華億金控集團有限公司 sinofortune financial ...ecobeauty co., ltd), a limited liability...

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker,

a licensed dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Sinofortune Financial Holdings Limited (the “Company”), you should

at once hand this circular with the enclosed form of proxy to the purchaser or transferee or to the bank, stockbroker or other

agent through whom the sale was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for

the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability

whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

華億金控集團有限公司SINOFORTUNE FINANCIAL HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 08123)

MAJOR TRANSACTION IN RELATION TO

THE PROPOSED ADDITIONAL CAPITAL CONTRIBUTION TOJOINT VENTURE COMPANY

ANDNOTICE OF EXTRAORDINARY GENERAL MEETING

A letter from the Board is set out on pages 4 to 32 of this circular.

A notice convening the EGM to be held at 10:00 a.m. on Monday, 9 April 2018 at 4/F., Allied Kajima Building, 138

Gloucester Road, Wanchai, Hong Kong is set out on pages EGM-1 to EGM-2 of this circular. Whether or not you intend

to attend the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed

thereon and return the same to the Company’s branch share registrar and transfer office in Hong Kong, Hong Kong

Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible but

in any event not less than 48 hours before the time scheduled for the EGM or any adjournment thereof. The completion and

return of the form of proxy will not preclude you from attending or voting in person at the EGM or any adjourned meeting

thereof should you so wish.

This circular will remain on the “Latest Company Announcement” page of the GEM website at www.hkgem.com for at least

seven days from the date of its posting and on the website of the Company at www.sinofortune.hk.

19 March 2018

CHARACTERISTICS OF GEM OF THE STOCK EXCHANGE

– i –

GEM has been positioned as a market designed to accommodate small and mid-

sized companies to which a higher investment risk may be attached than other companies

listed on the Stock Exchange. Prospective investors should be aware of the potential risks

of investing in such companies and should make the decision to invest only after due and

careful consideration.

Given that the companies listed on GEM are generally small and mid-sized

companies, there is a risk that securities traded on GEM may be more susceptible to high

market volatility than securities traded on the Main Board and no assurance is given that

there will be a liquid market in the securities traded on GEM.

CONTENTS

– ii –

Page

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

APPENDIX I – FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . . I-1

APPENDIX II – ACCOUNTANT’S REPORT ON

THE JOINT VENTURE COMPANY . . . . . . . . . . . . . . . . . . . . . II-1

APPENDIX III – PRO FORMA FINANCIAL INFORMATION OF

THE ENLARGED GROUP

ASSUMING COMPLETION . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1

APPENDIX IV – GENERAL INFORMATION OF THE GROUP . . . . . . . . . . . . . . IV-1

NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EGM-1

DEFINITIONS

– 1 –

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

the following meanings:

“Announcement” the announcement of the Company dated 29 December 2017

relating to the Proposed Additional Capital Contribution

“Articles” The articles of association of the Joint Venture Company

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

“Board” the board of Directors

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

banks are generally open for business in Hong Kong

throughout their normal business hours

“Company” Sinofortune Financial Holdings Limited, a company

incorporated in the Cayman Islands with limited liability

and the issued Shares of which are listed on GEM (stock

code: 8123)

“Completion” completion of the Proposed Additional Capital Contribution

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

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

“EGM” the extraordinary general meeting of the Company to be

convened for the purpose of considering and, if thought fit,

approving the Proposed Additional Capital Contribution

“Enlarged Group” the Group immediately after the Completion

“GEM” the GEM of the Stock Exchange

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

“Group” the Company and its subsidiaries

DEFINITIONS

– 2 –

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

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

“Independent Third Party(ies)” third party(ies) who is/are independent of, and not

connected with, the Company and/or its connected persons

“Initial Capital Contribution” the initial capital contribution of RMB90,000,000 by the

Company to the Joint Venture Company on its formation on

2 August 2017

“Joint Venture Agreement” the joint venture agreement entered into between the

Company and the Joint Venture Partner on 4 July 2017 for

the formation of the Joint Venture Company

“Joint Venture Announcements” the announcements of the Company dated 4 July 2017 and

17 October 2017 relating to the entering into between the

Company and the Joint Venture Partner of the Joint Venture

Agreement and the formation of the Joint Venture Company

respectively

“Joint Venture Company” /

“Target Company”

重慶盛渝泓嘉國際貿易有限公司 ( t ransl i terated as

Chongqing Sheng Yu Hong Jia International Trading

Company Limited), a sino-foreign joint venture company

formed on 2 August 2017 which is 90% owned by the

Company and 10% owned by the Joint Venture Partner

“Joint Venture Partner” 深圳美麗生態股份有限公司 (transliterated as Shenzhen

Ecobeauty Co. , Ltd) , a l imited l iabi l i ty company

established in the PRC whose shares are listed on the

Shenzhen Stock Exchange under stock code 000010

“Latest Practicable Date” 12 February 2018 being the latest practicable date prior to

the printing of this circular for the purpose of ascertaining

certain information contained in this circular

“PRC” the People’s Republic of China

DEFINITIONS

– 3 –

“Proposed Additional

Capital Contribution”

the proposed additional contribution of RMB50,000,000

(equivalent to approximately HK$61,801,000) by the

Company to the registered capital of the Joint Venture

Company

“RMB” Renminbi, the lawful currency of the PRC

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

Laws of Hong Kong)

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

of the Company

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

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“%” per cent

LETTER FROM THE BOARD

– 4 –



(Stock code: 08123)

Executive Directors:

Mr. Wang Jiawei

(Chairman and Chief Executive Officer)

Ms. Lai Yuk Mui

Non-executive Directors:

Mr. Liu Runtong

Mr. James Beeland Rogers Jr.

Independent Non-executive Directors:

Professor Zhang Benzheng

Mr. Li Jianxing

Professor Chen Shu Wen

Registered office:

Cricket Square,

Hutchins Drive,

P.O. Box 2681,

Grand Cayman KY1-1111,

Cayman Islands

Head office and principal place of

business in Hong Kong:

16th Floor,

CMA Building,

No. 64-66 Connaught Road Central,

Hong Kong

19 March 2018

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION IN RELATION TO

THE PROPOSED ADDITIONAL CAPITAL CONTRIBUTION TOJOINT VENTURE COMPANY

ANDNOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the Joint Venture Announcements and the Announcement in relation

to, among other things, the entering into between the Company and the Joint Venture Partner of the

Joint Venture Agreement, the formation of the Joint Venture Company and the Proposed Additional

Capital Contribution.


– 5 –

On 2 August 2017, the Joint Venture Company was formed in Chongqing City, PRC to which

the Company had contributed 90% of its registered capital in the sum of RMB90,000,000.

The Company intends to make the Proposed Additional Capital Contribution to the Joint

Venture Company.

As one or more of the applicable percentage ratios (as defined under the GEM Listing

Rules) of the Proposed Additional Capital Contribution when aggregated with the Initial Capital

Contribution under Rule 19.22 of the GEM Listing Rules will exceed 25% but are less than 100%,

the Proposed Additional Capital Contribution will constitute a major transaction for the Company

and is therefore subject to the reporting, announcement and Shareholders’ approval requirements

under Chapter 19 of the GEM Listing Rules.

The purpose of this circular is to provide you with, among other things, (i) further

information on the Joint Venture Company and the Proposed Additional Capital Contribution; (ii)

accountants’ report of the Joint Venture Company; (iii) pro forma financial information on the

Enlarged Group assumption Completion; and (iv) notice of the EGM.

BACKGROUND

On 4 July 2017 the Company and the Joint Venture Partner entered into the Joint Venture

Agreement to form the Joint Venture Company in Chongqing City, PRC.

The Joint Venture Agreement

The principal terms of the Joint Venture Agreement are summarized below:

Date 4 July 2017.

Parties and shareholding ratio (1) the Company (90%); and

(2) the Joint Venture Partner (10%).

Name of the Joint Venture Company 重慶盛渝泓嘉國際貿易有限公司 (transliterated

as Chongqing Sheng Yu Hong Jia International

Trading Company Limited).


– 6 –

Purpose of the Joint Venture Company To strengthen economic cooperation through

advanced and scientific management methods to

open up market for economic benefits to allow

the joint venture parties to achieve satisfactory

economic benefits.

Registered capital of

the Joint Venture Company

RMB100,000,000.

Contribution to the registered capital of


The Company shall be responsible to contribute

90% of the registered capital of the Joint

Venture Company in the sum of RMB90,000,000

(equivalent to approximately HK$102,240,000

as at 4 July 2017) in cash and the Joint Venture

Partner shall be responsible to contribute 10%

of the registered capital of the Joint Venture

Company in the sum of RMB10,000,000 in cash.

The Company and the Joint Venture Partner shall

each make their own respective contribution

to the registered capital of the Joint Venture

Company within one year of its establishment.

Scope of business of


Sales of motor vehicles, motor vehicle parts

and motor vehicle products; sales of used motor

vehicles; motor vehicles rental (excluding motor

vehicles finance leasing); motor vehicles repair

and maintenance; motor vehicles insurance

agency; import, export and domestic trading

businesses; e-commerce business; international

f r e igh t fo rward ing se rv ices ; in fo rmat ion

consultancy (excluding restricted items); and

investment in industrial enterprises (specific

items will be separately disclosed).

Distribution of profits Profits of the Joint Venture Company shall be

distributed to the shareholders in accordance with

the shareholding proportions of the shareholders

in the Joint Venture Company.


– 7 –

Board composition The board of directors of the Joint Venture

Company will consist of three directors of whom

the Company is entitled to appoint two directors

and the Joint Venture Partner is entitled to appoint

one director. The chairman of the board of the

Joint Venture Company shall be appointed by the

Company and shall act as the legal representative

of the Joint Venture Company.

The vice chairman of the board of the Joint

Venture Company shall be appointed by the Joint

Venture Partner.

Each director of the Joint Venture Company shall

have one vote and decisions of the board of the

Joint Venture Company on matters within the

power of the board of the Joint Venture Company

under the Articles shall be made on a two-third

majority basis save that decisions of the board

of the Joint Venture Company on the following

matters shall be approved by the board of the

Joint Venture Company unanimously:–

– amendment to the Articles;

– provision of third-party guarantee;

– increase the registered capital of the Joint

Venture Company; and

– merger, spinoff, change of structure,

dissolution or liquidation, etc.

Term of operation of


50 years from the issuance of the business

license.


– 8 –

Other terms (1) If a party fails to perform the obligations

stipulated in the Joint Venture Agreement

and the Articles or seriously violates the

provisions of the Joint Venture Agreement

and/or the Articles so that the Joint Venture

Company cannot operate or cannot meet

the business purpose stipulated in the

Joint Venture Agreement will constitute

a breach of the Joint Venture Agreement

and the innocent party shall have the right

to terminate the Joint Venture Agreement

and to claim damages from the defaulting

party.

(2) If a party intends to transfer all or part

of its shareholding in the Joint Venture

Company, it shall obtain the written

approval of the other party and the other

party shall have a pre-emptive right on the

shareholding intended to be transferred.

(3) The Joint Venture Company shall have

a supervisory committee made up of

three members of whom two shall be

appointed by the Company and one shall

be appointed by the Joint Venture Partner.

The supervisory committee shal l be

responsible for, among other things, the

monitoring of the Joint Venture Company’s

finance information and the supervision of

the directors and senior executives of the

Joint Venture Company in discharging their

duties.

(4) The Joint Venture Agreement shall be

governed by the laws of the PRC.


– 9 –

The Joint Venture Partner

To the best of the Directors’ knowledge, information and belief having made all reasonable

enquiry, the Joint Venture Partner and its ultimate beneficial owners are third parties independent of

the Group and connected persons of the Group.

INFORMATION ON THE JOINT VENTURE COMPANY

Formation of the Joint Venture Company

The Joint Venture Company was formed on 2 August 2017 in Chongqing City, PRC and

is licensed to carry out the businesses of sales of motor vehicles, motor vehicle parts and motor

vehicle products; motor vehicles rental (excluding motor vehicles finance leasing, passenger

vehicles transportation rental and road passenger and freight transport operations); international

freight forwarding services; import and export businesses; motor vehicles information consultancy

(excluding restricted items); motor vehicles repair and maintenance (for business items that

require approval, shall only be carried out after obtain approvals) and agency for motor vehicles

registration, transfer and scrap procedures for 50 years from 2 August 2017 until 1 August 2067.

Capital contribution

Following the formation of the Joint Venture Company, the Company had made the Initial

Capital Contribution and the Joint Venture Partner had made its capital contributions to the Joint

Venture Company of RMB10,000,000 pursuant to the Joint Venture Agreement respectively.

Board of directors and senior management

The Joint Venture Company has three directors, two of whom are appointed by the Company

and the remaining one appointed by the Joint Venture Partner.

Name Title

Date of joining the

Joint Venture Company

Role and

responsibilities

Mr. Wang Jiawei（王嘉偉） Chairman of the board

and legal representative

August 2017 Responsible for overall

strategic planning and

business direction

Mr. Wang Rui（王銳） Vice chairman of

the board

August 2017 Responsible for overall

strategic planning and

business direction


– 10 –

Name Title

Date of joining the


Role and

responsibilities

Mr. Yang Wei（楊威） Director and

vice general manager

August 2017 Responsible for

overseeing day to day

operations and finance

division

Mr. Zeng Wei（曾偉） General manager September 2017 Responsible for

overseeing import and

export activities and

sales operations

Ms. Lan Hang（藍航） Vice general manager September 2017 Responsible for

overseeing day to

day operations and

management

Mr. Wang Jiawei（王嘉偉）is the chairman, chief executive officer and executive director

of the Company. Mr. Wang is the chairman and legal representative of the Joint Venture Company.

Mr. Wang obtained a Bachelor of Science in Mathematics at Imperial College London in the United

Kingdom in 2009 and a Master of Science in Finance at City University London in the United

Kingdom in 2010. From October 2010 to July 2011, he was a market analyst of the investment

department in Shenzhen Shouguan Investment Co., Limited. Since August 2011, Mr. Wang has been

a manager of Sinofortune Securities Limited, a subsidiary of the Company. Mr. Wang Jiawei has

extensive experience in project management and is responsible for the overall strategic planning and

business direction of the Joint Venture Company.

Mr. Wang Rui（王銳）is the vice chairman of the Joint Venture Company. Prior to joining

the Joint Venture Company, Mr. Wang held position as trading manager of China Electronics

Engineering Construction Development Company (Hainan Branch)（中國電子工程建設開發公司海南公司）, director of Haikou Zhouhai Trading Company（海口市洲海貿易公司）, chief

executive officer of Shenzhen Huaxin Company Limited（深圳市華新股份有限公司）, general

manager and chief financial officer of Beijing Shenhuaxin Company Limited（北京深華新股份有限公司）. He is currently the director of Beijing Shenhuaxin Company Limited（北京深華新股份有限公司）. Mr. Wang is responsible for overall strategic planning and business direction of the

Joint Venture Company.


– 11 –

Mr. Yang Wei（楊威）is the director and vice general manager of the Joint Venture Company.

Mr. Yang obtained a Bachelor of International Economic Law in Shenzhen University in 2001 and

he is a candidate of Master of Business Administration in Beijing University Guanghua School of

Management. From 2001 to 2004, he was a manager in the sales department in Ping An Insurance

(Group) Company Of China Ltd Shenzhen Branch. From 2004 to 2005, he was an executive

manager in Shenzhen Erdos Asset Management Company Limited（深圳市鄂爾多斯資產管理有限公司）. From 2005 to 2009, he was an executive manager in Shenzhen Yibaohua Industrial

Company Limited（深圳市益寶華實業有限公司）. From 2010 to 2013, he was a manager in the

legal department of Guangdong Brightzone Securities Investment Company Limited (Shenzhen

Branch)（廣東博眾證券投資咨詢有限公司深圳分公司）. From 2013 to 2014, he was a

compliance manager of Shenzhen Guoyin Brilliant Precious Metals Limited（深圳國銀盛世貴金屬經營有限公司）. From 2014 to 2015 he was an assistant to president and compliance manager

of Shenzhen Qianhai First China International Commodities Exchange Centre Limited（深圳前海首華國際商品交易中心有限公司）. He currently a vice general manager of Shenzhen Tianze

Capital Investment Company Limited（深圳市天澤資本投資有限公司）. Mr. Yang has extensive

experience in sales operation and corporate compliance matters is responsible for overseeing day to

day operations and finance division of the Joint Venture Company.

Mr. Zheng Wei（曾偉）is the general manager of the Joint Venture Company. Mr. Zheng

obtained his tertiary degree in infrastructure finance in 1991 and Master in Business Administration

(Sociology) in Beijing University in 2001. From 1991 to 1999, he was a credit section leader of

China Construction Bank. From 1999 to 2006, he was a senior vice manager of China Cinda Assets

Management Company Limited, Chongqing Branch. From 2006 to 2008, he was a branch manager

of Shenzhen Zhongrong Insurance Brokers Company Limited (Chongqing Branch)（深圳中融保險經濟有限公司）. From 2008 to 2011, he was the Chongqing district manager of Chongqing

Shenhuaxin Investment Company Limited（重慶市深華新投資有限公司）. From 2011 to 2014,

he was the general manager and managing director of China Finance Leasing Company Limited

(Chongqing Branch)（中國融資租賃有限公司重慶分公司）. From 2014 to 2016, he was the

general manager of Chongqing Wanlong Finance Leasing Company Limited（重慶萬隆融資租賃有限公司）. From 2016 to 2017, he was the general manager of Zhongken Finance Leasing

Corporation（中墾融資租賃股份有限公司）, responsible for the trading of parallel imported

vehicles. Mr. Zheng is responsible for overseeing import and export activities and sales operations

in the Joint Venture Company.


– 12 –

Ms. Lan Hang（藍航）is the vice general manager of the Joint Venture Company. Ms. Lan

obtained her tertiary degree in Chinese literature in Southwest China Normal University（西南師範大學）in 1994 and Bachelor in Business Administration in China Central Radio & Television

University（中央廣播電視大學）in 2008. From 1996 to 2001, she was the executive manager in

Sichuan Taiji Pharmaceutical Company Limited（四川太極製藥公司）. From 2001 to 2003, she

was the executive manager in Chongqing Financing Equipment Installation Engineering Company

（重慶融資設備安裝工程公司）. From 2003 to 2008, she was the client development manager,

executive manager and human resources manager in METRO Jinjiang Cash & Carry Company

Limited (Chongqing Branch)（錦江麥德龍現購自運有限公司）. From 2008 to 2011, she was the

vice general manager of Chongqing Beisiji Commercial Trading Company Limited（重慶倍斯吉商貿有限公司）. From 2011 to 2014, she was the managing director and responsible person of

the comprehensive department of China Finance Leasing Company Limited (Chongqing Branch)

（中國融資租賃有限公司重慶分公司）. From 2014 to 2016, she was the head of executive, head

of market finance and company to the board of director of Chongqing Wanlong Finance Leasing

Company Limited（重慶萬隆融資租賃有限公司）. From 2016 to 2017, she was the head of

finance department of Zhongken Finance Leasing Corporation（中墾融資租賃股份有限公司）and

she was also responsible for the trading of parallel imported vehicles. Ms. Lan is responsible for

overseeing day to day operations and management in the Joint Venture Company.

Mr. Zheng Wei and Ms. Lan Hang have prior experience in trading of parallel imported

vehicles before joining the Joint Venture Company and have a wide network of business and

working relationships in the industry of trading of parallel imported vehicles. They play a vital

role in leading the sales business in the Joint Venture Company and have assisted the board of the

directors of the Joint Venture Company with their expertise.

Business model

Since Shanghai Free Trade Zone became the first place in the PRC authorizing dealers to

parallel import motor vehicles directly from overseas into the PRC in the beginning of 2015, the

numbers of parallel imported motor vehicles in the PRC have growth significantly. According to

data reported in a feature report dated 21 August 2017 entitled “Pingxing Ce•Report | Analysis on

the information of parallel imported motor vehicles for the first half of 2017 released, this free

trade zone accounts for 70%” (“平行策 •報告 | 2017年上半年平行進口車資料分析報告出爐這家自貿區獨佔七成”) published by the National Business Daily（每日經濟新聞）*, in the first 6

months of 2017, the number of parallel imported motor vehicles was 81,649, an increase of 49.7%

over the same period of 2016 and accounting for 14.1% of the total imported motor vehicles in the

PRC, up from 12.7% in 2016. Parallel imports refers to motor vehicles that are being imported by

traders into the PRC for sale without the authorisation of the manufacturer and is in competition

with the motor vehicles imported into the PRC for sale through dealers that are authorised by the

manufacturer. The costs of parallel imported motor vehicles are generally lower and hence they can

be offered to customers at a lower price than those offered by the authorized dealers in the PRC.

* National Business Daily（每日經濟新聞）is a financial integrated media platform providing financial and corporate

news in the PRC who had jointly published studies with Tsinghua University School of Economics and Management

（清華大學經濟管理學院）


– 13 –

The Joint Venture Company carries out its business as proprietary trader where it parallel

imports motor vehicles of its own choice and sells to its own customers. The Joint Venture

Company will study the demands of the imported motor vehicles market in the PRC and will target

at those models that have good profit margins and demands. Since its formation, the Joint Venture

Company has mostly been targeting on the segment of mid to high range European and Japanese

sport utility vehicles (“SUV”) of the PRC market and has been parallel importing models like

Patrol manufactured by Nissan and Evoque Sports manufactured by Range Rover into the PRC. The

Joint Venture Company has also imported a small number of other models of SUV like GLS450

manufactured Mercedes Benz and Evoque manufactured by Range Rover into the PRC. The Joint

Venture Company will earn its profits from the difference between the sale price of the motor

vehicles and the cost for importing them into the PRC.

The Company and the Joint Venture Partner decided to set up the Joint Venture Company in

Chongqing City because of its strategic location at the terminus of the Chongqing-Xinjiang-Europe

International Railway（渝新歐鐵路）which offers an alternative route of transporting goods from

Europe into the PRC by land in addition to the traditional route of transporting goods from Europe

into the PRC by sea as well as the favourable policies and incentives offered by the Chongqing City

authorities to import and export businesses under the Silk Road Economic Belt and the 21st-century

Maritime Silk Road, better known as the One Belt and One Road Initiative (“OBOR”) proposed by

the central government of the PRC.

The Joint Venture Company is located in the China (Chongqing) Pilot Free Trade Zone

（重慶自貿試驗區）which offers a series of staggered subsidies policies of up to a maximum of

RMB9,000 per vehicle. Moreover, the Joint Venture Company is also the only business within the

motor vehicle import and export category under the Chongqing City Open-up Inland and Highland

Development Trade Fair Project（重慶市內陸開放高地建設招商項目）under which subsidies

of up to RMB6,500 per vehicle are offered by government authorities of various levels. Since

the formation of the Joint Venture Company until the Latest Practicable Date it has applied to

the Chongqing City authorities for subsidies for a total of 227 imported motor vehicles and has

received total subsidies of approximately RMB1.4 million.

Moreover, under the “3 + N” Scheme（“3 + N”機制）, meaning “Government + State Owned

Foreign Trade Groups + Banks” scheme run by the Chongqing City government as an incentive to

promote import and export trade under OBOR, when the Joint Venture Company opens letter of

credit to overseas manufacturer to import motor vehicles with banks participating the scheme, the

banks will provide discount subsidies of up to 1% of the amount of the letter of credit to the Joint

Venture Company, hence, further reducing its cost.


– 14 –

Major suppliers

The table below sets out the business scope of the Joint Venture Company’s top 3 suppliers

during the period commencing from its formation and up to 31 January 2018:–

Supplier Business activities

Percentage by

reference to

cost of sales

Percentage by

reference to

number of

vehicles purchased

Credit terms

and payment

method

Supplier A The sole distributor of Nissan

motor vehicles in a country and

region in the Middle East

86% 91% No credit term

By irrevocable letter of credit at sight

Supplier B A supplier of Land Rover motor

vehicles in Germany



Supplier C A supplier of Land Rover motor

vehicles in the United Kingdom



The Joint Venture Company has not entered into any long-term supply agreement with its

suppliers that obliges the Joint Venture Company to commit to any minimum purchase from its

suppliers.


enquiry, all the above-mentioned major suppliers of the Joint Venture Company and their respective

ultimate beneficial owners are third parties independent of the Group and connected persons of the

Group.


– 15 –

Major customer

During the period commencing from its formation and up to 31 January 2018, the Joint

Venture Company had 1 major customer, which is a wholesaler and retailer of parallel imported

motor vehicles in the PRC. The table below sets out the business scope of the major customer:–

Customer

Percentage by

reference to revenue

Percentage by

reference to number

of vehicles sold Credit terms and payment method

Customer A 98% 98% No credit term

Customer shall pay the total price by cash

to Joint Venture Company within 5-15

days (as specified in the agreement)

after the signing of the agreement

The Joint Venture Company has not entered into any long-term sales agreement with

its customers that obliges the Joint Venture Company to commit to any minimum supply to its

customers.

Although the business activities of the above-mentioned major customer of the Joint Venture

Company are similar to those of the Joint Venture Company, the Joint Venture Company considers

that its business relationship with the said major customer in the short to medium term is one of

mutual benefit to both parties whereas on the one hand the said major customer has established

sales network which can help to provide the required level of demands for the sales of the Joint

Venture Company as a newly set up importer of parallel imported motor vehicles and save it from

having to invest heavily to build up its own sales team and sales channels and on the other hand

the business of trading in parallel imported motor vehicles requires substantial capital to which the

Joint Venture Company being subsidiary of the Company that is listed on GEM has an advantage of

being in a better position to obtain more favourable financing terms from banks and other financial

institutions and with the additional motor vehicles that the Joint Venture Company parallel imported

into the PRC that major customer can also increase its business volume. As the market of parallel

imported motor vehicles in the PRC is large enough to absorb the motor vehicles imported by both

the Joint Venture Company and the said major customer and many more, the Joint Venture Company

does not consider that it is in competition with the said major customer.


enquiry, all the above-mentioned major customer of the Joint Venture Company and its respective

ultimate beneficial owners are third parties independent of the Group and connected persons of the

Group.


– 16 –

Sale and marketing

As a newly set up company striving to establish a reputation in the market of parallel

imported motor vehicles and to obtain a significant market share, the Joint Venture Company has

been mainly targeting at motor vehicles wholesaler customers which are able to placed high volume

purchase orders with the Joint Venture Company. The Joint Venture Company’s pricing policy is to

add a profit sum on top of the imported cost of each motor vehicle and then offer a discount on the

profit sum by categorizing its customers in terms of their market influence and sales rates and larger

discount will be offered and more competitive prices will be offered to customers when they place

larger volume of purchase orders.

Risk management and internal control systems

The directors and senior management of the Joint Venture Company are responsible for

formulating its internal control measures and risk management system. The Joint Venture Company

adopts a series of internal control policies and procedures which require all employees to observe to

ensure smooth operations and minimise external and internal risk.

To minimize counterparty risk, the export and import department of the Joint Venture

Company will, according to the procurement management policy, conduct review on new potential

suppliers before entering into contractual relationship based on the following criteria:–

– background

– credibility

– compliance of law and regulations

– financial ability

– operational procedure

– source and quality of product

– opportunity to establish long term stable business relationship

– arrangements on exporting and importing


– 17 –

Every procurement proposal by the sales department will be reviewed by the sales

department itself, the export and import department, the operation department, the finance

department, the vice general manager and the general manager. The sales department will determine

whether the procurement proposal is reasonable and in line with the business strategy of the Joint

Venture Company. The export and import department will focus on shipment arrangement and time

required for delivery. The operation department will examine the risk involved in the fluctuation of

the exchange currency, financing costs, pricing and prepare costs and profit forecasts. The finance

department will review on sufficiency of resources for procurement expenses and cash flow.

The Joint Venture Company’s inventory asset management measures require its inventory

management personnel to inspect the quality of the goods received from suppliers before registering

to inventory, perform regular stock-taking and confirm with the operation department and finance

department that payment from customers has been received before dispatching the goods.

As a newly set up company, the Joint Venture Company has been relying heavily on the

established sales network of one major customer which can provide the required level of demands

for the Joint Venture Company’s motor vehicles instead of building up its own sales team to market

to retail customers directly which would be time consuming and costly.

In order to minimise concentration risk and expand its customer base, the Joint Venture

Company is in the progress of negotiating with 14 potential corporate customers who are also

wholesalers and retailers of motor vehicles in the PRC and will enter into binding contract upon

agreement on major terms.

The accounting and internal control personnel of the Company or other subsidiaries

of the Group that are independent from the operation of the Joint Venture Company will

conduct periodical internal checking and audit on the compliances and implementation of the

risk management and internal control systems adopted by the Joint Venture Company and the

effectiveness of such risk management and internal control systems.

Although the Board may not possess the expertise in the managing the business of the Joint

Venture Company, the Directors are satisfied that sufficient and effective risk management and

internal control systems are in place for the business carried out by the Joint Venture Company.

The Company has no current intention to appoint any members of the board of directors of

the Joint Venture Company to the Board or any current intention to change the composition of the

Board.


– 18 –

LEGAL AND REGULATORY

The Company has obtained a legal opinion from its PRC legal advisor Chong Qing Senswins

Law Firm（重慶盛世文輝律師事務所）on 10 February 2018 (the “Legal Opinion”) in relation to

the relevant laws and regulations governing imported goods and the legality of goods imported by

the Joint Venture Company.

According to the Legal Opinion, the relevant PRC laws and regulations are the PRC Customs

Law（中華人民共和國海關法）, PRC Import and Export Trade Law（中華人民共和國進出口貿易法）, PRC Import and Export Control Regulations（中華人民共和國貨物進出口管理條例）, PRC Import and Export Commodity Inspection Law（中華人民共和國進出口商品檢驗法）and PRC Import and Export Commodity Inspection Implementation Regulations（中華人民共和國進出口商品檢驗法實施條例）. Under the relevant laws and regulations, goods and technology

can be exported from and imported to the PRC freely subject to: (1) the type of imported goods

shall comply with the necessary requirements, prohibited types of goods shall not be imported

and prior approval shall be obtained for import of goods of restricted types; (2) import of goods

by traders dealing with overseas counterparty shall go through customs declaration and inspection

and all overseas procurement contracts, invoices, receipts and other documentation requested by

the customs authority shall be presented to the latter, goods not incompliance with the customs

requirements or not accompanied with complete documentation shall not be imported; and (3) all

licences, certificates, import and export documents shall be true and genuine.

Based on the information and documents provided by the Joint Venture Company, the

Legal Opinion also opines that (1) all goods imported by the Joint Venture Company since its

incorporation were whole vehicles complying with the requirements on types of imported goods;

and (2) up till the date of the Legal Opinion, in respect of all goods imported by the Joint Venture

Company, all normal customs declaration, inspection clearance procedures have been completed,

all necessary documentations such as overseas procurement contracts and receipts are true and

complete and in compliance with the with the relevant PRC laws and regulations governing import

and export trades.


– 19 –

FINANCIAL INFORMATION ON THE JOINT VENTURE COMPANY

The Joint Venture Company is newly formed on 2 August 2017.

According to the accountant’s report of the Joint Venture Company as set out in Appendix II

to this circular, set out below is the audited financial information of the Joint Venture Company as

prepared in accordance with Hong Kong Financial Reporting Standards for the period commencing

from 2 August 2017 (date of formation) and ended on 30 November 2017:

For the period

commencing from

2 August 2017 and

ended

30 November 2017

RMB’000

(audited)

Revenue –

Net loss before taxation (678)

Net loss after taxation (678)

According to the accountant’s report of the Joint Venture Company, it recorded an audited

net assets of approximately RMB99.3 million (equivalent to approximately HK$116.5 million) as at

30 November 2017.

MANAGEMENT DISCUSSION AND ANALYSIS OF THE JOINT VENTURE COMPANY

Set out below is the management discussion and analysis of the Joint Venture Company

for the period commencing from 2 August 2017 (date of its formation) to 30 November 2017

(the “Reporting Period”), which is based on detailed financial information of the Joint Venture

Company as set out in the accountants’ report in Appendix II to this circular.


– 20 –

Business review

The Joint Venture Company is principally engaged in sales of motor vehicles, motor

vehicle parts and motor vehicle products; motor vehicles rental (excluding motor vehicles

finance leasing, passenger vehicles transportation rental and road passenger and freight

transport operations); international freight forwarding services; import and export businesses;

motor vehicles information consultancy (excluding restricted items); motor vehicles repair

and maintenance (for business items that require approval, shall only be carried out after

obtain approvals) and agency for motor vehicles registration, transfer and scrap procedures.

During the Reporting Period, the Joint Venture Company had acquired motor vehicles

as inventory to be sold and has issued orders to acquire 138 motor vehicles in December

2017. The Target Company has sold 147 motor vehicles in December 2017.

Financial review

Revenue

During the Reporting Period, the Joint Venture Company did not record any revenue.

Administrative expenses

For the Reporting Period the administrative expenses of the Joint Venture Company

was approximately RMB603,978.

Finance costs

For the Reporting Period, the finance costs of the Joint Venture Company was

approximately RMB82,784.

Loss for the Reporting Period

Loss for the Reporting Period of the Joint Venture Company was approximately

RMB678,710.


– 21 –

Liquidity and financial resource

(i) As at 30 November 2017, cash and cash equivalents of the Joint Venture

Company amounted to approximately RMB15,666,744.

(ii) As at 30 November 2017, the current ratio (defined as total current assets

divided by total current liabilities) of the Joint Venture Company was

approximately 1091 times and the gearing ratio, being the ratio of the total

liabilities to total assets, was approximately 0.09%.

(iii) As at 30 November 2017, no plant and machinery of the Joint Venture Company

were held under finance lease.

Order book

For the Reporting Period, the Joint Venture Company had not yet received any order

for its proprietary trader business.

Capital commitment

The Joint Venture Company had no material capital commitment as at 30 November

2017.

Treasury policy

The Joint Venture Company had no formal treasury policy and did not enter into any

form of financial arrangement for hedging for the Reporting Period.

Exchange exposure

The Joint Venture Company is exposed to currency risk primarily through some

purchases that are denominated in a foreign currency, i.e. a currency other than the

functional currency of the operations to which the transactions relate. The currencies giving

rise to this risk are primarily Euros, United States Dollars and Japanese Yen. The Joint

Venture Company currently does not have a foreign currency hedging policy, however,

the management monitors foreign exchange exposure closely and will consider hedging

significant foreign currency exposure using forward exchange contracts should the need

arises.


– 22 –

Employees and remuneration policy

Remuneration for employees were maintained at a competitive level and determined

with reference to the general market condition and qualifications and experience of the

employees concerned. Employees’ salaries and wages for the Reporting Period was

approximately RMB91,131. As at 30 November 2017, the Joint Venture Company had 13

employees. Remuneration packages comprised salaries and defined contribution pension

fund. Apart from pension, discretionary bonus will also be granted to certain employees as

awards in accordance with individual performance. The Joint Venture Company has no share

option scheme.

Dividend

No dividend was declared during the Reporting Period.

Contingent liabilities

The Joint Venture Company did not have any material contingent liabilities as at 30

November 2017.

Significant investment

There was no significant investment held by the Joint Venture Company as at 30

November 2017.

Acquisitions and disposals of subsidiaries and affiliated company

The Joint Venture Company had no acquisitions or disposals of subsidiaries and

affiliated companies during the Reporting Period.


– 23 –

Charge on company assets

As at 30 November 2017, the Joint Venture Company transferred RMB70,480,140 as

pledged bank deposits for securing the letter of credit facility granted by its banker situated

in the PRC, for the purpose of buying the motor vehicles for sales.

Capital structure

The share capital of the Joint Venture Company was RMB100 million as at 30

November 2017.

Segment information

The Joint Venture Company principally engages in sales of motor vehicles in the PRC.

Management reviews the operating results of the business as one operating segment to make

decisions about resources to be allocated. The Chief Operating Decision Maker considers

that there is only one operating segment, which is used to make strategic decisions. The Joint

Venture Company did not have any revenue for the Reporting Period. As at 30 November

2017, all of the non-current assets were located in the PRC.

Future plans for material investment or capital assets

The Joint Venture Company has invested an amount of RMB9,000,000 in an

investment fund known as 財富寶 (transliterated as Cai Fu Bao) which is managed by China

Southern Asset Management Co., Ltd.（南方基金管理股份有限公司）in December 2017.

This investment fund bears floating return and can be refunded one day after instruction

given and is an ad hoc treasury placement of short term idle fund of the Joint Venture

Company and is not related to its principal business.


– 24 –

THE PROPOSED ADDITIONAL CAPITAL CONTRIBUTION

Prior to November 2017, the Joint Venture Company had mostly been targeting on the

segment of mid to high range European and Japanese SUV with 3,000 cc or bigger engines. Since

November 2017, the board of directors of the Joint Venture Company has adopted a new business

strategy and plan of targeting and concentrating in only 2 to 3 models of mid to low range European

and Japanese SUV with 3,000 cc or smaller engines and as Toyota Prado 2700, Nissan Patrol

and Mitsubishi Pajero which although command less expensive price tags but have higher market

demands. The Joint Venture Company has set a more aggressive sales target of 3,000 units for 2018

as compared with the sales target of 30 units for the 5 months from August to December 2017.

The table below sets out the newly adopted business plans of the Joint Venture Company

including sales target, time frame, capital expenditure and source of funding:–

Time frame

Sales target (units of

motor vehicles)Capital requirement (RMB) and

source of funding

1st quarter 2018 (from late

February to late April)

500 70 million Joint Venture Company’s own fund

80 million Bank credit facilities

20 million Financing from other financial

institutions by means of factoring or

financial leasing

Total: 170 million

2nd quarter 2018

(from May to July)





financial leasing

Total: 260 million

3rd quarter 2018

(from August to October)

1,000 70 million Joint Venture Company’s own fund




financial leasing

Total: 370 million

4th quarter 2018

(from November 2018 to

January 2019)





financial leasing

Total: 280 million


– 25 –

The Joint Venture Company shall make payments to its suppliers for the parallel imported

motor vehicles in accordance with the contracts. For further details of the credit terms and payment

methods of the Joint Venture Company with its major suppliers, please see the paragraph headed

“Major suppliers” in this circular.

If the sales target for 2018 could be achieved, it is estimated that the total sales would be

approximately RMB1 billion and the Joint Venture Company hopes that if the sales target for the

2 to 3 models of selected motor vehicles could be achieved, it would increase its bargaining power

on price with its suppliers or would allow it to approach and negotiate for purchases from the

manufacturer directly to lower its costs. In order to achieve the increased sales target under the new

business strategy and plan, the Joint Venture Company requires additional capital to finance the

increased number of motor vehicles to be purchased and imported by the Joint Venture Company to

shorten the transaction cycle for its motor vehicles.

On 9 November 2017 the board of directors of the Joint Venture Company had resolved

to increase the registered capital of the Joint Venture Company from RMB100,000,000 to

RMB150,000,000 and the Joint Venture Company had obtained approval for the increase of its

registered capital from RMB100,000,000 to RMB150,000,000 from the relevant government

authority of the PRC. The additional capital of RMB50,000,000 required by the Joint Venture

Company was determined by the board of directors of the Joint Venture Company after due

consideration of the market of imported motor vehicles in the PRC in general, the market segment

targeted by the Joint Venture Company mentioned above and the needs of the Joint Venture

Company to increase its capital base in order to negotiate for better banking finance arrangements

and other financing modes such as financial leasing.

The Joint Venture Partner had indicated that it would forgo its right to subscribe for and

contribute to its entitled 10% of the increased registered capital of the Joint Venture Company

in the sum of RMB5,000,000 as a result the Company intends to make the Proposed Additional

Capital Contribution and subscribe for the entire 100% of the increased registered capital of

RMB50,000,000 (equivalent to approximately HK$61,801,000) of the Joint Venture Company.

The Company will satisfy the Proposed Additional Capital Contribution in cash through its

internal resources and will settle within 60 days after the Company obtained approval for it from

the Shareholders.


– 26 –

Share structure

Set out below is the shareholding structure of the Joint Venture Company before and after

Completion:

(i) as at the date of this circular and before Completion:

90% 10%


Company Joint Venture Partner

(ii) after Completion:

93.33% 6.67%


Company Joint Venture Partner

REASONS FOR AND BENEFITS OF THE JOINT VENTURE COMPANY AND THE

PROPOSED ADDITIONAL CAPITAL CONTRIBUTION

As disclosed in the interim report 2017 of the Company published on 11 August 2017, due

to the continuing tightened policy of the PRC Government and the encouragement of the PRC

Government for the use of BeiDou Navigation Satellite System（北斗衛星導航系統）(“BeiDou

System”), the Group recorded a decrease of approximately HK$2.23 million or 36.9% of its

unaudited revenue recorded by the Group for the 6 months ended 30 June 2017 of approximately

HK$3.81 million as compared to approximately HK$6.04 million for the corresponding period

in 2016. Whilst the Group will continue to focus on improving the performance of its existing

businesses, it will also continue to develop other businesses and look for opportunities to expand

the income sources in order to enhance the revenue of the Group.


– 27 –

The Company is of the view that the entering into of the Joint Venture Agreement with the

Joint Venture Partner to establish the Joint Venture Company represents an opportunity for the

Group to expand its business in the sales of motor vehicles in the PRC market which is the largest

motor vehicles market in the world and there is still a huge growth potential for the market given

the relatively lower vehicle per capita compared with other developed markets of the world such as

the United States. The Company believes that the Joint Venture Company can expand the income

base of the Group and diversify its business portfolio.

The Directors consider that the Proposed Additional Capital Contribution, if approved by

the Shareholders, will further increase the Company’s equity interest in the Joint Venture Company

from 90% to 93.33% and the additional capital contribution of RMB50,000,000 by the Company

to the Joint Venture Company will significantly strengthen the capital base of the Joint Venture

Company and will increase its trading capacity and competitiveness in the parallel import motor

vehicle market of the PRC and is in the interests of the Company and the Shareholders as a whole.

In the event the Proposed Additional Capital Contribution is not approved by the

Shareholders, the Joint Venture Company will have to seek finances from banks and other financial

modes under its current capital base in order to satisfy its financial needs under the new business

strategy and plan, which may or may not be successful and if successful it may be on less

favourable terms and may increase the financial cost of the Joint Venture Company. In the event the

Joint Venture Company is unable to seek finances from banks and other financial modes to satisfy

its financial needs under, it may have to withhold the implementation of its new business strategy

and plan or to carry it out at lower pace or to abandon it altogether.

FINANCIAL IMPACT OF THE PROPOSED ADDITIONAL CAPITAL CONTRIBUTION

Based on the pro forma financial information of the Enlarged Group set out in Appendix

III to this circular and the bases and assumptions taken into account in preparing such pro forma

financial information, the Enlarged Group’s total assets and liabilities would be increased by

approximately HK$9,061,000 and approximately HK$107,000 respectively as a result of the

Proposed Additional Capital Contribution. The details of the financial effect of the Proposed

Additional Capital Contribution on the financial position of the Group together with the bases and

assumptions taken into account in preparing the pro forma financial information are set out, for

illustration purpose only, in Appendix III to this circular.


– 28 –

According to the accountants’ report of the Joint Venture Company as set out in Appendix II

to this circular, the Joint Venture Company recorded an audited loss for the period from 2 August

2017 (date of formation) to 30 November 2017. Upon Completion, the Joint Venture Company will

remain a non-wholly owned subsidiary of the Company and the financial results of the Joint Venture

Company will be consolidated into the Group’s results.

With the Proposed Additional Capital Contribution, the Joint Venture Company could

increase the volume of motor vehicles imported and traded by it without material additional

administrative expenses, hence, it is expected that both the net profit margin of the Joint Venture

Company and the earnings of the Group would be increased.

RISK FACTORS

Set out below are certain risk factors in relation to the Joint Venture Company and its

business:

Economic factors could affect the financial condition and results of the Joint Venture

Company

Financial condition and results of the Joint Venture Company could be impacted by external

factors such as the economic growth rate or interest rate. During periods of lagging economy

growth or rising interest rates, the automobile industry will likely underperform in general. It

is impracticable to predict the future economy or interest rate fluctuations, any of which could

materially and adversely affect the financial condition and results of the Joint Venture Company.

Reliance on a small number of suppliers

The Joint Venture Company has been sourcing its motor vehicles from a small number of

suppliers. The Joint Venture Company has not entered into long term supply agreement with these

suppliers. The largest 3 suppliers accounted for approximately 86%, 10% and 4% of the Joint

Venture Company’s cost of sales since its formation up to 31 January 2018. There is no assurance

that the existing major suppliers will not increase the cost of their motor vehicles in the future.

There is no assurance that the existing major suppliers will continue to supply to the Joint Venture

Company in the future. Should there be any disruption in the supply of motor vehicles by any of the

existing major supplier to the Joint Venture Company, it could materially and adversely affect the

business operation of the Joint Venture Company.


– 29 –

Reliance on a small number of customers

Since its formation and up to 31 January 2018, the Joint Venture Company had sold its

motor vehicles to one major customer. The Joint Venture Company has not entered into long term

sales agreement with this customer. The major customer accounted for 98% of the Joint Venture

Company’s revenue since its formation up to the Latest Practicable Date. There is no assurance that

this major customer will continue to purchase motor vehicles from the Joint Venture Company in

the future. Should there be any disruption in the purchase of motor vehicles by this major customer

from the Joint Venture Company, it could materially and adversely affect the business operation of

the Joint Venture Company.

Failure to retain or secure senior management and competent and experienced personnel

The business operation of the Joint Venture Company depends, to a large extent, on the

experience and skills of its current senior management and competent and experienced personnel.

There is no assurance that these persons will continue to work in the Joint Venture Company. If it

is unable to retain and recruit such competent and experienced personnel, the business operation of

the Joint Venture Company could be materially and adversely affected.

The Company may encounter difficulties in effectively implementing management control and

supervision of its investment in the Joint Venture Company

The Joint Venture Company is self-contained and independently operated in the PRC. The

Company as an investor may encounter difficulties in ensuring that the Joint Venture Company

is effectively and consistently managed. The Company needs to be able to effectively detect or

prevent on a timely basis operational or management problems, including fraud, bribery and other

misconduct, or ensure that information received is accurate, timely or sufficient. If the Company is

unable to effectively implement management control and supervision of its investment in the Joint

Venture Company, its business, results of operations, financial condition and prospects could be

materially and adversely affected.


– 30 –

The Joint Venture Company’s business strategy and plan may not be implemented successfully

The successful implementation of the Joint Venture Company’s new business strategy

and plan as set out in the paragraph headed “THE PROPOSED ADDITIONAL CAPITAL

CONTRIBUTION” of this circular depends on a number of factors including, among other things,

changes in the automobile industry and market of parallel import of motor vehicles in the PRC,

availability of funds, competition and the Joint Venture Company’s ability to retain and recruit

competent employees. Some of these factors are beyond the control of the Joint Venture Company

and by nature, are subject to uncertainty. There is no assurance that the new business strategy

and plan can be implemented successfully. Any failure or delay in the implementation of the new

business strategy and plan may have a material adverse effect on the profitability and business

operation of the Joint Venture Company.

Fluctuations in the value of the Renminbi against foreign currencies in which the Joint

Venture Company conducts its purchases in

The business operation of the Joint Venture Company is exposed to currency risk primarily

through purchases conducted in foreign currencies and sales conducted in Renminbi. Any

depreciation in the Renminbi against the foreign currency in which the Joint Venture Company

conducts its purchase could have a material adverse effect on the profitability of the Joint Venture

Company on those purchases. The Joint Venture Company currently does not have a foreign

currency hedging policy.

The performance and growth prospects may be materially and adversely affected by the

increasingly competitive nature of the PRC automobile industry and the market of parallel

import of motor vehicles

The PRC automobile industry and its market of parallel import of motor vehicles are

competitive. The business is affected by competition among authorized dealers and other parallel

importers in terms of quality, design and price. The Joint Venture Company competes with

authorized dealers of car manufacturers and other parallel importers of models of SUVs that it has

targeted and concentrated on. Increased competition among authorized dealers and other parallel

importers in the PRC could impact the Joint Venture Company’s profit margin and market share and

result in a decrease in the performance of the Joint Venture Company and could adversely affect

its growth prospects. Any change in the regulation of the automobile industry could allow new

market participants to enter the market both as dealer or parallel importers, which may intensify

competition and could materially and adversely affect the business and results of operations of the

Joint Venture Company.


– 31 –

Changes in PRC laws and regulations with respect to automobile industry and the market of

parallel import of motor vehicles may materially and adversely affect business performance of


There is no assurance that the PRC Government will maintain the existing laws and

regulations with respect to automobile industry and parallel import of motor vehicles. Any change

in the relevant laws or regulations may materially and adversely affect the business or financial

positions of the Joint Venture Company.

GEM LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios (as defined under the GEM Listing

Rules) of the Proposed Additional Capital Contribution when aggregated with the Initial Capital

Contribution under Rule 19.22 of the GEM Listing Rules will exceed 25% but are less than 100%,

the Proposed Additional Capital Contribution will constitute a major transaction for the Company

and is therefore subject to the reporting, announcement and Shareholders’ approval requirements

under Chapter 19 of the GEM Listing Rules.

GENERAL

The EGM will be convened and held for the Shareholders to consider, and if thought fit, to

approve relevant resolutions in relation to the Proposed Additional Capital Contribution. A notice

convening the EGM is set out on pages EGM-1 to EGM-2 of this circular. A form of proxy for

use at the EGM is enclosed. Whether or not you are able to attend the EGM, you are requested to

complete and return the enclosed proxy form in accordance with the instructions printed thereon as

soon as possible and in any event not less than 48 hours before the time appointed for holding the

EGM or any adjournment thereof to the office of the Company’s branch share registrar and transfer

office in Hong Kong, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s

Road East, Wan Chai, Hong Kong. The completion and return of the proxy form will not preclude

you from attending and voting in person at the EGM or any adjournment thereof should you so

wish.

The voting in relation to the Proposed Additional Capital Contribution at the EGM will be

conducted by poll whereby any Shareholders and their close associates (as defined under the GEM

Listing Rules) who have a material interest in the Joint Venture Company, the Joint Venture Partner

and the Proposed Additional Capital Contribution shall abstain from voting on the resolution in

relation to the Proposed Additional Capital Contribution to be proposed at the EGM.


– 32 –

To the best of the Directors’ knowledge, information and belief, having made all reasonable

enquiries, no Shareholder had a material interest in the Joint Venture Company, the Joint Venture

Partner and the Proposed Additional Capital Contribution. Therefore, no Shareholder is required to

abstain from voting at the EGM.

RECOMMENDATION

The Directors consider that the Proposed Additional Capital Contribution is on normal

commercial terms and is fair and reasonable and in the interests of the Company and the

Shareholders as a whole. Accordingly, the Directors recommend that all Shareholders should vote

in favour of the relevant resolution to be proposed at the EGM to approve the Proposed Additional

Capital Contribution.

ADDITIONAL INFORMATION

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

circular.

The English text of this circular, the notice of the EGM and the form of proxy for use at the

EGM shall prevail over the Chinese text in case of inconsistency.

By Order of the Board

Sinofortune Financial Holdings Limited

Wang Jiawei

Chairman

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

I – 1

1. THREE-YEAR FINANCIAL INFORMATION

Audited financial information of the Group for each of the three financial years ended 31

December 2014, 2015 and 2016 was disclosed in the annual reports of the Company published on

31 March 2015, 31 March 2016 and 30 March 2017, respectively on both the website of the Stock

Exchange (www.hkexnews.hk) and the Company (www.sinofortune.hk).

2. INDEBTEDNESS STATEMENT

Statement of Indebtedness of the Enlarged Group

As at the close of business on 31 January 2018, being the latest practicable date for

the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged

Group had the following utilized facilities:

HK$’000

Bank mortgage loan – secured and guaranteed (Note 1) 6,388

Irrevocable letters of credit (Note 2) 7,679

14,067

Note 1: The mortgage loan were secured by charges over the Group’s land and buildings as well as

corporate guarantee issued by the Company.

Note 2: The irrevocable letters of credit were secured by the pledged deposits of the same amount owned by

the subsidiary which utilized such facility.

Save as disclosed above and normal trade and other payables in the ordinary course

of the business, the Enlarged Group did not have any other outstanding bank or other

borrowings, mortgages, charges, debentures or other loan capital, bank overdrafts, loans

or other similar indebtedness, guarantee, liabilities under acceptances (other than normal

trade bills), acceptance credits, hire purchase or other finance lease commitments or other

contingent liabilities as at the close of business of 31 January 2018.


I – 2

3. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the existing cash and bank

balances and other internal resources available and also the effect of the Proposed Additional

Capital Contribution, the Group has sufficient working capital for its present requirements and for

at least 12 months from the date of this circular in the absence of unforeseen circumstances.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirm that they were not aware of

any material adverse change in the financial position or trading position of the Group since 31

December 2016, being the date to which the latest published audited financial statements of the

Group was made up, up to and including the Latest Practicable Date.

5. FINANCIAL AND TRADING PROSPECT OF THE GROUP

The Group is principally engaged in (i) provision of the precious metals spot trading and

brokerage services in the PRC; (ii) provision of securities and futures contracts trading services

and wealth management services in Hong Kong; (iii) trading and principal investments in the PRC

and Hong Kong; (iv) research, exploration and development of the student safety network project

and the electronic student card in the PRC; (v) provision of stock information and research services

through the internet network in the PRC; and (vi) trading in motor vehicles in the PRC.

As disclosed in 2016 annual report of the Company, total turnover of the Group amounted to

approximately HK$46.9 million for the year ended 31 December 2016. The Group recorded a loss

for the year ended 31 December 2016 amounted to approximately HK$244.9 million. Total assets

and total equity amount to approximately HK$500.3 million and approximately HK$462.8 million

respectively as at 31 December 2016.

Provision of the precious metals spot trading and brokerage services in the PRC

Due to continuing tightened policy of the PRC Government on regulating the precious

metals trading and brokerage business in the PRC, the business operation of this segment

of the Group has not yet been resumed. It is difficult to predict the policy of the PRC

Government on such activities in future.


I – 3

Provision of securities and futures contracts trading services and wealth management

services in Hong Kong

Hong Kong stock market had seen significant gains and pick up in 2017, but the

industry competition remains fierce. The Group is confident and optimistic about the

prospects of the Hong Kong stock and financial markets. The Group will closely monitor

the changes in the Hong Kong stock and financial markets conditions in order to improve

performance of this segment the Group.

Trading and principal investments in the PRC and Hong Kong

The stock markets in the PRC and Hong Kong had seen significant gained and picked

up in 2017 and the Group is optimistic about the prospect of the stock markets in the PRC

and Hong Kong and will closely monitor the changes in these stock markets in order to

improve performance of this segment of the Group’s businesses.

Research, exploration and development of the student safety network project and the

electronic student card in the PRC

Since the customers tend to prefer and use BeiDou System due to encouragement

from the PRC Government, the Group will endeavor to resolve the technical issue in order

to change the navigating chips of electronic cards and devices of the school safety network

to coordinate with the BeiDou System, however, the Group has encountered some technical

issues to change the navigating chips of electronic cards and devices of the school safety

network to coordinate with the BeiDou System and the Group will use its best endeavours to

resolve those technical issues in order to improve performance of this segment of the Group.

Provision of stock information and research services through the internet network in

the PRC

Due to continuing tightened policy of the PRC Government on regulating the

provision of stock information and research services through the internet network in the

PRC, the business operation of this segment of the Group has not yet been resumed. It is

difficult to predict the policy of the PRC Government on such activities in future.


I – 4

Trading in motor vehicles in the PRC

For the financial and trading prospect of this segment of the Group, please refer to the

sections headed “FINANCIAL INFORMATION ON THE JOINT VENTURE COMPANY”

and “MANAGEMENT DISCUSSION AND ANALYSIS OF THE JOINT VENTURE

COMPANY” in the Letter from the Board.

The Group does not have any current intention or negotiation and has not entered

into any agreement, arrangement or understanding to scale down its existing business and/or

regarding any potential acquisition or disposal.

The Group will continue to focus on improving the performance of its existing

businesses. Furthermore, the Group will continue to implement prudent investment principle

to identify investment opportunities that will enhance Shareholders’ value.

APPENDIX II ACCOUNTANT’S REPORT ON THE JOINT VENTURE COMPANY

II – 1

ACCOUNTANT’S REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE

DIRECTORS OF SINOFORTUNE FINANCIAL HOLDINGS LIMITED

10/F., Allied Kajima Building,138 Gloucester Road, Wanchai, Hong Kong

Introduction

We report on the historical financial information of Chongqing Sheng Yu Hong Jia

International Trading Company Limited (the “Target Company”) set out on pages II-4 to II-31,

which comprises the statement of financial position as at 30 November 2017, and the statement of

profit or loss and other comprehensive income, statement of changes in equity and statement of cash

flows for the period from 2 August 2017 (date of formation) to 30 November 2017 (the “Reporting

Period”) and a summary of significant accounting policies and other explanatory information

(together, the “Historical Financial Information”). The Historical Financial Information set out

on pages II-4 to II-31 forms an integral part of this report, which has been prepared for inclusion in

the circular of Sinofortune Financial Holdings Limited (the “Company”) dated 19 March 2018 (the

“Circular”) in connection with the Proposed Additional Capital Contribution.

Directors’ responsibility for the Historical Financial Information

The directors of the Company are responsible for the preparation of Historical Financial

Information that gives a true and fair view in accordance with the basis of preparation set out in

Notes 2.1 to the Historical Financial Information, and for such internal control as the directors

determine is necessary to enable the preparation of Historical Financial Information that is free

from material misstatement, whether due to fraud or error.

The financial statements of the Target Company for the Reporting Period (“Underlying

Financial Statements”), on which the Historical Financial Information is based, were prepared

by the directors of the Company based on the financial statements of the Target Company for the

Reporting Period. The directors of the Target Company are responsible for the preparation and

fair presentation of the financial statements of the Target Company in accordance with Hong Kong

Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public

Accountants (“HKICPA”), and for such internal control as the directors determine is necessary to

enable the preparation of financial statements that are free from material misstatement, whether due

to fraud or error.


II – 2

Reporting accountant’s responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to

report our opinion to you. We conducted our work in accordance with Hong Kong Standard on

Investment Circular Reporting Engagements 200, Accountant’s Reports on Historical Financial

Information in Investment Circulars issued by the HKICPA. This standard requires that we comply

with ethical standards and plan and perform our work to obtain reasonable assurance about whether

the Historical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and

disclosures in the Historical Financial Information. The procedures selected depend on the

reporting accountant’s judgement, including the assessment of risks of material misstatement

of the Historical Financial Information, whether due to fraud or error. In making those risk

assessments, the reporting accountant considers internal control relevant to the entity’s preparation

of Historical Financial Information that gives a true and fair view in accordance with the basis of

preparation set out in Notes 2 to the Historical Financial Information in order to design procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness

of accounting policies used and the reasonableness of accounting estimates made by the directors,

as well as evaluating the overall presentation of the Historical Financial Information.

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

for our opinion.

Opinion

In our opinion the Historical Financial Information gives, for the purposes of the

accountant’s report, a true and fair view of the statement of financial position as at 30 November

2017, and the statement of profit or loss and other comprehensive income, statement of changes

in equity and statement of cash flows for the Reporting Period in accordance with the basis of

preparation set out in Notes 2 to the Historical Financial Information.


II – 3

Report on matters under the GEM Listing Rules and Companies (Winding up and

Miscellaneous Provisions) Ordinance

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial

Statements have been made.

Dividends

No dividends have been paid by the Target Company in respect of the Reporting Period.

No historical financial statements for the Target Company

As at the date of this report, no statutory financial statements have been prepared for the

Target Company since its date of incorporation.

CHENG & CHENG LIMITED

Certified Public Accountants

Hong Kong, 19 March 2018

Cheng Hong Cheung

Practising Certificate number P01802


II – 4

I. HISTORICAL FINANCIAL INFORMATION OF THE TARGET COMPANY

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of

this accountant’s report.

The Underlying Financial Statements, on which the Historical Financial Information

is based, were audited by CHENG & CHENG LIMITED in accordance with Hong Kong

Standards on Auditing issued by the HKICPA.

The Historical Financial Information is presented in Renminbi (“RMB”).


II – 5

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the period

from 2 August

2017 to

30 November

2017

Note RMB

Revenue 6 –

Cost of sales –

Gross profits –

Other income 7 8,052

Administrative expenses (603,978)

Finance cost (82,784)

Loss before tax 8 (678,710)

Income tax expense 10 –

Loss for the period (678,710)

Other comprehensive income –

Loss and total comprehensive loss attributable

to owners of the Target Company (678,710)


II – 6

STATEMENT OF FINANCIAL POSITION

As at

30 November

2017

Note RMB

ASSET

Non-current assets

Plant and equipment 11 96,222

Intangible assets 12 87,379

Deposit paid 133,186

316,787

Current assets

Inventories 13 11,603,612

Deposits and prepayments 14 1,344,835

Pledged bank deposits 15 70,480,140

Cash and cash equivalents 15 15,666,744

99,095,331

Current liabilities

Other payables and accruals 16 90,828

Net current assets 99,004,503

Total assets less current liabilities 99,321,290

Capital and reserve

Registered capital 17 100,000,000

Accumulated losses (678,710)

Total equity 99,321,290


II – 7

STATEMENTS OF CHANGES IN EQUITY

Attributable to owners of

the Target Company

Registered

capital

Accumulated

losses Total equity

Note RMB RMB RMB

Paid up registered capital 17 100,000,000 – 100,000,000

Total comprehensive loss – (678,710) (678,710)

Balance as at

30 November 2017 100,000,000 (678,710) 99,321,290


II – 8

STATEMENTS OF CASH FLOWS

For the period

from 2 August

2017 to

30 November

2017

RMB

Cash flows from operating activities

Loss before tax (678,710)

Adjustments for:

Interest income (8,052)

Operating cash flows before changes in working capital (686,762)

Increase in inventories (11,603,612)

Increase in deposits and prepayments (1,478,021)

Increase in other payables and accruals 90,828

Cash generated used in operations (13,677,567)

Interest income 8,052

Net cash generated used in operating activities (13,669,515)

Cash flows from investing activities

Purchase of plant and equipment and intangible assets (183,601)

Net cash used in investing activities (183,601)

Cash flows from financing activities

Capital contribution from owners 100,000,000

Net increase of pledged deposits for secure use (70,480,140)

Net cash generated from financing activities 29,519,860

Net increase in cash and cash equivalents and cash and

cash equivalents at the end of the period 15,666,744


II – 9

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. General information

Chongqing Sheng Yu Hong Jia International Trading Company Limited (the “Target

Company”) was formed in the People’s Republic of China (the “PRC”) on 2 August 2017

as a limited liability company. The address of its registered office is 中國重慶市沙坪垻區土主鎮月台路18號（口岸貿易服務大廈）B1單元5樓503-136室 (transliterated as Flat 503-

136, 5/F., Unit B1, Port Trade Service Building, 18 Platform Road, Tu Zhu Town, Sha Ping

Ba District, Chongqing City, PRC).

The Target Company is principally engaged in the businesses of sales of motor

vehicles, motor vehicle parts and motor vehicle products; motor vehicles rental (excluding

motor vehicles finance leasing, passenger vehicles transportation rental and road passenger

and freight transport operations); international freight forwarding services; import and export

businesses; motor vehicles information consultancy (excluding restricted items); motor

vehicles repair and maintenance (for business items that require approval, shall only be

carried out after obtain approvals) and agency for motor vehicles registration, transfer and

scrap procedures.

During the Reporting Period, the Target Company had acquired motor vehicle as

inventory to be sold and has issued orders to acquire 138 motor vehicles in December 2017.

The Target Company has sold 147 motor vehicles in December 2017.

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of the Historical Financial

Information are set out below. These policies have been consistently applied to periods

presented, unless otherwise stated.

2.1 Basis of preparation

The principal accounting policies applied in the preparation of the Historical

Financial Information which are in conformity with the Company’s accounting

policies and in accordance with the Hong Kong Financial Reporting Standards

(“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants

(“HKICPA”) are set out below. The Historical Financial Information has been

prepared under the historical cost convention.


II – 10

The preparation of the Historical Financial Information in conformity with

HKFRS requires the use of certain critical accounting estimates. It also requires

management to exercise its judgement in the process of applying the Target

Company’s accounting policies. The areas involving a higher degree of judgement or

complexity, or areas where assumptions and estimates are significant to the Historical

Financial Information are disclosed in Note 4.

All relevant standards, amendments and interpretations to the existing standards

that are effective during all the years and periods presented have been adopted by the

Target Company consistently throughout the periods.

The Historical Financial Information has been also prepared in accordance with

the applicable requirements of the Hong Kong Companies Ordinance (Cap. 622).

2.1.1 Changes in accounting policy and disclosures

Impact of new or revised standards and amendments to existing standards

that are effective on or after 1 January 2018.

The following new standards, amendments and interpretations to existing

standards which have been issued but are effective for the fiscal year beginning

on or after 1 January 2018 and have not been early adopted by the Target

Company:

Effective for annual periods beginning on or after

HKFRS 9 Financial instruments 1 January 2018

HKFRS 15 Revenue from contracts with customers 1 January 2018

HKFRS 16 Lease 1 January 2019

Amendments to

HKFRS 2

Classification and Measurement of

Share-based Payment Transactions

1 January 2018

Amendment to

HKFRS 10 and

HKAS 28

Sale or Contribution of assets between

an investor and its associate or

joint venture

Deferred

1 January 2018

Amendment to

HKFRIC 22

Foreign currency transactions and

advance consideration

1 January 2018


II – 11

(i) HKFRS 9 Financial instruments

HKFRS 9 Financial Instruments addresses the classification,

measurement and recognition of financial assets and financial liabilities,

introduces new rules for hedge accounting and a new impairment model

for financial assets. The Target Company expects to adopt HKFRS 9

from 1 January 2018. The Target Company has performed a high-level

assessment of the impact of the adoption of HKFRS 9. This preliminary

assessment is based on currently available information and may be

subject to changes arising from further detailed analyses or additional

reasonable and supportable information being made available to the

Target Company in the future. The expected impacts arising from the

adoption of HKFRS 9 are summarised as follows:

(a) Classification and measurement

The Target Company does not expect that the adoption

of HKFRS 9 will have a significant impact on the classification

and measurement of its financial assets. There will be no impact

on the Target Company’s accounting for financial assets and

financial liabilities as the Target Company does not have any

financial assets and liabilities which requires the classification and

measurement changes mentioned in HKFRS 9.

(b) Impairment

The new impairment model requires the recognition of

impairment provisions based on expected credit losses (ECL)

rather than only incurred credit losses as is the case under HKAS

39. It applies to financial assets classified at amortized cost,

contract assets under HKFRS 15 Revenue from Contracts with

Customers and lease receivables. While the Target Company has

not yet completed the detailed assessment of how its impairment

would affect by the new model, it may result in an earlier

recognition of credit losses.


II – 12

(ii) HKFRS 15 Revenue from contracts with customers

The HKICPA has issued a new standard for the recognition of

revenue. This will replace HKAS 18 which covers revenue arising from

the sale of goods and the rendering of services and HKAS 11 which

covers construction contracts.

The core principle of HKFRS 15 is that an entity should recognise

revenue to depict the transfer of promised goods or services to customers

in an amount that reflects the consideration to which the entity expects

to be entitled in exchange for those goods or services. Specifically, the

standard introduces a 5-step approach to revenue recognition:

• Step 1: Identify the contract(s) with a customer

• Step 2: Identify the performance obligations in the contract

• Step 3: Determine the transaction price

• Step 4: Allocate the transaction price to the performance

obligations in the contract

• Step 5: Recognise revenue when (or as) the entity satisfies a

performance obligation

Under HKFRS 15, an entity recognises revenue when (or as) a

performance obligation is satisfied, i.e. when “control” of the goods or

services underlying the particular performance obligation is transferred

to the customer. Additional guidances have been added in HKFRS 15

to deal with specific scenarios. Furthermore, extensive disclosures are

required by HKFRS 15 In 2016, the HKICPA issued Clarifications to

HKFRS 15 in relation to the identification of performance obligations,

principal versus agent considerations, as well as licensing application

guidance.

The directors of the Target Company anticipate that the

application of HKFRS 15 in the future may result in more disclosures,

however, the directors of the Target Company do not anticipate that the

application of HKFRS 15 will have a material impact on the timing and

amounts of revenue recognised in the respective reporting periods.


II – 13

(iii) HKFRS 16 Leases

HKFRS 16 was issued in January 2016. It will results in almost

all leases being recognized on the financial position for lessee, as the

distinction between operating and finance leases is removed. Under the

new standard, an asset (the right to use the leased item) and a financial

liability to pay rentals are recognized. The only exceptions are short-term

and low-value leases.

The directors do not expect the adoption of IFRS 16 as compared

with the current accounting policy would result in a significant impact

on the Target Company’s results but it is expected that a certain portion

of these lease commitments will be required to be recognised in the

statement of financial position as right-of-use assets and lease liabilities.

Some of the commitments may be covered by the exception for short-

term and low-value leases under HKFRS 16.

The standard is mandatory for first interim periods within annual

reporting periods beginning on or after 1 January 2019. At this stage, the

Target Company does not intend to adopt the standard before its effective

date.

2.2 Functional and presentation currency

Items included in the financial statements of the Target Company are measured

using the currency of the primary economic environment in which the entity operates

(the “functional currency”). The financial information are presented in Renminbi

(“RMB”), which is the Company’s functional and presentation currency.

2.3 Plant and equipment

Plant and equipment are stated at historical cost less depreciation. Historical

cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognized as a

separate asset, as appropriate, only when it is probable that future economic benefits

associated with the item will flow to the Target Company and the cost of the item can

be measured reliably. The carrying amount of the replaced part is derecognized. All

other repairs and maintenance are charged to the statement of profit or loss and other

comprehensive income during the financial period in which they are incurred.


II – 14

Depreciation on plant and equipment is calculated using the straight-line

method to allocate their cost to their residual values over their estimated useful lives,

as follows:

Office equipment and furniture 3 years

The depreciation is calculated when the assets are commenced to use. The

assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the

end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable

amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains or losses on disposals are determined by comparing the proceeds with the

carrying amount and are recognized in the statement of profit or loss.

2.4 Intangible assets

The software has a finite useful life and is carried at cost less accumulated

amortization and impairment. Amortization is calculated using the straight-line

method to allocate the cost of software over its estimated useful life of 3 years. The

amortization is calculated when the intangible assets are commenced to use.

2.5 Impairment of non-financial assets

Assets that are subject to amortization are reviewed for impairment whenever

events or changes in circumstances indicate that the carrying amount may not be

recoverable. An impairment loss is recognized for the amount by which the asset’s

carrying amount exceeds its recoverable amount. The recoverable amount is the

higher of an asset’s fair value less costs to sell and value in use. For the purposes

of assessing impairment, assets are grouped at the lowest levels for which there are

separately identifiable cash flows (cash-generating units). Non-financial assets other

than goodwill that suffered an impairment are reviewed for possible reversal of the

impairment at each reporting date.


II – 15

2.6 Financial assets

2.6.1 Classification

The Target Company’s financial assets fall into the category of loans and

receivables. Loans and receivables are non-derivative financial assets with fixed

or determinable payments that are not quoted in an active market. They are

included in current assets, except for the amounts that are settled or expected to

be settled more than 12 months after the end of the reporting period. These are

classified as non-current assets. The Target Company’s loans and receivables

comprise “deposits and prepayments” in the statement of financial position.

2.6.2 Recognition and measurement

Regular way purchases and sales of financial assets are recognized on the

trade-date – the date on which the Target Company commits to purchase or sell

the asset. Investments are initially recognized at fair value plus transaction costs

for all financial assets not carried at fair value through profit or loss. Loans

and receivables are subsequently carried at amortized cost using the effective

interest method.

2.7 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the

Statement of Financial Position when there is a legally enforceable right to offset

the recognised amount and there is an intention to settled on a net basic or realise

the assets and settle the liability simultaneously. The legally enforceable right must

not be contingent on future events and must be enforceable in the normal course of

business and in the event of default, insolvency or bankruptcy of the company or the

counterparty.


II – 16

2.8 Impairment of financial assets

Assets carried at amortized cost

The Target Company assesses at the end of each reporting period whether

there is objective evidence that a financial asset or group of financial assets

is impaired. A financial asset or a group of financial assets is impaired and

impairment losses are incurred only if there is objective evidence of impairment

as a result of one or more events that occurred after the initial recognition of

the asset (a “loss event”) and that loss event (or events) has an impact on the

estimated future cash flows of the financial asset or group of financial assets

that can be reliably estimated.

Evidence of impairment may include indications that the debtors or

a group of debtors is experiencing significant financial difficulty, default or

delinquency in interest or principal payments, the probability that they will

enter bankruptcy or other financial reorganization, and where observable data

indicate that there is a measurable decrease in the estimated future cash flows,

such as changes in arrears or economic conditions that correlate with defaults.

For loans and receivables category, the amount of the loss is measured

as the difference between the asset’s carrying amount and the present value of

estimated future cash flows (excluding future credit losses that have not been

incurred) discounted at the financial asset’s original effective interest rate. The

carrying amount of the asset is reduced and the amount of the loss is recognized

in the statement of profit or loss. If a loan has a variable interest rate, the

discount rate for measuring any impairment losses is the current effective

interest rate determined under the contract. As a practical expedient, the Target

Company may measure impairment on the basis of an instrument’s fair value

using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases

and the decrease can be related objectively to an event occurring after the

impairment was recognized (such as an improvement in the debtor’s credit

rating), the reversal of the previously recognized impairment loss is recognized

in the statement of 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.


II – 17

2.9 Leases

Leases in which a significant portion of the risks and rewards of ownership

are retained by the lessor are classified as operating leases. Payments made under

operating leases (net of any incentives received from the lessor) are charged to the

consolidated statement of profit or loss and other comprehensive income on a straight-

line basis over the period of the lease.

2.10 Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is

determined using the weighted average method. The cost of finished goods is arrived

at based on purchase cost. It excludes borrowing costs. Net realizable value is the

estimated selling price in the ordinary course of business, less applicable variable

selling expenses.

2.11 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with

banks, other short-term highly liquid investments with original maturities of three

months or less.

2.12 Registered capital

Registered capital is classified as equity.


II – 18

2.13 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is

recognized in the consolidated statement of profit or loss and other comprehensive

income, except to the extent that it relates to items recognized in other comprehensive

income or directly in equity. In this case the tax is also recognized in other

comprehensive income or directly in equity, respectively.

Current income tax

The current income tax charge is calculated on the basis of the tax

laws enacted or substantively enacted at the end of the reporting period in the

countries where the Target Company operates and generates taxable income.

Management periodically evaluates positions taken in tax returns with respect

to situations in which applicable tax regulation is subject to interpretation. It

establishes provisions where appropriate on the basis of amounts expected to be

paid to the tax authorities.

Deferred income tax

Inside basis differences

Deferred income tax is recognized, using the liability method, on

temporary differences arising between the tax bases of assets and liabilities

and their carrying amounts in the consolidated financial statements. However,

deferred tax liabilities are not recognized if they arise from the initial

recognition of goodwill, the deferred income tax is not accounted for if it

arises from initial recognition of an asset or liability in a transaction other

than a business combination that at the time of the transaction affects neither

accounting nor taxable profit or loss. Deferred income tax is determined using

tax rates (and laws) that have been enacted or substantively enacted by the

reporting period and are expected to apply when the related deferred income tax

asset is realized or the deferred income tax liability is settled.


II – 19

Deferred income tax assets are recognized only to the extent that it is

probable that future taxable profit will be available against which the temporary

differences can be utilized.

Outside basis differences

Deferred income tax liabilities are provided on taxable temporary

differences arising from investments in subsidiaries and associates, except for

deferred income tax liability where the timing of the reversal of the temporary

difference is controlled by the Target Company and it is probable that the

temporary difference will not reverse in the foreseeable future. Generally the

Target Company is unable to control the reversal of the temporary difference

for associates. Only when there is an agreement in place that gives the Target

Company the ability to control the reversal of the temporary difference in

the foreseeable future, deferred tax liability in relation to taxable temporary

differences arising from the associate’s undistributed profits is not recognized.

Deferred income tax assets are recognized on deductible temporary

differences arising from investments in subsidiaries and associates only to the

extent that it is probable the temporary difference will reverse in the future

and there is sufficient taxable profit available against which the temporary

difference can be utilized.

Offsetting

Deferred income tax assets and liabilities are offset when there is

a legally enforceable right to offset current tax assets against current tax

liabilities and when the deferred income taxes assets and liabilities relate to

income taxes levied by the same taxation authority on either the taxable entity

or different taxable entities where there is an intention to settle the balances on

a net basis.


II – 20

2.14 Employee benefits

Pension obligations

Retirement benefits to employees in the PRC are provided through a

defined contribution plan. The Target Company is required to participate in a

central pension scheme operated by the local municipal government. The Target

Company is required to contribute certain percentage of its payroll costs to the

central pension scheme. The contributions are charged to the statement of profit

or loss and other comprehensive income as they become payable in accordance

with the rules of the central pension scheme. The Target Company has no legal

or constructive obligations to pay further contributions after payment of the

fixed contribution.

2.15 Provisions

Provisions are recognized when the Target Company has a present legal or

constructive obligation as a result of past events; it is probable that an outflow of

resources will be required to settle the obligation; and the amount has been reliably

estimated. Provisions are not recognized for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow

will be required in settlement is determined by considering the class of obligations as

a whole. A provision is recognized even if the likelihood of an outflow with respect to

any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to

be required to settle the obligation using a pre-tax rate that reflects current market

assessments of the time value of money and the risks specific to the obligation.

2.16 Revenue recognition

Revenue is measured at the fair value of the consideration received or

receivable, and represents amounts receivable for goods supplied, stated net of

discounts returns and value added taxes. The Target Company recognizes revenue

when the amount of revenue can be reliably measured; when it is probable that future

economic benefits will flow to the entity; and when specific criteria have been met for

each of the Target Company’s activities, as described below:

Interest income is recognized as it accrues using the effective interest method.


II – 21

2.17 Related parties

A party is considered to be related to the Target Company if:

(a) A person or a close member of that person’s family and that person

(i) has control or joint control over the Target Company;

(ii) has significant influence over the Target Company; or

(iii) is a member of the key management personnel of the Target

Company or of a parent of the Target Company;

(b) An entity is related to the Target Company if any of the following

conditions applies:

(i) the entity and the Target Company are members of the same

group;

(ii) one entity is an associate or joint venture of the other entity (or of

a parent, subsidiary or fellow subsidiary of the other entity);

(iii) the entity and the Target Company are joint ventures of the same

third party;

(iv) one entity is a joint venture of a third entity and the other entity is

an associate of the third entity;

(v) the entity is a post-employment benefit plan for the benefit of

employees of either the Target Company or an entity related to the

Target Company;

(vi) the entity is controlled or jointly controlled by a person identified

in (a);

(vii) a person identified in (a)(i) has significant influence over the

entity or is a member of the key management personnel of the

entity (or of a parent of the entity); and


II – 22

(viii) the entity, or any member of a group of which it is a part, provides

key management personnel services to the Target Company or to

the Target Company’s parent.

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.

3. Financial risk management

3.1 Financial risk factors

The Target Company’s activities expose it to a variety of financial risks: market

risk (mainly interest rate risk interest rate risk and foreign currency risk), credit risk

and liquidity risk. The Target Company’s overall risk management program focuses

on the unpredictability of financial markets and seeks to minimize potential adverse

effects on the Target Company’s financial performance.

(a) Market risk

(i) Cash flow and fair value interest rate risk

During the period ended 30 November 2017, the Target Company

is exposed to cash flow interest rate risk due to the fluctuation of the

prevailing market interest rate on bank deposits which carry prevailing

market interest rates. The directors considered that the Target Company’s

income and operating cash flows are substantially independent of

changes in market interest rates.

As at 30 November 2017, the Target Company’s cashflow interest

rate risk relates primarily to its variable bank deposits. The Target

Company currently does not use any derivative contracts to hedge its

exposure to interest rate risk. However, management will consider

hedging significant interest rate exposure should the need arise.

The directors of the Target Company believe that there is no

material interest rate risk related to the Target Company’s pledged

deposits and cash and cash equivalents.


II – 23

(ii) Foreign currency risk

The Target Company is exposed to currency risk primarily

through some purchases that are denominated in a foreign currency,

i.e. a currency other than the functional currency of the operations to

which the transactions relate. The currencies giving rise to this risk are

primarily Euros, United States Dollars and Japanese Yen. The Target

Company currently does not have a foreign currency hedging policy,

however, the management monitors foreign exchange exposure closely

and will consider hedging significant foreign currency exposure using

forward exchange contracts should the need arises.

(b) Credit risk

The Target Company reviews the recoverability of its financial assets

periodically to ensure that potential credit risk of the counterparty is managed

at an early stage and sufficient provision is made for possible defaults. In

addition, receivable balances are monitored on an ongoing basis and the Target

Company’s exposure to bad debts is not significant.

The credit risk of the Target Company’s financial assets relate mainly to

cash and cash equivalents, and other receivables. It arises from default of the

counterparty, with a maximum exposure equal to the carrying amounts of these

instruments. Management has a credit policy in place and the exposures to these

credit risks are monitored on an ongoing basis.

(c) Liquidity risk

Ultimate responsibility for liquidity risk management rests with the

board of directors. The Target Company manages liquidity risk by maintaining

adequate reserves by continuously monitoring forecast and actual cash flows.


II – 24

The maturity profile of the Target Company’s financial liabilities as at

the reporting period, based on the contractual undiscounted payments, was as

follows:

On demand

or within

1 year

Between

1 and 2 years

Between

2 and 5 years

Over

5 years

Total

undiscounted

cash flow

Total

carrying

amount

RMB RMB RMB RMB RMB RMB

As at 30 November 2017

Other payables and accruals 90,828 – – – 90,828 90,828

3.2 Capital risk management

The Target Company’s objectives when managing capital are to safeguard the

Target Company’s ability to continue as a going concern in order to provide returns

for owners and benefits for other stakeholders and to maintain an optimal capital

structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Target Company may

adjust the amount of dividends paid to owners or issue new shares.

The Target Company monitors its capital structure on the basis of the debt-to-

adjusted capital ratio, which is calculated as total liabilities divided by total assets.

The debt-to-adjusted capital ratio of the Target Company as at 30 November 2017 was

as follows:

As at

30 November

2017

RMB

Total debt 90,828

Less: Bank balances and cash (15,666,744)

Net debt (15,575,916)

Total equity 99,321,290

Adjusted capital 99,321,290

Debt-to-adjusted capital ratio N/A


II – 25

4. Critical accounting estimates and judgments

Estimates and judgments 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.

The Target Company makes estimates and assumptions concerning the future. The

resulting accounting estimates will, by definition, seldom equal the related actual results. The

estimates and assumptions that have a significant risk of causing a material adjustment to the

carrying amounts of assets and liabilities within the next financial year are addressed below.

Estimated useful lives and impairment of plant and equipment

The Target Company has plant and equipment. The Target Company is required

to estimate the useful lives of plant and equipment in order to ascertain the amount of

depreciation charges for each reporting period.

The useful lives are estimated at the time of purchase of these assets after

considering business developments and the Target Company’s strategies. The Target

Company performs annual reviews to assess the appropriateness of the estimated

useful lives. Such review takes into account any unexpected adverse changes in

circumstances or events, including declines in projected operating results, negative

industry and economic trends. The Target Company extends or shortens the useful

lives and/or makes impairment provisions according to the results of the review.

5. Segment information

Management has determined the operating segments based on the reports reviewed by

Chief Operating Decision Maker. The Chief Operating Decision Maker, who is responsible

for allocating resources and assessing performance of the operating segment, has been

identified as the executive directors of the Target Company.

The Target Company principally engages in sales of motor vehicles in the PRC.

Management reviews the operating results of the business as one operating segment to make

decisions about resources to be allocated. The Chief Operating Decision Maker considers

that there is only one operating segment, which is used to make strategic decisions. The

Target Company did not have any revenue for the Reporting Period. As at 30 November

2017, all of the non-current assets were located in the PRC.


II – 26

6. Revenue

The Target Company did not have any revenue recognized during the period since its

business is in preparatory stage.

7. Other income

Period ended

30 November

2017

RMB

Interest income 8,052

8. Loss before income tax

Period ended

30 November

2017

RMB

Loss before tax has been arrived at after charging:

Operating lease rentals in respect of rented premises 181,578

9. Employee benefits expenses

Period ended

30 November

2017

RMB

Wages and salaries 91,131

Pension costs

– defined contribution schemes 1,005

Other staff welfare expenses 9,387


II – 27

10. Income tax expense

The Target Company is subject to the PRC Enterprise Income Tax at the rate of 25%

for the period ended 30 November 2017. No provision for PRC Enterprise Income Tax has

been made in the financial statements as the Target Company incurred a tax loss for the

Reporting Period.

Reconciliation between income tax expense and accounting loss at applicable tax

rates:

Period ended

30 November

2017

RMB

Loss before tax (678,710)

Notional tax expense on loss before taxation,

calculated at tax rate of 25% (169,678)

Tax effects of:

– Unused tax losses not recognized 169,678

Income tax expense –

11. Plant and equipment

Office

equipment and

furniture

RMB


Cost 96,222

Accumulated depreciation –

Net book amount 96,222

Period ended 30 November 2017

Addition during the period and closing net book amount 96,222


II – 28

12. Intangible assets

Computer

software

RMB


Cost 87,379

Accumulated amortization –

Net book amount 87,379

Period ended 30 November 2017

Addition during the period and closing net book amount 87,379

13. Inventories

As at

30 November

2017

RMB

Finished goods 11,603,612

No amount of inventories recognized as an expense and included in “cost of sales” as

all the inventories are not yet sold as at 30 November 2017.

14. Deposits and prepayment

As at

30 November

2017

RMB

Other deposit and prepayment 1,344,835


II – 29

15. Bank balances and cash

(a) Cash and cash equivalent

As at

30 November

2017

RMB

Cash at bank 15,666,744

Cash at banks earns interest at floating rates based on daily bank deposit rates.

The Target Company’s balances of cash at banks which are mainly denominated

in RMB are deposited with banks in the PRC.

(b) Pledged bank deposits

As at 30 November 2017, the Target Company transferred RMB70,480,140 as

pledged bank deposits for securing the letter of credit facility granted by its banker

situated in the PRC, for the purpose of buying the motor vehicles for sales.

16. Other payables and accruals

As at

30 November

2017

RMB

Accrued salaries 63,240

Other payable 27,588

90,828


II – 30

17. Registered capital

As at

30 November

2017

RMB

Capital contribution by owners 100,000,000

During September and October 2017, the Target Company received the whole amount

of the registered capital from owners.

18. Reserve

Accumulated losses are the cumulative net losses of the Target Company sustained in

the business.

19. Banking facilities

The banking facilities representing the irrevocable letters of credit to the extent of

RMB70,480,140, the utilization of which are secured by the same amount of bank deposits.

As at 30 November 2017, the total amount of letters of credit issued was RMB70,480,140.

20. Operating lease commitments

As at

30 November

2017

RMB

No later than one year 563,478

Later than one year and no later than five years 1,075,731

1,639,209


II – 31

21. Contingencies

The Target Company had no contingent liabilities outstanding as at 30 November

2017.

22. Subsequent events

There has been no significant event since the end of the Reporting Period.

23. Subsequent financial statements

No audited financial statements have been prepared by the Target Company in respect

of any period subsequent to 30 November 2017.

APPENDIX III PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP ASSUMING COMPLETION

III – 1

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED

GROUP

This unaudited pro forma consolidated statement of financial position (the “Unaudited Pro

Forma Financial Information”) has been prepared for the purpose of providing Shareholders of

the Company with information about the impact of the Proposed Additional Capital Contribution

to Joint Venture Company by illustrating how such Proposed Additional Capital Contribution might

have affected the financial position of the Group as at 30 June 2017, had the Completion taken

place on 30 June 2017.

The Unaudited Pro Forma Financial Information has been prepared based on a number

of assumptions, estimates and uncertainties. Accordingly, the Unaudited Pro Forma Financial

Information does not purport to describe the actual financial position of the Enlarged Group

that would have been attained had the Proposed Additional Capital Contribution to Joint Venture

Company been completed on 30 June 2017. Neither does the Unaudited Pro Forma Financial

Information purport to predict the future financial position of the Enlarged Group.

This Unaudited Pro Forma Financial Information has been prepared for illustrative purposes

only and because of its nature, it may not give a true picture of the financial position of the

Enlarged Group following the Completion.

The Unaudited Pro Forma Financial Information is prepared based on the unaudited

condensed consolidated statement of financial position of the Group as at 30 June 2017 as set

out in the interim report of the Company for the six months ended 30 June 2017, and the audited

statement of financial position of the Target Company as at 30 November 2017 as set out in the

accountants’ report on the Target Company included in Appendix II to this circular, after giving

effect to the pro forma adjustments described in the accompanying notes.

The Unaudited Pro Forma Financial Information should be read in conjunction with other

financial information included elsewhere in this circular. The Unaudited Pro Forma Financial

Information does not take into account any trading or other transactions subsequent to the dates of

the respective financial statements of the companies comprising the Enlarged Group.


III – 2

B. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL

POSITION OF THE ENLARGED GROUP

The Group

as at 30 June

2017

The Target

Company

as at

30 November

2017

Pro Forma Adjustments

Unaudited

pro forma of

the Enlarged

GroupNote 2.1 Note 2.2 Note 2.3 Note 2.4

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Non-current asset

Property, plant and equipment 34,622 113 34,735

Intangible assets – 103 103

Interest in subsidiary-Target

Company – – 107,955 57,271 (165,226) –

Statutory deposits and other assets 1,078 – 1,078

Interests in associates 33,749 – 33,749

Contingent consideration receivable 29,562 – 29,562

Deposit paid 305 157 462

Total non-current assets 99,316 373 99,689

Current Assets

Inventories 2,937 13,658 16,595

Trade receivables 8,934 – 8,934

Loans and receivables 34,604 – 34,604

Financial assets at fair value

through profit or loss 44,766 – 44,766

Prepayments, deposits and

other receivables 29,628 1,583 31,211

Amount due from former Directors 332 – 332

Pledged deposits to

secure banking facilities – 82,961 82,961

Bank balance and

cash – trust accounts 10,867 – 10,867

Bank balances and cash –

general accounts 230,441 18,441 (107,955) 140,927

Total current assets 362,509 116,643 371,197

Total assets 461,825 117,016 470,886


III – 3

The Group

as at 30 June

2017

The Target

Company

as at

30 November

2017

Pro Forma Adjustments

Unaudited

pro forma of

the Enlarged

GroupNote 2.1 Note 2.2 Note 2.3 Note 2.4

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Current liabilities

Trade payables 10,807 – 10,807

Other payables and accruals 1,636 107 1,743

Borrowings 7,563 – 7,563

20,006 107 20,113

Net current assets 342,503 116,536 351,084

Total assets less current liabilities 441,819 116,909 450,773

Non-current liabilities

Deferred income tax liabilities 5,804 – 5,804

5,804 – 5,804

Net assets 436,015 116,909 444,969

Capital and reserves

Share capital 64,989 119,726 57,271 (176,997) 64,989

Share premium 1,614,799 – 1,614,799

Special reserve 4,779 – 4,779

Statutory reserve 3,912 – 3,912

Translation reserve (16,310) (1,959) 131 (18,138)

Share-based compensation reserve 31,146 – 31,146

Accumulated losses (1,273,475) (858) 57 (1,274,276)

Equity attributable to owners of

the Company 429,840 116,909 427,211

Non-controlling interests 6,175 – 11,771 (188) 17,758

Total equity 436,015 116,909 444,969

Note:

The exchange rate adopted in the unaudited pro forma consolidated statement of financial position of the Enlarged

Group in HK$ at 30 November 2017 is 1.17708.


III – 4

C. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE

ENLARGED GROUP

1. Basis of preparation

This Unaudited Pro Forma Financial Information has been prepared in accordance

with Rule 7.31 of the GEM Listing Rules and based upon: (i) the unaudited condensed

consolidated statement of financial position of the Group as at 30 June 2017, which has

been extracted from the unaudited interim financial information of the Group for the six

months ended 30 June 2017 and (ii) the audited statement of financial position of the Target

Company as at 30 November 2017, which has been extracted from the accountants’ report on

the Target Company included in Appendix II to this circular; and adjusted in accordance with

the pro forma adjustments described in note 2 below, as if the Proposed Additional Capital

Contribution had been completed on 30 June 2017.

2. Notes to the pro forma adjustments

The Company and the Joint Venture Partner entered into the Joint Venture Agreement

on 4 July 2017 to form the Target Company on 2 August 2017. The Company and the

Joint Venture Partner had made their capital contributions to the Target Company of

RMB90,000,000 and RMB10,000,000 respectively. The Company propose to make an

additional capital contribution and subscribe for the entire 100% of the increased registered

capital of RMB50,000,000 of the Target company.

Upon the Completion, the Company will increase the interests in the Target Company

from 90% to 93.33%.

2.1 The adjustment represents the cash payment for the capital contribution of

RMB90,000,000 to the Target Company on 14 September 2017.

2.2 The adjustment represents the cash payment for the additional capital

contribution of RMB50,000,000 to the Target Company as if the transactions

had taken place as at 30 June 2017.

2.3 The adjustment represents the elimination of the interests in subsidiary and the

share capital of the Target Company and reflect the capital contribution of the

Joint Venture Partner.

2.4 The adjustment represents the share of the loss for the period and translation

reserves of the Target Company by the Joint Venture Partner.


III – 5

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE

COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

To the Directors of Sinofortune Financial Holdings Limited

We have completed our assurance engagement to report on the compilation of unaudited

pro forma financial information of Sinofortune Financial Holdings Limited (the “Company”)

and its subsidiaries (collectively the “Group”), and Chongqing Sheng Yu Hong Jia International

Trading Company Limited (the “Target Company”) (collectively the “Enlarged Group”) by the

directors for illustrative purposes only. The unaudited pro forma financial information consists

of the unaudited pro forma consolidated statement of financial position as at 30 June 2017, and

related notes (the “Unaudited Pro Forma Financial Information”) set out on pages III-1 to

III-4 of the Company’s circular dated 19 March 2018, in connection with the proposed additional

capital contribution to the Target Company (the “Proposed Additional Capital Contribution”).

The applicable criteria on the basis of which the directors have compiled the Unaudited Pro Forma

Financial Information are described in the circular.

The Unaudited Pro Forma Financial Information has been compiled by the directors to

illustrate the impact of the Proposed Additional Capital Contribution on the Group’s financial

position as at 30 June 2017 as if the Proposed Additional Capital Contribution had taken place at

30 June 2017. As part of this process, information about the Group’s financial position has been

extracted by the Directors from the Group’s unaudited interim financial information for the six

months ended 30 June 2017. Information about the financial position of the Target Company as at

30 November 2017 has been extracted by the Directors from the financial information of the Target

Company on which an accountants’ report has been published in Appendix II to the Circular.


III – 6

Directors’ responsibility for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information

in accordance with paragraph 7.31 of the Rules Governing the Listing of Securities on the GEM

of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”) and with reference

to Accounting Guideline (“AG”) 7 Preparation of Pro Forma Financial Information for Inclusion

in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (the

“HKICPA”).

Our independence and quality control

We have complied with the independence and other ethical requirements of the Code of

Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental

principles of integrity, objectivity, professional competence and due care, confidentiality and

professional behavior.

Our firm applies Hong Kong Standard on Quality Control 1 Quality Control for Firms that

Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services

Engagements, and accordingly maintains a comprehensive system of quality control including

documented policies and procedures regarding compliance with ethical requirements, professional

standards and applicable legal and regulatory requirements.

Reporting Accountants’ responsibilities

Our responsibility is to express an opinion, as required by paragraph 7.31(7) of the GEM

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.

We conducted our engagement in accordance with Hong Kong Standard on Assurance

Engagements 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial

Information Included in a Prospectus issued by the HKICPA. This standard requires that the

reporting accountants plan and perform procedures to obtain reasonable assurance about whether

the Directors have compiled the Unaudited Pro Forma Financial Information in accordance with

paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.


III – 7

For purposes of this engagement, we are not responsible for updating or reissuing any reports

or opinions on any historical financial information used in compiling the Unaudited Pro Forma

Financial Information, nor have we, in the course of this engagement, performed an audit or review

of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of the Unaudited Pro Forma Financial Information included in the Circular

is solely to illustrate the impact of the Proposed Additional Capital Contribution on unadjusted

financial information of the Group as if the transaction had been undertaken at an earlier date

selected for purposes of the illustration. Accordingly, we do not provide any assurance that the

actual outcome of the transaction would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial

Information has been properly compiled on the basis of the applicable criteria involves performing

procedures to assess whether the applicable criteria used by the Directors in the compilation of

the Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the

significant effects directly attributable to the transaction, and to obtain sufficient appropriate

evidence about whether:

• The related pro forma adjustments give appropriate effect to those criteria; and

• The Unaudited Pro Forma Financial Information reflects the proper application of

those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgment, having regard to the

reporting accountants’ understanding of the nature of the Group, the transaction in respect of which

the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement

circumstances.

The engagement also involves evaluating the overall presentation of the Unaudited Pro

Forma Financial Information.

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

for our opinion.


III – 8

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled on the

basis stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial

Information as disclosed pursuant to paragraph 7.31(7) of the GEM Listing Rules.

Yours faithfully,

CHENG & CHENG LIMITED

Certified Public Accountants


Cheng Hong Cheung

Practising Certificate number P01802

APPENDIX IV GENERAL INFORMATION OF THE GROUP

IV – 1

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility,

includes particulars given in compliance with the GEM Listing Rules for the purpose of giving

information with regard to the Company. The Directors, having made all reasonable enquiries,

confirm that to the best of their knowledge and belief the information contained in this circular is

accurate and complete in all material respects and not misleading or deceptive, and there are no

other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Interest of Directors

As at Latest Practicable Date, the interests or short positions of the Directors and chief

executive of the Company in the shares, underlying shares and debentures of the Company

or any of its associated corporations (within the meaning of Part XV of the SFO) which were

notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV

of the SFO (including interests or short positions which they are taken or deemed to have

taken under such provisions of the SFO), or which were required, pursuant to Section 352 of

the SFO, to be entered in the register referred to therein, or which were required, pursuant to

Rules 5.46 to 5.67 of the GEM Listing Rules, to be notified to the Company and the Stock

Exchange, were as follows:

(i) Long positions in Shares

Name of Directors Nature of interest Number of Shares

Approximatepercentage of

the issued share capital of

the Company

Wang Jiawei Personal 202,043,628 3.11%

Lai Yuk Mui Personal 2,780,127 0.04%

Liu Runtong Personal 2,646,000 0.04%


IV – 2

(ii) Long positions in underlying Shares

Name of Directors Nature of interest Number of Shares

Approximate percentage of


the Company

Lai Yuk Mui Personal 3,186,158 0.05%

Liu Runtong Personal 31,861,575 0.49%

James Beeland Rogers Jr. Personal 60,000,000 0.92%

Zhang Benzheng Personal 2,124,105 0.03%

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or

chief executives of the Company have interest or short positions in the shares, underlying

shares and debentures of the Company or its associated corporations (within the meaning of

Part XV of the SFO) (i) which were required to be notified to the Company and the Stock

Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short

positions which they were taken or deemed to have under such provisions of the SFO) or

(ii) which were required, pursuant to Section 352 of the SFO, to be entered in the register

referred to therein, or (iii) were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing

Rules relating to securities transactions by directors to be notified to the Company and the

Stock Exchange.

(b) Interest of substantial Shareholders

As at the Latest Practicable Date, to the best knowledge of the Directors, the following

person (other than a Director and the chief executive of the Company) who had, or was

deemed to have, interests or short positions in the Shares or underlying Shares, which

would fall to be disclosed to the Company and the Stock Exchange under the provisions of

Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register of interests

required to be kept by the Company pursuant to Section 336 of the SFO, or who was

expected, directly or indirectly, to be interested in 10% or more of the nominal value of any

class of share capital carrying rights to vote in all circumstances at general meetings of any

member of the Group:

(i) Long positions:

Name of Shareholders Nature of interest Number of Shares

Approximatepercentage of


the Company

Wang Wenming and

Chen Dongjin (Note 1)

Personal 595,328,957 9.16%

Zhu Wei Personal 350,004,000 5.39%


IV – 3

Note:

(1) Ms. Chen Dongjin held 145,116,650 shares of the Company. Ms. Chen Dongjin is the

spouse of Mr. Wang Wenming who held 450,212,307 shares of the Company. As such, they

were deemed to be collectively interested in 595,328,957 shares of the Company.

Save as disclosed above, so far as is known to the Directors or chief executives of

the Company, the Company had not been notified of any other interests or short positions

in the shares and underlying shares of the Company which would fall to be disclosed under

the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the

register required to be kept by the Company under section 336 of the SFO.

3. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation

or arbitration or claim of material importance and no litigation or claim of material importance is

known to the Directors to be pending or threatened by or against any member of the Group.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered or proposed to entered

into any service contracts with any member of the Group, excluding contracts expiring or

determinable by the employer within one year without payment of any compensation (other than

statutory compensation).

5. COMPETING INTERESTS

As at the Latest Practicable Date, as far as the Directors were aware, none of the Directors

or controlling shareholders of the Company or any of their respective close associates (as defined

in the GEM Listing Rules) had any interest in a business which competes or may compete with the

business of the Group nor does any of them has or may have any other conflicts of interest with the

Group.


IV – 4

6. DISCLOSURE OF OTHER INTEREST

As at the Latest Practicable Date:

(a) none of the Directors has or had any direct or indirect interest in any assets which

have been acquired or disposed of by or leased to any member of the Group, or are

proposed to be acquired or disposed of by or leased to any member of the Group since

31 December 2016 (being the date to which the latest published audited accounts of

the Group were made up); and

(b) none of the Directors was materially interested, directly or indirectly, in any contract

or arrangement entered into by any member of the Group which is subsisting as at the

Latest Practicable Date and is significant in relation to the business of the Group.

7. MATERIAL CONTRACTS

The following contracts (being contracts not entered into in the ordinary course of business

of the Group) were entered into by members of the Group within two years immediately preceding

the date of this circular and are or may be material:

(a) The Joint Venture Agreement.

8. EXPERTS AND CONSENTS

The following is the qualification of the experts or professional advisers who have given

opinion or advice contained in this circular:

Name Qualification

CHENG & CHENG LIMITED Certified Public Accountants

As at the Latest Practicable Date, each of the above experts has given and has not withdrawn

its written consent to the issue of this circular with the inclusion herein of its letter and report and

references to its name in the form and context in which it appears.


IV – 5

As at the Latest Practicable Date, none of the above experts had any interest, either direct

or indirect, in any assets which have been, since 31 December 2016, being the date to which the

latest published audited consolidated financial statements of the Group were made up, acquired

or disposed of by or leased to or were proposed to be acquired or disposed of by or leased to any

member of the Group nor had any shareholding in any member of the Group nor any right (whether

legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any

member of the Group.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours

on any weekday (except public holidays) at the principal place of business of the Company in Hong

Kong at 16th Floor, CMA Building, No. 64-66 Connaught Road Central, Hong Kong from the date

of this circular up to and including 9 April 2018 (both days inclusive):

(a) the memorandum and articles of association of the Company;

(b) the annual reports of the Company for the years ended 31 December 2015 and 2016

respectively;

(c) the accountants’ report on the Joint Venture Company, the text of which is set out in

Appendix II to this circular;

(d) the letter on the unaudited pro forma financial information of the Enlarged Group

assuming Completion issued by CHENG & CHENG LIMITED set out in Appendix III

to this circular;

(e) the consent letter referred to in the paragraph under the heading “Experts and

Consents” in this Appendix to this circular;

(f) the material contracts disclosed in the paragraph under the heading “Material

Contracts” in this Appendix to this circular; and

(g) this circular.


IV – 6

10. GENERAL

(a) The registered office of the Company is situated at Cricket Square, Hutchins Drive,

P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands and its principal place

of business in Hong Kong is 16th Floor, CMA Building, No. 64-66 Connaught Road

Central, Hong Kong.

(b) The compliance officer of the Company is Ms. Lai Yuk Mui, who is an executive

Director since 1 August 2015. Ms. Lai received her Bachelor of Arts degree in

Financial Services from Edinburgh Napier University in Scotland.

(c) The company secretary of the Company is Ms. Woo Man Yi, who is an associate

member of the Hong Kong Institute of Chartered Secretaries and the Institute of

Chartered Secretaries and Administrators, United Kingdom.

(d) The Company’s audit committee (“Audit Committee”) comprises of three

independent non-executive Directors, namely, Professor Zhang Benzheng, Mr. Li

Jianxing and Professor Chen Shu Wen. The primary duties of the audit committee are

to review the Company’s annual report and accounts, semi-annual report and quarterly

reports and to provide advices and comments thereon to the Board. The biography of

the members of Audit Committee are set out below:

(i) Professor Zhang Benzheng (“Professor Zhang”), aged 78, has been an

independent non-executive Director of the Company since 30 September

2008. Professor Zhang graduated with a Bachelor Degree from the Faculty of

Engineering Physics of the Tsinghua University in 1965. He was a visiting

scholar in the Brookhaven National Laboratory of USA and the Stuttgart

University of Germany. He was the vice director of the Tsinghua University

R&D department and the general manager of Tsinghua University Science

and Technology Corporation. During the period from 1999 to 2002, he held

various senior positions in two companies listed on the Shenzhen Stock

Exchange, namely Tsinghua Unisplendour Limited and Tsinghua Unisplendour

Guhan Group Corporation. He was the chairman and legal representative of

Tsinghua Unisplendour Guhan Group Corporation and president of Tsinghua

Unisplendour Limited before he left these companies in 2002. He then joined

Tsinghua Unisplendour (Group) Corporation in 2002 and was its president

until 2004. Professor Zhang was the general vice president and secretary of the

Beijing Non-Governmental Science & Technology Entrepreneurs Association.

With his remarkable business leadership as well as exploratory initiatives,


IV – 7

Professor Zhang had made tremendous contribution to the companies he worked

for. He has not only gained compliments from the society at large, but has also

won a series of honors. In 1997, Professor Zhang received the national prize

of “The Third Term Science and Technology Light Award for Outstanding

Scientific and Technological Entrepreneur”. In 2000, he won the “Hong Kong

Bauhinia Cup Outstanding Entrepreneur Award” and the “Entrepreneurial

Talent” award issued by the Beijing Non-Governmental Science and

Technology Entrepreneurs Association. In 2002, he was selected as the first

lot of “Zhongguan Village Outstanding Entrepreneurs”. Professor Zhang is

currently the Chief Consultant of 容匯未來（北京）科技產業發展有限公司

(transliterated as Ronghui Future (Beijing) Technology Development Co., Ltd.).

(ii) Mr. Li Jianxing (“Mr. Li”), aged 60, has been an independent non-executive

Director and a member of the audit committee of the Company since 28 March

2011. He was also appointed as chairman of audit committee of the Company

with effect from 22 September 2015. Mr. Li graduated from Shanghai Maritime

University with a Bachelor Degree in accounting. He also received a Master

Degree in Business Administration from Canisius College of Buffalo. Mr. Li

has over 30-year experience working in the field of accounting and corporate

finance and has substantial experience in management in various listed

companies, investment business, investor relations and project management.

He was the senior manager of both the investment department and finance

department of China Everbright Holdings Co., Ltd from April 1998 to June

2000. He served as the Chief Finance Officer for Intermost Corporation from

June 2000 to 2003. From April 2003 to May 2004, he was a General Manager

of Investor Relations in China Resources Power Holdings Co., Ltd. He has been

a director of Concord Investment Holdings Limited since 2004.


IV – 8

(iii) Professor Chen Shu Wen (“Professor Chen”), aged 63, has been an

independent non-executive Director and a member of the audit committee of

the Company since 23 September 2011. Professor Chen graduated from 東北財經大學 (Dongbei University of Finance and Economics) with a Bachelor

Degree in Economics and obtained a Master Degree and a PhD in Economics

from 吉林大學 (Jilin University). He is a qualified PRC lawyer currently

practising at 遼寧天合律師事務所 (Liaoning Tianhe Law Firm). Professor

Chen has substantial management and leadership experience serving in the PRC

government. He commenced his career as the deputy county chief of the Benxi

Manchu Autonomous County, Liaoning Province, PRC, in 1992 and became

the director（主任）of 本溪市經濟體制改革委員會 (Benxi City Commission

for Restructuring the Economic Systems) from 1995. He was the vice director

general（副主任）of 本溪市對外經濟貿易合作委員會 (Benxi Foreign Trade &

Economic Cooperation Committee) from 1998 until 2001. From 2001 to 2009,

Professor Chen was the professor and the tutor for doctorate students at 大連理工大學管理學院 (Faculty of Management and Economics of Dalian University

of Technology). From 2010 to 2014, he was the dean at 大連理工大學公共管理與法學學院 (School of Public Administration and Law of Dalian University

of Technology). From 2010 to now, Professor Chen has been the professor and

the tutor for doctorate students at 大連理工大學公共管理與法學學院 (School

of Public Administration and Law of Dalian University of Technology). He is

currently an independent non-executive director of 魏橋紡織股份有限公司

(Weiqiao Textile Company Limited) (Hong Kong Stock Exchange Stock Code:

2698) and an independent director of 獐子島集團股份有限公司 (Zhangzidao

Group Co. Ltd.) (Shenzhen Stock Exchange Stock Code: 002069).

(e) The Hong Kong branch share registrar and transfer office of the Company is Hong

Kong Registrars Limited at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Wan

Chai, Hong Kong.

(f) For the purpose of this circular, unless otherwise specified, conversion of RMB into

HK$ is based on the approximate exchange rate of RMB1.00 to HK$1.23602.

(g) The English text of this circular and the accompanying form of proxy shall prevail

over this respective Chinese test in the case of inconsistency.

NOTICE OF EGM

EGM – 1



(Stock code: 08123)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Sinofortune

Financial Holdings Limited (the “Company”) will be held at 10:00 a.m. on Monday, 9 April 2018

at 4/F., Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong for the purpose of

considering and, if thought fit, passing with or without amendments the following resolution which

will be proposed as ordinary resolution of the Company:

ORDINARY RESOLUTION

1. “THAT the Proposed Additional Capital Contribution (as defined in the circular dated

19 March 2018 despatched to the shareholders of the Company (the “Circular”)),

a copy of which has been produced to this meeting marked “A” and signed by the

chairman hereof for the purpose of identification, be and are hereby approved,

confirmed and ratified.”

By Order of the Board

Sinofortune Financial Holdings Limited

Wang Jiawei

Chairman


Registered Office:

Cricket Square,

Hutchins Drive,

P.O. Box 2681,

Grand Cayman KY1-1111,

Cayman Islands

Head office and principal place of

business in Hong Kong:

16th Floor,

CMA Building,

No. 64-66 Connaught Road Central,

Hong Kong

NOTICE OF EGM

EGM – 2

Notes:

1. Any shareholder entitled to attend and vote at the extraordinary general meeting shall be entitled to appoint another

person as his/her proxy to attend and vote instead of him/her. A shareholder who is the holder of two or more

shares may appoint more than one proxy to represent him/her and vote on his/her behalf. A proxy need not to be a

shareholder of the Company.

2. In order to be valid, a form of proxy together with the power of attorney or other authority (if any) under which it is

signed or a notarially certified copy thereof, must be deposited at the Company’s branch share registrar and transfer

office in Hong Kong, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan

Chai, Hong Kong not less than 48 hours before the time appointed for the extraordinary general meeting (or any

adjournment thereof).

3. The completion and delivery of a form of proxy shall not preclude a shareholder from attending and voting in

person at the extraordinary general meeting and in such event, the instrument appoint a proxy shall be deemed to be

revoked.

4. Where there are joint holders of any shares, any one of such joint holder may vote, either in person or by proxy in

respect of such shares as if he/she was solely entitled hereto; but if more than one of such joint holders be present at

the extraordinary general meeting, the vote of the senior who tenders a vote, whether in person or by proxy, shall be

accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by

the order in which the names stand in the register of members of the Company.

5. A form of proxy for use at the extraordinary general meeting is attached herewith.

6. Any voting at the extraordinary general meeting shall be taken by poll.

7. The form of proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing

or, if the appointer is a corporation, either under its seal or under the hand of an officer, attorney or other person

authorised to sign the same.

As at the date of this notice, the board of directors of the Company comprises Mr. Wang

Jiawei and Ms. Lai Yuk Mui being executive directors; Mr. Liu Runtong and Mr. James Beeland

Rogers Jr. being non-executive directors; and Professor Zhang Benzheng, Mr. Li Jianxing and

Professor Chen Shu Wen being independent non-executive directors.

華億金控集團有限公司 sinofortune financial ...ecobeauty co., ltd), a limited liability...

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