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

Sheen Tai Holdings Group Company Limited

順泰控股集團有限公司(incorporated in the Cayman Islands with limited liability)

SHARE OFFER

Number of Offer Shares : 100,000,000 Shares (subject to the Over-allotment Option)

Number of Public Offer Shares : 10,000,000 Shares (subject to re-allocation)Number of Placing Shares : 90,000,000 Shares (subject to the Over-

allotment Option and re-allocation)Maximum Offer Price : HK$1.68 per Offer Share (payable in full

upon application in Hong Kong dollarsand subject to refund on final pricing),plus brokerage of 1%, SFC transactionlevy of 0.003% and Stock Exchangetrading fee of 0.005%

Nominal Value : HK$0.01 per ShareStock Code : 1335

Sole Bookrunner, Sole Lead Manager and Sole Sponsor

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited (“Stock Exchange”) and Hong Kong SecuritiesClearing Company Limited (“HKSCC”) take no responsibility for the contents of this prospectus, make no representation as to its accuracyor completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any partof the contents of this prospectus.

A copy of this prospectus, having attached thereto the documents specified in the paragraph headed “Documents delivered to the Registrarof Companies in Hong Kong” in Appendix VI to this prospectus, has been registered with the Registrar of Companies in Hong Kong asrequired by section 342C of the Companies Ordinance, Chapter 32 of the Laws of Hong Kong. The Securities and Futures Commission ofHong Kong and the Registrar of Companies in Hong Kong take no responsibility as to the contents of this prospectus or any other documentsreferred to above.

The Offer Price is expected to be determined by agreement between our Company and the Sole Bookrunner (acting for itself and on behalfof the other Underwriters) on the Price Determination Date or such later date as may be agreed between our Company and the Sole Bookrunnerbut in any event no later than Wednesday, 11 July 2012. The Offer Price will be not more than HK$1.68 per Offer Share and is currentlyexpected to be not less than HK$1.08 per Offer Share. The Sole Bookrunner (acting for itself and on behalf of the other Underwriters) mayreduce the number of Public Offer Shares and/or the indicative Offer Price range stated in this prospectus at any time prior to the morningof the last day for lodging applications under the Public Offer. In such a case, a notice of the reduction of the number of the Public Offer Sharesand/or the indicative Offer Price range will be published in The Standard (in English) and the Hong Kong Economic Journal (in Chinese) notlater than the morning of the last day for lodging applications under the Public Offer. Such notices will also be available at the website ofthe Stock Exchange at www.hkexnews.hk and our Company’s website at www.sheentai.com. If, for any reason, the Offer Price is not agreedbetween our Company and the Sole Bookrunner (acting for itself and on behalf of the Underwriters) on or before the Price Determination Dateor such later date as may be agreed between our Company and the Sole Bookrunner (acting for itself and on behalf of the other Underwriters)but in any event no later than Wednesday, 11 July 2012, the Share Offer will not become unconditional and will lapse immediately.

Our Company is incorporated under the laws of the Cayman Islands and its businesses are principally located in the People’s Republicof China. Potential investors should be aware of the differences in the legal, economic and financial systems between these countriesand Hong Kong. Potential investors should also be aware that the regulatory frameworks in these countries are different from theregulatory framework in Hong Kong and should take into consideration the different market nature of our Shares. Such differencesand risk factors are set out in the sections headed “Risk factors” and “Appendix IV – Summary of the constitution of our Companyand Cayman Islands company law” in this prospectus.

Pursuant to the force majeure provisions contained in the Underwriting Agreements in respect of the Offer Shares, the SoleBookrunner (acting for itself and on behalf of the Underwriters) has the right in certain circumstances, in the sole and reasonableopinion of the Sole Bookrunner, to terminate the obligations of the Underwriters pursuant to the Underwriting Agreements at any timeprior to 8:00 a.m. (Hong Kong time) on the Listing Date (which is currently expected to be Friday, 13 July 2012). Further details ofthe terms of the force majeure provisions are set out in the section headed “Underwriting – Underwriting arrangements and expenses– Grounds for termination” in this prospectus.

The Offer Shares have not been and will not be registered under the U.S. Securities Act and may not be offered, sold, pledged or transferredwithin the United States.

IMPORTANT

29 June 2012

Date(Note 1)

Latest time to complete electronic applications

through the HK eIPO White Form Service

through the designated website at

www.hkeipo.hk(Notes 3 and 4) . . . . . . . . . . . . . . . . . . . .11:30 a.m. on Thursday, 5 July 2012

Application lists of the Public Offer open at(Note 2) . . . .11:45 a.m. on Thursday, 5 July 2012

Latest time for lodging WHITE and

YELLOW Application Forms at . . . . . . . . . . . . . . . .12:00 noon on Thursday, 5 July 2012

Latest time to give electronic application instructions

to HKSCC at(Note 5) . . . . . . . . . . . . . . . . . . . . . . . . .12:00 noon on Thursday, 5 July 2012

Latest time to complete payment of

HK eIPO White Form applications by

effecting internet banking transfer(s) or

PPS payment transfer(s) . . . . . . . . . . . . . . . . . . . . . .12:00 noon on Thursday, 5 July 2012

Application lists of the Public Offer close at . . . . . . . .12:00 noon on Thursday, 5 July 2012

Price Determination Date(Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Friday, 6 July 2012

Announcement of the final Offer Price, level of

applications of the Public Offer, indication of

the level of interests in the Placing, basis of

allocation of the Public Offer Shares to be published

(a) in The Standard (in English) and

the Hong Kong Economic Journal (in Chinese);

(b) on the website of our Company at www.sheentai.com; and

(c) on the website of the Stock Exchange

at www.hkex.com.hk on or before . . . . . . . . . . . . . . . . . . . . . . . .Thursday, 12 July 2012

Results of applications and Hong Kong identity cards,

passport numbers or Hong Kong business registration

certificate numbers (where applicable) of successful

Applicants of the Public Offer Shares are available on

the website of our Company at www.sheentai.com or

the website of the Stock Exchange

at www.hkex.com.hk on or before . . . . . . . . . . . . . . . . . . . . . . . .Thursday, 12 July 2012

Despatch of Share certificates and refund cheques/e-Auto Refund

payment instructions in respect of wholly or partially unsuccessful

applications and in respect of successful application

if the final Offer Price is less than the price payable on

application pursuant to the Public Offer on(Notes 7, 8 and 9) . . . . . . .Thursday, 12 July 2012

Dealings in Shares on the Stock Exchange to commence on . . . . . . . . .Friday, 13 July 2012

EXPECTED TIMETABLE

– i –

Notes:

1. All times refer to Hong Kong local time. Details of the structure of the Share Offer, including its conditions,

are set out in the section headed “Structure and conditions of the Share Offer” in this prospectus.

2. If there is a “black” rainstorm warning or a tropical cyclone warning signal number eight (8) or above in force

in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Thursday, 5 July 2012 the application lists

will not open on that day. Further information is set out in the section headed “How to apply for the Public

Offer Shares – Effect of bad weather on the opening of the application lists” in this prospectus.

3. Applicants will not be permitted to submit application through the designated website at www.hkeipo.hk after

11:30 a.m. on the last day for submitting applications. If applicants have already submitted application and

obtained an application reference number from the designated website prior to 11:30 a.m., they will be

permitted to continue the application process (by completing payment of application monies) until 12:00 noon

on the last day for submitting applications, when the application lists close.

4. Applicants who apply for Public Offer Shares through the HK eIPO White Form Service should refer to the

section headed “How to apply for the Public Offer Shares – Applying through HK eIPO White Form” in this

prospectus for details.

5. Applicants who apply for Public Offer Shares by giving electronic application instructions to HKSCC should

refer to the section headed “How to apply for Public Offer Shares – How to apply by giving electronic

application instructions to HKSCC” in this prospectus.

6. The Price Determination Date is expected to be on or about Friday, 6 July 2012, and in any event will be on

or before Wednesday, 11 July 2012. If, for any reason, the Offer Price is not agreed on or before Wednesday,

11 July 2012, the Share Offer will not proceed.

7. Our Company will not issue any temporary documents of title in respect of the Offer Shares. Share certificates

will only become valid certificates of title at 8:00 a.m. on Friday, 13 July 2012 (Hong Kong time), provided

that (i) the Share Offer has become unconditional in all respects; and (ii) neither of the Underwriting

Agreements has been terminated in accordance with its terms. Investors who trade Shares on the basis of

publicly available allocation details prior to the receipt of Share certificates or prior to the Share certificates

becoming valid certificates of title do so entirely at their own risk.

8. Refund cheques/e-Auto Refund payment instructions will be issued in respect of wholly or partially

unsuccessful applications and in respect of successful applications if the final Offer Price is less than the price

payable on application. Part of the applicant’s Hong Kong identity card number or passport number, or, if the

application is made by joint applicants, part of the Hong Kong identity card number or passport number of

the first-named applicant, provided by the applicant(s) may be printed on the refund cheque, if any. Such data

would also be transferred to a third party for refund purpose. Banks may require verification of an applicant’s

Hong Kong identity card number or passport number before cashing the refund cheque. Inaccurate completion

of an applicant’s Hong Kong identity card number or passport number may lead to a delay in encashment of,

or may invalidate, the refund cheque.

9. Applicants who apply on WHITE Application Forms for 1,000,000 Public Offer Shares or more under the

Public Offer and have indicated in their Application Forms that they wish to collect their refund cheques

(where applicable) and Share certificates (where applicable) in person from our Hong Kong Branch Share

Registrar may collect their refund cheques (where applicable) and Share certificates (where applicable) in

person from our Hong Kong Branch Share Registrar at 26/F Tesbury Centre, 28 Queen’s Road East, Wanchai,

Hong Kong from 9:00 a.m. to 1:00 p.m. on Thursday, 12 July 2012 or any other date as notified by our

Company in the newspaper as the date of collection/dispatch of refund cheques/Share certificates.

Identification and (where applicable) authorisation documents acceptable to our Hong Kong Branch Share

Registrar must be produced at the time of collection.

Applicants who apply on YELLOW Application Forms for 1,000,000 Public Offer Shares or more under the

Public Offer and have indicated in their Application Forms that they wish to collect their refund cheques

(where applicable) in person may collect their refund cheques (where applicable) but may not elect to collect

their Share certificates (where applicable), which will be deposited into CCASS for credit to their designated

CCASS Participants’ stock accounts or CCASS Investor Participants’ stock accounts, as appropriate. The

procedure for collection of refund cheques for applicants who apply on YELLOW Application Forms for

Public Offer Shares is the same as that for WHITE Application Form applicants.

EXPECTED TIMETABLE

– ii –

Applicants who opt for personal collection must not authorise any person to make collection on their behalf.

Applicants being corporation which opt for personal collection must attend by their authorised representatives

with letters of authorisation of their corporations stamped with the corporation’s chops (being the name of the

corporations). Both individuals and authorised representatives of corporations (as applicable) must produce,

at the time of collection, evidence of identity and authority (as applicable) acceptable to our Hong Kong

Branch Share Registrar.

Uncollected Share certificates and refund cheques will be dispatched by ordinary post at the applicants’ own

risk to the addresses specified in the relevant Application Forms. Further information is set out in the section

headed “How to apply for Public Offer Shares” in this prospectus.

For details of the structure of the Share Offer, including conditions of the Public Offer,

please refer to the section headed “Structure and conditions of the Share Offer” in this

prospectus.

EXPECTED TIMETABLE

– iii –

You should rely only on the information contained in this prospectus and the

Application Forms to make your investment decision. We have not authorised anyone to

provide you with information which is different from that contained in this prospectus.

Any information or representation not made in this prospectus must not be relied upon by

you as having been authorised by our Company, the Sole Sponsor, the Sole Bookrunner,

the Underwriters, any of their respective Directors or any other person or party involved

in the Share Offer.

Page

Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Forward-looking statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Risk factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Waiver from compliance with the Listing Rules and exemption from

the Companies Ordinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Information about this prospectus and the Share Offer . . . . . . . . . . . . . . . . . . . . 54

Directors and parties involved in the Share Offer . . . . . . . . . . . . . . . . . . . . . . . . . 58

Corporate information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Industry overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Regulatory overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

History and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

CONTENTS

– iv –

Page

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Competitive strengths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Business strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

Sales, marketing and after-sales services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Production facilities and production process . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

Procurement and inventory control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

Quality assurance and control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

Environmental protection, health and safety . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Recognitions, certifications and awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

Intellectual property rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

Compliance and legal proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

Non-compliance incidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173

Corporate social responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

Relationship with Controlling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Directors, senior management and staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198

Future plans and use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

Cornerstone investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252

Structure and conditions of the Share Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260

How to apply for the Public Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268

CONTENTS

– v –

Page

Appendix I – Accountants’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1

Appendix II – Unaudited pro forma financial information . . . . . . . . . . . . II-1

Appendix III – Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1

Appendix IV – Summary of the constitution of our Company and

Cayman Islands company law . . . . . . . . . . . . . . . . . . . . . IV-1

Appendix V – Statutory and general information . . . . . . . . . . . . . . . . . . . V-1

Appendix VI – Documents delivered to the Registrar of Companies in

Hong Kong and available for inspection . . . . . . . . . . . . . VI-1

CONTENTS

– vi –

This summary aims to give you an overview of the information contained in this

prospectus. As this is a summary, it does not contain all of the information which may be

important to you. You should read the whole document before you decide to invest in our

Shares.

There are risks associated with any investment. Some of the particular risks in

investing in our Shares are summarised in the section headed “Risk factors” in this

prospectus. You should read that section carefully before you decide to invest in our

Shares.

OVERVIEW OF OUR BUSINESS

General

We are a cigarette packaging materials manufacturer and supplier in the PRC with a

leading position in Jiangsu Province, the PRC. According to the Euromonitor Report, our

Group ranked no. 2 in overall cigarette packaging materials market (comprising paper boxes,

films and other packaging materials) in Jiangsu Province, the PRC in 2011 with a market share

of approximately 18.8% in terms of sales value. According to the Euromonitor Report, the

market share of Jiangsu Province in the overall cigarette packaging materials market in the

PRC was approximately 5.5% in value terms in 2011.

Reliance on major customer

During the Track Record Period, sales to China Tobacco Jiangsu, our largest customer,

amounted to approximately HK$169.7 million, HK$304.8 million and HK$390.1 million,

representing approximately 64.2%, 55.4% and 57.8% respectively of our total turnover during

the respective year. Though we expect that our reliance on China Tobacco Jiangsu will

gradually decline as we have been diversifying our customer base to other cigarette

manufacturers, our turnover or liquidity position may still be adversely affected if China

Tobacco Jiangsu reduces, delays or cancels its order or if it fails to make timely payment to

us. Please refer to the section headed “Risk factors – Risks relating to our business – We relied

on a major customer during the Track Record Period” in this prospectus for details of the

relating risk.

Our customers

During the Track Record Period and up to the Latest Practicable Date, we made sales to

(i) cigarette manufacturers; (ii) other customers of cigarette films; and (iii) customers of

non-cigarette-related packaging materials. As at the Latest Practicable Date, we had three

cigarette manufacturer customers, each of which is a Provincial Tobacco Industrial Company.

China Tobacco Jiangsu, being one of our cigarette manufacturer customers and also our largest

customer during the Track Record Period, has been our customer for over eight years and we

started to supply products to the other two Provincial Tobacco Industrial Companies in the

second half of 2011 and 2012 respectively.

SUMMARY

– 1 –

Packaging materials that we supply to our customers can be broadly classified into threecategories, namely, (i) cigarette-related packaging materials (comprising cigarette paper boxes,anti-counterfeiting films and other cigarette films manufactured by us); (ii) imported films; and(iii) non-cigarette-related packaging materials (being films for packaging non-cigarette-relatedproducts manufactured by us). During the Track Record Period, our sales are predominatelymade to the PRC market and the sales of cigarette-related packaging materials (including thetrading of imported films) contributed more than 75% of our total turnover during each of thethree years ended 31 December 2011, of which sales of cigarette-related packaging materialsto our customers located in Jiangsu Province, the PRC was more than 75% of our total salesof cigarette-related packaging materials for each of the three years ended 31 December 2011.

The table below illustrates the breakdown of our sales in terms of customer type duringthe Track Record Period:

For the years ended 31 December2009 2010 2011

HK$’000 % HK$’000 % HK$’000 %

Cigarette manufacturers 169,622 64.2 304,036 55.2 389,567 57.7Other customers of cigarette

films 73,898 27.9 109,952 20.0 129,979 19.3Customers of non-cigarette-

related packaging materials 20,937 7.9 136,546 24.8 155,437 23.0

264,457 100.0 550,534 100.0 674,983 100.0

Our turnover during Track Record Period

The following table illustrates the breakdown of our turnover and gross profit marginpercentage by product category during the Track Record Period:

For the years ended 31 December

2009 2010 2011

Turnover Proportion

Gross

profit

margin Turnover Proportion

Gross

profit

margin Turnover Proportion

Gross

profit

margin

HK$’000 % % HK$’000 % % HK$’000 % %

Manufacturing and sale of

cigarette-related packaging

materials

– Cigarette paper boxes 68,495 25.9 42.3 213,519 38.8 53.7 267,953 39.7 55.0

– Anti-counterfeiting films 102,494 38.8 48.6 81,041 14.7 40.8 84,791 12.6 45.1

– Other cigarette films 37,839 14.3 37.5 69,809 12.7 32.9 111,785 16.6 22.0

208,828 79.0 44.5 364,369 66.2 46.8 464,529 68.9 45.3

Trading of imported films 34,692 13.1 2.1 49,619 9.0 27.4 55,017 8.1 28.8


non-cigarette-related

packaging materials 20,937 7.9 14.9 136,546 24.8 6.9 155,437 23.0 13.1

264,457 100.0 36.6 550,534 100.0 35.2 674,983 100.0 36.5

SUMMARY

– 2 –

For the three years ended 31 December 2011, we generated turnover of approximately

HK$264.5 million, HK$550.5 million and HK$675.0 million respectively, representing a

CAGR of approximately 59.7% over the period. During the same period, profit attributable to

equity shareholders of our Company were approximately HK$38.1 million, HK$60.7 million

and HK$81.4 million respectively, representing a CAGR of approximately 46.2% over the

Track Record Period. By leveraging on our strengths and effectively implementing our

business strategies, our Directors believe that we can continue to effectively expand our

business both in terms of turnover and profitability.

During the Track Record Period, we have experienced a decrease in sale of our

anti-counterfeiting films. Turnover attributable to our anti-counterfeiting films amounted to

approximately HK$102.5 million, HK$81.0 million and HK$84.8 million for the three years

ended 31 December 2011. Please see the section headed “Risk factors – Risks relating to our

business – We have experienced decrease in sale of anti-counterfeiting films during the Track

Record Period” in this prospectus for a further discussion on the possible impact on our Group

as a result of this trend, if it continues.

Our gross profit margin during the Track Record Period

During the Track Record Period, although our overall gross profit margin has remained

relatively stable, our gross profit margin for our different activities differed. The gross profit

margin of the cigarette-related packaging materials decreased slightly from approximately

46.8% for the year ended 31 December 2010 to approximately 45.3% for the year ended 31

December 2011 due to the net effect of (i) the increase in the gross profit margin of

anti-counterfeiting films from approximately 40.8% for the year ended 31 December 2010 to

approximately 45.1% for the year ended 31 December 2011 as a result of the depreciation of

US$ against RMB so that our effective purchase price of imported films decreased in RMB

term; and (ii) the decrease in the gross profit margin of other cigarette films from

approximately 32.9% for the year ended 31 December 2010 to approximately 22.0% for the

year ended 31 December 2011 as we manufactured more other cigarette films with relatively

low gross profit margin for the year ended 31 December 2011.

The gross profit margin of the non-cigarette-related packaging materials increased from

approximately 6.9% for the year ended 31 December 2010 to approximately 13.1% for the year

ended 31 December 2011 as we reduced the production of certain non-cigarette-related

packaging materials with relatively lower gross profit margin and led to a reduction in sales of

such product during the year ended 31 December 2011.

As the gross profit margin of our cigarette-related packaging materials (with gross profit

margin ranging from approximately 22% to 55% during the Track Record Period) was

generally higher than that of our non-cigarette-related packaging materials (with gross profit

margin ranging from approximately 7% to 15% during the Track Record Period), it is our plan

to decrease the sales attributable to non-cigarette-related packaging materials as a percentage

to the total sales of our Group.

Trading of cigarette films in the year ended 31 December 2009 recorded a lower gross

profit margin as a portion of our sales attributable to such sales were made to Xuzhou Dinuo

SUMMARY

– 3 –

Printing Co., Ltd. (徐州帝諾印刷有限公司) (“Xuzhou Dinuo”) and Shenzhen Yi’an Import and

Export Co., Ltd. (深圳益安進出口有限公司) (“Shenzhen Yi’an”), which then on-sold such

products to their customers. Our sales to Shenzhen Yi’an and Xuzhou Dinuo under the above

arrangements ceased during the years ended 31 December 2009 and 31 December 2010

respectively. The key reason for our Group to have the abovementioned arrangements was Ling

Xian Fei Yu only obtained the approved supplier status for imported films with China Tobacco

Jiangsu in 2010, so that our Group had to sell the imported films to China Tobacco Jiangsu

through these companies before that. The sales to Xuzhou Dinuo and Shenzhen Yi’an

constituted related party transactions of our Group. Our Directors confirm that all such sales

were conducted under normal commercial terms by reference to the prevailing market rates or

at rates similar to those quoted to other customers which were Independent Third Parties.

For the year ended 31 December 2010, manufacturing and sales of anti-counterfeiting

films recorded a lower gross profit margin when compared with that for the year ended 31

December 2009 primarily as a result of the increase in the costs of raw materials used in the

production of anti-counterfeiting films while the primary reason for the lower gross profit

margin for manufacturing and sales of non-cigarette-related-packaging materials was that our

Group increased our sales of products with lower margin to utilise the excess production

capacity of our Ener Factory to capture additional market share in the year ended 31 December

2010.

Manufacturing and sale of other cigarette films for the year ended 31 December 2011

recorded a lower gross profit margin as we manufactured more other cigarette films with

relatively low gross profit margin during the year.

Our production facilities

During the Track Record Period, we carried out our production in three factories, namely

our Shuntai Factory, our Sheen Colour Nanjing Factory and our Ener Factory and we

positioned Jiangsu Shuntai (through our Shuntai Factory) as our base of printing and

manufacturing of cigarette paper boxes, Jiangsu Sheen Colour (through our Sheen Colour

Nanjing Factory) as our base of printing of films and Qingdao Ener (through our Ener Factory)

as our base of manufacturing of films. In anticipation of the expiry of the then lease agreement

relating to the factory premises accommodating our Sheen Colour Nanjing Factory in October

2012 and the expiry of the original term of business operation of Jiangsu Sheen Colour in

March 2012 (which term was extended to March 2013 in December 2011), we have moved our

film-printing operation from our Sheen Colour Nanjing Factory to our Shuntai Factory and

ceased our production in our Sheen Colour Nanjing Factory.

In light of the expected increase in production of our Shuntai Factory after its taking up

of our film printing business from Jiangsu Sheen Colour, an additional factory premises in the

proximity of our Shuntai Factory with gross floor area of approximately 13,726 square metres

was built. Such additional factory is designated for printing of films. The total cost of such

expansion (including the construction of an additional dormitory building) was approximately

HK$47.6 million and was financed by bank loans and internal resources of our Group. As at

the Latest Practicable Date, our factories in aggregate occupied a gross floor area of

approximately 66,169 square metres.

SUMMARY

– 4 –

Set out below is the utilisation rate for the three years ended 31 December 2011 and for

the three months ended 31 March 2012 of our Shuntai Factory, our Sheen Colour Nanjing

Factory and our Ener Factory:

For the year ended 31 December

For the

three

months

ended

31 March

20122009 2010 2011

Printing and manufacturing

of cigarette paper boxes

53% 48% 57% 34%

Printing of films(Note) 69% 53% 53% 48%

Manufacturing of films 87% 91% 93% 80%

Note: Our operation of printing of films was undertaken in (i) our Sheen Colour Nanjing Factory during the

three years ended 31 December 2011 and (ii) our Shuntai Factory during the three months ended 31

March 2012.

The primary materials used for our production process include (i) polypropylene (for

manufacturing of films); and (ii) ivory board, transfer film and transfer paper (for

manufacturing and printing of cigarette paper boxes).

For the three years ended 31 December 2011, cost of polypropylene accounted for

approximately 32.7%, 39.8% and 38.4% respectively; and cost of ivory board, transfer film and

transfer paper, in aggregate, accounted for approximately 7.7%, 25.9% and 22.4%,

respectively, of our total purchases.

LATEST DEVELOPMENT

Our financial performance is dependent on a number of factors, including the general

economy of the PRC and the market conditions associated with the PRC’s cigarette market, and

is subject to seasonality effect. In particular, the Chinese New Year in 2012 came earlier than

that in 2011 and hence more orders had been satisfied in late 2011 than that in late 2010. As

such, our production output, revenue and net profit for the first quarter of 2012 were relatively

lower than those for the first quarter of 2011. Our Directors consider that the seasonality effect

will continue to affect our Group’s financial performance. Please refer to the section headed

“Risk factors – Risks relating to our business – Our sales may be affected by seasonality” in

this prospectus.

Our Directors confirm that there has been no material adverse change in our financial or

trading position or prospect since 31 December 2011.

SUMMARY

– 5 –

COMPETITIVE STRENGTHS HIGHLIGHT

Our Directors attribute our Group’s success to, amongst others, the following strengths:

(i) Cigarette packaging materials manufacturer and supplier in the PRC with a leading

position in Jiangsu Province, the PRC;

(ii) Established relationships with our major customers; and

(iii) Management team with in-depth knowledge and extensive industry experience.

For details of our competitive strengths, please refer to the section headed “Business –

Competitive strengths” in this prospectus.

BUSINESS STRATEGIES

It is our goal to become a leading manufacturer and supplier of cigarette packaging

materials in the PRC. We aim to attain our goal by the following principal strategies:

(i) Enhance our leading position in cigarette packaging industry in Jiangsu Province,

the PRC;

(ii) Increase our market share in the PRC by leveraging our leading position in Jiangsu

Province, the PRC and unique features of our anti-counterfeiting films; and

(iii) Increase our market share by acquiring companies with approved supplier status of

our target customers.

For details of our business strategies, please refer to the section headed “Business –

Business strategies” in this prospectus.

RISK FACTORS

There are risks associated with any investment. Some of the particular risks in investing

in the Offer Shares are set out in the section headed “Risk factors” in this prospectus, in

particular the risk relating to the tightening of legislative or regulatory control in the PRC over

the past decades which included, amongst others, (i) the long history of legislative or

regulatory control on tobacco; (ii) the PRC’s entry into of the World Health Organization

Framework Convention on Tobacco Control; (iii) the laws on packaging and labeling of

cigarettes; (iv) the coming into effect of the Public Places Hygiene Management Regulation

Enforcement Rules; (v) the policy on prohibition of sales of the high tar cigarettes; and (vi) the

increase in tax and/or duties on cigarettes. Such risk may result in change in the cigarette

consumption patterns and/or reduction in the smoking population size and our business,

financial position and results of operations might be materially adversely affected. You should

read that entire section carefully before you decide to invest in the Offer Shares.

SUMMARY

– 6 –

SELECTED COMBINED STATEMENTS OF COMPREHENSIVE INCOME AND

STATEMENTS OF FINANCIAL POSITION LINE ITEMS


2009 2010 2011

HK$’000 HK$’000 HK$’000

Turnover 264,457 550,534 674,983

Gross profit 96,769 193,747 246,637

Other revenue and net income 25,024 13,759 26,003

Distribution costs (15,316) (13,366) (17,642)

Administrative expenses (19,069) (30,848) (43,169)

Other operating expenses (457) (3,405) (17)

Finance costs (2,026) (16,394) (18,603)

Income tax (20,721) (38,331) (52,453)

Profit for the year 64,204 105,162 140,756

As at 31 December

2009 2010 2011

HK$’000 HK$’000 HK$’000

Non-current assets 350,826 360,907 388,332

Current assets 264,437 359,089 440,985

Current liabilities 200,724 252,617 286,229

Net current assets 63,713 106,472 154,756

Net assets 203,191 275,335 390,803

Total assets 615,263 719,996 829,317

The finance costs for the year ended 31 December 2010 increased because most of the

finance costs are recognised as expenses for the year, while for the year ended 31 December

2009, most of the finance costs were capitalised as construction costs of our Ener Factory and

our Shuntai Factory, during their construction period.

Other revenue and net income decreased from approximately HK$25.0 million for the

year ended 31 December 2009 to approximately HK$13.8 million for the year ended 31

December 2010, primarily due the net effect of (i) the decrease in government grant received;

(ii) the absence in 2010 of the gain of the one-off bargain purchase as a result of our acquisition

of additional equity interest in Jiangsu Sheen Colour in early 2009; and (iii) the increase in

sales of raw materials in 2010.

SELECTED COMBINED STATEMENTS OF CASH FLOWS LINE ITEMS

Year ended 31 December

2009 2010 2011

HK$’000 HK$’000 HK$’000

Net cash generated from operating activities 52,873 40,967 121,922

Net cash used in investing activities (207,364) (38,700) (64,191)

Net cash generated from/(used in) financing

activities 129,450 (30,505) (61,546)

SUMMARY

– 7 –

SELECTED KEY FINANCIAL RATIOS

Year ended 31 December/

As at 31 December

2009 2010 2011

Average inventory turnover days 80.6 94.8 98.9

Average trade and bill receivables

turnover days(Note 1) 22.7 59.1 98.3

Average trade payable turnover days 52.4 41.8 42.6

Current ratio 132% 142% 154%

Gearing ratio(Note 2) 143% 146% 99%

Return on equity 32% 38% 36%

Notes:

1. The average trade and bill receivables turnover days increased significantly from approximately 22.7

days for the year ended 31 December 2009 to approximately 59.1 days for the year ended 31 December

2010 as (i) China Tobacco Jiangsu, our largest customer during the Track Record Period, settled almost

all its trade receivables balance before the year ended 31 December 2009; and (ii) we only commenced

our businesses with other customers of cigarette films and customers of non-cigarette-related packaging

materials in late 2009. The average trade and bill receivables turnover days further increased from

approximately 59.1 days for the year ended 31 December 2010 to approximately 98.3 days for the year

ended 31 December 2011 as (i) the Chinese New Year of 2012 was in January 2012 so that our cigarette

manufacturers placed their orders in late 2011 to meet their peak season; and (ii) we received a large

order from one of our key other customers of cigarette films close to the year ended 31 December 2011.

2. The gearing ratio is calculated based on net debt over shareholder’s equity as at the end of the relevant

period, and multiplied by 100%. The decrease of our gearing ratio from 2009 to 2011 was mainly due

to the increase in equity as a result of the profit generated by our Group, while the level of our

interest-bearing liabilities was relatively stable.

For further details on the basis of calculation of the above key financial ratios and other

relevant financial ratios and the reasons for the fluctuation during the Track Record Period,

please refer to the section headed “Financial information” in this prospectus.

DIVIDEND

Subsequent to 31 December 2011, our Group declared a dividend of approximately

HK$165.6 million, of which approximately HK$36.3 million was settled in the form of setting

off the current account with Mr. Guo and approximately HK$129.3 million was/will be settled

in the form of cash payment. The settlement in the form of setting off the current account of

Mr. Guo has been completed before the Latest Practicable Date while the cash payment

was/will be made prior to the Listing Date.

SHAREHOLDER INFORMATION

Controlling Shareholders

Assuming the Over-allotment Option is not exercised, immediately following the

completion of the Share Offer, Sheentai BVI, a company wholly-owned by Mr. Guo, will hold

SUMMARY

– 8 –

300,000,000 Shares, representing 75% of the enlarged issued share capital of our Company. For

the purpose of the Listing Rules, Sheentai BVI and Mr. Guo are the Controlling Shareholders

of our Company. Please refer to the section headed “Relationship with Controlling

Shareholders” in this prospectus for details.

OFFERING STATISTICS

Market capitalisation at Listing : HK$432 million to HK$672 million

Offer size : Initially 25% (excluding Shares to be offered

pursuant to the exercise of the Over-allotment

Option) of the enlarged issued share capital of our

Company

Over-allotment Option : Up to approximately 3.6% of the enlarged issued

share capital of our Company

Offer Price per Share : HK$1.08 to HK$1.68 per Share

Board lot : 2,000 Shares

Offering structure : 90% Placing (subject to re-allocation and the Over-

allotment Option) and 10% Public Offer (subject

to re-allocation)

USE OF PROCEEDS

Assuming that the Over-allotment Option is not exercised and assuming an Offer Price of

HK$1.38 per Share (being the mid-point of the estimated price range), we estimate that the net

proceeds of the Share Offer will be approximately HK$110.8 million, after deducting the

underwriting commissions and other expenses borne by our Group in relation to the Share

Offer of approximately HK$27.2 million. We intend to use such net proceeds as follows:

• approximately HK$55.3 million, representing approximately 50% of the net

proceeds from the Share Offer, will be used for strategic acquisition. An amount of

RMB39.6 million (equivalent to approximately HK$48.7 million) out of such net

proceeds will be applied towards the payment of the consideration payable for the

acquisition of the 30% equity interest in Qingdao Ener pursuant to an equity transfer

agreement dated 13 March 2012 entered into between Qingdao Beizhou and Sheen

HK. Such amount has not been provided in the Accountants’ Report as set out in

Appendix I to this prospectus as it is an event subsequent to the year end date (for

details, please refer to the section headed “History and development – Our

subsidiaries – Qingdao Ener” in this prospectus). Save as aforesaid, as at the Latest

Practicable Date, we had no specific plans as to how to utilise the remaining balance

of approximately HK$6.6 million in other acquisition opportunities and have not

SUMMARY

– 9 –

identified any specific acquisition targets. In assessing future acquisition targets, we

will consider (i) whether such acquisition target is an approved supplier of our target

customers; (ii) the location of its production facilities; (iii) reputation of such

company in the industry; (iv) scale of operation of such company; and (v) historical

financial performance of such company;


proceeds from the Share Offer, will be used for repayment of a bank loan, which has

a principal amount of RMB40,000,000, bearing interest rate of 4.86% per annum,

unsecured and with a maturity date of 5 August 2012. The remaining balance of the

loan will be settled by our internal resources and/or new bank loan;


proceeds from the Share Offer, will be used for expansion of market share;


proceeds from the Share Offer, will be used for strengthening product development

and further enhance our quality management; and


proceeds from the Share Offer, will be used for the working capital of our Group.

To the extent our net proceeds are either more or less than HK$110.8 million, we will

adjust our allocation of the net proceeds for the above purposes on a pro rata basis. In addition,

the possible use of proceeds outlined above may change in light of our evolving business needs

and conditions and management requirements. For further details, please refer to the section

headed “Future Plans and Use of Proceeds” in this prospectus.

UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

Unaudited pro forma adjusted consolidated net tangible assets per Share(Note 1)

Based on an Offer Price of HK$1.08 per Offer Share . . . . . . . . . . . . . . . . . . . . HK$0.81

Based on an Offer Price of HK$1.68 per Offer Share . . . . . . . . . . . . . . . . . . . . HK$0.95

Notes:

1. Please see Appendix II to this prospectus for further details regarding the assumptions used and the

calculation method.

2. The unaudited pro forma adjusted consolidated net tangible assets value does not take into account the

dividend of approximately HK$165.6 million (of which approximately HK$129.3 million was/will be settled in

the form of cash and the balance of approximately HK$36.3 million was settled in the form of setting off the

current account with Mr. Guo) declared to the shareholder of our Group subsequent to 31 December 2011. The

settlement in the form of setting off the current account of Mr. Guo has been completed before the Latest

Practicable Date while the cash payment was/will be made prior to the Listing Date. If the unaudited pro forma

adjusted consolidated net tangible assets were further adjusted as if such dividend had been declared on 31

December 2011, the unaudited pro forma adjusted consolidated net tangible assets attributable to equity

shareholders of our Company and unaudited pro forma adjusted consolidated net tangible assets per Share

would have been decreased accordingly.

SUMMARY

– 10 –

In this prospectus, unless the context otherwise requires, the following terms shall

have the meanings set out below.

““20+10” Key Brands” the 20 key national backbone cigarette brands and the

other 10 key cigarette brands identified by STMA

pursuant to 全國性捲煙重點骨幹品牌評價體系 (National

Key Brand Evaluation System)

“Application Form(s)” WHITE application form(s), YELLOW application

form(s) or GREEN application form, or where the

context so requires, any of them, to be used in relation to

the Public Offer

“Articles” the articles of association of our Company adopted on 22

June 2012, as amended from time to time

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

“Biotex BVI” Biotex Holdings Limited (英諾控股有限公司), a

company incorporated in BVI with limited liability, and

was wholly-owned by Mr. Guo as at the Latest

Practicable Date

“Biotex HK” Biotex International Limited (英諾(香港)投資有限公司)

(formerly known as Biotex International Limited (恒力國際有限公司) and Biotex International Limited (恆力達國際有限公司)), a company incorporated in Hong Kong

with limited liability, and was indirectly wholly-owned

by Mr. Guo as at the Latest Practicable Date

“Board” the board of Directors

“BOPP film” biaxially oriented polypropylene film (聚丙烯雙向拉伸薄膜)

“Business Day” any day (other than a Saturday or a Sunday) on which

banks in Hong Kong are generally open for normal

banking business

“BVI” the British Virgin Islands

“CAGR” compound annual growth rate

DEFINITIONS

– 11 –

“CCASS” the Central Clearing and Settlement System established

and operated by HKSCC

“CCASS Clearing Participant” a person admitted to participate in CCASS as a direct

clearing participant or general clearing participant

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

participant

“CCASS Investor Participant” a person admitted to participate in CCASS as an investor

participant who may be an individual or joint individuals

or a corporation

“CCASS Participant” a CCASS Clearing Participant, a CCASS Custodian

Participant or a CCASS Investor Participant

“Century Leader HK” Century Leader Asia Limited (領先亞洲有限公司), a

company incorporated in Hong Kong with limited

liability, and an indirect wholly-owned subsidiary of our

Company

“China” or “PRC” the People’s Republic of China, but for the purposes of

this prospectus and for geographical reference only

(unless otherwise indicated), excluding Taiwan, the

Macau Special Administrative Region of the People’s

Republic of China and Hong Kong

“China Tobacco Jiangsu” China Tobacco Jiangsu Industrial Co., Ltd. (江蘇中煙工業有限責任公司), one of the 16 Provincial Tobacco

Industrial Companies and an Independent Third Party

“CNTC” China National Tobacco Corporation (中國煙草總公司),

which is an Independent Third Party

“Companies Law” the Companies Law (2011 Revision) of the Cayman

Islands as amended, supplemented or otherwise modified

from time to time

“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of

Hong Kong), as amended, supplemented or otherwise

modified from time to time

DEFINITIONS

– 12 –

“Company” or “our Company”,

“our”, “we” or “us”

Sheen Tai Holdings Group Company Limited (順泰控股集團有限公司), a company incorporated in the Cayman

Islands on 24 February 2012 as an exempted company

with limited liability

“connected person(s)” has the meaning ascribed to it under the Listing Rules

“Controlling Shareholders” has the meaning ascribed to it under the Listing Rules

and, in the case of our Company, means Sheentai BVI and

Mr. Guo

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

“EIT” the PRC Enterprise Income Tax

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

“EIT Rules” the Implementing Rules of the PRC Enterprise Income

Tax Law (中華人民共和國企業所得稅法實施條例)

“Ener Factory” the factory of our Group located in Qingdao City,

Shandong Province, the PRC and operated by Qingdao

Ener

“Euromonitor International” Euromonitor International (Shanghai) Co Ltd, a company

which provides market research and is an Independent

Third Party

“Euromonitor Report” a report prepared by Euromonitor International on the

cigarette and cigarette packaging market in the PRC,

which was commissioned by us

“GAPP” the General Administration of Press and Publication of

the PRC (中華人民共和國新聞出版總署)

“GDP” gross domestic product

“Green Application Form” the application form to be completed by the HK eIPO

White Form Service Provider designated by our

Company

DEFINITIONS

– 13 –

“Group”, “our Group”, “our”,

“we” or “us”

our Company and our subsidiaries or, where the context

so requires, in respect of the period before our Company

became the holding company of our present subsidiaries,

the present subsidiaries of our Company and the

businesses carried on by such subsidiaries

“Haitong International Capital”

or “Sole Sponsor”

Haitong International Capital Limited, a licensed

corporation to carry on type 6 (Advising on Corporate

Finance) regulated activity as defined under the SFO,

acting as the sole sponsor to the Listing

“Haitong Securities” or

“Sole Bookrunner” or

“Sole Lead Manager”

Haitong International Securities Company Limited, a

licensed corporation to carry on type 1 (Dealing in

Securities), type 3 (Leveraged Foreign Exchange

Trading) and type 4 (Advising on Securities) regulated

activities as defined under the SFO, acting as the sole

bookrunner and the sole lead manager of the Share Offer

“HK$” Hong Kong dollars, the lawful currency of Hong Kong

“HK eIPO White Form” the application for Public Offer Shares to be issued in the

applicant’s own name by submitting applications online

through the designated website of HK eIPO White Form

(www.hkeipo.hk)

“HK eIPO White Form Service

Provider”

the HK eIPO White Form service provider designated by

our Company, as specified on the designated website

(www.hkeipo.hk)

“HKFRS(s)” Hong Kong Financial Reporting Standard(s)

“HKSCC” Hong Kong Securities Clearing Company Limited

“HKSCC Nominees” HKSCC Nominees Limited, a wholly-owned subsidiary

of HKSCC

“Hong Kong” the Hong Kong Special Administrative Region of the

People’s Republic of China

“Hong Kong Branch Share

Registrar”

Tricor Investor Services Limited, being the branch share

registrar of our Company in Hong Kong

DEFINITIONS

– 14 –

“Huai An Tian Cai” Huai An Tian Cai Investment Co., Ltd. (淮安天彩投資有限公司), a shareholder of Jiangsu Shuntai holding 49% of

the equity interest of Jiangsu Shuntai as at the Latest

Practicable Date

“Independent Third Party(ies)” a person(s) or company(ies) which is/are not connected

with (within the meaning of the Listing Rules) any

directors, chief executive or substantial shareholders of

our Company, our subsidiaries or any of their respective

associates

“ivory board” a highly finished cardboard that is specially coated on

both sides and one of the materials used by our Group for

the manufacturing of cigarette paper boxes

“Jiangsu Sheen Colour” 江蘇金格潤科技有限公司 (Jiangsu Sheen Colour Science

Technology Co., Ltd.), a Sino-foreign equity joint

venture enterprise established in the PRC and is owned as

to 65% by Jiangsu Shuntai and 35% by Sheen HK

“Jiangsu Shuntai” 江蘇順泰包裝印刷科技有限公司 (Jiangsu Shuntai Packaging

& Printing Science Technology Co., Ltd.), a Sino-foreign

equity joint venture enterprise established in the PRC and

an indirect 51%-owned subsidiary of our Company

“Latest Practicable Date” 22 June 2012, being the latest practicable date for

ascertaining certain information in this prospectus prior

to its publication

“Ling Xian Fei Yu” 領先飛宇進出口(深圳)有限公司 (Ling Xian Fei Yu

Import & Export (Shenzhen) Co., Ltd.) (formerly known

as 領先飛宇禮品設計(深圳)有限公司 (Ling Xian Fei Yu

Gift Design (Shenzhen) Co., Ltd.)), a wholly-foreign

owned enterprise established in the PRC and is an

indirect wholly-owned subsidiary of our Company

“Listing” the listing of our Shares on the Main Board

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

the Stock Exchange

“Listing Date” the date on which trading of our Shares on the Main

Board first commences, which is currently expected to be

13 July 2012

DEFINITIONS

– 15 –

“Listing Rules” the Rules Governing the Listing of Securities on the

Stock Exchange

“Madam Xia” Madam Xia Yu, an executive Director and the spouse of

Mr. Guo

“Main Board” the stock market operated by the Stock Exchange, which

excludes the Growth Enterprise Market of the Stock

Exchange and the options market

“Memorandum” the memorandum of association of our Company as

amended from time to time

“Million Rays” Million Rays Ltd. (萬光有限公司), a company

established in BVI with limited liability, and was

wholly-owned by Mr. Guo as at the Latest Practicable

Date

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

“MOFCOM” the Ministry of Commerce of the PRC (中華人民共和國商務部) or its predecessor, the Ministry of Foreign Trade

and Economic Cooperation of the PRC (中華人民共和國對外貿易經濟合作部)

“Mr. Guo” Mr. Guo Yumin, the Chairman of our Board, an executive

Director, one of our Controlling Shareholders and the

spouse of Madam Xia

“NPCSC” the Standing Committee of the National People’s

Congress (全國人民代表大會常務委員會)

“Offer Price” the final offer price per Offer Share (exclusive of

brokerage fee of 1%, SFC transaction levy of 0.003% and

Stock Exchange trading fee of 0.005%) of not more than

HK$1.68 and expected to be not less than HK$1.08, at

which the Offer Shares are to be offered for subscription

pursuant to the Share Offer, to be agreed upon by the Sole

Bookrunner (acting for itself and on behalf of the

Underwriters) and our Company on or before the Price

Determination Date

DEFINITIONS

– 16 –

“Offer Share(s)” the Public Offer Shares and the Placing Shares,

collectively, and where relevant, together with any

additional Shares issued pursuant to the exercise of the

Over-allotment Option

“Over-allotment Option” the option expected to be granted by our Company to the

Sole Bookrunner, at any time within a period

commencing from the Listing Date and ending on the

30th day after the last date for lodging of applications

under the Public Offer, to require our Company to allot

and issue the Over-allotment Shares at the Offer Price to

cover over-allocations in the Placing and/or to satisfy the

obligation of the Sole Bookrunner to return securities to

be borrowed under the Stock Borrowing Agreement

subject to the terms of the Placing Underwriting

Agreement

“Over-allotment Shares” up to an aggregate of 15,000,000 Shares to be issued

pursuant to the exercise of the Over-allotment Option,

representing 15% of the number of Shares initially

available under the Share Offer

“Placing” the conditional placing of the Placing Shares by the

Placing Underwriter(s) on behalf of our Company for

cash at the Offer Price with professional, institutional and

other investors as described in the section headed

“Structure and conditions of the Share Offer” in this

prospectus

“Placing Shares” 90,000,000 Shares initially offered by our Company for

subscription under the Placing, subject to the Over-

allotment Option and re-allocation as described in the

section headed “Structure and conditions of the Share

Offer” in this prospectus

“Placing Underwriter(s)” the underwriter(s) of the Placing

“Placing Underwriting

Agreement”

the conditional placing underwriting agreement relating

to the Placing to be entered into amongst our Company,

our Controlling Shareholders, our executive Directors,

the Sole Sponsor, the Sole Bookrunner and the Placing

Underwriters

DEFINITIONS

– 17 –

“PRC Company Law” the Company Law of the PRC (中華人民共和國公司法),

which was enacted by the NPCSC on 29 December 1993

and became effective on 1 July 1994, as the same may be

amended, supplemented or otherwise modified from time

to time

“PRC Government” the government of the PRC, including all governmental

subdivisions (including provincial, municipal and other

regional or local government entities)

“PRC Legal Advisers” Jingtian & Gongcheng, the legal advisers of our

Company as to PRC law in connection with the Listing

“Pre-IPO Share Option(s)” option(s) granted under the Pre-IPO Share Option

Scheme

“Pre-IPO Share Option Scheme” the pre-IPO share option scheme adopted by our

Company pursuant to a resolution of our sole Shareholder

on 22 June 2012, details of which are set out in the

paragraph headed “Pre-IPO Share Option Scheme” in

Appendix V to this prospectus

“Price Determination Agreement” the agreement to be entered into between our Company

and the Sole Bookrunner (acting for itself and on behalf

of the Underwriters) on or before the Price Determination

Date to record and fix the Offer Price

“Price Determination Date” the date, expected to be on or about 6 July 2012, or such

later date as the Sole Bookrunner (acting for itself and on

behalf of the Underwriters) and our Company may agree

but in any event no later than 5:00 p.m. (Hong Kong

time) on 11 July 2012, on which the Offer Price will be

fixed for the purpose of the Share Offer

“Provincial Tobacco Industrial

Company/Companies”

the provincial-level cigarette manufacturer(s) subordinated

to the STMA, each of which is an Independent Third

Party

“Public Offer” the conditional offer of the Public Offer Shares by our

Company for subscription by members of the public in

Hong Kong for cash at the Offer Price, payable in full on

application, on and subject to the terms and conditions

stated herein and in the related Application Forms

DEFINITIONS

– 18 –

“Public Offer Shares” the 10,000,000 Shares initially offered by our Company

for subscription under the Public Offer, subject to

re-allocation as described in the section headed

“Structure and conditions of the Share Offer” in this

prospectus

“Public Offer Underwriter(s)” the underwriter(s) whose names are set out in the section

headed “Underwriting – Public Offer Underwriters” in

this prospectus, being the underwriter(s) of the Public

Offer

“Public Offer Underwriting

Agreement”

the conditional public offer underwriting agreement

dated 28 June 2012 relating to the Public Offer entered

into amongst our Company, our Controlling

Shareholders, our executive Directors, the Sole Sponsor,

the Sole Bookrunner and the Public Offer Underwriters

“Qingdao Beizhou” 青島北洲集團有限公司 (Qingdao Beizhou Group Co.,

Ltd.), the former shareholder of Qingdao Ener then

holding 30% of the registered capital of Qingdao Ener,

and an Independent Third Party as at the Latest

Practicable Date

“Qingdao Ener” 青島英諾包裝科技有限公司 (Qingdao Ener Packaging

Technology Co., Ltd.), a wholly foreign-owned enterprise

established in the PRC and an indirect wholly-owned

subsidiary of our Company

“Reorganisation” the corporate reorganisation of our Group in preparation

for the Listing, further information of which is set forth

in the paragraph headed “Corporate reorganisation” in


“RMB” Renminbi, the lawful currency of the PRC

“SAFE” the State Administration of Foreign Exchange of the

PRC, which is the PRC Government agency responsible

for matters relating to foreign exchange administration

“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

DEFINITIONS

– 19 –

“SFO” the Securities and Futures Ordinance (Chapter 571 of the

Laws of Hong Kong), as amended, supplemented or

otherwise modified from time to time

“Share(s)” share(s) of HK$0.01 each in the share capital of our

Company

“Share Offer” the Public Offer and the Placing

“Share Option Scheme” the share option scheme conditionally adopted by our

Company pursuant to a resolution of our sole Shareholder

on 22 June 2012, details of which are set out in the

paragraph headed “Share Option Scheme” in


“Shareholder(s)” holder(s) of Share(s)

“Sheen BVI” Sheen China Group Holdings Inc. (順華集團控股有限公司), a company incorporated in BVI with limited

liability, and a direct wholly-owned subsidiary of our

Company

“Sheen Colour Nanjing Factory” the factory of our Group located in Nanjing, Jiangsu

Province, the PRC and operated by Jiangsu Sheen Colour

during the Track Record Period

“Sheen Group HK” Sheen China Group Holdings Limited (順華集團控股有限公司), a company incorporated in Hong Kong with

limited liability, and an indirect wholly-owned subsidiary

of our Company

“Sheen HK” Sheen China (Hong Kong) Limited (順華(香港)有限公司),

a company incorporated in Hong Kong with limited

liability, and an indirect wholly-owned subsidiary of our

Company

“Sheentai BVI” Sheen Tai Group Holding Limited (順泰集團控股有限公司), a company established in BVI with limited liability,

which is wholly-owned by Mr. Guo and is one of our

Controlling Shareholders

“Shuntai Factory” the factory of our Group located in Huai’an City, Jiangsu

Province, the PRC and operated by Jiangsu Shuntai

DEFINITIONS

– 20 –

“STMA” The State Tobacco Monopoly Administration, which is an

Independent Third Party

“Stock Borrowing Agreement” the stock borrowing agreement to be entered into between

Sheentai BVI and the Sole Bookrunner as the stabilising

manager (or its affiliates or any person acting on it) pursuant

to which the Sole Bookrunner may borrow up to 15,000,000

new Shares from Sheentai BVI

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“subsidiary” has the meaning ascribed to it in section 2 of the Companies

Ordinance

“substantial shareholder(s)” has the meaning ascribed to it under the Listing Rules

“Takeovers Code” the Hong Kong Code on Takeovers and Mergers

“Track Record Period” the period comprising the three years ended 31 December

2011

“Underwriters” the Public Offer Underwriters and the Placing Underwriters

“Underwriting Agreements” the Public Offer Underwriting Agreement and the Placing

Underwriting Agreement

“US” or “United States” 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 “US dollars” United States dollars, the lawful currency for the time being

of the United States

“VAT” the PRC Value-Added Tax

“WTO” World Trade Organization

“%” per cent.

DEFINITIONS

– 21 –

Unless otherwise specified, translations of (i) HK$ into RMB and RMB into HK$; and (ii)

HK$ into US$ and US$ into HK$ in this prospectus are based on the rates set out below

respectively (for the purpose of illustration only):

HK$1.23 : RMB1.00

HK$7.80 : US$1.00

No representation is made that any amounts in RMB and HK$ and/or US$ and HK$ can

be or could have been converted at the relevant dates at the above rates or any other rates or

at all.

Any discrepancies in any table or chart between the total shown and the sum of amounts

listed are due to rounding.

If there is any discrepancy or inconsistency between the Chinese names of the PRC

entities in this prospectus and their English translations, the Chinese version shall prevail.

DEFINITIONS

– 22 –

This prospectus contains forward-looking statements that involve risks and uncertainties.

All statements other than statements of historical facts are forward-looking statements. These

statements involve known and unknown risks, uncertainties and other factors that may cause

our actual results, performance or achievements to be materially different from those expressed

or implied by the forward-looking statements.

• our business goals and strategies and the various measures to implement them;

• our capital expenditure plans;

• our planned use of proceeds;

• our operations and business prospects, including development plans for our existing

and new businesses;

• our ability to attract and retain customers;

• our projects under construction or planning;

• our financial condition;

• availability of bank loans and other forms of financing;

• estimates of operating costs;

• our Company’s dividend policy;

• the future growth and developments of, and competitive environment in, our

industry;

• the regulatory environment for our industry in general; and

• the general economic trend and conditions.

The words “anticipate”, “believe”, “consider”, “could”, “estimate”, “expect”, “going

forward”, “intend”, “may”, “ought to”, “plan”, “potential”, “project”, “seek”, “will”, “would”,

“with a view to” and similar expressions and the negative of these words, as they relate to us,

are intended to identify a number of these forward-looking statements. These forward-looking

statements reflect the current views of our Directors with respect to future events and are

subject to certain risks, uncertainties and assumptions, including the risk factors described in

this prospectus. Purchasers of the Offer Shares are cautioned that reliance on any forward-

looking statements involves risks and uncertainties. The uncertainties in this regard include,

but are not limited to, those identified in “Risk factors” in this prospectus, many of which are

not within our control. Other sections of this prospectus also include additional factors that

could adversely impact our business and financial performance. Moreover, we operate in an

FORWARD-LOOKING STATEMENTS

– 23 –

evolving environment. New risk factors and uncertainties emerge from time to time and it is

not possible for our management to predict all risk factors and uncertainties, nor can we assess

the impact of all factors on our business or the extent to which any factor, or combination of

factors, may cause actual results to differ materially from those contained in any forward-

looking statements. In light of these and other uncertainties, the inclusion of forward-looking

statements in this prospectus should not be regarded as representations by our Group or our

Directors that our plans or objectives will be achieved. If any or all of these risks or

uncertainties materialise, or the underlying assumptions prove to be incorrect, our financial

condition may be materially and adversely affected and actual outcomes may differ materially

from those described in this prospectus as anticipated, believed, estimated or expected.

Although our Directors believe that our current views as reflected in these forward-looking

statements based on currently available information are reasonable, we can give no assurance

that those views will prove to be correct, and the investors are cautioned not to place undue

reliance on such statements.

Subject to the requirements of the Listing Rules, we do not intend to publicly update or

otherwise revise the forward-looking statements in this prospectus, whether as a result of new

information, future events or otherwise. As a result of these and other risks, uncertainties and

assumptions, the forward-looking events and circumstances discussed in this prospectus might

not occur in the way we expect, or at all. Accordingly, you should not place undue reliance on

any forward-looking information. All forward-looking statements contained in this prospectus

are qualified by reference to the cautionary statements set out in this section. In this prospectus,

statements of references to the intentions of our Company or our Directors are made as at the

date of this prospectus. Any such intentions may potentially change in light of future

developments.

FORWARD-LOOKING STATEMENTS

– 24 –

Potential investors should consider carefully all the information set out in this

prospectus and, in particular, should evaluate the following risks and uncertainties

associated with an investment in our Company before making any investment decision

regarding our Company. You should pay particular attention to the fact that our Company

was incorporated in the Cayman Islands and our operations are conducted in the PRC

and are governed by a legal and regulatory environment which in some respects may

differ from that in Hong Kong. Any of the risks and uncertainties described below could

have a material adverse effect on our business, results of operations, financial condition

or on the trading price of our Shares, and could cause you to lose all or part of your

investment.

This prospectus contains certain forward-looking statements regarding our plans,

objectives, expectations and intentions which involve risks and uncertainties. Our actual

results could differ materially from those discussed in this prospectus. Factors that could

cause or contribute to such differences include those discussed below as well as those

discussed elsewhere in this prospectus.

There are certain risks involved in our operations, many of which are beyond our control.

These risks can be broadly categorised into (i) risks relating to our business; (ii) risks relating

to the industry; (iii) risks relating to conducting business in the PRC; and (iv) risks relating to

the Share Offer. Additional risks and uncertainties not presently known to us, not expressed or

implied below or that we presently deem immaterial could also materially and adversely affect

our business, financial condition and results of operations. You should consider carefully all

the information set forth in this prospectus in connection with an investment in our Company.

RISKS RELATING TO OUR BUSINESS

We relied on a major customer during the Track Record Period

For the three years ended 31 December 2011, sales to our largest customer, namely China

Tobacco Jiangsu, amounted to approximately HK$169.7 million, HK$304.8 million and

HK$390.1 million, representing approximately 64.2%, 55.4% and 57.8% respectively of our

total turnover during the respective year.

As a result of the PRC Government’s consolidation policy on the cigarette industry in

recent years, the enormous market of the cigarette manufacturing in the PRC is concentrated

on a limited number of state-owned cigarette manufacturers. For details, please refer to the

section headed “Industry overview – Cigarette market in the PRC – Market trends – Tobacco

industry has been undergoing a facilitated evolution to realise higher-level consolidation” in

this prospectus. During the Track Record Period, a significant portion of our sales was

attributable to sales to China Tobacco Jiangsu, a cigarette manufacturer. Any one of the

RISK FACTORS

– 25 –

following events may cause material fluctuation or decline in our turnover or liquidity position

and may have a material adverse effect on our financial conditions and results of operations:

• reduction, delay or cancellation of orders from China Tobacco Jiangsu; or

• failure of China Tobacco Jiangsu to make timely payment for our sales.

We have developed business relationship with China Tobacco Jiangsu for more than eight

years. Before late 2011, we only entered into short-term agreements, usually for a term of six

months each, instead of long-term sales contracts with such customer. In late 2011, we

successfully secured various longer term contracts with China Tobacco Jiangsu and each such

contract has a term expiring in December 2013. Nevertheless, there is no assurance that we will

be able to maintain the business relationship with China Tobacco Jiangsu in the future. In the

event that we are not able to secure new customers and we cease business relationship with

China Tobacco Jiangsu, our business operations and financial position may be adversely

affected.

We may not be able to retain our key management personnel and/or recruit qualified and

experienced personnel to join us

We are dependent on certain of our Directors and key senior management staff who play

major roles in our development and growth, in particular Mr. Guo, the Chairman of the Board,

our founder and an executive Director and Madam Xia, an executive Director and the spouse

of Mr. Guo. Our success will, to a certain extent, depend on whether we can continue to attract

and retain such competent key personnel. However, there is no assurance that we will be

successful in recruiting or retaining competent key personnel in the future. Furthermore, we do

not maintain any insurance coverage on any possible loss resulting from any loss of the key

management staff. As such, any loss of the key management staff or our inability to recruit or

retain competent personnel in the future could have an adverse impact on our business

operations.

We are exposed to credit risk of our customers

Our trade and bill receivables as at 31 December 2009, 2010 and 2011 amounted to

approximately HK$28.2 million, HK$150.2 million and HK$213.4 million respectively,

accounted for approximately 4.6%, 20.8% and 25.7% of our Group’s total assets respectively,

which were on an increasing trend.

RISK FACTORS

– 26 –

As at 31 December 2009, 2010 and 2011, the average trade and bill receivables turnover

days were approximately 22.7 days, 59.1 days and 98.3 days respectively. Set out below is the

average trade and bill receivables turnover days for each of our customer category for the Track

Record Period:

Years ended 31 December

2009 2010 2011

Days Days Days

Cigarette manufacturers 5.6 49.2 92.8

Other customers of cigarette films 58.2 136.0 176.0

Customers of non-cigarette-related

packaging materials 35.8 19.5 47.2

As noted above, we have experienced an increase in average trade and bill receivables

turnover days during the Track Record Period. We normally grant credit terms ranging from 30

days to 180 days to our customers.

Given that both the amount of our trade and bill receivables and the average trade and bill

receivables turnover days were on an increasing trend during the Track Record Period, should

the credit worthiness of our customers deteriorate or should a significant number of our

customers fail to settle their trade and bill receivables in full for any reason, we may incur

impairment losses and our results of operations and financial position could be materially and

adversely affected. In addition, there may be a risk of delay in payment by our Group’s

customers from their respective credit period, which in turn may also result in an impairment

loss provision. There is no assurance that we will be able to fully recover our trade and bill

receivables from the customers or that they will settle our trade and bill receivables in a timely

manner. In the event the settlements from the customers are not made on a timely manner, the

financial position, profitability and cash flow of our Group may be adversely affected.

The two contracts with two Provincial Tobacco Industrial Companies are not subject to

any minimum purchase obligations and the terms of such contracts are subject to change

We have entered into two contracts with two Provincial Tobacco Industrial Companies

with one based in Guangxi Province and the other in Shandong Province. The quantity of

products that we shall supply to them under these two contracts is subject to the respective

customer’s confirmation and hence the customers under such contracts are not subject to any

minimum purchase obligation. If these Provincial Tobacco Industrial Companies do not

purchase the amount up to the tentative contracted sum (where applicable) or at all, our

business, operation and financial position may be adversely affected.

RISK FACTORS

– 27 –

Price fluctuation in our major raw materials may have a material effect on our

performance

Our major raw materials for production during the Track Record Period was

polypropylene which is required for the production of films. Total purchases for polypropylene

accounted for approximately 32.7%, 39.8% and 38.4% of our total purchases for the three years

ended 31 December 2011 respectively.

Polypropylene is crude oil-based by-products and therefore prices of polypropylene are

indirectly linked to crude oil price. During the Track Record Period, according to Bloomberg,

crude oil price increased significantly, at a range from US$39.1 per barrel to US$126.7 per

barrel, with an average of approximately US$62.0 per barrel for the year ended 31 December

2009, US$79.7 per barrel for the year ended 31 December 2010 and US$111.1 per barrel for

the year ended 31 December 2011.

During the Track Record Period, we experienced a significant price fluctuation on

polypropylene. Our purchase price of polypropylene from our largest supplier of

polypropylene, which supplied 61.2%, 60.1% and 66.1% of our total polypropylene purchased

(in terms of value for the three years ended 31 December 2011 respectively) ranged from

RMB9,050 per tonne (VAT inclusive) to RMB12,726 per tonne (VAT inclusive) with an average

purchase price of approximately RMB9,681 per tonne (VAT inclusive) for the year ended 31

December 2009, RMB11,237 per tonne (VAT inclusive) for the year ended 31 December 2010

and RMB12,123 per tonne (VAT inclusive) for the year ended 31 December 2011. During the

Track Record Period, we did not enter into any instrument for the purpose of any hedging

activities in relation to the purchase price of polypropylene.

In addition to polypropylene, imported BOPP films that we purchased for trading and/or

film-printing purposes also accounted for a significant percentage of our total purchases for

each year in the Track Record Period. For the three years ended 31 December 2011, cost of

BOPP film accounted for approximately 32.8%, 21.4% and 20.6% of our total purchases

respectively. For the three years ended 31 December 2011, the average purchase price of the

imported BOPP films of our Group were approximately US$3,121 per tonne, US$2,889 per

tonne and US$2,867 per tonne respectively.

Any substantial increase in prices of polypropylene and/or imported BOPP films may

adversely affect our profitability if we are unable to pass all or part of such increase to our

customers. During the Track Record Period, assuming that our selling price remained the same,

a 20% (being the difference between the highest and average of the purchase price of

polypropylene of our Group during the Track Record Period) increase in the raw material costs

(a significant amount of which are costs of polypropylene) would lead to a decrease in net

profit of approximately HK$41.8 million, HK$61.8 million and HK$88.5 million for our Group

during the Track Record Period respectively, representing approximately 34.9%, 41.2% and

37.1% of the net profit of our Group during the Track Record Period respectively. For the three

years ended 31 December 2011, the break-even point for the increase in the raw materials cost

on our Group’s profit were approximately 57.3%, 48.5% and 53.9% respectively.

RISK FACTORS

– 28 –

We relied on certain major suppliers during the Track Record Period

During the Track Record Period, our five largest suppliers amounted to approximately

HK$151.7 million, HK$207.2 million and HK$215.6 million, representing approximately

70.9%, 63.2% and 59.5% of our total purchases respectively. We have relied on and expect to

continue to rely on these major suppliers for a significant portion of our purchases. If they fail

to make timely delivery of their products and our Group fails to source from other suppliers

in a timely and cost-effective manner, the operation of our Group could be delayed. The

relationship between our Group and its customers could also be adversely affected as a result

of any such delays, which could in turn materially and adversely affect the business operations

and financial performance of our Group.

During the Track Record Period, we had two major suppliers, one being our largest

supplier of polypropylene and the other being our sole supplier of imported BOPP films.

For each of the three years ended 31 December 2011, purchases from our largest supplier

of polypropylene accounted for approximately 20.0%, 23.9% and 25.4% respectively of our

total purchases and 61.2%, 60.1% and 66.1% respectively of our total polypropylene purchased

(in terms of value for the three years ended 31 December 2011 respectively). Apart from such

largest supplier of polypropylene, we also purchased polypropylene from about eight suppliers

of polypropylene during the Track Record Period. Our Directors consider that such suppliers

can serve as backup suppliers in case our largest supplier of polypropylene fails to supply us

sufficient polypropylene.

Purchases from our sole supplier of imported BOPP films accounted for approximately

32.8%, 21.4% and 20.6% respectively of our total purchases during the Track Record Period.

Our sole supplier of imported BOPP films is a BOPP films supplier based in Australia, which

is a leading global supplier of BOPP films. We have over 10 years of business relationship with

such supplier without any material dispute. We are the sole agent of such supplier for its

imported BOPP films in Jiangsu Province, Shandong Province and Nan Chang City in Jiangxi

Province for the period from 1 January 2012 to 31 December 2012, but there is no assurance

that such exclusive/sole distributor status will continue in the future.

So far as our Directors are aware, there is one more independent supplier in the market

who is offering BOPP films of comparable quality. However, during the Track Record Period,

we had not purchased BOPP films from other suppliers in light of our established relationships

with our sole BOPP films supplier.

Should any of our major suppliers cease to supply raw materials to us and we are unable

to find suitable replacements or should our sole distributor status in respect of the imported

BOPP films as disclosed above cease, our operation and/or financial performance and/or

profitability may be adversely affected.

RISK FACTORS

– 29 –

We may not be able to further expand our market to other provinces in the PRC

According to the Euromonitor Report, our Group’s market share in the Jiangsu Province’s

cigarette film packaging market in 2011 was already approximately 85.1% (in sales value

term). As such, we may not be able to substantially increase our market share in the cigarette

film packaging market in Jiangsu Province, the PRC in the future. Currently, we are only

approved suppliers of China Tobacco Jiangsu and the two Provincial Tobacco Industrial

Companies located in Shandong Province and Guangxi Province of the PRC. If we further

expand our sales to other provinces in the PRC, we are required to obtain the approved supplier

status from the relevant Provincial Tobacco Industrial Company which involves

approval/recognition process of the relevant cigarette manufacturer. If we are unable to obtain

the approved suppliers status from the relevant cigarette manufacturers in other provinces in

the PRC, we may not be able to grow our business and our business, financial position and

results of operation might also be adversely affected.

Our sales may be affected by seasonality

Our turnover is subject to seasonal fluctuations during the year. As sales of cigarette-

related packaging materials was the major contributor to our turnover during the Track Record

Period, our seasonal fluctuation in sales correlated to that of the cigarette manufacturers in the

PRC. While the cigarette manufacturers in the PRC generally have their peak season in the

Chinese New Year which generally takes place in January or February each year, our peak

season is in the fourth quarter of each year as a result of meeting their increasing production

level and catering for the peak season of the cigarette manufacturers. Our Directors believe that

we are exposed to the risks associated with such seasonal factors and the fluctuation of demand

of our products. Should there be any adverse change of market condition in the fourth quarter

of a year, our profitability may be adversely affected.

The change of our product mix may have a material effect on our performance

During the Track Record Period, the gross profit margin of our cigarette-related

packaging materials (with gross profit margin ranging from approximately 22% to 55%) was

generally higher than that of our non-cigarette-related packaging materials (with gross profit

margin ranging from approximately 7% to 15%), and amongst the cigarette-related packaging

materials, the gross profit margins for cigarette paper boxes and anti-counterfeiting films were

higher than that for other cigarette films.

An analysis of our gross profit margins by product category is set out in the section

headed “Financial information – Principal components of combined statement of

comprehensive income – Gross profit and gross profit margin” in this prospectus.

Our product mix may change as a result of our business strategy, market conditions,

customers’ demand and other factors. Our product mix had changed during the Track Record

Period as more particularly described in the section headed “Financial information – Principal

components of combined statement of comprehensive income – Turnover” in this prospectus.

RISK FACTORS

– 30 –

In the event that our product mix changed to have a higher proportion of products of lower

gross profit margin, our profitability may be adversely affected.

We have experienced decrease in sale of anti-counterfeiting films during the Track Record

Period

The gross profit margin of our anti-counterfeiting films for the three years ended 31

December 2011 was higher than our overall gross profit margin for the respective year. Sales

attributable to our anti-counterfeiting films decreased from approximately HK$102.5 million

for the year ended 31 December 2009 to HK$81.0 million and HK$84.8 million for the two

years ended 31 December 2011. As confirmed by our Directors, such decrease was primarily

due to a change of product mix of our customer of anti-counterfeiting films, being China

Tobacco Jiangsu, as it had reduced gradually the production of one of its brands for which we

previously supplied our anti-counterfeiting films since the second half of 2009 and has

subsequently discontinued the production of such brand.

There is no assurance that we may be able to sell our anti-counterfeiting films at similar

level or at all in the future. In case our sales of anti-counterfeiting films continue to decline

for any reason, our overall gross profit margin and our performance may be adversely affected.

Our Group has a relatively short track record in manufacturing cigarette paper boxes and

films

We only commenced to manufacture cigarette paper boxes and films in 2009 and prior to

that our Group was principally engaged in the trading of cigarette packaging materials and

printing of cigarette films. Therefore, we have a relatively short cooperation history with our

other customers of cigarette films. We have only maintained, on average, about two years of

relationship with our other customers of cigarette films for the year ended 31 December 2011.

Except for two contracts entered into with two Provincial Tobacco Industrial Companies

(with details set out in the section headed “Business – Sales, marketing and after-sales services

– Cigarette-related packaging materials – (ii) Major sales contracts” in this prospectus), we do

not have long term sales contracts with any of our other cigarette films customers, our business

with our other cigarette films customers has been, and we expect it will continue to be,

conducted without long term sales contracts in general.

We cannot guarantee that our other cigarette films customers will continue to purchase

products from us at the same or increased levels or at all. If one or more of our other cigarette

films customers cease to conduct business with us and we are unable to expand our business

with existing customers or attract new customers, our business, financial condition and results

of operations would be materially and adversely affected. A decision made by a major other

cigarette films customer, whether motivated by competitive considerations, economic

conditions or otherwise, to reduce its purchases from us or any other adverse change in our

business relationship with our customer could also have a material adverse effect on our

business, financial conditions and results of operations.

RISK FACTORS

– 31 –

The fluctuation of exchange rate may have a material effect on our business and

performance

Currently, our sales are denominated in RMB and our purchases were denominated in

US$ and RMB. During the Track Record Period, we did not engage in any exchange rate

hedging activities. Any fluctuation in the exchange rates of RMB and US$ may have an adverse

effect on our results of operations and financial condition. Appreciation of the value of US$

may increase our costs and thus subject us to increased competition from domestic competitors,

and depreciation in the value of RMB may adversely affect our earnings, as well as the value

of our net assets and dividends from our PRC subsidiaries.

We may not be able to maintain our profit margin in the future

We achieved gross profit margin of about approximately 36.6%, 35.2% and 36.5%

respectively during the Track Record Period. For the same period, our net profit margin was

approximately 24.3%, 19.1% and 20.9% respectively. As our profitability is dependent upon,

among other factors, the market competition and the market demands for cigarette products of

our customers, there is no assurance that we will be able to maintain such gross profit margins

or net profit margins as in the Track Record Period. If we are unable to maintain such gross

profit margins or net profit margins as in the Track Record Period, our financial condition

would be adversely affected.

Any disruption in our production facilities from acts of God, acts of war, terrorist attacks

or other disasters could cause losses to us and materially and adversely affect our

business, financial condition and results of operations

As at the Latest Practicable Date, we operated two factories, namely our Shuntai Factory

and our Ener Factory, each of which was engaged in different manufacturing activities.

Significant damage to any of our production facilities from acts of God, acts of war,

terrorist attacks, disasters or other causes, such as extreme weather conditions, floods, fires,

earthquakes, workforce actions, riots and other disruptions such as system failures will disrupt

our manufacturing activities. Any such disruption in our production capacity could have an

adverse impact on our ability to produce sufficient inventory and/or to meet any purchase

orders from customers. Any such disruption could also cause our Group to stop, limit or delay

our production, or delay or suspend delivery of our products, for which we may incur

additional expenses in order to produce sufficient inventory and could impair our ability to

meet the demand of our customers and cause such customers to cancel orders, any of which

could materially and adversely affect the reputation, business, financial condition and results

of operations of our Group that we cannot currently predict. Such damage may not be

adequately covered by proceeds of our insurance coverage and could materially and adversely

affect our business and operating results.

RISK FACTORS

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Non-compliance with the social insurance and housing provident fund contribution

regulations in the PRC could lead to imposition of penalties or other liabilities

During the Track Record Period, we have not fully paid certain past social security

insurance premiums and housing provident fund contributions for and on behalf of all of our

employees in the PRC, such outstanding amount was approximately HK$2.2 million. In this

connection, our Controlling Shareholders have agreed to indemnify us against any losses,

liabilities and expenses, relating to any claim brought by the authorities or any other third party

in relation to the above non-compliance. Please refer to the section headed “Statutory and

general information – Other information – Tax and other indemnities” in Appendix V to this

prospectus for further details.

Up to the Latest Practicable Date, we have not received any notice from the social

insurance bureau or local housing provident fund management centre regarding any non-

compliance with the social insurance and housing provident fund contributions regulations nor

regarding demand for the relevant payment. However, in the event that we fail to pay any

outstanding contribution pursuant to any notice issued by the social insurance bureau, we could

be ordered to make the outstanding contributions and be subject to penalties for late payment.

If our Group did not pay the relevant social insurance and housing provident fund contributions

within the prescribed time limits required by the relevant authorities, a daily late payment at

the rate of 0.2% of the outstanding amount will be imposed before July 2011 and/or a fine of

one to three times the outstanding amount with a daily late payment at the rate of 0.05% of the

outstanding amount from the due date will be imposed after July 2011 (in case of social

insurance) or compulsory enforcement by the People’s Court may be applied (in case of

housing provident fund).

Our Group’s future acquisitions may prove to be difficult to integrate and manage or may

not be successful

In the future, our Group may consider acquiring other packaging material manufacturers

and suppliers as a means of pursuing our business strategies. Please refer to the section headed

“Business – Business strategies – Increase our market share by acquiring companies with

approved supplier status of our target customers” in this prospectus for details for such

strategy. Currently, we have allocated approximately HK$55.3 million, representing

approximately 50% of the net proceeds from the Share Offer (assuming the Offer Shares are

issued at HK$1.38 per Offer Share), will be used for strategic acquisitions. An amount of

RMB39.6 million (equivalent to approximately HK$48.7 million) out of such net proceeds will

be applied towards the payment of the consideration payable for the acquisition of the 30%

equity interest in Qingdao Ener pursuant to an equity transfer agreement dated 13 March 2012

entered into between Qingdao Beizhou and Sheen HK. As at the Latest Practicable Date, we

have no specific plans as to how to utilise the remaining balance of approximately HK$6.6

million in other acquisition opportunities.

RISK FACTORS

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This strategy entails potential risks that could have a material adverse effect on our

business, financial condition, results of operations and prospects, including:

• unidentified or unanticipated liabilities or risks in the assets or businesses which we

may acquire;

• inability to successfully integrate the products, services and personnel of the

businesses which we may acquire into our operations or to realise any synergies

from the acquisitions;

• the need to incur additional indebtedness, which may reduce our cash available for

operations and other uses due to increased debt repayment obligations;

• inability to retain employees and customer relationships;

• customer overlap or loss of customers; and

• diversion of management attention and other resources.

In addition, we may not be able to identify attractive acquisition opportunities, or make

acquisitions on attractive terms or obtain financing necessary to complete and support such

acquisitions. In addition, the anticipated future expansion of our operations through

acquisitions will place a significant strain on our management, internal controls and resources,

and could also result in additional expenditure. In addition to training, managing and

integrating our workforce, we will need to continue to develop and improve our management

and financial controls. We cannot assure you that any of such acquisitions will result in

long-term benefits to us or that we will be able to effectively manage the integration and

growth of our operations. Failure to do so may materially and adversely affect our business,

financial condition, results of operations and prospects.

Our business is subject to competition

Our Directors consider that there are a number of cigarette packaging materials

manufacturers and suppliers in the PRC which are potential or existing competitors of our

Group. Should these competitors equip themselves with advanced machinery and equipment,

advanced technology, know-how and/or expertise and have good sales and marketing network

comparable to or better than those of our Group, we might not be able to maintain our

competitive edges and the business operations and profitability of our Group might be

adversely affected.

RISK FACTORS

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Our future plans and thus our future growth, turnover and profitability are subject to

uncertainties and risks

Our Directors have prepared our future plans after due consideration with reference to our

nature of operations, the market conditions and development trends of the cigarette and

cigarette packaging industries, our business objectives and goals and our Directors’ estimate of

the future macro economic conditions. Details of our future plans are set out in the section

headed “Future plans and use of proceeds” in this prospectus.

The successful implementation of our future plans may be affected by various factors

including uncertainties in economic conditions, competition environment and market

conditions which may lead to postponement and/or increase in costs in implementation of the

future plans. In the event that any part of our business plans does not materialise or proceed

as planned, the proceeds of the Share Offer will not be utilised as described in the section

headed “Future plans and use of proceeds” in this prospectus. In such circumstances,

significant modifications to the use of proceeds as planned may occur which may in turn

adversely affect our future growth, turnover and profitability.

We may need to invest resources in the design and production of equipment and systems

in response to changes in market demand and government regulation

The continued improvement of our operations and functions to cope with customers’

needs require our continued research and development efforts in respect of the improvement of

functionality of our production facilities. In the event that we fail to enhance our research and

development capabilities to meet the ever-changing demands of the customers, or if we fail to

cope with latest technology developments, we may be surpassed by our competitors which may

cause an adverse impact to our operating results and future developments.

We are affected by and must comply with various government regulations that impact our

products and operating costs. Any changes in the rules and regulations or the implementation

thereof may require us to place additional efforts and resources and take further steps in order

to comply with these rules and regulations. However, there can be no assurance that we will

succeed in any of the research and development projects undertaken or complete the projects

within the estimated timeframe. If we do not develop and introduce new products which are

responsive to market demand and government regulations in a timely manner, our competitive

position, net sales and gross margins may be materially adversely affected.

Our products may contain undetected flaws or defects. We may be subject to product

liability claim, litigation, complaints or adverse publicity

Our products may contain latent defects or flaws. Any flaws or defects discovered in our

products after delivery could result in loss of revenue or delay in revenue recognition, damage

to our reputation and our relationship with customers, loss of customers and increased service

and warranty cost, any of which could adversely affect our business, operating results and

financial condition. If our products fail to perform as expected, or proves to be defective, we

may be subject to claims for compensation and may incur significant legal costs regardless of

the outcome of any claim of alleged defect.

RISK FACTORS

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We may not have comprehensive insurance coverage. In particular, we may face product

liability claim

We may become subject to liabilities against which we have not insured adequately or at

all or liabilities against which cannot be insured. Should any significant property damage or

personal injury occur to our facilities or employees due to accidents, natural disasters, or

similar events, our business may be adversely affected, potentially leading to a loss of assets,

lawsuits, employee compensation obligations, or other forms of economic loss. We do not have

certain types of insurance, such as business interruption insurance, third party liability

insurance for personal injury, environmental damage, or product liability insurance. Our

insurance policies also may not continue to be available at economically acceptable premiums,

or certain types of insurance may not be obtained at a reasonable cost, or at all. For example,

insurance covering losses from acts of war, terrorism, or natural catastrophes is either

unavailable or cost prohibitive. Any losses that we may incur for which it is uninsured may

adversely affect our business, financial condition and results of operations.

We may face liability claims arising from any defective products in the future. We have

not maintained any insurance coverage against product liability and any product liability claim

brought against us may have an adverse effect on our business reputation or operation.

Our operations are subject to environmental regulations

Our existing operations are subject to various laws and regulations which are more

particularly described in the section headed “Regulatory overview – Laws and regulations in

relation to environmental protection” in this prospectus. Any new environmental regulations

that may be promulgated could require us to install costly equipment or to incur other

significant expenses. As such, any failure to comply with any future regulations could result

in the assessment of damages or imposition of fines against it, suspension of production, or a

cessation of our operations.

An outbreak of severe communicable disease, if uncontrolled, may, directly or indirectly,

adversely affect our operating results

The outbreak of any severe communicable disease, if uncontrolled, could have an adverse

effect on the business environment in the countries in which we operate, which in turn may

have an adverse impact on domestic consumption and, possibly the overall GDP growth of the

countries in which we operate. Any slow down in the growth of domestic consumption and the

GDP may adversely affect our operations, which could affect our financial position and future

prospects.

In addition, if any of our employees is affected by any severe communicable disease

outbreak, we may be required to quarantine the employees that have been suspected of

becoming infected, as well as others that have come into contact with those employees to

prevent the spread of the disease. We may also be required to disinfect our affected premises,

which could cause a temporary suspension of our manufacturing capacity, thus adversely

affecting our operations. In such event, the disruption to our production could affect our

financial condition, operational results, and future prospects.

RISK FACTORS

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RISKS RELATING TO THE INDUSTRY

Tightening of legislative or regulatory control may result in change in the cigarette

consumption patterns and/or reduction in the smoking population size which may affect

our performance

Long history of legislative or regulatory control on tobacco in the PRC

Since the Tobacco Monopoly Law of the PRC (中華人民共和國煙草專賣法) becoming

effective on 1 January 1992, the education about the concept of “smoking is hazardous to

health” has been strengthened. Under such law, smoking in the public transportation and /or

public places should be prohibited/restricted and there should be strict prohibition against

smoking by primary and secondary school students.

Since then, various legislations regarding the advertisement on tobacco products have

been promulgated and such legislations further restrict/prohibit advertisements and

promotional materials of such nature to the extent that there should not be any display of

tobacco-related products advertisement in public places such as theatres, cinema, sports

facilities and title sponsorships to events which may be broadcast by mass media are also

prohibited.

World Health Organization Framework Convention on Tobacco Control

The PRC entered into the World Health Organization Framework Convention on Tobacco

Control 《煙草控制框架公約》 (the “Framework Convention”) on 10 November 2003, which

is an international agreement seeking to protect present and future generations from the

devastating health, social, environmental and economic consequences of tobacco consumption

and exposure to tobacco smoke by enacting a set of universal standards stating the dangers of

tobacco and limiting its use in all forms worldwide. To this end, the Framework Convention

includes rules that govern the production, sale, distribution, advertisement, and taxation of

tobacco. Nevertheless, there is still a gap between the provisions set out in the PRC local

legislations of the PRC and those required under the Framework Convention. Should the

Framework Convention be enforced strictly to narrow the gap, cigarette sales might be

adversely affected and our business, financial position and results of operations might be

materially and adversely affected.

Packaging and labeling of cigarettes

Pursuant to the Provisions of Regulating the Packaging and Labeling of Domestic Sales

of Tobacco (關於規範境內銷售捲煙包裝標識的規定) promulgated on 23 September 2005 by

the STMA and became effective on 1 January 2006, there shall be a distinctive warning of

“Smoking is harmful” (written in Chinese) on the packaging and a label of product name; and

it is prohibited to use the wording such as “environmentally friendly”, “gentle” or “low-tar” on

the packaging of the tobacco. According to the Provision of Regulating the Packaging and

Labeling of Domestic Sales of Tobacco, the tobacco manufacturers are responsible for ensuring

RISK FACTORS

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the compliance of such provision. There is no assurance that more distinctive and striking

health warning will not be required on the labeling for cigarette packaging, in which case the

incentive of cigarette consumption may decrease and the size of the cigarette market may be

further reduced and our business, financial position and results of operations might be

materially and adversely affected.

Public Places Hygiene Management Regulation Enforcement Rules

With the increasing awareness of health concerns on smoking, the pressure of anti-

smoking marketing campaign in the PRC and around the world together with Public Places

Hygiene Management Regulation Enforcement Rules 《公共場所衛生管理條例實施細則》with effect from 1 May 2011 which, amongst others, (i) prohibits smoking and placing cigarette

vending machines in public indoor venues, (ii) restricts the smoking sections away from

passageways, and (iii) sets up distinct warning and label for prohibiting smoking at public

places. In the event that smoking is further restricted and/or prohibited in additional venues,

the size of the cigarette market in the PRC might be affected and our business, financial

position and results of operations might be materially adversely affected.

The prohibition of sale of the high-tar cigarettes

As set out in the section headed “Industry overview – Cigarette market in PRC – Market

overview – Cigarette market is growing stably in the PRC” in this prospectus, cigarettes are

classified into “high-tar cigarettes” (white stick cigarettes with a tar content greater than 10

milligrams); “mid-tar cigarettes” (white stick cigarettes with a tar content of six to 10

milligrams); “low-tar cigarettes” (white stick cigarettes with a tar content of four to six

milligrams); and “ultra low-tar cigarettes” (white stick cigarettes with a tar content of less than

four milligrams). With effect from 2011, cigarette with tar level of over 12 milligrams per stick

is prohibited to be sold in PRC, and according to STMA, cigarette with tar level of over 11

milligrams will be prohibited to be sold in PRC with effect from 2013, while cigarette with tar

level of over 10 milligrams will be prohibited to be sold in PRC in 2015. “High-tar cigarettes”

are sold at a lower unit price and captured a higher market share in the PRC currently. Most

of the “20 + 10” Key Brands, including “Nanjing” (南京) and “Su Yan” (蘇煙), supply “high-tar

cigarettes”. As a result of the STMA’s policy to prohibit the sale of “high-tar cigarettes” in the

PRC, it is expected that cigarette manufacturers will migrate to produce other classes of

cigarettes, so that smokers in the PRC will switch to consume other classes of cigarettes. Such

gradual tightening of tar content may affect the consumption pattern of the smoking population

in the PRC and such affected pattern may eventually have an adverse impact on the demand

for our products.

Tax and/or duties on cigarettes

In general, the higher the selling price of the cigarettes, the higher the rate of tax/duties

imposed. The tax rate was adjusted in May 2009 with an increase ranging from 6% to 11%,

resulting in the tax rate of certain cigarettes being 56%. In the event further and additional

taxes are imposed on cigarettes, it will increase the costs of cigarette consumption and the size

of the smoking population may be reduced and our business, financial position and results of

operations might be materially and adversely affected.

RISK FACTORS

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General

The cigarette consumption pattern, the growth rate and the size of the smoking population

may be further changed as a result of promulgation of additional legislations in the PRC which

prohibit smoking in other places. There is no assurance that smoking may not be further

prohibited, as a result of the promulgation of such additional legislations, in any other places

such as public outdoor venues of transportation facilities and outdoor recreational facilities. In

addition, cigarette might be restricted to be sold in certain areas in the PRC only or at all, as

a result of promulgation of additional legislations.

Any reduced cigarette consumption pattern and slow down in growth rate or even

reduction in size of the smoking population may result in a general reduced demand for

cigarette products and, thus, the demand for cigarette packaging materials. In such case, our

business, financial position and results of operations might be materially and adversely

affected.

Our Group may lose its current market share because of the market consolidation driven

by the government policies

According to the Euromonitor Report, the number of cigarette brands showed a decrease

from 1,181 brands in early 2000 to 117 brands by the end of 2011 due to the policies issued

by the PRC Government to exert influence on the industry consolidation at the macro level. It

is expected that such industry consolidation will continue. Notwithstanding the fact that we had

not lost any cigarette manufacture customer during the Track Record Period as a result of such

industry consolidation, our largest customer during the Track Record Period, being China

Tobacco Jiangsu, has reduced gradually the production of one of its brands for which we

previously supplied our anti-counterfeiting films since the second half of 2009 and has

subsequently discontinued the production of such brand. Such brand is not one of the “20 + 10”

Key Brands. This has caused our sales in anti-counterfeiting films decreasing from

approximately HK$102.5 million for the year ended 31 December 2009 to approximately

HK$84.8 million for the year ended 31 December 2011.

Where an industry player, like our Group, fails to retain existing and/or secure new

customers which can benefit from the market consolidation driven by the government policies,

such player may lose its current market share and its turnover may decrease, which may have

a negative impact on its business, financial condition and results of operations.

Effect of change in demand of tobacco products resulting from health hazard awareness

and social advocacy for tobacco control

There are various media coverage and publication of health researches on smoking from

organisations such as the World Health Organization and public has became more aware of the

health hazards associated with tobacco consumption. These may adversely affect the

consumption and demand of tobacco-related products and the revenue generated by domestic

cigarette manufacturers may therefore decrease. Under such circumstances, domestic cigarette

manufacturers may reduce their demand for our packaging materials and our operation and

financial position may be materially affected.

RISK FACTORS

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The slow down in growth in smoking population may result in intensified competition

According to the Euromonitor Report, while it is forecasted that the smoking population

will maintain a steady growth in the near future, it is noted that the growth rate has slowed

down when compared to that of previous years. If such growth rate continues to slow down or

even declines and new entrants have entered into the market, the competition in the industry

may become intensified. Any intensified competition may result in an adverse effect in our our

business, financial position and results of operation.

RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC

PRC political, economic and social conditions and government policies could affect our

business

All of our operating assets are located in the PRC and we expect that a majority of our

turnover will continue to be derived from our operations in the PRC. Our results of operations

and prospects are subject, to a significant degree, to economic, political and legal

developments in the PRC. The economy of the PRC differs from the economies of most

developed countries in many respects, including the extent of government involvement, the

level of development, the growth rate, and government control of foreign exchange.

The PRC economy has traditionally been centrally planned. Since 1978, the PRC

Government has been promoting reforms of its economic and political systems. These reforms

have brought about marked economic growth and social progress in the PRC, and the economy

of the PRC has shifted gradually from a planned economy towards a market-oriented economy.

However, there is no assurance that the PRC Government will continue to pursue economic

reforms and we cannot predict whether changes in the PRC’s political, economic and social

conditions, laws, regulations and policies will have any materially adverse effect on our current

or future business, results of operation or financial condition. Moreover, even if new policies

may benefit our business in the long term, we cannot assure you that we will be able to

successfully adjust to such policies. If there is a slowdown in the economic growth of the PRC

or if its economy experiences a recession, demand for our products may also decrease and our

business, financial condition and results of operations may be materially and adversely

affected.

In addition, demand for our products may be affected by a variety of factors, some of

which may be beyond our control, including:

– political instability or changes in social conditions of the PRC;

– changes in laws and regulations or the interpretation of laws and regulations;

– measures which may be introduced to control inflation or deflation;

– changes in the rate or method of taxation; and

RISK FACTORS

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– increases in usage fees and other applicable charges and payments associated with

mineral resources.

Any significant changes in relation to any of these factors may materially and adversely

affect our business, financial condition and results of operations.

The legal system of the PRC is not fully developed, and there are inherent uncertainties

which may affect the protection afforded to our business and shareholders

Our business and operations are primarily conducted in the PRC and are thus governed

by the legal system of the PRC. The PRC legal system is based on written statutes and their

interpretations by the NPCSC. Prior court decisions may be used for reference but have limited

precedential value. Since the late 1970s, the PRC Government has promulgated laws and

regulations that had the effect of enhancing the protections afforded to corporate organisations

and their governance, as well as various forms of foreign investments in the PRC. However,

since these laws and regulations are relatively new and as the PRC legal system continues to

evolve rapidly, the interpretation and enforcement of these laws, regulations and rules involves

significant uncertainty and different degrees of inconsistency, limiting potentially the available

legal protections to our business operations. In addition, the PRC administrative and court

authorities have significant discretion in interpreting and implementing statutory and

contractual terms. Depending on the way an application or case is presented to a government

agent and on the government agent itself, we may receive less favourable interpretations of

laws and regulations than our competitors.

Therefore, it is difficult to evaluate the outcome of administrative and court proceedings

and the actual level of legal protection we enjoy. These uncertainties may affect our judgement

on the relevance of legal requirements and our decisions on the measures and actions to be

taken to fully comply therewith, and may affect our ability to realise our contractual and tort

rights. In addition, any litigation in the PRC may be protracted and result in substantial cost

to us and diversion of both our resources and the attention of our management.

Further, we cannot predict the effect of future legal developments in the PRC, including

the promulgation of new laws, changes to existing laws or the interpretation or enforcement

thereof, or the pre-exemption of local regulations by national laws. We cannot therefore assure

that we will enjoy the same level of legal protection in the future, nor such new laws and

regulations will not affect our operations, causing adverse effects on our financial condition

and results.

As an investor holding our Shares, you hold an indirect interest in our operations in the

PRC, which are subject to PRC regulations governing PRC companies. These regulations

contain provisions that are required to be included in the articles of association of PRC

companies and are intended to regulate the internal affairs of these companies. The PRC

Company Law and these regulations, in general, and the provisions for the protection of

shareholders’ rights and access to information, in particular, are less developed than those

applicable to companies incorporated in Hong Kong and other developed countries or regions.

Therefore, there can be no assurance that our Shareholders may enjoy all the shareholder

protections that are available in the other more developed jurisdictions.

RISK FACTORS

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Government control of currency conversion between the RMB and other currencies could

negatively affect our financial condition, operations and our ability to pay dividends

RMB currently is not a freely convertible currency. We receive substantially all of our

turnover in RMB and might need to convert RMB to foreign currency for payment of

dividends, if any, to holders of our Shares. Under the current foreign exchange regulations in

the PRC, our PRC subsidiaries will be permitted, upon completion of the Share Offer, to effect

foreign exchange for current-account transactions (including the distribution of dividends)

through accounts permitted by the PRC Government. Under existing PRC foreign exchange

regulations, payments of current account items, including profit distributions, interest

payments and expenditures from trade related transactions, can be made in foreign currencies

without prior approval from SAFE by complying with certain procedural requirements.

However, approval from SAFE or its local branch is required where RMB is to be converted

into foreign currency and remitted out of the PRC to pay capital expenses such as the

repayment of loans denominated in foreign currencies. There can be no assurance that the PRC

Government will not in the future impose restrictions on certain foreign exchange transactions

such as the payment of dividends.

Our global income may become subject to PRC income tax if we are deemed to be a PRC

resident enterprise for PRC tax purposes

In connection with the EIT Law which came into effect on 1 January 2008, the EIT Rules

were enacted on 6 December 2007 and became effective on 1 January 2008. Under the EIT Law

and the EIT Rules, an enterprise established outside the PRC may be considered a “PRC

resident enterprise”, and be subject to PRC enterprise income tax on its global income at the

rate of 25%, if its “de facto management body” is located within the PRC. Under the

Implementation Rules, “de facto management body” is defined as “a body that has material and

overall management and control over the manufacturing and business operations, personnel

and human resources, finances and treasury, and acquisition and disposition of properties and

other assets” of an enterprise incorporated outside the PRC. At present, it is unclear how the

foregoing factors will be applied by the PRC tax authorities to determine whether we are a “de

facto management body” in the PRC. Since some of our management personnel currently reside

in the PRC and majority of our turnover arise from our operations in the PRC, the PRC tax

authorities might determine that we are a PRC resident enterprise, which would make us

subject to PRC tax on our worldwide income at a rate of 25%. This may have an adverse effect

on our financial condition and results of operations.

RISK FACTORS

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We may be required to pay income tax on capital gains from the transfer of equity

interests in our PRC subsidiaries indirectly held by our offshore subsidiaries

In connection with the EIT Law which came into effect on 1 January 2008, the Ministry

of Finance (財政部) and SAT jointly issued, on 30 April 2009, the Circular on Issues

Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business (Cai Shui

[2009] No. 59) (《關於企業重組業務企業所得稅處理若干問題的通知》) (財稅[2009]59號),

which became effective retrospectively on 1 January 2008. In preparation for the Share Offer,

we have undertaken the Reorganisation. For more details of the Reorganisation, please refer to

the section headed “History and development” in this prospectus. The transfer of equity

interests in certain PRC subsidiaries ultimately controlled by Mr. Guo to our existing offshore

subsidiaries may be subject to an income tax of no more than 10% on capital gains which may

be determined as the difference between the fair value of the equity interests transferred and

the cost of investment. On 10 December 2009, the SAT issued the Notice on Strengthening the

Management on Enterprise Income Tax for Non-resident Enterprises Equity Transfer (Guo Shui

Han [2009] No. 698) (《關於加強非居民企業股權轉讓所得企業所得稅管理的通知》) (國稅函[2009]698號), which has retrospective effect with effect from 1 January 2008. The notice

clarified the definition of cost of investment and other relevant details on EIT management

regarding the share transfer of a PRC resident enterprise by non-PRC resident enterprises

directly or indirectly. Up to the Latest Practicable Date, we had not received any notice from

any PRC tax authorities in relation to the payment of the income tax on capital gain in

connection with the Reorganisation. In the event that we are required to pay the income tax on

capital gains by the relevant PRC tax authorities, our tax liability may increase and our net

profits and cash flow may be adversely affected.

The value of any future dividends and gains on the sale of our Shares may be reduced by

PRC withholding taxes

We are a holding company and all of our income is derived from dividends that we receive

from our subsidiaries. The previous PRC income tax law applicable to foreign invested

enterprises specifically exempted withholding taxes on dividend payments to foreign investors.

Under the EIT Law and the EIT Rules, however, dividends payable to foreign investors that are

non-resident enterprise (enterprise that do not have an establishment or place of business in the

PRC, or that have such establishment or place of business but the relevant income is not

effectively connected with the establishment or place) are subject to a 10% withholding tax,

which may be reduced if the foreign jurisdiction of incorporation has a tax treaty with the PRC

that provides for a different withholding arrangement. According to the Arrangement between

the Mainland China and the Hong Kong Special Administrative Region for Avoidance of

Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (《內地和香港特別行政區關於對所得稅避免雙重徵稅和防止偷漏稅的安排》), promulgated on 4

April 2007, the withholding tax rate for dividends paid by a PRC enterprise to a Hong Kong

enterprise is 5% if the Hong Kong enterprise owns at least 25% of the PRC enterprise;

otherwise, the dividend withholding tax rate is 10%. As dividends from our PRC subsidiaries

will be paid to us through our Hong Kong subsidiaries, those dividends may be subject to a

withholding tax at the rate of 5%.

RISK FACTORS

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According to the Notice of the State Administration of Taxation on issues regarding the

Administration of the Dividend Provisions 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》) (“Notice 81”), which was promulgated on 20 February 2009,

recipients of dividends paid by PRC enterprises must satisfy certain requirements in order to

obtain a preferential income tax rate pursuant to a tax treaty. One such requirement is that the

taxpayer must be the “beneficiary owner” of relevant dividends. In order for a corporate

recipient of dividends paid by a PRC enterprise to enjoy preferential tax treatment pursuant to

a tax treaty, such recipient must be the direct owner of a certain proportion of the share capital

of the PRC enterprise at all times during the 12 months preceding its receipt of the dividends.

In addition, the Notice on How to Understand and Recognise the Beneficial Owner in Tax

Treaties (《關於如何理解和認定稅收協定中“受益所有人”的通知》) (“Notice 601”),

promulgated by the SAT on 27 October 2009, narrowed the scope of “beneficiary owners” to

individuals, enterprises or other organisations who “normally engage in substantive

operations”, and introduced various factors to deny the recognition of such “beneficiary

owners”. On 24 August 2009, the SAT issued the Administrative Measures for Non-resident

Enterprises to Enjoy Treatments under Tax Treaties (For Trial Implementation) (關於印發《非居民享受稅收協定待遇管理辦法（試行）》的通知), which became effective on 1 October

2009. This legislation requires non-resident enterprises to obtain the competent tax authority’s

approval to enjoy preferential tax treatments under tax treaties. No assurance can be given that

we can satisfy all the requirements set forth by the aforementioned laws and regulations and

obtain necessary approval to enjoy preferential treatment of the tax treaty.

Moreover, under EIT Law and the EIT Rules, we may in the future be recognised as a

PRC tax resident enterprise by the PRC taxation authorities. In that case, dividends on our

Shares as well as capital gains from sales of our Shares realised by shareholders that are foreign

corporations may be regarded as income from “sources within the PRC” and may be subject

to a 10% withholding tax. If foreign shareholders are required to pay PRC withholding tax on

dividends on our Shares or capital gains from any sales of our Shares, the value of the

investment in our Shares may be materially and adversely affected.

Licences and approvals in relation to our printing business in the PRC

According to the Regulations on the Administration of Printing Industry (《印刷業管理條例》), printing enterprises are required to obtain the printing licence (《印刷經營許可證》)

and the approval from the GAPP. According to the Interim Provisions on the Establishment of

Foreign Invested Printing Enterprise (《設立外商投資印刷企業暫行規定》) jointly

promulgated by GAPP and the Ministry of Foreign Trade and Economic Cooperation of the

PRC (中華人民共和國對外貿易經濟合作部) (now the MOFCOM on 29 January 2002), all

existing foreign investment enterprises which have expanded their scope of business to printing

business have to obtain the printing licence (《印刷經營許可證》).

There is no assurance that the PRC Government will not promulgate any other new

regulations or procedures to regulate the printing industry in the PRC. In case where any

additional regulatory and/or administrative requirements are required, we may need to allocate

manpower and financial resources to comply with such requirements and our profitability may

be affected accordingly.

RISK FACTORS

– 44 –

The current printing licence of Jiangsu Shuntai will expire in March 2014. There is no

assurance that the printing licence of Jiangsu Shuntai will be renewed upon expiry, as such

expiry date is determined on whether Jiangsu Shuntai will be able to meet the applicable

requirements for printing business under the then PRC laws and regulations as of the expiry

date. In the event that such licence is not renewed upon expiry, our operation in respect of the

printing business will be suspended and our business, financial position and results of

operations might also be adversely affected.

We will rely on dividends paid by our PRC subsidiaries, and limitations on the ability of

our PRC subsidiaries to pay dividends could have a material adverse effect on our

business, prospects, financial condition and results of operations

Our Company is a holding company incorporated in the Cayman Islands and conducts

substantially all of our operations through its PRC subsidiaries. Our Company will rely on

dividends paid by our PRC subsidiaries for our future cash needs that cannot be provided by

equity issuance or borrowings outside of the PRC, including the funds necessary to pay

dividends and other cash distributions to our Shareholders, to service any debt we may incur

and to pay our operating expenses in excess of such amounts will depend on dividends from

our PRC subsidiaries. Regulations in the PRC currently permit payment of dividends by the

PRC subsidiary only out of accumulated profits as determined in accordance with the PRC

generally accepted accounting principles. According to applicable PRC laws and regulations,

the PRC subsidiaries are required to (a) set aside at least 10% of their after-tax profit based on

the PRC generally accepted accounting principles each year for their respective statutory

reserves until the amount of such reserves reach 50% of their respective registered capital or

(b) allocate reserve funds, bonuses and welfare funds for staff and workers and expansion funds

and the proportion of allocation should be decided by the board of directors. These reserves are

not distributable as dividends. Contributions to such reserves are made from net profit after

taxation of the PRC subsidiaries. If any of our PRC subsidiaries cannot pay dividends due to

government policy and regulations, or because we cannot generate the requisite cash flow, they

may not be able to pay dividends, service its debt or pay its expenses, which may have a

material adverse effect on its business, prospects, financial condition and results of operations.

PRC regulations pertaining to loans and direct capital investments by offshore parent

companies to PRC entities may delay or prevent us from using the proceeds of the Share

Offer

In utilising the proceeds of the Share Offer to finance our business, we, as a holding

company, may make loans or additional capital contributions to our subsidiaries established in

the PRC. Any loan by an offshore parent company to a foreign-invested entity established by

it is subject to registration requirements and must be within the margin between the total

investment amount and registered capital of the foreign-invested entity concerned. In addition,

if we finance the operating entities in the PRC through additional capital contributions to our

subsidiaries established in the PRC, the amount of these capital contributions must be approved

by and registered with the competent government authorities. There can be no assurance that

we will be able to obtain these government registrations or approvals on a timely basis, if at

RISK FACTORS

– 45 –

all, with respect to our future loans or capital contributions to our subsidiaries established in

the PRC. If we fail to receive such registrations or approvals, our ability to use the proceeds

of the Share Offer and our ability to fund and expand the operational business in the PRC could

be adversely affected.

On 29 August 2008, the SAFE promulgated the Notice of the SAFE on the Relevant

Operating Issues concerning the Improvement of the Administration of Payment and

Settlement of Foreign Currency Capital of Foreign-invested Enterprises (關於完善外商投資企業外匯資本金支付結匯管理有關業務操作問題的通知) (“Circular 142”), a notice regulating

the conversion by a foreign-invested entity of its foreign currency registered capital into RMB

by restricting how the converted RMB may be used. Circular 142 prohibits the use of RMB

converted from foreign capital by foreign-invested entities to make equity investments in PRC

domestic companies, unless the equity investment is within the approved business scope of the

foreign-invested entity and has been approved by the SAFE, or has been “otherwise provided

for”. In addition, the SAFE recently increased its supervision of the flow and use of the

registered capital of a foreign-invested company settled in RMB converted from foreign

currencies. The use of such RMB capital may not be changed without the SAFE’s approval, and

may not in any case be used to repay RMB loans if the proceeds of such loans have not been

used. Violations of Circular 142 will result in severe penalties, such as significant fines. We

may therefore not be able to use the proceeds of the Share Offer to acquire PRC domestic

companies through our PRC subsidiaries.

If we fail to receive the necessary registrations or approvals, our ability to use the

proceeds of the Share Offer and our ability to fund and expand the operating business in the

PRC could be adversely affected, which could have material adverse effects on our business,

prospects, financial condition and results of operations.

The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign

Investors (“M&A Rules”) establishes more complex procedures for some acquisitions of

Chinese companies by foreign investors, which could make it more difficult for us to

pursue growth through acquisitions in the PRC

The M&A Rules establish additional procedures and requirements that could make some

acquisitions of PRC companies by foreign entities, such as ours, more time-consuming and

complex, including requirements in some instances that the approval of the MOFCOM shall be

required for transactions involving the shares of an offshore listed company being used as the

acquisition consideration by foreign entities. In the future, we may grow our business in part

by acquiring complementary businesses. Complying with the requirements of the M&A Rules

to complete such transactions could be time-consuming, and any required approval processes,

including obtaining approval from the MOFCOM, may delay or inhibit our ability to complete

such transactions, which could affect our ability to expand our business or maintain our market

share.

RISK FACTORS

– 46 –

RISKS RELATING TO THE SHARE OFFER

Shareholders’ interests in the share capital of our Company may be diluted in the future

We may in the future expand our capabilities and business through acquisition, joint

venture and strategic partnership with parties who can add value to our business. We may

require additional equity funding after the Share Offer and the equity interest of our

Shareholders will be diluted should our Company issue new Shares to finance future

acquisitions, joint ventures and strategic partnerships and alliances.

Any exercise of the Pre-IPO Share Options and options which may be granted under the

Share Option Scheme and the related issue of Shares would also result in the reduction in the

percentage ownership of our Shareholders. There may also be a dilution in the earnings per

Share and net asset value per Share as a result of the increase in the number of Shares

outstanding after the issue of such additional Shares. Under the applicable accounting

standards, the costs of the Pre-IPO Share Options and options which may be granted under the

Share Option Scheme will be charged to our income statement over the vesting period by

reference to the fair value at the date at which the options are granted. As a result, our

profitability may be adversely affected.

There has been no prior public market for our Shares, and an active trading market may

not develop after the Share Offer and the liquidity and market price of our Shares may

be volatile

Prior to the Share Offer, there has been no public market for our Shares. The Offer Price

for our Shares will be determined by agreement between the Sole Bookrunner (acting for itself

and on behalf of the Underwriters) and our Company on the Price Determination Date. The

Offer Price may not be indicative of the price at which our Shares will trade following the

completion of the Share Offer. Moreover, there can be no assurance that there will be an active

trading market for our Shares, or if it exists, that it can be sustained following the completion

of the Share Offer, or that the price at which our Shares will trade will not decline below the

Offer Price.

The price and trading volume of our Shares may be volatile. Volatility in the price of our

Shares may be caused by factors beyond our control and may be unrelated to our results of

operations or financial position.

The market price of our Shares when trading begins could be lower than the Offer Price

The Offer Price will be determined on the Price Determination Date. However, our Shares

will not commence trading on the Stock Exchange until they are delivered, which is expected

to be the 5th Business Day after the Price Determination Date. As a result, investors may not

be able to sell or otherwise deal in our Shares during the period from the Price Determination

Date to the date trading commences. Accordingly, holders of our Shares are subject to the risk

that the price of our Shares when trading begins could be lower than the Offer Price as a result

of adverse market conditions or other adverse developments that may occur between the time

of sale and the time trading begins.

RISK FACTORS

– 47 –

Our historical dividend policy is not indicative of our future dividend policy

Whilst we intend to make dividend payments in the future, the amount of dividends to be

declared will be subject to, among others, the full discretion of our Directors, taking into

consideration the amount of our earnings, financial position, cash requirements and availability

as well as the provisions of the applicable laws and regulations and other relevant factors.

There is no assurance that future dividends will be paid at a level similar to past dividends or

at all and potential investors should be aware that the amount of dividends paid in the past

should not be used as a reference or basis to determine the level of dividends that may be

declared by our Company in the future.

Any future sale of our Shares by the existing Shareholder could have an adverse effect on

the market price of our Shares

Future sales of a substantial number of our Shares by the existing Shareholder, or the

possibility of such sales, could negatively impact the market price of our Shares and our ability

to raise equity capital in the future at a time and price that it deems appropriate.

The Offer Price per Offer Share is higher than the net tangible book value per Share, and,

consequently, purchasers of our Shares will incur immediate dilution

The Offer Price of our Shares is higher than the net tangible book value per Share

immediately prior to the Share Offer. As set out in Appendix II to this prospectus, based on an

Offer Price of HK$1.08 per Share, the unaudited pro forma adjusted consolidated net tangible

assets per Share is HK$0.81 and based on an Offer Price of HK$1.68 per Share, the unaudited

pro forma adjusted consolidated net tangible assets per Share is HK$0.95. Therefore,

purchasers of our Shares in the Share Offer will experience an immediate dilution in the pro

forma combined net tangible assets per Share, and the existing Shareholder will receive an

increase in the net tangible book value per Share in respect of its Shares. If we issue additional

Shares in the future, purchasers of our Shares may experience further dilution.

Investors may experience difficulties in effecting service of legal process and enforcing

judgements against our Company and our management

Our Company is a company incorporated in the Cayman Islands under the Companies

Law with limited liability. The Companies Law relating to the protection of minority

Shareholders’ interests may differ in some respects from those of Hong Kong or other

jurisdictions where investors may be located. As a result, the remedies available to our minority

Shareholders may be different from those they would have under the laws of Hong Kong or

other jurisdictions.

In addition, our Company’s corporate affairs are governed by the Memorandum and the

Articles, the Companies Law and the common law of the Cayman Islands. The rights of our

Shareholders to take legal action against our Directors and our Company, actions by minority

Shareholders and the fiduciary responsibilities of our Directors to our Company under the

RISK FACTORS

– 48 –

Cayman Islands law are to a large extent governed by the common law of the Cayman Islands.

The common law of the Cayman Islands is derived in part from comparatively limited judicial

precedent in the Cayman Islands as well as from English common law, which has persuasive,

but not binding, authority on a court in the Cayman Islands. The rights of our Shareholders and

the fiduciary responsibilities of our Directors under the Cayman Islands law may not be as

clearly established as they would be under statutes or judicial precedents in Hong Kong or

other jurisdictions where investors may be located.

Our Shareholders will not be able to bring actions on the basis of violations of the Listing

Rules and must rely on the Stock Exchange to enforce its rules. The Takeovers Code does not

have the force of law and only provide standards of commercial conduct acceptable for

takeover and merger transactions and share repurchases in Hong Kong. Our Shareholders will

rely on the Executive Director of the Corporate Finance Division of the SFC or its delegate to

institute disciplinary proceedings when it considers that there has been a breach of the

Takeovers Code.

As a result of any or all of the above, our Shareholders may have more difficulty in

protecting their interests in the face of actions taken by our Company’s management, Directors

or major Shareholders than they would as shareholders of a Hong Kong company or companies

incorporated in other jurisdictions. For further information on the constitution of our Company

and Cayman Islands company law, please refer to “Summary of the constitution of our

Company and Cayman Islands company law” set out in Appendix IV to this prospectus.

Investors should not place undue reliance on industry and market information and

statistics derived from official government publications, market data providers and other

independent third party sources contained in this prospectus

This prospectus contains information and statistics, including but not limited to

information and statistics relating to the PRC and the industry and markets. The information

and statistics related to the industry and markets are derived from official government

publications, market data providers and other independent third party sources. Certain

information and statistics set forth in the section headed “Industry overview” and other

sections of this prospectus have been extracted from the market research reports prepared by

Euromonitor International, an independent market research agency, and other publicly

available sources. Our Directors believe that the sources of this information are appropriate

sources for such information and have taken reasonable care in extracting and reproducing such

information. Our Directors have no reason to believe that such information is false or

misleading or that any fact has been omitted that would render such information false or

misleading. The information has not been independently verified by us, our Company, or any

of our affiliates or advisers, or by the Sole Sponsor, the Sole Bookrunner, the Underwriters or

their respective directors, affiliates or advisers, and therefore we make no representation as to

the accuracy of such facts and statistics, including the facts and statistics included in the

sections headed “Risk factors”, “Industry overview” and “Business” in this prospectus. Due to

possibly flawed or ineffective collection methods or discrepancies between published

information and market practice and other problems, the statistics herein may be inaccurate or

RISK FACTORS

– 49 –

may not be comparable to official statistics produced for other economies. Prospective

investors should not place undue reliance on any information and statistics derived from

official government publications, market data providers and other independent third party

sources contained in this prospectus. Further, we cannot assure prospective investors that

information and statistics are stated or compiled on the same basis or with the same degree of

accuracy as those presented elsewhere.

In all cases, investors should give consideration as to how much weight or importance

they should place upon all such facts and statistics.

RISK FACTORS

– 50 –

WAIVER AND EXEMPTION IN RELATION TO THE PRE-IPO SHARE OPTION

SCHEME

Under Rule 17.02(1)(b) of and paragraph 27 of Appendix 1A to the Listing Rules, and

paragraph 10(d) of Part I of the Third Schedule to the Companies Ordinance, this prospectus

is required (the “Share Option Disclosure Requirements”) to include details of the number,

description and amount of any of the shares in or debentures of our Company which a person

has, or is entitled to be given, an option to subscribe for, together with certain particulars of

each option, namely the period during which it is exercisable, the price to be paid for shares

or debentures subscribed for under it, the consideration (if any) given or to be given for it or

for the right to it and the names and addresses of the persons to whom it was given.

As at the Latest Practicable Date, our Company has granted Pre-IPO Share Options to 66

persons to subscribe for an aggregate of 10,000,000 Shares, representing 2.5% of the total

number of Shares in issue immediately following completion of the Share Offer (assuming

none of the Pre-IPO Share Options have been exercised and without taking into account any

Shares which may be issued upon the exercise of any options which may be granted under the

Share Option Scheme or the Over-allotment Option) on the terms set out in the paragraph

headed “Pre-IPO Share Option Scheme” in Appendix V to this prospectus.

Our Company has applied to the Stock Exchange and the SFC respectively for and has

been granted (i) a waiver from strict compliance with the disclosure requirements under Rule

17.02(1)(b) of and paragraph 27 of Appendix 1A to the Listing Rules; and (ii) an exemption

under section 342A of the Companies Ordinance from strict compliance with the disclosure

requirements of paragraph 10(d) of Part I of the Third Schedule to the Companies Ordinance,

on the ground that full compliance with the above requirements would be unduly burdensome

for our Company for the following reasons:

(a) the number of Pre-IPO Share Options granted to individual grantees are,

individually de minimis, and collectively represents 2.5% of the total number of

Shares in issue immediately following completion of the Share Offer (assuming

none of the Pre-IPO Share Options have been exercised and without taking into

account any Shares which may be issued upon the exercise of any options which

may be granted under the Share Option Scheme or the Over-allotment Option);

(b) given that 66 grantees are involved as of the Latest Practicable Date, among which

54 are not Directors, members of the senior management or connected persons of our

Company but are only 50 employees of our Group, and 4 advisers to our Group in

respect of the construction of our Shuntai Factory (including the original and

extended portion), the strict compliance with the Share Option Disclosure

Requirements to disclose names, addresses, and entitlements on an individual basis

in this prospectus will require approximately 20 pages of additional disclosure while

does not provide any material information to the investing public;

(c) the grant and exercise in full of the Pre-IPO Share Options will not cause any

material adverse change in the financial position of our Company;

WAIVER FROM COMPLIANCE WITH THE LISTING RULESAND EXEMPTION FROM THE COMPANIES ORDINANCE

– 51 –

(d) the lack of full compliance of the applicable Share Option Disclosure Requirements

will not hinder our Company in providing an informed assessment of our Company’s

activities, assets and liabilities, financial position, management and prospects to

potential investors;

(e) the disclosure of a summary of information relating to the Pre-IPO Share Options,

as described in the paragraph headed “Pre-IPO Share Option Scheme” in Appendix

V to this prospectus should provide potential investors with sufficient information

to make a relevant assessment of our Company in their investment decision-making

process; and

(f) the Pre-IPO Share Options granted are considered part of the participants’

remuneration package, and involved highly sensitive and confidential individual

information of the grantees. As such, disclosure in this prospectus as to the identity,

address and respective entitlement of each grantee on an individual basis may have

a negative impact on our Company’s relationship with the grantees.

Our Directors confirmed that save as being the advisers of our Group as detailed in the

paragraph headed “Pre-IPO Share Option Scheme” in Appendix V to this prospectus and

employees of certain property companies owned by Mr. Guo, the 4 advisers do not have any

past or current relationship with our Group, our Directors, our senior management, the top five

customers or supplier of our Group for the Track Record Period, or the two Provincial Tobacco

Industrial Companies located in Shandong Province and Guangxi Province.

In light of the above, our Directors are of the view that the grant of the waiver and

exemption sought under this application will not prejudice the interests of the investing public.

The Stock Exchange has granted to our Company the waiver under the Listing Rules on

condition that:

(i) full details of the Pre-IPO Share Options granted to each of our Directors, members

of the senior management of our Group, connected persons of our Company,

employees who were granted option to subscribe for 250,000 Shares or above each

and advisers of our Group be disclosed in the paragraph headed “Pre-IPO Share

Option Scheme” in Appendix V to this prospectus, on an individual basis, as

required under the Share Option Disclosure Requirements;

(ii) for the remaining grantees, disclosure will be made, on an aggregate basis, on (1)

their aggregate number and number of Shares underlying the Pre-IPO Share

Options; (2) the exercise period of the Pre-IPO Share Options; (3) the consideration

paid for the Pre-IPO Share Options; (4) the exercise price of the Pre-IPO Share

Options;

(iii) there will also be disclosure in this prospectus for the aggregate number of Shares

underlying the Pre-IPO Share Options and the percentage of our Company’s issued

share capital represented by them;


– 52 –

(iv) the dilution effect and impact on earnings per Share upon full exercise of the

Pre-IPO Share Options will be disclosed in the paragraph headed “Pre-IPO Share

Option Scheme” in Appendix V to this prospectus;

(v) a full list of all the grantees who have been granted the Pre-IPO Share Options,

containing all the details as required under the Share Option Disclosure

Requirements, will be made available for public inspection in accordance with the

arrangement as set out in Appendix VI to this prospectus; and

(vi) the particulars of the waiver will be disclosed in this prospectus.

The SFC has granted to our Company the exemption under the Companies Ordinance on

condition that:

(i) full details of the Pre-IPO Share Options granted to each of our Directors, members

of the senior management of our Group, connected persons of our Company,

employees who were granted option to subscribe for 250,000 Shares or above each,

and advisers of our Group be disclosed in the paragraph headed “Pre-IPO Share

Option Scheme” in Appendix V to this prospectus, on an individual basis, as

required by paragraph 10 of Part I of the Third Schedule to the Companies

Ordinance;

(ii) for the remaining grantees, disclosure will be made, on an aggregate basis, on (1)

their aggregate number and number of Shares underlying the Pre-IPO Share

Options; (2) the exercise period of the Pre-IPO Share Options; (3) the consideration

paid for the Pre-IPO Share Options; (4) the exercise price of the Pre-IPO Share

Options;

(iii) a full list of all the grantees who have been granted the Pre-IPO Share Options,

containing all the details as required in paragraph 10 of Part I of the Third Schedule

to the Companies Ordinance, will be made available for public inspection in

accordance with the arrangement as set out in Appendix VI to this prospectus; and

(iv) the particulars of the exemption will be disclosed in this prospectus.


– 53 –

DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS

This prospectus, for which our Directors collectively and individually accept full

responsibility, includes particulars given in compliance with the Companies Ordinance, the

Securities and Futures (Stock Market Listing) Rules and the Listing Rules for the purpose of

giving information to the public with regard to our Group. Our Directors, having made all

reasonable enquiries, confirm that, to the best of their knowledge and belief, the information

contained in this prospectus is accurate and complete in all material respects and not

misleading or deceptive, and there are no other matters the omission of which would make any

statement in this prospectus misleading.

The Share Offer is made solely on the basis of the information contained and the

representations made in this prospectus and the Application Forms. No person is authorised in

connection with the Share Offer to give any information or to make any representation not

contained in this prospectus and the Application Forms, and any information or representation

not contained herein must not be relied upon as having been authorised by our Company, the

Sole Sponsor, the Sole Bookrunner, the Underwriters, any of their respective directors or

affiliates of any of them or any other persons or parties involved in the Share Offer.

UNDERWRITING

This prospectus is published in connection with the Public Offer, which forms part of the

Share Offer, which is sponsored by the Sole Sponsor and managed by the Sole Bookrunner. The

Public Offer is fully underwritten by the Public Offer Underwriters subject to the terms and

conditions of the Public Offer Underwriting Agreement, including the Sole Bookrunner (acting

for itself and on behalf of the Underwriters) and our Company agreeing to the Offer Price.

Information relating to the underwriting arrangements is set out in the section headed

“Underwriting” in this prospectus. The Placing is expected to be fully underwritten by the

Placing Underwriter(s) under the terms of the Placing Underwriting Agreement. Further details

about the Underwriters and the Underwriting Agreements are contained in the section headed

“Underwriting” in this prospectus.

DETERMINATION OF THE OFFER PRICE

The Offer Shares are being offered at the Offer Price which is expected to be determined

by the Sole Bookrunner (acting for itself and on behalf of the Underwriters) and our Company

on or about Friday, 6 July 2012, or such later date as may be agreed between the Sole

Bookrunner (acting for itself and on behalf of the Underwriters) and our Company but in any

event not later than 5:00 p.m. (Hong Kong time) on Wednesday, 11 July 2012.

If the Sole Bookrunner (acting for itself and on behalf of the Underwriters) and our

Company are unable to reach an agreement on the Offer Price on or before the Price

Determination Date, the Share Offer will not become unconditional and will lapse.

PROCEDURES FOR APPLICATION FOR THE PUBLIC OFFER SHARES

The application procedures for the Public Offer Shares are set out in the section headed

“How to apply for the Public Offer Shares” in this prospectus and on the relevant Application

Forms.

INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER

– 54 –

SELLING RESTRICTIONS

Each person acquiring the Public Offer Shares under the Public Offer will be required to,

or be deemed by his or her or its acquisition of Offer Shares to, confirm that he or she or it

is aware of the restrictions on offers of the Offer Shares described in this prospectus.

This prospectus is issued by our Company solely in connection with the Share Offer in

Hong Kong and does not constitute an offer to sell or a solicitation of an offer to buy any

security other than the Public Offer Shares offered in the Share Offer. This prospectus may not

be used for the purpose of, and does not constitute, an offer or invitation in any other

jurisdiction or in any other circumstance.

No action has been taken to permit a public offering of the Offer Shares or the distribution

of this prospectus in any jurisdiction other than Hong Kong. You should rely only on the

information contained in this prospectus and the Application Forms to make your investment

decision. Our Company has not authorised anyone to provide you with information that is

different from what is contained in this prospectus. Any information or representation not made

in this prospectus must not be relied on by you as having been authorised by our Company, the

Sole Sponsor, the Sole Bookrunner, any of the Underwriters, any of their respective directors,

agents, employees or advisers or any other person or party involved in the Share Offer.

United States

The Offer Shares have not been and will not be registered under the US Securities Act,

and may not be offered, sold, pledged or otherwise transferred within the United States or to,

or for the benefit of, US persons, except in accordance with an exemption from the registration

requirements of the US Securities Act, or outside the United States in reliance on Regulation

S. In addition, until 40 days after the later of the commencement of the Share Offer and the

completion of the distribution of the Offer Shares, an offer or sale of Offer Shares within the

United States by any dealer (whether or not participating in the Share Offer) may violate the

registration requirements of the US Securities Act if such offer or sale is made otherwise than

in accordance with an exemption from, or in a transaction not subject to, such requirements.

THE OFFER SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY

THE US SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES

COMMISSION IN THE UNITED STATES OR ANY OTHER UNITED STATES

REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES

PASSED UPON OR ENDORSED THE MERITS OF THE SHARE OFFER OR THE

ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO

THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES.


– 55 –

PRC

This prospectus may not be circulated or distributed in the PRC and the Offer Shares may

not be offered or sold, directly or indirectly, or offered or sold to any person for reoffering or

re-sale, directly or indirectly, to any resident of the PRC except pursuant to applicable laws and

regulations of the PRC.

The Cayman Islands

The Offer Shares will not be offered or sold to the public in the Cayman Islands. Each

person acquiring the Offer Shares will be required to confirm, or be deemed by his or her or

its acquisition of the Offer Shares to have confirmed that he or she or it is aware of the

restrictions on offering of the Offer Shares described in this prospectus.

APPLICATION FOR LISTING ON THE STOCK EXCHANGE

Our Company has applied to the Listing Committee for the listing of, and permission to

deal in, our Shares in issue, Shares to be issued pursuant to the Share Offer, and any Shares

to be issued upon the exercise of the Over-allotment Option, the Pre-IPO Share Options and

the options to be granted under the Share Option Scheme, on the Main Board.

Save as disclosed herein, no part of our Shares or loan capital of our Company is listed

or dealt in on the Main Board or on any other stock exchange and at present, no such listing

or permission to deal is being or is proposed to be sought on the Main Board or any other stock

exchange in the near future.

HONG KONG SHARE REGISTER AND STAMP DUTY

All Shares to be issued pursuant to the Share Offer will be registered on our Company’s

branch register of members in Hong Kong to be maintained by our Hong Kong Branch Share

Registrar. The principal register of members will be maintained in the Cayman Islands by

Appleby Trust (Cayman) Ltd.. Only Shares registered on the branch register of members of our

Company in Hong Kong may be traded on the Stock Exchange.

Dealings in Shares registered on the branch register of members in Hong Kong will be

subject to Hong Kong stamp duty. The current rate of stamp duty in Hong Kong is 0.2% of the

consideration or, if higher, the market value of our Shares being sold or transferred.


– 56 –

PROFESSIONAL TAX ADVICE RECOMMENDED

If you are unsure about the taxation implications of subscribing for, purchasing, holding,

disposing of, dealing in, or the exercise of any rights in relation to, the Offer Shares, you

should consult an expert. Our Company, our Directors, the Sole Sponsor, the Sole Bookrunner,

the Underwriters, any of their respective directors, agents or advisers or any other persons or

parties involved in the Share Offer do not accept responsibility for any tax effects on or

liabilities resulting from the subscription for, purchase, holding, disposing of, dealing in, or the

exercise of any rights in relation to, the Offer Shares.

SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS

Subject to the granting of the approval for listing of, and permission to deal in, our Shares

on the Stock Exchange and our Company’s compliance with the stock admission requirements

of HKSCC, our Shares will be accepted as eligible securities by HKSCC for deposit, clearance

and settlement in CCASS with effect from the Listing Date or any other date HKSCC chooses.

Settlement of transactions between participants of the Stock Exchange is required to take place

in CCASS on the second Business Day after any trading days. Investors should seek the advice

of their stockbrokers or other professional advisers for details of those settlement arrangements

and how such arrangements will affect their rights and interests.

All activities under CCASS are subject to the General Rules of CCASS and CCASS

Operational Procedures in effect from time to time. All necessary arrangements have been

made for our Shares to be admitted into CCASS.

STRUCTURE OF THE SHARE OFFER

Details of the structure of the Share Offer, including its conditions, are set out in the

section headed “Structure and conditions of the Share Offer” in this prospectus.

OVER-ALLOTMENT AND STABILISATION

Details of the arrangements relating to stabilisation and the Over-allotment Option are set

out in the section headed “Structure and conditions of the Share Offer” in this prospectus.

ROUNDING

Certain amounts and percentage figures included in this prospectus are subject to

rounding adjustments. Any discrepancies in any table or chart between the total shown and the

sum of the amounts listed are due to rounding.

COMMENCEMENT OF DEALINGS IN OUR SHARES

Dealings in our Shares on the Main Board are expected to commence at 9:00 a.m. on

Friday, 13 July 2012. Shares will be traded in board lots of 2,000 Shares each.


– 57 –

DIRECTORS

Executive Directors

Name Residential address Nationality

Mr. Guo Yumin (郭玉民) Flat C, 25/F

Tower 2

Starcrest

9 Star Street

Wanchai

Hong Kong

Chinese

Madam Xia Yu (夏煜) Flat C, 25/F

Tower 2

Starcrest

9 Star Street

Wanchai

Hong Kong

Australian

Mr. Huang Bo (黃波) Room 2703

Unit 2

No. 3 Building

117 Shandong Road

Shibei District

Qingdao

Shandong Province

The PRC

Chinese

Mr. Bau Siu Fung (鮑小豐) Flat D, 15/F

Mei Foo Sun Chuen

109 Broadway

Kowloon

Hong Kong

Chinese

DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER

– 58 –

Independent non-executive Directors

Name Residential address Nationality

Ms. Fan Qing (范晴) 2-D-402

Changcheng Building

Futian District

Shenzhen City

Guangdong Province

The PRC

Chinese

Mr. Lo Wa Kei, Roy (盧華基) Flat E, 16/F

Block 6

29 Laguna Street

Laguna City

Cha Kwo Ling

Kowloon

Hong Kong

Chinese

Mr. Fong Wo, Felix (方和) Flat D, 9/F

Repulse Bay Towers

119A Repulse Bay Road

Repulse Bay

Hong Kong

Chinese


– 59 –

PARTIES INVOLVED IN THE SHARE OFFER

Name

Sole Sponsor Haitong International Capital Limited

25/F New World Tower

16-18 Queen’s Road Central

Hong Kong

Sole Bookrunner and

Sole Lead Manager

Haitong International Securities Company Limited



Hong Kong

Public Offer Underwriters Haitong International Securities Company Limited



Hong Kong

China Everbright Securities (HK) Limited

36th Floor, Far East Finance Centre

16 Harcourt Road

Hong Kong

Sanfull Securities Limited

Suite 2001-6, 20/F, Cosco Tower

183 Queen’s Road Central

Hong Kong

Legal advisers to our Company as to Hong Kong law

Loong & Yeung

Suites 2001-2005

20th Floor, Jardine House

1 Connaught Place

Central

Hong Kong

as to PRC law

Jingtian & Gongcheng

1202-1204 K. Wah Centre

1010 Huai Hai Road (M)

Shanghai 200031

PRC


– 60 –

as to Cayman Islands law

Appleby

2206-19 Jardine House

1 Connaught Place

Central

Hong Kong

Legal advisers to the Sole Sponsor

and the Underwriters

as to Hong Kong law

Leung & Lau

3rd Floor

Agricultural Bank of China Tower

50 Connaught Road C.

Central

Hong Kong

as to PRC law

Dacheng Law Offices

3F, China Development Bank Tower

500 Pudong South Road

Shanghai 200120

PRC

Reporting accountants KPMG

Certified Public Accountants

8th Floor, Prince’s Building

10 Chater Road

Central

Hong Kong

Property surveyor Greater China Appraisal Limited

Room 2703

Shui On Centre

6-8 Harbour Road

Wanchai

Hong Kong

Receiving banker Standard Chartered Bank (Hong Kong) Limited

15/F, Standard Chartered Tower

388 Kwun Tong Road

Kwun Tong

Hong Kong


– 61 –

Registered office Clifton House

75 Fort Street

PO Box 1350

Grand Cayman

KY1-1108

Cayman Islands

Headquarters in the PRC 88 Shenzhen East Road

Qinghe New District

Huai’an City

Jiangsu Province

PRC

Principal place of business in Hong Kong Suites 2001-2005


1 Connaught Place

Central

Hong Kong

Company’s website www.sheentai.com (information on the

website does not form part of this

prospectus)

Company secretary Mr. Bau Siu Fung HKICPA

Authorised representatives (for the

purpose of the Listing Rules)

Mr. Guo Yumin

Flat C, 25/F

Tower 2

Starcrest

9 Star Street

Wanchai

Hong Kong

Mr. Bau Siu Fung

Flat D, 15/F

Mei Foo Sun Chuen

109 Broadway

Kowloon

Hong Kong

Audit committee Mr. Lo Wa Kei, Roy (Chairman)

Ms. Fan Qing

Mr. Fong Wo, Felix

CORPORATE INFORMATION

– 62 –

Nomination committee Mr. Guo Yumin (Chairman)

Ms. Fan Qing

Mr. Lo Wa Kei, Roy

Remuneration committee Ms. Fan Qing (Chairman)

Mr. Guo Yumin

Mr. Lo Wa Kei, Roy

Compliance adviser Haitong International Capital Limited

Cayman Islands principal share registrar

and transfer office

Appleby Trust (Cayman) Ltd.

Clifton House

75 Fort Street

PO Box 1350

Grand Cayman

KY1-1108

Cayman Islands

Hong Kong Branch Share Registrar

and transfer office

Tricor Investor Services Limited

26/F, Tesbury Centre

28 Queen’s Road East

Wanchai

Hong Kong


– 63 –

Principal bankers Bank of China Limited

Huai An Economic & Technological

Development Zone Sub-branch

Room C135, C235

Block C

Hongkang Xingwangjiao Commercial and

Leisure City

Huai An Economic & Technological

Development Zone

Jiangsu Province

PRC

Shanghai Pudong Development Bank

Nanjing Sub-branch

90 East Zhongshan Road

Nanjing

Shanghai

PRC

China Construction Bank

Qingdao Chengyang Sub-branch

200 Zhengyang Road

Chengyang District

Qingdao

Shandong Province

PRC

Bank of Qingdao Co., Ltd.

220 Zhengyang Road

Chengyang District

Qingdao

Shandong Province

PRC


– 64 –

This and other sections of this prospectus contain certain information which is

derived from official government publications and industry sources as well as a report we

commissioned from Euromonitor International, an Independent Third Party. We believe

that the sources of this information are appropriate sources for such information and

have taken reasonable care in extracting and reproducing such information. We have no

reason to believe that such information is false or misleading or that any fact has been

omitted that would render such information false or misleading. The information derived

from the above sources has not been independently verified by us, the Sole Sponsor, the

Sole Bookrunner, the Underwriters, any of their respective directors, affiliates or any

other party involved in the Share Offer and no representation is given as to its accuracy.

Unless otherwise indicated, all figures in this industry overview section are in nominal

terms.

SOURCES OF INFORMATION

We commissioned a report from Euromonitor International, an Independent Third Party,

to conduct an analysis of, and to report on, cigarettes and cigarettes packaging markets in the

PRC for the period from 2007 to 2016. The date of the report was 29 June 2012. Euromonitor

International has been engaged in a number of market assessment projects in connection with

initial public offerings in Hong Kong, covering the PRC’s manufacturing industries in

particular. A total fee of US$33,600 was paid to Euromonitor International for the preparation

of the report. The report commissioned has been prepared by Euromonitor International

independent of our influence.

Euromonitor International has developed a custom research programme to look into the

primary interest areas for the cigarette and cigarette packaging markets in the PRC, with

following main focuses,

• Overview of the PRC’s economy

• Overview of the PRC’s cigarette industry

• Cigarette packaging industry in the PRC and Jiangsu Province

Euromonitor International primarily undertook top-down central research with bottom-up

intelligence to present a more comprehensive and accurate picture of the cigarette and cigarette

packaging market in the PRC.

Euromonitor International gathered information from multiple relevant published data

sources, including National Bureau of Statistics of China, STMA, Tobacco Market of China

and Tobacco China Online.

Euromonitor International conducted trade interviews with the cigarettes and cigarette

packaging manufacturers, distributors, retailers and any other third parties for fresh data,

opinions and insights, as well as national or regional industry associations, government,

INDUSTRY OVERVIEW

– 65 –

semi-official and other industry observers. Euromonitor International believes that

interviewing respondents from different departments within companies and multiple companies

through the value chain enables coverage of a range of issues and help reconcile a spectrum

of data and opinions. A reliable data set and valid conclusions is reached by independently

building segment consensus.

Euromonitor International adopted its standard practice of both quantitative as well as

qualitative forecast in terms of the market size, growth trends on the basis of a comprehensive

and in-depth review over the historical market development, and a cross check with established

government, industry figures or trade interviews. Estimated statistics for further periods up to

2016 have been derived based on this projection methodology.

Euromonitor International’s primary and secondary research sources are first

standardised, checked and validated to ensure a robust research feed for its analysis. A critical

analysis of all sources and insights is conducted whereby Euromonitor International compares

data, insights and hypotheses to arrive at a set of data and conclusions.

THE PRC ECONOMIC OVERVIEW

The PRC has had accelerated economic growth over the past few years

With the consistent high growth rate around 10% of the PRC’s GDP over the last few

years, the PRC fortified its position as one of the world’s most dynamic economies. Although

the global economy stagnated in 2008 during the financial crisis, which caused the PRC to

show a slower growth rate compared to previous years, increased growth during 2009 and 2010

indicated that the PRC has been recovering from the economic downturn. The per capita GDP

in the PRC reached RMB29,943.3 in 2010, realising a per capita incremental growth of

RMB4,398.0 over 2009. According to the latest data preliminarily published by the 中華人民共和國國家統計局 (National Bureau of Statistics of China*), the PRC’s GDP achieved

RMB47,156.4 billion in 2011, realising 9.2% real growth compared to that in 2010.

Nominal GDP and Nominal Per Capita GDP growth in the PRC

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Nominal GDP Per Capita (RMB)Total Nominal GDP (RMB billion)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Real GDP Growth (%)

Source: National Bureau of Statistics of China

INDUSTRY OVERVIEW

– 66 –

Rapid urbanisation and increasing disposable income

The PRC’s urbanisation is in a stage of acceleration. This is the result of the rapidevolution of the PRC’s social structure, with more people settling down in cities and theestablishment of more supermarkets, department stores and shopping facilities to meet theirrising needs. The latest data issued by the National Bureau of Statistics of China showed that,in 2011, the PRC population reached 1,347.4 million, with the share of urban populationmaking up over half as 51.3% to reach 690.79 million, which indicated that with the pastdecades of accelerated urbanisation, the PRC has been entitled to come onto a new stage towitness brand-new urban and rural population structure.

Urban and Rural Population in the PRC (in million)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Urban PopulationRural Population Urbanisation Rate

1,284.5 1,292.3 1,299.9 1,307.6 1,314.5 1,321.3 1,328.0 1,334.5 1,340.9 1,347.4

795.6 782.4 768.5 757.1 745.5 731.6 715.0 704.0 689.4 671.1 656.6

37.7% 39.1% 40.5% 41.8% 43.0% 44.3% 45.9% 47.0% 48.3%49.9% 51.3%

480.6 502.1 523.8 542.8 562.1 582.9 606.3 624.0 645.1 669.8 690.8

1,276.3


The PRC’s fast growing economy has brought more disposable income to the Chinese

people, which cultivated a solid base of consumers. The per-capita annual disposable incomeof urban households has reached RMB21,810 in 2011, up to 8.4% in terms of real annual

growth rate over the previous year. Simultaneously, the per-capita annual gross income of rural

households has sustained continuous growth to reach RMB6,977 in 2011. Due to ascendingincome levels, the purchasing power of consumers has strengthened, which is directly linked

to the performance of consumer market.

Per Capita Annual Income in the PRC (in RMB)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Annual Gross Income of Rural HouseholdsAnnual Disposable Income of Urban Households

6,8607,703

2,366 2,476

8,472

2,622

9,422

2,936

10,493

3,255

11,759

3,587

13,786

4,140

15,781

4,761

17,175

5,153

19,109

5,919

21,810

6,977


INDUSTRY OVERVIEW

– 67 –

CIGARETTE MARKET IN THE PRC

Market overview

Cigarette market is growing stably in the PRC

The PRC is one of the most important countries for cigarette manufacturing, besides the

United States of America and Japan. Cigarette (duty paid) market in the PRC maintained its

high growth rate over the past few years and reached RMB1,037.6 billion in retail sales value

by the end of 2011, realising a growth of 12.5% over 2010. This was mostly attributable to the

on-going consolidation across the cigarette industry, so that all of the companies engaged in

this field have been experiencing the same transition. During this transition, the large number

of small-sized and low-efficiency players would be washed out and those who stayed in-line

with the reform would benefit from the change. Cigarettes are classified into “high-tar

cigarettes” (white stick cigarettes with a tar content of greater than 10 milligrams); “mid-tar

cigarettes” (white stick cigarettes with a tar content of six to 10 milligrams); “low-tar

cigarettes” (white stick cigarettes with a tar content of four to six milligrams; and “ultra low-tar

cigarettes” (white stick cigarettes with a tar content of less than four milligrams). With effect

from 2011, cigarette with tar level of over 12 milligrams per stick is prohibited to be sold in

the PRC, and according to STMA, cigarette with tar level of over 11 milligrams will be

prohibited to be sold in the PRC with effect from 2013, while cigarette with tar level of over

10 milligrams will be prohibited to be sold in the PRC in 2015. “High-tar cigarettes” are sold

at a lower unit price and captured a higher market share in the PRC currently. Most of the 20

+ 10 Key Brands, including Nanjing, Su Yan and the other brand under the “20 + 10” Key

Brands for which our Group currently supply packaging materials, supply “high-tar cigarettes”.

As a result of the STMA’s policy to prohibit the sale of “high-tar cigarettes” in the PRC, it is

expected that cigarette manufactures will migrate to produce other classes of cigarettes, so that

smokers in the PRC will switch to consume other classes of cigarettes which are selling at a

higher unit price. Accordingly, the forecasted cigarette market size in the PRC in monetary

term will be increased at a higher rate than that of the previous several years.

Based on the measures aimed at upgrading the cigarette industry, this market is expected

to enjoy the scale-effect and show more prosperous growth in the future. By 2016, the cigarette

market in the PRC is expected to achieve RMB2,058.5 billion, attaining a CAGR of 15.4% over

the period from 2012 to 2016, even higher than that of the period from 2007 to 2011, when the

CAGR was 12.3%.

INDUSTRY OVERVIEW

– 68 –

Cigarette Market Size in the PRC (in RMB billion)

2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F

651.4 732.3824.7

922.11,037.6

1,162.01,305.8

1,497.3

1,759.4

2,058.5

Source: Euromonitor International

In terms of production, the cigarette market in the PRC rose to 2,467.9 billion sticks in

2011, with a mild growth rate of 3.9%. Over the period from 2007 to 2011, the cigarette

production kept growing at a stable pace around a CAGR of 3.6%. However in the meantime,

the retail sales of cigarette in value terms in the PRC has been increasing at a much higher

CAGR of 12.3%. This distinct gap between production volume and the sales value indicated

the rising unit selling price of cigarette and the rising cost occurring with the structural

adjustment of cigarette industry with more output of mid-to-high end cigarettes.

According to National Bureau of Statistics of China, the production volume of cigarettes

in Jiangsu Province and Shandong Province reached 99.1 billion sticks and 136.1 billion sticks

respectively. STMA indicated that the sales volume of cigarettes in Jiangsu Province reached

126.9 billion sticks in the first eleven months in 2011 and Shandong Province reached 178.5

billion sticks in the full year of 2011.

Cigarette Production Volume in the PRC (in billion sticks)

2007 2008 2009 2010 2011

Total production volume

2,143.9

2,219.9

2,290.2

2,375.3

2,467.9


China cigarette market is monopolised by CNTC

Cigarette in China was a monopoly market, with CNTC dominating the market with a

share of 97.8% in 2011. CNTC is the only legitimate company to manufacture cigarettes in the

PRC, which is comprised of three types of entities: Cigarette Group (煙草集團), Provincial

Tobacco Industrial Company (省級中煙工業公司) and China Tobacco Industry Development

INDUSTRY OVERVIEW

– 69 –

Center (中國煙草實業發展中心). The other main companies with sales in cigarette market in

the PRC refer to all of the foreign cigarette manufacturers, including British American Tobacco

P.L.C, Philip Morris International Inc. and Japan Tobacco Inc., taking a share of 0.6%, 0.3%

and 0.1% separately.

According to STMA, CNTC administered a unified management system to regulate the

overall twenty-six cigarette manufacturing companies in the PRC. These twenty-six companies

include one cigarette group, sixteen “Provincial Tobacco Industrial Companies” (省級中煙工業公司) and nine other non-provincial companies under the “China Tobacco Industry

Development Center” (中國煙草實業發展中心).

Cigarette Group

It refers to Shanghai Tobacco Group Co., Ltd.

Provincial Tobacco Industrial Companies

Sixteen Provincial Tobacco Industrial Companies established by CNTC in China to unify

its management at the provincial level. The Provincial Tobacco Industrial Companies’

distribution almost covered all the regions in China.

China Tobacco Industry Development Center

It has nine non-provincial tobacco industrial companies in China and is a subsidiary of

CNTC.

As with other Provincial Tobacco Industrial Companies, China Tobacco Shandong

Industrial Co., Ltd, China Tobacco Jiangsu Industrial Co., Ltd and China Tobacco Guangxi

Industrial Co., Ltd monopolise the in-province cigarette manufacturing market in their

respective province, taking a share of 4.5%, 3.9% and 2.2% respectively in the cigarette

manufacturing market in retail sales volume terms in the PRC in 2011.

Market Shares of Cigarette Market in Retail Sales Volume in the PRC in 2011

CNTC(China National

Tobacco Corporation)97.8%

Others1.2%

Japan Tobacco Inc.0.1%

Philip Morris International Inc.

0.3%

British American Tobacco P.L.C.

0.6%


INDUSTRY OVERVIEW

– 70 –

Besides, the smoker population of the PRC reached 264.1 million in 2011, and it is

forecasted to maintain steady growth in the near future. Although with the increasing

awareness of health, smoking population’s growth rate has slowed down when compared to that

of previous years when it was around 1.1% which is consistent with the historical trend of

decrease in the rate of increase of smoking population in the last few years and as a result of

the smoking control policies adopted by the PRC Government as set out in the section headed

“Regulatory overview” in this prospectus, in face of the huge base of smokers, cigarettes will

be continuously in demand, which promises a further development of the cigarette market in

the PRC.

Smoking Population in the PRC (in million)

2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F

253

256

259262

264266

268269 270 272


Per capita annual consumer expenditure on cigarette for smoking population

Consumer expenditures in the PRC have been growing rapidly due to the PRC’s booming

economy. Per capita annual consumer expenditures on cigarette for smoking population

reached about RMB3,928.6 by the end of 2011, increasing by 11.6% over 2010, when the

number was RMB3,519.7. The increase results from the rising disposable income of the

population, the development of cigarette industry in the PRC and the expected switch from

consuming high-tar cigarettes to other classes of cigarettes, which are selling at a higher unit

price, as a result of the government policy to prohibit the sale of high tar cigarettes in the

future.

Per Capita Annual Consumer Expenditure on Cigarette for Smoking Population

in the PRC (in RMB)

2,574.42,856.4

3,184.33,519.7

3,928.64,368.8

4,875.3

5,563.6

6,505.5

7,573.5

2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F


INDUSTRY OVERVIEW

– 71 –

Market trends

The PRC Government issued relevant policy to exert great impact on the tobacco industry

In 2002, the STMA raised the development strategy of “Great Market, Famous Brand and

Large Enterprise” (大市場、大品牌、大企業), which became the policy basis of brand

expansion during the period of “The 10th Five-Year Plan” (十五計劃). In 2003, the concept of

the “Chinese-style Cigarette” (中式捲煙) was proposed to be incorporated into the current

cigarette brands, which would provide a way to consolidate their brand positions.

In 2003, the PRC signed the WHO Framework Convention on Tobacco Control to protect

the health and environment from tobacco consumption and exposure to tobacco smoke to a

great extent. The agreement provided a framework for tobacco control measures and came into

effect in the PRC in 2005. Relevant measures relating to the reduction of demand for tobacco

include (i) Price and tax measures; (ii) Regulation of the contents of tobacco products; (iii)

Regulation of tobacco product disclosures; (iv) Packaging and labeling of tobacco products; (v)

Education, communication, training and public awareness; (vi) Tobacco advertising, promotion

and sponsorship. The cigarette market in the PRC is monopolised by the PRC Government,

referring to the STMA (State Tobacco Monopoly Administration) and the CNTC (China

National Tobacco Cooperation). As per the promulgation of the Regulation on Tobacco

Monopoly in early 1983, the PRC commenced the tobacco retailing market in a pure way of

top-down execution. In recent years, the tobacco industry in the PRC has been undergoing

restructuring and consolidation. In 2000, there were a total of 1,181 cigarette brands in the PRC

and the cigarette industry was faced with inefficiency problems, such as being fragmented,

small-scale and having low productivity. Thus in 2001, STMA issued “Proposal on

Accelerating Structural Adjustment for Cigarette Products” (關於加快捲煙產品結構調整的意見), framed “Strategic Research Outline of China Cigarette Brands” (中國捲煙品牌戰略研究提綱) and issued the list of “Famous and High Quality Cigarette Brands over the National

Tobacco Industry, 2001” (2001年度全國煙草行業名優捲煙品牌), in which 36 brands were

listed. Meanwhile, some small factories with an annual output of less than 100,000 master

cartons were closed at a gradual pace. Those manufacturers with an annual output of between

100,000 to 300,000 master cartons were acquired by other manufacturers, and the

manufacturers with an annual output of around 400,000 master cartons were merged with other

manufacturers, according to the brand strategy of the PRC’s cigarettes.

INDUSTRY OVERVIEW

– 72 –

In 2004, the STMA issued a list of 100 brands of cigarette products aiming for a reduction

of the number of cigarette brands within two to three years. In 2006, the STMA announced

“Development Outline of China Cigarette Brands” (中國捲煙品牌發展綱要), specifying the

plan to focus on cultivating 10 key brands and 10 key enterprises during the “The 10th

Five-Year Plan”. In 2008, the STMA proposed a “20+10” plan to identify a total of 30 key

brands across the national market.

“20+10” Brand Directory

Identity

Brand Name

(in English)

Brand

Name (in

Chinese) Company Name (in English) Company Name (in Chinese)

20 Key National

Backbone

Cigarette Brands

Chunghwa 中華 Shanghai Tobacco Group Co., Ltd 上海煙草 (集團)有限責任公司Yunyan 雲煙 China Tobacco Yunnan Industrial Co., Ltd 雲南中煙工業有限責任公司Furongwang 芙蓉王 China Tobacco Hunan Industrial Co., Ltd 湖南中煙工業有限責任公司Yuxi 玉溪 China Tobacco Yunnan Industrial Co., Ltd 雲南中煙工業有限責任公司Baisha 白沙 China Tobacco Hunan Industrial Co., Ltd 湖南中煙工業有限責任公司Hongtashan 紅塔山 China Tobacco Yunnan Industrial Co., Ltd 雲南中煙工業有限責任公司Su Yan 蘇煙 China Tobacco Jiangsu Industrial Co., Ltd 江蘇中煙工業有限責任公司Liqun 利群 China Tobacco Zhejiang Industrial Co., Ltd 浙江中煙工業有限責任公司Honghe 紅河 China Tobacco Yunnan Industrial Co., Ltd 雲南中煙工業有限責任公司Huanghelou 黃鶴樓 China Tobacco Hubei Industrial Co., Ltd 湖北中煙工業有限責任公司Septwolves 七匹狼 China Tobacco Fujian Industrial Co., Ltd 福建中煙工業有限責任公司Huangshan 黃山 China Tobacco Anhui Industrial Co., Ltd 安徽中煙工業有限責任公司Nanjing 南京 China Tobacco Jiangsu Industrial Co., Ltd 江蘇中煙工業有限責任公司Shuangxi 雙喜 China Tobacco Guangdong Industrial Co., Ltd 廣東中煙工業有限責任公司Double Happiness 紅雙喜 Shanghai Tobacco Group Co., Ltd 上海煙草 (集團)有限責任公司Hongmei 紅梅 China Tobacco Yunnan Industrial Co., Ltd 雲南中煙工業有限責任公司Pride 嬌子 China Tobacco Chuanyu Industrial Co., Ltd 川渝中煙工業有限責任公司Huangguoshu 黃果樹 China Tobacco Guizhou Industrial Co., Ltd 貴州中煙工業有限責任公司Zhenlong 真龍 China Tobacco Guangxi Industrial Co., Ltd 廣西中煙工業有限責任公司Dihao 帝豪 China Tobacco Henan Industrial Co., Ltd 河南中煙工業有限責任公司

The Other 10 Key

Cigarette Brands

Taishan 泰山 China Tobacco Shandong Industrial Co., Ltd 山東中煙工業有限責任公司Diamond 鑽石 China Tobacco Hebei Industrial Co., Ltd 河北中煙工業有限責任公司Jinshen 金聖 China Tobacco Jiangxi Industrial Co., Ltd 江西中煙工業有限責任公司Haomao 好貓 China Tobacco Shanxi Industrial Co., Ltd 陝西中煙工業有限責任公司Lanzhou 蘭州 Gansu Tobacco Industry Co., Ltd 甘肅煙草工業有限責任公司Changbaishan 長白山 Jinlin Tobacco Industry Co., Ltd 吉林煙草工業有限責任公司Zhongnanhai 中南海 Shanghai Tobacco Group Co., Ltd 上海煙草 (集團)有限責任公司Derby 都寶 China Tobacco Anhui Industrial Co., Ltd 安徽中煙工業有限責任公司Golden Bridge 金橋 China Tobacco Fujian Industrial Co., Ltd 福建中煙工業有限責任公司Guiyan 貴煙 China Tobacco Guizhou Industrial Co., Ltd 貴州中煙工業有限責任公司

Source: STMA

INDUSTRY OVERVIEW

– 73 –

In 2009, the STMA issued “Proposal on Accelerating Cultivation of National Key

Brands” (關於加快培育全國性重點骨幹品牌的指導意見) (the “Proposal”) to speed up the

brand development strategy, realising the shift from simply scale-output to efficient scale-

effect. The “National Key Brands” referred to in the Proposal refers to the national key brands

identified pursuant to the National Key Brand Evaluation System (全國性捲煙重點骨幹品牌評價體系) and the top thirty of them are referred as “20+10 Key Brands”. The Proposal did not

set out a list of “National Key Brands”. The Proposal was designed to focus on developing tiers

one to three cigarette brands as listed above from the “20+10” Key Brands by improving their

proportion of sales in the overall tiers one to three cigarette market. Meanwhile, sales of tiers

four and five cigarette brands should be controlled within a limited range to facilitate the

growth and consolidation of tiers one to three cigarette brands. As such, cigarette product

structure is expected to be upgrading with increasing growth of higher tier brands in sales

terms. According to the standard for classification of cigarettes in five tiers issued by STMA,

the three brands under the “20+10” Key Brands currently using our Group’s products

(including Nanjing and Su Yan) are classified as tier-one cigarette brands.

Furthermore, in 2010, the STMA announced the “532” and “461” plans to facilitate the

consolidation process and enhance operations within the tobacco industry. Specifically, the

“532” plan aims to cultivate five cigarette brands achieving an annual production volume of

over two million master cartons, three cigarette brands with an annual production volume of

over three million master cartons, and two cigarette brands realising over five million master

cartons by 2015, which will aggregate the competitive force to form some giants in cigarette

industry in the PRC. On the other hand, the “461” plan was set to bring up twelve cigarette

brands with an annual sales turnover of over RMB40 billion, among which six brands would

reach a turnover of over RMB60 billion with one cigarette brand achieving an annual sales

turnover of over RMB100 billion by 2015. The current plan is on track and the cigarette

industry in the PRC will display a more consolidated landscape in the future.

Note: STMA issued the standard for classification of cigarette in five tiers as follows: for one standard carton of

cigarettes (200 sticks), 1) tier-1 cigarettes: with selling price (VAT excluded) of above RMB100; 2) tier-2

cigarettes: with selling price (VAT excluded) of RMB70 to RMB100; 3) tier-3 cigarettes: with selling price

(VAT excluded) of RMB30 to RMB70; 4) tier-4 cigarettes: with selling price (VAT excluded) of RMB16.5 to

RMB30; 5) tier-5 cigarettes: with selling price (VAT excluded) of below RMB16.5.

INDUSTRY OVERVIEW

– 74 –

Tobacco industry has been undergoing a facilitated evolution to realise higher-level

consolidation

In line with the relevant policy issued by the PRC Government to exert influence on the

industry consolidation at the macro level, specific cigarette brands have been energised to

facilitate the process, which was represented in the decreasing number of both manufacturers

and brands. During the last round of reconstruction between 1999 and 2009, interprovincial

consolidation began to be realised with Hongta Tobacco (Group) Co., Ltd. and China Tobacco

Hunan Industrial Co., Ltd. acting as the forefront in the merger rush. Other major tobacco

groups emerged as leaders of the revolution with Shanghai Tobacco Group acquiring the

Beijing Tobacco Factory in 2003 and Tianjin Tobacco Factory in 2004. According to STMA,

the number of cigarette manufacturing companies in the PRC has declined to 26 by 2011, as

opposed to the year 2000 when there were nearly 200 enterprises involved in cigarette

manufacture. These 26 companies include one cigarette group, 16 “Provincial Tobacco

Industrial Companies” (省級中煙工業公司) (Hongyunhonghe Tobacco (Group) Co., Ltd. and

Hongta Tobacco (Group) Co., Ltd are the subsidiaries of China Tobacco Yunnan Industrial Co.,

Ltd.) and nine other non-provincial companies from the “China Tobacco Industry Development

Center” (中國煙草實業發展中心). The total brand number decreased from 1,181 in 2000 to 117

by 2011.

Manufacturers in Cigarette Manufacturing Market in the PRC in 2011

Cigarette Group5.7%

Provincial Tobacco Industrial Companies

85.6%

China Tobacco IndustryDevelopment Center

8.7%

INDUSTRY OVERVIEW

– 75 –

State Tobacco Monopoly Administration (國家煙草專賣局)/China National Tobacco

Corporation (中國煙草總公司)

Identity Company Name Company Name

Market

Share

(in English) (in Chinese) (Volume)

Cigarette Group/煙草集團 Shanghai Tobacco Group Co., Ltd 上海煙草(集團)有限責任公司 5.7%

Provincial Tobacco Industrial

Company/省級中煙工業公司

China Tobacco Hebei Industrial Co., Ltd

China Tobacco Jiangsu Industrial Co., Ltd

China Tobacco Zhejiang Industrial Co., Ltd

China Tobacco Anhui Industrial Co., Ltd

China Tobacco Fujian Industrial Co., Ltd

China Tobacco Jiangxi Industrial Co., Ltd

China Tobacco Shandong Industrial Co., Ltd

China Tobacco Henan Industrial Co., Ltd

China Tobacco Hubei Industrial Co., Ltd

China Tobacco Hunan Industrial Co., Ltd

China Tobacco Guangdong Industrial Co., Ltd

China Tobacco Guangxi Industrial Co., Ltd

China Tobacco Chuanyu Industrial Co., Ltd

China Tobacco Guizhou Industrial Co., Ltd

China Tobacco Yunnan Industrial Co., Ltd

China Tobacco Shanxi Industrial Co., Ltd

河北中煙工業有限責任公司江蘇中煙工業有限責任公司浙江中煙工業有限責任公司安徽中煙工業有限責任公司福建中煙工業有限責任公司江西中煙工業有限責任公司山東中煙工業有限責任公司河南中煙工業有限責任公司湖北中煙工業有限責任公司湖南中煙工業有限責任公司廣東中煙工業有限責任公司廣西中煙工業有限責任公司川渝中煙工業有限責任公司貴州中煙工業有限責任公司雲南中煙工業有限責任公司陝西中煙工業有限責任公司

85.6%

China Tobacco Industry

Development Center/

中國煙草實業發展中心

Heilongjiang Tobacco Industry Co., Ltd

Hongta Liaoning Tobacco Co., Ltd

Jinlin Tobacco Industry Co., Ltd

Gansu Tobacco Industry Co., Ltd

Shenzhen Tobacco Industry Co., Ltd

Inner Mongolia Kunming Cigarette Co., Ltd

Shangxi Kunming Tobacco Co., Ltd

Hainan Hongta Cigarette Co., Ltd

Jilin Tobacco Imp & Exp Co., Ltd

黑龍江煙草工業有限責任公司紅塔遼寧煙草有限責任公司吉林煙草工業有限責任公司甘肅煙草工業有限責任公司深圳煙草工業有限責任公司內蒙古昆明捲煙有限責任公司山西昆明煙草有限責任公司海南紅塔捲煙有限責任公司吉林煙草進出口有限責任公司

8.7%

Source: STMA

A series of measures to accelerate tobacco consolidation both from the top-down and

bottom-up levels as described above aim to upgrade their industrial structure to realise

intensive growth. Furthermore, some world-class tobacco enterprises can be expected to debut

in the international market.

INDUSTRY OVERVIEW

– 76 –

On the other hand, cigarette brand in the PRC has also been experiencing the evolution

of consolidation. Statistics by STMA indicated that by the end of 2011, there were total 117

domestic cigarette brands in the PRC. Compared to the brands number of 1,181 early in 2000

in the PRC, the cigarette industry now has been consolidated a lot, which would be favourable

to ease the inefficiency problem to cultivate a more consolidate cigarette industry.

Total Number of Cigarette Brands in the PRC

2007 2008 2009 2010 2011

173

154138 133

117

Source: STMA

Huge amount of counterfeit cigarettes flow in to hamper the market

The high margin of sales for cigarettes and strong demand from cigarette smokers

tempted some players to inject counterfeit cigarettes into the market, which may hamper the

growth of the cigarette industry in the PRC. According to STMA, over 290 large cigarette

production hubs have been closed down as of the end 2011. And the volume of counterfeit

cigarettes confiscated by the government in 2011 reached 3.8 billion sticks, which are a great

amount to hamper the normal cigarette market. However the volume confiscated has declined

to a great extent, decreasing 33.6% over 2010. And over the past five years from 2007 to 2011,

the counterfeit cigarettes showed a CAGR of -19.9%, which demonstrated that the market is

becoming more regulated. In light of the prevention of counterfeit cigarettes, one of the

measures adopted by the cigarette manufacturers is to use high-quality cigarette packaging

with anti-counterfeit features, such as holographic images, to facilitate customers in

distinguishing counterfeit cigarettes from the genuine cigarettes.

Volume of Counterfeit Cigarettes Confiscated in the PRC (in billion sticks)

2007 2008 2009 2010 2011

9.3

6.1 5.8

3.8

8.3

Source: STMA

INDUSTRY OVERVIEW

– 77 –

CIGARETTE PACKAGING MARKET IN THE PRC

Cigarette packaging in the PRC

Market overview

The cigarette packaging industry in the PRC has been growing mildly over the review

period from 2007 to 2011, amounting to RMB31,837.9 million in value terms in 2011. This wasmainly attributable to upper-level consolidation of the cigarette manufacturing market, where

brand quantity has been reduced significantly. Cigarette packaging companies have to confront

the loss of dozens of brands, as cigarettes are made-to-order products and every single unit is

marked with a unique logo. The shortlisted cigarette brands will find it easier to achieve highermarket performance, which will help leverage further sales in the cigarette packaging market.

It is forecasted that the cigarette packaging market will have a stable growth rate over the next

5 years to reach RMB37,338.6 million by 2016.

Cigarette Packaging Market Size in the PRC (in RMB million)

26,974.228,118.0 29,255.0 30,686.5 31,837.9 32,711.8 33,874.1

35,042.0 36,194.9 37,338.6

2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F


Accounting for nearly 10% of the cigarette packaging market, the film packaging marketshowed a similar growth trend to reach a market size of RMB2,406.8 million in value terms

and sales volume of 86,736.7 tonnes in 2011. Traditional packaging film mainly functions as

the packaging film to wrap the cigarette packet, case and carton. There is an emerging trend

to utilise the film packaging as a counterfeit prevention tool during manufacturing by printing

the logo into the film or increasing the compressed film layers to differentiate a cigarette brand

from others. Anti-counterfeiting measures are certain to be emphasised more in the process of

cigarette manufacturing, thus the cigarette film packaging market is forecasted to grow stably

to achieve RMB2,861.6 million in 2016.

Cigarette Film Packaging Market Size in the PRC (in RMB million)

2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F

2,024.7 2,137.9 2,226.62,316.0 2,406.8 2,496.7 2,587.1 2,678.7

2,770.9 2,861.6


INDUSTRY OVERVIEW

– 78 –

Market Trends

Cigarette Packaging Industry Will Undergo a Further Consolidation

Over the past few decades, cigarette manufacturers have been implementing a multi-brand

strategy to explore the cigarette market in an attempt to grab a higher market share. This

method required upstream packaging companies to be operating in a variety of products and

services to fulfil the various packaging material and printing technology requests. This brand

diversification has given rise to a growing number of companies engaged in cigarette

packaging. However in the last few years, as PRC signed the WHO Framework Convention on

Tobacco Control in 2003, and a series of revolutionary policies and regulations issued since

2000s, the cigarette industry in the PRC has been in the process of consolidation through

restructuring and integration which led to a decrease in number of brands.

Generally one cigarette manufacturer will select two to five cigarette packaging

companies as its suppliers for every single brand, which indicates that the on-going

consolidation of the cigarette industry will drive a similar move in the cigarette packaging

industry in the PRC. Likewise, it is the industry norm for players in the cigarette packaging

industry to hold two to five customers to guarantee business stability. The top 5 customers can

contribute a combined share of over 60% of the overall retail sales value.

Accompanying reduction of the total cigarette brands from 1,181 to 117 over the past

decade, cigarette packaging companies have been undergoing a similar change as well. In 2011,

the number of cigarette packaging companies in the PRC was around 150, decreasing by

approximately 30% from 2007, when there were over 200. In light of this trend, the number

of cigarette packaging companies will likely consolidate further, with several giant packaging

companies emerging to forge cooperation with the consolidated cigarette manufacturers by

absorbing the fragmented resources of packaging companies that no longer remain in the

business.

Cigarette Packaging Players Attempting to Diversify Business

Consolidation in the cigarette industry created opportunities, but also radiated risk in the

meantime. To avoid the possible negative influence by fluctuations in cigarette industry policy,

the upstream packaging manufacturers have been required to prepare to cope with the changes.

For players who maintained a solid connection with the leading cigarette manufacturers, they

will continue to benefit from the increased purchase-order quantity from their clients. However

confronted with fierce competition from others, especially those emerging with advanced

packaging and printing technology, they may lose a portion of their market shares. For players

focusing on relationships with small and medium-sized manufacturers, they may suffer the

results of the revolution and lose the ability to remain in the cigarette business. Action taken

to transfer resources as a business diversification strategy would be critically important to

avoid negative effects and attain healthy financial performance. For example, a leading

domestic cigarette packaging manufacturer expanded its business coverage to target other

industries including liquor packaging, food packaging, medicine packaging, etc.

INDUSTRY OVERVIEW

– 79 –

CIGARETTE PACKAGING IN JIANGSU PROVINCE

Market Overview

Compared to the national cigarette packaging market, which maintained a year-on-year

growth rate around 4.2% in value terms during the review period from 2007 to 2011, cigarette

packaging in Jiangsu Province saw a stronger growth trend, at a CAGR of 5.4% over the same

period, achieving a market size of RMB1,757.9 million in value terms in 2011, accounting for

approximately 5.5% of the cigarette packaging market in the PRC. China Tobacco Jiangsu

Industrial Co., Ltd. who ranks above the average level in the national market, monopolised the

downstream cigarette manufacturing market in Jiangsu Province, the PRC, and it is forecasted

that the cigarette packaging market in Jiangsu Province will enjoy development at a stable

growth pace largely due to their influence. By 2016, this market is estimated to climb to

RMB2,240.9 million, realising a CAGR of 5.1%.

Cigarette Packaging Market Size in Jiangsu Province (in RMB million)

2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F

1,424.1 1,499.7 1,581.41,668.9 1,757.9

1,834.21,930.2

2,030.22,135.1

2,240.9


INDUSTRY OVERVIEW

– 80 –

Competitive Landscape

About 10 companies supplied cigarette packaging products to China Tobacco Jiangsu

Industrial Co., Ltd. in 2011. Top 5 companies contributed a combined share of over 70% in

sales value terms, which demonstrated that cigarette packaging in Jiangsu Province saw a

highly consolidated market. Company A topped the list with sales value of RMB440.0 million

in 2011, accounting for 25.0% of the cigarette packaging market in Jiangsu Province. Our

Group ranked second, realising a sales value of RMB329.8 million in 2011 to contribute a share

of 18.8% of the cigarette packaging market in Jiangsu Province. The remaining three

companies refer to Company B, Company C and Company D. The top five cigarette packaging

companies supplied cigarette packaging materials mainly for cigarette brands including

Nanjing, Su Yan, Yipinmei, Hongshanshu, Qinhuai, Yuhuashi and Lingshan.

Share of Cigarette Packaging Companies in

Overall Cigarette Packaging in Jiangsu Province

Company A25.0%

Our Group

18.8%

Company B12.6%

Company C8.7%

Company D6.4%

Others28.5%

Rank Company

2011

Sales Value

2011

Market Share

(RMB million)

1 Company A 440.0 25.0%

2 Our Group 329.8 18.8%

3 Company B 221.6 12.6%

4 Company C 152.1 8.7%

5 Company D 111.7 6.4%


INDUSTRY OVERVIEW

– 81 –

The overall cigarette packaging market can be divided into three types: paper-box

packaging, film packaging and others (including metal box and aluminium foil). Paper-box

packaging took the lion’s share to account for 80% of the overall cigarette packaging market.

In 2011, overall cigarette packaging in Jiangsu Province realised a market size of RMB1,757.9

million, and the paper-box packaging sector reached RMB1,431.7 million. Similar to the

landscape of the overall cigarette packaging market, paper-box packaging in Jiangsu Province

demonstrated a highly consolidated market, with the top 5 companies occupying a share of

nearly 80%. Followed by our Group whose sales value in 2011 reached RMB221.8 million,

Company A topped the list with a share of 30.7% of the paper-box packaging market in 2011,

achieving RMB440.0 million. Company B ranked the third, accounting for a share of 15.5% of

the market to reach a sales value of RMB221.6 million in 2011. The other two manufacturers

within the list of top 5 companies are Company C and Company D.

Share of Cigarette Packaging Companies in Paper-box Packaging in Jiangsu Province

Company A30.7%

Company B15.5%

Company C10.6%

Company D7.8%

Others19.9%

Our Group

15.5%

Rank Company

2011

Sales Value

2011

Market Share

(RMB million)

1 Company A 440.0 30.7%

2 Our Group 221.8 15.5%

3 Company B 221.6 15.5%

4 Company C 152.1 10.6%

5 Company D 111.7 7.8%


INDUSTRY OVERVIEW

– 82 –

The cigarette film packaging market in Jiangsu reached RMB127.0 million in 2011.

Dominated by our Group, who swallowed an individual share of nearly 85.1% of the market,

achieving a sales value of RMB108.0 million in 2011, the cigarette film packaging market in

the PRC displayed an extremely consolidated market landscape. Company E followed to

contribute a share of 9.5% of the market with a sales value of RMB12.0 million. The two

companies aggregately took a combined share of 94.5% of this market in 2011.

Share of Cigarette Packaging Companies in Film Packaging in Jiangsu Province

Others5.4%

Our Group

85.1%

Company E9.5%

Rank Company

2011

Sales Value

2011

Market Share

(RMB million)

1 Our Group 108.0 85.1%

2 Company E 12.0 9.5%


INDUSTRY OVERVIEW

– 83 –

CRUDE OIL PRICE

The key raw material for BOPP films and our films are polypropylene which is a crude

oil by-product. According to the graph set out below, the crude oil price decreased by 36.9%

from US$60.1 per barrel at the beginning of 2007 to US$37.9 per barrel at the end of 2008.

However, the crude oil price increased by 159% from US$41.8 per barrel at the beginning of

2009 to US$108.3 per barrel at the end of 2011. During the Track Record Period, the highest

and the lowest crude oil price were US$126.7 per barrel and US$39.1 per barrel respectively.

Price Trend of Crude Oil (in US$ per barrel)

30

40

50

60

70

80

90

100

110

120

130

140

150

2007 2008 2009 2010 2011

Source: Bloomberg

INDUSTRY OVERVIEW

– 84 –

INTRODUCTION

According to the Tobacco Monopoly Law of the PRC (中華人民共和國煙草專賣法)

promulgated by NPCSC on 29 June 1991 with effective date of 1 January 1992, “tobacco

monopoly commodities” refer to cigarettes, cigars, cut tobacco, re-dried leaf tobacco, leaf

tobacco, cigarette paper, filter rods, cigarette tow and cigarette manufacturing equipment.

“Tobacco products” refer to cigarettes, cigars, cut tobacco and re-dried leaf tobacco.

As the cigarette packaging materials are neither “tobacco monopoly commodities” nor

“tobacco products”, the cigarette packaging material industry is not regulated under the

Tobacco Monopoly Law of the PRC.

The following section summarises the principal PRC laws and regulations relating to the

operations of our PRC subsidiaries.

PRC REGULATIONS ON THE CATALOGUE OF INDUSTRIES FOR GUIDING

FOREIGN INVESTMENT

According to applicable PRC regulations on foreign-invested enterprises, capital

contributions from a foreign holding company to its PRC subsidiaries, which are considered

foreign-invested enterprises (or foreign-funded enterprises), may only be made when the

approval by the MOFCOM or its local counterpart is obtained. In approving such capital

contributions, the MOFCOM or its local counterpart examines the business scope of each

foreign-invested enterprise (or foreign-funded enterprise) under review to ensure it complies

with the Catalogue of Industries for Guiding Foreign Investment, which classifies industries in

China into three categories: “encouraged foreign investment industries”, “restricted foreign

investment industries” and “prohibited foreign investment industries”. Those industries which

do not fall within any of these three categories are regarded as “permitted foreign investment

industries”.

The Catalogue of Industries for Guiding Foreign Investment (外商投資產業指導目錄)

promulgated on 30 November 2004 by the National Development and Reform Commission and

the MOFCOM, was revised on 7 November 2007 and enforced on 1 December 2007 (the “2007

Industrial Guidance Catalogue”) and later revised on 24 December 2011 and enforced on 30

January 2012 (the “2011 Industrial Guidance Catalogue”). According to both the 2007

Industrial Guidance Catalogue and the 2011 Industrial Guidance Catalogue, the industries in

which the PRC subsidiaries of our Company engage do not fall in any of the restricted foreign

investment industries or prohibited foreign investment industries.

LAWS AND REGULATIONS IN RELATION TO THE PRINTING INDUSTRY

The initial framework for regulating the domestic printing industry was provided in the

Regulations on the Administration of Printing Industry (印刷業管理條例) (the “1997

Regulations”) promulgated by PRC State Council (國務院) on 8 March 1997 and came into

effect on 1 May 1997, which was subsequently abolished and superseded by the new

Regulations on the Administration of Printing Industry (印刷業管理條例) (the “2001

Regulations”) promulgated by the State Council on 2 August 2001.

REGULATORY OVERVIEW

– 85 –

The PRC Government delegates the administration of printing product regulations to

various government entities. The main regulatory bodies are the GAPP and its local

departments and the local administrations for industry and commerce. According to the 2001

Regulations, a printing company is required to obtain the approval from the GAPP or its

authorised local agencies and then subsequently obtain a printing licence (印刷經營許可證)

from the publication administrative authority at provincial level and a business licence from

the local administration for industry and commence. A printing licence shall not be leased, lent

or transferred by any means.

Pursuant to the Interim Provisions on the Qualifications of Printing Operations (印刷業經營者資格條件暫行規定) issued by the GAPP on 9 November 2001, which specifies the

qualifications required for the enterprises to engage in printing operations, printing operators

must satisfy such qualification requirements in order to obtain an approval for their

establishment and application for printing licence from the press and publication

administration.

In accordance with the Interim Provisions on the Qualifications of Printing Operations,

in order to obtain a printing licence, applicants are required to: (i) submit the name of the

enterprise and its articles of association; (ii) provide a well-defined scope of business; (iii) be

in possession of production and business premises that can meet the needs of its scope of

business, and necessary capital, equipment and other production and business conditions as

well; (iv) be in possession of an organisational structure and staff that can meet the needs of

its scope of business; and (v) fulfil other conditions stipulated by the relevant laws and

administrative regulations.

APPROVALS OF FOREIGN INVESTMENT IN PRINTING INDUSTRY

Under the Interim Provisions on the Establishment of Foreign Invested Printing

Enterprise (設立外商投資企業印刷企業暫行規定) (the “2002 Interim Provisions”) which

jointly promulgated by the GAPP and the Ministry of Foreign Trade and Economic Cooperation

(對外貿易經濟合作部), the predecessor of the MOFCOM on 29 January 2002, the

establishment of foreign invested printing enterprises, in the forms of Chinese-foreign equity

or cooperative joint ventures (“Joint Ventures”) or wholly foreign owned enterprises

(“WFOEs”), shall be subject to the approvals by both the GAPP and the MOFCOM. The Joint

Ventures can engage in the printing business for printing products used for publications,

printing products for packaging and decoration and other printed matters, but the WFOEs are

only allowed to engage in the printing business for printing of products used for packaging and

decoration.

Pursuant to Circular of the Ministry of Commerce on Entrusting the Administrative

Departments of Commerce at the Provincial Level to Examine and Administer the Foreign-

invested Printing Enterprises (商務部關於委託省級商務主管部門審核管理外商投資印刷企業的通知) issued by the MOFCOM dated 12 January 2006, the MOFCOM has delegated the

authority in approving the establishment of Joint Ventures and WFOEs to its local counterparts

at the provincial level.

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LAWS AND REGULATIONS IN RELATION TO PACKAGING AND LABELING OF

TOBACCO

Pursuant to the Provisions of Regulating the Packaging and Labeling of Domestic Sales

of Tobacco (關於規範境內銷售捲煙包裝標識的規定) promulgated on 23 September 2005 by

the STMA and became effective on 1 January 2006, there shall be a distinct warning of

“Smoking is harmful” (written in Chinese) on the packaging and a label of product name; and

it is prohibited to use the wording such as “environmentally friendly”, “gentle” or “low tar” on

the packaging of the tobacco. According to the Provision of Regulating the Packaging and

Labeling of Domestic Sales of Tobacco, the tobacco manufacturers are responsible for ensuring

the compliance of such provision.

LAWS AND REGULATIONS IN RELATION TO QUALITY AND SAFETY OF

PRODUCTS

The Product Quality Law of the PRC (中華人民共和國產品質量法) (the “Product Quality

Law”) was adopted by the NPCSC on 22 February 1993 and amended on 8 July 2000 and on

27 August 2009. Applicable to all production and marketing activities in China, the Product

Quality Law was formulated to strengthen the administration of rules pertaining to product

quality, as well as to clarify the rules on product liability, protect consumers and maintain

social and economic order.

The State Council established a supervising department for conducting nationwide

supervision over product quality, with local authorities performing this duty at the local level.

Products offered for sale must meet the relevant quality and safety standards. Enterprises must

not produce or market counterfeit products in any fashion, including forging brand labels or

giving false information about the manufacturer of a product. Violations of state or industrial

standards for health safety and any other related violations may result in civil liabilities and

penalties, such as compensation for damages, fines, suspension or shutdown of business, as

well as confiscation of products illegally produced for sale and the sales proceeds of such

products. The responsible individual or enterprise will be subject to criminal liabilities for

serious violation. Manufacturers whose products cause personal or property damages due to

their latent defects are liable for such damages.

For the implementation of the Product Quality Law, the Regulation on the Administration

of Production Licence for Industrial Products of the PRC (中華人民共和國工業產品生產許可證管理條例) (“Production Licence Regulation”) was promulgated on 9 July 2005 by the State

Council and became effective on 1 September 2005 to regulate product quality and safety.

Subsequently, on 15 September 2005, for the implementation of the Production Licence

Regulations, the General Administration of Quality Supervision, Inspection and Quarantine of

the PRC (中華人民共和國國家質量監督檢驗檢疫總局) (“AQSIQ”) promulgated the Measures

for the Implementation of the Regulations on the Administration of Production Licence for

Industrial Products of the PRC (中華人民共和國工業產品生產許可證管理條例實施辦法)

(“Production Licence Measures”), which came into effect on 1 November 2005 and amended

on 21 April 2010 and implemented on 1 June 2010. Pursuant to the Production License

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Regulations and the Production Licence Measures, relevant authorities at the provincial level

and above are responsible for issuing production licence to enterprises engaged in the

production of various industrial products crucial to public security, human health, and safety

of life and property, such as meat, dairy, beverages, rice, edible oil, alcohol, electric blankets,

pressure pots, safety helmets, dangerous chemicals and packaging and containers for dangerous

chemicals. From time to time, the AQSIQ formulates and revises the catalogue of industrial

products subject to the production licensing system. Enterprises engaged in production of

products listed in such catalogue must apply for and obtain production licences from competent

authorities. Manufacturing such products without a valid production licence is strictly

prohibited. Any violation will result in warnings, fines, confiscation of products illegally

produced and proceeds from their sale, or suspension or even shutdown of the business

committing the violation. Criminal liabilities may also be imposed for serious violations. The

valid period of the production licence ranges from three to five years, and enterprises must

follow the renewal procedures before the expiration of their production licences in order to

continue their production.

LAWS AND REGULATIONS IN RELATION TO PRODUCTION SAFETY

Pursuant to the Production Safety Law of the PRC (中華人民共和國安全生產法) which

became effective on 1 November 2002 and amended on 27 August 2009, the State

Administration of Work Safety (國家安全生產監督管理總局) is in charge of the overall

administration of production safety. This law provides that an entity engaging in manufacturing

activities must meet national or industry standards regarding safety production and provide

relevant working conditions as required by the laws, administrative rules and the national or

industry standards.

Enterprises must undertake necessary measures to set up and maintain appropriate

equipment, monitor the safety of production procedures, assign designated personnel, conduct

workplace training and undertake all other measures required by the law to ensure the safety

of employees and the general public. Any responsible individual or enterprise that fails to

perform its duty to meet the safety production standards may be ordered to rectify the

violations within the prescribed period and/or pay a fine. Failure to rectify the violations within

the prescribed period may result in suspension or shutdown of the business committing the

violation. Serious violations that result in any production safety accident may subject the

responsible individuals to criminal liabilities.

LAWS AND REGULATIONS IN RELATION TO IMPORT OR EXPORT OF PRODUCTS

The Foreign Trade Law of the PRC (中華人民共和國對外貿易法), which was

promulgated on 12 May 1994 and amended on 6 April 2004, and the Measures for the Archival

Filing and Registration of Foreign Trade Business Operators (對外貿易經營者備案登記辦法),

which was promulgated by the MOFCOM on 25 June 2004 and effective on 1 July 2004,

require that foreign trade operators who engage in the import or export of goods or

technologies must register with the MOFCOM or another institution authorised by the

MOFCOM. In addition, if a company imports or exports goods as a consignee or a consignor,

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it must register with local Customs authority and obtain the PRC Customs Declaration

Registration Certificate (中華人民共和國海關進出口貨物收發貨人報關註冊登記證書) for

Consignors and Consignees pursuant to the Provisions of the Customs of the PRC for the

Administration of Registration of Declaration Entities (中華人民共和國對報關單位註冊登記管理規定) promulgated by the General Administration of Customs on 31 March 2005 and

effective on 1 June 2005.

According to the Law on Inspection of Import and Export Commodity of the PRC (中華人民共和國進出口商品檢驗法), which was promulgated by the NPCSC on 21 February 1989

and revised on 28 April 2002 and the Regulations for the implementation of the law on the

inspection of Import and Export Commodity of the PRC (中華人民共和國進出口商品檢驗法實施條例), which was passed by the State Council at on 10 August 2005 and came into force on

1 December 2005, the AQSIQ oversees the inspections of all import and export commodities

of the PRC, while the local authorities perform in the regions under their jurisdiction. Such

inspections cover quality, specifications, quantity, weight and packaging and requirements for

safety, hygiene, health, environmental protection and anti-fraud protection, among others, and

are governed by inspection standards under the law.

LAWS AND REGULATIONS IN RELATION TO ENVIRONMENTAL PROTECTION

The Environmental Protection Law of the PRC (中華人民共和國環境保護法) (the

“Environmental Protection Law”), which was promulgated by the NPCSC and came into effect

on 26 December 1989, sets forth the legal frame work for environmental protection in China.

The Ministry of Environmental Protection (環保部) is primarily responsible for overall

supervision and administration of national environmental protection, while local

environmental protection authorities at the county level and above are responsible for

environmental protection within their respective jurisdictions.

According to the Environmental Protection Law, any enterprise involved in a construction

project that may generate pollution must prepare, for prior approval by the relevant

environmental protection authorities, an environmental impact report assessing the pollution

and environmental impact of the construction project and setting forth prevention and

treatment measures. Construction projects are not permitted to be proceeded with until the

facilities have been inspected and approved by the environmental protection authorities.

Environmental protection facilities may not be dismantled or idled without prior consent from

the relevant authorities.

The PRC Law on the Prevention and Treatment of Air Pollution (中華人民共和國大氣污染防治法), the PRC Law on the Prevention and Treatment of Water Pollution (中華人民共和國水污染防治法), the PRC Law on the Prevention and Treatment of Noise Pollution (中華人民共和國環境噪聲污染防治法) and the PRC Law on the Prevention and Treatment of Solid

Waste Pollution (中華人民共和國固體廢物污染環境防治法) together impose further

requirements on the factories on the discharge and treatment of waste by-products, including

waste water and chemical waste.

REGULATORY OVERVIEW

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Pursuant to the Law of the PRC on Appraising of Environmental Impacts (中華人民共和國環境影響評價法) promulgated on 28 October 2002 and effective on 1 September 2003 the

environmental protection department of the PRC State Council is in charge of promulgating

national standards for environmental protection. The local governments of respective

provinces, autonomous regions and municipalities may also promulgate local standards for

environmental protection on matters not specified in the national standards and the local

governments must report such standards to the administrative authority of environmental

protection under PRC State Council for the record.

Pursuant to the Regulations on the Administration of Environmental Protection for

Construction Project (建設項目環境保護管理條例) promulgated and effective on 29 November

1998 by the PRC State Council, entities responsible for the construction projects shall conduct

assessment of environmental impact, obtain approval on such assessment which will be

examined and considered according to the environmental protection standard. Prior to the

construction of new facilities or expansion or transformation of existing facilities, a report on

the environmental impact of the construction project shall be submitted to the relevant

environmental protection authority for approval. The newly constructed production facilities

cannot be put into operation until the relevant department is satisfied that such facilities are in

compliance with all relevant environmental protection standards. Environmental protection

facilities shall be designed, constructed and put into use simultaneously with the main

construction.

In addition, according to the Public Places Hygiene Management Regulation Enforcement

Rules (公共場所衛生管理條例實施細則), which was promulgated by PRC Ministry of Health

on 10 March 2011 and became effective on 1 May 2011, smoking and setting cigarette vending

machines in public indoor venues are prohibited; smoking sections in the public outdoor

venues shall not be placed beside the passageway; and the operators of public places shall setup

distinct warning and label for prohibiting smoking.

LAWS AND REGULATIONS IN RELATION TO LABOUR AND SOCIAL INSURANCE

On 5 July 1994, the NPCSC promulgated the Labour Law of the PRC (中華人民共和國勞動法), which became effective on 1 January 1995. On 29 June 2007, the NPCSC promulgated

the Law of the PRC on Employment Contracts (中華人民共和國勞動合同法), which became

effective on 1 January 2008. Pursuant to the said law, a written labour contract shall be

concluded within one month from the date on which the employee commences working;

otherwise the employer shall pay twice of the monthly wage. Labour contract is categorised

into three types, namely labour contract with fixed term, labour contract without fixed term and

labour contract to be expired upon completion of certain task. Where the employee has already

worked for the employer for 10 full years consecutively or the labour contract is to be renewed

after two fixed-term labour contracts have been concluded consecutively, a labour contract

without fixed term shall be concluded.

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The Law for Promotion of Employment of the PRC (中華人民共和國就業促進法),

promulgated by the NPCSC on 30 August 2007 and effective as of 1 January 2008, provides

that no employee shall be discriminated in employment by reason of race, ethnic, gender, or

religion. The employer should neither refuse to recruit nor raise the standards on recruitment

of any woman by reason of their gender; and no provision limiting any female employee in

terms of getting married and child-bearing is allowed in the labour contract. The employer

should not refuse the employment of anyone for the reason that the individual is a pathogen

carrier, unless that person engages in work which may cause a wide spread of diseases.

Moreover, enterprises should allocate the employee education fund for occupational training

and further education of employees, violation of which may result in punishment imposed by

the labour administration.

Pursuant to the Social Insurance Law of the PRC (中華人民共和國社會保險法) (the “New

Social Insurance Law”) promulgated on 28 October 2010 by the NPCSC and implemented on

1 July 2011, the Interim Regulations Concerning the Collection and Payment of Social

Insurance Premiums (社會保險費徵繳暫行條例) promulgated and implemented on 22 January

1999 by the PRC State Council, the Interim Measures Concerning the Maternity Insurance of

Employees of an enterprise (企業職工生育保險試行辦法) promulgated on 14 December 1994

and implemented on 1 January 1995 by former Ministry of Labour, the Regulation on the

Administration of Housing Provident Fund (住房公積金管理條例) promulgated and

implemented on 3 April 1999 and amended on 24 March 2002 by the PRC State Council, the

Regulation on Occupational Injury Insurances (工傷保險條例) promulgated on 27 April 2003

by PRC State Council and implemented on 1 January 2004 and amended on 20 December 2010

by the PRC State Council, and regulations on pension insurance, medical insurance and

unemployment insurance in the provincial and municipal level, the employer shall pay pension

insurance fund, basic medical insurance fund, unemployment insurance fund, occupational

injury insurance fund, maternity insurance fund and housing provident fund for the employees.

After the New Social Insurance Law became effective, where an employer fails to pay social

insurance premiums on time or in full amount, it will be ordered by the collection agency of

social insurance premiums to pay or make up the deficit of premiums within a prescribed time

limit, and a daily late fee at the rate of 0.05% of the outstanding amount from the due date will

be imposed; and if it still fails to pay the premiums within the prescribed time limit, a fine of

one to three times the outstanding amount might be imposed by the relevant administrative

department.

LAWS AND REGULATIONS IN RELATION TO FOREIGN CURRENCY

EXCHANGE

The principal regulation governing foreign currency exchange in the PRC is the

Regulations of Foreign Exchange Administration of the PRC (中華人民共和國外匯管理條例)

(the “Foreign Exchange Administration Regulations”). It was promulgated by the State Council

on 29 January 1996, became effective on 1 April 1996 and was amended on 14 January 1997

and 1 August 2008.

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Pursuant to the Foreign Exchange Administration Regulations, the account of foreign-

invested enterprises has been divided into current account and capital account. RMB is freely

convertible to the extent of the current account items, including distribution of dividends,

interest payment, trade and service-related foreign exchange transactions by complying with

certain procedural requirements. But the PRC Government supervises and controls the foreign

exchange under the capital account. Any institution or individual with foreign debts shall abide

by the relevant state provisions and register with the foreign exchange administrative

authorities.

On 29 August 2008, the SAFE promulgated the Notice of the State Administration of

Foreign Exchange on the Relevant Operating Issues concerning the Improvement of the

Administration of Payment and Settlement of Foreign Currency Capital of Foreign-invested

Enterprises (國家外匯管理局關於完善外商投資企業外匯資本金支付結匯管理有關業務操作問題的通知) (the “Circular 142”), regulating the conversion of registered capital in foreign

currency into RMB by a foreign-invested company by restricting how the RMB after

conversion may be used. The Circular 142 provides that after converting the foreign currency

into RMB, the registered capital of a foreign-invested company may only be used for purposes

within the business scope approved by the applicable governmental authority and may not be

used for equity investments within the PRC. In addition, the SAFE strengthened its control

over the flow and use of the RMB capital which was converted from registered capital of a

foreign-invested company in foreign currency. The use of such RMB capital may not be altered

without the SAFE’s approval, and such RMB capital may not in any case be used to repay RMB

loans if such loans have not been used. Violations of the Circular 142 could result in severe

monetary penalties.

LAWS AND REGULATIONS IN RELATION TO NEGOTIABLE INSTRUMENTS

The Negotiable Instruments Law of the PRC (中華人民共和國票據法) (the “Negotiable

Instruments Law”), was promulgated by NPCSC on 10 May 1995, which came into effect on

1 January 1996 and was amended on 28 August 2004, consists of seven chapters, covering

General Provisions, Drafts, Promissory Notes, Cheques, Applicability of the Law to Foreign

Negotiable Instruments, Legal Responsibilities, and Supplementary Provisions. Chapter 2

(Drafts) contains detailed provisions on endorsement, acceptance, guarantee, payment, and the

right of recourse. Subsequent chapters discussing the various types of negotiable instruments,

such as cheques, promissory notes, and foreign instruments, incorporate these provisions by

reference.

For the implementation of the Negotiable Instruments Law, the Administrative Measures

on the Negotiable Instruments (票據管理實施辦法) was promulgated on 21 August 1997 by

PBOC and became effective on 1 October 1997 to regulate the administration of negotiable

instruments within the territory of the PRC. Subsequently, on 19 September 1997, PBOC

promulgated the Measures for Payment and Settlement (支付結算辦法), pursuant to which, the

eligible holder of a commercial draft may apply to the bank for discount on the strength of the

undue commercial draft and the discount certificate. The discount bank may apply for

inter-bank discount on the strength of the undue commercial draft, or may apply for rediscount

to the PBOC. In the case of discount, inter-bank discount or rediscount, transfer endorsement

shall be made.

REGULATORY OVERVIEW

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LAWS AND REGULATIONS IN RELATION TO TAXATION

EIT

Prior to 1 January 2008, income tax payable by foreign-invested enterprises in the PRC

was governed by the Foreign-invested Enterprise and Foreign Enterprise Income Tax Law of

the PRC (中華人民共和國外商投資企業和外國企業所得稅法) (the “FIE Income Tax Law”)

promulgated on 9 April 1991 and effective on 1 July 1991 and the related implementation rules.

Pursuant to the FIE Income Tax Law, a foreign-invested enterprise was subject to a national

income tax at the rate of 30% and a local tax at the rate of 3% unless a lower rate was provided

by laws or administrative regulations. The income tax on foreign-invested enterprises

established in special economic zones, foreign enterprises which have establishments or places

in special economic zones engaged in production or business operations, and on foreign-

invested enterprises of a production nature in economic and technological development zones,

was levied at the reduced rate of 15%.

According to the PRC Enterprise Income Tax Law of the PRC (中華人民共和國企業所得稅法) (the “EIT Law”), enacted on 16 March 2007 and effective on 1 January 2008, and the

Implementing Rules of the Enterprise Income Tax Law of the PRC (中華人民共和國企業所得稅法實施條例) (the “EIT Rules”), enacted on 6 December 2007 and effective on 1 January

2008, a uniform income tax rate of 25% will be applied towards PRC enterprises, and foreign

investment and foreign enterprises which have set up institutions or facilities in the PRC.

Enterprises which enjoyed EIT rates of lower than the standard rate of 33% are given a

five-year transitional period. According to the Notice of the State Council on the

Implementation of the Transitional Preferential Policy in respect of Enterprise Income Tax (國務院關於實施企業所得稅過渡優惠政策的通知) which was promulgated on 26 December 2007,

such enterprises will continue to enjoy the lower tax rate before they are gradually subject to

the tax rate of 25% within the transitional period. In particular, enterprises which were subject

to an EIT rate of 15% would be subject to an EIT rate of 18% in 2008, and would be increased

to 20% in 2009, 22% in 2010, 24% in 2011, and 25% in 2012. Enterprises which are enjoying

two years of 100% exemption and three years of 50% reduction on tax payments may continue

to enjoy such exemption and reduction until the term of such privilege expires.

According to the Arrangement between the Mainland of China and the Hong Kong

Special Administrative Region for Avoidance of Double Taxation and the Prevention of Fiscal

Evasion with respect to Taxes on Income (內地和香港特別行政區關於對所得稅避免雙重徵稅和防止偷漏稅的安排) (the “Hong Kong Tax Treaty”) promulgated on 4 April 2007, if the

beneficiary of dividends is a Hong Kong tax resident which holds directly at least 25% equity

interests in a tax resident enterprise in China, the dividends distributed by the tax resident

enterprise in the mainland to its Hong Kong shareholder shall be subject to taxes in China at

a rate not higher than 5%. According to the Notice of the State Administration of Taxation on

Issues regarding the Administration of the Dividend 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) (the “Notice 81”) promulgated on 20 February

2009, to apply the dividend provision in relevant tax treaties, including the Hong Kong Tax

Treaty, certain requirements shall be satisfied, among which: (i) the taxpayer shall be the

REGULATORY OVERVIEW

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beneficial owner of relevant dividends; and (ii) for corporate recipients that enjoy the tax

treatment under the relevant tax treaties as direct owners of a certain proportion of the share

capital of a PRC enterprise (usually such certain proportion shall be 25% or 10%), such

corporate recipients must satisfy the direct ownership thresholds at all times during the 12

consecutive months preceding the receipt of the dividends. Furthermore, the SAT promulgated

the Notice on How to Understand and Recognise the Beneficial Owner in Tax Treaties (國家稅務總局關於如何理解和認定稅收協定中“受益所有人”的通知) on 27 October 2009, which

defines the “beneficial owner” as individuals, enterprises or other organisations normally

engaged in substantive operations and sets forth certain adverse factors on the recognition of

such “beneficial owner.” On 24 August 2009, the SAT issued the Administrative Measures for

Non-resident Enterprises to Enjoy Treatments under Tax Treaties (For Trial Implementation)

(非居民享受稅收協定待遇管理辦法 (試行)) (the “Administrative Measures”), which became

effective on 1 October 2009 and requires that the non-resident enterprises shall obtain relevant

approval before enjoying the treatments under tax treaties from the competent tax authorities.

Value-added tax

All entities and individuals engaged in the sales of goods, provision of processing, repairs

and replacement services, and the importation of goods within the territory of the PRC shall

pay VAT in accordance with the Provisional Regulations on Value-added Tax of the PRC (中華人民共和國增值稅暫行條例) (the “Provisional Regulations on VAT”) and its implementation

rules. The Provisional Regulations on VAT was promulgated by the State Council of the PRC

which became effective on 1 January 1994 and amended on 5 November 2008. Pursuant to the

Provisional Regulations on VAT and its implementation rules, VAT payable is calculated as

“output VAT” minus “input VAT”. The rate of VAT is 17% or 13% depending on the product

type. All our PRC subsidiaries are subject to a value-added tax rate of 17%.

REGULATORY OVERVIEW

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OUR CORPORATE HISTORY

Our history traces back to 1997 when Mr. Guo and Madam Xia set up Sheen HK. Sheen

HK is principally engaged in the trading of cigarette packaging materials. In 2002, with a

vision of developing cigarette used printing films in the PRC market, Mr. Guo, through Sheen

HK, together with other investors, established Jiangsu Sheen Colour. We owned 35% of the

equity interest in Jiangsu Sheen Colour at the time of its establishment. In 2007, Qingdao Ener

was established to engage in the sales and manufacturing of films (including cigarette films and

non-cigarette films). In 2008, Jiangsu Shuntai was established to engage in the manufacturing

and sales of cigarette paper boxes.

We obtained ISO9001 accreditation for our Sheen Colour Nanjing Factory, our Shuntai

Factory and our Ener Factory in 2010.

In 2009, we acquired from the then shareholders of Jiangsu Sheen Colour 65% equity

interest in Jiangsu Sheen Colour so that our control in Jiangsu Sheen Colour was consolidated.

In 2011, we were successfully admitted as approved suppliers of two additional

Provincial Tobacco Industrial Companies and we started to supply products to them in 2011

and 2012 respectively.

In 2012, we acquired from Qingdao Beizhou 30% equity interest in Qingdao Ener so that

our control in Qingdao Ener was consolidated.

Details of the members of our Group and their respective corporate history are set out

below.

OUR COMPANY

Our Company was incorporated in the Cayman Islands under the Companies Law as an

exempted company with limited liability on 24 February 2012.

OUR SUBSIDIARIES

Sheen HK

Sheen HK was incorporated in Hong Kong with limited liability on 20 August 1997 with

two shares allotted and issued to two subscribers, who are Independent Third Parties.

HISTORY AND DEVELOPMENT

– 95 –

On 25 November 1997, 7,999 shares and 1,999 shares of Sheen HK were allotted at an

issuance price of HK$1 each to Mr. Guo and Mr. Sze Yu Sun respectively. As confirmed by our

Directors, Mr. Sze Yu Sun was the company secretary of Sheen HK at the relevant time who

assisted Mr. Guo in acquiring Sheen HK from the subscribers and provided secretarial services,

and save for being the former company secretary and a former shareholder of Sheen HK, Mr.

Sze Yu Sun is an Independent Third Party. As confirmed by Mr. Guo and Madam Xia, Sheen

HK had not commenced any business operation at the relevant time. On 26 November 1997,

Mr. Guo acquired one share of Sheen HK at a consideration of HK$1 (equivalent to the par

value in respect of such share) from one of the subscribers, while Madam Xia acquired 1,999

shares of Sheen HK at a consideration of HK$1,999 (equivalent to the par value in respect of

such shares) from Mr. Sze Yu Sun, and one share of Sheen HK at a consideration of HK$1 from

the other subscriber (equivalent to the par value in respect of such share). Following the

aforesaid allotment and transfers, the issued share capital of Sheen HK was owned as to 80%

by Mr. Guo and 20% by Madam Xia respectively.

On 15 September 2003, in light of the development and business need of Sheen HK,

3,112,000 shares and 778,000 shares of Sheen HK were allotted and issued to Mr. Guo and

Madam Xia respectively, at the issuance price of HK$1 each. The shareholding structure of

Sheen HK remained unchanged following such allotment.

On 29 January 2004, Mr. Guo acquired 779,999 shares of Sheen HK from Madam Xia at

a consideration of HK$779,999 (equivalent to the par value in respect of such shares) in cash

to consolidate his control in Sheen HK, resulting in the issued share capital of Sheen HK being

held as to approximately 100% by Mr. Guo, and as to less than 0.001% by Madam Xia.

On 21 December 2009, Mr. Guo and Madam Xia transferred, in aggregate, the entire

issued share capital of Sheen HK to Sheen BVI at a consideration of HK$3,899,999 and HK$1

(equivalent to the respective par value in respect of such shares) respectively. Following the

said transfers, Sheen BVI became the sole shareholder of Sheen HK.


– 96 –

Jiangsu Sheen Colour

Jiangsu Sheen Colour was established as a Sino-foreign equity joint venture enterprise

with limited liability in the PRC on 6 March 2002 with a total investment of US$10,000,000

and a registered capital of US$5,000,000. Set out below was the equity holding structure of

Jiangsu Sheen Colour at the time of its establishment:

Name of equity holders Registered capital

US$ Percentage

Sheen HK 1,750,000 35%

Jiangsu Jinjie Economic Trade Development Co.,

Ltd. (江蘇金捷經貿發展有限公司)

(“Jiangsu Jinjie”)(Note 1) 750,000 15%

Jiangsu Huaiyin Huaxin Industrial Co., Ltd.

(江蘇淮陰華新實業有限公司)

(“Huaxin Industrial”)(Note 1) 750,000 15%

Nanjing Golden Dream City Industry and Trade

Co., Ltd. (南京金夢都工貿實業有限責任公司)

(formerly known as Nanjing Dream City

Industry and Trade Co., Ltd. (南京夢都工貿實業有限責任公司) (“Golden Dream City”)(Note 1) 750,000 15%

Xuzhou Red Cedar Paper Business Co., Ltd.

(徐州紅杉樹紙業有限公司) (“Red Cedar”)(Note 2) 750,000 15%

Jiangsu Tobacco Materials Company

(江蘇省煙草物資公司) (“Tobacco Materials

Company”) 250,000 5%

Total 5,000,000 100%

Notes:

1. During the Track Record Period, Jiangsu Jinjie, Huaxin Industrial and Golden Dream City were

interested in the equity interest of Jiangsu Shuntai. Please also refer to the paragraph headed “Jiangsu

Shuntai” below for further information.

2. Our Directors confirmed that Jiangsu Innovation Investment Group Co., Ltd. (江蘇創新投資集團有限公司) was the holding company of Red Cedar. Jiangsu Innovation Investment Group Co., Ltd. (江蘇創新投資集團有限公司) was interested in the equity interest in Jiangsu Shuntai during the Track Record

Period. Please also refer to the paragraph headed “Jiangsu Shuntai” below for further information.

Tobacco Materials Company was owned by Jiangsu Tobacco Company (江蘇省煙草公司)

(now known as China Tobacco General Company Jiangsu Company (中國煙草總公司江蘇省公司)) at the relevant time. Save for being a former equity holder of Jiangsu Sheen Colour,

Tobacco Materials Company and its ultimate beneficial owners at the relevant time are

Independent Third Parties.

The establishment of Jiangsu Sheen Colour was approved by the Nanjing Economic and

Technological Development Zone Committee (南京經濟技術開發區管理委員會) on 17 January

2002 and written approval was also issued by GAPP on 8 February 2003.


– 97 –

As approved by the Nanjing Economic and Technological Development Zone Committee

(南京經濟技術開發區管理委員會) on 11 May 2005, the total investment of Jiangsu Sheen

Colour was reduced from US$10,000,000 to US$4,000,000 with its registered capital reduced

from US$5,000,000 to US$2,176,400 in light of the business need of Jiangsu Sheen Colour.

The shareholding of each of the then equity holders of Jiangsu Sheen Colour remained

unchanged following the aforesaid reduction, with the equity holding structure of Jiangsu

Sheen Colour as follows:


US$ Percentage

Sheen HK 761,740 35%

Jiangsu Jinjie 326,460 15%

Huaxin Industrial 326,460 15%

Golden Dream City 326,460 15%

Red Cedar 326,460 15%

Tobacco Materials Company 108,820 5%

Total 2,176,400 100%

Our PRC Legal Advisers confirmed that all procedures relating to the capital reduction as

described above had been approved by relevant competent authorities and that the said

registered capital of Jiangsu Sheen Colour had been verified by certified public accountants in

the PRC and a capital verification report had been issued.

Pursuant to a share transfer agreement dated 11 October 2006 entered into between

Tobacco Materials Company and Jiangsu Tobacco Machines Co., Ltd. (江蘇煙草機械有限公司)

(“Tobacco Machines Company”), Tobacco Materials Company transferred its entire 5% equity

interest in Jiangsu Sheen Colour to Tobacco Machines Company at a consideration of

RMB900,000 (which was determined based upon the corresponding registered capital then held

by Tobacco Materials Company at the relevant time). The said transfer was approved by the

Nanjing Economic and Technological Development Zone Committee (南京經濟技術開發區管理委員會) on 7 December 2006. Set out below was the equity holding structure of Jiangsu

Sheen Colour after the said transfer:


US$ Percentage

Sheen HK 761,740 35%




Red Cedar 326,460 15%

Tobacco Machines Company 108,820 5%

Total 2,176,400 100%


– 98 –

Tobacco Machines Company was owned by China Tobacco Jiangsu at the relevant time.

Save for being a former equity holder of Jiangsu Sheen Colour, Tobacco Machines Company

and its ultimate beneficial owners at the relevant time were Independent Third Parties.

As confirmed by our Directors, in order to consolidate the shareholdings of Jiangsu Sheen

Colour and Jiangsu Shuntai, Jiangsu Shuntai, Jiangsu Jinjie, Huaxin Industrial, Golden Dream

City and Red Cedar entered into a share transfer agreement dated 18 January 2009, pursuant

to which each of Jiangsu Jinjie, Huaxin Industrial, Golden Dream City and Red Cedar

transferred their respective 15% equity interest in Jiangsu Sheen Colour to Jiangsu Shuntai at

a consideration of RMB2,700,000 each (that is, RMB10,800,000 in aggregate), which was

determined after commercial negotiation amongst the parties with reference to the

corresponding registered capital owned by each of Jiangsu Jinjie, Huaxin Industrial, Golden

Dream City and Red Cedar at the relevant time. As part of the consolidation and in light of

Tobacco Machines Company’s intention to divest its investment at the relevant time, pursuant

to a separate share transfer agreement dated 18 January 2009 entered into between Tobacco

Machines Company and Jiangsu Shuntai, Jiangsu Shuntai acquired the 5% equity interest in

Jiangsu Sheen Colour then held by Tobacco Machines Company at a consideration of

RMB1,243,400, which was determined based upon the valuation of assets of Jiangsu Sheen

Colour by an independent firm of valuers at the relevant time. The People’s Government of

Nanjing (南京市人民政府) approved such transfers on 23 March 2009. Set out below was the

equity holding structure of Jiangsu Sheen Colour after the aforesaid transfers:


US$ Percentage

Sheen HK 761,740 35%

Jiangsu Shuntai 1,414,660 65%

Total 2,176,400 100%

Pursuant to the then articles of association of Jiangsu Sheen Colour, (i) the board of

directors of Jiangsu Sheen Colour comprises nine directors, out of which Jiangsu Shuntai was

entitled to appoint six directors and Sheen HK was entitled to appoint three directors, (ii)

quorum of meeting of the board of directors of Jiangsu Sheen Colour shall be two-third of

directors of Jiangsu Sheen Colour, and (iii) resolutions shall be determined by a majority of

votes except that unanimous approval from all directors in attendance was required for,

amongst others, consolidation and division of Jiangsu Sheen Colour, increase and decrease of

registered capital, amendments to the articles of association and dissolution of Jiangsu Sheen

Colour. During the Track Record Period, as five directors of Jiangsu Sheen Colour were

representatives of our Group, our Directors considered that our Group had control over the

board of directors of Jiangsu Sheen Colour and was thus appropriate to consolidate the results,

assets and liabilities of Jiangsu Sheen Colour.

During the Track Record Period, four directors of Jiangsu Sheen Colour were appointed

by Golden Dream City, Jiangsu Innovation, Huaxin Industrial and Nanjing Taiming, which

were shareholders of Jiangsu Shuntai, as their representatives in the board of directors of

Jiangsu Sheen Colour. All such four representatives were also staff of China Tobacco Jiangsu.


– 99 –

Our Directors confirmed that during the Track Record Period, such representatives were not

directors or supervisors of China Tobacco Jiangsu in the course of their directorship of Jiangsu

Sheen Colour and had no equity interest in China Tobacco Jiangsu. One of such representatives

was also the vice general manager of Jiangsu Sheen Colour at the relevant time. None of the

directors of Jiangsu Sheen Colour as at the Latest Practicable Date was employees, directors

or supervisors of China Tobacco Jiangsu.

Based on the search results from the public website concerning information of

person/entity subject to enforcement by PRC court (全國法院被執行人信息查詢網站) (not

including military court), our PRC Legal Advisers were not aware of any material claims,

complaints, investigations, legal or arbitration proceedings or regulatory action against Jiangsu

Sheen Colour, its directors or shareholders now in progress or pending which would have a

material adverse effect on our Group during the Track Record Period.

As approved by The People’s Government of Nanjing (南京市人民政府) on 9 December

2011, the original business term of Jiangsu Sheen Colour of 10 years until 5 March 2012 was

extended to 11 years until 5 March 2013.

Jiangsu Shuntai

Jiangsu Shuntai was established as a Sino-foreign equity joint venture enterprise with

limited liability in the PRC on 20 November 2008 with a total investment of US$7,000,000 and

a registered capital of US$3,500,000. Set out below was the equity holding structure of Jiangsu

Shuntai at the time of its establishment:


US$ Percentage

Sheen Group HK 1,785,000 51%


Jiangsu Innovation Investment Group Co., Ltd.

(江蘇創新投資集團有限公司) (“Jiangsu

Innovation”)(Note) 490,000 14%



Nanjing Taiming Goods Trade and Industrial Co.,

Ltd. (南京泰銘物貿實業有限責任公司)

(“Nanjing Taiming”) 70,000 2%

Nantong Xinyuan Industrial Co., Ltd. (南通鑫源實業有限公司) (“Nantong Xinyuan”) 70,000 2%

Xuzhou Yingdu Industrial and Trade Co., Ltd.

(徐州市英都工貿有限公司) (“Xuzhou Yingdu”) 35,000 1%

Total 3,500,000 100%

Note: Our Directors confirmed that Jiangsu Innovation was the holding company of Red Cedar. Red Cedar

was interested in the equity interest of Jiangsu Sheen Colour until the said interest was transferred to

Jiangsu Shuntai pursuant to the share transfer agreement dated 18 January 2009 as detailed in the

paragraph headed “Jiangsu Sheen Colour” above.


– 100 –

The establishment of Jiangsu Shuntai was approved by the Development and Reform

Commission of Qinghe District, Huai’an City (淮安市清河區發展和改革委員會) on 6

November 2008, the Bureau of Foreign Trade and Economic Cooperation of Huai’an (淮安市對外貿易經濟合作局) on 6 November 2008, and the Bureau of Press and Publication of Jiangsu

(江蘇省新聞出版局) on 17 November 2008.

Our PRC Legal Advisers confirmed that the said registered capital of Jiangsu Shuntai had

been fully paid up within the stipulated time frame.

As approved by the Development and Reform Commission of Qinghe District, Huai’an

City (淮安市清河區發展和改革委員會) on 9 July 2009, and the Bureau of Foreign Trade and

Economic Cooperation of Huai’an (淮安市對外貿易經濟合作局) on 15 July 2009, the total

investment of Jiangsu Shuntai was increased from US$7,000,000 to US$9,850,000, and its

registered capital was increased from US$3,500,000 to US$5,500,000 in contemplation of the

business expansion of Jiangsu Shuntai. The increase in registered capital was paid up by the

then shareholders of Jiangsu Shuntai in proportion to their then respective equity interest in

Jiangsu Shuntai. Set out below was the equity holding structure of Jiangsu Shuntai after the

aforesaid increase in its registered capital:


US$ Percentage



Jiangsu Innovation 770,000 14%



Nanjing Taiming 110,000 2%

Nantong Xinyuan 110,000 2%

Xuzhou Yingdu 55,000 1%

Total 5,500,000 100%

Our PRC Legal Advisers confirmed that the said registered capital of Jiangsu Shuntai had



– 101 –

Pursuant to a share transfer agreement dated 2 March 2011, Xuzhou Yingdu transferred

its 1% equity interest in Jiangsu Shuntai to Jiangsu Innovation at a consideration of US$55,000

(equivalent to the registered capital then held by Xuzhou Yingdu at the relevant time). Such

transfer was approved by the Commerce Bureau of Huai’an (淮安市商務局) on 29 July 2011,

and the equity holding structure of Jiangsu Shuntai was changed to the following:


US$ Percentage



Jiangsu Innovation 825,000 15%



Nanjing Taiming 110,000 2%

Nantong Xinyuan 110,000 2%

Total 5,500,000 100%

Golden Dream City was owned as to approximately 85.88% by the Staff Union of Nanjing

Golden Dream City Industrial Group Co., Ltd. (南京金夢都工貿集團有限公司工會) (“Golden

Dream City Union”) and as to approximately 14.12% by the Staff Union of Jiangsu Dream City

Wine Industry Co., Ltd. (江蘇夢都酒業有限公司工會) (“Jiangsu Dream City Union”). As

confirmed by each of Golden Dream City Union and Jiangsu Dream City Union, the members

of each of them consist of employees of Nanjing Golden Dream City Industrial Group Co.,

Ltd.. As advised by our PRC Legal Advisers, the ultimate beneficial interests of a company

established in the PRC belong to the investors who contributed to the capital of that company.

As confirmed by Golden Dream City Union and Jiangsu Dream City Union, the investors who

contributed to the capital of Golden Dream City principally comprised members of Golden

Dream City Union and members of Jiangsu Dream City Union who are not employees of China

Tobacco Jiangsu and do not hold senior management positions in China Tobacco Jiangsu.

Based on the above and information on the relevant investors confirmed by Golden Dream City

Union and Jiangsu Dream City Union, our Directors confirmed that the ultimate beneficial

owners of Golden Dream City are Independent Third Parties, and none of them held more than

10% equity interest in Golden Dream City.

Jiangsu Innovation was wholly owned by the Staff Union of Xuzhou Cigarette Factory of

China Tobacco Jiangsu (江蘇中煙工業公司徐州捲煙廠工會) (“Xuzhou Staff Union”). Xuzhou

Staff Union is a staff union of Xuzhou Cigarette Factory of China Tobacco Jiangsu (江蘇中煙工業公司徐州捲煙廠). As confirmed by Xuzhou Staff Union, its members consist of employees

of Xuzhou Cigarette Factory of China Tobacco Jiangsu. As advised by our PRC Legal Advisers,

the ultimate beneficial interests of a company established in the PRC belong to the investors

who contributed to the capital of that company. As confirmed by Xuzhou Staff Union, the

investors who contributed to the capital of Jiangsu Innovation principally comprised members

of Xuzhou Staff Union. Based on the above and the information on the relevant investors


– 102 –

confirmed by Xuzhou Staff Union, our Directors confirmed that (i) the ultimate beneficial

owners of Jiangsu Innovation are Independent Third Parties, (ii) none of them held more than

10% equity interest in Jiangsu Innovation, or in China Tobacco Jiangsu or its subsidiaries, and

(iii) none of such investors were directors or supervisors of China Tobacco Jiangsu or its

subsidiaries.

Huaxin Industrial was owned as to 35% by Committee of Staff Union of Jiangsu Huaiyin

Huaxin Industrial Co., Ltd. (江蘇淮陰華新實業有限公司工會委員會) (“Huaxin Staff Union”)

and as to 65% by Committee of Staff Union of Huaiyin Cigarette Factory of China Tobacco

Jiangsu (江蘇中煙工業公司淮陰捲煙廠工會委員會) (“Huaiyin Staff Union”). As confirmed by

Huaxin Staff Union, its members consist of employees of Jiangsu Huaiyin Huaxin Industrial

Co., Ltd.. As confirmed by Huaiyin Staff Union, its members consist of employees of Huaiyin

Cigarette Factory of China Tobacco Jiangsu (江蘇中煙工業公司淮陰捲煙廠). As advised by

our PRC Legal Advisers, the ultimate beneficial interests of a company established in the PRC

belong to the investors who contributed to the capital of that company. As confirmed by each

of Huaxin Staff Union and Huaiyin Staff Union, the investors who contributed to the capital

of Huaxin Industrial principally comprised members of Huaxin Staff Union and Huaiyin Staff

Union. Based on the above and the information on the relevant investors confirmed by Huaxin

Staff Union and Huaiyin Staff Union, our Directors confirmed that (i) the ultimate beneficial

owners of Huaxin Industrial are Independent Third Parties, (ii) none of them held more than

10% equity interest in Huaxin Industrial, or in China Tobacco Jiangsu or its subsidiaries, and

(iii) none of such investors were directors or supervisors of China Tobacco Jiangsu or its

subsidiaries.

Prior to the acquisition of 49% equity interest in Jiangsu Shuntai by Huai An Tian Cai as

detailed below, pursuant to the then articles of association of Jiangsu Shuntai, at the relevant

time, (i) the board of directors of Jiangsu Shuntai comprised nine directors, out of which Sheen

Group HK was entitled to appoint five directors, and each of Golden Dream City, Jiangsu

Innovation, Huaxin Industrial and Nanjing Taiming was entitled to appoint one director, (ii)

quorum of meeting of the board of directors of Jiangsu Shuntai shall be two-third of directors

of Jiangsu Shuntai, and (iii) resolutions shall be determined by a majority of votes except that

unanimous approval from all directors in attendance was required for, amongst others,

consolidation and division of Jiangsu Shuntai, increase and decrease of registered capital,

amendments to the articles of association and dissolution of Jiangsu Shuntai. In light of Sheen

Group HK’s entitlement to appoint the majority of the directors of Jiangsu Shuntai, our

Directors considered that our Group had control over the board of directors of Jiangsu Shuntai

through Sheen Group HK and was thus appropriate to consolidate the results, assets and

liabilities of Jiangsu Shuntai during the Track Record Period.

During the Track Record Period, four directors of Jiangsu Shuntai were appointed by

Golden Dream City, Jiangsu Innovation and Huaxin Industrial as their representatives in the

board of directors of Jiangsu Shuntai. In addition, pursuant to the then articles of association

of Jiangsu Shuntai, our Group has no influence on the identity of the representatives proposed

by the then minority shareholders. All such four representatives were also staff of China

Tobacco Jiangsu. One of such representatives was the director of material procurement centre


– 103 –

(物資採購中心主任) of China Tobacco Jiangsu until 2010 and was retired as the director of

Jiangsu Shuntai with effect from July 2010. His successor has been the director (主任) of

material procurement centre of China Tobacco Jiangsu since 2010 and a director of Jiangsu

Shuntai with effect from July 2010.

To the best knowledge of our Directors, the approval and review of approved suppliers

status of China Tobacco Jiangsu were conducted through a committee of China Tobacco

Jiangsu consisted of at least 16 members (with one director (主任), at least two vice directors

(副主任) and at least 13 members (委員)) (the “Committee”). An approved supplier of China

Tobacco Jiangsu then has to go through an independent tendering process in which China

Tobacco Jiangsu or the Committee would not take part and whether a tender is successful or

not would be decided by an independent tendering agent. The two individuals as mentioned

above participated in approving and reviewing the approved supplier status of our Group as

they were one of the members of the Committee during the relevant time.

To the best knowledge of our Directors, the material procurement centre of China

Tobacco Jiangsu is responsible for, amongst others, coordination and execution of materials

procurement in accordance with the annual plan of the relevant cigarette factories and the result

of the independent tendering. The quality check of products supplied by its suppliers is

conducted by the respective cigarette factories of China Tobacco Jiangsu and both individuals

as mentioned above were not involved in China Tobacco Jiangsu’s quality check on products

supplied by our Group to China Tobacco Jiangsu.

The other three representatives were the same individuals throughout the Track Record

Period with one of them being the vice-director of the safety department of China Tobacco

Jiangsu and the other two not having specific responsibilities in China Tobacco Jiangsu. None

of such three representatives were involved in approving or reviewing the approved supplier

status of our Group nor in China Tobacco Jiangsu’s quality check on the products supplied by

our Group to China Tobacco Jiangsu.

Our Directors confirmed that during the Track Record Period, such representatives were

not a director or supervisor of China Tobacco Jiangsu or its subsidiaries in the course of their

directorship of Jiangsu Shuntai and had no equity interest in China Tobacco Jiangsu. One of

such representatives was also the vice-general manager of Jiangsu Shuntai at the relevant time.

None of the directors of Jiangsu Shuntai as at the Latest Practicable Date were employees,

directors or supervisors of China Tobacco Jiangsu.

Save as disclosed above, there is no other relationship between each of Golden Dream

City, Jiangsu Innovation and Huaxin Industrial with China Tobacco Jiangsu during the Track

Record Period. Save for their respective former interests in Jiangsu Sheen Colour or Jiangsu

Shuntai, each of Golden Dream City, Jiangsu Innovation and Huaxin Industrial is an

Independent Third Party.


– 104 –

Nanjing Taiming was owned by five individuals at the relevant time. As confirmed by

Nanjing Taiming, (i) its ultimate beneficial owners were employees of China Tobacco Jiangsu,

(ii) none of such ultimate beneficial owners were directors or supervisors of, or held senior

management position in China Tobacco Jiangsu or its subsidiaries, and (iii) none of such

ultimate beneficial owners held more than 10% equity interest in China Tobacco Jiangsu or its

subsidiaries. Our Directors confirmed that none of the connected persons of our Group had any

equity interest in Nanjing Taiming, and that each of Nanjing Taiming and its ultimate beneficial

owners is an Independent Third Party.

Our Directors confirmed that each of Jiangsu Jinjie, Nantong Xinyuan and their

respective ultimate beneficial owners is an Independent Third Party.

In April 2012, Huai An Tian Cai acquired, in aggregate, 49% equity interests in Jiangsu

Shuntai from each of Golden Dream City, Jiangsu Innovation, Huaxin Industrial, Jiangsu Jinjie,

Nanjing Taiming and Nantong Xinyuan. To the best knowledge of our Directors after making

reasonable enquiry, the minority shareholders exited their investments in Jiangsu Shuntai in

order to realise return from their investments. The transfer was approved by the Commerce

Bureau of Huai’an (淮安市商務局) on 27 April 2012. Set out below was the equity holding

structure of Jiangsu Shuntai after the aforesaid transfer and as at the Latest Practicable Date:


US$ Percentage


Huai An Tian Cai 2,695,000 49%

5,500,000 100%

Huai An Tian Cai, principally engaged in industrial investment (non-financial

investment), is wholly-owned by Ms. Hu Yanhong (胡豔紅). To the best knowledge of our

Directors after making reasonable enquiry, Ms. Hu (i) owns a company engaged in selling and

manufacturing cigarette used tipping paper; (ii) does not have any business undertaking which

competes or potentially competes with the business of our Group; and (iii) has no past or

present relationship (including but not limited to trust, family or employment relationships)

with our top five customers during the Track Record Period. Huai An Tian Cai and Ms. Hu are

substantial shareholders of Jiangsu Shuntai for the purpose of the Listing Rules.

The business term of Jiangsu Shuntai is 20 years until 19 November 2028.


– 105 –

Qingdao Ener

Qingdao Ener was established as a sino-foreign equity joint venture enterprise with

limited liability in the PRC on 27 June 2007 with a total investment of US$36,000,000 and a

registered capital of US$12,000,000. At the time of its establishment, Qingdao Ener was owned

as to 70% by Biotex HK and as to 30% by Qingdao Chuangji Weiye Investment Limited (青島創基偉業投資有限公司) (“Qingdao Chuangji”). Save for being a former equity holder of

Qingdao Ener, Qingdao Chuangji and its ultimate beneficial owners at the relevant time were

Independent Third Parties. The establishment of Qingdao Ener was approved by the Bureau of

Foreign Trade and Economic Cooperation of Chengyang District of Qingdao (青島市城陽區對外貿易經濟合作局) on 25 June 2007.

As approved by the Bureau of Foreign Trade and Economic Cooperation of Qingdao (青島市對外貿易經濟合作局) on 22 October 2008, the total investment of Qingdao Ener was

decreased from US$36,000,000 to US$29,000,000.

Our PRC Legal Advisers confirmed that the said registered capital of Qingdao Ener had


Following a transfer of the 30% equity interest in Qingdao Ener by Qingdao Chuangji to

Qingdao Beizhou at a consideration of RMB33,000,000 (which, to the best knowledge of our

Directors, was determined with reference to the then net asset value of Qingdao Ener

attributable to such 30% equity interest and prospect of Qingdao Ener) pursuant to a share

transfer agreement dated 8 August 2010, the equity interest of Qingdao Ener was owned as to

70% by Biotex HK and as to 30% by Qingdao Beizhou. Such transfer was approved by the

Bureau of Economic Development of the Qingdao National High-tech Industrial Development

Zone (青島高新技術產業開發區經濟發展局) on 17 December 2010. Qingdao Beizhou was

principally engaged in sales of steels, building materials, decorative materials, hardware tools,

auto parts, mechanical and electrical products, chemical products and office products at the

relevant time. Save for their investment and former management roles in Qingdao Ener during

the relevant time, Qingdao Beizhou and its ultimate beneficial owners were Independent Third

Parties.

As part of the Reorganisation, and pursuant to an equity transfer agreement dated 2 March

2012 entered into between Biotex HK and Sheen HK, Biotex HK transferred 70% equity

interest in Qingdao Ener to Sheen HK at a consideration of US$8,400,000, which was

determined based upon the net asset value attributable to such 70% equity interest. The said

consideration was satisfied by the allotment and issuance of 8,700,000 shares of HK$1 each in

the share capital of Sheen HK to Sheen BVI at the direction of Biotex HK. The transfer was

approved by the Bureau of Economic Development of the Qingdao National High-tech

Industrial Development Zone (青島高新技術產業開發區經濟發展局) on 14 March 2012. The

transfer has completed as at the Latest Practicable Date.


– 106 –

Pursuant to an equity transfer agreement dated 13 March 2012 entered into between

Qingdao Beizhou and Sheen HK, Qingdao Beizhou transferred 30% equity interest in Qingdao

Ener to Sheen HK at a consideration of RMB39.6 million. Such consideration was arrived at

after arm’s length negotiation between the parties and determined based upon the net asset

value attributable to such 30% equity interest as at 31 December 2011 of RMB32.6 million, the

prospects of Qingdao Ener and the benefits expected to be accrued to our Group upon the

consolidation of the management control of Qingdao Ener. Pursuant to the terms of the said

equity transfer agreement, the consideration is required to be paid by Sheen HK on or before

30 September 2012. The said transfer was approved by the Bureau of Economic Development

of the Qingdao National High-tech Industrial Development Zone (青島高新技術產業開發區經濟發展局) on 3 May 2012. As at the Latest Practicable Date, the acquisition was completed and

we have allocated a sum of approximately HK$48.7 million out of the net proceeds from the

Share Offer to settle such consideration. As at the Latest Practicable Date, the entire equity

interest in Qingdao Ener was owned by Sheen HK and Qingdao Ener was a wholly-foreign

owned enterprise.

The business term of Qingdao Ener is 15 years until 27 June 2022.

Ling Xian Fei Yu

Ling Xian Fei Yu (formerly known as 領先飛宇禮品設計(深圳)有限公司 (Ling Xian Fei

Yu Gift Design (Shenzhen) Co., Ltd.) was established as a wholly-foreign owned enterprise

with limited liability in the PRC on 10 September 2007 with a total investment of

HK$8,180,000 and a registered capital of HK$8,180,000. Since the establishment of Ling Xian

Fei Yu, its entire equity interest has been owned by Century Leader HK.

The establishment of Ling Xian Fei Yu was approved by the Bureau of Trade and Industry

of Longgang District of Shenzhen (深圳市龍崗區貿易工業局) on 29 August 2007.

Our PRC Legal Advisers confirmed that the said registered capital of Ling Xian Fei Yu

had been fully paid up within the stipulated time frame.

Pursuant to a resolution of the shareholder passed on 31 May 2009, it was resolved that

the name of Ling Xian Fei Yu be changed to 領先飛宇進出口(深圳)有限公司 (Ling Xian Fei

Yu Import & Export (Shenzhen) Co. Ltd.). The change of name of Ling Xian Fei Yu was

approved by the Bureau of Trade and Industry of Shenzhen (深圳市貿易工業局) on 23 June

2009.

The business term of Ling Xian Fei Yu is 20 years until 10 September 2027.

Sheen Group HK

Sheen Group HK was incorporated in Hong Kong with limited liability on 5 September

2008 by Mr. Guo.

On 17 December 2008, Mr. Guo transferred the entire issued share capital of Sheen Group

HK to Sheen BVI at a nominal consideration of HK$1.


– 107 –

Century Leader HK

Century Leader HK was incorporated in Hong Kong with limited liability on 2 April

2007. Mr. Guo acquired the entire issued share capital of Century Leader HK from the

subscriber, an Independent Third Party, at a consideration of HK$1 (equivalent to the par value

in respect of such share) on 5 June 2007.

On 21 December 2009, Mr. Guo transferred the entire issued share capital of Century

Leader HK at a consideration of HK$10,000 (equivalent to the par value in respect of such

shares) to Million Rays.

As part of the Reorganisation, Million Rays and Sheen BVI entered into a sale and

purchase agreement dated 19 June 2012, pursuant to which Sheen BVI acquired the entire

issued share capital of Century Leader HK from Million Rays at a consideration of

HK$16,217,227, which was determined based upon the consolidated net asset value of Century

Leader HK. The consideration was satisfied by allotment and issuance of 1 share of US$1 in

the share capital of Sheen BVI to Mr. Guo at the direction of Million Rays. Following the said

transfer, Century Leader HK became wholly owned by Sheen BVI. Details of the

Reorganisation are set out in the paragraph headed “Corporate reorganisation” in Appendix V

to this prospectus.

Sheen BVI

Sheen BVI was incorporated in BVI on 27 November 2008 and its entire issued share

capital was owned by Mr. Guo at the time of its incorporation.

As part of the Reorganisation, Mr. Guo (as vendor) and our Company (as purchaser)

entered into a sale and purchase agreement dated 21 June 2012 pursuant to which, among other

things, Sheen BVI became a direct wholly-owned subsidiary of our Company. Details of the

Reorganisation are set out in the paragraph headed “Corporate reorganisation” in Appendix V

to this prospectus.

REORGANISATION

We completed the Reorganisation on 21 June 2012 in preparation for the Listing, pursuant

to which our Company became holding company of our Group. Details of the Reorganisation

are set out in the paragraph headed “Corporate reorganisation” in Appendix V to this

prospectus.

Our PRC Legal Advisers confirmed that our Group has obtained all necessary approvals,

consents, licences and permits and has effected all necessary filings or recordation under the

relevant PRC laws and regulations in connection with the Reorganisation.


– 108 –

THE CORPORATE STRUCTURE OF OUR GROUP

We set out below the corporate structure of our Group immediately before the

Reorganisation:

Sheen Group HK(incorporated in

Hong Kong)

(Note 2)

Sheen HK(incorporated in

Hong Kong)

(Note 3)

Century Leader HK(incorporated in

Hong Kong)

(Note 4)

Biotex HK(incorporated in

Hong Kong)

(Note 12)

Jiangsu Shuntai(established in PRC)

(Note 5)

Ling Xian Fei Yu(established in PRC)

(Note 7)

Qingdao Ener(established in PRC)

(Notes 8 and 9)


(established in PRC)

(Note 6)

Sheen BVI (incorporated in BVI)

(Note 1)

Million Rays (incorporated in BVI)

(Note 10)

Biotex BVI(incorporated in BVI)

(Note 11)

Mr. Guo

100%

100%

51%

65%

100%

35%

100% 100%

100% 100%

100% 70%

Notes:

1. As advised by our Directors, Sheen BVI is and has been an investment holding company with no substantive

business operation during the Track Record Period and up to the Latest Practicable Date.

2. As advised by our Directors, Sheen Group HK was an investment holding company with no substantive

business operation during the Track Record Period. Up to the Latest Practicable Date, Sheen Group HK has

been engaging in the trading of various types of films.

3. As advised by our Directors, Sheen HK is and has been an investment holding company, and has also been

engaging in the trading of various types of films during the Track Record Period and up to the Latest

Practicable Date.

4. As advised by our Directors, Century Leader HK is and has been an investment holding company with no

substantive business operation during the Track Record Period and up to the Latest Practicable Date.

5. Jiangsu Shuntai’s scope of business is the printing of packaging and decorating printed matters, and the

research, development and production on new film, sales of self-manufactured products; packaging design,

production.

As at the Latest Practicable Date, the remaining 49% equity interest of Jiangsu Shuntai was owned by Huai

An Tian Cai, which is a substantial shareholder of Jiangsu Shuntai for the purpose of the Listing Rules. Please

also refer to the paragraph headed “Jiangsu Shuntai” above for further details.


– 109 –

6. Jiangsu Sheen Colour’s scope of business is the typesetting, plate making, printing and binding of packaging

and decorating printed matters of various new types of film, and the development of various new types of film,

providing production line locator equipment and related services, and sales of self-manufactured products.

7. Ling Xian Fei Yu’s scope of business is chemical products (excluding dangerous chemicals), plastics and

plastic products, rubber and rubber products, wood pulp and other fibre pulp, paper and paper products,

ceramics, glass and glass products, machinery and equipment, electrical equipment and related spare parts,

office supplies, crafts, daily necessities, clothing, textile raw materials, packaging supplies, design of building

materials, technology consulting, wholesale, export, import, and related business (not involved in merchandise

trade regulated by PRC government, and all merchandise have obtained or applied for quota, licence, and

other certificate as required under PRC laws).

8. Qingdao Ener’s scope of business is the manufacturing of labels films, film-type additives, film-typed

deep-processed products (aluminised, transfer film); the development and manufacturing of agricultural film

new technology and photolysis film, multifunctional film and agricultural film new products.

9. Pursuant to an equity transfer agreement dated 13 March 2012 entered into between Qingdao Beizhou and

Sheen HK, Sheen HK acquired 30% equity interest in Qingdao Ener and the consideration of which is required

to be paid on or before 30 September 2012.

Please also refer to the paragraph headed “Qingdao Ener” above in this section for further details.

10. Million Rays was incorporated in BVI with limited liability on 2 July 2009. Since its incorporation and up to

the Latest Practicable Date, Million Rays had been wholly-owned by Mr. Guo. As confirmed by Mr. Guo,

Million Rays was an investment holding company, and it did not have any substantive business operation

during the Track Record Period and as at the Latest Practicable Date.

11. Biotex BVI was incorporated in BVI with limited liability on 7 November 2008. As confirmed by Mr. Guo, the

beneficial interest in Biotex BVI had been wholly-owned by him during the Track Record Period and up to the

Latest Practicable Date, and that Biotex BVI was an investment holding company with no substantive business

operation during the Track Record Period and as at the Latest Practicable Date.

12. Biotex HK was incorporated in Hong Kong with limited liability on 2 July 2004. As confirmed by Mr. Guo, the

beneficial interest in Biotex HK had been wholly-owned by him indirectly during the Track Record Period and

up to the Latest Practicable Date, and that Biotex HK was an investment holding company with no substantive

business operation during the Track Record Period and as at the Latest Practicable Date.


– 110 –

We set out below the corporate structure of our Group after completion of the

Reorganisation but immediately before the Share Offer:

Mr. Guo

Sheentai BVI

(incorporated in BVI)

100%

100%


Hong Kong)

(Note 2)


Hong Kong)

(Note 3)

Company(incorporated in

Cayman Islands)


(Note 5)


(Notes 8 and 9)



(Note 6)


(Note 1)

100%

100%

51%

65%

100% 100%

35%

100% 100%


(Note 7)


Hong Kong)

(Note 4)

Please refer to pages 109 to 110 of this prospectus for the notes to the above corporate

structure.


– 111 –

We set out below the corporate structure of our Group immediately after completion of

the Share Offer (without taking into account any Shares which may be issued pursuant to the

exercise of the Over-allotment Option, the Pre-IPO Share Options and any options which may

be granted under the Share Option Scheme, or the arrangements under the Stock Borrowing

Agreement):


Hong Kong)

(Note 2)


Hong Kong)

(Note 3)

Mr. Guo

Public

Shareholders

Company(incorporated in

Cayman Islands)


(Note 5)


(Notes 8 and 9)


Hong Kong)

(Note 4)



(Note 6)


(Note 1)

Sheentai BVI

(incorporated in BVI)

100%

100%

51%

65%

100% 100%

35%

25%75%

100%

100% 100%


(Note 7)

Please refer to pages 109 to 110 of this prospectus for the notes to the above corporate

structure.


– 112 –

PRC REGULATORY ISSUES RELATING TO THE REORGANISATION

As provided in the “Provisions on the Merger and Acquisition of Domestic Enterprises by

Foreign Investors” (《關於外國投資者併購境內企業的規定》) (the “M&A Rules”), which

came into force on 8 September 2006 and amended on 22 June 2009, the acquisition of a

domestic enterprise by a foreign investor means that a foreign investor purchases the equity of

the shareholders of a domestic non-foreign invested enterprise (hereinafter referred to as

“domestic company”) or subscribes to the increased capital of a domestic company, and thus

changing the domestic company into a foreign-invested enterprise; or, a foreign investor

establishes a foreign-invested enterprise, and through which it purchases by agreement the

assets of a domestic enterprise and operates its assets, or, a foreign investor purchases by

agreement the assets of a domestic enterprise, and then invests such assets to establish a

foreign-invested enterprise and operates the assets. Where a domestic company or enterprise,

or a domestic natural person, through an overseas company established or controlled by it/him,

acquires a domestic company which is related to or connected with it/him, approval from

MOFCOM is required.

Where the shareholders of an overseas company purchase the equity of shareholders in a

domestic company or the additional equity issued by the domestic company with the equity it

holds in the overseas company or the additional equity issued by the overseas company as

payment method for purposes of overseas listing of the special purpose vehicle, the overseas

listing shall be subject to approval of the securities regulatory institution of the State Council.

As advised by our PRC Legal Advisers, since (i) Mr. Guo is a Hong Kong permanent

resident, (ii) all PRC subsidiaries (Jiangsu Sheen Colour, Jiangsu Shuntai, Qingdao Ener and

Ling Xian Fei Yu) have been foreign investment enterprises since the time of establishment,

and (iii) the Reorganisation did not involve purchase by foreign investor of equity interests in

domestic company, or conversion of a domestic company into a foreign owned enterprise, as

defined under the M&A Rules and accordingly, no approval from MOFCOM and/or China

Securities Regulatory Commission (中國證券監督管理委員會) is required.

According to the “Notice on Relevant Issues concerning Foreign Exchange

Administration for Domestic Residents to Engage in Financing and in Return Investment via

Overseas Special Purpose Companies” (《關於境內居民通過境外特殊目的公司融資及返程投資外匯管理有關問題的通知》) (the “Circular 75”) implemented on 1 November 2005 and the

“Circular of State Administration of Foreign Exchange on Relevant Issues Concerning Foreign

Exchange Administration for Domestic Residents Engaged in Financing and in Return

Investment via Overseas Special Purpose Companies” (《境內居民通過境外特殊目的公司融資及返程投資外匯管理操作規程》) implemented on 1 July 2011, a PRC domestic resident

legal person or a PRC domestic resident natural person is required to effect foreign exchange

registration with the local foreign exchange bureau when such domestic resident uses

its/his/her enterprise assets or interests in the PRC to establish or take control of an overseas

special purpose company and its/his/her domestic enterprises receive round-trip investments

from funds raised by such overseas special purpose company.

As advised by our PRC Legal Advisers, as Mr. Guo is a Hong Kong permanent resident,

Mr. Guo is not subject to the provision of the Circular 75.


– 113 –

OVERVIEW





of 18.8% in terms of sales value. According to Euromonitor Report, the market share of Jiangsu

Province in the overall cigarette packaging materials market in the PRC was approximately

5.5% in value terms in 2011.



non-cigarette-related packaging materials. As at the Latest Practicable Date, we had three



customer during the Track Record Period, has been our customer for over eight years. We


second half of 2011 and 2012 respectively.

Packaging materials that we supply to our customers can be broadly classified into three

categories, namely, (i) cigarette-related packaging materials (comprising cigarette paper boxes,

anti-counterfeiting films and other cigarette films manufactured by us); (ii) imported films; and

(iii) non-cigarette-related packaging materials (being films for packaging non-cigarette-related

products manufactured by us). During the Track Record Period, our sales are predominately

made to the PRC market and the sales of cigarette related packaging materials to our customers

located in Jiangsu Province was more than 75% of our total sales of cigarette related materials

for each of the three years ended 31 December 2011.

As at the Latest Practicable Date, we operated two factories, namely our Shuntai Factory

accommodating the production facilities for (i) the printing and manufacturing of cigarette

paper boxes; and (ii) the printing of films; and our Ener Factory accommodating the production

facilities for the manufacturing of films. Our factories in aggregate occupied a gross floor area

of approximately 66,169 square metres.




equity shareholders of our Company were approximately HK$38.1 million, HK$60.7 million


period. By leveraging on our strengths and effectively implementing our business strategies,

our Directors believe that we can continue to effectively expand our business both in terms of

turnover and profitability.

BUSINESS

– 114 –

COMPETITIVE STRENGTHS

Cigarette packaging materials manufacturer and supplier in the PRC with a leading

position in Jiangsu Province, the PRC

According to the Euromonitor Report:

(1) our Group ranked no. 2 in overall cigarette packaging materials market in Jiangsu

Province, the PRC in 2011 with a market share of 18.8% in terms of sales value; and

(2) the market share of Jiangsu Province in the overall cigarette packaging materials

market in the PRC was approximately 5.5% in value terms in 2011.

As a cigarette packaging materials manufacturer and supplier in the PRC with a leading

position in Jiangsu Province, we believe that we are well-positioned to capture the business

opportunities that may arise as a result of the consolidation of the cigarette industry in the PRC.

As at the Latest Practicable Date, we were one of the approved suppliers of three

Provincial Tobacco Industrial Companies, including China Tobacco Jiangsu and we supplied

packaging materials to China Tobacco Jiangsu for its “Nanjing” (南京) and “Su Yan” (蘇煙)

products and to the two other Provincial Tobacco Industrial Companies for their respective

cigarette products. Inclusive of “Nanjing” (南京) and “Su Yan” (蘇煙), we supplied cigarette

packaging materials for at least three brands under the “20+10” Key Brands.

According to the Euromonitor Report, the number of brands showed a decrease from

1,181 brands in early 2000 to 117 brands by the end of 2011 due to the policies issued by the

PRC Government to exert influence on the industry consolidation at the macro level. In early

2010, the STMA has laid down the five-year development direction with a “461” plan, in order

to make the cigarette industry grow stronger and to modernise the cigarette industry. Under the

“461” plan, the STMA targets to develop the cigarette industry in the PRC by way of

establishing 12 cigarette brands with individual annual turnover of over RMB40 billion, among

which six cigarette brands with individual annual turnover of over RMB60 billion and one

cigarette brand with individual annual turnover of over RMB100 billion by 2015. We believe

that as we are one of the approved suppliers of China Tobacco Jiangsu and the other two

Provincial Tobacco Industrial Companies and supplied cigarette packaging materials for at

least three brands under the “20+10” Key Brands, we would benefit from the market

consolidation driven by government policies.

Our ability to secure orders from new customers has been proven by the fact that we won

tenders for supplying cigarette films to two additional Provincial Tobacco Industrial

Companies in the second half of 2011 and commenced to supply products to them in 2011 and

2012 respectively. Our Directors attribute our ability as such is built upon our leading market

position in the cigarette packaging materials in Jiangsu Province, the PRC.

BUSINESS

– 115 –

Established relationships with our major customers

China Tobacco Jiangsu, our largest customer during the Track Record Period, has been

our customer for over eight years. During the Track Record Period, we are one of the major

suppliers of cigarette paper boxes and cigarette films of China Tobacco Jiangsu for its products.

According to the Euromonitor Report, China Tobacco Jiangsu monopolises the

downstream cigarette manufacturing market in Jiangsu Province, the PRC. Our Directors

consider that our established relationship with China Tobacco Jiangsu has (1) enabled us to

generate stable, secured and substantial turnover as well as cash inflow by selling cigarette

paper boxes and cigarette films to China Tobacco Jiangsu; and (2) provided us a strong and

stable backing for our continuous growth.

We believe that the strength and depth of the relationships which we have built with our

customers is a direct result of our strong focus on customers, and our ability to provide high

quality packaging materials in a consistent and timely manner and after-sales support. We also

believe that such established relationships have helped us build a solid customer base, which

has enabled us to secure from our established customers regular and repeated business,

understand our customers’ needs, and operate in a more cost-effective manner through

improved production process, planning and economies of scale.

In the second half of 2011, we won tenders for supplying cigarette films to two additional

Provincial Tobacco Industrial Companies and commenced to supply products to them in 2011

and 2012 respectively. With the addition of these two cigarette manufacturer customers, our

Directors are confident that our business will be able to continue to grow.

Management team with in-depth knowledge and extensive industry experience

Our experienced management team is led by Mr. Guo, the chairman of the Board and an

executive Director, who has over 15 years of working experience in the cigarette packaging

industry. Mr. Guo has accumulated extensive experience and profound knowledge of the

industry. Mr. Guo’s extensive experience in the cigarette packaging industry has also afforded

him the opportunity to establish close relationship and extensive contacts with cigarette

manufacturers. Such relationship and contacts allow us to grow considerably since our

establishment in 1997. Apart from Mr. Guo, our other Directors and senior management staff

also have extensive experience in the cigarette packaging industry. Madam Xia, an executive

Director, also has more than 15 years of experience in the cigarette packaging industry. Mr.

Huang Bo, an executive Director, has more than seven years of experience in the cigarette

packaging industry, especially in financial management field. Our senior management staff, in

particular, Mr. Yu Xiaofeng and Mr. Jiang Chang, having been working in the cigarette

packaging industry for at least 10 years, are familiar with the trade practice of the industry.

Please refer to the section headed “Directors, senior management and staff” in this prospectus

for the qualifications and working experience of our executive Directors and senior

management.

BUSINESS

– 116 –

Leveraged on the experience and the respective networks of our Directors and senior

management in the PRC cigarette industry, our Directors are confident that we are

well-positioned to secure business from our existing and potential customers, and to explore

more new business opportunities which is crucial to the continuous development of our Group.

We are also of the view that since our establishment, the pool of valuable knowledge and

skills in the management team has been critical to the efficiency of the production process and

the development of our business as a whole.

High growth in turnover and profitability by leveraging on our industry experience and

leading position in Jiangsu Province

Leveraged on the expertise and extensive relationships of our management team in the

cigarette packaging industry and our leading position in cigarette packaging industry in Jiangsu

Province, we have experienced increase in our turnover and profitability during the Track

Record Period. For the three years ended 31 December 2011, we generated turnover of

approximately HK$264.5 million, HK$550.5 million and HK$675.0 million respectively,

representing a CAGR of approximately 59.7% over the period. During the same period, profit

attributable to equity shareholders of our Company were approximately HK$38.1 million,

HK$60.7 million and HK$81.4 million respectively, representing a CAGR of approximately

46.2% over the period. By leveraging on our strengths and effectively implementing our

business strategies, our Directors believe that we can continue to effectively expand our

business both in terms of turnover and profitability.

BUSINESS STRATEGIES

It is our goal to become a leading manufacturer and supplier of cigarette packaging

materials in the PRC. We aim to attain our goal by the following strategies:

Enhance our leading position in cigarette packaging industry in Jiangsu Province

According to the Euromonitor Report, we ranked no. 2 in overall cigarette packaging

materials market (comprising paper boxes, films and other packaging materials) in Jiangsu

Province, the PRC in 2011 with a market share of 18.8% in terms of sales value. We plan to

further enhance our leading position in Jiangsu Province, the PRC and to increase our market

share in cigarette paper box market by leveraging on our business relationship with China

Tobacco Jiangsu and our ability to improve product quality.

Increase our market share in the PRC by leveraging our leading position in Jiangsu

Province and unique features of our anti-counterfeiting films

Leveraged on our capability of manufacturing anti-counterfeiting films with unique

features and our leading position in Jiangsu Province, the PRC where we have established long

term business relationship with China Tobacco Jiangsu, we seek to increase our market share

by submitting tenders for brands of our existing customers which we are currently not a

supplier and striving to be admitted as an approved supplier of new customers in other

BUSINESS

– 117 –

provinces. We have commenced business relationship with two additional Provincial Tobacco

Industrial Companies in 2011 after we having been admitted as one of their approved suppliers.

We won tenders for supplying cigarette films to such Provincial Tobacco Industrial Companies

in the second half of 2011 and started to supply products to them in 2011 and 2012 respectively.

Increase our market share by acquiring companies with approved supplier status of our

target customers

To capture the benefits that may arise as a result of (i) the market consolidation driven

by government policies and (ii) admitting as approved suppliers of cigarette manufacturers in

the PRC involves approval/recognition process of the relevant cigarette manufacturer, we

intend to expand our market share by way of acquisitions of companies with the “approved

supplier” status. According to the Euromonitor Report, there were 26 cigarette companies in

the PRC in 2011. As at the Latest Practicable Date, we were the approved suppliers of three

of them, each of which is a Provincial Tobacco Industrial Company. Our approved supplier

status is not brand-specific.

We would consider the following factors in assessing acquisition targets (i) whether such

acquisition target is an approved supplier of our target customers; (ii) the location of its

production facilities; (iii) reputation of such company in the industry; (iv) scale of operation

of such company; and (v) historical financial performance of such company.

As set out in the section headed “Industry overview” in this prospectus, the cigarette

industry is subject to consolidation driven by government policy. Our Directors consider that

such policy should not have any material implication on our Group’s acquisition strategy as

described above as it is our Group’s intention to only acquire companies with approved

supplier status in the market and it is expected that such companies will benefit from the

market consolidation of the cigarette industry.

Part of the net proceeds from the Share Offer will be applied towards the payment of the

consideration of RMB39.6 million (equivalent to approximately HK$48.7 million) in relation

to the acquisition of the 30% minority interests in Qingdao Ener which had been completed as

at the Latest Practicable Date.

As at the Latest Practicable Date, we have not identified any specific acquisition targets.

Enhance our performance by recruitment and retention of quality personnel

Our success, to a large extent, depends on our ability to attract, motivate and retain

professional and experienced personnel. In order to maintain our competitive advantages, we

intend to:

• continue to attract and retain qualified personnel by offering attractive package and

promoting merit-based compensation system across all business lines; and

• introduce the Share Option Scheme to motivate our staff and to align the objectives

of our personnel and management to those of our Group.

BUSINESS

– 118 –

TURNOVER

During the Track Record Period, our turnover was attributable to (i) manufacturing and

sale of cigarette-related packaging materials; (ii) trading of imported films; and (iii)

manufacturing and sale of non-cigarette-related packaging materials by our PRC subsidiaries.

The following table illustrates the breakdown of our turnover by business segments

during the Track Record Period:


2009 2010 2011

HK$’000 % HK$’000 % HK$’000 %

Turnover


cigarette-related

packaging materials

– Cigarette paper boxes 68,495 25.9 213,519 38.8 267,953 39.7

– Anti-counterfeiting films 102,494 38.8 81,041 14.7 84,791 12.6

– Other cigarette films 37,839 14.3 69,809 12.7 111,785 16.6

Sub-total 208,828 79.0 364,369 66.2 464,529 68.9

Trading of imported films 34,692 13.1 49,619 9.0 55,017 8.1



packaging materials 20,937 7.9 136,546 24.8 155,437 23.0

Total 264,457 100.0 550,534 100.0 674,983 100.0

As illustrated in the above table,

(1) most of our turnover during the Track Record Period was attributable to the

manufacturing and sale of cigarette-related packaging materials and approximately

79.0%, 66.2% and 68.9% of our turnover for each of the three years ended 31

December 2011, respectively, was attributable to the manufacturing and sale of

cigarettes-related packaging materials;

(2) approximately 7.9%, 24.8% and 23.0% of our turnover for each of the three years

ended 31 December 2011, respectively, was attributable to the manufacturing and

sale of non-cigarette-related packaging materials; and

BUSINESS

– 119 –

(3) approximately 13.1%, 9.0% and 8.1% of our turnover for each of the three years

ended 31 December 2011, respectively, was attributable to imported film trading

activities.

Set out below is the geographical analysis of our sales of cigarette-related packaging

materials and imported films during the Track Record Period:


2009 2010 2011

HK$’000 % HK$’000 % HK$’000 %

Jiangsu Province 197,220 81.0 339,917 82.1 398,396 76.7

Shandong Province 30,565 12.5 60,165 14.5 90,877 17.5

Guangxi Province – – – – 3,265 0.6

Other areas 15,735 6.5 13,907 3.4 27,008 5.2

243,520 100.0 413,989 100.0 519,546 100.0

Note: Other areas mainly include Henan Province, Shenzhen City and other provinces/cities in the PRC.

As set out above, our sales to the Jiangsu Province contributed approximately 81.0%,

82.1% and 76.7% of our total sales of cigarette-related packaging materials during the Track

Record Period.

Manufacturing and sale of cigarette-related packaging materials

During the Track Record Period, we have been focusing on the manufacturing and sale

of cigarette-related packaging materials. Currently, our cigarette-related packaging materials

include (i) cigarette paper boxes; (ii) anti-counterfeiting films; and (iii) other cigarette films.

(i) Cigarette paper boxes

Cigarette paper boxes are packaging materials which are used to pack and carry

cigarettes. Such paper boxes can also serve as a marketing tool to convey designed message

and information to consumers. Layouts of the cigarette paper boxes are designed by the

customers who are cigarette manufacturers and such layout usually includes brand names,

logos, names of manufacturers and other information prescribed by legal and regulatory

requirements and in accordance with the specifications prescribed by our customers.

As at the Latest Practicable Date, we manufactured two types of cigarette paper boxes

namely, (i) hard cigarette paper boxes (which are used to pack and carry 20 cigarettes) with

only one specification in terms of dimensions with various different layout designs; and (ii)

long cigarette cartons (which are used to pack and carry 10 packets of cigarettes) with only one

specification in terms of dimensions with various different layout design, both of which have

anti-counterfeiting function, are stiff and can prevent cigarettes from wrinkling.

BUSINESS

– 120 –

Set out below are the photos of our hard cigarette paper boxes and long cigarette cartons

respectively.

We are an approved supplier of China Tobacco Jiangsu for its cigarette paper boxes.

During the Track Record Period, we supplied cigarette paper boxes to China Tobacco Jiangsu

under, among other brands, the brand of “Nanjing” (南京). “Nanjing” (南京) brand is one of

the 20 key national backbone cigarette brands under the “20+10” Key Brands.

Our cigarette paper boxes and cigarette films are separately sold to the customers.

(ii) Anti-counterfeiting films

Our anti-counterfeiting films refer to films with unique features that are printed by us

with special printing technique so that such products can achieve anti-counterfeiting and brand

strengthening purposes. As compared with other cigarette films (including imported films),

anti-counterfeiting films are usually printed with logos of the cigarette companies, special

marks, designs and/or with precise coordinates of the printing which can match the design on

cigarette paper box packing, and hence cannot be counterfeited easily. We can use either our

own manufactured films or imported films to produce anti-counterfeiting films. The key

difference between our anti-counterfeiting films and imported films is that anti-counterfeiting

films have unique features that are printed by us so that such films can achieve anti-

counterfeiting purposes.

Set out below is a photo of our anti-counterfeiting films.

BUSINESS

– 121 –

We are an approved supplier of China Tobacco Jiangsu for its anti-counterfeiting films

and we supplied anti-counterfeiting films to China Tobacco Jiangsu under the brands of

“Nanjing” (南京) and “Su Yan” (蘇煙), both of which are among the 20 key national backbone

cigarette brands under the “20+10” Key Brands.

During the Track Record Period, the selling price of our anti-counterfeiting films were

fixed according to the relevant sales contracts with our customer, which was determined based

on our expected cost of production during the relevant contract period.

A decrease in sales of our anti-counterfeiting films was noted for the two years ended 31

December 2011, as compared to that for the year ended 31 December 2009. As confirmed by

our Directors, such decrease was primarily due to a change of product mix of our customer of

anti-counterfeiting films, being China Tobacco Jiangsu, as it had reduced gradually the

production of one of its brands for which we previously supplied our anti-counterfeiting films

since the second half of 2009 and has subsequently discontinued the production of such brand

in 2011. To the best knowledge of our Directors, such gradual reduction and cessation in

production was resulted from the consolidation of brands and sub-brands of China Tobacco

Jiangsu so that it can concentrate on the marketing and promoting of its two major brands

namely “Nanjing” (南京) and “Su Yan” (蘇煙) and their respective sub-brands. For the three

years ended 31 December 2011, we sold anti-counterfeiting films (in terms of sales value and

not including VAT) of approximately HK$25.2 million, approximately HK$19.7 million and

approximately HK$9.6 million respectively to China Tobacco Jiangsu for the brand which has

ceased production in 2011.

During the Track Record Period, all of our anti-counterfeiting films were printed in our

Sheen Colour Nanjing Factory.

As at the Latest Practicable Date, our anti-counterfeiting films were printed in our

Shuntai Factory pursuant to the processing arrangement as set out in the sub-section headed

“Business – Production facilities and production process – Production premises during the

Track Record Period – Relocation and processing arrangement” in this section below. The

printing of anti-counterfeiting films requires a special set of machinery. The production

capacity of our anti-counterfeiting films is set out in the sub-section headed “Production

facilities and production process – Production capacity and production plan” in this section

below.

(iii) Other cigarette films

Other cigarette films refer to the films (other than those anti-counterfeiting films as

described above) for wrapping the cigarette paper boxes and without any printed features.

Their high gloss and clarity can make the cigarette paper boxes brightly and smoothly.

During the Track Record Period, the selling price of our other cigarette films was based

on our cost of production and the price offered by our competitors by the time of receiving the

order.

BUSINESS

– 122 –

The table below sets forth the application and main features of the major cigarette films

produced by us:

Cigarette films Application Main features

Number of

Specifications Photos

1 BOPP Thermal

Shrink Cigarette

Packing Film

Specifically

designed for hard

cigarette paper

boxes

Stiff, high

transparency and

tight

1

2 BOPP Common

Cigarette Film

Designed for soft

cigarette paper

boxes

High gloss and

clarity

1

3 BOPP High

Transparent Anti-

Fogging

Cigarette Packing

Film

Designed for

cigarette

antifogging

packaging

Antifogging and

resistant to

friction

3

We supply other cigarette films to two other Provincial Tobacco Industrial Companies. As

confirmed by one of such Provincial Tobacco Industrial Companies, our other cigarette films

are used for one of its brands which is one of the 20 key national backbone cigarette brands

under the “20+10” Key Brands.

Trading of imported films

During the Track Record Period, we have also been engaged in trading of films which we

sourced from an independent overseas film supplier. Such films were sold to customers without

any further processing in our factories.

As at the Latest Practicable Date, we offered five different types of imported films.

We are the approved suppliers of China Tobacco Jiangsu for its imported films during the

Track Record Period. We are the sole agent in Jiangsu Province, Shandong Province and Nan

Chang City in Jiangxi Province of the imported films of our supplier, which is a leading global

manufacturer of BOPP films located in Australia, for the period from 1 January 2012 to 31

December 2012.

During the Track Record Period, the selling price of our imported films were either fixed

according to the relevant sales contract with our customer, which was determined based on our

expected purchase cost during the relevant contract period; or determined based on our

purchase cost by the time of receiving the order, if such sales is not pursuant to a fixed term

contract.

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Manufacturing and sale of non-cigarette-related packaging materials

Apart from cigarette-related packaging materials, we also manufacture and sell films for

non-cigarette-related products. Films for non-cigarette-related products have a wide-range of

applications. Certain types of such films allow printing or further processing of laser surface

and such processed films can serve anti-counterfeiting purpose.

The following table illustrates the application and main features of the other major

marketing films produced by us:

Marketing films Application Main features

Number of

Specifications Photos

1 BOPP ULT thermal

sealing film

(double sides)

Used as the

packing films of

straw, food,

candy, tea,

cassette and

other machine-

packing thermal

sealing films.

Instantaneous

thermal sealing

at a low

temperature and

fit for high-speed

packing

1

2 BOPP laser base

film

Used as moulding

of holographic

anti-counterfeit

and decoration.

Easy to control the

conditions of

mould pressing

and high

transparency

3

3 BOPP thermal

sealing film

(double sides)

Used in the

packing of foods,

tea, cassette etc.

With wide range of

heat-sealable

temperature

1

During the Track Record Period, the selling price of our non-cigarette-related packaging

materials were based on our cost of production and the price offered by our competitors by the

time of receiving the order.

Though approximately 7.9%, 24.8% and 23.0% of our turnover was attributable to the

manufacturing and sale of non-cigarette-related packaging materials for the three years ended

31 December 2011 respectively, it is our plan to decrease our sales attributable to this category

of packaging materials (as a percentage to the total sales of our Group) in the future as such

category is generally of lower gross profit margins (as compared with that of our other cigarette

films).

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CUSTOMERS

During the Track Record Period, our customers included (i) cigarette manufacturers; (ii)

other customers of cigarette films; and (iii) customers of non-cigarette-related packaging

materials.

The table below illustrates the breakdown of our sales in terms of customer type during

the Track Record Period:


2009 2010 2011

HK$’000 % HK$’000 % HK$’000 %

Cigarette manufacturers 169,622 64.2 304,036 55.2 389,567 57.7

Other customers of cigarette

films 73,898 27.9 109,952 20.0 129,979 19.3

Customers of non-cigarette-

related packaging materials 20,937 7.9 136,546 24.8 155,437 23.0

264,457 100.0 550,534 100.0 674,983 100.0

Cigarette manufacturers

As at the Latest Practicable Date, we were the approved suppliers of China Tobacco

Jiangsu and two other Provincial Tobacco Industrial Companies. According to the Euromonitor

Report, each of these companies is subordinated to CNTC, and each of our three cigarette

manufacturer customers (i.e. China Tobacco Jiangsu and the other two Provincial Tobacco

Industrial Companies) has different geographical coverage (one in Jiangsu Province, one in

Guangxi Province and the other in Shandong Province).

According to Euromonitor Report, these three Provincial Tobacco Industrial Companies

monopolise the cigarette manufacturing markets in Shandong Province, Jiangsu Province and

Guangxi Province respectively, taking a share of approximately 4.5%, 3.9% and 2.2%

respectively in the cigarette manufacturing market in retail sales volume terms in the PRC in

2011.

China Tobacco Jiangsu was established in 2003 and is an integrated cigarette company

engaging in cigarette production, sales and supply of cigarette materials. We have been its

supplier for the past eight years and we supplied cigarette paper boxes and films to China

Tobacco Jiangsu during the Track Record Period. Our cigarette packaging materials are used

in its “Nanjing” (南京) and “Su Yan” (蘇煙) brands, both of which are among the 20 key

national backbone cigarette brands under the “20+10” Key Brands.

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For the other two Provincial Tobacco Industrial Companies, we had been admitted as a

supplier of them in the second half of 2011 and commenced to supply films to their respective

cigarette products in 2011 and 2012 respectively.

Inclusive of “Nanjing” (南京) and “Su Yan” (蘇煙) brands, we supplied packaging

materials for at least three brands under the “20+10” Key Brands.

Other customers of cigarette films

During the Track Record Period, in addition to cigarette manufacturers, we also sold other

cigarette films to other customers in many provinces and cities such as Shanghai City,

Shandong Province, Guangdong Province, Jiangsu Province, Henan Province, Fujian Province,

etc. To the best knowledge of our Directors, four of our other customers of cigarette films

(including Xuzhou Long Chuan Co., Ltd (徐州龍川商貿有限公司) (“Long Chuan”) (a company

owned by Mr. Guo prior to the commencement of the Track Record Period until 13 June 2011),

Shenzhen Yi’an Import and Export Co., Ltd. (深圳益安進出口有限公司) (“Shenzhen Yi’an”) (a

company owned as to 67% by Mr. Guo and 33% by Madam Xia prior to the commencement

of the Track Record Period until 5 January 2010), and Xuzhou Dinuo Printing Co., Ltd. (徐州帝諾印刷有限公司) (“Xuzhou Dinuo”) (the legal representative of which was Mr. Guo during

the Track Record Period and up to the Latest Practicable Date) are approved suppliers of China

Tobacco Jiangsu and two of such other customers (including Qingdao Justo Packaging Co., Ltd

(青島嘉澤包裝有限公司) (“Qingdao Justo”) (a company owned as to 30% by Mr Guo prior to

the commencement of the Track Record Period until 23 March 2011)) are approved suppliers

of another Provincial Tobacco Industrial Company based in Shandong Province. During the

Track Record Period, our sales to approved suppliers of cigarette manufacturers represented

approximately 13.5%, 18.2% and 17.4%, and our sales to other customers purchasing cigarette

films represented approximately 14.4%, 1.8% and 1.9%, of our total sales respectively. Our

business relationships with such customers was up to 6 years. For details of our business

relationship with Long Chuan, Shenzhen Yi’an, Xuzhou Dinuo and Qingdao Justo, please refer

to the paragraph headed “Relationships between our Directors and our customers” in this

sub-section below.

An approved supplier of a cigarette manufacturer is a cigarette packaging materials

manufacturer or a supplier which can demonstrate to the satisfaction of the cigarette

manufacturer that it has the capability to deliver sufficient quantity of products and to control

the quality of the products at the required standard. In order to become an approved supplier

of a cigarette manufacturer, a candidate supplier is required to go through a recognition process

in which the cigarette manufacturer will take into account factors, amongst others, quality of

products sourced, capability to control quality and manage to modify products as well as

capability to manage the resolution of technical problems. Our Directors believe that an

approved supplier may, having considered the cost effectiveness issues, source, in whole or in

part, a particular cigarette packaging materials from other manufacturers such as our Group to

satisfy the demand from its cigarette manufacturers. The practice for an approved supplier of

cigarette manufacturers to purchase cigarette films from a cigarette films manufacturer is in

line with the norm in the cigarette packaging industry.

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Other customers purchasing cigarette films from us during the Track Record Period

included, amongst others, packaging materials trading companies.

Customers of non-cigarette-related packaging materials

Customers of non-cigarette-related packaging materials are customers which purchase our

non-cigarette-related packaging materials and include, among others, packaging companies

and consumer goods manufacturers.

Five largest customers during Track Record Period

During the three years in the Track Record Period, our largest customer, being China

Tobacco Jiangsu, accounted for approximately 64.2%, 55.4% and 57.8% of our total turnover

respectively, and sales to our five largest customers amounted to approximately HK$229.0

million, HK$402.0 million, and HK$509.7 million, representing approximately 86.6%, 73.0%

and 75.5% of our total turnover respectively. Our five largest customers for each of the three

years ended 31 December 2011 comprised eight different companies.

Our business relationships with our five largest customers during the Track Record Period

range from two years to over eight years. During the Track Record Period, substantially all of

our sales were made to customers in the PRC and the sales of cigarette-related packaging

materials and imported films to our customers located in Jiangsu Province was more than 75%

of our total sales of cigarette related materials and imported films for each of the three years

ended 31 December 2011. Accordingly, substantially all of our sales are settled in RMB.

Apart from China Tobacco Jiangsu which engaged in the sale and manufacture of

cigarette business, our other five largest customers mainly engage in the sale of packaging

materials during the Track Record Period.

Our five largest customers during the Track Record Period included Qingdao Justo and

Xuzhou Dinuo. For details of our business relationship with Qingdao Justo and Xuzhou Dinuo,

please refer to the paragraph headed “Relationships between our Directors and our customers”

in this sub-section below.

Save as disclosed above, none of the directors of our Company, nor any of our

subsidiaries, their respective associates, nor, so far as we are aware, Shareholders, who own

more than 5% of the issued share capital of our Company immediately following the

completion of the Share Offer has any interests in our five largest customers during the Track

Record Period. Save as disclosed above, all of our five largest customers during the Track

Record Period were Independent Third Parties.

Relationships between our Directors and our customers

During the Track Record Period, we had business relationships with the following four

related companies:

1. Qingdao Justo (a company ultimately owned as to 30% by Mr. Guo prior to the

commencement of the Track Record Period until 23 March 2011);

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2. Shenzhen Yi’an (a company owned as to 67% by Mr. Guo and 33% by Madam Xia

prior to the commencement of the Track Record Period until 5 January 2010);

3. Long Chuan (a company owned by Mr. Guo prior to the commencement of the Track

Record Period until 13 June 2011); and

4. Xuzhou Dinuo (the legal representative of which was Mr. Guo during the Track

Record Period and up to the Latest Practicable Date).

Our sales to Qingdao Justo for the three years ended 31 December 2011 were nil,

approximately HK$55 million and approximately HK$90 million respectively. During the

Track Record Period, we also purchased polypropylene and other non-core raw materials for

the production of cigarette films from Qingdao Justo and our purchases from it for the three

years ended 31 December 2011 were approximately HK$1.4 million, HK$4.3 million and

HK$15.6 million, respectively. Other than Qingdao Justo, we had no customer which was also

our supplier during the Track Record Period.

Our sales to Shenzhen Yi’an for the three years ended 31 December 2011 were

approximately HK$7.3 million, nil and nil respectively and the commission fee paid to

Shenzhen Yi’an amounted to approximately HK$4.5 million, nil and nil, respectively. Our sales

to Long Chuan for the three years ended 31 December 2011 amounted to approximately nil, nil

and approximately HK$1.1 million, respectively and the commission fee paid to Long Chuan

amounted to approximately HK$4.3 million, HK$6.3 million and HK$6.3 million, respectively.

In 2010, Mr. Guo and Madam Xia ceased to sell imported films to China Tobacco Jiangsu

through Shenzhen Yi’an which then became an inactive company and disposed of their

respective interests in Shenzhen Yi’an. The consideration for the disposal of the entire equity

interest in Shenzhen Yi’an was RMB2, which was determined taking into account the nominal

net assets value of Shenzhen Yi’an around the time of completion of the disposal.

Mr. Guo confirmed that he disposed of his interest in Long Chuan as he would like to

dispose of his property management business held through Long Chuan, which was the then

principal business of Long Chuan. The consideration in relation to such disposal was RMB1,

which was determined taking into account the then net deficit value of Long Chuan. Mr. Guo

confirmed that the property management business of Long Chuan was loss-making at the

relevant time of disposal.

Prior to the disposals referred to above, the businesses of each of Long Chuan and

Shenzhen Yi’an included trading of imported films. Mr. Guo disposed of his interests in Long

Chuan and Mr. Guo and Madam Xia disposed of their respective interests in Shenzhen Yi’an

to certain Independent Third Parties after Ling Xian Fei Yu, a wholly foreign owned enterprise

established in the PRC in August 2007, having become an approved supplier of China Tobacco

Jiangsu for imported films in 2010.

Our sales to Xuzhou Dinuo for the three years ended 31 December 2011 were

approximately HK$26 million, HK$29 million and nil respectively and the commission fee

paid to Xuzhou Dinuo amounted to approximately HK$5.3 million, nil and HK$0.2 million,

respectively.

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Our Directors confirmed that after the Listing, the above mentioned transactions with

such related parties would not continue.

As confirmed by our Directors, these two related companies did not have any further

businesses relationship with us after the disposals by Mr. Guo and Madam Xia of their

respective interests in such companies as described above up to the Latest Practicable Date. In

addition, as the trading of imported films is now performed by Ling Xian Fei Yu and none of

Mr. Guo and Madam Xia is engaged in business which is or may be in competition with that

of our Group, our Directors consider that (i) the financial performance of our Group after the

Listing would not be affected even if the equity interests in these two companies were not

injected to our Group; and (ii) there would be no additional value for our Group to inject these

two companies as we are the sole agent of our imported films supplier in, amongst others, the

Jiangsu Province, the PRC, and, as confirmed by Mr. Guo and Madam Xia, these two

companies only sold imported films to China Tobacco Jiangsu in the past.

Save for (i) Mr. Guo’s indirect ownership in Qingdao Justo as disclosed above; (ii) Mr.

Guo’s previous ownership in Long Chuan as disclosed above; (iii) Mr. Guo’s and Madam Xia’s

previous ownership in Shenzhen Yi’an as disclosed above; (iv) Mr. Guo is the legal

representative of Xuzhou Dinuo; (v) Mr. Huang Bo, being one of our executive Directors,

worked for another cigarette packaging company as chief accounting officer before he joined

our Group; and (vi) two existing directors and a former director of certain members of our

Group, who worked in other companies, whose business activities included cigarette packaging

businesses, none of our existing executive Directors and directors of our subsidiaries held any

position or equity interest in any cigarette packaging business other than our Group.

China Tobacco Jiangsu and other Provincial Tobacco Industrial Companies

According to the Euromonitor Report, China Tobacco Jiangsu, being our largest customer

during the Track Record Period, monopolises the downstream cigarette manufacturing market

in Jiangsu, the PRC.

As at the Latest Practicable Date, China Tobacco Jiangsu sold two major cigarette brands

namely “Su Yan” (蘇煙) and “Nanjing” (南京) (both of which have various sub-brands) in the

market. “Su Yan” (蘇煙) and “Nanjing” (南京) respectively has not less than 6 and 25

sub-brands and, during the Track Record Period, we supplied at least 9 of such sub-brands.

During the Track Record Period, China Tobacco Jiangsu purchased both cigarette paper

boxes and cigarette films from us. As disclosed above, our sales to China Tobacco Jiangsu for

the three years ended 31 December 2011 accounted for approximately 64.2%, 55.4% and

57.8% of our total turnover respectively.

Our Directors consider that our Group would not lose its bargaining power with China

Tobacco Jiangsu as a result of the close relationship between the former minority shareholders

of Jiangsu Shuntai and China Tobacco Jiangsu as:

(i) all sales to China Tobacco Jiangsu were in accordance to the sales contracts entered

into with China Tobacco Jiangsu, which were won through a tendering process;

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(ii) the terms of the sales contracts with China Tobacco Jiangsu are no more favourable

than those made by our Group to other customers (where such comparable is

available) and no bulk discount has been offered to China Tobacco Jiangsu (where

such comparable is available); and

(iii) the mutual reliance between our Group and China Tobacco Jiangsu as a result of:

(a) we were its sole supplier of anti-counterfeiting films and imported films;

(b) we are the sole agent in Jiangsu Province, the PRC of the imported films which

was purchased by China Tobacco Jiangsu during the Track Record Period and

up to the Latest Practicable Date (based on the authorisation letter of our

imported films supplier, we are the current sole agent of imported films of such

supplier in Jiangsu Province, Shandong Province and Nan Chang City in

Jiangxi Province and it shall ensure sufficient supply and provide technical

services to us); and

(c) all cigarette paper boxes of two sub-brands of “Nanjing” (南京) of China

Tobacco Jiangsu were supplied by us in 2011.

Although certain board representatives of Jiangsu Shuntai and Jiangsu Sheen Colour

appointed by minority shareholders of Jiangsu Shuntai during the Track Record Period were

also staff of China Tobacco Jiangsu, our Directors consider that China Tobacco Jiangsu has no

influence on the operations of Jiangsu Shuntai and Jiangsu Sheen Colour through the relevant

representatives as (i) the relevant board representatives are responsible to the relevant minority

shareholders but not China Tobacco Jiangsu; (ii) none of the relevant board representatives are

directors and/or supervisors of China Tobacco Jiangsu; (iii) our Group has appointed more than

50% of the board members of each of Jiangsu Shuntai and Jiangsu Sheen Colour and thus able

to control the voting direction of most of the board members of each of Jiangsu Shuntai and

Jiangsu Sheen Colour, save and except for the resolutions which might have impact on the

shareholders’ rights and thus require unanimous approval from all directors in attendance; such

minority shareholders disposed their equity interests in Jiangsu Shuntai to an Independent

Third Party in April 2012.

Since the second half of 2011, we have established business relationship with two

additional Provincial Tobacco Industrial Companies and taking into account of such newly

established business relationship with new customers and in view of (i) the in-depth knowledge

and extensive industry experience of our management team (as disclosed in the sub-section

headed “Competitive strengths – Management team with in-depth knowledge and extensive

industry experience” in this section above) (which enable us to further expand to other

provinces in the PRC); (ii) our considerable investment in the plant and machinery, and our

quality control policy (which enable us to continue to produce products of quality and thus able

to meet the standard of potential customers); and (iii) other strategies to increase our sales to

other provinces in the PRC as stated in the sub-section headed “Business strategies” above, our

Directors expect that sales to China Tobacco Jiangsu as a percentage to our total turnover will

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decrease while the sales to other customers as a percentage to our total turnover will increase

in the future. However, having considered that we have a relatively short track record of

diversification into other new cigarette manufacturer customers, our Directors consider that our

objective to reduce reliance on our major customer may not be achieved in the near future.

SALES, MARKETING AND AFTER-SALES SERVICES

Cigarette-related packaging materials

(i) Approved supplier status

It is an accepted industry norm for the cigarette packaging industry that suppliers of

cigarette-related packaging materials generally are awarded contracts after tender process and

only approved suppliers are allowed to bid for a tender for supplying cigarette packaging

materials to the cigarette manufacturers.

In order to become the approved supplier of the cigarette manufacturers in the PRC, a

supplier of cigarette packaging materials needs to go through a qualification

recognition/approval process. Such recognition/approval process generally includes the

following:

1. An applicant shall submit application to a cigarette manufacturer in the form as

required by such manufacturer with supporting documents such as the supplier’s

business licence and its tax registration licence.

2. The cigarette manufacturer may perform site visit to verify the submitted

information.

3. The cigarette manufacturers may perform quality check on the products offered by

the applicant.

Based on the information available to the cigarette manufacturer, it will assess the

applicant supplier’s suitability for being admitted as an approved supplier by taking into

consideration, amongst other factors, where appropriate:

(i) its production capacity or, in case where the applicant supplier is not a manufacturer,

the ability to supply and quality management; or

(ii) its capability to supply packaging materials in response to customers’ product

requirements; and

(iii) its capability for solving technical problems or, in case where the applicant supplier

is not a manufacturer of packaging materials, its capability to manage the resolution

of technical problem.

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The approved suppliers are then entitled to join the procurement process (including

tender) and whether they are selected, in the case of tender, depend on the tender documents

submitted by the suppliers in which the cigarette manufactures would consider, among others

(i) product pricing; (ii) capability/undertaking of fulfilling the obligations under the supplier

agreement; and (iii) information and background of the suppliers. In the case of China Tobacco

Jiangsu, the tendering process is outsourced to an independent tendering company to (i) handle

the logistic of the tendering process, (ii) assess the candidates and (iii) determine the winner

of the tender independently without influence by China Tobacco Jiangsu.

The approved supplier status in the cigarette packaging industry covers various cigarette

packaging materials including cigarette paper boxes, anti-counterfeiting films, other cigarette

films and imported films. Our approved supplier status is not brand-specific. The approved

supplier system is only a form of supplier management of the cigarette manufacturers to

monitor the quality of their suppliers and is not a status which requires approval by the PRC

government. Our approved supplier status is subject to periodic reviews of China Tobacco

Jiangsu and the two Provincial Tobacco Industrial Companies around once in every one to two

years after initial accreditation. China Tobacco Jiangsu and the Provincial Tobacco Industrial

Company based in Guangxi Province conduct periodic review once every year, while the

Provincial Tobacco Industrial Company based in Shandong Province conduct periodic review

once every two years. Our Directors expect that the reviews conducted by China Tobacco

Jiangsu and the other two Provincial Tobacco Industrial Companies will take place in around

2012 and 2013.

During the Track Record Period and up to the Latest Practicable Date, we were the

approved suppliers of China Tobacco Jiangsu and two other Provincial Tobacco Industrial

Companies. As at the Latest Practicable Date, we were in the process of applying for an

approved supplier status with one Provincial Tobacco Industrial Company in relation to the

supply of other cigarette films.

Save and except for the compliance of the specifications of our products as requested by

our customers, there is no ongoing requirement imposed by China Tobacco Jiangsu and the two

other Provincial Tobacco Industrial Companies on us as their approved supplier. However, in

the longer term agreement we entered into with one of the two other Provincial Tobacco

Industrial Companies, it is stipulated that during the performance of the agreement, we, as their

supplier, should abide by all the applicable laws and regulations in relation to industrial health

and safety, as well as environmental protection.

As at 31 December 2011, China Tobacco Jiangsu, to which we supplied cigarette paper

boxes, anti-counterfeiting films and imported films during the Track Record Period, has 15

approved suppliers for its cigarette paper boxes, 1 approved supplier for its anti-counterfeiting

films and 1 approved supplier for its imported films.

Each of the other two Provincial Tobacco Industrial Companies to which we have

supplied other cigarette films had three approved suppliers for other cigarette films as at 31

December 2011.

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Our three cigarette manufacturer customers generally invite tenders from approved

suppliers of cigarette packaging materials once in every one to two years for the required

materials.

(ii) Major sales contracts

In the past, we generally did not enter into long-term sales contracts with our customers.

This had been the case even for our largest customer during the Track Record Period, being

China Tobacco Jiangsu, until late 2011. In 2011 and January 2012, we entered into five sales

contracts with longer term with China Tobacco Jiangsu and the other two Provincial Tobacco

Industrial Companies. For the three sales contracts with China Tobacco Jiangsu, China Tobacco

Jiangsu is subject to a minimum purchase obligation, while there is no such minimum

obligation stipulated in the sales contracts with the other two Provincial Tobacco Industrial

Companies. Details of the five sales contracts are set out as follows:

China Tobacco Jiangsu

Before December 2011, we only entered into short-term agreements, usually for a term of

six months each, with China Tobacco Jiangsu which governed the (i) packaging materials to be

sold, (ii) quantities involved, (iii) agreed unit prices, (iv) manner of delivery, (v) settlement

method and (vi) quality specification, on a half yearly basis. In December 2011, three of our

subsidiaries in the PRC each successfully secured a legally-binding longer term contract with

China Tobacco Jiangsu.

The principal terms of the three long term contracts with China Tobacco Jiangsu are as

follows:

Contract One

The PRC subsidiary: Ling Xian Fei Yu

Date of contract: 15 December 2011

Term of contract: 1 January 2012 – 31 December 2013

Products: Imported films

Trading terms: Seller pays for the transportation costs, and assumes all

risks prior to the point that the goods are ready for

unloading by the buyer.

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Contracted total amount: 1,960 tonnes in total during the contract period (which is

equivalent to a minimum of approximately RMB48.5

million based on the lowest unit price of RMB24,760 per

tonne)

Payment terms: 30 days after receipt of invoices

Pricing policy: Prices of products are fixed throughout the contracted

period.

Customer’s obligation: The customer is required to fulfil the minimum purchase

volume agreed within the contracted period, failing

which Ling Xian Fei Yu is entitled to enforce the

remaining purchase to be completed in the first quarter of

2014.

Contract Two

The PRC subsidiary: Jiangsu Sheen Colour



Products: Anti-counterfeiting films




Contracted total amount: 2,150 tonnes in total during in the contracted period

(which is equivalent to approximately RMB160.39

million based on the unit price of RMB74,600 per tonne)



period.



which Jiangsu Sheen Colour is entitled to enforce the


2014.

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Contract Three

The PRC subsidiary: Jiangsu Shuntai



Products: Cigarette paper boxes




Contracted total amount: 141.25 million sets in total during the contracted period

(which is equivalent to a minimum of approximately

RMB543.8 million based on the lowest unit price of

RMB3.85 per set)



period.



which Jiangsu Shuntai is entitled to enforce the


2014.

As confirmed by our Directors, before the expiry of the business term of Jiangsu Sheen

Colour on 5 March 2013, our Directors will liaise with China Tobacco Jiangsu to assign the

rights and obligations of Jiangsu Sheen Colour under contract two above to Jiangsu Shuntai,

failing which, our Directors will apply for the extension of the business term of Jiangsu Sheen

Colour to a longer period so that it can fulfil its obligations under contract two above. On the

basis that Jiangsu Sheen Colour has successfully applied for extension of its business term in

2011, our Directors do not consider that there is any material obstacle for Jiangsu Sheen Colour

to apply for further extension of its business term in the future.

According to the above three long term contracts and the related written confirmations

issued by China Tobacco Jiangsu, China Tobacco Jiangsu is subject to a minimum purchase

obligation. As advised by our PRC Legal Advisers, based on the aforesaid contracts and written

confirmations, each party can claim for continuous performance, remedial action or damages

in the event of the other party’s failure to discharge such obligations. During the Track Record

Period, the purchased amounts specified in the short-term agreements were only estimated

amounts and therefore no obligation to purchase and sell arose and accordingly there was no

issue of a failure to discharge such obligations.

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The other Provincial Tobacco Industrial Companies

In August 2011, we and another Provincial Tobacco Industrial Company based in Guangxi

Province entered into a legally binding, two years’ sales contracts, which has a term expiring

on 1 August 2013. The principal terms of such contract are as follows:

The PRC subsidiary: Qingdao Ener

Date of contract: 28 July 2011

Term of contract: 1 August 2011 to 1 August 2013

Products: Cigarette films

Trading terms: Seller pays for all expenses for delivery and loading and

unloading of the products to the designated location of

delivery as instructed by the customer, and assumes all

risks prior to the point that the goods arrived at the

designated place.

Payment terms: 2 months after receipt of invoices


period. No adjustment shall be made to the agreed price

save and except where there is a change to the market

price of more than 5%. Such changes shall be subject to

the customer’s approval.

Customer’s obligation: The customer is required to specify the type,

specification, quantity, and the designated date, time and

location for delivery.

The quantity of monthly supply shall be subject to customer’s confirmation, our Group

and such customer are not subject to any minimum sales obligation and minimum purchase

obligation respectively. We commenced to supply films to such customer in September 2011.

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By the end of December 2011, we won a tender for supplying cigarette films to another

Provincial Tobacco Industrial Company based in Shandong Province. Following the winning of

the tender, the parties have mutually agreed that we would supply cigarette films to such

customer at an agreed price for the period from 24 December 2011 to 30 June 2013. We

subsequently have entered into a contract with such cigarette manufacturer customer and the

principal terms of such contract are as follows:

The PRC subsidiary: Qingdao Ener

Date of contract: 30 January 2012

Term of contract: 24 December 2011 to 30 June 2013

Products: Cigarette films

Trading terms: Seller pays for carriage to the named place. The unit price

as agreed is inclusive of all charges for packaging,

loading and unloading, delivery and insurance.

Tentative contracted sum: 33,184.57 kilograms

Payment terms: 3 months after receipt of invoices

Pricing policy: Prices of products are fixed for the period from 24

December 2011 to 23 December 2012.

Customer’s obligation: The customer is required to specify the type,

specification, quantity and the designated date, time and

location for delivery.

The quantity of supply is subject to the customer’s confirmation. As such, our Group and

such customer are not subject to any minimum sales obligation and minimum purchase

obligation respectively.

The unit price is fixed for the period from 24 December 2011 to 23 December 2012, while

the term of the contract is from 24 December 2011 to 30 June 2013. Our Directors confirmed

that such timing difference is due to the parties’ intention that the performance of the sales

contract shall be completed within the first year, i.e. the products of the tentative contracted

sum be sold within the period from 24 December 2011 to 23 December 2012, and the additional

six-month period is to serve as the grace period for the parties to make any necessary

arrangement for discharging any unfulfilled duties of the parties under the sales contract, which

any sales and purchase shall be made with reference to the fixed unit price. The unit price of

this contract was determined by taking into consideration, among other factors, (i) the expected

cost of production of our Group during the term of the relevant contract period; and (ii) the

expected price offered by our competitors.

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The relevant contracts do not specify the compensation amount if China Tobacco Jiangsu

and other two Provincial Tobacco Industrial Companies fail to fulfil their obligations under the

relevant sales contracts. Our PRC Legal Advisers advise that if China Tobacco Jiangsu and

other two Provincial Tobacco Industrial Companies fail to fulfil their respective obligations

under the sales contracts and cause losses to the other party, the other party is entitled to claim

the compensation for losses at a PRC court and pursuant to applicable PRC law the amount of

compensation for losses shall be equal to the losses caused by the breach of contract, including

the interests receivable after the performance of the contract, provided that such amount does

not exceed the probable losses.

As at the Latest Practicable Date, the three long-term contracts with China Tobacco

Jiangsu and the two long-term contracts with the other two Provincial Tobacco Industrial

Companies as set out in this sub-section were the only contracts which we were in the process

of performance for supply of our goods in respect of tenders of our cigarette manufacturer

customers won by our Group.

The average time between the date of delivery of our goods and the date of billing of our

cigarette manufacturer customers was approximately one to three weeks. For other customers

of cigarette films and customers of non-cigarette-related packaging materials, the average time

between the date of delivery of our goods and the date of billing was in a range of a few days

to approximately three weeks. Invoices are delivered to our customers by hand or by post and

our Directors expect those customers would receive the invoice within three days.

To the best knowledge of our Directors, our customers would perform, amongst others,

physical count and inspection on the relevant goods, and may handle other administrative and

logistic matters in relation to their purchase, before they acknowledge receipt of our delivery

when we could bill our relevant customers.

Non-cigarette-related packaging materials

For non-cigarette-related packaging materials, we mainly rely on the effort of our sales

and marketing team to explore new business and maintain the relationship with existing

customers. Details of our sales and marketing team are set out in the paragraph headed “Sales

and marketing team” in this sub-section below.

Sales and marketing team

As at the Latest Practicable Date, we had a team of 20 members responsible for our sales

and marketing activities. All our sales and marketing staff are located in the PRC. The principal

responsibilities of our sales and marketing team are to secure sales orders, identify new

business opportunities and promote our packaging materials. In addition, our sales and

marketing team works closely with our customers to understand the customers’ requirements,

the projected sales schedules and to provide relevant industry information to our customers.

Through this continual relationship development, we aim to attract further business from our

customers.

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Our management recognises the importance of maintaining good relationship with our

customers in our growth. Members of our sales and marketing team visit the offices of our

customers from time to time. During such visits, we can market and promote our packaging

materials on the one hand and can on the other hand obtain feedback from customers on the

market and industry trends.

On top of the above, our sales and marketing team is also dedicated to solving our

customers’ technical problems. With the effort of our sales and marketing team and leveraged

on our Directors’ and senior management’s own network, we have established a solid customer

base.

Pricing strategies

During the Track Record Period, our pricing strategies were mainly based on our expected

cost of production (or purchase cost for the case of imported films) during the relevant contract

period or the price offered by our competitors by the time of receiving the order.

Seasonality of our turnover

Sales of cigarette-related packaging materials was the major contributor to our turnover

during the Track Record Period, our seasonal fluctuation in sales correlated to that of the

cigarette manufacturers in the PRC. While the cigarette manufacturers in the PRC generally

have their peak season in the Chinese New Year which generally take place in January or

February each year, our peak season is in the fourth quarter of each year to meet their

increasing production level to cater for the peak season of the cigarette manufacturers.

After-sales services

Collecting feedback from customers

We take a proactive approach in collecting customers’ feedback on the quality of products

and services by conducting survey on their level of satisfaction on the delivery, quality and the

specification information of the products. On top of that, our senior management team and

members of our sales and marketing team also liaise with and visit our customers, in order to

understand their view on the quality of our products and try to know more about their forecast

quantity of the forthcoming purchase and the trend of the change in product requirements.

By studying the customers’ level of satisfaction with regard to the quality of our products

and services, we gain a better understanding on the demand and the potential demand in the

market, how to improve the management system and production process, and the requirement

of the forthcoming tender.

Handling of complaints

Members of our sales and marketing team are also responsible for handling customers’

complaints.

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When we receive a complaint or a sales return request from our customers, our staff will

then contact the customer concerned either on site or by phone to ascertain the reason for

complaints or return request. When the products were returned, they would be classified and

undergo examination. Our sales and marketing team would take the leading role to organise a

quality analysis conducted by production department and quality control department.

Sales return

Our Group has adopted a unified sales return policy. Request for return of products is only

allowed by reasons of quality problem and late delivery. Such request for return is only allowed

upon re-examination by our production team and quality control staff. Our sales return policy

is applicable to all types of customers alike.

For the three years ended 31 December 2011, the amount of sales return was

approximately HK$25,000, HK$0.72 million and HK$10.0 million (inclusive of VAT of 17%)

respectively. The increase in the sales return for the year ended 31 December 2011 was in line

with the increase in sales for the year ended 31 December 2011 and was resulted from, amongst

other factors:

(i) our supplier for imported films sent us disqualified goods so that our customers

returned the relevant stock to us due to technical quality issue. We have

subsequently returned the relevant stock to our supplier and such supplier has

compensated us and our customer for the disqualified goods;

(ii) one of our customers requested for sales return of approximately HK$6.9 million

(inclusive of VAT) because of alleged quality issue. However, after the verification

by our technical staff, it was concluded that the claims of such customer to be

unfounded. Nonetheless, due to customer relationship concern, we have agreed to

accept the sales return. Our Directors do not consider there was genuine quality

issue. As confirmed by our Directors, we have subsequently sold such “returned

goods” to other customers before the Latest Practicable Date and the customer who

has returned goods to us as described above continued to purchase from us; and

(iii) increase in the overall sales of our Group.

We perform quality check on the imported films as to physical damage during

transportation, but not on the technical aspects as such quality checking will result in damage

to the imported films which is not acceptable to our customers and it is impossible to identify

technical quality problems using bare eyes. In addition, historically, there was no material

quality issue (except for the incident occurred in 2011). Our supplier of imported films (i)

would assign technical staff to visit our customers together with our technical staff in the event

that our customers have raised any compliant in relation to quality issue; and (ii) has agreed

that it would compensate us and our customers if there is any bona fide quality issues

(including physical damage during transportation and technical issues). On the basis of the

above and the fact that our supplier of imported films has compensated us and our customers

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for the disqualified goods and that such customer continued to purchase from us the imported

films, our Directors consider that there is no material reputation risk in relation to the sale of

disqualified imported films to our customer in 2011.

Our Directors consider that the key measure to avoid the recurrence of incidents similar

to that occurred in 2011 in relation to the sale of disqualified imported films to our customers

is the close communication with our supplier of imported films in relation to the quality control

of its product. Our Directors confirm that they will continue to closely communicate with such

supplier in relation thereto. To the best knowledge of our Directors, the technical staff of our

supplier of imported films would report to their production department as to any quality issue

so that they can improve during the production and/or the use of materials.

On the basis that (i) we perform quality check on the imported films as to physical

damage during transportation; (ii) quality checking on the technical aspect of imported films

will result in damage to the imported films which is not acceptable to our customers and it is

impossible to identify technical quality issue using bare eyes so that we do not perform quality

checking on the technical aspect of imported films; and (iii) we have closely communicated

with our supplier of imported films in relation to the quality control of its products, our

Directors consider that we have no material deficiency in our Group’s quality control

procedures.

For the three years ended 31 December 2011, the sales return due to disqualification of

the imported films amounted to approximately HK$25,000, HK$0.66 million and HK$1.2

million respectively. The amounts of compensation from such supplier for the three years

ended 31 December 2011 were nil, approximately HK$0.3 million and approximately HK$3.95

million respectively.

According to our accounting policy, we do not recognise any sales return provision and

sales returns are net off against the revenue of our Group. As we did not experience material

recurring sales return during the Track Record Period and all the returned goods are either

further returned to our suppliers or sold to other customers above cost, we did not recognise

any provision in relation to the returned stocks during the Track Record Period. Our Directors

confirm that, up to the Latest Practicable Date, we were not subject to any compensation

claims, disputes, arbitration and/or court proceedings as a result of the sales return.

Credit control

We use our best endeavours to exercise tight credit control and our accounting department

reviews the credit terms of our customers. Credit evaluations are performed on all customers

requiring credit over a certain amount. These evaluations focus on the customer’s past history

of making payments when due and current ability to pay and take into account information

specific to the customer as well as pertaining the economic environment in which the customer

operates. Trade and bill receivables are due within 30 to 180 days from the date of billing.

Debtors with balances that are more than 1 year from the date of billing are requested to settle

all outstanding balances before any further credit is granted. Normally, our Group does not

obtain collateral from customers.

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We normally grant credit terms ranging from 30 days to 180 days to our customers. Based

on our understanding of the background of our new customers, we may require new customers

to provide deposits for purchases of our products. For each of the three years during the Track

Record Period, our average trade and bill receivables turnover days were approximately 22.7

days, 59.1 days and 98.3 days, respectively.

We perform ongoing evaluations of our accounts receivables from time to time.

PRODUCTION FACILITIES AND PRODUCTION PROCESS

Production premises during the Track Record Period

During the Track Record Period, we carried out our production in three factories, namely

our Shuntai Factory, our Sheen Colour Nanjing Factory and our Ener Factory. We positioned

Jiangsu Shuntai (through our Shuntai Factory) as our base in the printing and manufacturing

of cigarette paper boxes, Jiangsu Sheen Colour (through our Sheen Colour Nanjing Factory) as

our base in the printing of films and Qingdao Ener (through our Ener Factory) as our base in

the manufacturing of films.

Our Shuntai Factory and our Ener Factory are erected on the lands owned by us. As at the

Latest Practicable Date, we have obtained the relevant building ownership certificate or real

estate ownership certificate and land use rights certificates for all our owned buildings. More

details about these two factories are set out in the paragraph headed “Production premises as

at the Latest Practicable Date” in this sub-section below.

Relocation and processing arrangement

We used to accommodate our Sheen Colour Nanjing Factory in a leased premises in

Nanjing, Jiangsu Province. In anticipation of the expiry of the then lease agreement relating to

the factory premises accommodating our Sheen Colour Nanjing Factory in October 2012 and

the expiry of the original term of business operation of Jiangsu Sheen Colour in March 2012

(which term was extended to March 2013 in December 2011) and in preparation for Jiangsu

Shuntai’s taking up of the film-printing business after the expiry of the term of business

operation of Jiangsu Sheen Colour, we had moved our film-printing operation from our Sheen

Colour Nanjing Factory to our Shuntai Factory and ceased our production in our Sheen Colour

Nanjing Factory. As the relevant production assets are still owned by Jiangsu Sheen Colour, no

consideration was paid by Jiangsu Shuntai to Jiangsu Sheen Colour for the relocation of the

relevant operating assets. Upon the expiry of the business term of Jiangsu Sheen Colour, our

Group would effect a transfer of the production assets of Sheen Colour Nanjing Factory to

Jiangsu Shuntai, the consideration involved would be based on the then asset value of those

production assets so that there shall be no gain or loss arising from such transfer in the

consolidated financial statement of our Group. After such relocation, we early terminated the

relevant lease agreement in respect of the leasing of our Sheen Colour Nanjing Factory with

effect from 31 December 2011 by mutual agreement with the landlord and no penalty was

resulted from such early termination.

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Our Directors consider that it was a strategic decision as to the relocation of the film

printing operation from our Sheen Colour Nanjing Factory to our Shuntai Factory as (i) we own

the land title of our Shuntai Factory, whereas our Sheen Colour Nanjing Factory is situated in

a building rented from an Independent Third Party, therefore, we might be required to relocate

our production operation of our Sheen Colour Nanjing Factory to other location in the event

that the landlord refused to renew the rental agreement or at a rental rate acceptable to us; (ii)

we can better manage our resources by centralising our printing production facilities; and (iii)

the staff cost in Huai’an, where our Shuntai Factory is located, is lower than that in Nanjing.

As a transitional arrangement, Jiangsu Sheen Colour and Jiangsu Shuntai entered into a

processing agreement in February 2012, whereby Jiangsu Sheen Colour has engaged Jiangsu

Shuntai to process the cigarette film printing at a processing fee, which is calculated with

reference to the quantity of the packaging materials manufactured at a basic rate of RMB2,000

per tonne and is payable monthly and the cost of production. The processing fee is subject to

further adjustment if the costs of processing increase by 20% by reason of changes in the

market situation. According to the processing agreement, Jiangsu Sheen Colour shall deliver

the raw materials for the processing, at its own expenses, to the place of production of Jiangsu

Shuntai and the packaging materials shall be printed by Jiangsu Shuntai in accordance with the

specifications and quality standard as may be required by Jiangsu Sheen Colour from time to

time, and where required, Jiangsu Sheen Colour will also provide technical assistance to

Jiangsu Shuntai. The quality and location of delivery are determined by Jiangsu Sheen Colour.

Jiangsu Sheen Colour is responsible for transportation costs. The processing agreement will

expire on 5 March 2013.

In order to allow time for the transitional arrangement to take place before Jiangsu

Shuntai completely takes up the film printing business of Jiangsu Sheen Colour, we applied for

an extension of business term and succeeded in extending the term to 5 March 2013. Our

Directors do not anticipate there is any foreseeable obstacle in the renewal process if further

renewal is needed as we have already extended it to 5 March 2013 once.

The processing fee charged by Jiangsu Shuntai to Jiangsu Sheen Colour was with

reference to, amongst others, the historical cost of production of Jiangsu Sheen Colour. The

difference between the profit attributable to the Shareholders of our Company for the year

ended 31 December 2011 and that of our Company as if such arrangement had been in place

during the year ended 31 December 2011 is less than HK$1 million. As Jiangsu Sheen Colour

will retain most of the profits from its operation under the processing arrangement, the impact

on the profit attributable to the Shareholders of our Company is primarily attributable to the

after tax effect of (i) the difference in effective shareholding interest in Jiangsu Sheen Colour

and Jiangsu Shuntai; and (ii) the difference in cost structure of our Sheen Colour Nanjing

Factory and our Shuntai Factory.

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As such, our Directors consider that there should be no material impact on our financial

results as a result of the processing arrangement between Jiangsu Sheen Colour and Jiangsu

Shuntai for the year ending 31 December 2012.

As a result of the relocation of the film printing operation, a total of 58 employees were

dismissed. The total amount of compensation in this regard is approximately HK$2.2 million,

which had been fully paid by us as at 31 December 2011.

Our Directors confirmed that all costs related to the relocation have been fully paid or

accrued as at 31 December 2011. Our PRC Legal Advisers confirmed that Jiangsu Shuntai had

already obtained relevant approvals from the relevant authority for its revised scope of

business to include film-printing. Not until March 2012, Jiangsu Shuntai had not obtained the

relevant completion approval of environmental protection before we commenced the film

operation at our Shuntai Factory. However, as it has obtained the approval and according to the

environmental protection compliance letters issued by the local supervising authority, Jiangsu

Shuntai has complied with the applicable PRC laws and regulations in relation to

environmental protection without any penalties. Based on the above, our PRC Legal Advisers

have advised that it is unlikely that any penalty would be imposed on Jiangsu Shuntai in this

regard in the future.

Jiangsu Sheen Colour has engaged Jiangsu Shuntai to process the cigarette film printing

and has not terminated its business activity and as confirmed by our Directors there was no

penalty arising from the processing arrangement.

We intend to arrange for deregistration of Jiangsu Sheen Colour in order to streamline the

structure of our Group after the expiry of its current business term in March 2013, by which

time Jiangsu Shuntai should have completely taken up the film-printing business of Jiangsu

Sheen Colour. Our Directors consider that there is currently no material foreseeable contingent

liabilities in the case of winding up of Jiangsu Sheen Colour.

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Production premises as at the Latest Practicable Date

The following table sets out the details of our two factories which were in operation as

at the Latest Practicable Date:

Location

Approximate

gross floor

area Purposes

(square metre)

Our Shuntai Factory

Eastern Side and

Northern Side of

Shenzhen East Road,

Feiyao West Road,

Qinghe New District,

Huai’an City,

Jiangsu Province,

the PRC

27,997 Printing and manufacturing of

cigarette paper boxes(Note)

Printing of films(Note)

Our Ener Factory

Huanhai New Materials

Industrial Park,

Jihongtan Jiedao,

Chengyang District,

Qingdao City,

Shandong Province,

the PRC

38,173 Manufacturing of films

Note: Prior to the entering into of the processing agreement between Jiangsu Shuntai and Jiangsu Sheen

Colour in February 2012 set out in the paragraph headed “Production premises during the Track

Record Period”, our Shuntai Factory was only involved in printing and manufacturing of cigarette

paper boxes. Since the commencement of such processing arrangement, our Shuntai Factory has

extended its operation to printing of films.

In light of the expected increase in production of our Shuntai Factory after its taking up

of the cigarette film printing business from Jiangsu Sheen Colour, an additional factory

premises in the proximity of our Shuntai Factory with gross floor area of approximately 13,726

square metres was built. Such additional factory is designated for the film-printing operation.

The total cost of such expansion (including the construction of an additional dormitory

building) was approximately HK$47.6 million, and was financed by bank loans and internal

resources of our Group. As at 31 December 2011, approximately HK$42.0 million was

paid/accrued in the statement of financial position and the remaining balance of approximately

HK$5.6 million had been paid prior to the Latest Practicable Date.

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As at the Latest Practicable Date, a total of 378 staff were employed at our factories in

the PRC and 236 of them were engaged in production.

Plant and machinery

We place great emphasis on the use of plant and machinery to maintain the efficiency of

production and quality of packaging materials. Since our inception, considerable investments

have been made in plant and machinery, and a number of our principal machines were imported

from overseas countries. As confirmed by the relevant suppliers of these machines, these

principal machines are still among the most advanced models of our machines which perform

similar functions.

As at the Latest Practicable Date, the principal machines that were used by us are set out

below:

No. Machine Principal Features

Number

of Unit(s) Location Supplier

1 9 Colour Rotogravure

Printing Press

(九色凹印機)

High precision and

independently

electricity-driven

1 Our Shuntai

Factory

Officine Meccaniche

Giovanni Cerutti SPA,

Italy

2 Automatic Die-cutter Press

(自動模切機)

High precision and high

stability

3 Our Shuntai

Factory

Bobst (Shanghai) Co., Ltd,

the PRC

3 Multi-functional

Combining Machine

(多功能濕式複合機)

Integrated processing 1 Our Shuntai

Factory

Dongguan Yong Qing Xing

Machinery

Manufacturing Limited

(東莞永慶興機械製造有限公司), the PRC

4 Automatic Cutting

Machine

(全自動平壓平清廢模切機)

With anti-counterfeiting

technology

2 Our Shuntai

Factory

Tianjin Chang Rong

Printing Equipment

Share Limited

(天津長榮印刷設備股份有限公司), the PRC

5 12-Colour Split Type

Rotogravure Printing

Press

(12色雙收雙放排列式凹版印刷機)

High precision and high

stability

1 Our Shuntai

Factory

Fuji, Japan

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No. Machine Principal Features

Number

of Unit(s) Location Supplier

6 Slitter (分切機) Independently electricity-

driven with high

precision

1 Our Shuntai

Factory

Kataoka, Japan

7 Rewinding Inspecting

Machine (質量檢品機)

High speed with

automatic assessment

device

1 Our Shuntai

Factory

Rock Giken Kogyo Co.

Ltd, Japan

8 Advanced Sequential

Stretching PP Film Line

三層共擠雙向拉伸一線

High precision and energy

saving

1 Our Ener

Factory

Bruckner, Germany

9 Kang Fu Slitting Machine

(康甫U670分切機)

Balanced control with

high stability

1 Our Ener

Factory

Kampf Schneid-und

Wickeltechnik GmbH &

Co. KG, Germany

10 High Speed Number

Controlled Cutting

Machine TST-1300L

(數字控制高速分切機)

High speed and automatic

upload

1 Our Ener

Factory

Hangzhou Tai De Printing

Technology Limited

(杭州泰德印刷技術有限公司), PRC

Production process

1. Manufacturing and printing of cigarettes paper boxes

The manufacturing process of cigarette paper boxes principally involves four steps,

namely transfer metalising (複合轉移)(Note), intaglio printing (凹版印刷), cutting (連線模切)

and pressing and gilding (模壓燙金). Each of such principal steps is more particularly

described below:

(a) Transfer metalising: This process involves vacuum depositing layers of aluminium

onto a film (i.e. carrier film) which is then adhesive-laminated to the ivory board.

After allowing the adhesion to take place for some time, the carrier film is removed

leaving the aluminium on surface of the ivory board, which results in metallic

coating on the paper board. The final product of this process is a piece of “transfer

paper”(Note).

Note: We only started to carry out transfer metalising on our own in 2010. Before that, we sourced all

our transfer paper required for our manufacturing and printing of cigarettes paper boxes in the

market. After we have had the command of the transfer metalising technology, we manufacture

our own transfer paper starting from a smaller scale in a way that we are still required to source

part of our transfer paper from our suppliers. Our purchases of transfer paper from our

suppliers have been on a declining trend since 2010. Depending on our production capacity, we

may still purchase transfer paper in the future.

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(b) Intaglio printing: This process involves a printing technique where the printing

plate is made with grooves (i.e. an intaglio plate) according to a design. Ink is then

applied to the surface of the plate by wiping so that the ink will be pushed into the

grooves. Paper is then placed on the plate and compressed, such as by a heavy roller.

When the paper is removed, the ink will be transferred from the plate to the paper

and the designed pattern will be resulted.

(c) Cutting: This process involves cutting the printed packaging materials into smaller

size.

(d) Pressing and gilding: This process involves pressing with designed patterns and

laying a thin layer of aluminium on the surface of the paper for anti-counterfeiting

purpose.

2. Manufacturing of films

The manufacturing process of films principally involves three steps, namely ejection and

stretching (擠出拉伸), coarse slitting (大分切) and fine slitting (小分切). Each of such

principal steps is more particularly described below:

(a) Ejection and stretching: This process involves (i) adding raw materials; (ii)

blending the raw materials under heat; (iii) ejecting the heated raw materials under

pressure and (iv) stretching the heated raw materials into films.

(b) Coarse slitting: This process involves slitting the films into smaller size.

(c) Fine slitting: This process involves slitting the films into appropriate size according

to the specifications of the customers.

3. Printing of films

The film printing process principally involves printing and slitting.

(a) Printing: This process involves printing such as unique marks and/or designs on the

films. With such printed features, the films serve an anti-counterfeiting function.

(b) Slitting: This process involves slitting the final products into appropriate size

according to the specifications of the customers.

During the Track Record Period, substantially all the films used for printing were

imported films and the remaining were films produced by our Ener Factory (with value of

approximately HK$890,000 (VAT inclusive) in the year ended 31 December 2011 and none

were recorded for the two years ended 31 December 2010).

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4. General

The abovesaid production process were conducted by different factories, i.e. our Shuntai

Factory for the manufacturing and printing of cigarettes paper boxes, our Sheen Colour

Nanjing Factory for the printing of films and our Ener Factory for the manufacturing of films.

As at the Latest Practicable Date, our Shuntai Factory was also responsible for the printing of

films pursuant to a processing agreement, details of which are set out in the paragraph headed

“Production premises during the Track Record Period – Relocation and processing

arrangement” in this sub-section above. Save and except for certain films produced by our Ener

Factory were used by our Sheen Colour Nanjing Factory for film printing, products produced

by our factories were not passed on to our other factories for different stages of production and

the manufacturing activities of our factories are independent from each other.

Production capacity and production plan

Set out below is the production capacity of our factories:

1. Our Shuntai Factory (only for its operation of printing and manufacturing of our

cigarette paper boxes)

During the Track Record Period, our Shuntai Factory only engaged in the printing

and manufacturing of cigarette paper boxes and all of our cigarette paper boxes sold

during the Track Record Period were manufactured in such factory.

For the three months ended 31 March 2012, our Shuntai Factory also engaged in the

printing of films and all our anti-counterfeiting films, since the commencement of the

processing arrangement referred to above, were manufactured in this factory during the

period.

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The table below sets out the production capacity of our cigarette paper boxes for the

respective period specified below:


For the

three

months

ended

31 March

2009 2010 2011 2012

Number of production

line 1 1 1 1

Estimated approximate

production capacity

during the year/period

(Tonnes) 1,519 9,240 9,240 2,310

Approximate output

volume (Tonnes) 810 4,448 5,230 794

Approximate utilisation

rate 53% 48% 57% 34%

As disclosed in the sub-section headed “Sales, marketing and after-sales services –

(ii) Major sales contracts – China Tobacco Jiangsu – Contract three” in this section above,

we have entered into a contract with China Tobacco Jiangsu to supply 141.25 million sets

of cigarette paper boxes (representing approximately 11,484 tonnes) from 1 January 2012

to 31 December 2013.

Sales of our cigarette paper boxes for the three years ended 31 December 2011

amounted to approximately 1,420 tonnes (out of which approximately 610 tonnes were

manufactured by an Independent Third Party manufacturer for us), 4,285 tonnes and

5,219 tonnes respectively. In 2009, when our Shuntai Factory was newly set up, we had

engaged an Independent Third Party manufacturer to manufacture approximately 610

tonnes of cigarette paper boxes for China Tobacco Jiangsu. Such arrangement was only

made in respect of the said batch of products and ceased since the start of 2010. Save for

the approximately 610 tonnes of cigarette paper boxes as described above, all of our

cigarette paper boxes sold during the Track Record Period were manufactured by us.

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2. Our Sheen Colour Nanjing Factory (for the three years ended 31 December

2011) and our Shuntai Factory (only for its operation of printing of films) (for

the three months ended 31 March 2012)

During the Track Record Period, our film printing operation, under which our

anti-counterfeiting films were manufactured, were operated in our Sheen Colour Nanjing

Factory while such operation was relocated in our Shuntai Factory since the

commencement of the processing arrangement referred to above.

The table below sets out the production capacity of our anti-counterfeiting films for

the respective period specified below:


For the

three

months

ended

31 March

2009 2010 2011 2012


line 1 1 1 1


production capacity


(Tonnes) 1,994 1,994 1,994 499

Approximate output

volume (Tonnes) 1,383 1,060 1,059 240


rate 69% 53% 53% 48%


(ii) Major sales contracts – China Tobacco Jiangsu – Contract two” in this section above,

we have entered into a contract with China Tobacco Jiangsu to supply 2,150 tonnes of

anti-counterfeiting films from 1 January 2012 to 31 December 2013.

Sales of our anti-counterfeiting films for the three years ended 31 December 2011

amounted to approximately 1,344 tonnes, 1,096 tonnes and 1,086 tonnes respectively.

BUSINESS

– 151 –

3. Our Ener Factory

Our Ener Factory only engaged in manufacturing of films (both other cigarette films

and non-cigarette-related films) during the Track Record Period and for the three months

ended 31 March 2012.

The table below sets out the production capacity of our film manufacturing

operation for the respective period specified below:


For the

three

months

ended

31 March

2009 2010 2011 2012


line 1 1 1 1


production capacity


(Tonnes) 3,672 14,688 14,688 3,672

Approximate output

volume (Tonnes) 3,200 13,340 13,640 2,930


rate 87% 91% 93% 80%


(ii) Major sales contracts – The other Provincial Tobacco Industrial Companies” in this

section above, we entered into two separate contracts with two Provincial Tobacco

Industrial Companies, whereby we have agreed to supply an estimated amount of

approximately 33 tonnes of cigarette films (the actual amount is subject to confirmation

by such customer) to one of them and an unfixed amount to another, both of which are

not subject to any minimum sales obligation and minimum purchase obligations.

Sales of films manufactured by our Group for the three years ended 31 December

2011 amounted to approximately 2,506 tonnes, 12,677 tonnes and 12,744 tonnes

respectively.

Notes:

1. The above estimated approximate annual production capacity figures during the Track Record

Period are calculated by multiplying the hourly production capacity for each production line with

the maximum feasible operating hours of each factory each year after taking into account the

average maximum number of operating hours per day in operation and the average number of

days of operation per year. Regarding the estimated approximate production capacity figures for

the three months ended 31 March 2012, they are calculated by dividing the corresponding annual

production capacity figures by four.

BUSINESS

– 152 –

2. We assume that our Shuntai Factory (for each of the two years ended 31 December 2011) and our

Sheen Colour Nanjing Factory (for each of the three years ended 31 December 2011) operated

22 hours a day and 250 days per year (after deducting the public holidays in the PRC and two

days leave per week). The estimated approximate annual production capacity of our Shuntai

Factory for the year ended 31 December 2009 is calculated on a pro rata basis since it

commenced production in November 2009. For each of the two years ended 31 December 2011,

we assume that our Ener Factory operated 24 hours a day in operation and 306 days of operation

a year (after deducting the public holidays and estimated number of days for overhaul and

maintenance). The estimated approximate annual production capacity of our Ener Factory for the

year ended 31 December 2009 is calculated on a pro rata basis since it commenced production

in October 2009.

3. Utilisation rates are calculated by dividing estimated approximate annual production capacity

over the actual production volume.

4. Data set out in the table above is calculated based on our internal production specification

records.

5. The approximate utilisation rate of our Shuntai Factory remained relatively steady during the two

months ended 31 December 2009 and for the year ended 31 December 2010 and further increased

to 57% for the year ended 31 December 2011 which is in-line with the increase in the sales

volume of our cigarette paper boxes. The approximate utilisation rates were low during the Track

Record Period as our Shuntai Factory only commenced its production in November 2009 and a

higher production capacity has been designed for the increasing production in the future.

The approximate utilisation rate of our Sheen Colour Nanjing Factory dropped from 69% for the

year ended 31 December 2009 to 53% for the year ended 31 December 2010 as a result of the

decrease in sales of our anti-counterfeiting films for the year ended 31 December 2010 and such

utilisation rate remained stable for the year ended 31 December 2011. The approximate

utilisation rates were low during the Track Record Period as the production orders we received

fall short of we originally expected.

The approximate utilisation rate of our Ener Factory remained steady and varied within a range

of 87% to 93% during the Track Record Period. Our Ener Factory has a higher utilisation rate

when compared with that of our Shuntai Factory and our Sheen Colour Nanjing Factory as it is

our strategy to produce non-cigarette-related packaging materials by our spare production

capacity to absorb fixed costs because cigarette-related and non-cigarette-related packaging

materials are manufactured by us by the same set of production line. As detailed in this

sub-section headed “Turnover – Other cigarette films” in this section above, it is our plan to

decrease the sales attributable to non-cigarette-packaging materials (as a percentage to the total

sales of our Group) as such category is generally of lower gross profit margins. As such, we do

not have expansion plan for our Ener Factory as a result of the continuous increase in utilisation

rate of our Ener Factory during the Track Record Period, but we will manage the production mix

by increasing the production of other cigarette films and decreasing the production of

non-cigarette-related packaging materials.

6. General decrease in utilisation rates was noted for the three operations in our Shuntai Factory

and our Ener Factory for the three months ended 31 March 2012 because (1) the first quarter of

each year was the slack season of our production operation and (2) many of our production staff

would take leave during the Chinese New Year which falls in the first quarter of each year. The

approximate utilisation rates of our Shuntai Factory, our Sheen Colour Nanjing Factory and our

Ener Factory for the three months ended 31 March 2011 were 58.9%, 66.3% and 88%

respectively. When compared to utilisation rates of the three operations in our Shuntai Factory

and our Ener Factory for the three months ended 31 March 2012, the approximate utilisation

rates of the three operations in our Shuntai Factory, our Sheen Colour Nanjing Factory and our

Ener Factory for the three months ended 31 March 2011 were higher because (1) the Chinese New

Year in 2012 came earlier than that in 2011 and hence more orders had been satisfied in late 2011

than that in late 2010 (in other words, less production was required for early 2012 than that in

early 2011) and (2) we reviewed our inventory policy in late 2011 to control the inventory level

so that we utilised more of our inventory at the year end of 2011 before we increased our

production in 2012 to satisfy our sales during this period. In addition, the decrease in utilisation

BUSINESS

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rate for our film printing operation for the three months 31 March 2012 (as compared to that for

the three months ended 31 March 2011) was resulted from (1) our customer of anti-counterfeiting

films, being China Tobacco Jiangsu, had reduced gradually its production of one of its brands for

which we previously supplied our anti-counterfeiting films and (2) we relocated our production

facility for our film printing operation in late 2011 and we needed to increase our production in

late 2011 as safety stocks for our sales in early 2012.

Since the processing arrangement contemplated under the processing agreement between

Jiangsu Shuntai and Jiangsu Sheen Colour (as set out in the paragraph headed “Production

premises during the Track Record Period” in this sub-section above) commenced, our Shuntai

Factory has extended its operation to printing of films and our Sheen Colour Nanjing Factory

has ceased operation. Our Directors consider that our production capacity in respect of our film

printing activity at our Shuntai Factory (after the completion of the construction of the

additional factory premises there) would remain steady as we have not disposed of any our

equipment which were used to calculate the production capacity of our Sheen Colour Nanjing

Factory during the Track Record Period.

Production plans are formulated by our production department according to the quantity

of orders received from the sales and marketing department, subject to adjustments based on

actual fulfilment and anticipated level of new sales orders. The workers are divided up to three

production shifts on each working day of 8 hours each with overtime works when necessary.

SUPPLIERS

Our business relationships with our major suppliers during the Track Record Period range

from one year to over 10 years. Our Directors believe that maintaining stable relationship with

our major suppliers is crucial in our operation as this will enable us to have a stable source of

quality raw materials. While we have not entered into any long term sourcing contracts with

our suppliers, we believe that we will be able to continue to maintain stable relationship with

our major suppliers. During the Track Record Period, we had not encountered any difficulty in

procurement nor experienced any production disruption due to shortage of supply of raw

materials.

For each of the three years ended 31 December 2011, our total purchases amounted to

approximately HK$213.7 million, HK$327.8 million and HK$362.2 million respectively.

During the Track Record Period, our largest supplier accounted for approximately 32.8%,

23.9% and 25.4% of our total purchases, respectively, and our five largest suppliers amounted

to approximately HK$151.7 million, HK$207.2 million and HK$215.6 million, representing

approximately 70.9%, 63.2% and 59.5% of our total purchases respectively. Our five largest

suppliers during the Track Record Period comprised 11 different companies, one of which is

a company based in Australia while the remaining 10 are based in the PRC.

BUSINESS

– 154 –

Imported films

During the Track Record Period and up to the Latest Practicable Date, our films for our

film trading business and some of our films for our film printing business were sourced from

the same supplier based in Australia, which is a leading global manufacturer of BOPP films.

On the basis that (i) we are such supplier’s largest customer of cigarette films in 2011,

accounting for more than 20% sales of such supplier’s global sale of cigarette films in 2011 and

more than 70% sales of such supplier’s sale of cigarette films in the PRC in 2011; and (ii) we

have over 10 years of business relationship with such supplier without any material dispute, we

do not enter into long term supply contract with such supplier. The status of exclusive

distributor or, as the case may be, sole agent of the imported BOPP films supplier is negotiated

by the parties during the discussion on the supply contract for the forthcoming year. During the

Track Record Period, we were the exclusive distributor of such supplier for cigarette

manufacturers in Jiangsu, Shandong, Guangdong and Jiangxi Provinces. Pursuant to the

authorisation letter of the same supplier, we are appointed as the sole agent of such supplier

for its BOPP films in Jiangsu Province, Shandong Province and Nan Chang City in Jiangxi

Province without any restriction as to the types of customers in these areas for the period from

1 January 2012 to 31 December 2012, during which period the imported films supplier shall

ensure sufficient supply and provide technical services to us. So far as our Directors are aware,

other than our current imported films supplier, there is only one independent film supplier in

the market which offers imported films of comparable quality.

Although the imported films we purchased are crude oil-based, we managed to bargain for

a stable per unit purchase price of imported films during the Track Record Period as we are one

of the largest customers of our imported films supplier which accounted for more than 20%

sales of such supplier’s global sales of cigarette films in 2011 and more than 70% sales of such

supplier’s sale of cigarette films in the PRC in 2011.

Polypropylene

A substantial portion of our polypropylene was sourced from a single supplier based in

the PRC during the Track Record Period and up to the Latest Practicable Date as such supplier

dominated the market in the PRC and we consider that it is a stable supplier (both in terms of

quantity and quality) of polypropylene. In order to maintain stable supply of our

polypropylene, during the Track Record Period, we entered into legally binding annual

agreements with such polypropylene supplier so as to agree upon (i) the estimated annual

quantity with a monthly breakdown; (ii) the pricing basis; (iii) the manner of delivery and (iv)

the settlement method. The monthly quantity is subject to the confirmation by both parties

when we submitted to this supplier our monthly demand request, and we and such supplier are

not subject to any minimum purchase and sales commitments.

BUSINESS

– 155 –

General

All of our five largest suppliers during the Track Record Period were Independent Third

Parties. None of the directors of our Company or any of our subsidiaries, their respective

associates or, so far as we are aware, Shareholders who own more than 5% of the issued share

capital of our Company immediately following the completion of the Share Offer has any

interests in our five largest suppliers during the Track Record Period.

Purchases are predominantly settled in RMB and US dollars. While certain of our

suppliers require us to settle our purchases on by “payment in advance” or “cash upon

delivery” terms, we have also received credit terms up to 90 days from other suppliers. During

the Track Record Period, we did not experience any material shortage of supply of materials,

including imported BOPP films.

For each of the three years during the Track Record Period, our average trade payables

turnover days were approximately 52.4 days, 41.8 days and 42.6 days, respectively.

PROCUREMENT AND INVENTORY CONTROL

Procurement

Our procurement team is responsible for the purchasing work which includes placing

purchase orders, following up the orders and liaising for the warehousing of our inventory. We

review, amongst others, quality of the products, product price, delivery lead time, services,

reputation and financial stability of a potential supplier before we admit such supplier as our

approved supplier.

The primary raw materials used by us for our production process include (i)

polypropylene (for manufacturing of films), and (ii) ivory board, transfer film and transfer

paper (for manufacturing and printing of cigarette paper boxes). Imported films that we

purchase for trading and/or film-printing purposes also account for a significant percentage of

our total purchases for each year in the Track Record Period. For the three years ended 31

December 2011, cost of polypropylene accounted for approximately 32.7%, 39.8% and 38.4%;

cost of BOPP film accounted for approximately 32.8%, 21.4% and 20.6%; and cost of ivory

board, transfer film and transfer paper(Note), in aggregate, accounted for approximately 7.7%,

25.9% and 22.4% respectively of our total purchases. Purchase requisitions are placed with

vendors based on sales forecasts.

Note: Transfer paper is the paper which has undergone the transfer metalising process. The purchases of transfer

paper in 2009 referred to the purchases of such paper in the market. We only started to carry out transfer

metalising on our own in 2010 and hence the purchases of transfer paper include (apart from the processed

transfer paper in the market) also the purchases of both ivory boards and the transfer-metalising carrier films

(the necessary components for the manufacturing of our transfer paper.

BUSINESS

– 156 –

During the Track Record Period, our purchase price of polypropylene from our largest

supplier of polypropylene, which supplied approximately 61.2%, 60.1% and 66.1% of our total

polypropylene purchased (in terms of value for the three years ended 31 December 2011

respectively) ranged from RMB9,050 per tonne (VAT inclusive) to RMB12,726 per tonne (VAT

inclusive) with an average of RMB9,681 per tonne (VAT inclusive) for the year ended 31

December 2009, RMB11,237 per tonne (VAT inclusive) for the year ended 31 December 2010

and RMB12,123 per tonne (VAT inclusive) for the year ended 31 December 2011.

During the Track Record Period, the purchase price of the imported films of our Group

based on the relevant sales contracts were approximately US$3,121 per tonne, US$2,889 per

tonne and US$2,867 per tonne respectively.

For the two years ended 31 December 2011, the average purchase prices of ivory paper

of our Group were approximately RMB6.86 per kilogram and RMB7.11 per kilogram

respectively. As mentioned in this sub-section above, our Group only started to carry out

transfer metalising on our own in 2010 and hence we had not purchased any ivory paper in

2009.

In February 2012, we entered into a letter of intent of cooperation with a research centre

in the PRC whereby such research centre has agreed to conduct research on improvement of

the quality of polypropylene used by our Group and our Group has agreed to use, at a cost to

be agreed, such improved polypropylene for the manufacture of BOPP films in accordance with

the agreed trial plan and give feedbacks to the research centre. The researched technology shall

be owned by the research centre and the cooperation shall last for three years. Our Directors

expect that the quality of our manufactured films can be improved as a result of such

cooperation arrangement.

Inventory control

We adopt an inventory control policy that records on inventory movements are required

to be updated immediately and the inventory level is updated on a monthly basis to ensure such

records are up-to-date.

Since 2012, we have strengthened our inventory system by (1) adopting an electronic

accounting system to reduce human error; (2) performing quarterly physical inventory count so

that any variance can be identified easily; and (3) material variance must be reviewed and

approved by both our subsidiaries’ finance manager and our Group’s chief financial officer.

In order to average out the effect of price fluctuations in the cost of raw materials and to

ensure our production would not be disrupted by the shortage of raw materials, it is our policy

to keep stocks of major raw materials equivalent to approximately to one to two months’

production.

At all times, we monitor the market price of the raw materials and maintain inventory

levels according to both projected production as well as trends in pricing of the raw materials.

BUSINESS

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QUALITY ASSURANCE AND CONTROL

We understand the importance of the quality of cigarette paper boxes and cigarette films

to the cigarette manufacturer customers. Any flaw in the cigarette paper boxes and cigarette

films does not only adversely affect consumer’s brand loyalty, but may also mislead consumers

to perceive genuine cigarettes as counterfeit ones, causing the cigarette manufacturer

customers to suffer from losing their own customers and market share.

In view of this, we are committed to supplying quality anti-counterfeiting cigarette paper

boxes and films, and have implemented quality control measures throughout the production

process. In particular, we have arranged sufficient and experienced staff to monitor the quality

of the raw materials, semi-finished products and final products:

(a) Maintenance of the machineries and equipments

The technology team of the production department is responsible for conducting

examination from time to time and maintenance of the machineries and equipments, so as to

ensure the proper functioning and safe operation of the machines and equipments, and thus

enhance the productivity and quality of the products.

We schedule our production schedule which has already taken into the required routine

maintenance so as to minimise any material impact on our Group’s operation and financial

performance. During the Track Record Period, we carried out daily inspection of machines and

equipment between shifts and conduct regular maintenance during the holiday period in our

Shuntai Factory and our Sheen Colour Nanjing Factory. The temporary suspension of our Ener

Factory take place around 60 hours a month and the expected duration of each suspension is

around two to three hours. The time slots of suspension are not fixed and can be adjusted

according to production orders and production planning of our Group.

(b) Production process inspection

We adopt a systematic approach for the quality control process in our factories. Although

different standards and procedures are applied to the quality control of different products and

manufacturing procedure, the general quality control procedure is the same.

All incoming raw materials are purchased from our approved suppliers and examined

before the manufacturing process commences. We have invested and acquired machineries for

quality control purposes. Workers of each shift are required to conduct self-check on the batch

of semi-finished products manufactured by them, while the quality control staff conduct a

random sampling test on both the semi-finished and finished products during their patrol

around the factory.

BUSINESS

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Set out below are the flows of quality control procedures of our Group for our different

manufacturing processes.

For the manufacturing of cigarette paper boxes

StockingDestruct

Inspection on quality

Production

Qualified

QualifiedUnqualified

Unqualified

Inspection on incomingraw materials

Receive raw materials Return to suppliers

For the printing of films

UnqualifiedDestruct

UnqualifiedDestruct

Stocking


Cutting


Printing

Qualified

Unqualified

Qualified

Qualified


Receive raw materials Return to suppliers

BUSINESS

– 159 –

For the manufacturing of films

Destructed

Destructed

Fine slitting

Stocking


Coarse cutting


Oriented

Qualified

Unqualified

Unqualified

Qualified


Receive raw materials

(c) Establishment of award-and-punishment system for quality control

With the view to encouraging each worker to produce quality products and actively

participate in quality control, we establish award-and-punishment system.

A scale and the basis upon which the workers will be awarded for making contribution

to quality control or penalised for making substantial mistakes are clearly set out in our

Group’s staff manual.

BUSINESS

– 160 –

As at the Latest Practicable Date, we had employed 39 staff for quality control purposes,

majority of whom have received post-secondary education, with three of them holding a master

degree. They acquired appropriate technical skills by receiving in-house on-the-job trainings.

Some of them also received trainings offered by product quality certification or training centres

and obtained the internal auditor qualification certification.

As a recognition of the ongoing commitment of Jiangsu Shuntai and Qingdao Ener for

maintaining a quality management system, they obtained the Certificate of Quality

Management System Certification (質量管理體系認證證書) issued by Beijing New Century

Certification Co., Ltd. (北京新世紀認證有限公司) and Quality Assurance Centre of China

Association (中質協質量保證中心) respectively, each of which is an entity endorsed by China

National Accreditation Board for Certifiers (中國認證機構國家認可委員會) to conduct

accreditation activities and an Independent Third Party, which certified that the quality

management system adopted by us is in conformity with GB/T19001-2008/ISO9001:2008

Standard.

Our Directors consider that our quality control system has enabled us to produce quality

packaging materials and respond rapidly to the change in demand, as we are able to identify

easily which part of the production process should be modified in order to meet the requirement

of our customers.

As confirmed by our Directors, during the Track Record Period and up to the Latest

Practicable Date, save for the returned sales mentioned in the paragraph headed “Sales,

marketing and after-sales services – After-sales services” in this section above, we were not

subject to material claims for compensation due to product flaws or defects.

ENVIRONMENTAL PROTECTION, HEALTH AND SAFETY

Environmental protection

As advised by our PRC Legal Advisers and confirmed by our Directors and set out in the

section headed “Regulatory overview – Laws and regulations in relation to environmental

protection” in this prospectus, the design and construction requirements of factories in respect

of pollution control and environmental protection are governed by the Environmental

Protection Law of the PRC (《中華人民共和國環境保護法》), the Law of the PRC on

Appraising of Environment Impacts (《中華人民共和國環境影響評價法》), and the

Regulations on the Administration of Environmental Protection for Construction Projects (《建設項目環境保護管理條例》), the PRC Law on the Prevention and Treatment of Air Pollution

(《中華人民共和國大氣污染防治法》), the PRC Law on the Prevention and Treatment of

Water Pollution (《中華人民共和國水污染防治法》), the PRC Law on the Prevention and

Treatment of Noise Pollution (《中華人民共和國環境噪聲污染防治法》) and the PRC Law on

the Prevention and Treatment of Solid Waste Pollution (《中華人民共和國固體廢物污染環境防治法》) together impose further requirements on the factories on the discharge and treatment

of waste, including waste water and chemical waste.

BUSINESS

– 161 –

Our Directors recognise the importance of environmental protection, and therefore our

Shuntai Factory, our Ener Factory and our Sheen Colour Nanjing Factory have controlled their

respective pollutant emissions and ensured compliance with the relevant PRC environmental

regulations during the production process.

We have imposed the following measures in relation to the environmental protection:

– the production staff is responsible for making sure that the level of pollutant

emissions during each production procedure complies with the requirements of the

PRC environmental regulations; and

– the production staff is responsible for ensuring all wastages produced during the

manufacturing process are properly disposed of in accordance with the requirements

of the PRC environmental regulations.

Chemical wastes produced during the production process included the waste ink

remaining in the ink containers and the solvent. We have engaged a waste disposal company

which obtained the permit for handling dangerous waste materials to collect the chemical

waste.

Our management is committed to minimising the impact of such wastes on the

environment. During the Track Record Period, our Shuntai Factory has engaged a qualified

company to help dispose of the production wastes and has also sold wasted papers to other

Independent Third Parties. In our Ener Factory, the plastic wastes are melted and transformed

into smaller plastic pieces and we sell such plastic pieces to other Independent Third Parties.

In addition, our environmental management system adopted by Jiangsu Shuntai has been in

compliance with the standards of ISO14001 (Environment Management System) and has

received the Certificate of Environment Management System Certification (環境管理體系認證證書) issued by Beijing New Century Certification Co., Ltd. (北京新世紀認證有限公司), an

Independent Third Party.

Before the processing arrangement as described in the sub-section headed “Production

facilities and production process” in this section above was entered into between Jiangsu Sheen

Colour and Jiangsu Shuntai, Jiangsu Sheen Colour operated its film printing activity at our

Sheen Colour Nanjing Factory. Jiangsu Sheen Colour had obtained the approval from the

relevant environmental protection department regarding the construction of our Sheen Colour

Nanjing Factory, but it had not arranged to seek the completion approval of environmental

protection from the relevant environmental protection department before it commenced the

operation of film printing activity.

As advised by our PRC Legal Advisers, in the event that it commenced operation without

obtaining the completion approval of environmental protection, our Sheen Colour Nanjing

Factory could be ordered to cease operation and be subject to a penalty of not more than

RMB100,000. As confirmed by the committee of management of social affairs of Nanjing

Economic and Technological Development Zone, Jiangsu Sheen Colour had submitted all

BUSINESS

– 162 –

relevant information for the approval process and supporting documents in respect of the due

execution of environmental protection measures undertaken by Jiangsu Sheen Colour and

timely payment of waste discharge fees. As confirmed by our Directors, as at the Latest

Practicable Date, Jiangsu Sheen Colour had not been penalised by the relevant environmental

protection department for any material breach of laws and regulations.

As confirmed by the local authorities supervising environmental protection, our Shuntai

Factory and our Ener Factory have complied with the relevant laws, regulations and

administrative rules on environmental protection, without any penalties imposed by the

regulatory authorities in the PRC during the Track Record Period.

Health and safety

According to the PRC Labour Law (中華人民共和國勞動法), a labour contract must be

signed if an employment relationship is to be established between the employee and our

Shuntai Factory, our Ener Factory or our Sheen Colour Nanjing Factory. Our Shuntai Factory,

our Ener Factory and our Sheen Colour Nanjing Factory are also required to establish a system

for labour safety and sanitation and provide relevant education to their respective employees.

The PRC Production Safety Law (中華人民共和國生產安全法) requires that our Shuntai

Factory, our Ener Factory and our Sheen Colour Nanjing Factory shall maintain conditions for

safe production as provided in the PRC Production Safety Law and other relevant laws and

industrial standards. Our Shuntai Factory, our Ener Factory and our Sheen Colour Nanjing

Factory are required to offer education and training programmes to the employees regarding

production safety. The design, manufacture, installation, use, checking and maintenance of the

safety equipment of our Shuntai Factory, our Ener Factory and our Sheen Colour Nanjing

Factory safety equipment are required to conform to the applicable national or industrial

standards.

We have implemented safety guidelines and operating procedures for the production

processes and provided employees with occupational safety education and on-the-job training,

in order to enhance their awareness of safety issues.

In particular, Jiangsu Shuntai has been awarded Certificate of Occupational Health and

Safety Management System Certification (GB/T28001-2001) (職業健康安全管理體系認證證書) by Beijing New Century Certification Co., Ltd. (北京新世紀認證有限公司), an entity

endorsed by China National Accreditation Board for Certifiers (中國認證機構國家認可委員會)

to conduct accreditation activities and an Independent Third Party, in 2010.

General

During the Track Record Period, the annual costs incurred for compliance of laws and

regulation in relation to environmental protection, health and safety (comprising sewage cost

and recycling cost) were approximately HK$417,814, HK$781,858 and HK$1,260,790

respectively. Our Directors confirmed that, during the Track Record Period, our Group has not

encountered any material safety issues and did not have any material claims in relation to

safety issues.

BUSINESS

– 163 –

Our Directors estimate that the expected cost of compliance going forward is

approximately HK$1.5 million for the year ending 31 December 2012.

As advised by our PRC Legal Advisers, based on the confirmation letters issued by the

relevant supervising authorities, save as disclosed in the sub-section headed “Non-compliance

incidents” in this section below, we were in compliance to a material extent with all applicable

labour, safety and environmental laws and regulations during the Track Record Period and up

to the Latest Practicable Date.

RECOGNITIONS, CERTIFICATIONS AND AWARDS

We have received a number of recognitions and certifications relating to our business and

operation:

No. Certificate

Issuing

Organisation Recipient Date of Issue Expiry Date

1. GB/T28001-2001

Certificate of Occupational

Health and Safety

Management System

Certification

(職業健康安全管理體系認證證書)

Beijing New

Century

Certification Co.,

Ltd. (北京新世紀認證有限公司)(Note)

Jiangsu

Shuntai

17 December

2010

16 December

2013

2. GB/T19001-2008/

ISO9001:2008 Certificate

of Quality Management

System Certification

(質量管理體系認證證書)

Beijing New

Century

Certification Co.,

Ltd. (北京新世紀認證有限公司)

Jiangsu

Shuntai

3 November

2010

10 March 2013

3. GB/T24001-2004/


of Environment

Management System

Certification

(環境管理體系認證證書)

Beijing New

Century

Certification Co.,

Ltd. (北京新世紀認證有限公司)

Jiangsu

Shuntai

17 December

2010

16 December

2013

4. GB/T19001-2008/


of Quality Management

System Certification

(質量管理體系認證證書)

Quality Assurance

Centre of China

Association for

quality (中質協質量保證中心)(Note)

Qingdao

Ener

15 July 2010 14 July 2013

BUSINESS

– 164 –

No. Certificate

Issuing

Organisation Recipient Date of Issue Expiry Date

5. GB/T24001-2004 idt


of Environment

Management System

Certification

(環境管理體系認證證書)

Quality Assurance

Centre of China

Association for


Qingdao

Ener

8 September

2009

7 September

2012

6. GB/T28001-2001

Certificate of Occupational

Health and Safety

Management System

Certification

(職業健康安全管理體系認證證書)

Quality Assurance

Centre of China

Association for


Qingdao

Ener

8 September

2009

7 September

2012

Note: Each of Beijing New Century Certification Co., Ltd. (北京新世紀認證有限公司) and Quality Assurance

Centre of China Association for quality (中質協質量保證中心) is an Independent Third Party engaging

in provision of inspection, verification, testing and certification services, both approved by

Certification and Accreditation Administration of the People’s Republic of China (CNCA) and

accredited by China National Accreditation Service for Conformity Assessment (CNAS).

As shown in the table above, the Certificate of Environment Management System

Certification and the Certificate of Occupational Health and Safety Management System

Certification obtained by Qingdao Ener will expire in September 2012. Our Group will apply

for renewal before the expiry of the relevant certificates.

Since it is not a legal requirement to obtain these certificates, our Directors confirm that

there would not be any potential operational or financial impact on our Group in the event that

we failed to renew these certificates after expiry. In order to renew the certificates, we will

have to confirm with the certification centres, together with review reports and other

supporting documents that we have adopted the system and complied with the requirements as

required under the certification standard, and that there had not been any substantial

misconduct or non-compliance on our part. Our Directors confirm that we will renew the

certificates upon their expiry.

Jiangsu Shuntai was awarded as a Significant Tax Payer for the Year (年度納稅大戶) jointly

by Huai’an City Qinghe District Committee of Chinese Communist Party (中共淮安市清河區委員會) and the People’s Government of Qinghe District (清河區人民政府) in 2010 and 2011.

BUSINESS

– 165 –

PROPERTIES

Owned properties

As at the Latest Practicable Date, we had land use rights for two adjoining pieces of lands

in Huai’an City, Jiangsu Province and one piece of land in Qingdao City, Shandong Province.

Our Shuntai Factory is located on one of the two pieces of lands in Huai’an City, while our

Ener Factory is erected on the piece of land in Qingdao City.

The two parcels of land in Huai’an City, Jiangsu Province occupy a total site area an

aggregate of approximately 69,205.6 square metres while the land in Qingdao City, Shandong

Province has a site area of approximately 75,370 square metres. All such lands are restricted

for industrial use. As at the Latest Practicable Date, we had no plan to dispose of or change the

use of the relevant land use rights.

As at the Latest Practicable Date, we have obtained the building ownership certificate,

real estate ownership certificate and land use rights certificates for all our owned properties in

the PRC.

Our Shuntai Factory

In 2011, the land use right of the land on which our Shuntai Factory is erected, together

with our Shuntai Factory, are mortgaged to a bank, which is an Independent Third Party, as the

security of a loan agreement.

Jiangsu Shuntai has completed construction work at the site in the proximity of our

Shuntai Factory in light of the expected increase in production activity of our Shuntai Factory

as a result of the taking over the film printing operation which, during the Track Record Period,

was undertaken by our Sheen Colour Nanjing Factory.

For the extended portion of our Shuntai Factory, we did not obtain the building ownership

certificate before the transfer of the film printing operation from our Sheen Colour Nanjing

Factory to our Shuntai Factory because the construction work of the extended portion of our

Shuntai Factory was delayed due to the bad weather condition, but the transfer of the relevant

operation to our Shuntai Factory was executed as scheduled. As at the Latest Practicable Date,

we obtained the building ownership certificate for our Shuntai Factory (including the extended

portion).

Our Ener Factory

Although the construction works were completed and the inspection and acceptance of

our Ener Factory in respect of fire prevention and environmental protection were obtained in

2009, we did not obtain the real estate ownership certificate with respect to the building

ownership of our Ener Factory until May 2012.

As at the Latest Practicable Date, Qingdao Ener has obtained the land use rights

certificate in respect of the land on which our Ener Factory is erected and the real estate

ownership certificate for the buildings constructed thereon.

BUSINESS

– 166 –

General

With respect to the use of building without construction completion approval, our Group

may be subject to a fine of no less than 2% but no more than 4% of the contract price of the

relevant construction contract. Based on the contract price of the relevant construction

contracts, the potential penalty ranges from HK$2.1 million to HK$4.2 million. Our Directors

confirm that up to the Latest Practicable Date, we have not received any notice from the

relevant regulatory authorities in connection with such non-compliance nor regarding any

penalty. Our Controlling Shareholders have agreed to indemnify us against any losses,

liabilities and expenses in relation to the default, failure or delay in obtaining such construction

completion approval.

Leased properties

As at the Latest Practicable Date, we were also occupying certain leased properties,

namely, a property with a gross floor area of approximately 180 square metres in Nanjing City,

Jiangsu Province as storeroom of Jiangsu Sheen Colour, an office premise with a gross floor

area of approximately 131 square metres in Shenzhen as office and two office premises with

saleable areas of approximately 114 square metres and 123 square metres respectively in Hong

Kong as our offices. As at the Latest Practicable Date, our Directors (i) were not aware of any

investigations, notices, pending litigation, breaches of law or title defects; (ii) had no plan in

relation to construction, renovation, improvement, development or change the use, of the

leased properties of our Group.

Valuation

Greater China Appraisal Limited, an independent property valuer, has assessed our

property interests as of 30 April 2012. The letter from Greater China Appraisal Limited,

summary of values and the valuation certificate are set out in Appendix III to this prospectus.

INTELLECTUAL PROPERTY RIGHTS

As at the Latest Practicable Date, we owned one registered trademark in the PRC.

On 5 January 2011, the State Intellectual Property Office of the People’s Republic of

China granted a Certificate of Patent to Qingdao Ener in respect of the invention of a

degradable BOPP packing film and the manufacturing method of the said film.

As confirmed by our Directors, none of our members nor any of our Directors were

involved in any litigation in the PRC and Hong Kong relating to the infringement of any

intellectual property rights belonging to third parties in respect of our products during the

Track Record Period. Our Directors have further confirmed that neither we nor any of our

Directors have received any notice of any infringement of intellectual property rights up to the

Latest Practicable Date.

BUSINESS

– 167 –

Our Qingdao Ener filed an application for the registration of a trademark “英諾” in the

PRC on 12 August 2009. The following registration procedures have been processed up to the

Latest Practicable Date:

(i) The notice of preliminary approval of the registration was released by the State

Intellectual Property Office of the PRC on 20 August 2010.

(ii) A company raised opposition against the registration and filed an application for

demurral on 24 November 2010.

(iii) The notice of defending against the demurral was issued to Qingdao Ener on 14

April 2011.

(iv) Qingdao Ener filed a defence against the demurral by its agent on 16 May 2011.

(v) Qingdao Ener filed a supplemental reasoning to the defence by its agent on 15

August 2011.

The application is still in the process of examination of demurral up to the Latest

Practicable Date. On the basis that our products are not sold under any brand (including “英諾”) and the application for the registration of the trademark as described above is for potential

future use, our Directors consider that it would not have any material adverse impact on the

operation and financial performance of our Group if we fail to register the trademark of “英諾”.

INSURANCE

Our insurance coverage includes social insurance of our staff in the PRC and insurance

for certain of their production facilities and inventories.

During the Track Record Period, we have not made any material claims. Our Directors

consider that the above insurance plans and amounts insured are sufficient to cover the

operational risks and protect us from any potential loss or damage.

COMPETITION

Overview

With the cigarette manufacturers as the customers of cigarette packaging materials

suppliers, the trends of the cigarette market and the cigarette packaging industries are

inter-related.

According to the Euromonitor Report, the PRC, which is the principal country of our

operation, is one of the most important countries to be engaged in cigarette manufacturing,

besides the United States and Japan. Cigarette (duty paid) market in the PRC maintained its

high growth rate over the past few years and the consumer expenditures in the PRC have been

growing rapidly.

BUSINESS

– 168 –

Nevertheless, according to the Euromonitor Report, the number of brands does not

increase with the growing cigarette market and instead shows a decrease from 1,181 brands in

early 2000 to 117 brands by the end of 2011 due to the policies issued by the PRC government

to exert influence on the industry consolidation at the macro level. Under such consolidation

of the cigarette manufacturing market, it is expected that brands which are not being one of the

“20+10” Key Brands will have high possibility of being pushed out from the market so that

many small packaging companies which are not suppliers of the brand owners of the “20+10”

Key Brands would be eventually pushed out of business.

According to the Euromonitor Report, for every single brand, one cigarette manufacturer

generally selects two to five cigarette packaging companies as its suppliers for a particular item

and this pattern applies to our major customer, China Tobacco Jiangsu, which according to the

Euromonitor Report, monopolised the downstream cigarette manufacturing market in Jiangsu

Province, the PRC, and had about 10 companies supplied cigarette packaging materials to it in

2011.

According to the Euromonitor Report, cigarettes are classified into “high-tar cigarettes”

(white stick cigarettes with a tar content of greater than 10 milligrams); “mid-tar cigarettes”

(white stick cigarettes with a tar content of six to 10 milligrams); “low-tar cigarettes” (white

stick cigarettes with a tar content of four to six milligrams); and “ultra low-tar cigarettes”

(white stick cigarettes with a tar content of less than four milligrams). With effect from 2011,

cigarette with tar level of over 12 milligrams per stick is prohibited to be sold in PRC, and

according to STMA, cigarette with tar level of over 11 milligrams will be prohibited to be sold

in PRC with effect from 2013, while cigarette with tar level of over 10 milligrams will be

prohibited to be sold in PRC in 2015. “High-tar cigarettes” are sold at a lower unit price and

captured a higher market share in the PRC currently. Most of the “20 + 10” Key Brands,

including “Su Yan” (蘇煙), “Nanjing” (南京) and the other brand under the “20 + 10” Key

Brands for which we currently supply packaging materials, supply “high-tar cigarettes”. On the

basis that (i) our Group’s revenue from selling cigarette-related packaging materials has

recorded a high growth from 2010 and 2011 and further secured five sales contracts with China

Tobacco Jiangsu and two other Provincial Tobacco Industrial Companies; (ii) our Group’s

approved supplier status is not brand specific; and (iii) it is expected that cigarette

manufacturers will migrate to produce other classes of cigarettes as a result of the STMA’s

policy to prohibit the sale of “high-tar cigarettes” in the PRC in 2015, our Directors consider

that there is no actual impact on such ban on our Group’s business. Please refer to the section

headed “Risk factors – Risks relating to the industry – Tightening of legislative or regulatory

control may result in change in the cigarette consumption patterns and/or reduction in the

smoking population size which may affect our performance” in this prospectus for details of

the potential impact of such ban on our Group’s business in the future.

Jiangsu Province, the PRC

As the Jiangsu Province, the PRC is our existing principal market, other cigarette

packaging materials suppliers who are active in the Jiangsu Province are considered as our

major direct competitors.

BUSINESS

– 169 –

According to the Euromonitor Report, we are the largest supplier with a market share of

85.1% in the cigarette film market and ranked no. 2 in the cigarette paper box market with a

market share of 15.5%, in each case, in Jiangsu Province, the PRC in 2011 in terms of sales

value. Our Group ranked no. 2 in overall cigarette packaging materials market (comprising

paper boxes, films and other packaging materials) in Jiangsu Province, the PRC in 2011 with

a market share of 18.8% in terms of sales value. As confirmed by China Tobacco Jiangsu, the

remaining cigarette films purchased by China Tobacco Jiangsu were (i) from other cigarette

films manufacturers in the PRC and (ii) not manufactured by or sourced directly or indirectly

from our Group.

The ranking in terms of sales value of overall cigarette packaging materials (comprising

paper box, films and other packaging materials) and market share of our major competitors in

2011 are as follows:

Ranking Company

2011

Sales Value

2011

Market Share

(RMB million)

1 Competitor A 440.0 25.0%

2 Our Group 329.8 18.8%

3 Competitor B 221.6 12.6%

4 Competitor C 152.1 8.7%

5 Competitor D 111.7 6.4%

Our Directors believe that potential new entrants will face a number of entrance barriers,

including, amongst others, (i) recognition process which are prerequisites to supply packaging

materials to cigarette manufacturers; (ii) limited supply of experienced management and

skilled technical staff in the industry; and (iii) substantial investment and time required for

building reputation in the industry.

Our Group’s sales of cigarette films (including imported films and anti-counterfeiting

films) in Jiangsu Province, the PRC increased by approximately 1.3% during the Track Record

Period, compared with the Jiangsu Province’s overall cigarette packaging market size’s growth

rate during the Track Record Period of approximately 11.2%. The slower growth rate of our

sales of cigarette films (mainly anti-counterfeiting films and imported films) when compared

with that of the overall cigarette packaging materials market (including cigarette paper boxes,

cigarette films and other cigarette packaging materials) also implies that our market share (in

value term) of cigarette films (on an overall basis) in Jiangsu Province, the PRC declined

during the Track Record Period. Our Directors consider that such decline was primarily due to

(i) a change of product mix of our customer of anti-counterfeiting films, being China Tobacco

Jiangsu, had reduced gradually the production of one of its brands for which we previously

supplied our anti-counterfeiting films since the second half of 2009 and has subsequently

discontinued the production of such brand in 2011; and (ii) such decrease was not fully

compensated by the increase in the sales of our anti-counterfeiting films and imported films to

other brands in Jiangsu Province, the PRC.

BUSINESS

– 170 –

COMPLIANCE AND LEGAL PROCEEDINGS

Material claims, complaints, investigation, legal or arbitration proceedings or regulatory

action

Based on the search results from the public website concerning information of

person/entity subject to enforcement by PRC court (全國法院被執行人信息查詢網) (not

including military court), our PRC Legal Advisers were not aware of any material claims,

complaints, investigation, legal or arbitration proceedings or regulatory action against any PRC

subsidiary of our Group, their respective directors or shareholders now in progress or pending

which would have a material adverse effect on our Group during the Track Record Period.

Hong Kong taxation

During the Track Record Period, Sheen HK engaged in the trading of cigarette films in

Hong Kong, and is subject to taxation in Hong Kong.

Licences and permits

As advised by our PRC Legal Advisers, based on the confirmation letters issued by the

relevant supervising authorities, save as disclosed under the sub-section headed “Properties” in

this section, and the non-compliance issues disclosed in the sub-section headed “Non-

compliance incidents” under this section below, we have not been subject to any material fines,

penalties or sanctions by national or local authorities for violations of PRC laws and

regulations during the Track Record Period and we complied to a material extent with all

relevant rules and regulations applicable to our operation and obtained necessary approvals,

material permits, certificates and licences from the relevant authorities for our operations

during the Track Record Period and up to the Latest Practicable Date.

BUSINESS

– 171 –

In addition to the respective business licences, our Group has obtained the following

permit/licence which are significant to our operation:

Type of Permit/

Licence Date of Issue Expiry Date Scope/Conditions

Jiangsu Shuntai Printing licence 6 June 2011 1 March 2014 Printing of packing

and decorating

printed matters(Note)

Jiangsu Sheen

Colour

Printing licence 1 March 2011 1 March 2014 Typesetting, plate

making, printing

and binding of

packaging and

decorating printed

matters

Qingdao Ener National Industrial

Products

Manufacturing

Permit

30 August 2010 29 August 2013 Manufacturing of

plastic packaging

for food

Note: As advised by our PRC Legal Advisers, “packaging and decorating printed matters” as referred to in

the relevant business licence sufficiently covered film-printing. During the Track Record Period, the

total turnover attributable to the sales of cigarette paper boxes and anti-counterfeiting films were

approximately HK$171.0 million, HK$294.6 million and HK$352.7 million respectively, accounting for

approximately 64.7%, 53.5% and 52.3% of the turnover of our Group for the three years ended 31

December 2011 respectively.

During the Track Record Period and up to the Latest Practicable Date, we had not

experienced any failure in applying for renewal of the above licence/permit. As advised by our

PRC Legal Advisers, there will be no material legal impediment for our Group to renew the

printing licence subject to our Group’s compliance with the requirements and procedures

stipulated in the relevant PRC laws and regulations then applicable.

Litigation

During the Track Record Period and as at the Latest Practicable Date, we, our Directors

and senior management were not engaged in any litigation, arbitration or administrative

proceedings of material importance and no litigation, arbitration or claim is known to our

Directors to be pending or threatened by or against us that would have a material adverse effect

on our operation or our financial conditions.

BUSINESS

– 172 –

NON-COMPLIANCE INCIDENTS

Non-compliance regarding social security insurance and housing provident fund

contributions

All our PRC subsidiaries are required to make social security insurance and housing

provident fund contributions for their respective employees in the PRC under the applicable

laws and regulations in the PRC.

Qingdao Ener has not made full contributions in respect of social security insurance and

the housing provident fund for its employees in the PRC during the Track Record Period as:

(1) we have insufficient knowledge on the social security system in the PRC as we did not have

a designated competent person to oversee Qingdao Ener’s compliance matter; (2) some of our

employees came from rural areas and such rural workers have their residence registered with

the villages from which they came. The relevant local government authorities have different

policies in respect of social security insurance contribution schemes for rural workers, who

migrate from place to place. Thus it is difficult for rural workers to transfer their social security

registrations to other localities and continue their social security contributions, in which

circumstances such employees have not been willing to participate in the social security

system; (3) we have not made contributions for the part-time staff; and (4) certain employees

have opted to make contributions by themselves. Such outstanding amount was approximately

HK$2.2 million.

As advised by an officer at the Qingdao Chengyang Social Insurance Administration

Centre (青島市城陽區社會勞動保險事業處), being a competent authority in this aspect, during

an interview, Qingdao Ener is only required to pay its outstanding social insurance contribution

for its employees if and when the centre received complaint(s) from the relevant employee(s).

Assuming that all of our existing employees who have opted to make social insurance by

themselves for the relevant period did not make the contributions themselves, we may be liable

for the outstanding amounts of social insurance and housing provident fund contributions in

relation to such employees. However, in the event that we fail to pay any outstanding

contribution pursuant to any notice issued by the social insurance bureau, we could be ordered

to make the outstanding contributions and be subject to penalties for late payment. As advised

by our PRC Legal Advisers, if the relevant authorities order our Group to, but our Group did

not pay the relevant social insurance and housing provident fund contributions within the

prescribed time limits required by the relevant authorities, a daily late payment at the rate of

0.2% of the outstanding amount will be imposed before July 2011 and/or a fine of one to three

times the outstanding amount with a daily late payment at the rate of 0.05% of the outstanding

amount from the due date will be imposed after July 2011 (in case of social insurance) or

compulsory enforcement by the people’s court may be applied (in case of housing provident

fund).

BUSINESS

– 173 –

We have already made a provision of approximately HK$2.2 million which is the

maximum liabilities to our Group at this stage in connection with the non-compliance with the

social security system in the PRC. In this connection, our Controlling Shareholders have

agreed to indemnify us against any losses, liabilities and expenses, relating to any claim

brought by the authorities or any other third party in relation to the above non-compliance to

the extent not covered by the said provision. Please refer to the section headed “Statutory and

general information – Other information – Tax and other indemnities” in Appendix V to this

prospectus for further details.

Nonetheless, if such employees elect to make the payments for their own portion of the

overdue contributions and request us, as an employer, to make up for such past overdue

contributions, we undertake to pay the contributions in accordance with the applicable laws and

regulations in the PRC.

As at the Latest Practicable Date, we have not received any notice from the social

insurance bureau or local housing provident fund management centre regarding any non-

compliance with the social insurance and housing provident fund contributions regulations nor

regarding the relevant outstanding payment.

Save for the failure to pay for the outstanding balances in previous years as described

above, our Directors confirmed that Qingdao Ener had complied with the relevant requirements

of the social security system in the PRC and had made all necessary arrangement in respect of

the full payment of social security insurance (including but not limited to rural workers) and

housing contributions to the accounts for the benefit of all qualified PRC employees in a timely

manner since January 2012.

Non-compliance regarding environmental protection

Before the processing arrangement as described in the sub-section headed “Production

facilities and production process” in this section above was entered into between Jiangsu Sheen

Colour and Jiangsu Shuntai, Jiangsu Sheen Colour operated its film printing activity at our

Sheen Colour Nanjing Factory. Jiangsu Sheen Colour had obtained the approval from the

relevant environmental protection department regarding the construction of our Sheen Colour

Nanjing Factory, but it had not arranged to seek the completion approval of environmental

protection from the relevant environmental protection department before it commenced the

operation of film printing activity.

As advised by our PRC Legal Advisers, in the event that it commenced operation without

obtaining the completion approval of environmental protection, our Sheen Colour Nanjing

Factory could be ordered to cease operation and be subject to a penalty of not more than

RMB100,000. As confirmed by the committee of management of social affairs of Nanjing

Economic and Technological Development Zone, Jiangsu Sheen Colour had submitted all

relevant information for the approval process and supporting documents in respect of the due

execution of environmental protection measures undertaken by Jiangsu Sheen Colour and

timely payment of waste discharge fees. As confirmed by our Directors, as at the Latest

Practicable Date, Jiangsu Sheen Colour had not been penalised by the relevant environmental

protection department for any material breach of laws and regulations.

BUSINESS

– 174 –

Non-compliance regarding loan and advances

Our Group had advanced to Smart Freight (Shenzhen) Ltd. (“Smart Freight”), an

Independent Third Party, as short-term financing with an amount of approximately HK$8.2

million without interest. Smart Freight was engaged in the agency service for import and export

of good and custom clearance. As confirmed by Mr. Guo, the shareholder of Smart Freight is

his personal friend. The amount was fully settled in the year ended 31 December 2010.

Our Group also made various advances to and received advances from Qingdao Chuangji

Weiye Investment Limited (“Qingdao Chuangji”), which effectively owned 30% equity interest

in Qingdao Ener until 8 August 2010, during the Track Record Period. The outstanding balance

was fully settled.

As advised by our PRC Legal Advisers, the aforesaid advance to Smart Freight and

advances to Qingdao Chuangji by our Group did not comply with the relevant PRC laws and

regulations for loans and advances, pursuant to which, enterprises engaged in unauthorised

lending could be subject to a penalty between one to five times of the income generated under

such activities, and the PRC court shall regard the relevant agreement as invalid contract, but

given that (i) no interests has been charged by our Group in relation to such advances; (ii) all

such advances have been repaid by Smart Freight and Qingdao Chuangji respectively; (iii)

there were no legal disputes in connection with such advances, there is no material risk in

relation to being penalised by the relevant financial authorities to our Group. Our Group has

no intention to make advances of similar nature after the Listing and our Group will not have

any balance of advance to Independent Third Parties with similar nature after the Listing.

Ongoing compliance

Further, in order to ensure on-going compliance with regulations applicable to our

business activities in the PRC namely, the social insurance and housing fund related regulatory

requirements, environmental protection related regulatory requirements, and loan and advances

related regulatory requirements (“Regulatory Requirements”), our Group has designated Mr.

Bau Siu Fung, an executive Director, to:

1. set up internal control procedures in relation to Regulatory Requirements in June

2012;

2. supervise our compliance with the Regulatory Requirements and communicate with

relevant regulatory authorities and our PRC Legal Advisers, if necessary, with a

view to keeping us abreast of the latest regulations and regulatory developments

relating to our business, since November 2011;

3. review compliance related work done and compliance records of our Group, since

November 2011; and

4. circulate internal memo summarising any new development to the regulatory

requirements to our staff to ensure on-going compliance in the future.

BUSINESS

– 175 –

On the basis that (i) Mr. Bau has more than 10 years of experience in the accounting and

auditing field, including performing auditing for companies similar with that of our Group, and

is knowledgeable in reviewing and improving internal control systems of corporation; and (ii)

our Group has engaged legal advisers and compliance advisers to provide appropriate legal and

compliances advices to our Group to assist Mr. Bau to perform his duty, our Directors consider

that Mr. Bau has sufficient knowledge and ability to supervise our Group’s on-going

compliance.

General

In conclusion, in respect of the non-compliance regarding (1) the use of building without

construction completion approval and (2) social security insurance and housing provident fund

contribution, our Group is subject to a maximum penalty of HK$6.4 million, and our

Controlling Shareholders have agreed to indemnify us against any losses, liabilities and

expenses that we may suffer in relation to the above non-compliance except provision, reserve

or allowance has been made for such liabilities in the audited combined financial statement of

our Group for the Track Record Period. Please also refer to the paragraph headed “Other

information – Tax and other indemnities” in Appendix V to this prospectus.

CORPORATE SOCIAL RESPONSIBILITY

Our Directors are fully aware of the importance of social responsibility to the

sustainability of our Group. As a responsible cigarette packaging materials manufacturer and

supplier, we pay much attention to the health-related and environmental protection issues. It is

a fundamental part of our mission that our business activity is to be conducted in a manner

which is consistent with the national standard in relation to environmental management,

occupational health and safety management. In addition, we have also participated in the

greening activity by planting trees at our Ener Factory. With our capability to offer printed

anti-counterfeiting films, we are ready to echo with the government’s policy on promoting

“smoking is harmful” by printing such warning on the cigarette packaging materials. We have

also arranged our staff at the factories to undergo health check. Our Directors believe that, by

being a responsible enterprise and a caring employer, we would be able to retain our pool of

employees and our customers, which is crucial to the success of our Group.

BUSINESS

– 176 –

CONTROLLING SHAREHOLDERS OF OUR COMPANY

Immediately following completion of the Share Offer, Sheentai BVI and Mr. Guo will

control more than 30% of the issued share capital of our Company, irrespective of whether the

Over-allotment Option is exercised partially or fully, or at all. For the purpose of the Listing

Rules, Sheentai BVI and Mr. Guo are the Controlling Shareholders of our Company. Each of

Sheentai BVI and Mr. Guo confirms that it or he does not hold or conduct any business which

competes, or is likely to compete, either directly or indirectly, with the business of our Group.

INDEPENDENCE OF OUR GROUP

In the opinion of our Directors, our Group is capable of carrying on its businesses

independently of, and does not place undue reliance on, our Controlling Shareholders, their

respective associates or any other parties, taking into account the following factors:

(i) Financial independence

Our Group has an independent financial system and makes financial decisions according

to our own business needs. The amounts of our Group due to Mr. Guo, our Controlling

Shareholder, were HK$30.2 million, HK$28.0 million and HK$12.6 million for the three years

ended 31 December 2011 respectively. The banking facilities guaranteed by connected persons

of our Group was in aggregate HK$84.0 million, HK$58.8 million and HK$30.8 million for the

three years ended 31 December 2011 respectively. As confirmed by our Directors, the

non-trade related amounts due to or from our Controlling Shareholder, Mr. Guo, or companies

controlled by him, had been fully settled as at the Latest Practicable Date. Our Group has

procured the release of all guarantees provided to our Group by Mr. Guo and his associates

before the Listing. Our Group has sufficient capital to operate its business independently, and

has adequate internal resources and a strong credit profile to support its daily operations.

(ii) Operational independence

Our Group has established our own organisational structure comprising of individual

departments, each with specific areas of responsibilities. Our Group has not shared our

operational resources, such as suppliers, customers, marketing, sales and general

administration resources with our Controlling Shareholders and/or their associates.

(iii) Independence of management

Our Company aims at establishing and maintaining a strong and independent Board to

oversee our Group’s business. The main function of the Board includes the approval of our

overall business plans and strategies, monitoring the implementation of these policies and

strategies and the management of our Company. We have an independent management team,

which is led by a team of senior management with substantial experience and expertise in our

business, to implement our Group’s policies and strategies.

The Board consists of seven Directors, comprising four executive Directors and three

independent non-executive Directors. Each of Mr. Guo and Madam Xia (spouse of Mr. Guo)

is an executive Director. Mr. Guo Cheng (son of Mr. Guo) is also a senior management of our

Group.

RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

– 177 –

Each of our Directors is aware of his or her fiduciary duties as a director which require,

among other things, that he or she acts for the benefit and in the best interests of our Company

and does not allow any conflict between his or her duties as a Director and his or her personal

interest to exist. In the event that there is a potential conflict of interest arising out of any

transaction to be entered into between our Group and our Directors or their respective

associates, the interested Director(s) shall abstain from voting at the relevant Board meeting in

respect of such transactions and shall not be counted in the quorum.

(iv) Independence of major suppliers

Qingdao Justo Packaging Co., Ltd (青島嘉澤包裝有限公司) (“Qingdao Justo”), in which

Mr. Guo was interested in 30% equity interest therein prior to the commencement of the Track

Record Period until 23 March 2011, supplied polypropylene and other non-core raw materials

for the production of BOPP films to us. Save as disclosed above, our Directors confirm that

none of our Controlling Shareholders, our Directors and their respective associates have any

relationship with the major suppliers of our Group (other than the business contacts in the

ordinary and usual course of business of our Group) during the Track Record Period.

(v) Independence of major customers

Each of (i) Qingdao Justo, (ii) Xuzhou Dinuo Printing Co., Ltd. (徐州帝諾印刷有限公司),

in which Mr. Guo was a legal representative, and (iii) Qingdao Mingji Packaging Co., Ltd. (青島銘基包裝有限公司) (a subsidiary of a former equity holder of 30% of Qingdao Ener during

the Track Record Period until such interest in Qingdao Ener was transferred pursuant to a share

transfer agreement dated 8 August 2010), is one of the five largest customers of our Group

during the Track Record Period. Save for the above, our Directors confirm that none of our

Controlling Shareholders, our Directors and their respective associates have any relationship

with the major customers of our Group (other than the business contacts in the ordinary and

usual course of business of our Group) during the Track Record Period.

(vi) Discontinued related party transactions

During the Track Record Period, we sold our products to certain companies owned by or

related to Mr. Guo (“Related Companies”). The sales we made to such Related Companies

(during the period when they were so related) accounted for approximately 23.68%, 16.10%

and 1.28% of our total turnover for the three years ended 31 December 2011 respectively. For

a detailed discussion on our business relationships with such Related Companies, please refer

to the section headed “Business – Customers – Relationships between our Directors and our

customers” in this prospectus. As disclosed in that sub-section, we have ceased business

relationship with certain of the Related Companies after Mr. Guo’s disposal of his interests in

such Related Companies. We have also, during the Track Record Period, purchased raw

materials from Qingdao Justo. Our Directors confirmed that all such transactions with the

Related Companies (including Qingdao Justo) were conducted in the ordinary and usual course

of business of our Group, and under normal commercial terms by reference to the prevailing

market rates or at rates similar to those quoted to or from Independent Third Parties.


– 178 –

During the Track Record Period, we had engaged certain Related Companies for

arranging import of films and incurred commission payment, while such activities have been

gradually taken up by Ling Xian Fei Yu, our indirect wholly-owned subsidiary. Our Directors

confirm that the aforesaid transactions were conducted in the ordinary and usual course of

business of our Group, under normal commercial terms and that the commission fee payable

to Related Companies was at rates similar to those paid to Ling Xian Fei Yu.

As at the Latest Practicable Date, the transactions described above as transactions with

Related Companies (at the time when they were so related) have ceased. As confirmed by our

Directors, following the Listing, the import of films for our Group will be exclusively

conducted by Ling Xian Fei Yu.

In light of the above, our Directors are of the view that our Group does not unduly rely

on our Controlling Shareholders and/or their respective associates.

RULE 8.10 OF THE LISTING RULES

Our Controlling Shareholders and our Directors do not have any interest in a business

apart from our Group’s business which competes or is likely to compete, directly or indirectly,

with our Group’s business, and would require disclosure pursuant to Rule 8.10 of the Listing

Rules.

NON-COMPETITION UNDERTAKING

In order to avoid any possible future competition between our Group and each of Mr. Guo

and Sheentai BVI (the “Covenantors”), the Covenantors have executed a deed of non-

competition (the “Deed”) on 28 June 2012 in favour of our Company (for itself and for the

benefit of each other member of our Group). Pursuant to the Deed, during the period that the

Deed remains effective, each of the Covenantors irrevocably and unconditionally undertakes

with our Company (for itself and for the benefit of each other member of our Group) that he/it

shall not, and shall procure his or its associates (other than members of our Group) not to,

directly or indirectly engage, participate or hold any right or interest in or render any services

to or otherwise be involved in any business in competition with or likely to be in competition

with the existing business activity of any member of our Group.

When business opportunities which may compete with the business of our Group arise,

the respective Covenantor(s) shall, and shall procure their respective associates to, give our

Company notice in writing and we shall have a right of first refusal to take up such business

opportunities. We shall, within a period of 6 months (or such longer period if we are required

to complete any approval procedures as set out under the Listing Rules from time to time),

inform the Covenantors if we will exercise such right of first refusal. We shall only exercise

the right of first refusal upon the approval of all our independent non-executive Directors (who

do not have any interest in such proposed transactions). The relevant Covenantor(s) and the

other conflicting Directors (if any) shall abstain from participating in and voting at and shall

not be counted as quorum at all meetings of the Board where there is a conflict of interest or

potential conflict of interest including but not limited to the relevant meeting of our

independent non-executive Directors for considering whether or not to exercise the right of

first refusal.


– 179 –

The Deed shall become effective subject to the Listing Committee granting the listing of,

and permission to deal in, our Shares on the Stock Exchange, and the fulfilment (or if

applicable, waiver) of the conditions precedent to the Underwriting Agreements on or before

the date falling 30 days after the date of this prospectus and the Underwriting Agreements not

having been terminated. If any such condition is not fulfilled, the Deed shall become null and

void and no party shall have any claim against the other under the Deed.

The Deed shall terminate when (i) a Covenantor whether individually or taken together

with his or its associates, ceases to be interested in 30% (or such other amount as may from

time to time be specified in the Listing Rules as being the threshold for determining a

controlling shareholder of a company) or more of the entire issued share capital of our

Company; or (ii) our Shares shall cease to be listed and traded on the Stock Exchange (except

for temporary suspension of trading of our Shares on the Stock Exchange due to any reason).

We will adopt the following procedures to monitor that the Deed is being observed:

(i) the Board will establish a committee comprising all of our independent non-

executive Directors which will be delegated with the authority to review on an

annual basis the above undertakings from the Covenantors and to evaluate the

effective implementation of the Deed;

(ii) the Covenantors undertake to provide all information necessary for the evaluation of

the enforcement of the Deed as requested by the committee from time to time;

(iii) the Covenantors will make an annual confirmation as to compliance with his/its

undertaking under the Deed for inclusion in the annual report of our Company; and

(iv) we will disclose details and basis of decision on matters reviewed by our

independent non-executive Directors relating to the exercise or non-exercise of the

first right of refusal in the annual report or by way of announcements to the public.


– 180 –

DIRECTORS

The Board consists of seven Directors, three of whom are independent non-executive

Directors. The following table sets forth certain information relating to our Directors:

Name Age Year joined Group position

Executive Directors

Mr. Guo Yumin (郭玉民) 50 1997 Chairman and

Executive Director

Madam Xia Yu (夏煜) 41 1997 Executive Director

Mr. Huang Bo (黃波) 45 2009 Executive Director

Mr. Bau Siu Fung (鮑小豐) 44 2011 Executive Director


Ms. Fan Qing (范晴) 57 2012 Independent non-

executive Director

Mr. Lo Wa Kei, Roy (盧華基) 41 2012 Independent non-

executive Director

Mr. Fong Wo, Felix (方和) 61 2012 Independent non-

executive Director

Executive Directors

Mr. Guo Yumin (郭玉民), aged 50, is the founder and chairman of our Group. He is also

one of the Controlling Shareholders. Mr. Guo was first appointed as a director of our Company

on 24 February 2012, and was redesignated as our executive Director on 22 June 2012. Mr. Guo

is responsible for the overall management and formulation of business strategy of our Group.

Mr. Guo graduated from the distant-learning college of the School of the Central

Committee of Communist Party of China (中共中央黨校附設函授學院) in 1988, majoring in

economic management. Starting from 1998, Mr. Guo has been engaging in cigarette packaging

business. Mr. Guo brings 15 years of extensive business and management experience in

commercial business to our management team.

Not only that Mr. Guo has in-depth knowledge in the cigarette-related business, as a result

of doing business for 15 years in the cigarette packaging business, Mr. Guo has also established

a strong business tie with the senior members of some cigarette manufacturers.

In 1997, Mr. Guo became a director and a shareholder of Sheen HK. With the

establishment of Jiangsu Sheen Colour in 2002, Mr. Guo developed the business of printing of

films in the cigarette packaging industry in the PRC. In 2008, Mr. Guo established Jiangsu

Shuntai and started to engage in the printing of cigarette paper boxes.

DIRECTORS, SENIOR MANAGEMENT AND STAFF

– 181 –

In 2005, Mr. Guo established Guangdong Province Jiangsu Chamber of Commerce, which

has approximately 699 member companies as at the Latest Practicable Date, and he had been

the chairperson for six consecutive years. In August 2010, Mr. Guo established Shenzhen

Xuzhou Chamber of Commerce and has been its legal representative since then. As at the

Latest Practicable Date, Shenzhen Xuzhou Chamber of Commerce has approximately 192

member companies.

Mr. Guo is now a director of all our subsidiaries, and the legal representative of Jiangsu

Sheen Colour, Jiangsu Shuntai and Ling Xian Fei Yu.

Mr. Guo is the spouse of Madam Xia, an executive Director and is the father of Mr. Guo

Cheng, a senior management staff.

Madam Xia Yu (夏煜), aged 41, studied financial accounting (distant-learning) in

Jiangsu Commerce College (江蘇商業專科學校) (which was combined with other colleges to

form Yangzhou University) and graduated in June 1992. Since her graduation, Madam Xia held

the position of financial manager in several cigarette-related companies.

Madam Xia had 15 years of experience in the cigarette-related business, as well as

business management and financial management in cigarette packaging business.

Madam Xia joined our Group as a director of Sheen HK in 1997 and became the

chairperson of the board of directors of Qingdao Ener in 2007. She was appointed as our

executive Director on 22 June 2012, and is now a director of Sheen HK, Jiangsu Shuntai,

Jiangsu Sheen Colour and Qingdao Ener and the legal representative of Qingdao Ener. She is

now responsible for general management of our Group.

Madam Xia is the spouse of Mr. Guo and the step-mother of Mr. Guo Cheng, a senior

management staff.

Mr. Huang Bo (黃波), aged 45, completed a post-secondary part-time course in economic

management at Party School of Chinese Communist Party of Shandong Province (中共山東省委黨校), and graduated in 1996. As confirmed by Mr. Huang, from 2000 to 2003, Mr. Huang

was employed to work at the Qingdao municipal government in economic and auditing fields.

From 2004 to November 2009, Mr. Huang started working in a packaging company, and

became the chief accounting officer in 2007. In 2009, Mr. Huang was certified as an

accreditation grade senior (國際註冊高級會計師) by International Profession Certification

Association (國際認證協會). Joined us in November 2009, Mr. Huang was responsible for the

business management of Ling Xian Fei Yu. In October 2010, Mr. Huang was employed by

Qingdao Ener as the general manager and later became a director of Qingdao Ener. Mr. Huang

has more than 7 years of experience in financial management in cigarette packaging trading

field.

Mr. Huang was appointed as our executive Director on 22 June 2012, and is now a

director of Qingdao Ener. He is responsible for the overall operation of our Group.


– 182 –

Mr. Bau Siu Fung (鮑小豐), aged 44, graduated from Idaho State University with a

Bachelor of Business Administration in Accountancy and Finance in 1997. Mr. Bau has more

than 10 years of experience in the accounting and auditing field. From 2000 to 2011, Mr. Bau

worked as an auditor in Stanley So & Co., Lam, Kwok, Kwan & Cheng C.P.A. Limited, and

Anthony Chan & CO., each of which is a Hong Kong accounting firm, and in KPMG, an

international accounting firm. Mr. Bau is currently a member of the Hong Kong Institute of

Certified Public Accountants. Upon joining us, Mr. Bau became the chief financial officer of

our Group and he is also the company secretary of our Company.

Mr. Bau was appointed as our executive Director on 22 June 2012, and is responsible for

financial management and compliance of our Group.


Ms. Fan Qing (范晴), aged 57, was appointed as our independent non-executive Director

on 22 June 2012. Ms. Fan received a master’s degree in business administration from the

Graduate School of Renmin University of China (中國人民大學研究生院) in 2000. Ms. Fan has

extensive experience in business management and in-depth knowledge in the financial

investment in both the PRC and Hong Kong. She obtained a certificate issued by the Shenzhen

stock exchange after completing a training course for the senior management member of a

listed company in the PRC. She had been serving as the vice-president of Shenzhen Capital

Group Co. Ltd. (深圳市創新投資集團有限公司) for eight years. Ms. Fan is currently the

chairman of the board of directors of an investment management company in Shenzhen.

As at the Latest Practicable Date, Ms. Fan held the directorship in the following listed

company:

Name

Stock

code Position Tenure Location

Shenzhen Terca Technology

Co., Ltd. (深圳特爾佳科技股份有限公司)

SZ002213 Independent

director

From 25 January

2011 and up to the

Latest Practicable

Date

Shenzhen

Mr. Lo Wa Kei, Roy (盧華基), aged 41, was appointed as our independent non-executive

Director on 22 June 2012. Mr. Lo has extensive experience in auditing, accounting and finance.

Mr. Lo is a practising accountant in Hong Kong, and has become the deputy managing partner

of Shinewing (HK) CPA Limited since 2008.

Mr. Lo received a bachelor’s degree in business administration from the University of

Hong Kong in 1993 and a master’s degree in professional accounting from the Hong Kong

Polytechnic University in 2000. He is a certified public accountant, a fellow member of the

Hong Kong Institute of Certified Public Accountants, and CPA Australia and a member of the

Institute of Chartered Accountants in England and Wales.


– 183 –

As at the Latest Practicable Date (except otherwise stated below), Mr. Lo held the

directorship in the following listed companies:

Name

Stock


Sun Hing Vision Group

Holdings Limited (新興光學集團控股有限公司)

125 Independent non-

executive

director

Before the Track

Record Period and

up to the Latest

Practicable Date

Hong Kong

North Mining Shares

Company Limited (北方礦業股份有限公司)


executive

director

Before the Track

Record Period and

up to the Latest

Practicable Date

Hong Kong

China Zhongwang Holdings

Limited (中國忠旺控股有限公司)


executive

director

From 11 February

2009 and up to the

Latest Practicable

Date

Hong Kong

Goldpoly New Energy

Holdings Limited (金保利新能源有限公司)

(previously known as

“Time Infrastructure

Holdings Limited”)


executive

director

From 21 May 2004

to 26 November

2010

Hong Kong

Mr. Fong Wo, Felix (方和), BBS, JP, aged 61, was appointed as our independent

non-executive Director on 22 June 2012. Mr. Fong was admitted as a barrister and solicitor in

Ontario, Canada in 1980, a solicitor in England and Wales in 1986 and in Hong Kong in 1987.

Mr. Fong received his engineering degree in Canada in 1974 and his Juris Doctor degree from

Osgoode Hall Law School in Toronto in 1978. He has practiced law for over 30 years and is

a member of the law societies of Hong Kong, Upper Canada and England. Mr. Fong is

appointed by the Ministry of Justice of China as one of the China-appointed Attesting Officers

in Hong Kong.

Mr. Fong is the Chairman of the Hong Kong Advisory Council on Food and

Environmental Hygiene, a member of the Hong Kong Film Development Council and a

member of the Hong Kong Town Planning Board.


– 184 –

Mr. Fong was a director of a private company, Winful Asia Limited (“Winful”), which

was incorporated in Hong Kong and was dissolved by striking off pursuant to section 291 of

the Companies Ordinance on 17 February 2006 for not filing annual return to the Companies

Registry within the prescribed time. According to Mr. Fong, the said company was solvent and

dormant at the time of it being struck off and the dissolution of the said company have not

resulted in any liability or obligation imposed against him.

As at the Latest Practicable Date, Mr. Fong held the directorship in the following listed

companies:

Company

Stock


Kingway Brewery Holdings

Limited (金威啤酒集團有限公司)


executive

director

Before the Track

Record Period and

up to the Latest

Practicable Date

Hong Kong

SPG (Holdings) Limited (盛高置地(控股)有限公司)


executive

director

Before the Track

Record Period and

up to the Latest

Practicable Date

Hong Kong

China Investment

Development Limited (中國投資開發有限公司)


executive

director

From 6 April 2011

and up to the

Latest Practicable

Date

Hong Kong

China Oilfield Services

Limited

(中海油田服務股份有限公司)


executive

director

From 28 May 2010

and up to the

Latest Practicable

Date

Hong Kong

Evergreen International

Holdings Limited (長興國際(集團)控股有限公司)


executive

director

From 8 October

2010 and up to the

Latest Practicable

Date

Hong Kong


– 185 –

SENIOR MANAGEMENT

Name Age

Year of

joining our

Group Group position

He Lijun (何立君) 43 2010 Vice president of our

Group and general

manager of Jiangsu

Shuntai

Guo Cheng (郭誠) 26 2010 Vice president of our

Group

Dong Zhenghua (董政華) 57 2008 In-house legal adviser of

our Group

Li Jing (李晶) 31 2002 Director of Jiangsu Shuntai

and Jiangsu Sheen

Colour

Yu Xiaofeng (俞曉峰) 48 2002 Director and technical

adviser of Jiangsu

Shuntai and Jiangsu

Sheen Colour

Tong Xiaomeng (童曉萌) 35 2008 Director of Jiangsu Shuntai

and Jiangsu Sheen

Colour

Jiang Chang (江暢) 40 2010 Executive vice-general

manager of Qingdao Ener

Ma Jin (馬晉) 44 2011 Vice-sales manager of

Qingdao Ener

Zhu Hengjin (朱恒錦) 26 2011 Human resource manager

of our Group

Mr. He Lijun (何立君), aged 43, studied in the department of industrial management and

engineering of the School of Management of Shanghai Jiao Tong University (上海交通大學)

and graduated in 1989. He holds a bachelor degree of engineering. Before joining our Group

in 2010 as the vice general manager of Jiangsu Shuntai, Mr. He was the vice general manager

of a company which also engaged in, amongst others, cigarette-related packaging, and was

responsible for business administration, human resources management and corporate

governance. Mr. He is familiar with the trade practice of the cigarette-related industry in the

PRC and has extensive personal network. Mr. He has been appointed as the general manager

of Jiangsu Shuntai since 2010. In June 2012, he was appointed as the vice president of our

Group.


– 186 –

Mr. Guo Cheng (郭誠), aged 26, studied in courses of international trade in RMIT

University. Since 2008, he worked as an investment assistant in an investment company in

Shenzhen. In 2010, he became the assistant to the general manager of Jiangsu Shuntai for

managing the operation of Jiangsu Shuntai. Starting from August 2010, he worked as an

executive assistant of Sheen HK, and is responsible for general management. In June 2012, he

was appointed as the vice president of our Group.

Mr. Guo Cheng is the son of Mr. Guo and the step-son of Madam Xia, an executive

Director.

Mr. Dong Zhenghua (董政華), aged 57, graduated from a self-taught course in Chinese

literature from Nanjing Normal University (南京師範大學) in 1986, and obtained the

qualification certification as an economist (經濟師) in 1993. Mr. Dong passed the uniform

examination organised by the Chinese government authorities and obtained the qualifications

for enterprise legal adviser (企業法律顧問) in 2003. Mr. Dong possesses extensive experience

in advising and handling corporate-related legal matters. Before joining us, Mr. Dong

graduated from a 2-year course in laws jointly organised by the China University of Political

Science and Law (中國政法大學) and the Open University of China (中央廣播電視大學) and

obtained the qualification of intermediate professional manager as approved by the Jiangsu

Province Enterprise Professional Manager Training & Certification Committee (江蘇省企業職業經理人任職資格培訓與認證委員會). Mr. Dong joined us as the supervisor of Jiangsu Shuntai

in December 2008 and became the supervisor of Jiangsu Sheen Colour in 2009.

Mr. Dong is responsible for advising on legal matters of our Group.

Ms. Li Jing (李晶), aged 31, passed the higher education self-taught examination for

economic management of the China University of Mining and Technology (中國礦業大學) in

2005. In 2009, Ms. Li graduated from the distant-learning college of the School of the Central

Committee of Communist Party of China (中共中央黨校附設函授學院), majoring in economic

management. Ms. Li joined our Group in 2002 as the treasurer of Jiangsu Sheen Colour and

she later on was promoted as the financial supervisor. She also participated in the establishment

of Jiangsu Shuntai in 2008 and has been the vice-general manager since then. In November

2008, Ms. Li was appointed as the director of Jiangsu Shuntai. She has more than 10 years of

experience in financial management. In 2007, she became a director of Jiangsu Sheen Colour.

Ms. Li is the financial manager and vice-general manager of Jiangsu Sheen Colour.

Mr. Yu Xiaofeng (俞曉峰), aged 48, graduated from Zhejiang Institute of Engineering (浙江工學院) (which is currently known as Zhejiang University of Technology) with a bachelor

degree of science in 1983. From 1983 to 2002, Mr. Yu worked as the vice general manager in

a printing company and as an engineer, department head, vice factory director and was

subsequently appointed as the vice-general manager of a packaging company. He was mainly

responsible for production technology during his employment with these two companies. Mr.

Yu joined us in 2002 and became the chief technology officer and vice-general manager of

Jiangsu Sheen Colour. In November 2008, Mr. Yu was appointed as the director of Jiangsu


– 187 –

Shuntai. In 2009, Mr. Yu became the chief technology officer and vice-general manager of

Jiangsu Shuntai. Mr. Yu was appointed as the director of Jiangsu Sheen Colour in January 2009.

Mr. Yu has extensive experience in the technology aspect, production and facility management

of the printing related business. Mr. Yu was familiar with the technology in connection with the

printing of cigarette films and paper boxes.

Mr. Yu is the chief technology officer of Jiangsu Shuntai.

Ms. Tong Xiaomeng (童曉萌), aged 35, graduated from Jilin Railway Economic School

(吉林鐵路經濟學校) in 1996, majoring in financial accounting in transportation field. Ms. Tong

possesses 12 years of experience in accounting and financial management. In 2002, Ms. Tong

passed the intermediate level of national examination of department of finance in the PRC and

was issued a certificate to certify her qualification level in accountancy. Ms. Tong worked in

various companies as accounting manager, financial manager and financial supervisor before

she joined our Group in 2008. She participated in the establishment of Jiangsu Shuntai and has

been the financial manager of Jiangsu Shuntai since then. In November 2008, Ms. Tong was

promoted as a director of Jiangsu Shuntai. In January 2009, she became a director and the

vice-general manager of Jiangsu Sheen Colour.

Ms. Tong is responsible for the financial management of Jiangsu Shuntai.

Mr. Jiang Chang (江暢), aged 40, studied applied chemistry (distant-learning) and

graduated from Hubei University in 2000. During 2000 to 2010, Mr. Jiang was the vice-general

manager of the production department and the manager of the BOPP project in two packaging

companies respectively. Mr. Jiang had engaged in the packaging materials business for more

than 10 years and had in-depth experience in the production facilities and the production

management in relation to the manufacturing of BOPP films, in particular, films for cigarette

packaging.

Mr. Jiang joined us as the executive vice-general manager of Qingdao Ener in 2010, and

is responsible for operation of production process.

Mr. Ma Jin (馬晉), aged 44, received a master’s degree of EMBA (executive master of

business administration) from the Peking University (北京大學) in 2009. Before joining our

Group in 2011 as the vice-general manager of the sales department of Qingdao Ener, Mr. Ma

worked in several companies, in particular, the general manager in a machine manufacturer

company and the vice general manager in a packaging company which also engaged in

packaging (including cigarette-related packaging) business. Mr. Ma has over 10 years of

experience in corporate management.


– 188 –

Mr. Zhu Hengjin (朱恒錦), formerly known as Zhu Xi (朱璽), aged 26, obtained a

certificate of diploma of hairdressing salon management from Headmasters Advanced

Academy in 2008. Before joining our Group, Mr. Zhu worked in several companies and

organisations and was responsible for the sales and marketing activities. In 2011, Mr. Zhu

joined us as the office manager of Ling Xian Fei Yu and human resources manager of our

Group.

Mr. Zhu is responsible for human resource management of our Group.

COMPANY SECRETARY

Mr. Bau Siu Fung, an executive Director, is also the company secretary of our Company.

Please refer to the paragraph headed “Executive Directors” in this section above for his profile.

DIRECTORS’ AND SENIOR MANAGEMENT’S REMUNERATION

The aggregate amount of compensation (including fees, salaries, contributions to pension

schemes, housing and other allowances, benefits in kind and discretionary bonuses) which

were paid to our Directors for the Track Record Period was about HK$395,000, HK$599,000

and HK$894,000 respectively.

The aggregate amount of salaries and other benefits, bonus and retirement benefits

scheme contribution in kind paid to the five highest paid individuals (excluding the

emoluments included as compensations to our Directors) for the Track Record Period was

about HK$1,021,000, HK$1,037,000 and HK$1,004,000, respectively.

Our Directors and senior management receive compensation in the form of fees, salaries,

allowances, benefits in kind and/or discretionary bonuses relating to our performance. We have

also established the Pre-IPO Share Option Scheme and the Share Option Scheme to incentivise

the senior management and employees. We also reimburse our Directors and senior

management for expenses which are necessarily and reasonably incurred for providing services

to us or discharging their duties in relation to our Group’s operations. When reviewing and

determining the specific remuneration packages for our executive Directors and senior

management, we take into consideration factors such as their individual performance,

qualification, experience and seniority, salaries paid by comparable companies, time

commitment and responsibilities of our Directors, employment elsewhere in our Group and

desirability of performance-based remuneration.

During the Track Record Period, no remuneration was paid by us to, or receivable by, our

Directors as an inducement to join or upon joining us. No compensation was paid by us to, or

receivable by, our Directors or past Directors for each of the three years ended 31 December

2011 for the loss of any office in connection with the management of the affairs of any of our

members.


– 189 –

Except as disclosed above, no other payments have been made or are payable, in respect

of the Track Record Period, by us or any of our subsidiaries to or on behalf of any of our

Directors. We estimate the aggregate remuneration, excluding discretionary bonuses, of our

Directors payable for the year ending 31 December 2012 will be about HK$2,300,000.

STAFF

As at the Latest Practicable Date, we had a total of over 388 full-time employees (other

than our Directors and senior management staff). The following table shows a breakdown of

the employees (other than our Directors and senior management staff) by their functions:

Department Number of employees

Administration and human resources 38

Accounting 17

Quality control 39

Production 236

Sales and marketing 20

Procurement 25

Research and development 13

TOTAL 388

RELATIONSHIP WITH STAFF

We recognise the importance of having a good working relationship with our employees.

The remuneration payable to our employees includes salaries and allowances.

We have not experienced any significant problems with its employees or disruption to our

operations due to labour disputes, nor any difficulties in the recruitment and retention of

experienced staff. Our Directors believe that our Group has a good working relationship with

our employees as a whole.

STAFF REMUNERATION

We determine our staff’s remuneration based on factors such as qualifications and work

experience. Our staff costs (including our Directors’ and senior management’s emoluments)

during the Track Record Period was about HK$11,622,000, HK$28,008,000 and

HK$36,614,000 respectively.


– 190 –

CORPORATE GOVERNANCE

Our Directors recognise the importance of good corporate governance in management and

internal procedures so as to achieve effective accountability. We will comply with the

Corporate Governance Code (“Corporate Governance Code”) set out in Appendix 14 to the

Listing Rules and the associated Listing Rules.

Pursuant to code provision A.2.1 of the Corporate Governance Code, the responsibilities

between the chairman and chief executive officer should be segregated and should not be

performed by the same individual. However, our Company only has Mr. Guo as the Chairman

of our Board but does not have a separate position of a chief executive officer. Our Board

believes that only having the position of the Chairman of our Board has the benefit of ensuring

consistent leadership within our Group and enables more effective and efficient overall

strategic planning for our Group. Our Board considers that the balance of power and authority

for the present arrangement will not be impaired and this structure will enable our Company

to make and implement decisions promptly and efficiently.

BOARD COMMITTEES

Audit committee

We have established an audit committee pursuant to a resolution of our Directors passed

on 22 June 2012 with written terms of reference in compliance with Rule 3.21 of the Listing

Rules and paragraph C3 of the Code on Corporate Governance Practices, as set out in Appendix

14 to the Listing Rules. The audit committee consists of 3 independent non-executive

Directors, namely Mr. Lo Wa Kei, Roy (as Chairman), Ms. Fan Qing and Mr. Fong Wo, Felix.

The primary duties of our audit committee are to assist the Board in providing an independent

view of the effectiveness of the financial reporting system, internal control procedures and risk

management system, to oversee the audit process and to perform other duties and

responsibilities as assigned by the Board.

Remuneration committee

We have established a remuneration committee pursuant to a resolution of our Directors

passed on 22 June 2012 with written terms of reference in compliance with Rule 3.25 of the

Listing Rules and paragraph B1 of the Code on Corporate Governance Practices, as set out in

Appendix 14 to the Listing Rules. The remuneration committee consists of 2 independent

non-executive Directors, namely Ms. Fan Qing (as Chairman) and Mr. Lo Wa Kei, Roy, and 1

executive Director, Mr. Guo. The primary duties of the remuneration committee are to make

recommendations to the Board on the policy and structure for all Directors and senior

management remuneration and on the establishment of a formal and transparent procedure for

developing remuneration policy, to review and approve the management remuneration

proposals with reference to the Board’s corporate goals and objectives, to determine, with

delegated responsibility, remuneration packages of all executive Directors and senior

management members and make recommendations on the remuneration of our non-executive

Director, and to review and approve compensation arrangements relating to dismissal or

removal of Directors for misconduct to ensure they are consistent with relevant contractual

terms and are otherwise reasonable and appropriate.


– 191 –

Nomination committee

We have established a nomination committee pursuant to a resolution of our Directors

passed on 22 June 2012 with written terms of reference in compliance with paragraph A5 of

the Code on Corporate Governance Practices, as set out in Appendix 14 to the Listing Rules.

Our nomination committee consists of 2 independent non-executive Directors, namely Ms. Fan

Qing and Mr. Lo Wa Kei, Roy, and 1 executive Director, Mr. Guo (as Chairman). The primary

function of our nomination committee is to review the structure, size and composition

(including the skills, knowledge and experience) of the Board at least annually and make

recommendations on any proposed changes to the Board to complement our Company’s

corporate strategy, to identify individuals suitably qualified to become board members and

select or make recommendations to the Board on the selection of individuals nominated for

directorships, to assess the independence of independent non-executive Directors, and to make

recommendations to the Board on the appointment or re-appointment of Directors and

succession planning for Directors.

COMPLIANCE ADVISER

Our Company has appointed Haitong International Capital Limited as the compliance

adviser pursuant to Rule 3A.19 of the Listing Rules.

The material terms of the compliance adviser’s agreement entered into between our

Company and the compliance adviser are as follows:

1. the compliance adviser’s appointment shall be for a period commencing on the date

on which our Shares are listed on the Stock Exchange and ending on the date on

which our Company complies with Rule 13.46 of the Listing Rules in respect of our

financial results;

2. the compliance adviser shall provide our Company with services including guidance

and advice as to compliance with the requirement of the Listing Rules and other

applicable laws, rules, codes and guidelines, and accompany our Company to any

meetings with the Stock Exchange; and

3. during the period of appointment, our Company must consult with, and if necessary,

seek advice from the compliance adviser on a timely basis in the following

circumstances:

(i) before the publication of any regulatory announcement, circular or financial

report;

(ii) where a transaction, which might be a notifiable or connected transaction, is

contemplated, including share issues and share repurchases;

(iii) where we propose to use the proceeds of the Share Offer in a manner different

from that detailed in this prospectus or where the business activities,

developments or results materially deviate from any forecast, estimate, or other

information in this prospectus; and

(iv) where the Stock Exchange makes an inquiry of our Company regarding

unusual movements in the price or trading volume of our Shares.


– 192 –

So far as our Directors are aware, the following persons will, immediately following

completion of the Share Offer (without taking into account any Shares which may be issued

pursuant to the exercise of the Over-allotment Option, the Pre-IPO Share Options and any

options which may be granted under the Share Option Scheme or the arrangements under the

Stock Borrowing Agreement), have interests or short positions in our Shares or underlying

Shares which would fall to be disclosed to us and the Stock Exchange under the provisions 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 nominal value of any class of share capital carrying rights to vote in all

circumstances at general meetings of any other member of our Group:

Our Company

Name Capacity/Nature of interest

Number of

Shares held/

interested

Percentage of

shareholding

Sheentai BVI Beneficial owner 300,000,000 75%

Mr. Guo Interest of a controlled

corporation(Note 1)

300,000,000 75%

Beneficial owner(Note 2) 500,000 0.125%

Interest of spouse(Notes 3 and 4) 500,000 0.125%

Madam Xia Interest of spouse(Note 5) 300,500,000 75.125%


Notes:

1. Mr. Guo beneficially owns the entire issued share capital of Sheentai BVI. Therefore, Mr. Guo is deemed,

or taken to be, interested in all 300,000,000 Shares held by Sheentai BVI for the purpose of the SFO.

Mr. Guo is the sole director of Sheentai BVI.

2. This represents the number of Shares which may be allotted and issued to Mr. Guo upon exercise of the

Pre-IPO Share Options granted to him.

3. This represents the number of Shares which may be allotted and issued to Madam Xia upon exercise of

the Pre-IPO Share Options granted to her.

4. Mr. Guo is the spouse of Madam Xia. Accordingly, Mr. Guo is deemed, or taken to be, interested in all

Shares in which Madam Xia is interested for the purpose of the SFO.

5. Madam Xia is the spouse of Mr. Guo. Accordingly, Madam Xia is deemed, or taken to be, interested in

all Shares and underlying Shares in which Mr. Guo is interested in for the purpose of the SFO.

SUBSTANTIAL SHAREHOLDERS

– 193 –

Other members of our Group

Name of

subsidiary Name of shareholder

Capacity/Nature

of interest

Percentage of

shareholding

Jiangsu Shuntai Huai An Tian Cai(Note) Beneficial owner 49%

Jiangsu Shuntai Hu Yanhong (胡豔紅)(Note) Interest of a

controlled

corporation

49%

Note: Huai An Tian Cai was wholly owned by Ms. Hu Yanhong.

Save as disclosed above, our Directors are not aware of any other persons who will,

immediately following completion of the Share Offer (without taking into account any Shares

which may be issued pursuant to the exercise of the Over-allotment Option, the Pre-IPO Share

Options and any options which may be granted under the Share Option Scheme or the

arrangements under the Stock Borrowing Agreement), have interests or short positions in our

Shares or underlying Shares which would fall to be disclosed to us and the Stock Exchange

under the provisions 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 nominal value of any class of share capital carrying

rights to vote in all circumstances at general meetings of our Company or any of our

subsidiaries.

SUBSTANTIAL SHAREHOLDERS

– 194 –

SHARE CAPITAL

Assuming the Over-allotment Option is not exercised, and without taking into account

any Shares which may be issued pursuant to the exercise of the Pre-IPO Share Options and any

options which may be granted under the Share Option Scheme, the share capital of our

Company immediately following the Share Offer will be as follows:

Authorised share capital HK$

2,000,000,000 Shares 20,000,000

Issued and to be issued, fully paid or credited as fully paid upon

completion of the Share Offer:

HK$

300,000,000 Shares in issue at the date of this prospectus 3,000,000

100,000,000 Shares to be issued pursuant to the Share Offer 1,000,000

400,000,000 Total 4,000,000

Assuming the Over-allotment Option is exercised in full, and without taking into account

any Shares which may be issued pursuant to the exercise of the Pre-IPO Share Options and any

options which may be granted under the Share Option Scheme, the share capital of our

Company immediately following the Share Offer will be as follows:

Authorised share capital HK$

2,000,000,000 Shares 20,000,000

Issued and to be issued, fully paid or credited as fully paid upon

completion of the Share Offer:

HK$

300,000,000 Shares in issue at the date of this prospectus 3,000,000

100,000,000 Shares to be issued pursuant to the Share Offer 1,000,000

15,000,000 Shares to be issued pursuant to the Over-allotment

Option

150,000

415,000,000 Total 4,150,000

SHARE CAPITAL

– 195 –

RANKING

The Offer Shares will rank pari passu in all respects with all our Shares now in issue or

to be issued as mentioned in this prospectus, and, in particular, will qualify in full for all

dividends or other distributions declared, made or paid on our Shares in respect of a record date

which falls after the date of Listing.

GENERAL MANDATE TO ISSUE SHARES

Conditional on the conditions as stated in the section headed “Structure and conditions of

the Share Offer – Conditions of the Share Offer” in this prospectus, our Directors have been

granted a general unconditional mandate to allot, issue and deal with Shares and to make or

grant offers, agreements or options which might require such Shares to be allotted and issued

or dealt with subject to the requirement that the aggregate nominal value of our Shares so

allotted and issued or agreed conditionally or unconditionally to be allotted and issued

(otherwise than pursuant to a rights issue, or scrip dividend scheme or similar arrangements,

or a specific authority granted by our Shareholders) shall not exceed:

(a) 20% of the aggregate nominal value of the share capital of our Company in issue

immediately following the completion of the Share Offer; and

(b) the aggregate nominal value of the share capital of our Company repurchased

pursuant to the authority granted to our Directors referred to in the sub-section

headed “General mandate to repurchase shares” in this section below.

This mandate does not cover Shares to be allotted, issued, or dealt with under a rights

issue or pursuant to the exercise of the Over-allotment Option, the Pre-IPO Share Options or

any option which may be granted under the Share Option Scheme. This general mandate to

issue Shares will remain in effect until the earliest of:

(a) the conclusion of the next annual general meeting of our Company;

(b) the expiration of the period within which the next annual general meeting of our

Company is required by the Memorandum and the Articles or the Companies Law

or any other applicable laws of the Cayman Islands to be held; or

(c) the time when such mandate is revoked or varied by an ordinary resolution of our

Shareholders in general meeting.

For further details of this general mandate, please refer to the paragraph headed “Further

information about our Company – Written resolutions of our sole Shareholder passed on 22

June 2012” in Appendix V to this prospectus.

SHARE CAPITAL

– 196 –

GENERAL MANDATE TO REPURCHASE SHARES

Conditional on the conditions as stated in the section headed “Structure and Conditions

of the Share Offer – Conditions of the Share Offer” in this prospectus, our Directors have been

granted a general unconditional mandate to exercise all powers to repurchase Shares (Shares

which may be listed on the Stock Exchange or on any other stock exchange which is recognised

by the SFC and the Stock Exchange for this purpose) with an aggregate nominal value of not

more than 10% of the aggregate nominal value of our Company’s share capital in issue

immediately following the completion of the Share Offer (excluding Shares which may be

issued pursuant to the exercise of the Over-allotment Option, the Pre-IPO Share Options and

any option which may be granted under the Share Option Scheme).

This mandate only relates to repurchases made on the Stock Exchange, or on any other

stock exchange on which our Shares may be listed (and which is recognised by the SFC and

the Stock Exchange for this purpose), and made in connection with all applicable laws and

regulations and the requirements of the Listing Rules. A summary of the relevant Listing Rules

is set out in the paragraph headed “Further information about our Company – Repurchase of

our Shares by our Company” in Appendix V to this prospectus.

The general mandate to repurchase Shares will remain in effect until the earliest of:

(a) the conclusion of the next annual general meeting of our Company; or

(b) the expiration of the period within which the next annual general meeting is required

by the Memorandum and the Articles or the Companies Law or any other applicable

laws of the Cayman Islands to be held; or

(c) the time when such mandate is revoked or varied by an ordinary resolution of our

Shareholders in general meeting.

For further details of this general mandate, please refer to the paragraphs headed “Further

information about our Company – Written resolutions of our sole Shareholder passed on 22

June 2012” and headed “Further information about our Company – Repurchase of our Shares

by our Company” in Appendix V to this prospectus.

SHARE OPTION SCHEMES

Our Company adopted the Pre-IPO Share Option Scheme on 22 June 2012. As at the

Latest Practicable Date, Pre-IPO Share Options to subscribe for an aggregate of 10,000,000

Shares had been granted by our Company to 66 grantees. Our Company has also conditionally

adopted the Share Option Scheme. Details of the principal terms of the Pre-IPO Share Option

Scheme and the Share Option Scheme are summarised in the paragraph headed “Share Option

Schemes” in Appendix V to this prospectus.

Save as the Pre-IPO Share Options, our Group did not have any outstanding share options,

warrants, convertible instruments, or similar rights convertible into our Shares as at the Latest

Practicable Date.

SHARE CAPITAL

– 197 –

The following discussion and analysis of our financial condition and results of

operations are based on and should be read in conjunction with our financial information

for each of the three years ended 31 December 2011, including the notes thereto, as set

out in the Accountants’ Report in Appendix I to this prospectus. Our financial information

has been prepared in accordance with HKFRSs.

The following discussion and analysis contains forward-looking statements that

involve risks and uncertainties. These statements are based on assumptions and analysis

made by us in light of our experience and perception of historical trends, current

conditions and expected future developments, as well as other factors we believe are

appropriate under the circumstances. However, our actual results may differ significantly

from those projected in the forward-looking statements. Factors that might cause future

results to differ significantly from those projected in the forward-looking statements

include, but are not limited to, those discussed and elsewhere in this prospectus,

particularly in sections headed “Risk factors,” and “Forward looking statements.”

OVERVIEW





of 18.8% in terms of sales value.



non-cigarette related packaging materials. As at the Latest Practicable Date, we had three



customer during the Track Record Period, has been our customer for over eight years. We


second half of 2011 and 2012 respectively. We supply packaging materials to these customers

for their branded products, some of which are under the “20+10” Key Brands.

Packaging materials that we supply to our customers can be broadly classified into three

categories, namely, (i) cigarette-related packaging materials (comprising cigarette paper boxes,

anti-counterfeiting films, and other cigarette films); (ii) imported films; and (iii) non-cigarette-

related packaging materials (being films for packaging non-cigarette-related products). During

the Track Record Period, our sales are predominately made to the PRC market.




equity shareholders of the company were approximately HK$38.1 million, HK$60.7 million

FINANCIAL INFORMATION

– 198 –


period. By leveraging on our strengths and effectively implementing our business strategies,

our Directors believe that we can continue to effectively expand our business both in terms of

turnover and profitability.

BASIS OF PRESENTATION OF FINANCIAL INFORMATION


exempted company with limited liability on 24 February 2012. In anticipation of the Listing,

we underwent the Reorganisation, pursuant to which our Company became the holding

company of the companies now comprising our Group. Our Group comprising our Company

and our subsidiaries resulting from the Reorganisation is regarded as a continuing entity

because the companies that took part in the Reorganisation and now comprising our Group

were controlled by Mr. Guo before and after the Reorganisation. The control is not transitory

and, consequently, there is a continuation of risks and benefits to the Controlling Shareholders.

Therefore, the Reorganisation is considered a business combination of entities under common

control and merger accounting has been applied in the accounting of the Reorganisation. The

combined statement of comprehensive income, combined statement of changes in equity and

combined statement of cash flows for the three years ended 31 December 2011, include the

results and cash flows of the companies comprising our Group as if the current group structure

had been in existence throughout the Track Record Period or since their respective dates of

incorporation or establishment, where the companies were incorporated or established on a

date later than 1 January 2009, and in accordance with the respective equity interests in the

individual companies attributable to our existing Shareholders throughout the Track Record

Period. Our combined statement of financial position as at 31 December 2009, 2010 and 2011

have been prepared in accordance with the accounting policies in compliance with HKFRS.

FACTORS AFFECTING OUR FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

Our financial condition and results of operations have been and will continue to be

affected by a number of factors, including those discussed below, some of which are beyond

our control.

Cigarette consumption in the PRC

Since the PRC is the market in which we operate, the cigarette consumption in the PRC

directly affects the demand of cigarette packaging materials. According to the Euromonitor

Report, the cigarette market in the PRC maintained its high growth rate over the past few years

and reached RMB1,037.6 billion in retail sales value by the end of 2011, realising a growth of

approximately 12.5% over 2010. Euromonitor International also expects that by 2016, the

cigarette market in the PRC is expected to achieve RMB2,058.5 billion, attaining a CAGR of

approximately 15.4% over the period from 2012 to 2016, even higher than that of the period

from 2007 to 2011, when the CAGR was approximately 12.3%. Our Directors consider that our

Group’s business and operating result were not subject to material adverse effect after the

release of the Public Places Hygiene Management Regulation Enforcement Rules effective

from 1 May 2011 up to the Latest Practicable Date.


– 199 –

The market consolidation driven by the government policies

We believe that the success of our business depends on, among other factors, our ability

to retain existing and secure new customers which can benefit from the market consolidation

driven by the government policies.

In 2004, the STMA issued a list of 100 brands of cigarette products aiming for a reduction

of the number of cigarette brands within two to three years. In 2006, the STMA announced

“Development Outline of China Cigarette Brand” (中國捲煙品牌發展綱要), specifying the

plan to focus on cultivating 10 key brands and 10 key enterprises during the “The 10th

Five-Year Plan”. In 2008, the STMA proposed a “20+10” plan to identify a total of 30 key

brands across the national market. In 2009, the STMA issued “Proposal on Accelerating

Cultivation of National Key Brands” (關於加快培育全國性重點骨幹品牌的指導意見) to speed

up the brand development strategy, realising the shift from simply scale-output to efficient

scale-effect.

As a result of the government policies, the number of cigarette brands decreased from

1,181 in early 2000 to only 117 by the end of 2011.

Taking into account the fact that our Group has established over eight years of business

relationship with China Tobacco Jiangsu and is currently supplying cigarette packaging

materials for at least three brands under the “20+10” Key Brands as identified by STMA, our

Group is expected to enjoy larger market share as a result of the expected increase in market

shares of the brands which our Group is one of their suppliers.

If we fail to retain existing and secure new customers which can benefit from the market

consolidation driven by the government policies, we may lose our current market share and our

turnover may decrease, which may have a negative impact on our business, financial condition

and results of operations.

Competition

Currently, we compete primarily with other cigarette packaging materials companies

located in the PRC. According to the Euromonitor Report, there are about 10 companies

engaged primarily in the supply of cigarette packaging materials to China Tobacco Jiangsu, our

largest customer during the Track Record Period. Before a company can commence to supply

a particular type of cigarette-related packaging materials to China Tobacco Jiangsu, it is

required to be admitted as an approved supplier after which it is required to go through and

being selected by an independent bidding company in the tendering process. As such, we face

competition from other approved suppliers of China Tobacco Jiangsu.

Product mix and offering

Our products can be broadly categorised into three categories, namely (i) cigarette-related

packaging materials; (ii) imported films; and (iii) non-cigarette-related packaging materials.

During the Track Record Period, the turnover from the cigarette-related packaging materials


– 200 –

accounted for approximately 79.0%, 66.2% and 68.9% of our turnover, respectively. While the

gross profit margin of our cigarette-related packaging materials was approximately 44.5%,

46.8% and 45.3% for each of the three years ended 31 December 2011, the gross profit margin

of our imported films was approximately 2.1%, 27.4% and 28.8% respectively and the gross

profit margin of our non-cigarette-related packaging materials was approximately 14.9%, 6.9%

and 13.1% respectively. Our product mix changes as a result of our business strategy, market

conditions, customer demand and other factors may affect our profitability over time.

Cost of raw materials

The primary raw materials used by us for our production process include (i)

polypropylene (for manufacturing of films), and (ii) ivory board, transfer film and transfer

paper (for manufacturing and printing of cigarette paper boxes). Imported films that we

purchase for trading and/or film-printing purposes also account for a significant percentage of

our total cost of sales for each year during the Track Record Period. For the three years ended

31 December 2011, cost of raw materials accounted for approximately 88.3%, 83.0% and

83.7%, respectively, of our total cost of sales.

The market price of our key raw materials is affected by several factors. In particular, our

polypropylene, being one of our key raw materials for our BOPP films, is crude oil-based

by-products and therefore prices of our products are indirectly affected by the fluctuations in

crude oil prices. With the high volatility of global crude oil prices, the average purchase prices

of polypropylene from our largest supplier of polypropylene, which supplied 61.2%, 60.1% and

66.1% of our total polypropylene purchased (in terms of value for the three years ended 31

December 2011 respectively) fluctuated between RMB9,050 per tonne (VAT inclusive) and

RMB12,276 per tonne (VAT inclusive) during the Track Record Period. For the three years

ended 31 December 2011, cost of polypropylene accounted for approximately 32.7%, 39.8%

and 38.4%; cost of BOPP film accounted for approximately 32.8%, 21.4% and 20.6%; and cost

of ivory board, transfer film and transfer paper, in aggregate, accounted for approximately

7.7%, 25.9% and 22.4%, respectively, of our total purchases.

Although the imported films we purchased are crude oil-based, we managed to bargain for

a stable per unit purchase price of imported films during the Track Record Period as we are one

of the largest customers of our imported films supplier which accounted for more than 20%

sales of such supplier’s global sales of cigarette films in 2011 and more than 70% sales of such

supplier’s sale of cigarette films in the PRC in 2011.

We did not enter into any instrument for the purpose of any hedging activity in relation

to the purchase price of our raw materials during the Track Record Period. In addition, to

enhance our flexibility, we did not enter into long-term supply agreements with our raw

material suppliers. Fluctuations in the costs of our primary raw materials and our inability to

pass on any increase in raw material costs to our customers may materially and adversely affect

our cost of sales and our gross profit margins.


– 201 –

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have identified certain accounting policies and estimates significant to the preparation

of the financial information in accordance with HKFRSs. The Accountants’ Report in Appendix

I to this prospectus sets forth these significant accounting policies in note 1 of Section C, which

are important for an understanding of our financial condition and results of operations.

Some of our accounting policies involve subjective assumptions, estimates and

judgements that are discussed in note 22 of Section C of the Accountants’ Report in Appendix

I to this prospectus. In the application of our accounting policies, our management is required

to make estimates and assumptions about the carrying amounts of assets and liabilities that are

not readily apparent from other sources. Our estimates and associated assumptions are based

on historical experience and various other factors that are considered to be relevant. Actual

results may differ from these estimates. Our estimates and underlying assumptions are

reviewed by our management on an ongoing basis.

Our management has identified below the accounting policies, estimates and judgements

that they believe are critical to the preparation of the financial information.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable.

Provided it is probable that the economic benefits will flow to our Group and the revenue and

costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Sale of goods

Revenue is recognised when goods are delivered at the customers’ premises which

is taken to be the point in time when the customer has accepted the goods and the related

risks and rewards of ownership. Revenue excludes value added tax or other sales taxes

and is after deduction of any trade discounts.

(ii) Interest income

Interest income is recognised as it accrues using the effective interest method.

(iii) Government grants

Government grants are recognised in the statement of financial position initially

when there is reasonable assurance that they will be received and that our Group will

comply with the conditions attaching to them. Grants that compensate our Group for

expenses incurred are recognised as revenue in profit or loss on a systematic basis in the

same periods in which the expenses are incurred. Grants that compensate our Group for

the cost of an asset are deducted from the carrying amount of the asset and consequently

are effectively recognised in profit or loss over the useful life of the asset by way of

reduced depreciation expense.


– 202 –

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and

impairment losses.

The cost of self-constructed items of property, plant and equipment includes the cost of

materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and

removing the items and restoring the site on which they are located, and an appropriate

proportion of production overheads and borrowing costs.

Gains or losses arising from the retirement or disposal of an item of property, plant and

equipment are determined as the difference between the net disposal proceeds and the carrying

amount of the item and are recognised in profit or loss on the date of retirement or disposal.

Depreciation is calculated to write off the cost of property, plant and equipment, less their

estimated residual value, if any, using the straight line method over their estimated useful lives

as follows:

– Buildings 20 years

– Plant and machinery 10-20 years

– Office equipment and other fixed assets 3-5 years

– Motor vehicles 4-5 years

– Leasehold land held for own using under operating leases 50 years

Where parts of an item of property, plant and equipment have different useful lives, the

cost of the item is allocated on a reasonable basis between the parts and each part is depreciated

separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the weighted average cost formula and comprises all costs of

purchase, costs of conversion and other costs incurred in bringing the inventories to their

present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less

the estimated costs of completion and the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognised as an

expense in the period in which the related revenue is recognised. The amount of any

write-down of inventories to net realisable value and all losses of inventories are recognised

as an expense in the period the write-down or loss occurs. The amount of any reversal of any

write-down of inventories is recognised as a reduction in the amount of inventories recognised

as an expense in the period in which the reversal occurs.


– 203 –

Impairment of assets

(i) Impairment of receivables

Current and non-current receivables that are stated at cost or amortised cost are reviewed

at the end of each reporting period to determine whether there is objective evidence of

impairment. Objective evidence of impairment includes observable data that comes to our

attention about one or more of the following loss events:

– significant financial difficulty of the debtor;

– a breach of contract, such as a default or delinquency in interest or principal

payments;

– it becoming probable that the debtor will enter bankruptcy or other financial

reorganisation; and

– significant changes in the technological, market, economic or legal environment that

have an adverse effect on the debtor.

If any such evidence exists, any impairment loss is determined and recognised as follows:

– For trade and other current receivables and other financial assets carried at

amortised cost, the impairment loss is measured as the difference between the asset’s

carrying amount and the present value of estimated future cash flows, discounted at

the financial asset’s original effective interest rate (i.e. the effective interest rate

computed at initial recognition of these assets), where the effect of discounting is

material. This assessment is made collectively where these financial assets share

similar risk characteristics, such as similar past due status, and have not been

individually assessed as impaired. Future cash flows for financial assets which are

assessed for impairment collectively are based on historical loss experience for

assets with credit risk characteristics similar to the collective group.

If in a subsequent period the amount of an impairment loss decreases and the decrease can

be linked objectively to an event occurring after the impairment loss was recognised, the

impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not

result in the asset’s carrying amount exceeding that which would have been determined had no

impairment loss been recognised in prior years.

Impairment losses are written off against the corresponding assets directly, except for

impairment losses recognised in respect of trade debtors and bills receivable included within

trade and other receivables, whose recovery is considered doubtful but not remote. In this case,

the impairment losses for doubtful debts are recorded using an allowance account. When our

Group is satisfied that recovery is remote, the amount considered irrecoverable is written off

against trade debtors and bills receivable directly and any amounts held in the allowance


– 204 –

account relating to that debt are reversed. Subsequent recoveries of amounts previously

charged to the allowance account are reversed against the allowance account. Other changes in

the allowance account and subsequent recoveries of amounts previously written off directly are

recognised in profit or loss.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at the end of each reporting

period to identify indications that the following assets may be impaired or, an impairment loss

previously recognised no longer exists or may have decreased:

– property, plant and equipment; and

– intangible assets.

If any such indication exists, the asset’s recoverable amount is estimated.

– Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs to sell

and value in use. In assessing value in use, the estimated future cash flows are discounted

to their present value using a pre-tax discount rate that reflects current market

assessments of the time value of money and the risks specific to the asset. Where an asset

does not generate cash inflows largely independent of those from other assets, the

recoverable amount is determined for the smallest group of assets that generates cash

inflows independently (i.e. a cash-generating unit).

– Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset,

or the cash-generating unit to which it belongs, exceeds its recoverable amount.

Impairment losses recognised in respect of cash-generating units are allocated to reduce

the carrying amount of the other assets in the unit (or group of units) on a pro rata basis,

except that the carrying value of an asset will not be reduced below its individual fair

value less costs to sell, or value in use, if determinable.

– Reversals of impairment losses

An impairment loss is reversed if there has been a favourable change in the estimates

used to determine the recoverable amount.

A reversal of an impairment loss is limited to the asset’s carrying amount that would

have been determined had no impairment loss been recognised in prior years. Reversals

of impairment losses are credited to profit or loss in the year in which the reversals are

recognised.


– 205 –

SUMMARY RESULTS OF OPERATIONS

The selected financial information from our combined income statement and combined

statement of cash flows for the three years ended 31 December 2011, as well as our combined

statement of financial position as at 31 December 2009, 2010 and 2011, set forth below are

derived from our Accountants’ Report included in Appendix I to this prospectus, and should be

read in conjunction with the Accountants’ Report and this “Financial Information” section.


2009 2010 2011

HK$’000 HK$’000 HK$’000

Turnover 264,457 550,534 674,983

Cost of sales (167,688) (356,787) (428,346)

Gross profit 96,769 193,747 246,637

Other revenue and net income 25,024 13,759 26,003




Profit from operations 86,951 159,887 211,812

Finance costs (2,026) (16,394) (18,603)

Profit before taxation 84,925 143,493 193,209

Income tax (20,721) (38,331) (52,453)


Attributable to:

Equity shareholders of the Company 38,084 60,684 81,426

Non-controlling interests 26,120 44,478 59,330



– 206 –

PRINCIPAL COMPONENTS OF COMBINED STATEMENT OF COMPREHENSIVE

INCOME

Turnover

Set out below is a table showing our turnover by product category during the Track

Record Period:


2009 2010 2011

HK$’000 % HK$’000 % HK$’000 %

Turnover


cigarette-related

packaging materials




Sub-total 208,828 79.0 364,369 66.2 464,529 68.9





Total 264,457 100.0 550,534 100.0 674,983 100.0

Our turnover increased from approximately HK$264.5 million for the year ended 31

December 2009 to approximately HK$550.5 million for the year ended 31 December 2010, and

further to approximately HK$675.0 million for the year ended 31 December 2011. The

significant increase in turnover from 2009 to 2010 was mainly contributed by (i) the increase

in sales of cigarette paper boxes; (ii) other cigarette films; and (iii) non-cigarette-related

packaging materials, as a result of the full year operations of our Shuntai Factory and our Ener

Factory in 2010. As our Sheen Colour Nanjing Factory had already been in operation, and we

had been engaging in trading of imported films, before the commencement of the Track Record

Period, our turnover for the anti-counterfeiting films and trading of imported films did not

increase in the same rate as our turnover for sales of cigarette paper boxes, other cigarette films

and non-cigarette-related packaging materials.


– 207 –

Our Group recorded an increase in turnover in 2011 when compared with that in 2010 as,

amongst others, we received more orders from certain of our existing customers and secured

more customers.

In terms of turnover composition, the turnover from cigarette-related packaging materials

contributed approximately 79.0%, 66.2% and 68.9% of our total turnover during the three years

ended 31 December 2011. The change in our turnover composition for the year ended 31

December 2009 to the year ended 31 December 2010 was mainly contributed by the rapid

increase in the sale of our manufactured non-cigarette-related packaging materials as a result

of the full year operation of our Ener Factory, which is the only factory of our Group involved

in manufacturing of non-cigarette-related packaging materials. There was no significant

change in our turnover composition from the year ended 31 December 2010 to the year ended

31 December 2011, as the turnover of both of our cigarette-related packaging materials and

non-cigarette-related packaging materials increased during the years under review.

Cost of sales

The following table sets forth a breakdown of our Group’s cost of sales by cost type and

such costs as a percentage of the total cost of sales during the Track Record Period:


2009 2010 2011

HK$’000 % HK$’000 % HK$’000 %

Cost of raw materials 148,093 88.3 295,912 83.0 358,554 83.7

Labour costs 5,185 3.1 15,116 4.2 19,499 4.6

Manufacturing overheads 14,410 8.6 45,759 12.8 50,293 11.7

167,688 100.0 356,787 100.0 428,346 100.0

Our cost of sales increased by approximately 112.8% from approximately HK$167.7

million for the year ended 31 December 2009 to approximately HK$356.8 million for the year

ended 31 December 2010 and further increased by approximately 20.0% to approximately

HK$428.3 million for the year ended 31 December 2011. The increase in cost of sales was in

line with the increase in the turnover during the Track Record Period.


– 208 –

Gross profit and gross profit margin

Set out below is an analysis of our gross profit and gross profit margins by product

category during the Track Record Period:


2009 2010 2011

Gross

profit

Gross

profit

margin

Gross

profit

Gross

profit

margin

Gross

profit

Gross

profit

margin

HK$’000 % HK$’000 % HK$’000 %



materials




Sub-total 92,920 44.5 170,704 46.8 210,331 45.3

Trading of imported films 722 2.1 13,590 27.4 15,868 28.8




Total 96,769 36.6 193,747 35.2 246,637 36.5


– 209 –

Other revenue and net income

Set out below is the table showing our other revenue and net income:


2009 2010 2011

HK$’000 HK$’000 HK$’000

Interest income 442 316 433

Sales of scrap materials – 5,467 10,298

Government grants(Note 1) 13,048 286 6,624

Sales of raw materials 6,103 7,051 2,261

Net foreign exchange gain 31 76 545

Gain on remeasurement of previously

held interest upon step acquisition of

a subsidiary 848 – –

Gain on bargain purchase of

a subsidiary 4,148 – –

Others(Note 2) 404 563 5,842

25,024 13,759 26,003

Notes:

1. The government grants were granted by Qinghe area, Huai’an City municipal government (淮安市清河區人民政府) in 2009, 2010 and 2011 for Jiangsu Shuntai’s remarkable tax contribution to the city. There

was no obligation for our Group to perform after receiving the government grant. The government

grants were one-off in nature and the likelihood of the recurrence and amount, if any, of such grants in

the future is uncertain.

2. Others mainly represent the compensation income from suppliers or service providers and other sundry

income.


– 210 –

Distribution and selling expenses

Set out below is the table showing our distribution and selling expenses:


2009 2010 2011

HK$’000 HK$’000 HK$’000

Transportation and freight charge 455 5,093 7,866

Staff costs 396 809 839

Commission fee 14,052 6,285 6,579

Other expenses(Note) 413 1,179 2,358

15,316 13,366 17,642

Note: Other expenses mainly represent the depreciation of equipments of sales and marketing department,

marketing and advertising expenses and trip expenses.

Administrative expenses

Set out below is the table showing our administrative expenses:


2009 2010 2011

HK$’000 HK$’000 HK$’000

Staff costs 6,041 12,144 16,276

Office expenses 687 1,314 1,364

Other taxation(Note 1) 721 1,964 2,100

Business development and

entertainment expenses 1,267 2,052 3,527

Depreciation and amortisation 862 2,804 4,381

Motor vehicle expenses 962 1,634 1,930

Bank charges and other handling fees 124 1,044 292

Travelling expenses 1,273 1,114 2,103

Research and development 2,585 933 1,698

Professional fee 1,147 362 4,809

Others(Note 2) 3,400 5,483 4,689

19,069 30,848 43,169

Notes:

1. A new mandatory tax levy for foreign-invested enterprises in the PRC for city maintenance and

construction as well as educational purposes, according to the Notice of the State Council on Unifying

the Urban Construction and Maintenance Tax and Educational Surcharge Systems to Domestic &

Foreign Enterprises and Individuals (《國務院關於統一內外資企業和個人城市維護建設稅和教育費附加制度的通知》 (國稅[2010]35號)) came into effect on 1 December 2010.

2. Others mainly represent utility expenses, properties insurance expenses and rents and rates.


– 211 –

Other operating expenses

Other operating expenses were approximately HK$0.5 million and approximately HK$3.4

million for the year ended 31 December 2009 and the year ended 31 December 2010,

respectively. For the year ended 31 December 2010, our other operating expenses were mainly

composed of expenses incurred in relation to an inventory deficit being the difference between

the inventory balance as confirmed by stock take and the inventory balance as stated in the

statements of financial position, of approximately HK$2.1 million. Our Directors confirm that

the reason for the deficit was mainly attributed to the infrequent reconciliation and stock take

exercises performed during the Track Record Period. We have implemented inventory

management procedures with stock take and variance reconciliation performed by each quarter

to avoid any event of inventory deficit in the future. No material amount of other expenses was

recorded for the year ended 31 December 2011.

Finance costs

Our finance costs mainly comprise interest on bank borrowings wholly repayable within

five years. Finance costs were approximately HK$2.0 million, HK$16.4 million and HK$18.6

million, respectively, for the three years ended 31 December 2011.

Income tax

Our Group was not subject to any income tax in the Cayman Islands or the BVI during

the Track Record Period. The provision for Hong Kong profits tax for the three years ended 31

December 2011 was calculated at 16.5%.

Pursuant to the EIT Law, a unified EIT rate of 25% is imposed upon both domestically-

invested enterprises and foreign-invested enterprises. In accordance with the Notice on the

Implementation of the Transitional Preferential Policies in respect of Enterprise Income Tax

(國務院關於實施企業所得稅過渡優惠政策的通知) (the “EIT Notice”), the EIT rate applicable

to foreign-invested enterprises, which was subject to a reduced rate, would be gradually

increased up to 25% within five years commencing from 1 January 2008. Jiangsu Sheen Colour

and Ling Xian Fei Yu are foreign investment enterprises and were subject to a tax rate of 20%,

22% and 24% for the three years ended 31 December 2011, respectively and are subject to a

tax rate of 25% from 1 January 2012 onwards. Our Group’s other subsidiaries in the PRC are

subject to an income tax rate at 25%.

Pursuant to the EIT Law and the relevant laws and regulations of the PRC, tax deduction

for entertainment expenses is capped at 60% of such expenses and subject to a maximum

allowance of 0.5% of the revenue of the relevant year. In addition, expenses without invoices

and certain invoices not issued by the PRC entities, such as the costs incurred as a result of

inventory deficit, accrued unpaid social securities contributions and overseas travel and

entertainment expenses, might not be tax deductible. As our Group has incurred such

costs/expenses during the Track Record Period, certain of our costs/expenses are not deductible

for taxation purpose.


– 212 –

PERIOD TO PERIOD COMPARISON OF RESULTS OF OPERATIONS

Year ended 31 December 2011 compared to year ended 31 December 2010

Turnover

Turnover increased by approximately 22.6%, from approximately HK$550.5 million for

the year ended 31 December 2010 to approximately HK$675.0 million for the year ended 31

December 2011, with an approximately 25.5% increase in turnover from cigarette-related

packaging materials and imported films and approximately 13.8% increase in turnover from


The increase in turnover from cigarette-related packaging materials was mainly

contributed by (i) the increase in the sales of our cigarette paper boxes by approximately

25.5%, from approximately HK$213.5 million for the year ended 31 December 2010 to

approximately HK$268.0 million for the year ended 31 December 2011, primarily as a result

of the increase in the sales of cigarette paper boxes under the brand of “Nanjing” (南京)

(“Nanjing” is one of the “20+10” Key Brands and the sales of cigarette paper boxes of our

Group under this brand have been benefited under the policy of the consolidation of the

cigarette industry); and (ii) the increase in the sales of other cigarette films by approximately


approximately HK$111.8 million for the year ended 31 December 2011 primarily due to (a) the

increase in sales volume of other cigarette films to new customers resulted from the marketing

efforts of our sales and marketing team; and (b) one of our key other customers of cigarette

films purchased more other cigarette films from us.

The changes in the revenue from our anti-counterfeiting films and imported films were

relatively small as the primary market of these two products was in Jiangsu Province, the PRC

and as our Group’s market share in cigarette film packaging in 2011 was already approximately

85.1% (in sales value term) in Jiangsu Province, the PRC so that we cannot substantially

increase our market share in Jiangsu Province, the PRC in respect of such products so as to

significantly increase our revenue in respect of these products. In 2012, we have commenced

to sell our anti-counterfeiting films to a Provincial Tobacco Industrial Company in Shandong

Province, the PRC.

In addition, the turnover attributable to anti-counterfeiting films was more or less the

same level for the years ended 31 December 2010 and 2011 as a result of the net effect of (i)

the gradual reduction and cessation in production of one of the brands of China Tobacco

Jiangsu, for which our Group previously supplied its anti-counterfeiting films, since the second

half of 2009 and has subsequently discontinued the production of such brand in 2011; and (ii)

the increase in the turnover attributable to anti-counterfeiting films for other brand in 2011 as

a result of (a) the turnover attributable to anti-counterfeiting films for such brand was relatively

low in 2010 as a result of China Tobacco Jiangsu placed a large order in late 2009 and as such

order was delivered before the end of 2009, the relevant turnover was recognised in 2009; and

(b) such brand (which is one of the “20+10” Key Brand) has been benefited under the policy

of the consolidation of the cigarette industry.


– 213 –

The increase in turnover from non-cigarette-related packaging materials was mainly

contributed by the increase in the number of customers of non-cigarette-related packaging

materials as a result of the marketing efforts of our sales and marketing team. The number of

customers of non-cigarette-related packaging materials increased from 129 for the year ended

31 December 2010 to 133 for the year ended 31 December 2011 as our sales and marketing

team continued to increase its effort in exploring new customers and securing orders. Details

of our sales and marketing team are set out in the section headed “Business − Sales, marketing

and after-sales services – Sales and marketing team” in this prospectus.

Cost of sales

Cost of sales increased by approximately 20.0%, from approximately HK$356.8 million

for the year ended 31 December 2010 to approximately HK$428.3 million for the year ended

31 December 2011, primarily due to the increase of production volume during the year.

However, the rate of increase in the total cost of sales is slower than that of the increase in total

sales, primarily due to certain manufacturing overheads are fixed in nature so that it is

relatively less sensitive to the increase in the production volume during the year.


Our gross profit increased from approximately HK$193.7 million for the year ended 31

December 2010 to approximately HK$246.6 million for the year ended 31 December 2011,

primarily due to the increase in the turnover during the years under review together with the

increase in the overall gross profit margin from approximately 35.2% to approximately 36.5%.

The gross profit margin of the cigarette-related packaging materials decreased slightly

from approximately 46.8% for the year ended 31 December 2010 to approximately 45.3% for

the year ended 31 December 2011 due to the net effect of (i) the increase in the gross profit

margin of anti-counterfeiting films from approximately 40.8% for the year ended 31 December

2010 to approximately 45.1% for the year ended 31 December 2011 as a result of the

depreciation of US$ against RMB so that our effective purchase price of imported films

decreased in RMB term; and (ii) the decrease in the gross profit margin of other cigarette films


the year ended 31 December 2011 because, as confirmed by our Directors, we manufactured

more other cigarette films with relatively low gross profit margin for the year ended 31

December 2011.

The gross profit margin of the non-cigarette-related packaging materials increased from


ended 31 December 2011 as we reduced the production of certain non-cigarette-related

packaging materials with relatively lower gross profit margin and led to a reduction in sales of

such product during the year ended 31 December 2011.


– 214 –


Other revenue and net income increased by approximately HK$12.2 million, or

approximately 88.4%, from approximately HK$13.8 million for the year ended 31 December

2010 to approximately HK$26.0 million for the year ended 31 December 2011, primarily due

to (i) the increase in government grants from Huai’an City municipal government, (ii) the

increase from sales of scrap materials and (iii) compensation of approximately HK$3.9 million

from a supplier in relation to disqualified goods, which involved imported films for trading

purpose and were identified as disqualified goods after they were delivered to our customer. We

acted promptly to our customer’s compliant and the supplier paid compensation to us and there

was no material adverse impact on our business. The increase was partially offset by the

decrease in the sales of our raw material for the year ended 31 December 2011.

As government grants were not paid regularly and the relevant governmental body has

significant discretion as to when and how much such government grants would be paid. We

recognised the government grants amounted to approximately HK$6.6 million as other revenue

once it was received in 2011. Scrap materials refer to the residuals produced during the process

of our production. The increase in the amount from approximately HK$5.5 million to

approximately HK$10.3 million was consistent with the increase in our production level during

the years under review.


Distribution and selling expenses increased by approximately HK$4.2 million, or



to the increase in our transportation expenses as a result of the increase in sales volume of our

products. However, the increase in our transportation expenses was not at the same rate as our

increase in turnover as we requested our customers who were close to our warehouse to pick

up their purchases in order to control our transportation costs. These customers are mainly, to

the best knowledge of our Directors, small-to-medium sized other customers of cigarette films

and customers of non-cigarette-related packaging materials, mainly located in or near

Shandong Province. For the two years ended 31 December 2011, there were respectively in

total approximately 315 and 41 of these customers involved in such delivery arrangement with

the total amount sales of approximately HK$53.9 million and approximately HK$5.3 million

respectively. We continue to deliver to other customers if they are not located close to our

warehouse and/or if so requested by our customers. For the year ended 31 December 2011, we

increased our sales to customers not close to our warehouse so that our transportation expenses

increased significantly when compared with that for the year ended 31 December 2010. The

increase in transportation costs for the year ended 31 December 2011 was also contributed by

the general increase in transportation costs in the PRC.


– 215 –

We have paid commission fee to Xuzhou Long Chuan Co., Ltd. (徐州龍川商貿有公司),

a company owned by Mr. Guo until 13 June 2011, Xuzhou Dinuo Printing Co., Ltd (徐州帝諾印刷有限公司), the legal representative of which was Mr. Guo during the Track Record Period

and up to the Latest Practicable Date, and Shenzhen Yi’an Import and Export Co., Ltd* (深圳益安進出口有限公司), a company owned as to 67% by Mr. Guo and 33% by Madam Xia prior

to the commencement of the Track Record Period until 5 January 2010, for the handling of

import and export matters of our Group. During the Track Record Period, Ling Xing Fei Yu,

was designated as the import and export arm of our Group to handle such matters gradually so

that commission fees paid to the companies outside of our Group in relation to handling of

import and export matters of our Group as a percentage of our total turnover decreased

gradually. Accordingly, the commission fee for the year ended 31 December 2011 did not

increase in the same rate as the increase in the turnover during the year.

Xuzhou Long Chuan Co., Ltd. and Shenzhen Yi’an Import and Export Co., Ltd were sold

by Mr. Guo to Independent Third Party in June 2011 and by Mr. Guo and Madam Xia to

Independent Third Party in January 2010 respectively and these two companies did not have

any further businesses relationship with us thereafter up to the Latest Practicable Date. Mr. Guo

was still the legal representative of Xuzhou Dinuo Printing Co., Limited as at the Latest

Practicable Date.


Administrative expense increased by approximately HK$12.4 million, or approximately


approximately HK$43.2 million for the year ended 31 December 2011, primarily due to the

increase in (i) our staff costs of our administrative staff; (ii) depreciation and amortisation as

a result of the addition of the office equipment during 2010 and 2011 to facilitate the increase

in our operational scale; (iii) business development and entertainment expenses; and (iv)

professional fee payment as a result of the preparation of the Listing, for the year ended 31

December 2011.

Finance costs

Our finance costs increased by approximately HK$2.2 million, or approximately 13.4%,

from approximately HK$16.4 million for the year ended 31 December 2010 to approximately

HK$18.6 million for the year ended 31 December 2011, primarily due to the increase in our

interest expense as a result of (i) the increase in bank borrowing interest rates; and (ii) increase

in our bank loan balances.

Net profit

Our net profit increased by approximately HK$35.6 million, or approximately 33.8%,


HK$140.8 million for the year ended 31 December 2011 as a result of the reasons set out above.


– 216 –

Year ended 31 December 2010 compared to year ended 31 December 2009

Turnover

Turnover increased by approximately 108.1%, from approximately HK$264.5 million for

the year ended 31 December 2009 to approximately HK$550.5 million for the year ended 31

December 2010 with an approximately 70.0% increase in turnover from cigarette-related

packaging materials and imported films and approximately 552.2% increase in turnover from


The increase in turnover from cigarette-related packaging materials and imported films

was mainly contributed by (i) the increase in the sales of our cigarette paper boxes by


2009 to approximately HK$213.5 million for the year ended 31 December 2010, primarily as

a result of the full year operation of our Shuntai Factory, which was responsible for the

production of our cigarette paper boxes, in 2010; (ii) the increase in the sales of our other

cigarette films by approximately 84.7%, from approximately HK$37.8 million for the year

ended 31 December 2009 to approximately HK$69.8 million for the year ended 31 December

2010, primarily as a result of the full year operation of our Ener Factory, which was responsible

for, amongst others, the production of our other cigarette films, in 2010; and (iii) the increase

in the sales from our imported films as a result of increase in demand of imported films from

our customers, net of the decrease in turnover from our anti-counterfeiting films as a result of

(a) the change of the product mix of our customer of anti-counterfeiting films as it had reduced

gradually the production of one of its brands for which we previously supplied our

anti-counterfeiting films since the second half of 2009 and has subsequently discontinued the

production of such brand; and (b) China Tobacco Jiangsu placed a large order in late 2009 and

as such order was delivered before the end of 2009, the relevant turnover was recognised in

2009.

The increase in turnover from non-cigarette-related packaging materials was mainly

contributed by the full year operation of our Ener Factory, which is the only factory of our

Group involved in production of such type of products, in 2010.

Cost of sales

Cost of sales increased by approximately 112.8%, from approximately HK$167.7 million

for the year ended 31 December 2009 to approximately HK$356.8 million for the year ended

31 December 2010, primarily due to the increase of production volume during the year.

However, the rate of increase in the total cost of sales is higher than that of the increase in total

sales primarily due to the increase in the cost of key raw materials, such as polypropylene when

compared with that for the year ended 31 December 2009.


– 217 –


Our gross profit increased from approximately HK$96.8 million for the year ended 31

December 2009 to approximately HK$193.7 million for the year ended 31 December 2010,

primarily due to the increase in the turnover during the years under review together with the

increase in the gross profit margin of the cigarette-related materials from 44.5% to 46.8% and

the increase in gross profit margin of the import films from 2.1% to 27.4%.

The gross profit margin of the cigarette-related materials and imported films increased


the year ended 31 December 2010 due to the net effect of (i) the increase in the gross profit

margin of cigarette paper boxes primarily as a result of the commencement of the production

of transfer paper by ourselves, which incurred less cost to us as compared to sourcing from

external suppliers, in 2010 and the established mode of business of our Shuntai Factory in 2010

enabled us to enjoy economy of scale; (ii) the increase in the gross profit margin of our

imported films since a portion of our sales attributable to such sales were made to Xuzhou

Dinuo Printing Co., Ltd. (徐州帝諾印刷有限公司) and Shenzhen Yi’an Import and Export Co.,

Ltd. (深圳益安進出口有限公司), which then on-sold such products to their customers in 2009

while such activities have been gradually taken up by Ling Xian Fei Yu. Our sales to Shenzhen

Yi’an Import and Export Co., Ltd. and Xuzhou Dinuo Printing Co., Ltd. under the above

arrangement ceased during the year ended 31 December 2009 and 31 December 2010

respectively. Our Group had the abovementioned arrangement was primarily due to Ling Xian

Fei Yu only obtained the approved supplier status for imported films with China Tobacco

Jiangsu in 2010, so that our Group has to sell the imported films to China Tobacco Jiangsu

through these companies before that and our sales through these related companies gradually

decreased after Ling Xian Fei Yu obtained approved supplier status in 2010; and (iii) the

decrease in the gross profit margin of anti-counterfeiting films was primarily due to the

increase in the costs of raw materials used in the production of anti-counterfeiting films.

The gross profit margin of the non-cigarette-related packaging materials decreased from


ended 31 December 2010 as our Group increased its sales of products with lower margin to

utilise the excess production capacity of our Ener Factory to capture additional market share

in the year ended 31 December 2010.


Other revenue and net income decreased by approximately HK$11.2 million, or



to (i) the decrease in government grant received; and (ii) the absence in 2010 of the gain of the

one-off bargain purchase as a result of our acquisition of additional equity interest in Jiangsu

Sheen Colour in early 2009; partially offset by the increase in sales of raw materials in 2010.


– 218 –


Distribution and selling expenses decreased by approximately HK$1.9 million, or

approximately 12.4%, from HK$15.3 million for the year ended 31 December 2009 to HK$13.4

million for the year ended 31 December 2010, primarily due to the decrease in our commission

fee to Xuzhou Long Chuan Co., Ltd. (徐州龍川商貿有限公司), Xuzhou Dinuo Printing Co.,

Ltd. (徐州帝諾印刷有限公司) and Shenzhen Yi’an Import and Export Co., Ltd. (深圳益安進出口有限公司) as a result of the reasons set out above, net of (i) the increase in the ratio of

transportation expenses to the turnover for the year ended 31 December 2010 as one of our top

5 customers for the year ended 31 December 2009 picked up its purchases directly, ceased to

purchase with us in mid-2010; (ii) the general increase in transportation costs in the PRC; and

(iii) the increase in the total turnover from 31 December 2009 to 31 December 2010.


Administrative expenses increased by approximately HK$11.7 million, or approximately


approximately HK$30.8 million for the year ended 31 December 2010, primarily due to the (i)

the increase in the staff costs as a result of the increase in the average head count due to the

full year operation of our Shuntai Factory and our Ener Factory in 2010; and (ii) the general

increase in other administrative expenses which is in line with the continuous development of

our business.

Finance costs

Our finance costs (being interest on bank borrowings) increased by approximately

HK$14.4 million, or approximately 720.0%, from approximately HK$2.0 million for the year

ended 31 December 2009 to approximately HK$16.4 million for the year ended 31 December

2010. The increase in finance costs for the year ended 31 December 2010 was a result of most

of the finance costs are recognised as expenses, while for the year ended 31 December 2009,

most of the finance costs are capitalised as construction costs of our Ener Factory and our

Shuntai Factory, during their construction period.

Net profit

Our net profit increased by approximately HK$41.0 million, or approximately 63.9%,


HK$105.2 million for the year ended 31 December 2010 as a result of the reasons set out

above.


– 219 –

LIQUIDITY AND CAPITAL RESOURCES

Our primary uses of cash are to satisfy our working capital needs and our capital

expenditure needs. Since our establishment, our working capital needs and capital expenditure

requirements have been primarily financed through a combination of shareholders’ equity,

shareholders’ loan, cash generated from operations and bank borrowing. Our Directors

confirmed that we did not experience any difficulty in obtaining financing during the Track

Record Period.

On the basis that (i) our Group had unutilised banking facilities of RMB80.0 million

(equivalent to approximately HK$98.4 million) as at the Latest Practicable Date; (ii) our Group

had a good credit history and without triggered any event of default of bank loans during the

Track Record Period; (iii) the scale of our Group’s business has been expanding; (iv) we have

obtained the consents from relevant banks in relation to providing the same amount of banking

facilities upon expiry of their respective terms; and (v) our Company will become a listed

company after the Listing, our Directors consider that the recent global financial market

volatility and credit tightening in the PRC will not affect our ability to obtain external

financing in the foreseeable future. During the three years ended 31 December 2011 and five

months ended 31 May 2012, our Group repaid bank loans with balances of nil, approximately

HK$61.3 million, approximately HK$106.9 million and approximately HK$109.8 million,

respectively and drew bank loans with balances of approximately HK$123.8 million, HK$88.1

million, HK$104.8 million and approximately HK$80.2 million, respectively.

The following table is a condensed summary of our combined statement of cash flows for

the periods indicated:

Summary combined statements of cash flows


2009 2010 2011

HK$’000 HK$’000 HK$’000

Net cash generated from operating

activities 52,873 40,967 121,922

Net cash used in investing activities (207,364) (38,700) (64,191)

Net cash generated from/(used in)

financing activities 129,450 (30,505) (61,546)

Net decrease in cash and cash

equivalents (25,041) (28,238) (3,815)


– 220 –

Cash flow from operating activities

For the year ended 31 December 2011, our net cash generated from operating activities

amounted to approximately HK$121.9 million. Our profit before taxation was approximately

HK$193.2 million. Negative cash flow adjustments reflected primarily increase in trade and

other receivables of approximately HK$59.4 million, which was mainly contributed by the

increase in sales close to the year end of 2011.



HK$143.5 million. Negative cash flow adjustments reflected primarily (i) increase in trade and

other receivables of approximately HK$79.0 million, which was mainly contributed by the

increase in the sales amount close to the year end of 2010; and (ii) increase in inventory

balance of approximately HK$33.7 million, which was consistent with the increase in the scale

of operation of our cigarette paper box manufacturing, other cigarette films manufacturing and

non-cigarette-packaging materials manufacturing businesses for the year ended 31 December

2010 when compared with that for the year ended 31 December 2009.



HK$84.9 million. Negative cash flow adjustments reflected primarily (i) increase in inventory

balance of approximately HK$72.7 million, which was mainly as a result of the anticipation of

the demand of our Group’s product in early 2010; and (ii) increase in trade and other

receivables of approximately HK$16.8 million, which was in line with the significant increase

in our turnover for the year ended 31 December 2009, net of the increase in trade and other

payables of approximately HK$58.5 million, which was as a result of the increase in the

purchase close to the year end of 2009.

Cash flow from investing activities

For the year ended 31 December 2011, our net cash used in investing activities amounted

to approximately HK$64.2 million and was mainly for the payment of construction in progress

in relation to the construction of new buildings and installation of new workshops of our

Shuntai Factory and certain other property, plant and equipment, of approximately HK$64.6

million.


to approximately HK$38.7 million and was mainly for the addition of plant and machinery of

our Shuntai Factory and our Ener Factory of approximately HK$10.2 million and the payment

of a leasehold land of approximately HK$6.5 million.


to approximately HK$207.4 million and was mainly for the addition of buildings and plant and

machinery of our Shuntai Factory and our Ener Factory of approximately HK$189.8 million.


– 221 –

Cash flow from financing activities

For the year ended 31 December 2011, our cash used in financing activities amounted to

approximately HK$61.5 million and mainly consisted of interest paid of approximately

HK$18.6 million and dividend paid of approximately HK$40.8 million.

For the year ended 31 December 2010, our cash used in financing activities amounted to

approximately HK$30.5 million and mainly consisted of interest paid of approximately

HK$16.4 million, dividend paid of approximately HK$40.9 million, and net of net proceeds

from bank loans of approximately HK$26.8 million.

For the year ended 31 December 2009, our cash generated from financing activities

amounted to approximately HK$129.5 million and mainly consisted of the proceeds from a

bank loan of approximately HK$123.8 million.

INVENTORY ANALYSIS

Our inventories comprise raw materials, work in progress and finished goods. The raw

materials which we use include polypropylene, BOPP film, ivory board, transfer film and

transfer paper. The value of our inventories accounted for approximately 27.7%, 30.9% and

27.3% of our total current assets as at 31 December 2009, 2010 and 2011, respectively. We

typically manage our inventories of raw materials and ancillary materials on a weighted

average price basis so that cost of each supply is determined based on the weighted average of

the cost of similar supplies at the beginning of the period and the cost of similar supplies

purchased or produced during the period.

The following table is a summary of our balance of inventories as at 31 December 2009,

2010 and 2011:

As at 31 December

2009 2010 2011

HK$’000 HK$’000 HK$’000

Raw materials 39,324 74,734 67,104

Work-in-progress 4,367 8,609 13,224

Finished goods 29,689 27,504 39,926

73,380 110,847 120,254

Our inventory balance increased by approximately 51.0%, from approximately HK$73.4

million as at 31 December 2009 to approximately HK$110.8 million as at 31 December 2010,

and further increased by approximately 8.6% to approximately HK$120.3 million as at 31

December 2011. The increase in the inventory balance from 2009 to 2010 was mainly

contributed by the increase in the raw materials balance as we increased our raw materials level


– 222 –

in anticipation of the increase in production to meet the increase in the sales volume in early

2011. The increase in the inventory balance from 2010 to 2011 was mainly contributed by the

increase in the balance of finished goods as we increased our production for anti-counterfeiting

films in late 2011 in preparation of the relocation of our anti-counterfeiting films production

line from our Sheen Colour Nanjing Factory to our Shuntai Factory in late 2011.

The adequacy of our inventories is reviewed by our management from time to time. Our

policy on obsolete or damaged inventories is to write off such inventories when our

management considers the obsolete or damaged inventories to have no residual value. In

addition, specific provisions are made on the diminution in market value of the inventories

should our management decide that the current level of provision is inadequate.

Save for a write-down of approximately HK$223,000 on inventories during the year

ended 31 December 2010, we had not made any provision for nor written off any inventory for

damage or obsolescence during the Track Record Period, as we have not experienced any

significant damage in respect of our inventories throughout the Track Record Period. As at 30

April 2012, over approximately 88.9% all of our inventories in stock as at 31 December 2011

were subsequently consumed and sold.

Set out below is the aging analysis of our inventory as at 31 December 2009, 2010 and

2011:

As at 31 December 2011

< 30

days

31-180

days

181-365

days

over 365

days Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Raw materials 37,570 19,762 8,196 1,576 67,104

Work-in-progress 13,224 – – – 13,224

Finished goods 23,893 9,184 5,630 1,219 39,926

74,687 28,946 13,826 2,795 120,254


< 30

days

31-180

days

181-365

days

over 365

days Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Raw materials 57,891 13,820 2,079 944 74,734

Work-in-progress 8,609 – – – 8,609

Finished goods 13,898 8,114 4,162 1,330 27,504

80,398 21,934 6,241 2,274 110,847


– 223 –


< 30

days

31-180

days

181-365

days

over 365

days Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Raw materials 33,695 5,629 – – 39,324

Work-in-progress 4,367 – – – 4,367

Finished goods 26,158 3,531 – – 29,689

64,220 9,160 – – 73,380

Our overall inventory aging was lengthening during the Track Record Period and was

contributed by the increase in aging of raw materials and finished goods. The lengthening of

the aging for raw materials during the Track Record Period was mainly contributed by the

increase in the purchase of polypropylene for film manufacturing as our Directors expect that

the price of polypropylene would continue to increase as a result of the continuous increase in

crude-oil price; and (ii) the purchase of a batch of spare parts during the year ended 31

December 2010 with amount of approximately HK$4.8 million, which are categorised as raw

materials. The inventory aging for finished goods were comparable for the two years ended 31

December 2010 and 2011. The lengthening of the inventory aging for the year ended 31

December 2010 when compared with that for the year ended 31 December 2009 was because

our Shuntai Factory and our Ener Factory only commenced for operation during late 2009.

As at 31 December 2010 and 2011, we had finished goods aged over a year. Those stocks

are related to other cigarette films and non-cigarette-related packaging materials, both of which

had a product life of two to three years. As confirmed by our Directors, all finished goods aged

over a year have been sold up to the Latest Practicable Date.

The following table sets out our average inventory turnover days for the Track Record

Period:


2009 2010 2011

Average inventory turnover days(Note) 80.6 94.8 98.9

Note: Average inventory turnover days is equal to the average of the beginning and ending inventory balance

of the year divided by cost of sales of the year/period and multiplied by 365 days for a year.

Our average inventory turnover days increased from approximately 80.6 days in 2009 to

approximately 98.9 days in 2011, which was mainly attributed to the increase of the inventory

level of polypropylene for film manufacturing as a result of the continuous increase in the sales

of our films related products. We increased our production for anti-counterfeiting films in late

2011 in preparation of the relocation of our anti-counterfeiting films production line from our

Sheen Colour Nanjing Factory to our Shuntai Factory in late 2011.


– 224 –

Our stock of raw materials and our level of finished goods inventory generally serve to

mitigate the impact of temporary increase in raw material prices. Our management monitors

market prices of our raw materials and our level of finished goods inventory to keep ourselves

abreast of the latest development in outlook of market conditions in respect of such prices. In

order to mitigate the impact of fluctuations in the market prices of our raw materials, from time

to time based on the outlook of market conditions, we would increase or decrease our purchase

of raw materials and our level of raw material inventory in anticipation of increases or

decreases in raw material prices, respectively.

TRADE AND BILL RECEIVABLES

The following table sets out the aging analysis of our trade and bill receivables (VAT

inclusive) based on invoice date as at 31 December 2009, 2010 and 2011:

As at 31 December

2009 2010 2011

Trade

receivables

Bill

receivables

Trade

receivables

Bill

receivables

Trade

receivables

Bill

receivables

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Less than

30 days 20,306 – 89,728 1,175 129,931 4,179

31-90 days 7,612 262 46,280 3,773 62,099 4,073

91-180 days – – 4,287 2,621 4,902 3,486

181-365 days 6 – 1,349 939 3,044 295

Over 365 days – – 8 – 1,413 –

27,924 262 141,652 8,508 201,389 12,033

Our trade and bill receivables increased from approximately HK$28.2 million as at 31

December 2009 to approximately HK$150.2 million as at 31 December 2010 and further

increased to approximately HK$213.4 million as at 31 December 2011. Such increase is in line

with the increase in our turnover during the Track Record Period. As at 31 May 2012,

approximately 98.0% of trade receivables and all bill receivables outstanding as at 31

December 2011 have been received and all trade and bill receivables in relation to our sales

transactions on or before 31 December 2010 were received. As such, our Directors considered

that there is no recoverability issue for the unsettled trade and bill receivables as at 31

December 2011 and that no allowance for doubtful debts was required during the Track Record

Period.


– 225 –

The following table sets out our average trade and bill receivables turnover days for the

Track Record Period:


2009 2010 2011

Average trade and bill receivables

turnover days(Note) 22.7 59.1 98.3

Note: Average trade and bill receivables turnover days is equal to the average of the opening and ending

balances of trade and bill receivables for the year divided by turnover for the year and multiplied by

365 days for a year.

The average trade and bills receivables turnover days increased from approximately 22.7

days for the year ended 31 December 2009 to approximately 59.1 days for the year ended 31

December 2010 and further increased to approximately 98.3 days for the year ended 31

December 2011. The turnover days increased significantly from approximately 22.7 days for

the year ended 31 December 2009 to approximately 59.1 days for the year ended 31 December

2010 as (i) China Tobacco Jiangsu, our largest customer during the Track Record Period,

settled almost all its trade receivables balance before the year ended 31 December 2009; and

(ii) we only commenced our businesses with other customers of cigarette films and customers

of non-cigarette-related packaging materials in late 2009. The turnover days further increased

from approximately 59.1 days for the year ended 31 December 2010 to approximately 98.3

days for the year ended 31 December 2011 as (i) the Chinese New Year of 2012 was in January

2012 so that our cigarette manufacturers placed their orders in late 2011 to meet their peak

season. We recognised approximately 16.8% of our turnover for 2011 during the month ended

31 December 2011 (2010: approximately 14.5%); and (ii) we received a large order from one

of our key other customers of cigarette films close to the year ended 31 December 2011.

Set out below is the average trade and bill receivables turnover days for each of our

customer category for the Track Record Period:


2009 2010 2011

Days Days Days

Cigarette manufacturers 5.6 49.2 92.8

Other customers of cigarette films 58.2 136.0 176.0

Customers of non-cigarette-related

packaging materials 35.8 19.5 47.2


– 226 –

Cigarette manufacturers

The average trade and bill receivables turnover days for the cigarette manufacturers

increased from approximately 5.6 days in 2009 to approximately 49.2 days in 2010 and further

increased to approximately 92.8 days in 2011. The significant increase was primarily due to:

(i) China Tobacco Jiangsu, our largest customer during the Track Record Period, settled

almost all its trade receivables balance before the year ended 31 December 2009 so

that our trade receivables balance with it was relatively low when compared with

that for 2010 and 2011;

(ii) as the number of turnover days are calculated based on the average of the opening

and closing balances of the relevant trade and bill receivables of that particular year,

the number of turnover days for 2010 was also lowered due to the relatively small

balance of our trade receivables with China Tobacco Jiangsu as at 31 December

2009; and

(iii) the increase in our sales volume close to the year end for 2011, in particular, the

Chinese New Year of 2012 was in January 2012 so that our cigarette manufacturers

placed their orders in late 2011 to meet their peak season before the Chinese New

Year in 2012 and the relevant revenue of our Group was recognised in December

2011.

Other customers of cigarette films

The average trade and bill receivables turnover days for our other customers of cigarette

films increased from approximately 58.2 days in 2009 to approximately 136.0 days in 2010 and

further increased to approximately 176.0 in 2011. The significant increase was primarily due

to:

(i) our Group only commenced to engage in the sales of cigarette films in 2009 when

our Ener Factory commenced its production in late 2009. Therefore, there were no

sales transactions and trade receivables balances with other customers of cigarette

films during/as at the year ended 31 December 2008. As the number of turnover days

are calculated based on the average of the opening and closing balances of the trade

and bill receivables of that particular year, the number of turnover days for 2009 was

lowered; and

(ii) we received a large order from one of our key other customers of cigarette films

close to the year ended 31 December 2011. Our sales to such customer in December

2011 was approximately HK$26.9 million, representing approximately 20.7% of the

total sales to other customers of cigarette films for the year ended 31 December

2011, while in December 2010, our sales to such customer was only approximately

HK$10.3 million, representing approximately 9.4% of the total sales to other

customers of cigarette films for the year ended 31 December 2010. To the best

knowledge of our Directors, such other customers of cigarette films would sold our

products to cigarette manufacturers.


– 227 –

Our turnover days for our other customers of cigarette films was on average longer than

that for our cigarette manufacturers, as (i) we offer a longer credit period to attract customers

of this category while the credit terms of cigarette manufacturers are fixed by the cigarette

manufacturers; and (ii) to the best knowledge of our Directors, our other customers of cigarette

films would sell our products to cigarette manufacturers, so that they prefer to have a credit

period longer than that with cigarette manufacturers so as to avoid a negative cash flow cycle.

Customers of non-cigarette-related packaging materials

The average trade and bill receivables turnover days for the customers of non-cigarette-

related packaging materials decreased from approximately 35.8 days in 2009 to 19.5 days in

2010 and increased to approximately 47.2 days in 2011.

For products with lower margin and customers with small purchase volumes, we do not

grant any credit term and request for payment upon delivery. During 2010, a significant portion

of our sales were in relation to the sales of low margin products so as to utilise the production

capacity of our Ener Factory. As such, we recorded a low average trade and bill receivables

turnover days for the customers of non-cigarette-related packaging materials for 2010. In 2011,

as our Ener Factory approached full production capacity, we reduced the production and sales

of low margin products and therefore, the relevant average trade and bill receivables turnover

days also increased in 2011.

General

During the Track Record Period, there were increasing number of customers to use bills

to settle their purchases. It is our policy to mitigate credit risks so that we persuade our other

customers of cigarette films and non-cigarette-related packaging materials to settle their

purchases with us either by cash or by bank bills. Our arrangement with these customers is

different from other customers as they have relatively short period of business relationship (all

less than three years) with us. All the bills accepted by our Group during the Track Record

Period were bank bills and could be discounted with licensed banks in PRC as a source of

working capital. However, no bill receivable was discounted or factored during the Track

Record Period. We commenced to discount bank bills since 2012 and up to 31 May 2012, the

total amount of bank bill discounted with recourse amounted to approximately HK$6.2 million,

representing approximately 13.3% of the bills on hand as at 31 May 2012, with the discount

rate at 6.6% per annum. We only commenced to discount the bills since 2012 as our Group has

conducted a review on the working capital management activities of our Group in early 2012

and considered that it is in the interest of our Group to diversify the source of funding of our

Group, by including bills discounting, and to shorten the cash cycle by bills discounting. Our

Directors consider that during the Track Record Period and up to the Latest Practicable Date,

the bills received by our Group were all bank bills so that the credit risks in relation to

receiving the bills and that in relation to discounting/factoring of the bills are minimal. With

a view to shortening the average trade and bill receivables turnover days of our Group, we

commenced to request our new customers to settle their purchase by cash. As such, it is

expected that the trend of increase in customers using bank bills to settle their purchases will


– 228 –

not continue to increase in the foreseeable future. The normal credit terms we granted to our

customers ranging from 30 to 180 days, while the credit term of our bill receivable we granted

to our customers is normally 180 days.

We only recognise trade receivables as allowance for doubtful debts based on assessments

of the recoverability of the trade receivables, including the current creditworthiness and the

past collection history of each debtor. During the Track Record Period, no allowance for

doubtful debts were recorded.

OTHER RECEIVABLES

The following table sets out the breakdown of our other receivables as at 31 December

2009, 2010 and 2011:

As at 31 December

2009 2010 2011

HK$’000 HK$’000 HK$’000

Advance payment to suppliers 1,619 9,874 2,815

Advance payment for acquisition of

fixed assets 11,374 9,342 3,197

Other tax receivables 10,117 3,290 1,114

Amounts due from

– Mr. Guo 6,951 – 29,012

– Qingdao Chuangji Weiye

Investment Limited (“Qingdao

Chuangji”) 11,573 – –

– Xuzhou Long Chuan Co., Ltd – 9,362 –

– Qingdao Mingji Packaging Co., Ltd

(“Qingdao Mingji”) 522 – –

– others 29,425 1,149 1,858

Utilities deposit 616 908 2,011

Others 805 379 4,289

73,002 34,304 44,296

Our total other receivables decreased from approximately HK$73.0 million as at 31

December 2009 to approximately HK$34.3 million as at 31 December 2010 primarily due to

the net settlement of amounts due from Mr. Guo, Qingdao Chuangji, Xuzhou Long Chuan Co.,

Ltd, Qingdao Mingji and others of approximately HK$38.0 million during 2010, net of the net

increase in the advance payment to suppliers of approximately HK$8.3 million. For the

purchase of polypropylene, certain suppliers require us to pay in advance to secure their supply.

The increase in advance payment to suppliers as at 31 December 2010 was attributed to a batch

of purchase of raw materials in the early 2011. Included in the amounts due from others as at

31 December 2009 were (i) a deposit of approximately HK$18.5 million with a company as a


– 229 –

security for such company providing guarantee for a bank loan proposed to be applied for by

our Group (the application of which has not been proceeded with by us and the said deposit

was returned in the year ended 31 December 2010); and (ii) an advance to Smart Freight

(Shenzhen) Ltd. (“Smart Freight”), an Independent Third Party, as short-term financing with an

amount of approximately HK$8.2 million without interest. Smart Freight was engaged in the

agency service for import and export of good and custom clearance. As confirmed by Mr. Guo,

the shareholder of Smart Freight is his personal friend. The amount was fully settled in the year

ended 31 December 2010. As advised by our PRC Legal Advisers, the aforesaid advance to

Smart Freight by our Group did not comply with the relevant PRC laws and regulations for

loans and advances, pursuant to which, enterprises engaged in unauthorised lending could be

subject to a penalty between one to five times of the income generated under such activities,

and the PRC court shall regard the relevant agreement as invalid contract, but given that (i) no

interests has been charged by our Group in relation to such advances; (ii) all such advances

have been repaid by Smart Freight; (iii) there were no legal disputes in connection with such

advances, there is no material risk in relation to being penalised by the relevant financial

authorities to our Group. Our Group has no intention to make advances of similar nature after

the Listing and our Group will not have any balance of advance to Independent Third Parties

with similar nature after the Listing.

Our other receivables increased from approximately HK$34.3 million as at 31 December

2010 to approximately HK$44.3 million as at 31 December 2011, mainly due to the net

increase of amounts due from Mr. Guo. As confirmed by our Directors, all the amounts due

from related parties have been settled before the Latest Practicable Date.

TRADE PAYABLES

The following table sets out the aging analysis of our trade payables as at 31 December

2009, 2010 and 2011:

As at 31 December

2009 2010 2011

HK$’000 HK$’000 HK$’000

Due within 1 month or on demand 32,133 45,715 44,904

More than 1 month but within

3 months 1,200 434 273

More than 3 months but within

6 months 82 222 6,822

More than 6 months 554 1,343 165

33,969 47,714 52,164

As at 30 April 2012, approximately HK$44.0 million of our trade payables as at 31

December 2011 were subsequently settled.


– 230 –

Our trade payables increased from approximately HK$34.0 million as at 31 December

2009 to approximately HK$47.7 million as at 31 December 2010 and further increased to

approximately RMB52.2 million as at 31 December 2011 as a result of our increase in purchase

of raw materials which is in line with our increase in our production volume. Our suppliers

normally grant a credit period up to 90 days. However, for the purchase of polypropylene,

certain suppliers require us to pay in advance to secure their supply.

The following table sets out our average trade payables turnover days for the Track

Record Period:


2009 2010 2011

Average trade payables turnover days(Note) 52.4 41.8 42.6

Note: Average trade payables turnover days is equal to the average of the beginning and closing trade

payable balances for the year divided by cost of sales of year and multiplied by 365 days for a year.

Our average trade payables turnover days decreased from approximately 52.4 days for the

year ended 31 December 2009 to approximately 41.8 days for the year ended 31 December

2010, and approximately 42.6 days for the year ended 31 December 2011. Such decreases were

mainly due to an increase in proportion of our purchases were either on “payment in advance”

or “payment on delivery” terms during the years under review.

OTHER PAYABLES

The following table sets out the breakdown of our other payables as at 31 December 2009,

2010 and 2011:

As at 31 December

2009 2010 2011

HK$’000 HK$’000 HK$’000

Other tax payable 164 6,864 11,212

Accrual for salary and wages 2,433 7,073 6,363

Accrued charges 13,681 8,132 13,777

Payable for acquisition of property,

plant and equipment 45,946 29,242 9,670

Deposits from customers 3,411 2,229 3,444

Amount due to Mr. Guo 30,221 27,967 12,587

Others 3,578 3,702 3,886

99,434 85,209 60,939


– 231 –

Our other payables decreased from approximately HK$99.4 million for as at 31 December

2009 to approximately HK$85.2 million as at 31 December 2010 and further decreased to

approximately HK$60.9 million as at 31 December 2011. The decrease from 2009 to 2011 was

mainly due to (i) the settlement of the payable for acquisition of property, plant and equipment;

and (ii) our repayment of certain unsecured and interest-free current account with Mr. Guo;

slightly offset by (iii) the increase in accrual for salary and wages as a result of increase in head

count and general salary level of our Group’s employees and (iv) the increase in other tax

payable due to the sales were higher than the purchase close to the year ended 31 December

2011. The balance of other tax payable as at 31 December 2009 was small as our Group

enjoyed a large amount of VAT deductible which was granted by Qingdao Municipal Office of

State Administration of Taxation as a result of the significant addition of fixed assets during

the year ended 31 December 2009.

As confirmed by our Directors, all the amounts due to related parties have been settled

before the Latest Practicable Date.

WORKING CAPITAL

As at 31 December

As at

30 April

2009 2010 2011 2012

HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

Current assets

Inventories 73,380 110,847 120,254 70,425

Trade and other receivables 101,188 184,464 257,718 303,205

Cash and cash equivalents 89,869 63,778 63,013 22,728

264,437 359,089 440,985 396,358- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current liabilities

Trade and other payables 133,403 132,923 113,103 135,049

Bank loans 51,108 105,770 154,188 173,628

Current taxation 16,213 13,924 18,938 4,335

200,724 252,617 286,229 313,012- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Working capital 63,713 106,472 154,756 83,346


– 232 –

Our current assets primarily comprise cash and cash equivalents, inventories and trade

and other receivables. Our current liabilities comprise trade and other payables, bank loans and

current taxation. We manage our working capital by closely monitoring the level of our trade

and other receivable and payables, bank loans as well as inventories.

We were in net current assets position during the Track Record Period and the working

capital improved continuously from approximately HK$63.7 million as at 31 December 2009

to approximately HK$154.8 million at 31 December 2011. This was because we managed to

increase our level of inventory as well as trade and other receivables with the increase of

turnover, while the increase of our current liabilities was comparatively at a slower rate. Our

working capital decreased to approximately HK$83.3 million as at 30 April 2012 primarily as

a result of (i) the addition of other payables of RMB39.6 million (equivalent to approximately

HK$48.7 million) in relation to the acquisition of the remaining 30% equity interest of Qingdao

Ener. The entire amount of which will be paid from the net proceeds from the Share Offer; and

(ii) long term bank loans becoming current liabilities on 30 April 2012 as they will become due

within 12 months from 30 April 2012. We expect to service our bank loans through cash

generated from our operations, net proceeds from the Share Offer and short-term bank

borrowings and long-term banking facilities from commercial banks. Our cash level as at 30

April 2012 decreased when comparing with that as at 31 December 2011 primarily as a result

of net repayment of bank loans of approximately HK$34.8 million. As at the Latest Practicable

Date, we had unutilised banking facilities of RMB80.0 million (equivalent to approximately

HK$98.4 million) expiring in June 2014.

As at the Latest Practicable Date, our cash level has increased to a higher level when

compared with that as at 31 December 2011 primarily as a result of the cash flow generated

from the operation and net proceeds from bank borrowings.

Our Directors are of the opinion that, taking into account the financial resources available

to us including internally generated funds, unutilised banking facilities and the estimated net

proceeds from the Share Offer, we have sufficient working capital for our present requirements

and for the next 12 months from the date of this prospectus.


– 233 –

INDEBTEDNESS

Our outstanding balances of bank borrowings as at 31 December 2009, 2010 and 2011

were approximately HK$260.1 million, approximately HK$293.8 million, and approximately

HK$301.0 million, respectively. The bank borrowings during the Track Record Period were

used for (i) purchase of equipment and (ii) general working capital of our Group.

Below is a summary of our indebtedness as at 31 December 2009, 2010 and 2011 and 30

April 2012:

As at 31 December

As at

30 April

2009 2010 2011 2012

HK$’000 HK$’000 HK$’000 HK$’000

Bank borrowings(Note 1)

Secured(Note 2) 237,370 270,301 276,304 241,498

Unsecured(Note 3) 22,715 23,505 24,671 24,716

Amounts due to Mr. Guo(Note 4) 30,221 27,967 12,586 4,519

Total 290,306 321,773 313,561 270,733

Notes:

1. The weighted average effective interest rate on bank borrowings is 5.69%, 5.94% and 6.69% per annum

for the three years ended 31 December 2011, respectively. All borrowings are denominated in RMB.

2. Secured by our land use rights, buildings, plant and machinery, inventories, bank deposits or bank bills

our secured bank borrowings bear fixed interest rates from 4.43% to 6.63% per annum or floating

interest rates ranging from 90% to 120% of the benchmark borrowing rate in the PRC as at 31

December 2009 and 2010 and 2011.

3. Unsecured bank borrowings bear fixed interest rate as at 31 December 2009, 2010 and 2011.

4. Amount due to Mr. Guo as at 31 December 2009, 2010 and 2011 represents advances from Mr. Guo for

our working capital purposes. All the amounts due to related parties as at 30 April 2012 have been

settled as at the Latest Practicable Date.

As at 31 December 2011, we had outstanding amount due to Mr. Guo of approximately

HK$12.6 million and bank borrowings of approximately HK$301.0 million, most of which

were secured by fixed charges on certain land use rights, buildings, plant and machinery owned

by us and by guarantee given by Qingdao Justo Packaging Co., Ltd (which is one of our major

customers), Qingdao Xurui Investment Guarantee Co., Ltd., (which is a financing and

investment company) and Qingdao Xurui Industry and Trade Co., Ltd. (青島旭瑞工貿有限公司) (which is a trading company). Save as disclosed above and apart from intra-group

liabilities, we did not have outstanding mortgages, charges, debentures, loan capital, bank

overdrafts, loans, debt securities or other similar indebtedness, liabilities under acceptances or

acceptance credits or any guarantee or other material contingent liability outstanding as at 31

December 2011.


– 234 –

Set out below is a summary of guarantees provided to our Group in respect of banking

facilities by the connected persons of our Group:

As at 31 December

2009 2010 2011

HK$’000 HK$’000 HK$’000

Qingdao Justo Packaging Co.,

Ltd(Note 1) 56,787 58,761 –

Xuzhou Ruilong Real Estate

Development Co., Ltd.(Note 2) 27,258 – –

Qingdao Xurui Investment Guarantee

Co., Ltd.(Note 3) – – 12,335

Qingdao Xurui Industry and Trade Co.,

Ltd.* (青島旭瑞工貿有限公司)(Note 4) – – 18,503

84,045 58,761 30,838

Notes:

1. Qingdao Justo Packaging Co., Ltd. was one of our major customers engaged in the manufacturing and

sales of cigarette-related materials. It was owned as to 30% by Mr. Guo until 23 March 2011. The

guarantee was provided by Qingdao Justo Packaging Co., Ltd free of charges. Such guarantee was

released as at the Latest Practicable Date as the relevant bank loan was released.

2. Xuzhou Ruilong Real Estate Development Co., Ltd. was engaged in property development and

management in Xuzhou, the PRC. It was wholly owned by Mr. Guo. The guarantee was provided by

Xuzhou Ruilong Real Estate Development Co., Ltd free of charges.

3. Qingdao Xurui Investment Guarantee Co., Ltd was engaged in provision of guarantee and financing

services and investment and was owned by Qingdao Beizhou. The guarantee was provided by Qingdao

Xurui Investment Guarantee Co., Ltd at a rate of 1%. Qingdao Beizhou ceased to be our connected

person as at the Latest Practicable Date. Such guarantee continued to be in place as at the Latest

Practicable Date.

4. Qingdao Xurui Industry and Trade Co., Ltd. (青島旭瑞工貿有限公司) was owned by Qingdao Beizhou.

The guarantee was provided by Qingdao Xurui Industry and Trade Co., Ltd. (青島旭瑞工貿有限公司)

free of charges. Qingdao Beizhou ceased to be our connected person as at the Latest Practicable Date.

Such guarantee continued to be in place as at the Latest Practicable Date, and the related loan will be

repaid before the Listing.

5. As at the Latest Practicable Date, none of our connected persons provided any financial guarantee to

our Group.


– 235 –

As at 30 April 2012, we had cash and bank balances of HK$22.7 million. Our Directors

confirm that we were in compliance with all loan covenants throughout the Track Record

Period and up to the Latest Practicable Date. We expect to service our indebtedness and capital

commitments and to meet our other presently known and foreseeable funding requirements

through cash generated from our operations, net proceeds from the Listing and short-term bank

borrowings and long-term banking facilities from commercial banks. As at the Latest

Practicable Date, based on the consents provided by the relevant banks, our Directors

confirmed that there is no foreseeable obstacle to obtain the same amount of banking facilities

upon expiry of their respective terms.

All our Group’s banking facilities did not contain non-customary covenants and we are

able to fulfil all of them during the Track Record Period and up to the Latest Practicable Date.

As at the Latest Practicable Date, we had unutilised banking facilities of RMB80.0 million,

(equivalent to approximately HK$98.4 million) expiring in 2014 and all the bank loans were

granted without guarantee/security provided by connected persons.

During the three years ended 31 December 2011 and five months ended 31 May 2012, our

Group repaid bank loans with balance of nil, approximately HK$61.3 million, approximately

HK$106.9 million and approximately HK$109.8 million, respectively and drawn bank loans

with balance of approximately HK$123.8 million, HK$88.1 million, HK$104.8 million and

HK$80.2 million, respectively.

BALANCES WITH RELATED PARTIES

The following table sets out the maximum outstanding balances of the amounts due from

and due to related parties during the Track Record Period:


2009 2010 2011

HK$’000 HK$’000 HK$’000

Amounts due from related companies

– Shenzhen Yi’an Import and Export

Co., Ltd. 3,137 – –

– Xuzhou Long Chuan Co., Ltd. 2,564 18,920 9,854

– Xuzhou Dinuo Printing Co., Ltd. 18,765 9,237 334

– Qingdao Justo Packaging Co., Ltd. 5,712 26,530 16,760

– Qingdao Mingji Packaging

Co., Ltd. 34,760 21,166 –


Investment Limited 46,886 15,382 –

– Qingdao Xurui Investment

Guarantee Co., Ltd. – – 2,467


– 236 –


2009 2010 2011

HK$’000 HK$’000 HK$’000

Amount due from the Controlling

Shareholder

– Mr. Guo 6,951 12,984 29,443

Amounts due to related companies


Co., Ltd. 2,103 – –

– Xuzhou Long Chuan Co., Ltd. 11,617 – 848

– Xuzhou Dinuo Printing Co., Ltd. 4,782 – –


Investment Limited 41,107 – –

Amount due to the Controlling

Shareholder

– Mr. Guo 30,221 30,239 27,181

The balances with the related companies and the Controlling Shareholder are unsecured,

interest free and repayable on demand. The balances with Mr. Guo were arisen as a result of

the advance to and/or from Mr. Guo by the members of our Group. All of the balance with

Xuzhou Long Chuan Co., Ltd., Xuzhou Dinuo Printing Co., Ltd., Qingdao Justo Packaging

Co., Ltd. and Qingdao Mingji Packaging Co., Ltd. were arisen under normal business

transactions. The amount due from Qingdao Chuangji Weiye Investment Limited (“Qingdao

Chuangji”), the minority shareholder holding 30% interest in Qingdao Ener until 8 August

2010, related to an advance to it outstanding as at 31 December 2009. The amount due from

Qingdao Xurui Investment Guarantee Co., Ltd. was the deposit for the guarantee provided by

it to Qingdao Ener. As confirmed by our Directors, the balances with the related companies and

the Controlling Shareholder have been settled as at the Latest Practicable Date.

As advised by our PRC Legal Advisers, the advances to Qingdao Chuangji by our Group

did not comply with the relevant PRC laws and regulations for loans and advances, pursuant

to which, enterprises engaged in unauthorised lending could be subject to a penalty between

one to five times of the income generated under such activities, and the PRC court shall regard

the relevant agreement as invalid contract, but given that (i) no interest has been charged by

our Group in relation to such advances; (ii) all such advances have been repaid by Qingdao

Chuangji; and (iii) there were no legal disputes in connection with such advances, there is no

material risk in relation to being penalised by the relevant financial authorities to our Group.

The outstanding balances with Qingdao Chuangji were fully settled.


– 237 –

CAPITAL EXPENDITURES

Our Group’s capital expenditures principally consisted of expenditures on buildings,

construction in progress and plant and machinery. The following table sets out our Group’s

historical capital expenditures during the Track Record Period:


2009 2010 2011

HK$’000 HK$’000 HK$’000

Buildings, plant and machinery, office

equipment and other fixed assets and

motor vehicle 195,973 15,945 6,134

Construction in progress 41,265 1,118 32,753

Interests in leasehold land held for own

use under operating leases 14,089 6,453 –

251,327 23,516 38,887

The capital expenditure for the year ended 31 December 2009 was primarily related to

construction of our production facilities and installation of new workshops and equipment and

machinery of our Shuntai Factory and our Ener Factory. The capital expenditure for the two

years ended 31 December 2011 were primarily related to addition of plant and machinery and

construction of new buildings and installation of new workshops in our Shuntai Factory.

CONTRACTUAL OBLIGATIONS AND OTHER OFF-BALANCE SHEET

ARRANGEMENTS

The following table sets forth our significant debt and other contractual obligations as at

31 December 2009, 2010 and 2011:

Contractual Obligations

As of 31 December

2009 2010 2011

HK$’000 HK$’000 HK$’000

Less than one year 803 831 1,229

After one year but within five years 1,472 693 413

Total 2,275 1,524 1,642

The contractual obligations represent the future minimum operating lease payments in

relation to the non-cancellable operating lease agreements entered into by our Group.


– 238 –

Capital Commitments

As of 31 December

2009 2010 2011

HK$’000 HK$’000 HK$’000

Contracted for 465 246 3,676

Authorised but not contracted for – – 1,974

Total 465 246 5,650

As at 30 April 2012, we had capital commitment of approximately HK$2.8 million for our

production capacity expansion plan, including for the purchase of equipment and machinery of

approximately HK$79,577.

CONTINGENT LIABILITIES

As at the Latest Practicable Date, we were not involved in any material legal proceedings,

nor were we aware of any pending or potential material legal proceedings involving our Group.

OTHER KEY FINANCIAL RATIOS

As at/for the year ended 31 December

2009 2010 2011

% % %

Current ratio(Note 1) 132 142 154

Gearing ratio(Note 2) 143 146 99

Return on equity(Note 3) 32 38 36

Notes:

1. Current ratio equals current assets and then divided by current liabilities as at the end of the relevant

period, and multiplied by 100%.

2. Gearing ratio equals net debt divided by shareholder’s equity as at the end of the relevant period, and

multiplied by 100%.

3. Return on equity equals profit for the year divided by total equity as at the end of the relevant period,

and multiplied by 100%.

Our current ratio increased from approximately 132% as at 31 December 2009 to

approximately 142% as at 31 December 2010 and then to approximately 154% as at 31

December 2011. The increase in the current ratio across the Track Record Period was mainly

contributed by the increase in our level of inventory as well as trade and other receivables as

a result of the expansion of our business, while the increase of our current liabilities was

comparatively at a slower rate.


– 239 –

Our gearing ratio slightly increased from approximately 143% as at 31 December 2009

to approximately 146% as at 31 December 2010 and then decreased to approximately 99% as

at 31 December 2011. The decrease from approximately 143% to approximately 99% is mainly

due to the increase in equity as a result of the profit generated by our Group, while the level

of our interest-bearing liabilities was relatively stable.

Our return on equity increased from approximately 32% for the year ended 31 December

2009 to approximately 38% for the year ended 31 December 2010 as our Shuntai Factory and

our Ener Factory was in full year operation in 2010. Our return on equity was approximately

36% for the year ended 31 December 2010 which was comparable to that for the year ended

31 December 2009.

DISTRIBUTABLE RESERVES

Our Company was incorporated in the Cayman Islands on 24 February 2012. As at 31

December 2011, no distributable reserves were available in cash for distribution to our

Shareholders.

DIVIDEND POLICY

The payment and the amount of dividends will be at the discretion of our Directors and

will depend on our Group’s future operations and earnings, capital requirements and surplus,

general financial conditions and other factors which our Directors consider to be relevant.

Our Group currently does not have a fixed dividend policy. While we intend to make

dividend payment in the future, the form, frequency and amount of future dividends on our

Shares will depend on the level of cash and retained earnings, the results of operations, the

capital expenditure requirements, the expansion and/or investment plans and other factors that

our Directors may deem appropriate. There is no assurance that dividends will be paid in the

future. Neither will there be any assurance regarding the amount or timing of any dividends

that will be paid in the future.

During the Track Record Period, our subsidiaries, Jiangsu Shuntai, Jiangsu Sheen Colour,

Qingdao Ener, Ling Xian Fei Yu and Sheen HK, had recognised dividend as declared to its

shareholder(s) prior to the Reorganisation and the details are set forth as follows:


2009 2010 2011

HK$’000 HK$’000 HK$’000

Shareholders of Jiangsu Shuntai – 29,436 83,357

Shareholders of Jiangsu Sheen Colour – 24,041 14,752

Shareholders of Qingdao Ener – – –

Shareholder of Ling Xian Fei Yu – 103 4,766

Shareholder of Sheen HK – 26,500 –


– 240 –

Subsequent to 31 December 2011, our Group declared a dividend of approximately

HK$165.6 million, of which approximately HK$36.3 million was settled in form of setting off

the current account with Mr. Guo and approximately HK$129.3 million was/will be settled in

the form of cash payment. The settlement in the form of setting off the current account of Mr.

Guo has been completed before the Latest Practicable Date while the cash payment was/will

be made prior to the Listing Date.

PROPERTY INTEREST AND PROPERTY VALUATION

Greater China Appraisal Limited, an independent property valuer, has valued our property

interest as at 30 April 2012 and is of the opinion that the value of our property interests is an

aggregate amount of HK$215 million. The full text of the letter, summary of values and

valuation certificate with regard to such property interests are set out in Appendix III to this

prospectus.

Disclosure of the reconciliation of the property and land use rights interests and the

valuation of such property and land use rights interests as required under Rule 5.07 of the

Listing Rules is set out below:

HK$’000

Valuation as at 30 April 2012 as per Appendix III to this

prospectus 215,000- - - - - - - - -

Net book value of property and land use rights interests

as at 31 December 2011 166,059

Less: Depreciation and amortisation for the four months

after year ended 31 December 2011 (2,384)

Net book value as at 30 April 2012 (unaudited) 163,675- - - - - - - - -

Valuation surplus 51,325

DISCLOSURE REQUIRED UNDER CHAPTER 13 OF THE LISTING RULES

Our Directors have confirmed that there are no circumstances which, had we been

required to comply with Rules 13.13 to 13.19 in Chapter 13 of the Listing Rules, would have

given rise to a disclosure requirement under Rules 13.13 to 13.19 of the Listing Rules.

NO MATERIAL ADVERSE CHANGE

Our Directors confirm that there has been no material adverse change in our financial or

trading position or prospects since 31 December 2011 and there is no event since 31 December

2011, including any shortfall of working capital or deteriorating cash position after the Track

Record Period, which would materially affect the information shown in the Accountants’

Report set out in Appendix I to this prospectus.


– 241 –

UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

An unaudited pro forma statement of adjusted consolidated net tangible assets of our

Group, based on the consolidated net tangible assets attributable to equity shareholders of the

Company as at 31 December 2011 as set out in “Appendix I – Accountants’ Report” and

prepared in accordance with Rule 4.29 of the Listing Rules, is set out in Appendix II to this

prospectus.

QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISKS

Market risk is the risk that the fair value or future cash flows of a financial instrument

will fluctuate because of changes in economic environment. Market risk comprises four types

of risks: credit risk, liquidity risk, interest rate risk and currency risk.

Credit risk

Our Group’s credit risk is primarily attributable to trade and other receivables. Credit

evaluations are performed on all customers requiring credit over a certain amount. These

evaluations focus on the customer’s past history of making payments when due and current

ability to pay and take into account information specific to the customer as well as pertaining

the economic environment in which the customer operates. Trade and bill receivables are due

within 30 to 180 days from the date of billing. Debtors with balances that are more than 1 year

from the date of billing are requested to settle all outstanding balances before any further credit

is granted. Normally, our Group does not obtain collateral from customers.

As at 31 December 2009, 2010 and 2011, our Group has a certain concentration of credit

risk as 1.8%, 54.2% and 54.2% of the total trade debtors were due from our largest customer

and 50.6%, 72.6% and 80.4% of the total trade debtors were due from our five largest

customers as at 31 December 2009, 2010 and 2011 respectively.

The maximum exposure to credit risk is represented by the carrying amount of each

financial asset in the statements of financial position.

Our Group does not provide any other guarantees which would expose our Group to credit

risk. Further quantitative disclosures in respect of our Group’s exposure to credit risk arising

from trade and other receivables are set out in the Accountants’ Report in Appendix I to this

prospectus.

Liquidity risk

Individual operating entities within our Group are responsible for their own cash

management, including the short term investment of cash surpluses and the raising of loans to

cover expected cash demands, subject to approval by the management and directors when the

borrowing exceeds certain predetermined levels of authority. Our Group’s policy is to regularly

monitor its liquidity requirements and our compliance with lending covenants, to ensure that

we maintain sufficient reserves of cash and adequate committed lines of funding from major

financial institutions to meet its liquidity requirements in the short and longer term.


– 242 –

The following table shows the remaining contractual maturities of our Group’s financial

liabilities as at 31 December 2009, 2010 and 2011 respectively, which are based on contractual

undiscounted cash flows (including interest payments computed using contractual rates or, if

floating, based on rates current as at 31 December 2009, 2010 and 2011 respectively) and the

earliest date our Group can be required to pay:


Contractual undiscounted cash flow

Carrying

amount Total

Within

1 year or

on demand

More than

1 year but

within

2 years

More than

2 years but

within

5 years

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Trade and other payables 133,239 133,239 133,239 – –

Bank loans 260,085 297,253 65,898 39,183 192,172

393,324 430,492 199,137 39,183 192,172



Carrying

amount Total

Within

1 year or

on demand

More than

1 year but

within

2 years

More than

2 years but

within

5 years

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000


Bank loans 293,806 332,389 123,458 58,695 150,236

419,865 458,448 249,517 58,695 150,236



Carrying

amount Total

Within

1 year or

on demand

More than

1 year but

within

2 years

More than

2 years but

within

5 years

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000


Bank loans 300,975 342,873 174,802 10,642 157,429

402,866 444,764 276,693 10,642 157,429


– 243 –

Interest rate risk

Our Group’s interest rate risk arises primarily from bank loans and cash at bank issued

at variable rates that expose our Group to cash flow interest rate risk. Our Group does not use

financial derivatives to hedge against the interest rate risk. Our Group defines “net borrowings”

as being interest-bearing financial liabilities less interest bearing investments. Our Group’s

interest rate profile as monitored by management is set out in (i) below.

(i) Interest rate profile

The following table details the interest rate profile of our Group’s interest-generating

financial assets and interest-bearing financial liabilities as at 31 December 2009, 2010 and

2011 respectively:

2009 2010 2011

Effective

interest

rate

Effective

interest

rate

Effective

interest

rate

% $’000 % $’000 % $’000

Fixed rate borrowings:

Bank loans 5.31 (22,715) 4.43 – 5.31 (47,009) 6.03 – 6.63 (74,011)- - - - - - - - - - - - - - - - - - - - - - - - - - -

Net variable rate

borrowings:

Bank loans 4.86 – 6.05 (237,370) 5.04 – 6.53 (246,797) 5.49 – 7.87 (226,964)

Less: Cash and cash

equivalents 0.01 – 0.36 89,869 0.01 – 0.36 63,778 0.01 – 0.50 63,013

(147,501) (183,019) (163,951)- - - - - - - - - - - - - - - - - - - - - - - - - - -

Total net borrowings (170,216) (230,028) (237,962)

(ii) Sensitivity analysis

At 31 December 2009, 2010 and 2011, it is estimated that a general decrease/increase of

100 basis points in interest rates, with all other variables held constant, would

increase/decrease our Group’s profit after tax and retained profits by approximately

HK$1,106,000, approximately HK$1,372,000 and approximately HK$1,230,000 for the three

years ended 31 December 2011 respectively.


– 244 –

The sensitivity analysis above indicates the annualised impact on our Group’s interest

expense that would arise assuming that the change in interest rates had occurred as at 31

December 2009, 2010 and 2011 respectively and had been applied to floating rate instruments

which expose our Group to cash flow interest rate risk at that date. The analysis does not take

into account exposure to fair value interest rate risk arising from fixed rate instruments as our

Group does not hold any fixed rate instruments which are measured at fair value. This analysis

has been performed on the same basis throughout the Track Record Period.

Currency risk

The Group is exposed to currency risk primarily through sales and purchases made by the

PRC subsidiaries which give rise to receivables, payables, cash balances and bank loans that

are denominated in US dollars. Presently, the Group has no hedging policy with respect to the

foreign exchange exposure.

Exposure to currency risk

The following table details our Group’s exposure as at 31 December 2009, 2010 and 2011

respectively to currency risk arising from recognised assets or liabilities denominated in a

currency other than the functional currency of the entity to which they relate. For presentation

purposes, the amounts of the exposure are shown in HK$, translated using the spot rate as at

31 December 2009, 2010 and 2011 respectively. Differences resulting from the translation of

the financial information of foreign operations into our Group’s presentation currency are

excluded.

Exposure to US dollars

(expressed in Hong Kong dollars)

2009 2010 2011

HK$’000 HK$’000 HK$’000

Cash and cash equivalents 643 – –

Net exposure arising from recognised

assets and liabilities 643 – –

As the functional currencies for all subsidiaries in the PRC are RMB, these subsidiaries

do not expose to any currency risk due to the exchange rate movement of RMB. For

subsidiaries established outside of the PRC, they have no material financial assets and

liabilities denominated in RMB. Accordingly, our Group’s exposure to RMB currency risk is

insignificant.


– 245 –

The following table indicates the instantaneous change in our Group’s profit after tax and

retained profits that would arise if foreign exchange rates to which our Group has significant

exposure at the end of the year had changed at that date, assuming all other risk variables

remained constant.

2009 2010 2011

Increase/

(decrease)

in foreign

exchange

rates

Effect on

profit

after tax

and

retained

profits

Increase/

(decrease)

in foreign

exchange

rates

Effect on

profit

after tax

and

retained

profits

Increase/

(decrease)

in foreign

exchange

rates

Effect on

profit

after tax

and

retained

profits

% HK$’000 % HK$’000 % HK$’000

USD 5 24 5 – 5 –

USD (5) (24) (5) – (5) –

Results of the analysis as presented in the above table represent an aggregation of the

instantaneous effects on each of our Group entities’ profit after tax measured in the respective

functional currencies, translated into HK$ at the exchange rate ruling as at 31 December 2009,

2010 and 2011 respectively for presentation purposes. The sensitivity analysis assumes that the

change in foreign exchange rates had been applied to re-measure those financial instruments

held by our Group which expose our Group to foreign currency risk as at 31 December 2009,

2010 and 2011 respectively. The analysis excludes differences that would result from the

translation of the financial information of foreign operations into our Group’s presentation

currency. The analysis is performed on the same basis for the Track Record Period.

Fair values

All financial instruments are carried at amounts not materially different from their

carrying amounts because of the immediate or short term maturity of these financial

instruments as at 31 December 2009, 2010 and 2011.

Estimation of fair values

The following summarises the major methods and assumptions used in estimating the fair

values of financial instruments.

Interest-bearing loans

The fair value is estimated as the present value of future cash flows, discounted at current

market interest rates for similar financial instruments.


– 246 –

FUTURE PLANS

Please see “Business – Business strategies” in this prospectus for a detailed discussion of

our future plans.

USE OF PROCEEDS

Assuming that the Over-allotment Option is not exercised and assuming an Offer Price of

HK$1.38 per Share (being the mid-point of the estimated price range), we estimate that the net

proceeds of the Share Offer will be approximately HK$110.8 million, after deducting the

underwriting commissions and other expenses borne by our Group in relation to the Share

Offer of approximately HK$27.2 million. We intend to use such net proceeds as follows:


proceeds from the Share Offer, will be used for strategic acquisition. An amount of

RMB39.6 million (equivalent to approximately HK$48.7 million) out of such net

proceeds will be applied towards the payment of the consideration payable for the

acquisition of the 30% equity interest in Qingdao Ener pursuant to an equity transfer

agreement dated 13 March 2012 entered into between Qingdao Beizhou and Sheen

HK. Such amount has not been provided in the Accountants’ Report as set out in

Appendix I to this prospectus as it is an event subsequent to the year end date (for

details, please refer to the section headed “History and development – Our

subsidiaries – Qingdao Ener” in this prospectus). Save as aforesaid, as at the Latest

Practicable Date, we had no specific plans as to how to utilise the remaining balance

of approximately HK$6.6 million in other acquisition opportunities and have not

identified any specific acquisition targets. In assessing future acquisition targets, we

would consider (i) whether such acquisition target is an approved supplier of our

target customers; (ii) the location of its production facilities; (iii) reputation of such

company in the industry; (iv) scale of operation of such company; and (v) historical

financial performance of such company;


proceeds from the Share Offer, will be used for repayment of a bank loan which has

a principal amount of RMB40,000,000, bearing interest rate of 4.86% per annum,

unsecured and with a maturity date of 5 August 2012. The remaining balance of the

loan will be settled by our internal resources and/or new bank loan;


proceeds from the Share Offer, will be used for expansion of market share. As

different customers and different cigarette brands may have very different packaging

requirement, we may need to purchase new machineries, set up new workshops

and/or hire staff with different expertise to handle the new products if so requested

by our existing and/or new customers from time-to-time. As at the Latest

Practicable Date, we have not been engaged by a customer which have product

requirements that cannot be handled by the existing machinery and/or existing staff

so that we did not have concrete plan to purchase new machineries set up new

workshops and/or hire staff with different experience;

FUTURE PLANS AND USE OF PROCEEDS

– 247 –


proceeds from the Share Offer, will be used for strengthening product development

and further enhance our quality management. We aim to increase our market share

and profitability by offering more anti-counterfeiting features to our cigarette

manufacturer customers and potential customers on packing of their products for the

purpose of distinguishing counterfeit cigarettes from the genuine cigarettes

produced by them; and


proceeds from the Share Offer, will be used for the working capital of our Group.

If the Offer Price is set at the high-end or low-end of the proposed Offer Price range, the

net proceeds of the Share Offer (assuming the Over-allotment Option is not exercised) will

increase or decrease by approximately HK$29.1 million, respectively. In such event, our Group

will increase or decrease the allocation of the net proceeds to the above purposes in the same

proportions as set out above.

In the event that the Over-allotment Option is exercised, the additional net proceeds of

about HK$20.3 million (assuming that the Offer Price is determined at the mid-point of the

stated range) will be applied by our Company to the above purposes in the same proportions

as set out above.

To the extent that the net proceeds of the Share Offer are not immediately required for the

above purposes, our Group presently intends that such proceeds will be placed on short-term

deposits with licensed banks or financial institutions.

FUTURE PLANS AND USE OF PROCEEDS

– 248 –

THE CORNERSTONE PLACING

On 25 June 2012, as part of the Placing, our Company, the Sole Sponsor and the Sole

Bookrunner have entered into a cornerstone investor agreement (the “Cornerstone Placing

Agreement”) with Starjade International (HK) Co., Limited (the “Cornerstone Investor”) and

its sole owner, being Mr. Wang Yu Feng, which has offered to, as more particularly described

below, purchase at the Offer Price for such number of Offer Shares that may be purchased with

an aggregate amount of HK$10,000,000 (excluding brokerage, SFC transaction levy and Stock

Exchange trading fee), rounded down to the nearest board lot based on the final Offer Price.

Set out below are the shareholding of the Cornerstone Investor assuming the Offer Price is at

the low-end, the mid-point and the high-end of the stated Offer Price (without taking into

account any Shares which may be issued pursuant to the exercise of the Pre-IPO Share Options

and any options which may be granted under the Share Option Scheme):

Offer Price

Total number of

Shares that would

be subscribed

Approximate

percentage of

shareholding in

the total issued

share capital of

our Company

immediately after

the Share Offer

(assuming the

Over-allotment

Option is not

exercised)

Approximate

percentage of

shareholding in

the total issued

share capital of

our Company

immediately after

the Share Offer

(assuming the

Over-allotment

Option is fully

exercised)

HK$1.08 9,258,000 2.3% 2.2%

HK$1.38 7,246,000 1.8% 1.7%

HK$1.68 5,952,000 1.5% 1.4%

Details of the actual consideration to be paid by the Cornerstone Investor will be

disclosed in the allotment results announcement to be issued by our Company on or around 12

July 2012.

Each of the Cornerstone Investor and its ultimate beneficial owner is an Independent

Third Party, and are not existing shareholders of our Company and will not be or is not

expected to be a substantial shareholder of our Company upon the Listing. The Cornerstone

Investor will not subscribe for any Offer Shares under the Share Offer other than pursuant to

the Cornerstone Placing Agreement for the cornerstone placing. Immediately upon the

completion of the Share Offer, the Cornerstone Investor will not have any board representation

in our Company.

CORNERSTONE INVESTOR

– 249 –

The Offer Shares to be subscribed for by the Cornerstone Investor will rank pari passu in

all respect with the fully paid Shares in issue, will be counted towards the public float of our

Company under Rule 8.24 of the Listing Rules and forms part of the Placing. The Offer Shares

to be subscribed for by the Cornerstone Investor will not be affected by any re-allocation of

the Offer Shares to the Public Offer in the event of over-subscription under the Public Offer

as described in the section headed “Structure and conditions of the Share Offer – re-allocation

of Offer Shares between the Public Offer and the Placing” nor by any exercise of the

Over-allotment Option.

THE CORNERSTONE INVESTOR

The Cornerstone Investor is incorporated in Hong Kong with limited liabilities and is

wholly owned by Mr. Wang Yu Feng (王玉峰). The Cornerstone Investor, together with its

affiliates, is principally engaged in technology development, design, manufacturing and sale of

digital storage products.

CONDITIONS PRECEDENT

The subscription obligation of the Cornerstone Investor is subject to, among other things,

the following conditions precedent:

(i) the Underwriting Agreements being entered into by, among other parties, our

Company and the Sole Bookrunner and having become unconditional and not having

been terminated in accordance with its terms by no later than prior to 8:00 a.m. on

the Listing Date; and

(ii) that the Cornerstone Investor’s warranties in the Cornerstone Placing Agreement are

accurate and true and not misleading in all material respects and that there is no

breach of the Cornerstone Placing Agreement on the part of the Cornerstone

Investor.

Notwithstanding the conditions precedent set out above, our Company and the Sole

Bookrunner may at any time waive the condition set out in paragraph (ii) above.


– 250 –

RESTRICTIONS ON THE CORNERSTONE INVESTOR INVESTMENT

Pursuant to the Cornerstone Placing Agreement, the Cornerstone Investor and its sole

owner have covenanted with and undertaken to our Company, the Sole Sponsor and the Sole

Bookrunner, among others, that:

(i) without the prior written consent of our Company, the Sole Sponsor and the

Bookrunner, it will not at any time during the period of six months following the

Listing Date (“Lock-up Period”), directly or indirectly, dispose of any of the Shares

held by the Cornerstone Investor or any interest in any other company holding such

Shares, nor will the Cornerstone Investor agree or contract to, or publicly announce

any intention to enter into any such transaction described above; and

(ii) in the event of a disposal of any of the Shares referred to in paragraph (i) above at

any time after the Lock-up Period or agree or contract to, or publicly announce any

intention to enter into any such transaction described above, the Cornerstone

Investor shall first notify our Company in writing in advance and shall use its or his

best endeavours to ensure that any such disposal will not create a disorderly or false

market for the Shares and is otherwise in compliance with all laws, regulations and

securities rules in all relevant jurisdiction.

The Cornerstone Investor has further agreed, among others, that:

(i) save with the prior written consent of our Company, the aggregate holding (direct

and indirect) of the Cornerstone Investor and its associates in the total issued share

capital of our Company shall be less than 10% of our Company’s entire issued share

capital within 12 months from the Listing Date except for an increase in the

Cornerstone Investor’s shareholding as a result of any repurchase of Shares by our

Company; and

(ii) it shall not, and shall procure that none of its associates shall, apply for or place an

order through the book building process for the Shares in the Share Offer (other than

the Offer Shares subscribed under the Cornerstone Placing Agreement).


– 251 –

PUBLIC OFFER UNDERWRITERS




UNDERWRITING ARRANGEMENTS AND EXPENSES

Public Offer Underwriting Agreement

Pursuant to the Public Offer Underwriting Agreement, our Company is offering the Public

Offer Shares for subscription under the Public Offer on the terms and subject to the conditions

set out in this prospectus and the related Application Forms.

Subject to (i) the Listing Committee granting listing of, and permission to deal in our

Shares in issue and to be issued as mentioned in this prospectus and (ii) certain other conditions

set out in the Public Offer Underwriting Agreement, including the Sole Bookrunner (on behalf

of the Underwriters) and our Company agreeing to the Offer Price, the Public Offer

Underwriters have severally agreed to subscribe for or procure subscribers to subscribe for the

Public Offer Shares which are being offered but are not taken up under the Public Offer on the

terms and conditions of the Public Offer Underwriting Agreement.

Grounds for termination

The obligations of the Public Offer Underwriters to subscribe for or to procure

subscribers to subscribe for the Public Offer Shares under the Public Offer Underwriting

Agreement are subject to termination by notice in writing to our Company. The Sole

Bookrunner (on behalf of the Public Offer Underwriters) is entitled to terminate the Public

Offer Underwriting Agreement upon the occurrence of any of the following events by notice

in writing to our Company given at any time prior to 8:00 a.m. on the Listing Date

(“Termination Time”) if, at any time before the Termination Time:

(a) there comes to the notice of the Sole Sponsor, the Sole Bookrunner, the Public Offer

Underwriters or any of them:

(i) that any statement contained in, among other things, this prospectus,

Application Forms, documents used and/or to be used by the Placing

Underwriters or its affiliates in connection with the Placing and/or any

announcements issued by our Company in connection with the Share Offer

(including any supplement or amendment thereto) was, when it was issued, or

has become, untrue, incorrect or misleading in any material respect, or that any

forecasts, expressions of opinion, intention or expectation expressed in, among

other things, this prospectus and/or any announcements issued by our

Company in connection with the Share Offer (including any supplement or

amendment thereto) are not fair and honest in any material respect and based

on reasonable assumptions, when taken as a whole; or

UNDERWRITING

– 252 –

(ii) that any matter has arisen or has been discovered which would, had it arisen

or been discovered immediately before the date of this prospectus, constitute

a material omission therefrom; or

(iii) any breach of any of the obligations imposed upon any party to the Public

Offer Underwriting Agreement in any material respect (other than the Sole

Sponsor, the Sole Bookrunner or the Public Offer Underwriters); or

(iv) any event, act or omission which gives or is likely to give rise to any material

liability of any of our Controlling Shareholders, our executive Directors and

our Company pursuant to the indemnification provisions under the Public

Offer Underwriting Agreement; or

(v) any material adverse change or development involving a prospective material

adverse change in the assets, liabilities, conditions, business affairs, profits,

losses or financial or trading position or performance of any members of our

Group; or

(vi) any breach of, or any event rendering untrue or incorrect, any of the warranties

given by our Controlling Shareholders, our executive Directors or our

Company in the Public Offer Underwriting Agreement in any material respect;

or

(vii) any event, series of events, matters or circumstances occurs or arises on or

after the date of the Public Offer Underwriting Agreement and before the

Termination Time, being events, matters or circumstances which, if it had

occurred before the date of the Public Offer Underwriting Agreement would

have rendered any of the warranties given by our Controlling Shareholders, our

executive Directors or our Company contained in the Public Offer

Underwriting Agreement untrue, incorrect or misleading in any respect, and

comes to the knowledge of the Sole Sponsor, the Sole Bookrunner or any of the

Public Offer Underwriters and which is considered, in the sole and reasonable

opinion of the Sole Bookrunner (on behalf of the Public Offer Underwriters),

to be material in the context of the Share Offer; or

(viii) any event, act or omission which gives or is likely to give rise to any material

liability of any of our Controlling Shareholders, our executive Directors and

our Company arising out of or in connection with any representations,

warranties or undertakings contained in the Public Offer Underwriting

Agreement; or

(b) there shall develop, occur, exist or come into effect:

(i) any event of force majeure including, without limiting the generality thereof,

any act of God, military action, riot, public disorder, civil commotion, tsunami,

fire, flood, explosion, terrorism (whether or not responsibility has been

claimed), strike or lockout epidemic, outbreak of diseases and epidemic

(including but not limited to H1N1 flu, severe acute respiratory syndrome and

H5N1 and other related or mutated forms); or

UNDERWRITING

– 253 –

(ii) (aa) any adverse change or development involving a prospective adverse

change or deterioration, or any event or series of events likely to result in any

adverse change or deterioration, or development involving a prospective

adverse change or deterioration, in local, national, regional or international

financial, economic, political, military, industrial, fiscal, regulatory, currency,

credit or market conditions (including, without limitation, any moratorium,

suspension or restriction on trading in securities generally on the Stock

Exchange, the New York Stock Exchange, the London Stock Exchange, the

Nasdaq National Market, the Tokyo Stock Exchange, the Shanghai Stock

Exchange or the Shenzhen Stock Exchange, or a material devaluation of the

Hong Kong dollar or the RMB respectively against any other currencies, or any

disruption in monetary or trading or securities settlement or clearance services,

procedures or matters) in or affecting Hong Kong, the PRC, the United States,

the European Union (or any member thereof) or any other jurisdiction relevant

to any member of our Group; or (bb) any deterioration of any pre-existing

local, national, regional or international financial, economic, political,

military, industrial, fiscal, regulatory, currency, credit or market conditions in

or affecting Hong Kong, the PRC, the United States, the European Union (or

any member thereof) or any other jurisdictions relevant to any member of our

Group; or

(iii) any general moratorium on commercial banking activities in Hong Kong

(imposed by the Financial Secretary or the Hong Kong Monetary Authority or

other competent authority), New York (imposed at Federal or New York State

level or other competent authority), London, the PRC, the European Union (or

any member thereof) or any other jurisdiction relevant to any member of our

Group, or there is a material disruption in commercial banking or securities

settlement or clearance services in those places; or

(iv) any new law or regulation or any change or development involving a

prospective adverse change in existing laws or regulations or any change or

development involving a prospective adverse change in the interpretation or

application thereof by any court or other competent authority in or affecting the

Cayman Islands, BVI, Hong Kong, the PRC or any other jurisdiction relevant

to any member of our Group; or

(v) the imposition of economic sanctions, in whatever form, directly or indirectly,

by, or for, the United States or the European Union (or any member thereof) on

the PRC or any other jurisdiction relevant to any member of our Group; or

(vi) an adverse change or development involving a prospective adverse change in

taxation or exchange control, currency exchange rates or foreign investment

regulations (or the implementation of any exchange control) in BVI, Hong

Kong, the PRC or any other jurisdiction relevant to any member of our Group

adversely affecting an investment in our Shares; or

UNDERWRITING

– 254 –

(vii) any litigation or claim of any third party being threatened or instigated against

any member of our Group which, if determined adversely against our Group,

would have a material and adverse effect on the financial condition of our

Group taken as a whole; or

(viii) our Directors being charged with an indictable offence or prohibited by

operation of law or otherwise disqualified from taking part in the management

of a company; or

(ix) the Chairman of our Company vacating his office; or

(x) the commencement by any governmental, regulatory or political body or

organisation of any action against our Directors which if determined adversely

against such Director, would materially and adversely affect the ability of such

Director to perform his duties and responsibilities for our Company or an

announcement by any governmental, regulatory or political body or

organisation that it intends to take any such action; or

(xi) a contravention in any material respect by any member of our Group of the

Listing Rules or applicable laws; or

(xii) a prohibition on our Company for whatever reason from allotting our Shares

pursuant to the terms of the Share Offer; or

(xiii) non-compliance of this prospectus (or any other documents used in connection

with the contemplated subscription of our Shares) with the Listing Rules or any

other applicable law; or

(xiv) an order or petition (based on valid grounds) for the winding up of any member

of our Group or any composition or arrangement made by any member of our

Group with its creditors or a scheme of arrangement entered into by any

member of our Group or any resolution for the winding-up of any member of

our Group or the appointment of a provisional liquidator, receiver or manager

over all or part of the material assets or undertaking of any member of our

Group or anything analogous thereto occurring in respect of any member of our

Group; or

(xv) any other change whether or not ejusdem generis with any of the foregoing,

which, in the sole and reasonable opinion of the Sole Bookrunner (on behalf of the

Public Offer Underwriters):

(aa) is or will be or is likely to be adverse, in any material respect, to the business,

financial or trading condition of our Group taken as a whole or, in the case of

subparagraph (vi) above, on any present or prospective shareholder in his/its

capacity as such shareholder of our Company; or

UNDERWRITING

– 255 –

(bb) has or will have or is likely to have a material adverse effect on the success of

the Share Offer as a whole or the level of the Offer Shares being demanded,

applied for or accepted or the distribution of the Offer Shares; or

(cc) for any reason makes it impracticable, inadvisable or inexpedient for the Public

Offer Underwriters to proceed with the Public Offer as a whole.

For the above purpose, a change in the system under which the value of the Hong Kong

currency is linked to that of the currency of the US or any change of the value of Hong Kong

currency under such system shall be taken as an event resulting in a change in currency

conditions; and any market fluctuations which is not within the normal range therefor, may be

considered as a change of market conditions referred to above.

Undertakings

Pursuant to the Public Offer Underwriting Agreement, each of the Controlling

Shareholders has jointly and severally undertaken with our Company, the Sole Sponsor, the

Sole Bookrunner and the Public Offer Underwriters that:

(a) it shall not, and shall procure that its associates or companies controlled by it or

nominees or trustees holding in trust for it shall not, sell, transfer or otherwise

dispose of (including without limitation the creation of any option over or pledge or

charge as security) any of our Shares or securities of our Company owned by it or

the relevant company, nominee or trustee (including any interest in any shares in any

company controlled by it which is directly or indirectly the beneficial owner of any

of the Shares or securities of our Company) immediately following the completion

of the Share Offer (“Relevant Securities”) within the period commencing on the date

by reference to which disclosure of the shareholding of such persons is made in this

prospectus and ending on the date which is six months from the Listing Date (“First

Lock-up Period”) save with the prior written consent of the Sole Bookrunner or

pursuant to the Stock Borrowing Agreement. The foregoing restriction shall not

apply to any Shares which any of the Controlling Shareholders may acquire or

become interested in following the Listing Date (save any Shares returned under the

Stock Borrowing Agreement); and

(b) it shall not, and shall procure that none of its associates or companies controlled by

it or nominees or trustees holding in trust for it shall, during the further six months

immediately after the expiry of the First Lock-up Period (the “Second Lock-up

Period”), sell, transfer or otherwise dispose of (including without limitation the

creation of any option over or pledge or charge as security) any of the Relevant

Securities, if immediately following such sale, transfer or disposal, the Controlling

Shareholders collectively would cease to be a controlling shareholder (within the

meaning of the Listing Rules) of our Company, and that in the event of any such

sale, transfer or disposal, all reasonable steps shall be taken to ensure that such sale,

transfer or disposal shall be effected in such a manner so as not to create a disorderly

or false market for our Shares during the progress of such sale, transfer or disposal

or after the completion thereof.

UNDERWRITING

– 256 –

Pursuant to the Public Offer Underwriting Agreement, our Company has undertaken to

and covenanted with the Sole Sponsor, the Sole Bookrunner and the Public Offer Underwriters

that, and each of the Controlling Shareholders and our executive Directors has jointly and

severally undertaken and covenanted with the Sole Sponsor, the Sole Bookrunner and the

Public Offer Underwriters to procure that, without the prior written consent of the Sole

Bookrunner (for itself and on behalf of the Public Offer Underwriters), and subject always to

the requirements of the Stock Exchange, save for the Offer Shares, the Shares to be issued

pursuant to the exercise of the Pre-IPO Share Options and any options which may be granted

under the Share Option Scheme, the grant of any options under the Share Option Scheme, or

by way of scrip dividend schemes or similar arrangements in accordance with the Articles, our

Company from time to time shall not:

(a) whether conditionally or unconditionally, allot and issue or agree to allot and issue

or offer any shares in our Company from time to time or agree to grant any options,

warrants or other rights carrying any rights to subscribe for or otherwise acquire any

securities of our Company from time to time during the First Lock-Up Period; or

(b) enter into any swap or other arrangement that transfers, in whole or in part, any of

the economic consequences of ownership of any share capital or securities or any

interest therein during the First Lock-Up Period; or

(c) offer to or agree to do any of the foregoing or announce any intention to do so,

whether any of the foregoing transactions is to be settled by delivery of share capital

or such other securities, in cash or otherwise during the First Lock-Up Period

(whether or not such issue of Shares or securities will be completed within such

period); or

(d) allot and issue or agree to allot and issue any of the shares or other interests referred

to in (a) above during the Second Lock-Up Period if, immediately following such

allotment and issue, (i) the Controlling Shareholders, either individually or taken

together with the others of them, would cease to be a controlling shareholder (as

defined in the Listing Rules) of our Company or the single largest shareholder of our

Company and/or (ii) there expects to be a disorderly or false market for the shares

or any other securities of our Company.

Each of our Company, our Controlling Shareholders and our executive Directors has

agreed to jointly and severally indemnify the Sole Sponsor, the Sole Bookrunner and the Public

Offer Underwriters for certain losses which they may suffer, including losses arising from their

proper performance of their obligations under the Public Offer Underwriting Agreement and

any breach by our Company of the Public Offer Underwriting Agreement.

UNDERWRITING

– 257 –

Pursuant to Rule 10.07(1) of the Listing Rules, each of the Controlling Shareholders has

undertaken to our Company and the Stock Exchange that save as pursuant to the Stock

Borrowing Agreement, or as provided under note (2) of Rule 10.07(2) of the Listing Rules, he

or it shall not and shall procure that the relevant registered shareholder(s) shall not, without

prior consent of the Stock Exchange:

(i) during the First Lock-up Period, dispose of, nor enter into any agreement to dispose

of or otherwise create any options, rights, interests or encumbrances in respect of,

any of our Shares in respect of which it or he is shown by this prospectus to be the

beneficial owner (as defined in Rule 10.07(2) of the Listing Rules (the “Locked-up

Shares”); and

(ii) within the Second Lock-up Period, dispose of, nor enter into any agreement to

dispose of or otherwise create any options, rights, interests or encumbrances in

respect of, any of the Locked-up Shares if, immediately following such disposal or

upon the exercise or enforcement of such options, rights, interests or encumbrances,

he or it would cease to be a controlling shareholder of our Company.

Each of the Controlling Shareholders has further undertaken to our Company and the

Stock Exchange that he or it will, within a period of 12 months from the Listing Date,

immediately inform our Company and the Stock Exchange of:

(a) any pledges or charges of any Shares or securities of our Company beneficially

owned by him or it in favour of any authorised institution as permitted under note

(2) of Rule 10.07(2) of the Listing Rules, and the number of such Shares or

securities of our Company so pledged or charged; and

(b) any indication received by him or it, either verbal or written, from the pledgee or

chargee that any Shares or other securities of our Company so pledged or charged

will be disposed of.

Our Company will also inform the Stock Exchange as soon as our Company has been

informed in writing of the above matters (if any) by the Controlling Shareholders and disclose

such matters by way of an announcement which shall be published in accordance with the

requirements of the Listing Rules as soon as possible.

Placing

In connection with the Placing, it is expected that our Company will enter into the Placing

Underwriting Agreement with, among other parties, the Sole Bookrunner and the Placing

Underwriters, on terms and conditions that are substantially similar to the Public Offer

Underwriting Agreement as described above. Under the Placing Underwriting Agreement, the

Placing Underwriter(s) will, subject to certain conditions, agree to subscribe for or procure

subscribers to subscribe for the Placing Shares to be offered under the Placing on the terms and

conditions of the Placing Underwriting Agreement.

UNDERWRITING

– 258 –

It is expected that under the Placing Underwriting Agreement, our Company will grant the

Over-allotment Option to the Sole Bookrunner to require our Company at any time within a

period commencing from the Listing Date and ending on the 30th day after the last date for

lodging of applications under the Public Offer, to allot and issue up to an aggregate of

15,000,000 additional new Shares, representing 15% of the Offer Shares initially being offered

under the Share Offer at the Offer Price, to cover over-allocations, if any, in the Placing.

Underwriting Commission

The Public Offer Underwriters will receive an underwriting commission of 2% of the

aggregate Offer Price payable for the Public Offer Shares and the Placing Underwriters are

expected to receive an underwriting commission of 2% of the aggregate Offer Price payable for

the Placing Shares, out of which the Public Offer Underwriters or the Placing Underwriters (as

the case may be) pay any sub-underwriting commission. Our Company may, at its sole

discretion, pay to the Sole Bookrunner (for its account only) an incentive fee of up to 1% of

the aggregated Offer Price for the Offer Shares. In addition, the Sole Sponsor will receive a

documentation fee for acting as a sponsor to the Share Offer. Based on an Offer Price of

HK$1.38 (being the mid-point of the indicative Offer Price range of HK$1.08 per Offer Share

and HK$1.68 per Offer Share) and assuming the Over-allotment Option is not exercised, such

underwriting commission and fees, together with the Stock Exchange listing fee, legal and

other professional fees, applicable printing and other expenses relating to the Share Offer are

estimated to amount to approximately HK$27.2 million in total. Such commission, fees and

expenses are borne by our Group.

Underwriters’ interests in our Company

Save for their respective obligations and interests under the Underwriting Agreements as

disclosed above and the appointment of the Sole Sponsor as compliance adviser of our

Company, none of the Underwriters has any shareholding interest in our Company or any

member of our Group or has any right (whether legally enforceable or not) to subscribe for or

to nominate persons to subscribe for securities in any member of our Group.

UNDERWRITING

– 259 –

OFFER PRICE AND PRICE PAYABLE ON APPLICATION

The Offer Price is expected to be fixed by the Price Determination Agreement to be

entered into between the Sole Bookrunner (acting for itself and on behalf of the Underwriters)

and our Company on or before the Price Determination Date, which is currently scheduled on

Friday, 6 July 2012, or such later date as the Sole Bookrunner (acting for itself and on behalf

of the Underwriters) and our Company may agree but in any event no later than 5:00 p.m.

(Hong Kong time) on Wednesday, 11 July 2012. If, for any reason, the Sole Bookrunner

(acting for itself and on behalf of the Underwriters) and our Company are unable to reach

an agreement on the Offer Price by 5:00 p.m. (Hong Kong time) on Wednesday, 11 July

2012, the Share Offer will not become unconditional and will lapse.

Prospective investors should be aware that the Offer Price to be determined on or

before the Price Determination Date may be, but is not expected to be, lower than the

indicative Offer Price range as stated in this prospectus. The Offer Price will not be more

than HK$1.68 per Offer Share and is expected to be not less than HK$1.08 per Offer Share.

The Offer Price will fall within the Offer Price range as stated in this prospectus unless

otherwise announced, as further explained below, not later than the morning of the last day for

lodging applications under the Public Offer.

The Sole Bookrunner (acting for itself and on behalf of the Underwriters) may, where

considered appropriate, based on the level of interests expressed by prospective professional,

institutional and other investors during a book-building process, and with the consent of our

Company, reduce the indicative Offer Price range below that stated in this prospectus at any

time prior to the morning of the last day for lodging applications under the Public Offer. In such

a case, our Company will, as soon as practicable following the decision to make such

reduction, and in any event not later than the morning of the last day for lodging applications

under the Public Offer, cause there to be published in The Standard (in English) and the Hong

Kong Economic Journal (in Chinese) and on our Company’s website at www.sheentai.com and

the website of the Stock Exchange at www.hkexnews.hk notice of the reduction of the

indicative Offer Price range. Upon issue of such a notice, the revised Offer Price range will be

final and conclusive and the Offer Price, if agreed between the Sole Bookrunner (acting for

itself and on behalf of the Underwriters) and our Company, will be fixed within such revised

Offer Price range. Such notice will also include confirmation or revision, as appropriate, of the

working capital statement, the Share Offer statistics as currently set out in the section headed

“Summary” in this prospectus, and any other financial information which may change as a

result of such reduction. In the absence of any notice being published in The Standard (in

English) and the Hong Kong Economic Journal (in Chinese) and on our Company’s website at

www.sheentai.com and the website of the Stock Exchange at www.hkexnews.hk of a

reduction in the indicative Offer Price range as stated in this prospectus on or before the

morning of the last day for lodging applications under the Public Offer, the Offer Price, if

agreed between the Sole Bookrunner (acting for itself and on behalf of the Underwriters) and

our Company, will under no circumstances be set outside the Offer Price range as stated in this

prospectus.

STRUCTURE AND CONDITIONS OF THE SHARE OFFER

– 260 –

Our Company expects to announce the final Offer Price, the level of indication of

interests under the Placing and the basis of allotment of the Public Offer Shares under the

Public Offer on or before Thursday, 12 July 2012 in The Standard (in English) and the Hong

Kong Economic Journal (in Chinese) and on our Company’s website at www.sheentai.com and

the website of the Stock Exchange at www.hkexnews.hk.

Results of allocations in the Public Offer, including the Hong Kong identity

card/passport/Hong Kong business registration certificate numbers of successful applicants

(where supplied) and the number of Public Offer Shares successfully applied for will be made

available as described under the section headed “How to apply for the Public Offer Shares –

Publication of results” in this prospectus.

The Offer Price will not be more than HK$1.68 per Offer Share and is expected to be not

less than HK$1.08 per Offer Share. Applicants under the Public Offer should pay, on

application, the maximum price of HK$1.68 per Offer Share plus 1% brokerage, 0.005% Stock

Exchange trading fee and 0.003% SFC transaction levy, amounting to a total of HK$3,393.87

per board lot of 2,000 Offer Shares. The Application Forms have tables showing the exact

amount payable for certain multiples of the Public Offer Shares.

If the Offer Price, as finally determined in the manner described above, is lower than the

maximum price of HK$1.68 per Offer Share, appropriate refund payments (including the

related brokerage, the Stock Exchange trading fee and the SFC transaction levy attributable to

the excess application monies) will be made to applicants, without interest. Further details are

set out in the section headed “How to apply for the Public Offer Shares” in this prospectus.

CONDITIONS OF THE SHARE OFFER

Acceptance of all applications for the Offer Shares is conditional upon satisfaction of all

of the following conditions:

(i) the Listing Committee granting the approval of the listing of, and permission to deal

in, our Shares in issue and our Shares to be issued pursuant to the Share Offer and

our Shares which fall to be allotted and issued upon the exercise of the

Over-allotment Option on or before 8:00 a.m. on the Listing Date or such later date

as the Sole Bookrunner (acting for itself and on behalf of the Underwriters) may

agree in writing but in any event not later than 30 days after the date of this

prospectus (and such listing and permission not subsequently being revoked prior to

the commencement of dealings in our Shares on the Stock Exchange);

(ii) the Offer Price having been duly determined between our Company and the Sole

Bookrunner (acting for itself and on behalf of the Underwriters) on or before the

Price Determination Date; and


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(iii) the obligations of the Underwriters under the Underwriting Agreements becoming

unconditional (including the waiver of any condition(s) by the Sole Bookrunner for

itself and on behalf of the Underwriters) and not being terminated in accordance

with their respective terms prior to 8:00 a.m. on the Listing Date. Details of the

Public Offer Underwriting Agreement, the grounds for its termination, are set out in

the section headed “Underwriting” in this prospectus.

If the above conditions are not fulfilled or waived, prior to the dates and times specified,

the Share Offer will lapse and the Stock Exchange will be notified immediately. Notice of the

lapse of the Public Offer will be published by our Company in The Standard (in English) and

the Hong Kong Economic Journal (in Chinese) on the next day following such lapse. In such

event, all application monies will be returned, without interest, on the terms set out in this

section headed “How to apply for the Public Offer Shares – Despatch/collection of share

certificates, e-Auto Refund payment instructions and refund cheques” in this prospectus. In the

meantime, the application monies will be held in separate bank account(s) with the receiving

bankers or other licensed bank(s) in Hong Kong under the Banking Ordinance (Chapter 155 of

the Laws of Hong Kong).

THE SHARE OFFER

The Share Offer comprises the Placing and the Public Offer. A total of 100,000,000 Shares

will be made available under the Share Offer, of which 90,000,000 Shares, representing 90%

of the total number of Shares initially being offered under the Share Offer, will be offered for

subscription under the Placing. The remaining 10,000,000 Shares, representing 10% of the total

number of Shares initially being offered under the Share Offer, will be offered for subscription

under the Public Offer. The number of Shares offered for subscription under the Placing and

the Public Offer will be subject to re-allocation on the basis described below. No pre-emption

right or right to subscribe for the Offer Shares has been granted.

In connection with the Share Offer, our Company has granted to the Sole Bookrunner the

Over-allotment Option which is exercisable at any time during the period commencing from

the Listing Date until 30 days from the last date for the lodging of applications under the Public

Offer. Pursuant to the Over-allotment Option, our Company may be required to issue up to an

aggregate of 15,000,000 additional Shares (representing 15% of the number of Shares initially

being offered under the Share Offer) to cover over-allocations in the Placing. Please refer to

the sub-section headed “Over-allotment Option and Stabilisation” in this section below for

further details.

THE PLACING

Our Company is initially offering 90,000,000 Placing Shares, representing 90% of the

total number of Shares initially being offered in the Share Offer, for subscription by way of the

Placing. The Placing will be managed by the Sole Bookrunner and is expected to be fully

underwritten by the Placing Underwriters, subject to the terms and conditions of the Placing

Underwriting Agreement. It is expected that the Placing Underwriters or any selling agents


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which they nominate will, on behalf of our Company, conditionally place the Placing Shares

at the Offer Price plus 1% brokerage, 0.003% SFC transaction levy and 0.005% Stock

Exchange trading fee with selected professional, institutional and other investors. Professional

and institutional investors generally include brokers, dealers, companies and fund managers,

whose ordinary businesses involve dealing in shares and other securities and corporate entities

which regularly invest in shares and other securities. It is expected that the Placing

Underwriting Agreement will be entered into on or around the Price Determination Date.

Allocation of the Placing Shares pursuant to the Placing is based on a number of factors,

including the level and timing of demand and whether or not it is expected that the relevant

investor is likely to buy further and/or hold or sell its Shares after the Listing. Such allocation

is generally intended to result in a distribution of the Placing Shares on a basis which would

lead to the establishment of a broad shareholder base to the benefit of our Company and its

Shareholders as a whole. Investors to whom Placing Shares are offered are required to

undertake not to apply for the Public Offer Shares under the Public Offer. The level of

indication of interest in the Placing is expected to be published in The Standard (in English)

and the Hong Kong Economic Journal (in Chinese) on Thursday, 12 July 2012. The Placing is

subject to the conditions stated in the paragraph headed “Conditions of the Share Offer” above.

If the Public Offer is not fully subscribed, the Sole Bookrunner may re-allocate all or any

unsubscribed Shares originally included in the Public Offer to the Placing. The total number

of Placing Shares to be allotted and issued pursuant to the Placing may change as a result of

the clawback arrangement referred to in the sub-section headed “The Public Offer” in this

section below.

THE PUBLIC OFFER

Our Company is initially offering 10,000,000 Public Offer Shares (subject to re-allocation

as mentioned in the sub-section headed “Re-allocation of Offer Shares between the Public

Offer and the Placing” in this section below), representing 10% of the total number of Shares

initially being offered in the Share Offer, for subscription under the Public Offer. The Public

Offer Shares are being offered at the Offer Price. The Public Offer is fully underwritten by the

Public Offer Underwriters, subject to the terms and conditions of the Public Offer Underwriting

Agreement, including the Sole Bookrunner (for itself and on behalf of the Underwriters) and

our Company agreeing to the Offer Price.

The total number of Shares available for subscription under the Public Offer (after taking

into account any re-allocation referred to below) is to be divided equally into two pools for

allocation purposes: pool A and pool B. Our Shares in pool A will be allocated on an equitable

basis to applicants who have applied for Shares with an aggregate subscription price of HK$5

million (excluding the brokerage fee, the SFC transaction levy and the Stock Exchange trading

fee payable) or less. Our Shares in pool B will be allocated on an equitable basis to applicants

who have applied for Shares with an aggregate subscription price of more than HK$5 million

(excluding the brokerage fee, the SFC transaction levy and the Stock Exchange trading fee

payable) and up to the value of pool B.


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Investors should be aware that applications in pool A and applications in pool B may

receive different allocation ratios. If Shares in one (but not both) of the pools are

under-subscribed, the surplus Shares will be transferred to the other pool to satisfy demand in

that pool and be allocated accordingly.

Applicants can only receive an allocation of Shares from either pool A or pool B but not

from both pools. Multiple or suspected multiple applications within either pool or between

pools and any application for more than the total number of Shares originally allocated to each

pool (i.e. 5,000,000 Shares) are liable to be rejected. Each applicant under the Public Offer will

also be required to give an undertaking and confirmation in the Application Form submitted by

him that he and any person(s) for whose benefit he is making the application have not received

any Placing Shares under the Placing, and such applicant’s application is liable to be rejected

if the said undertaking and/or confirmation is breached and/or untrue (as the case may be).

Allocation of Offer Shares to investors under the Public Offer will be based solely on the

level of valid applications received under the Public Offer. The basis of allocation may vary,

depending on the number of Offer Shares validly applied for by applicants.

This could, where appropriate, consist of balloting which means that some applicants may

receive a higher allocation than others who have applied for the same number of Public Offer

Shares and those applicants who are not successful in the ballot may not receive any Public

Offer Shares.

RE-ALLOCATION OF OFFER SHARES BETWEEN THE PUBLIC OFFER AND THE

PLACING

The allocation of our Shares between the Placing and the Public Offer is subject to

re-allocation. If the number of Shares validly applied for in the Public Offer:

(a) represents 15 times or more but less than 50 times of the number of Shares initially

available for subscription under the Public Offer, then 20,000,000 Shares will be

re-allocated to the Public Offer from the Placing, so that an aggregate of 30,000,000

Shares will be available under the Public Offer, representing 30% of the Offer

Shares initially available under the Share Offer;

(b) represents 50 times or more but less than 100 times of the number of Shares initially

available for subscription under the Public Offer, then 30,000,000 Shares will be

re-allocated to the Public Offer from the Placing, so that an aggregate of 40,000,000

Shares will be available under the Public Offer, representing 40% of the Offer

Shares initially available under the Share Offer;


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(c) represents 100 times or more of the number of Shares initially available for

subscription under the Public Offer, then 40,000,000 Shares will be re-allocated to

the Public Offer from the Placing, so that an aggregate of 50,000,000 Shares will be

available under the Public Offer, representing 50% of the Offer Shares initially

available under the Share Offer; and

(d) in each of the above cases, the number of Shares allocated to the Placing will be

correspondingly reduced.

If the Public Offer is not fully subscribed, the Sole Bookrunner has the absolute discretion

to re-allocate all or any of the unsubscribed Public Offer Shares originally included in the

Public Offer to the Placing in such number as it deems appropriate to satisfy the demand under

the Placing. If the Placing is not fully subscribed, the Sole Bookrunner has the authority to

re-allocate all or any unsubscribed Placing Shares originally included in the Placing to the

Public Offer, in such number as it deems appropriate provided that there is sufficient demand

under the Public Offer to take up such unsubscribed Placing Shares. Details of any

re-allocation of Offer Shares between the Public Offer and the Placing will be disclosed in the

results announcement, which is expected to be made on Thursday, 12 July 2012.

OVER-ALLOTMENT OPTION AND STABILISATION

Over-allotment Option

In connection with the Share Offer, it is expected that our Company will grant to the Sole

Bookrunner the Over-allotment Option, which will be exercisable by the Sole Bookrunner

within a period commencing from the Listing Date until 30 days from the last day for the

lodging of applications under the Public Offer. Pursuant to the Over-allotment Option, our

Company may be required to issue and allot at the Offer Price up to an aggregate of 15,000,000

additional Shares, representing 15% of the total number of Shares initially available under the

Share Offer, in connection with over-allocations in the Placing, if any. If the Over-allotment

Option is exercised in full, the additional Offer Shares will represent approximately 3.6% of

our Company’s enlarged issued share capital following the completion of the Share Offer and

the exercise of the Over-allotment Option. In the event that the Over-allotment Option is

exercised, a press announcement will be made.

Stabilising action

Stabilisation is a practice used by underwriters in some markets to facilitate the

distribution of securities. To stabilise, the underwriters may bid for, or purchase, the newly

issued securities in the secondary market, during a specified period of time, to minimise and,

if possible, prevent a decline in the prices of our Shares. In Hong Kong, the stabilisation price

will not exceed the initial public offer price.


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In connection with the Share Offer, the Sole Bookrunner, acting for itself and on behalf

of the Underwriters, or any person acting for it, may over-allocate or effect transactions with

a view to supporting the market price of our Shares at a level higher than that which might

otherwise prevail for a limited period after the issue date. Such transactions, if commenced,

may be discontinued at any time. The Sole Bookrunner has been or will be appointed as

stabilising manager for the purposes of the Share Offer in accordance with the Securities and

Futures (Price Stabilizing) Rules made under the SFO and, should stabilising transactions be

effected in connection with the Share Offer, this will be at the absolute discretion of the Sole

Bookrunner.

Stabilisation action cannot be taken to support the price of the Offer Shares for longer

than the stabilising period which begins on the Listing Date and ends on the 30th day after the

last day for the lodging of applications under the Public Offer (“Stabilisation Period”). The

Stabilisation Period is expected to expire on 3 August 2012 and that after this date, when no

further stabilising action may be taken, demand for our Shares, and therefore its price, could

fall.

During the Stabilisation Period, the Sole Bookrunner as stabilising manager or any person

acting for it, may purchase or agree to purchase, or offer, our Shares for the sole purpose of

preventing or minimising any reduction in the market price of our Shares, which will be

effected in compliance with all applicable laws and regulatory requirements, including the

Securities and Futures (Price Stabilizing) Rules made under the SFO. In connection with any

such stabilisation actions as described above, the Sole Bookrunner as stabilising manager, or

any person acting for it, may allocate a greater number of Shares than the number that is

initially offered, or sell or agree to sell Shares so as to establish a short position in them for

the purpose of preventing or minimising any reduction in the market price of our Shares. It may

close out any such short position by exercising the Over-allotment Option, as described above.

It may also agree to sell or sell any Shares acquired by it in the course of any stabilisation

transactions in order to liquidate any position that has been established by such action.

The Sole Bookrunner may, in connection with the stabilising action, maintain a long

position in the Shares. The size of the long position, and the time period for which the Sole

Bookrunner will maintain such a position during the Stabilisation Period, are at the sole

discretion of the Sole Bookrunner and is uncertain. In the event that the Sole Bookrunner

liquidates this long position by making sales in the open market, this may lead to a decline in

the market price of our Shares.

Investors should be aware that the price of our Shares cannot be assured to stay at or

above its Offer Price by the taking of any stabilising action. Stabilisation bids may be made

or transactions effected in the course of the stabilising action at any price at or below the Offer

Price, which means that stabilising bids may be made or transactions effected at a price below

the price the investor has paid for the Offer Shares.


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Stock borrowing arrangement

In order to facilitate the settlement of over-allocations, the Sole Bookrunner, as the

stabilising manager, or its authorised agents may, among other means, purchase Shares in the

secondary market, enter into stock borrowing arrangements with holders of Shares, exercise the

Over-allotment Option, engage in a combination of these means or otherwise as may be

permitted under applicable laws. Any such secondary market purchases will be made in

compliance with all applicable laws, rules and regulations. The number of Shares which can be

over-allocated will not exceed the number of Shares which may be issued upon exercise of the

Over-allotment Option, being 15,000,000 Shares representing 15% of our Shares initially

available under the Share Offer.

In this connection, the Sole Bookrunner will enter into the Stock Borrowing Agreement

with Sheentai BVI whereby the Sole Bookrunner may borrow up to 15,000,000 Shares,

equivalent to the maximum number of additional Shares to be issued upon exercise in full of

the Over-allotment Option, under the Stock Borrowing Agreement. The Stock Borrowing

Agreement is not subject to the restrictions of Rule 10.07(1) of the Listing Rules which

restricts the disposal of Shares by controlling shareholders following a new listing, provided

the following requirements under Rule 10.07(3) of the Listing Rules are complied with:

(1) the stock borrowing arrangements as contemplated under the Stock Borrowing

Agreement with Sheentai BVI will only be effected for the sole purpose of covering

any short position prior to the exercise of the Over-allotment Option;

(2) the stock borrowing arrangements as contemplated under the Stock Borrowing

Agreement will be effected in compliance with all applicable laws, rules and

regulatory requirements;

(3) the same number of Shares so borrowed must be returned on or before the third

Business Day, a day that is not a Saturday, Sunday or public holiday in Hong Kong,

following the earlier of (i) the last day on the Over-allotment Option may be

exercised, and (ii) the day on which the Over-allotment Option is exercised in full;

(4) the maximum number of Shares to be borrowed will be limited to the maximum

number of Shares which may be issued upon exercise of the Over-allotment Option;

and

(5) no payments will be made to Sheentai BVI in relation to the Stock Borrowing

Agreement.


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HOW TO APPLY FOR THE PUBLIC OFFER SHARES

There are three ways to make an application for the Public Offer Shares. You may apply

for the Public Offer Shares by either (i) using a WHITE or YELLOW Application Form; (ii)

applying online through designated website of the HK eIPO White Form Service Provider,

referred herein as the “HK eIPO White Form Service”, or (iii) by giving electronic application

instructions to HKSCC to cause HKSCC Nominees to apply for the Public Offer Shares on

your behalf. Except where you are a nominee and provide the required information in your

application, you or you and your joint applicant(s) may not make more than one

application (whether individually or jointly) by applying using a WHITE or YELLOW

Application Form or applying online through HK eIPO White Form Service or by giving

electronic application instructions to HKSCC.

Who can apply for the Offer Shares

(a) You, the applicant(s), and any person(s) for whose benefit you are applying, must be

18 years of age or above, must have a Hong Kong address and must not be a legal

or natural person of the PRC (except qualified domestic institutional investors).

(b) If you are a firm, the application must be made in the name(s) of the individual

member(s), not in the firm’s name.

(c) If you are a body corporate, the application must be stamped with the company chop

(bearing the company name) and signed by a duly authorised officer, who must state

his or her representative capacity.

(d) Save under the circumstances permitted by the Listing Rules, you cannot apply for

any Public Offer Shares if you or any person(s) for whose benefit you are applying

is/are:

• an existing beneficial owner of the shares in our Company or any of its

subsidiaries;

• the chief executive or a director of our Company or any of our subsidiaries;

• an associate of any of the above;

• within the United States or a US person(s) as defined in Regulation S of the US

Securities Act 1933, as amended;

• a connected person (as defined in the Listing Rules) of our Company or a

person who will become a connected person of our Company immediately

upon completion of the Share Offer;

• a person who does not have a Hong Kong address; or


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• have been allotted or have applied for or indicated an interest in any Placing

Shares under the Placing.

(e) The total number of joint applicants may not exceed four.

If you wish to apply for the Offer Shares online through the HK eIPO White Form

Service, in addition to the above, you must also:

• have a valid Hong Kong identity card number; and

• be willing to provide a valid e-mail address and a contact telephone number.

Which application method to use

(a) WHITE Application Form

Use a WHITE Application Form if you want the Public Offer Shares to be issued

in your own name.

(b) HK eIPO White Form

Instead of using a WHITE Application Form, you may apply for the Public Offer

Shares by means of the HK eIPO White Form Service by submitting an application

online through the designated website at www.hkeipo.hk. Use the HK eIPO White Form

Service if you want our Shares to be registered in your own name.

(c) YELLOW Application Form

Use a YELLOW Application Form if you want the Public Offer Shares to be issued

in the name of HKSCC Nominees and to be deposited directly into CCASS for credit to

your CCASS Investor Participant stock account or your designated CCASS Participant’s

stock account.

(d) By giving electronic application instructions to HKSCC via CCASS

Instead of using a YELLOW Application Form, you may give electronic

application instructions to HKSCC to cause HKSCC Nominees to apply for the Public

Offer Shares on your behalf via CCASS. Any Public Offer Shares allocated to you will

be registered in the name of HKSCC Nominees and deposited directly into CCASS for

credit to your CCASS Investor Participants’ stock account or your designated CCASS

Participant’s stock account.

Note: The Public Offer Shares are not available to the directors, and chief executive and substantial

shareholders of our Company or our subsidiaries or any of their respective associates.


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Where to collect this prospectus and the Application Forms

You can collect a WHITE Application Form and this prospectus during normal business

hours from 9:00 a.m. on Friday, 29 June 2012 until 12:00 noon on Thursday, 5 July 2012 from

any of the Underwriters at the following addresses:


25th Floor, New World Tower


Hong Kong


36th Floor, Far East Finance Centre

16 Harcourt Road

Hong Kong


Room 2001-6

Cosco Tower

183 Queen’s Road Central

Hong Kong

or any of the following branches of Standard Chartered Bank (Hong Kong) Limited:

Name of Branch Address

Hong Kong Island Des Voeux Road

Branch

Standard Chartered Bank Building,

4-4A, Des Voeux Road Central, Central

Wanchai Southorn

Branch

Shop C2 on G/F and 1/F,

Lee Wing Building,

No. 156-162 Hennessy Road, Wanchai

Quarry Bay Branch G/F, Westlands Gardens,

1027 King’s Road, Quarry Bay

North Point Centre

Branch

North Point Centre, 284 King’s Road,

North Point

Causeway Bay

Branch

G/F, Yee Wah Mansion,

38-40A Yee Wo Street, Causeway Bay

Kowloon Kwun Tong Branch 1A Yue Man Square, Kwun Tong

Tsimshatsui Branch G/F, 10 Granville Road, Tsimshatsui

San Po Kong

Branch

Shop A, G/F, Perfect Industrial Building,

31 Tai Yau Street, San Po Kong


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Name of Branch Address

New Territories Tsuen Wan Branch Shop C, G/F & 1/F, Jade Plaza,

298 Sha Tsui Road, Tsuen Wan

Yuen Long Fung

Nin Road Branch

Shop B at G/F and 1/F, Man Cheong

Building, 247 Castle Peak Road,

Yuen Long

Tseung Kwan O

Branch

Shop G37-40, G/F, Hau Tak Shopping

Centre East Wing, Hau Tak Estate,

Tseung Kwan O

New Town Plaza

Branch

Shop 215, 222 & 223, Phase 1,

New Town Plaza, Shatin

You can collect a YELLOW Application Form and this prospectus during normal

business hours from 9:00 a.m. on Friday, 29 June 2012 until 12:00 noon on Thursday, 5 July

2012 from:

(i) the Depository Counter of HKSCC at 2nd Floor, Infinitus Plaza, 199 Des Voeux

Road Central, Hong Kong; and

(ii) your broker, who may have such Application Forms and this prospectus available.

Applying by using an Application Form

There are detailed instructions on each Application Form. You should read those

instructions carefully. If you do not follow the instructions, your application is liable to be

rejected and returned by ordinary post together with the accompanying cheque(s) or banker’s

cashier order(s) to you (or the first-named applicant in the case of joint applicants) at your own

risk at the address stated in the Application Form.

If your application is made through a duly authorised attorney, our Company and the Sole

Bookrunner and their respective agents or nominees as agent for our Company may accept it

at their discretion and subject to any conditions they think fit, including evidence of the

authority of your attorney. Our Company and the Sole Bookrunner in its capacity as our agent,

will have full discretion to reject or accept any application, in full or in part, without assigning

any reasons therefor.

You should note that by completing and submitting the Application Form, you (and if you

are joint applicants, each of you jointly and severally), for yourself or as agent or nominee and

on behalf of each person for whom you as agent or nominee, amongst other things:

• instruct and authorise our Company and/or the Sole Bookrunner (or their agents or

nominees) to execute any transfer forms, contract notes or other documents on your

behalf and to do on your behalf all other things necessary to effect the registration

of any Public Offer Shares allotted to you in your name(s) or HKSCC Nominees, as

the case may be, as required by the Articles and otherwise to give effect to the

arrangements described in this prospectus and the relevant Application Form;


– 271 –

• undertake to sign all documents and to do all things necessary to enable you or

HKSCC Nominees, as the case may be, to be registered as the holder of the Public

Offer Shares allotted to you, and as required by the Articles and otherwise to give

effect to the arrangements described in this prospectus and the Application Forms;

• represent, warrant and undertake that (i) you understand that the Public Offer

Shares have not been and will not be registered under the US Securities Act and you

are not, and none of the other person(s) for whose benefit you are applying is, within

the United States when completing and submitting the Application Form or you are

a person described in paragraph (h)(3) of Rule 902 of Regulation S under the US

Securities Act, and will be acquiring the Public Offer Shares in offshore transactions

(within the meaning of Regulation S under the US Securities Act); and (ii) you will

not resell the Public Offer Shares except in accordance with the provisions of

Regulation S under the US Securities Act, or pursuant to an available exemption

from the registration requirements of the US Securities Act, and agree not to engage

in hedging transactions with regard to such shares unless in compliance with the US

Securities Act;

• confirm that you have received and/or read a copy of this prospectus and have only

relied on the information and representations contained in this prospectus (save as

set out in any supplement to this prospectus) in making your application, and not on

any other information or representation concerning our Company and you agree that

neither our Company, our Directors, the Sole Sponsor, the Sole Bookrunner and the

Underwriters nor any of their respective directors, officers, employees, partners,

agents, advisers or any other parties involved in the Share Offer will have any

liability for any such other information or representations;

• agree (without prejudice to any other rights which you may have) that once your

application has been accepted, you may not revoke or rescind it because of an

innocent misrepresentation;

• (if the application is made by an agent on your behalf) warrant that you have

validly and irrevocably conferred on your agent all necessary power and authority

to make the application;

• (if the application is made for your own benefit) warrant that the application is the

only application which has been or will be made for your benefit on a WHITE or

YELLOW Application Form or by giving electronic application instructions to

HKSCC or to the designated HK eIPO White Form Service Provider via HK eIPO

White Form Service;

• (if you are an agent for another person) warrant that reasonable enquiries have been

made of that other person that the application is the only application which has been

or will be made for the benefit of that other person on a WHITE or YELLOW

Application Form or by giving electronic application instructions to HKSCC, or


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to the designated HK eIPO White Form Service Provider via HK eIPO White

Form Service, and that you are duly authorised to sign the Application Form or to

give electronic application instruction as that other person’s agent;

• undertake and confirm that you (if the application is made for your benefit) or the

person(s) for whose benefit you have made the application have not applied for or

taken up or indicated an interest in or received or been placed or allotted (including

conditionally and/or provisionally) and will not apply for or take up or indicate any

interest in any Placing Shares in the Placing, nor otherwise participate in the

Placing;

• warrant the truth and accuracy of the information contained in your application;

• agree to disclose to our Company, our Hong Kong Branch Share Registrar, receiving

bankers, the Sole Sponsor, the Sole Bookrunner, and the Underwriters and any of

their respective officers, advisers and agents any personal data and information

which they require about you or the person(s) for whose benefit you have made the

application;

• agree that your application, any acceptance of it and the resulting contract will be

governed by and construed in accordance with the laws of Hong Kong;

• undertake and agree to accept the Public Offer Shares applied for, or any lesser

number allotted to you under the application;

• authorise our Company to place your name(s) or the name of HKSCC Nominees,

as the case may be, on the register of members of our Company as the holder(s) of

any Public Offer Shares allocated to you, and our Company and/or its agents to send

any share certificate(s) (where applicable) and/or any refund cheque(s) (where

applicable) to you or (in case of joint applicants) the first-named applicant in the

application by ordinary post at your own risk to the address stated in your

application (unless you have applied for 1,000,000 Public Offer Shares or more and

have indicated in your application that you wish to collect your share certificate(s)

(where applicable) and/or refund cheque(s) (where applicable) in person then you

can collect them from our Hong Kong Branch Share Registrar at 26th Floor, Tesbury

Centre, 28 Queen’s Road East, Wanchai, Hong Kong between 9:00 a.m. and 1:00

p.m. on Thursday, 12 July 2012);

• authorise our Company to despatch e-Auto Refund payment instructions to your

application payment bank account if you have completed payment of the HK eIPO

White Form application monies from a single bank account; or authorise our

Company to issue and despatch refund cheque(s) to the address given on the HK

eIPO White Form application if you have completed payment of the application

monies from multi-bank accounts;

• if the laws of any place outside Hong Kong are applicable to your application, you

agree and warrant that you have complied with all such laws and none of our


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Company, the Sole Sponsor, the Sole Bookrunner and the Underwriters nor any of

their respective officers or advisers will infringe any laws outside Hong Kong as a

result of the acceptance of your offer to purchase, or any actions arising from your

rights and obligations under the terms and conditions set out in the Application Form

and in this prospectus;

• agree that our Company, the Sole Sponsor, the Sole Bookrunner and the

Underwriters and any of their respective directors, officers, employees, agents or

advisers and any other parties involved in the Share Offer are liable only for and that

you have only relied upon, the information and representations contained in this

prospectus and any supplement to the prospectus;

• confirm that you have read the terms and conditions and application procedures set

out in this prospectus and the Application Form and agree to be bound by them;

• agree with our Company and each Shareholder that our Shares are freely

transferable by the holders thereof;

• confirm that you are aware of the restrictions on the Public Offer Shares described

in this prospectus;

• agree with our Company and each Shareholder of our Company, and our Company

agrees with each of the Shareholders of our Company, to observe and comply with

the Companies Ordinance, the Memorandum and the Articles;

• understand that these declarations and representations will be relied upon by our

Company and the Sole Bookrunner in deciding whether or not to allot any Public

Offer Shares in response to your application and that you may be prosecuted for

making a false declaration; and

• agree that the processing of your application, including the despatch of refund

cheque (if any), may be done by any of our Company’s receiving banks and is not

restricted to the bank at which your application was lodged.

In order for the YELLOW Application Form to be valid:

The applicant(s) must complete the form as indicated below and sign on the first page of

the application form. Only written signatures will be accepted.

(i) If the application is made through a designated CCASS Participant (other than a

CCASS Investor Participant), the designated CCASS Participant must endorse the

form with its company chop (bearing its company name) and insert its participant

I.D. in the appropriate box in the Application Form.


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(ii) If the application is made by an individual CCASS Investor Participant:

(A) the Application Form must contain the CCASS Investor Participant’s name and

Hong Kong identity card number; and

(B) the CCASS Investor Participant must insert its participant I.D. in the

appropriate box in the Application Form.

(iii) If the application is made by a joint individual CCASS Investor Participant:

(A) the Application Form must contain all joint CCASS Investor Participants’

names and the Hong Kong identity card numbers of all joint CCASS Investor

Participants; and

(B) the participant I.D. must be inserted in the appropriate box in the Application

Form.

(iv) If the application is made by a corporate CCASS Investor Participant:

(A) the Application Form must contain the CCASS Investor Participant’s company

name and Hong Kong business registration number; and

(B) the participant I.D. and company chop (bearing its company name) must be

inserted in the appropriate box in the Application Form.

Incorrect or incomplete details of the CCASS Participant or the omission of details of the

CCASS Participant including participant I.D. and/or company chop bearing its company name

or other similar matters may render the application invalid.

Nominees who wish to submit separate applications in their names on behalf of different

beneficial owners are requested to designate on each Application Form in the box marked “For

nominees” account numbers or other identification code for each beneficial owner or, in the

case of joint beneficial owners, for each such beneficial owner.

If you apply for the Public Offer Shares using a YELLOW Application Form, in addition

to the confirmations and agreements mentioned above, you (and if you are joint applicants,

each of you jointly and severally) are deemed to do the following:

(i) agree that any Public Offer Shares allotted to you shall be registered in the name of

HKSCC Nominees and deposited directly into CCASS operated by HKSCC for

credit to your CCASS Investor Participant stock account or the stock account of

your designated CCASS Participant, in accordance with your election in the

Application Form;

(ii) agree that each of HKSCC and HKSCC Nominees reserves the right (1) not to

accept any or part of such allotted Public Offer Shares issued in the name of HKSCC


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Nominees or not to accept such allotted Public Offer Shares for deposit into CCASS;

(2) to cause such allotted Public Offer Shares to be withdrawn from CCASS and

transferred into your name at your own risk and costs; and (3) to cause such allotted

Public Offer Shares to be issued in your name (or, if you are a joint applicant, the

first-named applicant) and in such a case, to post the share certificates for such

allotted Public Offer Shares at your own risk to the address stated in the Application

Form by ordinary post or to make available the same for your collection;

(iii) agree that each of HKSCC and HKSCC Nominees may adjust the number of

allocated Public Offer Shares issued in the name of HKSCC Nominees;

(iv) agree that neither HKSCC nor HKSCC Nominees shall have any liability for the

information and representations not so contained in this prospectus and the

Application Form; and

(v) agree that neither HKSCC nor HKSCC Nominees shall be liable to you in any way.

How to make payment for the application

Each completed WHITE or YELLOW Application Form must be accompanied by either

one cheque or one banker’s cashier order, which must be stapled to the top left hand corner of

the Application Form.

If you pay by cheque, the cheque must:

(i) be in Hong Kong dollars;

(ii) be drawn on your Hong Kong dollar bank account in Hong Kong;

(iii) bear your account name (or, in the case of joint applicants, the name of the

first-named applicant) (either pre-printed on the cheque or endorsed on the reverse

of the cheque by an authorised signatory of the bank on which it is drawn), which

must be the same as the name on your Application Form (or, in the case of joint

applicants, the name of the first-named applicant). If the cheque is drawn on a joint

account, one of the joint account names must be the same as the name of the

first-named applicant);

(iv) be made payable to “Horsford Nominees Limited – Sheen Tai Holdings Public

Offer”;

(v) be crossed “Account Payee Only”; and

(vi) not be post dated.

Your application may be rejected if your cheque does not meet all of these requirements

or is dishonoured on first presentation.


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If you pay by banker’s cashier order, the banker’s cashier order must:

(i) be in Hong Kong dollars;

(ii) be issued by a licensed bank in Hong Kong and have your name certified on the

reverse of the banker’s cashier order by an authorised signatory of the bank on

which it is drawn. The name on the reverse of the banker’s cashier order and the

name on the Application Form must be the same. If the application is a joint

application, the name on the back of the banker’s cashier order must be the same as

the name of the first-named applicant;

(iii) be made payable to “Horsford Nominees Limited – Sheen Tai Holdings Public

Offer”;

(iv) be crossed “Account Payee Only”; and

(v) not be post dated.

Your application may be rejected if your banker’s cashier order does not meet all of these

requirements.

The right is reserved to present all or any remittance for payment. However, your cheque

or banker’s cashier order will not be presented for payment before 12:00 noon on 5 July 2012.

Our Company will not give you a receipt for your payment. Our Company will keep any

interest accrued on your application monies (up until, in the case of monies to be refunded, the

date of despatch of refund cheques) for its own benefit. The right is also reserved to retain any

share certificates and/or any surplus application monies or refunds pending clearance of your

cheque or banker’s cashier order.

Applying through HK eIPO White Form

General

(i) You may apply through HK eIPO White Form by submitting an application through

the designated website at www.hkeipo.hk if you satisfy the relevant eligibility

criteria for this as set out in “Who can apply for the Offer Shares” and on the same

website. If you apply through HK eIPO White Form, our Shares will be issued in

your own name.

(ii) Detailed instructions for application through the HK eIPO White Form Service are

set out on the designated website at www.hkeipo.hk. You should read these

instructions carefully. If you do not follow the instructions, your application may be

rejected by the designated HK eIPO White Form Service Provider and may not be

submitted to our Company.


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(iii) If you give electronic application instructions through the designated website at

www.hkeipo.hk, you will have authorised the designated HK eIPO White Form

Service Provider to apply on the terms and conditions set out in this prospectus, as

supplemented and amended by the terms and conditions applicable to the HK eIPO

White Form Service.

(iv) In addition to the terms and conditions set out in this prospectus, the designated

HK eIPO White Form Service Provider may impose additional terms and

conditions upon you for the use of the HK eIPO White Form Service. Such terms

and conditions are set out on the designated website at www.hkeipo.hk. You will be

required to read, understand and agree to such terms and conditions in full prior to

making any application.

(v) By submitting an application to the designated HK eIPO White Form Service

Provider through the HK eIPO White Form Service, you are deemed to have

authorised the designated HK eIPO White Form Service Provider to transfer the

details of your application to our Company and the registrars.

(vi) You may submit an application through the HK eIPO White Form Service in

respect of a minimum of 2,000 Offer Shares. Each electronic application

instruction in respect of more than 2,000 Offer Shares must be in one of the

numbers set out in the table in the Application Forms, or as otherwise specified on

the designated website at www.hkeipo.hk.

(vii) You should give electronic application instructions through HK eIPO White

Form at the times set out in the paragraph headed “Time for applying for the Public

Offer Shares” below.

(viii) You should make payment for your application made by HK eIPO White Form

Service in accordance with the methods and instructions set out in the designated

website at www.hkeipo.hk. If you do not make complete payment of the

application monies (including any related fees) on or before 12:00 noon on

Thursday, 5 July 2012 or such later time as described under the paragraph

headed “Effect of bad weather on the opening of the application lists” below,

the designated HK eIPO White Form Service Provider will reject your

application and your application monies will be returned to you in the manner

described in the designated website at www.hkeipo.hk.

(ix) Once you have completed payment in respect of any electronic application

instruction given by you or for your benefit to the designated HK eIPO White

Form Service Provider to make an application for Offer Shares, an actual

application shall be deemed to have been made. For the avoidance of doubt, giving

an electronic application instruction under HK eIPO White Form more than once

and obtaining different payment reference numbers without effecting full payment

in respect of a particular payment application reference number will not constitute

an actual application.


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Warning: The application for Offer Shares through the HK eIPO White Form

Service is only a facility provided by the designated HK eIPO White Form Service

Provider to public investors. Our Company, our Directors, the Sole Sponsor, the

Sole Bookrunner and the Underwriters take no responsibility for such

applications, and provide no assurance that applications through the HK eIPO

White Form Service will be submitted to our Company or that you will be allotted

any Offer Shares.

Please note that internet services may have capacity limitations and/or be subject to

service interruptions from time to time. To ensure that you can submit your applications

through the HK eIPO White Form Service, you are advised not to wait until the last day

for submitting applications in the Public Offer to submit your electronic application

instructions. In the event that you have problems connecting to the designated website for the

HK eIPO White Form Service, you should submit a WHITE Application Form. However,

once you have submitted electronic application instructions and completed payment in full

using the payment reference number provided to you on the designated website, you will be

deemed to have made an actual application and should not submit a WHITE or YELLOW

Application Form.

Conditions of the HK eIPO White Form Service

In using the HK eIPO White Form Service to apply for the Offer Shares, the applicant

shall be deemed to have accepted the following conditions:

That the applicant:

• Applies for the desired number of Offer Shares on the terms and conditions of this

prospectus and HK eIPO White Form Application Form subject to the

Memorandum and the Articles;

• Undertakes and agrees to accept the Offer Shares applied for, or any lesser number

allotted to the applicant on such application;

• Declares that the HK eIPO White Form Application Form is the only application

made and the only application intended by the applicant to be made whether on a

WHITE or YELLOW Application Form or by giving electronic application

instruction to HKSCC or to the HK eIPO White Form Service Provider under the

HK eIPO White Form Service, to benefit the applicant or the person for whose

benefit the applicant is applying;

• Undertakes and confirms that the applicant and the person for whose benefit the

applicant are applying have not applied for or taken up, or indicated an interest for,

or received or been placed or allocated (including conditionally and/or

provisionally) and will not apply for or take up, or indicate an interest for, any Offer

Shares under the Public Offer nor otherwise participate in the Public Offer;

• Understands that the declaration and representation made in the HK eIPO White

Form Application Form will be relied upon by our Company in deciding whether or

not to make any allotment of Offer Shares in response to such application;


– 279 –

• Authorises our Company to place the applicant’s name on the register of members

of our Company as the holder of any Offer Shares to be allotted to the applicant, and

(subject to the terms and conditions set out in this prospectus) to send any share

certificates and/or any refund cheque(s) by ordinary post at the applicant’s own risk

to the address given on the HK eIPO White Form application form except where

the applicant has applied for 1,000,000 or more Offer Shares and that applicant

collects any share certificate(s) and/or refund cheque(s) in person in accordance

with the procedures prescribed in the HK eIPO White Form application form and

this prospectus;

• Requests that any e-Auto Refund payment instruction(s)/refund cheque(s) be made

payable to the applicant; and (subject to the terms and conditions set out in this

prospectus) to send any refund cheques by ordinary post and at the applicant’s own

risk to the address given on the HK eIPO White Form application form (except

where the applicant has applied for 1,000,000 or more Offer Shares and collects any

refund cheque(s) in person in accordance with the procedures prescribed in the

HK eIPO White Form application form and this prospectus);

• Have read the terms and conditions and application procedures set out on in the

HK eIPO White Form application form, this prospectus and the HK eIPO White

Form website and agree to be bound by them;

• Represents, warrants and undertakes that the applicant, and any persons for

whose benefit the applicant are applying are non-US person(s) outside the United

States (as defined in Regulation S), when completing and submitting the HK eIPO

White Form application form or is a person described in paragraph (h)(3) of Rule

902 of Regulation S or the allotment of or application for the Offer Shares to or by

whom or for whose benefit the application is made would not require our Company

to comply with any requirements under any law or regulation (whether nor not

having the force of law) of any territory outside Hong Kong; and

• Agrees that such application, any acceptance of it and the resulting contract, will be

governed by and construed in accordance with the laws of Hong Kong.

Supplemental Information

If any supplement to this prospectus is issued, applicant(s) who have already submitted

an electronic application instruction through the HK eIPO White Form Service may or may

not (depending on the information contained in the supplement) be notified that they can

withdraw their applications. If applicant(s) have not been so notified, or if applicant(s) have

been notified but have not withdrawn their applications in accordance with the procedure to be

notified, all applications through the HK eIPO White Form Service that have been submitted

remain valid and may be accepted. Subject to the above and below, an application once made

through the HK eIPO White Form Service is irrevocable and applicants shall be deemed to

have applied on the basis of this prospectus as supplemented.


– 280 –

Effect of completing and submitting an application through the HK eIPO White Form

Service

By completing and submitting an application through the HK eIPO White Form Service,

you for yourself or as agent or nominee and on behalf of any person for whom you act as agent

or nominee shall be deemed to:

• instruct and authorise our Company and/or the Sole Sponsor and/or the Sole

Bookrunner as agent for our Company (or their respective agents or nominees) to do

on your behalf all things necessary to register any Offer Shares allotted to you in

your name as required by the Articles and otherwise to give effect to the

arrangements described in this prospectus and the HK eIPO White Form

Application Form;

• confirm that you have only relied on the information and representations in this

prospectus in making your application and will not rely on any other information

and representations save as set out in any supplement to this prospectus;

• agree that our Company and our Directors, are liable only for the information and

representations contained in this prospectus and any supplement thereto;

• agree (without prejudice to any other rights which you may have) that once your

application has been accepted, you may not rescind it because of an innocent

misrepresentation;

• (if the application is made for your own benefit) warrant that the Application Form

is the only application which will be made for your benefit on a WHITE or


HKSCC or to the HK eIPO White Form Service Provider via the HK eIPO White

Form Service;

• (if you are an agent for another person) warrant reasonable enquiries have been

made of that other person that this is the only application which will be made for the

benefit of that other person on a WHITE or YELLOW Application Form or by

giving electronic application instructions to HKSCC or to the HK eIPO White

Form Service Provider via the HK eIPO White Form Service, and that you are

duly authorised to submit the application as that other person’s agent;

• undertake and confirm that, you (if the application is made for your benefit) or the

person(s) for whose benefit you have made this application have not applied for or

taken up, or indicated an interest for, and will not apply for, take up or indicate an

interest for, any Offer Shares under the Placing;


– 281 –

• agree that your application, any acceptance of it and the resulting contract will be

governed by and construed in accordance with the laws of Hong Kong;

• agree to disclose to our Company, and/or its registrar, receiving bankers, the Sole

Sponsor, the Sole Bookrunner and their respective advisers and agents personal data

and any information which they require about you or the person(s) for whose benefit

you have made this application;

• agree with our Company and each shareholder of our Company, and our Company

agrees with each of its shareholder, to observe and comply with the Companies

Ordinance, the Companies Law, the Memorandum and the Articles;

• agree with our Company and each Shareholder that our Shares in our Company are

freely transferable by the holders thereof;

• represent, warrant and undertake that you are not, and none of the other person(s)

for whose benefit you are applying, is a US person (as defined in Regulation S);

• represent and warrant that you understand that our Shares have not been and will

not be registered under the US Securities Act and you are outside the United States

(as defined in Regulation S) when completing the Application Form or are a person

described in paragraph (h)(3) of Rule 902 of Regulation S;

• confirm that you have read the terms and conditions and application procedures set

out in this prospectus, the HK eIPO White Form Application Form and the eIPO

website and agree to be bound by them;

• undertake and agree to accept our Shares applied for, or any lesser number

allocated to you under your application; and

• if the laws of any place outside Hong Kong are applicable to your application, agree

and warrant that you have complied with all such laws and none of our Company,

the Sole Sponsor, the Sole Bookrunner and the Underwriters nor any of their

respective officers or advisers will infringe any laws outside Hong Kong as a result

of the acceptance of your offer to purchase, or any actions arising from your rights

and obligations under the terms and conditions contained in this prospectus, the

HK eIPO White Form application form and the eIPO website.

Our Company, the Sole Sponsor, the Sole Bookrunner, the Underwriters and their

respective directors, officers, employees, partners, agents, advisers, and any other parties

involved in the Share Offer are entitled to rely on any warranty, representation or declaration

made by you in such application.


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HOW TO APPLY BY GIVING ELECTRONIC APPLICATION INSTRUCTIONS TO

HKSCC

General

CCASS Participants may give electronic application instructions to HKSCC to apply

for the Public Offer Shares and to arrange payment of the monies due on application and

payment of refunds. This will be in accordance with their participant agreements with HKSCC

and the General Rules of CCASS and the CCASS Operational Procedures.

If you are a CCASS Investor Participant, you may give electronic application

instructions through the CCASS Phone System by calling 2979 7888 or CCASS Internet

System at https://ip.ccass.com (according to the procedures contained in HKSCC’s “An

Operating Guide for Investor Participants” in effect from time to time). HKSCC can also input

electronic application instructions for you if you go to:

Hong Kong Securities Clearing Company Limited

Customer Service Centre

2/F., Infinitus Plaza

199 Des Voeux Road Central

Hong Kong

and complete an input request form.

Copies of this prospectus are available for collection from the above address.

If you are not a CCASS Investor Participant, you may instruct your broker or custodian

who is a CCASS Clearing Participant or a CCASS Custodian Participant to give electronic

application instructions via CCASS terminals to apply for Public Offer Shares on your behalf.

You are deemed to have authorised HKSCC and/or HKSCC Nominees to transfer the

details of your application, whether submitted by you or through your broker or custodian, to

our Company and our Hong Kong Branch Share Registrar and transfer office.

Application for the Public Offer Shares by HKSCC Nominees on your behalf

Where a WHITE Application Form is signed by HKSCC Nominees on behalf of persons

who have given electronic application instructions to apply for the Public Offer Shares:

(i) HKSCC Nominees is only acting as a nominee for those persons and shall not be

liable for any breach of the terms and conditions of the WHITE Application Form

or this prospectus;


– 283 –

(ii) HKSCC Nominees does the following things on behalf of each such person:

• agrees that the Public Offer Shares to be allotted shall be issued in the name

of HKSCC Nominees and deposited directly into CCASS for the credit of the

stock account of the CCASS Participant who has input electronic application

instructions on that person’s behalf or that person’s CCASS Investor

Participant stock account;

• undertakes and agrees to accept the Public Offer Shares in respect of which

that person has given electronic application instructions or any lesser

number;

• undertakes and confirms that that person has not applied for or taken up any

Offer Shares under the Placing nor otherwise participated in the Placing;

• (if the electronic application instructions are given for that person’s own

benefit) declares that only one set of electronic application instructions has

been given for that person’s benefit;

• (if that person is an agent for another person) declares that that person has only

given one set of electronic application instructions for the benefit of that

other person and that that person is duly authorised to give those instructions

as that other person’s agent;

• understands that the above declaration will be relied upon by our Company,

our Directors and the Sole Bookrunner in deciding whether or not to make any

allotment of the Public Offer Shares in respect of the electronic application

instructions given by that person and that that person may be prosecuted if he

makes a false declaration;

• authorises our Company to place the name of HKSCC Nominees on the

register of members of our Company as the holder of the Public Offer Shares

allotted in respect of that person’s electronic application instructions and to

send share certificate(s) and/or refund monies in accordance with the

arrangements separately agreed between our Company and HKSCC;

• confirms that that person has read the terms and conditions and application

procedures set out in this prospectus and agrees to be bound by them;

• confirms that that person has only relied on the information and

representations in this prospectus (and any supplement thereto) in giving that

person’s electronic application instructions or instructing that person’s

broker or custodian to give electronic application instructions on that

person’s behalf;


– 284 –

• agrees that our Company, the Sole Sponsor, the Sole Bookrunner, the

Underwriters, their respective directors, officers, employees, advisers and any

other parties involved in the Share Offer are not liable for the information and

representations not so contained in this prospectus and any supplement thereto;

• agrees to disclose that person’s personal data to our Company, our registrars,

receiving banker, the Sole Bookrunner, the Underwriters and any of their

respective agents and any information which they may require about that

person;

• agrees (without prejudice to any other rights which that person may have) that

once the application of HKSCC Nominees is accepted, the application cannot

be rescinded for innocent misrepresentation;

• agrees that any application made by HKSCC Nominees on behalf of that

person pursuant to electronic application instructions given by that person is

irrevocable before the expiration of the fifth day after the opening of the

application lists or such later date as the application lists may open as

described under “Effect of bad weather on the opening of the application lists”

below, such agreement to take effect as a collateral contract with our Company

and to become binding when that person gives the instructions and such

collateral contract to be in consideration of our Company agreeing that it will

not offer any Public Offer Shares to any person before the expiration of the

fifth day after the opening of the application lists except by means of one of

the procedures referred to in this prospectus. However, HKSCC Nominees may

revoke the application before the end of the fifth day after the time of the

opening of the application lists if a person responsible for this prospectus under

section 40 of the Companies Ordinance gives a public notice under that section

which excludes or limits the responsibility of that person for this prospectus

(for the purpose of this paragraph, the term “day” shall be construed to exclude

any Saturday, Sunday or public holiday in Hong Kong);

• agrees that any application made by HKSCC Nominees on behalf of that

person pursuant to electronic application instructions given by that person is

irrevocable, save as provided for in this prospectus;

• agrees that once the application of HKSCC Nominees is accepted, neither that

application nor that person’s electronic application instruction can be

revoked, and that acceptance of that application will be evidenced by the

announcement of the results of the Public Offer published by our Company;

• agrees to the arrangements, undertakings and warranties specified in the

participant agreement between that person and HKSCC, read with the General

Rules of CCASS and the CCASS Operational Procedures, in respect of the

giving of electronic application instructions relating to the Public Offer

Shares;


– 285 –

• agrees with our Company, for itself and for the benefit of each of the

Shareholders (and so that our Company will be deemed by its acceptance in

whole or in part of the application by HKSCC Nominees to have agreed, for

our Company and on behalf of each of the Shareholders, with each CCASS

Participant giving electronic application instructions) to observe and comply

with the Companies Law, the Memorandum and the Articles;

• agrees with our Company (for itself and for the benefit of each of the

Shareholders) that the Shares are freely transferable by the holders thereof; and

• agrees that that person’s application, any acceptance of it and the resulting

contract will be governed by and constructed in accordance with the laws of

Hong Kong.

Effect of giving electronic application instructions to HKSCC

By giving electronic application instructions to HKSCC or instructing your broker or

custodian who is a CCASS Clearing Participant or a CCASS Custodian Participant to give such

instructions to HKSCC, you (and if you are joint applicants, you each jointly and severally) are

deemed to have done the following things. Neither HKSCC nor HKSCC Nominees will be

liable to our Company or any other person in respect of the things mentioned below:

• instructed and authorised HKSCC to cause HKSCC Nominees (acting as nominee

for the relevant CCASS Participants) to apply for the Public Offer Shares on your

behalf;

• instructed and authorised HKSCC to arrange payment of the maximum Offer

Price, brokerage, SFC transaction levy and Stock Exchange trading fee by debiting

your designated bank account and, in the case of wholly or partly unsuccessful

applications and/or if the Offer Price is less than the maximum offer price per Share

initially paid on application, refund of the application monies, in each case including

brokerage, SFC transaction levy and Stock Exchange trading fee, by crediting your

designated bank account; and

• instructed and authorised HKSCC to cause HKSCC Nominees to do on your

behalf all the things which it is stated to do on your behalf in the WHITE

Application Form.

Minimum subscription amount and permitted multiples

You may give or cause your broker or a custodian who is a CCASS Clearing Participant

or a CCASS Custodian Participant to give electronic application instructions in respect of a

minimum of 2,000 Public Offer Shares. Such instructions in respect of more than 2,000 Public

Offer Shares must be in one of the numbers or multiples set out in the table in the Application

Forms. No application for any other number of the Public Offer Shares will be considered and

any such application is liable to be rejected.


– 286 –

Multiple applications

If you are suspected of having made multiple applications or if more than one application

is made for your benefit, the number of Public Offer Shares applied for by HKSCC Nominees

will be automatically reduced by the number of Public Offer Shares in respect of which you

have given such instructions and/or in respect of which such instructions have been given for

your benefit. Any electronic application instructions to make an application for Public Offer

Share given by you or for your benefit to HKSCC shall be deemed to be an actual application

for the purposes of considering whether multiple applications have been made. Further

information in this regard is set forth under the paragraph headed “How many applications you

may make” below.

Allocation of the Public Offer Shares

For the purposes of allocating the Public Offer Shares, HKSCC Nominees will not be

treated as an applicant. Instead, each CCASS Participant who gives electronic application

instructions or each person for whose benefit each such instruction is given will be treated as

an applicant.

Personal Data

The paragraph headed “Personal Data” in the Application Forms applies to any personal

data held by our Company, its registrars, receiving banker, the Sole Bookrunner, the

Underwriters and any of their respective advisers and agents about you in the same way as it

applies to personal data about applicants other than HKSCC Nominees.

Section 40 of the Companies Ordinance

For the avoidance of doubt, our Company and all other parties involved in the preparation

of this prospectus acknowledge that each CCASS Participant who gives, or causes to give,

electronic application instructions is a person who may be entitled to compensation under

section 40 of the Companies Ordinance.

Warning

The application for the Public Offer Share by giving electronic application instructions

to HKSCC is only a facility provided to CCASS Participants. Our Company, our Directors, the

Sole Sponsor, the Sole Bookrunner and the Underwriters take no responsibility for the

application and provide no assurance that any CCASS Participants will be allotted any Public

Offer Shares.

To ensure that CCASS Investor Participants can give their electronic application

instructions to HKSCC through the CCASS Phone System or CCASS Internet System,

CCASS Investor Participants are advised not to wait until the last minute to input their

electronic application instructions to the systems. In the event that CCASS Investor


– 287 –

Participants have problems connecting to CCASS Phone System/CCASS Internet System for

submission of electronic application instructions, they should either (i) submit the WHITE

or YELLOW Application Form, or (ii) go to HKSCC’s Customer Service Centre to complete

an application instruction input request form for electronic application instructions before

12:00 noon on Thursday, 5 July 2012 or such later time as described under the paragraph

headed “Effect of bad weather on the opening of the application lists” below.

HOW MANY APPLICATIONS YOU MAY MAKE

You may make more than one application for the Public Offer Shares if you are a

nominee. You may both give electronic application instructions to HKSCC (if you are a

CCASS participant) and lodge more than one application in your own name if each application

is made on behalf of different beneficial owners. In the box on the Application Form marked

“For nominees” you must include:

• an account number; or

• some other identification code

for each beneficial owner. If you do not include this information, the application will be

treated as being for your benefit.

Except where you are a nominee and provide the information required to be provided in

your application, all of your applications may be rejected as multiple applications if you, or

you and your joint applicants together:

• make more than one application (whether individually or jointly) on a WHITE or


HKSCC or to the HK eIPO White Form Service Provider via the designated

website at www.hkeipo.hk; or

• both apply (whether individuality or jointly) on one WHITE Application Form and

one YELLOW Application Form or on one WHITE or YELLOW Application

Form and give electronic application instructions to HKSCC or to the HK eIPO

White Form Service Provider in the HK eIPO White Form Service; or

• apply on one WHITE or YELLOW Application Form or by giving electronic

application instructions to HKSCC or to the HK eIPO White Form Service

Provider via the HK eIPO White Form Service for more than 100% of the Public

Offer Shares initially available as referred to in the section headed “Structure and

conditions of the Share Offer” in this prospectus; or

• have applied for or taken up, or indicated an interest in applying for or taking up or

have been allotted or will be allotted Placing Shares under the Placing.


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All of your applications will also be rejected as multiple applications if more than one

application is made for your benefit (including the part of the application made by HKSCC

Nominees acting on electronic application instructions). If an application is made by an

unlisted company and:

• the principal business of that company is dealing in securities; and

• you exercise statutory control over that company,

then the application will be treated as being for your benefit.

Unlisted company means a company with no equity securities listed on the Stock

Exchange.

Statutory control means you:

• control the composition of the board of directors of the company; or

• control more than half of the voting power of the company; or

• hold more than half of the issued share capital of the company (not counting any

part of it which carries no right to participate beyond a specified amount in a

distribution of either profits or capital).

HOW MUCH ARE THE PUBLIC OFFER SHARES

The maximum Offer Price is HK$1.68 per Offer Share. You must also pay brokerage of

1%, SFC transaction levy of 0.003% and Stock Exchange trading fee of 0.005%. This means

that for every board lot of 2,000 Public Offer Shares, you will pay HK$3,393.87. Each

Application Form has a table showing the exact amount payable for certain multiples of the

Public Offer Shares. You must pay the maximum Offer Price, the brokerage, the Stock

Exchange trading fee and the SFC transaction levy in full when you apply for the Public Offer

Shares.

Your payment must be made by one cheque or one banker’s cashier order and must

comply with the terms of the related Application Forms (if you apply by an Application Form).

Your cheque or banker’s cashier order will not be presented for payment before 12:00 noon on

Thursday, 5 July 2012 . If your application is successful, the brokerage is paid to participants

of the Stock Exchange, the transaction levy is paid to the Stock Exchange collecting on behalf

of the SFC, and the trading fee is paid to the Stock Exchange. If the Offer Price as finally

determined is less than HK$1.68 per Offer Share, appropriate refund payments (including the

related brokerage, the Stock Exchange trading fee and the SFC transaction levy attributable to

the surplus application monies) will be made to applicants, without interests. Details of the

procedures for refund are contained below in the paragraph headed “Despatch/collection of

share certificates, e-Auto Refund payment instructions and refund cheques” below.


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We will not issue temporary documents of title, evidence of title or receipt for payment.

TIME FOR APPLYING FOR THE PUBLIC OFFER SHARES

WHITE and YELLOW Application Forms

Completed WHITE or YELLOW Application Forms, with payment attached, must be

lodged by 12:00 noon on Thursday, 5 July 2012, or, if the application lists are not open on that

day, then by the time and date stated in the paragraph headed “Effect of bad weather on the

opening of the application lists”.

Your completed Application Form, with payment in Hong Kong dollars for the full

amount payable on application attached, should be deposited in the special collection boxes

provided at any one of the branches of Standard Chartered Bank (Hong Kong) Limited listed

under the paragraph headed “Where to collect this prospectus and Application Forms” above

at the following times:

Friday, 29 June 2012 – 9:00 a.m. to 5:00 p.m.

Saturday, 30 June 2012 – 9:00 a.m. to 1:00 p.m.

Tuesday, 3 July 2012 – 9:00 a.m. to 5:00 p.m.

Wednesday, 4 July 2012 – 9:00 a.m. to 5:00 p.m.

Thursday, 5 July 2012 – 9:00 a.m. to 12:00 noon

The application lists will be open from 11:45 a.m. to 12:00 noon on Thursday, 5 July

2012.

HK eIPO White Form

You may submit your application to the designated HK eIPO White Form Service

Provider through the designated website at www.hkeipo.hk from 9:00 a.m. on Friday, 29 June

2012 until 11:30 a.m. on Thursday, 5 July 2012 or such later time as described under the

sub-section headed “Effect of bad weather on the opening of the application lists” in this

section below (24 hours daily, except on the last day for submitting applications). The latest

time for completing full payment of application monies in respect of such applications will be

12:00 noon on Thursday, 5 July 2012, the last application day, or, if the application lists are

not open on that day, then by the time and date stated in the sub-section headed “Effect of bad

weather on the opening of the application lists” in this section below.

You will not be permitted to submit your application to the designated HK eIPO

White Form Service Provider through the designated website at www.hkeipo.hk after

11:30 a.m. on the last day for submitting applications. If you have already submitted your

application and obtained an payment reference number from the website prior to 11:30

a.m., you will be permitted to continue the application process (by completing payment of

application monies) until 12:00 noon on the last day for submitting applications, when the

application lists close.


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Time for inputting electronic application instructions

CCASS Clearing/Custodian Participants can input electronic application instructions

via CCASS at the following times on the following dates:

Friday, 29 June 2012 – 9:00 a.m. to 8:30 p.m.(1)

Saturday, 30 June 2012 – 8:00 a.m. to 1:00 p.m.(1)

Tuesday, 3 July 2012 – 8:00 a.m. to 8:30 p.m.(1)

Wednesday, 4 July 2012 – 8:00 a.m. to 8:30 p.m.(1)

Thursday, 5 July 2012 – 8:00 a.m.(1) to 12:00 noon

(1) These times are subject to change as HKSCC may determine from time to time with prior notification

to CCASS Clearing/Custodian Participants.

CCASS Participants can input electronic application instructions from 9:00 a.m. on

Friday, 29 June 2012 until 12:00 noon on Thursday, 5 July 2012 (24 hours daily, except the last

day for submitting applications).

The latest time for inputting your electronic application instructions (if you are a

CCASS Participant) is 12:00 noon on Thursday, 5 July 2012 or, if the application lists are not

open on that day, by the time and date stated under the paragraph headed “Effect of bad weather

on the opening of the application lists” below.

Application Lists

Subject to the events as described in the paragraph headed “Effect of bad weather

on the opening of the application lists” below, the application lists will open at 11:45 a.m.

and close at 12:00 noon on Thursday, 5 July 2012.

No proceedings will be taken on application for our Shares and no allotment of any

such Shares will be made until the closing of the application lists.

EFFECT OF BAD WEATHER ON THE OPENING OF THE APPLICATION LISTS

The application lists will not open if there is:

• a tropical cyclone warning signal number 8 or above, or

• a “black” rainstorm warning

in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Thursday, 5 July

2012.

Instead they will open between 11:45 a.m. and 12:00 noon on the next Business Day

which does not have either of those warnings in force in Hong Kong at any time between 9:00

a.m. and 12:00 noon.


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CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOCATED THE PUBLIC

OFFER SHARES

Full details of the circumstances in which you will not be allocated the Public Offer

Shares are set out in the notes attached to the Application Forms, and you should read them

carefully. You should note, in particular, the following situations in which the Public Offer

Shares will not be allocated to you:

If your application is revoked

By completing and submitting an Application Form, or by giving or submitting electronic

application instructions to HKSCC, by completing and submitting the HK eIPO White

Form, you agree that you cannot revoke your application or the application made by HKSCC

Nominees on your behalf on or before the expiration of the fifth day after the time of the

opening of the application lists.

This agreement will take effect as a collateral contract with our Company, and will

become binding when you lodge your Application Form or submit your electronic application

instructions to HKSCC and an application has been made by HKSCC Nominees on your

behalf accordingly. This collateral contract will be in consideration of our Company agreeing

that it will not offer any Public Offer Shares to any person before the end of the fifth day after

the time of opening of the application lists except by means of one of the procedures referred

to in this prospectus.

Your application or the application made by HKSCC Nominees on your behalf may only

be revoked on or before the fifth day after time of the opening of the application lists, if a

person responsible for this prospectus under section 40 of the Companies Ordinance gives a

public notice under that section which excludes or limits the responsibility of that person for

this prospectus.

For the purpose of the above paragraphs, the term “day” shall be construed to exclude any

Saturday, Sunday or public holiday in Hong Kong.

If any supplement to this prospectus is issued, applicants who have already submitted an

application may or may not (depending on the information contained in the supplement) be

notified that they can withdraw their applications. If applicants have not been so notified, or

if applicants have been notified but have not withdrawn their applications in accordance with

the procedure to be notified, all applications that have been submitted will remain valid and

may be accepted. Subject to the above, an application once made is irrevocable and applicants

shall be deemed to have applied on the basis of this prospectus as supplemented.

If your application or the application made by HKSCC Nominees on your behalf has been

accepted, it cannot be revoked. Acceptance of application which are not rejected will be

constituted by notification in the announcement of the results of allocation and, where such

basis of allocation is subject to certain conditions or provides for allocation by ballot, such

acceptance will be subject to satisfaction of such conditions or the results of such ballot,

respectively.


– 292 –

Full discretion of our Company, the Sole Bookrunner and their respective agents to reject

or accept your application

Our Company, the Sole Bookrunner and their respective agents have full discretion to

reject or accept any application, or to accept only part of an application, and do not have to give

any reason for any rejection or acceptance.

If your application is rejected

Your application will be rejected if:

• it is a multiple application or a suspected multiple application; or

• you or the person(s) for whose benefit you are applying have applied for or taken

up, or indicated an interest for, or have received or have been or will be placed or

allotted (including conditionally and/or provisionally) Placing Shares. Reasonable

steps will be taken to identify and reject applications in the Public Offer from

investors who have received the Placing Shares; and to identify and reject

indications of interest in the Placing from investors who have received Public Offer

Shares in the Public Offer; or

• your Application Form is not completed in accordance with the instructions stated

in the relevant Application Forms or fully completed (if you apply by an Application

Form); or

• your payment is not made in the correct form or amount; or

• you pay by cheque or banker’s cashier order and the cheque or banker’s cashier

order is dishonoured on its first presentation; or

• our Company and the Sole Bookrunner (acting for itself and on behalf of the

Underwriters) or their respective agents or nominees as the agent of our Company

believe that by accepting your application, they would violate the applicable

securities laws or other laws, rules or regulations of the jurisdiction in which your

application is received or your address is located; or

• your application is for more than 5,000,000 Public Offer Shares, being 50% of the

Public Offer Shares initially available for subscription under the Public Offer.

If your application is not accepted

Your application (including the part of an application made by HKSCC Nominees acting

upon electronic application instructions) will not be accepted if:

• the Public Offer Underwriting Agreement does not become unconditional in

accordance with its terms and conditions; or


– 293 –

• the Public Offer Underwriting Agreement is terminated in accordance with its terms

and conditions; or

• the Sole Bookrunner (acting for itself and on behalf of the Underwriters) and our

Company are unable to reach an agreement on the final Offer Price by Friday, 6 July

2012 or such later date otherwise agreed, in any event not later than Wednesday, 11

July 2012.

If the allotment of Public Offer Shares is void

Any allotment of the Public Offer Shares to you or to HKSCC Nominees (if you give

electronic application instructions to HKSCC or apply by a YELLOW Application Form)

will be void if the Stock Exchange does not grant the approval of the listing of, and permission

to deal in, our Shares either:

– within three weeks from the closing date of the application lists of the Public Offer;

or

– within a longer period of up to six weeks if the Stock Exchange notifies our

Company of that longer period within three weeks of the closing date of the

application lists of the Public Offer.

DESPATCH/COLLECTION OF SHARE CERTIFICATES, e-AUTO REFUND

PAYMENT INSTRUCTIONS AND REFUND CHEQUES

If an application is rejected, not accepted or accepted in part only, or if the Offer Price

as finally determined is less than the maximum offer price of HK$1.68 per Offer Share

(excluding brokerage, SFC transaction levy and Stock Exchange trading fee thereon) initially

paid on application, or if the conditions of the Public Offer are not fulfilled in accordance with

the section headed “Structure and conditions of the Share Offer – Conditions of the Share

Offer” in this prospectus above or if any application is revoked or any allotment pursuant

thereto has become void, the application monies, or the appropriate portion thereof, together

with the related brokerage, SFC transaction levy and Stock Exchange trading fee, will be

refunded, without interest. It is intended that special efforts will be made to avoid any undue

delay in refunding application monies where appropriate.

No temporary documents of title will be issued in respect of the Public Offer Shares. No

receipt will be issued for sums paid on application but, subject to personal collection as

mentioned below, in due course there will be sent to you (or, in the case of joint applicants,

to the first-named applicant) by ordinary post, at your own risk, to the address specified on

your Application Form:

(a) (i) share certificate(s) for all the Public Offer Shares applied for, if the application

is wholly successful; or (ii) share certificate(s) for the number of Public Offer

Shares successfully applied for, if the application is partially successful (except for

wholly successful and partially successful applicants on YELLOW Application

Forms whose share certificates will be deposited into CCASS as described below);

and/or


– 294 –

(b) e-Auto Refund payment instructions or refund cheque(s), for applicants on WHITE

and YELLOW Application Forms or to the designated HK eIPO White Form

Service Provider, crossed “Account Payee Only” in favour of the applicant (or, in

the case of joint applicants, the first-named applicant) for (i) the surplus application

monies for the Public Offer Shares unsuccessfully applied for, if the application is

partially unsuccessful; or (ii) all the application monies, if the application is wholly

unsuccessful; and/or (iii) the difference between the final Offer Price and the

maximum Offer Price initially paid on application in the event that the final Offer

Price is less than the maximum Offer Price initially paid on application, in each case

including related brokerage at the rate of 1%, SFC transaction levy of 0.003% and

Stock Exchange trading fee of 0.005% attributable to such refund/surplus monies,

but without interest.

Pursuant to a new measure to improve security as agreed and adopted by The Hong Kong

Association of Banks, the Hong Kong Monetary Authority, the Federation of Share Registrars

and the SFC with effect from 2 April 2007, refund cheques will be printed with part of your

Hong Kong identity card number or passport number. For joint applicants, the identity

information of the first-named applicant will be printed. When a refund cheque is presented to

a bank, the bank will cross-check both the name and the printed part of the Hong Kong identity

card or passport number of the payee shown on the cheque against the bank’s own record on

the information of the account holder. If there is a discrepancy, the bank might request other

proof of identity or take other steps for verification. If the bank is unable to be satisfied with

the identity of the payee, the bank might reject the deposit of the refund cheque concerned. You

are therefore advised to ensure that your identification numbers are accurately filled in on your

Application Form to avoid delay in cashing your refund cheques. A cheque deposit might be

rejected if you fail to fill in correct identity information.

Subject as mentioned below, refund cheques for surplus application monies (if any) in

respect of wholly and partially unsuccessful applications under WHITE and YELLOW Forms

and share certificates for successful applicants under WHITE Application Form and the HK

eIPO White Form Service are expected to be despatched on or before Thursday, 12 July 2012.

Our Company reserves the right to retain any share certificates and any surplus application

monies pending clearance of cheque(s).

Share certificates will only become valid certificates of title at 8:00 a.m. on Friday, 13

July 2012 provided that the Share Offer has become unconditional in all respects and the rights

of termination described in the section headed “Underwriting – Grounds for termination” in

this prospectus has not been exercised.


– 295 –

WHITE Application Form

If you have applied for 1,000,000 Public Offer Shares or above and have indicated on

your Application Form that you will collect your Share certificate(s) (where applicable) and/or

refund cheque (if any) in person, you may collect it/them from:

Tricor Investor Services Limited

26/F, Tesbury Centre

28 Queen’s Road East

Wanchai

Hong Kong

between 9:00 a.m. and 1:00 p.m. on Thursday, 12 July 2012 or any other the date notified by

our Company in the newspaper as the date of despatch of share certificates and refund cheques.

If you are an individual who opts for personal collection, you must not authorise any other

person to make collection on your behalf. If you are a corporate applicant which opts for

personal collection, you must attend by your authorised representative bearing a letter of

authorisation from your corporation stamped with your corporation’s chop. Both individuals

and authorised representatives (if applicable) must, in any event, produce, at the time of

collection, evidence of identity acceptable to Tricor Investor Services Limited. If you do not

collect your share certificate(s) and/or refund cheque (if any) within the time for collection

specified above, they will be sent to you by ordinary post to the address as specified in your

Application Form (or the address of the first-named applicant in case of a joint application) and

at your own risk shortly after the time for collection.

If you have applied for 1,000,000 Public Offer Shares or above and have not indicated on

your Application Form that you will collect your Share certificate(s) and/or refund cheque (if

any) in person; or if you have applied for less than 1,000,000 Public Offer Shares; or if your

application is rejected, not accepted or accepted in part only; or if the conditions of the Public

Offer are not fulfilled in accordance with the section headed “Structure and conditions of the

Share Offer – Conditions of the Share Offer” in this prospectus; or if any application is revoked

or any allotment pursuant thereto has become void, then your Share certificate(s) (where

applicable) and/or refund cheque (where applicable) in respect of the application monies or the

appropriate portion thereof, together with the related brokerage, Stock Exchange trading fee

and SFC transaction levy (without interest) will be sent to the address on your Application

Form (or the address of the first-named applicant in case of a joint application) by ordinary post

and at your own risk on the date of despatch.

HK eIPO White Form

If you apply for 1,000,000 Public Offer Shares or more through the HK eIPO White

Form Service by submitting an electronic application to the designated HK eIPO White Form

Service Provider through the designated website at www.hkeipo.hk and your application is

wholly or partially successful, you may collect your Share certificate(s) and/or refund

cheque(s) (where applicable) in person from our Hong Kong Branch Share Registrar, at 26th

Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, from 9:00 a.m. to 1:00

p.m. on Thursday, 12 July 2012.


– 296 –

If you do not collect your Share certificate(s) and/or refund cheque(s) (where applicable)

personally within the time specified for collection, they will be sent to the address specified

in your application instructions to the designated HK eIPO White Form Service Provider

promptly thereafter, by ordinary post and at your own risk.

If you apply for less than 1,000,000 Public Offer Shares, your Share certificate(s) and/ or

refund cheque(s) (where applicable) will be sent to the address specified in your application

instructions to the designated HK eIPO White Form Service Provider through the designated

website at www.hkeipo.hk on Thursday, 12 July 2012 by ordinary post and at your own risk.

If you apply through the HK eIPO White Form Service by paying the application monies

through a single bank account and your application is wholly or partially unsuccessful and/or

the final Offer Price being different from the maximum Offer Price initially paid on applicant’s

application, e-Auto Refund payment instructions (if any) will be despatched to application

payment bank account on or around Thursday, 12 July 2012; and/or if you apply through the

HK eIPO White Form Service by paying the application monies through multiple bank

accounts and applicant’s application is wholly or partially unsuccessful and/or the final Offer

Price being different from the maximum Offer Price initially paid on applicant’s application,

refund cheque(s) will be sent to the address specified in applicant’s application instructions to

the designated HK eIPO White Form Service Provider on or around Thursday, 12 July 2012,

by ordinary post and at applicant’s own risk.

YELLOW Application Form

If you apply for 1,000,000 Public Offer Shares or more and you have elected on your

YELLOW Application Form to collect your refund cheque (where applicable) in person,

please follow the same instructions as those for WHITE Application Form applicants as

described above.

If you have applied for 1,000,000 Offer Shares or above and have not indicated on your

Application Forms that you will collect refund cheque(s) (if any) in person, or you have applied

for less than 1,000,000 Offer Shares or if your application is rejected, not accepted or accepted

in part only, or if the conditions of the Public Offer are not fulfilled in accordance with the

section headed “Structure and conditions of the Share Offer – Conditions of the Share Offer”

in this prospectus, or if any application is revoked or any allotment pursuant thereto has

become void, your refund cheque(s) in respect of the application monies or the appropriate

parts thereof, together with the related brokerage, Stock Exchange trading fee, SFC transaction

levy (without interest) will be sent to the address on your Application Form by ordinary post

and at your own risk.

If your application is wholly or partially successful, your share certificate(s) will be

issued in the name of HKSCC Nominees Limited and deposited into CCASS for credit to your

CCASS Investor Participant stock account or the stock account of your designated CCASS

Participant as instructed by you on Thursday, 12 July 2012, or under contingent situation, on

any other date as shall be determined by HKSCC or HKSCC Nominees Limited.


– 297 –

If you are applying through a designated CCASS Participant (other than a CCASS

Investor Participant):

• for the Public Offer Shares credited to the stock account of your designated CCASS

Participant (other than a CCASS Investor Participant), you can check the number of

the Public Offer Shares allotted to you with that CCASS Participant.

If you are applying as a CCASS investor participant:

• our Company will publish the results of CCASS Investor Participants’ applications

together with the results of the Public Offer in the newspaper on Thursday, 12 July

2012. You should check the announcement published by our Company and report

any discrepancies to HKSCC before 5:00 p.m. on Thursday, 12 July 2012 or such

other date as shall be determined by HKSCC or HKSCC Nominees Limited.

Immediately after the credit of the Public Offer Shares to your stock account, you

can check your new account balance via the “CCASS Phone System” and “CCASS

Internet System” (under the procedures contained in HKSCC’s “An Operating Guide

for Investor Participants” in effect from time to time). HKSCC will also make

available to you an activity statement showing the number of Public Offer Shares

credited to your stock account.

Electronic application instructions to HKSCC

If your application is wholly or partially successful, your Share certificate(s) will be

issued in the name of HKSCC Nominees and deposited into CCASS for the credit of the stock

account of the CCASS Participant which you have instructed to give electronic application

instructions on your behalf or your CCASS Investor Participant’s stock account on Thursday,

12 July 2012, or, in the event of a contingency, on any other date as shall be determined by

HKSCC or HKSCC Nominees.

Our Company will publish the application results of CCASS Participants (and where the

CCASS Participant is a broker or custodian, our Company will include information relating to

the relevant beneficial owner, where supplied), your Hong Kong identity card/passport number

or other identification code (Hong Kong business registration number for corporations) and the

basis of allotment of the Public Offer in the manner described in the sub-section headed

“Publication of results” in this section below on Thursday, 12 July 2012. You should check the

announcement published by our Company and report any discrepancies to HKSCC before 5:00

p.m. on Thursday, 12 July 2012 or such other date as shall be determined by HKSCC or

HKSCC Nominees.

If you have instructed your broker or custodian to give electronic application

instructions on your behalf, you can also check the number of Public Offer Shares allotted to

you and the amount of refund monies (if any) payable to you with that broker or custodian.


– 298 –

If you have applied as a CCASS Investor Participant, you can also check the number of

Public Offer Shares allotted to you and the amount of refund monies (if any) payable to you

via the CCASS Phone System and the CCASS Internet System (under the procedures contained

in HKSCC’s “An Operating Guide for Investor Participants” in effect from time to time) on

Thursday, 12 July 2012. Immediately after the credit of the Public Offer Shares to your stock

account and the credit of the refund monies to your bank account, HKSCC will also make

available to you an activity statement showing the number of Public Offer Shares credited to

your CCASS Investor Participant stock account and the amount of refund monies (if any)

credited to your designated bank account.

Refund of your application monies (if any) in respect of wholly and partially unsuccessful

applications and/or difference between the Offer Price and the offer price per Share initially

paid on application, in each case including brokerage of 1%, SFC transaction levy of 0.003%

and Stock Exchange trading fee of 0.005%, will be credited to your designated bank account

or the designated bank account of your broker or custodian on Thursday, 12 July 2012. No

interests will be paid thereon.

PUBLICATION OF RESULTS

Our Company expects to release an announcement of the Offer Price, the level of

indication of interest in the Placing, the basis of allocation and the results of applications for

the Public Offer Shares to be published in The Standard (in English) and the Hong Kong

Economic Journal (in Chinese) on Thursday, 12 July 2012.

Results of allocations in the Public Offer, including the Hong Kong identity

card/passport/Hong Kong business registration numbers of successful applicants (where

supplied) and the number of Public Offer Shares successfully applied for will be made

available at the times and dates and in the manner specified below:

• on the website of our Company at www.sheentai.com and the Stock Exchange’s

website at www.hkexnews.hk from Thursday, 12 July 2012 onward;

• on our Company’s Public Offer results of allocations website at

www.tricor.com.hk/ipo/result on a 24-hour basis from 8:00 a.m. on Thursday, 12

July 2012 to 12:00 midnight on Wednesday, 18 July 2012. The user will be required

to key in the Hong Kong Identity card/passport/Hong Kong business registration

certificate number provided in his/her/its application form to search for his/her its

own allocation result;

• from our Company’s Public Offer allocation results telephone enquiry line.

Applicants may find out whether or not their applications have been successful and

the number of the Public Offer Shares allocated to them, if any, by calling 3691 8488

between 9:00 a.m. and 6:00 p.m. from Thursday, 12 July 2012 to Tuesday, 17 July

2012 (excluding Saturday and Sunday); and


– 299 –

• from special allocation results booklets which set out the results of allocations will

be available for inspection during opening hours of the designated branches of the

receiving banker of the Public Offer from Thursday, 12 July 2012 to Monday, 16

July 2012 at the addresses set forth in the paragraph headed “Where to collect this

prospectus and the Application Forms” in this section above.

COMMENCEMENT OF DEALINGS IN OUR SHARES

The application monies (including the brokerages, SFC transaction levies and Stock

Exchange trading fees) will be held by the receiving bank on behalf of our Company and the

refund monies, if any, will be returned to the applicants without interest on Thursday, 12 July

2012. Investors should be aware that the dealings in our Shares on the Stock Exchange are

expected to commence on Friday, 13 July 2012. Shares will be traded in board lots of 2,000

Shares. The stock code of our Shares is 1335.

SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS

Subject to the granting of the approval of the listing of, and permission to deal in, our

Shares on the Stock Exchange as well as compliance with the stock admission requirements of

HKSCC, our Shares will be accepted as eligible securities by HKSCC for deposit, clearance

and settlement in CCASS with effect from the commencement date of dealings in our Shares

on the Stock Exchange or, under contingent situation, such other date as determined by

HKSCC.

Settlement of transactions between participants of the Stock Exchange is required to take

place in CCASS on the second Business Day after any trading day. All activities under CCASS

are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from

time to time. All necessary arrangements have been made for our Shares to be admitted into

CCASS.

Investors should seek the advice of their stockbrokers or other professional advisers for

details of the settlement arrangements, as such arrangements will affect their rights and

interests.


– 300 –

The following is the text of a report, prepared for the purpose of incorporation in this

prospectus, received from our Company’s reporting accountants, KPMG, Certified Public

Accountants, Hong Kong.

8th Floor

Prince’s Building

10 Chater Road

Central

Hong Kong

29 June 2012

The Directors


Haitong International Capital Limited

Dear Sirs,

Introduction

We set out below our report on the financial information relating to Sheen Tai Holdings

Group Company Limited (the “Company”) and its subsidiaries (hereinafter collectively

referred to as the “Group”) including the combined income statements, the combined

statements of comprehensive income, the combined statements of changes in equity and the

combined cash flow statements of the Group, for each of the years ended 31 December 2009,

2010 and 2011 (the “Relevant Period”), and the combined statements of financial position of

the Group as at 31 December 2009, 2010 and 2011, together with the explanatory notes thereto

(the “Financial Information”), for inclusion in the prospectus of the Company dated 29 June

2012 (the “Prospectus”).

The Company was incorporated in the Cayman Islands on 24 February 2012 as an

exempted company with limited liability under the Companies Law, Chapter 22 (Law 3 of

1961, as consolidated and revised) of the Cayman Islands. Pursuant to a group reorganisation

completed on 21 June 2012 (the “Reorganisation”) as detailed in the paragraph headed

“Corporate Reorganisation” in Appendix V to the Prospectus, the Company became the holding

company of the companies now comprising the Group, details of which are set out in Section

A below. The Company has not carried on any business since the date of its incorporation save

for the aforementioned Reorganisation.

As at the date of this report, no audited financial statements have been prepared for the

Company and Sheen China Group Holdings Inc., as they either have not carried on any

business since the date of incorporation or are investment holding companies and not subject

to statutory audit requirements under the relevant rules and regulations in the jurisdiction of

incorporation.

APPENDIX I ACCOUNTANTS’ REPORT

– I-1 –

All companies now comprising the Group have adopted 31 December as their financial

year end date. Details of the companies comprising the Group that are subject to audit during

the Relevant Period and the names of the respective auditors are set out in note 24 of Section

C. The statutory financial statements of these companies were prepared in accordance with

Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of

Certified Public Accountants (“HKICPA”) or the relevant accounting rules and regulations

applicable to enterprises established in the People’s Republic of China (the “PRC”).

The directors of the Company have prepared the combined financial statements of the

Group for the Relevant Period in accordance with the basis of preparation set out in Section

A below and the accounting policies set out in Section C below (the “Underlying Financial

Statements”). The Underlying Financial Statements for each of the years ended 31 December

2009, 2010 and 2011 were audited by us in accordance with Hong Kong Standards on Auditing

issued by the HKICPA.

The Financial Information has been prepared by the directors of the Company based on

the Underlying Financial Statements, with no adjustments made thereon, and in accordance

with the applicable disclosure provisions of the Hong Kong Companies Ordinance and the

Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the

“Listing Rules”).

Respective responsibilities of directors and reporting accountants

The directors of the Company are responsible for the preparation of the Financial

Information that gives a true and fair view in accordance with HKFRSs issued by the HKICPA,

the disclosure requirements of the Hong Kong Companies Ordinance and the applicable

disclosure provisions of the Listing Rules, and for such internal control as the directors of the

Company determine is necessary to enable the preparation of the Financial Information that is

free from material misstatement, whether due to fraud or error.

Our responsibility is to form an opinion on the Financial Information based on our

procedures.

Basis of opinion

As a basis for forming an opinion on the Financial Information, for the purpose of this

report, we have examined the Underlying Financial Statements and have carried out such

appropriate procedures as we considered necessary in accordance with Auditing Guideline

“Prospectuses and the Reporting Accountant” (Statement 3.340) issued by the HKICPA.

We have not audited any financial statements of the Company, its subsidiaries or the

Group in respect of any period subsequent to 31 December 2011.

Opinion

In our opinion, for the purpose of this report, the Financial Information, on the basis of

preparation set out in Section A below, gives a true and fair view of the Group’s combined

results and cash flows for the Relevant Period, and the state of affairs of the Group as at 31

December 2009, 2010 and 2011.


– I-2 –

A BASIS OF PREPARATION

The companies that took part in the Reorganisation now comprising the Group were

controlled by Mr Guo Yumin (the “Controlling Shareholder”) before and after the

Reorganisation. The control is not transitory and, consequently there was a continuation of the

risks and benefits to the Controlling Shareholder and, therefore, the Reorganisation is

considered as a business combination under common control. The Financial Information has

been prepared using the merger basis of accounting as if the Group had always been in

existence. The net assets of the companies now comprising the Group are combined using the

existing book values from the Controlling Shareholder’s perspective.

The Financial Information relating to the combined income statements, the combined

statements of comprehensive income, the combined statements of changes in equity and the

combined cash flow statements of the Group as set out in Section B include the results of

operations of the companies now comprising the Group for the Relevant Period (or where the

companies were incorporated/established at a date later than 1 January 2009, for the period

from their respective dates of incorporation/establishment to 31 December 2011) as if the

current group structure had been in existence throughout the Relevant Period. The combined

statements of financial position of the Group as at 31 December 2009, 2010 and 2011 as set

out in Section B have been prepared to present the state of affairs of the companies now

comprising the Group as at the respective dates as if the current group structure had been in

existence as at the respective dates.

All material intra-group transactions and balances have been eliminated in preparing the

Financial Information.


– I-3 –

As at the date of this report, the Company has direct or indirect interests in the following

subsidiaries, all of which are private companies or, if incorporated/established outside Hong

Kong, have substantially the same characteristics as a Hong Kong private company. The

particulars of these subsidiaries are set out below:

Name of company

Date and place of

incorporation/

establishment

Issued and

paid up

capital

Proportion of ownership interest

Principal

activities

Group’s

effective

interest

Held

by the

Company

Held

by a

subsidiary

Ling Xian Fei Yu Import &

Export (Shenzhen) Co., Ltd.

(“LXFY”)

領先飛宇進出口(深圳)有限公司 (Note 1)

10 September 2007/

The PRC

HKD8,180,000 100% – 100% Trading of

cigarette

films

Jiangsu Sheen Colour Science

Technology Co., Ltd.

(“JSSC”)

江蘇金格潤科技有限公司(Note 1)

6 March 2002/

The PRC

USD2,176,400 68.15% – 100% Printing of

cigarette

films

Jiangsu Shuntai Packaging &

Printing Science Technology

Co., Ltd. (“JSST”)

江蘇順泰包裝印刷科技有限公司 (Note 1)

20 December 2008/

The PRC

USD5,500,000 51% – 51% Printing of

cigarette

packages

Qingdao Ener Packaging

Technology Co., Ltd.

(“QD Ener”)

(青島英諾包裝科技有限公司)

(Note 1)

27 June 2007/

The PRC

USD12,000,000 100%

(Note 2)

– 100%

(Note 2)

Manufacturing

of cigarette

and BOPP

films

Century Leader Asia Limited

(“CLAL”)

領先亞洲有限公司

2 April 2007/

Hong Kong

HKD10,000 100% – 100% Investment

holding

Sheen China Group Holdings

Inc. (“SCGHI”)

(順華集團控股有限公司)

27 November 2008/

British Virgin

Islands (“BVI”)

USD10 100% 100% – Investment

holding

Sheen China Group Holdings

Limited (“SCGHL”)

(順華集團控股有限公司)

5 September 2008/

Hong Kong

HKD1 100% – 100% Investment

holding

Sheen China (Hong Kong)

Limited (“HKSC”)

(順華(香港)有限公司)

20 August 1997/

Hong Kong

HKD12,600,000 100% – 100% Trading of

cigarette

films

Note 1: The English translation of the names is for reference only. The official names of these entities are

in Chinese.

Note 2: For the years ended 31 December 2009, 2010 and 2011, the Group owned 70% equity interest of QD

Ener. On 13 March 2012, the Group purchased the remaining 30% equity interest of QD Ener from

a third party. Since then, QD Ener became a wholly-owned subsidiary of the Group. For the details

of acquisition of non-controlling interests of QD Ener, please refer to Section C Note 26(b).


– I-4 –

B FINANCIAL INFORMATION

1 Combined income statements

(Expressed in Hong Kong dollars)


Section C

Note

2009 2010 2011

$’000 $’000 $’000

Turnover 2 264,457 550,534 674,983

Cost of sales (167,688) (356,787) (428,346)

Gross profit 96,769 193,747 246,637

Other revenue and net income 3 25,024 13,759 26,003




Profit from operations 86,951 159,887 211,812

Finance costs 4(a) (2,026) (16,394) (18,603)

Profit before taxation 4 84,925 143,493 193,209

Income tax 5(a) (20,721) (38,331) (52,453)


Attributable to:

Equity shareholders of the Company 38,084 60,684 81,426



The accompanying notes form part of the Financial Information.


– I-5 –

2 Combined statements of comprehensive income



Section C

Note

2009 2010 2011

$’000 $’000 $’000


Other comprehensive income for

the year

Exchange differences on translation

of financial information of

subsidiaries (6,376) 7,905 15,557

Total comprehensive income for

the year 57,828 113,067 156,313

Attributable to:

Equity shareholders of the

Company 31,702 65,023 83,895


Total comprehensive income for

the year 57,828 113,067 156,313



– I-6 –

3 Combined statements of financial position(Expressed in Hong Kong dollars)

As at 31 DecemberSection C

Note2009 2010 2011

$’000 $’000 $’000

Non-current assetsFixed assets– Property, plant and equipment 9 311,115 314,008 340,790– Interests in leasehold land held

for own use under operating lease 9 37,225 44,200 45,420Intangible assets 73 232 222Deferred tax assets 16(b) 2,413 2,467 1,900

350,826 360,907 388,332- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current assetsInventories 10 73,380 110,847 120,254Trade and other receivables 11 101,188 184,464 257,718Cash and cash equivalents 12 89,869 63,778 63,013

264,437 359,089 440,985- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current liabilitiesTrade and other payables 13 133,403 132,923 113,103Bank loans 14 51,108 105,770 154,188Current taxation 16(a) 16,213 13,924 18,938

200,724 252,617 286,229- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net current assets 63,713 106,472 154,756- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total assets less current liabilities 414,539 467,379 543,088- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Non-current liabilitiesBank loans 14 208,977 188,036 146,787Deferred tax liabilities 16(b) 2,371 4,008 5,498

211,348 192,044 152,285- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

NET ASSETS 203,191 275,335 390,803

CAPITAL AND RESERVESCapital 18 69,318 69,318 69,318Reserves 18 49,440 87,963 171,858

Total equity attributable to equityshareholders of the Company 118,758 157,281 241,176


NET ASSETS 203,191 275,335 390,803



– I-7 –

4 Combined statements of changes in equity


Attributable to equity shareholders

of the CompanyNon-

Controlling

interests

Total

Equity

Section C

Note Capital

Capital

reserve

Statutory

reserves

Exchange

reserve

Retained

profits Sub total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Balance at 1 January 2009 73,218 – – 357 13,481 87,056 41,903 128,959- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Changes in equity for 2009:

Profit for the year – – – – 38,084 38,084 26,120 64,204

Other comprehensive income – – – (6,382) – (6,382) 6 (6,376)

Total comprehensive income – – – (6,382) 38,084 31,702 26,126 57,828- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Appropriation to reserves 18(c)(ii) – – 5,999 – (5,999) – – –

Acquisition of a subsidiary – – – – – – 8,724 8,724

Capital injection – – – – – – 7,680 7,680

Contribution from the Controlling

Shareholder (3,900) 3,900 – – – – – –

Balance at 31 December 2009 69,318 3,900 5,999 (6,025) 45,566 118,758 84,433 203,191- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Balance at 1 January 2010 69,318 3,900 5,999 (6,025) 45,566 118,758 84,433 203,191- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -



Other comprehensive income – – – 4,339 – 4,339 3,566 7,905

Total comprehensive income – – – 4,339 60,684 65,023 48,044 113,067- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Dividends to shareholders 18(a) – – – – (26,500) (26,500) (14,423) (40,923)


Balance at 31 December 2010

and 1 January 2011 69,318 3,900 17,822 (1,686) 67,927 157,281 118,054 275,335- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -



Other comprehensive income – – – 2,469 – 2,469 13,088 15,557

Total comprehensive income – – – 2,469 81,426 83,895 72,418 156,313- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Dividends to shareholders 18(a) – – – – – – (40,845) (40,845)


Balance at 31 December 2011 69,318 3,900 31,405 783 135,770 241,176 149,627 390,803



– I-8 –

5 Combined cash flow statements



Section C

Note

2009 2010 2011

$’000 $’000 $’000

Operating activities

Cash generated from operations 12(b) 59,317 80,407 167,999

Income taxes paid 16(a) (6,444) (39,440) (46,077)

Net cash generated from operating activities 52,873 40,967 121,922- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Investing activities

Acquisition of a subsidiary 17 (10,728) – –

Payment for the purchase of fixed assets and

intangible assets (197,078) (32,563) (64,624)

Payment for interests in leasehold land held for

own use under operating lease – (6,453) –

Interest received 442 316 433

Net cash used in investing activities (207,364) (38,700) (64,191)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Financing activities

Proceeds from new bank loans 123,796 88,142 104,848

Repayment of bank loans – (61,330) (106,946)

Proceeds from capital contribution from

non-controlling interest 7,680 – –

Interest paid (2,026) (16,394) (18,603)

Dividends paid – (40,923) (40,845)

Net cash generated from/(used in) financing

activities 129,450 (30,505) (61,546)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net decrease in cash and cash equivalents (25,041) (28,238) (3,815)

Cash and cash equivalents at beginning

of the year 114,777 89,869 63,778

Effect of foreign exchange rate changes 133 2,147 3,050

Cash and cash equivalents at end of the year 12 89,869 63,778 63,013



– I-9 –

C NOTES TO COMBINED FINANCIAL INFORMATION

(Expressed in Hong Kong dollars unless otherwise indicated)

1 Significant accounting policies

(a) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with HKFRSs, which

collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong

Accounting Standards and related interpretations issued by the HKICPA, and accounting principles generally

accepted in Hong Kong. Further details of the significant accounting policies adopted are set out in the

remainder of this Section C.

The HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing this

Financial Information, the Group has adopted all these new and revised HKFRSs throughout the entire

Relevant Period, except for any new standards or interpretations that are not yet effective for the accounting

period ended 31 December 2011. The revised and new accounting standards and interpretations issued but not

yet effective for the year beginning on 1 January 2011 are set out in note 25.

The Financial Information also complies with the disclosure requirements of the Hong Kong Companies

Ordinance and the applicable disclosure provisions of the Listing Rules.

The accounting policies set out below have been applied consistently to all periods presented in the

Financial Information.

(b) Basis of preparation and presentation

The Financial Information comprises the Company and its subsidiaries and has been prepared using the

merger basis of accounting as if the Group had always been in existence, as further explained in Section A.

(c) Basis of measurement

The Financial Information is presented in Hong Kong dollars (“HKD”), which is the Company’s

functional currency. All financial information presented in HKD rounded to the nearest thousand.

(d) Use of estimates and judgements

The preparation of Financial Information in conformity with HKFRSs requires management to make

judgements, estimates and assumptions that affect the application of policies and reported amounts of assets,

liabilities, income and expenses. The estimates and associated assumptions are based on historical experience

and various other factors that are believed to be reasonable under the circumstances, the results of which form

the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent

from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised if the revision affects only that period

or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of HKFRSs that have significant effect on the

Financial Information and major sources of estimation are discussed in note 22.

(e) Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date, which

is the date on which control is transferred to the Group. Control is the power to govern the financial and

operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes

into consideration potential voting rights that currently are exercisable.


– I-10 –

The Group measures goodwill at the acquisition date as:

• the fair value of the consideration transferred; plus

• the recognised amount of any non-controlling interests in the acquiree; plus

• if the business combination is achieved in stages, the fair value of the pre-existing equity interest

in the acquiree; less

• the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities

assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

The consideration transferred does not include amounts related to the settlement of pre-existing

relationships. Such amounts generally are recognised in profit or loss.

Transactions costs, such as finder’s fee, legal fees, due diligence fees, and other professional and

consulting fees, that the Group incurs in connection with a business combination are expensed as incurred.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent

consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity.

Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

(f) Subsidiaries and non-controlling interests

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern

the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control,

potential voting rights that presently are exercisable are taken into account.

The financial information of subsidiaries is included in the Financial Information from the date that

control commences until the date that control ceases. Intra-group balances and transactions and any unrealised

profits arising from intra-group transactions, are eliminated in full in preparing the Financial Information.

Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains

but only to the extent that there is no evidence of impairment.

Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the

Company, and in respect of which the Group has not agreed any additional terms with the holders of those

interests which would result in the Group as a whole having a contractual obligation in respect of those

interests that meets the definition of a financial liability. For each business combination, the Group can elect

to measure any non-controlling interests either at fair value or at their proportionate share of the subsidiary’s

net identifiable assets.

Non-controlling interests are presented in the combined statement of financial position within equity,

separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the

results of the Group are presented on the face of the combined income statement and the combined statement

of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the

year between non-controlling interests and the equity shareholders of the Company. Loans from holders of

non-controlling interests and other contractual obligations towards these holders are presented as financial

liabilities in the combined statement of financial position in accordance with notes 1(o) or (p) depending on

the nature of the liability.

Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for

as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling

interests within combined equity to reflect the change in relative interests, but no adjustments are made to

goodwill and no gain or loss is recognised.

When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in

that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that

former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the

fair value on initial recognition of a financial asset.


– I-11 –

(g) Goodwill

Goodwill represents the excess of

(i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling

interest in the acquiree and the fair value of the Group’s previously held equity interest in the

acquiree; over

(ii) the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition

date.

When (ii) is greater than (i), then this excess is recognised immediately in profit or loss as a gain on

a bargain purchase.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business

combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to

benefit from the synergies of the combination and is tested annually for impairment (see note 1(l)).

On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill

is included in the calculation of the profit or loss on disposal.

(h) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses

(see note 1(l)).

The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct

labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring

the site on which they are located, and an appropriate proportion of production overheads and borrowing costs

(see note 1(w)).

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are

determined as the difference between the net disposal proceeds and the carrying amount of the item and are

recognised in profit or loss on the date of retirement or disposal.

Depreciation is calculated to write off the cost of property, plant and equipment, less their estimated

residual value, if any, using the straight line method over their estimated useful lives as follows:

– Buildings 20 years

– Plant and machinery 10-20 years

– Office equipment and other fixed assets 3-5 years

– Motor vehicles 4-5 years

– Leasehold land held for own use under operating lease 50 years

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item

is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful

life of an asset and its residual value, if any, are reviewed annually.

(i) Construction in progress

Construction in progress represents property, plant and equipment under construction and machinery

and equipment under installation and testing. Construction in progress is stated in the statement of financial

position at cost less impairment losses (see note 1(l)). The cost includes cost of construction, cost of purchased

plant and equipment and other direct costs plus borrowing costs which include interest charges and exchange

differences arising from foreign currency borrowings used to finance these projects during the construction

period, to the extent that these are regarded as an adjustment to borrowing costs (see note 1(w)).

Construction in progress is not depreciated until such time as the assets are completed and substantially

ready for their intended use.


– I-12 –

(j) Intangible assets (other than goodwill)

Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (where

the estimated useful life is finite) and impairment losses (see note 1(l)). Expenditure on internally generated

goodwill is recognised as an expense in the period in which it is incurred.

Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line

basis over the assets’ estimated useful lives. The following intangible assets with finite useful lives are

amortised from the date they are available for use and their estimated useful lives are as follows:

– Software 5 years

Both the period and method of amortisation are reviewed annually.

(k) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group

determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time

in return for a payment or a series of payments. Such a determination is made based on an evaluation of the

substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Group

Assets that are held by the Group under leases which transfer to the Group substantially all the

risks and rewards of ownership are classified as being held under finance leases. Leases which do not

transfer substantially all the risks and rewards of ownership to the Group are classified as operating

leases.

(ii) Operating lease charges

Where the Group has the use of assets held under operating leases, payments made under the

leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease

term, except where an alternative basis is more representative of the pattern of benefits to be derived

from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of

the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting

period in which they are incurred.

(l) Impairment of assets

(i) Impairment of receivables

Current and non-current receivables that are stated at cost or amortised cost are reviewed at the

end of each reporting period to determine whether there is objective evidence of impairment. Objective

evidence of impairment includes observable data that comes to the attention of the Group about one or

more of the following loss events.

– significant financial difficulty of the debtor;

– a breach of contract, such as a default or delinquency in interest or principal payments;

– it becoming probable that the debtor will enter bankruptcy or other financial

reorganisation; and

– significant changes in the technological, market, economic or legal environment that have

an adverse effect on the debtor.


– I-13 –

If any such evidence exists, any impairment loss is determined and recognised as follows:

– For trade and other current receivables and other financial assets carried at amortised cost,

the impairment loss is measured as the difference between the asset’s carrying amount and

the present value of estimated future cash flows, discounted at the financial asset’s original

effective interest rate (i.e. the effective interest rate computed at initial recognition of these

assets), where the effect of discounting is material. This assessment is made collectively

where these financial assets share similar risk characteristics, such as similar past due

status, and have not been individually assessed as impaired. Future cash flows for financial

assets which are assessed for impairment collectively are based on historical loss

experience for assets with credit risk characteristics similar to the collective group.

If in a subsequent period the amount of an impairment loss decreases and the decrease can be

linked objectively to an event occurring after the impairment loss was recognised, the impairment loss

is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying

amount exceeding that which would have been determined had no impairment loss been recognised in

prior years.

Impairment losses are written off against the corresponding assets directly, except for impairment

losses recognised in respect of trade debtors and bills receivable included within trade and other

receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses

for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery

is remote, the amount considered irrecoverable is written off against trade debtors and bills receivable

directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent

recoveries of amounts previously charged to the allowance account are reversed against the allowance

account. Other changes in the allowance account and subsequent recoveries of amounts previously

written off directly are recognised in profit or loss.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at the end of each reporting period to

identify indications that the following assets may be impaired or an impairment loss previously

recognised no longer exists or may have decreased:

– property, plant and equipment; and

– intangible assets.

If any such indication exists, the asset’s recoverable amount is estimated.

– Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs to sell and value

in use. In assessing value in use, the estimated future cash flows are discounted to their

present value using a pre-tax discount rate that reflects current market assessments of the

time value of money and the risks specific to the asset. Where an asset does not generate

cash inflows largely independent of those from other assets, the recoverable amount is

determined for the smallest group of assets that generates cash inflows independently (i.e.

a cash-generating unit).

– Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the

cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment

losses recognised in respect of cash-generating units are allocated to reduce the carrying

amount of the other assets in the unit (or group of units) on a pro rata basis, except that

the carrying value of an asset will not be reduced below its individual fair value less costs

to sell, or value in use, if determinable.


– I-14 –

– Reversals of impairment losses

An impairment loss is reversed if there has been a favourable change in the estimates used

to determine the recoverable amount.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have

been determined had no impairment loss been recognised in prior years. Reversals of

impairment losses are credited to profit or loss in the year in which the reversals are

recognised.

(m) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs

of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated

costs of completion and the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the

period in which the related revenue is recognised. The amount of any write-down of inventories to net

realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss

occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount

of inventories recognised as an expense in the period in which the reversal occurs.

(n) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost,

less allowance for impairment of doubtful debts (see note 1(l)), except where the receivables are interest-free

loans made to related parties without any fixed repayment terms or the effect of discounting would be

immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

(o) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs.

Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference

between the amount initially recognised and redemption value being recognised in profit or loss over the

period of the borrowings, together with any interest and fees payable, using the effective interest method.

(p) Trade and other payables

Trade and other payables are initially recognised at fair value and are subsequently stated at amortised

cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(q) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other

financial institutions, and short-term, highly liquid investments that are readily convertible into known

amounts of cash and which are subject to an insignificant risk of changes in value, having been within three

months of maturity at acquisition.


– I-15 –

(r) Employee benefits

(i) Short term employee benefits and contribution to define contribution retirement plans

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement

plans and cost of non-monetary benefits are accrued in the year in which the associated services are

rendered by employees. Where payment or settlement is deferred and the effect would be material, these

amounts are stated at their present values.

(ii) Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself

to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed

formal plan which is without realistic possibility of withdrawal.

(s) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities.

Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the

extent that they relate to business combinations, or items recognised in other comprehensive income or directly

in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly

in equity, respectively.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or

substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of

previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively,

being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and

their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent

that it is probable that future taxable profits will be available against which the asset can be utilised, are

recognised. Future taxable profits that may support the recognition of deferred tax assets arising from

deductible temporary differences include those that will arise from the reversal of existing taxable temporary

differences, provided those differences relate to the same taxation authority and the same taxable entity, and

are expected to reverse either in the same period as the expected reversal of the deductible temporary

difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward.

The same criteria are adopted when determining whether existing taxable temporary differences support the

recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken

into account if they relate to the same taxation authority and the same taxable entity, and are expected to

reverse in a period, or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary

differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities

that affect neither accounting nor taxable profit (provided they are not part of a business combination), and

temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable

differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse

in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse

in the future.

The amount of deferred tax recognised is measured based on the expected manner of realisation or

settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted

at the end of the reporting period. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is

reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the

related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that

sufficient taxable profits will be available.


– I-16 –

Current tax balances and deferred tax balances, and movements therein, are presented separately from

each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets

against deferred tax liabilities, if the Group has the legally enforceable right to set off current tax assets against

current tax liabilities and the following additional conditions are met:

– in the case of current tax assets and liabilities, the Group intends either to settle on a net basis,

or to realise the asset and settle the liability simultaneously; or

– in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same

taxation authority on either:

– the same taxable entity; or

– different taxable entities, which, in each future period in which significant amounts of

deferred tax liabilities or assets are expected to be settled or recovered, intend to realise

the current tax assets and settle the current tax liabilities on a net basis or realise and settle

simultaneously.

(t) Provisions and contingent liabilities

Provisions are recognised for other liabilities of uncertain timing or amount when the Group has a legal

or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits

will be required to settle the obligation and a reliable estimate can be made. Where the time value of money

is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot

be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of

economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence

or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the

probability of outflow of economic benefits is remote.

(u) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable

that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured

reliably, revenue is recognised in profit or loss as follows:

(i) Sale of goods

Revenue is recognised when goods are delivered at the customers’ premises which is taken to be

the point in time when the customer has accepted the goods and the related risks and rewards of

ownership. Revenue excludes value added tax or other sales taxes and is after deduction of any trade

discounts.

(ii) Interest income

Interest income is recognised as it accrues using the effective interest method.

(iii) Government grants

Government grants are recognised in the statement of financial position initially when there is

reasonable assurance that they will be received and that the Group will comply with the conditions

attaching to them. Grants that compensate the Group for expenses incurred are recognised as revenue

in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants

that compensate the Group for the cost of an asset are deducted from the carrying amount of the asset

and consequently are effectively recognised in profit or loss over the useful life of the asset by way of

reduced depreciation expense.

(v) Translation of foreign currencies

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the

transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign

exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognised in profit or

loss.


– I-17 –

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency

are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and

liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign

exchange rates ruling at the dates the fair was determined.

The functional currency of the Company and its subsidiaries outside mainland China is HKD and the

functional currency of the subsidiaries in mainland China is Renminbi. The results of operations with

functional currency other than Hong Kong dollars are translated into Hong Kong dollars at the exchange rates

approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position

items are translated into Hong Kong dollars at the closing foreign exchange rates at the end of the reporting

period. The resulting exchange differences are recognised in other comprehensive income and accumulated

separately in equity in the exchange reserve.

On disposal of an operation with functional currency other than Hong Kong dollars, the cumulative

amount of the exchange differences relating to that foreign operation is reclassified from equity to profit or

loss when the profit or loss on disposal is recognised.

(w) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset

which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as

part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when

expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary

to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended

or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or

sale are interrupted or complete.

(x) Related parties

(i) A person, or a close member of that person’s family, is related to the Group if that person:

(a) has control or joint control over the Group;

(b) has significant influence over the Group; or

(c) is a member of the key management personnel of the Group or the Group’s parent.

(ii) An entity is related to the Group if any of the following conditions applies:

(a) The entity and the Group are members of the same Group (which means that each parent,

subsidiary and fellow subsidiary is related to the others).

(b) One entity is an associate or joint venture of the other entity (or an associate or joint

venture of a member of a group of which the other entity is a member).

(c) Both entities are joint ventures of the same third party.

(d) One entity is a joint venture of a third entity and the other entity is an associate of the third

entity.

(e) The entity is a post-employment benefit plan for the benefit of employees of either the

Group or an entity related to the Group.

(f) The entity is controlled or jointly controlled by a person identified in (i).

(g) A person identified in (i)(a) has significant influence over the entity or is a member of the

key management personnel of the entity (or of a parent of the entity).

Close members of the family of a person are those family members who may be expected to

influence, or be influenced by, that person in their dealings with the entity.


– I-18 –

(y) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial information, are

identified from the financial information provided regularly to the Group’s most senior executive management

for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of

business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the

segments have similar economic characteristics and are similar in respect of the nature of products and

services, the nature of production processes, the type or class of customers, the methods used to distribute the

products or provide the services, and the nature of the regulatory environment. Operating segments which are

not individually material may be aggregated if they share a majority of these criteria.

2 Turnover and segment reporting

(a) Turnover

The principal activities of the Group are manufacturing and trading of cigarette packages and films.

Turnover represents the sales value of goods sold less returns, discounts and value added taxes and other

sales taxes. The amount of each significant category of revenue recognised in turnover during the Relevant

Period is as follows:

2009 2010 2011

$’000 % $’000 % $’000 %



materials



– Other cigarette film 37,839 14.3 69,809 12.7 111,785 16.6

Sub-total 202,828 79.0 364,369 66.2 464,529 68.9





Total 264,457 100.0 550,534 100.0 674,983 100.0

For the years ended 31 December 2009, 2010 and 2011, there are three, two and two customers

respectively with whom transactions have exceeded 10% of the Group’s revenues. Revenues from sales of

cigarette packages and films to these customers, including sales to entities which are known to the Group to

be under common control with these customers (i.e. the sales to different customers are viewed as a single

customer if the relevant sales were made to various customers under common control), amounted to

approximately $198,773,000, $360,089,000, and $497,914,000 for the years ended 31 December 2009, 2010

and 2011 respectively. Details of concentrations of credit risk arising from these customers are set out in note

19(a).

Further details regarding the Group’s principal activities are disclosed below:


– I-19 –

(b) Segment reporting

The Group manages its businesses by divisions. In a manner consistent with the way in which

information is reported internally to the Group’s most senior executive management for the purposes of

resource allocation and performance assessment, the Group has presented the following two reportable

segments.

• Cigarette related products: this segment sales and manufactures cigarette packages and cigarette

packaging films; and

• Other products: this segment sales and manufactures other marketing films (e.g. films for packing

straws, food, cassettes and that for stationery tapes)

(i) Segment results, assets and liabilities

For the purposes of assessing segment performance and allocating resources between segments,

the Group’s senior executive management monitors the results, assets and liabilities attributable to each

reportable segment on the following bases:

Segment assets include all tangible, intangible assets and current assets with the exception of

deferred tax assets and other corporate assets. Segment liabilities include trade and other payables to the

manufacturing and sales activities of the individual segments and bank borrowings managed directly by

the segments.

Revenue and expenses are allocated to the reportable segments with reference to sales generated

by those segments and the expenses incurred by those segments or which otherwise arise from the

depreciation or amortisation of assets attributable to those segments.

Information regarding the Group’s reportable segments as provided to the Group’s most senior

executive management for the purposes of resource allocation and assessment of segment performance

for the years ended 31 December 2009, 2010 and 2011 is set out below.

Cigarette related packaging

materials

Non-cigarette related

packaging materials Total

2009 2010 2011 2009 2010 2011 2009 2010 2011

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Revenue from external

customers 243,520 413,988 519,546 20,937 136,546 155,437 264,457 550,534 674,983

Reportable segment revenue 243,520 413,988 519,546 20,937 136,546 155,437 264,457 550,534 674,983

Reportable segment gross

profit 93,642 184,294 226,199 3,127 9,453 20,438 96,769 193,747 246,637

Reportable segment profit

before taxation 82,324 141,165 185,557 2,601 2,328 7,652 84,925 143,493 193,209

Interest income from bank deposits 438 282 396 4 34 37 442 316 433

Interest expense 2,003 12,900 12,209 23 3,494 6,394 2,026 16,394 18,603

Depreciation and amortisation for

the year 6,737 14,516 19,192 3,012 10,523 9,635 9,749 25,039 28,827

Reportable segment assets 427,295 442,925 577,902 186,878 274,829 250,425 614,173 717,754 828,327

Additions to non-current

segment assets during the year 108,818 19,106 38,055 142,582 4,611 874 251,400 23,717 38,929

Reportable segment liabilities 310,849 270,954 274,214 96,735 173,047 162,767 407,584 444,001 436,981


– I-20 –

(ii) Reconciliations of reportable segment assets and liabilities

2009 2010 2011

$’000 $’000 $’000

Assets

Reportable segment assets 614,173 717,754 828,327

Deferred tax assets 1,090 949 726

Other receivables – 1,293 264

Consolidated total assets 615,263 719,996 829,317

Liabilities

Reportable segment liabilities 407,584 444,001 436,981

Current taxation 4,205 – –

Deferred tax liability 283 660 1,533

Consolidated total liabilities 412,072 444,661 438,514

(iii) Geographic information

No geographic information is shown as the turnover and profit from operations of the Group are

derived from its activities in the PRC.

3 Other revenue and net income

2009 2010 2011

$’000 $’000 $’000

(a) Other revenue

Interest income 442 316 433

Government grants (note) 13,048 286 6,624

13,490 602 7,057

Note: During the years ended 31 December 2009, 2010 and 2011, various government grants were

received by certain subsidiaries of the Group which operate in the PRC in accordance with the

subsidy policies of the local government authorities.

2009 2010 2011

$’000 $’000 $’000

(b) Other net income


Sales of scrap materials – 5,467 10,298

Sales of raw materials 6,103 7,051 2,261

Gain on remeasurement of previously held

interest upon step acquisition of a subsidiary

(note 17) 848 – –

Gain on bargain purchase of a subsidiary

(note 17) 4,148 – –

Others 404 563 5,842

11,534 13,157 18,946


– I-21 –

4 Profit before taxation

Profit before taxation is arrived at after charging:

2009 2010 2011

$’000 $’000 $’000

(a) Finance costs

Interest on bank borrowings wholly repayable

within five years 2,026 16,394 18,603

(b) Staff costs

Contributions to defined contributions retirement

plans 972 2,123 2,989

Salaries, wages and other benefits 10,650 25,885 33,625

11,622 28,008 36,614

(c) Other items

Amortisation of intangible assets 3 51 63

Auditors’ remuneration 87 160 1,423

Cost of inventories# (note 10(b)) 167,688 356,787 428,346

Depreciation and amortisation of fixed assets 9,746 24,988 28,764


Operating lease charges 802 810 1,562

# Cost of inventories includes $13,810,000, $36,772,000, and $43,005,000 relating to staff costs,depreciation and amortisation expenses and for the years ended 31 December 2009, 2010 and 2011,respectively, which amounts are also included in the respective total amounts disclosed separately aboveor in note 4(b) for each of these types of expenses.

5 Income tax in the combined income statements

(a) Taxation in the combined income statements represents:

2009 2010 2011

$’000 $’000 $’000

Current tax – Hong Kong Profits Tax

Provision for the year 350 2,389 4,324

Current tax – PRC income tax

Provision for the year 20,459 34,289 45,992

Deferred tax

Origination and reversal of temporary

differences (88) 1,653 2,137

20,721 38,331 52,453

(i) Pursuant to the rules and regulations of the Cayman Islands and the BVI, the Group is not subjectto any income tax in these jurisdictions.

(ii) The provision for Hong Kong Profits Tax for the years ended 31 December 2009, 2010 and 2011is calculated at 16.5%. The payments of dividends by the Group companies incorporated in HongKong are not subject to withholding tax.

(iii) On 16 March, 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed theCorporate Income Tax Law of the PRC (“New Tax Law”) which became effective on 1 January2008 and the PRC’s statutory Corporate Income Tax rate is 25%.


– I-22 –

The New Tax Law and its relevant regulations provide for a five-year transition period from 1

January 2008 for those companies which were entitled to preferential tax rates under the then

effective tax laws and regulations. The transitional tax rates are 18%, 20%, 22%, 24% and 25%

for 2008, 2009, 2010, 2011 and 2012 onwards, respectively.

(iv) The Group’s PRC subsidiaries are subject to income tax at 25%, except for Jiangsu Sheen Colour

Science Technology Co., Ltd. and Ling Xian Fei Yu Import & Export (Shenzhen) Co., Ltd. which

are subject to income tax at 20%, 22%, 24% and 25% for 2009, 2010, 2011 and 2012 onwards,

respectively.

(v) According to the New Tax Law and its implementation rules, dividends receivable by

non-PRC-resident corporate investors from PRC-resident enterprises are subject to withholding

tax at 10%, unless reduced by tax treaties or arrangements, for profits earned since 1 January

2008. Under the tax arrangement between the Mainland of China and Hong Kong Special

Administrative Region and the relevant regulations, a qualified Hong Kong tax resident which is

the “beneficial owner” and holds a 25% equity interest or more of a PRC enterprise is entitled

to a reduced withholding tax rate of 5%.

(b) Reconciliation between tax expense and accounting profit at applicable tax rates:

2009 2010 2011

$’000 $’000 $’000


Notional tax on profit before taxation,

calculated at the rates applicable to

profits in the jurisdictions concerned 21,064 35,271 47,704

Tax effect of the preferential tax rates (1,607) (714) (288)

Tax effect of non-taxable income (1,249) – –

Tax effect of non-deductible expenses 567 880 613

PRC dividends withholding tax 1,946 2,894 4,424

Actual tax expense 20,721 38,331 52,453

6 Directors’ remuneration

Directors’ remuneration disclosed pursuant to section 161 of the Hong Kong Companies Ordinance is as

follows:

Year ended 31 December 2009

Name of directors

Directors’

fees

Salaries,

allowances

and other

benefits in

kind

Contributions

to retirement

benefits

schemes

Discretionary

bonuses Total

$’000 $’000 $’000 $’000 $’000

Executive directors

Guo Yumin 372 – 12 6 390

Xia Yu – – – 5 5

Huang Bo – – – – –

Bau Siu Fung – – – – –

Total 372 – 12 11 395


– I-23 –


Name of directors

Directors’

fees

Salaries,

allowances

and other

benefits in

kind

Contributions

to retirement

benefits

schemes

Discretionary

bonuses Total

$’000 $’000 $’000 $’000 $’000

Executive directors

Guo Yumin 372 – 12 71 455

Xia Yu – – – 64 64

Huang Bo – – – 80 80

Bau Siu Fung – – – – –

Total 372 – 12 215 599


Name of directors

Directors’

fees

Salaries,

allowances

and other

benefits in

kind

Contributions

to retirement

benefits

schemes

Discretionary

bonuses Total

$’000 $’000 $’000 $’000 $’000

Executive directors

Guo Yumin 372 – 12 91 475

Xia Yu – – – – –

Huang Bo – – – 267 267

Bau Siu Fung – 150 2 – 152

Total 372 150 14 358 894

During the Relevant Period, no amount was paid or payable by the Group to the directors or any of the five

highest paid individuals set out in note 7 below as an inducement to join or upon joining the Group or as

compensation for loss of office. There was no arrangement under which a director waived or agreed to waive any

remuneration during the Relevant Period.

7 Individuals with highest emoluments

Of the five individuals with the highest emoluments of the Group during the Relevant Period include 1, 1 and

2 director for the years ended 31 December 2009, 2010 and 2011, respectively, whose emoluments are disclosed in

note 6. The emoluments in respect of the remaining individuals are as follows:

2009 2010 2011

$’000 $’000 $’000

Salaries and other emoluments 887 664 637

Contributions to retirement benefits schemes 134 133 68

Discretionary bonuses – 240 299

1,021 1,037 1,004

Number of senior management 2 2 2


– I-24 –

The above individuals are within the following band:

2009 2010 2011

Number of

individuals

Number of

individuals

Number of

individuals

Nil to $1,000,000 4 4 3

8 Earnings per share

Earnings per share information is not presented as its inclusion for the purpose of this report is not considered

meaningful due to the Reorganisation and the preparation of the results of the Group for the Relevant Period on the

basis as disclosed in Section A.

9 Fixed assets

Buildings

Plant and

machinery

Office

equipment

and other

fixed

assets

Motor

vehicles

Construction in

progress Sub-total

Interests

in

leasehold

land held

for own

use under

operating

lease Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Cost:

At 1 January 2009 60,734 24 238 771 84 61,851 23,734 85,585

Exchange adjustments 132 227 4 4 – 367 52 419

Additions 31,478 158,332 3,772 2,391 41,265 237,238 14,089 251,327

Disposals – – (48) – – (48) – (48)

Transfer from construction

in progress 3,084 38,265 – – (41,349) – – –

Additions through

acquisition of a

subsidiary – 20,492 361 664 – 21,517 – 21,517

At 31 December 2009 95,428 217,340 4,327 3,830 – 320,925 37,875 358,800- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Accumulated depreciation

and amortisation:

At 1 January 2009 (493) – (180) (75) – (748) – (748)

Exchange adjustments (4) (4) – – – (8) (1) (9)

Charge for the year (3,122) (5,297) (208) (470) – (9,097) (649) (9,746)

Written back on disposals – – 43 – – 43 – 43

At 31 December 2009 (3,619) (5,301) (345) (545) – (9,810) (650) (10,460)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net book value:

At 31 December 2009 91,809 212,039 3,982 3,285 – 311,115 37,225 348,340


– I-25 –

Buildings

Plant and

machinery

Office

equipment

and other

fixed

assets

Motor

vehicles

Construction in

progress Sub-total

Interests

in

leasehold

land held

for own

use under

operating

lease Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Cost:

At 1 January 2010 95,428 217,340 4,327 3,830 – 320,925 37,875 358,800

Exchange adjustments 2,732 7,679 242 180 21 10,854 1,486 12,340

Additions 200 10,191 3,776 1,778 1,118 17,063 6,453 23,516

Disposals – – (61) – (2) (63) – (63)


in progress 282 27 – – (309) – – –

At 31 December 2010 98,642 235,237 8,284 5,788 828 348,779 45,814 394,593- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -


and amortisation:

At 1 January 2010 (3,619) (5,301) (345) (545) – (9,810) (650) (10,460)

Exchange adjustments (243) (614) (41) (47) – (945) (47) (992)

Charge for the year (4,600) (17,018) (1,397) (1,056) – (24,071) (917) (24,988)

Written back on disposals – – 55 – – 55 – 55

At 31 December 2010 (8,462) (22,933) (1,728) (1,648) – (34,771) (1,614) (36,385)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net book value:

At 31 December 2010 90,180 212,304 6,556 4,140 828 314,008 44,200 358,208


– I-26 –

Buildings

Plant and

machinery

Office

equipment

and other

fixed

assets

Motor

vehicles

Construction in

progress Sub-total

Interests

in

leasehold

land held

for own

use under

operating

lease Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Cost:

At 1 January 2011 98,642 235,237 8,284 5,788 828 348,779 45,814 394,593

Exchange adjustments 4,894 11,688 441 295 672 17,990 2,272 20,262

Additions 194 3,579 1,966 395 32,753 38,887 – 38,887

Disposals – – (53) (24) (12) (89) – (89)


in progress 95 2,497 411 – (3,003) – – –

At 31 December 2011 103,825 253,001 11,049 6,454 31,238 405,567 48,086 453,653- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -


and amortisation:

At 1 January 2011 (8,462) (22,933) (1,728) (1,648) – (34,771) (1,614) (36,385)

Exchange adjustments (531) (1,487) (136) (109) – (2,263) (100) (2,363)

Charge for the year (5,431) (18,244) (2,814) (1,323) – (27,812) (952) (28,764)

Written back on disposals – – 47 22 – 69 – 69

At 31 December 2011 (14,424) (42,664) (4,631) (3,058) – (64,777) (2,666) (67,443)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net book value:

At 31 December 2011 89,401 210,337 6,418 3,396 31,238 340,790 45,420 386,210

(a) The analysis of net book value of properties is as follows:

2009 2010 2011

$’000 $’000 $’000

Medium-term leases in the PRC 129,034 134,380 134,821

Representing:

Buildings 91,809 90,180 89,401

Interests in leasehold land held for own

use under operating lease 37,225 44,200 45,420

129,034 134,380 134,821

Interests in leasehold land held for own use under operating lease represent land located in the PRC. As

at 31 December 2011, the remaining period of the land use rights ranged from 47 to 49 years.


– I-27 –

(b) Buildings, plant and machinery and interests in leasehold land held for own use under operating

lease pledged for banking facilities

Buildings, plant and machinery and interests in leasehold land held for own use under operating lease

with net book value of $271,613,000, $276,537,000 and $275,182,000 are pledged as security against bank

loans of certain subsidiaries as at 31 December 2009, 2010 and 2011 respectively (see note 14).

10 Inventories

(a) Inventories in the combined statements of financial position comprise:

2009 2010 2011

$’000 $’000 $’000

Raw materials 39,324 74,734 67,104

Work in progress 4,367 8,609 13,224

Finished goods 29,689 27,504 39,926

73,380 110,847 120,254

Inventory with net book value of $25,736,000 and $40,108,000 are pledged as security against bank

loans of certain subsidiaries as at 31 December 2009 and 2010 respectively (see note 14).

(b) The analysis of the amount of inventories recognised as an expense is as follows:

2009 2010 2011

$’000 $’000 $’000

Carrying amount of inventories sold 167,688 356,564 428,426

Write down/(reversal of write down) of

inventories – 223 (80)

167,688 356,787 428,346

11 Trade and other receivables

2009 2010 2011

$’000 $’000 $’000

Trade and bills receivable

– related companies 20,509 27,044 −

– others 7,677 123,116 213,422

Deposits, prepayments and other receivables

– related parties 12,094 9,362 2,467

– others 53,957 24,942 12,817

Amount due from the Controlling Shareholder

– Mr Guo Yumin 6,951 – 29,012

101,188 184,464 257,718

The amount due from the Controlling Shareholder is unsecured, interest free and repayable on demand as at

31 December 2009 and 2011 (see note 21(c)).


– I-28 –

Included in trade and other receivables are trade and bills receivable with the following ageing analysis, based

on the date of invoice, as of the end of the reporting period:

2009 2010 2011

Trade

receivables

Bill

receivables

Trade

receivables

Bill

receivables

Trade

receivables

Bill

receivables

$’000 $’000 $’000 $’000 $’000 $’000

Less than 30 days 20,306 – 89,728 1,175 129,931 4,179

31-90 days 7,612 262 46,280 3,773 62,099 4,073

91-180 days – – 4,287 2,621 4,902 3,486

181-365 days 6 – 1,349 939 3,044 295

Over 365 days – – 8 – 1,413 –

27,924 262 141,652 8,508 201,389 12,033

2009 2010 2011

$’000 $’000 $’000

Current 20,281 130,065 193,356- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Less than 1 month past due 7,230 8,132 7,136

1 to 3 months past due 669 6,712 4,864

More than 3 months past due 6 5,251 8,066

Amount past due 7,905 20,095 20,066- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

28,186 150,160 213,422

Trade and bills receivable are due within 30 to 180 days from the date of invoice. Further details on the

Group’s credit policy are set out in note 19(a).

Receivables that were neither past due nor impaired relate to a wide range of customers for whom there was

no recent history default.

The trade and bills receivable as of each period end were not impaired. Receivables that were past due but not

impaired relate to the trade balance with a number of independent customers that have a good track record with the

Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these

balances as there has not been a significant change in credit quality and the balance are still considered fully

recoverable. The Group does not hold any collateral over these balances.

12 Cash and cash equivalents

(a) Cash and cash equivalents comprise:

2009 2010 2011

$’000 $’000 $’000

Cash at bank and in hand 89,869 63,778 63,013

As at 31 December 2009, 2010 and 2011, cash at bank and in hand placed with banks in the PRC

amounted to $83,182,000, $61,424,000, and $57,841,000 respectively. Remittance of funds out of the PRC is

subject to the exchange restriction imposed by the PRC government.


– I-29 –

(b) Reconciliation of profit before taxation to cash generated from operations

Section C For the years ended 31 December

Note 2009 2010 2011

$’000 $’000 $’000

Operating activities


Adjustments for:

Amortisation of intangible assets 4(c) 3 51 63

Depreciation and amortisation of

fixed assets 4(c) 9,746 24,988 28,764

Finance costs 4(a) 2,026 16,394 18,603

Interest income 3(a) (442) (316) (433)

Gain on remeasurement of

previously held interest upon

step acquisition of a

subsidiary 3(b) (848) – –

Gain on bargain purchase of a

subsidiary 3(b) (4,148) – –

Foreign exchange gain (954) (1,238) (5,309)

Operating profit before changes

in working capital 90,308 183,372 234,897

Increase in inventories (72,667) (33,735) (3,899)

Increase in trade and other

receivables (16,807) (79,048) (59,443)

Increase/(decrease) in trade and

other payables 58,483 9,818 (3,556)

Cash generated from operations 59,317 80,407 167,999

13 Trade and other payables

2009 2010 2011

$’000 $’000 $’000

Trade payables

− related companies 1,476 1,541 –

− others 32,493 46,173 52,164

Other payables and accruals 69,213 57,242 48,353

Amount due to the Controlling Shareholder

− Mr Guo Yumin 30,221 27,967 12,586

133,403 132,923 113,103

All of the trade and other payables are expected to be settled within one year.

Amount due to the Controlling Shareholder is unsecured, interest free and repayable on demand (see note

21(c)).


– I-30 –

Included in trade and other payables are trade creditors with the following ageing analysis as of the end of the

reporting period:

2009 2010 2011

$’000 $’000 $’000

Due within 1 month or on demand 32,133 45,715 44,904

Due after 1 month but within 3 months 1,200 434 273

Due after 3 months but within 6 months 82 222 6,822

Due more than 6 months 554 1,343 165

33,969 47,714 52,164

14 Bank loans

At 31 December 2009, 2010 and 2011, the bank loans were repayable as follows:

2009 2010 2011

$’000 $’000 $’000

Within 1 year or on demand 51,108 105,770 154,188- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

After 1 year but within 2 years 27,258 47,009 –

After 2 years but within 5 years 181,719 141,027 146,787

208,977 188,036 146,787- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

260,085 293,806 300,975

Representing:

Secured 237,370 270,301 276,304

Unsecured 22,715 23,505 24,671

260,085 293,806 300,975


– I-31 –

At 31 December 2009, 2010 and 2011, the banking facilities of the Group totalling $260,085,000,

$293,806,000 and $300,975,000 respectively, which were fully utilised. Certain bank loans were secured by assets

of the Group as set out below:

2009 2010 2011

$’000 $’000 $’000

Fixed assets 271,613 276,537 275,182

Inventories 25,736 40,108 –

297,349 316,645 275,182

Certain banking facilities of the Group were guaranteed by the related Companies as disclosed in note 21(d).

15 Employee retirement benefits

Defined contribution retirement plans

Pursuant to the relevant labour rules and regulations in the PRC, the PRC subsidiaries participate in a

defined contribution retirement benefit scheme (the “Scheme”) organised by the relevant local authorities

whereby the subsidiaries are required to make contributions to the Scheme at the rate of 11% – 20% of the

eligible employees’ salaries for the years ended 31 December 2009, 2010 and 2011.

The Group also operates a Mandatory Provident Fund Scheme (“the MPF scheme”) under the Hong

Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the

Hong Kong Employment Ordinance. The MPF scheme is a defined contribution retirement plan administered

by independent trustees. Under the MPF scheme, the employer and its employees are each required to make

contributions to the plan at 5% of the employees’ relevant income, subject to a cap of monthly relevant income

of $20,000. Contributions to the plan vest immediately.

The Group has no other material obligation for the payment of retirement benefits associated with these

schemes beyond the contributions described above.

16 Income tax in the combined statements of financial position

(a) Current taxation in the combined statements of financial position represents:

2009 2010 2011

$’000 $’000 $’000

As of 1 January 413 16,213 13,924

Provision for Hong Kong Profits Tax

for the year 350 2,389 4,324

Provision for PRC income tax for the year 20,459 34,289 45,992

Additions through acquisition of

a subsidiary 1,417 – –

Income taxes paid (6,444) (39,440) (46,077)

Exchange difference 18 473 775

As of 31 December 16,213 13,924 18,938


– I-32 –

(b) Deferred tax assets and liabilities recognised:

(i) The components of deferred tax assets/(liabilities) recognised in the Group’s statement of

financial position and the movements during the year are as follows:

Unrealised

profit

Fixed assets

depreciation

Pre

operating

expenses Tax losses

Accrued

expenses

Provision

for

inventories

PRC

dividend

withholding

tax

Fair value

adjustment

of assets Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

At 1 January 2009 – – 628 131 – – (1) – 758

Exchange adjustments – – 2 – – – – 2 4

Arising on acquisition

of a subsidiary – – – – – – – (808) (808)

Charged/(credited) to

profit or loss 433 53 1,297 (131) – – (1,946) 382 88

At 31 December 2009 433 53 1,927 – – – (1,947) (424) 42

At 1 January 2010 433 53 1,927 – – – (1,947) (424) 42

Exchange adjustments – 2 53 – 14 1 – – 70


profit or loss (68) – (529) – 525 56 (1,712)* 75 (1,653)

At 31 December 2010 365 55 1,451 – 539 57 (3,659) (349) (1,541)

At 1 January 2011 365 55 1,451 – 539 57 (3,659) (349) (1,541)

Exchange adjustments – 3 60 – 14 3 – – 80


profit or loss 484 – (558) – (553) (20) (1,564)* 74 (2,137)

At 31 December 2011 849 58 953 – – 40 (5,223) (275) (3,598)

* These amounts include the provision of withholding tax on profits of the PRC subsidiaries

amounting to $2,894,000 and $4,424,000 for the year 2010 and 2011 respectively, and the reversal

of deferred tax liabilities on withholding tax in respect of dividends paid amounting to $1,182,000

and $2,860,000 during the years ended 31 December 2010 and 2011, respectively.

(ii) Reconciliation to the statements of financial position:

2009 2010 2011

$’000 $’000 $’000

Net deferred tax assets recognised in

the statement of financial position 2,413 2,467 1,900

Net deferred tax liabilities

recognised in the statement of

financial position (2,371) (4,008) (5,498)

42 (1,541) (3,598)


– I-33 –

17 Acquisition of a subsidiary

JSSC was established as a sino-foreign equity joint venture enterprise with limited liability in the PRC on 6

March 2002 with a total investment of US$10,000,000 and a registered capital of US$5,000,000. At the time of its

establishment, JSSC was owned as to 35% by Sheen China (Hong Kong) Limited (“HKSC”). JSSC is principally

engaged in anti-counterfeiting film printing business.

Pursuant to a share transfer agreement dated 18 January 2009 entered into between Jiangsu Shuntai Packaging

& Printing Science Technology Co., Ltd. (“JSST”) and Tobacco Machines Company, Tobacco Machines Company

transferred its entire 5% equity interest in JSSC to JSST at a consideration of RMB1,243,400. Pursuant to another

share transfer agreement dated 18 January 2009 entered into between JSST, Jiangsu Jinjie, Huaxin Industrial, Golden

Dream City and Red Cedar, each of Jiangsu Jinjie, Huaxin Industrial, Golden Dream City and Red Cedar transferred

their respective 15% equity interest in JSSC to JSST at a consideration of RMB2,700,000 each (that is,

RMB10,800,000 in aggregate).

On 18 January 2009, the Group effectively owned 68.15% equity interest in JSSC. Of which 35% equity

interest was held through its wholly-owned subsidiary, HKSC while 65% equity was owned through its subsidiary,

JSST.

In the post acquisition date to 31 December 2009, JSSC contributed revenue of $68,495,000 and profit of

$26,546,000 to the Group’s result.

The acquisition had the following effects on the Group’s assets and liabilities:

Pre-acquisition

carrying

amounts

Fair value

adjustments

Recognised

values on

acquisition

$’000 $’000 $’000

Property, plant and equipment 19,545 1,972 21,517

Inventories 8,137 1,246 9,383

Trade and other receivables 8,471 – 8,471

Cash and cash equivalents 2,928 – 2,928

Deferred tax liabilities – (808) (808)

Trade and other payables (2,478) – (2,478)

Dividends payable (11,622) – (11,622)

Total identifiable net assets 24,981 2,410 27,391

Proportion of ownership 65%

17,804

Gain on bargain purchase (note 3(b)) (4,148)

Consideration, satisfied by

– cash 13,656

Acquisition-related costs (included in

administrative expenses in combined income

statement for the year ended 31 December

2009) 59

Net cash flow arising from acquisition:

– cash consideration paid 13,656

– cash acquired (2,928)

Net cash outflow 10,728


– I-34 –

Bargain purchase was arisen from the acquisition of JSSC as the Group’s interest in net fair value of the

acquiree’s identifiable assets and liabilities measured as at the acquisition date exceeds the aggregate of the fair value

of the consideration transferred.

No contingent consideration arrangements or contingent liabilities were identified upon step acquisition.

The Group recognised a gain of $848,000 (note 3 (b)) as a result of the remeasurement of previously held

interest, being the amount of interest in JSSC immediately before the acquisition and the value of JSSC attributable

to the Group as implied by the acquisition consideration. The gain is included in other net income in the Group’s

combined income statement for the year ended 31 December 2009. The fair value of JSSC, an unlisted company, was

estimated by management of the Group. The fair value estimates are based on prices at which stocks of similar

companies are trading in a public market. The companies that are comparable to JSSC in terms of business nature

and associated risks are selected based on the following relevant criteria: (a) products, (b) markets, (c) earnings and

growth, (d) capital structure, (e) nature of competition and (f) the characteristics of driving underlying investment

risk and expected rate of return. The Group recognised the non-controlling interests at the proportionate share of net

assets of JSSC.

18 Capital, reserves and dividends

(a) Dividends

Dividends for the year ended 31 December 2010 and 2011 represent dividends declared by HKSC and

JSST respectively.

The rate of dividend and the number of shares ranking for dividends are not presented as such

information is not meaningful having regard to the purpose of the Financial Information prepared on the basis

as disclosed in Section A.

(b) Capital

For the purpose of this Finance Information, the capital in the combined statement of financial position

as at 31 December 2009, 2010 and 2011 represented an aggregate amount of the Group’s share of the nominal

value of the paid-in capital of the companies comprising the Group as at that date.

(c) Nature and purpose of reserves

(i) Capital reserve

The capital reserve comprises the contribution made by the Controlling Shareholder before the

Reorganisation by waiving the right to receive an amount payable by SCGHI.

(ii) Statutory reserve

General reserve fund

Pursuant to the applicable PRC regulations, all PRC subsidiaries of the Group are required to

appropriate 10% of their after-tax profit (after offsetting prior year/period losses) to the statutory

reserve until such reserve reaches 50% of the registered capital of each relevant PRC subsidiary.

The transfer to the statutory reserve must be made before distribution of dividends to equity

shareholders. The statutory reserve fund can be utilised, upon approval by the relevant

authorities, to offset accumulated losses or to increase registered capital of the subsidiary.

(iii) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of

the financial information of operations with functional currency other than Hong Kong dollars. The

reserve is dealt with in accordance with the accounting policy set out in note 1(v).


– I-35 –

(d) Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue

as a going concern, so that it can continue to provide returns for shareholders and benefits for other

stakeholders, by pricing products and services commensurately with the level of risk and by securing access

to finance at a reasonable cost.

The Group actively and regularly reviews and manages its capital structure to maintain a balance

between the higher shareholders returns that might be possible with higher levels of borrowings and the

advantages and security afforded by a sound capital position, and makes adjustments to the capital structure

in light of changes in economic conditions.

The Group monitors capital with reference to its debt position. The Group’s strategy was to maintain the

equity and debt in a balanced position and ensure that there was adequate working capital to service its debt

obligations. The Group’s gearing ratio, being the Group’s net debt over its shareholder’s equity as at 31

December 2009, 2010 and 2011 was 143%, 146% and 99% respectively.

Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements

in the current and prior years.

19 Financial risk management and fair values

Exposure to credit, liquidity, interest rate and currency risks arise in the normal course of the Group’s business.

The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to

manage these risks are described below.

(a) Credit risk

The Group’s credit risk is primarily attributable to trade and other receivables. Credit evaluations are

performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s

past history of making payments when due and current ability to pay and take into account information specific

to the customer as well as pertaining the economic environment in which the customer operates. Trade and bills

receivable are due within 30 to 180 days from the date of billing. Debtors with balances that are more than

1 year from the date of billing are requested to settle all outstanding balances before any further credit is

granted. Normally, the Group does not obtain collateral from customers.

At the end of the reporting period, the Group has a certain concentration of credit risk as 1.8%, 54.2%

and 54.2% of the total trade debtors were due from the Group’s largest customer and 50.6%, 72.6% and 80.4%

of the total trade debtors were due from the Group’s five largest customers as at 31 December 2009, 2010 and

2011 respectively.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in

the statements of financial position.

The Group does not provide any other guarantees which would expose the Group to credit risk.

Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade and

other receivables are set out in note 11.


– I-36 –

(b) Liquidity risk

Individual operating entities within the Group are responsible for their own cash management, including

the short term investment of cash surpluses and the raising of loans to cover expected cash demands, subject

to approval by the management and directors when the borrowing exceeds certain predetermined levels of

authority. The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending

covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from

major financial institutions to meet its liquidity requirements in the short and longer term.

The following table shows the remaining contractual maturities at the end of the reporting period of the

Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest

payments computed using contractual rates or, if floating, based on rates current at the end of the respective

reporting period) and the earliest date the Group can be required to pay:



Carrying

amount Total

Within

1 year or

on demand

More than

1 year but

within

2 years

More than

2 years but

less than

5 years

$’000 $’000 $’000 $’000 $’000

Trade and other

payables 133,239 133,239 133,239 – –

Bank loans 260,085 297,253 65,898 39,183 192,172

393,324 430,492 199,137 39,183 192,172



Carrying

amount Total

Within

1 year or

on demand

More than

1 year but

within

2 years

More than

2 years but

less than

5 years

$’000 $’000 $’000 $’000 $’000

Trade and other

payables 126,059 126,059 126,059 – –

Bank loans 293,806 332,389 123,458 58,695 150,236

419,865 458,448 249,517 58,695 150,236



Carrying

amount Total

Within

1 year or

on demand

More than

1 year but

within

2 years

More than

2 years but

less than

5 years

$’000 $’000 $’000 $’000 $’000

Trade and other

payables 101,891 101,891 101,891 – –

Bank loans 300,975 342,873 174,802 10,642 157,429

402,866 444,764 276,693 10,642 157,429


– I-37 –

(c) Interest rate risk

The Group’s interest rate risk arises primarily from bank loans and cash at bank issued at variable rates

that expose the Group to cash flow interest rate risk. The Group does not use financial derivatives to hedge

against the interest rate risk. The Group defines “net borrowings” as being interest-bearing financial liabilities

less interest-bearing investments. The Group’s interest rate profile as monitored by management is set out in

(i) below.

(i) Interest rate profile

The following table details the interest rate profile of the Group’s interest-generating financial

assets and interest-bearing financial liabilities at the end of the respective reporting period:

2009 2010 2011

Effective

interest rate

% $’000

Effective

interest rate

% $’000

Effective

interest rate

% $’000

Fixed rate

borrowings:

Bank loans 5.31 (22,715) 4.43 – 5.31 (47,009) 6.03 – 6.63 (74,011)- - - - - - - - - - - - - - - - - -

Net variable rate

borrowings:

Bank loans 4.86 – 6.05 (237,370) 5.04 – 6.53 (246,797) 5.49 – 7.87 (226,964)

Less: Cash and cash

equivalents 0.01 – 0.36 89,869 0.01 – 0.36 63,778 0.01 – 0.50 63,013

(147,501) (183,019) (163,951)- - - - - - - - - - - - - - - - - -

Total net borrowings (170,216) (230,028) (237,962)

(ii) Sensitivity analysis

At 31 December 2009, 2010 and 2011, it is estimated that a general decrease/increase of 100 basis

points in interest rates, with all other variables held constant, would increase/decrease the Group’s profit

after tax and retained profits by approximately $1,106,000, $1,372,000 and $1,230,000 for the years

ended 31 December 2009, 2010 and 2011 respectively.

The sensitivity analysis above indicates the annualised impact on the Group’s interest expense

that would arise assuming that the change in interest rates had occurred at the end of the respective

reporting period and had been applied to floating rate instruments which expose the Group to cash flow

interest rate risk at that date. The analysis does not take into account exposure to fair value interest rate

risk arising from fixed rate instruments as the Group does not hold any fixed rate instruments which are

measured at fair value. This analysis has been performed on the same basis throughout the Relevant

Period.


– I-38 –

(d) Currency risk

The Group is exposed to currency risk primarily through sales and purchases made by the PRC

subsidiaries which give rise to receivables, payables, cash balances and bank loans that are denominated in

United States dollars (“USD”). Presently, the Group has no hedging policy with respect to the foreign exchange

exposure.

Exposure to currency risk

The following table details the Group’s exposure at the end of the respective reporting period to

currency risk arising from recognised assets or liabilities denominated in a currency other than the

functional currency of the entity to which they relate. For presentation purposes, the amounts of the

exposure are shown in HKD, translated using the spot rate at the end of the reporting period. Differences

resulting from the translation of the financial information of foreign operations into the Group’s

presentation currency are excluded.

Exposure to USD

(expressed in Hong Kong dollars)

2009 2010 2011

$’000 $’000 $’000

Cash and cash equivalents 643 – –

Net exposure arising from

recognised assets and liabilities 643 – –

The following table indicates the instantaneous change in the Group’s profit after tax and retained

profits that would arise if foreign exchange rates to which the Group has significant exposure at the end

of the reporting period had changed at that date, assuming all other risk variables remained constant.

2009 2010 2011

Increase/

(decrease)

in foreign

exchange

rates

Effect on

profit after

tax and

retained

profits

Increase/

(decrease)

in foreign

exchange

rates

Effect on

profit after

tax and

retained

profits

Increase/

(decrease)

in foreign

exchange

rates

Effect on

profit after

tax and

retained

profits

% $’000 % $’000 % $’000

USD 5 24 5 – 5 –

USD (5) (24) (5) – (5) –

Results of the analysis as presented in the above table represent an aggregation of the

instantaneous effects on each of the Group entities’ profit after tax measured in the respective functional

currencies, translated into HKD at the exchange rate ruling at the end of the reporting period for

presentation purposes. The sensitivity analysis assumes that the change in foreign exchange rates had

been applied to re-measure those financial instruments held by the Group which expose the Group to

foreign currency risk at the end of the reporting period. The analysis excludes differences that would

result from the translation of the financial information of foreign operations into the Group’s

presentation currency. The analysis is performed on the same basis for the Relevant Period.


– I-39 –

(e) Fair values

All financial instruments are carried at amounts not materially different from their carrying amounts

because of the immediate or short term maturity of these financial instruments as at 31 December 2009, 2010

and 2011.

(f) Estimation of fair values

The following summarises the major methods and assumptions used in estimating the fair values of

financial instruments.

Interest-bearing loans

The fair value is estimated as the present value of future cash flows, discounted at current market

interest rates for similar financial instruments.

20 Commitments

(a) Capital commitments outstanding as at 31 December 2009, 2010 and 2011 not provided for in the

Financial Information were as follows:

2009 2010 2011

$’000 $’000 $’000

Contracted for 465 246 3,676

Authorised but not contracted for – – 1,974

465 246 5,650

(b) At 31 December 2009, 2010 and 2011, the total future minimum lease payments under non-

cancellable operating leases are payable as follows:

2009 2010 2011

$’000 $’000 $’000

Within 1 year 803 831 1,229

After 1 year and within 5 years 1,472 693 413

2,275 1,524 1,642

The Group is the lessee in respect of certain properties and plant held under operating leases. The leases

typically run for an initial period of one to three years, with an option to renew the lease when all terms are

renegotiated. None of the leases includes contingent rentals.


– I-40 –

21 Material related party transactions

During the Relevant Period, transactions with the following parties are considered to be related party

transactions:

Name of related party Relationship with the Group

Mr Guo Yumin Director and the Controlling Shareholder of the Group

Xuzhou Long Chuan Co., Ltd.

(徐州龍川商貿有限公司 ) (Note)

Owned by Mr Guo Yumin, the director and the Controlling

Shareholder until 13 June 2011

Xuzhou Dinuo Printing Co., Ltd.

(徐州帝諾印刷有限公司) (Note)

Mr Guo Yumin, the director and the Controlling Shareholder of

the Group, is the legal representative

Shenzhen Yi’an Import and Export

Co., Ltd. (深圳益安進出口有限公司)

(Note)


Shareholder and Madam Xia, the director until 5 January

2010

Qingdao Justo Packaging Co., Ltd.

(青島嘉澤包裝有限公司)

Owned as to 30% by Mr Guo Yumin, the director and

Controlling Shareholder of the Group until 23 March 2011

Xuzhou Ruilong Real Estate

Development Co., Ltd. (徐州瑞龍房地產開發有限公司) (Note)


Shareholder

Qingdao Chuangji Weiye Investment

Limited (青島創基偉業投資有限公司)

(Note)

Effectively owned 30% equity interest in QD Ener until 8

August 2010

Qingdao Mingji Packaging Co., Ltd.

(青島銘基包裝有限公司) (Note)

Owned by Qingdao Chuangji Weiye Investment Limited

Qingdao Xurui Investment Guarantee

Co., Ltd. (青島旭瑞投資擔保有限公司) (Note)

Owned by Qingdao Beizhou Group Co., Ltd. (青島北州集團有限公司) the Shareholder of QD Ener holding 30% of the

registered capital of QD Ener since 8 August 2010

Qingdao Xurui Industry and Trade

Co., Ltd. (青島旭瑞工貿有限公司)

(Note)

Owned by Qingdao Beizhou Group Co., Ltd. (青島北州集團有限公司) the Shareholder of QD Ener holding 30% of the

registered capital of QD Ener since 8 August 2010

Note: The English translation of the names is for reference only. The official names of these entities are in

Chinese.

(a) Key management personnel remuneration

Remuneration for key management personnel of the Group, including amounts paid to the directors as

disclosed in note 6 and certain of the highest paid employees as disclosed in note 7, is as follows:

2009 2010 2011

$’000 $’000 $’000

Short-term employee benefits 873 1,424 2,189

Post-employment benefits 115 121 169

988 1,545 2,358

Total remuneration is disclosed in “staff costs” (see note 4(b)).


– I-41 –

(b) Transactions with related parties

2009 2010 2011

$’000 $’000 $’000

Sales of goods to:

– Xuzhou Dinuo Printing Co., Ltd. 26,231 29,369 –


Co., Ltd. 7,326 – –

– Qingdao Justo Packaging Co., Ltd. – 55,270 7,576

– Qingdao Mingji Packaging Co., Ltd. 29,074 4,018 –

– Xuzhou Long Chuan Co., Ltd. – – 1,064

62,631 88,657 8,640

Other revenue and net income (Note 1):

– Qingdao Justo Packaging Co., Ltd. 1,385 5,483 369

– Qingdao Mingji Packaging Co., Ltd. 4,718 721 –

6,103 6,204 369

Purchase of goods from:

– Qingdao Justo Packaging Co., Ltd. 1,400 4,285 1,337

Commission fee paid to (Note 2):

– Xuzhou Long Chuan Co., Ltd. 4,283 6,285 6,335

– Xuzhou Dinuo Printing Co., Ltd. 5,276 – 244


Co., Ltd. 4,493 – –

14,052 6,285 6,579

Guaranteed service fee paid to:

– Qingdao Xurui Investment Guarantee

Co., Ltd. – – 121

Notes:

1. the amount represents net gain arising from sales of raw materials.

2. the amount represents the commission fee paid for arranging import of goods of the Group.

The directors consider that all related party transactions during the Relevant Period were conducted on

normal commercial terms and in the ordinary and usual course of the Group’s business. The directors

confirmed that the above non-recurring transactions would not be continued after listing of the Company’s

shares on the Stock Exchange of Hong Kong Limited.


– I-42 –

(c) Balances with related parties

At 31 December 2009, 2010 and 2011, the Group had the following balances with related parties:

2009 2010 2011

$’000 $’000 $’000

Amounts due from related companies

– Xuzhou Long Chuan Co., Ltd. – 18,920 –

– Xuzhou Dinuo Printing Co., Ltd. 7,705 935 –

– Qingdao Justo Packaging Co., Ltd. 5,712 16,551 –

– Qingdao Mingji Packaging Co., Ltd. 7,613 – –

– Qingdao Chuangji Weiye Investment

Limited 11,573 – –

– Qingdao Xurui Investment Guarantee

Co., Ltd. – – 2,467

Amount due from the Controlling Shareholder

– Mr Guo Yumin 6,951 – 29,012

39,554 36,406 31,479

Amounts due to related companies

– Xuzhou Long Chuan Co., Ltd. – 1,541 –

– Xuzhou Dinuo Printing Co., Ltd. 1,476 – –

Amount due to the Controlling Shareholder

– Mr Guo Yumin 30,221 27,967 12,586

31,697 29,508 12,586

The balances with the related companies and the Controlling Shareholder are unsecured, interest free

and repayable on demand, and arose as a result of the advance to and/or the lending from Mr. Guo Yumin by

the members of the Group.

The balances with the related companies and the Controlling Shareholder were settled on the Latest

Practicable Date.

(d) Guarantees provided to the Group in respect of banking facilities

2009 2010 2011

$’000 $’000 $’000

Qingdao Justo Packaging Co., Ltd. 56,787 58,761 –

Xuzhou Ruilong Real Estate Development

Co., Ltd. 27,258 – –

Qingdao Xurui Investment Guarantee Co., Ltd. – – 12,335

Qingdao Xurui Industry and Trade Co., Ltd. – – 18,503

84,045 58,761 30,838


– I-43 –

22 Accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors,

including expectations of future events that are believed to be reasonable under the circumstances.

In the process of applying the Group’s accounting policies, management has made the following judgements.

(a) Depreciation

Fixed assets are depreciated on a straight-line basis over the estimated useful lives, after taking into

account the estimated residual value. The Group reviews the estimated useful lives of the assets regularly in

order to determine the amount of depreciation expense to be recorded during any reporting period. The useful

lives are based on the Group’s historical experience with similar assets and taking into account anticipated

technological changes. The depreciation expense for future periods is adjusted if there are significant changes

from previous estimates.

(b) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less

estimated costs of completion and selling expenses. These estimates are based on the current market condition

and the historical experience of manufacturing and selling products of similar nature. In addition, these

estimates could change significantly as a result of change in customer preference and competitor actions in

response to severe industry cycles. Management measures these estimates at each reporting date.

(c) Income taxes

Determining income tax provisions involves judgement on the future tax treatments of certain

transactions. The Group carefully evaluates tax implications of transactions and tax provisions are set up

accordingly. The tax treatments of such transactions are reconsidered periodically to take into account all

changes in tax legislations. Deferred tax assets are recognised for deductible temporary differences. As those

deferred tax assets can only be recognised to the extent that it is probable that future taxable profits will be

available against which the related tax benefits can be utilised, management’s judgement is required to assess

the probability of future taxable profits. Management reassess these estimates at each end of the respective

reporting period.

23 Financial information of the Company

The Company was incorporated in the Cayman Islands on 24 February 2012. The issued capital as at the date

of incorporation was $0.01. As at 24 February 2012, one share was allocated and issued to Reid Services Limited

which was then transferred to the Controlling Party on the same day as part of the Reorganisation as detailed in the

paragraph headed “Corporate Reorganisation” in Appendix V to the Prospectus.

24 List of auditors of the subsidiaries

The list of auditors of the statutory financial statements of the subsidiaries was as follows:

Name of company Financial period Statutory auditors

CLAL For the years ended

31 December 2009 and 2010

Y.F.Pang & Co.

(彭玉芳會計師事務所)

For the year ended

31 December 2011

Focus Asia CPA Limited

(匯亞會計事務所有限公司)

LXFY For the years ended

31 December 2009 and

2010

Shenzhen Zhongzhou Certified

Public Accountants Co., Ltd.

(深圳市中洲會計師事務所有限公司) (Note)


– I-44 –

Name of company Financial period Statutory auditors

For the year ended 31

December 2011

Shenzhen Pengsheng Certified


(深圳市鵬盛會計師事務所) (Note)

JSSC For the year ended

31 December 2009

Jiangsu Gongxin Certified Public

Accountants Co., Ltd.

(江蘇公信會計師事務所有限公司)

(Note)

For the year ended

31 December 2010

Jiangsu Hengsheng Certified


(江蘇恒升會計師事務所有限公司)

(Note)

For the year ended

31 December 2011

Nanjing Guoxinjunyi Certified


(南京國信均益會計師事務所有限公司) (Note)

JSST For the year ended

31 December 2009

Huaian Xinyuan Certified Public


(淮安新元會計師事務所有限公司)

(Note)

For the year ended

31 December 2010

Huaian Xinrui Certified Public


(淮安新瑞會計師事務所有限公司)

(Note)

For the year ended

31 December 2011

Huaian Guoxin Certified Public


(淮安國信會計師事務所有限公司)

(Note)

QD Ener For the years ended

31 December 2009, 2010 and

2011

Qingdao Haide Certified Public


(青島海德會計師事務所有限公司)

(Note)

SCGHI For the years ended

31 December 2009, 2010 and

2011

None

SCGHL For the years ended


Y.F.Pang & Co.


For the year ended

31 December 2011



HKSC For the years ended


Y.F.Pang & Co.


For the year ended

31 December 2011



Note: The English translation of the names is for reference only. The official names of these entities are in

Chinese.


– I-45 –

25 Possible impact of amendments, new standards and interpretations issued but not yet effective forthe Relevant Period

Up to the date of issue of this report, the HKICPA has issued a number of amendments, new standards andinterpretations which are not yet effective for the Relevant Period and which have not been adopted in the FinancialInformation.

Effective for accountingperiods beginning on or after

Amendments to HKAS 12, Income taxes – Deferred tax: Recovery of

underlying assets

1 January 2012

HKFRS 9, Financial instruments 1 January 2015

HKFRS 10, Combined financial statements 1 January 2013

HKFRS 12, Disclosure of interests in other entities 1 January 2013

HKFRS 13, Fair value measurement 1 January 2013

HKAS 27, Separate financial statements (2011) 1 January 2013

Revised HKAS 19, Employee benefits 1 January 2013

The Group is in the process of making an assessment of what the impact of these amendments, new standardsand new interpretations is expected to be in the period of initial application but is not yet in a position to state whetherthese amendments, new standards and interpretations would have a significant impact on the Group’s results ofoperations and financial position.

26 Subsequent events

(a) Pre-IPO share options scheme

Pursuant to an ordinary resolution of the sole shareholder passed on 22 June 2012, a pre-IPO shareoption scheme (the “Scheme”) was approved and adopted to provide grantees with the opportunity to acquireproprietary interest in the Company and to recognise the contribution of certain members of the seniormanagement and employees of the Group.

The exercise of the pre-IPO share options is conditional on:

(i) the listing committee granting approval for the listing of and permission to deal in the shares ofthe Company which may fall to be issued pursuant to the exercise of the options granted underthe Scheme; and

(ii) the commencement of the dealings in the shares of the Company on the Stock Exchange, and issubject to the vesting conditions set out below.

Details of the principal terms of the Pre-IPO Share Option Scheme is summarised in the paragraphheaded “Share Option Schemes” as set out in Appendix V in the prospectus.

(b) Acquisition of non-controlling interests

Pursuant to a share transfer agreement dated 13 March 2012 entered into between Qingdao BeizhouGroup Limited (青島北洲集團有限公司) (“Qingdao Beizhou”) and HKSC, Qingdao Beizhou agreed to transfer30% equity interest in QD Ener to HKSC at a consideration of RMB39,600,000. The said consideration willbe satisfied on or before 30 September 2012. Following the said transfer, the equity interest in QD Ener willbe owned as to 100% by HKSC.

(c) Declaration of dividend

Subsequent to 31 December 2011, our Group declared a dividend of approximately HK$165.6 million,of which approximately HK$36.3 million was settled in form of setting off the current account with Mr. Guoand approximately HK$129.3 million was/will be settled in the form of cash payment. The settlement in theform of setting off the current account of Mr. Guo has been completed before the Latest Practicable Date whilethe cash payment was/will be made prior to the Listing Date.


– I-46 –

D SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company and its subsidiaries

in respect of any period subsequent to 31 December 2011.

Yours faithfully,

KPMG


Hong Kong


– I-47 –

The information set out in this appendix does not form part of the Accountants’ Report

prepared by KPMG, Certified Public Accountants, Hong Kong, as set out in Appendix I to this

prospectus, and is included herein for illustrative purposes only.

The unaudited pro forma financial information should be read in conjunction with the

“Financial Information” in this prospectus and the “Accountants’ Report” as set forth in

Appendix I to this prospectus.

A. UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE

ASSETS

The following unaudited pro forma statement of adjusted consolidated net tangible assets

prepared in accordance with Rule 4.29 of the Listing Rules is set forth below to illustrate the

effect of the Share Offer on our consolidated net tangible assets attributable to equity

shareholders of the Company as at 31 December 2011 as if the Share Offer had taken place

on that date.

The unaudited pro forma statement of adjusted consolidated net tangible assets has been

prepared for illustrative purpose only and because of its hypothetical nature, it may not give

a true picture of our financial position had the Share Offer been completed as at 31 December

2011 or at any future date.

Consolidated net

tangible assets

attributable to equity

shareholders of the

Company as at

31 December 2011(1)

Add: Estimated net

proceeds from the

Share Offer(2)

Unaudited pro forma

adjusted consolidated

net tangible assets

Unaudited pro forma

adjusted consolidated

net tangible assets

per Share(3)

HK$’000 HK$’000 HK$’000 HK$

Based on an offer price of

HK$1.08 per Share 240,954 81,733 322,687 0.81

Based on an offer price of

HK$1.68 per Share 240,954 139,933 380,887 0.95

Notes:

(1) The consolidated net tangible assets attributable to equity shareholders of the Company as at 31

December 2011 have been calculated based on the consolidated net assets attributable to equity

shareholders of the Company of approximately HK$241 million as at 31 December 2011 after deducting

intangible assets of HK$222,000 as extracted from the Accountants’ Report set out in Appendix I to this

prospectus.

(2) The estimated net proceeds from the Share Offer are based on indicative offer price of HK$1.08 and

HK$1.68 per Share after deduction of the underwriting fees and other related expenses payable by the

Company and take no account of any Shares which may be issued upon the exercise of the

Over-allotment Option and the options granted under the Pre-IPO Share Option Scheme and any

options which may be granted under the Share Option Scheme.

(3) The unaudited pro forma adjusted consolidated net tangible assets per Share is arrived at after

adjustments referred to in the preceding paragraphs and on the basis that 400,000,000 Shares are in

issue assuming that the Share Offer has been completed on 31 December 2011 but takes no account of

any Shares which may be issued upon the exercise of the Over-allotment Option and the options granted

under the Pre-IPO Share Option Scheme and any options which may be granted under the Share Option

Scheme.

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

– II-1 –

(4) With reference to the valuation of property interests of the Group as set out in Appendix III to this

prospectus the aggregate revaluated amount of the property interests of the Group as at 30 April 2012

was HK$215.0 million. The net book value of these property interests as at 30 April 2012 was

approximately HK$163.7 million. The revaluation surplus on properties for own use is approximately

HK$51.3 million and has not been included in the above unaudited pro forma adjusted consolidated net

tangible assets. Such revaluation surplus has not been recorded in the Financial Information as set out

in Appendix I to this prospectus and will not be recorded in the consolidated financial statements of the

Group for the year ending 31 December 2012 as the Group’s property, plant and equipment are stated

at cost less accumulated depreciation or amortisation and impairment losses if any. If the revaluation

surplus was incorporated in our Group’s financial statements for the year ending 31 December 2012,

an additional depreciation of HK$0.9 million would be charged.

(5) No adjustment has been made to reflect any trading result or other transaction of the Group entered into

subsequent to 31 December 2011.

(6) The unaudited pro forma adjusted consolidated net tangible assets value does not take into account the

dividend of approximately HK$165.6 million (of which approximately HK$129.3 million was/will be

settled in form of cash and the balance of approximately HK$36.3 million was settled in form of setting

off the current account with Mr. Guo) declared to the shareholders of our Group subsequent to 31

December 2011. The settlement in the form of setting off the current account of Mr. Guo has been

completed before the Latest Practicable Date while the cash payment was/will be made prior to the

Listing Date. If the unaudited pro forma adjusted consolidated net tangible assets were further adjusted

as if such dividend had been declared on 31 December 2011, the unaudited pro forma adjusted

consolidated net tangible assets attributable to equity shareholders of the Company and unaudited pro

forma adjusted consolidated net tangible assets per Share would have been decreased accordingly.


– II-2 –

The following is the text of a report, prepared for the purpose of incorporation in this

prospectus, received from our Company’s reporting accountants, KPMG, Certified Public

Accountants, Hong Kong.

8th Floor

Prince’s Building

10 Chater Road

Central

Hong Kong

29 June 2012

The Directors


Dear Sirs,

Sheen Tai Holdings Group Company Limited (the “Company”)

We report on the unaudited pro forma financial information (the “Pro Forma Financial

Information”) of the Company and its subsidiaries (the “Group”) set out on pages II-1 to II-2

in Part A of Appendix II to the prospectus dated 29 June 2012 (the “Prospectus”), which has

been prepared by the directors of the Company solely for illustrative purposes to provide

information about how the proposed offering might have affected the financial information

presented. The basis of preparation of the unaudited Pro Forma Financial Information is set out

in Part A of Appendix II to the Prospectus.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the unaudited Pro

Forma Financial Information in accordance with Paragraph 4.29 of the Rules Governing the

Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and

with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for

Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public

Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by Paragraph 4.29(7) of the Listing

Rules, on the unaudited Pro Forma Financial Information and to report our opinion to you. We

do not accept any responsibility for any reports previously given by us on any financial

information used in the compilation of the unaudited Pro Forma Financial Information beyond

that owed to those to whom those reports were addressed by us at the dates of their issue.


– II-3 –

Basis of opinion

We conducted our work in accordance with Hong Kong Standard on Investment Circular

Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in

Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the

unadjusted financial information with source documents, considering the evidence supporting

the adjustments and discussing the unaudited Pro Forma Financial Information with the

directors of the Company. The engagement did not involve independent examination of any of

the underlying financial information.

Our work did not constitute an audit or review performed in accordance with Hong Kong

Standards on Auditing or Hong Kong Standards on Review Engagements issued by the

HKICPA, and accordingly, we do not express any such audit or review assurance on the

unaudited Pro Forma Financial Information.

We planned and performed our work so as to obtain the information and explanations we

considered necessary in order to provide us with sufficient evidence to give reasonable

assurance that the unaudited Pro Forma Financial Information has been properly compiled by

the directors of the Company on the basis stated, that such basis is consistent with the

accounting policies of the Group and that the adjustments are appropriate for the purposes of

the unaudited Pro Forma Financial Information as disclosed pursuant to Paragraph 4.29(1) of

the Listing Rules.

The unaudited Pro Forma Financial Information is for illustrative purposes only, based on

the judgements and assumptions of the directors of the Company, and because of its

hypothetical nature, it does not provide any assurance or indication that any event will take

place in the future and may not be indicative of the financial position of the Group as at 31

December 2011 or any future date.

We make no comments regarding the reasonableness of the amount of net proceeds from

the issuance of the Company’s shares, the application of those net proceeds, or whether such

use will actually take place as described under “Future Plans and Use of Proceeds” set out in

the Prospectus.


– II-4 –

Opinion

In our opinion:

(a) the unaudited Pro Forma Financial Information has been properly compiled by the

directors of the Company on the basis stated;

(b) such basis is consistent with the accounting policies of the Group, and

(c) the adjustments are appropriate for the purposes of the unaudited Pro Forma

Financial Information as disclosed pursuant to Paragraph 4.29(1) of the Listing

Rules.

Yours faithfully,

KPMG


Hong Kong


– II-5 –

The following is the text of a letter, summary of values and valuation certificates,

prepared for the purpose of incorporation in this prospectus received from Greater China

Appraisal Limited, an independent valuer, in connection with its valuation as at 30 April 2012

of the property interests of our Group.

Room 2703

Shui On Centre

6-8 Harbour Road

Wanchai

Hong Kong

29 June 2012

The Board of Directors


Suites 2001-2005


1 Connaught Place

Central

Hong Kong

Dear Sirs,

In accordance with your instructions to value the properties in which Sheen Tai Holdings

Group Company Limited (the “Company”) and its subsidiaries (hereinafter together referred to

as the “Group”) have interests in the People’s Republic of China (the “PRC”) and Hong Kong,

we confirm that we have carried out inspections, made relevant enquiries and searches and

obtained such further information as we consider necessary for the purpose of providing you

with our opinion of the capital values of the property interests as at 30 April 2012 (the “date

of valuation”).

This letter which forms part of our valuation report explains the basis and methodology

of valuation, and clarifies our assumptions made, title investigations of properties and the

limiting conditions.

APPENDIX III PROPERTY VALUATION

– III-1 –

Basis of valuation

The valuation of such property interests is our opinion of the market value which we

would define as intended to mean “the estimated amount for which a property should exchange

on the date of valuation between a willing buyer and a willing seller in an arm’s-length

transaction after proper marketing wherein the parties had each acted knowledgeably,

prudently and without compulsion”.

Valuation methodology

Due to the nature of the buildings and structures of the property interests and the

particular location in which they are situated, there are unlikely to be relevant market

comparable sales readily available. The property interests in Group I have therefore been

valued on the basis of their depreciated replacement cost.

Depreciated replacement cost is defined as “the current cost of replacing an asset with its

modern equivalent asset less deductions for physical deterioration and all relevant forms of

obsolescence and optimisation”. It is based on an estimate of the market value for the existing

use of the land, plus the current cost of replacement (reproduction) of the improvements, less

deduction for physical deterioration and all relevant forms of obsolescence and optimisation.

The depreciated replacement costs of the property interests are subject to adequate potential

profitability of the concerned business.

We have attributed no commercial value to the property interests in Groups II, III and IV,

which are rented and occupied by the Group or contracted to be rented by the Group, due either

to the short-term nature of the leases or the prohibition against assignment or sub-letting or

otherwise due to the lack of substantial profit rents.

Assumptions

Our valuations have been made on the assumption that the owner sells the property

interests on the open market in their existing states without the benefit of any deferred terms

contracts, leaseback, joint ventures, management agreements or any similar arrangement which

would serve to increase the value of the property interests.

For the property interests which are held under long term Government Leases/Land Use

Rights, we have assumed that the owners of the property interests have free and uninterrupted

rights to use, transfer or lease the property interests for the whole of the unexpired term of the

respective Government Leases/Land Use Rights. In our valuation, we have assumed that the

property interests can be freely disposed of, transferred and leased to third parties on the open

market without any additional payment to the relevant government authorities.


– III-2 –

It is assumed that all applicable zoning and use regulations and restrictions have been

complied with unless nonconformity has been stated, defined and considered in the valuation

report. Moreover, it is assumed that the utilisation of the land and improvements is within the

boundaries of the properties described and that no encroachment or trespass exists, unless

noted in the report.

Other special assumptions of the property interests, if any, have been stated out in the

footnotes of the valuation certificate for the respective properties.

Titleship investigation

We have been provided with copies of title documents relating to the properties in the

PRC and have caused searches to be made at the Hong Kong Land Registry in respect of Hong

Kong property. However, we have not inspected the original documents to ascertain the

existence of any amendments which do not appear on the copies handed to us. We have relied

upon the advice given by the Company’s PRC legal advisers – Jingtian & Gongcheng in

relation to the legal title of the properties located in the PRC.

All legal documents disclosed in this report are for reference only and no responsibility

is assumed for any legal matters concerning the legal title to the property interests set out in

this report.

Limiting conditions

We have not carried out detailed site measurements to verify the correctness of the land

or building areas in respect of the relevant properties but have assumed that the areas shown

on the legal documents provided to us are correct. Based on our experience of valuation of

similar properties, we consider the assumptions so made to be reasonable. All documents and

contracts have been used as reference only and all dimensions, measurements and areas are

approximations.

We have inspected the exterior and, where possible, the interior of the properties.

However, no structural survey has been made and we are therefore unable to report as to

whether the properties are free from rot, infestation or any other structural defects. No tests

were carried out on any of the services.

No soil investigations have been carried out to determine the suitability of the ground

conditions or the services for any property development. Our valuation has been prepared on

the assumption that these aspects are satisfactory and that no unexpected cost and delay will

be incurred during construction.


– III-3 –

Having examined all relevant documentation, we have relied to a very considerable extent

on the information provided and have accepted advice given to us by the Group on such matters

as planning approvals, statutory notices, easements, tenure, occupation, lettings, rentals, site

and floor areas and in the identification of the properties. We have had no reason to doubt the

truth and accuracy of the information provided to us by the Group. We were also advised by

the Group that no material factors have been omitted from the information supplied. We

consider that we have been provided with sufficient information to reach an informed view, and

have no reason to suspect that any material information has been withheld.

No allowances have been made in our valuation for any charges, mortgages or amounts

owing on the properties valued nor for any expenses or taxation which may be incurred in

effecting a sale. Unless otherwise stated, it is assumed that the property interests are free of

encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

For properties that are located in a relatively under-developed market of the PRC, the

above assumptions are often based on imperfect market evidence. A range of values may be

attributable to the properties depending upon the assumptions made. While the valuer has

exercised his professional judgement in arriving at the values, report readers are urged to

consider carefully the nature of such assumptions which are disclosed in the valuation report

and should exercise caution in interpreting the valuation report.

Opinion of value

Valuation figures of the property interests are shown in the attached summary of values

and valuation certificates.

Remarks

Our valuation has been prepared in accordance with generally accepted valuation

procedures and in compliance with the requirements contained in Chapter 5 and Practice Note

12 of the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong

Limited.

Site inspections of the properties were conducted during the period from 22 February

2012 to 6 June 2012 by Li Xinfeng who is a China Real Estate Appraiser, Jeff Liu who is a

Chartered Surveyor and Jonathan Ho (AD). The properties were maintained in a reasonable

conditions commensurate with their ages and uses and equipped with normal building services.

In valuing the property interests, we have complied with the requirements contained in

the HKIS Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong

Institute of Surveyors.

Unless otherwise stated, all valuation figures of the properties are denominated in Hong

Kong Dollars (HK$). The exchange rate used in our valuation is HK$1 to RMB0.811, which

was approximate exchange rate prevailing as at the date of valuation and there has been no

significant fluctuation in such exchange rate between that date and the date of this letter.


– III-4 –

We enclose herewith the summary of values and valuation certificates.

Yours faithfully,

for and on behalf of

GREATER CHINA APPRAISAL LIMITED

Nikson Y.T. Ng

MSc MHKIS MRICS MCIREA

Registered Professional Surveyor(G.P.)

Senior Director

Note: Mr. Nikson Y.T. Ng is a Chartered Surveyor and a Registered Professional Surveyor who has over 21 years’

experience in valuation of properties in Hong Kong and 5 years’ experience in valuation of properties in the

PRC.


– III-5 –

SUMMARY OF VALUES

No. Property

Capital value in

existing state as at

30 April 2012

HK$

Group I – Property interests held and occupied by the Group in the PRC

1. Eastern Side and Northern Side of

Shenzhen East Road, Feiyao West Road,


Huai’an City,

Jiangsu Province,

The PRC

109,000,000

2. Huanhai New Materials Industrial Park,

Jihongtan Jiedao,

Chengyang District,

Qingdao City,

Shandong Province,

The PRC

106,000,000

Sub-total: 215,000,000

Group II – Property interests rented and occupied by the Group in the PRC

3. No. 12 Xingwen Road,

Nanjing Economic Technical Development Zone,

Nanjing City,

Jiangsu Province,

The PRC

No commercial value

4. Unit 6113, Main Building,

Shun Hing Square,

Shen Nan East Road,

Luohu District,

Shenzhen City,

Guangdong Province,

The PRC

No commercial value

Sub-total: Nil


– III-6 –

No. Property

Capital value in


30 April 2012

HK$

Group III – Property interest rented and occupied by the Group in Hong Kong

5. Unit No. 508 on 5th Floor,

Tower Two, Lippo Centre,

No. 89 Queensway,

Hong Kong

No commercial value

Sub-total: Nil

Group IV – Property interest contracted to be rented by the Group in Hong Kong

6. Room 1903,

Jubilee Centre,

No. 18 Fenwick Street,

No. 46 Gloucester Road,

Wan Chai,

Hong Kong

No commercial value

Sub-total: Nil

Grand Total: 215,000,000


– III-7 –

VALUATION CERTIFICATE

Group I – Property interests held and occupied by the Group in the PRC

Property Description and tenure

Particulars of

occupancy

Capital value in


30 April 2012

HK$

1. Eastern Side and

Northern Side of

Shenzhen East Road,

Feiyao West Road,


Huai’an City,

Jiangsu Province,

The PRC

The property comprises two

adjoining parcels of land (the

“Land Parcels”) with a total site

area of approximately 69,205.6

square metres, three buildings

(the “Buildings”), and various

structures erected thereon. The

Buildings were completed in

2010 and 2012.

The Buildings comprises Phase I

Workshop and Phase II

Workshop. Phase I Workshop is a

block of composite factory which

accommodates production

workshop, administration office,

canteen, power room, warehouse

etc. The gross floor area of the

Phase I Workshop is

approximately 14,270.13 square

metres.

Phase II Workshop comprises a

dormitory building with gross

floor area of approximately

3,214.06 square metres and a

factory with gross floor area of

approximately 13,726.42 square

metres, which have a total gross

floor area of approximately

16,940.48 square metres.

The various structures include

internal road, boundary wall and

landscape.

The property is held under two

State-owned Land Use Rights

Certificates for the terms

expiring on 30 June 2059 and

6 December 2060 respectively

for industrial use.

The property is

currently occupied by

the Group for

industrial, office and

warehouse purposes.

109,000,000

Notes:

1. According to two State-owned Construction Land Use Rights Grant Contracts (Nos.

3208012009CR0231 and 3208012010CR0266), dated 20 May 2009 and 1 November 2010 respectively,

entered into between Land Resources Bureau of Huai’an City and 江蘇順泰包裝印刷科技有限公司(Jiangsu Shuntai Packaging & Printing Science Technology Co., Ltd.) (“Jiangsu Shuntai”), the land use

rights of two parcels of land with a total site area of approximately 69,207.5 square metres were

contracted to be granted to Jiangsu Shuntai, which is a 51%-owned subsidiary of the Company, for a

term of 50 years for industrial use at a total consideration of RMB17,450,000.


– III-8 –

2. According to two State-owned Land Use Rights Certificates (Huai A Guo Yong (2009 Chu) Di No. 4367

and Huai A Guo Yong (2010 Chu) Di No. 8318) issued by the State-owned Land Resources Bureau of

Huai’an, the land use rights of the Land Parcels have been granted to Jiangsu Shuntai with terms

expiring on 30 June 2059 and 6 December 2060 respectively for industrial use.

3. According to a Building Ownership Certificate (Huai Fang Quan Zheng Qing He Zi Di No. 201045510)

issued by the Building and Land Resources Administration Bureau of Huai’an, Phase I Workshop is held

by Jiangsu Shuntai.

4. According to two Building Ownership Certificates (Huai Fang Quan Zheng Qing He Zi Di Nos.

A201224616 and A201224618) issued by the Building and Land Resources Administration Bureau of

Huai’an, Phase II Workshop is held by Jiangsu Shuntai.

5. The land portion held under State-owned Land Use Rights Certificate Huai A Guo Yong (2009 Chu) Di

No. 4367 and the building portion held under Building Ownership Certificate Huai Fang Quan Zheng

Qing He Zi Di No. 201045510 are subject to a mortgage in favour of Bank of China, Huai’an

Development Zone Branch.

6. The legal opinion of the Company’s legal adviser as to PRC Laws contains, inter alia, the following:

(a) Jiangsu Shuntai is the only owner of the land use rights of the Land Parcels and is confirmed and

protected by the PRC laws.

(b) Jiangsu Shuntai has the rights to occupy, use, lease, transfer, mortgage or any other arrangement

to deal with the land use rights legally within the land use rights term except for the portions

subject to mortgage, subject to the approval of the mortgagee during the term of the mortgage.

(c) Jiangsu Shuntai is the only owner of the Buildings and is confirmed and protected by the PRC

laws.

(d) Jiangsu Shuntai has the rights to occupy, use, lease, transfer or any other arrangement to deal

with the building ownership legally except for the portions subject to mortgage, subject to the

approval of the mortgagee during the term of the mortgage.

(e) As confirmed by Jiangsu Shuntai, the buildings held under the building ownership certificates as

mentioned in note 4 above have been used before completing the construction works completion

inspection and acceptance procedure and obtaining the building ownership certificate. According

to the PRC laws, the relevant authority has the right to order for correction, a fine of no less than

2% but no more than 4% of the contract price of the relevant construction contract. As at the date

of the legal opinion, the said procedure has been completed and the building ownership

certificates have been obtained, the probability for Jiangsu Shuntai being penalised is not high.


– III-9 –


Particulars of

occupancy

Capital value in

existing state as

at 30 April 2012

HK$

2. Huanhai New

Materials

Industrial Park,

Jihongtan Jiedao,

Chengyang District,

Qingdao City,

Shandong Province,

The PRC

The property comprises one parcel of

land (the “Land Parcel”) with a site

area of approximately 75,370 square

metres, eight buildings (the

“Buildings”) and various structures

erected thereon. The Buildings were

completed in 2008.

The total gross floor area of the

Buildings is approximately 45,025.38

square metres. Detailed breakdown is

shown as follows:

As advised, a portion

of the property

(Warehouse No. 7)

with a gross floor

area of approximately

3,796 square metres is

leased to an

independent third

party with a term

from 1 July 2011 to

30 June 2012.

The remaining portion

of the property is

occupied by the

Group for industrial

use.

106,000,000

Buildings

No. of

Blocks

No. of

Storeys

Gross

Floor

Area

(sq.m.)

Office

Building

1 5 6,852.58

Workshop

and

warehouse

7 1 to 3 38,172.80

Total: 8 45,025.38

The various structures include internal

road, boundary wall and landscape.

The property is held under a State-owned

Land Use Rights Certificate for a term

expiring on 26 June 2057 for industrial

use.

Notes:

1. According to a Land Use Rights Transfer Contract dated 8 August 2008 entered into between 青島創基偉業投資有限公司 (translated as Qingdao Chuang Ji Wei Ye Investment Co., Ltd.) and 青島英諾包裝科技有限公司 (Qingdao Ener Packaging Technology Co., Ltd.) (“Qingdao Ener”), the land use rights

of a parcel of land with a site area of approximately 75,370 square metres together with the buildings

and structures erected thereon were contracted to be transferred to Qingdao Ener, which is an indirect

wholly-owned subsidiary of the Company, at a consideration of RMB20,446,374. The land use rights

term of such land parcel is from 27 June 2007 to 27 June 2057.

2. According to a Real Estate Ownership Certificate (Qing Fang Di Quan Shi Zi Di No. 201259538) issued

by the State-owned Land Resources and Building Administration Bureau of Qingdao, the land use rights

of the Land Parcel have been granted to Qingdao Ener with a term expiring on 26 June 2057 for

industrial use and the Buildings are held by Qingdao Ener.

3. The property is subject to a mortgage in favour of China Construction Bank Corporation, Qingdao

Chengyang Branch.


– III-10 –


(a) Qingdao Ener is the only owner of the land use rights of the Land Parcel and is confirmed and

protected by the PRC laws.

(b) Qingdao Ener has the rights to occupy, use, lease, transfer or any other arrangement to deal with

the land use rights legally within the land use rights term except for the portions subject to

mortgage, subject to the approval of the mortgagee during the term of the mortgage.

(c) Qingdao Ener is the only owner of the Buildings and is confirmed and protected by the PRC laws.

(d) Qingdao Ener has the rights to occupy, use, lease, transfer or any other arrangement to deal with

the building ownership legally except for the portions subject to mortgage, subject to the

approval of the mortgagee during the term of the mortgage.

(e) As confirmed by Qingdao Ener, the Buildings have been used before completing the construction

works completion inspection and acceptance procedure and obtaining the building ownership

certificate. According to the PRC laws, the relevant authority has the right to order for

correction, a fine of no less than 2% but no more than 4% of the contract price of the relevant

construction contract. As at the date of the legal opinion, the said procedure has been completed

and the real estate ownership certificate has been obtained, the probability for Qingdao Ener

being penalised is not high.


– III-11 –

Group II – Property interests rented and occupied by the Group in the PRC


Particulars of

occupancy

Capital value in


30 April 2012

3. No. 12 Xingwen

Road,

Nanjing Economic

Technical

Development Zone,

Nanjing City,

Jiangsu Province,

The PRC

The property comprises one

single-storey building completed

in around 2000 with a gross floor

area of approximately 180 square

metres.

The property is leased by 江蘇金格潤科技有限公司 (Jiangsu

Sheen Colour Science

Technology Co., Ltd.) (“Jiangsu

Sheen Colour”), 68.15% interest

owned subsidiary of the

Company, from 南京新港高科技股份有限公司 (translated as

Nanjing Xingang Hitech

Holdings Limited), an

independent third party, for a

term of 1 year from 1 January

2012 to 31 December 2012 at an

annual rent of RMB84,800

exclusive of utilities’ charges.

The property is


the Group as a store

room.

No commercial value

Notes:


(a) The lessor is the legal owner of the property and has the rights to lease the property.

(b) The contents of the tenancy agreement comply with the PRC laws. The tenancy agreement is valid

and effective and is binding on both parties and is enforceable.

(c) The tenancy agreement has not been registered. However, it does not affect the validity of the

tenancy agreement.


– III-12 –


Particulars of

occupancy

Capital value in


30 April 2012

4. Unit 6113,

Main Building,

Shun Hing Square,

Shen Nan East

Road,

Luohu District,

Shenzhen City,

Guangdong

Province,

the PRC

The property comprises a unit of

a 68-storey office building

completed in 1996.

The gross floor area of the

property is approximately 131.45

square metres.

The property is currently leased

by 領先飛宇進出口(深圳)有限公司 (Ling Xian Fei Yu Import &

Export (Shenzhen) Co., Ltd.)

(“Ling Xian Fei Yu”), an

indirectly wholly-owned

subsidiary of the Company, from

太平置業(深圳)有限公司 (Taiping

Property (Shenzhen) Company

Limited), an independent third

party, for a term of 1 year and 4

months from 20 February 2012

to 19 June 2013, at a monthly

rent of RMB19,717.5 exclusive

of management fees.

The property is


the Group for office

purposes.

No commercial value

Notes:


(a) The lessor is the legal owner of the property and has the rights to lease the property.

(b) The contents of the tenancy agreement comply with the PRC laws. The tenancy agreement is valid

and effective and is binding on both parties and is enforceable.

(c) The tenancy agreement has been registered with the relevant government authority.


– III-13 –

Group III – Property interest rented and occupied by the Group in Hong Kong


Particulars of

occupancy

Capital value in


30 April 2012

5. Unit No. 508 on

5th Floor,

Tower Two,

Lippo Centre,

No. 89 Queensway,

Hong Kong


a 36-storey office building over a

commercial podium completed in

1987.

The saleable area of the property

is approximately 114 square

metres.

The property is currently leased

by Sheen China Group Holdings

Limited (順華集團控股有限公司),

an indirect wholly-owned

subsidiary of the Company, from

Weina Assets Limited, an

independent third party, for a

term of 2 years from 1 March

2011 to 28 February 2013, at a

monthly rent of HK$61,960

exclusive of rates and

management fees.

The property is



purposes.

No commercial value

Notes:

1. The registered owner of the property is Weina Assets Limited via memorial no. UB7148048 dated 2 June

1997.

2. The property is subject to a mortgage and a deed of variation and further charge to secure general

banking facilities in favour of The Hongkong and Shanghai Banking Corporation Limited via memorial

nos. UB7148049 and UB7305525 dated 2 June 1997 and 30 September 1997 respectively.


– III-14 –

Group IV – Property interest contracted to be rented by the Group in Hong Kong


Particulars of

occupancy

Capital value in


30 April 2012

6. Room 1903,

Jubilee Centre,

No. 18 Fenwick

Street,

No. 46 Gloucester

Road,

Wan Chai,

Hong Kong


a 26-storey office building

completed in 1998.

The saleable area of the property

is approximately 123 square

metres.

The property is contracted to be

leased by Sheen China Group

Holdings Limited (順華集團控股有限公司), an indirect wholly-

owned subsidiary of the

Company, from Trisight Limited

and Dynasty Hotel Limited,

independent third parties, for a

term of 2 years from 2 May 2012

to 1 May 2014 at a monthly rent

of HK$56,945 exclusive of rates,

management and air-conditioning

charges.

The property is



purposes.

No commercial value

Notes:

1. The registered owners of the property are Trisight Limited and Dynasty Hotel Limited via memorial nos.

UB3276824 and UB3126377 dated 12 January 1987 and 14 July 1986 respectively.

2. The property is subject to a mortgage to secure general banking facilities in favour of The Hongkong

and Shanghai Banking Corporation via memorial no. UB3252700 dated 15 December 1986.

3. The property is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation

via memorial no. UB3276825 dated 12 January 1987.


– III-15 –

Set out below is a summary of certain provisions of the Memorandum and Articles of

Association of the Company and of certain aspects of Cayman Islands company law.

The Company was incorporated in the Cayman Islands as an exempted company with

limited liability on 24 February 2012 under the Companies Law. The Company’s constitutional

documents consist of its Amended and Restated Memorandum of Association (the

“Memorandum”) and the Amended and Restated Articles of Association (the “Articles”).

1. MEMORANDUM OF ASSOCIATION

(a) The Memorandum provides, inter alia, that the liability of members of the Company

is limited and that the objects for which the Company is established are unrestricted

(and therefore include acting as an investment company), and that the Company

shall have and be capable of exercising any and all of the powers at any time or from

time to time exercisable by a natural person or body corporate whether as principal,

agent, contractor or otherwise and since the Company is an exempted company that

the Company will not trade in the Cayman Islands with any person, firm or

corporation except in furtherance of the business of the Company carried on outside

the Cayman Islands.

(b) By special resolution the Company may alter the Memorandum with respect to any

objects, powers or other matters specified therein.

2. ARTICLES OF ASSOCIATION

The Articles were adopted on 22 June 2012. The following is a summary of certain

provisions of the Articles:

(a) Shares

(i) Classes of shares

The share capital of the Company consists of ordinary shares.

(ii) Share certificates

Every person whose name is entered as a member in the register of members

shall be entitled to receive a certificate for his shares. No Shares shall be issued to

bearer.

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

– IV-1 –

Every certificate for shares, warrants or debentures or representing any other

form of securities of the Company shall be issued under the seal of the Company,

and shall be signed autographically by one Director and the Secretary, or by 2

Directors, or by some other person(s) appointed by the Board for the purpose. As

regards any certificates for shares or debentures or other securities of the Company,

the Board may by resolution determine that such signatures or either of them shall

be dispensed with or affixed by some method or system of mechanical signature

other than autographic or may be printed thereon as specified in such resolution or

that such certificates need not be signed by any person. Every share certificate

issued shall specify the number and class of shares in respect of which it is issued

and the amount paid thereon and may otherwise be in such form as the Board may

from time to time prescribe. A share certificate shall relate to only one class of

shares, and where the capital of the Company includes shares with different voting

rights, the designation of each class of shares, other than those which carry the

general right to vote at general meetings, must include the words “restricted voting”

or “limited voting” or “non-voting” or some other appropriate designation which is

commensurate with the rights attaching to the relevant class of shares. The Company

shall not be bound to register more than 4 persons as joint holders of any share.

(b) Directors

(i) Power to allot and issue shares and warrants

Subject to the provisions of the Companies Law, the Memorandum and Articles

and without prejudice to any special rights conferred on the holders of any shares

or class of shares, any share may be issued with or have attached thereto such rights,

or such restrictions, whether with regard to dividend, voting, return of capital, or

otherwise, as the Company may by ordinary resolution determine (or, in the absence

of any such determination or so far as the same may not make specific provision, as

the Board may determine). Any share may be issued on terms that upon the

happening of a specified event or upon a given date and either at the option of the

Company or the holder thereof, they are liable to be redeemed.

The Board may issue warrants to subscribe for any class of shares or other

securities of the Company on such terms as it may from time to time determine.

Where warrants are issued to bearer, no certificate thereof shall be issued to

replace one that has been lost unless the Board is satisfied beyond reasonable doubt

that the original certificate thereof has been destroyed and the Company has

received an indemnity in such form as the Board shall think fit with regard to the

issue of any such replacement certificate.


– IV-2 –

Subject to the provisions of the Companies Law, the Articles and, where

applicable, the rules of any stock exchange of the Relevant Territory (as defined in

the Articles) and without prejudice to any special rights or restrictions for the time

being attached to any shares or any class of shares, all unissued shares in the

Company shall be at the disposal of the Board, which may offer, allot, grant options

over or otherwise dispose of them to such persons, at such times, for such

consideration and on such terms and conditions as it in its absolute discretion thinks

fit, but so that no shares shall be issued at a discount.

Neither the Company nor the Board shall be obliged, when making or granting

any allotment of, offer of, option over or disposal of shares, to make, or make

available, any such allotment, offer, option or shares to members or others whose

registered addresses are in any particular territory or territories where, in the

absence of a registration statement or other special formalities, this is or may, in the

opinion of the Board, be unlawful or impracticable. However, no member affected

as a result of the foregoing shall be, or be deemed to be, a separate class of members

for any purpose whatsoever.

(ii) Power to dispose of the assets of the Company or any subsidiary

While there are no specific provisions in the Articles relating to the disposal of

the assets of the Company or any of its subsidiaries, the Board may exercise all

powers and do all acts and things which may be exercised or done or approved by

the Company and which are not required by the Articles or the Companies Law to

be exercised or done by the Company in general meeting, but if such power or act

is regulated by the Company in general meeting, such regulation shall not invalidate

any prior act of the Board which would have been valid if such regulation had not

been made.

(iii) Compensation or payments for loss of office

Payments to any present Director or past Director of any sum by way of

compensation for loss of office or as consideration for or in connection with his

retirement from office (not being a payment to which the Director is contractually

or statutorily entitled) must be approved by the Company in general meeting.

(iv) Loans and provision of security for loans to Directors

There are provisions in the Articles prohibiting the making of loans to

Directors and their associates which are equivalent to provisions of Hong Kong law

prevailing at the time of adoption of the Articles.


– IV-3 –

The Company shall not directly or indirectly make a loan to a Director or a

director of any holding company of the Company or any of their respective

associates, enter into any guarantee or provide any security in connection with a

loan made by any person to a Director or a director of any holding company of the

Company or any of their respective associates, or if any one or more of the Directors

hold (jointly or severally or directly or indirectly) a controlling interest in another

company, make a loan to that other company or enter into any guarantee or provide

any security in connection with a loan made by any person to that other company.

(v) Disclosure of interest in contracts with the Company or with any of its

subsidiaries

With the exception of the office of auditor of the Company, a Director may

hold any other office or place of profit with the Company in conjunction with his

office of Director for such period and, upon such terms as the Board may determine,

and may be paid such extra remuneration therefor (whether by way of salary,

commission, participation in profits or otherwise) in addition to any remuneration

provided for by or pursuant to any other Articles. A Director may be or become a

director or other officer or member of any other company in which the Company

may be interested, and shall not be liable to account to the Company or the members

for any remuneration or other benefits received by him as a director, officer or

member of such other company. The Board may also cause the voting power

conferred by the shares in any other company held or owned by the Company to be

exercised in such manner in all respects as it thinks fit, including the exercise

thereof in favour of any resolution appointing the Directors or any of them to be

directors or officers of such other company.

No Director or intended Director shall be disqualified by his office from

contracting with the Company, either as vendor, purchaser or otherwise, nor shall

any such contract or any other contract or arrangement in which any Director is in

any way interested be liable to be avoided, nor shall any Director so contracting or

being so interested be liable to account to the Company for any profit realised by

any such contract or arrangement by reason only of such Director holding that office

or the fiduciary relationship thereby established. A Director who is, in any way,

materially interested in a contract or arrangement or proposed contract or

arrangement with the Company shall declare the nature of his interest at the earliest

meeting of the Board at which he may practically do so.

There is no power to freeze or otherwise impair any of the rights attaching to

any Share by reason that the person or persons who are interested directly or

indirectly therein have failed to disclose their interests to the Company.


– IV-4 –

A Director shall not vote (nor shall he be counted in the quorum) on any

resolution of the Board in respect of any contract or arrangement or other proposal

in which he or his associate(s) is/are materially interested, and if he shall do so his

vote shall not be counted nor shall he be counted in the quorum for that resolution,

but this prohibition shall not apply to any of the following matters namely:

(aa) the giving of any security or indemnity to the Director or his associate(s)

in respect of money lent or obligations incurred or undertaken by him or

any of them at the request of or for the benefit of the Company or any of

its subsidiaries;

(bb) the giving of any security or indemnity to a third party in respect of a debt

or obligation of the Company or any of its subsidiaries for which the

Director or his associate(s) has/have himself/themselves assumed

responsibility in whole or in part whether alone or jointly under a

guarantee or indemnity or by the giving of security;

(cc) any proposal concerning an offer of shares or debentures or other

securities of or by the Company or any other company which the

Company may promote or be interested in for subscription or purchase,

where the Director or his associate(s) is/are or is/are to be interested as

a participant in the underwriting or sub-underwriting of the offer;

(dd) any proposal or arrangement concerning the adoption, modification or

operation of a share option scheme, a pension fund or retirement, death

or disability benefits scheme or other arrangement which relates both to

Directors, his associate(s) and employees of the Company or of any of its

subsidiaries and does not provide in respect of any Director, or his

associate(s), as such any privilege or advantage not generally accorded to

the employees to which such scheme or fund relates; or

(ee) any contract or arrangement in which the Director or his associate(s)

is/are interested in the same manner as other holders of shares or

debentures or other securities of the Company by virtue only of his/their

interest in shares or debentures or other securities of the Company.


– IV-5 –

(vi) Remuneration

The Directors shall be entitled to receive, as ordinary remuneration for their

services, such sums as shall from time to time be determined by the Board, or the

Company in general meeting, as the case may be, such sum (unless otherwise

directed by the resolution by which it is determined) to be divided amongst the

Directors in such proportions and in such manner as they may agree or failing

agreement, equally, except that in such event any Director holding office for only a

portion of the period in respect of which the remuneration is payable shall only rank

in such division in proportion to the time during such period for which he has held

office. The Directors shall also be entitled to be repaid all travelling, hotel and other

expenses reasonably incurred by them in attending any Board meetings, committee

meetings or general meetings or otherwise in connection with the discharge of their

duties as Directors. Such remuneration shall be in addition to any other

remuneration to which a Director who holds any salaried employment or office in

the Company may be entitled by reason of such employment or office.

Any Director who, at the request of the Company performs services which in

the opinion of the Board go beyond the ordinary duties of a Director may be paid

such special or extra remuneration (whether by way of salary, commission,

participation in profits or otherwise) as the Board may determine and such extra

remuneration shall be in addition to or in substitution for any ordinary remuneration

as a Director. An executive Director appointed to be a managing director, joint

managing director, deputy managing director or other executive officer shall receive

such remuneration (whether by way of salary, commission or participation in profits

or otherwise or by all or any of those modes) and such other benefits (including

pension and/or gratuity and/or other benefits on retirement) and allowances as the

Board may from time to time decide. Such remuneration shall be in addition to his

ordinary remuneration as a Director.

The Board may establish, either on its own or jointly in concurrence or

agreement with other companies (being subsidiaries of the Company or with which

the Company is associated in business), or may make contributions out of the

Company’s monies to, such schemes or funds for providing pensions, sickness or

compassionate allowances, life assurance or other benefits for employees (which

expression as used in this and the following paragraph shall include any Director or

former Director who may hold or have held any executive office or any office of

profit with the Company or any of its subsidiaries) and former employees of the

Company and their dependents or any class or classes of such persons.


– IV-6 –

In addition, the Board may also pay, enter into agreements to pay or make

grants of revocable or irrevocable, whether or not subject to any terms or conditions,

pensions or other benefits to employees and former employees and their dependents,

or to any of such persons, including pensions or benefits additional to those, if any,

to which such employees or former employees or their dependents are or may

become entitled under any such scheme or fund as mentioned above. Such pension

or benefit may, if deemed desirable by the Board, be granted to an employee either

before and in anticipation of, or upon or at any time after, his actual retirement.

(vii) Appointment, retirement and removal

At any time or from time to time, the Board shall have the power to appoint

any person as a Director either to fill a casual vacancy on the Board or as an

additional Director to the existing Board subject to any maximum number of

Directors, if any, as may be determined by the members in general meeting. Any

Director appointed by the Board to fill a casual vacancy shall hold office only until

the first general meeting of the Company after his appointment and be subject to

re-election at such meeting. Any Director appointed by the Board as an addition to

the existing Board shall hold office only until the next following annual general

meeting of the Company and shall then be eligible for re-election.

At each annual general meeting, one third of the Directors for the time being

will retire from office by rotation. However, if the number of Directors is not a

multiple of three, then the number nearest to but not less than one third shall be the

number of retiring Directors. The Directors who shall retire in each year will be

those who have been longest in the office since their last re-election or appointment

but as between persons who become or were last re-elected Directors on the same

day those to retire will (unless they otherwise agree among themselves) be

determined by lot.

No person, other than a retiring Director, shall, unless recommended by the

Board for election, be eligible for election to the office of Director at any general

meeting, unless notice in writing of the intention to propose that person for election

as a Director and notice in writing by that person of his willingness to be elected

shall have been lodged at the head office or at the registration office. The period for

lodgement of such notices will commence no earlier than the day after the despatch

of the notice of the meeting appointed for such election and end no later than 7 days

prior to the date of such meeting and the minimum length of the period during which

such notices to the Company may be given must be at least 7 days.

A Director is not required to hold any shares in the Company by way of

qualification nor is there any specified upper or lower age limit for Directors either

for accession to the Board or retirement therefrom.


– IV-7 –

A Director may be removed by an ordinary resolution of the Company before

the expiration of his term of office (but without prejudice to any claim which such

Director may have for damages for any breach of any contract between him and the

Company) and the Company may by ordinary resolution appoint another in his

place. The number of Directors shall not be less than two.

In addition to the foregoing, the office of a Director shall be vacated:

(aa) if he resigns his office by notice in writing delivered to the Company at

the registered office or head office of the Company for the time being or

tendered at a meeting of the Board;

(bb) if he dies or becomes of unsound mind as determined pursuant to an order

made by any competent court or official on the grounds that he is or may

be suffering from mental disorder or is otherwise incapable of managing

his affairs and the Board resolves that his office be vacated;

(cc) if, without special leave, he is absent from meetings of the Board for six

(6) consecutive months, and the Board resolves that his office is vacated;

(dd) if he becomes bankrupt or has a receiving order made against him or

suspends payment or compounds with his creditors generally;

(ee) if he is prohibited from being a director by law;

(ff) if he ceases to be a director by virtue of any provision of law or is

removed from office pursuant to the Articles;

(gg) if he has been validly required by the stock exchange of the Relevant

Territory (as defined in the Articles) to cease to be a Director and the

relevant time period for application for review of or appeal against such

requirement has lapsed and no application for review or appeal has been

filed or is underway against such requirement; or

(hh) if he is removed from office by notice in writing served upon him signed

by not less than three-fourths in number (or, if that is not a round number,

the nearest lower round number) of the Directors (including himself) then

in office.


– IV-8 –

From time to time the Board may appoint one or more of its body to be

managing director, joint managing director, or deputy managing director or to hold

any other employment or executive office with the Company for such period and

upon such terms as the Board may determine and the Board may revoke or terminate

any of such appointments. The Board may also delegate any of its powers to

committees consisting of such Director or Directors and other person(s) as the Board

thinks fit, and from time to time it may also revoke such delegation or revoke the

appointment of and discharge any such committees either wholly or in part, and

either as to persons or purposes, but every committee so formed shall, in the exercise

of the powers so delegated, conform to any regulations that may from time to time

be imposed upon it by the Board.

(viii) Borrowing powers

Pursuant to the Articles, the Board may exercise all the powers of the Company

to raise or borrow money, to mortgage or charge all or any part of the undertaking,

property and uncalled capital of the Company and, subject to the Companies Law,

to issue debentures, debenture stock, bonds and other securities of the Company,

whether outright or as collateral security for any debt, liability or obligation of the

Company or of any third party. The provisions summarised above, in common with

the Articles of Association in general, may be varied with the sanction of a special

resolution of the Company.

(ix) Register of Directors and officers

Pursuant to the Companies Law, the Company is required to maintain at its

registered office a register of directors and officers which is not available for

inspection by the public. A copy of such register must be filed with the Registrar of

Companies in the Cayman Islands and any change must be notified to the Registrar

within 30 days of any change in such directors or officers.

(x) Proceedings of the Board

Subject to the Articles, the Board may meet anywhere in the world for the

despatch of business and may adjourn and otherwise regulate its meetings as it

thinks fit. Questions arising at any meeting shall be determined by a majority of

votes. In the case of an equality of votes, the chairman of the meeting shall have a

second or casting vote.


– IV-9 –

(c) Alterations to the constitutional documents

To the extent that the same is permissible under Cayman Islands law and subject to

the Articles, the Memorandum and Articles of the Company may only be altered or

amended, and the name of the Company may only be changed by the Company by special

resolution.

(d) Variation of rights of existing shares or classes of shares

Subject to the Companies Law, if at any time the share capital of the Company is

divided into different classes of shares, all or any of the special rights attached to any

class of shares may (unless otherwise provided for by the terms of issue of the shares of

that class) be varied, modified or abrogated either with the consent in writing of the

holders of not less than three-fourths in nominal value of the issued shares of that class

or with the sanction of a special resolution passed at a separate general meeting of the

holders of the shares of that class. To every such separate general meeting the provisions

of the Articles relating to general meetings shall mutatis mutandis apply, but so that the

necessary quorum (other than at an adjourned meeting) shall be not less than two persons

together holding (or in the case of a shareholder being a corporation, by its duly

authorised representative) or representing by proxy not less than one-third in nominal

value of the issued shares of that class. Every holder of shares of the class shall be entitled

on a poll to one vote for every such share held by him, and any holder of shares of the

class present in person or by proxy may demand a poll.

Any special rights conferred upon the holders of any shares or class of shares shall

not, unless otherwise expressly provided in the rights attaching to the terms of issue of

such shares, be deemed to be varied by the creation or issue of further shares ranking pari

passu therewith.

(e) Alteration of capital

The Company may, by an ordinary resolution of its members, (a) increase its share

capital by the creation of new shares of such amount as it thinks expedient; (b)

consolidate or divide all or any of its share capital into shares of larger or smaller amount

than its existing shares; (c) divide its unissued shares into several classes and attach

thereto respectively any preferential, deferred, qualified or special rights, privileges or

conditions; (d) subdivide its shares or any of them into shares of an amount smaller than

that fixed by the Memorandum; (e) cancel shares which, at the date of the passing of the

resolution, have not been taken or agreed to be taken by any person and diminish the

amount of its share capital by the amount of the shares so cancelled; (f) make provision

for the allotment and issue of shares which do not carry any voting rights; (g) change the

currency of denomination of its share capital; and (h) reduce its share premium account

in any manner authorised and subject to any conditions prescribed by law.

Reduction of share capital – subject to the Companies Law and to confirmation by

the court, a company limited by shares may, if so authorised by its Articles of Association,

by special resolution, reduce its share capital in any way.


– IV-10 –

(f) Special resolution – majority required

In accordance with the Articles, a special resolution of the Company must be passed

by a majority of not less than three-fourths of the votes cast by such members as, being

entitled so to do, vote in person or by proxy or, in the case of members which are

corporations, by their duly authorised representatives or, where proxies are allowed, by

proxy at a general meeting of which not less than 21 clear days’ notice, specifying the

intention to propose the resolution as a special resolution, has been duly given. However,

except in the case of an annual general meeting, if it is so agreed by a majority in number

of the members having a right to attend and vote at such meeting, being a majority

together holding not less than 95% in nominal value of the shares giving that right and,

in the case of an annual general meeting, if so agreed by all members entitled to attend

and vote thereat, a resolution may be proposed and passed as a special resolution at a

meeting of which less than 21 clear days’ notice has been given.

Under Companies Law, a copy of any special resolution must be forwarded to the

Registrar of Companies in the Cayman Islands within 15 days of being passed.

An “ordinary resolution”, by contrast, is defined in the Articles to mean a resolution

passed by a simple majority of the votes of such members of the Company as, being

entitled to do so, vote in person or, in the case of members which are corporations, by

their duly authorised representatives or, where proxies are allowed, by proxy at a general

meeting of which not less than 14 clear days’ notice has been given and held in

accordance with the Articles. A resolution in writing signed by or on behalf of all

members shall be treated as an ordinary resolution duly passed at a general meeting of the

Company duly convened and held, and where relevant as a special resolution so passed.

(g) Voting rights (generally and on a poll) and right to demand a poll

Subject to any special rights, restrictions or privileges as to voting for the time being

attached to any class or classes of shares at any general meeting on a show of hands, every

member who is present in person or by proxy or being a corporation, is present by its duly

authorised representative shall have one vote, and on a poll every member present in

person or by proxy or, in the case of a member being a corporation, by its duly authorised

representative shall have one vote for every share which is fully paid or credited as fully

paid registered in his name in the register of members of the Company but so that no

amount paid up or credited as paid up on a share in advance of calls or instalments is

treated for the foregoing purpose as paid up on the share. Notwithstanding anything

contained in the Articles, where more than one proxy is appointed by a member which is

a Clearing House (as defined in the Articles) (or its nominee(s)), each such proxy shall

have one vote on a show of hands. On a poll, a member entitled to more than one vote

need not use all his votes or cast all the votes he does use in the same way.


– IV-11 –

At any general meeting a resolution put to the vote of the meeting is to be decided

on a show of hands unless (before or on the declaration of the result of the show of hands

or on the withdrawal of any other demand for a poll) a poll is demanded or otherwise

required under the rules of the stock exchange of the Relevant Territory (as defined in the

Articles). A poll may be demanded by:

(i) the chairman of the meeting; or

(ii) at least two members present in person or, in the case of a member being a

corporation, by its duly authorised representative or by proxy for the time

being entitled to vote at the meeting; or

(iii) any member or members present in person or, in the case of a member being

a corporation, by its duly authorised representative or by proxy and

representing not less than one-tenth of the total voting rights of all the

members having the right to vote at the meeting; or

(iv) a member or members present in person or, in the case of a member being a

corporation, by its duly authorised representative or by proxy and holding

shares in the Company conferring a right to vote at the meeting being shares

on which an aggregate sum has been paid equal to not less than one-tenth of

the total sum paid up on all the shares conferring that right.

Should a Clearing House or its nominee(s), be a member of the Company, such

person or persons may be authorised as it thinks fit to act as its representative(s) at any

meeting of the Company or at any meeting of any class of members of the Company

provided that, if more than one person is so authorised, the authorisation shall specify the

number and class of shares in respect of which each such person is so authorised. A person

authorised in accordance with this provision shall be deemed to have been duly authorised

without further evidence of the facts and be entitled to exercise the same rights and

powers on behalf of the Clearing House or its nominee(s), as if such person were an

individual member including the right to vote individually on a show of hands.

Where the Company has knowledge that any member is, under the Listing Rules,

required to abstain from voting on any particular resolution of the Company or restricted

to voting only for or only against any particular resolution of the Company, any votes cast

by or on behalf of such member in contravention of such requirement or restriction shall

not be counted.


– IV-12 –

(h) Annual general meetings

The Company must hold an annual general meeting each year. Such meeting must

be held not more than 15 months after the holding of the last preceding annual general

meeting, or such longer period as may be authorised by the Stock Exchange at such time

and place as may be determined by the Board.

(i) Accounts and audit

The Board shall cause proper books of account to be kept of the sums of money

received and expended by the Company, and the matters in respect of which such receipt

and expenditure take place, and of the assets and liabilities of the Company and of all

other matters required by the Companies Law necessary to give a true and fair view of

the state of the Company’s affairs and to show and explain its transactions.

The books of accounts of the Company shall be kept at the head office of the

Company or at such other place or places as the Board decides and shall always be open

to inspection by any Director. No member (other than a Director) shall have any right to

inspect any account or book or document of the Company except as conferred by the

Companies Law or ordered by a court of competent jurisdiction or authorised by the

Board or the Company in general meeting.

The Board shall from time to time cause to be prepared and laid before the Company

at its annual general meeting balance sheets and profit and loss accounts (including every

document required by law to be annexed thereto), together with a copy of the Directors’

report and a copy of the auditors’ report not less than 21 days before the date of the annual

general meeting. Copies of these documents shall be sent to every person entitled to

receive notices of general meetings of the Company under the provisions of the Articles

together with the notice of annual general meeting, not less than 21 days before the date

of the meeting.

Subject to the rules of the stock exchange of the Relevant Territory (as defined in

the Articles), the Company may send summarised financial statements to shareholders

who has, in accordance with the rules of the stock exchange of the Relevant Territory (as

defined in the Articles), consented and elected to receive summarised financial statements

instead of the full financial statements. The summarised financial statements must be

accompanied by any other documents as may be required under the rules of the stock

exchange of the Relevant Territory (as defined in the Articles), and must be sent to the

shareholders not less than 21 days before the general meeting to those shareholders that

have consented and elected to receive the summarised financial statements.


– IV-13 –

The Company shall appoint auditor(s) to hold office until the conclusion of the next

annual general meeting on such terms and with such duties as may be agreed with the

Board. The auditors’ remuneration shall be fixed by the Company in general meeting or

by the Board if authority is so delegated by the members.

The auditors shall audit the financial statements of the Company in accordance with

generally accepted accounting principles of Hong Kong, the International Accounting

Standards or such other standards as may be permitted by the Stock Exchange.

(j) Notices of meetings and business to be conducted thereat

An annual general meeting and any extraordinary general meeting at which it is

proposed to pass a special resolution must be called by at least 21 days’ notice in writing,

and any other extraordinary general meeting shall be called by at least 14 days’ notice in

writing. The notice shall be exclusive of the day on which it is served or deemed to be

served and of the day for which it is given, and must specify the time, place and agenda

of the meeting, and particulars of the resolution(s) to be considered at that meeting, and,

in the case of special business, the general nature of that business.

Except where otherwise expressly stated, any notice or document (including a share

certificate) to be given or issued under the Articles shall be in writing, and may be served

by the Company on any member either personally or by sending it through the post in a

prepaid envelope or wrapper addressed to such member at his registered address as

appearing in the Company’s register of members or by leaving it at such registered

address as aforesaid or (in the case of a notice) by advertisement in the newspapers. Any

member whose registered address is outside Hong Kong may notify the Company in

writing of an address in Hong Kong which for the purpose of service of notice shall be

deemed to be his registered address. Where the registered address of the member is

outside Hong Kong, notice, if given through the post, shall be sent by prepaid airmail

letter where available. Subject to the Companies Law and the Listing Rules, a notice or

document may be served or delivered by the Company to any member by electronic

means to such address as may from time to time be authorised by the member concerned

or by publishing it on a website and notifying the member concerned that it has been so

published.

Although a meeting of the Company may be called by shorter notice than as

specified above, such meeting may be deemed to have been duly called if it is so agreed:

(i) in the case of a meeting called as an annual general meeting, by all members

of the Company entitled to attend and vote thereat; and

(ii) in the case of any other meeting, by a majority in number of the members

having a right to attend and vote at the meeting, being a majority together

holding not less than 95% in nominal value of the issued shares giving that

right.


– IV-14 –

All business transacted at an extraordinary general meeting shall be deemed special

business and all business shall also be deemed special business where it is transacted at

an annual general meeting with the exception of the following, which shall be deemed

ordinary business:

(aa) the declaration and sanctioning of dividends;

(bb) the consideration and adoption of the accounts and balance sheet and the

reports of the directors and the auditors;

(cc) the election of Directors in place of those retiring;

(dd) the appointment of auditors;

(ee) the fixing of the remuneration of the Directors and of the auditors;

(ff) the granting of any mandate or authority to the Board to offer, allot, grant

options over, or otherwise dispose of the unissued shares of the Company

representing not more than 20% in nominal value of its existing issued share

capital (or such other percentage as may from time to time be specified in the

rules of the Stock Exchange) and the number of any securities repurchased by

the Company since the granting of such mandate; and

(gg) the granting of any mandate or authority to the Board to repurchase securities

in the Company.

(k) Transfer of shares

Subject to the Companies Law, all transfers of shares shall be effected by an

instrument of transfer in the usual or common form or in such other form as the Board

may approve provided always that it shall be in such form prescribed by the Stock

Exchange and may be under hand or, if the transferor or transferee is a Clearing House

or its nominee(s), under hand or by machine imprinted signature or by such other manner

of execution as the Board may approve from time to time.

Execution of the instrument of transfer shall be by or on behalf of the transferor and

the transferee provided that the Board may dispense with the execution of the instrument

of transfer by the transferor or transferee or accept mechanically executed transfers in any

case in which it in its discretion thinks fit to do so, and the transferor shall be deemed to

remain the holder of the share until the name of the transferee is entered in the register

of members of the Company in respect thereof.

The Board may, in its absolute discretion, at any time and from time to time remove

any share on the principal register to any branch register or any share on any branch

register to the principal register or any other branch register.


– IV-15 –

Unless the Board otherwise agrees, no shares on the principal register shall be

removed to any branch register nor shall shares on any branch register be removed to the

principal register or any other branch register. All removals and other documents of title

shall be lodged for registration and registered, in the case of shares on any branch register,

at the relevant registration office and, in the case of shares on the principal register, at the

place at which the principal register is located.

The Board may, in its absolute discretion, decline to register a transfer of any share

(not being a fully paid up share) to a person of whom it does not approve or any share

issued under any share option scheme upon which a restriction on transfer imposed

thereby still subsists, and it may also refuse to register any transfer of any share to more

than four joint holders or any transfer of any share (not being a fully paid up share) on

which the Company has a lien.

The Board may decline to recognise any instrument of transfer unless a fee of such

maximum sum as the Stock Exchange may determine to be payable or such lesser sum as

the Board may from time to time require is paid to the Company in respect thereof, the

instrument of transfer is properly stamped (if applicable), is in respect of only one class

of share and is lodged at the relevant registration office or the place at which the principal

register is located accompanied by the relevant share certificate(s) and such other

evidence as the Board may reasonably require to show the right of the transferor to make

the transfer (and if the instrument of transfer is executed by some other person on his

behalf, the authority of that person so to do).

The register of members may, subject to the Listing Rules (as defined in the

Articles), be closed at such time or for such period not exceeding in the whole 30 days

in each year as the Board may determine.

Fully paid shares shall be free from any restriction with respect to the right of the

holder thereof to transfer such shares (except when permitted by the Stock Exchange) and

shall also be free from all liens.

(l) Power of the Company to purchase its own shares

The Company is empowered by the Companies Law and the Articles to purchase its

own shares subject to certain restrictions and the Board may only exercise this power on

behalf of the Company subject to any applicable requirement imposed from time to time

by the Articles, code, rules or regulations issued from time to time by the Stock Exchange

and/or the Securities and Futures Commission of Hong Kong.

Where the Company purchases for redemption a redeemable Share, purchases not

made through the market or by tender shall be limited to a maximum price, and if

purchases are by tender, tenders shall be available to all members alike.


– IV-16 –

(m) Power of any subsidiary of the Company to own shares in the Company

There are no provisions in the Articles relating to the ownership of shares in the

Company by a subsidiary.

(n) Dividends and other methods of distribution

The Company in general meeting may declare dividends in any currency to be paid

to the members but no dividend shall be declared in excess of the amount recommended

by the Board.

Except in so far as the rights attaching to, or the terms of issue of, any share may

otherwise provide:

(i) all dividends shall be declared and paid according to the amounts paid up on

the shares in respect whereof the dividend is paid, although no amount paid up

on a share in advance of calls shall for this purpose be treated as paid up on

the share; and

(ii) all dividends shall be apportioned and paid pro rata in accordance with the

amount paid up on the shares during any portion or portions of the period in

respect of which the dividend is paid. The Board may deduct from any

dividend or other monies payable to any member all sums of money (if any)

presently payable by him to the Company on account of calls, instalments or

otherwise.

Where the Board or the Company in general meeting has resolved that a dividend

should be paid or declared on the share capital of the Company, the Board may resolve:

(aa) that such dividend be satisfied wholly or in part in the form of an allotment of

shares credited as fully paid up, provided that the members entitled thereto will

be entitled to elect to receive such dividend (or part thereof) in cash in lieu of

such allotment; or

(bb) that the members entitled to such dividend will be entitled to elect to receive

an allotment of shares credited as fully paid up in lieu of the whole or such part

of the dividend as the Board may think fit.

Upon the recommendation of the Board, the Company may by ordinary resolution

in respect of any one particular dividend of the Company determine that it may be

satisfied wholly in the form of an allotment of shares credited as fully paid up without

offering any right to members to elect to receive such dividend in cash in lieu of such

allotment.


– IV-17 –

Any dividend, bonus or other sum payable in cash to the holder of shares may be

paid by cheque or warrant sent through the post addressed to the holder at his registered

address, but in the case of joint holders, shall be addressed to the holder whose name

stands first in the register of members of the Company in respect of the shares at his

address as appearing in the register, or addressed to such person and at such address as

the holder or joint holders may in writing so direct. Every such cheque or warrant shall

be made payable to the order of the person to whom it is sent and shall be sent at the

holder’s or joint holders’ risk and payment of the cheque or warrant by the bank on which

it is drawn shall constitute a good discharge to the Company. Any one of two or more joint

holders may give effectual receipts for any dividends or other monies payable or property

distributable in respect of the shares held by such joint holders.

Whenever the Board or the Company in general meeting has resolved that a dividend

be paid or declared, the Board may further resolve that such dividend be satisfied wholly

or in part by the distribution of specific assets of any kind.

The Board may, if it thinks fit, receive from any member willing to advance the

same, and either in money or money’s worth, all or any part of the money uncalled and

unpaid or instalments payable upon any shares held by him, and in respect of all or any

of the monies so advanced may pay interest at such rate (if any) not exceeding 20 % per

annum, as the Board may decide, but a payment in advance of a call shall not entitle the

member to receive any dividend or to exercise any other rights or privileges as a member

in respect of the share or the due portion of the shares upon which payment has been

advanced by such member before it is called up.

All dividends, bonuses or other distributions unclaimed for one year after having

been declared may be invested or otherwise made use of by the Board for the benefit of

the Company until claimed and the Company shall not be constituted a trustee in respect

thereof. All dividends, bonuses or other distributions unclaimed for six years after having

been declared may be forfeited by the Board and, upon such forfeiture, shall revert to the

Company.

No dividend or other monies payable by the Company on or in respect of any share

shall bear interest against the Company.

The Company may exercise the power to cease sending cheques for dividend

entitlements or dividend warrants by post if such cheques or warrants remain uncashed on

two consecutive occasions or after the first occasion on which such a cheque or warrant

is returned undelivered.


– IV-18 –

(o) Proxies

Any member of the Company entitled to attend and vote at a meeting of the

Company is entitled to appoint another person as his proxy to attend and vote instead of

him. A member who is the holder of two or more shares may appoint more than one proxy

to represent him and vote on his behalf at a general meeting of the Company or at a class

meeting. A proxy need not be a member of the Company and shall be entitled to exercise

the same powers on behalf of a member who is an individual and for whom he acts as

proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the

same powers on behalf of a member which is a corporation and for which he acts as proxy

as such member could exercise if it were an individual member. On a poll or on a show

of hands, votes may be given either personally (or, in the case of a member being a

corporation, by its duly authorised representative) or by proxy.

The instrument appointing a proxy shall be in writing under the hand of the

appointor or of his attorney duly authorised in writing, or if the appointor is a corporation,

either under seal or under the hand of an officer or attorney duly authorised. Every

instrument of proxy, whether for a specified meeting or otherwise, shall be in such form

as the Board may from time to time approve, provided that it shall not preclude the use

of the two-way form. Any form issued to a member for use by him for appointing a proxy

to attend and vote at an extraordinary general meeting or at an annual general meeting at

which any business is to be transacted shall be such as to enable the member, according

to his intentions, to instruct the proxy to vote in favour of or against (or, in default of

instructions, to exercise his discretion in respect of) each resolution dealing with any such

business.

(p) Calls on shares and forfeiture of shares

The Board may from time to time make such calls as it may think fit upon the

members in respect of any monies unpaid on the shares held by them respectively

(whether on account of the nominal value of the shares or by way of premium) and not

by the conditions of allotment thereof made payable at fixed times. A call may be made

payable either in one sum or by instalments. If the sum payable in respect of any call or

instalment is not paid on or before the day appointed for payment thereof, the person or

persons from whom the sum is due shall pay interest on the same at such rate not

exceeding 20% per annum as the Board shall fix from the day appointed for the payment

thereof to the time of actual payment, but the Board may waive payment of such interest

wholly or in part. The Board may, if it thinks fit, receive from any member willing to

advance the same, either in money or money’s worth, all or any part of the money

uncalled and unpaid or instalments payable upon any shares held by him, and in respect

of all or any of the monies so advanced the Company may pay interest at such rate (if any)

not exceeding 20% per annum as the Board may decide.


– IV-19 –

If a member fails to pay any call or instalment of a call on the day appointed for

payment thereof, the Board may, at any time thereafter during such time as any part of

the call or instalment remains unpaid, serve not less than 14 days’ notice on him requiring

payment of so much of the call or instalment as is unpaid, together with any interest which

may have accrued and which may still accrue up to the date of actual payment. The notice

will name a further day (not earlier than the expiration of 14 days from the date of the

notice) on or before which the payment required by the notice is to be made, and it shall

also name the place where payment is to be made. The notice shall also state that, in the

event of non-payment at or before the time appointed, the shares in respect of which the

call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect

of which the notice has been given may at any time thereafter, before the payment

required by the notice has been made, be forfeited by a resolution of the Board to that

effect. Such forfeiture will include all dividends and bonuses declared in respect of the

forfeited share and not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of

the forfeited shares but shall, nevertheless, remain liable to pay to the Company all

monies which, at the date of forfeiture, were payable by him to the Company in respect

of the shares together with (if the Board shall in its discretion so require) interest thereon

from the date of forfeiture until payment at such rate not exceeding 20% per annum as the

Board may prescribe.

(q) Inspection of corporate records

Members of the Company have no general right under the Companies Law to inspect

or obtain copies of the register of members or corporate records of the Company.

However, the members of the Company will have such rights as may be set forth in the

Articles. The Articles provide that for so long as any part of the share capital of the

Company is listed on the Stock Exchange, any member may inspect any register of

members of the Company maintained in Hong Kong (except when the register of member

is closed) without charge and require the provision to him of copies or extracts thereof in

all respects as if the Company were incorporated under and were subject to the Hong

Kong Companies Ordinance.

An exempted company may, subject to the provisions of its articles of association,

maintain its principal register of members and any branch registers at such locations,

whether within or outside the Cayman Islands, as its directors may, from time to time,

think fit.


– IV-20 –

(r) Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present

when the meeting proceeds to business, and continues to be present until the conclusion

of the meeting.

The quorum for a general meeting shall be two members present in person (or in the

case of a member being a corporation, by its duly authorised representative) or by proxy

and entitled to vote. In respect of a separate class meeting (other than an adjourned

meeting) convened to sanction the modification of class rights the necessary quorum shall

be two persons holding or representing by proxy not less than one-third in nominal value

of the issued shares of that class.

(s) Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles concerning the rights of minority members

in relation to fraud or oppression. However, certain remedies may be available to

members of the Company under Cayman Islands law, as summarised in paragraph 3(f) of

this Appendix.

(t) Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily

shall be a special resolution.

Subject to any special rights, privileges or restrictions as to the distribution of

available surplus assets on liquidation for the time being attached to any class or classes

of shares:

(i) if the Company shall be wound up and the assets available for distribution

amongst the members of the Company shall be more than sufficient to repay

the whole of the capital paid up at the commencement of the winding up, then

the excess shall be distributed pari passu amongst such members in proportion

to the amount paid up on the shares held by them respectively; and

(ii) if the Company shall be wound up and the assets available for distribution

amongst the members as such shall be insufficient to repay the whole of the

paid-up capital, such assets shall be distributed so that, as nearly as may be, the

losses shall be borne by the members in proportion to the capital paid up, on

the shares held by them respectively.


– IV-21 –

In the event that the Company is wound up (whether the liquidation is voluntary or

compelled by the court) the liquidator may, with the sanction of a special resolution and

any other sanction required by the Companies Law divide among the members in specie

or kind the whole or any part of the assets of the Company whether the assets shall consist

of property of one kind or shall consist of properties of different kinds and the liquidator

may, for such purpose, set such value as he deems fair upon any one or more class or

classes of property to be divided as aforesaid and may determine how such division shall

be carried out as between the members or different classes of members and the members

within each class. The liquidator may, with the like sanction, vest any part of the assets

in trustees upon such trusts for the benefit of members as the liquidator shall think fit, but

so that no member shall be compelled to accept any shares or other property upon which

there is a liability.

(u) Untraceable members

The Company may exercise the power to cease sending cheques for dividend

entitlements or dividend warrants by post if such cheques or warrants remain uncashed on

two consecutive occasions or after the first occasion on which such a cheque or warrant

is returned undelivered.

In accordance with the Articles, the Company is entitled to sell any of the shares of

a member who is untraceable if:

(i) all cheques or warrants, being not less than three in total number, for any sum

payable in cash to the holder of such shares have remained uncashed for a

period of 12 years;

(ii) upon the expiry of the 12 years and 3 months period (being the 3 months notice

period referred to in sub-paragraph (iii)), the Company has not during that time

received any indication of the existence of the member; and

(iii) the Company has caused an advertisement to be published in accordance with

the rules of the stock exchange of the Relevant Territory (as defined in the

Articles) giving notice of its intention to sell such shares and a period of three

months has elapsed since such advertisement and the stock exchange of the

Relevant Territory (as defined in the Articles) has been notified of such

intention. The net proceeds of any such sale shall belong to the Company and

upon receipt by the Company of such net proceeds, it shall become indebted to

the former member of the Company for an amount equal to such net proceeds.


– IV-22 –

(v) Subscription rights reserve

Pursuant to the Articles, provided that it is not prohibited by and is otherwise in

compliance with the Companies Law, if warrants to subscribe for shares have been issued

by the Company and the Company does any act or engages in any transaction which

would result in the subscription price of such warrants being reduced below the par value

of the shares to be issued on the exercise of such warrants, a subscription rights reserve

shall be established and applied in paying up the difference between the subscription price

and the par value of such shares.

3. CAYMAN ISLANDS COMPANY LAW

The Company was incorporated in the Cayman Islands as an exempted company on 24

February 2012 subject to the Companies Law. Certain provisions of Cayman Islands company

law are set out below but this section does not purport to contain all applicable qualifications

and exceptions or to be a complete review of all matters of the Companies Law and taxation,

which may differ from equivalent provisions in jurisdictions with which interested parties may

be more familiar.

(a) Company operations

As an exempted company, the Company must conduct its operations mainly outside

the Cayman Islands. Moreover, the Company is required to file an annual return each year

with the Registrar of Companies of the Cayman Islands and pay a fee which is based on

the amount of its authorised share capital.

(b) Share capital

In accordance with the Companies Law, a Cayman Islands company may issue

ordinary, preference or redeemable shares or any combination thereof. The Companies

Law provides that where a company issues shares at a premium, whether for cash or

otherwise, a sum equal to the aggregate amount or value of the premiums on those shares

shall be transferred to an account, to be called the “share premium account”. At the option

of a company, these provisions may not apply to premiums on shares of that company

allotted pursuant to any arrangements in consideration of the acquisition or cancellation

of shares in any other company and issued at a premium. The Companies Law provides

that the share premium account may be applied by the company subject to the provisions,

if any, of its memorandum and articles of association, in such manner as the company may

from time to time determine including, but without limitation, the following:

(i) paying distributions or dividends to members;

(ii) paying up unissued shares of the company to be issued to members as fully

paid bonus shares;


– IV-23 –

(iii) any manner provided in section 37 of the Companies Law;

(iv) writing-off the preliminary expenses of the company; and

(v) writing-off the expenses of, or the commission paid or discount allowed on,

any issue of shares or debentures of the company.

Notwithstanding the foregoing, the Companies Law provides that no distribution or

dividend may be paid to members out of the share premium account unless, immediately

following the date on which the distribution or dividend is proposed to be paid, the

company will be able to pay its debts as they fall due in the ordinary course of business.

It is further provided by the Companies Law that, subject to confirmation by the

court, a company limited by shares or a company limited by guarantee and having a share

capital may, if authorised to do so by its articles of association, by special resolution

reduce its share capital in any way.

The Articles include certain protections for holders of special classes of shares,

requiring their consent to be obtained before their rights may be varied. The consent of

the specified proportions of the holders of the issued shares of that class or the sanction

of a resolution passed at a separate meeting of the holders of those shares is required.

(c) Financial assistance to purchase shares of a company or its holding company

There are no statutory prohibitions in the Cayman Islands on the granting of

financial assistance by a company to another person for the purchase of, or subscription

for, its own, its holding company’s or a subsidiary’s shares. Therefore, a company may

provide financial assistance provided the directors of the company when proposing to

grant such financial assistance discharge their duties of care and acting in good faith, for

a proper purpose and in the interests of the company. Such assistance should be on an

arm’s-length basis.

(d) Purchase of shares and warrants by a company and its subsidiaries

A company limited by shares or a company limited by guarantee and having a share

capital may, if so authorised by its articles of association, issue shares which are to be

redeemed or are liable to be redeemed at the option of the company or a member and, for

the avoidance of doubt, it shall be lawful for the rights attaching to any shares to be

varied, subject to the provisions of the company’s articles of association, so as to provide

that such shares are to be or are liable to be so redeemed. In addition, such a company

may, if authorised to do so by its articles of association, purchase its own shares,

including any redeemable shares. Nonetheless, if the articles of association do not

authorise the manner and terms of purchase, a company cannot purchase any of its own

shares without the manner and terms of purchase first being authorised by an ordinary


– IV-24 –

resolution of the company. A company may not redeem or purchase its shares unless they

are fully paid. Furthermore, a company may not redeem or purchase any of its shares if,

as a result of the redemption or purchase, there would no longer be any issued shares of

the company other than shares held as treasury shares. In addition, a payment out of

capital by a company for the redemption or purchase of its own shares is not lawful unless

immediately following the date on which the payment is proposed to be made, the

company shall be able to pay its debts as they fall due in the ordinary course of business.

Under Section 37A(1) the Companies Law, shares that have been purchased or

redeemed by a company or surrendered to the company shall not be treated as cancelled

but shall be classified as treasury shares if (a) the memorandum and articles of association

of the company do not prohibit it from holding treasury shares; (b) the relevant provisions

of the memorandum and articles of association (if any) are complied with; and (c) the

company is authorised in accordance with the company’s articles of association or by a

resolution of the directors to hold such shares in the name of the company as treasury

shares prior to the purchase, redemption or surrender of such shares. Shares held by a

company pursuant to section 37A(1) of the Companies Law shall continue to be classified

as treasury shares until such shares are either cancelled or transferred pursuant to the

Companies Law.

A Cayman Islands company may be able to purchase its own warrants subject to and

in accordance with the terms and conditions of the relevant warrant instrument or

certificate. Thus there is no requirement under Cayman Islands law that a company’s

memorandum or articles of association contain a specific provision enabling such

purchases. The directors of a company may under the general power contained in its

memorandum of association be able to buy and sell and deal in personal property of all

kinds.

Under Cayman Islands law, a subsidiary may hold shares in its holding company

and, in certain circumstances, may acquire such shares.

(e) Dividends and distributions

With the exception of sections 34 and 37A(7) of the Companies Law, there are no

statutory provisions relating to the payment of dividends. Based upon English case law

which is likely to be persuasive in the Cayman Islands, dividends may be paid only out

of profits. In addition, section 34 of the Companies Law permits, subject to a solvency

test and the provisions, if any, of the company’s memorandum and articles of association,

the payment of dividends and distributions out of the share premium account (see

sub-paragraph 2(n) of this Appendix for further details). Section 37A(7)(c) of the

Companies Law provides that for so long as a company holds treasury shares, no dividend

may be declared or paid, and no other distribution (whether in cash or otherwise) of the

company’s assets (including any distribution of assets to members on a winding up) may

be made to the company, in respect of a treasury share.


– IV-25 –

(f) Protection of minorities and shareholders’ suits

It can be expected that the Cayman Islands courts will ordinarily follow English case

law precedents (particularly the rule in the case of Foss v. Harbottle and the exceptions

thereto) which permit a minority member to commence a representative action against or

derivative actions in the name of the company to challenge:

(i) an act which is ultra vires the company or illegal;

(ii) an act which constitutes a fraud against the minority and the wrongdoers are

themselves in control of the company; and

(iii) an irregularity in the passing of a resolution the passage of which requires a

qualified (or special) majority which has not been obtained.

Where a company (not being a bank) is one which has a share capital divided into

shares, the court may, on the application of members thereof holding not less than

one-fifth of the shares of the company in issue, appoint an inspector to examine the affairs

of the company and, at the direction of the court, to report thereon.

Moreover, any member of a company may petition the court which may make a

winding up order if the court is of the opinion that it is just and equitable that the company

should be wound up.

In general, claims against a company by its members must be based on the general

laws of contract or tort applicable in the Cayman Islands or be based on potential

violation of their individual rights as members as established by a company’s

memorandum and articles of association.

(g) Disposal of assets

There are no specific restrictions in the Companies Law on the power of directors

to dispose of assets of a company, although it specifically requires that every officer of

a company, which includes a director, managing director and secretary, in exercising his

powers and discharging his duties must do so honestly and in good faith with a view to

the best interest of the company and exercise the care, diligence and skill that a

reasonably prudent person would exercise in comparable circumstances.


– IV-26 –

(h) Accounting and auditing requirements

Section 59 of the Companies Law provides that a company shall cause proper

records of accounts to be kept with respect to (i) all sums of money received and

expended by the company and the matters with respect to which the receipt and

expenditure takes place; (ii) all sales and purchases of goods by the company and (iii) the

assets and liabilities of the company.

Section 59 of the Companies Law further states that proper books of account shall

not be deemed to be kept if there are not kept such books as are necessary to give a true

and fair view of the state of the company’s affairs and to explain its transactions.

(i) Exchange control

There are no exchange control regulations or currency restrictions in effect in the

Cayman Islands.

(j) Taxation

Pursuant to section 6 of the Tax Concessions Law (1999 Revision) of the Cayman

Islands, the Company has obtained an undertaking from the Governor-in-Council:

(i) that no law which is enacted in the Cayman Islands imposing any tax to be

levied on profits or income or gains or appreciation shall apply to the Company

or its operations; and

(ii) in addition, that no tax be levied on profits, income gains or appreciations or

which is in the nature of estate duty or inheritance tax shall be payable by the

Company:

(aa) on or in respect of the shares, debentures or other obligations of the

Company; or

(bb) by way of withholding in whole or in part of any relevant payment as

defined in section 6(3) of the Tax Concessions Law (1999 Revision).

The undertaking for the Company is for a period of twenty years from 20 March

2012.

The Cayman Islands currently levy no taxes on individuals or corporations based

upon profits, income, gains or appreciations and there is no taxation in the nature of

inheritance tax or estate duty. There are no other taxes likely to be material to the

Company levied by the Government of the Cayman Islands save certain stamp duties

which may be applicable, from time to time, on certain instruments.


– IV-27 –

(k) Stamp duty on transfers

There is no stamp duty payable in the Cayman Islands on transfers of shares of

Cayman Islands companies save for those which hold interests in land in the Cayman

Islands.

(l) Loans to directors

The Companies Law contains no express provision prohibiting the making of loans

by a company to any of its directors. However, the Articles provide for the prohibition of

such loans under specific circumstances.

(m) Inspection of corporate records

The members of the company have no general right under the Companies Law to

inspect or obtain copies of the register of members or corporate records of the company.

They will, however, have such rights as may be set out in the company’s articles of

association.

(n) Register of members

A Cayman Islands exempted company may maintain its principal register of

members and any branch registers in any country or territory, whether within or outside

the Cayman Islands, as the Company may determine from time to time. The Companies

Law contains no requirement for an exempted company to make any returns of members

to the Registrar of Companies in the Cayman Islands. The names and addresses of the

members are, accordingly, not a matter of public record and are not available for public

inspection.

(o) Winding up

A Cayman Islands company may be wound up either by (i) an order of the court; (ii)

voluntarily by its members; or (iii) under the supervision of the court

The court has authority to order winding up in a number of specified circumstances

including where, in the opinion of the court, it is just and equitable that such company be

so wound up.

A voluntary winding up of a company occurs where the Company so resolves by

special resolution that it be wound up voluntarily, or, where the company in general

meeting resolves that it be wound up voluntarily because it is unable to pay its debt as

they fall due; or, in the case of a limited duration company, when the period fixed for the

duration of the company by its memorandum or articles expires, or where the event occurs

on the occurrence of which the memorandum or articles provides that the company is to


– IV-28 –

be wound up. In the case of a voluntary winding up, such company is obliged to cease to

carry on its business from the commencement of its winding up except so far as it may

be beneficial for its winding up. Upon appointment of a voluntary liquidator, all the

powers of the directors cease, except so far as the company in general meeting or the

liquidator sanctions their continuance.

In the case of a members’ voluntary winding up of a company, one or more

liquidators shall be appointed for the purpose of winding up the affairs of the company

and distributing its assets.

As soon as the affairs of a company are fully wound up, the liquidator must make

a report and an account of the winding up, showing how the winding up has been

conducted and the property of the company has been disposed of, and thereupon call a

general meeting of the company for the purposes of laying before it the account and

giving an explanation thereof.

When a resolution has been passed by a company to wind up voluntarily, the

liquidator or any contributory or creditor may apply to the court for an order for the

continuation of the winding up under the supervision of the court, on the grounds that (i)

the company is or is likely to become insolvent; or (ii) the supervision of the court will

facilitate a more effective, economic or expeditious liquidation of the company in the

interests of the contributories and creditors. A supervision order shall take effect for all

purposes as if it was an order that the company be wound up by the court except that a

commenced voluntary winding up and the prior actions of the voluntary liquidator shall

be valid and binding upon the company and its official liquidator.

For the purpose of conducting the proceedings in winding up a company and

assisting the court, there may be appointed one or more persons to be called an official

liquidator or official liquidators; and the court may appoint to such office such person or

persons, either provisionally or otherwise, as it thinks fit, and if more than one persons

are appointed to such office, the court shall declare whether any act required or authorised

to be done by the official liquidator is to be done by all or any one or more of such

persons. The court may also determine whether any and what security is to be given by

an official liquidator on his appointment; if no official liquidator is appointed, or during

any vacancy in such office, all the property of the company shall be in the custody of the

court.

(p) Reconstructions

Reconstructions and amalgamations are governed by specific statutory provisions

under the Companies Law whereby such arrangements may be approved by a majority in

number representing 75% in value of members or creditors, depending on the

circumstances, as are present at a meeting called for such purpose and thereafter

sanctioned by the courts. Whilst a dissenting member would have the right to express to


– IV-29 –

the court his view that the transaction for which approval is being sought would not

provide the members with a fair value for their shares, nonetheless the courts are unlikely

to disapprove the transaction on that ground alone in the absence of evidence of fraud or

bad faith on behalf of management and if the transaction were approved and

consummated the dissenting member would have no rights comparable to the appraisal

rights (i.e. the right to receive payment in cash for the judicially determined value of their

shares) ordinarily available, for example, to dissenting members of a United States

corporation.

(q) Take-overs

Where an offer is made by a company for the shares of another company and, within

four months of the offer, the holders of not less than 90% of the shares which are the

subject of the offer accept, the offeror may at any time within two months after the

expiration of the said four months, by notice require the dissenting members to transfer

their shares on the terms of the offer. A dissenting member may apply to the court of the

Cayman Islands within one month of the notice objecting to the transfer. The burden is

on the dissenting member to show that the court should exercise its discretion, which it

will be unlikely to do unless there is evidence of fraud or bad faith or collusion as

between the offeror and the holders of the shares who have accepted the offer as a means

of unfairly forcing out minority members.

(r) Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of

association may provide for indemnification of officers and directors, save to the extent

any such provision may be held by the court to be contrary to public policy, for example,

where a provision purports to provide indemnification against the consequences of

committing a crime.

4. GENERAL

Appleby, our Company’s legal adviser on Cayman Islands law, has sent to our Company

a letter of advice which summarises certain aspects of the Cayman Islands company law. This

letter, together with a copy of the Companies Law, is available for inspection as referred to in

the paragraph headed “Documents available for inspection” in Appendix VI to this prospectus.

Any person wishing to have a detailed summary of Cayman Islands company law or advice on

the differences between it and the laws of any jurisdiction with which he is more familiar is

recommended to seek independent legal advice.


– IV-30 –

A. FURTHER INFORMATION ABOUT OUR COMPANY

1. Incorporation of our Company


exempted company with limited liability on 24 February 2012. Our Company has been

registered as a non-Hong Kong company under Part XI of the Companies Ordinance on 24 May

2012 and our principal place of business in Hong Kong is at Suites 2001-2005, 20th Floor,

Jardine House, 1 Connaught Place, Central, Hong Kong. Loong & Yeung of Suites 2001-2005,

20th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong has been appointed as the

authorised representative of our Company for the acceptance of service of process and notices

in Hong Kong.

As our Company is incorporated in the Cayman Islands, our Company is subject to the

relevant laws of the Cayman Islands and the constitution which comprises the Memorandum

and the Articles. A summary of the relevant aspects of the Companies Law and certain

provisions of the Articles is set out in Appendix IV to this prospectus.

2. Changes in share capital of our Company

(a) As at the date of incorporation of our Company, the authorised share capital was

HK$380,000 divided into 38,000,000 shares of HK$0.01 each. One Share was

allotted and issued nil paid to the subscriber on 24 February 2012, which was

subsequently transferred to Sheentai BVI on the same date.

(b) On 21 June 2012, our sole Shareholder resolved to increase the authorised share

capital of our Company from HK$380,000 to HK$20,000,000 by the creation of an

additional of 1,962,000,000 Shares, each ranking pari passu with our Shares then in

issue in all respects.

(c) Pursuant to the Reorganisation and as consideration for the acquisition by our

Company of the entire issued share capital of Sheen BVI from Mr. Guo, on 21 June

2012, (i) the one nil paid Share then held by Sheentai BVI was credited as fully paid

at par, and (ii) 299,999,999 Shares, all credited as fully paid at par, were allotted and

issued to Sheentai BVI.

(d) Immediately following completion of the Share Offer, and assuming that the

Over-allotment Option is not exercised, and taking no account of any Share which

may be issued pursuant to the exercise of the Pre-IPO Share Options and any options

which may be granted under the Share Option Scheme, 400,000,000 Shares will be

issued fully paid or credited as fully paid, and 1,600,000,000 Shares will remain

unissued.

APPENDIX V STATUTORY AND GENERAL INFORMATION

– V-1 –

(e) Other than pursuant to the general mandate to issue Shares referred to in the

paragraph headed “Written resolutions of our sole Shareholder passed on 22 June

2012” in this appendix and pursuant to the Over-allotment Option, the Pre-IPO

Share Option Scheme and the Share Option Scheme, our Company does not have

any present intention to issue any of the authorised but unissued share capital of our

Company and, without prior approval of our Shareholders in general meeting, no

issue of Shares will be made which would effectively alter the control of our

Company.

(f) Save as disclosed in the section headed “Share Capital” in this prospectus and in this

paragraph headed “Changes in share capital of our Company”, there has been no

alteration in our Company’s share capital since its incorporation.

3. Written resolutions of our sole Shareholder passed on 22 June 2012

By written resolutions of our sole Shareholder passed on 22 June 2012:

(a) our Company approved and adopted the Memorandum and the Articles;

(b) conditional on the Listing Committee granting the listing of, and permission to deal

in, our Shares in issue and Shares to be issued as mentioned in this prospectus,

including any Shares which may be issued pursuant to the exercise of the Pre-IPO

Share Options, any options which may be granted under the Share Option Scheme

and the Over-allotment Option, and on the obligations of the Underwriters under the

Underwriting Agreements becoming unconditional and not being terminated in

accordance with the terms of the Underwriting Agreements or otherwise, in each

case on or before the date falling 30 days after the date of this prospectus:

(i) the Share Offer was approved and our Directors were authorised to allot and

issue the Offer Shares pursuant to the Share Offer to rank pari passu with the

then existing Shares in all respects;

(ii) the rules of the Share Option Scheme, the principal terms of which are set out

in the paragraph headed “Share Option Scheme” of this appendix, were

approved and adopted and our Directors were authorised, at their absolute

discretion, to grant options to subscribe for Shares thereunder and to allot,

issue and deal with our Shares pursuant to the exercise of subscription rights

attaching to any options granted under the Share Option Scheme and to take all

such actions as they consider necessary or desirable to implement the Share

Option Scheme; and

(iii) the Over-allotment Option was approved and our Directors were authorised to

allot and issue our Shares as may be required to be allotted and issued upon the

exercise of the Over-allotment Option to rank pari passu with the then existing

Shares in all respects;


– V-2 –

(c) a general unconditional mandate was given to our Directors to allot, issue and deal

with, otherwise than by way of rights or an issue of Shares pursuant to the exercise

of the Pre-IPO Share Options and any options which may be granted under the Share

Option Scheme or any other share option scheme of our Company or any Share

allotted in lieu of the whole or part of a dividend on our Shares in accordance with

the Memorandum and the Articles or pursuant to a specific authority granted by our

Shareholders or pursuant to the Share Offer, or the exercise of the Over-allotment

Option, Shares with an aggregate nominal value not exceeding 20% of the aggregate

nominal value of the share capital of our Company in issue immediately following

completion of the Share Offer but excluding any Shares which may fall to be allotted

and issued pursuant to the exercise of the Over-allotment Option, the Pre-IPO Share

Options or any options which may be granted under the Share Option Scheme, and

such mandate to remain in effect until the earliest of:

(i) the conclusion of the next annual general meeting of our Company; or

(ii) the expiration of the period within which the next annual general meeting of

our Company is required by the Memorandum and the Articles or the

Companies Law or any other applicable laws of the Cayman Islands to be held;

or

(iii) the time when such mandate is revoked or varied by an ordinary resolution of

our Shareholders in general meeting;

(d) a general unconditional mandate was given to our Directors authorising them to

exercise all powers of our Company to repurchase on the Stock Exchange or on any

other stock exchange on which the securities of our Company may be listed and

which is recognised by the SFC and the Stock Exchange for this purpose such

number of Shares as will represent up to 10% of the aggregate of the nominal value

of the share capital of our Company in issue immediately following completion of

the Share Offer but excluding any Share which may fall to be allotted and issued

pursuant to the exercise of the Over-allotment Option, the Pre-IPO Share Options or

any options which may be granted under the Share Option Scheme, and such

mandate to remain in effect until the earliest of:

(i) the conclusion of the next annual general meeting of our Company; or

(ii) the expiration of the period within which the next annual general meeting of

our Company is required by the Memorandum and the Articles or the

Companies Law or any other applicable laws of the Cayman Islands to be held;

or

(iii) the time when such mandate is revoked or varied by an ordinary resolution of

our Shareholders in general meeting; and


– V-3 –

(e) the general unconditional mandate mentioned in sub-paragraph (c) above was

extended by the addition to the aggregate nominal value of the share capital of our

Company which may be allotted or agreed to be allotted by our Directors pursuant

to such general mandate of an amount representing the aggregate nominal value of

the share capital of our Company repurchased by our Company pursuant to the

mandate to repurchase Shares referred to in sub-paragraph (d) above, provided that

such extended amount shall not exceed 10% of the aggregate nominal value of the

share capital of our Company in issue immediately following completion of the

Share Offer but excluding any Shares which may fall to be allotted and issued

pursuant to the exercise of the Over-allotment Option, the Pre-IPO Share Options or

any options which may be granted under the Share Option Scheme.

4. Corporate reorganisation

The companies comprising our Group underwent the Reorganisation to rationalise our

Group’s structure in preparation for the Listing of our Shares on the Stock Exchange, pursuant

to which our Company became the holding company of our Group. The Reorganisation

included the following major steps:

(a) Pursuant to an equity transfer agreement dated 2 March 2012 entered into between

Biotex HK and Sheen HK, referred to in item (a) of the paragraph headed “Summary

of material contracts” in this appendix, Biotex HK transferred 70% equity interest

in Qingdao Ener to Sheen HK at a consideration of US$8,400,000. The said

consideration was satisfied by the allotment and issuance of 8,700,000 ordinary

shares of HK$1 each in the share capital of Sheen HK to Sheen BVI at the direction

of Biotex HK on 15 June 2012.

(b) On 16 June 2012, Sheen BVI allotted and issued 8 ordinary shares of US$1 each to

Mr. Guo at an issuance price of US$1 each.

(c) Pursuant to a sale and purchase agreement dated 19 June 2012 entered into among

Sheen BVI, Million Rays and Mr. Guo referred to in item (c) of the paragraph

headed “Summary of material contracts” in this appendix, Sheen BVI acquired

10,000 ordinary shares of HK$1 each in the share capital of Century Leader HK,

representing the entire issued share capital of Century Leader HK, from Million

Rays at a consideration of HK$16,217,227, which was satisfied by Sheen BVI

allotting and issuing to Mr. Guo one ordinary share of US$1 in the share capital of

Sheen BVI at the direction of Million Rays.

(d) Pursuant to a sale and purchase agreement dated 21 June 2012 entered into among

our Company, Mr. Guo and Sheentai BVI, referred to in item (f) of the paragraph

headed “Summary of material contracts” in this appendix, our Company acquired

from Mr. Guo 10 ordinary shares of US$1 each in the share capital of Sheen BVI,

representing the entire issued share capital of Sheen BVI. As consideration for the

acquisition, (i) the one nil paid Share then held by Sheentai BVI was credited as

fully paid at par, and (ii) 299,999,999 Shares, all credited as fully paid at par, were

allotted and issued to Sheentai BVI, at the direction of Mr. Guo.


– V-4 –

Immediately after completion of the share transfer referred to in item (d) above, our

Company then became the holding company of our Group.

5. Changes in share capital of subsidiaries

The subsidiaries of our Company are listed in the Accountants’ Report, the text of which

is set out in Appendix I to this prospectus.

Pursuant to the written resolution of the sole shareholder of Sheen HK passed on 15 June

2012, the authorised share capital of Sheen HK was increased from HK$3,900,000 divided into

3,900,000 shares of HK$1 each to HK$12,600,000 divided into 12,600,000 shares of HK$1

each in the share capital of Sheen HK by the creation of 8,700,000 shares of HK$1 each.

Save as the above, and as mentioned in the paragraph headed “Corporate reorganisation”

in this appendix and in the section headed “History and development” in this prospectus, there

has been no alteration in the share capital of any of the subsidiaries of our Company within the

two years immediately preceding the date of this prospectus.

6. Repurchase of our Shares by our Company

This section includes information required by the Stock Exchange to be included in the

prospectus concerning the repurchase of our Shares by our Company.

(a) Provisions of the Listing Rules

The Listing Rules permit companies with a primary listing on the Stock Exchange

to purchase their shares on the Stock Exchange subject to certain restrictions.

(i) Shareholders’ approval

The Listing Rules provide that all proposed repurchases of shares (which must

be fully paid in the case of shares) by a company with a primary listing on the Stock

Exchange must be approved in advance by an ordinary resolution, either by way of

general mandate or by specific approval of a specific transaction.

Note: Pursuant to the written resolutions of our sole Shareholder passed on 22 June 2012, a

general unconditional mandate (the “Repurchase Mandate”) was given to our Directors

authorising our Directors to exercise all powers of our Company to purchase on the Stock

Exchange or any other stock exchange on which the securities of our Company may be

listed and which is recognised by the SFC and the Stock Exchange for this purpose such

number of Shares representing up to 10% of the aggregate of the nominal value of the

share capital in issue immediately following completion of the Share Offer but excluding

any Share which may fall to be allotted and issued pursuant to the exercise of the

Over-allotment Option, the Pre-IPO Share Options or options which may be granted

under the Share Option Scheme, and the Repurchase Mandate shall remain in effect until

the earliest of the conclusion of the next annual general meeting of our Company, the

expiration of the period within which the next annual general meeting of our Company is

required by the Memorandum and the Articles or the Companies Law or any other

applicable laws of the Cayman Islands to be held, or the time when the Repurchase

Mandate is revoked or varied by an ordinary resolution of our Shareholders in general

meeting.


– V-5 –

(ii) Source of funds

Repurchases must be funded out of funds legally available for the purpose in

accordance with the Articles and the laws of the Cayman Islands. A listed company

may not repurchase its own shares on the Stock Exchange for a consideration other

than cash or for settlement otherwise than in accordance with the trading rules of the

Stock Exchange from time to time.

Any repurchases by our Company may be made out of profits or out of the

proceeds of a fresh issue of Shares made for the purpose of the repurchase or, if

authorised by the Articles and subject to the Companies Law, out of capital and, in

the case of any premium payable on the repurchase, out of profits of our Company

or out of our Company’s share premium account before or at the time our Shares are

repurchased or, if authorised by the Articles and subject to the Companies Law, out

of capital.

(iii) Connected parties

The Listing Rules prohibit our Company from knowingly repurchasing our

Shares on the Stock Exchange from a “connected person”, which includes a director,

chief executive or substantial shareholder of our Company or any of the subsidiaries

or an associate of any of them and a connected person shall not knowingly sell

Shares to our Company.

(b) Reasons for repurchases

Our Directors believe that it is in the best interests of our Company and our

Shareholders for our Directors to have a general authority from our Shareholders to

enable our Company to repurchase Shares in the market. Such repurchases may,

depending on the market conditions and funding arrangements at the time, lead to an

enhancement of our Company’s net asset value and/or earnings per Share and will only

be made when our Directors believe that such repurchases will benefit our Company and

our Shareholders.

(c) Exercise of the Repurchase Mandate

Exercise in full of the Repurchase Mandate, on the basis of 400,000,000 Shares in

issue after completion of the Share Offer, could accordingly result in up to 40,000,000

Shares being repurchased by our Company during the period in which the Repurchase

Mandate remains in force.


– V-6 –

(d) Funding of repurchase

In repurchasing Shares, our Company may only apply funds legally available for

such purpose in accordance with the Articles, the Listing Rules and the applicable laws

of the Cayman Islands.

Our Directors do not propose to exercise the Repurchase Mandate to such extent as

would, in the circumstances, have a material adverse effect on the working capital

requirements of our Company or the gearing levels which in the opinion of our Directors

are from time to time appropriate for our Company.

(e) General

None of our Directors or, to the best of their knowledge having made all reasonable

enquiries, any of their associates, has any present intention if the Repurchase Mandate is

exercised to sell any Shares to our Company.

Our Directors have undertaken to the Stock Exchange that, so far as the same may

be applicable, they will exercise the Repurchase Mandate in accordance with the Listing

Rules and the applicable laws of the Cayman Islands.

If as a result of a repurchase of Shares pursuant to the Repurchase Mandate, a

Shareholder’s proportionate interest in the voting rights of our Company increases, such

increase will be treated as an acquisition for the purposes of the Takeovers Code.

Accordingly, a Shareholder or a group of Shareholders acting in concert, depending on the

level of increase of our Shareholders’ interest, could obtain or consolidate control of our

Company and may become obliged to make a mandatory offer in accordance with Rule

26 of the Takeovers Code as a result of any such increase. Save as disclosed above, our

Directors are not aware of any consequence that would arise under the Takeovers Code

as a result of a repurchase pursuant to the Repurchase Mandate.

Our Directors will not exercise the Repurchase Mandate if the repurchase would

result in the number of Shares which are in the hands of the public falling below 25% of

the total number of Shares in issue (or such other percentage as may be prescribed as the

minimum public shareholding under the Listing Rules).

No connected person of our Company has notified our Company that he has a

present intention to sell Shares to our Company, or has undertaken not to do so, if the

Repurchase Mandate is exercised.


– V-7 –

B. FURTHER INFORMATION ABOUT THE BUSINESS

1. Summary of material contracts

The following contracts (not being contracts in the ordinary course of business) have been

entered into by members of our Group within the two years preceding the date of this

prospectus and are or may be material:

(a) an equity transfer agreement in Chinese dated 2 March 2012 entered into between

Sheen HK and Biotex HK, pursuant to which Sheen HK agreed to acquire 70%

equity interest in Qingdao Ener from Biotex HK at a consideration of US$8,400,000;

(b) an equity transfer agreement in Chinese dated 13 March 2012 entered into between

Sheen HK and Qingdao Beizhou, pursuant to which Sheen HK agreed to acquire

30% equity interest in Qingdao Ener from Qingdao Beizhou at a consideration of

RMB39,600,000;

(c) a sale and purchase agreement dated 19 June 2012 entered into among Sheen BVI,

Million Rays and Mr. Guo, pursuant to which Sheen BVI agreed to acquire 10,000

ordinary shares of HK$1 each in the share capital of Century Leader HK,

representing the entire issued share capital of Century Leader HK, from Million

Rays at a consideration of HK$16,217,227 satisfied by Sheen BVI allotting and

issuing to Mr. Guo one ordinary share of US$1 in the share capital of Sheen BVI at

the direction of Million Rays;

(d) an instrument of transfer dated 19 June 2012 and entered into between Sheen BVI

and Million Rays for the transfer of 10,000 ordinary shares of HK$1 each in the

share capital of Century Leader HK as referred to item (c) above;

(e) bought and sold notes dated 19 June 2012 and executed by Sheen BVI and Million

Rays for the transfer of 10,000 ordinary shares of HK$1 each in the share capital of

Century Leader HK as referred to item (c) above;

(f) a sale and purchase agreement dated 21 June 2012 entered into among our Company,

Mr. Guo and Sheentai BVI, pursuant to which our Company agreed to acquire from

Mr. Guo 10 ordinary shares of US$1 each in the share capital of Sheen BVI,

representing the entire issued share capital of Sheen BVI, and as consideration, (i)

the one nil paid Share then held by Sheentai BVI was credited as fully paid at par,

and (ii) 299,999,999 Shares, all credited as fully paid at par, were allotted and issued

to Sheentai BVI, at the direction of Mr. Guo;


– V-8 –

(g) an instrument of transfer dated 21 June 2012 entered into between our Company and

Mr. Guo for the transfer of 10 ordinary shares of US$1 each in the share capital of

Sheen BVI as referred to item (f) above;

(h) a cornerstone investor agreement in Chinese dated 25 June 2012 entered into among

our Company, the Sole Sponsor, the Sole Bookrunner, Starjade International (HK)

Co., Limited (星語國際（香港）股份有限公司) (“Starjade”) and Mr. Wang Yu Feng

(王玉峰), pursuant to which Starjade will conditionally subscribe for such number

of Offer Shares that may be purchased with HK$10,000,000 (rounded down to the

nearest board lots), further details of which are set out in the section headed

“Cornerstone investor” in this prospectus;

(i) a deed of non-competition in Chinese dated 28 June 2012 executed among Mr. Guo,

Sheentai BVI and our Company, details of which are set out in the section headed

“Relationship with Controlling Shareholders – Non-competition undertaking” in this

prospectus;

(j) a deed of indemnity dated 28 June 2012 executed by Mr. Guo and Sheentai BVI

containing the indemnities referred to in the paragraph headed “Tax and other

indemnities” in this appendix; and

(k) the Public Offer Underwriting Agreement.

2. Intellectual property rights

Trademark

As at the Latest Practicable Date, our Group had the following registered trademark:

Trademark Class

Registration

number

Registration

date

Expiry

date

Place of

registration Registrant

16 7571449 14 January

2011

13 January

2021

PRC Qingdao

Ener

Note: Class 16: plastic films for packaging use; plastic wrap


– V-9 –

As at the Latest Practicable Date, our Group had applied for registration of the

following trademarks, the registration of which have not yet been granted:

Trademark Class

Application

number

Application

date

Place of

application Applicant

(Note)

16 7571450 12 August

2009

PRC Qingdao Ener

16 302269693 1 June 2012 Hong Kong Sheen Group HK

Note: The application for the registration of this trademark was under review by the Trademark

Bureau under the State Administration for Industry and Commerce (國家工商行政管理總局商標局) as at the Latest Practicable Date following an opposition filed against the registration.

Patent

As at the Latest Practicable Date, our Group had registered the following patent:

Patent Registrant

Announcement

date

Place of

registration

Patent

number

Expiration

date

A type of degradable

BOPP packaging

file and its

manufacturing

method (一種可降解的BOPP包裝膜及其制法)

Qingdao

Ener

5 January

2011

PRC ZL 2009 1

0182400.8

22 July

2029

Domain Name

As at the Latest Practicable Date, our Group had been licensed to use the following

domain names:

Domain Name Registrant Expiration date

jsst-tech.com Jiangsu Shuntai 25 September 2012

sheentai.com Company 5 March 2022


– V-10 –

3. Information about the PRC subsidiaries of our Group

Name: Jiangsu Sheen Colour

Date of establishment: 6 March 2002

Corporate nature: Limited liability company jointly owned by Taiwan,

Hong Kong or Macau legal person and PRC legal

person

Total investment: US$4,000,000

Total registered capital: US$2,176,400

Attributable interest of

our Company: 68.15%

Term: 11 years (6 March 2002 to 5 March 2013)

Scope of business: Permitted scope of business: Typesetting, plate

making, printing and binding of packaging and

decorating printed matters of various new types

of film

General scope of business: The development of

various new types of film, providing production

line locator equipment and related services. Sales

of self-manufactured products

Legal representative: Mr. Guo


– V-11 –

Name: Jiangsu Shuntai

Date of establishment: 20 November 2008

Corporate nature: Limited liability company jointly owned by Taiwan,

Hong Kong or Macau legal person and PRC legal

person




our Company: 51%

Term: 20 years (20 November 2008 to 19 November 2028)

Scope of business: Permitted scope of business: Printing of packaging

and decorating printed matters (expired at

1 March 2014)

General scope of business: Research and

development and production on new film, sales of

self-manufactured products; packaging design,

production (if administrative approval is

required, such approval shall be obtained before

operation)



– V-12 –

Name: Qingdao Ener

Date of establishment: 27 June 2007

Corporate nature: Limited liability company wholly owned by Taiwan,

Hong Kong or Macau legal person




our Company: 100%

Term: 15 years (27 June 2007 to 27 June 2022)

Scope of business: Manufacturing of labels films, film-type additives,

film-typed deep-processed products (aluminised,

transfer film); the development and

manufacturing of agricultural film new

technology and photolysis film, multifunctional

film and agricultural film new products (all above

required relevant licence)

Legal representative: Madam Xia


– V-13 –

Name: Ling Xian Fei Yu

Date of establishment: 10 September 2007

Corporate nature: Limited liability company wholly owned by Taiwan,

Hong Kong or Macau legal person

Total investment: HK$8,180,000

Total registered capital: HK$8,180,000


our Company: 100%

Term: 20 years (10 September 2007 to 10 September 2027)

Scope of business: Chemical products (excluding dangerous

chemicals), plastics and plastic products, rubber

and rubber products, wood pulp and other fibre

pulp, paper and paper products, ceramics, glass

and glass products, machinery and equipment,

electrical equipment and related spare parts,

office supplies, crafts, daily necessities, clothing,

textile raw materials, packaging supplies, design

of building materials, technology consulting,

wholesale, export, import, and related business

(not involved in merchandise trade regulated by

PRC Government, and all merchandise have

obtained or applied for quota, licence, and other

certificate as required under PRC laws)



– V-14 –

C. FURTHER INFORMATION ABOUT SUBSTANTIAL SHAREHOLDERS,

DIRECTORS AND EXPERTS

1. Disclosure of interests

(a) Immediately following completion of the Share Offer but taking no account of any

Shares which may be issued pursuant to the exercise of the Over-allotment Option,

the Pre-IPO Share Options and any options which may be granted under the Share

Option Scheme and without taking into account the arrangement under the Stock

Borrowing Agreement, the interests and short positions of our Directors or chief

executive of our Company in the shares, underlying shares and debentures of our

Company or any of the associated corporations (within the meaning of Part XV of

the SFO) which, once our Shares are listed on the Stock Exchange, will have to be

notified to our Company and the Stock Exchange pursuant to Divisions 7 and 8 of

Part XV of the SFO (including any interests or short positions which they are taken

or deemed to have under such provisions of the SFO) or will be required, pursuant

to section 352 of the SFO, to be entered in the register referred to therein, or will

be required, pursuant to the Model Code for Securities Transactions by Directors of

Listed Companies in the Listing Rules, to be notified to our Company and the Stock

Exchange, in each case once our Shares are listed on the Stock Exchange, will be

as follows:

(i) Long position in our Shares

Name of Director Capacity/Nature

Number of

Shares held/

interested

Percentage

of interest

Mr. Guo Interest of a controlled

corporation(Note 1)

300,000,000 75%


Interest of

spouse(Notes 3 and 4)

500,000 0.125%

Madam Xia Interest of spouse(Note 5) 300,500,000 75.125%


Huang Bo Beneficial owner(Note 6) 500,000 0.125%

Bau Siu Fung Beneficial owner(Note 7) 500,000 0.125%


– V-15 –

(ii) Long position in the ordinary shares of associated corporation

Name of Director

Name of

associated

corporation

Capacity/

Nature

Number

of share

held/

interested

Percentage

of interest

Mr. Guo Sheentai BVI Beneficial

owner

1 100%

Madam Xia(Note 4) Sheentai BVI Interest of

spouse

1 100%

Notes:

1. Mr. Guo beneficially owns the entire issued share capital of Sheentai BVI. Therefore, Mr.

Guo is deemed, or taken to be, interested in all 300,000,000 Shares held by Sheentai BVI

for the purposes of the SFO. Mr. Guo is the sole director of Sheentai BVI.

2. This represents the number of Shares which may be allotted and issued to Mr. Guo upon

exercise of the Pre-IPO Share Options granted to him.

3. This represents the number of Shares which may be allotted and issued to Madam Xia upon

exercise of the Pre-IPO Share Options granted to her.

4. Mr. Guo is the spouse of Madam Xia. Accordingly, Mr. Guo is deemed, or taken to be,

interested in all Shares in which Madam Xia is interested.

5. Madam Xia is the spouse of Mr. Guo. Accordingly, Madam Xia is deemed, or taken to be,

interested in all Shares in which Mr. Guo is interested in for the purpose of the SFO.

6. This represents the number of Shares which may be allotted and issued to Mr. Huang Bo

upon exercise of the Pre-IPO Share Options granted to him.

7. This represents the number of Shares which may be allotted and issued to Mr. Bau Siu Fung

upon exercise of the Pre-IPO Share Options granted to him.


– V-16 –

(b) So far as is known to our Directors and taking no account of any Shares which may

be taken up under the Share Offer, and Shares to be issued pursuant to the exercise

of the Over-allotment Option, the Pre-IPO Share Options and any options which

may be granted under the Share Option Scheme and without taking into account the

arrangement under the Stock Borrowing Agreement, the following persons (not

being a Director or chief executive of our Company) will, immediately following the

completion of the Share Offer, have interests or short positions in Shares or

underlying Shares which would fall to be disclosed to our Company and the Stock

Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, who

are, directly or indirectly, interested in 10% or more of the nominal value of any

class of share capital carrying rights to vote in all circumstances at general meetings

of any other member of our Group:

Our Company

Name

Capacity/

Nature of

interest

Number of

Shares held/

interested

Percentage of

shareholding

Sheentai BVI Beneficial owner 300,000,000 75%

Other members of our Group

Name of

subsidiary Name of shareholder

Capacity/

Nature of

interest

Percentage of

shareholding

Jiangsu

Shuntai

Huai An Tian Cai(Note) Beneficial

owner

49%

Jiangsu

Shuntai

Hu Yanhong (胡豔紅)(Note) Interest of a

controlled

corporation

49%

Note: Huai An Tian Cai was wholly owned by Ms. Hu Yanhong.

2. Particulars of service agreements

No Director has entered into any service agreement with any member of our Group

(excluding contracts expiring or determinable by the employer within one year without

payment of compensation (other than statutory compensation)).


– V-17 –

3. Directors’ remuneration

(a) The aggregate amount of remuneration paid to our Directors by our Group in respect

of the three years ended 31 December 2009, 2010 and 2011 were approximately

HK$395,000, HK$599,000 and HK$894,000, respectively.

(b) Under the arrangements currently in force, the aggregate emoluments (excluding

payment pursuant to any discretionary benefits or bonus or other fringe benefits)

payable by our Group to our Directors for the year ending 31 December 2012 will

be approximately HK$2,300,000.

(c) Under the arrangements currently proposed, conditional upon the Listing, the basic

annual remuneration (excluding payment pursuant to any discretionary benefits or

bonus or other fringe benefits) payable by our Group to each of our Directors will

be as follows:

Executive Directors HK$

Mr. Guo Yumin 550,000

Madam Xia Yu 500,000

Mr. Huang Bo 500,000

Mr. Bau Siu Fung 1,000,000

Independent non-executive Directors HK$

Ms. Fan Qing 200,000

Mr. Lo Wa Kei, Roy 200,000

Mr. Fong Wo, Felix 200,000

4. Fees or commission received

Save as disclosed in the section headed “Underwriting” of this prospectus, none of our

Directors or the experts named in the paragraph headed “Consents of experts” in this appendix

had received any agency fee or commissions from our Group within the two years preceding

the date of this prospectus.

5. Related party transactions

Details of the related party transactions are set out under Note 21 to the Accountants’

Report set out in Appendix I to this prospectus.


– V-18 –

6. Disclaimers

Save as disclosed in this prospectus:

(a) there are no existing or proposed service contracts (excluding contracts expiring ordeterminable by the employer within one year without payment of compensation(other than statutory compensation)) between our Directors and any member of ourGroup;

(b) none of our Directors or the experts named in the paragraph headed “Consents ofexperts” in this appendix has any direct or indirect interest in the promotion of, orin any assets which have been, within the two years immediately preceding the dateof this prospectus, acquired or disposed of by or leased to, any member of ourGroup, or are proposed to be acquired or disposed of by or leased to any memberof our Group;

(c) none of our Directors or the experts named in the paragraph headed “Consents of

experts” in this appendix is materially interested in any contract or arrangement

subsisting at the date of this prospectus which is significant in relation to the

business of our Group taken as a whole;

(d) taking no account of Shares which may be taken up under the Share Offer, and

Shares to be issued pursuant to options which may be granted under the Share

Option Scheme or pursuant to the exercise of the Over-allotment Option and without

taking into account the arrangements under the Stock Borrowing Agreement, none

of our Directors knows of any person (not being a Director or chief executive of our

Company) who will, immediately following completion of the Share Offer, have any

interest in Shares or underlying Shares which would fall to be disclosed to our

Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who

will be interested, directly or indirectly, in 10% or more of the nominal value of any

class of share capital carrying rights to vote in all circumstances at general meetings

of any other member of our Group;

(e) none of our Directors or chief executive of our Company has any interest or short

position in our Shares, underlying Shares or debentures of our Company or any of

the associated corporations (within the meaning of the SFO) which, once our Shares

are listed on the Stock Exchange, will have to be notified to our Company and the

Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including any

interests and short positions which he will be taken or deemed to have under such

provisions of the SFO) or which will be required, pursuant to section 352 of the

SFO, to be entered in the register referred to therein, or which will be required,

pursuant to the Model Code for Securities Transactions by Directors of Listing

Companies in the Listing Rules, to be notified to our Company and the Stock

Exchange; and

(f) so far as is known to our Directors, none of our Directors, their respective associates

(as defined under the Listing Rules) or Shareholders who are interested in more than

5% of the issued share capital of our Company has any interests in the five largest

customers or the five largest suppliers of our Group.


– V-19 –

D. SHARE OPTION SCHEMES

(I) Pre-IPO Share Option Scheme

Summary of terms

The purpose of the Pre-IPO Share Option Scheme is to recognise the contribution to

our Group by certain employees, directors, consultants and advisers of our Group. The

principal terms of the Pre-IPO Share Option Scheme, approved by our sole Shareholder

on 22 June 2012, are substantially the same as the terms of the Share Option Scheme

except for the following:

(a) the purpose of the Pre-IPO Share Option Scheme is to attract and retain the

best available personnel, to provide additional incentive to employees,

directors, consultants and advisers of our Group and to promote the success of

the business of our Group;

(b) the total number of Shares subject to the Pre-IPO Share Option Scheme is

10,000,000, representing:

(i) 2.5% of the total issued share capital of our Company immediately upon

completion of the Share Offer (but taking no account of the Shares to be

issued pursuant to the exercise of the Pre-IPO Share Options, options

which may be granted under the Share Option Scheme or the Over-

allotment Option); and

(ii) approximately 2.44% of the total issued share capital of our Company

immediately upon completion of the Share Offer and assuming that all

Pre-IPO Share Options are exercised at the same time (but taking no

account of the Shares to be issued pursuant to options which may be

granted under the Share Option Scheme or the Over-allotment Option);

(c) the subscription price for our Shares under the Pre-IPO Share Option Scheme

is HK$0.6029 per Share, being the amount of the combined net asset value of

our Group as at 31 December 2011 as stated in the audited combined financial

statement of our Group attributable to each Share (assuming 400,000,000

Shares are in issue as at 31 December 2011);

(d) any Pre-IPO Share Options will be exercisable during the period as set out in

the paragraph headed “Outstanding Pre-IPO Share Options” below, but:

(i) if the grantee dies before exercising the option in full, his legal personal

representative(s) may exercise the option within the period of 12 months

following his death (to the extent which has become exercisable as at the

date of his death and not already exercised);


– V-20 –

(ii) if the grantee ceases to be an employee, a consultant or an adviser (as the

case may be) of a member of our Group for any reason other than his

death or the termination of his employment or engagement (as the case

may be) on the ground of, among others, serious misconduct or has

committed an act of bankruptcy, the Pre-IPO Share Options granted to

him (to the extent not already exercised) shall lapse on the date of

cessation of such employment of an employee or engagement of a

consultant or an adviser (as the case may be) (which date will be in the

case of an employee the last actual working day with our Group whether

salary or consultancy fee (as the case may be) is paid in lieu of notice or

not and in the case of a consultant or an adviser (as the case may be), the

last actual day at providing consultancy or advisory services to the

relevant member of our Group); provided that if the grantee ceases to be

an employee, consultant or an adviser (as the case may be) of our Group

for health reason, the option (to the extent not already exercise) shall

lapse at the expiry of the end of the 3-month period from the date of

cessation of such employment of an employee or engagement of a

consultant or an adviser (as the case may be) (which date will be the last

actual working day with our Group whether salary or consultancy fee (as

the case may be) is paid in lieu of notice or not and in the case of a

consultant or an adviser (as the case may be), the last actual day at

providing consultancy or advisory services to the relevant member of our

Group.)

(e) the Pre-IPO Share Option Scheme will remain in force for a period

commencing on 22 June 2012, being the date on which the Pre-IPO Share

Option Scheme was adopted by our sole Shareholder and ending on the day

immediately prior to the Listing Date, after which period no further options

will be granted thereunder but in all other respects the provisions of the

Pre-IPO Share Option Scheme shall remain in full force and effect to the

exercise of any options granted; and

(f) the Pre-IPO Share Option Scheme takes effect upon its adoption by our sole

Shareholder, but the exercise of any option granted thereunder is conditional

upon:

(i) the Listing Committee granting the listing of, and permission to deal in,

any Shares which may be issued pursuant to the exercise of the Pre-IPO

Share Options; and

(ii) the commencement of dealings in our Shares on the Main Board of the

Stock Exchange.

Outstanding Pre-IPO Share Options

As at the Latest Practicable Date, options to subscribe for an aggregate of

10,000,000 Shares (representing 2.5% of the total issued share capital of our Company

immediately upon completion of the Share Offer (but taking no account of our Shares to


– V-21 –

be issued pursuant to the exercise of the Pre-IPO Share Options, options which may be

granted under the Share Option Scheme or the Over-allotment Option)) have been granted

by our Company under the Pre-IPO Share Option Scheme for a consideration HK$1 per

option. Save as disclosed below, no Directors, substantial shareholders or other connected

persons or their respective associates have been granted Pre-IPO Share Options.

Options to subscribe for an aggregate of 10,000,000 Shares were granted to the

following grantees on 22 June 2012 under the Pre-IPO Share Option Scheme:

Name of

grantee(Note 1)

Position within

our Group Address

Number of

underlying

Shares

subject to

option

Approximate

percentage

of issued

share capital

of our

Company

immediately

upon the

Listing(Note 2)

Director

Mr. Guo Chairman of the

Board and

executive

Director

Flat C, 25/F

Tower 2 Starcrest

9 Star Street

Wanchai

Hong Kong

500,000 0.125%

Madam Xia Executive

Director

Flat C, 25/F

Tower 2 Starcrest

9 Star Street

Wanchai

Hong Kong

500,000 0.125%

Huang Bo Executive

Director

Room 2703, Unit 2

No. 3 Building

117 Shandong Road

Shibei District

Qingdao

Shandong Province

The PRC

500,000 0.125%

Bau Siu Fung Executive

Director

Flat D, 15/F

Mei Foo Sun Chuen

109 Broadway

Kowloon

Hong Kong

500,000 0.125%


– V-22 –

Name of

grantee(Note 1)

Position within

our Group Address

Number of

underlying

Shares

subject to

option

Approximate

percentage

of issued

share capital

of our

Company

immediately

upon the

Listing(Note 2)

Senior

management

Guo Cheng Vice president of

our Group

Flat C, 25/F

Tower 2

Starcrest

9 Star Street

Wanchai

Hong Kong

250,000 0.0625%

Dong Zhenghua In-house legal

adviser of our

Group

Room 1201, Unit 3

No. B6 Building

Binhu Garden

Hubei Road

Quanshan District

Xuzhou

Jiangsu

PRC

500,000 0.125%

Li Jing Director of

Jiangsu Shuntai

and Jiangsu

Sheen Colour

5 Yinhong Road

Yunlong District

Xuzhou

Jiangsu

PRC

250,000 0.0625%

Yu Xiaofeng Director and

technical

adviser of

Jiangsu Shuntai

and Jiangsu

Sheen Colour

Room 601

Building No. 8

2nd District Liyuan

New Village

Shanghai Road

Huaian

Jiangsu

PRC

250,000 0.0625%


– V-23 –

Name of

grantee(Note 1)

Position within

our Group Address

Number of

underlying

Shares

subject to

option

Approximate

percentage

of issued

share capital

of our

Company

immediately

upon the

Listing(Note 2)

Tong Xiaomeng Director of

Jiangsu Shuntai

and Jiangsu

Sheen Colour

Room 306

Building No.1

District D

Putong Garden

Huaian

Jiangsu

PRC

250,000 0.0625%

Jiang Chang Executive vice-

general

manager of

Qingdao Ener

Room 602, Unit 3

No. 28 Building

Nantong B

Community

Chengyang District

Qingdao, Shandong

PRC

250,000 0.0625%

Ma Jin Vice-sales

manager of

Qingdao Ener

Room 2901

31 Building

21st Century

International

Apartment

Tianyuan Road

Central

Jiangning District

Nanjing, Jiangsu

PRC

250,000 0.0625%


– V-24 –

Name of

grantee(Note 1)

Position within

our Group Address

Number of

underlying

Shares

subject to

option

Approximate

percentage

of issued

share capital

of our

Company

immediately

upon the

Listing(Note 2)

Zhu Hengjin Human resource

manager of our

Group

Room 601

West Tower

Apartment

Di Wang Building

Shennan East Road

Shenzhen

PRC

250,000 0.0625%

Zeng Xiangyang Vice-general

manager of

Ling Xian Fei

Yu

Room 1202, 15-2

Xiajiayuan

Chaoyang District

Beijing

PRC

500,000 0.125%

Liu Fan Purchase manager

of Ling Xian

Fei Yu

Room 201, Unit 7

4/F, Liaoyuan Area

Yunlong District

Xuzhou

Jiangsu Province

PRC

250,000 0.0625%

Wang

Zhongmin(Note 3)

Adviser to our

Group in

respect of the

construction of

our Shuntai

Factory

(including the

original and

extended

portion)

1-401 Building C1

Kaiyuansiji

Quanshan District

Xuzhou

PRC

125,000 0.03125%


– V-25 –

Name of

grantee(Note 1)

Position within

our Group Address

Number of

underlying

Shares

subject to

option

Approximate

percentage

of issued

share capital

of our

Company

immediately

upon the

Listing(Note 2)

Lin

Xiangfei(Note 3)

Adviser to our

Group in

respect of the

construction of

our Shuntai

Factory

(including the

original and

extended

portion)

4#-1 Block A

Zhongfang Garden

Building No.34

Fengming Road

Quanshan District

Xuzhou

PRC

125,000 0.03125%

Sun

Zhongming(Note 3)

Adviser to our

Group in

respect of the

construction of

our Shuntai

Factory

(including the

original and

extended

portion)

3-502 Building

No.3 Xuzhou

Renjiaxiang

Shanzhong District

Gulou District

Xuzhou

PRC

125,000 0.03125%


– V-26 –

Name of

grantee(Note 1)

Position within

our Group Address

Number of

underlying

Shares

subject to

option

Approximate

percentage

of issued

share capital

of our

Company

immediately

upon the

Listing(Note 2)

Han

Jiansheng(Note 3)

Adviser to our

Group in

respect of the

construction of

our Shuntai

Factory

(including the

original and

extended

portion)

3-202 Building

No.5 No.7 Yard

Fangzhi Road

Quanshan District

Xuzhou

PRC

125,000 0.03125%

48 employees

of our Group

4,500,000 1.125%

Total 10,000,000 2.5%

Notes:

1. Each grantee, upon accepting the Pre-IPO Share Options, is deemed to have undertaken to our

Company that he/she will comply with all applicable laws, legislation and regulations (including

all applicable exchange control, fiscal and other laws to which he/she is subject) in connection

with the acceptance of the grant of his/her option, the holding and exercise of his/her option in

accordance with the rules of the Pre-IPO Share Option Scheme, the allotment and issue of Share

to him/her upon the exercise of his/her option and the holding of such Shares.

2. These percentages are calculated on the basis of 400,000,000 Shares in issue immediately

following completion of the Share Offer and assuming that none of the Pre-IPO Share Options

have been exercised and taking no account of any Shares that may fall to be allotted and issued

upon the exercise of any options which may be granted under the Share Option Scheme and the

Over-allotment Option.

3. Our Directors confirmed that save as being the advisers of our Group as detailed above and

employees of certain property companies owned by Mr. Guo, the 4 advisers do not have any past

or current relationship with our Group, our Directors, our senior management, the top five

customers or suppliers of our Group for the Track Record Period, or the two Provincial Tobacco

Industrial Companies located in Shandong Province and Guangxi Province.


– V-27 –

All the Pre-IPO Share Options are not transferable or assignable and are personal to

the grantee of the options. Pursuant to the Pre-IPO Share Option Scheme and the offer

letters in respect of the grant of the Pre-IPO Share Options, holders of the Pre-IPO Share

Options may only exercise their options in the following manner:

Maximum percentage of options under

the Pre-IPO Share Option Scheme

exercisable

Period for exercise of the relevant

percentage of options

10% of the total number of underlying

Shares under the options granted to

such grantee

From the date immediately after the first

anniversary of the Listing Date



such grantee, in addition to the 10%

referred to above

From the date immediately after the

second anniversary of the Listing Date



such grantee, in addition to the

aggregate of 25% referred to above


third anniversary of the Listing Date






fourth anniversary of the Listing Date





From the date immediately after the fifth

anniversary of the Listing Date

Outstanding and unexercised Pre-IPO Share Options at the end of each vesting

period may be rolled over to the next vesting period and exercisable during the option

period, the expiry date of which is the day falling the sixth anniversary of the Listing

Date.

Save as determined by our Board and provided in the offer of the grant of the

relevant options, the exercise of the Pre-IPO Share Options are not subject to any

performance targets being met.

The subscription price for our Shares under the Pre-IPO Share Option Scheme is

HK$0.6029 per Share, being the amount of the combined net asset value of our Group as

at 31 December 2011 as stated in the audited combined financial statements of our Group

attributable to each Share (assuming 400,000,000 Shares are in issue as at 31 December

2011).


– V-28 –

Based on the number of issued Shares immediately following completion of the

Share Offer and assuming that the Pre-IPO Share Options, options that may be granted

under the Share Option Scheme and the Over-allotment Option have not been exercised,

full exercise of the Pre-IPO Share Options would result in the issued share capital of our

Company be increased by approximately 2.5%, hence diluting the shareholdings of our

Shareholders. Assuming all Pre-IPO Share Options had been exercised in full, but not

taking into account any Shares which may be allotted and issued upon the exercise of any

option which may be granted under the Share Option Scheme or the Over-allotment

Option, this will have a dilutive effect on (i) the shareholdings of the Shareholders of

approximately 2.44%; and (ii) earnings per Share of approximately 2.44%. As at the

Latest Practicable Date, none of the Pre-IPO Share Options had been exercised by the

grantees.

Application has been made to the Stock Exchange for the listing of and permission

to deal in Shares to be issued pursuant to the exercise of the Pre-IPO Share Options.

Our Company has applied to the Stock Exchange and the SFC respectively for and

has been granted (i) a waiver from strict compliance with the disclosure requirements

under Rules 17.02(1)(b) and paragraph 27 of Appendix 1A of the Listing Rules; and (ii)

an exemption under section 342A of the Companies Ordinance from strict compliance

with the disclosure requirements of paragraph 10(d) of Part 1 of the Third Schedule to the

Companies Ordinance on the ground that full compliance with requirements would be

unduly burdensome for our Company. Please also refer to the section headed “Waiver

from compliance with the Listing Rules and exemption from the Companies Ordinance”

in this prospectus.

(II) Share Option Scheme

(a) Definitions

For the purpose of this section, the following expressions have the meanings set out

below unless the context requires otherwise:

“Adoption Date” 22 June 2012, the date on which the Share Option Scheme

is conditionally adopted by the sole Shareholder by way

of written resolution

“Board” the board of Directors or a duly authorised committee of

the board of Directors

“Group” our Company and any entity in which our Company,

directly or indirectly, holds any equity interest

“Scheme Period” the period commencing on the Adoption Date and

expiring at the close of business on the business day

immediately preceding the tenth anniversary thereof


– V-29 –

(b) Summary of terms

The following is a summary of the principal terms of the rules of the Share Option

Scheme conditionally adopted by the written resolutions of our sole Shareholder passed

on 22 June 2012:

(i) Purpose of the Share Option Scheme

The purpose of the Share Option Scheme is to attract and retain the best

available personnel, to provide additional incentive to employees (full-time and

part-time), directors, consultants, advisers, distributors, contractors, suppliers,

agents, customers, business partners or service providers of our Group and to

promote the success of the business of our Group.

(ii) Who may join and basis of eligibility

The Board may, at its absolute discretion and on such terms as it may think fit,

grant any employee (full-time or part-time), director, consultant or adviser of our

Group, or any substantial shareholder of our Group, or any distributor, contractor,

supplier, agent, customer, business partner or service provider of our Group, options

to subscribe at a price calculated in accordance with paragraph (iii) below for such

number of Shares as it 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 be

determined by the Board (or as the case may be, our independent non-executive

Directors) from time to time on the basis of his contribution or potential contribution

to the development and growth of our Group.

(iii) Price of Shares

The subscription price of a Share in respect of any particular option granted

under the Share Option Scheme shall be a price solely determined by our Board and

notified to a participant and shall be at least the higher of: (i) the closing price of

our Shares as stated 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 our Shares as stated in the Stock Exchange’s daily quotations sheets for the

five Business Days immediately preceding the date of grant of the option; and (iii)

the nominal value of a Share on the date of grant of the option. For the purpose of

calculating the subscription price, where our Company has been listed on the Stock

Exchange for less than five Business Days, the issue price of the Shares on the Stock

Exchange shall be used as the closing price for any Business Day fall within the

period before listing.

(iv) Grant of options and acceptance of offers

An offer for the grant of options must be accepted within seven days inclusive

of the day on which such offer was made. The amount payable by the grantee of an

option to our Company on acceptance of the offer for the grant of an option is HK$1.


– V-30 –

(v) Maximum number of Shares

(aa) Subject to sub-paragraphs (bb) and (cc) below, the maximum number of

Shares issuable upon exercise of all options to be granted under the Share

Option Scheme and any other share option schemes of our Company as

from the Adoption Date (excluding, for this purpose, Shares issuable

upon exercise of options which have been granted but which have lapsed

in accordance with the terms of the Share Option Scheme or any other

share option schemes of our Company) must not in aggregate exceed 10%

of all our Shares in issue as at the Listing Date. Therefore, it is expected

that our Company may grant options in respect of up to 40,000,000

Shares (or such numbers of Shares as shall result from a sub-division or

a consolidation of such 40,000,000 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

approval of the Shareholders in general meeting provided that the total

number of Shares which may be issued upon exercise of all options to be

granted under the Share Option Scheme and any other share option

schemes of our Company must not exceed 10% of our Shares in issue as

at the date of approval of the refreshed limit. Options previously granted

under the Share Option Scheme and any other share option schemes of

our Company (including those outstanding, cancelled or lapsed in

accordance with the terms of the Share Option Scheme and any other

share option schemes of our Company) will not be counted for the

purpose of calculating the refreshed 10% limit. A circular must be sent to

our Shareholders containing the information as required under the Listing

Rules in this regard.

(cc) Our Company may seek separate approval by our Shareholders in general

meeting for granting options beyond the 10% limit provided the options

in excess of the 10% limit are granted only to grantees specifically

identified by our Company before such approval is sought. In such event,

our Company must send a circular to our Shareholders containing a

generic description of such grantees, the number and terms of such

options to be granted and the purpose of granting options to them with an

explanation as to how the terms of the options will serve such purpose

and all other information required under the Listing Rules.


– V-31 –

(dd) The aggregate number of Shares which may be issued upon exercise of all

outstanding options granted and yet to be exercised under the Share

Option Scheme and any other share option schemes of our Company must

not exceed 30% of our Shares in issue from time to time. No options may

be granted under the Share Option Scheme or any other share option

schemes of our Company if 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

granted to any participant (including both exercised and outstanding options) under

the Share Option Scheme or any other share option schemes of our Company in any

12-month period up to the date of grant shall not exceed 1% of the Shares in issue.

Any further grant of options in excess of such limit must be separately approved by

Shareholders in general meeting with such grantee and his associates abstaining

from voting. In such event, our Company must send a circular to our Shareholders

containing the identity of the grantee, the number and terms of the options to be

granted (and options previously granted to such grantee), and all other information

required under the Listing Rules. The number and terms (including the subscription

price) of the options to be granted must be fixed before the approval of our

Shareholders and the date of the Board meeting proposing such further grant should

be taken as the date of grant for the purpose of calculating the subscription price.

(vii) Grant of options to certain connected persons

(aa) Any grant of an option to a Director, chief executive or substantial

shareholder of our Company (or any of their respective associates) must

be approved by our independent non-executive Directors (excluding any

independent non-executive Director who is the grantee of the option).

(bb) Where any grant of options to a substantial Shareholder or an independent

non-executive Director (or any of their respective associates) will result

in the total number of Shares issued and to be issued upon exercise of all

options already granted and to be granted to such person under the Share

Option Scheme and any other share option schemes of our Company

(including options exercised, cancelled and outstanding) in any 12-month

period up to and including the date of grant:

(i) representing in aggregate over 0.1% of our Shares in issue; and

(ii) having an aggregate value, based on the closing price of our Shares

at the date of each grant, in excess of HK$5 million,

such further grant of options is required to be approved by our

Shareholders at a general meeting of our Company, with voting to be


– V-32 –

taken by way of poll. Our Company shall send a circular to our

Shareholders containing all information as required under the Listing

Rules in this regard. All connected persons of our Company shall abstain

from voting (except where any connected person intends to vote against

the proposed grant). Any change in the terms of an option granted to a

substantial Shareholder or an independent non-executive Director or any

of their respective associates is also required to be approved by our

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 a price sensitive

event of our Group has occurred or a price sensitive matter has been the

subject of a decision until such price sensitive information has been

announced pursuant to the requirements of the Listing Rules. In

particular, no options may be granted during the period commencing one

month immediately preceding the earlier of:

(i) the date of the Board meeting (as such date is first notified to the

Stock Exchange in accordance with the Listing Rules) for the

approval of our Company’s results for any year, half-year, quarterly

or other interim period (whether or not required under the Listing

Rules); and

(ii) the deadline for our Company to publish an announcement of the

results for any year, or half-year under the Listing Rules, or

quarterly or other interim period (whether or not required under the

Listing Rules).

(bb) Further to the restrictions in paragraph (aa) above, no option may be

granted to a Director on any day on which financial results of our

Company are published:

(i) during the period of 60 days immediately preceding the publication

date of the annual results or, if shorter, the period from the end of

the relevant financial year up to the publication date of the results;

and

(ii) during the period of 30 days immediately preceding the publication

date of the quarterly results and half-year results or, if shorter, the

period from the end of the relevant quarterly or half-year period up

to the publication date of the results.

(ix) Time of exercise of option

An option may be exercised in accordance with the terms of the Share Option

Scheme at any time during a period as the Board may determine which shall not

exceed ten years from the date of grant subject to the provisions of early termination

thereof.


– V-33 –

(x) Performance targets

Save as determined by the Board and provided in the offer of the grant of the

relevant options, there is no performance target which must be achieved before any

of the options can be exercised.

(xi) Ranking of Shares

Our Shares to be allotted upon the exercise of an option will be subject to all

the provisions of the Articles for the time being in force and will rank pari passu in

all respects with our fully paid Shares in issue on the date of allotment and

accordingly will entitle the holders to participate in all dividends or other

distributions paid or made after the date of allotment other than any dividend or

other distribution previously declared or recommended or resolved to be paid or

made with respect to a record date which shall be on or before the date of allotment,

save that our Shares allotted upon the exercise of any option shall not carry any

voting rights until the name of the grantee has been duly entered on the register of

members of our 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

grantee of 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 which

would be a ground for termination of employment referred to in (xiv) below arises

within a period of three years prior to the death, in the case the grantee is an

employee at the date of grant), the legal personal representative(s) of the grantee

may exercise the option up to the grantee’s entitlement (to the extent which has

become exercisable and not already exercised) within a period of 12 months

following his death provided that where any of the events referred to in (xvii), (xviii)

and (xix) occurs prior to his death or within such period of 12 months following his

death, then his legal personal representative(s) may so exercise 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 our Group at the date of grant

and he subsequently ceases to be an employee of our Group on any one or more of

the grounds that he has been guilty of serious misconduct, or has committed an act

of bankruptcy or has become insolvent or has made any arrangement or composition

with his or her creditors generally, or has been convicted of any criminal offence

involving his integrity or honesty or (if so determined by the Board) on any other

ground on which an employer would be entitled to terminate his employment at

common law or pursuant to any applicable laws or under the grantee’s service

contract with our Group, his option shall lapse automatically (to the extent not

already exercised) on the date of cessation of his employment with our Group.


– V-34 –

(xv) Rights on cessation of employment for other reasons

In the event that the grantee is an employee, a consultant or an adviser (as the

case may be) of a member of our Group at the date of grant and he subsequently

ceases to be an employee, a consultant or an adviser (as the case may be) of our

Group for any reason other than his death or the termination of his employment of

an employee or engagement of a consultant or an adviser (as the case may be) on one

or more of the grounds specified in (xiv) above, the option (to the extent not already

lapsed or exercised) shall lapse on the expiry of three months after the date of

cessation of such employment of an employee or engagement of a consultant or an

adviser (as the case may be) (which date will be in the case of an employee the last

actual working day, on which the grantee was physically at work with our Company

or the relevant member of our Group whether salary is paid in lieu of notice or not,

and in the case of a consultant or an adviser (as the case may be), the last actual day

of providing consultancy or advisory services to the relevant member of our Group).

(xvi) Effects of alterations to share capital

In the event of any alteration in the capital structure of our Company whilst any

option remains exercisable, whether by way of capitalisation of profits or reserves,

rights issue, open offer, consolidation, subdivision or reduction of the share capital

of our Company (other than an issue of Shares as consideration in respect of a

transaction to which any member of our Group is a party), such corresponding

adjustments (if any) shall be made in the number of Shares subject to the option so

far as unexercised; and/or the subscription prices, as the auditors of or independent

financial adviser to our Company shall certify or confirm in writing (as the case may

be) to the Board to be in their opinion fair and reasonable in compliance with the

relevant provisions of the Listing Rules, or any guideline or supplemental guideline

issued by the Stock Exchange from time to time, provided that any alteration shall

give a grantee, as near as possible, the same proportion of the issued share capital

of our Company as that to which he was previously entitled, but no adjustment shall

be made to the effect of which would be to enable a Share to be issued at less than

its nominal value.

(xvii) Rights on a general offer

In the event of a general offer (whether by way of takeover offer or scheme of

arrangement or otherwise in like manner) being made to all our Shareholders (or all

such holders other than the offeror and/or any persons controlled by the offeror and/

or any person acting in association or concert with the offeror) and such offer

becoming or being declared unconditional, the grantee (or, as the case may be, his

legal personal representative(s)) shall be entitled to exercise the option in full (to the

extent not already lapsed or exercised) at any time within one month after the date

on which the offer becomes or is declared unconditional.


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(xviii) Rights on winding-up

In the event a notice is given by our Company to our members to convene a

general meeting for the purposes of considering, and if thought fit, approving a

resolution to voluntarily wind-up our Company, our Company shall on the same date

as or soon after it despatches such notice to each member of our Company give

notice thereof to all grantees and thereupon, each grantee (or, as the case may be,

his legal personal representative(s)) shall be entitled to exercise all or any of his

options at any time not later than two Business Days prior to the proposed general

meeting of our Company by giving notice in writing to our Company, accompanied

by a remittance for the full amount of the aggregate subscription price for our Shares

in respect of which the notice is given whereupon our Company shall as soon as

possible and, in any event, no later than the Business Day immediately prior to the

date of the proposed general meeting referred to above, allot the relevant Shares to

the grantee credited as fully paid.

(xix) Rights on compromise or arrangement

In the event of a compromise or arrangement between our Company and our

Shareholders or the creditors of our Company being proposed in connection with a

scheme for the reconstruction of our Company or its amalgamation with any other

company or companies pursuant to the Companies Law, our Company shall give

notice thereof to all the grantees (or, as the case may be, their legal personal

representatives) on the same day as it gives notice of the meeting to our

Shareholders or the creditors to consider such a compromise or arrangement and the

options (to the extent not already lapsed or exercised) shall become exercisable in

whole or in part on such date not later than two Business Days prior to the date of

the general meeting directed to be convened by the court for the purposes of

considering such compromise or arrangement (“Suspension Date”), by giving notice

in writing to our Company accompanied by a remittance for the full amount of the

aggregate subscription price for our Shares in respect of which the notice is given

whereupon our Company shall as soon as practicable and, in any event, no later than

3:00 p.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 from the Suspension Date, the rights of all grantees to exercise their

respective options shall forthwith be suspended. Upon such compromise or

arrangement becoming effective, all options shall, to the extent that they have not

been exercised, lapse and determine. The Board shall endeavour to procure that our

Shares issued as a result of the exercise of options hereunder shall for the purposes

of such compromise or arrangement form part of the issued share capital of our

Company on the effective date thereof and that such Shares shall in all respects be

subject to such compromise or arrangement. If for any reason such compromise or

arrangement is not approved by the court (whether upon the terms presented to the

court or upon any other terms as may be approved by such court), the rights of

grantees to exercise their respective options shall with effect from the date of the


– V-36 –

making of the order by the court be restored in full but only up to the extent not

already exercised and shall thereupon become exercisable (but subject to the other

terms of the Share Option Scheme) as if such compromise or arrangement had not

been proposed by our Company and no claim shall lie against our Company or any

of its 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 willful default on the part of our Company or any of our 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 our Company’s right to cancel,

revoke or terminate the option on the ground that the grantee commits a

breach of paragraph (xii);

(cc) the expiry of the relevant period or the occurrence of the relevant event

referred to in paragraphs (xiii), (xv), (xvii), (xviii) or (xix) above;

(dd) subject to paragraph (xviii) above, the date of the commencement of the

winding-up of our Company;

(ee) the occurrence of any act of bankruptcy, insolvency or entering into of

any arrangements or compositions with his creditors generally by the

grantee, or conviction of the grantee of any criminal offence involving his

integrity or honesty;

(ff) where the grantee is only a substantial shareholder of any member of our

Group, the date on which the grantee ceases to be a substantial

shareholder of such member of our 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 becomes effective.

(xxi) Cancellation of options granted but not yet exercised

Any cancellation of options granted but not exercised may be effected on such

terms as may be agreed with the relevant grantee, as the Board may in its absolute

discretion sees fit and in manner that complies with all applicable legal requirements

for such cancellation.

(xxii) Period of the Share Option Scheme

The Share Option Scheme will remain in force for a period of ten years

commencing on the date on the Adoption Date and shall expire at the close of

business on the Business Day immediately preceding the tenth anniversary thereof

unless terminated earlier by the Shareholders in general meeting.


– V-37 –

(xxiii) Alteration to the Share Option Scheme

(aa) The Share Option Scheme may be altered in any respect by resolution of

the Board except that alterations of the provisions of the Share Option

Scheme which alters to the advantage of the grantees of the options

relating to matters governed by Rule 17.03 of the Listing Rules shall not

be made except with the prior approval of the Shareholders in general

meeting.

(bb) Any amendment to any terms and conditions of the Share Option Scheme

which are of a material nature or any change to the terms of options

granted, or any change to the authority of the Board in respect of

alteration of the Share Option Scheme must be approved by Shareholders

in general meeting except where the alterations take effect automatically

under the existing terms of the Share Option Scheme.

(cc) Any amendment to any terms of the Share Option Scheme or the options

granted shall comply with the relevant requirements of Chapter 17 of the

Listing Rules.

(xxiv) Termination to the Share Option Scheme

Our Company by resolution in general meeting or the Board may at any time

terminate the operation of the Share Option Scheme and in such event no further

options will be offered but options granted prior to such termination shall continue

to be valid and exercisable in accordance with provisions of the Share Option

Scheme.

(xxv) Conditions of the Share Option Scheme

The Share Option Scheme is conditional upon the Listing Committee granting

the listing of, and permission to deal in, our Shares which may be issued pursuant

to the exercise of any options which may be granted under the Share Option Scheme.

(c) Present status of the Share Option Scheme

Application has been made to the Listing Committee for the listing of and

permission to deal in 40,000,000 Shares which fall to be issued pursuant to the exercise

of options which may be granted under the Share Option Scheme.

As at the date of this prospectus, no option has been granted or agreed to be granted under

the Share Option Scheme.


– V-38 –

E. OTHER INFORMATION

1. Tax and other indemnities

Mr. Guo and Sheentai BVI (collectively, the “Indemnifiers”) have, under a deed of

indemnity referred to in paragraph (j) of the sub-section headed “Summary of material

contracts” in this appendix, given joint and several indemnities to our Company for ourselves

and as trustee for our subsidiaries in connection with, among other things, (a) any liability for

Hong Kong estate duty which might be payable by any member of our Group under or by virtue

of the provisions of section 35 and/or section 43 of the Estate Duty Ordinance (Chapter 111 of

the Laws of Hong Kong) or any other similar legislation in Hong Kong or any part of the world

by reason of death of any person at any time and by reason by the transfer of property to any

member of our Group on or before the date on which the Share Offer becomes unconditional;

(b) any taxation which might be payable by any member of our Group (i) in respect of or by

reference to any income, profits or gains earned, accrued or received or alleged to have been

earned, accrued or received on or before the date on which Share Offer becomes unconditional;

or (ii) in respect of or in consequence of any acts, omissions, transactions, matters or things

entered into or occurring or deemed to enter into or occur on or before the date on which the

Share Offer becomes unconditional; (c) any penalties, claims, actions, demands, proceedings,

actions (without limitation to any legal costs), judgments, losses, liabilities, damages, costs,

administrative or other charges, fees, expenses and fines of whatever nature which may be

imposed on or suffered by or incurred by any member of our Group as a result of directly or

indirectly or in connection with (i) non-compliance of any requirements of social insurance

contributions and housing provident funds by any members of our Group under the laws and

regulations in the PRC or (ii) default, failure or delay in obtaining environmental protection

facilities approval and/or construction completion approval by any members of our Group as

required under the laws and regulations in the PRC, in each case, on or before the date on

which the Share Offer becomes unconditional except provision, reserve or allowance has been

made for such liabilities in the audited combined financial statements of our Group for the

Track Record Period; and (d) any claims, actions, demands, proceedings, judgments, losses,

liabilities, damages, costs, charges, fees, expenses and fines of whatever nature suffered or

incurred by any member of our Group as a result of or in connection with any litigation,

arbitrations, claims (including counter-claims), complaints, demands and/or legal proceedings

instituted by or against any member of our Group in relation to events occurred on or before

the date on which the Share Offer becomes unconditional and not disclosed in this prospectus.

The Indemnifiers will, however, not be liable under the deed of indemnity for taxation to the

extent that, among others:

(a) specific provision, reserve or allowance has been made for such taxation liability in

the audited combined financial statements of any member of our Group for the Track

Record Period; or


– V-39 –

(b) the taxation liability arises or is incurred as a result of a retrospective change in law

or a retrospective increase in tax rates coming into force after the date on which the

Share Offer becomes unconditional; or

(c) the taxation liability arises in the ordinary course of business of our Group after 31

December 2011 up to and including the date on which the Share Offer becomes

unconditional.

Our Directors have been advised that no material liability for estate duty under the laws

of the Cayman Islands or the PRC is likely to fall on our Group.

2. Litigation

As at the Latest Practicable Date, no member of our Group was engaged in any litigation

or arbitration of material importance and no litigation or claim of material importance is known

to our Directors to be pending or threatened against any member of our Group.

3. Sole Sponsor

The Sole Sponsor has, on behalf of our Company, made an application to the Stock

Exchange for the listing of, and permission to deal in, our Shares in issue and to be issued as

mentioned herein and our Shares falling to be issued pursuant to the exercise of any Pre-IPO

Share Options, options that may be granted under the Share Option Scheme and the exercise

of the Over-allotment Option.

The Sole Sponsor has confirmed to the Stock Exchange that it satisfies the independence

test as stipulated under Rule 3A.07 of the Listing Rules.

4. Preliminary expenses

The preliminary expenses of our Company are estimated to be approximately HK$37,000

and are payable by our Company.

5. Promoter

Our Company has no promoter for the purpose of the Listing Rules.


– V-40 –

6. Qualifications of experts

The following are the qualifications of the experts who have given opinion or advice

which are contained in this prospectus:

Name Qualifications

Haitong International Capital

Limited

A licensed corporation under the SFO permitted to

engage in type 6 regulated activity (as defined

under the SFO)

Jingtian & Gongcheng Registered law firm in the PRC

KPMG Certified Public Accountants

Greater China Appraisal Limited Property Valuer

Appleby Cayman Islands attorneys-at-law

7. Consents of experts

Each of Haitong International Capital Limited, Jingtian & Gongcheng, KPMG, Greater

China Appraisal Limited and Appleby has given and has not withdrawn its written consent to

the issue of this prospectus with the inclusion of its reports and/or letter and/or opinion and/or

valuation certificate and/or summary thereof (as the case may be) and/or reference to its name

included herein in the form and context in which it is respectively included.

8. Binding effect

This prospectus shall have the effect, if an application is made in pursuance hereof, of

rendering all persons concerned bound by all the provisions (other than penal provisions) of

sections 44A and 44B of the Companies Ordinance so far as applicable.

9. Taxation of holders of Shares

(a) Hong Kong

Dealings in Shares registered on our Company’s Hong Kong branch register of

members will be subject to Hong Kong stamp duty.

(b) Cayman Islands

No stamp duty is payable in the Cayman Islands on transfer of shares of Cayman

Islands companies except those which hold interests in land in the Cayman Islands.


– V-41 –

(c) Consultation with professional advisers

Intending holders of our Shares are recommended to consult their professional

advisers if they are in any doubt as to the taxation implications of subscribing for,

purchasing, holding or disposing of or dealing in our Shares. It is emphasised that none

of our Company, our Directors or other parties involved in the Share Offer accepts

responsibility for any tax effect on, or liabilities of holders of Shares resulting from their

subscription for, purchase, holding or disposal of or dealing in Shares.

10. No material adverse change

Our Directors confirm that there has not been any material adverse change in the financial

or trading position or prospects of our Group since 31 December 2011 (being the date to which

the latest audited combined financial statements of our Group were made up).

11. Miscellaneous

(a) Save as disclosed in this prospectus, within the two years immediately preceding the

date of this prospectus:

(i) no share or loan capital of our Company or any of the subsidiaries has been

issued or agreed to be issued fully or partly paid either for cash or for a

consideration than cash;

(ii) no commissions, discounts, brokerages or other special terms have been

granted in connection with the issue or sale of any capital of our Company or

any of the subsidiaries and no commission has been paid or is payable in

connection with the issue or sale of any capital of our Company or any of the

subsidiaries;

(iii) no commission has been paid or is payable for subscribing or agreeing to

subscribe, or procuring or agreeing to procure subscriptions, for any shares or

debenture of any of our Company or our subsidiaries; and

(iv) no share or loan capital of our Company or any of the subsidiaries is under

option or is agreed conditionally or unconditionally to be put under option.

(b) Neither our Company nor any of the subsidiaries has issued or agreed to issue any

founders shares, management shares, deferred shares or any debentures.

(c) Save as disclosed in the section headed “Underwriting” in this prospectus, none of

the parties listed in the paragraph headed “Consents of experts” in this appendix is

interested legally or beneficially in any securities of our Company or any of our

subsidiaries; or has any right or option (whether legally enforceable or not) to

subscribe for or to nominate persons to subscribe for securities of our Company or

any of our subsidiaries.


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(d) The branch register of members of our Company will be maintained in Hong Kong

by our Hong Kong Branch Share Registrar. Unless our Directors otherwise agree, all

transfer and other documents of title of Shares must be lodged for registration with

and registered by our Hong Kong Branch Share Registrar and may not be lodged in

the Cayman Islands. All necessary arrangements have been made to ensure our

Shares to be admitted into CCASS for clearing and settlement.

(e) There has not been any interruption in the business of our Group which may have

or have had a significant effect on the financial position of our Group in the 12

months immediately preceding the date of this prospectus.

(f) No company within our Group is presently listed on any stock exchange or traded

on any trading system.

(g) We have no outstanding convertible debt securities.

(h) Our Directors have been advised that, under Cayman Islands law, the use of a

Chinese name pre-approved by the Registrar of Companies in the Cayman Islands

by our Company in conjunction with the English name does not contravene Cayman

Islands law.

(i) The English text of this prospectus shall prevail over the Chinese text.

12. Bilingual Prospectus

The English language and Chinese language versions of this prospectus are being

published separately in reliance upon the exemption provided in section 4 of the Companies

Ordinance (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 the copy of this prospectus delivered to the Registrar of

Companies in Hong Kong for registration were (a) copies of the Application Forms; (b) the

written consents referred to in the paragraph headed “Consents of experts” in Appendix V to

this prospectus; and (c) copies of the material contracts referred to in the paragraph headed

“Summary of material contracts” in Appendix V to this prospectus.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Loong

& Yeung at Suites 2001 – 2005, 20th Floor, Jardine House, 1 Connaught Place, Central, Hong

Kong, during normal business hours up to and including the date which is 14 days from the date

of this prospectus:

(a) the Memorandum and the Articles;

(b) the accountants’ report of our Group dated the date of this prospectus prepared by

KPMG, the text of which is set out in Appendix I to this prospectus;

(c) the audited combined financial statements of our Group for the three financial years

ended 31 December 2011;

(d) the report on unaudited pro forma financial information issued by KPMG, the text

of which is set out in Appendix II to this prospectus;

(e) the letter, summary of values and valuation certificates relating to the property

interests of our Group prepared by Greater China Appraisal Limited, the text of

which is set out in Appendix III to this prospectus;

(f) the PRC legal opinions issued by Jingtian & Gongcheng, our PRC Legal Advisers;

(g) the letter of advice prepared by Appleby summarising certain aspects of Cayman

Islands company law referred to in Appendix IV to this prospectus;

(h) the Companies Law;

(i) the rules of the Pre-IPO Share Option Scheme;

(j) the full list of grantees who have been granted the Pre-IPO Share Options to

subscribe for Shares under the Pre-IPO Share Option Scheme;

(k) the rules of the Share Option Scheme;

(l) the material contracts referred to in the paragraph headed “Summary of material

contracts” in Appendix V to this prospectus; and

(m) the written consents referred to in the paragraph headed “Consents of experts” in

Appendix V to this prospectus.

APPENDIX VI DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES

IN HONG KONG AND AVAILABLE FOR INSPECTION

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Documents

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