THIS DOCUMENT IS IN DRAFT FORM. The information contained in it is in draft form, incomplete and subject to change and must be read in conjunction with the section headed “Warning” on the cover of this document. INDUSTRY OVERVIEW The information presented in this section, unless otherwise indicated, is derived from various official government publications and other publications and from the market research report prepared by Frost & Sullivan, which was commissioned by us. We believe that the information has been derived from appropriate sources and we have taken reasonable care in extracting and reproducing the information. We have no reason to believe that the information is false or misleading in any material respect or that any fact has been omitted that would render the information false or misleading in any material respect. The information has not been independently verified by us, the Sponsor, the [REDACTED],the[REDACTED],the [REDACTED], or any of our or their respective directors, officers or representatives or any other person involved in the [REDACTED] (excluding Frost & Sullivan) and no representation given as to its accuracy, completeness or fairness. Accordingly, you should not place undue reliance on such information or statistics. REPORT COMMISSIONED FROM FROST & SULLIVAN We commissioned Frost & Sullivan, an independent market research and consulting company, to conduct an analysis of, and to prepare a report on the granite aggregates market in the PRC for the period from 2014 to 2024. The report prepared by Frost & Sullivan for us is referred to in this document as the Frost & Sullivan Report. Founded in 1961, Frost & Sullivan has 40 offices with more than 2,000 industry consultants, market research analysts, technology analysts and economists globally. We paid Frost & Sullivan a fee of HK$400,000 which we believe reflects market rates for reports of this type. Frost & Sullivan’s independent research consists of both primary and secondary research obtained from various sources in respect of the granite aggregates market in the PRC. Primary research involved in-depth interviews with leading industry participants and industry experts. Secondary research involved reviewing company reports, independent research reports and data based on Frost & Sullivan’s own research database. Projected data were obtained from historical data analysis plotted against macroeconomic data with reference to specific industry-related factors. In compiling and preparing the research, Frost & Sullivan assumed that the social, economic and political environments in the relevant markets are likely to remain stable in the forecast period, which ensures the stable and healthy development of the granite aggregates market in the PRC. In addition, Frost & Sullivan has developed its forecast on the following bases and assumptions: The PRC economy is likely to maintain stable growth in the next decade and the respective countries and regions’ social, economic and political environment is likely to remain stable in the forecast period. Additionally, the granite aggregates market in the PRC is expected to grow based on the macroeconomic assumptions of the respective economy. Additional key industry drivers include: increasing demand for granite aggregates from downstream industries, rising investment in infrastructure and growing adoption of granite aggregates. OVERVIEW OF THE PRC AND GUANGDONG GRANITE AGGREGATES MARKET Definition and Introduction Granite is a type of felsic intrusive igneous rock that is granular and phaneritic in texture, predominantly white, pink, or gray in color, depending on their mineralogy. Granite is nearly always massive, hard, and tough. It is used as a construction material, a dimension stone, an architectural stone, a decorative stone, and it has also been used to manufacture a wide variety of products. In the PRC, granite is a widespread construction stone and is used in buildings, bridges, paving, monuments, and many other exterior projects. Indoors, polished granite slabs and tiles are used in countertops, tile floors, stair treads and many other design elements. –79– THIS DOCUMENT IS IN DRAFT FORM. The information contained in it is in draft form, incomplete and subject to change and must be read in conjunction with the section headed “Warning” on the cover of this document. INDUSTRY OVERVIEW In particular, granite aggregate is one of the most common application in the PRC. Aggregate is a broad category of coarse to medium grained particulate material used in construction, including sand, gravel, crushed stone, slag, stone powder, recycled concrete and geosynthetic aggregates. Granite aggregates are crushed hard rock of granular structure, being the most common type of aggregate. Given different size of fractions, granite aggregates can be used in various applications, including road construction, production of paving slabs and other similar construction products, production of concrete and road surfacing. Application of Granite Construction Dimension Stone Architectural Stone Decorative Stone Others Material Source: Frost & Sullivan Value Chain Analysis Mine construction is a pre-requisite for granite block extraction. Mine construction includes stripping the topsoil and weathered rocks above the granite deposit, construction of working benches, construction of infrastructures such as connecting roads and waste rock dumps, as well as connecting power, water and other utilities. Granite block extraction involves cutting, overturning, separation and reshaping granite rocks using specialised mining equipment. Granite aggregates extracted from the quarry are processed into blocks of different sizes, and granite aggregates at the processing plant. The granite aggregates are generally sold directly to end customers in the construction industry, including concrete companies, cement companies and contractors. Due to the specialisation of work and cost control, it is an industry norm that granite aggregates companies will outsource the mining, blasting and crushing processes to third party subcontracting companies. Further, it is an industry norm that granite aggregates companies typically enter into long-term framework sales contracts with their customers and not one-off sale contracts. Upstream Midstream Downstream Mine construction and granite Production and distribution Construction Materials block extraction Source: Frost & Sullivan Business Model Analysis As granite aggregates is heavy and bulky, granite aggregates enterprises usually supply their products to the downstream users within 100 km, which is considered the most economical and efficient transportation distance. In other words, the granite aggregates enterprises mainly supply the products within their own provinces. The localized market operation is the industry norm in the granite aggregates industry. On the other hand, vertically integrated operations, from mining, process and sales of granite aggregates, are increasingly performed by the large-scale enterprises to capture the opportunities in the granite industry and enhance their profitability. With the limited amount of natural aggregates from the sea and river, the demand for manufactured aggregates, including granite aggregates, is rapidly growing in cities located near coast and river, such as Guangdong Province. –80– THIS DOCUMENT IS IN DRAFT FORM. The information contained in it is in draft form, incomplete and subject to change and must be read in conjunction with the section headed “Warning” on the cover of this document. INDUSTRY OVERVIEW Outlook of the Granite Aggregates Market in The PRC Construction industry in the PRC has been supported by various governmental policies over the years. In 2017, the State Council has issued “Opinions of Promoting Sustainable and Healthy Development of Construction Industry”《關於促進建築業持續健康發展的意見》 ( ) which has outlined the promotion of quality and safety of construction works, and the sustainable development of the industry in the coming years. On the other hand, the “13th Five-Year Plan for Development of Construction Industry”《建築業發展 ( “十三五” 規劃》) also layout the growth target of the construction industry with around 7% during 2016 to 2020. The supportive government policies would act as the driver to the overall construction industry and the relevant downstream industry, including mining, process and sales of granite aggregates in the PRC. Better Infrastructure Linking the Greater Bay Area The establishment of Greater Bay Area amplifies the connectivity between Hong Kong, Macau and Chinese cities, including Shenzhen and Guangzhou, which offers enterprises with tremendous opportunities with new industries emerging and cementing themselves in the international value chain. In particular, the integration would further propel the infrastructure development and strengthen the supply chain industry in higher-tech manufacturing and services in the Greater Bay Area. The ongoing key infrastructure projects include the Shenzhen-Zhongshan Corridor, Hong Kong-Shenzhen Airport Rail Link and Guangzhou-Qingyuan Intercity Railway. The infrastructure projects would translate into growth opportunities for the construction industry. In addition, the better infrastructure linking the Greater Bay area would boost the demand for office and other commercial space across the Greater Bay Area. It is expected that there would be a solid increase in the demand for building materials, including aggregates, cement and concrete, thereby benefiting the mining, processing and sales of