Financial Information

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

You should read the following discussion in conjunction with the consolidated financial statements and the notes thereto included in the Accountants’ Report in Appendix I to this document which has been prepared in accordance with IFRS, and the selected historical financial information and operating data included elsewhere in this document.

The following discussion and analysis contain forward-looking statements that reflect our current views with respect to future events and financial performance. These statements are based on our assumptions and analysis in light of our experience and perception of historical trends, current conditions and expected future development, as well as other factors we believe are appropriate under the circumstances. However, whether actual outcomes and developments will meet our expectations and predictions depends on a number of risks and uncertainties. In evaluating our business, you should carefully consider the information provided in the sections headed “Risk Factors”, “Business” and elsewhere in this document.

OVERVIEW

We are a drama series distribution company in the PRC. We ranked 15th among all drama series distribution companies in the PRC in terms of revenue generated from the drama series market in 2019 with a market share of approximately 0.31%, according to the Frost & Sullivan Report. In addition, we ranked first among all drama series distribution companies in China in terms of the total number of episodes of distributed drama series which were broadcast in 2019, and sixth among all drama series production and distribution companies in China in terms of the hours of TV series produced in 2019, according to the Frost & Sullivan Report. Our business primarily consists of the following: (i) licensing of the broadcasting rights of self-produced drama series, through which we invest solely or jointly with our co-investors, and undertake the production, marketing and distribution of the drama series in the PRC; and (ii) licensing of the broadcasting rights of outright-purchased drama series, in which we, either as the exclusive distributor or one of the several distributors, obtain the right to use, and the right to transfer the broadcasting rights of, the drama series from the third-party copyright owners/licensors, and subsequently license such rights to various TV channels and online media platforms in the PRC. In addition to our two main businesses, we also sell script copyrights of drama series, act as a distribution agent of the broadcasting rights of TV series, and invest in drama series as a non-executive producer.

We experienced significant growth in our net profit during the Track Record Period. Our revenue increased from approximately RMB378.7 million for the year ended December 31, 2017 to approximately RMB385.9 million for the year ended December 31, 2018, and further to approximately RMB391.0 million for the year ended December 31, 2019. Our net profit was approximately RMB56.8 million, RMB67.6 million and RMB77.0 million for the years ended December 31, 2017, 2018 and 2019, respectively, representing a CAGR of approximately 16.5% from 2017 to 2019.

BASIS OF PREPARATION AND PRESENTATION OF HISTORICAL FINANCIAL INFORMATION

Pursuant to the Corporate Reorganization, as more fully explained in the section headed “History and Corporate Structure — Corporate Reorganization” in this document, our Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on June 17, 2019 and became the holding company of the

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The consolidated financial statements of our Group has been prepared in accordance with all applicable IFRSs which collective term includes all applicable individual IFRSs, International Accounting Standards and Interpretations issued by the International Accounting Standards Board (the “IASB”).

The IASB has issued a number of new and revised IFRSs. For the purpose of preparing the consolidated financial statements, our Group has adopted all applicable new and revised IFRSs during the Track Record Period, except for any new standards or interpretations that are not yet effective for the accounting period beginning January 1, 2019. For further details, please refer to the Accountants’ Report in Appendix I to this document.

The financial information contained herein is presented in Renminbi, or RMB, which is the functional currency of our Group. The measurement basis used in the preparation of the financial information is the historical cost basis.

KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our results of operations have been, and are expected to continue to be, affected by a number of factors, which primarily include the following:

Quality of the drama series we source and/or produce and project-based nature of our revenue model

During the Track Record Period, our revenue was mainly derived from licensing the broadcasting rights of the drama series to TV channels. Our revenue was mainly driven by the quality of the relevant drama series we distributed and the number of distribution platforms we utilized for such distribution in the PRC. Our ability to distribute high-quality drama series to our customers depends in part on our abilities to accurately identify the content preferences of distribution platforms and viewers, and source appropriate drama series from the third-party copyright owners/licensors. If we fail to identify and keep up with their evolving preferences, or the copyright owners/licensors of our drama series are no longer willing or able to license the relevant drama series to us based on the terms acceptable to us for any reason, our ability to offer high-quality drama series to our customers will be adversely affected.

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Furthermore, we charge our customers a license fee for each drama series that they purchase the broadcasting rights thereof from us. Accordingly, there is no assurance that we will be able to continue to secure new customers or that our existing customers will continue to purchase the broadcasting rights of the drama series from us in the future. In the event our drama series could not satisfy the TV channels’ internal requirements, they will not purchase from us, and we will not be able to generate sufficient projected revenue. In the event this occurs, our results of operations and financial condition will be adversely affected.

Government policies and market trends

The distribution of drama series is generally subject to the government regulations and policies that affect the drama series market in the PRC and the evolving market trends, which can be uncertain during the drama series production and distribution stages. In the event that the market trends and government policies change so that we are not able to distribute the drama series according to our business plan, we may be required to defer distribution, distribute drama series at a lower price than we anticipated, or distribute alternative drama series that may be more costly than the original drama series under our plan. This may adversely affect our results of operations and financial condition.

Ability to control our cost of sales and operating expenses

Our results of operations are primarily affected by the cost of purchasing the broadcasting rights of the drama series from third-party copyright owners/licensors and the cost of producing the drama series ourselves, which mainly comprise our cost of sales. For the years ended December 31, 2017, 2018 and 2019 , our aggregate amount of cost of sales, which primarily consisted of the cost of purchasing the broadcasting rights of the drama series from third-party copyright owners/licensors and the cost of producing our drama series, amounted to approximately RMB302.8 million, RMB286.4 million and RMB249.9 million, respectively, representing approximately 79.9%, 74.2% and 63.9% of our total revenue, respectively. During the Track Record Period, we have implemented certain measures to control our cost of sales. For example, with respect to the business of licensing the broadcasting rights of our self-produced drama series, we possess sufficient management capabilities to systematically monitor, manage and coordinate the entire production process of the drama series. In order to ensure that our projects can be completed on a timely basis and within proposed budget, the staff from our project department regularly makes on-site visits to supervise the progress and maintain effective communication with the producers and filming crew. In addition, in order to avoid budget overruns, we also dispatch financial personnel to the production team to monitor the occurrences of project expenses and to assess whether the cost is in line with the progress of the production.

In addition, our results of operations are affected by our operating expenses, which mainly consist of our selling and marketing expenses and administrative expenses. For the years ended December 31, 2017, 2018 and 2019, our aggregate amount of selling and marketing expenses and administrative expenses were approximately RMB12.0 million, RMB23.8 million and RMB61.1 million, respectively, representing approximately 3.2%, 6.2%, and 15.6% of our total revenue, respectively. Our operating expenses may increase with the expansion of our business or due to other factors. Our ability to effectively control our cost of sales and operating expenses will be pivotal in maintaining our profitability.

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Capital sources and funding sufficiency

The drama series production and distribution business is capital-intensive in nature. Our cost of sales relating to drama series production and distribution primarily includes the purchase costs of the broadcasting rights of the drama series, the service fees of artists, scripts, production crew, and other miscellaneous materials and services required in the process of filming and post-production. Many of these costs need to be paid upfront to our suppliers before we receive any sales proceeds from our customers. Therefore, sufficient funding in a timely manner is crucial for our daily operations. During the Track Record Period, we mainly satisfied our working capital requirements from cash generated from our operations, bank and other borrowings and loans from our related parties. If we are unable to procure sufficient funding for our operations in the future, our production and distribution plans will be interrupted and our results of operations and financial condition will be adversely affected.

Relatively long trade receivable turnover days in the industry

We generate revenue primarily from licensing the broadcasting rights of drama series to TV channels. According to the Frost & Sullivan Report, the ability to pay for the licensing fee of the broadcasting rights of drama series by the TV channels and online media platforms primarily depends on the timely collection of their accounts receivables relating to advertising revenue and the complexity and timing of the internal approval procedures since many of such TV channels are state-owned enterprises. In some cases, the date of payment by the TV channels and online media platforms to drama series distribution companies may be later than the pre-agreed contract date, which may subsequently affect the time of the payment of drama series distribution companies to their suppliers. Therefore, it generally takes us an extended period of time to collect the trade receivables from our customers, which could negatively affect our working capital status. For the years ended December 31, 2017, 2018 and 2019, average trade receivable turnover days were approximately 120.1 days, 276.8 days and 447.3 days, respectively. If we are not able to collect the trade and bills receivables on a timely basis, our results of operations and financial condition could be materially and adversely affected.

Inability to continue to enjoy preferential tax treatment by our Consolidated Affiliated Entities will adversely affect our financial condition

During the Track Record Period, certain of our Consolidated Affiliated Entities, namely, Xinjiang LiTian, Horgos Tiantian Meimei, Horgos Haohao Xuexi and Tiantian Xiangshang, enjoyed preferential tax treatment, including tax exemptions and tax refund. There is no assurance that we are able to continue to enjoy tax exemption and tax refund in the future due to changes in the tax policies to be adopted by the PRC government authorities. If there is any change in, or withdrawal of, any preferential tax treatment applicable to us, or an increase in the effective tax rate, our tax expenses will increase accordingly. Any occurrence of these changes will adversely affect our business, results of operations and financial condition.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have identified certain accounting policies that we believe are most critical to the preparation of our consolidated financial statements. Set forth below are discussions of the accounting policies applied in preparing our financial information that we believe are most dependent on the application of these estimates and judgments and, in addition, certain other accounting policies that we believe are material to an understanding of our financial information. Some of our critical accounting policies involve subjective assumptions and estimates, as well as complex judgments by our management relating to accounting items, which affect the application of policies and reported amounts of assets, liabilities, income and expenses.

The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results of operations may differ from these estimates. Our critical accounting policies, estimates, assumptions and judgments, which are important for understanding our financial condition and operation results, are set forth in detail in notes 2 and 3 to the Accountants’ Report included in Appendix I to this document.

Revenue Recognition

Our Group classifies income as revenue when it arises from the sale of goods or the provision of services in the ordinary course of our Group’s business.

Revenue is recognized when control over a product or service is transferred to the customer, at the amount of promised consideration to which our Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value-added tax or other sales taxes and is after deduction of any trade discounts.

Revenue from Licensing the Broadcasting Rights of Drama Series

Revenue from licensing the broadcasting right of drama series to customers is recognized when the drama series materials are made available to the customer.

Sale of Script Copyrights

Revenue from the sale of script copyrights is recognized when the title and copy of the script copyrights are transferred to the customer.

Revenue from the Provision of Distribution Agency Services

Revenue from the provision distribution agency services is recognized when the service is rendered.

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Revenue from Licensing of the Broadcasting Rights under Co-financing Arrangement

Revenue from licensing of the broadcasting rights under co-financing arrangement relates to our investments in drama series as a non-executive producer. Revenue under such arrangement is recognized when the drama series materials are made available to the customer of the executive producer.

Interest Income

Interest income is recognised as it accrues using the effective interest method. For financial assets measured at amortised cost that are not credit-impaired, the effective interest rate is applied to the gross carrying amount of the asset. For credit-impaired financial assets, the effective interest rate is applied to the amortized cost (i.e., gross carrying amount net of loss allowance) of the asset.

Government Grants

Government grants are recognized in the consolidated statements of financial position initially when there is reasonable assurance that they will be received and that our Group will comply with the conditions attaching to them. Grants that compensate our Group for expenses incurred are recognized as other income in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate our Group for the cost of an asset are recognized as deferred income and subsequently recognized in profit or loss on a systematic basis over the useful life of the asset.

Drama Series Copyrights

Drama series copyrights comprise (i) the distribution rights and copyrights of the drama series; and (ii) script copyrights, either acquired or produced by our Group. They are stated at cost less accumulated amortization and impairment losses. Costs of drama series copyrights generally comprise consideration payable upon acquisition of drama series and/or costs/expenses incurred during the production of drama series. Script copyrights are stated at cost less impairment losses.

The amortization of drama series copyrights is determined using the drama series forecast computation method. Under this method, the amount of amortization is determined based on the proportion of the revenue recognized in the Track Record Period for each individual drama series to the estimated total revenue expected to be recognized throughout its life cycle of the drama series.

Our management reviews the estimated total revenue throughout the life cycle of the drama series regularly in order to determine the amount of amortization expenses to be recorded during any year. The determination of the estimated total revenue is based on historical experience with similar drama series. The amortization expenses for future periods are adjusted if there are significant changes from previous estimates.

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If circumstances indicated that the carrying amount of a drama series copyright may not be recoverable, the drama series copyright may be considered “impaired”, and an impairment loss may be recognised in accordance with accounting policy for impairment of drama series copyrights as described in note 2(f) to the Accountant’s Report included in Appendix I to this document. Drama series copyrights are tested for impairment periodically or whenever the events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. The recoverable amount is the greater of the fair value less costs of disposal and value in use. In determining the value in use, expected future cash flows generated by the drama series copyright are discounted to their present value, which requires significant judgement relating to the level of revenue to be generated over the life cycle of the drama series copyright. Our Group uses all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of the level of revenue to be generated over the life cycle of the drama series copyright. Changes in these estimates could have a significant impact on the recoverable amount of drama series copyrights and could result in additional impairment charge or reversal of impairment in future periods.

Income Tax

Our income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognized in profit or loss except to the extent that they relate to items recognized in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognized in other comprehensive income or directly in equity, respectively.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Expected Credit Loss for Financial Assets

Our Group recognizes a loss allowance for expected credit losses (“ECLs”) on the financial assets measured at amortized cost, including cash and cash equivalents and trade and other receivables.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to our Group in accordance with the contract and the cash flows that our Group expects to receive).

The expected cash shortfalls of fixed-rate financial assets, trade and other receivables and contract assets are discounted using the effective interest rate determined at initial recognition or an approximation thereof where the effect of discounting is material.

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The maximum period considered when estimating ECLs is the maximum contractual period over which our Group is exposed to credit risk.

In measuring ECLs, the Company and its subsidiaries take into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.

ECLs are measured on either of the following bases:

• 12-month ECLs, which are losses that are expected to result from possible default events within the 12 months after the reporting date; and

• lifetime ECLs, which are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.

Loss allowances for trade receivables are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on our Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date.

For all other financial instruments, our Group recognizes a loss allowance equal to 12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs.

Adoption of IFRS 9

Our historical financial information has been prepared based on our underlying financial statements, in which IFRS 9 “Financial Instruments” (“IFRS 9”) has been adopted and applied consistently since the beginning of, and throughout, the Track Record Period. We have adopted IFRS 9 instead of IAS 39 “Financial Instruments: Recognition and Measurement” (“IAS 39”) in the preparation of our underlying financial statements, such that our historical financial information prepared under IFRS 9 is comparable on a period-to-period basis.

We have assessed the effects of application of IFRS 9 on our financial position and performance. IFRS 9 requires the recognition of impairment provisions of financial assets measured at amortized cost based on expected credit losses. We assessed that the adoption of the impairment methodology under IFRS 9 would not result in a significant difference in bad debt provision as compared with IAS 39. The financial assets held by our Group include only financial instruments measured at amortized cost which meet the condition for classification as financial assets at amortized cost under IFRS 9. Accordingly, our Group does not expect the new guidance to affect the classification and measurement of these financial assets.

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Adoption of IFRS 15

Our historical financial information has been prepared based on our underlying financial statements, in which IFRS 15 “Revenue from contracts with customers” (“IFRS 15”) has been adopted and applied consistently since the beginning of, and throughout, the Track Record Period. We have assessed the effects of application of IFRS 15 on our financial position and performance. Our Directors consider that adoption of IFRS 15 would not have a significant impact on our Group’s financial position and performance compared to the requirements of IAS 18 “Revenue” for the Track Record Period.

Adoption of IFRS 16

IFRS 16 “Leases” (“IFRS 16”) is mandatorily effective for the annual periods beginning on or after 1 January 2019. Our Group decided to apply IFRS 16 in our underlying historical financial statements since the beginning of, and throughout, the Track Record Period. IFRS 16 superseded IAS 17 “Leases” (“IAS 17”) and the related interpretations.

Under IFRS 16, leases of a lessee are recognized as right-of-use assets and the corresponding liabilities at the date on which the respective leased asset is available for use by the lessee. Our Directors consider that the adoption of IFRS 16 does not have any significant impact on our Group’s financial position, financial performance and key financial ratios.

RESULTS OF OPERATIONS

The table below sets forth a summary of our consolidated statement of profit or loss and other comprehensive income for the years indicated:

Year Ended December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Revenue ...... 378,738 385,867 390,996 Cost of sales ...... (302,753) (286,362) (249,862)

Gross profit ...... 75,985 99,505 141,134 Other income ...... 3,112 4,286 4,069 Selling and marketing expenses...... (827) (764) (543) Administrative expenses...... (11,197) (23,062) (60,522)

Profit from operations ...... 67,073 79,965 84,138 Finance costs ...... (5,012) (10,122) (4,769)

Profit before taxation ...... 62,061 69,843 79,369 Income tax...... (5,301) (2,237) (2,335)

Profit and total comprehensive income attributable to equity shareholders of our Company for the year ...... 56,760 67,606 77,034

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Non-IFRS Measure

In order to supplement our consolidated financial statements, which are presented in accordance with IFRS, we also use adjusted profit and total comprehensive income attributable to equity shareholders of our Company for the year as an additional financial measure. We present this financial measure because it is used by our management to evaluate our financial performance by eliminating the impact of certain one-off or non-recurring items that we do not consider to be indicative of the performance of our business during the Track Record Period. We also believe that this non-IFRS measure provides additional information to investors and others in their understanding and evaluating our results of operations in the same manner as they help our management and in comparing financial results across accounting periods and to those of our peer companies. However, this non-IFRS measure does not have a standardized meaning prescribed by IFRS and therefore, it may not be comparable to similar measures presented by other companies listed on the Stock Exchange.

Year Ended December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Profit and total comprehensive income attributable to equity shareholders of our Company for the year ...... 56,760 67,606 77,034 Add: [REDACTED]...... – 590 13,570

Adjusted profit and total comprehensive income attributable to equity shareholders of our Company for the year(1) ...... 56,760 68,196 90,604

Note:

(1) The adjusted profit and total comprehensive income attributable to equity shareholders of our Company for the year (adding back [REDACTED]) represents the profit and total comprehensive income attributable to equity shareholders of our Company for the year excluding the effects of the [REDACTED] as it is non-recurring in nature. The adjusted profit and total comprehensive income attributable to equity shareholders of our Company for the year is not a measure of performance under IFRS. As a non-IFRS measure, the adjusted profit and total comprehensive income attributable to equity shareholders of our Company for the year is presented because our Directors believe such information will be helpful in assessing the level of our net profit by eliminating the effects of certain one-off or non-recurring items, namely, the [REDACTED]. There are no other significant non-recurring or one-off items during the Track Record Period. However, the use of the adjusted profit and total comprehensive income attributable to equity shareholders of our Company for the year has material limitations as an analytical tool, as it does not include all items that impact our profit for the relevant year.

MAJOR COMPONENTS OF OUR RESULTS OF OPERATIONS

Revenue

We generate revenue primarily from (i) licensing of the broadcasting rights of our self-produced drama series; and (ii) licensing of the broadcasting rights of outright-purchased drama series from third-party copyright owners/licensors. In addition to our two main businesses, we generate revenue from (i) the sales of script copyrights of drama series; (ii) agency services under which we acted as a distribution agent of the broadcasting rights of drama series; and (iii) investment in drama series as a non-executive producer, during the Track

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Record Period. For the years ended December 31, 2017, 2018 and 2019, our total revenue was approximately RMB378.7 million, RMB385.9 million and RMB391.0 million, respectively. During the Track Record Period, all of our revenue was derived from the PRC.

The table below sets forth the breakdown of our revenue by business segment for the years indicated:

Year Ended December 31,

2017 2018 2019

RMB’000 % RMB’000 % RMB’000 %

Revenue from the licensing of the broadcasting rights of self-produced drama series ...... 13,686 3.6 7,031 1.8 88,982 22.8 Revenue from the licensing of the broadcasting rights of outright-purchased drama series ...... 345,363 91.2 375,724 97.4 278,588 71.3 Revenue from the sales of script copyrights(1) . 19,689 5.2 – – – – Revenue from the provision of distribution agency services(2) ...... – – – – 9,458 2.4 Revenue from the licensing of the broadcasting rights under co-financing arrangement(3) ...... – – 3,112 0.8 13,968 3.5

Total ...... 378,738 100.0 385,867 100.0 390,996 100.0

Notes:

(1) Revenue from the sales of script copyrights primarily represent revenue generated from selling the copyrights of drama series scripts.

(2) Revenue from the provision of distribution agency services primarily represents revenue generated from distributing drama series to TV channels by acting as a distribution agent.

(3) Revenue from the licensing of the broadcasting rights under co-financing arrangement mainly includes revenue from our investment in drama series production as a non-executive producer.

Licensing of the Broadcasting Rights of Self-Produced Drama Series

Under this business, we either (i) act as the sole investor in such drama series, in which case we contribute all of the funding and are in charge of the entire production and distribution process. Accordingly, we enjoy all of the copyright benefits of such drama series and bear all investment risks; or (ii) we cooperate with other investors in a co-financing arrangement, in which case we act as the executive producer of the drama series. For details of the business model, please refer to the section headed “Business — Our Business and Revenue Model — Licensing of the Broadcasting Rights of Self-Produced Drama Series” in this document. Revenue generated by our licensing of the broadcasting rights of self-produced drama series amounted to approximately RMB13.7 million, RMB7.0 million and RMB89.0 million for the years ended December 31, 2017, 2018 and 2019, respectively, representing approximately 3.6%, 1.8% and 22.8%, respectively, of our total revenue for the same years.

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The following table sets forth a breakdown of our revenue from licensing the broadcasting rights of self-produced drama series by customer types for the years indicated:

Year Ended December 31,

2017 2018 2019

#of #of #of Drama Drama Drama (1) Series(1) Revenue Series Revenue Series(1) Revenue

RMB’000 % RMB’000 % RMB’000 %

Self-produced drama series Satellite TV channels...... – First-run ...... – – – – – – 3 55,203 62.0 –Rerun...... – – – 1 3,464 49.3 2 27,001 30.3 Terrestrial TV channels ..... 3 13,635 99.6 4 3,326 47.3 3 1,469 1.7 Other third-party customers(2) . 1 51 0.4 1 241 3.4 4 5,309 6.0

Total(3) ...... 3 13,686 100.0 4 7,031 100.0 5 88,982 100.0

Notes:

(1) The number of drama series licensed takes into consideration that some drama series were licensed to both TV channels and other third-party customers in the same financial year, thus, the total number of drama series licensed shown in the table above may or may not equal to the sum of the drama series licensed to different customers.

(2) Other third-party customers primarily represent online media platforms and other third-party drama series distribution companies in the PRC.

(3) Represents the total number of drama series distributed, irrespective of the distribution platforms on which they are broadcast. A particular drama series can be broadcast on more than one distribution platforms.

Under this business segment, revenue generated from our customers that are TV channels accounted for approximately 99.6%, 96.6% and 94.0% of our revenue generated from licensing the broadcasting rights of self-produced drama series for the years ended December 31, 2017, 2018 and 2019, respectively, while the remainder of this segment revenue was attributable to other third party customers.

Among revenue generated from licensing the broadcasting rights of self-produced drama series, approximately nil, nil and 62.0% was generated from first-run broadcast on satellite TV channels for the years ended December 31, 2017, 2018 and 2019, respectively. For the same periods, approximately nil, 49.3% and 30.3%, respectively, was generated from rerun broadcast on satellite TV channels, and approximately 99.6%, 47.3% and 1.7%, respectively, was generated from broadcast on terrestrial TV channels. The remainder was generated from licensing the broadcasting rights of self-produced drama series to other third-party customers. According to the Frost & Sullivan Report, because satellite TV channels are able to reach more viewers without any geographic restriction and are capable of achieving meaningful scale and obtain pertinent market feedback from the viewers, such as viewing hotspots and behavior and audiences’ preferences, more quickly than terrestrial TV channels, the price per episode of drama series broadcast on satellite TV channels is generally higher than that of the drama series broadcast on terrestrial TV channels. Additionally, the price per episode of drama series that

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Therefore, revenue generated from licensing the broadcasting rights of self-produced drama series for the year ended December 31, 2019 was substantially higher than that for the years ended December 31, 2017 and 2018, primarily because (i) our self-produced drama series, “The Brothers” (義海), was licensed and had first-run broadcast on three satellite TV channels in 2019; (ii) our self-produced drama series, “Glory of the Blood” (鐵血榮耀), was licensed and had first-run broadcast on a satellite TV channel in 2019; and (iii) our self-produced drama series, “A Gallant Army” (老虎隊), was licensed and had first-run broadcast on CCTV-8 and second-run broadcast on three satellite TV channels during that year, while for the years ended December 31, 2017 and 2018, our self-produced drama series were licensed and primarily had rerun broadcast on satellite TV channels and terrestrial TV channels.

As of the Latest Practicable Date, we did not have any self-produced drama series that was 100.0% invested by our Group, which had not yet generated any revenue for our Group during the Track Record Period. The following table sets forth our self-produced drama series that have completed production and were subject to distribution as of the Latest Practicable Date, which have not yet generated any revenue for our Group during the Track Record Period.

Expected Expected Revenue to be Revenue to be Actual or Received for the Received for the Valid Period of the Estimated Estimated Total Investment Year Ending Year Ending TV Series Date of the TV First-Run Number of Investment Percentage of Type of Co-financing December 31, December 31, Production Status as of the Latest Series Distribution Broadcast Time Remaining Name of the Drama Series Episodes Genre Amount Our Group Arrangements(1) 2020(2) 2021(2) License(3) Practicable Date License(4) and Platform(5) Useful Life(6)

(RMB’000) % (RMB’000) (RMB’000)

Great Days with Green Mountains and 42 Countryside 60,000 30.0 Percentage of third-party 22,924 8,406 July 13, 2018 to Obtained the distribution March 22, 2019 N/A(7) 19 months Clear Waters investment with variable January 9, 2019 license and in the process (綠水青山紅日子)...... returns was 70.0% of distribution

Fixed Return Investment: the annual interest rate ranged between 9.0% and 20.0%

Mom with Smile 58 Family/ 65,000 25.0 Percentage of third-party 35,228 9,347 April 1 , 2017 to Obtained the distribution May6,2019 N/A(7) 19 months (微笑媽媽)...... Inspiration investment with variable April 1, 2019 license and in the process returns was 75.0% of distribution

Fixed Return Investment: the annual interest rate ranged between 9.0% and 15.0%

Mr. Fox and Miss Rose 30 Romance 50,000 40.0 Percentage of third-party 23,585 2,830 N/A(9) Distributed and the broadcast N/A(9) May 28, 2020/ 19 months (酋長的男人)(8) ...... investment with variable time was scheduled on Tencent Video returns was 60.0% May 28, 2020

Fixed Return Investment: the annual interest rate ranged between 15.0% and 20.0%

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Notes:

(1) The Fixed Return Investment that we received from third-party co-investors during the Track Record Period were recognized as loans from third parties. For the variable return investment that we received from third-party co-investors, we accounted it initially as payable to co-investors of drama series under co-financing arrangements and subsequently offset with the balance of the drama series copyrights over the production process. Revenue from licensing the broadcasting rights of these drama series will be recognized when the drama series materials are made available to the customer. As of the Latest Practicable Date, the Fixed Return Investments that we received from third-party co-investors in “Great Days with Green Mountains and Clear Waters” (綠水青山紅日子) and “Mom with Smile” (微笑媽媽) had been fully settled. The Fixed Return Investments that we received from third-party co-investors in “Mr. Fox and Miss Rose” (酋長的男人) will be settled in 2020 when they come due.

(2) The expected revenue to be received for the years ending December 31, 2020 and 2021 is the amount estimated by our management based on the distribution plans of each drama series.

(3) The TV Series Production License is issued by the Department of Radio and Television at the provincial level or above in the PRC to producers before filming and production of a drama series.

(4) The date of the TV series distribution license represents the date on which a particular drama series is approved by the relevant bureaus of radio and television in the PRC for distribution.

(5) Estimated first-run broadcast time and platform are formulated based on our management’s reasonable anticipation based on the prevalent market conditions as of the Latest Practicable Date. Actual broadcast time and platform may be subject to change.

(6) The remaining useful life is determined based on the distribution plan we formulate for each drama series. The remaining useful lives of these three self-produced drama series are calculated from the Latest Practicable Date to December 31, 2021, which is the year-end date of the distribution plans formulated by our Group for these drama series.

(7) The estimated first-run broadcast time and platform for such drama series is not available as no broadcasting rights transfer agreement had been entered into as of the Latest Practicable Date.

(8) This is a web series produced by us in collaboration with a third-party drama series production company, which is owned by a leading technology company in China.

(9) The TV Series Production License and the TV Series Distribution License are not available for “Mr. Fox and Miss Rose” (酋長的男人) because it is a web series. According to the applicable laws and regulations in the PRC, we have obtained the requisite Program Planning Record Number (節目規劃備案號) on April 27, 2019 and Program Online Record Number (節目上線備案號) on January 20, 2020 for this web series, which are in compliance with the relevant PRC laws and regulations as advised by our PRC Legal Advisors.

We did not have any self-produced drama series that were under production as of the Latest Practicable Date.

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Licensing of the Broadcasting Rights of Outright-purchased Drama Series

In addition to licensing the broadcasting rights of our self-produced drama series, we are engaged in licensing the broadcasting rights of drama series that we purchased from third-party copyright owners/licensors. Under this business, we either purchase the entire copyrights of the drama series (in which case, we will be able to license the broadcasting rights to our customers in any region in the PRC for any period of time at our discretion), or we only purchase the rights to use, or the rights to transfer the broadcasting rights of, the drama series in certain designated regions of the PRC for a specific period of time. We generally enter into the content, distribution agreements with the copyright owners/licensors to obtain copyrights or the rights to use, or the rights to license the broadcasting rights of, the particular TV series, as the case may be. Subsequently, we distribute the relevant drama series to our customers. Our revenue generated by licensing of the broadcasting rights of outright-purchased drama series is typically recognized at the point in time when the drama series has been made available for our customers to use and there is no requirement for significant continued performance by our Group. Our customers are generally required to settle our invoices within 60 days to one year after receipt. Revenue generated by our licensing of the broadcasting rights of outright-purchased TV series amounted to approximately RMB345.4 million, RMB375.7 million and RMB278.6 million for the years ended December 31, 2017, 2018 and 2019, respectively, representing approximately 91.2%, 97.4% and 71.3%, respectively, of our total revenue for the same years.

The following table sets forth a breakdown of our revenue from licensing the broadcasting rights of outright-purchased drama series by customer types for the years indicated:

Year Ended December 31,

2017 2018 2019

#of #of #of Drama Drama Drama Series(1) Revenue Series(1) Revenue Series(1) Revenue

RMB’000 % RMB’000 % RMB’000 %

Outright purchased drama series Satellite TV channels – First-run ...... 5 135,908 39.4 9 111,012 29.6 3 168,928 60.7 –Rerun...... 22 180,017 52.1 29 226,676 60.3 33 80,340 28.8 Terrestrial TV channels ..... 6 3,668 1.0 4 1,152 0.3 4 1,145 0.4 Other third-party customers(2) ...... 7 25,770 7.5 7 36,884 9.8 11 28,175 10.1

Total(3) ...... 29 345,363 100.0 39 375,724 100.0 40 278,588 100.0

Notes:

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(2) Other third-party customers primarily represent online media platforms and other third-party drama series distribution companies in the PRC.

Under this business segment, revenue generated from our customers that are TV channels accounted for approximately 92.5%, 90.2% and 89.9% of our revenue generated from licensing the broadcasting rights of outright-purchased drama series for the years ended December 31, 2017, 2018 and 2019, respectively, while the remainder of our segment revenue was attributable to other third-party customers.

In addition, for the years ended December 31, 2017, 2018 and 2019 among revenue generated from licensing the broadcasting rights of outright-purchased drama series, approximately 39.4%, 29.6% and 60.7% was generated from first-run broadcast on satellite TV channels. For the same periods, approximately 52.1%, 60.3% and 28.8% was generated from rerun broadcast on satellite TV channels, respectively, and the remainder was attributable to terrestrial TV channels and other third-party customers.

Revenue generated from the licensing of the broadcasting rights of outright-purchased drama series increased from 2017 to 2018 primarily because we licensed 39 outright-purchased drama series to our customers in 2018, compared with 29 in 2017, leading to a segment revenue growth of approximately 8.8% for the year. Revenue generated from the licensing of the broadcasting rights of outright-purchased drama series decreased from 2018 to 2019 mainly because we strategically focused on expanding on our business of licensing the broadcasting rights of our self-produced drama series in 2019, resulting in a decrease in revenue generated from the licensing of the broadcasting rights of outright-purchased drama series during that year.

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The table below sets forth the outright-purchased drama series for which we had purchased the broadcasting rights from the third-party copyright owners/licensors and licensed to certain customers during the Track Record Period, and which were available to be further licensed to additional customers as of the Latest Practicable Date.

Expected Expected Revenue Revenue to be Revenue to be Date of the Recognized Received for the Received for the Major Media TV Series During Year Ending Year Ending Platforms on Which the Name of the Number of Distribution the Track Record December 31, December 31, Drama Series Was Broadcast Remaining Drama Series(1) Genre Episodes License(2) Period 2020(3) 2021(3) During the Track Record Period License Period Useful Life(4)

(RMB’000) (RMB’000) (RMB’000)

Born in 70s Romance 32 May 18, 2016 40,487 – – • First-run broadcast by the Five years (from nil (生於70年代). . satellite channel of Anhui September 14, Television Station 2018 to (安徽電視台) September 13, 2023)

• Second-run broadcast by the satellite channels of Hubei Television Station (湖北電視台) and Liaoning Television Station (遼寧電視台)

• Rerun non-prime time broadcast by the satellite channel of Shenzhen Television Station (深圳電視台)

• Rerun broadcast by the terrestrial channels of Sichuan Television Station (四川電視台) and Xinjiang Television Station (新疆電視台)

• Online media platforms: iQIYI (愛奇藝), YouKu (優酷)and Mango TV (芒果TV)

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(RMB’000) (RMB’000) (RMB’000)

Next Time, Together Romance, 40 December 9, 20,036 – – • Second-run broadcast by the Five years (from nil Forever family 2016 satellite channels of Shenzhen September 3, 2018 (下一站，別離). Television Station to September 2, (深圳電視台) 2023)

• Third-run broadcast by the satellite channel of Southeast Television Station (東南電視台)

Ordinary Days Romance 44 July 21, 2017 41,447 129 – • Second-run broadcast by the Four years (from nil (平凡歲月)... satellite channel of Tianjin September 10, Television Station 2017 to (天津電視台) September 9, 2021)

• Third-run broadcast by the satellite channel of Heilongjiang Television Station (黑龍江電視台)

• Rerun prime time broadcast by the satellite channels of the following TV stations: Qinghai Television Station (青海電視台), Liaoning Television Station (遼寧電視台), Guangxi Television Station (廣西電視台), Henan Television Station (河南電視台) and Xinjiang Television Station (新疆電視台)

• Rerun non-prime time broadcast by the satellite channel of Sichuan Television Station (四川電視台)

• Non-prime time broadcast by the satellite channel of China Central Television Station (中國中央電視台)

• Terrestrial channels of Sichuan Television Station (四川電視台), Shandong Television Station (山東電視台), Fujian Television Station (褔建電視台) and Xinjiang Television Station (新疆電視台)

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(RMB’000) (RMB’000) (RMB’000) Age of Legends Urban crime 47 August 20, 13,288 3,278 – • Second-run prime time broadcast Four years (from nil (橙紅年代)... 2018 by the satellite channel of March 19, 2019 to Shenzhen Television Station (深圳 March 18, 2023) 電視台)

• Third-run prime time broadcast by the satellite channel of Guangxi Television Station (廣西電視台)

Hunting Actions War 46 May 22, 2018 899 46,669 20,080 • Terrestrial channels of Yunnan Five years (from 19 months (獵金行動)(5) . Television Station (雲南電視台) October 23, 2017 and Hainan Television Station (海 to October 22, 南電視台) 2022)

Notes:

(1) We had acquired multiple-run broadcasting rights of these five outright-purchased drama series, which allowed us to license the broadcasting rights of these drama series to different customers for multiple runs within a specific period of time. As a result, we generally enter into the broadcasting right transfer agreements with the customers on a case-by-case basis.

(2) The date of the TV Series Distribution License represents the date on which a particular drama series is approved by the relevant bureaus of radio and television in the PRC for distribution.

(3) The expected revenue to be received for the years ending December 31, 2020 and 2021 is the amount estimated by our management based on the distribution plans of each drama series. For certain abovementioned outright-purchased drama series, the expected revenue to be received for the years ending December 31, 2020 and 2021 was nil, primarily because we had not initiated negotiation, nor did we enter into any agreement with additional customers for licensing the broadcasting rights of these drama series in the upcoming years.

(4) The remaining useful life is determined based on the distribution plan that we formulate for each drama series. The remaining useful life of “Born in 70s” (生於70年代), “Next Time, Together Forever” (下一站，別離), “Ordinary Days” (平凡歲月) and “Age of Legends” (橙紅年代) is nil, nil, nil and nil, respectively, primarily because we had completed the distribution plans of these drama series during the Track Record Period and the costs we incurred in connection with these drama series had been fully accounted for as of the Latest Practicable Date. The remaining useful life of “Hunting Actions” (獵金行動) is calculated from the Latest Practicable Date to December 31, 2021, which is the year-end date of the distribution plan formulated by our Group for this drama series.

(5) We made Fixed Return Investment in “Hunting Actions” (獵金行動) in 2017 and acquired the broadcasting rights of this drama series from the third-party copyright owner/licensor in the same year.

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The table below sets forth the outright-purchased drama series for which we had purchased the broadcasting rights from third-party copyright owners/licensors and were in the process of negotiating with the relevant customers for licensing, and which had not yet generated any revenue for us as of the Latest Practicable Date.

Expected Expected Revenue to be Revenue to be Received for Received for the Year the Year Date of the TV Ending Ending Name of the Drama Number of Series Distribution December 31, December 31, Remaining Series(1) Episodes Genre License(2) 2020(3) 2021(3) Useful Life(4)

(RMB’000) (RMB’000)

Skate into Love 40 Romance December 13, 2019 16,981 – NA (冰糖燉雪梨)......

Notes:

(1) We had acquired the second-run broadcasting rights of this drama series from the third-party copyright owner/licensor, which designated the broadcasting platform to be the satellite channel of Shenzhen Television Station.

(2) The date of the TV Series Distribution License represents the date on which a particular drama series is approved by the relevant bureaus of radio and television in the PRC for distribution.

(3) The expected revenue to be received for the years ending December 31, 2020 and 2021 is the amount estimated by our management based on the distribution plan of such drama series.

(4) The remaining useful life of “Skate into Love” (冰糖燉雪梨) is not applicable as we have only acquired the single-run broadcasting rights of this drama series and the licensing of its broadcasting rights is a one-off transaction.

As of the Latest Practicable Date, we were in the process of negotiating with a third-party copyright owner/licensor to purchase the broadcasting rights of one drama series, “Love and Redemption” (青雲之琉璃).

Sales of Script Copyrights

During the Track Record Period, we purchased certain script copyrights of potential drama series to be made and sold some of these scripts and/or IPs to third-party drama series production companies. For the years ended December 31, 2017, 2018 and 2019, the revenue from the sales of the script copyrights amounted to approximately RMB19.7 million, nil and nil, accounting for approximately 5.2%, nil and nil of our total revenue, respectively, for the same periods.

Acting as a Distribution Agent of the Drama Series

Beginning in the first half of 2019, we acted as a distribution agent for the copyright owner/licensor of the drama series, through which we promoted the relevant TV series to the TV channels and negotiated the terms and conditions in connection with the licensing of the broadcasting rights of such TV series with the TV channels on behalf of the TV series copyright owners/licensors. We generally charge the relevant copyright owner/licensor of the TV series a

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Income under Co-financing Arrangement

Our income under co-financing arrangement relates to our investment in drama series as a non-executive producer. We usually generate investment income under co-financing arrangement by sharing the net license fee with the executive producer(s) of the drama series and other non-executive producer(s), if any, in accordance with the proportion of our investment. We typically receive payments of our investment income from the executive producers in installments on specific milestone dates. For the years ended December 31, 2017, 2018 and 2019, revenue derived from co-financing arrangement amounted to nil, approximately RMB3.1 million and RMB14.0 million, respectively, accounting for nil, approximately 0.8% and 3.5%, respectively, of our total revenue for the same years.

Cost of Sales

Our cost of sales primarily represents the cost we incurred in our operations. For the years ended December 31, 2017, 2018 and 2019, our cost of sales was approximately RMB302.8 million, RMB286.4 million and RMB249.9 million, respectively.

The table below sets forth the breakdown of our cost of sales by nature for the years indicated:

Year Ended December 31,

2017 2018 2019

RMB’000 % RMB’000 % RMB’000 %

Filming crew service fees...... 4,043 1.3 973 0.3 26,037 10.4 Filming and production costs ...... 2,880 1.0 663 0.2 22,028 8.8 Procurement costs for scripts ...... 16,880 5.6 268 0.1 6,957 2.8 Post-production costs...... 864 0.3 146 0.1 4,530 1.8 Costs of purchasing the broadcasting rights of drama series...... 125,843 41.6 148,895 52.0 111,907 44.8 Costs under co-financing arrangements...... – – 2,811 1.0 13,890 5.6 Promotion and marketing expenses ...... 152,013 50.1 132,553 46.3 63,326 25.3 Capitalized interests ...... 230 0.1 53 * 1,187 0.5

Total ...... 302,753 100.0 286,362 100.0 249,862 100.0

Note:

* Less than 0.1%.

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The table below sets forth the breakdown of our cost of sales by nature for each business segment for the years indicated:

Year Ended December 31, 2017 2018 2019 RMB’000 RMB’000 RMB’000

Cost of sales of licensing of the broadcasting rights: Self-produced drama series Filming crew service fees ...... 4,043 973 26,037 Filming and production costs ...... 2,880 663 22,028 Procurement costs for scripts ...... 1,201 268 6,957 Post-production costs ...... 864 146 4,530 Capitalized interests ...... 230 53 1,187

Subtotal ...... 9,218 2,103 60,739

Outright-purchased drama series Costs of purchasing the broadcasting rights of drama series ...... 125,843 148,895 111,907 Promotion and marketing expenses ...... 152,013 132,553 63,326

Subtotal ...... 277,856 281,448 175,233

Cost of sales of other businesses: Procurement costs for scripts ...... 15,679 – – Costs under co-financing arrangements ...... – 2,811 13,890

Subtotal ...... 15,679 2,811 13,890

Total ...... 302,753 286,362 249,862

Our cost of sales primarily consists of (i) service fees for filming crew, including producers, directors, casts and other staff and professionals working in the filming crew; (ii) filming and production costs, which primarily represent various expenses we incur in the process of filming and production of the drama series, including, among others, expenses in connection with costumes, make-ups, vehicles, catering, accommodation, insurance and rental fees for filming sites and equipment; (iii) procurement costs for scripts, which mainly include costs for purchasing the copyrights of scripts and service fees for adapting the scripts for production; (iv) post-production costs, which primarily represent expenses in connection with editing, music production, dubbing, special effects and other expenses for the post-production of drama series; (v) costs in connection with purchasing the broadcasting rights of drama series from third-party copyright owners/licensors; (vi) costs under co-financing arrangements, which primarily represent the costs in connection with our investment in drama series as a non-executive producer; (vii) promotion and marketing expenses, which mainly represent the expenses we incurred for engaging third-party marketing service providers to promote our outright-purchased drama series; and (viii) capitalized interests, which mainly refer to the interest accrued to the Fixed Return Investment made by third-party co-investors that act as non-executive producers of our self-produced drama series.

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For the years ended December 31, 2017, 2018 and 2019, our cost of sales principally comprised of costs of purchasing the broadcasting rights of drama series and the promotion and marketing expenses for engaging third-party marketing service providers to promote and advertise our outright-purchased drama series, which in aggregate accounted for approximately 91.7%, 98.3% and 70.1% of our total cost of sales for the year, respectively.

No cost of sales is presented for our distribution agency services business as the revenue from the provision of such services was presented on a net basis.

Our management generally formulates a distribution plan for each self-produced drama series with the estimation of the total revenue to be generated by such drama series during its life cycle (the “Total Estimated Revenue”).

We start to formulate a draft distribution plan during the preparation stage by actively communicating with potential customers, such as TV channels, and obtain their feedback on the content of our proposed drama series. During the filming stage, we invite potential customers to evaluate the quality of the drama series and modify the draft distribution plan accordingly. At the post production stage, we promote the clips of such drama series to potential customers and make further communication with the TV channels who express their intention to purchase the broadcasting rights of the relevant drama series. Before obtaining the distribution license, we adopt the distribution plan based on these communication results.

With the consideration of the general market conditions of the drama series as well as our past distribution experience, we usually estimate a drama series to have approximately three years of broadcasting life cycle, beginning from the time the TV Series Distribution License is obtained. We estimate the number of successive runs of a drama series based on the following factors: (i) the genres and characteristics of the drama series; (ii) the demands and content preferences among various TV channels; (iii) the preliminary agreed distribution schedules with the TV channels; and (iv) the historical distribution structure of similar drama series that are sold to different broadcasting platforms.

With respect to the Total Estimated Revenue, we estimate the sales prices of the drama series based on the historical prices, together with the consideration of the potential distribution platforms and the broadcasting rounds. In making such price estimates, the key factors we consider include: (i) total investment of each drama series; (ii) the historical financial performance of similar drama series; (iii) the historical prices and proportion of revenue that are usually generated from satellite TV channels, terrestrial TV channels and online media platforms; (iv) the sales contracts entered into between our Group and its customers; and (v) the sales contracts under active negotiation between our Group and its potential customers and the probability that such contracts will ultimately be signed.

We subsequently compare the actual distribution results with the adopted distribution plan semi-annually, identify whether there is any event that may affect the execution of the distribution plan, and adjust the distribution plan accordingly. At the end of each year in the Track Record Period, we assess if there are significant changes in the assumptions that require a revision of the Total Estimated Revenue based on the latest available information. During the Track Record Period, we did not record any material change in the Total Estimated Revenue.

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On the other hand, the cost of drama series is initially accrued to drama series copyrights at the amount of the total cost of production, purchase or investment. The cost of sales is recognized based on the proportion of a drama series’ revenue recognized for the relevant financial year to the Total Estimated Revenue (the “Proportion of Revenue”). The calculation of our cost of sales for a particular year is equal to the Proportion of Revenue multiplied by the total cost accrued to drama series copyrights.

The table below sets forth (i) the Total Estimated Revenue at the time of formulating the preliminary distribution plan and as of the end of the reporting year; and (ii) the total revenue recognized during the Track Record Period, for our self-produced drama series, which have generated revenue during the Track Record Period:

As of December 31,

Preliminary Distribution Plan 2017 2018 2019

Revenue Recognized Date of the Total Total Total Total During the Drama Series Estimated Estimated Estimated Estimated Track Distribution Revenue Revenue Adjustment Revenue Adjustment Revenue Adjustment Record Name of Drama Series License (R0) (R1) =R1-R0 (R2) =R2-R0 (R3) =R3-R0 Period

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

Guerrilla Heroes (游擊英雄)...... April 29, 2015 58,930 N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) 4,296 Double Guns December 20, (雙槍)(2) ...... 2016 34,953 34,953 – 34,953 – 34,953 – 8,700 The Brothers (義海). . . July 3, 2017 49,705 49,705 – 49,705 – 47,717 (1,988) 47,497 Glory of the Blood (鐵血榮耀)...... August11,2017 29,802 N/A(1) N/A(1) 29,802 – 29,802 – 9,549 A Gallant Army November 23, (老虎隊)...... 2018 39,292 N/A (1) N/A (1) 39,292 – 39,292 – 39,657

Notes:

(1) No preliminary distribution plan was formulated for the financial year and thus, no corresponding adjustment is made to such preliminary plan.

(2) “Double Guns” (雙槍) was originally scheduled to broadcast on satellite TV channels in 2019. However, beginning in the third quarter of 2019 and until early December 2019 (the “Mandatory Celebration Period”), the PRC government has requested that all levels of the media in the PRC, including drama series producers and distributors, shall participate in the nationwide celebration of the 70th anniversary of the founding of the People’s Republic of China. Accordingly, the TV channels at all levels in the PRC were requested to broadcast similar-themed drama series and TV programs. Since “Double Guns” (雙槍) had not matched the content preferences of the relevant TV channels during the Mandatory Celebration Period, the broadcasting schedule of this drama series was postponed to 2020.

During the Track Record Period, the Total Estimated Revenue of “The Brothers” (義海) was adjusted downward by approximately RMB2.0 million, or 4.0% as compared to its preliminary distribution plan. Other than this drama series, we did not make material adjustment to the Total Estimated Revenue of our self-produced drama series during the Track Record Period and up to the Latest Practicable Date, which had and/or are expected to have a material impact on the financial performance of our Group.

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In preparing the consolidated financial statements of our Group for each financial year after the [REDACTED], our management will continue to regularly review the basis of estimation of the Total Estimated Revenue of each licensed drama series during its life cycle based on the realized revenue and latest negotiation results with our potential customers at the end of each financial year. We will recognize the corresponding cost of sales in the financial statements by applying the Proportion of Revenue based on the adjusted Total Estimated Revenue.

For the avoidance of doubt, changes in Total Estimated Revenue will not cause retrospective adjustments of cost of sales recognized in previous financial years in preparation of regular financial reports after the [REDACTED].

With respect to our outright-purchased drama series, the broadcasting rights of outright-purchased drama series that we licensed from the third-party copyright owners/licensors generally include (i) single-run broadcasting rights; and (ii) multiple-run broadcasting rights. Since most of the broadcasting rights of our outright-purchased drama series are licensed on a single-run basis, we generally do not need to formulate a detailed three-year distribution plan for each such drama series to estimate the Total Estimated Revenue as we do for our self-produced drama series. We usually license the broadcasting rights of outright-purchased drama series based on the market conditions and the demands of our customers. For outright-purchased drama series that we had acquired the single-run broadcasting rights, the entire economic benefit of the broadcasting rights was consumed and the costs of purchasing the broadcasting rights of drama series were fully recognized in the cost of sales when the revenue was recognized. Once the single-run broadcasting rights of these outright-purchased drama series have been licensed under specified conditions, they cannot be licensed again.

During the Track Record Period, we had obtained the multiple-run broadcasting rights of 14 outright-purchased drama series, which did not designate any broadcasting platform. The license period for these outright-purchased drama series ranges from three to six years. We usually formulate a short-term distribution plan for these outright-purchased drama series with multiple-run broadcasting rights. The costs of purchasing the broadcasting rights of these outright-purchased drama series were accounted for as cost of sales by applying the Proportion of Revenue based on the Total Estimated Revenue set out in the respective distribution plan of these outright-purchased drama series.

As of the Latest Practicable Date, except for “Hunting Actions” (獵金行動), for which we had acquired the multiple-run broadcasting rights from the third-party copyright owner/licensor, that we expected to generate revenue of approximately RMB49.5 million in 2020, the costs of purchasing the broadcasting rights of other outright-purchased drama series that had been distributed were fully accounted for during the Track Record Period. Therefore, we do not expect to generate revenue in the future from the other outright-purchased drama series which had already been distributed.

Our self-produced drama series and outright-purchased drama series have the same customer base and pricing terms. Please refer to the sections headed “Business — Pricing Policy” and “Business — Our Customers” in this document for further details.

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Sensitivity Analysis

The following sensitivity analysis is for illustrative purpose only, which indicates the potential impact on our profitability during the Track Record Period if the relevant variables increased or decreased to the extent illustrated. Since the costs of purchasing the broadcasting rights of drama series and promotion and marketing expenses accounted for the largest portion of our Group’s cost of sales during the Track Record Period, a sensitivity analysis on the fluctuations in the costs of purchasing the broadcasting rights of drama series and promotion and marketing expenses during the same period is set out below to illustrate the impact of hypothetical fluctuations on our profit before taxation for the Track Record Period, assuming all other variables remained constant. To illustrate the potential effect on our financial performance, the sensitivity analysis below shows the potential impact on our profit before taxation for the year/period with a 5% and 10% decrease or increase in the costs of purchasing the broadcasting rights of drama series and promotion and marketing expenses. While none of the hypothetical fluctuation ratios applied in the sensitivity analysis equals the historical fluctuations of the costs of purchasing the broadcasting rights of drama series and promotion and marketing expenses, we believe that the application of hypothetical fluctuations of 5% and 10% in the costs of purchasing the broadcasting rights of drama series and promotion and marketing expenses presents a meaningful analysis of the potential impact of changes in the costs of purchasing the broadcasting rights of drama series and promotion and marketing expenses on our profitability.

Year Ended December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Changes in the costs of purchasing the broadcasting rights of drama series (10)% ...... 12,584 14,890 11,191 (5)% ...... 6,292 7,445 5,595 5%...... (6,292) (7,445) (5,595) 10%...... (12,584) (14,890) (11,191)

Changes in promotion and marketing expenses (10)% ...... 15,201 13,255 6,333 (5)% ...... 7,601 6,628 3,166 5%...... (7,601) (6,628) (3,166) 10%...... (15,201) (13,255) (6,333)

Gross Profit and Gross Profit Margin

For the years ended December 31, 2017, 2018 and 2019, our gross profit was approximately RMB76.0 million, RMB99.5 million and RMB141.1 million, respectively, while the respective gross profit margin was approximately 20.1%, 25.8% and 36.1%, respectively.

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The table below sets forth the breakdown of our gross profit and gross profit margin by business segments for the years indicated:

Year Ended December 31,

2017 2018 2019

Gross Gross Gross Gross Profit Gross Profit Gross Profit Profit Margin Profit Margin Profit Margin

RMB’000 % RMB’000 % RMB’000 %

Self-produced drama series ...... 4,468 32.6 4,928 70.1 28,243 31.7 Outright-purchased drama series ...... 67,507 19.5 94,276 25.1 103,355 37.1 Sales of script copyrights ...... 4,010 20.4 – N/A – N/A Distribution agency services ...... – N/A – N/A 9,458 100.0 Income under co-financing arrangement ..... – N/A 301 9.7 78 0.6

Total ...... 75,985 20.1 99,505 25.8 141,134 36.1

Our gross profit margin of licensing the broadcasting rights of self-produced drama series was approximately 32.6%, 70.1% and 31.7%, respectively, for the years ended December 31, 2017, 2018 and 2019. Our gross profit margin of licensing the broadcasting rights of self-produced drama series for the year ended December 31, 2018 was relatively higher than that for 2017 and 2019, primarily because “Guerrilla Heroes” (游擊英雄) had rerun broadcast in 2018, while the costs incurred in connection therewith had been fully accounted for in 2017.

Our gross profit margin of licensing the broadcasting rights of outright-purchased drama series increased from approximately 19.5% for the year ended December 31, 2017 to approximately 25.1% for the year ended December 31, 2018, primarily because we incurred less promotion and marketing expenses relating to our outright-purchased drama series as we became more mature in this business, which enabled us to enjoy economies of scale, leading to an increase in our gross profit margin for this business segment in 2018. Our gross profit margin of licensing the broadcasting rights of outright-purchased drama series increased from approximately 25.1% for the year ended December 31, 2018 to approximately 37.1% for the year ended December 31, 2019, primarily due to (i) our optimized customer network; (ii) less promotion and marketing expenses we incurred in relation to our outright-purchased drama series in 2019 as we became more mature in this business, which enabled us to enjoy economies of scale; and (iii) our improved capabilities in selecting the content of drama series for distribution in connection with the business of licensing the broadcasting rights of outright-purchased drama series.

Other Income

Other income primarily includes (i) government grants received in the PRC; (ii) interest from cash at bank; and (iii) interest income from loans to third parties, which primarily represents the fixed investment returns we received from the drama series we invested in during the Track Record Period. The government grants primarily represent the relevant financial reward we received from the government authorities of Haining City, Zhejiang Province, pursuant to the relevant local policies. The amounts and timing of our government grants are determined solely at the discretion of the relevant government authorities, and there is no

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In accordance with paragraph 11 of IAS 32, an equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. During the Track Record Period, the Fixed Return Investments made by our Group and third-party investors were in substance, lending and borrowing arrangements. Under this arrangement, the investors lend a fixed amount of money (i.e. the principal) to the investees to produce drama series and receive a fixed amount of return based on the interest rates and the maturity period set out in the investment agreements. Generally, non-executive producers of the drama series have no discretion in establishing the prices of the drama series and have no control over the returns from the distributions of the drama series and therefore, these investments do not meet the definition of an equity instrument. The assets under the Fixed Return Investments are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and the contractual terms of the assets give rise on specified dates to the cash flows that are solely payments of principal and interest on the principal amount outstanding. These investments are borrowing/lending in nature, since the investors are entitled to the payments of principal and interest, which are in cash, at the agreed interest rate and repayment dates. During the Track Record Period, we made Fixed Return Investments in three drama series as a non-executive producer. For further details, please see “Business — Our Business and Revenue Model — Other Businesses — Investment in Drama Series as Non-executive Producer” in this document.

According to the Provisions of the Supreme People’s Court on Several Issues concerning the Application of Law in the Trial of Private Lending Cases《關於審理民間借貸案件適用法律若 ( 干問題的規定》) (the “Interpretation No. 18, 2015”) promulgated by the Supreme People’s Court on June 23, 2015, lending contracts between non-financial institutions are valid if they are made for the purposes of supporting production or business operations, except under the circumstances as set forth in Article 52 of the Contract Law or Article 14 of the Interpretation No. 18, 2015. The PRC courts will support the claim for interest in respect of such loans as long as the annual interest rate does not exceed 24%, and loans with annual interest rate exceeding 36% shall be null and void. Moreover, in accordance with the Interpretation I of the Supreme People’s Court of Several Issues concerning the Application of the Contract Law of the People’s Republic of China《最高人民法院關於 ( 〈中華人民共和國合同法〉若干問題的解釋（一）》), when confirming the invalidity of a contract, the People’s Court shall determine based on the laws enacted by the NPC and SCNPC and the administrative regulations formulated by the State Council, rather than local regulations or administrative rules.

Based on our confirmation that (i) the relevant Fixed Return Investments were not made under the circumstances as set forth in Article 52 of the Contract Law or Article 14 of the Interpretation No. 18, 2015; (ii) the annual interest rate of the Fixed Return Investments was within the limit permitted by the applicable PRC laws and court interpretations; and (iii) the Fixed Return Investments were made based on particular commercial reasons, our PRC Legal Advisors are of the opinion that the lending and borrowing agreements involving the Fixed Return Investments are legally binding on the parties and shall be deemed valid. Please refer to the section headed “Business — Legal Proceedings and Compliance — Systemic Non-compliance Incidents” in this document for detailed discussions in relation to the non-compliance of Fixed Return Investments.

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Having considered the opinions from our PRC Legal Advisors, our Directors are of the view that the non-compliance of our Fixed Return Investments with the General Lending Provisions does not have any material or adverse impact on our business, financial condition and results of operations.

The table below sets forth the breakdown of our other income for the years indicated:

Year Ended December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Government grants ...... 2,553 1,790 3,163 Interest income from: — Cash at bank ...... 56 54 49 — Loans to third parties ...... 503 2,442 837 Others ...... – – 20

Total ...... 3,112 4,286 4,069

Selling and Marketing Expenses

Selling and marketing expenses primarily consist of (i) staff costs relating to our sales and marketing employees; (ii) travel and transportation expenses of our marketing staff; and (iii) conference expenses relating to booth displays for television conferences and festivals we attended. For the years ended December 31, 2017, 2018 and 2019, our selling and marketing expenses amounted to approximately RMB0.8 million, RMB0.8 million and RMB0.5 million, respectively. The table below sets forth the breakdown of our selling and marketing expenses for the years indicated:

Year Ended December 31,

2017 2018 2019

RMB’000 % RMB’000 % RMB’000 %

Staff costs ...... 449 54.4 628 82.3 416 76.6 Travel and transportation expenses ..... 70 8.5 80 10.5 57 10.5 Conference expenses ...... 254 30.7 56 7.2 69 12.7 Others(1)...... 54 6.4 – – 1 0.2

Total ...... 827 100.0 764 100.0 543 100.0

Note:

(1) Others mainly represent office expenses and marketing expenses, which represent expenses relating to promotional and advertising activities undertaken by our Group.

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Administrative Expenses

Administrative expenses primarily consist of (i) staff costs relating to our administrative; (ii) rental fee, which includes the rental expenses and property management fees in connection with our leased properties; (iii) depreciation and amortization; (iv) office expenses; (v) consultancy fee, which mainly represents professional services fees in connection with obtaining financing and [REDACTED]; (vi) transportation fee; (vii) travel expenses; (viii) entertainment expenses; (ix) taxes and surcharges, which primarily consist of construction tax, stamp duty and other education surcharges; (x) impairment loss; and (xi) bank charges , which primarily represent bank transaction fees. The table below sets forth the breakdown of our administrative expenses for the years indicated:

Year Ended December 31,

2017 2018 2019

RMB’000 % RMB’000 % RMB’000 %

Staff costs ...... 3,442 30.7 5,402 23.4 8,148 13.5 Rental fee ...... 138 1.2 307 1.3 432 0.7 Depreciation and amortization ...... 1,408 12.6 1,664 7.2 2,008 3.3 Office expenses...... 197 1.8 236 1.0 324 0.5 Consultancy fee ...... 655 5.8 1,043 4.5 14,309 23.6 Transportation fee ...... 52 0.5 101 0.4 213 0.4 Travel expense ...... 208 1.9 678 2.9 1,258 2.1 Entertainment expenses ...... 39 0.3 1,399 6.1 1,670 2.8 Taxes and surcharges ...... 1,248 11.1 2,379 10.3 3,269 5.4 Impairment loss ...... 2,212 19.8 8,015 34.8 28,287 46.7 Bank charges ...... 1,064 9.5 918 4.0 404 0.7 Others ...... 534 4.8 920 4.1 200 0.3

Total ...... 11,197 100.0 23,062 100.0 60,522 100.0

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Finance Costs

Finance costs primarily consist of (i) interest on bank and other loans, which primarily includes interest on Fixed Return Investments, which is partially capitalized, and interest on other loans; and (ii) interest on lease liabilities. For the years ended December 31, 2017, 2018 and 2019, our finance costs were approximately RMB5.0 million, RMB10.1 million and RMB4.8 million, respectively. The table below sets forth our finance costs for the years indicated:

Year Ended December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Interest expenses on: – Bank and other loans ...... 6,266 12,817 7,761 – Lease liabilities ...... 130 99 62

6,396 12,916 7,823

Less: interest expenses capitalized into drama series copyrights(1) ...... (1,384) (2,794) (3,054)

Total ...... 5,012 10,122 4,769

Note:

(1) Interest expenses capitalized into drama series copyrights primarily represented the interest accrued on the Fixed Return Investment from the commencement of filming of the drama series to obtaining the TV Series Distribution License. The borrowing costs have been capitalized at a rate of 22.9%, 11.0% and 12.9% for the years ended December 31, 2017, 2018 and 2019, respectively.

According to IAS 23 “borrowing costs” (“IAS 23”), borrowing costs that are directly attributable to the acquisition, construction or production of an asset, which necessarily takes a substantial period of time to be ready for its intended use or sale are capitalized as part of the cost of that asset. Other borrowing costs are expensed in the period that they incurred. The capitalization of borrowing costs, as part of the cost of a qualifying asset, commences when expenditure for the asset incurred, borrowing costs being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalization of borrowing costs suspends or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

The filming of drama series, adjustment and modification of the content for drama series in the process of distribution are necessary activities to prepare the drama series for its intended use or sale. Interest expenses accrued on the Fixed Return Investment, which cover the period from the commencement of filming of the drama series to obtaining the TV Series Distribution License are capitalized. The remaining interest expenses on the Fixed Return Investment, which fall out of this period are expensed. Therefore, the fluctuations of the interests on Fixed Return Investments have impact on the fluctuations of finance costs.

Income Tax

Income tax expenses represent the tax expenses arising from the assessable profit generated by our Group in the PRC. Our Company and subsidiaries are incorporated in different jurisdictions with different taxation requirements.

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Our Company was incorporated in the Cayman Islands as an exempted company with limited liability under the Companies Law of the Cayman Islands and accordingly, is exempted from Cayman Islands income tax. Our Group entities established under the International Business Companies Acts of BVI are exempted from BVI income taxes. Pursuant to the PRC Income Tax Law and respective regulations, our Group operating are subject to EIT at a rate of 25% on the taxable income. No provision for Hong Kong Profits Tax was made as our Group had no assessable profit subject to Hong Kong Profits Tax during the Track Record Period.

In addition, according to the Notice on Preferential EIT Policies in Relation to Kashgar and Horgos as Two Special Economic Development Zones in Xinjiang《關於新疆喀什霍爾果斯兩個特 ( 殊經濟開發區企業所得稅優惠政策的通知》) promulgated by MOF and SAT on November 29, 2011, an enterprise established in Horgos between January 1, 2010 to December 31, 2020 and falling within the scope of the Catalog of EIT Incentives for Industries Particularly Encouraged in Underprivileged Areas of Xinjiang for Development《新疆困難地區重點鼓勵發展產業企業所得 ( 稅優惠目錄》) shall be exempted from the enterprise income tax entirely for five years beginning from the first year in which operational income is earned. According to the preferential filing record of EIT (企業所得稅優惠事項備案表) of our Consolidated Affiliated Entities, (i) Horgos Tiantian Meimei, Horgos Haohao Xuexi, Tiantian Xiangshang obtained the approval from the relevant PRC tax bureaus for entitlement of EIT exemption from January 2017 to December 2020; and (ii) Xinjiang LiTian is entitled to EIT exemption from January 2018 to December 2020.

Our income tax comprises current and deferred tax. The table below sets forth the income tax expense for the years indicated:

Year Ended December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Current taxation ...... 5,989 4,157 9,590 Deferred taxation ...... (688) (1,920) (7,255)

Total ...... 5,301 2,237 2,335

Our income tax expense was approximately RMB5.3 million, RMB2.2 million and RMB2.3 million for the years ended December 31, 2017, 2018 and 2019, respectively. Our effective income tax rate was approximately 8.5%, 3.2% and 2.9% for the years ended December 31, 2017, 2018 and 2019, respectively. Our effective income tax rate was lower than the EIT rate since 2017, primarily due to the fact that three of our Consolidated Affiliated Entities were exempted from EIT from 2017 to 2020, and we generate most of our revenue through these Consolidated Affiliated Entities during the Track Record Period.

Our Directors confirm that, during the Track Record Period and up to the Latest Practicable Date, we had paid all relevant taxes and there were no disputes or unsolved tax issues with the relevant tax authorities.

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PERIOD TO PERIOD COMPARISON OF RESULTS OF OPERATIONS

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Revenue

Our revenue increased by approximately 1.3% from approximately RMB385.9 million for the year ended December 31, 2018 to approximately RMB391.0 million for the year ended December 31, 2019. This increase was primarily due to (i) an increase of approximately RMB82.0 million in the revenue generated by our licensing of the broadcasting rights of self-produced drama series as (a) we licensed the first-run broadcasting rights of “The Brothers” (義海) to three major satellite TV channels in the PRC; (b) we licensed the first-run broadcasting rights of “Glory of the Blood” (鐵血榮耀) to a satellite TV channel in the PRC; and (c) successfully distributed “A Gallant Army” (老虎隊), which had first-run broadcast on CCTV-8 and second-run broadcast on three satellite TV channels in 2019; (ii) an increase of approximately RMB10.9 million in revenue from the licensing of the broadcasting rights under co-financing arrangement, primarily reflecting the net license fees we received from “Dream on the Side of the Sea” (夢在海這邊), for which we acted as a non-executive producer; and (iii) we recorded revenue of approximately RMB9.5 million from our agency services as we commenced acting as a distribution agent of the broadcasting rights of TV series in 2019.

Cost of Sales

Our cost of sales decreased by approximately 12.7% from approximately RMB286.4 million for the year ended December 31, 2018 to approximately RMB249.9 million for the year ended December 31, 2019. The decrease was primarily attributable to (i) a decrease of approximately RMB69.2 million in promotion and marketing expenses; and (ii) a decrease of approximately RMB37.0 million in costs of purchasing the broadcasting rights of drama series, both of which were due to the fact that we strategically focused on expanding our business of licensing the broadcasting rights of our self-produced drama series in 2019, resulting in a decrease in cost of sales of licensing the broadcasting rights of outright-purchased drama series during that year, partially offset by an increase of approximately RMB58.6 million in the cost of sales of licensing the broadcasting rights of self-produced drama series.

Gross Profit and Gross Profit Margin

Gross profit increased by approximately 41.8% from approximately RMB99.5 million for the year ended December 31, 2018 to approximately RMB141.1 million for the year ended December 31, 2019, and our gross profit margin increased from approximately 25.8% for the year ended December 31, 2018 to approximately 36.1% for the year ended December 31, 2019, primarily because (i) we successfully licensed the first-run broadcasting rights of our self-produced drama series, “A Gallant Army” (老虎隊), which had a relatively higher gross profit margin; and (ii) we improved our content selection and distribution capabilities of drama series and optimized our customer network in connection with our business of licensing the broadcasting rights of outright-purchased drama series. For details of the fluctuations of our gross profit margin of our various business segments during the Track Record Period, please refer to the paragraphs under “— Major Components of Our Results of Operations — Gross Profit and Gross Profit Margin” in this section.

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Other Income

Other income decreased by approximately 5.1% from approximately RMB4.3 million for the year ended December 31, 2018 to approximately RMB4.1 million for the year ended December 31, 2019. This decrease was mainly attributable to a decrease of approximately RMB1.6 million in interest income from loans to third parties as a result of the decrease in the fixed investment returns we received from third parties in connection with the drama series we invested in.

Selling and Marketing Expenses

Selling and marketing expenses decreased by approximately 28.9% for the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to a decrease in staff costs as a result of a decrease in the number of our distribution department staff.

Administrative Expenses

Administrative expenses significantly increased by approximately 162.4% from approximately RMB23.1 million for the year ended December 31, 2018 to RMB60.5 million for the year ended December 31, 2019. This increase was primarily due to (i) an increase in staff costs as we recruited more administrative staff; (ii) an increase in impairment loss due to the increase in trade receivables, which was in line with the growth of our business; and (iii) incurrence of the [REDACTED] of approximately RMB13.6 million during the year.

Finance Costs

Finance costs decreased by approximately 52.9% from approximately RMB10.1 million for the year ended December 31, 2018 to approximately RMB4.8 million for the year ended December 31, 2019. This decrease was primarily due to a decrease of approximately RMB5.1 million in interest on bank and other loans as a result of the decrease in interest on borrowings from banks and other financial institutions as we paid off certain loans when they became due and borrowed less amount of loans in 2019 compared to 2018.

Profit before Taxation

As a result of the foregoing, our profit before taxation increased by approximately 13.6% from approximately RMB69.8 million for the year ended December 31, 2018 to approximately RMB79.4 million for the year ended December 31, 2019.

Income Tax

Income tax increased slightly by approximately 4.4% for the year ended December 31, 2019 compared to the year ended December 31, 2018. The increase in income tax was primarily because the proportion of taxable income generated by LiTian TV & Film, which did not enjoyed EIT exemption, for the year ended December 31, 2019 was higher than that for the years ended December 31, 2018. Our effective tax rate was approximately 3.2% and 2.9% for the years ended December 31, 2018, and 2019, respectively, which remained relatively stable.

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Profit for the Year

As a result of the foregoing, our profit for the year increased by approximately 13.9%, from approximately RMB67.6 million for the year ended December 31, 2018 to approximately RMB77.0 million for the year ended December 31, 2019. Our net profit margin increased from approximately 17.5% for the year ended December 31, 2018 to approximately 19.7% for the year ended December 31, 2019. Excluding the [REDACTED], our net profit would have been approximately RMB90.6 million for the year ended December 31, 2019.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Revenue

Our revenue increased by approximately 1.9%, from approximately RMB378.7 million for the year ended December 31, 2017 to approximately RMB385.9 million for the year ended December 31, 2018. This increase was primarily due to (i) an increase of approximately RMB30.4 million in revenue generated from licensing the broadcasting rights of outright-purchased drama series as we distributed 39 such drama series in 2018 compared to 29 in 2017; and (ii) we recorded investment returns of approximately RMB3.1 million from a web series, “24 Hours” (限定 24小時), for which we acted as a non-executive producer under the co-financing arrangement, partially offset by (i) a decrease of approximately RMB19.7 million in sales of script copyrights as we did not undertake such business in 2018; and (ii) a decrease of approximately RMB6.7 million in revenue generated from licensing the broadcasting rights of our self-produced drama series as we licensed the first-run broadcasting rights of “Double Guns” (雙槍) and “The Brothers” (義海) to terrestrial TV channels in 2017 whereas they were only rebroadcast in 2018.

Cost of Sales

Cost of sales decreased by approximately 5.4% from approximately RMB302.8 million for the year ended December 31, 2017 to approximately RMB286.4 million for the year ended December 31, 2018. Such decrease was primarily attributable to (i) a decrease in our promotion and marketing expenses by approximately RMB19.5 million as a result of an increase in the number of first-run broadcast of outright-purchased drama series during prime time on satellite TV channels in 2018, which had a wider coverage of viewers compared to terrestrial TV channels, resulting in lower promotion and marketing expenses required for such drama series; and (ii) a decrease in our procurement cost for scripts by approximately RMB16.6 million because we did not undertake the business of sales of script copyrights in 2018, partially offset by (i) an increase of approximately RMB23.1 million in the costs of purchasing the broadcasting rights of drama series in line with the expansion of our business in licensing the broadcasting rights of outright-purchased drama series; and (ii) an increase of approximately RMB2.8 million in costs under co-financing arrangements.

Gross Profit and Gross Profit Margin

Gross profit increased by approximately 31.0% from approximately RMB76.0 million for the year ended December 31, 2017 to approximately RMB99.5 million for the year ended December 31, 2018 while our gross profit margin increased from approximately 20.1% for the year ended December 31, 2017 to approximately 25.8% for the year ended December 31, 2018.

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Such increase in our gross profit and gross profit margin was mainly attributable to (i) the increased gross profit margin of the business of licensing the broadcasting rights of self-produced drama series because the costs incurred in connection with “Guerrilla Heroes” (游擊英雄) that was broadcast in 2018 had been fully accounted for by the end of 2017; (ii) an increase in the revenue and gross profit of the business of licensing the broadcasting rights of outright-purchased drama series because of our improved selection and distribution capabilities in 2018 through the establishment of three of our subsidiaries dedicated to this business in 2017; and (iii) a decrease in promotion and marketing expenses in 2018 compared to 2017 as our business of licensing the broadcasting rights of outright-purchased drama series became more mature and enjoyed economies of scale, which enabled us to incur less promotion and marketing expenses.

Other Income

Other income increased by approximately 37.7% from approximately RMB3.1 million for the year ended December 31, 2017 to approximately RMB4.3 million for the year ended December 31, 2018, primarily because the fixed investment returns we recorded in 2018 from the drama series we had invested in was higher than that in 2017, which were partially offset by a decrease in government grants due to a decrease in the financial reward we received in 2018.

Selling and Marketing Expenses

Selling and marketing expenses decreased by approximately 7.6% from approximately RMB827,000 for the year ended December 31, 2017 to approximately RMB764,000 for the year ended December 31, 2018. This decrease was primarily due to the decrease in conference expenses we incurred for participating in the relevant television conferences and festivals.

Administrative Expenses

Administrative expenses recorded an increase by approximately 106.0% from approximately RMB11.2 million for the year ended December 31, 2017 to approximately RMB23.1 million for the year ended December 31, 2018. This increase was primarily due to (i) an increase of approximately RMB5.8 million in impairment loss as a result of the increase in trade receivables in line with the growth of our business, which had relatively higher expected credit loss rates; (ii) an increase in staff costs by approximately RMB2.0 million as a result of the increase in the number of our administrative staff; and (iii) an increase of approximately RMB1.4 million in entertainment expenses, primarily due to the expansion of our business.

Finance Costs

Finance costs recorded an increase by approximately 102.0% from approximately RMB5.0 million for the year ended December 31, 2017 to approximately RMB10.1 million for the year ended December 31, 2018. This increase was primarily due to an increase of approximately RMB6.6 million in interest on bank and other loans, which, in turn, was due to the increase in interest on the Fixed Return Investments as a result of the increase in the amount of third-party loans in the drama series in which we acted as the executive producer in 2018 in connection with the co-financing arrangements.

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Profit before Taxation

As a result of the foregoing, our profit before taxation increased by approximately 12.5% from approximately RMB62.1 million for the year ended December 31, 2017 to approximately RMB69.8 million for the year ended December 31, 2018.

Income Tax

Income tax decreased by approximately 57.8% from approximately RMB5.3 million for the year ended December 31, 2017 to RMB2.2 million for the year ended December 31, 2018. This decrease was primarily due to EIT exemption enjoyed by certain of our Consolidated Affiliated Entities. Our effective tax rate was approximately 8.5% for the year ended December 31, 2017, compared with approximately 3.2% for the year ended December 31, 2018. The decrease in effective tax rate was primarily due to the increase in the proportion of taxable income generated from our Consolidated Affiliated Entities, which enjoyed EIT exemption.

Profit for the Year

As a result of the foregoing, our profit for the year increased by approximately 19.1% from approximately RMB56.8 million for the year ended December 31, 2017 to approximately RMB67.6 million for the year ended December 31, 2018. Our net profit margin increased from approximately 15.0% for the year ended December 31, 2017 to approximately 17.5% for the year ended December 31, 2018. Excluding the [REDACTED], our net profit would have been approximately RMB68.2 million for the year ended December 31, 2018.

RETAINED PROFITS/(LOSSES)

Our Group recorded accumulated losses prior to the Track Record Period and retained profits as of December 31, 2017, 2018 and 2019 in our consolidated statements of changes in equity. The following table sets forth our accumulated losses/retained profits as of the dates indicated:

As of January 1, As of December 31,

2017 2017 2018 2019

RMB’000 RMB’000 RMB’000 RMB’000

Retained profits/(losses) ...... (34,098) 22,662 90,268 167,302

We had accumulated losses prior to the Track Record Period primarily due to (i) a large amount of share-based compensation issued to certain members of our then-existing management in 2015, which was subsequently settled in July 2016; and (ii) an operating loss comprising our operating expenses incurred prior to the Track Record Period as we initiated our self-produced drama series business in the second half of 2014. We had accumulated losses of approximately RMB34.1 million as of January 1, 2017 primarily as a result of the net profit we generated in 2016. As we expanded the businesses of licensing the broadcasting rights of both self-produced and outright-purchased drama series during the Track Record Period, we had a net profit of approximately RMB56.8 million, RMB67.6 million and RMB77.0 million for the

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DESCRIPTION OF CERTAIN KEY ITEMS FROM OUR CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Current Assets and Current Liabilities

The table below sets forth details of our current assets and liabilities as of the dates indicated:

As of As of December 31, April 30,

2017 2018 2019 2020

RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited)

Current Assets Drama series copyrights ...... 102,263 169,398 179,013 185,108 Trade and bills receivables ...... 194,064 376,244 530,944 594,561 Prepayments, deposits and other receivables ...... 48,524 53,182 35,688 101,811 Cash at bank and on hand ...... 23,054 14,987 89,701 62,563

367,905 613,811 835,346 944,043

Current Liabilities Trade payables ...... 93,111 178,267 294,975 341,566 Other payables and accrued expenses ...... 13,907 72,125 150,236 114,388 Bank and other loans ...... 87,997 107,000 56,661 74,398 Lease liabilities...... 982 978 650 664 Current taxation ...... 6,034 7,139 13,688 16,065

202,031 365,509 516,210 547,081

Net current assets ...... 165,874 248,302 319,136 396,962

Our net current assets increased from approximately RMB319.1 million as of December 31, 2019 to approximately RMB397.0 million as of April 30, 2020, primarily due to (i) an increase of approximately RMB66.1 million in prepayments, deposits and other receivables as a result of the increased prepayments to third-party service providers for the promotion and marketing services in relation to our outright-purchased drama series; (ii) an increase of approximately RMB63.6 million in trade and bills receivables as we licensed the broadcasting rights of an outright-purchased drama series, “Waiting for You in Beijing” (我在北京等你), to a customer; and (iii) an increase of approximately RMB6.1 million in drama series copyrights primarily because we procured the broadcasting rights of two outright-purchased drama series, namely, “Skate into Love” (冰糖燉雪梨) and “Searching for Mr. Right” (我為出嫁狂), which were partially offset by an increase in trade payables in relation to the outright-purchased drama series, “Waiting for You in Beijing” (我在北京等你), and a decrease in cash at bank and on hand.

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Our net current assets increased from approximately RMB248.3 million as of December 31, 2018 to approximately RMB319.1 million as of December 31, 2019, mainly due to (i) an increase of approximately RMB154.7 million in trade and bills receivables, primarily because we recorded significant trade receivables for the distribution of our self-produced drama series; (ii) an increase of approximately RMB74.7 million in cash at bank and on hand; and (iii) a decrease of approximately RMB50.3 million in bank and other loans as we repaid certain bank loans in 2019, partially offset by (i) an increase of approximately RMB116.7 million in trade payables as we extended the payment schedules involving certain suppliers due to late payments from certain of our customers; (ii) an increase of approximately RMB78.1 million in other payables and accrued expenses due to an increase in payables to co-investors of drama series under co-financing arrangements, which was a result of our distribution of certain drama series we produced, including “The Brothers” (義海), “A Gallant Army” (老虎隊) and “Glory of the Blood” (鐵血榮耀); and (iii) a decrease of approximately RMB17.5 million in prepayments, deposits and other receivables primarily due to a decrease in loans to third-party executive producers as we received the fixed investment return from two drama series that we invested in, namely, “Mr. Nanny” (月嫂先生) and “Unexpected Life” (不期而遇的人生).

Our net current assets increased from approximately RMB165.9 million as of December 31, 2017 to approximately RMB248.3 million as of December 31, 2018, primarily due to (i) an increase of approximately RMB182.2 million in trade and bills receivables, primarily because we recognized revenue from licensing the broadcasting rights of outright-purchased drama series, certain of which were not yet settled by the end of 2018; and (ii) an increase of approximately RMB67.1 million in drama series copyrights, primarily because “A Gallant Army” (老虎隊) had obtained the relevant TV Series Distribution License during the year, partially offset by (i) an increase of approximately RMB85.2 million in trade payables as we extended our payment schedules involving certain suppliers due to late payments from certain of our customers; and (ii) an increase of RMB58.2 million in other payables and accrued expenses, primarily due to an increase in the amount received under co-financing arrangements from other co-investors of the drama series for which we acted as the executive producer.

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Drama Series Copyrights

Our drama series copyrights mainly represent (i) the copyrights of our self-produced drama series that were under production or for which the production had been completed; (ii) the copyrights for outright-purchased drama series; (iii) co-financed drama series for which the production had been completed; and (iv) script copyrights. We had drama series copyrights of approximately RMB102.3 million, RMB169.4 million and RMB179.0 million as of December 31, 2017, 2018 and 2019, respectively. The table below sets forth the breakdown of our drama series copyrights by type of copyright as of the dates indicated:

As of December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Self-produced drama series(1): – Under production...... 8,703 41,215 21,691 – With production completed ...... 73,614 92,883 74,784

82,317 134,098 96,475 Outright-purchased drama series ...... 78 5,123 24,024 Co-financed drama series(2): – With production completed ...... – 13,988 32,363 Script copyrights ...... 19,868 16,189 26,151

Total ...... 102,263 169,398 179,013

Drama series copyrights turnover days(3) ...... 202.8 322.4 341.3

Note:

(1) We act either as the sole investor or an executive producer under the co-financing arrangements.

(2) We act as a non-executive producer under these co-financing arrangements.

(3) Average drama series copyrights turnover days are calculated by dividing the average of beginning and ending drama series copyrights balances by drama series copyrights recognized in cost of sales for the relevant years multiplied by 365 days for 2017, 2018 and 2019.

Our drama series copyrights increased by approximately 65.6% from approximately RMB102.3 million as of December 31, 2017 to approximately RMB169.4 million as of December 31, 2018, primarily because we completed the production of and obtained the TV Series Distribution License for “A Gallant Army” (老虎隊). Our drama series copyrights increased by approximately 5.7% from approximately RMB169.4 million as of December 31, 2018 to approximately RMB179.0 million as of December 31, 2019, primarily due to (i) an increase in the number of co-financed drama series, mainly including “The God of Blaze ” (火神) and “Dream on the Side of the Sea” (愛在海這邊), the production of which were completed; and (ii) an increase in the copyrights of outright-purchased drama series, partially offset by a decrease in the number of completed self-produced drama series in 2019, primarily because we completed the productions of, and obtained the TV Series Distribution Licenses for, “Great Days with Green Mountains and Clear Waters” (綠水青山紅日子) and “Mom with Smile” (微笑媽媽) during that year.

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The turnover days of drama series copyrights for the year ended December 31, 2018 was approximately 322.4 days, compared to approximately 202.8 days for the year ended December 31, 2017. The increase was primarily because during 2018, (i) “A Gallant Army” (老虎隊) had completed production; and (ii) “Great Days with Green Mountains and Clear Waters” (綠水青山紅日子) and “Mom with Smile” (微笑媽媽) were under production. These self-produced drama series were not broadcast on satellite TV channels in the year ended December 31, 2018, which resulted in an increase in the turnover days of drama series copyrights for that year. The turnover days of drama series copyrights were approximately 341.3 days for the year ended December 31, 2019, which remained relatively stable.

The investment amounts paid to the executive producers of the co-financed drama series that were in production were recognized as prepayments for drama series production. As soon as the production was completed, the amount of our investment was accounted for as drama series copyrights.

The table below sets forth the aging analysis of drama series copyrights as of the dates indicated:

As of December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Within 1 year ...... 53,131 69,277 74,982 1 to 2 years ...... 43,451 52,424 51,523 Over 2 years ...... 5,681 47,697 52,508

Total ...... 102,263 169,398 179,013

The table below sets forth the details of the movement of drama series copyrights for the years indicated:

Year Ended December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Balance at the beginning of the year ...... 65,169 102,263 169,398 Additions ...... 187,786 220,905 195,935 Recognized in cost of sales ...... (150,692) (153,770) (186,320)

Balance at the end of the year ...... 102,263 169,398 179,013

Drama series copyrights are tested annually based on the recoverable amount of the cash generating unit (the “CGU”) to which the drama series is related to. Each drama series copyright can generate cash inflows that are largely independent of those from other drama series copyright, their appropriate CGU is separated by each drama series. As of December 31, 2017, 2018 and 2019, we had 11, 15 and 19 drama series copyrights, respectively.

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The recoverable amount of each CGU is determined based upon value-in-use. The value-in-use was estimated using the discounted cash flow approach. The revenue forecasts of drama series copyrights equal to the price per episode multiplied by the number of episodes and further multiplied by the investment percentage. The discount rates used are pre-tax and reflect the time value of money and specific risks relating to the drama series copyrights.

The key parameters used for value-in-use calculations for the top five carrying amounts of drama series copyrights of each year in the Track Record Period are as follows:

Year Ended December 31,

2017 2018 2019(1)

The Brothers (義海) Price per Episode (RMB’000) ...... 0.2~1,500 0.2~1,500 – Pre-tax discount rate (%) ...... 19.1 24.8 – Recoverable amount of CGU (RMB’000) ...... 33,831 37,525 – Carrying amount of CGU (RMB’000) ...... 33,405 32,158 – Headroom (RMB’000) ...... 426 5,367 –

Note:

(1) The carrying amount of drama series copyrights of “The Brothers” (義海) is fully recognized in cost of sales for the year ended December 31, 2019.

Year Ended December 31,

2017 2018 2019(1)

Glory of the Blood (鐵血榮耀) Price per Episode (RMB’000) ...... 0.2~1,500 0.2~1,500 – Pre-tax discount rate (%) ...... 17.8 19.8 – Recoverable amount of CGU (RMB’000) ...... 23,200 26,680 – Carrying amount of CGU (RMB’000) ...... 22,887 22,887 – Headroom (RMB’000) ...... 313 3,793 –

Note:

(1) The carrying amount of drama series copyrights of “Glory of the Blood” (鐵血榮耀) was not among the top five for the year ended December 31, 2019.

Year Ended December 31,

2017 2018(1) 2019

Double Guns (雙槍) Price per Episode (RMB’000) ...... 0.2~1,500 – 0.2~1,500 Pre-tax discount rate (%) ...... 17.6 – 25.5 Recoverable amount of CGU (RMB’000) ...... 18,750 – 25,472 Carrying amount of CGU (RMB’000) ...... 17,322 – 17,084 Headroom (RMB’000) ...... 1,428 – 8,388

Note:

(1) The carrying amount of drama series copyrights of “Double Guns” (雙槍) was not among the top five for the year ended December 31, 2018.

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Year Ended December 31,

2017 2018 2019(1)

A Gallant Army (老虎隊) Price per Episode (RMB’000) ...... 0.2~1,500 0.2~1,500 – Pre-tax discount rate (%) ...... 30.6 24.2 – Recoverable amount of CGU (RMB’000) ...... 12,116 30,584 – Carrying amount of CGU (RMB’000) ...... 8,702 20,677 – Headroom (RMB’000) ...... 3,414 9,907 –

Note:

(1) The carrying amount of drama series copyrights of “A Gallant Army” (老虎隊) is fully recognized in cost of sales for the year ended December 31, 2019.

Year Ended December 31,

2017 2018(1) 2019(1)

Fancy Meeting You Here (原來你也在這裡) Price per Episode (RMB’000) ...... 0.2~1,500 – – Pre-tax discount rate (%) ...... 36.5 – – Recoverable amount of CGU (RMB’000) ...... 6,959 – – Carrying amount of CGU (RMB’000) ...... 6,943 – – Headroom (RMB’000) ...... 16 – –

Note:

(1) The carrying amount of drama series copyrights of “Fancy Meeting You Here” (原來你也在這裡) was not among the top five for the years ended December 31, 2018 and 2019.

Year Ended December 31,

2017(1) 2018 2019

Mom with Smile (微笑媽媽) Price per Episode (RMB’000) ...... – 0.2~1,500 0.2~1,500 Pre-tax discount rate (%) ...... – 20.2 23.6 Recoverable amount of CGU (RMB’000) ...... – 31,121 42,403 Carrying amount of CGU (RMB’000) ...... – 22,951 23,018 Headroom (RMB’000) ...... – 8,170 19,385

Note:

(1) The carrying amount of drama series copyrights of “Mom with Smile” (微笑媽媽) was not among the top five for the year ended December 31, 2017.

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Year Ended December 31,

2017(1) 2018 2019

Great Days with Green Mountains and Clear Waters (綠水青山紅日子) Price per Episode (RMB’000) ...... – 0.2~1,500 0.2~1,500 Pre-tax discount rate (%) ...... – 20.0 21.8 Recoverable amount of CGU (RMB’000) ...... – 25,607 31,012 Carrying amount of CGU (RMB’000) ...... – 18,263 19,128 Headroom (RMB’000) ...... – 7,344 11,884

Note:

(1) The carrying amount of drama series copyrights of “Great Days with Green Mountains and Clear Waters” (綠水青山紅日子) was not among the top five for the year ended December 31, 2017.

Year Ended December 31,

2017(1) 2018 2019

Mr. Fox and Miss. Rose (酋長的男人) Price per Episode (RMB’000) ...... – 0.2~1,500 0.2~1,500 Pre-tax discount rate (%) ...... – 39.8 27.6 Recoverable amount of CGU (RMB’000) ...... – 2,128 27,363 Carrying amount of CGU (RMB’000) ...... – 1,438 21,691 Headroom (RMB’000) ...... – 690 5,672

Note:

(1) We had not started the production of “Mr. Fox and Miss. Rose” (酋長的男人) in 2017 and thus, we did not record any drama series copyrights with respect to this web series for that year.

Year Ended December 31,

2017(1) 2018(1) 2019

Hunting Actions (獵金行動) Price per Episode (RMB’000) ...... – – 0.2~1,500 Pre-tax discount rate (%) ...... – – 24.5 Recoverable amount of CGU (RMB’000) ...... – – 50,024 Carrying amount of CGU (RMB’000) ...... – – 21,297 Headroom (RMB’000) ...... – – 28,727

Note:

(1) We procured the copyrights of “Hunting Actions” (獵金行動) in 2019 and began to record drama series copyrights with respect to this drama series since 2019.

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The recoverable amount of the CGUs of all the drama series is estimated to exceed the carrying amount of the CGU as of December 31, 2017, 2018 and 2019 by approximately RMB9.0 million, RMB45.3 million and RMB92.1 million, respectively.

Our Directors believe that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of the CGUs exceed its respective recoverable amount.

The subsequent consumption of drama series copyrights from December 31, 2019 up to the Latest Practicable Date was RMB396,000.

The following tables set forth the aging analysis of drama series copyrights by type of copyrights as of the dates indicated:

As of December 31, 2017

Within 1 year 1 to 2 years Over 2 years Total

RMB’000 RMB’000 RMB’000 RMB’000

Self-produced drama series: – under production ...... 8,703 – – 8,703 – with production completed..... 24,683 43,250 5,681 73,614

33,386 43,250 5,681 82,317 Outright-purchased drama series . . . 78 – – 78 Co-financed drama series: – with production completed .... –––– Script copyrights ...... 19,667 201 – 19,868

53,131 43,451 5,681 102,263

As of December 31, 2018

Within 1 year 1 to 2 years Over 2 years Total

RMB’000 RMB’000 RMB’000 RMB’000

Self-produced drama series: – under production ...... 33,951 7,264 – 41,215 – with production completed..... 12,631 32,756 47,496 92,883

46,582 40,020 47,496 134,098

Outright-purchased drama series . . . 5,123 – – 5,123 Co-financed drama series: – with production completed..... 13,988 – – 13,988 Script copyrights ...... 3,584 12,404 201 16,189

69,277 52,424 47,697 169,398

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As of December 31, 2019

Within 1 year 1 to 2 years Over 2 years Total

RMB’000 RMB’000 RMB’000 RMB’000

Self-produced drama series: – under production ...... 20,253 1,438 – 21,691 – with production completed..... 932 33,949 39,903 74,784

21,185 35,387 39,903 96,475

Outright-purchased drama series . . . 24,024 – – 24,024 Co-financed drama series: – with production completed..... 18,375 13,988 – 32,363 Script copyrights ...... 11,398 2,148 12,605 26,151

74,982 51,523 52,508 179,013

The long-aged copyrights balances for over one year as of December 31, 2019 mainly because (i) four self-produced TV series, namely, “Double Guns” (雙槍), “Glory of the Blood” (鐵血榮耀), “Great Days with Green Mountains and Clear Waters” (綠水青山紅日子) and “Mom with Smile” (微笑媽媽); (ii) one web series, namely, “Mr. Fox and Miss Rose” (酋長的男人); and (iii) a co-financed drama series, namely, “24 Hours” (限定24小時), had completed production and are expected to be distributed in 2020 and 2021.

Trade and Bills Receivables

Our trade and bills receivables primarily represent outstanding drama series license fees from our customers. During the Track Record Period, for the licensing of the broadcasting rights of our self-produced and outright-purchased drama series, the full payment cycle generally spans over a period of six months to two years. For other businesses, a credit term of 60 days is generally granted to our customers. However, the collection period of certain customers, particularly TV channels, may be significantly longer than the credit period stated in our agreements. According to the Frost & Sullivan Report, the long payment period is not uncommon in the industry where we operate. As of December 31, 2017, 2018 and 2019, we had trade and bills receivables of approximately RMB194.1 million, RMB376.2 million and RMB530.9

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As of December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Trade receivables ...... 196,196 386,473 552,462 Including: Trade receivables collected on behalf of third-party co-investors...... 2,970 2,088 64,150 Less: Loss allowance ...... (3,465) (11,481) (39,713)

192,731 374,992 512,749 Bills receivables ...... 1,333 1,252 18,195

Total ...... 194,064 376,244 530,944

Trade and bills receivable turnover days(1) ...... 120.1 276.8 447.3

Note:

(1) Average trade and bills receivable turnover days are calculated by dividing the average of beginning and ending trade and bills receivable balances by revenue for the relevant periods and multiplied by 365 days for 2017, 2018 and 2019.

Our trade and bills receivables increased by approximately 93.9% from approximately RMB194.1 million as of December 31, 2017 to approximately RMB376.2 million as of December 31, 2018, primarily due to the longer collection periods for such balances as a result of a time-consuming settlement process involving prolonged internal administrative procedures of certain of our major customers. Our trade and bills receivables increased by approximately 41.1% from approximately RMB376.2 million as of December 31, 2018 to approximately RMB530.9 million as of December 31, 2019, primarily because we recorded significant trade receivables for the distribution of our self-produced drama series in line with the growth of this business in 2019 and the increase in trade and bills receivable turnover days.

As of December 31, 2017, 2018 and 2019, we made provision for impairment of trade receivables of approximately RMB2.2 million, RMB8.0 million and RMB28.2 million, respectively. Our Group measures loss allowances for trade receivables at an amount equal to lifetime ECLs, which is measured using a provision matrix. Expected loss rates are based on actual loss experience over the past several years and adjusted to reflect differences between economic conditions during the period over which the historic data has been collected, current conditions and our view of economic conditions over the expected lives of the receivables. For further details, please see note 22(a) to the Accountants’ Report in Appendix I to this document.

The turnover days of our trade and bills receivables increased during the Track Record Period, primarily because the payment terms varied among the agreements we entered into with our customers, which were generally negotiated on a case-by-case basis. For licensing the broadcasting rights of drama series, the total consideration of each agreement is settled in installments with reference to the point in time when the drama series materials are delivered and/or the commencement of the broadcasting of the drama series. Generally, the full payment cycle spans over a period of approximately six months to two years. With the expansion of our

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In addition, our revenue is recognized at the amount of promised consideration to which we expect to be entitled, excluding those amounts collected on behalf of third-party co-investors, who made investments in our self-produced drama series. However, the amounts collected on behalf of these third-party co-investors were included in trade and bills receivables. If we add back the amounts collected on behalf of co-investors, our gross revenue would be approximately RMB386.0 million, RMB387.9 million and RMB480.3 million for the years ended December 31, 2017, 2018 and 2019, respectively. If we consider removing the effect of this mismatch between revenue and trade and bills receivables, and recalculate the turnover days of trade and bills receivables, the turnover days of trade and bills receivables would be approximately 117.8 days, 275.3 days and 372.0 days for the years ended December 31, 2017, 2018 and 2019, respectively.

The amount of trade receivables collected by our Group on behalf of the third-party co-investors was approximately RMB3.0 million, RMB2.1 million and RMB64.2 million as of December 31, 2017, 2018 and 2019, respectively.

The following table sets forth an aging analysis of our trade and bills receivables based on the date revenue is recognized, net of loss allowance, as of the dates indicated:

As of December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Within 3 months ...... 76,604 55,588 141,613 3 to 6 months ...... 38,721 126,937 14,427 6 to 12 months ...... 52,724 102,014 167,570 1 to 2 years...... 25,713 79,347 148,129 2 to 3 years...... 302 12,358 59,205

Total ...... 194,064 376,244 530,944

Our trade and bills receivables with long aging periods are mainly attributable to TV channels, which are state-owned with low credit and default risks. The longer collection period for such balances, to our knowledge, was principally due to factors such as the relatively more bargaining power of our customers and a generally long settlement process as a result of their lengthy internal administrative procedures. However, our Directors have assessed the recoverability of RMB59.2 million of trade receivables aged over two years as of December 31, 2019, and considered, among others, the following factors: (i) these receivables are mainly due from customers that are state-owned satellite TV channels, which are currently under normal operations by providing broadcasting services to the public; (ii) these customers have subsequently settled approximately RMB2.8 million of the outstanding balance by the end of April 2020; and (iii) we have checked the balance of our trade receivables on a regular basis and issued payment reminder notices to our customers to collect the remaining outstanding trade receivables. Our Directors confirmed that there had not been any default in the payments by the stated-owned TV channels during the Track Record Period and up to the Latest Practicable Date. Based on the above, our Directors are of the view that there is no material recoverability issue of

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The tables below set forth the aging analysis of our trade and bills receivables by customer type as of the dates indicated:

As of December 31, 2017

Other Satellite TV Terrestrial TV Third-party Channels Channels Customers Total

RMB’000 RMB’000 RMB’000 RMB’000

Within 3 months ...... 66,703 4,705 5,196 76,604 3 to 6 months ...... 32,472 5,308 941 38,721 6 to 12 months ...... 50,464 2,260 – 52,724 1 to 2 years ...... 25,713 – – 25,713 2 to 3 years ...... – 302 – 302

Total...... 175,352 12,575 6,137 194,064

As of December 31, 2018

Other Satellite TV Terrestrial TV Third-party Channels Channels Customers Total

RMB’000 RMB’000 RMB’000 RMB’000

Within 3 months ...... 49,104 2,518 3,966 55,588 3 to 6 months ...... 123,273 – 3,664 126,937 6 to 12 months ...... 98,216 201 3,597 102,014 1 to 2 years ...... 75,986 2,457 904 79,347 2 to 3 years ...... 12,358 – – 12,358

Total...... 358,937 5,176 12,131 376,244

As of December 31, 2019

Other Satellite TV Terrestrial TV Third-party Channels Channels Customers Total

RMB’000 RMB’000 RMB’000 RMB’000

Within 3 months ...... 116,752 336 24,525 141,613 3 to 6 months ...... 13,793 – 634 14,427 6 to 12 months ...... 164,701 282 2,587 167,570 1 to 2 years ...... 147,845 161 123 148,129 2 to 3 years ...... 57,262 1,011 932 59,205

Total...... 500,353 1,790 28,801 530,944

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The following table sets forth the movements in the loss allowance account in respect of trade receivables for the years indicated:

Years ended December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

At January 1 ...... 1,253 3,465 11,481 Impairment losses recognized ...... 2,212 8,016 28,232

At December 31 ...... 3,465 11,481 39,713

As of the Latest Practicable Date, the amount of subsequent settlement of the outstanding balance of trade receivables as of December 31, 2017 and 2018 was approximately RMB116.1 million and RMB169.6 million, respectively, representing approximately 59.2% and 43.9%, respectively, of the outstanding balance of trade receivables as of the same dates. As of the Latest Practicable Date, the subsequent settlement of our trade receivables as of December 31, 2019 was approximately RMB139.0 million, accounting for approximately 25.2% of our total trade receivables as of December 31, 2019.

The increase in impairment losses of trade receivables in 2019 was primarily due to the increase in past due days of the trade receivable balances as of December 31, 2019, which resulted in higher expected loss rates in our assessment of the loss allowance. For further details, please see note 22(a) of the Accountants’ Report of our Group in Appendix I to this document.

Our Directors do not believe there is any material recoverability issues for trade receivables aged over six months as of December 31, 2019 primarily because (i) most of our customers are state-owned entities or public institutions, which normally have a good credit with us; (ii) we usually check the balance of our trade receivables on a regular basis and will issue payment reminder notices to our customers to collect the trade receivables; and (iii) there are no obstacles that have come to our attention that may adversely affect the recovery of our trade receivables. Our Directors confirmed that there had not been any default in the payments by the stated-owned TV channels during the Track Record Period and up to the Latest Practicable Date.

Most of our customers are state-owned TV channels, which afford them more bargaining power over drama series distribution companies for a longer credit period. In addition, these state-owned institutions usually have a relatively long internal administrative process in settling the payments with drama series distribution companies. However, none of our state-owned TV channel customers had defaulted on their payments to us during the Track Record Period and up to the Latest Practicable Date. According to Frost & Sullivan, it is an industry practice for drama series distribution companies in the PRC to grant relatively favorable credit terms (usually up to two years) to their customers considering the long-term business relationships after conducting reasonable risk assessments as to (i) the track record and credibility of such customers; and (ii) the amount of gross payables arising from such contracts. During the Track Record Period and up to the Latest Practicable Date, we did not offer any discount or competitive credit terms to our customers to expedite the collection of our trade receivables balances.

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We recorded a relatively low subsequent settlement rate of trade and bills receivables primarily because most of our customers are TV channels, which are primarily state-owned institutions, and they usually have more bargaining power over the drama series distribution companies for a longer credit period.

Internal Control Measures on Trade Receivables

We have a set of internal policies and procedures in place to monitor our trade receivable balances and collect payments from our customers. According to our trade receivable management policy (應收賬款管理政策) under our financial control system (財務管理制度), our distribution department is primarily responsible for collecting payments from our customers. We generally designate the distribution manager who negotiated the relevant broadcasting rights transfer agreement with a customer as the first responsible party to monitor and recover payments from such customer, and our distribution director as the second responsible party to follow up on the status of payment collection (in the event the particular sales manager had left the post or had otherwise become unavailable). Once enter into the broadcasting rights transfer agreements, our distribution managers are usually tasked to closely monitor the customer accounts, maintain regularly contact with them and respond to their inquiries and requests on a timely basis in order to ensure we are able to collect outstanding payments. In addition, our finance department is responsible for managing our trade receivables and supervising their recovery. According to the applicable accounting standards, our finance department recognizes and records the trade receivables on a timely basis, keeps track of customer payments, conducts aging analysis of our trade receivables, and requests the responsible department and/or persons to take corresponding measures to reduce the impairment risk associated with past due trade receivables.

In order to improve our trade receivables and enhance our recovery efforts, we have adopted a distribution and payment collection management policy (發行與收款管理制度), pursuant to which our finance department will prepare a monthly report containing customer trade receivable recovery targets and provide such report to our distribution department for action. For the balances that are past due for more than six months, the distribution department is required to provide reasons for the past-due trade receivables and formulate an initial recovery plan. We will designate the trade receivable balance that is outstanding for more than three years as impaired. Once an outstanding amount of trade receivables is deemed to be impaired, our legal department will issue payment reminder notice to the customer within 15 days of such designation, and at the same time, consider initiating lawsuits to recover the outstanding amounts due in the event the customer does not make prompt payments after receiving the notices. In addition, we will analyze our trade receivable balance every six months to monitor our collection efforts. Our Directors are of the view that with the implementation of these internal control measures, we are able to effectively monitor the balance and collection progress of our trade and bills receivables.

Prepayments, Deposits and Other Receivables

Our prepayments, deposits and other receivables primarily consist of (i) prepayments for drama series production, which primarily represents the production fees we prepaid to third-party service providers and the amounts we prepaid to co-investors who are executive producers; (ii) loans to third parties, which represent the Fixed Return Investment we paid to

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The following table sets forth the components of our prepayments, deposits and other receivables as of the dates indicated:

As of December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Prepayments for production of drama series .... 28,032 16,459 13,654 Loans to third parties(1) ...... 15,000 20,000 – VAT recoverable ...... 4,212 12,866 17,523 Prepayments for costs incurred in connection with the proposed [REDACTED] ...... – 150 4,076 Others ...... 1,283 3,709 492

48,527 53,184 35,745 Less: Loss allowance ...... (3) (2) (57)

Total ...... 48,524 53,182 35,688

Note:

(1) The balance of loans to third parties bore interest at rates ranging from 10.0% to 20.0% per annum. These loans to third parties were “Fixed Return Investments” we made to third-party co-investors of drama series, which were, in substance, lending and borrowing arrangements between the investors and investees and accordingly, they were accounted for as financial assets (i.e. loans provided to third parties) or, in the case where third-party co-investors make “Fixed Return Investments” in us, as financial liabilities (i.e. other loans from third parties), as the case may be under IFRS 9 “Financial Instruments” (“IFRS 9”). Please see “— Major Components of Our Results of Operations — Other Income” in this section for further details.

Our prepayments, deposits and other receivables increased by approximately 9.6% from approximately RMB48.5 million as of December 31, 2017 to RMB53.2 million as of December 31, 2018, primarily due to (i) an increase of RMB8.7 million in VAT recoverable as a result of an increase in input tax in connection with our procurement of the broadcasting rights of drama series and the relevant promotion and marketing services from third-party service providers, which have not issued invoices to us; and (ii) an increase of RMB5.0 million in loans to third parties due to our Fixed Return Investment in a drama series named “Unexpected Life” (不期而遇的人生), partially offset by a decrease of RMB11.6 million in prepayment for drama series production, primarily because our investment in “24 Hours” (24小時) was accounted for as drama series copyrights as it completed filming.

Our prepayments, deposits and other receivables decreased by approximately 32.9% from approximately RMB53.2 million as of December 31, 2018 to approximately RMB35.7 million as of

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December 31, 2019, primarily due to (i) a decrease of approximately RMB20.0 million in loans to third parties, primarily reflecting the principals we received in connection with our Fixed Return Investment in “Mr. Nanny” (月嫂先生) and “Unexpected Life” (不期而遇的人生); and (ii) a decrease of approximately RMB2.8 million in prepayments for production of drama series as our investment in “The God of Blaze” (火神) was accounted for as drama series copyrights after obtaining the relevant TV Series Distribution License, partially offset by an increase of approximately RMB4.7 million in VAT recoverable as a result of an increase in input tax in connection with our procurement of the broadcasting rights of the drama series and the relevant promotion and marketing services from third-party service providers, which have not issued invoices to us.

Cash at Bank and on Hand

Our cash at bank and on hand consist of deposits we had in bank accounts and cash on hand. As of December 31, 2017, 2018 and 2019, our cash at bank and on hand amounted to approximately RMB23.1 million, RMB15.0 million and RMB89.7 million, respectively. The following table sets forth the breakdown of our cash at bank and cash on hand of the dates indicated:

As of December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Cash at bank ...... 22,655 14,956 89,677 Cash on hand...... 399 31 24

Total ...... 23,054 14,987 89,701

For the years ended December 31, 2017, 2018 and 2019, our cash conversion cycle was approximately 153.2 days, 276.9 days and 356.1 days, respectively.

Trade Payables

Our trade payables primarily relate to (i) payables for the production and acquisition of drama series; and (ii) payables for acquisition of script copyrights. We had trade payables of approximately RMB93.1 million, RMB178.3 million and RMB295.0 million as of December 31, 2017, 2018 and 2019, respectively. The table below sets forth the details of trade payables as of the dates indicated:

As of December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Payables for production and acquisition of drama series ...... 93,111 178,267 294,975

Total ...... 93,111 178,267 294,975

Trade payable turnover days(1)...... 67.8 173.0 345.7

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Note:

(1) Average trade payable turnover days are calculated by dividing the average of beginning and ending trade payable balances by cost of sales for the relevant period and multiplied by 365 days for 2017, 2018 and 2019.

Our trade payables increased by approximately 91.5% from approximately RMB93.1 million as of December 31, 2017 to approximately RMB178.3 million as of December 31, 2018, primarily due to an increase in payables for the production and acquisition of drama series, reflecting the increase in trade payables for outright-purchased drama series, which was in line with the growth of this business. Our trade payables increased from approximately RMB178.3 million as of December 31, 2018 to approximately RMB295.0 million as of December 31, 2019, mainly due to an increase in payables for the production and acquisition of drama series, as a result of an increase in trade payables for outright-purchased drama series as certain of major suppliers granted longer credit terms to us.

The turnover days of our trade payables increased during the Track Record Period primarily due to the slow-down in our collection of trade and bills receivables, which had prolonged the settlement period of our trade payables.

Time lags often exist between receiving payments from our customers and making payments to our suppliers. If our customers delay their payments, which could affect our timely settlement with the relevant suppliers, we will communicate with such suppliers in advance and postpone our payments under mutual consent. During the Track Record Period and up to the Latest Practicable Date, our Directors confirmed that we had not been involved in or subject to any dispute with our suppliers due to any delayed payment.

Trade payables include (i) the amount of consideration payable upon acquisition of drama series and/or costs/expenses incurred during the production; and (ii) the amount payable to suppliers on behalf of co-investors of drama series under co-financing arrangements. However, the amount payable to suppliers on behalf of co-investors of drama series under co-financing arrangements is not included in cost of sales. If we consider to remove the effect of this mismatch between cost of sales and trade payables, and recalculate the turnover days of trade payables, the turnover days of trade payables will be approximately 66.8 days, 172.1 days and 292.3 days for the years ended December 31, 2017, 2018 and 2019, respectively.

The following table sets forth the aging analysis of our trade payables as of the dates indicated:

As of December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Within 3 months ...... 80,590 114,426 134,820 3 to 6 months ...... – 43,536 2,260 6 to 12 months ...... 12,521 4,243 45,010 1 to 2 years...... – 16,062 103,925 More than 2 years...... – – 8,960

Total ...... 93,111 178,267 294,975

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As of the Latest Practicable Date, the subsequent settlement of our trade payables as of December 31, 2019 was approximately RMB73.6 million, accounting for approximately 25.0% of our total trade payables as of December 31, 2019.

Other Payables and Accrued Expenses

Our other payables and accrued expenses primarily consist of (i) amount due to co-investors, which represents investment return payables to other co-investors of the drama series for which we acted as the executive producer; (ii) interest payables; (iii) payables for staff-related costs; (iv) payables for other taxes; (v) payables for costs incurred in connection with the proposed [REDACTED]; and (vi) receipts in advance , which represent amounts relating to the advances received from the customers of our business of licensing the broadcasting rights of outright-purchased drama series. We recorded other payables and accrued expenses of approximately RMB13.9 million, RMB72.1 million and RMB150.2 million as of December 31, 2017, 2018 and 2019, respectively. The table below sets forth the details of other payables and accrued expenses as of the dates indicated:

As of December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Payables to co-investors of drama series under co-financing arrangements ...... 7,829 47,926 122,558 Interest payables ...... 3,685 7,451 5,394 Payables for staff-related costs ...... 760 1,597 2,473 Payables for other taxes ...... 1,400 13,103 19,566 Payables for costs incurred in connection with the proposed [REDACTED] ...... – 448 245

Financial liabilities measured at amortized cost . . 13,674 70,525 150,236 Receipts in advance ...... 233 1,600 –

Total ...... 13,907 72,125 150,236

Our other payables and accrued expenses increased by approximately 418.6% from approximately RMB13.9 million as of December 31, 2017 to approximately RMB72.1 million as of December 31, 2018, primarily due to (i) an increase of approximately RMB40.1 million in payables to co-producers of drama series under co-financing arrangements , mainly due to the increased proportional investment contributions from the co-investors of certain drama series we produced; and (ii) an increase of approximately RMB11.7 million in other taxes payables, primarily due to an increase in the number of drama series we distributed in 2018.

Our other payables and accrued expenses increased by approximately 114.2% from approximately RMB72.1 million as of December 31, 2018 to approximately RMB150.2 million as of December 31, 2019. The increase was primarily due to an increase of approximately RMB74.6 million in payables to co-investors of drama series under the co-financing arrangements, as a result of our distribution of certain drama series we produced, including “The Brothers” (義海), “A Gallant Army” (老虎隊) and “Glory of the Blood” (鐵血榮耀).

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Current Taxation

Our current taxation increased from approximately RMB6.0 million as of December 31, 2017 to approximately RMB7.1 million as of December 31, 2018, and further increased to approximately RMB13.7 million as of December 31, 2019, primarily reflecting increases in our income tax expenses as a result of the increases in our taxable income for the relevant years and our underpayment of income tax for the tax assessment years of 2017 and 2018 amounted to approximately RMB3.0 million and RMB4.1 million as of December 31, 2018 and 2019, respectively.

The table below sets forth the movement of current taxation in the consolidated statement of financial position for the years indicated:

Year Ended December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000 Net balance of income tax payable as of January 1 ...... 6,574 6,034 7,139 Income tax paid ...... (6,529) (3,052) (3,041)

Balance of tax payable carried forward ...... 45 2,982 4,098(1) Provision for the year ...... 5,989 4,157 9,590

Net balance of income tax as of December 31 .... 6,034 7,139 13,688

Note:

(1) The balance of tax payable carried forward for the year ended December 31, 2019 was approximately RMB4.1 million, which represented the amount of approximately RMB3.0 million of tax payable carried forward from 2017 to 2018 plus approximately RMB1.1 million of tax payable carried forward from 2018 to 2019.

Our historical income tax was accrued in accordance with the relevant income tax regulations. Income generated from the licensing of the broadcasting rights of drama series is taxable and the relevant expenses are deductible when the revenue and cost of sales are recognized in accordance with the applicable accounting standards. We generally settle our income tax payment by the end of May each year, following our annual tax filling with the relevant government authorities in May. The difference between our tax payable and income tax paid each year is mainly due to the difference between the (i) time of actual payment of tax, and (ii) time of revenue recognition and income tax computation in our accounts as a result of the applicable accounting standards.

The outstanding tax payables carried forward from previous tax assessment years were mainly due to the following:

Tax Assessment for 2017

We made income tax provision of approximately RMB6.0 million in accordance with the relevant income tax regulations in 2017, while we paid income tax of approximately RMB3.0

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Tax Assessment for 2018

We made income tax provision of approximately RMB4.2 million in accordance with the relevant income tax regulations in 2018, while we paid income tax of approximately RMB3.0 million in 2019. The difference of approximately RMB1.1 million was mainly because:

• we recognized revenue, cost of sales and income tax of licensing the broadcasting rights of one of our outright-purchased drama series, “Flesh and Spirit” (靈與肉), which was broadcast on November 13, 2018, during the year ended December 31, 2018. However, we were not required to report the profits generated from this drama series in our tax filling since we received the original executed agreement from our customer after closing the 2018 financial year. Therefore, we made additional tax provision of approximately RMB2.2 million. This was a timing difference between the income tax computation in our accounting book and tax filling;

• we reported revenue and cost of sales of “The Brothers” (義海), one of our self-produced drama series, which was broadcast on February 25, 2019, in the annual tax filing of 2018 as we delivered the drama series materials to our customer in December 2018. However, the profits generated from this drama series were recognized and assessable for income tax in 2019 when the relevant licensing agreement was concluded and became effective in early 2019. Therefore, this resulted in an advanced payment of income tax in the amount of approximately RMB0.3 million for the tax assessment year of 2018; and

• we did not include the deduction of accrued interest expenses on the Fixed Return Investments in our 2018 tax filing as the invoice of interest payment was not issued to us until its payment in 2019. This resulted in an advanced tax payment of approximately RMB0.7 million for the tax assessment year of 2018.

Accordingly, we carried forward approximately RMB4.1 million of tax payable from 2018 to 2019, consisting of approximately RMB3.0 million of tax payable carried forward from 2017 and approximately RMB1.1 million tax payable carried forward from 2018.

The abovementioned historical underpayments of income tax were identified by us after conducting the income tax calculation review. We have fully settled the EIT amounting to approximately RMB13.7 million, which includes all our historical underpayments of income tax, in the 2019 EIT annual filing on May 9, 2020. Given that we have fully settled the EIT and obtained the tax payment receipt (稅收完稅證明) issued by the State Administration of Taxation Zhejiang Provincial Tax Bureau (國家稅務總局浙江省稅務局) on May 9, 2020, our Directors are of

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We have adopted a series of internal control measures to avoid reoccurrence of similar incident. In particular, we require our financial personnel to conduct self-inspections of our accounts and tax payments on a regular basis to ensure that our tax payment is in accordance with the latest accounting policies and tax regulations. For any discrepancy identified, we will make adjustments and corrections in a timely manner.

WORKING CAPITAL

Our future working capital requirements will depend on a number of factors, including, but not limited to, our operating income, the cost of purchasing drama series and TV script copyrights from third parties, the cost of hiring additional personnel and staff. We intend to continue to finance our working capital with cash generated from our operations, bank loans and other borrowings, the [REDACTED]fromthe[REDACTED] and other funds raised from the capital markets from time to time.

Taking into account the financial resources available to our Group, including our cash balance, cash flow from operating activities, bank loans and other borrowings and the estimated [REDACTED]fromthe[REDACTED], our Directors are of the view that, after due and careful inquiry, our Group has sufficient available working capital for our present requirements for at least the next 12 months from the date of this document.

Other than those disclosed under the section headed “— Key Factors Affecting Our Results of Operations” in this document, our Directors are not aware of any other factors that would have a material impact on our liquidity. See “Future Plans and [REDACTED]” in this document for details of the funds necessary to meet our existing operations and to fund our future plans.

LIQUIDITY AND CAPITAL RESOURCES

We operated in a capital-intensive industry and our primary uses of cash are to fund our working capital requirements, the cost of licensing the broadcasting rights of drama series and script copyrights, and to repay bank loans and related interest expenses. During the Track Record Period, we have funded our operations principally with cash generated from our operations and bank loans. In the future, we believe that our liquidity requirements will be satisfied with a combination of cash flows generated from our operating activities, bank loans and other borrowings, [REDACTED]fromthe[REDACTED] and other funds raised from the capital markets from time to time.

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Cash Flows Analysis

The table below sets forth our cash flows for the years indicated:

Year ended December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Net cash from operating activities before movements in working capital………………... . . 67,922 79,134 85,260 Changes in working capital…… ...... (143,847) (104,501) 25,992 Income tax paid…………… ...... (6,529) (3,052) (3,041) Net cash (used in)/generated from operating activities ...... (82,454) (28,419) 108,211 Net cash (used in)/generated from investing activities ...... (16,010) (6,309) 23,778 Net cash generated from/(used in) financing activities ...... 108,905 26,721 (65,236) Net increase/(decrease) in cash and cash equivalents ...... 10,441 (8,007) 66,753 Cash and cash equivalents at beginning of year . . 12,553 22,994 14,987 Cash and cash equivalents at end of year ...... 22,994 14,987 81,740

Net Cash Generated from/(Used in) Operating Activities

Cash flows from operating activities reflects (i) profit before taxation adjusted for non-cash and non-operating items, such as depreciation expenses of items of property, plant and equipment, finance costs and interest income; (ii) movements in working capital, such as increase/decrease in drama series copyrights, increase in trade and bills receivables, increase/decrease in prepayments, deposits and other receivables, increase/decrease in restricted deposits, increase in trade payables and increase/decrease in other payables and accrued expenses; and (iii) other cash items consisting of income tax paid.

For the year ended December 31, 2019, our net cash generated from operating activities was approximately RMB108.2 million, primarily reflecting (i) profit before taxation of approximately RMB79.4 million; (ii) positive total adjustments before movements in working capital of approximately RMB5.9 million, mainly as a result of approximately RMB4.8 million positive adjustment for finance costs; and (iii) positive movements of approximately RMB26.0 million in working capital, primarily due to (i) an increase of approximately RMB116.7 million in trade payables as a result of the expansion of our business; and (ii) an increase of approximately RMB83.2 million in other payables and accrued expenses as a result of the increase in proportional investment contributions from the co-investors of certain drama series under the co-financing arrangements, partially offset by (i) an increase of approximately RMB154.7 million in trade and bills receivables due to the growth of our business; and (ii) an increase of approximately RMB9.6 million in drama series copyrights due to an increase in the number of co-financed drama series, mainly including “The God of Blaze ” (火神) and “Dream on the Side of the Sea” (愛在海這邊), the production of which was completed, and an increase in the copyrights of outright-purchased drama series.

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For the year ended December 31, 2018, our net cash used in operating activities was approximately RMB28.4 million, which was primarily attributable to (i) our profit before taxation of approximately RMB69.8 million; (ii) positive total adjustments before movements in working capital of approximately RMB9.3 million mainly as a result of approximately RMB10.1 million positive adjustment for finance costs and approximately RMB1.7 million for depreciation expenses, partially offset by a decrease in interest income of approximately RMB2.5 million; and (iii) negative movements of approximately RMB104.5 million in working capital, primarily reflecting an increase of approximately RMB182.2 million in trade and bills receivables, primarily due to the expansion of our business, an increase of approximately RMB67.1 million in drama series copyrights primarily because “Great Days with Green Mountains and Clear Waters” (綠水青山紅日子) and “Mom with Smile” (微笑媽媽) had commenced filming, which resulted in an increase in our drama series copyrights, partially offset by (i) an increase of approximately RMB85.2 million in trade payables mainly because we experienced growth in our business; and (ii) an increase of approximately RMB57.2 million in other payables and accrued expenses as a result of the increase in proportional investment contributions we received from the co-investors of certain drama series under the co-financing arrangements.

For the year ended December 31, 2017, our net cash used in operating activities were approximately RMB82.5 million, which was primarily attributable to (i) our profit before taxation of approximately RMB62.1 million; (ii) positive total adjustments before movements in working capital of approximately RMB5.9 million primarily as a result of approximately RMB5.0 million positive adjustment for finance costs and RMB1.4 million positive adjustment for depreciation expenses; and (iii) negative movements of approximately RMB143.8 million in working capital, primarily reflecting an increase of approximately RMB143.6 million in trade and bills receivables, mainly as a result the expansion of our business, an increase of approximately RMB37.1 million in drama series copyrights, mainly because “Glory of Blood” (鐵血榮耀) had commenced filming and obtained the relevant TV Series Distribution License, and an increase of approximately RMB25.7 million in prepayments, deposits and other receivables as a result of our investment in “24 Hours” (限定24小時) in which we acted as a non-executive producer, partially offset by an increase of approximately RMB73.7 million in trade payables as a result of the growth of our business.

Net Cash (Used in)/Generated from Investing Activities

During the Track Record Period, our investing activities primarily consisted of (i) purchase of property, plant and equipment; (ii) loans to third parties; (iii) settlements received from loans to third parties; and (iv) interest received.

For the six months ended December 31, 2019, our net cash generated from investing activities was approximately RMB23.8 million. It was primarily attributable to settlements received from loans to third parties, which represented the fixed investment returns we received from the drama series in which we acted as a non-executive producer.

For the year ended December 31, 2018, our net cash used in investing activities was approximately RMB6.3 million. It was mainly attributable to (i) loans to third parties, which represented the investments we made in the drama series in which we acted as a non-executive producer; and (ii) the purchase of office furniture and office space renovation expenses.

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For the year ended December 31, 2017, our net cash used in investing activities was approximately RMB16.0 million. It was mainly attributable to (i) loans to third parties, which represented the investments we made in the drama series in which we acted as a non-executive producer; and (ii) the purchase of office furniture and office space renovation expenses.

Net Cash Generated from/(Used in) Financing Activities

During the Track Record Period, our financing activities primarily related to (i) capital contributions; (ii) proceeds from bank and other loans; (iii) repayment of bank and other loans; (iv) interest paid; (v) capital element of lease rentals paid; and (vi) interest element of lease rentals paid.

For the year ended December 31, 2019, our net cash used in financing activities was approximately RMB65.2 million, which was primarily attributable to (i) approximately RMB152.2 million of repayment of bank and other loans; and (ii) approximately RMB9.8 million of interest paid, partially offset by approximately RMB101.9 million of proceeds from bank and other loans.

For the year ended December 31, 2018, our net cash generated from financing activities was approximately RMB26.7 million, which was primarily attributable to (i) approximately RMB99.0 million of proceeds from bank and other loans we borrowed; and (ii) approximately RMB18.0 million of proceeds from capital contributions from Kerui Chuangye, partially offset by approximately RMB80.0 million of repayment of bank and other loans and approximately RMB9.1 million of interest paid.

For the year ended December 31, 2017, our net cash generated from financing activities was approximately RMB108.9 million, which was primarily attributable to (i) approximately RMB59.0 million of proceeds from capital contributions from an Independent Third Party and Junfeng Investment; and (ii) approximately RMB93.4 million of proceeds from bank and other loans we borrowed, partially offset by approximately RMB37.8 million of repayment of bank and other loans and approximately RMB4.7 million of interest paid.

CAPITAL EXPENDITURES

For the years ended December 31, 2017, 2018 and 2019, our capital expenditure was approximately RMB1.1 million, RMB1.4 million and RMB0.3 million, respectively. Our capital expenditure during the Track Record Period primarily related to our improvements to leased properties and purchase of office furniture and other equipment. We expect that our capital expenditure for 2020 and 2021 to continue to be relatively insignificant, and plan to finance such expenditure through cash flow from operating activities.

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INDEBTEDNESS

Bank and Other Loans

Our Group primarily obtains borrowings from banks, financial institutions and other third parties to finance our business operations and to fulfil working capital requirements. Our outstanding bank loans and other borrowings as of December 31, 2017, 2018 and 2019 and April 30, 2020, being the latest practicable date for determining our indebtedness, were as follows:

As of As of December 31, April 30,

2017 2018 2019 2020

RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited)

Bank loans: – Guaranteed by a subsidiary of our Group...... 8,740 – – – – Guaranteed by a subsidiary of our Group and related parties ..... 15,000 20,000 – – – Secured by our Group’s trade and bills receivables and restricted deposits ...... 57 – 27,793 45,530

23,797 20,000 27,793 45,530 Other loans from third parties: – Secured by our Group’s trade and bills receivables ...... 30,000 30,000 – – – Unsecured and unguaranteed (1) . . 34,200 57,000 28,868 28,868

64,200 87,000 28,868 28,868

Total ...... 87,997 107,000 56,661 74,398

Note:

(1) The balance of these loans represent the Fixed Return Investment from the third-party co-producers of the drama series. These loans bore interest at rates ranging from 9.0% to 25.0% per annum.

As of December 31, 2017, 2018 and 2019, we had a total of approximately RMB23.8 million, RMB20.0 million and RMB27.8 million of short-term interest-bearing bank loans, respectively. As of December 31, 2017, the loan of approximately RMB8.7 million was guaranteed by Horgos Tiantian Meimei and the loan of RMB15.0 million was guaranteed by LiTian Media, Mr. Yuan Li and Ms. Tian Tian. As of December 31, 2018, the loan of approximately RMB20.0 million was guaranteed by LiTian Media, Mr. Yuan Li and Ms. Tian Tian. As of December 31, 2019, the loan of approximately RMB27.8 million was secured by approximately RMB51.2 million of deposits and trade and bills receivables.

As of December 31, 2017, 2018 and 2019, we had a total of approximately RMB64.2 million, RMB87.0 million and RMB28.9 million of other loans, respectively. Other loans during the Track Record Period mainly consisted of (i) loan amounts from third-party financial institutions secured by our Group’s trade and bills receivables; (ii) unsecured and unguaranteed loan amounts from related parties; and (iii) unsecured and unguaranteed loan amounts received

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Our bank and other loans bore effective interest rate ranging from 10.0% to 25.0% per annum as of December 31, 2017, ranging from 11.5% to 25.0% per annum as of December 31, 2018, and ranging from 4.05% to 15.0% per annum as of December 31, 2019. Our loans from third parties bore effective interest rate of 11.0% per annum as of December 31, 2017, 11.5% per annum as of December 31, 2018, and nil as of December 31, 2019. Unsecured loan amounts received from certain co-investors under the co-financing arrangements for effective interest rate ranging from 9.0% to 25.0% per annum during the Track Record Period.

Our Directors confirm that, as of the Latest Practicable Date, there was no material covenant on any of our outstanding debt and there was no breach of any covenants during the Track Record Period and up to the Latest Practicable Date. Our Directors further confirm that we did not experience any unusual difficulty in obtaining bank loans and other borrowings, default in payment of bank loans and other borrowings or breach of covenants during the Track Record Period and up to the Latest Practicable Date.

As of the Latest Practicable Date, we did not have any unutilized banking facilities.

Lease Liabilities

We entered into office lease agreements during the Track Record Period. As of December 31, 2017, 2018 and 2019, our lease liabilities were approximately RMB2.4 million, RMB1.4 million and RMB0.8 million, respectively. As of April 30, 2020, being the latest practicable date for determining our indebtedness, we had lease liabilities of approximately RMB0.7 million.

Statement of Indebtedness

Except as disclosed above, during the Track Record Period and up to the close of business on April 30, 2020, being the latest practicable date for the purpose of the indebtedness statement, we did not have any material mortgages, charges, debentures, loan capital, debt securities, loans, bank overdrafts or other similar indebtedness, finance lease or hire purchase commitments, liabilities under acceptances (other than normal trade bills), acceptance credits, which are either guaranteed, unguaranteed, secured or unsecured, or guarantees. Our Directors confirm that there has not been any material change in our indebtedness since April 30, 2020.

CONTINGENT LIABILITIES

During the Track Record Period, we did not have any significant contingent liabilities. As of the Latest Practicable Date, we did not have any unrecorded significant contingent liabilities, guarantees or any material litigation against us.

OFF-BALANCE SHEET ARRANGEMENTS

As of the Latest Practicable Date, we had not entered into any off-balance sheet transactions.

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MATERIAL RELATED PARTY TRANSACTIONS

Transactions with Related Parties

During the Track Record Period, we had conducted transactions with certain of our related parties. The table below sets forth information relating to the nature and amount of the transactions with our related parties for the years indicated:

Year Ended December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Loans received from Mr. Yuan Li ...... 255 – 4,000 Loans repaid to Mr. Yuan Li ...... 655 – 4,000 Loans received from Ms. Fu Jieyun...... 2,100 1,000 13,230 Loans repaid to Ms. Fu Jieyun ...... 2,200 1,000 13,230 Loans received from Ms. Tian Tian ...... – – 5,000 Loans repaid to Ms. Tian Tian...... – – 5,000 Interest expenses on loans from Mr. Yuan Li ..... 21 – 219 Interest expenses on loans from Ms. Fu Jieyun . . . 13 1 384 Interest expenses on loans from Ms. Tian Tian . . . – – 268 Guarantees provided by related parties on our Group’s bank loans as of the end of the year . . . 15,000 20,000 –

For the years ended December 31, 2017, 2018 and 2019, we obtained loans from certain of our key management personnel and their close family members in the amount of approximately RMB2.4 million, RMB1.0 million and RMB22.2 million, respectively, to supplement our working capital. These loans bore an average interest rate of 9.0% per annum for each of the years ended December 31, 2017, 2018 and 2019. We repaid the loans of RMB2.9 million, RMB1.0 million and RMB22.2 million, respectively, to our related parties for the years ended December 31, 2017, 2018 and 2019.

Balances with Related Parties

The table below sets forth our outstanding balances with our related parties as of the dates indicated:

As of December 31,

2017 2018 2019

RMB’000 RMB’000 RMB’000

Interest payable to: –Mr.YuanLi...... 868 868 1,087 – Ms. Fu Jieyun ...... 31 32 416 –Ms.TianTian...... – – 268

Total...... 899 900 1,771

The outstanding balances with related parties were non-trade in nature and were unsecured and had a fixed repayment term of one year.

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Our Directors are of the view that the transactions described above were conducted in the ordinary course of our business on terms comparable to those offered by the Independent Third Parties and did not distort our results of operations or make our historical results not reflective of our future performance. All amounts due to the related parties had been fully settled as of the Latest Practicable Date.

KEY FINANCIAL RATIOS

The following table sets forth certain of our key financial ratios as of the dates and for the years indicated:

Year ended/as of December 31

2017 2018 2019

Profitability ratios Gross profit margin(1) ...... 20.1% 25.8% 36.1% Net profit margin(2) ...... 15.0% 17.5% 19.7% Return on assets(3) ...... 22.0% 13.6% 10.5% Return on equity(4) ...... 50.4% 31.7% 26.1%

Liquidity ratio Current ratio(5) ...... 1.8 1.7 1.6

Capital adequacy ratios Gearing ratio(6) ...... 51.6% 41.8% 17.0% Net debt to equity ratio(7) ...... 38.1% 35.9% N/A Interest coverage ratio(8) ...... 13.4 7.9 17.6

Notes:

(1) Gross profit margin equals our gross profit divided by revenue for the year.

(2) Net profit margin equals our net profit after tax divided by revenue for the year.

(3) Return on assets equals net profit for the year divided by the average of beginning and ending balances of total assets of the relevant year.

(4) Return on equity equals net profit for the year divided by the average of beginning and ending balances of total equity of the relevant year.

(5) Current ratio equals our current assets divided by current liabilities as of the end of the year.

(6) Gearing ratio equals total debt as of the end of the year divided by total equity as of the end of the year. Total debt includes all interest-bearing bank loans and other borrowings.

(7) Net debt to equity ratio equals total interest-bearing bank loans and other borrowings net of cash and cash equivalents at the end of the year divided by total equity at the end of the year.

(8) Interest coverage ratio equals profit before interest and tax for the year divided by finance costs for the respective year.

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Analysis of Key Financial Ratios

Return on Assets

Our return on assets decreased from approximately 22.0% for the year ended December 31, 2017 to approximately 13.6% for the year ended December 31, 2018, primarily due to our net profit increasing at a slower pace than our total assets as a result of increased administrative expenses and finance costs. Our return on assets decreased from approximately 13.6% for the year ended December 31, 2018 to approximately 10.5% for the year ended December 31, 2019, primarily due to our net profit increasing at a slower pace than our total assets as a result of increased administrative expenses.

Return on Equity

Our return on equity was approximately 50.4%, 31.7% and 26.1% for the years ended December 31, 2017, 2018 and 2019, respectively. Our return on equity decreased during the Track Record Period, primarily due to our total equity increasing at a faster pace than our net profit as a result of additional paid-in capital from our shareholders, which contributed to increased total equity.

Current Ratio

Our current ratio decreased from approximately 1.8 as of December 31, 2017 to approximately 1.7 as of December 31, 2018, and further decreased to approximately 1.6 as of December 31, 2019, primarily due to our current liabilities increasing at a faster pace than our current assets as a result of the increase in our trade payables and other payables and accrued expenses.

Gearing Ratio

Our gearing ratio decreased from approximately 51.6% as of December 31, 2017 to approximately 41.8% as of December 31, 2018, primarily due to a substantial increase in our total equity from increased equity contributions and net profit. Our gearing ratio further decreased to approximately 17.0% as of December 31, 2019, primarily as a result of a decrease in bank and other loans as we made repayments and an increase in our total equity.

Net Debt to Equity Ratio

Our net debt to equity ratio decreased from approximately 38.1% as of December 31, 2017 to approximately 35.9% as of December 31, 2018, primarily due to a substantial increase in our total equity while our bank and other loans remained relatively stable. We had more cash at bank and on hand than interest-bearing bank and other loans as of December 31, 2019.

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Interest Coverage Ratio

Our interest coverage ratio decreased from approximately 13.4 for the year ended December 31, 2017 to approximately 7.9 for the year ended December 31, 2018, primarily due to (i) an increase in the interest on bank and other loans; and (ii) an increase in the interest on Fixed Return Investments as a result of the increases in the amount of the third-party loans in the drama series in which we acted as the executive producer in connection with the co-financing arrangements. Our interest coverage ratio increased to approximately 17.6 for the year ended December 31, 2019, primarily due to a decrease in bank and other loans as we made loan repayments in 2019.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of financial risks, including credit risk, liquidity risk and interest rate risk in the normal course of our Group’s business. Our Group’s exposure to these risks and financial risk management policies and practices used by our Group to manage these risks are described below. For further details of these risks, please see note 22 to the Accountants’ Report in Appendix I in this document.

Credit Risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to our Group. Our Group’s credit risk is primarily attributable to trade receivables. Our Group’s exposure to credit risk arising from cash at bank and bills receivables is limited because the counterparties are banks and financial institutions with good credit standing, for which we consider to have low credit risk. Our Group does not provide any other guarantees, which would expose it to credit risk.

Our exposure to credit risk is influenced mainly by the individual characteristics of each customer rather than the industry or country in which the customers operate and therefore significant concentrations of credit risk primarily arise when we have significant exposure to individual customers. As of December 31, 2017, 2018 and 2019, approximately 75%, 78% and 64% of the total trade receivables was due from our five largest trade debtors, respectively. As of the same dates, approximately 22%, 32%, and 20% of the total trade receivables was due from our Group’s largest trade debtor, respectively.

Individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Payment terms varies under our Group’s contracts with each customer, and are negotiated on an individual contract basis. For the licensing of the broadcasting rights of drama series, the total consideration of each contract is settled by installments with reference to the point in time when the drama series materials are delivered and/or the commencement of the broadcasting of the drama series. Generally, the full payment cycle will span over a period of six months to two years. For our other sources of revenue, a credit term of 60 days is generally granted to customers. Normally, our Group does not obtain collateral from customers.

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We measure loss allowances for trade receivables at an amount equal to lifetime ECLs, which are calculated using a provision matrix. As our historical credit loss experience does not indicate significantly different loss patterns for different customer segments, the loss allowance based on past due status is not further distinguished between our different customer bases.

Expected loss rates are based on actual loss experience over the past few year. These rates are adjusted to reflect differences between economic conditions during the period over which the historic data has been collected, current conditions and our Group’s view of economic conditions over the expected lives of the receivables.

Liquidity Risk

Our Group’s policy is to regularly monitor our liquidity requirements and our compliance with lending covenants to ensure that we maintain sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet our liquidity requirements in the short and longer term.

The following tables set forth the remaining contractual maturities at the end of the reporting period of our Group’s non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest dates our Group can be required to pay:

As of December 31, 2017

Contractual undiscounted cash outflow

Over Within Over 1 2 Years 1 Year or Year but but on Within 2 Within Carrying Demand Years 5 Years Total Amount

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

Trade payables ...... 93,111 – – 93,111 93,111 Other payables and accrued expenses measured at amortized cost ...... 13,674 – – 13,674 13,674 Bank and other loans ...... 98,897 – – 98,897 87,997 Lease liabilities...... 1,081 1,032 449 2,562 2,397

206,763 1,032 449 208,244 197,179

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As of December 31, 2018

Contractual undiscounted cash outflow

Over Within Over 2 Years 1 Year or 1 Year but but on Within Within Carrying Demand 2 Years 5 Years Total Amount

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

Trade payables ...... 178,267 – – 178,267 178,267 Other payables and accrued expenses measured at amortized cost ...... 70,525 – – 70,525 70,525 Bank and other loans ...... 118,377 – – 118,377 107,000 Lease liabilities ...... 1,032 449 – 1,481 1,415

368,201 449 – 368,650 357,207

As of December 31, 2019

Contractual undiscounted cash outflow

Within Over Over 2 1 Year or 1 Year but Years but on Within Within 5 Carrying Demand 2 Years Years Total Amount

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

Trade payables ...... 294,975 – – 294,975 294,975 Other payables and accrued expenses measured at amortized cost ...... 150,236 – – 150,236 150,236 Bank and other loans ...... 65,154 – – 65,154 56,661 Lease liabilities ...... 681 117 – 798 765

511,046 117 – 511,163 502,637

We intend to use the receivables we collect from our customers, proceeds from bank loans and cash generated from our operations to settle the liabilities as of December 31, 2019, which fall due within a year or on demand, and our Directors are of the view that these funds would be sufficient to settle such liabilities.

We had approximately RMB511.0 million liabilities falling due within one year or on demand as of December 31, 2019, among which (i) approximately RMB295.0 million trade payables to suppliers are expected to be settled according to the terms of the agreements. Since most of our customers are state-owned TV channels, which normally have a good credit with us, we can enter into factoring arrangements with them to settle the payments due to the relevant suppliers if we experience a tight liquidity situation; (ii) with respect to other payables and accrued expenses measured at amortized cost, (A) approximately RMB80.0 million license fees to be paid to co-investors who invested in our self-produced drama series will be settled after receiving the payments from our customers; (B) approximately RMB43.0 million investment

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Interest Rate Risk

Interest rate risk is the risk that arises primarily from interest-bearing borrowings. Borrowings issued at variable rate and fixed rates expose our Group to cash flow interest rate risk and fair value interest rate risk, respectively.

Sensitivity Analyses

As of December 31, 2017, 2018 and 2019, it was estimated that a general increase/decrease of 100 basis points in interest rates, with all other variables held constant, would have decreased/increased our Group’s profit after tax and retained profits by approximately RMB178,000, RMB150,000 and nil, respectively.

The sensitivity analyses above indicate the instantaneous change in our Group’s profit after tax and retained profits that would arise assuming that the change in interest rates had occurred at the end of each year during the Track Record Period. The impact is estimated as an annualized impact on interest exposure of such a change in interest rates. The sensitivity analyses are performed on the same basis during the Track Record Period.

DIVIDENDS

We are a holding company incorporated under the laws of the Cayman Islands. As a result, the payment and amount of any future dividend will depend on the availability of dividends received from our subsidiaries. PRC laws require a foreign-invested enterprise to make up for its accumulative losses out of its after-tax profits and allocate at least 10% of its remaining after-tax profits, if any, to fund its statutory reserves until the aggregate amount of its statutory reserves exceeds 50% of its registered capital.

Any amount of dividend we pay will be at the discretion of our Directors and will depend on our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors which our Directors consider relevant. Any declaration and payment as well as the amount of dividend will be subject to our constitutional documents and the Cayman Companies Law. Our Shareholders in a general meeting may approve any declaration of dividends, which must not exceed the amount recommended by our Board. No dividend shall be declared or payable except out of our profits and reserves lawfully available for distribution. Our future declarations of dividends may or may not reflect our historical declarations of dividends and will be at the absolute discretion of the Board.

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Historically we have not declared or paid any dividend to our Shareholders and there is no assurance that dividends of any amount will be declared or be distributed in any year. Currently we do not have a formal dividend policy or a fixed dividend distribution ratio.

[REDACTED]

We expect to incur a total of RMB[REDACTED]of[REDACTED] (assuming an [REDACTED] of HK$[REDACTED], being the mid-point of the indicative [REDACTED] range between HK$[REDACTED] and HK$[REDACTED], and assuming that the [REDACTED]isnot exercised) until the completion of the [REDACTED], which represented approximately [REDACTED]% of the [REDACTED]ofthe[REDACTED]. During Track Record Period, we incurred RMB18.2 million as [REDACTED], of which RMB14.1 million was charged to the consolidated statements of profit or loss and other comprehensive income and RMB4.1 million will be capitalized upon the [REDACTED]. Subsequent to the Track Record Period, we expect to incur additional [REDACTED] of RMB[REDACTED], of which RMB[REDACTED] is expected to be charged to the consolidated statements of profit or loss and other comprehensive income and RMB[REDACTED] will be capitalized upon the [REDACTED]. [REDACTED] represent professional fees and other fees incurred in connection with the [REDACTED], including [REDACTED]. The [REDACTED] above are the best estimate as of the Latest Practicable Date and for reference only and the actual amount may differ from this estimate. We do not expect these [REDACTED] to have a material impact on our results of operations for the year ending December 31, 2020.

DISTRIBUTABLE RESERVES

Our Company had no reserve available for distribution to the Shareholders as of December 31, 2019 and up to the Latest Practicable Date.

DISCLOSURE REQUIRED UNDER THE LISTING RULES

Our Directors confirm that, as of the Latest Practicable Date, there was no circumstance that would give rise to a disclosure requirement under Rules 13.13 to 13.19 of the Listing Rules.

NO MATERIAL ADVERSE CHANGE

After performing sufficient due diligence work which our Directors consider appropriate and after due and careful consideration, our Directors confirm that, up to the date of this document, there has been no material adverse change in our financial or [REDACTED] position or prospects since December 31, 2019, being the date on which our latest audited consolidated financial statements were prepared, and there is no event since December 31, 2019 which would materially affect the information as set out in the Accountants’ Report in Appendix I to this document.

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

UNAUDITED PRO FORMA STATEMENT OF [REDACTED]

The following unaudited pro forma statement of adjusted consolidated net tangible assets of our Group is prepared in accordance with Rule 4.29 of the [REDACTED] Rules and is set out below to illustrate the effect of the [REDACTED] on the consolidated net tangible assets of our Group attributable to the equity shareholders of our Company as of December 31, 2019 as if the [REDACTED] had taken place on December 31, 2019.

This unaudited pro forma statement of adjusted consolidated net tangible assets has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of our Group had the [REDACTED] been completed as of December 31, 2019 or any future date. Consolidated net Unaudited pro forma tangible assets adjusted attributable to the consolidated net equity shareholders Estimated tangible assets Unaudited pro forma adjusted consolidated of the Company as [REDACTED] from attributable to the net tangible assets attributable to of December 31, the equity shareholders the equity shareholders of (2)(3) (4) 2019(1) [REDACTED] of the Company the Company per Share(3)(4)(5) RMB’000 RMB’000 RMB’000 RMB HK$

Based on a minimum [REDACTED]of HK$[REDACTED]per Share ...... 154,249 [REDACTED][REDACTED][REDACTED][REDACTED] Based on a maximum [REDACTED]of HK$[REDACTED]per Share ...... 154,249 [REDACTED][REDACTED][REDACTED][REDACTED]

Notes:

(1) The consolidated net tangible assets attributable to the equity shareholders of our Company as of December 31, 2019 is arrived at after deducting drama series copyrights of approximately RMB [REDACTED] from our consolidated net assets of approximately RMB[REDACTED] attributable to equity shareholders of our Company as of December 31, 2019, as extracted from the Accountants’ Report set out in Appendix I to this document.

(2) The estimated [REDACTED]fromthe[REDACTED] are based on the [REDACTED]of HK$[REDACTED] and HK$[REDACTED] per Share, respectively, and [REDACTED] Shares expected to be issued under the [REDACTED], after deduction of the [REDACTED] and other related expenses paid or payable by our Group (excluding the expenses that have been charged to profit or loss during the Track Record Period) and does not take into account any shares which may be issued upon the exercise of the [REDACTED] or options granted under the Share Option Scheme. The estimated [REDACTED]ofthe [REDACTED] have been converted to Renminbi at the PBOC rate of HK$1.12 to RMB1.00 prevailing on December 31, 2019. No representation is made that Hong Kong dollars amount have been, could have been or may be converted to Renminbi, or vice versa, at that rate or at any other rate.

(3) The unaudited pro forma adjusted net tangible assets per Share is arrived at by dividing the unaudited pro forma adjusted net tangible assets by [REDACTED] Shares, being the number of shares expected to be in issue immediately following the completion of the Capitalization Issue and the [REDACTED], and does not take into account any shares which may be issued upon the exercise of the [REDACTED]or options granted under the Share Option Scheme.

(4) The unaudited pro forma adjusted net tangible assets per Share amounts in Renminbi are converted to Hong Kong dollar with the PBOC rate of HK$1.12 to RMB1.00 prevailing on December 31, 2019. No representation is made that Renminbi amount have been, could have been or may be converted to Hong Kong dollars, or vice versa, at that rate or at any other rate.

(5) No adjustment has been made to reflect any trading result or other transactions of the Group entered into subsequent to December 31, 2019.

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