Huayu Expressway : (1) MAJOR ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 60% EQUITY INTERESTS IN THE TARGET COMPANY AND (2) DISCLOSEABLE TRANSACTION AND CONNECTED TRANSACTION IN RELATION TO THE LOAN TO VENDOR

April 29, 2021 at 09:08 am EDT

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action you should take, you should consult your licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Huayu Expressway Group Limited, you should at once hand this circular with the accompanying form of proxy to the purchaser or the transferee or to the bank, licensed securities dealer or registered institution in securities or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

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

HUAYU EXPRESSWAY GROUP LIMITED

華昱高速集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1823)

MAJOR ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 60% EQUITY INTERESTS

IN THE TARGET COMPANY

AND

DISCLOSEABLE TRANSACTION AND CONNECTED TRANSACTION IN RELATION TO THE LOAN TO VENDOR

Independent financial adviser to the Independent Board Committee

and the Independent Shareholders

Capitalised terms used in this cover page have the same meanings as those defined in this circular.

A letter from the Board is set out on pages 6 to 23 of this circular. A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on pages 24 to 25 of this circular. A letter from the IFA containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 26 to 49 of this circular.

A notice convening the EGM to be held at Unit 1205, 12/F, Tower 1, Lippo Centre, 89 Queensway, Hong Kong on Friday, 11 June 2021 at 11:30 a.m. is set out on pages EGM-1 to EGM-3 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the office of the Company's branch share registrar in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the appointed time for holding the EGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof (as the case may be) if you so wish.

PRECAUTIONARY MEASURES FOR THE EXTRAORDINARY GENERAL MEETING

Measures being taken for prevention and control of the spread of the coronavirus pandemic at the EGM, including but not limited to:

compulsory body temperature checks
compulsory wearing of surgical face masks
no refreshments or drinks will be served

Any person who does not comply with the precautionary measures may be denied entry into the EGM venue. The Company requires attendees to wear surgical face masks and reminds Shareholders that they may appoint the Chairman of the meeting as their proxy to vote on the relevant resolutions at the EGM as an alternative to attending the EGM in person.

30 April 2021

		CONTENTS
			Page
Definitions . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Letter from the IFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Appendix I	-	Financial information on the Group . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II	-	Management discussion and analysis of
		the Target Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III	-	Accountants' Report on the Target Company . . . . . . . . . . . . . . . .	III-1
Appendix IV	-	Unaudited pro forma financial information
		of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V	-	Report on the fair market value of the Sale Interests . . . . . . . .	V-1
Appendix VI	-	Letter from the Board in relation to the forecast
		in connection with the Valuation . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
Appendix VII	-	Report from KPMG on the Calculation of
		Discounted Future Cash Flows in the Valuation Report . . . .	VII-1
Appendix VIII -	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VIII-1
Notice of EGM	. .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

- i -

DEFINITIONS

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

''Acquisition''	the proposed acquisition of the Sale Interests by the
	Purchaser from the Vendor
''Announcement''	the announcement of the Company dated 7 April 2021
	wherein the Company announced, among other things, that
	the Equity Transfer Agreement was entered into and the
	Loan Agreement would be entered into
''associate(s)''	has the meaning given to it under the Listing Rules
''Bank''	the Shenzhen Branch of 廣東華興銀行股份有限公司
	(Guangdong Huaxing Bank Co., Ltd.*)
''Board''	board of the Directors
''business day''	a day other than a Saturday, a Sunday and the statutory
	holidays of the PRC
''Company''	H u a y u E x p r e s s w a y G r o u p L i m i t e d , a c o m p a n y
	incorporated under the laws of Cayman Islands with
	limited liability, the issued shares of which are listed on
	the Main Board of the Stock Exchange (stock code: 1823)
''Completion''	the completion of the registration, reporting and filing
	procedures under the Administration for Market Regulation
	and the applicable foreign investment regulations of the
	PRC for the transfer of Sale Interests
''Completion Date''	date of the Completion
''Conditions Precedent''	conditions precedent to the Completion, details of which
	are set out in the paragraph headed ''Conditions
	Precedent'' this circular
''connected person(s)''	has the meaning given to it under the Listing Rules
''connected transaction(s)''	has the meaning given to it under the Listing Rules

- 1 -

	DEFINITIONS
''Concession Agreement''	concession agreement dated December 2001 entered into
	between the Vendor and the People's Government of
	Shenzhen, Longgang District, in relation to the rights and
	obligations regarding the construction, operation,
	management and maintenance of the Target Expressway
	and its associated toll facilities in the PRC with a term
	from 24 December 2001 to 8 February 2027, Vendor's
	rights and obligation under which had been transferred to
	the Target Company in July 2002

''Consideration''

''controlling shareholder(s)''

''Director(s)''

''Dividend''

''EGM''

purchase consideration of the Acquisition

has the meaning given to it under the Listing Rules

director(s) of the Company

the dividend of RMB24.6 million to be declared and distributed to its shareholders, namely the Vendor and Shenzhen Expressway, before the Completion, according to the proportions of their shareholdings in the Target Company

the extraordinary general meeting of the Company to be convened for the purpose of considering and, if thought fit, approving, among other things, the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder

''Enlarged Group''	the Group as enlarged by the Acquisition after Completion
''Equity Pledge''	the pledge over the Sale Interests granted by the Vendor to
	the Bank
''Equity Transfer Agreement''	the conditional equity transfer agreement dated 7 April
	2021 entered into among the Vendor, the Purchaser, the
	Target Company and Mr. Chan in relation to the
	Acquisition
''ETC system''	the electronic toll collection system whereby toll fee is
	collected through an electronic device attached to vehicles
''Group''	the Company and its subsidiaries
''HK$''	Hong Kong dollars, the lawful currency of Hong Kong

- 2 -

	DEFINITIONS
''Hong Kong''	the Hong Kong Special Administrative Region of the PRC
''IFA''	Lego Corporate Finance Limited, the independent financial
	adviser appointed by the Company for the purpose of
	advising the Independent Board Committee and the
	Independent Shareholders in respect of the Equity Transfer
	Agreement, the Loan Agreement and the transactions
	contemplated thereunder
''Independent Board Committee''	an independent committee of the Board, comprising all the
	three independent non-executive Directors, established to
	advise the Independent Shareholders in respect of the
	Acquisition and the Loan to Vendor (as defined in the
	Letter from the Board)
''Independent Shareholders''	Shareholders other than Mr. Chan and his associates
''Independent Third Party(ies)''	an individual(s) or a company(ies) who or which is/are
	independent of and not connected with (within the
	meaning of the Listing Rules) any Director, chief
	executive or substantial Shareholder (within the meaning
	of the Listing Rules) of the Company, its subsidiaries or
	any of their respective associates
''Latest Practicable Date''	28 April 2021, being the latest practicable date prior to
	printing of this circular for ascertaining certain information
	contained in this circular
''Listing Rules''	The Rules Governing the Listing of Securities on the Stock
	Exchange
''Mr. Chan''	Mr. Chan Yeung Nam, the chairman of the Board, an
	executive Director and a controlling Shareholder
''percentage ratio(s)''	has the meaning given to it under the Listing Rules
''PRC''	the People's Republic of China and, for the purpose of this
	c i r c u l a r , e x c l u d i n g H o n g K o n g , M a c a o S p e c i a l
	Administrative Region of the People's Republic of China
	and Taiwan
''Purchaser''	好兆有限公司 ( G o o d S i g n L i m i t e d ) , a c o m p a n y
	incorporated in Hong Kong with limited liability and a
	wholly-owned subsidiary of the Company

- 3 -

	DEFINITIONS
''RMB''	Renminbi, the lawful currency of the PRC
''Sale Interests''	60% of the equity interests in the Target Company
''SFO''	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
''Share(s)''	ordinary share(s) of HK$0.01 each in the share capital of
	the Company
''Shareholder(s)''	holder(s) of the Share(s)
''Shenzhen Expressway''	深圳高速公路股份有限公司 (Shenzhen Expressway Co.,
	Ltd.), a joint stock limited company established in the
	PRC with limited liability, the H shares of which are listed
	on the Stock Exchange (stock code: 548) and the A shares
	of which are listed on the Shanghai Stock Exchange (stock
	code: 600548), an Independent Third Party
''Stock Exchange''	The Stock Exchange of Hong Kong Limited
''substantial shareholder(s)''	has the meaning given to it under the Listing Rules
''Target Company''	深圳市華昱高速公路投資有限公司 (Shenzhen Huayu
	Expressway Investment Co., Ltd.*), a company established
	in the PRC which is owned as to 60% by the Vendor and
	40% by Shenzhen Expressway as at the date of the Equity
	Transfer Agreement

''Target Expressway''	清平高速公路一期工程 ( F i r s t
	Expressway*) (S209) located
	Guangdong province of the PRC,
	operated by the Target Company

P h a s e o f Q i n g p i n g in Shenzhen City, which is owned and

''Valuation''	the appraisal of the value of the Sale Interests as at
	19 March 2021 primarily using the discounted cash flow
	method by the Valuer. The purpose of the valuation is to
	assist the Board to evaluate the Acquisition
''Valuation Report''	the report on the Valuation prepared by the Valuer dated
	7 April 2021

- 4 -

	DEFINITIONS
''Valuer''	Ernst & Young Transactions Limited, ultimately owned by
	Ernst & Young (EY), which provides assurance,
	consulting, strategy and transactions, and tax services,
	engaged by the Company for the purpose of appraisal of
	the value of Sale Interests
''Vendor''	深圳華昱投資開發（集團）有限公司 (Shenzhen Huayu
	Investment & Development Group Co., Ltd.*), a wholly
	foreign-owned enterprise established in the PRC which is
	wholly-owned by Mr. Chan
''%''	per cent.

Notes:

For ease of reference, the names of the PRC established companies or entities (if any) and the PRC laws and regulations (if any) have generally been included in this circular in both Chinese and English languages and the English names are for identification purposes only. In the event of inconsistency, the Chinese language shall prevail.

Where the context so permits or requires, words importing the singular number include the plural and vice versa and words importing the masculine gender include the feminine and neuter genders and vice versa.

For the purpose of illustration, the exchange rate between Renminbi and Hong Kong dollars provided in this circular is RMB1 = HK$1.189 (unless otherwise stated). The provision of such exchange rates does not mean that Hong Kong dollars could be converted into Renminbi based on such exchange rate.

- 5 -

LETTER FROM THE BOARD

HUAYU EXPRESSWAY GROUP LIMITED

華昱高速集團有限公司

(Incorporated in the Cayman Islands with limited liability)

	(Stock Code: 1823)
Executive Directors:	Registered Office:
Mr. Chan Yeung Nam (Chairman)	Cricket Square
Mr. Mai Qing Quan	Hutchins Drive
Mr. Fu Jie Pin	P.O. Box 2681
	Grand Cayman KY1-1111
Independent non-executive Directors:	Cayman Islands
Mr. Sun Xiao Nian
Mr. Chu Kin Wang, Peleus	Principal place of business
Mr. Hu Lie Ge	in Hong Kong:
	Unit 1205 12/F,
	Tower 1 Lippo Centre
	89 Queensway
	Hong Kong
	30 April 2021
To the Shareholders
Dear Sir or Madam,

MAJOR ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 60% EQUITY INTERESTS

IN THE TARGET COMPANY

AND

DISCLOSEABLE TRANSACTION AND CONNECTED TRANSACTION IN RELATION TO THE LOAN TO VENDOR

INTRODUCTION

Reference is made to the Announcement.

The purpose of this circular is to provide you with, among other things, (i) further details of the Acquisition and the Equity Transfer Agreement; (ii) the Loan Agreement, (iii) the financial information of the Group; (iv) the unaudited pro forma financial information of the Enlarged Group; (v) the recommendation of the Independent Board Committee; (vi) the advice of the IFA; (vii) the notice of the EGM; and (viii) other information as required under the Listing Rules.

- 6 -

LETTER FROM THE BOARD

THE EQUITY TRANSFER AGREEMENT

The principal terms of the Equity Transfer Agreement are set out below:

Date

7 April 2021

Parties

the Purchaser;
the Vendor;
the Target Company; and
Mr. Chan (as a guarantor offering the Refund Guarantee (as defined below)).

Subject matter

The Vendor has conditionally agreed to sell, and the Purchaser has conditionally agreed to acquire, the Sale Interests subject to the terms and conditions of the Equity Transfer Agreement.

Consideration

The Company commissioned the Valuer to assess the fair market value of the Sale Interests as at 19 March 2021 for the purpose of assisting the Board in its evaluation of the Acquisition.

The Consideration shall be RMB127.2 million (approximately HK$151.2 million) and was determined based on arm's length negotiations between the Vendor and the Purchaser with reference to the range of fair market value of the Sale Interests between RMB125.8 million (approximately HK$149.6 million) and RMB128.6 million (approximately HK$152.9 million) as at 19 March 2021 as appraised by the Valuer using the discounted cash flow approach as a primary methodology.

Further details of the Valuation are set out in the section headed ''Principal assumptions of the Valuation'' below and in the Valuation Report in Appendix V to this circular.

In view of the above, the Directors (excluding the independent non-executive Directors whose opinions are given in the letter from the Independent Board Committee) consider the Consideration to be fair and reasonable.

- 7 -

LETTER FROM THE BOARD

Payment terms

The Purchaser shall pay the Consideration to the Vendor by way of bank transfer within 30 business days after the fulfilment or waiver (if applicable) the following payment conditions:

the Completion having taken place;
the Vendor not having committed any material breach to the terms and conditions and the representation, warranties, guarantees and undertakings made by it under the Equity Transfer Agreement; and
the Vendor having set up a bank account for the Consideration and advised the Purchaser the same.

If any of the	conditions set	out	above	have not been satisfied on	or before
30 September 2021,	or such later	date	as the	parties may agree in writing,	then the

Purchaser has the right to terminate the Equity Transfer Agreement whereupon the Target Company and the Vendor shall have no right or claim against the Purchaser.

Conditions Precedent

The Completion shall be conditional upon the fulfilment or waiver (if applicable) of the following Conditions Precedent:

the approvals to the Equity Transfer Agreement and the transactions contemplated thereunder from:
1. the Vendor's board of directors and shareholders having been obtained;
2. the Purchaser's board of directors and shareholders having been obtained;
3. the Board and the Independent Shareholders at the EGM to be convened having been obtained;
4. the shareholders of the Target Company having been obtained;
Shenzhen Expressway, another shareholder of the Target Company, agreeing in writing to give up its pre-emptive right to purchase the Sale Interests;
the PRC legal opinion on various matters relating to the Target Company as an acquisition target having been issued by the PRC legal adviser of the Purchaser with the contents of which being acceptable to the parties to the Equity Transfer Agreement;

- 8 -

LETTER FROM THE BOARD

the Purchaser having been satisfied with the results of due diligence review on the Target Company;
having entered into the agreements between the Vendor and the Bank to release the Equity Pledge within 60 business days from the date of the Equity Transfer Agreement and the relevant registration and filing procedures under the applicable PRC regulations for such release having been completed;
the representation, warranties, guarantees and undertakings stipulated in the Equity Transfer Agreement made by the Vendor remain true, accurate, complete and not misleading;
the Vendor not having committed any material breach of the terms and conditions and the representation, warranties, guarantees and undertakings made by it under the Equity Transfer Agreement;
the Vendor and the Target Company having entered into the Lease Agreement (as defined below) in form and substance satisfactory to the parties to the Equity Transfer Agreement;
the Vendor and the Target Company having entered into the Loan Agreement (as defined below) in respect of the Loan to Vendor (as defined below) in form and substance satisfactory to the parties to the Equity Transfer Agreement;
the approvals to the Loan Agreement and the transactions contemplated thereunder from the Independent Shareholders at the EGM to be convened having been obtained; and
the approvals to the declaration and payment of the Dividend from the shareholders of the Target Company having been obtained.

The Purchaser may waive in writing any of the Conditions Precedent save and except the Conditions Precedent set out in paragraphs (a)(iii), (a)(iv) and (j) above.

As at the Latest Practicable Date, the Purchaser has no intention to waive any of the Conditions Precedent.

- 9 -

LETTER FROM THE BOARD

Completion

Within 30 business days after the fulfilment or waiver (if applicable) of all the Conditions Precedent, the Purchaser and the Vendor shall assist the Target Company to carry out the Completion whereupon the Sale Interests will be transferred from the Vendor to the Purchaser and the Purchaser shall have all the shareholders' rights attached to the Sale Interests. The Completion is expected to take place on or about 15 June 2021.

After the Completion, the Target Company will be indirectly owned as to 60% by the Company and become a non-wholly owned subsidiary of the Company and its financial results will be consolidated into the financial statements of the Group.

As at the Latest Practicable Date, none of the Conditions Precedent has been fulfilled save and except for the Condition Precedent set out in paragraph (a)(ii) above.

Refund of the Consideration

If:

there is any fact or event developed, happened or occurred before the Completion which would (i) make the Target Company unable to continue to enjoy its rights contemplated under the Concession Agreement before its expiry; or (ii) cause material adverse impact to the Target Company by the exercise of its rights contemplated under the Concession Agreement; or
the Vendor causes any material adverse impact to the Target Company before the Completion and such impact cannot be resolved or settled,

then the Purchaser has the right to request the Vendor to refund the Consideration to the Purchaser even after the Completion. There is no expiry date for the Purchaser to exercise its right to request for refund of the Consideration.

Pursuant to the Equity Transfer Agreement, Mr. Chan has agreed to guarantee the refund of the Consideration if the Vendor is obliged to refund the Consideration (the ''Refund Guarantee'').

- 10 -

LETTER FROM THE BOARD

VALUATION

Principal Assumptions of the Valuation

According to the Valuation Report, the fair market value of the Sale Interests as at

19 March 2021 as appraised by the Valuer, using the discounted cash flow approach as a primary methodology is in a range of between approximately RMB125.8 million (approximately HK$149.6 million) and RMB128.6 million (approximately HK$152.9 million). The Valuation has taken into account the Dividend. The Valuation constitutes a profit forecast under Rule 14.61 of the Listing Rules.

The Valuer is independent and competent in light of Rule 5.08 of the Listing Rules. Specifically, the Board notes that as at the Latest Practicable Date, none of the relevant team members of the Valuer had any direct or indirect shareholdings in any member of the Group.

The Valuation was prepared based on numerous assumptions, including the following principles and assumptions used by management of the Group for the preparation of the financial forecast of the Target Company:

General principles:
- the ownership claims of the Target Company to its assets are assumed to be valid. Management of the Group has also assumed that:
- 1. title is good and transferable;
  2. there exists no liens or encumbrances;
  3. there is full compliance with all applicable government regulations and laws (including, without limitation, zoning regulations); and
  4. all required licenses, certificates of occupancy, consents, or legislative or administrative authority from any government, private entity or organisation have been or can be obtained or renewed for any use to which the Valuer services relate,

- 11 -

LETTER FROM THE BOARD

- certain historical financial data used for the preparation of the financial forecast were derived from unaudited financial statements. Management of the Group has assumed the accuracy or completeness of the data provided; and
- management of the Group has assumed the solvency of the Target Company under any foreign, state/provincial or federal laws relating to bankruptcy, insolvency or similar interest. The financial forecast of the Target Company has been prepared assuming its business is a going concern.
Specific assumptions:
- on 6 May 2020, the Chinese government adjusted the toll rates of the Target Expressway and new toll rates were used for the financial forecast;
- competition from the neighbouring expressways would affect the traffic flows of the Target Expressway and had been reflected in the financial forecast. In this regard, except for the known competition from Banyin Channel, which became operational on 28 April 2020, and Eastern Transit Expressway, which is planned to be operational in early 2024, management of the Group is not aware of any other major neighbouring expressways which could materially affect the traffic flows of the Target Expressway in the forecast period;
- there would be no changes to the structure of cost of services assumed in the financial forecast. However, certain cost items were expected to be subject to an inflation adjustment of 2.6% per annum;
- no new financing activities had been assumed in the forecast period. The existing bank loans were assumed to be repaid in accordance to the agreed terms and interests would be charged based on the mechanisms stipulated in the banking facility documents;
- no capital expenditure had been assumed in the forecast period, except for the outstanding costs related to the implementation of the ETC system of approximately RMB5.5 million; and
- the earnings of the Target Company had been assumed to be taxed at the statutory income tax rate of 25%.

Details of the Valuation, including the assumptions used, are included in the Valuation Report in Appendix V to this circular.

- 12 -

LETTER FROM THE BOARD

Review by Reporting Accountants and IFA

Lego Corporate Finance Limited, the IFA, has discussed with the management of the Company and the Valuer the bases and assumptions upon which the forecast was based and the methodologies adopted in the Valuation, and has reviewed the report issued by KPMG dated 7 April 2021 containing its opinion on whether the discounted future cash flows, so far as the calculations are concerned, have been properly compiled in all material respects in accordance with the bases and assumptions adopted by the Directors as set out in the Valuation.

On the basis of the foregoing and opinion of KPMG, Lego Corporate Finance Limited is of the view that the forecast upon which the Valuation has been made, for which the Directors are solely responsible, has been made after due and careful enquiry.

KPMG, the Company's reporting accountants, has reviewed the discounted future cash flows and is of the opinion that so far as the calculations are concerned, the discounted future cash flows have been properly compiled in all material respects in accordance with the bases and assumptions made by the Directors as set out in the Valuation. Please refer to Appendix VII to this circular or Appendix II to the Announcement for the report issued by KPMG according to Rule 14.62 of the Listing Rules.

Review by the Board

The Board has reviewed the historical financial information of the Target Company and the available information in relation to the financial prospect of the Target Expressway, which form the bases and assumptions upon which the forecast was based. On the basis of the foregoing, the Board is of the view that the bases and assumptions upon which the forecast was based are fair and reasonable.

Having reviewed the generally adopted valuation methodologies for infrastructure projects, particularly, projects with finite lives and steady cash flows, the Board is of the view that the discounted cash flow method within the income approach adopted in the Valuation is fair and reasonable. Please refer to Appendix VI to this circular for the letter from the Board issued according to Rule 14.62 of the Listing Rules.

LOAN TO VENDOR

The Target Company granted a loan (the ''Loan to Vendor'') to the Vendor in or around 2019. As at the date of the Equity Transfer Agreement, approximately RMB29.7 million (approximately HK$35.3 million) of the Loan to Vendor is due and outstanding by the Vendor to the Target Company. The Vendor would settle part of the Loan to Vendor with the Dividend to which it will be entitled, namely approximately RMB14.8 million. The outstanding amount of the Loan to Vendor after such settlement is expected to be approximately RMB14.9 million (approximately HK$17.7 million).

- 13 -

LETTER FROM THE BOARD

The Vendor and the Target Company will enter into a loan agreement (the ''Loan Agreement'') to formalise the then outstanding Loan to Vendor on or before the Completion.

The principal terms and conditions of the Loan Agreement are as follows:

Parties

the Vendor (as borrower); and
the Target Company (as lender)

Principal amount

The outstanding amount of the Loan to Vendor as at the date of the Loan Agreement, which shall not in any event be more than RMB29.7 million (approximately HK$35.3 million)

Repayment date

3 months from the date of the Loan Agreement

Interest rate

12% per annum

Early Repayment

The Vendor may early repay the Loan to Vendor in full after giving one business day's prior written notice to the Target Company.

Security

Nil

Since the Vendor will cease to have any interest in the Target Company, the Vendor intends to repay the Loan to Vendor after the Acquisition. Pursuant to the Equity Transfer Agreement, the parties have agreed that the Vendor shall early repay the then outstanding Loan to Vendor in full to the Target Company within 5 business days after the payment of the Consideration.

- 14 -

LETTER FROM THE BOARD

LEASE

The Target Company has been using certain office properties of the Vendor at nil consideration for its business operation since 2012. To avoid any possible interruption to the business operation of the Target Company after Completion, the Vendor and the Target Company have agreed to enter into a written lease agreement (the ''Lease Agreement'') to formalise such lease arrangement for a term of 3 years (the ''Lease'') on or before the Completion.

SIGNIFICANT FINANCIAL EFFECTS OF THE ACQUISITION

Significant financial effects of the Acquisition on the Enlarged Group

The following table sets forth the significant financial effects of the Acquisition on the Enlarged Group identified in the unaudited pro forma financial information on the Enlarged Group as set out in Appendix IV to this circular (''Pro Forma Financial Information''), assuming that completion of the Acquisition had taken place on 31 December 2020, as compared to the financial position of the Group as at 31 December 2020:

			Upon
			completion
			of the
			Acquisition
	As at 31		(pro forma
	December	Pro forma	Enlarged
	2020	adjustment	Group)	Change
	HK'000	HK'000	HK'000	%
Net assets	623,068	3,356	626,424	0.5
Total assets	1,864,336	107,754	1,972,090	5.8
Total liabilities	1,241,268	104,398	1,345,666	8.4

Assets and liabilities

Based on the Pro Forma Financial Information, the unaudited pro forma consolidated total assets of the Enlarged Group as at 31 December 2020 would increase by approximately 5.8% to approximately HK$1,972.1 million and the unaudited pro forma consolidated total liabilities of the Enlarged Group as at 31 December 2020 would increase by approximately 8.4% to approximately HK$1,345.7 million after the Acquisition, assuming that completion of the Acquisition had taken place on 31 December 2020.

- 15 -

LETTER FROM THE BOARD

The net assets, the total assets and the total liabilities of the Enlarged Group which are referred to in this subsection were extracted from the Pro Forma Financial Information, which was based on, among other things, a Consideration of approximately RMB127.2 million (approximately HK$151.2 million) and the assumption that the completion of the Acquisition had occurred on 31 December 2020.

The unaudited Pro Forma Financial Information as at 31 December 2020 has taken into account the Consideration denominated in Hong Kong dollar at the assumed exchange rate of RMB1 to HK$1.1890. Since the actual exchange rate as at the Completion Date can be higher or lower than the assumed exchange rate, the Consideration denominated in Hong Kong dollar as at the Completion Date, could be different from that used for the purposes of the unaudited Pro Forma Financial Information. As the actual amounts of the assets and liabilities of the Target Company will be different from the amounts used in the Pro Forma Financial Information, the abovementioned figures as at the date of completion of the Acquisition may also be different from the corresponding amounts presented in the Pro Forma Financial Information.

Earnings

Assuming the occurrence of the completion of the Acquisition, the Target Company will become the subsidiaries of the Company. Based on the statements of profit or loss and other comprehensive income of the Target Company as set out in Appendix III to this circular, it is expected that the earnings of the Enlarged Group will increase as a result of the Acquisition. Nonetheless, after considering the factors set out in the section headed ''Reasons for and benefits of the Acquisition'' of the Letter from the Board, and that the toll revenue generated from the Target Expressways is expected to increase in the coming years, the Directors expect that the Acquisition could produce a positive impact on the earnings of the Group in the near future.

INFORMATION OF THE PARTIES

The Company and the Purchaser

The Company is an investment holding company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the Main Board of the Stock Exchange. The Group is principally engaged in the construction, operation and management of an expressway and the trading of liquor and spirits in the PRC.

The Purchaser is an investment holding company incorporated in Hong Kong and a wholly- owned subsidiary of the Company.

- 16 -

LETTER FROM THE BOARD

The Vendor

The Vendor is a company established in the PRC and is wholly-owned by Mr. Chan. It is principally engaged in the construction and operation of expressways and construction of municipal highways in the PRC.

INFORMATION OF THE TARGET COMPANY

Business of the Target Company

The Target Company is a company established by the Vendor and Shenzhen Expressway, an Independent Third Party in the PRC on 18 January 2002. As at the date of the Equity Transfer Agreement, the Target Company had a total paid up capital of RMB150 million, of which RMB90 million was contributed by the Vendor. It possesses an exclusive right to, among others, operate the Target Expressway until 8 February 2027 under the Concession Agreement and approvals from the competent authorities.

According to the Concession Agreement, subject to the application of extension by the Target Company, the property rights and concession right of the Target Expressway should be handed over to the People's Government of Shenzhen, Longgang District upon its expiry, unless one of the following circumstance occurs: (i) parts or all of the Target Expressway are requisitioned by the People's Government of Shenzhen, Longgang District under the emergency state such that the Target Company is unable to operate and manage parts or all of the Target Expressway; (ii) as a result of a force majeure event, the Target Company is unable to operate, and needs no less than six months to launch a large-scale construction and maintenance for the damaged parts; or (iii) a part of the concession right is withdrawn by the People's Government of Shenzhen, Longgang District in advance of its expiry.

The Company confirms that the Target Company will hand over the property rights and concession right of the Target Expressway accordingly upon expiry in 2027.

Information about the Target Expressway

The Target Expressway is a six-lane expressway (three lanes in each direction) with a tollable distance of 5.28km. The Target Expressway connects Shenzhen Qingshuihe Checkpoint and Bulong Interchange on Shuiguan Expressway. Shuiguan Expressway is a major expressway linking the central business district of Shenzhen with Longgang District and Pingshan New Zone. Toll fees are collected at toll stations (typically using electronic payment system) and by the electronic toll collection system (through an electronic device attached to the vehicle).

- 17 -

LETTER FROM THE BOARD

Financial information of the Target Company

The historical financial information of the Target Company prepared in accordance with Hong Kong Financial Reporting Standards for the two financial years ended 31 December 2018 and 2019 and ten months ended 31 October 2020 are set out below.

			For the ten
			months
	For the financial year	ended
	ended 31 December	31 October
	2018	2019	2020
	HK$'000	HK$'000	HK$'000
Revenue	143,452	148,349	56,220
Profit before taxation	33,663	31,249	3,893
Profit after taxation	25,233	23,419	2,920

The total assets value and net assets value of the Target Company as at 31 October 2020 were approximately HK$290 million and HK$186 million, respectively.

REASONS FOR AND BENEFITS OF THE ACQUISITION AND THE LOAN TO VENDOR

The Target Company is an infrastructure project company and principally engages in the construction, operation and management of the Target Expressway, which has already been in operation and revenue generating since 2002. It is expected that the Acquisition will enable the Company to derive immediate earnings and cash flow contribution from it.

In addition, operation and management of an expressway is one of the core businesses of the Group. The Directors are of the view that the Acquisition is in line with the business strategy of the Company to expand its core business either by way of acquisition or capitalise on new opportunities. The Acquisition will expand the Group's portfolio of experience in managing and operating expressways, which will give the Group a competitive edge when bidding for construction, operation and management rights of other expressways in the PRC in the future. Therefore, the Acquisition will further increase the market shares and scale of the Group's core business, producing great synergistic effect in terms of business growth and the Group's future developments. This is an important part of the Company's overall strategy for the future.

- 18 -

LETTER FROM THE BOARD

The Ministry of Transport of the PRC issued a notice in February 2020 that the State Council of the PRC had permitted a nationwide toll-free policy for all vehicles using tolled highways (the ''Policy'') due to COVID-19 outbreak. Pursuant to the Policy, the Target Company has to waive the toll fees of vehicles using the Target Expressway. Subsequently, the Ministry of Transport of the PRC issued a notice that the State Council of the PRC had permitted resumption of collection of toll fees on tolled highways (the ''Resumption Notice'') from 00:00 on 6 May 2020. As a result, the Target Company did not record revenue for most of time during the period from 17 February 2020 to 5 May 2020 yet continued to incur management and operating costs.

Moreover, (i) Banyin Channel, a toll-free expressway connecting Banxuegang Interchange and Nigang Shangbu Interchange, which runs parallel to the Target Expressway and is situated approximately 2 km to the west of the Target Expressway, became operational in April 2020; and

the first phrase of Eastern Transit Expressway, a toll-free expressway connecting Liantang Checkpoint at Hong Kong border and Jinqian Ao Interchange, which is an alternative to the Target Expressway, became operational in May 2020.

All these adversely affected the traffic flow and the performance of the Target Expressway which resulted in the decrease in revenue and net profit of the Target Company during the ten months ended 31 October 2020 in comparison to the same period in 2019.

Although the Target Company recorded a decrease in revenue and net profit for the ten months ended 31 October 2020, the Directors (excluding the independent non-executive Directors whose opinions are given in the letter from the Independent Board Committee) (a) remain confident on its prospects because the Target Expressway is located in Shenzhen, one of major cities in the PRC, and the Target Company has resumed to receive toll fees to generate revenue income pursuant to the Resumption Notice; and (b) consider the development potential of the Target Company to be promising and believe that the Acquisition can enhance the Group's competitiveness, further strengthen the Group's reputation within the industry and improve its the earning base of the Group.

The Target Company shall serve as an investment vehicle for the Group's investment in the Target Expressway which will elevate the Group's core competence and, accordingly, contribute to the Group's overall development potential in the expressway and transportation industry in the PRC.

- 19 -

LETTER FROM THE BOARD

In relation to the Loan to Vendor, the entering into of the Loan Acquisition was only necessitated by and part and parcel to the Acquisition. The Vendor shall early repay the then outstanding Loan to Vendor under the Loan Agreement within 5 business days after payment of the Consideration. In addition, before the Completion, the Loan to Vendor was an interest-free loan. After the Completion, the loan to Vendor shall carry an interest rate of 12 % per annum under the Loan Agreement.

Having considered the above reasons and benefits of the Acquisition and the Loan to Vendor together with the current financial position of the Group, the Directors (excluding the independent non-executive Directors whose opinions are given in the letter from the Independent Board Committee) are of the view that the Acquisition and the Loan to Vendor and on normal commercial terms or better and the terms of the Acquisition and the Loan to Vendor and are fair and reasonable and that the Acquisition and the Loan to Vendor and in the interests of the Company and the Shareholders as a whole.

THE LISTING RULES IMPLICATIONS

The Acquisition

The Acquisition constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. As the highest applicable percentage ratio in respect of the Acquisition exceeds 25% but all of the percentage ratios are less than 100%, the Acquisition also constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. Accordingly, the Acquisition is subject to the reporting, announcement, circular and the Independent Shareholders' approval requirements under Chapters 14 and 14A of the Listing Rules.

The Loan to Vendor

The Loan to Vendor will constitute a financial assistance received by the Vendor from the Target Company upon the Completion and accordingly, a connected transaction for the Company under Chapter 14A of the Listing Rules. As the highest applicable percentage ratio in respect of the financial assistance contemplated under the Loan to Vendor exceeds 5% (but is less than 25%) and the value of such financial assistance plus any monetary advantage are more than HK$10,000,000, such financial assistance is therefore subject to the reporting, announcement, circular and the Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules and also constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules.

- 20 -

LETTER FROM THE BOARD

The Lease

Upon the Completion, the Lease will constitute a connected transaction for the Company under Chapter 14A of the Listing Rules. As the Lease Agreement is entered into on normal commercial terms or better and is at nil consideration, such connected transaction falls within the de minimis threshold as stipulated under Rule 14A.76(1) of the Listing Rules and is fully exempt from shareholders' approval, annual review and all disclosure requirements under Chapter 14A of the Listing Rules.

The Refund Guarantee

The Refund Guarantee will, when it is materialised, constitute a financial assistance received by the Purchaser from the Mr. Chan and accordingly, a connected transaction for the Company under Chapter 14A of the Listing Rules. As the Refund Guarantee will be conducted on normal commercial terms or better and is not secured by the assets of the Group, the Refund Guarantee will be fully exempt from shareholders' approval, annual review and all disclosure requirements under Chapter 14A of the Listing Rules pursuant to Rule 14A.90 of the Listing Rules.

Mr. Chan, being an executive Director, has abstained from voting on the relevant resolutions proposed in the meeting of the Board. Mr. Chan and his associates (including Velocity International Limited), and any Shareholder with a material interest in the Acquisition and the Loan to Vendor are required to abstain from voting on the relevant ordinary resolution(s) approving the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder proposed to be passed at the EGM.

EGM

The EGM will be held to consider and, if thought fit, pass, with or without modification, the ordinary resolution to approve, among other things, the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder by way of poll. Mr. Chan owns the entire issued share capital of Velocity International Limited which is interested in, approximately 72.71% of the share capital of the Company as at the Latest Practicable Date, Mr. Chan and its associates (including Velocity International Limited) and any Shareholder with a material interest in the Acquisition and the Loan to Vendor, are required to abstain from voting in respect of the ordinary resolution approving the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder. To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, other than the Mr. Chan and its associates, no other Shareholder had a material interest in the Equity Transfer Agreement, the Loan Agreement and transactions contemplated thereunder as at the Latest Practicable Date.

- 21 -

LETTER FROM THE BOARD

A form of proxy for use by the Independent Shareholders at the EGM is accompanied with this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the office of the Company's branch share registrar in Hong Kong, Tricor Investor Services Limited, at Level 54 Hopewell Centre, 183 Queen's Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the appointed time for holding the EGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof (as the case may be) if you so wish.

GENERAL

Completion is subject to the satisfaction and/or waiver of the Conditions Precedent and therefore, may or may not take place. Shareholders and potential investors are advised to exercise caution when dealing in the securities of the Company.

RECOMMENDATION

The Board considers that the terms of the Equity Transfer Agreement and the Loan Agreement are fair and reasonable; and the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole; and accordingly recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve, among other things, the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder.

Your attention is drawn to the advice of the Independent Board Committee set out in its letter on pages 24 to 25 of this circular and the letter of advice from IFA to the Independent Board Committee and the Independent Shareholders in connection with the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder, and the principal factors and reasons considered by them in arriving at such advice set out on pages 26 to 49 in this circular.

The Independent Board Committee, having taken into account the advice of IFA, considers that the terms of the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder are fair and reasonable; the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole; and accordingly the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve, among other things, the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder.

- 22 -

LETTER FROM THE BOARD

CLOSURE OF REGISTER OF MEMBERS

In order to determine the entitlement to attend and vote at the EGM, the register of members and transfer books of the Company will be closed from 8 June 2021 to 11 June 2021 (both days inclusive), during which period no transfer of Shares will be registered. The record date for entitlement to attend and vote at the EGM is 7 June 2021. In order to qualify to attend and vote at the EGM, all transfers of Shares, accompanied by relevant share certificates must be lodged with the Company's branch share registrar in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong no later than 4:30 p.m. on 7 June 2021.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the Appendices to this circular.

By order of the Board

Huayu Expressway Group Limited

Chan Yeung Nam

Chairman

- 23 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is a full text of the letter from the Independent Board Committee prepared for the purpose of inclusion in this circular:

HUAYU EXPRESSWAY GROUP LIMITED

華昱高速集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1823)

30 April 2021

To the Independent Shareholders

Dear Sir or Madam,

MAJOR ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 60% EQUITY INTERESTS

IN THE TARGET COMPANY

AND

DISCLOSEABLE TRANSACTION AND CONNECTED TRANSACTION IN RELATION TO THE LOAN TO VENDOR

We have been appointed by the Board as members of the Independent Board Committee to advise the Independent Shareholders in respect of the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder, details of which are set out in the Letter from the Board in the circular dated 30 April 2021 to the Shareholders (the ''Circular''). Unless the context otherwise requires, terms defined in the Circular shall have the same meanings when used in this letter.

For the purposes of the Listing Rules, we have been appointed as the Independent Board Committee to consider the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder and to advise the Independent Shareholders as to the fairness and reasonableness of the Acquisition and Loan to Vendor. We are required to recommend whether or not the Independent Shareholders should vote for the resolution(s) to be proposed at the EGM to approve the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder.

The IFA, namely Lego Corporate Finance Limited, has been appointed with the Independent Board Committee's approval to advise the Independent Board Committee and the Independent Shareholders in relation to the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder. We wish to draw your attention to the IFA Letter which contains its advice to us in relation to the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder. We also draw your attention to the Letter from the Board.

- 24 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the advice of the IFA, we are of the view that the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder are on normal commercial terms or better, and although the transactions contemplated thereunder are not in the ordinary and usual course of business of the Company, the terms and conditions therein are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve, among other things, the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder.

	Yours faithfully,
Sun Xiao Nian	Chu Kin Wang, Peleus	Hu Lie Ge
	Independent Board Committee

- 25 -

LETTER FROM THE IFA

The following is the full text of the letter from the IFA setting out its advice to the Independent Board Committee and the Independent Shareholders in relation to the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder, which has been prepared for the purpose of inclusion in this Circular.

30 April 2021

To: The Independent Board Committee and the Independent Shareholders of Huayu Expressway Group Limited

Dear Sirs and Madams,

MAJOR ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 60% EQUITY INTERESTS

IN THE TARGET COMPANY

AND

DISCLOSEABLE TRANSACTION AND CONNECTED TRANSACTION IN RELATION TO THE LOAN TO VENDOR

INTRODUCTION

We refer to our appointment as the IFA to the Independent Board Committee and the Independent Shareholders in relation to the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder, details of which are set out in the letter from the Board (the ''Letter from the Board'') contained in the circular of the Company dated 30 April 2021 (the ''Circular''), of which this letter forms part. Unless specified otherwise, capitalised terms used herein shall have the same meanings as those defined in the Circular.

Reference is made to the announcement of the Company dated 7 April 2021, according to which on 7 April 2021 (after the trading hours) the Purchaser (being a wholly-owned subsidiary of the Company) entered into the Equity Transfer Agreement with the Vendor (a company wholly-owned by Mr. Chan), the Target Company and Mr. Chan, pursuant to which the Vendor has conditionally agreed to sell, and the Purchaser has conditionally agreed to acquire, the Sale Interests (representing 60% of and the entire equity interest held by the Vendor in the Target Company) at a Consideration of RMB127.2 million (approximately HK$151.2 million). Upon Completion, the Target Company will be indirectly owned as to 60% by the Company and become a non-wholly owned subsidiary of the Company, and its financial results will be consolidated into the financial statements of the Group.

- 26 -

LETTER FROM THE IFA

As at the Latest Practicable Date, Mr. Chan, an executive Director and a controlling Shareholder, owned the entire issued share capital of Velocity International Limited which was interested in approximately 72.71% of the issued share capital of the Company. The Vendor is wholly-owned by Mr. Chan. Therefore, the Vendor is an associate of Mr. Chan and a connected person of the Company. Accordingly, the Acquisition constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. As the highest applicable percentage ratio in respect of the Acquisition exceeds 25% but all of the percentage ratios are less than 100%, the Acquisition also constitutes a major transaction for the Company and is therefore subject to the reporting, announcement, circular and the Independent Shareholders' approval requirements under Chapter 14 and Chapter 14A of the Listing Rules.

The EGM will be convened for the Independent Shareholders to consider and, if thought fit, pass, with or without modification, the ordinary resolution to approve, among other things, the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder by way of poll. Mr. Chan, being an executive Director, has abstained from voting on the relevant board resolutions of the Company. Mr. Chan and his associates (including Velocity International Limited), and any Shareholders with a material interest in the Acquisition and the Loan to Vendor are required to abstain from voting on the relevant ordinary resolution approving the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder. According to the Letter from the Board, to the best of the knowledge and belief of the Directors having made all reasonable enquiries, save and except for Mr. Chan and his associates (including Velocity International Limited), no other Shareholder has a material interest in the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising all the independent non-executive Directors, namely Mr. Sun Xiao Nian, Mr. Chu Kin Wang, Peleus and Mr. Hu Lie Ge, has been established to advise the Independent Shareholders as regards the terms of the Equity Transfer Agreement, Loan Agreement and the transactions contemplated thereunder.

- 27 -

LETTER FROM THE IFA

We, Lego Corporate Finance Limited, have been appointed by the Company as the IFA in accordance with the requirements of the Listing Rules to advise the Independent Board Committee and the Independent Shareholders as regards the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder, and to make recommendations as to, among others, whether the terms of the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder are fair, reasonable, on normal commercial terms and in the interests of the Company and the Independent Shareholders as a whole, and as to voting in respect of the relevant resolution(s) at the EGM. Our appointment has been approved by the Independent Board Committee.

As at the Latest Practicable Date, Lego Corporate Finance Limited did not have any relationships or interests in the Company or any other parties that could reasonably be regarded as relevant to the independence of Lego Corporate Finance Limited. In the last two years, we had not been engaged by the Company for the provision of other services that would affect our independence. Apart from the normal professional fees paid or payable to us in connection with the appointment as the IFA, no arrangements exist whereby we have received or will receive any fees or benefits from the Group. Accordingly, we are independent under Rule 13.84 of the Listing Rules to act as the IFA and to give an independent opinion to the Independent Board Committee and the Independent Shareholders in such regard.

BASIS OF OUR ADVICE

In formulating our opinions and recommendations, we have reviewed, among others, the Equity Transfer Agreement, the Loan Agreement, the announcement of the Company dated 7 April 2021, the annual report of the Company for the financial year ended 31 December 2019 (the ''2019 Annual Report''), the annual report of the Company for the financial year ended 31 December 2020 (the ''2020 Annual Report'') and audited financial statements of the Target Company for the financial years ended 31 December 2017, 2018 and 2019 and ten months ended

31 October 2020 (the ''Audited Accounts of the Target Company''). We have also reviewed certain information provided by the management of the Company (the ''Management'') relating to the operations, financial conditions and prospects of the Group. We have also (i) considered such other information, analyses and market data which we deemed relevant; (ii) conducted verbal discussions with the Management regarding the terms of the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder, the businesses and future outlook of the Group; and (iii) discussed the valuation methodologies, bases and assumptions adopted for the Valuation Report conducted by the Valuer. We have taken reasonable steps to ensure that such information and statements, and any representation made to us, which we have relied upon in formulating our opinions, were true, accurate and complete in all material respects as of the Latest Practicable Date and the Shareholders shall be notified of any material changes, as soon as possible.

- 28 -

LETTER FROM THE IFA

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement herein or in the Circular misleading. We consider that we have been provided with, and we have reviewed, all currently available information and documents which are available under present circumstances to enable us to reach an informed view regarding the terms of and reasons for implementing the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder to justify reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis of our opinion. We have no reasons to suspect that any material information has been withheld by the Directors or the Management, or is misleading, untrue or inaccurate. We have not, however, for the purpose of this exercise, conducted any independent detailed investigation or audit into the business or affairs or future prospects of the Group. Our opinion is necessarily based on financial, economic, market and other conditions in effect, and the information made available to us as at the Latest Practicable Date.

This letter is issued for the information of the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder. Except for its inclusion in the Circular, this letter shall not be quoted or referred to, in whole or in part, nor shall it be used for any other purposes, without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendations in respect of the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder, we have taken into consideration the following principal factors and reasons:

1 Financial information of the Group

The Group is principally engaged in the construction, operation and management of Sui-Yue Expressway (Hunan Section) (the ''Expressway'') and the trading of liquor and spirits in the PRC.

- 29 -

LETTER FROM THE IFA

Set out below in Table 1 is certain financial information of the Group for the two financial years ended 31 December 2019 as extracted from the 2019 Annual Report, and for the financial year ended 31 December 2020 as extracted from the 2020 Annual Report.

Table 1: Financial information of the Group

	For the year ended 31 December
	2020		2019		2018
	HK$'000	HK$'000	HK$'000
Revenue	505,962		456,986		204,456
- Toll income	140,486		192,419		202,059
- Sales of liquor and spirits	365,476		264,567		2,397
Profit for the year attributable
to equity shareholders of
the Company	70,299		50,420		76,580
	As at 31 December
	2020		2019		2018
	HK$'000	HK$'000	HK$'000
Non-current assets	1,498,810		1,398,283		1,471,361
Current assets	365,526		365,049		477,384
Current liabilities	(203,030)	(207,330)		(414,330)
Net current assets	162,496		157,719		63,054
Net assets	623,068		517,707		492,696

For the year ended 31 December 2019

For the year ended 31 December 2019, total revenue of the Group was approximately HK$456.99 million, representing an increase of approximately 123.51% as compared to that of approximately HK$204.46 million for the year ended 31 December 2018. Based on the 2019 Annual Report, such increase in revenue was mainly due to (i) the sales of Huamaojiu under the sole distributorship agreement with China Kweichow Moutai Winery Group Company Limited; and (ii) the continuous improvement in the highway network system within the districts surrounding the Expressway and hence the significant increase in traffic volume to the Expressway.

- 30 -

LETTER FROM THE IFA

For the year ended 31 December 2019, the Group recognised profit for the year attributable to equity shareholders of the Company of approximately HK$50.42 million, representing a decrease of approximately 34.16% as compared to that of approximately HK$76.58 million for the year ended 31 December 2018. Based on the 2019 Annual Report, such decrease was mainly caused by (i) the recognition of other net loss for the year ended 31 December 2019 resulted from, among others, the net foreign exchange loss and the loss on disposal of non-current assets, as opposed to other net income recognised for the year ended 31 December 2018; (ii) the recognition of deferred tax charges of approximately HK$14.2 million for the year ended 31 December 2019 against the recognition of deferred tax benefits of approximately HK$39.6 million for the previous year, which was mainly resulted from the temporary differences in connection with the impairment provision and construction profit of intangible asset of the Group; and partially offset by (iii) the above-mentioned year- on-year increase in revenue.

As at 31 December 2019, the Group recorded net current assets and net assets of approximately HK$157.72 million and approximately HK$517.71 million, respectively.

For the year ended 31 December 2020

For the year ended 31 December 2020, total revenue of the Group was approximately HK$505.96 million, representing a substantial increase of approximately 10.72% as compared to that of approximately HK$456.99 million for the year ended 31 December 2019. Based on the 2020 Annual Report, such increase in revenue was mainly driven by the combined effects of (i) the year-over-year increase in revenue from sales of liquor and spirits which was mainly attributable to a significant recovery of sales of liquor and spirits with the reopening of economic activities in the PRC since May 2020; and (ii) the year-over-year decrease in toll fee revenue from the Expressway which was mainly attributable to the implementation of the nationwide toll-free Policy in relation to COVID-19 pandemic during February to May 2020, under which the Company had waived toll fees of vehicles using the Expressway during such period, and the change of the toll system for trucks from ''toll by weight'' to ''toll by class'' during the year ended 31 December 2020, which has significantly reduced the toll fee per truck.

- 31 -

LETTER FROM THE IFA

For the year ended 31 December 2020, the Group recognised profit for the year attributable to equity shareholders of the Company of approximately HK$70.30 million, representing an increase of approximately 39.43% as compared to that of approximately HK$50.42 million for the year ended 31 December 2019. Based on the 2020 Annual Report, such decrease was mainly due to the net effects of (i) the above- mentioned year-on-year increase in revenue; (ii) the recognition of other net income for the year ended 31 December 2020 primarily resulted from the net foreign exchange gain, as opposed to other net loss recognised for the year ended 31 December 2019; and (iii) the significant year-over-year decrease of 48.6% in the selling and distribution costs for the year ended 31 December 2020 due to the cancellation of the advertising and promotion events during the year resulted from the outbreak of the COVID-19 pandemic and the related social distance restriction requirement.

As at 31 December 2020, the Group recorded net current assets and net assets of approximately HK$162.50 million and approximately HK$623.07 million, respectively.

2 Background information on the Vendor and the Purchaser

According to the Letter from the Board, the Vendor is a company established in the PRC and is wholly-owned by Mr. Chan. It is principally engaged in the construction and operation of expressways and construction of municipal highways in the PRC.

The Purchaser is an investment holding company incorporated in Hong Kong and a wholly-owned subsidiary of the Company.

3 Reasons for and benefits of entering into of the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder

In assessing the reasons for and benefits of entering into of the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder, we have primarily considered the recent development of the expressway business of the Group, the background of the Target Company and the future prospect of the Target Expressway.

- 32 -

LETTER FROM THE IFA

3.1 Development of the Group's toll expressway business

Through the construction, operation and management of the Expressway, the Group has been principally engaged in toll expressway business in the PRC. The Expressway is strategically located in Hunan Province, which exhibited a gross domestic product growth higher than the country average for 2020 according to the data from the National Bureau of Statistics of the PRC (http://www.stats.gov.cn/). The toll expressway business has been generating considerable revenue to the Group and accounted for more than 25% of the total revenue of the Group for the year ended 31 December 2020. Notwithstanding that the entire toll fee was exempted from 17 February to 5 May 2020 due to the outbreak of the COVID-19 pandemic which has adversely affected the Group's revenue, with the ease of restrictions and reopening of the economy in the PRC, the Group managed to recover traffic flow and toll revenue of the Expressway to the level before the COVID-19 pandemic. As emphasised in the 2020 Annual Report, with the confidence in the performance of the toll expressway business in the post COVID-19 pandemic period and the experience of the Directors in successfully completing other PRC toll expressway projects, going forward, the Group might pursue other infrastructure projects in the PRC by, among others, acquiring infrastructure projects which are already in operation from other developers or the government whenever suitable opportunity arises, which is in consistent with the Group's overall business strategies.

3.2 Background information of the Target Company

The Target Company is an infrastructure project company incorporated in the PRC on 18 January 2002 and owned as to 60% by the Vendor and as to 40% by Shenzhen Expressway, an independent third party to the Company, its connected persons and their respective associates as at the date of the Equity Transfer Agreement. The Target Company has a total paid up capital of RMB150 million, of which RMB90 million was contributed by the Vendor. With an exclusive right to, among others, operate the Target Expressway until 8 February 2027 under the Concession Agreement and approvals from the competent authorities, the Target Company is principally engaged in the construction, operation and management of the Target Expressway, which has already been in operation and revenue generating since 2002.

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With reference to the Letter from the Board, according to the Concession Agreement, the property rights and concession right of the Target Expressway should be handed over to the government after its expiry, unless one of the circumstances where the Target Company can apply for an extension of the concession period occurs, details of which are set out in the sub-section headed "INFORMATION OF THE TARGET GROUP" of the Letter from the Board. As confirmed by the Company, the Target Company will hand over the property rights and concession right of the Target Expressway accordingly upon expiry in 2027, unless any extendable circumstance occurs.

According to the Letter from the Board, the Target Expressway is a six-lane expressway (three lanes in each direction) with a tollable distance of 5.28 km. The Target Expressway connects Shenzhen Qingshuihe Checkpoint and Bulong Interchange on Shuiguan Expressway. Shuiguan Expressway is a major expressway linking the central business district of Shenzhen with Longgang District and Pingshan New Zone. Toll fees are collected at toll stations (typically using electronic payment system) and by the electronic toll collection system (through an electronic device attached to the vehicle).

Set out below is certain audited financial information of the Target Company for the financial years ended 31 December 2018 and 2019 and for the ten months ended 31 October 2020, respectively.

	For the ten
	months ended	For the financial year ended
	31 October	31 December	31 December	31 December
	2020	2019	2018	2017
	HK$'000	HK$'000	HK$'000	HK$'000
Revenue	56,220	148,349	143,452	137,078
Profit before taxation	3,893	31,249	33,663	31,749
Profit after taxation	2,920	23,419	25,233	23,798

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During the three years ended 31 December 2019, the performance of the Target Group has been achieving steady year-on-year growth in revenue with relatively stable returns. In February 2020, the Ministry of Transport of the PRC (http://www.mot.gov. cn/) issued a notice that the State Council of the PRC had permitted the nationwide toll-free Policy for all vehicles using tolled highways with effect from 0:00 a.m. on 17 February 2020 due to the COVID-19 pandemic. In accordance with the Policy, the Target Company had to waive the toll fees of vehicles using the Target Expressway. As a result, the Target Company did not record revenue for most of time during the period from 17 February 2020 to 5 May 2020 yet continued to incur management and operating cost. Whilst the collection of toll fees on tolled highway resumed and the economy of Guangdong Province showed signs of recovery subsequently, the opening of neighbouring expressways being Banyin Channel in April 2020 and the first phase of Eastern Transit Expressway in May 2020 also affected negatively the traffic volume of the Target Expressway. These have resulted in the decrease in revenue and net profit of the Target Company during the ten months ended 31 October 2020 in comparison to the same period in 2019.

As at 31 October 2020, the total asset value and the net asset value of the Target Company amounted to approximately HK$290 million and approximately HK$186 million, respectively.

3.3 Future prospect of the Target Expressway

In assessing the future prospect of the Target Expressway, we have primarily conducted research from the public domain on the general economic environment and toll expressway development of Shenzhen.

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With reference to the statistics published by the Shenzhen Municipal People's Government (http://www.sz.gov.cn/), annual gross domestic product (''GDP'') of Shenzhen has been constantly increasing during 2015 and 2020 with a compound annual growth rate of approximately 9.59%, and reached approximately RMB2,767.0 billion in 2020. According to 《2021年1-2月深圳經濟運行情況》(''The Economic Performance of Shenzhen for the Period from January to February 2021*'') published by the Shenzhen Bureau of Statistics (http://tjj.sz.gov.cn/) in March 2021, results of the municipal's prevention and control policies relating to the COVID-19pandemic as well as the economic and social developments continued to show during the first two months of 2021, with certain major economic indicators such as industrial added value, investment in fixed assets, total retail sales of social consumer goods and foreign trade imports and exports having achieved a growth. Further, based on 《新40

年 · 新40企－深圳未來發展的新力量》(''New 40 Years · New 40 Enterprises - New Power for the Future Development of Shenzhen*'') issued in September 2020 by China Development Institute (http://en.cdi.org.cn/), an independent think tank based in Shenzhen which was approved by the State Council of the PRC, GDP of Shenzhen is anticipated to grow annually at the average of 6.5% throughout 2021 to 2025, demonstrating a generally positive trend of the economic development of Shenzhen

On the other hand, it is expected that the number of vehicles in the PRC would generally increase in the near future, supported by the recent increase in sales and productions of vehicles and the projected increase sales in the future. According to the statistics issued by China Association of Automobile Manufacturers (http://www. caam.org.cn/tjsj) on 14 December 2020, vehicle sales and production in the PRC had increased for eight consecutive months and reached approximately 2.77 million and approximately 2.85 million in November 2020, representing increases of approximately 12.6% and 9.6%, respectively, as compared to November 2019. With reference to ''The future of automotive sales in China'' published in 2021 by Accenture, a global leading provider of consulting and processing services, it is expected that the annual sales of vehicles will reach 30 million by 2025 with an extraordinary growth in the electric vehicle market in the PRC. It is expected that the anticipated growth in the population of vehicles in the PRC shall drive the overall growth in traffic load and usage of toll expressways in the future.

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In addition, in around September 2019, The Central Committee of the Chinese Communist Party (https://cpcchina.chinadaily.com.cn/) and the State Council of the PRC (http://www.gov.cn/) issued《交通強國建設綱要》 (''The Program of Building National Strength in Transportation*'') with the aims to holistically advance the building of the national strength in transportation, a major national strategic decision, and form a modern and comprehensive transportation system across the PRC by 2035. Based on the program, the above national targets shall be achieved by, among others, improving the city cluster expressway network, strengthening the connections between expressways and urban roads, as well as optimising the allocation and expanding fine supply of resources to the planning and construction of infrastructure including expressways. With reference to《中共廣東省委關於制定廣東省國民經濟和社會發展第十四個五年規劃和二〇三五年遠景目標的建議》(''The Proposal of the Guangdong Provincial Committee of the Communist Party of the PRC on the Formulation of the 14th Five-YearPlan for the National Economic and Social Development of Guangdong Province and the Long-TermGoals for 2035*'') published in December 2020 by the People's Government of Guangdong Province (http://www.gd.gov.cn/), during the 14th five-yearperiod, the Guangdong province shall target to accelerate the construction of major transportation facilities such as expressways and actively participate in the constructions underlying the ''Belt and Road'' initiative by promoting interconnection of infrastructure with countries and regions along the route.

Despite the competition from the neighbouring expressways, taking into account

the generally positive economic development of Shenzhen; and (ii) the generally positive prospect of toll expressway development of Shenzhen as supported by the positive trends of sales and production of vehicles in the PRC as well as the favourable governmental initiatives and policies, it is expected that the future prospect of the Target Expressway will be generally optimistic.

In conclusion, considering that (i) it is the Group's business strategy to pursue other suitable infrastructure projects in order to maximise the returns; and (ii) the prospect of the Target Expressway is expected to be generally positive in the future, we are of the view that the entering into of the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder, being a condition precedent to the Completion, are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

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4 Principal terms of the Equity Transfer Agreement and the transactions contemplated thereunder

On 7 April 2021 (after trading hours) the Purchaser (a wholly-owned subsidiary of the Company) entered into the Equity Transfer Agreement with the Vendor (a company wholly- owned by Mr. Chan), the Target Company and Mr. Chan, pursuant to which the Vendor has conditionally agreed to sell, and the Purchaser has conditionally agreed to acquire, the Sale Interests (representing 60% of and the entire equity interest held by the Vendor in the Target Company) at a Consideration of RMB127.2 million (approximately HK$151.2 million).

Further details of the principal terms of the Equity Transfer Agreement are set out in sub-section headed ''THE EQUITY TRANSFER AGREEMENT'' of the Letter from the Board.

According to the Letter from the Board, the Consideration for the transaction contemplated under the Equity Transfer Agreement shall be RMB127.2 million (approximately HK$151.2 million) and was determined on the arm's length negotiations between the Vendor and the Purchaser with reference to the range of fair market value of the Sale Interests between RMB125.8 million (approximately HK$149.6 million) and RMB128.6 million (approximately HK$152.9 million) as at 19 March 2021 (the ''Valuation Date'') as appraised by the Valuer using the discounted cash flow approach as a primary methodology.

We understand that the Company commissioned the Valuer to assess the fair market value of the Sale Interests as at 19 March 2021 for the purpose of assisting the Board in its evaluation of the Acquisition. We also understand that the Valuation was carried out based on the Management's financial forecast of the Target Company from the Management for the period from 1 November 2020 to 8 February 2027 (the ''Management Forecast''). Details of the Valuation Report is set out in Appendix V to the Circular.

In assessing the fairness and reasonableness of the Consideration, we have conducted discussions with the Valuer and the Management in relation to the Valuation, details of our analysis of which are set out below.

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4.1 Expertise and experience of the Valuer

For our due diligence purpose and in order to assess the expertise and experience of the Valuer, we have (i) reviewed the terms of engagement (including the scope of work) between the Valuer and the Company in respect of the Valuation; and (ii) conducted an interview with the Valuer regarding its expertise and experience. Based on our research and/or confirmation from the Valuer, the holding company of the Valuer has over 700 offices across the globe and provides assurance, consulting, strategy and transactions, and tax services to more than 200,000 clients in 150 countries; and in Greater China, the Valuer has over 300 dedicated professionals and possesses necessary experience in appraising various kinds of assets including equity interests of private companies which operate or own expressway(s) and/or infrastructures projects in the PRC, as well as performing valuation exercises using various valuation approaches including the discounted cash flow method. During the course of our review of the Valuation and discussions with the Valuer, we were not aware of any material facts that would cause us to cast doubts on the experience and expertise of the Valuer.

4.2 Valuation methodology

In order to determine the appraised value of the Sale Interests, the Valuer has initially considered three generally adopted valuation approaches, namely the income approach, the market approach and the asset-based approach, and adopted the discounted cash flow method within the income approach for the purpose of the Valuation.

As discussed with the Valuer, under the income approach, which focuses on the income-producing capability of the asset, the value of the asset can be measured by the present worth of the net economic benefit to be received over the life of the asset. Among all valuation approaches considered, the Valuer is of the view that the discounted cash flow method is the most appropriate for the purpose of the Valuation given (i) the discounted cash flow approach is one of the most commonly used methodologies for valuing infrastructure projects, particularly, projects with finite lives, such as that of the Target Expressway which has a remaining concession period of approximately 6 years until 8 February 2027; (ii) the nature of investment in the Target Expressway, being capital intensive and requires large amounts of upfront capital, high gearing and long lead times, can be captured by the discounted cash flow method; and (iii) with a long history, steady traffic volumes and revenue, and as supported by the Management Forecast, further analyses of which are set out in the sub-section below headed ''4.4 Management Forecast'' of this letter, cash flows of the Target Expressway can be predicted with a reasonable degree of certainty. We have, in this regard, conducted independent research and noted that discounted cash flow method has been commonly adopted for the valuations of private companies which operate or own expressways in the PRC involved in acquisitions of other companies listed on the Stock Exchange. Based on the aforesaid and having considered the experience of the Valuer as previously analysed, we concur with the Valuer's view that the adoption of discounted cash flow method within income approach for the Valuation by the Valuer is fair and reasonable.

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4.3 Valuation bases and assumptions

In adopting the discounted cash flow method, the Valuer has relied upon the estimated future cash flows attributable to the Target Expressway and the underlying assumptions under the Management Forecast, analyses of which are set out in the sub-section headed ''4.4 Management Forecast'' below of this letter, and calculating the net present value of these cash flows by utilising a discount rate accounted for the time value of money and investment risk factors.

Based on our discussions with the Valuer, the discount rate is the cost of equity determined through the Capital Asset Pricing Model (the ''CAPM'') after taking into account of the risk-free rate, market risk premium, equity beta and specific risk premium, which is widely accepted for the purpose of estimating the required rate of return on equity. In respect of the risk-free rate, we were given to understand that the Valuer has adopted the yield-to-maturity of five-year PRC government bonds as at the Valuation Date of 3.17% quoted by S&P Capital IQ after considering the remaining concession period of the Target Expressway of approximately six years. We noted that five-year term is adopted as it is comparable to the life of the concession period of the Target Expressway. We have, also conducted research independently from the public domain on the background of S&P Capital IQ, and noted that it is a global financial data provider and a research division of S&P Global, one of the largest providers of ratings, data and the S&P Dow Jones Indices. On the other hand, a market risk premium of 7.5% was adopted which, based on our independent cross-check with reference to the commonly used equity risk premium database (http://pages.stern.nyu. edu/~adamodar/) last published by Prof. Aswath Damodaran of New York University in January 2021, was justifiable. In determining the specific risk premium, the Valuer has primarily taken into account of the size premium of 5% which was determined with reference to the Duff & Phelps 2020 Valuation Handbook. Based on our independent research, we noted that Duff & Phelps, LLC. is a well-recognised international consultancy firm and its publications have often been made reference with by valuation practitioners. In addition, we have reviewed and discussed with the Valuer the list of comparable companies used to determine the equity beta. We learnt that the Valuer has selected a complete list of companies which were (i) listed on the Stock Exchange for at least three years as at the Valuation Date in order for equity beta observations; and (ii) principally engaged in construction, operation, management, maintenance and investment in toll road projects in the PRC as at the Valuation Date, and sourced the respective equity betas from S&P Capital IQ. For our

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assessment purpose, we have independently performed search from public domains to identify companies which were (i) listed on the Stock Exchange for at least three years as at the Valuation Date; and (ii) principally engaged in construction, operation, management, maintenance and investment in toll roads projects in the PRC with such relevant segments having accounted for not less than 50% of their respective total revenues for the then latest financial year, and obtained the same list of comparable companies as the Valuer which is exhaustive. Accordingly, we consider that the comparable companies selected are fair and reasonable. With reference to the betas of the comparable companies, the Valuer has adopted the beta in the range of 0.65 to

0.75 for estimating the discount rate. Based on the above estimations, a discount rate in a range of 14.0% and 15.0% has been adopted for the arrival of the fair market values of the Sale Interests as at the Valuation Date.

In assessing the fairness and reasonableness of the fair market value of the Sale Interests, save for mentioned above, we have also discussed with the Valuer in further details on its analysis to cross check the fair market value of the Sale Interests by adopting the market approach, which, among others, compared the price-to-earnings (''P/E'') ratio of the Target Company implied by the discounted cash flow method with the P/E ratios of the comparable companies under the market approach. We noted that the comparable companies selected are identical to those used for determining the equity beta of the discount rate applied for appraising the Sale Interests. As per discussion with the Valuer, when interpreting the cross-check results, several factors have been taken into consideration including (i) the remaining concession periods of tolls roads of the comparable companies; (ii) the P/E ratios of the comparable companies for 2020 are reflective of the effects brought by COVID-19 and the toll- free Policy; (iii) operating scales of the comparable companies which are relevant to the size premium concept under CAPM; and (iv) the control premium of the Target Company. Based on the aforesaid factors, we concur with the views of the Valuer that the forecasted P/E ratios of the comparable companies for the year ending 31 December 2021, being the first full year post COVID-19, which were sourced from S&P Capital IQ, to be more relevant for comparison. Having considered that the forecasted P/E ratio of the Target Company lies within the range of the forecasted P/E ratios of the comparable companies for the year ending 31 December 2021, we further concur with the views of the Valuer the result obtained from the discounted cash flow method is broadly consistent with the outcome of the market approach.

During our course of review, we were not aware of any material facts which might lead us to doubt fairness and reasonableness of the principal bases or assumptions adopted in the Valuation.

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4.4 Management Forecast

We have reviewed and discussed with the Management in relation to the bases and assumptions adopted for the Management Forecast, including but not limited to those related to the estimated traffic volumes, toll rates as well as operation and maintenance costs of the Target Expressway. In respect of the preparation of the Management Forecast, we noted that the Management has, among other things, (i) collected (a) GDP data of Guangdong Province and Shenzhen; (b) historical traffic data of the Target Expressway; and (c) historical toll revenue and other operational data of the Target Expressway; and (ii) reviewed the relevant national or local government policies, including 《國務院辦公廳關於印發深化收費公路制度改革取消高速公路省界收費站實施方案的通知》(''Notice of the General Office of the State Council on Issuing the Implementation Plan for Deepening the Reform of the Toll Road System and Canceling the Provincial Toll Stations on Expressways*'') and other documents relating to previous toll road reform in the PRC.

When performing the Management Forecast in relation to traffic volumes of the Target Expressway, Management has, among others, (i) used the number of standard vehicle units for 2019 as a base for 2020 and converted the amounts to reflect the toll regime and toll rates effective from 6 May 2020; (ii) applied a reduction factor of 13.5% to reflect the ongoing competition from the neighbouring expressways when estimating the traffic volumes for 2021 where Banyin Channel became operational in April 2020 and the first phrase of Eastern Transit Expressway became operational in May 2020; and applied the same reduction factor for 2024 where the second phrase of Eastern Transit Expressway will become operational in early 2024; and (iii) considered the forecast GDP growth rates of Shenzhen and Guangdong Province. Based on our discussion with the Management and independent research conducted, we further noted that (i) the reduction factor applied for estimating the traffic volume for 2021 and 2024 was determined with reference to the reduction of number of standard vehicle units of the Target Expressway for the period from 1 June 2020 to 31 October 2020 by approximately 12% to 15% in comparison to that of the same period in 2019, as a result of the opening of Banyin Channel in April 2020 and the first phase of Eastern Transit Expressway in May 2020, and the reduction factor of 13.5% represents the mid-point of range of the above figures; (ii) same reduction factor was applied to forecast the traffic volume of the Target Expressway for 2024 as the potential adverse impact to be brought by the opening of the second phase of Eastern Transit Expressway in early 2024; and (iii) a constant traffic growth rate of 5% per annum was applied for the Target Expressway throughout the forecast period of the Management Forecast on a prudent basis having considered the potential positive associations between the growth in traffic volume and the growth in GDP perceived by the Management, the latter of which had been, according to our independent research conducted from the public domain and/or the information provided by the Management, consistently maintained at a level higher than 5% since 2017 and was anticipated to be higher than 5% throughout the forecast period in respect of Shenzhen and Guangdong Province.

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When performing the Management Forecast in relation to estimated toll rates of the Target Expressway, the Management has (i) adopted the actual average toll revenue per standard vehicle unit for the period from 1 June 2020 to 31 October 2020 as the base to forecast the toll rates having taken into account of, among others, the estimated penetration rate of electronic toll collection (''ETC'') throughout the forecast period; (ii) adopted a discount of 5% on toll rates applicable for traffic using the ETC system throughout the forecast period; and (iii) assumed an annual increment of 2% to the ETC penetration rate over the forecast period. Based on our discussions with the Management and independent research conducted, we further noted that (i) the discount of 5% over the ETC usage was consistent with the industry practice and the minimum requirement as set out in the notice 《關於大力推動高速公路ETC發展應用工作的通知》(''Notice on Promoting the Development and Application of Expressway ETC*'') (the ''ETC Notice'') published by Ministry of Transport of the People's Republic of China on 24 May 2019; and (ii) the annual increment of 2% to the ETC penetration rate was in line with the historical growth in ETC penetration rate of the Target Expressway throughout 2017 and 2018 as provided by the Management. Based on our discussions with the Management, we learnt that the historical growth in the ETC penetration rate throughout 2018 and 2019, which was higher than 2%, was considered to have been impacted by an one-off boost attributable to the issue of the ETC Notice, in which a discount on the toll rates of not less than 5% for ETC system usage was required to be strictly implemented, and accordingly should not have been taken into consideration when estimating the annual increment in the ETC penetration rate.

When performing the Management Forecast in relation to cost of service of the Target Expressway, the Management has, among others, (i) assumed that the toll collectors' salaries, maintenance costs and other miscellaneous items shall be subject to an annual inflation rate of 2.6%; and (ii) assumed that there would be no material changes to the structure of cost of services throughout the forecast period. Based on our discussion with the Management and independent research conducted, we further noted that the inflation rate of 2.6% adopted for the Management Forecast was in line with the estimation in a study report ''Forecast inflation rate for 2024'' issued by Economist Intelligence Unit (https://www.eiu.com/n/), a renowned research and analysis group providing forecasting and advisory services worldwide.

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In addition to the above, we have also discussed with the Management regarding other components of the Management Forecast, including other revenue, administrative expenses, finance costs and bank loan repayment, depreciation and amortization expenses, capital expenditure, income tax, movements in working capital as well as other adjustments relating to cash, amounts due from and due to related parties and the Dividend, and reviewed the relevant documents, including but not limited to (i) the concession agreement of the Target Expressway, and (ii) all loan agreement(s) of the Target Company, etc. and nothing has come to our attention that will cause us to doubt the reasonableness of the Management Forecast including the bases and assumptions applied therein. In view of the above we consider that the bases and assumptions adopted in the Management Forecast are fair and reasonable.

Based on our review of the above and our interview with the Valuer and the Management, we have not identified any major issues that may cause us have doubts on the reasonableness and fairness of the bases, assumptions and methodologies adopted in the Valuation. In this regard, we are of the opinion that the fair market value of the Sale Interests as appraised by the Valuer as at 19 March 2021 is fair and reasonable.

According to the Valuation Report, the fair market value of the Sale Interests was between approximately RMB125.8 million (approximately HK149.6 million) and RMB128.6 million (approximately HK$152.9 million) as at 19 March 2021.

Accordingly, taking into account that the Consideration of RMB127.2 million (approximately HK$151.2 million) represents the mid-point value of the range of fair market values of the Sale Interests as appraised by the Valuer as at 19 March 2021, we consider that the Consideration is fair and reasonable.

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5 Principal terms of the Loan Agreement and the transactions contemplated thereunder

The Target Company granted the Loan to Vendor in or around 2019. As at the date of the Equity Transfer Agreement, approximately RMB29.7 million (approximately HK$35.3 million) of the Loan to Vendor was due and outstanding by the Vendor to the Target Company. The Vendor would settle part of the Loan to the Vendor with the Dividend to which it will be entitled, namely approximately RMB14.8 million. The outstanding amount of the Loan to Vendor after such settlement is expected to be approximately RMB14.9 million (approximately HK$17.7 million).

The Vendor, as borrower, and the Target Company, as lender, will enter into the Loan Agreement to formalise the then outstanding Loan to Vendor on or before the Completion, pursuant to which the then outstanding Loan to Vendor shall be repaid within 3 months from the date of the Loan Agreement and entitled to an interest rate of 12% per annum. Further details of Loan Agreement are set out in the sub-section headed ''LOAN TO VENDOR'' of the Letter from the Board.

Since the Vendor will cease to have any interest in the Target Company upon Completion, the Vendor intends to repay the Loan to Vendor after the Acquisition. Pursuant to the Equity Transfer Agreement, the parties have agreed that the Vendor shall early repay the then Loan to Vendor in full to the Target Company within five business days after the payment of the Consideration by the Purchaser.

In assessing the fairness and reasonableness of the principal terms of the Loan Agreement, we have made reference to the grant of loans as announced by the companies listed on the Stock Exchange (or through its subsidiaries) as lenders to connected person(s) during the three months immediately preceding and including the Latest Practicable Date. On a best-effort basis, we have identified an exhaustive list of 13 comparable loans (the ''Comparable Loan(s)'') which have met the above criteria as at the Latest Practicable

Date.

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Shareholders should note that (i) the businesses, operations and prospects of the Company are not the same as the underlying listed companies providing the Comparable Loans; and (ii) the credit risk of the Vendor might not be the same as that of the underlying borrowers of the Comparable Loans. Notwithstanding the above, we consider that our assessment serves a general reference to the recent market practice in respect of provision of loans to connected persons under the current market condition and sentiment. The relevant details of the Comparable Loans are set out in Table 2 below:

Table 2: A summary of the Comparable Loans

			Principal	Interest
Date of			amount of	rate per	Term to
announcement	Name of the underlying listed companies	Stock code	loans	annum	maturity
					(number of
			(RMB million)	(%)	months)
20/4/2021	Echo International Holdings Group Limited	8218	4.2	7.00	8.5
			(Note 1)
16/4/2021	Cogobuy Group	400	90	6.00	6.0
13/4/2021	Minshang Creative Technology	1632	5.0	8.00	5.0
	Holdings Limited
26/3/2021	Lee's Pharmaceutical Holdings Limited	950	13.1	4.00	12.0
			(Note 1)
9/3/2021	Shanghai Jin Jiang Capital Company Limited	2006	87.5	3.92	12.0
25/2/2021	Shi Shi Services Limited	8181	29.4	10.00	24.0
			(Note 2)
23/2/2021	Summit Ascent Holdings Limited	102	786.0	6.00	3.0
			(Note 1)
19/2/2021	Wuling Motors Holdings Limited	305	2.5	3.00	12.0
10/2/2021	China Chengtong Development Group	217	10.0	6.00	18.0
	Limited
9/2/2021	Super Strong Holdings Limited	8262	7.6	5.00	4.0
			(Note 2)
5/2/2021	China Communications Construction	1800/3900	2,699.8	8.00	N/A
	Company Limited/Greentown China				(Note 3)
	Holdings Limited
1/2/2021	Lee's Pharmaceutical Holdings Limited	950	44.3	4.00	12.0
			(Note 1)
29/1/2021	Sany Heavy Equipment International	631	300.0	4.15	6.0
	Holdings Company Limited
		Minimum:		2.5	3.0
		Maximum:		10.00	24.0
		Average:		5.70	10.2
	Loan to Vendor		RMB29.7	12.00	3.0

Source: The official website of the Stock Exchange (http://www.hkexnews.hk/)

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Notes

For the purpose of illustration, the amount denominated in US$, have been converted into RMB, the official currency of the PRC, at an exchange rate of US$1.00=RMB6.55.
For the purpose of illustration, the amount denominated in HK$, have been converted into RMB at an exchange rate of RMB1.00=HK$1.189.
The maturity to terms of the subject Comparable Loan was not explicitly disclosed in the relevant announcement of the underlying listed issuer dated 5 February 2021, and therefore has been excluded in the analysis of the maturity to terms of the Comparable Loans.

5.1 Interest rate

As shown in Table 2 above, the interest rates of the Comparable Loans range from 2.50% to 10.00%, with an average of approximately 5.70%. The interest rate of the Loan to Vendor of 12.00% per annum is higher than the range of interest rate of the Comparable Loans.

5.2 Term to maturity

As shown in Table 2 above, the terms to maturity of the Comparable Loans range from 3.0 months to 24.0 months, with an average of approximately 10.2 months. The term to maturity of the Loan to Vendor of three months from the date of the Loan Agreement is therefore within the range of that of the Comparable Loans.

In light of the foregoing, we are of the view that the principal terms of the Loan to Vendor are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE IFA

6 Financial effects of the Equity Transfer Agreement and the transactions contemplated thereunder

Upon Completion, the Target Company will become indirectly owned as to 60% by the Company and become a non-wholly owned subsidiary of the Company, and its financial results will be consolidated into the financial statements of the Group.

When assessing the financial impacts of the Equity Transfer Agreement and the transactions contemplated thereunder, we have primarily taken into account the following aspects:

6.1 Earnings

According to the 2020 Annual Report, profit for the year attributable to equity shareholders of the Company for the year ended 31 December 2020 was approximately HK$70.3 million. Upon Completion, considering the potential income to be generated from the Target Expressway with reference to its generally optimistic prospect as analysed in the sub-section headed ''3. Reasons for and benefits of entering into of the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder'' above of this letter, it is expected that the Equity Transfer Agreement and the transactions contemplated thereunder would have a positive impact on the earnings of the Group.

6.2 Assets and liabilities

According to the 2020 Annual Report, total assets and total liabilities of the Group as at 31 December 2020 were approximately HK$1,864.3 million and approximately HK$1,241.3 million, respectively, leading to net assets of approximately HK$623.1 million. Based on the unaudited pro forma financial information on the Enlarged Group as set out in Appendix IV to the Circular, total assets of the Enlarged Group as at 31 December 2020 would increase by approximately 5.8% to approximately HK$1,972.1 million and the total liabilities of the Enlarged Group as at 31 December 2020 would increase by approximately 8.4% to approximately HK$1,345.7 million after the Acquisition, resulting in an increase of approximately 0.5% in the net assets to approximately HK$626.4 million, assuming Completion had taken place on 31 December 2020.

- 48 -

LETTER FROM THE IFA

RECOMMENDATIONS

Having considered the above principal factors and reasons including the potential financial impacts on the Group thereof, we are of the view that notwithstanding the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder are not implemented in the ordinary and usual course of business of the Company, being the construction, operation and management of the Expressway and the trading of liquor and spirits in the PRC, the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we advise the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the ordinary resolutions to be proposed for approving the Equity Transfer Agreement, the Loan Agreement and the transactions contemplated thereunder at the EGM.

Yours faithfully,

For and on behalf of

Lego Corporate Finance Limited

Billy Tang

Managing Director

Mr. Billy Tang is a licensed person registered with the Securities and Futures Commission and a responsible officer of Lego Corporate Finance Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has over 20 years of experience in the accounting and investment banking industries.

- 49 -

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

FINANCIAL SUMMARY OF THE GROUP

The published audited consolidated financial statements of the Group for the three years ended 31 December 2018, 2019 and 2020 are disclosed in the annual reports of the Company for the three years ended 31 December 2018, 2019 and 2020, respectively. The above annual reports can be accessed on the website of the Company (http://www.huayu.com.hk), and the website of the Stock Exchange as set out below:

Annual report for the year ended 31 December 2020:

https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0409/2021040901019.pdf

Annual report for the year ended 31 December 2019:

https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0416/2020041600505.pdf

Annual report for the year ended 31 December 2018:

https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0403/ltn201904031733.pdf

INDEBTEDNESS

At the close of business on 31 March 2021, being the latest practicable date for the purpose of this indebtedness statement, the Enlarged Group had outstanding secured bank loans guaranteed by the Company in favour of the bank of approximately HK$966.4 million. As at the close of business on 31 March 2021, the Enlarged Group had unguaranteed and unsecured other borrowing of approximately HK$115.0 million. As at the close of business on 31 March 2021, the Enlarged Group had unguaranteed and unsecured lease liabilities of approximately HK$1.7 million. As at the close of business on 31 March 2021, the Enlarged Group had unguaranteed and unsecured amount due to a related party of approximately HK$0.9 million. As at the close of business on 31 March 2021, the Enlarged Group had unguaranteed and unsecured loan from Mr. Chan, a controlling shareholder of the Company, of approximately HK$102.0 million. The loan from Mr. Chan of approximately HK$102.0 million will not be requested for repayment until after 30 June 2022, unless the Enlarged Group has obtained funding from other sources and is in a position to meet all repayment obligations at that time.

Save as aforesaid and apart from intra-group liabilities and normal trade payable, at the close of business on 31 March 2021, the Enlarged Group did not have any outstanding loan capital, debt securities, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, hire purchases commitments or guarantees.

At the close of business on 31 March 2021, the Enlarged Group had no material contingent liabilities.

- I-1-

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2021

The Group

For the year ended 31 December 2020, the Group recorded a total revenue of about HK$506.0 million, increased by about 10.7% from the year ended 31 December 2019. Despite of the COVID-19 pandemic, the Group recorded a profit of approximately HK$80.9 million for the year ended 31 December 2020, increased by about 16.6% from the year ended 31 December 2019.

With the outbreak of COVID-19 in the PRC, the Group faced a historical challenge in its businesses in 2020. Under the implementation of the nationwide toll fees exemption policy from the period between 17 February and 5 May 2020, the entire toll fee was exempted for the Sui-Yue Expressway (Hunan Section) (the ''Expressway'') and it adversely affected the Group's revenue. For the liquor and spirits trading business, the control and prevention measures slowed down its sales since the outbreak of COVID-19. From early May 2020, with the ease of restrictions and reopening of the economy in the PRC, the difficult period was over and the business was back to normal. The traffic flow and the toll revenue of the Expressway resumed to the level before the pandemic period. The business of trading liquor and spirits recovered significantly, too.

The Expressway is one of the expressways with high economic potential in the PRC. It is strategically located in Hunan Province, which is one of the high economic growth provinces in the PRC. According to the data from National Bureau of Statistics of the PRC, the GDP growth of Hunan Province for 2020 was about 3.8%, which was higher than the country average of about 2.3%. Since the adjacent expressway network system was completed in the past few years, the economic growth of the regions around the Expressway will be the most significant factor for the growth of traffic flow. With the outperformed economic growth in the region, the Expressway is expected to have a steady growth in the future years.

About the trading of liquor and spirits, the Group has been working on the brand building and the development of sales and distribution network. With the excellent quality and brand position of Huamaojiu in the PRC market, it becomes one of the most significant segments in the Group.

In accordance with the Group's business strategy, the Group entered into the Equity Transfer Agreement to acquire the Target Expressway which is located in Shenzhen. Please refer to the subsection headed ''Reasons of and benefits of the acquisition'' of the Letter from the Board for the benefits of the acquisition of the Target Expressway through the Acquisition that are expected to be brought to the Group.

- I-2-

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Enlarge Group

Upon Completion, the Target Company will become a subsidiary of the Company, and their financial results will be consolidated in the financial statements of the Group.

Looking forward to the financial year ending 31 December 2021, after the Completion, the Enlarged Group will continue with the existing principal businesses of the Group in construction, operation and management of expressways and the trading of liquor and spirits in the PRC. The Acquisition can increase the toll mileage of the Group and broaden its presence in the toll road industry in PRC.

In the financial aspect, the Acquisition will enhance the income and asset base of the Group, create new business opportunities for the Group and will broaden its revenue base.

MATERIAL ADVERSE CHANGES

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2020, being the date to which the latest published audited consolidated financial statements of the Group were made up.

WORKING CAPITAL

The Directors, after due and careful enquiry, are of the opinion that the Enlarged Group has sufficient working capital for its present requirements for at least the next 12 months from the date of the circular, after taking into account (i) the effect of the Acquisition, (ii) the Enlarged Group's available financial resources including internally generated cash flows, cash on hand, and other external facilities from banks, and (iii) advance from Mr. Chan of approximately HK$102 million as at 31 December 2020 that will not be called for until after 30 June 2022, unless the Group is able to obtain funding from other sources and is in a position to meet all repayment obligations at that time.

- I-3-

APPENDIX II	MANAGEMENT DISCUSSION AND
	ANALYSIS OF THE TARGET COMPANY

FINANCIAL ANALYSIS

For the year ended 31 December 2017

Revenue

The revenue of the Target Company for the year ended 31 December 2017 was about HK$137.1 million, of which, about HK$132.6 million was the toll fee income from the Target Expressway. The traffic flow of the Target Expressway was about 27.5 million vehicles for the year ended 31 December 2017. Average toll per vehicle was about HK$4.83. Among the vehicles using the Target Expressway, about 91.6% of them were small private cars.

Besides of the toll fee revenue from the Target Expressway, there was about HK$4.5 million of expressway management income from other expressway.

Cost of service and gross profit

The cost of service and gross profit for the year ended 31 December 2017 were about HK$92.0 million and HK$45.0 million respectively. The cost of service of the Target Company mainly represented the amortisation of the intangible asset - service concession arrangement pursuant to the Concession Agreement, which was about HK$65.2 million, and the staff salary paid to the toll collection workers which was about HK$16.4 million. Gross profit ratio for the year ended 31 December 2017 was about 32.9%.

Other revenue and other net income

The other revenue and other net income for the year ended 31 December 2017 were about HK$1.7 million and HK$0.5 million respectively. The other revenue mainly represented the billboard rental income and interest income received during the year. The other net income was mainly the compensation received about the Target Expressway.

Administrative expenses

The administrative expenses were about HK$6.1 million for the year ended 31 December 2017. It mainly represented the staff salaries of supporting departments and the building management fee incurred for the year.

Finance cost

The Target Company incurred about HK$9.3 million finance costs for the year ended 31 December 2017. It represented the interest cost for the bank loan for the year.

- II-1-

APPENDIX II	MANAGEMENT DISCUSSION AND
	ANALYSIS OF THE TARGET COMPANY

Profit for the year

Profit for the year of the Target Company for the year ended 31 December 2017 was about HK$23.8 million. Profit to revenue ratio was about 17.4% for the year.

For the year ended 31 December 2018

Revenue

The revenue of the Target Company for the year ended 31 December 2018 was about HK$143.5 million, increased by about 4.6% from that of the year ended 31 December 2017. Toll fee income from the Target Expressway was about HK$141.8 million, increased about 6.9% from that of the year ended 31 December 2017. The total traffic flow of the Target Expressway was about 29.2 million vehicles for the year ended 31 December 2018, increased by about 6.4% from that of the previous year. Average toll per vehicle was about HK$4.85, which is nearly the same as the previous year. Among the vehicles using the Target Expressway, about 92.8% of them were small private cars.

Besides of the toll fee revenue from the Target Expressway, there was about HK$1.7 million of expressway management income from other expressway.

Cost of service and gross profit

The cost of service and gross profit for the year ended 31 December 2018 were about HK$97.7 million and HK$45.7 million respectively, increased by 6.2% and 1.6% respectively from that of the previous year. The cost of service of the Target Company mainly represented the amortisation of the intangible asset - service concession arrangement pursuant to the Concession Agreement, which was about HK$67.5 million, and the staff salary paid to the toll collection workers, which was about HK$18.3 million. Gross profit ratio for the year ended 31 December 2018 was about 31.9%, which was similar to that of the year ended 31 December 2017.

Other revenue and other net income

The other revenue and other net income for the year ended 31 December 2018 were about HK$2.2 million and HK$0.3 million respectively. The other revenue mainly represented the billboard rental income and interest income received during the year. The other net income was mainly the compensation received about the Target Expressway.

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APPENDIX II	MANAGEMENT DISCUSSION AND
	ANALYSIS OF THE TARGET COMPANY

Administrative expenses

The administrative expenses were about HK$6.9 million for the year ended 31 December 2018, increased by 13% from that of the year ended 31 December 2017. It mainly represented the staff salaries of supporting departments and the building management fee incurred for the year. The increase for the administrative expenses was mainly due to the increment in the staff salary during the year.

Finance cost

The Target Company incurred about HK$7.7 million finance costs for the year ended 31 December 2018, decreased by about 17.6% from that of the year ended 31 December 2017. It represented the interest cost for the bank loan for the year. The decrease of finance cost was mainly due to the loan repayment made during the year.

Profit for the year

Profit for the year of the Target Company for the year ended 31 December 2018 was about HK$25.2 million, increased by 6.0% from that of the year ended 31 December 2017. The increase in the profit for the year was mainly because of increment in the traffic flow of the Target Expressway during the year. Profit to revenue ratio was about 17.6% for the year, which was similar to that of the previous year.

For the year ended 31 December 2019

Revenue

The revenue of the Target Company for the year ended 31 December 2019 was about HK$148.5 million, increased by about 3.4% from that of the year ended 31 December 2018. Toll fee income from the Target Expressway was about HK$137.2 million, decreased by about 3.2% from that of the year ended 31 December 2018. Toll fee revenue decrease was mainly due to the increased portion of small private car users among the traffic flow for the year. The total traffic flow of the Target Expressway was about 29.8 million vehicles for the year ended 31 December 2019, increased by about 1.9% from that of the previous year. But the average toll per vehicle was about HK$4.61, decreased by about 4.9%. Among the vehicles using the Target Expressway, about 93.3% of them were small private cars while it was about 92.8% for the year ended 31 December 2018.

Besides of the toll fee revenue from the Target Expressway, there was about HK$11.2 million of construction income recognised for the year ended 31 December 2019 about the costs associated with implementation of standard ETC system.

- II-3-

APPENDIX II	MANAGEMENT DISCUSSION AND
	ANALYSIS OF THE TARGET COMPANY

Cost of service and gross profit

The cost of service and gross profit for the year ended 31 December 2019 were about HK$106.8 million and HK$41.6 million respectively increased by 9.3% and decreased by 9.1% respectively from that of the previous year. The cost of service of the Target Company mainly represented the amortisation of the intangible asset - service concession arrangement pursuant to the Concession Agreement, which was about HK$65.6 million, and the staff salary paid to the toll collection workers which was about HK$18.2 million. Gross profit ratio for the year ended 31 December 2019 was about 28.0%, which is 3.9% lower than that for the year ended 31 December 2018. The decrease in gross profit ratio was mainly due to the decrease in the average toll per vehicle of the Target Expressway for the year and the inclusion of about HK$11.2 million construction income which has a nominal profit.

Other revenue and other net income

The other revenue and other net income for the year ended 31 December 2019 were about HK$1.6 million and HK$0.6 million respectively. The other revenue mainly represents the billboard rental income and interest income received during the year. The other net income was mainly the compensation received about the Target Expressway.

Administrative expenses

The administrative expenses were about HK$6.9 million for the year ended 31 December 2019, increased by 0.3% from that of the year ended 31 December 2018. It mainly represented the staff salaries of supporting departments and the building management fee incurred for the year.

Finance cost

The Target Company incurred about HK$5.6 million finance costs for the year ended 31 December 2019, decreased by about 27.0% from that of the year ended 31 December 2018. It represented the interest cost for the bank loan for the year. The decrease of finance cost was mainly due to the loan repayment made during the year.

Profit for the year

Profit for the year of the Target Company for the year ended 31 December 2019 was about HK$23.4 million, decreased by 7.2% from that of the year ended 31 December 2018. The decrease in the profit for the year was mainly because of change of composition of the vehicles using the Target Expressway and the drop in the average toll per vehicle of the Target Expressway during the year. Profit to revenue ratio was about 15.8% for the year, which was 1.8% lower than that of the previous year.

- II-4-

APPENDIX II	MANAGEMENT DISCUSSION AND
	ANALYSIS OF THE TARGET COMPANY

For the 10 months ended 31 October 2020

Revenue

The revenue of the Target Company for the 10 months ended 31 October 2020 was about HK$56.2 million, decreased by about 50.5% from that of the 10 months ended 31 October 2019. During the period, the revenue of the Target Company comprised only its toll fee income. Such decrease in toll fee income was mainly due to the toll fee exemption policy implemented from February to May of the year and the decreased in traffic flow in the Target Expressway during the period due to the COVID-19 pandemic and opening of new expressways in the vicinity. The total traffic flow of the Target Expressway was about 19.4 million vehicles for the 10 months ended 31 December 2020, decreased by about 14.9% from that of the corresponding 10 months in the previous year. The average toll per vehicle was about HK$2.9, substantially decreased from that of the year ended 31 December 2019. Among the vehicles using the Target Expressway, about 91.5% of them were small private cars.

The COVID-19 pandemic took place since early 2020 seriously limited the economic activities which adversely affected the traffic flow and the performance of the operation of the Target Expressway. The toll fee exemption policy implemented from 17 February to 5 May 2020 on the other hand impacted the toll fee revenue of the Target Expressway. Moreover, in April 2020, Banyin Channel, a toll-free expressway running parallel to the Target Expressway, became operational. It further substantially affected the traffic flow and the toll revenue of the Target Expressway. In May 2020, following the ease of travel restrictions and the reopening of economy in the PRC, the traffic flow of the Target Expressway gradually resumed. In addition, starting from 6 May 2020, the Target Expressway resumed the collection of the toll fees. In the months from July to Oct 2020, the average monthly traffic flow was about 2.0 million vehicles, which was about 19.5% lower than the average monthly traffic flow of the year ended 31 December 2019.

Cost of service and gross profit

The cost of service and gross profit for the 10 months ended 31 October 2020 were about HK$45.6 million and HK$10.7 million, respectively decreased by 40.8% and 71.0% respectively from that of the corresponding period in 2019. The cost of service of the Target Company mainly represents the amortisation of the intangible asset - service concession arrangement pursuant to the Concession Agreement, which was about HK$21.1 million, and the staff salary paid to the toll collection workers which was about HK$12.6 million. The amount of amortisation of the intangible asset decreased substantially from about HK$65.6 million for the year ended 31 December 2019 because of the periodical review of the accounting estimates. In December 2020, the Target Company appointed an independent professional traffic consultant to reassess the future traffic volume of the Target Expressway. The Target Company thereafter adjusted the amortisation unit for the intangible asset according to the revised total projected traffic volume since 1 January 2020 on a prospective basis.

- II-5-

APPENDIX II	MANAGEMENT DISCUSSION AND
	ANALYSIS OF THE TARGET COMPANY

Gross profit ratio for the 10 months ended 31 October 2020 was about 19.0%, which was

9.0% lower than that for the year ended 31 December 2019. The decrease in gross profit ratio was mainly due to the toll fee exemption policy implemented during the year.

Other revenue and other net income

The other revenue and other net income for the 10 months ended 31 October 2020 were about HK$1.4 million and HK$0.4 million respectively. The other revenue mainly represented the billboard rental income and interest income received during the period. The other net income was mainly the compensation received about the Target Expressway.

Administrative expenses

The administrative expenses were about HK$5.3 million for the 10 months ended

31 October 2020, increased by 9.3% from that of the corresponding period of 2019. It mainly represented the staff salaries of supporting departments and the building management fee incurred for the year.

Finance cost

The Target Company incurred about HK$3.2 million finance costs for the 10 months ended 31 October 2020, decreased by about 31.0% from that of the corresponding period of 2019. It represented the interest cost for the bank loan for the year. The decrease of finance cost was mainly due to the drop in average bank loan balance from previous year.

Profit for the period

Profit for the period of the Target Company for the 10 months ended 31 October 2020 was about HK$2.9 million, substantially decreased by 86.6% from that of the corresponding period of 2019. The decrease in the profit for the year was mainly because of the toll fee exemption policy implemented during the period. Profit to revenue ratio was about 5.2% for the period, which was 13.9% lower than that of the corresponding period in 2019.

- II-6-

APPENDIX II	MANAGEMENT DISCUSSION AND
	ANALYSIS OF THE TARGET COMPANY

Liquidity and Financial Resources

During the 3 years ended 31 December 2019 and the 10 months ended 31 October 2020, the Target Company financed its operations and capital expenditure by its internal resources and long term bank loan. As at 31 December 2017, 2018, 2019 and 31 October 2020, total bank loan drawn by the Target Company were denominated in RMB and amounted to about RMB145.0 million, RMB110.0 million, RMB75.0 million and RMB75.0 million (about HK$173.5 million, HK$125.5 million, HK$83.7 million and HK$86.5 million) respectively and total cash and cash equivalents, including bank deposits and cash on hand were denominated in RMB and amounted to about RMB15.9 million, RMB36.9 million, RMB24.8 million and RMB48.8 million (about HK$19.0 million, HK$42.1 million, HK$27.7 million and HK$56.3 million) respectively.

The Target Company has always pursued a prudent treasury management policy and actively managed its liquidity position with sufficient standby banking facilities to cope with daily operation and any demands for capital future development. As at 31 December 2017, 2018, 2019 and 31 October 2020, total banking facilities of the Target Company amounted to about HK$173.5 million, HK$125.5 million, HK$83.7 million and HK$86.5 million respectively from China Construction Bank Corporation and the ratio of total outstanding bank loan to total equity was about 0.94, 0.70, 0.47 and 0.47 respectively.

As at 31 December 2017, 2018, 2019 and 31 October 2020, the bank loan was repayable as follows:

								As at
			As at 31 December			31 October
		2017	2018	2019	2020
		HK$'000		HK$'000	HK$'000	HK$'000
Within 1 year or on demand	41,871	39,946	39,071	40,359
After 1	year but within 2 years	41,871	39,946		44,652		46,124
After 2	years but within 5 years	89,722		45,562	-	-

		173,464		125,544	83,723	86,483

- II-7-

APPENDIX II	MANAGEMENT DISCUSSION AND
	ANALYSIS OF THE TARGET COMPANY

The Target Company's borrowing was mainly arranged on a floating rate basis. During the 3 years ended 31 December 2019 and 10 months ended 31 October 2020, the Target Company did not enter into any hedging against exposure in interest rate risk. Any substantial fluctuation of interest rate may cause financial impacts on the Target Company. The management of the Target Company monitored the interest rate exposure and will consider taking appropriate actions, including but not limited to hedging should the need arise.

Intangible Assets - Service Concession Arrangement

The service concession arrangement pursuant to the Concession Agreement represents the right of the Target Company to operate the Target Expressway and receive toll fees therefrom. According to the accounting policy adopted by the Target Company, the amount of the intangible asset is subject to the periodic impairment review. Internal and external sources of information are reviewed at the end of each financial period to identify indications that the intangible assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased. No impairment was recognised for the 3 years ended 31 December 2019 and 10 months ended 31 October 2020.

Foreign Currency Risk

The Target Company mainly carried out transactions in RMB, therefore any appreciation or depreciation of HKD against RMB will affect the Target Company's financial position and be reflected in the exchange reserve and other comprehensive income. As at 31 December 2017, 2018, 2019 and 31 October 2020, the Target Company did not enter into any hedging arrangement to hedge against exposure in foreign currency risk.

Pledge of Assets

As at 31 December 2017, 2018, 2019 and 31 October 2020, the bank loan of about HK$173.5 million, HK$125.5 million, HK$83.7 million and HK$86.5 million respectively from China Construction Bank Corporation was secured by the pledge of the toll collection right under the Concession Agreement in relation to the Target Expressway.

Capital Commitments

As at 31 December 2017, 2018, 2019 and 31 October 2020, there was no material capital commitment outstanding for the Target Company.

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APPENDIX II	MANAGEMENT DISCUSSION AND
	ANALYSIS OF THE TARGET COMPANY

Employees and Emoluments

As at 31 December 2017, 2018, 2019 and 31 October 2020, the Target Company had a total of 249, 250, 269 and 248 employees respectively in the PRC which included management staff, engineers, technicians and toll collectors. For the years ended 31 December 2017, 2018, 2019 and 10 months ended 31 October 2020, the total expenses on the remuneration of employees of the Target Company were about HK$20.4 million, HK$22.8 million, HK$22.9 million and HK$16.3 million respectively.

The Target Company's emolument policies are formulated based on the performance of individual employees, which will be reviewed periodically. Apart from the contribution retirement benefit scheme and the medical insurance, discretionary bonuses are also awarded to employees according to the assessment of their performance.

- II-9-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

The following is the text of a report set out on pages III-1 to III-45, received from the Company's reporting accountants, KPMG, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

ACCOUNTANTS' REPORT ON HISTORICAL FINANCIAL INFORMATION OF SHENZHEN HUAYU EXPRESSWAY INVESTMENT COMPANY LIMITED TO THE DIRECTORS OF HUAYU EXPRESSWAY GROUP LIMITED

Introduction

We report on the historical financial information of Shenzhen Huayu Expressway Investment Company Limited1 (the "Target Company") set out on pages III-4 to III-45, which comprises the statements of financial position of the Target Company as at 31 December 2017, 2018 and 2019 and 31 October 2020 and the statements of profit or loss and other comprehensive income, the statements of changes in equity and the cash flow statements for each of the years ended 31 December 2017, 2018 and 2019 and the ten months ended 31 October 2020 (the "Relevant Periods"), and a summary of significant accounting policies and other explanatory information (together, the "Historical Financial Information"). The Historical Financial Information set out on pages III-4 to III-45 forms an integral part of this report, which has been prepared for inclusion in the circular of Huayu Expressway Group Limited (the "Company") dated 30 April 2021 (the "Circular") in connection with the acquisition of the 60% interests of the Target Company.

Directors' responsibility for the Historical Financial Information

The directors of the Company are responsible for the preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in note 1 to the Historical Financial Information.

The Underlying Financial Statements of the Target Company as defined on page III-4, on which the Historical Financial Information is based, were prepared by the directors of the Target Company. The directors of the Target Company are responsible for the preparation of the Underlying Financial Statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"), and for such internal control as the directors of the Target Company determine is necessary to enable the preparation of the Underlying Financial Statements that are free from material misstatement, whether due to fraud or error.

1 Chinese official name of the Target Company is ''深圳市華昱高速公路投資有限公司''. The English name of the Target Company is translation and for identification purposes only.

- III-1-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Reporting accountants' 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 HKICPA. This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants' 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 accountants consider internal control relevant to the entity's preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in note 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 purpose of the accountants' report, a true and fair view of the Target Company's financial position as at 31 December 2017, 2018 and 2019 and 31 October 2020 and of the Target Company's financial performance and cash flows for the Relevant Periods in accordance with the basis of preparation and presentation set out in note 1 to the Historical Financial Information.

- III-2-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Review of stub period corresponding financial information

We have reviewed the stub period corresponding financial information of the Target Company which comprises the statement of profit or loss and other comprehensive income, the statement of changes in equity and the cash flow statement for the ten months ended 31 October 2019 and other explanatory information (the "Stub Period Corresponding Financial Information"). The directors of the Company are responsible for the preparation and presentation of the Stub Period Corresponding Financial Information in accordance with the basis of preparation and presentation set out in note 1 to the Historical Financial Information. Our responsibility is to express a conclusion on the Stub Period Corresponding Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the HKICPA. A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Corresponding Financial Information, for the purpose of the accountants' report, is not prepared, in all material respects, in accordance with the basis of preparation and presentation set out in note 1 to the Historical Financial Information.

Report on matters under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page III-4 have been made.

KPMG

Certified Public Accountants

8th Floor, Prince's Building 10 Chater Road

Central, Hong Kong

30 April 2021

- III-3-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

HISTORICAL FINANCIAL INFORMATION

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

accountants' report.

The financial statements of the Target Company for the Relevant Periods, on which the

Historical Financial Information is based, were audited by KPMG Huazhen LLP Shenzhen

Branch in accordance with Hong Kong Standards on Auditing issued by the HKICPA (the

''Underlying Financial Statements'').

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

(Expressed in Hong Kong dollars)

								Ten months ended
		Year ended 31 December		31 October
		2017		2018	2019		2019	2020
	Note	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
								(unaudited)
Revenue	4	137,078		143,452	148,349		113,690	56,220
Cost of service		(92,031)	(97,703)	(106,772)	(76,971)	(45,556)
Gross profit
	45,047		45,749	41,577		36,719	10,664
Other revenue	5	1,690		2,216	1,557		1,402	1,367
Other net income	5	457		300	664		399	400
Administrative expenses		(6,126)	(6,927)	(6,946)	(4,891)	(5,344)
Profit from operations
	41,068		41,338	36,852		33,629	7,087
Finance costs	6(a)	(9,319)	(7,675)	(5,603)	(4,628)	(3,194)
Profit before taxation
6	31,749		33,663	31,249		29,001	3,893
Income tax	7(a)	(7,951)	(8,430)	(7,830)	(7,250)	(973)
Profit for the year/period
	23,798		25,233	23,419		21,751	2,920
Other comprehensive
income
for the year/period
Item that may be reclassified
subsequently to profit or
loss:
Exchange differences on
translation to presentation
currency		12,796		(8,573)	(3,952)	(5,017)	5,883
Total comprehensive income
for the year/period		36,594		16,660	19,467		16,734	8,803

The accompanying notes form part of the Historical Financial Information.

- III-4-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

STATEMENTS OF FINANCIAL POSITION

(Expressed in Hong Kong dollars)

														As at
						As at 31 December				31 October
		2017	2018				2019		2020
	Note				HK$'000			HK$'000	HK$'000		HK$'000
Non-current assets
Property, plant and equipment	8	571	394				618		513
Intangible asset-service
concession arrangement	9	334,258	254,510				195,487		180,527
		334,829	254,904				196,105		181,040
Current assets
Trade and other receivables	10	1,387	2,605				3,956		1,317
Cash at bank and on hand	11	19,000	42,094				27,660		56,276
Amounts due from related parties	16(c)	14,064	15,107				49,886		51,531
		34,451	59,806				81,502		109,124
Current liabilities
Trade and other payables	12	9,708	9,183				15,364		15,851
Amounts due to related parties	16(c)	1,485	1,410				1,557		2,064
Bank loan	13	41,871	39,946				39,071		40,359
		53,064	50,539				55,992		58,274
Net current (liabilities)/assets				(18,613)					9,267			25,510	50,850
Total assets less current liabilities		316,216	264,171				221,615		231,890
Non-current liability
Bank loan	13	131,593	85,598				44,652		46,124
Net assets		184,623	178,573				176,963		185,766
Capital and reserves
Pain-in capital	14(a)	159,120	159,120				159,120		159,120
Reserves		25,503	19,453				17,843		26,646
		184,623	178,573				176,963		185,766

The accompanying notes form part of the Historical Financial Information.

- III-5-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

STATEMENTS OF CHANGES IN EQUITY

(Expressed in Hong Kong dollars)

						Paid-in	Statutory	Exchange	Retained
								capital			reserve	reserve		earnings		Total
	Note			HK$'000	HK$'000	HK$'000	HK$'000		HK$'000
																			(Note				(Note
		(Note 14(a))	14(b)(iii))	14(b)(i))
Balance at 1 January 2017		159,120			2,539					7,620				23,802	193,081
Changes in equity for 2017:
Profit for the year													-						-							-	23,798		23,798
Other comprehensive income
- Exchange differences													-						-	12,796							-	12,796
Profit and total comprehensive
income for the year													-						-	12,796			23,798		36,594
Appropriation to statutory
reserve													-	2,380							-	(2,380)						-
Dividend distribution	14(b)(ii)												-						-							-	(45,052)		(45,052)
Balance at 31 December 2017

and 1 January 2018		159,120			4,919					20,416				168	184,623
Changes in equity for 2018:
Profit for the year													-						-							-	25,233		25,233
Other comprehensive income
- Exchange differences													-						-	(8,573)						-	(8,573)
Profit and total comprehensive
income for the year													-						-	(8,573)		25,233		16,660
Appropriation to statutory
reserve													-	2,523							-	(2,523)						-
Dividend distribution	14(b)(ii)												-						-							-	(22,710)		(22,710)
Balance at 31 December 2018

and 1 January 2019						159,120					7,442			11,843			168	178,573

The accompanying notes form part of the Historical Financial Information.

- III-6-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

(Expressed in Hong Kong dollars)

						Paid-in		Statutory	Exchange	Retained
								capital			reserve	reserve		earnings			Total
	Note			HK$'000		HK$'000	HK$'000	HK$'000	HK$'000
																			(Note					(Note
		(Note 14(a))	14(b)(iii))		14(b)(i))
Balance at 31 December 2018
and 1 January 2019		159,120			7,442					11,843			168			178,573
Changes in equity for 2019:
Profit for the year												-								-							-	23,419				23,419
Other comprehensive income
- Exchange differences												-								-	(3,952)								-	(3,952)
Profit and total comprehensive
income for the year												-								-	(3,952)			23,419		19,467
Appropriation to statutory
reserve												-	2,342									-	(2,342)										-
Dividend distribution	14(b)(ii)											-								-							-	(21,077)				(21,077)
Balance at 31 December 2019

and 1 January 2020		159,120			9,784					7,891			168			176,963
Changes in equity for ten
months ended 31 October
2020:
Profit for the period												-								-							-	2,920				2,920
Other comprehensive income
- Exchange differences												-								-	5,883									-	5,883
Profit and total comprehensive
income for the period												-								-	5,883				2,920		8,803
Appropriation to statutory
reserve												-						292											-	(292)				-
Balance at 31 October 2020
	159,120			10,076					13,774			2,796			185,766
1 January 2019
	159,120			7,442					11,843			168			178,573
Changes in equity for ten
months ended 31 October
2019: (Unaudited)
Profit for the period												-								-							-	21,751				21,751
Other comprehensive income
- Exchange differences												-								-	(5,017)								-	(5,017)
Profit and total comprehensive
income for the period
(Unaudited)												-								-	(5,017)			21,751		16,734
Appropriation to statutory
reserve												-	2,175									-	(2,175)										-
Balance at 31 October 2019

(Unaudited)		159,120			9,617					6,826			19,744			195,307

The accompanying notes form part of the Historical Financial Information.

- III-7-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

CASH FLOW STATEMENTS

(Expressed in Hong Kong dollars)

																						Ten months ended
									Year ended 31 December								31 October
		2017		2018	2019		2019	2020
	Note					HK$'000			HK$'000					HK$'000		HK$'000		HK$'000
																					(unaudited)
Operating activities
Cash generated from operations	11(b)	103,909		108,634	107,489		83,933	31,030
PRC Profits Tax paid		(7,806)	(8,575)	(8,802)	(8,389)	(946)
Net cash generated from
operating activities		96,103		100,059	98,687		75,544	30,084
Investing activities
Payment for the purchase of
property, plant and equipment		(42)	(51)	(443)	(436)	(66)
Payment for intangible asset		(1,706)	(860)	(11,181)	(1,831)										-
Proceeds from sale of property,
plant and equipment									-	8	19		18							-
Advance to related parties		(1,193)	(3,283)	(40,069)	(56,310)										-
Net cash used in investing
activities		(2,941)	(4,186)	(51,674)	(58,559)	(66)
Financing activities
Dividend paid to equity holders
of the Target Company		(45,052)	(22,710)	(16,746)								-							-
Interest paid		(9,319)	(7,675)	(5,603)	(4,173)	(2,881)
Repayment of bank loan		(40,464)	(41,353)	(39,771)								-							-
Net cash used in financing
activities		(94,835)	(71,738)	(62,120)	(4,173)	(2,881)
Net (decrease)/increase in cash

and cash equivalents		(1,673)	24,135	(15,107)	12,812	27,137
Cash and cash equivalents at
the beginning of year/period		19,090		19,000	42,094		42,094	27,660
Effect of foreign exchange rate
changes		1,583	(1,041)	673		73	1,479
Cash and cash equivalents
at the end of year/period	11(a)	19,000		42,094	27,660		54,979	56,276

The accompanying notes form part of the Historical Financial Information.

- III-8-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

NOTES TO THE HISTORICAL FINANCIAL INFORMATION (Expressed in Hong Kong dollars unless otherwise indicated)

1 Basis of preparation and presentation of Historical Financial Information

Shenzhen Huayu Expressway Investment Company Limited (the ''Target Company'') was incorporated in the People's Republic of China (''PRC'') as a limited liability company on 18 January 2002 under the Company Law of the PRC. Its immediate holding company is Shenzhen Huayu Investment & Development (Group) Co., Ltd (''Shenzhen Huayu Investment & Development''), a limited liability company incorporated in the PRC and ultimately controlled by Mr Chan Yeung Nam, the chairman of the Company. Shenzhen Huayu Investment & Development holds 60% of the Target Company's equity interest and the remaining 40% equity interest is held by Shenzhen Expressway Company Limited (''Shenzhen Expressway''), a joint stock limited company incorporated in the PRC. All the English names of above companies are translations and for identification purposes only.

The Target Company is principally engaged in construction, operation and management of the First Phase of Qing Expressway (S209) (''清平一期''/the ''Expressway'') within Shenzhen city.

The Historical Financial Information has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (''HKFRSs'') which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (the ''HKICPA''). Further details of the significant accounting policies adopted are set out in note 2.

The HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing this Historical Financial Information, the Target Company has adopted all applicable new and revised HKFRSs to the Relevant Periods, except for any new standards or interpretations that are not yet effective for the accounting period beginning 1 January 2020. The revised and new accounting standards and interpretations issued but not yet effective for the accounting period beginning 1 January 2020 are set out in note 17.

The Historical Financial Information also complies with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ''Stock Exchange'').

- III-9-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

The accounting policies set out below have been applied consistently to all periods presented in the Historical Financial Information.

The Stub Period Corresponding Financial Information has been prepared in accordance with the same basis of preparation and presentation adopted in respect of the Historical Financial Information.

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

2 Significant accounting policies

Basis of measurement

The Historical Financial Information is presented in Hong Kong dollars (''HK$'') while the functional currency of the Target Company is Chinese Yuan (''CNY'').

The measurement basis used in the preparation of the Historical Financial Information is the historical cost basis.

Use of estimates and judgements

The preparation of the Historical Financial Information in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of HKFRSs that have significant effect on the Historical Financial Information and major sources of estimation uncertainty are discussed in note 3.

- III-10-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 2(e)(ii)).

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:

-	Other machinery and equipment	5	years
-	Motor vehicles	5	years

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

Intangible asset - service concession arrangement

The Target Company has entered into contractual service arrangement with local government authority for its participation in the construction, operation and management of the Expressway in the PRC. The Target Company carries out the construction of the Expressway for the granting authority and receives in exchange for the right to operate the Expressway concerned and the entitlement to toll fees collected from users of the concession infrastructure.

The Target Company recognises an intangible asset arising from the service concession arrangement when it has a right to charge for usage of the concession infrastructure. The concession grantor has not provided any contractual guarantee in respect of the amounts of construction costs incurred to be recoverable. Intangible asset received as consideration for providing construction work and project management services in a service concession arrangement are measured at fair value upon initial recognition. Subsequent to initial recognition the intangible asset is measured at cost less accumulated amortisation and impairment losses (see note 2(e)(ii)).

- III-11-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Land collection costs incurred in conjunction with the service concession arrangement are recognised as intangible asset acquired under the service concession arrangement.

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred.

Amortisation is calculated to write off the cost of the intangible asset arising from a service concession arrangement on a unit of usage basis over the estimated useful life, which is the period when it is available for use to the end of the concession period (''the operating period''). The operating period of the Expressway is 23 July 2005 to 8 February 2027 and the amortisation unit of usage for 2017 to 2019 is RMB 0.64 Yuan, which is calculated on the remaining cost of the intangible asset and the estimated traffic flow over the remaining operating period. As stated in note 3(a), the Target Company appointed an independent professional traffic consultant to reassess the traffic flow over the remaining operating period of the Expressway and the amortisation unit of usage has been adjusted from RMB 1.68 Yuan to RMB 0.64 Yuan since 1 January 2020.

Both the period and method of amortisation are reviewed annually.

Credit losses and impairment of assets
1. Credit losses from financial instruments

The Target Company recognises a loss allowance for expected credit losses (ECLs) on financial assets measured at amortised cost (i.e. trade and other receivables, amounts due from related parties and cash at bank and on hand).

Financial assets measured at fair value are not subject to the ECL assessment.

Measurement of ECLs

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

- III-12-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material:

fixed-ratefinancial assets and trade and other receivables: effective interest rate determined at initial recognition or an approximation thereof;
variable-ratefinancial assets: current effective interest rate;

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

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

ECLs are measured on either of the following bases:

12-monthECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and
lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.

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

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

- III-13-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Significant increases in credit risk

In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, the Target Company compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, the Target Company considers that a default event occurs when (i) the borrower is unlikely to pay its credit obligations to the Target Company in full, without recourse by the Target Company to actions such as realising security (if any is held); or (ii) the financial asset is 90 days past due. The Target Company considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

failure to make payments of principal or interest on their contractually due dates;
an actual or expected significant deterioration in a financial instrument's external or internal credit rating (if available);
an actual or expected significant deterioration in the operating results of the debtor; and
existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor's ability to meet its obligation to the Target Company.

Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are based on shared credit risk characteristics, such as past due status and credit risk ratings.

- III-14-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

ECLs are remeasured at each reporting date to reflect changes in the financial instrument's credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. The Target Company recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.

Basis of calculation of interest income

Interest income is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset.

At each reporting date, the Target Company assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable events:

significant financial difficulties of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; or
the disappearance of an active market for a security because of financial difficulties of the issuer.

- III-15-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Write-off policy

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Target Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.

Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in profit or loss in the period in which the recovery occurs.

Impairment of other assets

Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment, including right-of-use assets; and
intangible asset - service concession arrangement;

If any such indication exists, the asset's recoverable amount is estimated.

Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

- III-16-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash- generating units are allocated to reduce the carrying amount of the assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measurable) or value in use (if determinable).

Reversals of impairment losses

An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

A reversal of an impairment loss is limited to the asset's carrying amount that would have been determined had no impairment loss been recognised in prior periods. Reversals of impairment losses are credited to profit or loss in the period in which the reversals are recognised.

Trade and other receivables

A receivable is recognised when the Target Company has an unconditional right to receive consideration. A right to receive consideration is unconditional if only the passage of time is required before payment of that consideration is due.

Receivables are stated at amortised cost using the effective interest method less allowance for credit losses (see note 2(e)(i)).

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.

Trade and other payables

Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

- III-17-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Interest-bearingborrowings

Interest-bearing borrowings are measured initially at fair value less transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method. Interest expense is recognised in accordance with the Target Company's accounting policy for borrowing costs (see note 2(o)).

Employee benefits
1. Short term employee benefits and contributions to defined contribution retirement plans

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the period in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

Termination benefits

Termination benefits are recognised at the earlier of when the Target Company can no longer withdraw the offer of those benefits and when it recognises restructuring costs involving the payment of termination benefits.

Income tax

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

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous periods.

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

- III-18-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are not discounted.

Provisions and contingent liabilities

Provisions are recognised when the Target Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non- occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(m) Revenue and other income

Income is classified by the Target Company as revenue when it arises from the provision of services or the use by others of the Target Company's assets under leases in the ordinary course of the Target Company's business.

- III-19-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Revenue is recognised when control over a service is transferred to the customer, or the lessee has the right to use the asset, at the amount of promised consideration to which the Target Company is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

Further details of the Target Company's revenue and other income recognition policies are as follows:

Toll revenue

The Target Company's toll revenue is measured based on the consideration the Target Company expects to be entitled from the contract with the customer and excludes those amounts collected on behalf of third parties. The Target Company recognises toll revenue when the vehicles go through the Expressway and pass the toll stations, which means it transfers control over services to customers. Due to the implementation of unified toll collection policy on the Expressway, the settlement period of the toll revenue from toll road operation is normally within a month.

Rental income from operating leases

Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.

(iii) Interest income

Interest income is recognised as it accrues under the effective interest method. For financial assets measured at amortised cost that are not credit- impaired, the effective interest rate is applied to the gross carrying amount of the asset.

- III-20-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Translation of financial statements to the presentation currency

The results and financial positions of the Target Company's operation are translated into Hong Kong dollars at the exchange rates as follows:

- Assets and liabilities for each statement of financial position presented (ie including comparatives) are translated at the closing rate at the date of that statement of financial position;
- Income and expenses for each statement of profit or loss and other comprehensive income (including comparatives) are translated at exchange rates approximately at the dates of the transactions;
- All resulting exchange differences are recognised in other comprehensive income.
Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or

production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

Dividend distribution

Dividend distribution to the Target Company's equityholders is recognised as a liability in the Target Company's historical financial information in the period in which the dividends are approved by the Target Company's shareholders when appropriate.

- III-21-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Related parties
1. A person, or a close member of that person's family, is related to the Target Company if that person:
2. 1. has control or joint control over the Target Company;
  2. has significant influence over the Target Company; or
  3. is a member of the key management personnel of the Target Company or the Target Company's parent.
3. An entity is related to the Target Company if any of the following conditions applies:
4. 1. The entity and the Target Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
  2. One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
  3. Both entities are joint ventures of the same third party.
  4. One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
  5. The entity is a post-employment benefit plan for the benefit of employees of either the Target Company or an entity related to the Target Company.
  6. The entity is controlled or jointly controlled by a person identified in
    (a).
  7. A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
  8. The entity, or any member of a group of which it is a part, provides key management personnel services to the Target Company or to the Target Company's parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

- III-22-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Segment reporting

Operating segments, and the amounts of each segment item reported in the Historical Financial Information, are identified from the financial information provided regularly to the Target Company's most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Target Company's various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

The Target Company operates in a single business segment, the construction, operation and management of an expressway in the PRC. Accordingly, no segmental analysis is presented.

3 Accounting judgement and estimates

Amortisation of intangible asset - service concession arrangement

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in condition and assumptions are factors to be considered when reviewing the Historical Financial Information. The principal accounting policies are set forth in note 2. The Target Company believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the Historical Financial Information.

The Target Company applied HK (IFRIC) Interpretation 12 and recognised intangible asset - service concession arrangement and provides amortisation thereon.

Amortisation of intangible asset - service concession arrangement is provided on unit of usage over the concession period. Material adjustments may need to be made to the carrying amounts of intangible asset - service concession arrangement should there be a material difference between total projected traffic volume and the actual results.

- III-23-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

The directors perform a periodic assessment of the total projected traffic volume and prospectively adjust the amortisation unit according to revised projected traffic volume.

In December 2020, the Target Company appointed an independent professional traffic consultant to reassess the future traffic volume of the Expressway. The Target Company has adjusted the amortisation unit for the related concession intangible assets according to the revised total projected traffic volume since 1 January 2020 on a prospective basis. Due to such change in accounting estimate, the amortisation charges to current and future cost of sales has changed as below:

	Ten months
	ended	Year ending	Year ending	2022 and the
	31 October	31 December	31 December	years after
	2020		2020	2021	2022
	HK$'000	HK$'000	HK$'000	HK$'000
(Decrease)/increase of
amortisation	(28,295)	(34,611)	(36,528)	71,139

Impairment

If circumstances indicate that the carrying amount of property, plant and equipment and intangible asset may not be recoverable, these assets may be considered ''impaired'' and an impairment loss may be recognised in profit or loss. The carrying amounts of these assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount.

The recoverable amount is the greater of the fair value less costs to sell and the value in use. In determining the value in use, the expected cash flows generated by the asset are discounted to their present value, which requires significant judgement relating to the level of future toll revenue and the amount of operating costs. The Target Company uses all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of toll revenue, the amount of operating costs and discount rate.

- III-24-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

4 Revenue

The principal activities of the Target Company are construction, operation and

management of the Expressway in the PRC.

Disaggregation of revenue from contracts with customers by each significant category

is as follows:

					Ten months ended
	Year ended 31 December		31 October
	2017	2018	2019	2019	2020
					(unaudited)
	HK$'000	HK$'000	HK$'000		HK$'000	HK$'000
Revenue from contracts with
customers within the scope of
HKFRS 15
Disaggregated by major services
- Toll income	132,586	141,716	137,168	111,859	56,220

Expressway management income

and others	4,492		1,736		11,181		1,831		-
	137,078		143,452	148,349	113,690	56,220

							Ten months ended
	Year ended 31 December		31 October
	2017		2018	2019	2019	2020
							(unaudited)
	HK$'000	HK$'000		HK$'000		HK$'000		HK$'000
Disaggregated by time of revenue
recognition
- Point in time	132,586		141,716	137,168	111,859	56,220
- Over time	4,492		1,736		11,181		1,831		-
	137,078		143,452	148,349	113,690	56,220

The Target Company's customer base is diversified and no customer with whom

transactions have exceeded 10% of the Target Company's revenue.

Since the Target Company's revenue, expenses, results, assets and liabilities and

capital expenditures are predominantly attributable to a single geographical region, which is

the PRC. Therefore, no analysis by geographical regions is presented.

- III-25-

APPENDIX III	ACCOUNTANTS' REPORT ON THE TARGET COMPANY
5 Other revenue and net income
									Ten months ended
			Year ended 31 December	31 October
			2017		2018		2019		2019		2020
			HK$'000	HK$'000	HK$'000	HK$'000 HK$'000
									(unaudited)
Other revenue
Billboard rental income	1,254		1,684		1,175		1,165			1,173
Interest income			436	532	382	237		194
			1,690		2,216		1,557		1,402		1,367
Other net income
Loss on disposal of non-current asset	-	(8)	(4)	(4)		-
Others			457		308		668		403		400
			457		300		664		399		400

6 Profit before taxation

Profit before taxation is arrived at after charging:

Finance costs:

							Ten months ended
	Year ended 31 December		31 October
	2017	2018	2019	2019	2020
	HK$'000	HK$'000		HK$'000		HK$'000		HK$'000
							(unaudited)
Interest expense	9,319		7,675	5,603	4,628	3,194

There is no borrowing costs capitalised for the years ended 31 December 2017,

2018 and 2019 and ten months ended 31 October 2019 and 2020.

- III-26-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

(b) Staff costs:
							Ten months ended
	Year ended 31 December		31 October
	2017		2018	2019	2019	2020
	HK$'000	HK$'000		HK$'000		HK$'000		HK$'000
							(unaudited)
Salaries, wages and other
benefits	18,288		20,423	20,288	14,921	14,875
Contributions to defined
contribution retirement plan	2,154		2,340		2,658		2,057		1,381
	20,442		22,763	22,946	16,978	16,256

Pursuant to the relevant labour rules and regulations in the PRC, the Target Company participates in a defined contribution retirement benefit scheme (the ''Scheme'') organised by the local authority whereby the Target Company is required to make contributions to the Scheme at a fixed rate announced annually by the municipal government. The municipal government is responsible for the entire pension obligations payable to the retired employees.

Pursuant to Notice of Ministry of Human Resources and Social Security, the Ministry of Finance and the State Taxation Administration on Temporarily Exempting or Lowering Social Insurance Payments of Enterprises（《人力資源社會保障部、財政部和國家稅務總局關於階段性減免企業社會保險費的通知》）, the government has decided to temporarily exempt or lower enterprises' pension, unemployment and work-related injury compensation insurance payments to mitigate the impact of COVID-19 on enterprises. As a result, during the year ended 31 October 2020, the Target company is exempted from certain social insurance payments due to the outbreak of COVID-19.

The Target Company has no other material obligation for the payment of pension benefits associated with the schemes beyond the annual contributions described above.

- III-27-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

(c) Other items:
							Ten months ended
	Year ended 31 December		31 October
	2017	2018	2019	2019	2020
	HK$'000	HK$'000		HK$'000		HK$'000		HK$'000
							(unaudited)
Auditors' remuneration	35	35	45	45	45
Depreciation	211	200	187	140	190
Amortisation	62,455		67,508	65,586	53,440	21,065

7 Income tax in the statement of profit or loss and other comprehensive income

Taxation in the statement of profit or loss and other comprehensive income represents:

							Ten months ended
	Year ended 31 December		31 October
	2017	2018	2019	2019	2020
	HK$'000	HK$'000		HK$'000		HK$'000		HK$'000
							(unaudited)
Current tax - PRC corporate
income tax
Provision for the year/period	7,951		8,430	7,830	7,250	973

Reconciliation between income tax and accounting profit at applicable tax rates:

										Ten months ended
				Year ended 31 December	31 October
				2017		2018		2019		2019	2020
				HK$'000	HK$'000	HK$'000	HK$'000		HK$'000
										(unaudited)
Profit before taxation		31,749		33,663		31,249		29,001	3,893
Notional tax on profit before
taxation,	calculated at	PRC
corporate	income tax	rate
of	25%			7,937		8,415		7,812		7,250	973
Tax effect of non-deductible
expenses and non-taxable
income and tax concession	14		15		18	-		-

Income tax			7,951		8,430	7,830	7,250	973

- III-28-

APPENDIX III	ACCOUNTANTS' REPORT ON THE TARGET COMPANY
8	Property, plant and equipment
																Other
															machinery
						Motor								and
					vehicles						equipment						Total
				HK$'000							HK$'000					HK$'000
	Cost:
	At 1 January 2017	1,641		654		2,295
	Additions							-	42	42
	Exchange adjustments	114		48		162
	At 31 December 2017			1,755		744	2,499

	Additions							-	51	51
	Disposals		(160)									-	(160)
	Exchange adjustments	(75)	(36)	(111)
	At 31 December 2018	1,520		759		2,279

	Additions			434		9	443
	Disposals		(371)									-	(371)
	Exchange adjustments	(34)	(17)	(51)
	At 31 December 2019			1,549		751	2,300

	Additions							-	66	66
	Exchange adjustments	52		26		78
	At 31 October 2020	1,601		843		2,444
	Accumulated depreciation:
	At 1 January 2017	993		605		1,598
	Charge for the year	196		15		211
	Exchange adjustments	76		43		119
	At 31 December 2017	1,265		663		1,928

- III-29-

APPENDIX III	ACCOUNTANTS' REPORT ON THE TARGET COMPANY
													Other
												machinery
					Motor						and
				vehicles					equipment					Total
			HK$'000						HK$'000				HK$'000
Charge for the year	177		23		200
Written back on disposals	(153)								-	(153)
Exchange adjustments	(59)	(31)	(90)
At 31 December 2018			1,230		655		1,885

Charge for the year				157		30		187
Written back on disposals	(351)								-	(351)
Exchange adjustments	(24)	(15)	(39)
At 31 December 2019			1,012		670		1,682

Charge for the period				160		30		190
Exchange adjustments	36		23		59
At 31 October 2020	1,208		723		1,931
Net book value:
At 31 December 2017	490		81		571
At 31 December 2018	290		104		394
At 31 December 2019	537		81		618
At 31 October 2020	393		120		513

- III-30-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

9	Intangible asset - service concession arrangement
																As at
								As at 31 December						31 October
		2017	2018		2019		2020
					HK$'000					HK$'000		HK$'000			HK$'000
	Cost:
	At 1 January	714,974	766,881		732,454		727,394
	Addition	1,706	860		11,181						-
	Exchange adjustments	50,201		(35,287)	(16,241)	23,986
	At the end of year/period						766,881		732,454		727,394		751,380

Accumulated amortisation:
At 1 January	343,879	432,623		477,944		531,907
Charge for the year/period	62,455	67,508		65,586		21,065
Exchange adjustments	26,289		(22,187)	(11,623)	17,881
At the end of year/period	432,623		477,944		531,907		570,853

Net book value:

At the end of year/period	334,258	254,510	195,487	180,527

The service concession arrangement represents the Target Company's rights to operate the Expressway and receive toll fees therefrom.

In accordance with the accounting policy set out in note 2(d), the amortisation of intangible asset - service concession arrangement is recognised in profit or loss on a unit of usage basis over the estimated useful life, which is the period when it is available for use to the end of the concession period.

- III-31-

APPENDIX III	ACCOUNTANTS' REPORT ON THE TARGET COMPANY
10 Trade and other receivables
								As at
		As at 31 December		31 October
	2017	2018	2019	2020
		HK$'000	HK$'000	HK$'000	HK$'000
Trade receivables	890	2,189	3,189		789
Prepayments	348	257		370		300
Other receivables		149	159		397		228

		1,387	2,605		3,956	1,317

As at 31 December 2017, 2018 and 2019 and 31 October 2020, trade receivables are due within one month based on the invoice dates.

As at 31 December 2017, 2018 and 2019 and 31 October 2020, trade and other receivables are expected to be recovered within 90 days.

11 Cash and cash equivalents

Cash and cash equivalents comprise:

							As at
	As at 31 December			31 October
	2017	2018		2019	2020
	HK$'000		HK$'000	HK$'000	HK$'000
Cash at bank and
on hand	19,000	42,094			27,660	56,276

- III-32-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

Reconciliation of profit before taxation to cash generated from operating activities:

													Ten months ended
				Year ended 31 December				31 October
		2017	2018			2019				2019	2020
	Note		HK$'000	HK$'000	HK$'000		HK$'000	HK$'000
													(unaudited)
Profit before income tax		31,749	33,663			31,249				29,001	3,893
Adjustments for:
Depreciation	6(c)	211	200			187				140	190
Amortisation	6(c)	62,455	67,508			65,586				53,440	21,065
Finance costs	6(a)	9,319	7,675			5,603				4,628	3,194
Interest income	5	(436)	(532)			(382)			(237)	(194)
Changes in working capital:
(Increase)/decrease in amounts
due from related parties		(222)	1,533			-					-	-
Increase/(decrease) in amounts
due to related parties		1,015	(7)			181				711	448
Decrease/(increase) in trade
and other receivables		356		(1,327)			(1,432)			(83)	2,725
(Decrease)/increase in trade
and other payables		(538)	(79)			6,497				(3,667)	(291)
Cash generated from
operations		103,909		108,634			107,489				83,933	31,030
12 Trade and other payables

															As at
			As at 31 December						31 October

		2017				2018				2019				2020
	HK$'000	HK$'000	HK$'000				HK$'000
Trade payables		2,203				2,213				9,491				9,998
Tax payables		2,416				2,078				1,361				1,264
Salaries payable		4,285				4,113				3,946				2,353
Other payables		804				779				566				2,236

		9,708				9,183				15,364				15,851

All of the trade and other payables are expected to be settled or recognised as income within one year.

- III-33-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

As at 31 December 2017, 2018 and 2019 and 31 October 2020, the ageing analysis of trade payables, based on the invoice dates, is as follows:

								As at
	As at 31 December			31 October
	2017	2018		2019	2020
	HK$'000		HK$'000	HK$'000	HK$'000
Within 1 month	1,128	1,340			8,418		730
1 to 3 months	162	153		85	3,798
Over 3 months but within 6
months	913	720		988	1,420
Over 6 months but within
12 months	-		-	-	4,050

	2,203		2,213		9,491	9,998

13 Bank loan
								As at
	As at 31 December			31 October
	2017	2018		2019	2020
	HK$'000		HK$'000	HK$'000	HK$'000
Current liability
Current portion of long-term
secured bank loan	41,871	39,946			39,071		40,359
Non-current liability
Long-term secured
bank loan	131,593		85,598			44,652		46,124
	173,464	125,544			83,723		86,483

- III-34-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

At 31 December 2017, 2018 and 2019 and 31 October 2020, the bank loan was repayable as follows:

								As at
	As at 31 December			31 October
	2017	2018		2019	2020
	HK$'000		HK$'000	HK$'000	HK$'000
Within 1 year or on demand	41,871	39,946			39,071		40,359
After 1 year but within
2 years	41,871	39,946			44,652		46,124
After 2 years but within
5 years	89,722		45,652			-	-
	173,464		125,544			83,723		86,483

At 31 December 2017, 2018 and 2019 and 31 October 2020, there is no unutilised banking facility amount.

The Target Company's rights to operate the Expressway and receive toll fees therefrom, have been pledged to secure the long-term bank loan.

The bank loan of the Target Company is subject to certain financial covenants. The Target Company regularly monitors its compliance with these covenants, and adherence to the timetable of the scheduled repayments of the term loan and does not consider it probable that the bank will exercise its discretion to demand repayment so long as the Target Company continues to meet these requirements. Further details of the Target Company's management of liquidity risk are set out in note 15(b). As at 31 December 2017, 2018 and 2019 and 31 October 2020, none of the covenants relating to drawn down facility had been breached.

- III-35-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

14 Capital, reserves and dividends

Paid-incapital

	As at 31 December 2017, 2018 and
	2019 and 31 October 2020
	Amount in		Amount in HKD
	original currency		equivalent
	CNY'000		HK$'000
Paid-in capital	150,000	159,120

Capital contributions in Renminbi have been translated into Hong Kong dollar at the exchange rates prevailing at the date of each contribution received as quoted by the People's Bank of China.

Nature and purpose of reserves
1. Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the Historical Financial Information from the functional currency into the presentation currency. The reserve is dealt with in accordance with the accounting policies set out in note 2(n).

Dividend distribution

During the years ended 31 December 2017, 2018 and 2019, the Target Company declared dividend of RMB38,968,000, RMB19,221,000 and RMB18,548,000 respectively (equivalent to HK$45,052,000, HK$22,710,000 and HK$21,077,000 respectively) to its shareholders.

No dividend was declared by the Target Company during the ten months ended 31 October 2019 and 2020.

(iii) Statutory reserve

As stipulated by regulations in the PRC, the Target Company is required to appropriate 10% of its after-tax-profit (after offsetting prior year losses) as determined in accordance with the China Accounting Standard and regulations, to the statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before distribution of profits to shareholders.

- III-36-

APPENDIX III ACCOUNTANTS' REPORT ON THE TARGET COMPANY

The statutory reserve can be utilised, upon approval by the relevant authorities, to offset accumulated losses or to increase capital of the Target Company, provided that the balance after such issue is not less than 25% of its registered capital.

Capital management

The Target Company's primary objectives when managing capital are to safeguard the Target Company's ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders in the long run, by pricing services commensurately with the level of risk and by securing access to financing at a reasonable cost.

The Target Company actively and regularly reviews and manages its capital structure to maintain a balance between shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

15 Financial risk management

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Target Company's business. The Target Company's exposure to these risks and financial risk management policies and practices used by the Target Company to manage these risks are described below.

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Target Company. The Target Company's credit risk is primarily attributable to prepayments and other receivables, amounts due from related parties and cash at bank and on hand. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.

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

As a result of the business nature of the Target Company, the Target Company has no significant concentration of credit risk arising from its customers.

- III-37-

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Huayu Expressway Group Limited published this content on 29 April 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 April 2021 13:07:16 UTC.

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Huayu Expressway Group Limited Announces Changes to Its Board	23-04-03	CI
Huayu Expressway Group Limited Reports Earnings Results for the Full Year Ended December 31, 2022	23-03-30	CI
Huayu Expressway Group Limited Announces Special Interim Dividend for the Financial Year Ending 31 December 2023, Payable on May 18, 2023	23-03-02	CI
Huayu Expressway to Vote Feb. 14 on Disposal of Stake in Construction Firm	23-01-20	MT
Huayu Expressway Divests 60% Stake in Expressway Construction Company	22-12-09	MT
NWS Holdings Unit to Acquire Remaining 60% Stake in Expressway Operator for 556 Million Yuan	22-12-01	MT
Huayu Expressway's H1 Profit Falls	22-09-08	MT
Huayu Expressway Group Limited Reports Earnings Results for the Half Year Ended June 30, 2022	22-08-26	CI
Huayu Expressway Expects H1 Profit to Halve on COVID Hit	22-07-22	MT
Huayu Expressway Warns of 'Substantial' Decline in H1 Profit	22-07-14	MT
Huayu Expressway Group Limited Provides Group Earnings Guidance for the Six Months Ended 30 June 2022	22-07-13	CI
Huayu Expressway Group Limited Announces Executive Changes	22-04-01	CI
Huayu Expressway Group Limited Announces Executive Changes	22-04-01	CI
Huayu Expressway Group Limited Reports Earnings Results for the Full Year Ended December 31, 2021	22-03-25	CI
Huayu Expressway to Grant 40 Million Share Options to Certain Employees, Directors; Shares Slump 8%	21-12-30	MT
Huayu Expressway Group Limited Reports Earnings Results for the Half Year Ended June 30, 2021	21-08-20	CI
Huayu Expressway : Unit Sells Stake in Chinese Subsidiary to Guizhou Renhuai	21-07-07	MT
Huayu Expressway : Closes Nearly $20 Million Acquisition of 60% Stake in Freeway Operator; Shares Fall 5%	21-06-30	MT
Huayu Expressway Group Limited Announces Special Interim Dividend, Payable on or About 9 July 2021	21-05-31	CI

	1st Jan change	Capi.
HUAYU EXPRESSWAY GROUP LIMITED	-15.45%	43.75M
ENDEAVOUR GROUP LIMITED	+2.30%	6.3B
VATS LIQUOR CHAIN STORE MANAGEMENTCO., LTD.	-10.17%	945M
THE KEEPERS HOLDINGS, INC.	-0.68%	369M
YAMAYA CORPORATION	+0.33%	213M
TONGHUA GRAPE WINE CO.,LTD	-29.65%	154M
KAKUYASU GROUP CO., LTD.	+20.86%	130M
CEYLON BEVERAGE HOLDINGS PLC	+16.54%	110M
PT JOBUBU JARUM MINAHASA TBK	-9.21%	68.11M
PT HATTEN BALI TBK	-26.67%	51.49M

Huayu Expressway Group Limited

Equities

1823

KYG464101099

Food Retail & Distribution

Huayu Expressway : (1) MAJOR ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF 60% EQUITY INTERESTS IN THE TARGET COMPANY AND (2) DISCLOSEABLE TRANSACTION AND CONNECTED TRANSACTION IN RELATION TO THE LOAN TO VENDOR

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Sector Beer, Wine & Liquor Stores