.1% and 25.6% of our total revenue and sales generated through direct orders representedapproximately 59.4%, 54.2%, 53.9% and 74.4% of our total revenue. In line with the industrypractice, our sales contract generally covers those the entire construction project. Thepreparation phase normally ranges from one to two months.

By tender bidding

Identification of potential tender. We regularly conduct tracking and assessment ofpotential tenders. Although we receive tender intention inquiries or tender invitations frompotential customers as an invitation to participate in tenders for supplying ready-mixedconcrete to their construction projects, we have designated employees to monitor thepublication of relevant tender notices and conduct preliminary internal assessment of potentialprojects. Our preliminary internal assessment is based on a number of factors, including, butnot limited to, the expected engagement period, total production volume and schedule, thepotential customer’s background and credit-worthiness, project site location, technicalrequirement of the product, and our production capacity and resources available for the project.We may conduct on-site visits of the project sites under the potential bid to help with ourassessment.

Our assessment is an expedient process in the sense that we have to determine thefeasibility of a potential project in a short period of time before devoting substantive resourcesin preparing the relevant bid.

Preparation of bid. Bid preparation is a comprehensive procedure, which mainly involvesour sales, production and technical and quality control teams at each batching plant or our corebusiness management team. Our sales department will prepare the bidding documents whichmay include our qualifications, our historical performance record (with highlights of historicalconstruction projects in which our products were used and customers’ appraisals orrecommendations received), a price quotation setting out an indicative level of discount fromthe Base Price and a proposed production, delivery and payment work flow for the potentialproject. Generally, our bid preparation process can take approximately one to three weeks andwe generally receive the bid results from our customers within four weeks after oursubmission.

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By direct orders

Customer’s order inquiry. We generate some of our sales through our customers’ orderinquiries by way of telephone, face-to-face meetings and electronic communications. Our salesteam either receives invitations to provide price quotes from customers who have previouslypurchased ready-mixed concrete products from us or new customers who learned about usthrough our sales and marketing efforts or referrals from our previous and existing customers.See “– Sales and Marketing – Sales” below in this section for details.

Preparation of quotation. Once we receive the order inquiries from potential customers,we will conduct preliminary internal assessments in the manner as described in “– By tenderbidding – Identification of potential tender” above. We may conduct further due diligence onnew customers, including their corporate structure, the construction projects in which theyhave participated or are participating and their roles involved, their financial condition (suchas conducting checks on their registered capital), and their general reputation and credit-worthiness. When we are satisfied with the above, we prepare a quotation includinginformation such as our historical performance record with highlights of historical constructionprojects in which our products were used and customers’ appraisals or recommendationsreceived, our terms of engagement, pricing details and the expected production, delivery andpayment schedule for our customers’ consideration.

Private negotiation. Upon receiving our quotation, certain customers may wish to furthernegotiate with us regarding our engagement terms. Our sales team is responsible for leadingthe negotiation with assistance from our employees from the production, procurement,technical and quality control and finance departments. Depending on the circumstances of thenegotiation, we may visit our customers at the relevant construction project sites or theiroffices to better understand our customers’ needs and expectations and where our potentialcustomers have specific product requirements, explore the solutions through which suchrequirements can be met. We believe that taking proactive measures to understand ourcustomers’ needs would shorten the negotiation process and begin to increase our customers’satisfaction level from an early stage.

Contract preparation and signing. When we have agreed in-principle with our customersas to the terms of the quotation, we prepare the formal sales contract for their review. Our salesteam is responsible for leading any subsequent negotiations on the formal sales contract. Thenegotiated terms will then undergo our internal review and sign-off process involving ouremployees from the sales, finance and legal departments as well as our management beforeexecution.

Depending on the nature of the project involved and the agreed selling price, we mayrequire some of our customers to provide us with prepayments before we accept customers’orders and commence production. For details of the salient terms of the contracts with ourcustomers, see “– Our customers – Major terms of our sales contracts” below. Generally, wedo not require prepayments for projects and main contractors we have confidence in based ontheir track record. For orders where we require prepayments, usually the agreed selling priceis also lower.

2. Execution Phase

After we have concluded the sales contract with our customer, we commence ourexecution phase whereby we (i) receive orders from our customer; (ii) commence productionand delivery of our products; and (iii) conduct quality inspection and billing arrangement. Theexecution phase comprises three stages, namely the preparation stage, the production anddelivery stage and the post-delivery stage.

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The following diagram illustrates our execution process:

Raw material procurement(Procurement Department)

Design and experiment with proportions

(Technology andQuality Control Department)

Technical specifications discussion meeting(Construction project owner, Construction project

contractor, Sales Department, Production Department,Technology and Quality Control Department)

Sign sales contract(Construction project contractor,

our Sales Department)

Send production order(Construction project contractor)

Production Department, Production Arrangementand Scheduling Center

Raw material arrangement and use(Production Department)

Concrete Mixing and Production(Production Department)

Concrete loading(Transportation)

Concrete Shipment(Transportation)

Pumping, Casting and Maintenance(Project Contractor)

Periodical Settlement(Sales Department, Finance Department,

Project Contractor)

Send production plan

Transfer oftechnical

informationfiles

Send production order

Send mixratio

Inspection before Shipment(Technology and Quality Control Department)

Adjust production mix ratio (Technology and

Quality Control Department)

Sampling, casting and standard curing


Management of TechnicalInformation


Project Completion Inspection(Project Contractor)

Raw material quality inspection(Technology and

Quality Control Department)


Design and testing. When our customers purchase our regular products made with ourpre-determined mix of raw materials, they may place orders with us directly in the manner setout in “– Acceptance of orders” below. Where a specialised ready-mixed concrete product isrequested by our customer, our technical and quality control team may be engaged to designand test the appropriate raw material mix to achieve the specialised properties in accordancewith our customer’s product specifications.

When the design and testing procedure is triggered, the sales team provides the productspecification details to our technical and quality control team, which is primarily responsiblefor developing the appropriate raw material mix. The mix proportions are designed by thetechnical and quality control department with due consideration given to a number of factorsincluding, but not limited to, available data on strength to cement content, fine content, plasticdensity, water-to-cement ratio and air content, and in accordance with the requirements set outin the Specification for Mix Proportion Design of Ordinary Concrete JGJ55-2011 (《普通混凝土配合比設計規程》).

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During the design and testing process, our technical and quality control team worksclosely with our sales team and our customers. We normally prepare prototype samples of thespecialised products and conduct internal testing to ascertain the technical qualities. We mayalso deliver the prototypes to our customers and obtain feedback from them, upon which wefurther adjust the formulation of the mixes to meet our customers’ specifications.

After the mix formulation is confirmed and approved, our technical and quality controlteam then prepares a mix formulation report which is provided to our customers for record. Thedetails of the mix formulations are also filed in our internal system for future productionpurposes.

Procurement of raw materials. Our procurement team is responsible for monitoring andmaintaining sufficient inventory of raw materials for our production activities. We make ourprocurement plan on a monthly basis and source our raw materials from a number of suppliersto facilitate our production process. See “– Procurement” below in this section for details.

Acceptance of orders. Due to (i) the nature of our ready-mixed concrete products whichwill be cured within a limited period of time; and (ii) the demand of our products arises inaccordance with the progress of the construction works at the project sites, our customers placeorders for our products with us on an as-needed basis. In general, our customers place orderswith our sales team for a designated volume of our products to a designated constructionproject site approximately one business day before the requested delivery time. When a largevolume of our ready-mixed concrete product is required (for instance, when the quantity foreach single order exceeds 1,500 m3), we may require a three-day advance notice.

After we have received the orders from our customers, the order information is passed onto our production department for production scheduling and arranging with third partytransportation service providers to deliver our products to our customers’ project sites at thedesignated time.

In circumstances where our customers urgently require a specific quantity of products, wewill liaise with the production department to satisfy our customers’ requests on a best effortbasis.

2B. Production and delivery stage

Production of products. We adopt a fully automated batching system in our productionprocess. The batching system is operated through a built-in computer program. The mixformula, the quantity of each of the raw materials and the time required for the mixing isinputted into the program prior to the commencement of the raw material mixing process. Wehave trained main mixer operators to control the entire production process under thesupervision of our technical and quality control personnel. The program provides real-timeinformation on the production progress, condition of the machineries in the batching system,usage of the raw materials, loading of the product into the mixer truck and production time. See“– Our Production Process” in this section for details.

Delivery of products to construction project sites. Ready-mixed concrete or wet-mixedmortar product is loaded directly from the main mixer into the mixer truck for delivery todesignated construction project sites. A delivery note is issued to the mixer truck driver to becarried along to our customer for verification.

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To maintain the optional condition of our ready-mixed concrete products upon unloading,the delivery time for the ready-mixed concrete by use of mixer truck equipped with revolvingdrum mixer should not exceed 90 minutes from loading onto the mixer truck to unloading atthe project site. Taking into account the buffer delivery time, we generally maintain a salesradius of approximately within 30 km from each of our batching plants. See “– Sales andMarketing – Sales” below in this section for details. The mixer trucks are also equipped withthe BeiDou Navigation Satellite System sensors, which are connected to our computerizedtracking systems so we can monitor the delivery process and find the location of the mixertrucks in real time.

At times upon arrival at the construction project site, the mixer truck is required to passthrough the on-site weighing device before and after unloading for verifying the weight, or,through conversion using the pre-determined weight-to-volume ratio set out in the salescontract, the volume of the delivered product. Upon the visual inspection of a sample, theproduct is then unloaded and pumped to a designated location at the project site.

During the Track Record Period, our products were delivered by third party transportationservice providers to our customers at their designated project sites. See “– Transportation ofProducts and Raw Materials” below in this section for details.


Quality inspection and testing. At the same time as we unload our product at theconstruction project site, we and our customer take samples of our ready-mixed concreteproduct to (i) conduct on-site slump test for evaluation of our product’s workability; and (ii)prepare test cubes for subsequent compressive strength assessment through compression testsas commissioned by our customers and the project supervisors appointed by our customers, orthe quality testing agencies appointed by our customers. The slump tests are conducted in thesame manner as set out in “– Quality Control” below in this section. When our customers aresatisfied with the volume and on-site slump testing of our product, they sign the delivery notes,which are then brought to us by the drivers.

Issuance of invoice. Invoices are generally issued on a monthly basis after settling withour customer on the quantity supplied within the previous month. We arrange the collection ofpayment of the relevant portion of the accumulated sales receivables from our customers inaccordance with the terms set out in the sales contracts. See paragraphs headed “Major termsof our sales contracts” and “Credit policy” under “– Our Customers” below in this section fordetails.

OUR PRODUCTION PROCESS

Ready-mixed concrete is prepared by mixing cement, sand, crushed stones, ground slag,fly ash, admixtures and water, and it hardens due to the cement’s hydration. Wet-mixed mortaris prepared in a similar manner except that crushed stones are not an ingredient for the rawmaterial mix. With proper proportioning, mixing of the ingredients and curing, our productspossess the desired properties of workability, durability and strength.

We use an automated batching system for production of our products for each of theproduction lines in our batching plants. It is a one-stop system of raw material weighing, waterdosing, mixing, batching and loading for ready-mixed concrete and wet-mixed mortarproduction. The system is managed through an in-built computer program designed by themanufacturer of the batching system. Through the instant feedback from a number of sensorsplaced in various parts of the machineries, the program displays to our operator real-timeinformation as to the production progress, condition of the machineries in the batching system,

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usage of raw materials and mixing time of ingredients. It is also connected to video camerasplaced near the delivery docket of the mixer and the loading area, which allows our operatorto coordinate with the mixer truck driver and monitor the loading process.

Each of our production lines consists of five major components, namely (i) a materialstorage system; (ii) a material conveyance system; (iii) a material weighing system; (iv) a mainmixer; and (v) a computer program for controlling the production processes. Our productionprocess comprises (1) receiving and storing of raw materials; (2) production scheduling; (3)parameter input and mixing of raw materials; and (4) loading and delivery of products.

The following diagram illustrates the production process of our ready-mixed concreteproduction line:

2 3

11

4

Adm

ixture tank

PFA silo

Ground slag silo

Cem

ent silo

Weigher

Aggregate weigher

Screw conveyor

Truck for deliveringcement, PFA orground slag

Truck for deliveringsand and crushed stones

Water tank

Mixer truck for delivering our products to our customers

Mainmixer

flow of raw materials/products

Batching plant

Belt conveyor

Warehouse for storing sand and crushed stones

Control room for real-time monitoring and coordination ofproduction process

Receiving and storing

of raw materials

Receiving and storing

of raw materials

Loading and delivery

of products

represents the key stages of production

Production scheduling;

parameter input and mixing

and

represents the sequence of the key stages of the production process as described below1 , 2 , 3 , 4

Note: The diagram above is for illustrative purposes only and not drawn to scale.

1. Receiving and storing of raw materials. Raw materials delivered to our productionsites are subject to our inspection and quality checking procedures. The weight ofthe raw material, measured as the difference between that of the delivery truck priorto and after unloading, is either verified against our procurement order or checkedagainst our monthly plan of raw material purchase. We conduct immediate samplequality testing on each batch of raw materials delivered. Upon satisfactory qualitytesting result, our raw material inventory list is updated accordingly. Cement, flyash, ground slag, admixture and water are pumped directly into the silos or tanks,while sand and crushed stones are stored in our warehouse.

2. Production scheduling. Sales order received by our sales team is passed to ourproduction scheduling personnel for preparation of the production task memo.Details such as customer name, project name, product type, quantity and expecteddelivery time are verified with our customer. The memo is passed to our main mixeroperator, procurement team and technical and quality control team for record. Wealso liaise with the third party transportation service provider for deliveryarrangement. Our production manual requires our production scheduling personnelto re-verify the details of the memo with our customers two hours before deliveryto facilitate the production process.

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3. Parameter input and mixing of raw materials. Upon the scheduled productiontime, our main mixer operator inputs the details on the production task memo intothe computer program of the batching system. Our technical and quality controlpersonnel input the data on mix proportions into the program. The mixer truck driveris arranged to park the truck inside the batching plant area. Through the surveillancecamera, our operator has to ensure that the revolving drum of the truck is placeddirectly underneath the delivery docket of the main mixer. Our operator is alsorequired to verify with the truck driver details, including the mixer truck’s vehiclelicence plate number and the project name. Upon satisfactory of the above, ourproduction scheduling personnel informs the operator to commence production.

4. Loading and delivery of products. For the first batch of product to be loaded intothe mixer truck, our technical and quality control personnel monitor the productionprocess and ensure the product quality before releasing the product from thedelivery docket of the main mixer. At the same time as loading, we retain test cubesfor subsequent compression tests. Compression tests are conducted in the samemanner set out in “– Quality Control” below in this section.

Upon completion of loading of a mixer truck, the truck leaves the batching plant andpasses through the weighing system. The weight of the product is obtained bycalculating the difference between the weight of the mixer truck upon entry to andexit from the production site, and converted into the product volume with aweight-to-volume ratio set out in the sales contract. Such data, together withinformation such as customer’s name, project site destination, truck licence platenumber, truck dispatch time and description of product are printed on a deliverynote. The delivery note is delivered to the project site destination for counter-signingby the on-site receiving personnel.

Our production team is required to compile a daily production list at the end of each day.The list summarizes information of the production details, including product grade level andquantity, project name and raw material used. Our technical and quality control personnelcross-check and sign off the daily production list for filing.

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OUR PRODUCTS

During the Track Record Period, our product mix primarily consisted of ready-mixedconcrete products of grade levels ranging from C15 to C60 and wet-mixed mortar of gradelevels of M10 and M15.

The following table sets out a summary of our products produced during the Track RecordPeriod.

Product(1), (2)Compressivestrength Characteristics Applications

Ready-mixedconcrete

Ready-mixedconcrete of C30grade level orbelow

30 MPa or below(inclusive)

Low-to-midstrength,relatively lowcompressivestrength andanti-permeability

Mainly used in non-loadbearing elements andtemporary structureswith relatively lowerbearing strength andlower requirement ondurability, such asconcrete cushions forbuildings, retainingwalls for highways,foundation pitbackfilling andconstruction roads

Ready-mixedconcrete ofover C30 gradelevel

35 MPa or above(inclusive)

Mid-to-highstrength, goodcompressivestrength,volumestability anddurability

Mainly used in load-bearing elements andpermanent structuresin publicinfrastructures andhouse constructions,including raftfoundations andprestressed T beams

Wet-mixedmortar

Wet-mixed mortarof M10 andM15 gradelevel

5 MPa, 10 MPaand 15 MPa

Low self-weight,high adhesionand lightabsorption

Mainly used formasonry, plasteringand floor, walls forregular building,moistening insulationlayer and screed coat,and partly used forpump pipe lubrication

Notes:

(1) The number next to the letter “C” of the grade level of the ready-mixed concrete indicates the amountof pressure force (in terms of) that one mm2 of the concrete can hold, with a difference of 5 in thenumber per level of compressive strength.

(2) The number next to the letter “M” of the grade level of the wet-mixed mortar indicates the amount ofpressure force (in terms of) that one mm2 of the mortar can hold. The grade levels of wet-mixed mortaras specified in the Mortar National Standard comprise M5, M7.5, M10, M15, M20, M25 and M30 levels.

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The following table sets out the breakdown of our revenue by product category during theTrack Record Period.


2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %


Ready-mixedconcrete

– C30 level orbelow 579,515 52.8 613,952 56.5 540,111 57.1 256,294 50.1

– Above C30level 517,309 47.1 470,811 43.3 403,059 42.7 254,468 49.8

Subtotal 1,096,824 99.9 1,084,763 99.8 943,170 99.8 510,762 99.9Wet-mixed

mortar 583 0.1 1,749 0.2 1,579 0.2 411 0.1

Total 1,097,407 100.0 1,086,512 100.0 944,749 100.0 511,173 100.0

While our production volume is based on our expected sales prospects, historically thedifference between our production volume and sales volume has been minimal. The followingtable sets out the breakdown of sales volume and average selling price (tax-exclusive) of ourproducts by product category during the Track Record Period.


2019 2020 2020 2021

SalesVolume

Averageselling price

(taxexclusive)

SalesVolume


(taxexclusive)

SalesVolume


(taxexclusive)

SalesVolume


(taxexclusive)

m3 RMB/m3 m3 RMB/m3 m3 RMB/m3 m3 RMB/m3

Ready-mixed concrete– C30 level or below 1,046,223.3 553.9 1,301,711.3 471.7 1,132,665.5 476.8 671,615.0 381.6– Above C30 level 868,365.9 595.7 912,799.6 515.8 773,868.5 520.8 596,770.8 426.4

Subtotal 1,914,589.2 572.9 2,214,510.9 489.8 1,906,534.0 494.7 1,268,385.8 402.7Wet-mixed mortar 1,246.7 468.2 4,082.8 428.4 3,556.0 444.1 989.0 415.2

Total 1,915,835.9 572.8 2,218,593.7 489.7 1,910,090.0 494.6 1,269,374.8 402.7

For more details, see “Financial Information – Discussion of Major Components ofConsolidated Statements of Comprehensive Income – Revenue” in this document.

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Ready-mixed concrete products

Concrete is a mixture of cement, sand, crushed stones, ground slag, fly ash, admixturesand water. The paste, composed of cement and water, coats the surface of the aggregates.Through a chemical reaction called hydration, the paste hardens and gains strength to formconcrete. In order to enhance the performance of the concrete, especially under differentgeological and weather conditions, we optimize proportioning parameters and add appropriatefunctional admixtures during the mixing process.

Regular products. Our regular products comprise ready-mixed concrete that are producedwith a pre-determined formulation of the mix of ingredients but do not carry any specificqualities as exhibited by specialised products as illustrated in the paragraphs below. While weare capable of producing ready-mixed concrete products of all grade levels ranging from C10to C100, our principal products during Track Record Period primarily consisted of grade levelsfrom C15 to C60. In general, these products are the most commonly used concrete materialsin construction activities.

Specialised products. We may from time to time receive requests from our customers totailor-make raw material mix to produce products that suit their specific construction needs.See “– Our Operations – 2. Execution phase – 2A. Preparation stage – Design and testing”. Ourproduction capabilities cover various specialised products the technical specifications of whichsatisfy the standards set in the Concrete National Standard. Such products usually are producedwith specialised raw material mix. See “– Our Operations – 2. Execution phase – 2A.Preparation stage – Design and verification” in this document for details. Details of ourspecialised products are summarized in the table as follows:

Key types CharacteristicsBenefits of theproduct

Commonapplications

Real estate/publicinfrastructureprojects to whichour specialisedproducts wereapplied

Date of completionof project or phase

High strengthready-mixedconcrete

Ready-mixedconcrete of gradelevel of C60 orabove

High strength, highanti-deformability,high density andlow porosity

High-rise buildingstructures, long-span bridges andother specialstructures

Longhu FinancialCentre (龍湖金融中心)

The inner mainbody of LonghuFinancial Centrewas completed atthe end ofOctober 2021

The constructionproject for theoutskirts ofLonghu FinancialCentre has justcommenced

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Key types CharacteristicsBenefits of theproduct

Commonapplications

Real estate/publicinfrastructureprojects to whichour specialisedproducts wereapplied

Date of completionof project or phase

Self-compactingready-mixedconcrete

Ready-mixedconcrete withhigh fluidity andfilling capacity,being able to relyon its owngravity and novibration toachievecompactness

Good penetration,filling capacityand segregationresistance

More complexconstruction orengineeringenvironments,such as highdensity ofreinforcing steel,complexity ofsection ornarrowing of gap,etc.

Project of FourthRing Road ofZhengzhoucity andreconstruction ofDahe Road (鄭州市四環線及大河路快速化工程)

In respect of theproject of FourthRing Road ofZhengzhoucity andreconstruction ofDahe Road (鄭州市四環線及大河路快速化工程),apart from therespective mainbuildings and thearea under thebridge, all areashave beenconstructed andput into trialoperation on 30April 2021

Fiber reinforcedready-mixedconcrete

Ready-mixedconcrete withfibrous materialsadded to the mixincreases itsstructuralintegrity

High tensilestrength, bendingstrength, goodtoughness,fatigue resistance

Concrete pipelinewith large area,pipeline, floor,wallboard, stairs,etc.

New EpochWanxiang Project(新時代萬象苑)

The project wascompleted at theend of October2021, and iscurrentlyundergoing asecond structuralconstruction

Note:

(i) The grade levels of the specialised products are categorised in the same manner as the regular products,except the prefixes “CF” and “LC” are used for steel fiber-reinforced concrete and lightweight-aggregate concrete, respectively.

Addition of admixture. Certain additional properties of our products may be achieved byincluding appropriate admixtures in the raw material mix during the production process.Customers generally notify us in their orders as to their admixture requirements. Admixtures(except the water-reducing admixture necessary to produce ready-mixed concrete) are chargedseparately on a per-use basis as set out in the sales contract.

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The table below sets out the particulars of the common admixtures provided for inaddition to our products.

Type ofadmixtures Functions Common usage

Acceleratingadmixtures(早強外加劑)

• Increase the rate of concretestrength development or toreduce concrete curing time

• Commonly used formodifying properties ofconcrete in cold weather

Impermeabilityadmixtures(抗滲劑)

• Increase self-waterproof andanti-permeability ofconcrete

• Construction projects ofwaterproof, moisture-proofand anti-permeability

Anti-freezingadmixtures(抗凍劑)

• Lower the freezing pointand increase the earlystrength to have concretecure in sub-zerotemperatures and reachanticipated performanceunder specified oxidationconditions

• Commonly used forconcrete in winter

Expansionadmixtures(膨脹劑)

• Gain a volume expansion ofconcrete with chemicalaction during the curing ofconcrete, wherebyincreasing the waterproof,moisture-proof and anti-permeability of concrete

• Preparing high-grandwaterproof concrete, andextending expansion jointsappropriately or later joint-filled slots

Water-reducingadmixtures(減水劑)

• Improve pumpingperformance of concrete,endowing it with remarkableeffects of water reductionand enhancement, delayedcoagulation and flowingretention ability, increasethe workability of concretemix, reduce bleeding andsegregation, and increaseanti-permeability anddurability

• Create a desired slump at alower water-cement ratiothan is normally designed

• Lower cement contentsresult in lower carbondioxide emissions andenergy usage per volume ofconcrete produced

• Preparing pump concrete,commercial concrete, massconcrete, high flowingconcrete; application inconstruction in winter, slip-form construction, and largeframework construction

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Wet-mixed mortar products

Wet-mixed mortar carries low self-weight, high adhesion and light absorption properties.The production process of wet-mixed mortar products is essentially the same as that ofready-mixed concrete save that crushed stones are not used as an ingredient. Wet-mixed mortaris mainly used for masonry, plastering floors and walls for regular building, moisteninginsulation layer and screed coat, and partly used for pump pipe lubrication.

Wet-mixed mortar product is generally sold as an ancillary product to our ready-mixedconcrete product upon our customer’s request. We are capable of producing M5 to M30 gradelevel wet-mixed mortar. During the Track Record Period, our main wet-mixed mortar productscomprised those of grade level of M10 and M15.

OUR PRODUCTION FACILITIES

The batching plants

Due to the special nature of ready-mixed concrete, a batching plant can generally covera reasonable and economic transportation radius of approximately 30 km to ensure timelydelivery without compromising the quality of the products. Meanwhile, the demand for ourready-mixed concrete is closely associated with the progress of the construction work at therelevant project sites and may sometimes arise at short notice. Our batching plants arestrategically located at convenient locations, the transportation radius of which wouldeffectively cover certain regions in Zhengzhou and its proximity with high or rising level ofconstruction activities.

Currently, we operate three regional batching plants covering construction sites in thenortheastern, eastern and southeastern regions of Zhengzhou. In particular, most of these areashave received strong government policy support in respect of their public infrastructure, realestate, business and industrial developments, and are expected to progress further under the14th Five-Year Plan and relevant regional and local policies. We believe that the strategiclocations of the batching plants have enabled us to establish our market presence and salescoverage in Zhengzhou, which receives strong policy support from the government for itsfuture development. Benefiting from government policy support, we believe that we are ableto capture the growth potential of the regional development in and around the Zhengdong NewDistrict, Kaifeng and the Zhengzhou Airport Economic Zone and the further enhancement andredevelopment opportunities in the downtown area of Zhengzhou, as a result of continuingincrease in the urbanisation level in the area, and thereby further strengthen our market positionand expand our product sales.

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The map below of the Greater Zhengzhou area illustrates the locations of our batchingplants as of the Latest Practicable Date:

Map of Zhengzhou

Company location

Shangjie District

XingyangDistrict

Huiji District

JinshuiDistrict

ZhengdongNew District

EconomicDevelopment

Zone

GuanchengDistrict

XinzhengCity

Airport EconomyZone

ZhongmouCounty

High-techZone

ZhongyuanDistrict

ErqiDistrict

Henan Shenli Concrete Co., Ltd.

Henan Shentong New Construction Materials Co. Ltd.

Henan Gangfa New Construction Materials Co., Ltd.

Note: The map indicates the service radius of each batching plant, which is approximately 30 km from each of thethree batching plant.

The table below sets out the details of the geographical area served by each of ourbatching plants during the Track Record Period:

Name of batching plantDemarcation of the geographicalservice scope

Shenli Batching Plant Shenli Batching Plant is located innortheastern Zhengzhou, and its servicescope mainly covers the administrativeareas of Zhengdong New District, HuijiDistrict, Jinshui District, Guancheng HuiDistrict, and the Economic andTechnological Development Zone inZhengzhou.

These areas located in the main urbanarea of Zhengzhou benefit from thepromotion of various governmentinitiatives including the Outline forEstablishing Zhengzhou as the NationalCity Centre (2017-2035) (《鄭州建設國家中心城市行動綱要(2017-2035年)》),where there have been continuousconstruction activities and publicinfrastructure development, acceleratingthe construction and urbanisation level ofZhengzhou metropolitan area andpromoting the integrated development ofits surrounding cities.

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Name of batching plantDemarcation of the geographicalservice scope

Shentong Batching Plant Shentong Batching Plant is located ineastern Zhengzhou next to the ZhengdongNew District and between Zhengzhoudowntown area and Kaifeng. Its servicescope covers the entire ZhongmouCounty, Zhengzhou, the eastern part ofZhengdong New District, and theconnecting area of Zheng Bian UrbanMergence.

According to the F&S Report, with thedevelopment of Zhengzhou graduallymoving to the east, Zhengdong NewDistrict has not only risen as a maturecommercial centre, but has also become aresearch and development base thatprovides technical support for emergingindustries. The continued development ofZhengdong New District is expected tofurther increase the level of investment infixed assets in the region. In addition, theintegration of Zhengzhou and Kaifeng isbuilding a solid bridge betweenZhengzhou and Kaifeng, forming anurban economic circle and creating moreconstruction opportunities for urbanplanning, road network transportation andrelated infrastructure.

Gangfa Batching Plant Gangfa Batching Plant is located in thesoutheastern part of Zhengzhou, and itsservice scope mainly covers theZhengzhou Airport EconomicComprehensive Experimental Zone andits proximity, the south part of ErqiDistrict, Zhengzhou and Xinzheng City.

As the first aviation economicdevelopment zone approved by the StateCouncil, Zhengzhou Airport Zone ispositioned as an international aviationlogistics centre and an important gatewayfor inland areas to open to the outsideworld. The zone has been included in theNational 13th Five-Year Plan to becreated as an international integratedtransportation hub in the PRC, accordingto the Development Plan of ModernComprehensive Transportation System ofthe 13th Five-Year Plan (《「十三五」現代綜合交通運輸體系發展規劃》) issuedby the State Council in 2017. Theimportant purpose and planning of theAirport Zone will drive the developmentof the local and surrounding supportingfacility, providing continuous marketdevelopment and construction demands.

BUSINESS

– 134 –


Certain financial information of the batching plants

The following table sets out the breakdown of the revenue, cost of sales, gross profit andnet profit derived from each of the batching plants during the Track Record Period:


2019 2020 2020 2021

ShenliBatching

Plant

ShentongBatching

Plant

GangfaBatching

Plant Total(1)

ShenliBatching

Plant

ShentongBatching

Plant

GangfaBatching

Plant Total(1)

ShenliBatching

Plant

ShentongBatching

Plant

GangfaBatching

Plant Total(1)

ShenliBatching

Plant

ShentongBatching

Plant

GangfaBatching

Plant Total(1)

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)

Revenue 417,137 313,769 366,501 1,097,407 383,720 283,857 418,935 1,086,512 332,426 239,138 373,185 944,749 220,757 152,110 138,306 511,173Cost of sales 345,072 262,565 301,761 909,398 316,312 236,209 340,705 893,226 272,357 199,134 302,753 774,244 179,250 127,507 114,459 421,216

Gross profit 72,065 51,204 64,740 188,009 67,408 47,648 78,230 193,286 60,069 40,004 70,432 170,505 41,507 24,603 23,847 89,957

Net profit 34,068 26,145 38,469 98,682 41,677 17,814 42,235 101,726 35,671 16,576 39,608 91,855 23,244 13,411 6,075 42,730

Note:


For more details of the financial performance of the batching plant operations, see“Financial Information – Discussion of Major Components of Consolidated Statements ofComprehensive Income” in this document.

BUSINESS

– 135 –


The

foll

owin

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sets

fort

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tail

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our

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hing

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eL

ates

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ract

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ate:

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alific

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imate

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47mo

nths

ninem

onths

BUSINESS

– 136 –


Batch

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Gross

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area

Date

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Date

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cember

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nths

fourm

onths

BUSINESS

– 137 –


Batch

ingpla

ntSit

eare

a

Gross

floor

area

Date

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ablish

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batch

ingpla

nt(1)

Date

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imate

ly15

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nm3

in202

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ected

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wat

anave

rage

annual

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rate

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rthe

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s(4)

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imate

ly30

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BUSINESS

– 138 –


(3)

The

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eta

ble

abov

e.

BUSINESS

– 139 –


While local demand and supply of ready-mixed concrete is the most important factor todetermine the profitability of a batching plant, we believe that the profitability of a batchingplant is also affected, to a certain extent, by the average property price in the areas served byit. For instance, the average property prices for the areas covered by the Shenli Batching Plant,the Shentong Batching Plant and the Gangfa Batching Plants in 2020 were approximatelyRMB18,605.4 per m2, RMB10,806.8 per m2, and RMB8,225.0 per m2, respectively. Real estatedevelopers tend to be less sensitive towards building material costs, including ready-mixedconcrete, when they can price their property at higher levels, as they would be able to absorbor transfer the extra procurement costs to the ultimate customers. As a result, ready-mixedconcrete producers are generally more ready to price their products at a higher price rangewhen the project sites in which their products are used are located in areas with higher propertyprices. As such, generally speaking, the Shenli Batching Plant is positioned to attain highergross profit, followed by the Gangfa Batching Plant and the Shentong Batching Plant.

Further, in addition to the factors of local supply and demand as well as property pricesas mentioned above, the shorter investment payback period and breakeven period of GangfaBatching Plant, when compared to those of Shentong Batching Plant, are attributable to themarket environment during the commencement of production of Gangfa Batching Plant inAugust 2018. The average price of ready-mixed concrete by then was higher than that duringthe commencement of production of the Shentong Batching Plant in August 2016. This alsocontributed to a higher gross profit for the Gangfa Batching Plant. In particular, GangfaBatching Plant covers the Zhengzhou Airport Economic Zone, which is one of the most focuseddevelopment projects for Zhengzhou and has experienced rising demand for concrete materialsto support the substantial amount of construction work in this area. Prior to August 2019,Gangfa Batching Plant’s working capital was primarily financed by capital injections from ourGroup with no financial costs to it.

Production capacity and utilisation rate

As the production of our products is driven by the sales orders received by us, thedifference between the production and sales volume of our products is minimal. Therefore, thefluctuations of our utilisation rates were generally in line with our sales volume during theTrack Record Period.

The following table sets out the designed production capacity, actual production volumeand utilisation rate of the respective batching plant during the Track Record Period.


2019 2020 2020 2021

Designedproductioncapacity(1)

Actualproduction

volumeUtilisation

rate(2)


Actualproduction

volumeUtilisation

rate(2)


Actualproduction

volumeUtilisation

rate(2)


Actualproduction

volumeUtilisation

rate(2)

m3 m3 % m3 m3 % m3 m3 % m3 m3 %

Shenli BatchingPlant 1,584,000 706,967 44.6 1,584,000 776,467 49.0 1,186,560 664,116 56.0 1,186,560 536,174 45.2

Shentong BatchingPlant 1,936,000 560,378 28.9 1,936,000 598,708 30.9 1,450,240 501,031 34.5 1,450,240 388,121 26.8

Gangfa BatchingPlant 3,520,000 648,491 18.4 3,520,000 843,419 24.0 2,636,800 744,943 28.3 2,636,800 345,080 13.1

Total 7,040,000 1,915,836 27.2 7,040,000 2,218,594 31.5 5,273,600 1,910,090 36.2 5,273,600 1,269,375 24.1

BUSINESS

– 140 –


Notes:

(1) For illustrative purposes only, the designed production capacity for a full financial year is arrived at bymultiplying the estimated number of hours for which the relevant production facilities are in operation in acalendar year (assuming 16 hours per day and 275 days of operation per year, taking into account routinemaintenance and repair of our machineries and equipment, the seasonality in our operations, and other factorsarising in the ordinary course of production) by the theoretically highest production capacity (in m3) per hourof ready-mixed concrete products of such production facilities.

(2) The utilisation rate is derived by dividing the actual production volume by the designed production capacity.As the designed production capacity is determined based on certain assumptions, our utilisation rates as set outin the above table are for reference only and are subject to change if the underlying assumptions are different.

(3) For illustration purposes only, the designed production capacity for a nine-month period from 1 January to 30September (both days inclusive) is arrived at by multiplying the estimated number of hours for which therelevant production facilities are in operation in a nine-month period (assuming 16 hours per day and 206 daysof operation during the nine months ended 30 September 2021, taking into account routine maintenance andrepair of our machineries and equipment, the seasonality in our operations, and other factors arising in theordinary course of production) by the theoretically highest production volume (in m3) per hour of ready-mixedconcrete products of such production facilities.

Due to the curing nature of ready-mixed concrete products, we are expected to deliver theproducts to our customers within 90 minutes after they are produced from our production lines.As a result, our maximum production capacity within a time unit is typically a limiting factorfor our purchase orders as well as a critical measure of our production capabilities in the viewof our customers. Although our production capacity utilisation rates during the Track RecordPeriod ranged from 24.1% to 36.2% on average, it was because customers’ orders were notevenly spread out for us to fully utilize all our production lines at all times. Despite our existingproduction capacity, from time to time during the Track Record Period, we were not able totake more purchase orders because we were limited by our maximum production capacitywithin a time unit. For example, when weather forecast indicates there will be heavy rainfallin the near future or when the PRC government announced the upcoming constructionsuspension period under the pollution control policy, construction projects tend to place urgentorders for concrete at the same time because they want to rush the progress of theirconstruction so that it could be done before they have to pause it for weather or regulatoryreasons. In situations like this, the orders we receive often exceed our maximum productioncapacity within the required time window for delivery. According to the F&S Report, theready-mixed concrete market in Zhengzhou is highly fragmented. Although we ranked first interms of both revenue and production volume for 2020 among all ready-mixed concreteproducers in Zhengzhou, our market share represented approximately 3% of the total marketsize in Zhengzhou. We believe that with our planned expansion of production capacity andaddition of another batching plant in the northwestern area of Zhengzhou, we will be able toincrease our market share and further grow our revenue.

In anticipation of further growth in market demand and in line with our businessexpansion plans, we intend to increase our production capacity in order to fulfill more purchaseorders and serve a broader customer base. As such, we plan to add production lines to increaseour maximum production capacity within a time unit and to serve additional customers in newgeographical markets.

We intend to apply approximately [REDACTED] (equivalent to approximately[REDACTED]), representing approximately [REDACTED] of the [REDACTED] from the[REDACTED], for the construction or acquisition of a new batching plant. See “Future Plansand [REDACTED]” in this document for a more detailed description.

BUSINESS

– 141 –


Production machineries and equipment

We principally source our production machineries and equipment from the PRC. We haveinstalled advanced and fully-automated batching systems for our ready-mixed concreteproduction and loading process in all of the batching plants. We believe that by usingtechnologically advanced machineries and equipment, we can improve our productionefficiency, reduce manpower costs and enhance our product quality.

The following table sets our further information of our major production machineries andequipment currently in use:

Type of majormachinery/equipment

Numberof units

Primaryfunctions

Averageage(months)

Averageestimatedremaininguseful life(months) as of30 September2021

Ownershipstatus

Testing equipment 12 Raw material andproduct testing

54.2 5.8 Self-owned

Silos for storingpowder form rawmaterials

40 Storage ofpowder formraw materialsincludingcement, groundslag and fly ash

61.0 59.0 Self-owned

Silos for storingliquid form rawmaterials

26 Storage of liquidform rawmaterialsincluding waterand admixture


Vehicle weighingsystem

6 Weighing ofvehiclescarrying rawmaterials orproducts intoand out of thebatching plant

53.3 6.7 Self-owned

Belt conveyors 8 Delivery ofaggregates intothe main mixer


Main concrete mixers 8 Mixing of rawmaterials


Crushed stones andsand tractors

8 Unloadingcrushed stonesand sand intothe warehouse


BUSINESS

– 142 –


Notes:

(1) When calculating the average estimated useful life for the silos for storing powder and liquid form rawmaterials, belt conveyors and main concrete mixers, the estimated remaining useful life of suchmachinery and equipment being used for 10 years or more is taken as zero.

(2) When calculating the average estimated useful life for the vehicle weighing system, testing equipment,and crushed stones and sand tractors, the estimated remaining useful life of such machinery andequipment being used for five years or more is taken as zero.

See “Financial Information – Critical Accounting Policies, Estimates and Judgments –Property, plant and equipment” in this document for details as to the depreciation method ofour machineries and equipment.

Maintenance and repair

To ensure stable and safe operation, we have a dedicated team of employees to keep trackof the key operational parameters and running status of the machineries and equipment. We cancarry out routine maintenance and repair of our machineries and equipment internally, but ifneeded, we may engage qualified third party service providers or the manufacturer forassistance. In addition to the traditional passive mode of maintenance where repair work iscarried out whenever errors or defects in our machineries and equipment are discovered, wealso adopt preventive maintenance measures, including oiling, corrosion prevention andcleaning on a periodic basis to maintain our machineries and equipment in optimal conditionand maximize their efficiency during their service cycle.

Further, we strive to maintain our machineries and equipment in good workingconditions. All our batching plants are required to follow the standardised inspection andmaintenance procedures, which require our staff to inspect (i) the operation conditions of ourproduction facilities; (ii) lubrication level of machineries and equipment; and (iii) electricitycontrol system of the machineries and equipment on a daily and/or monthly basis dependingon the types of machineries and equipment and the mechanical parts within them. We believethat adopting preventive maintenance measures (i) prolongs the cycle of major repairs orreplacement; (ii) minimizes the interruption of our production; and (iii) lowers the overallmaintenance cost in the long run.

For the two years ended 31 December 2019 and 2020 and the nine months endedSeptember 2020 and 2021, the repair and maintenance costs for our machineries and equipmentwere approximately RMB1.5 million, RMB1.8 million, RMB0.9 million and RMB1.0 million,respectively. During the Track Record Period, we did not experience any significantinterruptions in our business and operations or prolonged suspension of our productionoperations arising from failure or breakdown of our machineries or equipment.

SALES AND MARKETING

We generate our sales mainly by way of bidding and direct orders from our customers.See “– Our Operations – 1. Engagement phase” above for details.

Our sales and marketing strategy centres on establishing a reputation for consistent andstable production and supply of quality ready-mixed concrete and wet-mixed mortar products,offering product solutions to our customers to suit their construction needs, providing promptcustomer support services and building stable and enduring relationships with our customers.

BUSINESS

– 143 –


Sales

We have established sales and marketing networks with construction contractors andreal-estate developers, which may request their construction contractors to engage us for thesupply of ready-mixed concrete products for certain construction projects in Zhengzhou. As ofthe Latest Practicable Date, our sales force was staffed with 43 employees who wereresponsible for coordinating with, handling inquiries from, and confirming orders and productspecifications with our customers, preparing bidding documents as well as providing on-goingcustomer services, including assistance to our customers in obtaining technical support fromour technical and quality control team, and receiving customers’ feedbacks on our products andservices and carrying out follow-up actions when appropriate. Our sales employees arecompensated with a monthly basic salary and performance bonus based on certain performanceindicators, such as the amount of revenue generated, number of new customers sourced andin-time payment collection from customers.

We have dedicated sales teams stationed in each of our batching plants to focus onmaintaining, sourcing and serving customers within the sales radius of the respective batchingplant. The sales radius of each of the batching plants is approximately 30 km, such being areasonable and economic transportation radius taking into account of factors, including the sizeof our current production and sales forces, the average speed of mixer trucks with reference toroad conditions nearby, time required for loading and unloading of products, prescribeddelivery time under the sales contract and the recommended delivery time under the ConcreteNational Standard.

As illustrated in “– Our Production Facilities – The batching plants” above in this section,while the straight-line distance between each of our batching plants is less than 60 km, ourDirectors confirm, to the best of their knowledge, they are not aware of any cannibalisationamong the sales activities of our three batching plants, and we believe that the possibility ofsuch cannibalisation is remote given that each of our three batching plants’ potential and actualcustomers’ project sites are separate and generally within their own sales radiuses. Asillustrated in “– Our Competitive Strengths – Our batching plants are strategically located inZhengzhou in line with city development plans and we benefit from favourable governmentpolicies for the ready-mixed concrete industry” in this section, each of our three batchingplants has a distinctive area for which its products are mainly targeted, which includes (i) theZhengzhou downtown area; (ii) the area from the Zhengdong New District spanning over theeast direction to Kaifeng; and (iii) the area around the Zhengzhou Airport Economic Zone,where the project sites located within that area are targeted to be served by the Shenli BatchingPlant, the Shentong Batching Plant and the Gangfa Batching Plant, respectively. See the mapin “– Our Production Facilities – The batching plants” for an illustration of the geographicalservice scope of each of the batching plants.

Further, as disclosed in “– Competition” in this document, the ready-mixed concreteproduction industry is fragmented with a large number of market players. Considering (i) thelarge number of industry participants active in the geographical service scope of each of thebatching plants, as well as the relatively large market demand from these areas comparedagainst the actual production volume of each of the respective batching plant during the TrackRecord Period, in addition to (ii) the fact that, as confirmed by Frost & Sullivan, theready-mixed concrete industry in the regions in and around Zhengzhou is fragmented with alarge number of batching plants, and (iii) the fact that our Group accounted for a relatively verysmall percentage of the total production volume and revenue in both Zhengzhou and HenanProvince, even though we ranked first in both categories in Henan Province in 2020, we believethat the typical sales radius of 30 km from each of our batching plants is too large to cause anyeffect of cannibalisation.

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Moreover, we believe that the overlapping of certain areas formed by the sales radius of30 km from each of the batching plants illustrates the complementary production and salescapacities of the plants on a group basis. As mentioned above, the relatively large potentialmarket demand in the areas covered by a batching plant viewed against the production volumeof the plant indicates that it is possible that excess demand not met by one of our batchingplants may be met with available production capacity of another batching plant, when therelevant project site is located within its sales radius of 30 km.

In addition, we believe that there is sufficient monitoring in place to avoidcannibalisation, if any, among the three batching plants. Our senior management teamcommunicates with the sales and production teams of each of the batching plants and conducton-site visits from time to time to monitor their sales and production activities and customers’project site coverage. Our senior management team is also able to conduct real-time monitoringand coordination of the operations of each of the batching plants through our managementinformation system at our corporate headquarters. We have assigned three sales supervisors for,among other things, the overall coordination of our sales and marketing initiatives across thethree batching plants, which we believe facilitates more effective management of the sales andproduction activities of the three batching plants and further minimizes the possibility ofcannibalisation in the future.

Marketing

Understanding our target customers’ needs and providing suitable products that meet theirrequirements are essential to the success of our business. Our sales and marketing personnelare responsible for keeping track of the latest development in the construction industry as wellas potential project tracking. During the Track Record Period, we conducted the followingsales and marketing activities:

• Customer visits. We appreciate the importance of providing suitable products thatsatisfy our customers’ evolving demands and requirements. In addition tomaintaining contact by telephone, email, WeChat and other social mediaapplications, our sales teams visited some of our customers regularly at the projectsites or their offices. We believe that regular visits to our customers enable us to (i)better respond to our customers’ procurement needs; (ii) enhance our customer’sunderstanding of our products and our competitive advantages; and (iii) improve ourunderstanding of their project needs and market trend in general. We also conductedvisits to new customers with the aim to develop business relationships with them;and

• Customers’ referrals and word-of-mouth. As a major ready-mixed concreteproducer in Zhengzhou with a long operating history and a reputation for providingreliable and quality products and services to our customers, we had been able tosource new customers through word-of-mouth and referrals from our existingcustomers, many of whom made recommendations based on their past experiencewith our quality products and reliable services. We believe that customers’ referralsand word-of-mouth are the most efficient way to expand our customer base and gaintrust from new customers.

We intend to increase our sales and marketing forces to foster our customer relationshipand expand our customer base. See “Our Business Strategies – Further strengthen our sales andmarketing capability and increase the market awareness and recognition of our brand” in thissection for details.

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OUR CUSTOMERS

Our customers primarily comprise construction contractors in Zhengzhou and itsproximity which purchase our products for use in construction projects.

The following table sets out the breakdown of our revenue by the nature of our customersfor the periods indicated:


2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %



– Privateenterprises 585,284 53.3 511,894 47.1 442,611 46.8 271,165 53.0

Total 1,097,407 100.0 1,086,512 100.0 944,749 100.0 511,173 100.0



2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %




industrial 189,840 17.3 173,710 16.0 141,290 15.0 95,021 18.6

Total 1,097,407 100.0 1,086,512 100.0 944,749 100.0 511,173 100.0

For the two years ended 31 December 2019 and 2020 and the nine months ended 30September 2021, our sales to our five largest customers accounted for approximately 36.9%,37.0% and 30.9%, respectively, of our total revenue for the respective year/period. Our salesto our largest customer accounted for approximately 10.2%, 12.7% and 10.7%, respectively, ofour total revenue for the respective year/period during the Track Record Period.

The tables below set out the details of our five largest customers for the years indicatedduring the Track Record Period.

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For the year ended 31 December 2019

CustomersMajorproducts sold

Settlementmethod

Length ofbusinessrelationship

Revenuefor the year

% of ourtotal revenue

Credit periodprovided bythe Group

(approximately) (RMB’000) (approximately) (days)

Customer A(1) Ready-mixedconcrete andwet-mixedmortar

Bank transferor notes

14 years 111,601 10.2% 30-180

Customer B(2) Ready-mixedconcrete andwet-mixedmortar


16 years 86,853 7.9% 30-270

Customer C(3) Ready-mixedconcrete andwet-mixedmortar


17 years 86,824 7.9% 30-180

Customer D(4) Ready-mixedconcrete andwet-mixedmortar


17 years 72,683 6.6% 60-180

Customer E(5) Ready-mixedconcrete andwet-mixedmortar


18 years 46,809 4.3% 30-180

Subtotal 404,770 36.9%

Others 692,637 63.1%

Total 1,097,407 100.0%

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CustomersMajor productssold

Settlementmethod


Revenue forthe year


Credit periodprovided by theGroup




17 years 138,147 12.7% 30-180

Customer D(4) Ready-mixedconcrete andwet-mixedmortar


17 years 112,254 10.3% 60-180



16 years 54,457 5.0% 30-270

Customer A(1) Ready-mixedconcrete andwet-mixedmortar


14 years 50,669 4.7% 30-180

Customer F(6) Ready-mixedconcrete andwet-mixedmortar


17 years 46,406 4.3% 30-180

Subtotal 401,933 37.0%

Others 684,579 63.0%

Total 1,086,512 100.0%

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For the nine months ended 30 September 2021

CustomersMajor productssold

Settlementmethod

Lengthof businessrelationship

Revenuefor the period


Credit periodprovided by theGroup




17 years 54,873 10.7% 30-90



16 years 33,974 6.7% 30-270

Customer G(7) Ready-mixedconcrete andwet-mixedmortar


2 years 32,331 6.3% 30-180

Customer H(8) Ready-mixedconcrete andwet-mixedmortar


2 years 19,111 3.8% 60-120

Customer I(9) Ready-mixedconcrete andwet-mixedmortar

Bank transfer ornotes

3 years 17,583 3.4% 30-180

Subtotal 157,872 30.9%

Others 353,301 69.1%

Total 511,173 100.0%

Notes:

(1) Customer A is a private company principally engaged in construction engineering contracting works (建築工程總承包) registered in Zhejiang Province. It was established in April 1998 and has a registered capital ofapproximately RMB3,300 million. It has been recognised as one of the top 500 enterprises and top 50 privateenterprises in the PRC since 2000. The net profit of Customer A is approximately RMB2,300 million for theyear ended 31 December 2020.

(2) Customer B is a state-owned company principally engaged in construction engineering contracting works (建築工程總承包) registered in Beijing. It was established in December 1980 and has a registered capital ofRMB10,000 million, with its net profit for the year ended 31 December 2020 being approximately RMB2,280million. It is the wholly-owned subsidiary of a company listed on the Shanghai Stock Exchange. Such listedcompany is one of the world’s largest 500 companies, the net profit of which was approximately RMB44,900million for the year ended 31 December 2020.

(3) Customer C is a state-owned company principally engaged in building construction contracting works (房屋建築工程總承包) registered in Zhengzhou and ranks first in the construction industry in Henan and Fujian. Itwas established in October 1984 and has a registered capital of RMB600 million, with its net profit for the yearended 31 December 2020 of approximately RMB2,050 million. It is the wholly-owned subsidiary of a companylisted on the Shanghai Stock Exchange. Such listed company is one of the world’s largest 500 companies, thenet profit of which was approximately RMB44,900 million for the year ended 31 December 2020.

(4) Customer D is a state-owned company principally engaged in construction engineering contracting works (建築工程總承包) registered in Shanghai free trade zone. It was established in September 1998 and has aregistered capital of RMB13,600 million, with its net profit for the year ended 31 December 2020 beingapproximately RMB8,520 million. It is the wholly-owned subsidiary of a company listed on the ShanghaiStock Exchange. Such listed company is one of the world’s largest 500 companies, the net profit of which wasapproximately RMB44,900 million for the year ended 31 December 2020.

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(5) Customer E is a state-owned company principally engaged in contracting works for municipal public utilities(市政工程總承包) registered in Zhengzhou. It was established in November 1988 and has a registered capitalof RMB300 million.

(6) Customer F is a private company principally engaged in contracting works for building construction, municipalpublic utilities and electrical installation (房屋建築、市政工程、機電安裝總承包) registered in Zhengzhou. Itwas established in June 2004 and has a registered capital of RMB3,100 million.

(7) Customer G is a state-owned company principally engaged in sales of metal materials, chemical raw materialsand construction materials (金屬材料、化工原料與建築材料銷售) registered in Wuhan. It was established inJuly 2005 and has a registered capital of RMB400 million. It is indirectly wholly-owned by a company listedon the Shanghai Stock Exchange. Such listed company is one of the world’s largest 500 companies, the netprofit attributable to equity of which was approximately RMB22,390 million for the year ended 31 December2020.

(8) Customer H is a state-owned company principally engaged in construction contracting works for municipal,building and waterways (市政、建築及水利工程的承包施工) registered in Shanghai free trade zone. It wasestablished in May 1993 and has a registered capital of RMB1,500 million. It is wholly-owned by a companylisted on the Shanghai Stock Exchange. Such listed company has a net profit of approximately RMB2,300million for the year ended 31 December 2020.

(9) Customer I is a state-owned company principally engaged in various consulting work in relation toconstruction projects and pipeline and equipment installation (建築工程及線路、管道和設備安裝的諮詢)registered in Beijing. It was established in January 2001 and has a registered capital of RMB1,200 million. Itis wholly owned by a company listed on the Hong Kong Stock Exchange. Such listed company has a net profitattributable to equity of approximately RMB29,810 million for the year ended 31 December 2020.

We have not relied on any of our top five customers during the Track Record Period. Webelieve that we are well-positioned to leverage our competitive strengths to further broaden ourcustomer base in view of the following factors:

(i) we are an established ready-mixed concrete producer in Zhengzhou, Henan Provincewith a long operating history. According to the F&S Report, we are the largestready-mixed concrete producer in terms of both revenue and production volume inHenan Province for 2020;

(ii) we have established stable and long business relationships with most of ourcustomers for a period ranging from 14 to 18 years. We believe that the customerrelationships are built on our expertise, reputation in the industry and past trackrecord; and

(iii) the favourable market outlook of the real estate and infrastructure constructionindustry in Zhengzhou and its proximity as detailed in “Industry Overview – Chinaand Henan ready-mixed concrete industry overview – Market size by productionvolume and revenue of ready-mixed concrete industry in China, Henan andZhengzhou” in this document is expected to drive the overall demand forready-mixed concrete as a major construction material.

To the best knowledge and belief of our Directors, none of our Directors, their respectiveclose associates, or any Shareholders who or which, own more than 5% of the issued sharecapital of the Company as of the Latest Practicable Date, had any interest in any of the fivelargest customers of the Group during the Track Record Period and up to the Latest PracticableDate. All of the five largest customers of the Group during the Track Record Period areIndependent Third Parties. None of our five largest customers except Customer G/Supplier Gduring the Track Record Period was also a supplier or service provider of the Group.

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During the Track Record Period, we did not experience any major disruption in businessdue to materials delays or defaulting payments by our customers due to their financialdifficulties. Our Directors further confirm, to the best of their knowledge and belief, that theyare not aware of any of our major customers having experienced material financial difficultiesthat may adversely affect our business operations.

Major terms of our sales contracts

As required under the Concrete National Standard, we must enter into a sales contract orbinding purchase order with our customers before we engage into the production process. Themajor terms included in most of our sales contracts are summarized as follows:

Construction projectdetails

Basic information of the construction project in which ourproducts are used, including the name of the project, thelocation of the project, the responsible constructioncontractor, the gross floor area involved, the expectedduration of the project are to be specified.

Grade level of theproduct

The grade level of the product is to be specified in accordancewith our customer’s requirement.

Price and quantityof the product

The price of our product is expressed in terms of a unit pricemultiplied by the expected total quantity(1) of our productrequired for the project.

The unit price is either a specified RMB amount or expressedas a certain percentage (generally in the range ofapproximately 0% to 15%) below the Base Price in effectfrom time to time when our customer places an order with usfor production of a particular batch of product. The unit priceof wet-mixed mortar is generally the same as that of ourregular ready-mixed concrete of the same compressivestrength.

The per unit fixed price of the admixture(2), if required to beincluded in a particular batch of product, is also specified.The price of the admixture is to be charged in accordancewith the actual volume of the admixture used in theproduction.

The weight of the product is to be recorded and convertedinto its volume through a pre-determined weight-to-volumeratio. Such volume is cross-checked against the volumerequested by the customer under the order. A margin ofdifference at around 1% is generally allowed.

Delivery and on-sitetesting of theproduct

The product is to be delivered by mixer truck. Deliveryinspection is to be conducted at the project site immediatelyupon unloading of our ready-mixed concrete product.

The term of thesales contracts

The term of the sales contracts range from 1 to 57 months,with an average of 12 months.

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Quality control ofthe product

Test cubes shall be produced and reserved for testing for eachbatch of our ready-mixed concrete products. The test cubesshall pass the compression test in accordance with theConcrete National Standard after curing for 28 days. We aregenerally required to prepare and deliver to the customer acertificate of manufactured quality within a designatedtimeframe after the 28-day curing process.

Other technicalspecifications ofthe product

In addition to meeting the Concrete National Standard, ourproducts may be required to meet other technicalrequirements specified by our customer, such as maximumwater-binder ratio, use of river sand, diameter of stone pieces,curing time, alkali and chlorine content, and slump testperformance, among others.

Payment schedule We adopt various payment methods in our sales contracts,including (i) advance payment of the full price of each batchof product to be supplied before delivery; (ii) bi-monthlypayment of a certain percentage ranging from 60% to 100%,which may vary according to the stage of completion of theproject, of the total settlement amount for the previouspayment period’s supply; and (iii) payment upon completionof pre-designated milestones in the project. In the case ofpartial payment, the remaining balance is generally settledwithin six months after the completion of the ready-mixedconcrete casting of the main structure or completion of theconstruction project.

Termination We have the right to terminate the sales contract upon failureof our customer to pay us in accordance with the paymentschedule specified in the contract.

Our customer has the right to terminate the sales contract ifwe fail to deliver products in accordance with the contractmore than twice or if our product fails to meet customerrequirements after product exchange.

Dispute resolution Any dispute under our sales contracts shall be resolved bylitigation or arbitration.

Notes:

(1) Such expected total quantity serves as an indication only and the parties agree that the quantity specifiedin each individual order under the sales contract shall be determinative.

(2) Such admixture does not include the water-reducing admixture necessary to produce ready-mixedconcrete.

BUSINESS

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As advised by our PRC Legal Advisers, the above-mentioned major terms of our salescontracts are not in violation of any mandatory prohibition under applicable PRC laws andregulations and therefore are legal and binding between the parties to the contract under thePRC laws. Our Directors confirm that there had not been any material breaches of our salescontracts with our major customers during the Track Record Period.

Pricing policy

Our pricing policy takes reference to the Base Price of the respective grade level of ourready-mixed concrete products as set out in the Base Price Information of Major Materials forConstruction Engineering in Zhengzhou (《鄭州市建設工程主要材料基準價格信息》) ingeneral. In accordance with the F&S Report, although the Base Price is not a mandatory pricecontrol measure or price ceiling requirement imposed by the PRC Government authorities,professional associations, or the applicable PRC laws and regulations, ready-mixed concreteproducers in Zhengzhou and its proximity generally adopt the Base Price as a reference pointin determining the price of the products.

As described in “– Major terms of our sales contracts” above, the price of our regularready-mixed concrete product is generally expressed as a certain percentage (generally in therange of approximately 0% to 15%) below the Base Price in effect from time to time when ourcustomer places an order with us for production of a particular batch of product. Thepercentage decrease above is generally determined taking into account factors including ourcosts of production (including raw material costs, direct labour costs, and other manufacturingoverheads etc.), transportation costs and our intended profit margins. In case we experience asignificant raw material cost fluctuation without any corresponding timely adjustment in theBase Price, we may discuss with our customers for the sales price adjustment.

We adopt a cost-plus pricing model in pricing. When determining the price of ourspecialised ready-mixed concrete products, we take into account a variety of factors includingthe product specification, Base Price, sales volume, operational costs and overheads, costs ofprocurement for individual orders and our relationship with the customer.

The unit price of our wet-mixed mortar products is generally the same as that of ourregular ready-mixed concrete product of the same compressive strength.

The Base Prices of our products are set out in the Base Price Information of MajorMaterials for Construction Engineering in Zhengzhou and revisited usually on a monthly basisby the Zhengzhou Construction Engineering Standard Rating Station (鄭州市建築工程標準定額站) taking into factors including the prevailing market price of the raw materials, the localdemand for such products and the social and economic conditions of the local region and thePRC in general. The Base Price may be further revisited and adjusted on an ad-hoc basis ifthere is a significant fluctuation of the cost of raw materials within a short period of time.Therefore, as confirmed by Frost & Sullivan, the adjustment of the Base Price generallyfollows the fluctuations of the costs of raw materials. Meanwhile, whereas the price of theadmixtures (except the water-reducing admixture necessary for the production of ready-mixedconcrete product) is generally fixed at the time of signing the sales contract, the unit prices ofsuch admixtures are generally much lower when compared to the Base Prices of ready-mixedconcrete. Therefore, the effect on any change of procurement cost of admixture to ourprofitability is generally relatively insignificant. As such, our Directors are of the view that thatwe can generally pass on the increase in purchase of raw materials to our customers.

BUSINESS

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As illustrated above, the average selling prices of our ready-mixed concrete products aregenerally in line with the price discount as set out in the major terms of our sales contracts.See “– Our Customers – Major terms of our sales contracts” in this document. The percentagediscount of the average selling price from the Base Price (tax-exclusive) for our ready-mixedconcrete of C30 grade level or below increased from 1.3% in 2019 to 2.5% in 2020,respectively, representing a year-on-year increase of 1.2 percentage points. For the nine monthsended 30 September 2021, the percentage discount of the average selling price from the BasePrice (tax-exclusive) of our ready-mixed concrete of C30 grade level or below increased to8.2%. Further, the percentage discount of the average selling price from the Base Price(tax-exclusive) for our ready-mixed concrete of over C30 grade level increased from 1.1% in2019 to 2.6% in 2020, representing a year-on-year increase of 1.5 percentage points,respectively, and increased to 7.0% for the nine months ended 30 September 2021. The overallpercentage discount of the average selling price from the Base Price (tax-exclusive) for ourready-mixed concrete product increased from 1.2% in 2019 to 2.6% in 2020, respectively,representing a year-on-year increase of 1.4%. For the nine months ended 30 September 2021,the overall percentage discount further increased to 7.6%.

We believe that the overall increase of the percentage discount of the average price of ourready-mixed concrete products from the Base Price during the Track Record Period wasgenerally attributable to decreases in the market prices of the raw materials used in ourproduction, as a result of which we were able to offer more discounts to customers. For details,see “Financial Information – Discussion of Major Components of Consolidated Statements ofComprehensive Income – Revenue” in this document.

Credit policy

In order to cultivate and maintain business relationships with our customers and at thesame time ensure a healthy liquidity position, we have adopted different credit policies fordifferent customers. We principally refer to our customers’ purchase and credit history, salesvolume, scale of operation, types of projects for which our products are supplied, ourcustomers’ background, financial condition and relationship history with us to determine thespecific credit terms for them. Some projects have relatively long construction periods and themain contractors often make payments together for different batches of our products deliveredat various times during the construction period after the completion of the entire project. Insuch cases, we may grant a longer credit period depending on the nature of the project and ourrelationship with the customer, among other factors. For most customers, our credit periodranges from six months to one year.

We have adopted a set of credit control measures under which we conduct litigationsearches on the customers and review their historical payment records. Our sales and financeteams also review the credit terms of individual customers regularly. In order to collect overduetrade receivables, our finance team monitors overdue payments closely and prepares a monthlyaging report showing customers’ overdue amounts. In the event of overdue trade receivables,we take follow-up actions to collect the overdue trade receivables, such as arranging ouremployees at the sales department to follow up with the payment process with the responsibleemployees of the customer, issuing reminder messages and making reminder calls to therelevant customers, and not accepting further orders from the customer until full payment ofits trade receivables.

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Our customers usually settle payments with us by way of bank transfer, notes and, inlimited circumstances, by way of cash. During the Track Record Period, we did not experiencematerial difficulty in collecting payments which caused a material adverse impact on ourbusiness operations. See “– Trade and other receivables” and “Financial Risk Disclosure –Credit risk” in “Financial Information” in this document for details on our trade receivables,our trade receivables turnover days and our credit risks, respectively.

Product warranties and returns

While we provide assurance to as our product quality as of the time of on-site productdelivery, we do not offer any subsequent product warranties to our customers. No provision forproduct warranty was made during the Track Record Period, which we believe is consistentwith the industry norm. Also, due to the curing nature of ready-mixed concrete products,ready-mixed concrete may exhibit unsatisfactory conditions after approximately 90 minutes,which is the suggested maximum delivery time for ready-mixed concrete after production. Assuch, in line with the industry practice, we do not offer product returns for our customers.Nevertheless, we will arrange, at our own cost, transportation service providers to remove ourproducts from our customers’ designated construction project sites if our products fail to meetthe specifications under the sales contract or the Concrete National Standard after the on-siteproduct delivery inspection. See “– Quality Control” below in this section for details.

Our general manager and our technical and quality control team is responsible forassessing product quality complaints from our customers. Quality complaints received andapproved by our general manager are passed on to the technical and quality control team fordetailed complaint assessment. Our technical and quality control team undertakes standardexamination and evaluation procedures to ascertain the validity of the claims and reports itsfindings to the production and sales teams. If our products fails to meet the productspecifications or the technical requirements set out in the Concrete National Standard(including failure to meet the slump test at our customer’s project site upon unloading), theyare entitled to request us to remove the defective products from our customers’ designatedconstruction project sites at our own cost.

We did not record any sales return for the two years ended 31 December 2019 and 2020and the nine months ended 30 September 2021. Our Directors confirm that we did notexperience any product returns or receive any material product quality complaints andsubstantial compensation liability during the Track Record Period.

SEASONALITY

Our business is subject to seasonality. We typically record lower revenue in (i) Januaryand/or February due to the effect of the Chinese New Year holiday season during which mostof our customers’ construction projects are suspended; and (ii) during the indoor heating seasonin China which normally lasts from mid-November to mid-March when local authorities mayrequire us, our customers or our raw material suppliers to reduce and/or suspend productionactivities from time to time due to severe air pollution which tends to occur during the indoorheating season in the winter. For instance, according to the Guiding Opinions on Promoting theStable Growth, Structure Adjustment and Increasing Efficiency of the Building MaterialsIndustry (《關於促進建材工業穩增長調結構增效益的指導意見》) (Guo Ban Fa [2016] No.34) issued by the General Office of the State Council on 18 May 2016, the production ofcement clinker, an intermediate product for the production of cement and one of the key rawmaterials for our products, should be reduced during the heating season in China to reducepollution to the atmosphere. Likewise, in Henan province, according to the Notice onStaggered Production of Cement and Brick Kiln Enterprises in Henan Province (《關於做好河南省水泥和磚瓦窯企業錯峰生產工作的通知》) (Yu Huan Gong Jian Ban [2020] No. 70))

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issued by the Leading Group Office for Pollution Prevention and Control of Henan Province(河南省污染防治攻堅戰領導小組辦公室), the production of cement clinker and the operationof cement grinder should be reduced and/or suspended to reduce pollution. Our revenue is alsolikely to be affected when there is heavy rain in the summer months and outdoor constructionactivities have to be suspended. In recent years, due to more stringent implementation ofenvironmental policies, the local government has requested suspension of production activitiesmore frequently during times of severe air pollution. We, our customers and our raw materialsuppliers have all been affected from time to time by government-ordered reduction and/orsuspension of production activities and, as a result, we have experienced delays in ourproduction and delivery schedules. In such case, our customers would generally grant us anextension and we have not been held liable for such production and delivery delays as of theLatest Practicable Date. Nevertheless, there is no certainty that we will be always granted anextension, not incur additional costs or experience delays when conducting our businessoperations during the months when we are likely to be affected by such seasonal factors. See“Risk Factors – Risks Relating to Our Business – Our business is subject to seasonality andweather conditions” in this document for details.

PROCUREMENT

We use various raw materials in our production process and source our raw materials inthe PRC. Our key raw materials comprise cement, sand and crushed stones. During the TrackRecord Period, our total costs of raw materials accounted for approximately 90.8%, 89.7% and85.7%, respectively, of our total costs of sales for the two years ended 31 December 2019 and2020 and the nine months ended 30 September 2021.

We have access to different raw material suppliers that allow us to meet our productionneeds on a timely basis and at comparable prices. During the Track Record Period, oursuppliers primarily included cement producers as well as Independent Third Party constructionmaterial trading companies. These trading companies acted as intermediaries between us andproducers of our raw materials. They first purchase cement, sand and crushed stones from theproducers and then use their own transportation service to ship the raw materials to us. Asmany raw materials producers require prepayment for their products if purchased directly fromthem but these trading companies do not require prepayments from us, we believe that usingthese intermediary trading companies for our raw materials procurement allows us totemporarily free up our capital resources and improve our cash flow position. It isadministratively much easier for us to procure raw materials from trading companies thanhaving to purchase the same amount of raw materials through numerous raw materialproducers. These trading companies are generally able to obtain more favourable purchaseprices from raw material producers because they receive volume discounts due to their largepurchase volumes. According to the F&S Report, it is a common market practice in ourindustry to purchase raw materials from third-party trading companies.

Our procurement team maintains a list of approved suppliers for each raw material whichare selected after considering a variety of factors including their reputation, technicalcapabilities, product quality and price, reliability and delivery time. As such, we do not rely onany one supplier and can easily replace a supplier with another from our existing list shouldone or more suppliers become unavailable or if deemed necessary by the Company. To mitigatethe risks associated with any reliance on our suppliers, we periodically review our list ofqualified suppliers, seek potential alternative suppliers and obtain quotations from them inorder to keep contact with potential suppliers who can offer favourable terms for provision ofraw materials. See “– Our Suppliers” in this section of the document for details. To lower thetime and costs associated with delivery of the raw materials to the batching plants, weprimarily sourced our raw materials from suppliers in Zhengzhou and its proximity.

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We maintain periodic communications with our customers to keep track of their projectprogress and their procurement plans of our products in the coming months. Our procurementdepartment prepares our monthly procurement plan based on expected demand from customersand taking into account of our current inventory level, our historical use of raw materials forthe particular month in previous years and our safety inventory level which is defined as beingsufficient for two days’ production need. The procurement plan is then discussed andconfirmed with the department head and general manager.

We generally seek price quotations from our approved suppliers and choose one supplierto place our purchase orders with after comparing their terms and offers. We believe that thisallows us to use our bargaining power to obtain favourable pricing and to avoid over-relianceon any single supplier.

In addition, we adopt various measures to manage the risk of raw material pricefluctuations, including (i) maintaining and updating our list of approved suppliers throughactively assessing potential new suppliers to locate alternative sources of supply, which offera similar quality of raw materials at lower prices or with greater discounts; (ii) negotiating withour suppliers for competitive prices of raw materials from time to time; and (iii) negotiatingwith our customers for sales price adjustments, when there is a significant increase in the rawmaterial prices without a corresponding timely Base Price adjustment.

Although we believe that we are generally able to pass the increase in the cost of our rawmaterials to our customers, the prices of our products are generally determined with referenceto the Base Price, which is outside our control and may not be adjusted in time to reflect thechange in cost of raw materials, or at all. Further, the prices of our raw materials may beaffected by factors beyond our control, such as PRC laws, regulations and policiesimplemented from time to time. For details, see “Our ability to set or raise the prices of ourproducts is limited. If the Base Price is not adjusted on a timely basis to keep in line with theincrease in our costs of production or if our competitors do not make reference to the BasePrice in pricing their products, our business, financial condition and results of operations maybe materially and adversely affected” and “Prices of raw materials may significantly impact ourresults of operations.” in “Risk Factors – Risks Relating to our Business” in this document.

During the Track Record Period, we did not engage in any hedging activity nor did weenter into any future contract or price lock-up arrangement with our suppliers in order tomanage the price fluctuation of our raw materials during the Track Record Period and we donot plan to engage in any hedging activity in the foreseeable future.

For a sensitivity analysis of how changes in raw material procurement costs impact ouroperating profit, see “Financial Information – Factors Affecting Our Results of Operations –Supply of raw materials and raw material costs” in this document.

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OUR SUPPLIERS

We have an established policy of reviewing our list of approved suppliers and identifyingpotential alternative suppliers. Our raw materials are readily available in Henan Province andthe PRC. We do not rely on any particular supplier. To facilitate our production process andmaintain our cost efficiency, our procurement department is required to assess potential newsuppliers from time to time through obtaining information online as well as through customerreferral and industry sources, among other channels. The supplier candidates may be requiredto provide their pitch materials and deliver samples to us. The samples are then sent to ourquality control department for inspection and quality testing. In our assessment, we may alsorequire the supplier candidates to provide us supporting documents such as certificate ofqualification, bank account opening permit, legal person identity card, authorization letter, andbusiness licences. For manufacturing enterprises, we also require them to provide theirproduction operation permit, quality certification and third party evaluation report. Ourprocurement department reviews suppliers, conducts initial assessments, and recommendssuppliers to our management for approval. We may conduct a second round of reviews whenwe deem necessary. Our procurement department, technology and quality control departmentand our general manager jointly evaluate suppliers on the basis of supply capacity, productquality, price and qualification. If considered necessary or appropriate, we may visit theirproduction premises to assess their production and quality management.

During the Track Record Period and up to the Latest Practicable Date, we did notexperience any significant difficulties in identifying alternative suppliers for our raw materialsand we do not anticipate any difficulties in this regard in the foreseeable future. Furthermore,during the same period, we did not experience any material dispute with our suppliers, nor anydisruption, shortage or delay in the supply of our raw materials which may materially andadversely affect our business, results of operations and financial condition.

For the two years ended 31 December 2019 and 2020 and the nine months ended 30September 2021, our five largest suppliers in aggregate accounted for approximately 26.7%,18.0% and 22.8%, respectively, of our total purchases for the same periods. Our largestsupplier accounted for approximately 8.3%, 7.1% and 6.5%, respectively, of our totalpurchases for the same periods.

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The tables below set out the details of our five largest suppliers for the years/periodsindicated during the Track Record Period.


SuppliersMajor productssupplied

Settlementmethod


Transactionamount

% of our totalpurchases

Credit periodprovided tothe Group


Henan Taiyangshi GroupCement CompanyLimited* (河南省太陽石集團水泥有限公司)(2)

Cement Bank transferand bill

18 years 68,271 8.3 30-60

Henan Mengdian GroupCement CompanyLimited* (河南省孟電集團水泥有限公司)(3)

Cement, groundslag

Bank transferand bill

18 years 43,362 5.3 30-60

Supplier C(4) Cement Bank transferand bill

4 years 37,432 4.6 30-60

Supplier D(1) (5) Ground slag(10) Bank transferand bill

4 years 35,614 4.4 30-90

Supplier E(1) (6) Cement, groundslag(10)


7 years 33,511 4.1 30-120

Subtotal 218,190 26.7

Others 599,752 73.3

Total 817,942 100.0

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Settlementmethod


Transactionamount


Credit periodprovided to theGroup



Cement, groundslag


18 years 56,372 7.1 30-60

Henan Taiyangshi GroupCement CompanyLimited* (河南省太陽石集團水泥有限公司)(2)

Cement Bank transferand bill

18 years 32,968 4.1 30-60



7 year 20,800 2.6 30-120

Supplier D(1) (5) Ground slag,fly ash(10)


4 years 16,585 2.1 30-90

Supplier F(1) (7) Crushed stones Bank transferand bill

4 years 16,408 2.1 30-120

Subtotal 143,133 18.0

Others 653,759 82.0

Total 796,892 100.0

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For the nine months ended 30 September 2021


Settlementmethod


Transactionamount


Credit periodprovided to theGroup



Cement, groundslag


18 years 23,589 6.5 30-60

Supplier G(8) Cement Bank transferand bill

2 years 17,633 4.9 30-60

Supplier F(1) (7) Crushed stones,sand


4 years 15,087 4.2 30-120



4 years 13,999 3.9 30-120

Supplier H(1) (9) Crushed stones,sand


1 year 12,095 3.3 30-120

Subtotal 82,403 22.8

Others 279,351 77.2

Total 361,754 100.0

Notes:

(1) The figures are consolidated as the companies are under the control of the same controlling shareholder.

(2) Henan Taiyangshi Group Cement Company Limited* (河南省太陽石集團水泥有限公司) is a private companyprincipally engaged in processing of clinker, cement and slag powder, mining of limestone, processing andsales for building stone and sales of building materials (except sand). It was established in March 2002 witha registered capital of approximately RMB134.9 million.

(3) Henan Mengdian Group Cement Company Limited* (河南省孟電集團水泥有限公司) is a private companyprincipally engaged in sales and processing of cement and clinker. It was established in April 2002 with aregistered capital of RMB338.8 million.

(4) Supplier C is a private company principally engaged in sales and processing of construction materials. It wasestablished in February 2011 with a registered capital of RMB1 million.

(5) Supplier D is a group of private companies controlled by an individual, as a controlling shareholder, whosebusiness is principally engaged in sales of construction material and transportation of commercial goods.

(6) Supplier E a group of private companies controlled by an individual, as a controlling shareholder, whosebusiness is principally engaged in sales of construction material and transportation of commercial goods.

(7) Supplier F is a group of private companies controlled by an individual, as a controlling shareholder, whosebusiness is principally engaged in sales of material and decorations for construction projects.

(8) Supplier G is a state-owned company principally engaged in sales of metal materials, chemical raw materialsand construction materials (金屬材料、化工原料與建築材料銷售) registered in Wuhan. It was established inJuly 2005 and has a registered capital of RMB400 million. It is indirectly wholly-owned by a company listedon the Shanghai Stock Exchange. Such listed company is one of the world’s largest 500 companies, the netprofit attributable to equity of which was approximately RMB22,390 million for the year ended 31 December2020.

(9) Supplier H is a group of private companies controlled by an individual, as a controlling shareholder, whosebusiness is principally engaged in wholesale of construction material.

(10) The major products supplied are inclusive of the transportation expenses.

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For the nine months ended 30 September 2021, Customer G/Supplier G was one of ourtop five major customers as well as one of our top five major suppliers. Customer G/SupplierG was the main contractor for a number of metro railway projects for which we suppliedready-mixed concrete, and it usually provided us with cement it had procured for us to use asraw material to manufacture ready-mixed concrete for it. We procured cement from and soldready-mixed concrete to Customer G/Supplier G both at market prices. For the nine monthsended 30 September 2021, our sales to Customer G/Supplier G represented approximately6.3% of our year-on-year revenue and our procurement from it represented approximately 4.9%of our total purchase, and the gross profit from our sales to Customer G/Supplier G isapproximately RMB7.1 million with a gross profit margin of approximately 22.0%.

All of our five largest suppliers during the Track Record Period are Independent ThirdParties. To the best knowledge of our Directors, none of our Directors and their respectiveassociates or any of the Shareholders holding more than 5% of the Company’s share capital asof the Latest Practicable Date have any interest in any of the five largest suppliers during theTrack Record Period and as of the Latest Practicable Date.

TRANSPORTATION OF PRODUCTS AND RAW MATERIALS

We are generally responsible for delivery of our products to our customers’ designatedconstruction project sites and bear the costs and risks during the transportation. As a result, wehave entered into transportation service framework agreements with certain transportationservice providers for provision of such delivery services. The transportation service frameworkagreements do not contain any provision which would impose any minimum shipment amounton us. The freight expenses were determined after taking into account the weight of goodsdelivered, type of delivery vehicles required, distance of delivery and prevailing marketconditions.

During the Track Record Period and up to the Latest Practicable Date, we did not own anymixer truck or raw material delivery vehicles. According to the F&S Report, this is in line withthe industry norm. We maintain a list of qualified transportation service providers selectedbased on their experience, capability, vehicle type, scale of operation and reputation in theindustry. In addition, we also have readily available alternative transportation service providersin the market who offer similar transportation services with comparable terms to replace ourexisting transportation service providers, if required. To mitigate the risks associated with anyreliance on our transportation service providers, we periodically review our list of qualifiedtransportation service providers and seek potential alternative transportation service providerswho can offer favourable terms for their transportation services with us.

During the Track Record Period, five transportation service providers engaged by us werefunded and managed by our employees. Except for the foregoing, all other transportationservice providers engaged by us during the Track Record Period were Independent ThirdParties. There have been no past or present relationships (whether employment, family, fundflow, financing or otherwise) between these transportation service providers and oursubsidiaries, Shareholders, Directors, senior management, or any of their respective associates.

Our Directors confirm that we did not experience any material disruption or damage toour raw materials and products in the delivery process during the Track Record Period and upto the Latest Practicable Date. Nevertheless, there is no assurance that such incidences will notoccur in the future. For details, see “Risk Factors – Risks Relating to Our Business – We donot have our own transportation team to deliver our raw materials and products” in thisdocument.

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UTILITIES

We use resources, including water and electricity, for the production process of ourready-mixed concrete and wet-mixed mortar.

We obtain our electricity supply mainly from the state grid. In addition, our batchingplants are generally equipped with emergency generators to ensure the supply of electricity. Wedid not experience any difficulty in obtaining adequate electricity during the Track RecordPeriod, nor do we foresee any problem in obtaining electricity for our production facilities inthe foreseeable future.

We obtain our water supply mainly from local water suppliers. We did not experience anydifficulty in obtaining adequate water supply during the Track Record Period, nor do weforesee any problem in obtaining adequate water supply for our production facilities in theforeseeable future.

INVENTORY MANAGEMENT

We monitor and control the inventory levels of our raw materials to optimize ouroperational efficiency. We manage our inventory of raw materials based on the expectedpurchase orders for the month, our production schedules and our procurement cycle for rawmaterials. We adopt stringent procedures to monitor the inventory levels of our raw materials.We control our inventory level by (i) conducting raw material stock check twice a day; (ii)keeping track of the inventory level through the timely updated raw material list; (iii) obtainingperiodic updates of procurement plans from our customers; and (iv) maintaining a minimuminventory level of cement sufficient for two days’ production need. Due to the curing natureof our products, they are delivered to our customers’ project sites once produced. Therefore,we do not maintain any inventory of our finished products.

QUALITY CONTROL

We implement stringent quality control measures at the key stages of our productionprocess starting from the procurement of raw materials to delivery of our final products. Wehave established quality management systems certified under the GB/T19001-2016 idtISO9001:2015 standards. As of the Latest Practicable Date, we had a total of 14 technical andquality control employees to ensure the effective implementation of our quality control system.

Each of our batching plants adopts the following standardised quality control measures:

Raw materials

When raw materials are delivered to the batching plants, the respective weights of the rawmaterials are measured and verified against the ordered quantities. Our technical and qualitycontrol employees conduct visual inspection of the raw materials to identify any apparentdefect from their appearance and general condition. At the same time, samples of the rawmaterials are obtained for quality testing. Our technical and quality control team conductsample tests for each shipment of raw materials in accordance with the requirements andtesting specifications set out in the national standards of the respective raw materials. Suchtests may include chemical testing on the components of the raw materials as well as testingon the physical properties such as the fineness and the compressive strength. If any apparentdefect is identified from our visual inspection or if it fails our sample testing, we then requestthe suppliers to replace the whole shipment at their cost.

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Production process

Our technical and quality control team is involved in various stages of the productionprocess for maintaining the consistency and quality of our products. For instance, our technicaland quality control personnel are responsible for inputting the data on mix proportions into thecomputer program of the automated batching system at the time of production. Further, for thefirst batch of products to be loaded into a mixer truck, the technical and quality controlemployees monitor the production process to ensure that they are satisfied with the productquality. These employees are also responsible for cross-checking and signing off the dailyproduction list setting out summaries of the production details of the day. For details, see “–Our Production Process” above in this section.

Finished goods

Our finished products of ready-mixed concrete generally undergo compression tests toascertain the compressive strength. We perform slump tests upon delivery of our products atour customers’ project sites to evaluate the workability of our products. Also, we conductcompression tests after the 28-day curing process to evaluate the compressive strength of ourready-mixed concrete products.

Compression test

We conduct compression tests by preparing test cubes and have them undergocompression after 28 days of curing. The specifications of the test are prescribed under theGB/T50080-2016 (Standard for Test Method of Performance on Ordinary Fresh Concrete)(《普通混凝土拌合物性能試驗方法標準》) and the Concrete National Standard. The ready-mixed concrete is placed in the mold of test cubes in layers and each layer is compacted eitherby using the compacting bar or by vibration table. The test cube is then placed in a temperatureand humidity-controlled mist chamber for curing for 28 days. The test cube undergoes threecompression tests after 28 days of curing. The average of the three results represents the testedcompressive strength of the ready-mixed concrete product. Our sales contracts generallyrequire us to prepare and deliver to our customers a certificate of manufactured quality for ourready-mixed concrete products within a designated timeframe after the 28-day curing process.

Slump test

For the slump test, a sample of the ready-mixed concrete product is obtained and put intoa slump cone. The slump cone is filled with fresh concrete in three layers and each layer istamped uniformly. After the top layer has been tamped, the concrete is levelled to the top ofthe slump cone and the slump cone is then removed. Immediately after the slump cone isremoved, the difference between the height of the slump cone and the highest point of thesample being tested will be measured and verified against the specifications and the technicalrequirements set out in the sales contract and the Concrete National Standard for qualityassurance. The adhesiveness and moisturization level of the slump are then assessed.

After-sale services

From time to time we may be required to provide technical guidance on the on-siteapplication of our products. Upon such request from the customer, our sales team together withthe technical and quality control team liaise with our customer to provide the necessarysupport. Our sales employees collect verbal and/or written feedback from our customer andpass to our technical and quality control team to facilitate further product improvement. Webelieve that after-sale services help us gain a better understanding of our customer’s needs andmaintain long-term relationships with our customers.

Our Directors confirm that during the Track Record Period and up to the LatestPracticable Date, there were no material quality issues with respect to our business operationsor our products.

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RESEARCH AND DEVELOPMENT

Our research and development efforts primarily focus on (i) the optimisation of rawmaterials mix through the substitution of existing materials or the addition of new admixturesto achieve desirable technical specifications to broaden the applications of or add new featuresto our products; (ii) the development of improved products preparation technologies; (iii) thetesting and application of new admixtures; and (iv) the development of technologies thatreduce the environmental impact of our production activities.

As of the Latest Practicable Date, we had six completed research and developmentprojects relating to (i) the application technology of high strength and high performancerecycled concrete; (ii) recycled coarse aggregate concrete; (iii) lightweight and permeableaggregate concrete; (iv) development of precast molds for clear-water and self-compactingconcrete wall pillars; (v) water washing device for clear-water and self-compacting concreteproduction; and (vi) mixed additives for clear water self-compacting concrete production. Inconnection with our research and development projects, we have nine registered patents in thePRC and have applied for two utility model patents. Most of our patents and pendingapplications relate to the better utilisation of construction waste and optimisation of materialmixtures or production processes.

COMPETITION

We are an established supplier of ready-mixed concrete products in Zhengzhou, HenanProvince. According to the F&S Report, we ranked first among the ready-mixed concreteproducers in Henan Province in 2020, in terms of both production volume and revenue, witha market share of 1.1% and 1.2%, respectively.

The ready-mixed concrete market in Henan Province is quite fragmented withapproximately 500 players. According to the F&S Report, most of these players do not competewith us directly as they are not located in the service areas of our three batching plants and weoperate on a larger scale in and around Zhengzhou. According to the F&S Report, due to highrequirements of (i) technical research and production management ability, (ii) amount of timeand effort for compliance with various increasingly stringent environmental protection lawsand regulations, (iii) corporate reputation and stable business relationships, and (iv) capitalresources, new entrants typically face high entry barriers because of substantial amounts ofinvestment and effort required to compete with the existing players in the market.

ENVIRONMENTAL PROTECTION

We believe it is important to implement environmentally responsible practices andmaintain high environmental standards. Our operations in the PRC are subject to, among otherrelevant environmental protection standards, several PRC environmental laws and regulations.If we are found to be not in compliance with any PRC environmental laws or regulations, thePRC government may impose on us administrative penalties of different types and degrees,from warnings, fines, orders to make rectification within a specific period or orders to suspendproduction or to close our business, all of which could have an adverse operational andfinancial impact on us.

We updated our risk management policy in September 2021 to assist in identifying,analyzing and managing potential risks. Our risk management team comprises operationalpersonnel and senior management who are responsible for implementing our risk managementplan, identifying potential risks, proposing corrective actions and following up with theremediation status. The risk management team will hold a risk monitoring meeting every

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quarter to discuss, assess and monitor any potential risks, including environment-related risksand social sustainability risks. Our Directors confirm that the risk management policy has beenimplemented effectively on an on-going basis.

Further, we established our environmental protection facility management policy in June2018 to implement and monitor control over environmental protection in our productionprocesses. In our environmental protection efforts, we aim to reduce waste and water usage andreplace pollutant-contaminated equipment.

We have in place standard environmental protection measures in our daily operations, asummary of which is as follows:

Industrial waste recycling

During the production process, we utilize recycled industrial waste such as ground slagand fly ash to reduce waste of raw materials. These recycled materials also enhance theperformance of our products while reduce the use of cement, thereby conserving energy andreducing carbon emission. Ready-mixed concrete producers, including us, generally purchasethe recycled ground slag and fly ash from iron mills and power plants, respectively, and reusethem as part of the ingredients to form the binding materials for ready-mixed concrete. Wereused approximately 0.3 million tonnes, 0.4 million tonnes and 0.2 million tonnes of recycledindustrial waste as our raw materials for the two years ended 31 December 2019 and 2020 andthe nine months ended 30 September 2021, respectively.

Waste seriflux

Waste seriflux is collected mainly during the cleaning of the revolving drum and tires ofmixer trucks and the main mixers. The waste seriflux is passed through a sand-crushed stoneseparation system (砂石分離器) whereby sand and crushed stones are separated from theseriflux and recycled as raw materials, and the water obtained from the sedimentation of theseriflux is reused in the production process.

Dust

Dust is generated mainly from the unloading of aggregates into the warehouses orsilos/tanks in the batching plants, the batch charging (投料) process and the agitation of grounddust.

We have taken measures to reduce dust emission from our production process, such as (i)completely closing the aggregate warehouse, with dust removal devices of water mist (霧森系統) installed to control dust particles; and (ii) installing self-service pulse back-blown bagfilters on top of the pulverized fuel ash and ground slag silos in each of our batching plants.Dust is inhaled to a dust collector, filtered by a filter bag, and compressed by pulse air atregular intervals. Dust accumulated in the filter bag is blown down and freely falls into the silo.

Noise

Noise is generated mainly from the ready-mixed concrete mixing process and the materialloading process. When procuring our equipment, we select equipment with noise emissionspecifications in compliance with the relevant national standards. Our batching plants are

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designed and reinforced with concrete and steel structures to withstand and reduce vibrationscaused by the machineries during the production process. Our concrete batching and loadingactivities are conducted inside the batching plants in order to reduce the noise emission to theexternal environment.

Our environmental compliance expenses were approximately RMB0.4 million,RMB0.5 million and RMB0.6 million, respectively, for the two years ended 31 December 2019and 2020 and the nine months ended 30 September 2021. We incurred these expenses primarilythrough purchasing and installing environmental protection equipment and facilities.

Our Directors confirm that, during the Track Record Period and up to the LatestPracticable Date, (i) we did not violate any national or local environmental laws andregulations that would materially and adversely affect our business operations; and (ii) we werenot subject to any material environmental claims, lawsuits, penalties or administrativesanctions during the same period.

Environmental, Social and Governance Working Group

Upon [REDACTED], our Board will be responsible for devising strategies and targetsrelating to our environmental practice, social responsibilities and corporate governance. Weplan to establish a working team consisting of four members, which are expected to be thechairperson of our audit committee, our chief executive officer, our chief operating officer orchief financial officer, and an executive Director. This environmental, social and governanceworking group is expected to be primarily responsible for, among other things, updating ourenvironmental, social and governance policies and monitoring the effectiveness ofimplementation, ensuring our compliance with relevant laws and regulations in these areas,evaluating significant environmental, social and governance matters through stakeholderengagement, and reviewing and adopting the materiality and climate change impactassessments and reports in respect of our Group’s impact on health, safety, environment andsociety in accordance with the requirements under Appendix 27 to the Listing Rules.

INSURANCE

We maintain property insurance for some of our production facilities. Any uninsured lossor damage to our property, litigation, business disruption or product liability claims may resultin substantial costs to us or diverting our resources. See “Risk Factors – Risks relating to ourBusiness – We may not have adequate insurance coverage to cover our potential liability orlosses and as a result our business, financial condition, results of operations and prospects maybe materially and adversely affected” in this document for details.

We believe that our existing insurance coverage is sufficient for our business operationsand in line with the industry practice. During the Track Record Period and as of the LatestPracticable Date, (i) we have not had any material claims or liabilities arising from anyaccidents relating to our operations, nor had we experienced any material productioninterruptions or product liability incidents; and (ii) we had not made, nor had we been thesubject of, any insurance claims which are of a material nature to us.

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EMPLOYEES

We believe that our long-term business growth depends on the knowledge, experience anddedication of our employees. As of the Latest Practicable Date, we had 527 employees, all ofwhom were based in Zhengzhou. The following table sets out the breakdown of our employeesby function as of the Latest Practicable Date:

Function

ShenliBatching

Plant

ShentongBatching

Plant

GangfaBatching

PlantNumber ofemployees

Management 7 4 1 12Production 145 103 81 329Technical and quality control 4 5 5 14Procurement 1 3 2 6Sales and marketing 20 8 15 43Administration and finance 42 13 27 82Research and development 13 11 7 31Others 10 – – 10

Total 242 147 138 527

Our employees are provided with social insurance in accordance with PRC social securityand housing funds regulations, including pension insurance, medical insurance, unemploymentinsurance, work-related injury insurance and maternity insurance, as well as a housingprovident fund for our employees. We had made social insurance and housing fundcontributions for our employees in accordance with the applicable national or local laws andregulations in all material aspects and we had not been subject to any penalty, and there hadbeen no notice of any outstanding social insurance or housing provident fund payment due beenreceived by us, during the Track Record Period and up to the Latest Practicable Date.

We mainly recruit our employees by way of posting recruitment information online andin newspapers. The compensation for our employees includes basic salaries, bonuses and otherstaff benefits. In general, we determine the compensation of our employees based on theirperformance, responsibilities, qualifications, positions and seniority within the Group. We alsoprovide our employees with regular on-the-job training based on their job duties.

During the Track Record Period, we had not experienced any interruptions to ouroperations caused by major labour disputes and there were no complaints or claims from ouremployees which had a material adverse effect on our business. We believe that we have a goodrelationship with our employees.

HEALTH AND SAFETY

Pursuant to the national and local health and safety laws and regulations in the PRC, weare required to provide our employees with a safe working environment, which includesproviding adequate protective clothing and gear, safety education and training and havingdedicated safety management personnel, among other requirements. We have developed andimplemented various internal safety management policies to protect our employees at work.Particularly, we have established a safety production task force at each of our batching plantsled by the head of production department and the general manager to oversee the

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implementation of these policies as well as to supervise and conduct internal assessment ofimplementation of such measures, as supported by a combination of effective incentives andsafety control reporting mechanism.

We have formulated and implemented work manuals and internal policies with regard tosafety control procedures and standards, which are specifically tailored to meet the safetyneeds of individual tasks, such as maintenance and repairs, operations of productionmachineries and coordination of mixer truck traffic into and out of the batching plants. Werequire our employees to follow those manuals in carrying out their job duties. Further, weprovide occupational safety training to all of our employees when they join the Group and ona regular basis during their employment. Our employees must attend the training and pass therelevant assessments before they are qualified to work on their assigned positions.

We believe that our health and safety control measures are adequate and comply with theapplicable national and local health and safety laws and regulations in the PRC. During theTrack Record Period and up to the Latest Practicable Date, none of our employees have beeninvolved in any major accident in the course of their employment and we have complied withthe applicable national and local health and safety laws and regulations in all material respects,and the relevant PRC authorities have not imposed any sanctions or penalty on us for incidentsof non-compliance of any health and safety laws or regulations in the PRC.

LICENCES, PERMITS, QUALIFICATIONS AND APPROVALS

The ready-mixed concrete industry is regulated in the PRC and the producers of suchproducts are required to obtain requisite licences, permits and approvals from the relevantgovernment authorities. See “Regulatory Overview” in this document for details of the laws,rules and regulations prescribing the licences, permits and approvals required for ouroperations.

Our Directors, as advised by our PRC Legal Advisers, confirm that during the TrackRecord Period and up to the Latest Practicable Date, we had obtained all material licences,permits and approvals from the relevant PRC authorities for our operation in the PRC. Thefollowing table sets out certain information in relation to our material licences, permits andapprovals:

Type of licence/permit/qualification/approval

Licence/permit/qualification/approval holder Issuing Authority Issuing date

Expirationdate

Construction enterprise qualificationcertificate Contracted ready-mixedconcrete specialization (nograding) (建築業企業資質證書 –預拌混凝土專業承包不分等級)

Henan Shenli Zhengzhou MunicipalCommission of Urban-RuralDevelopment(鄭州市城鄉建設委員會)

28 May 2019 31 December2022


Henan Shentong Zhengzhou MunicipalCommission of Urban-RuralDevelopment(鄭州市城鄉建設委員會)

14 July 2016 31 December2022

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Type of licence/permit/qualification/approval

Licence/permit/qualification/approval holder Issuing Authority Issuing date

Expirationdate


Henan Gangfa Zhengzhou MunicipalCommission of Urban-RuralDevelopment(鄭州市城鄉建設委員會)

6 July 2018 2 July 2023

In relation to our material licences, permits and approvals that are subject to periodicreview and renewal, our administration team maintains a list recording details of such licences,permits and approvals obtained, including their expiry dates and renewal requirements. Ouradministration team attends to and informs our management in a timely manner of anyamendments to renewal requirements as notified by relevant granting or registrationauthorities. During the Track Record Period and up to the Latest Practicable Date, we have notexperienced any refusal of renewal of our licences, permits and approvals that are necessaryfor our business operation.

CERTIFICATIONS, AWARDS AND RECOGNITIONS

Certifications

We have implemented quality control and assurance systems that meet the internationaland industry standards for our ready-mixed concrete products. We are certified as ISO9001compliant. The following table sets out the certifications we have obtained:

Certification

Batching plantobtaining thecertification

Scope ofcertification

Issuingorganization Validity period

GB/T19001-2016 idtISO9001:2015

Henan Shenli Production ofcommercialconcrete

WIT CertificationCo. Ltd. (萬泰認證有限公司)

11 March 2020 –8 January 2023

GB/T19001-2016 idtISO9001:2015

Henan Shentong Production ofcommercialready-mixedconcrete


10 October 2020– 9 October2023

GB/T19001-2016 idtISO9001:2015

Henan Gangfa Production ofcommercialready-mixedconcrete


28 October 2021– 27 October2024

GB/T24001-2016 idtISO14001:2015

Henan Gangfa Environmentalmanagementsystem relatedto productionof commercialconcrete

Essence UnitedCertification(Beijing) Co.,Ltd

8 November 2019– 7 November2022

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Awards and recognitions

The following table sets out the major awards and recognitions we have obtained in thepast:

Awards and recognitions Awarding AuthorityMonth/Yearof issuance

High-quality developmentDemonstration Enterprise inConcrete Industry in Chinafrom 2019-2020 (2019-2020年度中國混凝土行業高質量發展示範企業)

Review Committee of High-quality DevelopmentDemonstration Enterprise inConcrete Industry in China(中國混凝土行業高質量發展示範企業評審委員會)

November2021

Outstanding Enterprise inConcrete Industry in Chinafrom 2018 to 2019 (2018-2019年度中國混凝土行業優秀企業)

Review Committee of OutstandingEnterprise in Concrete Industryin China (中國混凝土行業優秀企業評審委員會)

December2020

Henan Concrete “AAA” CreditRating Enterprise from 2018-2019 (2018-2019年度河南省混凝土“AAA”級信用企業)

Henan Construction Association(河南省建築業協會)

December2020

Environmentally FriendlyConstruction MaterialsManufacturer Certificate(綠色建材評價標識證書)

Green Building MaterialsEvaluation Management Office(綠色建材評價管理辦公室)

November2020

2019 Advanced Enterprise inConstruction System(2019年度建設系統先進企業)

Zhengzhou Urban and RuralDevelopment Bureau(鄭州市城鄉建設局)

January2020



April 2019

Green Production DemonstrationEnterprise in Concrete Industryin China from 2017-2018(2017-2018年度中國混凝土行業綠色生產示範企業)

Review Committee of GreenProduction DemonstrationEnterprise in Concrete Industryin China (中國混凝土行業綠色生產示範企業評審委員會)

November2019

Excellent Partner(優秀合作夥伴)

Henan Branch of ChinaConstruction Fifth Bureau(中國建築五局河南分公司)

January2019



January2019

High-integrity Enterprise(誠信企業)

China Consumption QualitySecurity Promotion(中國消費質量安全萬里行)

June 2018

Advanced Enterprise in ConcreteIndustry in Henan in 2017(2017年度河南省混凝土行業先進企業)

Henan Construction Association,Concrete Branch (河南省建築業協會混凝土分會)

June 2018

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Awards and recognitions Awarding AuthorityMonth/Yearof issuance

An Advanced Enterprise inConcrete Industry in Henan in2016 (2016年度河南省混凝土行業先進企業)

Henan Construction Association,Concrete Branch(河南省建築業協會混凝土分會)

June 2017

Excellent Supplier in ConstructionIndustry in Central Plains Area(中原建築行業優秀供應商)

Second Summit Forum on WholeIndustrial Chain of ConstructionIndustry in Central Plains Area(第二屆中原建築行業全產業鏈高峰論壇)

December2016

INTELLECTUAL PROPERTY

We rely on a combination of laws and regulations including the trademark laws to protectour intellectual property rights. As of the Latest Practicable Date, we were the registered ownerof nine patents and two trademarks in the PRC, and one trademark in Hong Kong, respectively.Please refer to “B. Further Information About the Business – 2. Intellectual Property Rights”in Appendix IV to this document for details.

To the best of our Directors’ knowledge, during the Track Record Period and up to theLatest Practicable Date, there had not been any material infringement of our intellectualproperty rights and there had not been any pending or threatened claims against us in relationto the infringement of any intellectual property rights of Independent Third Parties arising fromour business operations.

PROPERTIES

Land

As of the Latest Practicable Date, the Group held the land use rights of three parcels oflands on which the batching plants operate, with an aggregate site area of approximately168,556 m2 and the buildings erected thereon with a total gross floor area of approximately28,530.60 m2 in the PRC. Set forth below is a summary of our owned properties as of the LatestPracticable Date:

Owner City/Province Description/Location UsageCategoryof use Site area

(m2)

Henan Shenli Zhengzhou,HenanProvince

A parcel of land located inBeiluzhuang Village,Zhacheng County, JinshuiDistrict (金水區祭城鎮北錄莊村)

As the ShenliBatchingPlant

Industrial 95,991.0

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Owner City/Province Description/Location UsageCategoryof use Site area

(m2)

HenanShentong

Zhengzhou,HenanProvince

A parcel of land located inZhongmou AutomobileIndustry Cluster Area,south of Shengyuan Roadand east of Jinfeng Road(中牟汽車產業集聚區盛園路南、勁風路東河南神通新建產(單位)管椿120萬米商砼(產品)100萬方建設項目)

As theShentongBatchingPlant

Industrial 31,100.1

Lijiate Printing Zhengzhou,HenanProvince

A parcel of land located in2 Anye Road, XuedianTown, Xinzheng City,Zhengzhou City (鄭州市新鄭市薛店鎮安業路2號)(Note)

As the GangfaBatchingPlant

Industrial 41,464.9

Note: The parcel of land owned by Lijiate Printing has been used by Henan Gangfa, which holds 100% of the equityinterest in Lijiate Printing, for the operation and production of the Gangfa Batching Plant at nil consideration.

As of the Latest Practicable Date, as advised by our PRC Legal Advisers, we had obtainedthe land use right certificates and can use our land parcels in the PRC.

Land use rights in connection with the Shenli Batching Plant

Historical penalty by relevant authority and subsequent perfection of title

A Decision on Administrative Penalty (《行政處罰決定書》) (the “Decision”) was issuedby Zhengzhou Jinshui District National Land Resources Bureau* (鄭州市金水區國土資源局)(the “Zhengzhou Land Resources Bureau”) on 17 February 2009 against Henan Shenli forunauthorized occupation of the land use right in respect of a parcel of collectively-owned land(集體土地) (the “Shenli Land”) located at Beiluzhuang Village, Zhacheng County, JinshuiDistrict (金水區祭城鎮北錄莊村), ordering the confiscating of the relevant properties and otherproduction facilities thereon and imposing fines of RMB297,999. Such fines were subsequentlysettled by Henan Shenli, but no action of confiscation or order of demolition of the relevantproperties and other production facilities thereon has been made by the Zhengzhou LandResources Bureau. Henan Shenli has not been penalized by the Zhengzhou Land ResourcesBureau again in respect of the Shenli Land and the relevant properties and other productionfacilities thereon since the Decision.

We obtained the collectively-owned land development land use permit (集體土地建設用地使用證) in respect of the Shenli Land on 18 May 2011 from the People’s Government ofJinshui District, Zhengzhou (鄭州市金水區人民政府). We also obtained the confirmation on 20December 2021 from Jinshui Branch of Zhengzhou Natural Resources and Planning Bureau (鄭州市自然資源和規劃局金水分局), which confirms that we are the legal user of Shenli Land.

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Land use rights in connection with the Shentong Batching Plant

Henan Shentong obtained the land use rights in respect of a parcel of land ofapproximately 31,100.1 m2 (“Shentong Land”) by entered into an agreement to the State-owned Construction Land Use Rights Grant Contract (國有建設用地使用權出讓合同) and asupplemental agreement with Zhongmou National Land Resources Bureau* (中牟縣國土資源局) on 22 March 2016 and 9 October 2018 respectively. On 8 August 2019, we obtained therelevant Real Estate Ownership Certificate (不動產權證書) in respect of the parcel of ShentongLand.

Land use rights in connection with the Lijiate Printing

Lijiate Printing entered into an agreement to the State-owned Construction Land UseRights Grant Contract (國有建設用地使用權出讓合同) with Xinzheng City National LandResources Bureau* (新鄭市國土資源局) on 12 May 2015, pursuant to which Lijiate Printingwas granted the land use right of a parcel of land of 41,464.9 m2 for industrial use (“LijiateLand”). We obtained the Real Estate Ownership Certificate (不動產權證書) in respect ofLijiate Land on 10 June 2021.

Buildings

Properties with Ownership Certificates

As of the Latest Practicable Date, we had obtained the title certificate in respect of eightproperties located in the PRC with an aggregate gross floor area of 12,460.94 m2., of which (i)six properties with a total gross floor area of approximately 8,443.28 m2. was owned by HenanShentong; and (ii) two properties with a total gross floor area of approximately 4,017.66 m2.was owned by Lijiate Printing. These properties are used for production, office, canteen andother auxiliary purposes. The following table sets forth details of the buildings owned by ourGroup with building ownership certificates as of the Latest Practicable Date.

No.

Holder ofBuildingOwnershipCertificate Description/Location

Gross FloorArea Existing Use

1 HenanShentong

Zhongmou AutomobileIndustry Cluster Area,south of ShengyuanRoad and east ofJinfeng Road (中牟汽車產業集聚區盛園路南、勁風路東河南神通新建產(單位)管椿120萬米商砼(產品)100萬方建設項目)

8,443.28 m2(1) Production,Office,Restroom(2) andSwitch room(2)

2 Lijiate Printing 2 Anye Road, XuedianTown, Xinzheng City,Zhengzhou City (鄭州市新鄭市薛店鎮安業路2號)

4,017.66 m2(3) Production andCanteen

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Notes:

(1) Consisted of six properties in total.

(2) The Restroom and Switch room had been registered as ancillary properties commonly owned by all theowners with the real estate registration authorities, and as such, they can be commonly used anddisposed of by Henan Shentong and other owners legally.

(3) Consisted of two properties in total.

Properties without Ownership Certificates

As of the Latest Practicable Date, we had 20 properties with an aggregate gross floor areaof approximately 16,069.66 m2, which we held interest in but did not obtain the relevantbuilding ownership certificates in accordance with the laws and regulations of the PRC.Specifically, (i) Henan Shenli owned eight properties without the relevant building ownershipcertificates with a total gross floor area of approximately 3,975.00 m2; (ii) Henan Shentongowned five properties without the relevant building ownership certificates with a total grossfloor area of approximately 9,206.9 m2; and (iii) Lijiate Printing owned seven propertieswithout the relevant building ownership certificates with a total gross floor area ofapproximately 2,887.76 m2. The following table sets forth details of the properties that did nothave the relevant building ownership certificates as of the Latest Practicable Date.

No.

Holder ofBuildingOwnershipCertificate

Description/Location

GrossFloor Area Existing Use Non-compliance(s)

1 HenanShenli

Beiluzhuang Village,Zhacheng County,Jinshui District (金水區祭城鎮北錄莊村)

3,975 m2(1) reception office,room for receivingraw materials,parts warehouse,office, curingroom, stockyard,mixing station,and restroom

Failure to obtainpermits/checkrelating to theconstruction ofproperties,including, but notlimited to:

(i) the constructionworkcommencementpermit, (ii) theconstructionplanning permit,(iii) theconstruction(temporary)planning permit,or (iv)constructionproject completionacceptance check.(collectivelyreferred to as the“ConstructionPermits”)

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No.

Holder ofBuildingOwnershipCertificate

Description/Location

GrossFloor Area Existing Use Non-compliance(s)

2 HenanShentong

Zhongmou AutomobileIndustry ClusterArea, south ofShengyuan Road andeast of Jinfeng Road(中牟汽車產業集聚區盛園路南、勁風路東河南神通新建產(單位)管椿120萬米商砼(產品)100萬方建設項目)

9,206.9 m2(2) Temporarydormitory,temporary utilityroom, guard room,dispatchmonitoring roomand stockyard

3 LijiatePrinting

2 Anye Road, XuedianTown, XinzhengCity, ZhengzhouCity (鄭州市新鄭市薛店鎮安業路2號)

2,887.76 m2(3) Temporarylaboratory guardroom, switchingroom, employeesdormitory, dutyroom and restroom

Notes:

(1) Consisted of eight properties in total.

(2) Consisted of five properties in total.

(3) Consisted of seven properties in total.

For details on the defects, legal consequences associated therewith and remedial measurestaken by us, please see “– Legal Proceedings and Non-compliance Matters – Non-compliance”in this section.

Leased Property

As of the Latest Practicable Date, we leased from an Independent Third Party thefollowing property in the PRC:

LesseeDescription/Location Usage

GrossFloorArea

Duration oflease Rental

Henan Shenli 29/F, Building No.37, No. 138 ofZhengbianRoad, JinshuiDistrict,Zhengzhou,Henan Province(河南省鄭州市金水區鄭汴路138號37號樓29層)

Office 742.1m2

27 April 2019to 26 April2022

RMB300,000per annum(inclusive ofmanagementfee)

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As of the Latest Practicable Date, as advised by our PRC Legal Advisers, the lessor of ourleased property in the PRC has obtained the relevant valid building ownership certificate inrespect of our leased property and has requisite rights to lease the building to us.

As of 31 December 2020, the carrying amount of the property interest accounted for lessthan 15% of the total assets of the Group. Accordingly, this document is exempted fromcomplying with the provisions of Listing Rules for the inclusion of a valuation report underRule 5.01A of the Listing Rules. In respect of the requirements in relation to the inclusion ofa property valuation report under section 342(1)(b) of the Companies (Winding Up andMiscellaneous Provisions) Ordinance and paragraph 34 (2) of the Third Schedule to theCompanies (Winding Up and Miscellaneous Provisions) Ordinance, there is a similarexemption under section 6(2) of the Companies (Exemption of Companies and Prospectusesfrom Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong).

LEGAL PROCEEDINGS AND NON-COMPLIANCE MATTERS

Legal proceedings

During the Track Record Period and up to the Latest Practicable Date, neither theCompany nor any of its subsidiaries had been engaged in any material litigation, arbitrationsor claims which could have a material and adverse impact on our business and financialcondition and no such litigation, arbitrations or claims of material importance is known by ourDirectors to be pending or threatened by or against the Company nor any of its subsidiaries.

Non-compliance

We were involved in certain regulatory non-compliance incidents during the Track RecordPeriod and up to the Latest Practicable Date, the details of which together with a descriptionof the rectification actions are set out below. Our Directors confirmed that except as disclosedbelow, there were no other material non-compliance incident of the Group during the TrackRecord Period and up to the Latest Practicable Date.

According to our PRC Legal Advisers, during the Track Record Period and except asdisclosed herein, we have complied with all applicable laws and regulations in the PRC in allmaterial respects.

Properties without Construction Permits and Ownership Certificates

Background

As of the Latest Practicable Date, we had 20 properties with an aggregate gross floor areaof approximately 16,069.66 m2, of which, (i) Henan Shenli owned eight properties without therelevant building ownership certificates with a total gross floor area of approximately 3,975.00m2 (“Shenli Properties”); (ii) Henan Shentong owned five properties without the relevantbuilding ownership certificates with a total gross floor area of approximately 9,206.9 m2

(“Shentong Properties”); and (iii) Lijiate Printing owned seven properties without the relevantbuilding ownership certificates with a total gross floor area of approximately 2,887.76 m2

(“Lijiate Properties”). For details, please refer to “– Properties – Buildings – Buildings withoutTitle Certificates” in this section. The aforementioned 20 properties were built without therelevant Construction Permits.

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Reasons for Non-Compliance

With regard to the Shenli Properties, our Directors are of the view that, the chance for usto apply for and obtain ownership certificates from the relevant government authority inrespect of the aforesaid properties would be remote due to the fact that the relevant overallplanning policy is uncertain.

With regard to the Shentong Properties and Lijiate Properties, the failure to obtain therelevant Construction Permits were mainly due to administrative oversight by ouradministrative staff members who were unfamiliar with and/or misunderstood certainproperty-related laws, policies and regulatory requirements and procedures.

Legal Consequence and Potential Maximum Penalties

As advised by our PRC Legal Advisors, we may be subject to the following fines and/orpenalties in connection with the non-compliance:

• for construction work that is carried out without a construction planning permit,pursuant to the Urban and Rural Planning Law of the People’s Republic of China*(《中華人民共和國城鄉規劃法》), the licence issuing authority with jurisdictionshall order the construction to be ceased, and (i) we may be subject to a fine rangingfrom 5% to 10% of the construction cost and ordered to rectify the impact on theplanning caused by such construction, if such impact can be rectified; or (ii) we maybe subject to a fine of not more than 10% of the construction cost and theconfiscation of the building and/or any income illegally earned from suchconstruction, if such impact cannot be rectified and the building cannot bedemolished;

• For construction work that is built as temporary property and is carried out withouta construction planning permit, pursuant to the Urban and Rural Planning Law of thePeople’s Republic of China* (《中華人民共和國城鄉規劃法》), it would bedemolished within the stipulated period and a fine no more than the cost of thetemporary construction project may be imposed;

• for construction work that is carried out without a construction work commencementpermit, pursuant to the Construction Law of the PRC* (中華人民共和國建築法) andthe Regulations on the Quality Administration of Construction Engineering* (《建設工程質量管理條例》), we may be subject to imposition of rectification orders,and imposition of fines not less than 1% but not more than 2% of the constructioncontract value. Pursuant to the Measures for the Administration of ConstructionWork Commencement Permits for Construction Projects* (《建築工程施工許可管理辦法》), for a construction project whose investment is less than RMB300,000 orwhose construction size is less than 300 m2, a construction work commencementpermit is not required;

• for construction works that have been put into use prior to passing the constructionproject completion acceptance check, according to the Regulations on QualityAdministration of Construction Engineering (《建設工程質量管理條例》), we maybe ordered to rectify the noncompliance and may be obliged to pay compensationwhere any damage has been caused. A fine of not less than 2% but not more than 4%of the contract price of the construction may also be imposed; and

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• Further, as advised by our PRC Legal Advisers, under the PRC laws and regulations,we may only use the properties with defective titles at our batching plants describedabove for our production only and we cannot rent or transfer the relevant propertiesor subject the same to mortgage bank loans due to the absence of ConstructionPermits and property ownership certificates.

We estimate that the potential maximum penalty for the non-compliance incidents relatingto our buildings without title certificates is approximately RMB[695,275.60].

The Latest Status

With regard to the Shenli Properties, we obtained the following confirmation lettersand/or conducted the following interviews with the relevant government authorities:

(1) On 20 December 2021, the Zhengzhou Municipal Natural Resources and PlanningBureau, Jinshui Branch* (鄭州市自然資源和規劃局金水分局) (the “JinshuiPlanning Bureau”) issued a notice letter to Henan Shenli. According to the noticeletter, the Jinshui Planning Bureau confirmed to Henan Shenli that Henan Shenli hadnot been subject to land-related investigations and punishments since 2010 until thedate of the notice letter. Henan Shenli is the legal user of Shenli Land. The JinshuiPlanning Bureau has no plan to require the vacancy or demolishment of thebuildings and structures erected on Shenli Land, nor does the Jinshui PlanningBureau have a plan to punish Henan Shenli.

(2) On 23 December 2021, our PRC Legal Advisers conducted an interview with thedepartment head of the Building Market Supervision Department of the ZhengzhouMunicipal Bureau of Urban-Rural Development* (鄭州市城鄉建設局建築市場監管處) (the “Zhengzhou URD”). According to the interview, the Zhengzhou URDconfirmed that: (i) Henan Shenli is able to comply with the national and local laws,regulations, rules and regulatory documents in respect of fire control, urban andrural construction and construction enterprises management (the “Fire Control andConstruction Laws and Regulations”) in all material aspects; (ii) neither HenanShenli nor its relevant personnel is subject to or threatened by an investigation,administrative penalty, settlement or any liability due to the violation of the FireControl and Construction Laws and Regulations; (iii) the Zhengzhou URD has notand has no plan to order Henan Shenli to rectify within a limited timeframe, or torequire Henan Shenli to stop construction, stop using Shenli Properties or suspendproduction or business operation; (iv) Henan Shenli has not been involved in anylitigation, arbitration or dispute with regard to the Fire Control and ConstructionLaws and Regulations; and (v) there is no complaint or report against Henan Shenliwith respect to fire control and urban and rural construction been received by theZhengzhou URD.

(3) On 3 December 2021, the Zhengzhou Municipal Jinshui District UrbanComprehensive Law Enforcement Bureau* (鄭州市金水區城市綜合執法局) (the“Jinshui Enforcement Bureau”) issued a confirmation letter to Henan Shenli.According to the confirmation letter, the Jinshui Enforcement Bureau confirmed thatthere is no administrative penalties been issued to Henan Shenli due to its violationof the relevant laws and regulations related to housing and urban-rural constructionsince 1 January 2019 until the date of the confirmation letter.

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As advised by our PRC Legal Advisers, the Jinshui Planning Bureau, the Zhengzhou URDand the Jinshui Enforcement Bureau are competent authorities to provide the aforementionedconfirmations.

With regard to the Shentong Properties, we obtained the following confirmation lettersand/or conducted the following interviews with the relevant government authorities:

(1) On 22 December 2021, our PRC Legal Advisers conducted an interview with theparty member, who is in charge of natural resources and planning administrationover Shentong Land, of the Zhongmou County Natural Resources and PlanningBureau* (中牟縣自然資源和規劃局) (the “Zhongmou Planning Bureau”). Accordingto the interview, the Zhongmou Planning Bureau confirmed that: (i) Henan Shentongis able to comply with the national and local laws, regulations, rules and regulatorydocuments in respect of natural resources and planning (the “Natural Resources andPlanning Laws and Regulations”) in all material aspects; (ii) neither HenanShentong nor its relevant personnel is subject to or threatened by an investigation,administrative penalty, settlement or any liability due to the violation of the NaturalResources and Planning Laws and Regulations; (iii) the Zhongmou Planning Bureauhas not and has no plan to order Henan Shentong to rectify within a limitedtimeframe, to require Henan Shentong to vacate or demolish Shentong Properties, tosuspend business operation on Shentong Land or in Shentong Properties, or toconfiscate Shentong Properties or any income generated from Shentong Properties;(iv) Henan Shentong has not been involved in any litigation, arbitration or disputewith regard to the Natural Resources and Planning Laws and Regulations; and (v)there has been no complaint or report against Henan Shentong with respect tonatural resources and urban-rural planning administration received by theZhongmou Planning Bureau.

(2) On 22 November 2021, the Zhongmou Planning Bureau issued a confirmation letterto Henan Shentong. According to the confirmation letter, the Zhongmou PlanningBureau confirmed that Shentong Land is not in violation of the relevant national andlocal land laws and regulations.

(3) On 23 December 2021, our PRC Legal Advisers conducted an interview with thedepartment head of the Building Market Supervision Department of the ZhengzhouURD. According to the interview, the Zhengzhou URD confirmed that: (i) HenanShentong is able to comply with the Fire Control and Construction Laws andRegulations in all material aspects; (ii) neither Henan Shentong nor its relevantpersonnel is subject to or threatened by an investigation, administrative penalty,settlement or any liability due to the violation of the Fire Control and ConstructionLaws and Regulations; (iii) the Zhengzhou URD has not and has no plan to orderHenan Shentong to rectify within a limited timeframe, or to require Henan Shentongto stop construction, stop using Shentong Properties or suspend production orbusiness operation; (iv) Henan Shentong has not been involved in any litigation,arbitration or dispute with regard to the Fire Control and Construction Laws andRegulations; and (v) there is no complaint or report against Henan Shentong withrespect to fire control and urban and rural construction been received by theZhengzhou URD.

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(4) On 7 December 2021, the Zhongmou County Housing and Urban-RuralConstruction Bureau* (中牟縣住房和城鄉建設局) (the “Zhongmou ConstructionBureau”) issued a confirmation letter to Henan Shentong. According to theconfirmation letter, the Zhongmou Construction Bureau confirmed that as at 7December 2021, the Zhongmou Construction Bureau had not received punishmentnotices with regard to the violation of the relevant laws, regulations or regulatorydocuments by Henan Shentong, nor had the Zhongmou Construction Bureaureceived or accepted complaint or report against Henan Shentong with respect to theviolation of laws and regulations related to construction projects.

(5) On 26 November 2021, Zhongmou County City Administration Bureau* (中牟縣城市管理局) (the “Zhongmou CAB”) issued a confirmation letter to Henan Shentong.According to the confirmation letter, the Zhongmou CAB confirmed that HenanShentong had been able to abide by the national and local laws, regulations, rulesand regulatory documents in respect of urban and rural planning and constructionprojects (the “Urban Rural Construction Laws and Regulations”). The ZhongmouCAB further confirmed that neither Henan Shentong nor its relevant personnel hadbeen or will be subject to administrative penalty, settlement or investigation for anyliability due to violation of Urban Rural Construction Laws and Regulations, HenanShentong had not been involved in any litigation, arbitration or dispute with regardto the Urban Rural Construction Laws and Regulations, and there had been nocomplaint or report against Henan Shentong with respect to urban and rural planningand construction received by the Zhongmou CAB.

As advised by our PRC Legal Advisers, the Zhongmou Planning Bureau, the ZhengzhouURD, the Zhongmou Construction Bureau and the Zhongmou CAB are competent authoritiesto provide the aforementioned confirmations.

With regard to the Lijiate Properties, we obtained the following confirmation lettersand/or conducted the following interviews with the relevant government authorities:

(1) On 25 November 2021, the Xinzheng City Natural Resources and Planning Bureau*(新鄭市自然資源和規劃局) (the “Xinzheng Planning Bureau”) issued aconfirmation letter to Lijiate Printing. According to the confirmation letter, theXinzheng Planning Bureau confirmed that Lijiate Printing had abided by the NaturalResources and Planning Laws and Regulations since its establishment and had notbeen or will not be subject to administrative penalty, settlement or investigation forany liability due to violation of the Natural Resources and Planning Laws andRegulations. The Xinzheng Planning Bureau further confirmed that it will notrequire Lijiate Printing to vacate or demolish the Lijiate Properties; Lijiate Printinghad not been involved in any litigation, arbitration or dispute with regard to theNatural Resources and Planning Laws and Regulations; and there had been nocomplaint or report against Lijiate Printing with respect to natural resources andurban-rural planning administration received by the Xinzheng Planning Bureau.

(2) On 23 December 2021, our PRC Legal Advisers conducted an interview with thedepartment head of the Building Market Supervision Department of the ZhengzhouURD. According to the interview, the Zhengzhou URD confirmed that: (i) LijiatePrinting and Henan Gangfa are able to comply with the Fire Control andConstruction Laws and Regulations in all material aspects; (ii) neither LijiatePrinting and Henan Gangfa nor their relevant personnel is subject to or threatenedby an investigation, administrative penalty, settlement or any liability due to theviolation of the Fire Control and Construction Laws and Regulations; (iii) the

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Zhengzhou URD has not and has no plan to order Lijiate Printing and Henan Gangfato rectify within a limited timeframe, or to require Lijiate Printing and HenanGangfa to stop construction, stop using Lijiate Properties or suspend production orbusiness operation; (iv) Lijiate Printing and Henan Gangfa have not been involvedin any litigation, arbitration or dispute with regard to the Fire Control andConstruction Laws and Regulations; and (v) no complaint or report against LijiatePrinting and Henan Gangfa with respect to fire control and urban and ruralconstruction has been received by the Zhengzhou URD.

(3) On 6 December 2021 and 7 December 2021, Xinzheng City Administration Bureau*(新鄭市城市綜合執法局) (the “Xinzheng CAB”) issued confirmation letters toLijiate Printing and Henan Gangfa respectively. According to the confirmationletters, the Xinzheng CAB confirmed that Lijiate Printing and Henan Gangfa areable to comply with the relevant laws and regulations related to urban management,and can carry out business legally. There had been no illegal behavior oradministrative punishment against Lijiate Printing and Henan Gangfa between 1January 2019 and the date of the confirmation letters.

As advised by our PRC Legal Advisers, the Xinzheng Planning Bureau, the ZhengzhouURD and the Xinzheng CAB are competent authorities to provide the aforementionedconfirmations.

Follow-up Measures

In addition, we have assessed and produced certain alternative/backup plans for ourproperties with defective titles. With respect to the Shenli Properties, notwithstanding theconfirmation letters received from the relevant government authorities as described above andthat we intend to continue to use the Shenli Properties, we have considered and assessed theimpacts of demolition of the Shenli Properties. We consider that the Shentong Batching Plantand the Gangfa Batching Plant are able to take up the current production capacity of the ShenliBatching Plant, and therefore the demolition of Shenli Properties (if ordered) would not havea material impact on our business operation and production. A batching plant can generallycover a reasonable and economic transportation radius of approximately 30 km to ensure timelydelivery. Our Directors consider that, given that the sales radiuses of 30 km the ShentongBatching Plant, the Gangfa Batching Plant and the Shenli Batching Plant overlap to a certainextent, the Shentong Batching Plant and the Gangfa Batching Plant would be able to cover partof the eastern and southern parts of downtown Zhengzhou, the distinctive area for which theproducts of the Shenli Batching Plant are mainly targeted. In light of the overlapping of certainareas formed by the sales radius of 30 km from each of the three batching plants and therelatively low utilisation rate of each of the Shentong Batching Plant and the Gangfa BatchingPlant of approximately 26.8% and 13.1% for the nine months ended 30 September 2021,respectively, they theoretically have the capacity to take up the production capacity of theShenli Batching Plant in the unlikely event that the Shenli Properties was ordered to bedemolished or cease operation.

To ensure the safety condition of the mixing station located in the Shenli Batching Plant,we have engaged a buildings safety assessment company, which is an Independent Third Party,to assess and advise that such mixing station complies with the requirements under the relevantnational standard specifications, and is able to meet the requirements under daily operation.Based on the qualifications and licences of the buildings safety assessment company, ourDirectors are of the view that the buildings safety assessment company is competent andqualified to provide such assurance. Further, based on the advice of the buildings safetyassessment company, and to the best of our Directors’ knowledge, belief and understanding, the

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above properties are of safe conditions, and that the title defects of such properties will not,jointly or severally, have any material adverse impact on our business operation and financialcondition. Our Directors confirm that there was no difference in land or rental cost which wewould otherwise have to pay if the properties with defective titles disclosed above did not havethe said title defects.

[Further, on [●], 2022, Mr. Song, a Controlling Shareholder, [has entered] into the Deedof Indemnity with and in favor of our Company to provide indemnities in respect of any costs,losses, or damages (such as demolition cost and fines) which would be incurred or suffered bythe Group in connection with the aforesaid non-compliance occurred on or before the[REDACTED].]

Based on the interviews and the confirmation letters issued by the relevant competentauthorities that they will not impose any penalty against the aforementioned properties withtitle defects or order such properties to be vacated or demolished, in part or in full, our PRCLegal Advisers are of the view that, in respect of our failure to obtain the relevant ConstructionPermits with respect of such properties, the risk of these properties being compulsorily vacatedor demolished for our business operation, or having fines imposed on us due to theaforementioned non-compliance is relatively remote. In addition, for the same reasons set outabove, our Directors consider that the non-compliance issues concerning our properties withtitle defects will not have any material adverse effect on our operations as a whole.

We have adopted the following internal control measures to mitigate the risk of any futurerecurrence of such non-compliance: (i) we have appointed Mr. Wang Ka, our executiveDirector, to supervise and monitor our property-related activities; and (ii) we have engaged anexternal consultant and/or PRC legal advisers to provide relevant training to our Directors,senior management and staff in respect of complying with applicable laws and regulations, inparticular, the laws and regulatory requirements relating to property-related matters. As of theLatest Practicable Date, we were in the process of fulfilling the assessment procedures for therelevant inspections and applying to the relevant government authorities for the outstandingcertificates and permits, and were closely monitoring the status of our applications.

ON-GOING COMPLIANCE MEASURES

To ensure on-going compliances with applicable laws and regulations upon the[REDACTED] and to prevent recurrence of non-compliance incidents in the future, we haveadopted the following measures/policies:

• we have engaged and will continue to engage an external internal control consultantto conduct regular review and independent appraisal of the adequacy andeffectiveness of our risk management and internal control systems;

• we will engage a qualified PRC law firm as our external legal adviser to assist ourBoard to identify and manage the legal risks associated with our daily operationsand advise us on relevant regulatory matters to ensure due compliance with PRClaws, rules and regulations applicable to the Group;

• we have designated Mr. Song, our Chairman, chief executive officer and executiveDirector, to assist our Board to perform internal review of our operations, andidentify, assess and manage the risks associated with our operations from time totime to ensure due compliance with laws, rules and regulations in the PRC. See“Directors, Senior Management and Employees – Directors – Executive directors”in this document for the details of Mr. Song’s experience;

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• we will establish the Audit Committee with written terms of reference in compliancewith Code C.3 of the Corporate Governance Code and Corporate Governance Reportas set forth in Appendix 14 to the Listing Rules, led by Mr. Tam Tak Kei Raymond(譚德機). The Audit Committee and one of our executive Directors will supervisethe implementation of our internal control measures in order to better monitor ourdaily operations from the perspective of compliance with applicable rules andregulations;

• we have established a set of policies and procedures for operational processes,including production and financial management;

• we have established a corporate governance policy and will, from time to time,review the internal guidelines and policies by taking into account of related laws andregulations and make any amendment and implement them as necessary;

• we will continue to conduct regular internal training to our employees andmanagement on our compliance policy and engage external professionals, includingour Hong Kong Legal Advisers and PRC Legal Advisers, to conduct training on ourongoing compliance and obligations under the Listing Rules and all other applicableHong Kong and PRC laws and regulations annually to ensure continuing awarenessof, and compliance with, such laws, rules, regulations, and policies; and

• we have engaged Central China International Capital Limited as our complianceadviser with effect from the date of [REDACTED] to advise us on matters relatingto the Listing Rules.

On the basis of the above measures to enhance our corporate governance and to preventrecurrence of non-compliance incidents in the future, our Directors are of the view that theGroup has adequate internal control procedures in place. Furthermore, having considered thefacts and circumstances leading to the non-compliance incidents as disclosed in this sectionand our internal control measures to avoid recurrence of the non-compliance issues, ourDirectors are of the view that these past non-compliance incidents do not affect their suitabilityto act as directors of a [REDACTED] issuer and the suitability for [REDACTED] of theCompany under the relevant Listing Rules.

The Sole Sponsor has reviewed the abovementioned measures and policies adopted by usto improve our internal control systems and to ensure our compliance with the Listing Rulesand the relevant PRC laws and regulations, reviewed the PRC legal opinions issued by our PRCLegal Advisers and discussed further with our PRC Legal Advisers, in particular, regarding thenature and consequences of those non-compliance issues. The Sole Sponsor also noted that theGroup had engaged legal advisers to provide appropriate legal and compliance guidance andadvice to the Group, that our Directors and certain senior management had participated in thetraining sessions provided to them by the Company’s legal advisers to Hong Kong laws andthat all our Directors had provided written confirmations to the Sole Sponsor that they hadreviewed the materials set out in our Directors’ training pack provided to them by theCompany’s legal advisers as to Hong Kong laws and understand their obligations, duties andresponsibilities as executive Director/non-executive Director/independent non-executiveDirector of a [REDACTED] company. Based on these reviews and discussions, the SoleSponsor concurs with our Directors’ view, that we have adequate and effective internal controlprocedures in place with regard to our operation needs and to fulfill the requirements under theListing Rules.

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INTERNAL CONTROL AND RISK MANAGEMENT

Our internal control system and risk management system are designed and implementedto address our specific business needs and operating environment and to minimize our riskexposure. We have adopted different internal guidelines, along with written policies andprocedures, to monitor and reduce the risks which are relevant to the control our daily businessoperations and the improvement in our corporate governance for the purpose of ensuring duecompliance with the applicable laws and regulations. It is the responsibility of the Board toensure that we maintain an effective internal control system to safeguard the Shareholders’investment and our assets at all times.

In preparation for the [REDACTED], the Group has engaged an independent third-partyconsultant to perform a review over selected areas of our internal controls over financialreporting in July 2021 (the “Internal Control Review”). The scope of the Internal ControlReview performed by the Internal Control Consultant was agreed between us, the Sole Sponsorand the Internal Control Consultant. The selected areas of our internal controls over financialreporting that were reviewed by the Internal Control Consultant included entity-level controlsand business process level controls, including revenue and receivables, purchases andpayables, inventory, costing, payroll, fixed assets, treasury, insurance, financial reporting, taxand general controls of information technology. During the review, the Internal ControlConsultant identified certain recommendations to enhance our internal control system. TheInternal Control Consultant performed the follow-up reviews in October 2021, to review thestatus of the management actions taken by the Group to address the findings of the InternalControl Review (the “Follow-up Review”). The Internal Control Consultant did not have anymaterial recommendation in the Follow-up Review. The Internal Controls Review and theFollow-up Review were conducted based on information provided by the Group and noassurance or opinion on internal controls was expressed by the Internal Control Consultant.Taking into account the remedial measures adopted by our Group and the enhanced internalcontrol measures implemented in connection with the non-compliance incidences disclosed inthis section of this document, the results of the review conducted by the Internal ControlConsultant and on-going monitoring and supervision by our management, our Directors are ofthe view that we have taken reasonable steps to establish an internal control system andprocedures to enhance the control environment, at both working and monitoring levels, andhence, the enhanced internal control measures adopted by our Group are adequate and effectivein reducing the risk of future non-compliance by our Group with relevant legal and regulatoryrequirements.

In order to monitor the possible risks we encounter in our operations, we have formed arisk assessment committee for the management of risk within the Group. The main role of therisk assessment committee was to (i) lead our strategic direction in the management of ourbusiness risks such as strategic, operational, financial and compliance risks; (ii) to monitor theimplementation of a risk management framework; and (iii) to review the effectiveness of therisk management framework.

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alco

ntro

lm

easu

res

tom

itiga

teth

eri

skof

any

futu

rere

curr

ence

ofsu

chno

n-co

mpl

ianc

e:(i

)w

eha

veap

poin

ted

Mr.

Wan

gK

a,ou

rex

ecut

ive

Dir

ecto

r,to

supe

rvis

ean

dm

onito

rou

rpr

oper

ty-r

elat

edac

tiviti

es;

and

(ii)

we

have

enga

ged

exte

rnal

cons

ulta

ntto

prov

ide

rele

vant

trai

ning

toou

rD

irec

tors

,sen

ior

man

agem

ent

and

staf

fin

resp

ect

ofco

mpl

ying

with

appl

icab

lela

ws

and

regu

latio

ns,i

npa

rtic

ular

,the

law

san

dre

gula

tory

requ

irem

ents

rela

ting

tofi

resa

fety

mat

ters

.

Our

Con

trol

ling

Shar

ehol

ders

have

agre

edto

inde

mni

fyus

for

all

clai

ms,

cost

s,ex

pens

esan

dlo

sses

whi

chm

aybe

incu

rred

byus

aris

ing

from

such

non-

com

plia

nce

inci

dent

s.

BUSINESS

– 187 –


No.

Part

icul

ars

ofth

eN

on-c

ompl

ianc

eIn

cide

ntR

easo

nsfo

rth

eN

on-c

ompl

ianc

eL

egal

Con

sequ

ence

and

Pote

ntia

lM

axim

umPe

nalti

esL

ates

tSt

atus

Pote

ntia

lOpe

ratio

nala

ndFi

nanc

ial

Impa

cton

our

Gro

up

Rem

edie

san

dR

ectif

icat

ion

Mea

sure

san

dE

nhan

ced

Inte

rnal

Con

trol

Mea

sure

s

(1)

On

23D

ecem

ber

2021

,we

had

anin

terv

iew

with

Zhen

gzho

uU

rban

and

Rur

alC

onst

ruct

ion

Bur

eau,

bein

gth

eco

mpe

tent

fire

cont

rol

regu

latin

gth

eco

nstr

uctio

npr

ojec

tsof

Hen

anSh

enli,

Hen

anSh

ento

ng,L

ijiat

ePr

intin

gan

dH

enan

Gan

gfa,

asad

vise

dby

our

PRC

Lega

lAdv

isor

s.B

ased

onth

atin

terv

iew

,the

depa

rtm

ent

conf

irm

edth

at:(

i)th

ede

part

men

tac

know

ledg

edth

esi

tuat

ion

inre

latio

nto

the

fire

cont

rol

desi

gnan

dfi

reco

ntro

lac

cept

ance

ofth

eab

ove

cons

truc

tion

wor

ksof

Hen

anSh

enli,

Hen

anSh

ento

ng,

Lijia

tePr

intin

gan

dH

enan

Gan

gfa,

(ii)

sinc

eth

ees

tabl

ishm

ent

ofH

enan

Shen

li,H

enan

Shen

tong

,Liji

ate

Prin

ting

and

Hen

anG

angf

a,th

eyha

vesu

bsta

ntia

llyco

mpl

ied

with

the

prov

isio

nsof

natio

nal

and

loca

lfi

reco

ntro

lla

ws,

rule

s,re

gula

tions

,nor

mat

ive

docu

men

ts;

(iii)

ther

eis

noin

vest

igat

ion,

adm

inis

trat

ive

puni

shm

ent,

trea

tmen

tor

acco

unta

bilit

ybe

enm

ade

orth

reat

ened

byth

ede

part

men

tfo

rvi

olat

ing

fire

cont

rol

law

san

dre

gula

tions

agai

nst

each

ofH

enan

Shen

li,H

enan

Shen

tong

,Liji

ate

Prin

ting

and

Hen

anG

angf

aan

d/or

thei

rre

spec

tive

pers

onne

l,an

dth

ede

part

men

tha

sno

tan

dno

plan

toor

der

itto

rect

ify

with

ina

time

limit,

(iv)

Hen

anSh

enli,

Hen

anSh

ento

ng,L

ijiat

ePr

intin

gan

dH

enan

Gan

gfa

are

not

subj

ect

tolit

igat

ions

,arb

itrat

ions

ordi

sput

esin

volv

ing

fire

cont

rol

law

san

dre

gula

tions

,and

the

depa

rtm

ent

has

not

rece

ived

any

com

plai

nts

orre

port

sag

ains

tth

emin

resp

ect

offi

reco

ntro

l.

BUSINESS

– 188 –


No.

Part

icul

ars

ofth

eN

on-c

ompl

ianc

eIn

cide

ntR

easo

nsfo

rth

eN

on-c

ompl

ianc

eL

egal

Con

sequ

ence

and

Pote

ntia

lM

axim

umPe

nalti

esL

ates

tSt

atus

Pote

ntia

lOpe

ratio

nala

ndFi

nanc

ial

Impa

cton

our

Gro

up

Rem

edie

san

dR

ectif

icat

ion

Mea

sure

san

dE

nhan

ced

Inte

rnal

Con

trol

Mea

sure

s

(2)

On

6D

ecem

ber

2021

,we

obta

ined

aco

nfir

mat

ion

lette

ris

sued

byH

ousi

ngan

dU

rban

-Rur

alC

onst

ruct

ion

Bur

eau

ofJi

nshu

iD

istr

ict,

Zhen

gzho

uC

ity*

(鄭州市金水區住房和城鄉

建設局

)(w

hich

isth

eco

mpe

tent

fire

cont

rol

desi

gnan

dac

cept

ance

auth

ority

regu

latin

gth

eco

nstr

uctio

npr

ojec

tsof

Hen

anSh

enli,

asad

vise

dby

our

PRC

lega

lad

vise

rs).

The

conf

irm

atio

nle

tter

conf

irm

edth

atsi

nce

the

esta

blis

hmen

tof

Hen

anSh

enli

toth

eda

teof

the

issu

ance

ofth

eco

nfir

mat

ion,

itha

sno

tbe

enfo

und

toha

vevi

olat

edna

tiona

lla

ws,

regu

latio

nsan

dno

rmat

ive

docu

men

tsre

latin

gto

fire

prot

ectio

nan

den

gine

erin

gco

nstr

uctio

nm

anag

emen

t,ha

sno

tre

ceiv

edco

mpl

aint

orre

port

rela

ting

topr

otec

tion

and

cons

truc

tion

man

agem

ent

ofH

enan

Shen

li,an

dth

ere

isno

any

inve

stig

atio

n,ad

min

istr

ativ

epe

nalti

esor

othe

rfo

rms

ofad

min

istr

ativ

etr

eatm

ent

have

been

mad

eag

ains

tH

enan

Shen

li.

(3)

On

7D

ecem

ber

2021

,we

obta

ined

aco

nfir

mat

ion

lette

ris

sued

byH

ousi

ngan

dU

rban

-Rur

alC

onst

ruct

ion

Bur

eau

ofZh

ongm

ouC

ount

y*(中牟縣住

房和城鄉建設局

)(w

hich

isth

eco

mpe

tent

fire

cont

rol

desi

gnan

dac

cept

ance

auth

ority

regu

latin

gth

eco

nstr

uctio

npr

ojec

tsof

Hen

anSh

ento

ng,a

sad

vise

dby

our

PRC

lega

lad

vise

rs).

The

conf

irm

atio

nle

tter

conf

irm

edth

atth

ere

isno

notic

eof

puni

shm

ent,

com

plai

ntor

repo

rtof

the

viol

atio

nof

the

rele

vant

law

san

dre

gula

tions

rela

ting

topr

ojec

tco

nstr

uctio

nbe

enm

ade

agai

nst

Hen

anSh

ento

ng.

BUSINESS

– 189 –


No.

Part

icul

ars

ofth

eN

on-c

ompl

ianc

eIn

cide

ntR

easo

nsfo

rth

eN

on-c

ompl

ianc

eL

egal

Con

sequ

ence

and

Pote

ntia

lM

axim

umPe

nalti

esL

ates

tSt

atus

Pote

ntia

lOpe

ratio

nala

ndFi

nanc

ial

Impa

cton

our

Gro

up

Rem

edie

san

dR

ectif

icat

ion

Mea

sure

san

dE

nhan

ced

Inte

rnal

Con

trol

Mea

sure

s

(4)

On

26N

ovem

ber

2021

,we

obta

ined

conf

irm

atio

nle

tters

issu

edby

Hou

sing

and

Urb

an-R

ural

Con

stru

ctio

nB

urea

uof

Xin

zhen

gC

ity*

(新鄭市住房和

城鄉建設局

)(w

hich

isth

eco

mpe

tent

fire

cont

rol

desi

gnan

dac

cept

ance

auth

ority

regu

latin

gth

eco

nstr

uctio

npr

ojec

tsof

Lijia

tePr

intin

gan

dH

enan

Gan

gfa,

asad

vise

dby

our

PRC

lega

lad

vise

rs).

The

conf

irm

atio

nle

tters

conf

irm

edth

atth

ere

isno

puni

shm

ent

with

rega

rdto

the

viol

atio

nof

any

rele

vant

law

san

dre

gula

tions

rela

ting

tour

ban-

rura

lco

nstr

uctio

nbe

enm

ade

agai

nst

Lijia

tePr

intin

gan

dH

enan

Gan

gfa.

(5)

With

the

assi

stan

ceof

our

PRC

Lega

lAdv

iser

s,w

eal

soob

tain

edth

eco

nfir

mat

ions

issu

edby

the

Fire

Con

trol

and

Res

cue

Div

isio

n*(消防救援大隊

)of

Jins

hui

Dis

tric

t,Zh

ongm

ouC

ount

yan

dX

inzh

eng

City

ofZh

engz

hou

City

resp

ectiv

ely

(bei

ngth

eco

mpe

tent

fire

cont

rol

and

safe

tyau

thor

ityre

gula

ting

Hen

anSh

enli,

Hen

anSh

ento

ng,

Lijia

tePr

intin

gan

dH

enan

Gan

gfa,

asad

vise

dby

our

PRC

Lega

lAdv

iser

s)on

22N

ovem

ber

2021

,23

Nov

embe

r20

21an

d22

Dec

embe

r20

21,r

espe

ctiv

ely.

Acc

ordi

ngto

thos

eco

nfir

mat

ions

,th

ere

isno

reco

rdfo

und

inre

latio

nto

the

puni

shm

ent

agai

nst

Hen

anSh

enli,

Hen

anSh

ento

ng,

Lijia

tePr

intin

gan

dH

enan

Gan

gfa

byth

eco

mpe

tent

auth

oriti

esdu

eto

viol

atio

nof

rele

vant

law

san

dre

gula

tions

onfi

repr

otec

tion.

Our

PRC

Lega

lAdv

iser

sar

eof

the

view

that

base

don

such

conf

irm

atio

nsan

dth

eco

nfir

mat

ions

from

the

inte

rvie

ws

abov

e,th

eri

skth

atth

ere

leva

ntau

thor

ities

toim

pose

fine

son

the

fire

cont

rol

desi

gnan

dac

cept

ance

ofth

eab

oves

aid

cons

truc

tion

proj

ects

ofH

enan

Shen

li,H

enan

Shen

tong

,Li

jiate

Prin

ting

and

Hen

anG

angf

aas

are

sult

ofsu

chno

n-co

mpl

ianc

eis

rela

tivel

ylo

w.

BUSINESS

– 190 –


Internal control measures and the improvement of corporate governance

Our Directors recognize the importance of maintaining adequate internal control and riskmanagement systems.

In order to continuously improve our corporate governance and to enhance our internalcontrol, we will form, prior to the [REDACTED], the Audit Committee comprising threeindependent non-executive Directors. The primary duties of the Audit Committees are, amongother things to provide our Directors with an independent review on the effectiveness of thefinancial reporting process, corporate governance measures, internal control and riskmanagement system of the Group, to oversee the audit process and to perform other duties andresponsibilities as assigned by our Directors.

Our Directors and the Audit Committee are responsible for the formulation of and foroverseeing the implementation of our internal control measures and policies and theeffectiveness of our risk management system.

Furthermore, in September 2021 we adopted measures to enhance our internal controlsystem. We have established an internal control system and risk management structure andprocedures for our operations, including, but not limited to:

(i) our Board is ultimately responsible for the compliance operation of the company.The general manager of our Company shall concurrently be the responsible personfor the compliance matters of our Group;

(ii) the legal officer is in charge of managing the compliance matters of our Group. Thehead of each department is in charge of the compliance matters of his/herdepartment, and is tasked with identifying, evaluating, inspecting, monitoring andreporting the compliance risks arose from the operation of his/her department;

(iii) for matters that may violate the Company’s compliance management system, anindependent investigation may be launched after the approval from the person incharge of the compliance management. If the non-compliance is deemed to bematerial, the person in charge of the compliance management may directly reportsuch non-compliance to the Board;

(iv) our legal department is responsible for compliance and monitoring management andit is tasked with carrying out reviews of the business that has been carried out andto be carried out according to the relevant laws and regulations so as to ensure thecompliance of its operation;

(v) our legal department is in charge with collecting, arranging and compiling acomprehensive compliance list, which contains the laws, regulations and policiesthat all departments are required to following, during our business operation. Afterthe compliance list is approved by our Board, such list will be distributed to ourGroup for reference;

(vi) each department is tasked with carrying out internal compliance self-examinationaccording to the aforementioned compliance list at least on a quarterly basis. Thecompliance risks identified during the self-examination may subsequently either berectified within the department at issues or be rectified through cooperation with thelegal department.

BUSINESS

– 191 –


Anti-bribery and corruption risk management

Since September 2021, we have also implemented relevant measures addressing andproperly monitoring any potential issues relating to corruption, bribery, fraud, moneylaundering, and other irregularities. Our internal measure primarily includes the following:

(i) clearly stipulating the definition and nature of, and the indicators for, suspiciousactivities relating to corruption, bribery, fraud, money laundering, and otherirregularities;

(ii) establishing a comprehensive whistle blower mechanism, which sets out proceduresstarting from initial whistle blowing, investigation, reporting and finally todetermination for reporting any irregularities. The report pertaining to theinvestigation and results should also be filed for record;

(iii) providing our employees with training, at least on an annual basis, to help them formawareness for any irregularities. The training materials mainly include the basicknowledge, requirements, code of conduct and specific operation process ofstandardised operation and management;

(iv) establishing procedure for client identification whereby, depending on the businessrelationships or transactions with characteristics, we will take measures such asinvestigation, on-site visit and requesting and reviewing relevant materials tounderstand customers and their ultimate controlling person and the purpose andnature of the transactions; and when conducting business with customers, thetransaction shall be conducted on a real-name basis; and

(v) establishing proper management for the [REDACTED] received from equityfinancings raised through the Stock Exchange.

In addition to internal disciplinary actions, we may report the matter to the relevantgovernmental authorities should there be a violation of the applicable laws and regulations.

Related party transactions

Since September 2021, we have implemented the relevant internal control measuresaiming at standardising the identification of related parties and related party transactions, andthe pricing, approval, signing authority, reconciliation and disclosure of related partytransactions, among others. Pursuant to these internal measures:

(i) specific actions identified as related part transactions and scope of the related partiesare clearly defined;

(ii) our finance department is responsible for maintaining and updating a list of relatedparties, including the related companies and relevant natural persons, to helpidentify the related party transactions, the information of which will be periodicallycollected, summarized and reported to the management of our Company;

(iii) each related party transaction will require prior approval from the party that hasvalid approval authority before such transaction can occur. Depending the amountinvolved in the said related party transaction, approval from the general manager ofthe Company, the Board or a general meeting of the shareholders are required;

BUSINESS

– 192 –


(iv) the specific pricing involved in each related party transaction should be determinedby first following the prices set in the relevant government guidelines or the marketprice; if neither government mandated price nor market price exists, the pricingshould be determined based on the cost-plus reasonable profit method; if suchmethod is inapplicable, the pricing should be negotiated by both parties based on theprinciple of fairness of impartiality;

(v) a written contract stipulating rights, obligations and legal responsibilities of bothparties is required for each related party transaction; in the case of the specificrelated party transaction is a loan contract, the loan interest rate and repaymentperiod are required to be specified. In the case where the specific related partytransaction is a purchase and sales contract, the terms such as commodity unit priceand delivery time are required to be specified.

BUSINESS

– 193 –


CONTROLLING SHAREHOLDERS OF THE COMPANY

Immediately following completion of the Capitalisation Issue and the [REDACTED],Copious Pride will directly hold [REDACTED] Shares, representing [REDACTED]% of theenlarged issued share capital of the Company (without taking into account any Shares whichmay be allotted and issued pursuant to the exercise of the [REDACTED] and/or any optionthat may be granted pursuant to the Share Option Scheme). Copious Pride is wholly-owned byMr. Song, the Chairman, an executive Director and the chief executive officer of the Company.As Copious Pride and Mr. Song will continue to control more than 30% of the issued sharecapital of the Company upon [REDACTED], each of Copious Pride and Mr. Song will beregarded as a Controlling Shareholder for the purpose of the Listing Rules. Copious Pride isan investment-holding company and has not commenced any substantive business activities asof the Latest Practicable Date.

INDEPENDENCE OF THE GROUP

In the opinion of the Directors, the Group is capable of carrying on our businessesindependently of, and does not place undue reliance on, our Controlling Shareholders, theirrespective close associates or any other parties, taking into account the following factors:

(i) Financial independence

During the Track Record Period, the Group had certain amounts due to and/or fromrelated parties including our Controlling Shareholder, Mr. Song. All loans, advances andbalance due to and/or from our Controlling Shareholders and their close associates, such as theshareholder loan, are expected to be either fully settled or waived and that all guaranteesprovided by the related parties, including our Controlling Shareholders, for our borrowings willbe fully released upon [REDACTED].

The Group has an independent financial system and makes financial decisions accordingto our own business needs, which are independent of our Controlling Shareholders. In addition,we have our own internal control and accounting systems and finance department to performindependent treasury function on cash receipts and payments and independent accounting andreporting functions.

The Directors are of the view that there has been sufficient cash flow to support theoperation of our business independent from its Controlling Shareholders. For the two yearsended 31 December 2020 and the nine months ended 30 September 2021, the Group had reliedprincipally on cash generated from operations and bank borrowings to carry on our businessesand this is expected to continue after [REDACTED].

We are able to secure financing based on our stand-alone credit and financial institutionsin the PRC are willing to grant credit facilities without financial assistance from ourControlling Shareholders. As of the date of the Latest Practicable Date, we have obtained anunutilized credit facility of approximately RMB50 million from a non-bank financialinstitution, which is unrestricted, and such facility may be used by us to fund our workingcapital requirements as well as other business needs.

For the above reasons, the Directors are of the view that our Group will not need to relyon the Controlling Shareholders, their respective close associates or any other parties, forfinancing after completion of the [REDACTED] and will have sufficient working capital tooperate our business independently.

RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

– 194 –


(ii) Operational independence

Based on the following reasons, the Directors consider that the Group will continue to beoperationally independent from our Controlling Shareholders or other companies controlled byour Controlling Shareholders:

(a) the Group has established its own organisational structure made up of individualdepartments, each with specific areas of responsibilities;

(b) the Group did not share its operational resources, such as customers, suppliers,marketing, sales and general administration resources with our ControllingShareholders and/or their close associates during the Track Record Period and up tothe Latest Practicable Date;

(c) the Group has also established a set of internal control measures to facilitate theeffective operation of its business;

(d) our customers and suppliers are independent from our Controlling Shareholdersduring the Track Record Period and up to the Latest Practicable Date;

(e) the Group does not rely on our Controlling Shareholders or their close associates forits operation and has independent access to its customers and suppliers; and

(f) the Group is the holder of all relevant qualifications, licences and permits materialto the operation of the business and has sufficient capital, equipment and employeesto operate its business independently.

(iii) Management independence

For the following reasons, the Directors consider that the Directors and members of thesenior management of the Group are able to manage the business independently from theControlling Shareholders:

(a) in line with the requirements under the Listing Rules, three independent non-executive Directors, out of a total of six Directors, are appointed to provide asufficiently robust and independent voice within the Board to counterbalance anyconflict of interest situation and protect the interests of the Shareholders;

(b) all members of the senior management are full-time employees of the Group andtheir responsibilities include managing operational and financial matters, makinggeneral capital expenditure decisions and the daily implementation of the businessstrategies of the Group. This ensures the independence of the daily management andoperations of the Group from those of our Controlling Shareholders;

(c) each of the Directors is aware of his fiduciary duties as a Director, which require,among other things, that he/she acts for the benefit and in the best interests of theShareholders and the Company as a whole and does not allow any conflict betweenhis/her duties as a Director and his/her personal interests to affect the discharge ofhis/her duties as a Director;


– 195 –


(d) connected transactions (if any) between the Company and companies controlled byour Controlling Shareholders are subject to the relevant Listing Rules requirementsrelating to announcement, reporting and independent Shareholders’ approval (whereapplicable);

(e) In the event that there is a potential conflict of interests arising out of anytransaction to be entered into between the Group and the Directors or theirrespective close associates, the interested Director(s) shall abstain from voting at therelevant Board meeting in respect of such transactions and their presence at themeeting shall not be counted as part of the quorum; and

(f) a number of corporate governance measures is in place to avoid any potentialconflict of interest between the Company and our Controlling Shareholders, and tosafeguard the interests of the independent Shareholders.

Having considered the aforesaid factors, the Directors are satisfied that they are able toperform their roles in the Company independently, and that the Group is capable of managingits business independently from our Controlling Shareholders and their respective closeassociates.

RULE 8.10 OF THE LISTING RULES

Except as otherwise disclosed in this document, our Controlling Shareholders, theDirectors and their respective close associates do not have any interest in a business apart fromour business which competes or is likely to compete, directly or indirectly, with our business,and would require disclosure pursuant to Rule 8.10 of the Listing Rules.

CORPORATE GOVERNANCE MEASURES

Each of the Controlling Shareholders has confirmed that he/it fully comprehends his/itsobligations to act in the best interests of the Company and its Shareholders as a whole. To avoidpotential conflicts of interests, the Company will adopt the following measures to strengthenits corporate governance practice and to safeguard the interests of the Shareholders:

(a) each Director shall make full disclosure in respect of matters that he/she is interestedin conflict or potentially conflict with our interest;

(b) the Board is committed to a balanced composition of executive and independentnon-executive Directors so that there is a strong independent voice on the Board.The Company has appointed three independent non-executive Directors. TheDirectors believe that our independent non-executive Directors are of sufficientcalibre, free of any business or other relationship which could interfere in anymaterial manner with the exercise of their independent judgment and will be able toprovide impartial and professional advice to protect the interests of the minorityShareholders. Details of our independent non-executive Directors are set out in“Directors, Senior Management and Employees” in this document; and

(c) the Company has appointed Central China International Capital Limited as ourcompliance adviser, which will provide advice and guidance to the Company inrespect of compliance with the applicable laws and the Listing Rules includingvarious requirements relating to directors’ duties and internal controls. Please referto “Directors, Senior Management and Employees – Compliance adviser” in thisdocument for further details in relation to the appointment of compliance adviser.


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Finally, as [REDACTED], our Company is required to comply with the Listing Rules,which provide, among other matters, prohibitions on directors’ dealings in securities andprotection of minority shareholders’ rights. Specifically, Appendix 14 to the Listing Rules,namely, the Corporate Governance Code (the “Code”), requires the Company to comply withthe Code’s provisions on principles of good corporate governance in relation to, inter alia,directors, the chairman and chief executive officer, board composition, the appointment,re-election and removal of directors, their responsibilities and remuneration andcommunication with shareholders.


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DIRECTORS

The Board currently consists of six Directors, comprising three executive Directors andthree independent non-executive Directors. The Directors are supported by our seniormanagements in the day-to-day management of our business.

The following table sets out the information regarding the Directors:

Name Age Present position

Date ofappointmentAs Director

Date of joiningthe Group Roles and responsibilities

Relationshipwith otherDirector(s)and/orseniormanagement

Mr. Song Quanfa(宋全發)

49 Chairman of theBoard, chiefexecutive officerand executiveDirector

2 October 2018 November 2003 Overall business developmentas well as financial andstrategic planning of theGroup

Nil


50 Executive Director 20 June 2019 May 2005 Overall accounting andfinancial management andimplementation of financialplan of the Group

Nil

Mr. Wang Ka(王卡)

41 Executive Director 20 June 2019 January 2007 Overall business developmentand marketing managementof the Group

Nil

Mr. Si Jintao(司金濤)

55 Independentnon- executiveDirector

[●] [●] Overseeing the managementindependently and providingindependent judgment onthe issues of strategy,performance, resources andstandard of conduct of theCompany

Nil

Ms. Zhang Liping(張利萍)

57 Independentnon-executiveDirector


Nil

Mr. Tam Tak KeiRaymond(譚德機)

58 Independentnon-executiveDirector


Nil

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

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Executive Directors

Mr. Song Quanfa (宋全發, formerly known as Song Quanfa 宋全法), aged 49, is thechairman the Board, the chief executive officer, an executive Director and a ControllingShareholder. He was appointed as a Director on 2 October 2018, and redesignated as thechairman of the Board, chief executive officer and the executive Director on 20 June 2019. Heis responsible for the overall business development as well as financial and strategic planningof the Group. He is also the executive director of Henan Shenli and a director of each ofMillion Prosper, Shengangtong and Shenli HK.

Mr. Song founded the Group in November 2003. He has over 18 years of experience inready-mixed concrete products industry. Prior to founding the Group, Mr. Song founded TianfuAnimal Husbandry in September 1999 with Independent Third Parties for the production andprocessing of livestock and poultry feed and Mr. Song acted as the supervisor of Tianfu AnimalHusbandry.

Mr. Song obtained a bachelor degree in Law from Correspondence School of the CentralParty School of the Communist Party of China* (中共中央黨校函授學院) by way of longdistance learning in December 2005.

Mr. Song was previously a supervisor and a shareholder holding 20% equity interest ofthe following company prior to its dissolution and such company was solvent at the time ofdissolution:

Name of company

Principal businessImmediatelybefore dissolution

Place ofincorporation

Date ofdissolution

Means and reasonof dissolution

Zhengzhou TianfuAnimal HusbandryCo., Ltd* (鄭州天福牧業飼料有限公司)

Production andprocessing oflivestock andpoultry feed

The PRC 25 December2018

Voluntarily resolvedby resolutiondue to lack ofbusiness premises

Mr. Song confirmed that there is no wrongful act on his part leading to the abovedissolution of the company and he is not aware of any actual or potential claim which has beenor will be made against him as a result of the dissolution of the abovementioned company.

Ms. Huang Jin (黃進), aged 50, was appointed as an executive Director on 20 June 2019.She is primarily responsible for the overall accounting and financial management andimplementation of financial plan of the Group. She joined the Group as an accountant of HenanShenli in May 2005.

Ms. Huang has over 20 years of experience in the financial and accounting field. Prior tojoining the Group, Ms. Huang worked in Henan Jifa Industrial Corporation* (河南省繼發實業總公司) as an accountant from July 1994 to December 1997. Ms. Huang worked in HenanYuanxiang Industrial Co., Ltd. Decoration Branch* (河南元翔實業有限公司裝飾分公司) as afinancial manager from January 1998 to April 2005. Ms. Huang obtained a bachelor degree inHistory from Zhengzhou University (鄭州大學) in the PRC in June 1994. She obtained anintermediate accountant qualification (中級會計師) in the PRC in May 1999.

Ms. Huang is also the financial controller of the Group. Please refer to the paragraphheaded “Senior Management” for details.


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Mr. Wang Ka (王卡), aged 41, was appointed as an executive Director on 20 June 2019.He is responsible for the overall business development and marketing management of theGroup. He is also an executive director of Henan Shentong.

Prior to joining the Group, Mr. Wang served in the Border Defense Detachment of YantaiArmed Police* (武警煙台邊防支隊) in the PRC from December 1996 to December 1999. Hewas a farmer from December 1999 to December 2006. At the time Mr. Wang joined the Groupin January 2007, he served as an assistant to the general manager in Henan Shenli and waspromoted as the executive director and general manager of Henan Shentong since December2015.

Mr. Wang obtained his diploma in law by way of long distance learning from CentralSouth University* (中南大學) in the PRC in January 2009.

Independent non-executive Directors

Mr. Si Jintao (司金濤), aged 55, was appointed as an independent non-executive Directoron [●] 2022. He is responsible for overseeing the management independently and providingindependent judgment on the issues of strategy, performance, resources and standard ofconduct of the Company.

Mr. Si obtained a certificate of accounting (budget) qualification (會計(預算)專業資格證書) in the PRC in December 1992.

Mr. Si has accumulated over 30 years of experience in investment and auditing. Prior tojoining the Group, Mr. Si worked as a civil servant at Zhengzhou Jinshui District FinanceBureau* (鄭州市金水區財政局) from October 1988 to October 2006, responsible forgovernment investment and budget management. Mr. Si worked as a civil servant at ZhengzhouJinshui District Audit Bureau* (鄭州市金水區審計局) from October 2006 to December 2018,responsible for the audit work of the government.

Mr. Si obtained a bachelor degree in Economics from Henan University of Economics andLaw (河南財經政法大學), formerly known as Henan College of Finance and Economics (河南財經學院) in the PRC in June 1988.

Ms. Zhang Liping (張利萍), aged 57, was appointed as an independent non-executiveDirector on [●] 2022. She is responsible for overseeing the management independently andproviding independent judgment on the issues of strategy, performance, resources and standardof conduct of the Company

Ms. Zhang obtained a certificate of professor-level senior engineer professionalqualification (教授級高級工程師專業資格證書) in the PRC in February 2011, and obtained acertificate of national registered senior (國家註冊高級審查員證書) in the PRC in December2015.

Ms. Zhang has accumulated over 34 years of experience in building materials researchand design. Prior to joining the Group, she worked in Henan Building Materials Research andDesign Institute Company Limited* (河南建築材料研究設計院有限責任公司) formerly knownas Henan Building Materials Research and Design Institute (河南建築材料研究設計院), acompany primarily engaged in research, testing, consulting and service of building materials,products and engineering from August 1985 to June 2019 which her last position was directorand vice general manager.


– 200 –


Ms. Zhang graduated from Zhengzhou University of Technology (鄭州工業大學) in thePRC in June 1999, specializing in Industrial and Civil Construction Engineering, and obtaineda master degree in Engineering from Zhengzhou University (鄭州大學) in the PRC in January2016.

Mr. Tam Tak Kei Raymond (譚德機), aged 58, was appointed as an independentnon-executive Director on [●] 2022. He is responsible for overseeing the managementindependently and providing independent judgment on the issues of strategy, performance,resources and standard of conduct of the Company.

Mr. Tam obtained a bachelor degree of arts in Accounting with Computing from theUniversity of Kent at Canterbury, United Kingdom in July 1985. He is an associate member ofthe Institute of Chartered Accountants in England and Wales and an associate member of theHong Kong Institute of Certified Public Accountants. Mr. Tam has been appointed as thefinance director of an auction company in Hong Kong since December 2011.

Mr. Tam has been appointed as an independent non-executive director of Green EconomyDevelopment Limited, formerly known as Vision Fame International Holding Limited (stockcode: 1315), CNQC International Holdings Limited (stock code: 1240), Yunhong Guixin GroupHoldings Limited, formerly known as Meigu Technology Holding Group Limited (stock code:8349) and Kingland Group Holdings Limited (stock code: 1751) since December 2011,September 2012, January 2017 and May 2020, respectively. Mr. Tam has been appointed as thecompany secretary of Tian Lun Gas Holdings Limited (stock code: 1600) since July 2019.

He was an independent non-executive director of Digital Domain Holdings Limited,formerly known as Sun Innovation Holdings Limited (stock code: 547) from September 2009to August 2013; Zebra Strategic Holdings Limited, now known as Yin He Holdings Limited(stock code: 8260) from June 2012 to September 2014; Tianjin Jinran Public Utilities CompanyLimited, formerly known as Tianjin Tianlian Public Utilities Company Limited (stock code:1265) from February 2011 to June 2015; Ngai Shun Holdings Limited, now known as BoillHealthcare Holdings Limited (stock code: 1246) from September 2013 to July 2015; BeijingEnterprises Clean Energy Group Limited, formerly known as Jin Cai Holdings CompanyLimited (stock code: 1250), from June 2013 to July 2016; and Li Bao Ge Group Limited (stockcode: 1869) from June 2016 to February 2020. He was also the chief financial officer of KingForce Security Holdings Limited, now known as Greatwalle Inc. (stock code: 8315) during theperiod from April 2014 to November 2014. He was also the company secretary of BrandingChina Group Limited, now known as BC Technology Group Limited (stock code: 863) fromApril 2012 to April 2018.

From July 2013 to January 2015, Mr. Tam was a director of Texwell Development Limited(華鋒發展有限公司) (principally engaged in investment holding), a company incorporated inHong Kong and was dissolved by way of voluntary deregistration on 2 January 2015 pursuantto section 751 of the Companies Ordinance. From April 2015 to November 2017, Mr. Tam wasa director of Speedy Logistics Group Limited (迅達物流集團有限公司), (principally engagedin investment holding prior to dissolution), a company incorporated in Cayman Islands and wasvoluntarily struck off on 29 December 2017 pursuant to the Companies Act. Mr. Tam confirmedthat both of the above companies had ceased operations and was solvent at the time ofdissolution.

Mr. Tam confirmed that there is no wrongful act on his part leading to the abovedissolution of the companies and he is not aware of any actual or potential claim which hasbeen or will be made against him as a result of the dissolutions of the abovementionedcompanies.


– 201 –


Disclosure required under Rule 13.51(2) of the Listing Rules

Except as disclosed under this section, each of the Directors confirms with respect tohim/her that: (a) he/she has not held directorships in the last three years in other publiccompanies the securities of which are listed on any securities market in Hong Kong oroverseas; (b) he/she did not held other positions in the Company or other members of the Groupas of the Latest Practicable Date; (c) he/she did not have any relationship with any otherDirectors, senior management, substantial Shareholders or Controlling Shareholders of theCompany as of the Latest Practicable Date; (d) he/she does not have any interests in the Shareswithin the meaning of Part XV of the SFO, except as disclosed in “C. Further Informationabout Substantial Shareholders, Directors and Experts – 1. Disclosure of Interests” in AppendixIV to this document; and (e) to the best of the knowledge, information and belief of theDirectors, having made all reasonable enquires, there was no additional information relating tothe Directors that was required to be disclosed pursuant to Rules 13.51(2) of the Listing Rulesand no other matter which respect to their appointments that needed to be brought to theattention of our Shareholders as of the Latest Practicable Date.

SENIOR MANAGEMENT

The following table sets out certain information concerning the senior management of theGroup:

Name Age Present positionDate ofappointment

Date of joiningthe Group

Roles and/or seniorresponsibilities

Relationshipwith otherDirector(s)management

Mr. Wang Guohua(王國華)

45 Head of legaldepartment

20 June 2019 May 2019 Supervising the legaldepartment and providelegal advice to the Group

Nil


50 Financial controller 6 January 2022 May 2005 Overall financial planning,financial reporting andimplementation of financialplan of the Group

Nil

Mr. Wang Guohua (王國華), aged 45, is the head of legal department of the Group since20 June 2019. He is primarily responsible for supervising the legal department and providinglegal advice in relation to the daily operation to the Group. Mr. Wang obtained a bachelordegree in law from Zhengzhou University (鄭州大學) in the PRC in December 2003. He wasadmitted as a PRC lawyer in March 2000.

Mr. Wang has over 20 years of experience in the legal field. Prior to joining the Group,Mr. Wang worked in Henan Qianyi Law Firm* (河南千益律師事務所) from May 2000 to May2019.

Ms. Huang Jin (黃進), aged 50, is also the financial controller of the Group. She isresponsible for the overall financial planning, financial reporting and implementation offinancial plan of the Group.

For details of the biography of Ms. Huang, please refer to the paragraph headed“Directors – Executive Directors”.


– 202 –


To the best of the knowledge, information and belief of the Directors, having made allreasonable enquiries, except as disclosed above, none of the above members of seniormanagement has been a director of any public company the securities of which are listed onany securities market in Hong Kong or overseas in the last three years immediately precedingthe date of this document.

COMPANY SECRETARY

Pursuant to Rule 3.28 and Rule 8.17 of the Listing Rules, the secretary of the Companymust be an individual who, by virtue of his or her academic or professional qualifications orrelevant experience, is, in the opinion of the Stock Exchange, capable of discharging thefunctions of a company secretary. The Stock Exchange considers (a) an ordinary member ofThe Hong Kong Institute of Company Secretaries; (b) a solicitor or barrister as defined in theLegal Practitioners Ordinance (Chapter 159 of the Laws of Hong Kong); or (c) a certifiedpublic accountants as defined in the Professional Accountants Ordinance (Chapter 50 of theLaws of Hong Kong) as acceptable academic and professional qualification.

We have appointed Ms. Lau Jeanie, who satisfies the qualification requirements underRules 3.28 and 8.17 of the Listing Rules, as the company secretary of the Company.

Ms. LAU Jeanie (劉准羽), aged 44, was appointed as a company secretary of ourCompany on 31 August 2021. Ms. Lau is an Assistant Vice President of Corporate SecretarialDepartment of SWCS Corporate Services Group (Hong Kong) Limited. She is an associatemember of both The Chartered Governance Institute (formerly known as The Institute ofChartered Secretaries and Administrators) in England and The Hong Kong CharteredGovernance Institute (formerly known as The Hong Kong Institute of Chartered Secretaries).She has over 15 years of experience in corporate secretarial practice. She has been providingcorporate services to companies overseas and in Hong Kong. Ms. Lau had been a companysecretary of various listed companies on the Main Board of the Stock Exchange over the last10 years.

BOARD COMMITTEES

The Board delegates certain responsibilities to various committees. In accordance withthe Articles and the Listing Rules, we have formed three board committees, namely the auditcommittee, the nomination committee and the remuneration committee.

Audit committee

The Company established an audit committee on [●] 2022 in compliance with Rule 3.22of the Listing Rules and paragraph C.3 of the Corporate Governance Code as set out in theAppendix 14 of the Listing Rules. The primary duties of our audit committee are, among otherthings, (i) to make recommendations to the Board on the appointment and removal of externalauditors; (ii) to review the financial statements; (iii) to review the effectiveness of theCompany’s internal audit activities, internal controls and risk management systems; and (iv) todevelop and implement policy on engaging external auditor to supply non-audit services.

The audit committee currently consists of all three of our independent non-executiveDirectors, namely Mr. Tam Tak Kei Raymond, Ms. Zhang Liping and Mr. Si Jintao. Mr. TamTak Kei Raymond is the chairman of our audit committee.


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Remuneration committee

The Company established a remuneration committee on [●] 2022 in compliance with Rule3.26 of the Listing Rules and paragraph B.1 of the Corporate Governance Code as set out inthe Appendix 14 of the Listing Rules. The primary duties of our remuneration committee are,among other things, (i) to review and make recommendations to the Board on the overallremuneration policy and structure relating to all Directors and senior management of theGroup; (ii) to review and make recommendations to the Board on other remuneration-relatedmatters, including benefits-in-kind and other compensation payable to the Directors and seniormanagement; and (iii) to review performance based remunerations and to establish a formaland transparent procedure for developing policy in relation to remuneration.

The remuneration committee currently consists of four Directors, including our executiveDirector, Mr. Song Quanfa, and all three of our independent non-executive Directors, namelyMs. Zhang Liping, Mr. Si Jintao and Mr. Tam Tak Kei Raymond. Mr. Si Jintao is the chairmanof our remuneration committee.

Nomination committee

The Company established a nomination committee on [●] 2022 with written terms ofreference in compliance with paragraph A.5 of the Corporate Governance Code as set out inthe Appendix 14 of the Listing Rules. The primary duties of our nomination committee are,among other things, (i) to review the structure, size, composition and diversity of the Board ona regular basis; (ii) to identify individuals suitably qualified to become Board members; (iii)to assess the independence of independent non-executive Directors; (iv) to makerecommendations to the Board on relevant matters relating to the appointment or re-appointment of Directors and succession planning for directors; and (v) to makerecommendations to the Board regarding candidates to fill vacancies on the Board and/or insenior management.

The nomination committee currently consists of four Directors, including our executiveDirector, Mr. Song Quanfa, and all three of the independent non-executive Directors, namelyMs. Zhang Liping, Mr. Tam Tak Kei Raymond and Mr. Si Jintao. Mr. Song Quanfa is thechairman of our nomination committee.

REMUNERATIONS OF DIRECTORS AND SENIOR MANAGEMENT

For the two years ended 31 December 2020 and the nine months ended 30 September2021, the aggregate emoluments (including basic salaries and allowances, and contributions topension plans) paid or payable by the Group to the Directors were approximately RMB384,000,RMB340,000 and RMB540,000, respectively.

Under the arrangements currently proposed, conditional upon [REDACTED], the basicannual remuneration (excluding payment of any discretionary benefits or bonus or other fringebenefits) payable by the Group to each of the Directors will be as follows:

RMB

Executive DirectorsMr. Song Quanfa [360,000]Ms. Huang Jin [240,000]Mr. Wang Ka [240,000]


– 204 –


RMB

Independent Non-executive DirectorsMr. Si Jintao [60,000]Ms. Zhang Liping [60,000]Mr. Tam Tak Kei Raymond [HK$180,000]

Under the arrangements currently in force, the aggregate emoluments (excluding paymentpursuant to any discretionary benefits or bonus or other fringe benefits) payable by the Groupto the Directors for the year ending 31 December 2022 will be approximately RMB[1,107,600].

The remuneration in respect of our five highest paid individuals during the Track RecordPeriod are as follows:

For theyear ended

31 December2019

For theyear ended

31 December2020

For thenine months

ended30 September

2021

RMB’000 RMB’000 RMB’000

Basic salaries and allowances 418 418 208Contribution to pension plans and other social

insurance 80 41 46

Total 498 459 254

During the Track Record Period, no emoluments/remuneration were paid by the Group toany of the Directors or any of the above five highest paid individuals as (i) an inducement tojoin or upon joining the Groups or (ii) as compensation for loss of office as a director ormanagement of any members of the Group.

There was no arrangement under which any of the Directors waived or agreed to waiveany remuneration during the Track Record Period.

REMUNERATION POLICY

The Directors and senior management receive compensation in the form of director fees,salaries and discretionary bonuses with reference to those paid by comparable companies, theirtime commitment and the performance of the Group. The Group regularly reviews anddetermines the remuneration and compensation package of the Directors and seniormanagement, by reference to, among other things, market level of remuneration paid bycomparable companies, the respective responsibilities of the Directors and senior managementand the performance of the Group.

After [REDACTED], the remuneration committee will review and determine theremuneration and compensation packages of the Directors with reference to theirresponsibilities, workload and time devoted to the Group and the performance of the Group.


– 205 –


BOARD DIVERSITY POLICY

The Company will adopt a board diversity policy (the “Board Diversity Policy”) upon[REDACTED], which sets out its approach to achieve and maintain diversity on the Board inorder to enhance the effectiveness of the Board. The Company recognizes and embraces thebenefits of the Board diversity to enhance the quality of this performance and endeavors toensure that the Board has appropriate balance and level of skills, experiences and perspectivesrequired to support the execution of its business strategies. The Company seeks to achieveBoard diversity by selection of candidates for the Board through the consideration of a numberof factors, including but not limited to gender, age, cultural and education background,professional experience, skills, knowledge and length of service. The Company will also takeinto consideration factors based on its own business model and specific needs from time to timein determining the optimum composition of the Board. All Board appointments will based onmeritocracy having due regard for the benefits of diversity on the Board. The ultimate decisionwill be based on merit and contribution that the selected candidates will bring to the Board.

The Board comprises of six members, including one female executive Director and onefemale independent non-executive Director. The Directors also have a balance mix ofknowledge and experience in the areas of strategic development, administration, finance andaccounting. None of the Directors is related to one another. We have three independentnon-executive Directors with different industry backgrounds, representing more than one-thirdof the members of the Board.

We will review the objectives of the Board Diversity Policy from time to time to ensuretheir appropriateness and ascertain the progress made towards achieving those objectives. After[REDACTED], the Nomination Committee will review the Board Diversity Policy andmonitor its implementation. The Nomination Committee will report annually to shareholdersin the corporate governance section of the annual report of the Company on the processadopted in relation to the Board appointments and the consideration given to the diversity onthe Board.

SHARE OPTION SCHEME

The Group has conditionally adopted the Share Option Scheme under which employeesof the group including executive Directors and other eligible participants may be grantedoptions to subscribe for Shares. The principal terms of the Share Option Scheme aresummarized in “D. Share option scheme” in Appendix IV to this document.

COMPLIANCE ADVISER

We have appointed Central China International Capital Limited to be our complianceadviser pursuant to Rule 3A.19 of the Listing Rules. Pursuant to Rule 3A.23 of the ListingRules, the company will consult with and seek advice from the compliance adviser on a timelybasis in the following circumstances:

(1) before the publication of any regulatory announcement, circular or financial report;

(2) where a transaction, which might be a notifiable or connected transaction, iscontemplated including share issues and share repurchases;

(3) where the company proposes to [REDACTED] from the [REDACTED] in amanner different from that detailed in the [REDACTED] or where the businessactivities, developments or results of the company deviate from any forecast,estimate, or other information in the [REDACTED]; and

(4) where the Stock Exchange makes an inquiry of us regarding unusual movements inthe price or trade volume of the Shares.


– 206 –


The terms of the appointments shall commence on [REDACTED] and end on the date onwhich we distribute our annual report of our financial results of the first full financial yearcommencing after [REDACTED]. Such appointment may be subject to extension by mutualagreement.

CORPORATE GOVERNANCE

Roles of chairman of the Board and chief executive officer

Pursuant to paragraph A.2.1 of the Corporate Governance Code set out in Appendix 14 tothe Listing Rules, the responsibilities between the chairman and the chief executive officershould be segregated and should not be performed by the same individual. However, we do nothave a separate chairman and chief executive officer and Mr. Song currently performs thesetwo roles. Mr. Song has been managing our business and overall strategic planning sinceNovember 2003. The Directors believe that the vesting of the roles of both chairman of theBoard and chief executive officer in the same person has the benefit of ensuring consistentleadership within the Group and enables more effective and efficient overall strategic planningfor the Group. The Board considers that the balance of power and authority for the presentarrangement will not be impaired and this structure will enable the Company to make andimplement decisions promptly and effectively. The Board will continue to review and considersplitting the roles of chairman of the Board and chief executive officer of the Company at atime when it is appropriate and suitable by taking into account the circumstance of the Groupas a whole.

Except as disclosed above, the Company will comply with the code provisions set out inthe Corporate Governance Code and Corporate Governance Report in Appendix 14 to theListing Rules after [REDACTED]. The Directors will review our corporate governancepolicies and compliance with the Corporate Governance Code as set out in the Appendix 14 ofthe Listing Rules each financial year and comply with the “comply or explain” principleincluded in our annual reports subsequent to [REDACTED].


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So far as the Directors are aware, immediately following completion of the CapitalisationIssue and the [REDACTED] (without taking into account of any Shares which may be issuedpursuant to the exercise of the [REDACTED] and any options which may be granted under theShare Option Scheme), the following persons will have interest or short positions in the Sharesor underlying Shares which would fall to be disclosed to us the Stock Exchange under theprovisions of Divisions 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 the Group:

LONG POSITION IN THE SHARES

Name Capacity/nature of interest

As of the date ofthis document

Immediately after completionof the Capitalisation Issue and

[REDACTED]

Number ofShares held/interested in

Approximatepercentage ofshareholding


Percentage ofshareholding

Copious Pride Beneficial owner (Note 1) 14,400 71.29% [REDACTED] [REDACTED]

Mr. SongInterest in a controlled

corporation (Note 1) 14,400 71.29% [REDACTED] [REDACTED]Ms. Li Gaixia (李改霞) Interest of spouse (Note 2) 14,400 71.29% [REDACTED] [REDACTED]

Great Flourishing Beneficial owner (Note 3) 3,600 17.82% [REDACTED] [REDACTED]

Mr. ShiInterest in a controlled

corporation (Note 3) 3,600 17.82% [REDACTED] [REDACTED]Tian Lun Beneficial owner (Note 4) 2,000 9.9% [REDACTED] [REDACTED]Gold Shine

Development LimitedInterest in a controlled

corporation (Note 4) 2,000 9.9% [REDACTED] [REDACTED]

Mr. ZhangInterest in a controlled

corporation (Note 5) 2,000 9.9% [REDACTED] [REDACTED]Ms. Sun Yanxi (孫燕熙) Interest of Spouse (Note 6) 2,000 9.9% [REDACTED] [REDACTED]

Notes:

1. Mr. Song beneficially owns all the issued share of Copious Pride, an investment-holding company incorporatedin the BVI. As such, Mr. Song is deemed, or taken to be, interested in all the Shares held by Copious Pridefor the purposes of SFO. Mr. Song is the sole director of Copious Pride.

2. Ms. Li Gaixia is the spouse of Mr. Song and is deemed or taken to be interested in all the Shares in which Mr.Song has, or is deemed to have, an interest for the purposes of the SFO.

3. Mr. Shi beneficially owns all the issued share of Great Flourishing, an investment-holding companyincorporated in the BVI. As such, Mr. Shi is deemed, or taken to be, interested in all the Shares held by GreatFlourishing for the purposes of the SFO. Mr. Shi is the sole director of Great Flourishing.

4. All the issued share of Tian Lun is held by Gold Shine Development Limited. Therefore, Gold ShineDevelopment Limited is deemed or taken to be interested in all the Shares held by Tian Lun for the purposesof the SFO.

5. Mr. Zhang owns 60% of the equity interests in Gold Shine Development Limited, which in turn owns the entireissued share capital of Tian Lun. Therefore, Mr. Zhang is deemed or taken to be interested in all the Sharesheld by Tian Lun for the purposes of the SFO.

6. Ms. Sun Yanxi is the spouse of Mr. Zhang. Therefore, Ms. Sun Yanxi is deemed or taken to be interested inall the Shares in which Mr. Zhang is interested for the purposes of the SFO.

SUBSTANTIAL SHAREHOLDERS

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Except as disclosed in the table above, the Directors are not aware of any other personswho will, immediately following completion of the Capitalisation Issue and [REDACTED](without taking into account any Shares which may be issued pursuant to the exercise of the[REDACTED] and any options which may be granted under the Share Option Scheme), havean interest or a short position in the Shares or underlying Shares which would be required tobe disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and3 of Part XV of the SFO, or who will be directly or indirectly, interested in 10% or more ofthe nominal value of any class of share capital carrying rights to vote in all circumstances atgeneral meetings of the Company or any other members of the Group.

SUBSTANTIAL SHAREHOLDERS

– 209 –


SHARE CAPITAL

Assuming the [REDACTED] is not exercised, and without taking into account anyShares to be issued upon exercise of any options which may be granted under the Share OptionScheme, the share capital of the Company immediately following the Capitalisation Issue and[REDACTED] will be as follows:

Authorized share capital HK$

4,000,000,000 Shares of HK$0.01 each 40,000,000

Issued and to be issued, fully paid or credited as fully paid uponcompletion of the Capitalisation Issue and the [REDACTED]:

HK$

20,200 Shares in issue at the date of this document 202

[REDACTED] Shares to be issued pursuant to the Capitalisation Issue [REDACTED]

[REDACTED] Shares to be issued pursuant to the [REDACTED] [REDACTED]

[REDACTED] Total [REDACTED]

Assuming the [REDACTED] is exercised in full, and without taking into account anyShares to be issued upon exercise of any options which may be granted under the Share OptionScheme, the share capital of the Company immediately following the Capitalisation Issue and[REDACTED] will be as follows:

Issued and to be issued, fully paid or credited as fully paid uponcompletion of the Capitalisation Issue and [REDACTED]:

HK$

20,200 Shares in issue at the date of this document 202

[REDACTED] Shares to be issued pursuant to the Capitalisation Issue [REDACTED]

[REDACTED] Shares to be issued pursuant to the [REDACTED] andthe [REDACTED]

[REDACTED]

[REDACTED] Total(1) [REDACTED]

Note:

(1) Assuming a total of [REDACTED] Shares will be issued upon exercise of the[REDACTED] in full.

SHARE CAPITAL

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[REDACTED]

According to Rule 8.08 of the Listing Rules, at the time of the [REDACTED] and at alltimes thereafter, the minimum level of [REDACTED] to be maintained by the Company is[REDACTED] of the issued share capital of the Company.

RANKING

The [REDACTED] will rank pan passu in all respects with all the Shares now in issueor to be issued as mentioned in this document, and, in particular, will qualify in full for alldividends or other distributions declared, made or paid on the Shares in respect of a record datewhich falls after the date of [REDACTED] other than participation in the Capitalisation Issue.

CAPITALISATION ISSUE

Pursuant to the resolution of our Shareholders passed on [●], subject to the share premiumaccount of the Company being credited as a result of the issue of [REDACTED] pursuant tothe [REDACTED], the Directors are authorized to allot and issue a total of [REDACTED]Shares credited as fully paid at par to the holders of the Shares on the register of members ofthe Company at the close of business on [●] (or as they may direct) in proportion to theirshareholdings (save that no Shareholder shall be entitled to be allotted or issued any fractionof a Share) by way of Capitalisation of the sum of HK$[REDACTED] standing to the creditof the share premium account of the Company, and the Shares to be allotted and issuedpursuant to this resolution shall rank pan passu in all respects with the existing issued Shares.

GENERAL MANDATE TO ISSUE SHARES

Subject to the [REDACTED] becoming unconditional, the Directors have been granteda general unconditional mandate to allot, issue and deal with the Shares or securitiesconvertible into Shares or options, warrants or similar rights to subscribe for Shares or suchsecurities convertible into Shares, and to make or grant offers, agreements or options whichmight require such Shares to be allotted and issued or dealt with subject to the requirement thatthe aggregate nominal value of the Shares so allotted and issued or agreed conditionally orunconditionally to be allotted and issued (otherwise than by way of rights or an issue of Sharespursuant to the exercise of any options which may be granted under any share option schemeof the Company or any Share allotted and issued in lieu of the whole or part of a dividend onShares or similar arrange in accordance with the Articles of Association or pursuant to aspecific authority granted by the Shares or pursuant to the Capitalisation Issue and the[REDACTED]) shall not exceed:

(a) 20% of the total number of Shares in issue immediately following the completion ofthe Capitalisation Issue and the [REDACTED] (excluding any Shares to be issuedpursuant to the [REDACTED] and any options which may be granted under theShare Option Scheme); and

(b) the total number of Shares repurchased by the Company (if any) pursuant to thegeneral mandate to repurchase Shares referred to in “Share capital – Generalmandate to repurchase Shares” in this document.

SHARE CAPITAL

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This general mandate to issue Shares will remain in effect until of the earliest of:

(a) the conclusion of the next annual general meeting of the Company;

(b) the expiration of the period within which the next annual general meeting of theCompany is required by the Memorandum of Association and the Articles ofAssociation or the Companies Act or any other applicable laws of the CaymanIslands to be held; or

(c) the time when such mandate is revoked or varied by an ordinary resolution of theShareholders in general meeting.

For further details of this general mandate, please refer to “A. Further information aboutthe Company – 4. Written resolutions of the Shareholders passed on [●]” set out in AppendixIV to this document.

GENERAL MANDATE TO REPURCHASE SHARES

Subject to the [REDACTED] becoming unconditional, the Directors have been granteda general unconditional mandate to exercise all the powers of the Company to repurchaseShares with such number of Shares not more than 10% of the total number of Shares in issuefollowing the completion of the Capitalisation Issue and the [REDACTED] (excluding anyShares to be issued pursuant to the [REDACTED] and any options which may be grantedunder the Share Option Scheme).

This mandate only relates to repurchases made on the Stock Exchange, or on any otherstock exchange on which the securities of the Company may be [REDACTED] and which isrecognized by the SFC and the Stock Exchange for this purpose, and such repurchases are madein accordance with all applicable laws, regulations and the requirements of the Listing Rules.A summary of the relevant Listing Rules is set out in “A. Further information about theCompany – 6. Repurchase of the Shares by the Company” set out in Appendix IV to thisdocument.

The general mandates to issue and repurchase Shares will remain in effect until theearliest of:

(a) the conclusion of the next annual general meeting of the Company;

(b) the expiration of the period within which the next annual general meeting of theCompany is required by the Memorandum and the Articles or the Companies Act orany other applicable law of the Cayman Islands to be held; or

(c) the time when such mandate is revoked or varied by an ordinary resolution of theShareholders in general meeting.

For further details of this general mandate, please refer to “A. Further information aboutthe Company – 6. Repurchase of the Shares by the Company” set out in Appendix IV to thisdocument.

SHARE CAPITAL

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SHARE OPTION SCHEME

The Company has conditionally adopted the Share Option Scheme. Details of theprincipal terms of the Share Option Scheme are summarized in “D. Share option scheme” setout in Appendix IV to this document.

The Group did not have any outstanding share options, warrants, convertible instruments,or similar rights convertible into the Shares as of the Latest Practicable Date.

CIRCUMSTANCES UNDER WHICH GENERAL MEETING AND CLASS MEETINGARE REQUIRED

As a matter of the Companies Act, an exempted company is not required by law to holdany general meetings or class meetings. The holding of general meeting or class meeting isprescribed for under the articles of association of a company. Accordingly, the Company willhold general meetings as prescribed for under the Articles, a summary of which is set out inAppendix III to this document.

SHARE CAPITAL

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You should read the following discussion and analysis with our consolidatedfinancial information, including the notes thereto, included in “Appendix I – Accountant’sReport” in this document. Our consolidated financial information has been prepared inaccordance with HKFRSs.

Our historical results do not necessarily indicate results expected for any futureperiods. The following discussion and analysis contain forward-looking statements thatreflect our current views with respect to future events and financial performance. Thesestatements are based on our assumptions and analysis in light of our experience andperception of historical trends, current conditions and expected future developments, aswell as other factors we believe are appropriate under the circumstances. However,whether actual outcomes and developments will meet our expectations and predictionsdepends on a number of risks and uncertainties, many of which we cannot control orforesee. In evaluating our business, you should carefully consider all of the informationprovided in this document, including the sections headed “Risk Factors” and “Business”in this document.

Unless the context otherwise requires, financial information described in thissection is described on a consolidated basis.

OVERVIEW

We are a leading ready-mixed concrete producer in Zhengzhou, Henan Province.According to the F&S Report, we are the largest ready-mixed concrete producer in terms ofboth revenue and production volume in Henan Province for the year ended 31 December 2020,with market shares of approximately 3.3% and 3.2%, respectively, in Zhengzhou and marketshares of approximately 1.2% and 1.1%, respectively, in Henan Province.

As of the Latest Practicable Date, we operated three batching plants, namely ShenliBatching Plant, Shentong Batching Plant and Gangfa Batching Plant, which are strategicallylocated in the northeastern, eastern and southeastern regions of Zhengzhou, where the level ofconstruction activities remains high with a relatively large number of major constructionprojects. During the Track Record Period, our products primarily included regular ready-mixedconcrete products of grade levels from C15 to C60, which are most commonly used in realestate development and public infrastructure construction, according to the F&S Report. Inaddition to our ready-mixed concrete products, we produce and sell small amounts ofwet-mixed mortar products from time to time at the request of customers.

For the two years ended 31 December 2019 and 2020 and the nine months ended 30September 2020 and 2021, our total revenue was approximately RMB1,097.4 million,RMB1,086.5 million, RMB944.7 million and RMB511.2 million, respectively, and our netprofit was approximately RMB93.2 million, RMB102.7 million, RMB92.1 million andRMB42.8 million, respectively.

BASIS OF PRESENTATION

The historical financial information has been prepared based on the accounting policiesset out in “Note 2 – Summary of significant accounting policies” of the Accountant’s Reportin Appendix I to this document, which conforms with the HKFRSs issued by the HKICPA.

FINANCIAL INFORMATION

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On 2 October 2018, the Company was incorporated in the Cayman Islands as an exemptedcompany with limited liability. To rationalize the structure of the Group in preparation of the[REDACTED], the Company and the companies now comprising the Group underwent a seriesof reorganization steps. Pursuant to the Reorganization, the Company became the holdingcompany of the companies now comprising the Group. See “Note 1.2 – Reorganization” of theAccountant’s Report in Appendix I to this document.

Immediately prior to the Reorganization, the Group’s business was principally conductedby Henan Shenli and Henan Shentong (the “Operating Companies”) the companies comprisingthe Group which were under the control of Mr. Song throughout the Track Record Period.Pursuant to the Reorganization, the Group’s business was transferred to and held by theCompany. The Company has not been involved in any other business prior to theReorganization and does not meet the definition of a business. The Reorganization is merelya reorganization of the Group’s business with no change in any management of such businessor the ultimate owners of the Group’s business remain the same. Accordingly, the Groupresulting from the Reorganization is regarded as a continuation of the Group’s businessconducted through the Operating Companies, and, for the purpose of the Accountant’s Report,the historical financial information has been prepared and presented as a continuation of theconsolidated financial statements of the Operating Companies, with the results, assets andliabilities of the Group recognized and measured at the carrying amounts of the Group’sbusiness under the consolidated financial statements of the Operating Companies for the TrackRecord Period.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our results of operations have been, and are expected to continue to be, affected by anumber of factors, many of which are outside of our control, including the following:

Market size of the construction material industry in Zhengzhou and its proximity

We produce and sell our ready-mixed concrete products at the batching plants located inZhengzhou and its proximity in Henan Province. As such, demand for our ready-mixedconcrete product in these areas is dependent upon the level of construction activities and theamount of investment in fixed assets in Zhengzhou, Henan Province, which in turn can besignificantly impacted by any material changes in gross domestic product and its growth rate,level of disposable income, PRC government policies, mortgage interest rate, inflation,unemployment rate, demographic trends and other relevant national and regional economicfactors and conditions in Zhengzhou, Henan Province or China.

Market competition

The PRC concrete production industry is fragmented. According to the F&S Report, therewere over 12,000 ready-mixed concrete producers in the PRC in 2020. Similar to the nationalready-mixed concrete market, the ready-mixed concrete market in Zhengzhou is quitefragmented. In 2020, there were approximately 180 ready-mixed concrete producers inZhengzhou. Consequently we only consider those concrete producers with a presence in or nearour geographical markets as competitors.


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We compete directly with our competitors for customers, materials, energy resources anddistribution network. Our competitiveness depends on our record of timely delivery, ourtechnical capabilities and know-how for quality concrete production as well as our customerservices. Competitive pressures may require us to lower our price and may adversely affect ourprofit margins. If we fail to compete effectively with our competitors, our business, financialcondition, results of operation and market position may be adversely affected. See “RiskFactors – Risks relating to our industry – We face intense competition in our industry, andfailure to compete effectively may cause us to lose our market share” in this document.

In recent years, the PRC government has implemented policies for industry consolidationand made efforts to restructure the concrete industry in the PRC. We expect that these PRCgovernment policies would lead to the closure of a number of concrete producers and thecompetition in the concrete industry will become more rational. We intend to leverage ourmarket position and capitalize on the consolidation trend to expand our customer base andincrease our market share in our targeted markets. Our profitability and market share willdepend on our continuing ability to compete with our competitors.

Effective sales and marketing efforts

We sell our products mainly through a tender bidding process or by direct orders fromcustomers. State-owned enterprises and private enterprises may select suppliers either througha tender process or by direct orders after negotiations. We have established sales and marketingnetworks with construction contractors and real estate developers in Zhengzhou. Our sales andmarketing personnel keep track of the latest developments in the construction industry as wellas follow up on potential project bidding opportunities. We also plan to attend more industryexhibitions to showcase our products and capabilities. We believe that we can broaden ourclient base and attract more orders from potential customers by strengthening our sales andmarketing capabilities and increasing our marketing efforts to promote market awareness andrecognition of our brand name and products. Our ability to maintain customer relationships,secure projects and increase our sales to a large extent depends on the success of our sales andmarketing efforts. If our sales and marketing efforts turn out to be not as effective as weanticipated, our results of operations are likely to be negatively affected.

Market conditions in the PRC

Our results of operations and financial condition are significantly affected by generaleconomic and market conditions in the PRC. We believe general economic and marketconditions that are favourable to our operations include, among other factors, high GDPgrowth, liquid and efficient capital markets, reasonable levels of inflation, high investorconfidence, stable geopolitical conditions, strong corporate earnings and rising personalwealth. Unfavourable or uncertain economic and market conditions include, but are not limitedto:

• declines in economic growth, liquidity or investor confidence;

• decreases in the availability of, or increases in the cost of, credit and capital;

• significant inflation, increases in interest rates and commodity prices;

• decreases in consumer, corporate and government spending, business investment orcapital markets; or

• adverse changes in political and economic policies of the PRC government.


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Supply of raw materials and raw material costs

Major raw materials used in the manufacture of our ready-mixed concrete product includecement, crushed stones and sand. Our results of operations are also affected by the costs andavailability of these raw materials. Costs of raw materials as a percentage of our total cost ofsales were approximately 90.8%, 89.7%, 90.3% and 85.7% for the two years ended 31December 2019 and 2020 and the nine months ended 30 September 2020 and 2021,respectively. The prices of raw materials may fluctuate from time to time as a result of variousfactors such as fluctuations in commodity prices and changes in government policies such asenvironmental protection regulations, which are out of our control. We expect that the demandfor raw material will increase along with the growth of our revenue and expansion of ourbusiness. If the costs of these raw materials increase, or if we are unable to retain access tosufficient amount of these raw materials, our cost of sales may increase, and the results of ouroperations may be negatively affected. During the Track Record Period, in most of the timeswe had been able to pass on all of the increase in raw material costs to our customers and tomaintain our gross profit margins, and hence, our business and results of operations had notbeen materially adversely affected by the fluctuation of major raw material costs during theTrack Record Period. See “Risks Factors – Risks relating to our business – The prices of rawmaterials of our products may significantly impact our business” in this document.

A sensitivity analysis on the fluctuation of the average purchase price of raw materialsduring the Track Record Period is set forth below, which illustrates the hypothetical effects onour profit before tax with 4%, 5% and 7% increase or decrease in our average purchase priceof sand, cement and crushed stones respectively. The hypothetical fluctuation rates are set withreference to the historical price trend of cement, manufactured sand, crushed stones inZhengzhou from 2016 to 2020 as shown in the F&S Report (see “Industry Overview – Chinaand Henan ready-mixed concrete industry overview – Raw material price analysis” in thisdocument) and weighted by the average percentage of purchases of each raw material duringthe two years ended 31 December 2019 and 2020 and the nine months ended 30 September2021, which are considered to be reasonable for the purpose of this sensitivity analysis:

Change in profit before taxation forchange in average purchase price of the

following raw materials:

Sand+/- 4%

Cement+/- 5%

Crushedstones

+/- 7%

RMB’000 RMB’000 RMB’000

Year ended 31 December 2019 8,487 11,241 18,223Year ended 31 December 2020 8,836 11,031 16,529Nine months ended 30 September 2020 7,690 9,320 14,619Nine months ended 30 September 2021 3,528 5,551 7,375

Note: The sensitivity analysis above assumes that only the price of one raw material changes while other rawmaterials remain unchanged. This sensitivity analysis is intended for reference only, and any variationmay differ from the amounts indicated. Investors should note in particular that this sensitivity analysisis not intended to be exhaustive and is limited to the impact of changes in the prices of raw materialsand does not reflect changes in our revenue.


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Pricing of our products

In general, our pricing policy makes reference to the Base Price of such category ofready-mixed concrete products as set out in the monthly edition of the Base Price Informationof Major Materials for Construction Engineering in Zhengzhou (《鄭州市建設工程主要材料基準價格信息》).

In accordance with the F&S Report, although the Base Price is not a mandatory pricecontrol measure or price ceiling requirement imposed by the PRC government or the applicablePRC laws and regulations, ready-mixed concrete producers in Zhengzhou and its proximitygenerally adopt the Base Price as a reference point in determining the price of the products. See“Business – Our Customers – Pricing policy” of this document for more details.

For the two years ended 31 December 2019 and 2020 and the nine months ended 30September 2020 and 2021, the average selling prices per m3 of our ready-mixed concrete wereapproximately RMB572.9, RMB489.8, RMB494.7 and RMB402.7, respectively. In the sameperiods, the average selling prices per m3 of our wet-mixed mortar products wereapproximately RMB468.2, RMB428.4, RMB444.1 and RMB415.2, respectively.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

Our financial statements and related disclosure have been prepared in accordance withHKFRSs. The preparation of our financial statements requires that we make judgments,estimates and assumptions that affect reported amounts of assets, liabilities, net sales andexpenses and the disclosure of contingent assets and liabilities. Actual results could besignificantly different from these estimates. Our management continually evaluates suchestimates, assumptions and judgments based on past experience and other factors, includingindustry practices and expectations of future events that are believed to be reasonable under thecircumstances. There has not been any material deviation between our management’s estimatesor assumptions and actual results, and we have not made any material changes to the estimatesor assumptions during the Track Record Period. We do not expect any material changes in theseestimates and assumptions in the foreseeable future.

We set forth below those accounting policies that we believe are of critical importance tous or involve the most significant estimates, assumptions and judgments used in the preparationof our financial statements. Our significant accounting policies, estimates and judgments areset forth in detail in Notes 2 and 4 to the Accountant’s Report included in Appendix I to thisdocument.

Revenue Recognition

We manufacture and sell ready-mixed concrete products to customers. Revenue fromsales of goods are recognized when control of the products has been transferred, being whenthe products are delivered to the customer, the customer has full discretion over the productsput into use, and there is no unfulfilled obligation that could affect the customers’ acceptanceof the products. Delivery of ready-mixed concrete products occurs when the products aredelivered to the customer’s place, the risks of obsolescence and loss have been transferred tothe customer, the customer has accepted the products in accordance with the sales contract.


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Trade receivables

Trade receivables are amounts due from customers for goods sold in the ordinary courseof business. If collection of trade receivables is expected in one year or less (or in the normaloperating cycle of the business if longer), they are classified as current assets. If not, they arepresented as non-current assets.

Trade receivables are recognized initially at fair value and subsequently measured atamortized cost using the effective interest method, less allowance for impairment.

Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in theordinary course of business from suppliers. Trade and other payables are presented as currentliabilities if payment is due within one year or less (or in the normal operating cycle of thebusiness if longer). If not, they are presented as non-current liabilities.

Trade and other payables are recognized initially at fair value and subsequently measuredat amortized cost using the effective interest method.

Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred.Borrowings are subsequently carried at amortized cost. Any difference between the proceeds(net of transaction costs) and the redemption value is recognized in profit or loss over theperiod of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognized as transaction costs of theloan to the extent that it is probable that some or all of the facility will be drawn down. In thiscase, the fee is deferred until the draw down occurs. To the extent there is no evidence that itis probable that some or all of the facility will be drawn down, the fee is capitalized as aprepayment for liquidity services and amortized over the period of the facility to which itrelates.

Borrowings are classified as current liabilities unless the Group has an unconditional rightto defer settlement of the liability for at least 12 months after the end of the reporting period.

General and specific borrowing costs directly attributable to the acquisition, constructionor production of qualifying assets, which are assets that necessarily take a substantial periodof time to get ready for their intended use or sale, are added to the cost of those assets, untilsuch time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pendingtheir expenditure on qualifying assets is deducted from the borrowing costs eligible forcapitalisation.

All other borrowing costs are recognized in profit or loss in the period in which they areincurred.


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Inventories

Inventories are stated at the lower of cost and net realizable value. Cost of inventories iscalculated using the weighted average method. Net realizable value represents the estimatedselling price in the ordinary course of business less the estimated costs of completion and theestimated costs necessary to make the sale.

Property, plant and equipment

Property, plant and equipment is stated at historical cost less depreciation and anyimpairment losses. The historical cost of property, plant and equipment includes expenditurethat is directly attributable to the acquisition or construction of the items.

Subsequent costs are included in the asset’s carrying amount or recognized as a separateasset, as appropriate, only when it is probable that future economic benefits associated with theitem will flow to the Group and the cost of the item can be measured reliably. The carryingamount of the replaced part is derecognized. All other repairs and maintenance are charged toprofit or loss during the Track Record Period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost to theirresidual values over their estimated useful lives as follows:

Buildings 10-20 yearsEquipment and machinery 3-10 yearsMotor vehicles 3-8 yearsOffice equipment 3-5 years

Construction in progress (“CIP”), which represents buildings under construction andplant and equipment pending installation, are stated at cost. Costs include construction andacquisition costs. No provision for depreciation is made on assets under construction until suchtime as the relevant assets are completed and ready for intended use. When the assetsconcerned are brought into use, the costs are transferred to property, plant and equipment anddepreciated in accordance with the policy as stated above.

An asset’s carrying amount is written down immediately to its recoverable amount if itscarrying amount is higher than its estimated recoverable amount. An asset’s residual value anduseful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

The gain or loss on disposal of an item of property, plant and equipment is the differencebetween the sale proceeds and its carrying amount, and is recognized in “other gains/(losses)– net” in profit or loss.

Income Tax

Income tax for the Track Record Period comprises current tax and movements in deferredtax assets and liabilities. Current tax and movements in deferred tax assets and liabilities arerecognized in profit or loss except to the extent that they relate to items recognized in othercomprehensive income or directly in equity, in which case the relevant amounts of tax arerecognized in other comprehensive income or directly in equity, respectively.


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Current tax is the expected tax payable on the taxable income for the Track RecordPeriod, using tax rates enacted or substantively enacted at the end of each of the reportingperiod in the countries where the Group operate and generate taxable income. Managementperiodically evaluates positions taken in tax returns with respect to situations in whichapplicable tax regulation is subject to interpretation. It establishes provisions whereappropriate on the basis of amounts expected to be paid to the tax authorities. Significantjudgment is required in determining the provision for these taxes. There are many transactionsand calculations for which the ultimate tax determination is uncertain during the ordinarycourse of business. The Group recognizes liabilities for anticipated tax issues based onestimates of whether additional taxes will be due. Where the final tax outcome of these mattersis different from amounts that were initial recorded, such differences will impact the taxprovisions in the period of final tax outcome.

Deferred income tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and their carrying amounts inthe consolidated financial statements. However, deferred tax liabilities are not recognized ifthey arise from the initial recognition of goodwill. Deferred income tax is also not accountedfor if it arises from initial recognition of an asset or liability in a transaction other than abusiness combination that at the time of the transaction affects neither accounting nor taxableprofit nor loss. Deferred income tax is determined using tax rates (and laws) that have beenenacted or substantially enacted by the end of the reporting period and are expected to applywhen the related deferred income tax asset is realized or the deferred income tax liability issettled.

Deferred tax assets are recognized only if management considers it is probable that futuretaxable profits will be available to utilize those temporary differences and losses. Where theexpectation is different from the original estimate, such differences will impact the recognitionof deferred tax assets and tax in the periods in which such estimate is changed.

Deferred tax assets and liabilities are offset when there is a legally enforceable right tooffset current tax assets against current tax liabilities and when the deferred income tax assetsand liabilities relate to taxes levied by the same taxation authority on either the taxable entityor different taxable entities when there is a intention to settle the balances on a net basis.

Current and deferred income tax is recognized in profit or loss, except to the extent thatit relates to items recognized in other comprehensive income or directly in equity. In this case,the tax is also recognized in other comprehensive income or directly in equity, respectively.

Investments and other financial assets

Our policies for investments in financial assets, other than investments in subsidiaries andassociates are set out below. Purchases and sales of financial assets are recognized ontrade-date, the date on which the Group commits to purchase or sell the asset. Financial assetsare derecognized when the rights to receive cash flows from the financial assets have expiredor have been transferred and the Group has transferred substantially all the risks and rewardsof ownership. The financial assets are initially stated at its fair value plus, in the case of afinancial asset not at fair value through profit or loss (“FVPL”), transaction costs that aredirectly attributable to the acquisition of the financial asset. Transaction costs of financialassets carried at FVPL are expensed in profit or loss. Financial assets are subsequentlyaccounted for as follows, depending on their classification.


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Debt instruments

Debt instruments held by us are classified into one of the following measurementcategories:

• Amortized cost: Assets that are held for collection of contractual cash flows wherethose cash flows represent solely payments of principal and interest are measured atamortized cost. Interest income from these financial assets is included in financeincome using the effective interest rate method. Any gain or loss arising onderecognition is recognized directly in profit or loss;

• Fair value through other comprehensive income (“FVOCI”): Assets that are held forcollection of contractual cash flows and for selling the financial assets, where theassets’ cash flows represent solely payments of principal and interest, are measuredat FVOCI. Movements in the carrying amount are taken through othercomprehensive income, except for the recognition of impairment gains or losses,interest income and foreign exchange gains and losses which are recognized in profitor loss. When the financial asset is derecognized, the cumulative gain or losspreviously recognized in other comprehensive income is reclassified from equity toprofit or loss and recognized in “other gains/(losses)-net”. Interest income fromthese financial assets is included in finance income using the effective interest ratemethod. Foreign exchange gains and losses are presented in “othergain/(losses)-net” and impairment expenses are presented as administrativeexpenses in profit or loss; and

• FVPL: Assets that do not meet the criteria for amortized cost or FVOCI aremeasured at FVPL. A gain or loss on a debt investment that is subsequentlymeasured at FVPL is recognized in profit or loss and presented net within “othergains/(losses)-net” in the period in which it arises.

Equity instruments

Our Group subsequently measures all equity investments at fair value. Where ourmanagement has elected to present fair value gains and losses on equity investments in othercomprehensive income, there is no subsequent reclassification of fair value gains and losses toprofit or loss following the derecognition of the investment. Dividends from such investmentscontinue to be recognized in profit or loss as other income when our right to receive paymentsis established.

Changes in the fair value of financial assets at FVPL are recognized in “othergains/(losses)-net” in profit or loss as applicable. Impairment losses (and reversal ofimpairment losses) on equity investments measured at FVOCI are not reported separately fromother changes in fair value.


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EFFECT OF NEW AND AMENDMENTS TO HKFRSs TO THE GROUP

Up to the date of issuance of the Accountant’s Report in Appendix I to this document, theHKICPA has issued the following new standards, amendments and interpretation which arerelevant but not yet effective for the Track Record Period and have not been early adopted byour Group:

Annual Improvements to HKFRSs 2018-2020 (amendments) 1 January 2022HKFRS 3, HKAS 16 and HKAS 37 (amendments) “Narrow-scope

amendments”1 January 2022

HKFRS16 Covid-19-Related Rent Concessions beyond 2021(amendments)

1 April 2021

Revised Accounting Guideline 5 Merger Accounting for CommonControl Combinations

1 January 2022

HKAS 1 (amendments) “Classification of Liabilities as Current orNon-current”

1 January 2023

HKFRS 17 Insurance Contracts (new standard) and Amendmentsto HKFRS 17

1 January 2023

Hong Kong Interpretation 5 (2020) Presentation of FinancialStatements – Classification by the Borrower of a Term Loanthat Contains a Repayment on Demand Clause

1 January 2023

HKAS 1 and HKFRS Practice Statement 2 (amendments)“Disclosure of Accounting Policies”

1 January 2023

HKAS 8 Definition of Accounting Estimates 1 January 2023HKAS 12 (amendments) “Deferred tax related to assets and

liabilities arising from a single transaction”1 January 2023

HKFRS 10 and HKAS 28 (amendments) “Sale or Contribution ofAssets between an Investor and its Associate or Joint Venture”

To be determined

Our Group will adopt the above new or revised standards, amendments and interpretationsto existing standards as and when they become effective. Management has performedpreliminary assessment and does not anticipate any significant impact on our Group’s financialposition and results of operations upon adopting these standards, amendments andinterpretations to existing HKFRS.


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OUR RESULTS OF OPERATIONS

The following table sets out our consolidated statements of comprehensive income for thetwo years ended 31 December 2019 and 2020 and the nine months ended 30 September 2020and 2021, which was extracted from, and should be read in conjunction with, the Accountant’sReport in Appendix I to this document:



2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Revenue 1,097,407 1,086,512 944,749 511,173Cost of Sales (909,409) (893,226) (774,244) (421,216)

Gross profit 187,998 193,286 170,505 89,957Distribution expenses (4,192) (4,248) (3,006) (3,811)Administrative expenses (32,261) (24,111) (14,345) (20,100)Net impairment losses on

financial assets (17,298) (25,620) (26,319) (9,390)Other income 26,389 30,438 22,483 17,788Other losses (3,531) (3,243) (2,773) (1,655)


Finance cost – net (34,034) (34,010) (26,769) (18,489)

Profit before income tax 123,071 132,492 119,776 54,300Income tax expense (29,865) (29,813) (27,661) (11,534)


DISCUSSION OF MAJOR COMPONENTS OF CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME

Revenue

Our revenue is mainly generated from the sale of ready-mixed concrete products. Ourproducts mainly consist of (i) concrete with higher strength of over 30 grade level which isusually used in applications that require to resist high compression load, such as airport aprons,highways, flyovers, footbridges as well as main works of residential, commercial and industrialbuildings; (ii) concrete with compressive strength of 30 grade level or below which is usuallyused in construction projects of relatively small-scale village houses, container yards,roadworks, minor works; and (iii) wet-mixed mortar which is generally used to bind or fill upthe spaces between bricks or in plastering works.


– 224 –


During the Track Record Period, we sold ready-mixed concrete products to ourcustomers, which mainly comprise construction contractors in Zhengzhou and its nearby areasthat purchase our ready-mixed concrete products for use in their construction projects.

For the years ended 31 December 2019 and 2020 and the nine months ended 30 September2020 and 2021, our total revenue was approximately RMB1,097.4 million, RMB1,086.5million, RMB944.7 million and RMB511.2 million, respectively.

The following table sets out a breakdown of our revenue by product category for theperiods indicated:


2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %


Ready-mixedConcrete

– C30 level or below 579,515 52.8 613,952 56.5 540,111 57.1 256,294 50.1– Above C30 level 517,309 47.1 470,811 43.3 403,059 42.7 254,468 49.8

Subtotal 1,096,824 99.9 1,084,763 99.8 943,170 99.8 510,762 99.9

Wet-mixed mortar 583 0.1 1,749 0.2 1,579 0.2 411 0.1

Total 1,097,407 100.0 1,086,512 100.0 944,749 100.0 511,173 100.0

The following table sets out the sales volume and average price (tax-exclusive) byproduct category for the periods indicated:


2019 2020 2020 2021

Salesvolume

Averageprice

per m3Sales

volume

Averageprice

per m3Sales

volume

Averageprice

per m3Sales

volume

Averageprice

per m3

m3 RMB m3 RMB m3 RMB m3 RMB

Ready-mixedConcrete

– C30 level or below 1,046,223.3 553.9 1,301,711.3 471.7 1,132,665.5 476.8 671,615.0 381.6– Above C30 level 868,365.9 595.7 912,799.6 515.8 773,868.5 520.8 596,770.8 426.4

Subtotal 1,914,589.2 572.9 2,214,510.9 489.8 1,906,534.0 494.7 1,268,385.8 402.7

Wet-mixed mortar 1,246.7 468.2 4,082.8 428.4 3,556.0 444.1 989.0 415.2

Total 1,915,835.9 572.8 2,218,593.7 489.7 1,910,090.0 494.6 1,269,374.8 402.7


– 225 –


The total sales volume of our products increased from 1,915,836 m3 for the year ended31 December 2019 to 2,218,594 m3 for the year ended 31 December 2020 primarily due to thesignificant growth in Gangfa Batching Plant’s sales as it was located in a newly developed areain Zhengzhou with a high level of construction activities. The total sales volume of ourproducts decreased from 1,910,090 m3 for the nine months ended 30 September 2020 to1,269,375 m3 for the nine months ended 30 September 2021 mainly due to (i) heightenedgovernment regulation of the PRC property market in late 2020 and 2021, which causedconstruction activities to decrease; (ii) the unprecedented flood that occurred in Zhengzhou inJuly 2021, which resulted in the disruption of construction activities; and (iii) the continuednegative effect of COVID-19 on the economy and construction activities in our market,especially a local outbreak following the flood in July 2021, which resulted in a decline incustomer demand and consequently a decrease in the total sales volume of our products. Fordetails, see “We are susceptible to changes in the regulatory landscape of the PRC propertymarket”, “The outbreak of COVID-19 or any other severe communicable disease couldadversely affect our financial position and results of operations” and “Our operations aresubject to inherent risks, occupational hazards and unexpected disruption, which could causeus to incur substantial costs, damage to our reputation and loss of future business” in the “RiskFactors” section in this document.

The average price of our products decreased from approximately RMB572.8 per m3 forthe year ended 31 December 2019 to approximately RMB489.7 per m3 for the year ended 31December 2020 primarily as a result of decreases in the market prices of the raw materials usedin our production. The average price of our products decreased from approximately RMB494.6per m3 for the nine months ended 30 September 2020 to approximately RMB402.7 per m3 forthe nine months ended 30 September 2021 primarily as a result of decreases in the prices ofthe raw materials used in our production.

Our revenue decreased by 1.0% from approximately RMB1,097.4 million for the yearended 31 December 2019 to approximately RMB1,086.5 million for the year ended 31December 2020, primarily due to the decrease in the average price of our products as discussedabove, which was partially offset by the increase in the total sales volume.

Our revenue decreased by 45.9% from approximately RMB944.7 million for the ninemonths ended 30 September 2020 to RMB511.2 million for the nine months ended 30September 2021, primarily reflecting (i) the decreased sales volume from 1,910,090 m3 for thenine months ended 30 September 2020 to 1,269,375 m3 for the nine months ended 30September 2021; and (ii) the decreased average price of our products from RMB494.6 for thenine months ended 30 September 2020 to RMB402.7 for the nine months ended 30 September2021 as explained above.

The following table sets out the breakdown of our revenue derived from our threebatching plants for the periods indicated:


2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %


Shenli 417,137 38.0 383,720 35.3 332,426 35.2 220,757 43.1Shentong 313,769 28.6 283,857 26.1 239,138 25.3 152,110 29.8Gangfa 366,501 33.4 418,935 38.6 373,185 39.5 138,306 27.1

Total 1,097,407 100.0 1,086,512 100.0 944,749 100.0 511,173 100.0


– 226 –


Gangfa Batching Plant is located in an aviation port region, which was fast-developingwith a high level of construction activities. Since Gangfa Batching Plant commencedoperations in late 2018, its production and sales grew quickly in 2019 and 2020, and revenuecontributed by Gangfa Batching Plant represented 38.6% of our total revenue for 2020,compared with 33.4% for 2019. Gangfa Batching Plant’s revenue contribution decreased from39.5% for the nine months ended 30 September 2020 to 27.1% for the nine months ended 30September 2021 primarily because the aviation port region was more heavily impacted by floodand COVID-19 in 2021 and by the local government regulation of real estate construction.

During the Track Record Period, our customers primarily included state-ownedenterprises and private enterprises that acted as main-contractors of construction projects inZhengzhou and its proximity. The following table sets out the breakdown of our revenue by thenature of our customers for the periods indicated:


2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %



– Private enterprises 585,284 53.3 511,894 47.1 442,611 46.8 271,165 53.0

Total 1,097,407 100.0 1,086,512 100.0 944,749 100.0 511,173 100.0



2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %




industrial 189,840 17.3 173,710 16.0 141,290 15.0 95,021 18.6

Total 1,097,407 100.0 1,086,512 100.0 944,749 100.0 511,173 100.0

Cost of sales

Our cost of sales was approximately RMB909.4 million, RMB893.2 million, RMB774.2million and RMB421.2 million, respectively, for the years ended 31 December 2019 and 2020and the nine months ended 30 September 2020 and 2021.


– 227 –


The following table sets out a breakdown of our cost of sales for the periods indicated:


2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %


Raw materials– Cement 226,600 24.9 220,309 24.7 187,007 24.2 110,024 26.1– Crushed stones 264,092 29.0 241,894 27.1 213,843 27.6 105,419 25.0– Sand 214,002 23.5 219,945 24.6 194,757 25.2 88,727 21.1– Fly ash 21,894 2.4 26,153 2.9 22,195 2.9 14,662 3.5– Ground slag 68,007 7.5 62,586 7.0 54,589 7.1 25,327 6.0– Admixtures 30,721 3.4 30,732 3.4 26,962 3.5 16,976 4.0Subtotal 825,316 90.8 801,619 89.7 699,353 90.3 361,135 85.7

Consumables used 2,740 0.3 2,871 0.3 2,379 0.3 1,557 0.4Freight expenses 43,678 4.8 52,825 5.9 45,518 5.9 31,683 7.5Salaries and employee

benefit expenses 21,659 2.4 18,670 2.1 14,133 1.8 15,230 3.6Depreciation and

amortization expenses 6,085 0.7 6,717 0.8 5,030 0.6 5,048 1.2Utilities and office

expenses 3,094 0.3 3,681 0.4 2,848 0.4 2,551 0.6Other taxes and levies 4,759 0.5 4,353 0.5 3,686 0.5 2,139 0.5Repair and maintenance

expenses 1,498 0.2 1,801 0.2 902 0.1 972 0.3Others(1) 580 0.0 689 0.1 395 0.1 901 0.2

Total 909,409 100.0 893,226 100.0 774,244 100.0 421,216 100.0

Notes:

* Less than 0.1%

(1) Others mainly include travelling expenses, entertainment expenses, legal and professional fees and otherexpenses incurred by our production and technical departments.

Cost of sales represents our direct costs of production, which mainly include costs of rawmaterials and consumables used, freight expenses, salaries and employee benefit expenses,depreciation and amortization expenses, utilities and office expenses, taxes and levies andrepair and maintenance expenses. During the Track Record Period, our total costs of rawmaterials accounted for approximately 90.8%, 89.7%, 90.3% and 85.7%, respectively, of ourtotal costs of sales for the relevant years or periods. Raw materials mainly represent the costof cement, crushed stones, sand, fly ash, ground slag, and admixture used during productionof our ready-mixed concrete products. Consumables used represent items of consumption usedto maintain the normal operation of our production equipment and the amortization expensesof low-value consumption goods. Freight expenses represent transportation costs for deliveryof our products to our customers. Salaries and employee benefit expenses mainly represent thesalaries and employee benefit expenses paid to our production employees for the manufactureof our ready-mixed concrete products.


– 228 –


Gross profit and gross profit margin

Gross profit represents our revenue less cost of sales. Our gross profit margin representsour gross profit as a percentage of our revenue. For the years ended 31 December 2019 and2020 and the nine months ended 30 September 2020 and 2021, our gross profit wasapproximately RMB188.0 million, RMB193.3 million, RMB170.5 million and RMB90.0million, respectively, and our gross profit margins were approximately 17.1%, 17.8%, 18.0%,and 17.6%, respectively.

The following table sets out our gross profit and gross profit margin by product type forthe periods indicated:


2019 2020 2020 2021

Grossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin

RMB’000 % RMB’000 % RMB’000 % RMB’000 %


Ready-mixed concrete– Above C30 level 102,166 17.6 112,444 18.3 100,307 18.6 45,484 17.7– C30 level or below 85,722 16.6 80,431 17.1 69,782 17.3 44,341 17.4

Subtotal 187,888 17.1 192,875 17.8 170,089 18.0 89,825 17.6

Wet-mixed mortar 110 18.9 411 23.5 416 26.3 132 32.1

Total 187,998 17.1 193,286 17.8 170,505 18.0 89,957 17.6

The following table sets out our gross profit and gross profit margin by batching plant forthe periods indicated:


2019 2020 2020 2021

Grossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin

RMB’000 % RMB’000 % RMB’000 % RMB’000 %


Shenli 72,065 17.3 67,408 17.6 60,069 18.1 41,507 18.8Shentong 51,204 16.3 47,648 16.8 40,004 16.7 24,603 16.2Gangfa 64,740 17.7 78,230 18.7 70,432 18.9 23,847 17.2

Total 188,009 17.1 193,286 17.8 170,505 18.0 89,957 17.6

Note:



– 229 –


Distribution expenses

Our distribution expenses were approximately RMB4.2 million, RMB4.2 million,RMB3.0 million and RMB3.8 million, respectively, for the years ended 31 December 2019 and2020 and the nine months ended 30 September 2020 and 2021.

The following table sets out a breakdown of our distribution expenses for the periodsindicated:


2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %


Salaries andemployeebenefit expenses 3,133 74.7 3,029 71.3 2,179 72.5 2,927 76.8

Entertainmentexpenses 223 5.3 313 7.4 191 6.4 222 5.8

Travellingexpenses 414 9.9 520 12.2 338 11.2 379 9.9

Depreciation andamortizationexpenses 260 6.2 308 7.3 228 7.6 247 6.5

Others(1) 162 3.9 78 1.8 70 2.3 36 1.0

Total 4,192 100.0 4,248 100.0 3,006 100.0 3,811 100.0

Note:

(1) Others mainly include sales department’s office expenses, consumables, repair and maintenance andother expenses incurred by sales department.

Distribution expenses primarily consist of salaries and employee benefit expenses paid toour sales and marketing personnel, entertainment expenses relating to sales and marketingactivities, depreciation and amortization expenses of relating to fixed assets used in our salesand marketing activities, travelling expenses and others.

Administrative expenses

Our administrative expenses were approximately RMB32.3 million, RMB24.1 million,RMB14.3 million and RMB20.1 million, respectively, for the years ended 31 December 2019and 2020 and the nine months ended 30 September 2020 and 2021. Our administrativeexpenses primarily consist of salaries and employee benefit expenses for administrativepersonnel, office and utilities expenses, depreciation and amortization expenses relating tofixed assets used for office administrative purposes, research and development expenses,travelling and entertainment expenses, legal and professional fees, [REDACTED], repair andmaintenance expenses and others.


– 230 –


The following table sets out a breakdown of our administrative expenses for the periodsindicated:


2019 2020 2020 2021

RMB’000 % RMB’000 % RMB’000 % RMB’000 %


Salaries andemployeebenefit expenses 8,652 26.8 9,215 38.2 6,805 47.4 8,144 40.5

Depreciation andamortizationexpenses 2,784 8.6 2,063 8.6 1,507 10.5 1,690 8.4

Research anddevelopmentexpenses 892 2.8 4,223 17.5 1,780 12.4 4,323 21.5

Entertainmentexpenses 1,158 3.6 402 1.7 304 2.1 107 0.5

[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]Travelling

expenses 1,600 5.0 1,408 5.8 1,089 7.6 399 2.0Utilities and office

expenses 1,288 4.0 1,320 5.5 1,036 7.2 253 1.3Legal and

professionalfees 14,894 46.2 3,378 14.0 22 0.2 122 0.6

Repair andmaintenanceexpenses 91 0.3 96 0.4 72 0.5 67 0.3

Others(1) 902 2.7 2,006 8.3 1,730 12.1 798 4.0

Total 32,261 100.0 24,111 100.0 14,345 100.0 20,100 100.0

Note:

(1) Others mainly include consumables, taxes and levies and insurance expenses.

Net impairment losses on financial assets

Our net impairment losses on financial assets primarily consist of impairment losses orreversal of impairment on our trade receivables. We measure loss allowance for financial assetsat an amount equal to lifetime expected credit losses calculated using a provision matrix, andrecognize the impairment loss when the carrying amount exceeds the recoverable amount. Forthe two years ended 31 December 2019 and 2020 and the nine months ended 30 September2020 and 2021, our net impairment losses on financial assets were approximately RMB17.3million, RMB25.6 million, RMB26.3 million and RMB9.4 million, respectively.


– 231 –


Other income

Our other income was approximately RMB26.4 million, RMB30.4 million, RMB22.5million and RMB17.8 million, respectively, for the two years ended 31 December 2019 and2020 and the nine months ended 30 September 2020 and 2021. Our other income primarilyconsists of dividend arising from our equity investments in Bank of Zhengzhou Co., Ltd.(“Bank of Zhengzhou”) domestic shares, late payment penalty income from customer andgovernment grants of value-added tax refund to us for encouraging the employment of thedisabled persons. We have enjoyed this refund since 2006, first under the Notice on PreferentialTax Policies for Promoting the Employment of Disabled People by the State Administration ofTaxation (Finance and Taxation [2007] No. 92) (《財政部國家稅務總局關於促進殘疾人就業稅收優惠政策的通知》) (財稅[2007]92號), Notice of the State Administration of Taxation on theAdministration Measures for the Collection of Preferential Tax Policies for Promoting theEmployment of the Disabled (國稅發[2007]67號) (《國家稅務總局關於促進殘疾人就業稅收優惠政策徵管辦法的通知》) (國稅發[2007] No.67) and the Notice on Further Adjusting thePilot Work of Existing Welfare Enterprise Tax Preferential Policies (Finance and Taxation[2006] No. 135) (《關於進一步做好調整現行福利企業稅收優惠政策試點工作的通知》) (財稅[2006]135號), followed by the revised Notice on Promotion of VAT Preferential Policies for theEmployment of Disabled Persons (“VAT Notice”) (Finance and Taxation [2016] No. 52) (《關於促進殘疾人就業增值稅優惠政策的通知》) (財稅[2016]52號) which was promulgated by theMinistry of Finance and the State Administration of Taxation in May 2016 based on theprevious VAT Notice.

The following table sets forth a breakdown of our other income for the periods indicated:



2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Late payment penalty incomefrom customer – 974 60 3,855

Dividend from financialassets at fair value throughother comprehensiveincome 4,500 3,000 3,000 –

Government grants– Value-added tax refund 21,889 25,696 18,826 13,316– Others – 768 597 617

Total 26,389 30,438 22,483 17,788

We recorded customer penalty gains of RMB3.9 million for the nine months ended 30September 2021 in connection with penalty provisions in our customer contracts for latepayments by customers.


– 232 –


Other losses

We incurred other losses of RMB3.5 million, RMB3.2 million, RMB2.8 million andRMB1.7 million for the years ended 31 December 2019 and 2020 and the nine months ended30 September 2020 and 2021, respectively.

The following table sets forth a breakdown of net other (losses)/gains for the periodsindicated:



2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Losses from derecognition oftrade receivable factoring (3,714) (4,536) (3,129) (1,630)

Net (losses)/gains on disposalof property, plant andequipment (274) 9 9 (238)

Foreign exchange gains 326 1,059 339 189Losses from derecognition of

notes receivable (136) – – (63)Others 267 225 8 87

Total (3,531) (3,243) (2,773) (1,655)

Losses from derecognition of trade receivable factoring represents the difference between(i) the invoice value of the trade receivables we sold to factoring companies and (ii) the amountof cash we received for such trade receivables. Losses from derecognition of notes receivablesrepresents the difference between (i) the face value of the notes; and (ii) the amount of cashwe received upon transferring the notes receivables prior to their maturity date to third partiesat a discount.

The net gains/losses on disposal of property, plant and equipment arose from thedisposition of old office equipment and motor vehicles.

Finance costs – net

Our net finance costs consist of finance costs less finance income. Finance income wasmainly interest income derived from bank deposits. Finance costs primarily consist of (i)interest expense on bank borrowings; (ii) interest expense on other borrowings, whichrepresents interest payment on borrowings from a financial institution secured by our pledgedaccounts receivables with recourse to us; (iii) interest expense on lease liability; and (iv)others, which consisted of handling fees.


– 233 –


The following table sets out our finance income and finance costs for the periodsindicated:



2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Finance income:– Interest income derived

from bank deposits 163 227 193 1,068

Finance costs:– Interest expense on bank

borrowings (11,222) (18,083) (13,847) (13,117)– Interest expense on other

borrowings (22,621) (16,088) (13,063) (6,378)– Interest expense on lease

liability (26) (39) (31) (18)– Others (328) (27) (21) (44)

(34,197) (34,237) (26,962) (19,557)

Finance costs – net (34,034) (34,010) (26,769) (18,489)

Income tax expense

No provision of Hong Kong profits tax had been made as the Group had no assessableprofits arising in Hong Kong during the Track Record Period.

Provision for PRC corporate income tax was based on the statutory rate of 25% of theassessable income of the Group as determined in accordance with the relevant income tax rulesand regulations of the PRC during the Track Record Period.

The following table sets out the current and deferred income tax components of ourincome tax expense in the PRC for the periods indicated:



2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Current income tax 33,306 36,127 34,173 13,828Deferred income tax (3,441) (6,314) (6,512) (2,294)

Total 29,865 29,813 27,661 11,534


– 234 –


Our income tax expense was approximately RMB29.9 million, RMB29.8 million,RMB27.7 million and RMB11.5 million for the two years ended 31 December 2019 and 2020and the nine months ended 30 September 2020 and 2021, respectively, and our effective taxrate was 24.3%, 22.5%, 23.1% and 21.2% for the respective period. During the Track RecordPeriod, our effective tax rates were lower than the statutory rate primarily due to (i) thedividends we received from our equity investment in Bank of Zhengzhou domestic shares,which were exempt from enterprise income tax in the PRC pursuant to relevant PRCgovernment policies; and (ii) pursuant to relevant PRC government policies, deductions ofsalaries paid to employees with disabilities and certain research and development expensesfrom our taxable income, which further reduced our income tax expenses.

COMPARISON OF RESULTS OF OPERATIONS

Nine months ended 30 September 2021 compared with nine months ended 30 September2020

Revenue

Our revenue decreased by approximately RMB433.5 million, or 45.9%, fromapproximately RMB944.7 million for the nine months ended 30 September 2020 toapproximately RMB511.2 million for the nine months ended 30 September 2021. Suchdecrease in revenue was mainly attributable to (i) the decrease in the average selling price ofour products from approximately RMB494.6 per m3 for the nine months ended 30 September2020 to approximately RMB402.7 per m3 for the nine months ended 30 September 2021 asexplained above; and (ii) the decrease in total sales quantities by approximately 640,715 m3

from approximately 1,910,090 m3 for the nine months ended 30 September 2020 to 1,269,375m3 for the nine months ended 30 September 2021 as explained above.

Cost of sales

Our cost of sales decreased by approximately RMB353 million, or 45.6%, fromapproximately RMB774.2 million for the nine months ended 30 September 2020 toapproximately RMB421.2 million for the nine months ended 30 September 2021, which wasmainly due to the decrease in our costs of raw materials of approximately RMB338.2 millionresulting from (i) the decrease in the purchase quantities of raw materials required for theproduction of our concrete products in line with the decrease in the sales of our products; and(ii) the decrease in our freight expenses of approximately RMB13.8 million mainly because weincurred less transportation costs for delivery of our products in line with the decrease in salesvolume.


Our gross profit decreased by approximately RMB80.5 million, or 47.2%, fromapproximately RMB170.5 million for the nine months ended 30 September 2020 toapproximately RMB90.0 million for the nine months ended 30 September 2021 mainly due toa significant decrease of our revenue during the same periods. Our gross profit marginremained relatively stable at approximately 18.0% and 17.6% for the nine months ended 30September 2020 and for the nine months ended 30 September 2021, respectively.


– 235 –



Our distribution expenses increased by approximately RMB0.8 million, or 26.7%, fromapproximately RMB3.0 million for the nine months ended 30 September 2020 to approximatelyRMB3.8 million for the nine months ended 30 September 2021. This increase was primarilydue to (i) the increase in our employee benefit expenses because in 2020 the governmentreduced employers’ required contribution to employee benefits as part of the governmentstimulus to alleviate the negative impact of COVID-19, and this government stimulus expiredat the end of 2020.


Our administrative expenses increased by approximately RMB5.8 million, or 40.6%, fromapproximately RMB14.3 million for the nine months ended 30 September 2020 toapproximately RMB20.1 million for the nine months ended 30 September 2021, primarily dueto (i) the increase in [REDACTED] of approximately RMB4.2 million incurred for the ninemonths ended 30 September 2021 as compared to the same period in 2020; (ii) the increase inour employee benefit expenses because in 2020 the government reduced employers’ requiredcontribution to employee benefits as part of the government stimulus to alleviate the negativeimpact of COVID-19, and this government stimulus expired at the end of 2020; (iii) theincrease in depreciation and amortization expenses as a result of the additions in property, plantand equipment; and (iv) the increase in our research and development expenses as we initiatedmultiple new research and development projects in 2021.


Our net impairment losses on financial assets decreased by approximately RMB16.9million, or 64.3%, from approximately RMB26.3 million for the nine months ended 30September 2020 to approximately RMB9.4 million for the nine months ended 30 September2021, primarily due to the decrease in our trade receivables, which in turn primarily resultedfrom the significant decrease in sales.

Other income

Our other income decreased by approximately RMB4.7 million, or 20.9%, fromapproximately RMB22.5 million for the nine months ended 30 September 2020 toapproximately RMB17.8 million for the nine months ended 30 September 2021, primarily dueto the decrease in government grants of value-added tax refund. Value-added tax refunddecreased in the nine months ended 30 September 2021 primarily due to the decrease inrevenue, which in turn resulted in the decrease of value-added tax paid and refunded.

Other losses

Our other losses decreased from approximately RMB2.8 million for the nine monthsended 30 September 2020 to approximately RMB1.7 million for the nine months ended 30September 2021, primarily as a result of a decrease in losses from derecognition of tradereceivable factoring.


– 236 –



Our net finance costs decreased by approximately RMB8.3 million, or 31.0%, fromapproximately RMB26.8 million for the nine months ended 30 September 2020 toapproximately RMB18.5 million for the nine months ended 30 September 2021, primarily dueto a decrease in interest expense on other borrowings because we repaid significant amountsof other borrowings from non-bank financial institutions after 30 September 2020 and incurredless interest expenses in 2021 as a result.

Income tax expense

Our income tax expense decreased by approximately RMB16.2 million, or 58.5%, fromapproximately RMB27.7 million for the nine months ended 30 September 2020 toapproximately RMB11.5 million for the nine months ended 30 September 2021 primarily dueto the decrease in our sales. Our effective tax rate decreased from 23.1% for the nine monthsended 30 September 2020 to 21.2% for the nine months ended 30 September 2021 primarilyas a result of cumulative tax deductions we were eligible for.

Profit for the period

As a result of the foregoing, our profit for the period decreased by approximatelyRMB49.3 million, or 53.5%, from approximately RMB92.1 million for the nine months ended30 September 2020 to approximately RMB42.8 million for the nine months ended 30September 2021.

Year ended 31 December 2020 compared with year ended 31 December 2019

Revenue

Our revenue decreased slightly by approximately RMB10.9 million, or 1.0%, fromapproximately RMB1,097.4 million for the year ended 31 December 2019 to approximatelyRMB1,086.5 million for the year ended 31 December 2020. This decrease in revenue wasprimarily due to (i) the decrease in the average selling price of our concrete products fromapproximately RMB572.8 per m3 for the year ended 31 December 2019 to approximatelyRMB489.7 per m3 for the year ended 31 December 2020 primarily as a result of decreases inthe market prices of the raw materials used in our production, which was partially offset by theincrease in our sales volume from 1,915,836 m3 for the year ended 31 December 2019 to2,218,594 m3 for the year ended 31 December 2020 mainly due to the significant increase inGangfa Batching Plant’s sales because it was located in a newly developed area in Zhengzhouwith a high level of construction activities. Gangfa Batching Plant commenced production inlate 2018 and gradually ramped up its business in 2019 and 2020.

Cost of sales

Our cost of sales decreased by approximately RMB16.2 million, or 1.8%, fromapproximately RMB909.4 million for the year ended 31 December 2019 to approximatelyRMB893.2 million for the year ended 31 December 2020, which was mainly due to (i) adecrease in our costs of raw materials as a result of decreases in the prices of our raw materialsas a result of a decrease in construction activities due to slower economic growth as a resultof COVID-19; and (ii) a decrease in our salaries and employee benefit expenses paid to ourproduction employees as a result of the government temporarily reducing social securitypayment obligations in 2020 as part of the COVID-19 stimulus. These decreases were partiallyoffset by an increase of RMB9.1 million in freight expenses as a result of increased volume inshipments.


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Our gross profit increased by approximately RMB5.3 million, or 2.8%, fromapproximately RMB188.0 million for the year ended 31 December 2019 to approximatelyRMB193.3 million for the year ended 31 December 2020.

Our gross profit margin increased from approximately 17.1% for the year ended 31December 2019 to approximately 17.8% for the year ended 31 December 2020, primarilybecause the decrease in our average selling price to our customers was less than the decreasein our average unit cost of sales.


Our distribution expenses remained stable at approximately RMB4.2 million for the yearended 31 December 2019 and the year ended 31 December 2020.


Our administrative expenses decreased by approximately RMB8.2 million, or 25.4%,from approximately RMB32.3 million for the year ended 31 December 2019 to approximatelyRMB24.1 million for the year ended 31 December 2020, primarily due to decreases in legal andprofessional fees as we incurred expenses in connection with a proposed [REDACTED] in2019 which was discontinued in 2020. These decreases were partially offset by an increase inresearch and development expenses due to our increased research and development efforts.


Our net impairment losses on financial assets increased by approximately RMB8.3million, or 48.0%, from approximately RMB17.3 million for the year ended 31 December 2019to approximately RMB25.6 million for the year ended 31 December 2020, primarily due to theincrease in our long-aged trade receivables from certain customers resulting in the increase inexpected credit losses.

Other income

Our other income increased by approximately RMB4.0 million, or 15.2%, fromapproximately RMB26.4 million for the year ended 31 December 2019 to approximatelyRMB30.4 million for the year ended 31 December 2020, primarily due to the increase ingovernment grants of value-added tax refund as we received more value-added tax refundapproved by the government in 2020 mainly because Gangfa Batching Plant received approvalfor government grant relating to employment of disabled persons in 2019 and thereforereceived such grant for only part of the year in 2019.

Other losses

Our other losses decreased from approximately RMB3.5 million for the year ended 31December 2019 to approximately RMB3.2 million for the year ended 31 December 2020,primarily as a result of an increase in foreign exchange gains as partially offset by an increasein losses from derecognition of trade receivable factoring.


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Our net finance costs remained stable at approximately RMB34.0 million for the yearended 31 December 2019 and the year ended 31 December 2020, respectively.

Profit before income tax

As a result of the foregoing, our profit before income tax increased by approximatelyRMB9.4 million, or 7.6%, from approximately RMB123.1 million for the year ended 31December 2019 to approximately RMB132.5 million for the year ended 31 December 2020.

Income tax expense

Our income tax expense remained relatively stable at approximately RMB29.9 million forthe year ended 31 December 2019 and approximately RMB29.8 million for the year ended 31December 2020. Our effective tax rate decreased from approximately 24.3% for the year ended31 December 2019 to approximately 22.5% for the year ended 31 December 2020 as a resultof a decrease in taxable income for 2020 as a result of cumulative tax deductions we wereeligible for compared to 2019.

Profit for the year

As a result of the foregoing, our profit for the year increased by approximately RMB9.5million or 10.2% from approximately RMB93.2 million for the year ended 31 December 2019to approximately RMB102.7 million for the year ended 31 December 2020.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations and capital expenditures primarily through cash flowsfrom operating activities, bank and other borrowings. As of 31 December 2019, 2020 and 30September 2020, 2021, we had cash and cash equivalents of approximately RMB61.6 million,RMB89.7 million, RMB38.8 million and RMB48.6 million, respectively. Our primary uses ofcash are to fund working capital and other recurring expenses. Going forward, we believe thatour liquidity requirements will be satisfied by a combination of cash flow generated from ouroperating activities, existing bank facilities and facilities from other non-bank financialinstitutions, as well as [REDACTED] from the [REDACTED]. We currently do not expectany significant changes in the mix and the relative costs of our capital resources nor have anyother definitive external financing plan. Further, our Directors confirm that we had no materialdefaults in payment of our trade and bills payables, bank and other borrowings, or breaches offinancial covenants during the Track Record Period.

Working capital

Taking into account the financial resources available to us, including our cash and cashequivalents on hand, anticipated cash generated from operating activities, existing bankingfacilities and facilities from other non-bank financial institutions, loans from shareholders, andthe [REDACTED] we expect to receive from the [REDACTED], our Directors are of the viewthat we will have sufficient working capital for our operations for at least the next 12 monthsfollowing the date of this document.


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Cash Flow Analysis

The following table sets forth our cash flows for the periods indicated.



2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Net cash (used in)/generatedfrom operating activities (43,314) 97,606 64,063 47,451

Net cash generated from/(used in) investingactivities 4,173 (4,764) (3,793) (1,716)

Net cash generatedfrom/(used in)financing activities 57,710 (64,755) (83,128) (86,866)

Net increase/(decrease) incash and cash equivalents 18,569 28,087 (22,858) (41,131)

Cash and cash equivalentsat beginning of theyear/period 43,046 61,615 61,615 89,702

Cash and cash equivalents atend of the year/period 61,615 89,702 38,757 48,571

Net cash (used in)/generated from operating activities

Net cash generated from operating activities consisted primarily of our profit beforeincome tax adjusted by non-operating items such as finance costs, losses from factoring oftrade receivables, net exchange differences, and non-cash items such as depreciation ofproperty, plant and equipment, amortization of right-of-use assets and intangible assets, netgains/losses on disposal of property, plant and equipment, dividends from financial assets atFVOCI, net impairment losses on financial assets, and adjusted by changes in working capital,such as inventories, trade and other receivables, contract liabilities and trade and otherpayables, and the effects of interest received and income tax paid.

For the year ended 31 December 2019, cash used in operations was approximatelyRMB6.4 million, which consisted primarily of profit before income tax of approximatelyRMB123.1 million, as adjusted for items with no operating cash effect and non-operatingitems, which primarily included depreciation and amortization of approximately RMB9.1million, net impairment losses on financial assets of approximately RMB17.3 million, netfinance costs of approximately RMB33.7 million, losses from factoring of trade receivables ofapproximately RMB2.2 million and dividend from financial assets at fair value through othercomprehensive income of RMB4.5 million. For the year ended 31 December 2019, ouroperating cash flow before movements in working capital was approximately RMB182.0million. The changes in working capital primarily comprised of (i) an increase in trade andother receivables of approximately RMB318.0 million; (ii) a decrease in inventories ofapproximately RMB7.4 million; (iii) an increase in trade and other payables of approximatelyRMB116.5 million, primarily due to longer credit periods that we received; and (iv) an increasein contract liabilities of approximately RMB5.7 million.


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For the year ended 31 December 2020, cash generated from operations was approximatelyRMB120.5 million, which consisted primarily of profit before income tax of approximatelyRMB132.5 million, as adjusted for items with no operating cash effect and non-operatingitems, which primarily included depreciation and amortization of approximately RMB9.2million, net impairment losses on financial assets of approximately RMB25.6 million, netfinance costs of approximately RMB34.0 million, dividend from financial assets at fair valuethrough other comprehensive income of RMB3.0 million, and net exchange differences ofRMB1.1 million. For the year ended 31 December 2020, our operating cash flow beforemovements in working capital was approximately RMB197.5 million. The changes in workingcapital primarily comprised of (i) increase in trade and other receivables of approximatelyRMB191.0 million; (ii) decrease in inventories of approximately RMB6.5 million; (iii)increase in trade and other payables of approximately RMB116.0 million, primarily due tolonger credit periods that we received; and (iv) decrease in contract liabilities of approximatelyRMB8.5 million.

For the nine months ended 30 September 2021, net cash generated from operatingactivities was approximately RMB69.2 million, which consisted primarily of profit beforeincome tax of approximately RMB54.3 million, as adjusted for items with no operating casheffect and non-operating items, which primarily included depreciation and amortization ofapproximately RMB7.2 million, net impairment losses on financial assets of approximatelyRMB9.4 million and net finance costs of approximately RMB18.4 million. For the nine monthsended 30 September 2021, our operating cash flow before movements in working capital wasapproximately RMB89.3 million. The change in working capital primarily comprised of (i)decrease in trade and other receivables of approximately RMB91.8 million primarily due todecrease in our trade receivables; (ii) decrease in inventories of approximately RMB1.2million; (iii) decrease in trade and other payables of approximately RMB111.2 millionprimarily due to a decrease in our cost of sales in line with the decrease in sales; and (iv)decrease in contract liabilities of approximately RMB1.9 million.

Net cash generated from/(used in) investing activities

For the year ended 31 December 2019, net cash generated from investing activities wasapproximately RMB4.2 million, which consisted primarily of (i) proceeds from disposal ofproperty, plant and equipment of RMB3.7 million; (ii) dividends from financial assets at fairvalue through other comprehensive income of RMB2.3 million; and (iii) release of restrictedcash of RMB5.6 million, which were partially offset by payments for the purchase of property,plant and equipment of approximately RMB7.3 million.

For the year ended 31 December 2020, net cash used in investing activities wasapproximately RMB4.8 million, which consisted primarily of payments for the purchase ofproperty, plant and equipment of approximately RMB8.3 million which was partially offset bydividends from financial assets at fair value through other comprehensive income of RMB3.2million.

For the nine months ended 30 September 2021, net cash used in investing activities wasapproximately RMB1.7 million, which consisted primarily of payments for the purchase ofproperty, plant and equipment of approximately RMB1.9 million which was partially offset byproceeds from disposal of property, plant and equipment of RMB0.2 million.


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Net cash generated from/(used in) financing activities

For the year ended 31 December 2019, net cash generated from financing activities wasapproximately RMB57.7 million, which consisted primarily of (i) proceeds from borrowings ofapproximately RMB382.5 million; (ii) advances from immediate holding companies ofapproximately RMB17.1 million; and (iii) capital injection from the shareholders ofapproximately RMB18.8 million, which were partially offset by the (i) repayments ofborrowings of approximately RMB294.7 million; (ii) deemed distribution of approximatelyRMB31.0 million. As a part of the Reorganisation, Shengangtong acquired Henan Shenli fromits then shareholders for a total consideration of RMB31.0 million in February 2019. Theamount was recorded as a deemed distribution to shareholders; and (iii) interest paid ofapproximately RMB30.8 million.

For the year ended 31 December 2020, net cash used in financing activities wasapproximately RMB64.8 million, which consisted primarily of (i) repayments of borrowings ofapproximately RMB362.5 million; and (ii) interest paid of approximately RMB34.5 million,which were partially offset by proceeds from borrowings of approximately RMB332.5 million.

For the nine months ended 30 September 2021, net cash used in financing activities wasapproximately RMB86.9 million, which consisted primarily of (i) repayments of borrowings ofapproximately RMB321.4 million; and (ii) interest paid of approximately RMB18.8 million,which was partially offset by proceeds from borrowings of approximately RMB254.5 million.

DISCUSSION OF MAJOR COMPONENTS OF CONSOLIDATED STATEMENTS OFFINANCIAL POSITION

Non-current Assets and Liabilities


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Non-current assetsRight-of-use assets 26,372 25,541 24,919Property, plant and equipment 73,116 69,544 65,086Intangible assets 2,995 2,903 3,087Deferred income tax assets 3,725 8,805 11,072Financial assets at fair value through other

comprehensive income 139,500 147,180 113,850

245,708 253,973 218,014

Right-of-use assets

Our right-of-use assets represent interests in land use rights for land and lease propertieslocated in the PRC. As of 31 December 2019 and 2020 and 30 September 2021, the net bookvalue of our right-of-use assets was approximately RMB26.4 million, RMB25.5 million andRMB24.9 million, respectively. The decrease in the net book value of our right-of-use assetsfrom 31 December 2019 to 31 December 2020 primarily represented depreciation charges. Thedecrease in the net book value of our right-of-use assets from 31 December 2020 to 30September 2021 primarily represented depreciation charges.


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Property, plant and equipment

Our property, plant and equipment primarily consisted of buildings, equipment andmachinery, motor vehicles, office equipment and construction in progress. As of 31 December2019 and 2020 and 30 September 2021, the net book value of our property, plant and equipmentwas approximately RMB73.1 million, RMB69.5 million and RMB65.1 million, respectively.The decrease in the net book value of our property, plant and equipment from 31 December2019 to 31 December 2020 primarily represented depreciation charges, as partially offset byadditions of motor vehicles, equipment and machinery, construction in progress and officeequipment. The decrease in the net book value of our property, plant and equipment from 31December 2020 to 30 September 2021 primarily represented depreciation charges.

Intangible assets

Our intangible assets primarily included goodwill and computer software. Goodwill wasrecorded in connection with our Group’s acquisition of Gangfa Batching Plant in 2018. Ourgoodwill remained unchanged at approximately RMB2.7 million, RMB2.7 million andRMB2.7 million as of 31 December 2019 and 2020 and 30 September 2021, respectively. Thenet book value of our intangible assets decreased slightly from RMB3.0 million as of 31December 2019 to approximately RMB2.9 million as of 31 December 2020 primarily due toamortization charges relating to computer software. The net book value of our intangible assetsfurther increased to approximately RMB3.1 million as of 30 September 2021 primarily due toaddition of accounting and financial management administration softwares.

Financial assets at fair value through other comprehensive income


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Equity instruments (ii) 139,500 147,180 113,850Debt instruments (iii) 27,400 22,531 2,900

166,900 169,711 116,750

(i) Classification of financial assets at fair value through other comprehensive income

Financial assets at fair value through other comprehensive income consist of:

• Equity securities which are not held for trading, and which we have irrevocablyelected at initial recognition to recognize in this category. These are strategicinvestments and we consider this classification to be more relevant.

• Debt securities where the contractual cash flows are solely principal andinterest and the objective of our business model is achieved both by collectingcontractual cash flows and selling financial assets.


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(ii) Equity investments at fair value through other comprehensive income

Equity investments at fair value through other comprehensive income consist of thefollowing individual investments:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Non-current assetsEquity securities of a listed

company– Bank of Zhengzhou Co.,

Ltd. (a) 139,500 147,180 113,850

(a) In December 2011, we entered into an arrangement relating to sharessubscription with Bank of Zhengzhou, pursuant to which we shall subscribe30,000,000 shares of Bank of Zhengzhou at a price of RMB2.72 per share.Upon completion of the subscription, interest of Bank of Zhengzhou held by uswas 0.76%, which does not give us the capability to exercise a “significantinfluence” over the investee.

Bank of Zhengzhou has been listing at China A-share stock market since 19September 2018, the equity shares can be traded freely since 19 September2019. The fair values of equity investment is determined with reference to thetransaction price on the market and classified as Level 1 in the fair valuehierarchy.

Bank of Zhengzhou has declared the implementation of allotment on 19 June2020, with 1 share for every 10 shares, which makes the total number ofordinary shares held by us changed from 30,000,000 to 33,000,000.

As of 31 December 2019 and 2020 and 30 September 2021, we pledgedfinancial assets at fair value through other comprehensive income with anaggregate carrying value of approximately RMB69.3 million, RMB89.2million and RMB75.9 million and pledged dividend receivable with a carryingvalue of RMB2.2 million, RMB2.0 million and RMB2.0 million, respectively,for certain bank borrowings.


– 244 –


(iii) Debt investments at fair value through other comprehensive income

Debt investments at fair value through other comprehensive income consist of thefollowing investment:

Current assets


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Notes receivable 27,400 22,531 2,900

Notes receivable consist of bills received as payments from customers. Ourturnover of notes receivable is high and we utilize the bills to settle payables tosuppliers before the bills mature. We measure the fair value of the notes receivableusing the discounted cash flow method, which gives rise to fair valuesapproximating the cost.

Net Current Assets

The following table sets forth our current assets and liabilities as of the dates indicated:


30 SeptemberAs of

30 November

2019 2020 2021 2021

RMB’000 RMB’000 RMB’000 RMB’000


Current assetsInventories 15,857 9,360 8,165 5,344Trade and other

receivables 702,217 864,082 782,780 832,456Financial assets at fair

value through othercomprehensive income 27,400 22,531 2,900 2,900

Cash and cash equivalents 61,615 89,702 48,571 8,739

Total current assets 807,089 985,675 842,416 849,439


– 245 –



30 SeptemberAs of

30 November

2019 2020 2021 2021

RMB’000 RMB’000 RMB’000 RMB’000


Current liabilitiesTrade and other payables 316,834 420,636 309,174 311,360Contract liabilities 12,696 4,195 2,282 4,710Lease liabilities 261 279 218 221Current income tax

liabilities 4,533 17,503 8,553 10,352Borrowings 362,187 360,573 136,103 119,351

Total current liabilities 696,511 803,186 456,330 445,994

Net current assets 110,578 182,489 386,086 403,445

Our current assets consist primarily of inventories, trade and other receivables, financialassets at fair value through other comprehensive income, and cash and cash equivalents. Ourcurrent liabilities consist primarily of trade and other payables, contract liabilities, leaseliabilities, current income tax liabilities and borrowings.

Our net current assets increased from approximately RMB110.6 million as of 31December 2019 to approximately RMB182.5 million as of 31 December 2020, primarily as aresult of the increase in trade and other receivables of approximately RMB161.9 million, whichwas primarily due to the following: (i) our Gangfa Batching Plant commenced operations inlate 2018. The number of projects Gangfa Batching Plant was involved in increasedsignificantly in 2019, which resulted in a significant increase in our trade receivables in 2020relating to these projects; and (ii) in 2019 we sold trade receivables with a total invoice valueof RMB110.0 million to a factoring company for cash, while in 2020 we only sold tradereceivables with an invoice value of RMB10.0 million to this factoring company; (iii) thedecrease in contract liabilities of approximately RMB8.5 million mainly because the price ofready-mixed concrete was higher in 2019 and more customers chose to make prepayments tosecure supply on more favourable terms. This was partially offset by the increase in trade andother payables of approximately RMB103.8 million and an increase of RMB13.0 million incurrent income tax liabilities.

Our net current assets increased from approximately RMB182.5 million as of 31December 2020 to approximately RMB386.1 million as of 30 September 2021, primarily as aresult of (i) the decrease in trade and other payables of approximately RMB111.5 millionmainly due to a decrease in purchases of raw materials; (ii) the decrease in borrowings ofapproximately RMB224.5 million which were partially offset by (i) the decrease in trade andother receivables of approximately RMB81.3 million mainly due to the decrease in tradereceivables as our sales decreased significantly during the nine months ended 30 September2021; and (ii) the decrease in cash and cash equivalents of approximately RMB41.1 million.


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Our net current assets increased from approximately RMB386.1 million as of 30September 2021 to approximately RMB403.4 million as of 30 November 2021, primarilyattributable to (i) an increase of RMB49.7 million in our trade and other receivables as a resultof an increase in our sales during this period; and (ii) a decrease of approximately RMB16.8million in borrowings, which were partially offset by a decrease of approximately RMB39.9million in cash and cash equivalents because we had more cash outflows in connection withoperating activities in line with the increase in our sales and we repaid part of our borrowings.

Inventories

Due to the nature of ready-mixed concrete, under normal circumstances all finishedproducts have to be delivered to customers and to be unloaded within 90 minutes after they areproduced. As a result, our inventories consist of raw materials including cement, crushedstones, sand, fly ash, ground slag and admixture only, but do not include any finished productsor work-in-progress. As of 31 December 2019 and 2020 and 30 September 2021, we hadinventories of approximately RMB15.9 million, RMB9.4 million and RMB8.2 million,respectively. Our inventory balance as of 31 December 2020 decreased compared with 31December 2019 primarily because we maintained a lower level of inventories because rawmaterial prices were declining. Our inventory balance as of 30 September 2021 decreasedcompared with 31 December 2020 because we maintained a lower level of inventories becauseraw material prices were declining.

The following table sets forth our average inventory turnover days for the periodsindicated:

Year ended 31 December

Nine monthsended

30 September

2019 2020 2021

Inventory turnover days(Note) 7.8 5.2 5.7

Note: Inventory turnover days is calculated based on the average inventory balance divided by cost of salesfor the relevant year/period and multiplied by 365 days for the two years ended 31 December 2019 and2020 and 273 days for the nine months ended 30 September 2021. Average inventory balance iscalculated as the sum of the beginning balance and ending balance of inventories divided by two.

Our average inventory turnover days decreased from approximately 7.8 days for the yearended 31 December 2019 to approximately 5.2 days for the year ended 31 December 2020primarily because we maintained a lower level of inventories in 2020 as the market prices ofour raw materials were declining. Our average inventory turnover days increased toapproximately 5.7 days for the nine months ended 30 September 2021 due to the decrease inour cost of sales.

As of 30 November 2021, approximately RMB8.1 million of inventories, representing99.8% of the inventories outstanding as of 30 September 2021, had been utilized.


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Trade and other receivables

Our trade and other receivables primarily consist of trade receivables, prepayments,prepayments for [REDACTED] and other receivables. Our trade and other receivablesamounted to approximately RMB702.2 million, RMB864.1 million and RMB782.8 million asof 31 December 2019 and 2020 and 30 September 2021, respectively.

The following table sets forth a breakdown of our trade and other receivables as of thedates indicated:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Trade receivables 722,097 915,741 844,048Less: allowance for impairment

of trade receivables (32,359) (57,979) (67,369)

Trade receivables – net 689,738 857,762 776,679Prepayments 7,767 1,770 913Prepayments for [REDACTED] – – 1,213Other receivables 2,477 2,550 1,975Dividend receivable 2,235 2,000 2,000

Total 702,217 864,082 782,780

Trade receivables

Our gross trade receivables represent mainly the amounts for which we delivered ourgoods but not yet received payment from our customers as of the relevant dates. Our gross tradereceivables increased from approximately RMB722.1 million as of 31 December 2019 toapproximately RMB915.7 million as of 31 December 2020 primarily due to the following: (i)our Gangfa Batching Plant commenced operations in late 2018. The number of projects GangfaBatching Plant was involved in increased significantly in 2019, which resulted in a significantincrease in our trade receivables in 2020 relating to these projects; and (ii) in 2019 we soldtrade receivables with a total invoice value of RMB110.0 million to a factoring company forcash, while in 2020 we only sold trade receivables with an invoice value of RMB10.0 millionto this factoring company. Our gross trade receivables decreased to approximately RMB844.0million as of 30 September 2021 mainly due to the decrease in our sales during the nine monthsended 30 September 2021 compared with the corresponding period in the prior year.


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The following table sets out the aging analysis of gross trade receivables of the ShenliBatching Plant as of the dates indicated:

As of 31 December As of 30 September

2019 2020 2021

RMB’000 % RMB’000 % RMB’000 %

(Unaudited)

Less than 6 months 124,540 46.0 125,316 43.0 141,009 47.56 months to 1 year 99,800 36.9 90,338 31.0 55,970 18.81 year to 2 years 32,130 11.9 64,455 22.1 85,490 28.82 years to 3 years 7,611 2.8 3,256 1.1 11,324 3.83 years to 4 years 2,368 0.9 3,645 1.3 161 0.14 years to 5 years 136 0.1 1,249 0.4 28 0.0Over 5 years 3,650 1.4 3,211 1.1 3,063 1.0

Total 270,235 100.0 291,470 100.0 297,045 100.0

The following table sets out the aging analysis of gross trade receivables of the ShentongBatching Plant as of the dates indicated:


2019 2020 2021

RMB’000 % RMB’000 % RMB’000 %

(Unaudited)

Less than 6 months 114,585 55.3 111,561 43.1 104,507 45.66 months to 1 year 68,798 33.2 70,570 27.2 49,651 21.71 year to 2 years 22,312 10.8 66,616 25.7 59,220 25.92 years to 3 years 1,408 0.7 9,846 3.8 12,977 5.73 years to 4 years 30 * 559 0.2 2,439 1.14 years to 5 years – – – – 24 0.0Over 5 years – – – – 0 0.0

Total 207,133 100.0 259,152 100.0 228,818 100.0

* less than 0.1%


– 249 –


The following table sets out the aging analysis of gross trade receivables of the GangfaBatching Plant as of the dates indicated:


2019 2020 2021

RMB’000 % RMB’000 % RMB’000 %

(Unaudited)

Less than 6 months 145,960 59.6 166,296 45.6 104,737 32.96 months to 1 year 98,339 40.2 120,187 32.9 53,067 16.71 year to 2 years 430 0.2 78,636 21.5 147,540 46.42 years to 3 years – – – – 12,841 4.03 years to 4 years – – – – – –4 years to 5 years – – – – – –Over 5 years – – – – – –

Total 244,729 100.0 365,119 100.0 318,185 100.0

Note: Gangfa Batching Plant was established by Henan Gangfa in October 2017.

In order to cultivate and maintain business relationships with customers and at the sametime ensure a healthy liquidity position, we have adopted different credit policies for differentcustomers. We principally refer to our customers’ purchase and credit history, sales volume,scale of operation, types of projects for which our products are supplied, background, financialcondition and relationship history with us to determine the specific credit terms for them. Someprojects have relatively long construction periods and the main contractors often makeone-time payments after the completion of the entire project for different batches of ourproducts delivered at various times. In such cases, we may grant a longer credit perioddepending on the nature of the project and our relationship with the relevant customer, amongother factors. For most customers, our credit period ranges from six months to one year. Weadopt various payment methods in our sales contracts, including among others, (i) advancepayment before delivery; (ii) bi-monthly partial payment of a certain percentage ranging from60% to 100%, which may vary according to the stage of completion of the project, of the totalsettlement amount for the previous payment period’s supply; and (iii) payment uponcompletion of pre-designated milestones in the project. In the case of partial payment, theremaining balance is generally settled within six months after the completion of the mainstructure of the project or completion of construction work.

We have adopted a set of credit control measures whereby we conduct litigation searcheson the customers and review their historical payment records. Our sales and finance teams alsoregularly review the credit terms of individual customers. In order to collect overdue tradereceivables, our finance team closely monitors overdue payments and prepares a monthly agingreport showing customers’ overdue amounts. In the event of overdue trade receivables, we takefollow-up actions to collect the overdue trade receivables, such as arranging our employees ofthe sales department to follow up with the payment process with the responsible employees ofthe customer, issuing reminder messages and making reminder calls to the relevant customers,and not accepting further orders from the customer until full payment of its trade receivables.


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The following table sets forth the movements in the provision for impairment of tradereceivables:


Nine monthsended

30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Balance at the beginning of theyear/period 15,061 32,359 57,979

Loss allowance recognised in profitor loss during the year/period 17,298 25,620 9,390

Balance at the end of the year/period 32,359 57,979 67,369

Impairment losses trade receivables are measured at an amount equal to lifetime expectedcredit losses under HKFRS 9. We apply the simplified approach permitted by HKFRS 9 toprovide for expected credit losses according to our accounting policy which permits the use ofthe lifetime expected loss provision for all individual trade receivables. As of 31 December2019 and 2020 and 30 September 2021, we made allowance for impairment losses on tradereceivables of approximately RMB32.4 million, RMB58.0 million and RMB67.4 million,respectively. The ratios of allowance for impairment of trade receivables (calculated as theallowance for impairment of trade receivables divided by gross trade receivables) wereapproximately 4.5%, 6.3% and 8.0%, respectively. We believe that our ratios of allowance forimpairment of trade receivables were consistent with the industry norm.

We used the expected credit losses which incorporated forward looking information tomake provision of loss allowance for all trade receivables and we believe no additionalallowance for impairment losses is necessary for the Track Record Period.

Under HKFRS 9, we apply respective expected credit loss rates, which are determinedbased on a number of factors including historical settlement pattern of customers and forwardlooking information, to the trade receivables of the respective aging group to determine the lossallowance as of the end of each of the reporting period. We continue to receive settlementsfrom customers in respect of the outstanding trade receivables. To the best knowledge of ourDirectors having made all reasonable inquiries, our existing customers have not declaredbankruptcy, revocation or experienced material financial difficulties. Taking into account theabove factors, we do not consider any of its individual trade receivables is of heightened riskof recoverability and therefore no receivable has been written off. Our Directors confirm thatwe have not encountered any significant difficulties in recovering trade receivables forcustomers during the Track Record Period and up to the Latest Practical Date.

For the purpose of risk management and cashflow management purposes, we entered intofactoring arrangements on a without recourse basis with a factoring company in the PRC inMay and June 2019 for factoring of our trade receivables for some of our customers with totaltrade receivables outstanding amounting to an aggregate amount of approximately RMB110.0million with a discount from the invoice value at a standard discount rate of 2% of theaggregate amount. As invoice value factored on a without recourse basis were regarded aspurchased by the factoring company, they were not recorded as our trade receivables as of 31December 2019.


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As of 30 November 2021, approximately RMB65.3 million, representing approximately7.7% of our gross trade receivables outstanding as of 30 September 2021, had been settled. Theremaining balances are mainly relating to recurring customers with long relationship. Based onhistorical settlement pattern, these customers normally settle trade receivables in more than sixmonths but less than one year. Accordingly, our Directors consider there is no materialcollectability issue in respect of the remaining balances of trade receivables as of 30 September2021.

The following table sets forth our trade receivables turnover days for the periodsindicated:


Nine monthsended

30 September

2019 2020 2021

Trade receivablesturnover days(Note) 183 260 436

Note: Trade receivables turnover days is based on the average trade receivables balances divided by revenuefor the relevant year/period and multiplied by 365 days for the two years ended 31 December 2019 and2020 and 273 days for the nine months ended 30 September 2021. Average trade receivables balance iscalculated as the sum of the beginning balance and ending balance of trade receivables balance less theimpairment losses on trade receivables for the relevant year/period divided by two.

For the two years ended 31 December 2019 and 2020 and the nine months ended 30September 2021, our trade receivables turnover days were approximately 183 days, 260 daysand 436 days, respectively. Our trade receivables turnover days increased from the year ended31 December 2019 to the year ended 31 December 2020 mainly due to the increase in our tradereceivables in 2020 compared with 2019. Our trade receivables turnover days increased fromapproximately 260 days for the year ended 31 December 2020 to 436 days for the nine monthsended 30 September 2021 due to the significant increase in the beginning balance for the ninemonths ended 30 September 2021 compared with the year ended 31 December 2020.

Prepayments and prepayments for [REDACTED]

Our prepayments comprised mainly of prepayments or advances for raw materials tosuppliers and prepaid expenses such as interest expense, rental and utilities expenses. Ourprepayments decreased from approximately RMB7.8 million as of 31 December 2019 toapproximately RMB1.8 million as of 31 December 2020, primarily due to a decrease inprepayments made to cement producers for cement procurement because we increasedprocurement of cement from trading companies which did not require prepayments. Ourprepayments decreased from approximately RMB1.8 million as of 31 December 2020 toapproximately RMB0.9 million as of 30 September 2021, primarily because we increasedpurchases of raw materials from third party construction material trading companies, which didnot require prepayments. Our prepayments for [REDACTED] amounted to nil, nil, andRMB1.2 million as of 31 December 2019 and 2020 and 30 September 2021, respectively. Allof our prepayments are expected to be settled or recognized as profit or loss within one year.


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Other receivables

Our other receivables mainly comprised of security deposits to customers for tenderingprojects and cash in advance to our employees. Our other receivables remained stable atapproximately RMB2.5 million as of 31 December 2019 and RMB2.6 million as of 31December 2020, respectively. Our other receivables decreased from approximately RMB2.6million as of 31 December 2020 to approximately RMB2.0 million as of 30 September 2021,mainly because we had fewer tendering projects and as a result paid less security deposits.

Dividend receivable

As of 31 December 2019 and 2020 and 30 September 2021, we pledged dividendreceivable from Bank of Zhengzhou with a carrying value of RMB2.2 million, RMB2.0 millionand RMB2.0 million, respectively, to secure certain bank borrowings. For details, see “—Financial assets at fair value through other comprehensive income” above and note 32 to theAccountant’s Report in Appendix I to this document.

Trade and other payables

Our trade and other payables primarily consist of trade payables, other payables to thirdparties and related parties, payroll and welfare payable, and other tax payables. Our trade andother payables amounted to approximately RMB316.8 million, RMB420.6 million andRMB309.2 million as of 31 December 2019 and 2020 and 30 September 2021, respectively.

The following table sets forth our trade and other payables as of the dates indicated:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Trade payables– Third parties 278,445 388,579 283,342– Related parties 1,578 145 –

280,023 388,724 283,342

Other payables– Third parties 14,319 11,427 4,384– Related parties 17,916 16,851 16,661– Accrued [REDACTED] – – 426

32,235 28,278 21,471

Payroll and welfare payable 2,220 2,265 2,411Other tax payables 2,356 1,369 1,950

316,834 420,636 309,174


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Trade payables

During the Track Record Period, our trade payables represented primarily amount due tosuppliers for the purchase of raw materials for our products. Our trade payables increased fromapproximately RMB280.0 million as of 31 December 2019 to approximately RMB388.7million as of 31 December 2020, primarily due to longer credit periods our suppliers grantedus following friendly negotiations, which often occurred during COVID-19. Our trade payablesdecreased from approximately RMB388.7 million as of 31 December 2020 to approximatelyRMB283.3 million as of 30 September 2021 primarily due to the decrease in our cost of salesin line with the decrease in our revenue.

The following table sets forth the aging analysis of our trade payables based on invoicedate as of the dates indicated:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Less than 6 months 186,841 252,930 175,6146 months to 1 year 73,656 103,108 50,3501 year to 2 years 15,468 27,365 50,4612 years to 3 years 992 4,904 4,2353 years to 4 years 2,838 208 2,3474 years to 5 years 71 127 221Over 5 years 157 82 114

Total 280,023 388,724 283,342

As of 30 November 2021, approximately RMB84.4 million, representing approximately29.8% of our trade payables outstanding as of 30 September 2021, had been settled.

The following table sets forth our trade payables turnover days for the periods indicated:


Nine monthsended

30 September

2019 2020 2021

Trade payablesturnover days(Note) 88 137 218

Note: Trade payables turnover days is based on the average balance of trade payables divided by cost of salesfor the relevant year/period and multiplied by 365 days for the two years ended 31 December 2019 and2020 and 273 days for the nine months ended 30 September 2021. Average balance is calculated as thesum of the beginning balance and ending balance of trade payables for the relevant year/period dividedby two.


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For each of the two years ended 31 December 2019 and 2020 and the nine months ended30 September 2021, our trade payables turnover days was approximately 88 days, 137 days and218 days, respectively. Our trade payables turnover days increased from approximately 88 daysfor the year ended 31 December 2019 to approximately 137 days for the year ended 31December 2020 primarily because we had longer credit periods in 2020 as explained above.Our trade payables turnover days increased to 218 days for the nine months ended 30September 2021 primarily due to the significant decrease in our cost of sales for the ninemonths ended 30 September 2021 in line with the decrease in our sales.

The credit period granted by our suppliers varies on a case by case basis depending onthe duration of our business relationship with our suppliers, their financial strength and thetypes of raw materials they supply. The payment term in our agreements with our suppliersgenerally require us to settle a certain percentage ranging from 80% to 100% of total purchaseamount for the prior month and, in case of partial payment, the remaining balance for eachmonth is to be accumulated and settled at the year end. Some suppliers required us to makeprepayments before procuring supply of raw materials to us, in which case such prepaymentswere used to settle any subsequent amounts owed to them.

Other payables

Our other payables to third parties mainly comprised amount payable relating topurchases for new plants and machineries and new construction in progress relating to ourbatching plants, and [REDACTED]. Our other payables to related parties consisted ofshort-term loans from our shareholders, Copious Pride Limited and Great Flourishing Limited,which were unsecured, non-interest bearing with no maturity date and will be waived by theshareholders upon the [REDACTED]. Our other payables decreased from approximatelyRMB32.2 million as of 31 December 2019 to approximately RMB28.3 million as of 31December 2020 primarily because we returned RMB3.0 million in construction guaranteedeposits we had received from a supplier relating to our purchases for new plants, machineriesand construction in progress, and our payables to a factoring company decreased by RMB1.0million. Our other payables decreased to RMB21.5 million as of 30 September 2021 primarilydue to repayment of part of our borrowings.

Payroll and welfare payable

Our payroll and welfare payable mainly comprised accrued salaries, employee benefitsand provision for social security payable to our employees. Our payroll and welfare payable.Our payroll and welfare payable increased from approximately RMB2.2 million as of 31December 2019 to approximately RMB2.3 million as of 31 December 2020 and furtherincreased to RMB2.4 million as of 30 September 2021. This increase was mainly attributableto the combined effects of (i) the increase in accrued salaries due to the increase in the numberof our employees in line with our business expansion; and (ii) the increase in provision forsocial security payment payable to our employees because the COVID-19 related governmentstimulus reducing employer contribution to employee benefits had expired as of 31 December2020.

Other tax payables

Our other tax payables represent accrued taxes other than income tax, such as value-addedtax and additional local tax, which were not yet paid as of the relevant date. Our other taxpayables decreased from approximately RMB2.4 million as of 31 December 2019 to RMB1.4million as of 31 December 2020 primarily because our sales were higher in December 2019than December 2020. Our other tax payables increased from approximately RMB1.4 million asof 31 December 2020 to approximately RMB2.0 million as of 30 September 2021 primarilybecause the sales were higher in September 2021 than December 2020.


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Contract liabilities

Our contract liabilities mainly represented the advanced payments received from ourcustomers for sales of ready-mixed concrete products. As of 31 December 2019 and 2020 and30 September 2021, we recorded contract liabilities of approximately RMB12.7 million,RMB4.2 million and RMB2.3 million, respectively. Our contract liabilities decreased fromapproximately RMB12.7 million as of 31 December 2019 to approximately RMB4.2 million asof 31 December 2020 primarily beacuse the price of ready-mixed concrete was higher in 2019and more customers chose to make prepayments to secure supply on more favourable terms,so our balance of prepayments from customers as of 31 December 2019 was higher than thebalance as of 31 December 2020, which resulted in our higher balance of contract liabilities asof 31 December 2019 compared with 31 December 2020. Our contract liabilities decreasedfrom approximately RMB4.2 million as of 31 December 2020 to approximately RMB2.3million as of 30 September 2021 mainly attributable to conversion of contract liabilities torevenue after the satisfaction of our performance obligations and a decrease in total contractedbut not yet delivered amount under new sales contracts.

Current income tax liabilities

Our current income tax liabilities amounted to approximately RMB4.5 million, RMB17.5million and RMB8.6 million for the years ended 31 December 2019 and 2020 and the ninemonths ended 30 September 2021, respectively. Income tax in the PRC is pre-paid on aquarterly basis and settled at year end. Our current income tax liabilities balance was lower asof 31 December 2019 compared with 31 December 2020 because we made more prepaymentof income tax during the year in 2019 compared with 2020. Our current income tax liabilitiesbalance was lower as of 30 September 2021 compared with 31 December 2020 due to adecrease in taxable income.

INDEBTEDNESS

Borrowings

The table below sets forth the breakdown of our bank and other borrowings as of the datesindicated:


30 SeptemberAs of

30 November

2019 2020 2021 2021

RMB’000 RMB’000 RMB’000 RMB’000


Non-currentBank borrowings

– unsecured andunguaranteed – – 92,625 92,625

– secured andunguaranteed(b) – – 19,500 43,875

Other borrowings– secured and

unguaranteed(a) 50,257 21,587 67,762 55,464

Total non-currentborrowings 50,257 21,587 179,887 191,964


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30 SeptemberAs of

30 November

2019 2020 2021 2021

RMB’000 RMB’000 RMB’000 RMB’000


CurrentBank borrowings

– secured andunguaranteed(b) 98,000 100,000 79,500 55,125

– unsecured andunguaranteed 131,500 131,500 38,875 38,875

Other borrowings– unsecured and

unguaranteed(c) 100,000 – – –– secured and

unguaranteed(a) 32,687 129,073 17,728 25,351

Total current borrowings 362,187 360,573 136,103 119,351

Total borrowings 412,444 382,160 315,990 311,315

Our total bank borrowings amounted to approximately RMB229.5 million, RMB231.5million and RMB230.5 million as of 31 December 2019 and 2020 and 30 September 2021,respectively.

As of 30 November 2021, our total banking facilities amounted to approximatelyRMB230.5 million, all of which had been utilized.

(a) As of 31 December 2019 and 2020, our other borrowings of RMB8.5 million and RMB1.6million would mature before 29 April 2021 with an effective interest rate of 11.66%,which were secured by our Group’s property, plant and equipment of a carrying value ofRMB1.4 million and RMB0.9 million, respectively.

As of 31 December 2019 and 2020, our other borrowings of RMB74.5 million andRMB49.0 million would be repaid by installments with full repayment before 24 August2022 at an effective interest rate at 7.00%, which were secured by our Group’s property,plant and equipment of a carrying value of RMB21.6 million and RMB19.0 million,respectively. As of 23 August 2021, the Group reached an agreement with the lender toextend the maturity date of the loan to 23 August 2023 with the interest rate at 7.00%. Asof 30 September 2021, our other borrowing of RMB36.3 million was secured by ourGroup’s property, plant and equipment of a carrying value of RMB17.0 million.

As of 31 December 2020, our other borrowings of RMB100.0 million would maturebefore 7 June 2021 with an effective interest rate at 8.00%, which were secured by apledge of the Group’s trade receivables of a carrying value of RMB126,010,000.

As of 30 September 2021, our other borrowings of RMB49.2 million would mature before15 September 2024 with an effective interest rate at 9.90%, which was secured by ourGroup’s property, plant and equipment of a carrying value of RMB4.4 million.


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(b) As of 31 December 2019 and 2020 and 30 September 2021, our bank borrowings ofRMB53.0 million, RMB53.0 million and RMB53.0 million were pledged by part of theequity securities of Bank of Zhengzhou, our bank borrowings of RMB25.0 million,RMB25.0 million and RMB25.0 million were secured by the Group’s property, plant andequipment with a carrying value of RMB13.9 million, RMB12.6 million and RMB11.6million, respectively, and the bank borrowings of RMB20.0 million, RMB20.0 millionand RMB20.0 million were pledged by the Group’s right-of-use assets with a carryingvalue of RMB14.3 million, RMB14.0 million and RMB13.8 million, respectively.

As of 31 December 2020, the bank borrowings of RMB2.0 million were secured by apledge of the Group’s trade receivables with a carrying value of RMB2.3 million.

As of 30 September 2021, our bank borrowings of RMB1.0 million represented notesreceivable we had transferred for cash with recourse to us and therefore not derecognised.

(c) As of 31 December 2019, the other borrowings represent the borrowings from non-bankfinancial institutions which will mature before 25 December 2020 with an effectiveinterest rate at 12.0%.

Our other borrowings included borrowings by Henan Shenli, Henan Gangfa and HenanShentong, respectively, from Jiuding Finance Lease, pursuant to (i) a finance lease agreementbetween Henan Shenli and Jiuding Finance Lease dated 23 September 2021 for borrowings inthe amount of RMB49.0 million with a maturity date of 15 September 2024; and (ii) a financelease agreement among Henan Gangfa, Henan Shentong and Jiuding Finance Lease dated 23August 2019 for borrowings in the aggregate amount of RMB80.0 million with a maturity dateof 23 August 2023 (as amended). The outstanding balances under these finance leaseagreements totaled RMB74.5 million, RMB49.0 million, RMB85.5 million and RMB80.1million, respectively, as of 31 December 2019, 31 December 2020, 30 September 2021 and 30November 2021.

Certain bank borrowings of our subsidiaries contain conditions and covenants that requireus to obtain the bank’s consent prior to certain activities and/or entering into certaintransactions, such as mergers, disposals, change in beneficial ownership, foreign investment,joint venture, reorganization, joint-stock restructuring, contract or lease, closure due tosubjective reasons or material increase in debt financing. Our Directors confirm that there wasno material covenant restricting our ability to raise additional debt or equity financing andthere had not been any delay or default in repayment of borrowings or material non-compliancewith the covenants or requirements contained in our loan agreements that affect the renewal ofsuch borrowings during the Track Record Period and up to the Latest Practicable Date. OurDirectors do not expect that such covenants and requirements would materially restrict ouroverall ability to undertake additional debt or equity financing.


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The following table sets forth the maturity schedule of our borrowings as of the datesindicated:


30 SeptemberAs of

30 November

2019 2020 2021 2021

RMB’000 RMB’000 RMB’000 RMB’000


Bank borrowings:– Within 1 year 229,500 231,500 118,375 94,000– Between 1 and 2 years – – 112,125 136,500

229,500 231,500 230,500 230,500

Other borrowings:– Within 1 year 132,687 129,073 17,728 25,351– Between 1 and 2 years 28,670 21,587 49,788 41,819– Between 2 and 3 years 21,587 – 17,974 13,645

182,944 150,660 85,490 80,815

Total borrowings 412,444 382,160 315,990 311,315

Lease liabilities

Our lease liabilities amounted to approximately RMB0.6 million, RMB0.4 million andRMB0.2 million as of 31 December 2019, 31 December 2020 and 30 September 2021,respectively, which mainly related to the lease of an office building located at Zhengzhou atan annual rental of RMB300,000 for a term of three years commencing from 27 April 2019.Our lease liabilities were measured at net present value of the lease payments during the leaseterms that not yet paid. The lease payments are discounted using the interest rate implicit inthe lease, if that rate can be determined, or our Group’s incremental borrowing rate.


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The following table sets forth the payment schedule of our lease liabilities as of the datesindicated:


30 SeptemberAs of

30 November

2019 2020 2021 2021

RMB’000 RMB’000 RMB’000 RMB’000


Lease payments due– Within 1 year 300 300 225 225– Between 1 and 2 years 300 75 – –– Between 2 and 3 years 75 – – –

Total lease payments 675 375 225 225Less: future finance charges (64) (25) (7) (4)

Total lease liabilities 611 350 218 221

Presented as:Current 261 279 218 221

Non-current 350 71 – –

Contingent liabilities and guarantees

As of 30 September 2021, we did not have any material contingent liabilities, guaranteesor any litigations or claims of material importance, pending or threatened against any memberof our Group. Our Directors confirm that there has not been any material change in thecontingent liabilities of our Group since 30 September 2021.

Except as disclosed above and apart from intra-group liabilities, we did not have anyother outstanding loan capital, bank overdrafts and liabilities under acceptances (other thannormal trade bills), acceptance credits or other similar indebtedness, debentures, mortgages,charges or loans, finance leases or hire purchase commitments, guarantees or other materialcontingent liabilities as of 30 November 2021, being the latest practicable date for thepreparation of the indebtedness statement in this document.


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CONTRACTUAL AND CAPITAL COMMITMENTS

Capital commitments

Our capital commitments during the Track Record Period represent capital expenditurescontracted for at the end of each reporting period but not yet incurred.

The table below sets forth capital commitments as of the dates indicated:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Property, plant and equipment 121 373 121Intangible assets – 42 –

121 415 121

CAPITAL EXPENDITURES

Our capital expenditures represented expenditures primarily for additions of property,plant and equipment, land use rights and intangible assets. For the years ended 31 December2019, 2020 and the nine months ended 30 September 2021, our total capital expenditures wereapproximately RMB7.3 million, RMB8.3 million and RMB1.9 million, respectively.

We expect that our capital expenditures in relation to purchase of property, plant andequipment and intangible assets will be approximately RMB45.6 million and RMB50.5 millionfor the years ending 31 December 2022 and 2023, respectively. Our projected capitalexpenditures are subject to revision based upon any future changes in our business plan, marketconditions, and economic and regulatory environment. See “Business – Our businessstrategies” and “Future Plans and [REDACTED]” in this document for further details.

We expect to fund our contractual commitments and capital expenditures principallythough the [REDACTED] from the [REDACTED], and cash generated from our operatingactivities. Our Directors are of the view that these sources of funding will be sufficient tofinance our contractual commitments and capital expenditure needs for the next 12 months.


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KEY FINANCIAL RATIOS

The following table sets forth our key financial ratios for the Track Record Period:


30 September

2019 2020 2021

Current ratio(1) 1.16 1.23 1.85Quick ratio(2) 1.14 1.22 1.83Gearing ratio(3) 1.46 0.99 0.79Debt to equity ratio(4) 1.25 0.77 0.67


Nine monthsended

30 September

2019 2020 2021

Net profit margin(5) 8.5% 9.5% 8.4%Interest coverage ratio(6) 4.59 times 4.86 times 3.72 timesReturn on equity(7) 36.1% 29.3% 13.8%Return on total assets(8) 10.3% 9.0% 5.0%

Notes:

(1) Current ratio represents current assets divided by current liabilities as of the end of year/period.

(2) Quick ratio represents current assets (net of inventories) divided by current liabilities as of the end ofyear/period.

(3) Gearing ratio represents total borrowings divided by total equity as of the end of year/period andmultiplied by 100%.

(4) Debt to equity ratio is calculated by dividing net debt (total borrowings less cash and cash equivalents)by total equity as of the end of year/period and multiplied by 100%.

(5) Net profit margin is calculated by the profit for the year divided by the revenue for the year/period.

(6) Interest coverage ratio represents profit before interest and tax divided by finance costs during theyear/period.

(7) Return on equity is calculated by dividing (i) profit for the year/period (on an annualized basis) by (ii)the average of the total equity as of the beginning and the end of year/period and multiplied by 100%.

(8) Return on total assets is calculated by dividing (i) profit for the year/period (on an annualized basis) by(ii) the average of the total assets as of the beginning and the end of year/period and multiplied by 100%.


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Current ratio

Our current ratio increased slightly from approximately 1.16 as of 31 December 2019 to1.23 as of 31 December 2020 primarily due to the increase in trade receivables. As of 30September 2021, our current ratio increased to approximately 1.85 mainly attributable to (i)decrease in the current portion of our borrowings by approximately RMB224.5 million due tonet repayment of our bank and other borrowings; and (ii) decrease of our trade and otherpayables by approximately RMB111.5 million as a result of our decreased demand for rawmaterials due to decreased sales of our productions.

Quick ratio

Our quick ratio increased slightly from 1.14 as of 31 December 2019 to 1.22 as of 31December 2020, primarily due to the increase in current assets (net of inventories) as a resultof the increase in our trade receivables. Our quick ratio increased to 1.83 as of 30 September2021 due to decreases in the current portion of our borrowings and of our trade and otherpayables as explained above.

Gearing ratio

Our gearing ratio decreased from approximately 1.46 as of 31 December 2019 toapproximately 0.99 as of 31 December 2020 which was mainly due to repayment of ourborrowings. Our gearing ratio subsequently decreased to approximately 0.79 as of 30September 2021 mainly due to repayment of our bank borrowings.

Debt to equity ratio

Our debt to equity ratio decreased from approximately 1.25 as of 31 December 2019 toapproximately 0.77 as of 31 December 2020 which was mainly due to repayment of ourborrowings. Our debt to equity ratio subsequently decreased to approximately 0.67 as of 30September 2021 mainly due to repayment of our bank borrowings.

Net profit margin

Our net profit margin increased from 8.5% as of 31 December 2019 to 9.5% as of 31December 2020, primarily due to increased gross profit margin because the decrease in ouraverage selling price to our customers was less than the decrease in our average unit cost ofsales. Our net profit margin decreased to 8.4% as of 30 September 2021 primarily because ourexpenses increased while our revenue and gross profit decreased during this period.

Interest coverage ratio

Our interest coverage ratio for the two years ended 31 December 2019 and 2020 and thenine months ended 30 September 2021 was approximately 4.59 times, 4.86 times and 3.72times, respectively. The increase in our interest coverage ratio from 2019 to 2020 was primarilydue to the increase in our profit before interest and tax. The decrease in our interest coverageratio from 31 December 2020 to 30 September 2021 was mainly due to decrease in our profitbefore interest and tax and the repayment of borrowings.


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Return on equity

Our return on equity decreased from approximately 36.1% for the year ended 31December 2019 to 29.3% for the year ended 31 December 2020 primarily due to the increasein our total equity. Our return on equity decreased to 13.8% for the nine months ended 30September 2021 primarily due to decrease in our profit.

Return on total assets

Our return on total assets decreased from approximately 10.3% for the year ended 31December 2019 to approximately 9.0% for the year ended 31 December 2020, primarily dueto the increase in our total assets. Our return on total assets subsequently decreased toapproximately 5.0% for the nine months ended 30 September 2021, which was mainlyattributable to the extent of decrease in our net profit for the period mainly due to the decreasein revenue was larger than the extent of decrease in our total assets.

RELATED PARTY TRANSACTIONS

(1) Significant related party transactions

(i) [REDACTED] paid on behalf of the Group



2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Mr. Song Quanfa 314 – – –

(ii) Purchase of raw materials



2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Mr. Wang Shuangquan 10,022 – – –Mr. Zhao Jie 2,548 – – –

12,570 – – –


– 264 –


(iii) Advances from immediate holding companies



2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Copious Pride Limited 13,706 – – –Great Flourishing Limited 3,424 – – –

17,130 – – –

(2) Significant related party balances

(i) Other Payable


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Copious Pride Limited 14,333 13,481 13,329Great Flourishing Limited 3,583 3,370 3,332

17,916 16,851 16,661

Other payables to Copious Pride Limited and Great Flourishing Limited amounted toHK$16 million and HK$4 million, respectively. The other payables were non-interest bearingloans with no maturity date, which will be waived upon the [REDACTED].

(ii) Trade payables


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Mr. Zhao Jie 1,578 145 –

Trade payables to Mr. Zhao Jie were trade in nature, unsecured, non-interest bearing, withpayment terms up to three months.


– 265 –


For details of our related party transactions during the Track Record Period, see note 33to the Accountant’s Report set out in Appendix I to this document.

Our Directors confirmed that the transactions with the related parties were conducted onnormal commercial terms and were fair and reasonable and in the interest of the Shareholdersas a whole. Our Directors are also of the view that our related party transactions during theTrack Record Period would not distort our results of operations during the Track Record Periodor make our historical results not reflective of our future performance.

FINANCIAL RISK DISCLOSURE

The main risks arising from our financial instruments in the normal course of business areinterest rate risk, credit risk and liquidity risk. For further details, please refer to note 3 to theAccountant’s Report as set out in Appendix I to this document.

Interest rate risk

Our income and operating cash flows are substantially independent of changes in marketinterest rates, and we do not have significant interest-bearing assets except cash and cashequivalents and restricted cash.

Our interest rate risk arises from borrowings. Borrowings obtained at variable ratesexpose us to cash flow interest rate risk. Borrowings obtained at fixed rates expose us to fairvalue interest rate risk. We do not hedge its cash flow and fair value interest rate risk.

For the year ended 31 December 2019, if interest rates on all variable rates bearingborrowings had been 1% higher/lower with all other variables held constant, profits for theyears ended 31 December 2019 would have decreased/increased by approximatelyRMB396,000. As of 31 December 2020, and 30 September 2021, our exposure to interest raterisk is considered to be not significant as interest rate from bank borrowings are all fixed.

Credit risk

We are exposed to credit risk in relation to its cash and cash equivalent, trade and otherreceivables and notes receivable represent in financial assets at fair value through othercomprehensive income. The carrying amounts of these balances represent our maximumexposure to credit risk in relation to financial assets.

We closely monitor the level of credit risk by regularly assessing the credit record andcredit period for each customer or debtor based on the customer’s or debtor’s financialcondition, their capacity to obtain guarantee from third parties, their credit records and otherfactors such as current market condition. In addition, we review the recoverable amount of eachindividual trade debt at the end of the reporting period to ensure that adequate impairmentlosses are made for irrecoverable amounts. In this regard, our credit risk is significantlyreduced.

Liquidity risk

In the management of liquidity risk, we monitor and maintain a level of cash and cashequivalents deemed appropriate by our management to finance our operations and mitigate theeffects of fluctuations in cash flows. Cash flow forecast is performed by the operating entitiesof our Group and aggregated by its finance department. The finance department monitorsrolling forecasts of our liquidity requirements to ensure it has sufficient cash to meet


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operational needs while maintaining sufficient headroom on its undrawn committed borrowingfacilities at all times so that we do not breach borrowing limits or covenants (where applicable)on any of its borrowing facilities. For the analysis of our financial liabilities into relevantmaturity groupings based on the remaining period at the balance sheet date to the contractualmaturity date, please refer to note 3 to the Accountant’s Report as set out in Appendix I to thisdocument.

We have reviewed our profitability, working capital and capital expenditure requirementsand determined that we have no significant liquidity risk.

OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

As of the Latest Practicable Date, we had not entered into any off-balance sheettransactions.

DIVIDENDS AND DIVIDEND POLICY

For the years ended 31 December 2019, 2020 and the nine months ended 30 September2021 and up to the Latest Practicable Date, no dividend had been declared or distributed to theShareholders.

As of the Latest Practicable Date, we did not have any fixed dividend policy norpre-determined dividend payout ratios. After completion of the [REDACTED], Shareholderswill be entitled to receive dividends declared by the Company. Dividend payments arediscretionary and will be subject to the recommendation of the Board and the approval of theShareholders after taking into account our operations and earnings, capital requirements andsurplus, general financial condition, contractual restrictions, capital expenditure and futuredevelopment requirements, shareholders’ interests and other factors which they may deemrelevant at such time. Any declaration and payment as well as the amount of the dividends willbe subject to our constitutional documents and the Companies Act, including the approval ofthe Shareholders. Any future declarations of dividends may or may not reflect our historicaldeclarations of dividends and will be at the absolute discretion of our Directors.

We conduct our core business operations through operating subsidiaries in the PRC.Future dividend payments will also depend upon the availability of dividends received fromour operating subsidiaries in the PRC. PRC laws require that dividends be paid only out of thenet profit calculated according to PRC accounting principles, which differ in many aspectsfrom the generally accepted accounting principles in other jurisdictions, including HKFRSs.PRC laws also require foreign invested enterprises to set aside part of their net profit asstatutory reserves, which are not available for distribution as cash dividends. Distributionsfrom our PRC operating subsidiaries may also be subject to any restrictive covenant in bankcredit facilities or loan agreements, convertible bond instruments or other agreements that weor they may enter into in the future.

DISTRIBUTABLE RESERVE

The Company was incorporated on 2 October 2018 and is an investment holdingcompany. The Company had no reserve available for distribution to the Shareholders as of 30September 2021.


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[REDACTED]

In accordance with the relevant accounting standards, [REDACTED] that are directlyattributable to issuance of new Shares will be deducted from equity upon [REDACTED]. Theremaining [REDACTED] are either fully charged to profit or loss or charged to profit or losson an apportioned basis. During the Track Record Period, we have incurred [REDACTED],including legal, professional and other fees, in connection with the [REDACTED]. We expectthe total estimated amount of [REDACTED], including [REDACTED] commissions, with theassumption of an [REDACTED] of HK$[REDACTED] (being the mid-point of the[REDACTED] range) would be approximately [REDACTED], of which approximatelyRMB[REDACTED] was charged to our administrative expenses for the nine months ended 30September 2021. We expect an additional amount of approximately [REDACTED] and[REDACTED] to be further recognized in the consolidated statement of comprehensiveincome of the Group for the three months ended 31 December 2021 and the year ending 31December 2022, respectively, and approximately [REDACTED] to be deducted from equityupon [REDACTED]. The [REDACTED] are subject to adjustment based on the actual amountincurred or to be incurred. Our Group’s financial performance and results of operations for theyear ended 31 December 2021 may be adversely affected by the estimated [REDACTED] inrelation to the [REDACTED].

UNAUDITED [REDACTED] ADJUSTED NET TANGIBLE ASSETS

Please refer to “Unaudited [REDACTED] financial information of the Group” inAppendix II to this document for our unaudited [REDACTED] adjusted net tangible assets.

NO MATERIAL ADVERSE CHANGE

Our Directors have confirmed that there has been no material adverse change in thefinancial or trading position or prospects of the Group since 30 September 2021 and up to thedate of this document, and there is no event since 30 September 2021 and up to the date of thisdocument which will materially affect the information shown in the Accountant’s Report setout in Appendix I to this document, in each case except as otherwise disclosed herein.

DISCLOSURE UNDER RULES 13.13 TO 13.19 OF THE LISTING RULES

Our Directors confirm that, as of the Latest Practicable Date, there was no circumstancethat would give rise to a disclosure requirement under Rules 13.13 to 13.19 of the Listing Rule.

UNAUDITED [REDACTED] STATEMENT OF ADJUSTED NET TANGIBLE ASSETS

The following unaudited [REDACTED] statement of adjusted net tangible assets of theGroup prepared in accordance with Rule 4.29 of the Listing Rules, is for the purpose ofillustrating the effect of the [REDACTED] and the Capitalisation Issue on the consolidated nettangible assets of the Group attributable to the owners of the Company as at 30 September 2021as if the [REDACTED] and the Capitalisation Issue had taken place on 30 September 2021.


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This unaudited [REDACTED] statement of adjusted net tangible assets has beenprepared for illustrative purpose only and because of its hypothetical nature, it may not givea true picture of the net tangible assets of the Group as at 30 September 2021 or at any futuredates following the [REDACTED] and the Capitalisation Issue. It is prepared based on theconsolidated financial information of the Group as at 30 September 2021 as set forth in theAccountant’s Report of the Group, the text of which is set out in Appendix I to this document,and adjusted as described below. The unaudited [REDACTED] statement of adjusted nettangible assets does not form part of the Accountant’s Report.

Unauditedconsolidatednet tangible

assets ofthe Group

attributable toowners of the

Company as at30 September

2021 [REDACTED]

Unaudited[REDACTED]

adjusted nettangible assetsattributable toowners of the


2021

Unaudited [REDACTED]adjusted net tangible

assets per share

(Note 1) (Note 2) (Note 3) (Note 4)

RMB’000 [REDACTED] [REDACTED] RMB HK$

Based on the [REDACTED]of [REDACTED] per share 418,835 [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Based on the [REDACTED]of [REDACTED] per share 418,835 [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Notes:

(1) The unaudited consolidated net tangible assets attributable to owners of the Company as of 30September 2021 is extracted from the Accountant’s Report set out in Appendix I to this document, whichis based on the unaudited consolidated net assets of the Group attributable to owners of the Companyas of 30 September 2021 of RMB421,922,000, with an adjustment for the intangible assets ofRMB3,087,000 as at 30 September 2021.

(2) The estimated [REDACTED] from the [REDACTED] are based on the individual [REDACTED] of[REDACTED] and [REDACTED] per share, being the lower end to higher end of the stated[REDACTED] range, respectively, and [REDACTED] shares expected to be issued under the[REDACTED], after deduction of the [REDACTED] and other related expenses payable by theCompany (excluding [REDACTED] expenses of approximately [REDACTED] which have beenaccounted for in the Group’s consolidated statements of comprehensive income prior to 30 September2021, and takes no account of any Shares which may be issued pursuant to the exercise of the[REDACTED], any options which may be granted under the Share Option Scheme or any Shares whichmay be allotted and issued or repurchased by the Company under the general mandate to issue Sharesand general mandate to repurchase Shares as described in the section headed “Share Capital” in thisdocument.

(3) The unaudited [REDACTED] adjusted net tangible assets per share is arrived at after the adjustmentsreferred to in the preceding paragraphs and on the basis that [REDACTED] shares are in issue,assuming the [REDACTED] and the Capitalisation Issue had been completed on 30 September 2021,and no [REDACTED] will be granted.

(4) For the purpose of this unaudited [REDACTED] statement of adjusted net tangible assets, the balancestated in Renminbi is converted into Hong Kong dollars at rate of HK$1.00 to RMB0.83. Norepresentation is made that Renminbi amounts have been, could have been or may be converted to HongKong dollars, or vice versa, at that rate.

(5) No adjustment has been made to reflect any trading results or other transactions of the Group enteredinto subsequent to 30 September 2021.


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FUTURE PLANS

See “Business – Our business strategies” in this document for details of our future plans.

[REDACTED]

We estimate that the [REDACTED] we will receive from the [REDACTED] (afterdeducting [REDACTED], fees and anticipated expenses payable by us in connection with the[REDACTED]) will be approximately [REDACTED] (equivalent to approximately[REDACTED]), assuming the [REDACTED] is not exercised and assuming an[REDACTED] of [REDACTED] per Share, being the mid-point of the [REDACTED] rangeof [REDACTED] to [REDACTED] per Share as stated in this document.

We strive to further strengthen our market position in the ready-mixed concrete andmortar production industry in the PRC. In anticipation of the future growth potential of theindustry brought about by rising demand and market consolidation, we will continue to seekopportunities to realize sustainable growth of our business and increase shareholder value.

After deducting the issue expenses and assuming the [REDACTED] is not exercised, weintend to use the [REDACTED] from the [REDACTED] for the purpose and in the amountsset out below:

• approximately [REDACTED], or approximately [REDACTED] (equivalent toapproximately [REDACTED]), is expected to be used for constructing or acquiringa new batching plant containing two production lines each with a designedproduction capacity of 300 m3 per hour. As of the Latest Practicable Date, we havenot identified any target for acquisition;

• approximately [REDACTED], or approximately [REDACTED] (equivalent toapproximately [REDACTED]), is expected to be used to repay our outstanding bankloans. See “Financial Information – Indebtedness – Borrowings” in this documentfor details of our outstanding bank loans;

• approximately [REDACTED], or approximately [REDACTED] (equivalent toapproximately [REDACTED]), for upgrading the environment protection featuresof our production facilities; and

• approximately [REDACTED], or approximately [REDACTED] (equivalent toapproximately [REDACTED]), is expected to be used towards working capital andother general corporate purposes.

We estimate that the additional [REDACTED] we will receive if the [REDACTED] isexercised in full will be approximately [REDACTED] (equivalent to approximately[REDACTED]) (assuming an [REDACTED] of [REDACTED], being the mid-point of theindicative [REDACTED] range of [REDACTED] to [REDACTED]). We intend to apply theadditional [REDACTED] from the exercise of the [REDACTED] for the above uses on a prorata basis.

If the [REDACTED] is fixed at [REDACTED], being the high end of the indicative[REDACTED] range, our [REDACTED] will be (i) increased by approximately[REDACTED] (equivalent to approximately [REDACTED]), assuming the [REDACTED] isnot exercised; and (ii) increased by approximately [REDACTED] (equivalent toapproximately [REDACTED]), assuming the [REDACTED] is exercised in full. We intend touse the additional [REDACTED] for the above uses on a pro rata basis.

FUTURE PLANS AND [REDACTED]

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If the [REDACTED] is fixed at [REDACTED], being the low end of the indicative[REDACTED] range, our [REDACTED] will be (i) decreased by approximately[REDACTED] (equivalent to approximately [REDACTED]), assuming the [REDACTED] isnot exercised; and (ii) decreased by approximately [REDACTED] (equivalent toapproximately [REDACTED]), assuming the [REDACTED] is exercised in full. We intend toadjust our allocation of the [REDACTED] for the above uses on a pro rata basis.

To the extent that the [REDACTED] to us from the [REDACTED] are not immediatelyapplied to the above purposes, we intend to deposit the [REDACTED] into short-term demanddeposits and/or money market instruments. In such event, we will comply with the appropriatedisclosure requirements under the Listing Rules.

FUTURE PLANS AND [REDACTED]

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[REDACTED]

[REDACTED] INTERESTS IN THE COMPANY

Except as disclosed in this section of this document and save for their interests andobligations under the [REDACTED], none of the [REDACTED] is interested beneficially orotherwise in any shares in any member of the Group or has any right (whether legallyenforceable or not) or option to subscribe for, or to nominate persons to subscribe for, anyshares in any member of the Group.

INDEMNITY

The Company and the Controlling Shareholders have agreed to indemnify and keepindemnified and hold harmless each of the Sole Sponsor, [REDACTED] (for themselves andon trust for their directors, officers, employees, agents, assignees and affiliates) from andagainst certain losses which they may suffer, including but not limited to losses arising fromthe performance of their obligations under [REDACTED] and any breach by the Company of[REDACTED].

[REDACTED]

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STRUCTURE AND CONDITIONS OF THE [REDACTED]

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The following is the text of a report set out on pages [I-[1] to I-[3]], received from theCompany’s reporting accountant, [PricewaterhouseCoopers], Certified Public Accountants,Hong Kong, for the purpose of incorporation in this document. It is prepared and addressedto the directors of the Company and to the Sole Sponsor pursuant to the requirements of HKSIR200, Accountants’ Reports on Historical Financial Information in Investment Circulars issuedby the Hong Kong Institute of Certified Public Accountants.

[DRAFT]

[Letterhead of PricewaterhouseCoopers]

ACCOUNTANT’S REPORT ON HISTORICAL FINANCIAL INFORMATION TO THEDIRECTORS OF CHINA SHENLI CONSTRUCTION MATERIALS HOLDINGLIMITED AND CENTRAL CHINA INTERNATIONAL CAPITAL LIMITED

Introduction

We report on the historical financial information of China Shenli Construction MaterialsHolding Limited (the “Company”) and its subsidiaries (together, the “Group”) set out on pagesI-[4] to I-[61], which comprises the consolidated statements of financial position as at 31December 2019 and 2020, the company statements of financial position as at 31 December2019 and 2020 and the consolidated statements of comprehensive income, the consolidatedstatements of changes in equity and the consolidated statements of cash flows for each of theyears ended 31 December 2019 and 2020 (the “Track Record Period”) and a summary ofsignificant accounting policies and other explanatory information (together, the “HistoricalFinancial Information”). The Historical Financial Information set out on pages I-[4] to I-[61]forms an integral part of this report, which has been prepared for inclusion in the document ofthe Company dated [REDACTED] (the “Document”) in connection with the [REDACTED]of shares of the Company on the Main Board of The Stock Exchange of Hong Kong Limited.

Directors’ responsibility for the Historical Financial Information

The directors of the Company are responsible for the preparation of Historical FinancialInformation that gives a true and fair view in accordance with the basis of presentation andpreparation set out in Notes 1.3 and 2.1 to the Historical Financial Information, and for suchinternal control as the directors determine is necessary to enable the preparation of HistoricalFinancial Information that is free from material misstatement, whether due to fraud or error.

Reporting accountant’s responsibility

Our responsibility is to express an opinion on the Historical Financial Information and toreport our opinion to you. We conducted our work in accordance with Hong Kong Standard onInvestment Circular Reporting Engagements 200, Accountants’ Reports on HistoricalFinancial Information in Investment Circulars issued by the Hong Kong Institute of CertifiedPublic Accountants (“HKICPA”). This standard requires that we comply with ethical standardsand plan and perform our work to obtain reasonable assurance about whether the HistoricalFinancial Information is free from material misstatement.

APPENDIX I ACCOUNTANT’S REPORT

– I-1 –


Our work involved performing procedures to obtain evidence about the amounts anddisclosures in the Historical Financial Information. The procedures selected depend on thereporting accountant’s judgement, including the assessment of risks of material misstatementof the Historical Financial Information, whether due to fraud or error. In making those riskassessments, the reporting accountant considers internal control relevant to the entity’spreparation of Historical Financial Information that gives a true and fair view in accordancewith the basis of presentation and preparation set out in Notes 1.3 and 2.1 to the HistoricalFinancial Information 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 internalcontrol. Our work also included evaluating the appropriateness of accounting policies used andthe reasonableness of accounting estimates made by the directors, as well as evaluating theoverall presentation of the Historical Financial Information.

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

Opinion

In our opinion, the Historical Financial Information gives, for the purposes of theaccountant’s report, a true and fair view of the financial position of the Company as at 31December 2019 and 2020 and the consolidated financial position of the Group as at 31December 2019 and 2020 and of its consolidated financial performance and its consolidatedcash flows for each of the years then ended in accordance with the basis of presentation andpreparation set out in Notes 1.3 and 2.1 to the Historical Financial Information.

Review of stub period financial information

We have reviewed the stub period financial information of the Group which comprises theconsolidated statement of financial position as at 30 September 2021, the company statementof financial position as at 30 September 2021, and the consolidated statement ofcomprehensive income, the consolidated statement of changes in equity and the consolidatedstatement of cash flows for the nine months ended 30 September 2020 and 2021 and otherexplanatory information (the “Stub Period Financial Information”). The directors of theCompany are responsible for the presentation and preparation of the Stub Period FinancialInformation in accordance with the basis of presentation and preparation set out in Notes 1.3and 2.1 to the Historical Financial Information. Our responsibility is to express a conclusionon the Stub Period Financial Information based on our review. We conducted our review inaccordance with Hong Kong Standard on Review Engagements 2410, Review of InterimFinancial Information Performed by the Independent Auditor of the Entity issued by theHKICPA. A review consists of making inquiries, primarily of persons responsible for financialand accounting matters, and applying analytical and other review procedures. A review issubstantially less in scope than an audit conducted in accordance with Hong Kong Standardson Auditing and consequently does not enable us to obtain assurance that we would becomeaware of all significant matters that might be identified in an audit. Accordingly, we do notexpress an audit opinion. Based on our review, nothing has come to our attention that causesus to believe that the Stub Period Financial Information, for the purposes of the accountant’sreport, is not prepared, in all material respects, in accordance with the basis of presentation andpreparation set out in Notes 1.3 and 2.1 to the Historical Financial Information.


– I-2 –


Report on matters under the Rules Governing the Listing of Securities on The StockExchange of Hong Kong Limited (the “Listing Rules”) and the Companies (Winding Upand Miscellaneous Provisions) Ordinance

Adjustments

In preparing the Historical Financial Information, no adjustments to the UnderlyingFinancial Statements as defined on page I-[4] have been made.

Dividends

We refer to note 35 to the Historical Financial Information which states that no dividendshas been paid by China Shenli Construction Materials Holding Limited in respect of the TrackRecord Period.

No statutory financial statements for the Company

No statutory financial statements have been prepared for the Company since its date ofincorporation.

[PricewaterhouseCoopers]Certified Public AccountantsHong Kong, [Date]


– I-3 –


I HISTORICAL FINANCIAL INFORMATION OF THE GROUP

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of thisaccountant’s report.

The consolidated financial statements of the Group for the years ended 31 December 2019and 2020, on which the Historical Financial Information is based, were audited byPricewaterhouseCoopers in accordance with Hong Kong Standards on Auditing issued by theHKICPA (“Underlying Financial Statements”).

The Historical Financial Information is presented in Renminbi (“RMB”) and all valuesare rounded to the nearest thousand (RMB’000) except when otherwise indicated.


– I-4 –


Consolidated statements of comprehensive income

Year ended 31 DecemberNine months ended

30 September

Note 2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000(Unaudited) (Unaudited)

Revenue 5 1,097,407 1,086,512 944,749 511,173Cost of sales 8 (909,409) (893,226) (774,244) (421,216)

Gross profit 187,998 193,286 170,505 89,957Distribution expenses 8 (4,192) (4,248) (3,006) (3,811)Administrative expenses 8 (32,261) (24,111) (14,345) (20,100)Net impairment losses on

financial assets 8 (17,298) (25,620) (26,319) (9,390)Other income 6 26,389 30,438 22,483 17,788Other (losses)/gains – net 7 (3,531) (3,243) (2,773) (1,655)


Finance costs – net 10 (34,034) (34,010) (26,769) (18,489)

Profit before income tax 123,071 132,492 119,776 54,300

Income tax expense 12 (29,865) (29,813) (27,661) (11,534)


Other comprehensive income:Item that will not be reclassified

subsequently to profit or lossChanges in the fair value of equity

investment at fair value throughother comprehensive income 23 (5,657) 5,760 (12,060) (24,997)

Other comprehensive income for theyear/period, net of tax (5,657) 5,760 (12,060) (24,997)

Total comprehensive income for theyear/period 87,549 108,439 80,055 17,769

Earnings per share for profitattributable to owners of theCompany (expressed inRMB thousand)– Basic and diluted 11 4.75 5.08 4.56 2.12


– I-5 –


Consolidated statements of financial position

As at 31 DecemberAs at

30 SeptemberNote 2019 2020 2021

RMB’000 RMB’000 RMB’000(Unaudited)

ASSETSNon-current assetsRight-of-use assets 13 26,372 25,541 24,919Property, plant and equipment 14 73,116 69,544 65,086Intangible assets 15 2,995 2,903 3,087Deferred income tax assets 27 3,725 8,805 11,072Financial assets at fair value through other

comprehensive income 17 139,500 147,180 113,850

245,708 253,973 218,014Current assetsInventories 19 15,857 9,360 8,165Trade and other receivables 18 702,217 864,082 782,780Financial assets at fair value through other

comprehensive income 17 27,400 22,531 2,900Cash and cash equivalents 20 61,615 89,702 48,571

807,089 985,675 842,416

Total assets 1,052,797 1,239,648 1,060,430

EQUITY AND LIABILITIESEquity attributable to owners of the CompanyShare capital 22 * * *Other reserves 23 85,990 101,990 76,993Retained earnings 209,724 302,163 344,929

Total equity 295,714 404,153 421,922

LIABILITIESNon-current liabilitiesBorrowings 26 50,257 21,587 179,887Lease liabilities 25 350 71 –Deferred income tax liabilities 27 9,965 10,651 2,291

60,572 32,309 182,178

Current liabilitiesTrade and other payables 24 316,834 420,636 309,174Contract liabilities 5 12,696 4,195 2,282Lease liabilities 25 261 279 218Current income tax liabilities 4,533 17,503 8,553Borrowings 26 362,187 360,573 136,103

696,511 803,186 456,330


Total equity and liabilities 1,052,797 1,239,648 1,060,430

* Represents amount less than RMB1,000.


– I-6 –


Statements of financial position of the Company


30 September

Note 2019 2020 2021

RMB’000 RMB’000 RMB’000(Unaudited)

AssetsNon-current assetsInvestment in a subsidiary 224,946 224,946 224,946Amounts due from a subsidiary 18 202 165 166

225,148 225,111 225,112

Current assetsPrepayments 18 – – 1,213Cash and cash equivalents 133 19 18

133 19 1,231

Total assets 225,281 225,130 226,343

Equity and liabilitiesEquityShare capital 22 * * *Other reserves 23 211,276 211,276 211,276Accumulated losses (8,004) (6,947) (6,789)

Total equity 203,272 204,329 204,487

LiabilitiesCurrent liabilitiesOther payables 24 22,009 20,801 21,856


Total equity and liabilities 225,281 225,130 226,343



– I-7 –


Consolidated statements of changes in equity

Attributable to owners of the Company

Sharecapital

Otherreserves

Retainedearnings Total

RMB’000 RMB’000 RMB’000 RMB’000(Note 23)

Balance at 1 January 2019 – 94,100 126,221 220,321

Comprehensive incomeProfit for the year – – 93,206 93,206Other comprehensive income

Changes in fair value of equityinvestment at fair value throughother comprehensive income – (5,657) – (5,657)

Total comprehensive income,net of tax – (5,657) 93,206 87,549

Transactions with owners in theircapacity as owners

Appropriation to statutory reserve – 9,703 (9,703) –Capital injection * 18,844 – 18,844Deemed distribution (Note 23(ii)) – (31,000) – (31,000)

Total transactions with owners in theircapacity as owners * (2,453) (9,703) (12,156)

Balance at 31 December 2019 * 85,990 209,724 295,714

Balance at 1 January 2020 * 85,990 209,724 295,714

Comprehensive incomeProfit for the year – – 102,679 102,679Other comprehensive income

Changes in fair value of equityinvestment at fair value throughother comprehensive income – 5,760 – 5,760

Total comprehensive income, net of tax – 5,760 102,679 108,439


Appropriation to statutory reserve – 10,240 (10,240) –

Total transactions with owners in theircapacity as owners – 10,240 (10,240) –

Balance at 31 December 2020 * 101,990 302,163 404,153



– I-8 –


Attributable to owners of the Company

Sharecapital

Otherreserves

Retainedearnings Total

RMB’000 RMB’000 RMB’000 RMB’000(Note 23)


Comprehensive incomeProfit for the period – – 42,766 42,766Other comprehensive income


Total comprehensive income, net of tax * (24,997) 42,766 17,769


Appropriation to statutory reserve – – – –

Total transactions with owners in theircapacity as owners – – – –

Balance at 30 September 2021(Unaudited) * 76,993 344,929 421,922


Comprehensive incomeProfit for the period – – 92,115 92,115Other comprehensive income


Total comprehensive income, net of tax * (12,060) 92,115 80,055


Appropriation to statutory reserve – – – –

Total transactions with owners in theircapacity as owners – – – –

Balance at 30 September 2020(Unaudited) * 73,930 301,839 375,769



– I-9 –


Consolidated statements of cash flows



Note 2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000(Unaudited) (Unaudited)

Cash flows from operating activitiesCash (used in)/generated from

operations 28 (6,402) 120,536 81,760 69,162Income tax paid (37,075) (23,157) (17,890) (22,779)Interest received 163 227 193 1,068

Net cash (used in)/generated fromoperating activities (43,314) 97,606 64,063 47,451

Cash flows from investing activitiesPayments of property, plant

and equipment (7,309) (8,255) (7,423) (1,896)Payments for intangible assets (31) (234) (95) (42)Proceeds from disposal of property,

plant and equipment 3,748 490 490 222Dividends from financial assets at

fair value through othercomprehensive income 2,265 3,235 3,235 –

Addition of restricted cash (60) – – –Release of restricted cash 5,560 – – –

Net cash generated from/(used in)investing activities 4,173 (4,764) (3,793) (1,716)

Cash flows from financing activitiesProceeds from borrowings 382,500 332,500 252,500 254,500Repayments of borrowings (294,738) (362,503) (308,284) (321,389)Repayment to ultimate controlling

shareholder (3,950) – – –Advances from immediate holding

companies 17,120 – – –Capital injection from the shareholders 18,844 – – –Interest paid (30,841) (34,452) (27,119) (18,776)Principal elements of finance lease

payments (225) (300) (225) (150)Prepayment for [REDACTED] – – – [REDACTED]Deemed distribution 23(ii) (31,000) – – –

Net cash generated from/(used in)financing activities 57,710 (64,755) (83,128) (86,866)

Net increase/(decrease) in cash andcash equivalents 18,569 28,087 (22,858) (41,131)

Cash and cash equivalents at beginningof the year/period 43,046 61,615 61,615 89,702

Cash and cash equivalents at end ofthe year/period 61,615 89,702 38,757 48,571


– I-10 –


II NOTES TO THE FINANCIAL INFORMATION

1 GENERAL INFORMATION, REORGANISATION AND BASIS OF PRESENTATION

1.1 General information

The Company was incorporated in the Cayman Islands on 2 October 2018 as an exempted company withlimited liability under the Companies Act (as revised) of the Cayman Islands. The address of the Company’sregistered office is PO Box 1350, Windward 3, Regatta Office Park, Grand Cayman KY1-1108, Cayman Islands.

The Company is an investment holding company and its subsidiaries are principally engaged in the productionand sale of ready-mixed concrete products in the People’s Republic of China (“the PRC”) (the “[REDACTED]Business”).

The ultimate holding company of the Company is Copious Pride Limited (“Copious Pride”). The ultimatecontrolling shareholder of the Group is Mr. Song Quanfa.

1.2 Reorganisation

Prior to the completion of the reorganisation (the “Reorganisation”) as described below, the [REDACTED]Business was principally operated by Henan Shenli and Henan Shentong (collectively, the “Operating Companies”),which were controlled by Mr. Song Quanfa throughout the Track Record Period.

Pursuant to the Reorganisation, the Operating Companies were transferred to the Company through thefollowing major steps:

(1) On 11 September 2018, Henan Shenli acquired Henan Shentong, which was previously held by Mr. SongQuanfa and Mr. Shi Junwei, at a total consideration of RMB30,000,000.

(2) On 2 October 2018, the Company was incorporated in the Cayman Islands and its one share was heldby Copious Pride. On 4 December 2018, 79 and 20 shares of the Company were allotted and issued toeach of Copious Pride and Great Flourishing Limited (which is held by Mr. Shi Junwei), respectively.As such, the Company was effectively 80% and 20% owned by Mr. Song Quanfa and Mr. Shi Junwei,respectively.

(3) On 11 October 2018, the Company subscribed one share of Million Prosper Holdings Limited (“MillionProsper”) which was incorporated in the BVI and Million Prosper became a wholly-owned subsidiaryof the Company.

(4) On 19 November 2018, Million Prosper subscribed one share of Hong Kong Shenli ConstructionMaterials Limited (“Shenli HK”) and Shenli HK became a wholly-owned subsidiary of Million Prosper.

(5) On 25 January 2019, Mr. Wong Chung Man injected HK$2,000,000 (equivalent to RMB1,724,000) toHenan Shenli for 1% equity interest in Henan Shenli. Upon completion of the capital injection, HenanShenli became a sino-foreign joint venture enterprise which was owned as to 79.2%, 19.8% and 1% byMr. Song Quanfa, Mr. Shi Junwei and Mr. Wong Chung Man, respectively.

(6) On 19 February 2019, Henan Shengangtong Construction Materials Limited (“Shengangtong”) wasestablished in the PRC and held by Shenli HK.

(7) On 22 February 2019, Shengangtong acquired the 99% equity interests in Henan Shenli in aggregatefrom Mr. Song Quanfa and Mr. Shi Junwei at total consideration of RMB31,000,000.

(8) On 1 April 2019, Tian Lun Group Limited, a [REDACTED] injected capital of HK$20,000,000 for 10%equity interest in the Company.

(9) On 22 April 2019, Shenli HK acquired a 1% equity interest in Henan Shenli from Mr. Wong Chung Manat HK$2,000,000. On 7 June 2019, Noble Glory Ventures Limited which is held by Mr. Wong ChungMan injected capital of HK$2,000,000 for 1% equity interest in the Company.


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Upon completion of the Reorganisation, the Company became the holding company of the OperatingCompanies. At the time of completion of the Reorganisation and the date of this report, the Company had direct orindirect interests in the following subsidiaries:

Name of subsidiaryPlace and dateof incorporation

Registered/issued and

paid-in capital Principal activities

Effective interest held (%)

As at31 December

As at30 September

As atthe date

of thereport2019 2020 2021

Directly held by the Company:

Million Prosper (i) The BVI/3 August 2018

US$1 Investment holding 100% 100% 100% 100%

Indirectly held by the Company:Henan Shenli

(河南神力混凝土有限公司) (i)The PRC/

14 November2003

RMB31,313,100 Production and sale ofready-mixed concreteproducts

100% 100% 100% 100%

Henan Shentong(河南神通新型建材有限公司) (i)

The PRC/29 December2015


100% 100% 100% 100%

Zhengzhou Lijiate Printing(“Lijiate Printing”)(鄭州利佳特印務有限公司) (i)

The PRC/28 January2010

RMB15,000,000 Processing and sale ofplastic materials

100% 100% 100% 100%

Henan Gangfa New Construction MaterialsCo., Ltd. (“Henan Gangfa”)(河南港發新型建材有限公司) (i)

The PRC/30 October2017


100% 100% 100% 100%

Shenli HK (i) Hong Kong/20 September2018

HK$1 Investment holding 100% 100% 100% 100%

Shengangtong(河南神港通建材有限公司) (i)

The PRC/19 February2019

HK$35,000,000 Investment holding 100% 100% 100% 100%

(i) No audited financial statements of the companies were issued as it is not required to issue audited financialstatements under the local statutory requirements.

1.3 Basis of presentation

Immediately prior to the Reorganisation, the [REDACTED] Business was conducted by the OperatingCompanies which were under the control of Mr. Song Quanfa. Pursuant to the Reorganisation, the [REDACTED]Business was transferred to and held by the Company. The Company has not been involved in any other business priorto the Reorganisation and does not meet the definition of a business. The Reorganisation is merely a recapitalisationof the [REDACTED] Business with no change in any management of such business or the ultimate owner of the[REDACTED] Business remain the same. Accordingly, the Group resulting from the Reorganisation is regarded asa continuation of the [REDACTED] Business conducted through the Operating Companies and, for the purpose ofthis report, the Historical Financial Information has been prepared and presented as a continuation of the consolidatedfinancial statements of the Operating Companies, with the results, assets and liabilities of the Group recognised andmeasured at the carrying amounts of the [REDACTED] Business under the consolidated financial statements of theOperating Companies for the Track Record Period.

Inter-company transactions, balances and unrealised gains/losses on transactions between group companies areeliminated on combination.


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2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the Historical Financial Information are set outbelow. These policies have been consistently applied to all the years and periods presented.

2.1 Basis of preparation

The principal accounting policies applied in the preparation of the Historical Financial Information which arein accordance with the Hong Kong Financial Reporting Standards (“HKFRS”) issued by the HKICPA are set outbelow. The Historical Financial Information has been prepared under the historical cost convention, as modified bythe revaluation of financial assets at fair value through other comprehensive income which carried at fair value.

The preparation of Historical Financial Information in conformity with HKFRS requires the use of certaincritical accounting estimates. It also requires management to exercise its judgement in the process of applying theaccounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions andestimates are significant to the Historical Financial Information are disclosed in Note 4.

(a) New standards, amendments and interpretation to existing standards not yet adopted by the Group

Up to the date of issuance of this accountant’s report, the HKICPA has issued the following newstandards, amendments and interpretation which are relevant but not yet effective for the Track Record Periodand have not been early adopted by the Group:

Annual Improvements to HKFRSs 2018-2020 (amendments) 1 January 2022HKFRS 3, HKAS 16 and HKAS 37 (amendments) “Narrow-scope amendments” 1 January 2022HKFRS16 Covid-19-Related Rent Concessions beyond 2021 (amendments) 1 April 2021Revised Accounting Guideline 5 Merger Accounting for Common Control

Combinations1 January 2022

HKAS 1 (amendments) “Classification of Liabilities as Current or Non-current” 1 January 2023HKFRS 17 Insurance Contracts (new standard) and Amendments to HKFRS 17 1 January 2023Hong Kong Interpretation 5 (2020) Presentation of Financial Statements –

Classification by the Borrower of a Term Loan that Contains a Repayment onDemand Clause

1 January 2023

HKAS 1 and HKFRS Practice Statement 2 (amendments) “Disclosure ofAccounting Policies”

1 January 2023

HKAS 8 Definition of Accounting Estimates 1 January 2023HKAS 12 (amendments) “Deferred tax related to assets and liabilities arising

from a single transaction”1 January 2023

HKFRS 10 and HKAS 28 (amendments) “Sale or Contribution of Assetsbetween an Investor and its Associate or Joint Venture”

To be determined

The Group will adopt the above new or revised standards, amendments and interpretations to existingstandards as and when they become effective. Management has performed preliminary assessment and does notanticipate any significant impact on the Group’s financial position and results of operations upon adoptingthese standards, amendments and interpretations to existing HKFRS.

2.2 Principles of consolidation and equity accounting

(i) Subsidiaries

A subsidiary is an entity (including a structured entity) over which the Group has control. The Groupcontrols an entity when the Group is exposed to, or has rights to, variable returns from its involvement withthe entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fullyconsolidated from the date on which control is transferred to the Group. They are deconsolidated from the datethat control ceases.

Except for the Reorganisation, the acquisition method of accounting is used to account for businesscombinations.

Non-controlling interests in the results and equity of subsidiaries are shown separately in theconsolidated statements of comprehensive income, statements of changes in equity and statements of financialposition, respectively.

Intercompany transactions, balances and unrealised gains on transactions between group companies areeliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment ofthe transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensureconsistency with the policies adopted by the Group.


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(ii) Associates

An associate is an entity over which the Group has significant influence but not control, generallyaccompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates areaccounted for using the equity method of accounting, after initially being recognised at cost.

(iii) Equity method

Under the equity method of accounting, the investments are initially recognised at cost and adjustedthereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit orloss, and the Group’s share of movements in other comprehensive income of the investee in othercomprehensive income. Dividends received or receivable from associates are recognised as a reduction in thecarrying amount of the investment.

When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in theentity, including any other unsecured long-term receivables, the Group does not recognise further losses,unless it has incurred obligations or made payments on behalf of the other entity.

Unrealised gains on transactions between the Group are eliminated to the extent of the Group’s interestin these entities. Unrealised losses are also eliminated unless the transaction provides evidence of animpairment of the asset transferred. Accounting policies of equity accounted investees have been changedwhere necessary to ensure consistency with the policies adopted by the Group.

The carrying amount of equity-accounted investments is tested for impairment in accordance with thepolicy described in Note 2.10.

2.3 Business combinations

The acquisition method of accounting is used to account for all business combinations, regardless of whetherequity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiarycomprises the:

• fair values of the assets transferred,

• liabilities incurred to the former owners of the acquired business,

• equity interests issued by the Group,

• fair value of any asset or liability resulting from a contingent consideration arrangement, and

• fair value of any pre-existing equity interest in the subsidiary.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are,with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises anynon-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at thenon-controlling interest’s proportionate share of the acquired entity’s net identifiable assets.

Acquisition-related costs are expensed as incurred.

The excess of the

• consideration transferred,

• amount of any non-controlling interest in the acquired entity, and

• acquisition-date fair value of any previous equity interest in the acquired entity,

over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than thefair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or lossas a bargain purchase.


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Where settlement of any part of cash consideration is deferred, the amounts payable in the future arediscounted to their present value as at the date of exchange. The discount rate used is the entity’s incrementalborrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier undercomparable terms and conditions. Contingent consideration is classified either as equity or a financial liability.Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair valuerecognised in profit or loss.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’spreviously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or lossesarising from such remeasurement are recognised in profit or loss.

2.4 Separate financial statements

Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costsof investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received andreceivable.

Impairment testing of the investments in subsidiaries is required upon receiving a dividend from theseinvestments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend isdeclared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amountin the consolidated financial statements of the investee’s net assets including goodwill.

2.5 Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chiefoperating decision-maker. The chief operating decision-maker, who is responsible for allocating resources andassessing performance of the operating segments, has been identified as the executive directors that makes strategicdecisions.

2.6 Foreign currency translation

(1) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using thecurrency of the primary economic environment in which the entity operates (the “functional currency”). Theconsolidated financial statements are presented in RMB, which is the Company’s functional and the Group’spresentation currency.

(2) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange ratesprevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gainsand losses resulting from the settlement of such transactions and from the translation at year-end exchangerates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

(3) Group companies

The results and financial position of foreign operations (none of which has the currency of ahyperinflationary economy) that have a functional currency different from the presentation currency aretranslated into the presentation currency as follows:

• assets and liabilities for each balance sheet presented are translated at the closing rate at the dateof that balance sheet,

• income and expenses for each statement of comprehensive income are translated at averageexchange rates (unless this is not a reasonable approximation of the cumulative effect of the ratesprevailing on the transaction dates, in which case income and expenses are translated at the datesof the transactions), and

• all resulting exchange differences are recognised in other comprehensive income.


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2.7 Property, plant and equipment

Property, plant and equipment is stated at historical cost less depreciation and any impairment losses.Historical cost includes expenditure that is directly attributable to the acquisition or construction of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,only when it is probable that future economic benefits associated with the item will flow to the Group and the costof the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs andmaintenance are charged to profit or loss during the Track Record Period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost to their residual values over theirestimated useful lives, as follows:

Buildings 10-20 yearsEquipment and machinery 3-10 yearsMotor vehicles 3-8 yearsOffice equipment 3-5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of eachreporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carryingamount is greater than its estimated recoverable amount (Note 2.10).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and arerecognised within “other (losses)/gains – net” in profit or loss.

Construction in progress (“CIP”) represent buildings under construction and plant and equipment pendinginstallation, and are stated at cost. Costs include construction and acquisition costs. No provision for depreciation ismade on assets under construction until such time as the relevant assets are completed and ready for intended use.When the assets concerned are brought into use, the costs are transferred to property, plant and equipment anddepreciated in accordance with the policy as stated above.

2.8 Intangible assets

(1) Goodwill

Goodwill arises on the acquisition of subsidiaries represents the excess of the consideration transferred,the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previousequity interest in the acquiree over the fair value of the identified net assets acquired.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to eachof the cash-generating units (“CGUs”), or groups of CGUs, that is expected to benefit from the synergies ofthe combination. Each unit or group of units to which the goodwill is allocated represents the lowest levelwithin the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitoredat the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes incircumstances indicate a potential impairment. The carrying value of the CGU containing the goodwill iscompared to the recoverable amount, which is the higher of value in use and the fair value less costs ofdisposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.

(2) Computer software

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire andbring to use the specific software. These costs are amortised over their estimated useful lives of 5 years.


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2.9 Impairment of non-financial assets

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are testedannually for impairment, or more frequently if events or changes in circumstances indicate that they might beimpaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’scarrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value lesscosts of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levelsfor which there are separately identifiable cash inflows which are largely independent of the cash inflows from otherassets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered animpairment are reviewed for possible reversal of the impairment at the end of each reporting period.

2.10 Investments and other financial assets

(1) Classification

The Group classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value (either through OCI or through profit or loss), and

• those to be measured at amortised cost.

The classification depends on the entity’s business model for managing the financial assets and thecontractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or othercomprehensive income. For investments in equity instruments that are not held for trading, this will dependon whether the Group has made an irrevocable election at the time of initial recognition to account for theequity investment at fair value through other comprehensive income.

The Group reclassifies debt investments when and only when its business model for managing thoseassets changes.

(2) Recognition and derecognition

Regular way purchases and sales of financial assets are recognised on trade-date, the date on which theGroup commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cashflows from the financial assets have expired or have been transferred and the Group has transferredsubstantially all the risks and rewards of ownership.

(3) Measurement

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financialasset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisitionof the financial asset. Transaction costs of financial assets carried at fair value through profit or loss areexpensed in profit or loss.

Debt instruments

Subsequent measurement of debt instruments depends on the Group’s business model formanaging the asset and the cash flow characteristics of the asset. There are three measurementcategories into which the Group classifies its debt instruments:

• Amortised cost: Assets that are held for collection of contractual cash flows where thosecash flows represent solely payments of principal and interest are measured at amortisedcost. Interest income from these financial assets is included in finance income using theeffective interest rate method. Any gain or loss arising on derecognition is recogniseddirectly in profit or loss.

• Fair value through other comprehensive income: Assets that are held for collection ofcontractual cash flows and for selling the financial assets, where the assets’ cash flowsrepresent solely payments of principal and interest, are measured at fair value throughother comprehensive income. Movements in the carrying amount are taken through othercomprehensive income, except for the recognition of impairment gains or losses, interest


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income and foreign exchange gains and losses which are recognised in profit or loss. Whenthe financial asset is derecognised, the cumulative gain or loss previously recognised inother comprehensive income is reclassified from equity to profit or loss and recognised in“other (losses)/gains – net”. Interest income from these financial assets is included infinance income using the effective interest rate method. Foreign exchange gains and lossesare presented in “other (losses)/gains – net” and impairment expenses are presented asadministrative expenses in profit or loss.

• Fair value through profit or loss: Assets that do not meet the criteria for amortised cost orfair value through other comprehensive income are measured at fair value through profitor loss. A gain or loss on a debt investment that is subsequently measured at fair valuethrough profit or loss is recognised in profit or loss and presented net within “other(losses)/gains – net” in the period in which it arises.

Equity instruments

The Group subsequently measures all equity investments at fair value. Where the Group’smanagement has elected to present fair value gains and losses on equity investments in othercomprehensive income, there is no subsequent reclassification of fair value gains and losses to profit orloss following the derecognition of the investment. Dividends from such investments continue to berecognised in profit or loss as other income when the Group’s right to receive payments is established.

Changes in the fair value of financial assets at fair value through profit or loss are recognised in“other (losses)/gains – net” in profit or loss as applicable. Impairment losses (and reversal of impairmentlosses) on equity investments measured at fair value through other comprehensive income are notreported separately from other changes in fair value.

(4) Impairment

The Group assesses on a forward looking basis the expected credit losses associated with its debtinstruments carried at amortised cost and fair value through other comprehensive income. The impairmentmethodology applied depends on whether there has been a significant increase in credit risk.

For trade receivables, the Group applies the simplified approach permitted by HKFRS 9, which requiresexpected lifetime losses to be recognised from initial recognition of the receivable.

Impairment on other receivables is measured as either 12-month expected credit losses or lifetimeexpected credit losses, depending on whether there has been a significant increase in credit risk since initialrecognition. If a significant increase in credit risk of a receivables has occurred since initial recognition, thenimpairment is measured as lifetime expected credit losses.

2.11 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the consolidated statements of financialposition where the Group currently has a legally enforceable right to offset the recognised amounts, and there is anintention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceableright must not be contingent on future events and must be enforceable in the normal course of business and in theevent of default, insolvency or bankruptcy of the Company or the counterparty.

2.12 Financial guarantee contracts

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. Theliability is initially measured at fair value and subsequently at the higher of

• the amount determined in accordance with the expected credit loss model under HKFRS 9 FinancialInstruments and

• the amount initially recognised less, where appropriate, the cumulative amount of income recognised inaccordance with the principles of HKFRS 15 Revenue from Contracts with Customers.

The fair value of financial guarantees is determined based on the present value of the difference in cash flowsbetween the contractual payments required under the debt instrument and the payments that would be requiredwithout the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

Where guarantees in relation to loans or other payables of associates are provided for no compensation, thefair values are accounted for as contributions and recognised as part of the cost of the investment.


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2.13 Inventories

Inventories are stated at the lower of cost and net realisable value. Costs of inventories is calculated using theweighted average method. Net realisable value is the estimated selling price in the ordinary course of business lessthe estimated costs of completion and the estimated costs necessary to make the sale.

2.14 Trade receivables

Trade receivables are amounts due from customers for goods sold in the ordinary course of business. Ifcollection of trade receivables is expected in one year or less (or in the normal operating cycle of the business iflonger), they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using theeffective interest method, less allowance for impairment. See Note 2.10 for further information about the Group’saccounting for trade receivables and Note 3.1(2) for a description of the Group’s impairment policies.

2.15 Cash and cash equivalents

In the consolidated statements of cash flows, cash and cash equivalents includes cash in hand, deposits heldat call with banks.

2.16 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax,from the proceeds.

2.17 Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course ofbusiness from suppliers. Trade and other payables are presented as current liabilities if payment is due within oneyear or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-currentliabilities.

Trade and other payables are recognised initially at fair value and subsequently measured at amortised costusing the effective interest method.

2.18 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings aresubsequently carried at amortised cost. Any difference between the proceeds (net of transaction costs) and theredemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extentthat it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down,the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which itrelates.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlementof the liability for at least 12 months after the end of the reporting period.

2.19 Borrowing costs

General and specific borrowing costs directly attributable to the acquisition, construction or production ofqualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intendeduse or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intendeduse or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure onqualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.


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2.20 Current and deferred income tax

The income tax expense or credit for the period is the tax payable on the current period’s taxable income basedon the applicable income tax rate for each jurisdiction adjusted by changes in deferred income tax assets andliabilities attributable to temporary differences and to unused tax losses.

(1) Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enactedat the end of the reporting period in the countries where the company and its subsidiaries and associates operateand generate taxable income. Management periodically evaluates positions taken in tax returns with respect tosituations in which applicable tax regulation is subject to interpretation. It establishes provisions whereappropriate on the basis of amounts expected to be paid to the tax authorities.

(2) Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arisingbetween the tax bases of assets and liabilities and their carrying amounts in the consolidated financialstatements. However, deferred tax liabilities are not recognised if they arise from the initial recognition ofgoodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset orliability in a transaction other than a business combination that at the time of the transaction affects neitheraccounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that havebeen enacted or substantially enacted by the end of the reporting period and are expected to apply when therelated deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only if it is probable that future taxable amounts will beavailable to utilise those temporary differences and losses.

(3) Offsetting

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offsetcurrent tax assets against current tax liabilities and when the deferred income tax assets and liabilities relateto taxes levied by the same taxation authority on either the taxable entity or different taxable entities wherethere is an intention to settle the balances on a net basis.

Current and deferred income tax is recognised in profit or loss, except to the extent that it relates toitems recognised in other comprehensive income or directly in equity. In this case, the tax is also recognisedin other comprehensive income or directly in equity, respectively.

2.21 Employee benefits

Employee benefits refer to all forms of consideration or compensation given by the Group in exchange forservice rendered by employees, which include short-term employee benefits and post-employment benefits.

(1) Short-term employee benefits

Short-term employee benefits include wages or salaries, bonus, allowances and subsidies, staff welfare,premiums or contributions on medical insurance, work injury insurance and maternity insurance, housingfunds, union running costs and employee education costs, short-term paid absences and etc. The short-termemployee benefits actually occurred are recognised as a liability in the period in which the service is renderedby the employees, with a corresponding charge to the profit or loss for the current period or the cost of relevantassets. Non-monetary benefits are measured at fair value.

(2) Post-employment benefits

The Group operates post-employment schemes via defined contribution pension plans. For definedcontribution plans, the Group pays contributions to publicly or privately administered pension insurance planson a mandatory, contractual or voluntary basis. The Group has no further payment obligations once thecontributions have been paid. The contributions are recognised as employee benefit expense when they are due.


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2.22 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of pastevents, it is probable that an outflow of resources will be required to settle the obligation and the amount can bereliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlementis determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood ofan outflow with respect to any one item included in the same class of obligations may be small.

Warranty provision is provided to customers in conjunction with the selling of goods. The warranty obligationarises through the contract signed between the Group and customers, which lasts up to one months after completionof goods deliver. During track record period, the warranty cost was rare and immaterial, therefore provision for thewarranty obligation was not recognised.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligationusing a pre-tax rate that current market assessments of the time value of money and the risks specific to theobligation. The increase in the provision due to the passage of time is recognised as interest expense.

2.23 Revenue recognition

Sales of goods – production and sale of ready-mixed concrete products

The Group manufactures and sells a range of ready-mixed concrete products to customers. Sales arerecognised when control of the products has been transferred, being when the products are delivered to thecustomer, the customer has full discretion over the products put into use, and there is no unfulfilled obligationthat could affect the customer’s acceptance of the products. Delivery of ready-mixed concrete products occurswhen the products transport to customer place, the risks of obsolescence and loss have been transferred to thecustomer, the customer has accepted the products in accordance with the sales contract.

The Group does not expect to have any contracts where the period between the transfer of the promisedgoods or services to the customer and payment by the customer exceeds one year. As a consequence, the Groupdoes not adjust any of the transaction prices for the time value of money.

The Group do not have any variable consideration such as discounts, refunds, rebates, credits, penalties,performances bonuses or royalties. In some circumstance, the contract modification occurs, and the contractprice finally confirmed by the customer upon completion of contract does not vary significantly from theoriginal price, the contract modification recognised in the period when the modification occurred.

A contract liability is the Group’s obligation to render the goods or services to a customer for which theGroup has received consideration from the customer.

There is no material contract fulfilment cost or cost of obtaining contracts of the Group.

2.24 Interest income

Interest income is recognised on a time proportion basis, taking into account of the principal outstanding andthe effective interest rate over the period to maturity, when it is determined that such income will accrue to the Group.

2.25 Leases

The Group has lease land for the production of ready-mixed concrete. The consideration paid for such leasesare treated as right-of-use assets, which are stated at cost less accumulative amortisation and accumulated impairmentlosses, if any. Lease land is amortised over the lease period of 50 years using straight-line method.

The Group also leases office premises with fixed period of 3 years. Rental contracts are typically made forfixed periods. Lease terms are negotiated on an individual basis and contain various terms and conditions. The leaseagreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

Leases are recognised as right-of-use assets and the corresponding liabilities at the date of which the respectiveleased assets is available for use by the Group. Each lease prepayment is allocated between the liability and financecost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate ofinterest on the remaining balance of the liability for each period.


– I-21 –


Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilitiesinclude the net present value of the following lease payment:

• fixed payments (including in substance fixed payments), less any lease incentives receivable;

• variable lease payment that are based on an index or a rate;

• amounts expected to be payable by the lessee under residual value guarantees;

• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and

• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising thatoption.

The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined,or the entity’s incremental borrowing rate.

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability;

• any lease payment made at or before the commencement date less any lease incentives received;

• any initial direct cost; and

• restoration costs.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-linebasis as an expense in profit or loss. Short-term leases are leases with a lease term of less than 12 months. Low-valueassets comprise small items of machinery.

2.26 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financialstatements in the period in which the dividends are approved by the Company’s shareholders, where appropriate.

2.27 Government grants

Government grants refer to the monetary or non-monetary assets obtained by the Group from the government,including tax refund, financial subsidy and etc.

Government grants are recognised when the grants can be received and the Group can comply with all attachedconditions. If a government grant is a monetary asset, it will be measured at the amount received or receivable. Ifa government grant is a non-monetary asset, it will be measured at its fair value.

Government grants related to assets refer to government grants which are obtained by the Group for thepurposes of purchase, construction or acquisition of the long-term assets. Government grants related to income referto the government grants other than those related to assets.

Government grants related to assets will be recorded as deferred income and recognised evenly in profit or lossover the useful lives of the related assets.

Government grants related to income will be recorded as deferred income and recognised in profit or loss inthe period in which the related expenses are recognised if the grants are intended to compensate for future expensesor losses, and otherwise recognised in profit or loss for the current period if the grants are used to compensate forexpenses or losses that have been incurred.


– I-22 –


3 FINANCIAL RISK MANAGEMENT

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange riskand interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on theunpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financialperformance.

Management manages and monitors these exposures to ensure appropriate measures are implemented on atimely and effective manner. Because of the simplicity of the financial structure and the current operations of theGroup, no hedging activities are undertaken by management.

3.1 Financial risk factors

(1) Market risk

(i) Foreign exchange risk

The management of the Group considers that the Group’s exposure to foreign currency exchangerisk is not significant as all of the functional currency of the entities in Group is the same as thetransaction currency.

(ii) Interest rate risk

The Group’s interest rate risk arises from borrowings. Borrowings obtained at variable ratesexpose the Group to cash flow interest rate risk. Borrowings obtained at fixed rates expose the Groupto fair value interest rate risk. The Group does not hedge its cash flow and fair value interest rate risk.

For the year ended 31 December 2019, if interest rates on all variable rates bearing borrowingshad been 100 basis-points higher/lower with all other variables held constant, profit for the year wouldhave decreased/increased by approximately RMB396,000. As at 31 December 2020 and 30 September2021, the Group’s exposure to interest rate risk is considered to be not significant as interest rate fromborrowings are all fixed.

(2) Credit risk

The Group is exposed to credit risk in relation to its cash and cash equivalent, trade and otherreceivables and notes receivable represent in financial assets at fair value through other comprehensiveincome. The carrying amounts of these balances represent the Group’s maximum exposure to credit risk inrelation to financial assets.

(i) Credit risk of cash and cash equivalent and notes receivable represent in financial assets at fairvalue through other comprehensive income

To manage this risk arising cash and cash equivalent and notes receivable represent in financialassets at fair value through other comprehensive income, they are mainly placed with banks with highcredit rating. There has been no recent history of default in relation to these financial institutions. Theexpected credit loss is close to zero.

(ii) Credit risk of trade receivables

The Group is engaged in manufacturing and sale of ready-mix concrete. The Group’s customersare mainly the construction companies for various types of construction projects including residential,commercial, industrial, municipal and infrastructure projects.

The Group applies the HKFRS 9 simplified approach to measure expected credit losses, whichuses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses,trade receivables have been grouped based on shared credit risk characteristics and days past due.

The Group considers the probability of default upon initial recognition of asset and whether therehas been a significant increase in credit risk on an ongoing basis throughout each reporting period. Toassess whether there is a significant increase in credit risk, the Group compares the risk of defaultoccurring on the asset as at the reporting date with the risk of default as at the date of initial recognition.It considers available reasonable and supportive forwarding-looking information.


– I-23 –


Individually impaired trade receivable is related to customer who is experiencing unexpectedeconomic difficulties. As at 31 December 2019 and 2020 and 30 September 2021, The Group expectsthat approximately RMB2,383,000,RMB18,062,000 and RMB18,062,000 of the trade receivables willhave difficulty to be recovered and has recognised impairment loss for these individually assessedreceivables of RMB1,192,000,RMB7,252,000 and RMB12,120,000 respectively.

The expected loss rates of the remaining trade receivables are based on the payment profiles ofsales over a period of 36 months before the balance sheet date and the corresponding historical creditlosses experienced within this period. The historical loss rates are further adjusted to reflect current andforward-looking information on macroeconomic factors affecting the ability of the customers to settlethe receivables, including but not limited to the impact of the COVID-19 pandemic on China’s economicgrowth.

On that basis, the loss allowance as at 31 December 2019 and 2020 and 30 September 2021 wasdetermined as follows for trade receivables, the expected credit losses below have incorporatedforward-looking information.

As at 31 December 2019 and 31 December 2020 and 30 September 2021, trade receivables havebeen grouped on the basis of shared credit risk characteristics and the days past due for the measurementof expected credit losses:

Less than6 months

6 monthsto 1 year

Between1 and

2 years

Between2 and

3 years

Between3 and

4 years

Between4 and

5 yearsOver

5 years Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Trade receivables at31 December 2019

Expected loss rate 1.82% 3.60% 9.67% 38.88% 98.62% 100.00% 100.00%Gross carrying amount 385,084 266,937 53,048 8,460 2,398 136 3,651 719,714Loss allowance provision 6,994 9,604 5,128 3,289 2,365 136 3,651 31,167

Less than6 months

6 monthsto 1 year

Between1 and

2 years

Between2 and

3 years

Between3 and

4 years

Between4 and

5 yearsOver

5 years Total


Trade receivables at31 December 2020

Expected loss rate 2.20% 3.83% 9.81% 39.86% 95.26% 100.00% 100.00%Gross carrying amount 402,929 278,141 199,074 9,429 3,646 1,249 3,211 897,679Loss allowance provision 8,854 10,650 19,532 3,758 3,473 1,249 3,211 50,727

Less than6 months

6 monthsto 1 year

Between1 and

2 years

Between2 and

3 years

Between3 and

4 years

Between4 and

5 yearsOver

5 years Total


Trade receivables at30 September 2021

(Unaudited)Expected loss rate 2.24% 3.74% 9.58% 38.92% 94.61% 100.00% 100.00%Gross carrying amount 350,253 158,688 286,114 27,599 241 28 3,063 825,986Loss allowance provision 7,837 5,934 27,417 10,742 228 28 3,063 55,249


– I-24 –


(iii) Credit risk of other receivables

Other receivables mainly comprise deposits and other receivables. The directors of the Companyconsider the probability of default upon initial recognition of asset and whether there has beensignificant increase in credit risk on an ongoing basis during the Track Record Period. To assess whetherthere is a significant increase in credit risk, the Group compares risk of a default occurring on the assetsas at the reporting date with the risk of default as at the date of initial recognition.

As at 31 December 2019 and 2020 and 30 September 2021, there was no significant increase incredit risk since initial recognition, the Group assessed that the expected credit losses for thesereceivables were not material.

(3) Liquidity risk

Cash flow forecast is performed by the operating entities of the Group and aggregated by its financedepartment. The finance department monitors rolling forecasts of the Group’s liquidity requirements to ensureit has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawncommitted borrowing facilities at all times so that the Group does not breach borrowing limits or covenants(where applicable) on any of its borrowing facilities.

The table below analyses the Group’s financial liabilities into relevant maturity groupings based on theremaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the tableare the contractual undiscounted cash flows.

Less than1 year

Between1 and 2 years

Between2 and 5 years Total

RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2019Bank borrowings (including

interests) 242,084 – – 242,084Other borrowings (including

interests) 148,981 31,487 22,347 202,815Lease liabilities (including

interests) 300 300 75 675Trade and other payables (i) 312,258 – – 312,258

703,623 31,787 22,422 757,832

At 31 December 2020Bank borrowings (including

interests) 243,661 – – 243,661Other borrowings (including

interests) 139,465 22,347 – 161,812Lease liabilities (including

interests) 300 75 – 375Trade and other payables (i) 417,002 – – 417,002

800,428 22,422 – 822,850

At 30 September 2021(Unaudited)

Bank borrowings (includinginterests) 132,404 119,749 – 252,153

Other borrowings (includinginterests) 24,087 54,112 19,116 97,315

Lease liabilities (includinginterests) 225 – – 225

Trade and other payables (i) 304,813 – – 304,813

461,529 173,861 19,116 654,506

(i) The balances excluded payroll and welfare payable and other tax payables.


– I-25 –


3.2 Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a goingconcern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimalcapital structure to reduce the cost of capital.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debts divided bytotal capital. Net debts are calculated as total borrowings less total of cash and cash equivalents.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid toshareholders, issue new shares or sell assets to reduce debt.

The gearing ratios at 31 December 2019 and 2020 and 30 September 2021 were as follows:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Borrowings (Note 26) 412,444 382,160 315,990Lease liabilities (Note 25) 611 350 218Amount due to related parties (Note 33(c)) 17,916 16,851 16,661

Total debt 430,971 399,361 332,869

Less: Cash and cash equivalents (61,615) (89,702) (48,571)

Net debt 369,356 309,659 284,298

Total equity 295,714 404,153 421,922

Total capital 665,070 713,812 706,220

Gearing ratio 56% 43% 40%


– I-26 –


3.3 Fair value estimation

The table below analyses the Group’s financial instruments carried at fair value as at 31 December 2019 and2020 and 30 September 2021 by level of the inputs to valuation techniques used to measure fair value. Such inputsare categorised into three levels within a fair value hierarchy as follows:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, eitherdirectly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

• Inputs for the asset or liability that are not based on observable market data (that is, unobservableinputs) (level 3).

Level 1 Level 2 Level 3 Total

RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2019Financial assets at financial assets

at fair value through othercomprehensive income– Listed securities 139,500 – – 139,500– Notes receivable – – 27,400 27,400

139,500 – 27,400 166,900

At 31 December 2020Financial assets at financial assets


147,180 – 22,531 169,711

At 30 September 2021 (Unaudited)Financial assets at financial assets


113,850 – 2,900 116,750

There transfers among levels 1 and levels 3 details see (c) below.

(a) Financial instruments in level 1

The fair value of financial instruments traded in active markets is based on quoted market prices at thebalance sheet date. A market is regarded as active if quoted prices are readily and regularly available from anexchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices representactual and regularly occurring market transactions on an arm’s length basis. The quoted market price used forfinancial assets held by the Group is the current bid price. These instruments are included in level 1.

(b) Financial instruments in level 2

The fair value of financial instruments that are not traded in an active market (for example,over-the-counter derivatives) is determined by using valuation techniques. These valuation techniquesmaximise the use of observable market data where it is available and rely as little as possible on entity specificestimates. If all significant inputs required to fair value an instrument are observable, the instrument isincluded in level 2.

If one or more of the significant inputs is not based on observable market data, the instrument isincluded in level 3. The valuation technique used to value the financial instrument is discounted cash flowanalysis.


– I-27 –


(c) Financial instruments in level 3

The following table presents the changes in level 3 items for the years ended 31 December 2019 and2020 and the nine months ended 30 September 2020 and 2021:

Non-marketableequity securities of

a listed company Notes receivable Total

RMB’000 RMB’000 RMB’000

At 1 January 2019 147,043 12,110 159,153Change in fair value (2,443) – (2,443)Additions – 309,788 309,788Disposals – (294,362) (294,362)Losses from de-recognition of notes

receivable – (136) (136)Transfer to level 1 (i) (144,600) – (144,600)

At 31 December 2019 – 27,400 27,400

At 1 January 2020 – 27,400 27,400Additions – 311,263 311,263Disposals – (316,132) (316,132)

At 31 December 2020 – 22,531 22,531

At 1 January 2021 – 22,531 22,531Additions – 140,281 140,281Disposals – (159,849) (159,849)Losses from de-recognition of notes

receivable – (63) (63)

At 30 September 2021 (Unaudited) – 2,900 2,900

At 1 January 2020 – 27,400 27,400Additions – 238,379 238,379Disposals – (213,709) (213,709)

At 30 September 2020 (Unaudited) – 52,070 52,070

(i) As restricted period of the non-marketable equity securities expires as at 19 September 2019, it can betraded freely in public stock market since 19 September 2019. The non-marketable equity transfer fromlevel 3 to Level 1 in the year ended 2019.

There is no unrealised gains or losses recognised in profit or loss attributable to balances held at the endof the reporting period. The gains or losses arising from the holding of the financial assets measured atfair value during Track Record Period are recognised in other comprehensive income.

(d) Valuation inputs and relationships to fair value

The following table summarises the quantitative information about the significant unobservable inputsused in level 3 fair value measurements.

Description

Fair value at

Unobservableinputs

Range of unobservable inputs Relationshipof

unobservableinputs to fair

value

31December

2019

31December

2020

30September

2021

Yearended 31

December2019

Yearended 31

December2020

Nine monthsended 30

September2021

RMB’000 RMB’000 RMB’000

Notesreceivable 27,400 22,531 2,900 Discount rate 2.97% 2.97% 2.47%-5.10%

The higher thediscount rate,the lower the

fair value


– I-28 –


4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and based on historical experience and other factors,including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will,by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk ofcausing a material adjustment to the carrying amounts of assets and liabilities within the next financial year areaddressed below.

4.1 Critical accounting estimates

(1) Measurement of expected credit losses

The Group calculates expected credit losses according to the default risk exposure and expected creditloss rate, and determines the expected credit loss rate based on default probability and default loss rate. Indetermining the expected credit loss rate, the Group uses data such as internal historical credit loss experience,etc., and adjusts historical data based on current conditions and forward-looking information. Whenconsidering forward-looking information, the indicators used by the Group include the risk of economicdownturn, the expected increase in unemployment rate, the external market environment, the technologicalenvironment and changes in customer conditions. The Group regularly monitors and reviews assumptionsrelated to the calculation of expected credit losses.

(2) Taxation

The Group is subject to various taxes in the PRC, including corporate income tax and value added tax.Significant judgment is required in determining the provision for these taxes. There are many transactions andcalculations for which the ultimate tax determination is uncertain during the ordinary course of business. TheGroup recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will bedue. Where the final tax outcome of these matters is different from amounts that were initial recorded, suchdifferences will impact the tax provisions in the period of final tax outcome.

Deferred income tax assets relating to certain temporary differences and tax losses are recognised asmanagement considers it is probable that future taxable profit will be available against which the temporarydifferences or tax losses can be utilised. The outcome of their actual utilisation may be different.

5 REVENUE AND SEGMENT INFORMATION

The Group is mainly engaged in the production and sale of ready-mixed concrete products and operating inone single operating segment.

The chief operating decision-makers have been identified as the executive directors led by the Group’s chiefexecutive officer. The executive directors and senior management review the Group’s internal reporting to assessperformance and allocate resources.

The chief operating decision-makers assess the performance of the operating segment based on a measure ofprofit before income tax.

(a) Revenue by location of goods sale

During the Track Record Period, the Group only operated in the PRC and all the revenue were generated inthe PRC.

(b) Non-current assets

As at 31 December 2019 and 2020 and 30 September 2021, the non-current assets were all located in the PRC.


– I-29 –


(c) Major customers

The following table sets out the breakdown of customers whose sales exceeded 10% of total revenue of theGroup.


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Customer A 111,601 N/A* N/A* N/A*Customer B N/A* 138,147 117,761 54,873Customer C N/A* 112,254 105,957 N/A*

* The corresponding clients did not contribute over 10% of total revenue for the respective years/periods.

(d) Contract liabilities

The Group has recognised the following revenue-related contract liabilities:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Contract liabilities related to salesof ready-mixed concrete 12,696 4,195 2,282

As at 1 January 2019, the contract liabilities related to sales of ready-mixed concrete amount toRMB6,950,000.

(i) Revenue recognised in relation to contract liabilities

The following table shows the amount of the revenue recognised in the respective years/periods relatedto carried-forward contract liabilities:


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Revenue recognised that wasincluded in the contractliabilities balance atthe beginning of theyear/period – sale ofready-mixed concrete 5,929 8,382 8,371 1,864

The Group applied the practical expedient and does not disclose the information relating to theunsatisfied contract that have original expected durations of one year or less.


– I-30 –


(ii) Contract liabilities represent advanced payments received from customers for products that have not yetbeen delivered to customers. As at 31 December 2019 and 2020 and 30 September 2021, the contractliabilities mainly included the advanced payments received from customers for sales of ready-mixedconcrete.

6 OTHER INCOME


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Late payment penalty income fromcustomer – 974 60 3,855

Dividend from financial assetsat fair value through othercomprehensive income 4,500 3,000 3,000 –

Government grants– Value-added tax refund (i) 21,889 25,696 18,826 13,316– Others – 768 597 617

26,389 30,438 22,483 17,788

(i) Pursuant to the Measures for the Administration of Preferential Policies of Value-added Tax forPromoting Employment of Disabled promulgated by the Ministry of Finance and the StateAdministration of Taxation, certain subsidiaries of the Group in the PRC are entitled to governmentincentives in the form of value-added tax refunds.

7 OTHER (LOSSES)/GAINS – NET


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Losses from de-recognition of tradereceivable factoring (3,714) (4,536) (3,129) (1,630)

Net (losses)/gains on disposal ofproperty, plant and equipment (274) 9 9 (238)

Foreign exchange gains 326 1,059 339 189Losses from de-recognition of notes

receivable (136) – – (63)Others 267 225 8 87

(3,531) (3,243) (2,773) (1,655)


– I-31 –


8 EXPENSES BY NATURE

Expenses included in cost of sales, distribution expenses, administrative expenses and net impairment losseson financial assets are analysed as follows:


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Raw materials and consumablesused 828,318 806,535 701,916 364,506

Employee benefit expenses (Note 9) 34,048 32,970 24,714 28,370Freight expenses 43,678 52,825 45,518 31,683Depreciation and amortisation

expenses 9,129 9,236 6,855 7,165Office expenses 4,458 5,032 3,906 2,829Entertainment expenses 1,395 723 499 336Traveling expenses 2,127 2,120 1,577 899Other taxes and levies 4,759 4,353 3,686 2,139Repair and maintenance expenses 1,600 1,917 993 1,041Net impairment losses on trade

receivables 17,298 25,620 26,319 9,390[REDACTED] – – – [REDACTED]Consultancy, legal and professional

fees 14,875 3,417 40 122Donation 5 1,205 1,205 1,030Others 1,470 1,252 686 810

963,160 947,205 817,914 454,517

9 EMPLOYEE BENEFIT EXPENSE


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Salaries, wages and bonuses 24,536 27,026 20,303 21,791Pension costs – defined contribution

plans (a) 3,741 304 304 2,678Other welfare benefits 5,771 5,640 4,107 3,901

34,048 32,970 24,714 28,370

(a) Pension costs – defined contribution plans

The employees of the Group’s subsidiaries established in the PRC participate in defined contributionretirement benefit plans organised by the relevant provincial governments under which the Group is required to makemonthly contributions to these plans at certain percentages of the employees’ monthly salaries and wages, and hadno obligations for the actual payments of pensions or post-retirement benefits beyond the contribution.


– I-32 –


(b) Directors’ emoluments

During the Track Record Period, the directors’ fee or other emoluments in respect of their services to the Groupwere as follows:

Year ended 31 December 2019

Basic salariesand allowances

Contributionsto pension

plans Total

RMB’000 RMB’000 RMB’000

Executive directorsMr. Song Quanfa 139 31 170Ms. Huang Jin 93 16 109Mr. Wang Ka 89 16 105

321 63 384

Year ended 31 December 2020



plans Total

RMB’000 RMB’000 RMB’000


307 33 340

Nine months ended 30 September 2021 (Unaudited)



plans Total

RMB’000 RMB’000 RMB’000


482 58 540


– I-33 –


Nine months ended 30 September 2020 (Unaudited)



plans Total

RMB’000 RMB’000 RMB’000


227 25 252

The remuneration shown above represented remuneration received by the directors in their capacity asemployees of the Operating Companies during the Track Record Period.

(c) Benefits and interests of directors

Except for directors disclosed above, there were no other benefits offered to the directors of the Company.

(d) Directors’ retirement and termination benefits

None of the directors of the Company received or will receive any retirement benefits or termination benefitsin respect of their services to the Group for the years ended 31 December 2019 and 2020 and the nine months ended30 September 2020 and 2021.

(e) Consideration provided to third parties for making available directors’ services

During the years ended 31 December 2019 and 2020 and the nine months ended 30 September 2020 and 2021,the Group had not paid any consideration to any third parties for making available director’ services to the Group.

(f) Information about loans, quasi-loans and other dealings in favour of directors, controlled bodiescorporate by and connected entities with such directors

There were no loans, quasi-loans and other dealings entered into by the Group in favour of the directors of theCompany, or body corporate controlled by or entities connected with any of the directors of the Company at the endof the year/period or at any time for the years ended 31 December 2019 and 2020 and the nine months ended 30September 2020 and 2021.

(g) Directors’ material interests in transactions, arrangements or contracts

No significant transactions, arrangements and contracts in relation to the Group’s business to which theCompany was a party and in which a director of the Company had a material interest, whether directly or indirectly,subsisted at the end of the year/period or at any time for the years ended 31 December 2019 and 2020 and the ninemonths ended 30 September 2020 and 2021.


– I-34 –


(h) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group include 1, 1, 1 and 3 directors for theyears ended 31 December 2019 and 2020 and the nine months ended 30 September 2020 and 2021. The emolumentsto the remaining 4, 4, 4 and 2 individuals for the years ended 31 December 2019 and 2020 and the nine months ended30 September 2020 and 2021 are as follows:


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Basic salaries and allowances 418 418 311 208Contributions to pension plans and

other social insurance 80 41 31 46

498 459 342 254

The emoluments of the above individual fell within the following bands:


30 September

2019 2020 2020 2021


Nil to HKD1,000,000 4 4 4 2

During the Track Record Period, no emoluments were paid by the Group to any one of the directors or seniormanagement as an inducement to join or upon joining the Group or as compensation for loss of offices.

10 FINANCE COSTS – NET


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Finance income– Interest income derived from bank

deposits 163 227 193 1,068

Finance costs– Interest expense on bank

borrowings (11,222) (18,083) (13,847) (13,117)– Interest expense on other

borrowings (22,621) (16,088) (13,063) (6,378)– Interest expense on lease liability (26) (39) (31) (18)– Others (328) (27) (21) (44)

(34,197) (34,237) (26,962) (19,557)

(34,034) (34,010) (26,769) (18,489)


– I-35 –


11 EARNINGS PER SHARE

(a) The basic earnings per share is calculated by dividing the profit attributable to owners of the companyby the weighted average number of ordinary shares issued or deemed to be issued during the TrackRecord Period.

In determining the weighted average number of ordinary shares deemed to be in issue during the TrackRecord Period, 18,000 ordinary shares, being the number of issued ordinary shares of the Companyultimately held by Mr. Song Quanfa and Mr. Shi Junwei as at 30 September 2021, were deemed to havebeen issued and allocated on 1 January 2019 as if the Company has been incorporated by then.


30 September

2019 2020 2020 2021


Profits attributable to equityholders of the Company(RMB’000) 93,206 102,679 92,115 42,766

Weighted average number ofordinary shares in issue 19,638 20,200 20,200 20,200

Basic earnings per share(in RMB thousand) 4.75 5.08 4.56 2.12

(b) The diluted earnings per share are same as the basic earnings per share as there was no dilutive potentialshare during the Track Record Period.

12 INCOME TAX EXPENSE


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Current income tax 33,306 36,127 34,173 13,828Deferred income tax (Note 27) (3,441) (6,314) (6,512) (2,294)

29,865 29,813 27,661 11,534

(a) Cayman Island profit tax

The Company is not subject to profits tax in its country of incorporation Cayman Islands (tax rate: nil).

(b) BVI profit tax

The Group’s subsidiary incorporated in the BVI is exempted company and is not liable for taxation in the BVI.


– I-36 –


(c) Hong Kong profit tax

Hong Kong profits tax considered at the rate of 16.5% on the estimated assessable profits during the TrackRecord Period. The Group did not have assessable profits in Hong Kong during the Track Record Period.

(d) PRC corporate income tax(“CIT”)

All the Company’s subsidiaries incorporated in the PRC are subject to the PRC corporate income tax, whichhas been provided based on the statutory income tax rate of the assessable income of each of such companies duringthe Track Record Period, as determined in accordance with the relevant PRC income tax rules and regulations. TheCIT rate of all the relevant subsidiaries operating in the PRC is 25%.

(e) PRC withholding income tax

According to the CIT Law, a 10% withholding tax on dividends received/receivable will be levied on the PRCcompanies’ immediate holding companies established out of the PRC. A lower withholding tax rate may be appliedif there is a tax treaty arrangement between the PRC and the jurisdiction of the foreign immediate holding companiesand simultaneously certain conditions are satisfied.

During the Track Record Period, no PRC withholding income tax has been provided since the parent entitiesare able to control the timing of distributions from their subsidiaries and are not expected to distribute these profitsin the near future.

As at 31 December 2019 and 2020 and the nine months ended 30 September 2020 and 2021, deferred incometax liabilities of RMB20,915,000, RMB30,048,000, RMB29,162,000 and RMB34,111,000 respectively have not beenrecognised for the withholding tax that would be payable on the unremitted earnings of the PRC subsidiaries. Suchamounts are expected to be retained by the PRC subsidiaries for reinvestment purpose and would not be remitted totheir overseas holding companies in the foreseeable future based on management’s estimations of overseas fundingrequirements.

The difference between the actual income tax charge in profit or loss and the amounts which would result fromapplying the enacted tax rate to profit before income tax can be reconciled as follows:


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Profit before income tax 123,071 132,492 119,776 54,300

Tax calculated at statutory tax rates 32,044 32,858 29,859 13,536Income not subject to tax (1,125) (750) (750) –Expenses not deductible for tax

purposes 370 98 70 48Tax losses with no deferred income

tax assets recognised 222 117 86 114Others – 74 74 –Effect of additional deduction (i) (1,646) (2,584) (1,678) (2,164)

29,865 29,813 27,661 11,534

(i) Pursuant to the notice on preferential enterprise income tax policies for employment of persons withdisabilities promulgated by the Ministry of Finance and the State Administration of Taxation, the Groupwas entitled to an additional deduction of income tax expense for the salaries paid to the disabledemployee.


– I-37 –


13 RIGHT-OF-USE ASSETS

The Group’s right-of-use assets represent interests in land use rights for land and lease properties located inthe PRC, the net book values of which are analysed as follows:

Land Office Total

RMB’000 RMB’000 RMB’000

At 1 January 2019Cost 27,011 – 27,011Accumulated depreciation (709) – (709)

Net book amount 26,302 – 26,302

Year ended 31 December 2019Opening net book amount 26,302 – 26,302Additions – 810 810Depreciation charge (a) (560) (180) (740)

Closing net book amount 25,742 630 26,372

At 31 December 2019Cost 27,011 810 27,821Accumulated depreciation (1,269) (180) (1,449)

Net book amount 25,742 630 26,372

Year ended 31 December 2020Opening net book amount 25,742 630 26,372Depreciation charge (a) (561) (270) (831)


At 31 December 2020Cost 27,011 810 27,821Accumulated depreciation (1,830) (450) (2,280)

Net book amount 25,181 360 25,541


– I-38 –


Land Office Total

RMB’000 RMB’000 RMB’000

Nine months ended30 September 2021 (Unaudited)Opening net book amount 25,181 360 25,541Depreciation charge (a) (420) (202) (622)


At 30 September 2021 (Unaudited)Cost 27,011 810 27,821Accumulated depreciation (2,250) (652) (2,902)

Net book amount 24,761 158 24,919

Nine months ended30 September 2020 (Unaudited)Opening net book amount 25,742 630 26,372Depreciation charge (a) (421) (202) (623)


At 30 September 2020 (Unaudited)Cost 27,011 810 27,821Accumulated depreciation (1,690) (382) (2,072)

Net book amount 25,321 428 25,749

(a) Depreciation of the Group’s right-of-use assets was charged to administrative expenses.

(b) As at 31 December 2019 and 2020 and 30 September 2021, the Group’s right-of-use assets ofapproximately RMB14,343,000, RMB14,028,000 and RMB13,792,000 were pledged for bankborrowings (Note 26 and 32).


– I-39 –


14 PROPERTY, PLANT AND EQUIPMENT

Buildings

Equipmentand

machineryMotor

vehiclesOffice

equipment CIP Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2019Cost 60,394 34,859 14,804 3,846 7,354 121,257Accumulated depreciation and

impairment (21,134) (9,339) (8,871) (2,478) – (41,822)

Net book amount 39,260 25,520 5,933 1,368 7,354 79,435

Year ended 31 December 2019Opening net book amount 39,260 25,520 5,933 1,368 7,354 79,435Additions – 2,029 1,524 776 1,937 6,266Disposals (3,976) – (310) (4) – (4,290)Transfers 8,938 – – – (8,938) –Depreciation charge (a) (2,643) (3,281) (1,829) (542) – (8,295)

Closing net book amount 41,579 24,268 5,318 1,598 353 73,116

At 31 December 2019Cost 49,780 33,912 13,601 4,524 353 102,170Accumulated depreciation (8,201) (9,644) (8,283) (2,926) – (29,054)

Net book amount 41,579 24,268 5,318 1,598 353 73,116

Year ended 31 December 2020Opening net book amount 41,579 24,268 5,318 1,598 353 73,116Additions – 1,495 2,337 346 1,028 5,206Disposals – – (471) – – (471)Transfers 429 126 – – (555) –Depreciation charge (a) (2,692) (3,645) (1,384) (586) – (8,307)


At 31 December 2020Cost 50,209 35,533 14,443 4,870 826 105,881Accumulated depreciation (10,893) (13,289) (8,643) (3,512) – (36,337)

Net book amount 39,316 22,244 5,800 1,358 826 69,544

Nine months ended30 September 2021 (Unaudited)Opening net book amount 39,316 22,244 5,800 1,358 826 69,544Additions – 1,482 667 334 252 2,735Disposals – (529) (152) (79) – (760)Transfers – – – 725 (725) –Depreciation charge (a) (2,023) (2,797) (1,177) (436) – (6,433)



– I-40 –


Buildings

Equipmentand

machineryMotor

vehiclesOffice

equipment CIP Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 30 September 2021 (Unaudited)Cost 50,209 35,386 14,284 4,359 353 104,591Accumulated depreciation (12,916) (14,986) (9,146) (2,457) – (39,505)

Net book amount 37,293 20,400 5,138 1,902 353 65,086

Nine months ended 30 September2020 (Unaudited)Opening net book amount 41,579 24,268 5,318 1,598 353 73,116Additions – 1,281 2,245 322 633 4,481Disposals – – (471) – – (471)Transfers 307 – – – (307) –Depreciation charge (a) (2,165) (2,556) (995) (443) – (6,159)


At 30 September 2020 (Unaudited)Cost 50,087 35,193 14,351 4,846 679 105,156Accumulated depreciation (10,366) (12,200) (8,254) (3,369) – (34,189)

Net book amount 39,721 22,993 6,097 1,477 679 70,967

(a) Depreciation of the property, plant and equipment has been charged to profit or loss as follows:


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Cost of sales 6,085 6,717 5,030 5,048Administrative expenses 1,950 1,282 901 1,138Distribution expenses 260 308 228 247

8,295 8,307 6,159 6,433

(b) As at 31 December 2019 and 2020 and 30 September 2021, the Group was in the process of obtainingthe legal title of buildings with carrying amounts of approximately RMB33,084,000 andRMB31,365,000 and RMB27,643,000, respectively. As advised by the PRC legal advisor, the risk ofthese buildings being compulsorily vacated, demolished for the Group’s business operation, or havingfines imposed is remote. The Directors consider the buildings with title defects will not have anymaterial adverse effect to the Group.

(c) As at 31 December 2019 and 2020 and 30 September 2021, the Group’s property, plant and equipmentof carrying amounts of approximately RMB23,041,000, RMB19,907,000 and RMB21,421,000 in totalwere pledged for other borrowings (Note 26 and 32).

(d) As at 31 December 2019 and 2020 and 30 September 2021, the Group’s property, plant and equipmentof carrying amounts of approximately RMB13,917,000, RMB12,605,000 and RMB11,621,000 in totalwere pledged for bank borrowings (Note 26 and 32).


– I-41 –


15 INTANGIBLE ASSETS

GoodwillComputer

software Others Total

RMB’000 RMB’000 RMB’000 RMB’000

Year ended 31 December 2019Opening net book amount 2,665 393 – 3,058Additions – – 31 31Amortisation charge (a) – (93) (1) (94)

Closing net book amount 2,665 300 30 2,995

At 31 December 2019Cost 2,665 463 31 3,159Accumulated amortisation – (163) (1) (164)

Net book amount 2,665 300 30 2,995

Year ended 31 December 2020Opening net book amount 2,665 300 30 2,995Additions – 6 – 6Amortisation charge (a) – (93) (5) (98)


At 31 December 2020Cost 2,665 469 31 3,165Accumulated amortisation – (256) (6) (262)

Net book amount 2,665 213 25 2,903

Nine months ended30 September 2021 (Unaudited)

Opening net book amount 2,665 213 25 2,903Additions – 260 34 294Amortisation charge (a) – (102) (8) (110)


At 30 September 2021 (Unaudited)Cost 2,665 729 65 3,459Accumulated amortisation – (358) (14) (372)

Net book amount 2,665 371 51 3,087

Nine months ended30 September 2020 (Unaudited)

Opening net book amount 2,665 300 30 2,995Amortisation charge (a) – (70) (3) (73)


At 30 September 2020 (Unaudited)Cost 2,665 463 31 3,159Accumulated amortisation – (233) (4) (237)

Net book amount 2,665 230 27 2,922


– I-42 –


(a) Amortisation of the Group’s intangible assets was charged to administrative expenses.

(b) Impairment of goodwill

Management reviews the business performance based on subsidiaries and type of business. It hasidentified Henan Gangfa as the subsidiary which is subject to the annual impairment testing on goodwill.

Henan Gangfa is engaged in the production and sales of ready-mixed concrete products in the PRC.Goodwill is monitored by management at the operating unit level. The following is a summary of goodwill forallocation for the CGU:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Henan Gangfa 2,665 2,665 2,665

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculationsuse pre-tax cash flow projections based on financial budgets approved by management covering a five-yearperiod. Cash flows beyond the five-year are extrapolated using the estimated growth rates stated below untilthe expiry of the relevant operation periods. The growth rate does not exceed the long-term average growthrate for the business in which the CGU operates. In the opinion of the Company’s directors, the recoverableamounts of the CGU will not be lower than the carrying amount even if taking into account a reasonablypossible change in a key assumption on the calculations of recoverable amounts of the CGU.

The key assumptions used for value-in-use calculations as at 31 December 2019 and 2020 and30 September 2021 are as follows:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

Henan Gangfa Henan Gangfa Henan Gangfa

(Unaudited)

Sales volume (% annual growth rate) (i) 14% 10% 8%Sales price (% annual growth rate) (ii) 0% 0% 0%Gross margin (% of revenue) (iii) 18% 18% 18%Long term growth rate (iv) 2% 2% 2%Pre-tax discount rate (v) 17% 17% 17%

(i) Sales volume is the average compound annual growth rate which is based on past performanceand management’s expectations of market development over the five-year forecast period.

(ii) Sales price is the average annual growth rate over the five-year forecast period, it is estimated tobe stable during the forecast period.

(iii) Gross margin is the average margin as a percentage of revenue over the five-year forecast period.It is based on the current sales margin levels.

(iv) The long term growth rates are based on management’s best estimates with consideration of bothinternal and external factors relating to the CGUs.

(v) The discount rates used are pre-tax and reflect specific risks relating to the operation unit.


– I-43 –


16 FINANCIAL INSTRUMENTS BY CATEGORY


30 September

Financial assets 2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Financial assets at amortised costTrade and other receivables

(excluding prepayments) 694,450 862,312 780,654Cash and cash equivalents 61,615 89,702 48,571

Financial assets at fair value through othercomprehensive income 166,900 169,711 116,750

922,965 1,121,725 945,975


30 September

Financial liabilities 2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Liabilities at amortised costTrade and other payables (excluding payroll

and other tax payables) 312,258 417,002 304,813Borrowings 412,444 382,160 315,990Lease liabilities 611 350 218

725,313 799,512 621,021

17 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Equity instruments (ii) 139,500 147,180 113,850Debt instruments (iii) 27,400 22,531 2,900

166,900 169,711 116,750

(i) Classification of financial assets at fair value through other comprehensive income

Financial assets at fair value through other comprehensive income comprise:

• Equity securities which are not held for trading, and which the Group has irrevocably elected atinitial recognition to recognise in this category. These are strategic investments and the Groupconsiders this classification to be more relevant.


– I-44 –


• Debt securities where the contractual cash flows are solely principal and interest and the objectiveof the Group’s business model is achieved both by collecting contractual cash flows and sellingfinancial assets.

(ii) Equity investments at fair value through other comprehensive income

Equity investments at fair value through other comprehensive income comprise the following individualinvestments:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Non-current assetsEquity securities of a listed company

– Bank of Zhengzhou Co., Ltd. (a) 139,500 147,180 113,850

(a) In December 2011, the Group entered into an arrangement relating to shares subscription withBank of Zhengzhou Co., Ltd. (“Bank of Zhengzhou”), pursuant to which the Group shallsubscribe 30,000,000 shares of Bank of Zhengzhou at a price of RMB2.72 per share. Uponcompletion of the subscription, interest of Bank of Zhengzhou held by the Group was 0.76%,which does not give the Group the capability to exercise a “significant influence” over theinvestee.

Bank of Zhengzhou has been listing at China A-share stock market on 19 September 2018, theequity share can be trade freely since 19 September 2019. The fair values of equity investmenttake reference with the transaction price on the market classified as Level 1 in the fair valuehierarchy.

Bank of Zhengzhou has declared the implementation of allotment on 19 June 2020, with 1 sharefor every 10 shares, which makes the total number of ordinary shares held by group changed from30,000,000 to 33,000,000.

As at 31 December 2019 and 2020 and 30 September 2021, the Group pledged financial assetsat fair value through other comprehensive income with an aggregate carrying value ofapproximately RMB69,285,000, RMB89,200,000 and RMB75,900,000 and pledged dividendreceivable with a carrying value of RMB2,235,000, RMB2,000,000 and RMB2,000,000respectively for certain bank borrowings (Notes 26 and 32).

(iii) Debt investments at fair value through other comprehensive income

Debt investments at fair value through other comprehensive income comprise the following investment:

Current assets


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Notes receivable 27,400 22,531 2,900

Notes receivable consist of bills received as payments from customers. The Group’s turnover ofnotes receivable is high and the Group utilizes the bills to settle payables to suppliers before the billsmature. The Group measures the fair value of the notes receivable using the discounted cash flowmethod, which gives rise to fair values approximating the cost.


– I-45 –


18 TRADE AND OTHER RECEIVABLES

The Group


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Trade receivables (a) 722,097 915,741 844,048Less: allowance for impairment of trade

receivables (32,359) (57,979) (67,369)

Trade receivables-net 689,738 857,762 776,679

Prepayments 7,767 1,770 913Prepayments for [REDACTED] – – 1,213Other receivables 2,477 2,550 1,975Dividend receivable 2,235 2,000 2,000

702,217 864,082 782,780

(a) Trade receivables are arisen from sales of ready-mixed concrete. Trade receivables are settled inaccordance with the terms stipulated in the sales contracts. The settlement method of trade receivablesgranted by the Group are generally monthly settlement based on an agreed percentage of goodsdelivered, and the remaining balance will be settled after the completion of the superstructure of thecustomer’s project.

As at 31 December 2019 and 2020 and 30 September 2021, the ageing analysis of the trade receivablesbased on billing date is as follows:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Less than 6 months 385,085 403,173 350,2536 months to 1 year 266,937 281,095 158,6881 year to 2 years 54,872 209,707 292,2502 years to 3 years 9,019 13,102 37,1423 years to 4 years 2,398 4,204 2,6004 years to 5 years 136 1,249 52Over 5 years 3,650 3,211 3,063

722,097 915,741 844,048


– I-46 –


(b) Impairment of trade receivables

The Group applies the simplified approach to provide for expected credit loss which was a lifetimeexpected loss allowance for all trade receivables as prescribed by HKFRS 9. Details of the expected loss ratesare set out in Note (3.1(2)).

The movements in provision for impairment of trade receivables were as follows:


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


As at 1 January 15,061 32,359 32,359 57,979Loss allowance recognised in

profit or loss during theyear/period 17,298 25,620 26,319 9,390

As at 31 December/30 September 32,359 57,979 58,678 67,369

The Company


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

CurrentPrepayments for [REDACTED] – – 1,213

Non-currentAmounts due from a subsidiary (i) 202 165 166

202 165 1,379

(i) Amounts due from a subsidiary was non-interest bearing loan, with no maturity date.

19 INVENTORIES


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Raw materials 15,857 9,360 8,165

(i) The cost of inventories was included in cost of sales for the years ended 31 December 2019 and 2020and the nine months ended 30 September 2020 and 2021 amounting to approximately RMB828,318,000,RMB806,535,000, RMB701,916,000 and RMB364,506,000 respectively.

(ii) No provision for inventories has been made during the Track Record Period.


– I-47 –


20 CASH AND CASH EQUIVALENTS


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Cash at banks 61,576 89,682 48,557Cash in hand 39 20 14

61,615 89,702 48,571

The Group’s cash and cash equivalents were denominated in the following currencies:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

RMB 61,437 89,675 48,545HKD 178 27 26

61,615 89,702 48,571

21 RESTRICTED CASH

The Group did not have any restricted cash as at 31 December 2019 and 2020 and 30 September 2021.

22 SHARE CAPITAL

The Group

Number of shares HK$

Authorised:From 1 January 2019 to 30 September 2021 38,000,000 380,000

Issued and fully paid:At 1 January 2019 100 1

Issue of shares to:– Tian Lun Group (a) 2,000 20– Copious Pride and Great Flourishing (b) 17,900 179– Mr. Wong Chung Man (c) 200 2

At 31 December 2019 and 2020 and 30 September 2021 20,200 202

(a) On 28 March 2019, Tian Lun Group Limited and the Company entered into the [REDACTED]Agreement, pursuant to which Tian Lun Group Limited agreed to subscribe for 2,000 Shares.

(b) On 1 April 2019, 14,320 shares and 3,580 shares were allotted and issued to Copious Pride and GreatFlourishing at par value of the shares, respectively.

(c) On 7 June 2019, 200 shares were allotted and issued to Mr. Wong Chung Man.


– I-48 –


23 OTHER RESERVES

The Group

Movements in reserves were as follows:

Statutoryreserve

Capitalreserve

Financialassets at

fair valuethrough other

comprehensiveincome Total

RMB’000 RMB’000 RMB’000 RMB’000

(Note (i)) (Note (ii))

At 1 January 2019 14,017 31,000 49,083 94,100Capital injection – 18,844 – 18,844Deemed distribution – (31,000) – (31,000)Revaluation-gross – – (7,543) (7,543)Revaluation-tax – – 1,886 1,886Appropriation 9,703 – – 9,703

At 31 December 2019 23,720 18,844 43,426 85,990

At 1 January 2020 23,720 18,844 43,426 85,990Revaluation-gross – – 7,680 7,680Revaluation-tax – – (1,920) (1,920)Appropriation 10,240 – – 10,240

At 31 December 2020 33,960 18,844 49,186 101,990

At 1 January 2021 33,960 18,844 49,186 101,990Revaluation-gross – – (33,330) (33,330)Revaluation-tax – – 8,333 8,333Appropriation – – – –

At 30 September 2021(Unaudited) 33,960 18,844 24,189 76,993

At 1 January 2020 23,720 18,844 43,426 85,990Revaluation-gross – – (16,080) (16,080)Revaluation-tax – – 4,020 4,020

At 30 September 2020(Unaudited) 23,720 18,844 31,366 73,930


– I-49 –


(i) Statutory reserves comprise statutory surplus reserve of the subsidiary companies in the PRC. TheCompany’s subsidiaries incorporated in the PRC are required to make appropriations to statutoryreserves from their profit for the year after offsetting accumulated losses carried forward from prioryears as determined under the PRC accounting regulations and before distribution to shareholders. Thepercentages to be appropriated to such statutory reserve are determined according to the relevantregulations in the PRC at rate of 10%, and further appropriation is optional when the accumulated fundis 50% or more of the registered capital of the subsidiaries.

(ii) As a part of the Reorganisation, Shengangtong acquired Henan Shenli from its then shareholders at atotal consideration of RMB31,000,000 in February 2019. The amount was recorded as a deemeddistribution to shareholders.

The Company

Movements in reserves of the Company were as follows:

Capital reserves

RMB’000

At 1 January 2019 –Reorganisation 211,276

At 31 December 2019 and 2020 and 30 September 2021 211,276

(i) The capital reserve of the Company represents the aggregated net values of the subsidiaries acquired bythe Company pursuant to the Reorganisation as described in Note 1.2.

24 TRADE AND OTHER PAYABLES

The Group


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Trade payables (a)– Third parties 278,445 388,579 283,342– Related parties (Note 33(c)) 1,578 145 –

280,023 388,724 283,342

Other payables– Third parties 14,319 11,427 4,384– Related parties (Note 33(c)) 17,916 16,851 16,661– Accrued [REDACTED] – – 426

32,235 28,278 21,471

Payroll and welfare payable 2,220 2,265 2,411Other tax payables 2,356 1,369 1,950

316,834 420,636 309,174


– I-50 –


(a) As at 31 December 2019 and 2020 and 30 September 2021, the ageing analysis of the trade payablesbased on invoice date was as follows:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Less than 6 months 186,841 252,930 175,6146 months to 1 year 73,656 103,108 50,3501 year to 2 years 15,468 27,365 50,4612 years to 3 years 992 4,904 4,2353 years to 4 years 2,838 208 2,3474 years to 5 years 71 127 221Over 5 years 157 82 114

280,023 388,724 283,342

Trade payables were unsecured.

(b) All the amounts due to related parties were short-term loans which were unsecured, non-interest bearing,with no maturity date.

(c) All the trade and other payables were denominated in RMB.

The Company


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Amounts due to a subsidiary 3,950 3,950 5,195Amounts due to related parties (Note 33) 17,916 16,851 16,661Other payables 143 – –

22,009 20,801 21,856


– I-51 –


25 LEASE LIABILITIES

Amounts recognised in the consolidated statements of financial position


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Lease payments due– Within 1 year 300 300 225– Between 1 and 2 years 300 75 –– Between 2 and 3 years 75 – –

Total lease payments 675 375 225Less: future finance charges (64) (25) (7)

Total lease liabilities 611 350 218

Presented as:Current 261 279 218

Non-current 350 71 –

The Group leases office premises. These liabilities were measured at net present value of the lease paymentsduring the lease terms that not yet paid.

26 BORROWINGS


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Non-currentBank borrowings

– unsecured and unguaranteed – – 92,625– secured and unguaranteed (b) – – 19,500

Other borrowings– secured and unguaranteed (a) 50,257 21,587 67,762

Total non-current borrowings 50,257 21,587 179,887

CurrentBank borrowings

– secured and unguaranteed (b) 98,000 100,000 79,500– unsecured and unguaranteed 131,500 131,500 38,875

Other borrowings– unsecured and unguaranteed (c) 100,000 – –– secured and unguaranteed (a) 32,687 129,073 17,728

Total current borrowings 362,187 360,573 136,103

Total borrowings 412,444 382,160 315,990


– I-52 –


(a) As at 31 December 2019 and 2020, the other borrowings of RMB8,459,000 and RMB1,631,000 willmature before 29 April 2021 with an effective interest rate at 11.66%, which were secured by theGroup’s property, plant and equipment of a carrying value of RMB1,447,000 and RMB920,000,respectively (Note 14).

As at 31 December 2019 and 2020, the other borrowings of RMB74,485,000 and RMB49,029,000 willmature by installment before 24 August 2022 with an effective interest rate at 7.00%, which weresecured by the Group’s property, plant and equipment of a carrying value of RMB21,594,000 andRMB18,987,000 respectively (Note 14).

As at 23 August 2021, the Group reached an agreement with the lender to extend the maturity date ofthe loan to 23 August 2023 with the interest rate at 7.00%. As at 30 September 2021, the other borrowingof RMB36,261,000 was secured by the Group’s property, plant and equipment of a carrying value ofRMB17,021,000 (Note 14).

As at 31 December 2020, the other borrowings of RMB100,000,000 will mature before 7 June 2021 withan effective interest rate at 8.00%, which were pledged by the Group’s trade receivables of a carryingvalue of RMB126,010,000.

As at 30 September 2021, the other borrowings of RMB49,229,000 will mature before 15 September2024 with an effective interest rate at 9.90%, with was secured by the Group’s property, plant andequipment of a carrying value of RMB4,400,000 (Note 14).

(b) As at 31 December 2019 and 2020 and 30 September 2021, the bank borrowings of RMB53,000,000,RMB53,000,000 and RMB53,000,000 were pledged by the partial of the equity securities of Bank ofZhengzhou (Note 17), the bank borrowings of RMB25,000,000, RMB25,000,000 and RMB25,000,000were secured by the Group’s property, plant and equipments with a carrying value of RMB13,917,000,RMB12,605,000 and RMB11,621,000 respectively (Note 14), and the bank borrowings ofRMB20,000,000, RMB20,000,000 and RMB20,000,000 were pledged by the Group’s right-of-use assetswith a carrying value of RMB14,343,000, RMB14,028,000 and RMB13,792,000 respectively (Note 13).

As at 31 December 2020, the bank borrowings of RMB2,000,000 were pledged by the Group’s tradereceivables with a carrying value of RMB2,274,000 (Note 18).

As at 30 September 2021, the bank borrowings of RMB1,000,000 was from discounting notes receivablewhich were not derecognised.

(c) As at 31 December 2019, the other borrowings represent the borrowings from non-bank financialinstitutions which will mature before 25 December 2020 with an effective interest rate at 12.00%.

(d) The maturities of the Group’s borrowings at respective reporting period end are set out as follows:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Bank borrowings– Within 1 year 229,500 231,500 118,375– Between 1 and 2 years – – 112,125

229,500 231,500 230,500

Other borrowings– Within 1 year 132,687 129,073 17,728– Between 1 and 2 years 28,670 21,587 49,788– Between 2 and 3 years 21,587 – 17,974

182,944 150,660 85,490

412,444 382,160 315,990


– I-53 –


27 DEFERRED INCOME TAX

(a) The analysis of deferred income tax assets and liabilities is as follows:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Deferred tax assets:– Deferred tax asset to be recovered after

12 months 53 – –– Deferred tax asset to be recovered within

12 months 8,182 14,549 16,843

8,235 14,549 16,843

Deferred tax liability:– Deferred tax liability to be settled after

12 months (14,475) (16,395) (8,062)– Deferred tax liability to be settled within 12

months – – –

(14,475) (16,395) (8,062)

At 31 December/30 September (6,240) (1,846) 8,781

(b) The movements in deferred income tax assets and liabilities during Track Record Period are as follows withouttaking consideration of the offset of balances within the same tax jurisdiction:

Deferredtax assets –Impairment

for tradereceivable

and property,plant and

equipment

Deferredtax assets –

Others

Deferredtax liability –

Revaluation offinancial assets

through othercomprehensive

income Total

RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2019 4,558 236 (16,361) (11,567)Credited/(charged) to profit or loss 3,531 (90) – 3,441Charged to other comprehensive

income – – 1,886 1,886

At 31 December 2019 8,089 146 (14,475) (6,240)

At 1 January 2020 8,089 146 (14,475) (6,240)Credited/(charged) to profit or loss 6,404 (90) – 6,314Charged to other comprehensive

income – – (1,920) (1,920)

At 31 December 2020 14,493 56 (16,395) (1,846)


– I-54 –


Deferredtax assets –Impairment

for tradereceivable

and property,plant and

equipment

Deferredtax assets –

Others

Deferredtax liability –

Revaluation offinancial assets

through othercomprehensive

income Total

RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2021 14,493 56 (16,395) (1,846)(Charged)/credited to profit or loss 2,348 (54) – 2,294Charged to other comprehensive

income – – 8,333 8,333

At 30 September 2021(Unaudited) 16,841 2 (8,062) 8,781

At 1 January 2020 8,089 146 (14,475) (6,240)(Charged)/credited to profit or loss 6,580 (68) – 6,512Charged to other comprehensive

income – – 4,020 4,020

At 30 September 2020(Unaudited) 14,669 78 (10,455) 4,292

(c) Tax losses which no deferred income tax assets were recognised were as follows:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Tax losses 1,011 1,479 1,935

(d) As at 31 December 2019 and 2020 and 30 September 2021, the Group did not recognise deferred income taxassets of approximately RMB222,000, RMB117,000 and RMB114,000 in respect of losses amounting toapproximately RMB1,011,000, RMB1,479,000 and RMB1,935,000 that can be carried forward against futuretaxable income. The unrecognised tax losses will expire in the following years:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

2023 123 123 1232024 888 888 8882025 – 468 4682026 – – 456

1,011 1,479 1,935


– I-55 –


28 CASH GENERATED FROM/(USED IN) OPERATIONS

(a) Reconciliation of profit before income tax to cash (used in)/generated from operations


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Profit before income tax 123,071 132,492 119,776 54,300Adjustments for:

Depreciation and amortisation 9,129 9,236 6,855 7,165Net losses/(gains) on disposal of

property, plant and equipment 274 (9) (9) 238Losses from factoring of trade

receivables 2,200 200 – –Dividend from financial assets at

fair value through othercomprehensive income (4,500) (3,000) (3,000) –

Net impairment losses onfinancial assets 17,298 25,620 26,319 9,390

Finance costs – net 33,706 33,983 26,748 18,444Net exchange differences 796 (1,065) (341) (190)

181,974 197,457 176,348 89,347

Changes in working capital:– Trade and other receivables (317,996) (190,946) (342,853) 91,782– Inventories 7,375 6,497 9,052 1,195– Trade and other payables 116,499 116,029 247,682 (111,249)– Contract liabilities 5,746 (8,501) (8,469) (1,913)

(188,376) (76,921) (94,588) (20,185)

Cash (used in)/generated fromoperations (6,402) 120,536 81,760 69,162

(b) Non-cash transaction in financing and investing activities


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Purchase of property, plant andequipment by using notesreceivable 6,054 1,750 1,500 –

In addition, the Group disposed equipment and machinery and motor vehicles with carry amount RMB406,000for consideration of RMB385,000, which offset the payment of purchasing property, plant and equipment and rawmaterial.


– I-56 –


(c) Net debt reconciliation

This section sets out an analysis of net debt and the movements in net debt for each of the periods presented.

Liabilities from financing activities

Bankborrowings,

otherborrowings

and interestpayable

Amounts dueto relatedand third

partiesLease

liabilities Total

RMB’000 RMB’000 RMB’000 RMB’000

Net debt as at 1 January 2019 321,680 3,636 – 325,316Cash flows

– Net cash flows from financingactivities 56,921 13,170 (225) 69,866

Non-cash movements– Interest expenses 33,843 – 26 33,869– Acquisition of right-of-use

assets – – 810 810– [REDACTED] paid on behalf

of the Group – 314 – 314– Foreign exchange adjustments – 796 – 796

Net debt as at 31 December 2019 412,444 17,916 611 430,971

Cash flows– Net cash flows from financing

activities (64,455) – (300) (64,755)Non-cash movements

– Interest expenses 34,171 – 39 34,210– Foreign exchange adjustments – (1,065) – (1,065)

Net debt as at 31 December 2020 382,160 16,851 350 399,361

Cash flows– Net cash flows from financing

activities (85,665) – (150) (85,815)Non-cash movements

– Interest expenses 19,495 – 18 19,513– Foreign exchange adjustments – (190) – (190)

Net debt as at 30 September 2021(Unaudited) 315,990 16,661 218 332,869

Net debt as at 1 January 2020 412,444 17,916 611 430,971Cash flows

– Net cash flows from financingactivities (82,903) – (225) (83,128)

Non-cash movements– Interest expenses 26,910 – 31 26,941– Foreign exchange adjustments – (341) – (341)

Net debt as at 30 September 2020(Unaudited) 356,451 17,575 417 374,443


– I-57 –


(d) In the consolidated statement of cash flows, proceeds from disposals of property, plant and equipmentcomprise:


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Net book amount 4,290 471 471 760Net (losses)/gains on disposal of

property, plant and equipment (274) 9 9 (238)Disposal related taxation 117 10 10 10Non-cash settlement (note 28(b)) (385) – – (310)

Proceeds from disposal of property,plant and equipment 3,748 490 490 222

29 CONTINGENT LIABILITIES

As at 31 December 2019, 2020 and 30 September 2021, the Group did not have any material contingentliabilities.

30 GUARANTEES

As at 31 December 2019 and 2020 and 30 September 2021, the Group did not provide financial guarantees forborrowings to other party.

31 CAPITAL COMMITMENT

Capital expenditure contracted for at the end of each reporting period, but not yet incurred is as follows:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Property, plant and equipment 121 373 121Intangible assets – 42 –

121 415 121


– I-58 –


32 ASSETS PLEDGED AS SECURITY

The carrying amounts of assets pledged as security for current and non-current borrowings and bills payablesare:


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

CurrentTrade receivables (Note 18 and 26) – 128,284 –Notes receivables (Note 17) – – 1,000Dividend receivable 2,235 2,000 2,000Total non-current assets pledged as security 2,235 130,284 3,000

Non-currentProperty, plant and equipment

(Notes 14 and 26) 36,958 32,512 33,042Right-of-use assets (Notes 13 and 26) 14,343 14,028 13,792Financial assets at fair value through other

comprehensive income (Notes 17 and 26) 69,285 89,200 75,900

Total non-current assets pledged as security 120,586 135,740 122,734

Total assets pledged as security 122,821 266,024 125,734

33 RELATED PARTY TRANSACTIONS

Related parties are those parties that have the ability to control the other party or exercise significant influencein making financial and operating decisions. Parties are also considered to be related if they are subject to commoncontrol.

The information of the shareholders of the Company has been disclosed in Note 1.

The following is a summary of the significant transactions carried out between the Group and its related partiesduring the Track Record Period and balances arising from related party transactions as at each of the reporting periodend.

(a) Name and relationship with related parties

Name of related party Relationship

Copious Pride Limited The wholly controlled company by Mr. Song QuanfaGreat Flourishing Limited The wholly controlled company by Mr. Shi JunweiMr. Wang Ka Senior management of the GroupMr. Wang Shuangquan Father of Mr. Wang KaMr. Zhao Jie Close family member of Mr. Shi Junwei

(b) Significant related party transactions

For the Track Record Period, the Group had the following significant transactions with related parties.


– I-59 –


(i) [REDACTED] paid on behalf of the Group


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Mr. Song Quanfa 314 – – –

(ii) Purchase of raw materials


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Mr. Wang Shuangquan 10,022 – – –Mr. Zhao Jie 2,548 – – –

12,570 – – –

(iii) Advances from immediate holding companies


30 September

2019 2020 2020 2021

RMB’000 RMB’000 RMB’000 RMB’000


Copious Pride Limited 13,706 – – –Great Flourishing Limited 3,424 – – –

17,130 – – –

(c) Significant related party balances

(i) Other Payable


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Copious Pride Limited 14,333 13,481 13,329Great Flourishing Limited 3,583 3,370 3,332

17,916 16,851 16,661


– I-60 –


Other payables to Copious Pride and Great Flourishing Limited amounts HK$16,000,000 andHK$4,000,000, respectively. The other payables were non-interest bearing loan with no maturity date, and itwill be waived upon the [REDACTED] according to the arrangement letter signed by Mr. Song Quanfa andMr. Shi Junwei dated [●].

(ii) Trade payables


30 September

2019 2020 2021

RMB’000 RMB’000 RMB’000

(Unaudited)

Mr. Zhao Jie 1,578 145 –

Trade payables to Mr. Zhao Jie were trade in nature, unsecured, non-interest bearing, with paymentterms up to 3 months.

34 SUBSEQUENT EVENTS

Save as disclosed elsewhere in this report, there is no significant subsequent event.

35 DIVIDEND

No dividend has been paid or declared by the Company during each of the year ended 31 December 2019, 2020and the nine months ended 30 September 2021.

III SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or any of itssubsidiaries in respect of any period subsequent to 30 September 2021 up to the date of thisreport.


– I-61 –


The information set forth in this appendix does not form part of the Accountant’s Reportreceived from the Company’s reporting accountant, PricewaterhouseCoopers, Certified PublicAccountants, Hong Kong, as set forth in Appendix I to this document, and is included hereinfor illustrative purpose only.

The unaudited [REDACTED] financial information should be read in conjunction withthe section headed “Financial Information” in this document and the Accountant’s Report setforth in Appendix I to this document.

A. UNAUDITED [REDACTED] STATEMENT OF ADJUSTED NET TANGIBLEASSETS

The following unaudited [REDACTED] statement of adjusted net tangible assets of theGroup prepared in accordance with Rule 4.29 of the Listing Rules, is for the purpose ofillustrating the effect of the [REDACTED] and the Capitalisation Issue on the consolidated nettangible assets of the Group attributable to the owners of the Company as at 30 September 2021as if the [REDACTED] and the Capitalisation Issue had taken place on 30 September 2021.

This unaudited [REDACTED] statement of adjusted net tangible assets has beenprepared for illustrative purpose only and because of its hypothetical nature, it may not givea true picture of the net tangible assets of the Group as at 30 September 2021 or at any futuredates following the [REDACTED] and the Capitalisation Issue. It is prepared based on theconsolidated financial information of the Group as at 30 September 2021 as set forth in theAccountant’s Report of the Group, the text of which is set out in Appendix I to this document,and adjusted as described below. The unaudited [REDACTED] statement of adjusted nettangible assets does not form part of the Accountant’s Report.

Unauditedconsolidatednet tangible

assets ofthe Group

attributable toowners of the


2021

Estimated[REDACTED]

from the[REDACTED]

Unaudited[REDACTED]adjusted net

tangible assetsattributable toowners of the


2021

Unaudited [REDACTED]adjusted net tangible

assets per share

(Note 1) (Note 2) (Note 3) (Note 4)

RMB’000 RMB’000 RMB’000 RMB HK$

Based on the[REDACTED] ofHK$[REDACTED] pershare 418,835 [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Based on the[REDACTED] ofHK$[REDACTED] pershare 418,835 [REDACTED] [REDACTED] [REDACTED] [REDACTED]

APPENDIX II UNAUDITED [REDACTED] FINANCIALINFORMATION OF THE GROUP

– II-1 –


Notes:

(1) The unaudited consolidated net tangible assets attributable to owners of the Company as of 30September 2021 is extracted from the Accountant’s Report set out in Appendix I to this document, whichis based on the unaudited consolidated net assets of the Group attributable to owners of the Companyas of 30 September 2021 of RMB421,922,000, with an adjustment for the intangible assets ofRMB3,087,000 as at 30 September 2021.

(2) The estimated [REDACTED] from the [REDACTED] are based on the individual [REDACTED] of[REDACTED] and [REDACTED] per share, being the lower end to higher end of the stated[REDACTED] range, respectively, and [REDACTED] shares expected to be issued under[REDACTED], after deduction of the [REDACTED] and other related expenses payable by theCompany (excluding [REDACTED] of approximately [REDACTED] which have been accounted forin the Group’s consolidated statements of comprehensive income prior to 30 September 2021), and takesno account of any Shares which may be issued pursuant to the exercise of [REDACTED], any optionswhich may be granted under the Share Option Scheme or any Shares which may be allotted and issuedor repurchased by the Company under the general mandate to issue Shares and general mandate torepurchase Shares as described in the section headed “Share Capital” in this document.

(3) The unaudited [REDACTED] adjusted net tangible assets per share is arrived at after the adjustmentsreferred to in the preceding paragraphs and on the basis that [REDACTED] shares are in issue,assuming the [REDACTED] and the Capitalisation Issue had been completed on 30 September 2021,and no [REDACTED] will be granted.

(4) For the purpose of this unaudited [REDACTED] statement of adjusted net tangible assets, the balancestated in Renminbi is converted into Hong Kong dollars at rate of HK$1.00 to RMB0.83. Norepresentation is made that Renminbi amounts have been, could have been or may be converted to HongKong dollars, or vice versa, at that rate.

(5) No adjustment has been made to reflect any trading results or other transactions of the Group enteredinto subsequent to 30 September 2021.


– II-2 –


[REDACTED]


– II-3 –


[REDACTED]


– II-4 –


[REDACTED]

PricewaterhouseCoopersCertified Public AccountantsHong Kong, [date]


– II-5 –


Set out below is a summary of certain provisions of the Memorandum and Articles ofAssociation of the Company and of certain aspects of Cayman Islands company law.

The Company was incorporated in the Cayman Islands as an exempted company withlimited liability on 2 October 2018 under the Companies Act. The Company’s constitutionaldocuments 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 Companyis limited and that the objects for which the Company is established are unrestricted(and therefore include acting as an investment company), and that the Companyshall have and be capable of exercising any and all of the powers at any time or fromtime 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, thatthe Company will not trade in the Cayman Islands with any person, firm orcorporation except in furtherance of the business of the Company carried on outsidethe Cayman Islands.

(b) By special resolution the Company may alter the Memorandum with respect to anyobjects, 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 isset 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 Companies Act, if at any time the share capital of the Company isdivided into different classes of shares, all or any of the special rights attached to anyclass of shares may (unless otherwise provided for by the terms of issue of the shares ofthat class) be varied, modified or abrogated either with the consent in writing of theholders of not less than three-fourths in nominal value of the issued shares of that classor with the sanction of a special resolution passed at a separate general meeting of theholders of the shares of that class. The provisions of the Articles relating to generalmeetings shall mutatis mutandis apply to every such separate general meeting, but so thatthe necessary quorum (other than at an adjourned meeting) shall be not less than twopersons together holding (or, in the case of a member being a corporation, by its dulyauthorized representative) or representing by proxy not less than one-third in nominalvalue of the issued shares of that class. Every holder of shares of the class shall be entitledon a poll to one vote for every such share held by him, and any holder of shares of theclass present in person or by proxy may demand a poll.

APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANYAND CAYMAN ISLANDS COMPANY LAW

– III-1 –


Any special rights conferred upon the holders of any shares or class of shares shallnot, unless otherwise expressly provided in the rights attaching to the terms of issue ofsuch shares, be deemed to be varied by the creation or issue of further shares ranking panipassu therewith.

(iii) Alteration of capital

The Company may, by an ordinary resolution of its members: (a) increase its sharecapital 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 smalleramount than its existing shares; (c) divide its unissued shares into several classes andattach to such shares any preferential, deferred, qualified or special rights, privileges orconditions; (d) subdivide its shares or any of them into shares of an amount smaller thanthat 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 itsshare capital by the amount of the shares so cancelled; (f) make provision for theallotment and issue of shares which do not carry any voting rights; and (g) change thecurrency of denomination of its share capital.

(iv) Transfer of shares

Subject to the Companies Act and the requirements of The Stock Exchange ofHong Kong Limited (the “Stock Exchange”), all transfers of shares shall be effected byan instrument of transfer in the usual or common form or in such other form as the Boardmay approve and may be under hand or, if the transferor or transferee is a Clearing Houseor its nominee(s), under hand or by machine imprinted signature, or by such other mannerof 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 andthe transferee, provided that the Board may dispense with the execution of the instrumentof transfer by the transferor or transferee or accept mechanically executed transfers. Thetransferor shall be deemed to remain the holder of a share until the name of the transfereeis entered in the register of members of the Company in respect of that share.

The Board may, in its absolute discretion, at any time and from time to time removeany share on the principal register to any branch register or any share on any branchregister to the principal register or any other branch register. Unless the Board otherwiseagrees, no shares on the principal register shall be removed to any branch register norshall shares on any branch register be removed to the principal register or any otherbranch register. All removals and other documents of title shall be lodged for registrationand registered, in the case of shares on any branch register, at the relevant registrationoffice and, in the case of shares on the principal register, at the place at which theprincipal 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 theCompany has a lien. It may also decline to register a transfer of any share issued underany share option scheme upon which a restriction on transfer subsists or a transfer of anyshare to more than four joint holders.


– III-2 –


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 tothe Company, the instrument of transfer is properly stamped (if applicable), is in respectof only one class of share and is lodged at the relevant registration office or the place atwhich 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 rightof the transferor to make the transfer (and if the instrument of transfer is executed bysome 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 timeor for such period not exceeding in the whole 30 days in each year as the Board maydetermine.

Fully paid shares shall be free from any restriction on transfer (except whenpermitted 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 theBoard may only exercise this power on behalf of the Company subject to any applicablerequirement imposed from time to time by the Articles or any, code, rules or regulationsissued from time to time by the Stock Exchange and/or the Securities and FuturesCommission of Hong Kong.

(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 theCompany 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 membersin respect of any monies unpaid on the shares held by them respectively (whether onaccount of the nominal value of the shares or by way of premium) and not by theconditions of allotment of such shares made payable at fixed times. A call may be madepayable either in one sum or by installments. If the sum payable in respect of any call orinstallment is not paid on or before the day appointed for payment thereof, the person orpersons from whom the sum is due shall pay interest on the same at such rate notexceeding 20% per annum as the Board shall fix from the day appointed for payment tothe time of actual payment, but the Board may waive payment of such interest wholly orin part. The Board may, if it thinks fit, receive from any member willing to advance thesame, either in money or money’s worth, all or any part of the money uncalled and unpaidor installments payable upon any shares held by him, and in respect of all or any of themonies so advanced the Company may pay interest at such rate (if any) not exceeding20% per annum as the Board may decide.


– III-3 –


If a member fails to pay any call or installment of a call on the day appointed forpayment, 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 thecall or installment as is unpaid, together with any interest which may have accrued andwhich may still accrue up to the date of actual payment. The notice shall name a furtherday (not earlier than the expiration of 14 days from the date of the notice) on or beforewhich the payment required by the notice is to be made, and shall also name the placewhere payment is to be made. The notice shall also state that, in the event of non-paymentat or before the appointed time, the shares in respect of which the call was made will beliable to be forfeited.

If the requirements of any such notice are not complied with, any share in respectof which the notice has been given may at any time thereafter, before the paymentrequired by the notice has been made, be forfeited by a resolution of the Board to thateffect. Such forfeiture will include all dividends and bonuses declared in respect of theforfeited share and not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect ofthe forfeited shares but shall, nevertheless, remain liable to pay to the Company allmonies which, at the date of forfeiture, were payable by him to the Company in respectof the shares together with (if the Board shall in its discretion so require) interest thereonfrom the date of forfeiture until payment at such rate not exceeding 20% per annum as theBoard may prescribe.

(b) Directors

(i) Appointment, retirement and removal

At any time or from time to time, the Board shall have the power to appoint anyperson as a Director either to fill a casual vacancy on the Board or as an additionalDirector to the existing Board subject to any maximum number of Directors, if any, asmay be determined by the members in general meeting. Any Director so appointed to filla casual vacancy shall hold office only until the first annual general meeting of theCompany after his appointment and be subject to re-election at such meeting. AnyDirector so appointed as an addition to the existing Board shall hold office only until thefirst annual general meeting of the Company after his appointment and be eligible forre-election at such meeting. Any Director so appointed by the Board shall not be takeninto account in determining the Directors or the number of Directors who are to retire byrotation at an annual general meeting.

At each annual general meeting, one third of the Directors for the time being shallretire from office by rotation. However, if the number of Directors is not a multiple ofthree, then the number nearest to but not less than one third shall be the number of retiringDirectors. The Directors to retire in each year shall be those who have been in officelongest since their last re-election or appointment but, as between persons who becameor were last re-elected Directors on the same day, those to retire shall (unless theyotherwise agree among themselves) be determined by lot.

No person, other than a retiring Director, shall, unless recommended by the Boardfor 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 Directorand notice in writing by that person of his willingness to be elected has been lodged at


– III-4 –


the head office or at the registration office of the Company. The period for lodgment ofsuch notices shall commence no earlier than the day after despatch of the notice of therelevant meeting and end no later than seven days before the date of such meeting and theminimum length of the period during which such notices may be lodged must be at leastseven days.

A Director is not required to hold any shares in the Company by way of qualificationnor is there any specified upper or lower age limit for Directors either for accession to orretirement from the Board.

A Director may be removed by an ordinary resolution of the members before theexpiration of his term of office (but without prejudice to any claim which such Directormay have for damages for any breach of any contract between him and the Company) andthe Company may by an ordinary resolution appoint another in his place. Any Director soappointed shall be subject to the “retirement by rotation” provisions. The number ofDirectors shall not be less than two.

The office of a Director shall be vacated if he:

(aa) resigns;

(bb) dies;

(cc) is declared to be of unsound mind and the Board resolves that his office bevacated;

(dd) becomes bankrupt or has a receiving order made against him or suspendspayment or compounds with his creditors generally;

(ee) 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 consecutivemonths, and the Board resolves that his office is vacated;

(gg) has been required by the stock exchange of the Relevant Territory (as definedin the Articles) to cease to be a Director; or

(hh) is removed from office by the requisite majority of the Directors or otherwisepursuant to the Articles.

From time to time the Board may appoint one or more of its body to be managingdirector, joint managing director or deputy managing director or to hold any otheremployment or executive office with the Company for such period and upon such termsas the Board may determine, and the Board may revoke or terminate any of suchappointments. The Board may also delegate any of its powers to committees consistingof such Director(s) or other person(s) as the Board thinks fit, and from time to time it mayalso revoke such delegation or revoke the appointment of and discharge any suchcommittees either wholly or in part, and either as to persons or purposes, but everycommittee so formed shall, in the exercise of the powers so delegated, conform to anyregulations that may from time to time be imposed upon it by the Board.


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(ii) Power to allot and issue shares and warrants

Subject to the provisions of the Companies Act, the Memorandum and Articles andwithout prejudice to any special rights conferred on the holders of any shares or class ofshares, any share may be issued with or have attached to it such rights, or suchrestrictions, whether with regard to dividend, voting, return of capital or otherwise, as theCompany may by an ordinary resolution determine (or, in the absence of any suchdetermination or so far as the same may not make specific provision, as the Board maydetermine). Any share may be issued on terms that, upon the happening of a specifiedevent or upon a given date and either at the option of the Company or the holder of theshare, it is liable to be redeemed.

The Board may issue warrants to subscribe for any class of shares or other securitiesof 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 shallbe issued to replace one that has been lost unless the Board is satisfied beyond reasonabledoubt that the original certificate has been destroyed and the Company has received anindemnity in such form as the Board thinks fit with regard to the issue of any suchreplacement certificate.

Subject to the provisions of the Companies Act, the Articles and, where applicable,the rules of any stock exchange of the Relevant Territory (as defined in the Articles) andwithout prejudice to any special rights or restrictions for the time being attached to anyshares or any class of shares, all unissued shares in the Company shall be at the disposalof the Board, which may offer, allot, grant options over or otherwise dispose of them tosuch persons, at such times, for such consideration and on such terms and conditions asit 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 anyallotment of, offer of, option over or disposal of shares, to make, or make available, anysuch allotment, offer, option or shares to members or others whose registered addressesare in any particular territory or territories where, in the absence of a registrationstatement or other special formalities, this is or may, in the opinion of the Board, beunlawful or impracticable. However, no member affected as a result of the foregoing shallbe, 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 theassets of the Company or any of its subsidiaries, the Board may exercise all powers anddo all acts and things which may be exercised or done or approved by the Company andwhich are not required by the Articles or the Companies Act to be exercised or done bythe Company in general meeting, but if such power or act is regulated by the Companyin general meeting, such regulation shall not invalidate any prior act of the Board whichwould have been valid if such regulation had not been made.


– III-6 –


(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 ofthe Company and, subject to the Companies Act, to issue debentures, debenture stock,bonds and other securities of the Company, whether outright or as collateral security forany debt, liability or obligation of the Company or of any third party.

(v) Remuneration

The Directors shall be entitled to receive, as ordinary remuneration for theirservices, such sums as shall from time to time be determined by the Board or theCompany in general meeting, as the case may be, such sum (unless otherwise directed bythe resolution by which it is determined) to be divided among the Directors in suchproportions 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 ofwhich the remuneration is payable, pro rata. The Directors shall also be entitled to berepaid all expenses reasonably incurred by them in attending any Board meetings,committee meetings or general meetings or otherwise in connection with the discharge oftheir duties as Directors. Such remuneration shall be in addition to any other remunerationto which a Director who holds any salaried employment or office in the Company may beentitled by reason of such employment or office.

Any Director who, at the request of the Company, performs services which in theopinion of the Board goes beyond the ordinary duties of a Director may be paid suchspecial or extra remuneration as the Board may determine, in addition to or in substitutionfor any ordinary remuneration as a Director. An executive Director appointed to be amanaging director, joint managing director, deputy managing director or other executiveofficer shall receive such remuneration and such other benefits and allowances as theBoard may from time to time decide. Such remuneration shall be in addition to hisordinary remuneration as a Director.

The Board may establish, either on its own or jointly in concurrence or agreementwith subsidiaries of the Company or companies with which the Company is associated inbusiness, or may make contributions out of the Company’s monies to, any schemes orfunds for providing pensions, sickness or compassionate allowances, life assurance orother benefits for employees (which expression as used in this and the followingparagraph shall include any Director or former Director who may hold or have held anyexecutive office or any office of profit with the Company or any of its subsidiaries) andformer employees of the Company and their dependents or any class or classes of suchpersons.

The Board may also pay, enter into agreements to pay or make grants of revocableor irrevocable, whether or not subject to any terms or conditions, pensions or otherbenefits to employees and former employees and their dependents, or to any of suchpersons, including pensions or benefits additional to those, if any, to which suchemployees or former employees or their dependents are or may become entitled under anysuch scheme or fund as mentioned above. Such pension or benefit may, if deemeddesirable by the Board, be granted to an employee either before and in anticipation of, orupon or at any time after, his actual retirement.


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(vi) Compensation or payments for loss of office

Payments to any present Director or past Director of any sum by way ofcompensation for loss of office or as consideration for or in connection with hisretirement from office (not being a payment to which the Director is contractually orstatutorily 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 directorof any holding company of the Company or any of their respective close associates, enterinto any guarantee or provide any security in connection with a loan made by any personto a Director or a director of any holding company of the Company or any of theirrespective close associates, or, if any one or more of the Directors hold(s) (jointly orseverally or directly or indirectly) a controlling interest in another company, make a loanto that other company or enter into any guarantee or provide any security in connectionwith a loan made by any person to that other company.

(viii) Financial assistance to purchase Shares

Subject to the Companies Act, or any other law or so far as not prohibited by anylaw and subject to any rights conferred on the holders of any class of Shares, theCompany shall have the power to give, directly or indirectly, by means of a loan, aguarantee, an indemnity, the provision of security or otherwise howsoever, financialassistance for the purpose of or in connection with a purchase or other acquisition madeor to be made by any person of any Shares or warrants or other securities in the Companyor any company which is a holding company of the Company.

(ix) 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 anyother office or place of profit with the Company in conjunction with his office of Directorfor such period and upon such terms as the Board may determine, and may be paid suchextra remuneration for that other office or place of profit, in whatever form, in additionto any remuneration provided for by or pursuant to any other Articles. A Director may beor become a director, officer or member of any other company in which the Company maybe interested, and shall not be liable to account to the Company or the members for anyremuneration or other benefit received by him as a director, officer or member of suchother company. The Board may also cause the voting power conferred by the shares in anyother company held or owned by the Company to be exercised in such manner in allrespects as it thinks fit, including the exercise in favor of any resolution appointing theDirectors 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 contractingwith the Company, nor shall any such contract or any other contract or arrangement inwhich any Director is in any way interested be liable to be avoided, nor shall any Directorso contracting or being so interested be liable to account to the Company for any profitrealized by any such contract or arrangement by reason only of such Director holding thatoffice 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 arrangementwith the Company shall declare the nature of his interest at the earliest meeting of theBoard at which he may practically do so.


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There is no power to freeze or otherwise impair any of the rights attaching to anyshare by reason that the person or persons who are interested directly or indirectly in thatshare 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 Boardin respect of any contract or arrangement or proposal in which he or any of his closeassociate(s) has/have a material interest, and if he shall do so his vote shall not be countednor shall he be counted in the quorum for that resolution, but this prohibition shall notapply 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 anyof them at the request of or for the benefit of the Company or any of itssubsidiaries;

(bb) the giving of any security or indemnity to a third party in respect of a debt orobligation of the Company or any of its subsidiaries for which the Director orhis close associate(s) has/have himself/themselves assumed responsibility inwhole or in part whether alone or jointly under a guarantee or indemnity or bythe giving of security;

(cc) any proposal concerning an offer of shares, debentures or other securities of orby the Company or any other company which the Company may promote or beinterested in for subscription or purchase, where the Director or his closeassociate(s) is/are or is/are to be interested as a participant in the[REDACTED] or [REDACTED] of the offer;

(dd) any proposal or arrangement concerning the benefit of employees of theCompany or any of its subsidiaries, including the adoption, modification oroperation of either: (i) any employees’ share scheme or any share incentive orshare option scheme under which the Director or his close associate(s) maybenefit; or (ii) any of a pension fund or retirement, death or disability benefitscheme which relates to Directors, their close associates and employees of theCompany or any of its subsidiaries and does not provide in respect of anyDirector or his close associate(s) any privilege or advantage not generallyaccorded 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 orother securities of the Company by virtue only of his/their interest in thoseshares, debentures or other securities.

(x) Proceedings of the Board

The Board may meet anywhere in the world for the despatch of business and mayadjourn and otherwise regulate its meetings as it thinks fit. Questions arising at anymeeting 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.


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(c) 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 theArticles, the Memorandum and Articles of the Company may only be altered or amended, andthe name of the Company may only be changed, with the sanction of a special resolution of theCompany.

(d) Meetings of member

(i) Special and ordinary resolutions

A special resolution of the Company must be passed by a majority of not less thanthree-fourths of the votes cast by such members as, being entitled so to do, vote in personor by proxy or, in the case of members which are corporations, by their duly authorizedrepresentatives or, where proxies are allowed, by proxy at a general meeting of whichnotice specifying the intention to propose the resolution as a special resolution has beenduly given.

Under the Companies Act, a copy of any special resolution must be forwarded to theRegistrar 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 ofthe 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 representativesor, where proxies are allowed, by proxy at a general meeting of which notice has beenduly given.

A resolution in writing signed by or on behalf of all members shall be treated as anordinary resolution duly passed at a general meeting of the Company duly convened andheld, and where relevant as a special resolution so passed.

(ii) Voting rights and right to demand a poll

Subject to any special rights, restrictions or privileges as to voting for the time beingattached to any class or classes of shares at any general meeting: (a) on a poll everymember 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 fullypaid or credited as fully paid registered in his name in the register of members of theCompany but so that no amount paid up or credited as paid up on a share in advance ofcalls or installments is treated for this purpose as paid up on the share; and (b) on a showof hands every member who is present in person (or, in the case of a member being acorporation, by its duly authorized representative) or by proxy shall have one vote. Wheremore than one proxy is appointed by a member which is a Clearing House (as defined inthe 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 allthe votes he does use in the same way.


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At any general meeting a resolution put to the vote of the meeting is to be decidedby poll save that the chairman of the meeting may, pursuant to the Listing Rules, allowa resolution to be voted on by a show of hands. Where a show of hands is allowed, beforeor on the declaration of the result of the show of hands, a poll may be demanded by (ineach case by members present in person or by proxy or by a duly authorized corporaterepresentative):

(A) at least two members;

(B) any member or members representing not less than one-tenth of the total votingrights 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 voteat the meeting on which an aggregate sum has been paid equal to not less thanone-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, suchperson or persons may be authorized as it thinks fit to act as its representative(s) at anymeeting of the Company or at any meeting of any class of members of the Companyprovided that, if more than one person is so authorized, the authorization shall specify thenumber and class of shares in respect of which each such person is so authorized. Aperson authorized in accordance with this provision shall be deemed to have been dulyauthorized without further evidence of the facts and be entitled to exercise the same rightsand powers on behalf of the Clearing House or its nominee(s) as if such person were anindividual member including the right to vote individually on a show of hands and theright to speak.

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 onlyfor or only against any particular resolution, any votes cast by or on behalf of suchmember in contravention of such requirement or restriction shall not be counted.

(iii) Annual general meetings

The Company must hold an annual general meeting each financial year other thanthe financial year of the Company’s adoption of the Articles.

(iv) Requisition of general meetings

Extraordinary general meetings may be convened on the requisition of one or moremembers holding, at the date of deposit of the requisition, not less than one tenth of thepaid up capital of the Company having the right of voting at general meetings. Suchrequisition shall be made in writing to the Board or the secretary of the Company for thepurpose of requiring an extraordinary general meeting to be called by the Board for thetransaction of any business specified in such requisition. Such meeting shall be heldwithin two months after the deposit of such requisition. If within 21 days of such deposit,the Board fails to proceed to convene such meeting, the requisitionist(s) himself


– III-11 –


(themselves) may do so in the same manner, and all reasonable expenses incurred by therequisitionist(s) as a result of the failure of the Board shall be reimbursed to therequisitionist(s) by the Company.

(v) Notices of meetings and business to be conducted

An annual general meeting of the Company shall be called by at least 21 days’ noticein writing, and any other general meeting of the Company shall be called by at least 14days’ notice in writing. The notice shall be exclusive of the day on which it is served ordeemed to be served and of the day for which it is given, and must specify the time, placeand agenda of the meeting and particulars of the resolution(s) to be considered at thatmeeting and, in the case of special business, the general nature of that business.

Except where otherwise expressly stated, any notice or document (including a sharecertificate) to be given or issued under the Articles shall be in writing, and may be servedby the Company on any member personally, by post to such member’s registered addressor (in the case of a notice) by advertisement in the newspapers. Any member whoseregistered address is outside Hong Kong may notify the Company in writing of an addressin Hong Kong which shall be deemed to be his registered address for this purpose. Subjectto the Companies Act and the Listing Rules, a notice or document may also be served ordelivered by the Company to any member by electronic means.

Although a meeting of the Company may be called by shorter notice than asspecified 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 Companyentitled to attend and vote thereat; and

(ii) in the case of any other meeting, by a majority in number of the membershaving a right to attend and vote at the meeting holding not less than 95% ofthe total voting rights in the Company.

All business transacted at an extraordinary general meeting shall be deemed specialbusiness. All business shall also be deemed special business where it is transacted at anannual general meeting, with the exception of certain routine matters which shall bedeemed ordinary business.

(vi) Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is presentwhen the meeting proceeds to business, and continues to be present until the conclusionof the meeting.

The quorum for a general meeting shall be two members present in person (or in thecase of a member being a corporation, by its duly authorized representative) or by proxyand entitled to vote. In respect of a separate class meeting (other than an adjournedmeeting) convened to sanction the modification of class rights the necessary quorum shallbe two persons holding or representing by proxy not less than one-third in nominal valueof the issued shares of that class.


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(vii) Proxies

Any member of the Company entitled to attend and vote at a meeting of theCompany is entitled to appoint another person as his proxy to attend and vote instead ofhim. A member who is the holder of two or more shares may appoint more than one proxyto represent him and vote on his behalf at a general meeting of the Company or at a classmeeting. A proxy need not be a member of the Company and shall be entitled to exercisethe same powers on behalf of a member who is an individual and for whom he acts asproxy as such member could exercise. In addition, a proxy shall be entitled to exercise thesame powers on behalf of a member which is a corporation and for which he acts as proxyas such member could exercise if it were an individual member. On a poll or on a showof hands, votes may be given either personally (or, in the case of a member being acorporation, by its duly authorized representative) or by proxy.

The instrument appointing a proxy shall be in writing under the hand of theappointor 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. Everyinstrument of proxy, whether for a specified meeting or otherwise, shall be in such formas the Board may from time to time approve, provided that it shall not preclude the useof the two-way form. Any form issued to a member for appointing a proxy to attend andvote at an extraordinary general meeting or at an annual general meeting at which anybusiness is to be transacted shall be such as to enable the member, according to hisintentions, to instruct the proxy to vote in favor of or against (or, in default ofinstructions, to exercise his discretion in respect of) each resolution dealing with any suchbusiness.

(viii) Right to Speak

All members have the right to (a) speak at a general meeting; and (b) vote at ageneral meeting except where a member is required, by the Listing Rules, to abstain fromvoting to approve the matter under consideration.

(e) Accounts and audit

The Board shall cause proper books of account to be kept of the sums of money receivedand expended by the Company, and of the assets and liabilities of the Company and of all othermatters required by the Companies Act (which include all sales and purchases of goods by thecompany) necessary to give a true and fair view of the state of the Company’s affairs and toshow and explain its transactions.

The books of accounts of the Company shall be kept at the head office of the Companyor at such other place or places as the Board decides and shall always be open to inspectionby 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 Companies Act or ordered by acourt 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 atits annual general meeting balance sheets and profit and loss accounts (including everydocument required by law to be annexed thereto), together with a copy of the Directors’ reportand a copy of the auditors’ report, not less than 21 days before the date of the annual general


– III-13 –


meeting. Copies of these documents shall be sent to every person entitled to receive notices ofgeneral meetings of the Company under the provisions of the Articles together with the noticeof 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 theArticles), the Company may send summarized financial statements to members who have, inaccordance with the rules of the stock exchange of the Relevant Territory, consented andelected to receive summarized financial statements instead of the full financial statements. Thesummarized financial statements must be accompanied by any other documents as may berequired under the rules of the stock exchange of the Relevant Territory, and must be sent tothose members that have consented and elected to receive the summarized financial statementsnot less than 21 days before the general meeting.

The Company members may by an ordinary resolution appoint auditor(s) to hold officeuntil the conclusion of the next annual general meeting on such terms and with such duties asmay be agreed with the Board. The auditors’ remuneration shall be fixed by the members ingeneral meeting by an ordinary resolution or in such manner as the members may determine.

The members may, at a general meeting remove the auditor(s) by an ordinary resolutionat any time before the expiration of the term of office of the auditor(s) and shall, by an ordinaryresolution, at that meeting appoint new auditor(s) in place of the removed auditor(s) for theremainder of the term.

The auditors shall audit the financial statements of the Company in accordance withgenerally accepted accounting principles of Hong Kong, the International AccountingStandards or such other standards as may be permitted by the Stock Exchange.

(f) Dividends and other methods of distribution

The Company in general meeting may declare dividends in any currency to be paid to themembers 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 mayotherwise provide:

(i) all dividends shall be declared and paid according to the amounts paid up on theshares in respect of which the dividend is paid, although no amount paid up on ashare 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 amountpaid up on the shares during any portion(s) of the period in respect of which thedividend is paid; and

(iii) the Board may deduct from any dividend or other monies payable to any member allsums of money (if any) presently payable by him to the Company on account ofcalls, installments or otherwise.


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Where the Board or the Company in general meeting has resolved that a dividend shouldbe paid or declared, the Board may resolve:

(aa) that such dividend be satisfied wholly or in part in the form of an allotment of sharescredited as fully paid up, provided that the members entitled to such dividend willbe entitled to elect to receive such dividend (or part thereof) in cash in lieu of suchallotment; or

(bb) that the members entitled to such dividend will be entitled to elect to receive anallotment of shares credited as fully paid up in lieu of the whole or such part of thedividend as the Board may think fit.

Upon the recommendation of the Board, the Company may by an ordinary resolution inrespect of any one particular dividend of the Company determine that it may be satisfiedwholly in the form of an allotment of shares credited as fully paid up without offering any rightto 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 bycheque or warrant sent through the post. Every such cheque or warrant shall be made payableto 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 cheque or warrant by the bank on which it is drawn shall constitutea good discharge to the Company. Any one of two or more joint holders may give effectualreceipts for any dividends or other monies payable or property distributable in respect of theshares held by such joint holders.

Whenever the Board or the Company in general meeting has resolved that a dividend bepaid or declared, the Board may further resolve that such dividend be satisfied wholly or in partby the distribution of specific assets of any kind.

The Board may, if it thinks fit, receive from any member willing to advance the same, andeither in money or money’s worth, all or any part of the money uncalled and unpaid orinstallments payable upon any shares held by him, and in respect of all or any of the moniesso advanced may pay interest at such rate (if any) not exceeding 20% per annum, as the Boardmay decide, but a payment in advance of a call shall not entitle the member to receive anydividend or to exercise any other rights or privileges as a member in respect of the share or thedue portion of the shares upon which payment has been advanced by such member before it iscalled up.

All dividends, bonuses or other distributions unclaimed for one year after having beendeclared may be invested or otherwise used by the Board for the benefit of the Company untilclaimed 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 beforfeited 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 shallbear interest against the Company.

The Company may exercise the power to cease sending cheques for dividend entitlementsor dividend warrants by post if such cheques or warrants remain uncashed on two consecutiveoccasions or after the first occasion on which such a cheque or warrant is returned undelivered.


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(g) Inspection of corporate records

For so long as any part of the share capital of the Company is [REDACTED] on the StockExchange, any member may inspect any register of members of the Company maintained inHong Kong (except when the register of members is closed) without charge and require theprovision to him of copies or extracts of such register in all respects as if the Company wereincorporated under and were subject to the Hong Kong Companies Ordinance.

(h) Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles concerning the rights of minority members inrelation to fraud or oppression. However, certain remedies may be available to members of theCompany under Cayman Islands law, as summarized in paragraph 3(f) of this Appendix.

(i) Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily shallbe a special resolution.

Subject to any special rights, privileges or restrictions as to the distribution of availablesurplus assets on liquidation for the time being attached to any class or classes of shares:

(i) if the Company is wound up, the surplus assets remaining after payment to allcreditors shall be divided among the members in proportion to the capital paid upon the shares held by them respectively; and

(ii) if the Company is wound up and the surplus assets available for distribution amongthe members are insufficient to repay the whole of the paid-up capital, such assetsshall be distributed, subject to the rights of any shares which may be issued onspecial terms and conditions, so that, as nearly as may be, the losses shall be borneby 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 thecourt), the liquidator may, with the sanction of a special resolution and any other sanctionrequired by the Companies Act, divide among the members in specie or kind the whole or anypart of the assets of the Company, whether the assets consist of property of one kind ordifferent kinds, and the liquidator may, for such purpose, set such value as he deems fair uponany one or more class or classes of property to be so divided and may determine how suchdivision shall be carried out as between the members or different classes of members and themembers within each class. The liquidator may, with the like sanction, vest any part of theassets in trustees upon such trusts for the benefit of members as the liquidator thinks fit, butso that no member shall be compelled to accept any shares or other property upon which thereis a liability.

(j) Subscription rights reserve

Provided that it is not prohibited by and is otherwise in compliance with the CompaniesAct, if warrants to subscribe for shares have been issued by the Company and the Companydoes any act or engages in any transaction which would result in the subscription price of suchwarrants being reduced below the par value of the shares to be issued on the exercise of suchwarrants, a subscription rights reserve shall be established and applied in paying up thedifference between the subscription price and the par value of such shares.


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3. CAYMAN ISLANDS COMPANY LAW

The Company was incorporated in the Cayman Islands as an exempted company on 2October 2018 subject to the Companies Act. Certain provisions of Cayman Islands companylaw are set out below but this section does not purport to contain all applicable qualificationsand exceptions or to be a complete review of all matters of the Companies Act and taxation,which may differ from equivalent provisions in jurisdictions with which interested parties maybe more familiar.

(a) Company operations

An exempted company such as the Company must conduct its operations mainly outsidethe Cayman Islands. An exempted company is also required to file an annual return each yearwith the Registrar of Companies of the Cayman Islands and pay a fee which is based on theamount of its authorized share capital.

(b) Share capital

Under the Companies Act, a Cayman Islands company may issue ordinary, preference orredeemable 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 premiumson 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 thatcompany allotted pursuant to any arrangements in consideration of the acquisition orcancellation of shares in any other company and issued at a premium. The share premiumaccount may be applied by the company subject to the provisions, if any, of its memorandumand articles of association, in such manner as the company may from time to time determineincluding, 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 paidbonus shares;

(iii) any manner provided in section 37 of the Companies Act;

(iv) writing-off the preliminary expenses of the company; and

(v) writing-off the expenses of, or the commission paid or discount allowed on, anyissue of shares or debentures of the company.

Notwithstanding the foregoing, no distribution or dividend may be paid to members outof the share premium account unless, immediately following the date on which the distributionor dividend is proposed to be paid, the company will be able to pay its debts as they fall duein the ordinary course of business.

Subject to confirmation by the court, a company limited by shares or a company limitedby 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.


– III-17 –


(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 financialassistance by a company to another person for the purchase of, or subscription for, its own, itsholding company’s or a subsidiary’s shares. Therefore, a company may provide financialassistance provided the directors of the company, when proposing to grant such financialassistance, discharge their duties of care and act in good faith, for a proper purpose and in theinterests 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 sharecapital may, if so authorized by its articles of association, issue shares which are to beredeemed or are liable to be redeemed at the option of the company or a member and, for theavoidance of doubt, it shall be lawful for the rights attaching to any shares to be varied, subjectto the provisions of the company’s articles of association, so as to provide that such shares areto be or are liable to be so redeemed. In addition, such a company may, if authorized to do soby its articles of association, purchase its own shares, including any redeemable shares; anordinary resolution of the company approving the manner and terms of the purchase will berequired 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, acompany may not redeem or purchase any of its shares if, as a result of the redemption orpurchase, there would no longer be any issued shares of the company other than shares heldas treasury shares. In addition, a payment out of capital by a company for the redemption orpurchase of its own shares is not lawful unless, immediately following the date on which thepayment is proposed to be made, the company shall be able to pay its debts as they fall duein the ordinary course of business.

Shares that have been purchased or redeemed by a company or surrendered to thecompany shall not be treated as cancelled but shall be classified as treasury shares if held incompliance with the requirements of Section 37A(1) of the Companies Act. Any such sharesshall continue to be classified as treasury shares until such shares are either cancelled ortransferred pursuant to the Companies Act.

A Cayman Islands company may be able to purchase its own warrants subject to and inaccordance with the terms and conditions of the relevant warrant instrument or certificate. Thusthere is no requirement under Cayman Islands law that a company’s memorandum or articlesof association contain a specific provision enabling such purchases. The directors of a companymay under the general power contained in its memorandum of association be able to buy, selland deal in personal property of all kinds.

A subsidiary may hold shares in its holding company and, in certain circumstances, mayacquire such shares.

(e) Dividends and distributions

Subject to a solvency test, as prescribed in the Companies Act, and the provisions, if any,of the company’s memorandum and articles of association, a company may pay dividends anddistributions out of its share premium account. In addition, based upon English case law whichis likely to be persuasive in the Cayman Islands, dividends may be paid out of profits.


– III-18 –


For so long as a company holds treasury shares, no dividend may be declared or paid, andno other distribution (whether in cash or otherwise) of the company’s assets (including anydistribution 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 lawprecedents (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 derivativeactions 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 anirregularity in the passing of a resolution which requires a qualified (or special) majority whichhas 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 ofthe company in issue, appoint an inspector to examine the affairs of the company and, at thedirection of the court, to report on such affairs. In addition, any member of a company maypetition the court, which may make a winding up order if the court is of the opinion that it isjust and equitable that the company should be wound up.

In general, claims against a company by its members must be based on the general lawsof contract or tort applicable in the Cayman Islands or be based on potential violation of theirindividual rights as members as established by a company’s memorandum and articles ofassociation.

(g) Disposal of assets

There are no specific restrictions on the power of directors to dispose of assets of acompany, however, the directors are expected to exercise certain duties of care, diligence andskill to the standard that a reasonably prudent person would exercise in comparablecircumstances, in addition to fiduciary duties to act in good faith, for proper purpose and in thebest interests of the company under English common law (which the Cayman Islands courtswill ordinarily follow).

(h) Accounting and auditing requirements

A company must cause proper records of accounts to be kept with respect to: (i) all sumsof money received and expended by it; (ii) all sales and purchases of goods by it and (iii) itsassets and liabilities.

Proper books of account shall not be deemed to be kept if there are not kept such booksas are necessary to give a true and fair view of the state of the company’s affairs and to explainits transactions.

If a company keeps its books of account at any place other than at its registered office orany other place within the Cayman Islands, it shall, upon service of an order or notice by theTax Information Authority pursuant to the Tax Information Authority Act (2013 Revision) ofthe Cayman Islands, make available, in electronic form or any other medium, at its registeredoffice copies of its books of account, or any part or parts thereof, as are specified in such orderor notice.


– III-19 –


(i) Exchange control

There are no exchange control regulations or currency restrictions in effect in the CaymanIslands.

(j) Taxation

Pursuant to section 6 of the Tax Concessions Act (2018 Revision) of the Cayman Islands,the Company has obtained an undertaking from the Financial Secretary that:

(i) no law which is enacted in the Cayman Islands imposing any tax to be levied onprofits or income or gains or appreciations shall apply to the Company or itsoperations; and

(ii) no tax be levied on profits, income gains or appreciations or which is in the natureof 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 definedin section 6(3) of the Tax Concessions Act (2018 Revision).

The undertaking for the Company is for a period of 20 years from 17 October 2018.

The Cayman Islands currently levy no taxes on individuals or corporations based uponprofits, income, gains or appreciations and there is no taxation in the nature of inheritance taxor estate duty. There are no other taxes likely to be material to the Company levied by theGovernment 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 Islandscompanies 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 itsdirectors. However, the company’s articles of association may provide for the prohibition ofsuch loans under specific circumstances.

(m) Inspection of corporate records

The members of a company have no general right to inspect or obtain copies of theregister of members or corporate records of the company. They will, however, have such rightsas may be set out in the company’s articles of association.


– III-20 –


(n) Register of members

A Cayman Islands exempted company may maintain its principal register of members andany 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 exemptedcompany 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 andare not available for public inspection. However, an exempted company shall make availableat 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 ornotice by the Tax Information Authority pursuant to the Tax Information Authority Act (2013Revision) of the Cayman Islands.

(o) Register of Directors and officers

Pursuant to the Companies Act, the Company is required to maintain at its registeredoffice a register of directors, alternate directors and officers which is not available forinspection by the public. A copy of such register must be filed with the Registrar of Companiesin the Cayman Islands and any change must be notified to the Registrar within 30 days of anychange in such directors or officers, including a change of the name of such directors orofficers.

(p) Winding up

A Cayman Islands company may be wound up by: (i) an order of the court; (ii) voluntarilyby its members; or (iii) under the supervision of the court.

The court has authority to order winding up in a number of specified circumstancesincluding where, in the opinion of the court, it is just and equitable that such company be sowound up.

A voluntary winding up of a company (other than a limited duration company, for whichspecific rules apply) occurs where the company resolves by special resolution that it be woundup voluntarily or where the company in general meeting resolves that it be wound upvoluntarily because it is unable to pay its debt as they fall due. In the case of a voluntarywinding up, the company is obliged to cease to carry on its business from the commencementof its winding up except so far as it may be beneficial for its winding up. Upon appointmentof a voluntary liquidator, all the powers of the directors cease, except so far as the companyin general meeting or the liquidator sanctions their continuance.

In the case of a members’ voluntary winding up of a company, one or more liquidatorsare appointed for the purpose of winding up the affairs of the company and distributing itsassets.

As soon as the affairs of a company are fully wound up, the liquidator must make a reportand an account of the winding up, showing how the winding up has been conducted and theproperty of the company disposed of, and call a general meeting of the company for thepurposes 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 liquidatoror any contributory or creditor may apply to the court for an order for the continuation of thewinding up under the supervision of the court, on the grounds that: (i) the company is or is


– III-21 –


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 andcreditors. A supervision order takes effect for all purposes as if it was an order that thecompany be wound up by the court except that a commenced voluntary winding up and theprior actions of the voluntary liquidator shall be valid and binding upon the company and itsofficial liquidator.

For the purpose of conducting the proceedings in winding up a company and assisting thecourt, one or more persons may be appointed to be called an official liquidator(s). The courtmay appoint to such office such person or persons, either provisionally or otherwise, as itthinks fit, and if more than one person is appointed to such office, the court shall declarewhether any act required or authorized to be done by the official liquidator is to be done byall or any one or more of such persons. The court may also determine whether any and whatsecurity is to be given by an official liquidator on his appointment; if no official liquidator isappointed, or during any vacancy in such office, all the property of the company shall be in thecustody of the court.

The Cayman Islands currently levy no taxes on individuals or corporations based uponprofits, income, gains or appreciations and there is no taxation in the nature of inheritance taxor estate duty. There are no other taxes likely to be material to the Company levied by theGovernment of the Cayman Islands save for certain stamp duties which may be applicable,from time to time, on certain instruments.

(q) Reconstructions

Reconstructions and amalgamations may be approved by a majority in numberrepresenting 75% in value of the members or creditors, depending on the circumstances, as arepresent at a meeting called for such purpose and thereafter sanctioned by the courts. Whilst adissenting member has the right to express to the court his view that the transaction for whichapproval is being sought would not provide the members with a fair value for their shares, thecourts are unlikely to disapprove the transaction on that ground alone in the absence ofevidence of fraud or bad faith on behalf of management, and if the transaction were approvedand consummated the dissenting member would have no rights comparable to the appraisalrights (i.e. the right to receive payment in cash for the judicially determined value of theirshares) 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 fourmonths of the offer, the holders of not less than 90% of the shares which are the subject of theoffer accept, the offeror may, at any time within two months after the expiration of thatfour-month period, by notice require the dissenting members to transfer their shares on theterms of the offer. A dissenting member may apply to the Cayman Islands courts within onemonth of the notice objecting to the transfer. The burden is on the dissenting member to showthat the court should exercise its discretion, which it will be unlikely to do unless there isevidence of fraud or bad faith or collusion as between the offeror and the holders of the shareswho have accepted the offer as a means of unfairly forcing out minority members.


– III-22 –


(s) Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of associationmay provide for indemnification of officers and directors, save to the extent any such provisionmay be held by the court to be contrary to public policy, for example, where a provisionpurports to provide indemnification against the consequences of committing a crime.

4. GENERAL

Appleby, the Company’s legal adviser on Cayman Islands law, has sent to the Companya letter of advice which summarizes certain aspects of Cayman Islands company law. Thisletter, together with a copy of the Companies Act, is available on display as referred to in“Documents Available on Display” in Appendix V to this document. Any person wishing tohave a detailed summary of Cayman Islands company law or advice on the differences betweenit and the laws of any jurisdiction with which he is more familiar is recommended to seekindependent legal advice.


– III-23 –


A. FURTHER INFORMATION ABOUT THE COMPANY

1. Incorporation of the Company

The Company was incorporated in the Cayman Islands under the Companies Act as anexempted company with limited liability on 2 October 2018. The Company has established aprincipal place of business in Hong Kong at 40/F, Dah Sing Financial Centre, 248 Queen’sRoad East, Wanchai, Hong Kong and was registered as a non-Hong Kong company in HongKong under Part 16 of the Companies Ordinance on 15 July 2019. Ms. Lau Jeanie of 40/F, DahSing Financial Centre, 248 Queen’s Road East, Wanchai, Central, Hong Kong has beenappointed as the authorized representative of the Company for the acceptance of service ofprocess and notices on behalf of the Company in Hong Kong.

As the Company is incorporated in the Cayman Islands, the Company is subject to theCayman Islands law and our constitution, which comprises the Memorandum and the Articles.A summary of various provisions of the constitution and relevant aspects of the Companies Actis set out in Appendix III to this document.

2. Changes in share capital of the Company

(a) As of the date of incorporation, the Company has an authorized share capital ofHK$380,000 divided into 38,000,000 ordinary shares of a par value of HK$0.01each. Upon its incorporation, one fully-paid ordinary Share was allotted and issuedto the initial subscriber who is an Independent Third Party on 2 October 2018, andwas subsequently transferred to Copious Pride on the same day.

(b) On 4 December 2018, 79 Shares and 20 Shares were allotted and issued to CopiousPride and Great Flourishing, respectively.

(c) On 1 April 2019, 2,000 Shares, 14,320 Shares and 3,580 Shares were allotted andissued to Tian Lun, Copious Pride and Great Flourishing, respectively.

(d) On 7 June 2019, 200 Shares were allotted and issued to Noble Glory.

(e) On [●], the authorized share capital of the Company was increased fromHK$380,000 divided into 38,000,000 ordinary shares of a par value of HK$0.01each to HK$[40,000,000] divided into [4,000,000,000] ordinary shares of HK$0.01each by the creation of an additional [3,962,000,000] Shares and such additionalshares shall rank pari passu in all respects with all existing Shares.

(f) Immediately following completion of the [REDACTED] and Capitalisation Issue(taking no account any Share which may be issued pursuant to the exercise of the[REDACTED] and/or any options which may be granted under the Share OptionScheme), [REDACTED] Shares will be issued fully paid or credited as fully paid,and [REDACTED] Shares will remain unissued.

(g) Other than pursuant to the general mandate to issue Shares referred to in “Writtenresolutions of the Shareholders passed on [●] 2022” in this appendix and pursuantto the Share Option Scheme, the Company does not have any present intention toissue any of the authorized but unissued share capital of the Company and, withoutprior approval of the Shareholders in general meeting, no issue of Shares will bemade which would effectively alter the control of the Company.

(h) Except as disclosed in this document, there has been no alteration in the Company’sshare capital since its incorporation.

APPENDIX IV STATUTORY AND GENERAL INFORMATION

– IV-1 –


3. Changes in the share capital of our subsidiaries

Our principal subsidiaries are set out in the Accountant’s Report, the text of which is setout in Appendix I to this document.

Please refer to “History, Reorganisation and Corporate Structure” and Note 1 to theAccountant’s Report of this document, in relation to the change of the registered capital of oursubsidiaries during the two years preceding the date of this document.

4. Written resolutions of the Shareholders passed on [●]

Pursuant to the written resolutions passed by our Shareholders on [●], among otherthings:

(a) the Company approved and adopted the amended and restated Memorandum and theArticles with effect from the [REDACTED], the terms of which are summarized inAppendix III to this document;

(b) the authorized share capital of the Company was increased from HK$380,000divided into 38,000,000 Shares of a par value of HK$0.01 each to HK$[40,000,000]divided into [4,000,000,000] Shares of a par value of HK$0.01 each by the creationof an additional of [3,962,000,000] Shares of HK$0.01 each, each ranking pari passuwith the existing Shares in all respects;

(c) conditional on (aa) the [REDACTED] Division granting [REDACTED] of, andpermission to deal in, the Shares in issue and to be issued as mentioned in thisdocument including the Shares which may be allotted and issued pursuant to theexercise of the options of the [REDACTED]; (bb) the [REDACTED] having beenduly determined and the execution and delivery of the [REDACTED] on the dateas specified in this document; and (cc) the obligations of [REDACTED] under the[REDACTED] becoming unconditional and not being terminated in accordancewith the terms of such agreement (or any conditions as specified in this document),in each case on or before the date and times specified in the [REDACTED] (unlessand to the extent such conditions validly waived before such dates and times) andin any event not later than the date falling 30 days after the date of this document:

(i) the [REDACTED] was approved and the Directors were authorized to allotand issue the [REDACTED] pursuant to the [REDACTED] to rank pari passuwith the then existing Shares in all respects;

(ii) the rules of the Share Option Scheme, the principal terms of which are set outin “Statutory and General Information – D. Share Option Scheme” in thisdocument, were approved and adopted and the Directors were authorized,subject to the terms and conditions of the Share Option Scheme, to grantoptions to subscribe for Shares thereunder and to allot, issue and deal with theShares pursuant to the exercise of subscription rights attaching to any optionswhich may be granted under the Share Option Scheme and to take all suchactions as they consider necessary or desirable to implement the Share OptionScheme;


– IV-2 –


(iii) the [REDACTED] was approved and the Directors were authorized to allotand issue the Shares as may be required to be alloted and issued upon theexercise of the [REDACTED] to rank pari passu with the then existing Sharesin all respects;

(iv) conditional further on the share premium account of the Company beingcredited as a result of the [REDACTED], the Directors were authorized tocapitalise an amount of HK$[REDACTED] standing to the credit of the sharepremium account of the Company and to appropriate such amount as to capitalto pay up in full at par [REDACTED] Shares for allotment and issue to theperson(s) whose name(s) appear on the register of members of the Company atthe close of business on [●] (or as they may direct) in proportion (as nearly aspossible without involving fractions) to its/their then existing shareholdings inthe Company, each ranking pari passu in all respects with the then existingissued Shares, and the Directors were authorized to give effect to suchCapitalisation and distributions and the Capitalisation Issue was approved;

(d) a general unconditional mandate was given to the Directors to exercise all powersof the Company to allot, issue and deal with, otherwise than by way of rights issueor an issue of Shares pursuant to the exercise of any options which may be grantedunder the Share Option Scheme or any other share option scheme of the Companyor any Shares allotted and issued in lieu of the whole or part of a dividend on Sharesor similar arrangement in accordance with the Articles or pursuant to a specificauthority granted by the Shareholders in general meeting or pursuant to the[REDACTED], Shares or securities convertible into Shares or options, warrants orsimilar rights to subscribe for Shares or such securities convertible into Shares, andto make or grant offers, agreements and options which might require the exercise ofsuch power, with such number of shares not exceeding 20% of the total number ofShares in issue immediately following completion of the [REDACTED] and theCapitalisation Issue (without taking into account any Shares which may be allottedand issued pursuant to the exercise of any options that may be granted under theShare Option Scheme and/or the exercise of the [REDACTED]), such mandate toremain in effect until whichever is the earliest of:

(i) the conclusion of the next annual general meeting of the Company;

(ii) the expiration of the period within which the next annual general meeting ofthe Company is required by the Articles or the Companies Act or any otherapplicable laws of the Cayman Islands to be held; or

(iii) the time when such mandate is revoked or varied by an ordinary resolution ofthe Shareholders in general meeting;

(e) a general unconditional mandate was given to the Directors authorizing them toexercise all powers of the Company to repurchase on the Stock Exchange or on anyother stock exchange on which the securities of the Company may be[REDACTED] and which is recognized by the SFC and the Stock Exchange for thispurpose, such number of Shares as will represent up to 10% of the total number ofShares in issue immediately following completion of the [REDACTED] and theCapitalisation Issue (without taking into account any Shares which may be allottedand issued pursuant to the exercise of any options that may be granted under theShare Option Scheme and/or the exercise of the [REDACTED]), such mandate toremain in effect until whichever is the earliest of:

(i) the conclusion of the next annual general meeting of the Company;


– IV-3 –


(ii) the expiration of the period within which the next annual general meeting ofthe Company is required by the Articles or the Companies Act or any otherapplicable laws of the Cayman Islands to be held; or

(iii) the time when such mandate is revoked or varied by an ordinary resolution ofthe Shareholders in general meeting; and

(f) the general unconditional mandate mentioned in sub-paragraph (d) above wasextended by the addition to such number of shares which may be allotted or agreedto be allotted by the Directors pursuant to such general mandate of an amountrepresenting the number of shares repurchased by the Company pursuant to themandate to repurchase Shares referred to in sub-paragraph (e) above, provided thatsuch extended amount shall not exceed 10% of the total number of Shares in issueimmediately following completion of the [REDACTED] and the CapitalisationIssue (without taking into account any Shares which may be allotted and issuedpursuant to the exercise of any options that may be granted under the Share OptionScheme and/or the exercise of the [REDACTED]).

5. Corporate Reorganisation

The companies comprising the Group underwent the Reorganisation in preparation for the[REDACTED] pursuant to which the Company became the holding company of the Group. Fordetailed steps of the Reorganisation, please refer to “History, Reorganisation and CorporateStructure – Reorganisation” in this document.

6. Repurchase of the Shares by the Company

This section contains information required by the Stock Exchange to be included in thisdocument concerning the repurchase of the Shares by the Company.

(a) Provisions of the Listing Rules

The Listing Rules permit companies whose primary listing is on the Stock Exchangeto repurchase their securities on the Stock Exchange subject to certain restrictions, asummary of which is set out below:

(i) Shareholders’ approval

The Listing Rules provide that all proposed repurchases of shares, which mustbe fully paid up in the case of shares, by a company with a primary listing on theStock Exchange must be approved in advance by an ordinary resolution of theshareholders, either by way of general mandate or by specific approval of aparticular transaction.

Note:

Pursuant to the written resolutions passed by the Shareholders on [●], a general unconditional mandate(the “Repurchase Mandate”) was granted to the Directors authorizing them to exercise all powers ofthe Company to repurchase on the Stock Exchange or on any other stock exchange on which thesecurities of the Company may be [REDACTED] and which is recognized by the SFC and the StockExchange for this purpose, such number of Shares as will represent up to 10% of the total number ofShares in issue immediately following completion of the [REDACTED] and the Capitalisation Issue(without taking into account any Shares which may be allotted and issued pursuant to the exercise ofany options that may be granted under the Share Option Scheme and/or the exercise of the[REDACTED]) and the Repurchase Mandate shall remain in effect until whichever is the earliest of the


– IV-4 –


conclusion of the next annual general meeting of the Company, or the expiration of the period withinwhich the next annual general meeting of the Company is required by the Articles or the Companies Actor any other applicable laws of the Cayman Islands to be held or the time when the Repurchase Mandateis revoked or varied by an ordinary resolution of the Shareholders in a general meeting.

(ii) Source of Funds

Any repurchase by the Company must be funded out of funds legally availablefor the purpose in accordance with the Articles, the applicable laws of the CaymanIslands and the Listing Rules. The Company may not repurchase its own Shares onthe Stock Exchange for a consideration other than cash or for settlement otherwisethan in accordance with the trading rules of the Stock Exchange from time to time.

Any repurchases by the Company may be made out of profits or out of theproceeds of a fresh issue of Shares made for the purpose of the repurchase or, ifauthorized by the Articles and subject to the Companies Act, out of capital and, inthe case of any premium payable on the repurchase, out of profits of the Companyor out of the Company’s share premium account before or at the time the Shares arerepurchased or, if authorized by the Articles and subject to the Companies Act, outof capital.

(iii) Connected parties

The Listing Rules prohibit the Company from knowingly repurchasing theShares on the Stock Exchange from a “core connected person” (as defined in theListing Rules), which includes a Director, chief executive or substantial shareholderof the Company or any of its subsidiaries or a close associate (as defined in theListing Rules) of any of them and a core connected person shall not knowingly sellShares to the Company on the Stock Exchange.

(b) Exercise of the Repurchase Mandate

The exercise in full of the Repurchase Mandate, on the basis of [REDACTED]Shares in issue immediately after completion of the [REDACTED] and the CapitalisationIssue (without taking into account any Shares which may be allotted and issued pursuantto the exercise of any options that may be granted under the Share Option Scheme and/orthe exercise of the [REDACTED]), the Directors would be authorized under theRepurchase Mandate to repurchase up to [REDACTED] Shares during the period inwhich the Repurchase Mandate remains in force. Any Shares repurchased pursuant to theRepurchase Mandate must be fully paid up.

(c) Reasons for repurchases

The Directors believe that it is in the best interests of the Company and itsShareholders for the Directors to have a general authority from the Shareholders to enablethe Company to repurchase Shares in the market. Such repurchases may, depending onmarket conditions and funding arrangements at the time, lead to an enhancement of theCompany’s net asset value and/or earnings per Share and will only be made when theDirectors believe that such repurchases will benefit the Company and the Shareholders.


– IV-5 –


(d) Funding of repurchases

In repurchasing the Shares, the Company may only apply funds legally available forsuch purpose in accordance with the Articles, the Listing Rules and the applicable lawsand regulations of the Cayman Islands.

The Directors do not propose to exercise the Repurchase Mandate to such extent aswould, in the circumstances, have a material adverse effect on the working capitalrequirements of the Company or the gearing levels which in the opinion of the Directorsare from time to time appropriate for the Company.

(e) General

None of the Directors or to the best of their knowledge, having made all reasonableenquiries, any of their close associates (as defined in the Listing Rules), has any presentintention to sell any Shares to the Company if the Repurchase Mandate is exercised.

The Directors have undertaken to the Stock Exchange that, so far as the same maybe applicable, they will exercise the Repurchase Mandate in accordance with the ListingRules, the Articles and the applicable laws and regulations from time to time in force inthe Cayman Islands.

If, as a result of a repurchase of Shares pursuant to the Repurchase Mandate, aShareholder’s proportionate interest in the voting rights of the Company increases, suchincrease will be treated as an acquisition for the purpose of the Takeovers Code. In certaincircumstances, a Shareholder or a group of Shareholders acting in concert (as defined inthe Takeovers Code) depending on the level of increase of the Shareholders’ interest,could obtain or consolidate control of the Company and may become obliged to make amandatory offer in accordance with Rule 26 of the Takeovers Code as a result of any suchincrease.

Except as disclosed above, the Directors are not aware of any consequences whichmay arise under the Takeovers Code as a consequence of any repurchase of Shares if madeimmediately after the [REDACTED] of the Shares pursuant to the Repurchase Mandate.

The Directors will not exercise the Repurchase Mandate if the repurchase wouldresult in the number of Shares which are in the hands of the [REDACTED] falling below[REDACTED] of the total number of Shares in issue (or such other percentage as maybe prescribed as the [REDACTED] under the Listing Rules).

No core connected person (as defined in the Listing Rules) has notified the Companythat he/she has a present intention to sell Shares to the Company, or has undertaken notto do so, if the Repurchase Mandate is exercised.


– IV-6 –


B. FURTHER INFORMATION ABOUT THE BUSINESS

1. Summary of material contracts

The following contracts (not being contracts entered into in the ordinary course ofbusiness) have been entered into by the Group within the two years preceding the date of thisdocument and are or may be material in relation to the business of the Company taken as awhole:

1. the Deed of Indemnity;

2. the deed of release dated [●] in Chinese entered into between the Company andCopious Pride, pursuant to which Copious Pride unconditionally agreed to releasethe Company for the repayment of a shareholder loan of HK$16,000,000;

3. the deed of release dated [●] in Chinese entered into between the Company andGreat Flourishing, pursuant to which Great Flourishing unconditionally agreed torelease the Company for the repayment of a shareholder loan of HK$4,000,000; and

4. the [REDACTED].

2. Intellectual Property Rights

(a) Trademarks

(i) As of the Latest Practicable Date, the Group had registered the followingtrademark in the PRC:

Trademark Class(es)Registrationnumber

Durationof validity

Registeredowner

19 5511337 14 October 2009– 13 October2029

Henan Shenli

19 39560305 7 April 2020 –6 April 2030

Henan Shenli

(ii) As of the Latest Practicable Date, the Group had registered the followingtrademarks in Hong Kong:

Trademark Class(es)Registrationnumber

Durationof validity

Registeredowner

19 304805596 18 January 2019– 17 January2029

Henan Shenli


– IV-7 –


(b) Domain names

As of the Latest Practicable Date, the Group had registered the following domainnames in the PRC:

Domain nameRegisteredowner

Registrationdate Expiry date

chinashenli.cn Henan Shenli 3 April 2019 3 April 2022slhnt.cn Henan Shenli 9 August 2018 9 August 2022

(c) Patents

As of the Latest Practicable Date, the Group had registered the following patents inthe PRC:

TypeRegisteredowner

Registrationnumber Patent

Duration ofvalidity

Utility modelpatent

HenanShenli

ZL202022074704.7 Energy-saving concretethickness testingdevice (一種節能型混凝土厚度檢測裝置)

21 September2020 –20 September2030

Utility modelpatent

HenanShenli

ZL202021390330.3 Device used forrecycling constructionwaste (一種建築廢料回收裝置)

15 July 2020 –14 July 2030

Utility modelpatent

HenanGangfa

ZL202021354842.4 Ball float sprinklerdevice used inconcrete plant (一種混凝土生產廠區浮球式噴水裝置)

11 July 2020 –10 July 2030

Utility modelpatent

HenanGangfa

ZL202021042925.X Ingredients device usedin concreteprocessing (一種混凝土加工用配料裝置)

9 June 2020 –8 June 2030

Utility modelpatent

HenanGangfa

ZL202021050694.7 Ready-mixed concreteproduct processingmold (一種用於混凝土預製品加工的模具)

9 June 2020 –8 June 2030

Utility modelpatent

HenanGangfa

ZL201920363004.4 Concrete testing-oriented test mold (一種混凝土實驗用試模)

21 March 2019 –20 March 2029


– IV-8 –


TypeRegisteredowner

Registrationnumber Patent

Duration ofvalidity

Utility modelpatent

HenanGangfa

ZL201920147778.3 Leveling andcompacting devicefor concrete sheetpile production (一種混凝土板樁生產用整平壓實裝置)

29 January 2019 –28 January 2029

Utility modelpatent

HenanShentong

ZL202022060039.6 Concrete compressionresistance detectiondevice withprotection functionfor constructionalengineering (一種具有防護功能的建築工程用混凝土抗壓檢測裝置)

18 September2020 –17 September2030

Utility modelpatent

HenanShentong

ZL202021686959.2 Ultrasonic detector forconcrete detection (一種混凝土檢測用超聲波檢測儀)

14 August 2020 to13 August 2030

3. Information about the major PRC subsidiaries of the Group

河南神港通建材有限公司 (Henan Shengangtong Construction Material Co., Ltd.*)

Date of establishment: 19 February 2019Corporate nature: Wholly foreign-owned enterpriseTotal and paid up registered capital: HKD35,000,000Attributable interest of the Company: 100%Term: Perpetual since 19 February 2019Scope of business: Investment holding.Legal representative: Mr. Song

河南神力混凝土有限公司 (Henan Shenli Concrete Co., Ltd.*)

Date of establishment: 14 November 2003Corporate nature: Sino-foreign joint venture enterpriseTotal and paid up registered capital: RMB31,313,100Attributable interest of the Company: 100%Term: Perpetual since 14 November 2003Scope of business: Production and sale of commercial

concrete products.Legal representative: Mr. Song


– IV-9 –


河南神通新型建材有限公司 (Henan Shentong New Construction Materials Co. Ltd.*)

Date of establishment: 29 December 2015Corporate nature: Limited liability companyTotal and paid up registered capital: RMB30,000,000Attributable interest of the Company: 100%Term: Perpetual since 29 December 2015Scope of business: Production and sale of commercial

concrete products.Legal representative: Mr. Wang

河南港發新型建材有限公司 (Henan Gangfa New Construction Materials Co., Ltd.*)

Date of establishment: 30 October 2017Corporate nature: Limited liability companyTotal and paid up registered capital: RMB30,000,000Attributable interest of the Company: 100%Term: Perpetual since 30 October 2017Scope of business: Production and sale of commercial

concrete products.Legal representative: Mr. Du

鄭州利佳特印務有限公司 (Zhengzhou Lijiate Printing Co., Ltd.*)

Date of establishment: 28 January 2010Corporate nature: Limited liability companyTotal and paid up registered capital: RMB15,000,000Attributable interest of the Company: 100%Term: From 28 January 2010 to 27 January

2065Scope of business: No actual business.Legal representative: Mr. Song Zhengxian


– IV-10 –


C. FURTHER INFORMATION ABOUT SUBSTANTIAL SHAREHOLDERS,DIRECTORS AND EXPERTS

1. Disclosure of Interests

(a) Interests of Directors and chief executive in Shares, underlying Shares anddebentures of the Company

So far as the Directors are aware, immediately following the completion of the[REDACTED] and the Capitalisation Issue (without taking into account any Shareswhich may be allotted and issued pursuant to the exercise of any options that may begranted under the Share Option Scheme and/or the exercise of the [REDACTED]), theinterests and short positions of the Directors or chief executive of the Company in theShares, underlying Shares and debentures of the Company or any of the associatedcorporations (within the meaning of Part XV of the SFO) which, once the Shares are[REDACTED] on the Stock Exchange, will have to be notified to the Company and theStock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including anyinterests or short positions which they are taken or deemed to have under such provisionsof the SFO) or will be required, pursuant to section 352 of the SFO, to be entered in theregister referred to therein, or will be required, pursuant to the Model Code for SecuritiesTransactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules,to be notified to the Company and the Stock Exchange, will be as follows:

Long position in the Shares

NameCapacity/natureof interest


Percentage ofshareholding

Mr. Song Interest in acontrolledcorporation(Note 1)

[REDACTED] [REDACTED]%

Note:

1. Mr. Song beneficially owns all the issued share of Copious Pride, an investment-holding companyincorporated in the BVI. As such Mr. Song is deemed, or taken to be, interested in all the Sharesheld by Copious Pride for the purposes of SFO. Mr. Song is the sole director of Copious Pride.Mr. Song is an executive Director, chief executive officer of the Company and the chairman ofthe Board.


– IV-11 –


(b) Interests of substantial and other Shareholders in the Shares and underlyingShares

So far as the Directors are aware, the following persons (not being a Director orchief executive of the Company) will, immediately following the completion of the[REDACTED] and the Capitalisation Issue (without taking into account any Shareswhich may be allotted and issued pursuant to the exercise of any options that may begranted under the Share Option Scheme and/or the exercise of the [REDACTED]), haveinterests or short positions in the Shares or underlying Shares which would fall to bedisclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and3 of Part XV of the SFO or, who are, directly or indirectly, interested in 10% or more ofthe issued voting shares of any member of the Group:

Long position in the Shares

NameCapacity/Natureof interest


Percentage ofinterest

Copious Pride Beneficial owner [REDACTED] [REDACTED]Ms. Li Gaixia

(李改霞)Interest of spouse

(Note 1)[REDACTED] [REDACTED]

Great Flourishing Beneficial owner(Note 2)


Mr. Shi Interest in acontrolledcorporation(Note 2)


Tian Lun Beneficial owner(Note 3)


Gold ShineDevelopmentLimited

Interest in acontrolledcorporation(Note 3)


Mr. Zhang Interest in acontrolledcorporation(Note 4)


Ms. Sun Yanxi(孫燕熙)

Interest of spouse(Note 5)


Notes:

1. Ms. Li Gaixia is the spouse of Mr. Song and is deemed or taken to be interested in all the Sharesin which Mr. Song has, or is deemed to have, an interest for the purposes of the SFO.

2. All the issued share of Great Flourishing is owned by Mr. Shi. Therefore, Mr. Shi is deemed ortaken to be interested in all the Shares held by Great Flourishing for the purposes of the SFO.

3. All the issued share of Tian Lun is held by Gold Shine Development Limited. Therefore, GoldShine Development Limited is deemed or taken to be interested in all the Shares held by Tian Lunfor the purposes of the SFO.

4. Mr. Zhang owns 60% of the equity interests in Gold Shine Development Limited, which in turnowns all the issued share of Tian Lun. Therefore, Mr. Zhang is deemed or taken to be interestedin all the Shares held by Tian Lun for the purposes of the SFO.

5. Ms. Sun Yanxi is the spouse of Mr. Zhang. Therefore, Ms. Sun Yanxi is deemed or taken to beinterested in all the Shares in which Mr. Zhang is interested for the purposes of the SFO.


– IV-12 –


2. Particulars of service contracts

None of the Directors has or is proposed to have any service agreement with the Companyor any of its subsidiaries (excluding contracts expiring or determinable by the employer withinone year without payment of compensation other than statutory compensation).

3. Remuneration of Directors

(a) The aggregate emoluments (including basic salaries and allowances, andcontributions to pension plans) paid by the Group to the Directors for each of thetwo years ended 31 December 2020 and the nine months ended 30 September 2021were approximately RMB[384,000], RMB[340,000] and RMB[540,000],respectively.

(b) Under the arrangements currently in force, the aggregate emoluments (excludingpayment pursuant to any discretionary benefits or bonus or other fringe benefits)payable by the Group to the Directors for the year ending 31 December 2022 willbe approximately RMB[1,107,600].

(c) Under the arrangements currently proposed, conditional upon [REDACTED], thebasic annual remuneration (excluding payment pursuant to any discretionarybenefits or bonus or other fringe benefits) payable by the Group to each of theDirectors will be as follows:

Executive Directors RMB

Song Quanfa [360,000]Huang Jin [240,000]Wong Ka [240,000]

Independent non-executive Directors RMB

Si Jintao [60,000]Zhang Liping [60,000]Tam Tak Kei Raymond HK$[180,000]

4. Agency fees or commissions received

Except as disclosed in “[REDACTED]” in this document, none of the Directors or theexperts named in “Statutory and General Information – E. Other information – 7. Consents ofexperts” in this document had received any agency fees or commissions from the Group withinthe two years preceding the date of this document.

5. Related party transactions

Details of the related party transactions are set out under note 34 to the Accountant’sReport set forth in Appendix I to this document.


– IV-13 –


6. Disclaimers

(a) except as disclosed in this document, taking no account any Shares which may beissued upon the exercise of options which may be granted under the Share OptionScheme and/or the exercise of the [REDACTED], the Directors are not aware of anyperson (not being a Director or chief executive of the Company) who will,immediately following the completion of the [REDACTED] and the CapitalisationIssue, have an interest or short position in the Shares or underlying Shares whichwill fall to be disclosed to the Company and the Stock Exchange pursuant to theprovisions of Divisions 2 and 3 of Part XV of the SFO, or who will be, directly orindirectly, interested in 10% or more of the nominal value or any class of sharecapital carrying rights to vote in all circumstances at general meetings of anymember of the Group;

(b) except as disclosed in this document, none of the Directors or chief executive of theCompany has any interest or short position in the Shares, underlying Shares ordebentures of the Company or any of its associated corporations (within the meaningof Part XV of the SFO) which will have to be notified to the Company and the StockExchange under Divisions 7 and 8 of Part XV of the SFO (including interests andshort positions which he is taken or deemed to have under such provisions of theSFO) or will be required, pursuant to section 352 of the SFO, to be entered in theregister referred to therein, or will be required, pursuant to the Model Code forSecurities Transactions by Directors of Listed Issuers, to be notified to the Companyand the Stock Exchange, in each case once the Shares are [REDACTED] on theStock Exchange;

(c) none of the Directors or the experts named in “Statutory and General Information –E. Other information – Qualifications of experts” in this document is interested inthe promotion of, or in any assets which have been, within the two yearsimmediately preceding the issue of this document, acquired or disposed of by orleased to any member of the Group, or are proposed to be acquired or disposed ofby or leased to any member of the Group;

(d) none of the Directors or the experts named in “Statutory and General Information –E. Other information – Qualifications of experts” in this document is materiallyinterested in any contract or arrangement subsisting at the date of this documentwhich is significant in relation to the business of the Group taken as a whole;

(e) none of the Directors or the experts named in “Statutory and General Information –E. Other information – Qualifications of experts” in this document has anyshareholding in any member of the Group or the right (whether legally enforceableor not) to subscribe for or to nominate persons to subscribe for securities in anymember of the Group;

(f) so far as is known to the Directors, none of the Directors, their respective associates(as defined under the Listing Rules) or Shareholders who are interested in more than5% of the issued share capital of the Company has any interests in the five largestcustomers or the five largest suppliers of the Group;

(g) none of the Directors has any existing or proposed service contracts with anymember of the Group (excluding contracts expiring or determinable by the employerwithin one year without payment of compensation (other than statutorycompensation)); and


– IV-14 –


(h) except as disclosed in this document, no remuneration or other benefits in kind havebeen paid by any member of the Group to any Director since the date ofincorporation of the Company, nor are any remuneration or benefits in kind payableby any member of the Group to any Director in respect of the current financial yearunder any arrangement in force as of the Latest Practicable Date.

D. SHARE OPTION SCHEME

The Company has conditionally adopted the Share Option Scheme on [●] 2022. Thefollowing is a summary of the principal terms of the Share Option Scheme but does not form,nor was it intended to be, part of the Share Option Scheme nor should it be taken as affectingthe interpretation of the rules of the Share Option Scheme.

The terms of the Share Option Scheme are in accordance with the provisions of Chapter17 of the Listing Rules.

(a) Definitions

For the purpose of this section, the following expressions have the meanings set out belowunless the context requires otherwise:

“Adoption Date” [●], the date on which the Share Option Scheme isconditionally adopted by the Shareholders by way of writtenresolutions

“Board” the board of Directors or a duly authorized committee of theboard of Directors

“Business Day” any day on which the Stock Exchange is open for the businessof dealings in securities

“Group” the Company and any entity in which the Company, directlyor indirectly, holds any equity interest

“Scheme Period” the period commencing on the Adoption Date and expiring atthe close of business on the Business Day immediatelypreceding the tenth anniversary thereof

(b) Summary of terms

The following is a summary of the principal terms of the rules of the Share OptionScheme conditionally adopted by the written resolutions of our Shareholders passed on [●]:

(i) Purpose of the Share Option Scheme

The purpose of the Share Option Scheme is to attract and retain the best availablepersonnel, to provide additional incentive to employees (fulltime and part-time),directors, consultants, advisers, distributors, contractors, suppliers, agents, customers,business partners and services providers of the Group and to promote the success of thebusiness of the Group.


– IV-15 –


(ii) Who may join and basis of eligibility

The Board may, at its absolute discretion and on such terms as it may think fit, grantany employee (full-time or part-time), director, consultant or adviser of the Group, or anysubstantial shareholder of the Group, or any distributor, contractor, supplier, agent,customer, business partner or service provider of the Group, options to subscribe at aprice calculated in accordance with paragraph (iii) below for such number of Shares asit may determine in accordance with the terms of the Share Option Scheme.

The basis of eligibility of any participant to the grant of any option shall bedetermined by the Board (or as the case may be, the independent non-executive Directors)from time to time on the basis of his contribution or potential contribution to thedevelopment and growth of the Group.

(iii) Price of Shares

The subscription price of a Share in respect of any particular option granted underthe Share Option Scheme shall be a price solely determined by the Board and notified toa participant and shall be at least the highest of: (i) the closing price of the Shares asstated in the Stock Exchange’s daily quotations sheet on the date of grant of the option,which must be a Business Day; (ii) the average of the closing prices of the Shares asstated in the Stock Exchange’s daily quotations sheets for the five Business Daysimmediately preceding the date of grant of the option; and (iii) the nominal value of aShare on the date of grant of the option, provided always that for the purpose ofcalculating the subscription price, where the Company has been [REDACTED] on theStock Exchange for less than five Business Days, the new issue price shall be used as theclosing price for any Business Day fall within the period before [REDACTED].

(iv) Grant of options and acceptance of offers

An offer for the grant of options must be accepted within seven days inclusive of theday on which such offer was made. The amount payable by the grantee of an option tothe Company on acceptance of the offer for the grant of an option is HK$1.00.

(v) Maximum number of Shares

(aa) Subject to sub-paragraph (bb) and (cc) below, the maximum number of Sharesissuable upon exercise of all options to be granted under the Share OptionScheme and any other share option schemes of the Company as from theAdoption Date (excluding, for this purpose, Shares issuable upon exercise ofoptions which have been granted but which have lapsed in accordance with theterms of the Share Option Scheme or any other share option schemes of theCompany) must not in aggregate exceed 10% of all the Shares in issue as ofthe [REDACTED]. Therefore, it is expected that the Company may grantoptions in respect of up to [REDACTED] Shares (or such numbers of Sharesas shall result from a sub-division or a consolidation of such [REDACTED]Shares from time to time) to the participants under the Share Option Scheme.

(bb) The 10% limit as mentioned above may be refreshed at any time by obtainingapproval of the Shareholders in general meeting provided that the total numberof Shares which may be issued upon exercise of all options to be granted underthe Share Option Scheme and any other share option schemes of the Companymust not exceed 10% of the Shares in issue as of the date of approval of the


– IV-16 –


refreshed limit. Options previously granted under the Share Option Schemeand any other share option schemes of the Company (including thoseoutstanding, cancelled or lapsed in accordance with the terms of the ShareOption Scheme or any other share option schemes of the Company) will not becounted for the purpose of calculating the refreshed 10% limit. A circular mustbe sent to the Shareholders containing the information as required under theListing Rules in this regard.

(cc) The Company may seek separate approval of the Shareholders in generalmeeting for granting options beyond the 10% limit provided the options inexcess of the 10% limit are granted only to grantees specifically identified bythe Company before such approval is sought. In such event, the Company mustsend a circular to the Shareholders containing a generic description of suchgrantees, the number and terms of such options to be granted and the purposeof granting options to them with an explanation as to how the terms of theoptions will serve such purpose, such other information required under theListing Rules.

(dd) The aggregate number of Shares which may be issued upon exercise of alloutstanding options granted and yet to be exercised under the Share OptionScheme and any other share option schemes of the Company must not exceed30% of the Shares in issue from time to time. No options may be granted underthe Share Option Scheme or any other share option schemes of the Companyif this will result in such 30% limit being exceeded.

(vi) Maximum entitlement of each participant

The total number of Shares issued and to be issued upon exercise of options grantedto any participant (including both exercised and outstanding options) under the ShareOption Scheme, in any 12-month period up to the date of grant shall not exceed 1% ofthe Shares in issue. Any further grant of options in excess of such 1% limit must beseparately approved by the Shareholders in general meeting with such grantee and hisclose associates (or his associates if the grantee is a connected person) abstaining fromvoting. In such event, the Company must send a circular to the Shareholders containingthe identity of the grantee, the number and terms of the options to be granted (and optionspreviously granted to such grantee), and all other information required under the ListingRules. The number and terms (including the subscription price) of the options to begranted to such grantee must be fixed before the approval of the Shareholders and the dateof the Board meeting proposing such further grant should be taken as the date of grant forthe purpose of calculating the subscription price.

(vii) Grant of options to a Director, chief executive or Substantial Shareholder, or anyof their respective associates

(aa) Notwithstanding the aforesaid, any grant of an option to a Director, chiefexecutive or Substantial Shareholder (or any of their respective associates)must be approved by the independent non-executive Directors (excluding anyindependent non-executive Director who is a proposed grantee of the option).


– IV-17 –


(bb) Where any grant of options to a Substantial Shareholder or an independentnon-executive Director (or any of their respective associates) will result in thetotal number of Shares issued and to be issued upon exercise of all optionsalready granted and to be granted to such person under the Share OptionScheme and any other share option schemes of the Company (including optionsexercised, cancelled and outstanding) in any 12-month period up to andincluding the date of grant:

(i) representing in aggregate over 0.1% of the Shares in issue; and

(ii) having an aggregate value, based on the closing price of the Shares at thedate of each grant, in excess of HK$5 million, such further grant ofoptions is required to be approved by the Shareholders at a generalmeeting of the Company, with voting to be taken by way of poll. TheCompany shall send a circular to the Shareholders containing allinformation as required under the Listing Rules in this regard. Thegrantee, his associates and all core connected persons of the Companymust abstain from voting (except where any connected person intends tovote against the proposed grant). Any change in the terms of an optiongranted to a Substantial Shareholder or an independent non-executiveDirector or any of their respective associates is also required to beapproved by the Shareholders in the aforesaid manner.

(viii) Restrictions on the times of grant of options

(aa) An offer for the grant of options may not be made after any inside information(as defined in the SFO) has come to the knowledge of the Company until suchinside information has been announced pursuant to the requirements of theListing Rules and the SFO. In particular, no options may be granted during theperiod commencing one month immediately preceding the earlier of:

(i) the date of the Board meeting (as such date is first notified to the StockExchange in accordance with the Listing Rules) for the approval of theCompany’s results for any year, half-year, quarterly or other interimperiod (whether or not required under the Listing Rules); and

(ii) the deadline for the Company to publish an announcement of the resultsfor any year, half-year or quarterly under the Listing Rules, or otherinterim period (whether or not required under the Listing Rules).

and ending on the date of the results announcement.

(bb) Further to the restrictions in paragraph (aa) above, no option may be grantedto a Director on any day on which financial results of the Company arepublished and:

(i) during the period of 60 days immediately preceding the publication dateof the annual results or, if shorter, the period from the end of the relevantfinancial year up to the publication date of the results; and

(ii) during the period of 30 days immediately preceding the publication dateof the quarterly results and half-year results or, if shorter, the period fromthe end of the relevant quarterly or half-year period up to the publicationdate of the results.


– IV-18 –


(ix) Time of exercise of option

An option may be exercised in accordance with the terms of the Share OptionScheme at any time during a period as the Board may determine which shall not exceedten (10) years from the date of grant subject to the provisions of early termination thereof.

(x) Performance targets

Except as determined by the Board and provided in the offer of the grant of therelevant options, there is no performance target which must be achieved before any of theoptions can be exercised.

(xi) Ranking of Shares

The Shares to be allotted upon the exercise of an option will be subject to all theprovisions of the Articles for the time being in force and will rank pari passu in allrespects with the fully paid Shares in issue on the date of allotment and accordingly willentitle the holders to participate in all dividends or other distributions paid or made afterthe date of allotment other than any dividend or other distribution previously declared orrecommended or resolved to be paid or made with respect to a record date which shall beon or before the date of allotment, save that the Shares allotted upon the exercise of anyoption shall not carry any voting rights until the name of the grantee has been duly enteredon the register of members of the Company as the holder thereof.

(xii) Rights are personal to grantee

An option shall not be transferable or assignable and shall be personal to the granteeof the option.

(xiii) Rights on cessation of employment by death

In the event of the death of the grantee (provided that none of the events whichwould be a ground for termination of employment referred to in (xiv) below arises withina period of three years prior to the death, in the case the grantee is an employee at the dateof grant), the legal personal representative(s) of the grantee may exercise the option upto the grantee’s entitlement (to the extent which has become exercisable and not alreadyexercised) within a period of 12 months following his death provided that where any ofthe events referred to in (xvii), (xviii) and (xix) occurs prior to his death or within suchperiod of six months following his death, then his personal representative(s) may soexercise the option within such of the various periods respectively set out therein.

(xiv) Rights on cessation of employment by dismissal

In the event that the grantee is an employee of the Group at the date of grant andhe subsequently ceases to be an employee of the Group on any one or more of the groundsthat he has been guilty of serious misconduct, or has committed an act of bankruptcy orhas become insolvent or has made any arrangement or composition with his creditorsgenerally, or has been convicted of any criminal offence involving his integrity or honestyor (if so determined by the Board) on any other ground on which an employer would beentitled to terminate his employment at common law or pursuant to any applicable lawsor under the grantee’s service contract with the Group, his option shall lapseautomatically (to the extent not already exercised) on the date of cessation of hisemployment with the Group.


– IV-19 –


(xv) Rights on cessation of employment for other reasons

In the event that the grantee is an employee of a member of the Group at the dateof grant and he subsequently ceases to be an employee of a member of the Group for anyreason other than his death or the termination of his employment on one or more of thegrounds specified in (xiv) above, the option (to the extent not already exercised) shalllapse on the expiry of three (3) months after the date of cessation of such employment(which date will be the last actual working day with the Company or the relevant memberof the Group whether salary is paid in lieu of notice or not).

(xvi) Effects of alterations to share capital

In the event of any alteration in the capital structure of the Company whilst anyoption remains exercisable, whether by way of Capitalisation of profits or reserves, rightsissue, consolidation, subdivision or reduction of the share capital of the Company (otherthan an issue of Shares as consideration in respect of a transaction to which any memberof the Group is a party), such corresponding adjustments (if any) shall be made in thenumber of Shares subject to the option so far as unexercised; and/or the subscriptionprices, as the auditors of or independent financial adviser to the Company shall certify orconfirm in writing (as the case may be) to the Board to be in their opinion fair andreasonable in compliance with the relevant provisions of the Listing Rules, or anyguideline or supplemental guideline issued by the Stock Exchange from time to time (nosuch certification is required in case of adjustment made on a Capitalisation issue),provided that any alteration shall give a grantee the same proportion of the issued sharecapital of the Company as that to which he was previously entitled, but no adjustmentshall be made to the effect of which would be to enable a Share to be issued at less thanits nominal value.

(xvii) Rights on a general offer

In the event of a general offer (whether by way of takeover offer or scheme ofarrangement or otherwise in like manner) being made to all the Shareholders (or all suchholders other than the offeror and/or any persons controlled by the offeror and/or anyperson acting in association or concert with the offeror) and such offer becoming or beingdeclared unconditional, the grantee (or, as the case may be, his legal personalrepresentative(s)) shall be entitled to exercise the option in full (to the extent not alreadyexercised) at any time within one month after the date on which the offer becomes or isdeclared unconditional.

(xviii) Rights on winding-up

In the event a notice is given by the Company to the members to convene a generalmeeting for the purposes of considering, and if thought fit, approving a resolution tovoluntarily wind-up the Company, the Company shall on the same date as or soon afterit despatches such notice to each member of the Company give notice thereof to allgrantees and thereupon, each grantee (or, as the case may be, his legal personalrepresentative(s)) shall be entitled to exercise all or any of his options at any time notlater than two Business Days prior to the proposed general meeting of the Company bygiving notice in writing to the Company, accompanied by a remittance for the full amountof the aggregate subscription price for the Shares in respect of which the notice is givenwhereupon the Company shall as soon as possible and, in any event, no later than theBusiness Day immediately prior to the date of the proposed general meeting referred toabove, allot and issue the relevant Shares to the grantee credited as fully paid.


– IV-20 –


(xix) Rights on compromise or arrangement

In the event of a compromise or arrangement between the Company and theShareholders or the creditors of the Company being proposed in connection with a schemefor the reconstruction of the Company or its amalgamation with any other company orcompanies pursuant to the Companies Act, the Company shall give notice thereof to allthe grantees (or, as the case may be, their legal personal representative(s)) on the sameday as it gives notice of the meeting to the Shareholders or the creditors to consider sucha compromise or arrangement and the options (to the extent not already exercised) shallbecome exercisable in whole or in part on such date not later than two Business Daysprior to the date of the general meeting directed to be convened by the court for thepurposes of considering such compromise or arrangement (“Suspension Date”), bygiving notice in writing to the Company accompanied by a remittance for the full amountof the aggregate subscription price for the Shares in respect of which the notice is givenwhereupon the Company shall as soon as practicable and, in any event, no later than 3:00p.m. on the Business Day immediately prior to the date of the proposed general meeting,allot and issue the relevant Shares to the grantee credited as fully paid. With effect fromthe Suspension Date, the rights of all grantees (or, as the case may be, their legal personalrepresentative(s)) to exercise their respective options shall forthwith be suspended. Uponsuch compromise or arrangement becoming effective, all options shall, to the extent thatthey have not been exercised, lapse and determine. The Board shall endeavor to procurethat the Shares issued as a result of the exercise of options hereunder shall for thepurposes of such compromise or arrangement form part of the issued share capital of theCompany on the effective date thereof and that such Shares shall in all respects be subjectto such compromise or arrangement. If for any reason such compromise or arrangementis not approved by the court (whether upon the terms presented to the court or upon anyother terms as may be approved by such court), the rights of grantees (or, as the case maybe, their legal personal representative(s)) to exercise their respective options shall witheffect from the date of the making of the order by the court be restored in full but onlyup to the extent not already exercised and shall thereupon become exercisable (but subjectto the other terms of the Share Option Scheme) as if such compromise or arrangement hadnot been proposed by the Company and no claim shall lie against the Company or any ofits officers for any loss or damage sustained by any grantee as a result of such proposal,unless any such loss or damage shall have been caused by the act, neglect, fraud or wilfuldefault on the part of the Company or any of its officers.

(xx) Lapse of options

An option shall lapse automatically on the earliest of:

(aa) the expiry of the period referred to in paragraph (ix) above;

(bb) the date on which the Board exercises the Company’s right to cancel, revokeor terminate the option on the ground that the grantee commits a breach ofparagraph (xii);

(cc) the expiry of the relevant period or the occurrence of the relevant eventreferred to in paragraphs (xiii), (xv), (xvii), (xviii) or (xix) above;

(dd) subject to paragraph (xviii) above, the date of the commencement of thewinding-up of the Company;


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(ee) the occurrence of any serious misconduct, act of bankruptcy, insolvency orentering into of any arrangements or compositions with his creditors generallyby the grantee, or conviction of the grantee of any criminal offence involvinghis integrity or honesty;

(ff) where the grantee is only a substantial shareholder of any member of theGroup, the date on which the grantee ceases to be a substantial shareholder ofsuch member of the Group; or

(gg) subject to the compromise or arrangement as referred to in paragraph (xix)become effective, the date on which such compromise or arrangement becomeseffective.

(xxi) Cancellation of options granted but not yet exercised

Any cancellation of options granted but not exercised may be effected on such termsas may be agreed with the relevant grantee, as the Board may in its absolute discretionsees fit and in manner that complies with all applicable legal requirements for suchcancellation.

(xxii) Period of the Share Option Scheme

The Share Option Scheme will remain in force for a period of ten years commencingon the date on the Adoption Date and shall expire at the close of business on the BusinessDay immediately preceding the tenth anniversary thereof unless terminated earlier by theShareholders in general meeting.

(xxiii) Alteration to the Share Option Scheme

(aa) The Share Option Scheme may be altered in any respect by resolution of theBoard except that alterations of the provisions of the Share Option Schemewhich alters to the advantage of the grantees of the options relating to mattersgoverned by Rule 17.03 of the Listing Rules shall not be made except with theprior approval of the Shareholders in general meeting.

(bb) Any alternation to any terms of the Share Option Scheme which are of amaterial nature or any change to the terms of options granted, or any changeto the authority of the Board in respect of alteration of the Share OptionScheme must be approved by the Shareholders in general meeting exceptwhere the alterations take effect automatically under the existing terms of theShare Option Scheme.

(cc) Any amendment to any terms of the Share Option Scheme or the optionsgranted shall comply with the relevant requirements of the Listing Rules andthe notes thereto and the supplementary guidance on the interpretation of theListing Rules issued by the Stock Exchange from time to time.

(xxiv) Termination to the Share Option Scheme

The Company by resolution in general meeting or the Board may at any timeterminate the operation of the Share Option Scheme and in such event no further optionswill be offered but options granted prior to such termination shall continue to be valid andexercisable in accordance with provisions of the Share Option Scheme.


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(xxv) Conditions of the Share Option Scheme

The Share Option Scheme is conditional upon (i) the [REDACTED] of the StockExchange granting the [REDACTED] of, and permission to deal in, the Shares to beissued pursuant to the exercise of any options which may be granted under the ShareOption Scheme; (ii) the passing of the necessary resolution(s) to approve and adopt theShare Option Scheme by the Shareholders in general meeting or by way of writtenresolution; and (iii) the commencement of trading of the Shares on the Stock Exchange.

(c) Present status of the Share Option Scheme

Application has been made to the [REDACTED] for [REDACTED] of and permissionto deal in [REDACTED] Shares which fall to be issued pursuant to the exercise of the optionsgranted under the Share Option Scheme.

As of the date of this document, no option has been granted or agreed to be granted underthe Share Option Scheme.

E. OTHER INFORMATION

1. Tax and other indemnities

Each of Mr. Song and Copious Pride (collectively, the “Indemnifiers”) have, under theDeed of Indemnity, given joint and several indemnities to the Company (for itself and as trusteefor its subsidiaries) in connection with, among other things,

(a) any taxation falling on any member of the Group (i) in respect of or by reference toany income, profits or gains earned, accrued or received or deemed or alleged tohave been earned, accrued or received on or before the date on which the[REDACTED] becomes unconditional; or (ii) in respect of or by reference to anytransaction, act, omission, matter, thing or event entered into or occurring or deemedto enter into or occur on or before the date on which the [REDACTED] becomesunconditional;

(b) any liability for Hong Kong estate duty which is or hereafter become payable by anymember of the Group under or by virtue of the provisions of Section 35 and Section43 of the Estate Duty Ordinance (Chapter 111 of the Laws of Hong Kong) or anyother similar legislation in any relevant jurisdiction outside Hong Kong arising onthe death of any person at any time by reason of any transfer of any property to anymember of the Group on or before the date on which the [REDACTED] becomesunconditional;

(c) any penalty, claims, actions, demands, proceedings, judgments, losses, liabilities,damages, costs, administrative or other charges, fees, expenses and fines ofwhatever nature suffered or incurred by any member of the Group as a result of orin connection with (i) any litigation, arbitrations, claims (including counterclaims),complaints, demands and/or legal proceedings (whether criminal, administrative,contractual, tortuous or otherwise), instituted by or against any member of theGroup in relation to any act, non-performance, omission, events or otherwiseoccurred on or before the date on which the [REDACTED] becomes unconditional;and (ii) any non-compliance with the applicable laws, rules or regulations by anymember of the Group (including but not limited to the non-compliance as disclosedin “Business – Legal Proceedings and Non-compliance Matters” in this document)


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on or before the date on which the [REDACTED] becomes unconditional exceptthat provision, reserve or allowance has been made for such liabilities in the auditedconsolidated financial statements of the Company or any other member of the Groupfor the Track Record Period (if any); and

(d) any liability for the implementation of the Reorganisation and/or disposal oracquisition of the equity interest in any member of the Group since the date ofincorporation of each member of the Group and up to the date on which the[REDACTED] becomes unconditional;

The Indemnifiers will, however, not be liable under the deed of indemnity to the extentthat, among others:

(a) specific provision, reserve or allowance has been made for such liability in theaudited consolidated accounts of the Company for the years ended 31 December2019 and 31 December 2020, and the unaudited consolidated accounts of theCompany for the nine months ended 30 September 2021; or

(b) the taxation liability arises or is incurred as a result of a retrospective change in lawor a retrospective increase in tax rates coming into force after the date on which the[REDACTED] becomes unconditional; or

(c) the taxation liability arises in the ordinary course of business of any members of theGroup after 30 September 2021 up to and including the date on which the[REDACTED] becomes unconditional.

The Directors have been advised that no material liability for estate duty under the lawsof the Cayman Islands is likely to fall on the Group.

2. Litigation

Except as disclosed in the section head “Business – Legal Proceedings and Non-compliance Matters” in this document, the Directors confirmed that as of the Latest PracticableDate, no member of the Group was engaged in any litigation or arbitration of materialimportance and no litigation or claim of material importance is known to the Directors to bepending or threatened by or against any member of the Group.

3. Sole Sponsor

The Sole Sponsor has made an application on behalf of the Company to the[REDACTED] for [REDACTED] of, and permission to deal in, the Shares in issue and to beissued as mentioned herein and any Shares which may fall to be issued pursuant to the exerciseof the options which may be granted under the Share Option Scheme and/or the exercise of the[REDACTED].

The Sole Sponsor has confirmed to the Stock Exchange that it satisfies the independencetest as stipulated under Rule 3A.07 of the Listing Rules.

We agreed to pay the Sole Sponsor a fee of HK$4.8 million, which relates solely toservices provided by the Sole Sponsor in the capacity of Sole Sponsor.


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4. Preliminary expenses

The preliminary expenses relating to the incorporation of the Company are estimated tobe approximately HK$40,000 and are payable by the Company.

5. Promoter

The Company has no promoter for the purpose of the Listing Rules.

6. Qualifications of experts

The following are the respective qualifications of the experts who have given theiropinion or advice which is contained in this document:

Name Qualification

Central China InternationalCapital Limited

A licensed corporation under the SFO to conduct type1 (dealing in securities) and type 6 (advising oncorporate finance) regulated activities

PricewaterhouseCoopers Certified Public Accountants under ProfessionalAccountants Ordinance (Chapter 50 of the Laws ofHong Kong) Registered Public Interest EntityAuditor under Financial Reporting CouncilOrdinance (Chapter 588 of the Laws of Hong Kong)

King & Wood Mallesons Legal advisers as to PRC law

Appleby Legal advisers as to Cayman Islands law

Frost & Sullivan Industry research consultant

7. Consents of experts

Each of Central China International Capital Limited, PricewaterhouseCoopers, King &Wood Mallesons, Appleby and Frost & Sullivan has given and has not withdrawn its writtenconsents to the issue of this document, with the inclusion of its letters and/or reports and/oropinions and/or summary thereof (as the case may be) and/or reference to its name includedherein in the form and context in which they respectively appear.

8. Binding effect

This document shall have the effect, if an application is made in pursuance hereof, ofrendering 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.

9. Registration procedures

The principal register of members of the Company in the Cayman Islands will bemaintained by [REDACTED] and a branch register of members of the Company will bemaintained by [REDACTED]. Save where the Directors otherwise agree, all transfers and


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other documents of title to Shares must be lodged for registration with, and registered by, theCompany’s [REDACTED] in Hong Kong and may not be lodged in the Cayman Islands. Allnecessary arrangements have been made to enable the Shares to be admitted into CCASS.

10. No material adverse change

Save for the expenses expected to be incurred in connection with [REDACTED], theDirectors confirm that there has been no material adverse change in the financial or tradingposition or prospects of the Company or its subsidiaries since 30 September 2021 (being thedate to which the latest audited financial statements of the Group were made up), and there isno event since 30 September 2021 which would materially affect the information shown in ourconsolidated financial information included in the Accountant’s Report set forth in AppendixI to this document.

11. Taxation of holders of Shares

(a) Hong Kong

Dealings in Shares registered on the Company’s Hong Kong branch register ofmembers will be subject to Hong Kong stamp duty. Profits from dealings in Shares arisingin or derived from Hong Kong may also be subject to Hong Kong profits tax.

(b) Cayman Islands

No stamp duty is payable in the Cayman Islands on transfers of shares of CaymanIslands companies except those which hold interests in land in the Cayman Islands.

(c) Consultation with professional advisers

Intending holders of the Shares are recommended to consult their professionaladvisers if they are in any doubt as to the taxation implications of subscribing for,purchasing, holding or disposing of or dealing in the Shares. It is emphasized that noneof the Company, the Directors or parties involved in the [REDACTED] acceptsresponsibility for any tax effect on, or liabilities of holders of Shares resulting from theirsubscription for, purchase, holding or disposal of or dealing in Shares.

12. Miscellaneous

(a) Except as disclosed in this document:

(i) within the two years immediately preceding the date of this document:

(aa) no share or loan capital of the Company or any of our subsidiaries hasbeen issued, agreed to be issued or is proposed to be issued fully or partlypaid either;

(bb) no commissions, discounts, brokerages or other special terms have beengranted or agreed to be granted in connection with the issue or sale of anyshare or loan capital of the Company or any of its subsidiaries and nocommission has been paid or is payable in connection with the issue orsale of any capital of the Company or any of our subsidiaries;


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(cc) no commission has been paid or payable (except to sub-[REDACTED])for subscribing or agreeing to subscribe, procuring or agreeing to procuresubscriptions, for any Shares or shares of any of our subsidiaries;

(dd) no founder, management or deferred shares or any debentures of theCompany have been issued or agreed to be issued; and

(ee) no share or loan capital of the Company is under option or is agreedconditionally or unconditionally to be put under option;

(ii) there has not been any interruption in the business of the Group which mayhave or have had a significant effect on the financial position of the Group inthe 12 months immediately preceding the date of this document;

(iii) none of each of Central China International Capital Limited,PricewaterhouseCoopers, King & Wood Mallesons, Appleby and Frost &Sullivan:

(aa) is interested beneficially or non-beneficially in any securities in anymember of the Group, including the Shares; or

(bb) has any right or option (whether legally enforceable or not) to subscribefor or to nominate persons to subscribe for any securities in any memberof the Group,

(iv) the Company and its subsidiaries do not have any debt securities issued oroutstanding, or authorized or otherwise created but unissued, or any term loanswhether guaranteed or secured as of the Latest Practicable Date;

(v) no company within the Group is presently listed on any stock exchange ortraded on any trading system; and

(vi) the Group has no outstanding convertible debt securities.

(b) the English text of this document shall prevail over the Chinese text.

13. Bilingual Document

The English language and Chinese language versions of this document are beingpublished separately in reliance upon the exemption provided in section 4 of the CompaniesOrdinance (Exemption of Companies and Prospectuses from Compliance with Provisions)Notice (Chapter 32L of the Laws of Hong Kong).


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DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES IN HONG KONG

The documents attached to a copy of this document and delivered to the Registrar ofCompanies in Hong Kong for registration were:

(a) a copy of the [REDACTED];

(b) copies of the material contracts referred to in “Statutory and General Information –B. Further Information about the Business – 1. Summary of material contracts” inAppendix IV to this document; and

(c) the written consents referred to in “Statutory and General Information – E. OtherInformation – 7. Consents of Experts” in Appendix IV to this document.

DOCUMENTS AVAILABLE ON DISPLAY

Copies of the following documents will be available on display on the website of theStock Exchange at www.hkexnews.hk and our website at www.chinashenli.cn during a periodof 14 days from the date of this document:

(a) the Memorandum and Articles of Association;

(b) the Accountant’s Report and the report on the unaudited [REDACTED] financialinformation from PricewaterhouseCoopers, the texts of which are set out inAppendices I and II to this document;

(c) [the audited consolidated financial statements of the Company as have beenprepared for the companies comprising the Group for the three years ended 31December 2021;]

(d) the PRC legal opinions prepared by King & Wood Mallesons, our PRC LegalAdvisers, in respect of certain aspects of the Group as to the PRC law;

(e) the letter of advice prepared by Appleby, our Cayman Islands legal adviser,summarizing certain aspects of Cayman Islands company law referred to inAppendix III to this document;

(f) the F&S Report issued by Frost & Sullivan;

(g) the material contracts referred to in “Statutory and General Information – B. Furtherinformation about the business Summary of material contracts” in Appendix IV tothis document;

(h) the written consents referred to in “Statutory and General Information – E. Otherinformation – 7. Consents of experts” in Appendix IV to this document;

(i) the Companies Act; and

(j) the rules of the Share Option Scheme.

APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIESIN HONG KONG AND AVAILABLE ON DISPLAY

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