(Holdings) Limited 裕元工業（集團）有限

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 licensed securities dealer or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in Yue Yuen Industrial (Holdings) Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for transmission to the purchaser or transferee. This circular appears for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities. 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.

YUE YUEN INDUSTRIAL (HOLDINGS) LIMITED 裕元工業（集團）有限公司* (Incorporated in Bermuda with limited liability) (Stock Code: 551)

(1) PROPOSED MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE EFFECTIVE DISPOSAL OF THE COMPANY’S ENTIRE SHAREHOLDING IN POU SHENG INTERNATIONAL (HOLDINGS) LIMITED

(2) SPECIAL DIVIDEND

AND

(3) NOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

SOMERLEY CAPITAL LIMITED

A letter from the Board is set out on pages 7 to 17 of this circular. A letter of the Independent Board Committee is set out on pages 18 to 19 of this circular. A letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 20 to 44 of this circular. A notice convening the special general meeting (the “SGM”) of Yue Yuen Industrial (Holdings) Limited to be held at 22nd Floor, C-Bons International Center, 108 Wai Yip Street, Kwun Tong, Kowloon, Hong Kong on Friday, 16 March 2018 at 2:00 p.m. is set out on page 55 to 56 to this circular. Whether or not you are able to attend the SGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the branch share registrar of the Company in Hong Kong, Tricor Secretaries Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not later than 2:00 p.m. on Wednesday, 14 March 2018, or not less than 48 hours before the time for holding the adjourned meeting, as the case may be. Completion and return of the form of proxy will not preclude Shareholders from attending and voting at the SGM or at any adjourned meeting thereof, should you so wish. * For identification purpose only 27 February 2018 CONTENTS

Page

Definitions ...... 1

Expected Timetable ...... 6

Letter from the Board ...... 7

Letter from the Independent Board Committee ...... 18

Letter from the Independent Financial Adviser ...... 20

Appendix I – Financial Information of the Group ...... 45

Appendix II – General Information ...... 47

Notice of Special General Meeting ...... 55

– i – DEFINITIONS

In this circular, the following terms or expressions shall have the meanings set out below unless the context requires otherwise:

“acting in concert” has the meaning ascribed to it under the Takeovers Code

“Announcement” the announcement dated 21 January 2018 issued jointly by Pou Chen, Pou Sheng and the Company in relation to, among others, the Proposal, the Scheme and the possible major and connected transaction for the Company in relation to the Disposal

“Announcement Date” 21 January 2018, being the date of the Announcement

“Authorizations” all the necessary authorizations, registrations, filings, rulings, consents, permissions and approvals in connection with the Proposal

“Bermuda Companies Act” the Companies Act 1981 of Bermuda

“Bermuda Court” the Supreme Court of Bermuda

“Board” the board of Directors of the Company

“business day” any day (other than a Saturday, Sunday or public holiday) on which banks are generally open for business in Hong Kong

“Cancellation Price” the cancellation price of HK$2.03 per Scheme Share payable in cash to the Scheme Shareholders pursuant to the Scheme

“Company” Yue Yuen Industrial (Holdings) Limited (裕元工業(集團) 有限公司*), a company incorporated in Bermuda with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (stock code: 551.HK)

“Court Meeting” a meeting of the Scheme Shareholders to be convened at the direction of the Bermuda Court at which the Scheme (with or without modification) will be voted upon, or any adjournment thereof

“Conditions” the condition(s) to the implementation of the Proposal and the Scheme as described in the section headed “Letter from the Board – C. The Proposal and the Option Offer – Conditions to the Proposal and the Scheme” in this circular

“controlling shareholder” has the meaning as ascribed thereto under the Listing Rules

“connected person” has the meaning as ascribed thereto under the Listing Rules

* For identification purpose only – 1 – DEFINITIONS

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

“Disinterested Scheme Scheme Shareholder(s) other than the Pou Chen Concert Shareholder(s)” Parties

“Disposal” the effective disposal by the Company of all Pou Sheng Shares held by it or its subsidiaries to Pou Chen at the Cancellation Price through the cancellation of all such Pou Sheng Shares in exchange for Pou Chen paying to the Company a total consideration of HK$6,763,049,667, which is subject to the approval of the Independent Shareholders

“Effective Date” the date on which the Scheme becomes effective in accordance with the Bermuda Companies Act

“Group” the Company and its subsidiaries

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

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

“IFA” or “Independent Somerley Capital Limited, a corporation licensed to Financial Adviser” conduct type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, who is the independent financial adviser to the Independent Board Committee and Independent Shareholders in relation to the terms of the Disposal and the transactions contemplated thereunder

“Independent Board the board committee of the Company comprising all Committee” independent non-executive Directors, namely Mr. Leung Yee Sik, Mr. Huang Ming Fu, Mr. Chu Li-Sheng, Ms. Yen Mun-Gie (also known as Teresa Yen) and Mr. Hsieh Yung Hsiang (also known as Alfred Hsieh), established to advise the Independent Shareholders in respect of the Disposal and the transactions contemplated thereunder

“Independent Shareholders” Shareholders other than Pou Chen, Wealthplus, Win Fortune as well as Mr. Tsai and his controlled companies who are required to abstain from voting on the Disposal and the transactions contemplated thereunder

“Last Trading Day” 19 January 2018, being the last trading day prior to the publication of the Announcement

“Latest Practicable Date” 23 February 2018, being the latest date by which certain information in this circular is ascertained prior to publication

– 2 – DEFINITIONS

“Listing Rules” the Rules Governing the Listing of Securities of the Stock Exchange

“Major Focus” Major Focus Management Limited (禮尚管理有限公司), a company incorporated in the British Virgin Islands with limited liability, which is a direct wholly-owned subsidiary of the Company and is interested in approximately 62.38% of the total issued share capital of Pou Sheng as at the Latest Practicable Date

“Mr. Chan” Mr. Chan Lu Min, who is the chairman (being a director) of Pou Chen and an executive Director of the Company

“Mr. Tsai” Mr. Tsai Chi Jui, a substantial shareholder of the Company for the purpose of the SFO and the father of Ms. Tsai

“Ms. Tsai” Ms. Tsai Pei Chun, a director of Pou Chen, an executive Director of the Company, a non-executive director of Pou Sheng and the daughter of Mr. Tsai

“Option Offer” the offer to be made by or on behalf of Pou Chen to the Pou Sheng Optionholders

“Pou Chen” Pou Chen Corporation (寶成工業股份有限公司), a company incorporated in Taiwan with limited liability, the shares of which are listed on the Taiwan Stock Exchange (stock code: 9904.TW) and which is a controlling shareholder of the Company

“Pou Chen Board” the board of directors of Pou Chen

“Pou Chen Concert all parties acting in concert with Pou Chen in relation to Party(ies)” Pou Sheng as defined under the Takeovers Code

“Pou Chen Group” Pou Chen and its subsidiaries

“Pou Sheng” Pou Sheng International (Holdings) Limited (寶勝國際（控股）有限公司), a company incorporated in Bermuda with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (stock code: 3813. HK)

“Pou Sheng Board” the board of directors of Pou Sheng

“Pou Sheng Group” Pou Sheng and its subsidiaries

“Pou Sheng Option(s)” share option(s) granted under the share option scheme of Pou Sheng adopted on 14 May 2008 and amended on 7 March 2012

– 3 – DEFINITIONS

“Pou Sheng Optionholder(s)” holder(s) of Pou Sheng Option(s)

“Pou Sheng SGM” a special general meeting of Pou Sheng Shareholders (including any adjournment thereof) to be convened for the purpose of considering, and if thought fit, approving, among other things, (i) the allotment and issue of one Pou Sheng Share to Pou Chen or its designated wholly-owned subsidiary; (ii) the reduction of the issued s h a r e c a p i t a l o f P o u S h e n g b y c a n c e l l i n g a n d extinguishing the Scheme Shares; and (iii) the allotment and issue of an equivalent number of Pou Sheng Shares immediately thereafter to Pou Chen and/or its designated wholly-owned subsidiary(ies)

“Pou Sheng Shareholders” holder(s) of Pou Sheng Share(s)

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

“PRC” or “China” the People’s Republic of China

“Proposal” the proposal for the privatization of Pou Sheng by Pou Chen by way of the Scheme

“Record Date” the record date for determining entitlements under the Proposal

“Relevant Authorities” competent governments and/or governmental bodies, regulatory bodies, courts or institutions

“RMB” Renminbi, the lawful currency of the PRC

“Scheme” a scheme of arrangement under Section 99 of the Bermuda Companies Act involving the cancellation of all the Scheme Shares and the simultaneous issuance of an equivalent number of new Pou Sheng Shares to Pou Chen and/or its designated wholly-owned subsidiary(ies)

“Scheme Document” the composite scheme document in relation to the Scheme, the Proposal and the Option Offer to be jointly issued by Pou Chen and Pou Sheng and expected, as at the Latest Practicable Date, to be dispatched to Pou Sheng Shareholders on or before 16 March 2018

“Scheme Shareholders” holder(s) of Scheme Share(s) as at the Record Date

“Scheme Shares” Pou Sheng Share(s) other than those held by Pou Chen directly and/or indirectly through its wholly-owned subsidiary(ies)

“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) – 4 – DEFINITIONS

“SGM” the special general meeting of the Company to be convened at 22nd Floor, C-Bons International Center, 108 Wai Yip Street, Kwun Tong, Kowloon, Hong Kong on Friday, 16 March 2018 at 2:00 p.m. for the purpose of considering, and if thought fit, approving, among other things, the Disposal and the transactions contemplated thereunder

“Shareholders” holder(s) of Shares

“Share(s)” ordinary share(s) of the Company

“Special Dividend” a conditional one-off special dividend in cash of HK$4.10 per Share

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Taiwan” the Republic of China

“Taiwan Stock Exchange” Taiwan Stock Exchange Corporation

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

“US$” the United States dollars, the lawful currency of the United States of America

“Wealthplus” Wealthplus Holdings Limited, a company incorporated in the British Virgin Islands with limited liability, which is a direct wholly-owned subsidiary of Pou Chen and is interested in approximately 46.90% of the total issued share capital of the Company as at the Latest Practicable Date

“Win Fortune” W i n F o r t u n e I n v e s t m e n t s L i m i t e d, a c o m p a n y incorporated in the British Virgin Islands with limited liability, which is a direct wholly-owned subsidiary of Pou Chen and is interested in approximately 3.09% of the total issued share capital of the Company as at the Latest Practicable Date

All references in this circular to times and dates are references to Hong Kong times and dates, except as otherwise specified.

For the purposes of this circular, unless otherwise indicated, conversion of US$ and HK$ is calculated at the exchange rate of US$1 to HK$7.8. The exchange rate is for illustrative purpose only and does not constitute a representation that any amount has been, could have been, or may be exchanged at this or any other rate at all.

– 5 – EXPECTED TIMETABLE

The Scheme Document is expected, as at the Latest Practicable Date, to be dispatched to the Pou Sheng Shareholders on or before 16 March 2018. A detailed timetable for the Proposal and the Scheme, including (i) the date of the Court Meeting, (ii) the date of the Pou Sheng SGM, (iii) the Effective Date, (iv) the expected last day for dealings in the Pou Sheng Shares on the Stock Exchange, (v) the date of the withdrawal of listing of the Pou Sheng Shares on the Stock Exchange, and (vi) the latest time to dispatch cheques for payment of the Cancellation Price to the Scheme Shareholders, will be set out in the Scheme Document.

The Disposal will be completed on the same day of completion of the Proposal.

Shareholders should note that the dates set out above are subject to change. Reference should be made to the Scheme Document and/or announcement(s) of Pou Sheng for any changes to the above timetable.

– 6 – LETTER FROM THE BOARD

YUE YUEN INDUSTRIAL (HOLDINGS) LIMITED 裕元工業（集團）有限公司* (Incorporated in Bermuda with limited liability) (Stock Code: 551)

Board of Directors: Registered Office: Executive Directors: Clarendon House Lu Chin Chu (Chairman) 2 Church Street Tsai Pei Chun, Patty (Managing Director) Hamilton HM 11 Chan Lu Min Bermuda Lin Cheng-Tien Tsai Ming-Lun, Ming Principal Place of Business: Hu Chia-Ho 22nd Floor Liu George Hong-Chih C-Bons International Center Hu Dien Chien 108 Wai Yip Street Kwun Tong Independent Non-executive Directors: Kowloon, Hong Kong Leung Yee Sik Huang Ming Fu Chu Li-Sheng Yen Mun-Gie (also known as Teresa Yen) Hsieh Yung Hsiang (also known as Alfred Hsieh)

27 February 2018

To the Shareholders

Dear Sir or Madam,

(1) PROPOSED MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE EFFECTIVE DISPOSAL OF THE COMPANY’S ENTIRE SHAREHOLDING IN POU SHENG INTERNATIONAL (HOLDINGS) LIMITED (2) SPECIAL DIVIDEND AND (3) NOTICE OF SPECIAL GENERAL MEETING

A. INTRODUCTION

Reference is made to the Announcement. The purpose of this circular is to provide you with further information on the Disposal and notice of the SGM.

* For identification purpose only

– 7 – LETTER FROM THE BOARD

B. DISPOSAL

On 21 January 2018, Pou Chen requested the Pou Sheng Board to put forward the Proposal to the Scheme Shareholders for the privatisation of Pou Sheng by way of a scheme of arrangement under Section 99 of the Bermuda Companies Act. Subject to the fulfilment or waiver (as applicable) of the Conditions, which includes, among others, the passing of an ordinary resolution by the Independent Shareholders at the SGM to approve the Disposal, the Proposal and the Scheme will become effective and binding on Pou Sheng and all Pou Sheng Shareholders, including the Company, on the Effective Date. Accordingly, the Proposal, as and when it is implemented, will involve the Company effectively disposing of all its Pou Sheng Shares representing approximately 62.38% of the total issued share capital of Pou Sheng to Pou Chen at the Cancellation Price through the cancellation of all such Pou Sheng Shares in exchange for Pou Chen paying to the Company a total consideration of HK$6,763,049,667. The Announcement states that the Cancellation Price has been determined on a commercial basis after taking into account the historical prices of the Pou Sheng Shares as quoted on the Stock Exchange, the trading multiples of comparable companies listed on the Stock Exchange, and other privatization transactions in Hong Kong in recent years.

C. THE PROPOSAL AND THE OPTION OFFER

Conditions to the Proposal and the Scheme

The Proposal and the Scheme will become effective and binding on Pou Sheng and all Pou Sheng Shareholders, subject to the fulfilment or waiver (as applicable) of the following Conditions on or before 30 May 2018 (or such later date as Pou Chen and Pou Sheng may agree or, to the extent applicable, as the Bermuda Court may direct), failing which the Proposal and the Scheme will lapse:

(a) the approval of the Scheme (by way of poll) by a majority in number of Scheme Shareholders representing not less than three-fourths in value of the Pou Sheng Shares held by the Scheme Shareholders present and voting either in person or by proxy at the Court Meeting;

(b) the approval of the Scheme (by way of poll) by at least 75% of the votes attaching to the Pou Sheng Shares held by the Disinterested Scheme Shareholders that are voted either in person or by proxy at the Court Meeting, provided that the number of votes cast (by way of poll) against the resolution to approve the Scheme is not more than 10% of the votes attaching to all the Pou Sheng Shares held by all the Disinterested Scheme Shareholders;

(c) the passing of a special resolution by a majority of not less than three-fourths of the votes cast by the Pou Sheng Shareholders present and voting in person or by proxy at the Pou Sheng SGM to approve, among other things, (i) the allotment and issue of one Pou Sheng Share to Pou Chen or its designated wholly-owned subsidiary; (ii) the reduction of the issued share capital of Pou Sheng by cancelling and extinguishing the Scheme Shares; and (iii) the allotment and issue of an equivalent number of Pou Sheng Shares immediately thereafter to Pou Chen and/or its designated wholly-owned subsidiary(ies);

– 8 – LETTER FROM THE BOARD

(d) the sanction of the Scheme (with or without modifications) by the Bermuda Court and the delivery to the Registrar of Companies in Bermuda of a copy of the order of the Bermuda Court for registration;

(e) the necessary compliance with the procedural requirements and conditions (if any) of Section 46(2) of the Bermuda Companies Act in relation to the reduction of the issued share capital of Pou Sheng referred to in Condition (c) above;

(f) the approval by the Investment Commission of the Ministry of Economic Affairs of Taiwan of the additional investment by Pou Chen in the PRC (as a result of Pou Sheng becoming a wholly-owned subsidiary of Pou Chen pursuant to the Scheme) pursuant to Article 35 of the Act Governing Relations between the People of the Taiwan Area and the Mainland Area (as amended from time to time) and the regulations promulgated thereunder;

(g) the passing of an ordinary resolution by the Independent Shareholders at the SGM to approve the Disposal;

(h) the approval by the Investment Commission of the Ministry of Economic Affairs of Taiwan of the reduction of investment by the Company in the PRC (as a result of the Disposal) pursuant to Article 35 of the Act Governing Relations between the People of the Taiwan Area and the Mainland Area (as amended from time to time) and the regulations promulgated thereunder;

(i) all Authorizations having been obtained or made from, with or by (as the case may be) the Relevant Authorities in Bermuda, Hong Kong, Taiwan and any other relevant jurisdictions;

(j) all Authorizations remaining in full force and effect without variation, and all necessary statutory or regulatory obligations in all relevant jurisdictions having been complied with and no requirement having been imposed by any Relevant Authorities which is not expressly provided for, or is in addition to requirements expressly provided for, in relevant laws, rules, regulations or codes in connection with the Proposal or any matters, documents (including circulars) or things relating thereto, in each aforesaid case up to and at the time when the Scheme becomes effective;

(k) all necessary consents (including consents from the relevant lenders) in connection with the Proposal and the withdrawal of listing of the Pou Sheng Shares on the Stock Exchange which may be required under any existing contractual obligations of Pou Sheng and the Company being obtained and remaining in effect;

(l) no lender of the Pou Sheng Group or the Group as at the Announcement Date indicating on or prior to the Effective Date that it will exercise its rights to accelerate the repayment of any obligations prior to the stated maturity date arising from, or to claim an event of default under, any financing documentation to which any member of the Pou Sheng Group or the Group is a party;

– 9 – LETTER FROM THE BOARD

(m) if required, the obtaining by Pou Chen of such other necessary consent, approval, authorization, permission, waiver or exemption which may be required from any Relevant Authorities or other third parties which are necessary for the performance of the Scheme under applicable laws and regulations;

(n) no government, governmental, quasi-governmental, statutory or regulatory body, court or agency in any jurisdiction having taken or instituted any action, proceeding, suit, investigation or enquiry (or enacted, made or proposed, and there not continuing to be outstanding, any statute, regulation, demand or order) that would make the Proposal or the Scheme or its implementation in accordance with its terms void, unenforceable, illegal or impracticable (or which would impose any material and adverse conditions or obligations with respect to the Proposal or the Scheme or its implementation in accordance with its terms), other than such actions, proceedings, suits, investigations or enquiries as would not have a material adverse effect on the legal ability of Pou Chen to proceed with the Proposal or the Scheme;

(o) since the Announcement Date, there having been no material adverse change in the business, assets, financial or trading positions, profits or prospects of any member of the Pou Sheng Group to an extent which is material in the context of the Pou Sheng Group taken as a whole or in the context of the Proposal; and

(p) since the Announcement Date, there not having been instituted or remaining outstanding any litigation, arbitration proceedings, prosecution or other legal proceedings to which any member of the Pou Sheng Group is a party (whether as plaintiff or defendant or otherwise) and no such proceedings having been threatened in writing against any such member and no investigation by any government or quasi-governmental, supranational, regulatory or investigative body or court against or in respect of any such member or the business carried on by any such member having been threatened in writing, announced, instituted or remaining outstanding by, against or in respect of any such member, in each case which is material and adverse in the context of the Pou Sheng Group taken as a whole or in the context of the Proposal.

Withdrawal of listing of the Pou Sheng Shares

If the Proposal is approved and implemented:

(a) all Scheme Shares will be cancelled (with an equivalent number of Pou Sheng Shares to be issued to Pou Chen and/or its designated wholly-owned subsidiary(ies)) and the share certificates in respect of the Scheme Shares will thereafter cease to have effect as documents or evidence of title;

(b) Pou Sheng will become a direct or indirect wholly-owned subsidiary of Pou Chen; and

(c) Pou Sheng will apply to the Stock Exchange for the withdrawal of listing of the Pou Sheng Shares on the Stock Exchange so that such withdrawal is to take place immediately following the Effective Date. – 10 – LETTER FROM THE BOARD

The listing of the Pou Sheng Shares on the Stock Exchange will not be withdrawn if the Scheme is not approved or if the Proposal otherwise lapses.

Cancellation Price

Subject to the Scheme becoming effective, all the Scheme Shares will be cancelled in exchange for the Cancellation Price of HK$2.03 per Scheme Share.

The Cancellation Price of HK$2.03 per Scheme Share represents:

(a) a premium of approximately 31.82% over the closing price of HK$1.54 per Pou Sheng Share as quoted on the Stock Exchange on the Last Trading Day;

(b) a premium of approximately 51.49% over the average closing price of approximately HK$1.34 per Pou Sheng Share based on the daily closing prices as quoted on the Stock Exchange for the 10 trading days up to and including the Last Trading Day;

(c) a premium of approximately 70.68% over the average closing price of approximately HK$1.19 per Pou Sheng Share based on the daily closing prices as quoted on the Stock Exchange for the 30 trading days up to and including the Last Trading Day;

(d) a premium of approximately 64.39% over the average closing price of approximately HK$1.23 per Pou Sheng Share based on the daily closing prices as quoted on the Stock Exchange for the 60 trading days up to and including the Last Trading Day;

(e) a premium of approximately 51.11% over the average closing price of approximately HK$1.34 per Pou Sheng Share based on the daily closing prices as quoted on the Stock Exchange for the 120 trading days up to and including the Last Trading Day; and

(f) a premium of approximately 41.96% over the unaudited consolidated net asset value of approximately RMB1.18 (equivalent to approximately HK$1.43) per Pou Sheng Share as at June 30, 2017, calculated based on the unaudited consolidated net asset value of the Pou Sheng Group attributable to the Pou Sheng Shareholders of RMB6,281,560,000 (equivalent to approximately HK$7,633,979,868) as at June 30, 2017 divided by the total number of 5,338,548,615 Pou Sheng Shares in issue as at 21 January 2018, being the date of the Announcement.

– 11 – LETTER FROM THE BOARD

No increase in the Cancellation Price

Pou Chen has stated that the Cancellation Price will not be increased, and it does not reserve the right to do so.

The Option Offer

Pou Chen has confirmed that it will make (or procure to be made on its behalf) an appropriate offer to the Pou Sheng Optionholders in accordance with Rule 13 of the Takeovers Code. The Option Offer will be conditional upon the Scheme becoming effective.

Shareholding structure of Pou Sheng

The diagrams below illustrate the simplified shareholding structure of Pou Sheng and the Company as at the Latest Practicable Date and immediately upon completion of the Scheme, assuming there are no changes in the shareholding of the Company between the Latest Practicable Date and the Record Date:

As at the Latest Practicable Date Upon completion of the Scheme

Mr. Tsai and Mr. Tsai and Independent Independent Pou Chen his controlled Pou Chen his controlled Shareholders Shareholders companies companies 49.99% 7.00% 43.01% 100% 49.99% 7.00% 43.01% Disinterested Ms. Tsai and Company Scheme Mr. Chan Shareholders 62.38% 0.38% 37.24%

Pou Sheng Pou Sheng Company

Note: The shareholding percentages in the above diagrams and this note have been rounded to two decimal places for ease of illustration only. Also, certain wholly-owned intermediate holding companies are not shown in the above diagrams: (i) as at the Latest Practicable Date, Pou Chen’s 49.99% shareholding in the Company is held through Wealthplus as to 46.90% and Win Fortune as to 3.09%; (ii) as at the Latest Practicable Date, the Company’s 62.38% shareholding in Pou Sheng is held through Major Focus; and (iii) upon completion of the Scheme, some or all of Pou Chen’s 100% shareholding in Pou Sheng may be held through one or more wholly-owned subsidiary(ies) of Pou Chen.

D. USE OF PROCEEDS FROM THE DISPOSAL

The aggregate net proceeds expected to be received by the Company from the Disposal will be approximately HK$6,759 million based on the shareholding of the Company in Pou Sheng as at the Latest Practicable Date and the Cancellation Price. The Company intends to use the net proceeds from the Disposal to distribute the Special Dividend as described in the section below.

– 12 – LETTER FROM THE BOARD

E. FINANCIAL EFFECTS OF THE DISPOSAL TO THE GROUP

Earnings

Assets and liabilities

Upon completion of the Disposal, the Pou Sheng Group will cease to be subsidiaries of the Company and the profit and loss and the assets and liabilities of Pou Sheng will no longer be consolidated into the Company’s consolidated financial statements upon completion of the Disposal.

Based on the unaudited consolidated financial information of the Pou Sheng Group as at 30 June 2017 and assuming there are no substantial changes in the assets and liabilities of the Pou Sheng Group until the date of completion of the Disposal, upon completion of the Disposal:

(i) the total assets of the Group is expected to decrease by approximately US$652 million, being the total assets of the Pou Sheng Group plus transaction costs and adjustments made upon consolidation minus the amount of the total proceeds from the Disposal;

(ii) the total liabilities of the Group is expected to be reduced by approximately US$576 million, being the amount of total liabilities of the Pou Sheng Group to be de-consolidated from the Group’s unaudited consolidated financial information; and

(iii) the net asset of the Group is expected to increase by the actual gain arising from the Disposal immediately after completion, details of which are set out in the paragraph headed “E. Financial effects of the Disposal to the Group – Earnings”.

General

Shareholders and potential investors of the Company should note that the actual financial effects of the Disposal to the Group may be different from those of the above and can only be determined based on the financial position of Pou Sheng on the date of completion of the Disposal and is subject to audit.

F. SPECIAL DIVIDEND

– 13 – LETTER FROM THE BOARD

appear on the register of members of the Company at the close of business on a record date to be fixed and announced by the Company. If the Proposal and the Scheme do not become effective, no Special Dividend will be paid.

Based on 1,648,501,986 Shares in issue as at the Latest Practicable Date and the Special Dividend of HK$4.10 per Share, the aggregate amount of the Special Dividend will be approximately HK$6,759 million. The Special Dividend will be paid in cash out of the Company’s net proceeds from the Disposal.

Further announcement(s) in relation to when the Board has resolved to declare the Special Dividend and the expected timetable of the distribution of the Special Dividend will be made by the Company as and when appropriate.

G. REASONS FOR AND BENEFITS OF THE DISPOSAL

As disclosed in the Announcement, the Pou Sheng Group is facing increased market competition and other challenges in the sporting goods industry and has been exploring and investing heavily in a variety of initiatives to adapt to the shifting market dynamics, such as (i) expanding omni-channel capabilities; (ii) planning organized promotional activities; (iii) enhancing store offering; and (iv) providing sports-related content and services. All these initiatives require significant investment and resources to be dedicated. While the Pou Sheng Group has been operating independently from the Group both in terms of business and financial, the Disposal will remove the uncertainty that resources may be diverted to the Pou Sheng Group. The Disposal provides the Company with a cash exit, and enables the Company to generate aggregate net proceeds of approximately HK$6,759 million and to declare the Special Dividend. Shareholders are expected to benefit from the Disposal via a cash realisation from the Special Dividend.

In light of the above, and having regard to the advice of the Independent Financial Adviser and, in particular, the factors, reasons and recommendations as set out in the letter from the Independent Financial Adviser on pages 20 to 44 of this circular; the Directors (including the independent non-executive Directors) (a) are of the view that the terms of the Disposal are fair and reasonable and the Disposal, while not in the ordinary and usual course of business of the Group, is in the interests of the Company and the Shareholders as a whole and (b) will procure the Company to cast its vote (only to the extent it is permitted to vote under the Takeovers Code) on each of the resolutions in connection with the Scheme and the Proposal in the Court Meeting and the Pou Sheng SGM in accordance with the voting results at the SGM on the ordinary resolution to approve the Disposal. As such, if the Independent Shareholders approve the Disposal at the SGM, the Directors will procure the Company to vote (only to the extent it is permitted to vote under the Takeovers Code) (i) in favour of the resolution for the Scheme at the Court Meeting, and (ii) in favour of all resolutions in connection with the implementation of the Scheme at the Pou Sheng SGM on which it is not required to abstain from voting.

Each of Mr. Lu Chin Chu (the president and a director of Pou Chen and a director of Wealthplus and Win Fortune), Ms. Tsai (a director of Pou Chen and Wealthplus), Mr. Chan (the chairman and a director of Pou Chen and a director of Wealthplus and Win Fortune) and Mr. Tsai Ming-Lun (a director of Pou Chen and Wealthplus) had voluntarily abstained from voting on the resolutions approving the Disposal and the transactions contemplated thereunder at the Board meeting held to consider the Disposal in light of his or her position in Pou Chen, Win Fortune and/or Wealthplus. – 14 – LETTER FROM THE BOARD

H. INFORMATION ON POU CHEN, THE COMPANY AND POU SHENG

Information on Pou Chen

Pou Chen is a company incorporated in Taiwan with limited liability by shares, the shares of which have been listed on the Taiwan Stock Exchange since 1990 (stock code: 9904.TW). The Pou Chen Group is principally engaged in the manufacturing of footwear and garment, the sportswear retail and brand licensing businesses, and other businesses including real estate development and hotel operation. As at the Latest Practicable Date, Pou Chen holds approximately 49.99% of the issued Shares through Wealthplus and Win Fortune.

Information on the Company

The Company is a company incorporated in Bermuda with limited liability, the shares of which have been listed on the Main Board of the Stock Exchange since 1992 (stock code: 551.HK). The Group is principally engaged in the manufacturing, marketing and retailing of athletic footwear, athletic style leisure footwear as well as casual and outdoor footwear.

Upon completion of the Disposal, the Company will focus on its manufacturing business operations which will not be affected by the Disposal given the Pou Sheng Group has been operating independently from the Company both in terms of business and financial.

Information of Pou Sheng

Pou Sheng is a company incorporated in Bermuda with limited liability, the shares of which have been listed on the Main Board of the Stock Exchange since 2008 (stock code: 3813.HK). As at the Latest Practicable Date, Pou Sheng is indirectly held as to approximately 62.38% by the Company. The Pou Sheng Group is principally engaged in the retailing of sportswear and distribution of licensed products.

Based on the published unaudited consolidated financial information of Pou Sheng for the six months ended 30 June 2017, the unaudited total asset value and net asset value of Pou Sheng as at 30 June 2017 were approximately RMB10,234,684,000 and RMB6,324,621,000, respectively. Based on the published audited consolidated financial statements of Pou Sheng for the two years ended 31 December 2015 and 2016 respectively, the audited consolidated net profit of the Pou Sheng Group before and after taxation were as follows:

Year ended 31 December 2015 (restated) 2016 (RMB in thousands)

Net profit before taxation 532,458 831,923 Net profit after taxation 383,135 569,611

– 15 – LETTER FROM THE BOARD

I. LISTING RULES IMPLICATIONS

As Pou Chen is a controlling shareholder of the Company and therefore a connected person of the Company, the Disposal constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. Based on the applicable size tests results, the Disposal also constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. In accordance with the requirements of the Listing Rules, the Disposal will therefore be subject to approval from the Independent Shareholders at the SGM.

J. SGM & CLOSURE OF REGISTER OF MEMBERS

The SGM will be held on Friday, 16 March 2018 for the purposes of providing the Independent Shareholders with an opportunity to consider and, if thought fit, approve, among other things, the Disposal and the transactions contemplated thereunder. As required under the Listing Rules, votes at the SGM will be taken by way of poll.

The notice of the SGM is set out on pages 55 to 56 of this circular. Pou Chen, through Wealthplus and Win Fortune, holds approximately 49.99% of the total issued share capital of the Company as at the Latest Practicable Date. As Wealthplus and Win Fortune are wholly-owned subsidiaries of Pou Chen, they are considered to have a material interest in the Disposal. Mr. Tsai and companies controlled by him together hold approximately 7.00% of the total issued share capital of the Company as at the Latest Practicable Date. As Mr. Tsai is the father of Ms. Tsai who is a director of Pou Chen, Mr. Tsai and companies controlled by him are also considered to have a material interest in the Disposal. Pou Chen, Wealthplus, Win Fortune as well as Mr. Tsai and his controlled companies will therefore abstain from voting at the SGM on the resolution to approve, among other things, the Disposal and the transactions contemplated thereunder.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not later than 2:00 p.m. on Wednesday, 14 March 2018, or not less than 48 hours before the time for holding the adjourned meeting, as the case may be. Completion and return of the form of proxy will not preclude Shareholders from attending and voting at the SGM or at any adjourned meeting thereof, should you so wish.

The register of members of the Company will be closed from Tuesday, 13 March 2018 to Friday, 16 March 2018, both dates inclusive, for the purpose of determining shareholders’ entitlements to attend the SGM. During such period, no transfer of shares of the Company will be registered.

All transfers, accompanied by the relevant share certificates, must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not later than 4:30 p.m. on Monday, 12 March, 2018 in order to establish the identity of the shareholders who are entitled to attend and vote at the SGM.

– 16 – LETTER FROM THE BOARD

K. INDEPENDENT BOARD COMMITTEE & INDEPENDENT FINANCIAL ADVISER

An Independent Board Committee, comprising all the independent non-executive Directors, namely, Mr. Leung Yee Sik, Mr. Huang Ming Fu, Mr. Chu Li-Sheng, Ms. Yen Mun-Gie (also known as Teresa Yen) and Mr. Hsieh Yung Hsiang (also known as Alfred Hsieh), has been established by the Board to consider the Disposal and to provide advice to the Independent Shareholders on whether the terms of the Disposal are fair and reasonable and in the interests of the Company and the Shareholders as a whole and to advise the Independent Shareholders on how to vote at the SGM. Somerley Capital Limited has been appointed as the independent financial adviser of the Company to advise the Independent Board Committee and the Independent Shareholders in this regard.

L. RECOMMENDATION

Having considered the reasons set out herein and after taking into account the view of the Independent Board Committee as set out in the Letter from the Independent Board Committee set out on pages 18 to 19 of this circular, the Directors (including all the independent non-executive Directors) are of the view that the terms of the Disposal are fair and reasonable and the Disposal, while not in the ordinary and usual course of business of the Group, is in the interests of the Company and the Shareholders as a whole.

M. ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the Letter from the Independent Board Committee set out on pages 18 to 19, the Letter from the Independent Financial Adviser set out on pages 20 to 44, and the appendices to this circular.

Yours faithfully, For and on behalf of Yue Yuen Industrial (Holdings) Limited Lu Chin Chu Chairman

– 17 – LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee, which has been prepared for the purpose of incorporation into this circular, setting out its recommendation to the Independent Shareholders in respect of the Disposal and the transactions contemplated thereunder.

YUE YUEN INDUSTRIAL (HOLDINGS) LIMITED 裕元工業（集團）有限公司* (Incorporated in Bermuda with limited liability) (Stock Code: 00551)

27 February 2018

To the Independent Shareholders

Dear Sir or Madam,

(1) PROPOSED MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE EFFECTIVE DISPOSAL OF THE COMPANY’S ENTIRE SHAREHOLDING IN POU SHENG INTERNATIONAL (HOLDINGS) LIMITED AND

(2) SPECIAL DIVIDEND

We refer to the circular issued by Yue Yuen Industrial (Holdings) Limited to the Shareholders dated 27 February 2018 (the “Circular”) of which this letter forms part. Unless the context otherwise requires, terms defined in the Circular shall have the same meanings when used in this letter.

We have been appointed by the Board as members of the Independent Board Committee to consider the Disposal, details of which are set out in the Circular. Somerley Capital Limited has been appointed as the Independent Financial Adviser to advise us and the Independent Shareholders in this regard. Details of the independent advice of the Independent Financial Adviser, together with the principal factors and reasons the Independent Financial Adviser has taken into consideration, are set out in the “Letter from the Independent Financial Adviser” set out on pages 20 to 44 of the Circular. Your attention is also drawn to the “Letter from the Board” in the Circular and the additional information set out in the appendices to the Circular.

* For identification purpose only – 18 – LETTER FROM THE INDEPENDENT BOARD COMMITTEE

RECOMMENDATION

Having taken into account the advice of, and the principal factors and reasons considered by the Independent Financial Adviser in relation thereto as stated in its letter, we consider that the Disposal, while not in the ordinary and usual course of business of the Group, is in the interests of the Company and the Shareholders as a whole. We also consider the terms of the Disposal to be fair and reasonable to the Independent Shareholders. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the SGM in respect of the Disposal and the transactions contemplated thereunder.

Your faithfully, For and on behalf of the Independent Board Committee Leung Yee Sik, Huang Ming Fu, Chu Li-Sheng Yen Mun-Gie (also known as Teresa Yen) and Hsieh Yung Hsiang (also known as Alfred Hsieh) Independent Non-executive Directors of Yue Yuen Industrial (Holdings) Limited

– 19 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the letter of advice from Somerley Capital Limited to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

SOMERLEY CAPITAL LIMITED 20th Floor China Building 29 Queen’s Road Central Hong Kong

27 February 2018

To: the Independent Board Committee and the Independent Shareholders

Dear Sirs,

PROPOSED MAJOR AND CONNECTED TRANSACTION IN RELATION TO THE EFFECTIVE DISPOSAL OF THE COMPANY’S ENTIRE SHAREHOLDING IN POU SHENG INTERNATIONAL (HOLDINGS) LIMITED

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in relation to the Disposal and transactions contemplated thereunder. Details of the Disposal are set out in the circular of the Company dated 27 February 2018 (the “Circular”), of which this letter forms part. Unless otherwise defined, capitalised terms used in this letter shall have the same meanings as those defined in the Circular.

On 21 January 2018, Pou Chen, Pou Sheng and the Company jointly announced that Pou Chen requested the Pou Sheng Board to put forward the Proposal to the Scheme Shareholders for the privatisation of Pou Sheng by way of a scheme of arrangement under Section 99 of the Companies Act 1981 of Bermuda. Subject to the fulfilment or waiver (as applicable) of the Conditions, which includes the passing of an ordinary resolution by the Independent Shareholders at the SGM to approve the Disposal, the Proposal and the Scheme will become effective and binding on Pou Sheng and all Pou Sheng Shareholders, including the Company, on the Effective Date. Accordingly, the Proposal, as and when it is implemented, will involve the Company effectively disposing of all its Pou Sheng Shares representing approximately 62.38% of the total issued share capital of Pou Sheng to Pou Chen at the Cancellation Price through the cancellation of all such Pou Sheng Shares in exchange for Pou Chen paying to the Company a total consideration of HK$6,763,049,667. The Announcement states that the Cancellation Price has been determined on a commercial basis after taking into account the historical prices of the Pou Sheng Shares as quoted on the Stock Exchange, the trading multiples of comparable companies listed on the Stock Exchange, and other privatisation transactions in Hong Kong in recent years.

– 20 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the applicable size tests and given that Pou Chen is a controlling shareholder of the Company and therefore a connected person of the Company, the Disposal, if proceeded with, will constitute a connected transaction under Chapter 14A of the Listing Rules and also a major transaction for the Company under Chapter 14 of the Listing Rules, which is subject to the approval from the Independent Shareholders at the SGM. As Mr. Tsai is the father of Ms. Tsai, who is a director of Pou Chen, Mr. Tsai and companies controlled by him are considered to have a material interest in the Disposal. As Wealthplus and Win Fortune are wholly-owned subsidiaries of Pou Chen, they are also considered to have a material interest in the Disposal. Pou Chen, Wealthplus, Win Fortune as well as Mr. Tsai and his controlled companies will therefore abstain from voting at the SGM on the resolution to consider, among other things, the Disposal and the transactions contemplated thereunder.

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Leung Yee Sik, Mr. Huang Ming Fu, Mr. Chu Li-Sheng, Ms. Yen Mun-Gie (also known as Teresa Yen) and Mr. Hsieh Yung Hsiang (also known as Alfred Hsieh), has been established to make a recommendation to the Independent Shareholders as to whether the terms of the Disposal are fair and reasonable so far as the Independent Shareholders are concerned and whether the Disposal is in the interests of the Company and the Shareholders as a whole, and to advise the Independent Shareholders on how to vote. We, Somerley Capital Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

In formulating our opinion and recommendation, we have reviewed, among other things, the Announcement, the annual report of Pou Sheng for the year ended 31 December 2016 (the “Pou Sheng Annual Report”), the interim report of Pou Sheng for the six months ended 30 June 2017 (the “Pou Sheng Interim Report”) and the announcement of unaudited results of Pou Sheng for the nine months ended 30 September 2017 (the “Results Announcement”) and the information as set out in the Circular. We have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of the Group and have assumed that they are true, accurate and complete at the time they were made and will remain so up to the time of the SGM. We have also sought and received confirmation from the Directors that all material relevant information has been supplied to us and that no material facts have been omitted or withheld from the information supplied and opinions expressed to us. We have no reason to doubt the truth or accuracy of the information provided to us, or to believe that any material information has been omitted or withheld. We have relied on such information and consider that the information which we have received is sufficient for us to reach our opinion and recommendation as set out in this letter. However, we have not conducted any independent investigation into the business and affairs of the Group, the Pou Chen Group or the Pou Sheng Group.

– 21 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Somerley Capital Limited does not have any relationships or interests with the Company that could reasonably be regarded as a hindrance to the independence of Somerley Capital Limited as defined under Rule 13.84 of the Listing Rules to act as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Disposal. In the last two years, except for an independent financial adviser engagement in relation to the continuing connected transactions regarding purchases and sales, services and leasing, details of which were set out in the circular of the Company dated 14 November 2017, there has been no other engagement between the Group and Somerley Capital Limited. Apart from normal professional fees paid or payable to us in connection with this appointment as the Independent Financial Adviser, no arrangement exists whereby we will receive any fees or benefits from the Company.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation, we have taken into account the following principal factors and reasons:

1. Background of the Group

The Group is engaged in two businesses focusing on sport fitness and lifestyle. The Group is a manufacturer of athletic, athletic style leisure and casual/outdoor footwear for leading international brand companies around the world. It also operates a number of retail networks of footwear and apparel across the Greater China region.

The distribution and retailing business of the Group carried on by the Pou Sheng Group was spun off from the Group and separately listed on the Stock Exchange in June 2008 (the “Spin-off”). The Pou Sheng Group remained a non-wholly owned subsidiary of the Group after the Spin-off and is currently approximately 62.38% owned by the Group. It is believed that the Spin-off has allowed the Group and the Pou Sheng Group to focus better on the manufacturing business and the retail and wholesale business respectively, and to deploy their respective capital more efficiently. This has enabled the management teams of the Group and the Pou Sheng Group to adopt different business and financing strategies in order to better suit their businesses.

– 22 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The chart below demonstrates the shareholding structure of the Group and the Pou Sheng Group as at the Latest Practicable Date:

As at the Latest Practicable Date

Mr. Tsai and Independent Pou Chen his controlled Shareholders companies 49.99% 7.00% 43.01%

Disinterested Ms. Tsai and Company Scheme Mr. Chan Shareholders 62.38% 0.38% 37.24%

Pou Sheng

In terms of revenue, profitability and net asset value, the Pou Sheng Group’s recent contribution to the Group has been set out as follows:

Revenue

As mentioned above, the Group’s revenue comes from two businesses: (i) retailing business, primarily contributed by the Pou Sheng Group, and (ii) manufacturing business. Revenue of the Group from retailing accounted for approximately 25% to 29% of the Group’s total revenue over the years 2014 to 2016. For the six months period ended 30 June 2017, the retailing business accounted for approximately 31% of the Group’s total revenue.

Profitability

The Pou Sheng Group’s profit attributable to the Pou Sheng Shareholders for each of the three years ended 31 December 2014, 2015 and 2016 were approximately US$4.6 million, US$63.1 million and US$84.4 million respectively, which accounted for approximately 1.4%, 15.1% and 14.6% respectively of the Group’s profit for the respective years. For the six months period ended 30 June 2017, the Pou Sheng Group’s profit for the period attributable to the Pou Sheng Shareholders accounted for approximately 15.5% of the Group’s profit for the corresponding period.

– 23 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Net asset value

The Pou Sheng Group’s net assets attributable to the Pou Sheng Shareholders for each of the three years ended 31 December 2014, 2015 and 2016 was approximately US$861 million, US$874 million and US$877 million respectively, which accounted for approximately 18.0%, 18.0% and 17.2% respectively of the Group’s net assets for the respective years. For the six months period ended 30 June 2017, the Pou Sheng Group’s net assets attributable to the Pou Sheng Shareholders accounted for approximately 17.9% of the Group’s net assets for the corresponding period.

2. Information of the Pou Sheng Group

The Pou Sheng Group is principally engaged in the retailing of sportswear and distribution of licensed products.

(i) Financial results

Set out below is certain unaudited financial information of the Pou Sheng Group for the nine months ended 30 September 2016 and 2017 and certain audited financial information of the Pou Sheng Group for the years ended 31 December 2015 and 2016 as extracted from the Results Announcement and the Pou Sheng Annual Report.

For the year ended For the nine months ended 31 December 30 September 2015 2016 2016 2017 RMB’000 RMB’000 RMB’000 RMB’000 (audited and (unaudited and restated) (audited) restated) (unaudited)

Revenue 14,465,564 16,236,384 12,164,815 13,883,316 Gross profit 4,817,667 5,768,440 4,353,809 4,796,593 Gross profit margin 33.3% 35.5% 35.8% 34.5%

Selling, distribution and administrative expenses 4,339,710 5,072,462 3,723,803 4,357,751

Profit attributable to: – the Pou Sheng Shareholders 396,592 560,579 522,162 336,953 – non-controlling interests (13,457) 9,032 11,181 18,021

Profit for the year/period 383,135 569,611 533,343 354,974

Net profit margin 2.6% 3.5% 4.4% 2.6%

– 24 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Revenue

The Pou Sheng Group’s revenue for the year ended 31 December 2016 amounted to approximately RMB16,236 million, representing an increase of approximately 12.2% as compared to that for the year ended 31 December 2015. The increase was attributable to same store sales growth, as well as revenue from newly opened stores. Revenue for the nine months ended 30 September 2017 amounted to approximately RMB13,883 million, representing an increase of approximately 14.1% as compared to that for the nine months ended 30 September 2016. Such increase was mainly attributable to growth in overall store sales and contributions from newly opened stores.

Gross profit margin

The Pou Sheng Group’s gross profit margin remained broadly stable, ranging from approximately 33.3% to approximately 35.8% since 2015. It increased from approximately 33.3% to approximately 35.5% for the year ended 31 December 2016 as compared to 2015. The increment was mainly due to reduced discounting, increased sales growth and better inventory management. The gross profit margin went down from approximately 35.8% to approximately 34.5% for the nine months ended 30 September 2017 as compared to the corresponding period in 2016. It was primarily due to increase in allowance for inventories as clearance of age-long inventories was slower than expected.

Selling, distribution and administrative expenses

The Pou Sheng Group’s selling, distribution and administrative expenses for the year ended 31 December 2016 amounted to approximately RMB5,072 million, representing approximately 31.2% of revenue. It also represented an increase of approximately 16.9% as compared to 2015, which exceeded the growth in revenue in the same period, which was approximately 12.2%. The increment was mainly due to increased staff costs, rental expenses and concession fees as the management team invested in new stores, human resources and training to reinforce sales skills and quality, as well as in store renovations and upgrades.

For the nine months ended 30 September 2017, the selling, distribution and administrative expenses of the Pou Sheng Group amounted to approximately RMB4,358 million, representing approximately 31.4% of revenue. It also represented an increase of approximately 17.0% as compared to the corresponding period in 2016, which similarly exceeded the growth in revenue in the same period, which was approximately 14.1%. To align with brand customers’ growth strategy, the management team continued to invest in store expansion and optimisation, store renovations and upgrades, as well as training of sales staff. These activities led to corresponding increases in staff costs, rental expenses and depreciation and amortisation.

– 25 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Profit attributable to the Pou Sheng Shareholders for the year/period

The Pou Sheng Group’s profit attributable to the Pou Sheng Shareholders for the year ended 31 December 2016 amounted to approximately RMB561 million, representing an increase of approximately 41.3% as compared to 2015, which was mainly due to growth in revenue.

The Pou Sheng Group’s profit attributable to the Pou Sheng Shareholders for the nine months ended 30 September 2017 was approximately RMB337 million, representing a decrease of approximately 35.5% as compared to the corresponding period in 2016. This was mainly attributable to (i) increase in net finance costs by approximately RMB42 million or approximately 126.9% due to increase in bank borrowings; and (ii) increase in selling, distribution and administrative expenses by approximately RMB634 million or approximately 17.0%, partly offset by increase in gross profit.

Net profit margin

Although there has been a consistent growth in revenue since 2015, the net profit margin for the Pou Sheng Group has remained at a range of approximately 2.6% to approximately 4.4%. The net profit margin dropped from approximately 4.4% to approximately 2.6% for the nine months ended 30 September 2017 as compared to the corresponding period in 2016, even though there was an increment in revenue. Given the stable gross profit margin throughout the years, the low net profit margin was mainly attributable to substantial amount of selling, distribution and administrative expenses as mentioned above.

– 26 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Financial position

The following is a summary of the unaudited consolidated financial position of the Pou Sheng Group as at 30 June 2017 and the audited consolidated financial position of the Pou Sheng Group as at 31 December 2015 and 2016 respectively, as extracted from the Pou Sheng Interim Report and the Pou Sheng Annual Report.

As at As at As at 30 June 31 December 31 December 2017 2016 2015 RMB’000 RMB’000 RMB’000 (audited and (unaudited) (audited) restated)

Total non-current assets 2,507,981 2,447,487 2,301,121 Total current assets 7,726,703 7,596,289 6,325,546

TOTAL ASSETS 10,234,684 10,043,776 8,626,667

Total current liabilities 3,749,782 3,737,616 2,655,627 Total non-current liabilities 160,281 172,649 183,310

TOTAL LIABILITIES 3,910,063 3,910,265 2,838,937

NET CURRENT ASSETS 3,976,921 3,858,673 3,669,919

NET ASSETS 6,324,621 6,133,511 5,787,730

Net assets value (“Pou Sheng NAV”) per Pou Sheng Share (RMB) 1.18 1.14 1.07

As at 30 June 2017, the total assets of the Pou Sheng Group mainly comprised property, plant and equipment, inventories and trade and other receivables. Total assets of the Pou Sheng Group increased from approximately RMB8,627 million as at 31 December 2015 to approximately RMB10,044 million as at 31 December 2016, which was mainly due to increase in inventories and trade and other receivables. Total assets of the Pou Sheng Group subsequently increased to approximately RMB10,235 million as at 30 June 2017. The increment was also mainly attributable to increase in inventories and trade and other receivables.

As at 30 June 2017, total liabilities of the Pou Sheng Group mainly comprised trade and other payables and bank borrowings. Total liabilities of the Pou Sheng Group increased from approximately RMB2,839 million as at 31 December 2015 to approximately RMB3,910 million as at 31 December 2016, which was primarily attributable to increase in bank borrowings. Total liabilities of the Pou Sheng Group subsequently stayed at approximately RMB3,910 million as at 30 June 2017.

– 27 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Pou Sheng Group’s net assets increased from approximately RMB5,788 million as at 31 December 2015 to approximately RMB6,134 million as at 31 December 2016, and subsequently increased to approximately RMB6,325 million as at 30 June 2017. Pou Sheng NAV as at 30 June 2017, calculated by dividing the net assets attributable to the Pou Sheng Shareholders of approximately RMB6,282 million by number of the Pou Sheng Shares in issue as at 30 June 2017, was approximately RMB1.18.

(iii) Prospects of the Pou Sheng Group

The general operating environment within the retail industry in the PRC has become more challenging in recent years. As indicated by the statistics released by the National Bureau of Statistics of the PRC, the growth in retail sales amount has been slowing somewhat over the years from 2013 to 2017, with growth rates of approximately 10.2% recorded in 2017 as compared to approximately 13.1% recorded in 2013. In contrast to the overall trend, PRC online retail sales have seen notable growth of approximately 32.2% in 2017 (and approximately 26.2% and 33.3% in 2016 and 2015 respectively).

E-commerce platforms in the PRC sportswear market are becoming more influential with a penetration rate of approximately 25.6% of sales in such market in 2017, as compared to approximately 22.5% and 18.3% in 2016 and 2015 respectively, according to statistics from Euromonitor International. E-commerce penetration rates for the industry are higher than that for the PRC overall retail market of approximately 20.4%, 17.0% and 13.9% in 2017, 2016 and 2015 respectively. This makes it more important for market players to enhance online and offline customer experience by partnering with online/offline retailers. Intense competition within the industry has resulted in more frequent promotions such as discounts provided, sponsoring sporting events and experience-focused stores, which may result in pressure on profit margins.

As set out in the Pou Sheng Interim Report, the Pou Sheng Group will further develop its omni-channels and capabilities to guide the brands in handling the complexity, variation and diversity of sports retailing across the PRC marketplace. This includes new initiatives and promotions of its directly operated mono-brand and multi-brand stores, sport towns, as well as online sports services platform. These initiatives and promotions are designed to enhance the customers’ experience and achieve stronger efficiency of store operation. The development of e-commerce channel and digital adoption is one of the Pou Sheng Group’s core development strategies to drive sales and enhance channel efficiency. The Pou Sheng Group will continue to optimise its logistics network, improve its process, operational system and sports services coverage across the PRC.

– 28 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As a result of the market forces summarised above, there exist uncertainties on the progress and profit margins of the Pou Sheng Group in the short to medium term as new initiatives involve additional costs and market competition will continue to be intense.

3. Reasons for and benefits of the Disposal

As discussed above, the sporting goods distribution and retailing industry, in which the Pou Sheng Group is a major market player, is experiencing substantial changes and challenges. In this context, we consider it strategically prudent for the Group to consider disposing of the Pou Sheng Group since a cash exit is available from the Disposal.

After the Disposal, implementing new initiatives by the Pou Sheng Group would not affect the Group’s overall performance as Pou Sheng will no longer be consolidated to the Company’s consolidated financial statements. As discussed in details in the section headed “7. Financial effects of the Disposal and the Special Dividend” in this letter, the net profit margins of the Group were approximately 4.3%, 5.0% and 6.8% respectively for each of the three years ended 31 December 2014, 2015 and 2016, while the net profit margins of the Pou Sheng Group were approximately 0.3%, 2.6% and 3.5% respectively, which demonstrates that the net profit margin of the Group has been pulled down by the net profit margin of the Pou Sheng Group in recent years. After the Disposal, the Group will carry on the manufacturing business, which has higher profit margin relative to the distribution and retailing business.

As set out in the section headed “5. Analysis of price performance of Pou Sheng Shares” of this letter, the Pou Sheng Share price performance has been weak since early 2017. This limits Pou Sheng’s ability to raise funds for its business through equity financing. Alternative financing methods such as debt financing would create an additional interest burden for the Group when its interest costs have been rising. After the Disposal, should the Pou Sheng Group require funding for its development, it can draw on relevant resources from the Pou Chen Group directly, without impacting the Group’s financial position.

The management of the Company intends to distribute the Special Dividend to the Shareholders using the net proceeds from the Disposal.

Based on the above, we concur with the Directors that the Disposal is in the interests of the Company and the Shareholders as a whole.

4. Principal terms of the Disposal

(i) Conditions

The Proposal and the Scheme will become effective and binding on Pou Sheng and all Pou Sheng Shareholders, subject to the fulfilment or waiver (as applicable) of all the Conditions on or before 30 May 2018 (or such later date as Pou Chen and Pou Sheng may agree or, to the extent applicable, as the Bermuda Court may direct), failing which the Proposal and the Scheme will lapse.

– 29 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Conditions are set out in the “Letter from the Board” contained in the Circular and the Scheme Document and include, among others:

(a) the passing of an ordinary resolution by the Independent Shareholders at the SGM to approve the Disposal; and

(b) the approval by the Investment Commission of the Ministry of Economic Affairs of Taiwan of the reduction of investment by the Company in the PRC (as a result of the Disposal) pursuant to Article 35 of the Act Governing Relations between the People of the Taiwan Area and the Mainland Area (as amended from time to time) and the regulations promulgated thereunder.

(ii) Withdrawal of listing of the Pou Sheng Shares

If the Proposal is approved and implemented:

(a) all Scheme Shares will be cancelled (with an equivalent number of the Pou Sheng Shares to be issued to Pou Chen and/or its designated wholly-owned subsidiary(ies)) and the share certificates in respect of the Scheme Shares will thereafter cease to have effect as documents or evidence of title;

(b) Pou Sheng will become a direct or indirect wholly-owned subsidiary of Pou Chen; and

The listing of the Pou Sheng Shares on the Stock Exchange will not be withdrawn if the Scheme is not approved or if the Proposal otherwise lapses.

(iii) Cancellation Price

The Proposal, as and when it is implemented, will involve the Company effectively disposing of all its Pou Sheng Shares representing approximately 62.38% of the total issued share capital of Pou Sheng to Pou Chen at the Cancellation Price of HK$2.03 per Scheme Share through the cancellation of all such Pou Sheng Shares in exchange for Pou Chen paying to the Company a total consideration of HK$6,763,049,667.

– 30 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) Use of proceeds from the Disposal

The Company intends to use virtually all the net proceeds of approximately HK$6,759 million from the Disposal to distribute the Special Dividend to the Shareholders.

5. Analysis of price performance of the Pou Sheng Shares

(i) Historical price performance of the Pou Sheng Shares

Pou Sheng was spun off and listed on the Main Board of the Stock Exchange on 6 June 2008 with an offer price of HK$3.05 (the “IPO Price”). The Pou Sheng Share price remained at low levels after listing. Since the date of listing up to the end of 2016 (before the Review Period (as defined below)), the average Pou Sheng Share price was approximately HK$1.05. The average Pou Sheng Share price in 2015 was approximately HK$0.98 and the Pou Sheng Share price was picking up in 2016 with the average of approximately HK$2.12 in 2016. However, the increasing trend of the Pou Sheng Share price stopped since the beginning of 2017.

Set out below is the movement of the closing prices of the Pou Sheng Shares during the period from 3 January 2017 (being the first trading day in 2017) to the Latest Practicable Date (the “Review Period”) and a summary of announcements by Pou Sheng of significant transactions that took place during the Review Period:

Announcement of inside Pou Sheng Share price chart information, 3 40,000 termination of chief Announcement of unaudited financial officer and results for the three months ended 31 March 2017 Announcement of unaudited chief executive officer Announcement of 35,000 2.5 results for the nine months 2016 annual results ended 30 September 2017 )

$ 30,000

K Cancellation Price HK$2.03

H 2 ( 25,000 e c i r p

1.5 20,000 e a h

S 15,000

Share price (HK$)

g 1 n e The Announcement 10,000 h Announcement of S 2017 interim results

u 0.5

o 5,000 P

0 - 1-Jan-17 1-Feb-17 1-Mar-17 1-Apr-17 1-May-17 1-Jun-17 1-Jul-17 1-Aug-17 1-Sep-17 1-Oct-17 1-Nov-17 1-Dec-17 1-Jan-18 1-Feb-18 Date Pou Sheng Share price Cancellation Price Hang Seng Index

As illustrated in the chart above, the Pou Sheng Share price closed in a range between HK$1.06 and HK$2.25, with an average price of approximately HK$1.56, during the Review Period.

Pou Sheng Share closed at HK$2.25 on the first trading day in 2017. Pou Sheng announced, on 8 January 2017, that certain incorrect sales records were discovered during the internal review, which was believed that the amount involved was relatively insignificant. It also announced termination of employment of the chief financial officer and resignation of the chief executive officer. Pou Sheng Share price decreased by approximately 22.2% to HK$1.61 on the next trading day after the release of the announcement. On 24 March 2017, Pou Sheng released its 2016 annual results, showing an increment in revenue and profit attributable to the Pou Sheng Shareholders. Despite the favourable annual results as compared to the

– 31 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

previous year, the Pou Sheng Share price decreased by approximately 15.0% to HK$1.59 on the next trading day.

On 12 May 2017, Pou Sheng published its unaudited results for the three months ended 31 March 2017, with a decrease in profit for the period as compared to the corresponding period in 2016, and the closing price of Pou Sheng Shares dropped from HK$1.86 to HK$1.56 on the next trading day, representing a decrease of approximately 16.1%. On 11 August 2017, Pou Sheng announced its 2017 interim results, showing a decrease in profit as compared to the same period in 2016, and Pou Sheng Share price closed at HK$1.51 with an increment of approximately 4.9% on 14 August 2017, the next trading day after the interim results announcement. Subsequently, the Pou Sheng Share price closed in a range between HK$1.37 and HK$1.54 from 15 August 2017 to 13 November 2017.

On 13 November 2017, Pou Sheng published its unaudited results for the nine months ended 30 September 2017, showing a significant decrease in profit attributable to the Pou Sheng Shareholders of approximately 35.5% as compared to the corresponding period in 2016. The Pou Sheng Share price dropped by approximately 20.4% on the next trading day. The closing prices of Pou Sheng Shares remained at low levels afterwards with a minimum of HK$1.06 on 14 December 2017 and 22 December 2017.

On 21 January 2018, Pou Sheng, the Company and Pou Chen jointly released the Announcement. The Pou Sheng Share price surged to HK$1.99 on 22 January 2018 (the first trading day subsequent to the Announcement), representing an increase of approximately 29.2%, which was believed to be as a result of the possible privatisation of Pou Sheng with the Cancellation Price of HK$2.03 per Scheme Share.

The Pou Sheng Share price closed between HK$1.96 and HK$1.98 from 23 January 2018 to the Latest Practicable Date, which were above the closing prices of Pou Sheng Shares on most of the days during the period from 3 January 2017 to the Last Trading Day. The Pou Sheng Shares closed at HK$1.98 as at the Latest Practicable Date.

Since the date of listing up to the Latest Practicable Date, the average Pou Sheng Share price was approximately HK$1.11.

In general, during the Review Period before and including the Last Trading Day, the Pou Sheng Share price closed below the Cancellation Price most of the time except for the first four trading days in 2017, with an average closing price of approximately HK$1.52 per Pou Sheng Share. The Pou Sheng Share price closed at HK$2.25 on the first trading day of 2017, which was the maximum during the Review Period. After the announcement in relation to the incorrect sales record, the closing prices of Pou Sheng Shares dropped significantly and have decreased gradually throughout the period from January 2017 to October 2017. The Pou Sheng Share price experienced a further drop after the release of the unaudited results for the nine months ended 30 September 2017. It only started to increase slightly shortly before the release of the Announcement. Given such Pou Sheng Share price performance and significant amount of investments expected to be involved in light of new initiatives and transformation of business of Pou Sheng, it would not be optimal for Pou Sheng to finance such investments by way of equity financing through the listed platform of Pou Sheng. In fact, since listing in 2008, Pou Sheng

– 32 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

had only raised fund once by way of rights issue in 2012 where the Company was the underwriter of the rights issue. Also, since 2017, the average price to earnings (“P/E”) ratio of Pou Sheng was approximately 14 times, which was lower than the P/E ratio in retail and sports sectors in general (as discussed further in sub-section headed “6. Assessment on the Cancellation Price – Comparable analysis” in this letter), such level of value of Pou Sheng Share perceived by the market makes it not commercially feasible for the Pou Sheng Group to raise substantial funding through equity financing.

(ii) Cancellation Price comparisons

The Cancellation Price of HK$2.03 per Scheme Share represents:

(a) a premium of approximately 31.82% over the closing price of HK$1.54 per Pou Sheng Share as quoted on the Stock Exchange on the Last Trading Day;

(f) a premium of approximately 2.53% over the closing price of HK$1.98 per Pou Sheng Share as quoted on the Stock Exchange on the Latest Practicable Date; and

(g) a premium of approximately 41.96% over the unaudited consolidated net asset value of approximately RMB1.18 (equivalent to approximately HK$1.43) per Pou Sheng Share as at 30 June 2017, calculated based on the unaudited consolidated net asset value of the Pou Sheng Group attributable to the Pou Sheng Shareholders of RMB6,281,560,000 (equivalent to approximately HK$7,633,979,868) as at 30 June 2017 divided by the total number of 5,337,948,615 Pou Sheng Shares in issue as at 30 June 2017.

– 33 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As analysed in the section headed “5. Analysis of price performance of Pou Sheng Shares - (i) Historical price performance of the Pou Sheng Shares”, the Pou Sheng Shares have been trading below the Cancellation Price most of the time since 2017 up to the Last Trading Day with an average closing price of approximately HK$1.52 per Pou Sheng Share during the Review Period. The Cancellation Price represents a premium of approximately 33.55% over the average closing price of approximately HK$1.52 per Pou Sheng Share based on the daily closing prices as quoted on the Stock Exchange since 2017 to the Last Trading Day.

6. Assessment on the Cancellation Price

(i) Comparable analysis

The Pou Sheng Group is principally engaged in the retailing of sportswear and distribution of licensed products.

For the purposes of assessing the reasonableness and fairness of the Cancellation Price, we have conducted research on Bloomberg on a best effort basis for companies engaged in the same industry as Pou Sheng (the “Comparable Companies”).

The Comparable Companies have been selected based on the following criteria: (i) listed on the Stock Exchange in Hong Kong; (ii) under the industry of “Specialty Apparel Stores” or “Apparel, Footwear & Accessories Design” as classified by the Bloomberg Industry Classification System; and (iii) principally engaged in the sport-related apparel, footwear and accessories business or principally engaged in retailing and distribution of apparel, footwear and accessories without engagement in manufacturing.

Based on such criteria, we have identified 23 Comparable Companies, which provide a relevant benchmark for the purpose of assessing the Cancellation Price. We consider the Comparable Companies are fair and representative samples based on the said criteria above.

The results of the P/E ratios of the Comparable Companies and the Disposal are set out in the table below.

– 34 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Stock Market P/E Company name code Principal business capitalisation ratio (Note 1) (Note 2) HK$ million

1 Li Ning Company 2331 The company is one of the leading sports 14,007.4 16.0 Limited brand companies in China, mainly providing (Note 5) sporting goods including footwear, apparel, equipment and accessories for professional and leisure purposes primarily under the Li-Ning brand.

2 Luxey International 8041 The company is engaged in investment holding 646.8 N/A (Holdings) Limited and its subsidiaries are principally engaged in the retailing of sportswear apparel products.

3 Xtep International 1368 The company and its subsidiaries are 7,870.1 14.1 Holdings Limited principally engaged in the design, development, manufacturing and marketing of sportswear, including footwear, apparel and accessory products, sold mainly under the self-owned Xtep brand.

4 China Dongxiang 3818 The group is principally engaged in brand 8,455.5 7.5 (Group) Company development, design and sales of Limited sport-related apparel, footwear and accessories in the PRC, Macau and Japan as well as investment activities in the PRC and abroad.

5 Anta Sports Products 2020 The company is principally engaged in the 102,013.6 31.0 Limited design, development, manufacturing, and marketing of sportswear, including sports footwear and apparel for professionals and the general public.

6 361 Degrees 1361 The principal activities of the group are 5,727.3 10.5 International Limited manufacturing and trading of sporting goods, including footwear, apparel, accessories and others in the PRC.

– 35 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Stock Market P/E Company name code Principal business capitalisation ratio (Note 1) (Note 2) HK$ million

7 Win Hanverky Holdings 3322 The company is principally engaged in 1,258.7 19.7 Limited manufacturing of apparel on an original equipment manufacturing (“OEM”) basis for international sports brands. The company’s products include sportswear, activewear, and outerwear.

8 Hosa International 2200 The company and its subsidiaries are 5,085.2 16.0 Limited principally engaged in the design and production of a wide range of mid-to-high end sportswear products, including swimwear, fitness wear and sports underwear, which are sold under the well-known Hosa and Water Cube brand.

9 Eagle Nice 2368 The principal activity of the company is 1,658.9 8.6 (International) investment holding and its subsidiaries are Holdings Limited principally engaged in the manufacturing and trading of sportswear and garments.

10 Vestate Group Holdings 1386 The company is an investment holding 902.4 N/A Limited company. The principal activity of the group is retailing of footwear in Hong Kong, the PRC and Taiwan.

11 Esprit Holdings Limited 330 The company is an investment holding 7,722.5 115.3 company. The group is principally engaged in retail and wholesale distribution and licensing of quality fashion and non-apparel products designed under its own internationally-known Esprit brand name in Germany, rest of Europe, Asia Pacific and via eshop platforms.

– 36 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Stock Market P/E Company name code Principal business capitalisation ratio (Note 1) (Note 2) HK$ million

12 Giordano International 709 The company is an investment holding 6,391.4 13.5 Limited company. The principal business of the group is the retail and distribution of men’s, women’s and children’s fashion apparel under Giordano and Giordano Junior, Giordano Ladies, BSX, other less significant brands and nonproprietary third party brands under license through its own stores as well as third party franchisees.

13 Joyce Boutique Holdings 647 The principal activity of the company is 503.4 N/A Limited investment holding and its subsidiaries are principally engaged in sales of designer fashion garments, cosmetics and accessories.

14 Milan Station Holdings 1150 The principal activity of the company is 140.8 N/A Limited investment holding. The principal activities of the subsidiaries of the company are retailing of handbags, fashion accessories, embellishments and spa and wellness products.

15 Bossini International 592 The group is principally engaged in investment 663.8 135.9 Holdings Limited holding and the retailing, distribution and wholesaling of garments.

16 ENM Holdings Limited 128 The company is an investment holding 709.8 33.0 company. The principal activities of its subsidiaries are retailing and wholesale of fashion wear and accessories.

17 Koradior Holdings 3709 The principal activities of the group are design, 4,080.4 15.1 Limited retail and wholesale of womenswear in the PRC.

18 JNBY Design Limited 3306 The company is principally engaged in the 5,633.6 14.0 design, promotion and sales of contemporary apparel, footwear and accessories for women, men, children and teenagers as well as household products.

– 37 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Stock Market P/E Company name code Principal business capitalisation ratio (Note 1) (Note 2) HK$ million

19 I.T Limited 999 The principal activity of the company is 4,544.0 13.6 investment holding. The company’s subsidiaries are engaged in retailing and trading of fashion wears and accessories.

20 Cabbeen Fashion 2030 The principal activities of the group are 1,534.7 7.5 Limited wholesaling and retailing of branded menswear and related accessories in the PRC.

21 Shanghai La Chapelle 6116 The group designs, markets and sells apparel 9,357.8 14.1 Fashion Company products with a focus on mass-market ladies’ (Note 6) Limited casual wear in the PRC.

22 S. Culture International 1255 The principal activity of the company is 800.0 N/A Holdings Limited investment holding, whilst its major operating subsidiaries are engaged in trading of footwear products.

23 Bosideng International 3998 The group primarily focuses on developing 7,905.1 15.9 Holdings Limited and managing the portfolio of its down apparel brands, which includes research, design and development, raw materials procurement, outsourced manufacturing, and marketing and distribution of branded down apparel products, OEM products and non-down apparel products in the PRC.

Comparable Companies Highest 135.9 (Note 3) Lowest 7.5 Mean 27.9

Comparable Companies (excluding the outliers) Highest 33.0 (Note 4) Lowest 10.5 Mean 17.4

The Disposal 23.8

– 38 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

1. The market capitalisations of the Comparable Companies are extracted from Bloomberg as at the date of the Announcement.

2. The P/E ratios are calculated based on the (i) market capitalisation of each of the Comparable Companies as at the date of the Announcement; and (ii) profits attributable to the equity holders of Pou Sheng and the Comparable Companies for the latest trailing 12 months based on annual reports, interim reports or quarterly reports of Pou Sheng and the respective Comparable Companies as at the date of the Announcement.

3. Luxey International (Holdings) Limited, Vestate Group Holdings Limited, Joyce Boutique Holdings Limited, Milan Station Holdings Limited and S. Culture International Holdings Limited recorded loss attributable to its equity holders calculated based on its latest annual report and therefore has been excluded in calculating the range, mean and median of the P/E ratios of the Comparable Companies.

4. China Dongxiang (Group) Company Limited, Eagle Nice (International) Holdings Limited, Esprit Holdings Limited, Bossini International Holdings Limited and Cabbeen Fashion Limited have P/E ratios that fall out of range of majority of the Comparable Companies. Given 13 over 18 remaining samples with positive P/E ratios fall in the range from approximately 10 to 33, we consider more meaningful to exclude those with such extreme P/E ratios from our assessment.

5. The P/E ratio of Li Ning Company Limited is calculated based on profit attributable to the equity holders of Li Ning Company Limited arising from (i) continuing operation; and (ii) discontinued operations. We note that, with the P/E ratio of Li Ning Company Limited calculated based on profit attributable to the equity holders of Li Ning Company Limited arising from continuing operation only, the mean of P/E ratios of the Comparable Companies (excluding the outliers) is approximately 18.5, which is lower than that of the Disposal.

6. The market capitalisation of Shanghai La Chapelle Fashion Company Limited is calculated based on number of issued H shares and A shares and their corresponding share prices.

As set out in the above table, the P/E ratio of the Disposal falls within the range of those of the Comparable Companies (excluding the outliers). The P/E ratio of the Disposal is higher than the mean of the P/E ratios of the Comparable Companies (excluding the outliers).

(ii) Privatisation precedents

We have also compared the Proposal and the Scheme to other privatisations by companies listed on the Stock Exchange announced since 1 January 2017, approximately one year before the Announcement, and up to the Latest Practicable Date, excluding privatisation proposals which were not approved or have not been approved (the “Privatisation Precedents”). Since it covers the most recent one year of privatisation proposals and there were 10 samples resulted from applying the above criteria, we consider the Privatisation Precedent represent fair and reasonable samples of privatisation proposals we were able to identify from the Stock Exchange’s website satisfying the above selection criteria. The table below illustrates the premia over the relevant last trading day, the relevant 10 days, 30 days, 60 days and 120 days average share prices at which such privatisation proposals have been priced:

– 39 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Date of Premium/(discount) of offer/cancellation price over commencement the share price of the relevant company prior to of offer period Company the commencement of the offer period 10 days 30 days 60 days 120 days Last share price share price share price share price trading day average average average average

9 November 2017 Welling Holding Limited (stock code: 382) 30.4% 30.6% 34.2% 35.8% 25.2% 8 September 2017 Sinoma China National Materials Company 19.2% 24.7% 31.2% 44.9% 54.8% Limited (“Sinoma”) (stock code: 1893) 3 July 2017 China Assets (Holdings) Limited 61.5% 74.1% 76.7% 77.1% 75.4% (stock code: 170) 19 June 2017 Bloomage BioTechnology Corporation 16.8% 24.8% 24.8% 30.8% 35.4% Limited (stock code: 963) 29 May 2017 China Metal International Holdings Inc 27.5% 26.5% 25.9% 22.9% 23.2% (stock code: 319) 28 April 2017 Belle International Holdings Limited 19.5% 23.6% 21.5% 22.9% 30.2% (stock code: 1880) 20 April 2017 TCC International Holdings Limited 38.5% 43.1% 51.0% 66.9% 78.3% (stock code: 1136) 20 March 2017 Goldin Properties Holdings Limited 36.8% 39.2% 33.9% 30.4% 39.6% (stock code: 283) 13 March 2017 Shandong Luoxin Pharmaceutical Group 31.8% 33.5% 39.6% 48.5% 55.2% Stock Co Ltd (stock code: 8058) 10 January 2017 Intime Retail (Group) Company Limited 42.2% 47.9% 51.8% 53.6% 54.1% (stock code: 1833)

Highest 61.5% 74.1% 76.7% 77.1% 78.3% Lowest 16.8% 23.6% 21.5% 22.9% 23.2% Mean 32.4% 36.8% 39.1% 43.4% 47.1%

21 January 2018 The Disposal 31.8% 51.5% 70.7% 64.4% 51.1%

Source: Bloomberg and website of the Stock Exchange

Note:

1. We consider the privatisation proposal for Yingde Gases Group Company Limited (stock code: 2168) announced on 7 March 2017 not comparable for the purpose of our assessment as shareholder disputes and revised offers by competing parties were involved. The corresponding premia of offer price over the share price of the relevant company range from approximately 89.4% to 109.1%, which we consider quite extreme for meaningful comparison of the Cancellation Price.

2. The cancellation price for privatisation proposal for Sinoma is calculated based on the consideration of 0.85 China National Building Material Company Limited (“CNBM”) H share for 1 Sinoma H share and the closing price of each CNBM H share on the last trading day.

Based on the table above, the means of premia over the last trading day share price, 10 days, 30 days, 60 days and 120 days share price averages were approximately 32.4%, 36.8%, 39.1%, 43.4％ and 47.1% respectively. The premium for the Cancellation Price over the last trading day is close to the corresponding mean of premia of the Privatisation Precedents, and the premia for the Cancellation Price over 10 days, 30 days, 60 days and 120 days Pou Sheng Share price averages are above the corresponding means of premia of the Privatisation Precedents.

– 40 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The premium for the Cancellation Price over the Last Trading Day is below the mean of premia of the Privatisation Precedents. However, we noted that Pou Sheng Share price on the Last Trading Day increased by approximately 6.9% from the day prior to the Last Trading Day and approximately 20.3% over the five trading days up to the Last Trading Day. Such movement on Pou Sheng Share price, based on our observation, was not attributable to any particular corporate actions of the Pou Sheng Group as no announcement was made during the week before the Last Trading Day, and therefore was possibly due to speculation of the privatisation of the Pou Sheng Group which was subsequently announced on 21 January 2018. Given such price movement on the Last Trading Day, we are of the view that premia for the Cancellation Price over the Pou Sheng Share price for longer period of time, i.e. 10 days, 30 days, 60 days and 120 days share price average, form a better basis for comparison and assessment of the fairness of the Cancellation Price.

Based on the results of the above analysis on the Comparable Companies and the Privatisation Precedents, we are of the view that the Cancellation Price is fair and reasonable so far as the Independent Shareholders are concerned.

7. Financial effects of the Disposal and the Special Dividend

(i) Gain from the Disposal

The Company is expected to recognise a gain before transaction costs of approximately US$305 million (equivalent to approximately HK$2,379 million) from the Disposal, being the difference between (i) the total proceeds from the Disposal; and (ii) the unaudited carrying value of the Company’s investment in Pou Sheng, taking into account the unaudited accumulated other comprehensive income attributable to Pou Sheng, as at 30 June 2017. The Shareholders should note that the above figure is for illustrative purposes only, and the actual gain recognised on the Disposal may be different from the above and will be determined based on the financial position of Pou Sheng on the date of completion of the Disposal and is subject to audit.

(ii) Highlights from the net profit margins

After the Disposal, the Pou Sheng Group will cease to be subsidiaries of the Company and the profit and loss and the assets and liabilities of Pou Sheng will no longer be consolidated into the Company’s consolidated financial statements.

As set out in the section headed “1. Background of the Group” of this letter, approximately 30% of the Group’s revenue and approximately 15% of the Group’s profit were contributed by the Pou Sheng Group. However, the net profit margins of the Group were approximately 4.3%, 5.0% and 6.8% respectively for each of the three years ended 31 December 2014, 2015 and 2016, while the net profit margins of the Pou Sheng Group were approximately 0.3%, 2.6% and 3.5% respectively. On this basis, the net profit margin of the Group has been pulled down by the net profit margin of the Pou Sheng Group in recent years. After the Disposal, the Group will carry on the manufacturing business, which has higher profit margin relative to the distribution and retailing business.

– 41 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) Special Dividend

Once approval from the Independent Shareholders of the Disposal is obtained at the SGM, the Board proposes to declare the Special Dividend subject to the Proposal and the Scheme becoming effective, which will be paid to the Shareholder(s) whose name(s) appear on the register of members of the Company at the close of business on a record date to be fixed and announced by the Company. If the Proposal and the Scheme do not become effective, no Special Dividend will be paid.

DISCUSSION AND ANALYSIS

(i) Recent developments

Pou Sheng was spun-off from the Group in 2008 for the purpose of enabling Pou Sheng to focus on retail and wholesale of branded sportswear products in the PRC, Taiwan and Hong Kong, while the remainder of the Group concentrated on manufacturing business. After approximately ten years of independent operation, this separation of activities has proved broadly successful.

However, during this period, the retail sector in the PRC has experienced significant change. Even the Pou Sheng Group, as a major market player, is encountering serious challenges, particularly, the rise of online shopping. It is therefore an appropriate juncture to consider the Proposal which Pou Chen, the controlling shareholder of the Company, has put forward.

(ii) Financial effects of Pou Sheng leaving the Group

The Company is expected to recognise a gain before transaction costs of approximately US$305 million (equivalent to approximately HK$2,379 million) from the Disposal. After the Disposal, the Pou Sheng Group will cease to be subsidiaries of the Company and the profit and loss and the assets and liabilities of Pou Sheng Group will no longer be consolidated into the Company’s consolidated financial statements. The Group will carry on the manufacturing business, which has higher profit margin relative to the distribution and retailing business.

(iii) Significant investment required

The Pou Sheng Group has been exploring a variety of initiatives to adapt to the shifting market dynamics summarised in (i) above. It is expected that significant investment will be required to implement these initiatives. In our view, Pou Sheng Share price performance since early 2017 limits Pou Sheng’s ability to raise substantial funds through equity financing. After the Disposal, Pou Sheng can draw directly on the financial resources of the Pou Chen Group to finance such investment, without the Company being involved as the controlling shareholder of Pou Sheng.

– 42 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) Risks

In addition to investment, implementing initiatives to change Pou Sheng Group’s business carries execution and other risks which could impact Pou Sheng Group’s financial performance, penalising the results of the Group and potentially the performance of the Group’s shares, at least in the short term. The Disposal would eliminate this risk.

(v) Premia over market prices and Pou Sheng NAV

The Cancellation Price of HK$2.03 per Scheme Share represents premia of:

• approximately 32% over the closing price of HK$1.54 per Pou Sheng Share on the Last Trading Day;

• a range of approximately 51% to approximately 71% over the average closing prices of Pou Sheng Share for the 10, 30, 60 and 120 trading days up to and including the Last Trading Day; and

• approximately 42% over the unaudited consolidated net asset value of approximately RMB1.18 (equivalent to approximately HK$1.43) per Pou Sheng Share as at 30 June 2017.

(vi) Comparisons

To assess the Cancellation Price, we have identified Comparable Companies and the Privatisation Precedents. The P/E ratio of the Disposal falls within the range of those of the Comparable Companies (excluding the outliers) and is higher than the mean of the P/E ratios of the Comparable Companies (excluding the outliers). The premia for the Cancellation Price over 10 days, 30 days, 60 days and 120 days Pou Sheng Share price averages are above the corresponding means of premia of the Privatisation Precedents.

(vii) Special Dividend

If approval from the Independent Shareholders of the Disposal is obtained at the SGM, the Board proposes to declare the Special Dividend of HK$4.10 per Share subject to the Proposal and the Scheme becoming effective. This is equivalent to approximately 12.77% of the market price of the Shares on the Last Trading Day. The Special Dividend will be paid to the Shareholder(s) whose name(s) appear on the register of members of the Company at the close of business on a record date to be fixed and announced by the Company.

Overall, we consider the Disposal represents a good opportunity for the Group to sell a retail business which has already been spun-off from the continuing manufacturing business and which is facing significant challenges. The Group will carry on the manufacturing business with higher profit margin. We regard the Cancellation Price as attractive compared to market and Pou Sheng NAV and in line with various comparison bases. The net proceeds of the Disposal are intended to be substantially streamed through to the Shareholders as a cash dividend.

– 43 – LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

OPINION AND RECOMMENDATION

Having taken into account the above principal factors, we consider that the Disposal, while not in the ordinary and usual course of business of the Group, is in the interests of the Company and the Shareholders as a whole. We also consider the terms of the Disposal fair and reasonable to the Independent Shareholders. We therefore advise the Independent Board Committee to recommend, and we ourselves recommend, the Independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the SGM.

Yours faithfully, for and on behalf of SOMERLEY CAPITAL LIMITED David Ching Director

Mr. David Ching is a licensed person registered with the Securities and Futures Commission and a responsible officer of Somerley Capital Limited, which is licensed under the SFO to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities. He has over fifteen years of experience in the corporate finance industry.

– 44 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

1. FINANCIAL INFORMATION OF THE GROUP

Details of the financial information of the Group for each of the three years ended 31 December 2014, 2015 and 2016 are disclosed in the annual report of the Company for the year ended 31 December 2014 published on 23 April 2015, annual report of the Company for the year ended 31 December 2015 published on 21 April 2016 and annual report of the Company for the year ended 31 December 2016 published on 21 April 2017, respectively, all of which have been published on the website of the Stock Exchange (http://www.hkexnews.hk) and the website of the Company (www.yueyuen.com).

2. STATEMENT OF INDEBTEDNESS

As at 31 December 2017, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group has outstanding indebtedness as summarised below:

Bank borrowings and bank overdrafts

The Group had outstanding unsecured and unguaranteed bank borrowings and bank overdrafts of approximately US$1,963,341,000 and US$16,722,000, respectively.

Amounts due to related parties

The Group had outstanding amounts due to related parties of approximately US$21,783,000, which were unguaranteed and unsecured.

Contingent liabilities and guarantees

The Group granted financial guarantees to joint ventures and associates of the Group of approximately US$26,425,000 and US$17,345,000, respectively.

Save as aforesaid, and apart from intra-group liabilities and normal trade and other payables, as at 31 December 2017, the Group did not have any debt securities issued or outstanding or authorised or otherwise created but unissued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, hire purchases commitments, guarantees or other material contingent liabilities.

3. WORKING CAPITAL

The Directors are of the opinion that, after due and careful enquiry taking into account the financial resources available to the Group, including internally generated funds, the available banking facilities and the proceeds from the Disposal, the Group has, in the absence of unforeseeable circumstances, sufficient working capital for its present requirements for at least the next 12 months from the date of this circular.

– 45 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

4. FINANCIAL AND TRADING PROSPECTS

The Company is an investment holding company. The Group is involved in two businesses focusing on sport fitness and lifestyle. The Group is a manufacturer of athletic and casual/outdoor footwear for leading international brand companies around the world, and operates a number of retail networks of footwear and apparel across the Greater China region, which continues to be a key growth market for major leading international sporting and lifestyle brands.

As disclosed in the 2017 interim report of the Company published on 4 September 2017, the Group will:

(i) in the face of the rising cost structure imposed by stricter government policies, continue to diversify its manufacturing capacity and offer new solutions to its brand customers to help them manage input costs and comply with relevant standards and requirements; and

(ii) invest in programs to upgrade and further integrate its production capacity, as well as to enhance its manufacturing processes in order to meet customer demands for quality, style and fabrics customisation, given the ability to incorporate manufacturing excellence and make use of advanced materials is essential for fostering closer strategic partnerships with key brand customers.

– 46 – APPENDIX II GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the 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

I. Interests of Directors and chief executives

As at the Latest Practicable Date, the interests and/or short positions of the Directors and chief executive of the Company in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in appendix 10 of the Listing Rules, to be notified to the Company and the Stock Exchange are as follows:

(a) Long position in the Shares and underlying Shares of the Company

Percentage Number of of the Shares/ issued share Name of underlying capital of the Director Capacity Shares held Company (Note 1)

Lu Chin Chu Beneficial owner 45,000 0.00%

Lin Cheng-Tien Beneficial owner 45,000 0.00%

Tsai Ming-Lun, Beneficial owner 33,000 0.00% Ming (Note 2)

Hu Chia-Ho Beneficial owner 78,000 0.00% (Note 2)

Liu George Beneficial owner 78,000 0.00% Hong-Chih (Note 2)

Hu Dien Chien Beneficial owner 17,500 0.00% (Note 3)

– 47 – APPENDIX II GENERAL INFORMATION

Notes:

1. The total issued share capital of the Company as at the Latest Practicable Date is 1,648,501,986 Shares.

2. Each of Mr. Tsai Ming-Lun, Ming, Mr. Hu Chia-Ho and Mr. Liu George Hong- Chih is interested in 33,000 Shares, which were granted by the Company with vesting conditions pursuant to the share award scheme of the Company adopted on 28 January 2014 and amended on 23 March 2016.

3. 17,500 Shares was granted to and vested on Mr. Hu Dien Chien on 30 November 2017 pursuant to the share award scheme of the Company adopted on 28 January 2014 and amended on 23 March 2016.

(b) Long position in the shares and underlying shares of HK$0.01 each of Pou Sheng, an associated corporation of the Company within the meaning of Part XV of the SFO

Number of shares/ underlying Percentage shares held of the issued Name of (ordinary share capital Director Capacity shares) of Pou Sheng (Note 1)

Tsai Pei Chun, Beneficial owner 19,523,000 0.37% Patty

Chan Lu Min Beneficial owner 851,250 0.02%

Liu George Interests of 414,000 0.01% Hong-Chih children under 18 and/or spouse

Note:

1. The total issued share capital of Pou Sheng as at the Latest Practicable Date is 5,340,673,615 shares.

Other than the interests disclosed above, none of the Directors nor the chief executives of the Company nor their associates had any interests or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporations as at the Latest Practicable Date.

– 48 – APPENDIX II GENERAL INFORMATION

II. Interests of Shareholders discloseable pursuant to the SFO

As at the Latest Practicable Date, so far as is known to the Directors or chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group:

(a) Interests in the Shares

Current percentage Number of interest in the Shares issued share Name of substantial beneficially capital of the shareholder Notes held Company*

Long Position

Pou Chen (a) 824,143,835 49.99%

Wealthplus (a) 773,156,303 46.90%

Max Creation Industrial (b) 115,001,998 6.97% Limited (“Max Creation”)

World Future Investments (c) 115,001,998 6.97% Limited (“World Future”)

Mr. Tsai (c) 115,321,998 6.99%

Ms. Tsai Huang Shu Man (c) 115,321,998 6.99%

Merrill Lynch & Co. Inc. (d) 99,315,703 6.02%

Short Position

Merrill Lynch & Co. Inc. (d) 109,341,792 6.63%

* The total issued share capital of the Company as at the Latest Practicable Date is 1,648,501,986 Shares and the percentage figure of the interest in the issued share capital of the Company in this table has been rounded down to two decimal places for ease of illustration.

– 49 – APPENDIX II GENERAL INFORMATION

Notes:

a) Of the 824,143,835 Shares beneficially owned by Pou Chen, 773,156,303 Shares were held by Wealthplus and 50,987,532 Shares were held by Win Fortune. Both Wealthplus and Win Fortune are wholly-owned subsidiaries of Pou Chen. Mr. Lu Chin Chu, Ms. Tsai, Mr. Chan Lu Min and Mr. Tsai Ming-Lun, Ming, who are Directors, are also directors of Pou Chen and Wealthplus. Mr. Lu Chin Chu and Mr. Chan Lu Min are directors of Win Fortune.

b) Of the 115,001,998 Shares beneficially owned by Max Creation, 80,494,822 Shares were held by Quicksilver Profits Limited (“Quicksilver”), 20,631,440 Shares were held by Red Hot Investments Limited (“Red Hot”) and 13,875,736 Shares were held by Moby Dick Enterprises Limited (“Moby Dick”). Quicksilver, Red Hot and Moby Dick are wholly-owned subsidiaries of Max Creation.

c) World Future is deemed to be interested in 115,001,998 Shares under the SFO by virtue of its interests in more than one third of the voting shares in Max Creation. Mr. Tsai, the father of Ms. Tsai (who is a Director), is also deemed to be interested in these 115,001,998 Shares under the same section as he holds 100% of the issued share capital in World Future. In addition, Mr. Tsai holds 320,000 Shares directly. Ms. Tsai Huang Shu Man, being the spouse of Mr. Tsai, is deemed to be interested in the 115,321,998 Shares in which Mr. Tsai is interested by virtue of the SFO.

d) Merrill Lynch & Co. Inc. is deemed to be interested in 35,000 Shares (long position) held directly by Merrill Lynch Portfolio Managers Limited (for discretionary clients) under the SFO by virtue of its interest in more than one-third of the voting shares in Merrill Lynch Portfolio Managers Limited. Merrill Lynch Portfolio Managers Limited is wholly-owned by ML Invest, Inc., which is in turn wholly-owned by Merrill Lynch Group, Inc., which is in turn wholly-owned by Merrill Lynch & Co. Inc..

Merrill Lynch & Co. Inc. is also deemed to be interested in 5,985,785 Shares (long position) and 2,620,000 Shares (short position) held directly by Blackrock, Inc. (for discretionary clients) under the SFO by virtue of its interest in more than one-third of the voting shares in Blackrock, Inc.. Merrill Lynch & Co. Inc. owns 49.8% of Blackrock, Inc. through various subsidiaries, namely, Princeton Services, Inc., Princeton Administrators, L.P., Merrill Lynch Investment Managers, L.P. and Fund Asset Management, L.P., which are all 99% owned by Merrill Lynch & Co. Inc. except for Princeton Services, Inc., which is wholly-owned by Merrill Lynch Group, Inc.. Merrill Lynch Group, Inc., which is wholly-owned by Merrill Lynch & Co. Inc., is also deemed to be indirectly interested in the 5,985,785 Shares (long position) and 2,620,000 Shares (short position) held directly by Blackrock, Inc..

In light of the above, Merrill Lynch & Co. Inc. is deemed to be interested in an aggregate of 6,020,785 Shares (long position) and 2,620,000 Shares (short position).

– 50 – APPENDIX II GENERAL INFORMATION

Merrill Lynch & Co. Inc. is also deemed to be interested in 93,294,918 Shares (long position) and 106,721,792 Shares (short position) held directly by Merrill Lynch International under the SFO by virtue of its interest in more than one-third of the voting shares in Merrill Lynch International. Merrill Lynch & Co. Inc. holds Merrill Lynch International through six wholly-owned subsidiaries namely, Merrill Lynch International Incorporated, Merrill Lynch International Holdings Inc., Merrill Lynch Europe Plc, Merrill Lynch Europe Intermediate Holdings, Merrill Lynch Holdings Limited and ML UK Capital Holdings. ML UK Capital Holdings is wholly-owned by Merrill Lynch Holdings Limited, which is in turn wholly-owned by Merrill Lynch Europe Intermediate Holdings, which is in turn wholly-owned by Merrill Lynch Europe Plc, which is in turn wholly-owned by Merrill Lynch International Holdings Inc., which is in turn wholly-owned by Merrill Lynch International Incorporated, which is in turn wholly owned by Merrill Lynch & Co. Inc.. Merrill Lynch International is 97.2% owned by ML UK Capital Holdings. The above has been prepared based on the disclosure of interest form filed with the Company.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors was a director or employee of a company which had an interest or a short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

(b) Substantial shareholders of other members of the Group

As at the Latest Practicable Date, so far as is known to the Directors, the following parties, other than a Director, are directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the other members of the Group:

% of the issued share capital in the relevant Name of subsidiary Name of shareholder subsidiary

Alchemy International Twin Seas Holdings Co., 10 (Holdings) Co., Limited Limited

Bestample Investments L & K Engineering Co., 15 Limited Ltd.

Fujian Baomin Sporting Glorious Win 10 Goods Co., Ltd Developments Limited

Keen Vision Holdings Song Chang Keun 40 Limited

Ontime Ventures Limited Yen Ming Ho 10

– 51 – APPENDIX II GENERAL INFORMATION

% of the issued share capital in the relevant Name of subsidiary Name of shareholder subsidiary

PT. GF Indonesia SIG F&F LIMITED 35 (Indonesia)

EXR KOREA CO LIMITED 11.11

PT. Suksespermata Yen Ming Ho 10 Indonusa

Qingdao Pou Sheng 山東力威經貿有限公司 28 International Sporting Goods Company Limited

Save as disclosed above, the Directors are not aware that there is any party (not being a Director) who, as at the Latest Practicable Date, had an interest or short positions in the Shares and underlying Shares which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO, or who is, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group or had any options in respect of such shares.

III. Interests in competing business

As at the Latest Practicable Date, none of the Directors had any interest in a business which may compete with that of the Group and which is required to be disclosed pursuant to Rule 8.10 of the Listing Rules.

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into or proposed to enter into any service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

4. MATERIAL CONTRACTS

There are no contracts that are not entered into in the ordinary course of business by the members of the Group within the two years immediately preceding the Latest Practicable Date, which are or may be material.

– 52 – APPENDIX II GENERAL INFORMATION

5. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or claims of material importance and, so far as the Directors are aware, no litigation or claims of material importance were pending or threatened against any member of the Group.

6. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2016, being the date up to which the latest published audited financial statements of the Group were made up.

7. EXPERT

(a) The following is the qualification of Somerley Capital Limited, the IFA, which has given its opinion or advice which is contained in this circular:

Name Qualification

Somerley Capital Limited Independent Financial Adviser. Somerley Capital Limited is a corporation licensed to conduct type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO

(b) As at the Latest Practicable Date, the IFA did not have (i) any direct or indirect shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group, and (ii) any direct or indirect interest in any assets acquired or disposed of by or leased to 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 up to which the latest published audited financial statements of the Group were made up.

(c) The IFA has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name included in this circular in the form and context in which they respectively appear.

8. DIRECTOR’S INTERESTS IN ASSETS/CONTRACTS AND OTHER INTERESTS

(a) None of the Directors has 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 up to which the latest published audited financial statements of the Group were made.

– 53 – APPENDIX II GENERAL INFORMATION

(b) None of the Directors is materially interested in any contract or arrangement entered into by any member of the Group subsisting at the date of this circular which is significant in relation to the business of the Group.

9. MISCELLANEOUS

(a) The secretary of the Company is Ng Yuk Yee, Feona. She is a solicitor of the High Court of the Hong Kong Special Administrative Region and is the director of Legal and Company Secretary Department of the Group.

(b) The principal place of business of Company in Hong Kong is at 22nd Floor, C-Bons International Center, 108 Wai Yip Street, Kwun Tong, Kowloon, Hong Kong. The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. The branch share registrar and transfer office of the Company is Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

(c) As at the date of this circular, Mr. Lu Chin Chu, Ms. Tsai Pei Chun, Patty, Mr. Chan Lu Min, Mr. Lin Cheng-Tien, Mr. Tsai Ming-Lun, Ming, Mr. Hu Chia-Ho, Mr. Liu George Hong-Chih, and Mr. Hu Dien Chien are the executive Directors, and Mr. Leung Yee Sik, Mr. Huang Ming Fu, Mr. Chu Li- Sheng, Ms. Yen Mun-Gie (also known as Teresa Yen) and Mr. Hsieh Yung Hsiang (also known as Alfred Hsieh) are the independent non-executive Directors.

(d) The English text of this document and the form of proxy shall prevail over the Chinese text.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours on any weekday (except public holidays) at the office of the Company situated at 22nd Floor, C-Bons International Center, 108 Wai Yip Street, Kwun Tong, Kowloon, Hong Kong, from the date of this circular, until the date of the SGM:

(a) this circular;

(b) the Memorandum of Association and Bye-laws of the Company;

(d) the letter from the Independent Board Committee, the text of which is set out on page 18 to 19 of this circular;

(e) the letter from the Independent Financial Adviser, the text of which is set out on pages 20 to 44 of this circular; and

(f) the written consent of Independent Financial Adviser referred to in the section headed “Expert” in this Appendix.

– 54 – NOTICE OF SPECIAL GENERAL MEETING

YUE YUEN INDUSTRIAL (HOLDINGS) LIMITED 裕元工業（集團）有限公司* (Incorporated in Bermuda with limited liability) (Stock Code: 551)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the “SGM”) of the shareholders of Yue Yuen Industrial (Holdings) Limited (the “Company”) will be held at 22nd Floor, C-Bons International Center, 108 Wai Yip Street, Kwun Tong, Kowloon, Hong Kong on Friday, 16 March 2018 at 2:00 p.m. for the purposes of considering and, if thought fit, passing with or without amendments the following resolution as ordinary resolution of the Company:

ORDINARY RESOLUTION

1. “THAT

(a) the effective disposal by the Company of 3,331,551,560 ordinary share(s) of HK$0.01 each (“Pou Sheng Share(s)”) in the share capital of Pou Sheng International (Holdings) Limited (“Pou Sheng”) held by the Company or its subsidiaries or any such number of Pou Sheng Shares representing the Company’s entire holding in Pou Sheng through the cancellation of all such Pou Sheng Shares in exchange for Pou Chen Corporation paying to the Company HK$2.03 per Pou Sheng Share (the “Disposal”), and all the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified; and

(b) any one or more of the directors of the Company be and is/are hereby authorised to do all such acts and things and execute all such documents which he/she/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Disposal and the transactions contemplated thereunder.”

By Order of the Board Lu Chin Chu Chairman

Hong Kong, 27 February 2018

* For identification purpose only

– 55 – NOTICE OF SPECIAL GENERAL MEETING

Principal Place of Business: 22nd Floor C-Bons International Center 108 Wai Yip Street Kwun Tong Kowloon, Hong Kong

Notes:

1. A form of proxy for use at the SGM or any adjournment thereof is enclosed.

2. A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint a proxy or proxies (if such member is the holder of two or more shares) to attend and, in the event of a poll, vote in his stead. A proxy need not be a member of the Company. In order to be valid, the form of proxy must be deposited at the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong together with a power of attorney or other authority, if any, under which it is signed or a certified copy of that power or authority, not later than 2:00 p.m. on Wednesday, 14 March 2018, or not less than 48 hours before the time for holding the adjourned meeting, as the case may be.

3. Delivery of an instrument appointing a proxy shall not preclude a member from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.

4. Where there are joint holders of any share any one of such joint holder may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at any meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

5. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same. In the case of an instrument of proxy purporting to be signed on behalf of a corporation by an officer thereof it shall be assumed, unless the contrary appears, that such officer was duly authorized to sign such instrument of proxy on behalf of the corporation without further evidence of the fact.

6. The register of members of the Company will be closed from Tuesday, 13 March 2018 to Friday, 16 March 2018, both dates inclusive, for the purpose of determining shareholders’ entitlements to attend the SGM. During such period, no transfer of shares of the Company will be registered. All transfers, accompanied by the relevant share certificates, must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not later than 4:30 p.m. on Monday, 12 March, 2018 in order to establish the identity of the shareholders who are entitled to attend and vote at the SGM.

7. If tropical cyclone warning signal No. 8 or above is in force or black rainstorm warning signal is in force at or at any time after 11:00 a.m. on the date of the SGM, the SGM will be postponed and members will be informed of the date, time and venue of the postponed SGM by a supplementary notice, posted on the respective websites of the Company and Hong Kong Exchanges and Clearing Limited.

The SGM will be held as scheduled when amber or red rainstorm warning signal is in force.

After considering their own situations, members should decide whether they would attend the SGM under bad weather condition and if they do so, they are advised to exercise care and caution.

8. References to times and dates in this notice are to Hong Kong times and dates.

– 56 –

(Holdings) Limited 裕 元 工 業（集 團）有 限

(Holdings) Limited 裕元工業（集團）有限