Fujian Lanshen Environmental Technology Co., Ltd.* 福建省藍深

Home , Anhai, Cangshan District, Chengxiang District, Dehua County, Fengze District, Longwen District

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

Application Proof of Fujian Lanshen Environmental Technology Co., Ltd.* 福建省藍深環保技術股份有限公司 (the “Company”) (A joint stock company incorporated in the People’s Republic of China with limited liability)

WARNING

The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (the “Exchange”) and the Securities and Futures Commission (the “Commission”) solely for the purpose of providing information to the public in Hong Kong. This Application Proof is in draft form. The information contained in it is incomplete and is subject to change which can be material. By viewing this document, you acknowledge, accept and agree with the Company, its sponsor, advisors or members of the underwriting syndicate that:

(a) this document is only for the purpose of providing information about the Company to the public in Hong Kong and not for any other purposes. No investment decision should be based on the information contained in this document;

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

(c) the contents of this document or any supplemental, revised or replacement pages may or may not be replicated in full or in part in the actual final listing document;

(d) this document is not the final listing document and may be updated or revised by the Company from time to time in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;

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

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

(g) neither the Company nor any of its affiliates, advisors or members of the underwriting syndicate is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this document;

(h) no application for the securities mentioned in this document should be made by any person nor would such application be accepted;

(i) the Company has not and will not register the securities referred to in this document under the United States Securities Act of 1933, as amended, or any state securities laws of the United States;

(j) as there may be legal restrictions on the distribution of this document or dissemination of any information contained in this document, you agree to inform yourself about and observe any such restrictions applicable to you; and

(k) the application to which this document relates has not been approved for listing and the Stock Exchange and the Commission may accept, return or reject the application for the subject public offering and/or listing.

If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decision solely based on the Company’s prospectus registered with the Registrar of Companies in Hong Kong, copies of which will be distributed to the public during the offer period.

* for identification purposes only THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. IMPORTANT

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

Fujian Lanshen Environmental Technology Co., Ltd.* 福建省藍深環保技術股份有限公司 (A joint stock company incorporated in the People’s Republic of China with limited liability) [REDACTED] Number of [REDACTED] under : [REDACTED] Shares (subject to the the [REDACTED] [REDACTED]) Number of [REDACTED] : [REDACTED] Shares (subject to adjustment) Number of [REDACTED] : [REDACTED] Shares (subject to adjustment and the [REDACTED] [REDACTED] : HK$[REDACTED] per [REDACTED] plus brokerage of 1.0%, SFC transaction levy of 0.0027% and Stock Exchange trading fee of 0.005% (payable in full on application in Hong Kong dollars, subject to refund on final pricing) Nominal value : RMB1.00 per Share [REDACTED] : [REDACTED] Sole Sponsor, [REDACTED] and [REDACTED]

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this document, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. A copy of this document, having attached thereto the documents specified in the section headed “Documents Delivered to the Registrar of Companies and Available for Inspection” in Appendix VII to this document, has been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission of Hong Kong and the Registrar of Companies in Hong Kong take no responsibility for the contents of this document or any of the other documents referred to above. The [REDACTED] is expected to be determined by agreement between us and the [REDACTED] (for itself and on behalf of the [REDACTED]) on or about [REDACTED], and, in any event, not later than [REDACTED], [REDACTED]. The [REDACTED] will be not more than HK$[REDACTED]per[REDACTED] and is currently expected to be not less than HK$[REDACTED] per [REDACTED], unless otherwise announced. Investors applying for the [REDACTED] must pay, on application, the [REDACTED]ofHK$[REDACTED] per [REDACTED], together with brokerage of 1.0%, SFC transaction levy of 0.0027% and Stock Exchange trading fee of 0.005%, subject to refund if the [REDACTED] is less than HK$[REDACTED]per[REDACTED]. If, for any reason, the [REDACTED] is not agreed between us and the [REDACTED] (for itself and on behalf of the [REDACTED]) on or before [REDACTED], [REDACTED] (Hong Kong time), the [REDACTED] (including the [REDACTED]) will not proceed and will lapse. The [REDACTED] (for itself and on behalf of the [REDACTED]), with our consent, may reduce the indicative [REDACTED] range stated in this document and/or reduce the number of [REDACTED]being[REDACTED] pursuant to the [REDACTED]atanytimeonorprior to the morning of the last day for lodging applications under the [REDACTED]. In such a case, notices of the reduction of the indicative [REDACTED] range and/or the number of [REDACTED] will be published on the websites of the Stock Exchange at www.hkexnews.hk and our Company at www.chinalanshen.com. Further details are set out in the sections headed “Structure of the [REDACTED]” and “How to Apply for [REDACTED]” in this document. Prior to making an investment decision, prospective investors should consider carefully all of the information set out in this document, including the risk factors set out in the section headed ‘‘Risk Factors’’ in this document. The obligations of the [REDACTED] under the [REDACTED] are subject to termination by the [REDACTED] (for itself and on behalf of the [REDACTED]) if certain grounds arise prior to [REDACTED]onthe[REDACTED]. Such grounds are set out in the section headed “[REDACTED]” in this document. It is important that you refer to that section for further details. Our Company is incorporated, and our operations are primarily located, in the PRC. Potential investors should be aware of the differences in the legal, economic and financial systems between the PRC and Hong Kong and that there are different risk factors relating to investments in PRC-incorporated companies. Potential investors should also be aware that the regulatory framework in the PRC is different from the regulatory framework in Hong Kong and should take into consideration the different market nature of our Shares. Such differences and risk factors are set out in the sections headed “Risk Factors”, “Appendix III — Taxation and Foreign Exchange”, “Appendix IV — Summary of Principal Legal and Regulatory Provisions” and “Appendix V — Summary of the Articles of Association of our Company” in this document. The [REDACTED] have not been and will not be registered under the U.S. Securities Act or any state securities law in the United States and may not be offered, sold, pledged or transferred within the United States or to, or for the account or benefit of U.S. persons, except in transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act. The [REDACTED] are being offered and sold outside the United States in offshore transactions in reliance on Regulation S under the U.S. Securities Act.

* For identification purposes only [REDACTED] THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. EXPECTED TIMETABLE(1)

[REDACTED]

–i– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. EXPECTED TIMETABLE(1)

[REDACTED]

–ii– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. EXPECTED TIMETABLE(1)

[REDACTED]

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

IMPORTANT NOTICE TO INVESTORS

This document is issued by us solely in connection with the [REDACTED] and the [REDACTED] and does not constitute an [REDACTED] to sell or a solicitation of an [REDACTED] to buy any securities other than the [REDACTED] by this document pursuant to the [REDACTED]. This document may not be used for the purpose of, and does not constitute, an [REDACTED] or invitation in any other jurisdiction or in any other circumstances. No action has been taken to permit a [REDACTED] of the [REDACTED] or the distribution of this document in any jurisdiction other than Hong Kong. The distribution of this document and the [REDACTED] and sale of the [REDACTED] in other jurisdictions are subject to restrictions and may not be made except as permitted under the applicable securities laws of such jurisdictions pursuant to registration with or authorization by the relevant securities regulatory authorities or an exemption therefrom.

You should rely on the information contained in this document and the [REDACTED] to make your investment decision. We have not authorised anyone to provide you with information that is different from what is contained in this document. Any information or representation not made in this document must not be relied on by you as having been authorised by us, the Sole Sponsor, the [REDACTED], the [REDACTED], the [REDACTED], the [REDACTED], any of our or their respective directors, officers or representatives or any other person involved in the [REDACTED]. The information contained in our website at www.chinalanshen.com does not form part of this document.

Page

Expected Timetable ...... i

Contents ...... iv

Summary ...... 1

Definitions ...... 28

Glossary of Technical Terms ...... 42

Forward-looking Statements ...... 47

Risk Factors ...... 49

Waivers from Strict Compliance with the Listing Rules ...... 74

Information about this Document and the [REDACTED] ...... 78

Directors, Supervisors and Parties Involved in the [REDACTED] ...... 83

Corporate Information ...... 87

Industry Overview ...... 89

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Regulatory Overview ...... 104

Our History and Development ...... 124

Business ...... 150

Relationship with Our Controlling Shareholders ...... 275

Connected Transactions ...... 280

Directors, Supervisors and Senior Management ...... 297

Substantial Shareholders ...... 316

Share Capital ...... 319

Financial Information ...... 323

Future Plans and [REDACTED] ...... 391

[REDACTED] ...... 405

Structure of the [REDACTED] ...... 417

How to Apply for [REDACTED] ...... 426

Appendix I — Accountant’s Report ...... I-1

Appendix II — [REDACTED] Financial Information ...... II-1

Appendix III — Taxation and Foreign Exchange ...... III-1

Appendix IV — Summary of Principal Legal and Regulatory Provisions ...... IV-1

Appendix V — Summary of the Articles of Association of our Company ..... V-1

Appendix VI — Statutory and General Information ...... VI-1

Appendix VII — Documents Delivered to the Registrar of Companies and Available for Inspection ...... VII-1

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

This summary aims to give you an overview of the information contained in this document. As it is a summary, it does not contain all the information that may be important to you. You should read the whole document and particularly the section headed “Risk Factors” in this document which sets out some of the particular risks in investing in the [REDACTED] before you decide to invest in the [REDACTED].

OVERVIEW

Our integrated decentralised wastewater treatment business covers the whole decentralised wastewater treatment industry chain, ranging from production of decentralised wastewater treatment equipment and pipes and pipe fittings, to provision of all-round wastewater treatment services including technical design, engineering, construction as well as operation and maintenance. Our business can be categorised into five segments, namely: (i) sales of wastewater treatment equipment; (ii) sales of pipes and pipe fittings; (iii) decentralised wastewater treatment facility construction; (iv) concession operation services under BOT model; and (v) others, including operation and maintenance, technical consultancy and design, and soil treatment.

During the Track Record Period and up to the Latest Practicable Date, our business remained focusing on providing a wide range of wastewater treatment products and services to our customers. We commenced our decentralised wastewater treatment business in 2009, and over the years we have improved our overall capacities and developed our wastewater treatment technologies by sales of wastewater treatment equipment and provision of decentralised wastewater treatment facility construction services to our customers. Leveraging the valuable experience we accumulated in the past and with the aim to unlock new business opportunities in the decentralised wastewater treatment market, we took a step further in 2019 and expanded our decentralised wastewater treatment business to include concession operation services under BOT model and sales of pipes and pipe fittings. We believe that by diversifying our product and service offering, we are able to adapt to a variety of market environments and serve our customers’ needs at various stages of the decentralised wastewater treatment industry chain. Although we have extended our product offering to pipes and pipe fittings, and diversify our service portfolio to include concession operation services under BOT model, we have not scaled down our existing operating segments.

LISTING ON AND DE-LISTING FROM THE NEEQ

In November 2015, in order to obtain alternative financing, as well as improve our brand awareness and corporate governance, our Company was listed on the NEEQ. In consideration of our future business strategy and the [REDACTED] on the Stock Exchange, our Company was de-listed from the NEEQ in June 2018. Our Directors believe that the de-listing from the NEEQ and the [REDACTED] on the Stock Exchange will be in the interests of our Group’s business development strategies, and would be beneficial to us and our shareholders as a whole. See “Our History and Development — Our Corporate Development — Prior Listing on the NEEQ and subsequent de-listing from the NEEQ — Reasons for de-listing from the NEEQ and the [REDACTED] on the Stock Exchange” for details.

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

During the period of the NEEQ listing, our Company did not publish its 2017 annual report within the prescribed four-month period after the end of financial year of 2017 (the “Incident”). As a result of the Incident, the NEEQ issued a decision letter to us for self-disciplinary regulatory measures (自律監管措施決定書) (the “Decision Letter”). As of the Latest Practicable Date, we were not aware of any ongoing investigation, penalty, punishment or disciplinary measures imposed by the NEEQ, the CSRC or its agencies in relation to the Incident subsequent to the receipt of the Decision Letter.

As advised by our PRC Legal Advisers, other than the Incident, our Company had not been imposed any administrative penalty, administrative regulatory measures or self-disciplinary regulatory measures by the CSRC, its agencies and the NEEQ through the period during which our Company was listed on the NEEQ. The Decision Letter was not an administrative penalty, the Incident did not constitute a material non-compliance issue and our Company had been in compliance with applicable PRC securities laws and regulations in all material respects during the period of its listing on the NEEQ. The de-listing of our Company from the NEEQ had fulfilled the required procedures and disclosure requirements. In addition, the Sole Sponsor has conducted due diligence works in relation to the Incident. Based on the results and findings of the due diligence works, the Sole Sponsor is of the view that the Incident does not adversely affect the Directors’ suitability under Rules 3.08 and 3.09 of the Listing Rules; and no matter has come to the Sole Sponsor’s attention which casts doubt on our Company’s suitability for the [REDACTED] or which should be brought to the Stock Exchange’s attention in relation to our Company’s previous listing on the NEEQ.

See “Our History and Development — Our Corporate Development — Prior listing on the NEEQ and subsequent de-listing from the NEEQ” for details.

OUR COMPETITIVE STRENGTHS

We believe that we will be able to maintain our leading position in decentralised wastewater treatment market of Fujian and expand our market in other surrounding areas such as Jiangxi, Hunan, Guangxi and Hainan by virtue of our competitive strengths: (i) we are one of the leading decentralised wastewater treatment service providers in Fujian and well-positioned to capture the growing decentralised wastewater treatment market in Fujian and its surrounding area with our comprehensive services; (ii) we possess a proven track record of providing a wide range of quality products and services and the ability to create strong synergies among our operating segments; (iii) we are devoted to the development of decentralised wastewater treatment technology and possess strong research and development capabilities; and (iv) we have an experienced management team, supported by highly skilled employees with strong industry experience. See “Business — Our Competitive Strengths” for details.

OUR STRATEGIES

We intend to strengthen our position as the leading decentralised wastewater treatment company in Fujian and further increase our market share in the domestic decentralised wastewater treatment market through the following strategies: (i) enhance our presence in Fujian and expand to surrounding markets by cooperation with government authorities or state-owned enterprises and recruiting additional personnel; (ii) engage in strategic acquisitions and alliances; (iii) develop new decentralised wastewater treatment products and technologies that have lower environment consumption and costs; and (iv) upgrade our Lanshen Brain and business infrastructure. See “Business — Our Strategies” for details.

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Introduction and Comparison of Centralised and Decentralised Wastewater Treatment Solution in China

Wastewater treatment market in China can be further classified into centralised wastewater treatment and decentralised wastewater treatment.

The table set below are the comparison of centralised and decentralised wastewater treatment:

Centralized Wastewater Decentralized Wastewater Comparison Metrics Treatment Solution Treatment Solution

Targeted Service Region • Municipal area (mainly • Dispersed communities cities and counties) with and dwellings in rural high population density areas with low population density and private entities (such as schools and hospitals) with specific wastewater treatment requirements

Designed Treatment • Normally over 3,000 • Normally 50~3,000 Capacity per Facility tonnes/day tonnes/ day per unit

Population Coverage • Normally over 10 • Normally less than 10 per Facility thousand residents thousand residents

Typical Construction • 12~18 months • Less than 6 months Period per Facility

Wastewater Collection • Normally collect and • Normally collect and Model convey wastewater in convey wastewater close the region through to its point of large-scale pipeline generation* network

Explanatory Picture

Note: In some cases, decentralized wastewater treatment project would also build up pipeline to collect wastewater between villages but in general the distance would be short (normally less than 10 km) while for centralized wastewater treatment projects, the pipeline network generally would be tens or hundreds kms.

Source: Frost & Sullivan Analysis

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Our Projects

Our projects mainly include decentralised wastewater treatment facility construction projects and concession operation projects under BOT model.

As of the Latest Practicable Date, we had a total number of seven decentralised wastewater treatment facility construction projects still under construction, and one project procured which has not commenced construction. The following table shows the details of the ongoing decentralised wastewater facility construction projects by contract value:

Revenue Expected Revenue to Effluent Project Expected Total Recognised be Recognised Quality Commencement Completion Contract during the Track Subsequent to the Location of Project Name Standard Designed Capacity Date Date(1) Value Record Period Track Record Period(2) the Project (RMB’000) (RMB’000)

Liancheng County Class I 3,400 m3/day September 2019 May 2021 109,098 100,090 Nil(3) Longyan, Linfang Town Eight Standard B Fujian Township Wastewater Treatment EPC Project (連城縣林坊鎮等8個鄉鎮污水處理EPC工程項目)

Qing Yuan Shan Scenic Class I Stage one project: 23 April 2019 December 2021 63,358 49,033 As of 31 December Quanzhou, Spot Wastewater Standard A wastewater treatment 2021: approximately Fujian Treatment EPC stations with designed RMB9.1 million(4) General Contracting capacity of 460 Project m3/day; Stage two (清源山風景名勝區污水 project: 38 wastewater 處理工程EPC總承包 treatment stations with 項目) designed capacity of 735 m3/day;

Qianpu Wastewater Class I 200,000 m3/day March 2020 August 2021 56,125 42,718 As of 31 December Xiamen, Treatment Plant Phase Standard A 2021: approximately Fujian III (Expansion) RMB8.8 million(4) Equipment Installation Project (前埔污水處理廠三期工程(擴建)施工項目機電設備安裝工程)

Jiufeng Town Urban Class I 2,000 m3/day December 2018 June 2021 23,000 14,262 As of 31 December Zhangzhou, Area Wastewater Standard B 2021: approximately Fujian Treatment Plant and RMB6.8 million(4) Pipeline Network Project (九峰鎮城區污水處理廠及配套管網工程)

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Jinggangshan City N/A 50m³/day December 2019 July 2021 8,649 3,017 As of 31 December Jinggangshan, Liujiaping Wastewater 2021: approximately Jiangxi Treatment Plant RMB4.9 million(4) Kitchen Waste Fruit and Vegetable Waste Water Collection and Construction Project (井岡山市劉家坪污水處理廠廚餘果蔬垃圾廢水收集添建工程)

Zhangzhou Taiwanese N/A Dongmei, 250m³/day; June 2020 May 2021 1,200 760 As of 31 December Zhangzhou, Investment Zone Jinshan, 28.75m³/hour; 2021: approximately Fujian Water Environment Longtian, 480m³/day; RMB0.3 million(4) Comprehensive Puwei, 600m³/day; Treatment Project Xibian, 200m³/day (漳州台商投資區水環境綜合治理項目)

Zhangpu County Class I Stage I: 1700 m3/day September 2020 May 2021 12,877 8,623 As of 31 December Zhangzhou, Education Part Standard A Stage II: 2200 m3/day 2021: approximately Fujian Wastewater Treatment RMB3.2 million(4) Project (漳浦縣教育園區污水處理工程)

Ganzhou City Tangjiang Class I Baishi Village: 75 m³/day; Expected December 2021 7,437 nil As of 31 December Ganzhou, Town Water Pollution Tangxi Village: commencement 2021: approximately Jiangxi Prevention and 100 m³/day; date: April RMB6.8 million(4) Control Project in Aoli Village: 2021 Baishi Village, Tangxi 50 m³/day; Village, Aoli Village Xikeng Village: and Xikeng Village 50 m³/day (贛州市唐江鎮白石村、唐西村、坳裏村和西坑村水污染防治項目)

Notes:

1. The expected completion date for each of the ongoing decentralised wastewater treatment facility construction projects under construction is our Directors’ best estimates based on the completion date specified in the contract (if any) and the current progress of the work on the relevant project. The expected completion date may be subject to adjustment if there are any changes in circumstances.

2. Expected revenue to be recognised subsequent to the Track Record Period for each of the ongoing decentralised wastewater treatment facility construction projects is our Directors’ best estimates based on the progress of the work on the relevant project as of the Latest Practicable Date as well as the expected completion date of the respective project, therefore it may be subject to adjustment if there are any changes in circumstances.

3. For Liancheng County Linfang Town Eight Township Wastewater Treatment EPC Project, as of 31 December 2020, no revenue is expected to be recognised subsequent to the Track Record Period as we completed all construction work originally contemplated by the parties. As of the Latest Practicable Date, our customer has been discussing with us on a proposed increase in project scope, which may result in an increase in the expected revenue to be recognised. However, as of the Latest Practicable Date, the proposal has yet to be finalized and no further agreement has been made.

4. Given the current circumstances and based on our Directors’ best estimates, the revenue for the project is expected to be recognised in full as of 31 December 2021.

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As of the Latest Practicable Date, we had two concession projects under construction and three concession projects in operation. The following table sets forth the key information of all of our concession projects:

Revenue recognised Expected Date of the during Payback Effluent Project Concession the Track Period of Quality Designed Company Operation Concession Operation Record Our Location of Project Name Standard Capacity (if applicable) Project Status Agreement Period Period Investment the Project (approximate (m3/day) (RMB’000) years)

In operation

Yongchun Penghu Class I 10,000 Yongchun Lvdi Under concession 5 December 30 years (concession 1,267 15 Quanzhou, Wastewater Standard B operation 2012 operation was Fujian Treatment BOT commenced in June Project 2016 and is expected to (永春縣蓬壺鎮污 expire in June 2046) 水處理BOT項目)

Nan’an Honglai Class I 10,000 Fujian Lvdi Under concession 8 November 30 years starting from the 2,247 14 Quanzhou, Wastewater Standard operation 2013 date of the concession Fujian Treatment BOT A operation agreement Project (concession operation (南安市洪瀨鎮污 was commenced in 水處理BOT項目) January 2016 and is expected to expire in November 2043)

Shanghang Table II 250 N/A Under concession 6 August 12 years (based on our 5,104 7 Longyan, Leachate Standard operation 2019 Directors' best Fujian Treatment BOT for estimates, concession Project Landfill operation is expected to (上杭縣滲濾液處 Site commence in first 理BOT項目) Pollution quarter of 2021 and Control expire in first quarter of 2033

Under construction

Yunxiao Class I 17,620 Yunxiao Under construction 22 June 2018 28 years (based on our 388,440 24 Zhangzhou, Wastewater Standard Sangde Directors' best Fujian Treatment BOT A and estimates, concession Project Class I operation is expected to (雲霄縣污水處理 Standard B commence in the first BOT quarter of 2022 and 項目) expire in the first quarter of 2050

Changshan Class I 375 Yunxiao Under construction 22 June 2018 29.5 years (based on our 6,149 24 Zhangzhou, Huaqiao Standard Sangde Directors' best Fujian Economic A estimates, concession Development operation is expected to Zone Wastewater commence in the first Treatment BOT quarter of 2022 and Project expire in the third (常山華僑 quarter of 2051 經濟開發區污水處理BOT項目)

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OUR HISTORY

Acquisition of control by Quanzhou Water Group in 2018

On 23 July 2018, the then shareholders of our Company, our Company and Haisi Environmental, a wholly-owned subsidiary of Quanzhou Water Group, entered into a share transfer and registered capital increase agreement, pursuant to which (i) the then shareholders of our Company agreed to transfer their shares in our Company with a total number of 10,400,000 shares to Haisi Environmental at a consideration of RMB8.9 per share; and (ii) our Company issued 10,000,000 new shares to Haisi Environmental at a consideration of RMB8.9 per share. Upon completion, Haisi Environmental acquired 68.0% interest of our Company and became one of our Controlling Shareholders. As of the Latest Practicable Date, Quanzhou Water Group is wholly-owned by Quanzhou SASAC.

Acquisitions during the Track Record Period

In order to expand our business portfolio and generate value to our Company and our shareholders in long term, on 15 March 2019, our Company acquired 51.6% and 8.4% equity interest in Quanzhou Xingyuan, a developer and manufacturer of quality pipes and pipe fittings in Fujian, from two Independent Third Parties at considerations of RMB66,060,800 and RMB10,739,200, respectively.

In order to develop our concession operation services under BOT model, from September to December 2019, we further acquired three project companies for concession operation services under BOT model, namely Yongchun Lvdi, Fujian Lvdi and Yunxiao Sangde. See “Our History and Development — Acquisitions and Disposals during the Track Record Period — Acquisitions during the Track Record Period” for details.

CUSTOMERS

Our main customers include contractors which undertake construction work for wastewater treatment projects, as well as local governments and their designees. As our business is largely project-driven and most of our customers tend to purchase from us and/or engage us on a one-off basis, we are not dependent on any specific customer for the success of our business. During the Track Record Period, our major customers settled payments to us mainly by bank transfer. Revenue generated from our top five customers accounted for approximately 44.3%, 42.0% and 28.7% of our total revenue for the three years ended 31 December 2020, respectively. For the same period, revenue generated from our largest customer accounted for approximately 15.0%, 22.3% and 8.2% of our total revenue, respectively.

Save for Customer Group G, which comprises state-owned enterprises under common control of Quanzhou Water Group, during the Track Record Period, all of our five largest customers were Independent Third Parties and none of our Directors, our Supervisors, their associates or any Shareholders of our Company (who or which owned more than 5.0% of our Company’s issued share capital) had any interest in our five largest customers during the Track Record Period. See “Business — Customers” for details.

For pipes and pipe fittings manufactured by Quanzhou Xingyuan (which was acquired by us in March 2019), they are either sold through our sales team directly, or through external distributors. The distributorship model used by us is one where we act as seller and the distributors act as buyers of the pipes and pipe fittings. According to the F&S Report, using

–7– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY distributors for sale is a common practice for manufacturers of pipes and pipe fittings. For the two years ended 31 December 2020, revenue generated by sales of pipes and pipe fittings derived from distributors were approximately RMB49.8 million and RMB32.1 million, representing approximately 47.0% and 37.5% of the total revenue of Quanzhou Xingyuan, respectively. As of 31 December 2021, we had 100 distributors. All our distributors are Independent Third Parties and save as disclosed in “Business — Sales, Marketing and Distribution — Distribution Arrangement for Sales of Pipes and Pipe Fittings”, we did not have any relationship with our distributors.

SUPPLIERS

Our main suppliers include suppliers of raw materials and electromechanical equipment, as well as service providers who provide construction subcontracting or labour outsourcing services in the PRC. For the three years ended 31 December 2020, our costs of raw materials and equipment were approximately RMB30.1 million, RMB107.7 million and RMB168.7 million, respectively, representing approximately 56.0%, 48.4% and 34.4% of our total costs, respectively. During the Track Record Period, save for Customer E/Supplier B, none of our customers were our suppliers and vice versa. None of our Directors, our Supervisors, their close associates or any Shareholder who owned more than 5.0% of shareholding interest in our Company as of the Latest Practicable Date, had any interest in any of our five largest suppliers during the Track Record Period.

Our major suppliers during the Track Record Period include construction services providers who undertake the construction portions of our projects for us. For the three years ended 31 December 2020, construction subcontracting costs were approximately RMB3.3 million, RMB66.8 million and RMB243.0 million, respectively, representing approximately 7.5%, 35.0% and 52.8% of our total purchase costs. The increase in the amount and percentage of construction subcontracting expenditures during the Track Record Period was because the revenue in our decentralised wastewater treatment facility construction projects and BOT projects increased and in order to complete the construction work of such projects, we use more third-party subcontractors for the construction of wastewater treatment stations. During the Track Record Period, all of our subcontractors for construction were Independent Third Parties. See “Business — Suppliers” for details.

PRICING

The pricing of our wastewater treatment equipment, and pipes and pipe fittings takes into account, among others, customer credit profile, product specifications, size of order, delivery schedule, prevailing market conditions and production cost.

The pricing of our services takes into account the budgeted cost and expected profit margin. The expected profit margin is determined based on, among others, nature of project, type of treatment technologies applied, length of construction period, cost of construction, total contract value of project and location of project. In relation to concession operation services under BOT model, in addition to the above factors, we would also consider operation cost and returns on investment of the project.

Each contract or purchase order (where relevant) will be reviewed and approved by our senior management to ensure the products sold and services provided are at an acceptable profit margin. We did not pay any rebate to our customers during the Track Record Period.

See “Business — Sales, Marketing and Distribution — Our Pricing Policy” for details.

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PROJECT PROCUREMENT THROUGH TENDER AND QUOTATION

We normally source and procure a project either through tenders or through quotations and negotiations. For the three years ended 31 December 2020, our revenue derived from contracts sourced through tenders accounted for approximately 38.4%, 61.9% and 77.4%, respectively, while revenue derived from contracts sourced through quotations and negotiations accounted for 61.6%, 38.1% and 22.6%, respectively. The tables below set forth the tender success rate analysis by business segment for the period indicated:

For the year ended 31 December 2018

Decentralised Concession Sales of Sales of wastewater operation wastewater pipes and treatment services treatment pipe facility under BOT equipment Fittings construction model Others

Number of tenders submitted 43 – 35 1 10 Number of tenders won 7 – 8 nil 4 Tender success rate 16.3% – 22.9% nil 40%

For the year ended 31 December 2019

Decentralised Concession Sales of Sales of wastewater operation wastewater pipes and treatment services treatment pipe facility under BOT equipment Fittings construction model Others

Number of tenders submitted 34 15 32 1 11 Number of tenders won 15 5 17 1 3 Tender success rate 44.1% 33.3% 53.1% 100% 27.3%

For the year ended 31 December 2020

Decentralised Concession Sales of Sales of wastewater operation wastewater pipes and treatment services treatment pipe facility under BOT equipment Fittings construction model Others

Number of tenders submitted 44 30 7 nil 19 Number of tenders won 8 7 2 nil 2 Tender success rate 18.2% 23.3% 28.6% nil 10.5%

See “Business — Sales, Marketing and Distribution — Project Procurement Through Tender and Quotation” for details.

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TYPICAL ACCOUNTING TREATMENT OF CONCESSION OPERATION SERVICES UNDER BOT MODEL

IFRIC 12 “Service Concession Arrangements” is the applicable accounting standard for the Group’s concession operation services under BOT model.

During the construction phases of BOT projects, we recognise construction revenue but generally do not receive payment from the government authorities or their designators with whom we entered into service concession arrangements (the “Grantors”) until the projects have entered into operation, which is when we begin collecting service tariffs. Thus, there is a mismatch between the recognition of construction revenue and cash flows during the construction phase. The non-cash construction revenue is recorded as contract assets on the balance sheets.

When the construction phases are completed and the operation phases start, we may be entitled to receive the service tariffs under the terms of BOT contracts in different scenarios: 1) no future payment is contractually guaranteed based on minimum wastewater treatment volumes and the service tariffs are calculated in accordance with predetermined formulas; 2) all future payments are predetermined and contractually guaranteed for the operation of each period; 3) a combination of 1 and 2. Three different accounting treatment models, namely service concession arrangement under intangible asset model, financial asset model and hybrid model are respectively corresponding to the scenarios and applied to classify and measure the contract assets and operation revenue as follows:

Service concession arrangement under intangible asset model

The contract assets will be classified and measured as intangible assets, which are amortised on a straight-line basis over the service concession periods and the amortisation expenses are recorded in cost of sales. During the operation phases of these projects, the entire sum of service tariffs we receive is recorded as operation revenue.

Service concession arrangement under financial asset model

The contract assets will be classified and measured as financial assets (receivables under service concession arrangements) on the balance sheets, and finance income is recognised during the operation phases. Finance income represents the amount of interest on the outstanding balance of the financial assets using the effective interest method. When we collect the service tariffs, we allocate the tariffs billed as follows: (i) a portion to pay down the balance of financial assets, (ii) amortised finance income on the financial assets, and (iii) the remainder, which we recognise as operation revenue. The balance of financial assets will be completely paid down at the end of service concession periods. Thus, finance income in the operation phase will decrease in line with the reduction of the outstanding balance of the financial assets.

Service concession arrangement under hybrid model

The contract assets are divided into two components, a financial asset (receivable under service concession arrangements) component based on the guaranteed amount and an intangible asset for the remainder. Each component and its relevant operation revenue are accounted for separately in accordance with aforementioned policies of service concession arrangement under intangible asset model and financial asset model.

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The chart below illustrates the accounting treatment:

Initial Investment (Construction Period) Service Concession Period End of Conce ssion

Statement of Statement of Balance Sheet Balance Sheet Balance Sheet Comprehensive comprehensive income Income Contract assets(1) Receivables under Receivables under Intangible assets Revenue ˉ Operation service concession service concession Revenue – Equals to the (Beginning) arrangements services(4) (Beginning) arrangements = 0 Construction services(1) revenue from construction services

Revenue ˉ (Amortisation Finance income(5) Operation services(4) Straight-line &

Construction costs method for the Service Concession Period)

Receivables under service concession (5) Amortisation Intangible assets = 0 Finance income arrangements(2)

Intangible assets Proceed s from Other costs Gross profit (Ending) the Grantor s and expense s

Statement of Statement of Cash Cash Flow s Flows Proceeds from the Receivable under Initial investment Grantors netting off other Profit before (3) service concession Intangible assets costs and expenses (Net outflow) arrangements (Ending) income tax (Net inflow)

Notes:

1. During the construction period, the Group would record revenue for construction services and contract assets. Revenue from construction services and contract assets are calculated as the construction costs plus the estimated profit margins. For the two years ended 31 December 2020, the estimated profit margins adopted for the recognition of revenue for construction services and contract assets of Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目) and Changshan Huaqiao Economic Development Zone Wastewater Treatment BOT Project (常山華僑經濟開發區污水處理BOT項目) were 25.5% and 24.8% respectively, while the estimated profit margins adopted for the recognition of revenue for construction services and contract assets of Shanghang Leachate Treatment BOT Project (上杭縣滲濾液處理BOT項目) were 7.4% and 7.3%, respectively. The profit margins are key assumptions and estimated based on prevailing market rates applicable to similar construction services rendered in similar locations. Revenue relating to construction is accounted for in accordance with the policy in Note 2.25(ii) in the Accountant’s Report in Appendix I to this document. When the construction services are completed, the contract assets would be classified and measured as receivables under service concession arrangements, intangible assets or a combination of both in accordance with different scenarios set out in Note 2.9(i) in the Accountant’s Report in Appendix I to this document.

2. Receivables under service concession arrangements represent the current value of future cash collection for guaranteed minimum intake by the Grantors. The Group has used the applicable discount rates for calculating the current value. The discount rates for the calculation of receivables under service concession arrangements of Fujian Lvdi, Yongchun Lvdi and Shanghang Leachate Treatment BOT Project are 8.0089%, 8.0089% and 7.4662%, respectively, which are based on the rates of government municipal bonds issued with similar time to maturity by similar administrative level governments and reflect the rates of financing transactions between the Group and the Grantors and the credit risks of the Grantors. The discount rates are key assumptions and would reflect the rates of financing transactions between the Group and the Grantors and the credit risks of the Grantors.

3. Intangible assets represent the right of cash collection for volume beyond guaranteed minimum intake by the Grantors. For service concession arrangements under intangible asset model, intangible assets are recognised to the extent that the Group receives a right to charge users of public services, which is not an unconditional right to receive cash because the amounts are contingent on the extent that the public uses the service. For service concession arrangements under hybrid model, contract assets net of the amount recognised as receivables under service concession arrangements will be recognised as intangible assets upon the completion of the construction services. Intangible assets are accounted for in accordance with the policy in Note 2.8 in the Accountant’s Report in Appendix I to this document, which are amortised on a straight-line basis over the service concession period.

4. Revenue from operation services is recognised when services are provided.

5. The key assumptions in calculating the finance income generates from receivables under service concession arrangements are the interest rates determined as explained in Note 2 above.

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Fujian Lvdi and Yongchun Lvdi are VAT small scale taxpayers (增值稅小規模納稅人) and the applicable VAT rate is 3%. All VAT inputs cannot be deductible and have been included in their costs and expenses.

The Company is a general taxpayer of VAT (增值稅一般納稅人) and provides the BOT construction services. The VAT outputs are recognised along with the recognition of construction revenue and construction costs are VAT excluded.

For the three years ended 31 December 2020, the number of projects that are within the scope of IFRIC 12 were nil, five and five, respectively. All of our BOT projects under construction and concession operation during the Track Record Period are subject to IFRIC 12. See “Business — Our Business — Concession Operation Services under BOT model” for details of our BOT projects.

The following table sets forth the movements in the balances of our intangible assets and contract assets during the Track Record Period.

Intangible Contract assets assets (RMB’000) (RMB’000)

As of 1 January and 31 December 2018 –– Acquisition 20,090 48,290 Addition – – Amortization (63) – As of 31 December 2019 20,027 48,290 Acquisition – – Transfer – (4,846) Addition 1,759 353,260 Amortization (290) – As of 31 December 2020 21,496 396,704

The following table sets forth a breakdown of the revenue, cost of sales, gross profit, gross profit margin and finance income from concession operation services under BOT model by types of services:

Year ended 31 December 2019 2020

Construction services: Revenue (RMB’000) 47,348 351,688 Cost of sales (RMB’000) (35,688) (264,983) Gross profit (RMB’000) 11,660 86,705 Gross profit margin 24.6% 24.7%

Operation services: Revenue (RMB’000) 765 3,406 Cost of sales (RMB’000) (757) (2,958) Gross profit (RMB’000) 8 448 Gross profit margin 1.0% 13.2% Finance income (RMB’000) 805 3,021

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SUMMARY OF FINANCIAL AND OPERATING INFORMATION

Selected Items of Consolidated Statements of Comprehensive Income

The following table sets forth selected items consolidated statements of comprehensive income for the Track Record Period, which are derived from, and should be read in conjunction with, the Accountant’s Report in Appendix I to this document, including the notes thereto.

Year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Revenue 106,208 100.0 341,548 100.0 671,073 100.0 Cost of sales (53,642) 50.5 (222,679) 65.2 (491,005) 73.2

Gross profit 52,566 49.5 118,869 34.8 180,068 26.8

Operating profit 29,711 28.0 71,455 20.9 102,135 15.2

Profit before income tax 29,494 27.8 68,825 20.2 96,930 14.4

Profit and total comprehensive income for the year/period 25,445 24.0 60,920 17.8 84,057 12.5

Profit attributable to: Owners of the Company 25,445 24.0 57,612 16.9 82,821 12.3 Non-controlling interests – – 3,308 1.0 1,236 0.2

25,445 24.0 60,920 17.8 84,057 12.5

The following table sets forth the breakdown of revenue we generated by segments for the periods indicated:

Year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Sales of wastewater treatment equipment 52,147 49.1 41,048 12.0 103,550 15.4 Sales of pipes and pipe fittings – – 105,945 31.0 85,649 12.8 Decentralised wastewater treatment facility construction 52,623 49.5 135,952 39.8 125,229 18.7 Concession operations services under BOT model – – 48,113 14.1 355,094 52.9 Others(1) 1,438 1.4 10,490 3.1 1,551 0.2

Total 106,208 100.0 341,548 100.0 671,073 100.0

Note:

1. Others primarily consist of operation and maintenance, technical consultancy and design, and soil treatment.

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The following table sets forth a breakdown of our gross profit and gross profit margin for each of our operating segments for the periods indicated:

Year ended 31 December 2018 2019 2020 Gross Profit Gross Profit Gross Profit Gross Profit Gross Profit Gross Profit (RMB’000) Margin (%) (RMB’000) Margin (%) (RMB’000) Margin (%)

Sales of wastewater treatment equipment 28,452 54.6 22,395 54.6 35,597 34.4 Sales of pipes and pipe fittings – – 28,509 26.9 19,489 22.8 Decentralised wastewater treatment facility construction 23,288 44.3 54,843 40.3 37,456 29.9 Concession operation services under BOT model – – 11,668 24.3 87,153 24.5 Others(1) 826 57.4 1,454 13.9 373 24.0

Total 52,566 49.5 118,869 34.8 180,068 26.8

Note:

1. Others primarily consist of operation and maintenance, technical consultancy and design, and soil treatment.

During the Track Record Period, our revenue showed a continuing strong growth. Our revenue increased to approximately RMB341.5 million in 2019, primarily because we extended our product offering to pipes and pipe fittings, and diversify our service portfolio to include concession operation services under BOT model in order to adapt to a variety of market environments, serve our customers’ needs at various stages of the decentralised wastewater treatment industry chain. For the same reason, our revenue continued to grow in 2020, compared to the relevant period in 2019. See “Financial Information — Principal Income Statement Components — Revenue” for details.

Our overall gross profit margin was approximately 49.5%, 34.8%, 26.8% for the three years ended 31 December 2020, respectively. Our gross profit margin decreased significantly in 2019 primarily because we diversified our business portfolio in 2019 by extending into the sales of pipes and pipe fittings, and the concession operation services under BOT model, which have relatively lower gross profit margins compared to our other operating segments.

The following table sets forth a breakdown of our revenue by geographic location for each of our operating segments for the periods indicated:

Year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Geographic location Within Fujian 93,002 87.6 319,821 93.6 661,380 98.6 Outside Fujian(1) 13,206 12.4 21,727 6.4 9,693 1.4

Total 106,208 100.0 341,548 100.0 671,073 100.0

Note: The geographic location outside Fujian refers to Anhui, Beijing, Guangdong, Guangxi, Hainan, Hebei, Hubei, Hunan, Jiangsu, Jiangxi, Sichuan and Zhejiang.

–14– The percentage of revenue generated within Fujian continued to grow while the percentage of revenue generated outside Fujian DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS continued to decrease during the Track Record Period primarily because (i) during the Track Record Period, the increase in number of projects within Fujian has contributed to the significant growth of our revenue while in the meantime occupied our fund and human resources, therefore to capture the growing decentralised wastewater treatment market in Fujian, we devoted most of our efforts in developing projects within Fujian; (ii) we also actively seek for business opportunities outside Fujian during the Track Record Period, but restricted by fund and human resources, our revenue generated from customers outside Fujian was limited compared with that within Fujian; and (iii) after the Track Record Period and going forward, leveraging on our established position, accumulated experiences and technologies gained in Fujian, and with the [REDACTED]fromthe[REDACTED], we plan to enhance our project portfolio in Fujian and further explore the potential of the surrounding areas including Guangxi, Hainan, Hunan and Jiangxi. See “Business — Our Strategies — Enhance our presence in Fujian and expand to surrounding markets by cooperation with government authorities or state-owned enterprises and recruiting additional personnel” for details.

The following table sets forth a breakdown of our revenue, gross profit and gross profit margin by customer type for each of our SUMMARY operating segments for the periods indicated: –15–

Year ended 31 December 2018 2019 2020 Percentage Gross Percentage Gross Percentage Gross of Gross profit of Gross profit of Gross profit Revenue Revenue Profit margin Revenue Revenue Profit margin Revenue Revenue Profit margin RMB’000 % RMB’000 % RMB’000 % RMB’000 % RMB’000 % RMB’000 %

Customer type Government customers

(1) 52,834 49.7 24,629 46.6 240,476 70.4 91,969 38.2 532,998 79.4 147,491 27.7 Non-government customers (2) 53,374 50.3 27,937 52.3 101,072 29.6 26,900 26.6 138,075 20.6 32.578 23.6 Total 106,208 100.0 52,566 49.5 341,548 100.0 118,869 34.8 671,073 100.0 180,069 26.8

Notes:

(1) Refer to government authorities, government-sponsored institutions and state-owned enterprises;

(2) Refer to non-state-owned enterprises THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY

During the Track Record Period, the revenue from non-government customers increased along with our overall revenue. The revenue and percentage of revenue of government customers grew significantly in 2019 primarily due to the revenue recognised from (i) two decentralised wastewater treatment facility construction projects with state-owned enterprises, namely Liancheng County Linfang Town Eight Township Wastewater Treatment EPC Project (連城縣林坊鎮等8個鄉鎮污水處理EPC工程項目) and Qing Yuan Shan Scenic Spot Wastewater Treatment EPC General Contracting Project (清源山風景名勝區污水處理工程EPC總承包項目); and (ii) two BOT projects under construction with government authorities and government-sponsored institutes, namely Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目) and Shanghang Leachate Treatment BOT Project (上杭縣滲濾液處理BOT項目). As most of the above projects only started to recognise revenue from the second half of 2019 and the construction of Qianpu Wastewater Treatment Plant Phase III (Expansion) Equipment Installation Project (前埔污水處理廠三期工程（擴建）施工項目機電設備安裝工程) was commenced in March 2020, the revenue and percentage of revenue of government customers grew significantly in 2020 compared with the same period in 2019.

The gross profit margin for government customers further decreased to approximately 38.2% in 2019 primarily because of (i) the increase in our labour outsourcing expenditures in order to meet the intensive construction and installation works for certain large scale decentralised wastewater treatment facility construction projects, and (ii) the relatively low gross profit margin of our concession operation services under BOT model commenced in 2019 compared with our other business segments. The decrease in gross profit margin for government customers from approximately 38.2% in 2019 to approximately 27.7% in 2020 was primarily because of a sizable decentralised wastewater treatment equipment sales project obtained in August 2020 with a relatively low gross profit margin of approximately 27.3%.

The gross profit margin for non-government customers decreased to approximately 26.6% in 2019 primarily because of the relatively low gross profit margin of our sales of pipes and pipe fittings provided by Quanzhou Xingyuan, which was acquired by us in March 2019. The gross profit margin for non-government customers further decreased from approximately 26.6% in 2019 to approximately 23.6% in 2020 was primarily because of the decrease in gross profit margin of our sales of pipes and pipe fittings due to the suspension of Quanzhou Xingyuan in early 2020 attributable to the impact of COVID-19, while we incurred idle capacity costs during the period. See "Financial Information — Period to Period Comparison of Results of Operations" for details.

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Selected Items from the Consolidated Balance Sheets

The following table sets forth selected items of the balance sheets as of the dates indicated: As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Non-current assets 9,371 180,339 576,450 Current assets 193,700 417,154 477,239

Non-current liabilities 3,433 9,004 162,836 Current liabilities 39,503 304,380 459,787

Share capital 30,000 90,000 98,226 Reserves 94,086 39,334 102,530 Retained earnings 36,049 88,413 162,412 Equity attributable to owners of the Company 160,135 217,747 363,168 Non-controlling interests – 66,362 67,898 Net current assets 154,197 112,774 17,452

Total equity 160,135 284,109 431,066

Our current assets increased from approximately RMB193.7 million as of 31 December 2018 to approximately RMB417.2 million as of 31 December 2019 primarily due to (i) the approximately RMB79.0 million incurred in current contract assets because we commenced the construction of two sizable decentralised wastewater treatment facility construction projects in 2019, the construction of Liancheng County Linfang Town Eight Township Wastewater Treatment EPC Project (連城縣林坊鎮等8個鄉鎮污水處理EPC工程項目) and Qing Yuan Shan Scenic Spot Wastewater Treatment EPC General Contracting Project (清源山風景名勝區污水處理工程EPC總承包項目); (ii) the approximately RMB48.5 million increase in trade, other receivables and prepayments which was primarily due to the increase in trade receivables as our business grows; and (iii) the approximately RMB51.2 million increase in cash and bank balances as a result of the related party loans from Haisi Environmental. Our current assets increased from approximately RMB417.2 million as of 31 December 2019 to approximately RMB477.2 million as of 31 December 2020 primarily due to (i) the increase of approximately RMB86.7 million in trade, other receivables and prepayments which was in line with our business growth, and (ii) partially offset by the decrease of approximately RMB69.2 million in cash and bank balance as a result of the repayment of RMB100.0 million related party loans to Haisi Environmental.

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Our current liabilities significantly increased from approximately RMB39.5 million as of 31 December 2018 to approximately RMB304.4 million as of 31 December 2019 primarily due to (i) an RMB50.0 million borrowing from a commercial bank; and (ii) an increase of approximately RMB210.6 million in trade and other payables primarily due to the increase of approximately RMB100.4 million in amounts due to related parties in relation to the related party loan from Haisi Environmental and the increase of approximately RMB68.7 million in trade payables as our revenue grew. Our current liabilities increased from approximately RMB304.4 million as of 31 December 2019 to RMB459.8 million as of 31 December 2020 primarily due to (i) an increase of approximately RMB161.7 million in borrowings, and (ii) partially offset by a decrease of approximately RMB4.3 million in trade and other payables.

Our net current assets decreased from approximately RMB112.8 million as of 31 December 2019 to approximately RMB17.5 million as of 31 December 2020 primarily due to the increase of approximately RMB161.7 million in borrowings.

The following table sets forth our trade receivables turnover days for the periods indicated:

Year ended 31 December 2018 2019 2020

Trade receivables turnover days(1) 138 71 71

Note:

(1) We calculate the trade receivables turnover days using the average of opening and closing balance of trade receivables, divided by revenue for the relevant period, multiplied 360 days.

We have had relatively longer trade receivables turnover days than the credit periods we granted to our customers during the Track Record Period primarily due to our business nature and customer base, which was in line with the industry norm. A large portion of our business is based on progress payment subject to the inspection and confirmation by customers and many of such customers are government entities, state-owned enterprises and public institutions whose settlement may be delayed due to the time required for their internal approval procedures. Our trade receivables turnover days decreased significantly from approximately 138 days in 2018 to approximately 71 days in 2019 primarily due to our acquisition of Quanzhou Xingyuan which has shorter trade receivables turnover days for its sales of pipes and pipe fittings. See ”Financial Information — Discussion on certain items from the Consolidated Balance Sheets — Trade Receivables” for details.

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Summary of Consolidated Cash Flow Information

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

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Net cash generated from/(used in) operating activities 15,926 (9,668) (268,288) – Cash flows from operating activities before changes in working capital 36,821 72,703 124,089 – Changes in working capital (20,310) (74,101) (375,776) – Income tax paid (585) (8,270) (16,601) Net cash used in investing activities (492) (64,991) (51,775) Net cash generated from financing activities 87,444 125,887 250,895 Net increase/(decrease) in cash and cash equivalents 102,878 51,228 (69,168) Cash and cash equivalents at beginning of the year 2,467 105,345 156,573 Effect of foreign exchange rate changes – – –

Cash and cash equivalents at end of the year 105,345 156,573 87,405

We had net cash outflows for operating activities in 2019 and 2020, primarily because (i) under our decentralised wastewater treatment facility construction projects, we generally receive payment from our customers in stages based on the terms of the contracts entered into with our customers, and (ii) under our concession operation services under BOT model, we would generally incur significant amount of contract assets during the construction phase but would not receive any payment until the operating phase, as a result, there were periods during which we experienced net cash outflows for a particular project as well as on an overall basis. See “Financial Information — Liquidity and Capital Resources — Cash Flow — Net cash from/(used in) operating activities” for details.

We will adopt the below measures to improve our operating cash flow, which include:

(i) preparing cash flow plans for projects and regularly reviewing the cash flow plans to identify and address any potential shortfall in cash flow;

(ii) evaluating the cash flow position of our Group before submitting any tender;

(iii) closely monitoring the collection status of our trade receivables and actively following up with our customers for payment;

(iv) utilising the credit terms provided by our suppliers; and

(v) utilising our banking facilities, if any, to cover any potential shortfall in our cash flow position.

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Key Financial Ratios

The following table sets forth certain key financial ratios as of the dates indicated.

As of or for year ended 31 December 2018 2019 2020

Return on equity(1) 15.9% 21.4% 19.5% Return on total assets(2) 12.5% 10.2% 8.0% Current ratio(3) 4.9 1.4 1.0 Net gearing ratio(4) N/A N/A 38.8% Gearing ratio(5) 2.7% 35.5% 46.3%

Notes:

(1) Return on equity ratio is profit for the year as a percentage of total equity as of year-end and multiplied by 100.0%.

(2) Return on total assets ratio is profit for the year as a percentage of total assets as of year-end and multiplied by 100.0%.

(3) Current ratio is total current assets as of year-end as a percentage of total current liabilities as of year-end.

(4) Net gearing ratio is net debt as of year-end as a percentage of net debt plus total equity as of year-end. Net debt is calculated as the aggregate of total borrowings, lease liabilities and amount due to related parties, less the cash and bank balance as of year-end. Our net gearing ratio was not applicable as of 31 December 2018 and 2019, primarily because our cash and cash equivalents exceeded the aggregate of our total borrowings, lease liabilities and amount due to related parties as of that date.

(5) Gearing ratio is total debt as of year-end as a percentage of total debt plus total equity as of year-end. Total debt is calculated as the aggregate of total borrowings, lease liabilities and amount due to related parties.

Return on Equity

Our return on equity increased from 15.9% in 2018 to 21.4% in 2019, primarily because the increase in profit for the year outpaced the growth of total equity. Our return on equity decreased to 19.5% in 2020 primarily because the increase in the growth of equity outpaced the increase in profit for the year primarily due to the investment in equity by two [REDACTED] Investors, Quanzhou Radio and Television and Station and Lanshen Youshi in 2020.

Return on Total Assets

Our return on total assets decreased from 12.5% in 2018 to 10.2% in 2019, primarily due to the acquisition of Quanzhou Xingyuan which has relatively lower return on assets ratio than our Company. Our return on assets decreased to 8.0% in 2020 primarily because the growth of total assets outpaced our profit for the year.

Current Ratio

As of 31 December 2018 and 2019, our current ratio decreased from 4.9 to 1.4, because of the significant increase of our current liabilities primarily due to (i) the increase of approximately RMB210.6 million in our trade and other payables; and (ii) the approximately RMB50 million borrowings. Our current ratio remained stable as of 31 December 2020 as compared to 31 December 2019.

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Net gearing Ratio

As of 31 December 2018, 2019 and 2020, our net gearing ratio were N/A, N/A and 38.8%, respectively. Our net gearing ratio was not applicable as of 31 December 2018 and 2019, primarily because our cash and cash equivalents exceeded the aggregate of our total borrowings, lease liabilities and amount due to related parties as of those dates. As of 31 December 2020, our net gearing ratio was 38.8% primarily due to (i) an increase in bank borrowing from RMB50.0 million as of 31 December 2019 to RMB366.8 million as of 31 December 2020, and (ii) a decrease in cash and cash equivalents due to the net cash used for the construction of Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目) during the period.

Gearing Ratio

As of 31 December 2018, 2019 and 2020, our gearing ratio were 2.7%, 35.5% and 46.3%, respectively. The increase in gearing ratio from 31 December 2018 to 31 December 2019 mainly resulted from the increase of total borrowings and lease liabilities and amounts due to related parties in non-trade nature. The increase in gearing ratio from 31 December 2019 to 31 December 2020 mainly resulted from an increase in bank borrowing from RMB50.0 million as of 31 December 2019 to RMB366.8 million as of 31 December 2020.

[REDACTED]

We estimate the [REDACTED]ofthe[REDACTED] which we will receive, assuming an [REDACTED]ofHK$[REDACTED] per [REDACTED] (being the mid-point of the [REDACTED] range stated in this document), will be approximately HK$[REDACTED], after deduction of [REDACTED] and commissions and estimated expenses payable by us in connection with the [REDACTED] and assuming the [REDACTED] is not exercised.

We intend to use the [REDACTED]ofthe[REDACTED] for the following purposes:

• approximately [REDACTED]% (or HK$[REDACTED]) to finance the development of expected wastewater treatment EPC/BOT projects;

• approximately [REDACTED]% (or HK$[REDACTED]) for the investment and acquisition in our industry chain. We will selectively acquire targets or business that have strategic fit with our existing products and business;

• approximately [REDACTED] % (or HK$[REDACTED]) for enhancing our core technologies;

• approximately [REDACTED]% (or HK$[REDACTED]) for enhancing our Lanshen Brain through cooperation with third party technology providers; and

• approximately [REDACTED]% (or HK$[REDACTED]) for working capital and other general corporate purposes.

See “Future Plans and [REDACTED]” for details.

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[REDACTED] INVESTMENTS

In support for the business opportunities and development of our Group, we undertook the [REDACTED] Investments from August 2018 to May 2020. We introduced a total of three [REDACTED] including Haisi Environmental, one of our Controlling Shareholders. Haisi Environmental acquired 68.0% interest of our Company in August 2018 and became one of our Controlling Shareholders. See “Our History and Development — Our Corporate Development — Acquisition of Control by Quanzhou Water Group in 2018” and “Our History and Development — [REDACTED] Investments” for details.

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

Immediately following the completion of the [REDACTED] (assuming that the [REDACTED] is not exercised), Quanzhou Water Group, which held interests through its wholly-owned subsidiary, namely Haisi Environmental, will be entitled to exercise in general meetings voting rights attached to the Shares representing approximately [REDACTED]% of the issued share capital of our Company. Accordingly, Quanzhou Water Group and Haisi Environmental would be our Controlling Shareholders for the purpose of the Listing Rules.

CONTINUING CONNECTED TRANSACTIONS

We have entered into certain transactions which will constitute continuing connected transactions for our Company under the Listing Rules after the [REDACTED]. We have applied to the Stock Exchange for, and the Stock Exchange [has granted] us, a waiver from strict compliance with the announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules in respect of the continuing connected transactions as disclosed in “Connected Transactions — Non-exempt Continuing Connected Transactions”. See “Connected Transactions” for details.

DIVIDEND

For the three years ended 31 December 2020, we did not declare any dividends.

After completion of the [REDACTED], our Company’s Shareholders will be entitled to receive dividends we declare. Any amount of dividends we pay will be subject to the approval of our Shareholders and will depend on our future operations and earnings, our development pipeline, capital requirements and surplus reserve, general financial conditions, contractual restrictions and other factors that our Directors consider relevant. Any declaration and payment as well as the amount of dividends will be subject to our constitutional documents and the relevant laws. See “Appendix IV — Summary of Principal Legal and Regulatory Provisions” and “Appendix V — Summary of the Articles of Association of our Company” for details. No dividend shall be declared or payable except out of our profits and reserves lawfully available for distribution.

RISK FACTORS

Our Directors believe that there are certain risks involved in our operations. Many of these risks are beyond our control. A detailed discussion of the risk factors that we believe are

–22– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY particularly relevant to us are set out in the section headed “Risk Factors” in this document. Set out below are some of the major risks that may materially and adversely affect us:

• The regulations and policies for wastewater treatment in the PRC may be delayed in implementation and execution or unfavourably changed which could cause adverse effect on our profitability, competitiveness and growth;

• Any adverse change in the economic development, social conditions, government policies or natural conditions of Fujian could materially and adversely affect our business, financial condition, results of operations and prospects;

• We recognise revenue during the construction phase of our projects of concession operation services under BOT model, but typically do not receive any actual payments until the operational phase, which may result in negative operating cash flow during the construction periods and impairments or write-offs for the intangible assets or financial assets during the operation phase that would adversely affect our results of operations and liquidity;

• We have had and expect to continue to have high levels of trade receivables due to our customer base, business nature and other factors;

• Our gross profit margin and profitability may be affected by changes in our mix of revenues;

• Our business operations may be adversely affected by the outbreak of COVID-19; and

• Changes in our judgments and assumptions in applying IFRIC 12 and changes in IFRIC 12 and other relevant accounting standards may have material impacts on the measurement and reporting of certain wastewater treatment facilities.

See “Risk Factors” for details.

LEGAL PROCEEDINGS AND NON-COMPLIANCE

During the Track Record Period and up to the Latest Practicable Date, (i) we did not make adequate contributions to social insurance fund and housing provident fund for our employees, and (ii) we failed to obtain the relevant construction permits for our wastewater treatment BOT projects, resulting in contravention of the relevant laws and regulations. See “Business — Legal Proceedings and Non-compliance” for details.

During the Track Record Period and up to the Latest Practicable Date, we were not a party to any material litigation, arbitration or administrative proceedings, and we are not aware of any claims or proceedings pending contemplated or threatened by government authorities or third parties against us which would materially and adversely affect our business. During the Track Record Period and up to the Latest Practicable Date, our Directors are not involved in any actual or threatened material claims or litigation. During the Track Record Period and up to the Latest Practicable Date, save as disclosed in “Business — Legal Proceedings and Non-compliance”, we had complied with the applicable laws and regulations in all material respects.

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[REDACTED] STATISTICS

The statistics in the following table are based on the assumption that the [REDACTED]is completed and [REDACTED] Shares are issued in the [REDACTED] and the [REDACTED]is not exercised.

Based on an Based on an [REDACTED] of [REDACTED] of HK$[REDACTED] HK$[REDACTED] per [REDACTED] per [REDACTED]

Our Company’s [REDACTED] market capitalisation upon completion of the [REDACTED](1) HK$[REDACTED] HK$[REDACTED] Our Company’s total market capitalisation upon completion of the [REDACTED](2) HK$[REDACTED] HK$[REDACTED] [REDACTED] adjusted net tangible asset value per Share(3) HK$[REDACTED] HK$[REDACTED]

Notes:

(1) The calculation is based on [REDACTED] expected to be in issue following the completion of the [REDACTED] assuming the [REDACTED] is not exercised.

(2) The calculation is based on [REDACTED] expected to be in issue following the completion of the [REDACTED] assuming the [REDACTED] is not exercised.

(3) [REDACTED] adjusted net tangible asset per Share has been arrived at after adjustments referred to in Appendix II to this document.

[REDACTED]

[REDACTED] represent professional fees and [REDACTED] incurred in connection with the [REDACTED] and the [REDACTED]. Assuming an [REDACTED] of HK$[REDACTED] per Share (being the mid-point of the indicative [REDACTED] range stated in this document) and that the [REDACTED] is not exercised, our total [REDACTED] is estimated to amount in aggregate approximately [REDACTED], which will account for approximately [REDACTED]of the [REDACTED]ofthe[REDACTED] (assuming the [REDACTED] is not exercised). During the Track Record Period, we incurred [REDACTED]ofRMB[REDACTED], among which approximately RMB[REDACTED] was charged to our consolidated statements of comprehensive income and approximately RMB[REDACTED] was capitalised. We expect to incur [REDACTED] commissions and other additional [REDACTED] of approximately RMB[REDACTED] following the [REDACTED], of which approximately RMB[REDACTED] will be charged to the consolidated statements of comprehensive income after 31 December 2020, and RMB[REDACTED] will be charged to equity upon completion of the [REDACTED]. Our Directors do not expect such [REDACTED] to have a material adverse impact on our results of operations for the year ending 31 December 2021.

RECENT DEVELOPMENT

Our business model, revenue and cost structure have remained unchanged since 31 December 2020.

–24– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY industry in which we operate that have had a material and adverse impact on our business operations and financial conditions since 31 December 2020 and up to the Latest Practicable Date.

Since July 2020, we have entered into three strategic co-operation agreements for the cooperation in the development of wastewater treatment projects in both Fujian and surrounding areas, including Guangxi, Hainan, Hunan and Jiangxi. See “Future Plans and [REDACTED]” for details.

In addition, we had succeeded in the public tendering and entered into the following agreements in February 2021: (i) a pipes and pipe fittings sales agreement with a contract value of approximately RMB4.3 million and we will be able to collect 95% of the contract value after delivery and acceptance of our pipes and pipe fittings by the client, with the remaining 5% warranties to be collected 24 months after delivery and acceptance; and (ii) an operation and maintenance service agreement under which we will provide decentralised wastewater treatment station operation and maintenance service for a period of three years with a total contract value of approximately RMB0.4 million, which will be paid to us on a quarterly basis.

IMPACT OF THE OUTBREAK OF COVID-19

In compliance with relevant public announcements and notices issued by governmental authorities to control the outbreak of COVID-19, we had temporarily suspended all business operation in early February 2020, and with the permission of relevant governmental authorities, we gradually resumed our business operation and production activities in our Quangang factory and Anping factory during February to April 2020. The period of suspension of business operations of the Group was around one and a half months. As of the Latest Practicable Date, all the operation and business of all our subsidiaries and branch offices have resumed.

As the COVID-19 outbreak has been largely contained in China since April 2020 due to strict governmental control measures and recent media reports have also indicated that the infection numbers have been falling in the PRC, our Directors believe that the outbreak of COVID-19 would not have a long-term impact on our business operation. Based on the current situation of the COVID-19 outbreak, our Directors assessed its impact on our Group in the following major aspects:

(i) Sales, customers and distributors: We have been closely communicating with our major customers for the impact of the COVID-19 outbreak on them. Pursuant to the communications with our major customers, the majority of them have resumed normal work by early April 2020 and the period of suspension of business operations of our major customers was around two months. As of the Latest Practicable Date, as confirmed by our Directors, we did not receive any request from our customers for terminating or canceling any major orders or projects due to the COVID-19 outbreak. With regard to our distributors, pursuant to the communications with our major distributors, the majority of them have resumed normal work by March 2020, and the period of suspension of their business operations was around one month. As of the Latest Practicable Date, as confirmed by our Directors, we did not receive any requests from them for termination of distributorship with us or cancelation of major orders.

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We have also communicated with our top five customers for the year ended 31 December 2020 who placed orders for our wastewater treatment equipment or pipes and pipe fittings in respect of the temporary suspension of production of our Quangang factory and Anping factory. As of the Latest Practicable Date, none of them cancelled their orders or had plan to shift any of the ongoing cooperation with us to other suppliers, as confirmed by our Directors. As such, our Directors are of the view that the potential financial damages to our Group and the impact to the long-term relationship with our customers are neither permanent, nor significant.

(ii) Purchases and suppliers: Despite the temporary suspension of operations of our major suppliers in February 2020 due to the COVID-19 outbreak, the majority of them have resumed operation by early April 2020. The period of suspension of their business operations was around two months. Our major suppliers during the Track Record Period are mainly located in the Fujian Province or its surrounding areas, and none of our top five suppliers during the Track Record Period were based in Hubei Province or the cities which were being locked down as at the Latest Practicable Date. Based on the foregoing, our Directors are of the view that the supply of raw materials to us has not been negatively affected by the COVID-19 outbreak and has remained relatively stable during the Track Record Period and up to the Latest Practicable Date.

(iii) Impact on our financial performance: Due to the impact of COVID-19, our gross profit margin decreased from 34.8% in the year ended 31 December 2019 to 26.8% in the year ended 31 December 2020. Such decrease was primarily caused by, among others, the decrease of approximately 4.1% in the gross profit margin of sales of pipes and pipe fittings because the cost growth outpaced the revenue growth recognised for this segment due to the suspension of manufacturing of Quanzhou Xingyuan in early 2020, and the decrease of approximately 10.4% in the gross profit margin of the decentralised wastewater treatment facility construction because the cost growth outpaced the revenue growth recognised for this segment due to the delay in progress of our decentralised wastewater treatment facility construction projects while we incurred additional costs for labour outsourcing expenditures for the year ended 31 December 2020 as a result of the outbreak of COVID-19. Other than as mentioned above, our research and development activities, inventories and trade payables were hardly affected by the COVID-19. Our research and development expenses increased by 43.5% for the year ended 31 December 2020 compared to the corresponding period in 2019.

However, our Directors believe that the potential impact to be brought by COVID-19 on our business will not be substantial as (i) the COVID-19 outbreak has been largely contained in China since April 2020 and up to the Latest Practicable Date due to strict governmental control measures; (ii) considering the necessity of wastewater treatment and the nature of wastewater treatment infrastructure projects, demand for our equipment and services would not drop significantly; and (iii) the majority of our staff, customers and suppliers have resumed normal work by early April 2020 and our business operations have resumed since then. This is also evidenced by the facts that (i) our total revenue increased by approximately RMB329.6 million, or 96.5%, from approximately RMB341.5 million in 2019 to approximately RMB671.1 million in 2020 primarily because we commenced the construction of certain sizable projects in 2020, such as Qianpu Wastewater Treatment Plant Phase III (Expansion) Equipment Installation Project (前埔污水處理廠三期工程（擴建）施工項目機電設備安裝工程) and Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目); and (ii) in line with the growth of our revenue and the

–26– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY increased number of sizable projects as mentioned above, our gross profit also increased by approximately RMB61.2 million, or 51.5%, from approximately RMB118.9 million in 2019 to approximately RMB180.1 million in 2020. See “Financial Information — Period to Period Comparison of Results of Operations — Year Ended 31 December 2020 Compared to 31 December Ended 31 December 2019” for details.

With the measures implemented by the PRC government and based on the above, our Directors are of the view, and the Sole Sponsor concurs, that the outbreak of COVID-19 shall not have a permanent impact on our Group and may only affect our Group temporarily and that it had not, and will not have material adverse impact on our Group’s business operation and financial results during the Track Record Period, and subsequent to the Track Record Period and up to the date of this document. The impact and potential impact of COVID-19 on our Group’s operations in the PRC as discussed in this document and below is prepared according to the best estimate and belief of our Directors, based on the latest information currently available to our Directors as of the Latest Practicable Date, subject to the development of the outbreak of COVID-19 in the PRC. For details of the relevant risk, see “Risk Factors — Risks Relating to Doing Business in China — 36. Our business operations may be adversely affected by the outbreak of COVID-19”. After considering (i) our financial resources presently available to us; (ii) the historical monthly cash inflow and outflow for our business operations; and (iii) other latest information currently available to our Directors, our Directors are of the view that we have sufficient working capital to maintain our present operation. Our Directors will continue to assess the impact of the COVID-19 on our Group’s operation and financial performance and closely monitor our Group’s exposure to the risks and uncertainties in connection with the epidemic. We will take appropriate measures as necessary and inform our Shareholders and potential investors as and when necessary.

For illustration purpose, the number of months with sufficient working capital to maintain financial viability from the Latest Practicable Date would be approximately 40 months, assuming the estimated [REDACTED] to be received from the [REDACTED] for general working capital of approximately HK$[REDACTED] (or RMB[REDACTED]), loans available within the credits of existing banking facilities, and the Group’s operations would be fully suspended because of COVID-19 from the Latest Practicable Date onwards (i.e. revenue will be reduced by 100%, cost of sales will be reduced in accordance with the reduction in revenue); all other variable held constant.

NO MATERIAL ADVERSE CHANGE

Our Directors confirm that (i) there has been no material adverse change in our financial, operational or trading positions or prospects since 31 December 2020, being the date of our consolidated financial statements as set forth in the Accountants’ Report included in Appendix I to this document and up to the date of this document; (ii) there has been no event since 31 December 2020 which would materially affect the information shown in the Accountant’s Report as set out in Appendix I of this document.

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In this document, unless the context otherwise requires, the following terms shall have the meanings set out below.

“Action Plan for Prevention and the Action Plan for Prevention and Control of Water Control of Water Pollution” Pollution《水污染防治行動計劃》 ( ) published by the State Council in April 2015

“[REDACTED]” [REDACTED] or, where the context so requires, any of them, relating to the [REDACTED]

“AQSIQ” the General Administration of Quality Supervision, Inspection and Quarantine of the PRC (國家質量監督檢驗檢疫總局) whose duty has been integrated into the State Administration for Market Regulation of the PRC (中華人民共和國國家市埸監督管理總局)

“Articles of Association” or “Articles” the articles of association of the Company, as amended, which shall become effective on the [REDACTED], a summary of which is set out in Appendix V to this document

“Beijing Langclean” Beijing Langclean Environment Co., Ltd. (北京朗淨時代環境科技有限公司), a company established under the laws of the PRC with limited liability on 23 February 2012 and an Independent Third Party

“Beijing Lanshen” Beijing Lanshen Environmental Technology Co., Ltd. (北京藍深環保技術有限公司), a company established under the laws of the PRC with limited liability on 25 November 2015 and a direct wholly-owned subsidiary of our Company

“Beijing Sangde” Beijing Sangde Environmental Projects Co., Ltd. (北京桑德環境工程有限公司), a company established under the laws of the PRC with limited liability on 30 November 1999 which is an Independent Third Party save for its 15.0% interest in Yunxiao Sangde

“Board” or “Board of Directors” the board of directors of the Company

“Board of Supervisors” the board of supervisors of the Company

“Business Day(s)” any day(s) (other than a Saturday, Sunday or public holiday) on which banks in Hong Kong are generally open for normal banking business to the public

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

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

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

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

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

“China” or “PRC” the People’s Republic of China, but for the purpose of this document only and, unless the context otherwise requires, excluding Hong Kong, Macau and Taiwan

“Companies (Winding Up and the Companies (Winding Up and Miscellaneous Miscellaneous Provisions) Provisions) Ordinance, Chapter 32 of the Laws of Ordinance” Hong Kong, as amended, supplemented or otherwise modified from time to time

“Companies Ordinance” the Companies Ordinance, Chapter 622 of the Laws of Hong Kong, as amended, supplemented or otherwise modified from time to time

“Company” or “our Company” or Fujian Lanshen Environmental Technology Co., Ltd. “the Company” (福建省藍深環保技術股份有限公司), which was established under the laws of the PRC as a limited company on 10 May 2012 and converted into a joint stock limited company on 15 June 2015

“Controlling Shareholder(s)” has the meaning ascribed thereto in the Listing Rules and in the context of our Company, means Haisi Environmental and Quanzhou Water Group or, where the context so requires, any one of them

“COVID-19” a coronavirus disease which has its outbreak since around December 2019

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

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“Daquan Investment” Fuzhou Gulou Daquan Investment Partnership (Limited Partnership) (福州市鼓樓區大全投資合夥企業（有限合夥）), a limited partnership established under the laws of the PRC on 21 April 2015 and is held as to 50.0% by Mr. Lan Qiang, our executive Director, vice chairman of the Board and general manager, and as to 50.0% by Mr. Lin Hongquan, our executive Director and deputy general manager

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

“Domestic Shares” ordinary shares issued by the Company, with a nominal value of RMB1.00 each, which are subscribed for or credited as paid up in Renminbi

“EIT Law” PRC Enterprise Income Tax Law (中華人民共和國企業所得稅法) adopted by the National People’s Congress on 16 March 2007 and effective on 1 January 2008 as amended, supplemented or otherwise modified from time to time

“Extreme Conditions” extreme conditions caused by a super typhoon as announced by the government of Hong Kong

“F&S Report” the industry report issued by Frost & Sullivan

“Frost & Sullivan” Frost & Sullivan (Beijing) Inc., Shanghai Branch Co., the industry consultant

“Fujian Lvdi” Fujian Lvdi Water Co., Ltd. (福建綠地水務有限公司), a company established under the laws of the PRC with limited liability on 29 October 2013 and a direct non-wholly owned subsidiary of our Company, which is owned as to 90.0% by our Company and as to 10.0% by Lvdi Environmental

“Fuzhou Lanshen” Fuzhou Lanshen Environmental Technology Services Co., Ltd. (福州藍深環保技術服務有限公司), a company established under the laws of the PRC with limited liability on 23 March 2004 and a direct wholly-owned subsidiary of our Company

“[REDACTED]” the [REDACTED] and the [REDACTED]

“[REDACTED]” the [REDACTED] to be completed by the [REDACTED] designated by our Company

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“Group”, “our”, “we” or “us” the Company together with its subsidiaries, and their respective predecessors, if any

“Hainan Lanshen” Hainan Lanshen Environmental Engineering Co., Ltd. (海南藍深環境工程有限公司), a company established under the laws of the PRC with limited liability on 5 November 2015 and a direct wholly-owned subsidiary of our Company

“Haisi Environmental” Haisi Environmental Technology Co., Ltd. (海絲環保科技有限公司), a company established under the laws of the PRC with limited liability on 22 December 2017 and one of the Controlling Shareholders of our Company, which is wholly-owned by Quanzhou Water Group

[REDACTED]

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

[REDACTED]

“HKSCC” Hong Kong Securities Clearing Company Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited

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

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

[REDACTED]

“Hunan Lanshen” Hunan Lanshen Environmental Technology Co., Ltd. (湖南藍深環保技術有限公司), a company established under the laws of the PRC with limited liability on 23 June 2016, which is wholly-owned by Mr. Liu Jinqiao, an Independent Third Party

“IFRS” International Financial Reporting Standards

“Independent Third Party(ies)” a person or entity who/which is not considered a connected person of the Company under the Listing Rules

“Interfinance Trading” Interfinance Trading Limited (國財貿易有限公司), a company established under the laws of Hong Kong with limited liability on 12 April 1994 and an Independent Third Party

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[REDACTED]

“IP Legal Advisers” Grandway Law Offices (北京國楓律師事務所), our legal advisers as to PRC law in respect of certain PRC intellectual properties only

“Lanshen Brain” an intelligent wastewater treatment management platform utilizing big data and artificial intelligence to allow us to manage the entire flow of our wastewater treatment projects. See “Business — Research and Development — Our Intelligent Wastewater Treatment Management Platform” in this document for details

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

“Lanshen Cloud Platform” a real-time project management system that allows us to monitor and manage the operation status of wastewater treatment facilities. See “Business — Research and Development — Our Intelligent Wastewater Treatment Management Platform” in this document for details

“Lanshen Youshi” Lanshen Youshi (Quanzhou) Equity Investment Partnership (Limited Partnership) (藍深優勢（泉州）股權投資合夥企業（有限合夥）), a limited partnership established under the laws of the PRC on 21 April 2020 and one of our [REDACTED] Investors, which is owned as to 50.0% by Quanzhou Haisi Water Investment Co., Ltd., a company wholly-owned by Quanzhou Water Group, 49.0% by Fujian Haiji Investment and Development Co., Ltd., an Independent Third Party and 1.0% by Youshi Financial Holdings (Shanghai) Asset Management Co., Ltd., an Independent Third Party

“Latest Practicable Date” 16 March 2021, being the latest practicable date for the purpose of ascertaining certain information contained in this document prior to its publication

[REDACTED]

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

“Lvdi Environmental” Lvdi Environmental Technology Co., Ltd. (綠地環保科技股份有限公司), a company established under the laws of the PRC with limited liability on 23 June 2004 and an Independent Third Party save for its 10.0% interest in Fujian Lvdi and Yongchun Lvdi, respectively

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

“Mandatory Provisions” the Mandatory Provisions for Articles of Association of Companies to be Listed Overseas (到境外上市公司章程必備條款), which were promulgated by the former Securities Commission (證券委員會)ofthe State Council and the former State Commission for Restructuring the Economic System (國家經濟體制改革委員會) on 27 August 1994, effective on the same date, as amended, supplemented or otherwise modified from time to time

“MEE” Ministry of Ecology and Environment of the People’s Republic of China (中華人民共和國生態環境部)

“Ministry of Environmental the Ministry of Environmental Protection of the PRC Protection” or “MEP” (中華人民共和國環境保護部), formerly known as the State Environmental Protection Administration of the PRC (中華人民共和國國家環境保護總局) whose duty has been integrated into Ministry of Ecology and Environment of the PRC (中華人民共和國生態環境部)

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

“MOFCOM” Ministry of Commerce of the PRC (中華人民共和國商務部)

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

“NEEQ” National Equities Exchange and Quotations (全國中小企業股份轉讓系統)

“NPC” National People’s Congress of the PRC (全國人民代表大會)

[REDACTED]

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“[REDACTED]” [REDACTED]

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

“PRC Company Law” the Company Law of the PRC (中華人民共和國公司法), as enacted by the Standing Committee of the 10th National People’s Congress on 27 October 2005 and became effective on 1 January 2006, as amended, supplemented or otherwise modified from time to time

“PRC GAAP” generally accepted accounting principles in the PRC

“PRC Legal Advisers” Tian Yuan Law Firm, our legal advisers as to PRC laws

[REDACTED]

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

[REDACTED]

“Quanzhou Radio and Television Quanzhou Radio and Television Station (泉州廣播電視 Station” 臺), a public institution which was set up under the laws of the PRC on 17 July 2012 and one of our [REDACTED]

“Quanzhou Research Institute” Quanzhou Lanshen Environmental Research Institute Co., Ltd. (泉州藍深環保研究院有限公司), a company established under the laws of the PRC with limited liability on 16 December 2019 and a direct non-wholly owned subsidiary of our Company, which is owned as to 70.0% by our Company, and 30.0% by Dr. Gao Xueli, an Independent Third Party save for his interests in Quanzhou Research Institute

“Quanzhou SASAC” the State-owned Assets Supervision and Administration Commission of Quanzhou People’s Government (泉州市人民政府國有資產監督管理委員會)

“Quanzhou Water Direct Drinking” Quanzhou Water Direct Drinking Water Technology Co., Ltd. (泉州水務直飲水科技有限公司), a company established under the laws of the PRC with limited liability on 15 March 2011 and a wholly-owned subsidiary of Quanzhou Water Group, which is one of our connected persons

“Quanzhou Water Engineering” Quanzhou Water Engineering Construction Group Co., Ltd. (泉州水務工程建設集團有限公司), a company established under the laws of the PRC with limited liability on 11 May 1993, which was formerly known as Quanzhou Water Engineering Co., Ltd. (泉州水務工程有限公司) and a wholly-owned subsidiary of Quanzhou Water Group, which is one of our connected persons

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

“Quanzhou Water Group” Quanzhou Water Group Co., Ltd. (泉州水務集團有限公司), a company established under the laws of the PRC on 28 July 2017 with limited liability and one of our Controlling Shareholders, which is wholly-owned by Quanzhou SASAC

“Quanzhou Water Quality” Quanzhou Water Affair Water Quality Testing Co., Ltd. (泉州市水務水質檢測有限公司), a company established under the laws of the PRC on 8 February 2018 and a subsidiary of Quanzhou Water Group, which is one of our connected persons

“Quanzhou Water Supply” Quanzhou Water Supply Co., Ltd. (泉州市自來水有限公司), a company established under the laws of the PRC with limited liability on 12 July 2000 and a direct wholly-owned subsidiary of Quanzhou Water Group, which is one of our connected persons

“Quanzhou Xingyuan” Quanzhou Xingyuan New Material Technology Co., Ltd. (泉州興源新材料科技有限公司) (previously known as Quanzhou Xingyuan Plastic Co., Ltd. (泉州興源塑料有限公司)), a company established under the laws of the PRC with limited liability on 21 September 1994 and a direct non-wholly owned subsidiary of our Company, which is owned as to 60.0% by our Company, 20.0% by Quanzhou Water Supply and 20.0% by Quanzhou Water Engineering

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

“RMB” or “Renminbi” Renminbi, the lawful currency of the PRC

“SAFE” State Administration of Foreign Exchange of the PRC (中華人民共和國國家外匯管理局)

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

“SFC” the Securities and Futures Commission of Hong Kong

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

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

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

“Shares” ordinary shares in the share capital of the Company with a nominal value of RMB1.00 each, comprising Domestic Shares and [REDACTED]

“Sole Sponsor” China Industrial Securities International Capital Limited

“Special Regulations” the Special Regulations of the State Council on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies (國務院關於股份有限公司境外募集股份及上市的特別規定), promulgated by the State Council on 4 August 1994, as amended, supplemented or otherwise modified from time to time

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

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“subsidiary(ies)” has the meaning ascribed to it under the Listing Rules

“Supervisor(s)” the supervisor(s) of the Company

“Takeovers Code” the Codes on Takeovers and Mergers and Share Buy-backs, as published by the SFC (as amended, supplemented or otherwise modified from time to time)

“Track Record Period” the three years ended 31 December 2020

[REDACTED]

“United States” or “U.S.” the United States of America, its territories and possessions, any State of the United States and the District of Columbia

“Upontime Enterprises” Upontime Enterprises Limited (適時企業有限公司), a company established under the laws of Hong Kong with limited liability on 23 December 1993 and an Independent Third Party

“USD” or “U.S. dollars” United States dollars, the lawful currency of the United States of America

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[REDACTED]

“Xizang Laise” Xizang Laise Investment Co., Ltd. (西藏萊瑟投資有限公司), a company established under the laws of the PRC with limited liability on 22 May 2014 and is held as to 40.0% by Mr. Lan Qiang, our executive Director, vice chairman of the Board and general manager, and 60.0% by Mr. Lan Xiong, our Supervisor and Mr. Lan Qiang’s brother

“Xizang Ruoshui” Xizang Ruoshui Shanbang Investment Management Co., Ltd. (西藏若水善幫投資管理有限公司), a company established under the laws of the PRC with limited liability on 17 November 2015 and owned as to 25.4% by Mr. Lan Xiong, our Supervisor and Mr. Lan Qiang’s brother, and 74.6% by several Independent Third Parties

[REDACTED]

“Yongchun Lvdi” Yongchun Lvdi Water Co., Ltd. (永春縣綠地水務有限公司), a company established under the laws of the PRC with limited liability on 30 November 2012 and a direct non-wholly owned subsidiary of our Company, which is owned by our Company as to 90.0% and by Lvdi Environmental as to 10.0%

“Yunxiao Sangde” Yunxiao Sangde Water Co., Ltd. (雲霄桑德水務有限公司), a company established under the laws of the PRC with limited liability on 4 May 2018 and a direct non-wholly owned subsidiary of our Company, which is owned as to 85.0% by our Company and 15.0% by Beijing Sangde

“Zhonghai Qingyuan” Fujian Zhonghai Qingyuan Technology Co., Ltd. (福建省中海清源科技有限公司), a company established under the laws of the PRC with limited liability on 12 April 2016 and one of our connected persons

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“Zhongrongtai” Zhongrongtai (Xiamen) Equity Investment Fund Management Co., Ltd. (中融泰（廈門）股權投資基金管理有限公司), a company established under the laws of the PRC with limited liability on 15 May 2013 and an Independent Third Party

“%” Per cent

Certain amounts and percentage figures included in this document have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures preceding them.

Unless the context otherwise requires, the terms including “associate(s)”, “close associate(s)”, “connected person(s)”, “connected transaction(s)”, “core connected person(s)” and “substantial shareholder(s)” shall have the meanings ascribed to them under the Listing Rules.

If there are any inconsistencies between the Chinese names of entities or enterprises established in China and their English translations, the Chinese names shall prevail.

–41– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. GLOSSARY OF TECHNICAL TERMS

This glossary contains explanations of certain technical terms used in this document. As such, these terms and their meanings may not correspond to standard industry meanings or usage of these terms.

“A2O” a commonly used wastewater treatment process, whose biological reaction treatment process includes anaerobic phase, anoxic phase and aerobic phase

“A3O” a commonly used wastewater treatment process, whose biological reaction treatment process includes pre-denitration phase, anaerobic phase, anoxic phase and aerobic phase

“aerobic” an environment in which oxygen is present or a process which occurs only in the presence of oxygen

“anaerobic” an environment in which oxygen is absent or a process which occurs only in the absence of oxygen

“BOT” Build-Operate-Transfer

“BT” Build-Transfer

“building ownership certificate” building ownership certificate issued by relevant PRC Government authorities with respect to the ownership rights of buildings (房屋所有權證)

“CAGR” compound annual growth rate

“centralised wastewater treatment” the process of collecting wastewater through large-scale wastewater pipeline network and treating in centralised wastewater treatment plants. Centralised wastewater treatment is mainly applied in urban area with dense population

–42– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. GLOSSARY OF TECHNICAL TERMS

“concession operation” the business model of concession operation of wastewater treatment plant which is a third party operation model determined through business negotiation between local government and wastewater treatment concession operator. The wastewater treatment concession operator invests, constructs and operates the wastewater treatment facilities and also puts into materials and manpower, among others, to operate the facilities with the aim to help the plants to be in line with the wastewater emission standards. The wastewater treatment concession operator obtains revenue from the wastewater treatment concession operation

“Class I Standard A” the highest treated wastewater standard in GB18918-2002

“Class I Standard B” the second highest treated wastewater standard in GB18918-2002

“construction land planning permit” construction land planning permit issued by local urban zoning and planning bureaus or competent authorities in China (建設用地規劃許可證)

“construction work commencement construction work commencement permit issued by permit” local housing and urban-rural development bureaus or competent authorities in China (建築工程施工許可證)

“construction work planning permit” construction work planning permit issued by local urban zoning and planning bureaus or competent authorities in China (建設工程規劃許可證)

“decentralised wastewater treatment” the wastewater treatment model using medium-to-small wastewater treatment equipment in scattered wastewater discharge points with onsite or cluster pipeline network which conveys, treats, disposes or reuses wastewater effluent close to its point of generation

“EPC” engineering, procurement and construction

“EPC+O” engineering, procurement, construction and operation

–43– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. GLOSSARY OF TECHNICAL TERMS

“filtration” commonly the mechanical or physical operation which is used for the separation of solids from liquid by interposing a medium through which only the liquid can pass

“GB16889-2008” the Standard for Pollution Control on the Landfill Site of Municipal Solid Waste jointly promulgated by the MEP and the AQSIQ on 2 April 2008 and implemented on 1 July 2008

“GB18918-2002” the discharge standard of pollutants for municipal wastewater treatment plant, jointly promulgated by the MEP and the AQSIQ on 24 December 2002 and amended on 8 May 2006

“ISO” an acronym for a series of quality management and quality assurance standards published by International Organisation for Standardisation, a non-government organisation based in Geneva, Switzerland, for assessing the quality systems of business organisations

“ISO14001” an environmental management system standard that specifies requirements for an environmental management system to enable an organisation to develop and implement a policy and objectives which take into account legal requirements and other requirements to which the organisation subscribes, and information about significant environmental aspects

“ISO9001” a quality management system standard that is based on a number of quality management principles including a strong customer focus, the motivation and implication of top management, the process approach and continual improvement

“land use right certificate” state-owned land use rights certificate (國有土地使用證), a certificate (or certificates, as the case may be) of the right of a party to use a parcel of land

“m3” cubic metre, which is a volume unit, equal to the volume of a cube of one metre the length of each side

“m3/day” cubic metre per day

–44– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. GLOSSARY OF TECHNICAL TERMS

“MBR” membrane bio-reactor technology, a water treatment technology which combines biological reaction and membrane separation process, using low pressure microfiltration or ultrafiltration membranes and eliminating the need for clarification and tertiary filtration

“MBBR” moving-bed biofilm reactor technology, a water treatment technology which consists of an activated sludge aeration system where the sludge is collected on special plastic carriers. The aeration system keeps the carriers in motion so that the biomass on the carriers continues to grow and decompose the organic pollutants in the influent wastewater

“membrane” a selective barrier that allows the passage of certain constituents and retains other constituents found in liquid with degree of selectivity of a membrane depending on the membrane pore size, according to which the membranes can be classified as microfiltration, ultrafiltration, nanofiltration and reverse osmosis membranes

“OHSAS” an acronym for Occupational Health and Safety Management Systems, which provides a framework for organisations to identify and control its occupational risks and to improve their occupational safety and health performance

“OHSAS18001” the requirements for occupational health and safety management system developed for managing the occupational health and safety risks associated with a business

“O&M” operation and maintenance

“PE” polyethylene

“PP” polypropylene

“PPP” Public-Private Partnership, a government service or private business venture that is funded and operated through a partnership involving government and one or more private sector companies, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project

–45– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. GLOSSARY OF TECHNICAL TERMS

“PVC” polyvinyl chloride

“sedimentation” settling of suspended solids in a fluid through the natural process of gravity

“sq.m.” square metres

“Surface Water Quality Standard Class V of the Surface Water Quality Standard (GB Class V” 3838-2002) jointly promulgated by MEP and the AQSIQ on 28 April 2002

“Table II Standard for Landfill Site the landfill site pollution control standard set out in Pollution Control” Table II of GB16889-2008

“tonne(s)” metric tonne

“TOT” Transfer — Operate — Transfer

–46– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking statements and information relating to us and our subsidiaries that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. When used in this document, the words “aim”, “anticipate”, “believe”, “could”, “estimate”, “expect”, “going forward”, “intend”, “may,” “ought to”, “plan”, “project”, “seek”, “should”, “will”, “would” and the negative of these words and other similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. These forward-looking statements are based on numerous assumptions regarding our present and future business strategies and the environment in which we will operate in the future. Such statements reflect the current views of our management with respect to future events, operations, liquidity and capital resources, some of which may not materialise or may change. These statements are subject to certain risks, uncertainties and assumptions, including the risk factors as described in this document and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements, or industry results to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. You are strongly cautioned that reliance on any forward-looking statements involves known and unknown risks and uncertainties. The risks and uncertainties facing us which could affect the accuracy of forward-looking statements include, but are not limited to, the following:

• our business strategies and plans to achieve these strategies;

• our capital expenditure plans;

• our operation and business prospects;

• our financial condition;

• availability of bank loans and other forms of financing;

• our ability to control or reduce costs;

• our dividend policy;

• the actions of and developments affecting our major customers and suppliers;

• the ability to attract and retain our users;

• the ability of third parties to perform in accordance with contractual terms and specifications;

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

• future developments, trends and conditions in the industries and markets in which we operate;

• changes to the regulatory environment, policies, operating conditions and general outlook in the industries and markets in which we operate;

• general economic, political and business conditions in the PRC; and

–47– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FORWARD-LOOKING STATEMENTS

• certain statements included in the sections headed “Risk Factors”, “Industry Overview”, “Regulatory Overview”, “Business”, “Financial Information” and “Future Plans and [REDACTED]” in this document with respect to operations, margins, overall market trends, risk management and exchange rates.

By their nature, certain disclosures relating to these and other risks are only estimates and should one or more of these uncertainties or risks materialise or should underlying assumptions prove to be incorrect, our financial condition and actual results of operations may be materially and adversely affected and may vary significantly from those estimated, anticipated or projected, as well as from historical results.

Subject to the requirements of applicable laws, rules and regulations, we do not have any and undertake no obligation to update or otherwise revise the forward-looking statements in this document, whether as a result of new information, future events or otherwise. As a result of these and other risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this document might not occur in the way we expect or at all. Accordingly, the forward-looking statements are not a guarantee of future performance and you should not place undue reliance on any forward-looking information. Moreover, the inclusion of forward-looking statements should not be regarded as representations by us that our plans and objectives will be achieved or realised. All forward-looking statements in this document are qualified by reference to the cautionary statements in this section.

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

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You should carefully consider all of the information in this document, including the following risk factors before making any investment decision in relation to the [REDACTED]. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The market price of the [REDACTED] could fall significantly due to any of these risks, and you may lose all or part of your investment.

We believe that there are certain risks involved in our operation, many of which are beyond our control. We have categorised these risks and uncertainties into: (i) risks relating to our business and industry; (ii) risks relating to doing business in China; and (iii) risks relating to the [REDACTED]. Additional risks and uncertainties that are presently not known to us or not expressed or implied below or that we currently deem immaterial could also harm our business, financial condition and operating results. You should consider our business and prospects in light of the challenges we face, including the ones discussed in this section.

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

1. The regulations and policies for wastewater treatment in the PRC may be delayed in implementation and execution or unfavourably changed which could cause adverse effect to our profitability, competitiveness and growth.

We operate within an industry where regulatory standards play a critical role in influencing the demand for our services. Any changes in legislative, regulatory or industrial requirements may necessitate the upgrades and improvements of certain of our wastewater treatment technologies, equipment and services.

The governments at various levels in the PRC have promulgated policies favourable to the wastewater treatment industry and have stated their intentions to increase spending in such industry. For example, at the national level, the Regulations on Urban Drainage and Sewage Treatment《城鎮排水與污水處理條例》 ( ), the Measures for the Administration of the Subsidy Fund for Urban Pipe Networks and Sewage Treatment《城市管網及污水處理補助資金管理辦法》 ( ), the National Urban Wastewater Treatment and Recycling Facilities Construction Plan During the 13th Five-year Plan Period《 ( “十三五”全國城鎮污水處理及再生利用設施建設規劃》), the Guiding Opinions on Promoting Rural Domestic Wastewater Treatment《關於推進農村生活污水 ( 治理的指導意見》), and the Three Year Action Plan for Residential Environment Renovation (《農村人居環境整治三年行動方案》) have been issued and promulgated to promote the development of wastewater treatment industry. At the provincial level in Fujian, the Three Year Implementation Action Plan for Fujian Residential Environment Renovation《福建省農村人居 ( 環境整治三年行動實施方案》) and the Implementation Opinions of the Fujian Provincial People’s Government on Accelerating the Construction of Domestic Sewage Treatment Facilities in Towns and Townships《福建省人民政府關於加快推進鄉鎮生活污水處理設施建設的實施意見》 ( ) have been formulated and promulgated to promote the development of the wastewater treatment industry.

The implementation of these policies and plans may be delayed, and we cannot assure you how and whether the government authorities will indeed execute such policies and plans. Nor can we predict the precise impact on the wastewater treatment industry arising from the actual implementation of these policies and plans. Even if such policies and plans are duly executed,

–49– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS we cannot assure you that they would bring increased demand to our business and we may not receive the substantive benefits we expect.

Meanwhile, changes in environmental regulations and policies may heighten the quality standard requirements for our business and lead to higher operational costs. We may also fail to seize the business opportunities provided by the heightened quality standards.

If we were unable to take advantage of the favourable regulations and policies and adapt to changes in policies, regulations and industry standards in a cost-effective manner, our profitability, competitiveness and growth could be adversely affected.

2. Any adverse change in the economic development, social conditions, government policies or natural conditions of Fujian could materially and adversely affect our business, financial condition, results of operations and prospects.

For the three years ended 31 December 2020, revenue derived from our operations in Fujian accounted for approximately 87.6%, 93.6% and 98.6% of our revenue, respectively. While we will continue to grow our operations outside of Fujian, we expect that a substantial portion of our revenue will continue to be derived from Fujian in the near term.

In light of the concentration of our business in Fujian, we are subject to risks associated with this geographic region. Any slowdown in Fujian’s population growth or economic development could affect the demand for our wastewater treatment equipment and integrated solutions. During an economic slowdown, there may be less administrative and regulatory support for decentralised wastewater treatment business. In addition, local governments may prioritise economic growth over environmental protection, which may materially adversely affect our business. Moreover, any natural disasters in Fujian could also jeopardise our operations.

If there is any adverse change in the social conditions, economic development, natural conditions or government policies in Fujian, our business, financial condition, results of operations and prospects could be materially and adversely affected.

3. We recognise revenue during the construction phase of our projects of concession operation services under BOT model, but typically do not receive any actual payments until the operational phase, which may result in negative operating cash flow during the construction periods, cash flow mismatch with our revenue, long payback period under the operational phase to make up such mismatch, irrecoverability of contract assets and trade receivables under such projects and impairments or write-offs for the trade receivables, intangible assets or financial assets during the operation phase that would adversely affect our results of operations and liquidity.

For each of our projects of concession operation services under BOT model, we receive cash tariff payments during the operational phase of the relevant BOT projects over the stipulated concession period from the relevant customer based on the contractually agreed pricing formula. We usually do not receive payments from our customers during the construction phase of these projects. As a result, there were periods during which we experienced net cash outflows for a particular project as well as on an overall basis, which could

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Moreover, if the relevant projects do not materialise or if we are unable to recover the contract assets and trade receivables incurred under the BOT projects, we may need to recognise impairments or write-offs in the operational periods for the related trade receivables intangible assets or financial assets. We cannot assure you that impairments or write-offs will not occur in the future, in which case our financial condition, liquidity and results of operations may be materially and adversely affected.

4. We have had and expect to continue to have high levels of trade receivables due to our customer base, business nature and other factors.

We are subject to the credit risks of our customers and our profitability and cash flow are dependent on timely payments by our customers for the products and services we provide to them. We had trade receivable of approximately RMB46.0 million, RMB88.7 million and RMB175.0 million as of 31 December 2018, 2019 and 2020, respectively, among which, approximately 36.7%, 34.0% and 16.5% was aged more than one year as of the respective dates. See “Financial Information — Discussion of certain Items from the Consolidated Balance Sheets — Trade Receivables” for details. There is no guarantee that all of our customers will conduct the inspection and make the progress payment on a timely basis after our submission of progress payment applications, since government entities, state-owned enterprises and public institutions may delay settlement of payments due to the time required for their internal approval procedures. Any failure to collect all or a portion of such outstanding balances in a timely manner may pose difficulties for us to effectively manage our working capital, which may materially and adversely affect our liquidity position. In addition, the process of collecting outstanding balances from our customers could be time-consuming and administratively cumbersome and may divert a significant amount of management time and other administrative resources from our business operations. In circumstances where we have to resort to legal means to collect our fees from our customers, we may have to incur substantial legal and other expenses and divert our management’s attention from business operations. If our customers fail to make payment to us on time or if they default in all or a substantial portion of their payment obligations to us, our results of operations, liquidity and financial condition may be materially and adversely affected.

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5. Our gross profit margin and profitability may be affected by changes in our mix of revenues.

Our gross profit may fluctuate from period to period due to a change in the mix of services and products we provided due to adjustment of our business strategies. Our overall gross profit margin was approximately 49.5%, 34.8% and 26.8% for the three years ended 31 December 2020, respectively. Adjustment in the mix of our revenue contributed by our different business segments (or by adjustment in the portfolio of individual services or products within such businesses segments) can impact our gross profit because they generally produce a different level of gross profit margin. For example, in general our sales of pipes and pipe fittings and concession operation services under BOT model segments have had lower gross profit margins compared to our sales of wastewater treatment equipment, decentralised wastewater treatment facility construction and others segments. These individual gross profit margins in turn can be impacted in any given period by factors such as competition, the implementation of new regulatory requirements and other factors. If the mix of services and products sold changes from higher gross profit margin business segments to lower gross profit margin segments (or to lower gross profit margin services and products within the same business segments), our overall gross profit margin and profitability may be adversely affected.

6. We have not obtained valid title certificates or relevant authorization documents evidencing the rights to lease or completed the registration with the relevant PRC authorities for some of the properties or lands that we occupy.

As of the Latest Practicable Date, in relation to two of our leased properties with a total gross floor area of approximately 1,718.14 sq.m., and two parcels of land in relation to our BOT projects with an aggregate site area of approximately 54,310 sq.m., the landlords had not provided us with valid title certificates or relevant authorization documents evidencing their rights to lease the properties to us. As a result, these leases as mentioned above may not be valid, and there are risks that we may not be able to continue to use such properties or lands. Moreover, as of the Latest Practicable Date, all the leased properties occupied by us have not been registered with the relevant PRC authorities. We may be subject to a fine of no less than RMB1,000 and not exceeding RMB10,000 for each unregistered lease agreement if the relevant PRC government authorities require us to rectify and we fail to do so within the specified time. See “Business — Properties” for details. We cannot predict how our rights as lessee of these properties and lands, our business operations and financial condition may be adversely affected as a result of our failure to obtain the legal titles to occupy or use these properties and lands. We cannot guarantee that ownership disputes or claims will not occur or that third parties will not assert any claims against us for compensation in respect of any illegal and/or unauthorized use of their properties and lands. We also cannot ascertain whether our occupation and use of these properties and lands will be punished by relevant government authorities. The occurrence of any of the above will adversely affect our business, financial condition and operating results.

7. Our projects are subject to construction and operational risks, including any accidents, disruptions or delays which may occur during the construction and operation periods.

During the subcontractors and operation periods, risks which can neither be accurately predicted nor evaluated at the beginning of the projects may later emerge and cause our actual

–52– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS revenue, construction costs and operational costs to deviate significantly from our initial projections. The construction and operation of our projects, including any new project that we undertake, could be adversely affected by a number of factors, including:

• the subcontractors hired by us may not be able to complete the design, construction or installation work for our projects on time, within budget or to the specifications or standards set out in our contracts with them;

• customers may refuse to accept, or may delay the acceptance of, our decentralised wastewater treatment equipment or services;

• shortages of, and price increases in, equipment or materials;

• labour shortages or disputes;

• accidents during the construction, installation or operation of our wastewater treatment equipment;

• delays due to the difficulties in expropriation of agricultural land and exploration of terrain in rural areas;

• delays due to factors such as fires, earthquakes or other natural disasters; and

• other unanticipated circumstances, including cost increases.

If we are not able to timely mitigate the influences of these factors, our business, financial condition, results of operations and prospects could be materially and adversely affected.

8. We have limited control on our distributors for the sales of pipes and pipe fittings , and we cannot assure you that our distributors will continuously operate their distribution business in compliance with relevant laws and regulations or their obligations under the applicable distribution agreement or continue to maintain the existing relationship with us.

Quanzhou Xingyuan, one of our non-wholly owned subsidiaries, has engaged during the Track Record Period and is expected to continue to engage third-party distributors to sell pipes and pipe fittings manufactured by it. For the year ended 31 December 2019 and 2020, the revenue generated by sales of pipes and pipe fittings derived from distributors were approximately RMB49.8 million and RMB32.1 million, accounted for 47.0% and 37.5% of the total revenue of Quanzhou Xingyuan, respectively. As of 31 December 2020, Quanzhou Xingyuan co-operated with 100 distributors.

We have limited control over the activities of our distributors and we cannot assure you that our distributors will continuously operate their distribution business in compliance with relevant laws, regulations or our agreements with them. If our distributors improperly use our brands, products or intellectual property rights, it could damage our reputation and brand image, undermine customers’ confidence in us and reduce their long-term demands for our products, which in turn will cause a material adverse effect on our business, financial conditions and results of operations.

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In addition, we cannot assure you that we can continue to maintain our existing relationships with our distributors. Quanzhou Xingyuan typically enters into agreements with our distributors for a term of one to two years or only enters into one-off purchase orders with them. Our distributors might elect not to renew their agreements with us or otherwise terminate their business relationships with us for various reasons. For example, if price fluctuation or other factors substantially reduce the margins they can obtain through the resale of our products to end-customers, they may terminate their agreements with us. If any of our major distributors, or a significant number of our distributors, voluntarily or involuntarily suspend or terminate their relationships with us, or we are otherwise unable to maintain and expand our distribution network effectively, our sales volumes and business prospects could be adversely affected. See “Business — Sales, Marketing and Distribution — Distribution Arrangement for Sales of Pipes and Pipe Fittings” for details.

9. Our research and development initiatives may not be sufficient to ensure that we remain up-to-date and competitive.

Our continued success and competitiveness depend on, among others, our ability to develop and improve our wastewater treatment techniques. These techniques are subject to continuous evolution and changes. The development process can be time-consuming and expensive. The duration of the development process is subject to many risks such as delays in producing or failure to produce test results, data or analysis, inadequate or inconclusive results, changes in regulatory policies or industry standards or delays by government or regulatory authorities. We cannot assure you that we will be able to keep up with changes in technology and techniques in a timely manner or at a reasonable cost. If we are unable to continue developing our techniques or if there are fundamental technological changes in the industry to which we cannot adapt, we may not be able to remain competitive in our industries, and our business, results of operations and financial condition could be materially and adversely impacted.

Furthermore, changes in regulations or standards for wastewater treatment may necessitate the use of new technologies or the improvement of our existing techniques. We may need to develop new technologies, upgrade existing techniques or upgrade existing equipment to meet the standards imposed by the relevant regulatory authorities, which could require more financial, human or other resources. Our ability to keep up with such new regulatory standards will significantly affect our ability to grow and to remain competitive. In the event that we are unable to develop or source new and enhanced wastewater treatment services to keep up with such technological changes in a timely manner or at a reasonable cost, we may not be able to maintain our competitive edge and our market share and profits may be adversely affected.

10. We may not be able to acquire, secure, develop and execute new projects to grow our business.

We secure our projects through both tenders and direct negotiations. Our prior success in securing business is no guarantee of our future success under similar circumstances. Our ability to acquire, secure, develop and execute our projects also depends on a number of factors, many of which are beyond our control, including:

• national and local government policies and regulatory requirements, including environmental standards and the level and effectiveness of government promulgation of environmental protection measures;

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• the development of our target markets, including the development of local economies and local population growth and the resulting demand for wastewater treatment; and

• national and local economic conditions.

We may experience difficulties performing the obligations for our projects after they have been awarded or signed, which may damage our reputation and track record and substantially increase the difficulty of securing new business opportunities. To the extent that there are cost overruns, our profit may be reduced. In addition, failure of our counterparties to make timely payments, cooperate with us to operate the wastewater treatment equipment or otherwise fulfil their contractual obligations may make it more difficult, expensive or impossible for us to fulfil our obligations.

We have traditionally competed primarily with other companies based in Fujian and other surrounding areas. To the extent that such companies become more competitive than us or begin to compete more frequently for our tenders or directly negotiated contracts, our business, pricing, profitability and market share may suffer.

11. Our expansion may put significant strains on our managerial, operational and other resources.

We intend to further grow our business by acquiring other projects and expanding our scope of services in existing business areas. Our expansion requires improvements in our operational and internal controls.

Other difficulties executing this growth strategy include:

• securing suitable projects with desirable profit margins;

• managing transportation and logistics risks in connection with transportation, installation, connection or for other reasons;

• accurately anticipating the costs and equipment needed to meet our obligations;

• obtaining construction, environmental and other permits and approvals;

• managing local operational or capital investment requirements;

• identifying, attracting and retaining qualified technical and other expertise;

• increasing our production capacity to address growing market need; and

• collecting fees as expected.

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Moreover, as we expand into new markets, we may face different regulatory regimes, business practices, government requirements and industry conditions. To the extent that we are not able to expand effectively, our business, financial condition, results of operations and prospects may be materially or adversely affected.

12. We may not be able to finance the planned growth of our business.

Our ability to arrange for external financing and the costs of such financing are dependent on various factors, including general economic conditions, access to bank financing, continued operating performance of our business, investors’ assessment of our credit risk, benchmark interest rates and credit availability from banks and other lenders. If we fail to obtain financing or refinancing for the projects in the amounts required, we may need to finance the projects from our internal resources, which may strain our resources for other corporate purposes. To the extent that external sources of funding become limited or unavailable or available only on onerous terms, we could delay our projects, reduce the scope of projects or abandon our projects, or default on contractual commitments.

13. We depend on a stable and adequate supply of equipment and consumables and other goods and services from our top five suppliers. A significant price increase or interruption of such supplies or services could potentially disrupt our operations.

We procure raw materials, equipment and other goods and services necessary for our operations. For the three years ended 31 December 2020, purchase costs from our top five suppliers accounted for approximately 35.7%, 25.2% and 46.2% of our total purchase costs, respectively. In the event of significant price increases for such supplies or any other suppliers, we cannot assure you that we may be able to raise the prices of our services and products sufficiently to cover increased costs or transfer the increased costs of our suppliers to customers by increasing the prices of our services and products. As a result, any significant price increase for our raw materials may have an adverse effect on our profitability. We also outsource certain aspects of our construction services to subcontractors. See “Business — Suppliers — Subcontractors and Subcontracting Arrangements” for details. In order to meet the increasing demand arising out of our growth in business, we might be required to increase our outsourcing of the abovementioned services. However, as we grow, our existing partners may not be able to meet our increasing demand, and we may need to find additional subcontractors. There is no assurance that we will always be able to secure suppliers who provide products or services at the specification, quantity and quality levels that we demand or be able to negotiate acceptable prices and terms of products or services with suppliers or subcontractors. Our suppliers or subcontractors may reduce or cease their supply and outsourced services to us at any time in the future. In addition, we cannot assure you that our suppliers and subcontractors have obtained and will be able to renew all licenses, permits and approvals necessary for their operations or complied and will be able to comply with all applicable laws and regulations, and failure to do so by them may lead to interruption in their business operations, which in turn may result in a shortage of products and services supplied to us. If the supply of raw materials and the outsourced services are interrupted, our production processes would be delayed. If any such event occurs, our operations and financial position may be adversely affected.

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14. We may not be able to effectively manage our inventory levels.

Our inventory are mainly raw materials we procured, as well as equipment we manufactured which have not been delivered to our customers. We manage our inventory levels based on our forecasts of customer demand for our products and services. As of 31 December 2018, 2019 and 2020, our inventories were approximately RMB10.1 million, RMB42.4 million and RMB43.2 million, respectively. Our inventories increased significantly after we acquired Quanzhou Xingyuan in 2019. If we fail to manage our inventory levels effectively, we may be subject to a heightened risk of inventory obsolescence, a decline in the value of inventories, and potential inventory write-downs or write-off. Procuring additional inventories may also require us to commit substantial working capital, preventing us from using such capital for other purposes. Any of the foregoing may materially and adversely affect our results of operations and financial condition.

15. Our business is subject to seasonality and our performance for certain months may not be representative for the entire year.

Our sales are typically higher in the second half of the year, as government budgets are typically set during the first half of the year and projects are typically launched during the second half of the year. Moreover, production and construction activities in the PRC tend to slow down during the Lunar New Year holiday period. Therefore, the demand for our wastewater treatment equipment and services decreased noticeably during this period as compared to other times of the year. Any reduction in demand of our services during the low season may have an adverse impact on our revenue and financial performance. As a result, our results of operations for those months may not be representative of our results of operations for the year.

16. We may fail to meet our contractual or regulatory standards for wastewater treatment.

Our wastewater treatment equipment is built to treat wastewater to specified quality standards, which depends on the normal operation of our equipment. Our wastewater treatment may fail to meet our customers’ standards for a variety of reasons, including unknown or undiscovered defects or compatibility problems with our equipment. Our staff may not be able to timely discover and repair malfunctioning equipment or any other problems with our treatment process or equipment. In these instances, our equipment may not be able to treat wastewater in compliance with the relevant contractual standards, which could result in claims from our customers against us, and lead to the suspension of our product or service provision pending rectification as well as reputational damage.

In accordance with the Water Pollution Prevention Law of the PRC《中華人民共和國水污 ( 染防治法》), the discharge of pollutants shall not exceed the national or local standards for discharging water pollutants and the total discharge of major pollutants shall be controlled and minimised. Any enterprise, institution or other production or business operator that discharge water pollutants exceeding the standards for discharging water pollutants or exceeding control target of the total discharge of major water pollutants may be subject to administrative penalties, such as fines, being ordered to restrict production, stop production for rectification, or even being ordered to suspend business or close down. We may be liable and required to stop providing the equipment to the extent that we were negligent in providing our products.

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In addition, the incoming wastewater to be treated by our equipment may contain pollutants exceeding the types and quantity we contemplated during the design and construction of the equipment, due to, among other things, excessive discharge of pollutants or other events beyond our control. Any excessive pollution levels of the wastewater coming into our equipment may adversely affect the operating costs and earnings of such equipment due to the higher costs of treating the wastewater to meet the quality standards specified in the agreements with our customers. Moreover, should the types or amounts of pollutants in the wastewater increase significantly, the excessive pollution could damage or accelerate the deterioration of our equipment, and might force us to stop the treatment of wastewater. Any of the foregoing could subject us to liability and damage our reputation, which could adversely affect our business, financial condition, results of operations and prospects.

17. We have limited history for certain of our business segments.

We began our business of decentralised wastewater treatment facility construction services in 2016, and our concession operation services under BOT model and sales of pipes and pipe fittings in 2019; therefore, it may be difficult to accurately evaluate the performance and future prospects of our business. We have encountered and will continue to encounter difficulties and risks frequently experienced by growing businesses in the wastewater treatment, including those related to:

• our ability to successfully maintain and expand our business;

• our ability to successfully manage any acquisitions; and

• general economic, political and regulatory conditions in our markets.

Our rapidly evolving business and, in particular, our relatively limited history undertaking decentralised wastewater treatment services may not be an adequate basis for evaluating our business prospects and financial performance, and makes it difficult to accurately predict our future results of operations. If we do not manage these risks successfully, our business, financial condition, results of operations and prospects could be materially and adversely affected.

18. Unexpected circumstances may lead to the failure of our wastewater treatment equipment or shutdowns, personal injuries or damage to the environment.

Our wastewater treatment equipment contains sensitive components and is susceptible to failures or accidents, including failures or accidents due to severe weather conditions and natural disasters. Because of the complex nature of the equipment, any interruption resulting from equipment failures, fire, explosion, industrial accidents, natural disaster or otherwise could cause losses in operational capacity. Operations are subject to human negligence, deliberate sabotage, labour disruptions, unscheduled downtimes and other occupational hazards. Some of these operational hazards may cause personal injury or loss of life, damage to or destruction of assets, property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil liabilities or criminal penalties.

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19. We may subject to fines and penalties under PRC laws for failure to make full contributions for social insurance and housing provident fund for our employees.

Pursuant to the relevant PRC laws and regulations, employers in the PRC are required to make social insurance contributions and housing provident fund contributions for their employees, and entities failing to make contributions may be ordered to settle the outstanding contributions within a prescribed time limit and subject to penalties or fines. During the Track Record Period, we did not make adequate contributions to social insurance fund and housing provident fund for our employees. There is no assurance that we will not be subject to penalties or fines imposed by the relevant PRC governmental authorities as a result of such non-compliance incidents or be ordered to rectify such non-compliance incidents. There is also no assurance that there will not be any employee complaint against us in relation to our failure to make full social insurance and housing provident fund contributions. Any such penalties, fines, orders or complaints may harm our corporate image and may have an adverse effect on our financial condition and results of operations. See “Business — Legal Proceedings and Non-compliance — Non-compliance” for details.

20. Changes in fair value of financial assets at fair value through profit or loss are linked to market and therefore subject to uncertainties of accounting estimates in the fair value measurement and the use of significant unobservable inputs in the valuation techniques.

Our financial assets at fair value through profit or loss primarily represent our investments in the bank financial products from commercial banks in the PRC. We had financial assets at fair value through profit or loss in the amount of nil, nil and RMB33.5 million, respectively, as of 31 December 2018, 2019 and 2020, respectively. For the three years ended 31 December 2020, our fair value gains on these financial assets were nil, nil and RMB13 thousand, respectively, which were recognized under our other losses/(gains) – gains from changes in fair value of financial assets at fair value through profit or loss. See “Financial Information — Discussion of Certain Items from the Consolidated Balance Sheets — Financial Assets at Fair Value through Profit or Loss” for details. Such financial assets are measured at fair value with unobservable inputs used in the valuation techniques and the changes in their fair value are recorded in our consolidated statements of comprehensive income, therefore directly affecting our results of operations. There is no assurance that we will not incur any fair value losses in the future. If we incur significant fair value losses on the financial assets, our results of operations, financial condition and prospects may be adversely affected.

21. We may be subject to penalties from the PBOC or adverse judicial rulings as a result of financings arrangement with related parties.

During the Track Record Period, our amounts due to related parties of non-trade nature were approximately nil, RMB100.4 million and RMB0.1 million respectively. Amounts due to related parties of non-trade nature primarily represent (i) the loans and interest due to Haisi Environmental, and (ii) certain advances paid by related parties. Our PRC Legal Advisers have advised us that Article 61 of the General Lending Provisions (貸款通則) issued by the PBOC prohibits any financing arrangements or lending transactions between non-financial institutions. Further, pursuant to Article 73 of the General Lending Provisions, the PBOC may impose on the non-compliant lender a fine of one to five times the income received by the lender from such loans. We may be subject to penalties from the PBOC or adverse judicial rulings as a

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22. Our insurance coverage may not adequately cover the risks related to our business and operations.

We hold employee and construction insurance for our employees and projects. We cannot assure you that insurance proceeds from these policies will adequately cover all losses sustained or that insurance from the relevant policies will continue to be available in the future in amounts adequate to insure against our operational losses or property damage.

Various factors outside of our control may affect the availability of insurance coverage, as well as premium levels for our policies. If the availability of insurance coverage is significantly reduced, we may become exposed to certain risks for which we are not or cannot be insured. In addition, we cannot assure you that comprehensive insurance coverage will be available in the future or on commercially reasonable terms. If premium levels for insurance coverage required for our operations or equipment increase significantly, we could incur substantially higher costs for such coverage, which could have a material adverse effect on our business, financial condition, results of operations or prospects.

We do not fully insure against all operating hazards, including the risks of war, terrorism, expropriation, nationalization, renegotiation or nullification of existing contracts or changes in taxation policies.

Our ability to recover proceeds pursuant to our insurance policies may be subject to financial limitations on the liability of our respective insurance policies. There may also be thresholds to the amount of loss suffered and the duration of loss before insurance proceeds are paid to us. We may also be subject to restrictions on the amount recoverable for certain types of losses. Such insurance policy provisions restrict our ability to claim for the full amount of our losses, which may subject us to damage that may materially and adversely affect our business, financial condition, results of operations and prospects.

23. We are dependent on our key management team and employees and the loss of their services without timely and suitable replacement or the misconduct by them could adversely affect our operations.

Our continued success is dependent to a large extent on our ability to retain the services of our key management personnel. The loss of their services without timely and suitable replacement could adversely affect our operations and as a result, our revenue and profit. Our continued success and the implementation of our expansion plans depend largely on our ability to attract and retain high employees, including technical personnel, executive officers, business development personnel and project managers, who have the necessary and required experience and expertise to conduct our business. If we are unable to attract and retain a sufficient number of suitably skilled and qualified technical specialists, our business, financial condition, results of operations and prospects could be materially and adversely affected.

In addition, misconducts by our management team or employees may harm our business and reputation. We may not be able to prevent, detect or deter all misconduct of the

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24. A portion of our business is and will continue to be conducted with the associate of our Controlling Shareholder, namely Quanzhou Water Group, and the potential conflict of interests with our Controlling Shareholder or negative publicity against our Controlling Shareholder could have an adverse effect on our business and operation.

We have historically been engaged in a variety of transactions with the associates of our Controlling Shareholder, namely Quanzhou Water Group, and we will continue to enter into transactions with them in the future. See “Connected Transactions” for details.

Our dealings with connected persons and their associates have been conducted on an arm’s length basis. We anticipate that transactions with our connected persons, the Controlling Shareholder and its subsidiaries, in particular, will continue to represent a proportion of our business in the future which could expose us to potential conflict of interests with our Controlling Shareholder that could have an adverse effect on our business and operation. We have applied for and the Stock Exchange [has granted] us a waiver from the strict compliance with certain requirements under Chapter 14A of the Listing Rules in relation to our continuing connected transactions with the Controlling Shareholder and its subsidiaries after the [REDACTED]. See “Connected Transactions” and “Relationship with our Controlling Shareholders” for details.

In addition from time to time, we, our Controlling Shareholders or any of our affiliates may be subject to negative publicity in relation to our or their business or staff, including publicity covering issues such as anti-corruption, safety and environmental protection. Such negative publicity, however, even if later proven to be false or misleading, could lead to a temporary or prolonged negative perception against us by virtue of our affiliation with such Controlling Shareholders or affiliates. Our reputation in the marketplace is important to our ability to generate and retain business. In particular, damage to our reputation could be difficult and time-consuming to restore, and our business, financial condition, results of operations and prospects may be materially and adversely affected.

25. Our projects are subject to national and local legal and regulatory requirements, licenses, permits or approvals which may increase compliance costs and uncertainties.

Our operations are subject to a variety of laws and regulations promulgated by the national and local governments. We may experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws and regulations.

In particular, our operations are subject to various environmental, health and safety laws and regulations, including those relating to water, air and noise pollution, the management of hazardous and toxic chemicals, materials and waste and workplace conditions and employee exposure to hazardous substances. Evolving environmental regulations may require major expenditures for obtaining permits and regulatory compliance and can create the risk of expensive delays or material impairment of project value. For instance, according to the

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Environmental Protection Law of the PRC《中華人民共和國環境保護法》 ( ), a producer or operator that discharges pollutants in violation of the law, or discharges pollutants in excess of pollutant discharge standards or the controlling indicators for total emission volume of major pollutants may bear civil liability for compensation for environmental damage, and may be subject to administrative penalties, such as fines, being ordered to restrict production, stop production for rectification, or even being ordered to suspend business or close down, and also may be investigated for criminal liability in accordance with the law if a crime is constituted.

In addition to the risk of costly and time-consuming regulatory compliance, we cannot assure you that we will obtain all required approvals, licenses and permits. During the Track Record Period, we failed to obtain the relevant construction permits for two of our acquired wastewater treatment BOT projects. There is no assurance that we will not be subject to penalties or fines imposed by the relevant PRC governmental authorities as a result of such non-compliance incidents or be ordered to rectify such non-compliance incidents. We may also be ordered to demolish the buildings or structures of the two projects, or be confiscated the earnings from such projects by the government authorities. See “Business — Legal Proceedings and Non-compliance — Non-compliance” for details.

Failure to comply with applicable laws, regulations, licensing, permit or approval requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. We may be required to compensate those suffering loss or damage by reason of our activities, and may have civil or criminal fines or penalties imposed upon us for violations of applicable laws or regulations. Any change in the laws, regulations or policies affecting us or our operations, or their interpretation, could materially and adversely affect our operations or increase our compliance expenses, which could, in turn, materially and adversely affect our business, financial condition, results of operations and prospects.

26. The preferential tax treatment we currently enjoy could be unfavourably changed or discontinued and we may be subject to fines and penalties if we failed to fully comply with tax related laws and regulations.

Our results of operations and profitability are affected by changes in tax rates in the PRC. Our Company and two of our subsidiaries enjoy preferential tax treatment. Our effective tax rates may change due to the existence or expiration of any preferential tax treatment. We enjoyed tax incentives of levying enterprise income tax at a reduced tax rate of 15% for high-tech enterprises from 2018 to 2020, and enjoyed additional pre-tax deduction tax incentives for 75% of the actually incurred research and development expenses in 2018, 2019 and 2020. Moreover, Fujian Lvdi is entitled to the preferential tax policy of exemption from EIT from 2017 to 2019 and reduction by half of EIT from 2020 to 2022. And Yongchun Lvdi, one of our subsidiaries, is also entitled to the preferential tax policy of exemption of EIT from 2018 to 2020 and reduction of EIT by half from 2021 to 2023. We cannot assure you that the PRC policies with respect to the preferential tax treatment we currently enjoy would not be unfavourably changed or discontinued, or that the approval for such preferential tax treatment would be granted to us in a timely manner, or at all. The termination or expiration of our preferential tax treatment or the imposition of additional taxes on us may lead to an increase in our expenses and may have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, we may be subject to fines and penalties if we failed to fully comply with the tax

–62– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS related laws and regulations. There is no assurance that we will not be subject to penalties or fines imposed by the relevant PRC governmental authorities as a result of our failure to fully comply with tax related laws and regulations.

27. We may become involved in costly and time-consuming litigation and other regulatory proceedings, which require significant attention from our management.

We may be involved in disputes with various parties while providing decentralised wastewater treatment equipment and services, including local governments, suppliers, customers and subcontractors. These disputes may lead to legal or other proceedings and may result in substantial costs, delays in our development and operation schedule, and the diversion of resources and management’s attention, regardless of the outcome. In addition, labour disputes could significantly disrupt our operations or our expansion plans. We may also have disagreements with regulatory bodies in the course of our operations in relation to our non-compliance matters, which may subject us to administrative proceedings and unfavourable decisions that result in penalties or delay or disrupt the development and operations of our wastewater treatment equipment. In such cases, our results of operations could be materially and adversely affected. See “Business — Legal Proceedings and Non-compliance” and “Business — Properties — Land Related to our Concession Projects” for details.

28. We may fail to adequately protect our intellectual property rights or could face claims for infringement of the intellectual property rights of others.

We rely on patents and trademarks to protect our proprietary rights and as one of the key strategic advantages of our business. As of the Latest Practicable Date, we had 50 registered patents, nine registered software copyrights, 26 registered trademarks and 28 patent applications in the PRC. See “Appendix VI — Statutory and General Information — 2. Further Information about Our Business — B. Intellectual Property Rights” for details. Monitoring unauthorized use of our intellectual property is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technologies. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our technologies.

Additionally, applicable laws may not fully protect our intellectual property rights. Any claims that we may initiate in the future to protect our intellectual property rights could be time consuming and expensive and could divert resources from our business regardless of whether or not the disputes are decided in our favour. Moreover, any significant infringement upon our technologies and techniques could weaken our competitiveness, increase our operating costs and have an adverse effect on our operations.

Moreover, as we expand our business and increase our geographical coverage, third parties may assert that our technologies or techniques infringe upon their intellectual property rights. We cannot assure you that we will not face any claims for infringement of the intellectual property rights of others. These claims could adversely affect our relationships with current or future customers, divert management attention and resources and result in substantial expenses, thereby adversely affecting our business, financial condition, results of operations and prospects. For example, six trademarks comprising “藍深” had been registered under the names of two Independent Third Parties, one being a company mainly engaged in the manufacturing of sewage pump and submersible pump, and the other being a company mainly engaged in the water treatment industry, and our use of the business name “藍深” may bring infringement or unfair competition claims from third parties. See “Business — Intellectual Property” for details.

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Intellectual property rights litigation can be costly and time-consuming, and could divert our management’s attention from business operations. In addition, should we be held liable for trademark infringement, our reputation as well as our business, financial condition and results of operations may be materially and adversely affected.

29. We had to a certain degree relied on bank borrowings to finance our projects, and any increase in interest rates or breach of restricted covenants in our financing agreements may materially and adversely affect our business, financial condition and results of operations.

During the Track Record Period, we had to a certain degree relied on bank borrowings to finance our projects. As of 31 December 2018, 2019 and 2020, our outstanding borrowings were nil, RMB50.0 million and RMB366.8 million, respectively. See “Financial Information — Indebtedness and Contingent Liabilities” for details.

We expect to continue to utilise bank loans to finance a portion of our investments in our projects. As our bank loans are principally denominated in Renminbi, the interest rates on our loans are primarily affected by the benchmark interest rates set by the PBOC. In the PRC, the PBOC regulates the lending rates and reserve requirement ratios for commercial banks. Between 2012 and the Latest Practicable Date, the PBOC has changed the benchmark lending rate and adjusted the reserve requirement ratio for commercial banks several times. The reserve requirement refers to the amount of funds that banks must hold in reserve with the PBOC against deposits made by their customers. Increases in the bank reserve requirement ratios may negatively impact the amount of funds available to commercial banks in the PRC to lend to businesses, including our Company. The benchmark one-year lending rate is currently 4.35%, effective from October 24, 2015. Accordingly, changes in the interest rate may affect, our finance costs and profitability. We cannot assure you that the PBOC will not raise lending rates in the future, which may increase our finance costs and thereby materially and adversely affect our business, financial condition, results of operations and prospects.

In addition, our loan agreements typically include material covenants such as requirements to promptly notify the lenders in the event of material adverse changes in our operations and financial condition as well as restrictions on the use of proceeds from the bank borrowings. We are typically required to obtain the relevant lender’s prior written consent before we conduct reorganizations, mergers, demergers, joint ventures, capital reductions, equity transfers, transfers of major assets or creditor’s rights, material investments, substantial increases of debt financing or other actions that may adversely affect our ability to repay the loans. We cannot assure you that we can obtain consents from the lenders for activities restricted by the covenants. If we breach the restrictive covenants, make misrepresentations or commit any other violation under our financing agreements, we may trigger an event of default, which could lead to an acceleration of our indebtedness or require us to compensation the lending banks for their losses, materially and adversely affecting our business, financial condition and results of operations.

RISKS RELATING TO DOING BUSINESS IN CHINA

30. Economic, political and social conditions in the PRC and government policies could affect our business and prospects.

All of our assets are located in the PRC, and all of our revenue is derived from our business in the PRC. Accordingly, our financial condition, operating results and prospects are,

–64– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS to a material extent, subject to economic, political and legal developments in the PRC. The PRC economy differs from the economies of developed countries in many respects, including, among other things, government involvement, level of economic development, growth rate, foreign exchange controls and resources allocation.

Although the PRC economy has been transitioning from a planned economy to a market-oriented economy for more than three decades, the PRC government still exercises significant control over the economic growth of the PRC through allocating resources, controlling payments of foreign currency-denominated obligations, setting monetary policies and providing preferential treatments to particular industries or companies. Some of these policies benefit the overall PRC economy, but may negatively affect us. For example, our financial condition and operating results may be adversely affected by government policies on the wastewater treatment industry in the PRC, a reduction in PRC investment appetite, changes to the operation of state-owned enterprises or government institutions or changes in tax regulations applicable to us. If the business environment in the PRC deteriorates, our business in the PRC may also be materially and adversely affected.

PRC has been one of the world’s fastest growing economies as measured by GDP growth in the past 30 years and has become the world’s second largest economy by GDP since 2010. However, there is no assurance that PRC’s economy can sustain historical growth rates in the future. Since the second half of 2008, the global economic slowdown, the weak economy of the United States of America and the sovereign debt crisis in Europe have collectively increased downward pressure on the PRC’s economic growth. PRC’s real GDP growth rate has decreased from 10.6% in 2010 to approximately 6.0% in 2019 and PRC’s economy is still facing considerable downward pressure. If the economic growth of PRC continues to slow down, our business, financial condition, operating results and prospects will be materially and adversely affected.

31. The PRC legal system is still evolving with inherent uncertainties that could limit the legal protection available to you.

PRC laws and regulations govern our operations in the PRC. We and all of our operating subsidiaries are organised under PRC laws. PRC’s legal system is based on written statutes. Prior guiding cases that the Supreme People’s Court of the PRC released are of reference and exemplary value. Since the late 1970s, PRC has promulgated laws and regulations dealing with economic matters, such as issuance and trading of securities, shareholder rights, foreign investment, corporate organization and governance, commerce, taxation and trade.

However, many of these laws and regulations, particularly with respect to the wastewater treatment industry, are relatively new and evolving, are subject to different interpretations and may be inconsistently implemented and enforced. In addition, only a limited number of guiding cases were released for reference, and such cases have limited precedential value as they are not binding on subsequent cases. These uncertainties relating to the interpretation, implementation and enforcement of PRC’s laws and regulations may affect the legal remedies and protections available to investors, and can adversely affect the value of your investment.

In particular, the PRC wastewater treatment industry is highly regulated. Many aspects of our business depend upon obtaining relevant government authorities’ approvals and permits. As PRC’s legal system and financial service industry continue to evolve, changes in such laws and regulations or in their interpretation or enforcement could materially and adversely affect our business, financial condition and operating results.

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32. [REDACTED] may experience difficulties in effecting service of legal process and enforcing foreign judgments against us or our Directors, Supervisors or management.

We are a company incorporated under PRC laws and substantially all of our assets and subsidiaries are located in the PRC. In addition, all of our Directors, Supervisors and management reside within the PRC and the assets of our Directors, Supervisors and management are likely to be located within the PRC. As a result, it may not be possible to effect service of process elsewhere outside the PRC upon our Directors, Supervisors and management.

On 14 July 2006, the Government of the Hong Kong and the Supreme People’s Court of the PRC entered into the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region Pursuant to Choice of Court Agreements Between Parties Concerned (the “Arrangement”) pursuant to which a party with a final court judgment rendered by a Hong Kong court requiring payment of money in a civil and commercial case pursuant to a choice of court agreement in writing may apply for recognition and enforcement of the judgment in the PRC. Similarly, a party with a final judgment rendered by a PRC court requiring payment of money in a civil and commercial case pursuant to a choice of court agreement in writing may apply for recognition and enforcement of such judgment in Hong Kong. A choice of court agreement in writing is defined as any agreement in writing entered into between parties after the effective date of the Arrangement in which a Hong Kong court or a PRC court is expressly designated as the court having sole jurisdiction for the dispute. Therefore, it is difficult or not possible to enforce a judgment rendered by a Hong Kong court in the PRC if the parties in dispute have not agreed to enter into a choice of court agreement in writing. Although the Arrangement became effective on 1 August 2008, the outcome and effectiveness of any action brought under the Arrangement may still be uncertain.

On 18 January 2019, the Supreme People’s Court of the PRC and Department of Justice of Hong Kong signed the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region《關於內地與香港特別行政區法院相互認可和執行民商事案件判決的安排》 ( ) (the “2019 Arrangement”). The 2019 Arrangement sets forth the scope, applicable rulings, procedures and manners to apply for recognition and enforcement examination on jurisdiction of the original court, conditions to refuse recognise and enforce, and remedies of reciprocal recognition and enforcement of judgments in civil and commercial matters. Following the promulgation of a judicial interpretation by the Supreme People’s Court and the completion of the relevant procedures in Hong Kong, both sides shall announce a date on which the 2019 Arrangement shall become effective. Therefore, although the 2019 Arrangement has been signed, it remains unclear when such agreement will come into effect, and effectiveness and outcome of any action brought under the 2019 Arrangement may still be uncertain.

In addition, although we will be subject to the Listing Rules and the Takeovers Code upon the [REDACTED]of[REDACTED] on the Stock Exchange, the holders of [REDACTED] will not be able to bring actions on the basis of violations of the Listing Rules and must rely on the Stock Exchange or the SFC to enforce its rules. The Takeovers Code does not have the force of law and provides only standards of commercial conduct considered acceptable for takeover and merger transactions and share repurchases in Hong Kong.

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33. You will be subject to PRC taxation on dividends received from our Company and on gains realised upon the sale or other disposition of your [REDACTED].

Non-PRC resident individual holders of [REDACTED] are subject to PRC individual income tax withheld at source on dividends received from our Company. Pursuant to the PRC Individual Income Tax Law《中華人民共和國個人所得稅法》 ( ), non-PRC resident individuals are subject to a 20% PRC individual income tax on their dividend income derived from the PRC and we are required to withhold such tax from our dividend payments. Any PRC tax may be reduced or exempted under applicable tax treaties or similar arrangements. Considering that the applicable tax rate on dividends is usually 10% according to tax treaties or tax agreements and that the number of stockholders is large for a [REDACTED] company, to simplify the tax administration, generally a domestic non-foreign-investment enterprise with shares [REDACTED] in Hong Kong can withhold dividend income tax at a rate of 10%. There remains uncertainty as to whether gains realised by non-PRC resident individuals on disposition of [REDACTED] are subject to PRC individual income tax.

Under the EIT Law and its implementation regulations, a non-PRC resident enterprise is generally subject to enterprise income tax at a rate of 10.0% with respect to its PRC-sourced income, including dividends received from a PRC company and gains derived from the disposition of equity interests in a PRC company, subject to reductions under any special arrangement or applicable treaty between the PRC and the jurisdiction in which the non-PRC resident enterprise resides. Pursuant to the Circular on Questions Concerning Withholding of Enterprise Income Tax for Dividends Distributed by Resident Enterprises in the PRC to Non-resident Enterprises Holding H-shares of the Enterprises《關於中國居民企業向境外 ( H股非居民企業股東派發股息代扣代繳企業所得稅有關問題的通知》) (Guo Shui Han [2008] No. 897), issued by the SAT, on 6 November 2008, we intend to withhold tax at 10.0% from dividends payable to non-PRC resident enterprise holders of [REDACTED] (including HKSCC Nominees). Such withholding tax can be reduced or waived based on applicable tax treaties or arrangement. There are uncertainties regarding the interpretation and implementation of the EIT Law and its implementing rules by the PRC tax authorities, including whether and how enterprise income tax on gains derived upon sale or other disposition of [REDACTED] will be collected from non-PRC resident enterprise holders of [REDACTED]. If such tax is collected in the future, the value of such non-PRC resident enterprise holders’ investments in [REDACTED] may be materially and adversely affected.

34. Payment of dividends is subject to restrictions under PRC law.

Under PRC law and our Articles of Association, we may only pay dividends out of our distributable profits. Distributable profits are our after-tax profits as determined by PRC GAAP or IFRS, whichever is lower, less any recovery of accumulated losses and appropriations to statutory and other reserves that we are required to make. Furthermore, pursuant to the rules issued by the CSRC, we are not allowed to distribute gains from the fair value changes of financial assets that are included in distributable profits as cash dividends. As a result, we may not have sufficient or any distributable profits to enable us to make dividend distributions to our Shareholders in the future, including periods for which our financial statements indicate that our operations have been unprofitable. Any distributable profit not distributed in a given year is retained and available for distribution in subsequent years.

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In addition, because the calculation of distributable profit under PRC GAAP is different from the calculation under IFRS in certain respects, our operating subsidiaries may not have distributable profit as determined under PRC GAAP, even if they have distributable profits for that year as determined under IFRS, or vice versa. As a result, we may not receive sufficient distributions from our subsidiaries. Failure by our operating subsidiaries to pay us dividends could negatively impact our cash flow and our ability to make dividend distributions to our Shareholders.

35. Government control of currency conversion may adversely affect the value of your investments.

All of our revenue and expenses are denominated in Renminbi, which is currently not a freely convertible currency. Conversion and remittance of foreign currencies are subject to PRC foreign exchange laws and regulations which would affect exchange rates and our foreign exchange transactions. Under the current PRC foreign exchange control system, foreign exchange transactions under the current account, which includes the payment of dividends, do not require prior approval from the SAFE, but we are required to present documentary evidence of such transactions and conduct such transactions at designated foreign exchange banks in the PRC. As a result, following the completion of the [REDACTED], we will be able to pay dividends in foreign currencies without prior approval from the SAFE by complying with certain procedural requirements. Our foreign exchange transactions under the capital account, however, must be approved in advance by the SAFE. There can be no assurance that we will be able to obtain such approval in a timely manner, or at all.

The policies regarding foreign exchange transactions under the current account and the capital account may not necessarily continue in the future. In addition, these foreign exchange policies may restrict our ability to obtain sufficient foreign exchange, which could have an effect on our foreign exchange transactions and the fulfillment of our other foreign exchange requirements. If there are changes in the policies regarding dividend payments in foreign currencies or other changes limiting the exchange of foreign currency, our payment of dividends in foreign currencies may be affected. If we fail to obtain approval from the SAFE to convert Renminbi into any foreign exchange for foreign exchange transactions, our business, financial condition and operating results may be adversely affected.

36. Future fluctuations in the exchange rate of the Renminbi could have a material and adverse effect on our financial condition and operating results.

Dividends in respect of our [REDACTED] will be declared in Renminbi and paid in Hong Kong dollars, holders of our [REDACTED] in countries or regions other than PRC are subject to risks arising from adverse movements in the value of the Renminbi against the Hong Kong dollar, which may reduce any dividends paid in respect of the [REDACTED].

The exchange rate of Renminbi to the US dollar is under a managed floating exchange rate system. On 11 August 2015, the PBOC announced an adjustment to the mechanism of determining the midpoint price of Renminbi to the US dollar to make the exchange rate of Renminbi more market-based. The modified mechanism allows traders to consider the closing exchange rate in the previous trading day when they quote the midpoint price for Renminbi against the US dollar. We cannot predict how the Renminbi will fluctuate in the future. As such,

–68– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS any significant fluctuation in the value of the Renminbi against foreign currencies could lead to fluctuation in the value of our foreign currency-denominated revenue and assets and adversely affect our business, financial condition, operating results and prospects.

37. Any future occurrence of force majeure events, natural disasters or outbreaks of contagious diseases in the PRC may materially and adversely affect our business, financial condition and operating results.

Any future occurrence of force majeure events, natural disasters or outbreaks of epidemics and contagious diseases, including avian influenza, severe acute respiratory syndrome, or SARS, swine influenza caused by the H1N1 virus, or H1N1 influenza, Middle Eastern respiratory syndrome, or MERS, Ebola virus outbreak may materially and adversely affect our business, financial condition and operating results. An outbreak of an epidemic or contagious disease could result in a widespread health crisis and restrict the level of business activities in affected areas, which may, in turn, materially and adversely affect our business. Moreover, the PRC has experienced natural disasters like earthquakes, floods and droughts in the past. Any future occurrence of severe natural disasters in the PRC may materially and adversely affect its economy and therefore our business. There can be no assurance that any future occurrence of natural disasters or outbreaks of epidemics and contagious diseases, or the corresponding measures taken by the governments of the PRC or other countries will not seriously disrupt our operations or those of our clients, which may materially and adversely affect our business, financial condition and operating results.

38. Our business operations may be adversely affected by the outbreak of COVID-19

As a result, our business operations may be adversely affected by the outbreak of COVID-19. For example, the outbreak of COVID-19 has caused temporary suspension of the production activities in our Quangang factory and Anping factory. In addition, it may also cause delays in construction progress of our decentralised wastewater treatment facility construction projects, or concession projects which are under construction or delays in delivery of decentralised wastewater treatment equipment or pipes and pipe fittings to our clients. We cannot guarantee that the suspension of production and delay in construction process or delivery of products will not have an adverse effect on our relationship with our major customers nor guarantee that our major customers will continue to place orders with us in the future at levels that are comparable to the Track Record Period or indicative forecast, or at all after they may have sourced some products from other suppliers.

The spread of severe COVID-19 in China may also affect the business operations and financial performance of our suppliers as well. We may not have sufficient materials to support our orders and which could in turn adversely affect our ability to meet the demands of our customers.

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In addition, if any of our employees is suspected of contracting or contracted COVID-19, it could adversely affect or disrupt our operations, as we may be required to quarantine some or all of our employees, disinfect the buildings or sites or even close some or all of our business to prevent the spread of the disease. We may incur extra costs in relation to our precautionary measures and disinfection works carried out by us which may result in losses.

Furthermore, the COVID-19 may have a material adverse impact on our financial performance. Our gross profit margin decreased from 34.8% in the year ended 31 December 2019 to 26.8% in the year ended 31 December 2020. Such decrease was primarily because of the cost growth outpaced the revenue growth as a result of the outbreak of COVID-19.

See “Business — Impact of the Outbreak of COVID-19 on our operation in the PRC” for details.

39. Changes in our judgments and assumptions in applying IFRIC 12 and changes in IFRIC 12 and other relevant accounting standards may have material impacts on the measurement and reporting of certain wastewater treatment facilities.

We apply a lot of accounting judgements to determine whether the wastewater treatment facilities fall into the scope of IFRIC 12 “service concession arrangements” and are required to make estimates and assumptions for our revenue, expenses, assets, liabilities as well as our cash flow projections of our concession operation project. These judgements, estimates and assumptions are not readily available from other sources and are based on our past experiences and other relevant factors. Should the actual results be different from these estimates and assumptions, we may adjust these estimates and assumptions accordingly, which may materially and adversely affect the measurement and reporting of our concession operation services under BOT model.

In addition, we apply IFRIC 12 and other relevant accounting standards for our concession operation services under BOT model. These standards may be changed or amended from time to time in the future. Any changes in these accounting standards may result in changes in the recognition, measurement and/or classification of our revenue, expenses, assets and liabilities that could have a material impact on the measurement and reporting of our wastewater treatment facilities.

RISKS RELATING TO THE [REDACTED]

40. There has been no prior public market for our [REDACTED] and the liquidity and market price of our [REDACTED] may be volatile.

Prior to the completion of the [REDACTED], there has been no public market for our [REDACTED]. The initial issue price range for our [REDACTED] is the result of negotiations among our Company and the [REDACTED] (for itself and on behalf of the [REDACTED]), and the [REDACTED] may differ significantly from the market price for our [REDACTED] following the [REDACTED]. We have applied for [REDACTED] of, and permission to deal in, our [REDACTED] on the Stock Exchange. A [REDACTED] on the Stock Exchange, however, does not guarantee that an active and liquid trading market for our [REDACTED] will develop, or if it does develop, will be sustained following the [REDACTED] or that the market price of

–70– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS our [REDACTED] will not decline following the [REDACTED]. Furthermore, the price and trading volume of our [REDACTED] may be volatile. The following factors may affect the volume and price at which our [REDACTED] will trade:

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

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

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

• changes in earnings estimates or recommendations by financial analysts;

• potential litigation or regulatory investigations;

• general market conditions or other developments affecting us or our industry;

• the operating and stock price performance of other companies, other industries and other events or factors beyond our control; and

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

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

41. Since there will be a gap of several days between pricing and trading of our [REDACTED], holders of our [REDACTED] are subject to the risk that the price of our [REDACTED] could fall during the period before trading of our [REDACTED] begins.

The [REDACTED]ofour[REDACTED] is expected to be determined on the [REDACTED]. However, our [REDACTED] will not commence trading on the Stock Exchange until they are delivered, which is expected to be the fifth Hong Kong Business Day after the pricing date. As a result, investors may not be able to sell or deal in our [REDACTED] during that period. Accordingly, holders of our [REDACTED] are subject to the risk that the price of our [REDACTED] could fall before trading begins as a result of adverse market conditions or other adverse developments, that could occur between the time of pricing and the time trading begins.

42. As the [REDACTED] of our [REDACTED] is higher than our consolidated net tangible book value per share, purchasers of our [REDACTED] in the [REDACTED] may experience immediate dilution upon such purchases.

As the [REDACTED]ofour[REDACTED] is higher than the consolidated net tangible assets per share immediately prior to the [REDACTED], purchasers of our [REDACTED] in the [REDACTED] will experience an immediate dilution in [REDACTED] adjusted consolidated net tangible assets after the completion of the [REDACTED]. Our existing Shareholders will receive an increase in the [REDACTED] adjusted consolidated net tangible asset value per share

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43. Future sales or perceived sales of substantial amounts of our securities in the public market, including any future offerings in the PRC or re-registration of our Domestic Shares into [REDACTED], could have a material and adverse effect on the prevailing market price of our [REDACTED] and our ability to raise capital in the future, and may result in dilution of your shareholdings and failure to recover the full value of your investment.

The market price of our [REDACTED] could decline as a result of future sales of substantial amounts of our [REDACTED] or other securities relating to our [REDACTED]inthe public market or the issuance of new Shares or other securities to interested investors in our company, or the perception that such sales or issuances may occur. Future sales, or perceived sales, of substantial amounts of our securities, including any future offerings, could also materially and adversely affect our ability to raise capital in the future at a time and at a price which we deem appropriate. In addition, our Shareholders may experience dilution in their holdings to the extent we conduct A share [REDACTED] or issue additional securities in future offerings to investors interested in our Company. Except as otherwise disclosed in this document, we have not reached any agreement with interested investors or are subject to any obligations with respect to the issuance of our securities. See “Share Capital” for details. A certain amount of our Shares currently outstanding will be subject to contractual and/or legal restrictions on resale for a period of time after completion of the [REDACTED]. See “[REDACTED] — Undertakings to the Stock Exchange pursuant to the Listing Rules” for details. After these restrictions lapse or if they are waived or breached, future sales or perceived sales of substantial amounts of our Shares, or the possibility of such sales by us, could negatively impact the market price of our [REDACTED] and our ability to raise equity capital in the future.

44. We may not be able to pay any dividends on our Shares.

For the three years ended 31 December 2020, we did not declare any dividends. We cannot guarantee when, if any and in what form dividends will be paid in the future. Our Board of Directors has discretion in proposing the frequency and amount of dividend distributions, which will be subject to the approval of our Shareholders at the Shareholders’ meeting. A decision to declare or to pay any dividends and the amount of any dividends will depend on various factors, including our future operations and earnings, our development pipeline, capital requirements and surplus reserve, general financial conditions, contractual restrictions and other factors that our Directors consider relevant. Any declaration and payment as well as the amount of dividends will be subject to our constitutional documents and the relevant laws. See “Financial Information — Dividend Policy” for details. There is no assurance that we will adopt the same dividend policy as we have adopted in the past.

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45. Certain facts and statistics derived from third-party sources contained in this document may not be reliable.

We have derived certain facts and other statistics in this document, particularly those relating to PRC, PRC’s economy and the industry in which we operate, from information provided by the PRC and other government agencies, industry associations, independent research institutes or other third-party sources. While we have taken reasonable care in the reproduction of the information, it has not been prepared or independently verified by us, the [REDACTED] or any of our or their respective affiliates or advisors and, therefore, there can be no assurance as to the accuracy and reliability of such facts and statistics, which may not be consistent with other information compiled inside or outside the PRC. Due to possibly flawed or ineffective collection methods or discrepancies between published information and market practice and other problems, the statistics herein may be inaccurate or may not be comparable to statistics produced for other economies, and you should not place undue reliance on them. Furthermore, there can be no assurance that they are stated or compiled on the same basis, or with the same degree of accuracy, as similar statistics presented elsewhere. In all cases, you should consider carefully how much weight or importance you should attach to or place on such facts or statistics.

46. You should read the entire document carefully, and we strongly caution you not to place any reliance on any information contained in press articles or other media regarding us or the [REDACTED].

There had been, prior to the publication of this document, and there may be, subsequent to the date of this document but prior to the completion of the [REDACTED], press and media coverage regarding us and the [REDACTED], which contained, among other things, certain financial information, projections, valuations and other forward-looking information about us and the [REDACTED]. We have not authorised the disclosure of any such information in the press or media and do not accept responsibility for the accuracy or completeness of such press articles or other media coverage. We make no representations as to the appropriateness, accuracy, completeness or reliability of any of the projections, valuations or other forward-looking information about us. To the extent such statements are inconsistent with, or conflict with, the information contained in this document, we disclaim responsibility for them. Accordingly, prospective investors are cautioned to make their investment decisions on the basis of the information contained in this document only and should not rely on any other information.

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

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In preparation for the [REDACTED], our Company has sought the following waivers from strict compliance with the relevant provisions of the Listing Rules.

MANAGEMENT PRESENCE IN HONG KONG

Pursuant to Rules 8.12 and 19A.15 of the Listing Rules, we must have a sufficient management presence in Hong Kong. This normally means that at least two of our executive Directors must be ordinarily resident in Hong Kong. Rule 19A.15 of the Listing Rules states that the requirement under Rule 8.12 of the Listing Rules applies to an issuer incorporated in the PRC, but also provides that the requirement may be waived by the Stock Exchange in its discretion. Since our business operations are in the PRC and all of our executive Directors and senior management members ordinarily reside in the PRC, we do not have, and for the foreseeable future will not have, sufficient management presence in Hong Kong for the purpose of satisfying the requirements under Rules 8.12 and 19A.15 of the Listing Rules. Accordingly, we have applied to the Stock Exchange for, [and the Stock Exchange has granted], a waiver from strict compliance with the requirements under Rules 8.12 and 19A.15 of the Listing Rules on the condition of the following arrangements for maintaining regular communication with the Stock Exchange:

(i) our Company has appointed two authorised representatives pursuant to Rule 3.05 of the Listing Rules, who will act as our Company’s principal channel of communication with the Stock Exchange. The two authorised representatives of our Company are Mr. Lan Qiang, an executive Director and the vice chairman of the Board, who is an ordinarily resident in the PRC, and Ms. Mak Po Man Cherie, one of the joint company secretaries of our Company, who is an ordinarily resident in Hong Kong. Although Mr. Lan Qiang resides in the PRC, he possesses valid travel documents to visit Hong Kong and is able to renew such travel documents when they expire. Accordingly, each of the two authorised representatives of our Company will be available to meet with the Stock Exchange within a reasonable period of time upon the request of the Stock Exchange and will be readily contactable by telephone and email;

(ii) each of the two authorised representatives of our Company has means to contact all members of the Board (including the independent non-executive Directors) promptly at all times as and when the Stock Exchange wishes to contact the Directors for any matters. Each Director has provided his respective office phone number, mobile phone number and email address to the authorised representatives of our Company and the Stock Exchange. In addition, the Directors will provide their contacts of the place of their accommodation to the authorised representatives in the event that they expect to travel and/or be out of office, and make themselves readily contactable by the authorised representatives;

(iii) the Directors, who are not ordinarily resident in Hong Kong, have confirmed that they possess or can apply for valid travel documents to visit Hong Kong and are able to meet with the Stock Exchange within a reasonable period of time;

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(iv) our Company has appointed China Industrial Securities International Capital Limited as its compliance adviser pursuant to Rule 3A.19 of the Listing Rules to act as an additional channel of communication with the Stock Exchange for a period commencing from the [REDACTED] and ending on the date on which our Company complies with Rule 13.46 of the Listing Rules in respect of its financial results for thefirst full financial year commencing after the [REDACTED]. The compliance adviser of our Company will advise our Company on on-going compliance requirements and other issues arising under the Listing Rules and other applicable laws and regulations in Hong Kong after the [REDACTED] and have full access at all times to the two authorised representatives of our Company and the Directors; and

(v) any meeting between the Stock Exchange and the Directors will be arranged through the two authorised representatives of our Company or the compliance adviser of our Company or directly with the Directors within a reasonable time frame. Our Company will inform the Stock Exchange promptly in respect of any changes in the two authorised representatives and its compliance adviser.

JOINT COMPANY SECRETARIES

Pursuant to Rule 8.17 of the Listing Rules, our Company must appoint a company secretary who satisfies Rule 3.28 of the Listing Rules. Pursuant to Rule 3.28 of the Listing Rules, our Company must appoint an individual as the company secretary who, by virtue of his or her academic or professional qualifications or relevant experience, is, in the opinion of the Stock Exchange, capable of discharging the functions of company secretary.

The Stock Exchange considers the following academic or professional qualifications to be acceptable:

(i) a member of The Hong Kong Institute of Chartered Secretaries;

(ii) a solicitor or barrister (as defined in the Legal Practitioners Ordinance (Chapter 159 of the Laws of Hong Kong)); and

(iii) a certified public accountant (as defined in the Professional Accountants Ordinance (Chapter 50 of the Laws of Hong Kong)).

In accessing “relevant experience”, the Stock Exchange will consider the followings of the individual:

(i) length of employment with the issuer and other issuers and the roles he or she played;

(ii) familiarity with the Listing Rules and other relevant laws and regulations including the SFO, the Companies Ordinance and the Takeovers Code;

(iii) relevant training taken and/or to be taken in addition to the minimum requirement under Rule 3.29 of the Listing Rules; and

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(iv) professional qualifications in other jurisdictions.

Our Company has appointed Ms. Zhang Huan (“Ms. Zhang”) and Ms. Mak Po Man Cherie (“Ms. Mak”) as the joint company secretaries. Ms. Zhang joined our Group in February 2014. From July 2014 to December 2015, she worked as a technician. From January 2016 to May 2020, she worked as the assistant to the general manager. From June 2015 to May 2020, Ms. Zhang worked as the employee representative Supervisor of our Company. Ms. Zhang has been acting as the secretary of the Board since May 2020 and as one of our joint company secretaries since July 2020. Ms. Zhang has extensive knowledge about our Company’s business operations and corporate culture and has extensive experience in matters concerning the Board and our Company’s corporate governance. See “Directors, Supervisors and Senior Management — Joint Company Secretaries” for details of Ms. Zhang’s biography. Although our Company believes, having regard to Ms. Zhang’s past experience in handling administrative and corporate matters, that she has a thorough understanding of our Company and the Board, Ms. Zhang does not possess the requisite qualifications as required by Rule 3.28 of the Listing Rules. Therefore, our Company has appointed Ms. Mak, who is a Hong Kong resident and possesses the qualification and relevant experience as stipulated under Rule 3.28 of the Listing Rules, to be a joint company secretary of our Company. See “Directors, Supervisors and Senior Management — Joint Company Secretaries” for details of Ms. Mak’s biography.

Given the important role of the company secretary in the corporate governance of a [REDACTED] issuer, particularly in assisting the [REDACTED] issuer as well as its directors in complying with the Listing Rules and other relevant laws and regulations, our Company has put in place the following arrangements:

(a) Ms. Mak, one of the joint company secretaries of our Company who satisfies the requirements under Rule 3.28 of the Listing Rules, will assist Ms. Zhang so as to enable her to discharge her duties and responsibilities as a joint company secretary of our Company. Given Ms. Mak’s relevant experiences, she will be able to advise both Ms. Zhang and our Company on the relevant requirements of the Listing Rules as well as other applicable laws and regulations of Hong Kong;

(b) Ms. Zhang, one of the joint company secretaries of our Company, will be assisted by Ms. Mak, for a period from the [REDACTED] to the end of three years after the [REDACTED], which should be sufficient for her to acquire the requisite knowledge and experience under Rule 3.28 of the Listing Rules;

(c) our Company will ensure that Ms. Zhang has access to the relevant trainings and support to enable her to familiarise herself with the Listing Rules and the duties required of a company secretary of a Hong Kong [REDACTED] company, and Ms. Zhang has undertaken to attend such trainings;

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(d) Ms. Mak will communicate with Ms. Zhang on a regular basis regarding matters in relation to corporate governance, the Listing Rules as well as other applicable laws and regulations of Hong Kong which are relevant to the operations and affairs of our Company. Ms. Mak will work closely with and provide assistance to Ms. Zhang with a view to discharging her duties and responsibilities as a company secretary, including but not limited to organizing the Board meetings and Shareholders’ general meetings; and

(e) pursuant to Rule 3.29 of the Listing Rules, Ms. Mak and Ms. Zhang will also attend in each financial year no less than 15 hours of relevant professional training courses to familiarise themselves with the requirements of the Listing Rules and other legal and regulatory requirements of Hong Kong. Both Ms. Mak and Ms. Zhang will be advised by the legal advisers of our Company as to Hong Kong law and the compliance adviser of our Company as and when appropriate and required.

Accordingly, we have applied to the Stock Exchange for, [and the Stock Exchange has agreed to grant,] a waiver from strict compliance with the requirements of Rules 3.28 and 8.17 of the Listing Rules. Pursuant to Guidance Letter HKEX-GL 108-20, the waiver [has been granted] on two conditions: (i) Ms. Zhang must be assisted by Ms. Mak, who processes the qualifications and experience required under Rule 3.28 of the Listing Rules; and (ii) the waiver is valid for a period of three years from the [REDACTED] and will be revoked immediately if and when Ms. Mak ceases to provide such assistance or if there are material breaches of the Listing Rules by the Company. The waiver is valid for an initial period of three years from the [REDACTED]. Before the expiry of the initial three-year period, we will liaise with the Stock Exchange to revisit the situation in the expectation that we should then be able to demonstrate to the satisfaction of the Stock Exchange that Ms. Zhang, having had the benefit of Ms. Mak’s assistance for three years, would have acquired relevant experience within the meaning of Rule 3.28 of the Listing Rules so that a further waiver would not be necessary.

NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Each of the non-exempt continuing connected transactions described under the subsection “Connected Transactions — Non-Exempt Continuing Connected Transactions” in this document is expected to continue after the [REDACTED] and has been entered into prior to the [REDACTED].

Our Company has applied to the Stock Exchange for, and the Stock Exchange [has granted] to our Company, a waiver from strict compliance with certain requirements under Chapter 14A of the Listing Rules in accordance with Rule 14A.105 of the Listing Rules in respect of each of the above non-exempt continuing connected transactions. The waiver granted by the Stock Exchange for the above non-exempt continuing connected transactions will expire on 31 December 2023. Upon expiry of the waiver, such non-exempt continuing connected transactions will be subject to the then applicable Listing Rules.

Further details of the continuing connected transactions are set out in the section headed “Connected Transactions” in this document.

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[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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DIRECTORS

Name Residential Address Nationality

Executive Directors

Mr. Lan Qiang Room 801, Building 3, Chinese (蘭強) Phase I, Jinjiang Yuefu Garden, No.137 Fenghu Road, Hongshan Town, Gulou District, Fuzhou, Fujian, PRC

Mr. Lin Hongquan Room 404, Building 15, Chinese (林洪全) Jinguan Garden, Beijiangli Road, Wufeng Street, Gulou District, Fuzhou, Fujian, PRC

Mr. Huang Xiaohui Room 803, Building 8, Chinese (黃曉輝) Huxin Garden, Shenghu Road South, Fengze District, Quanzhou, Fujian, PRC

Non-executive Directors

Mr. Huang Jinshun Room 1109, Chengxin Tower, Chinese (黃金順) Huxin Garden, Quanzhou, Fujian, PRC

Mr. Huang Dongsheng Room 504, Building 7, Chinese (黃東勝) Longzhong Plot, Dehua County, Quanzhou, Fujian, PRC

Independent Non-executive Directors

Mr. Xia Qing No. 3, Area 5, Chinese (夏青) Fu Di Wan Liu Hui, Xiaotangshan Town, Changping District, Beijing, PRC

Mr. Lian Tao Flat B, 19/F, Tower 1, Chinese (廉濤) Hampton Place, 11 Hoi Fan Road, Kowloon, Hong Kong

Mr. Li Rongkui 2#606, Haichenghuayuan Garden, Chinese (李榮葵) Chengdong Street, Fengze District, Quanzhou, Fujian, PRC

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SUPERVISORS

Name Residential Address Nationality

Mr. Zheng Xuhui Room 301, Li Cheng Nong Ji Dormitory, Chinese (鄭旭暉) No.69 Wenling Road South, Fengze District, Quanzhou, Fujian, PRC

Mr. Lan Xiong Room 2C, Unit 1, Building 4, Chinese (藍雄) District 5, Yuanda Garden, Haidian District, Beijing, PRC

Ms. He Ziwei Room 503, Building K27, Chinese (何紫薇) West District, Quanxiu Garden, No. 431 Fengze District, Quanzhou, Fujian, PRC

See “Directors, Supervisors and Senior Management” for details.

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PARTIES INVOLVED

Sole Sponsor China Industrial Securities International Capital Limited 7/F, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

[REDACTED][REDACTED]

[REDACTED] and [REDACTED][REDACTED]

Legal Advisers to the Company as to Hong Kong law:

William Ji & Co. LLP in Association with Tian Yuan Law Firm Hong Kong Office Suites 3304-3309, 33/F, Jardine House, One Connaught Place, Central, Hong Kong

as to PRC law:

Tian Yuan Law Firm 10/F, China Pacific Insurance Plaza, Tower B, 28 Fengsheng Hutong, Xicheng District, Beijing 100032, PRC

as to certain PRC trademark matters:

Grandway Law Offices 7/F, Beijing News Plaza, No. 26 Jianguomennei Dajie, Beijing, 100005, PRC

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Legal Advisers to the as to Hong Kong law: Sole Sponsor and the [REDACTED] Miao & Co. (In Association with Han Kun Law Offices) Rooms 3901-05, 39/F., Edinburgh Tower, The Landmark, 15 Queen’s Road Central, Hong Kong

as to PRC law:

Jingtian & Gongcheng 34/F, Tower 3, China Central Place, 77 Jianguo Road, Beijing 100025, PRC

Auditor and Reporting Accountant PricewaterhouseCoopers Certified Public Accountants and Registered Public Interest Entity Auditor 22nd Floor Prince’s Building, Central Hong Kong

Industry Consultant Frost & Sullivan (Beijing) Inc. Shanghai Branch Co. 1014-1018, Tower B, 500 Yunjin Road, Xuhui District, Shanghai 200232, China

[REDACTED][REDACTED]

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Registered Address and Address of 8-9/F, Building 1, Head Office Research and Development Start-up Building, Software Park, Beifeng Street, Fengze District, Quanzhou, Fujian, PRC

Principal Place of Business in 40th Floor, Dah Sing Financial Centre, Hong Kong No. 248 Queen’s Road East, Wanchai, Hong Kong

Website Address www.chinalanshen.com (The contents of the website do not form a part of this document)

Joint Company Secretaries Ms. Zhang Huan (張歡) Room 1904, Block A12, Huai’an Phase II, No. 8 Huai’an Road, Cangshan District, Fuzhou, Fujian, PRC

Ms. Mak Po Man Cherie (麥寶文) (ACCA, CPA, ACIS, ACS, MCG) 40th Floor, Dah Sing Financial Centre, No. 248 Queen’s Road East, Wanchai, Hong Kong

Authorised Representatives Mr. Lan Qiang (蘭強) Room 801, Building 3, Phase I, Jinjiang Yuefu Garden, No.137 Fenghu Road, Hongshan Town, Gulou District, Fuzhou, Fujian, PRC

Ms. Mak Po Man Cherie (麥寶文) (ACCA, CPA, ACIS, ACS, MCG) 40th Floor, Dah Sing Financial Centre, No. 248 Queen’s Road East, Wanchai, Hong Kong

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Board Committees Audit Committee Mr. Li Rongkui (李榮葵) (Chairperson) Mr. Xia Qing (夏青) Mr. Lian Tao (廉濤)

Remuneration Committee Mr. Lian Tao (廉濤) (Chairperson) Mr. Li Rongkui (李榮葵) Mr. Huang Dongsheng (黃東勝)

Nomination Committee Mr. Huang Jinshun (黃金順) (Chairperson) Mr. Xia Qing (夏青) Mr. Liao Tao (廉濤)

Development and Strategy Committee Mr. Huang Jinshun (黃金順) (Chairperson) Mr. Xia Qing (夏青) Mr. Lan Qiang (蘭強)

[REDACTED][REDACTED]

Principal Banks Industrial Bank Co., Ltd., Quanzhou Square Branch Building 1-3, Shopping Mall Pedestrian street, Fengze Road No. A1-1, Fengze District, Quanzhou, Fujian, PRC

Bank of China, Fengze Branch Guangyi Garden A2-3, Tianan Road, Fengze District, Quanzhou, Fujian, PRC

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The information that appears in this section has been prepared by Frost & Sullivan and reflects estimates of market conditions based on publicly available sources and is prepared primarily as a market research tool. References to Frost & Sullivan should not be considered as the opinion of Frost & Sullivan as to the value of any security or the advisability of investing in us. Our Directors believe that the sources of information contained in this section are appropriate sources for such information and have taken reasonable care in reproducing such information. Our Directors have no reason to believe that such information is false or misleading or that any material fact has been omitted that would render such information false or misleading. The information prepared by Frost & Sullivan and set out in this section has not been independently verified by us, the Sole Sponsor, the [REDACTED], the [REDACTED], the [REDACTED](s) or any other party or affiliate involved in the [REDACTED], excluding Frost & Sullivan and neither they give any representations as to its accuracy and the information should not be relied upon in making, or refraining from making, any investment decision. Our Directors confirm that, after taking reasonable care, there is no adverse change in the market information since the date of the Frost & Sullivan Report which may qualify, contradict or have an impact on the information in this section.

SOURCE AND RELIABILITY OF INFORMATION

We have commissioned Frost & Sullivan, an Independent Third Party, to conduct a study of decentralised wastewater treatment service market in China and Fujian. We agreed to pay Frost & Sullivan a fee of RMB490,000 for the preparation of the Frost & Sullivan Report, and our Directors consider that such fee reflects market rates and are of the view that the payment of the fee does not affect the fairness of conclusions drawn in the Frost & Sullivan Report.

The methodology used by Frost & Sullivan in gathering the relevant market data in compiling the Frost & Sullivan Report included primary interviews and secondary research. Primary interviews are conducted with relevant institutions to obtain objective and factual data and prospective predictions. Secondary research involves information integration of data and publication from publicly available resources, including official data and announcements from PRC government departments, and market research on industry and enterprise player information issued by our chief competitors.

Founded in 1961, Frost & Sullivan has over 45 [REDACTED] offices with more than 3,000 industry consultants, market research analysts, technology analysts and economists. It offers technology research, independent market research, economic research, corporate best practices advising, training, customer research, competitive intelligence and corporate strategy.

The Frost & Sullivan Report was compiled based on the following assumptions: (i) China and Fujian’s economy is likely to maintain steady growth in the next decade; (ii) China’s, Fujian’s social, economic, and political environment is likely to remain stable in the forecast period; (iii) Market drivers such as economic growth and increasing urbanization rate, strong and sustained government support, increasingly high standard for water quality and wastewater treatment are likely to drive the growth of the overall wastewater treatment industry; (iv) The COVID-19 pandemics will be under effective control in the PRC along with government’s strict quarantine and prevention measures and do not affect the long-term economy development of the PRC.

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Frost & Sullivan considers the source of information as reliable because (i) it is general market practice to adopt official data and announcements from various PRC government agencies; and (ii) the information obtained from interviews is for reference only and the findings in its report are not directly based on the results of those interviews. Frost & Sullivan has proven track records in providing market research studies to government and private clients in the regions where the Frost & Sullivan Report covers.

Our Directors are of the view that the sources of information used in this section are reliable as the information was extracted from the Frost & Sullivan Report. Our Directors believe the Frost & Sullivan Report is reliable and not misleading as Frost & Sullivan is an independent professional research agency with extensive experience in its profession.

OVERVIEW OF CHINA’S WASTEWATER TREATMENT INDUSTRY

Introduction and Comparison of Centralised and Decentralised Wastewater Treatment Solution in China

Wastewater treatment market in China can be further classified into two different submarkets based on the pattern of wastewater treatment solutions, which is centralised wastewater treatment and decentralised wastewater treatment.

Centralised wastewater treatment is the wide-applied wastewater treatment solution in municipal area with high population density. Centralised wastewater treatment is comprised of the process of collecting wastewater within the area through large-scale wastewater pipeline network and then treating in relative high capacity centralised wastewater treatment plants.

Decentralised wastewater treatment solution is widely applied in regions or sites with dispersed and low-density population, where the wastewater discharge is relatively low. Decentralised wastewater treatment solution refers to the wastewater treatment solution using medium-to-small wastewater treatment equipment in scattered wastewater discharge points with onsite or cluster pipeline network which conveys, treats, disposes or reuses wastewater effluent close to its point of generation.

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The business nature of centralised and decentralised wastewater treatment solution is basically different. The major differences in business nature between centralised wastewater treatment and decentralised wastewater treatment can be summarized into the targeted service region, designed treatment capacity per facility, population coverage per facility, construction period, and wastewater collection model. The table set below are the comparison of centralised and decentralised wastewater treatment:

Centralized Wastewater Decentralized Wastewater Comparison Metrics Treatment Solution Treatment Solution

Designed Treatment • Normally over 3,000 • Normally 50~3,000 Capacity per Facility tonnes/day tonnes/ day per unit

Population Coverage • Normally over 10 • Normally less than 10 per Facility thousand residents thousand residents

Typical Construction • 12~18 months • Less than 6 months Period per Facility

Wastewater Collection • Normally collect and • Normally collect and Model convey wastewater in convey wastewater close the region through to its point of large-scale pipeline generation* network

Explanatory Picture

Source: Frost & Sullivan Analysis

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Market Size of Wastewater Treatment Industry in China

Driven by the sustaining policy support and on-going investment on environmental protection and wastewater treatment industry from the PRC government, wastewater treatment industry in China has witnessed a solid growth. The revenue of wastewater treatment industry increased from approximately RMB341.9 billion in 2015 to approximately 498.5 billion in 2019, representing a CAGR of 9.9%. The revenue of wastewater treatment industry in China is anticipated to keep at a CAGR of approximately 7.5% during 2019 to 2024 along with the policy initiatives of PRC central government.

Decentralised wastewater treatment solution refers to the wastewater treatment model using medium-to-small wastewater treatment equipment in scattered wastewater discharge points with onsite or cluster pipeline network which conveys, treats, disposes or reuses wastewater effluent close to its point of generation. As an emerging wastewater treatment solution in rural area, decentralised wastewater treatment market recorded a rapid growth from 2015 to 2019 as compared with centralised wastewater treatment market along with the increasing policy support and wastewater treatment demand in rural regions, representing a CAGR of 40.3% from 2015 to 2019 in terms of revenue. Considering the relatively lower wastewater treatment rate in rural regions, the decentralised wastewater treatment service market is expected to continue growing at a double-digit rate in the following years. The revenue is expected to reach RMB193.5 billion in 2024 with a CAGR of 15.9% from 2019 to 2024.

Revenue in Wastewater Treatment Industry (China), 2015-2024E

CAGR 2015-2019 2019-2024E Overall Wastewater Treatment 9.9% 7.5% RMB Billion Decentralised Wastewater Treatment 40.3% 15.9% 800 Centralized Wastewater Treatment 6.3% 5.1% 714.1 700 663.3 614.3 566.5 193.5 600 517.9 166.2 498.5 141.9 500 469.4 120.3 428.6 92.5 101.3 341.9 370.7 72.7 400 47.2 23.9 30.8 300 520.6 472.4 497.1 396.7 406.0 416.6 446.2 200 318.0 339.9 381.4 100 0 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E

Source: Frost & Sullivan Analysis

OVERVIEW OF DECENTRALISED WASTEWATER TREATMENT SERVICE MARKET

Definition and Industrial Value Chain

The decentralised wastewater treatment service market refers to the manufacturing, construction and operation of decentralised wastewater treatment equipment. Decentralised wastewater treatment equipment are usually built in scattered wastewater discharge points, where it is difficult and uneconomic to introduce wastewater pipeline network and build centralised wastewater treatment plants. Compared to centralised wastewater treatment plants,

–92– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW decentralised wastewater treatment equipment not only require less investment and less construction work, but also demand for smaller land area. Decentralised wastewater treatment equipment are widely applied in regions with dispersed and low-density population. At the moment, decentralised wastewater treatment equipment are mainly used in rural regions, highway service areas, scenic spots, and other regions where centralised wastewater treatment cannot reach.

Industry Value Chain of Decentralised Wastewater Treatment Service Market (China)

Upstream Raw Materials Midstream Construction and Operation Downstream Demand

Decentralized Project Project Self-produced Governments Wastewater Treatment Construction Operation Rural Regions Equipment (EPC, etc.) (O&M, TOT, etc.) Highway Service Areas Scenic Spots Real Estate Developers Pipes and Pipe Procurement Construction and Operation Industrial Companies Fittings and Others (BOT, etc.) Others Delivery

Source: Frost & Sullivan Analysis

The upstream of decentralised wastewater treatment service market is mainly composed of the raw materials for construction. The decentralised wastewater treatment is the core product used in the decentralised wastewater treatment service market.

The midstream of decentralised wastewater treatment service market generally refers to the construction and operation of decentralised wastewater treatment equipment. Service providers with the capability of manufacturing decentralized wastewater treatment equipment can either self-produce decentralized wastewater treatment equipment or sell equipment to other construction contractors with construction qualifications to construct mainly under EPC model. With the completion of construction, the projects then enter the concession operation process in the form of O&M, TOT, etc. The projects can be also carried out under BOT model throughout the construction and operation process.

The downstream of the industry value chain are mainly the customers who have wastewater treatment demand. Due to the low wastewater treatment rate and strong wastewater treatment demand, the decentralised wastewater treatment equipment are currently major applied in rural regions.

Decentralised Wastewater Treatment Service Market in China

Driven by the supportive policies in environmental protection, China’s decentralised wastewater treatment service market has grown rapidly over the past years. The total revenue generated from decentralised wastewater treatment service has increased from RMB23.9 billion in 2015 to RMB92.5 billion in 2019, representing a CAGR of 40.3%. Due to the scattered distribution of water discharge points and increasing demand for wastewater treatment equipment in rural regions, the demand for decentralised wastewater treatment equipment surged since 2015. Rural wastewater treatment market has become the largest application area of decentralised wastewater treatment equipment.

The initial outbreak of COVID-19 in early 2020 did adversely affect the decentralised wastewater treatment service market in the short-term due to the massive shutdown in many

–93– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW industries including construction projects and productions of decentralised wastewater treatment equipment. After the outbreak of COVID-19, China and local governments had issued regulations to postpone the resumption of work in late January and early February 2020, which restricted workers to go back to the workplace. In such case, the decentralised wastewater service market was affected due to the shortage of workers and supervision requirement. With the effectively control of COVID-19 by the PRC government, the market has already restored to normal state and is still expected to realise a positive but slightly lower growth rate from 2019 to 2020 than past years. In addition, due to the outbreak of COVID-19, people are increasingly concerning about the public hygiene. The increasing awareness of public hygiene may drive the demand for constructing wastewater treatment facilities in remote areas such as rural regions. Going forward, the global COVID-19 pandemic can hardly affect the decentralised wastewater treatment service market in China under the strict prevention policies of the PRC government. The PRC government implements a strict quarantine policy on inbound passengers and tracks close contacts of inbound confirm cases in time to avoid potential outbreak risk in local communities. On the other hand, the PRC government has strengthened the prevention and control the pandemic from the cold chain logistics of imported goods. The PRC has established closed-loop management and regular nucleic acid testing measures regarding the international cargo transportation, freight drivers and related logistics staff. Under the above effective policies of the PRC government, the inbound COVID-19 pandemic is expected to be effectively controlled and cannot threat the normal operation of decentralised wastewater treatment service market.

Considering the relatively lower wastewater treatment rate in rural regions, the decentralised wastewater treatment service market is expected to continue growing at a double-digit rate in the following years. The total revenue is expected to reach RMB193.5 billion in 2024 with a CAGR of 15.9% from 2019 to 2024.

Total Revenue of Decentralised Wastewater Treatment Service Market (China), 2015-2024E

2015-2019 2019-2024E 250 CAGR40.3% 15.9% 193.5 200 166.2 on RMB) i 141.9 ll i 150 120.3

e (B 101.3 u 92.5

en 100 72.7 v 47.2 50 23.9 30.8 Total Re 0 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E

Source: Frost & Sullivan Analysis

The suppliers of decentralised wastewater treatment equipment mainly sell decentralised wastewater treatment equipment to construction contractors who have the construction projects of decentralised wastewater treatment equipment. With the promotion of PPP model, PPP projects grew rapidly and generated a great demand of decentralised wastewater treatment equipment. The sales revenue of decentralised wastewater treatment equipment has increased from RMB6.9 billion in 2015 to RMB20.8 billion in 2019, representing a CAGR of 31.8%. Going forward, the sales revenue of decentralised wastewater treatment equipment is expected to reach RMB39.9 billion with a CAGR of 13.9%.

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Sales Revenue of Decentralised Wastewater Treatment Equipment (China), 2015-2024E

2015-2019 2019-2024E 45 CAGR31.8% 13.9% 39.9 40 34.8 35 30.1 on RMB) i 30 26.0 ll i 22.2 25 20.8 e (B

u 20 16.9 en v 15 11.2 8.0 10 6.9 ales Re

S 5 0 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E

Source: Frost & Sullivan Analysis

Decentralised Wastewater Treatment Service Market in Fujian

Fujian’s decentralised wastewater treatment service market has also grown at a fast pace from 2015 to 2019, increasing from RMB554.2 million to RMB2,252.9 million in 2019 with a CAGR of 42.0% from 2015 to 2019. The growth was mainly attributed to the favorable policies by the local government. In 2016, Fujian People Government issued “The Implementation Plan of Rural Regions Wastewater and Garbage Remediation Action (2016-2020)《福建省農村污水垃圾整治行動實施方案（2016-2020年）》”, which has set clear goal to construct wastewater treatment equipment from 2016 to 2020. To accomplish the goal of reaching 70% of wastewater treatment rate in administrative villages by 2020, the demand for decentralised wastewater treatment service market has kept increasing over the past years.

Going forward, Fujian’s decentralised wastewater treatment service market is expected to continue growing at a CAGR of 18.2%. The total revenue of decentralised wastewater treatment services is expected to reach RMB5,194.0 million in 2024.

Total Revenue of Decentralised Wastewater Treatment Service Market (Fujian), 2015-2024E

2015-2019 2019-2024E 5,194.0 6,000 CAGR42.0% 18.2% 4,471.9 5,000 3,772.2 on RMB) i

ll 4,000

i 3,131.1 2,500.4 e (M 3,000

u 2,252.9

en 1,732.2 v 2,000 1,154.6 720.1 1,000 554.2 Total Re 0 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E

Source: Frost & Sullivan Analysis

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The sales revenue of Fujian’s decentralised wastewater treatment equipment has increased from RMB127.5 million in 2015 to RMB480.4 million in 2019, representing a CAGR of 39.3%. PPP projects generated most of the demand of decentralised wastewater treatment equipment. Going forward, the sales revenue of decentralised wastewater treatment equipment is expected to reach RMB1,067.3 million in 2024.

Sales Revenue of Decentralised Wastewater Treatment Equipment (Fujian), 2015-2024E

2015-2019 2019-2024E 1,067.3 1200 CAGR39.3% 17.3% 929.0 790.8 1000 660.8 on RMB) i

ll 800 i 529.0 480.4 e (M 600 u

en 371.7 v 400 244.7 157.3 200 127.5 ales Re S 0 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E

Source: Frost & Sullivan Analysis

Market Drivers of Decentralised Wastewater Treatment Service Market

Macro Economy Growth Drives the Demand for Environmental Protection: Along with the growth of macro economy in China, people’s living standards have been greatly improved and they are increasingly demanding for healthy living environment. Under this circumstance, the environmental protection industry is evolving to be one of the key development industries in China. Wastewater treatment equipment including decentralised wastewater treatment equipment are embracing a rapid development period. In the meantime, the increasing awareness of the public has also stimulated the environmental protection demand in rural regions and other regions that are not yet introduced centralised wastewater treatment equipment. In such case, decentralised wastewater treatment equipment can satisfy the demand for environmental protection as macro economy grows.

ContinuousDevelopment of Water Industry: By 2019, the wastewater treatment rate in municipal regions has reached approximately 95.3%, steadily increased from 90.8% in 2015. The developed municipal wastewater treatment market has provided mature wastewater treatment technologies for the development of decentralised wastewater treatment service market. In the meantime, the wastewater treatment rate in rural areas is still very low compared to that in municipal regions. Scattered distributions of towns and villages have created great difficulties for the traditional centralised wastewater treatment plants. To satisfy the wastewater treatment demand in scattered water discharge points, decentralised wastewater treatment service market is expected to further penetrate in rural regions and therefore increase the rural wastewater treatment rate.

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Favourable Government Policies: Following the Action Plan of Water Pollution Control (《水污染防治行動計畫》), the water pollution treatment in rural regions has been set as one of the national strategies in China. The government has issued several policies to promote the development of rural wastewater treatment market. For instance, the 13th Five-year Plan for Comprehensive Management of the Rural Environment in China《全國農村環境綜合整治“十三五”規劃》requires that the rural household wastewater treatment rate should reach at least 60% by 2020. The 13th Five-year Plan for the Construction of Urban Wastewater Treatment and Recycling Facilities《“十三五”城鎮污水處理及再生利用設施建設規劃》requires that the wastewater treatment rate in towns should reach 70% by 2020. Moreover, Fujian and surrounding areas including Jiangxi, Hainan, Guangxi and Hunan have also enacted supportive policies to promote the development of rural wastewater treatment markets in local areas. For instance, Fujian issued The Implementation Plan of Rural Region Wastewater and Garbage Remediation Action (2016-2020)《福建省農村污水垃圾整治行動實施方案（2016-2020年）》in 2016; Jiangxi issued The Three-year Action Plan for Improving the Living Environment in Rural Regions of Jiangxi Province《江西省農村人居環境整治三年行動實施方案》 ( ) in 2018; Hainan issued The Work Plan of Promoting Rural Domestic Wastewater Treatment (2019-2020) (《海南省推進農村生活污水治理工作方案（2019-2020年）》) in 2019; Guangxi issued The Plan of Rural Living Environment Improvement and Cleaning Action《農村人居環境整治村莊清潔行動方案》 ( )in 2019; Hunan issued The Rural Revitalization Strategic Plan in Hunan Province (2018-2022)《湖南省鄉 ( 村振興戰略規劃（2018-2022年）》) in 2018.

These favorable policies are expected to fuel up the development of wastewater treatment in rural regions. As people in rural regions are generally scattered distributed, the distance between two villages may be quite long and thus the cost of building up pipeline network would be huge. As a result, decentralized wastewater treatment equipment, which are in small-scale and usually treat the wastewater close to the point of wastewater generation, is suitable and widely used in rural regions’ wastewater treatment. As a result, the development of wastewater treatment in rural regions is expected to drive the demand for decentralized wastewater treatment equipment. In addition, the promotion of PPP projects in water environment management industry has also greatly stimulated the demand for decentralised wastewater treatment equipment, which are usually integrated into comprehensive management projects.

Rapid Development of Rural Wastewater Treatment Market: As of 2018, there were over 2.4 million towns and villages in China. These rural regions are usually widely distributed and far from municipal wastewater pipeline network, and it is difficult and costly to collect wastewater and construct centralised wastewater treatment plants. Therefore, such rural regions usually have strong demand for decentralised wastewater treatment equipment. Considering the relatively lower wastewater treatment rate in rural regions, the rural wastewater treatment market still has great growth potential, which may further drive the demand for decentralised wastewater treatment services. In recent years, the construction investment in rural wastewater treatment has increased from RMB45.7 billion in 2015 to RMB87.9 billion in 2019, representing a CAGR of 17.8%.The ever increasing in construction investment of rural wastewater treatment can also greatly drive the growth of decentralised wastewater treatment service market.

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Entry Barriers to Decentralised Wastewater Treatment Service Market

➢ Technology: The wastewater treatment technology is the core competitiveness of decentralised wastewater treatment service providers. The wastewater treatment technology usually involves professional knowledge in multiple areas such as physics, chemistry and biology. In addition, the rising standards for wastewater discharge requires wastewater treatment operator to upgrade water treatment equipment and adopt advanced treatment technology, such as membrane and pre-treatment technology. The incumbent players have already accumulated and tested those technologies, which raises the entry barrier of wastewater treatment industry.

➢ Industry Experience: As the technologies and treatment performance usually varies with the water quality and treatment environment during decentralised wastewater treatment process, the service providers generally need sufficient industry experience to better satisfy the various demands from customers. Also, customers are more likely to choose experienced companies with excellent project performance. Hence, new entrants are difficult to accumulate enough experience and project experience in short time to compete with exiting players.

➢ Strong Customer Relationship: Since wastewater treatment belongs to the infrastructure industry, local governments are usually the major customers in wastewater treatment market. Existing players with years of business history have established solid relationships with local governments, and they are more likely to win the bid among government tendering projects, especially PPP projects.

Raw Material Analysis of Decentralised Wastewater Treatment Service Market

In the decentralised wastewater treatment service market, the unsaturated polyester resin is mainly used to produce fiber reinforced plastics. The average price for unsaturated polyester resin generally fluctuated from 2015 to 2019. The price of unsaturated polyester resin is highly correlated with the price of crude oil. In line with the decreasing crude oil price, the average price for unsaturated polyester resin decreased from RMB9,244.0 per tonne in 2015 to RMB7,922.6 per tonne in 2016. Then the average price for unsaturated polyester resin kept increasing from 2016 to 2018 with the bounce back of crude oil price during the same period. In 2019, the sharp decrease of the average price of unsaturated polyester resin was mainly attributed to the decreasing raw material prices and the trade friction, which has significantly affected the export of downstream products of unsaturated polyester resin.

Fiberglass is another raw material for producing decentralized wastewater treatment equipment. From 2015 to 2017, the average price of fiberglass yarn (2400-tex) decreased from RMB5,670 per tonne to RMB5,350 per tonne, which was mainly attributed to new added production capacity. The average price for fiberglass yarn (2400-tex) then increased to RMB5,280 per tonne in 2018 because of the restricting production due to environmental protection. Since 2018, the decreasing price of fiberglass yarn was mainly attributed to the new added production capacity, which led to oversupply in the market.

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Average Price Unsaturated Polyester Resin Average Price for Fiberglass Yarn (2400-tex) (China), 2015-2019 (China), 2015-2019 RMB/tonne RMB/tonne 15,000 8,000

10,638.5 5,670.0 6,000 5,350.0 5,280.0 9,244.0 9,556.5 10,000 7,922.6 8,125.4 4,710.0 4,675.0 4,000 5,000 2,000

0 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

Source: WIND, Frost & Sullivan Analysis

COMPETITIVE LANDSCAPE ANALYSIS OF DECENTRALISED WASTEWATER TREATMENT SERVICE MARKET

Competitive Landscape of Decentralised Wastewater Treatment Equipment Market

China’s decentralised wastewater treatment equipment market is highly fragmented with approximately 3,000 players, majority of which are small scale manufacturers. The Company realised approximately RMB41.0 million revenue, taking approximately 0.2% market share in China as of 2019.

Fujian’s decentralised wastewater treatment equipment market is relatively fragmented with 100 to 200 players in 2019. The top five suppliers together took 21.8% market share in terms of revenue in 2019. The Company is Fujian’s largest decentralised wastewater treatment suppliers with RMB41.0 million revenue in 2019, taking approximately 8.5% market share in Fujian.

Top Five Suppliers of Decentralised Wastewater Treatment Equipment in Terms of Revenue (Fujian), 2019

Ranking Company Name Revenue (RMB Million) Market Share (%)

1 The Company 41.0 8.5%

2 Company A 37.1 7.7%

3 Company B 12.8 2.7%

4 Company G 8.7 1.8%

5 Company H 5.2 1.1%

Top 5 104.8 21.8%

Others 375.6 78.2%

Total 480.4 100.0%

Source: Frost & Sullivan Analysis

Note: Company A was founded in 2011 and headquartered in Quanzhou. It is a private company that mainly focuses on decentralised wastewater treatment, waste gas treatment and soil remediation, etc.; Company B was founded in 2013 and headquartered in Fuzhou. It is a private company that mainly manufactures and sells decentralised wastewater treatment equipment in Fujian; Company G is a private company founded in 2012 and headquartered in Shenzhen. It mainly manufactures and sells decentralized wastewater treatment equipment; Company H is an environmental company founded in 2013 and headquartered in Fuzhou. It mainly provides solutions for air purification, wastewater treatment, etc.

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Competitive Landscape of Decentralised Wastewater Treatment Service Market

China’s decentralised wastewater treatment service market is extremely fragmented with over a thousand players. The Company realised approximately RMB184.1 million revenue, taking only 0.2% market share in China as of 2019.

Fujian’s decentralised wastewater treatment service market is relatively concentrated than China. There were dozens of players in Fujian’s decentralised wastewater treatment service market. The Company is Fujian’s largest service provider for decentralised wastewater treatment with RMB184.1 million revenue in 2019, taking approximately 8.2% market share in Fujian.

Top Five Service Providers for Decentralised Wastewater Treatment in Terms of Revenue (Fujian), 2019

Ranking Company Name Revenue* (RMB Million) Market Share (%)

1 The Company 184.1 8.2%

2 Company C 175.3 7.8%

3 Company D 161.0 7.1%

4 Company E 156.2 6.9%

5 Company F 124.6 5.5%

Top 5 801.2 35.5%

Others 1,451.7 64.5%

Total 2,252.9 100.0%

* Revenue in the above ranking refers to the total revenue generated from decentralised wastewater treatment services. Source: Frost & Sullivan Analysis

Note: Company C was founded in 2011 and headquartered in Kunming. It is a listed company on Hong Kong Stock Exchange. It is an integrated service provider in water industry in China.; Company D was founded in 2001 and headquartered in Beijing. It is a listed company on Shenzhen Stock Exchange. It is a national environmental solution provider. Company E was Founded in 2002 and headquartered in Fujian. It is a listed company on Shanghai Stock Exchange. It is a regional based wastewater treatment solution provider with business focus on Fujian market; Company F was founded in 2006 and headquartered in Beijing. It is a listed company on Hong Kong Stock Exchange and one of the largest infrastructure construction services providers in China.

OPPORTUNITIES TO DECENTRALISED WASTEWATER TREATMENT SERVICE MARKET

➢ Development of Rural Wastewater Treatment: At present, the construction of wastewater treatment infrastructure in rural regions is far behind the municipal wastewater treatment market. The wastewater treatment rate in rural regions including towns, townships and villages still has great growth potential as the treatment infrastructure increases. Tradition centralised wastewater treatment plants are usually difficult and costly to access rural regions. Decentralised wastewater treatment equipment are better solutions in such regions. As the waste treatment rate rise in rural regions, the decentralised wastewater treatment service market is facing great development opportunities in the foreseeable future.

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➢ Long-term Policy Support: Chinese government is increasingly focusing on improving the living environment in rural regions and has introduced long-term policies to strengthen the revitalization of rural regions. According to the Strategic Plan of Rural Revitalization (2018-2022)《鄉村振興戰略規劃(2018－2022年)》, Chinese government has introduced a long-term plan to revitalise the development in rural regions in 2050. Under the policy support, the decentralised wastewater treatment service market is expected to have a healthy and supportive development environment.

THREAT TO DECENTRALISED WASTEWATER TREATMENT SERVICE MARKET

➢ InadequateSupervision and Management in Rural Wastewater Treatment Market: The decentralised wastewater treatment service market in China is currently in the early development stage. As the largest application area of decentralised wastewater treatment equipment, the inadequate supervision and management in rural wastewater treatment service market constrain the market development. Other problems such as low operating efficiency and inadequate management of wastewater treatment equipment further are challenges for the healthy development of rural wastewater treatment market.

OVERVIEW OF DECENTRALISED WASTEWATER TREATMENT SERVICE MARKET IN SURROUNDING AREAS OF FUJIAN

Market Size

Along with the rapid development of China’s decentralised wastewater treatment service market, the markets in the surrounding areas of Fujian, including Jiangxi, Hainan, Guangxi and Hunan also witnessed rapid growth page over the past years. Jiangxi, Hunan, Guangxi and Hainan all experienced double-digit CAGRs from 2015 to 2019, which were mainly driven by increasing investment in rural wastewater treatment and supportive government policies. For instance, Jiangxi issued The Three-year Action Plan for Improving the Living Environment in Rural Regions of Jiangxi Province《江西省農村人居環境整治三年行動實施方案》 ( ) in 2018; Hunan issued The Rural Revitalization Strategic Plan in Hunan Province (2018-2022)《湖南省鄉村振興 ( 戰略規劃（2018-2022）年》) in 2018; Guangxi issued The Plan of Rural Living Environment Improvement and Cleaning Action《農村人居環境整治村莊清潔行動方案》 ( ) in 2019; Hainan issued The Work Plan of Promoting Rural Domestic Wastewater Treatment (2019-2020)《海南省 ( 推進農村生活污水治理工作方案（2019-2020年）》) in 2019. These policies strongly promoted the rural wastewater treatment market and created huge demands for decentralised wastewater treatment equipment.

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Total Revenue of Decentralised Wastewater Treatment Service Market (Surrounding Areas of Fujian), 2015-2024E

Unit: RMB Million

CAGR CAGR Provinces 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 15/19 19/24E

Jiangxi 254.7 282.6 478.3 784.4 1,006.6 1,106.0 1,386.3 1,671.1 1,982.0 2,302.9 41.0% 18.0% Hunan 429.1 494.3 528.5 1,274.1 1,481.2 1,603.6 1,952.3 2,307.9 2,696.4 3,097.7 36.3% 15.9% Guangxi 716.5 1,108.4 1,570.9 1,678.0 1,891.9 2,032.0 2,341.1 2,781.4 3,237.7 3,716.3 27.5% 14.5% Hainan 59.4 79.4 117.7 405.9 488.8 549.9 690.3 853.7 1,031.8 1,215.4 69.4% 20.0%

Sales Revenue of Decentralised Wastewater Treatment Equipment (Surrounding Areas of Fujian), 2015-2024E

Unit: RMB Million

CAGR CAGR Provinces 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 15/19 19/24E

Jiangxi 63.7 67.4 110.9 184.0 234.8 256.1 320.3 383.7 451.4 519.3 38.6% 17.2% Hunan 111.1 118.3 118.6 284.7 324.5 345.4 416.7 487.0 562.1 637.4 30.7% 14.5% Guangxi 154.1 225.5 309.4 334.9 375.0 399.4 459.0 541.3 624.0 707.9 30.8% 15.2% Hainan 11.9 15.0 21.4 74.9 89.6 99.8 125.0 153.3 183.4 213.3 65.6% 18.9%

Source: Frost & Sullivan Analysis

Competitive Landscape

The decentralised wastewater treatment service market is relatively fragmented with approximately over 100 players in the surrounding areas of Fujian, including Jiangxi, Hainan, Guangxi and Hunan. Major players in Jiangxi, Hunan and Guangxi mainly include large water companies and local water solution providers. As the market in Hainan is relatively smaller compared to other surrounding areas of Fujian, the decentralised wastewater treatment service market is mainly composed of large water companies.

The decentralised wastewater treatment equipment market is highly fragmented with approximately over 200 players in the surrounding areas of Fujian, including Jiangxi, Hainan, Guangxi and Hunan. Most of the companies are small scale manufacturers and sell decentralised wastewater treatment equipment in the local province.

OVERVIEW OF WATER PIPES AND PIPE FITTINGS MARKET

Water pipes and pipe fittings refer to those pipes and pipe fittings products used in the construction of ancillary pipeline network systems of water supply projects, wastewater treatment projects and reclaimed water projects.

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Along with the steady development of water industry and increasing capacities of water supply and wastewater treatment in China, the length of pipeline network systems of water projects in China also demonstrated rapid expansion and growth. Accordingly, the revenue of water pipes and pipe fittings market in China increased from approximately RMB7.9 billion in 2015 to approximately RMB15.8 billion in 2019, representing a CAGR of 18.9%.

Looking forward, driven by the continuous infrastructure investment in newly-built water projects and renovation of existing water facilities, the market demand for water pipes and pipe fittings is expected to be further increased. The revenue of water pipes and pipe fittings market in China is forecasted to reach approximately RMB24.6 billion in 2024, representing a CAGR of 9.3% from 2019 to 2024.

Revenue in Water Pipes and Pipe Fittings Market (China), 2015-2024E

2015-2019 2019-2024E 30 CAGR 18.9% 9.3% 24.6 21.1 18.7 20 17.1 on 16.1 i 15.8 ll

i 14.5 11.2

RMB B 10 7.9 8.3

0 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E

Source: Frost & Sullivan Analysis

The water pipes and pipe fitting market is highly fragmented with over 3,000 players in China. The top five suppliers of water pipes and pipe fittings in the PRC accounted approximately 12.7% in terms of revenue in 2019. The Company accounted for nearly 0.7% market share of China’s water pipes and pipe fitting market in terms of revenue in 2019.

Average Market Price of PVC, (China), 2015-2019

Thousand RMB/tonne 10

8 6.6 6.8 6.8 6.0 6 5.5

0 2015 2016 2017 2018 2019

PVC (polyvinyl chloride) is the major raw material for producing water pipes and pipe fittings. Calcium carbide method is the major production method of PVC in China and calcium carbide is the major raw material of PVC manufacturing. The price of PVC showed an increase from 2015 to 2019, the average market price of PVC increased from RMB5.5 thousand per tonne to RMB6.8 thousand per tonne along with the increasing raw material price of calcium carbide during the period.

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OVERVIEW

Our business operations are subject to extensive supervision and regulation by the PRC Government. This section sets out (i) an introduction to the major PRC government authorities with jurisdiction over our current operations and (ii) a summary of the main laws, regulations and policies to which we are subject.

CAPITAL FUND SYSTEM

In accordance with the Notice of the State Council on Trial Implementation of Capital Fund System in Fixed Asset Investment Projects《國務院關於固定資產投資項目試行資本金制度 ( 的通知》) promulgated and implemented by the State Council on 23 August 1996, and the Notice of the State Council on Adjusting the Proportions of Capital Fund in Fixed Asset Investment Projects《國務院關於調整固定資產投資項目資本金比例的通知》 ( ) promulgated and implemented by the State Council on 25 May 2009, the capital fund system is applied in fixed asset investment projects.

Under the capital fund system, investors must contribute a certain proportion of capital as the project company’s capital funds. The proportion of such contribution in sewage treatment projects must be no less than 20% of the total project investment amount. The specific proportion will be determined by the approval authority of that project when reviewing the feasibility research report, taking into consideration the project’s future economic benefits, banks’ willingness to grant loans and appraisal opinions.

CONCESSION IN MUNICIPAL PUBLIC UTILITIES PROJECTS

In accordance with the Opinion on Accelerating the Marketisation of Municipal Public Utilities Industry《關於加快市政公用行業市場化進程的意見》 ( ) promulgated and implemented by the former Ministry of Construction (now known as the Ministry of Housing and Urban-Rural Development or referred to as “MOHURD”) on 27 December 2002, the Measures for the Administration on the Concession of Municipal Public Utilities《市政公用事業特許經營 ( 管理辦法》) promulgated by the former Ministry of Construction on 19 March 2004, implemented on 1 May 2004 and amended on 4 May 2015, the Opinion of the Ministry of Construction on Strengthening the Supervision of Municipal Public Utilities《建設部關於加強市政公用事業監管 ( 的意見》) promulgated and implemented by the former Ministry of Construction on 10 September 2005, and the Measures for the Administration on the Concession of Infrastructure and Public Utilities《基礎設施和公用事業特許經營管理辦法》 ( ) promulgated by the MOF, the NDRC, the MOHURD, the Ministry of Transport, the Ministry of Water Resources and the PBOC on 25 April 2015 and implemented on 1 June 2015 (collectively referred to as the “Concession Rights Measures”), the relevant regulations governing the grant of concession rights for municipal public utilities projects are applicable to municipal public utilities projects including sewage treatment projects. Government authorities shall select investors or operators of municipal public utilities projects through public bidding according to relevant regulations, and enter into concession agreements to grant concession rights to them. However, the Concession Rights Measures provide no penalty for acquisition of concession rights without adopting competitive bidding process. The Concession Rights Measures require written concession agreements to be entered into for all municipal public utilities projects prior to the commencement of a concession period. For any concession projects which fail to comply with

– 104 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. REGULATORY OVERVIEW such requirement, the Concession Rights Measures require that rectification can be made by entering into written concession agreements in a timely manner. Moreover, according to the Concession Rights Measures, the terms of concession rights for municipal public utilities projects shall not exceed 30 years. After the expiration of the term, governments shall organise biddings and re-select the concessionaire by relevant procedures. Under the same condition, preferential access to concession rights shall be given to the former concessionaire.

The above concession provisions regulate the access to and terms of concession rights, the qualifications of enterprises applying for concession rights, the main contents of concession contracts, the responsibility for enterprises with concession rights, and the changes and termination of concession rights and others.

PROMOTION ON PUBLIC-PRIVATE PARTNERSHIP (PPP)

According to the Guiding Opinions of the State Council on Innovating the Investment and Financing Mechanisms in Key Areas and Encouraging Social Investment (Guo Fa [2014] No.60) (《國務院關於創新重點領域投融資機制鼓勵社會投資的指導意見》(國發[2014]60號)) promulgated and implemented by the State Council on 16 November 2014, the PRC government encourages social capital’s participation in the municipal infrastructure projects including urban water supply, wastewater treatment and garbage disposal by concession, investment subsidy, government’s purchase of services and other methods and shall choose eligible operators in accordance with the law. The government may also employ entrusted operation or transfer-operate-transfer (TOT) and other means to transfer the built municipal infrastructure projects to social capital for operation and management.

According to the Guiding Opinions of the National Development and Reform Commission on Launching the Cooperation between Governments and Social Capitals (Fa Gai Tou Zi [2014] No.2724)《國家發展改革委關於開展政府和社會資本合作的指導意見》 ( (發改投資 [2014]2724號)) promulgated and implemented by the NDRC on 2 December 2014, the PPP model is mainly applicable to the public services and infrastructure projects that are provided by the government and suitable for market-based operation, such as water supply, wastewater treatment and garbage disposal. Development and reform committees of all provinces and cities shall establish the PPP project library, and shall submit the project progress information to the NDRC prior to the fifth day of each month from January 2015 onwards.

According to the Circular of the Ministry of Finance on Issues Concerning the Promotion and Application of the Public- Private-Partnership Model (Cai Jin [2014] No.76)《財政部關於推廣運用 ( 政府和社會資本合作模式有關問題的通知》(財金[2014]76號)) promulgated and implemented by the MOF on 23 September 2014, the Circular of the Ministry of Finance on Issues Concerning the Implementation of the Demonstration Project Cooperated between Governments and Social Capitals (Cai Jin [2014] No.112)《財政部關於政府和社會資本合作示範項目實施有關問題的通知》 ( (財金[2014]112號)) promulgated and implemented by the MOF on 30 November 2014 and the Circular of the Ministry of Finance on Regulating the Management of Co-operative Contracts between Governments and Social Capitals (Cai Jin [2014] No.156)《財政部關於規範政府和社會資本合作合同 ( 管理工作的通知》(財金[2014]156號)) promulgated and implemented by the MOF on 30 December 2014, government authorities have set up a series of guidelines on the cooperation between governments and social capitals under the PPP model, including project management and co-operative contract management.

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Terms of Concession Rights

According to the Concession Rights Measures and the Measures for the Administration on the Concession of Infrastructure and Public Utilities, the terms of concession rights for municipal public utilities projects shall not exceed 30 years. After the expiration of the term, governments shall organise biddings and re-select the concessionaire by relevant procedures.

Pricing

According to the Regulations on Urban Drainage and Sewage Treatment (Order of the State Council No.641)《城鎮排水與污水處理條例》 ( (國務院令第641號)) promulgated on 2 October 2013 and implemented on 1 January 2014 by the State Council, where the concession operation contract or the contract on entrusted operation involves the reduction of pollutants and service fees for sewage treatment operation, the competent departments of urban drainage shall consult competent departments of environmental protection and competent price departments. The competent department of urban drainage shall approve the operation service fees for urban sewage treatment facilities in accordance with the implementation of operation and maintenance contracts by the urban sewage treatment facilities operation and maintenance unit and the supervision and inspection results of the effluent quality and quantity of the urban sewage treatment facilities by the competent department of environmental protection. The relevant departments of the local people’s government shall fully disburse the operating service expenses of urban sewage treatment facilities in a timely manner.

According to the Administrative Measures for Collection and Use of Sewage Treatment Fees《污水處理費徵收使用管理辦法》 ( ) promulgated by the NDRC, the MOF and the MOHURD on 31 December 2014 and implemented on 1 March 2015, the collection standard of sewage treatment fees is formulated in accordance with the principle of covering the normal operation of sewage treatment facilities and sludge treatment and disposal costs and making reasonable profits. The local department in charge of price, financial department and drainage department above the county level shall submit their opinions to the people’s government at the same level for approval before implementation.

According to the Circular of the NDRC, the MOF, the MOHURD on the Relevant Issues Concerning the Formulation and Adjustment of the Charging Standard for Sewage Treatment (Fa Gai Jia Ge [2015] No.119)《國家發展改革委、財政部、住房城鄉建設部關於制定和調整污水處 ( 理收費標準等有關問題的通知》(發改價格[2015]119號)) promulgated and implemented by the NDRC, the MOF and the MOHURD on 21 January 2015, the charging standard for sewage treatment shall be formulated and adjusted upon comprehensive consideration of factors such as the condition of water pollution prevention and control and the bearing capacity of the economy and society of the region according to the principles of “Polluter-pays, Equitable Sharing, Cost Reimbursement and Reasonable Profit Gaining”. The charging standard shall be set for the compensation of the operating costs of sewage treatment and sludge disposal facilities and for the gaining of reasonable profit. By the end of 2016, the charging standard for urban sewage treatment shall be adjusted to not less than RMB0.95 per ton for residents, and not less than RMB1.4 per ton for non-residents in principle; the charging standard for sewage treatment of counties and key designated towns shall be adjusted to not less than RMB0.85 per ton for residents, and not less than RMB1.2 per ton for non-residents in principle.

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According to the Work Plan of Water Pollution Prevention and Control Action Plan《水污 ( 染防治行動計劃工作方案》) issued and implemented by Fujian Provincial People’s Government on 3 June 2015, the charging standard of urban sewage treatment shall not be lower than the disposal costs of sewage treatment and sludge treatment.

Laws and Regulations in Relation to Foreign Investment

According to the Regulations for Guiding Foreign Investment Directions《指導外商投資 ( 方向規定》) (Order No.346 of the State Council), which was promulgated by the State Council on 11 February 2002 and came into effect on 1 April 2002, foreign investment projects shall be classified into four categories, namely “encouraged”, “permitted”, “restricted” and “prohibited”. Encouraged, restricted and prohibited foreign investment projects shall be listed in the Guideline Catalog of Foreign Investment Industries《外商投資產業指導目錄》 ( ), while foreign investment projects that do not fall within the encouraged, restricted and prohibited categories shall be classified as belonging to the category of permitted foreign investment projects.

Pursuant to the Catalog of Industries for Encouraged Foreign Investment (2019 Edition) (《鼓勵外商投資產業目錄》(2019年版)) which was promulgated by the NDRC and MOFCOM on 30 June 2019 and became effective on 30 July 2019, and the Special Administrative Measures (Negative List) for Foreign Investment Access (2020 Edition)《外商投資准入特別管理措施 ( （負面清單）》(2020年版)) which was promulgated by the NDRC and the MOFCOM on 23 June 2020 and became effective on 23 July 2020, the manufacture of small domestic sewage treatment equipment used in rural areas, the manufacture of sewage plant sludge disposal and resource recycling equipment, and the construction and operation of sewage treatment plants fall within the category of industries in which foreign investment is encouraged and do not fall into the negative list for foreign investment.

Water Quality

The water quality of effluent flowing from municipal wastewater treatment plants, exhaust emissions and sludge disposal (control) management and pollutant limits shall comply with the standards set out in the Discharge Standard of Pollutants for Municipal Wastewater Treatment Plants《城鎮污水處理廠污染物排放標準》 ( ) (GB18918-2002) (Notice of State Environmental Protection Administration in 2006 No.21 (國家環境保護總局公告2006年第21號)) promulgated by the former State Environmental Protection Administration on 24 December 2002, implemented on 1 July 2003 and amended on 8 May 2006. According to the Law of the People’s Republic of China on the Prevention and Control of Water Pollution (Order of the President No. 87)《中華人民共和國水污染防治法》 ( (主席令第87號)) promulgated by the NPC Standing Committee on 11 May 1984, implemented on 1 November 1984 and amended on 15 May 1996, 28 February 2008 and 27 June 2017 and implemented on 1 January 2018, the operators of centralised treatment facilities for municipal wastewater are responsible for the quality of the effluent from municipal facilities.

The water quality of the domestic drinking water provided by various centralised and non-centralised water supply in urban and rural areas shall comply with the standards set out in the Standards for Domestic Drinking Water Quality《生活飲用水衛生標準》 ( ) (GB5749-2006) promulgated by the former Ministry of Health and the Standardization Administration on 29 December 2006 and implemented on 1 July 2007.

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Government Supervision

According to the Measures for the Administration on the Concession of Municipal Public Utilities《市政公用事業特許經營管理辦法》 ( ) and the Opinion of the Ministry of Construction on Strengthening the Supervision of Municipal Public Utilities《建設部關於加強市政公用事業監管 ( 的意見》) implemented by the former Ministry of Construction on 10 September 2005, the government shall guide and supervise the concession activities of municipal public utilities which include: market access and exit, operational security, product and service quality, price and charge, pipeline network system and market competition order. Government’s forms of supervision mainly include the following:

A. Routine Supervision

The competent authorities for municipal public utilities shall carry out periodic spot checks on the quality of the products and services provided by public utilities operators and shall regulate the costs of products and services from municipal public utilities.

B. Mid-term Assessment

During the course of project operation, the competent authorities for municipal public utilities operators shall organise experts to carry out mid-term assessment on the performance of the operators who have obtained concession right. Such assessment shall be carried out at least once every two years. Under special circumstances, the supervisory authorities may carry out annual assessments.

C. Supervision over Material Matters

Unless otherwise authorised by the government in advance, operators of municipal public utilities shall not transfer or lease their concession rights, dispose of or mortgage project assets, shut down or wind up without permission during the concession period. If an enterprise which has been granted concession rights intends to unilaterally terminate the concession agreement within its valid period, the enterprise shall apply to the regulatory authority in advance. Before such authority’s approval of the termination of such agreement is obtained, the relevant enterprise shall maintain its normal operation and service.

D. Consequences of Violations

Where an enterprise which has been granted concession rights is involved in one of the following conducts during the concession period, the competent authority shall terminate the concession agreement according to law, and may take over the enterprise temporarily:

(1) Transfer or lease the concession rights without authorisation;

(2) Dispose of or mortgage business assets without authorisation;

(3) Occurrence of any material quality or production safety accident due to poor management;

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(4) Close out or shut down without permission, which seriously affects public interest and safety; and

(5) Other conducts prohibited by laws and regulations.

Tendering and Bidding of Construction Projects

According to the Bid Invitation and Bidding Law of the PRC《中華人民共和國招標 ( 投標法》) promulgated by the NPC Standing Committee on 30 August 1999 and implemented on 1 January 2000, and amended on 27 December 2017 and implemented on 28 December 2017 and the Implementation Regulations on the Bid Invitation and Bidding Law of the PRC《中華人民共 ( 和國招標投標法實施條例》) promulgated by the State Council on 20 December 2011 and implemented on 1 February 2012 and last amended and implemented on 2 March 2019, in respect of construction projects such as major engineering projects for infrastructure and public utilities that concern public interest and security and those invested completely or partly by state-owned funds or financed by the state to be undertaken within the territory of the PRC, bid invitation shall be conducted for the surveying, design, construction and supervision of such projects as well as the purchase of key equipment and materials for project construction. Bid invitation is classified into two categories: public tendering and invited tendering. Any company that, in violation of the above provisions on tendering and bidding, fails to invite bids for a project subject to bid invitation, or breaks up the project into parts, or by any other means attempts to avert bid invitation, shall rectify such situation within a time limit and may be fined not less than 0.5 percent but not more than 1 percent of the contract value of the project; for a project which completely or partly uses state-owned funds, its construction or allocation of funds may be suspended; and the persons who are directly in charge and the other persons who are directly responsible shall be given sanctions in accordance with law.

BUSINESS QUALIFICATIONS AND LICENSES

Pollutant Discharge Permit

According to the Environmental Protection Law of the PRC (Order No.9 of the President) (《中華人民共和國環境保護法》(主席令第9號)) amended by the NPC Standing Committee on 24 April 2014 and implemented on 1 January 2015, the Law of the PRC on the Prevention and Control of Water Pollution (Order No. 70 of the President)《中華人民共和國水污染防治法》 ( (主席令第70號)) amended on 28 February 2008 and implemented on 1 June 2008 and amended on 27 June 2017 and implemented on 1 January 2018, any enterprise, institution or other production or business operator that directly or indirectly discharges industrial waste water, medical sewage and other wastewater and sewage which requires the pollutant discharge permit under relevant provisions shall obtain the relevant pollutant discharge permit; any entity that operates facilities for centralised treatment of urban sewage shall also obtain the pollutant discharge permit. It is forbidden for enterprises and public institutions to discharge wastewater into water body without a pollutant discharge permit or in violation of the provisions on the pollutant discharge permit.

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Work Safety License

According to the Regulation on Work Safety Licenses《安全生產許可證條例》 ( ) promulgated and implemented by the State Council on 13 January 2004 and amended on 18 July 2013 and 29 July 2014, the state implements a work safety licensing system on enterprises engaged in construction. Before starting production, a construction enterprise shall apply for a work safety license from the department in charge of issue and administration of work safety licenses. No construction enterprises may engage in production activities without a work safety license.

The department for work safety supervision and administration under the people’s governments of provinces, autonomous regions, and municipalities directly under the Central Government shall be in charge of issue and administration of work safety licenses for construction enterprises, and are under the guidance and supervision of the department for work safety supervision and administration under the State Council. The validity term of a work safety license shall be three years. If the enterprise needs to renew the work safety license upon expiry of the validity term, it shall go through renewal formalities with the original authorities for issue and administration of the work safety license three months before the expiry.

Construction Enterprise Qualification

According to the Measures of Administration on Construction Enterprise Qualifications (Order No. 22 of the MOHURD)《建築業企業資質管理規定》 ( (住房和城鄉建設部令第22號)) promulgated by the MOHURD on 22 January 2015, implemented on 1 March 2015, an enterprise shall obtain a qualification certificate for construction enterprises before conducting construction activities within the scope of the qualifications. The qualification certificate is valid for five years.

PRC LAWS AND REGULATIONS RELATING TO ENVIRONMENTAL PROTECTION

The construction and operation of our Company shall be in compliance with the following environmental protection laws and regulations in the PRC.

According to the Environmental Protection Law of the PRC《中華人民共和國環境 ( 保護法》) promulgated and implemented on 26 December 1989, amended on 24 April 2014 and implemented on 1 January 2015 by the NPC Standing Committee, enterprises, institutions and other producers and operators discharging pollutants shall adopt measures to prevent and control environmental pollution and damage incurred during production, construction or other activities. Pollution prevention facilities in construction projects shall be designed, built and put into operation together with the main part of the project. No permission shall be given for a construction project to be commissioned or used until its facilities for the prevention and control of pollution are examined and accepted by the competent department for environmental protection. Should enterprises, public institutions and other manufacturers and business operators violate the laws and regulations to discharge pollutants, which causes or might cause severe pollution, the competent department for environmental protection and other departments responsible for the supervision and administration of environmental protection under the people’s governments above the county level may seal up and sequester their facilities and equipment discharging pollutants.

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According to the Law of the PRC on Appraising of Environment Impact《中華人民共和國 ( 環境影響評價法》) promulgated on 28 October 2002 and amended on 2 July 2016 and 29 December 2018 respectively, and the Provisions on Approval of Environmental Impact Assessment Documents Concerning Construction Projects at Different Administrative Levels (《建設項目環境影響評價文件分級審批規定》) promulgated on 16 January 2009 and implemented on 1 March 2009, the PRC government has set up a system to assess the environmental impact of construction projects, and to classify and administer environmental impact appraisals based on the degree of environmental impact caused by the construction project. If a construction project may result in a material impact on the environment, an environmental impact report is required, which thoroughly appraises the potential environmental impact. If the construction project may result in a slight impact on the environment, an environmental impact report form is required which shall analyse or appraise the environmental impact generated. If the construction project may result in minimal impact on the environment, an environmental impact appraisal is not required but an environmental impact registration form shall be filed. If the environmental impact assessment documents of the construction project are not examined by the examination and approval department in accordance with the law or approved after examination, the construction unit may not start construction. Approval authority at different levels on environmental impact assessment documents concerning construction projects is, in principle, determined according to the authority on the approval, verification and registration of the construction projects and the nature and degree of their environmental impact.

According to the Administrative Regulations for the Environmental Protection of Construction Projects《建設項目環境保護管理條例》 ( ) promulgated by the State Council on 29 November 1998, amended on 16 July 2017 and implemented on 1 October 2017, the Administrative Measures for the Examination and Approval of Environmental Protection Facilities of Construction Projects《建設項目竣工環境保護驗收管理辦法》 ( ) promulgated by the former State Administration for Environmental Protection on 27 December 2001, implemented on 1 February 2002 and amended on 22 December 2010，and the Interim Measures on Acceptance Inspections for Environmental Protection Purposes over Completed Construction Projects《建設項目竣工環境保護驗收暫行辦法》 ( ) promulgated and implemented by the former State Administration for Environmental Protection on 20 November 2017, before the trial production of construction projects, construction entities shall apply for trial production with the competent environmental protection authority for environmental protection inspection and acceptance; upon the completion of the construction project and before the project is put into production or use, construction entities shall apply to the competent environmental protection authority for environmental protection inspection and acceptance for the completion of construction projects. Simultaneous design, construction and commencement of operation with the main body project must be realised for ancillary environmental protection facilities which are required for the construction project. For a construction project for which an environmental impact report or statement is prepared, its ancillary environmental protection facilities may go into production or be delivered for use only after they pass the acceptance check; and such facilities may not go into production or be delivered for use if they fail to undergo or pass an acceptance check. According to the Circular on Discontinuation of Approving the Trial Production of Construction Projects by Competent Departments for Environmental Protection (《關於環境保護主管部門不再進行建設項目試生產審批的公告》) promulgated by the Ministry of Environmental Protection on 8 April 2016, the competent departments for environmental protection at provincial, municipal or county level has discontinued the acceptance, examination and approval of trial production applications from construction projects.

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LAND REQUISITION AND CONVERSION FROM COLLECTIVELY-OWNED LAND TO STATE-OWNED LAND

Land Requisition and the Time of Transfer of Beneficial Ownership of the Land

According to the Land Administration Law of the PRC《中華人民共和國土地管理法》 ( ) (the “Land Administration Law”) promulgated on 25 June 1986, implemented on 1 January 1987, and amended on 29 December 1988, 29 August 1998, 28 August 2004 and 26 August 2019 by the Standing Committee of the National People’s Congress, for the sake of public interest and in compliance with laws and regulations, land owned by peasant collectives may be requisitioned according to law where necessary.

According to the Civil Code《民法典》 ( ) passed on 28 May 2020 and implemented on 1 January 2021 by the National People’s Congress, for the sake of public interests, collectively-owned lands, premises owned by entities and individuals or other real properties may be requisitioned in accordance with the authority and procedures provided by laws. Where property right is created, altered, transferred or eliminated by a requisition decision of the people’s government, such creation, alteration, transfer or elimination shall become effective upon the as of the time the requisition decision of the people’s government is made.

According to the Implementation Regulations for PRC Law of Land Administration (《中華人民共和國土地管理法實施條例》) promulgated on 27 December 1998 and amended on 8 January 2011 and 29 July 2014 respectively by the State Council, land in rural areas and suburban districts of municipalities that have been confiscated, requisitioned or purchased according to law, the Land shall belong to the entire people, that is, the State.

Main Procedures of Land Requisition

According to the Implementation Regulations for PRC Law of Land Administration ( 《中華人民共和國土地管理法實施條例》) promulgated on 27 December 1998 and amended on 8 January 2011 and 29 July 2014 by the State Council, the procedure of land requisition primarily includes the procedures of requisition decisions, announcement of land requisition, registration of compensation for the land requisitioned and payment of compensation for land requisition. The land requisition is organized and implemented by the people’s government of a city or a county where the requisitioned land locates. An announcement in relation to the compensation standard, settlement arrangement for agricultural workers and period for the registration of compensation for the land requisition shall be published in the township (town) or village where the requisitioned land locates. Owners of the requisitioned land or the land user shall register for compensation of land requisition at the competent land departments of people’s governments designated in the announcement within the period stipulated in the announcement. Payment for land requisition shall be made in full within three months after the approval of the compensation proposal.

According to the Implementation Measures of the Land Administration Law of the PRC in Fujian Province《福建省實施 ( 〈中華人民共和國土地管理法〉辦法》) (the “Fujian Implementing Measures”) passed on 22 October 1999 and amended on 30 July 2010, 29 March 2012 and 25 July 2013 respectively by the Standing Committee of Fujian Provincial People’s Congress, the competent land departments of the local people’s governments at the county level shall be responsible for the management and supervision of land within their administrative areas.

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Relevant Registration Procedures for Conversion from Collective-owned Land to State-owned Land

According to the Implementation Regulations for PRC Law of Land Administration (《中華人民共和國土地管理法實施條例》) promulgated on 27 December 1998 and amended on 8 January 2011 and 29 July 2014 respectively by the State Council, for state-owned land used by units and individuals in accordance with law, the land users shall apply for land registration to competent land department of local people’s governments at or above the county level where the land locates. The county people’s governments would register and record the land and issue the state-owned land ownership certificate.

According to the Land Administration Law of the PRC《中華人民共和國土地管理法》 ( ) promulgated on 25 June 1986, implemented on 1 January 1987, and amended on 29 December 1988, 29 August 1998, 28 August 2004 and 26 August 2019 respectively by the Standing Committee of the National People’s Congress, the state-owned land to be used by the construction unit shall be acquired either by transfer or by allocation. Land for urban infrastructure and land for social facilities may be obtained by allocation with the approval of people’s governments at or above the county level in accordance with law.

According to the Catalogue for Allocated Lands《劃撥用地目錄》 ( ) promulgated on 22 October 2001 by former Ministry of Land and Resources, application of land for urban infrastructure such as wastewater treatment facilities and garbage disposal facilities shall be made by the construction unit, and the land use rights may be provided by allocation with the approval of the competent people’s governments.

According to the requirements of the Notice on the Reform of Ministry of Natural Resources for Promoting “Consolidation of Various Approvals and Various Certificates” for Planned Land Use on the Basis of “Consolidation of Various Regulations”《自然資源部關於以 ( 「多規合一」為基礎推進規劃用地「多審合一、多證合一」改革的通知》) promulgated and implemented on 17 September 2019 by Ministry of Natural Resources, for land use rights obtained by allocation, the construction unit shall apply for a construction land planning permit to the competent natural resources department of the cities and counties where it locates, and the competent natural resources department of the relevant cities and counties shall examine and issue the construction land planning permit and the decision to approve the allocation of the state-owned land to the construction unit simultaneously.

According to the Interim Regulation on Real Estate Registration (《不動產登記暫行條例》) issued on 24 November 2014 and amended on 24 March 2019 by the State Council, real estate shall be registered by the real estate registration authority designated by the county people’s government of the place where the real estate is located.

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LAND, PLANNING AND CONSTRUCTION PERMITS

The construction and operation of our Company shall be in compliance with the following laws and regulations in relation to land, planning and construction permits.

Land Use Rights

Pursuant to the Land Administration Law of the PRC《中華人民共和國土地管理法》 ( ) promulgated on 25 June 1986, effective on 1 January 1987 and amended on 29 December 1988, 29 August 1998, 28 August 2004 and 26 August 2019, state-owned land may be remised or allotted to construction units or individuals in accordance with the law. The PRC Government at or above the county level shall register and record uses of state-owned land used by construction units or individuals, and issue certificates to certify the land use rights.

Construction Land Planning Permit

According to the Urban and Rural Planning Law of the PRC《中華人民共和國城鄉 ( 規劃法》) promulgated by the NPC Standing Committee on 28 October 2007 and implemented on 1 January 2008, and amended on 24 April 2015 and 23 April 2019 respectively, a Construction Land Planning Permit is required for the use of both remised land and allotted land.

If a construction entity which was authorised to use the construction land fails to obtain a Construction Land Planning Permit, the PRC government above the county level shall cancel any relevant authorisation document. If the land has already been occupied, it shall be returned promptly. Furthermore, the construction entity shall be obliged to compensate for any damage caused to the parties concerned according to law.

Construction Work Planning Permit

According to the Urban and Rural Planning Law of the PRC《中華人民共和國城鄉 ( 規劃法》), where construction work is conducted in a city or town planning area, the relevant construction entity or individual shall apply for a Construction Work Planning Permit from the competent urban and rural planning department of a people’s government at the municipal or county level or to the township people’s government as recognised by the people’s government of a province, autonomous region or municipality.

For construction works that proceed without a Construction Work Planning Permit or in violation of the provisions of the Construction Work Planning Permit, the competent urban and rural planning department at or above the county-level people’s government can order termination of construction; if the impact on the planning caused by such construction can be eliminated, the department shall order it to take remedial action within a prescribed time limit and pay a fine of not less than 5% but not exceeding 10% of the construction costs; if such impact cannot be eliminated by remedial action, the department shall order the construction entity to demolish its construction within a prescribed time limit; and for construction work that cannot be demolished, the department shall not only confiscate it or seize any illegal income, but also may impose a fine not exceeding 10% of the construction price.

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Construction Work Commencement Permit

According to the Construction Law of the PRC《中華人民共和國建築法》 ( ) promulgated on 1 November 1997, implemented on 1 March 1998, and amended on 22 April 2011 and 23 April 2019 respectively by the NPC Standing Committee, a construction entity shall, prior to the commencement of a construction project of various properties and their ancillary facilities as well as the installation of supporting wiring, piping and equipment, apply for a Construction Work Commencement Permit from a competent construction administration department of the people’s government at or above the county level of the place where the project is located pursuant to the relevant regulations of the State. However, small projects determined by the competent construction administration department of the State Council and those which have already obtained approvals for their construction commencement reports pursuant to the terms of reference and procedures prescribed by the State Council are exempted.

According to the Provisions on the Administration of Construction Project Quality《建設 ( 工程質量管理條例》) promulgated and implemented by the State Council on 30 January 2000 and amended on 7 October 2017 and 23 April 2019 respectively, a construction entity commencing the project without obtaining the Construction Work Commencement Permit or approval for its construction commencement report shall be ordered to stop the construction work, carry out remedial actions within a prescribed time limit and pay a fine of not less than 1% but not exceeding 2% of the contractual construction price.

Inspection and Acceptance on Completion of Construction Projects

According to the Provisions on the Administration of Construction Project Quality《建設 ( 工程質量管理條例》) and the Administrative Measures for Recording of the Inspection and Acceptance on Construction Completion of Buildings and Municipal Infrastructure《房屋建築 ( 和市政基礎設施工程竣工驗收備案管理辦法》) which was promulgated and implemented on 19 October 2009, a construction project shall not be delivered for use unless it has passed the acceptance checks. The construction entity should file a record to a competent construction department of the people’s government at or above the county level at the place where the project is located within 15 days from the day when the construction project passes the acceptance checks.

Where a construction entity illegally delivers the construction project for use without undergoing the acceptance checks or in circumstances where it fails to pass the acceptance checks, it shall be ordered to carry out remedial actions and also pay a fine of not less than 2% but not exceeding 4% of the contractual project price, and shall be obliged to pay compensation according to law if any losses have been caused. If the construction entity fails to file a record of passing the acceptance checks in respect of the construction project within 15 days from the day when the project passes such checks, it shall be ordered to carry out remedial actions within a prescribed time limit and shall be fined not less than RMB200,000 but not exceeding RMB500,000.

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INTELLECTUAL PROPERTY

Trademark

According to the PRC Trademark Law (Order No.29 of the President)《中華人民共和國商 ( 標法》(主席令第29號)), which was promulgated by the NPC Standing Committee on 23 August 1982, implemented on 1 March 1983 and amended on 22 February 1993, 27 October 2001, 30 August 2013 and 23 April 2019 respectively, and became effective on 1 November 2019, the exclusive right to use a registered trademark is limited to the trademark which has been approved for registration and to the goods in respect of which the use of the trademark has been approved. The validity period of a registered trademark shall be ten years, starting from the date of approval of the registration. Using a trademark that is identical with a registered trademark in respect of the same goods, or using a trademark that is similar to a registered trademark in respect of the same goods, or using a trademark that is identical with or similar to a registered trademark in respect of the similar goods without the authorisation from the trademark registrant, which is likely to cause confusion, shall be an infringement of the exclusive right to use a registered trademark.

Patent

According to the PRC Patent Law (Order No.8 of the President)《中華人民共和國專利法》 ( (主席令第8號)), which was promulgated by the NPC Standing Committee on 12 March 1984, implemented on 1 April 1985 and amended on 4 September 1992, 25 August 2000 and 27 December 2008 respectively, and became effective on 1 October 2009, after the patent right is granted for an invention or a utility model, unless otherwise provided for in this Law, no unit or individual may exploit the patent without the permission of the patentee, i.e., he, she or it may not, for production or business purposes, manufacture, use, offer to sell, sell, or import the patented products, use the patented method, or use, offer to sell, sell or import the products that are developed directly through the use of the patented method. After the patent right is granted for design, no unit or individual may exploit the patent without the permission of the patentee, i.e., he, she or it may not, for the production or business purposes, manufacture, offer to sell, sell or import any product containing the patented design. The validity period shall be 20 years for an invention patent, and ten years for a utility model patent and a design patent, in each case commencing on their respective application dates.

Domain Name

Pursuant to the Internet Domain Name Management Measures《互聯網域名管理辦法》 ( ) promulgated by the Ministry of Industry and Information Technology of the PRC on 24 August 2017 and effective on 1 November 2017, domain name registration shall be conducted through domain name registration management service institutions, on the principle of “First Apply, First Register”, unless otherwise specified by the implementation rules for particular domain names. Domain name registration management service institutions shall enter into individual domain name registration agreements with applicants. Domain name holders shall notify domain name registration management service institutions of any change in registration information other than that of the holder and apply for registration information change within 30 days after such change according to the change identification method selected at application.

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LABOUR PROTECTION

Our Company is governed by the PRC laws and regulations relating to labour protection.

Pursuant to the PRC Labour Law《中華人民共和國勞動法》 ( ) promulgated on 5 July 1994 and effective on 1 January 1995, and amended on 27 August 2009 and 29 December 2018 respectively, the PRC Labour Contract Law《中華人民共和國勞動合同法》 ( ) promulgated on 29 June 2007, effective on 1 January 2008 and further amended on 28 December 2012 and other labour laws and regulations, if an employment relationship is established between the employer and its employees, written labour contracts shall be prepared and labour remuneration shall be paid by the employer to its employees. Such contracts shall stipulate statutory working hours and breaks and the holiday system, to protect the worker’s rights of enjoying safe and healthy working environment and social insurance, and can only be terminated in accordance with relevant laws.

Pursuant to the Social Insurance Law of the PRC《中華人民共和國社會保險法》 ( ) promulgated on 28 October 2010, implemented on 1 July 2011 and amended on 29 December 2018, employees shall participate in basic pension insurance, basic medical insurance, unemployment insurance, work-related injury insurance and maternity insurance schemes. Basic pension insurance, basic medical insurance and unemployment insurance contributions shall be paid by both employers and employees while work-related injury insurance and maternity insurance contributions shall be solely undertaken by employers.

Pursuant to the Regulations on the Administration of Housing Provident Fund《住房公積 ( 金管理條例》) promulgated and effective on 3 April 1999 and amended on 24 March 2019, the employer must register with the housing provident fund management center and establish a special housing provident fund account with an entrusted bank. When employing new staff or workers, the employer shall undertake housing provident fund payment and deposit registration at a housing provident fund management center within 30 days from the date of employment. The housing provident fund shall be contributed by both the employer and the employee. The employer shall pay the monthly housing provident fund in the amount of the average monthly salary of the employee in the previous year multiplied by a certain deposit ratio designated to the employer, which shall not be less than 5% of an individual employee’s average monthly wage of the preceding year. The employer shall pay and deposit housing provident fund contributions in full in a timely manner. Late or insufficient payments are prohibited.

Pursuant to the Reform Plan of the State Tax and Local Tax Collection Administration System《國稅地稅徵管體制改革方案》 ( issued by the General Office of the Communist Party of China and the General Office of the State Council of the PRC on 20 July 2018, tax authorities will be responsible for the collection of social insurance contributions in the PRC from 1 January 2019. Pursuant to the Urgent Notice of the General Office of the Ministry of Human Resources and Social Security on Effectively Implementing the Spirit of the Executive Meeting of the State Council and Effectively Conducting the Collection of Social Insurance Premiums in a Stable Manner《人力資源社會保障部辦公廳關於貫徹落實國務院常務會議精神切實做好穩定社保費徵收 ( 工作的緊急通知》) (the “Urgent Notice”) issued on 21 September 2018, before the reform of the social insurance collection authorities being in place, the relevant levying policies, including the base and rate of social insurance premiums, shall remain unchanged. The Urgent Notice also clarified that it is strictly prohibited for local authorities themselves to organise and conduct centralised collection of historical social insurance arrears from enterprises.

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TAXATION

Our Company shall abide by the following PRC laws and regulations in relation to major taxes:

Enterprise Income Tax

According to the Enterprise Income Tax Law of the PRC《中華人民共和國企業 ( 所得稅法》) promulgated on 16 March 2007, implemented on 1 January 2008 and amended on 24 February 2017 and 29 December 2018 respectively, and the Implementation Rules to the Enterprise Income Tax Law of the PRC《中華人民共和國企業所得稅法實施條例》 ( ) promulgated on 6 December 2007, effective on 1 January 2008 and amended on 23 April 2019, resident enterprises, which refer to enterprises that are established within the PRC territory in accordance with the law, or those established in accordance with the law of the foreign country (region) but with its actual administration institution in the PRC, shall pay EIT originating both within and outside the PRC, at the rate of 25%.

According to the Enterprise Income Tax Law of the PRC and the Implementation Rules to the Enterprise Income Tax Law of the PRC, the revenue from engagement in eligible projects of environmental protection, energy and water conservation, shall be exempted from the EIT for the first three years starting from the taxable year when the production or operation revenue is first obtained from such projects, and shall be taxed at half the rate from the fourth to the sixth year. The enterprise can also access tax credit at a certain percentage in respect of its investments in special equipment used for environmental protection, energy and water conservation and production safety.

Value-added Tax and Business Tax

The Circular on Comprehensively Promoting the Pilot Programme of the Collection of Value-added Tax in Lieu of Business Tax《關於全面推開營業稅改徵增值稅試點的通知》 ( ) was promulgated by the SAT and the MOF on 23 March 2016, effective on 1 May 2016 and amended several times. The Circular sets out that the pilot programme of the collection of value-added tax in lieu of business tax shall be promoted nationwide in a comprehensive manner from 1 May 2016 onwards, and that all taxpayers of business tax engaged in the construction industry, the real estate industry, the financial industry and the life service industry shall be included in the scope of the pilot programme with regard to payment of value-added tax instead of business tax. As for pipeline transportation services provided by general taxpayers, the portion exceeding 3% of the actual VAT burden is eligible for the immediate refund of VAT under the policy.

The Interim Regulations of the PRC on Value-added Tax《中華人民共和國增值稅暫行 ( 條例》) (the ”VAT Regulations”) was promulgated by the State Council on 13 December 1993 and amended on 10 November 2008, 6 February 2016 and 19 November 2017. The Implementation Rules for the Interim Regulations of the PRC on Value-added Tax《中華人民共和國增值稅暫行條 ( 例實施細則》) (the “Implementation Rules on VAT”) was promulgated by the MOF on 25 December 1993, first amended on 15 December 2008 and effective on 1 January 2009, and subsequently amended on 28 October 2011 and effective on 1 November 2011. Under the VAT Regulations and the Implementation Rules on VAT, entities and individuals selling goods, providing labour services of processing, repairing or maintenance, or selling services,

–118– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. REGULATORY OVERVIEW intangible assets or real property in the PRC, or importing goods to the PRC, shall be identified as taxpayers of value-added tax and shall pay value-added tax. Unless stated otherwise, for VAT payers who sell or import goods and provide processing, repair and replacement services in the PRC, the tax rate shall be 17%.

Pursuant to the Circular of the MOF and the SAT on Adjusting Value-added Tax Rates (《財政部國家稅務總局關於調整增值稅稅率的通知》) on 4 April 2018 and effective on 1 May 2018, for a taxpayer who engages in a taxable sales activity for the VAT purpose or imports goods, the previous applicable tax rates of 17% and 11% will be adjusted to 16% and 10%, respectively.

According to the Announcement of the MOF, the SAT and the General Administration of Customs on Relevant Policies for Deepening Value-added Tax Reform《財政部、國家稅務總 ( 局、海關總署關於深化增值稅改革有關政策的公告》) promulgated by the three departments on 20 March 2019 and effective on 1 April 2019, for the VAT taxable sales or imports by a general taxpayer of VAT, the applicable tax rate shall be adjusted to 13% from the original 16% and to 9% from the original 10%.

Urban Maintenance and Construction Tax and Education Surtax

Pursuant to the Interim Regulations of the PRC on Urban Maintenance and Construction Tax《中華人民共和國城市維護建設稅暫行條例》 ( ) promulgated on 8 February 1985, implemented on 1 January 1985, and amended on 8 January 2011, any unit or individual liable to consumption tax, VAT and business tax shall also be required to pay urban maintenance and construction tax. Payment of such tax shall be based on the amount of consumption tax, VAT and business tax which a taxpayer actually pays and shall be made simultaneously when the latter are paid. Furthermore, the rates of urban maintenance and construction tax shall be 7%, 5% and 1% for a taxpayer in a city, in a county or town and in a place other than a city, county or town, respectively.

In accordance with Tentative Provisions on the Collection of Educational Surtax《徵收教 ( 育費附加的暫行規定》) promulgated on 28 April 1986, implemented on 1 July 1986 and amended on 8 January 2011, all units and individuals who pay consumption tax, VAT and business tax shall also pay an educational surtax in accordance with the Provisions. The educational surtax rate is 3% of the amount of VAT, business tax and consumption tax actually paid by each unit or individual, and the educational surtax shall be paid simultaneously with VAT, business tax and consumption tax.

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FOREIGN EXCHANGE MANAGEMENT

Our Company is governed by the following PRC laws and regulations in relation to foreign exchange management.

According to the requirements of the Regulations of the PRC on Foreign Exchange Administration《中華人民共和國外匯管理條例》 ( ) promulgated on 29 January 1996, implemented on 1 April 1996 and amended on 5 August 2008, domestic authorities engaged in foreign negotiable securities and issuance and trading of derivative products shall be registered in accordance with the requirements of the foreign exchange management department of the State Council. Exchange income of domestic institutions and individuals may be repatriated or deposited overseas; and the conditions and terms of repatriation or overseas deposit shall be subject to the requirements of the foreign exchange management department of the State Council based on the conditions of international income and expenditure and the needs of foreign exchange management. Funds of foreign exchange and settlement of exchange for capital projects shall be utilised subject to the approval of relevant competent departments and foreign exchange management authorities. Foreign exchange management authorities have the authority to supervise and examine the use of funds of foreign exchange and settlement of exchange for capital projects and changes in account.

According to the requirements of the Notice of the State Administration of Foreign Exchange on Several Issues Concerning the Administration of Foreign Exchange of Overseas Listing《國家外匯管理局關於境外上市外匯管理有關問題的通知》 ( ) issued and implemented on 26 December 2014:

(1) A domestic company shall, within 15 working days after completion of the overseas listing, register for overseas listing with the foreign exchange authority in the locality where it was incorporated, and obtain a registration certificate for overseas listing, and use the certificate to open a “Special Foreign Exchange Account for Overseas Listing of a Domestic Company” with a domestic bank for funds remittance and transfer under relevant transactions. After a domestic company’s overseas listing, where its domestic shareholders plan to increase/decrease the shares they hold in the overseas-listed company in accordance with relevant regulations, the said shareholders shall visit the local foreign exchange authority for overseas shareholding registration within 20 working days before the proposed share increase/decrease, and shall use the registration certificate to open account(s) for increasing/decreasing the shares they hold in the overseas-listed company and conduct relevant transactions.

(2) A domestic company shall open an RMB account for foreign exchange settlement and pending payment (RMB account) with the bank where the company has opened its special account for overseas listing. The RMB account serves for the company to deposit the RMB funds it receives from foreign exchange settled under its special account for overseas listing, the repatriated RMB funds raised through overseas listing, and the RMB funds remitted outward for repurchase of overseas shares, and the remaining repatriated funds after repurchase. A domestic shareholder of an overseas listed company shall present the overseas shareholding registration certificate to open a “Special Account for Overseas Shareholding” with a domestic bank for funds remittance and transfer under relevant transactions involved in the

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increase/decrease or transfer of the shares he/she holds in the company. A domestic company and its domestic shareholders may open corresponding special accounts overseas for the purpose of handling transactions involved in overseas listing.

(3) A domestic company’s funds raised through overseas listing may be repatriated or deposited overseas, provided that the use of funds is consistent with the relevant content set out in its disclosure documents including prospectus or corporate bonds issuance prospectus, circulars to shareholders, and resolutions of the board of directors or shareholders’ general meetings. A domestic company shall, in the case of proposed repatriation of the funds raised through offering of other types of securities than corporate bonds convertible to shares, remit the funds to its special account for overseas listing (foreign exchange) or unpaid accounts (RMB).

(4) A domestic company may apply to the opening bank, by presenting its registration certificate for overseas listing, for domestic transfer of or payment from funds under the special account for overseas listing, or for foreign exchange settlement and transfer of the funds to its unpaid account. A domestic company shall, in the case of domestic transfer of or payment from the funds under the unpaid account, present to the opening bank the documents evidencing the consistency between the use of funds set forth in its disclosure documents for overseas listing and the purpose of repatriation and foreign exchange settlement. If the purpose is inconsistent with the use of funds specified in the disclosure documents or not specified in its disclosure documents, the company shall provide the resolution of its board of directors or shareholders’ general meeting on change or clarification of the uses of relevant funds.

(5) A domestic company shall, within 15 working days from the day when the following changes occur, go to the local foreign exchange authority for change of registration: change in company name, registered address, or information of major shareholder(s); change in capital including subsequent offering (including [REDACTED]); change in shareholding structure of the overseas listed company upon completion of increase/decrease, transfer or receipt of the overseas shares by domestic shareholders; change in the plan on use of proceeds raised through overseas listing and the intended usage originally filed with relevant authorities.

(6) Where a state-owned shareholder of the domestic company is required to contribute the proceeds from share decrease to the National Social Security Fund in accordance with the Interim Administrative Measures for Social Security Funds Raised through Decrease of the Holding of State-owned Shares《減持國有股籌集社會保障資金管理 ( 暫行辦法》), the domestic company shall handle this matter on behalf of the shareholders, remit and transfer the relevant funds through its special account for overseas listing and unpaid account. The domestic company shall present relevant certifications to the opening bank with which its special account for overseas listing and unpaid account are opened, and apply for direct transfer of the proceeds from the share decrease (or transfer of the proceeds after foreign exchange is settled and transferred to the unpaid account) to a correspondent account which the MOF has opened with a domestic bank.

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According to the Circular of the State Administration of Foreign Exchange on Further Simplifying and Improving the Foreign Exchange Administration Policies on Direct Investment (《國家外匯管理局關於進一步簡化和改進直接投資外匯管理政策的通知》) promulgated on 13 February 2015, implemented on 1 June 2015 and amended on 30 December 2019 by the SAFE, the SAFE: (1) cancels the foreign exchange registration approval under domestic and overseas direct investment as administrative approval items. Instead, the foreign exchange registration under direct investment will be directly reviewed and handled by banks in accordance with the Circular of the State Administration of Foreign Exchange on Further Simplifying and Improving the Foreign Exchange Administration Policies on Direct Investment and the Guidelines for Direct Investment-related Foreign Exchange Business《直接投資外匯業務操作指引》 ( ), and the SAFE and its branches shall perform indirect regulation over the direct investment-related foreign exchange registration via banks; (2) cancels the foreign exchange filing of overseas reinvestment; and (3) cancels annual inspection of the direct investment-related foreign exchange. Instead, registration of existing equity shall be adopted.

Regulations Related to the “Full Circulation” of H-share

“Full Circulation” means listing and circulating on the Hong Kong Stock Exchange of the domestic unlisted shares of a domestic joint stock company (“H-share listed company”), including unlisted Domestic Shares held by domestic shareholders prior to overseas listing, unlisted Domestic Shares additionally issued after overseas listing, and unlisted shares held by foreign shareholders. On 14 November 2019, CSRC announced the Guidelines for the “Full Circulation” Program for Domestic Unlisted Shares of H-share Listed Companies (Announcement of the CSRC [2019] No.22)《 ( H股公司境內未上市股份申請「全流通」業務指引》（中國證監會公告[2019]22號）)(“Guidelines for the ‘Full Circulation’”).

According to the Guidelines for the “Full Circulation”, shareholders of domestic unlisted shares may determine by themselves through consultation the amount and proportion of shares, for which an application will be filed for circulation, provided that the requirements laid down in the relevant laws and regulations and set out in the policies for state-owned asset administration, foreign investment and industry regulation are met, and the corresponding H-share listed company may be entrusted to file the said application for “Full Circulation”. To file an application for “Full Circulation”, an H-share listed company shall file the application with the CSRC according to the administrative licensing procedures necessary for the “examination and approval of public issuance and [REDACTED] (including additional issuance) of shares overseas by a joint stock company”. An H-share listed company may apply for “Full Circulation” separately or when applying for refinancing abroad. An unlisted domestic joint stock company may apply for “Full Circulation” when applying for an overseas initial public offering. After the application for “Full Circulation” has been approved by the CSRC, an H-share listed company shall submit a report on the relevant situation to the CSRC within 15 days after the registration with the CSDC of the shares related to the application has been completed. After domestic unlisted shares are listed and circulated on the Stock Exchange, they may not be transferred back to China.

On 31 December 2019, CSDC and SZSE jointly announced the Measures for Implementation of H-share “Full Circulation” Business《 ( H股「全流通」業務實施細則》) (“Measures for Implementation”). The businesses of cross-border transfer registration, maintenance of deposit and holding details, transaction entrustment and instruction

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transmission, settlement, management of settlement participants, services of nominal holders, etc. in relation to the H-share “Full Circulation business”, are subject to the Measures for Implementation. Where there is no provision in the Measures for Implementation, it shall be handled with reference to other business rules of the CSDC and CSDC (Hong Kong) and SZSE.

According to the Measures for Implementation, after having completed relevant information disclosure, the H-share listed companies with the approval of the CSRC to engage in the H-share “Full Circulation” business shall apply to the CSDC for the deregistration of part or all of the non-foreign listed shares, and shall re-register the fully circulated H-shares which are not pledged, frozen, restricted to transfer to the share register institutions in Hong Kong. Such shares shall become eligible for listing and circulation on the Stock Exchange. Relevant securities are centrally deposited in CSDC for settlement. As the nominal holder of the above-mentioned securities, CSDC handles the depository and holding details maintenance, cross-border clearing and settlement and other businesses involved in the “Full Circulation” of H-shares, and provides nominal holder services for investors. The H-share listed company shall be authorized by “Full Circulation” shareholders to choose domestic securities companies that participate in the “full circulation” business of H-shares. “Full Circulation” shareholders submit trading instructions of H-shares “Full Circulation” shares through domestic securities companies. Domestic securities companies shall select a Hong Kong Securities Company to submit trading instructions of their “Full Circulation” shareholders to Hong Kong Stock Exchange for trading. After the transaction is concluded, CSDC and CSDC (Hong Kong) shall handle the cross-border clearing and settlement of relevant shares and funds. The settlement currency of H-share “full circulation” transaction business is Hong Kong dollars. Where an H-share listed company entrusts CSDC to distribute cash dividends, it shall file an application with CSDC. An H-share listed company distributing cash dividends may apply to the CSDC for the holding details of relevant shareholders on the securities registration date. The non-H-share “fully circulated” securities listed on the Stock Exchange obtained due to the distribution and conversion of H-share “fully circulated” securities may be sold but shall not be purchased. Where the right to subscribe for the shares listed on Hong Kong Stock Exchange is obtained and the subscription right is listed on Hong Kong Stock Exchange, it may be sold, but shall not be exercised.

In order to fully promote the reform of H-shares “Full Circulation” and clarify the business arrangement and procedures for the relevant shares registration, custody, settlement and delivery, CSDC has promulgated the Circular on Issuing the Guide to the Program for Full Circulation of H-shares《關於發佈 ( 〈H股「全流通」業務指南〉的通知》) in February 2020, which specified the business preparation, account arrangement, cross-boarder share transfer registration and overseas centralized custody, etc. In February 2020, CSDC (Hong Kong) also promulgated the Guide to the Program for Full Circulation of H-shares《中國證券登記結算 ( （香港）有限公司H股「全流通」業務指南》) to specify the relevant escrow, custody, agent service of CSDC (Hong Kong), arrangement for settlement and delivery and other relevant matters.

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OUR HISTORY

Overview

Our history can be traced back to 2004 when Mr. Lan Qiang, our founder, executive Director, vice chairman of the Board and general manager, established Fuzhou Lanshen, which primarily engaged in the trading of environmental protection equipment. Later, Fuzhou Lanshen also engaged in the manufacturing of environmental protection equipment. After becoming acquainted with Mr. Lin Hongquan, our executive Director and deputy general manager, Mr. Lan Qiang intended to penetrate into the wastewater treatment industry together with Mr. Lin Hongquan, and considered to operate the businesses of decentralised wastewater treatment and manufacturing of environmental protection equipment under a new enterprise so as to improve management and operation efficiency. Accordingly, Mr. Lan Qiang and Mr. Lin Hongquan established our Company in 2012; and our Company gradually take over the business of Fuzhou Lanshen. In June 2015, our Company was converted into a joint-stock company with limited liability and changed its name to Fujian Lanshen Environmental Technology Co., Ltd. (福建省藍深環保技術股份有限公司).

In November 2015, in order to obtain alternative financing, as well as to improve our brand awareness and corporate governance, our Company was listed on the NEEQ. In June 2018, our Company was de-listed from the NEEQ. See “Prior listing on the NEEQ and subsequent de-listing from the NEEQ” in this section for details of the NEEQ listing and NEEQ de-listing.

In August 2018, Quanzhou Water Group, through its wholly-owned subsidiary Haisi Environmental, acquired control of our Company by purchasing existing shares from the then shareholders and subscribing new registered capital of our Company. Quanzhou Water Group is a state-owned enterprise and wholly-owned by Quanzhou SASAC.

In March 2019, our Company acquired 60.0% of the equity interest of Quanzhou Xingyuan. Upon the acquisition of Quanzhou Xingyuan, our businesses were gradually expanded to the sales of pipes and pipe fittings. See “Acquisitions and Disposals during the Track Record Period — Acquisitions during the Track Record Period” in this section for details.

Milestones

Key milestones in our development are as follows:

Time Events

2004 • Mr. Lan Qiang established Fuzhou Lanshen.

2012 • Our Company was established as a limited liability company by Mr. Lan Qiang and Mr. Lin Hongquan.

2015 • Our Company was converted into a joint-stock company with limited liability.

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Time Events

• Our Company was listed on the NEEQ in November.

2016 • Our Company was accredited as “Science and Technology Enterprise in Fujian Province” (福建省科技型企業) by Fujian Provincial Science and Technology Department (福建省科學技術廳).

• Our Company obtained the Construction Enterprise Qualification (建築業企業資質證書) for grade III general contracting for public works construction (市政公用工程施工總承包叁級), grade III professional construction for environmental engineering (環保工程專業承包叁級) and Work Safety License (安全生產許可證) issued by the Committee of Urban-Rural Development of Fuzhou (福州市城鄉建設委員會).

2017 • Our Company was accredited as “Leading Enterprise of Small Technology Giant in Fujian Province” (福建省科技小巨人領軍企業) and “High-tech Enterprise” (高新技術企業) by, among others, the Fujian Provincial Science and Technology Department (福建省科學技術廳).

2018 • Our Company was de-listed from the NEEQ in June.

• Haisi Environmental acquired a total of 68.0% of the equity interest in our Company and became the Controlling Shareholder of the Group.

• Our Company established an academician workstation in cooperation with Mr. Gao Congjie (高從堦), an academician of the Chinese Academy of Engineering (中國工程院).

2019 • Our Company obtained the Construction Enterprise Qualification (建築業企業資質證書) for grade III general contracting for public works construction (市政公用工程施工總承包三級), grade III professional contracting for mechanical and electrical installation for construction engineering (建築機電安裝工程專業承包三級) and grade II professional contracting for environmental engineering (環保工程專業承包貳級) and Work Safety License (安全生產許可證) issued by the Housing and Urban-Rural Development of Quanzhou (泉州市住房和城鄉建設局).

• Our academician workstation was accredited as a provincial-level academician workstation.

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Time Events

• Our Company acquired Quanzhou Xingyuan, Fujian Lvdi, Yongchun Lvdi and Yunxiao Sangde, and established Quanzhou Research Institute with Dr. Gao Xueli (高學理).

• Our Company obtained the computer software copyright of our Lanshen Cloud Platform.

• The headquarter of our Company was moved from Fuzhou to Quanzhou.

2020 • We introduced Quanzhou Radio and Television Station and Lanshen Youshi as [REDACTED].

• Our Company passed the certification of high and new technology enterprise review.

OUR CORPORATE DEVELOPMENT

The following sets forth the corporate history and changes in the shareholding of our Company.

Our predecessor

In March 2004, Mr. Lan Qiang, our founder, executive Director, vice chairman of the Board and general manager, established Fuzhou Lanshen, the predecessor of our Company, which engaged in the trading and manufacturing of environmental protection equipment. At the time of establishment, Fuzhou Lanshen was owned by Mr. Lan Qiang and Mr. Deng Taojin, an Independent Third Party, as to 50.0% and 50.0%, respectively. The business of Fuzhou Lanshen was gradually integrated into our Company’s business after the establishment of our Company. As of the Latest Practicable Date, Fuzhou Lanshen had no substantial operations. After several equity transfers, Fuzhou Lanshen became one of our subsidiaries in 2015. See “Our Subsidiaries” in this section for details of the shareholding changes of Fuzhou Lanshen.

Establishment and early development

Our Company was established as a limited liability company under the laws of the PRC on 10 May 2012 with an initial registered capital of RMB1,000,000 and was directly owned by our founders, namely, Mr. Lan Qiang and Mr. Lin Hongquan, as to 50.0% and 50.0%, respectively.

On 4 February 2015, the registered capital of our Company was increased from RMB1,000,000 to RMB18,000,000. The increased registered capital of a total amount of RMB17,000,000 was subscribed by Mr. Lan Qiang and Mr. Lin Hongquan as to RMB8,500,000 and RMB8,500,000, respectively.

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On 24 April 2015, in order to streamline our shareholding structure and introduce Mr. Lan Xiong as our Company’s new investor, Mr. Lan Qiang transferred 10.0% equity interest in our Company to Xizang Laise at a consideration of RMB1,800,000, and Mr. Lin Hongquan transferred 15.0% equity interest in our Company to Xizang Laise at a consideration of RMB2,700,000; and Mr. Lin Hongquan transferred 15.0% equity interest in our Company to Daquan Investment at a consideration of RMB2,700,000. At the time of the above equity changes, Xizang Laise was owned by Mr. Lan Qiang and Mr. Lan Xiong, one of our Supervisors and the brother of Mr. Lan Qiang, as to 40.0% and 60.0%, respectively and Daquan Investment was owned by Mr. Lan Qiang and Mr. Lin Hongquan as to 50.0% and 50.0%, respectively.

The considerations for the above transfers were determined based on the then registered capital of our Company. In addition, the parties agreed that, Xizang Laise and Daquan Investment shall inject the considerations of the above equity transfer directly into the Company’s registered capital, and the last instalment of the consideration was injected into our Company in April 2015. After the equity interest transfer, our Company was held by Mr. Lan Qiang, Xizang Laise, Mr. Lin Hongquan and Daquan Investment as to 40.0%, 25.0%, 20.0% and 15.0%, respectively.

Conversion into a joint-stock company with limited liability

Pursuant to the shareholders’ resolution and the promoters’ agreement dated 22 May 2015, the then shareholders of our Company agreed to convert our Company into a joint-stock company with limited liability with a registered capital of RMB18,000,000 (18,000,000 shares with a nominal value of RMB1.00 each).

Upon completion of the registration with the Administration for Industry and Commerce of Fuzhou (福州市工商行政管理局) on 15 June 2015, our Company was renamed as Fujian Lanshen Environmental Technology Co., Ltd. (福建省藍深環保技術股份有限公司). The then shareholders and their respective equity interest in our Company remained unchanged immediately before and after the conversion of our Company into a joint-stock company with limited liability.

Prior listing on the NEEQ and subsequent de-listing from the NEEQ

Prior listing of our shares on the NEEQ

In order to obtain alternative financing, as well as to improve our brand awareness and corporate governance, the then shareholders of our Company resolved to apply for the listing of shares on the NEEQ in June 2015. On 19 November 2015, our shares began trading on the NEEQ (stock code: 834145).

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During the period of the NEEQ listing, there had been a placing of 2,000,000 shares to Xizang Laise, Zhongrongtai, Xizang Ruoshui and Beijing Langclean at an aggregate consideration of RMB12,500,000 in December 2015. Immediately following the completion of the share placing, the total number of issued shares of our Company was increased to 20,000,000 shares and the shareholding structure of our Company is set out as below:

Number of Percentage of Shareholders shares Shareholding

Mr. Lan Qiang 7,200,000 36.0% Xizang Laise (1) 4,700,000 23.5% Mr. Lin Hongquan 3,600,000 18.0% Daquan Investment (2) 2,700,000 13.5% Zhongrongtai (3) 800,000 4.0% Xizang Ruoshui (4) 800,000 4.0% Beijing Langclean (5) 200,000 1.0%

Total 20,000,000 100.0%

Notes:

(1) Xizang Laise is a limited liability company established under the laws of the PRC on 22 May 2014 and had been owned by Mr. Lan Qiang, our executive Director, vice chairman of the Board and general manager as to 40.0% and Mr. Lan Xiong, our Supervisor and Mr. Lan Qiang’s brother, as to 60.0%.

(2) Daquan Investment is a limited partnership organised under the under the laws of the PRC on 21 April 2015 and had been owned by Mr. Lan Qiang, our executive Director, vice chairman of the Board and general manager as to 50.0% and Mr. Lin Hongquan, our executive Director and deputy general manager as to 50.0%.

(3) Zhongrongtai is a limited liability company established under the laws of the PRC on 15 May 2013 and had been owned by Chen Wuwei (陳武衛) and Zheng Xiaowen (鄭曉雯), two Independent Third Parties, as to 95.0% and 5.0%, respectively.

(4) Xizang Ruoshui is a limited liability company established under the laws of the PRC on 17 November 2015, and had been owned by Mr. Lan Xiong, our Supervisor, as to 25.0%, and several Independent Third Parties including Song Yuhai (宋宇海), Yang Yan (楊岩), Chen Xiaowei (陳曉偉), Yang Dayong (楊大勇) and Beijing Ruoshui Hetou Investment Management Co., Ltd. (北京若水合投投資管理有限公司), as to 25.0%, 12.5%, 12.5%, 12.5% and 12.5%, respectively.

(5) Beijing Langclean is a limited liability company established under the laws of the PRC on 23 February 2012 and had been owned by Chen Qingwen (陳清文), Wang Qiuxiang (王秋香), Chen Gaojing (陳高晶), Chen Zhibiao (陳志標), Jiang Wei (江偉) and Zhu Jie (朱潔) as to 28.0%, 21.0%, 21.0%, 15.0%, 10.0% and 5.0%, respectively.

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NEEQ de-listing

In consideration of future business strategy and the possibilities of listing on other securities exchange, on 21 June 2018, our Company was de-listed from the NEEQ. Immediately following the NEEQ de-listing, the market capitalisation of our Company was approximately RMB220.0 million, and the shareholding structure of our Company is set out as below:

Number of Percentage of Shareholders shares Shareholding

Mr. Lan Qiang 7,200,000 36.0% Xizang Laise 4,700,000 23.5% Mr. Lin Hongquan 3,600,000 18.0% Daquan Investment 2,700,000 13.5% Zhongrongtai 800,000 4.0% Xizhang Ruoshui 800,000 4.0% Beijing Langclean 200,000 1.0%

Total 20,000,000 100.0%

Reasons for de-listing from the NEEQ and the [REDACTED] on the Stock Exchange

Our Directors believe that, as the Group has always intended to access the global capital market, the de-listing from the NEEQ and the [REDACTED] on the Stock Exchange will be in the interests of our Group’s business development strategies, and would be beneficial to us and our shareholders as a whole for the following reasons:

(i) the NEEQ is a market in the PRC open to qualified investors only with relatively low trading volume, making it difficult for us to publicly raise funds, in equity or debt, to continuously support our business growth, and to execute substantial on-market disposals of shares to realise value;

(ii) in contrast, the Stock Exchange, as a leading player of the international financial markets, could offer us a direct access to the international capital markets. In addition, the Shanghai-Hong Kong Stock Connect (滬港通) and Shenzhen-Hong Kong Stock Connect (深港通) programmes between mainland China and Hong Kong also allow mainland [REDACTED], who are more familiar with our business and operation, to invest in us through such programmes. Accordingly, the [REDACTED] would provide us a viable source of capital to support our business growth; and

(iii) the [REDACTED] will further raise our brand awareness, business profile and thus, enhance our ability to attract new customers and business partners, as well as to recruit, motivate and retain talents and key management personnel for our Group’s business.

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Compliance during listing on the NEEQ

During the period of the NEEQ [REDACTED], our Company did not publish its 2017 annual report (the “2017 Annual Report”) within the prescribed four-month period after the end of financial year of 2017 (the “Incident”). As a result of the Incident, the NEEQ issued a decision letter to us for self-disciplinary regulatory measures (自律監管措施決定書) (the “Decision Letter”) on 10 May 2018.

Pursuant to the Decision Letter, due to the Incident, our Company was in breach of Rule 11 of the Rules for Information Disclosures by Companies Admitted to the NEEQ (全國中小企業股份轉讓系統掛牌公司信息披露細則); and Mr. Lan Qiang (being the then chairman of the board of directors of our Company) and Mr. Lin Hongquan (being the person who was responsible for information disclosure of our Company) was in breach of Article 1.5 of the Business Rules of the National Equities Exchange and Quotations System (for Trial Implementation) (全國中小企業股份轉讓系統業務規則（試行）). The Decision Letter further requested our Company, Mr. Lan Qiang and Mr. Lin Hongquan to take self-regulatory measures to rectify the Incident but did not provide any guidance on the self-regulatory measures to be taken. Immediately after we received the Decision Letter, our Company took a series of measures to rectify the Incident, including (i) publishing an announcement to disclose the Incident on 15 May 2018; and (ii) enhancing its internal control measures on information disclosure, including holding a special meeting among the then Directors and senior management members for discussing the improvement of our Company’s internal control measures on information disclosure and adopting the Information Disclosure Implementation Rules (信息發佈實施細則). In addition, from April 2018 to the NEEQ de-listing in June 2018, our Company had published a series of announcements to update the status of the NEEQ de-listing, as well as the potential delay in the publishing of the 2017 Annual Report and the relevant risks, on a timely basis.

As confirmed by our Directors, at the relevant time, our Company was in preparation for the NEEQ de-listing, which had directed the management attention and our Company’s resources and resulted in the delay in the preparation of the 2017 Annual Report. On 21 June 2018, our Company was de-listed from the NEEQ and the 2017 Annual Report was not ultimately published.

As of the Latest Practicable Date, we were not aware of any ongoing investigation, penalty, punishment of disciplinary measures imposed by the NEEQ, the CSRC or its agencies in relation to the Incident subsequent to the receipt of the Decision Letter. In addition, given that: (i) the Incident did not involve any dishonesty on the part of the Directors and do not reflect a material defect in the character, integrity or competence of the Directors; (ii) the Board is currently composed by sufficient members (include three executive Directors, two non-executive Directors and three independent non-executive Directors) with adequate knowledge and experience in corporate governance and information disclosure; and (iii) each of Mr. Lan Qiang and Mr. Lin Hongquan had received substantial training on the corporate governance and information disclosure requirements for issuers [REDACTED] in Hong Kong. Therefore, the Board is of the view that the Incident does not adversely affect the Directors’ suitability under Rules 3.08 and 3.09 of the Listing Rules.

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As advised by our PRC Legal Advisers, other than the Incident, our Company had not been imposed any administrative penalty, administrative regulatory measures or self-disciplinary regulatory measures by the CSRC, its agencies and the NEEQ through the period during which our Company was listed on the NEEQ. The Decision Letter was not an administrative penalty, the Incident did not constitute a material non-compliance issue and our Company had been in compliance with applicable PRC securities laws and regulations in all material respects during the period of its listing on the NEEQ. The de-listing of our Company from the NEEQ had fulfilled the required procedures and disclosure requirement. In addition, our PRC Legal Advisers are of the view that (i) the relevant regulatory authorities, including the CSRC and the NEEQ, will not impose any penalty against our Company in relation to the Incident; and (ii) the Directors had not been subject to any disciplinary actions or administrative penalties for non-compliance by any regulatory authorities during the period of the Company’s listing on the NEEQ other than the Incident.

The Sole Sponsor has conducted the due diligence works in relation to the Incident. Based on the results and findings of the due diligence works, the Sole Sponsor is of the view that the Incident does not adversely affect the Directors’ suitability under Rules 3.08 and 3.09 of the Listing Rules; no matter has come to the Sole Sponsor’s attention which casts doubt on our Company’s suitability for the [REDACTED] or which should be brought to the Stock Exchange’s attention in relation to our Company’s previous listing on the NEEQ.

Save as disclosed in this section, there is no other matter relating to the prior listing of our Company on the NEEQ which should be brought to the attention of the Stock Exchange and our shareholders.

Acquisition of control by Quanzhou Water Group in 2018

In early 2018, our Company became acquainted with Quanzhou Water Group through business networking. Quanzhou Water Group revealed its interest in investing in our Company, and our Company and Quanzhou Water Group began the commercial negotiation in relation to such investment. After several rounds of commercial negotiations, on 23 July 2018, the then shareholders of our Company, our Company and Haisi Environmental, a wholly-owned subsidiary of Quanzhou Water Group, entered into a share transfer and registered capital increase agreement, pursuant to which (i) the then shareholders of our Company, namely Mr. Lan Qiang, Xizang Laise, Mr. Lin Hongquan, Daquan Investment, Zhongrongtai, Xizang Ruoshui and Beijing Langclean agreed to transfer 600,000, 4,700,000, 600,000, 2,700,000, 800,000, 800,000 and 200,000 shares in our Company, respectively, to Haisi Environmental at a consideration of RMB8.9 per share; and (ii) our Company issued 10,000,000 new shares to Haisi Environmental at a consideration of RMB8.9 per share. The considerations for the share transfer and issue of new shares were determined based on arm’s length negotiations among the parties and with reference to a valuation of our Company appraised by an independent valuer in the PRC and were fully settled on 22 May 2020. The above shareholding changes were completed on 1 August 2018 and Haisi Environmental has become our Controlling Shareholder and entitled to exercise control and shareholder’s rights since then. Upon the completion of the above shareholding changes, Quzhou Water Group acquired control of our Company through Haisi Environmental and several then shareholders including Xizang Laise, Daquan Investment, Zhongrongtai, Xizang Ruoshui and Beijing Langclean ceased to be shareholders of our

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Company. The registered capital of our Company was increased from RMB20,000,000 to RMB30,000,000, and the shareholding structure of our Company at the time is set out as below:

Number of Percentage of Shareholders shares Shareholding

Haisi Environmental 20,400,000 68.0% Mr. Lan Qiang 6,600,000 22.0% Mr. Lin Hongquan 3,000,000 10.0%

Total 30,000,000 100.0%

Our Directors believe that, Quanzhou Water Group and Haisi Environmental will strengthen and diversify the shareholder base of our Company, and the investment by Quanzhou Water Group will enhance the financial resources available to our Group. In addition, upon the completion of the above investment, our Company became a state-owned enterprise and our Directors are of the view that, by virtue of such state-owned background, the Company will have advantage and be more competitive in getting access to certain projects and will eventually improve the business portfolio and overall performance of our Group as a whole.

Further increase of registered capital and introduction of new investors

On 6 June 2019, the registered capital of our Company was further increased from RMB30,000,000 to RMB90,000,000 by converting a total amount of RMB60,000,000 capital reserve into the registered capital of our Company and issuance of 60,000,000 new shares. Such shares were allotted to the then shareholders on a pro-rata basis.

On 27 March 2020, the registered capital of our Company was further increased from RMB90,000,000 to RMB91,314,060 by issuance of 1,314,060 new shares. Pursuant to the share subscription agreement dated 13 March 2020, Quanzhou Radio and Television Station agreed to subscribe the 1,314,060 new shares at a consideration of RMB10,000,000. See “ [REDACTED]— Overview of the [REDACTED]” in this section for details. Immediately after the change above, the shareholding structure of our Company is set out as below:

Approximate Number of Percentage of Shareholders shares Shareholding

Haisi Environmental 61,200,000 67.0% Mr. Lan Qiang 19,800,000 21.7% Mr. Lin Hongquan 9,000,000 9.9% Quanzhou Radio and Television Station 1,314,060 1.4%

Total 91,314,060 100.0%

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On 25 May 2020, the registered capital of our Company was further increased from RMB91,314,060 to RMB98,226,018 by issuance of 6,911,958 new shares. Pursuant to the share subscription agreement dated 15 May 2020, Lanshen Youshi agreed to subscribe the 6,911,958 new shares at a consideration of RMB52,600,000. See “[REDACTED] — Overview of the [REDACTED]” in this section for details. Immediately after the change above, the shareholding structure of our Company is set out as below:

Approximate Number of Percentage of Shareholders shares Shareholding

Haisi Environmental 61,200,000 62.3% Mr. Lan Qiang 19,800,000 20.2% Mr. Lin Hongquan 9,000,000 9.2% Quanzhou Radio and Television Station 1,314,060 1.3% Lanshen Youshi 6,911,958 7.0%

Total 98,226,018 100.0%

OUR SUBSIDIARIES

As of the Latest Practicable Date, our Company had eight subsidiaries in the PRC. The corporate details of the subsidiaries are set forth below:

Registered Shareholding capital as of percentage Major business activities Date of the Latest of our as of the Latest Company name establishment Practicable Date Company Practicable Date RMB

1. Quanzhou 21 September 1994 128,000,000 60.0% Manufacture and sale of pipes Xingyuan and pipe fittings

2. Fujian Lvdi 29 October 2013 10,000,000 90.0% Construction, operation and management of wastewater treatment projects

3. Yongchun Lvdi 30 November 2012 10,100,000 90.0% Construction, operation and management of wastewater treatment projects

4. Yunxiao Sangde 4 May 2018 250,000,000 85.0% Construction, operation and management of wastewater treatment projects

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Registered Shareholding capital as of percentage Major business activities Date of the Latest of our as of the Latest Company name establishment Practicable Date Company Practicable Date RMB

5. Hainan Lanshen 5 November 2015 10,000,000 100.0% Sale of wastewater treatment equipment and construction and implementation of wastewater treatment projects

6. Fuzhou Lanshen 23 March 2004 20,000,000 100.0% Fuzhou Lanshen had no substantial business operation as of the Latest Practicable Date

7. Beijing Lanshen 25 November 2015 10,000,000 100.0% Beijing Lanshen had no business operation as of the Latest Practicable Date

8. Quanzhou Research 16 December 2019 10,000,000 70.0% Development of wastewater Institute treatment technologies

1. Quanzhou Xingyuan

Quanzhou Xingyuan is a company established under the laws of the PRC with limited liability on 21 September 1994. On 15 March 2019, our Company acquired an aggregate of 60.0% of the equity interest of Quanzhou Xingyuan from its then shareholders. See “Acquisitions and Disposals during the Track Record Period — Acquisitions during the Track Record Period — Acquisition of Quanzhou Xingyuan” in this section for details. The principal business activities of Quanzhou Xingyuan as of the Latest Practicable Date include manufacture and sale of pipes and pipe fittings.

2. Fujian Lvdi

Fujian Lvdi is a company established under the laws of the PRC with limited liability on 29 October 2013 with an initial registered capital of RMB10,000,000. On 29 September 2019, our Company acquired 90.0% of the equity interest of Fujian Lvdi from its then shareholder. See “Acquisitions and Disposals during the Track Record Period — Acquisitions during the Track Record Period — Acquisition of Fujian Lvdi” in this section for details. The principal business activities of Fujian Lvdi as of the Latest Practicable Date include construction, operation and management of wastewater treatment projects.

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3. Yongchun Lvdi

Yongchun Lvdi is a company established under the laws of the PRC with limited liability on 30 November 2012 with an initial registered capital of RMB10,100,000. On 25 September 2019, our Company acquired 90.0% of the equity interest of Yongchun Lvdi from its then shareholder. See “Acquisitions and Disposals during the Track Record Period — Acquisitions during the Track Record Period — Acquisition of Yongchun Lvdi” in this section for details. The principal business activities of Yongchun Lvdi as of the Latest Practicable Date include construction, operation and management of wastewater treatment projects.

4. Yunxiao Sangde

Yunxiao Sangde is a company established under the laws of the PRC with limited liability on 4 May 2018 with an initial registered capital of RMB50,000,000. On 10 December 2019, our Company acquired 85.0% of the equity interest of Yunxiao Sangde from its then shareholder. See “Acquisitions and Disposals during the Track Record Period — Acquisitions during the Track Record Period — Acquisition of Yunxiao Sangde” in this section for details. The principal business activities of Yunxiao Sangde as of the Latest Practicable Date include construction, operation and management of wastewater treatment projects.

5. Hainan Lanshen

Hainan Lanshen is a company established under the laws of the PRC with limited liability on 5 November 2015 with an initial registered capital of RMB10,000,000 and which is wholly-owned by our Company. The registered capital and shareholding structure of Hainan Lanshen remained unchanged since its establishment. The principal business activities of Hainan Lanshen as of the Latest Practicable Date include the sale of wastewater treatment equipment and construction and implementation of wastewater treatment projects.

6. Fuzhou Lanshen

Fuzhou Lanshen is a company established under the laws of the PRC with limited liability on 23 March 2004 with an initial registered capital of RMB500,000. At the time of establishment, Fuzhou Lanshen was owned by Mr. Lan Qiang and Mr. Deng Taojin, an Independent Third Party, as to 50.0% and 50.0%, respectively. On 23 April 2015, Mr. Deng Taojin transferred his equity interest in Fuzhou Lanshen to Ms. Zheng Lihua, the spouse of Mr. Lan Qiang. Further, on 30 April 2015, Mr. Lan Qiang and Ms. Zheng Lihua transferred their respective shareholding interest in Fuzhou Lanshen to our Company at an aggregate consideration of RMB500,000 determined based on the then registered capital of Fuzhou Lanshen and the consideration was fully settled on 17 July 2015. Fuzhou Lanshen became a wholly-owned subsidiary of our Company upon the completion of the above equity transfers. Further, on 18 March 2019, the registered capital of Fuzhou Lanshen increased from RMB500,000 to RMB20,000,000. The increased registered capital of a total amount of RMB19,500,000 was subscribed by our Company. Fuzhou Lanshen had no substantial business operation as of the Latest Practicable Date and our Group keeps Fuzhou Lanshen to maintain our leased premises in Fuzhou.

7. Beijing Lanshen

Beijing Lanshen is a company established under the laws of the PRC with limited liability on 25 November 2015. The registered capital and shareholding structure of Beijing Lanshen remained unchanged since its establishment. As of the Latest Practicable Date, Beijing Lanshen

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8. Quanzhou Research Institute

Quanzhou Research Institute is a company established under the laws of the PRC with limited liability on 16 December 2019 and is principally engaged in the development of wastewater treatment technologies. At the time of establishment, Quanzhou Research Institute had a registered capital of RMB10,000,000 and was owned by our Company as to 70.0% and by Dr. Gao Xueli as to 30.0%. The registered capital and shareholding structure of Quanzhou Research Institute remained unchanged since its establishment. Dr. Gao Xueli is a professorate senior engineer at Ocean University of China with his research primarily focusing on the development and application of membrane separation and treatment technologies. By establishing Quanzhou Research Institute and cooperating with Dr. Gao Xueli and his research team, we intend to research and develop industrial application of membrane separation technique for wastewater treatment. See “Business — Research and Development” for details.

DEREGISTERED ENTITIES

During the Track Record Period, our Company had four subsidiaries and two branch companies in the PRC which were deregistered as of the Latest Practicable Date (the “Deregistered Entities”). The Deregistered Entities were established for carrying on local business operation, undertaking local projects and/or seeking business cooperation opportunities. As the business cooperation opportunities and local projects were not materialised, and the local business operation was gradually integrated into our Company’s business operation, in order to streamline our corporate structure and save administrative cost, our Company dissolved these entities voluntarily. The table below shows the details of the Deregistered Entities:

Deregistered subsidiaries

Registered Paid-up Corporate capital capital shareholding immediately immediately structure Method and Date of Date of before before immediately before Principal business reasons of Company name establishment deregistration deregistration deregistration deregistration before deregistration deregistration RMB RMB

1. Beijing Lanshen 16 February 2017 8 May 2018 1,000,000 Nil Beijing Lanshen, Beijing Lanshen Voluntary Environmental our Environmental dissolution due to Technology wholly-owned Technology the cessation of Development Institute subsidiary (as to Development business Co., Ltd. 70.0%) and Ms. Institute Co., Ltd. operation and (北京藍深環保技術開發 Zhang Huan, one had no substantive change of 研究院有限公司) of our joint business operation development company before its strategies secretaries (as to deregistration 30.0%)

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2. Guangdong Shenlan 8 January 2016 15 October 2019 10,000,000 300,000 Our Company Guangdong Shenlan Voluntary Environmental (as to 100.0%) Environmental dissolution due to Technology Co., Ltd Technology Co., Ltd. the change of (廣東深藍環保技術有限 primarily engaged in development 公司) the trading of strategies wastewater treatment equipment before its deregistration. Such business was continued to be carried out by our Company after the deregistration

3. Jiangxi Lanshenlan 9 January 2017 11 September 10,000,000 10,000,000 Our Company Jiangxi Lanshenlan Voluntary Environmental 2019 (as to 100.0%) Environmental dissolution due to Technology Co., Ltd. Technology Co., Ltd. the cessation of (江西藍深蘭環保技術有 had no substantive business 限公司) business operation operation and before its change of deregistration development strategies

4. Zhangzhou Lanshen 26 January 2016 15 June 2017 5,000,000 1,000,000 Our Company (as to Zhangzhou Lanshen Voluntary Environmental 70.0%) and Mr. Environmental dissolution due to Engineering Co., Ltd. Chen Wusheng Engineering Co., Ltd. the cessation of (漳州藍深環境工程有限 (陳武盛), an had no substantive business 公司) Independent business operation operation and Third Party (as to before its change of 30.0%) deregistration development strategies

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Deregistered branches

Name of branch Nature and Date of Date of Principal business Method and reasons of company location establishment deregistration before deregistration deregistration

1. Fujian Lanshen a branch company 22 September 18 March 2019 Fujian Lanshen Voluntary dissolved due Environmental of our Company 2017 Environmental to the cessation of Technology Co., Ltd., in Luoyuan Technology Co., Ltd., business operation and Luoyuan Branch (福建 County Luoyuan Branch had change of development 省藍深環保技術股份有 no substantive strategies 限公司羅源分公司) business operation before its deregistration

2. Fujian Lanshen a branch company 17 October 20 December Fujian Lanshen Voluntary dissolved due Environmental of our Company 2017 2018 Environmental to the cessation of Technology Co., Ltd., in Shanghang Technology Co., Ltd., business operation and Shanghang Branch (福 County Shanghang Branch had change of development 建省藍深環保技術股份 no substantive strategies 有限公司上杭分公司) business operation before its deregistration

As confirmed by our Directors and concurred by our PRC Legal Advisers, none of the above Deregistered Entities has involved in any material claims, litigations or non-compliant incidents during the Track Record Period. In addition, our Directors also confirm that save for Guangdong Shenlan Environmental Technology Co., Ltd. primarily engaged in the trading of wastewater treatment equipment before its deregistration, none of the Deregistered Entities had substantive business operation before deregistration. Therefore, the deregistration of the Deregistered Entities had no material impact on our Group’s financial performance, financial position and cash flows during the Track Record Period. Our Directors also confirm that we would be able to meet the profit test under 8.05(1) of the Listing Rules even if the Deregistered Entities were included in the Group.

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ACQUISITIONS AND DISPOSALS DURING THE TRACK RECORD PERIOD

Acquisitions during the Track Record Period

Acquisition of Quanzhou Xingyuan

Quanzhou Xingyuan is a company established under the laws of the PRC with limited liability on 21 September 1994. As of 1 January 2018, the commencement date of our Track Record Period, Quanzhou Xingyuan was directly owned by Upontime Enterprises and Interfinance Trading as to 51.6% and 48.4%, respectively. Mr. Ng Kar Cheong (黃加種)(“Mr. Ng”), an Independent Third Party, controls Upontime Enterprises and Interfinance Trading.

Prior to the acquisition of Quanzhou Xingyuan (“Quanzhou Xingyuan Acquisition”), Quanzhou Xingyuan has built and maintained a stable business relationship in respect of the supply of pipes and pipe fittings with Quanzhou Water Group and its subsidiaries. Our Company, as a subsidiary of Quanzhou Water Group, became acquainted with Quanzhou Xingyuan and Mr. Ng through the business network between Quanzhou Water Group and Quanzhou Xingyuan as well as the introduction by Quanzhou Water Group.

Mr. Ng is an ethnic Chinese businessman residing in Singapore with extensive experience in management, operation and investment in various business sectors including shipping, port, real-estate, manufacturing and infrastructure. Mr. Ng is the founder and a shareholder of Pan-United Corporation Ltd. (“Pan-United”), a company whose shares are listed on the Singapore Exchange (Stock Code: P52.SI). In addition to Pan-United, Mr. Ng also controls a variety of enterprises in different business sectors in Singapore and China, including Quanzhou Xingyuan.

Mr. Ng founded Quanzhou Xingyuan in 1994 and had controlled Quanzhou Xingyuan before Quanzhou Xingyuan Acquisition. Starting from 2012, Mr. Ng considered disposing of Quanzhou Xingyuan as he was being advanced in age and was not able to devote sufficient attention to the affairs of Quanzhou Xingyuan. In view of the mutual trust and business relationship between Quanzhou Xingyuan and Quanzhou Water Group, as well as the shared commercial vision and common goals, Mr. Ng initiated discussion on the possibility of Quanzhou Xingyuan Acquisition with Quanzhou Water Group and our Company. As a result, on 30 January 2019, our Company, Quanzhou Water Group, Quanzhou Water Engineering, Quanzhou Water Supply, Upontime Enterprises, Interfinance Trading and Mr. Ng entered into an acquisition agreement (the “Acquisition Agreement”), pursuant to which (i) Upontime Enterprises transferred 51.6% of the equity interest in Quanzhou Xingyuan to our Company, at a consideration of RMB66,060,800; (ii) Interfinance Trading transferred 8.4% of the equity interest in Quanzhou Xingyuan to our Company, at a consideration of RMB10,739,200; (iii) Interfinance Trading transferred 20.0% of the equity interest in Quanzhou Xingyuan to Quanzhou Water Supply, at a consideration of RMB25,600,000; and (iv) Interfinance Trading transferred 20.0% of the equity interest in Quanzhou Xingyuan to Quanzhou Water Engineering, at a consideration of RMB25,600,000. The above considerations were fully settled on 30 April 2019.

The considerations were all determined based on arm’s length negotiation after taking into account the appraised value of the entire shareholders’ equity of Quanzhou Xingyuan, according to a valuation report (the “Quanzhou Xingyuan Valuation Report”) dated 18 January

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2019 issued by an independent valuer. In preparation of the valuation report, after having considered the characteristics of Quanzhou Xingyuan, the independent valuer adopted the market approach for the valuation. Under the market approach, the appraised value of Quanzhou Xingyuan set forth in Quanzhou Xingyuan Valuation Report was approximately RMB135.8 million. Mr. Ng was willing to dispose of Quanzhou Xingyuan to our Company and Quanzhou Water Group at a consideration lower than the appraised value mainly due to (i) his mutual trust and business relationship with Quanzhou Xingyuan and Quanzhou Water Group; (ii) Mr. Ng’s strong intention to sell Quanzhou Xingyuan as soon as possible due to his advanced age and living overseas; and (iii) the fact that Mr. Ng recognized the stated-owned background of our Group and Quanzhou Water Group and believed that such stated-owned background would improve the business portfolio and overall performance of Quanzhou Xingyuan.

Save for the abovementioned business relationship in respect of the supply of pipes and pipe fittings, there is no other past or present relationship between Upontime Enterprises, Interfinance Trading, Mr. Ng and our Group (including our Shareholders, Directors, senior management or any of their respective associates).

As of the Latest Practicable Date, Quanzhou Xingyuan was directly owned by our Company as to 60.0%, Quanzhou Water Supply as to 20.0% and Quanzhou Water Engineering as to 20.0%, respectively.

Quanzhou Xingyuan is a developer and manufacturer of quality pipes and pipe fittings in Fujian. Our Directors believe that Quanzhou Xingyuan Acquisition is a concrete step of our Group to expand our business portfolio to sales of pipes and pipe fittings and the acquisition will generate value to our Company and our shareholders in long term. In addition, our Directors are also of the view that the terms of the Acquisition Agreement are on normal commercial terms and are fair and reasonable to our Company. Thus, our Directors (including independent non-executive Directors) are of the view that the acquisition of Quanzhou Xingyuan is beneficial to our Company and our Shareholders as a whole.

As the highest applicable percentage ratio calculated for the purpose of Chapter 14 of the Listing Rules for the acquisition of Quanzhou Xingyuan is more than 25.0% but less than 100.0%, the acquisition of Quanzhou Xingyuan constitutes a major transaction under Chapter 14 of the Listing Rules. Accordingly, pursuant to Rule 4.05A of the Listing Rules, the pre-acquisition financial information of Quanzhou Xingyuan from the commencement of the Track Record Period to the date of acquisition shall be disclosed. See “IV Additional financial information of Quanzhou Xingyuan New Material Technology Co., Ltd. for the pre-acquisition period” in Appendix I to this document for details of the pre-acquisition financial information of Quanzhou Xingyuan.

Acquisition of YongchunLvdi

Yongchun Lvdi is a company established under the laws of the PRC with limited liability on 30 November 2012. As of 1 January 2018, the commencement date of the Track Record Period, Yongchun Lvdi was wholly-owned by Lvdi Environmental. On 25 September 2019, our Company acquired the 90.0% equity interest in Yongchun Lvdi from Lvdi Environmental at a consideration of RMB6,034,248. Such consideration was determined based on arm’s length negotiation after taking into account the appraised value of the entire shareholders’ equity of

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Yongchun Lvdi, according to a valuation report (the “Yongchun Lvdi Valuation Report”) dated 4 August 2019 issued by an independent valuer.

In preparation of the Yongchun Lvdi Valuation Report, after having considered the characteristics of Yongchun Lvdi, the independent valuer adopted the income approach for the valuation. Under the income approach, the appraised value of Yongchun Lvdi set forth in Yongchun Lvdi Valuation Report was approximately RMB7.1 million.

Pursuant to the transfer agreement in respect to the acquisition of Yongchun Lvdi, the consideration of the acquisition of Yongchun Lvdi shall be settled by two instalments: the first instalment amounted to 80.0% of the consideration shall be settled upon the completion of several requirements, including the registration of the acquisition with the relevant government authorities pursuant to applicable PRC laws and regulations; and the second instalment amounted to 20.0% of the consideration shall be settled upon completion of several post-completion commitments given by Lvdi Environmental including but not limited to the obtaining of the construction land planning permit, construction work planning permit and construction commencement permit of Yongchun Penghu Wastewater Treatment BOT Project (永春縣蓬壺鎮污水處理BOT項目). As of the Latest Practicable Date, the post-completion commitments have not been fulfilled. Therefore, we have not settled the 20.0% of the consideration of the acquisition of Yongchun Lvdi as of the Latest Practicable Date.

Yongchun Lvdi is the project company of our Group with the concession operating rights of Yongchun Penghu Wastewater Treatment BOT Project (永春縣蓬壺鎮污水處理BOT項目). See “Business — Concession Operation Services under BOT Model” for details. As of the Latest Practicable Date, Yongchun Lvdi was directly owned by our Company as to 90.0% and Lvdi Environmental as to 10.0%, respectively. To the best of our Directors’ knowledge, information and belief, having made all reasonable enquiries, Lvdi Environmental (save for its interest in Yongchun Lvdi and Fujian Lvdi) and its ultimate beneficial owners are Independent Third Parties.

Acquisition of Fujian Lvdi

Fujian Lvdi is a company established under the laws of the PRC with limited liability on 29 October 2013. As of 1 January 2018, the commencement date of our Track Record Period, Fujian Lvdi was wholly-owned by Lvdi Environmental. On 29 September 2019, our Company acquired the 90.0% equity interest in Fujian Lvdi from Lvdi Environmental at a consideration of RMB6,943,626. Such consideration was determined based on arm’s length negotiation after taking into account the appraised value of the entire shareholders’ equity of Fujian Lvdi, according to a valuation report (the “Fujian Lvdi Valuation Report”) dated 4 August 2019 issued by an independent valuer.

In preparation of the Fujian Lvdi Valuation Report, after having considered the characteristics of Fujian Lvdi, the independent valuer adopted the income approach for the valuation. Under the income approach, the appraised value of Fujian Lvdi set forth in Fujian Lvdi Valuation Report was approximately RMB8.1 million.

Pursuant to the transfer agreement in respect to the acquisition of Fujian Lvdi, the consideration of the acquisition of Fujian Lvdi shall be settled by two instalments: the first

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Fujian Lvdi is the project company of our Group with the concession operating rights of Nan’an Honglai Wastewater Treatment BOT Project. See “Business — Our Business — Concession Operation Services under BOT Model” for details. As of the Latest Practicable Date, Fujian Lvdi was directly owned by our Company as to 90.0% and Lvdi Environmental as to 10.0%, respectively. To the best of our Directors’ knowledge, information and belief, having made all reasonable enquiries, Lvdi Environmental (save for its interest in Yongchun Lvdi and Fujian Lvdi) and its ultimate beneficial owners are Independent Third Parties.

Acquisition of Yunxiao Sangde

Yunxiao Sangde is a company established under the laws of the PRC with limited liability on 4 May 2018. At the time of establishment, Yunxiao Sangde was wholly-owned by Beijing Sangde. On 10 December 2019, our Company acquired the 85.0% equity interest in Yunxiao Sangde from Beijing Sangde at a consideration of RMB12,283,010. Such consideration was determined based on arm’s length negotiation after taking into account the appraised value of the entire shareholders’ equity of Yunxiao Sangde, according to a valuation report (the “Yunxiao Sangde Valuation Report”) dated 3 November 2019 issued by an independent valuer.

In preparation of the Yunxiao Sangde Valuation Report, after having considered the characteristics of Yunxiao Sangde, the independent valuer adopted the asset-based approach for the valuation. Under the asset-based approach, the appraised value of Yunxiao Sangde set forth in Yunxiao Sangde Valuation Report was approximately RMB14.9 million.

The consideration of the acquisition of Yunxiao Sangde was fully settled on 17 December 2019.

Yunxiao Sangde is the project company of our Group with the concession operating rights of Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目). See “Business — Concession Operation Services under BOT Model” for details. As of the Latest Practicable Date, Yunxiao Sangde was directly owned by our Company as to 85.0% and Beijing Sangde as to 15.0%, respectively. To the best of our Director’s knowledge, information and belief, having made all reasonable enquiries, Beijing Sangde (save for its interest in Yunxiao Sangde) and its ultimate beneficial owners are Independent Third Parties.

As of the Latest Practicable Date, 15.0% of the equity interest of Yunxiao Sangde had been pledged by Beijing Sangde to our Company to secure the performance of obligation of Beijing Sangde with respect to Yunxiao Wastewater Treatment BOT Project.

As all of the applicable percentage ratios calculated for the purpose of Chapter 14 of the Listing Rules for the acquisition of Yongchun Lvdi and Fujian Lvdi (on aggregate basis pursuant

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As confirmed by the PRC Legal Advisers, all the above acquisitions are legal and valid, and have been duly registered with relevant government authorities pursuant to applicable PRC laws and regulations. In addition, as advised by the PRC Legal Advisers, our Company is entitled to exercise all shareholders’ rights over 90.0% of the equity interest of Yongchun Lvdi and Fujian Lvdi even though the considerations have not been fully settled, as the settlement of the considerations does not constitute a condition precedent to the acquisitions of Yongchun Lvdi and Fujian Lvdi.

Disposal of Hunan Lanshen

Hunan Lanshen is a company established under the laws of the PRC with limited liability on 23 June 2016. Prior to the disposal, Hunan Lanshen was directly owned by Fujian Lanshen as to 51.0% and Mr. Liu Jinqiao (劉金橋), an Independent Third Party, as to 49.0%. As Hunan Lanshen was loss-making, in order to control and reduce such loss and to streamline our corporate structure and save administrative costs, on 24 November 2017, our Company entered into an equity transfer agreement with Mr. Liu Jinqiao, pursuant to which our Company disposed its 41.0% equity interests in Hunan Lanshen to Mr. Liu Jinqiao at a consideration of RMB328,000. Such consideration was determined with reference to the paid-up amount of the registered capital by our Company. On 24 December 2018, our Company entered into an equity transfer agreement with Mr. Liu Jinqiao, pursuant to which our Company disposed its remaining 10.0% equity interests in Hunan Lanshen to Mr. Liu Jinqiao at a consideration of RMB10,000, as Hunan Lanshen was loss-making. Mr. Liu Jinqiao has paid RMB48,000 as of the Latest Practicable Date. Mr. Liu Jinqiao failed to pay the remaining consideration as he had no sufficient assets for settlement. We initiated a civil legal suit against Mr. Liu Jinqiao for the unpaid consideration and received a judgement in favour of us in June 2020. Mr. Liu Jinqiao had not appealed against the judgement and the judgement has become effective as of the Latest Practicable Date. We applied to enforce the judgement on 27 January 2021.

As confirmed by our Directors and concurred by our PRC Legal Advisers, Hunan Lanshen has not involved in any material claims, litigations or non-compliant incidents during the Track Record Period before its disposal. In addition, our Directors also confirm that the disposal of Hunan Lanshen had no material impact on our Group’s financial performance, financial position and cash flows during the Track Record Period. Our Directors also confirm that we would be able to meet the profit test under 8.05(1) of the Listing Rules even if Hunan Lanshen were included in the Group.

As confirmed by the PRC Legal Advisers, the disposal of Hunan Lanshen is legal and valid, and having been duly registered with relevant government authorities pursuant to applicable PRC laws and regulations.

During the Track Record Period and up to the Latest Practicable Date, save as disclosed above, we did not have any other major acquisition, disposal or merger.

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[REDACTED] INVESTMENTS

Overview of the [REDACTED] Investments

In support for the business operations and development of our Company, we undertook the following [REDACTED] Investments.

Name of the Haisi Environmental Quanzhou Radio and Lanshen Youshi [REDACTED] Television Station

Date of investment 1 August 2018 27 March 2020 25 May 2020

Number of share An aggregate of 10,000,000 1,314,060 new shares were 6,911,958 new shares were subscribed/ new shares were subscribed by Quanzhou subscribed by Lanshen transferred subscribed by Haisi Radio and Television Youshi. Environmental; and an Station. aggregate of 10,400,000 existing shares were transferred to Haisi Environmental from the then shareholders.

Approximate 68.0% 1.4% 7.0% percentage of shareholding in our Company immediately upon the completion of the respective [REDACTED] Investments

Approximate [REDACTED][REDACTED][REDACTED] percentage of shareholding in our Company immediately upon the completion of the [REDACTED] (assuming the [REDACTED] is not exercised)

Consideration RMB181,560,000 RMB10,000,000 RMB52,600,000

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Basis of The considerations were determined based on arm’s length negotiations among the parties determination of and with reference to a valuation of our Company appraised by an independent valuer in the considerations the PRC.

Settlement date of 22 May 2020 16 March 2020 24 June 2020 the consideration

Cost per share and Approximately HK$3.2(1) Approximately HK$8.4 per Approximately HK$8.4 per discount/premium per share, representing a share, representing a share, representing a of the [REDACTED]of [REDACTED]of [REDACTED]of [REDACTED] [REDACTED]toan [REDACTED]toan [REDACTED]toan [REDACTED]of [REDACTED]of [REDACTED]of HK$[REDACTED] per HK$[REDACTED] per HK$[REDACTED] per [REDACTED] (being the [REDACTED] (being the [REDACTED] (being the mid-point of the mid-point of the mid-point of the [REDACTED] range [REDACTED] range [REDACTED] range stated in this document) stated in this document) stated in this document)

Use of the proceeds RMB89,000,000, being the RMB10,000,000, being the RMB52,600,000, being the from the consideration of the proceed from the proceed from the [REDACTED] 10,000,000 new shares investment of Quanzhou investment of Lanshen subscribed by Haisi Radio and Television Youshi was used as the Environmental, was used Station was used as the general working capital as the general working general working capital of our Group. As of the capital of our Group. As of our Group. As of the Latest Practicable Date, of the Latest Practicable Latest Practicable Date, all of the proceeds has Date, all of the proceeds all of the proceeds has been used. has been used. been used.

No proceed was received by the Company in relation to the transfer of 10,400,000 existing shares by the then shareholders to Haisi Environmental.

Strategic benefits Our Directors believe that the [REDACTED] investments will enhance the financial resources available to our Group; and the [REDACTED] Investors will strengthen and diversify the shareholder base of our Company.

Lock-up Pursuant to the laws of the PRC, the shares which have been issued before we publicly issue [REDACTED] are prohibited from being transferred within one year from the [REDACTED].

Public float As the shares held by Haisi Environmental, Quanzhou Radio and Television Station and Lanshen Youshi are Domestic Shares and would not be [REDACTED] and [REDACTED] in Hong Kong, these shares would not be considered as part of the public float for the purposes of Rule 8.08(1) of the Listing Rules.

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Special rights Haisi Environmental has No special rights were granted to Quanzhou Radio and been granted a number of Television Station and Lanshen Youshi special rights, including profit guarantee for 2018, 2019 and 2020. Our Company satisfied the profit guarantee requirements for 2018 and 2019. All the special rights granted to Haisi Environmental, including the profit guarantee requirements for 2020, have been terminated as of the Latest Practicable Date.

Note:

(1) On 6 June 2019, our Company issued 60,000,000 new shares to the then shareholders of our Company on a pro-rata basis by converting capital reserve into the registered capital of our Company. After the increase in share capital, (i) the total number of our shares increased to 90,000,000 and Haisi Environmental held 61,200,000 shares; and (ii) the cost per share of the investment by Haisi Environmental decreased from RMB8.9 to approximately RMB2.9 per share (equivalent to approximately HK$3.2 per share).

Information about the [REDACTED] Investors

Haisi Environmental

Haisi Environmental is a limited company established under the laws of the PRC on 22 December 2017. The principal business activities of Haisi Environmental include investment holding and investment management. Haisi Environmental is directly wholly-owned by Quanzhou Water Group; and Quanzhou Water Group is directly wholly-owned by Quanzhou SASAC. Immediately following the completion of the [REDACTED] (assuming the [REDACTED] is not exercised), Haisi Environmental will hold approximately [REDACTED]of our issued share capital. Accordingly, Haisi Environmental would be our Controlling Shareholder after the [REDACTED]. See “Relationship with our Controlling Shareholders” for details.

Our Company became acquainted with Quanzhou Water Group through business networking in early 2018. Quanzhou Water Group is principally engaged in water production, water supply and water draining, as well as investment and construction of water utilities projects and water conservancy projects. Quanzhou Water Group intended to broaden its industrial chain by investing in leading enterprises in decentralised wastewater treatment industry. After several rounds of arm’s length negotiations, Quanzhou Water Group decided to invest in our Group through Haisi Environmental because of the recognised business model, growth potential and prospects of our Group and our Group’s leading position in the decentralised wastewater treatment industry in Fujian.

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Quanzhou Radio and Television Station

Quanzhou Radio and Television Station was set up under the laws of the PRC on 17 July 2012. It is principally engaged in the operation of radio and television stations. It is a state-owned public institution governed by Publicity Department of Quanzhou Municipal Communist Party (中共泉州市委宣傳部). Save for the interest in our Company, Quanzhou Radio and Television Station is an Independent Third Party. Quanzhou Radio and Television Station was optimistic about the development of the environmental protection and wastewater treatment industry in the PRC and believed that our Group’s business will continue to benefit from the increasing demand in the market. Quanzhou Radio and Television Station therefore decided to invest in our Group in light of the market trend and the prospects to our business growth.

Lanshen Youshi

Lanshen Youshi is a limited partnership organised and existing under the laws of the PRC on 21 April 2020. Its scope of business covers investment in non-listed enterprises and non-publicly offered securities, as well as related consultancy services. Lanshen Youshi is jointly established by Youshi Financial Holdings (Shanghai) Asset Management Co., Ltd. (優勢金控（上海）資產管理有限公司), an asset management company, acting as the general partner and the executive partner and owns 1.0% of the equity interest in Lanshen Youshi, and two limited partners, namely Quanzhou Haisi Water Investment Co., Ltd. (泉州海絲水務投資有限責任公司) (owning 50.0% of the equity interest in Lanshen Youshi) and Fujian Haiji Investment and Development Co., Ltd. (福建省海基投資發展有限公司) (owning 49.0% of the equity interest in Lanshen Youshi). Quanzhou Haisi Water Investment Co., Ltd. is directly wholly owned by our Controlling Shareholder, Quanzhou Water Group, while each of Fujian Haiji Investment and Development Co., Ltd. and Youshi Financial Holdings (Shanghai) Asset Management Co., Ltd. is an Independent Third Party. Therefore, Lanshen Youshi is a connected person of our Company. Lanshen Youshi was optimistic about the development of the environmental protection and wastewater treatment industry in the PRC and believed that our Group’s business will continue to benefit from the increasing demand in the market. Lanshen Youshi therefore decided to invest in our Group in light of the market trend and the prospects to our business growth.

Compliance with Interim Guidance and Guidance Letters

The Sole Sponsor is of the view that the [REDACTED] Investments are in compliance with the Guidance Letter HKEx-GL29-12 issued by the Stock Exchange in January 2012 and as updated in March 2017 and the Guidance Letter HKEx-GL43-12 issued by the Stock Exchange in October 2012 and as updated in July 2013 and March 2017 as (i) the consideration for the [REDACTED] investments were fully settled more than 28 clear days before the date of our Company’s submission of the [REDACTED] application to the Stock Exchange and (ii) all the special rights granted to the [REDACTED] Investors shall be terminated before the [REDACTED]. The [REDACTED] Investments are not subject to Guidance Letter HKEx-GL44-12 issued by the Stock Exchange in October 2012 and as updated in March 2017 since they did not involve convertible instruments.

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OUR SHAREHOLDING AND GROUP STRUCTURE

The following chart sets out the shareholding and group structure of our Company immediately prior to the [REDACTED]:

Quanzhou Water Group

100.0%

Quanzhou Mr. Lan Mr. Lin Haisi Lanshen Radio and Qiang Hongquan Environmental Youshi Television Station

20.2% 9.2% 62.3% 7.0% 1.3%

Our Company

100%

100.0% 100.0% 100.0% 90.0% 90.0% 85.0% 70.0% 60.0%

Quanzhou Fuzhou Beijing Hainan Fujian Yongchun Yunxiao Quanzhou Research Lanshen Lanshen Lanshen Lvdi (1) Lvdi (2) Sangde (3) Xingyuan (5) Institute (4)

Notes:

(1) The remaining 10.0% of the equity interest of Fujian Lvdi is owned by Lvdi Environmental, an Independent Third Party save for its interest in Fujian Lvdi.

(2) The remaining 10.0% of the equity interest of Yongchun Lvdi is owned by Lvdi Environmental, an Independent Third Party save for its interest in Yongchun Lvdi.

(3) The remaining 15.0% of the equity interest of Yunxiao Sangde is owned by Beijing Sangde, an Independent Third Party save for its interest in Yunxiao Sangde.

(4) The remaining 30.0% of the equity interest of Quanzhou Research Institute is owned by Dr. Gao Xueli, an Independent Third Party save for his interest in Quanzhou Research Institute.

(5) The remaining 40.0% of the equity interest of Quanzhou Xingyuan is owned by Quanzhou Water Supply and Quanzhou Water Engineering, each being a wholly-owned subsidiary of Quanzhou Water Group and a connected person of our Company, as to 20.0% and 20.0%, respectively.

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The following chart sets out the shareholding and group structure of our Company immediately following the completion of the [REDACTED] (assuming the [REDACTED]isnot exercised):

Quanzhou Water Group

100.0%

Quanzhou Mr. Lan Mr. Lin Haisi Lanshen Radio and Public Qiang Hongquan Environmental Youshi Television Shareholders Station

[REDACTED]% [REDACTED]% [REDACTED]% [REDACTED]% [REDACTED]% [REDACTED]%

Our Company

100.0% 100.0% 100.0% 90.0% 90.0% 85.0% 70.0% 60.0%

Quanzhou Fuzhou Beijing Hainan Fujian Yongchun Yunxiao Quanzhou Research Lanshen Lanshen Lanshen Lvdi (1) Lvdi (2) Sangde (3) Xingyuan (5) Institute (4)

For notes (1) to (5), see notes to the chart setting out the shareholding and corporate structure of our Company immediately prior to the [REDACTED] for details.

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OVERVIEW

According to the F&S Report, decentralised wastewater treatment refers to the wastewater treatment model which employs medium-to-small wastewater treatment equipment with onsite or cluster pipeline network which conveys, treats, disposes or reuses wastewater effluent close to its point of generation. Compared with centralised wastewater treatment, which collects wastewater in large and bulk pipeline networks and transports it at long distances to large centralised wastewater treatment plants, decentralised wastewater treatment is a relatively more suitable and economic solution for regions with a large number of scattered dwelling units. Also, decentralised wastewater treatment system is more flexible in its design, and can be customised to customer specifications as to site, material, cost, appearance, emission water quality and other factors. Therefore, there is huge market potential in the decentralised wastewater treatment industry, especially with regard to wastewater treatment in the large rural areas in the PRC, according to the F&S Report.

We commenced our decentralised wastewater treatment business in 2009 and were among the first participants in the decentralised wastewater treatment market in Fujian. Over the years, we have continuously improved our overall capacities, expanded our product and service offerings, developed our wastewater treatment technologies, and accumulated valuable industry experience. As of the Latest Practicable Date, our decentralised wastewater treatment business covers the whole decentralised wastewater treatment industry chain, ranging from production of wastewater treatment equipment and pipes and pipe fittings, to provision of all-round wastewater treatment services including technical design, engineering, construction as well as operation and maintenance. Our business can be categorised into five operating segments, namely: (i) sales of wastewater treatment equipment; (ii) sales of pipes and pipe fittings; (iii) decentralised wastewater treatment facility construction; (iv) concession operation services under BOT model; and (v) others, including operation and maintenance, technical consultancy and design, and soil treatment. See “Our Business” in this section for details.

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The table below sets forth the details of our revenue by operating segments for the periods indicated:

Year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Sales of wastewater treatment equipment 52,147 49.1 41,048 12.0 103,550 15.4

Sales of pipes and pipe fittings nil nil 105,945 31.0 85,649 12.8

Decentralised wastewater treatment facility construction 52,623 49.5 135,952 39.8 125,229 18.7

Concession operation services under BOT model nil nil 48,113 14.1 355,094 52.9

Others 1,438 1.4 10,490 3.1 1,551 0.2

Total 106,208 100.0 341,548 100.0 671,073 100.0

OUR COMPETITIVE STRENGTHS

We believe the following competitive strengths enable us to maintain our leading position in the decentralised wastewater treatment market of Fujian and expand our market in other surrounding areas such as Jiangxi, Hunan, Guangxi and Hainan.

We are one of the leading decentralised wastewater treatment service providers in Fujian and well-positioned to capture the growing decentralised wastewater treatment market in Fujian and its surrounding areas with our comprehensive services

As one of the leading decentralised wastewater treatment service providers in Fujian, we believe that we are well-positioned to benefit from the growing decentralised wastewater treatment market in Fujian and its surrounding areas including Jiangxi, Hainan, Guangxi and Hunan. Our leading market position in Fujian with a proven track record helps us to establish strong recognition among existing and potential customers in the decentralised wastewater treatment market in Fujian, which in turn allows us to further benefit from the PRC government’s favourable policies and the rapid development of the decentralised wastewater treatment industry. Under our business for sales of wastewater treatment equipment, we design, produce and sell our decentralised wastewater treatment equipment to a wide range of customers, including local government at different levels, construction general contractors and large water environment management service providers. By closely working with these customers, we have continuously improved our overall capabilities, developed our treatment

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According to the F&S Report, we are a leading decentralised wastewater treatment service provider in Fujian, providing decentralised wastewater treatment equipment as well as a wide range of decentralised wastewater treatment services. In 2019, we were the largest supplier of decentralised wastewater treatment equipment in terms of revenue in Fujian, with a market share of approximately 8.5%. We were also the largest service provider of decentralised wastewater treatment service in terms of revenue in Fujian, with a market share of approximately 8.2% in 2019.

Unlike centralised wastewater treatment, which collects wastewater in large and bulk pipeline networks and transports it at long distances to large centralised wastewater treatment plants, decentralised wastewater treatment employs a combination of onsite or cluster piping systems which conveys, treats, disposes or reuses wastewater effluent close to its point of generation. For rural areas with scattered dwellings far from the municipal wastewater pipeline network, decentralised wastewater treatment system is generally less costly to be constructed and operated, therefore serving as a more affordable and sustainable option than centralised wastewater treatment system. Also, decentralised wastewater treatment system is more flexible in its design and can be customised in accordance with customer specifications as to site, material, cost, appearance, emission water quality and other factors. Therefore, there is huge market potential in the decentralised wastewater treatment industry, especially with regard to wastewater treatment in the large rural areas in the PRC.

The PRC government in recent years has promulgated multiple favourable policies to promote the growth of the wastewater treatment industry, especially with regard to the wastewater treatment in rural areas. According to the Action Plan for Prevention and Control of Water Pollution, wastewater treatment and pollution control in rural areas has been set as one of the national strategies with multiple policies being issued by national and local government. In 2016, Fujian People’s Government issued the Implementation Plan of Rural Region Wastewater and Garbage Remediation Action (2016-2020)《福建省農村污水垃圾整治行動實施方案 ( （2016–2020年）》) which set the goal that the wastewater treatment should cover over 6,500 administrative villages in Fujian by 2020. In 2017, MEP and MOF jointly issued the 13th Five-year Plan for Comprehensive Management of the Rural Environment in China《全國農村環境綜合整治 ( “十三五”規劃》) that set detailed wastewater treatment plan for rural regions and stipulated that by 2020 the domestic wastewater treatment rate should reach at least 60%. According to the F&S Report, driven by the supportive policies and due to the scattered distribution of wastewater discharge points in rural areas, rural wastewater treatment market has become the largest application area of decentralised wastewater treatment equipment and the demand for decentralised wastewater treatment equipment has surged since 2015. The total revenue of decentralised wastewater treatment service market in the PRC has increased from approximately RMB23.9 billion in 2015 to approximately RMB92.5 billion in 2019, representing a CAGR of approximately 40.3%. Decentralised wastewater treatment service market in Fujian

– 152 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. BUSINESS has also grown at a fast pace, increasing from approximately RMB554.2 million in 2015 to approximately RMB2,252.9 million in 2019 with a CAGR of approximately 42.0%. It is expected that the decentralised wastewater treatment service market in the PRC will continue to grow at a double-digit rate and reach approximately RMB193.5 billion in 2024 with a CAGR of approximately 15.9% from 2019 to 2024, while the decentralised wastewater treatment service market in Fujian will reach approximately RMB5,194.0 million in 2024 with a CAGR of approximately 18.2% from 2019 to 2024.

Given our comprehensive services and established position in Fujian, we believe that we are able to benefit from the growth in demand for decentralised wastewater treatment and to further penetrate the fast-growing decentralised wastewater treatment market in Fujian and its surrounding regions.

We possess a proven track record of providing a wide range of quality products and services and the ability to create strong synergies among our operating segments.

We provide a wide range of products and services from production of wastewater treatment equipment and pipes and pipe fittings, to provision of all-round decentralised wastewater treatment services including technical design, equipment engineering, project construction, installation and operation and maintenance. Accordingly, we believe our business can adapt to a variety of market environments and serve our customers’ needs at various stages of decentralised wastewater treatment industry chain.

By manufacturing the wastewater treatment equipment, we are able to establish recognition in the decentralised wastewater treatment industry in Fujian and accumulate significant technical and operational know-how, which provides a solid foundation for development of our decentralised wastewater treatment service business. We also enjoy operational synergies between our equipment sales and decentralised wastewater treatment services. For our decentralised wastewater treatment facility construction projects, and our concession projects under BOT model, we generally use our self-manufactured wastewater treatment equipment and pipes and pipe fittings, which enables us to ensure the quality and control the design details and the costs of the principal equipment used.

Furthermore, by providing a broad range of decentralised wastewater treatment services, we have gained a direct understanding of a wide range of applications and use cases. During the Track Record Period, we have accumulated extensive experience in successfully executing different decentralised wastewater treatment facility construction projects to treat different types of wastewater effluent, ranging from domestic wastewater, public wastewater, breeding wastewater, medical wastewater to landfill leachate. Also, by undertaking various operation and maintenance projects, we are able to collect real-life operational data from different wastewater treatment sites and analyse the optimal operational methods using the Lanshen Cloud Platform, a real-time project management system that allows remote control and monitoring of the operation status of wastewater treatment facilities. Such experience has in turn enhanced our understanding on different wastewater treatment technologies to further develop our technological offerings and upgrade our decentralised wastewater treatment equipment. We also believe that the diversities and flexibilities of the project models we adopted for different decentralised wastewater treatment services can also bring multi-channel and sustainable cash flows to enhance our ability to obtain the necessary financing for, and

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We are devoted to the development of decentralised wastewater treatment technology and possess strong research and development capabilities

We strongly promote innovation and development of new technologies and applications specifically adaptive to our decentralised wastewater treatment equipment and services. We have established our in-house research and development department which consisted of 55 employees with work experience in the environmental protection industry as of the Latest Practicable Date. Our research and development department is led by our deputy general manager, Mr. Zhang Jin, who had over 11 years of experience in design and operation in wastewater treatment and environmental protection as of the Latest Practicable Date. He has been leading our research and development department in research, development and design of core technologies and modification of our treatment process since 2016. See “Directors, Supervisors and Senior Management — Senior Management” for details of Mr. Zhang.

Our research and development efforts focus on the development of our proprietary technology and know-how that are applicable to our decentralised wastewater treatment processes. We optimise the operation and management process of our decentralised wastewater treatment equipment, and develop, customise and adapt our technologies to different treatment conditions and wastewater containing different pollutants, thereby delivering satisfactory results both in terms of effluent quality and cost efficiency. According to the F&S Report, we are one of the leading players among other decentralised wastewater treatment service providers in terms of the number of registered patents as of the 31 December 2020. In addition, we were the first company in Fujian to independently develop and introduce its own decentralised wastewater treatment equipment, according to the F&S Report. As of the Latest Practicable Date, we had a total number of 50 registered patents in the PRC with 28 additional patent applications in the PRC pending further examination. Our key patents include High Efficiency Equipment for Wastewater Treatment with MBR Membrane Processing Features (一種具有MBR 膜處理功能的高效污水處理設備), Microbial Eco-tank for Wastewater Treatment (一種污水處理微生物生態槽), Buried Integrated Glass Steel Wastewater Treatment Equipment (地埋式一體化玻璃鋼污水處理設備) and Integrated Glass Steel Lifting Pump Station (玻璃鋼一體化提升泵站). As of the Latest Practicable Date, we have also obtained nine software copyrights, which include our Lanshen Cloud Platform, a real-time project management platform that allows us to monitor and manage the operation status of the wastewater treatment facilities, and our Lanshen Brain, an intelligent wastewater treatment management platform which is an upgrade of our Lanshen Cloud Platform, utilizing big data and artificial intelligence to monitor and manage the entire flow of our wastewater treatment projects. See “Research and Development — Our Intelligent Wastewater Treatment Management Platform” in this section for details. According to the F&S Report, our Company is one of the pioneers in the decentralised wastewater treatment industry who developed such intelligent wastewater treatment management platform to serve the wastewater treatment industry in China.

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We are a firm believer of technology, and consider technological advancement as one of the key drivers for growth. We have also founded the Quanzhou Research Institute with Dr. Gao Xueli (高學理), who is a senior engineer at professor level of Ocean University of China with his research primarily focusing on the development and application of membrane separation and treatment technologies. By establishing Quanzhou Research Institute and cooperating with Dr. Gao Xueli and his research team, we intend to build a collaborative innovation platform for research and development, technology transfer, talent training and technology incubation for our Group. We are also collaborating with Mr. Gao Congjie (高從堦) and his team on the research of graphene oxide technologies to improve and develop nanostructured graphene membrane. Mr. Gao Congjie is an academician of the Chinese Academy of Engineering, who has been engaged in the research and development of membrane separation technology for over 50 years. He has led dozens of national and provincial scientific research projects and was awarded First Class National Science Progress Award (國家科學進步一等獎) by Chinese Academy of Sciences ( 中國科學院) and Ho Leung Ho Lee Science and Technology Achievement Award (何梁何利科技進步獎) awarded by Ho Leung Ho Lee Foundation (何梁何利基金) in recognition of his achievements in the field of membrane separation and engineering technology. See “Research and Development” in this section for details of our collaboration with Mr. Gao Congjie and his research team.

We believe that our strength in technologies and strong capabilities in research and development, design and product development improve our market competitiveness and provide compelling assurance that we can continue to maintain our industry-leading position and seize on future business opportunities in Fujian and its surrounding regions.

We have an experienced management team, supported by highly skilled employees with strong industry experience

Our management team contributes a wealth of experience and in-depth industry knowledge, as it consists of a team of experienced management and professionals with substantial expertise in providing environmental protection related businesses, formulating corporate strategies and monitoring overall operation and management of business and compliance. Mr. Lan Qiang, our co-founder, executive Director and general manager, and Mr. Lin Hongquan, our co-founder, executive Director and deputy general manager, are industry veterans with over 21 and 22 years of experience, respectively. They have led and grown our business for over 15 years. See “Directors, Supervisors and Senior Management — Board of Directors — Executive Directors” for details. The rest of our senior management team consists of experienced professionals with extensive knowledge in business development, operation management, finance and human resources, an in-depth industry understanding in the wastewater treatment industry and foresight in market developments, guiding us to make sensible business decisions. On average, the members of our senior management have over 10 years of industry and relevant professional experience. We believe that with our management team’s experience and capability, coupled with their vision and entrepreneurial spirit, we are well-positioned to identify and capture new opportunities. We benefit significantly from their accumulated expertise and hands-on experience to continue to improve the efficiency of our operations and our ability to satisfy our customers’ requirements.

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Our management team is supported by a skilled workforce, comprising a strong pool of technical, legal, finance, project development and project execution talent. We believe this pool of highly skilled employees is essential for the efficient and effective execution of our projects, and we are dedicated to developing the expertise and know-how of our employees through continuous training programs to support the development of our employees and build up their professional knowledge. Moreover, we have designed a competitive compensation scheme and promotion system to incentivize our employees. We believe that we have developed a corporate culture that promotes collaboration, efficiency, motivation, responsibility and achievement, which enables us to take advantage of market opportunities, formulate sound business strategies and execute them effectively.

OUR STRATEGIES

We intend to strengthen our position as the leading decentralised wastewater treatment company in Fujian through the following strategies and further increase our market share in the domestic decentralised wastewater treatment market.

Enhance our presence in Fujian and expand to surrounding markets by cooperation with government authorities or state-owned enterprises and recruiting additional personnel

Leveraging on our leading position in decentralised wastewater treatment service market in Fujian and a proven track record of providing a wide range of quality products and services in relation to decentralised wastewater treatment, we plan to enhance our project portfolio in Fujian and further explore the potential of the rural areas where wastewater treatment infrastructure is still under-developed. According to the F&S Report, the total revenue of decentralised wastewater treatment service market in China and Fujian will grow at a GAGR of approximately 15.9% and 18.2%, respectively from 2019 to 2024, while the total revenue of decentralised wastewater treatment service markets in the surrounding areas of Fujian, including Jiangxi, Hunan, Guangxi and Hainan will grow at a GAGR of approximately 18.0% and 15.9%, 14.5% and 20.0%, respectively from 2019 to 2024. See “Industry Overview — Overview of decentralised wastewater treatment service market in surrounding areas of Fujian — Market Size” for details of the decentralised wastewater treatment market size of the surrounding areas. Therefore, to capture the market opportunity, and capitalize upon our wastewater treatment knowledge and skills, we intend to enhance our presence in Fujian and further expand our market in other surrounding areas including Jiangxi, Hunan, Guangxi and Hainan, with potential market and favorable government policies for decentralised wastewater treatment equipment and service according to the F&S Report.

The decentralised wastewater treatment service market in the surrounding areas of Fujian (excluding Hainan) mainly include large water companies, while decentralised wastewater equipment market in the surrounding areas of Fujian consists of small scale manufacturers that sell decentralised wastewater treatment equipment in the local province. Both the decentralised wastewater treatment service market and equipment market are relatively fragmented. See “Industry — Overview of decentralised wastewater treatment service market in surrounding areas of Fujian — Competitive Landscape” for details of the competitive landscape of surrounding areas. We believe we would be able to compete with those local manufacturers and expand our market share in the surrounding areas on the following basis: (i) we are able to provide all around wastewater treatment services including technical design, engineering,

– 156 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. BUSINESS construction as well as operation and maintenance; (ii) we had a proven track record of providing a wide range of quality products and services and have accumulated significant technical and operational know-how in relation to wastewater treatment; and (iii) we could provide convenient remote control and maintenance services through our intelligent wastewater treatment management platform. See “Research and Development — Our Intelligent Wastewater Treatment Management Platform” in this section for details. We plan to further expand our market share and increase our brand recognition by actively seeking cooperation opportunities with government authorities or state-owned enterprises under our existing business models adopted by our Group including the sales of wastewater treatment equipment, sales of pipes and pipe fittings, EPC and BOT models in large towns and villages. As of the Latest Practicable Date, we had entered into three strategic co-operation agreements with certain state-owned enterprises for the cooperation in development of wastewater treatment projects in both Fujian and surrounding areas, including Jiangxi, Hainan, Guangxi and Hunan. See “Future Plans and [REDACTED]” for details. Moreover, we also plan to recruit approximately ten additional sales and marketing employees for expanding our business to surrounding areas, including Jiangxi, Hainan, Guangxi and Hunan.

We believe expanding to surrounding markets will continue to increase our market share and enhance our brand recognition, which will provide compelling assurance for us to maintain our industry-leading position and seize on future business opportunities in both Fujian and its surrounding areas.

Engage in strategic acquisitions and alliances

We intend to evaluate acquisition or joint venture opportunities with a design institute with grade A design qualification for municipal engineering in order to provide all-around wastewater treatment services including engineering design, procurement and construction as well as operation and maintenance to our customers. During the Track Record Period, we generally outsourced engineering design or cooperated with design institutes for carrying out the overall engineering design of decentralised wastewater treatment facility construction projects due to our lack of design qualification. We believe acquiring or establishing joint venture with a design institute with grade A design qualification will strengthen our ability to win projects and hence, improve our revenue and profitability, and reduce our costs of design outsourcing and achieve a synergy effect with our Company’s existing business, i.e. (a) sharing existing personnel in our design department to achieve synergy in personnel costs; (b) building up close connection between the design and construction team to reduces the costs of communication and design revision; and (c) acquiring a design institute with established market position and customer base to reduce the costs of expanding into new markets. We would prioritize our acquisitions in a design institution (i) with more than 50 designers; (ii) having established for more than five years; and (iii) having designed and completed at least five sizable construction projects.

We may also seek other targets or business in the decentralised wastewater treatment industry in Fujian and surrounding areas, including Guangxi, Hainan, Hunan and Jiangxi, including but not limited to (i) operating and maintenance service providers for decentralised wastewater treatment stations; (ii) established project companies for BOT projects; (iii) information technology service providers for the management and operation of Lanshen Brain, that would bring synergy to our strategic development, help us to address a broader range of

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customer needs, reduce our construction and operation costs, improve our wastewater treatment capabilities or that will allow us to expand into new geographic regions or other customer segments. We generally take into account the following factors when we identify and evaluate the potential acquisition target: (i) our financial situation; (ii) the expected size of business and scale of operation; (iii) the market share; (iv) the historical financial performance; (v) the revenue growth potential; and (vi) the compliance status of the potential acquisition target. See “Future Plans and [REDACTED]” for details.

We believe that through strategic acquisitions and new business investment opportunities, our decentralised wastewater treatment business will continue to grow, and our market position and market share will further improve. As at the Latest Practicable Date, we had not yet identified any acquisition target in the PRC or elsewhere and had not determined the size, number and/or location of the acquisitions or entered into any binding commitment in relation to strategic acquisition. See “Future Plans and [REDACTED]” for details.

Develop new decentralised wastewater treatment products and technologies that have lower environment consumption and costs

We believe that technological innovation is crucial for maintaining our development. Regulations on wastewater treatment continue to evolve in China and have become more demanding and stringent. For example, the NDRC and the MEE jointly issued the Notice on Accelerating the Establishment of Discharge Standards for Local Rural Domestic Wastewater Treatment《關於加快制定地方農村生活污水處理排放標準的通知》in September 2018 to require local authorities to promote the formulation of discharge standards for rural domestic wastewater treatment in throughout the country. Following the policy, Fujian issued the Water Pollutant Discharge Standard for Rural Domestic Wastewater Treatment Facilities 《農村生活污水處理設施水污染物排放標準》(DB35/1869—2019) in November 2019, which is the first rural domestic wastewater treatment standard in Fujian. The standard has set detailed discharge standards regarding different treatment capacities and different regions.

We intend to accelerate the research and development of new technologies, products, and materials to reduce the construction costs, energy costs, operating costs and space utilisation of construction and operating wastewater treatment equipment, while improving wastewater treatment quality. For example, we intend to test new bacterial strains, which would reduce the space required for our facilities and the by-products of the treatment process. In addition, we intend to develop new technologies to reduce the costs of modified membranes. To realise our research and development goals, we will increase our investment in (i) improving the hardware and software of our research centre; (ii) recruiting additional experts and relevant staff and strengthening training for our staff; and (iii) enhancing our in-house technical management as well as engaging in collaborative research and development initiatives with academic institutions and other professionals.

In addition, as of the Latest Practicable Date, we have established [REDACTED] research and development projects which are expected to incur an estimated total amount of approximately RMB[REDACTED] million. See “Future Plans and [REDACTED]” for details.

We believe that our enhanced research and development capabilities will enable us to maintain our competitive advantages, preserve our market position and benefit from continuously improving industry standards in the PRC.

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Upgrade our Lanshen Brain and business infrastructure

During the Track Record Period, we have applied or installed our Lanshen Cloud Platform in 5 of our concession operation or operation and maintenance projects, which enabled us to maintain efficient and effective regular inspections on our projects. In order to further reduce maintenance cost, enhance our customer stickiness and improve our competitiveness, we intend to upgrade our Lanshen Cloud Platform into Lanshen Brain by upgrading or adding new features which would (i) enable us to leverage the comprehensive technologies such as 5G, big data and artificial intelligence to collect and monitor real-time data from our equipment; (ii) support the full life cycle of our products and services with data feedback and analysis; and (iii) build up smooth intelligent industry chain collaboration with our existing customers as well as unlock additional customers. We expected to complete the upgrading and development of Lanshen Brain by September 2021 with an estimated expenditure of approximately RMB[REDACTED]fromthe[REDACTED] for the research and development of our Lanshen Brain. See “Research and Development — Our Intelligent Wastewater Treatment Management Platform” in this section and “Future plans and [REDACTED]” in this document for details.

According to the F&S Report, our Company is one of the pioneers in the decentralised wastewater treatment industry which developed such intelligent wastewater treatment management platform to serve the wastewater treatment industry in China. We believe the upgrading of Lanshen Brain and its wide application in our projects would enable us to reduce our maintenance cost and strengthen our core competitiveness in the industry which provide compelling assurance that we can continue to maintain our industry-leading position.

OUR BUSINESS

We are one of the leading decentralised wastewater treatment service providers in Fujian, providing a wide range of wastewater treatment equipment and wastewater treatment services in the decentralised wastewater treatment service market with the ability to create strong synergies among our operating segments. According to the F&S Report, in 2019, we were the largest supplier of decentralised wastewater treatment equipment in terms of revenue in Fujian, with a market share of approximately 8.5%. We were also the largest service provider for decentralised wastewater treatment in terms of revenue in Fujian, with a market share of approximately 8.2% in 2019. Our integrated decentralised wastewater treatment business covers the whole decentralised wastewater treatment industry chain, ranging from production of decentralised wastewater treatment equipment and pipes and pipe fittings, to provision of all-round wastewater treatment services including technical design, engineering, construction as well as operation and maintenance. Our business can be categorised into five segments, namely: (i) sales of wastewater treatment equipment; (ii) sales of pipes and pipe fittings; (iii) decentralised wastewater treatment facility construction; (iv) concession operation services under BOT model; and (v) others, including operation and maintenance, technical consultancy and design, and soil treatment.

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The table below sets forth the details of our revenue by operating segments for the periods indicated:

Year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Sales of wastewater treatment equipment 52,147 49.1 41,048 12.0 103,550 15.4

Sales of pipes and pipe fittings nil nil 105,945 31.0 85,649 12.8

Decentralised wastewater treatment facility construction 52,623 49.5 135,952 39.8 125,229 18.7

Concession operation services under BOT model nil nil 48,113 14.1 355,094 52.9

Others 1,438 1.4 10,490 3.1 1,551 0.2

Total 106,208 100.0 341,548 100.0 671,073 100.0

During the Track Record Period and up to the Latest Practicable Date, our business remained focusing on providing a wide range of wastewater treatment products and services to our customers. We commenced our decentralised wastewater treatment business in 2009, and over the years we have improved our overall capacities and developed our wastewater treatment technologies by sales of wastewater treatment equipment and provision of decentralised wastewater treatment facility construction services to our customers. Leveraging the valuable experience we accumulated in the past and with the aim to unlock new business opportunities in the decentralised wastewater treatment market, we took a step further in 2019 and expanded our decentralised wastewater treatment business to include concession operation services under BOT model and sales of pipes and pipe fittings. We believe that by diversifying our product and service offering, we are able to adapt to a variety of market environments and serve our customers’ needs at various stages of the decentralised wastewater treatment industry chain. Although we have extended our product offering to pipes and pipe fittings, and diversified our service portfolio to include concession operation services under BOT model, we have not scaled down our existing operating segments. See “Financial Information — Period to Period Comparison of Results of Operations” for details of period to period comparison of results of operations during the Track Record Period.

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Sales of Wastewater Treatment Equipment

Introduction

Under our business of sales of wastewater treatment equipment, we manufacture and sell wastewater treatment equipment which can be divided into two categories, namely, (i) wastewater pre-treatment equipment with no electromechanical devices, and (ii) customised wastewater treatment equipment comprising a set of wastewater treatment tanks installed with biological carrier and electromechanical devices utilizing different value-added wastewater treatment technologies customised to customers’ specifications.

The following table sets forth a breakdown of our revenue generated by sales of wastewater treatment equipment by categories for the periods indicated:

Year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Wastewater treatment equipment

• Wastewater pre-treatment equipment 1,917.8 3.7 675.9 1.6 2,674.0 2.6

• Customised wastewater treatment equipment 50,228.7 96.3 40,372.3 98.4 100,875.5 97.4

Total 52,146.5 100.0 41,048.2 100.0 103,549.5 100.0

Wastewater Pre-treatment Equipment

We started to manufacture and sell wastewater pre-treatment equipment in 2009.

The wastewater pre-treatment equipment are tanks made of resin and fiberglass with no electromechanical devices and biological carrier installed. Wastewater pre-treatment equipment is typically used in wastewater pre-treatment process with their sedimentation chamber to separate wastewater in layers through the process of biological decomposition and drainage, allowing oil and scum to float, sludge to settle, and liquid to enter into the next wastewater treatment process in a relatively clear condition. The price range of our wastewater pre-treatment equipment was approximately RMB405 to RMB800 per cubic metre during the Track Record Period. We expect the future price trend would mostly remain stable subject to the procurement costs and the prevailing market conditions. See “Sales, Marketing and Distribution — Our Pricing Policy” in this section for details of the pricing policy.

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Set forth below is the picture of wastewater pre-treatment equipment sold by us during the Track Record Period:

Wastewater Pre-treatment Equipment

With expansion of our business and development of our wastewater treatment technologies, wastewater pre-treatment equipment now constitutes a relatively small portion of the equipment we sell. For the three years ended 31 December 2020, revenue generated from sales of wastewater pre-treatment equipment represented approximately 3.7%, 1.6% and 2.6% of our total revenue for sales of wastewater treatment equipment, respectively.

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Customised Wastewater Treatment Equipment

Our customised wastewater treatment equipment comprises a set of wastewater treatment tanks utilizing different wastewater treatment technologies which are customised as to site, material, investment and operation cost, appearance, emission water quality and other factors in accordance with our customers’ specifications. Different from wastewater pre-treatment equipment, customised wastewater treatment equipment comprises a set of wastewater treatment tanks with biological carrier and electromechanical devices installed. These tanks work together as an integrated wastewater treatment system to effectively remove pollutants from influent wastewater. The key wastewater treatment technologies applied in our customised wastewater treatment equipment include A2O+MBR technology, A3O+MBBR technology, and eco-tank technology with further details as set out below:

• A2O+MBR technology: the customised wastewater treatment equipment with such technology applied comprises a set of wastewater treatment tanks designed for A2O and MBR treatment process. A2O process is the anaerobic-anoxic-oxic biological nitrate and phosphates removal process, whose biological reaction pool consists of anaerobic zone, anoxic zone and aerobic zone. After the A2O process, the wastewater then flows to the MBR treatment zone, which combines biological treatment with membrane separation. The membrane bioreactor installed inside the tank replaces the settling pond found in a traditional activated sludge treatment system to achieve membrane biological treatment effect, leading to high efficiency in the separation of solid and liquid and high effectiveness in the removal of nitrate and other organic pollutants.

• A3O+MBBR technology: the customised wastewater treatment equipment with such technology applied comprises a set of wastewater treatment tanks designed for A3O and MBBR treatment process. Compared with A2O process, an additional pre-denitration zone is placed before the anaerobic zone which improves the nitrogen removal efficiency. After the A3O treatment process, the wastewater then flows to the MBBR treatment zone, which contains an aeration tank with special carriers that provide large specific surface area where a biofilm can grow. An aeration system is located at the bottom of the tank to help the carriers in a fluidised state. During this process, the biomass on the carriers continues to grow and decompose the organic pollutants in the influent wastewater.

• Eco-tank technology: the customised wastewater treatment equipment includes ecological floating island, light guide and microbial purification parts to simulate the effects of natural ecosystem. Eco-tank technology has therefore provided an advanced breeding home for microbial communities to effectively degrade and decompose the organic pollutants in the wastewater.

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Set forth below is the picture of customised wastewater treatment equipment sold by us during the Track Record Period, as well as its design structure comprising a series of different wastewater treatment tanks built above the ground or buried underground:

Customised Wastewater Treatment Equipment

Our customised wastewater treatment equipment constitutes a substantial portion of the wastewater treatment equipment we sold during the Track Record Period. For the three years ended 31 December 2020, the revenue generated from sales of customised wastewater treatment equipment represented approximately 96.3%, 98.4% and 97.4% of our total revenue for sales of wastewater treatment equipment, respectively. The price of our customised wastewater treatment equipment ranged from approximately RMB5.9 thousand to RMB201.8 thousand, RMB5.6 thousand to RMB348.4 thousand and RMB2.7 thousand to RMB107.8 thousand for the three years ended 31 December 2020, respectively. Price range of our customised wastewater treatment equipment may vary significantly, as it is manufactured according to the specific requirements of our customers. Factors that affect the pricing of our customized wastewater treatment equipment include local water conditions, core wastewater treatment technologies adopted, types of material used, effluent quality standard and other operational parameters required. See “Sales, Marketing and Distribution — Our Pricing Policy” in this section for details of the pricing policy.

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Sales of Pipes and Pipe Fittings

After completion of our acquisition of Quanzhou Xingyuan in 2019, we have expanded our business to include the sales of pipes and pipe fittings.

We offer a comprehensive range of pipes and pipe fittings for a variety of piping systems, including those used for water supply, drainage, power supply, telecommunications and agriculture. Our products include plastic pipes made from a variety of plastic resins, such as PVC, PE and PP-R, as well as pipes for special use made from a combination of plastic and other materials, such as aluminum or steel. We are able to produce over 18 series and over 28 specifications of pipes and pipe fittings. In addition to sale of standard products which accounted for the majority of revenue for this business segment, we occasionally make products that are customised to client specifications.

Set forth below are the pictures of some of the pipes and pipe fittings sold by us during the Track Record Period:

Pipes

Pipe Fittings

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For the year ended 31 December 2019 and the year ended 31 December 2020, the revenue generated from sales of pipes and pipe fittings amounted to RMB105.9 million and RMB85.6, respectively, representing approximately 31.0% and 12.8% of our total revenue, respectively. For the two years ended 31 December 2020, the price range of our pipes was approximately RMB7.4 to RMB17.4 per kilogram, and the price range of our pipe fittings was approximately RMB17.1 to RMB17.4 per kilogram, respectively. Such price range is for illustrative purposes only as our pipes and pipe fittings may be otherwise priced by length or unit, depending on the relevant series and specifications of the pipes and pipe fittings. We expect the future price trend would mostly remain stable subject to the procurement costs and the prevailing market conditions. See “Sales, Marketing and Distribution — Our Pricing Policy” in this section for details of the pricing policy.

Decentralised Wastewater Treatment Facility Construction

Introduction

Our decentralised wastewater treatment facility construction business typically involves equipment engineering and/or project design, procurement and equipment manufacturing, project construction and equipment installation. The revenue of our decentralised wastewater treatment facility construction business is largely derived from decentralised wastewater treatment facility construction projects under the EPC model, where we act as the primary contractor for our customers, taking responsibility for engineering and manufacturing of wastewater treatment equipment; procurement and selection of raw materials and necessary equipment from trustworthy suppliers; undertaking and overseeing the project construction and installation; equipment testing, system debug and delivery of completed project to the client upon its completion. Under the decentralised wastewater treatment facility construction business, we can make adjustments to the typical EPC model to cater for the business needs of our customers to provide services under the EP (equipment design and procurement) or the PC (procurement and construction) model.

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The flow chart below is a brief description of our decentralised wastewater treatment facility construction projects under the EPC model:

Marketing & Project Due Diligence

Project Procurement

Contract Signing

Equipment Engineering and/or Project Design

Procurement and Equipment Manufacturing

Project Construction and Onsite Installation

Testing & Debug

Acceptance

Quality Guarantee and After-sale Services

• Marketing and Project Due Diligence – Our sales team gathers market opportunities, liaises with potential customers and participates in tenders or commercial negotiations. Our sales team and technical experts would meet potential customers to collect project data and understand their specific requirements for the project, including requirements with respect to local water and climate conditions, operational parameters, on-site construction conditions, etc.

• Project Procurement and Contract Signing – We prepare a tender proposal or a quotation together with an estimated budget based on, among other things, our proposed work scope, key pieces of equipment and customers’ preferred choices of technology. Once a project is awarded to us, we will enter into a binding agreement with the customer, which typically sets forth, among others, the technical specifications, payment arrangements, construction timeframe and warranty period for the project. For key terms of our typical EPC agreements, see “Our Business — Decentralised Wastewater Treatment Facility Construction — Typical Contract Terms” in this section. The process of project procurement and contract signing generally takes around 17 to 37 days.

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• Equipment Engineering and/or Project Design – We generally design the relevant wastewater treatment equipment in accordance with the executed agreement, which sets out detailed planning of the treatment technologies, selection of electromechanical devices and other raw materials. For project design, we may either design the on-site construction plan and the underground pipeline layout, or engage a qualified design institution to do so, depending on project scale and customers’ request. The process of equipment engineering and/or project design generally takes around ten to 30 days, depending on, among others, scale and complexity of the relevant projects.

• Procurement and Equipment Manufacturing – Our production factory then manufactures the wastewater treatment equipment in accordance with the agreed specifications and designs. We have stringent quality control processes to ensure that specifications and performance parameters are met. For raw materials and electromechanical devices used in the production process, our production factory will provide a procurement list detailing the relevant technical specifications to our procurement department. The procurement department will then proceed to negotiate and place orders with the relevant suppliers after carefully considering technical and commercial circumstances, financial budget and customers’ demands. The process of procurement and equipment manufacturing generally takes around 13 to 26 days, depending on, among others, scale and complexity of the relevant projects.

• Project Construction and Onsite Installation – We would appoint and designate a project manager for each project who shall be responsible for the safety, quality, process and costs of the project construction. According to project requirements, designated personnel from different departments will form a project working group and coordinate with the project manager to carry out the construction work. The working group generally consists of staff members responsible for designing, procurement, management, marketing and on-site work. The process of project construction and onsite installation generally takes up to 12 months. However, some projects may have a longer construction period, given the project requirements, customer demand, construction size and complexity, as well as the timeline with regard to supply of raw materials and equipment. For projects with large construction scale, we may engage third party subcontractors to conduct the civil construction. Our construction department will suggest a budget for subcontracting based on the market price and evaluate the potential subcontractors, and then it will enter into commercial negotiation with some subcontractors or initiate the tender process. We generally select our subcontractors based on a number of factors, including but not limited to price, accessibility to local resources and workers, their qualification, reputation and track record. After a subcontractor is selected, we will enter into a subcontracting agreement. See “Suppliers — Subcontractors and Subcontracting Arrangements” in this section for details of the subcontracting arrangements.

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• Testing and Debug – Once construction and installation work has been completed, we would conduct testing and arrange system debug to the decentralised wastewater treatment facility. Our technical team follows complete debug process to ensure that the facility operates steadily with each of the technical parameters (such as wastewater treatment efficiency and energy consumption) satisfying the performance assurance requirements as specified in the relevant agreement. After the wastewater treatment facility passes the testing, we will inform our customers for their examination and acceptance. The project may be subject to inspection by independent third parties, if necessary. The process of testing and debug generally takes around five to 28 days, depending on, among others, scale and complexity of the relevant projects. Upon the completion of the above, the project will then complete the relevant completion formalities and the quality guarantee period will start.

• Quality Guarantee and After-sales Service – We typically grant our customer a quality guarantee period of one to two years, during which we will provide repair and maintenance services at our own cost if there are any quality issues caused by our fault. Otherwise, we would also send our technicians to provide free guidance. After expiry of the guarantee period, we will charge our after-sale services separately.

Characteristics of Business Model and Revenue Recognition Policy

Upon completion of construction, we will transfer the control of the decentralised wastewater treatment facility to our customers. Our customers generally pay us by instalments based on the stages of construction in accordance with the terms of the agreement. We are of the view that instalment payment arrangement can limit our exposure to project related risks.

In terms of revenue recognition for decentralised wastewater treatment facility construction, such revenue is recognised over time by measuring the progress towards complete satisfaction of the services. The progress towards complete satisfaction of the performance obligation is measured based on the Group’s efforts or inputs to the satisfaction of the performance obligation, by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract. See “Financial Information — Critical Accounting Policies, Estimates and Judgments” for details.

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Typical Contract Terms

The following table sets forth the major contract terms of typical EPC contracts we enter into with our customers:

Major Terms Details

Scope of services We are responsible for the design, engineering, construction, installation and final testing of the decentralised wastewater treatment facility, as well as the procurement of necessary raw materials and equipment.

Pricing The prices set out in our EPC contracts are most often on a fixed price basis, with some variations and changes allowed for reimbursable items of work performed. See “Sales, Marketing and Distribution — Our Pricing Policy” in this section for details of our pricing policy.

Payment arrangement We generally collect payment from our customers as specified by the contracts. Payments for our construction services are typically made in accordance with the construction progress, which is confirmed and settled according to the settlement terms set forth in the contract. Upon delivery and acceptance of the wastewater treatment facility, and satisfying performance assurance requirements as specified in the contract, we generally collect a total of 95.0% to 97.0% of total contract value. The remainder serves as the quality guarantee deposit and is retained by our customers until expiry of the warranty period.

Delivery and acceptance Once all construction works have been completed and the decentralised wastewater treatment facility has been installed, we will deliver the entire project to our customers and they are typically required to conduct an overall examination within one month of delivery. If such examination is not carried out within that period and no issue is raised, our facility is deemed to be accepted.

Quality warranty period Our warranty period usually runs for one to two years from the acceptance by our customer of the equipment. During the warranty period, we will provide maintenance services of the equipment and dispatch professional technicians to provide on-site technical support upon the request of our customers. Pursuant to the provisions of the contract, our customers will retain part of the consideration, generally ranging from 3.0% to 5.0%, as quality guarantee deposit until the expiration of the warranty period.

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We have plenty of experience in implementing decentralised wastewater treatment facility construction projects. During the Track Record Period and up to the Latest Practicable Date, we completed a total of 51 decentralised wastewater treatment facility construction projects. The following table sets out the movement in terms of number and the corresponding contract value of our decentralised wastewater treatment facility construction projects during the Track Record Period and up to the Latest Practicable Date:

For the period subsequent to the Track Record Period and up to the For the year ended 31 December 2018 For the year ended 31 December 2019 For the year ended 31 December 2020 Latest Practicable Date Project Project Projects Projects Projects Projects Project Project procured completed As of the As of 1 procured completed As of 31 As of 1 procured completed As of 31 As of 1 procured completed As of 31 As of 1 during during Latest January during during December January during during December January during during December January the the Practicable 2018 the year the year 2018 2019 the year the year 2019 2020 the year the year 2020 2021 period period Date

Number of projects 1 29 20 10 10 23 19 14 14 6BUSINESS 10 10 10 nil 2 8

Approximate – 171 – contract value of the corresponding projects (RMB million) 1.8 77.4 20.2 59.0 59.0 227.1 33.5 252.6 252.6 80.0 39.2 293.4 293.4 nil 11.7 281.7 THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. BUSINESS

The following table shows the five largest decentralised wastewater treatment facility construction projects we completed during the Track Record Period by revenue recognised as of 31 December 2020:

Revenue Recognised as Effluent Project Project Total of 31 Quality Designed Commencement Completion Contract December Location of Project Name Standard Capacity Date Date Value(1) 2020(1) the Project (RMB’000) (RMB’000)

Bangshan Town Longhai City Class I 7,300 m3/day January 2018 December 2019 18,006 16,375 Longhai, Pollution Control (Section Standard A Fujian D) Equipment Procurement and Installation Project (龍海市榜山鎮截污控污工程（D 標段）設備採購及安裝項目)

Jin’an East Integrated and Surface Water Dongjiao River, Zhuyu March 2018 December 2020 13,700 12,569 Fuzhou, Operational Water System Quality River, Chayuan River Fujian Maintenance Project Standard and Yangxia River: Purification Station Class V 10,000 m3/day; Equipment Installation Qinting River: Project (晉安東區水系綜合及 12,000 m3/day; 運營維護項目淨化站設備安裝 Huagong River and 項目) Pudong River: 20,000 m3/day

Zhanggpu County East Line Class I 1,000 m3/day September 2018 December 2019 6,846 6,281 Zhangzhou, Flood Drainage Canal Standard B Fujian Comprehensive Renovation Project (漳浦縣城東線排洪渠綜合整治項目)

Jinjiang Children’s Amateur N/A Station 1-4, October 2019 December 2020 5,200 4,652 Quanzhou, Sports School Integrated 1284m³/hour; Station Fujian Prefabricated Pumping 5-6, 600m³/hour; Station Project (晉江市少年 Station 7: 80m³/hour 兒童業餘體育學校一體化預製泵站工程)

Xiangqian Town Xianan Class I Station 1: 50 m³/day; May 2019 September 2020 4,694 4,306 Fuzhou, Community Zhenfeng Standard A Station 2: 800 m³/day Fujian Xindangzhou Natural Town Wastewater Treatment and Pipeline Network Project (祥謙鎮峽南社區枕峰新壋洲自然村污水管網工程)

Note:

1. The differences between the total contract value and the revenue recognised for the relevant decentralised wastewater treatment facility construction projects we completed are primarily due to the fact that the price set out in the contract is inclusive of value-added tax while the revenue recognised excludes the value-added tax actually paid.

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Ganzhou City Tangjiang Class I Baishi Village: 75 m³/day; Expected December 2021 7,437 nil As of 31 December Ganzhou, Town Water Pollution Tangxi Village: commencement 2021: approximately Jiangxi Prevention and 100 m³/day; date: April 6.8 million(4) Control Project in Aoli Village: 2021 Baishi Village, Tangxi 50 m³/day; Village, Aoli Village Xikeng Village: and Xikeng Village 50 m³/day (贛州市唐江鎮白石村、唐西村、坳裏村和西坑村水污染防治項目)

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Notes:

4. Given the current circumstances and based on our Directors’ best estimates, the revenue for the project is expected to be recognised in full as of 31 December 2021.

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Concession Operation Services under BOT Model

Introduction

We have expanded our business to include concession operation services under BOT model since 2019. For concession operation services under BOT model, we are responsible for investing and constructing the project, as well as the operation and management during the concession period after completion of construction. We fund the concession projects by our own capital or external financing. After completion of construction, we have the right to operate the project for such period as set out in the concession agreement. During the concession period, the ownership of the wastewater treatment facilities belongs to our customers. At the end of the concession period, we transfer the operation responsibilities of the project back to our customers. Our customers during each of the construction phase and operation phase are the local governments which are Grantors of the relevant concession projects.

Flow Chart for Concession Operation Services under BOT Model

The flow chart below is a brief description of typical concession operation services under BOT model:

Our customers (local governments and its designees)

Provision of concession operation services under Payment of services fee under concession operation agreements concession operation agreements

Transfer of Transfer the operation responsibilities

Concession operation Operation Project Financing Financing Company institutions

Project design Construction

Procurement of equipment Procure and raw materials Investment Investment financing Our business Our Group partner (if any) Equipment manufacturing

Construction and installation

We carefully select the concession projects that we undertake. The factors we consider include (i) our expectation on the development of the economy, wastewater treatment industry and environmental protection industry in the PRC, (ii) the background, financial status and creditworthiness of potential customers, and (iii) details of project, including concession period, actual treatment volume, capital expenditures required, price and costs of our services, expected investment payback period and other related risks. Concession projects are subject to our internal investment approval procedures before we take on new projects to ensure that our investment in concession projects can be fully recovered.

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Under BOT model, we are responsible for the investment and construction at the initial stage, as well as the concession operation at a later stage. For projects with large investment scale, there is typically a project company that takes charge of the fund raising and the construction at the initial stage, as well as the concession operation and maintenance at a later stage. The possession of the facilities, as well as the operating rights will be transferred back to our customers upon expiration of the concession operation period at nominal consideration, unless the concession operation agreement is otherwise renewed. As of the Latest Practicable Date, we acquired three project companies, namely, Yunxiao Sangde, Yongchun Lvdi and Fujian Lvdi. Yunxiao Sangde owns the concession operating rights of Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目) and Changshan Huaqiao Economic Development Zone Wastewater Treatment BOT Project (常山華僑經濟開發區污水處理BOT項目), while Yongchun Lvdi and Fujian Lvdi own the concession operation rights of Yongchun Penghu Wastewater Treatment BOT Project (永春縣蓬壺鎮污水處理BOT項目) and Nan’an Honglai Wastewater Treatment BOT Project (南安市洪瀨鎮污水處理BOT項目), respectively.

Characteristics of Business Model and Revenue Recognition Policy

We charge a services fee during the concession period to cover investments and costs of operation. The services fee we charge is pre-determined upon the execution of the project agreement and is subject to adjustment with reference to certain variable costs we incurred. We set the prices for our BOT projects after diligent calculation so that we can expect full recovery of our investment for the project and our operation and maintenance, as well as earning a reasonable return. We calculate the expected investment payback period based on, among others, the total amount of our investment, the actual treatment volume of the wastewater treatment facilities, prices for our services and estimated costs of operation. As our concession period is in general longer than the expected payback period of our concession projects, our Directors believe that we can fully recover our investments in all our existing concession projects.

The concession operation services under BOT model can generate recurring revenue stream and stable operating cash flows for us during the contract period. Meanwhile, due to the long operation period, we have higher motivation to adopt advanced technologies to ensure stable quality and maintain low operating costs. We have set up Lanshen Cloud Platform, a remote data real-time monitor system, to keep us informed of the operation of our integrated wastewater treatment system and equipment on a real-time basis and guide the operation of the project system in a safe and energy-saving way.

Revenue from concession projects are recognised during both the construction and operation stages. Revenue from the construction stage is recognised over time by measuring the progress towards complete satisfaction of the services. The progress towards complete satisfaction of the performance obligation is measured based on the Group’s efforts and inputs to the satisfaction of the performance obligation, by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs. For revenue from operating service, the way that such revenue is recognised varies, depending on the service concession arrangement model of the concession project. See “Financial Information — Critical Accounting Policies, Estimates and Judgments” for details.

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Typical Contract Terms

The following table sets forth the major contract terms of typical concession operation agreements under BOT models we entered into with our customers:

Major Terms Details

Concession operating Customers grant concession operating rights of the rights wastewater treatment plant to us during the concession period, where we have the right to invest, design, construct, operate, maintain and manage the wastewater treatment plant to treat wastewater collected within a particular area as stipulated under the relevant concession operation agreement. Such right is exclusive to the extent that the wastewater treatment capacity does not exceed the designed capacity specified under the relevant concession operation agreement.

Concession period The concession period varies from project to project, and ranges from 12 to 30 years upon passing the trial operation and environmental protection inspection.

Land expropriation Customers are generally responsible for handling the procedures for the expropriation of the land. The land use rights owned by the customers are provided to us at nil consideration.

Financing and According to the concession operation agreements, we shall construction phase be responsible for the investment, construction of the project, procurement of necessary materials and manufacturing and engineering of the wastewater treatment equipment. In addition, we shall raise sufficient funds for the project on a timely basis, and ensure that the construction project will complete as scheduled, pass the trial operation and be put into commercial operation.

Operational phase We operate the wastewater treatment station constructed by us under the contract, charge customers services fees to recover the investment, operation and maintenance costs and gain reasonable returns.

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Major Terms Details

Pricing and payment We generally issue monthly or quarterly bills to our customers, and our customers generally settle such bills by bank transfer. The fees we receive for provision of concession operation services are calculated according to terms stipulated in the concession operation agreements, which generally comprise a guaranteed tariff based on a guaranteed minimum wastewater treatment volume, together with an additional tariff for any wastewater treated in excess of the guaranteed minimum wastewater treatment volume. The guaranteed minimum tariff is calculated by multiplying the guarantee minimum wastewater treatment volume by the tariff rate specified in the relevant concession operation agreement. See “Concession Projects” in this section for the guaranteed minimum wastewater treatment volume, tariff rate as well as other details about each of our concession projects under the BOT model. Pursuant to the relevant concession operation agreements, we are not entitled to receive any tariff premium or financial subsidies from the PRC governments.

We determine our reasonable returns on investment by conducting feasibility analysis before acquiring a project company or bidding for a concession project. Such analysis takes into account a number of factors, including but not limited to: • total investment, which includes the amount of investment stipulated in the concession agreement and the financing cost of such investment, calculated with reference to our financing needs, the prevailing interest rate and repayment arrangement; • construction and operation costs, which are estimated with reference to factors including, among others, location and scale of a project, length and complexity of construction, effluent quality standard as well as wastewater treatment volume; and

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Major Terms Details

• revenue to be recognised during the concession period, taking into account circumstances where the actual wastewater treatment volume is lower than the guaranteed minimum treatment volume, and where the actual wastewater treatment volume is greater than the guaranteed minimum treatment volume.

See “Sales, Marketing and Distribution — Our Pricing Policy” in this section for more details.

Arrangement after the After the expiry of concession period, we generally transfer expiry of the concession the possession of the total assets, facilities and equipment, period as well as the operating right of the wastewater treatment plant to our customers without receiving additional payment, unless the concession operation agreement is otherwise renewed. For Nan’an Honglai Wastewater Treatment BOT Project, according to the concession operation agreement, in the event that the customer decides to extend the concession period, we have the right of first refusal for such renewal. As for the other projects, the relevant concession operation agreements do not specifically provide for such right.

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Concession Projects

We commenced concession operation services under BOT model during the year ended 31 December 2019 with Shanghang Leachate Treatment BOT project (上杭縣滲濾液處理BOT項目) being our first contracted BOT project. We further acquired Yunxiao Sangde, Yongchun Lvdi and Fujian Lvdi. Yunxiao Sangde owns the concession operating rights of Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目) and Changshan Huaqiao Economic Development Zone Wastewater Treatment BOT Project (常山華僑經濟開發區污水處理BOT項目), while Yongchun Lvdi and Fujian Lvdi own the concession operation rights of Yongchun Penghu Wastewater Treatment BOT Project (永春縣蓬壺鎮污水處理BOT項目) and Nan’an Honglai Wastewater Treatment BOT Project (南安市洪瀨鎮污水處理BOT項目), respectively. We believe that our sound financial performance allows us to continuously invest in and acquire concession projects and that our in-depth knowledge in the decentralised wastewater treatment equips us with essential skills required for a project operator and business partner.

Set forth below is the revenue and gross profit generated by each of our concession projects for the periods indicated:

For the year ended For the year ended 31 December 2019 31 December 2020 Revenue Gross Profit Revenue Gross Profit (‘000) (‘000) (‘000) (‘000)

Yongchun Penghu Wastewater Treatment BOT Project (永春縣蓬壺鎮污水處理BOT項目) 293 3 974 17

Nan’an Honglai Wastewater Treatment BOT Project (南安市洪瀨鎮污水處理BOT項目) 472 5 1,775 3

Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目) 44,986 11,486 343,454 84,946

Changshan Huaqiao Economic Development Zone Wastewater Treatment BOT Project (常山華僑經濟開發區污水處理BOT項目) nil nil 6,149 1,605

Shanghang Leachate Treatment BOT Project (上杭縣滲濾液處理BOT項目) 2,362 174 2,742 581

As advised by our PRC Legal Advisers, under the applicable PRC laws and regulations, environmental impact assessment approval is required for our concession projects and such requirements have been fully complied with. In addition, as confirmed by our PRC Legal Advisers, we have obtained written confirmations issued by the competent environmental protection departments, confirming that the Group has complied with and has not been subject to any administrative penalties due to the matters of the environmental impact assessment approval during the Track Record Period.

– 181 – As of the Latest Practicable Date, we had two concession projects under construction and three concession projects in operation. The DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS following table sets forth the key information of all of our concession projects:

Revenue recognised Date of the during the Expected Effluent Project concession Guaranteed minimum Track Total investment amount payback Quality Designed Company Business partner (if operation Concession Operation wastewater treatment Tariff Record and source of funding period of our Location of Project Name Standard Capacity (if applicable) applicable) Project Status agreement Period volume rate Period for such investment investment the project (approximate (RMB’000) years)

In operation

Yongchun Penghu Class I 10,000 Wastewater Treatment Standard B m BOT Project (永春縣蓬壺鎮污水處理 BOT項目) 3 /day for the year 1,267 The total investment amount is 15 Quanzhou, Yongchun Lvdi Lvdi Environmental, Under concession 5 December 30 years (concession 8,000 m 3 ended 2019 3 approximately RMB6.0 Fujian /day which owns 10.0% operation9,000 m 2012 operation wasmillion, being the interest in Yongchun 3 commenced0.81 inconsideration June for acquisition /day for the year Lvdi 2016RMB/m and is expectedof the respective equity ended 2020 BUSINESS to expire in Juneinterests in Yongchun Lvdi. As 10,000 m 2046) we acquired the project 3 8 – 182 – /day for the company when the remaining concession construction had already been operation period completed, the investment incurred by us in relation to such project would be equivalent to the amount of consideration as set out in the relevant transfer agreement. As such consideration shall be fully paid by us pursuant to the terms of the relevant transfer agreement, the actual investment amount would not exceed the stipulated investment amount. See “Our History and Development — Acquisitions and Disposals During the Track Record Period” for details. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

Nan’an Honglai Class I 10,000 Wastewater Treatment Standard A m BOT Project 3 (南安市洪瀨鎮污水處理 /day2,247 0.82 The total investment amount is 14 Quanzhou, BOT項目) Fujian Lvdi Lvdi Environmental, Under concession 8 November 30 years starting from 7,000 m 3 3 RMB/m approximately RMB6.9 Fujian /day which owns 10.0% operation 2013 thedateofthemillion, being the interest in Fujian concession operationconsideration for acquisition Lvdi agreement of the respective equity (concession interests in Yongchun Lvdi. As operation waswe acquired the project commenced incompany when the January 2016construction and is had already been expected to expirecompleted, in the investment November 2043)incurred by us in relation to such project would be equivalent to the amount of consideration as set out in the relevant transfer agreement. As such consideration shall be BUSINESS fully paid by us pursuant to

8 – 183 – the terms of the relevant transfer agreement, the actual investment amount would not exceed the stipulated investment amount. See “Our History and Development — Acquisitions and Disposals During the Track Record Period” for details. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

Shanghang Leachate Table II 250 N/A Treatment BOT Project Standard tonnes/day (上杭縣滲濾液處理BOT for Landfill 項目) Site (1) Pollution N/A Under concession 6 August 2019 12 years (concession 150 tonnes/day for the first 42 5,104 We are responsible for financing 7 Longyan, Control operation operation was four years; 100 RMB/tonne the construction and operation Fujian commenced in tonnes/day for the second of the project. The estimated October 2020 and is four years; and 60 investment amount is expected to expire in tonnes/day for the third approximately RMB13.6 October 2032) four years million. We plan to fund such investment primarily through our internal resources . In the event that the actual investment amount exceeds the stipulated investment amount under the relevant concession agreement, we may need to apply more internal resources to supplement the additional investment so as to meet our payment obligations in full and on time. As a result, our results of

BUSINESS operations and liquidity may be negatively affected. As we have put in place cost control

8 – 184 – measures in different phases of a project and our pricing has taken into account the fluctuations in construction and operation costs, it is expected that the actual investment to be incurred would not differ significantly from the estimated investment amount.

Note:

1 For Shanghang Leachate Treatment BOT Project, given that (i) the size of the project is relatively small as compared with the other concession projects; and (ii) the grantor of the concession right did not require us to use a project company to provide the concession operation services, we did not establish a project company. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

Under construction

Yunxiao Wastewater Class I 17,620 Treatment BOT Project Standard A m (雲霄縣污水處理BOT and Class I 項目) Standard B 3 /day for the first 388,440 We are responsible for financing 24 Zhangzhou, 3 Yunxiao Beijing Sangde, which Under constructionyear of concession 22 June 20183 28 years (based onthe our construction10,572 of m the project. Fujian /day Sangde owns 15.0% interest operation; 12,334 m Directors' bestThe investment amount in Yunxiao Sangde 3 estimates, concessionstipulated in the relevant /day operation1.45 is expectedconcession operation for the second year; 14,096 toRMB/m commence inagreement the is approximately m first quarter of 2022 3 RMB599.5 million, which is /day for the third year; and expire in theexpected first to be funded by our and 14,9773 m quarter of 2050internal resources and bank /day from borrowings, the composition the fourth year till the end of which depends on, among of concession operation others, the then cash flows period and financing needs, prevailing interest rate and financing costs. In the event that the actual investment amount exceeds the stipulated investment amount under the relevant concession BUSINESS agreement, we may need to apply more internal resources

8 – 185 – or to seek more external financing to supplement the additional investment so as to meet our payment obligations in full and on time. As a result, our results of operations and liquidity may be negatively affected. However, as we have put in place cost control measures in different phases of a project, and our pricing has taken into account the fluctuations in construction and operation cost, it is expected that the actual investment to be incurred would not differ significantly from the estimated investment amount. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

Changshan Huaqiao Class I 375 Economic Development Standard A m Zone Wastewater Treatment BOT Project 3 (常山華僑 /day for the first year 6,149 We are responsible for financing 24 Zhangzhou, 經濟開發區污水處理BOT 3 Yunxiao Beijing Sangde, which Under constructionof concession 22 June operation; 20183 29.5 years (basedthe on construction225 m of the project. Fujian 項目) /day Sangde owns 15.0% interest 262.5 m our Directors'The best investment amount in Yunxiao Sangde 3 estimates, concessionstipulated in the relevant /day for the operation1.45 is expectedconcession operation second year; 3003 m to commence in the /day RMB/m agreement is approximately first quarter ofRMB9.2 2022 million, which is for the third year; and and expire in the 318.8 m expected to be funded by our 3 third quarterinternal of 2051 resources and bank /day from the borrowings, the composition fourth year till the end of of which depends on, among concession operation others, the then cash flows period and financing needs, prevailing interest rate and financing costs. In the event that the actual investment amount exceeds the stipulated investment amount under the relevant concession agreement, we may need to apply more internal resources or to seek more external BUSINESS financing to supplement the additional investment so as to meet our payment obligations 8 – 186 – in full and on time. As a result, our results of operations and liquidity may be negatively affected. However, as we have put in place cost control measures in different phases of a project, and our pricing has taken into account the fluctuations in construction and operation cost, it is expected that the actual investment to be incurred would not differ significantly from the estimated investment amount. The table below sets out the operational data of the concession projects in operation, which remains relatively stable for the periods DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS indicated:

For the period from the acquisition of the relevant project company in September 2019 to 31 December 2019 For the year ended 31 December 2020 Average daily Guaranteed minimum actual Weighed Project wastewater treatment Tariff treatment Breakdown by basis of Average dailyActual average tariff Project name Company volume rate volume tariff charged Utilization rate actualtariff rate Weighed treatment Breakdown by basis of Actual average tariff volume tariff charged Utilization rate tariff rate

(1) (1)

(RMB, (RMB, including (%) including VAT) (%) VA T )

Yongchun Penghu Yongchun Lvdi 8,000 m Wastewater Treatment BOT 3 3 3 (2) 3 3 (2) 3 /day for the year 3,836.7/day m As the actual wastewater 622,080.038.4 RMB1.69/m5,202.4/day m As the actual wastewater 2,668,140.052.0 RMB1.40/m Project ended 2019 treatment volume is treatment volume is (永春縣蓬壺鎮污水處理BOT 9,000 m less than the less than the 項目) 3 RMB 0.81/m guaranteed minimum, guaranteed minimum, /day for the year the actual tariff is the the actual tariff charged ended 2020 guaranteed minimum is the guaranteed 10,000 m tariff, which is minimum tariff, which 3 /day for the calculated by is calculated by remaining concession multiplying the multiplying the operation period guaranteed minimum guaranteed minimum BUSINESS wastewater treatment wastewater treatment volume by the tariff volume by the tariff rate specified in the rate specified in the 8 – 187 – relevant concession relevant concession operation agreement. operation agreement.

3 3 3 (2) 3 3 (2) 3 Nan’an Honglai Wastewater Fujian/day Lvdi 7,0004,593.7 RMB m 0.82/m/day m Same as above551,040.0 45.9 RMB1.25/m4,904.7/day m Same as above2,100,840.0 49.1 RMB1.17/m Treatment BOT Project (南安市洪瀨鎮污水處理BOT 項目) NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS For the period from the acquisition of the relevant project company in September 2019 to 31 December 2019 For the year ended 31 December 2020 Average daily Guaranteed minimum actual Weighed Project wastewater treatment Tariff treatment Breakdown by basis of Average dailyActual average tariff Project name Company volume rate volume tariff charged Utilization rate actualtariff rate Weighed treatment Breakdown by basis of Actual average tariff volume tariff charged Utilization rate tariff rate

(1) (1)

(RMB, (RMB, including (%) including VAT) (%) VA T )

Shanghang Leachate N/A 150 tonnes / day RMB42 / tonne N/A Treatment BOT Project (3) (3) (3) (3) (3) N/A N/A N/A N/A 209.1/day As the daily actual 74.7 808,038.0 RMB42/tonne (上杭縣滲濾液處理BOT項目) wastewater treatment volume is more than the guaranteed minimum wastewater treatment volume, the actual tariff charged is calculated by multiplying the actual wastewater treatment volume by the tariff rate of RMB42 per tonne. BUSINESS 8 – 188 –

Notes:

1. The weighed average tariff rate is calculated by dividing the actual tariff by the total treatment volume for the relevant period.

2. The utilization rate is calculated by dividing the average daily actual treatment volume by the designed capacity of the project. Compared with the large designed capacity of the project (which takes into account potential increase in future wastewater intake in the long run), the current average daily actual treatment volume was relatively low, resulting in a low utilization rate for the Track Record Period.

3. This is not applicable as Shanghang Leachate Treatment BOT Project only commenced concession operation in October 2020. THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. BUSINESS

Others

We also provide other ancillary services, including operation and maintenance, technical consultancy and design, and soil treatment. Such ancillary services do not include after-sales services provided to our customers under the other operating segments. For the three years ended 31 December 2020, the revenue generated from our provision of others amounted to approximately RMB1.4 million, RMB10.5 million and RMB1.6 million, respectively, representing approximately 1.4%, 3.1% and 0.2% of our total revenue respectively.

Operation and Maintenance

In 2019, we began to provide operation and maintenance services to operate and maintain wastewater treatment equipment of our customers. Our operation and maintenance services are primarily provided to existing customers which purchased wastewater treatment equipment from us, but we may also offer such services to other new customers from time to time. Our scope of operation and maintenance business includes provision of technical support and guidance, equipment testing, repair, upgrade and maintenance. Under our operation and maintenance services, we charge our customers either a quarterly or annual service fee calculated based on the actual treatment volume of the wastewater treatment equipment, or a price pre-determined at the commencement of the project based on the scope of work performed. We obtain new operation and maintenance projects through commercial negotiation or bidding process. Revenue from our operation and maintenance services can generate recurring revenue stream and stable cash flow for us. At the same time, our operation and maintenance services have broadened our service offerings and strengthened our competitive advantages in the decentralised wastewater treatment industry.

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Technical Consultancy and Design

We occasionally provide technical consultancy and design services, which primarily include the provision of preliminary technical consultancy services and equipment design services in relation to decentralised wastewater treatment. We typically charge our customers a lump-sum payment for our technical consultancy and design services, the amount of which is determined with reference to the complexities of the equipment design and the technical issues involved.

Soil Treatment

We occasionally provide soil treatment services, where we are responsible for the treatment of soil as well as leachate and solid waste in a landfill and to assist with the recovery of the ecosystem of the landfill site.

PRODUCTION

Production Process

Wastewater Treatment Equipment

The production process of wastewater treatment equipment mainly consists of the process of manufacturing the cylinder part and the lids of the wastewater treatment tank separately, and the process of combining the cylinder part and lids together. For customized wastewater treatment equipment, there is an additional process of assembling and installation of biological carrier and electromechanical devices inside the wastewater treatment tank. Depending on the complexity of the wastewater treatment equipment, the typical production time for wastewater pre-treatment equipment is around 2 days and the typical production time for customised wastewater treatment equipment ranges from 2 days to 6 days. The following diagram outlines the general manufacturing process for our wastewater treatment equipment:

Production of the cylinder part

Wrapping Demoulding Resin mixing Resin dipping of the Solidification of the and blending cylinder mould cylinder part

Production process of wastewater Production of the lids pre-treatment equipment

Combining the cylinder Resin mixing Moulding of Demoulding part and the and blending the lids of the lids lids together as wastewater treatment tank

Production process of customised wastewater treatment equipment Assembling and installation of biological carrier and electromechanical equipment inside the wastewater treatment tank

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Pipes and Pipe Fittings

The production process of our pipes and pipe fittings is a typical process of polymer processing.

The extrusion processing technique is used in the production of our pipes. The following diagram outlines the general manufacturing process for the extrusion processing technique:

Requisition Mixing Cooling and Extrusion and Quality of raw Cutting inspection Packaging materials blending shaping

The injection moulding process is used in the production of pipe fittings. The following diagram outlines the general manufacturing process for the injection moulding process:

Mixing Cooling Requisition Quality and Injection and Demoulding Packaging of raw moulding inspection materials blending shaping

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We are headquartered in Quanzhou, Fujian and produce our wastewater treatment equipment primarily in our Quangang factory which is located in Quangang District in Quanzhou, Fujian. We also have the Anping factory for the manufacturing and production of pipes and pipe fittings, which is located in Anping development zone in Quanzhou, Fujian. See “Properties — Land and Properties Owned by Us” in this section for details.

The production lines at our Quangang factory are generally operated eight hours per day and six days per week. There is generally one shift per day, with each employee working eight hours per day. The production lines at our Anping factory are generally operated 24 hours per day and six days per week. There are generally three shifts per day, with each employee working eight hours per day.

The following table sets out our production capacity, production volume and utilisation rate of our Quangang factory for the periods indicated:

Year ended 31 December 2018 2019 2020 BUSINESS

Designed Designed Designed 9 – 192 – production Production Utilisation production Production Utilisation production Production Utilisation Production factory Product type capacity (1) volume rate(2) capacity(1) volume rate(2) capacity(1) volume rate(2)

Quangang factory Wastewater 61,875.03 m38,884.7 m3 62.8% 61,875.03 m 19,069.0 m3 (3) 30.8%(3) 59,062.5 m3 17,680 m3(3) 29.9%(3) treatment tanks made of resin and fiberglass

Notes:

1. For illustrative purpose only, the designed production capacity is calculated based on the total volume of wastewater treatment tanks made of resin and fiberglass that can be manufactured per year based on our Directors’ estimation. In this connection, we assume the production hours per day to be eight hours and the production days to be 275 days for each of the two years ended 31 December 2019 (excluding Sundays and public holidays) and 262.5 days for the year ended 31 December 2020 (excluding Sundays, Lunar New Year holiday and around one-month period during which the production activities in our Quangang factory were temporarily suspended due to the COVID-19 pandemic).

2. Utilisation rate is derived by dividing the production volume for the relevant period by the designed production capacity for the relevant period.

3. We recorded lower production volume and utilisation rate for the two years ended 31 December 2020, as we received less order for manufacturing wastewater treatment tanks made of resin and fiberglass, which is mainly due to decrease in order for wastewater pre-treatment equipment. With expansion of our business and development of our wastewater treatment technologies, we had less order for wastewater pre-treatment equipment that has large storage capacity but little value-added technology, but we increased our sales for customised wastewater treatment equipment instead. As a result, for the two years ended 31 December 2020, the production volume as measured by the storage capacity of the wastewater treatment tanks decreased. The following table sets out our production capacity, production volume and utilisation rate of our Anping factory for the periods DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS indicated:

Year ended 31 December 2019 2020 Designed Designed production Production Utilisation production Production Utilisation Production factory Product type capacity(1) volume rate(2) capacity(1) volume rate(2)

Anping factory Pipes 25,271.4 10,217.5 40.4% 39,426 tonnes 6,827 tonnes 17.3% tonnes tonnes

Pipe fittings 1,036.8 477.0 46.0% 943 tonnes 300 tonnes 31.8% tonnes tonnes BUSINESS 9 – 193 –

Notes:

1. For illustrative purposes only, the designed production capacity is calculated based on the annual production capacity of our key production lines for production of pipes or pipe fittings based on our Directors’ estimation. In this connection, we assume the production hours per day to be 24 hours and the production days to be 275 days for the year ended 31 December 2019 (excluding Sundays and public holidays), 250 days for the year ended 31 December 2020 (excluding Sundays, Lunar New Year holiday and around one and a half month period during which the production activities in our Anping factory were temporarily suspended due to the COVID-19 pandemic).

2. Utilisation rate is derived by dividing the actual output for the relevant period by the designed production capacity for the relevant period.

3. We recorded lower production volume and utilisation rate for the year ended 31 December 2020 as we received less order for pipes due to the outbreak of COVID-19. THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. BUSINESS

SALES, MARKETING AND DISTRIBUTION

Our Sales and Marketing Team

We sell and market our wastewater treatment equipment and services primarily through our sales and marketing team. As of the Latest Practicable Date, we had a sales and marketing team comprising 50 employees, 42 of whom were located in Fujian and eight of whom were located in Jiangxi, Guangxi and Hainan.

Our sales personnel constantly gather market opportunities and source potential projects from a variety of channels, including local news, information from local governments, industry associations and our long-term customers. The level of participation of our sales personnel in the wastewater treatment industry and the contacts they have developed among existing and potential customers all contribute to our sales and marketing results. Our ability to meet our customers’ expectation has allowed us to develop sound relationships with and to attract and retain our customers. We also conduct marketing campaigns to promote ourselves through different offline and online channels, including trade fairs, seminars, magazines and newsletters, informational brochures and banners, as well as social media campaigns.

For the three years ended 31 December 2020, our advertising and exhibition expenses amounted to approximately RMB0.1 million, RMB0.5 million and RMB0.5 million, respectively, accounting for approximately 0.1%, 0.1% and 0.1% of our total revenue during the respective periods.

Our Pricing Policy

The pricing of our services takes into account the budgeted cost and expected profit margin. The expected profit margin is determined based on, among others, nature of project, type of treatment technologies applied, length of construction period, cost of construction, total contract value of project and location of project. In relation to concession operation services under BOT model, in addition to the above factors, we would also consider factors, including but not limited to, total investment, construction and operation cost, and revenue to be recognised to determine whether reasonable returns on investment of the project can be achieved.

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Project Procurement through Tender and Quotation

We normally win a project through participation in formal public bidding process, or by negotiable bidding with our customers. During the tender process, we would establish a tender team to prepare tender proposal and other supporting documents in accordance with the requirements specified by the issuer of the tender. Our tender team typically comprises of our sales and technical personnel, who work together to undertake an assessment on the technical requirements, costs and profitability of the project so as to submit a competitive bid for the tender.

The tables below set forth the tender success rate analysis by business segment for the period indicated:

For the year ended 31 December 2018

Decentralised Concession Sales of Sales of wastewater operation wastewater pipes and treatment services treatment pipe facility under BOT equipment Fittings construction model Others

Number of tenders submitted 43 – 35 1 10 Number of tenders won 7 – 8 nil 4 Tender success rate 16.3% – 22.9% nil 40%

For the year ended 31 December 2019

Decentralised Concession Sales of Sales of wastewater operation wastewater pipes and treatment services treatment pipe facility under BOT equipment Fittings construction model Others

Number of tenders submitted 34 15 32 1 11 Number of tenders won 15 5 17 1 3 Tender success rate 44.1% 33.3% 53.1% 100% 27.3%

For the year ended 31 December 2020

Decentralised Concession Sales of Sales of wastewater operation wastewater pipes and treatment services treatment pipe facility under BOT equipment Fittings construction model Others

Number of tenders submitted 44 30 7 nil 19 Number of tenders won 8 7 2 nil 2 Tender success rate 18.2% 23.3% 28.6% nil 10.5%

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During the Track Record Period, there were some fluctuations in our overall tender success rate as our tender success rate is affected by the following factors including, among others, (i) level of market competition, (ii) our overall strengths such as reputation and ability to serve the customers’ needs, and (iii) customers’ preferred choices of the core treatment technologies. In addition, it is our general strategy to be responsive to tender notices or invitations by submitting tenders. Our Directors believe such strategy allows us to maintain our presence in the market and be informed of the latest market developments and pricing trends which are useful to us in the future. Due to such strategy and subject to our available resources from time to time, we may submit tenders which are less competitive for certain projects, thereby leading to fluctuations in our overall tender success rates during the Track Record Period. Given our tender strategy and in view of the amount of the total contract sum in respect of the tenders won, our Directors consider that our overall tender success rate has been satisfactory in general.

For those projects that do not involve a tender process, the presales phase of the project begins when we are contacted by customers interested in placing an order. They may invite several decentralised wastewater treatment companies to provide quotations and negotiate for contract. Similar to the preparation of tender, our sales personnel will work closely with our technical personnel to assess on the technical requirements, costs and profitability of the project so as to come up with a competitive quotation.

For the three years ended 31 December 2020, our revenue derived from contracts sourced through tender accounted for approximately 38.4%, 61.9% and 77.4%, respectively, while revenue derived from contracts sourced through quotation and negotiation accounted for 61.6%, 38.1% and 22.6%, respectively.

As advised by our PRC Legal Advisers, under the Concession Rights Measures, local governments are required to select investors or operators of municipal public utilities projects through public bidding according to relevant regulations. See “Regulatory Overview — Concession in Municipal Public Utilities projects”. During the Track Record Period, for concession operation services under BOT model, we acquired four concession projects, namely, Yunxiao Wastewater Treatment BOT Project, Changshan Huaqiao Economic Development Zone Wastewater Treatment BOT Project, Yongchun Penghu Wastewater Treatment BOT Project and Nan’an Honglai Wastewater Treatment BOT Project, through acquisition of the relevant project companies who had been granted the concession rights by the relevant local government through public bidding. For one concession project, namely, Shanghang Leachate Treatment BOT Project, we acquired the concession rights by public bidding. Based on the relevant tender award notification and as advised by our PRC Legal Advisers, the grant of concession rights in respect of each of the concession projects is in full compliance with the Concession Rights Measures.

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Distribution Arrangement for Sales of Pipes and Pipe Fittings

For pipes and pipe fittings manufactured by Quanzhou Xingyuan (which was acquired by us in March 2019), they are either sold through our sales team directly, or through distributors. Quanzhou Xingyuan sold pipes and pipe fittings through distributors because this can facilitate and expand sales activities and benefit from our distributors’ established distribution channels and resources while reducing the costs of sales by using its own sales and marketing personnel. According to the F&S Report, using distributors for sale is a common practice of manufacturers for pipes and pipe fittings. Set out below the breakdown of our revenue, gross profit and gross profit margin of sales of pipes and pipe fittings by sales channels for the year ended 31 December 2020:

Year ended 31 December 2019 Year ended 31 December 2020 Gross Gross profit profit Revenue Gross profit margin Revenue Gross profit margin RMB RMB RMB RMB million % million % % million % million % %

Our sales team 56.1 53.0 18.4 64.6 32.8 53.5 62.5 16.0 82.1 29.9 Distributors 49.8 47.0 10.1 35.4 20.3 32.1 37.5 3.5 17.9 10.9

Total 105.9 100 28.5 100 26.9 85.6 100 19.5 100 22.8%

The fluctuation in revenue, gross profit and gross profit margin for the year ended 31 December 2020 was primarily due to the temporary suspension of production of pipes and pipe fittings from February to April 2020, as well as the temporary suspension of business operation by most of our distributors from February to April 2020. In particular, as we incurred idle capacity costs in the year ended 31 December 2020 as a result of the outbreak of COVID-19, the cost growth outpaced the revenue growth recognised for the year ended 31 December 2020. As a result, the gross profit margin of sales of pipes and pipe fittings by both sales channels decreased. In particular, the significant decrease in gross profit margin of sales of pipes and pipe fittings by distributors for the year ended 31 December 2020 was primarily due to a decline in demand for pipes by the distributors in the year ended 31 December 2020 due to the outbreak of COVID-19. This resulted in a reduction in production volume of pipes, which drove up the amortized fixed costs. As the cost growth outpaced the revenue growth significantly for sales of pipes and pipe fittings by distributors, the relevant gross profit margin experienced a significant decrease.

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Our distributors are generally trading companies engaged in sourcing and trading of plastic materials and other materials used in construction. They purchase the pipes and pipe fittings from Quanzhou Xingyuan and then resell them to their own customers, which include, among others, civil contractors, utility companies and real estate developers. We have a seller-buyer relationship with our distributors and our revenue is recognised when the control of our products has been transferred to our distributors. The following table sets out the number and movement of our distributors for the periods indicated:

For the year ended 31 December 2019 For the year ended 31 December 2020 As of As of 15 March 2019, Addition Reduction As of As of Addition Reduction 31 the date of acquisition during the during the 31 December 1 January during the during the December of Quanzhou Xingyuan period period 2019 2020 period period 2020

Number of distributors 51 64 2 113 113 25 38 100

We review the performance of and terms with our distributors so as to ensure that our combination of various distributors can meet our business needs in the best interest of our Group. In general, our agreement with distributors do not have an automatic renewal clause. For the year ended 31 December 2019, the increase in the number of distributors was primarily due to Quanzhou Xingyuan’s strategy to further increase its sales, and for the year ended 31 December 2020, the decrease in the number of distributors was primarily due to the impact of COVID-19 on some distributors’ business operation. During the above periods, there were both addition and reduction of distributors as our term of cooperation with distributors is generally of one to two year or one-off basis to provide more flexibility to us.

Customer I1 and Customer I2, major customers of our Group for the two years ended 31 December 2020, are also our distributors. These two companies are controlled by a former employee of Quanzhou Xingyuan (the “Former Employee”), who resigned from Quanzhou Xingyuan in 2002. As at the Latest Practicable Date, the Former Employee hold 60% equity interest in both Customer I1 and Customer I2 and is the legal representative of these two companies. Customer I1 and Customer I2 commenced business relationship with Quanzhou Xingyuan in 2019 and 2017, respectively. For the two years ended 31 December 2020, our sales to

Customer I1 and Customer I2 amounted to approximately RMB9.2 million and RMB6.5 million, respectively, representing approximately 18.4% and 20.1% of our total revenue generated by sales of pipes and pipe fittings derived from distributors for the corresponding periods.

During the period from the completion of the acquisition of Quanzhou Xingyuan and up to the Latest Practicable Date, there were three distributors (the “Relevant Distributors”), including Customer I1, whose company names contain the Chinese characters “興源”. As confirmed by the Relevant Distributors, they use “興源” in their company names as they intended to show that they are important partners and distributors of Quanzhou Xingyuan. Quanzhou Xingyuan is the exclusive supplier to one of the Relevant Distributors, while for the other two Relevant Distributors, Quanzhou Xingyaun is not their exclusive supplier. We will require the Relevant Distributors to cease the use of “興源” in their company names if they misappropriate our brand or involve in any misconducts which will damage our brand names and reputation. We have also formulated the following measures to protect our own reputation and brand image. Our sales department monitors compliance and potential breach by our

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Our Directors confirmed that during the period from the completion of the acquisition of

Quanzhou Xingyuan and up to the Latest Practicable Date, the sales to Customer I1, Customer I2 and the Relevant Distributors had been on normal commercial terms, which were fair and reasonable to our Group. In addition, to the best knowledge of our Directors after making all reasonable enquiries, our Directors confirm that, since completion of the acquisition of Quanzhou Xingyuan and up to the Latest Practicable Date, (i) all of our distributors are

Independent Third Parties; (ii) save for Customer I1 and Customer I2, none of our distributors or their beneficial owners were our former or current employees; (iii) save for the Relevant Distributors, none of our distributors or their beneficial owners had traded under our name; and (iv) none of our distributors has received any material advance or financial assistance from our Group.

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Agreementswith Distributors

We enter into agreements or purchase orders with our distributors. The terms and conditions of cooperation between our distributors and us are governed either by distribution agreements, annual sales agreements or purchase orders. Set forth below is a summary of the typical terms of our distribution agreements, annual sales agreements or purchase orders we entered into with our distributors for the two years ended 31 December 2020:

Distribution agreement Annual sales agreement Purchase order

Number of distributors As of 31 December 2019: 34 As of 31 December 2019: nil As of 31 December 2019: 79 As of 31 December 2020: 1 As of 31 December 2020: 50 As of 31 December 2020: 49

Term One year to two years subject to One year subject to renewal based Not applicable as it is one off basis. renewal based on our operating on our operating needs. needs.

Geographical exclusivity Some of our distribution Not applicable. Not applicable. agreements will set out the designated geographic territory of the distributors. The distributors may or may not have exclusive distribution rights in such geographic territory.

Minimum purchase The distribution agreements will The annual sales agreements will Not applicable. amount generally set out an annual generally set out an annual minimum purchase amount. minimum purchase amount. There are no monetary penalties There are no monetary penalties for failing to meet the minimum for failing to meet the minimum purchase amount. However, purchase amount. However, when deciding whether or not to when deciding whether or not to renew the distributorship, we renew the distributorship, we will generally take into will generally take into consideration distributors’ consideration distributors’ historical sales amount and track historical sales amount and track record. record.

Sales rebate Not applicable. Not applicable. Not applicable.

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Distribution agreement Annual sales agreement Purchase order

Return of products Save for two distribution Return of products is only allowed Return of products is only allowed agreements entered into by us in if the products are substandard, if the products are substandard, 2019, which allow return of which is in line with industry which is in line with industry products within three months practice. Upon product delivery, practice. Upon product delivery, after sale regardless of product our distributors generally have our distributors generally have quality, return of products is up to three days to inspect the up to three days to inspect the only allowed if the products are products and to request for products and to request for substandard, which is in line return due to quality issues. If no return due to quality issues. If no with industry practice. For the request has been made within request has been made within two years ended 31 December such period, the products shall such period, the products shall 2020, we did not encounter any be deemed accepted. be deemed accepted. product return by such distributors, and currently the two distribution agreements have been renewed or otherwise amended by mutual consent to the effect that return of products is only allowed if the products are substandard.

Mandate selling price Not applicable. Not applicable. Not applicable.

Restriction regarding Not applicable. Not applicable. Not applicable. appointment of sub-distributors

In relation to distributors which only entered into purchase orders with us, such purchase orders would not specify typical terms contained in the distribution agreements or the annual sales agreements, such as term of the distributorship, designated geographical territory and minimum purchase amount. Instead, the purchase orders only specify general purchase particulars such as date, purchase quantities, product specifications, price per unit, delivery date and payment method.

Selection and Management of our Distributors

The selection of our distributors is carried out by our sales department based on the following criteria:

• experience in the distribution/retailing of pipes and pipe fittings;

• creditworthiness and adequacy of financial resources; and

• geographic location and ability to develop and operate a distribution network

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To manage our distribution network, our sales department communicates with around 20 major distributors from time to time. While we maintain communication to evaluate their performance, we do not have direct control over our distributors. Instead, we primarily regulate our distributors according to the terms of the respective agreements. Generally, our distributors are not obliged to provide us with any information regarding their sales, inventory levels and customers’ demands of our products. Therefore we do not have access to such information. In addition, most distributors are generally not allowed to return any purchased products except when the products are substandard. For certain distributors, we allow them to return products within three months of the sales if these products are in good conditions. For the two years ended 31 December 2020, we did not encounter any product return by our distributors. To minimize the risk of cannibalisation and channel stuffing, we adopt the following measures in relation to our distributors: (i) when selecting our distributors, we take into consideration their respective geographic location as well as distribution network in order to mitigate the risks of excessive potential competition among our distributors; (ii) our sales department is responsible for evaluating the performance of our distributors on a regular basis. They shall arrange on-site inspections and/or communications with our distributors to monitor various aspects of their sales activities, including their distribution network, sales volume and inventory levels; (iii) we have implemented a “no return or exchange unless defective” policy for all distributors that renew their distribution agreements with us or are newly engaged by us in order to avoid the risk of inventory accumulation and channel stuffing by our distributors; and (iv) if there are specific indications and circumstances leading us to believe that our distributors are engaged in destructive competition, our sales department shall conduct an immediate investigation and we may choose not to renew the agreement with the relevant distributors upon expiry of the original term. We believe that these measures can help to mitigate the risk of cannibalisation or channel stuffing by our distributors. To our Directors’ best knowledge and belief after making reasonable enquiries, we were not aware of any material accumulation of stocks by our distributors, and we were not aware of any material cannibalisation or competition among our distributors within the same designated geographic territory since the completion of the acquisition of Quanzhou Xingyuan in March 2019 and up to the Latest Practicable Date. This observation is evidenced by the fact that the composition of our major distributors remained relatively stable since the completion of acquisition of Quanzhou Xingyuan in March 2019. In particular, the majority of our top five distributors for the period from 15 March 2019 to 31 December 2019 were still our top five distributors for the year ended 31 December 2020. The revenue contributed by our top five distributors also remained relatively stable for the respective periods, accounting for approximately 45.8% and 41.6% of our total sales to distributors, respectively. In addition, approximately 97.3% and 89.6% of the pipes and pipe fittings purchased by our top five distributors for the period from 15 March 2019 to 31 December 2019, and for the year ended 31 December 2020 were delivered to the respective addresses of the end customers instead of the distributors, respectively, which we consider as an indicator of end customers’ genuine demand for pipes and pipe fittings sold through our distributors. Based on the above and given that we have adopted a number of measures to prevent cannibalisation and channel stuffing, our Directors are of the view, and the Sole Sponsor concurs, that there is no material accumulation of stocks by the distributors or material cannibalization or competition among the distributors within the same designated geographic territory.

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In addition, our sales department monitors compliance and potential breach by our distributors of the terms of our cooperation and written agreements from time to time. In the event that a distributor breaches its agreement with us, including, for example, by misappropriating our brand and selling counterfeit products, we may, depending on the circumstances, suspend sales to such distributor or terminate its distributorship. Since the completion of the acquisition of Quanzhou Xingyuan in March 2019 and up to the Latest Practicable Date, we had not experienced any material losses or claims resulting from misconduct or illegal practices by our distributors, and we had not experienced any material cancellation of orders or bankruptcy or default of any distributors which may materially adversely affect our business.

SEASONALITY

Our wastewater treatment equipment, pipes and pipe fittings and decentralised wastewater treatment facility construction services are principally provided to contractors who undertake construction work for governmental projects, as well as local governments and its designees. As such, the sales of our equipment and services tends to be seasonal and corresponds with increased construction activities in the third and fourth quarters of each calendar year, as government budgets are typically set during the first and second quarters and infrastructure projects are then launched during the third and fourth quarters. Moreover, production and construction activities in the PRC tend to slow down during the Lunar New Year holiday period. Therefore, the demand for our wastewater treatment equipment, pipes and pipe fittings and decentralised wastewater treatment facility construction services decreased noticeably during this period as compared to other times of the year. As for our concession operation services under BOT model, we did not observe any significant seasonality as of the Latest Practicable Date and we believe that such operating segment is not closely tied to any seasonal factors. See “Risk Factors — Risks Relating to Our Business and Industry — 14. Our business is subject to seasonality and our performance for certain months may not be representative for the entire year.” for details.

CUSTOMERS

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Set out below is a breakdown of our revenue by our top five customers during the Track Record Period, together with their respective background information:

For the year ended 31 December 2018 Year when Revenue business derived Percentage relationship from of total Type of products or was first Credit Business scope or background customer revenue services provided established term of the customer (RMB’000)

Customer A 15,893 15.0% Decentralised 2018 NA(1) A state-owned enterprise which is wastewater treatment primarily engaged in construction facility construction and operation management of services water conservancy business, municipal preliminary project planning and investment in water conservancy construction and etc.

Customer B 11,168 10.5% Decentralised 2018 NA(1) A state-owned enterprise which is wastewater treatment primarily engaged in engineering facility construction and technology research and services experimental development, technology development, technology transfer, technology consulting, technical services, general construction contracting and etc.

Customer C 8,500 8.0% Sales of wastewater 2018 0-10 days A private company which is treatment equipment primarily engaged in technology development, consulting, service, transfer, computer system services, environmental monitoring and etc.

Customer D 6,958 6.6% Sales of wastewater 2018 0-10 days A state-owned enterprise which is treatment equipment primarily engaged in real estate development and operation, municipal construction, property management and etc.

Customer E/ 4,491 4.2% Decentralised 2018 2-90 days A private company which is Supplier wastewater treatment primarily engaged in research and B(2) facility construction development of environmental services, and protection technology, sales of wastewater environmental pollution control treatment equipment engineering, design and construction of urban sewage treatment engineering, environmental sanitation engineering, construction engineering and etc.

Total: 47,010 44.3%

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For the year ended 31 December 2019 Year when Revenue business derived Percentage relationship from of total Type of products or services was first Business scope or background customer revenue provided established Credit term of the customer (RMB’000)

Customer F 76,000 22.3% Decentralised wastewater 2019 NA(1) A state-owned enterprise which is treatment facility primarily engaged in real estate construction services development, public facilities and urban infrastructure construction project investment and etc.

Customer 39,104 11.4% Customer G1: Decentralised 2019 Customer G1: Customer G1: A state-owned enterprise Group G(3) wastewater treatment 10-28 days which is primarily engaged in facility construction municipal engineering construction, services and sales of pipes professional pipeline installation, and pipe fittings design, maintenance and etc.

Customer G2: Sales of pipes Customer G2: Customer G2: A state-owned enterprise and pipe fittings 10 days which is primarily engaged in production, sales and technology development of tap water, sales and maintenance of water meter and etc.

Customer G3: Sales of pipes Customer G3: Customer G3: A state-owned enterprise and pipe fittings 7-10 days which is primarily engaged in production, sales of tap water, water quality inspection and etc.

Customer G4: Sales of pipes Customer G4: Customer G4: A state-owned enterprise and pipe fittings 15 days which is primarily engaged in production, sales and technology development of tap water, sales and maintenance of water meter and etc.

Customer G5: Sales of pipes Customer G5: Customer G5: A state-owned enterprise and pipe fittings payment which is primarily engaged in settled development, design, installation, sales monthly and maintenance of water treatment equipment, provision of water quality analysis, water treatment services and etc.

Customer G6: Sales of pipes Customer G6: Customer G6: A branch company of a and pipe fittings 10 days state-owned enterprise which is primarily engaged in landscape engineering, building cleaning services, construction labor service and etc.

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Customer D 9,929 2.9% Sales of wastewater 2018 0-10 days A state-owned enterprise which is treatment equipment primarily engaged in real estate development and operation, municipal construction, property management and etc.

Customer H 9,374 2.7% Others – soil treatment 2018 NA(1) A public institution which is primarily engaged in water conservancy project management, emergency water supply, agricultural irrigation, flood control, and etc.

Customer I1/ 9,155 2.7% Sales of pipes and Customer I1: Payment upon Two private companies under the same (4) Customer I2 pipe fittings 2019 delivery control, both of which are primarily

Customer I2: engaged in wholesale of building 2017 materials, plastic products, wires, cables, manhole covers, and etc.

Total: 143,562 42.0%

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For the year ended 31 December 2020 Year when Revenue business derived Percentage relationship from of total Type of products or services was first Business scope or background customer revenue provided established Credit term of the customer (RMB’000)

Customer 55,281 8.2% Customer G1: Decentralised 2019 Customer Customer G1: A state-owned enterprise (3) Group G wastewater treatment G1: 10-28 which is primarily engaged in municipal facility construction days engineering construction, professional services and sales of pipes pipeline installation, design, maintenance and pipe fittings and etc.

Customer G2: Sales of pipes Customer Customer G2: A state-owned enterprise

and pipe fittings G2:10 which is primarily engaged in production, days sales and technology development of tap water, sales and maintenance of water meter and etc.

Customer G3: Sales of pipes Customer Customer G3: A state-owned enterprise and pipe fittings G3: 7-10 which is primarily engaged in production, days sales of tap water, water quality inspection and etc.

Customer G4: Sales of pipes Customer Customer G4: A state-owned enterprise and pipe fittings G4:15 which is primarily engaged in production, days sales and technology development of tap water, sales and maintenance of water meter and etc.

Customer G5: Sales of pipes Customer Customer G5: A state-owned enterprise and pipe fittings G5: which is primarily engaged in payment development, design, installation, sales settled and maintenance of water treatment monthly equipment, provision of water quality analysis, water treatment services and etc.

Customer J 43,680 6.5% Sales of wastewater 2020 5-50 days A state-owned enterprise which is primarily treatment equipment engaged in engineering construction, construction engineering investigation and design, water conservancy related consulting services, sales of building decoration materials and etc.

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Customer K 42,734 6.4% Decentralised wastewater 2017 N/A(1) A state-owned enterprise which is primarily treatment facility engaged in railway engineering construction services construction, highway engineering construction, municipal road engineering construction, construction of other roads, tunnels and bridges and etc.

Customer L 26,914 4.0% Sales of wastewater 2020 5-30 days A private company which is primarily treatment equipment engaged in engineering construction, construction supervision, construction engineering design, construction engineering survey, construction labor subcontracting and etc.

Customer F 24,090 3.6% Decentralised wastewater 2019 N/A(1) A state-owned enterprise which is primarily treatment facility engaged in real estate development, construction services public facilities and urban infrastructure construction project investment and etc.

Total: 192,699 28.7%

Notes:

1. There is no applicable credit term as payments shall be made upon the occurrence of specific events as set out in the relevant contracts.

2. Customer E and Supplier B are referring to the same entity.

3. Customer Group G comprises state-owned enterprises which are under common control of Quanzhou Water Group. The revenue derived from them for the respective periods are consolidated for illustrative purpose.

4. Customer I1 and Customer I2 are under the same control. The revenue derived from them are consolidated for illustrative purpose.

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Save for Customer Group G, which comprises state-owned enterprises under common control of Quanzhou Water Group, during the Track Record Period, all of our five largest customers were Independent Third Parties and none of our Directors, our Supervisors, their associates or any shareholders of our Company (who or which owned more than 5.0% of our Company’s issued share capital) had any interest in our five largest customers during the Track Record Period.

PRODUCT RETURNS AND WARRANTY

In connection with wastewater treatment equipment, where our products are defective or experience quality issues, we would provide repairing services or replace the defective parts at our cost during the warranty period, which is typically one year to three years from the date of delivery.

In connection with the pipes and pipe fittings, in the event that our customers report any quality issues to us within a specified period after delivery which is generally up to three days, we would replace the defective products for our customers at our cost. For the product return policy in relation to distributors engaged by Quanzhou Xingyuan, see “Sales, Marketing and Distribution — Distribution Arrangement for Sales of Pipes and Pipe Fittings”.

During the Track Record Period and up to the Latest Practicable Date, we did not experience any significant quality defects or product claims or returns from our customers in respect of the products supplied by us, which materially and adversely affected our financial condition nor any material complaint about product quality from our customers.

INVENTORY

Our inventory are mainly raw materials we procured, as well as equipment we manufactured which have not been delivered to our customers. As of 31 December 2018, 2019 and 2020, our inventories were approximately RMB10.1 million, RMB42.4 million and RMB43.2 million, respectively. We conduct regular inspections of our inventory levels to reduce inventory risks and to maintain appropriate levels of inventory for our business needs. We generally conduct procurement of inventory on a monthly basis and maintain a certain amount of inventory.

We have established an inventory management system to properly determine the minimum inventories of raw materials or consumable equipment accessories to be maintained based on the amount of such raw materials or accessories to be used and the relevant supplier’s conditions. We also apply software which facilities the coordination among our suppliers, our customers and us for our internal inventory management.

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RAW MATERIALS AND EQUIPMENT

The principal raw materials procured by us mainly include resin, fiberglass cloth and fiberglass yarn which we use in manufacturing of our wastewater treatment equipment, and PVC, PE and PP which we use in manufacturing of pipes and pipe fittings. The equipment procured by us includes water pumps, filter presses, MBR membrane modules, submersible mixer and aeration system which we use in manufacturing of the wastewater treatment equipment. For the three years ended 31 December 2020, our costs of raw materials and equipment were approximately RMB30.1 million, RMB107.7 million and RMB168.7 million, respectively, representing approximately 56.0%, 48.4% and 34.4% of our total costs, respectively. During the Track Record Period, we procured all our principal raw materials and equipment from suppliers located in the PRC.

Our procurement team will closely monitor the price of the raw materials. When we anticipate there will be any increase in the price of raw materials or shortage of supply thereof, we may adjust our procurement plan accordingly in order to minimise the exposure to fluctuations in prices and supply. As prices of wastewater treatment equipment and pipes and pipe fittings are specified in the relevant sales contracts, any increase in raw materials prices after the signing of sales contracts with our customers will affect our gross profit margin. In such connection, our procurement team maintains close collaboration with our production team in the formulation of the procurement plan of these raw materials on a regular basis. Our Directors believe that such close collaboration between our procurement team and our production team helps to ensure that the sales price of our wastewater treatment equipment and pipes and pipe fittings can cover the costs in purchasing raw materials from our suppliers.

SUPPLIERS

Our main suppliers include suppliers of raw materials and electromechanical equipment, as well as service providers who provide construction subcontracting or labour outsourcing services in the PRC. Purchase costs from our top five suppliers accounted for approximately 35.7%, 25.2% and 46.2% of our total purchase costs for the three years ended 31 December 2020, respectively. For the same periods, purchase costs from our largest suppliers accounted for approximately 13.4%, 9.9% and 14.4% of our total purchase costs, respectively.

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Set out below is a breakdown of our purchase costs by our top five suppliers during the Track Record Period, together with their respective background information:

For the year ended 31 December 2018 Year when business Percentage Type of product relationship Purchase of total or services was first Business scope or background of the amount purchase supplied established Credit term supplier (RMB’000) (%)

Supplier A 5,824 13.4% Labour 2018 Payments A private company which is primarily outsourcing settle engaged in labour dispatch, construction monthly project labour outsourcing, corporate management consulting and etc.

Customer E/ 2,625 6.1% Construction 2018 NA(1) A private company which is primarily Supplier B(3) subcontracting engaged in research and development of environmental protection technology, environmental pollution control engineering, design and construction of urban sewage treatment engineering, environmental sanitation engineering, construction engineering and etc.

Supplier C 2,498 5.8% Resin, glass fiber 2016 0-58 days A private company which is primarily cloth and yarn engaged in new material technology development services, new material technology promotion services, new material technology consultation and communication services and etc.

Supplier D 2,272 5.2% Dust collector 2018 5-30 days A private company which is primarily and demister engaged in manufacturing and sales of alcohol-based fuel burners, diesel burners, heavy oil burners and etc.

Supplier E 2,240 5.2% Resin 2016 Payment upon A private company which is primarily delivery engaged in styrene (stable), xylene isomer mixture, dicyclopentadiene and etc.

Total: 15,459 35.7%

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For the year ended 31 December 2019 Year when business Percentage Type of product relationship Purchase of total or services was first Business scope or background of the amount purchase supplied established Credit term supplier (RMB’000) (%)

Supplier F 18,836 9.9% Construction 2019 NA(1) A private company which is primarily subcontracting engaged in construction engineering， municipal public engineering, bridge engineering, tunnel engineering, building electrical and mechanical engineering and etc.

Supplier G1 8,685 4.5% PVC 2017 Supplier G1: Two private companies under the same and Supplier 0~2 days control, both of which are primarily (2) G2 Supplier G2: engaged in sodium hydroxide, payment formaldehyde solution, methanol, ethanol, upon styrene, polystyrene beads (expandable), delivery polyvinyl chloride, and etc.

Supplier H 8,289 4.3% Construction 2019 NA(1) A private company which is primarily subcontracting engaged in landscaping engineering, municipal public engineering, urban and road lighting engineering, mechanical and electrical equipment sales, installation services and etc.

Supplier I 6,469 3.4% High-density 2018 Payment upon A private company which is primarily polyethylene delivery engaged in hazardous chemicals business, refined oil wholesale (limited to hazardous chemicals) and etc.

Supplier J 5,949 3.1% Construction 2019 NA(1) A private company which is primarily subcontracting engaged in landscaping engineering, municipal public engineering, urban and road lighting engineering, mechanical and electrical installation project and etc.

Total: 48,228 25.2%

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For the year ended 31 December 2020 Year when business Percentage Type of product relationship Purchase of total or services was first Business scope or background of the amount purchase supplied established Credit term supplier (RMB,000) (%)

Supplier F 66,227 14.4% Construction 2019 NA(1) A private company which is primarily subcontracting engaged in construction engineering, municipal public engineering, bridge engineering, tunnel engineering, building electrical and mechanical engineering and etc.

Supplier K 53,926 11.7% Construction 2020 NA(1) A private company which is primarily subcontracting engaged in building engineering construction, highway engineering construction, tunnel engineering specialty, general contracting corresponding qualification level contracting project scope and etc.

Supplier L 40,755 8.9% Construction 2020 NA(1) A private company which is primarily subcontracting engaged in housing construction engineering, architectural decoration, garden landscape and greening engineering construction, steel structure engineering construction and etc.

Supplier M 27,832 6.0% Membrane 2020 10-60 days A private company which is primarily Bio-Reactor engaged in technology development, technical consultation, technical service and technology transfer in the field of filtration technology.

Supplier N 24,102 5.2% Construction 2019 NA(1) A private company which is primarily subcontracting engaged in housing construction engineering, municipal public engineering, garden landscape and greening engineering, water conservancy and hydropower engineering and etc. Total: 212,842 46.2%

Note:

1. There is no applicable credit term as our payment obligation only arises upon the occurrence of specific events as set out in the relevant contract. Such specific events include, for example, recognition of project progress by percentage of completion.

2. Supplier G1 and Supplier G2 are two suppliers who are under the same control. The purchase amount attributed to them are consolidated for illustrative purpose.

3. Customer E and Supplier B are referring to the same entity.

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During the Track Record Period, we settled our payments with our major suppliers mainly by bank transfer. During the Track Record Period, save for Customer E/Supplier B, none of our customers are our suppliers and vice versa. Customer E/Supplier B is an Independent Third Party which is primarily engaged in provision of wastewater treatment construction contracting services. During the Track Record Period, it supplied us with construction subcontracting services while we sold our wastewater treatment equipment and provided decentralised wastewater treatment facility construction services to it. For the three years ended 31 December 2020, the revenue derived from Customer E/Supplier B amounted to approximately RMB4.5 million, RMB1.1 million and RMB16,238.2, respectively, representing approximately 4.2%, 0.3% and 0.00% of our total revenue. For the same periods, the purchase costs from Customer E/Supplier B amounted to approximately RMB2.6 million, RMB0.4 million and nil, respectively, representing approximately 6.1%, 0.2% and nil of our total purchase costs. Our Directors confirmed that the negotiations for purchases from or sales to Customer E/Supplier B were conducted on an individual basis and that the purchases from or sales to Customer E/Supplier B were neither inter-connected nor inter-conditional with each other. During the Track Record Period, all of our five largest suppliers were Independent Third Parties and none of our Directors, our Supervisors, their associates or any shareholders of our Company (who or which to the knowledge of the Directors owned more than 5.0% of our Company’s issued share capital) had any interest in our five largest suppliers during the Track Record Period.

During the Track Record Period and up to the Latest Practicable Date, we did not experience any significant shortage of or delay in the delivery of supplies. We maintained stable business relationships with our suppliers during the Track Record Period. During the Track Record Period, we had not experienced any significant fluctuation in the prices of our supplies. For the sensitivity analysis for the costs of sales, see “Financial Information — Sensitivity Analysis” for further discussion.

Subcontractors and Subcontracting Arrangements

Our major suppliers during the Track Record Period include construction subcontracting service providers who undertake the construction portions of our projects for us. We have our own construction team, but with the increasing number of decentralised wastewater treatment facilities engineering projects and concession projects we undertook, we may also choose to subcontract the construction portions of some projects to achieve efficiency and save costs. For the three years ended 31 December 2020, construction subcontracting costs were approximately RMB3.3 million, RMB66.8 million and RMB243.0 million, respectively, representing approximately 7.5%, 35.0% and 52.8% of our total purchase costs. During the Track Record Period, all of our subcontractors for construction were Independent Third Parties.

Our major subcontractors have business relationship with us ranging from 1 year to 3 years. During the Track Record Period, our major subcontractors generally granted us a credit term which mirrors the credit term granted to us by our customers under the general contracting agreement, and we settled our payments mainly by bank transfer. Generally, our subcontracting agreements require our subcontractors to conduct the construction work, supply basic construction materials, and to bear the risk of any increase in prices of such construction materials. We make progress payments to them at various stages of project according to the payment schedule set out in the relevant subcontracting agreement. The subcontractors shall provide warranties in respect of the quality and timely completion of the construction work. In

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RESEARCH AND DEVELOPMENT

As of the Latest Practicable Date, we had a dedicated research and development team consisting of 55 employees with relevant working experience in the environmental protection industry. We established a research and development centre in Hangzhou in November 2018, which mainly engages in feasibility research and providing remote technical guidance for existing project implementations.

Our research and development efforts focus on high-efficiency, energy conservation customised to local conditions to meet wastewater discharge requirements. We focus on patentable technologies that can solve practical problems found during project execution. We would study technologies including efficient phosphorus removal, ammonia oxidation bacteria, new materials and nano technology.

We strongly support innovation and application of new techniques and know-how into our operational process. We have founded the Quanzhou Research Institute with Dr. Gao Xueli (高學理) which focuses on development and application of membrane material treatment technologies that can be used for our wastewater treatment products. Pursuant to the binding collaboration agreement entered into between our Company and Mr. Gao Xueli in December 2018, we shall provide RMB300,000 as research funding to Mr. Gao Xueli in accordance with the stipulated method set out in the collaboration agreement. The period of collaboration is two years, commencing from 1 January 2019. Pursuant to the collaboration agreement, we own the right to apply for any intellectual property derived from such collaboration, including but not limited to the patents for new techniques or know-how developed. As of the Latest Practicable Date, Mr. Gao Xueli and his research team completed the experimental works under the collaboration agreement, including but not limited to, developing modified hydrophobic and lipophilic polyester material, conducting research on the physical and chemical properties, oil absorption rate and stability of the relevant material and producing the final experimental report summarizing the plans, procedures and data of the research. As the research has been duly completed, we did not renew the collaboration agreement with Mr. Gao Xueli. We made a patent application on 5 March 2021 for the method of producing oil-absorbing sponge based on modified graphene oxide, which was the research result derived from the collaboration with Mr. Gao Xueli. As of the Latest Practicable Date, the patent application was still being examined by the China National Intellectual Property Administration. We further engaged Mr. Gao Xueli and his team to develop serialized graphene oxide materials suitable for modification of separation membranes. On 1 August 2020, we entered into a technology development agreement with Ocean University of China to engage Mr. Gao Xueli and other nine members of his team to conduct research and development on serialized graphene oxide materials suitable for modification of separation membranes. The period of collaboration is one year and four months, commencing from 1 August 2020. Pursuant to the collaboration agreement, we own the right to apply for any intellectual property derived from such collaboration. As of the Latest Practicable Date, the team has completed the first stage of project, namely, the preparation and production

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We are also collaborating with Mr. Gao Congjie (高從堦), an academician of the Chinese Academy of Engineering, and his team consisting of another five scientists, on the research of graphene oxide technologies and other to improve and develop nanostructured graphene membrane and other materials that can be applied in the wastewater treatment process. Pursuant to the binding collaboration agreement entered into between our Company and Mr. Gao Congjie’s research team in August 2018, we shall provide funds for Mr. Gao Congjie’s research team in accordance with the stipulated method set out in the collaboration agreement. The period of collaboration is two year and four months, commencing from 1 September 2018. The total investment for such research and development project is capped at RMB5 million and as of the Latest Practicable Date, we paid approximately RMB292.4 thousand to Mr. Gao Congjie’s research team as reimbursement for the initial stage of the research and development. Our Company and Mr. Gao Congjie’s research team shall be jointly entitled to rights to patent application, rights of honour and any such rights in relation to the technological achievements resulted from the collaboration. Also, both parties undertake confidentiality obligation for the technical intelligence and information provided by another. As of the Latest Practicable Date, Mr. Gao Congjie and his research team has carried out a series of research relating to the development, production and application of the nanostructured graphene membrane, including graphene oxide material and its functional derivatives. No intellectual property has been derived from such collaboration as of the Latest Practicable Date and we did not renew the collaboration agreement with Mr. Gao Congjie.

Our research and development costs (before capitalization and amortization of development costs) were approximately RMB6.8 million, RMB16.6 million and RMB23.8 million in 2018, 2019 and 2020, respectively.

Our Intelligent Wastewater Treatment Management Platform

We officially launched our Lanshen Cloud Platform in October 2019, which is a real-time project management system that allowed us to monitor and manage the operation status of the wastewater treatment facilities. During the Track Record Period, we have installed cameras, portals and sensors for five projects where we are responsible for concession operation or operation and maintenance, which allow us to provide remote support through the cloud via our Lanshen Cloud Platform. The five projects include, Yang’en University Wastewater Treatment Operation and Maintenance Project, Fuquan Highway Service Area Wastewater Treatment Operation and Maintenance Project, Quanxia Highway Service Area Wastewater Treatment Operation and Maintenance Project, Yongchun Penghu Wastewater Treatment BOT Project and Nan’an Honglai Wastewater Treatment BOT Project.

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We can remotely collect operation data from our cameras and sensors, transfer data to our operation platform through transport network, issue process instructions, monitor water quality, diagnose and repair our equipment through our remote monitor centre. Issues that do not involve replacing parts or physical contact with the hardware are generally handled remotely by our network operation centre. By utilizing the Lanshen Cloud Platform, we eliminate travel time and expenses normally incurred by sending a technician on-site for repairs. The diagram below sets forth the functions and workflow of Lanshen Cloud Platform:

Remote monitor Computers Mobile devices centre

Operation Project Real-time Alarm Remote Equipment platform management monitoring management control management

Transport Ethernet/GPRS (2G,3G,4G) Network

Hardware Sensors Cameras Portals

Decentralised wastewater treatment equipment/facility

In order to further reduce maintenance cost, enhance our customer stickiness and improve our competitiveness, from May 2020 onwards, we started to upgrade our Lanshen Cloud Platform into Lanshen Brain by upgrading or adding new features to expand our intelligent platform.

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As of the Latest Practicable Date, the relevant upgrades were mainly associated with the upgrade of the operation platform. The table below sets forth the details of the upgrades from Lanshen Cloud Platform to Lanshen Brain and the improvements or potential benefits brought to our Group:

Improvements or potential benefits Details of the upgrade brought to our Group

1. Upgrade in relation to project management and equipment management functions:

• For Lanshen Cloud Platform, the main project The upgrade in relation to project management functions are limited to client management functions can help enhance information management, project file our project management capacity and data management, equipment management and account analysis ability, reduce the chances of management. human error and improve the quality and efficiency of our operation and maintenance • For Lanshen Brain, a number of project services. management functions have been added or upgraded, including, among others, energy consumption management, vehicle and transportation management, project authority management and project operation log management.

2. Upgrade in relation to real-time monitoring, remote control and alarm management functions:

• For Lanshen Cloud Platform, the main real-time The upgrade in relation to real-time monitoring, remote control and alarm monitoring, remote control and alarm management functions are limited video management functions can help collect, monitoring, real-time data monitoring, push analyse and visualize real-time data, notification and real-time alerts. provide us with an immediate and more complete picture of the wastewater • For Lanshen Brain, a number of real-time treatment facility we operate, and more monitoring, remote control and alarm importantly, highlight areas of potential management functions have been added or concerns and alert potential safety upgraded, including, among others, real-time hazards once they arise. positioning, location-based application, water quality monitoring and analysis and data collection and automatic analysis.

See “Future Plans and [REDACTED]” for more details of the future plans in relation to the upgrade of our Lanshen Cloud Platform into Lanshen Brain.

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During the Track Record Period and as of the Latest Practicable Date, Lanshen Cloud Platform, Lanshen Brain and the relevant software application in relation to these two intelligent platforms were designed for our internal use only and therefore they were not accessible by any of our customers or the public. The users of such intelligent platforms are all employees of our Group who are in charge of the relevant projects. Therefore, as advised by the PRC Legal Advisers, based on an interview conducted with Fujian Communications Administration, which is the competent authority for supervision over intelligent platforms, the Group’s current business operations via its intelligent platforms do not involve provision of commercial internet information services, and therefore we are not required to obtain internet content provider license or other licenses for value-added telecommunications services according to the Telecommunications Regulations promulgated by the State Council and its related implementation rules.

Based on the above, our Directors believe that the upgrades from Lanshen Cloud Platform to Lanshen Brain would (i) enable us to leverage on the comprehensive technologies such as 5G, big data and artificial intelligence to collect and monitor real-time data from our equipment; (ii) support the full life circle of our products and services with data feedback and analysis; and (iii) improve the quality and efficiency of our operation and maintenance services provided to our existing customers, as well as attract and unlock additional customers. See “Future Plans and [REDACTED]” for details.

IMPACT OF THE OUTBREAK OF COVID-19 ON OUR OPERATION IN THE PRC

Since around December 2019, there has been an outbreak of the novel coronavirus, COVID-19, across different parts of the world, which was declared a Public Health Emergency of International Concern by the World Health Organisation in January 2020. Such outbreak of epidemic has endangered the health of many people and significantly disrupted travel and economy. In order to combat the COVID-19 outbreak, PRC governmental authorities have imposed various controls and restrictions, which include extension of the Chinese New Year Holiday in February 2020 and temporary suspension of work in various provinces and cities. Those who had been to key epidemic areas were subject to compulsory quarantine for a minimum of 14 days. Activities that involve crowd gathering were prohibited.

Companies located in Fujian were not allowed to resume work until 10 February 2020. According to the Notice on Delay Enterprise Resumption of Work in Fujian Province《關於延遲 ( 省內企業復工的通知》) issued by the General Office of People’s Government of Fujian Province on 29 January 2020, companies needed to remain closed until 10 February 2020. On 9 February 2020, Quanzhou Emergency Headquarter of Prevention and Control of Novel Coronavirus Disease issued Notice on the Resumption of Work During the Period of Prevention and Control of the Disease《關於做好疫情防控期間企業復工有關工作的通知》 ( ), pursuant to which, responsible local authority will set up working group to examine the company which intends to resume work and designated staff supervising such company to ensure the measures of prevent and control disease are in place. For companies resuming operation, designated staff had to be assigned to take temperature for all staff and ensure. It is mandatory for staff returning to work to wear mask before they enter into offices or factories. Companies also had the obligation to provide hygiene supplies such as disinfectants, hand sanitizers and face masks to staff as well as maintain a hygienic working environment.

Our headquarter and production facilities are located in Quanzhou, Fujian, which was one of the areas affected by the outbreak of COVID-19. In compliance with relevant public

– 219 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. BUSINESS announcements and notices issued by governmental authorities to contain the outbreak of COVID-19, we had temporarily suspended all business operation in early February 2020, and with the permission of relevant governmental authorities, we gradually resumed our business operation, the production activities in our Quangang factory and Anping factory during February to April 2020. To facilitate societal prevention and control of COVID-19 and implementation of our epidemic preventive measures so as to minimise the risk of infection by our staff, we resumed our operation in phases by allowing staff to resume duties at certain subsidiaries in batches at different times. The period of suspension of business operations of the Group was around one and a half months. Based on the written confirmation issued by Disease Control and Prevention Center of Quanzhou Fengze District and as confirmed by the PRC Legal Advisers, we had complied with the relevant laws and regulations in relation to COVID-19 pandemic. As of the Latest Practicable Date, all the operation and business of all our subsidiaries and branch offices were resumed. With the strengthened policies to contain the outbreak of COVID-19, it is anticipated that businesses and daily life of citizens will gradually resume to normal.

Impact on our business operation

As the COVID-19 outbreak has been largely contained in China since April 2020 due to strict governmental control measures and up to Latest Practicable Date, our Directors believe that the outbreak of COVID-19 would not have a long-term impact on our business operation. Based on the information currently available to our Company as of the Latest Practicable Date, our Directors assessed its impact on our Group in the following major aspects:

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However, our Directors believe that the potential impact to be brought by COVID-19 on our business will not be substantial as (i) the COVID-19 outbreak has been largely contained in China since April 2020 and up to the Latest Practicable Date due to strict governmental control measures; (ii) considering the necessity of wastewater treatment and the nature of wastewater treatment infrastructure projects, demand for our equipment and services would not drop significantly; and (iii) majority of our staff, customers and suppliers have resumed normal work by early April 2020 and our business operations have resumed since then. This is also evidenced by the facts that (i) our total revenue increased by approximately RMB329.6 million, or 96.5%, from approximately RMB341.5 million in 2019 to approximately RMB671.1 million in 2020 primarily because we commenced the construction of certain sizable projects in 2020, such as Qianpu Wastewater Treatment Plant Phase III (Expansion) Equipment Installation Project (前埔污水處理廠三期工程（擴建）施工項目機電設備安裝工程) and Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目); and (ii) in line with the growth of our revenue and the increased number of sizable projects as mentioned above, our gross profit also increased by approximately RMB61.2 million, or 51.5%, from approximately RMB118.9 million in 2019 to approximately RMB180.1 million in 2020. See “Financial Information — Period to Period Comparison of Results of Operations — Year Ended 31 December 2020 Compared to 31 December Ended 31 December 2019” for details.

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Precautionary Measures and Contingency Plan in Responses to COVID-19

We further adopted various additional precautionary measures during the COVID-19 pandemic to maintain a safe and hygienic environment for our staff which include but not limited to the following:

• requiring our staff to fill out a health declaration form which contains information of their travel history and informing our employees who have had close contact with personnel in key epidemic areas and/or in their quarantine period to return to work only after their quarantine period has expired;

• carrying out health inspections at least twice daily on our employees and report those employees who show symptoms of fever, cough and fatigue to the relevant government authorities;

• adopting additional sanitary procedures, including disinfecting work and office areas with disinfectant at least twice daily, ventilating the indoor area properly twice daily and setting up centralised drop points for disposing of used face masks; and

• conducting mandatory body temperature checks of our employees upon entry into our office or production facilities and prohibit entrance of individuals who do not wear face marks and/or display symptoms of COVID-19.

In order to implement the above additional precautionary measures, we have purchased and will further purchase additional hygienic and sanitising materials, such as surgical masks, disinfectants, gloves and hand sanitizers. With the best estimates and belief of our Directors and based on the latest information currently available to our Directors, it is expected that we may

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COMPETITION

According to the F&S Report, driven by the supportive policies in environmental protection, the decentralised wastewater treatment industry in China has grown rapidly over the past years and is expected to continue to grow at a double-digit rate during the next few years. See “Industry Overview” for details.

According to the F&S Report, the decentralised wastewater treatment market is highly fragmented with a large number of market players. We compete with a variety of market players, including large-scale integrated water solution providers, local water solution providers and wastewater treatment facilities manufacturers. See “Industry Overview — Competitive Landscape Analysis of Decentralised Wastewater Treatment Service Market” for details of the competitive landscape. Despite the competitive landscape, we believe that we could maintain and further develop our existing market position in the near future because of our competitive strengths. See “Our Competitive Strengths” in this section for details.

HEALTH, WORK SAFETY AND SOCIAL AND ENVIRONMENTAL MATTERS

Health and Work Safety Matters

We are subject to a variety of laws, regulations and standards which stipulate the requirements for maintaining safe production conditions and protecting the occupational health of employees. We provide production safety education and training programs, and a safe working environment to our employees. In addition, the design, manufacture, installation, use, inspection and maintenance of our facilities and equipment are required to conform to applicable national or industrial standards.

We aim to excel in occupational health and safety performance and achieve accident-free operation. Our safety management systems enable us to regularly review and improve our safety performance and minimise human errors. We have a designated safety officer who is responsible for overseeing the safety matters in relation to our operation. We receive regular status reports for each of our production facilities, which provide details of any security breaches or important incidents. We also provide our construction site workers with safety handbook detailing our workplace safety and health protection policies.

We have implemented safety measures at our production factories and wastewater treatment facilities to minimise the risk of injury to employees which we have documented in our safety manual. We conduct periodic inspections of our production factories and wastewater treatment facilities to monitor our compliance with existing laws and regulations. See “Regulatory Overview” for details. During the Track Record Period and up to the Latest Practicable Date, we did not experience any industry accident and none of our employees have suffered lost time injury in the course of our operation. We were not subject to any material claims for personal or property damages or for health or safety related compensation. We have

– 223 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. BUSINESS also obtained the confirmation issued by Department of Housing and Urban-Rural Development of Quanzhou, confirming that our Company has been in full compliance with the relevant PRC laws and regulations relating to work safety, that no accident has occurred in the course of our business operation and that no administrative penalties have been imposed in relation to breach of laws and regulations relating to work safety. Based on the above, our PRC Legal Advisers are of the view that the Group has complied with all the relevant health, work safety, and social and environmental laws and regulations in all material respects.

Based on the above and as advised by our PRC Legal Advisers, our Directors are of the view that we have been in compliance with all the relevant health and work safety laws and regulations in all material respects and that we are not subject to material compliance costs in this regard.

Social and Environmental Matters

Our operations are subject to various environmental, health and safety laws and regulations, including those relating to water, waste, air and noise pollution and workplace conditions. See “Regulatory Overview – PRC Laws and Regulations Relating to Environmental Protection” for details. We have adopted anti-pollution measures for the effective maintenance of environmental protection standards. As advised by our PRC Legal Advisers, we have obtained all the material environmental licenses and certificates and complied in all material respects with applicable environmental laws and regulations. During the Track Record Period and up to the Latest Practicable Date, we were not subject to any material claims or penalties in relation to PRC environmental laws, and as advised by our PRC Legal Advisers, we are not likely to encounter material difficulty or incur substantial costs for compliance in relation to social and environmental issues. Based on the above, our Directors are of the view that we have complied with all the relevant social and environmental laws and regulations in all material respects and that we are not subject to material compliance costs in relation to environmental issues. Our Directors expect that our on-going costs for complying with applicable environmental laws and regulations should not increase significantly.

Environmental and social-related risks and opportunities on our Group’s businesses, strategies and financial performance

During the Track Record Period and as of the Latest Practicable Date, we were not subject to any material claims or penalties in relation to PRC environmental laws. Nevertheless, we may be subject to environmental, including climate, and social-related risks associated with non-compliance of the relevant laws and regulation.

If our Group breaches any environmental including climate, and social related laws and regulations, it will adversely affect the reputation of our Group and hence our creditability. It may affect our business performances and reduce the competitiveness of our Group to new investors. Our business opportunities may also be negatively impacted, for instance, when tendering for a contract, our Group may be disadvantaged by the reputational damage and loss of creditability, as the tenderee may be less willing to grant the contract to us. See “Risk Factors — Risks Relating to our Business and Industry — 23. Our projects are subject to national and local legal and regulatory requirements, licenses, permits or approvals which may increase compliance costs and uncertainties” for details. In addition, changes in environmental regulations could necessitate additional capital expenditures or other compliance actions.

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In addition, there may be physical risks in relation to environmental and climate-related issues. For example, the construction and operation of our projects, including any new project that we undertake, could be affected by the potential environmental and climate-related risks such as natural disasters and severe weather conditions like floods and typhoons. See “Risk Factors — Risks Relating to Our Business and Industry — Any future occurrence of force majeure events, natural disasters or outbreaks of contagious diseases in the PRC may materially and adversely affect our business, financial condition and operating results.” for further details. In addition, types and quantities of pollutants in the wastewater that we treat may increase unexpectedly due to events beyond our control, such as the occurrence of natural disasters or industrial accidents. Should the types or amounts of pollutants in the wastewater increase significantly, the excessive pollution could damage or accelerate the deterioration of our equipment. See “Risk Factors — Risks Relating to Our Business and Industry — We may fail to meet our contractual or regulatory standards for wastewater treatment.” for details.

Set forth below is the specific analysis on the potential financial impact of climate-related risks which may arise from physical risks and transition risks, as well as the potential impact of climate-related opportunities and the mitigating steps taken by the Group in relation to climate-related risks.

Physical Risks

According to the F&S Report, the manufacturing of wastewater treatment equipment and construction of decentralised wastewater treatment facility do not consume a significant amount of water, therefore impacts arising from extreme drought events are considered to be relatively minimal to these operating activities. Also, according to F&S Report, Fujian’s annual precipitation is generally two times over that of China’s average annual precipitation, therefore it would be relatively unlikely that extreme weather events such as drought would happen in our major operating locations. Based on the above, our Directors are of the view that our business and financial operations would not be substantially impacted by water scarcity due to severe drought events.

In relation to our physical assets, our insurance plan covers the destruction of our physical assets due to extreme weather events, including but not limited to flooding and heavy downpours. In addition, our major subcontractors undertake the construction portions of our projects shall provide warranties in respect of the timely completion of the construction work, as a result the subcontractors are required to compensate us for any loss and damages incurred in any event of any delay issues, including the consequences due to extreme weather events.

Transition Risks

In relation to the potential financial impact brought by the potential climate-related regulation and policy change, the Measures for the Administration of Carbon Emissions Trading (for Trial Implementation)《碳排放權交易管理辦法 ( （試行）》), which was effective since early February 2021, is considered to be immaterial to the Company. For the year ended 31 December 2020, the Greenhouse Gas (“GHG”) emissions of the Company was approximately 5,197.9 tonnes of carbon dioxide equivalent (“tCO2e”), as advised by the PRC Legal Advisers, we are neither subject to the current threshold of 26,000 tCO2e nor falling into the list of targeted corporations (重點排放單位).

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According to F&S Report, the decentralised wastewater treatment market is primarily provisioned by local governments, therefore consumers’ preferences and requirements are mainly reflected through government policies such as the Action Plan of Water Pollution Control and the 13th Five-year Plan for Comprehensive Management of the Rural Environment in China, all of which are favourable government policies that support the growth of the industry. See “Industry Overview” for further details. These favourable government policies are one of the market drivers of the decentralised wastewater treatment service market that may drive demand for our service and products which may improve our business and financial performance. Yet, our business and financial performance is also subject to other factors such as the availability of similar facilities in the region, the demand for any facility upgrades associated with tightened government standards in water quality, and opportunities for new market players, social factors such as population growth, urbanization, improving economic conditions and environmental awareness of the relevant regions.

Opportunities and Mitigation Steps

According to F&S Report, climate change exacerbates the deterioration of water quality, which may boost the demand for decentralized wastewater treatment infrastructure. Therefore, this may provide more opportunities in further expanding our market share and increasing our brand recognition by actively seeking cooperation opportunities with government authorities or state-owned enterprises.

In relation to the potential climate-related regulation and policy changes, the regulations on wastewater treatment continue to evolve in China and have become more demanding and stringent. We consider the changes in relevant regulations and policies as an opportunity to accelerate the research and development of new technologies, products, and materials such as new bacterial strains to reduce the space required for our facilities and the by-products of the treatment process and new technologies to reduce the costs of modified membranes. The research and development can potentially reduce the construction costs, energy costs, operating costs and space utilisation of construction and operating wastewater treatment equipment.

It may also drive the adoption of favourable government policies such as the Strategic Plan of Rural Revitalization (2018-2022)《鄉村振興戰略規劃 ( （2018–2022年）》) and the Work Plan of Water Pollution Prevention and Control Action Plan《水污染防治行動計劃工作方案》 ( ). The implementation of such policies provide opportunities to the Company on improving its liquidity, such as application for green loans and technological funding.

The Group regards climate-related risks as one of the environmental-related risks and thus the Group has taken such risks into account when considering the Group’s ESG-related risk management mechanism. The Board is responsible for evaluating and determining the environmental-related (including climate-related) risks, while the development and strategy committee is responsible for implementing the ESG-related risks management mechanism.

To further mitigate the potential impact resulting from climate-related risks, the Group has formulated an Emergency Response Plan (突發事件綜合應急預案) which covers the immediate actions to be carried out during an emergency incident, including climate events such as hurricanes and heavy downpours. An early warning mechanism is adopted to notify business units on the emergencies that may occur, while an emergency response team is also set

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In addition, the Group has formulated a Crisis Management Plan (災難恢復計劃) to set out the procedures and guidelines that should be adopted during emergency situations, which include extreme climate events that constitute hazards and dangers to the Group’s property. A disaster management team which consists of the general manager and deputy general managers is set up under an emergency situation to assess the destruction caused by the climate disaster and to minimize the impact by executing the contingency plan.

In addition to the above, the Group has adopted different mitigation measures at the operational level. In relation to our physical assets, the Group has taken into consideration of climatic factors to ensure the wastewater treatment facilities are tolerant of extreme weather events including hurricanes and heavy downpours. Our wastewater treatment facilities have complied with national standards and requirements, for instance, the Load Code for the Design of Building Structures (GB50009 – 2001)《建築結構荷載規範》 ( ) to ensure structures are resilient to extreme weather conditions such as heavy winds. Meanwhile, the Group has also installed flood-resilient equipment in our wastewater treatment facilities during the design and construction phase to minimize potential damage to our assets. In addition, the Group’s insurance plan and subcontractor warranties also serve as a mitigation measure to the physical risks brought by climate change.

Governance on environmental-related risks and social responsibilities

We consider environmental, social and governance (“ESG”) essential to our development, and we are committed to complying with ESG reporting requirements upon [REDACTED]. We have adopted an ESG policy with reference to the standards of Appendix 27 to the Listing Rules to ensure our compliance with ESG issues, which shall be effective upon [REDACTED]. The ESG policy outlines, among others, (i) the appropriate risk governance on ESG matters; (ii) ESG risk management and monitoring; (iii) ESG strategy formation procedures; and (iv) the identification process of applicable key performance indicators (“KPIs”).

The Board has the overall responsibility for evaluating and determining our Group’s ESG-related risks, and setting out the ESG vision, strategy and framework. The development and strategy committee shall be responsible for implementing the ESG-related risk management and internal control mechanism, establishing and implementing the ESG policy, as well as monitoring its effectiveness. See “Directors, Supervisors and Senior Management — Board Committees — Development and Strategy Committee” for the composition of the development and strategy committee. We have also established an ESG taskforce, chaired by Mr. Lan Qiang, who is the executive Director, the vice chairman of the Board and the general manager of our Company. The ESG taskforce shall support the development and strategy committee in establishing and implementing ESG policy, as well as monitoring and collecting ESG information. The development and strategy committee, together with the ESG taskforce, shall report to the Board regularly with regard to the implementation of the ESG-related risk management and internal control mechanism to address our Group’s ESG-related risks.

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Identification, Assessment and Management of ESG-related Risks

Our Group will conduct ESG risk assessment, including stakeholder engagement and materiality assessment at least once a year to identify and review the current and potential ESG risks faced by us in our business. In accordance with the ESG policy, the Board is ultimately responsible for overseeing and making necessary improvement on existing strategy, target and internal control measures to mitigate ESG-related risks, including but not limited to the environmental, social and climate-related risks, with the support of the development and strategy committee and the ESG taskforce.

In order to manage the ESG-related risks, our Group has further identified the following material environmental key performance indicators (“KPIs”) during our business operation:

(i) pollutants discharged and emissions, which mainly include organic compounds in water, microorganisms in water and greenhouse gas emissions;

(ii) use of resources, which mainly include energy and water; and

(iii) wastes generated, which mainly include sludge and hazardous waste.

Metrics and Targets Used for Assessment of ESG-related Risks

The Board will set metrics and targets for material KPIs at the beginning of each financial year with reference to the disclosure requirements of Appendix 27 to the Listing Rules. Set forth below are some key metrics and targets for the material KPIs we have currently identified:

(i) In relation to pollutants discharged and emissions, the key metrics mainly include direct (scope 1) and energy indirect (scope 2) greenhouse gas (“GHG”) emissions in carbon dioxide equivalent, GHG emitted per revenue, chemical oxygen demand (“COD”) and biochemical oxygen demand (“BOD”) in milligram (“mg”) per litre. We target to reduce our GHG emitted per revenue, and to ensure that the treated water of our production factories meets Class I of the Integrated Wastewater Discharge Standard, for which concentration of COD and BOD does not exceed 100mg and 20mg per litre, respectively, while treated water of our decentralised wastewater treatment projects meets the Class I Standard B or above, for which concentration of COD and BOD does not exceed 60mg and 20mg per litre, respectively.

(ii) In relation to use of resources, the key metrics mainly include the amount of direct energy (diesel and petrol consumed in kilo-Watt-hour (“kWh”)) and indirect energy (electricity consumed in kWh), the volume of water in cubic meter, the average monthly costs of energy and water, the energy and water consumed per revenue. We target to reduce our consumption of energy and freshwater per revenue.

(iii) In relation to waste generated, the key metrics mainly include sludge in tonnes, hazardous waste in tonnes, and sludge and hazardous waste produced per revenue. We target to maintain 100% compliance rate in relation to sludge and hazardous waste disposal.

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(iv) Save for the abovementioned targets, we target to maintain zero environmental pollution accidents for our overall environmental matters.

INTELLECTUAL PROPERTY

Our success depends, in part, on our ability to maintain and protect our proprietary technology and to conduct our business utilising our patented technology. As of the Latest Practicable Date, we held 50 registered patents and had another 28 patent applications pending further examination in the PRC. See “Appendix VI — Statutory and General Information — B. Intellectual Property Rights — (b) Patents” for details.

As of Latest Practicable Date, we had 26 registered trademarks in the PRC that are material to our business, namely our Company’s logos. In addition, as of Latest Practicable Date we were the owner of five domain names and nine software copyrights which are material to our business. See “Appendix VI — Statutory and General Information — B. Intellectual Property Rights — (a) Trademarks” for details.

We rely primarily on a combination of patents, trademarks and trade secrets, as well as confidentiality and non-competition agreements and provisions with our employees and other business partners to safeguard our intellectual property rights. During the Track Record Period and up to the Latest Practicable Date, we have not been subject to any material infringement of our intellectual property rights. However, we cannot assure you that the protection afforded for our intellectual property rights is adequate. See “Risk Factors — Risks Relating to Our Business and Industry — 26. We may fail to adequately protect our intellectual property rights or could face claims for infringement of the intellectual property rights of others.” for details.

We have started to use “藍深” in the name of our Predecessor Company since 2004. However, we subsequently discovered, through a search conducted on the online database of Trademark Office of National Intellectual Property Administration of the PRC, that six trademarks comprising “藍深” had been registered under the names of two Independent Third Parties, one being a company established in Nanjing, PRC which mainly engaged in the manufacturing of sewage pump and submersible pump, and the other being a company established in Beijing, PRC which mainly engaged in the water treatment industry. To minimise the possible risks of potential trademark infringement or unfair competition claims, we have engaged Grandway Law Offices as our IP Legal Advisers and implemented a number of measures based on its advice, including (i) avoiding any direct use of “藍深” in our products, official websites, official accounts, and other publicity documents; (ii) trading and carrying on our business in the PRC under our Chinese full name “福建省藍深環保技術股份有限公司”, or the Chinese short name “福建藍深環保”; and (iii) provided guidelines to our employees that they should introduce our Company to our potential clients in the Chinese name of “福建省藍深環保技術股份有限公司”or“福建藍深環保”, and use such names for all external communication. We successfully registered both trademarks “藍深蘭” and “藍深藍” under class 11 and class 40. Our IP Legal Advisers advised that, pursuant to the Trademark Law of the PRC《中華人民共和國商 ( 標法》) and the Unfair Competition Law of the PRC《中華人民共和國反不正當競爭法》 ( ), if the interested party files an administrative complaint to the relevant market supervision and administration department, and it is held that infringement is established, a fine up to five times the illegal income may be imposed; if the interested party files a civil lawsuit and it is held that

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Save as disclosed above, during the Track Record Period and up to the Latest Practicable Date, we were not subject to, nor were we party to, any intellectual property rights infringement claim or litigation, and we had complied with all applicable intellectual property laws and regulations in all material respects.

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AWARDS AND RECOGNITION

We have received various awards and recognitions in the PRC for our operations and business. The following table sets forth our selected awards and recognition as of the Latest Practicable Date:

Year Award/Certificate/Recognition Award Recipient Awarding Body

2016 ISO14001 Our Company Beijing East Allreach Certification Center Co., Ltd. (北京東方縱橫認證中心有限公司)

2016 OHSAS18001 Our Company Beijing East Allreach Certification Center Co., Ltd. (北京東方縱橫認證中心有限公司)

2017 High-tech Enterprise Our Company Department of Science and Technology of Fujian (高新技術企業) (福建省科學技術廳), Department of Finance of Fujian (福建省財政廳), State Taxation Bureau of Fujian (福建省國家稅務局) and Local Taxation Bureau of Fujian (福建省地方稅務局)

2017 Leading Enterprise of Small Our Company Department of Science and Technology of Fujian Technology Giant in Fujian (福建省科學技術廳), Department of Finance of Province (福建省科技小巨人領軍 Fujian (福建省財政廳), Development and Reform 企業) Commission of Fujian (福建省發展和改革委員會) and Economy and Information Technology Commission of Fujian (福建省經濟和信息化委員會)

2017 Fujian Provincial Technological Quanzhou Department of Science and Technology of Fujian Enterprise (福建省科技型企業) Xingyuan (福建省科學技術廳)

2019 ISO9001 Our Company Beijing East Allreach Certification Center Co., Ltd. (北京東方縱橫認證中心有限公司)

2019 Leading Enterprise of Small Quanzhou Department of Science and Technology of Fujian Technology Giant in Fujian Xingyuan (福建省科學技術廳), Department of Finance of Province (福建省科技小巨人領軍 Fujian (福建省財政廳), Development and Reform 企業) Commission of Fujian (福建省發展和改革委員會) and Economy and Information Technology Commission of Fujian (福建省經濟和信息化委員會)

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Year Award/Certificate/Recognition Award Recipient Awarding Body

2019 Quanzhou City 2019 Annual Our Company Quanzhou City Science and Technology Bureau Gazelle Enterprise (泉州市2019 (泉州市科學技術局) 年度”瞪羚企業”)

2019 Fujian Province “Specialized, Our Company Department of Industrial and Information Refined, Exceptional and Technology of Fujian Innovative” Small and (福建省工業和信息化廳)and Department of Medium-sized Enterprise Finance of Fujian (Professional) (福建省”專精特新” (福建省財政廳) 中小企業（專業性）)

2019 Green Productivity Quanzhou Our Company China Association of Productivity Promotion Innovative Base (綠色生產力泉州 Centre (中國生產力促進中心協會), Landi 創新基地) International Think Tank (藍迪國際智庫）and Beiguang Media Ecological Environment Channel（北廣傳媒生態環境頻道）

2019 “Belt and Road” Green Our Company China Association of Productivity Promotion Productivity Leader Centre (中國生產力促進中心協會), Landi (“一帶一路”綠色生產力領跑者) International Think Tank (藍迪國際智庫）and Beiguang Media Ecological Environment Channel（北廣傳媒生態環境頻道）

2020 High-tech Enterprise Our Company Department of Science and Technology of Fujian (高新技術企業) (福建省科學技術廳), Department of Finance of Fujian (福建省財政廳), and Fujian Taxation Bureau of State Administration of Taxation (國家稅務總局福建稅務局)

2020 Municipal-Level Service-oriented Our Company Quanzhou City Industry and Information Bureau Manufacturing Demonstration (泉州市工業和信息化局) Enterprises in Quanzhou City (泉州市市級服務型製造示範企業)

2020 Specialized, Refined, Exceptional Our Company Ministry of Industry and Information Technology and Innovative Enterprise of of the People’s Republic of China Small Giant (專精特新小巨人企業) (中華人民共和國工業和信息化部門)

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EMPLOYEES

As of the Latest Practicable Date, we had 445 full time employees, all of whom were based in China, with 435 employees located in Fujian, five employees located in Hainan, three employees located in Jiangxi and two employees located in Guangxi. The following table shows a breakdown of our employees by function as of the Latest Practicable Date:

Number of Functions Employees

Management Centre 17 Administration and Logistics 31 Finance and Audit 26 Research and Development 55 Construction 55 Production 150 Operation 63 Sales and Marketing 48

Total 445

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We strive to maintain high recruitment standards and to provide competitive remuneration. Our remuneration packages for our employees may comprise one or more of the following elements: base salary, bonuses and other staff benefits. For the three years ended December 2020, our employee benefit expenses were approximately RMB12.5 million, RMB41.3 million and RMB54.0 million, respectively.

We are dedicated to developing the expertise and know-how of our employees through continuous training to support the development of our employees and build up their professional knowledge. We have devised a detailed training scheme to provide our employee with regular trainings on areas including but not limited to general administrative rules, financial management system, work safety and corporate culture.

Our labour union communicates closely with the management regarding labour matters and represents our employees’ interests. During the Track Record Period, we had not experienced any interruptions to our operations caused by major labour disputes and there were no complaints or claims from our employees which had a material adverse effect on our business.

Save as disclosed in “Legal Proceedings and Non-compliance — Non-compliance” in this section, we contribute to social security insurance and housing provident funds for our employees in accordance with applicable PRC laws, rules and regulations.

INSURANCE

We have purchased property insurance for our main properties, machinery and equipment, production factories, inventories and other assets owned. We have also taken out all risks construction insurance (建築工程一切險) for large-scale decentralised wastewater treatment facility construction projects and concession projects with a contract value over RMB one million where we act as the general contractor, or for projects where such insurance is specifically requested for by our customers under the relevant contracts. Furthermore, we maintain insurance for our employees working on the construction sites covering accident claims arising during the course of construction. If we engage subcontractors to carry out the construction work, we also require them to take out life and accident insurance policies for their own on-site workers. Furthermore, we have developed and implemented a safety management policy and have provided safety training for our employees. Based on the overall assessment of our present business operation risks, our Directors are of the view that our current insurance coverage is adequate and in line with the industry norm. In the future, as our operations expand, we intend to reassess such operating risk and determine if additional insurance is necessary.

During the Track Record Period and up to the Latest Practicable Date, no material workers’ compensation claims, third party liability claims or accident compensation claims have been filed against us. However, we cannot assure you that such claims will not be brought against us in the future, and we cannot assure you that our insurance can cover all risks related to our business and operations. See “Risk Factors — Risks Relating to Our Business and Industry — 19. We may subject to fines and penalties under PRC laws for failure to make full contributions for social insurance and housing provident fund for our employees.” for details.

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PROPERTIES

Our headquarter is located at Quanzhou, the PRC. Our property interests principally comprise: (i) the properties leased by us; (ii) the land related to our concession projects; and (iii) the land and properties owned by us.

Properties Leased by Us

As of the Latest Practicable Date, we leased 34 properties under the lease agreements in China with an aggregate floor area of approximately 18,433.4 sq.m.. Our lease properties are primarily used for our business, offices and staff dormitories. Set forth below is a summary of our leased properties as of the Latest Practicable Date:

Expiry date of No. Lessee Location Area Use lease term (sq.m.)

1. Fuzhou Lanshen 17th Floor, Block 1, F District, 1,621.53 office 31 July 2021 Fuzhou Software Park, No. 89 Software Avenue, Gulou District, Fuzhou, Fujian, China

2. Our Company Room 607, Block 5, Xiazhou 96.61 residential(1) 30 June 2021 Huayuan, Bihu Street, Longwen District, Zhangzhou, Fujian, China

3. Our Company Room 12-1401, Yongfeng 110 residential(1) 2 September Jiayuan, Fuzhou, Fujian, 2021 China

4. Beijing Lanshen Room 505, No. 26, Yard 18, 20 office 31 October 2021 Ke Chuang Thirteenth Street, Economical and Technical Development District, Beijing, China

5. Our Company Yifeng Road South 9,197.56 factory(2) 2 September (Qianhuang Village, 2022 Qianshao Town), Quanggang District, Quanzhou, Fujian, China

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Expiry date of No. Lessee Location Area Use lease term (sq.m.)

6. Our Company 8-9/F, Building 1, 2,614.96 office 31 May 2024 Research and Development Start-up Building, Software Park, Beifeng Street, Fengze District, Quanzhou, Fujian, China

7. Our Company Room 1201-1205, Apartment 258.95 residential(1) 30 April 2021 Block 1, Quanzhou Software Park, Quanzhou, Fujian, China

8. Our Company Room 1215, 1217, 1219, 12th 155.37 residential(1) 24 October 2022 Floor, Apartment Block 1, Quanzhou Software Park, Quanzhou, Fujian, China

9. Our Company Room 401-421, 4th Floor, 1,103.8 residential(1) 19 May 2021 Apartment Block 2, Quanzhou Software Park, Quanzhou, Fujian, China

10. Our Company 19th Floor, Block 3, Xing Hai 128 office 31 December Tian Cheng, Ganzhou 2021 District, Jiang Xi, China

11. Our Company Room 310, Block 1, Xin Hua 45 residential(1) 10 August 2022 Yuan, Jian Xin Road, Jiao Cheng District, Ningde, Fujian, China

12. Our Company Room 2208, Block 2, 89.47 residential(1) 1 September Zhongrun Jiayuan, Feng Ze 2021 District, Quanzhou, Fujian, China

13. Our Company Room 201, No. 774, Qi Shan 261.13 storage 11 May 2021 Road, Chengfeng Town, Yongtai County, Fujian, China

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Expiry date of No. Lessee Location Area Use lease term (sq.m.)

14. Our Company No.59, Beiyuan Road, 70 residential(1) 9 May 2021 Shanghang County, Fujian, China

15. Our Company No. 2102, Unit 2, Block D4, 120.96 residential(1) 30 August 2021 Wandamao, Nanning, Guangxi, China

16. Quanzhou 1st Floor, Block 3, 399 Xixian 385 storage 19 November Xingyuan Road, Beifeng Industrial 2021 District, Quanzhou, Fujian, China

17. Quanzhou 1st Floor, Block 3, 399 Xixian 215 storage 24 July 2021 Xingyuan Road, Beifeng Industrial District, Quanzhou, Fujian, China

18. Quanzhou Room 209-210, Level 1, Block 60 office 4 June 2021 Xingyuan 3, No.399 Xijiao Beifeng Industrial Park, Quanzhou, Fujian, China

19. Quanzhou Room 507, Block 19, Xia Yang 87.71 residential(1) 1 August 2021 Xingyuan New Village, San Yuan District, Sanming, Fujian, China

20. Quanzhou Room 803, 517 Xing Long 111.59 residential(1) 7 January 2022 Xingyuan Road, Huli District, Xiamen, Fujian, China

21. Quanzhou Room 10311, Level 3, Block 38.22 residential(1) 8 August 2021 Xingyuan 19, Shanshui Jincheng, No. 336, Daolixue Street, Tancheng Road, Jianyang District, Nanping, Fujian, China

22. Quanzhou Room B1402, Block 15, 74.79 residential(1) 31 March 2021(4) Xingyuan Longjiang Pearl, Xiangcheng District, Zhangzhou, Fujian, China

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Expiry date of No. Lessee Location Area Use lease term (sq.m.)

23. Quanzhou Room 1601, No.6, Area B, 70 residential(1) 6 October 2021 Xingyuan Xingfu Jiayuan, Chengxiang District, Putian, Fujian, China

24. Yunxiao Sangde No. 8, Block A, Shuangxikou 85.44 office 30 November Village Resettlement Land, 2021 Pumei, Yunxiao, Zhangzhou, Fujian, China

25. Our Company 1st and 2nd Floors, No. 620 170.09 office and 22 August 2021 Qishan Road, Chenfeng residential(1) Town, Yongtai, Fuzhou, Fujian, China

26. Yunxiao Sangde No. 211 Beiyangli, Yunxiao, 201.64 residential(1) 16 March 2021(4) Zhangzhou, Fujian, China

27. Yunxiao Sangde Room 1204, Unit B, Block 6, 122.56 residential(1) 15 November Tsinghua Garden, Yunxiao, 2021 Zhangzhou, Fujian, China

28. Our Company 601, 6th Floor and 601, 7th 170.22 residential(1) 9 April 2021 Floor, Block 23, No. 1 Wan’an West Road (District A, Jingangmindu), Ningde, Fujian, China

29. Yunxiao Sangde Room B1406, No. 1 Baolong 107.56 residential(1) 5 January 2022 General, No. 5 Baolong Road, Pumei, Yunxiao, Zhangzhou, Fujian, China

30. Our Company No. 2102, Unit 2, Block D4, 120.96 office and 30 August 2021 Wandamao, Nanning, residential(1) Guangxi, China

31. Our Company 17E, No. 125 Heningli, Huli 211 residential(1) 5 September District, Xiamen, China 2021

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Expiry date of No. Lessee Location Area Use lease term (sq.m.)

32. Hainan Lanshen Room 1507, 15th Floor, 97 office 14 August 2023 Chengxi Business Center, No. 146, Longkun South Road, Longhua District, Haikou, Hainan, China

33. Hainan Lanshen Room 602, Block 5, Jun’an 130 residential(1) 5 December Chengxi Huayuan, No. 29, 2021 Chengxi Road, Haikou, Hainan, China

34. Hainan Lanshen Room 1603, Unit 2, Block 4, 81.26 residential(1) 12 November Xiandaimeiju, Haikou, 2021 Hainan, China

Notes:

1. The leased properties were for residential purposes as such properties were primarily used as staff dormitories.

2. The property is used as our Quangang factory for manufacturing and production of wastewater treatment equipment. See “Production Factories” in this section for details.

3. We had not yet started negotiation with the relevant landlord for renewal. As the leased property is principally used as our office or staff dormitories, and replacement premise is readily available, our Directors are of the view that in the event that we are not able to renew such lease, we could relocate to new property without due cost or material disruption to our business.

4. We have negotiated with the relevant landlord for renewal, and it is expected that the lease will be renewed upon expiry.

As of the Latest Practicable Date, for item 1 to item 2 of the above leased properties with a total gross floor area of approximately 1,718.14 sq.m., the landlord had not provided us with valid title certificates or equivalent title documents evidencing their rights to lease such property to us. As of the Latest Practicable Date, we had not received any claims or notices or warning letters from the relevant governmental authorities or any third parties regarding our right to lease such property. As advised by our PRC Legal Advisers, there is a risk that such property is subject to title disputes and in such case, we may not be able to continue to use such leased property. Our Directors are of the view that, as such property was leased for office use which can be easily replaced by alternative properties in the market, our results of operations and financial condition would not be materially and adversely affected in the event that our right to use such property is disrupted.

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As of the Latest Practicable Date, all the above leased properties had not been registered with the relevant PRC authorities, primarily due to the difficulty of procuring our lessors to conduct the registration. As advised by our PRC Legal Advisers, failure to register an executed lease agreement will not affect its legality, validity or enforceability. However, we may be subject to a fine of no less than RMB1,000 and not exceeding RMB10,000 for each unregistered lease agreement if the relevant PRC government authorities require us to rectify and we fail to do so within the specified time. We estimate that the maximum penalty we may be subject to for these unregistered lease agreements will be approximately RMB340,000, which we consider to be immaterial. As of the Latest Practicable Date, we were not subject to any fees or administrative penalties by the relevant PRC authorities due to our failure to complete the lease registration procedures, and we were not aware of any challenges from third parties on our interests under the lease agreements that might affect our current occupation. As advised by our PRC Legal Advisers and based on the above, our Directors believe that the failure to register these lease agreements will not have any material adverse effect on our operations and financial condition.

Land Related to our Concession Projects

For the parcels of land related to our concession projects, the relevant local governments, being the counterparties to the concession operation agreements, have not obtained the relevant land use right certificate. As advised by our PRC Legal Advisers, we, as the operating company of the BOT projects, are not obliged to obtain the relevant land use right certificates in relation to the land related to our concession projects under BOT model and we have the right to use the land related to our concession projects for the following reasons:

(1) As advised by our PRC Legal Advisers, pursuant to the Circular on Issuing the Second Interpretation on Enterprise Accounting Principles《財政部關於印發企業會 ( 計準則解釋第2號的通知》) promulgated by the MOF, properties underlying BOT projects do not belong to the operating companies because they must be transferred back to the local governments upon expiration of the relevant concession period. As the ownership of the properties underlying our concession projects always belongs to our customers, being the relevant local governments which are Grantors of the relevant concession projects, we therefore do not need to obtain land use right certificates for those land related to our concession projects under BOT model; and

(2) As advised by our PRC Legal Advisers, pursuant to the Land Administration Law of the People’s Republic of China《中華人民共和國土地管理法》 ( ) (the “Land Administrative Law”), the local governments at or above the county level have the right to administrate land and grant and issue land use right certificates through their land administration departments. Based on these laws, the local governments at the county level or their land administration departments have the authority to administer the relevant land underlying our concession projects under BOT model and they can legally grant us the right to occupy and use such land, even if they are not in possession of the land use right certificates;

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(3) As advised by our PRC Legal Advisers, pursuant to the relevant concession operation agreement, the relevant local government, being the party to the concession operation agreement, is responsible for handling the land expropriation procedures and obtaining the land use right for the relevant land. In the event that the relevant local government fails to obtain the land use right resulting in our inability to continue to use such land, we have the contractual rights to demand indemnification for any loss or expenses which may be incurred by us as a result from absence of the land use right certificate.

(4) Our PRC Legal Advisers confirm that we have received all necessary written confirmations from the local government authorities, namely, Department of Natural Resources of Yongchun, Department of Natural Resources of Nan’an, Department of Natural Resources of Yunxiao, Department of Urban-Rural Development of Yunxiao, Department of Natural Resources of Zhangzhou Changshan Branch and Department of Planning of Changshan Huaqiao Economic Development Zone, acknowledging that we are entitled to validly occupy and use the land related to our concession projects under BOT model. Our PRC Legal Advisers further confirm that these local government authorities who issued the written confirmation to us are at the county level and as such, they are the legal administrative authorities of the land related to our concession projects and have the competent authority to issue such confirmations, and that the risks of such confirmations being challenged or revoked by high-level government authorities are remote because, in accordance with the relevant PRC laws, the bureaus of natural resources at or above the county level are authorized by law to supervise our compliance with the laws and regulations governing land administration within their administrative jurisdictions.

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For the parcels of land related to Nan’an Honglai Wastewater Treatment BOT Project and Yongchun Penghu Wastewater Treatment BOT Project, the relevant local governments, namely, the People’s Government of Honglai Town of Nan’an City and People’s Government of Penghu Town of Yongchun County entered into lease agreements with Fujian Lvdi and Yongchun Lvdi, respectively. Pursuant to the relevant lease agreements, such land was leased to us by the local governments at nil consideration. Set forth below is a summary of the relevant land leased by us:

Area Expiry date of No. Lessee Lessor Location (sq.m.) Use lease term

1. Fujian The People’s No. 99, Jiangbin 36,230.0 Nan’an Honglai 12 September Lvdi Government South Road Wastewater 2043 (1) (2) of Honglai Xilin Village, Treatment BOT Town of Honglai Town, Project (南安市洪 Nan’an City Nan’an, Fujian 瀨鎮污水處理 BOT項目)

2. Yongchun The People’s No. 307, Kongli 18,080.0 Yongchun Penghu 30 December Lvdi Government Village, Wastewater 2043 (1) (3) of Penghu Penghu Town, Treatment BOT Town of Quanzhou, Project (永春縣蓬 Yongchun Fujian 壺鎮污水處理 County BOT項目)

Note:

1. The lease agreements were entered into in 2013 prior to our acquisition of Yongchun Lvdi and Fujian Lvdi from Lvdi Environmental in 2019. The lease terms of under the lease agreements are slightly shorter than the corresponding concession periods because, to the best knowledge of our Directors, the parties’ original intention was to have the lease agreements as extra assurance of the right of Yongchun Lvdi and Fujian Lvdi to use the relevant lands at nil consideration throughout the respective concession period. However, to the best knowledge of the Directors, since the lease agreements were entered into prior to the commencement of the construction of the concession projects, it was difficult to ascertain the exact time frame for completion of the project construction as well as the commencement and expiry dates of the concession operation, hence the lease terms under the lease agreements turned out to be slightly shorter than the corresponding concession periods. Notwithstanding that the lease terms of the relevant lands are shorter than the corresponding concession operation periods, the Group is entitled to use the relevant lands throughout the corresponding concession period based on the concession operation agreements. Pursuant to the concession operation agreements, the People’s Government of Honglai Town of Nan’an City and the People’s Government of Penghu Town of Yongchun County have the legal and contractual obligation to expropriate the land and to ensure that we have the exclusive right to use and occupy such land throughout the concession operation period. On the above basis, our PRC Legal Advisers are of the view that the rights of our Group to use the relevant lands throughout the concession operation period were essentially derived from the concession operation agreements, and the matters set forth in the lease agreement are to further confirm the terms in the concession operation agreements. Therefore, as confirmed by our PRC Legal Advisers, the concession agreement alone would be sufficient to grant valid right for us to use the relevant land and the lease agreement is just additional and the absence of such lease agreement would not affect our right of use.

2. In respect of the Nan’an Honglai Wastewater Treatment BOT Project, according to an interview with the director of control section of the Department of Natural Resources of Nan’an City, being the competent land administrative authority as advised by our PRC Legal Advisers, Fujian Lvdi is entitled to use the relevant land throughout the corresponding concession periods despite the fact that the relevant lease terms are shorter than the corresponding concession periods. We have also obtained written

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confirmations from the lessor, being the People’s Government of Honglai Town of Nan’an City, confirming that the lease agreements shall be renewed upon expiry of the original lease term to cover the entire concession operation period. Based on the above and as confirmed by our PRC Legal Advisers, we are able to operate the concession projects on the relevant lands throughout the entire concession operation period.

3. In respect of the Yongchun Penghu Wastewater Treatment BOT Project, according to the interview with the deputy chief of space use control division of the Department of Natural Resources of Yongchun County, being the competent land administrative authority as advised by our PRC Legal Advisers, Yongchun Lvdi is entitled to use the relevant land throughout the corresponding concession periods despite the fact that the relevant lease terms are shorter than the corresponding concession periods. We have also obtained written confirmations from the lessor, being the People’s Government of Penghu Town of Yongchun County, confirming that the lease agreements shall be renewed upon expiry of the original lease term to cover the entire concession operation period. Based on the above and as confirmed by our PRC Legal Advisers, we are able to operate the concession projects on the relevant lands throughout the entire concession operation period.

For details regarding parcels of lands related to our concession projects under BOT model for which land use right certificates have not been obtained, see “Legal Proceedings and Non-compliance — Non-compliance and Land Title Defects”.

Land and Properties Owned by Us

Land use right certificates

As of the Latest Practicable Date, we owned the land use rights of two parcels of land in the PRC with an aggregate area of approximately 46,966.0 sq.m.. Our PRC Legal Advisers have confirmed that we have legal ownership of such land and therefore have the right to occupy, use, transfer, lease or otherwise dispose of such land.

Holder of the Expiry date of land use right Area the land use No. certificate Location (sq.m.) Use right

1. Quanzhou No.8, Xingyuan Road, 20,000.0 Industrial 21 December Xingyuan Anping, Anhai Town, 2051 Jinjiang, Fujian

2. Quanzhou N.262, Juxian Road, Anping 26,966.0 Industrial 17 September Xingyuan Development Zone, 2056 Jinjiang, Fujian

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Building ownership certificates

As of the Latest Practicable Date, we owned two buildings in the PRC with an aggregate area of approximately 21,303.9 sq.m.. Our PRC Legal Advisers have confirmed that we have legal ownership of such buildings and therefore have the right to occupy, use, transfer, lease or otherwise dispose of such land.

Holder of the building ownership Area No. certificate Location (sq.m.) Use

1. Quanzhou No.8, Xingyuan Road, Anping, Anhai Town, 12,100.35 Industrial(1) Xingyuan Jinjiang, Fujian

2. Quanzhou N.262, Juxian Road, Anping Development 9,203.57 Industrial(1) Xingyuan Zone, Jinjiang, Fujian

Note:

1. The properties are used as our Anping factory for manufacturing and production of pipes and pipe fittings. See “Production Factories” in this section for details.

As of the Latest Practicable Date, no single property interest forming part of our property activities had a carrying amount of 1.0% or more and no non-property activities had a carrying amount of 15.0% or more of our total assets, respectively. Accordingly, we are not required by Chapter 5 of the Listing Rules to value or include in this document any valuation report of our property interests. As such, according to section 6(2) of the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 31L of the Laws of Hong Kong), this document is exempted from compliance with the requirements of section 342(1)(b) of the Third Schedule to the Companies (Winding Up and Miscellaneous Provisions) Ordinance, which requires us to submit a valuation report with respect of our interests in lands and buildings.

LEGAL PROCEEDINGS AND NON-COMPLIANCE

Legal Proceedings

We may be subject to legal proceedings and claims that arise in the ordinary course of business, which primarily include business disputes brought by the suppliers, customers or other business partners with whom we cooperate.

During the Track Record Period and up to the Latest Practicable Date, we were not a party to any material litigation, arbitration or administrative proceedings, and we are not aware of any claims or proceedings pending contemplated or threatened by government authorities or third parties against us which would materially and adversely affect our business. During the Track Record Period and up to the Latest Practicable Date, our Directors are not involved in any actual or threatened material claims or litigation. However, we may face legal proceedings and claims in our business operations in the future. See “Risk Factors — Risks Relating to Our Business and Industry — 25. We may become involved in costly and time-consuming litigation and other regulatory proceedings, which require significant attention from our management” for details.

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A. Non-compliance incidents Set out below is a summary of incidents of our non-compliance with applicable laws and regulations during the Track Record Period, all of which are categorised as immaterial non-compliance pursuant to Guidance Letter HKEX-GL63-13.

Reasons of Maximum potential liabilities (where applicable), legal consequences and financial effect Rectification actions taken and status, measures to prevent Particulars of non-compliance non-compliance Latest status (if any) recurrence of such non-compliance

1. Social insurance and housing provident fund contributions for our employees

During the Track Record Period The non-compliance was As of the Latest Practicable Date, no In respect of social insurance contributions, our PRC Legal Advisers advised that the social As of the Latest Practicable Date, we have made full provisions for the and up to the Latest Practicable mainly due to (i) administrative action, fine or penalty insurance in the PRC may (a) require us to make up for the previously underpaid social underpaid social insurance fund contributions and housing provident Date, we did not make full inadvertent oversight of had been imposed by the relevant insurance contributions within a prescribed time; (b) impose a daily surcharge equivalent to fund contributions, which amounted to approximately RMB0.2 contributions to social insurance the relevant PRC laws and regulatory authorities with respect to our 0.05% of the overdue payment from the date on which the payment is overdue; and (c) in the million, RMB2.1 million and RMB-0.5 million (Note 1) for the three fund and housing provident regulations and lack of social insurance or housing provident case of the failure to make payment within the prescribed period, a penalty from one to years ended 31 December 2020, respectively. No indemnity was fund for our employees. For the comprehensive fund contributions, nor had we received three times of the amount of overdue payment shall be imposed on us. As advised by our provided by our Controlling Shareholders in this regard. three years ended 31 December understanding of the any order or been informed to settle the PRC Legal Advisers, the maximum penalty that could be imposed on us if we fail to make 2020, the social insurance fund relevant local laws and under-contributions. the payment within the prescribed time limit amounts to approximately RMB1.8 million. Quangang branch of our Company, Hainan Lanshen, Fujian Lvdi and contributions and housing regulations by the relevant However, as we have made full provision for the underpaid social insurance fund Yongchun Lvdi completed the registration formalities and opened the provident fund personnel of our human Furthermore, as of the Latest Practicable contributions, we undertake that if we receive any order from the relevant authorities housing provident fund accounts on 21 November 2018, 19 July 2019, under-contributed by us resources department, and Date, we had not been subject to any requiring us to make payment within a prescribed time limit, we will make such payment in 17 January 2020 and 20 January 2020, respectively. amounted to approximately (ii) unwillingness of some employee disputes, or any litigation or a timely manner so that the likelihood of the penalty being imposed on us is low. RMB0.2 million, RMB2.1 million of our employees to arbitration in relation to our failure to We expect to make contribution for the social insurance and housing and RMB-0.5 million (Note 1) participate in social make sufficient payment of social provident fund contributions in line with the relevant PRC laws and respectively. insurance and housing insurance and housing provident fund regulations, in the next earliest window allowed by the relevant provident scheme as some contributions. competent authorities for adjusting the applicable bases for calculation

Quangang branch of our employees may have BUSINESS of the social insurance fund and housing provident fund Company, Hainan Lanshen, already participated in the contributions, which is expected to be in or around the third quarter of Fujian Lvdi and Yongchun Lvdi new rural social insurance 2021 based on our communication with the relevant government

4 – 245 – had not completed housing scheme and some may authorities. provident fund contribution prefer a cash payment in registration formalities with the lieu of their contributions. housing provident fund management centre within 30 days from the date of establishment. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

In respect of housing provident fund contributions, our PRC Legal Advisers advised that (i) We further undertake that if we receive any order from the relevant in relation to late opening of housing provident fund accounts, the relevant housing authorities requiring us to settle the unpaid social insurance or provident fund management authority may order us to set up accounts within a prescribed housing provident fund within a prescribed time limit, we will fulfill period, failing which a penalty of an amount of over RMB10,000 and below RMB50,000 the requirements in a timely manner. would be imposed; and (ii) in relation to the failure to make full contributions of housing provident fund in the PRC may require us to make up for the previously unpaid housing In relation to social insurance and housing provident fund provident fund contributions within a prescribed time, failing which the relevant authority contributions, we have formulated written policies and procedures may apply to the People’s Court for mandatory enforcement of payment. As advised by our and strengthen our internal control. The remedial actions taken PRC Legal Advisers, no monetary penalty will be imposed but we may be subject to include, among others, adopting an internal control policy specifying compulsory enforcement actions taken by the People’s Court, including but not limited to that the registration and account opening for social insurance and attaching, seizing or auctioning the properties with value equivalent to the housing housing provident fund contributions of all employees shall be provident fund that should be paid. completed within the prescribed time limit, designating personnel with relevant knowledge to handle the matter in relation to social insurance and housing provident fund contributions and providing training to the responsible personnel. See “Internal Control and Risk Management — Measures relating to social insurance and housing provident fund contributions” in this section for details. BUSINESS 4 – 246 – NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS Particulars of Reasons of Maximum potential liabilities (where applicable), legal Rectification actions taken and status, measures to non-compliance non-compliance Latest status consequences and financial effect (if any) prevent recurrence of such non-compliance

As of the Latest Practicable Date, our As advised by our PRC Legal Advisers, where an act of violating We shall also ensure that we maintain close Company and all of our applicable labour security laws, regulations or rules is neither found by the communication with our legal advisers and consult them subsidiaries with employees had labour security administration nor reported or complained by others from time to time in relation to the contribution obtained written confirmation from the within two years, the labour security administration shall no longer requirements of social insurance fund and housing relevant competent authorities, investigate it. However, the period prescribed above shall begin from provident fund to comply with the relevant laws and namely, Fuzhou Human Resources and the date when the act of violating labour security laws, regulations regulations in the PRC. Social Security Bureau (福州市人力 or rules is terminated or fully rectified if such act is in a continuing 資源和社會保障局), Fengze District state. Our Directors believe that the provisions made for the Human Resources and Social Security underpaid social insurance fund contributions and Bureau (豐澤區人力資源和社會保障局), Therefore, if (i) it has exceeded two years after the relevant employee housing provident fund contributions will not cause any Haikou Social Insurance Bureau (海口 has resigned; and (ii) there was no complaint filed by such employee material adverse effects on our business, financial 市社會保險事業局), Yongchun Human with those two years, the risk of the employer being requested to pay condition and results of operation. In addition, our Resources and Social Security Bureau the underpaid social insurance payment is remote. Director believe that this non-compliance incident will not (永春縣人力資源和社會保障局), Nan’an have a material adverse effect on our financial Human Resources and Social Security performance during the Track Record Period up to the Bureau (南安市人力資源和社會保障局), Latest Practicable Date. Jinjiang Human Resources and Social Security Bureau (晉江市人力資源和社會保障局), Yunxiao Social Labour Insurance Management Center (雲霄縣社會勞動保險管理中心), Yunxiao Labour and Employment Management Center (雲霄縣勞動就業管理中心), BUSINESS 4 – 247 – NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS Particulars of Reasons of Maximum potential liabilities (where applicable), legal Rectification actions taken and status, measures to non-compliance non-compliance Latest status consequences and financial effect (if any) prevent recurrence of such non-compliance

Quanzhou Quangang District Human According to the Notice Regarding the Issuance of a Comprehensive Resources and Social Security Bureau Plan for Reducing the Rate of Social Insurance《關於印發降低社會保 ( (泉州市泉港區人力資源和社會保障局), 險費率綜合方案的通知》) (the “Notice”) issued by the Office of State Fengze Management Department of Council on 1 April 2019, the relevant authorities shall not taking the Quanzhou Medical Security Fund initiatives to collectively recover the historical outstanding social Management Center (泉州市醫療保障 security fund from enterprises. Based on the Notice and the facts that 基金管理中心豐澤管理部), Yongchun (i) as of the Latest Practicable Date, no administrative action, fine or Fengze Management Department of penalty had been imposed by the relevant regulatory authorities with Quanzhou Medical Security Fund respect to our social insurance or housing provident fund Management Center (泉州市醫療保障 contributions; (ii) we have made full provisions for the underpaid 基金管理中心永春管理部), Nan’an social insurance and housing provident fund contributions, and have Management Department of Quanzhou undertaken that if we receive any order from the relevant authorities Medical Security Fund Management requiring us to settle the unpaid social insurance or housing Center (泉州市醫療保障基金管理中心 provident fund, we will fulfill such requirement in a timely manner 南安管理部）, Jinjiang Management and (iii) we have taken remedial measures and enhanced our internal Department of Quanzhou Medical control policies, our PRC Legal Advisers are of the view that the Security Fund Management Center possibilities of us being fined or penalized by relevant authorities (泉州市醫療保障基金管理中心晉江管理 with respect to the failure to contribute sufficient social insurance 部), Yunxiao Management Department and housing provident fund are remote. of Zhangzhou Medical Security Center (漳州市醫療保障中心雲霄管理部), Fund Collection Division of Quangang Management Department of Quanzhou Medical Security Fund Management Center (泉州市醫療保障基金管理中心泉港管理部基金征繳科), Fuzhou Housing Provident Fund Management Center BUSINESS (福州住房公積金管理中心), 4 – 248 – NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS Particulars of Reasons of Maximum potential liabilities (where applicable), legal Rectification actions taken and status, measures to non-compliance non-compliance Latest status consequences and financial effect (if any) prevent recurrence of such non-compliance

Quanzhou Housing Provident Fund Management Center (泉州市住房公積金管理中心), Haikou Housing Provident Fund Management Bureau (海口住房公積金管理局), Jinjiang Management Department of Quanzhou Housing Provident Fund Management Center (泉州市住房公積金管理中心晉江市管理部), Yunxiao Management Department of Quanzhou Housing Provident Fund Management Center (漳州市住房公積金管理中心雲霄管理部), Quangang Management Department of Quanzhou Housing Provident Fund Management Center (泉州市住房公積金管理中心泉港管理部) confirming that there has been no records of any administrative action, fine or penalty being imposed on our Company and applicable subsidiaries with respect to this non-compliance incident. Our PRC Legal Advisers are of the view that the relevant governmental authorities are the competent authorities to issue such confirmations. BUSINESS 4 – 249 –

Note:

1. The under-contributed amount for the social insurance and housing provident fund contributions is calculated on a two-year rolling basis. For the year ended 31 December 2020, given the government policy on deduction of social insurance and housing provident fund contributions, the under-contributed amount charged to statement of comprehensive income was less than the amount credited as a result of such deduction. Therefore, the under-contributed amount for the year ended 31 December 2020 was a negative one, being RMB -0.5 million. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS Particulars of the Reasons of Maximum potential liabilities (where applicable), legal consequences Rectification actions taken and status, measures to non-compliance non-compliance Latest Status and financial effect (if any) prevent recurrence of such non-compliance

2. Failure to obtain the relevant construction permits

(1) For Yunxiao Wastewater Treatment BOT In order to expedite the We obtained written confirmations from Department As advised by our PRC Legal Advisers, according to Urban and Rural Planning While there is no legal impediment for us to obtain the Project and Changshan Huaqiao improvement of local of Housing and Urban-Rural Development of Law of the PRC, for construction work carried out without a construction work relevant permits, our ability to do so is subject to the Economic Development Zone water quality, we were Yunxiao planning permit, the relevant local government at or above the county level completion of the administrative procedures by the local Wastewater Treatment BOT Project required by the local (雲霄縣住房和城鄉建設局), Department of Natural may order the construction work to cease. If the impact on the planning caused government authorities. We have been communicating owned by Yunxiao Sangde, the government to commence Resources of Yunxiao by such construction without the permit can be eliminated, the relevant local with Department of Housing and Urban-Rural construction work for these projects project construction prior (雲霄縣自然資源局) and Department of Planning of government may order the company to rectify such impact; an additional fine Development of Yunxiao (雲霄縣住房和城鄉建設局) and commenced without construction land to obtaining the relevant Huaqiao Economic Development Zone in Changshan of not less than 5% but not more than 10% of the construction costs may be Department of Planning of Huaqiao Economic planning permit, construction work permits in relation to the (常山華僑經濟技術開發區規劃建設局), respectively, imposed. If such impact cannot be eliminated, the relevant local governments Development Zone in Changshan (常山華僑經濟技術開發區 planning permit and construction work construction work. confirming that (i) construction work for the relevant may order the construction entity to demolish such buildings or structures, or, 規劃建設局) and we expect that we can obtain the relevant commencement permit. project was commenced in order to expedite for work that cannot be demolished, it may confiscate such buildings or permits by the time of completion of the relevant improvement of local water quality; (ii) there is no structures or any incomes illegally earned from such property, and a further construction work for both Yunxiao Wastewater Treatment legal impediment for us to obtain construction land fine of not more than 10% of the construction costs may be imposed. Based on BOT Project, and Changshan Huaqiao Economic planning permit, construction work planning permit the above and as advised by our PRC Advisers, the maximum penalty that Development Zone Wastewater Treatment BOT Project, and construction work commencement permit; and could be imposed on us in relation to the failure to obtain the construction work which is expected to be in or around December 2021. (iii) commencement of construction of the relevant planning permits for Yunxiao Wastewater Treatment BOT Project and project is in line with the relevant local policies and Changshan Huaqiao Wastewater Treatment BOT Project amounts to No indemnity was provided by our Controlling we are entitled to continue our project investment approximately 10% of the construction costs. Shareholders in this regard. and construction. We have conducted interview with the Department of Housing and Urban-Rural Pursuant to Administrative Measures for the Construction Licensing of We have adopted enhanced internal control measures to Development of Yunxiao in December 2020 and Construction Projects, whoever commences construction without obtaining the avoid the recurrence of such non-compliance incidents. See further confirmed that the Group has not been and construction permit or without authorization by splitting an engineering “Internal Control and Risk Management — Measures will not be penalised due to the failure to obtain the project for the purpose of circumventing the application for the construction relating to the relevant construction permits” in this relevant construction permits of Yunxiao Wastewater permit shall be ordered by the competent permit-issuing authority to stop section for details. Treatment BOT Project. According to Article 11 of the construction and make correction within the prescribed time period. The Law of the People’s Republic of China on Urban and perpetrator shall be given a fine of not less than 1.0% but not more than 2.0% of Rural Planning (中華人民共和國城鄉規劃法) (the the project contract price if it is a project owner, or a fine of up to RMB30,000 if “Urban and Rural Planning Law”), the department it is a construction entity. Based on the above and as advised by our PRC in charge of urban and rural planning of the local Advisers, the maximum penalty that could be imposed on us in relation to the people’s governments at or above the county level failure to obtain the construction work planning permits for Yunxiao shall be responsible for administration of urban and Wastewater Treatment BOT Project and Changshan Huaqiao Wastewater rural planning in their respective administrative Treatment BOT Project amounts to approximately 2% of the project contract areas. According to Article 37 of the Urban and Rural price. Planning Law, the developing unit shall apply to the department in charge of urban and rural planning Based onBUSINESS the written confirmations issued by the relevant competent under at city or county people’s government for authorities, our PRC Legal Advisers are of the view that, we are able to construction land planning permit and construction continue the project construction and/or operation. 5 – 250 – NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS Particulars of the Reasons of Maximum potential liabilities (where applicable), legal consequences Rectification actions taken and status, measures to non-compliance non-compliance Latest Status and financial effect (if any) prevent recurrence of such non-compliance

work planning permit. According to Measures for Based on the written confirmations from Department of Natural Resources the Administration of Construction Permits for of Yunxiao, Department of Urban-Rural Development of Yunxiao and Construction Projects (建築工程施工許可管理辦法), Department of Planning of Huaqiao Economic Development Zone in the developing unit shall apply to the department in Changshan and an interview conducted with Department of Urban-Rural charge of urban and rural construction of the local Development of Yunxiao, we have not been and will not be penalised due people’s governments at or above the county level in to the failure to obtain the relevant construction permits of Yunxiao their respective administrative areas. As the Wastewater Treatment BOT Project. Department of Natural Resources of Yunxiao and Department of Planning of Huaqiao Economic Development Zone in Changsha is the relevant department in charge of urban and rural planning at county level, and Department of Housing and Urban-Rural Development of Yunxiao and Department of the Planning of Huaqiao Economic Development Zone in Changshan are the relevant departments in charge of urban and rural construction at county level, our PRC Legal Advisers are of the view that the aforesaid government authorities are the competent authorities to issue the relevant confirmations, that such confirmations provide sufficient assurance as to our entitlement to continue the project investment and construction, and that no penalty will be imposed on us going forward, and the possibilities of us being fined or penalized by the relevant competent government authorities are remote. As the above-mentioned authorities are the competent government authorities to issue the relevant confirmations, our PRC Legal Advisers are of the view that the risks of such written confirmations or assurances being challenged by higher authorities or other parties are remote. BUSINESS 5 – 251 – NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

Rectification actions taken and status, Particulars of the Reasons of Maximum potential liabilities (where applicable), legal measures to prevent recurrence of such non-compliance non-compliance Latest Status consequences and financial effect (if any) non-compliance (2) For Nan’an Honglai Wastewater Both projects are our We obtained written confirmations from As advised by our PRC Legal Advisers, according to Urban Pursuant to the share transfer agreements Treatment BOT Project owned by acquisition projects Department of Housing and Urban-Rural and Rural Planning Law of the PRC, for construction work entered into between, among others, our Fujian Lvdi and Yongchun and not our own Development of Nan’an carried out without a construction work planning permit, the Company and Lvdi Environmental in relation Penghu Wastewater Treatment construction projects. (南安市住房和城鄉建設局), Department of relevant local government at or above the county level may to the acquisition of Yongchun Lvdi and Fujian BOT Project owned by Yongchun Such non-compliance Natural Resources of Nan’an (南安市自然資源 order the construction work to cease. If the impact on the Lvdi, Lvdi Environmental agreed to indemnify Lvdi: incidents took place 局), Department of Housing and Urban-Rural planning caused by such construction without the permit can any losses or expenses in relation to the failure before we acquired Development of Yongchun (永春縣住房和城鄉建 be eliminated, the relevant local government may order the to obtain construction land planning permit, • Prior to our acquisition of the projects. None of 設局) and Department of Natural Resources of company to rectify such impact; an additional fine of not less construction work planning permit and Fujian Lvdi, construction our Directors or senior Yongchun (永春縣自然資源局), respectively, than 5.0% but not more than 10.0% of the construction costs construction work commencement permit, as work of Nan’an Honglai management was confirming that during the Track Record may be imposed. If such impact cannot be eliminated, the well as the failure to complete completion Wastewater Treatment BOT involved in the Period, no administrative penalties were relevant local governments may order the construction entity inspection and acceptance filing formalities. Project had commenced non-compliance imposed as a result of such non-compliance to demolish such buildings or structures, or, for work that without construction land incidents at the incidents. We also obtained further written cannot be demolished, it may confiscate such buildings or No indemnity was provided by our planning permit, relevant time. assurances from Department of Housing and structures or any incomes illegally earned from such Controlling Shareholders in this regard. construction work planning Urban-Rural Development of Nan’an and the property, and a further fine of not more than 10.0% of the permit and construction To the best knowledge Department of Housing and Urban-Rural construction costs may be imposed. We have adopted enhanced internal control work commencement permit. of our Directors, in Development of Yongchun, stipulating that no measures to avoid the recurrence of such Furthermore, the relevant order to accelerate the administrative penalties will be imposed on us non-compliance incidents. See “Internal completion inspection and construction and going forward, and that no enforcement Control and Risk Management — Measures acceptance filing formalities operation of the actions will be taken against us to affect our relating to the relevant construction permits” had not been duly relevant projects as provision of concession operation services or in this section for details. completed. requested by the local to affect the continuance of our ordinary government, Fujian business operation. According to Article 11 of • Prior to our acquisition of Lvdi and Yongchun the Urban and Rural Planning Law, the Yongchun Lvdi, Yongchun Lvdi commenced department in charge of urban and rural Penghu Wastewater construction without planning of the local people’s governments at Treatment BOT Project had obtaining the relevant or above the county level shall be responsible

commenced without construction work for administration of urban and rural planning BUSINESS construction work planning permits and it further in their respective administrative areas. permit and construction commenced operation According to Article 37 of the Urban and Rural 5 – 252 – work commencement permit. without completion of Planning Law, the developing unit shall apply Furthermore, the relevant the relevant to the department in charge of urban and rural completion inspection and inspection and planning under at city or county people’s acceptance filing formalities acceptance filing had not been duly formalities. completed. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

5 – 253 – relevant confirmations, our PRC Legal Advisers are of the view that the risks of such written confirmations or assurances being challenged by higher authorities or other parties are remote. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

Set out below are the land title defects related to our concession operation projects, which do not constitute non-compliance on the Group’s part, as the obligation to obtain the land use right certificates lies with the grantors of the concession projects according to the relevant concession operation agreements.

Expected holder of the relevant land use right certificate, also being the Confirmation obtained from the expected Expected grantor of grantor of the concession grantor of the land use right certificate, Status of application for the land use Particulars of the the land use right right of the relevant evidencing on our right to use the right certificate and remedial land title defect certificate project relevant land measures taken PRC Legal Advisers’ View Potential operational and financial impacts

In operation

(1) Nan’an Honglai Wastewater Treatment BOT Project (南安市洪瀨鎮污水處理BOT項目)

For Nan’an Honglai The Department of The People’s Government We have obtained written confirmation We have also been actively Based on the written confirmation Based on the concession operation Wastewater Natural Resources of of Honglai Town of Nan’an from the Department of Natural Resources communicating with the People’s issued by the People’s Government of agreement and the written confirmation Treatment BOT Nan’an City City of Nan’an City, confirming that, among Government of Honglai Town of Honglai Town of Nan’an City and the issued by the Department of Natural Project (南安市洪瀨鎮 others: Nan’an City on the status of the interview with the Department of Resources of Nan’an City and as advised by 污水處理BOT項目), As confirmed by our As advised by the PRC application for land use right Natural Resources of Nan’an City, our our PRC Legal Advisers, (i) we have been grantor of the PRC Legal Advisers, Legal Advisers, pursuant to (i) it will not impose any administrative certificate. Based on the written PRC Legal Advisers are of the view that, granted the right to use and occupy the concession right, the Department of the relevant concession penalties on Fujian Lvdi; confirmation issued by the People’s there is no material legal impediment in relevant land; (ii) such land does not count being the People’s Natural Resources of operation agreement, the Government of Honglai Town of converting the collectively-owned land as our fixed assets, and will be transferred Government of Nan’an City is legal grantor of the concession (ii) notwithstanding that the People’s Nan’an City, it is estimated that the into state-owned land and obtaining the back to the People’s Government of Honglai Honglai Town of administrative right is responsible for Government of Honglai Town of land use right certificate will be land use right certificate. Town of Nan’an City upon the expiry of the Nan’an City, did not authority of the land handling the land Nan’an City has not yet obtained the obtained by October 2021 and there is concessionBUSINESS operation period; (iii) the obtain the land use in Nan’an City and expropriation procedures land use right certificate, Fujian Lvdi no material legal impediment in Based on the written confirmation Department of Natural Resources of Nan’an right certificate in the expected grantor and obtaining the land use is entitled to continue to use the land obtaining such land use right issued by the Department of Natural City, being the competent land 5 – 255 – time because of of the land use right right certificate. Therefore, during the lease period; certificate. Resources of Nan’an City, our PRC Legal administration authority, has confirmed that personnel certificate. the People’s Government of Advisers are of the view that, the Group it will not impose any administrative adjustment which Honglai Town of Nan’an (iii) it will not enforce Fujian Lvdi to has been granted the right to use and penalties or take any forms of enforcement delayed completion City, being the grantor of discontinue its use of the land, to occupy the relevant parcels of land and actions against Fujian Lvdi to affect is use of of the relevant the concession right of the relocate or demolish the properties that the lack of land use right certificate the relevant land; and (iv) in the event that examination and project in question, is built on the land; and will not constitute a material legal we are not able to use the relevant land due approval procedures, responsible for applying for impediment to the [REDACTED] under to the failure to obtain the land use right and the conversion the relevant land use right (iv) it will not take any other forms of PRC laws and will not have material certificate, we are entitled to claim from collectively- certificate and shall be the enforcement actions against Fujian adverse effect on the Group’s business indemnification from the People’s owned land to expected holder of the Lvdi that will or may affect its use of operation and financial position. Government of Honglai Town of Nan’an City state-owned land. relevant land use right the land, its provision of the for any losses or expenses which may be certificate. concession operation services and its Under the concession operation incurred by us as a result. ordinary business operation. agreement, the People’s Government of Honglai Town of Nan’an City has the In addition, pursuant to the share transfer obligation to expropriate the land and agreement entered into between, among allow the Fujian Lvdi to have the others, our Company and Lvdi exclusive right to use and occupy such Environmental in relation to the acquisition land throughout the concession of Yongchun Lvdi and Fujian Lvdi, Lvdi operation period. Based on the above, Environmental agreed to compensate us in our PRC Legal Advisers confirm Fujian respect of any losses or expenses incurred in Lvdi is entitled to use the relevant land the event that we are not able to use the land pursuant to the terms of the concession related to the concession projects as a result operation agreement, notwithstanding from the absence of the land use right that the lease agreement may be deemed certificate. invalid because the relevant landlord has not obtained the land use right Based on the above and as advised by our certificate for the leased land. PRC Legal Advisers, our Directors are of the view that, such incident will not have a material adverse impact on our business operation and financial condition. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

According to an interview with the Our PRC Legal Advisers further confirm Department of Natural Resources of that, on the basis that the Department of Nan’an City, it is further confirmed Natural Resources of Nan’an City is the that there is no legal impediment in land administration department at obtaining the relevant land use right county level, it is the competent certificates. As advised by our PRC authority to administer the relevant land Legal Advisers, as the Department of under the Land Administration Law. Natural Resources of Nan’an City is Therefore, the risk of the confirmation the competent land administrative issued by the Department of Natural authorities at or above the county Resources of Nan’an City being level, they are competent to make the challenged or revoked by high-level relevant confirmation. In addition, the government authorities is remote. Land and Resources Bureau of Nan’an City (now known as the Department of Natural Resources of Nan’an City), being the competent land administrative authority as confirmed by our PRC Legal Advisers, issued the Pre-vetting Opinion for the Project Construction Land (建設項目用地預審意見書)on21November2012, confirming that the project conforms to the overall land use planning and urban-rural planning of the region, and meets the requirements of land management laws and regulations and

that the land should be acquired by BUSINESS way of allocation. Therefore, the overall land use planning and its

5 – 256 – compliance with the relevant laws and regulations, as well as the way of land requisition, i.e. by allocation, has already been examined and pre-approved by the competent land administration department. Based on the above confirmation and pre-approval opinion, and given that the People’s Government of Honglai Town of Nan’an City is the applicant to initiate the land registration procedures and is responsible for the management and supervision of land within its administrative areas according to the Fujian Implementing Measures, it shall have significant control over the expected timeline for issuance of the land use right certificate, and shall be the authority to confirm the expected timeline for issuance of land use right certificate. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

We have also formulated written policies and procedures and strengthened our internal control with regard to the title defects. See “Internal Control and Risk Management — Measures Relating the Land Title Defects” for details. (2) Yongchun Penghu Wastewater Treatment BOT Project (永春縣蓬壺鎮污水處理BOT項目)

For Yongchun The Department of The People’s Government We have obtained written confirmation Penghu Wastewater Natural Resources of of Penghu Town of from the Department of Natural Resources Treatment BOT Yongchun County Yongchun County of Yongchun County, confirming that, Project (永春縣蓬壺鎮 among others: 污水處理BOT項目), As confirmed by our As advised by the PRC grantor of the PRC Legal Advisers, Legal Advisers, pursuant to (i) it will not impose any administrative concession right, the Department of the relevant concession penalties on Yongchun Lvdi; being the People’s Natural Resources of operation agreement, the Government of Yongchun County grantor of the concession (ii) notwithstanding that the the People’s Penghu Town of is the legal right is responsible for Government of PenghuWe Town have of also been actively Based on the written confirmation Based on the concession operation Yongchun County, administrative handling the land Yongchun County hascommunicating not yet with the People’s issued by the People’s Government of agreement and the written confirmation did not obtain the authority of the land expropriation procedures obtained the land useGovernment right of Penghu Town of Penghu Town of Yongchun County, our issued by the Department of Natural land use right in Yongchun County and obtaining the land use certificate, Yongchun LvdiYongchun is entitled County on the status of the PRC Legal Advisers are of the view that, Resources of Yongchun County and as certificate in time and the expected right certificate. Therefore, to continue to use theapplication land during for land use right there is no material legal impediment in advised by our PRC Legal Advisers, (i) we because of personnel grantor of the land the People’s Government of the lease period; certificate. Based on the written converting the collectively-owned land have been granted the right to use and adjustment which use right certificate. Penghu Town of Yongchun confirmation issued by the People’s into state-owned land and obtaining the occupy the relevant land; (ii) such land does delayed completion County, being the grantor (iii) it will not enforce YongchunGovernment Lvdi to of Penghu Town of land use right certificate. not count as our fixed assets, and will be of the relevant of the concession right of discontinue its use of theYongchun land, to County, it is estimated that transferred back toBUSINESS the People’s Government examination and the project in question, is relocate or demolish thethe properties land use right certificate will be Based on the written confirmation of Penghu Town of Yongchun County upon approval procedures, responsible for applying for built on the land; and obtained by October 2021 and there is issued by the Department of Natural the expiry of the concession operation 5 – 257 – and the conversion the relevant land use right no material legal impediment in Resources of Yongchun County, our PRC period; (iii) the Department of Natural from collectively- certificate and shall be the obtaining such land use right Legal Advisers are of the view that, the Resources of Yongchun County, being the owned land to expected holder of the certificate. Group has been granted the right to use competent land administration authority, has state-owned land. relevant land use right and occupy the relevant parcels of land confirmed that it will not impose any certificate. and that the lack of land use right administrative penalties or take any forms of certificate will not constitute a material enforcement actions against Yongchun Lvdi legal impediment to the [REDACTED] to affect is use of the relevant land; and (iv) under PRC laws and will not have in the event that we are not able to use the material adverse effect on the Group’s relevant land due to the failure to obtain the business operation and financial land use right certificate, we are entitled to (iv) it will not take any other forms of position. claim indemnification from the People’s enforcement actions against Government of Penghu Town of Yongchun Yongchun Lvdi that will or may Under the concession operation County for any losses or expenses which affect its use of the land, its provision agreement, the People’s Government of may be incurred by us as a result. of the concession operation services Penghu Town of Yongchun County has and its ordinary business operation. the obligation to expropriate the land In addition, pursuant to the share transfer and allow Yongchun Lvdi to have the agreement entered into between, among exclusive right to use and occupy such others, our Company and Lvdi land throughout the concession Environmental in relation to the acquisition operation period. Based on the above, of Yongchun Lvdi and Fujian Lvdi, Lvdi our PRC Legal Advisers confirm that Environmental agreed to compensate us in Yongchun Lvdi is entitled to use the respect of any losses or expenses incurred in relevant land pursuant to the terms of the event that we are not able to use the land the concession operation agreement, that related to the concession projects as a result the lease agreement may be deemed from the absence of the land use right invalid because the relevant landlord certificate. has not obtained the land use right certificate for the relevant leased land. Based on the above and as advised by our PRC Legal Advisers, our Directors are of the view that, such incident will not have a material adverse impact on our business operation and financial condition. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

According to an interview with the Our PRC Legal Advisers further confirm Department of Natural Resources of that, on the basis that the Department of Yongchun County, it is further Natural Resources of Yongchun County confirmed that there is no legal is the land administration department at impediment in obtaining the relevant county level, it is the competent land use right certificates. As advised authority to administer the relevant land by our PRC Legal Advisers, as the under the Land Administration Law. Department of Natural Resources of Therefore, the risk of the confirmation Yongchun County is the competent issued by the Department of Natural land administrative authorities at or Resources of Yongchun County being above the county level, they are challenged or revoked by high-level competent to make the relevant government authorities is remote. confirmation. In addition, the Land and Resources Bureau of Yongchun County (now known as the Department of Natural Resources of Yongchun County), being the competent land administrative authority as confirmed by our PRC Legal Advisers, issued the Pre-vetting Opinion for the Project Construction Land (建設項目用地預審意見書)on11 November 2011, confirming that the project conforms to the overall land use planning and urban-rural planning of the region and meets the

requirements of land management BUSINESS laws and regulations and that the land should be acquired by way of

5 – 258 – allocation. Therefore, the overall land use planning and its compliance with the relevant laws and regulations, as well as the way of land requisition, i.e. by allocation, has been pre-examined and approved by the competent land administration department. Based on the above confirmation and pre-vetting opinion, and given that the People’s Government of Penghu Town of Yongchun County is the applicant to initiate the land registration procedures and is responsible for the management and supervision of land within its administrative area according to the Fujian Implementing Measures, it shall have significant control over the expected timeline for issuance of the land use right certificate, and shall be the authority to confirm the expected timeline for issuance of land use right certificate. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

(3) Shanghang Leachate Treatment BOT Project (上杭縣滲濾液處理BOT項目)

For Shanghang The Department of The Department of We have obtained written confirmation We have also been actively Based on the written confirmation Based on the written confirmation issued by Leachate Treatment Natural Resources of Environmental Sanitary from the Department of Natural Resources communicating with the Department issued by the Department of Natural the Department of Natural Resources of BOT Project (上杭縣 Shanghang County Administration of of Shanghang County, confirming that, of Environmental Sanitary Resources of Shanghang County, and the Shanghang County and the Department of 滲濾液處理BOT項目), Shanghang County among others: Administration of Shanghang County written confirmation issued by the Environmental Sanitary Administration of grantor of the As confirmed by our on the status of the application for Department of Environmental Sanitary Shanghang County, respectively, and as concession right, PRC Legal Advisers, According to the interview (i) the Company is entitled to use the land use right certificate. Based on the Administration of Shanghang County, advised by our PRC Legal Advisers, (i) we being the the Department of with the Department of land for the concession period and no written confirmation issued by the our PRC Legal Advisers are of the view have been granted the right to use and Department of Natural Resources of Natural Resources of administrative penalties will be Department of Environmental that, there is no material legal occupy the relevant land; (ii) the Department Environmental Shanghang County is Shanghang County, the imposed on our Company; Sanitary Administration of Shanghang impediment in converting the of Natural Resources of Shanghang County, Sanitary the legal Department of County, it is expected that the collectively-owned land into being the competent land administration Administration of administrative Environmental Sanitary (ii) the People’s Government of administrative procedures with regard state-owned land and obtaining the land authority, has confirmed that it will not Shanghang County, authority of the land Administration of Shanghang County has approved of to land use right certificate will be use right certificate. impose any administrative penalties against did not obtain the in Shanghang Shanghang County, being requisition of the relevant land and completed by December 2021 and us to affect our use of the relevant land; and land use right County and the the grantor of the the land requisition procedure has there is no material legal impediment (iii) as confirmed by the Department of certificate in time expected grantor of concession right of the been completed; and in converting the collectively-owned Environmental Sanitary Administration of because of personnel the land use right project in question, is land to state-owned land and Shanghang County, in the unlikely event adjustment which certificate. responsible for applying for (iii) the Department of Environmental obtaining the land use right thatBUSINESS we are not able to use the relevant land delayed completion the relevant land use right Sanitary Administration of certificate. due to its failure to obtain the land use right of relevant certificate and shall be the Shanghang County has been in the certificate, we are entitled to claim 5 – 259 – procedures, and the expected holder of the process of applying for the land use We have also formulated written indemnification for any losses which may be conversion from relevant land use right right certificate. policies and procedures and incurred by us as a result thereof. collectively- owned certificate. strengthen our internal control with land to state-owned regard to the title defects. See Based on the above and as advised by our land. “Internal Control and Risk PRC Legal Advisers, our Directors are of the Management Measures Relating the view that, such incident will not have a Land Title Defects” for details. material adverse impact on our business operation and financial condition. Elaboration on the basis that the DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS procedural requirements for Confirmation obtained from the competent conversion from collectively-owned Particulars of the authority, evidencing on our right to use the land to state-owned land are not land title defect relevant land applicable PRC Legal Advisers’ View Potential operational and financial impacts

Under construction

(4) Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目)

For Yunxiao We have obtained written confirmation jointly Based on the confirmation issued in Based on the written confirmation Based on the relevant concession operation Wastewater issued by the Department of Natural December 2020 by the Department of issued by the Department of Natural agreement, the written confirmation jointly Treatment BOT Resources of Yunxiao County and The Natural Resources of Yunxiao County, Resources of Yunxiao County in issued by the Department of Natural Project (雲霄縣污水 Department of Urban-Rural Development of being the competent authority as December 2020, our PRC Legal Resources of Yunxiao County and the 處理BOT項目), Yunxiao County in September 2020, advised by our PRC Legal Advisers, Advisers are of the view that, it is not Department of Urban-Rural Development of grantor of the confirming that, among others: the procedural requirements of necessary to convert the Yunxiao County and as advised by our PRC concession right, registration as state-owned land and collectively-owned land into Legal Advisers, (i) we have been granted the being the (i) no administrative penalties or issuance of land use rights certificates state-owned land, and we are entitled right to use and occupy the parcel of land Department of enforcement actions have been imposed are not applicable based on the to use such land during the under the relevant concession operation Urban-Rural on or taken against Yunxiao Sangde; followings: concession period. agreement; (ii) such parcel of land does not Development of count as our fixed assets, and will be Yunxiao County, did (ii) there has been no material (i) According to Article 4 of the Land Based on the written confirmation transferred back to the Department of not obtain the land non-compliance on the part of Yunxiao Administration Law, construction jointly issued by the Department of Urban-Rural Development of Yunxiao County use right certificate Sangde; and land refers to the land for Natural Resources of Yunxiao County upon the expiry of the relevant concession

as the procedural construction of buildings and and the Department of Urban-Rural period; (iii) the Department of Natural BUSINESS requirement for (iii) the project is in line with the local policy properties. However, in relation to Development of Yunxiao County in Resources of Yunxiao County, being the

6 – 260 – conversion from and the local government authorities are Yunxiao Wastewater Treatment September 2020, our PRC Legal competent land administration authority, collectively-owned supportive of the project. BOT Project, the project Advisers are of the view that, the confirms that no administrative penalties or land to state-owned construction does not involve Group has been granted the right to enforcement actions have been imposed on or land and issuance of construction of buildings or use and occupy the relevant parcels taken against us and that there has been no land use right properties. Most of the of land and that the lack of land use material non-compliance; and (iv) in the event certificate are not decentralised wastewater right certificate will not constitute a that we are not able to use such parcel of land applicable. treatment facilities are buried material legal impediment to the due to the failure to obtain the land use right underground and only a small [REDACTED] under PRC laws and certificate, we are entitled to claim number of ground structures such will not have material adverse effect indemnification from the Department of as electricity distribution devices on the Group’s business operation Urban-Rural Development of Yunxiao County are required to be built, which and financial position. for any losses or expenses which may be only occupy a very small incurred by us as a result. proportion of land and do not Our PRC Legal Advisers further constitute “buildings” or confirm that, on the basis that the “properties” for which Department of Natural Resources of construction land is required; Yunxiao County is the land administration department at county level, it is the competent authority to administer the relevant land under the Land Administration Law. Therefore, the risk of the confirmation being challenged or revoked by high-level government authorities is remote. Elaboration on the basis that the DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS procedural requirements for Confirmation obtained from the competent conversion from collectively-owned Particulars of the authority, evidencing on our right to use the land to state-owned land are not land title defect relevant land applicable PRC Legal Advisers’ View Potential operational and financial impacts

We have obtained a second written (ii) According to Article 5 of the In addition, pursuant to the share transfer confirmation issued by the Department of Opinions of Fujian People’s agreement entered into between, among Natural Resources of Yunxiao County in Government on Accelerating the others, our Company and Beijing Sangde in December 2020, confirming that, among Construction of Domestic relation to the acquisition of Yunxiao Sangde, others, (i) Yunxiao Wastewater Treatment BOT Wastewater Treatment Facilities in Beijing Sangde agreed to compensate us in Project mainly involves construction of Villages and Towns (福建省人民政府 respect of any losses or expenses incurred in underground pipeline network and 關於加快推進鄉鎮生活污水處理設施 the event that we are not able to use the decentralised wastewater treatment 建設的實施意見), government parcels of land related to the concession equipment; (ii) as the underground pipeline departments at all levels, including projects as a result from the absence of the network is mainly constructed beneath the departments in charge of land land use right certificate. roads of rural residential areas, it does not resources should simplify the involve land requisition process; and (iii) as approval procedures in relation to Based on the above and as advised by our the decentralised wastewater treatment the construction of domestic PRC Legal Advisers, our Directors are of the equipment is mostly buried underground, the wastewater treatment facilities in view that, such incident will not have a procedural requirements for converting the villages and towns, including material adverse impact on our business agricultural land into construction land, as procedures regarding its planning, operation and financial condition. well as the relevant land use procedures, are site selection and land use; not applicable. Pursuant to the interview

conducted with the Department of Natural (iii)According to the Pre-vetting BUSINESS Resources of Yunxiao County, the relevant Opinion for the Project Construction

6 – 261 – land use procedures refer to the conversion Land (建設項目用地預審意見書) from collectively-owned land to state-owned issued in September 2017 by the land and issuance of land use right certificate. Department of Land and Resources of Yunxiao County, being the then competent land administrative authority as confirmed by our PRC Legal Advisers, Yunxiao Wastewater Treatment BOT Project adopts deep-buried design and construction plan, and the original appearance of the land will be restored immediately after the completion of the project construction. Therefore, there is no need to go through the procedures for the conversion of agricultural land if no permanent buildings are to be built on top of the relevant land; Elaboration on the basis that the DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS procedural requirements for Confirmation obtained from the competent conversion from collectively-owned Particulars of the authority, evidencing on our right to use the land to state-owned land are not land title defect relevant land applicable PRC Legal Advisers’ View Potential operational and financial impacts

(iv) According to the written confirmation issued by and the interview conducted with the Department of Natural Resources of Yunxiao County, being the competent land administrative authority as confirmed by our PRC Legal Advisers, it is confirmed that the concession project mainly involves construction of pipeline network and decentralised wastewater treatment equipment buried underground, the above-ground land can be restored to agricultural land and the land use type would not be affected. In addition, given that the project

is one of the key livelihood BUSINESS projects, and that each of the

6 – 262 – scattered land for the decentralised facilities to be buried beneath is relatively small in size, the procedural requirement for converting the agricultural land into construction land is not applicable, as well as registration as state-owned land and issuance of land use right certificate; and

(v) As the Department of Natural Resources of Yunxiao County is the competent land administrative authorities, our PRC Legal Advisers are of the view that it is the competent authority to issue the relevant confirmations.

We have also formulated written policies and procedures and strengthen our internal control with regard to the title defects. See “Internal Control and Risk Management – Measures Relating the Land Title Defects” for details. Elaboration on the basis that the DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS procedural requirements for Confirmation obtained from the competent conversion from collectively-owned Particulars of the authority, evidencing on our right to use the land to state-owned land are not land title defect relevant land applicable PRC Legal Advisers’ View Potential operational and financial impacts

(5) Changshan Huaqiao Economic Development Zone Wastewater Treatment BOT Project (常山華僑經濟開發區污水處理BOT項目)

For Changshan We have obtained written confirmation jointly Based on the confirmation issued in Based on the written confirmation Based on the relevant concession operation Huaqiao Economic issued by the Department of Natural December 2020 by the Department of issued by the Department of Natural agreement, the written confirmation issued by Development Zone Resources of Zhangzhou Changshan Branch Natural Resources of Zhangzhou Resources of Zhangzhou Changshan the Department of Natural Resources of Wastewater and the Department of Planning of Changshan Branch, being the Branch in December 2020, our PRC Zhangzhou Changshan Branch and the Treatment BOT Changshang Huaqiao Economic Development competent authority as advised by Legal Advisers are of the view that, it Department of Planning of Changshang Project (常山華僑經 Zone in September 2020, confirming that, the PRC Legal Advisers, the is not necessary to convert the Huaqiao Economic Development Zone and as 濟開發區污水處理 among others: procedural requirements of collectively-owned land into advised by our PRC Legal Advisers, (i) we BOT項目), grantor registration as state-owned land and state-owned land, and we are entitled have been granted the right to use and occupy of the concession (i) no administrative penalties or issuance of land use rights certificates to use such land during the the parcel of land under the relevant right, being the enforcement actions have been imposed are not applicable based on the concession period. concession operation agreement; (ii) such Department of on or taken against Yunxiao Sangde; followings: parcel of land does not count as our fixed Planning of Based on the written confirmation assets, and will be transferred back to the Changshang (ii) there has been no material (i) According to Article 4 of the Land jointly issued by the Department of Department of Planning of Changshang Huaqiao Economic non-compliance on the part of Yunxiao Administration Law, construction Natural Resources of Zhangzhou Huaqiao Economic Development Zone upon Development Zone, Sangde; and land refers to the land for Changshan Branch and the the expiry of the relevant concession period; did not obtain the construction of buildings and Department of Planning of (iii) the Department of Natural Resources of

land use right (iii) the project is in line with the local policy properties. However, in relation to Changshang Huaqiao Economic Zhangzhou Changshan Branch, being the BUSINESS certificate as the and the local government authorities are Changshan Huaqiao Economic Development Zone in September competent land administration authority,

6 – 263 – procedural supportive of the project. Development Zone Wastewater 2020, our PRC Legal Advisers are of confirms that no administrative penalties or requirement for Treatment BOT Project, the project the view that, the Group has been enforcement actions have been imposed on or conversion from We have obtained a second written construction does not involve the granted the right to use and occupy taken against us and that there has been no collectively-owned confirmation issued by the Department of construction of buildings or the relevant parcels of land and that material non-compliance; and (iv) in the event land to state-owned Natural Resources of Zhangzhou Changshan properties. Most of the the lack of land use right certificate that we are not able to use such parcel of land land and issuance of Branch in December 2020, confirming that, decentralised wastewater treatment will not constitute a material legal due to the failure to obtain the land use right land use right among others: (i) Changshan Huaqiao facilities are buried underground impediment to the [REDACTED] certificate, we are entitled to claim certificate are not Economic Development Zone Wastewater only a small number of ground under PRC laws and will not have indemnification from he Department of applicable. Treatment BOT Project mainly involves structures such as electricity material adverse effect on the Planning of Changshang Huaqiao Economic construction of underground pipeline distribution devices are required to Group’s business operation and Development Zone for any losses or expenses network and decentralised wastewater be built, which only occupy a very financial position. whichmaybeincurredbyusasaresult. treatment equipment; (ii) as the underground small proportion of land and do not pipeline network is mainly constructed constitute “buildings” or Our PRC Legal Advisers further In addition, pursuant to the share transfer beneath the roads of rural residential areas, it “properties” for which construction confirm that, on the basis that the agreement entered into between, among does not involve land requisition process; and land is required; Department of Natural Resources of others, our Company and Beijing Sangde in (iii) as the decentralised wastewater treatment Zhangzhou Changshan Branch is the relation to the acquisition of Yunxiao Sangde, equipment is mostly buried underground, the land administration department at Beijing Sangde agreed to compensate us in procedural requirements for converting the county level, it is the competent respect of any losses or expenses incurred in agricultural land into construction land, as authority to administer the relevant the event that we are not able to use the well as the relevant land use procedures, are land under the Land Administration parcels of land related to the concession not applicable. Pursuant to the interview Law. Therefore, the risk of the projects as a result from the absence of the conducted with the Department of Natural confirmation issued by the land use right certificate. Resources of Zhangzhou Changshan Branch, Department of Natural Resources of the relevant land use procedures refer to the Zhangzhou Changshan Branch being Based on the above and as advised by our conversion from collectively-owned land to challenged or revoked by high-level PRC Legal Advisers, our Directors are of the state-owned land and issuance of land use government authorities is remote. view that, such incident will not have a right certificate. material adverse impact on our business operation and financial condition. Elaboration on the basis that the DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS procedural requirements for Confirmation obtained from the competent conversion from collectively-owned Particulars of the authority, evidencing on our right to use the land to state-owned land are not land title defect relevant land applicable PRC Legal Advisers’ View Potential operational and financial impacts

(ii) According to Article 5 of the Opinions of Fujian People’s Government on Accelerating the Construction of Domestic Wastewater Treatment Facilities in Villages and Towns (福建省人民政府關於加快推進鄉鎮生活污水處理設施建設的實施意見), government departments at all levels, including departments in charge of land resources should simplify the approval procedures in relation to the construction of domestic wastewater treatment facilities in villages and towns, including procedures regarding its planning, site selection and land use; BUSINESS (iii) According to the Explanation on

6 – 264 – Pre-vetting for the Project Construction Land for Changshan Huaqiao Economic Development Zone (關於常山華僑經濟技術開發區用地預審的說明) issued in November 2017 by the Department of Land and Resources of Zhangzhou City Changshan Branch, the project land used is constructed wetland and the relevant land is located in rural ditches and low-lying ponds. Based on the above and as there is no need for new construction land, it is not necessary to conduct pre-vetting for the project construction land; Elaboration on the basis that the DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS procedural requirements for Confirmation obtained from the competent conversion from collectively-owned Particulars of the authority, evidencing on our right to use the land to state-owned land are not land title defect relevant land applicable PRC Legal Advisers’ View Potential operational and financial impacts

(iv) According to the written confirmation issued by and the interview conducted with the Department of Natural Resources of Zhangzhou Changshan Branch, being the competent land administrative authority as confirmed by our PRC Legal Advisers, it is confirmed that as the relevant wastewater treatment facilities are mainly buried underneath the ground and the project does not involve new construction land or land use pre-vetting procedures, the relevant land shall still be managed and used as agricultural land. Therefore, the

procedural requirement for BUSINESS converting the agricultural land

6 – 265 – into construction land is not applicable, as well as registration as state-owned land and issuance of land use right certificate; and

(v) As the Department of Natural Resources of Zhangzhou Changshan Branch is the competent land administrative authority, our PRC Legal Advisers are of the view that it is the competent authority to issue the relevant confirmations.

We have also formulated written policies and procedures and strengthen our internal control with regard to the title defects. See “Internal Control and Risk Management – Measures Relating the Land Title Defects” for details. THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. BUSINESS

With regard to the land title defects related to our concession projects, as advised by our PRC Legal Advisers, as long as the State has the beneficial ownership of the land, the relevant local governments can grant rights to our Group to use the relevant lands. In order to obtain the beneficial ownership of the “collectively owned” land by the State, the local people’s governments at the county level or above has to pass the land requisition decision for such land, after which such land can be requisitioned by the State under applicable laws and regulations through a series of land requisition procedures. Once such procedures have been completed, such land (which is previously “collectively owned” land) would be registered as “state owned” land. As advised by our PRC Legal Advisers, the point of time when beneficial ownership of such land is transferred to the State is at the time of the passing of the land requisition decision (instead of the completion of all steps of the land requisition procedures). As relevant land requisition decisions have been passed in respect of the land used under each of the five concession projects under BOT model, the beneficial ownership of such land has already been transferred to the State, and therefore the relevant local governments can grant rights to our Group to use the relevant lands.

The table below sets forth information regarding the current ownership status, the timeline of completion of the land requisition procedures and the expected timetable for registration as state-owned land and issuance of land use rights certificates (or explanation regarding why such procedure is not involved) for each of the lands in relation to the five concession projects under BOT model.

Expected timeline for registration as state-owned land and issuance of land use Timeline or expected timeline rights certificates (or explanation Current ownership status of of completion of the land regarding why such procedure is not Project Name the relevant land requisition procedures involved)

Nan’an Honglai Legal owner: Land requisition was Based on the written confirmation issued in Wastewater peasant collectives completed in 2003. September 2020 by the People’s Treatment BOT Government of Honglai Town of Nan’an Project Beneficial owner: the State City, it is estimated that the land use right certificate will be obtained, and the conversion to state-owned land will be completed by October 2021, and that there is no material legal impediment in converting the collectively-owned land into state-owned land and obtaining the land use right certificate.

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Yongchun Penghu Legal owner: Land requisition was Based on the written confirmation issued in Wastewater peasant collectives completed in 2013. September 2020 by the People’s Treatment BOT Government of Penghu Town of Yongchun Project Beneficial owner: the State County, it is estimated that the land use right certificate will be obtained, and the conversion to state-owned land will be completed by October 2021, and that there is no material legal impediment in converting the collectively-owned land into state-owned land and obtaining the land use right certificate.

Shanghang Leachate Legal owner: Land requisition was completed in Based on the written confirmation issued in Treatment BOT peasant collectives 2007. January 2021 by the Department of Project Environmental Sanitary Administration of Beneficial owner: the State Shanghang County, it is estimated that the land use right certificate will be obtained, and the conversion to state-owned land will be completed by December 2021, and that there is no material legal impediment in converting the collectively-owned land into state-owned land and obtaining the land use right certificate.

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Yunxiao Wastewater Legal owner: The project involves 176 parcels of Based on the written confirmation issued in Treatment BOT peasant collectives lands, among which the land December 2020 by the Department of Project requisition for a total of 173 parcels Natural Resources of Yunxiao County, Beneficial owner: the State of land was completed and it is being the competent authority as advised expected that the land requisition by our PRC Legal Advisers, the procedural for the remaining three parcels of requirements of registration as state-owned land will be completed by the end land and issuance of land use rights of March 2021. certificates are not applicable. For the explanation regarding why such procedure is not involved, please refer to the “B. Land title defects related to our concession operation projects — (4) Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目)” in this section for details.

Changshan Huaqiao Legal owner: Land requisition was completed in Based on the written confirmation issued in Economic peasant collectives 2019. December 2020 by the Department of Development Zone Natural Resources of Zhangzhou Wastewater Beneficial owner: the State Changshan Branch, being the competent Treatment BOT authority as advised by the PRC Legal Project Advisers, the procedural requirements of registration as state-owned land and issuance of land use rights certificates are not applicable. For the explanation regarding why such procedure is not involved, please refer to the “B. Land title defects related to our concession operation projects — (4) Changshan Huaqiao Economic Development Zone Wastewater Treatment BOT Project (常山華僑經濟開發區污水處理BOT項目)” in this section for details.

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We are subject to a wide variety of laws, rules and regulations in the ordinary course of our business operations. See “Regulatory Overview” for details. To the best knowledge of our Directors, save as disclosed above, we had complied with the applicable law and regulations in all material aspects during the Track Record Period and up to the Latest Practicable Date.

INTERNAL CONTROL AND RISK MANAGEMENT

We have appointed an internal control consultant to perform an overall assessment on our internal control system, to advise on rectification measures and to review the implementation of such measures. The internal control consultant conducted internal control assessment from May to December 2019 and follow-up reviews from March to August 2020. The internal control consultant did not have any major findings and recommendations in the follow-up reviews. Based on the recommendation provided by the internal control consultant, we have implemented the following internal control measures by August 2020 to prevent future occurrence of non-compliance incidents such as those disclosed above.

Measures relating to social insurance and housing provident fund contributions

(1) We have adopted an internal control policy specifying that the registration and account opening for social insurance and housing provident fund contributions of all employees shall be completed within the prescribed time limit;

(2) Personnel of our human resources department with relevant knowledge and expertise shall be responsible for calculation of the social insurance and housing provident fund contributions in accordance with the relevant PRC laws and regulations, which shall then be checked by our human resources manager to ensure the correctness and compliance with regulatory requirements;

(3) Training will be provided to the relevant personnel of our human resources department on the social insurance and housing provident fund contributions requirements under the relevant PRC laws and regulations; and

(4) Finance department will check the number of employees, amount of social insurance fund and housing provident fund contributions against the employee list quarterly.

Measures relating to the relevant construction permits

(1) We have adopted an internal control policy which sets out: (a) a designated department is responsible for specifying the various types of construction permits to be obtained for our different projects at different stages; (b) the designated department is also responsible for the application, renewal, safe-keeping of each type of the construction permits; and (c) the procedures for management of such construction permits;

(2) We have appointed personnel with relevant knowledge and expertise in such designated department to: (a) apply for and renew the relevant construction permits; (b) monitor the status regarding such applications; and (c) keep in safe custody the construction permits obtained;

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(3) The designated personnel will prepare a register recording information on the relevant construction permits which they have obtained, including, among others, information on: (a) the registration and expiry dates; (b) the issuing authority; and (c) the annual renewal dates of the construction permits;

(4) Our construction management personnel is responsible for guiding, inspecting, supervising and training regarding the management of the relevant construction permits; and

(5) We have also formulated enhanced internal control measures to mitigate the risks of non-compliance that may occur prior to acquisition of new projects. We will use our best endeavours to ensure that we have conducted sufficient due diligence and fully understand the risks associated with the proposed acquisition, including seeking legal and financial advice and negotiating for protection mechanism in the acquisition agreement.

Measures relating to Land Title Defects

(1) We have established the rules and procedures to monitor compliance with applicable laws and regulations in relation to the land use rights. For any new projects to be acquired or undertaken by the Company, we need to carry out feasibility investigation and/or tender review process which requires a detailed investigation and analysis of the project’s compliance with respect to the operations, external environment of the investment, legal constraints, and risk control measures. Such investigation and analysis shall include a specific analysis regarding the land use right as well as a review of all permits, licenses and approval documents in relation to the project. This will allow us to effectively assess the risks relating to land title defects, and to minimize the risks of commencement of construction/operation of our concession projects prior to obtaining the relevant land use right certificates certificates.

(2) Our legal officer, Ms. He Yu (何宇), is responsible for ensuring effective communication with the local government authorities, and our construction management personnel, Mr. Duo Zehua (多澤華), Mr. Guo Hongjiu (郭鴻九) and Mr. Chen Shouzhen (陳守鎮), shall be responsible for safekeeping and maintaining the land use right certificates obtained. The relevant personnel should fully and timely understand the completeness of the land use right certificates files, and timely follow up on application procedures. Ms. He Yu graduated from Hebei University of Economics and Business, majoring in law. She has worked in our Company as the legal officer for over a year. Mr. Duo Zehua graduated from Chongqing University through online courses, majoring in electrical automation technology. He has worked in our Company for over ten years and has been the construction management personnel in charge of Yunxiao Wastewater Treatment BOT Project and Changshan Huaqiao Economic Development Zone Wastewater Treatment BOT Project since December 2019. Mr. Chen Shouzhen graduated from Sichuan Agricultural University through online courses, majoring in environmental engineering. He was accredited as an engineer in environmental engineering by

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Quanzhou Title Reform Group (泉州市職改領導小組) in December 2015. He has over ten years of experience in environmental protection related work and has been the construction management personnel in charge of Nan’an Honglai Wastewater Treatment BOT Project and Yongchun Penghu Wastewater Treatment BOT Project since November 2019. Mr. Guo Hongjiu has around five years of experience in environmental protection and wastewater treatment work and has been the construction management personnel in charge of Shanghang Leachate Treatment BOT Project since January 2020. Based on the educational background and working experience of the relevant personnel, the Directors are of the view, and the Sole Sponsor concurs, that the legal officer and construction management personnel are competent to carry out their respective responsibilities.

(3) Our audit committee is responsible for overseeing the implementation of the internal control measures and ensures compliance on a continuous basis.

To enhance our internal control and risk management systems, we have further implemented and will continue to implement the following measures to ensure our future compliance with the applicable laws, regulations and regulatory rules:

(1) We have established the audit committee, comprising three independent non-executive Directors, to oversee the financial controls, internal control procedures and risk management systems of our Group. See “Directors, Supervisors and Senior Management” for details. The audit committee will adopt terms of reference setting out its clearly defined duties and obligations in relation to safeguarding compliance with the relevant laws, regulations and regulatory rules.

(2) We have put in place rules and procedures that will allow us to monitor our ongoing compliance with applicable laws, regulations and regulatory rules and take remedial actions wherever a compliance issue arises. In particular, our construction management department has been made responsible for reviewing the status of our projects, and we have put in place rules and procedures to require our designated personnel to closely monitor the schedules of our projects and strictly follow such schedules.

(3) We have formulated anti-bribery and anti-corruption policies. According to our internal anti-bribery and anti-corruption policies, conducts that are forbidden include, among others, acceptance or payment of bribes or rebates and illegal use, embezzlement or misappropriation of assets.

(4) Our management is responsible for conducting a risk assessment with regard to bribery and fraud on an annual basis and our Board and audit committee shall review and approve the annual risk assessment results and policies. We have also established internal communication and feedback channels to encourage our employees to actively report any misconduct such as bribery, corruption, extortion and fraud.

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(5) We have maintained a record keeping system where all transactions and disbursements must be credibly recorded with a sufficient level of detail in our books and record, and must be documented and accessible for inspection.

(6) Our Hong Kong legal advisers have provided a training session to our Directors in relation to the ongoing obligations, duties and responsibilities of directors of publicly listed companies under the Companies Ordinance, the SFO and the Listing Rules.

(7) We will continue to provide training on the laws and regulations as well as regulatory rules that are applicable to our business operations to our Directors, senior management and relevant employees. Where necessary, we will engage external legal advisers to advise us on matters relating to compliance with the applicable PRC laws and regulations and regulatory rules (including the Listing Rules).

As of the Latest Practicable Date, our internal control consultant did not note any material deficiencies in our internal control system. Based on the findings and recommendations of the internal control consultant and given our implementation of the enhanced internal control measures, our Directors are of the view, and the Sole Sponsor concurs, that our internal control system is adequate and effective for our current operating environment.

Having taken into account the fact that (i) we have taken corrective measures and the non-compliance incidents have been rectified to the extent practicable; (ii) we have implemented the abovementioned internal control measures to prevent reoccurrence of the non-compliance incidents; and (iii) the non-compliance incidents were unintentional, did not involve fraudulent act on the part of our Directors or cast doubt on their integrity, our Directors are of the view, and the Sole Sponsor concurs, that the abovementioned non-compliance incidents will not have any material adverse effect on our operations and financial condition, and such incidents do not have any material impact on the suitability of our Directors and our suitability for [REDACTED].

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LICENSES AND PERMITS

Our operations are subject to various national and local laws and regulations governing, among others, environmental protection and workplace safety. In our compliance measures, we aim to meet regulatory and industrial standards of relevant central and local government authorities and industry associations. See “Regulatory Overview” for details. As advised by our PRC Legal Advisers, the following table sets forth the details of our material licenses and permits as of the Latest Practicable Date:

License/Permit Licensed Scope Licensee Issue Date Expiry Date

Work Safety License Building Construction Our Company 8 August 2019 7 August 2022 (安全生產許可證)

Construction Grade III general Our Company 29 May 2020 6 May 2024 Enterprise contracting for public Qualification works construction (建築業企業資質 (市政公用工程施工總承證書) 包三級);

Grade III professional contracting for mechanical and electrical installation (建築機電安裝工程專業承包三級); and

Grade II professional contracting for environmental engineering (環保工程專業承包貳級)

Pollutant Discharge Industry category: Yongchun Lvdi 28 June 2019 27 June 2022 Permit wastewater treatment (排污許可證) and recycling

Pollutant Discharge Industry category: Fujian Lvdi 12 July 2019 11 July 2022 Permit wastewater treatment (排污許可證) and recycling

Pollutant Discharge Not applicable Quanzhou 3 August 2020 2 August 2025 Registration Notice Xingyuan (固定污染源排污登記回執)

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License/Permit Licensed Scope Licensee Issue Date Expiry Date

Construction Construction labor Quanzhou 21 January 2020 20 January 2025 Enterprise services Xingyuan Qualification (建築業企業資質證書)

Work Safety License Building Construction Quanzhou 11 March 2020 10 March 2023 (安全生產許可證) Xingyuan

High-tech Enterprise High-tech Enterprise Our Company 1 December 31 November Certificate 2020 2023 (高新技術企業證書)

Our PRC Legal Advisers confirm that, save as disclosed in “Legal Proceedings and Non-compliance — Non-compliance” in this section, we have obtained all material licenses and permits that are necessary for the operation of our business and such licenses and permits remained in full effect as at the Latest Practicable Date. We do not expect any material legal impediment to renew these licenses and permits upon their expiration.

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OUR CONTROLLING SHAREHOLDERS

Immediately following the completion of the [REDACTED] (assuming that the [REDACTED] is not exercised), Quanzhou Water Group, which held interests through its wholly-owned subsidiary, namely Haisi Environmental, will be entitled to exercise in general meetings voting rights attached to the [REDACTED] representing approximately [REDACTED] of the issued share capital of our Company. Accordingly, Quanzhou Water Group and Haisi Environmental would be our Controlling Shareholders after the [REDACTED] for the purpose of the Listing Rules.

As of the Latest Practicable Date, Quanzhou Water Group is wholly-owned by Quanzhou SASAC.

DELINEATION OF BUSINESS

Our Company’s principal business includes providing both wastewater treatment equipment and decentralised wastewater treatment services. See “Business” for details of our business.

The principal business of our Controlling Shareholders and their subsidiaries (other than our Group) includes water diversion, water production, water supply and water draining, provision of clean energy, as well as investment and construction of water utilities projects and water conservancy projects. As of the Latest Practicable Date, none of our Controlling Shareholders or their subsidiaries (other than our Group) had engaged in the businesses of providing wastewater treatment equipment or decentralised wastewater treatment services, which might compete, either directly or indirectly, with the business of our Group.

Each of our Directors and Controlling Shareholders confirms that he/she/it does not have any interest in any business, apart from the business of our Group, which competes with, or is likely to compete with, our business, whether directly or indirectly, which would otherwise require disclosure under Rule 8.10 of the Listing Rules.

Our Directors are of the view that our business is clearly delineated from that of our Controlling Shareholders.

INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS

Having considered the following factors, our Directors are satisfied that we are capable of carrying out our business independently of, and do not place undue reliance on, our Controlling Shareholders and their respective close associates (other than members of our Group) after the [REDACTED].

Management Independence

Our Board comprises three executive Directors, two non-executive Directors and three independent non-executive Directors. The daily operational decisions of our Company are the responsibility of our executive Directors and senior management. See “Directors, Supervisors and Senior Management” for details.

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Save as disclosed below, none of our Directors and members of senior management holds any directorship or senior management position in our Controlling Shareholders or any of their close associates:

Position held in the Controlling Shareholders Position held in our and/or their close Name Company associates

Mr. Huang Jinshun Chairman of the Board and chairman of the board of (黃金順) non-executive Director Quanzhou Water Group

Mr. Huang Dongsheng Non-executive Director chairman of the board of (黃東勝) Haisi Environmental

We believe that our Directors and senior management are able to perform their roles in our Company independently of our Controlling Shareholders and that our Company is therefore capable of managing its business independently of our Controlling Shareholders after the [REDACTED] for the following reasons:

• the corporate governance procedures of the Board set out in our Articles of Association include provisions to manage potential conflicts of interest by providing, among other things, that, in the event of a conflict of interest, such as resolutions regarding transactions with our Controlling Shareholders and/or their other associates, the relevant Director(s) who are connected with our Controlling Shareholders and/or their other associates shall abstain from voting on such matters and shall not be counted toward the quorum. Further, when considering connected transactions and competition matters, the independent non-executive Directors will review the relevant transactions;

• all executive Directors and senior management members of our Company are full-time employees of our Company;

• Mr. Huang Jinshun, and Mr. Huang Dongsheng, who serve on the board of directors or as senior management of the Controlling Shareholders as elaborated in the above table, are our non-executive Directors and they do not participate in the day to day management of our Company;

• each of our Directors is aware of his/her fiduciary duties as a Director which require, among other things, that he/she must act for the benefit and in the best interests of our Company and not allow any conflict between his/her duties as a Director and his/her personal interests;

• our independent non-executive Directors have been appointed in compliance with the requirements under the Listing Rules to ensure that decisions of our Board will be made only after due consideration of independent and impartial opinions, and that they will bring independent judgement to the decision-making process of our Board. Further, our Board acts collectively by majority decisions in accordance with

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the Articles of Association and the applicable laws and no single Director is supposed to have any decision-making power unless otherwise authorised by our Board.

Operational Independence

Although our Controlling Shareholders, Quanzhou Water Group and Haisi Environmental, will retain a controlling interest in our Company after the [REDACTED], we have full rights to make all decisions regarding, and carry out, our business operations independently.

We have established our own organisational structure comprised of individual departments each with specific administrative and corporate governance infrastructure. We are also in possession of all necessary relevant licences, trademarks and copyrights material to carry on our business and we have sufficient operational capacity in terms of capital, equipment and employees to operate our business independently. We do not rely on our Controlling Shareholders or their close associates for our operations and have independent access to customers and suppliers and our Group has established a set of internal control procedures independent from our Controlling Shareholders to facilitate the effective operation of our business.

During the Track Record Period, we had certain transactions with our Controlling Shareholders and its associates. See “Connected Transactions” for details. Our Directors (including our independent non-executive Directors) have confirmed that these connected transactions have been entered into in the ordinary and usual course of our business and are based on arm’s length negotiations and on normal commercial terms that are in the interest of our Group and our Shareholders as a whole. Save as disclosed in the section headed “Connected Transactions” in this document, none of the historical connected transactions as defined in the Listing Rules are expected to continue after the [REDACTED].

In light of the circumstances as set out hereinabove, our Directors believe that our Group has operated independently of, and has not placed undue reliance in conducting our business, during the Track Record Period and up to the Latest Practicable Date, on any of our Controlling Shareholders and/or any of their respective close associates and will continue to be operationally independent after the [REDACTED].

Financial Independence

During the Track Record Period and up to the Latest Practicable Date, our Group has employed a team of financial accounting personnel to operate our own finance department and has established our own financial and accounting system independent of our Controlling Shareholders. Our Group has our own bank accounts and an independent treasury function for cash receipts and payments, as well as made our own tax registrations with the relevant regulatory authorities. Our source of funding is independent from our Controlling Shareholders.

In 2019, our Company borrowed a total amount of RMB100.0 million from one of our Controlling Shareholders, Haisi Environmental. See “Appendix I — Accountant’s Report — Note 35” for details. Such loan had been fully settled as of the Latest Practicable Date. As none of

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Based on the above, our Directors believe that our Group has the ability to operate independently of our Controlling Shareholders and their respective close associates from the financial perspective and is able to maintain financial independence from our Controlling Shareholders and their respective close associates after the [REDACTED].

CORPORATE GOVERNANCE MEASURES

Our Directors believe that there are adequate corporate governance measures in place to manage potential conflicts of interests after the [REDACTED]. In particular, we will implement the following measures:

• we are committed that our Board should include a balanced composition of executive and independent non-executive Directors. We have appointed three independent non-executive Directors and we believe our independent non-executive Directors possess sufficient experience and they are free of any business and/or other relationship which could interfere in any material manner with the exercise of their independent judgement and will be able to provide an impartial and external opinion to protect the interests of our public Shareholders. See “Directors, Supervisors and Senior Management — Board of Directors — Independent non-executive Directors” for details of our independent non-executive Directors;

• the corporate governance measures of the Board set out in our Articles of Association include the provisions to manage potential conflicts of interest by, among other things, that, in the event of a conflict of interest, such as resolutions regarding transactions with our Controlling Shareholders and/or their other associates, the relevant Director(s) who are connected with our Controlling Shareholders shall abstain from voting on such matters and shall not be counted toward the quorum at the relevant Board meeting. Further, when considering connected transactions and competition matters, the independent non-executive Directors will review the relevant transactions;

• in the event that any potential conflict of interest in connection with our Controlling Shareholders arises at the shareholders’ level, our Controlling Shareholders and their close associates shall abstain from voting at the general meeting of our Company with respect to the relevant resolution(s);

• any transaction that is proposed between our Group and any of our Controlling Shareholders and their respective associates will be required to comply with the requirements of the Listing Rules, including, where appropriate, the reporting, annual review, announcement and independent shareholders’ approval requirements;

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• we have appointed China Industrial Securities International Capital Limited as our compliance adviser, which will, upon our consultation, provide advice and guidance to us in respect of compliance with the applicable laws and the Listing Rules including various requirements relating to directors’ duties and corporate governance; and

• pursuant to the Corporate Governance Code in Appendix 14 to the Listing Rules, which our Company has adopted as its corporate governance code, our Directors will be able to seek independent professional advice from external parties in appropriate circumstances at our Company’s cost.

Our Directors consider that the above corporate governance measures are sufficient to manage any potential conflict of interests between our Controlling Shareholders and their respective associates and our Group, and to protect the interests of our Shareholders.

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We have and will continue to carry out certain transactions with our connected persons as set out below. The transactions disclosed in this section will constitute our continuing connected transactions under Chapter 14A of the Listing Rules upon the [REDACTED].

CONNECTED PERSONS

The table below sets forth parties who are connected persons with whom we will continue to carry out transactions on a continuing basis upon the [REDACTED] and nature of their connection with our Company:

Name Connected Relationship

Quanzhou Water Group Quanzhou Water Group is the holding company of Haisi and its associates Environmental, who is one of our substantial Shareholders including but not and Controlling Shareholders. Therefore, Quanzhou Water limited to: Group is a connected person of our Company pursuant to Rule 14A.13 of the Listing Rules.

1. Quanzhou Water Quanzhou Water Direct Drinking is owned as to 80.0% by Direct Drinking Haisi Environmental, who is one of our substantial Shareholders and Controlling Shareholders. Therefore, Quanzhou Water Direct Drinking is a connected person of our Company pursuant to Rule 14A.13 of the Listing Rules.

2. Zhonghai Qingyuan Zhonghai Qingyuan is owned as to 40.0% by Haisi Environmental, who is one of our substantial Shareholders and Controlling Shareholders. Therefore, Zhonghai Qingyuan is a connected person of our Company pursuant to Rule 14A.13 of the Listing Rules.

3. Quanzhou Water Quanzhou Water Engineering is a wholly-owned subsidiary Engineering of Quanzhou Water Group, the holding company of Haisi Environmental, who is one of our substantial Shareholders and Controlling Shareholders. Therefore, Quanzhou Water Engineering is a connected person of our Company pursuant to Rule 14A.13 of the Listing Rules.

4. Quanzhou Xingyuan Quanzhou Xingyuan is owned as to 60.0% by our Company, as to 20.0% by Quanzhou Water Supply, and as to 20.0% by Quanzhou Water Engineering. Quanzhou Water Supply and Quanzhou Water Engineering are wholly-owned by Quanzhou Water Group, the holding company of Haisi Environmental, who is one of our substantial Shareholders and Controlling Shareholders. Therefore, Quanzhou Xingyuan is a connected person of our Company pursuant to Rule 14A.07(5) and Rule 14A.16 of the Listing Rules.

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CONTINUING CONNECTED TRANSACTIONS

Expected completion Historical date or expiry of term Expected Transactions Connected person Waiver sought amounts (if applicable) annual caps (RMB’000) (RMB’000)

Exempt Continuing Connected Transactions

1. Drinking water purification Quanzhou Water N/A 2018: nil N/A N/A(1) services provided by Quanzhou Direct Drinking 2019: 99 Water Direct Drinking 2020: 21

2. Procurement of membrane materials Zhonghai N/A 2018: nil 4 July 2022 N/A(2) from Zhonghai Qingyuan Qingyuan 2019: 1,322 2020: 280

Non-Exempt Continuing Connected Transactions

3. Procurement of pipes and Quanzhou Waiver from 2018: nil 31 December 2023 2021: 8,500 pipe fittings from Xingyuan announcement 2019: 9,576 2022: 11,500 Quanzhou Xingyuan 2020: 3,649 2023: 15,000

4. Construction of Qing Yuan Shan Quanzhou Water Waiver from 2018: nil 31 December 2021 2021: 12,058 Project Engineering announcement 2019: 20,249 2022: nil 2020: 28,784 2023: nil

5. Operation of Qing Yuan Shan Quanzhou Water Waiver from 2018: nil the third anniversary 2021: 3,100 Project Engineering announcement 2019: nil of the actual 2022: 3,100 2020: nil commencement date 2023: 3,100 of the operation of Qing Yuan Shan Project

6. Equipment, pipe sales and provision Quanzhou Water Waiver from 2018: nil 31 December 2023 2021: 48,000 of wastewater treatment services Group and its announcement, circular 2019: 19,778 2022: 47,000 to Quanzhou Water Group and its associates and shareholders’ 2020: 27,506 2023: 23,000 associates approval requirements

Notes:

(1) It is expected that the applicable percentage ratios of the transactions under the Drinking Water Purification Agreement will be less than 0.1%. The transactions will be fully exempt pursuant Rule 14A.76 of the Listing Rules. Therefore, there will not be any proposed annual caps in respect of the years ending 31 December 2021, 2022 and 2023.

(2) It is expected that the applicable percentage ratios of the transactions under the Membrane Procurement Framework Agreement will be less than 5%, and the total transaction amount will be less than HK$3,000,000. The transactions under the Membrane Procurement Framework Agreement will be fully exempt pursuant Rule 14A.76 of the Listing Rules. Therefore, there will not be any proposed annual caps in respect of the years ending 31 December 2021, 2022 and 2023.

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EXEMPT CONTINUING CONNECTED TRANSACTIONS

Drinking water purification services provided by Quanzhou Water Direct Drinking

Our Company and Quanzhou Water Direct Drinking entered into two agreements (the “Drinking Water Purification Agreements”) for drinking water purification services on 29 March 2019 and 27 May 2019, respectively. Pursuant to the Drinking Water Purification Agreements, Quanzhou Water Direct Drinking agrees to provide our Company with integrated drinking water purification services including installation of water purification systems and regular maintenance, repair, operation and management of such systems. The Drinking Water Supply Agreements took effect upon their respective signing date with an initial term of one year, and will be automatically renewed for a successive period of one year thereafter unless our Company informs Quanzhou Water Direct Drinking in writing to terminate the Drinking Water Purification Agreements. The terms of Drinking Water Purification Agreements are determined based on normal commercial terms and are no less favourable to our Company than the terms of similar services available from Independent Third Parties.

In selecting Quanzhou Water Direct Drinking as our supplier, our Company had internally assessed its needs for drinking water purification services and the terms of the Drinking Water Purification Agreements. Our Directors are of the view that the transactions contemplated under the Drinking Water Purification Agreements are fair, reasonable and in the interests of our Company and Shareholders as a whole as (i) the engagement of drinking water purification services are for daily use and consumption of our Company and our employees; and (ii) the terms offered by Quanzhou Water Direct Drinking to our Company in the Drinking Water Purification Agreements are based on arm’s length negotiation and are no less favourable than those offered by Independent Third Parties to us.

Procurement of membrane materials from Zhonghai Qingyuan

Our Company and Zhonghai Qingyuan entered into a framework agreement (the “Membrane Procurement Framework Agreement”) for corporation and membrane materials procurement on 5 July 2019. Pursuant to the Membrane Procurement Framework Agreement, (i) our Company and Zhonghai Qingyuan agreed to establish long-term cooperation relationship in water purification and wastewater treatment areas; (ii) our Company may, from time to time, procure membrane materials from Zhonghai Qingyuan; and (iii) Zhonghai Qingyuan shall, upon the request from our Company, provide specialised technical trainings and technical supports to our Company on the application of its membrane products. The terms of the Membrane Procurement Framework Agreement are from 5 July 2019 to 4 July 2022. During the contract term of the Membrane Procurement Framework Agreement, Zhonghai Qingyuan and our Company would enter into definitive procurement agreements which are consistent with the terms and conditions of the Membrane Procurement Framework Agreement. The terms of Membrane Procurement Framework Agreement are determined based on normal commercial terms and are no less favourable to our Company than the terms of similar membrane materials available from Independent Third Parties.

In selecting Zhonghai Qingyuan as our Company’s supplier for membrane products, our Company had internally assessed its needs for membrane materials and the terms of the Membrane Procurement Framework Agreement. Our Directors are of the view that the

– 282 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. CONNECTED TRANSACTIONS transactions contemplated under the Membrane Procurement Framework Agreement are fair, reasonable and in the interests of our Company and Shareholders as a whole as (i) the purchase of membrane products is in the ordinary and usual course of business of our Company; and (ii) the terms offered by Zhonghai Qingyuan to our Company are based on arm’s length negotiation and are no less favourable than those offered by Independent Third Parties to us.

Listing Rules Implications

Based on the historical transaction amounts and the estimated transaction amounts in the future, we expect that, after the [REDACTED], on an annual basis, all the applicable percentage ratios (other than the profits ratio) calculated in accordance with Rule 14.07 of the Listing Rules in respect of (i) the transactions under the Drinking Water Purification Agreement will be less than 0.1%; and (ii) the transactions under the Membrane Procurement Framework Agreement will be less than 5%, and the total transaction amount will be less than HK$3,000,000. Accordingly, the transactions under the Drinking Water Purification Agreement and Membrane Procurement Framework Agreement will be de minimis continuing connected transactions exempted from reporting, annual review, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Transaction exempt from circular and shareholders’ approval requirements

Procurement of pipes and pipe fittings from Quanzhou Xingyuan

Description of the transaction

In our ordinary course of business, our Company procures pipes and pipe fittings from Quanzhou Xingyuan from time to time. On [●] 2021, our Company and Quanzhou Xingyuan entered into a framework agreement for pipe procurement (the “Pipe Procurement Framework Agreement”), pursuant to which Quanzhou Xingyuan agreed to supply pipes and pipe fittings to our Company. Our Company and Quanzhou Xingyuan will enter into definitive procurement agreements or specific order forms for each specific purchase, which are consistent with the terms and conditions set out in the Pipe Procurement Framework Agreement.

The pricing of the pipes and pipe fittings under the Pipe Procurement Framework Agreement are subject to the following policies: (i) determined based on arm’s length negotiations with reference to the types of the supplied pipes and pipe fittings; (ii) determined based on normal commercial terms; (iii) the unit price of the purchased pipes and pipe fittings shall not be higher than the unit price of the same products supplied by Quanzhou Xingyuan to Independent Third Parties stipulated in the product price list of Quanzhou Xingyuan; (iv) when selecting the supplier for pipes and pipe fittings, our Company shall, compare sufficient quotations and/or tenders from Independent Third Parties. The terms offered by Quanzhou Xingyuan can be accepted only if such terms are more favourable than those offered by Independent Third Parties to our Company; and (v) shall comply with, inter alia, the Listing Rules and other applicable laws.

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The Pipe Procurement Framework Agreement will become effective from the [REDACTED] and expire on 31 December 2023 and is renewable upon mutual agreement, subject to compliance with the Listing Rules.

Reasons for the above connected transaction

Quanzhou Xingyuan is our non-wholly owned subsidiary and is a manufacturer and supplier of quality pipes and pipe fittings in Fujian. In selecting Quanzhou Xingyuan as our Company’s supplier for pipes and pipe fittings, our Company had internally assessed our needs for pipes and pipe fittings during our ordinary course of business and the terms of the Pipe Procurement Framework Agreement.

Our Directors believe that the transactions under the Pipe Procurement Framework Agreement is fair, reasonable and in the interests of our Company and our shareholders as a whole for the following reasons: (i) Quanzhou Xingyuan possesses technology and expertise in the development and manufacture of pipes and pipe fittings; (ii) the purchase of pipes and pipe fittings under the Pipe Procurement Framework Agreement is in the ordinary and usual course of business of our Company; and (iii) the terms offered by Quanzhou Xingyuan to our Company are based on arm’s length negotiation and are no less favourable than those offered by Independent Third Parties to us.

Historical transaction amounts

For the three years ended 31 December 2020, the transaction amounts for the procurement of pipes and pipe fittings from Quanzhou Xingyuan were nil, RMB9,576,000 and RMB3,649,000, respectively.

Proposed annual caps

The maximum transaction amounts with Quanzhou Xingyuan under the Pipe Procurement Framework Agreement for the three years ending 31 December 2023 are expected not to exceed the annual caps set out below:

Proposed annual caps for the years ending 31 December 2021 2022 2023 (RMB in thousands)

Transaction amount with Quanzhou Xingyuan under Pipe Procurement Framework Agreement 8,500 11,500 15,000

In determining the above annual caps, our Directors have considered (i) the historical transaction amounts paid by our Company to Quanzhou Xingyuan in respect of pipe procurement; (ii) the estimated demands on pipes and pipe fittings for our existing and future projects based on our Company’s business development plans for the three years ending 31 December 2023. In particular, we expect that our decentralised wastewater treatment facility

– 284 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. CONNECTED TRANSACTIONS construction projects will steadily grow in 2021, 2022 and 2023; (iii) the estimated increase in the prices of pipes and pipe fittings by approximately 5.0% each year for the three years ending 31 December 2023 primarily due to the increase in the average market price of their raw materials; and (iv) the prices of similar pipes and pipe fittings available from Independent Third Parties.

Construction of Qing Yuan Shan Project

Description of the transaction

Our Company, together with Zhongtie Cheng Ji Planning and Construction Co., Ltd. (中鐵城際規劃建設有限公司 “Zhongtie Construction”, an Independent Third Party), as the contractors, entered into a contract (the “Qing Yuan Shan Contract”) with Quanzhou Water Engineering in relation to the construction of the Qing Yuan Shan Scenic Spot Wastewater Treatment EPC General Contracting Project (清源山風景名勝區污水處理工程EPC總承包項目) (the “Qing Yuan Shan Project”) located in Qing Yuan Shan scenic spot on 28 April 2019. As of the Latest Practicable Date, Qing Yuan Shan Project is still under construction. Upon the completion of Qing Yuan Shan Project, Quanzhou Water Group and its associates (other than our Group), including Quanzhou Water Engineering, will not participate in the operation and management of Qing Yuan Shan Project. We have obtained the operation and management rights of the Qing Yuan Shan Project through bidding process and entered into the Qing Yuan Shan Operation Contract with Quanzhou Water Engineering on 8 February 2021. See “Operation of Qing Yuan Shan Project” above for details.

The principal terms of the Qing Yuan Shan Contract are set out below:

Parties Our Company, Zhongtie Construction and Quanzhou Water Engineering

Roles and responsibilities of Quanzhou Water Engineering, as the project owner of the Parties Qing Yuan Shan Project, was mainly responsible for the provision of construction site and payment of site supervision, survey, design and construction fees.

Zhongtie Construction, as the contractor, was mainly responsible for the site supervision, survey and design of Qing Yuan Shan Project.

Our Company, as the contractor, was mainly responsible for the construction of Qing Yuan Shan Project.

Contract value The contract value amounted to RMB63,358,003 (including tax) to be paid by Quanzhou Water Engineering to our Company, including:

(1) site supervision fee amounting to RMB400,000;

(2) survey fee amounting to RMB900,000;

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(3) design fee amounting to RMB1,537,419; and

(4) construction fee amounting to RMB60,520,584.

Our Company will pay the site supervision fee, survey fee and design fee to Zhongtie Construction according to the percentage of work completed.

The contract value of Qing Yuan Shan Contract is determined through bidding process, during which Quanzhou Water Engineering selects suppliers by inviting tenders, and the suppliers provide quotations and tenders independently. The tender price is determined with reference to the construction work amount of Qing Yuan Shan Project, the prices of construction materials and the expected labour costs of Qing Yuan Shan Project.

Terms of contract The project shall be completed by 31 December 2020.

Payment terms Payment will be made by Quanzhou Water Engineering to our Company as follows:

(1) 80.0% of the site supervision fee will be paid within 14 days after the approval of the site supervision report, and the remaining 20.0% of the site supervision fee will be paid after the completion and acceptance of Qing Yuan Shan Project;

(2) the survey fee will be paid within 14 days after the survey data have been obtained;

(3) 30.0% of the design fee will be paid within 14 days after the approval of the preliminary design plan;

(4) 50.0% of the design fee will be paid within 14 days after the approval of the construction design documents, and the remaining 20.0% design fee will be paid after the completion and acceptance of Qing Yuan Shan Project;

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(5) the construction fee will be paid according to the percentage of work completed on a monthly basis — 65.0% of the construction fee corresponding to the work completed in a certain month will be paid within 14 days after the acceptance of such completed work;

(6) 10.0% of the construction fee will be paid after the completion and acceptance of Qing Yuan Shan Project;

(7) 22.0% of the construction fee will be paid within 14 days after the completion of the audit and settlement of Qing Yuan Shan Project; and

(8) the remaining 3.0% of the construction fee will be paid within 28 days of the expiry of the 2-year’s warranty period.

Reasons for the above connected transaction

Our Directors are of the view that the connected transaction under Qing Yuan Shan Contract will enhance the business portfolio of our Company and enable us to develop business opportunities with Quanzhou Water Engineering for the design and construction of wastewater treatment projects. Qing Yuan Shan Project is obtained by our Company through bidding process. Our Directors are of the view that the tender terms offered by our Company are fair and reasonable, and are not less favourable to our Company than the tender terms offered by our Company to Independent Third Parties for similar projects.

Historical transaction amounts

For the three years ended 31 December 2020, the fees that our Company received from Quanzhou Water Engineering under Qing Yuan Shan Contract were nil, RMB20,249,000 and RMB28,784,000, respectively.

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Proposed annual caps

The transaction amounts with Quanzhou Water Engineering under Qing Yuan Shan Contract for the three years ending 31 December 2023 are expected not to exceed the annual caps set out as below:

Proposed annual caps for the years ending 31 December 2021 2022 2023 (RMB in thousands)

Fees to be received from Quanzhou Water Engineering under Qing Yuan Shan Contract 12,058 nil nil

In determining the above annual caps, our Directors have considered: (i) the historical transaction amounts with Quanzhou Water Engineering under Qing Yuan Shan contract during the Track Record Period; (ii) the contract value of Qing Yuan Shan Contract; (iii) the project progress and payment schedule of Qing Yuan Shan Project, and the delay in the completion of Qing Yuan Shan Project from December 2020 to December 2021 due to the delay in acquiring land-use rights, and a part of the revenue received by our Company under Qing Yuan Shan Project will be recognised in 2021 as a result thereof.

Operation of Qing Yuan Shan Project

Description of the transaction

On 8 February 2021, our Company and Quanzhou Water Engineering entered into a project operation contract (the “Qing Yuan Shan Operation Contract”) in relation to the operation and management of decentralised wastewater treatment stations and related pipeline systems under the Qing Yuan Shan Project.

The principal terms of the Qing Yuan Shan Operation Contract are set out below:

Parties Quanzhou Water Engineering, as the project owner of Qing Yuan Shan Project; and our Company, as the operator of Qing Yuan Shan Project.

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Responsibilities of our Under the Qing Yuan Shan Operation Contract, our Company Company shall be primarily responsible for the operation and management of decentralised wastewater treatment stations and related pipeline systems under the Qing Yuan Shan Project. The operation and management works include (i) the operation, management and maintenance of the mechanical equipment and facilities of decentralised wastewater treatment stations under the Qing Yuan Shan Project; and (ii) the management, maintenance and cleaning of the related pipeline systems under the Qing Yuan Shan Project.

Terms of the contract Three years from the actual commencement date of the operation.

Total contract amount RMB9,297,477.36

Payment terms The operation and management fees under Qing Yuan Shan Operation Contract shall be paid by Quanzhou Water Engineering on a monthly basis based on the operation results of the previous calendar month.

Reasons for the above connected transaction

Our Directors are of the view that the connected transactions under Qing Yuan Shan Operation Contract will enhance the business portfolio of our Company and enable us to develop business opportunities with Quanzhou Water Engineering for the operation of wastewater treatment projects. Qing Yuan Shan Operation Contract is obtained by our Company through bidding process. Our Directors are of the view that the tender terms offered by our Company are fair and reasonable, and are not less favourable to our Company than the tender terms offered by our Company to Independent Third Parties for similar projects.

Historical transaction amounts

During the three years ended 31 December 2020, there was no transaction amount with Quanzhou Water Engineering in respect of the operation and management of Qing Yuan Shan Project.

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Proposed annual caps

The transaction amounts with Quanzhou Water Engineering in respect of the operation and management of Qing Yuan Shan Project under the Qing Yuan Shan Operation Contract for the three years ending 31 December 2023 are expected not to exceed the annual caps set out as below:

Proposed annual caps for the years ending 31 December 2021 2022 2023 (RMB in thousands)

Fees to be received from Quanzhou Water Engineering under Qing Yuan Shan Contract 3,100 3,100 3,100

In determining the above annual caps, our Directors have considered: (i) the contract value of Qing Yuan Shan Operation Contract; and (ii) the payment terms of the Qing Yuan Shan Operation Contract.

Transactions subject to circular and shareholders’ approval requirements

Equipment, pipe sales and provision of wastewater treatment services toQuanzhou Water Group and its associates

Description of the transaction

In our ordinary course of business, upon the request from Quanzhou Water Group and its associates (other than our Group), our Group has supplied pipes and pipe fittings, to Quanzhou Water Group and its associates (other than our Group). In addition, based on the business development strategy of Quanzhou Water Group, we expect to supply wastewater treatment equipment (including wastewater pre-treatment equipment and customised wastewater treatment equipment) and provide wastewater treatment services to two centralised wastewater treatment plants to be constructed by Quanzhou Municipal Drainage Co., Ltd. (泉州市政排水有限公司), an associate of Quanzhou Water Group, starting from 2021. Such centralised wastewater treatment plants involve combined process of coagulation, flocculation, sedimentation, filtration, and disinfection and treat wastewater in central locations and then distributes the treated water via dedicated distribution networks.

On [●] 2021, our Company and Quanzhou Water Group entered into a framework agreement (the “Equipment and Service Framework Agreement”), pursuant to which our Group shall, upon the request from Quanzhou Water Group and its associates (other than our Group), provide wastewater treatment services to Quanzhou Water Group and its associates (other than our Group). Quanzhou Water Group and its associates (other than our Group) may also purchase wastewater treatment equipment (including wastewater pre-treatment equipment and customised wastewater treatment equipment), pipes and pipe fittings from our Group pursuant to the Equipment and Service Framework Agreement. Our Company and

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Quanzhou Water Group and its associates will enter into definitive agreements or specific order forms for each purchases and projects, which are consistent with the terms and conditions set out in the Equipment and Service Framework Agreement.

The pricing of the provision of wastewater treatment services and supply of wastewater treatment equipment, pipes and pipe fittings are subject to the following policies:

(i) the prices shall be determined primarily through bidding processes, during which Quanzhou Water Group and/or its associates (other than our Group) selects suppliers by inviting tenders, and the suppliers provide quotations and tenders independently based on each procurement or project. During the bidding process, our Group shall, strictly comply with the Bid Invitation and Bidding Law of the PRC (中華人民共和國招投標法) and the requirements set out in bidding document prepared by Quanzhou Water Group and its associates (other than our Group), and the tender team of our Group will prepare tender proposal and other supporting documents in accordance with the specified requirements. The tender prices shall be determined based on, including but not limited to, recent quotations, relevant market information and etc., to ensure the tender prices as well as the tender terms offered by our Group to Quanzhou Water Group and its associates (other than our Group) are fair and reasonable, and are no more favorable to Quanzhou Water Group and its associates (other than our Group) than the prices and terms offered by our Group to Independent Third Parties; and

(ii) where no bidding process is involved, the pricing of the provision of wastewater treatment services and supply of wastewater treatment equipment, pipes and pipe fittings are subject to the following policies:

• determined based on arm’s length negotiations with reference to the scope and complexity of the wastewater treatment services provided and the types of wastewater treatment equipment, pipes and pipe fittings supplied;

• determined based on normal commercial terms;

• the unit price of the supplied pipes and pipe fittings shall be determined based on the unit price of similar pipes and pipe fittings supplied by our Group to other Independent Third Parties stipulated in our Group’s product price list;

• the price of the supplied wastewater treatment equipment shall be determined based on the price range of the similar wastewater treatment equipment supplied by our Group to other Independent Third Parties; and

• the price of the supplied wastewater treatment services shall be determined with reference to at least two contemporaneous transactions with Independent Third Parties with similar service scope.

Equipment and Service Framework Agreement will become effective from the [REDACTED] and expire on 31 December 2023 and is renewable upon mutual agreement, subject to compliance with the Listing Rules.

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Reasons for the above connected transaction

Quanzhou Water Group is our Controlling Shareholder. Our Directors believe that the cooperation with Quanzhou Water Group will diversify our business portfolio and enhance our project pipelines. Our Directors are also of the view that the transactions under the Equipment and Service Framework Agreement is fair, reasonable and in the interests of our Group and our shareholders as a whole for the following reasons: (i) the provision of wastewater treatment services to Quanzhou Water Group and its associates (other than our Group), as well as the selling of wastewater treatment equipment and pipes and pipe fittings to Quanzhou Water Group and its associates (other than our Group) are in the ordinary and usual course of business of our Company; and (ii) the terms of the Equipment and Service Framework Agreement are based on arm’s length negotiations and are no less favourable to us than the terms offered to Independent Third Parties by us.

Historical transaction amounts

For the three years ended 31 December 2020, the income received from Quanzhou Water Group and its associates (other than our Group) in relation to the sales of pipes and pipe fittings were nil, RMB19,778,000 and RMB27,506,000, respectively.

Proposed annual caps

The maximum transaction amount with Quanzhou Water Group and its associates (other than our Group) under the Equipment and Service Framework Agreement for the three years ending 31 December 2023 are expected not to exceed the annual caps set out below:

Proposed annual caps for the years ending 31 December 2021 2022 2023 (RMB in thousands) Income to be received from Quanzhou Water Group and its associates (other than our Group) under the Equipment and Service Framework Agreement 48,000 47,000 23,000

In determining the above annual caps, our Directors have considered:

(i) the historical transaction amounts between our Group and Quanzhou Water Group and its associates (other than our Group) in relation to the sales of pipes and pipe fittings;

(ii) we expect to supply wastewater treatment equipment and provide wastewater treatment services to Quanzhou Water Group and its associates (other than our Group) in 2021 and 2022, in respect of two centralized wastewater treatment plants. Accordingly, the transaction amounts between our Group and Quanzhou Water Group and its associates (other than our Group) will increase significantly in 2021 and 2022;

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(iii) the estimated demand on wastewater treatment services, wastewater treatment equipment, pipes and pipe fittings of Quanzhou Water Group and its associates (other than our Group) for the three years ending 31 December 2023. Such estimated demand is based on the business development plan and project pipeline of Quanzhou Water Group and its associates (other than our Group) for these years.

(iv) our Group’s business development plans for the three years ending 31 December 2023, especially the expected growth in business cooperation between our Group and Quanzhou Water Group and its associates (other than our Group) in the future;

(v) we believe that we are able to secure projects or purchase orders from Quanzhou Water Group and its associates through tender procedures or quotations in light of our competitive advantages, our market position and the mutually beneficial relationship between our Group and Quanzhou Water Group;

(vi) the historical tender success rate of our Group for wastewater treatment projects during the recent financial year;

(vii) the price of wastewater treatment equipment, pipes and pipe fittings supplied by our Group to Independent Third Parties and the prevailing market rates of similar wastewater treatment equipment, pipes and pipe fittings; and

(viii) our pricing policies on wastewater treatment services provided to Independent Third Parties.

Listing Rules implications

Based on the annual caps that have been proposed, we expect that, on an annual basis, all of the percentage ratios calculated in accordance with Rule 14.07 of the Listing Rules in respect of the transactions under the Pipe Procurement Framework Agreement, the Qing Yuan Shan Contract and the Qing Yuan Shan Operation Contract will be less than 5%. Accordingly, these continuing connected transactions will, upon the [REDACTED], be subject to the written agreement, announcement, annual reporting, terms of an agreement, annual caps, changes to cap or terms of an agreement and annual review requirements but exempt from the circular and shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Based on the annual caps that have been proposed, we expect that, on an annual basis, the highest applicable percentage ratio calculated in accordance with Rule 14.07 of the Listing Rules in respect of the equipment, pipe sales and provision of wastewater treatment services to Quanzhou Water Group and its associates under the Equipment and Service Framework Agreement will be higher than 5%. Accordingly, these continuing connected transactions will, upon the [REDACTED], be subject to the written agreement, announcement, annual reporting, terms of an agreement, annual caps, changes to cap or terms of an agreement and annual review, circular and shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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INTERNAL CONTROL MEASURES

We have implemented the following internal control policies to closely monitor and manage the on-going continuing connected transactions:

• Our Board has approved the estimated annual caps of the above continuing connected transactions.

• At the beginning of each calendar year, our finance and accounting department will issue and circulate the annual caps for the connected transactions of our Company for that particular year and remind each member and department of our Group to follow the internal control procedures for the control of the connected transactions.

• The finance and accounting department will be responsible for maintaining and updating the list of connected persons of our Group. Such list will be circulated to members and relevant departments of our Group on a regular basis.

• Before submitting any new business contract, our sales and marketing department is required to check the identity of the counterparty against the latest list of connected persons of our Group. If any counterparty is identified as a connected person, the management of our Company is to be informed and to seek further instruction. If any management decides to proceed with the contract, they would be required to seek shareholders’ approval for revision of the annual caps in accordance with the requirements under the Listing Rules, where necessary.

• Our finance and accounting department will set up a recording system for connected transactions, where it records and updates the beginning of each calendar month (i) the amount of connected transactions occurred in the previous month; (ii) the accumulative connected transaction amount occurred in that year; and (iii) the expected transaction amount for the rest of the year. In the event that the accumulative connected transaction amount is near or has exceed the annual cap of the year, the finance and accounting department will notify the management immediately and will closely monitor and control the approval of new business contracts and provide rectification measures, where necessary.

WAIVER APPLICATION

We expect to continue with the continuing connected transactions described under “Non-exempt Continuing Connected Transactions” above after the [REDACTED]. These continuing connected transactions will be conducted in compliance with Chapter 14A of the v Rules.

Under the Listing Rules, (i) the transactions contemplated under the Pipe Procurement Framework Agreement, Qing Yuan Shan Contract and Qing Yuan Shan Operation Contract constitute non-exempt continuing connected transactions subject to the written agreement, announcement, annual reporting, terms of an agreement, annual caps, changes to cap or terms of an agreement and annual review requirements but exempt from the circular and shareholders’ approval requirements under Chapter 14A of the Listing Rules; and (ii) the

– 294 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. CONNECTED TRANSACTIONS transactions contemplated under the Equipment and Service Framework Agreement constitute non-exempt continuing connected transactions subject to the written agreement, announcement, annual reporting, terms of an agreement, annual caps, changes to cap or terms of an agreement, annual review, circular and shareholders’ approval requirements under Chapter 14A of the Listing Rules. As the Pipe Procurement Framework Agreement, the Qing Yuan Shan Contract, the Qing Yuan Shan Operation Contract and the Equipment and Service Framework Agreement are and will continue to be entered into in the ordinary and usual course of business of our Group on a continuing and recurring basis and are expected to extend over a period of time, our Directors are of the view that compliance with the announcement requirement under Rule 14A.35 of the Listing Rules (for the transactions contemplated under the Pipe Procurement Framework Agreement, Qing Yuan Shan Contract, the Qing Yuan Shan Operation Contract and the Equipment and Service Framework Agreement), the shareholders’ approval requirement under Rule 14A.36 to Rule 14A.45 of the Listing Rules and the circular requirement under Rule 14A.46 to 14A.48 of the Listing Rules (for the transactions contemplated under the Equipment and Service Framework Agreement) would impose unnecessary administrative costs and burden to our Group, which would not be beneficial to our Company and our shareholders as a whole.

We will comply with the written agreement requirement under Rule 14A.34 of the Listing Rules, the terms of an agreement requirement under Rule 14A.51 to Rule 14A.52 of the Listing Rules, the annual cap requirement under Rule 14A.53 of the Listing Rules, the changes to cap or terms of agreement requirement under Rule 14A.54 of the Listing Rules and the annual review by independent non-executive directors and auditors requirements under Rules 14A.55 to 14A.59 of the Listing Rules in respect of the Pipe Procurement Framework Agreement, the Qing Yuan Shan Contract, the Qing Yuan Shan Operation Contract and the Equipment and Service Framework Agreement and any transactions contemplated thereunder. We will also comply with the annual reporting requirements under Rule 14A.49 of the Listing Rules and disclose the details of the Pipe Procurement Framework Agreement, the Qing Yuan Shan Contract, the Qing Yuan Shan Operation Contract and the Equipment and Service Framework Agreement in our subsequent annual reports.

Accordingly, in accordance with Rule 14A.105 of the Listing Rules, we have applied to the Stock Exchange, and the Stock Exchange has granted, (i) a waiver from strict compliance with the announcements under Rule 14A.35 of the Listing Rules for the transactions under the Pipe Procurement Framework Agreement, the Qing Yuan Shan Contract and the Qing Yuan Shan Operation Contract; and (ii) a waiver from strict compliance with the announcement requirements under Rule 14A.35 of the Listing Rules, the shareholders’ approval requirement under Rule 14A.36 to Rule 14A.45 of the Listing Rules and the circular requirement under Rule 14A.46 to 14A.48 of the Listing Rules for the transactions under the Equipment and Service Framework Agreement, from the [REDACTED] to 31 December 2023. The waiver is valid provided that the transaction amounts under the Pipe Procurement Framework Agreement, the Qing Yuan Shan Contract, the Qing Yuan Shan Operation Contract and the Equipment and Service Framework Agreement do not exceed their respective annual caps for the period set out above. After the expiry of this waiver, we will comply with the applicable provisions under Chapter 14A of the Listing Rules as amended from time to time or apply for a new waiver. In addition, if any material terms of the transactions contemplated under the abovementioned agreements are altered, or are expected to exceed the relevant annual caps, or if our Company enters into any new agreements with any connected persons in the future, we will fully comply with the relevant requirements under Chapter 14A of the Listing Rules unless we apply for and obtain a separate waiver from the Stock Exchange.

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CONFIRMATIONS

Directors’ Confirmation

Our Directors (including independent non-executive Directors) are of the view that (i) each of the non-exempt continuing connected transactions described above have been entered into and will be carried out in the ordinary and usual course of business and on normal commercial terms or better, (ii) the terms of each of the non-exempt continuing connected transactions described above are fair and reasonable and in the interest of our Group and shareholders as a whole, and (iii) the proposed annual caps for each of these non-exempt continuing connected transactions are fair and reasonable and in the interests of our Group and shareholders as a whole.

Sole Sponsor’s Confirmation

After due and careful enquiries, taking into account the information provided by our Company, the Sole Sponsor is of the view that (i) each of the non-exempt continuing connected transactions described above have been entered into and will be carried out in the ordinary and usual course of business and on normal commercial terms or better, (ii) the terms of each of these non-exempt continuing connected transactions described above are fair and reasonable and in the interests of our Group and shareholders as a whole, and (iii) the proposed annual caps for each of these non-exempt continuing connected transactions are fair and reasonable and in the interests of our Group and shareholders as a whole.

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BOARD OF DIRECTORS

The Board consists of eight Directors, including three executive Directors, two non-executive Directors and three independent non-executive Directors. The Board shall be responsible for and shall have general power to manage and develop the Company’s business. The functions and duties of the Board include convening Shareholders’ general meetings and reporting the Board’s work at the Shareholders’ general meetings, implementing the resolutions of Shareholders’ general meetings, determining business plans and annual business goals, formulating annual budget and final accounts, preparing proposals on profit distribution, recovery of losses, and increase or decrease in registered capital as well as exercising other power, functions and duties granted by the Articles of Association.

The following table presents certain information of our Directors. All Directors are in compliance with the qualification requirements of their respective positions according to the relevant laws and regulations in the PRC and the Listing Rules.

Relationship with Time of Date of other Directors, Joining our Appointment Main Roles and Supervisors and Name Age Position Group as Director Responsibilities Senior Management

Mr. Huang 52 Chairman of the July 2018 25 July 2018 Responsible for N/A Jinshun Board and formulating our (黃金順) non-executive Company’s corporate Director and operational strategies and supervising the management of our Company

Mr. Huang 46 Non-executive December 16 December Participating in the N/A Dongsheng Director 2019 2019 formulation of our (黃東勝) Company’s corporate and operational strategies and supervising the management of our Company

Mr. Lan Qiang 49 Executive Director, May 2012 10 May 2012 Responsible for the overall Mr. Lan Qiang is the (蘭強) vice chairman of business operation and brother of Mr. Lan the Board and management of our Xiong, one of our general manager Company Supervisors

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Relationship with Time of Date of other Directors, Joining our Appointment Main Roles and Supervisors and Name Age Position Group as Director Responsibilities Senior Management Mr. Lin 49 Executive Director May 2012 8 June 2015 Assisting in the overall Mr. Lin Hongquan is Hongquan and deputy business operation and the uncle of Ms. Lin (林洪全) general manager management of our Xiaoyan, our head of Company production

Mr. Huang 35 Executive Director August 2019 16 July 2020 Assisting in the overall N/A Xiaohui and deputy business operation and (黃曉輝) general manager management of our Company

Mr. Xia Qing 78 Independent [●][●] Supervising and providing N/A (夏青) non-executive independent judgment Director to the Board

Mr. Lian Tao 43 Independent [●][●] Supervising and providing N/A (廉濤) non-executive independent judgment Director to the Board

Mr. Li Rongkui 39 Independent [●][●] Supervising and providing N/A (李榮葵) non-executive independent judgment Director to the Board

Non-executive Directors

Mr. Huang Jinshun (黃金順), aged 52, is the chairman of the Board and a non-executive Director of our Company. He has joined our Company since July 2018 and has been primarily responsible for formulating our Company’s corporate and operational strategies and supervising the management of our Company.

Mr. Huang Jinshun has over 29 years of working experience in public services in Quanzhou. From July 1991 to February 2007, he successively served several positions in the General Office of Quanzhou People’s Government (泉州市人民政府辦公室). He then worked at Quanzhou Housing Provident Fund Management Center (泉州市住房公積金管理中心), successively serving as the secretary of Communist Party Committee and the director from March 2007 to July 2017. Since July 2017, Mr. Huang Jinshun has been acting as the secretary of the Communist Party Committee and chairman of the board of Quanzhou Water Group. Mr. Huang Jinshun joined our Group in July 2018 and has been acting as a Director and the chairman of the Board since then. Mr. Huang Jinshun was redesignated as our non-executive Director on 18 July 2020.

Mr. Huang Jinshun obtained a bachelor’s degree in economics from Fujian Agriculture and Forestry University (福建農林大學), formerly known as Fujian Agriculture College (福建農

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學院), in July 1991. He completed a postgraduate course in economic management at the Party School of the Fujian Provincial Committee of the Communist Party of China (中共福建省委黨校) in January 2005.

Mr. Huang Dongsheng (黃東勝), aged 46, is a non-executive Director of our Company. Mr. Huang Dongsheng joined our Company in December 2019 and has been acting as a Director and participating in the formulation of our Company’s corporate and operational strategies and supervising the management of our Company since then. Mr. Huang Dongsheng was redesignated as our non-executive Director on 18 July 2020.

Mr. Huang Dongsheng has over 24 years of working experience in public services in Quanzhou. He worked as a government official in Xun Zhong Town, De Hua County (德化縣潯中鎮) from July 1996 to August 1999, the commissary in charge of publicity in Gai De Town, De Hua County (德化縣蓋德鄉) from August 1999 to December 2004 and the secretary to Communist Youth League of De Hua County (德化縣) from December 2004 to May 2011. He then served as the deputy secretary of the Communist Party Committee and the chief of the town of Gui Yang Town, De Hua County (德化縣桂陽鄉) from May 2011 to September 2012. From September 2012 to August 2018, Mr. Huang Dongsheng served as the secretary of the Communist Party Committee of Tang Tou Town, De Hua County (德化縣湯頭鄉). From September 2018 to December 2019, Mr. Huang Dongsheng worked in Quanzhou Water Group as the manager of the Human Resources Department. Since November 2019, Mr. Huang Dongsheng has been acting as the secretary of general branch of Communist Party Committee and the chairman of the board of Haisi Environmental.

Mr. Huang Dongsheng obtained a bachelor’s degree in marine chemistry from Xiamen University (廈門大學) in July 1996.

Executive Directors

Mr. Lan Qiang (蘭強), aged 49, is an executive Director, the vice chairman of the Board and the general manager of our Company. Mr. Lan Qiang is responsible for the overall business operation and management of our Company. Mr. Lan Qiang is the brother of Mr. Lan Xiong, one of our Supervisors.

Mr. Lan Qiang has over 18 years of working experience in wastewater treatment industry. Prior to joining our Group, from January 2001 to March 2004, he worked as a business manager of Fuzhou Kehuan High-tech Environmental Protection Engineering Design Institute (福州科環高新環保工程設計所). Mr. Lan Qiang established Fuzhou Lanshen in March 2004 and established our Company together with Mr. Lin Hongquan in May 2012 and has been acting as a Director and the general manager of our Company since then. Mr. Lan Qiang has been appointed as the vice chairman of our Board since December 2019 and was redesignated as our executive Director on 18 July 2020. In addition, Mr. Lan Qiang has been acting as a member of the Longyan Committee of Chinese People’s Political Consultative Conference (中國人民政治協商會議龍岩市委員會) since December 2016, and the legal representative of Fujian National Minorities Development Fund (福建省少數民族發展基金會) since July 2019. Mr. Lan Qiang currently acts as the director and general manager of Quanzhou Xingyuan, and the executive director and general manager of Fuzhou Lanshen, Beijing Lanshen and Quanzhou Research Institute.

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Mr. Lan Qiang graduated from Chongqing University (重慶大學) through online undergraduate courses in July 2019, majoring in civil engineering. Mr. Lan Qiang was accredited as an intermediate economist (中級經濟師) by Quanzhou Title Reform Group (泉州市職改領導小組) in June 2020. Mr. Lan Qiang was awarded the “2018 Quanzhou Economy Person of the Year” (2018年度泉州經濟人物) in February 2019.

Mr. Lan Qiang was the legal representative and executive director, and person in charge of the following company and branch company, respectively, which were established under the laws of PRC and subsequently deregistered during his tenure:

Name of company/ Mr. Lan Qiang’s Nature of Date of Reasons for branch company position business deregistration deregistration

Jiangxi Lanshenlan Legal Jiangxi 11 September 2019 Voluntary Environmental representative, Lanshenlan dissolution due Technology Co. Ltd. general Environmental to the cessation (江西藍深蘭環保技術 manager and Technology Co., of business 有限公司) executive Ltd. had no operation and director substantive change of business development operation strategies before its deregistration

Fujian Lanshen Person in charge Fujian Lanshen 20 December 2018 Voluntary Environmental Environmental dissolution due Technology Co. Ltd. Technology Co., to the cessation Shanghang Branch Ltd., Shanghang of business (福建省藍深環保技術 Branch had no operation and 股份有限公司上杭分 substantive change of 公司) business development operation strategies before its deregistration

Mr. Lan Qiang confirmed that (i) the above company and branch company were solvent immediately prior to their respective deregistration and had no outstanding claim or liabilities; (ii) he is not aware of any actual or potential claim which has been or could potentially be made against him as a result of the deregistration of the above company and branch company; and (iii) there was no wrongful act on his part leading to the deregistration of the above company and branch company.

Mr. Lin Hongquan (林洪全), aged 49, is an executive Director and the deputy general manager of our Company. Mr. Lin Hongquan is responsible for assisting in the overall business operation and management of our Company. Mr. Lin Hongquan is the uncle of Ms. Lin Xiaoyan, our head of production.

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Mr. Lin Hongquan has over 16 years of working experience in construction related and wastewater treatment industries. Prior to joining our Group, from December 2003 to July 2010, he worked as the deputy general manager of Fuzhou Zhongmei Culture Communication Co., Ltd. (福州中媒文化傳播有限公司). From August 2010 to April 2012, he worked as the general manager of Fuzhou Huiqin Commerce Co., Ltd. (福州匯沁貿易有限公司) (formerly known as Fuzhou Cangshan Shenquan Construction Material Co. Ltd., (福州市倉山區深全建材有限公司)). Mr. Lin Hongquan established our Company with Mr. Lan Qiang in May 2012 and has been acting as a Director and the deputy general manager of our Company since June 2015 and was redesignated as our executive Director on 18 July 2020. In addition, Mr. Lin Hongquan has been acting as the deputy general manager of Fuzhou Lanshen, one of our Company’s subsidiaries, since May 2008.

Mr. Lin Hongquan obtained a college degree in construction engineering technology through online courses from Chongqing University (重慶大學) in July 2019.

Mr. Huang Xiaohui (黃曉輝), aged 35, is an executive Director and the deputy general manager of our Company. Mr. Huang Xiaohui is responsible for assisting in the overall business operation and management of our Company.

Mr. Huang Xiaohui has over 13 years of working experience in construction related and wastewater treatment industry. Prior to joining us, Mr. Huang Xiaohui joined Quanzhou Water Engineering in September 2006, and successively served several positions in Quanzhou Water Engineering from September 2006 to August 2018. From August 2018 to June 2020, he successively served as the investment officer and the deputy investment manager of the investment and development department of Quanzhou Water Group. He joined our Company in August 2019 and served as the deputy director of the engineering and operation department from September 2019 to May 2020. Mr. Huang Xiaohui has been acting as the deputy general manager of our Company since May 2020 and has been acting as a Director since 16 July 2020. Mr. Huang Xiaohui was redesignated as an executive Director on 18 July 2020.

Mr. Huang Xiaohui obtained a bachelor’s degree in engineering cost through correspondence study from Fujian University of Technology (福建工程學院) in January 2010. He was accredited as an associate constructor (二級建造師) by the Human Resources Development Office of Fujian (福建省人力資源開發辦公室), and the Department of Housing and Urban-Rural Development of Fujian (福建省住房和城鄉建設廳) in November 2009; and as an intermediate engineer (中級工程師) in engineering construction management by Quanzhou Title Reform Group (泉州市職改領導小組) in December 2015.

Independent non-executive Directors

Mr. Xia Qing (夏青), aged 78, is our independent non-executive Director. Mr. Xia Qing is responsible for supervising and providing independent judgement to the Board.

Mr. Xia Qing has over 40 years of research and working experience in the water conservation and environmental protection industry. From October 1981 to January 2003, he worked at the Chinese Research Academy of Environmental Sciences (中國環境科學研究院), successively serving as project manager, the head of technology development department, the director of the environmental standard department, vice president and the chief engineer. He

– 301 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT was accredited as a researcher by National Environmental Protection Agency (國家環境保護局) in December 1992, and was awarded the special government allowances by the State Council in October 1992. Mr. Xia Qing has been appointed as a member of the Expert Consulting Group for Environmental Impact Assessment of the Ministry of Environmental Protection (環境保護部環境影響評價專家諮詢組) by the Ministry of Environmental Protection since October 2015. Mr. Xia Qing has been appointed as a member of the Expert Committee of South-to-North Water Diversion Project (南水北調工程專家委員會) by the Ministry of Water Resources of the PRC (中華人民共和國水利部) since May 2020. In addition, from August 2018 to December 2018, Mr. Xia Qing acted as a director of Xiongan Kerong Environment Technology Co., Ltd. (雄安科融環境科技股份有限公司) (previously known as Xuzhou Kerong Environment Resources Co., Ltd. (徐州科融環境資源股份有限公司)), a company whose shares are listed on Shenzhen Stock Exchange (Stock Code: 300152).

Mr. Xia Qing obtained a bachelor’s degree in hydraulic engineering from Tsinghua University (清華大學) in July 1968. He later obtained a master’s degree in science from Beijing Normal University (北京師範大學) in May 1982.

Mr. Lian Tao (廉濤) , aged 43, is our independent non-executive Director. Mr. Lian Tao is responsible for supervising and providing independent judgement to the Board.

Mr. Lian Tao has over eight years of experience in legal and compliance, financial management, corporate management and investment. From January 2012 to August 2012, Mr. Lian Tao served as the deputy chief accountant of Inner Mongolia Yitai Group Co., Ltd. (內蒙古伊泰集團有限公司). From September 2012 to March 2015, he served as the joint company secretary, the secretary to the Board and the deputy general manager of Inner Mongolia Yitai Coal Co., Ltd. (內蒙古伊泰煤炭股份有限公司), a company whose shares are listed on the Stock Exchange (stock code: 3948) and the Shanghai Stock Exchange (stock code: 900948). Since November 2016, he has been acting as the director of Youpin Wealth Management Co., Ltd. (優品財富管理股份有限公司), a company whose principal business activities include wealth management and investment consultation.

Mr. Lian Tao obtained a bachelor’s degree in law from Tsinghua University (清華大學)in July 2001, a master’s degree in international professional accounting from the University of New South Wales in September 2004, and a master’s degree in European Law from Saarland University in May 2009.

Mr. Li Rongkui (李榮葵), aged 39, is our independent non-executive Director. Mr. Li Rongkui is responsible for supervising and providing independent judgement to the Board.

Mr. Li Rongkui has over 17 years of experience in handling financial and corporate matters. From December 2002 to September 2009, Mr. Li Rongkui served as the deputy manager of financial department of Quanzhou Kui Sheng Craft Co., Ltd. (泉州奎生工藝有限公司). From October 2009 to June 2012, Mr. Li Rongkui served as the assistant to the financial director of Baofeng Modern International Holdings Company Limited (寶峰時尚國際控股有限公司), a company whose shares are listed on the Stock Exchange (Stock Code: 1121). From July 2012 to December 2015, Mr. Li Rongkui served as the financial director of Zhangzhou Hong Yuan Watch Co., Ltd. (漳州宏源表業有限公司) which is a subsidiary of Luxxu Group Limited (勵時集團有限公司) (formerly known as Time2U International Holdings Limited (時間由你國際控股有限公司)), a

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Mr. Li Rongkui obtained a college degree in law from Xiamen University (廈門大學) via self-taught higher eduction examinations in December 2002 and further obtained a bachelor’s degree in accounting through correspondence study in July 2014 from Xi’an Jiaotong University (西安交通大學) in July 2014. Mr. Li Rongkui was accredited as a Chinese Registered Tax Agent in September 2011 by the Human Resources Development Office of Fujian (福建省人力資源開發辦公室). He is a non-practicing member of the Chinese Institute of Certified Public Accountants.

SUPERVISORY COMMITTEE

Our Supervisory Committee consists of three Supervisors. The following table sets forth certain information about our Supervisors:

Date of Appointment Relationship with Time of of the other Directors, Joining our position of Main Roles and Supervisors and Name Age Position Group Supervisor Responsibilities Senior Management

Mr. Zheng 39 Chairman of the July 2018 25 July 2018 Responsible for N/A Xuhui Supervisory supervising the (鄭旭暉) Committee performance of duties by the Directors and the senior management, financial activities, internal control and risk management of our Company

Mr. Lan Xiong 46 Supervisor May 2017 25 July 2018 Responsible for Mr. Lan Xiong is the (藍雄) supervising the brother of Mr. Lan performance of duties by Qiang, our executive the Directors and the Director, vice senior management, chairman of the financial activities, Board and general internal control and risk manager management of our Company

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Date of Appointment Relationship with Time of of the other Directors, Joining our position of Main Roles and Supervisors and Name Age Position Group Supervisor Responsibilities Senior Management

Ms. He Ziwei 29 Employee January 2019 29 May 2020 Responsible for N/A (何紫薇) representative supervising the Supervisor performance of duties by the Directors and the senior management, financial activities, internal control and risk management of our Company

Supervisors

Mr. Zheng Xuhui (鄭旭暉), aged 39, is the chairman of our Supervisory Committee. Mr. Zheng Xuhui is responsible for supervising the performance of duties by the Directors and the senior management, financial activities, internal control and risk management of our Company. Mr. Zheng Xuhui has over 12 years of working experience in the financial industry and water related industry. Mr. Zheng Xuhui successively served as an accountant and the deputy manager of the planning and financial affairs department of Quanzhou Water Supply from September 2007 to January 2018. From February 2018 to April 2020, Mr. Zheng Xuhui acted as the deputy manager of the financial department and the investment development department of Quanzhou Water Group. Mr. Zheng Xuhui has been acting as the manager of the investment development department of Quanzhou Water Group since April 2020. Mr. Zheng Xuhui joined our Company in July 2018 and has been acting as the chairman of our Supervisory Committee since then.

Mr. Zheng Xuhui obtained a bachelor’s degree in accounting from Tongji University (同濟大學) in July 2004. Mr. Zheng Xuhui was accredited as a senior accountant (高級會計師)by Human Resources and Social Security Department of Fujian Province (福建省人力資源和社會保障廳) in September 2019.

Mr. Lan Xiong (藍雄), aged 46, is the Supervisor of our Company. Mr. Lan Xiong is responsible for supervising the performance of duties by the Directors and the senior management, financial activities, internal control and risk management of our Company. Mr. Lan Xiong is the brother of Mr. Lan Qiang, our general manager, executive Director and vice chairman of the Board. Mr. Lan Xiong has over 23 years of working experience in providing legal services. Mr. Lan Xiong was admitted as an attorney-at-law of the PRC in June 1997. Since November 2003, he has been acting as a lawyer and partner of Beijing B&H Associates Law Firm (北京博恒律師事務所). Since May 2014, he has been acting as the executive director of Xizang Laise Investment Co., Ltd. (西藏萊瑟投資有限公司), and he currently also acts as the general manager of Xizang Laise Investment Co., Ltd. Since August 2017, he has been acting as the chairman of the board of Tibet Huaqin Internet Technology Co., Ltd. (西藏華勤互網科技股份有限公司) (formerly known as Tibet Huaqin Internet Co.,Ltd. (西藏華勤互聯人力資源股份有限公司)),

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Mr. Lan Xiong obtained a master’s degree in international law from University of International Business and Economics (對外經濟貿易大學) in June 1999.

Mr. Lan Xiong held the following positions in the following company and limited partnership which were established/organised under the laws of PRC and subsequently deregistered during his tenure:

Name of company/ Mr. Lan Xiong’s Nature of Date of Reasons for partnership position business deregistration deregistration

Beijing Golden Le Tu executive partner provision of 30 October 2018 voluntary Management consultation dissolution due Consulting Centre services to the cessation (Limited of business Partnership) operation (北京金色樂途管理諮詢中心（有限合夥）)

You Di Mei (Beijing) legal development of 27 November 2018 voluntary Food Technology representative, food technology dissolution due Co., Ltd. executive to the cessation (優地美（北京）食品科 director and of business 技有限公司) manager operation

Mr. Lan Xiong confirmed that (i) the above company and limited partnership were solvent immediately prior to their respective deregistration and had no outstanding claim or liabilities; (ii) he is not aware of any actual or potential claim which has been or could potentially be made against him as a result of the deregistration of the above company and limited partnership; and (iii) there was no wrongful act on his part leading to the deregistration of the above company and limited partnership.

Ms. He Ziwei (何紫薇), aged 29, is the employee representative Supervisor of our Company. Ms. He Ziwei is responsible for supervising the performance of duties by the Directors and the senior management, financial activities, internal control and risk management of our Company. Prior to joining our Group, from October 2015 to December 2018, Ms. He Ziwei served as an account manager at the Fujian branch of Anbang Property & Casualty Insurance Co., Ltd. (安邦財產保險股份有限公司). Ms. He Ziwei has been acting as a member of the office of the Board since January 2019 and the deputy manager of general affairs department of our Company since September 2019. Since May 2020, Ms. He Ziwei has been acting as our Supervisor. She has also been acting as the supervisor of Quanzhou Xingyuan since March 2019.

Ms. He obtained a bachelor’s degree in tax affairs from Xiamen University Tan Kah Kee College (廈門大學嘉庚學院) in June 2015.

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SENIOR MANAGEMENT

Our senior management is responsible for the day-to-day management of our business. The table below sets out certain information in respect of our senior management:

Date of Relationship with Senior Time of Appointment other Directors, Management Joining our of the current Main Roles and Supervisors and Name Age Position Group position Responsibilities Senior Management

Mr. Lan Qiang 49 General manager May 2012 10 May 2012 Responsible for the overall Mr. Lan Qiang is the (蘭強) business operation and brother of Mr. Lan management of our Xiong, one of our Company Supervisors

Mr. Lin 49 Deputy general May 2012 8 June 2015 Assisting in the overall Mr. Lin Hongquan is Hongquan manager business operation and the uncle of Ms. Lin (林洪全) management of our Xiaoyan, our head of Company production

Mr. Huang 35 Deputy general August 2019 27 May 2020 Assisting in the overall N/A Xiaohui manager business operation and (黃曉輝) management of our Company

Mr. Gao Deti 36 Deputy general August 2019 13 December Responsible for the N/A (高德提) manager 2019 operational management of our Company, including safety management, quality control and development of information technology

Mr. Zhang Jin 37 Deputy general February 2016 13 December Responsible for the N/A (張金) manager 2019 research, design, application and development of key technology of our Company

Ms. Wang 34 Financial controller June 2019 30 June 2020 Responsible for our N/A Qingyun Company’s financial (王清雲) management and capital operation

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Ms. Lin Xiaoyan 36 Head of production May 2012 30 June 2020 Responsible for our Ms. Lin Xiaoyan is the (林曉燕) Company’s niece of Mr. Lin manufacturing and Hongquan, our production activities executive Director and deputy general manager

Mr. Lan Qiang (蘭強), aged 49, is our executive Director, vice chairman of the Board and the general manager of our Company. See “Executive Directors” above for details of his biography.

Mr. Lin Hongquan (林洪全), aged 49, is our executive Director and the deputy general manager of our Company. See “Executive Directors” above for details of his biography.

Mr. Huang Xiaohui (黃曉輝), aged 35, is our executive Director and the deputy general manager of our Company. See “Executive Directors” above for details of his biography.

Mr. Gao Deti (高德提), aged 36, is the deputy general manager of our Company. Mr. Gao Deti is responsible for the operational management of our Company, including safety management, quality control and development of information technology. Mr. Gao Deti has over ten years of working experience in the wastewater treatment industry. He worked in Quanzhou Fuen Environmental Engineering Co., Ltd. (泉州市孚恩環境工程有限公司) as the production manager from January 2010 to February 2017, and as the head of Chengdong Wastewater Treatment Plant (城東污水處理廠) from February 2017 to August 2018. From February 2019 to September 2019, Mr. Gao Deti served as the principal of the engineering and technology department and the deputy chief engineer of Haisi Environmental. Mr. Gao Deti joined our Company in August 2019 and has been acting as the deputy general manager since December 2019. Mr. Gao Deti currently acts as the executive director and general manager of Yongchun Lvdi and Fujian Lvdi.

Mr. Gao Deti obtained a bachelor’s degree in environmental engineering from Fujian Agriculture and Forestry University (福建農林大學) in June 2007. He obtained the registered qualification certificate as associate constructor issued by the Human Resources and Social Security Department of Fujian Province (福建省人力資源與社會保障廳) in October 2011. He was accredited as the senior engineer in technology management by the Human Resources and Social Security Department of Fujian Province (福建省人力資源與社會保障廳) in July 2018.

Mr. Zhang Jin (張金), aged 37, is the deputy general manager of our Company. Mr. Zhang Jin is responsible for the research, design, application and development of key technology of our Company. Mr. Zhang Jin has over 11 years of working experience in the environmental and construction related industry. From October 2008 to March 2013, he worked in Fujian Long Yuan Environmental Engineering Technology Co., Ltd. (福建龍源環境工程技術有限公司), a company principally engaged in the business of environmental engineering and municipal public

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Mr. Zhang Jin obtained a bachelor’s degree in environmental engineering from Fuzhou University (福州大學) in July 2008. He obtained certificate of registration of associate constructor issued by Housing and Urban-Rural Development Department of Fujian Province (福建省住房和城鄉建設廳) in April 2014 and was accredited as an intermediate engineer in environmental engineering by the Title Reform Group of the Sixth Office of Fujian People’s Government (福建省人民政府第六辦公室職稱改革領導小組) in December 2014.

Ms. Wang Qingyun (王清雲), aged 34, is our financial controller of our Company. Ms. Wang Qingyun is responsible for our Company’s financial management and capital operation. Ms. Wang has over nine years of experience in financial management. Prior to joining our Group, from August 2011 to December 2015, Ms. Wang Qingyun served as the manager of financial department of the first branch company of Fujian Bei Si Dun Property Services Co., Ltd. (福建省貝斯頓物業服務有限公司晉江第一分公司). From January 2016 to August 2017, Ms. Wang Qingyun served as the manager of financial department of Stone Lion Theme Park branch company of Stone Lion Shi Mao Property Development Co., Ltd. (石獅世茂房地產開發有限公司石獅主題樂園分公司). From August 2017 to September 2018, Ms. Wang Qingyun worked at Xiamen Zhilv Haitong Technology Co., Ltd. (廈門智旅海通科技有限公司). From September 2018 to July 2019, Ms. Wang Qingyun served as a project financial manager of Fujian Ling Xiu Culture and Tourism Group Co., Ltd. (福建省領秀文旅集團有限公司). Ms. Wang Qingyun joined our Group in June 2019 and was promoted to financial controller in June 2020.

Ms. Wang Qingyun graduated from Fuzhou University (福州大學) via self-taught higher education examinations majoring in accounting in December 2008. On 27 June 2008, Ms. Wang Qingyun obtained the certificate of accounting profession from Quanzhou Jinjiang Municipal Finance Bureau (泉州市晉江市財政局). On 17 May 2009, she was accredited as a junior accountant by the Bureau of Personnel of Quanzhou Municipality (泉州市人事局).

Ms. Lin Xiaoyan (林曉燕), aged 36, is the head of production of our Company. Mr. Lin Xiaoyan is responsible for our Company’s manufacturing and production activities. Ms. Lin Xiaoyan is the niece of Mr. Lin Hongquan, our executive Director and deputy general manager. She has over seven years of working experience in the wastewater treatment industry. Ms. Lin Xiaoyan joined our Company in May 2012 and acted as the production manager from May 2012 to January 2019. From January 2019 to July 2020, Ms. Lin Xiaoyan acted as the production manager of our Quangang branch company. Ms. Lin Xiaoyan has been acting as the head of production of our Company since June 2020.

Ms. Lin Xiaoyan obtained a diploma in environmental engineering and technology through online courses from China University of Petroleum (Eastern China) (中國石油大學（華東）) in January 2020.

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Other disclosure pursuant to Rule 13.51(2) of the Listing Rules

See “Appendix VI — Statutory and General Information” to this document for further information about our Directors and Supervisors, including the particulars of their service contracts and remuneration, and details of the interests of our Directors and Supervisors in the Shares (within the meaning of Part XV of the SFO). To the best of the knowledge, information and belief of our Directors having made all reasonable enquiries, save as disclosed in this document, there was no additional matter with respect to the appointment of our Directors, Supervisors and senior management members that needs to be brought to the attention of the Shareholders, and there was no additional information relating to our Directors, Supervisors and senior management members that is required to be disclosed pursuant to Rule 13.51(2) of the Listing Rules, including that each of our Directors, Supervisors and senior management members (i) did not hold other positions in our Company or other members of our Group as of the date of this document; (ii) had no other relationship with other Directors, Supervisors, senior management members, substantial shareholders or Controlling Shareholders of our Company as of the date of this document; and (iii) did not hold any directorship in any other listed companies in the three years prior to the date of this document.

JOINT COMPANY SECRETARIES

Ms. Zhang Huan (張歡), aged 28, is one of our joint company secretaries. She has over five years of working experience in the wastewater treatment industry. Ms. Zhang Huan joined our Group in February 2014. From July 2014 to December 2015, she worked as a technician. From January 2016 to May 2020, she worked as the assistant to the general manager. From June 2015 to May 2020, Ms. Zhang Huan worked as the employee representative Supervisor of our Company. Ms. Zhang Huan has been acting as the secretary of the Board since May 2020 and as one of our joint company secretaries since July 2020. Ms. Zhang Huan currently acts as the supervisor of Hainan Lanshen.

Ms. Zhang Huan obtained a bachelor’s degree in environmental engineering from Fujian Agriculture and Forestry University (福建農林大學) in June 2014. She was accredited as the junior assistant engineer in environmental engineering by the Title Reform Group of China Strait Talent Market (中國海峽人才市場職稱改革領導小組) in August 2015, and as a qualified quality officer for municipal engineering by the Urban-Rural Development Committee of Fuzhou (福州市住房和城鄉建設委員會) in November 2016. She obtained the certificates of competence as board secretary issued by Shanghai Stock Exchange, Shenzhen Stock Exchange and NEEQ in November 2016, November 2016 and May 2017, respectively.

Ms. Mak Po Man Cherie (麥寶文), aged 46, is one of our joint company secretaries. Ms. Mak is the vice president of the corporate secretarial department of SWCS Corporate Services Group (Hong Kong) Limited, a company providing company secretarial services.

Ms. Mak has over 16 years of experience in the fields of corporate secretarial, audit, accounting, corporate finance and compliance. She obtained her bachelor’s degree of arts in business and finance from the University of Portsmouth in January 2002 and obtained her master’s degree in corporate governance from The Hong Kong Polytechnic University in September 2017. She became an associate member of The Hong Kong Institute of Chartered Secretaries and The Institute of Chartered Secretaries and Administrations in the United

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Kingdom in 2017. She has also been a member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of Chartered Certified Accountants since 2003 and 2006, respectively.

As of the Latest Practicable Date, Ms. Mak served as the company secretary and/or joint company secretaries of several companies listed on the Stock Exchange, including Dadi International Group Limited (stock code: 8130), Pharmaron Beijing Co., Ltd. (stock code: 3759), Nongfu Spring Co., Ltd. (stock code: 9633), Wenye Group Holdings Limited (stock code: 1802), JH Educational Technology Inc. (stock code: 1935), Yeahka Limited (stock code: 9923), Neusoft Education Technology Co. Limited (stock code: 9616), Leading Holdings Group Limited (stock code: 6999), Simcere Pharmaceutical Group Limited (stock code: 2096) and Hailiang International Holdings Limited (stock code: 2336).

Our Directors have considered Ms. Mak’s concurrent service as company secretary and joint company secretary of various companies listed on the Stock Exchange and are satisfied with Ms. Mak’s ability to devote sufficient time to act as our joint company secretary having regard to all the relevant factors including:

(i) Ms. Mak has sufficient knowledge and experience in discharging her duties as joint company secretary through her past working experience and her services as a company secretary and/or joint company secretaries in different listed companies. She has sufficient understanding in her role as the company secretary and/or joint company secretaries of these companies and in estimating the time required for attending to the affairs of each listed company;

(ii) Ms. Mak has confirmed that she has not found any difficulty in devoting and managing her time to the numerous listed companies that she is involved in and none of the listed companies that she served has questioned or complained about her time devoted to the listed companies;

(iii) Ms. Mak’s primary duty is to work closely with Ms. Zhang, the other joint company secretary of our Company, in providing assistance to Ms. Zhang so as to enable Ms. Zhang to acquire the relevant experience (as required under Rule 3.28 of the Listing Rules) to discharge the duties and responsibilities as a company secretary, including but not limited to communicating regularly with Ms. Zhang on matters relating to corporate governance, the Listing Rules, as well as the applicable Hong Kong laws and regulations which are relevant to our Company; and

(iv) Ms. Mak has confirmed to our Company that she has the capability and committed to devote sufficient time to discharge her duties and responsibilities as a joint company secretary of our Group, taking into account of her experience in acting as the joint company secretary of a number of listed companies and the time she is required to devote to each of these listed companies.

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CORPORATE GOVERNANCE

Our Company is committed to achieving high standards of corporate governance with a view to safeguarding the interests of our Shareholders. To accomplish this, our Company intends to comply with the corporate governance requirements under the Corporate Governance Code set out in Appendix 14 to the Listing Rules after the [REDACTED].

BOARD COMMITTEES

Various committees have been established under the Board. In accordance with the relevant regulations of the PRC and the Corporate Governance Code of the Listing Rules, our Company has set up four Board committees, including the audit committee, the remuneration committee, the nomination committee and the development and strategy committee.

Audit Committee

Our Company has established an audit committee with written terms of reference in compliance with Rule 3.21 of the Listing Rules and the paragraph C.3 of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules. The audit committee consists of three members, namely, Mr. Li Rongkui, Mr. Xia Qing and Mr. Lian Tao, all being our independent non-executive Directors. Mr. Li Rongkui, with appropriate accounting and financial management expertise, serves as the chairperson of the audit committee. The primary duties of the audit committee are to review and supervise the financial reporting process and internal control system of our Group, oversee the audit process and perform other duties and responsibilities as assigned by the Board.

Remuneration Committee

Our Company has established a remuneration committee with written terms of reference in compliance with Rule 3.25 of the Listing Rules and the paragraph B.1 of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules. The remuneration committee consists of three members, including two independent non-executive Directors, namely, Mr. Lian Tao and Mr. Li Rongkui, and one non-executive Director, namely, Mr. Huang Dongsheng. Mr. Lian Tao serves as the chairperson of the remuneration committee. The primary duties of the remuneration committee are to establish and review the policy and structure of the remuneration for the Directors and senior management and make recommendations on employee benefit arrangement.

Nomination Committee

Our Company has established a nomination committee with written terms of reference in compliance with the paragraph A.5 of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules. The nomination committee consists of three members, including, and two independent non-executive Directors, namely, Mr. Xia Qing, Mr. Lian Tao, and one non-executive Director, namely, Mr. Huang Jinshun. Mr. Huang Jinshun serves as the chairperson of the nomination committee. The primary duties of the nomination committee are to make recommendations to the Board on the appointment and removal of Directors of our Company.

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Development and Strategy Committee

Our Board of Directors has established a development and strategy committee with written terms of reference. The development and strategy committee consists of three Directors, including one executive Director, namely, Mr. Lan Qiang, one non-executive Director, namely, Mr. Huang Jinshun and one independent non-executive Director, namely Mr. Xia Qing. The chairperson of the development and strategy committee is Mr. Huang Jinshun. The primary duties of the Development and Strategy Committee are as follows:

• formulating our development strategies and operational objectives, and making relevant recommendations to the Board of Directors;

• reviewing our annual budgets, strategic asset allocation plans, goals for assets and liabilities management, and development plans on various matters, and making relevant recommendations to the Board of Directors;

• making recommendations on plans for our organizational re-construction, material investment plans and merger and acquisition plans to the Board of Directors;

• assessing the soundness of our corporate structure to improve our financial reports, risk management and internal control in accordance with the standards of our corporate governance policies, and supervising the implementation of our annual operational and investment plans; and

• performing other responsibilities as authorised by the Board of Directors and in accordance with applicable laws and regulations.

The Party Committee

According to the Constitution of the Communist Party of China, the Company has established the Committee of Communist Party of the Company (the “Party Committee”) since 2018, which plays a core political role in the Company. The Party Committee mainly assumes the following duties and responsibilities:

(a) ensuring and supervising the implementation of national policies and strategies and the Communist Party of China, and supporting major decisions made by Central Committee of the Communist Party of China and the State Council, as well as the work deployment of relevant state ministries and higher Party organizations;

(b) insisting on the integration of the principle of management of cadres by the Party with the function of the Board in the lawful selection of the operation management and with the lawful exercise of authority of appointment, promotion and demotion of personnel by the management, considering and advising on the candidates nominated by the Board or the president, and evaluating candidates for directors and presidents with the Board and putting forth opinions and suggestions;

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(c) researching and discussing on issues relating to the Company’s stable reform and development, major business management and operation matters and matters relating to employees’ interest as a whole, advising on decision-making of major issues of the Company, and giving prime attention to unity in thinking, leading in trend, grasping the big picture and planning on development; and

(d) leading the ideological and political education work, promoting cultural and ideological progress of the Company, enhancing corporate culture construction and talent cultivation, and guiding and supporting the work of labour union and the communist youth league of the Company, and leading the Company in building an honest and clean Party.

Notwithstanding the above duties and responsibilities, the Party Committee has no (i) power to vote at the shareholders’ general meeting of our Company, or (ii) power to appoint Directors or senior management.

WAIVERS GRANTED BY THE STOCK EXCHANGE

We have applied to the Stock Exchange for[, and the Stock Exchange has granted,] waivers from strict compliance with the requirements under Rules 8.12 and 19A.15 of the Listing Rules in relation to the requirement of management presence in Hong Kong and under Rules 3.28 and 8.17 of the Listing Rules in relation to joint company secretaries. For details of the waivers, see “Waivers from Strict Compliance with the Listing Rules in this document.

BOARD DIVERSITY POLICY

We have adopted a board diversity policy which sets out the approach to achieve and maintain an appropriate balance of diversity perspectives of our Board that are relevant to our business growth. Pursuant to our board diversity policy, selection of Board candidates will be based on a range of diversity perspectives, including but not limited to gender, age, cultural and educational background, professional qualifications, skills, knowledge and industry experience. The ultimate decision will be based on merit and contribution that the selected candidates will bring to our Board.

Our Company values gender diversity and will continue to take steps to promote gender diversity at all levels of our Company, including but without limitation at our Board and senior management levels, to enhance the effectiveness of our corporate governance. We have taken, and will continue to take steps to promote gender diversity of our Company. We have also adopted measures to promote gender diversity in developing our pipeline of potential successors to the Board that commensurate with the industry practice, including putting gender diversity as a strategic priority when sourcing for our director candidates, leveraging the community resources including relevant associations, networking groups and publications, and forging and keeping relationship with the potential candidates.

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In recognition of the particular importance of the gender diversity and that gender diversity at Board level can be improved given its current composition of a single gender, our nomination committee will continue to and from time to time identify suitable candidates of both genders to our Board to be appointed as Directors. We will introduce at least one female Board member to our Board by the end of 2021, subject to our Directors (i) being satisfied with the competence and experience of the relevant candidates after a reasonable review process based on reasonable criteria; and (ii) fulfilling their fiduciary duties to act in the best interest of our Company and our Shareholders as a whole when deliberating on the appointment. We also continue to ensure that there is gender diversity when recruiting staff at middle to senior level so that we will have a pipeline of female senior management and potential successors to our Board in due time to ensure gender diversity of the Board. Our Directors believe that such merit-based appointments with reference to our diversity policy and the nature of our business will be in the best interest of our Company and its Shareholders as a whole. To allow our Shareholders to be able to judge whether board diversity is achieved, we will provide our Shareholders with detailed information of each candidate for appointment or re-election to our Board through announcements and circulars published prior to general meetings of our Company.

Our nomination committee is responsible for ensuring the diversity of our Board. After the [REDACTED], our nomination committee will review our board diversity policy from time to time to ensure its continued effectiveness and we will disclose the implementation of our board diversity policy in our corporate governance report on an annual basis.

REMUNERATION OF THE DIRECTORS, SUPERVISOR AND SENIOR MANAGEMENT

Our Directors and senior management members receive compensation in the form of fees, salaries, bonuses, other allowances and benefits in kind, including our Company’s contribution to the pension scheme on their behalf. We determine the salaries of our Directors based on each Director’s responsibilities, qualification, position and seniority.

The aggregate amount of remuneration which was paid to our Directors and Supervisors for the three years ended 31 December 2020 were approximately RMB2.9 million, RMB5.2 million and RMB6.3 million, respectively.

The aggregate amount of remuneration which were paid by our Group to our five highest paid individuals, including Directors, for the three years ended 31 December 2020 were approximately RMB3.2 million, RMB6.9 million and RMB5.9 million, respectively.

No remuneration was paid to our Directors, Supervisors or the five highest paid individuals as an inducement to join, or upon joining, our Group. No compensation was paid to, or receivable by, our Directors, past Directors, Supervisors, past Supervisors or the five highest paid individuals for the Track Record Period for the loss of office as director of any member of our Group or of any other office in connection with the management of the affairs of any member of our Group. None of our Directors or Supervisors waived any emoluments during the same period.

Except as disclosed above, no other payments have been paid, or are payable, by our Company or any of our subsidiaries to our Directors, Supervisors or the five highest paid individuals during the Track Record Period.

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It is estimated that remuneration and benefits in kind equivalent to approximately RMB4.0 million in aggregate will be paid and granted to our Directors and Supervisors by us in respect of the financial year ending 31 December 2021 under arrangements in force at the date of this document.

See note 36 and note 9 of the Accountant’s Report set out in Appendix I to this document for additional information on Directors’ remuneration during the Track Record Period as well as information on the highest paid individuals, respectively.

COMPLIANCE ADVISER

We have appointed China Industrial Securities International Capital Limited as our compliance adviser pursuant to Rule 3A.19 of the Listing Rules. Pursuant to Rule 3A.23 of the Listing Rules, the compliance adviser will advise us in the following circumstances:

• before the publication of any regulatory announcement, circular or financial report;

• where a transaction, which might be a notifiable or connected transaction under Chapters 14 and 14A of the Listing Rules is contemplated, including share issues and share repurchases;

• where we propose to use the [REDACTED]ofthe[REDACTED] in a manner different from that detailed in this document;

• where our business activities, developments or results deviate from any forecast, estimate or other information in this document; and

• where the Stock Exchange makes an inquiry of us regarding unusual price movement and trading volume or other issues under Rule 13.10 of the Listing Rules.

Unless the compliance adviser agreement is terminated or renewed pursuant to the terms thereof, the term of the appointment shall commence on the [REDACTED] and end on 30 June 2022, covering the date on which we distribute our annual report of our financial results for the first full financial year commencing after the [REDACTED].

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As of the Latest Practical Date, the total issued share capital of our Company was RMB98,226,018 divided into 98,226,018 Domestic Shares with a nominal value of RMB1.00 each. So far as our Directors are aware, immediately following the completion of the [REDACTED] (assuming that the [REDACTED] is not exercised), the following persons will have an interest or a short position in [REDACTED] or underlying [REDACTED] of our Company which will be required to be disclosed to our Company and the Stock Exchange pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO or will be, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of our Company:

Approximate Number of Approximate percentage in Shares directly percentage in the total share or indirectly the relevant capital of our Name of Shareholder Nature of interest Class of Shares held (1) class of Shares Company

Quanzhou Water Group (2) Interest in controlled Domestic Shares [REDACTED][REDACTED][REDACTED] corporations

Haisi Beneficial owner Domestic Shares [REDACTED][REDACTED][REDACTED] Environmental (2)

Mr. Lan Qiang Beneficial owner Domestic Shares [REDACTED][REDACTED][REDACTED] (蘭強)

Ms. Zheng Lihua Interest of spouse Domestic Shares [REDACTED][REDACTED][REDACTED] (鄭麗華) (3)

Mr. Lin Hongquan Beneficial owner Domestic Shares [REDACTED][REDACTED][REDACTED] (林洪全)

Ms. Liu Yinxiang Interest of spouse Domestic Shares [REDACTED][REDACTED][REDACTED] (劉銀香) (4)

Lanshen Youshi (5) Beneficial owner Domestic Shares [REDACTED][REDACTED][REDACTED]

Youshi Financial Holdings Interest in controlled Domestic Shares [REDACTED][REDACTED][REDACTED] (Shanghai) Asset corporations Management Co., Ltd. (優勢金控（上海）資產管理有限公司) (5)

Mr. Wu Kezhong Interest in controlled Domestic Shares [REDACTED][REDACTED][REDACTED] (吳克忠) (5) corporations

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Quanzhou Haisi Water Interest in controlled Domestic Shares [REDACTED][REDACTED][REDACTED] Investment Co., Ltd. (泉州海 corporations 絲水務投資有限責任公司) (6)

Fujian Haiji Investment and Interest in controlled Domestic Shares [REDACTED][REDACTED][REDACTED] Development Co., Ltd. (福建 corporations 省海基投資發展有限公司) (7)

Mr. Xu Yuanyang Interest in controlled Domestic Shares [REDACTED][REDACTED][REDACTED] (許源陽) (7) corporations

Fujian Haiji Property Co., Ltd. Interest in controlled Domestic Shares [REDACTED][REDACTED][REDACTED] (福建海基地產有限公司) (7) corporations

Mr. Xu Tianlong (許添龍) (7) Interest in controlled Domestic Shares [REDACTED][REDACTED][REDACTED] corporations

Notes:

(1) All interests stated are long positions.

(2) As of the Latest Practical Date, Quanzhou Water Group (wholly-owned by Quanzhou SASAC) was directly interested in 100.0% of the equity share capital of Haisi Environmental. Accordingly, Quanzhou Water Group is deemed to be interested in all the Shares held by Haisi Environmental. In addition, Quanzhou Haisi Water Investment Co., Ltd., a wholly-owned subsidiary of Quanzhou Water Group, is one of the limited partners of Lanshen Youshi and contributed 50.0% of the capital of Lanshen Youshi. Accordingly, Quanzhou Water Group is deemed to be interested in such Shares held by Lanshen Youshi.

(3) Ms. Zheng Lihua is the spouse of Mr. Lan Qiang. Accordingly, Ms. Zheng Lihua is deemed to be interested in all the Shares held by Mr. Lan Qiang.

(4) Ms. Liu Yinxiang is the spouse of Mr. Lin Hongquan. Accordingly, Ms. Liu Yinxiang is deemed to be interested in all the Shares held by Mr. Lin Hongquan.

(5) Lanshen Youshi is a limited partnership organised and existing under the laws of the PRC. The general partner and the executive partner of Lanshen Youshi is Youshi Financial Holdings (Shanghai) Asset Management Co., Ltd. Accordingly, Youshi Financial Holdings (Shanghai) Asset Management Co., Ltd. is deemed to be interested in such Shares held by Lanshen Youshi. In addition, Mr. Wu Kezhong holds 40.1% of the equity interest Youshi Financial Holdings (Shanghai) Asset Management Co., Ltd.. Accordingly, Mr. Wu Kezhong is deemed to be interested in such Shares held by Lanshen Youshi.

(6) Quanzhou Haisi Water Investment Co., Ltd. is one of the limited partners of Lanshen Youshi and contributed 50.0% of the capital of Lanshen Youshi. Accordingly, Quanzhou Haisi Water Investment Co., Ltd. is deemed to be interested in such number of Shares held by Lanshen Youshi.

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(7) Fujian Haiji Investment and Development Co., Ltd. is one of the limited partners of Lanshen Youshi and contributed 49.0% of the capital of Lanshen Youshi. Fujian Haiji Investment Development Co., Ltd. is owned as to 40.0% by Mr. Xu Yuanyang and as to 58.0% by Fujian Haiji Property Co., Ltd. Fujian Haiji Property Co., Ltd. is owned as to 98.0% by Mr. Xu Tianlong. Accordingly, Fujian Haiji Investment and Development Co., Ltd., Mr. Xu Yuanyang, Fujian Haiji Property Co., Ltd. and Mr. Xu Tianlong are deemed to be interested in such number of Shares held by Lanshen Youshi.

Save as disclosed above, our Directors are not aware of any person who will, immediately following the completion of the [REDACTED], have interests or short positions in any [REDACTED] or underlying [REDACTED], which would fall to be disclosed to us under the provisions of Divisions 2 and 3 of Part XV of the SFO, or will be, directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of our Company.

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As of the Latest Practicable Date, the registered share capital of our Company was RMB98,226,018 divided into 98,226,018 Domestic Shares with a nominal value of RMB1.00 each.

Immediately following the completion of the [REDACTED] (assuming the [REDACTED] is not exercised), the total issued share capital of our Company will be as follows:

Approximate Number of % of total Class of Shares Shares share capital

Domestic Shares in issue 98,226,018 [REDACTED]

[REDACTED] to be issued pursuant to the [REDACTED][REDACTED][REDACTED]

Total [REDACTED] 100.0%

Immediately following the completion of the [REDACTED] and assuming the [REDACTED] is exercised in full, the total issued share capital of our Company will be as follows:

Approximate Number of % of total Class of Shares Shares share capital

Domestic Shares in issue 98,226,018 [REDACTED]

[REDACTED] to be issued pursuant to the [REDACTED][REDACTED][REDACTED]

Total [REDACTED] 100.0%

SHARES OF OUR COMPANY

Upon completion of the [REDACTED], our Company will have two classes of Shares, namely Domestic Shares and [REDACTED], both of which are ordinary [REDACTED]inour share capital. However, the [REDACTED] generally may not be subscribed for by, or traded between, legal or natural persons of the PRC, other than certain qualified domestic institutional investors in the PRC, qualified PRC investors under the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, and other persons who are entitled to hold the [REDACTED] pursuant to relevant PRC laws and regulations or upon approval by any competent authorities. On the other hand, Domestic Shares may only be subscribed for by, and traded between, legal or natural persons of the PRC, certain qualified foreign institutional investors and qualified foreign strategic investors. [REDACTED] may only be subscribed for and traded in Hong Kong dollars. Domestic Shares, on the other hand, may only be subscribed for and transferred in Renminbi.

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The rights conferred on any class of Shareholders may not be varied or abrogated unless approved by a special resolution of the Shareholders at a Shareholders’ general meeting and by holders of such affected class of Shares at a separate Shareholders’ general meeting. The circumstances which shall be deemed to be a variation or abrogation of the rights of a class of Shareholders are listed in “Appendix V — Summary of the Articles of Association of our Company” in this document. However, the procedures for approval by separate classes of Shareholders do not apply where: (i) our Company issues [REDACTED] representing no more than 20.0% of each of the existing issued Domestic Shares and [REDACTED] upon approval by a special resolution of the Shareholders at a Shareholders’ general meeting, either separately or concurrently once every 12 months; (ii) our Company’s plan to issue Domestic Shares and [REDACTED] at the time of our establishment is implemented within 15 months from the date of approval by the securities regulatory authorities of the State Council; or (iii) our Company converts our [REDACTED] into overseas [REDACTED] upon the approval by the securities regulatory authorities of the State Council.

RANKING

Pursuant to the Articles of Association, the Domestic Shares and the [REDACTED]are categorised as different classes of Shares. Their differences and the provisions on class rights, the dispatch of notices and financial reports to Shareholders, dispute resolution, registration of Shares on different registers of members, the method of share transfer and appointment of dividend receiving agents are set forth in the Articles of Association and summarized in “Appendix V — Summary of the Articles of Association of our Company” in this document.

Except for the differences above, the Domestic Shares and the [REDACTED] will rank pari passu with each other in all other respects and, in particular, will rank equally for all dividends or distributions declared, paid or made after the date of this document. All dividends in respect of the [REDACTED] are to be declared in Renminbi and paid by our Company in Hong Kong dollars whereas all dividends in respect of Domestic Shares are to be paid by our Company in Renminbi. In addition to cash, dividends may be distributed in the form of shares.

CONVERSION OF THE DOMESTIC SHARES INTO H SHARES

Upon completion of the [REDACTED], our Company will have two classes of ordinary Shares, namely Domestic Shares and [REDACTED]. All of the Domestic Shares are Shares which are not listed or traded on any stock exchange. Pursuant to the regulations prescribed by the securities regulatory authorities of the State Council and the Articles of Association, the [REDACTED] may be converted into [REDACTED]. Such converted Shares could be listed or traded on an overseas stock exchange, provided that prior to the conversion and trading of such converted Shares, any requisite internal approval process has been duly completed and the approvals from the relevant regulatory authorities, including CSRC, have been obtained. In addition, such conversion and trading shall comply with the regulations, requirements and procedures prescribed by the relevant overseas stock exchange. If any Domestic Shares are to be converted into [REDACTED] and traded on the Stock Exchange, such conversion will require the approval of the relevant PRC regulatory authorities, including CSRC. The [REDACTED] and trading of such converted [REDACTED] on the Stock Exchange will also require the approval of the Stock Exchange.

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On 14 November 2019, the CSRC announced to fully promote its “full circulation” reform of the [REDACTED] by covering both qualified [REDACTED] companies already listed on the Stock Exchange and companies planning [REDACTED]ofthe[REDACTED] on the Stock Exchange.

Based on the procedures for the conversion of Domestic Shares into [REDACTED]as disclosed below, our Company may apply for the listing of all or any portion of the Domestic Shares on the Stock Exchange as [REDACTED] before any proposed conversion to ensure that the conversion process can be completed promptly upon notice to the Stock Exchange and delivery of Shares for entry on the [REDACTED] register. As any [REDACTED] of additional Shares after our initial [REDACTED] on the Stock Exchange is ordinarily considered by the Stock Exchange to be a purely administrative matter, it does not require such prior application for [REDACTED] at the time of our initial [REDACTED] in Hong Kong.

No approval by separate class meeting is required for the [REDACTED] and trading of such converted Shares on an overseas stock exchange. Any application for [REDACTED]ofthe converted Shares on the Stock Exchange after our initial [REDACTED] is subject to prior notification by way of announcement to inform the Shareholders and the public of any proposed conversion.

After all the requisite approvals have been obtained, the relevant Domestic Shares will be withdrawn from the China Securities Depository and Clearing Corporation Limited and our Company will re-register such Shares on our [REDACTED] register maintained in Hong Kong and instruct the [REDACTED] to issue [REDACTED] certificates. Registration on our [REDACTED] register will be conditional on (i) our [REDACTED] lodged with the Stock Exchange a letter confirming the entry of the relevant [REDACTED] on the [REDACTED] register and the due dispatch of [REDACTED] certificates; and (ii) the admission of the [REDACTED] to be traded on the Stock Exchange in compliance with the Listing Rules and the General Rules of CCASS and the CCASS Operational Procedures in force from time to time. Until the converted Shares are re-registered on our [REDACTED] register, such Shares will not be listed as [REDACTED].

So far as our Directors are aware, none of our existing Shareholders currently proposes to convert any of the Domestic Shares held by it into [REDACTED].

RESTRICTIONS OF SHARE TRANSFER

Pursuant to Article 142 of the PRC Company Law, shares issued prior to any public offering of shares by a company cannot be transferred within one year from the day when such shares are listed and traded on a stock exchange. As such, the Shares issued by our Company prior to our issue of the [REDACTED] will be subject to such statutory restriction on transfer within a period of one year from the [REDACTED].

Our Directors, Supervisors and members of the senior management shall declare their shareholdings in our Company and any changes in their shareholdings. Shares transferred by our Directors, Supervisors and members of the senior management each year during their term of office shall not exceed 25.0% of their total respective shareholdings in our Company. The Shares held by aforementioned persons in our Company cannot be transferred within one year from the date on which the Shares are [REDACTED] and traded on a stock exchange, nor within six months after their leave of positions in our Company. The Articles of Association may

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SHAREHOLDERS’ GENERAL MEETINGS AND CLASS MEETINGS

See “Summary of the Articles of Association of our Company — Variation of rights of existing Shares or classified Shares” and “Summary of the Articles of Association of our Company — Voting Rights” in Appendix V to this document for details of the circumstances under which our Shareholders’ general meeting and Shareholders’ class meeting are required.

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

Our historical results do not necessarily indicate results expected for any future periods. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ from those anticipated in these forward-looking statements as a result of any number of factors, including those set out in “Forward-looking Statements” and “Risk Factors” in this document.

OVERVIEW

We have five operating segments:

(i) Sales of Wastewater Treatment Equipment, under which we manufacture and sell wastewater treatment equipment.

(ii) Sales of Pipes and Pipe Fittings, under which we offer a comprehensive range of pipes and pipe fittings for a variety of piping systems, including those used for water supply, drainage, power supply, telecommunications and agriculture.

(iii) Decentralised Wastewater Treatment Facility Construction, which typically involves equipment engineering and/or project design, procurement and equipment manufacturing, project construction and equipment installation.

(iv) Concession Operation Services under BOT Model under which we are responsible for investing and constructing the project, as well as the operation and management during the concession period after completion of the construction.

(v) Others, including project operation and maintenance, technical consultancy and design, and soil treatment.

KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our business, financial position and results of operations have been, or may be expected to be in the future, significantly affected by a number of factors, many of which may be beyond our control. A discussion of certain of these key factors is set out below.

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Non-recurring Nature of Business

Our future growth and success will depend on our ability to continue to secure tender and contract awards which are contract-based and operate on a non-recurring basis. For the three years ended 31 December 2020, our revenue derived from contracts sourced through tender accounted for approximately 38.4%, 61.9% and 77.4%, respectively, while revenue derived from contracts sourced through quotation and negotiation accounted for 61.6%, 38.1% and 22.6%, respectively. During the Track Record Period, all of our five operating segments may be subject to tender processes, as our procurement methods largely depend on the potential customers’ choices, namely, to award the relevant contract by tender or by competitive negotiation. During the same period, our tender success rates were 21.3%, 46.2% and 19.0%, respectively. Whether we will succeed in our tenders depends on a number of factors, including, among others, (i) level of market competition, (ii) our overall strengths such as reputation and ability to serve the customers’ needs, and (iii) customers’ preferred choices of the core treatment technologies. There is no guarantee that we will succeed in the tender process and contract negotiation.

Our financial performance may be adversely affected if our Group is unable to secure new tenders or obtain new contract awards with comparable contract sums upon completion of our contracts on hand.

Government Policies, Regulations and Approvals

We operate within an industry where regulatory standards play a critical role in influencing the demand for our services and products. Any changes in legislative, regulatory or industrial requirements may necessitate the upgrades and improvements of certain of our wastewater treatment technologies, equipment and services. The governments at various levels in the PRC have promulgated policies favourable to the wastewater treatment industry and have stated their intentions to increase spending in such industry. We anticipate these policies and plans will stimulate the market and increase the demand of our decentralised wastewater treatment equipment and services. However, the implementation of these policies and plans may be delayed, and we cannot assure you how and whether the government authorities will indeed execute such policies and plans nor can we predict the precise impact on the wastewater treatment industry arising from the actual implementation of these policies and plans. See “Risk Factors — Risks Relating to Our Business and Industry — 1. The regulations and policies for wastewater treatment in the PRC may be delayed in implementation and execution or unfavourably changed which could cause adverse effect to our profitability, competitiveness and growth.” for details.

Meanwhile, our business and operations in China require permits, licenses and certificates from the relevant government authorities. From time to time, changes in the rules and regulations or the implementation thereof may require us to obtain additional approvals and licenses from PRC authorities for our operations in China. In such event, we may need to incur additional expenses in order to comply with such requirements. In addition, some of these licenses, permits and certificates are subject to periodic reviews and renewals by the relevant governmental authorities and the standards of compliance required may from time to time be subject to change without advance notice. Any changes in the existing government policies and regulations relating to wastewater treatment industries may result in our failure to obtain or maintain such permits, licenses and certificates, which could have a negative impact on our financial condition and results of operations.

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Timing and Collectability of Progress Payment

Our revenue from decentralised wastewater treatment facility construction and the construction phase of concession operation services under BOT model are recognised over time by measuring the progress towards complete satisfaction of the services.

We generally submit progress payment applications in relation to works completed to our customers, based on the terms of the contracts entered into with our customers and the actual progress of work. Our customers will confirm the value of works completed and make payment to us after conducting the inspection of our work. There is no guarantee that all of our customers will conduct the inspection on a timely basis after our submission of progress payment applications, especially when we serve a significant number of government entities, state-owned enterprises and public institutions which may delay settlement of payments due to the time required for their internal approval procedures, changes in their budgets and policies relating to our projects and any change in their liquidity and cash flow. See “Risk Factors — Risks Relating to Our Business and Industry — 3. We recognise revenue during the construction phase of our projects of concession operation services under BOT model, but typically do not receive any actual payments until the operational phase, which may result in negative operating cash flow during the construction periods and impairments or write-offs for the intangible assets or financial assets during the operation phase that would adversely affect our results of operations and liquidity.” and “Risk Factors — Risks Relating to Our Business and Industry — 4. We have had and expect to continue to have high levels of trade receivables due to our customer base, business nature and other factors” for details.

If any of our customers are not able to settle the outstanding payments to us in a timely manner, our financial condition could be materially and adversely affected.

Under our BOT model, although we recognised revenue during the construction phase based on the progress towards completion, we actually do not receive any payment for our construction services and the actual cash inflow for our construction revenue from our BOT projects is only received in the form of cash tariff payments during the operational phase of the relevant BOT projects over the stipulated concession periods, and it may take up to 30 years to settle the mismatch. Should we undertake more BOT projects in the future, it could result in a cash flow mismatch as we may not have the cash inflow matching the revenue recognised during the construction phase of our BOT projects.

Competition and Our Ability to Expand Our Business

Our results of operations are affected by our ability to grow and expand our businesses. We intend to enhance our presence in Fujian and further expand our market in other surrounding areas such as Jiangxi, Hunan, Guangxi and Hainan. In our efforts to expand our businesses outside Fujian, we assess a variety of factors, including the availability of similar facilities in the region, the demand for any facility upgrades associated with tightened government standards in water quality, and opportunities for new market players. Such opportunities for our entry into other regions are driven by various factors, including population growth, urbanization, improving economic conditions, government policies and environmental awareness of the relevant regions.

We face competition in expanding our businesses and increasing our market share. We may lack knowledge and experience with certain local markets while our competitors, including

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Preferential Tax Treatment

Our Company was accredited as a “High-tech Enterprise” under the relevant PRC laws and regulations and was entitled to a preferential income tax rate of 15% for a three-year period commencing from 1 January 2017 according to the applicable EIT law which was renewed and extended to the three-year period commencing from 1 January 2020. Some of our subsidiaries also enjoy preferential tax treatment such as pre-tax deduction or exemption of EIT for three years followed by reduction of EIT by half for three years (三免三減半). We cannot guarantee that the PRC policies with respect to the preferential tax treatment we currently enjoy would not be unfavourably changed or discontinued, or that the approval for such preferential tax treatment would be granted to us in a timely manner, or at all. The termination or expiration of our preferential tax treatment or the imposition of additional taxes on us may lead to an increase in our expenses and may have a material adverse effect on our business, financial condition, results of operations and prospects. See “Risk Factors — Risks Relating to Our Business and Industry — 24. The preferential tax treatment we currently enjoy could be unfavourably changed or discontinued and we may be subject to fines and penalties if we failed to fully comply with tax related laws and regulations” for details.

Access to and Cost of Financing

Our businesses are capital intensive. We need substantial amount of capital for the expansion of our businesses as well as for the construction and acquisition of new facilities. As a result, our performance is affected by our access to capital and the total amount of capital we are able to raise through other financing efforts, as well as any interest rate fluctuations. We actively seek to finance the development of our projects and other capital expenditures through our internal resources as supplemented by bank borrowings. As of 31 December 2018, 2019 and 2020, the outstanding balance of our bank borrowings was nil, RMB50.0 million and RMB366.8 million respectively, and the effective interest rates on our fixed rate borrowings were 4.35% and 4.19%, respectively as of 31 December 2019 and 2020. Any change in the interest rates of our borrowings or the amount of our borrowings will affect our interest payments and finance costs, which in turn could affect our cash flow, financial condition and results of operations. See “Risk Factors — Risks Relating to Our Business and Industry — 11. We may not be able to finance the planned growth of our business” for details.

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CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

Basis of preparation

The Historical Financial Information has been prepared in accordance with International Financial Reporting Standards (“IFRS”) and under the historical cost convention, except for certain financial assets measured at fair value.

The preparation of the historical financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the historical financial information are disclosed in Note 4 to the Accountant’s Report in Appendix I to this document.

All relevant standards, amendments and interpretations to the existing standards that are effective during the Track Record Period have been adopted by the Group consistently throughout the Track Record Period.

IFRS 15, “Revenue from Contracts with Customers” replaces the previous revenue standards of (International Accounting Standards, “IAS”) 18 “Revenue” and IAS 11 “Construction Contracts” and related interpretations. IFRS 9 “Financial Instruments” replaces the provisions of IAS 39 “Financial Instruments” that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

IFRS 16 “Leases” replaces the previous IAS 17 “Leases” and related interpretations.

IFRS 15 and IFRS 9 are mandatorily effective for financial year beginning on or after 1 January 2018 and IFRS 16 is mandatorily effective for financial year beginning on or after 1 January 2019. In preparation of the Historical Financial Information, they are applied consistently throughout the Track Record Period.

Our Directors believe that the adoption of IFRS 9 and IFRS 15 does not have a significant impact on the Group’s financial position and performance compared to that of IAS 39 and IAS 18. The adoption of IFRS 16 has certain impact on the Group’s financial position and performance, assuming the IFRS 16 is not adopted, our major financial ratios and financial position would be as follows:

As of or for the year ended 31 December 2018 2019 2020

Current Ratio(1) 5.0 1.4 1.0 Quick Ratio(2) 3.9 0.8 0.7 Net Gearing Ratio(3) N/A N/A 38.3% Gearing Ratio(4) – 34.6% 45.9% Net Assets (RMB’000) 160,375 284,461 431,472 Net Profit (RMB’000) 25,541 60,964 84,031

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Notes:

(1) Current ratio is total current assets as of year-end as a percentage of total current liabilities as of year-end.

(2) Quick ratio is the current assets less the inventory, contract assets and prepayments as a percentage of total current liabilities as of year-end.

(3) Net gearing ratio is net debt as of year-end as a percentage of net debt plus total equity as of year-end. Net debt is calculated as the aggregate of total borrowings, lease liabilities and amount due to related parties, less the cash and bank balance as of year-end. The net gearing ratio was not applicable as of 31 December 2018 and 2019, primarily because our cash and cash equivalents exceeded the aggregate of our total borrowings, lease liabilities and amount due to related parties as of those dates.

(4) Gearing ratio is total debt as of year-end as a percentage of total debt plus total equity as of year-end. Total debt is calculated as the aggregate of total borrowings, lease liabilities and amount due to related parties.

New standards and interpretations not yet adopted

The following are new standards, amendments to existing standards and new interpretations that have been issued but are not effective for the Track Record Period, and have not been early adopted. The Group plans to adopt these new standards, amendments to standards and new interpretations when they become effective:

Effective for accounting periods Standards and amendments beginning on or after

Amendment to IFRS 10 and IAS 28 regarding sales or To be determined contribution assets between an investor and its associate or joint venture IFRS 16 (Amendment) ‘Covid-19-Related Rent Concessions’ 1 June 2020 IAS 16 (Amendment) ‘Property, plant and equipment – 1 January 2022 proceeds before intended use’ IAS 37 (Amendment) ‘Onerous contracts – cost of fulfilling a 1 January 2022 contract’ IFRS 3 (Amendment) ‘Reference to the conceptual Framework’ 1 January 2022 IAS 1 (Amendment) ‘Classification of liabilities as current or 1 January 2022 non-current’ Annual Improvements to IFRS Standards 2018-2020 1 January 2022 IFRS 17 ‘Insurance Contracts’ 1 January 2023

According to the assessment made by our Directors, these new and amended standards are either not relevant to the Group or not significant to the financial performance and positions of the Group when they become effective.

See “Appendix I — Accountant’s Report — Note 2.1” for details on the basis of preparation of the financial information included in the Accountant’s Report.

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Revenue Recognition and Assessment Basis

Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control over a product or service to a customer. This may be at a single point in time or over time.

The Group satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met:

• when the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs;

• when the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced;

• when the Group’s performance does not create an asset with an alternate use to the Group and the Group has an enforceable right to payment for performance completed to date.

If none of the above conditions are met, the Group recognises revenue at a single point in time at which the performance obligation is satisfied for the sale of that good or service when control has been passed. Considered presumptive or determinative, and applies judgment when assessing the indicators depending on each different circumstances.

If control of the product or service transfers over time, revenue is recognised over the period of the contract by measuring the progress towards complete satisfaction of that performance obligation.

(i) Sales of wastewater treatment equipment, pipes and pipe fittings, and technical consultancy and design services

Revenue is recognised at the point in time when the control of the product is transferred to the customer which generally coincides with delivery and acceptance of the product sold.

(ii) Decentralised wastewater treatment facility construction, construction under BOT model and soil treatment

Revenue from decentralised wastewater treatment facility construction, construction under BOT model and soil treatment is recognised over time by measuring the progress towards complete satisfaction of the services. The progress towards complete satisfaction of the performance obligation is measured based on the Group’s efforts or inputs to the satisfaction of the performance obligation, by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract.

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(iii) Operation and maintenance services

Revenue from operation and maintenance services is recognised on a straight-line basis over the terms of the contracts.

(iv) Rental income

Rental income from investment properties is recognised on a straight-line basis over the terms of the leases.

Service Concession Arrangements

The Group has entered into certain service concession arrangements with Grantors. The service concession arrangements are BOT arrangements. Under the BOT arrangements, the Group carries out construction work of the facilities of the wastewater treatment for the Grantors and receives in return a right to operate the facilities of service project concerned for the Service Concession Period in accordance with the pre-established conditions set by the Grantors. The service project should be transferred to the Grantors with nil consideration at the end of the operation period.

The Group is generally entitled to use all the property, plant and equipment of the facilities, however, the relevant governmental authorities as Grantors will control and regulate the scope of service that the Group must provide with the facilities and retain the beneficial entitlement to any residual interest in the facilities at the end of the service concession period. Each of these service concession arrangements is governed by a contract and, where applicable, supplementary agreements entered into between the Group and the relevant governmental authority that set out, inter alia, performance standards, mechanisms for adjusting prices for the services rendered by the Group, and specific obligations levied on the Group to restore the facilities to a specified level of serviceability at the end of the service concession period and arrangements for arbitrating disputes.

(i) Consideration given bythe Grantor

Service concession arrangement under financial asset model

A financial asset (receivable under a service concession arrangement) is recognised to the extent that the Group has an unconditional right to receive cash or another financial asset from the Grantor for the construction and operation services rendered during the Service Concession Period. The Group has an unconditional right to receive cash if the Grantor contractually guarantees to pay the Group specified or determinable amounts or the shortfall, if any, between amounts received from the users of the public service and the specified or determinable amounts. The financial asset (receivable under a service concession arrangement) is accounted for in accordance with the policy set out for financial assets measured at amortised cost under Note 2.11 to the Accountant’s Report in Appendix I to this document.

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When the construction services are completed, the contract asset would be classified and measured as receivable under a service concession arrangement accordingly.

When the Group receives a payment during the concession period, it will apportion such payment between (i) a repayment of the financial asset (if any), which will be used to reduce the carrying amount of financial receivables on the consolidated Balance sheet, (ii) interest income, will be recognised as revenue in profit or loss and (iii) revenue from operating service in the profit or loss. Revenue from operating service is calculated based on cost plus a profit margin.

Service concession arrangement under intangible asset model

An intangible asset (operating concession) is recognised to the extent that the Group receives a right to charge users of public service, which is not an unconditional right to receive cash because the amounts are contingent on the extent that the public uses and service. The intangible asset (operating concession) is accounted for in accordance with the policy set out for “intangible assets” in Note 2.8 to the Accountant’s Report in Appendix I to this document, which is amortised on a straight-line basis over the Service Concession Period.

Revenue relating to operating service are accounted for in accordance with the policy for Note 2.25 “revenue recognition” of the Accountant’s Report in Appendix I to this document. Costs for operating services are expensed in the period in which they are incurred.

Service concession arrangement under hybrid model

If the Group is paid for the construction services partly by a financial asset and partly by an intangible asset, then each component of the consideration is accounted for separately. Therefore, in this arrangement it is necessary to divide the operator’s contract asset during the construction period into two components, a financial asset component based on the guaranteed amount and an intangible asset for the remainder. When the construction services are completed, the two components of the contract asset would be classified and measured as a financial asset and an intangible asset accordingly.

(ii) Construction

The fair value of the construction under the concession arrangement is calculated as the estimated total construction cost plus a profit margin. The profit margins are estimated based on prevailing market rate applicable to similar construction services rendered in similar location at date of agreement.

Revenue relating to construction is accounted for in accordance with the policy in Note 2.25 to the Accountant’s Report in Appendix I to this document.

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(iii) Operating concessions

The Group engages with government authorities in the development, financing, operating and maintenance of wastewater treatment services over a specified period of time. The Group has access to operate the wastewater treatment facilities to provide the concession services in accordance with the terms specified in the arrangements.

The Group recognised the related rights in the service concession arrangements as intangible assets or financial assets. The operator shall recognise an intangible asset to the extent that it receives a right (license) to charge users of the concession service and shall recognise a financial asset to the extent that it has an unconditional contractual right to receive a guaranteed minimum volume from the Grantor. Therefore intangible assets – concession rights are recognised for the rights under these service concession arrangements by the Group, which are amortised on a straight-line basis over the terms of operation ranging from 12 to 30 years.

(iv) Contractual obligations torestore the infrastructure to a specified level of serviceability

The Group has contractual obligations which it must fulfill as a condition of its licences, that is (i) to maintain the wastewater treatment plants it operates to a specified level of serviceability and/or (ii) to restore the plants to a specified condition before they are handed over to the Grantor at the end of the service concession arrangements. These contractual obligations to maintain or restore the wastewater treatment plants, except for upgrade element, are recognised and measured in accordance with the policy set out for Note 2.24 “provisions” to the Accountant’s Report in Appendix I to this document.

TYPICAL ACCOUNTING TREATMENT OF CONCESSION OPERATION SERVICES UNDER BOT MODEL

IFRIC 12 “Service Concession Arrangements” is the applicable accounting standard for the Group’s concession operation services under BOT model.

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Service concession arrangement under intangible asset model

Service concession arrangement under financial asset model

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Service concession arrangement under hybrid model

The chart below illustrates the accounting treatment:

Initial Investment (Construction Period) Service Concession Period End of Conce ssion

Revenue ˉ (Amortisation Finance income(5) Operation services(4) Straight-line &

Construction costs method for the Service Concession Period)

Receivables under service concession (5) Amortisation Intangible assets = 0 Finance income arrangements(2)

Intangible assets Proceed s from Other costs Gross profit (Ending) the Grantor s and expense s

Notes:

1. During the construction period, the Group would record revenue for construction services and contract assets. Revenue from construction services and contract assets are calculated as the construction costs plus the estimated profit margins. For the two years ended 31 December 2019 and 2020, the estimated profit margins adopted for the recognition of revenue for construction services and contract assets of Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目) and Changshan Huaqiao Economic Development Zone Wastewater Treatment BOT Project (常山華僑經濟開發區污水處理BOT項目) were 25.5% and 24.8% respectively, while the estimated profit margins adopted for the recognition of revenue for construction services and contract assets of Shanghang Leachate Treatment BOT Project (上杭縣滲濾液處理BOT項目) were 7.4% and 7.3%, respectively. The profit margins are key assumptions and estimated based on prevailing market rates applicable to similar construction services rendered in similar locations. Revenue relating to construction is accounted for in accordance with the policy in Note 2.25(ii) in the Accountant’s Report in Appendix I to this document. When the construction services are completed, the contract assets would be classified and measured as receivables under service concession arrangements, intangible assets or a combination of both in accordance with different scenarios set out in Note 2.9(i) in the Accountant’s Report in Appendix I to this document.

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4. Revenue from operation services is recognised when services are provided.

5. The key assumptions in calculating the finance income generates from receivables under service concession arrangements are the interest rates determined as explained in Note 2 above.

The following table sets forth the movements in the balances of our intangible assets and contract assets during the Track Record Period.

Intangible Contract assets assets (RMB’000) (RMB’000)

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The following table sets forth a breakdown of the revenue, cost of sales, gross profit, gross profit margin and finance income from concession operation services under BOT model by types of services:

Year ended 31 December 2019 2020

Construction services: Revenue (RMB’000) 47,348 351,688 Cost of sales (RMB’000) (35,688) (264,983) Gross profit (RMB’000) 11,660 86,705 Gross profit margin 24.6% 24.7%

Operation services: Revenue (RMB’000) 765 3,406 Cost of sales (RMB’000) (757) (2,958) Gross profit (RMB’000) 8 448 Gross profit margin 1.0% 13.2% Finance income (RMB’000) 805 3,021

PRINCIPAL INCOME STATEMENT COMPONENTS

The following table sets forth our summary consolidated statements of comprehensive income for the periods indicated.

Year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Revenue 106,208 100.0 341,548 100.0 671,073 100.0 Cost of sales (53,642) 50.5 (222,679) 65.2 (491,005) 73.2

Gross profit 52,566 49.5 118,869 34.8 180,068 26.8 Other income 748 0.7 2,357 0.7 2,566 0.4 Other gains/(losses) – net 47 0.0 12,366 3.6 (407) 0.1 Net impairment losses on financial and contract assets (4,842) 4.6 (6,242) 1.8 (10,467) 1.6 Selling expenses (5,421) 5.1 (17,309) 5.1 (18,840) 2.8 Administrative expenses (6,637) 6.2 (21,991) 6.4 (26,965) 4.0 Research and development expenses (6,750) 6.4 (16,595) 4.9 (23,820) 3.5

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Year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Operating profit 29,711 28.0 71,455 20.9 102,135 15.2 Finance costs – net (217) 0.2 (2,386) 0.7 (5,231) 0.8 Share of net loss of an associate accounted for using the equity method – – (244) 0.1 26 0.0

Profit before income tax 29,494 27.8 68,825 20.2 96,930 14.4 Income tax expense (4,049) 3.8 (7,905) 2.3 (12,873) 1.9

Profit and total comprehensive income for the year 25,445 24.0 60,920 17.8 84,057 12.5

Profit is attributable to: Owners of the Company 25,445 24.0 57,612 16.9 82,821 12.3 Non-controlling interests – – 3,308 1.0 1,236 0.2

25,445 24.0 60,920 17.8 84,057 12.5

Revenue

Our integrated decentralised wastewater treatment business covers the whole decentralised wastewater treatment industry chain, ranging from production of decentralised wastewater treatment equipment and pipes and pipe fittings, to provision of all-round wastewater treatment services including technical design, engineering, construction as well as operation and maintenance. During the Track Record Period, we generated our revenue primarily from five major operating segments, namely: (i) sales of wastewater treatment equipment; (ii) sales of pipes and pipe fittings; (iii) decentralised wastewater treatment facility construction; (iv) concession operation services under BOT model; and (v) others. The following table sets forth the breakdown of revenue we generated by operating segments for the periods indicated.

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Year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Sales of wastewater treatment equipment 52,147 49.1 41,048 12.0 103,550 15.4 Sales of pipes and pipe fittings – – 105,945 31.0 85,649 12.8 Decentralised wastewater treatment facility construction 52,623 49.5 135,952 39.8 125,229 18.7 Concession operation services under BOT model – – 48,113 14.1 355,094 52.9 Others(1) 1,438 1.4 10,490 3.1 1,551 0.2

Total 106,208 100.0 341,548 100.0 671,073 100.0

Note:

1. Others primarily consist of operation and maintenance, technical consultancy and design, and soil treatment.

Revenue from Sales of Wastewater Treatment Equipment

Revenue generated from the sales of wastewater treatment equipment amounted to approximately RMB52.1 million, RMB41.0 million, and RMB103.6 million in 2018, 2019 and 2020, respectively, accounting for approximately 49.1%, 12.0% and 15.4% of our total revenue, respectively. The increase in revenue from such operating segment in 2018 was primarily because we modified the technologies used in the decentralised wastewater treatment equipment by installing membrane and electromechanical devices utilizing different value-added wastewater treatment technologies customised to customer’s requirements, which brought higher revenue in terms of higher contract value. The decrease in revenue from such operating segment in 2019 was primarily because we gradually expanded our business portfolio from the provision of wastewater treatment equipment to the provision of all-around decentralised wastewater treatment facility construction services, which combines the wastewater treatment equipment provision and other services such as technical design, construction and installation. The above adjustment was reflected in the the significant increase in revenue from our decentralised wastewater treatment facility construction in 2019.

Revenue from Sales of Pipes and Pipe Fittings

Revenue generated from sales of pipes and pipe fittings amounted to nil, approximately RMB105.9 million and RMB85.6 million in 2018, 2019 and 2020, respectively, accounting for nil, approximately 31.0% and 12.8% of our total revenue for the respective periods. We started the sales of pipes and pipe fittings business from March 2019 after the completion of the acquisition of Quanzhou Xingyuan, one of our non-wholly owned subsidiaries which primarily engaged in the provision of pipes and pipe fittings.

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Revenue from Decentralised Wastewater Treatment Facility Construction

Our revenue generated from decentralised wastewater treatment facility construction primarily comprises contraction payments made at specified stages. Our revenue generated from decentralised wastewater treatment facility construction amounted to approximately RMB52.6 million, RMB136.0 million and RMB125.2 million in 2018, 2019 and 2020, respectively, accounting for approximately 49.5%, 39.8% and 18.7% of our total revenue for the respective periods. The significant increase in 2019 was primarily because we gradually expanded our business portfolio from the provision of wastewater treatment equipment to the provision of all-around decentralised wastewater treatment facility construction services, which combines the wastewater treatment equipment provision and other services such as technical design, construction and installation. In addition, the total revenue of decentralised wastewater treatment services market in Fujian increased by 30.1% from approximately RMB1,732.2 million in 2018 to approximately RMB2,252.9 million in 2019, and the subtotal revenue of top five market players in Fujian increased by 113.7% from approximately RMB375.0 million in 2018 to approximately RMB801.2 million in 2019. In line with the prosperity market and favorable laws and policies in Fujian before and after 2019, the revenue of the Company increased rapidly from 2018 to 2019 and became Fujian’s largest service provider for decentralized wastewater treatment with RMB184.1 million revenue in 2019, taking approximately 8.2% market share in Fujian.

Revenue from Concession Operation Services under BOT Model

Revenue from concession projects are recognised at both the construction and operation stages. Our revenue generated from concession operation services under BOT model amounted to nil, approximately RMB48.1 million and approximately RMB355.1 million in 2018, 2019 and 2020, respectively, accounting for nil, approximately 14.1% and approximately 52.9% of our total revenue for the respective periods; we recognised approximately RMB355.1 million revenue from concession operation services under BOT model for the year ended 31 December 2020 because (i) we recognised approximately RMB351.7 million revenue from three BOT projects which were in the construction phase for the year ended 31 December 2020; and (ii) we recognised approximately RMB3.4 million revenue from three BOT projects which were in the operating phase as at 31 December 2020.

Others

Our revenue from others comprises revenue from (i) project operation and maintenance; (ii) technical consultancy and design; and (iii) soil treatment, which amounted to approximately RMB1.4 million, RMB10.5 million and RMB1.6 million in 2018, 2019 and 2020, respectively, accounting for approximately 1.4%, 3.1% and 0.2% of our total revenue for the respective periods. The significant increase in 2019 was primarily due to revenue from one-off soil treatment services, the bidding information of which was obtained by us on an occasional opportunity when we regularly reviewed the bidding information for our decentralised wastewater treatment services on the bidding information website. Considering our qualification and capacity matched the bidding requirements for the soil treatment project, and after full evaluation of the economic benefits of the project and our financial resources, we decided to participate in the biding and won the bid eventually.

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The following table sets forth a breakdown of our revenue by geographic location for each of our operating segments for the periods indicated: Year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Geographic location Within Fujian 93,002 87.6 319,821 93.6 661,380 98.6 Outside Fujian(1) 13,206 12.4 21,727 6.4 9,693 1.4

Total 106,208 100.0 341,548 100.0 671,073 100.0

Note: The geographic location outside Fujian refers to Anhui, Beijing, Guangdong, Guangxi, Hainan, Hebei, Hubei, Hunan, Jiangsu, Jiangxi, Sichuan and Zhejiang.

The percentage of revenue generated within Fujian continued to grow while the percentage of revenue generated outside Fujian continued to decrease during the Track Record Period primarily because (i) during the Track Record Period, the increase in number of projects within Fujian has contributed to the significant growth of our revenue while in the meantime occupied our fund and human resources, therefore to capture the growing decentralised wastewater treatment market in Fujian, we devoted most of our efforts in developing projects within Fujian; (ii) we also actively seek for business opportunities outside Fujian during the Track Record Period, but restricted by fund and human resources, our revenue generated from customers outside Fujian was limited compared with that within Fujian; and (iii) after the Track Record Period and going forward, leveraging on our established position, accumulated experiences and technologies gained in Fujian, and with the [REDACTED]fromthe [REDACTED], we plan to enhance our project portfolio in Fujian and further explore the potential of the surrounding areas including Guangxi, Hainan, Hunan and Jiangxi. See “Business — Our Strategies — Enhance our presence in Fujian and expand to surrounding markets by cooperation with government authorities or state-owned enterprises and recruiting additional personnel” for details.

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Cost of Sales

Our cost of sales primarily consists of raw materials and consumables used, changes in inventories of finished goods and work in progress, employees benefit expenses, construction subcontracting expenditures, labour outsourcing expenditure, depreciation expenses, transportation and loading costs, electricity and water expenses and others.

The following table sets forth a breakdown of our cost of sales in absolute amounts and as percentages of our total cost of sales for the periods indicated:

Year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Raw materials and consumables used 30,051 56.0 107,740 48.4 168,725 34.4 Changes in inventories of finished goods and work in progress 2,875 5.4 1,240 0.6 1,816 0.3 Construction subcontracting expenditures 3,261 6.1 66,760 30.0 242,969 49.5 Employee benefit expenses 3,037 5.7 15,833 7.1 20,976 4.3 Labour outsourcing expenditures 9,621 17.9 8,560 3.8 25,927 5.2 Electricity and water expenses 110 0.2 3,330 1.5 3,768 0.8 Depreciation expenses 1,000 1.9 2,999 1.3 4,042 0.8 Other taxes and levies 911 1.7 2,379 1.1 3,266 0.7 Transportation and loading costs 1,808 3.4 1,928 0.9 1,787 0.4 Others(1) 968 1.7 11,910 5.3 17,729 3.6

Total 53,642 100.0 222,679 100.0 491,005 100.0

Note:

(1) Others mainly include traveling expenses, short-term rental expenses, office expenses, advertising and exhibition expenses, bidding fees, consultation fees, installation and maintenance fees, business entertainment expenses, mechanical fees, trash handling fees, technical service fees, insurance expenses, measurement service fees, etc.

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The following table illustrates the sensitivity analysis of hypothetical fluctuations in our cost of sales and their effect on our profit before income tax for the periods indicated. The hypothetical fluctuation in our cost of sales was set with reference to the fluctuation range of companies in the similar industry. The analysis is intended for reference only, and any variation may differ from the amounts indicated.

For the years ended 31 December 2018 2019 2020 Changes in % change in Changes in % change in Changes in % change in profit profit profit profit profit profit Percentage increase/ (decrease) in before before before before before before deducted cost of sales income tax income tax income tax income tax income tax income tax (RMB’000) (%) (RMB’000) (%) (RMB’000) (%)

30% 16,093 54.6 66,804 97.1 147,302 152.0 15% 8,046 27.3 33,402 48.5 73,651 76.0 0% –––––– -15% (8,046) (27.3) (33,402) (48.5) (73,651) (76.0) -30% (16,093) (54.6) (66,804) (97.1) (147,302) (152.0)

Raw materials and consumables used

Raw materials and consumables used are our main cost of sales which primarily include expenses relating to our purchase of electrical equipment, MBR membrane, resin, fiberglass cloth and fiberglass yarn, pipes and pipe fittings made of PVC, PE and PP. Our cost of sales incurred for raw materials and consumables used amounted to approximately RMB30.1 million, RMB107.7 million and RMB168.7 million in 2018, 2019 and 2020, respectively, accounting for approximately 56.0%, 48.4% and 34.4% of our total cost of sales for the respective periods. The significant increase in 2019 was primarily due to the acquisition of Quanzhou Xingyuan which led to higher costs of raw materials and consumables used in relation to the production of pipes and pipe fittings.

Employee benefit expenses

Employee benefit expenses recorded as cost of sales primarily represent the compensation and benefits for employees. We recorded employee benefit expenses of approximately RMB3.0 million, RMB15.8 million and RMB21.0 million in 2018, 2019 and 2020, respectively, accounting for approximately 5.7%, 7.1% and 4.3% of our total cost of sales for the respective periods. The significant increase in 2019 was primarily due to the increase in the total number of employees, especially the number of our management staff as a result of the acquisition of Quanzhou Xingyuan in March 2019.

LabourOutsourcing and Construction Subcontracting Expenditures

Labour outsourcing and construction subcontracting expenditures recorded as cost of sales primarily represent fees engaging third-party labour outsourcing companies or subcontractors to conduct various tasks such as construction and installation in projects under our decentralised wastewater treatment facility construction business and concession operation

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Gross Profit and Gross Profit Margin

For the three years ended 31 December 2020, our gross profit was approximately RMB52.6 million, RMB118.9 million and RMB180.1 million, respectively, and our gross profit margin was 49.5%, 34.8% and 26.8%, respectively for the same periods.

Gross Profit and Gross Profit Margin by Segment and by Customer Type

The following table sets forth a breakdown of our gross profit and gross profit margin for each of our segments for the periods indicated.

Year ended 31 December 2018 2019 2020 Gross Profit Gross Profit Gross Profit Gross Profit Gross Profit Gross Profit (RMB’000) Margin (%) (RMB’000) Margin (%) (RMB’000) Margin (%)

Total 52,566 49.5 118,869 34.8 180,068 26.8

Our gross profit margin was approximately 49.5%, 34.8% and 26.8% for the three years ended 31 December 2020. The decrease in our gross profit margin since 2019 was primarily due to the influence from our two operating segments commenced in 2019, namely the sales of pipes and pipe fittings and the concession operation services under BOT model, which in general have lower gross profit margin. Below is an analysis on our gross profit margin by different operating segments:

(i) The gross profit margin of our sales of wastewater treatment equipment decreased from approximately 54.6% in 2019 to approximately 34.4% in 2020 primarily because of a sales of decentralised wastewater treatment equipment project obtained in August 2020 which accounted for approximately 68.2% of the total revenue from our sales of wastewater treatment equipment for the year ended 31 December 2020. The

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project has a relatively lower gross profit margin of approximately 27.3% as we used raw materials with certain imported brands according to the agreement we entered with the customer for such equipment which increased our cost of sales. Considering (i) the project is a sizable decentralised wastewater treatment equipment project which would contribute to our total revenue and reputation, and (ii) the trade receivable turnover days of the project is shorter than the average trade receivable turnover days of the Company during the Track Record Period, we undertook such project despite its relatively low gross profit margin and did not pass the increased cost for the purchase of raw materials with imported brands to customers.

(ii) the gross profit of our sales of pipes and pipe fittings decreased from approximately 26.9% in 2019 to approximately 22.8% in 2020 primarily because the cost growth outpaced the revenue growth recognised for this segment due to the suspension of manufacturing of Quanzhou Xingyuan in early 2020, while we incurred idle capacity costs in 2020 as a result of the outbreak of COVID-19.

(iii) the gross profit margin of our decentralised wastewater treatment facility construction was continuously decreasing during the Track Record Period primarily due to the increase in our construction subcontracting and labour outsourcing expenditures in order to meet the construction and installation works for our increasing decentralised wastewater treatment facility construction projects.

(iv) the gross profit margin of others fluctuated during the Track Record Period primarily due to the differences in gross profit margin for different kind of services we provided under this segment.

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Customer type Government customers IACA INFORMATION FINANCIAL

(1) 52,834 49.7 24,629 46.6 240,476 70.4 91,969 38.2 532,998 79.4 147,491 27.7 Non-government customers (2) 53,374 50.3 27,937 52.3 101,072 29.6 26,900 26.6 138,075 20.6 32,578 23.6

Total 106,208 100.0 52,566 49.5 341,548 100.0 118,869 34.8 671,073 100.0 180,069 26.8 4 – 345 –

Notes:

(1) Refer to government authorities, government-sponsored institutions and state-owned enterprises;

During the Track Record Period, the revenue from non-government customers increased along with our overall revenue. The revenue and percentage of revenue of government customers grew significantly in 2019 primarily due to the revenue recognised from (i) two decentralised wastewater treatment facility construction projects with state-owned enterprises, namely Liancheng County Linfang Town Eight Township Wastewater Treatment EPC Project (連城縣林坊鎮等8個鄉鎮污水處理EPC工程項目) and Qing Yuan Shan Scenic Spot Wastewater Treatment EPC General Contracting Project (清源山風景名勝區污水處理工程EPC總承包項目); and (ii) two BOT projects under construction with government authorities and government-sponsored institutes, namely Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目) and Shanghang Leachate Treatment BOT Project (上杭縣滲濾液處理BOT項目). As most of the above projects only start to recognise revenue from the second half of 2019 and the construction of Qianpu Wastewater Treatment Plant Phase III (Expansion) Equipment Installation Project (前埔污水處理廠三期工程（擴建）施工項目機電設備安裝工程) was commenced in March 2020, the revenue and percentage of revenue of government customers grew significantly in the year ended 31 December 2020 compared with the same period in 2019 primarily due to the revenue recognised from a BOT project under construction with government authorities and government-sponsored institutes, namely Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目).

The gross profit margin for government customers decreased from approximately 46.6% in 2018 to approximately 38.2% in 2019 primarily because of (i) the increase in our labour outsourcing expenditures in order to meet the intensive construction and installation works for certain large scale decentralised wastewater treatment facility construction projects, and (ii) the relatively low gross profit margin of our concession operation services under BOT model commenced in 2019 compared with our other business segments. The decrease in gross profit margin for government customers from approximately 38.2% in 2019 to approximately 27.7% in 2020 was primarily because of a sizable decentralised wastewater treatment equipment sales project obtained in August 2020 with a relatively low gross profit margin of approximately 27.3%.

The gross profit margin for non-government customers decreased from approximately 52.3% in 2018 to approximately 26.6% in 2019 primarily because of the relatively low gross profit margin of our sales of pipes and pipe fittings provided by Quanzhou Xingyuan, which was acquired by us in March 2019. The gross profit margin for non-government customers further decreased to approximately 23.6% in 2020 was primarily because of the decrease in gross profit margin of our sales of pipes and pipe fittings due to the suspension of Quanzhou Xingyuan in early 2020 attributable to the impact of COVID-19, while we incurred idle capacity costs during the period. See “Period to Period Comparison of Results of Operations” in this section for details.

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Other Income

Our other income mainly comprises (i) government grants received and recognised during the year/period, and (ii) others. The following table set forth the breakdown of our other income for the periods indicated:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Government grants – Received and recognised during the year/period 596 2,219 1,899 Others 152 138 667

748 2,357 2,566

Our other income was approximately RMB0.7 million, RMB2.4 million and RMB0.2 million, respectively for the three years ended 31 December 2020. The significant increase of other income in 2019 was primarily due to the increase of approximately RMB1.5 million in government grants in support of our merger and reorganization by the Finance Bureau of Quanzhou (泉州市財政局) and the Bureau of Industry and Information Technology (泉州市工業和信息化局) in 2019 which were rewards for our equity acquisition of Quanzhou Xingyuan in 2019. The company fulfilled the conditions specified in the terms of the government grants. These government grants were one-off and recorded in the consolidated statement of comprehensive income of 2019.

Other government grants during the Track Record Period were awarded unconditionally without regard to the Group’s future actions, or requirement to incur further costs. Such grants were given for the Group’s immediate financial support, or assistance, or for the reimbursement of costs previously incurred. Thus they were one-off in nature and recorded in consolidated statement of comprehensive income of respective year/period.

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Other Losses/Gains

Our other losses/gains primarily consist of (i) gains on disposal of subsidiaries primarily represented gains from disposal of Hunan Lanshen; (ii) losses on disposal of property, plant and equipment – net; (iii) gains on disposal of financial assets at fair value through profit or loss; (iv) gains on disposal of right-of-use assets; (v) negative goodwill gained from acquisition of Quanzhou Xingyuan; and (vi) losses on equity investment in relation to Quanzhou Water Quality. The following table sets forth a breakdown of our total other losses/gains for the periods indicated.

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Gains on disposal of subsidiaries – – – Losses on disposal of property, plant and equipment – net (55) (179) (56) Gains on changes in fair value of financial assets at fair value through profit or loss – – 13 Gains on disposal of financial assets at fair value through profit or loss 114 703 887 Gains on disposal of right-of-use assets – – – Negative goodwill gained from acquisition – 12,365 – Overdue tax payment surcharges – (458) (157) Indemnity for contract dispute – – (946) Other losses (12) (65) (148)

Other gains-net 47 12,366 (407)

We incurred overdue tax payment surcharges of approximately RMB458,000 and RMB157,000 for 2019 and 2020, primarily as a result of the adjustments made to the revenue due to the difference in revenue recognition policies between the Group’s previous revenue accounting policies and the new revenue standards effective from 1 January 2019 which were retrospectively adopted for the Group’s accounts throughout the Track Record Period. The management revisited the Company’s income tax expenses for the annual tax filings of 2018 and have identified the shortfall in income tax payments. Under the Group’s previous revenue accounting policies, revenue from decentralised wastewater treatment facility construction was recognised over time by measuring the stage of completion which is subject to the examination and acceptance of the counterparty, while under the new revenue standards, revenue from decentralised wastewater treatment facility construction was recognised over time by measuring the Group’s efforts or inputs to the satisfaction of the performance obligation. At the time of annual tax filing for 2018, the management accounts adopted the previous revenue accounting standards and therefore recognised less revenue than the audited amounts due to the time gap between the Group’s efforts or inputs to the satisfaction of the performance

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Selling Expenses

Our selling expenses primarily incurred for employee benefit, installation and maintenance costs, warranties, bidding fees and transportation and loading costs. For the three years ended 31 December 2020, our selling expenses was approximately RMB5.4 million, RMB17.3 million and RMB18.8 million, respectively, accounting for approximately 5.1%, 5.1% and 2.8% of our revenue for the same periods, respectively.

The following table sets forth a breakdown of our selling expenses for the periods indicated:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Employee benefit expenses 2,335 9,858 12,499 Installation and maintenance 122 1,526 995 Warranties(1) 488 1,521 1,143 Transportation and loading costs 439 1,432 913 Bidding fees 393 807 842 Net amount of depreciation charges 332 253 74 Traveling expenses 644 365 206 Entertainment expenses 370 182 5 Others(2) 298 1,365 2,164

Total 5,421 17,309 18,841

Note:

(1) Warranties refer to the quality guarantee deposit for our decentralised wastewaster treatment equipment or decentralised wastewater facility construction projects;

(2) Others of selling expenses mainly include raw materials and consumables used, electricity and water expenses, operating lease expenses, office expenses, advertising and exhibition expenses, consultation fees, insurance expenses, etc.

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Administrative Expenses

Our administrative expenses consist primarily of employee benefit, consultation fees and depreciation charge. For the three years ended 31 December 2020, we incurred administrative expenses of approximately RMB6.6 million, RMB22.0 million and RMB27.0 million, respectively, accounting for approximately 6.2%, 6.4% and 4.0% of our revenue for the same periods, respectively.

The following table sets forth a breakdown of our administrative expenses for the periods indicated.

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Employee benefit expenses 4,240 12,156 15,944 Consultation fees(1) 412 3,887 3,456 Net amount of depreciation charges 850 1,890 2,831 Office expenses 149 857 572 Amortisation expenses 6 730 1,097 Transportation and loading costs 259 350 416 Electricity and water expenses 121 322 330 Entertainment expenses 203 246 88 Installation and maintenance costs – 197 85 Traveling expenses 172 174 261 Operating lease expenses 40 114 223 Others(2) 185 1,068 1,662

Total 6,637 21,991 26,965

Note:

(1) The consultation fees primarily consist of the service fees paid to professional consultants, i.e. legal consultants, financial advisers, auditors, valuers, etc. in relation to (i) the acquisitions of subsidiaries; (ii) perennial consulting for daily business; (iii) the feasibility study of projects; and (iv) de-listing from NEEQ.

(2) Others of administrative expenses mainly include insurance expenses, etc.

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Research and Development Expenses

Our research and development expenses primarily consists of raw materials and consumables used, employee benefit expenses and depreciation charge. For the three years ended 31 December 2020, we incurred research and development expenses of approximately RMB6.8 million, RMB16.6 million and RMB23.8 million, respectively, accounting for approximately 6.4%, 4.9% and 3.6% of our revenue for the same periods, respectively. The following table sets forth a breakdown of our research and development expenses for the periods indicated.

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Raw materials and consumables used 2,645 12,117 16,850 Employee benefit expenses 2,896 3,489 4,595 Net amount of depreciation charges 116 523 686 Traveling expenses 222 150 307 OutsourcingR&Dcosts 424 72 500 Consultation fees(1) 137 44 170 Others(2) 310 200 712

Total 6,750 16,595 23,820

Note:

(1) The consultation fees primarily consist of (i) the technical consultation fees paid to external experts or institutions; (ii) the services fees paid to intellectual property agents for the application of intellectual properties; and (iii) the technical training fees paid to training institutes or industry associations.

(2) Others of research and development expenses mainly include electricity and water expenses, transportation and loading costs, office expenses, installation and maintenance costs, entertainment expenses, insurance expenses, etc.

Net Impairment Losses on Financial and Contract Assets

For the three years ended 31 December 2020, our net impairment losses on financial and contract assets amounted to approximately RMB4.8 million, RMB6.2 million and RMB10.5 million, respectively, accounting for approximately 4.5%, 1.8% and 1.6% of our revenue for the same periods, respectively.

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Finance Income and Finance Costs

Our finance income primarily consists of interest income on (i) bank deposits and (ii) service concession arrangements, while our finance costs primarily consist of finance charges on (i) lease liabilities, (ii) bank borrowings, and (iii) amounts due to related parties. For the three years ended 31 December 2020, we recorded net finance costs of approximately RMB0.2 million, RMB2.4 million and RMB5.2 million, respectively. The following table sets forth a breakdown of our finance income and finance costs for the periods indicated.

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Finance income – Interest income on bank deposits 43 808 524 – Interest income on service concession arrangements – 805 3,021

43 1,613 3,545

Finance costs Finance charges on lease liabilities (240) (210) (226) Finance charges on bank borrowings – (57) (6,001) Finance charges on amounts due to related parties – (3,619) (2,413) Others (20) (113) (136)

(260) (3,999) (8,776)

Finance costs – net (217) (2,386) (5,231)

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Income Tax Expense

Our income tax expense consists of current income tax and deferred income tax. Current income tax comprises PRC corporate income tax for the entities comprising our Group and tax provisions, in respect of previous years. Deferred income tax mainly comprises movement in deferred income tax assets on recognised deductible temporary differences arising from accrued employee benefits and provision of loss allowance. The following table sets forth the major components of our income tax expense for the periods indicated.

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Current income tax 4,789 9,749 14,122 Deferred income tax (740) (1,844) (1,249)

Income tax expense 4,049 7,905 12,873

Our Company was accredited as a “High-tech Enterprise” under the relevant PRC laws and regulations and was entitled to a preferential income tax rate of 15% for the three years ended 31 December 2020 according to the applicable EIT law. The income tax rate of 25% is applicable to all of our Company’s subsidiaries during the Track Record Period.

Fujian Lvdi, one of our subsidiaries, enjoys preferential tax treatment of pre-tax deduction or exemption of EIT for three years ended 31 December 2019, followed by reduction of EIT by half for three years ended 31 December 2022 (三免三減半), while Yongchun Lvdi, another subsidiary of us, enjoys preferential tax treatment of pre-tax deduction or exemption of EIT for three years ended 31 December 2020, followed by reduction of EIT by half for three years ended 31 December 2023 (三免三減半).

For the three years ended 31 December 2020, our effective income tax rate was 13.7%, 11.5% and 13.3%, respectively.

For the three years ended 31 December 2020, our current income tax expenses were approximately RMB4.8 million, RMB9.7 million and RMB14.1 million for the respective years, while our income tax payments were approximately RMB0.6 million, RMB8.3 million and RMB16.6 million, respectively. The significant differences in the Group’s income tax payments and current income tax expenses were primarily due to two reasons. Firstly, it is the seasonality of the sales of our equipment and services. For each of the three years ended 31 December 2020, the revenue generated in the fourth quarter accounted for approximately 61.2%, 59.2% and 42.7% respectively, of the Group’s total revenue. As income tax was paid after the end of each quarter, a majority of our current income tax was paid in the first quarter of the next calendar year, therefore, we incurred income tax paid for last year (including the income tax paid for the income tax expenses incurred in the fourth quarter of last year) of approximately RMB0.6 million, RMB4.1 million and RMB6.0 million, respectively, during the Track Record Period. Secondly, due to the adjustments made to the Group’s revenue accounting policies, our management revisited the Company’s income tax expenses for the annual tax filings of 2017 and

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2018 and has consequently made supplemental income tax contributions of approximately RMB1.2 million and RMB626,000 respectively in income tax payments in July 2020. See “Principal Income Statement Components — Other Losses/Gains” in this section for details of the overdue tax payment.

The table below illustrates the reconciliation of the difference between our current income tax and income tax paid during the Track Record Period:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Current income tax liabilities at the beginning of the year (a) 1,964 6,168 7,647 Current income tax (b) 4,789 9,749 14,122 Income tax paid for current year and prepaid income tax (c) 35 4,142 8,713 Income tax paid for last year (including the income tax paid for the income tax expenses incurred in the fourth quarter of last year) (d) 550 4,128 6,020 Supplemental income tax paid 2017 (e) – – 1,242 Supplemental income tax paid 2018 (f) – – 626

Total income tax paid (g)=(c)+(d)+(e)+(f) 585 8,270 16,601

Net current income tax liabilities at the end of the year (h)=(a)+(b)-(g) 6,168 7,647 5,168

Our Group is not subject to any material tax disputes or tax investigations by the relevant tax authorities with respect to tax filings and income tax payments during the Track Record Period and up to the Latest Practicable Date.

PERIOD TO PERIOD COMPARISON OF RESULTS OF OPERATIONS

Year ended 31 December 2020 Compared to year ended 31 December 2019

Revenue

Our total revenue increased by approximately RMB329.5 million, or 96.5%, from approximately RMB341.5 million in 2019 to approximately RMB671.1 million in 2020, primarily due to:

(i) an increase of approximately RMB62.6 million in revenue from our sales of wastewater treatment equipment from approximately RMB41.0 million in 2019 to

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approximately RMB103.6 million in 2020 primarily due to a sizable decentralised wastewater treatment equipment sales project obtained in August 2020 which contributed revenue of approximately RMB70.6 million in 2020;

(ii) a decrease of approximately RMB20.3 million in revenue from our sales of pipes and pipe fittings due to the influence of COVID-19 which led to the suspension of Quanzhou Xingyuan in early 2020;

(iii) a decrease of approximately RMB10.8 million in decentralised wastewater treatment facility construction from approximately RMB136.0 million in 2019 to approximately RMB125.2 million in 2020 because we completed the revenue recognition of a sizable decentralised wastewater treatment facility construction project, namely Liancheng County Linfang Town Eight Township Wastewater Treatment EPC Project (連城縣林坊鎮等8個鄉鎮污水處理EPC工程項目) in the first half of 2020 and the revenue recognised from this project decreased by approximately RMB51.9 million in 2020 compared to that recognised in 2019;

(iv) a record of approximately RMB355.1 million in revenue from concession operation services under BOT model because (a) we recognised approximately RMB351.7 million revenue from three BOT projects, namely Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目), Changshan Huaqiao Economic Development Zone Wastewater Treatment BOT (常山華僑經濟開發區污水處理BOT項目) and Shanghang Leachate Treatment BOT Project (上杭縣滲濾液處理BOT項目), which were in the construction phase in 2020; and (b) we recognised approximately RMB3.4 million revenue from three BOT projects, namely Yongchun Penghu Wastewater Treatment BOT Project (永春縣蓬壺鎮污水處理BOT項目), Nan’an Honglai Wastewater Treatment BOT Project (南安市洪瀨鎮污水處理BOT項目) and Shanghang Leachate Treatment BOT Project (上杭縣滲濾液處理BOT項目), which were in the operating phase as at 31 December 2020; and

(v) a decrease of approximately RMB8.9 million in revenue from our other business from approximately RMB10.5 million to approximately RMB1.6 million primarily due to the revenue recorded for the non-recurring soil treatment business in 2019.

Cost of Sales

Our total cost of sales increased by approximately RMB268.3 million, or 120.5%, from approximately RMB222.7 million in 2019 to approximately RMB491.0 million in the 2020, primarily due to (i) the increase of approximately RMB61.0 million in raw materials and consumables used in line with the increase of revenue from the sales of decentralised wastewater treatment equipment during the relevant period; (ii) the increase of approximately RMB176.2 million in construction subcontracting expenditures primarily because we used more third-party subcontractors for the construction of wastewater treatment stations as a result of the increase in our decentralised wastewater treatment facility construction projects and BOT projects.

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Gross Profit and Gross Profit Margins

As a result of the foregoing, our gross profit increased by approximately RMB61.2 million, or 51.5%, from approximately RMB118.9 million in 2019 to approximately RMB180.1 million in 2020. Our gross profit margins decreased from 34.8% in 2019 to 26.8% in 2020, primarily due to the following reasons:

(i) the decrease of approximately 20.2% in our gross profit margin for the sales of wastewater treatment equipment primarily because of a sales of decentralised wastewater treatment equipment project obtained in August 2020 which accounted for approximately 68.2% of the total revenue from our sales of wastewater treatment equipment in 2020. The project has a relatively lower gross profit margin of approximately 27.3% in 2020 as we used raw materials with certain imported brands according to the agreement we entered with the customer for such equipment which increased our cost of sales. Considering (i) the project is a sizable decentralised wastewater treatment equipment project which would contribute to our total revenue and reputation, and (ii) the trade receivable turnover days is shorter than the average trade receivable turnover days of the Company during the Track Record Period, we undertook such project despite its relatively low gross profit margin and did not pass the increased cost for the purchase of raw materials with imported brands to customers;

(ii) the decrease of approximately 4.1% in the gross profit margin of sales of pipes and pipe fittings because the cost growth outpaced the revenue growth recognised for this segment due to the suspension of manufacturing of Quanzhou Xingyuan in early 2020, while we incurred idle capacity costs in 2020 as a result of the outbreak of COVID-19;

(iii) the decrease of approximately 10.4% in the gross profit margin of the decentralised wastewater treatment facility construction because the cost growth outpaced the revenue growth recognised for this segment due to the delay in progress of our decentralised wastewater treatment facility construction projects while we incurred additional costs for labour outsourcing expenditures in 2020 as a result of the outbreak of COVID-19;

(iv) the relatively low gross profit margin of approximately 24.5% in our concession operation services under BOT model in 2020 which dragged down the total gross profit margin in 2020; and

(v) the gross profit margin for our other businesses increased from approximately 13.9% to 24.0% primarily because we provided one-off soil treatment services in 2019, which had relatively lower gross profit margin.

Other Income

Our other income remained relatively stable in 2020 compared to 2019.

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Other Losses/Gains

Our other gains decreased from approximately RMB12.4 million in 2019 to approximately RMB(0.4) million in 2020, primarily as a result of the negative goodwill gained from the acquisition of Quanzhou Xingyuan of approximately RMB12.4 million in 2019. We acquired Quanzhou Xingyuan with a consideration lower than the fair value of its net assets primarily because (i) the then shareholder of Quanzhou Xingyuan, an Independent Third Party who had a strong intention to sell Quanzhou Xingyuan as soon as possible due to his age and his living overseas; (ii) we are a state-owned enterprise with good reputation in Quanzhou and offered to settle the consideration in lump-sum in cash; and (iii) there were no other potential competitors to acquire Quanzhou Xingyuan during that time.

Selling Expenses

Our selling expenses increased from approximately RMB17.3 million in 2019 to approximately RMB18.8 million in 2020, primarily due to an increase of approximately RMB2.6 million in employee benefit expenses as a result of the increased number of employees after the acquisition of Quanzhou Xingyuan in March 2019 and the acquisition of Yongchun Lvdi, Fujian Lvdi and Yunxiao Sangde in the second half of 2019.

Administrative Expenses

Our administrative expenses increased from approximately RMB22.0 million in 2019 to approximately RMB27.0 million in 2020, primarily due to the acquisition of Quanzhou Xingyuan which resulted in (i) an increase of approximately RMB3.8 million in employee benefit expenses due to the increase of salaries to our management staff; and (ii) an increase of approximately RMB0.9 million in relation to net amount of depreciation charge.

Research and Development Expenses

Our research and development expenses increased from approximately RMB16.6 million in 2019 to approximately RMB23.8 million in 2020, primarily due to (i) an increase of approximately RMB1.1 million in employee benefit expenses as a result of the recruitment of additional research and development personnel; and (ii) an increase of approximately RMB4.7 million in research and development materials in the 2020.

Finance Income and Finance Costs

Our net finance costs increased from approximately RMB2.4 million in 2019 to approximately RMB5.2 million in 2020, primarily due to (i) the finance charges on related parties borrowings of approximately RMB2.4 million from Haisi Environmental; and (ii) the finance charges on bank borrowings of approximately RMB6.0 million. Our finance income increased from RMB1.6 million in 2019 to RMB3.5 million in 2020 primarily due to the interest income on concession operation services under BOT model of approximately RMB3.0 million from the concession operating of two BOT projects.

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Income Tax Expense

Our income tax expense increased by approximately RMB5.0 million from approximately RMB7.9 million in 2019 to approximately RMB12.9 million in 2020, primarily due to (i) an increase of approximately RMB4.4 million in current income tax as our profit before income tax increased from approximately RMB9.8 million in 2019 to approximately RMB14.1 million in 2020 in line with the increase in revenue and (ii) the negative goodwill gains of approximately RMB12.4 million for acquiring Quanzhou Xingyuan were not subject to income tax in 2019.

Profit for the Year

As a result of the foregoing, our profit for the year increased by approximately RMB23.1 million, or 38.0%, from approximately RMB60.9 million in 2019 to approximately RMB84.1 million in 2020.

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

Revenue

Our total revenue increased by approximately RMB235.3 million, or 221.6%, from approximately RMB106.2 million in 2018 to approximately RMB341.5 million in 2019, primarily due to:

(i) the above were partially offset by a decrease of approximately RMB11.1 million in our sales of wastewater treatment equipment because we gradually expanded our business portfolio from the provision of wastewater treatment equipment to the provision of all-around decentralised wastewater treatment facility construction services, which combines the wastewater treatment equipment provision and other services such as technical design, construction and installation. Such adjustment was reflected in the significant increase in revenue from our decentralised wastewater treatment facility construction in 2019;

(ii) an increase of approximately RMB105.9 million in revenue from our sales of pipes and pipe fittings as a result of our acquisition of Quanzhou Xingyuan in March 2019, which is primarily engaged in the provision of pipes and pipe fittings;

(iii) an increase of approximately RMB83.3 million in decentralised wastewater treatment facility construction because we gradually expanded our business portfolio from the provision of wastewater treatment equipment to the provision of all-around decentralised wastewater treatment facility construction services, which combines the wastewater treatment equipment provision and other services such as technical design, construction and installation;

(iv) a record of approximately RMB48.1 million in revenue from concession operation services under BOT model as a result of our two BOT projects under construction and two BOT projects under concession operation; and

(v) an increase of approximately RMB9.1 million in others primarily due to the revenue of approximately RMB9.4 million recorded for the non-recurring soil treatment business.

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Cost of Sales

Our total cost of sales increased by approximately RMB169.1 million, or 315.1%, from approximately RMB53.6 million in 2018 to approximately RMB222.7 million in 2019, primarily due to (i) an increase of approximately RMB77.7 million in raw materials and consumables used in 2019 as a result of the acquisition of Quanzhou Xingyuan and the general growth of our business; and (ii) an increase of approximately RMB63.5 million in construction subcontracting expenditures due to the increase of our decentralised wastewater treatment facility construction projects.

Gross Profit and Gross Profit Margins

As a result of the foregoing, our gross profit increased by approximately RMB66.3 million, or 126.1%, from approximately RMB52.6 million in 2018 to approximately RMB118.9 million in 2019. Our gross profit margins decreased from 49.5% in 2018 to 34.8% in 2019, primarily due to

(i) the gross profit margin of our sales of wastewater treatment equipment remained stable during the relevant period;

(ii) the relatively low gross profit margin of our sales of pipes and pipe fittings provided by Quanzhou Xingyuan compared with other business segments which is in line with the industry average gross profit margin of water pipes and pipe fittings, which ranges from 20% to 40%, according to F&S;

(iii) the decrease of the gross profit margin for our decentralised wastewater treatment facility construction business from 44.3% in 2018 to 40.3% in 2019 primarily due to the increase in our labour outsourcing expenditures in order to meet the intensive construction and installation works for certain large scale decentralised wastewater treatment facility construction projects, namely Liancheng County Linfang Town Eight Township Wastewater Treatment EPC Project (連城縣林坊鎮等8個鄉鎮污水處理 EPC工程項目) and Jiufeng Town Urban Area Wastewater Treatment Plant and Pipeline Network Project (九峰鎮城區污水處理廠及配套管網工程);

(iv) the relatively low gross profit margin of our concession operation services under BOT model commenced in 2019 compared with our other business segments which is in line with the industry average gross profit margin of concession operation services under BOT model, which ranges from 20% to 40%, according to F&S; and

(v) the decrease of the gross profit margin for our other business from 57.4% in 2018 to 13.9% in 2019 primarily due to the relatively higher gross profit margin for the technical consultancy and design service in 2018 while the soil treatment services in 2019 with relatively lower gross profit margin dragged down the total gross profit margin for others in 2019.

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Other Income

Our other income increased by approximately RMB1.6 million, or 215.1%, from approximately RMB0.8 million in 2018 to approximately RMB2.4 million in 2019, primarily due to the increase of approximately RMB1.5 million in government grants in support of our merger and reorganization by the Finance Bureau of Quanzhou (泉州市財政局) and the Bureau of Industry and Information Technology (泉州市工業和信息化局) in 2019, which was one-off in nature and recorded in the consolidated statement of comprehensive income in 2019.

Other Losses/Gains

Our other gains increased from approximately RMB47,000 in 2018 to approximately RMB12.4 million in 2019, primarily as a result of the negative goodwill gained from the acquisition of Quanzhou Xingyuan of approximately RMB12.4 million.

Selling Expenses

Our selling expenses increased from approximately RMB5.4 million in 2018 to approximately RMB17.3 million in 2019, primarily due to (i) an increase of approximately RMB7.5 million in employee benefit expenses due to additional employees recruited by Company and the increase in employees resulting from the acquisition of Quanzhou Xingyuan; (ii) an increase of approximately RMB1.4 million in installation and maintenance expenses in relation to the services fees to external installation consultation company paid by Quanzhou Xingyuan; (iii) an increase of approximately RMB1.0 million in warranties; and (iv) an increase of approximately RMB1.0 million in transportation and loading costs mainly incurred by Quanzhou Xingyuan.

Administrative Expenses

Our administrative expenses increased from approximately RMB6.6 million in 2018 to approximately RMB22.0 million in 2019, primarily due to (i) an increase of approximately RMB7.9 million in employee benefit expenses due to the increase in total number of employees and the increase of salaries to our senior management; (ii) an increase of approximately RMB3.5 million in consultation fees in relation to the tax and valuation consultation fees incurred in connection with our acquisitions of four subsidiaries in 2019; and (iii) an increase of approximately RMB1.0 million in depreciation charges.

Research and Development Expenses

Our research and development expenses increased from approximately RMB6.8 million in 2018 to approximately RMB16.6 million in 2019, primarily due to the acquisition of Quanzhou Xingyuan in 2019 which lead to (i) an increase of approximately RMB9.5 million in raw materials and consumables used; and (ii) an increase of approximately RMB0.6 million in employee benefit expenses for our research and development personnel.

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Finance Income and Finance Costs

Our net finance costs increased from approximately RMB0.2 million in 2018 to approximately RMB2.4 million in 2019, primarily due to the finance charges on related parties borrowings of approximately RMB3.6 million from Haisi Environmental in 2019, and was partially offset by the interest income on service concession arrangements of approximately RMB0.8 million from the concession operating of two BOT projects.

Income Tax Expense

Our income tax expense increased by approximately RMB3.9 million from approximately RMB4.0 million in 2018 to approximately RMB7.9 million in 2019, primarily due to an increase of approximately RMB5.0 million in current income tax, as our profit before income tax increased from approximately RMB29.5 million in 2018 to approximately RMB68.8 million in 2019 as a result of our rapid growth in revenue. Such increase was partially offset by an increase of approximately RMB1.1 million in deferred income tax.

Profit for the Year

As a result of the foregoing, our profit for the year increased by approximately RMB35.5 million, or 139.4%, from approximately RMB25.4 million in 2018 to approximately RMB60.9 million in 2019.

DISCUSSION OF CERTAIN ITEMS FROM THE CONSOLIDATED BALANCE SHEETS

Net Current Assets

The following table sets forth our current assets and current liabilities as of the balance sheet dates indicated:

As of 31 As of 31 December January 2018 2019 2020 2021 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited)

Current assets Receivables under service concession arrangements – 4,757 5,182 5,161 Inventories 10,076 42,413 43,248 48,796 Other current assets 4 5,399 4,279 3,851 Contract assets 28,874 107,911 107,423 105,369 Trade, other receivables and prepayments 49,212 97,741 184,475 165,139 Financial assets at fair value through profit or loss – – 33,513 – Restricted bank balances 189 2,360 11,714 12,000

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As of 31 As of 31 December January 2018 2019 2020 2021 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited)

Cash and bank balances 105,345 156,573 87,405 141,073

193,700 417,154 477,239 481,389 Current liabilities Borrowings – 50,000 211,700 231,700 Trade and other payables 31,210 241,787 237,517 214,612 Contract liabilities 465 989 1,277 2,000 Current income tax liabilities 6,168 7,647 5,678 1,769 Lease liabilities 1,064 1,874 1,829 1,800 Provisions 596 2,083 1,786 1,599

39,503 304,380 459,787 453,480

Net current assets 154,197 112,774 17,452 27,909

Our current assets further increased from approximately RMB193.7 million as of 31 December 2018 to approximately RMB417.2 million as of 31 December 2019 primarily due to (i) the approximately RMB79.0 million incurred in current contract assets because we commenced the construction of two sizable decentralised wastewater treatment facility construction projects in 2019, the construction of Liancheng County Linfang Town Eight Township Wastewater Treatment EPC Project (連城縣林坊鎮等8個鄉鎮污水處理EPC工程項目) and Qing Yuan Shan Scenic Spot Wastewater Treatment EPC General Contracting Project (清源山風景名勝區污水處理工程EPC總承包項目); (ii) the approximately RMB48.5 million increase in trade, other receivables and prepayments which was primarily due to the increase in trade receivables which was in line with our business growth; and (iii) the approximately RMB51.2 million increase in cash and bank balances as a result of the related party loans from Haisi Environmental. Our current assets increased from approximately RMB417.2 million as of 31 December 2019 to approximately RMB477.2 million as of 31 December 2020 primarily due to (i) the increase of approximately RMB86.7 million in trade, other receivables and prepayments which was in line with our business growth, and (ii) partially offset by the decrease of approximately RMB69.2 million in cash and bank balance as a result of the repayment of RMB100.0 million related party loans to Haisi Environmental.

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2019 to approximately RMB459.8 million in 2020 primarily due to (i) the increase of approximately RMB161.7 million in borrowings; and (ii) partially offset by the decrease of approximately RMB4.3 million in trade and other payables.

Trade Receivables

Our trade receivables were approximately RMB46.0 million as of 31 December 2018, approximately RMB88.7 million as of 31 December 2019 and increased to approximately RMB175.0 million as of 31 December 2020, which was in line with our business growth. The following table sets forth the total amount of our trade receivables as of the dates indicated.

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade receivables 46,020 88,723 174,974 Provision for impairment (4,865) (11,373) (21,705)

Trade Receivables-net 41,155 77,350 153,269

As of 31 December 2018, 2019 and 2020, we made provisions for impairment of approximately RMB4.9 million, RMB11.4 million and RMB21.7 million, respectively, on trade receivables. We conduct impairment analysis based on expected credit loss model on the recoverability of trade receivables.

The following table sets forth the ageing analysis of our trade receivables.

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 1 year 29,152 58,524 146,113 1 and 2 years 15,898 16,202 11,738 2 and 3 years 860 12,624 7,739 Over 3 years 110 1,373 9,384

Total 46,020 88,723 174,974

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The following table sets forth our trade receivables turnover days for the periods indicated.

Year ended 31 December 2018 2019 2020

Trade receivables turnover days(1) 138 71 71 Contract assets turnover days(2) 51 73 58 Trade receivables and contract assets turnover days(3) 189 144 129

Note:

(1) We calculate the trade receivables turnover days using the average of opening and closing balance of trade receivables, divided by revenue for the relevant period, multiplied 360 days.

(2) We calculate the contract assets turnover days using the average of opening and closing balance of the current portion of contract assets, divided by revenue for the relevant period, multiplied by 360 days.

(3) We calculate trade receivables and contract assets turnover days using the average of opening and closing balance of trade receivables and the current portion of contract assets, divided by revenue for the relevant period, multiplied by 360 days.

Our trade receivables turnover days decreased significantly from approximately 138 days in 2018 to approximately 71 days in 2019 primarily due to our acquisition of Quanzhou Xingyuan which has shorter trade receivables turnover days for its sales of pipes and pipe fittings. As of 31 January 2021, we had settled trade receivables of approximately RMB18.4 million, representing approximately 10.5% of our trade receivables outstanding as of 31 December 2020.

Our contract assets turnover days increased from approximately 51 days in 2018 to approximately 73 days in 2019 primarily because of the increase in current portion of contract assets due to certain sizable decentralised wastewater treatment facility projects in 2019, namely Liancheng County Linfang Town Eight Township Wastewater Treatment EPC Project (連城縣林坊鎮等8個鄉鎮污水處理EPC工程項目) and Jiufeng Town Urban Area Wastewater Treatment Plant and Pipeline Network Project (九峰鎮城區污水處理廠及配套管網工程).

We generally grant a credit period ranging from 0-90 days for our major customers during the Track Record Period who entered into contracts with applicable credit terms with us. During the Track Record Period, our average trade receivables turnover days were longer than the credit period we generally granted because a majority of our customers are government customers who may delay settlement of payments due to the time required for their internal

– 364 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FINANCIAL INFORMATION approval procedures. Our Directors are of the view, and the Sole Sponsor concurs, that the long aged trade receivables were recoverable and no further impairment was required during the Track Record Period as such government customers have a good track record with us and have been making consistent and regular payments. In addition, we have adopted the following internal control measures in relation to the recoverability of long aged trade receivables: (i) our sales department is responsible for collecting trade receivables and will regularly follow up with the relevant customers on the schedule of payment; (ii) our finance and audit department will monitor the settlement status of our trade receivables and issue trade receivables statement on a monthly basis for our sales department to follow up with customers; (iii) we will suspend the provision of our products/services or initiate legal proceedings for customers who do not respond to our overdue payment notice within a reasonable grace period.

Prepayments and Other Receivables

The following table sets forth our prepayments and other receivables based as of the dates indicated.

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Prepayments – For purchase of raw materials 1,686 7,641 4,432 – For purchase of finished products 511 – – – For operating expenses 2,257 624 380 – For [REDACTED][REDACTED][REDACTED][REDACTED]

Sub-total 4,454 13,558 24,699

Other receivables – Deposits and pledges 2,359 6,828 6,140 – Staff advances 694 210 160 – Withholding social insurance 74 148 283 – Others 778 511 1,149 Provision for impairment (302) (864) (1,225)

Sub-total 3,603 6,833 6,507

Total 8,057 20,391 31,206

Our prepayments were approximately RMB4.5 million as of 31 December 2018 increased to approximately RMB13.6 million as of 31 December 2019. The significant increase as of 31 December 2019 was primarily due to the prepayment of approximately RMB[REDACTED] million [REDACTED]. Our net other receivables were approximately RMB3.6 million as of 31 December 2018 increased to approximately RMB6.8 million as of 31 December 2019. As of 31 December 2020, our prepayments were approximately RMB24.7 million.

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Our other receivables primarily consists of deposits and pledges, staff advances, withholding social insurance and others. Our other receivables were approximately RMB3.6 million, RMB6.8 million and RMB6.5 million as of 31 December 2018, 2019 and 2020.

The increase of other receivables as of 31 December 2019 compared to that of 31 December 2018 was primarily due to the increase of approximately RMB4.5 million in deposits and pledges as a result of certain projects with high bidding or contract performance deposits or pledges, specifically the Liancheng County Linfang Town Eight Township Wastewater Treatment EPC Project (連城縣林坊鎮等8個鄉鎮污水處理EPC工程項目).

Our other receivables remained relatively stable as of 31 December 2019 and 31 December 2020.

As of 31 January 2021, we had settled other receivables of approximately RMB1.1 million, representing approximately 14.1% of our other receivables outstanding as of 31 December 2020.

Receivables under Service Concession Arrangement

The current portion of receivables under service concession arrangement represent the current value of future cash collection for guaranteed minimum intake within one year by the Grantors under concession operation phase. Our current portion of receivables under services concession arrangement were approximately RMB4.8 million and RMB5.2 million as of 31 December 2019 and 31 December 2020, respectively, which were incurred by Yongchun Penghu Wastewater Treatment BOT Project (永春縣蓬壺鎮污水處理BOT項目) and Nan’an Honglai Wastewater Treatment BOT Project (南安市洪瀨鎮污水處理BOT項目).

Contract Assets and Liabilities

The current portion of contract assets were recognised when the Group recognised the related revenue of decentralised wastewater treatment facility construction projects before being unconditionally entitled to the consideration for the promised services in the contracts. Our contract assets under current portion were nil, approximately RMB107.9 million and RMB107.4 million as of 31 December 2018, 2019 and 2020. The significant increase of contract assets under current portion as of 31 December 2019 were primarily due to the commencement of two sizable decentralised wastewater treatment facility construction projects, namely Liancheng County Linfang Town Eight Township Wastewater Treatment EPC Project (連城縣林坊鎮等8個鄉鎮污水處理EPC工程項目) and Qing Yuan Shan Scenic Spot Wastewater Treatment EPC General Contracting Project (清源山風景名勝區污水處理工程EPC總承包項目). As of 31 January 2021, approximately RMB9.4 million, or 9.0% of our contract assets as of 31 December 2020 was reclassified as trade receivables, among which none had been settled.

The current portion of contract liabilities were recognised when a customer pays consideration, or is contractually required to pay consideration and the amount is already due, before the Group recognizes the related revenue. Our contract liabilities under current portion were approximately RMB0.5 million, RMB1.0 million and RMB1.3 million as of 31 December 2018, 2019 and 2020. The significant increase of contract liabilities under current portion as of 31 December 2020 were primarily due to the increase of current liabilities related to sales of wastewater treatment equipment due to the prepayment from a sizable decentralised wastewater treatment equipment sales project. As of 31 January 2021, approximately RMB0.3 million, or 26.8% of our contract liabilities as of 31 December 2020 had been settled.

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Financial Assets at Fair Value through Profit or Loss

Financial assets at fair value through profit or loss represent our investments in the bank financial products from commercial banks in the PRC, which were approximately RMB33.5 million as of 31 December 2020. The underlying investments of these bank structured deposits mainly include low risk bond products, gold market instruments, etc.

Our Company has instituted internal policies on valuation methodologies, models and procedures for valuation of such bank financial products. During the Track Record Period, we mainly perform valuation assessment of our bank financial products. Our Company determines the fair value of bank financial products based on the discounted cash flow model using the expected return rate as discount rates. Our Company has also implemented internal policies to ensure the reasonableness of the fair value measurement on the bank financial products.

Our Company takes a prudent approach as to the valuation methodologies. Our finance department has varied and detailed valuation guidelines for different types of financial instruments. When carrying out the valuation work, our finance department adheres to the principle of substance over form to ensure the valuation methodologies adopted are appropriate as to the underlying financial instruments to reflect accurately the economic substance. Our finance department performs risk assessments on the effectiveness of our valuation models to increase the reasonableness and reliabilities of such models periodically, and on any material adjustments to existing valuation models or the implementation of any new valuation models.

In light of the above, the Directors are satisfied with, and the Sole sponsor and the Reporting Accountants concur, the valuation for our Company’s financial assets categorised within level 3 of fair value measurement in the historical financial information for the purpose of the preparation of the Accountant’s Report as referred to in Appendix I to this document.

Investment and Treasury Management Policies

During the Track Record Period, we have implemented the following investment and treasury management policies:

• The purpose of our investment in wealth management products is to preserve the time value of our cash reserves;

• We generally invest in low-risk short-term (generally for a term of no more than one year) wealth management products with reasonable guaranteed returns and diversify our investment portfolio to minimize risk exposure;

• Our finance department is responsible for the purchase and management of our wealth management products and evaluates their respective terms including, among others, liquidity, risk and expected return before submitting them to our chief executive officer for final decision; and

• We generally invest when there is no short-term need of cash by our operating activities and when our cash reserves are abundant.

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Going forward, we plan to strictly implement our investment and treasury management policies and, as part of our investment and treasury management, may continue to purchase wealth management products that meet our criteria where we believe prudent after the [REDACTED].

Inventories

Our inventories mainly comprise of raw materials, work-in-progress and finished goods. The following table sets forth our inventories as of the dates indicated.

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Inventories Raw materials 6,600 24,019 26,293 Work-in-progress 1,622 1,301 2,131 Finished goods 1,854 17,093 14,824

Total 10,076 42,413 43,248

Our inventories increase from approximately RMB10.1 million as of 31 December 2018 to approximately RMB42.4 million as of 31 December 2019 primarily due to (i) an increase of approximately RMB17.4 million in raw materials, (ii) an increase of approximately RMB15.2 million in finished goods; and (iii) offset by a decrease of approximately RMB0.3 million in work-in-progress. The above changes were primarily due to the acquisition of Quanzhou Xingyuan in March 2019, which engages in the manufacturing and sales of pipes and pipe fittings that can be standardized and has relatively higher inventories in raw materials and finished goods than our customised decentralised wastewater treatment equipment.

Our inventories increased from approximately RMB42.4 million as of 31 December 2019 to approximately RMB43.2 million as of 31 December 2020 in line with the growth of our revenue.

The following table sets out our inventory turnover days for the periods indicated:

Year ended 31 December 2018 2019 2020

Inventory turnover days(1) 85 42 31

Note:

(1) We calculate the inventory turnover days using the average inventories for the period, divided by cost of sales for the relevant period, multiplied by 360 days.

Our inventory turnover days decreased from approximately 85 days in 2018 to approximately 42 days in 2019 primarily due to our acquisition of Quanzhou Xingyuan which has shorter inventory turnover days for its sales of pipes and pipe fittings. Our inventory turnover days further decreased to approximately 31 days primarily because the growth of cost of sales outpaced the growth of inventories.

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As of 31 January 2021, RMB9.6 million, or 22.3%, of our inventories as of 31 December 2020 was subsequently consumed.

Trade Payables

Our trade payables increased from approximately RMB13.5 million as of 31 December 2018 to approximately RMB82.3 million as of 31 December 2019, which was in line with our business growth. The increase in our trade payables from approximately RMB82.3 million as of 31 December 2019 to approximately RMB179.3 million as of 31 December 2020 was primarily due to the increased trade payables for Qianpu Wastewater Treatment Plant Phase III (Expansion) Equipment Installation Project (前埔污水處理廠三期工程（擴建）施工項目機電設備安裝工程), Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目) and a sizable decentralised wastewater treatment sales project.

The following table sets forth the ageing analysis of our trade payables as of dates indicated.

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 1 year 12,367 80,257 176,614 1 and 2 years 1,143 999 2,146 2 and 3 years 9 1,019 185 Over 3 years – 9 305

13,519 82,284 179,250

The following table sets forth the number of turnover days for our trade payables for the periods indicated.

Year ended 31 December 2018 2019 2020

Trade payables turnover days(1) 60 77 96

Note:

(1) We calculate the trade payables turnover days using the ending balance of trade payables for the period, divided by cost of sales for the relevant period, multiplied by 360 days.

Our trade payables turnover days continuously increased from approximately 60 days in 2018 to approximately 77 days in 2019, and further to approximately 96 days in 2020, primarily because we have enhanced our management of suppliers and negotiated a longer credit terms with our suppliers. Our major suppliers generally grant us a credit period ranging from 0-60 days. As of 31 January 2021, we had settled trade payables of approximately RMB37.0 million, representing approximately 14.3% of our trade payables outstanding as of 31 December 2020.

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Other Payables

The following table sets forth a breakdown of our other payables for the periods indicated.

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Amounts due to related parties – 100,433 54 Employee benefit payables 5,212 21,227 24,881 Other taxes payable excluding income tax liabilities 4,880 17,601 15,192 Payables to non-controlling interests of subsidiaries – 5,268 2,871 Payables for [REDACTED][REDACTED][REDACTED][REDACTED] Payables for wastewater treatment projects 7,110 3,985 3,700 Payables for acquisition of subsidiaries – 2,596 2,596 Payables for operating expenses 145 1,816 4,956 Payables for purchase of property, plant and equipment – 484 647 Payables for overdue tax payment surcharges – 458 – Others 344 902 193

17,691 159,503 58,267

Our other payables increased by approximately RMB141.8 million from approximately RMB17.7 million as of 31 December 2018 to approximately RMB159.5 million as of 31 December 2019 primarily due to (i) an increase of approximately RMB100.4 million in amount due to related parties in relation to the related party loan from Haisi Environmental; (ii) an approximately RMB16.0 million in employee benefit payables because of the increase in payables of bonus to senior management and employees and the increase in total number of employees as a result of the acquisition of Quanzhou Xingyuan; (iii) an approximately RMB12.7 million in other taxes payable excluding income tax liabilities which primarily consisted of payables of value-added tax that increased in line with our revenue; (iv) an approximately RMB5.3 million in payables to non-controlling interests of subsidiaries due to our occupation of the assets attributable to the non-controlling shareholders of Fujian Lvdi and Yongchun Lvdi; and (v) an approximately [REDACTED] in payables for [REDACTED].

Our other payables decreased by approximately RMB101.2 million from approximately RMB159.5 million as of 31 December 2019 to approximately RMB58.3 million as of 31 December 2020 primarily due to (i) a decrease of approximately RMB100.4 million in amounts due to related parties primarily because of the repayment of RMB100.0 million related party loan to Haisi Environmental; (ii) an increase of approximately RMB3.7 million in employee benefit payables due to the payment of bonus to the employees and senior management; and (iii) a decrease of approximately RMB2.4 million in other taxes payable excluding income tax

– 370 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FINANCIAL INFORMATION liabilities primarily due to the seasonality of our business that we generally incurred significant other taxes payables in the fourth quarter of the year and therefore the other taxes payables as of 31 December 2019 is much higher than that as of 31 December 2020.

During the Track Record Period, we did not default on any trade payables or other payables, which would have a material adverse effect on our financial position.

LIQUIDITY AND CAPITAL RESOURCES

During the Track Record Period, we met our working capital needs mainly from our cash and cash equivalents on hand, cash flows generated from operations, debt and equity financing. We manage our cash flow and working capital by closely monitoring and managing, among other things, (i) the level of our trade payables and receivables and (ii) our ability to obtain external financing. We also review future cash flow requirements, assess our ability to meet debt repayment schedules and adjust our investment and financing plans, if necessary, to ensure that we maintain sufficient working capital to support our business operations and expansion plans.

As of 31 December 2018, 2019 and 2020, we had cash and cash equivalents of approximately RMB105.3 million, RMB156.6 million and RMB87.4 million, respectively.

Cash Flow

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

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Cash and cash equivalents at end of the year 105,345 156,573 87,405

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Net cash from/(used in) operating activities

During the Track Record Period, our net cash generated from operating activities primarily consists of cash received from our customers for services and products provided by us. We also use cash in our operations for the purchase of raw materials and other inventories, payments to suppliers and subcontractors, payments of expenses such as salaries and benefits, and payments of interest and tax.

For the year ended 31 December 2018, we had net cash generated from operating activities of approximately RMB15.9 million, which was attributable to cash flow generated from operations of approximately RMB16.5 million and income tax paid of approximately RMB0.6 million. Our cash flow generated from operations primarily consisted of the cash generated from (i) the profit before income tax of approximately RMB29.5 million, (ii) the increase in trade and other payables of approximately RMB20.5 million, and (iii) the decrease in inventories of approximately RMB5.1 million; offset by the cash used for the (i) increase in trade, other receivables and prepayments of approximately RMB16.4 million, and (ii) increase in contract assets of approximately RMB30.1 million.

For the year ended 31 December 2019, we had net cash used in operating activities of approximately RMB9.7 million, which was attributable to cash flow used in operations of approximately RMB1.4 million and income tax paid of approximately RMB8.3 million. Our cash flow used in operations was primarily consisted of cash used for (i) the increase of approximately RMB127.3 million in contract assets; and (ii) the increase of approximately RMB48.4 million in trade, other receivables and prepayments; and partially offset by (i) the increase in trade and other payables of approximately RMB93.6 million; and (ii) the profit before income tax of approximately RMB68.8 million.

For year ended 31 December 2020, we had net cash used in operating activities of approximately RMB268.3 million, which was attributable to cash flow used in operations of approximately RMB251.7 million and income tax paid of approximately RMB16.6 million. Our cash flow used in operations was primarily consisted of cash used for the (i) increase in trade, other receivables and prepayments of approximately RMB82.8 million, (ii) increase in contract assets of approximately RMB347.7 million; partially offset by (i) the profit before income tax of approximately RMB96.9 million, and (ii) the increase in trade and other payables of approximately RMB99.1 million.

Under our decentralised wastewater treatment facility construction projects, we generally receive payment from our customers in stages based on the terms of the contracts entered into with our customers, and in our concession operation services under BOT model, we would generally incur significant amount of contract assets during the construction phase but would not receive any payment until the operating phase, as a result, there were periods during which we experienced net cash outflows for a particular project as well as on an overall basis.

Our income tax paid increased to approximately RMB8.3 million for the year ended 31 December 2019, among which (i) approximately RMB4.2 million were paid due to the increase in profit before income tax for the year ended 31 December 2019, and (ii) approximately RMB4.1 million were paid due to the increase in profit before income tax for the year ended 31 December 2018. Our income tax paid further increased to approximately RMB16.6 million for the year

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We recognised net cash generated from operating activities of approximately RMB15.9 million for the year ended 31 December 2018 primarily due to our tightened credit policy in payment collection with our customers, and we negotiated a relatively longer credit term with our suppliers. We recorded net cash used in operating activities of approximately RMB9.7 million and approximately RMB268.2 million, respectively for the year ended 31 December 2019 and 2020 primarily due to the construction of certain sizable decentralised wastewater treatment facility construction projects, namely Liancheng County Linfang Town Eight Township Wastewater Treatment EPC Project (連城縣林坊鎮等8個鄉鎮污水處理EPC工程項目) and Qing Yuan Shan Scenic Spot Wastewater Treatment EPC General Contracting Project (清源山風景名勝區污水處理工程EPC總承包項目) and Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目) which led to the significant increase in contract assets.

We will adopt the below measures to improve our operating cash flow, which include:

(i) preparing cash flow plans for projects and regularly reviewing the cash flow plans to identify and address any potential shortfall in cash flow;

(ii) evaluating the cash flow position of our Group before submitting any tender;

(iii) closely monitoring the collection status of our trade receivables and actively following up with our customers for payment;

(iv) utilising the credit terms provided by our suppliers; and

(v) utilising our banking facilities, if any, to cover any potential shortfall in our cash flow position.

Net cash from/(used in) investing activities

For the year ended 31 December 2018, we used net cash of approximately RMB0.5 million in investing activities, primarily attributable to (i) payment for financial assets at fair value through profit or loss of approximately RMB20.0 million; (ii) payment for property, plant and equipment of approximately RMB0.6 million; and (iii) partially offset by proceeds from sale of financial assets at fair value through profit or loss of approximately RMB20.1 million.

For the year ended 31 December 2019, we used net cash of approximately RMB65.0 million in investing activities, primarily attributable to (i) payment for acquisition of subsidiaries of approximately RMB84.0 million in relation to the acquisition of four subsidiaries, (ii) payments for investments accounted for using the equity method of approximately RMB1.7 million in relation to the investment in 17.0% equity interest of Quanzhou Water Quality; (iii) payment for

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For the year ended 31 December 2020, we used net cash of approximately RMB51.8 million in investing activities, primarily attributable to (i) payment for financial assets at fair value through profit or loss of approximately RMB813.4 million; (ii) payment for property, plant and equipment of approximately RMB15.3 million; and (iii) partially offset by proceeds from sale of financial assets at fair value through profit or loss of approximately RMB780.1 million.

Net cash from/(used in) financing activities

For the year ended 31 December 2018, we had net cash generated from financing activities of approximately RMB87.4 million, primarily attributable to proceeds from issue of shares of approximately RMB89.0 million in relation to the cash consideration received from Haisi Environmental for the subscription of shares in our Company, and was partially offset by (i) interest paid of approximately RMB0.2 million; and (ii) repayment of lease liabilities of approximately RMB1.3 million.

For the year ended 31 December 2019, we had net cash generated from financing activities of approximately RMB125.9 million, primarily attributable to (i) proceeds from borrowing of RMB50.0 million; and (ii) amounts received from related parties of RMB100.0 million from Haisi Environmental, which was fully repaid in July 2020. Our net cash generated from financing activities was partially offset by (i) repayment of loans from non-controlling interests of subsidiaries of approximately RMB17.0 million in relation to Fujian Lvdi and Yongchun Lvdi; (ii) interest paid of approximately RMB3.5 million; (iii) repayment of lease liabilities of approximately RMB1.4 million and (iv) repayment of borrowings of approximately RMB3.5 million.

For the year ended 31 December 2020, we had net cash generated from financing activities of approximately RMB250.9 million, primarily attributable to (i) proceeds from borrowing of RMB366.8 million; (ii) proceeds from issue of shares of RMB62.6 million in relation to the investment from our [REDACTED], namely Quanzhou Radio and Television Station and Lanshen Youshi. Our net cash generated from financing activities was partially offset by (i) repayment of related parties RMB100.0 million to Haisi Environmental; (ii) interest paid of approximately RMB8.5 million; (iii) repayment of lease liabilities of approximately RMB1.9 million; (iv) payment of [REDACTED] costs of approximately RMB[REDACTED] million and (v) repayment of borrowings RMB50.0 million.

WORKING CAPITAL SUFFICIENCY

Taking into account the financial resources available to us, including our cash and cash equivalents on hand, existing banking facilities, and the [REDACTED] we expect to receive from the [REDACTED], our Directors are of the opinion that our Group will have sufficient working capital for our operations for at least the next 12 months following the date of this document.

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INDEBTEDNESS AND CONTINGENT LIABILITIES

Indebtedness

As of 31 December 2018, 2019 and 2020, we had unsecured fixed rate outstanding bank loans of nil, approximately RMB50.0 million and approximately RMB366.8 million, respectively.

As of 31 January 2021, for purpose of indebtedness statement in this document, our bank borrowings were RMB41.7 million, and we had RMB88.5 million of credit facilities made available to us, of which RMB45.7 million were utilised for bank borrowings, bank acceptances or letters of guarantees and RMB42.8 million were unutilised.

Our loan agreements typically include material covenants such as requirements to promptly notify the lenders in the event of material adverse changes in our operations and financial condition as well as restrictions on the use of proceeds from the bank borrowings. We are typically required to obtain the relevant lender’s prior written consent before we conduct reorganizations, mergers, demergers, joint ventures, capital reductions, equity transfers, transfers of major assets or creditor’s rights, material investments, substantial increases of debt financing or other actions that may adversely affect our ability to repay the loans. Our Directors confirm that we complied with all material covenants under our loan agreements during the Track Record Period and up to 31 January 2021.

We cannot assure you that we can obtain consents from the lenders for activities restricted by the covenants. If we breach the restrictive covenants, make misrepresentations or commit any other violation under our financing agreements, we may trigger an event of default, which could lead to an acceleration of our indebtedness or require us to compensate the lending banks for their losses, materially and adversely affecting our business, financial condition and results of operations. See “Risk Factors — 27. We had to a certain degree relied on bank borrowings to finance our projects, and any increase in interest rates or breach of restricted covenants in our financing agreements may materially and adversely affect our business, financial condition and results of operations” for details.

As of 31 December 2018, 2019, 2020 and 31 January 2021, our current and non-current lease liabilities were approximately RMB4.5 million, RMB6.1 million, RMB5.1 million and RMB4.7 million, respectively, primarily represented our outstanding payments in respect of leases of certain properties from third parties.

As of 31 December 2018, 2019 and 2020, our amounts due to related parties (non-trade) were nil, RMB100.4 million and RMB0.1 million, respectively, primarily represented our RMB100.0 million borrowing from Haisi Environmental with an interest rate of 6.99% in 2019 which was fully repaid in July 2020.

Save as aforesaid and apart from intra-group liabilities and normal accounts payable in the ordinary course of business, as of 31 January 2021, 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 or guarantees.

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Contingent Liabilities

Except as disclosed above, we did not have, as of 31 December 2020 and up to 31 January 2021, significant contingent liabilities. As of 31 January 2021, we were not involved in any material legal proceedings, nor are we aware of any pending or potential material legal proceedings involving our Group. Our Directors have confirmed that there were no material changes in our contingent liabilities since 31 December 2020 and up to 31 January 2021.

OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

As of 31 December 2020, we had not entered into any off-balance sheet transactions.

CAPITAL EXPENDITURES

The following table sets forth our capital expenditures incurred for the periods indicated:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Land use rights – 26,399 – Other right-of-use assets 50 3,001 969 Property, plant and equipment 570 32,945 17,777 Intangible assets 41 20,584 3,837

Total(1) 661 82,929 22,583

Note:

(1) including the capital expenditures incurred in relation to the acquisition of our four subsidiaries in 2019, namely Quanzhou Xingyuan, Yunxiao Sangde, Yongchun Lvdi and Fujian Lvdi.

We expect to incur capital expenditures of approximately RMB10.6 million in 2021, which will be used primarily for the purchase of (i) machines and equipment for our production; (ii) transportation vehicles and (iii) office equipment, as well as for the development of Lanshen Brain.

Impairment testing of intangible asset not yet available for use

Our intangible asset of approximately RMB14.0 million relating to the BOT contracts acquired through acquisition of Yunxiao Sangde has not been available for use and was tested for impairment annually as of 31 December 2019 and 2020. For the purpose of impairment testing, value in use was determined by discounting the future cash flows to be generated from continuing use of wastewater treatment BOT projects over the service concession periods, using the pre-tax discount rates of 9.03% and 8.72% as of 31 December 2019 and 2020, respectively. Any reasonable possible change to the key assumptions applied is not likely to cause the recoverable amount to be below the carrying amount values of the intangible asset not yet available for use.

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The sensitivity analysis set forth below has been determined based on the exposure to the pre-tax discount rates and wastewater treatment volume, representing the key inputs to the determination of the recoverable amount.

The headroom of the intangible asset not yet available for use is set forth below:

As of 31 December 2019 2020 RMB’000 RMB’000

Headroom 18,208 31,925

Had the estimated key assumptions been changed as below, the headroom would be increase/(decrease) by:

As of 31 December 2019 2020 RMB’000 RMB’000

Pre-tax discount rates decreased by 0.5% 8,886 9,460 Pre-tax discount rates increased by 0.5% (8,650) (8,864) Wastewater treatment volume decreased by 5% 3,409 3,498 Wastewater treatment volume increased by 5% (3,409) (3,498)

COMMITMENTS

Capital Commitments

As of 31 December 2018, 2019 and 2020, we had capital commitments of approximately RMB0.1 million, RMB0.7 million and RMB0.6 million, respectively in relation to the property, plant and equipment contracted but not recognised as liabilities.

Non-cancellable Operating Leases

During the Track Record Period, we leased certain apartments under operating lease agreements for the employees. We had future aggregate minimum lease payments in respect of the apartments under short-term operating leases as follows:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

No later than 1 year 256 52 469

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LEASE LIABILITIES

Our lease liabilities represent the lease in relation to the leasing properties for our offices and plants. Our Group had lease liabilities amounting to approximately RMB4.5 million, RMB6.1 million and RMB5.1 million as of 31 December 2018, 2019 and 31 December 2020, respectively. As of 31 January 2021, our Group had lease liabilities amounted to approximately RMB4.7 million. The lease terms for the related leases ranges from two years to eight years.

See “Appendix I — Accountant’s Report — Note 28” for details.

RELATED PARTY TRANSACTIONS

Transactions

We had the following transactions (excluding loans) during the Track Record Period with certain related parties:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Providing construction services and sales of products Quanzhou Water Engineering Construction Group Co., Ltd. – 33,771 47,963 Quanzhou Taiwanese Investment Zone Water Supply Co., Ltd. – 1,351 4,251 Quanzhou Water Supply Co., Ltd. – 3,386 883 Quanzhou Jinpu Water Supply Co., Ltd. – 624 870 Fujian Jinjiang Dongshi Water Supply Co., Ltd. – 299 139 Quanzhou Wurong Water Development Co., Ltd. – 246 1,876

Quanzhou Water Direct Drinking Water Technology Co., Ltd. – 301 298 Landscape Engineering Branch of Quanzhou Water Engineering Construction Group Co., Ltd. – 49 11

– 40,027 56,291

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Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Purchases of services and materials Fujian Zhonghai Qingyuan Technology Co., Ltd. – 1,322 280 Quanzhou Water Conservancy Electricity Engineering Co., Ltd. – 3,203 – Site Supervision Branch of Quanzhou Water Engineering Construction Group Co., Ltd. – 792 476 Quanzhou Water Direct Drinking Water Technology Co., Ltd. – 99 21 Landscape Engineering Branch of Quanzhou Water Engineering Construction Group Co., Ltd. – 3 –

– 5,419 777

During the Track Record Period, the transactions of providing construction services and sales of products primarily includes the construction services we provided for Qing Yuan Shan Project and the equipment sales and provision of wastewater treatment services to Quanzhou Water Group and its associates, while the purchase of services and material primarily includes the procurement of raw materials and direct drinking water purification services from the subsidiaries of associates of our Controlling Shareholder. See “Connected Transactions — Continuing Connected Transactions” for details.

Loans

In addition, we had the following loans from Haisi Environmental, our Controlling Shareholder, during the Track Record Period:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Loans received – 100,000 – Loans repaid – – 100,000 Interest Expenses – 3,619 2,413

The loan from Haisi Environmental were unsecured, bearing an effective interest rate of 6.99% per annum and was fully repaid as of the Latest Practicable Date.

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Balances

The table below sets forth the balances with related parties, all of which (other than Haisi Environmental, which is our Controlling Shareholder) are companies controlled by our Controlling Shareholder or significantly influenced by our Controlling Shareholder, as of the dates indicated.

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Amounts due from related parties – Trade Quanzhou Water Engineering Construction Group Co., Ltd. – 4,281 10,111 Quanzhou Taiwanese Investment Zone Water Supply Co., Ltd. – 216 1,427 Quanzhou Water Supply Co., Ltd. – 1,897 1,099 Quanzhou Wurong Water Development Co., Ltd. – 278 1,122 Quanzhou Jinpu Water Supply Co., Ltd. – 82 119 Fujian Jinjiang Dongshi Water Supply Co., Ltd. – 337 – Quanzhou Water Direct Drinking Water Technology Co., Ltd. – 16 10 Landscape Engineering Branch of Quanzhou Water Engineering Construction Group Co., Ltd. – – 11

– 7,107 13,899

Amounts due from related parties – Non-Trade Quanzhou Water Engineering Construction Group Co., Ltd. – – 200 Quanzhou Taiwanese Investment Zone Water Supply Co., Ltd. – 68 50 Quanzhou Jinpu Water Supply Co., Ltd. – 50 100 Quanzhou Water Supply Co., Ltd. – 50 92

– 168 442

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As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Amounts due to related parties – Trade Site Supervision Branch of Quanzhou Water Engineering Construction Group Co., Ltd. – 840 370 Fujian Zhonghai Qingyuan Technology Co., Ltd. – 404 69 Quanzhou Water Conservancy Electricity Engineering Co., Ltd. – 96 96 Landscape Engineering Branch of Quanzhou Water Engineering Construction Group Co., Ltd. – 3 –

– 1,343 535

Amounts due to relate parties – Non-Trade Haisi Environmental Technology Co., Ltd. (i) – 100,348 – Quanzhou Water Engineering Construction Group Co., Ltd. – 50 34 Quanzhou Water Conservancy Electricity Engineering Co., Ltd. – 35 – Fujian Jianghai Engineering Management Co., Ltd. – – 20

– 100,433 54

Amount due to and due from related parties of trade nature were the payables or receivables in relation to the transaction with related parties. Amounts due from related parties of non-trade nature were primarily the deposits paid by us for the performance of contracts with related parties, while amounts due to related parties of non-trade nature primarily represent (i) the loans and interest due to Haisi Environmental, and (ii) certain advances paid by related parties.

All non-trade amounts due to related parties will be settled prior to the [REDACTED].

Our PRC Legal Advisers have advised us that Article 61 of the General Lending Provisions (貸款通則) issued by the PBOC prohibits any financing arrangements or lending transactions between non-financial institutions. Further, pursuant to Article 73 of the General Lending Provisions, the PBOC may impose on the non-compliant lender a fine of one to five times the income received by the lender from such loans. Our PRC Legal Advisers have further advised that, notwithstanding the General Lending Provisions, the Supreme People’s Court has made

– 381 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FINANCIAL INFORMATION new interpretations concerning financing arrangements and lending transactions between non-financial institutions in the Provisions of the Supreme People’s Court on Several Issues concerning the Application of Law in the Trial of Private Lending Cases (最高人民法院關於審理民間借貸案件適用法律若干問題的規定) (the ”Judicial Interpretations on Private Lending Cases”) which came into effect on 1 September 2015 and amended on 29 November 2020. According to Article 11 of the Judicial Interpretations on Private Lending Cases, the Supreme People’s Court recognizes the validity and legality of financing arrangements and lending transactions between non-financial institutions so long as certain requirements, such as the contract concluded for production and business operation purpose and circumstances provided in Article 146, Article 153 and Article 154 of the Civil Code and Article 13 of Judicial Interpretations on Private Lending Cases do not exist in the contract, are satisfied. As confirmed by the Directors, (i) we have not made loans to our related parties during the Track Record Period; (ii) all loans from our related parties were made for the purpose of the Group’s normal business operation and circumstances provided in Article 146, Article 153 and Article 154 of the Civil Code and Article 13 of Judicial Interpretations on Private Lending Cases do not exist in the financing agreements and lending tractions between us and our related parties. Therefore, the certain requirements of Judicial Interpretations on Private Lending Cases with respect to the validity and legality of financing arrangements and lending tractions between non-financial institutions are satisfied; (iii) the interest rate charged by related parties for the loans did not exceed maximum interest rate permitted under the relevant laws and regulations; (iv) up to the Latest Practicable Date, all loans from our related parties have been repaid, and we did not receive any penalties, investigation or notice from relevant competent authorities in relation to such borrowings between related parties. On this basis, our PRC Legal Advisers are of the view that the financing arrangements and lending transactions between us and our related parties have been in compliance with applicable PRC laws and regulations in all material respects during the Track Record Period and up to the Latest Practicable Date, and the risk of us being penalized for the above-mentioned borrowing is remote, under the condition that there are no material changes in current laws and regulations, interpretation or implementation thereof in China.

With respect to the related party transactions set forth in the Note 35 to the Accountant’s Report in Appendix I to this document, our Directors confirm that these transactions were conducted on normal commercial terms and/or such terms that were no less favourable to our Group than those available to Independent Third Parties and were fair and reasonable and in the interest of our Company and our Shareholders as a whole.

KEY FINANCIAL RATIOS

The following table sets forth certain key financial ratios as of the dates indicated:

As of or for year ended 31 December 2018 2019 2020

Return on equity(1) 15.9% 21.4% 19.5% Return on total assets(2) 12.5% 10.2% 8.0% Current ratio(3) 4.9 1.4 1.0 Net gearing ratio(4) N/A N/A 38.8% Gearing ratio(5) 2.7% 35.5% 46.3%

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Notes:

(1) Return on equity ratio is profit for the year as a percentage of total equity as of year-end and multiplied by 100.0%.

(2) Return on total assets ratio is profit for the year as a percentage of total assets as of year-end and multiplied by 100.0%.

(3) Current ratio is total current assets as of year-end as a percentage of total current liabilities as of year-end.

Return on Equity

Our return on equity increased from 15.9% in 2018 to 21.4% in 2019, primarily because the increase in profit for the year outpaced the growth of total equity. Our return on equity decreased to 8.0% in 2020 primarily because the increase in the growth of equity outpaced the increase in profit for the year primarily due to the investment in equity by two [REDACTED] Investors, Quanzhou Radio and Television and Station and Lanshen Youshi in 2020.

Return on Total Assets

Our return on total assets decreased from 12.5% in 2018 to 10.2% in 2019, primarily due to the acquisition of Quanzhou Xingyuan which has relatively lower return on asset ratio than our Company. Our return on assets decreased to 8.0% in 2020 primarily because the growth of total assets outpaced our profit for the year.

Current Ratio

Net gearing Ratio

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2020, and (ii) a decrease in cash and cash equivalents due to the net cash used for the construction of Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目) during the period.

Gearing Ratio

MARKET RISKS

We are exposed to various types of financial and market risks, including interest rate risk, credit risk and liquidity risk. Our Directors review and agree on financial management policies and practices for managing each of these risks.

Interest Rate Risk

The Group’s interest rate risk arises from bank deposits. Bank deposits carried at prevailing market interest rate expose the Group to cash flow interest rate risk. The Group closely monitors the trend of interest rate and our Directors do not anticipate there is any significant interest rate risk. Our Directors do not anticipate there is any significant impact to interest-bearing assets resulted from the changes in interest rates as the interest rates of our bank balances and financial assets are not expected to change significantly.

Credit Risk

We are exposed to credit risk in relation to our (i) cash and cash equivalents, and (ii) trade and other receivables.

To manage the credit risk in relation to cash and cash equivalents, our bank deposits are mainly placed with highly reputable financial institutions.

For trade and other receivables, as they have a low risk of default and the counterparty has a strong capacity to meet its contractual cash flow obligations in the near term, our Group considered them to have low credit risk. See “Appendix I — Accountant’s Report — Note 2.16” and “Appendix I — Accountant’s Report — Note 3.1” for details.

Liquidity Risk

We aim to maintain adequate committed credit lines to ensure sufficient and flexible funding is available to the Group. The Group also considers converting short-term borrowings into long-term borrowings to improve the Group’s liquidity.

See “Appendix I — Accountant’s Report — Note 3.1” for details, including certain quantitative disclosure of our liquidity risk.

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[REDACTED] ADJUSTED NET TANGIBLE ASSETS

The following table of our [REDACTED] adjusted consolidated net tangible assets was prepared in accordance with Rule 4.29 of the Listing Rules and is set out below to illustrate the effect of the [REDACTED] on our net tangible assets as of 31 December 2020 as if it had taken place on that date. The table of [REDACTED] adjusted consolidated net tangible assets of our Group have been prepared for illustrative purpose only and, because of their hypothetical nature, they may not give a true picture of our net tangible assets had the [REDACTED] been completed as of 31 December 2020 or at any future date.

The [REDACTED] adjusted consolidated net tangible assets set out below are calculated based on our audited consolidated net assets attributable to owners of our Company as of 31 December 2020, as shown in the Accountant’s Report, the text of which is included in Appendix I to this document, and is adjusted as described below:

[REDACTED] Audited adjusted consolidated consolidated net tangible net tangible assets of our assets of our Group Group attributable to attributable to owners of our owners of our [REDACTED] adjusted Company Estimated Company consolidated net tangible assets as of 31 [REDACTED] as of 31 of our Group attributable to December from the December owners of our Company as of 2020(1) [REDACTED](2) 2020 31 December 2020 per Share (RMB’000) (RMB’000) (RMB’000) (RMB) (3) (HK$)(4) (5)

Based on an [REDACTED]of HK$[REDACTED] per Share [342,061] [REDACTED][REDACTED][REDACTED][REDACTED]

Notes:

(1) The audited consolidated net tangible assets of our Group attributable to owners of our Company as of 31 December 2020 has been extracted from the Accountant’s Report of our Company as set out in Appendix I to this Document which is based on the audited consolidated net assets of our Group attributable to owners of our Company as of 31 December 2020 of approximately RMB[363,168,000] less intangible assets attributable to owners of our Company of approximately RMB[21,107,000].

(2) The estimated [REDACTED] from the [REDACTED] are based on [REDACTED] to be issued under the [REDACTED] and the [REDACTED]ofHK$[REDACTED] and HK$[REDACTED] per [REDACTED], respectively, being the low-end and high-end of the stated [REDACTED] range, after deduction of the [REDACTED] and other related [REDACTED] to be incurred by our Group (excluding [REDACTED]of approximately RMB[REDACTED] which has been recorded in the consolidated statements of comprehensive income as of 31 December 2020) and assuming the [REDACTED] is not exercised and no [REDACTED] are allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and issue or repurchase of [REDACTED].

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(3) The [REDACTED] adjusted consolidated net tangible assets of our Group attributable to owners of our Company as of 31 December 2020 per Share is calculated based on [REDACTED] Shares, assuming that the [REDACTED] had been completed on 31 December 2020, but without taking into account any [REDACTED] which may be issued upon the exercise of the [REDACTED], or any [REDACTED] which may be allotted and issued or repurchased by our Company pursuant to the general mandate as for the allotment and issue or repurchase of [REDACTED].

(4) The [REDACTED] adjusted consolidated net tangible assets of our Group attributable to owners of our Company per [REDACTED] is converted from RMB into Hong Kong dollars at an exchange rate of RMB[0.8412] to HK$1. No representation is made that the RMB amounts have been, could have been or could be converted to Hong Kong dollars, or vice versa, at that rate or at any other rates or at all.

(5) No adjustment has been made to the audited consolidated net tangible assets of our Group attributable to owners of our Company as of 31 December 2020 to reflect any trading result or other transaction of our Group entered into subsequent to 31 December 2020.

DIVIDEND POLICY

For the three years ended 31 December 2020, we did not declare any dividends.

After completion of the [REDACTED], our Shareholders will be entitled to receive dividends we declare. Any amount of dividends we pay will be subject to the approval of our Shareholders and will depend on our future operations and earnings, our development pipeline, capital requirements and surplus reserve, general financial conditions, contractual restrictions and other factors that our Directors consider relevant. Any declaration and payment as well as the amount of dividends will be subject to our constitutional documents and the relevant laws. See “Appendix IV — Summary of Principal Legal and Regulatory Provisions” and “Appendix V — Summary of the Articles of Association of our Company” for details. No dividend shall be declared or payable except out of our profits and reserves lawfully available for distribution.

Under the PRC Company Law and our Articles of Association, we will pay dividends out of our after-tax profit only after we have made the following allocations:

• recovery of accumulated losses, if any;

• allocations to the statutory reserve fund equivalent to 10.0% of our after-tax profit; and

• allocations, if any, to a discretionary reserve fund approved by the shareholders in a shareholders’ meeting.

When the statutory reserve fund reaches and is maintained at or above 50.0% of our registered capital, no further allocations will be required. Our profit distributable for the above-mentioned allocations and our dividend distributions are expected to be paid out of our after-tax profit as determined by PRC GAAP or IFRSs, whichever is lower.

All of our Shareholders have equal rights to dividends and distributions in the form of stock or cash. For holders of our [REDACTED], cash dividend payments, if any, will be declared by our Board in Renminbi and paid in Hong Kong dollars.

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DISTRIBUTABLE RESERVES

As of 31 December 2020, the Group had distributable reserves of approximately RMB162.4 million, which are available for distribution to our Shareholders.

[REDACTED]

[REDACTED] represent professional fees and [REDACTED] incurred in connection with the [REDACTED] and the [REDACTED]. Assuming an [REDACTED] of HK$[REDACTED] per Share (being the mid-point of the indicative [REDACTED] range stated in this document) and that the [REDACTED] is not exercised, our total [REDACTED] is estimated to amount in aggregate approximately RMB[REDACTED] million, which will account for approximately [REDACTED] of the gross [REDACTED]ofthe[REDACTED] (assuming the [REDACTED]is not exercised). During the Track Record Period, we incurred [REDACTED]of RMB[REDACTED] million, among which approximately RMB[REDACTED] million was charged to our consolidated statements of comprehensive income and approximately RMB[REDACTED] million were capitalised. We expect to incur [REDACTED] and other additional [REDACTED] of approximately RMB[REDACTED] following the [REDACTED], of which approximately RMB[REDACTED] will be charged to the consolidated statements of comprehensive income after 31 December 2020, and [REDACTED] million will be charged to equity upon completion of the [REDACTED]. Our Directors do not expect such [REDACTED] to have a material adverse impact on our results of operations for the year ending 31 December 2021.

DISCLOSURE UNDER RULES 13.13 TO 13.19 OF THE LISTING RULES

Our Directors have confirmed that, as of the Latest Practicable Date, there were no circumstances that would give rise to a disclosure requirement under Rules 13.13 to 13.19 of the Listing Rules.

RECENT DEVELOPMENT

Our business model, revenue and cost structure have remained unchanged since 31 December 2020.

Our business has continued to grow since 31 December 2020. Based on our unaudited management accounts for the one month ended 31 January 2021, our revenue increased as compared to that of the corresponding period in 2020. There have not been, as far as we are aware, any material changes in the general economic and market conditions in the PRC or the industry in which we operate that have had a material and adverse impact on our business operations and financial conditions since 31 December 2020 and up to the Latest Practicable Date.

Since July 2020, we have entered into three strategic co-operation agreements in both Fujian and surrounding areas, including Guangxi, Hainan, Hunan and Jiangxi. See “Future Plans and [REDACTED]” for details.

In addition, we had succeeded in the public tendering and entered into the following agreements in February 2021: (i) a pipes and pipe fittings sales agreement with a contract value

– 387 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FINANCIAL INFORMATION of approximately RMB4.3 million and we will be able to collect 95% of the contract value after delivery and acceptance of our pipes and pipe fittings by the client, with the remaining 5% warranties to be collected 24 months after delivery and acceptance; and (ii) an operation and maintenance service agreement under which we will provide decentralised wastewater treatment station operation and maintenance service for a period of three years with a total contract value of approximately RMB0.4 million, which will be paid to us on a quarterly basis.

IMPACT OF THE OUTBREAK OF COVID-19

In compliance with relevant public announcements and notices issued by governmental authorities to control the outbreak of COVID-19, we had temporarily suspended all business operation in early February 2020, and with the permission of relevant governmental authorities, we gradually resumed our business operation and production activities in our Quangang factory and Anping factory during February to April 2020. As of the Latest Practicable Date, all the operation and business of all our subsidiaries and branch offices have resumed.

(i) Sales, customers and distributors: We have been closely communicating with our major customers for the impact of the COVID-19 outbreak on them. Pursuant to the communications with our major customers, the majority of them have resumed normal work by early April 2020 and the period of suspension of business operations of our major customers was around two months. As of the Latest Practicable Date, as confirmed by our Directors, we did not receive any request from our customers for terminating or canceling any major orders or projects due to the COVID-19 outbreak. With regard to our distributors, pursuant to the communications with our major distributors, the majority of them have resumed normal work by March 2020, and the period for suspension of their business operations was around one month. As of the Latest Practicable Date, as confirmed by our Directors, we did not receive any requests from them for termination of distributorship with us or cancelation of major orders.

We have also communicated with our top five customers for the year ended 31 December 2020 who placed orders for our wastewater treatment equipment or pipes and pipe fittings in respect of the temporary suspension of production of our Quangang factory and Anping factory. As of the Latest Practicable Date, none of them cancelled their orders or had plan to shift any of the ongoing cooperation with us to other suppliers as confirmed by our Directors. As such, our Directors are of the view that the potential financial damages to our Group and the impact to the long-term relationship with our customers are neither permanent, nor significant.

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(ii) Purchases and suppliers: Despite the temporary suspension of operations of our major suppliers in February 2020 due to the COVID-19 outbreak, the majority of them have resumed operation by early April 2020. The period of suspension of their business operations was around 2 months. Our major suppliers during the Track Record Period are mainly located in the Fujian Province or its surrounding areas, and none of our top five suppliers during the Track Record Period were based in Hubei Province or the cities which were being locked down as at the Latest Practicable Date. Based on the foregoing, our Directors are of the view that the supply of raw materials to us has not been negatively affected by the COVID-19 outbreak and has remained relatively stable during the Track Record Period and up to the Latest Practicable Date.

However, our Directors believe that the impact on our business will not be substantial as (i) the COVID-19 outbreak has been largely contained in China since April 2020 due to strict governmental control measures; (ii) considering the necessity of wastewater treatment and the nature of wastewater treatment infrastructure projects, demand for our equipment and services would not drop significantly; and (iii) majority of our staff, customers and suppliers has resumed normal work by early April 2020 and our business operations has remained at a normal level since then. This is also evidenced by the facts that (i) our total revenue increased by approximately RMB329.6 million, or 96.5%, from approximately RMB341.5 million in 2019 to approximately RMB 671.1 million in 2020 primarily because we commenced the construction of certain sizable projects in 2020, such as Qianpu Wastewater Treatment Plant Phase III (Expansion) Equipment Installation Project (前埔污水處理廠三期工程（擴建）施工項目機電設備安裝工程) and Yunxiao Wastewater Treatment BOT Project (雲霄縣污水處理BOT項目); and (ii) in line with the growth of our revenue and the increased number of sizable projects as mentioned above our gross profit also increased by approximately RMB61.2 million, or 51.5%, from approximately RMB118.9 million in 2019 to approximately RMB180.1 million in 2020. See “Period to Period Comparison of Results of Operations — Year Ended 31 December 2020 Compared to Year Ended 31 December 2019” in this section for details.

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With the measures implemented by the PRC government and based on the above, our Directors are of the view, and the Sole Sponsor concurs, that the outbreak of COVID-19 shall not have a permanent impact on our Group and may only affect our Group temporarily and that it had not, and will not have material adverse impact on our Group’s business operation and financial results during the Track Record Period, and subsequent to the Track Record Period and up to the date of this document. The impact and potential impact of COVID-19 on our Group’s operations in the PRC as discussed in this document and below is prepared according to the best estimate and belief of our Directors, based on the latest information currently available to our Directors as of the Latest Practicable Date, subject to the development of the outbreak of COVID-19 in the PRC. For details of the relevant risk, see “Risk Factors — Risks Relating to Doing Business in China — 36. Our business operations may be adversely affected by the outbreak of COVID-19”. Nevertheless, it is too early to gauge the extent of impact on our Group’s business and financial performance of the year ending 31 December 2020 at this stage. After considering (i) our financial resources presently available to us; (ii) the historical monthly cash inflow and outflow for our business operations; and (iii) other latest information currently available to our Directors, our Directors are of the view that we have sufficient working capital to maintain our present operation. Our Directors will continue to assess the impact of the COVID-19 on our Group’s operation and financial performance and closely monitor our Group’s exposure to the risks and uncertainties in connection with the epidemic. We will take appropriate measures as necessary and inform our Shareholders and potential investors as and when necessary.

NO MATERIAL ADVERSE CHANGE

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FUTURE PLANS

See “Business — Our Strategies” for details of our future plans.

[REDACTED]

We estimate the [REDACTED]ofthe[REDACTED] which we will receive, assuming an [REDACTED]ofHK$[REDACTED] per [REDACTED] (being the mid-point of the [REDACTED] range stated in this document), will be approximately HK$[REDACTED] million, after deduction of [REDACTED] and commissions and estimated [REDACTED] payable by us in connection with the [REDACTED] and assuming the [REDACTED]isnot exercised.

In line with our strategies, we intend to use the [REDACTED]ofthe[REDACTED] for the following purposes:

• approximately [REDACTED]% (or HK$[REDACTED] million) to finance the development of expected wastewater treatment EPC/BOT projects.

– 391 – To seize the opportunity of favorable laws and policies to promote the growth of the wastewater treatment industry, especially DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS with regard to the wastewater treatment in the rural areas, our Company intends to expand our market share and enhance our brand recognition by actively seeking cooperation opportunities in Fujian and other surrounding areas including Jiangxi, Hainan, Guangxi and Hunan. See “Business — Our Competitive Strengths — We are one of the leading decentralised wastewater treatment service providers in Fujian and well-positioned to capture the growing decentralised wastewater treatment market in Fujian and its surrounding areas including Jiangxi, Hainan, Guangxi and Hunan with our comprehensive services” for the favorable laws and policies. We have entered into three strategic co-operation agreements with our business partners. Based on the relevant strategic co-operation agreements and parties’ understanding, details of our strategic co-operation with partners are set forth below: UUEPASAND PLANS FUTURE

Date of Expected Amount of Expected Entering into Investment [REDACTED] Timeline for the Strategic Amount for the from the Entering into Co-operation Background of Co-operation [REDACTED] Specific No. Agreements Counterparty Location Duration Details of Our Strategic Cooperation with Partners Projects allocated Agreement

1 August 2020 a state-owned the PRC Five years, (i) the counterparty would leverage on its market layout and brand influence to seek N/A Approximately large scale automatically and develop water-related projects in the PRC; HK$

9 – 392 – infrastructure renew after construction expiration if (ii) both parties would jointly participate[REDACTED inN/A bidding] for the investment, construction company which is no objection and operation and maintenance of high-quality water-related projects; including, an Independent from either among others, decentralised wastewatermillion treatment facility construction or Third Party and party concession operation services under BOT model; and with its

headquarter (iii) as this strategic co-operation agreement mainly provide[ a framework for future located in Beijing, business development between the parties, detail of theREDACTED co-operation, including which have a investment amounts, specific business model to be used, timeline for entering into successful record specific contracts and roles and responsibilities of the parties will be further of completing more determined by the parties based on their business needs and potential than a hundred opportunities in the market. infrastructure projects in the past ] (v) any specific matter involved in the potential cooperation of the two parties under the strategic co-operation agreement will be further specified by the specific agreement to be entered into by the two parties. NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

2 July 2020 a state-owned Fujian and its Three years, (i) The counterparty would leverage on its nationwide market layout and brand Approximately large scale surrounding automatically influence to seek and develop water-related projects primarily in Fujian and its HK$ construction areas, renew after surrounding areas including Guangxi, Hainan, Hunan and Jiangxi; engineering including expiration if [REDACTED[REDACTEDApproximately] Around] 2021 to company in Fujian Guangxi, no objection (ii) our Company would primarilyHK$ engage in the2022 provision, pending installation and which is ultimately Hainan, from either maintaining and operationmillion of wastewatermillion treatmenton the equipment and would receive wholly owned by Hunan and party payments based on the actual value of decentralisednegotiation wastewater treatment

Quanzhou SASAC Jiangxi equipment and services provided in specificof theprojects; AND PLANS FUTURE and has been specific awarded as the (iii) both parties would jointly participate in biddingagreement for the investment, construction leading and operation and maintenance of high-qualityand the water-related projects under our construction existing business segments, including salestender of decentralised wastewater treatment enterprises in equipment, decentralised wastewater treatmentprocedure facility construction or concession Fujian (福建省建築 operation services under BOT model, pending on the business needs of the 龍頭企業）by counterparty at the time of entering into the specific contract; Department of Housing and (iv) the key criteria in selecting water-related projects includes, among others, the Urban-Rural economic benefits, location, qualification requirements and the funding Development of requirements to us; and Fujian (福建省住房

9 – 393 – 和城鄉建設廳) since 2014

(v) any specific matter involved in the potential cooperation of the two parties under [

the strategic co-operation agreement will be further specified by the specific REDACTED agreement to be entered into by the two parties. ] NCNUCINWT H ETO EDD“ANN”O H OE FTI DOCUMENT. THIS READ OF BE COVER MUST INFORMATION THE THE ON THAT “WARNING” AND HEADED CHANGE TO SECTION SUBJECT THE AND WITH INCOMPLETE FORM, CONJUNCTION DRAFT IN IN IS DOCUMENT THIS

3 July 2020 Quanzhou Bailai Water Conservancy Project Investment and Development [REDACTED[REDACTEDApproximately] Around] 2021 to Co., Ltd. HK$ 2022 pending (泉州白瀨水利樞紐 million million on the 工程投資開發有限公Fujian Four and a half (i) The counterparty and our Company would jointly participatenegotiation in the development Approximately

司) years, and construction of Quanzhou Bailai Water Conservancyof Projectthe AND PLANS (FUTURE 泉州白瀨水利樞紐 HK$ automatically 工程), which is one of the 172 major water-saving and water-supplyspecific projects renew after identified by the State Council; agreement expiration if and the no objection (ii) our Company would primarily engage in the provision,tender installation and from either maintaining and operation of wastewater treatment equipmentprocedure and would receive (1) , the grantor party payments based on the actual value of decentralised wastewater treatment and project equipment and services provided in the project; and company of the Quanzhou Bailai (iii) the cooperation under Quanzhou Bailai Water Conservancy Project is still subject Water Conservancy to tender procedure and any specific matter involved in the potential cooperation Project (泉州白瀨水 of the two parties under the strategic co-operation agreement will be further 利樞紐工程); specified by the specific agreement to be entered into by the two parties. 9 – 394 – [

Note: REDACTED

(3) As of the Latest Practicable Date, Quanzhou Bailai Water Conservancy Project Investment and Development Co., Ltd. (泉州白瀨水利樞紐工程投資開發有限公司)is owned as to 60% by China Agricultural Development Major Construction Fund Co., Ltd. (中國農發重點建設基金有限公司), an Independent Third Party ultimately wholly-owned by the State council, as to 12.0% by Anxi County Small Town Construction Investment Co., Ltd. (安溪縣小城鎮建設有限公司), an Independent Third Party ultimately wholly-owned by the Finance Bureau of Anxi County, as to 3.312% by Quanzhou Water Group, our Controlling Shareholder and as to 24.688%by ten other Independent Third Parties. ] THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FUTURE PLANS AND [REDACTED]

Moreover, we also plan to allocate approximately HK$[REDACTED] million to recruit approximately four and six additional sales and marketing employees in 2021 and 2022, respectively for expanding our business to surrounding areas including Jiangxi, Hainan, Guangxi and Hunan. The average annual salary for an additional sales and marketing employee is expected to be around HK$[REDACTED] (equivalent to approximately RMB[REDACTED]). The exact amount of salary will vary according to the position, experience and qualification of the individual employees.

The above co-operation projects will be funded partly by [REDACTED]fromthe [REDACTED] and the shortfall between the respective [REDACTED]fromthe [REDACTED] allocated for each cooperation agreement and the total expected investment amount will be funded by our internal source or by external financing from banks. As of the Latest Practicable Date, we have not invested any amount of capital into the above strategic cooperation projects.

As of the Latest Practicable Date, we have not entered into any specific agreements or secured any projects pursuant to the strategic cooperation agreements above. The above strategic co-operation agreements are for illustration purpose of the terms and contents of decentralised wastewater treatment projects that we intend to develop with the [REDACTED]fromthe[REDACTED], which are still subject to the entering of specific agreements.

See “Business — Our Strategies — Enhance our presence in Fujian and expand to surrounding markets by cooperation with government authorities or state-owned enterprises and recruiting additional personnel” for details.

• approximately [REDACTED]% (or HK$[REDACTED] million) for the investment and acquisition in our industry chain. We will selectively acquire targets or businesses that have strategic fit with our existing products and businesses, including:

(i) We intend to evaluate acquisition or joint venture opportunities with one design institute within or without Fujian that have grade A design qualification for municipal engineering qualifications in order to (i) enhance our core competitiveness to provide all-around wastewater treatment services including project design, procurement and construction as well as operation and maintenance to our customers which will strengthen our ability to win projects and hence, improve our revenue and profitability, and (ii) reduce our costs of design outsourcing and achieve a synergy effect with our Company’s existing business, i.e. (a) sharing existing personnel in our design department to achieve synergy in personnel costs. (b) building up close connection between the design and construction team to reduce the costs of communication and design revision; and (c) acquiring a design institute with established market position and customer base to reduce the costs of expanding into new markets. We would prioritize our acquisitions in a design institution (i) with more than 50 designers; (ii) having established for more than five years; and (iii) having designed and completed at least five sizable construction projects. We expect to spend between HK$[REDACTED] million to HK$[REDACTED] million on each target; and

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(ii) We may also seek one or two other targets or business in the decentralised wastewater treatment industry in Fujian and surrounding areas, including Guangxi, Hainan, Hunan and Jiangxi, including but not limited to (i) operating and maintenance service providers for decentralised wastewater treatment stations; (ii) established project companies for BOT projects; (iii) information technology service providers for the management and operation of Lanshen Brain, that would bring synergy to our strategic development, help us to address a broader range of customer needs, reduce our construction and operation costs, improve our wastewater treatment capabilities or that will allow us to expand into new geographic regions or other customer segments. In addition to these factors, we may also take into account the potential targets’ operational scale, market share, historical financial performance, revenue growth potential and compliance status when selecting the targets. We expect to spend between HK$[REDACTED] million to HK$[REDACTED] million on each of such target.

As of the Latest Practicable Date, we had neither entered into any letter of intent or agreement or commitment, nor identified any acquisition target. Depending on the size and quality of targets, we may solely use the [REDACTED]fromthe [REDACTED] or also use our internal source or external financing from banks for the acquisition of targets as mentioned above. We expect to identify acquisition targets and complete the acquisition during 2021 and 2022, pending on the availability of targets and the negotiation of the acquisition agreements. See “Business — Our Strategies — Engage in strategic acquisitions and alliances” for details.

• approximately [REDACTED]% (or HK$[REDACTED]) for enhancing our core technologies, including:

(i) approximately HK$[REDACTED] million for the purchase of research equipment, patents and know-how to develop new decentralised wastewater treatment products and technologies that have lower environment consumption and cost;

(ii) approximately HK$[REDACTED] million for recruiting research and development experts and staff and strengthen training of our staff. As we intend to further enhance the research and development initiatives, we plan to recruit over 30 additional research and development experts and supporting staff, covering the various duties of product and technology development, intellectual property development, technology consulting, management and financial supporting, etc; and

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The table below sets forth the details of future plans and [REDACTED] for item (i) and (ii) above:

Respective amount of [REDACTED] from the Category Sub-category Year Specific plan Expected costs [REDACTED]

Purchase of Purchase of 2021 Purchase 49 experimental equipment. HK$[REDACTED] HK$[REDACTED] research equipment equipment, 2022 Purchase 23 experimental equipment. HK$[REDACTED] HK$[REDACTED] patents and know-how Purchase of 2021 Purchase one or two patents in HK$[REDACTED] HK$[REDACTED] patents relation to nitrogen treatment and dephosphorisation technology.

2022 Purchase one or two patents in HK$[REDACTED] HK$[REDACTED] relation to nitrogen treatment and dephosphorisation technology.

Purchase of 2021 Purchase two know-hows in relation HK$[REDACTED] HK$[REDACTED] know-how to nitrogen treatment, dephosphorisation technology

2022 Purchase four know-hows in relation HK$[REDACTED] HK$[REDACTED] to nitrogen treatment, dephosphorisation technology and wastewater recycling technology.

Recruit Recruit 2021 Recruit one management for the HK$[REDACTED] HK$[REDACTED] research and research research institute, six technology development and and product researchers and three experts and development industry experts staffs and experts strengthen 2022 Recruit six technology and product HK$[REDACTED] HK$[REDACTED] training of researchers, two intellectual our staffs property specialists, three environmental consultants, one information technology specialists

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Respective amount of [REDACTED] from the Category Sub-category Year Specific plan Expected costs [REDACTED]

Recruiting 2021 Recruit two human resources staffs, HK$[REDACTED] HK$[REDACTED] research two administrative staffs, and one and procurement staff development supporting 2022 Recruit one accountant, one cashier HK$[REDACTED] HK$[REDACTED] staffs and one procurement staff

Employee 2021 Provide two times of training HK$[REDACTED] HK$[REDACTED] training 2022 Provide two times of training HK$[REDACTED] HK$[REDACTED]

(iii) approximately HK$[REDACTED] million to support (a) our collaborating with Mr. Gao Congjie (高從堦), an academician of the Chinese Academy of Engineering, and his team on the research of graphene oxide technologies to improve and develop nanostructured graphene membrane and other materials that can be applied in the wastewater treatment [REDACTED], (b) the Quanzhou Research Institute we established with Dr. Gao Xueli (高學理), which focuses on development and application of membrane separation and treatment technologies that can be used for our wastewater treatment products, and (c) the research and development on denitrification treatment technologies to be used for wastewater treatment products by our in-house research and development department. As of the Latest Practicable Date, we have seven ongoing research and development projects to be applied to the modification of membrane and technologies for the decentralised wastewater treatment equipment which is expected to incur an aggregate amount of approximately RMB[REDACTED] million, which will be funded partly by [REDACTED]fromthe[REDACTED] and partly by our internal resources.

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The table below sets out the details of the ongoing research and development projects by our in-house research and development department as of the Latest Practicable Date:

Total Expenses Respective Amount Expected Incurred during of [REDACTED] Expected Commencement Completion the Track Record Expected Expenses from the No. Research Subject Expenses Date Time Period to be Incurred [REDACTED] (RMB’000) (RMB’000) (RMB’000) (HK$’000)

1 Research and 3,810 August 2020 December 1,234 2021: [REDACTED] 2021: [REDACTED] experiments on 2022 2022: [REDACTED] 2022: [REDACTED] new suspended packing (新型懸浮填料試驗研究)

2 Research on wastewater 3,780 August 2020 June 2023 852 2021: [REDACTED] 2021: [REDACTED] treatment experiments 2022: [REDACTED] 2022: [REDACTED] on modified MBR 2023: [REDACTED] 2023: [REDACTED] membrane (改良型MBR污水處理試驗研究)

3 Research on autotrophic 3,570 August 2020 June 2023 672 2021: [REDACTED] 2021: [REDACTED] denitrification test 2022: [REDACTED] 2022: [REDACTED] (自養反硝化試驗研究) 2023: [REDACTED] 2023: [REDACTED]

4 Research on the effect of 2,680 September October 2021 1,458 2021: [REDACTED] 2021: [REDACTED] chemical method in 2019 assisting MBR membrane bioreactor dephosphorization (化學法輔助MBR膜生物反應器的除磷效果研究)

5 Wastewater 2,520 January 2020 December 732 2021: [REDACTED] 2021: [REDACTED] dephosphorization by 2021 electrolysis (用電解法去除污水中的磷)

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6 Research and 2,340 August 2020 December 311 2021: [REDACTED] 2021: [REDACTED] experiments on 2022 2022: [REDACTED] 2022: [REDACTED] high-porous algae-based water purifier (高孔藻基淨水劑試驗研究)

7 The development of 2,000 March 2020 February 2022 861 2021: [REDACTED] 2021: [REDACTED] serialized graphene 2022: [REDACTED] 2022: [REDACTED] oxide materials for the modification and separation of membranes (適用於分離膜改性的系列化氧化石墨烯材料的開發)

The above measures for enhancing our core technologies will be funded partly by [REDACTED]fromthe[REDACTED] and the shortfall between the net [REDACTED]fromthe[REDACTED] and the total expected investment amount will be funded by our internal source or by external financing from banks.

See “Business — Our Strategies — Develop new decentralised wastewater treatment products and technologies that have lower environment consumption and costs” for details.

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• approximately [REDACTED]% (or HK$[REDACTED] million) for enhance our Lanshen Brain through cooperation with technology providers which are Independent Third Parties.

In order to further reduce maintenance costs, enhance our customer stickiness and improve our competitiveness, we intend to upgrade our Lanshen Cloud Platform into Lanshen Brain by upgrading or adding the following new features:

Respective Amount Expected from the Estimated Total [REDACTED] Completion Upgraded/ Investment of the Sensors and Equipment to be Time New Features Application to Our Business Amount [REDACTED] installed

By April Intelligent By widely install intelligent sensors in our HK$[REDACTED] HK$[REDACTED] (i) Approximately [REDACTED] 2021 equipment decentralised wastewater treatment equipment, and million million additional wastewater treatment leverage on the upgraded comprehensive stations will install sensors and technologies such as 5G, big data and artificial equipment for the application of intelligence to transmit the real-time data from the Lanshen Brain; sensors, we will be able to conduct the following actions to more efficiently managing our projects: (ii) For each station, approximately [REDACTED] sensors, four (i) collect and monitor operation data from our cameras and two portals would equipment; be installed;

(ii) timely response to alarms of malfunctions; (iii) the exact number of sensors, cameras and portals to be (iii) mimic the usage scenarios of our equipment on installed may be varied based on our system; and the condition of each station; and

(iv) modify the applicable technology and give (iv) the above sensors and equipment instructions to our equipment through remote will be sourced from control. Independent Third Party(ies).

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By June 2021 Full life By installing additional sensors or cameras on the HK$[REDACTED] HK$[REDACTED] (i) Approximately [REDACTED] cycle manufacturing line and construction site and million million additional wastewater treatment support updating a number of project management functions stations will install sensors and including, among others, energy consumption equipment for the application of management, vehicle and transportation Lanshen Brain; management, project authority management and project operation log management to monitor, collect (ii) For each station, approximately and manage operational data on each step of the life [REDACTED] sensors, four circle of our equipment and projects, our Lanshen cameras and two portals would Brain would monitor and support the full life circle of be installed; our products and services from our raw material procurement, equipment manufacturing and (iii) the exact number of sensors, installation, project designing and construction, cameras and portals to be operation and maintenance, etc. Supported by the installed may be varied based on data feedback by our Lanshen Brain, we will be able the condition of each station; and to analyse customer needs, equipment utilisation efficiency and shortcomings during the life circle of (iv) the above sensors and equipment our products and services so that we could widely will be sourced from apply the above new data to support all our business Independent Third Party(ies). segments, to adjust our procurement, manufacturing or constructions schemes to optimize our services and reduce our costs.

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By Intelligent Based on the development and widely application of HK$[REDACTED] HK$[REDACTED] (i) Approximately [REDACTED] September industry the above two features, we would further promote million million additional wastewater treatment 2021 chain our Lanshen Brain to the entire industrial chain of stations will install sensors and collaboration wastewater treatment by inserting our sensors to the equipment for the application of equipment of our upstream and downstream Lanshen Brain; partners. Leveraging on the data collected from our own projects and our upstream and downstream (ii) For each station, approximately partners, our Lanshen Brain would be able to provide [REDACTED] sensors, four valuable data storage, calculation and analysis cameras and two portals would services to attract potential customers, including be installed; governments or enterprises which have the need to monitor the data of wastewater treatment facilities. (iii) the exact number of sensors, cameras and portals to be installed may be varied based on the condition of each station; and

(iv) the above sensors and equipment will be sourced from Independent Third Party(ies).

The shortfall between the respective [REDACTED]fromthe[REDACTED] allocated for each new feature and the total expected investment amount will be funded by our internal source or by external financing from banks.

See “Business — Our Strategies — Upgrade our Lanshen Brain and business infrastructure” and “Business — Research and Development — Our Intelligent Wastewater Treatment Management Platform” for details.

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• approximately [REDACTED]% (or HK$[REDACTED] million) for working capital and other general corporate purposes.

We estimate that we will receive from the [REDACTED][REDACTED], after deducting the [REDACTED] and estimated [REDACTED] payable by us in connection with the [REDACTED], in the amount as set forth in the following table:

Based on the Based on the Based on the low-end of the mid-point of the high-end of the indicative indicative indicative [REDACTED] [REDACTED] [REDACTED] range of range of range of HK$[REDACTED] HK$[REDACTED] HK$[REDACTED] per Share per Share per Share

approximately approximately approximately Assuming the [REDACTED] is HK$[REDACTED] HK$[REDACTED] HK$[REDACTED] not exercised million million million

approximately approximately approximately Assuming the [REDACTED]is HK$[REDACTED] HK$[REDACTED] HK$[REDACTED] exercised in full million million million

In the event that the [REDACTED] is fixed at a higher or lower level compared to the mid-point of the indicative [REDACTED] range, we will adjust our allocation of the net [REDACTED] for the above purposes on a pro rata basis.

To the extent that the net [REDACTED] are not immediately applied to the above purposes and to the extent permitted by applicable law and regulations, we intend to deposit the [REDACTED] into interest-saving accounts with licensed banks or financial institutions only.

In the event of any material change in our use of [REDACTED]ofthe[REDACTED]from the purposes described above or in our allocation of the [REDACTED] among the purposes described above, a formal announcement will be made.

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[REDACTED]

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The following is the text of a report set out on pages I-1 to I-3, received from the Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this document. It is prepared and addressed to the Directors of the Company and to the Sole Sponsor pursuant to the requirements of HKSIR 200 Accountants’ Reports on Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants.

[Letterhead of PricewaterhouseCoopers] [DRAFT]

ACCOUNTANT’S REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF FUJIAN LANSHEN ENVIRONMENTAL TECHNOLOGY CO., LTD. AND CHINA INDUSTRIAL SECURITIES INTERNATIONAL CAPITAL LIMITED

Introduction

We report on the historical financial information of Fujian Lanshen Environmental Technology Co., Ltd. (福建省藍深環保技術股份有限公司, the “Company”) and its subsidiaries (together, the “Group”) set out on pages I-[4] to I-[99], which comprises the consolidated balance sheets as at 31 December 2018, 2019 and 2020, the Company’s balance sheets as at 31 December 2018, 2019 and 2020, and the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows for each of the years then ended (the “Track Record Period”) and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages I-[4] to I-[99] forms an integral part of this report, which has been prepared for inclusion in the document of the Company dated [REDACTED] (the “Document”) in connection with the [REDACTED]of [REDACTED] of the Company on the Main Board of The Stock Exchange of Hong Kong Limited.

Directors’ responsibility for the Historical Financial Information

The Directors of the Company are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in Note 2.1 to the Historical Financial Information, and for such internal control as the Directors determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

Reporting accountant’s responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200, Accountants’ Reports on Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

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Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountant’s judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountant considers internal control relevant to the entity’s preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in Note 2.1 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the Historical Financial Information.

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

Opinion

In our opinion the Historical Financial Information gives, for the purposes of the accountant’s report, a true and fair view of the financial position of the Company as at 31 December 2018, 2019 and 2020 and the consolidated financial position of the Group as at 31 December 2018, 2019 and 2020 and of its consolidated financial performance and its consolidated cash flows for the Track Record Period in accordance with the basis of preparation set out in Note 2.1 to the Historical Financial Information.

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Report on matters under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and the Companies (Winding Up and Miscellaneous Provisions) Ordinance

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page I-[4] have been made.

Dividends

No dividends have been paid by the Company in respect of the Track Record Period.

[PricewaterhouseCoopers] Certified Public Accountants Hong Kong [Date]

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I HISTORICAL FINANCIAL INFORMATION OF THE GROUP

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountant’s report.

The financial statements of the Group for the Track Record Period, on which the Historical Financial Information is based, were audited by PricewaterhouseCoopers in accordance with International Standards on Auditing issued by the IAASB (“Underlying Financial Statements”).

The Historical Financial Information is presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand (RMB’000) except when otherwise indicated.

A. Consolidated statements of comprehensive income

Year ended 31 December Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Revenue 5 106,208 341,548 671,073 Cost of sales 5,8 (53,642) (222,679) (491,005)

Gross profit 52,566 118,869 180,068 Other income 6 748 2,357 2,566

Other gains/(losses) – net 7 47 12,366 (407) Net impairment losses on financial and contract assets (4,842) (6,242) (10,467)

Selling expenses 8 (5,421) (17,309) (18,840)

Administrative expenses 8 (6,637) (21,991) (26,965) Research and development expenses 8 (6,750) (16,595) (23,820)

Operating profit 29,711 71,455 102,135

Finance income 10 43 1,613 3,545 Finance costs 10 (260) (3,999) (8,776)

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Year ended 31 December Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Finance costs – net 10 (217) (2,386) (5,231) Share of net (loss)/profit of an associate accounted for using the equity method 38 – (244) 26

Profit before income tax 29,494 68,825 96,930 Income tax expense 11 (4,049) (7,905) (12,873)

Profit and total comprehensive income for the year 25,445 60,920 84,057

Profit is attributable to: Owners of the Company 25,445 57,612 82,821 Non-controlling interests – 3,308 1,236

25,445 60,920 84,057

Earnings per share for profit attributable to owners of the Company Basic and diluted earnings per share (RMB) 12 0.35 0.64 0.87

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B. Consolidated balance sheets

As of 31 December Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Assets Non-current assets Receivables under service concession arrangements 19 – 35,861 40,212 Contract assets 5 – 48,290 396,704 Land use rights 14 – 25,801 25,070 Property, plant and equipment 15 3,995 32,733 44,727 Other right-of-use assets 16 4,145 5,507 4,410 Intangible assets 17 35 20,487 23,921 Other non-current assets 18 – 7,237 35,995 Deferred income tax assets 29 1,196 2,967 3,928 Investments accounted for using the equity method 38 – 1,456 1,483

9,371 180,339 576,450

Current assets Receivables under service concession arrangements 19 – 4,757 5,182 Inventories 21 10,076 42,413 43,248 Other current assets 18 4 5,399 4,279 Contract assets 5 28,874 107,911 107,423 Trade, other receivables and prepayments 22 49,212 97,741 184,475 Financial assets at fair value through profit or loss 3.3 – – 33,513 Restricted bank balances 23 189 2,360 11,714 Cash and bank balances 23 105,345 156,573 87,405

193,700 417,154 477,239

Total assets 203,071 597,493 1,053,689

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As of 31 December Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Equity Equity attributable to owners of the Company Share capital 24 30,000 90,000 98,226 Reserves 25 94,086 39,334 102,530 Retained earnings 36,049 88,413 162,412

160,135 217,747 363,168

Non-controlling interests 37 – 66,362 67,898

Total equity 160,135 284,109 431,066

Liabilities Non-current liabilities Borrowings 27 – – 155,050 Lease liabilities 28 3,433 4,177 3,247 Deferred tax liabilities 29 – 4,827 4,539

3,433 9,004 162,836

Current liabilities Borrowings 27 – 50,000 211,700 Trade and other payables 26 31,210 241,787 237,517 Contract liabilities 5 465 989 1,277 Current income tax liabilities 6,168 7,647 5,678 Lease liabilities 28 1,064 1,874 1,829 Provisions 30 596 2,083 1,786

39,503 304,380 459,787

Total liabilities 42,936 313,384 622,623

Total equity and liabilities 203,071 597,493 1,053,689

Net current assets 154,197 112,774 17,452

Total assets less current liabilities 163,568 293,113 593,902

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C. Balance sheets of the Company

As of 31 December Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Assets Non-current assets Receivables under service concession arrangements – – 2,635 Contract assets – 2,574 – Property, plant and equipment 15 3,954 7,977 11,537 Other right-of-use assets 16 4,145 4,370 3,383 Intangible asset 17 35 354 3,812 Other non-current assets – – 41 Deferred income tax assets 29 1,250 2,254 3,719 Investments in subsidiaries 37 4,000 148,461 288,858 Investments accounted for using the equity method 38 – 1,456 1,483

13,384 167,446 315,468

Current assets Receivables under service concession arrangements – – 130 Inventories 21 10,076 11,170 17,061 Other current assets – 171 – Contract assets 28,874 107,911 107,423 Trade, other receivables and prepayments 22 47,051 120,631 297,480 Financial assets at fair value through profit or loss – – 30,007 Restricted bank balances 23 189 2,358 11,714 Cash and bank balances 23 104,777 111,054 58,545

190,967 353,295 522,360

Total assets 204,351 520,741 837,828

Equity Share capital 24 30,000 90,000 98,226 Reserves 25 93,973 38,090 100,825 Retained earnings 37,912 75,546 150,805

Total equity 161,885 203,636 349,856

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As of 31 December Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Liabilities Non-current liabilities Lease liabilities 28 3,433 3,746 2,744

Current liabilities Borrowings 27 – 50,000 208,500 Trade and other payables 26 30,740 252,002 267,671 Contract liabilities 465 570 506 Current income tax liabilities 6,168 7,692 5,576 Lease liabilities 28 1,064 1,162 1,189 Provisions 30 596 1,933 1,786

39,033 313,359 485,228

Total liabilities 42,466 317,105 487,972

Total equity and liabilities 204,351 520,741 837,828

Net current assets 151,934 39,936 37,132

Total assets less current liabilities 165,318 207,382 352,600

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D. Consolidated statements of changes in equity

Equity attributable to owners of the Company Share Non- capital Reserves Retained controlling Total Note (Note 24) (Note 25) earnings Total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

As of 1 January 2018 20,000 12,375 13,315 45,690 – 45,690

Comprehensive income Profit for the year – – 25,445 25,445 – 25,445

Total comprehensive income – – 25,445 25,445 – 25,445

Transactions with owners Profit appropriation to statutory reserves 25 – 2,711 (2,711) – – – Issue of ordinary shares 24 10,000 79,000 – 89,000 – 89,000

Total transactions with owners 10,000 81,711 (2,711) 89,000 – 89,000

As of 31 December 2018 30,000 94,086 36,049 160,135 – 160,135

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As of 1 January 2019 30,000 94,086 36,049 160,135 – 160,135

Comprehensive income Profit for the year – – 57,612 57,612 3,308 60,920

Total comprehensive income – – 57,612 57,612 3,308 60,920

Transactions with owners Capitalisation of reserves 24 60,000 (60,000) –––– Acquisition of subsidiaries 34 ––––63,054 63,054 Profit appropriation to statutory reserves 25 – 5,248 (5,248) – – –

Total transactions with owners 60,000 (54,752) (5,248) – 63,054 63,054

As of 31 December 2019 90,000 39,334 88,413 217,747 66,362 284,109

As of 1 January 2020 90,000 39,334 88,413 217,747 66,362 284,109

Comprehensive income Profit for the year – – 82,821 82,821 1,236 84,057

Total comprehensive income – – 82,821 82,821 1,236 84,057

Transactions with owners Profit appropriation to statutory reserves 25 – 8,822 (8,822) – – – Capital injection of subsidiaries ––––300300 Issue of ordinary shares 24 8,226 54,374 – 62,600 – 62,600

Total transactions with owners 8,226 63,196 (8,822) 62,600 300 62,900

As of 31 December 2020 98,226 102,530 162,412 363,168 67,898 431,066

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E. Consolidated statements of cash flows

Year ended 31 December Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Cash flows from operating activities Cash generated from/ (used in) operations 31 16,511 (1,398) (251,687) Income tax paid (585) (8,270) (16,601)

Net cash generated from/ (used in) operating activities 15,926 (9,668) (268,288)

Cash flows from investing activities Payment for acquisition of subsidiaries, net of cash payment 34 – (84,025) – Payments for investments accounted for using the equity method 38 – (1,700) – Payment for property, plant and equipment (570) (9,546) (15,329) Payment for intangible assets (41) (494) (3,838) Payment for financial assets at fair value through profit or loss (20,000) (305,000) (813,414) Proceeds from sale of financial assets at fair value through profit or loss 20,114 335,703 780,801 Proceeds from disposal of property, plant and equipment 31 5–5 Proceeds from disposal of subsidiaries 31 –71–

Net cash used in investing activities (492) (64,991) (51,775)

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Year ended 31 December Note 2018 2019 2020 RMB’000 RMB’000 RMB’000 Cash flows from financing activities Proceeds from borrowings – 50,000 366,750 Amounts received from related parties 35(b) – 100,000 – Proceeds of loans from non-controlling interests of subsidiaries – 1,915 – Repayment of borrowings – (3,500) (50,000) Repayment of related parties 35(b) – – (100,000) Repayment of loans from non-controlling interests of subsidiaries – (16,978) (2,397) Interest paid (240) (3,453) (8,487) Repayment of lease liabilities (1,316) (1,445) (1,944) Proceeds from issue of shares 24 89,000 – 62,600 Proceeds from capital injection from non-controlling interests – – 300 [REDACTED] costs [REDACTED][ REDACTED][ REDACTED]

Net cash generated from financing activities 87,444 125,887 250,895

Net increase/(decrease) in cash and cash equivalents 102,878 51,228 (69,168) Cash and cash equivalents at beginning of year 2,467 105,345 156,573 Effect of foreign exchange rates changes – – –

Cash and cash equivalents at end of year 105,345 156,573 87,405

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II NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1 GENERAL INFORMATION

The Company, initially known as Fuzhou Shenlan Environmental Technology Co., Ltd. (福州深藍環保科技有限公司, the “Company”), was jointly founded by Mr. Lan Qiang and Mr. Lin Hongquan in Fuzhou, People’s Republic of China (the “PRC”) on 10 May 2012 as a limited liability company. On 15 June 2015, the Company converted from a limited liability company to a joint-stock company with limited liability and changed its name to Fujian Lanshen Environmental Technology Co., Ltd. (福建省藍深環保技術股份有限公司). In 2018, The Company was acquired by Haisi Environmental Technology Co., Ltd., which is a subsidiary of Quanzhou Water Group Co., Ltd. (the “Controlling Shareholder”) owned by State-owned Assets Supervision and Administration Commission of Quanzhou. The Company and its subsidiaries (together, the “Group”) are principally engaged in providing wastewater treatment equipment and wastewater treatment services in the decentralised wastewater treatment service market.

The address of the Company’s registered office is 8-9/F, Building 1, Research and Development Start-up Building, Software Park, Beifeng Street, Fengze District, Quanzhou, Fujian, PRC.

The English names of companies mentioned in this report represented the best effort by directors of the Company in translating their Chinese names as they may not have official English names.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the Historical Financial Information are set out below. These policies have been consistently applied during the Track Record Period, unless otherwise stated.

2.1 Basis of preparation

The preparation of the Historical Financial Information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Historical Financial Information are disclosed in Note 4 below.

IFRS 15, “Revenue from Contracts with Customers” replaces the previous revenue standards of (International Accounting Standards “IAS”) 18 “Revenue” and IAS 11 “Construction Contracts” and related interpretations. IFRS 9 “Financial Instruments” replaces the provisions of IAS 39 “Financial Instruments” that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

IFRS 16 “Leases” replaces the previous IAS 17 “Leases” and related interpretations.

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New standards and interpretations notyet adopted

Effective for accounting periods Standards and amendments beginning on or after

IFRS 10 (Amendment) and IAS 28 (Amendment) ‘Sales or contribution To be determined of assets between an investor and its associate or joint venture’ IFRS 16 (Amendment) ’Covid-19 related rent concessions’ 1 June 2020 IFRS 9 (Amendment), IAS 39 (Amendment), IFRS 7 (Amendment), 1 January 2021 IFRS 4 (Amendment) and IFRS 16 (Amendment) ‘Interest rate reform – phase 2’ IAS 16 (Amendment) ‘Property, plant and equipment – proceeds 1 January 2022 before intended use’ IAS 37 (Amendment) ‘Onerous contracts – cost of fulfilling a contract’ 1 January 2022 IFRS 3 (Amendment) ‘Reference to the conceptual Framework’ 1 January 2022 Annual Improvements to IFRS Standards 2018-2020 1 January 2022 IAS 1 (Amendment) ‘Classification of liabilities as current or 1 January 2023 non-current’ IFRS 17 ‘Insurance Contracts’ 1 January 2023

According to the assessment made by the Board of Directors, these new and amended standards are either not relevant to the Group or not significant to the financial performance and positions of the Group when they become effective.

2.2 Subsidiaries

2.2.1 Consolidation

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

(i) Business combination

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are measured at either fair value or the present ownership interests’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at their acquisition date fair value, unless another measurement basis is required by IFRS.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

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The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the consolidated statement of comprehensive income.

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with the group’s accounting policies.

(ii) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners of the subsidiary in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(iii) Disposal of subsidiaries

When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in the consolidated statement of comprehensive income. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

2.2.2 Separate financial statements

Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable.

Impairment testing of the investments in subsidiaries is required upon receiving a dividend from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill.

2.3 Associates

Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting, after initially being recognised at cost.

2.3.1 Equity method

Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment.

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Where the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity.

Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity-accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group.

The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in Note 2.10.

2.4 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as executive directors of the Company that makes strategic decisions.

2.5 Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). All the subsidiaries of the Group are operating in the PRC and their functional currency is Renminbi (“RMB”). The consolidated financial statements are presented in RMB, which is the Company’s functional and the Group’s presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in consolidated statement of comprehensive income. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the consolidated statement of comprehensive income, within finance costs. All other foreign exchange gains and losses are presented in the consolidated statement of comprehensive income on a net basis within other (losses)/gains.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as fair value through other comprehensive income are recognised in other comprehensive income.

2.6 Land use rights

All land in the PRC is state-owned or collectively-owned and no individual land ownership right exists. The Group acquired the rights to use certain land. The premiums paid for such right are recorded as land use rights, which are amortised over the lease periods using the straight-line method. The land use rights are stated at historical cost less accumulated amortisation and impairment.

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2.7 Property, plant and equipment

All property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives as follows:

Buildings 20 years Production machineries 3–10 years Factory device and equipment 3–5 years Vehicle, office furniture and fixtures 3–10 years Leasehold improvement Shorter of estimated useful lives and remaining lease terms

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.10).

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss.

Construction-in-progress represents properties under construction and is stated at cost less accumulated impairment losses. This includes cost of construction and other direct costs. Construction-in-progress is not depreciated until such time as the assets are completed and are ready for operational use.

2.8 Intangible assets

(i) Computer software

Computer software are stated at cost less accumulated amortisation and accumulated impairment losses. Cost represents consideration paid for the rights to use the computer software for 5 years. Amortisation of computer software are calculated on the straight-line method over five years.

(ii) Build-Operate-Transfer (the “BOT”) contracts

BOT contracts include: (i) the related rights in the service concession arrangements (Note 2.9); and (ii) the value of the BOT contract separately acquired through acquisition of subsidiaries (Note 34). The value of the BOT contract is recognised at fair value at the acquisition date. They have a finite useful life and amortised during a specified period of time (the “Service Concession Period”). They are tested for impairment in accordance with the policy described in Note 2.10, and subsequently carried at cost less accumulated amortisation and impairment losses.

(iii) Research and development expenditure

An intangible asset arising from development shall be recognised if, and only if, the Group can demonstrate all of the following:

(1) the technical feasibility of completing the intangible asset so that it will be available for use or sale.

(2) its intention to complete the intangible asset and use or sell it.

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(3) its ability to use or sell the intangible asset.

(4) how the intangible asset will generate probable future economic benefits.

(5) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.

(6) its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Research expenditure and development expenditure that do not meet the criteria for capitalisation are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

2.9 Service concession arrangements

The Group has entered into certain service concession arrangements with governmental authorities or their designators (the “Grantors”). The service concession arrangements are BOT arrangements. Under the BOT arrangements, the Group carries out construction work of the facilities of the wastewater treatment for the Grantors and receives in return a right to operate the facilities of service project concerned for the Service Concession Period in accordance with the pre-established conditions set by the Grantors. The service project should be transferred to the Grantors with nil consideration at the end of the operation period.

The Group is generally entitled to use all the property, plant and equipment of the facilities, however, the relevant governmental authorities as Grantors will control and regulate the scope of service that the Group must provide with the facilities and retain the beneficial entitlement to any residual interest in the facilities at the end of the Service Concession Period. Each of these service concession arrangements is governed by a contract and, where applicable, supplementary agreements entered into between the Group and the relevant governmental authority that set out, inter alia, performance standards, mechanisms for adjusting prices for the services rendered by the Group, and specific obligations levied on the Group to restore the facilities to a specified level of serviceability at the end of the Service Concession Period and arrangements for arbitrating disputes.

(i) Consideration given bythe Grantor

Service concession arrangement under financial asset model

When the construction services are completed, the contract asset would be classified and measured as receivable under a service concession arrangement accordingly.

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Service concession arrangement under intangible asset model

An intangible asset (operating concession) is recognised to the extent that the Group receives a right to charge users of public service, which is not an unconditional right to receive cash because the amounts are contingent on the extent that the public uses and service. The intangible asset (operating concession) is accounted for in accordance with the policy set out for “intangible assets” in Note 2.8 above, which is amortised on a straight-line basis over the Service Concession Period.

Revenue relating to operating service are accounted for in accordance with the policy for Note 2.25 “revenue recognition” below. Costs for operating services are expensed in the period in which they are incurred.

Service concession arrangement under hybrid model

(ii) Construction

Revenue relating to construction is accounted for in accordance with the policy in Note 2.25.

(iii) Operating concessions

The Group recognised the related rights in the service concession arrangements as intangible assets or financial assets. The operator shall recognise an intangible asset to the extent that it receives a right (license) to charge users of the concession service and shall recognise a financial asset to the extent that it has an unconditional contractual right to receive a guaranteed minimum volume from the grantor. Therefore intangible assets – concession rights are recognised for the rights under these service concession arrangements by the Group, which are amortised on a straight-line basis over the terms of operation ranging from 12 to 30 years.

(iv) Contractual obligations torestore the infrastructure to a specified level of serviceability

The Group has contractual obligations which it must fulfil as a condition of its licences, that is (i) to maintain the wastewater treatment plants it operates to a specified level of serviceability and/or (ii) to restore the plants to a specified condition before they are handed over to the Grantor at the end of the service concession arrangements. These contractual obligations to maintain or restore the wastewater treatment plants, except for upgrade element, are recognised and measured in accordance with the policy set out for Note 2.24 “provisions” below.

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2.10 Impairment of non-financial assets and investments in subsidiaries

Intangible assets that have not been available for use are tested annually for impairment, or more frequently if events or changes indicate that they might be impaired. Assets that are subject to amortisation are reviewed for the impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is higher of the asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

Impairment testing of the investments in subsidiaries is required upon receiving dividends from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets.

2.11 Financial assets

(i) Classification

The Group classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value (either through other comprehensive income (“OCI”), or through profit or loss), and

• those to be measured at amortised cost.

The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in debt instruments, this will depend on the business model in which the investment is held. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (“FVOCI”).

(ii) Recognition and derecognition

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

(iii) Measurement

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (“FVPL”), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.

Debt instruments

Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the group classifies its debt instruments:

• Amortised Cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised

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directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the consolidated statement of comprehensive income.

• FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/(losses) and impairment expenses are presented as separate line item in the statement of comprehensive income.

• FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within other gains/(losses) in the period in which it arises.

Equity instruments

The Group subsequently measures all equity investments at fair value. Where the group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the group’s right to receive payments is established.

Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the statement of comprehensive income as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.

2.12 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet where the Group currently has a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default or bankruptcy of the Company or the counterparty.

2.13 Impairment of financial assets

The Group assesses on a forward-looking basis the expected credit loss associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

For trade receivables, Receivables under service concession arrangements and contract assets, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

Impairment on other receivables is measured as either 12-month expected credit losses or lifetime expected credit loss, depending on whether there has been a significant increase in credit risk since initial recognition. If a significant increase in credit risk of a receivable has occurred since initial recognition, then impairment is measured as lifetime expected credit loss.

2.14 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

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2.15 Contract assets and liabilities

Under IFRS 15, a receivable is recognised only if the Group has an unconditional right to consideration. If the Group recognises the related revenue before being unconditionally entitled to the consideration for the promised goods and services in the contract, then the entitlement to consideration is classified as a contract asset. Similarly, a contract liability, rather than a payable, is recognised when a customer pays consideration, or is contractually required to pay consideration and the amount is already due, before the Group recognises the related revenue. For a single contract with the customer, either a net contract asset or a net contract liability is presented. For multiple contracts, contract assets and contract liabilities of unrelated contracts are not presented on a net basis.

An impairment of a contract asset is measured, presented and disclosed on the same basis as a financial asset under Note 2.11.

The Group recognises the incremental costs of obtaining a contract with a customer within contract assets if the Group expects to recover those costs.

2.16 Trade receivables

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. Trade and other receivables are subsequently measured at amortised cost using the effective interest method, less provision for impairment. See Note 2.13 for further information about the Group’s accounting policies for impairment of trade and other receivables.

2.17 Cash and cash equivalents

In the consolidated statements of cash flows, cash and cash equivalents includes cash at bank and on hand and short-term bank deposits with original maturities of three months or less.

2.18 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

2.19 Trade and other payables

Trade payables are obligations to pay for goods, construction or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade payables and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.20 Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

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Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

2.21 Borrowing costs

General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

Other borrowing costs are expensed in the period in which they are incurred.

2.22 Current and deferred income tax

The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

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2.23 Employee benefits

(i) Pension obligations

The full-time employees of the Group in the PRC are covered by the government-sponsored defined contribution pension plans under which the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these retired employees. The Group contributes on a monthly basis to these pension plans. Under these plans, the Group has no obligation for post-retirement benefits beyond the contributions made and contributions to these plans are included in profit or loss as incurred.

(ii) Housing fund, medical insurance and other social insurance

Employees of the Group in the PRC are entitled to participate in various government-supervised housing fund, medical insurance and other employee social insurance plans. The Group contributes on a monthly basis to these funds based on certain percentages of the salaries of the employees, subject to certain ceiling. The Group’s liability in respect of these funds is limited to the contributions payable in each period.

(iii) Bonusentitlements

The expected cost of bonus payments is recognised as a liability when the Group has a present contractual or constructive obligation as a result of services rendered by employees and a reliable estimation of the obligation can be made.

2.24 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

When there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditure expected to be required to settle the obligations using a pre-tax rate that reflects current market assessments of the value of the money and the risks specific to the obligations. The increase in the provision due to passage of time is recognised as interest expense.

2.25 Revenue recognition

The Group satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met:

• when the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs;

• when the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced;

• when the Group’s performance does not create an asset with an alternate use to the Group and the Group has an enforceable right to payment for performance completed to date.

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If control of the product or service transfers over time, revenue is recognised over the period of the contract by measuring the progress towards complete satisfaction of that performance obligation.

(i) Sales of wastewater treatment equipment, pipe and pipe fittings, and technical consultancy and design services

Revenue is recognised at the point in time when the control of the product is transferred to the customer which generally coincides with delivery and acceptance of the product sold.

(ii) Decentralised wastewater treatment facility construction, construction under BOT model and soil treatment

(iii) Operation and maintenance services

Revenue from operation and maintenance services is recognised on a straight-line basis over the terms of the contracts.

(iv) Rental income

Rental income from investment properties is recognised on a straight-line basis over the terms of the leases.

2.26 Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing:

• the profit attributable to owners of the company, excluding any costs of servicing equity other than ordinary shares

• by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:

• the after-income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and

• the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

2.27 Leases

The Group leases properties as lessee. Rental contracts are typically made for fixed periods of 1 to 5 years but may have extension options as described below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.

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Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentives receivable

• variable lease payment that are based on an index or a rate

• amounts expected to be payable by the lessee under residual value guarantees

• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and

• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the group’s incremental borrowing rate.

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability

• any lease payments made at or before the commencement date less any lease incentives received

• any initial direct costs, and

• restoration costs.

Extension and termination options are included in a number of property leases across the Group. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

Payments associated with short-term leases are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less and leases with a remaining term of 12 months or less as of the date of initial adoption of IFRS 16.

The right-of-use assets are presented in Note 16. The lease liabilities are presented separately in Note 28.

2.28 Dividend distribution

Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.

2.29 Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets.

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2.30 Interest income

Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowance).

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including cash flow and fair value interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

(a) Market risk

(i) Interest rate risk

The Group’s interest rate risk arises from bank deposits and borrowings. Borrowings obtained at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash at bank with variable interest rates. Borrowings obtained at fixed rates expose the Group to fair value interest rate risk. During the years ended 31 December 2018, 2019 and 2020, the Group’s borrowings denominated at fixed rates.

Bank deposits carried at prevailing market interest rate expose the Group to cash flow interest rate risk. The Group closely monitors trend of interest rate and its impact on the Group’s interest rate risk exposure to ensure it is within an acceptable level. During the years ended 31 December 2018, 2019 and 2020, The Group had not used any interest rate swap arrangements.

(b) Credit risk

The Group is exposed to credit risk in relation to its cash and bank balances, restricted bank balances, trade receivables and other receivables, Receivables under service concession arrangements and contract assets. The carrying amounts of these balances represent the Group’s maximum exposure to credit risk in relation to financial assets.

(i) Credit risk of cash and cash balances, restricted bank balances

To manage this risk arising from cash and bank balance, restricted bank balances, they are mainly placed with banks with high credit rating. There has been no recent history of default in relation to these financial institutions. The expected credit loss is close to zero.

(ii) Credit risk of trade receivables

The Group applies the IFRS 9 simplified approach to measure expected credit losses, which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and days past due.

Individually impaired trade receivables is related to customer who is experiencing unexpected economic difficulties. The Group expects that the entire amounts of the receivables will have difficulty to be recovered and has recognised impairment losses. As of 31 December 2018, 2019 and 2020, no trade receivable has been individually impaired.

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The expected loss rates of the remaining trade receivables are based on the ageing profiles of trade receivable over a period of 36 months before the balance sheet date and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.

On that basis, the loss allowance as of 31 December 2018, 2019 and 2020 was determined as follows for trade receivables, the expected credit losses below also incorporated forward-looking information.

Within Over 1 year 1-2 years 2-3 years 3 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2018 Gross carrying amount 29,152 15,898 860 110 46,020 Expected loss rate 3.27% 18.51% 100.00% 100.00% 10.57% Loss allowance 952 2,943 860 110 4,865

At 31 December 2019 Gross carrying amount 58,524 16,202 12,624 1,373 88,723 Expected loss rate 2.45% 13.64% 54.82% 58.85% 12.82% Loss allowance 1,435 2,210 6,920 808 11,373

At 31 December 2020 Gross carrying amount 146,113 11,738 7,739 9,384 174,974 Expected loss rate 3.85% 24.90% 53.19% 96.27% 12.40% Loss allowance 5,632 2,923 4,116 9,034 21,705

The Group assesses the credit quality of its customers by taking into account various factors including their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the management. The compliance with credit limits by customers is regularly monitored by the management.

(iii) Credit risk of other receivables, Receivables under service concession arrangements and contract assets

The Group considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk, the Group compares the risk of a default occurring on the asset as of the reporting date with the risk of default as of the date of initial recognition. It also considers available reasonable and supportive forwarding-looking information.

The contract assets related to decentralised wastewater treatment facility construction have substantially the same risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that the expected loss rates for trade receivables are reasonable approximation of the loss rates for the contract assets related to decentralised wastewater treatment facility construction. As of 31 December 2018, 2019 and 2020, the ages of contract assets related to wastewater treatment facility construction were all within 1 year and the loss provision were approximately RMB1,207,000, RMB379,000 and RMB153,000 respectively.

The contract assets related to concession operation services under BOT model have substantially the same risk characteristics as receivables under service concession arrangements. As of 31 December 2019 and 2020, there was no significant increase in credit risks of receivables under service concession arrangements since initial recognition. The Group assessed that the expected credit losses for them were not material.

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Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group’s objective is to maintain adequate committed credit lines to ensure sufficient and flexible funding is available to the Group. The Group also considers converting short-term borrowings into long-term borrowings to improve the Group’s liquidity.

The table below analyses the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Less Between Between than 1 and 2 2 and 5 Over 1 year years years 5 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2018 Lease liabilities 1,247 836 2,448 540 5,071 Trade and other payables 21,118 – – – 21,118

22,365 836 2,448 540 26,189

At 31 December 2019 Borrowings 50,000 – – – 50,000 Interest payable on borrowings 42–––42 Lease liabilities 2,069 1,598 2,943 – 6,610 Trade and other payables 202,959 – – – 202,959

255,070 1,598 2,943 – 259,611

At 31 December 2020 Borrowings 211,700 23,540 70,620 60,890 366,750 Interest payable on borrowings 11,249 6,982 18,817 369 37,417 Lease liabilities 2,008 1,314 2,204 – 5,526 Trade and other payables 197,444 – – – 197,444

422,401 31,836 91,641 61,259 607,137

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3.2 Capital management

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group monitors capital on the basis of the net gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings, lease liabilities and amounts due to related parties less cash and bank balances and restricted bank balances. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheets plus net debt.

The net gearing ratios as of 31 December 2018, 2019 and 2020 were as follows:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Total borrowings and lease liabilities (Note 27,28) 4,497 56,051 371,826 Amounts due to related parties- Non-trade (Note 35) – 100,433 54 Less: Cash and bank balances (Note 23) (105,345) (156,573) (87,405) Restricted bank balances (Note 23) (189) (2,360) (11,714)

Net (cash)/debt (101,037) (2,449) 272,761 Total equity 160,135 284,109 431,066

Total capital 59,098 281,660 703,827

Net gearing ratio N/A N/A 39%

As of 31 December 2018 and 2019, the Group maintained at a net cash position.

The increase of net gearing ratio from 31 December 2019 to 31 December 2020 mainly resulted from the increase of total borrowings and lease liabilities and the decrease of cash and cash equivalents.

3.3 Fair value estimation

The table below analyses financial instruments carried at fair value by valuation method. The different levels have been defined as follows:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

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The following table presents the Group’s financial assets that are measured at fair value at 31 December 2018, 2019 and 2020:

As at 31 December Relationship Valuation Significant of unobservable Fair value techniques unobservable inputs to 2018 2019 2020 hierarchy and key inputs inputs fair value RMB’000 RMB’000 RMB’000

Financial assets FVPL – Bank financial – – 33,513 Level 3 Discount cash flow Actual return Positive products model – the key rates correlation inputs are (note a) expected return rates used as discount rates

(a) A 5% increase/decrease in the return rates, while all other variables keep constant, would increase/decrease the carrying amount of bank financial products as at 31 December 2018, 2019 and 2020 by nil, nil and RMB280 respectively.

For the years ended 31 December 2018, 2019 and 2020, there are no transfers among levels of the fair value hierarchy used in measuring the fair value of financial instruments, and also no changes in the classification of financial assets as a result of a change in the purpose or use of those assets.

4 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Group’s accounting policies.

Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

(a) Estimated useful lives and residual values of property, plant and equipment

The Group’s management determines the estimated useful lives and residual values and consequently the related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitors action in response to sever industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or nonstrategic assets that have been abandoned or sold. Actual economic lives may differ from estimated useful lives, and actual residual values. Periodic reviews could result in a change in depreciable lives and residual values and therefore changes in depreciation expenses in the future periods.

(b) Impairment of trade and other receivables

The impairment provisions for financial assets disclosed in Note 22 are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting inputs to the impairment calculation, based on the Group’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period. For details of the key assumptions and inputs used, see Note 22 below.

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In determining whether the wastewater treatment facilities fall into the scope of IFRIC 12 “service concession arrangements”, the Group applied a lot of accounting judgements, including (i) whether the Grantor controls and can control any significant residual interest in the infrastructure asset; (ii) whether the Grantor is able to exercise control of the residual infrastructure through a call option to acquire the infrastructure asset at the end of the concession period.

(d) Percentage of completion of construction and service contracts

The Group recognises revenue for construction work and service contracts according to the percentage of completion of the individual contract of construction or service work. The Group’s management estimates the percentage of completion of construction or service work based on the actual costs incurred over the total budgeted costs, where the corresponding contract revenue is also estimated by management. Because of the nature of the activity undertaken in construction and service contracts, the date at which the activity is entered into and the date when the activity is completed usually fall into different accounting periods. The Group reviews and revises the estimation of both contract revenue and contract costs in the budget prepared for each construction contract and service contract as the contract progresses.

(e) Business combination

Business combinations are accounted for under acquisition method. The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed, which mainly include BOT contracts, receivables under service concession arrangements and property, plant and equipment, is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Group determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of assets and forecasted life cycle and forecasted cash flows over that period. Although the Group believes that the assumptions applied in the determination are reasonable based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference could be material.

(f) Income taxes

The Group is subject to income taxes in different areas in PRC. Judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

Deferred income tax assets relating to certain temporary differences and tax losses are recognised as management considers it is probable that future taxable profits will be available against which the temporary differences or tax losses can be utilised. Where the expectation is different from the original estimate, such differences will impact the recognition of deferred income tax assets and taxation in the periods in which such estimate is changed. Deferred income tax assets and liabilities are determined using tax rates that are expected to apply when the related deferred income tax assets are realised or the deferred income tax liabilities are settled. The expected applicable tax rate is determined based on the enacted tax laws and regulations and the actual situation of the Group. The management of the Group will revise the expectation where the intending tax rate is different from the original expectation.

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5 SEGMENT INFORMATION AND REVENUE

The Company’s chief operating decision maker examines the Group’s performance from a product perspective and has identified five operating segments of its business as follows:

(i) Sales of wastewater treatment equipment;

(ii) Decentralised wastewater treatment facility construction;

(iii) Concession operation services under BOT model;

(iv) Sales of pipes and pipe fittings;

(v) Others, including soil treatment, technical consultancy and design services, operation and maintenance services, etc.

Concession operation services under BOT model includes the construction and operation services rendered during the Service Concession Period. The Group started to operate the segments of concession operation services under BOT model and sales of pipes and pipe fittings in the year ended 31 December 2019. There is no revenue from these segments for the year ended 31 December 2018.

The amounts provided to the chief operating decision maker with respect to total assets, total liabilities and capital expenditure are measured in a manner consistent with that of consolidated financial statements. The chief operating decision maker reviews revenue and cost of sales by segment results, and reviews the total assets, total liabilities and capital expenditure at Group level. Therefore, no segment information of total assets, total liabilities and capital expenditure information was presented.

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The segment information of the Group during the Track Record Period is set out as follows:

(a) Segment information of the Group

Year ended 31 December 2018 Decentralised Sales of wastewater wastewater treatment treatment facility equipment construction Others Total RMB’000 RMB’000 RMB’000 RMB’000

Revenue 52,147 52,623 1,438 106,208 – Recognised at a point in time 52,147 – 801 52,948 – Recognised over time – 52,623 637 53,260 Cost of sales (23,695) (29,335) (612) (53,642)

Segment results 28,452 23,288 826 52,566

A reconciliation of results of reportable segments to profit for the year is as follows:

Results of reportable segments 52,566 Other income 748 Other gains – net 47 Net impairment losses on financial and contract assets (4,842) Selling expenses (5,421) Administrative expenses (6,637) Research and development expenses (6,750) Finance income 43 Finance expenses (260) Profit before income tax 29,494

Income tax expense (4,049)

Profit and total comprehensive income for the year 25,445

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Year ended 31 December 2019 Decentralised Concession Sales of wastewater operation Sales of wastewater treatment services pipes treatment facility under BOT and pipe equipment construction model fittings Others Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Revenue 41,048 135,952 48,113 105,945 10,490 341,548 – Recognised at a point in time 41,048 – – 105,945 479 147,472 – Recognised over time – 135,952 48,113 – 10,011 194,076 Cost of sales (18,653) (81,109) (36,445) (77,436) (9,036) (222,679)

Segment results 22,395 54,843 11,668 28,509 1,454 118,869

A reconciliation of results of reportable segments to profit for the year is as follows:

Results of reportable segments 118,869 Other income 2,357 Other gains – net 12,366 Net impairment losses on financial and contract assets (6,242) Selling expenses (17,309) Administrative expenses (21,991) Research and development expenses (16,595) Finance income 1,613 Finance expenses (3,999) Share of net loss of an associate accounted for using the equity method (244) Profit before income tax 68,825

Income tax expense (7,905)

Profit and total comprehensive income for the year 60,920

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Year ended 31 December 2020 Decentralised Concession Sales of wastewater operation Sales of wastewater treatment services pipes treatment facility under BOT and pipe Revenue equipment construction model fittings Others Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Revenue 103,550 125,229 355,094 85,649 1,551 671,073 – Recognised at a point in time 103,550 – – 85,649 215 189,414 – Recognised over time – 125,229 355,094 – 1,336 481,659 Cost of sales (67,953) (87,773) (267,941) (66,160) (1,178) (491,005)

Segment results 35,597 37,456 87,153 19,489 373 180,068

A reconciliation of results of reportable segments to profit for the year is as follows:

Results of reportable segments 180,068 Other income 2,566 Other losses – net (407) Net impairment losses on financial and contract assets (10,467) Selling expenses (18,840) Administrative expenses (26,965) Research and development expenses (23,820) Finance income 3,545 Finance expenses (8,776) Share of net profit of investments accounted for using the equity method 26 Profit before income tax 96,930

Income tax expense (12,873) Profit and total comprehensive income for the year 84,057

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(b) Contract assets and contract liabilities

(i) The group has recognised the following contract assets with customers:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Current assets – Related to decentralised wastewater treatment facility construction 30,081 108,290 107,576 Loss allowance (1,207) (379) (153)

28,874 107,911 107,423

Non-current assets – Related to construction under BOT model – 48,290 396,704

28,874 156,201 504,127

(ii) The Group has recognised the following contract liabilities with customers:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Current liabilities – Related to sales of wastewater treatment equipment 465 420 254 – Related to decentralised wastewater treatment construction – 150 – – Related to sales of pipes and pipe fittings – 419 772 – Related to BOT operation services – – 251

465 989 1,277

The following table shows how much of the revenue, which was included in the contract liability balance at the beginning of the period, recognised during the Track Record Period relates to carried-forward contract liabilities.

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

– Sales of wastewater treatment equipment 370 465 183 – Decentralised wastewater treatment construction – – 150 – Sales of pipes and pipe fittings – – 333

370 465 666

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The following table shows unsatisfied performance obligations resulting from construction under BOT model and decentralised wastewater treatment facility construction of which the construction periods are over 1 year.

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Aggregate amount of the transaction price allocated to long-term constructions that are partially or fully unsatisfied – 516,020 163,641

Management expects that 68% of the transaction price allocated to unsatisfied performance obligations as of 31 December 2019 will be recognised in 2020. The remaining 32% will be recognised in 2021.

Management expects that 100% of the transaction price allocated to unsatisfied performance obligations as of 31 December 2020 will be recognised in 2021.

6 OTHER INCOME

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Government grants – Received and recognised during the year 596 2,219 1,899 Rental and sub-lease rental income 40 18 – Others 112 120 667

748 2,357 2,566

7 OTHER GAINS/(LOSSES) – NET

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Losses on disposal of property, plant and equipment – net (55) (179) (56) Gain from changes in fair value of financial assets at fair value through profit or loss – – 13 Gains on disposal of financial assets at fair value through profit or loss 114 703 887 Negative goodwill gained from acquisition (Note 34) – 12,365 – Overdue tax payment surcharges – (458) (157) Indemnity for contract dispute – – (946) Other losses (12) (65) (148)

47 12,366 (407)

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8 EXPENSES BY NATURE

The expenses charged to cost of sales, selling expenses and administrative expenses are analysed below:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Raw materials and consumables used 32,696 119,872 185,671 Changes in inventories of finished goods and work in progress 2,875 1,240 1,816 Employee benefit expenses (Note 9) 12,508 41,336 54,014 Labour outsourcing expenditures 9,621 8,560 26,966 Construction subcontracting expenditures 3,261 66,760 242,969 Outsourcing research and development costs 424 72 500 Electricity and water expenses 245 3,661 4,167 Depreciation expenses (Note 15&16) 2,298 5,665 7,788 Amortisation expenses (Notes 14&17) 6 730 1,134 Transportation and loading costs 2,508 3,711 3,116 Other taxes and levies 911 2,379 3,266 Traveling expenses 1,091 865 1,460 Warranties 488 1,521 1,143 Short-term rental expenses 75 524 1,205 Office expenses 299 1,303 893 Advertising and exhibition expenses 85 457 508 Bidding fees 393 863 1,202 Consultation fees 635 4,159 9,507 Installation and maintenance expenses 673 3,188 1,600 Business entertainment expenses 702 445 97 Mechanical fees 146 2,200 749 Trash handling fees – 2,972 1,840 Technical service fees – 3,451 1,135 Insurance expenses 12 539 711 Measurement service fees – 698 2,320 Others 498 1,403 4,853

Total 72,450 278,574 560,630

9 EMPLOYEE BENEFIT EXPENSES

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Salaries, wages and bonuses 10,749 34,827 48,195 Pension, housing fund, medical insurance and other social insurance 1,283 4,816 2,386 Others 476 1,693 3,433

Total employee benefit expenses 12,508 41,336 54,014

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(i) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the years ended 31 December 2018, 2019 and 2020, 2, 2 and 2 directors respectively, whose emoluments are disclosed in the Notes 36, The emoluments payable to the remaining 3, 3 and 3 individuals during the respective year are as follows:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Salaries, wages and bonuses 425 1,920 5,221 Pension, housing fund, medical insurance and other social insurance 71 66 51

496 1,986 5,272

(ii) The emoluments of the non-director highest paid employees fell within the following bands:

Year ended 31 December 2018 2019 2020

Within HKD$1,000,000 3 3 2 HKD$1,000,000 – HKD$2,000,000 – – 1

333

10 FINANCE COSTS – NET

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Finance income – Interest income on bank deposits 43 808 524 – Interest income on service concession arrangements – 805 3,021

43 1,613 3,545

Finance costs Finance charges on lease liabilities (240) (210) (226) Finance charges on bank borrowings – (57) (6,001) Finance charges on amounts due to related parties (Note 35) – (3,619) (2,413) Others (20) (113) (136)

(260) (3,999) (8,776)

Finance costs – net (217) (2,386) (5,231)

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11 INCOME TAX EXPENSE

This note provides an analysis of the Group’s income tax expense, shows how the income tax expense is affected by non-assessable and non-deductible items. It also explains significant estimates made in relation to the Group’s tax position.

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Current income tax 4,789 9,749 14,122 Deferred income tax (Note 29) (740) (1,844) (1,249)

Income tax expense 4,049 7,905 12,873

(a) Under the Law of the PRC on Corporate Income Tax (the “CIT Law”) and implementation regulations of the CIT Law, the income tax rate of 25% is applicable to all of the Group’s subsidiaries for the Track Record Period, except for the Company which is subject to income tax at a preferential rate of 15% for the Track Record Period.

(b) The Company obtained and renewed the qualification of certified high and new technology enterprises in November 2017 and December 2020, respectively. The Company has registered in the local tax bureau to apply the preferential income tax rate of 15% from 2018 to 2020.

The tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the tax rate applicable to profits of the consolidated entities is as follows:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Profit before income tax 29,494 68,825 96,930

Tax calculated at the applicable statutory tax rates in the respective regions 7,374 17,199 24,233 – Income not subject to tax – (3,413) – – Expenses not deductible for tax purpose 137 172 148 – Deduction of research and development expense (759) (2,338) (3,072) – Impact of preferential income tax (3,116) (4,724) (9,606) – Tax losses for which no deferred income tax asset was recognised 413 896 1,151 – Others – 113 19

Tax charge 4,049 7,905 12,873

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(i) The expiration dates of unused tax losses for which no deferred tax asset has been recognised are as follows:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

2021 161 150 150 2022 1,262 287 287 2023 1,040 835 835 2024 – 1,740 1,740 2025 – – 4,308

2,463 3,012 7,320

12 EARNINGS PER SHARE

(a) Basic

The basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares issued during the three years ended 31 December 2018, 2019 and 2020.

Year ended 31 December 2018 2019 2020

Profit attributable to owners of the Company (RMB’000) 25,445 57,612 82,821 Weighted average number of ordinary shares in issue (i) 72,575 90,000 95,179

Basic earnings per share (expressed in RMB per share) 0.35 0.64 0.87

(i) The weighted average number of ordinary shares issued for the years ended 31 December 2018 have been adjusted for the increase in shares pursuant to the capitalisation of reserves in June 2019 (Note 24).

(b) Diluted

Diluted earnings per share presented is the same as the basic earnings per share as there were no potentially dilutive ordinary shares issued during the Track Record Period.

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13 DIVIDENDS

No dividends had been declared or paid by the Company during the Track Record Period.

14 LAND USE RIGHTS

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

As of the beginning of the year Cost – – 26,399 Accumulated amortisation – – (598)

Net book amount – – 25,801

Opening net book amount – – 25,801 Amortisation – (598) (731) Acquisition of a subsidiary (Note 34) – 26,399 –

Closing net book amount – 25,801 25,070

As of the end of the year Cost – 26,399 26,399 Accumulated amortisation – (598) (1,329)

Net book amount – 25,801 25,070

Amortisation of the land use rights was included in the following categories in the consolidated statements of comprehensive income:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Administrative expenses – 598 731

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15 PROPERTY, PLANT AND EQUIPMENT

The Group

Vehicles Factory and office Production device and furniture Construction Leasehold Buildings machineries equipment and fixtures in progress improvement Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Year ended 31 December 2018 Opening net book amount – 3,027 112 960 – 256 4,355 Additions – 222 85 120 – 143 570 Disposals – (53) (6) (1) – – (60) Depreciation charge – (414) (74) (279) – (103) (870)

Closing net book amount – 2,782 117 800 – 296 3,995

At 31 December 2018 Cost – 4,391 267 1,665 – 440 6,763 Accumulated depreciation – (1,609) (150) (865) – (144) (2,768)

Net book amount – 2,782 117 800 – 296 3,995

Year ended 31 December 2019 Opening net book amount – 2,782 117 800 – 296 3,995 Acquisition of subsidiaries (Note 34) 13,343 10,630 1,224 492 – 375 26,064 Additions – 284 693 632 3,157 2,115 6,881 Transferred from construction inprogress ––––(2,666) 2,666 – Disposals – (141) (38) – – – (179) Depreciation charge (1,332) (1,139) (318) (367) – (872) (4,028)

Closing net book amount 12,011 12,416 1,678 1,557 491 4,580 32,733

At 31 December 2019 Cost 13,343 14,150 1,820 2,789 491 5,298 37,891 Accumulated depreciation (1,332) (1,734) (142) (1,232) – (718) (5,158)

Net book amount 12,011 12,416 1,678 1,557 491 4,580 32,733

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Year ended 31 December 2020 Opening net book amount 12,011 12,416 1,678 1,557 491 4,580 32,733 Additions 132 8,034 1,206 916 6,842 647 17,777 Transferred from construction in progress – 3,982 – – (4,197) 215 – Disposals – – (2) (59) – – (61) Depreciation charge (1,812) (1,584) (622) (523) – (1,181) (5,722)

Closing net book amount 10,331 22,848 2,260 1,891 3,136 4,261 44,727

At 31 December 2020 Cost 13,475 26,166 2,997 3,121 3,136 6,160 55,055 Accumulated depreciation (3,144) (3,318) (737) (1,230) – (1,899) (10,328)

Net book amount 10,331 22,848 2,260 1,891 3,136 4,261 44,727

During the Track Record Period, the amounts of depreciation expense charged to cost of sales, selling expenses and administrative expenses are as follows:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Depreciation of property, plant and equipment – Cost of sales 354 2,350 3,322 – Selling expenses 205 209 65 – Administrative expenses 198 962 1,675 – Research and development expenses 113 507 660

Depreciation expenses charged to profit or loss (Note 8) 870 4,028 5,722

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The Company

Year ended 31 December 2018 Opening net book amount – 3,027 81 919 – 256 4,283 Additions – 222 83 120 – 143 568 Disposals – (53) – (1) – – (54) Depreciation charge – (414) (55) (271) – (103) (843)

Closing net book amount – 2,782 109 767 – 296 3,954

At 31 December 2018 Cost – 4,391 242 1,620 – 440 6,693 Accumulated depreciation – (1,609) (133) (853) – (144) (2,739)

Net book amount – 2,782 109 767 – 296 3,954

Year ended 31 December 2019 Opening net book amount – 2,782 109 767 – 296 3,954 Additions – 146 305 526 2,666 2,035 5,678 Transferred from construction inprogress ––––(2,666) 2,666 – Disposals – (34) (2) – – – (36) Depreciation charge – (422) (85) (336) – (776) (1,619)

Closing net book amount – 2,472 327 957 – 4,221 7,977

At 31 December 2019 Cost – 4,452 545 2,146 – 4,844 11,987 Accumulated depreciation – (1,980) (218) (1,189) – (623) (4,010)

Net book amount – 2,472 327 957 – 4,221 7,977

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Vehicles Factory and office Production device and furniture Leasehold Buildings machineries equipment and fixtures improvement Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Year ended 31 December 2020 Opening net book amount – 2,472 327 957 4,221 7,977 Additions 132 5,459 270 23 55 5,939 Disposal – – (1) – – (1) Depreciation charge (6) (810) (179) (378) (1,005) (2,378)

Closing net book amount 126 7,121 417 602 3,271 11,537

At 31 December 2020 Cost 132 9,911 802 2,169 4,899 17,913 Accumulated depreciation (6) (2,790) (385) (1,567) (1,628) (6,376)

Net book amount 126 7,121 417 602 3,271 11,537

During the Track Record Period, the amounts of depreciation expense charged to cost of sales, selling expenses and administrative expenses are as follows:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Depreciation of property, plant and equipment – Cost of sales 344 481 694 – Selling expenses 200 208 26 – Administrative expenses 186 815 1,268 – Research and development expenses 113 115 390

Depreciation expenses charged to profit or loss 843 1,619 2,378

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16 OTHER RIGHT-OF-USE ASSETS

The Group

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

As of the beginning of the year Cost 7,003 6,722 8,288 Accumulated amortisation (1,480) (2,577) (2,781)

Net book amount 5,523 4,145 5,507

Opening net book amount 5,523 4,145 5,507 Additions 50 3,001 969 Disposal – (2) – Amortisation (1,428) (1,637) (2,066)

Closing net book amount 4,145 5,507 4,410

As of the end of the year Cost 6,722 8,288 9,191 Accumulated amortisation (2,577) (2,781) (4,781)

Net book amount 4,145 5,507 4,410

The Group leases certain offices, warehouses, factory production plants and staff dormitories. Amortisation of right-of-use assets has been charged to profit or loss in the consolidated statements of comprehensive income (Note 8) as follows:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Depreciation of right-of-use assets – Cost of sales 645 649 684 – Selling expenses 128 43 10 – Administrative expenses 652 928 1,355 –Research and development expenses 3 17 17

Depreciation expenses charged to profit or loss 1,428 1,637 2,066

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The Company

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

As of the beginning of the year Cost 7,003 6,722 6,852 Accumulated amortisation (1,480) (2,577) (2,482)

Net book amount 5,523 4,145 4,370

Opening net book amount 5,523 4,145 4,370 Additions 50 1,565 212 Disposal – (2) – Amortisation (1,428) (1,338) (1,199)

Closing net book amount 4,145 4,370 3,383

As of the end of the year Cost 6,722 6,852 6,998 Accumulated amortisation (2,577) (2,482) (3,615)

Net book amount 4,145 4,370 3,383

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Depreciation of right-of-use assets – Cost of sales 645 649 684 – Administrative expenses 652 629 488 – Selling expenses 128 43 10 – Research and development expenses 3 17 17

1,428 1,338 1,199

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17 INTANGIBLE ASSETS

The Group

BOT Software contracts Total RMB’000 RMB’000 RMB’000

Year ended 31 December 2018 Opening net book amount – – – Additions 41 – 41 Amortisation charge (6) – (6)

Closing net book amount 35 – 35

As of 31 December 2018 Cost 41 – 41 Accumulated amortisation (6) – (6)

Net book amount 35 – 35

Year ended 31 December 2019 Opening net book amount 35 – 35 Additions 494 – 494 Amortisation charge (69) (63) (132) Acquisition of subsidiaries (Note 34) – 20,090 20,090

Closing net book amount 460 20,027 20,487

As of 31 December 2019 Cost 535 20,090 20,625 Accumulated amortisation (75) (63) (138)

Net book amount 460 20,027 20,487

Year ended 31 December 2020 Opening net book amount 460 20,027 20,487 Additions 2,078 1,759 3,837 Amortisation charge (113) (290) (403)

Closing net book amount 2,425 21,496 23,921

As of 31 December 2020 Cost 2,613 21,849 24,462 Accumulated amortisation (188) (353) (541)

Net book amount 2,425 21,496 23,921

Amortisation of intangible assets has been charged to profit or loss in the consolidated statements of comprehensive income (Note 8) as follows:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Amortisation of intangible assets Cost of sales – 63 290 Administrative expenses 6 69 113

6 132 403

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Impairment testing of intangible asset not yet available for use

As of 31 December 2019 and 2020, the intangible asset relating to the BOT contracts acquired through acquisition of Yunxiao Sangde not yet available for use was approximately RMB14,039,000. The recoverable amount of this intangible asset was determined based on value-in-use calculations using cashflow projections based on financial budgets covering the service concession periods approved by the management. Management determined the budgets based on the service concession arrangements governing the relevant operations. The pre-tax discount rates applied to the cashflow projections, which reflected specific risks relating to the relevant operations, were 9.03% for 2019 and 8.72% for 2020. No impairment is considered necessary as of 31 December 2019 and 2020. Management believes that any reasonably possible changes to the key assumptions applied is not likely to lead to any impairment of the intangible asset.

The headroom of the intangible asset not yet available for use is set forth below:

As of As of 31 December 31 December 2019 2020 RMB’000 RMB’000

Headroom 18,208 31,925

Had the estimated key assumptions been changed as below, the headroom would be increase/(decrease) by:

As of As of 31 December 31 December 2019 2020 RMB’000 RMB’000

Pre-tax discount rates decreased by 0.5% 8,886 9,460 Pre-tax discount rates increased by 0.5% (8,650) (8,864) Wastewater treatment volume increased by 5% 3,409 3,498 Wastewater treatment volume increased by 5% (3,409) (3,498)

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The Company

BOT Software Contracts Total RMB’000 RMB’000 RMB’000

Year ended 31 December 2018 Opening net book amount – – – Additions 41 – 41 Amortisation charge (6) – (6)

Closing net book amount 35 – 35

As at 31 December 2018 Cost 41 – 41 Accumulated amortisation (6) – (6)

Net book amount 35 – 35

Year ended 31 December 2019 Opening net book amount 35 – 35 Additions 374 – 374 Amortisation charge (55) – (55)

Closing net book amount 354 – 354

As at 31 December 2019 Cost 415 – 415 Accumulated amortisation (61) – (61)

Net book amount 354 – 354

Year ended 31 December 2020 Opening net book amount 354 – 354 Additions 1,790 1,759 3,549 Amortisation charge (55) (36) (91)

Closing net book amount 2,089 1,723 3,812

As at 31 December 2020 Cost 2,205 1,759 3,964 Accumulated amortisation (116) (36) (152)

Net book amount 2,089 1,723 3,812

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Amortisation of intangible assets Cost of sales – – 36 Administrative expenses 6 55 55

65591

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18 OTHER NON-CURRENT ASSETS/OTHER CURRENT ASSETS

The Group

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Other non-current assets Value added tax to be deducted and certified – 4,060 35,103 Prepayment for property, plant and equipment – 3,177 892

– 7,237 35,995

The Group made prepayments for purchase of property, plant and equipment. The prepayments will be transferred to the relevant assets when the relevant title documents are obtained or when the assets are in use, whichever is the earlier.

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Other current assets Value added tax to be deducted and certified 4 5,399 3,769 Prepaid income tax – – 510

4 5,399 4,279

19 RECEIVABLES UNDER SERVICE CONCESSION ARRANGEMENTS

The Group

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Current portion – 4,757 5,182 Non-current portion – 35,861 40,212

– 40,618 45,394

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20 FINANCIAL INSTRUMENTS BY CATEGORY

The Group holds the following financial instruments:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Financial assets at amortised cost – Receivables under service concession arrangements (Note 19) – 40,618 45,394 – Trade and other receivables (Note 22) 44,758 84,183 159,776 – Restricted bank balances (Note 23) 189 2,360 11,714 – Cash and bank balances (Note 23) 105,345 156,573 87,405

Financial assets at fair value through profit or loss (Note 3.3) – – 33,513

150,292 283,734 337,802

(i) Financial liabilities at amortised cost

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Borrowings (Note 27) – 50,000 366,750 Lease liabilities (Note 28) 4,497 6,051 5,076 Trade and other payables excluding non-financial liabilities (Note 26) 21,118 202,959 197,444

25,615 259,010 569,270

21 INVENTORIES

The Group

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Raw materials 6,600 24,019 26,293 Work-in-progress 1,622 1,301 2,131 Finished goods 1,854 17,093 14,824

10,076 42,413 43,248

The costs of individual items of inventory are determined using weighted average costs at the end of the month. See Note 2.14 for the Group’s accounting policies for inventories.

For the three years ended 31 December 2018, 2019 and 2020, the cost of inventories recognised as expense and included in ‘cost of sales’, ‘selling expenses’, and ‘research and development expenses’ amounted to RMB35,571,000, RMB121,112,000 and RMB187,486,000 respectively.

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The Company

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Raw materials 6,600 7,387 13,744 Work-in-progress 1,622 – 1,043 Finished goods 1,854 3,783 2,274

10,076 11,170 17,061

22 TRADE, OTHER RECEIVABLES AND PREPAYMENTS

The Group

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade receivables 46,020 88,723 174,974 Provision for impairment (4,865) (11,373) (21,705)

41,155 77,350 153,269

Other receivables 3,905 7,697 7,732 Provision for impairment (302) (864) (1,225)

3,603 6,833 6,507

Prepayments

For purchase of raw materials 1,686 7,641 4,432 For purchase of finished products 511 – – For operating expenses 2,257 624 380 For [REDACTED] expenses [REDACTED][REDACTED][REDACTED]

4,454 13,558 24,699

Total trade, other receivables and prepayments 49,212 97,741 184,475

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(i) Ageing analysis of trade receivables

The ageing analysis of the trade receivables as of the balance sheet dates was as follows:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 1 year 29,152 58,524 146,113 1 and 2 years 15,898 16,202 11,738 2 and 3 years 860 12,624 7,739 Over 3 years 110 1,373 9,384

46,020 88,723 174,974

(ii) Impairment of trade receivables

The Group applies the simplified approach to provide for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provisions for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected credit losses also incorporate forward-looking information. As of 31 December 2018, 2019 and 2020, provisions of approximately RMB4,865,000, RMB11,373,000 and RMB21,705,000 were made against trade receivables, respectively.

The movements in provision for impairment of trade receivables are as follows:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

As of the beginning of the year 1,429 4,865 11,373 Provision for receivables impairment 3,436 6,508 10,332

As of the end of the year 4,865 11,373 21,705

(iii) Fair values of trade and other receivables

Due to the short-term nature of the trade receivables, their carrying amounts approximated their fair values as of the balance sheet dates and were denominated in RMB.

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The Company

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade receivables 43,423 82,276 233,119 Provision for impairment (4,255) (8,664) (18,084)

39,168 73,612 215,035

Other receivables 3,957 34,662 59,441 Provision for impairment – (312) (830)

3,957 34,350 58,611

Prepayments For purchase of raw materials and project payment 3,614 7,115 3,634 For operating expenses 312 261 313 For [REDACTED] expenses [REDACTED][REDACTED][REDACTED]

3,926 12,669 23,834

Total trade, other receivables and prepayments 47,051 120,631 297,480

23 CASH AND BANK BALANCES

The Group

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Cash and cash equivalent – Cash on hand 5 7 11 – Cash in banks 105,340 156,566 87,394

Restricted cash - Cash in banks 189 2,360 11,714

Total of cash and bank balances 105,534 158,933 99,119

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The Company

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Cash and cash equivalent – Cash in banks 104,777 111,054 58,545

Restricted cash - Cash in banks 189 2,358 11,714

Total of cash and bank balances 104,966 113,412 70,259

The restricted cash are deposits held at bank as deposit and pledged for issue of letters of guarantee of the Group and the Company.

As of 31 December 2018, 2019 and 2020, cash and cash equivalents and restricted bank balances of the Group and the Company are denominated in RMB.

24 SHARE CAPITAL

Nominal value of Number of ordinary Par value shares shares RMB ’000 RMB’000

At 1 January 2018 1 20,000 20,000 Issue of ordinary shares (a) 1 10,000 10,000

At 31 December 2018 1 30,000 30,000

At 1 January 2019 1 30,000 30,000 Capitalisation of reserves (b) 1 60,000 60,000

At 31 December 2019 1 90,000 90,000

At 1 January 2020 1 90,000 90,000 Issue of ordinary shares (c) 1 8,226 8,226

At 31 December 2020 1 98,226 98,226

(a) In 2018, 10,000,000 new shares of the Company with par value of RMB1 per share were issued for RMB89,000,000 in total. The excess of RMB79,000,000 (Note 25) over par value were credited to reserves.

(b) Pursuant to the resolution at the general meeting dated 1 June 2019 on the capitalisation of reserves, the Company converted capital reserve of RMB60,000,000 into 60,000,000 shares with par value of RMB1 per share.

(c) During the year ended 31 December 2020, an aggregate of 8,226,018 new shares of the Company with par value of RMB1 per share were issued for RMB62,600,000 in total. The excess of RMB54,373,982 (Note 25) over par value were credited to reserves.

(d) All shares issued rank pari passu with the then existing shares in issue.

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25 RESERVES

The Group

Capital Statutory Reserve reserves (Note 24) (a) Total RMB’000 RMB’000 RMB’000

At 1 January 2018 10,764 1,611 12,375 Issue of ordinary shares (Note 24) 79,000 – 79,000 Profit appropriation to statutory reserves – 2,711 2,711

At 31 December 2018 89,764 4,322 94,086

At 1 January 2019 89,764 4,322 94,086 Capitalisation of reserves (Note 24) (60,000) – (60,000) Profit appropriation to statutory reserves – 5,248 5,248

At 31 December 2019 29,764 9,570 39,334

At 1 January 2020 29,764 9,570 39,334 Issue of ordinary shares (Note 24) 54,374 – 54,374 Profit appropriation to statutory reserves – 8,822 8,822

At 31 December 2020 84,138 18,392 102,530

The Company

Capital Statutory Reserve reserves (Note 24) (a) Total RMB’000 RMB’000 RMB’000

At 1 January 2018 10,764 1,498 12,262 Issue of ordinary shares (Note 24) 79,000 – 79,000 Profit appropriation to statutory reserves – 2,711 2,711

At 31 December 2018 89,764 4,209 93,973

At 1 January 2019 89,764 4,209 93,973 Capitalisation of reserves (Note 24) (60,000) – (60,000) Profit appropriation to statutory reserves – 4,117 4,117

At 31 December 2019 29,764 8,326 38,090

At 1 January 2020 29,764 8,326 38,090 Issue of ordinary shares (Note 24) 54,374 – 54,374 Profit appropriation to statutory reserves – 8,361 8,361

At 31 December 2020 84,138 16,687 100,825

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(a) In accordance with the PRC Company Law and the articles of association of the PRC companies of the Group (the “PRC Companies”), the PRC Companies are required to allocate 10% of their profits attributable to the respective owners of the PRC Companies as set out in their statutory financial statements, to the statutory surplus reserve until such reserve reaches 50% of the registered capital of the respective PRC Companies. The appropriation to the reserve must be made before any distribution of dividends to the respective owners of the PRC Companies. The statutory surplus reserve can be used to offset previous year’s losses, if any, and part of the statutory surplus reserve can be capitalised as the share capital of the respective PRC Companies provided that the amount of such reserve remaining after the capitalisation shall not be less than 25% of the share capital of the respective PRC Companies.

26 TRADE AND OTHER PAYABLES

The Group

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade payables 13,519 82,284 179,250 Amounts due to related parties (Note 35) – 100,433 54 Employee benefit payables 5,212 21,227 24,881 Other taxes payable excluding income tax liabilities 4,880 17,601 15,192 Payables for wastewater treatment projects 7,110 3,985 3,700 Payables to non-controlling interests of subsidiaries – 5,268 2,871 Payables for [REDACTED] expenses [REDACTED][REDACTED][REDACTED] Payables for acquisition of subsidiaries (Note 34) – 2,596 2,596 Payables for operating expenses 145 1,816 4,956 Payables for purchase of property, plant and equipment – 484 647 Payables for overdue tax payment surcharges – 458 – Others 344 902 193

31,210 241,787 237,517

The ageing analysis of trade payables as of 31 December 2018, 2019 and 2020 was follows:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 1 year 12,367 80,257 176,614 1 and 2 years 1,143 999 2,146 2 and 3 year 9 1,019 185 Over 3 year – 9 305

13,519 82,284 179,250

The carrying amounts of trade and other payables are considered to be the same as their fair values due to their short-term nature.

The carrying amounts of the Group’s trade and other payables are all denominated in RMB.

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The Company

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade payables 13,195 75,446 175,286 Amounts due to related parties – Non-trade 377 131,225 46,018 Employee benefit payables 5,197 15,906 19,179 Other taxes payable excluding income tax liabilities 4,451 16,689 14,872 Payables for wastewater treatment projects 7,110 3,985 3,700 Payables for [REDACTED] expenses [REDACTED][REDACTED][REDACTED] Payables for acquisition of subsidiaries – 2,596 2,596 Payables for operating expenses 145 843 2,265 Payable for purchase of property, plant and equipment – – 412 Payables for overdue tax payment surcharges – 458 – Others 265 121 166

30,740 252,002 267,671

27 BORROWINGS

The Group and the Company

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000 Non- Non- Non- Current current Total Current current Total Current current Total Bank loans – secured –––––––155,050 155,050 – unsecured – – – 50,000 – 50,000 211,700 – 211,700

Total – – – 50,000 – 50,000 211,700 155,050 366,750

As of 31 December 2020, the bank loan amounted to RMB155,050,000 borrowed by Yunxiao Sangde Water Affair Co., Ltd. was secured by the Company.

As of 31 December 2019 and 31 December 2020, the weighted average of effective interest rates (per annum) of borrowings were 4.35% and 4.19%, respectively.

(i) Repayment periods

As of 31 December 2018, 2019 and 2020, the Group’s borrowings were repayable as follows:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 1 year – 50,000 211,700 Between 1-2 years – – 23,540 Between 2-5 years – – 70,620 Over 5 years – – 60,890

– 50,000 366,750

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28 LEASE LIABILITIES

The Group

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000 Non- Non- Non- Current current Total Current current Total Current current Total

Lease liabilities 1,064 3,433 4,497 1,874 4,177 6,051 1,829 3,247 5,076

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Leases are payable within one year 1,247 2,069 2,008 Later than 1 year but within 2 years 836 1,598 1,314 Later than 2 years but within 5 years 2,448 2,943 2,204 Over 5 years 540 – –

5,071 6,610 5,526

Future finance charges (574) (559) (450)

Total lease liability 4,497 6,051 5,076

Within one year 1,064 1,874 1,829 Later than 1 year but within 2 years 690 1,433 1,182 Later than 2 years but within 5 years 2,212 2,744 2,065 Over 5 years 531 – –

Minimum lease payments 4,497 6,051 5,076

The Company

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000 Non- Non- Non- Current current Total Current current Total Current current Total

Lease liabilities 1,064 3,433 4,497 1,162 3,746 4,908 1,189 2,744 3,933

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As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Leases are payable within one year 1,247 1,318 1,351 Later than 1 year but within 2 years 836 1,161 1,091 Later than 2 years but within 5 years 2,448 2,943 1,852 Over 5 years 540 – –

5,071 5,422 4,294

Future finance charges (574) (514) (361)

Total lease liability 4,497 4,908 3,933

Within one year 1,064 1,162 1,189 Later than 1 year but within 2 years 690 1,002 979 Later than 2 years but within 5 years 2,212 2,744 1,765 Over 5 years 531 – –

Minimum lease payments 4,497 4,908 3,933

There is no term in respect of variable lease payments or residual value guarantees in the lease contracts.

Extension and termination options are included in a number of leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

29 DEFERRED INCOME TAX

The Group

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Deferred income tax assets 1,196 12,620 13,665 Deferred income tax liabilities – (14,480) (14,276)

1,196 (1,860) (611)

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset when the deferred income taxes relate to the same tax jurisdiction. The net deferred income taxes balance after offsetting were as follows:

Deferred income tax assets – net 1,196 2,967 3,928 Deferred income tax liabilities - net – (4,827) (4,539)

1,196 (1,860) (611)

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(a) Deferred income tax assets

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

The balance comprises temporary differences attributable to: Accrued employee benefits 243 1,331 1,174 Provision of loss allowance 864 1,587 3,173 Provision of warranties 89 290 268 Elimination of intra-group unrealised profit – – 12 Revaluation deficit arising from acquisition of subsidiaries – 9,412 9,038

1,196 12,620 13,665

The movements in deferred income tax assets are as follows:

Revaluation Elimination deficit of arising from Accrued Provision of intra-group acquisition employee loss Provision of unrealised of benefits allowance warranties profit subsidiaries Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2018 211 229 16 – – 456 Credited/(charged) to the income statement 32 635 73 – – 740

At 31 December 2018 243 864 89 – – 1,196 Acquisition of subsidiaries 754 131 – – 9,505 10,390 Credited/(charged) to the income statement 334 592 201 – (93) 1,034

At 31 December 2019 1,331 1,587 290 – 9,412 12,620

Credited/(charged) to the income statement (157) 1,586 (22) 12 (374) 1,045

At 31 December 2020 1,174 3,173 268 12 9,038 13,665

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(b) Deferred income tax liabilities

The movements in deferred income tax liabilities are as follows:

Fair value appreciation arising from acquisition of subsidiaries RMB’000

At 1 January 2018 and 31 December 2018 – Acquisition of subsidiaries 15,290 Credited to the income statement (810)

At 31 December 2019 14,480

Credit to the income statement (204)

At 31 December 2020 14,276

The Company

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Deferred income tax assets 1,250 2,254 3,719

(a) Deferred income tax assets

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

The balance comprises temporary differences attributable to: Accrued employee benefits 243 534 594 Provision of loss allowance 918 1,430 2,857 Provision of warranties 89 290 268

1,250 2,254 3,719

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The movements in deferred income tax assets are as follows:

Accrued Provision Provision employee of loss of benefits allowance warranties Total RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2018 211 283 16 510 Credited/(charged) to the income statement 32 635 73 740

At 31 December 2018 243 918 89 1,250 Credited/(charged) to the income statement 291 512 201 1,004

At 31 December 2019 534 1,430 290 2,254 Credited/(charged) to the income statement 60 1,427 (22) 1,465

At 31 December 2020 594 2,857 268 3,719

30 PROVISIONS

The Group

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Warranties 596 1,933 1,786 Others – 150 –

596 2,083 1,786

The Company

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Warranties 596 1,933 1,786

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31 CASH FLOW INFORMATION

(a) Cash generated from/(used in) operations

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Profit before income tax 29,494 68,825 96,930 Adjustments for – Depreciation of property, plant and equipment (Note 15) 870 4,028 5,722 – Amortisation of right-of-use asset (Note 16) 1,428 1,637 2,066 – Amortisation of intangible assets (Note 17) 6 132 403 – Amortisation of land use rights (Note 14) – 598 731 – Provision of loss allowance 4,842 6,242 10,467 – Losses on disposal of property, plant and equipment (Note 7) 55 179 56 – Gains on disposal of financial assets at fair value through profit or loss (Note 7) (114) (703) (887) – Gains from changes in fair value of financial assets at fair value through profit or loss (Note 7) – – (13) – Negative goodwill gained from acquisition (Note 7) – (12,365) – – Share of net loss/(profit) of an associate accounted for using the equity method (Note 38) – 244 (26) – Finance expenses 240 3,886 8,640 Changes in working capital: – Increase in restricted cash (12) (2,171) (9,354) – Decrease/(increase) in inventories 5,106 12,223 (835) – Increase in trade, other receivables and prepayments (16,399) (48,399) (82,833) – Increase in contract assets (30,082) (127,327) (347,700) – Increase/(decrease) in contract liabilities 95 (346) 288 – Increase in receivables under service concession arrangement – (770) (4,776) – Increase in trade and other payables 20,497 93,560 99,145 – (Increase)/decrease in other current assets (4) 1,701 1,629 – Increase in other non-current assets – (4,060) (31,043) – Others 489 1,488 (297)

Net cash (used in)/generated from operations 16,511 (1,398) (251,687)

(b) Proceeds from disposal of property, plant and equipment

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Net book amount (Note 15) 60 179 61 Losses on disposal (Note 7) (55) (179) (56)

Proceeds from disposal of property, plant and equipment 5 – 5

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Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Net book amount – 71 – Losses on disposal – – –

Proceeds from disposal of subsidiaries – 71 –

(d) Reconciliation of liabilities arising from financing activities

Amounts Leases due Borrowings Borrowings due to within Leases due due within due over related 1 year after 1 year 1 year 1 year parties Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Total debt as of 1 January 2018 1,316 4,447 – – – 5,763

Cash flows – principal (1,316) – – – – (1,316) Cash flows – interest (240) – – – – (240) Increase of lease liabilities 16 34 – – – 50 Accrual interests 240 – – – – 240 Other non-cash movement 1,048 (1,048) ––––

Total debt as of 31 December 2018 and 1 January 2019 1,064 3,433 – – – 4,497

Cash flows – principal (1,445) – 50,000 – 100,000 148,555 Cash flows – interest (210) – (57) – (3,186) (3,453) Increase of lease liabilities 1,567 1,434 – – – 3,001 Disposal of lease liabilities (2) – – – – (2) Accrual interests 210 – 57 – 3,619 3,886 Other non-cash movements 690 (690) ––––

Total debt as of 31 December 2019 and 1 January 2020 1,874 4,177 50,000 – 100,433 156,484

Cash flows – principal (1,944) – 161,700 155,050 (100,000) (214,806) Cash flows – interest (226) – (5,424) – (2,846) (8,496) Increase of lease liabilities 465 504 – – – 969 Disposal of lease liabilities – – –––– Accrual interests 226 – 6,001 – 2,413 8,640 Other non-cash movements 1,434 (1,434) ––––

Total debt as of 31 December 2020 1,829 3,247 212,277 155,050 – 372,403

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(e) Major non-cash transactions

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Right-of-use assets with the corresponding amount of lease liabilities recognised 50 3,001 969

32 COMMITMENTS

(a) Capital commitments

Significant capital expenditure commitments are set out below:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Contracted but not recognised as liabilities: Property, plant and equipment 133 731 640

(b) Non-cancellable operating leases

The Group leases certain apartments under operating lease agreements for the employees. The Group has future aggregate minimum lease payments in respect of the apartments under short-term operating leases as follows:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

No later than 1 year 256 52 469

33 ASSETS PLEDGED AS SECURITY

There are not assets pledged as security.

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34 ACQUISITION OF SUBSIDIARIES

(a) Summary of acquisition

On 15 March 2019, the Company acquired 60% of the equity interest in QuanZhou Xingyuan New Material Technology Co., Ltd. (“Quanzhou Xingyuan”), a company that produces and sells pipes and pipe fittings. As the acquisition qualified as a major acquisition during the Track Record Period, additional financial information of Quanzhou Xingyuan for the pre-acquisition period is present in Part IV of this accountant’s report. The acquired business contributed approximately revenue of RMB115,437,000 and net profit of RMB10,279,000 to the Group for the period from 15 March 2019 to 31 December 2019. If the acquisition had occurred on 1 January 2019, consolidated revenue and net profit for year ended 31 December 2019 would have been approximately RMB126,985,000 and RMB11,791,000 respectively. These amounts have been calculated using the subsidiary’s result and adjusting them for differences in the accounting policies between the Group and the subsidiary, and additional depreciation and amortisation that would have been charged assuming the fair value adjustments to the property, plant and equipment and intangible assets had applied from 1 January 2019, together with the consequential tax effects. For the acquisition, the Group has a negative goodwill of approximately RMB12,365,000 which represents the excess of fair value of net assets acquired over the purchase consideration. Gains arising from negative goodwill were mainly because of the fact that the seller had the intention to exit from his investment in Quanzhou Xingyuan due to his age, his living overseas and the consideration settlement was offered in lump-sum in cash. Details of the purchase consideration, the net assets acquired and negative goodwill are as follows.

On 27 September 2019, the Company acquired 90% of the equity interests in Fujian Lvdi Water Co., Ltd. (“Fujian Lvdi”) and Yongchun Lvdi Water Co., Ltd. (“Yongchun Lvdi“) respectively, which provide wastewater treatment operation services under BOT model. The acquired businesses contributed approximately revenues of RMB765,353 and net profit of RMB17,429 to the Group for the period from 27 September 2019 to 31 December 2019. Details of the purchase consideration, the net assets acquired are as follows.

On 29 November 2019, the Company acquired 85% of the equity interest in Yunxiao Sangde Water Affair Co., Ltd. (“Yunxiao Sangde”), a company which engaged in engineering construction under BOT model. Details of the purchase consideration and the net assets acquired are as follows.

Fujian Lvdi and QuanZhou Yongchun Yunxiao Xingyuan Lvdi Sangde RMB’000

Purchase consideration (refer to (b) below): Total cash payable 76,800 12,978 12,283

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The assets and liabilities as of acquisition dates recognised as a result of the acquisition are as follows:

Fair Value Fujian Lvdi and QuanZhou Yongchun Yunxiao Xingyuan Lvdi Sangde RMB’000 RMB’000 RMB’000

Land use rights 26,399 – – Property, plant and equipment 25,279 775 10 Intangible assets – 6,051 14,039 Receivables under service concession arrangements – 39,848 – Deferred tax assets – 845 – Other non-current assets 28 – – Inventories 44,560 – – Other current assets 7,096 – – Trade and other receivables 16,212 56 1 Cash and bank balances 13,165 1,861 414 Financial assets at fair value through profit or loss 30,043 – – Trade and other payables (8,307) (30,930) (13) Deferred tax liabilities (5,745) – – Borrowings – (3,500) – Provisions – (586) – Current income tax liabilities (121) – –

Total net identifiable assets 148,609 14,420 14,451 Less: non-controlling interest (59,444) (1,442) (2,168)

Net identifiable assets acquired 89,165 12,978 12,283

Less: negative goodwill (12,365) – –

Purchase consideration 76,800 12,978 12,283

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(b) Purchase consideration – cash outflow

Fujian Lvdi and QuanZhou Yongchun Yunxiao Xingyuan Lvdi Sangde Total RMB’000 RMB’000 RMB’000 RMB’000

Cash outflow to acquire subsidiary, net of cash acquired Cash paid 76,800 10,382 12,283 99,465 Less: cash and bank balances acquired (13,165) (1,861) (414) (15,440)

Net outflow of cash – investing activities 63,635 8,521 11,869 84,025

35 RELATED PARTY TRANSACTIONS

(a) Related parties of the Company and the Group

Name of related parties Relationship

Haisi Environmental Technology Co., Ltd. The parent company Fujian Jianghai Engineering Management Co., A company controlled by the Controlling Ltd. Shareholder Quanzhou Water Conservancy Electricity A company controlled by the Controlling Engineering Co., Ltd. Shareholder Quanzhou Water Engineering Construction A company controlled by the Controlling Group Co., Ltd. Shareholder Quanzhou Water Direct Drinking Water A company controlled by the Controlling Technology Co., Ltd. Shareholder Site Supervision Branch of Quanzhou Water A company controlled by the Controlling Engineering Construction Group Co., Ltd. Shareholder Landscape Engineering Branch of Quanzhou A company controlled by the Controlling Water Engineering Construction Group Co., Shareholder Ltd. Quanzhou Water Supply Co., Ltd. A company controlled by the Controlling Shareholder Quanzhou Taiwanese Investment Zone Water A company controlled by the Controlling Supply Co., Ltd. Shareholder Quanzhou Wurong Water Development Co., Ltd. A company controlled by the Controlling Shareholder Haisi iReady Digital Technology Co., Ltd. A company controlled by the Controlling Shareholder Fujian Jinjiang Dongshi Water Supply Co., Ltd. A company significantly influenced by the Controlling Shareholder Fujian Zhonghai Qingyuan Technology Co., Ltd. A company significantly influenced by the Controlling Shareholder Quanzhou Jinpu Water Supply Co., Ltd. A company significantly influenced by the Controlling Shareholder

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(b) Transactions with related parties

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

– 40,027 56,291

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

– 5,419 777

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Loans received Haisi Environmental Technology Co., Ltd. – 100,000 –

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Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000 (Unaudited)

Loans repaid Haisi Environmental Technology Co., Ltd. – – 100,000

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Interest expenses Haisi Environmental Technology Co., Ltd. – 3,619 2,413

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

– 7,107 13,899

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As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

– 168 442

– 1,343 535

Amounts due to related parties – Non-Trade Haisi Environmental Technology Co., Ltd. (i)(ii) – 100,348 – Quanzhou Water Engineering Construction Group Co., Ltd. (ii) –5034 Quanzhou Water Conservancy Electricity Engineering Co., Ltd. (ii) –35– Fujian Jianghai Engineering Management Co., Ltd. – – 20

– 100,433 54

(i) As of 31 December 2019, the loan from Haisi Environmental Technology Co., Ltd. amounting to RMB100,000,000 bearing an effective interest rate of 6.99% per annum, is unsecured and repayable on demand. The interest payable is approximately RMB230,000 as of 31 December 2019. This loan has been fully repaid during year ended 31 December 2020.

(ii) All outstanding balance of amounts due to related parties will be repaid upon [REDACTED].

(d) Key management compensation

Key management includes directors (executive and non-executive), executive officers, the compensation paid or payable to key management for employee services is as follows:

Year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Salaries and bonus 2,817 5,116 6,103 Other benefits 146 148 172

2,963 5,264 6,275

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36 BENEFITS AND INTERESTS OF DIRECTORS

Year ended 31 December 2018 Other Name of Directors Salary Bonus Benefits Total

Chairman: Lan Qiang (b) 140 868 36 1,044 Huang Jinshun (b) ––––

Executive directors: Lan Qiang (b) 100 620 26 746 Lin Hongquan 215 687 54 956

Non-executive directors: Lan Xiong (c) –––– Song Yuhai (c) –––– Meng Fansheng (c) –––– Fan Wenbo (c) –––– Lin Yuanxin (c) ––––

455 2175 116 2,746

(b) In 2018 Lan Qiang was the chairman prior to 25 July. On 25 July 2018, Huang Jinshun was appointed as the chairman and Lan Qiang remained the director.

(c) On 25 July 2018, Fan Wenbo and Lin Yuanxin were appointed as the directors to replace Lan Xiong, Song Yuhai and Meng Fansheng.

Year ended 31 December 2019 Other Name of Directors Salary Bonus Benefits Total

Chairman: Huang Jinshun ––––

Executive directors: Lan Qiang 269 2,941 61 3,271 Lin Hongquan 245 1,355 56 1,656

Non-executive directors: Fan Wenbo –––– Lin Yuanxin (d) –––– Huang Dongsheng (d) ––––

514 4,296 117 4,927

(d) On 16 December 2019, Huang Dongsheng was appointed as the director to replace Lin Yuanxin.

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Year ended 31 December 2020 Other Name of Directors Salary Bonus Benefits Total

Chairman: Huang Jinshun ––––

Executive directors: Lan Qiang 269 1,600 34 1,903 Lin Hongquan 245 1,137 33 1,415 Huang Xiaohui (e) 100 153 14 267

Non-executive directors: Fan Wenbo (e) –––– Huang Dongsheng ––––

614 2,890 81 3,585

(e) On 16 July 2020, Huang Xiaohui was appointed as the director to replace Fan Wenbo.

37 INVESTMENTS IN SUBSIDIARIES – THE COMPANY

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Investment in subsidiaries – at cost, unlisted 4,000 148,461 288,858

As of 31 December 2018, 2019 and 2020, the Company had the following subsidiaries (including direct and indirect held):

Registered and Effective interest held as of Date of Place of paid-in capital 31 December Directly/ Name of subsidiaries incorporation establishment (RMB) 2018 2019 2020 indirectly held

Quanzhou Xingyuan New Material 21 September Fujian, China 128,452,651 Note 34 60% 60% Directly Technology Co., Ltd. 泉州興源新材料科技 1994 有限公司

Yongchun Lvdi Water Co., Ltd. 30 November Fujian, China 10,100,000 Note 34 90% 90% Directly 永春縣綠地水務有限公司 2012

Fujian Lvdi Water Co., Ltd. 29 October Fujian, China 10,000,000 Note 34 90% 90% Directly 福建綠地水務有限公司 2013

Fuzhou Lanshen Environmental 23 March Fujian, China Register capital 100% 100% 100% Directly Technology Services Co., Ltd. 福州藍深環 2004 20,000,000 保技術服務有限公司 Paid-in capital 500,000

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Registered and Effective interest held as of Date of Place of paid-in capital 31 December Directly/ Name of subsidiaries incorporation establishment (RMB) 2018 2019 2020 indirectly held

Hainan Lanshen Environmental 5 November Hainan, Registered capital 100% 100% 100% Directly Engineering Co., Ltd. 2015 China 10,000,000.00 海南藍深環境工程有限公司 Paid-in capital 3,300,000

Beijing Lanshen Environmental 25 November Beijing, Registered capital 100% 100% 100% Directly Technology Co., Ltd. 2015 China 10,000,000 北京藍深環保技術有限公司 Paid-in capital 100,000

Guangdong Shenlan Environmental 8 January Guangdong, Registered capital 100% Note (a) Note (a) Directly Technology Co., Ltd. 2016 China 10,000,000 廣東深藍環保技術有限公司 Paid-in capital 360,000

Jiangxi Lanshenlan Environmental 9 January Jiangxi, Registered capital 100% Note (a) Note (a) Directly Technology Co., Ltd. 江西藍深蘭環保技術 2017 China 10,000,000 有限公司 Paid-in capital 100,000

Beijing Lanshen Environmental 16 February Beijing, Registered capital Note (a) Note (a) Note (a) Indirectly Technology Development Institute Co., 2017 China 10,000,000 Ltd. 北京藍深環保技術開發研究院 No paid-in 有限公司 capital

Yunxiao Sangde Water Affair Co., Ltd. 4 May 2018 Fujian, China Registered capital Note 34 85% 85% Directly 雲霄桑德水務有限公司 250,000,000 Paid-in capital 182,606,700

Quanzhou Lanshen Environmental 16 December Fujian, China Registered capital Note (b) 70% 70% Directly Research Institute Co., Ltd. 泉州藍深環保 2019 10,000,000 研究院有限公司 Paid-in capital 1,000,000

(a) The Group cancelled the registration of Beijing Lanshen Environmental Technology Development institute Co., Ltd., Jiangxi Lanshenlan Environmental Technology Co., Ltd. and Guangdong Shenlan Environmental Technology Co., Ltd. in 2018, 2019 and 2019 respectively.

(b) Quanzhou Lanshen Environmental Research Institute Co., Ltd. was established in December 2019.

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(c) The total non-controlling interest in respect of the subsidiaries as of 31 December 2018, 2019 and 2020 are as follows:

As of 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Quanzhou Xingyuan New Material Technology Co., Ltd. (i) – 62,770 64,092 Yunxiao Sangde Water Affair Co., Ltd. – 2,168 2,167 Yongchun Lvdi Water Co., Ltd. – 686 720 Fujian Lvdi Water Co., Ltd. – 738 699 Quanzhou Lanshen Environmental Research Institute Co., Ltd. – – 220

– 66,362 67,898

(i) Set out below is summarised financial information for Quanzhou Xingyuan New Material Technology Co., Ltd. that has non-controlling interests that are material to the Group. The amounts disclosed are before inter-company eliminations.

Summarised balance sheets

As of As of 31 December 31 December 2019 2020 RMB’000 RMB’000

Current assets 125,213 123,229 Current liabilities (16,633) (15,726) Current net assets 108,580 107,503

Non-current assets 53,976 57,926 Non-current liabilities (5,632) (5,199) Non-current net assets 48,344 52,727

Net assets 156,924 160,230

Accumulate NCI 62,770 64,092

Summarised statements of comprehensive income

For the period from 15 March 2019 to Year ended 31 31 December December 2019 2020 RMB’000 RMB’000

Revenue 115,437 89,284 Profit for the period 8,315 3,306 Other comprehensive income – –

Total comprehensive income 8,315 3,306

Profit/(loss) allocated to NCI 3,326 1,322

Dividends paid to NCI ––

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38 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

RMB’000

As of 1 January 2018 and 2019 – Additions during 2019 1,700 Share of net loss of 2019 (244)

As of 31 December 2019 and 1 January 2020 1,456

Share of net gain during 2020 27

As of 31 December 2020 1,483

In 2019, the Group invested RMB1,700,000 in Quanzhou Water Quality Testing Co., Ltd., acquired 17% of the equity.

The particulars of the associate of the Group as of 31 December 2020, which is accounted for using equity method, are set out as follows:

Place of business Percentage of and date of ownership Nature of Measurement Name of entity establishment interest relationship method

Quanzhou Water Quality Mainland China 17.00% Associate Equity method Testing Co., Ltd. 8 February 2018

The Group appointed a director to and had significant influence on the decision-making of Quanzhou Water Quality Testing Co., Ltd.

The Directors of the Company consider that the associate as of 31 December 2020 was immaterial to the Group and thus the individual financial information of the associate was not disclosed.

39 CONTINGENCIES

As of 31 December 2018, 2019 and 2020, there were no significant contingencies items for the Group and the Company.

40 EVENTS AFTER THE BALANCE SHEET DATE

There are no other material subsequent events undertaken by the Company or by the Group after 31 December 2020.

III SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or any of the companies now comprising the Group in respect of any period subsequent to 31 December 2020 and up to the date of this report. No dividend or distribution has been declared or made by the Company or any of the companies now comprising the Group in respect of any period subsequent to 31 December 2020.

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IV ADDITIONAL FINANCIAL INFORMATION OF QUANZHOU XINGYUAN NEW MATERIAL TECHNOLOGY CO., LTD FOR THE PRE-ACQUISITION PERIOD

Quanzhou Xingyuan New Material Technology Co., Ltd. (“Xingyuan Company”) was acquired by the Group in March 2019. Following is the financial information of Xingyuan Company for the two years ended 31 December 2018 and the period ended 15 March 2019 (also being the pre-acquisition period from 1 January 2018 to 15 March 2019).

A. Statements of comprehensive income

Year ended 31 December Period ended 15 March Note 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

Revenue X1 93,689 13,728 11,548 Cost of sales X1, X4 (76,351) (11,243) (8,828)

Gross profit 17,338 2,485 2,720 Other income X2 20–– Other (losses)/gains – net X3 158 78 31 Net impairment losses on financial assets 996 1,093 512 Selling expenses X4 (5,689) (1,171) (711) Administrative expenses X4 (4,283) (706) (657) Research and development costs X4 (1,851) (369) (1,355)

Operating profit 6,689 1,410 540

Finance income X6 46 30 67 Finance costs X6 (14) (2) (3)

Finance income – net X6 32 28 64

Profit before income tax 6,721 1,438 604

Income tax expense X7 (1,746) (360) (123)

Profit and total comprehensive income for the year 4,975 1,078 481

Profit is attributable to: Owners of the Company 4,975 1,078 481 Non-controlling interests – – –

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B. Balance sheets

As of 31 As of December 15 March Note 2018 2019 RMB’000 RMB’000

Assets

Non-current assets Land use rights X10 9,317 9,263 Property, plant and equipment X11 18,905 18,596 Deferred income tax assets X20 1,008 885 Other non-current assets X14 28 28

29,258 28,772

Current assets Inventories X13 34,803 41,858 Other current assets 6,408 7,096 Trade, other receivables and prepayments X15 20,317 16,210 Cash and bank balances X16 47,136 13,165 Financial assets at fair value through profit or loss X9 – 30,043

108,664 108,372

Total assets 137,922 137,144

Equity

Equity attributable to owners of the Company Paid-in Capital X17 128,453 128,453 Reserves X18 952 952 Accumulated losses (1,169) (688)

Total equity 128,236 128,717

Liabilities

Current liabilities Trade and other payables X19 8,901 7,436 Contract liabilities 242 870 Current income tax liabilities 543 121

Total liabilities 9,686 8,427

Total equity and liabilities 137,922 137,144

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C. Statements of changes in equity

Paid-in capital Reserves Accumulated Note (Note X17) (Note X18) losses Total equity RMB’000 RMB’000 RMB’000 RMB’000

As of 1 January 2018 128,453 952 (152) 129,253

Comprehensive income Profit for the year – – 4,975 4,975

Total comprehensive income – – 4,975 4,975

Transactions with owners Dividends declared X8 (5,992) (5,992)

Total transactions with owners – – (5,992) (5,992)

As of 31 December 2018 128,453 952 (1,169) 128,236

As of 1 January 2019 128,453 952 (1,169) 128,236

Comprehensive income Profit for the period – – 481 481

Total comprehensive income – – 481 481

As of 15 March 2019 128,453 952 (688) 128,717

(Unaudited) As of 1 January 2018 128,453 952 (152) 129,253

Comprehensive income Profit for the period – – 1,078 1,078

Total comprehensive income – – 1,078 1,078

Transactions with owners Dividends declared – – (5,992) (5,992)

Total transactions with owners – – (5,992) (5,992)

As of 15 March 2018 128,453 952 (5,066) 124,339

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D. Statements of cash flows

Year ended 31 December Period ended 15 March Note 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

Cash flows from operating activities Cash generated/(used in) from operations 1,508 3,706 (3,383) Income tax paid (1,746) (140) (422)

Net cash generated from/ (used in) operating activities (238) 3,566 (3,805)

Cash flows from investing activities Purchases of property, plant and equipment (1,183) (6) (166) Purchases of financial assets at fair value through profit or loss (30,300) (20,000) (30,000) Proceeds from financial assets at fair value through profit or loss 30,505 30 – Proceeds from disposal of property, plant and equipment – – –

Net cash used in investing activities (978) (19,976) (30,166)

Cash flows from financing activities

Amounts received from related parties 35,919 – – Dividends paid (5,992) – –

Net cash used in financing activities 29,927 – –

Net increase/(decrease) in cash and cash equivalents 28,711 (16,410) (33,971) Cash and cash equivalents at beginning of year/period 18,425 18,425 47,136

Cash and cash equivalents at end of year/period 47,136 2,015 13,165

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X1 REVENUE AND COST OF SALES

Year ended 31 December Period ended 15 March 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

Sales to customers – Recognised at a point in time 93,689 13,728 11,548 Cost of sales (76,351) (11,243) (8,828)

Gross profit 17,338 2,485 2,720

X2 OTHER INCOME

Year ended 31 December Period ended 15 March 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

Government grants – Received and recognised during the year/period – – – Others 20 – –

20 – –

X3 OTHER (LOSSES)/GAINS – NET

Year ended 31 December Period ended 15 March 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

Losses on disposal of property, plant and equipment - net (46) – (12) Gains from changes in fair value of financial assets at fair value through profit or loss – 49 43 Gains on financial assets at fair value through profit or loss 205 30 – Other losses (1) (1) –

158 78 31

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X4 EXPENSES BY NATURE

The expenses charged to cost of sales, selling expenses and administrative expenses are analysed below:

Year ended 31 December Period ended 15 March 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

Raw materials and consumables used 69,643 13,960 8,865 Changes in inventories of finished goods and work in progress (2,873) (4,574) (1,189) Employee benefit expenses (Note X5) 11,014 1,776 1,955 Electricity and water expenses 3,369 709 821 Depreciation expenses (Note X11) 2,429 518 462 Amortisation expenses (Notes X10) 261 54 54 Transportation and loading costs 1,407 478 98 Other taxes and levies 1,122 210 191 Traveling expenses 165 15 28 Operating lease expenses 130 32 24 Office expenses 347 71 36 Installation and maintenance expenses 383 78 53 Business entertainment expenses 213 40 17 Auditor’s remuneration 26 – 50 Others 538 122 86

Total 88,174 13,489 11,551

X5 EMPLOYEE BENEFIT EXPENSES

Year ended 31 December Period ended 15 March 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

Salaries, wages and bonuses 9,406 1,598 1,631 Pension, housing fund, medical insurance and other social insurance 710 146 232 Others 898 32 92

Total employee benefit expenses 11,014 1,776 1,955

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X6 FINANCE INCOME - NET

Year ended 31 December Period ended 15 March 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

Finance income – Interest income on bank deposits 46 30 67

Finance costs – Bank charges and others (14) (2) (3)

Finance income - net 32 28 64

X7 INCOME TAX EXPENSE

This note provides an analysis of Xingyuan Company’s income tax expense, shows how the income tax expense is affected by non-assessable and non-deductible items. It also explains significant estimates made in relation to the Xingyuan Company’s tax position.

Year ended 31 December Period ended 15 March 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

Current income tax 1,422 70 – Deferred income tax (Note X20) 324 290 123

Income tax expense 1,746 360 123

The tax on Xingyuan Company profit before income tax differs from the theoretical amount that would arise using the tax rate applicable to profits of the entities is as follows:

Year ended 31 December Period ended 15 March 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

Profit before income tax 6,721 1,438 604

Tax calculated at the applicable statutory tax rates in the respective regions 1,680 360 151 Adjustment for tax effect of: – Deduction of research and development expenses – – (242) – Expenses not deductible for tax purpose 26 – 2 – Tax losses for which no deferred income tax asset was recognised – – 212 – Others 40 – –

Tax charge 1,746 360 123

The applicable tax rate 25% 25% 25%

The effective income tax rate 26% 25% 20%

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X8 DIVIDENDS

On 14 March 2018, a dividend of approximately RMB5,992,000 was declared to shareholders of Xingyuan Company. The amount of dividends was decided based on the retained earnings as of 31 December 2017 available for distribution under relevant regulations on the management accounts. The dividends were presented as dividends provided for or paid to the shareholders in the statements of changes in equity.

Other than the above, no dividend was paid or declared by Xingyuan Company during the year ended 31 December 2018 and the period ended 15 March 2019.

X9 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

Current assets Structured bank deposits – 30,043

This represented the investment in a structured bank deposit issued by a commercial bank. This product has a term of 40 days and has an expected annual return rate ranging from 3.55% to 3.65%.

X10 LAND USE RIGHTS

Year ended 31 Period ended December 15 March 2018 2019 RMB’000 RMB’000

Land use rights

As of the beginning of the year/period Cost 13,067 13,067 Accumulated amortisation (3,489) (3,750)

Net book amount 9,578 9,317

Opening net book amount 9,578 9,317 Amortisation (Notes X4) (261) (54)

Closing net book amount 9,317 9,263

As of the end of the year/period Cost 13,067 13,067 Accumulated amortisation (3,750) (3,804)

Net book amount 9,317 9,263

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Amortisation of the land use rights was included in the following categories in the statements of comprehensive income:

Year ended 31 Period ended December 15 March 2018 2019 RMB’000 RMB’000

Administrative expenses 261 54

X11 PROPERTY, PLANT AND EQUIPMENT

Year ended 31 December 2018 Opening net book amount 7,620 11,327 687 266 – 325 20,225 Additions – 839 307 – 9 – 1,155 Transferred from construction in progress – 9 – – (9) – – Disposals – (17) (3) (26) – – (46) Depreciation charge (613) (1,533) (181) – – (102) (2,429)

Closing net book amount 7,007 10,625 810 240 – 223 18,905

At 31 December 2018 Cost 21,428 80,758 2,149 2,406 – 890 107,631 Accumulated depreciation (14,421) (70,133) (1,339) (2,166) – (667) (88,726)

Net book amount 7,007 10,625 810 240 – 223 18,905

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Vehicles and Factory office Production device and furniture Leasehold Buildings machineries equipment and fixtures improvement Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Year ended 15 March 2019 Opening net book amount 7,007 10,625 810 240 223 18,905 Additions – 25 140 – – 165 Disposals – – (12) – – (12) Depreciation charge (124) (271) (46) – (21) (462)

Closing net book amount 6,883 10,379 892 240 202 18,596

At 15 March 2019 Cost 21,428 80,783 2,174 2,406 890 107,682 Accumulated depreciation (14,545) (70,404) (1,282) (2,166) (688) (89,086)

Net book amount 6,883 10,379 892 240 202 18,596

During the Track Record Period, the amounts of depreciation expense charged to cost of sales, selling expenses and administrative expenses are as follows:

Year ended 31 Period ended December 15 March 2018 2019 RMB’000 RMB’000

Depreciation of property, plant and equipment – Cost of sales 1,669 229 – Administrative expenses 106 15 – Research and development expenses 654 218

Depreciation expenses charged to profit or loss (Note X4) 2,429 462

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X12 FINANCIAL INSTRUMENTS BY CATEGORY

The Xingyuan Company holds the following financial instruments:

As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

(i) Financial assets at fair value through profit or loss – 30,043

(ii) Financial assets at amortised cost

Cash and bank balances (Note X16) 47,136 13,165 Trade and other receivables excluding non-financial assets (Note X15) 20,258 15,002

67,394 28,167

(iii) Financial liabilities at amortised cost

Trade and other payables excluding non-financial liabilities (Note X19) 4,402 3,918

X13 INVENTORIES

As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

Raw materials 19,834 25,700 Work-in-progress 297 1,196 Finished goods 14,672 14,962

34,803 41,858

During the year ended 31 December 2018 and the period ended 15 March 2019, the cost of inventories recognised as expense and included in ‘cost of sales’, ‘selling expenses’ and ‘research and development expenses’ amounted to approximately RMB66,770,000, and RMB7,676,000 respectively.

X14 OTHER NON-CURRENT ASSETS

As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

Prepayment for property, plant and equipment 28 28

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X15 TRADE, OTHER RECEIVABLES AND PREPAYMENTS

As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

Trade receivables 20,458 14,828 Provision for impairment (646) (145)

19,812 14,683

Other receivables 834 696 Provision for impairment (388) (377)

446 319

Prepayments For purchase of raw materials 6 1,168 For operating expenses 53 40

59 1,208

Total trade, other receivables and prepayments 20,317 16,210

(i) Ageing analysis of trade receivables

The ageing analysis of the trade receivables as of the balance sheet dates was as follows:

As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

Up to 30 days 8,731 5,848 31 to 90 days 5,022 1,084 91 to 180 days 2,338 4,299 181 to 365 days 1,289 956 Over one year 3,078 2,641

20,458 14,828

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(ii) Impairment of trade receivables

Xingyuan Company applies the simplified approach to provide for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provisions for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected credit losses also incorporate forward-looking information. As of 31 December 2018 and 15 March 2019, provisions of approximately RMB646,000 and RMB145,000 were made against trade receivables, respectively.

The movements in provision for impairment of trade receivables are as follows:

Year ended 31 Period ended December 15 March 2018 2019 RMB’000 RMB’000

As of the beginning of the year/period 960 646 Reversal of impairment losses (314) (501)

As of the end of the year/period 646 145

(iii) Fair values of trade and other receivables

Due to the short-term nature of the trade and other receivables, their carrying amounts approximated their fair values as of the balance sheet dates and were denominated in RMB.

X16 CASH AND BANK BALANCES

As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

Cash and cash equivalent – Cash on hand 313 – Cash in banks 47,133 13,152

Total of cash and bank balances 47,136 13,165

As of 31 December 2018 and 15 March 2019, cash and cash equivalents and restricted bank balances of the Xingyuan Company are denominated in RMB.

X17 PAID IN CAPITAL

As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

Paid-in-capital 128,453 128,453

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X18 RESERVES

Capital Statutory reserve reserves (a) Total RMB’000 RMB’000 RMB’000

At 31 December 2018 and 15 March 2019 393 559 952

X19 TRADE AND OTHER PAYABLES

As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

Trade payables 4,032 3,671 Amounts due to related parties (Note X24) 225 142 Employee benefit payables 3,874 3,472 Payable for operating expenses 18 10 Other taxes payable 625 46 Others 127 95

8,901 7,436

The ageing analysis of trade payables as of 31 December 2018, and 15 March 2019 was follows:

As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

Up to 30 days 2,345 3,640 31 to 90 days 1,619 – 91 to 180 days 59 22 181 to 365 days –– Over one year 99

4,032 3,671

The carrying amounts of trade and other payables are considered to be the same as their fair values due to their short-term nature.

The carrying amounts of the Xingyuan Company’s trade and other payables are all denominated in RMB.

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X20 DEFERRED INCOME TAX

As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

Deferred income tax assets 1,008 885

(a) Deferred income tax assets

As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

The balance comprises temporary differences attributable to: Accrued employee benefits 750 755 Provision of loss allowance 258 130

1,008 885

The movements in deferred income tax assets are as follows:

Accrued Provision of employee loss benefits allowance Total RMB’000 RMB’000 RMB’000

At 1 January 2018 825 507 1,332 Charged to the income statement (75) (249) (324)

At 31 December 2018 750 258 1,008 Credited/(charged) to the income statement 5 (128) (123)

At 15 March 2019 755 130 885

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X21 CASH FLOW INFORMATION

(a) Cash generated from/(used in) operations

Year ended 31 December Period ended 15 March 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

Profit before income tax 6,721 1,438 604 Adjustments for – Depreciation of property, plant and equipment (Note X11) 2,429 518 462 – Amortisation of land use rights (Note X10) 261 54 54 – Provision of loss allowance (997) (1,093) (512) – Losses on disposal of property, plant and equipment (Note X3) 46 – 12 – Gains on disposal of financial assets at fair value through profit or loss (Note X3) (205) (30) – – Gain from changes in fair value of financial assets at fair value through profit or loss (Note X3) – (49) (43) Changes in working capital: – Increase in inventories (10,717) (2,764) (7,055) – (Increase)/decrease in other current assets 411 (688) – (Increase)/decrease in trade and other receivables 6,966 7,551 4,619 – Increase/(decrease) in trade and other payables (1,260) (2,333) (837) – Others 2 3 1

Net cash generated from/(used in) operations 1,508 3,706 (3,383)

(b) Proceeds from disposal of property, plant and equipment

Year ended 31 December Period ended 15 March 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

Net book amount (Note X11) 46 – 12 Losses on disposal of property, plant and equipment (Note X3) (46) – (12)

Proceeds from disposal of property, plant and equipment – – –

X22 COMMITMENTS

(a) Capital commitments

There are no capital commitments.

(b) Non-cancellable operating leases

There are no non-cancellable operating leases.

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X23 ASSETS PLEDGED AS SECURITY

There are not assets pledged as security.

X24 RELATED PARTY TRANSACTIONS

(a) Related parties of the Xingyuan Company

The following companies are related parties of Xingyuan Company and have transactions with Xingyuan Company during the year ended 31 December 2018 and the period ended 15 March 2019.

Name of related parties Relationship

Upontime Enterprises Limited Substantial shareholder of Xingyuan Company Interfinance Trading Limited Substantial shareholder of Xingyuan Company Quanzhou Anping Electric Power Co., Ltd. Controlled by the ultimate controlling shareholder of Xingyuan Company Mr. Jiazhong Huang

(b) Transactions with related parties

Year ended 31 December Period ended 15 March 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

(i) Electricity expenses

Quanzhou Anping Electric Power Co., Ltd. 3,301 694 945

Year ended 31 December Period ended 15 March 2018 2018 2019 RMB’000 RMB’000 RMB’000 (Unaudited)

(ii) Dividends payment

Upontime Enterprises Limited 3,092 – – Interfinance Trading Limited 2,900 – –

5,992 – –

(iii) Receipt of repayment of loans to related parties

Upontime Enterprises Limited 35,919 – –

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As of 31 As of December 15 March 2018 2019 RMB’000 RMB’000

(i) Amounts due to related parties

Non-trade Quanzhou Anping Electric Power Co., Ltd. 225 142

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The information set forth in this Appendix II does not form part of the Accountant’s Report from PricewaterhouseCoopers, Certified Public Accountants, the reporting accountant of the Company, as set out in Appendix I to this document, and is included herein for illustrative purposes only. The [REDACTED] financial information should be read in conjunction with the section entitled “Financial Information” in this document and Accountant’s Report set out in Appendix I to this document.

[REDACTED] STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

The following [REDACTED] adjusted consolidated net tangible assets of our Group has been prepared by our Directors in accordance with Rule 4.29 of the Listing Rules to illustrate the effect of the [REDACTED] on the audited consolidated net tangible assets of our Group attributable to owners of our Company as if the [REDACTED] had taken place on 31 December 2020.

The [REDACTED] statement of adjusted consolidated net tangible assets of our Group 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 on 31 December 2020 or any future date.

The [REDACTED] statement of adjusted consolidated net tangible assets of our Group is based on the audited consolidated net tangible assets of our Group attributable to owners of our Company as of 31 December 2020 derived from the Accountant’s Report set out in Appendix I, and adjusted as follows:

[REDACTED] Audited adjusted consolidated consolidated net tangible net tangible assets of our assets of our Group Group attributable to attributable to owners of our owners of our [REDACTED] adjusted Company as Estimated Company as consolidated net tangible assets of [REDACTED] of of our Group attributable to 31 December from the 31 December owners of our Company as of 2020(1) [REDACTED](2) 2020 31 December 2020 per Share (RMB’000) (RMB’000) (RMB’000) (RMB) (3) (HK$)(4) (5)

Based on an [REDACTED]of HK$[REDACTED] per Share [342,061] [REDACTED][REDACTED][REDACTED][REDACTED]

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Notes:

(2) The estimated [REDACTED] from the [REDACTED] are based on [REDACTED] Shares to be issued under the [REDACTED] and the [REDACTED] of HK$[REDACTED] and HK$[REDACTED]per [REDACTED], respectively, being the low-end and high-end of the stated [REDACTED] range, after deduction of the [REDACTED] fees and other related expenses to be incurred by our Group (excluding [REDACTED] of approximately RMB[REDACTED] which has been recorded in the consolidated statements of comprehensive income as of 31 December 2020) and assuming the [REDACTED]isnot exercised and no Shares are allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and issue or repurchase of Shares.

(3) The [REDACTED] adjusted consolidated net tangible assets of our Group attributable to owners of our Company as of 31 December 2020 per Share is calculated based on [REDACTED] Shares assuming that the [REDACTED] had been completed on 31 December 2020, but without taking into account any Shares which may be issued upon the exercise of the [REDACTED], or any Shares which may be allotted and issued or repurchased by our Company pursuant to the general mandate as for the allotment and issue or repurchase of Shares.

(4) The [REDACTED] adjusted consolidated net tangible assets of our Group attributable to owners of our Company per Share is converted from RMB into Hong Kong dollars at an exchange rate of RMB[0.8412] to HK$1. No representation is made that the RMB amounts have been, could have been or could be converted to Hong Kong dollars, or vice versa, at that rate or at any other rates or at all.

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[REDACTED]

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[REDACTED]

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[REDACTED]

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1. TAXATION OF SECURITY HOLDERS

The taxation of income and capital gains of holders of [REDACTED] is subject to the laws and practices of the PRC and of jurisdictions in which holders of [REDACTED] are resident or otherwise subject to tax. The following summary of certain relevant taxation provisions is based on current laws and practices, is subject to change and does not constitute legal or tax advice. The discussion does not deal with all possible tax consequences relating to an investment in the [REDACTED], nor does it take into account the specific circumstances of any particular investor, some of which may be subject to special regulation. Accordingly, you should consult your own tax adviser regarding the tax consequences of an investment in the [REDACTED]. The discussion is based upon laws and relevant interpretations in effect as of the Latest Practicable Date, all of which are subject to change and may have retrospective effect.

This discussion does not address any aspects of PRC or Hong Kong taxation other than income tax, capital tax, stamp duty and estate duty. Prospective investors are urged to consult their financial advisers regarding the PRC, Hong Kong and other tax consequences of owning and disposing of [REDACTED].

A. The PRC Taxation

Taxation on Dividends

Individual Investors

With respect to non-resident individual holders, their gains realised through the transfer of properties are normally subject to PRC individual income tax at a rate of 20%. However, according to the Circular of the Ministry of Finance and the State Administration of Taxation on Issues Concerning Individual Income Tax Policies (《財政部、國家稅務總局關於個人所得稅若干政策問題的通知》), the income received by individual foreigners from dividends and bonuses of a foreign-invested enterprise is exempt from individual income tax for the time being. On February 3, 2013, the State Council approved and promulgated the Notice of Suggestions to Deepen the Reform of System of Income Distribution《國務院批轉發展改革委等部門 ( 關於深化收入分配制度改革若干意見的通知》). On February 8, 2013, the General Office of the State Council promulgated the Circular Concerning Allocation of Key Works to Deepen the Reform of System of Income Distribution《國務院辦公廳關於深化收 ( 入分配制度改革重點工作分工的通知》). According to these two documents, the PRC government is planning to cancel foreign individuals’ tax exemption for dividends obtained from foreign- invested enterprises, and the Ministry of Finance and the State Administration of Taxation should be responsible for making and implementing details of such plan. However, relevant implementation rules or regulations have not been promulgated by the Ministry of Finance and the State Administration of Taxation.

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Enterprise Investors

In accordance with the Enterprise Income Tax Law of the People’s Republic of China《中華人民共和國企業所得稅法》 ( ) (the “EIT Law”) effective as of January 1, 2008 and amended on December 29, 2018, and the Implementation Rules for the Enterprise Income Tax Law of the People’s Republic of China《中華人民共和國企業 ( 所得稅法實施條例》) effective as of January 1, 2008 and amended on April 23, 2019, a non-resident enterprise is generally subject to a 10% enterprise income tax on PRC-sourced income (including dividends received from a PRC resident enterprise that issues shares in Hong Kong), if such non-resident enterprise does not have an establishment or place in the PRC or has an establishment or place in the PRC but the PRC-sourced income is not connected with such establishment or place in the PRC. The withholding tax may be reduced pursuant to applicable treaties for the avoidance of double taxation. Such withholding tax for non-resident enterprises are deducted at source, where the payer of the income are required to withhold the income tax from the amount to be paid to the non-resident enterprise when such payment is made or due.

The Circular on Issues Relating to the Withholding of Enterprise Income Tax by PRC Resident Enterprises on Dividends Paid to Overseas Non-PRC Resident Enterprise Shareholders of H Shares (Guo Shui Han [2008] No. 897)《關於中國居民 ( 企業向境外H股非居民企業股東派發股息代扣代繳企業所得稅有關問題的通知》(國稅函 [2008]897號)) which was issued by the SAT on November 6, 2008, further clarified that a PRC-resident enterprise must withhold corporate income tax at a rate of 10% on dividends paid to non-PRC resident enterprise shareholders of [REDACTED] with respect to the dividends of 2008 and onwards. In addition, the Response to Questions on Levying Enterprise Income Tax on Dividends Derived by Non-resident Enterprise from Listed Shares such as B-shares (Guo Shui Han [2009] No.394)《關於非居民企業取得 ( B股等股票股息徵收企業所得稅問題的批覆》(國稅函 [2009]394號)) which was issued by the SAT on July 24, 2009, further provides that any PRC-resident enterprise that is listed on overseas stock exchanges must withhold enterprise income tax at a rate of 10% on dividends of 2008 and onwards that it distributes to non-resident enterprises. Such tax rates may be further modified pursuant to the tax treaty or agreement that China has concluded with a relevant jurisdiction, where applicable.

Pursuant to the Arrangement between the Mainland and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income《內地和香港特別行政 ( 區關於對所得避免雙重徵稅和防止偷漏稅的安排》issued on August 21, 2006, the PRC Government may levy taxes on the dividends paid by a PRC company to Hong Kong residents (including natural persons and legal entities) in an amount not exceeding 10% of total dividends payable by the PRC company. If a Hong Kong resident directly holds 25% or more of the equity interest in a PRC company, then such tax shall not exceed 5% of the total dividends payable by the PRC company. Pursuant to the Fourth Protocol of the State Administration of Taxation to the Arrangement between the Mainland and Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to

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Taxes on Income《國家稅務總局 ( 〈關於內地和香港特別行政區關於對所得稅避免雙重徵稅和防止偷漏稅的安排〉第四議定書》) effective as of December 29, 2015, the abovementioned provisions are not applicable to any arrangement which is primarily made for the purpose of obtaining the above taxation benefits.

Tax Treaties

Investors who are not PRC residents and reside in countries and regions which have entered into avoidance of double taxation treaties with the PRC are entitled to a reduction of the withholding taxes imposed on the dividends received from PRC companies. The PRC has entered into arrangements for the avoidance of double taxation with a number of countries and regions including but not limited to Hong Kong, Macau, Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the United States.

In accordance with the Announcement of State Taxation Administration on Promulgation of the Administrative Measures on Non-resident Taxpayers Enjoying Treaty Benefits《國家稅務總局關於發佈 ( 〈非居民納稅人享受協定待遇管理辦法〉的公告》) effective as of January 1, 2020, Non-PRC resident enterprises claiming treaty benefits shall be handled in accordance with the principles of “self-assessment, claiming benefits, retention of the relevant materials for future inspection”. Where a non-PRC resident enterprises self-assesses and concludes that it satisfies the criteria for claiming treaty benefits, it may enjoy treaty benefits at the time of tax declaration or at the time of tax withholding, simultaneously gather and retain the relevant materials pursuant to the provisions of these Measures for future inspection, and accept follow-up administration by the tax authorities.

Taxation on Share Transfer

Individual Investors

According to the Individual Income Tax Law of the People’s Republic of China (《中華人民共和國個人所得稅法》) (the “IIT Law”) and its implementation provisions, gains realised on the sale of equity interests in PRC resident enterprises are subject to the income tax at a rate of 20%.

Under the Circular Declaring that Individual Income Tax Continues to Be Exempted over Individual Income from Transfer of Shares (Cai Shui Zi [1998] No. 61)《關於個人轉讓股票所得繼續暫免徵收個人所得稅的通知》 ( (財稅字[1998]61號)) issued by the MOF and the SAT, from January 1, 1997, gains of individuals from the transfer of shares of listed enterprises continues to be exempted from individual income tax. According to the latest IIT Law (promulgated on August 31, 2018 and effective on January 1, 2019) and its latest implementing rules (promulgated on December 18, 2018 and effective on January 1, 2019), the SAT has not explicitly stated whether it will continue to exempt individuals from income tax on income derived from the transfer of listed shares.

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However, on December 31, 2009, the MOF, the SAT and the CSRC jointly issued the Circular on Relevant Issues Concerning the Collection of Individual Income Tax over the Income Received by Individuals from Transfer of Listed Shares Subject to Sales Limitation (Cai Shui [2009] No. 167)《關於個人轉讓上市公司限售股 ( 所得徵收個人所得稅有關問題的通知》(財稅[2009]167號)), which provides that individuals’ income from transferring listed shares on certain domestic exchanges shall continued to be exempted from individual income tax, except for certain shares which are subject to sales limitations as defined in the Supplementary Circular on Relevant Issues Concerning the Collection of Individual Income Tax over the Income Received by Individuals from Transfer of Listed Shares Subject to Sales Limitation (Cai Shui [2010] No. 70)《關於個人轉讓上市公司限售股所得徵收個 ( 人所得稅有關問題的補充通知》(財稅[2010]70號)). As of the Latest Practicable Date, the aforesaid provision has not expressly provided that individual income tax shall be collected from non-PRC resident individuals on the transfer of shares of PRC resident enterprises listed on overseas stock exchanges. To our knowledge, in practice, the PRC tax authorities have not collected income tax from non-PRC resident individuals on gains from the transfer of shares of PRC resident enterprises listed on overseas stock exchanges.

Enterprise Investors

In accordance with the EIT Law and its implementation provisions, a non-resident enterprise is generally subject to a 10% enterprise income tax on PRC-sourced income, including gains derived from the disposal of equity interests in a PRC resident enterprise, if it does not have an establishment or place in the PRC or has an establishment or place in the PRC but the PRC-sourced income is not connected with such establishment or place. Such income tax for non-resident enterprises are deducted at source, where the payer of the income are required to withhold the income tax from the amount to be paid to the non-resident enterprise when such payment is made or due. The withholding tax may be reduced or eliminated pursuant to applicable treaties or agreements on avoidance of double taxation.

PRC stamp duty

Under the Provisional Regulations of the PRC Concerning Stamp Duty《中華 ( 人民共和國印花稅暫行條例》) amended on January 8, 2011 and the Rules for Implementation of Provisional Regulations of the PRC Concerning Stamp Duty (《中華人民共和國印花稅暫行條例施行細則》)amended on November 5, 2004, PRC stamp duty is imposed on documents that are legally binding in the PRC and governed by the PRC laws. Therefore, PRC stamp duty does not apply to acquisitions or dispositions of [REDACTED] outside PRC.

EstateDuty

As of the Latest Practicable Date, no estate duty has been levied in China under the PRC laws.

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B. Hong Kong Taxation

Taxation on Dividends

No tax is payable in Hong Kong in respect of dividends paid by our Company.

ProfitsTax

Hong Kong profits tax will not be payable by any Shareholders (other than Shareholders carrying on a trade, profession or business in Hong Kong and holding the Shares for trading purposes) on any capital gains made on the sale or other disposal of the Shares. Shareholders should take advice from their own professional advisers as to their particular tax position.

Stamp Duty

Hong Kong stamp duty will be charged on the sale and purchase of Shares at the current rate of 0.2% of the consideration for, or (if greater) the value of, the Shares being sold or purchased, whether or not the sale or purchase is on or off the Stock Exchange. The Shareholder selling the Shares and the purchaser will each be liable for one-half of the amount of Hong Kong stamp duty payable upon such transfer. In addition, a fixed duty of HK$5 is currently payable on any instrument of transfer of Shares.

EstateDuty

Hong Kong estate duty was abolished effective from February 11, 2006. No Hong Kong estate duty is payable by Shareholders in relation to the Shares owned by them upon death.

2. PRINCIPAL TAXATION OF OUR COMPANY IN THE PRC

See “Regulatory Overview.”

3. TAXATION OF OUR COMPANY IN HONG KONG

Profits Tax

Our Company will be subject to Hong Kong profits tax in respect of profits arising in or derived from Hong Kong at the current rate of 16.5%. Dividend income derived by our Company from its subsidiaries will be excluded from Hong Kong profits tax.

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4. FOREIGN EXCHANGE

The lawful currency of the PRC is the Renminbi, which is currently subject to foreign exchange control and is not freely convertible into foreign exchange. The SAFE, under the authority of the PBOC, is responsible for administration of all matters relating to foreign exchange, including the enforcement of foreign exchange control regulations.

On January 29, 1996, the State Council promulgated the Regulations on Foreign Exchange Control of the PRC《中華人民共和國外匯管理條例》 ( ) (the “Foreign Exchange Control Regulations”) which became effective on April 1, 1996. The Foreign Exchange Control Regulations classifies all international payments and transfers into current account items and capital account items. Most of the current account items are no longer subject to the SAFE’s approval, while capital account items still are. The Foreign Exchange Control Regulations were subsequently amended on January 14, 1997 and August 5, 2008. The latest amended Foreign Exchange Control Regulations clearly states that the State will not impose any restriction on international payments and transfers under the current account items.

On June 20, 1996, the PBOC promulgated the Provisional Regulations for the Administration of Settlement, Sale and Payment of Foreign Exchange《結匯、售匯及付匯管理 ( 規定》) (the “Settlement Regulations”) which became effective on July 1, 1996. The Settlement Regulations abolished all other restrictions on convertibility of foreign exchange under current account items, while retaining the existing restrictions on foreign exchange transactions under capital account items.

According to the Announcement on Improving the Reform of the Renminbi Exchange Rate Formation Mechanism (the PBOC Announcement [2005] No. 16)《關於完善人民幣匯率形成機制 ( 改革的公告》(中國人民銀行公告[2005]第16號), issued by the PBOC on July 21,2005, from the same date, the PRC began to implement a managed floating exchange rate system in which the exchange rate would be determined based on market supply and demand and adjusted with reference to a basket of currencies. The Renminbi exchange rate was no longer pegged to the U.S. dollar. The PBOC would publish the closing price of foreign currencies such as the U.S. dollar against Renminbi in the interbank foreign exchange market after the closing of the market on each working day, which will be used as the central parity for the transactions of such foreign currency against Renminbi exchange rate on the following working day.

Starting from January 4, 2006, the PBOC introduced over-the-counter transactions into the interbank spot foreign exchange market for the purpose of improving the formation mechanism of the central parity of Renminbi exchange rates, and the practice of matching was kept at the same time. In addition to the above, the PBOC introduced the market-maker rule to provide liquidity to the foreign exchange market. On July 1, 2014, the PBOC further improved the formation mechanism of the RMB exchange rate by authorizing the China Foreign Exchange Trading Center to make inquiries with the market-makers before the interbank foreign exchange market opens every day for their offered quotations which are used as samples to calculate the central parity of the RMB against the USD of the current day, which shall be finally decided on the weighted average of the prices of all market makers after excluding the highest and lowest quotations, and announce it at 9:15 a.m. on each working day.

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On August 11, 2015, the PBOC announced to improve the central parity quotations of RMB against the U.S. dollar by authorizing market-makers to provide central parity quotations to the China Foreign Exchange Trading Center with reference to the interbank foreign exchange market closing rate of the previous day, the supply and demand for foreign exchange as well as changes in major international currency exchange rates.

On August 5, 2008, the State Council promulgated the revised Foreign Exchange Control Regulations (the “Revised Foreign Exchange Control Regulations”), which have made substantial changes to the foreign exchange supervision system of the PRC. First, the Revised Foreign Exchange Control Regulations have adopted an approach of balancing the inflow and outflow of foreign exchange. Foreign exchange income received overseas can be repatriated or deposited overseas, and foreign exchange and foreign exchange settlement funds under the capital account are required to be used only for purposes as approved by the competent authorities and foreign exchange administrative authorities. Second, the Revised Foreign Exchange Control Regulations have improved the mechanism for determining the RMB exchange rate based on market supply and demand. Third, the Revised Foreign Exchange Control Regulations have enhanced the monitoring of cross-border foreign currency fund flows. In the event that revenues and costs in connection with international transactions suffer or may suffer a material misbalance, or the national economy encounters or may encounter a severe crisis, the State may adopt necessary safeguard or control measures. Fourth, the Revised Foreign Exchange Control Regulations have enhanced the supervision and administration of foreign exchange transactions and grant extensive authorities to the SAFE to enhance its supervisory and administrative powers.

All Foreign exchange income generated from current account transactions of the PRC enterprises may be either retained or sold to financial institutions engaging in the settlement or sale of foreign exchange. Foreign exchange income from loans issued by organizations outside the territory or from the issuance of bonds and shares (for example, foreign exchange income received by us from the sale of shares overseas) is not required to be sold to designated foreign exchange banks and can be deposited into foreign exchange accounts at the designated foreign exchange banks. PRC enterprises (including foreign-invested enterprises) which need foreign exchange for transactions relating to current account items may, without the approval of the SAFE, effect exchange and payment from their foreign exchange accounts at the designated foreign exchange banks with the support of valid receipts and proof. Foreign- invested enterprises which need foreign exchange for the distribution of profits to their shareholders and PRC enterprises which, in accordance with regulations, are required to pay dividends to their shareholders in foreign exchange (such as our Company) may, on the strength of resolutions of the board of directors or the shareholders’ meeting approving the distribution of profits, effect exchange and payment from their foreign exchange accounts or convert and pay dividends at the designated foreign exchange banks.

On October 23, 2014, the State Council promulgated the Decisions on Matters including Canceling and Adjusting a Batch of Administrative Approval Items (Guo Fa [2014] No. 50) (《關於取消和調整一批行政審批項目等事項的決定》(國發[2014]50號)), which canceled the approval requirement by the SAFE and its branches for the repatriation and settlement of foreign exchange of overseas-raised funds through overseas [REDACTED].

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On December 26, 2014, the SAFE issued the Notice on Relevant Issues Concerning the Administration of Foreign Exchange for Overseas Listing《關於境外上市外匯管理有關問題的通 ( 知》), pursuant to which a domestic issuer shall, within 15 business days of the end of its [REDACTED] overseas, register the overseas [REDACTED] with the SAFE’s local branch at the place of its incorporation; and the [REDACTED] from an overseas [REDACTED] may be remitted to the domestic account or deposited in an overseas account, but the use of the [REDACTED] shall be consistent with the content of the prospectus and other disclosure documents. The conversion of the [REDACTED] deposit in a domestic account into Renminbi is subject to approval of the SAFE. According to the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing Capital Account Foreign Exchange Settlement Administration Policies《國家外匯管理局關於改革和規範資本項目結匯管理政策的通知》 ( ) promulgated by the SAFE on June 9, 2016, the settlement of foreign exchange income of capital items (including [REDACTED] from overseas [REDACTED]) can be made at banks based on the actual operation needs of domestic enterprises. The settlement ratio for foreign exchange income of capital items of domestic enterprises is temporarily 100% and is subject to adjustment by the SAFE according to the balance of international payments.

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1. PRC LAWS AND REGULATIONS

This Appendix contains a summary of laws and regulations on companies and securities in the PRC, certain major differences between the PRC Company Law and Companies (Winding Up and Miscellaneous Provisions) Ordinance and the Companies Ordinance as well as the additional regulatory provisions of the Hong Kong Stock Exchange on joint stock limited companies of the PRC. The principal objective of this summary is to provide potential investors with an overview of the principal laws and regulations applicable to us. This summary is with no intention to include all the information which may be important to the potential investors. For discussion of laws and regulations specifically governing the business of the Company, see “Regulatory Overview”.

PRC LEGAL SYSTEM

The PRC legal system is based on the Constitution of the PRC《中華人民共和國憲 ( 法》) (the “Constitution”) and is made up of written laws, administrative regulations, local regulations, separate regulations, autonomous regulations, rules and regulations of departments, rules and regulations of local governments, international treaties of which the PRC government is a signatory, and other regulatory documents. Court verdicts do not constitute binding precedents. However, they may be used as judicial reference and guidance.

According to the Constitution and the Legislation Law of the PRC《中華人民共和國 ( 立法法》) (the “Legislation Law”), the NPC and the Standing Committee of the NPC are empowered to exercise the legislative power of the State. The NPC has the power to formulate and amend basic laws governing civil and criminal matters, state organs and other matters. The Standing Committee of the NPC is empowered to formulate and amend laws other than those required to be enacted by the NPC and to supplement and amend any parts of laws enacted by the NPC during the adjournment of the NPC, provided that such supplements and amendments are not in conflict with the basic principles of such laws.

The State Council is the highest organ of the PRC administration and has the power to formulate administrative regulations based on the Constitution and laws.

The people’s congresses of provinces, autonomous regions and municipalities and their respective standing committees may formulate local regulations based on the specific circumstances and actual requirements of their own respective administrative areas, provided that such local regulations do not contravene any provision of the Constitution, laws or administrative regulations.

The ministries and commissions of the State Council, PBOC, the State Audit Administration as well as the other organs endowed with administrative functions directly under the State Council may, in accordance with the laws as well as the administrative regulations, decisions and orders of the State Council and within the limits of their power, formulate rules.

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The people’s congresses of the comparatively larger cities and their respective standing committees may formulate local regulations based on the specific circumstances and actual requirements of such cities, which will become enforceable after being reported to and approved by the standing committees of the people’s congresses of the relevant provinces or autonomous regions but such local regulations shall conform with the Constitution, laws, administrative regulations, and the relevant local regulations of the relevant provinces or autonomous regions. People’s congresses of national autonomous areas have the power to enact autonomous regulations and separate regulations in light of the political, economic and cultural characteristics of the nationality (nationalities) in the areas concerned.

The people’s governments of the provinces, autonomous regions, and municipalities directly under the central government and the comparatively larger cities may enact rules, in accordance with laws, administrative regulations and the local regulations of their respective provinces, autonomous regions or municipalities.

The Constitution has supreme legal authority and no laws, administrative regulations, local regulations, autonomous regulations or separate regulations may contravene the Constitution. The authority of laws is greater than that of administrative regulations, local regulations and rules. The authority of administrative regulations is greater than that of local regulations and rules. The authority of local regulations is greater than that of the rules of the local governments at or below the corresponding level. The authority of the rules enacted by the people’s governments of the provinces or autonomous regions is greater than that of the rules enacted by the people’s governments of the comparatively larger cities within the administrative areas of the provinces and the autonomous regions.

The NPC has the power to alter or annul any inappropriate laws enacted by its Standing Committee, and to annul any autonomous regulations or separate regulations which have been approved by its Standing Committee but which contravene the Constitution or the Legislation Law. The Standing Committee of the NPC has the power to annul any administrative regulations that contravene the Constitution and laws, to annul any local regulations that contravene the Constitution, laws or administrative regulations, and to annul any autonomous regulations or local regulations which have been approved by the standing committees of the people’s congresses of the relevant provinces, autonomous regions or municipalities directly under the central government, but which contravene the Constitution and the Legislation Law. The State Council has the power to alter or annul any inappropriate ministerial rules and rules of local governments. The people’s congresses of provinces, autonomous regions or municipalities directly under the central government have the power to alter or annul any inappropriate local regulations enacted or approved by their respective standing committees. The people’s governments of provinces and autonomous regions have the power to alter or annul any inappropriate rules enacted by the people’s governments at a lower level.

According to the Constitution and the Legislation Law, the power to interpret laws is vested in the Standing Committee of the NPC. According to the Decision of the Standing Committee of the NPC Regarding the Strengthening of Interpretation of Laws《全國人民 ( 代表大會常務委員會關於加強法律解釋工作的決議》) passed on June 10, 1981, the Supreme

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People’s Court of the PRC (the “Supreme People’s Court”) has the power to give general interpretation on questions involving the specific application of laws and decrees in court trials. The State Council and its ministries and commissions are also vested with the power to give interpretation of the administrative regulations and department rules which they have promulgated. At the regional level, the power to give interpretations of the local laws and regulations as well as administrative rules is vested in the regional legislative and administrative organs which promulgate such laws, regulations and rules.

PRC JUDICIAL SYSTEM

Under the Constitution and the PRC Law on the Organization of the People’s Courts (《中華人民共和國法院組織法》), the PRC judicial system is made up of the Supreme People’s Court, the local people’s courts, military courts and other special people’s courts.

The local people’s courts are comprised of the primary people’s courts, the intermediate people’s courts and the higher people’s courts. The primary people’s courts are organised into civil, criminal, administrative, supervision and enforcement divisions. The intermediate people’s courts are organised into divisions similar to those of the primary people’s courts, and are entitled to organise other courts as needed such as the intellectual property division.

The higher level people’s courts supervise the primary and intermediate people’s courts. The people’s procuratorates also have the right to exercise legal supervision over the civil proceedings of people’s courts of the same level and lower levels. The Supreme People’s Court is the highest judicial body in the PRC. It supervises the judicial administration of the people’s courts at all levels.

The people’s courts apply a two-tier appellate system. A party may appeal against a judgment or order of a local people’s court to the people’s court at the next higher level. Second judgments or orders given at the next higher level are final. First judgments or orders of the Supreme People’s Court are also final. However, if the Supreme People’s Court or a people’s court at a higher level finds an error in a judgment or an order which has been given in any people’s court at a lower level, or the presiding judge of a people’s court finds an error in a judgment which has been given in the court over which he presides, the case may then be retried according to the judicial supervision procedures.

The PRC Civil Procedure Law《中華人民共和國民事訴訟法》 ( ) (the “Civil Procedure Law”), which was adopted in 1991 and amended in 2007, 2012 and 2017, sets forth the criteria for instituting a civil action, the jurisdiction of the people’s courts, the procedures to be followed for conducting a civil action and the procedures for enforcement of a civil judgment or order. All parties to a civil action conducted within the PRC must comply with the Civil Procedure Law. Generally, a civil case is initially heard by a local court of the municipality or province in which the defendant resides. The parties to a contract may, by express agreement, select a judicial court where civil actions may be brought, provided that the judicial court is either the plaintiff ‘s or the defendant’s domicile, the place of execution or implementation of the contract or the place of the object of the action, provided that the provisions of this law regarding the level of jurisdiction and exclusive jurisdiction shall not be violated.

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A foreign national or enterprise generally has the same litigation rights and obligations as a citizen or legal person of the PRC. If a foreign country’s judicial system limits the litigation rights of PRC citizens and enterprises, the PRC courts may apply the same limitations to the citizens and enterprises of that foreign country within the PRC. If any party to a civil action refuses to comply with a judgment or ruling made by a people’s court or an award made by an arbitration panel in the PRC, the other party may apply to the people’s court for the enforcement of the same. There are time limits of two years imposed on the right to apply for such enforcement. If a person fails to satisfy a judgment made by the court within the stipulated time, the court will, upon application by either party, enforce the judgment in accordance with the law.

A party seeking to enforce a judgment or ruling of a people’s court against a party who is not personally or whose property is not within the PRC may apply to a foreign court with jurisdiction over the case for recognition and enforcement of the judgment or ruling. A foreign judgment or ruling may also be recognised and enforced by the people’s court according to PRC enforcement procedures if the PRC has entered into or acceded to an international treaty with the relevant foreign country, which provides for such recognition and enforcement, or if the judgment or ruling satisfies the court’s examination according to the principle of reciprocity, unless the people’s court finds that the recognition or enforcement of such judgment or ruling will result in a violation of the basic legal principles of the PRC, its sovereignty or security or against social and public interest.

THE PRC COMPANY LAW, SPECIAL REGULATIONS AND MANDATORY PROVISIONS

A joint stock limited company which was incorporated in the PRC and seeking a [REDACTED] on the Hong Kong Stock Exchange is mainly subject to the following three laws and regulations in the PRC:

• The PRC Company Law which was promulgated by the Standing Committee of the NPC on December 29, 1993, came into effect on July 1, 1994, revised on December 25, 1999, August 28, 2004, October 27, 2005, December 28, 2013 and October 26, 2018 respectively and the latest revision of which came into effect on October 26, 2018;

• The Special Regulations of the State Council on Share Offering and Listing Overseas by Joint-Stock Limited Liability Companies (the “Special Regulations”) which were promulgated by the State Council on August 4, 1994 pursuant to Articles 85 and 155 of the PRC Company Law in force at that time, and were applicable, to the overseas share subscription and [REDACTED] of joint stock limited companies; and

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• The Mandatory Provisions of Articles of Association of Companies Listing Overseas (the “Mandatory Provisions”) which were issued jointly by the former Securities Commission of the State Council and the former State Economic Restructuring Commission on August 27, 1994, stating the mandatory provisions which must be incorporated into the articles of association of a joint stock limited company seeking an overseas [REDACTED]. As such, the Mandatory Provisions are set out in the Articles of Association of the Company, the summary of which is set out in the section entitled ”Appendix V — Summary of the Articles of Association” in this document.

Set out below is a summary of the major provisions of the PRC Company Law, the Special Regulations and the Mandatory Provisions applicable to the Company.

General

A joint stock limited company refers to an enterprise legal person incorporated under the PRC Company Law with its registered capital divided into shares of equal par value. The liability of its shareholders is limited to the amount of shares held by them and the company is liable to its creditors for an amount equal to the total value of its assets.

A state-owned enterprise (“SOE”) that is reorganized into a joint stock limited company shall comply with the conditions and requirements specified by laws and administrative regulations for the modification of its operation mechanisms, the disposal and valuation of the company’s assets and liabilities and the establishment of internal management organizations.

A joint stock limited company shall conduct its business in accordance with laws and administrative regulations. It may invest in other limited liability companies and joint stock limited companies and its liabilities with respect to such invested companies are limited to the amount invested. Unless otherwise provided by law, the joint stock limited company may not be a contributor that undertakes joint and several liabilities for the debts of the invested companies.

Incorporation

A joint stock limited company may be incorporated by promotion or public subscription.

A joint stock limited company may be incorporated by a minimum of two but not more than 200 promoters, and at least half of the promoters must have residence within the PRC. According to the Special Regulations, SOEs or enterprises with the majority of their assets owned by the PRC government may be restructured into joint stock limited companies which may issue shares to overseas investors in accordance with the relevant regulations. These companies, if incorporated by promotion, may have less than five promoters and may issue new shares once incorporated.

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According to the Securities Law of the PRC《中華人民共和國證券法》 ( ) (the “PRC Securities Law”), any application for the listing of securities shall be filed with a stock exchange and shall be subject to the examination and approval of the stock exchange in accordance with the law, and a listing agreement shall be executed by both parties. Any company that applies for the listing of securities shall fulfill the listing requirements prescribed in the listing rules of the stock exchange.

The promoters must convene an inaugural meeting within 30 days after the issued shares have been fully paid up, and must give notice to all subscribers or make an announcement of the date of the inaugural meeting 15 days before the meeting. The inaugural meeting may be convened only with the presence of promoters or subscribers representing at least half of the shares in the company. At the inaugural meeting, matters including the adoption of articles of association and the election of members of the board of directors and members of the board of supervisors of the company will be dealt with. All resolutions of the meeting require the approval of subscribers with more than half of the voting rights present at the meeting.

Within 30 days after the conclusion of the inaugural meeting, the board of directors must apply to the registration authority for registration of the establishment of the joint stock limited company. A company is formally established, and has the status of a legal person, after the business license has been issued by the relevant registration authority. Joint stock limited companies established by the subscription method shall file the approval on the offering of shares issued by the securities administration department of the State Council with the company registration authority for record.

A joint stock limited company’s promoters shall be liable for: (i) the payment of all expenses and debts incurred in the incorporation process jointly and severally if the company cannot be incorporated; (ii) the refund of subscription monies to the subscribers, together with interest, at bank rates for a deposit of the same term jointly and severally if the company cannot be incorporated; and (iii) damages suffered by the company as a result of the default of the promoters in the course of incorporation of the company. According to the Interim Provisional Regulations on the Administration of Share Issuance and Trading《股票發行與交易管理暫行條例》 ( ) promulgated by the State Council on April 22, 1993 (which is only applicable to the issuance and trading of shares in the PRC and their related activities), if a company is established by means of public subscription, the promoters of such company are required to sign on this document to ensure that this document does not contain any misrepresentation, serious misleading statements or material omissions, and assume joint and several responsibility for it.

Share Capital

The promoters of a company can make capital contributions in cash or in kind, which can be valued in currency and transferable according to law such as intellectual property rights or land use rights based on their appraised value.

If capital contribution is made other than in cash, valuation and verification of the property contributed must be carried out and converted into shares.

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A company may issue registered or bearer share. However, shares issued to promoter(s) or legal person(s) shall be in the form of registered share and shall be registered under the name(s) of such promoter(s) or legal person(s) and shall not be registered under a different name or the name of a representative.

The Special Regulations and the Mandatory Provisions provide that shares issued to foreign investors and listed overseas shall be issued in registered form and shall be denominated in Renminbi and subscribed for in foreign currency.

Under the Special Regulations and the Mandatory Provisions, shares issued to foreign investors and investors from the territories of Hong Kong, the Macau and Taiwan and listed overseas are known as overseas listed foreign invested shares, and those shares issued to investors within the PRC other than the territories specified above are known as Domestic Shares.

A company may offer its shares to the public overseas with approval by the securities administration department of the State Council. Specific provisions shall be specifically formulated by the China Securities Regulatory Commission (the “CSRC”). Under the Special Regulations, upon approval of the CSRC, a company may agree, in the underwriting agreement in respect of an issue of overseas listed foreign invested shares, to retain not more than 15% of the aggregate number of overseas listed foreign invested shares proposed to be issued after accounting for the number of underwritten shares.

The share offering price may be equal to or greater than nominal value, but shall not be less than nominal value.

The transfer of shares by shareholders should be conducted via the legally established stock exchange or in accordance with other methods as stipulated by the State Council. Transfer of registered shares by a shareholder must be made by means of an endorsement or by other means stipulated by laws or administrative regulations. Bearer shares are transferred by delivery of the share certificates to the transferee.

Shares held by a promoter of a company shall not be transferred within one year after the date of the company’s incorporation. Shares issued by a company prior to the public offer of its shares shall not be transferred within one year from the date of [REDACTED] of the shares of the company on a stock exchange. Directors, supervisors and senior management of a company shall not transfer over 25% of the shares held by each of them in the company each year during their term of office and shall not transfer any share of the company held by each of them within one year after the [REDACTED]. There is no restriction under the PRC Company Law as to the percentage of shareholding a single shareholder may hold in a company.

Transfers of shares may not be entered in the register of shareholders within 20 days before the date of a shareholders’ meeting or within five days before the record date set for the purpose of distribution of dividends.

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Allotment and Issue of Shares

All issue of shares of a joint stock limited company shall be based on the principles of equality and fairness. The same class of shares must carry equal rights. Shares issued at the same time and within the same class must be issued on the same conditions and at the same price. It may issue shares at par value or at a premium, but it may not issue shares below the par value.

A company shall obtain the approval of the CSRC to offer its shares to the overseas public. Under the Special Regulations, shares issued to foreign investors by joint stock limited companies and listed overseas are known as “overseas listed and foreign invested shares.” Shares issued to investors within the PRC by joint stock limited companies, which also issues overseas listed and foreign shares, are known as “domestic shares.” Upon approval of the securities regulatory authority of the State Council, a company issuing overseas listed and foreign invested shares in total shares determined by the issuance program may agree with underwriters in the underwriting agreement to retain not more than 15% of the aggregate number of overseas listed and foreign invested shares outside the underwritten amount. The issuance of the retained shares is deemed to be a part of this issuance.

Registered Shares

Under the PRC Company Law, the shareholders may make capital contributions in cash, or alternatively may make capital contributions with such valuated non-monetary property as physical items, intellectual property rights, and land-use rights that may be valued in monetary term and may be transferred in accordance with the law. Pursuant to the Special Regulations, overseas listed and foreign invested shares issued shall be in registered form, denominated in Renminbi and subscribed for in a foreign currency. Domestic shares issued shall also be in registered form.

Under the PRC Company Law, when the company issues shares in registered form, it shall maintain a register of shareholders, stating the following matters:

• the name and domicile of each shareholder;

• the number of shares held by each shareholder;

• the serial numbers of shares held by each shareholder; and

• the date on which each shareholder acquired the shares.

Increase of Share Capital

According to the PRC Company Law, when the joint stock limited company issues new shares, resolutions shall be passed by a shareholders’ general meeting, approving the class and number of the new shares, the issue price of the new shares, the commencement and end of the new share issuance and the class and amount of new shares to be issued to existing shareholders. When the company launches a public issuance of new shares with

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the approval of the securities regulatory authorities of the State Council, it shall publish a document and financial and accounting reports, and prepare the share subscription form. After the new share issuance has been paid up, the change shall be registered with the company registration authorities and an announcement shall be made.

Reduction of Share Capital

A company may reduce its registered capital in accordance with the following procedures prescribed by the PRC Company Law:

• it shall prepare a balance sheet and a property list;

• the reduction of registered capital shall be approved by a shareholders’ general meeting;

• it shall inform its creditors of the reduction in capital within 10 days and publish an announcement of the reduction in the newspaper within 30 days after the resolution approving the reduction has been passed;

• creditors may within 30 days after receiving the notice, or within 45 days of the public announcement if no notice has been received, require the company to pay its debts or provide guarantees covering the debts;

• it shall apply to the department of market regulation for the registration of the reduction in registered capital.

Repurchase of Shares

According to the PRC Company Law, a joint stock limited company may not purchase its shares other than for one of the following purposes: (i) to reduce its registered capital; (ii) to merge with another company that holds its shares; (iii) to grant its shares to its employees as incentives; (iv) to purchase its shares from shareholders who are against the resolution regarding the merger or division with other companies at a shareholders’ general meeting; (v) to convert corporate bonds issued by a listed company that can be converted into stocks; or (vi) be necessary for a listed company to maintain its corporate value and stockholders’ equity.

Any company’s purchase of its own shares for any reason specified in the case of (i) and (ii) above shall be subject to a resolution of the general meeting; any company’s purchase of its own shares for any reason specified in the case of (iii), (v) and (vi) (v) may be subject to a resolution of the board meeting with more than two thirds of directors present, according to the provisions of the Articles of Associations or upon authorization by the general meeting. The company who purchases its own shares shall, in the case of (i) above, cancel the relevant shares within 10 days of the purchase, or in the case of (ii) or (iv) above, transfer or cancel the relevant shares within 6 months of the purchase, or in the case of (iii), (v) or (vi) above, hold a total number of its own shares not more than 10% of the total shares issued by the company and transfer or cancel the relevant shares within 3 years of the purchase. Any purchase of its own shares by a listed company in the case of (iii), (v) or (vi) above shall be made by way of a public centralised trading.

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Transfer of Shares

Shares held by shareholders may be transferred in accordance with the relevant laws and regulations. Pursuant to the PRC Company Law, transfer of shares by shareholders shall be carried out at a legally established securities exchange or in other ways stipulated by the State Council. No modifications of registration in the share register caused by transfer of registered shares shall be carried out within 20 days prior to the convening of shareholder’s general meeting or five days prior to the base date for determination of dividend distributions. However, where there are separate provisions by law on alternation of registration in the share register of listed companies, those provisions shall prevail. Pursuant to the Mandatory Provisions, no modifications of registration in the share register caused by transfer of shares shall be carried out within 30 days prior to convening of shareholder’s general meeting or five days prior to any base date for determination of dividend distributions.

Under the PRC Company law, shares issued prior to the public issuance of shares shall not be transferred within one year from the date of the joint stock limited company’s [REDACTED] on a stock exchange. Directors, supervisors and the senior management shall declare to the company their shareholdings in the company and any changes of such shareholdings. They shall not transfer more than 25% of all the shares they hold in the company annually during their tenure. They shall not transfer the shares they hold within one year from the date on which the company’s shares are listed and commenced trading on a stock exchange, nor within six months after their resignation from their positions with the company.

Shareholders

Under the PRC Company Law and the Mandatory Provisions, the rights of holders of ordinary shares of a joint stock limited company include:

• the right to attend or appoint a proxy to attend shareholders’ general meetings and to vote thereat;

• the right to transfer shares in accordance with laws, administrative regulations and provisions of the articles of association;

• the right to inspect the company’s articles of association, share register, counterfoil of company debentures, minutes of shareholder’s general meetings, resolutions of meetings of the board of directors, resolutions of meetings of the board of supervisors and financial and accounting reports and to make proposals or enquiries on the company’s operations;

• the right to bring an action in the people’s court to rescind resolutions passed by shareholder’s general meetings and board of directors where the articles of association is violated by the above resolutions;

• the right to receive dividends and other types of interest distributed in proportion to the number of shares held;

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• in the event of the termination or liquidation of the company, the right to participate in the distribution of residual properties of the company in proportion to the number of shares held; and

• other rights granted by laws, administrative regulations, other regulatory documents and the company’s articles of association.

The obligations of a shareholder include the obligation to abide by the Company’s articles of association, to pay the subscription moneys in respect of the shares subscribed for and in accordance with the form of making capital contributions, to be liable for the company’s debts and liabilities to the extent of the amount of his or her subscribed shares and any other shareholders’ obligation specified in the company’s articles of association.

Shareholders’ General Meetings

The shareholders’ general meeting is the organ of authority of the company, which exercises its powers in accordance with the PRC Company Law.

Under the PRC Company Law, the shareholders’ general meeting exercises the following principal powers:

• to decide on the company’s operational policies and investment plans;

• to elect or remove the directors and supervisors (other than the supervisor representative of the employees of the company) and to decide on matters relating to the remuneration of directors and supervisors;

• to examine and approve reports of the board of directors;

• to examine and approve reports of the board of supervisors;

• to examine and approve the company’s proposed annual financial budget and final accounts;

• to examine and approve the company’s proposals for profit distribution plans and loss recovery plans;

• to decide on any increase or reduction of the company’s registered capital;

• to decide on the issue of bonds by the company;

• to decide on issues such as merger, division, dissolution and liquidation of the company and other matters;

• to amend the company’s articles of association; and

• other powers as provided for in the articles of association.

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Shareholders’ annual general meetings are required to be held once every year. Under the PRC Company Law, an extraordinary shareholders’ general meeting is required to be held within two months after the occurrence of any of the following:

• the number of directors is less than the number stipulated by the law or less than two thirds of the number specified in the articles of association;

• the aggregate losses of the company which are not recovered reach one-third of the

• company’s total paid-in share capital;

• when shareholders alone or in aggregate holding 10% or more of the company’s shares request the convening of an extraordinary general meeting;

• whenever the board of directors deems necessary;

• when the board of supervisors so requests; or

• other circumstances as provided for in the articles of associations.

Under the PRC Company Law, shareholders’ general meetings shall be convened by the board of directors, and presided over by the chairman of the board of directors. In the event that the chairman is incapable of performing or does not perform his duties, the meeting shall be presided over by the vice chairman. In the event that the vice chairman is incapable of performing or not performing his duties, a director nominated by more than half of directors shall preside over the meeting.

Where the board of directors is incapable of performing or not performing its duties of convening the shareholders’ general meeting, the board of supervisors shall convene and preside over such meeting in a timely manner. In case the board of supervisors fails to convene and preside over such meeting, shareholders alone or in aggregate holding more than 10% of the company’s shares for 90 days consecutively may unilaterally convene and preside over such meeting.

Under the PRC Company Law, notice of shareholders’ general meeting shall state the time and venue of and matters to be considered at the meeting and shall be given to all shareholders 20 days before the meeting. Notice of extraordinary shareholder’s general meetings shall be given to all shareholders 15 days prior to the meeting.

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There is no specific provision in the PRC Company Law regarding the number of shareholders constituting a quorum in a shareholders’ meeting. Pursuant to the Mandatory Provisions, modification or abrogation of rights conferred to any class of shareholders shall be passed both by special resolution of shareholders’ general meeting and by class meeting convened respectively by shareholders of the affected class.

Under the PRC Company Law, where the company convenes shareholder’s general meeting, one shareholder who holds, or several shareholders who jointly hold, 3% or more of the shares of the company have a right to submit to the company new proposals in writing, in which the matters falling within the scope of shareholder’s general meeting shall be placed in the agenda of the meeting.

Under the PRC Company Law, shareholders present at shareholders’ general meeting have one vote for each share they hold, save that shares held by the company are not entitled to any voting rights.

Pursuant to the provisions of the articles of association or a resolution of the shareholders’ general meeting, the accumulative voting system may be adopted for the election of directors and supervisors at the shareholders’ general meeting. Under the accumulative voting system, each share shall be entitled to vote equivalent to the number of directors or supervisors to be elected at the shareholders’ general meeting and shareholders may consolidate their voting rights when casting a vote.

Pursuant to the PRC Company Law and the Mandatory Provisions, resolutions of the shareholders’ general meeting shall be adopted by more than half of the voting rights held by the shareholders present at the meeting. However, resolutions of the shareholders’ general meeting regarding the following matters shall be adopted by more than two-thirds of the voting rights held by the shareholders present at the meeting: (i) amendments to the articles of association; (ii) the increase or decrease of registered capital; (iii) the issue of any types of shares, warrants or other similar securities; (iv) the issue of debentures; (v) the merger, division, dissolution, liquidation or change in the form of the company; (vi) other matters considered by the shareholders’ general meeting, by way of an ordinary resolution, to be of a nature which may have a material impact on the company and should be adopted by a special resolution.

Under the PRC Company Law, meeting minutes shall be prepared in respect of decisions on matters discussed at the shareholders’ general meeting. The chairman of the meeting and directors attending the meeting shall sign to endorse such minutes. The minutes shall be kept together with the shareholders’ attendance register and the proxy forms.

Board

Under the PRC Company Law, a joint stock limited company shall have a board of directors, which shall consist of 5 to 19 members. Members of the board of directors may include representatives of the employees of the company, who shall be democratically elected by the company’s staff at the staff representative assembly, general staff meeting or otherwise. The term of a director shall be stipulated in the articles of association, but no

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term of office shall last for more than three years. Directors may serve consecutive terms if re-elected. A director shall continue to perform his duties in accordance with the laws, administrative regulations and articles of association until a duly re-elected director takes office, if re-election is not conducted in a timely manner upon the expiry of his term of office, or if the resignation of directors results in the number of directors being less than the quorum.

Under the PRC Company Law, the board of directors mainly exercises the following powers:

• to convene the shareholders’ general meetings and report on its work to the shareholders’ general meetings;

• to implement the resolutions passed in shareholders’ general meetings;

• to decide on the company’s business plans and investment proposals;

• to formulate the company’s proposed annual financial budget and final accounts;

• to formulate the company’s profit distribution proposals and loss recovery proposals;

• to formulate proposals for the increase or reduction of the company’s registered capital and the issuance of corporate bonds;

• to prepare plans for the merger, division, dissolution and change in the form of the company;

• to make decisions on the establishment of the company’s internal management departments;

• to make decisions on the appointment or dismissal of the company’s manager and his remuneration, and, according to the nomination by the manager, make decisions on the appointment or dismissal of any deputy manager and financial principal and their remunerations;

• to formulate the company’s basic management system; and

• to exercise any other power under the articles of association.

Board Meetings

Under the PRC Company Law, meetings of the board of directors of a joint stock limited company shall be convened at least twice a year. Notice of meeting shall be given to all directors and supervisors 10 days before the meeting. Interim board meetings may be proposed to be convened by shareholders representing more than 10% of voting rights, more than one-third of the directors or the board of supervisors. The chairman shall

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convene and preside over such meeting within 10 days after receiving such proposal. Meetings of the board of directors shall be held only if half or more of the directors are present. Resolutions of the board of directors shall be passed by more than half of all directors. Each director shall have one vote for resolutions to be approved by the board of directors. Directors shall attend board meetings in person. If a director is unable to attend a board meeting, he may appoint another director by a written power of attorney specifying the scope of the authorization to attend the meeting on his behalf.

If a resolution of the board of directors violates the laws, administrative regulations or the articles of association, and as a result of which the company sustains serious losses, the directors participating in the resolution are liable to compensate the company. However, if it can be proved that a director expressly objected to the resolution when the resolution was voted on, and that such objection was recorded in the minutes of the meeting, such director may be released from that liability.

Chairman of the Board

Under the PRC Company Law, the board of directors shall appoint a chairman and may appoint a vice chairman. The chairman and the vice chairman are elected with approval of more than half of all the directors. The chairman shall convene and preside over board meetings and examine the implementation of board resolutions. The vice chairman shall assist the work of the chairman. In the event that the chairman is incapable of performing or not performing his duties, the duties shall be performed by the vice chairman. In the event that the vice chairman is incapable of performing or not performing his duties, a director nominated by more than half of the directors shall perform his duties.

Qualification of Directors

The PRC Company Law provides that the following persons may not serve as a director:

• a person who is unable or has limited ability to undertake any civil liabilities;

• a person who has been convicted of an offense of bribery, corruption, embezzlement or misappropriation of property, or the destruction of socialist market economy order; or who has been deprived of his political rights due to his crimes, in each case where less than five years have elapsed since the date of completion of the sentence;

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• a person who has been a former director, factory manager or manager of a company or an enterprise that has entered into insolvent liquidation and who was personally liable for the insolvency of such company or enterprise, where less than three years have elapsed since the date of the completion of the bankruptcy and liquidation of the company or enterprise;

• a person who has been a legal representative of a company or an enterprise that has had its business license revoked due to violations of the law and has been ordered to close down by law and the person was personally responsible, where less than three years have elapsed since the date of such revocation; or

• a person who is liable for a relatively large amount of debts that are overdue.

Other circumstances under which a person is disqualified from acting as a director are set out in the Mandatory Provisions.

Board of Supervisors

A joint stock limited company shall have a board of supervisors composed of not less than three members. The board of supervisors is made up of representatives of the shareholders and an appropriate proportion of representatives of the employees of the company. The actual proportion shall be stipulated in the articles of association, provided that the proportion of representatives of the employees shall not be less than one third of the supervisors. Representatives of the employees of the company in the board of supervisors shall be democratically elected by the employees at the employees’ representative assembly, employees’ general meeting or otherwise.

The directors and senior management may not act concurrently as supervisors.

The board of supervisors shall appoint a chairman and may appoint a vice chairman. The chairman and the vice chairman of the board of supervisors are elected with approval of more than half of all the supervisors. The chairman of the board of supervisors shall convene and preside over the meetings of the board of supervisors. In the event that the chairman of the board of supervisors is incapable of performing or not performing his duties, the vice chairman of the board of supervisors shall convene and preside over the meetings of the board of supervisors. In the event that the vice chairman of the board of supervisors is incapable of performing or not performing his duties, a supervisor nominated by more than half of the supervisors shall convene and preside over the meetings of the board of supervisors.

Each term of office of a supervisor is three years and he or she may serve consecutive terms if re-elected. A supervisor shall continue to perform his duties in accordance with the laws, administrative regulations and articles of association until a duly re-elected supervisor takes office, if re-election is not conducted in a timely manner upon the expiry of his term of office, or if the resignation of supervisors results in the number of supervisors being less than the quorum.

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The board of supervisors exercises the following powers:

• to review the company’s financial position;

• to supervise the directors and senior management in their performance of their duties and to propose the removal of directors and senior management who have violated laws, regulations, the articles of association or the resolutions of shareholders’ meeting;

• when the acts of directors and senior management are harmful to the company’s interests, to require correction of those acts;

• to propose the convening of extraordinary shareholders’ general meetings and to convene and preside over shareholders’ general meetings when the board of directors fails to perform the duty of convening and presiding over shareholders’ general meeting under this law;

• to initiate proposals for resolutions to shareholders’ general meeting;

• to initiate proceedings against directors and senior management;

• other powers specified in the articles of association; and

• supervisors may attend board meetings and make enquiries or proposals in respect of board resolutions. The board of supervisors may initiate investigations into any irregularities identified in the operation of the company and, where necessary, may engage an accounting firm to assist their work at the company’s expense.

Manager and Senior Management

Under the PRC Company Law, a company shall have a manager who shall be appointed or removed by the board of directors. The manager shall report to the board of directors and may exercise the following powers:

• to supervise the production and business operations of the company and arrange for the implementation of resolutions of the board of directors;

• to organise the implementation of the company’s annual business plans and investment proposals;

• to draw up plans on the establishment of the company’s internal management departments;

• to draw up the general administration system of the company;

• to formulate the company’s detailed rules;

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• to recommend the appointment and dismissal of deputy managers and person in charge of finance;

• to appoint or dismiss other administration officers (other than those required to be appointed or dismissed by the board of directors); and

• to other powers conferred by the board of directors or the articles of association.

The manager shall comply with other provisions of the articles of association concerning his/ her powers. The manager shall attend board meetings.

According to the PRC Company Law, senior management shall mean the manager, deputy manager(s), person-in-charge of finance, board secretary (in case of a listed company) of a company and other personnel as stipulated in the articles of association.

Duties of Directors, Supervisors and Senior Management

Directors, supervisors and senior management of the company are required under the PRC Company Law to comply with the relevant laws, regulations and the articles of association, and have fiduciary and diligent duties to the company. Directors, supervisors and senior management are prohibited from abusing their powers to accept bribes or other unlawful income and from misappropriating of the company’s properties. Directors and senior management are prohibited from:

• misappropriation of the company’s capital;

• depositing the company’s capital into accounts under his own name or the name of other individuals;

• loaning company funds to others or providing guarantees in favor of others supported by the company’s assets in violation of the articles of association or without prior approval of the shareholders’ general meeting or board of directors;

• entering into contracts or deals with the company in violation of the articles of association or without prior approval of the shareholders’ general meeting;

• using their position and powers to procure business opportunities for themselves or others that should have otherwise been available to the company or operating for their own benefits or managing on behalf of others businesses similar to that of the company without prior approval of the shareholders’ general meeting;

• accept and possess commissions paid by a third party for transactions conducted with the company;

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• unauthorized divulgence of confidential business information of the company; or

• other acts in violation of their duty of loyalty to the company.

A director, supervisor or senior management who contravenes any law, regulation or the company’s articles of association in the performance of his duties resulting in any loss to the company shall be personally liable to the company.

Finance and Accounting

Under the PRC Company Law, a company shall establish financial and accounting systems according to laws, administrative regulations and the regulations of the financial department of the State Council and shall at the end of each financial year prepare a financial and accounting report which shall be audited by an accounting firm as required by law. The company’s financial and accounting report shall be prepared in accordance with provisions of the laws, administrative regulations and the regulations of the financial department of the State Council.

Pursuant to the PRC Company Law, the joint stock limited company shall make its financial and accounting reports available at the company for inspection by the shareholders at least 20 days before the convening of an annual general meeting of shareholders. A joint stock limited company that has offered its shares to the public shall publicize its financial and accounting reports.

When distributing each year’s after-tax profits, it shall set aside 10% of its after-tax profits into a statutory common reserve fund (except where the fund has reached 50% of its registered capital).

If its statutory common reserve fund is not sufficient to make up losses of the previous year, profits of the current year shall be applied to make up losses before allocation is made to the statutory common reserve fund pursuant to the above provisions.

After allocation of the statutory common reserve fund from after-tax profits, it may, upon a resolution passed at the shareholders’ general meeting, allocate discretionary common reserve fund from after-tax profits.

The remaining after-tax profits after making up losses and allocation of common reserve fund shall be distributed in proportion to the number of shares held by the shareholders, unless otherwise stipulated in the articles of association.

Shares held by the Company shall not be entitled to any distribution of profit.

The premium received through issuance of shares at prices above par value and other incomes required by the financial department of the State Council to be allocated to the capital reserve fund shall be allocated to the company’s capital reserve fund.

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The Company’s reserve fund shall be applied to make up losses of the company, expand its business operations or be converted to increase the registered capital of the company. However, the capital reserve fund may not be applied to make up the company’s losses. Upon the conversion of statutory common reserve fund into capital, the balance of the statutory common reserve fund shall not be less than 25% of the registered capital of the company before such conversion.

The Company shall have no other accounting books except the statutory accounting books. Its assets shall not be deposited in any accounts opened in the name of any individual.

Appointment and Retirement of Accounting Firms

Pursuant to the PRC Company Law, the appointment or dismissal of accounting firms responsible for the auditing of the company shall be determined by shareholders’ general meeting or board of directors in accordance with provisions of articles of association. The accounting firm should be allowed to make representations when the shareholders’ general meeting or board of directors conducts a vote on the dismissal of the accounting firm. The company should provide true and complete accounting evidences, books, financial and accounting reports and other accounting data to the accounting firm it employs without any refusal, withholding and misrepresentation.

The Special Regulations provide that a company shall employ an independent accounting firm complying with the relevant regulations of the State to audit its annual report and review and check other financial reports of the company. The accounting firm’s term of office shall commence from their appointment at a shareholders’ annual general meeting to the end of the next shareholders’ annual general meeting.

Distribution of Profits

According to the PRC Company Law, a company shall not distribute profits before losses are covered and the statutory common reserve is drawn. Under the Mandatory Provisions, a company shall appoint receiving agents on behalf of holders of the overseas listed and foreign invested shares to receive on behalf of such shareholders dividends and other distributions payable in respect of their overseas listed and foreign invested shares.

Amendments to Articles of Association

Any amendments to the company’s articles of association must be made in accordance with the procedures set out in the company’s articles of association. Any amendment of provisions incorporated in the articles of association in connection with the Mandatory Provisions will only be effective after approval by the company’s approval department authorised by the State Council and the CSRC. In relation to matters involving the company’s registration, its registration with the authority must also be changed.

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Dissolution and Liquidation

According to the PRC Company Law, a company shall be dissolved by reason of the following: (i) the term of its operations set down in the articles of association has expired or other events of dissolution specified in the articles of association have occurred; (ii) the shareholders’ general meeting have resolved to dissolve the company; (iii) the company is dissolved by reason of merger or division; (iv) the business license is revoked; the company is ordered to close down or be dissolved; or (v) the company is dissolved by the people’s court in response to the request of shareholders holding shares that represent more than 10% of the voting rights of all its shareholders, on the grounds that the company suffers significant hardship in its operation and management that cannot be resolved through other means, and the ongoing existence of the company would bring significant losses for shareholders.

In the event of (i) above, it may carry on its existence by amending its articles of association. The amendment of the articles of association in accordance with provisions set out above shall require approval of more than two thirds of voting rights of shareholders attending a shareholders’ general meeting.

Where the company is dissolved in the circumstances described in subparagraphs (i), (ii), (iv), or (v) above, a liquidation group shall be established and the liquidation process shall commence within 15 days after the occurrence of an event of dissolution.

The members of the company’s liquidation group shall be composed of its directors or the personnel appointed by the shareholders’ general meeting. If a liquidation group is not established within the stipulated period, creditors may apply to the people’s court and request the court to appoint relevant personnel to form the liquidation group. The people’s court should accept such application and form a liquidation group to conduct liquidation in a timely manner.

The liquidation group shall exercise the following powers during the liquidation period:

• to handle the company’s assets and to prepare a balance sheet and an inventory of the assets;

• to notify creditors through notice or public announcement;

• to deal with the company’s outstanding businesses related to liquidation;

• to pay any tax overdue as well as tax amounts arising from the process of liquidation;

• to claim credits and pay off debts;

• to handle the company’s remaining assets after its debts have been paid off; and

• to represent the company in civil lawsuits.

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The liquidation group shall notify the company’s creditors within 10 days after its establishment and issue public notices in newspapers within 60 days. A creditor shall lodge his claim with the liquidation group within 30 days after receiving notification, or within 45 days of the public notice if he did not receive any notification. A creditor shall state all matters relevant to his creditor rights in making his claim and furnish evidence. The liquidation group shall register such creditor rights. The liquidation group shall not make any debt settlement to creditors during the period of claim.

Upon liquidation of properties and the preparation of the balance sheet and inventory of assets, the liquidation group shall draw up a liquidation plan to be submitted to the shareholders’ general meeting or people’s court for confirmation.

The company’s remaining assets after payment of liquidation expenses, wages, social insurance expenses and statutory compensation, outstanding taxes and debts shall be distributed to shareholders according to their shareholding proportion. It shall continue to exist during the liquidation period, although it can only engage in any operating activities that are related to the liquidation. The company’s properties shall not be distributed to the shareholders before repayments are made in accordance to the foregoing provisions.

Upon liquidation of the company’s properties and the preparation of the balance sheet and inventory of assets, if the liquidation group becomes aware that the company does not have sufficient assets to meet its liabilities, it must apply to the people’s court for a declaration for bankruptcy.

Following such declaration, the liquidation group shall hand over all matters relating to the liquidation to the people’s court.

Upon completion of the liquidation, the liquidation group shall submit a liquidation report to the shareholders’ general meeting or the people’s court for verification. Thereafter, the report shall be submitted to the registration authority of the company in order to cancel the company’s registration, and a public notice of its termination shall be issued. Members of the liquidation group are required to discharge their duties honestly and in compliance with the relevant laws. Members of the liquidation group shall be prohibited from abusing their powers to accept bribes or other unlawful income and from misappropriating the company’s properties.

A member of the liquidation group is liable to indemnify the company and its creditors in respect of any loss arising from his intentional or gross negligence.

Overseas Listing

According to the Special Regulations, a company shall obtain the approval of the CSRC to list its shares overseas. A company’s plan to issue overseas listed and foreign invested shares and domestic shares which has been approved by the CSRC may be implemented by the board of directors of the company by way of separate issue within 15 months after approval is obtained from the CSRC.

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Loss of Share Certificates

If a registered share certificate is lost, stolen or destroyed, the relevant shareholder may apply, in accordance with the relevant provisions set out in the Civil Procedure Law, to a people’s court to declare such certificate invalid. After the people’s court declares the invalidity of such certificate, the shareholder may apply to the company for a replacement share certificate. A separate procedure regarding the loss of overseas listed and foreign invested share certificates is provided for in the Mandatory Provisions.

Suspension and Termination of Listing

The PRC Company Law has deleted provisions governing suspension and termination of listing. According to the PRC Securities Law, where listed securities fall under the circumstances subject to termination of listing as prescribed by a stock exchange, the stock exchange shall terminate the listing of such securities in accordance with the business rules. Where a stock exchange decides to terminate the listing of any securities, it shall announce its decision in a timely manner and report it to the securities regulatory authority under the State Council for the record.

Merger and Demerger

Companies may merge through merger by absorption or through the establishment of a newly merged entity. If it merges by absorption, the company which is absorbed shall be dissolved. If it merges by forming a new corporation, both companies will be dissolved.

SECURITIES LAW AND REGULATIONS

The PRC has promulgated a number of regulations that relate to the issue and trading of shares and disclosure of information. In October 1992, the State Council established the Securities Committee and the CSRC. The Securities Committee is responsible for coordinating the drafting of securities regulations, formulating securities-related policies, planning the development of securities markets, directing, coordinating and supervising all securities-related institutions in the PRC and administering the CSRC. The CSRC is the regulatory arm of the Securities Committee and is responsible for the drafting of regulatory provisions of securities markets, supervising securities companies, regulating public offers of securities by PRC companies in the PRC or overseas, regulating the trading of securities, compiling securities related statistics and undertaking relevant research and analysis. In April 1998, the State Council consolidated the two departments and reformed the CSRC.

The Interim Provisional Regulations on the Administration of Share Issuance and Trading《股票發行與交易管理暫行條例》 ( ) deals with the application and approval procedures for public offerings of equity securities, trading in equity securities, the acquisition of listed companies, deposit, clearing and transfer of listed equity securities, the disclosure of information with respect to a listed company, investigation, penalties and dispute settlement.

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On December 25, 1995, the State Council promulgated and implemented the Regulations of the State Council Concerning Domestic Listed Foreign Shares of Joint Stock Limited Companies《國務院關於股份有限公司境內上市外資股的規定》 ( ). These regulations deal mainly with the issue, subscription, trading and declaration of dividends and other distributions of domestic listed and foreign invested shares and disclosure of information of joint stock limited companies having domestic listed and foreign invested shares.

The PRC Securities Law took effect on July 1, 1999 and was revised on August 28, 2004, October 27, 2005, June 29, 2013, August 31, 2014 and December 28, 2019 respectively. This is the first national securities law in the PRC, which is divided into 14 chapters and 226 articles regulating, among other things, the issue and trading of securities, takeovers by listed companies, securities exchanges, securities companies and the duties and responsibilities of the State Council’s securities regulatory authorities. The PRC Securities Law comprehensively regulates activities in the PRC securities market. Article 224 of the PRC Securities Law provides that any domestic enterprise that seeks to issue securities abroad either directly or indirectly or that lists its securities to be traded abroad shall comply with the relevant provisions of the State Council. Currently, the issue and trading of foreign issued shares (including H shares) are mainly governed by the rules and regulations promulgated by the State Council and the CSRC.

ARBITRATION AND ENFORCEMENT OF ARBITRAL AWARDS

The Arbitration Law of the PRC《中華人民共和國仲裁法 ( ) (the “Arbitration Law”) was passed by the Standing Committee of the NPC on August 31, 1994, became effective on September 1, 1995 and was amended on August 27, 2009 and September 1, 2017. Under the Arbitration Law, an arbitration committee may, before the promulgation by the PRC Arbitration Association of arbitration regulations, formulate interim arbitration rules in accordance with the Arbitration Law and the Civil Procedure Law. Where the parties have by agreement provided arbitration as the method for dispute resolution, the people’s court will refuse to handle the case except when the arbitration agreement is declared invalid.

The Mandatory Provisions require an arbitration clause to be included in the articles of association of an issuer. Matters in arbitration include any disputes or claims in relation to the issuer’s affairs or as a result of any rights or obligations arising under its articles of association, the PRC Company Law or other relevant laws and administrative regulations.

Where a dispute or claim of rights referred to in the preceding paragraph is referred to arbitration, the entire claim or dispute must be referred to arbitration, and all persons who have a cause of action based on the same facts giving rise to the dispute or claim or whose participation is necessary for the resolution of such dispute or claim, must comply with the arbitration. Disputes in respect of the definition of shareholder and disputes in relation to the issuer’s register of shareholders need not be resolved by arbitration.

A claimant may elect for arbitration to be carried out at either the China International Economic and Trade Arbitration Commission (中國國際經濟貿易仲裁委員會) (“CIETAC”) in accordance with its rules or the Hong Kong International Arbitration center (“HKIAC”) in accordance with its Securities Arbitration Rules (the “Securities

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Arbitration Rules”). Once a claimant refers a dispute or claim to arbitration, the other party shall submit to the arbitral body elected by the claimant. If the claimant elects for arbitration to be carried out at the HKIAC, any party to the dispute or claim may apply for a hearing to take place in Shenzhen in accordance with the Securities Arbitration Rules. In accordance with the Arbitration Regulations of CIETAC《中國國際經濟貿易仲裁委員會仲 ( 裁規則》) which was amended on November 4, 2014 and will be implemented on January 1, 2015, CIETAC shall deal with economic and trading disputes over contractual or non-contractual transactions, including disputes involving Hong Kong based on the agreement of the parties. The arbitration commission is established in Beijing and its branches and centers have been set up in Shenzhen, Shanghai, Tianjin and Chongqing.

Under the Arbitration Law and the Civil Procedure Law, an arbitral award is final and binding on the parties. If a party fails to comply with an award, the other party to the award may apply to the people’s court for enforcement. A people’s court may refuse to enforce an arbitral award made by an arbitration commission if there is any irregularity on the procedures or composition of arbitrators specified by law or the award exceeds the scope of the arbitration agreement or is outside the jurisdiction of the arbitration commission.

A party seeking to enforce an arbitral award of PRC arbitration panel against a party who, or whose property, is not within the PRC, may apply to a foreign court with jurisdiction over the case for enforcement. Similarly, an arbitral award made by a foreign arbitration body may be recognised and enforced by the PRC courts in accordance with the principles of reciprocity or any international treaty concluded or acceded to by the PRC. The PRC acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) adopted on June 10, 1958 pursuant to a resolution of the Standing Committee of the NPC passed on December 2, 1986. The New York Convention provides that all arbitral awards made in a state which is a party to the New York Convention shall be recognised and enforced by all other parties to the New York Convention, subject to their right to refuse enforcement under certain circumstances, including where the enforcement of the arbitral award is against the public policy of the state to which the application for enforcement is made. It was declared by the Standing Committee of the NPC simultaneously with the accession of the PRC that (i) the PRC will only recognise and enforce foreign arbitral awards on the principle of reciprocity and (ii) the PRC will only apply the New York Convention in disputes considered under PRC laws to arise from contractual and non-contractual mercantile legal relations.

An arrangement was reached between Hong Kong and the Supreme People’s Court for the mutual enforcement of arbitral awards. On June 18, 1999, the Supreme People’s Court adopted the Arrangement on Mutual Enforcement of Arbitral Awards between Mainland China and Hong Kong《關於內地與香港特別行政區相互執行仲裁裁決的安排》 ( ), which became effective on February 1, 2000. In accordance with this arrangement, awards made by PRC arbitral authorities under the Arbitration Law can be enforced in Hong Kong, and Hong Kong arbitration awards are also enforceable in the PRC.

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Judicial judgment and its enforcement

According to the Arrangement on Mutual Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland China and of the Hong Kong Special Administrative Region Pursuant to Agreed Jurisdiction by Parties Concerned《最高人民法院關於內地與香港特別行政區法院相互認可執行當事人協議管轄的 ( 民事案件判決的安排》) promulgated by the Supreme People’s Court on July 3, 2008 and implemented on August 1, 2008, in the case of final judgment, defined with payment amount and enforcement power, made between the court of China and the court of the Hong Kong Special Administrative Region in a civil and commercial case with written jurisdiction agreement, any party concerned may apply to the People’s Court of China or the court of the Hong Kong Special Administrative Region for recognition and enforcement based on this arrangement. “Choice of court agreement in written” refers to a written agreement defining the exclusive jurisdiction of either the People’s Court of China or the court of the Hong Kong Special Administrative Region in order to resolve dispute with particular legal relation occurred or likely to occur by the party concerned. Therefore, the party concerned may apply to the Court of China or the court of the Hong Kong Special Administrative Region to recognise and enforce the final judgment made in China or Hong Kong that meet certain conditions of the aforementioned regulations.

2. MATERIAL DIFFERENCES BETWEEN HONG KONG AND PRC COMPANY LAW

The Hong Kong law applicable to a company incorporated in Hong Kong is based on the Companies (Winding Up and Miscellaneous Provisions) Ordinance《公司 ( （清盤及雜項條文）條例》) and the Companies Ordinance《公司條例》 ( ) and is supplemented by common law and the rules of equity that are applicable to Hong Kong. As a joint stock limited company established in the PRC that is seeking a [REDACTED] of shares on the Hong Kong Stock Exchange, we are governed by the PRC Company Law and all other rules and regulations promulgated pursuant to the PRC Company Law. Set out below is a summary of certain material differences between Hong Kong company law applicable to a company incorporated in Hong Kong and the PRC Company Law applicable to a joint stock limited company incorporated and existing under the PRC Company Law. This summary is, however, not intended to be an exhaustive comparison.

Corporate Existence

Under Hong Kong company law, a company with share capital, is incorporated by the Registrar of Companies in Hong Kong which issues a certificate of incorporation to the Company upon its incorporation and the company will acquire an independent corporate existence. A company may be incorporated as a public company or a private company. Pursuant to the Companies Ordinance, the articles of association of a private company incorporated in Hong Kong shall contain certain preemptive provisions. A public company’s articles of association do not contain such pre-emptive provisions.

Under the PRC Company Law, a joint stock limited company may be incorporated by promotion or public subscription.

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Share Capital

The Hong Kong company law does not provide for authorised share capital. The share capital of a Hong Kong company would be its issued share capital. The full proceeds of a share issue will be credited to share capital and becomes a company’s share capital. The directors of a Hong Kong company may, with the prior approval of the shareholders if required, issue new shares of the company. The PRC Company Law does not provide for authorised share capital, either. Our registered capital is the amount of our issued share capital. Any increase in our registered capital must be approved by our shareholders’ general meeting and the relevant PRC governmental and regulatory authorities.

Under the PRC Company Law, the shares may be subscribed for in the form of money or non-monetary assets (other than assets not entitled to be used as capital contributions under relevant laws and administrative regulations). For non-monetary assets to be used as capital contributions, appraisals and verification must be carried out to ensure no overvaluation or undervaluation of the assets. There is no such restriction on a Hong Kong company under Hong Kong Law.

Restrictions on Shareholding and Transfer of Shares

Under PRC law, our Domestic Shares, which are denominated and subscribed for in Renminbi, may only be subscribed for or traded by the State, PRC legal persons, natural persons, qualified foreign institutional investors, or eligible foreign strategic investors. Overseas listed shares, which are denominated in Renminbi and subscribed for in a currency other than Renminbi, may only be subscribed for, and traded by, investors from Hong Kong, Macau and Taiwan or any country and territory outside the PRC, or qualified domestic institutional investors.

Under the PRC Company Law, a promoter of a joint stock limited company is not allowed to transfer the shares it holds for a period of one year after the date of establishment of the company. Shares in issue prior to our [REDACTED] cannot be transferred within one year from the [REDACTED] of the shares on a stock exchange. Shares in a joint stock limited liability company held by its directors, supervisors and managers and transferred each year during their term of office shall not exceed 25% of the total shares they held in the company, and the shares they held in the company cannot be transferred within one year from the [REDACTED] of the shares, and also cannot be transferred within half a year after the said personnel has left office. The articles of association may set other restrictive requirements on the transfer of the company’s shares held by its directors, supervisors and officers. There are no such restrictions on shareholdings and transfers of shares under Hong Kong law apart from the six-month lockup on the company’s issue of shares and the 12-month lockup on controlling shareholders’ disposal of shares, as illustrated by the undertakings given by the Company and our controlling shareholder to the Hong Kong Stock Exchange.

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Financial Assistance for Acquisition of Shares

The PRC Company Law does not prohibit or restrict a joint stock limited company or its subsidiaries from providing financial assistance for the purpose of an acquisition of its own or its holding company’s shares. However, the Mandatory Provisions contain certain restrictions on a company and its subsidiaries on providing such financial assistance similar to those under the Hong Kong company law.

Notice of Shareholders’ Meetings

Under the PRC Company Law, notice of a shareholder’s annual general meeting must be given not less than 20 days before the meeting. Whereas notice of an extraordinary general meeting must be given not less than 15 days before the meeting. If a company issues bearer shares, notice of a shareholder’s general meeting must be given at least 30 days prior to the meeting.

For a company incorporated in Hong Kong, the notice period for an annual general meeting is at least 21 days and in any other case, at least 14 days for a limited company and at least 7 days for an unlimited company.

Quorum for Shareholders’ Meetings

Under Hong Kong law, the quorum for a general meeting must be at least two members unless the articles of association of the company otherwise provide. For companies with only one member, the quorum must be one member. The PRC Company Law does not specify any quorum requirement for a shareholders’ general meeting, but the Special Regulations and the Mandatory Provisions provide that general meetings may only be convened when replies to the notice of that meeting have been received from shareholders whose shares represent at least 50% of the voting rights at least 20 days before the proposed date of the meeting, or if that 50% level is not achieved, the company shall within five days notify its shareholders again by way of a public announcement and the shareholders’ general meeting may be held thereafter.

Voting at Shareholder’s Meetings

Under the PRC Company Law, the passing of any resolution requires affirmative votes of shareholders representing more than half of the voting rights represented by the shareholders who attend the general meeting except in cases of proposed amendments to a company’s articles of association, increase or decrease of registered capital, merger, division or dissolution, or change of corporation form, which require affirmative votes of shareholders representing more than two-thirds of the voting rights represented by the shareholders who attend the general meeting.

Under Hong Kong law, an ordinary resolution is passed by a simple majority of votes cast by members present in person or by proxy at a general meeting and a special resolution is passed by a majority of not less than three-fourths of votes cast by members present in person or by proxy at a general meeting.

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Variation of Class Rights

The PRC Company Law has no special provision relating to variation of class rights. However, the PRC Company Law states that the State Council can promulgate regulations relating to other kinds of shares. The Mandatory Provisions contain elaborate provisions relating to the circumstances which are deemed to be variations of class rights and the approval procedures required to be followed in respect thereof. These provisions have been incorporated in the Articles of Association, which are summarized in “Appendix V — Summary of the Articles of Association of our Company.”

Under the Companies Ordinance, no rights attached to any class of shares can be varied except: (i) If there are provisions in the articles of association relating to the variation of those rights, then in accordance with those provisions; (ii) If there are not relevant provisions in the articles of associations, then (1) with the consent in writing of at least three fourths of the total voting rights of holders of the shares in the class in question, or (2) with the approval of a special resolution of the holders of the relevant class at a separate meeting.

As required by the Listing Rules and the Mandatory Provisions, we have adopted in the Articles of Association provisions protecting class rights in a similar manner to those found in Hong Kong law. Holders of overseas listed shares and domestic listed shares are defined in the Articles of Association as different classes. The special procedures for voting by a class of Shareholders shall not apply in the following circumstances: (i) where we issue, either separately or concurrently in any 12-month period, upon approval by special resolutions passed at a general meeting, A shares and H shares not more than 20% of each of the existing A shares and H shares, respectively; (ii) where the plan for the issue of A shares and H shares upon our establishment is implemented within 15 months following the date of approval by the securities regulatory authorities under the State Council or within the stated period as stipulated by applicable requirements, and (iii) where the Company issues and lists its H shares overseas, upon receiving the approval of the State Council or the securities regulatory authorities under the State Council, our shareholders may liquidate the unlisted shares they hold for dealing in overseas.

Derivative Action by Minority Shareholders

Under Hong Kong company law, a shareholder may, with the leave of the Court, start a derivative action on behalf of a company for any misconduct committed by its directors against the company. For example, leave may be granted where the directors control a majority of votes at a general meeting and could thereby prevent the company from suing the directors in its own name.

Pursuant to the PRC Company Law, in the event where the directors and senior management of a joint stock limited company violate laws, administrative regulations or its articles of association, resulting in losses to the company, the shareholders individually or jointly holding over 1% of the shares in the company for more than 180 consecutive days may request in writing the board of supervisors to initiate proceedings in the people’s court. In the event that the board of supervisors violates as such, the above said shareholders may send written request to the board of directors to initiate proceedings in

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the people’s court. Upon receipt of such written request from the shareholders, if the board of supervisors or the board of directors refuses to initiate such proceedings, or has not initiated proceedings within 30 days upon receipt of the request, or if under urgent situations, failure of initiating immediate proceeding may cause irremediable damages to the company, the above said shareholders shall, for the benefit of the company’s interests, have the right to initiate proceedings directly to the court in their own name.

In addition, the Mandatory Provisions provide us with certain remedies against the Directors, Supervisors and senior management who breach their duties to the Company. In addition, as a condition to the [REDACTED] of overseas listed foreign Shares on the Stock Exchange, each director and supervisor of a joint stock limited company is required to give an undertaking to observe the articles of association in favor of the company. This allows minority Shareholders to take action against our Directors and Supervisors in default.

Minority Shareholder Protection

Under the Companies Ordinance, a shareholder who alleges that the affairs of a company are conducted in a manner unfairly prejudicial to his interests may petition to the Court to make an appropriate order to give relief to the unfairly prejudicial conduct. Alternatively, pursuant to the Companies (Winding Up and Miscellaneous Provisions) Ordinance, a shareholder may seek to wind up the company on the just and equitable ground. In addition, on the application of a specified number of members, the Financial Secretary may appoint inspectors who are given extensive statutory powers to investigate the affairs of a company incorporated or registered in Hong Kong. The PRC Company Law provides that any shareholders holding 10% or above of voting rights of all issued shares of a company may request a People’s Court to dissolve the company to the extent that the operation or management of the company experiences any serious difficulties and its continuous existence would cause serious losses to them, and no other alternatives can resolve such difficulties.

The Company, as required by the Mandatory Provisions, has adopted in its Articles of Association minority Shareholder protection provisions similar to (though not as comprehensive as) those available under the Hong Kong law. These provisions state that a controlling shareholder may not exercise its voting rights in a manner prejudicial to the interests of other shareholders, may not relieve a director or supervisor of his duty to act honestly in our best interests or may not approve the expropriation by a director or supervisor of our assets or the individual rights of other shareholders.

Directors

The PRC Company Law, unlike Hong Kong company law, does not contain any requirements relating to the declaration of directors’ interests in material contracts, restrictions on directors’ authority in making major dispositions, restrictions on companies providing certain benefits to directors and indemnification in respect of directors’ liability and prohibitions against compensation for loss of office without shareholders’ approval. The Mandatory Provisions, however, contain certain requirements and restrictions on major disposals and specify the circumstances under which a director may receive compensation for loss of office.

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Board of Supervisors

Under the PRC Company Law, a joint stock limited company’s directors and senior management are subject to the supervision of a board of supervisors. There is no mandatory requirement for the establishment of a board of supervisors for a company incorporated in Hong Kong. The Mandatory Provisions provide that each supervisor owes a duty, in the exercise of his powers, to act in good faith and honestly in what he considers to be in the best interests of the Company and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

Fiduciary Duties

In Hong Kong, directors owe fiduciary duties to the company, including the duty not to act in conflict with the company’s interests. Furthermore, the Companies Ordinance has codified the directors’ statutory duty of care. Under the Special Regulations, directors, supervisors, managers and other members of senior management of the company shall honestly and diligently perform their duties for the company.

Financial Disclosure

Under the PRC Company Law, a joint stock limited company is required to make available at the company for inspection by shareholders its financial report 20 days before its shareholders’ annual general meeting. In addition, a joint stock limited company of which the shares are publicly offered must publish its financial report. The Companies Ordinance requires a company incorporated in Hong Kong to send to every shareholder a copy of its balance sheet, auditors’ report and directors’ report, which are to be presented before the company in its annual general meeting, not less than 21 days before such meeting. According to the PRC laws, a company shall prepare its financial accounting reports as of the end of each accounting year, and submit the same to accounting firms for auditing as required by law. The Mandatory Provisions require that a company must, in addition to preparing financial statements according to the CAS, have its financial statements prepared and audited in accordance with international or Hong Kong accounting standards and its financial statements must also contain a statement of the financial effect of the material differences (if any) from the financial statements prepared in accordance with the CAS.

The Special Regulations require that there should not be any inconsistency between the information disclosed within and outside the PRC and that, to the extent that there are differences in the information disclosed in accordance with the relevant PRC and overseas laws, regulations and requirements of the relevant stock exchanges, such differences should also be disclosed simultaneously.

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Information on Directors and Shareholders

The PRC Company Law gives shareholders the right to inspect the company’s articles of association, minutes of the shareholders’ general meetings and financial and accounting reports. Under the Articles of Association, shareholders have the right to inspect and copy (at reasonable charges) certain information on shareholders and on directors which is similar to the shareholders’ rights of Hong Kong companies under Hong Kong law.

Receiving Agent

Under the PRC Company Law and Hong Kong law, dividends once declared are debts payable to shareholders. The limitation period for debt recovery action under Hong Kong law is six years, while under the PRC law this limitation period is two years. The Mandatory Provisions require the relevant company to appoint a trust company registered under the Hong Kong Trustee Ordinance (Chapter 29 of the Laws of Hong Kong) as a receiving agent to receive on behalf of holders of shares dividends declared and all other monies owed by the company in respect of its shares.

Corporate Reorganization

Corporate reorganization involving a company incorporated in Hong Kong may be effected in a number of ways, such as a transfer of the whole or part of the business or property of the company in the course of voluntary winding up to another company pursuant to Section 237 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance or a compromise or arrangement between the company and its creditors or between the company and its members pursuant to Section 673 and Section 674 of the Companies Ordinance, which requires the sanction of the court. Under PRC law, merger, division, dissolution or change to the status of a joint stock limited liability company has to be approved by shareholders in general meeting.

Mandatory Transfers

Under the PRC Company Law, a joint stock limited liability company is required to make transfers equivalent to certain prescribed percentages of its after tax profit to the statutory common reserve fund. There are no corresponding provisions under Hong Kong law.

Arbitration of Disputes

In Hong Kong, disputes between shareholders and a company or its directors, managers and other senior management may be resolved through the courts. The Mandatory Provisions provides that disputes between a holder of H shares and the Company, a holder of H shares and directors, supervisors, managers and other members of senior management of the Company or a holder of H shares and a holder of domestic listed shares, arising from the Articles of Association, the PRC Company Law or other relevant laws and administrative regulations which concerns the affairs of the Company should, with certain exceptions, be referred to arbitration at either the HKIAC or the China International Economic and Trade Arbitration Commission. Such arbitration is final and conclusive.

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The Securities Arbitration Rules of the HKIAC contain provisions allowing, upon application by any party, an arbitral tribunal to conduct a hearing in Shenzhen for cases involving the affairs of companies incorporated in the PRC and listed on the Stock Exchange so that PRC parties and witnesses may attend. Where any party applies for a hearing to take place in Shenzhen, the tribunal shall, where satisfied that such application is based on bona fide grounds, order the hearing to take place in Shenzhen conditional upon all parties, including witnesses and arbitrators, being permitted to enter Shenzhen for the purpose of the hearing. Where a party, other than a PRC party or any of its witnesses or any arbitrator, is not permitted to enter Shenzhen, then the tribunal shall order that the hearing be conducted in any practicable manner, including the use of electronic media. For the purpose of the Securities Arbitration Rules of the HKIAC, a PRC party means a party domiciled in the PRC other than the territories of Hong Kong, Macau and Taiwan.

Remedies of the Company

Under the PRC Company Law, if a director, supervisor or manager in carrying out his duties infringes any law, administrative regulation or the articles of association of a company, which results in damage to the company, that director, supervisor or manager should be responsible to the company for such damages. In addition, the Listing Rules require listed companies’ articles of association to provide for remedies of the company similar to those available under Hong Kong law (including rescission of the relevant contract and recovery of profits from a director, supervisor or senior management).

Dividends

The company has the power in certain circumstances to withhold, and pay to the relevant tax authorities, any tax payable under PRC law on any dividends or other distributions payable to a shareholder. Under Hong Kong law, the limitation period for an action to recover a debt (including the recovery of dividends) is six years, whereas under PRC laws, the relevant limitation period is three years. The company must not exercise its powers to forfeit any unclaimed dividend in respect of shares until after the expiry of the applicable limitation period.

Closure of Register of Shareholders

The Companies Ordinance requires that the register of shareholders of a company must not generally be closed for the registration of transfers of shares for more than 30 days (extendable to 60 days in certain circumstances) in a year, whereas, as required by the PRC Company Law and the Mandatory Provisions, share transfers shall not be registered within 30 days before the date of a shareholders’ meeting or within five days before the base date set for the purpose of distribution of dividends.

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This Appendix sets out summaries of the main clauses of our Articles of Association adopted on [●], which shall become effective as of the date on which the [REDACTED]are [REDACTED] on the Stock Exchange. As the main purpose of this Appendix is to provide potential investors with an overview of the Articles of Association, it may not necessarily contain all information that is important for prospective investors. As discussed in the appendix headed “Appendix VII — Documents Delivered to the Registrar of Companies and Available for Inspection” to this Document, the full document of the Articles of Association in Chinese is available for examination.

1 DIRECTORS AND BOARD OF DIRECTORS

(1) Power to allocate and issue shares

The Articles of Association does not contain clauses that authorise the Board of Directors to allocate or issue shares. The Board of Directors shall prepare suggestions for share allotment or issue, which are subject to approval by the Shareholders at the general Shareholders’ meeting in the form of a special resolution. Any such allotment or issue shall be in accordance with the procedures stipulated in appropriate laws, administrative regulations and supervision rules of shares listed region, the Board of Director shall not dispose of or agree to dispose of assets before the approval of the general shareholder’s meeting.

(2) Power to dispose assets of our Company or any subsidiary

In any case that the Board of Directors intends to dispose assets, if the sum of the expected value of the fixed assets to be disposed of, and the amount or value of the cost received from the fixed assets of our Company disposed of within the four months immediately preceding this suggestion for disposal exceeds 33% of the value of fixed assets of our Company indicated on the latest audited balance sheet submitted at the Shareholders’ meeting.

For the purposes of the Articles of Association, a disposition of fixed assets includes certain acts of transfer of interests in assets but does not include the provision of fixed assets as security.

The validity of the transactions with respect to the disposal of fixed assets of our Company shall not be affected by the violation of the above restrictions contained in the Articles of Association.

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(3) Emoluments or compensation for loss of office

As provided in the written contract entered into between our Company and the Directors or Supervisors in connection with their emoluments, they are entitled to compensation or other payments for loss of office or retirement as a result of the acquisition of our Company, subject to the approval of the Shareholders at the general Shareholders’ meeting in advance.

Acquisition of our Company refers to any of the following circumstances:

i. An offer made by any person made to all Shareholders; or

ii. An offer is made by any person with a view to the offeror becoming the controlling shareholder of our Company.

The definition of controlling shareholder is the same as defined in the Articles of Association.

If the relevant Director or Supervisor fails to comply with the above requirements, any payment received shall belong to the person who sells the shares for accepting the aforesaid offer. The Director or Supervisor shall bear all expenses arising from the distribution of such payments to the person in a proportional manner and all related expenses shall not be deducted from these payments distributed.

(4) Loans or guarantees of loans to Directors, Supervisors or other management personnel

Our Company shall neither provide the Directors, Supervisors or senior management of our Company or our parent company with loans or loan guarantees either directly or indirectly nor provide persons related to the above personnel with loans or loan guarantees. The following circumstances are exempted from the above clauses:

(i) Our Company provides our subsidiaries with loans or loan guarantees;

(ii) Our Company provides any of the Directors, Supervisors or senior management with loans, loan guarantees or any other fund pursuant to the employment contracts approved at the Shareholders’ meeting to pay all expenses incurred for the purpose of our Company or performing his duties owed to our Company; and

(iii) In case that the normal scope of business of our Company covers the provision of loans or loan guarantees, our Company may provide any of the Directors, Supervisors or senior management and other related personnel with loans or loan guarantees, provided that the conditions governing the above loans or loan guarantees shall be normal commercial conditions.

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In the event that our Company provides loans in violation of this restriction, the person who receives the loan(s) must pay off the loan(s) immediately, regardless of the conditions of loans. Any loan guarantee provided by our Company in violation of the above requirements shall not be mandatorily enforced against us, unless under the following circumstances:

i. The loan provider unknowingly provides loans to personnel related to the Directors, Supervisors or senior management of our Company; or

ii. The collateral provided by our Company is sold lawfully by the lender to the buyer in good faith.

(5) Provide financial assistance for acquiring the shares of the Company or shares of any subsidiary

Subject to the Articles of Association, our Company or our subsidiaries (including our affiliated enterprises) shall not provide any financial assistance at any time or in any kind to personnel that acquires or plans to acquire our shares. Such personnel include any who undertake obligations, directly or indirectly, from acquiring the shares; and our Company or any of our subsidiaries (including our affiliated enterprises) shall not provide personnel mentioned in the preceding paragraph with financial aid at any time or in any manner, to mitigate or exempt the obligations of the above personnel.

For the purpose of the above provisions, “Financial aid” includes, but is not limited to:

i. Gifts;

ii. Guarantees (including acts of the guarantor assuming liabilities or providing properties to ensure that the obligor performs the obligations), compensation (excluding compensation arising from mistakes of our Company), release or waiver of rights;

iii. Provision of loans or signing of contracts whereby our Company performs some obligations before others, change of the parties to the loans/contracts as well as the assignment of the rights in the loans/contracts; and

iv. Financial aid provided by our Company in any other manner when it is insolvent, has no net assets, or will suffer significant decreases in net assets.

“Assuming obligations” includes obligator undertaking obligations by way of contract or the making of an arrangement (whether enforceable or not, and whether made on its own account or with any other persons), or changing its financial status in any other manner.

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The following transactions are not deemed to be prohibited:

i. Related financial aid provided by our Company which is in good faith in our interest and the main purpose of the financial aid is not to acquire our shares or is an incidental part of a master plan of our Company;

ii. The lawful distribution of our properties by way of dividend;

iii. The allotment of bonus shares as shares;

iv. Reducing the registered capital, redeeming the shares or adjusting the equity structure pursuant to the Articles of Association;

v. Our Company granting loans within our scope of business and in the ordinary course of our business, provided that such loans shall not result in reduction in the net assets of our Company or even if the net assets are reduced, such financial aid is paid from the profit available for distribution; and

vi. Our Company providing the employee stock ownership plan with fund, provided that such loans shall not result in reduction in the net assets of our Company or, even if the net assets are reduced, such financial aid is paid from the profit available for distribution.

(6) Disclosure of interests in contracts, transactions or arrangements with the Company

Where a Directors, Supervisors and senior management has material interests in the contracts, transactions or arrangements that our Company has entered into or plans to enter into directly or indirectly (except for employment contracts that our Company has entered into with the Directors, Supervisors and senior management), the above personnel shall disclose the nature and degree of their interests to the Board of Directors as soon as possible no matter whether the above contracts, transactions, arrangements or suggestions are subject to the approval of the Board of Directors in normal circumstances.

With respect to any contract, transaction or arrangement in which a Director or his associates have a material interest, the Director shall not vote and shall not be included in the quorum. Unless the Directors, Supervisors and senior management who have interests have made disclosure to the Board of Directors in accordance with the above requirements and the Board of Directors approves the matters at the meeting in which they are not included in the quorum nor participate in voting, our Company shall have the right to cancel the contracts, transactions or arrangements, except where the opposite party is a party in good faith without knowledge of the acts of related Directors, Supervisors and senior management violating their obligations.

Where related personnel of the Directors, Supervisors and senior management have interests in certain contracts, transactions and arrangements, the relevant Directors, Supervisors and senior management shall be deemed to have interests.

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Prior to our Company’s first considering the relevant contracts, transactions or arrangements, if the Directors, Supervisors and senior management have notified the Board of Directors in writing and stated that with regard to the content of such notice, they have interest in certain contracts, transactions and arrangements thereafter. And within the scope specified by such notice, the relevant Directors, Supervisors and senior management have made disclosures which are in accordance with this Article of Association.

(7) Remuneration

Our Company shall sign written agreements with the Directors and Supervisors regarding remuneration, which shall be subject to prior approval of the general Shareholders’ meeting. The aforesaid remuneration include:

i. Emoluments in respect of his service as a Director, Supervisor or senior management of our Company;

ii. Emoluments in respect of his service as a Director, Supervisor or senior management of any subsidiary of our Company;

iii. Emoluments in respect of other service in relation to the management of our Company and any subsidiary of our Company; and

iv. Payment by way of compensation for loss of office or retirement from office of a Director or Supervisors.

(8) Appointment, resignation and dismissal

The Board of Directors consists of eight Directors, three of which are independent non-executive Directors. The Board of Directors has one chairman and one vice chairman. Directors are elected at the general Shareholders’ meeting. The Directors need not hold any of our shares.

The chairman and vice chairman of the Board shall be elected and dismissed by a vote of more than one half of the Directors. Provided that it is in compliance with relevant laws, regulations and rules as well as the Listing Rules, the general Shareholders’ meeting may remove any Director whose term has not expired by an ordinary resolution without affecting any claim for damages that may be made pursuant to any contract.

The chairman, vice chairman of the Board and other Directors serve three-year terms. Upon expiration of the term, the Director may be re-elected. Director can be the general manager or other senior management personnel at the same time. However, the number of the Directors who are also general manager or other senior management personnel and the Director who represents employees shall not be more than half of the total number of Directors.

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None of the following persons shall serve as our Director, Supervisor or senior management:

i. A person who has no civil capacity or has limited civil capacity;

ii. A person who has been imposed penalty for the offense of corruption, bribery, embezzlement, larceny, or disrupting the social economic order and is within five years of the expiry date of punishment or has been deprived of political rights because of this conviction and is within five years of the expiry date of the sentence;

iii. A person who is a former director, factory manager or manager of a company or enterprise that is bankrupt and liquidated, was personally liable for the bankruptcy of such company or enterprise, and is within three years of the date of completion of bankruptcy and liquidation of such company or enterprise;

iv. A person who has served as the legal representative of a company or enterprise whose business license was revoked or was ordered to close due to violation of laws, was personally liable, and is within three years of the date on which the business license of such company or enterprise was revoked;

v. A person who has a relatively large sum of debt, which was not paid at maturity;

vi. A person who is investigated by the judicial agencies for violation of criminal law and whose case is pending;

vii. A person who is subject to the competent authority of securities of the State Council’s punishment which prohibited them from entering into the securities market for a period which has not yet expired;

viii. A person judged by the competent agencies to have violated the provisions of relevant securities laws, has been involved in deceptive or dishonest acts and is within five years of the date on which the judgment was made;

ix. A person who is not a natural person; or

x. Any other person who is otherwise not eligible under laws or rules set out by the securities regulatory bodies or stock exchanges on which Shares of the Company are listed.

The validity of an act of the Directors or senior management on behalf of our Company to bona fide third parties shall not be affected by any irregularities in their appointment, election or qualifications.

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(9) Borrowing powers

The Articles of Association do not contain any specific provision regarding the manner in which the Directors may exercise the right to borrow money or the manner in which such a right is given provided that the Board of Directors shall be entitled to develop proposals for our Company to issue bonds and to list its Shares, and that such bond issues must be approved by the Shareholders by a special resolution at the general Shareholders’ meeting.

(10) Duties

The Directors, Supervisors and senior management shall bear the obligations of good faith and diligence towards our Company. In the event of violation of obligations owed to our Company by the Directors, Supervisors and senior management, we shall have the right to take the following measures in addition to various rights and remedial measures stipulated in legal and administrative regulations:

i. Require related Directors, Supervisors or senior management to compensate our Company for losses sustained as a result of their neglect of duty;

ii. Cancel any contract or transaction entered into between our Company and related Directors, Supervisors or senior management as well as any contract or transaction entered into between our Company and third person when the third person knew or should have known that the Directors, Supervisors or senior management acting on behalf of our Company violated their obligations owed to our Company;

iii. Require the relevant Directors, Supervisors or senior management to turn over the proceeds obtained from the violation of their obligations;

iv. Recover funds collected by the relevant Directors, Supervisors or senior management that should have been collected for our Company, including but not limited to commissions;

v. Require the relevant Directors, Supervisors or senior management to return the interest earned or that may be earned from funds that should have been paid to our Company;

vi. Require the Directors, Supervisors or senior management to return to the Company properties obtained from violation of their obligations through legal procedure and verdicts.

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When performing their duties, the Directors, Supervisors and senior management of the Company must comply with the principle of integrity and shall not put themselves in situations where their own interests may conflict with the obligations they have undertaken. This principle includes, without limitation, performing the following obligations:

i. Acting honestly in the best interests of our Company as the starting point of any action;

ii. Exercising powers within but not exceeding the scope of authority;

iii. Exercising conferred discretionary powers personally without being manipulated by others; not transferring discretionary powers to other persons unless permitted by laws, administrative regulations or with the informed consent given in a general Shareholders’ meeting;

iv. Treating Shareholders of the same class equally and Shareholders of different classes fairly;

v. Entering into contract, transaction or arrangement with our Company is not allowed, unless in line with the Articles of Association or otherwise by the approval of the general Shareholders’ meeting with its full knowledge;

vi. Seeking private gain using the properties of our Company in any manner is not allowed, unless agreed by the general Shareholders’ meeting with its full knowledge;

vii. Using one’s position to take bribes or other illegal income is not allowed, nor is any form of embezzlement of our property, including, but not limited to, opportunities beneficial to our Company;

viii. Accepting commissions associated with transactions of our Company is not allowed unless agreed by the general Shareholders’ meeting with its full knowledge;

ix. Compliance with the Articles of Association, faithfully execute one’s duties and protect the Company’s interests, and not to exploit one’s position and power in the Company to advance one’s own private interests;

x. Unless agreed at the general Shareholders’ meeting with its full knowledge, take advantage of position, take business opportunity which should have belonged to our Company for themselves or others, conduct business that is similar with our company by themselves or cooperating with others is not allowed, or competing with our Company in any manner is not allowed, either;

xi. Misappropriation of our funds is not allowed, nor is depositing the assets or funds of our Company in an account opened in one’s own name or other names;

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xii. Not to, in violation of the provisions of this Articles of Association, lend our Company’s funds to any other person or provide security for our Company’s shareholders or other persons with properties of our Company, without the consent of the general Shareholders’ meeting or Board of Directors;

xiii. Not to harm the interests of our Company through use of his/her connected relationship; and

xiv. Disclosure of confidential information relating to our Company obtained during employment without the consent of the general Shareholders’ meeting with its full knowledge; unless in the interest of our Company, using such information is also not allowed; however, under the following circumstances the information may be disclosed to a court or other competent government agencies as required by:

(i) The provisions of the law;

(ii) For the public interests;

(iii) The interests of the Directors, Supervisors or senior management.

The relevant personnel shall return the income obtained from violation of the above provisions to our Company and shall bear the liability of compensation if our Company suffers damage.

The Directors, Supervisors and senior management may not direct the following personnel or institutions (“related personnel”) to do what they are prohibited from doing:

i. Spouses or minor children of the Directors, Supervisors and senior management;

ii. Trustors of the Directors, Supervisors and senior management or the persons mentioned in the preceding paragraph;

iii. Partners of the Directors, Supervisors and senior management or persons mentioned in i and ii above;

iv. Our Company under de facto control by the Directors, Supervisors and senior management individually or jointly with the persons or other directors, supervisors and senior management of companies mentioned in i, ii and iii above; and

v. Directors, Supervisors or senior management of the controlled companies mentioned in the preceding paragraph.

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The good faith obligation of the Directors, Supervisors and senior management may not necessarily cease with the termination of their terms; their obligation to keep the trade secrets of our Company in confidence shall survive the termination of their terms. Other duties may continue for such period as fairness may require depending on the time lapse between the termination and the act concerned and any circumstance and condition under which the relationships between them and the Company are terminated.

Unless otherwise provided in the Articles of Association, liabilities of Directors, Supervisors and senior management arising from the violation of specific duties may be dissolved by informed general Shareholders’ meeting.

Apart from the obligations set forth in related laws, administrative regulations or the Listing Rules, where the shares of the Company are listed, the Directors, Supervisors or senior management shall assume the following obligations for each of the Shareholders when exercising their rights and performing their responsibilities:

i. They shall not cause our Company to operate beyond the scope of business indicated on our business license;

ii. They shall sincerely take the best interests of our Company as the starting point of any action;

iii. They may not deprive our Company of our assets in any manner, including, but not limited to, opportunities beneficial to our Company; and

iv. They shall not deprive the Shareholders of personal rights and interests, including, but not limited to, the right to receive dividends and to vote, except for restructuring of our Company approved at the Shareholders’ meeting pursuant to the provisions of the Articles of Association.

The Directors, Supervisors and senior management of the Company have the responsibility when exercising their rights or carrying out their obligations to act with the care, diligence and skill due from a reasonably prudent person under similar circumstances.

In the event of any loss caused to our Company as a result of violation of any laws, administrative rules and regulations, or Articles of Association by the Directors or senior management when performing their duties in our Company, the Shareholders holding 1% or more shares separately or jointly for over 180 consecutive days may submit a written request to the Board of Supervisors to file an action with the people’s court. Where supervisors violate laws, administrative regulations or the Articles of Association in their duty performance and cause loss to our Company, the Shareholders may submit a written request to the Board of Directors to file an action with the people’s court.

In the event that the Board of Supervisors or the Board of Directors refuse to file an action upon receipt of the Shareholders’ written request specified in the preceding paragraph, or fail to file an action within 30 days upon receipt thereof, or in the event that the failure to immediately file an action in an emergency case will cause irreparable

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damage to the interests of our Company, the Shareholder(s) specified in the preceding paragraph may, in their own name, directly file an action to the court for the interest of our Company.

In the event of any other person infringes upon the legitimate rights and interests of our Company and causes losses thereto, the shareholder(s) specified in this Articles of Association may file an action with the competent court pursuant to the provisions of the preceding two paragraphs.

In the event of a Director or senior management person violates laws, administrative regulations or our Company’s Articles of Association, thereby damaging the interests of the Shareholder(s), the Shareholder(s) may file an action with the court.

2 MODIFICATION OF THE ARTICLES OF ASSOCIATION

Our Company may amend the Articles of Association based on the provisions of the laws, administrative regulations and Articles of Association.

Where the amendments to the Articles of Association passed by the general Shareholders’ meetings need the examination and approval of the competent authorities, these amendments shall be submitted hereto for approval. Where the amendment of the Articles of Association involves registration, it shall be necessary to carry out the lawfully prescribed procedures for registration change.

3 VARIATION OF RIGHTS OF EXISTING SHARES OR CLASSIFIED SHARES

Any plan of our Company of changing or abolishing the rights of a classified Shareholder is subject to the approval of the general Shareholders’ meeting in the form of a special resolution and the approval of the affected classified Shareholders at a separately convened the Shareholders’ meeting before it can be implemented.

The rights of a classified Shareholder shall be deemed as changed or abolished under the following circumstances:

i. Increase or decrease the number of the classified shares, or increase or decrease the number of classified shares with equal or more voting rights, distribution rights, other privileges than this type of classified shares;

ii. Convert all or part of the classified shares into other classes or convert another class of shares, partly or wholly, into the shares of such class or grant such conversion right;

iii. Remove or reduce the right of the classified shares to accrued dividends generated or rights to cumulative dividends;

iv. Reduce or remove a dividend preference or a liquidation preference attached to shares of such class;

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v. Add, remove or reduce the right of the classified shares to convert share rights, options rights, voting rights, transfer rights, and pre-emptive rights, or the right to obtain the securities of our Company;

vi. Remove or reduce the right of the classified shares to receive funds payable of our Company in specified currencies;

vii. Create new classified shares entitled to equal or more voting rights, distribution rights, or other privileges than the classified shares;

viii. Restrict the transfer or ownership of the classified shares or increase such restrictions;

ix. Issue subscription or conversion rights for this or other classified shares;

x. Increase the rights and privileges of other classes of shares;

xi. The restructuring plan of our Company may constitute different classes of Shareholders to assume responsibilities disproportionately in restructuring; and

xii. Amend or abolish clauses stipulated in our Articles of Association.

Whether or not the affected classified Shareholders have voting rights at the Shareholders’ meeting, in the event of matters described above from ii through viii, xi to xii, they have voting rights at the classified Shareholders’ meeting, but the Shareholders that have interests at stake shall have no voting rights at the classified Shareholders’ meeting.

Shareholders that have interests at stake include:

i. Where the Company makes an offer to all the Shareholders at the same ratio according to this Articles of Association or purchase their own shares through public transaction in the Stock Exchange, Shareholders that have interests at stake refer to controlling shareholders as defined in this Articles of Association;

ii. Where our Company purchase its own shares through reaching an agreement outside the Stock Exchange and in accordance with the Articles of Association, Shareholders that have interests at stake shall mean the Shareholders who are relevant to such agreement;

iii. In our Company’s re-organisation plan, Shareholders that have interests at stake shall mean Shareholder who bear liability at a rate that is lower than other Shareholders in the same class or who hold different interests with other Shareholders in the same class.

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The quorum required for holding the classified Shareholders’ meeting must be at least one-third of the holders of the issued shares of that class. The resolution of the classified Shareholders’ meeting shall be passed by votes representing more than two thirds of shareholding with voting rights attending the classified Shareholders’ meeting.

When convening a classified Shareholders’ meeting, the time limit for issuing a written notice shall be the same as that for convening a non-classified shareholders’ meeting together with the classified Shareholders’ meeting.

Where there are special rules in the listing rules of the stock exchange where the shares are listed, the special rules prevails. The notice of the classified Shareholders’ meeting needs only to be sent to the Shareholders who have the right to vote at the meeting.

Insofar as possible, any classified Shareholders’ meeting shall be held in accordance with the same procedures as those of the Shareholders’ meeting, and unless otherwise provided in the Articles of Association, any clause that relates to the procedures for convening the Shareholders’ meeting in the Articles of Association shall apply to classified Shareholders’ meeting.

Classified Shareholders are the Shareholders who hold different classes of shares. Apart from the holders of other classified shares, the holders of Domestic Shares are deemed as different classified Shareholders with the holders of overseas listed foreign shares.

The special procedures for voting by the classified Shareholders shall not apply under the following circumstances:

i. Upon the approval by a special resolution at the general Shareholders’ meeting, our Company either separately or concurrently issues Domestic Shares and overseas listed foreign shares once every 12 months, and the number of those Domestic Shares and overseas listed foreign shares to be issued shall not account for more than 20% of each of its outstanding shares;

ii. The plan to issue Domestic Shares and overseas listed foreign shares upon the establishment of our Company is completed within 15 months of the date of approval by the securities regulatory authorities of the State Council; and

iii. Upon the approval by the securities regulatory authorities of the State Council, the unlisted Domestic Shares are converted into foreign shares and listed and traded on overseas market.

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4 SPECIAL RESOLUTIONS NEEDED TO BE ADOPTED BY ABSOLUTE MAJORITY VOTE

The resolutions of the Shareholders’ meeting shall be divided into ordinary resolutions and special resolutions.

An ordinary resolution may be adopted by a simple majority of the votes held by the Shareholders (including proxies of Shareholders) attending the general Shareholders’ meeting.

A special resolution can be adopted by a two-thirds majority of the votes held by the Shareholders (including proxies of Shareholders) attending the general Shareholders’ meeting.

5 VOTING RIGHTS

The ordinary Shareholders have the right to attend or appoint a proxy to attend and vote at the general Shareholders’ meeting. When voting at the general Shareholders’ meeting, the Shareholder (including proxy) may exercise his or her voting rights in accordance with the number of shares with voting power held with each share representing one vote.

General Shareholders’ meeting adopt vote by hands or open ballot. When voting at a general Shareholders’ meeting, Shareholders (including their proxies) who are entitled to two or more votes are not required to vote against or in favour with their total number of votes.

When the number of dissenting votes equals the number of supporting votes, regardless of voting by ballot or show of hands, the chairman of the meeting is entitled to one additional vote.

6 RULES ON GENERAL SHAREHOLDERS’ MEETINGS

The general Shareholders’ meetings are divided into annual general Shareholders’ meetings and extraordinary general Shareholders’ meetings. The annual general shareholders’ meeting shall be convened once a year and be held within six months of the end of the previous fiscal year.

7 ACCOUNTING AND AUDITS

(1) Financial and accounting policies

Our Company shall develop its financial accounting policies pursuant to laws, administrative rules and regulations, as well as PRC accounting standards developed by the competent department in charge of finance under the State Council.

The Board of Directors shall submit the financial reports to Shareholders, as required by the laws, administrative rules and regulations or directives promulgated by local governments and competent authorities to be prepared by our Company, at every annual general Shareholders’ meetings.

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Apart from the PRC accounting standards and regulations, the financial statements of our Company shall also conform to international accounting standards or the accounting standards of overseas areas where the shares are listed. In the event of any major discrepancy between the financial statements prepared in accordance with the two types of accounting standards, such difference must be provided in the notes to the financial statements. As to the distribution of after-tax profits of our Company in a fiscal year, the after-tax profits indicated on the two financial reports, whichever is lower shall prevail.

Our Company shall make its financial reports available at the Company for inspection by the Shareholders 20 days before the annual general Shareholders’ meeting is convened. Each Shareholder is entitled to obtain one copy of the financial report.

Our Company shall send the financial reports to each of the holders of overseas listed foreign shares by postage-paid mail or by the manner (including publication on the Company’s website or website designated by the Stock Exchange where the Company’s shares are listed or by electronic means) as allowed by the stock exchange where our Company lists shares at least 21 days before the annual general Shareholders’ meeting (but in any event not later than 4 months after the end of the relevant fiscal year) is convened and the recipient’s address shall be the address as registered in the register of Shareholders.

The interim results or financial information published or disclosed by our Company shall at the same time be prepared in accordance with the PRC accounting standards, rules and regulations as well as international accounting standards or the accounting standards of the overseas area in which the shares are listed.

Our Company shall publish the financial reports twice in each accounting year. Interim financial reports shall be published within 60 days of the end of the first six months of a fiscal year, while the annual financial report shall be published within 120 days of the end of each accounting year.

(2) Appointment and dismissal of accountants

Our Company shall appoint an independent accounting firm that meets appropriate requirements of the relevant regulations of the PRC to be responsible for auditing its annual financial report and reviewing its other financial reports.

The first accounting firm of our Company can be appointed by the founding meeting before the first annual general Shareholders’ meeting and the term of the appointment will expire at the close of the first annual general Shareholders’ meeting. In event that the founding meeting does not exercise such power, the Board of Directors shall take it.

The term of the accounting firm appointed by our Company shall start at the close of such annual general Shareholders’ meeting of the Company and continue until the close of the next annual general Shareholders’ meeting.

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If the position of an appointed accounting firm is vacant, the Board of Directors may appoint an accounting firm before the start of general Shareholders’ meeting. However, if during the vacant period, our Company has other incumbent accounting firm, such accounting firm may take the vacant.

Except the circumstances as above said, our Company shall appoint an accounting firm by the decision of the Shareholders’ meeting. The Board of Directors shall not appoint accounting firm before decisions made at Shareholders’ meeting. The Shareholders may replace the accounting firm through an ordinary resolution at the general Shareholders’ meeting prior to the expiration of the term of any accounting firm notwithstanding the terms and conditions of the contract howsoever entered into between our Company and the accounting firm. With respect to the compensation rights against the Company by the relevant accounting firm due to dismissal shall not be affected thereof.

8 NOTICE AND AGENDA OF GENERAL SHAREHOLDERS’ MEETINGS

The general Shareholders’ meeting is the authorised organ of our Company that performs duties and exercises powers in accordance with the law.

Apart from unusual circumstances such as where our Company is in crisis, without the approval of a special resolution of the general Shareholders’ meeting, our Company shall not enter into a contract with any person other than the Directors, Supervisors and senior management that would make a person responsible for the management of all or part of the major business of our Company.

Under any of the following circumstances, the Board of Directors shall convene an extraordinary general Shareholders’ meeting within two months:

i. The number of Directors is less than the number specified in the PRC Company Law or less than two thirds of the number required in the Articles of Association;

ii. The uncovered losses of our Company reach one-third of its total paid-in share capital;

iii. The Shareholders with 10% or more shares of the Company separately or jointly request to convene an extraordinary general Shareholders’ meeting in writing;

iv. The Board of Directors considers it necessary;

v. The Board of Supervisors considers it necessary; or

vi. Any other circumstances stipulated in laws, administrative regulations, the listing rules of the place where the Company’s shares are listed or regulations of the competent authorities and the Articles of Association.

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Independent non-executive Directors and the Board of Supervisors may make a proposal to the Board of Directors about convening an extraordinary general Shareholders’ meeting. The Board of Directors shall issue a written feedback about whether it agrees with such proposal or not within 10 days after receiving such proposal in accordance with laws, administrative regulations and the Articles of Association.

In the event that the Board of Director agree to convene an extraordinary general Shareholders’ meeting, the notice of convening extraordinary general Shareholders’ meeting shall be issued within 5 days after the Board of Directors made a resolution. With regard to the proposal of convening an extraordinary general Shareholders’ meeting made by the independent non-executive Director, the Board of Directors shall explain the reasons and announce if rejection was made.

With regard to the proposal of convening an extraordinary general Shareholders’ meeting made by the Board of Supervisors, if the Board of Directors made a rejection or does not respond within 10 days after it receiving the proposal, it shall be view as the Board of Directors is unable to or fails to perform its meeting duty of convening the general Shareholders’ meeting and the Board of Supervisors may convene and preside over the meeting by its own.

In the event that the general shareholders’ meeting is convened, the Board of Directors, the Board of Supervisors and shareholders who separately or jointly hold 3% or more of the shares of our Company may submit a proposal.

When convening a annual general shareholders’ meeting, our Company shall send a written notice to inform all registered shareholders of the matters to be deliberated at the meeting as well as the date and venue of the meeting 20 days before it is convened. And a written meeting notice shall be sent to the registered shareholders 15 days prior to the extraordinary general Shareholders’ meetings. When calculating the time limit for issuing notice, the day on which the meeting is held shall be excluded.

The Shareholders’ meeting shall not decide on issues which are not listed in the notice.

The notice of the general shareholders’ meeting shall include the following contents:

i. Specify the date, the place and the hour of the meeting;

ii. State the matters to be discussed at the meeting;

iii. Provide the shareholders with such information and explanations as are necessary for the shareholders to exercise an informed judgment on the proposals before them. It principally includes (but is not limited to), where a proposal is made to amalgamate the Company, to repurchase shares, to reorganise the share capital or to restructure our Company in any other way, the conditions of the proposed transaction must be provided in detail together with the proposed contract (if any), and the cause and consequence of such proposal must be properly explained;

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iv. Contain a disclosure of the nature and extent, if any, of the material interests of any Director, Supervisor, senior management in the transaction proposed and the effect of the proposed transaction on such Director, Supervisor, or senior management in their capacity as shareholders in so far as it is different from the effect on the interests of the shareholders of the same class;

v. Contain the full text of any special resolution proposed to be voted at the meeting;

vi. Contain conspicuously a statement that all shareholders are entitled to attend the shareholders’ meeting and they can appoint a proxy in writing to attend the meeting and vote instead of him and that the proxy need not be a shareholder;

vii. List out the share registration date of shareholders who are entitled to attend the general shareholders’ meeting;

viii. Contain the names and phone numbers of the long-term contact persons for the meeting; and

ix. Specify the time and place for lodging proxy forms for the relevant meeting.

The notice of the general shareholders’ meeting shall be sent in person or by postage-paid mail to the shareholders (regardless of whether such shareholders have the right to vote at the shareholders’ meeting), whereas recipient’s address shall be according to the address registered with the register of shareholders or subject to applicable laws, regulations and listing rules, post such information at our Company website or a site specified by the stock exchange of the place in which our Company’s shares are listed. For domestic shareholders, the notice of our shareholders’ meeting may be given in the form of an announcement.

Abovementioned announcement shall be published in one or more newspapers designated by the securities governing authority of the State Council. Once the announcement is made, all domestic shareholders shall be deemed to have received the notice of the general shareholders’ meeting.

The resolution of the general shareholders’ meeting includes ordinary resolution and special resolution. The following matters shall be approved by the general shareholders’ meeting through ordinary resolutions:

i. The business plan and investment plan of the Company;

ii. Appointment or dismissal of the members of the Board of Directors, and payment methods of Directors;

iii. Appointment or dismissal of the members of the Board of Supervisors as Supervisors who are not assumed by staff representatives, and payment methods of the Supervisors;

iv. Work report of the Board of Directors;

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v. Work report of the Board of Supervisors;

vi. Annual financial budget plans and final account plans;

vii. Plans of earnings distribution and loss make-up schemes;

viii. Appointment and Dismissal of Accountants;

ix. Any external guarantee other than those to be approved by the shareholders’ general meeting through a special resolution in accordance with Articles of the Association;

x. Alter the usage of raised funds; and

xi. Other matters in addition to those approved by special resolution stipulated in the laws, administrative regulations, listing rules of the stock exchange where the shares are listed or the Articles of Association.

The following matters shall be approved by special resolution at the general shareholders’ meeting:

i. the increase or decrease of the registered capital;

ii. Division, merger, dissolution and liquidation of our Company and the change of form of our Company;

iii. Plans of bond issuance, or other securities and [REDACTED] of our Company;

iv. Amendment of the Articles of Association;

v. Substantial assets acquired or disposed of or guarantee granted for an amount exceeding 25% of the latest audited total assets of our Company within one year; in case such purchase or sale exceeds 30%, the purchase or sale shall comply with the relevant requirements under the Company Law;

vi. Share equity incentive plan;

vii. Any change in the use of the funds raised;

vii. Other matters as required by the laws, administrative regulations, listing rules of the stock exchange where the shares are listed and the Articles of Association, and as approved by ordinary resolution of the general shareholders’ meeting which are believed could materially affect our Company and need to be approved by special resolution.

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In the event that any resolution of the general Shareholders’ meeting or resolution of the Board of Directors violates laws or administrative regulations, any shareholder is entitled to request the court to deem it as invalid.

In the event that the convening procedure or voting formula of the shareholders meeting or meeting of the Board of Directors violates any of laws, administrative regulations or the Articles of Association, or resolution of which violates the Articles of Association, any shareholder is entitled to ask the court to overturn within 60 days after the resolution was adopted.

9 SHARE TRANSFERS

The shares of our Company holding by the promoters thereof shall not be transferred within one year of the date of establishment of our Company. The shares issued before the public issuance of shares by our Company shall not be transferred within one year of the date on which the stocks of our Company are listed and traded on a securities exchange.

The Directors, Supervisors, and senior management of our Company shall declare, to our Company, information on their holdings of the shares of our Company and the changes thereto. The shares transferrable by them during each year of their term of office shall not exceed 25 percent of their total holdings of the shares of our Company. The shares that they held in our Company shall not be transferred within one year of the date on which the stocks of our Company are listed and traded.

Where a Director, Supervisor or senior management of our Company, or a shareholder who holds 5% or more of the shares of our Company sells the shares of our Company within six months of purchasing such shares, or repurchases the shares within six months of selling such shares, the gains therefrom shall belong to our Company, and the Board of Directors of our Company shall recover such gains.

Where the Board of Directors of our Company fails to take comply with the provisions of the preceding paragraph, the shareholders shall have the right to demand it to act within 30 days. Where the Board of directors of our Company fails to take action within the said time limit, the shareholders shall have the right to initiate, in their own name, a lawsuit directly in a people’s court for the benefit of our Company.

With regard to the [REDACTED] that capital of which has been full-paid, transfer without any limitation is allowed in accordance with the Articles of Association. However, unless meeting the following conditions, the Board of Directors may refuse to recognise any transfer document without giving any reason:

i. Document that related to any share ownership or transfer documents that may affect the ownership of the shares shall be registered and shall pay to our Company corresponding fees (calculated per item of transfer document) or a higher fee required by the Board of Director, but such payment shall not exceed the maximum fee provided by the Stock Exchange of Hong Kong in its Listing Rules from time to time;

ii. The transfer documents only involve H Shares listed in Hong Kong;

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iii. The stamp duty chargeable on the transfer documents has been paid;

iv. The relevant share certificate, and upon the reasonable request of the Board of Directors, any evidence in relation to the right of the transferor to transfer the shares has been submitted;

v. If the shares are to be transferred to joint holders, the number of the joint holders shall not exceed four;

vi. Our Company does not have any lien on the relevant shares; and

vii. The shares shall not be transferred to minors or the person who is insane or is found to be of unsound mind, or the person who is incapacity for civil conduct.

Respective parts of shareholder register ‘s revision or rectification shall be subject to the laws of region where respective parts the revised or rectified shareholder register is stored. No change may be made to the information in the register of shareholders as a result of the share transfer within 30 days before the general shareholders’ meeting is convened or within five days prior to the benchmark date on which our Company has decided to distribute dividends.

10 RIGHTS OF OUR COMPANY TO PURCHASE OUR OUTSTANDING ISSUED SHARES

Under any of the following circumstances, our Company may submit to relevant competent authorities for approval to buy back our outstanding issued shares according to legal procedures with the approval of procedures stipulated in the Articles of Association:

i. Reduce our Company’s share capital;

ii. Merger with other companies which hold our shares;

iii. Using the shares for employee stock ownership plans or stock ownership incentives;

iv. Requesting the Company to buy back its shares from shareholders who vote against any resolutions adopted at the general shareholders’ meeting concerning the merger and division of the Company;

v. Other circumstances as permitted by the laws, administrative regulations.

vi. The use of shares for the conversion of corporate bonds convertible into shares issued by listed companies; or

vii. It is necessary for our Company to maintain our value and protect our shareholders’ equity.

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After approved by the State relevant competent authorities, our Company may buy back shares in any of the following ways:

i. Making a comprehensive buyback offer in the same proportion to all shareholders;

ii. Buying back shares through public trading on the securities exchange;

iii. Buying back shares by an agreement outside a stock exchange;

iv. In other ways approved by the relevant regulatory authorities.

Where our Company buys back the shares by an agreement outside a stock exchange, it shall obtain prior approval at the general shareholders’ meeting pursuant to the Articles of Association. Likewise, subject to the prior approval of the general shareholders’ meeting, our Company may cancel or amend the contract signed in the aforesaid manner or waive any of its rights in the contract.

The contract that buys back the shares includes (but is not limited to) an agreement that consents to undertake the obligation to buy back the shares and obtain the rights to buy them back.

Our Company shall not transfer any contract that buys back the shares or any rights conferred under the contract.

Unless our Company has entered into the liquidation process, we must observe the following provisions for the buyback of issued shares:

i. Where our Company buys back shares at book value, the funds shall be deducted from the book balance of our distributable earnings and the proceeds obtained from the issue of new shares to buy back the old shares.

ii. Where our Company buys back the shares at a premium to the book value, the portion equivalent to book value shall be deducted from the book balance of our distributable earnings and the proceeds obtained from the issue of new shares made for the purpose of buying back of old shares, while the portion higher than book value shall be dealt with in the following manner:

(i) Where the shares bought back were issued at book value, the funds shall be deducted from the book balance of our distributable revenue;

(ii) Where the shares bought back were issued at a premium to the book value, the funds shall be deducted from the book balance of our distributable revenue and the proceeds obtained from the issue of new shares made for the purpose of buying back of old shares. However, the amount deducted from the proceeds obtained from the issue of new shares shall not exceed the total premium amount obtained when the shares bought back were issued or the amount in our premium account (or capital reserve account) when the old shares are bought back (including the premium amount of the issue of new shares).

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iii. The funds paid by our Company for the following purposes shall be expensed from our distributable earnings:

(i) To obtain the right to buy back the shares;

(ii) To modify contract to buy back the shares;

(iii) To release obligation of our Company under the share buyback contract.

iv. After the total book value of the cancelled shares is deducted from our registered capital pursuant to the relevant provisions, the amount deducted from the distributable earnings for paying up the book value portion of the shares bought back shall be credited to our premium account (or capital reserve account).

11 POWER FOR ANY SUBSIDIARY OF OUR COMPANY TO OWN SHARES IN ITS PARENT

There are no provisions in the Articles of Association relating to ownership by subsidiary of our Company of shares in its parent.

12 DIVIDEND AND OTHER DISTRIBUTION METHODS

The Company may distribute dividends in the following manner (or adopt both ways simultaneously):

i. cash; or

ii. Stock.

A shareholder is entitled to receive interest with regard to payment of the shares which was paid before reminder notice. However, advance payment of the shares is not subject to any further dividend thereof.

Our Company shall appoint one or more receiving agents in Hong Kong on behalf of shareholders holding overseas listed foreign shares.

Receiving agents shall receive dividends and other payable funds that are distributed with respect to our overseas listed foreign shares for relevant shareholders. Receiving agents appointed by Our Company shall on behalf of shareholders of shares listed in Stock Exchange shall be a trust company registered under the Trustee Ordinance of Hong Kong.

After the shareholders’ meeting of our Company make a resolution on dividends distribution plan, the Board of Directors shall complete the distribution within 2 months after the convening of the shareholders’ meeting.

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13 SHAREHOLDER PROXIES

Any shareholder who is entitled to attend and vote at general shareholders’ meeting has the right to appoint one or more persons (who may not necessarily be shareholders) as his or her shareholder proxy to attend and vote at the meeting in his or her place. Pursuant to the authorisation of the shareholder, the proxy may exercise the following rights:

i. Speak for the shareholder at the general shareholders’ meeting;

ii. Demand a poll individually or with others;

iii. Except otherwise provided by the applicable listing rules or other securities laws and regulations, exercise the right to vote by a show of hands or a poll, but the shareholder proxy may only exercise the right to vote by a poll when more than one proxy is appointed.

The proxy appointment shall be in writing and shall be signed by the appointor or a person duly authorised in writing. Where the appointor is a legal person, the stamp of the legal person shall be affixed, or signed by its Director or a duly authorised agent.

The power of attorney must be kept at the residential address or other location designated in the notice convening the meeting no later than 24 hours before the meeting at which the power of attorney is put to vote is convened or 24 hours before the designated time. If the power of attorney is signed by another person authorised by the appointor, the power of attorney or other instrument must be verified by a notary. The power of attorney or other instrument verified by the notary must be kept together with the power of attorney at our residential address or other location designated at the notice convening the meeting.

A legal person shareholder should attend the meeting by its legal representatives or persons authorised by Board of Directors or other decision-making authorities.

Any power of attorney form sent by the Board of Directors to the shareholder for appointing a shareholder proxy shall allow the shareholder, according to his or her free will, to instruct the proxy to vote and provide instructions separately for matters to be put to vote on each item on the meeting agenda. The power of attorney shall specify that the shareholder proxy may vote at his or her own discretion if the shareholder does not provide specific instructions.

The votes of the shareholder proxy given pursuant to the terms of the power of attorney shall remain valid notwithstanding the previous death, loss of capacity of the appointor or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the shares in respect of which the proxy is given, provided that our Company does not receive written notice concerning such matters before the related meeting is convened.

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14 REVIEW THE REGISTER OF SHAREHOLDERS AND OTHER RIGHTS OF SHAREHOLDERS

Our Company shall make a register of shareholders in accordance with evidentiary documents provided by the securities registration authorities.

Pursuant to the understanding reached and agreement entered into between the competent agency in charge of securities of the PRC and the overseas securities regulatory authorities, our Company may keep the original register of the shareholders of the overseas listed foreign shares overseas and entrust an overseas entity to manage it. The original register of the shareholders of the overseas listed foreign shares listed in Hong Kong shall be kept in Hong Kong.

Our Company shall keep a copy of the register of the holders of the overseas listed foreign shares at our residential address. The overseas entrusted agency shall at all times maintain consistency between the original and copy of the register of the holders of the overseas listed foreign shares.

In case of inconsistency between the original and copy of the register of the holders of the overseas listed foreign shares, the original shall prevail.

Our Company must keep a complete register of shareholders. The register of Shareholders shall include the following:

i. Register of shareholders kept at our residential address other than those specified in ii and iii below;

ii. Register of the holders of our overseas listed foreign shares kept at the location of the stock exchange where such shares are listed; and

iii. Register of shareholders kept in other locations according to the decision of the Board of Directors as required for the listing of the shares.

Different parts of the shareholders’ register shall not overlap. The transfer of shares registered in a certain part of the register of shareholders shall not be registered elsewhere in the register of shareholders as long as the shares remain registered.

Any alteration or rectification to any part of the register of shareholders shall be made in accordance with the laws in the place where such part of the register of shareholders is maintained.

No change of the register of shareholders as a result of share transfer shall be made within 30 days before the general shareholders’ meeting is convened or within five days prior to the record date on which our Company decides to pay dividends.

When our Company convenes the general shareholders’ meeting, pays dividends, goes into liquidation or is involved in other actions that require the confirmation of identities, the

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Board of Directors or the Convener of the Shareholders’ Meeting shall fix a date as the equity registration date, upon expiration of which the shareholders whose names register on the register of shareholders shall be the shareholders entitled to relevant equity.

Any person who objects to the register of shareholders and requests to register his or her name (title) in the register of shareholders or to remove his or her name (title) from the register of shareholders may apply to the court with jurisdiction to amend the register of shareholders.

15 RESTRICTIONS ON RIGHTS OF CONTROLLING SHAREHOLDERS

Apart from the obligations required in laws, administrative regulations, or the listing rules of the stock exchange on which our shares are listed, our Controlling Shareholders shall not make any decision that is detrimental to the interest of all or part of the shareholders on the following issues by exercising his or her shareholder voting rights:

i. Releasing the Directors and Supervisors from the responsibility of acting honestly in the best interest of our Company;

ii. Permitting the Directors and Supervisors (for their own or others’ interests) to deprive our Company of assets in any form, including, but not limited to, any opportunity that is beneficial to our Company; and

iii. Permitting the Directors and Supervisors (for their own or others’ interests) to deprive other shareholders of their personal rights and interests, including, but not limited to, any distribution or voting right, but excluding the restructuring of the Company approved at the general shareholders’ meeting pursuant to the Articles of Association.

16 PROCEDURES FOR LIQUIDATION

Under any of the following circumstances, our Company shall be lawfully dissolved and liquidated:

i. The term of business of our Company has expired;

ii. The general shareholders’ meeting adopts a resolution to dissolve our Company;

iii. Our Company needs to be dissolved for the purpose of merger or division;

iv. Our Company is declared legally bankrupt as a result of failure to pay debts as they fall due;

v. The business license is revoked, or our Company is ordered to close or be eliminated according to applicable law;

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vi. Where our Company encounters significant difficulties in business and management, continuous survival may be significantly detrimental to the interests of the shareholders, and the difficulties may not be overcome through other means, shareholders who hold more than 10% of all voting rights of the Company’s shareholders may request the People’s Court to dissolve the Company and the People’s Court shall order the company to be dissolved pursuant to the law; or

vii. Occurrence of any other trigger for dissolution stipulated in the Articles of Association.

Where our Company is dissolved due to the provisions set forth in i, ii, v, and vi above, the liquidation team shall be established within 15 days from the liquidation date to commence dissolution and the personnel of the liquidation team shall be consist of the persons determined by the Directors or the general shareholders’ meeting. In the event the liquidation team is not established to conduct liquidation during such period, the creditors can request the people’s court to appoint relevant personnel to establish the liquidation team for liquidation. In the event that our Company is dissolved in accordance with the provisions set forth in iv above, the people’s court shall organise the shareholders, related agencies and professionals to form the liquidation team pursuant to relevant provisions of the law.

If the Board of Directors decides to liquidate our Company (except where our Company is liquidated after declaring bankruptcy), the Board of Directors shall state in the notice of the general shareholders’ meeting convened for this purpose that the Board of Directors has performed a comprehensive investigation of the status of our Company and believes that our Company is able to pay off all of our debts within 12 months of the commencement of the liquidation.

After the resolution to liquidate our Company is adopted by the general shareholders’ meeting, the powers of the Board of Directors shall terminate immediately.

In accordance with the instructions of the general shareholders’ meeting, the liquidation team shall at least once a year report at the general shareholders’ meeting on the income and expenditure of the liquidation team, progress of the business and liquidation of our Company, and submit a final report at the general shareholders’ meeting upon completion of liquidation.

Within 10 days of the establishment of the liquidation team, the creditors shall be notified and an announcement shall be published in newspaper recognised the stock exchange where our Company listed within 60 days. The creditors shall declare their claims to the liquidation team within 30 days of the date on which the notice is received or 45 days of the date of announcement if the notice is not received.

Creditors who declare claims shall state relevant issues related to the claims and provide proofs. The liquidation team shall carry out registration of the claims. During the period for declaration of claims, the liquidation group shall not make any repayment to the creditors.

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During the liquidation, our Company shall continue to exist, but shall not carry out business activities irrelevant to the liquidation. The property of our Company shall not be distributed to any shareholder before full payments have been made out of the property according to the aforesaid provision.

Upon liquidation for the purpose of company dissolution, in the event the liquidation team finds that, after taking stock of our Company’s property and preparing the balance sheet and list of property, that the assets are insufficient to pay the debts, it shall immediately apply to the people’s court to declare bankruptcy.

After our Company is declared bankrupt by ruling of the people’s court, the liquidation team shall turn over matters regarding the liquidation to the people’s court.

Upon closure of liquidation of our Company, the liquidation team shall prepare a liquidation report, income and expenditure statement and financial record during the liquidation period, which, after being verified by a China-registered accountant, shall be submitted to our general shareholders’ meeting or the people’s court for recognition. Within 30 days of the date of confirmation by the shareholders’ meeting or people’s court, the liquidation team shall submit the above-mentioned documents to our Company registration authority and apply for cancellation of our registration and publish an announcement on our termination.

17 OTHER IMPORTANT PROVISIONS FOR OUR COMPANY OR THE SHAREHOLDERS

(1) General Provisions

Our Company is a permanently existing joint stock limited company.

Our Company may invest in other limited liability companies or joint stock limited company, provided that except as otherwise provided by law, our Company shall not act as a capital contributory which bears joint liability of an investee enterprise.

The Articles of Association regulate our Company’s organisation and conduct guidance and is binding on our Company, the shareholders, Directors, Supervisors and senior management. Subject to no violation of the relevant provisions of the Articles of Association, shareholders may sue shareholders; shareholders may sue the Directors, Supervisors and senior management; shareholders may sue our Company, and our Company may sue shareholders.

The above said suing includes filing an action and applying for an arbitration with an arbitral institution.

In the event of any discrepancy between the Promoters’ Agreement, the Shareholder Contribution Agreement or other shareholders’ agreements and the Articles of Association, the Articles of Association shall prevail.

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(2) Share and Transfer

Our Company may increase stock capital by the following means:

i. Issuing new shares to unspecified investors;

ii. Placing new shares with existing shareholders;

iii. Giving new shares to existing shareholders;

iv. Converting the reserve funds into share capital;

v. Other means approved by the laws, administrative regulations, regulations of the authorities.

Upon approval to increase our Company’s capital via an issue of new shares according to the provisions of the Articles of Association, the matter shall be dealt with in accordance with the procedures of related laws and administrative regulations of the PRC.

Our Company may decrease our registered share capital and shall comply with the procedures stipulated in Company Law of the PRC, other related regulations and the Articles of Association.

If our Company decreases our registered capital, we shall prepare a balance sheet and a list of properties.

Our company shall notify creditors, publish an announcement, repay the debts or provide the corresponding guaranty when required by the creditors in accordance with Company Law of the PRC when undertaking reduction of the registered capital.

After our Company’s reduction in capital, our registered capital may not be less than the statutory minimum amount.

Upon approval by the competent securities department of the State Council, our Company may issue shares to domestic and overseas investors.

For the purpose of the preceding paragraph, overseas investors shall refer to investors from foreign countries and Hong Kong, Macao or Taiwan region who subscribe for shares issued by our Company; domestic investors shall refer to investors within the territory of the PRC apart from above-mentioned region who subscribe for shares issued by our Company.

Upon approval by the competent securities department of the State Council, the Domestic Shares of the Company can be converted into foreign shares which are listed overseas. After the conversion, these foreign shares can be listed and traded on the overseas stock exchange, in compliance with the regulatory procedures, provisions and requirements of overseas securities market.

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(3) Shareholders

The shareholders of our Company are persons lawfully holding the Company’s shares and whose names (titles) are already listed in the register of shareholders. Shareholder is entitled to rights and assumes obligations pursuant to the classification and ratio of his or her shares. Shareholder holding the same classified share has the same rights and assumes the same obligations.

The rights of our ordinary shareholders are as follows:

i. To receive distribution of dividends and other forms of benefits according to the number of shares held;

ii. To legally require, convene, preside over, participate in or appoint a shareholder proxy to participate in and exercise corresponding voting rights at the Shareholders’ meeting;

iii. To supervise business and operational activities of our Company, provide suggestions or submit queries;

iv. To transfer, grant and pledge the Company’s shares held according to the provisions of the laws, administrative regulations, listing rule of the stock exchange where our stocks are listed and the Articles of Association;

v. To obtain relevant information according to the provisions of the Articles of Association;

vi. To participate in the distribution of the remaining assets of our Company according to the proportion of shares held upon our termination or liquidation;

vii. To ask our Company to acquire the shares from Shareholders voting against any resolutions adopted at the general Shareholders’ meeting concerning the merger and division of the Company; and

viii. Other rights conferred by laws, administrative regulations, department rules or the Articles of Association.

When any person is interested directly or indirectly in the shares of our Company, our Company shall not freeze or otherwise impair any of the rights attaching to any share by reason only that the person has not disclosed his interests to our Company.

The share certificates are signed by the chairman of the Board of Directors. Where the stock exchange on which our Company’s shares are listed requires our other senior management to sign the share certificates, they shall also be signed by other such personnel. The share certificates shall become effective after being affixed with the stamp of our Company or print-stamped. Affixing our Company stamp to the share certificates is

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subject to the authorisation of the Board of Directors. The signature of the chairman of the Board of Directors or other related senior management may also be printed. Under conditions of paperless issuance and trading, the provisions of securities administrative authorities of the region where the Company’s shares listed shall apply.

If any person whose name appears in the register of shareholders or requests to register his or her name (title) in the register of shareholders loses his or her share certificates (that is, “original share certificates”), he or she may apply to our Company to reissue new share certificates for those shares.

In the event holder of Domestic Shares applies to our Company for a reissue after losing the share certificates, the matter shall be dealt with pursuant to related provisions of the Company Law.

In the event a holder of overseas listed foreign shares applies to our Company for a reissue after losing the share certificates, the matter may dealt with pursuant to the laws, regulations and rules of the stock exchange where the original register of holders of the overseas listed foreign shares is kept, or other related provisions.

If a H shareholder loses share certificates and applies to the Company for a replacement issue, the share certificates shall be issued in compliance with the following requirements:

i. The applicant shall submit the application in the standard format designated by our Company and attach a notary certificate or legal declaration. The contents of the notary certificate or legal declaration shall include the reason for the applicant’s request, circumstances and evidence of loss of share certificates, as well as a statement that nobody else may request to be registered as a shareholder with respect to the pertinent shares;

ii. Before deciding to issue new share certificates, our Company does not receive any statement in which any person other than the applicant requests to be registered as the shareholder with respect to the shares;

iii. If our Company decides to issue new share certificates to the applicant, we shall publish an announcement in newspapers designated by the Board of Directors indicating that we plan to reissue new share certificates. The announcement period shall be 90 days and the announcement shall be published at least once every 30 days;

iv. Before publishing the announcement indicating that we plan to re-issue new share certificates, our Company shall submit a copy of the announcement to be published to the stock exchange on which the shares are listed and may publish the announcement after receiving a reply from the stock exchange confirming that the announcement has been displayed at the stock exchange. The period of displaying the announcement at the stock exchange is 90 days. If the registered shareholders of the related shares do not approve the application for reissue of new share certificates, our Company shall mail the copy of the announcement to be repeatedly published to the Shareholders;

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v. In the event that nobody raises any objection to the reissue of new share certificates to our Company, upon expiration of the 90-day display period of the announcement specified in iii and iv above, the new share certificates may be reissued according to the application made by the applicant;

vi. When re-issuing new share certificates according to the Articles of Association, our Company shall immediately cancel the original share certificates and register the cancellation and replacement issue on the register of shareholders;

vii. All expenses incurred by our Company from the cancellation of the original share certificates and replacement issue of the new share certificates shall be borne by the applicant. Before the applicant has provided reasonable security, our Company shall have the right to refuse to take any action.

(4) Shareholders Failing to be Contacted

In compliance with the provisions of related laws and regulations of the PRC, our Company may exercise expropriate right to unclaimed dividend. However, our Company can only exercise such right after the expiration of the applicable corresponding valid period which started after the distribution of dividend was declared.

Our Company may terminate sending dividend coupons by mail to any holder of the overseas listed foreign shares. However, the said termination can only be made after the holder fails to withdraw from the dividend coupons for consecutive two times or the dividend coupons cannot be delivered to the receiver and returned thereof.

In compliance with the conditions indicated below, Our Company disposed the stock held by overseas listed foreign shareholders whom we fail to contact in accordance with appropriate manner as considered by the Board of Directors:

i. Our Company has paid dividends at least three times on these Shares within 12 years, but no one has claimed the dividends during that period;

ii. Upon expiration of the 12-year period, our Company publishes an announcement in one or more newspaper of the Company’s [REDACTED] place, indicating our intention to sell the Shares and notifies the stock exchange where such Shares are listed of such intention.

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(5) The Board of Directors

The Board of Directors is responsible to the general Shareholders’ meeting and exercises the following powers:

i. To convene the general Shareholders’ meeting and report on work to the general Shareholders’ meeting;

ii. Implement the resolutions of the general Shareholders’ meeting;

iii. Determine the business and investment plans of our Company;

iv. Devise the annual financial budget and closing account plans of our Company;

v. Devise the earnings distribution and loss offset plans of our Company;

vi. Formulate the plans for increasing or decreasing our Company’s registered capital, the issuance of corporate bonds or other securities, as well as the [REDACTED] of the stock of our Company;

vii. Formulate plans for corporate merger, separation of our Company, changing the form and dissolution of our Company;

viii. Formulate plans for major acquisitions of the Company, the acquisition of shares of our Company;

ix. Determine such matters as the Company’s external investment, purchase or sale of assets, asset pledge, external guarantee, entrusting wealth management and connected transaction within the scope authorised by the general Shareholders’ meeting;

x. Decide on the setup of our Company’s internal management organisation;

xi. Decide on the establishment of special committees under the Board of Directors and appoint or dismiss the chairmen (convener) of the special committees under the Board of Directors;

xii. Appoint or dismiss the general manager of our Company, the secretary of the Board of Directors and the Secretary of our Company; based on the nomination of the general manager, appoint or dismiss senior management of our Company such as vice manager, the chief financial officer, and determine their remuneration and punishment;

xiii. Set the basic management systems of our Company;

xiv. Make the modification plan to the Articles of Association;

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xv. Decide on the equity incentive scheme;

xvi. Manage the disclosure of company information;

xvii. Propose the appointment or replacement of the accounting firm that performs audits for our Company at the general Shareholders’ meeting;

xviii. Attend to the work report of our Company’s general manager and review the work of the general manager;

xix. Review and decide on external guarantees of our Company excluding those shall be approved by the general Shareholders’ meeting pursuant to the Articles of Association;

xx. Formulate and review the corporate governance policies and practices of the Company;

xxi. Review and monitor our Company’s policies and practices in relation to compliance with laws and regulatory requirements;

xxii. Review and supervise the training and ongoing professional development of the Directors and senior officers;

xxiii. Review our Company’s compliance with corporate governance rules as set forth in the Main Board Listing Rules and disclosure thereof in corporate governance reports;

xxiv. Decide on major matters and administrative affairs other than those on which a resolution shall be made at the general Shareholders’ meeting in accordance with laws, administrative regulations, regulations of the authorities, listing rules of the place where the shares of our Company are [REDACTED], and the Articles of Association, and sign other important agreements; and

xxv. Other powers and duties authorised by the laws, administrative regulations, regulations of the authorities, listing rules of the place where the shares of our Company are listed and the Articles of Association as well as the general Shareholders’ meeting.

The aforesaid matters that can be exercised by the Board of Directors, or other transactions or arrangements, if according to the listing rules of the stock exchange where the shares of our Company are listed, shall be considered by the general Shareholders’ meeting, and submitted to the general Shareholders’ meeting for consideration.

The above resolutions adopted by the Board of Directors, except those in vi, vii and xiv must be approved by more than a two-thirds vote of the Directors, may be approved by more than half of the votes by the Directors.

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Meetings of the Board of Directors shall be attended by more than one-half of the Directors (including proxies) before the Board of Directors meeting can be convened, except for the review of connected transactions in accordance with the relevant terms of the Articles of Association.

(6) Independent Non-executive Director

At least one-third of member of the Board of Directors of the Company shall be the independent non-executive Directors and the amount shall not be less than three. At least one independent non-executive Director shall have applicable professional qualification or are equipped with applicable accounting or relevant financial management expertise. At least one independent non-executive Director usually resides in Hong Kong.

(7) Secretary of the Board of Directors

Our Company shall have one secretary of the Board of Directors. The secretary of the Board of Directors must be a natural person with the requisite expertise and experience and be appointed by the Board of Directors.

(8) Board of Supervisors

Our Company shall set up a Board of Supervisors.

The Board of Supervisors consists of three Supervisors and includes one chairman. The chairman of the Board of Supervisors shall be elected and dismissed by more than a two-thirds vote of the members of the Board of Supervisors.

The Board of Supervisors shall consist of Shareholder ‘s representatives and employee’s representatives which account for no less than one-third of the Board of Supervisors of our Company. The Supervisors assumed by the employee representatives shall be elected and dismissed democratically by the employees.

Meetings of the Board of Supervisors shall be attended by more than half of the Supervisors before it may be convened. Resolutions of the Board of Supervisors shall require approval from two-third of all the Supervisors. The Supervisors serve three-year terms.

The Supervisors may, after the expiration of the term of office, be re-elected and re-appointed.

The Directors and senior management shall not also serve as Supervisors.

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The Board of Supervisors is responsible to the general Shareholders’ meeting and lawfully exercises the following powers:

i. Examine the financial standing of our Company;

ii. Supervise the Company’s duties performing of Directors and senior management so as to ensure that said Directors and senior management shall not act in violation of any laws, administrative regulations or the Articles of Association of the Company when performing their duties, and put forward suggestions for dismissing any Directors or senior management who are in breach of the laws, administrative regulations, the Articles of Association or resolutions of the general Shareholders’ meetings;

iii. Require the Directors and senior management to take corrective measures when their actions are detrimental to the Company’s interests;

iv. Verify the financial information such as the financial reports, business reports and profit distribution plans to be submitted by the Board to the general Shareholders’ meetings and, should any queries arise, to authorise, in the name of our Company, a re-examination by the certified public accountants and practising auditors;

v. Propose to convene an extraordinary general Shareholders’ meeting, where the Board of Directors fails to perform the duties in relation to convening or presiding over the general Shareholders’ meeting, to convene and preside over the general Shareholders’ meeting;

vi. Submit proposals at the general Shareholders’ meetings;

vii. Propose to convene extraordinary meetings of the Board of Directors;

viii. Represent our Company in bringing actions against the Directors and senior management in accordance with Company Law;

ix. Investigate into any abnormalities in operation of our Company; if necessary, to engage accounting firms, law firms and other professional institutions to assist its work, and the expenses shall be borne by our Company;

x. Other powers and duties stipulated in the Articles of Association.

The Supervisors may attend the meetings of the Board of Directors, query or provide suggestions on the resolution matters of the Board meeting.

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(9) General Manager

Our Company has one general manager, appointed or dismissed by the Board of Directors. The general manager of our Company is responsible to the Board of Directors and exercises the following powers:

i. Be in charge of the producing and operational management of our Company and report to the Board of Directors on work;

ii. To organise the enforcement of resolutions of the Board of Directors;

iii. Organise the implementation of the annual operation plans and investment schemes decided by the Board of Directors;

iv. Draft and propose to the Board of Directors the annual financial budgets and final accounts of our Company;

v. Formulate the structure scheme of the internal management agency of our Company;

vi. Draw up a plan for setting up a branch office;

vii. Formulate the fundamental management system of our Company;

viii. Formulate the rules and policies of our Company;

ix. Propose the appointment or dismissal of the Company’s vice general manager, financial officer to the Board of Directors;

x. Appoint or dismiss other management personnel except those who shall be appointed or dismissed by the Board of Directors;

xi. Formulate the salaries, benefits, rewards and punishment for the staff of our Company, and decide the employment and dismissal of the staff of our Company; and

xii. Other responsibilities authorised by the Articles of Association and the Board of Directors.

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(10) Reserves

When the annual after-tax earnings of our Company are distributed, our Company must allocate 10% of the earnings to the statutory reserve of the Company.

When the total amount of the statutory reserve exceeds 50% of our Company’s registered capital, no more allocations need to be provided.

If the Company’s statutory reserve is insufficient to offset our losses during the previous year, the earnings generated during the current year must be used to make up the losses before allocating the statutory reserve in accordance with the requirements set forth above.

After allocation to the statutory reserve from the after-tax earnings of our Company, we may also allocate to the reserves at will from after-tax earnings in line with the resolution(s) adopted at the general Shareholders’ meeting.

After our Company has made up for its losses and made allocations to its statutory reserve fund, the remaining profits are distributed in proportion to the number of shares held by the Shareholders, unless otherwise specified by the Articles of Association.

If the general Shareholders’ meeting violates the above provisions and profits are distributed to the Shareholders before the Company makes up for losses or makes allocations to the statutory reserve fund, the profits distributed in violation of the provisions must be returned by such Shareholders to the Company.

The shares held by our Company itself shall not be subject to profit distribution.

The Company’s reserves must be used only for offsetting losses of the Company, expanding the scale of business and operations or for conversion into capital to increase our capital, but the capital reserve shall not be used to offset losses of the Company.

Where the statutory reserve converses into capital, the remaining statutory reserve shall not be less than 25% of the registered capital of our Company before such conversion.

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(11) Settlement of Disputes

Our Company shall comply with the following rules governing the settlement of disputes:

i. Whenever there occur any dispute or claim between (i) our Company and its Directors or other senior management and (ii) shareholders of the overseas listed foreign Shares and our Company, shareholders of the overseas listed foreign Shares and our Company’s Directors, Supervisors, general manager or other senior management, or shareholders of the overseas listed foreign Shares and shareholders of Domestic Shares regarding the rights or obligations relating to the affairs of our Company conferred or imposed by the Articles of Association, the Company Law or any other relevant laws and administrative regulations, such disputes or claims shall be referred by the relevant parties to arbitration.

Where the aforesaid dispute or claim of rights is referred to arbitration, the entire claim or the dispute as a whole must be referred to arbitration, and any parties who have a cause of action based on the same facts giving rise to the dispute or the claim or whose participation is necessary for the settlement of such dispute or claim, are bound by the award of the arbitration provided that such person is our Company or a shareholder of our Company, a Director, a Supervisor, general manager or other senior management.

Disputes in relation to the definition of shareholders and disputes in relation to the shareholders’ register need not be resolved by arbitration;

ii. A claimant may elect for arbitration at either the China International Economic and Trade Arbitration Commission in accordance with its rules or the Hong Kong International Arbitration Centre in accordance with its arbitration rules. Once a claimant refers a dispute or claim to arbitration, the other party must submit to the arbitral body so elected by the applicants.

If a claimant elects for arbitration at HKIAC, any party to the dispute or claim may request the arbitration to be conducted in Shenzhen in accordance with the Securities Arbitration Rules of the HKIAC;

iii. The laws of the PRC are applicable to the arbitration for the disputes or claims of rights referred to in paragraph (i) above, unless otherwise provided in the laws and administrative regulations;

iv. The award of an arbitration body shall be final and binding on all parties.

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1. FURTHER INFORMATION ABOUT OUR COMPANY

A. Establishment

Our Company was established in the PRC under the PRC Company Law as a limited liability company on 10 May 2012 under the name of “Fuzhou Shenlan Environmental Technology Co. Ltd. (福州深藍環保科技有限公司)” and then converted into a joint-stock company with limited liability on 15 June 2015 and changed its name to “Fujian Lanshen Environmental Technology Co., Ltd.* (福建省藍深環保技術股份有限公司)”.

The registered address of our Company is 8-9/F, Building 1, Research and Development Start-up Building, Software Park, Beifeng Street, Fengze District, Quanzhou, Fujian, PRC. Our Company has established a principal place of business in Hong Kong at 40th Floor, Dah Sing Financial Center, No. 248 Queen’s Road East, Wanchai, Hong Kong, and our Company was registered as a non-Hong Kong company under Part 16 of the Companies Ordinance on August 31, 2020. Ms. Mak Po Man Cherie, of 40th Floor, Dah Sing Financial Center, No. 248 Queen’s Road East, Wanchai, Hong Kong, has been appointed as the authorised representative of our Company for the acceptance of service of process and notices on behalf of our Company in Hong Kong. Our address for acceptance of service of process and notices in Hong Kong is the same as the address of our principal place of business in Hong Kong.

As we were established in the PRC, our corporate structure and Articles of Association are subject to the relevant laws and regulations of the PRC. A summary of certain relevant aspects of the laws and regulations of the PRC is set out in Appendix IV. A summary of certain relevant provisions of our Articles of Association is set out in Appendix V.

B. Changes in the Share Capital of our Company

Our share capital has undergone the following changes during the two years preceding the date of this document:

On 1 August 2018, the registered capital of our Company was increased from RMB20,000,000. to RMB30,000,000. The increased registered capital of a total amount of RMB10,000,000 was subscribed by Haisi Environmental.

On 6 June 2019, the registered capital of our Company was increased from RMB30,000,000 to RMB90,000,000 by converting a total amount of RMB60,000,000 capital reserve into the registered capital of our Company.

On 27 March 2020, the registered capital of our Company was increased from RMB90,000,000 to RMB91,314,060. The increased registered capital of RMB1,314,060 was subscribed by Quanzhou Radio and Television Station.

On 25 May 2020, the registered capital of our Company was increased from RMB91,314,060 to RMB98,226,018. The increased registered capital of a total amount of RMB6,911,958 was subscribed by Lanshen Youshi.

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Immediately following the [REDACTED] (assuming the [REDACTED] is not exercised), our total issued share capital will be [REDACTED], consisting of 98,226,018 Domestic Shares and [REDACTED] fully paid up or credited as fully paid up, which represent approximately [REDACTED] and [REDACTED] of our total issued share capital, respectively.

Save as disclosed above and in this document, there has been no alteration in the share capital of our Company since our incorporation.

C. Changes in the Share Capital of Our Company’s Subsidiaries

Save as disclosed in “Our History and Development” in this document, there has been no alteration in the share capital of any of our subsidiaries within the two years preceding the date of this document.

D. Restriction on Share Repurchase

See “Appendix IV — Summary of Principal Legal and Regulatory Provisions” and “Appendix V — Summary of the Articles of Association of our Company” for details of the restriction on the share repurchase by our Company.

E. Resolutions of Our Shareholders

The following resolutions were passed on the Shareholders’ general meeting on 28 July 2020, among other things:

(a) the [REDACTED] has been approved and the Board has been authorised to apply for the [REDACTED]of[REDACTED] on the Stock Exchange as well as to approve matters in relation to the [REDACTED];

(b) the issue by the Company of the [REDACTED] of nominal value of [REDACTED] each up to [REDACTED] and subsequent [REDACTED] of such [REDACTED]on the Stock Exchange;

(c) the granting of the [REDACTED] in respect of no more than [REDACTED]ofthe number of [REDACTED] issued as above-mentioned;

(d) subject to the completion of the [REDACTED], the Articles of Association have been approved and adopted (which shall only become effective from the [REDACTED]) and the Board and the persons authorised by the Board have been authorised to amend the Articles of Association in accordance with laws, regulations, requirements of the Listing Rules and relevant regulatory authorities and review authorities; and

(e) our Board and the persons authorised by our Board have been authorised to handle all matters relating to the issue of the [REDACTED] and the [REDACTED]of [REDACTED] on the Stock Exchange.

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2. FURTHER INFORMATION ABOUT OUR BUSINESS

A. Summary of Material Contracts

We entered into the following contracts (not being contracts entered into in our ordinary course of business) within the two years preceding the date of this document, which are or may be material:

(1) the equity transfer agreement dated 30 August 2019 entered into by our Company, Lvdi Environmental, Huang Jinhua (黃金樺), Ding Lijun (丁麗君), Huang Junyi (黃俊壹) and Huang Junquan (黃俊荃), pursuant to which Lvdi Environmental transferred 90.0% of the registered capital of Yongchun Lvdi to our Company, at a consideration of RMB6,034,248;

(2) the equity transfer agreement dated 30 August 2019 entered into by our Company, Lvdi Environmental, Huang Jinhua (黃金樺), Ding Lijun (丁麗君), Huang Junyi (黃俊壹) and Huang Junquan (黃俊荃), pursuant to which Lvdi Environmental transferred 90.0% of the registered capital of Fujian Lvdi to our Company, at a consideration of RMB6,943,626;

(3) the equity transfer agreement dated 7 November 2019 entered into by our Company and Beijing Sangde, pursuant to which Beijing Sangde transferred 85.0% of the registered capital of Yunxiao Sangde to our Company, at a consideration of RMB12,283,010;

(4) the capital increase agreement dated 13 March 2020 entered into by Haisi Environmental, Lan Qiang (蘭強), Lin Hongquan (林洪全), Quanzhou Radio and Television Station and our Company, pursuant to which Quanzhou Radio and Television Station subscribed a total number of 1,314,060 shares of our Company at a consideration of RMB10,000,000;

(5) the capital increase agreement dated 15 May 2020 entered into by Haisi Environmental, Lan Qiang (蘭強), Lin Hongquan (林洪全), Quanzhou Radio and Television Station, Lanshen Youshi and our Company, pursuant to which Lanshen Youshi subscribed a total number of 6,911,958 shares of our Company at a consideration of RMB52,600,000; and

(6) the [REDACTED].

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B. Intellectual Property Rights

As of the Latest Practicable Date, we have registered the following intellectual property rights which we consider to be material in relation to our business.

(a) Trademarks

(i) Registered trademarks

As of the Latest Practicable Date, our Company has registered the following trademarks in the PRC which we consider to be material to our business:

Registered Place of Registration No. Trademark Owner Registration Classes(1) No. Valid Period

1 Our Company PRC 40 21404774 21 November 2017 – 20 November 2027 11 21404702 21 November 2017 – 20 November 2027

2 Our Company PRC 11 18853020 14 May 2017 – 13 May 2027

3 Our Company PRC 11 18853013 21 May 2017 – 20 May 2027 40 18853123 14 February 2017 – 13 February 2027

4 Our Company PRC 40 17559767 21 September 2016 – 20 September 2026

5 Our Company PRC 11 23417888 21 March 2018 – 20 March 2028 40 23418044 21 July 2018 – 20 July 2028

6 Our Company PRC 40 23165307 7March2018–6March2028 11 23165331 7March2018–6March2028 17 36709857 21 October 2019 – 20 October 2029 42 36709857 21 October 2019 – 20 October 2029 19 36709857 21 October 2019 – 20 October 2029 35 36709857 21 October 2019 – 20 October 2029 6 36709857 21 October 2019 – 20 October 2029 9 44590985 7 November 2020 – 6 November 2030 37 44590985 7 November 2020 – 6 November 2030

– VI-4 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX VI STATUTORY AND GENERAL INFORMATION

Registered Place of Registration No. Trademark Owner Registration Classes(1) No. Valid Period

8 Quanzhou PRC 17 1014041 28 May 2017 – 27 May 2027 Xingyuan

9 Quanzhou PRC 19 1770124 21 May 2012 – 20 May 2022 Xingyuan

10 Quanzhou PRC 19 1770152 21 May 2012 – 20 May 2022 Xingyuan

11 Quanzhou PRC 19 5628860 28 October 2019 – 27 October 2029 Xingyuan

12 Our Company PRC 2 40195859 21 March 2020 – 20 March 2030

13 Our Company PRC 11 11303937 7 January 2014 – 6 January 2024

14 Our Company PRC 40 11303960 7 January 2014 – 6 January 2024

15 Quanzhou PRC 19 45924431 21 January 2021 – 20 January 2031 Xingyuan

16 Quanzhou PRC 17 45911010 21 January 2021 – 20 January 2031 Xingyuan

Note:

(1) The class number represents the specification of products or services which have already been registered. Detailed specifications of products or service represented by that class number are set out in the relevant registration certificates.

– VI-5 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX VI STATUTORY AND GENERAL INFORMATION

As at the Latest Practicable Date, we have registered the following trademark in Hong Kong which we consider to be material to our business:

Registration No. Trademark Class Registered owner Place of application number Expiry Date

1. 7, 11, 35, 40 Our Company Hong Kong 305233257 26 March 2030 and 42

Note:

(ii) Trademarks applications pending

As of the Latest Practicable Date, we have applied for the registration of the following trademarks, which we consider to be material to the business of our Group:

No. Trademark Registered Owner Place of Registration Classes Application Number Application Date

1 Quanzhou Xingyuan PRC 17 45486270 16 April 2020

2 Our Company Hong Kong 7, 11, 35, 305486158 22 December 2020 40, 42

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(b) Patents

(i) Registered patents

As of the Latest Practicable Date, our Company has registered the following patents, which are or may be material to our business:

Patent Registered Place of Application Term No. Patent Name Patents Owner Registration Patent No. Date (Years)

1 A kind of high efficiency Utility Our PRC ZL201720403852.4 18 April 2017 10 oil-water separator Model Company (一種高效油水分離器)

2 A kind of high efficiency Utility Our PRC ZL201720403887.8 18 April 2017 10 two-stage solid-liquid Model Company separator (一種高效率的兩級固液分離器)

3 A kind of high efficiency Utility Our PRC ZL201720403888.2 18 April 2017 10 antiseptic food storage tank Model Company (一種高效防腐食品儲罐)

4 a kind of high efficiency Utility Our PRC ZL201720403889.7 18 April 2017 10 equipment for sewage Model Company treatment with MBR membrane processing features (一種具有MBR膜處理功能的高效污水處理設備)

5 A kind of barrel-shaped Utility Our PRC ZL201720002616.1 3 January 2017 10 photocatalytic sewage Model Company purifier (一種桶形光催化污水淨化器)

6 A kind of anti-oxidation quartz Utility Our PRC ZL201720002617.6 3 January 2017 10 sand filter (一種抗氧化的石英 Model Company 砂過濾器)

7 A kind of dissolved air Utility Our PRC ZL201720002793.X 3 January 2017 10 floatation sewage treatment Model Company device (一種溶氣氣浮污水處理裝置)

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Patent Registered Place of Application Term No. Patent Name Patents Owner Registration Patent No. Date (Years)

8 A kind of rural wastewater Utility Our PRC ZL201720003133.3 3 January 2017 10 treatment system Model Company (一種農村污水處理系統)

9 A kind of deodorizing activated Utility Our PRC ZL201720004091.5 3 January 2017 10 carbon adsorption equipment Model Company (一種除臭活性炭吸附設備)

10 A kind of tower type spraying Utility Our PRC ZL201720004100.0 3 January 2017 10 flue gas dust removal device Model Company (一種塔式噴淋煙氣除塵裝置)

11 A kind of medicine dissolving Utility Our PRC ZL201720004102.X 3 January 2017 10 and medicine adding Model Company integrated equipment (一種溶藥加藥壹體化設備)

12 Bag filter (布袋除塵器) Utility Our PRC ZL201621366504.6 13 December 10 Model Company 2016

13 Integrated glass steel Utility Our PRC ZL201621339984.7 8 December 2016 10 compound biological filter Model Company (玻璃一體化複合生物濾池)

14 Integrated glass steel lifting Utility Our PRC ZL201520874630.1 4 November 10 pump station (玻璃鋼一體化提 Model Company 2015 升泵站)

15 Integrated modular constructed Utility Our PRC ZL201520874637.3 4 November 10 wetland equipment (一體式模 Model Company 2015 塊化人工濕地設備)

16 Integrated buried glass steel Utility Our PRC ZL201520845686.4 28 October 2015 10 reinforced plastic septic tank Model Company (整體地埋式玻璃鋼化糞池)

17 Integrated glass steel medical Utility Our PRC ZL201520846144.9 28 October 2015 10 wastewater treatment Model Company equipment (玻璃鋼一體化醫療廢水處理設備)

18 Buried glass steel grease trap Utility Our PRC ZL201520706806.2 14 September 10 (地埋式玻璃鋼隔油池) Model Company 2015

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Patent Registered Place of Application Term No. Patent Name Patents Owner Registration Patent No. Date (Years)

19 Buried integrated glass steel Utility Our PRC ZL201520688808.3 8 September 10 sedimentation device Model Company 2015 (地埋式一體化玻璃鋼沈澱裝置)

20 Buried integrated glass steel Utility Our PRC ZL201520289574.5 7 May 2015 10 wastewater treatment Model Company equipment (地埋式壹體化玻璃鋼污水處理設備)

21 Water oxygenation equipment Utility Our PRC ZL201820486620.4 8 April 2018 10 of A/O stinking water Model Company treatment (A/O臭水處理的水體增氧設備)

22 Bio-rope packing for Utility Our PRC ZL201820485999.7 8 April 2018 10 high-efficiency sewage Model Company reaction (高效污水反應的生物繩填料)

23 A kind of quantitative uniform Utility Our PRC ZL201720003131.4 3 January 2017 10 speed dosing device and Model Company wastewater treatment device (一種定量勻速加藥裝置及污水處理裝置)

24 A kind of sewage interception Utility Our PRC ZL201820487096.2 8 April 2018 10 device for river (一種河道截污 Model Company 裝置)

25 A kind of wadi water body Utility Our PRC ZL201820485997.8 8 April 2018 10 governance equipment Model Company (一種河道水體治理裝置)

26 A kind of environment-friendly Utility Our PRC ZL201720403881.0 18 April 2017 10 water outlet tank for fire Model Company fighting (一種環保型消防用儲水罐)

27 A kind of compound biological Utility Our PRC ZL201820486619.1 8 April 2018 10 floating bed with stable Model Company structure (一種結構穩定的複合生物浮床)

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Patent Registered Place of Application Term No. Patent Name Patents Owner Registration Patent No. Date (Years)

28 A kind of cultivation sewage Utility Our PRC ZL201820487065.7 8 April 2018 10 pretreatment device Model Company (一種養殖污水預處理裝置)

29 A kind of integrated wastewater Utility Our PRC ZL201820487097.7 8 April 2018 10 treatment device (一種一體化 Model Company 污水處理裝置)

30 A kind of cultivation Utility Our PRC ZL 201820580429.6 23 April 2018 10 wastewater treatment device Model Company (一種養殖廢水處理設備)

31 A kind of decentralised Utility Our PRC ZL 201820580931.7 23 April 2018 10 domestic wastewater Model Company treatment equipment (一種分散式生活污水處理設備)

32 A kind of wastewater treatment Utility Our PRC ZL 201820487099.6 8 April 2018 10 device for urban drain pipe Model Company end (一種城市排水管末端用的污水處理裝置)

33 Reinforced and toughened Invention Quanzhou PRC ZL201110193897.0 12 July 2011 20 masterbatch for vinyl Xingyuan polymer and preparation method thereof (用於乙烯基聚合物的增強增韌母料及其制備方法)

34 A kind of high-strength PVC Utility Quanzhou PRC ZL 201821191922.5 26 July 2018 10 pipe material (一種強度高的 Model Xingyuan PVC管材)

35 A kind of anti-oxidation PVC Utility Quanzhou PRC ZL 201821192923.1 26 July 2018 10 pipe material (一種防氧化的 Model Xingyuan PVC管材)

36 A kind of high temperature Utility Quanzhou PRC ZL 201821191923.X 26 July 2018 10 resistant PVC pipe material Model Xingyuan (一種耐高溫PVC管材)

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Patent Registered Place of Application Term No. Patent Name Patents Owner Registration Patent No. Date (Years)

37 A kind of PPR pipe material Utility Quanzhou PRC ZL 201821192470.2 26 July 2018 10 with good anti-corrosion Model Xingyuan performance (一種防腐性能好的PPR管材)

38 A kind of polishing device for Utility Quanzhou PRC ZL 201821192522.6 26 July 2018 10 PVC pipe material (一種PVC Model Xingyuan 管材打磨裝置)

39 A kind of device for crushing Utility Quanzhou PRC ZL 201821191937.1 26 July 2018 10 waste material for PPR pipe Model Xingyuan material (一種PPR管材用廢料打碎裝置)

40 A kind of operating platform Utility Quanzhou PRC ZL 201821192521.1 26 July 2018 10 for production and processing Model Xingyuan of PVC pipe material (一種 PVC管材生產加工用操作平台)

41 A kind of PPR pipe material Utility Quanzhou PRC ZL 201821191936.7 26 July 2018 10 transportation device Model Xingyuan (一種PPR管材運輸裝置)

42 A kind of Cutting device for Utility Quanzhou PRC ZL 201821192992.2 26 July 2018 10 PPR pipe material production Model Xingyuan (一種PPR管材生產用切割裝置)

43 A kind of PPR pipe material Utility Quanzhou PRC ZL 201821192905.3 26 July 2018 10 with good wear resistance Model Xingyuan (一種耐磨效果好的PPR管材)

44 A kind of Sewage treatment Invention Our PRC ZL 201910211833.5 20 March 2019 20 microbial ecological tank Company (一種污水處理微生物生態槽)

45 Sewage treatment method and Utility Our PRC ZL201921867306.1 1 November 10 device with microporous Model Company 2019 ceramic-activated carbon composite material (帶有微孔陶瓷－活性炭複合材料的污水處理方法及裝置)

46 A kind of microbial ecological Invention Our PRC ZL 201811423397.X 27 November 20 tank for water purification Company 2018 （一種水質淨化用的微生物生態槽）

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Patent Registered Place of Application Term No. Patent Name Patents Owner Registration Patent No. Date (Years)

47 A kind of graphene-based Utility Our PRC ZL201921704796.3 12 October 2019 10 sewage treatment plant（一種 Model Company 基於石墨烯的污水處理裝置）

48 A kind of constructions efficient Utility Our PRC ZL202020921706.2 27 May 2020 10 sewage treatment system Model Company (一種連續性高效污水處理系統)

49 A kind of MBBR sewage Utility Our PRC ZL202020921724.0 27 May 2020 10 treatment system Model Company (一種MBBR污水處理系統)

50 A kind of multistage sewage Utility Our PRC ZL202020923506.0 27 May 2020 10 treatment system Model Company (一種多級污水處理系統)

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(ii) Patents applications pending

As of the Latest Practicable Date, we have applied for the registration of the following patents, which we consider to be material to the business of our Group:

Registered Place of No. Patent Name Patents Owner Registration Patent No. Application Date

1 A kind of high-performance PPR pipe Invention Quanzhou PRC 201610774517.5 31 August 2016 material for home improvement and Xingyuan preparation method thereof (一種家裝用高性能PPR管材及其制備方法)

2 A kind of quick-forming PVC-U pipe Utility Quanzhou PRC 201911191492.6 28 November 2019 material and preparation method Model Xingyuan thereof (一種快速成型的PVC-U管材及其制備方法)

3 A kind of corrosion and high temperature Utility Quanzhou PRC 201911191496.4 28 November 2019 resistant PVC-C pipe material and Model Xingyuan preparation method thereof (一種耐腐蝕耐高溫PVC-C管材及其制備方法)

4 Graphene-based sewage treatment Invention Our PRC 201910843372.3 6 September 2019 method (基於石墨烯的污水處理方法) Company

5 A kind of wastewater treatment agent and Invention Our PRC 201910292499.0 12 April 2019 wastewater treatment method (一種廢水 Company 處理劑及廢水處理方法)

6 A kind of complete set of equipment for Invention Our PRC 201910047857.1 18 January 2019 catering wastewater treatment (一種餐 Company 飲廢水處理成套設備)

7 A kind of cultivation wastewater Invention Our PRC 201910039403.X 16 January 2019 treatment method (一種養殖廢水的處理 Company 方法)

8 A kind of solid-liquid separation device Invention Our PRC 201811462547.8 3 December 2018 and separation method for swine Company wastewater treatment (一種豬廢水處理用固液分離裝置及分離方法)

9 A kind of river sewage discharge Invention Our PRC 201810431519.3 8 May 2018 purification treatment device Company (一種河道污水排入淨化處理裝置)

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Registered Place of No. Patent Name Patents Owner Registration Patent No. Application Date

10 A kind of treatment process and Invention Our PRC 201810431578.0 8 May 2018 equipment for river sewage discharge Company (一種河道污水排放的處理工藝及其設備)

11 A kind of wadi governance system Invention Our PRC 201810432028.0 8 May 2018 (一種河道治理系統) Company

12 A kind of sewage treatment agent and Invention Our PRC 201810432737.9 8 May 2018 preparation method thereof Company (一種污水處理劑及其制備方法)

13 A kind of efficient black and smelly water Invention Our PRC 201810433944.6 8 May 2018 treatment method and device (一種高效 Company 黑臭水處理方法以及裝置)

14 A kind of environment-friendly sewage Invention Our PRC 201810366035.5 23 April 2018 treatment agent (一種環保污水處理劑) Company

15 A kind of rustproof silent type Invention Quanzhou PRC 201911192815.3 28 November 2019 steel-plastic composite water pipe and Xingyuan processing technology (一種防銹靜音式鋼塑複合水管及其加工工藝)

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Registered Place of No. Patent Name Patents Owner Registration Patent No. Application Date

16 A kind of Decentralised sewage treatment Invention Our PRC 202010668360.4 13 July 2020 plant and construction method (一種分 Company 散式污水處理裝置及其施工辦法)

17 A kind of Domestic sewage treatment Invention Our PRC 202010668897.0 13 July 2020 plant and construction technology Company (一種生活污水處理裝置及其施工工藝)

18 A high seal corrosion resistant PPR pipe Utility Quanzhou PRC 202021996170.7 12 September 2020 (一種高密封防腐蝕的PPR管材) Model Xingyuan

19 A high strength wear - resistant PPR pipe Utility Quanzhou PRC 202021995184.7 12 September 2020 (一種高強度耐磨的PPR管材) Model Xingyuan

20 The invention relates to a reinforced high Utility Quanzhou PRC 202021996115.8 12 September 2020 temperature resistant PVC-C pipe Model Xingyuan material (一種加強型耐高溫PVC-C管材)

21 A PVC pipe material with a strong Utility Quanzhou PRC 202021995471.8 12 September 2020 antioxidant layer (一種具有強抗氧化層的 Model Xingyuan PVC管材)

22 The utility model relates to a Utility Quanzhou PRC 202021992266.6 12 September 2020 corrosion-resistant high-temperature Model Xingyuan PVC-C pipe material (一種耐腐蝕耐高溫 PVC-C管材)

23 A new type of PPR pipe with high wear Utility Quanzhou PRC 202021995260.4 12 September 2020 resistance (一種新型高耐磨的PPR管材) Model Xingyuan

24 The utility model relates to an enhanced Utility Quanzhou PRC 202021995179.6 12 September 2020 anti-oxidation PVC pipe material (一種 Model Xingyuan 增強型防氧化的PVC管材)

25 The utility model relates to a toughened Utility Quanzhou PRC 202021996497.4 12 September 2020 and anticorrosive PPR pipe (一種增韌防 Model Xingyuan 腐的PPR管材)

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Registered Place of No. Patent Name Patents Owner Registration Patent No. Application Date

26 Sewage treatment method and device Invention Our PRC 201911058663.8 1 November 2019 with microporous ceramic - activated Company carbon composite material (帶有微孔陶瓷–活性炭複合材料的汙水處理方法及裝置)

27 The invention relates to a preparation Invention Our PRC 202110244836.6 5 March 2021 method of oil absorbing sponge Company modified by graphene oxide (一種基於氧化石墨烯改性的吸油海綿的製備方法)

28. A sewage treatment process with MBBR Invention Our PRC 202010433883.0 22 July 2020 (一種帶MBBR 的污水處理工藝) Company

As of the Latest Practicable Date, our Company has registered the following domain names, which are or may be material to our business:

No. Domain Name Owner Valid Period

1. chinalanshen.com Our Company 19 December 2007 – 19 December 2026 2. xn--e6q20oppmiwi.com Quanzhou Xingyuan 17 September 2018 – 17 September 2021 3 藍深環保•中國 Our Company 9 April 2020 – 9 April 2026 4 chinalanshen.cn Our Company 17 April 2020 – 17 April 2025 5 福建藍深環保網址 Our Company 25 August 2020 – 25 August 2030

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(d) Copyrights

As of the Latest Practicable Date, our Company has registered the following copyrights, which are or may be material to our business:

Registration Place of Development No. Copyright Name Owner No. Registration Completion Date

1 “Lanshen Cloud” Intelligent Our Company 2019SR0342357 PRC 5 March 2019 Operation Platform for decentralised sewage treatment (「藍深雲」分散式污水處理項目管理雲平台)

2 Lanshen Intelligent Operation Our Company 2020SR0743180 PRC 30 May 2020 and Maintenance Cloud Platform V1.0 (藍深智慧運維雲平臺V1.0)

3 Lanshen Intelligent Brain Our Company 2020SR0743184 PRC 30 May 2020 Platform (Lanshen Brain) V1.0 (藍深智慧大腦平臺簡稱：藍深大腦V1.0)

4 Lanshen Brain Environmental Our Company 2020SR0838008 PRC 30 May 2020 Ecological Group Platform V1.0 (藍深大腦環保生態群平臺V1.0)

5 Lanshen Brain Intelligent Our Company 2020SR0835238 PRC 30 May 2020 Equipment Cloud Platform V1.0 (藍深大腦智慧設備雲平臺 V1.0)

6 Lanshen Brain Intelligent Project Our Company 2020SR0835244 PRC 30 May 2020 Cloud Platform V1.0 (藍深大腦智慧項目雲平臺V1.0)

7 Lanshen Brain Intelligent Our Company 2020SR0838000 PRC 30 May 2020 Inspection Cloud Platform V1.0 (藍深大腦智慧巡檢雲平臺V1.0)

8 Lanshen Brain Artificial Our Company 2020SR0848803 PRC 30 June 2020 Intelligence Platform V1.0 (藍深大腦人工智能平臺V1.0)

9 Lanshen Big Data Platform V1.0 Our Company 2020SR0848797 PRC 30 June 2020 (藍深大數據平臺V1.0)

Save as disclosed herein, there are no other trademarks, copyrights, domain names, patents or other intellectual or industrial property rights which are or may be material to our business.

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3. FURTHER INFORMATION ABOUT OUR DIRECTORS, OUR SUPERVISORS AND SUBSTANTIAL SHAREHOLDERS

A. Disclosure of Interests

(a) Interests and short positions of the Directors, Supervisors and the chief executives of our Company

Immediately following completion of the [REDACTED] (assuming that the [REDACTED]), so far as our Directors are aware, the interests or short positions of our Directors, Supervisors and chief executives in our Shares, underlying Shares and debentures of our Company and our associated corporations (within the meaning of Part XV of the SFO) which will be required to be notified to our Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO) or which will be required, pursuant to Section 352 of the SFO, to be recorded in the register referred to therein, or which will be required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules, to be notified to our Company and the Stock Exchange (for this purpose, the relevant provisions of the SFO will be interpreted as if they applied to the Supervisors and the chief executive), in each case once our [REDACTED] are listed, will be as follows:

Approximate percentage of Capacity/Nature of Number of issued share Name of Director interest Class of Shares Shares held(1) capital(2)

Mr. Lan Qiang Beneficial Owner Domestic Shares [REDACTED][REDACTED] Mr. Lin Hongquan Beneficial Owner Domestic Shares [REDACTED][REDACTED]

Notes:

(1) All interests stated are long positions.

(2) The calculation is based on the total number of [REDACTED] in issue immediately after the completion of the [REDACTED] (assuming that the [REDACTED] is not exercised).

(b) Interestsofthe Substantial Shareholders

Save as disclosed in the section headed “Substantial Shareholders” in this document, our Directors or chief executive are not aware of any other person, not being a Director, Supervisor or chief executive of our Company, who has interests or short positions in our Shares or underlying Shares which, once the [REDACTED] are listed, would be required to be disclosed to us and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who is, directly or indirectly, be interested in 10% or more of the nominal value of any class of share capital carrying the rights to vote in all circumstances at general meetings of our Company.

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B. Particulars of Service Contracts

Each of the Directors has entered into a service contract with the Company on [●] pursuant to Rule 19A.54 of the Listing Rules, in respect of, amongst others, (a) term of three years commencing from the [REDACTED]; (b) termination in accordance with their respective terms; and (c) provisions on arbitration.

Each of the Supervisors has entered into a service contract with the Company on [●] pursuant to Rule 19A.55 of the Listing Rules, in respect of, among other things, compliance with relevant laws, regulations, the Articles of Association and applicable provisions on arbitration.

Save as disclosed above, our Company has not entered, and does not propose to enter, into any service contracts with any of our Directors or Supervisors in their respective capacities as Directors or Supervisors (other than contracts expiring or determinable by the employer within one year without payment of any compensation (other than statutory compensation)).

C. Directors’ and Supervisors’ Remuneration

The aggregate amounts of remuneration paid by us to our Directors and Supervisors for the three years ended 31 December 2020 were approximately RMB2.9 million, RMB5.2 million and RMB6.3 million respectively.

It is estimated that remuneration equivalent to approximately RMB4.0 million in aggregate will be paid to the Directors and Supervisors by our Company for the year ending 31 December 2021 based on the arrangements in force as of the date of this document.

D. Directors’ Competing Interests

Save as disclosed in this document, none of our Directors is interested in any business apart from the Group’s business which competes or is likely to compete, directly or indirectly, with the business of the Group.

E. Personal Guarantees

No Director or Supervisor has provided personal guarantees for the benefit of the lenders in connection with any banking facilities granted to our Company.

F. Agency Fees or Commissions Paid or Payable

Save as disclosed in the section headed “[REDACTED]” in this document, none of the Directors, Supervisors, promoters nor any of the persons whose names are listed in “— 4. Other Information — E. Qualification of Experts” had received any commissions, discounts, agency fees, brokerages or other special terms from us in connection with the issuance or sale of any of our capital within the two years preceding the date of this document.

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G. Disclaimers

(a) none of the Directors, Supervisors or the parties listed in “— 4. Other Information — E. Qualification of Experts” is:

(i) interested in our promotion, or in any assets which have, within the two years immediately preceding the date of this document, been acquired or disposed of by or leased to our Company, or are proposed to be acquired or disposed of by or leased to our Company;

(ii) materially interested in any contract or arrangement subsisting as of the date of this document which is significant to our business;

(b) save in connection with the [REDACTED] and the [REDACTED], none of the parties listed in “— 4. Other Information — E. Qualification of Experts”:

(i) is interested legally or beneficially in any of our Shares or our securities; or

(ii) has any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for our Shares or any of our securities;

(c) as at the Latest Practicable Date, none of the Directors, Supervisors, their respective associates, or any of the Shareholders (who to the knowledge of the Directors owns more than 5% of our issued share capital), had any interest in any of our five largest suppliers and five largest customers;

(d) none of the Directors is interested in any business apart from the Company’s business which competes or is likely to compete, directly or indirectly, with the business of the Company and is required to be disclosed pursuant to the Listing Rules;

(e) save as disclosed in “3. Further Information about Our Directors, Our Supervisors and Substantial Shareholders — A. Disclosure of Interests — (a) Interests and short positions of the Directors, Supervisors and the chief executives of our Company” in this appendix, none of our Directors or Supervisors is a director or employee of a company which has an interest or short position in the Shares and underlying Shares of our Company that has to be disclosed pursuant to Divisions 2 and 3 of Part XV of the SFO after the [REDACTED]; and

(f) save as disclosed in “3. Further Information about Our Directors, Our Supervisors and Substantial Shareholders — A. Disclosure of Interests — (b) Interests of the Substantial Shareholders” in this appendix, so far as is known to any Director or chief executive of our Company, no person has an interest or a short position in the Shares and underlying Shares which would fall to be disclosed to our Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or is, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at our general meetings, once our [REDACTED] are listed on the Stock Exchange.

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4. OTHER INFORMATION

A. Estate Duty

Our Directors have been advised that currently there is no material liability for estate duty under PRC law that is likely to be imposed on us.

B. Litigation

Save as disclosed in “Business — Legal Proceedings and Non-compliance”, our Company was not involved in any litigation, arbitration or administrative proceedings of material importance during the Track Record Period and up to the Latest Practicable Date, and so far as we are aware, no litigation, arbitration or administrative proceedings of material importance is pending or threatened against us as of the Latest Practicable Date.

C. Sole Sponsor

The Sole Sponsor is China Industrial Securities International Capital Limited. The Sole Sponsor satisfies the criteria of independence applicable to sponsors set out in Rule 3A.07 of the Listing Rules.

The Sole Sponsor has made an application on our behalf to the Listing Committee of the Stock Exchange for the [REDACTED] of, and permission to deal in, our [REDACTED]tobe issued or sold (including any additional [REDACTED] that may be issued or sold pursuant to the exercise of the [REDACTED]) under the [REDACTED]. All necessary arrangements have been made to enable the securities to be admitted into CCASS.

Our Company has entered into an engagement agreement with the Sole Sponsor pursuant to which our Company agreed to pay a total amount of approximately RMB4.5 million to the Sole Sponsor to act as the sponsor to our Company in the [REDACTED].

D. Preliminary Expenses

Our Company has not incurred any material preliminary expenses.

E. Qualification of Experts

The qualifications of the experts (as defined under the Listing Rules and the Companies (Winding up and Miscellaneous Provisions) Ordinance) who have given opinions or advice in this document are as follows.

Names Goods

China Industrial Securities A corporation licenced to carry out type 1 International Capital Limited (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO

– VI-21 – THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX VI STATUTORY AND GENERAL INFORMATION

Names Goods

PricewaterhouseCoopers Certified Public Accountants under the Professional Accountants Ordinance (Chapter 50 of the Laws of Hong Kong)

Registered Public Interest Entity Auditor under Financial Reporting Council Ordinance (Chapter 588 of the Laws of Hong Kong)

Tian Yuan Law Firm Legal advisers as to PRC law

Grandway Law Offices Legal advisers as to PRC law in respect of certain PRC intellectual properties only

Frost & Sullivan (Beijing) Inc., Industry Consultant Shanghai Branch Co.

F. Consents of Experts

Each of the experts as referred to in “4. Other Information — E. Qualification of Experts” in this appendix has given and has not withdrawn its written consents to the issue of this document with the inclusion of its report(s) and/or letter(s) and/or opinion (as the case may be) and the references to its name included herein in the form and context in which they respectively appear.

Save as disclosed in this document, none of the experts named above has any shareholding interests in our Company or any of our subsidiaries or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in our Company or any of our subsidiaries.

G. No Material Adverse Change

Our Directors confirm that there has been no material adverse change in our financial or trading position or prospect since 31 December 2020 (being the date on which our latest audited financial statements were made up).

H. Binding Effect

This document shall have the effect, if an application is made in pursuance hereof, of rendering all persons concerned bound by all the provisions (other than the penal provisions) of sections 44A and 44B of the Companies (Winding Up and Miscellaneous Provisions) Ordinance so far as applicable.

I. Bilingual Document

The English language and Chinese language versions of this document are being published separately, in reliance upon the exemption provided by section 4 of the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong).

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J. Promoters

Our promoters comprised of Xizang Laise, Daquan Investment, Mr. Lan Qiang and Mr. Lin Hongquan.

Save as disclosed in this document, within the two years immediately preceding the date of this document, no cash, securities or other benefits has been paid, allotted or given, or has been proposed to be paid, allotted or given, to any of the promoters in connection with the [REDACTED] and the related transactions described in this document.

K. Miscellaneous

Save as disclosed in this document:

(a) within the two years preceding the date of this document, (i) our Company has not issued nor agreed to issue any share or loan capital fully or partly paid either for cash or for a consideration other than cash; (ii) no commissions, discounts, brokerage fees or other special terms have been granted in connection with the issue or sale of any shares of our Company; and (iii) no commission had been paid or payable (but not including commission to [REDACTED]) for subscription, agreeing to subscribe, procuring subscription or agreeing to procure subscription of any share in our Company;

(b) no share or loan capital is under option or is agreed conditionally or unconditionally to be put under option;

(d) none of our equity and debt securities is listed or dealt with on any other stock exchange nor is any listing or permission to deal being or proposed to be sought;

(e) there are no arrangements under which future dividends are waived or agreed to be waived;

(f) there are no procedures for the exercise of any right of pre-emption or transferability of subscription rights;

(g) there are no contracts for hire or hire purchase of any plant to or by us for a period of over one year which are substantial in relation to our business;

(h) there have been no interruptions in our business which may have or have had a significant effect on our financial position in the last 12 months;

(i) there are no restrictions affecting the remittance of profits or repatriation of capital by us into Hong Kong from overseas;

(j) our Company has no outstanding convertible debt securities; and

(k) our Company currently does not intend to apply for the status of a sino-foreign investment joint stock limited company and does not expect to be subject to the Sino-foreign Joint Venture Law of the PRC.

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A. DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES

The documents attached to a copy of this document and delivered to the Registrar of Companies in Hong Kong for registration were:

(a) copies of the [REDACTED];

(b) the written consents referred to in “Appendix VI — Statutory and General Information — 4. Other Information — F. Consents of Experts” in this document; and

(c) copies of the material contracts referred to in “Appendix VI — Statutory and General Information — 2. Further Information about Our Business — A. Summary of Material Contracts” in this document.

B. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of William Ji & Co. LLP in Association with Tian Yuan Law Firm Hong Kong Office at Suites 3304-3309, 33/F, Jardine House, One Connaught Place, Central, Hong Kong during normal business hours from 9:00 a.m. to 5:00 p.m. up to and including the date which is 14 days from the date of this document:

(a) the Articles of Association;

(b) the Accountant’s report of our Group for the three years ended 31 December 2020 issued by PricewaterhouseCoopers, the text of which is set out in “Appendix I — Accountant’s Report” in this document;

(d) the report on [REDACTED] financial information from PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, the text of which is set out in “Appendix II—[REDACTED] Financial Information” in this document;

(e) the material contracts referred to in “Appendix VI — Statutory and General Information — 2. Further Information about Our Business — A. Summary of Material Contracts” in this document;

(f) the service contracts with Directors, referred to in “Appendix VI — Statutory and General Information — 3. Further Information about our Directors, our Supervisors and Substantial Shareholders — B. Particulars of Service Contracts” in this document;

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(g) the industry report issued by Frost & Sullivan;

(h) the written consents referred to in “Appendix VI — Statutory and General Information — 4. Other Information — F. Consents of Experts” in this document;

(i) the legal opinion dated prepared by Tian Yuan Law Firm, our PRC Legal Advisers, in respect of certain aspects of our Group and our property interests in the PRC;

(j) the legal opinion prepared by Grandway Law Offices, our PRC legal advisor on intellectual property law, in relation to certain PRC trademark matters;

(k) copies of the following PRC laws, together with unofficial English translation thereof:

(i) the PRC Company Law;

(ii) the PRC Securities Law;

(iii) the Special Regulations; and

(iv) the Mandatory Provisions.

– VII-2 –