CONTENT

Corporate Information

2

Management Discussion and Analysis

4

Corporate Governance and Other Information

14

Independent Review Report

18

Statement of Profit or Loss and Other Comprehensive Income

19

Statement of Financial Position

20

Statement of Changes in Equity

21

Cash Flow Statement

22

Notes to the Unaudited Interim Financial Report

23

Definitions

61

2 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

CORPORATE INFORMATION

BOARD OF DIRECTORS

Executive Directors

Mr. Lin Fan (Chairman)

Mr. Shao Yongjun

Non-executive Directors

Mr. Koh Tee Choong

Mr. Li Guozhou

Independent Non-executive Directors

Mr. Wong Man Chung Francis (appointed on 24 February 2020)

Ms. Liang Yanjun

Mr. Lin Zheying (resigned on 30 June 2020)

RISK MANAGEMENT COMMITTEE

Mr. Lin Fan (Chairman) Mr. Shao Yongjun

Mr. Wong Man Chung Francis (appointed on 24 February 2020)

Ms. Liang Yanjun (resigned on 24 February 2020)

JOINT COMPANY SECRETARIES

Ms. Yao Wen

Mr. Chan Pak Hung

AUTHORISED REPRESENTATIVES

Mr. Shao Yongjun

Ms. Yao Wen

BOARD OF SUPERVISORS

Mr. Li Huihua (Chairman)

Mr. Li Tao

Ms. Wang Qing

AUDIT COMMITTEE

Mr. Wong Man Chung Francis (Chairman) (appointed on 24 February 2020)

Ms. Liang Yanjun

Mr. Lin Zheying (resigned on 30 June 2020)

REMUNERATION AND EVALUATION COMMITTEE

Mr. Wong Man Chung Francis (Chairman) (appointed on 24 February 2020)

Mr. Koh Tee Choong

Ms. Liang Yanjun (resigned on 24 February 2020 and appointed on 30 June 2020)

Mr. Lin Zheying (resigned on 30 June 2020)

NOMINATION COMMITTEE

Ms. Liang Yanjun (Chairlady) Mr. Koh Tee Choong

Mr. Wong Man Chung Francis (appointed on 30 June 2020)

Mr. Lin Zheying (resigned on 30 June 2020)

AUDITORS

KPMG

Certified Public Accountants 8th Floor, Prince's Building 10 Chater Road

Central, Hong Kong

LEGAL ADVISORS

YTL LLP (as to Hong Kong laws)

Suites 2606-08, China Resources Building 26 Harbour Road

Wanchai, Hong Kong

Hubei Ruoyan Law Firm (as to PRC laws)

17th Floor, Block B, Chutian Metropolis Garden No. 1 Zhongbei Road

Wuchang District, Wuhan Hubei, China

COMPLIANCE ADVISOR

Altus Capital Limited

21 Wing Wo Street

Central

Hong Kong

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

3

INTERIM REPORT 2020

CORPORATE INFORMATION

H SHARE REGISTRAR

Computershare Hong Kong Investor Services Limited

17M Floor, Hopewell Centre

183 Queen's Road East

Wanchai, Hong Kong

WEBSITE

www.dongzhengafc.com

STOCK CODE

2718

REGISTERED ADDRESS AND

ADDRESS OF THE HEAD OFFICE IN

THE PRC

Unit ABC, 30/F., Mirae Asset Tower

No. 166, Lu Jia Zui Ring Road

Shanghai, PRC

PRINCIPAL PLACE OF BUSINESS

IN HONG KONG

Unit 5905, 59/F

The Center

99 Queen's Road Central

Hong Kong

4 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS REVIEW

The Company is an automotive finance company licensed and regulated by the CBIRC focusing on the luxury vehicle market. The Company's principal business comprises (i) retail loan business, where the Company provides retail loans, direct leasing products and other financial services to the end customers, major customers and corporate clients who wish to purchase vehicles; and (ii) dealer loan business, where the Company provides dealers with inventory financing to facilitate the procurement and sale of vehicles to end customers.

In the first half of 2020, the outbreak of the COVID-19 pandemic and subsequent national lockdown in China brought changes and challenges to all sectors with the automobile industry being stagnant for a period of time. Due to the consumption promotion policies launched since the easing of the COVID-19 pandemic in the second quarter of 2020, the passenger vehicles market has gradually recovered. According to the China Association of Automobile Manufacturers, in the first half of 2020, the production and sales volume of passenger vehicles in China amounted to 7.75 million and 7.87 million units, representing a year-on-year decrease of 22.3% and 22.3%, respectively.

As for the auto finance industry, automotive finance companies, as licensed institutions, are subject to the strict regulation of the CBIRC. As at 30 June 2020, there are 25 (31 December 2019: 25) licensed automotive finance companies in China, all of which are in competition with commercial banks, financial leasing companies and internet finance companies. Automotive finance companies, being in close relationship with automobile manufacturers and dealers, deliver enhanced product offerings and better service to customers. In addition to self-operated products through conventional financing channels such as inter-bank lending and banking facilities leveraging on our advantages as a licensed institution, the Company actively cooperated with major banks to launch joint loan products as a complement to its self-operated products, so as to facilitate the Company's asset allocation based on market conditions and maintain steady growth in asset scale.

Due to the outbreak of the COVID-19 pandemic, consumer's consumption demand for passenger vehicle purchase has substantively lowered and new loans disbursed by the Company has decreased in the first half of 2020 comparing with the corresponding period of 2019. The Company's loan portfolio decreased by 18.5% to RMB8.15 billion as at 30 June 2020 from RMB10.00 billion as at 31 December 2019. For the six months ended 30 June 2020, the Company's net interest income amounted to RMB289 million, representing an increase of 30.1% as compared to the same period of 2019. The Company's operating income amounted to RMB338 million, representing a decrease of 12.5% as compared to the same period last year. The Company recorded a net profit of RMB143 million in the first half of 2020, representing a decrease of 29.3% as compared to the net profit of RMB202 million for the same period of 2019. Notwithstanding the increase in net interest income, the decrease in profit is mainly attributable to (i) the increase in the Company's allowances for impairment losses relating to its loans and advances to customers and finance lease receivables due to the negative impact of the pandemic on repayment capabilities of some of its customers; and (ii) the reduction in fee and commission income as a result of the adjustment made by the Company in its arrangements for collecting service fees from customers since 2019.

During the period, the Company operated and optimised its dealer network, including 4S dealership channels under ZhengTong and external dealer network. The Company extended its business network to more than 900 partnership- based dealers in more than 180 cities in China. Furthermore, by focusing on sales to middle and high-end brands, these sales channels keep abreast with customers base of consumption upgrade demographic. The strengths of the sales network and reasonably established market presence enable the Company to introduce good user experience and services to the consumers.

As at

As at

30 June

31 December

2020

2019

Number of sales networks

923

913

Including: ZhengTong dealers

118

118

External dealers

805

795

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

5

INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

During the period, total amount of loans disbursed by the Company was RMB3.785 billion, representing a decrease of 48.7% as compared to that of the same period of 2019. In terms of retail loans, the Company disbursed a total of 1,686 retail loans throughout the first half of 2020, representing a decrease of 89.7% as compared to that of the same period of 2019. Among them, 1,496 were disbursed to ZhengTong clients and 190 were disbursed to external clients. The decrease was mainly due to the pandemic which has substantively lowered consumer's consumption demand for passenger vehicle purchase as well as the Company being more cautious in granting new loans.

The Company's net fee and commission income mainly consists of non-interest income received by the Company for referral of retail customers to commercial banks or other financial institutions and provision of loan-related services. The Company's net fee and commission income for the six months ended 30 June 2020 amounted to approximately RMB40 million, representing a decrease of 69% as compared to that of RMB128 million for the same period of 2019. This was mainly due to the lower income from consultancy services as a result of the adjustment made by the Company in its arrangements for collecting service fees from customers in response to changes in the market operating environment.

In terms of dealer loan business, as at 30 June 2020, the loan balance of RMB2.62 billion remained stable as compared to that at the end of 2019. For the six months ended 30 June 2020, the Company's average yield of dealer loan was 10.02% (for the six months ended 30 June 2019: 8.79%).

As at/For the six months

ended 30 June

2020

2019

Amount of loans disbursed (RMB million)

3,785

7,377

Number of self-operated retail loan disbursed

1,686

16,436

Including:

Standard self-operated loans

1,516

12,266

Joint loans

170

4,170

Including:

ZhengTong customers

1,496

11,227

External customers

190

5,209

Gross outstanding loan balance (RMB million) (before adjustment)

8,313

10,311

Including:

Retail loan

5,690

8,368

Dealer loan

2,623

1,943

6 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

For the purposes of risk management, in the first half of 2020, the Company has established risk control policies and management system targeted to different business scenarios, achieving comprehensive risk identification and control in respect of various business scenarios. By revising the criteria of customers and dealers admission with a focus on credit risk prevention and operation risk management, the Company continuously strengthened the application of big data tools for risk control to the operation and management of credit approval, disbursement review and post-loan collection. In addition, by incorporating the big data tools into staff training and assessment mechanism, the Company consolidated comprehensive risk management, operation management and other related systems and procedures. In the second half of the year, the Company will upgrade and optimise the automated approval tool, so as to ensure continuous monitoring and control on the capability of identifying risks from customers and provide a strong guarantee for the Company's loan business.

In terms of loan quality, the Company's balance of non-performing loans as of 30 June 2020 was RMB34 million, representing a decrease of 25.6% as compared to that of RMB45 million at the end of 2019. As of 30 June 2020, the Company's non-performing loan ratio was 0.41%, the loan provision rate was 2.19%, and the provision coverage ratio was 538.28%. The Company shall proactively monitor the status of customers and implement additional measures to enhance debt collection.

As at

As at

30 June

31 December

2020

2019

Non-performing loan (NPL) ratio (60+)

0.41%

0.44%

Loan provision rate

2.19%

1.89%

Provision coverage ratio

538.28%

423.97%

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

7

INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

FINANCIAL REVIEW

Net Interest Income

The Company's net interest income increased by 30.1% from approximately RMB222 million for the six months ended 30 June 2019 to approximately RMB289 million for the six months ended 30 June 2020.

Set out below are the comparative figures for the six months ended 30 June 2020 and 2019.

For the six months

ended 30 June

2020

2019

RMB'000

RMB'000

Interest income

Loans and advances to customers

439,960

453,222

Deposits with central bank and other banks

1,454

7,981

Finance lease receivables

1,937

4,184

443,351

465,387

Interest expenses

Placements from banks

(154,565)

(243,256)

Deposits from shareholders

-

(133)

(154,565)

(243,389)

Net interest income

288,786

221,998

8 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

1. Interest income: For the six months ended 30 June 2020, the Company recorded an interest income of approximately RMB443 million, representing a decrease of 4.7% as compared to approximately RMB465 million in the same period of 2019. The decrease in interest income was mainly due to reduction of loan portfolio by RMB1.85 billion. During the period, the average yield of retail loans was 9.52%, which remained stable as compared to the same period of 2019, while the average yield of dealer loans increased to 10.02% from 8.79% in the same period of 2019.

For the six months

ended 30 June

2020

2019

%

%

Net interest margin

6.03

4.16

Average yield of loans and advances to customers

9.66

9.68

Including:

average yield of retail loans

9.52

9.81

average yield of dealer loans

10.02

8.79

2. Interest expenses: Interest expenses of the Company decreased from RMB243 million for the six months ended 30 June 2019 to approximately RMB155 million for the six months ended 30 June 2020, mainly due to the decrease in borrowings resulting from the reduction in loan portfolio. As of 30 June 2020, the Company's outstanding balance of placements from banks was RMB4.06 billion (as at 30 June 2019: RMB7.52 billion), with average cost of interest-bearing liabilities of 6.10% (for the six months ended 30 June 2019: 6.76%).

For the six months

ended 30 June

2020

2019

%

%

Average cost of interest-bearing liabilities

6.10

6.76

Average cost of additional new interest-bearing liabilities

6.31

6.23

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

9

INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Non-interest Income

For the six months ended 30 June 2020, the Company received non-interest income of approximately RMB50 million, representing a decrease of 70.0% as compared to that of RMB165 million for the same period of 2019.

1. Net fee and commission income: Net fee and commission income of the Company for the six months ended 30 June 2020 was RMB40 million. Set forth below is a detailed breakdown:

For the six months

ended 30 June

2020

2019

RMB'000

RMB'000

Fee and commission income

Consulting services

5,993

90,962

Joint loan services

28,303

33,772

Others

5,907

4,191

Sub-total

40,203

128,925

Fee and commission expenses

Commission fees

-

(221)

Others

(477)

(470)

Sub-total

(477)

(691)

Net fee and commission income

39,726

128,234

The Company's net fee and commission income in the first half of 2020 decreased by 69% as compared to that in 2019. This was mainly due to the decrease in income from consultancy services as a result of the adjustment made by the Company in its arrangements for collecting service fees from customers in response to the changes in the market operating environment, including the limitation and restriction imposed on the fee income for auto finance services.

2. Other net income: The Company's other net income amounted to approximately RMB10 million (for the six months

ended 30 June 2019: RMB36 million), which comprised mainly of government grants of RMB12 million for the financial sector received from the People's Government of Pudong New District and foreign exchange losses of approximately RMB3 million.

Operating Expenses

For the six months ended 30 June 2020, the Company's operating expenses amounted to RMB55 million, representing a decrease of RMB14 million as compared to RMB69 million for the same period of 2019, which was mainly due to absence of one-off listing expenses during the reporting period and decrease in labour cost and other operating expenses as a result of the Company's cost control measures.

10 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Impairment Loss

The Company has adopted the HKFRS 9 Expected Credit Loss Model to categorise the risk assets of the Company into three stages. For the six months ended 30 June 2020, total impairment loss amounted to RMB91 million (for the six months ended 30 June 2019: RMB48 million), representing an increase of 92% as compared to the same period in 2019. The increase in impairment loss is mainly due to the outbreak of the COVID-19 pandemic in early 2020 and subsequent nationwide lockdown which resulted in a negative impact on repayment capabilities of some of its customers. For details, please refer to the table set out below:

For the six months

ended 30 June

20202019

RMB'000 RMB'000

Loans and advances to customers

88,461

50,525

Finance lease receivables

2,849

(2,979)

Total

91,310

47,546

Net Profit

For the six months ended 30 June 2020, the Company recorded a net profit of RMB143 million, representing a decrease of RMB59 million as compared to RMB202 million for same period in 2019.

Cash and Deposits with Central Bank

As at 30 June 2020, the Company's cash and deposits with central bank amounted to RMB10 million (as at 31 December 2019: RMB9 million). The deposits with central bank mainly comprise statutory deposit reserves and surplus deposit reserves. In accordance with the rules set by the People's Bank of China, the Company deposited 6% of the guarantee deposits and deposits from shareholders to the statutory deposit reserves.

Deposits with Banks

As at 30 June 2020, deposits with banks amounted to RMB177 million, representing an increase of 40.2% as compared to RMB127 million as at 31 December 2019. The increase was mainly attributable to repayment of loans from certain customers prior to 30 June 2020.

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

11

INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Loans and Advances to Customers

As of 30 June 2020, net loans and advances to customers amounted to RMB8.15 billion, representing a decrease of 18.5% as compared to RMB10.00 billion at the end of 2019. The Company's loan business mainly comprises retail loan business and dealer loan business, among which, the gross balance of retail loans amounted to RMB5.62 billion, representing a decrease of 25.3% as compared to RMB7.52 billion at the end of 2019, while the gross balance of dealer loans amounted to RMB2.62 billion (as at 31 December 2019: RMB2.63 billion). The decrease in loan size during the period was mainly due to the outbreak of COVID-19 pandemic which substantively lowered consumer's consumption demand for vehicle purchase, and thus the demand for vehicle financing.

As at

30 June

31 December

2020

2019

RMB'000

RMB'000

Retail loans

5,621,546

7,522,352

Dealer's loans

2,623,002

2,625,086

Gross loans and advances to customers

8,244,548

10,147,438

Accrued interest

87,302

48,079

Less: allowances for impairment loss

(180,835)

(191,364)

Net loans and advances to customers

8,151,015

10,004,153

Placements from Banks

The Company's placements from banks as of 30 June 2020 was RMB4.06 billion, representing a decrease of 31.1% as compared to RMB5.89 billion as of 31 December 2019, which was in line with the reduction in loan size during the period.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity requirements are mainly satisfied by share capital, placements from commercial banks and proceeds from loan products and services which provided strong financial support to the Company's loans business. As of 30 June 2020, the Company's deposits with banks amounted to RMB177 million, representing an increase of 40.2% as compared to RMB127 million as at the end of 2019. The Company's placements from banks amounted to RMB4.06 billion, representing a decrease of 31.1% as compared to RMB5.89 billion as at the end of 2019. The Company established co-operations with a total of 38 banks, with total facilities of over RMB9.16 billion and an unutilised balance of over RMB5.12 billion.

12 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

The Company's capital adequacy ratio increased from 41.62% at the end of 2019 to 49.76% at 30 June 2020.

As at

30 June

31 December

2020

2019

Core tier-one capital adequacy ratio

48.71%

40.54%

Tier-one capital adequacy ratio

48.71%

40.54%

Capital adequacy ratio

49.76%

41.62%

Liquidity ratio

167.41%

137.12%

Leverage ratio

47.63%

37.90%

Note: Leverage ratio = Net tier-one capital/(balance of adjusted on-balance sheet assets + adjusted off-balance sheet items)* 100%.

At the 2020 first Unlisted Foreign Share class meeting, the 2020 first Domestic Share class meeting, the 2020 first H Share class meeting and the 2020 first extraordinary general meeting of the Company held on 10 June 2020, the Shareholders approved, among others, the New H Share Issue and the H Share Full Circulation (as defined in the Company's circular dated 22 April 2020), which are subject to approval of the relevant authorities. For details, please refer to the Company's circular dated 22 April 2020.

FOREIGN EXCHANGE RISK

As the Company's business is primarily operated in mainland China and settled in Renminbi, there is no material foreign exchange risks. As at 30 June 2020, the Company had certain deposits with banks and other liabilities denominated in foreign currencies with a net position of approximately RMB18 million. The foreign exchange risk is considered to be low.

MATERIAL ACQUISITION OR DISPOSAL OF ASSETS

During the six months ended 30 June 2020, there was no material acquisition and disposal of the Company's material assets.

SIGNIFICANT INVESTMENT

As at 30 June 2020, the Company did not hold any significant investment in equity interest in any company.

CHARGES ON ASSETS

As at 30 June 2020, there were no charges on the Company's assets.

FUTURE PLANS FOR MATERIAL INVESTMENTS AND CAPITAL ASSETS

As at 30 June 2020, the Company did not have any plans for material investments and capital assets.

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

13

INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

HUMAN RESOURCES AND REMUNERATION POLICIES

As of 30 June 2020, the Company had 247 employees, most of whom are located in the PRC. The Company has a team of highly educated and talented individuals. As of 30 June 2020, approximately 81% of the Company's employees hold a bachelor's degrees or above, and 16% hold a master's degree or above, with approximately 69% of the Company's employees are under the age of 35. For the six months ended 30 June 2020, total staff costs of the Company amounted to approximately RMB32.8 million (for the six months ended 30 June 2019: RMB41.8 million).

The Company endeavored to create a competitive and fair system for compensation and welfare, by adjusting employees' remuneration and benefits based on their business performance on an annual basis. The Company has been constantly improving its policies on remuneration and incentives and has also refined the long-term incentive scheme for employees and optimized the remuneration structure thereof to link employees' benefits to the overall business operation, for the purpose of enhancing employees' loyalty.

SIGNIFICANT LITIGATION AND ARBITRATION

During the six months ended 30 June 2020, there was no litigation and arbitration which had a significant impact on the operating activities of the Company.

CONTINGENT LIABILITIES

The Company did not have any material contingent liabilities as at 30 June 2020.

CORPORATE DEVELOPMENT STRATEGY AND OUTLOOK

The outbreak of the COVID-19 pandemic since the beginning of 2020 brought pressure on the economic environment and the auto industry in the first half of the year. The Company believes that automotive finance will play an important role in the recovery of the industry. For the second half of the year, the Company will deploy its efforts surrounding the strategy of "dedication to principle business, strategic extension, innovation and exploration", so as to secure a speedy resumption of our normal business as well as our steady development after the pandemic.

As regards the strategy of "dedication to principle business", the Company intends to introduce more products based on its principal business of automotive finance, including co-operations with more automobile manufacturers to offer a wider selection of auto brands to customers. In the meantime, on top of leveraging its cooperation with a network of more than 900 dealers, the Company will continue to identify quality dealers, and explore collaborations with secondhand vehicles trading platforms and direct leasing platforms, etc in order to optimise sales network, expand customer base as well as drive the growth of automotive finance business.

As regards the strategy of "strategic extension", in addition to its internal resources and traditional financing, the Company will leverage on the resource advantages of cooperative banks to strengthen the development of joint loans business so as to rapidly promote its lending business and increase non-interest income. Also, by leveraging its status as a listed company and a CBIRC licensed corporation, the Company will continue to explore various financing channels and enhance its capital base.

The Company will continue to pursue "innovation and exploration" strategy with a focus on longer-term development plan. The Company will actively explore and innovate along the automotive industry chain by spearheading the efforts on online marketing, with an aim to break the traditional offline model of automotive finance industry. It will bring more effective marketing resources to business partners of the Company and provide customers with a more convenient and intuitive service experience.

14 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

CORPORATE GOVERNANCE AND OTHER INFORMATION

INTERIM DIVIDEND

The Board did not recommend the payment of interim dividend for the six months ended 30 June 2020 (for the six months ended 30 June 2019: RMB0.08 per share (tax inclusive)).

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS AND SUPERVISORS

The Company has adopted its own code of conduct regarding securities transaction by the Directors and the Supervisors on terms no less exacting than the required standard in the Model Code. The Company has made specific enquiries to all the Directors and Supervisors and they have confirmed that each of them has complied with the above- mentioned code during the six months ended 30 June 2020.

CORPORATE GOVERNANCE

The Company is committed to maintaining high standards of corporate governance to safeguard the interests of the Shareholders and enhance the corporate value and accountability of the Company. The Company has adopted the code provisions as set out under the Corporate Governance Code.

For the six months ended 30 June 2020, the Company has complied with all code provisions of the Corporate Governance Code.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

During the six months ended 30 June 2020, the Company did not purchase, sell or redeem any of the Company's listed securities.

SHARE OPTION SCHEME

The Company did not adopt any share option scheme as at 30 June 2020.

INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE

As at 30 June 2020, none of the Directors, Supervisors, chief executive of the Company or any of their associates had any interests or short positions in any shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO), which were required to be entered in the register required to be kept under section 352 of the SFO, or were required to be notified to the Company and the Stock Exchange under the Model Code.

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

15

INTERIM REPORT 2020

CORPORATE GOVERNANCE AND OTHER INFORMATION

INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS

So far as the Directors are aware, as at 30 June 2020, the interests or short positions of the other persons (other than Directors, Supervisors, and the chief executive of the Company) in the Shares and underlying Shares which were required to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or to be recorded in the register required to be kept pursuant to section 336 of the SFO were as follows:

Number of

Percentage of

Percentage of

Shares held

issued Shares

total issued

Long/Short

directly or

of the

ordinary

Name of Substantial Shareholder

Class of Shares

positions

Capacity

indirectly

relevant class

Shares

(Shares)

(%)

(%)

China ZhengTong Auto Services Holdings

Unlisted Foreign Shares

Long

Beneficial owner1

1,520,000,000

100.00

71.04

Limited

(中國正通汽車服務控股有限公司)

Joy Capital Holdings Limited

Unlisted Foreign Shares

Long

Interest in a controlled

1,520,000,000

100.00

71.04

corporation2

Wang Muqing (王木清)

Unlisted Foreign Shares

Long

Founder of trusts3

1,520,000,000

100.00

71.04

Wang Weize (王偉澤)

Unlisted Foreign Shares

Long

Founder of trusts3

1,520,000,000

100.00

71.04

Dongfeng Motor Corporation

Domestic Shares

Long

Beneficial owner

80,000,000

100.00

3.74

(東風汽車集團有限公司)

Global Precise Assets Limited

H Shares

Long

Beneficial owner

80,000,400

14.82

3.74

Xingtai Capital Management Limited

H Shares

Long

Investment manager4

62,000,000

11.49

2.90

TX Capital (HK) Limited

H Shares

Long

Investment manager5

44,948,000

8.33

2.10

Seahawk China Dynamic Fund

H Shares

Long

Beneficial owner

33,335,000

6.18

1.56

Notes:

  1. These 1,520,000,000 Shares were registered in the name of and beneficially owned by China ZhengTong Auto Services Holdings Limited (中國正通汽車服務控股有限公司).
  2. China ZhengTong Auto Services Holdings Limited (中國正通汽車服務控股有限公司) is owned by Joy Capital Holdings Limited as to 56.42% and Joy Capital Holdings Limited is deemed under the SFO to be interested in the Shares held by China ZhengTong Auto Services Holdings Limited.
  3. Mr. Wang Muqing and Mr. Wang Weize were the founders of the family trusts that own all the issued shares of Joy Capital Holdings Limited, which were deemed under the SFO to be interested in the Shares held by Joy Capital Holdings Limited. Credit Suisse Trust Limited in Guernsey is the trustee of these family trusts. The Wang family members are discretionary beneficiaries of these trusts.
  4. According to the disclosure of interests form filed by Xingtai Capital Management Limited, Xingtai Capital Management Limited held 33,000,000 H Shares, 17,000,000 H Shares and 12,000,000 H Shares in the capacity as an investment manager to Xingtai China Master Fund, Canepa Funds ICAV- XINGTAI CHINA FUND and Milltrust International Investments SPC - Milltrust Xingtai China Fund SP respectively.
  5. According to the disclosure of interests form filed by TX Capital (HK) Limited dated 31 July 2019, TX Capital (HK) Limited held 44,948,000 H Shares in the capacity as an investment advisor to TX Capital Value Fund. Accordingly, it is deemed to be interested in the H shares of the Company held by TX Capital Value Fund.

Save as disclosed above, as at 30 June 2020, the Directors are not aware of any other person (other than the Directors, Supervisors and chief executive of the Company) having any interests or short positions in the Shares or underlying Shares which were required to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or to be recorded in the register required to be kept pursuant to section 336 of the SFO.

16 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

CORPORATE GOVERNANCE AND OTHER INFORMATION

CHANGES IN INFORMATION ON DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE

Pursuant to Rule 13.51B(1) of the Listing Rules, the changes in information on Directors, Supervisors and chief executive of the Company since the Company's 2019 annual report and up to the date of this interim report as notified to the Company, are set out below:

Mr. Koh Tee Choong, a non-executive Director, has retired as an executive director and ceased to be the chief executive officer of ZhengTong with effect from 12 June 2020.

NON-COMPLIANCE WITH LISTING RULES

Following the resignation of Mr. Lin Zheying as an independent non-executive Director on 30 June 2020, the Company fails to meet the requirements of (i) having at least three independent non-executive Directors on the Board under Rule 3.10(1) of the Listing Rules; and (ii) the Audit Committee comprising only non-executive Directors with a minimum of three members under Rule 3.21 of the Listing Rules. In order to ensure compliance with the Listing Rules, the Company is actively identifying suitable candidate(s) with a view to fill the vacancies on the Board as soon as practicable.

ADDITIONAL INFORMATION TO THE 2019 ANNUAL REPORT

Reference is made to the Company's 2019 annual report for the year ended 31 December 2019 (the "2019 Annual Report"). The Company provides further information as follows:

The Directors consider that save for the transactions relating to subsidies received from an automaker which were settled through related parties pursuant to the pass-through arrangement (as disclosed in note 28 on pages 118 and 119 of the 2019 Annual Report) which do not constitute connected transactions, the material related party transactions disclosed in note 28 to the audited financial statements constituted connected transactions under Chapter 14A of the Listing Rules. The Company has complied with the applicable requirements under Chapter 14A of the Listing Rules in respect of those transactions.

USE OF NET PROCEEDS FROM THE GLOBAL OFFERING

The Shares were listed on the Stock Exchange on 3 April 2019. The net proceeds from the global offering (including the exercise of the over-allotment option) amounted to HK$1,552.3 million (approximately RMB1,368.97 million). There was no change in the intended use of net proceeds as previously disclosed in the supplemental prospectus dated 25 March

2019 of the Company. As at 30 June 2020, the Company had utilised the proceeds as follows:

Net proceeds

from the

Utilised

Unutilised

Use of net proceeds

Global Offering

net proceeds

net proceeds

(RMB million)

(RMB million)

(RMB million)

Fund the self-operated retail loans to be disbursed to

external customers

889.83

889.83

-

Develop network of external dealers

68.45

29.13

39.32

Fund self-operated retail loans to be disbursed to

ZhengTong customers

205.34

205.34

-

Develop technological, operational and risk management

capabilities

68.45

16.21

52.24

General working capital

136.90

136.90

-

Total

1,368.97

1,277.41

91.56

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

17

INTERIM REPORT 2020

CORPORATE GOVERNANCE AND OTHER INFORMATION

The unutilised net proceeds of approximately RMB91.56 million was placed in bank deposits with banks in the PRC and Hong Kong. The Company expects 70% and 30% of the unutilised net proceeds shall be utilised as intended by 31 December 2021 and 31 December 2022 respectively.

REVIEW OF ACCOUNTS

The Audit Committee currently comprises two independent non-executive Directors, namely Mr. Wong Man Chung Francis (chairman) and Ms. Liang Yanjun. The unaudited interim financial report of the Company for the six months ended 30 June 2020 has been reviewed by the Company's auditor, KPMG, Certified Public Accountants, in accordance with Hong Kong Standards on Review Engagements 2410 "Review of interim financial information performed by the independent auditor of the entity", issued by the Hong Kong Institute of Certified Public Accountants.

The Audit Committee has reviewed the unaudited interim financial report of the Company for the six months ended 30 June 2020. The Audit Committee has also discussed matters with respect to the accounting policies and practices adopted by the Company and internal control with senior management and KPMG. Based on the review and discussions with the management, the Audit Committee was satisfied that the Company's unaudited interim financial report was prepared in accordance with applicable accounting standards and fairly present the Company's financial position and results for the period under review.

APPRECIATION

The Board would like to express its sincere gratitude to the management and employees for their diligence and contribution, and would also like to thank the Shareholders and business associates for their strong support to the Company.

On behalf of the Board

Shanghai Dongzheng Automotive Finance Co., Ltd.*

Lin Fan

Chairman

28 August 2020

18 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

INDEPENDENT REVIEW REPORT

Review report to the board of directors

of Shanghai Dongzheng Automotive Finance Co., Ltd.

(A joint stock company incorporated in the People's Republic of China with limited liability)

INTRODUCTION

We have reviewed the interim financial report set out on pages 19 to 60 which comprises the statement of financial position of Shanghai Dongzheng Automotive Finance Co., Ltd. (the "Company") as of 30 June 2020 and the related statement of profit or loss and other comprehensive income and statement of changes in equity and cash flow statement for the six months period then ended and explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of an interim financial report to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34, Interim financial reporting , issued by the Hong Kong Institute of Certified Public Accountants. The directors are responsible for the preparation and presentation of the interim financial report in accordance with Hong Kong Accounting Standard 34.

Our responsibility is to form a conclusion, based on our review, on the interim financial report and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF 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 Hong Kong Institute of Certified Public Accountants. A review of the interim financial report 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.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the interim financial report as at 30 June 2020 is not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34, Interim financial reporting .

KPMG

Certified Public Accountants

8th Floor, Prince's Building

10 Chater Road

Central, Hong Kong

28 August 2020

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

19

INTERIM REPORT 2020

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

for the six months ended 30 June 2020 - unaudited (Express in thousands of Renminbi, unless otherwise stated)

Six months ended 30 June

Note

2020

2019

(unaudited)

(unaudited)

RMB'000

RMB'000

Interest income

443,351

465,387

Interest expenses

(154,565)

(243,389)

Net interest income

3

288,786

221,998

Fee and commission income

40,203

128,925

Fee and commission expenses

(477)

(691)

Net fee and commission income

4

39,726

128,234

Other net income

5

9,828

36,601

Operating income

338,340

386,833

Operating expenses

(55,582)

(69,185)

Impairment losses

(91,310)

(47,546)

Finance costs

(1,025)

(781)

Profit before taxation

6

190,423

269,321

Income tax

7

(47,702)

(67,465)

Profit and total comprehensive income for the period

142,721

201,856

Earnings per share

Basic and diluted (RMB)

8

0.07

0.11

The notes on pages 23 to 60 form part of this interim financial report.

20 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

STATEMENT OF FINANCIAL POSITION

at 30 June 2020 - unaudited

(Express in thousands of Renminbi, unless otherwise stated)

At

At

30 June

31 December

Note

2020

2019

(unaudited)

(audited)

RMB'000

RMB'000

Assets

Cash and deposits with central bank

9

9,556

9,479

Deposits with banks

10

177,391

126,524

Loans and advances to customers

11

8,151,015

10,004,153

Finance lease receivables

12

32,821

52,001

Property and equipment

13

34,398

40,532

Intangible assets

14

13,458

16,512

Deferred tax assets

19(b)

41,877

54,852

Other assets

15

40,857

23,990

Total assets

8,501,373

10,328,043

Liabilities

Placements from banks

16

4,057,335

5,891,421

Guarantee deposits

17

154,736

156,845

Lease liabilities

18

27,875

32,388

Current taxation

19(a)

30,456

70,961

Other liabilities

20

78,675

166,853

Total liabilities

4,349,077

6,318,468

NET ASSETS

4,152,296

4,009,575

CAPITAL AND RESERVES

Share capital

21(c)

2,139,651

2,139,651

Reserves

21(d)

2,012,645

1,869,924

TOTAL EQUITY

4,152,296

4,009,575

Approved and authorised for issue by the board of directors on 28 August 2020.

Lin Fan

Li Yi

Chairman of the Board of Directors

President and the principal person

Executive Director

in charge of accounting affairs

The notes on pages 23 to 60 form part of this interim financial report.

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

21

INTERIM REPORT 2020

STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2020 - unaudited (Express in thousands of Renminbi, unless otherwise stated)

Share

Capital

Surplus

General risk

Retained

Total

Note

capital

reserve

reserve

reserve

earnings

equity

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

Balance at 1 January 2019

1,600,000

404,340

45,252

107,041

325,545

2,482,178

Changes in equity for the six

months ended 30 June 2019:

1. Profit and total comprehensive

income for the period

-

-

-

-

201,856

201,856

2. Issue of H shares

21(c)

539,651

769,517

-

-

-

1,309,168

Balance at 30 June 2019 and

1 July 2019 (unaudited)

2,139,651

1,173,857

45,252

107,041

527,401

3,993,202

Changes in equity for

the six months ended

31 December 2019:

1. Profit and total comprehensive

income for the period

-

-

-

-

187,545

187,545

2. Appropriation of profits

- Dividends declared in respect of

the current period

21(b)

-

-

-

-

(171,172)

(171,172)

- Appropriation for surplus reserve

21(d)

-

-

38,940

-

(38,940)

-

- Appropriation for general risk

reserve

21(d)

-

-

-

49,006

(49,006)

-

Balance at 31 December 2019

(audited)

2,139,651

1,173,857

84,192

156,047

455,828

4,009,575

Changes in equity for the six

months ended 30 June 2020:

Profit and total comprehensive income

for the period

-

-

-

-

142,721

142,721

Balance at 30 June 2020 (unaudited)

2,139,651

1,173,857

84,192

156,047

598,549

4,152,296

The notes on pages 23 to 60 form part of this interim financial report.

22 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

CASH FLOW STATEMENT

for the six months ended 30 June 2020 - unaudited (Express in thousands of Renminbi, unless otherwise stated)

Six months ended 30 June

Note

2020

2019

(unaudited)

(unaudited)

RMB'000

RMB'000

Operating activities

Profit before taxation

190,423

269,321

Adjustments for:

Impairment losses

6(b)

91,310

47,546

Depreciation and amortisation

6(c)

9,493

8,622

Listing expenses

6(c)

-

9,207

Finance costs

6(c)

1,025

781

Changes in operating assets

Net decrease in deposits with central bank

158

7,538

Net increase in deposits with other banks

(523)

-

Net decrease/(increase) in loans and advances to customers

1,803,900

(1,553,489)

Net decrease in finance lease receivables

16,331

22,124

Net increase in other assets

(55,704)

(21,891)

Changes in operating liabilities

Net (decrease)/increase in placements from banks

(1,808,768)

1,378,799

Net (decrease)/increase in guarantee deposits

(2,109)

44,043

Net decrease in deposits from shareholders

-

(600,000)

Net decrease in other liabilities

(104,783)

(35,179)

Cash generated from/(used in) operations

140,753

(422,578)

Income tax paid

19(a)

(75,232)

(74,435)

Net cash generated from/(used in) operating activities

65,521

(497,013)

Investing activity

Payments for purchase of property and equipment, intangible

assets and other assets

(8,494)

(6,891)

Net cash used in investing activity

(8,494)

(6,891)

Financing activities

Capital element of lease rentals paid

22(b)

(4,513)

(4,260)

Interest element of lease rentals paid

22(b)

(1,025)

(781)

Net proceeds from issuance of H-shares upon the public

-

offering

1,365,216

Net cash (used in)/generated from financing activities

(5,538)

1,360,175

Net increase in cash and cash equivalents

51,489

856,271

Cash and cash equivalents at 1 January

22

116,519

800,997

Cash and cash equivalents at 30 June

22

168,008

1,657,268

The notes on pages 23 to 60 form part of this interim financial report.

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

23

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

1 BASIS OF PREPARATION

This interim financial report has been prepared in accordance with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, including compliance with Hong Kong Accounting Standard (HKAS) 34, Interim financial reporting , issued by the Hong Kong Institute of Certified Public Accountants (HKICPA). It was authorised for issue on 28 August 2020.

The interim financial report has been prepared in accordance with the same accounting policies adopted in the 2019 annual financial statements, except for the accounting policy changes that are expected to be reflected in the 2020 annual financial statements. Details of any changes in accounting policies are set out in Note 2.

The preparation of an interim financial report in conformity with HKAS 34 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates.

This interim financial report contains condensed financial statements and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Company since the 2019 annual financial statements. The condensed interim financial statements and notes thereon do not include all of the information required for a full set of financial statements prepared in accordance with HKFRSs.

The interim financial report is unaudited, but has been reviewed by KPMG 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. KPMG's independent review report to the Board of Directors is included on page 18.

2 CHANGES IN ACCOUNTING POLICIES

The Company has applied the following amendments to Hong Kong Financial Reporting Standards (HKFRSs) issued by the HKICPA to these financial statements for the current accounting period:

  • Amendments to HKFRS 3, Definition of a Business
  • Amendment to HKFRS 16, Covid-19-Related Rent Concessions

Impacts of the adoption of the above amended HKFRSs are discussed below:

Amendments to HKFRS 3, Definition of a Business

The amendments clarify the definition of a business and provide further guidance on how to determine whether a transaction represents a business combination. In addition, the amendments introduce an optional "concentration test" that permits a simplified assessment of whether an acquired set of activities and assets is an asset rather than business acquisition, when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.

24 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

2 CHANGES IN ACCOUNTING POLICIES (CONTINUED)

Amendment to HKFRS 16, Covid-19-Related Rent Concessions

The amendment provides a practical expedient that allows a lessee to by-pass the need to evaluate whether certain qualifying rent concessions occurring as a direct consequence of the COVID-19 pandemic ("COVID-19-related rent concessions") are lease modifications and, instead, account for those rent concessions as if they were not lease modifications.

None of the above amendments has had a material effect on how the Company's results and financial position for current or prior periods have been prepared or presented in this interim financial report.

3

NET INTEREST INCOME

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Interest income arising from

Loans and advances to customers

439,960

453,222

Finance lease receivables

1,937

4,184

Deposits with central bank and other banks

1,454

7,981

Sub-total

443,351

465,387

Interest expenses arising from

Placements from banks

(154,565)

(243,256)

Deposits from shareholders

-

(133)

Sub-total

(154,565)

(243,389)

Net interest income

288,786

221,998

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

25

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

4 NET FEE AND COMMISSION INCOME

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Fee and commission income arising from

Joint loan services

28,303

33,772

Consulting services

5,993

90,962

Others

5,907

4,191

Sub-total

40,203

128,925

Fee and commission expenses arising from

Commission fees

-

(221)

Others

(477)

(470)

Sub-total

(477)

(691)

Net fee and commission income

39,726

128,234

The Company derives its fee and commission income arising from its consulting services at a point in time; fee and commission income arising from its joint loan services over time.

5 OTHER NET INCOME

Six months ended 30 June

Note

2020

2019

RMB'000

RMB'000

Government grants

(a)

12,148

-

Net exchange (losses)/gains

(2,558)

36,434

Others

238

167

Total

9,828

36,601

  1. The government grants were received unconditionally by the Company from the local government where it resides.

26 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

6

PROFIT BEFORE TAXATION

Profit before taxation is arrived at after charging/(crediting):

(a)

Staff costs

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Salaries, bonuses and allowances

29,212

34,337

Other social welfare

2,403

3,511

Contributions to pension schemes

1,149

3,963

Total

32,764

41,811

(b)

Impairment losses

Six months ended 30 June

Note

2020

2019

RMB'000

RMB'000

Loans and advances to customers

11(e)

88,461

50,525

Finance lease receivables

12(b)

2,849

(2,979)

Total

91,310

47,546

(c)

Other items

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Depreciation and amortisation

- right-of-use assets

4,658

4,344

- intangible assets

3,222

2,083

- property and equipment

1,613

2,195

Tax and surcharges

4,755

3,934

Maintenance fees

1,619

343

Legal consultancy

1,479

952

Travel expenses

316

1,155

Office expenses

190

630

Expense relating to short-term leases

69

220

Listing expenses

-

9,207

Others

4,897

2,311

Sub-total

22,818

27,374

Finance cost

1,025

781

Total

23,843

28,155

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

27

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

7 INCOME TAX IN THE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

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

Six months ended 30 June

Note

2020

2019

RMB'000

RMB'000

Current tax

Provision for the period

34,870

48,986

Over-provision in respect of prior years

(143)

-

Sub-total

19(a)

34,727

48,986

Deferred tax

Origination of temporary differences

19(b)

12,975

18,479

Total

47,702

67,465

  1. Reconciliation between tax expense and accounting profit at applicable tax rates:

Six months ended 30 June

Note

2020

2019

RMB'000

RMB'000

Profit before taxation:

190,423

269,321

Notional tax on profit before taxation, calculated at

the rates applicable to profits in the countries

concerned

(i)

47,606

67,330

Tax effect of non-deductible expenses

239

135

Over-provision in respect of prior years

(143)

-

Actual tax expense

47,702

67,465

  1. The Company is subject to PRC corporate income tax at the statutory tax rate of 25%.

28 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

8 EARNINGS PER SHARE

  1. Basic and diluted earnings per share
    The calculation of basic earnings per share is based on the profit attributable to ordinary equity shareholders of the Company of RMB142,721 thousands (six months ended 30 June 2019: RMB201,856 thousands) and the weighted average of 2,139,651 thousands ordinary shares (2019: 1,861,604 thousands ordinary shares) in issue during the interim period, which is set out as follows:
    Weighted average number of ordinary shares

Six months ended 30 June

2020

2019

Number of ordinary shares at 1 January (in thousands)

2,139,651

1,600,000

Effect of issuance of H-shares (in thousands)

-

261,604

Weighted average number of ordinary shares at 30 June

(in thousands)

2,139,651

1,861,604

On 3 April 2019, the Company was listed on the Main Board of the HKSE, pursuant to which 533,336 thousands ordinary shares were issued. On 25 April 2019, the over-allotment option granted by the Company was partially exercised, pursuant to which 6,315 thousands ordinary shares were issued.

Six months ended 30 June

2020

2019

Profit attributable to ordinary equity shareholders of the

Company (RMB'000)

142,721

201,856

Weighted average number of ordinary shares issued

(in thousands)

2,139,651

1,861,604

Basic and diluted earnings per share attributable to

shareholders (RMB)

0.07

0.11

There were no dilutive potential ordinary shares for the period ended 30 June 2020 or 2019. Therefore, diluted earnings per share are equivalent to basic earnings per share.

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

29

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

9 CASH AND DEPOSITS WITH CENTRAL BANK

At

At

30 June

31 December

Note

2020

2019

RMB'000

RMB'000

Deposits with central bank

- Statutory deposit reserves

(a)

9,266

9,424

- Surplus deposit reserves

(b)

286

50

Sub-total

9,552

9,474

Accrued interest

4

5

Total

9,556

9,479

  1. The Company places statutory deposit reserves with the People's Bank of China ("PBOC") in accordance with relevant regulations.
    At 30 June 2020 and 31 December 2019, the statutory deposit reserve ratios applicable to the Company were as follows:

At

At

30 June

31 December

2020

2019

Reserve ratio for deposits

6.0%

6.0%

The statutory deposit reserves are not available for the Company's daily business.

  1. The surplus deposit reserves are maintained with the PBOC for the purpose of cash settlement.

10 DEPOSITS WITH BANKS

At

At

30 June

31 December

2020

2019

RMB'000

RMB'000

Deposits with banks

177,199

126,469

Accrued interest

192

55

Total

177,391

126,524

30 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

11 LOANS AND ADVANCES TO CUSTOMERS

  1. Analysed by nature

At

At

30 June

31 December

2020

2019

RMB'000

RMB'000

Retail loans

5,621,546

7,522,352

Dealer's loans

2,623,002

2,625,086

Gross loans and advances to customers

8,244,548

10,147,438

Accrued interest

87,302

48,079

Less: Allowances for impairment losses

(180,835)

(191,364)

Net loans and advances to customers

8,151,015

10,004,153

(b) Analysed by type of collateral

At

At

30 June

31 December

2020

2019

RMB'000

RMB'000

Collateralized loans

5,621,546

7,522,352

Guaranteed loans

2,623,002

2,625,086

Gross loans and advances to customers

8,244,548

10,147,438

Accrued interest

87,302

48,079

Less: Allowances for impairment losses

(180,835)

(191,364)

Net loans and advances to customers

8,151,015

10,004,153

  1. Overdue loans (excluding accrued interest) analysed by type of collateral and overdue period

At 30 June 2020

Overdue

Overdue

Overdue

more than

more than

within

3 months to

6 months to

Overdue

3 months

6 months

one year

more than

(inclusive)

(inclusive)

(inclusive)

one year

Total

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

Collateralized loans

63,818

21,468

2,818

-

88,104

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

31

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

11 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

  1. Overdue loans (excluding accrued interest) analysed by type of collateral and overdue period (continued)

At 31 December 2019

Overdue

Overdue

Overdue

more than

more than

within

3 months to

6 months to

Overdue

3 months

6 months

one year

more than

(inclusive)

(inclusive)

(inclusive)

one year

Total

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

Collateralized loans

89,974

17,012

12,800

3,385

123,171

Overdue loans represent loans and advances to customers, of which the whole or part of the principal or interest was overdue for one day or more. All amounts are shown as gross amount of overdue loans and advances to customers before any allowances for impairment losses. As at 30 June 2020, there was no overdue guaranteed loan (as at 31 December 2019: Nil).

  1. Analysed by methods for assessing allowances for impairment losses

At 30 June 2020

Lifetime ECL

Lifetime ECL

for not credit-

for credit-

12-month ECL

impaired

impaired

Total

RMB'000

RMB'000

RMB'000

RMB'000

Gross loans and advances to customers

(including accrued interest)

8,243,681

54,574

33,595

8,331,850

Less: Allowances for impairment losses

(132,931)

(15,802)

(32,102)

(180,835)

Net loans and advances to customers

8,110,750

38,772

1,493

8,151,015

At 31 December 2019

Lifetime ECL

Lifetime ECL

for not credit-

for credit-

12-month ECL

impaired

impaired

Total

RMB'000

RMB'000

RMB'000

RMB'000

Gross loans and advances to customers

(including accrued interest)

10,072,109

78,175

45,233

10,195,517

Less: Allowances for impairment losses

(112,932)

(38,459)

(39,973)

(191,364)

Net loans and advances to customers

9,959,177

39,716

5,260

10,004,153

32 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

11 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

  1. Movements of allowances for impairment losses

Six months ended 30 June 2020

Lifetime

Lifetime

ECL for

ECL for

12-month

not credit-

credit-

Note

ECL

impaired

impaired

Total

RMB'000

RMB'000

RMB'000

RMB'000

At 1 January 2020

112,932

38,459

39,973

191,364

Transferred to:

- 12-month ECL

5,612

(5,053)

(559)

-

- lifetime ECL for not

credit-impaired

(716)

1,649

(933)

-

- lifetime ECL for credit-impaired

(338)

(2,783)

3,121

-

Charge/(reversal) for the period

6(b)

15,441

(16,470)

89,490

88,461

Write-off for the period

-

-

(105,399)

(105,399)

Recovery after write-off

-

-

6,409

6,409

At 30 June 2020

132,931

15,802

32,102

180,835

Year ended 31 December 2019

Lifetime

Lifetime

ECL for

ECL for

12-month

not credit-

credit-

Note

ECL

impaired

impaired

Total

RMB'000

RMB'000

RMB'000

RMB'000

At 1 January 2019

89,071

26,522

20,386

135,979

Transferred to:

- 12-month ECL

7,104

(7,104)

-

-

- lifetime ECL for not credit-

impaired

(780)

860

(80)

-

- lifetime ECL for credit-impaired

(419)

(1,908)

2,327

-

Charge for the year

6(b)

17,956

20,089

80,138

118,183

Write-off for the year

-

-

(66,750)

(66,750)

Recovery after write-off

-

-

3,952

3,952

At 31 December 2019

112,932

38,459

39,973

191,364

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

33

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

12 FINANCE LEASE RECEIVABLES

At

At

30 June

31 December

2020

2019

RMB'000

RMB'000

Minimum finance lease receivables

43,808

60,577

Less: Unearned finance lease income

(3,005)

(3,443)

Present value of finance lease receivables

40,803

57,134

Less: Allowances for impairment losses

(7,982)

(5,133)

Total

32,821

52,001

  1. Finance lease receivables, unearned finance lease income and minimum finance lease receivables analysed by remaining period are listed as follows:

At 30 June 2020

Minimum

Unearned

Present value

finance lease

finance lease

of finance lease

receivables

income

receivables

RMB'000

RMB'000

RMB'000

Within 1 year (inclusive)

28,697

(2,036)

26,661

After 1 year but within 2 years (inclusive)

10,356

(808)

9,548

After 2 years but within 3 years (inclusive)

4,734

(161)

4,573

After 3 years but within 4 years (inclusive)

21

-

21

Sub-total

43,808

(3,005)

40,803

Less: Allowances for impairment losses

(7,982)

Total

32,821

At 31 December 2019

Minimum

Unearned

Present value

finance lease

finance lease

of finance lease

receivables

income

receivables

RMB'000

RMB'000

RMB'000

Within 1 year (inclusive)

47,399

(3,002)

44,397

After 1 year but within 2 years (inclusive)

12,769

(399)

12,370

After 2 years but within 3 years (inclusive)

294

(36)

258

After 3 years but within 4 years (inclusive)

115

(6)

109

Sub-total

60,577

(3,443)

57,134

Less: Allowances for impairment losses

(5,133)

Total

52,001

34 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

12 FINANCE LEASE RECEIVABLES (CONTINUED)

  1. Movements of allowances for impairment losses are as follows:

Six months ended 30 June 2020

Lifetime

Lifetime

ECL for not

ECL for

12-month

credit-

credit-

Note

ECL

impaired

impaired

Total

RMB'000

RMB'000

RMB'000

RMB'000

At 1 January 2020

388

795

3,950

5,133

Transferred to:

- 12-month ECL

53

(53)

-

-

- lifetime ECL for not credit-impaired

(69)

69

-

-

- lifetime ECL for credit-impaired

(2)

-

2

-

(Reversal)/charge for the period

6(b)

(172)

2,160

861

2,849

At 30 June 2020

198

2,971

4,813

7,982

Year ended 31 December 2019

Lifetime ECL

for not

Lifetime ECL

12-month

credit-

for credit-

ECL

impaired

impaired

Total

RMB'000

RMB'000

RMB'000

RMB'000

At 1 January 2019

644

4,159

6,660

11,463

Transferred to:

- 12-month ECL

3,999

(3,999)

-

-

- lifetime ECL for not credit-impaired

(33)

33

-

-

- lifetime ECL for credit-impaired

(1)

-

1

-

(Reversal)/charge for the year

(4,221)

602

(11)

(3,630)

Write-off for the year

-

-

(3,244)

(3,244)

Recovery after write-off

-

-

544

544

At 31 December 2019

388

795

3,950

5,133

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

35

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

13 PROPERTY AND EQUIPMENT

  1. Carrying amount

Properties

leased for

Improvement

own use

Electronic

Office

to leasehold

carried at

equipment

furniture

property

cost

Total

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

Cost:

At 1 January 2019

3,597

1,032

7,060

33,918

45,607

Additions

488

50

7,367

15,386

23,291

At 31 December 2019

4,085

1,082

14,427

49,304

68,898

Additions

288

-

1

-

289

Disposal for lease

-

-

-

(179)

(179)

At 30 June 2020

4,373

1,082

14,428

49,125

69,008

Accumulated depreciation:

At 1 January 2019

(1,442)

(557)

(4,577)

(10,618)

(17,194)

Charge for the year

(734)

(199)

(1,630)

(8,609)

(11,172)

At 31 December 2019

(2,176)

(756)

(6,207)

(19,227)

(28,366)

Charge for the period

(370)

(86)

(1,157)

(4,658)

(6,271)

Disposal for lease

-

-

-

27

27

At 30 June 2020

(2,546)

(842)

(7,364)

(23,858)

(34,610)

Net book value:

At 30 June 2020

1,827

240

7,064

25,267

34,398

At 31 December 2019

1,909

326

8,220

30,077

40,532

36 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

13 PROPERTY AND EQUIPMENT (CONTINUED)

  1. Right-of-useassets
    The analysis of the net book value of right-of-use assets by class of underlying asset is as follows:

At

At

30 June

31 December

2020

2019

RMB'000

RMB'000

Properties leased for own use carried at cost

25,267

30,077

The analysis of expense items in relation to leases recognised in profit or loss is as follows:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Depreciation charge of right-of-use assets

4,658

4,344

Finance cost (Note 6(c))

1,025

781

Expense relating to short-term leases

69

220

14 INTANGIBLE ASSETS

Computer

software

RMB'000

Cost:

At 1 January 2019

30,185

Additions

7,643

At 31 December 2019

37,828

Additions

168

At 30 June 2020

37,996

Accumulated amortisation:

At 1 January 2019

(14,828)

Charge for the year

(6,488)

At 31 December 2019

(21,316)

Charge for the period

(3,222)

At 30 June 2020

(24,538)

Net book value:

At 30 June 2020

13,458

At 31 December 2019

16,512

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

37

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

15

OTHER ASSETS

At

At

30 June

31 December

Note

2020

2019

RMB'000

RMB'000

Prepayments

18,254

3,845

Other receivables

(a)

14,414

12,570

Interest receivables

7,645

7,300

Others

544

275

Total

40,857

23,990

(a) Other receivables

At

At

30 June

31 December

2020

2019

RMB'000

RMB'000

Commission receivables of joint loans

11,002

9,255

Deposits

3,412

3,315

Total

14,414

12,570

16

PLACEMENTS FROM BANKS

At

At

30 June

31 December

2020

2019

RMB'000

RMB'000

Placements from banks

4,039,720

5,848,488

Accrued interest

17,615

42,933

Total

4,057,335

5,891,421

17

GUARANTEE DEPOSITS

At

At

30 June

31 December

2020

2019

RMB'000

RMB'000

Deposits provided by dealers for dealer's loans

135,685

135,585

Deposits from finance lease clients

13,821

15,005

Deposits provided by dealers for retail business

5,230

6,255

Total

154,736

156,845

38 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

18 LEASE LIABILITIES

The following table shows the remaining contractual maturities of the Company's lease liabilities:

At 30 June 2020

At 31 December 2019

Present

Present

value of the

Total

value of the

Total

minimum

minimum

minimum

minimum

lease

lease

lease

lease

payments

payments

payments

payments

RMB'000

RMB'000

RMB'000

RMB'000

Within 1 year (inclusive)

9,288

10,881

8,982

10,887

After 1 year but within 2 years (inclusive)

10,135

11,079

9,775

11,053

After 2 years but within 3 years (inclusive)

7,024

7,345

9,419

10,023

More than 3 years

1,428

1,444

4,212

4,332

18,587

19,868

23,406

25,408

27,875

30,749

32,388

36,295

Less: total future interest expenses

(2,874)

(3,907)

Present value of lease liabilities

27,875

32,388

19 INCOME TAX IN THE STATEMENT OF FINANCIAL POSITION

  1. Current taxation in the statement of financial position represents:

At

At

30 June

31 December

Note

2020

2019

RMB'000

RMB'000

Balance at the beginning of the period/year

70,961

59,478

Provision for current income tax for the period/year

7(a)

34,727

111,121

Payment during the period/year

(75,232)

(99,638)

Balance at the end of the period/year

30,456

70,961

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

39

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

19 INCOME TAX IN THE STATEMENT OF FINANCIAL POSITION (CONTINUED)

  1. Deferred tax assets and liabilities recognised:

The components of deferred tax assets/(liabilities) recognised in the statement of financial position and the movements during the period/year are as follows:

Allowances

Depreciation

for

charge of

impairment

Subsidies for

right-of-use

Deferred tax arising from:

losses

retail loans

assets

Total

RMB'000

RMB'000

RMB'000

RMB'000

Balance at 1 January 2019

15,169

58,635

305

74,109

Charged/(credited) to profit or loss

10,351

(29,881)

273

(19,257)

Balance at 31 December 2019

25,520

28,754

578

54,852

Charged/(credited) to profit or loss

2,187

(15,236)

74

(12,975)

Balance at 30 June 2020

27,707

13,518

652

41,877

20 OTHER LIABILITIES

At

At

30 June

31 December

Note

2020

2019

RMB'000

RMB'000

Other payables

(a)

77,853

165,881

Advance receipts

822

972

Total

78,675

166,853

(a) Other payables

At

At

30 June

31 December

2020

2019

RMB'000

RMB'000

Payables of joint loans

39,006

76,133

Brokerage fees payable

12,523

12,281

IPO service fees payable

8,036

32,962

Accruals

5,836

14,155

Employee benefits payables

5,109

12,569

Tax and surcharges and other taxation payable

3,695

12,707

Others

3,648

5,074

Total

77,853

165,881

40 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

21 CAPITAL AND RESERVES

  1. Movement in components of equity
    The reconciliation between the opening and closing balances of each component of the Company's equity is set out in the statement of changes in equity.
  2. Dividends
    Dividends paid to equity shareholders of the Company attributable to the period:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Interim dividend propose after interim period

(six months ended 30 June 2019: RMB0.08 per share)

-

171,172

  1. Share capital
    On 3 April 2019, the H-shares of the Company were listed on the Main Board of the Stock Exchange of Hong Kong Limited, pursuant to which 533,336 thousands ordinary shares of RMB1.00 each were issued at the price of HK$3.06 per share by the Company. The gross proceeds from the issue of these H-shares amounted to HK$1,632,008 thousands (equivalent to approximately RMB1,397,081 thousands). The premium arising from the issuance of H-shares upon public offering amounted to RMB760,080 thousands was recorded in capital reserve.
    On 25 April 2019, the over-allotment option granted by the Company was partially exercised, pursuant to which 6,315 thousands ordinary shares of RMB1.00 each were issued at the price of HK$3.06 per share by the Company. The gross proceeds from the issue of these shares amounted to HK$19,325 thousands (equivalent to approximately RMB16,589 thousands). The premium arising from the issuance of shares upon over-allotment amounted to RMB9,437 thousands was recorded in capital reserve.
  2. Nature and purpose of reserves
    1. Capital reserve
      On 3 April 2019, the Company issued 533,336 thousands new H-shares by way of initial public offering ("IPO"). On 25 April 2019, the Company issued 6,315 thousands new H-shares by way of over-allotment. The premium arising from the issuance of H-shares upon public offering and over-allotment amounted to RMB760,080 thousands and RMB9,437 thousands, respectively, was recorded in capital reserve.
    2. Surplus reserve
      The surplus reserve represents statutory surplus reserve fund. Pursuant to the Company Law of the PRC and the Articles of Association of the Company, the Company is required to appropriate 10% of its net profit as on an annual basis determined under PRC GAAP after making good prior year's accumulated loss, to statutory surplus reserve fund until the reserve fund balance reaches 50% of its registered capital.

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

41

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

21 CAPITAL AND RESERVES (CONTINUED)

  1. Nature and purpose of reserves (continued)
    1. Surplus reserve (continued)
      Subject to the approval of equity holders of the entities established in the PRC, statutory surplus reserves may be used to net off with accumulated losses, if any, and may be converted into capital, provided that the balance of statutory surplus reserve after such capitalisation is not less than 25% of the registered capital.
      After making the appropriation to the statutory surplus reserve, the Company may also appropriate its net profit to the discretionary surplus reserve upon approval by shareholders. Subject to the approval of shareholders, discretionary surplus reserve may be used to offset previous years' losses, if any, and may be converted into capital.
    1. General risk reserve
      Pursuant to "Measures on Impairment Allowances for Financial Enterprises (Cai Jin [2012] No. 20)" issued by the Ministry of Finance of the PRC, the Company is required to set aside a general reserve through profit appropriation which should not be lower than 1.5% of the ending balance of its gross risk-bearing assets on an annual basis. The general risk reserve balance of the Company as at 30 June 2020 amounted to RMB156,047 thousands (2019: RMB156,047 thousands), which has reached the requirement.
  1. Capital management
    The Company's primary objectives when managing capital are to safeguard the Company's ability of sustainable development, so that it can continue to provide returns and benefits for shareholders, by pricing services commensurate with the level of risk and by securing access to finance at a reasonable cost.
    The Company actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholders returns that might be accompanied by higher risk levels of borrowings and the advantages and stability resulted from a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.
    There were no changes in the Company's approach to capital management during the reporting period.

42 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

21 CAPITAL AND RESERVES (CONTINUED)

  1. Capital management (continued)
    The Company calculates the capital adequacy ratios as at 30 June 2020 and 31 December 2019 in accordance with the Regulation Governing Capital of Commercial Banks (Provisional) (商業銀行資本管理辦 法(試行)) issued by the former China Banking Regulatory Commission (the "CBRC") in 2012 and relevant requirements promulgated by the China Banking and Insurance Regulatory Commission (the "CBIRC") as follows:

At

At

30 June

31 December

2020

2019

RMB'000

RMB'000

Core tier-one capital

- Share capital

2,139,651

2,139,651

- Capital reserve

1,173,857

1,173,857

- Surplus reserve

84,192

84,192

- General risk reserve

156,047

156,047

- Retained earnings

598,549

455,828

Total core tier-one capital

4,152,296

4,009,575

Core tier-one capital deductions

- Net value of intangible asset after deduction of related deferred

income tax liabilities

(13,458)

(16,512)

Net core tier-one capital

4,138,838

3,993,063

Net tier-one capital

4,138,838

3,993,063

Tier-two capital

- Surplus provision for loan impairment

88,871

105,563

Net tier-two capital

88,871

105,563

Net capital base

4,227,709

4,098,626

Credit risk-weighted assets

7,198,534

8,550,586

Operational risk-weighted assets

1,297,962

1,297,962

Total risk-weighted assets

8,496,496

9,848,548

Core tier-one capital adequacy ratio

48.71%

40.54%

Tier-one capital adequacy ratio

48.71%

40.54%

Capital adequacy ratio

49.76%

41.62%

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

43

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

22 NOTES TO CASH FLOW STATEMENTS

  1. Cash and cash equivalents comprise

At

At

30 June

31 December

Note

2020

2019

RMB'000

RMB'000

Deposit reserves with central bank

9

286

50

Deposits with banks within original maturity of

three months or less

167,722

116,469

Cash and cash equivalents in the cash flow

statements

168,008

116,519

  1. Reconciliation of liabilities arising from financing activities
    The table below details changes in the Company's liabilities from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the Company's cash flow statement as cash flows from financing activities.

Lease

liabilities

(Note 18)

RMB'000

At 1 January 2020

32,388

Changes from financing cash flows:

Capital element of finance lease rentals paid

(4,513)

Interest element of finance lease rentals paid

(1,025)

Total changes from financing cash flows

(5,538)

Other change:

Finance cost (Note 6(c))

1,025

Total other change

1,025

At 30 June 2020

27,875

44 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT (Express in thousands of Renminbi, unless otherwise stated)

22 NOTES TO CASH FLOW STATEMENTS (CONTINUED)

Lease

liabilities

(Note 18)

RMB'000

At 1 January 2019

24,520

Changes from financing cash flows:

Capital element of finance lease rentals paid

(7,518)

Interest element of finance lease rentals paid

(1,633)

Total changes from financing cash flows

(9,151)

Other changes:

Increase in lease liabilities from entering into new leases during the period

15,386

Finance cost (Note 6(c))

1,633

Total other changes

17,019

At 31 December 2019

32,388

23 FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS

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

  1. Credit risk
    1. Management of credit risk
      Credit risk arises from a customer's inability or unwillingness to meet its financial obligations or commitment to the Company provided. It arises primarily from the Company's auto retail and dealer's loan credit business and finance lease business.

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

45

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

23 FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

  1. Credit risk (continued)
    1. Management of credit risk (continued)
      In accordance with the requirements of external regulatory and related system, the Company has formulated operation rules of credit risk grading, credit risk operation, credit business approval, interview and collection for loans and advances to customers and finance lease receivables according to credit risk management. The work of Company's credit risk management runs through all aspects of pre credit investigation, credit business approval and post-credit management sessions. During the pre-credit investigation session, the Company will carry out a credit background survey of the borrower. During the approval session, all the credit business must be approved by the corresponding approver. During the post-credit management session, the Company will continue to monitor all the loans and advances to customers and finance lease receivables and take corresponding measures for any negative events that may affect the borrower's repayment ability in order to prevent and control the risk.
      Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. At the end of each reporting period, the Company's maximum exposure to credit risk which will cause a financial loss to the Company due to failure to discharge an obligation by the counterparties arises from the carrying amount of the respective recognised financial assets as stated in the statement of financial position.

In order to minimize credit risk, the Company has tasked its risk management department to develop and maintain the Company's financial assets credit risk grading to categorize exposures according to their degree of risk of default. The credit rating information is supplied by independent rating agencies where available and, if not available, the risk management department uses other publicly available financial information and the Company's own trading records to rate its counterparties. The Company's exposure and the credit ratings of its counterparties are continuously monitored.

  1. Assessing credit risk of financial assets
    The Company adopts the Five-tier risk classification approach to manage its credit risk arising from loans and advances to customers and finance lease receivables. They are generally classified as normal, special mention, substandard, doubtful and loss according to their levels of risk.

46 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

23 FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

  1. Credit risk (continued)
    1. Assessing credit risk of financial assets (continued)
      After adopting HKFR 9 at 1 January 2018, the Company's current credit risk grading framework in respect of financial assets also comprises the following categories:

Basis of

recognizing

Category

Description

ECL

Performing

The counterparty has a low risk of default and does not have

12-month ECL

any past-due amounts

Doubtful

There has been a significant increase in credit risk since initial

Lifetime ECL for not

recognition

credit-impaired

In default

There is evidence indicating the asset is credit-impaired

Lifetime ECL for

credit-impaired

Write-of

There is evidence indicating that the debtor is in severe

Amount is

financial difficulty and the Company has no realistic prospect

written off

of recovery

For the period ended 30 June 2020, the Company has written off loans and advances to customers of RMB105,399 thousands (31 December 2019: RMB66,750 thousands) and finance lease receivables of 0 (31 December 2019: RMB3,244 thousands) as the Company had identified these debtors have financial difficulties.

For other receivables, the Company has applied the simplified approach in HKFRS 9 to measure them. Other receivables mainly consist of commission receivables of joint loans, deposits and consulting fees receivables, which are not considered meaningful due to the insignificant credit risk.

For deposits with banks, loans and advances to customers and interest receivables, the Company has identified multiple economic scenarios to consider the risk or probability that a credit loss occurs by weighting these different scenarios. Different economic scenarios will lead to a different probability of default.

The following table provides information about the Company's exposure to credit risk and ECLs for loans and advances to customers and finance lease receivables based on the Company's provision matrix. As the 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 Company's different customer bases.

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

47

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

23 FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

  1. Credit risk (continued)

At 30 June 2020

Loans and advances

Finance lease

to customers

receivables

Total

Provision

Provision

RMB'000

ratio (%)

RMB'000

ratio (%)

RMB'000

Gross balance are assessed for 12-month ECL

- Neither overdue nor credit-

impaired (including accrued

interest)

8,243,681

15,249

8,258,930

Allowances for impairment losses

(132,931)

(198)

(133,129)

Net balance

8,110,750

1.61%

15,051

1.30%

8,125,801

Gross balance are not credit-

impaired and assessed for

lifetime ECL

- Overdue but not credit-impaired

54,509

6,309

60,818

- Neither overdue nor credit-

impaired (including accrued

interest)

65

14,432

14,497

Sub-total

54,574

20,741

75,315

Allowances for impairment losses

(15,802)

(2,971)

(18,773)

Net balance

38,772

28.96%

17,770

14.32%

56,542

Gross balance are credit-

impaired and assessed for

lifetime ECL

- Overdue and credit-impaired

33,595

4,813

38,408

Allowances for impairment losses

(32,102)

(4,813)

(36,915)

Net balance

1,493

95.56%

-

100.00%

1,493

Book value

8,151,015

32,821

8,183,836

48 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

23 FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

  1. Credit risk (continued)

At 31 December 2019

Loans and advances

Finance lease

to customers

receivables

Total

Provision

Provision

RMB'000

ratio (%)

RMB'000

ratio (%)

RMB'000

Gross balance are assessed for 12-month ECL

- Neither overdue nor credit-

impaired (including

accrued interest)

10,072,109

49,394

10,121,503

Allowances for impairment losses

(112,932)

(388)

(113,320)

Net balance

9,959,177

1.12%

49,006

0.79%

10,008,183

Gross balance are not credit-

impaired and assessed for

lifetime ECL

- Overdue but not credit-impaired

77,938

3,241

81,179

- Neither overdue nor credit-

impaired (including accrued

interest)

237

-

237

Sub-total

78,175

3,241

81,416

Allowances for impairment losses

(38,459)

(795)

(39,254)

Net balance

39,716

49.20%

2,446

24.53%

42,162

Gross balance are credit-

impaired and assessed for

lifetime ECL

- Overdue and credit-impaired

45,233

4,499

49,732

Allowances for impairment losses

(39,973)

(3,950)

(43,923)

Net balance

5,260

88.37%

549

87.79%

5,809

Book value

10,004,153

52,001

10,056,154

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

49

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

23 FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

  1. Liquidity risk
    The Company aims to maintain sufficient cash and cash equivalents. Due to the dynamic nature of the underlying businesses, the policy of the Company is to regularly monitor the Company's liquidity risk and maintain adequate cash and cash equivalents to meet the Company's liquidity requirements.
    Currently, the Company's main sources of funds are paid-in capital, placements from banks and the principal and interest charged by the loan service. Under the circumstance of insufficient source of capital cash, principal and interest received by loan service, the main method to supply liquidity is placements from banks. The funds are mostly used to disburse loans and to maintain daily operations of the Company. The use of funds also includes repayment of placements from banks and related interest expenses.
    The following tables provide an analysis of the remaining contractual maturities, which are based on contractual undiscounted cash flows of the financial assets and liabilities of the Company at the end of the reporting periods.

At 30 June 2020

Between

Repayable

Between

three

Between

on demand/

Within

one month

months

one year

terms

one

and three

and one

and five

Carrying

undated

month

months

year

years

Total

amount

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

Financial assets

Cash and deposits with

central bank

9,556

-

-

-

-

9,556

9,556

Deposits with banks

167,391

-

-

10,073

-

177,464

177,391

Loans and advances to

customers

40,224

969,888

2,123,447

3,186,384

2,408,411

8,728,354

8,151,015

Finance lease

receivables

5,726

1,359

2,718

12,232

13,791

35,826

32,821

Other assets

22,059

-

-

-

-

22,059

22,059

Total

244,956

971,247

2,126,165

3,208,689

2,422,202

8,973,259

8,392,842

Financial liabilities

Placements from banks

-

(785,507)

(909,259)

(2,447,506)

-

(4,142,272)

(4,057,335)

Guarantee deposits

(140,915)

(1,378)

-

(9,368)

(3,075)

(154,736)

(154,736)

Lease

liabilities

-

(996)

(1,992)

(7,893)

(19,868)

(30,749)

(27,875)

Other

liabilities

(34,643)

(3,668)

(6,555)

(19,151)

(10,141)

(74,158)

(74,158)

Total

(175,558)

(791,549)

(917,806)

(2,483,918)

(33,084)

(4,401,915)

(4,314,104)

Net position

69,398

179,698

1,208,359

724,771

2,389,118

4,571,344

4,078,738

50 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

23 FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

  1. Liquidity risk (continued)

At 31 December 2019

Between

Repayable

Between

three

Between

on demand/

one month

months

one year

terms

Within one

and three

and one

and five

Carrying

undated

month

months

year

years

Total

amount

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

Financial assets

Cash and deposits with

central bank

9,479

-

-

-

-

9,479

9,479

Deposits with banks

86,523

30,004

-

10,172

-

126,699

126,524

Loans and advances to

customers

44,953

938,229

2,284,993

3,716,099

3,974,455

10,958,729

10,004,153

Finance lease

receivables

3,475

3,241

6,482

29,168

13,078

55,444

52,001

Other assets

19,870

-

-

-

-

19,870

19,870

Total

164,300

971,474

2,291,475

3,755,439

3,987,533

11,170,221

10,212,027

Financial liabilities

Placements from banks

-

(761,987)

(1,722,338)

(3,456,366)

-

(5,940,691)

(5,891,421)

Guarantee deposits

(141,840)

-

-

(2,537)

(12,468)

(156,845)

(156,845)

Lease liabilities

-

(907)

(1,815)

(8,165)

(25,408)

(36,295)

(32,388)

Other liabilities

(77,041)

(18,421)

(8,370)

(28,370)

(20,972)

(153,174)

(153,174)

Total

(218,881)

(781,315)

(1,732,523)

(3,495,438)

(58,848)

(6,287,005)

(6,233,828)

Net position

(54,581)

190,159

558,952

260,001

3,928,685

4,883,216

3,978,199

  1. Interest rate risk
    The interest rate risk of the Company mainly comes from credit business and inter-bank borrowings. The interest-bearing financial instruments of fixed rate and variable rate make the Company face fair value interest rate risk and cash flow interest rate risk, respectively. The Company's risk management committee reviews and supervises market operational risks.

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

51

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

23 FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

  1. Interest rate risk (continued)
    1. Interest rate profile
      The following table details the interest rate profile of the Company's assets and liabilities as at the end of the reporting period.

At 30 June 2020

At 31 December 2019

Effective

Effective

interest rate

Amount

interest rate

Amount

%

RMB'000

%

RMB'000

Fixed interest rate:

Financial assets

Loans and advances to

customers

7.51%-15.48%

8,151,015

7.60%-15.48%

10,004,153

Finance lease receivables

7.86%-18.71%

32,821

7.86%-18.71%

52,001

Total

8,183,836

10,056,154

Financial liability

Placements from banks

4.60%-7.50%

(4,057,335)

5.00%-8.00%

(5,891,421)

Total

(4,057,335)

(5,891,421)

Net position

4,126,501

4,164,733

At 30 June 2020

At 31 December 2019

Effective

Effective

interest rate

Amount

interest rate

Amount

%

RMB'000

%

RMB'000

Variable interest rate:

Financial assets

Cash and deposits with

central bank

0.72%-1.62%

9,556

0.72%-1.62%

9,479

Deposits with banks

0.01%-2.17%

177,391

0.01%-2.17%

126,524

Total

186,947

136,003

52 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

23 FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

  1. Interest rate risk (continued)
    1. Sensitivity analysis
      • Fair value interest rate risk
        The Company does not held any interest-bearing financial instruments of fixed interest measured at fair value, so the increase or decrease of interest rate would not influence the Company's profit after tax and equity through the change of fair value.
      • Cash flow interest rate risk

At

At

30 June

31 December

2020

2019

RMB'000

RMB'000

Increase/(decrease) in profit after tax and retained

profits

Interest rates increase by 100 bps

1,227

893

Interest rates decrease by 100 bps

(1,226)

(892)

The sensitivity analysis above is based on a static interest risk exposure profile of assets and liabilities. This analysis measures only the impact of changes in interest rates within one year, showing how profit after tax and equity would have been affected by repricing of the Company's assets and liabilities within the one-year period. The analysis does not take into account the effect of (i) the twisted shift in the yield curve with the changes in interest rates; (ii) risk management measures taken by the management. The analysis is also based on the assumption that there are no other changes to the portfolio and all positions will be retained and rolled over upon maturity.

  1. Currency risk
    The Company's functional currency is RMB. Except for the deposits with banks, which includes the proceeds from issuance of shares upon H-shares offering, there is no material currency risk for the Company as the majority of the business activities are within mainland China and settle in RMB. The currency giving rise to this risk is primarily Hong Kong Dollars (HKD). As most of the proceeds from issuance of shares upon public offering and over-allotment are converted into RMB by the Company during the reporting period and the remaining proceeds will be used to develop the Company's loan business, the currency risk is assessed to be low.

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

53

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

23 FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

  1. Currency risk (continued)
    1. Exposure to currency risk

Exposure to foreign currencies

(expressed in RMB thousand)

At 30 June 2020

At 31 December 2019

USD

HKD

USD

HKD

Deposits with banks

56

2,277

56

32,878

Other liabilities

-

(20,559)

-

(45,243)

Net position

56

(18,282)

56

(12,365)

  1. Sensitivity analysis
    The following table indicates the instantaneous changes in the Company's profit after tax and equity that would arise if foreign exchange rates to which the Company has significant exposure at the end of the reporting period had changed at that date, assuming all other risk variables remained constant.

At

At

30 June

31 December

2020

2019

RMB'000

RMB'000

Changes in profit after tax and equity

Foreign exchange rate increase by 100 bps

(137)

(92)

Foreign exchange rate decrease by 100 bps

137

92

The foreign exchange sensitivity is the gain or loss recognised as a result of 100 basis point fluctuation in the foreign currency exchange rates against RMB on the closing rate of reporting date.

Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on the Company's profit after tax and equity measured in the respective foreign currencies, translated into RMB at the exchange rate ruling at the end of the reporting period for presentation purposes.

  1. Operational risk
    Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks. Operational risks arise from all of the Company's operations.
    The Company has set a series of policies and procedures in the context of internal control measures to identify, evaluate, control, manage and report operational risk. This mechanism involves all the business aspects, hence the Company could identify all inherent operational risk of activities, processes and systems.

54 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

23 FINANCIAL RISK MANAGEMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

  1. Fair value
    The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows:
    • Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
    • Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available.
    • Level 3 valuations: Fair value measured using significant unobservable inputs.

At the end of the reporting period, the Company has no financial assets and liabilities measured at fair value and the carrying amounts of the Company's financial instruments carried at cost or amortised cost are not materially different from their fair values.

24 MATERIAL RELATED PARTY TRANSACTIONS

The following significant transactions were carried out between the Company and its related parties during the reporting period. In the opinion of the directors of the Company, the related party transactions were carried out in the normal course of business and at terms negotiated between the Company and the respective related parties.

  1. Names and relationships with related parties

The following companies are related parties of the Company that had balances and/or transactions with the Company during the reporting period.

Company

Relationship

China ZhengTong Auto Services Holding Limited

Parent Company

Baoding Aoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Baotou Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Baotou Zhongrui Automobile Sales Service Co., Ltd.

Fellow subsidiary

Baotou Luze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Beijing Baozehang Automobile Sales Services Co., Ltd.

Fellow subsidiary

Beijing Dewanlong Trading Co., Ltd.

Fellow subsidiary

Beijing BWWR Automobile Sales Services Co., Ltd.

Fellow subsidiary

Beijing SCAS North China Automobile Services Co., Ltd.

Fellow subsidiary

Beijing SCAS Zhongguan Automobile Sales Co., Ltd.

Fellow subsidiary

Beijing Zhengtong Baozehang Automobile Sales Services Co., Ltd.

Fellow subsidiary

Beijing Zhengtong Dingwo Automobile Sales Services Co., Ltd.

Fellow subsidiary

Changsha Ruibao Automobile Sales Services Co., Ltd.

Fellow subsidiary

Chengdu Qibao Automobile Sales Services Co., Ltd.

Fellow subsidiary

Chenzhou Ruibao Automobile Sales Services Co., Ltd.

Fellow subsidiary

Dingze Insurance Agency Co., Ltd.

Fellow subsidiary

Dongguan Aoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

55

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

24 MATERIAL RELATED PARTY TRANSACTIONS (CONTINUED)

  1. Names and relationships with related parties (continued)

Company

Relationship

Dongguan Jieyunhang Automobile Sales Services Co., Ltd.

Fellow subsidiary

Dongguan Liaobu SCAS Automobile Sales Services Co., Ltd.

Fellow subsidiary

Dongguan Zhengtong Kaidi Automobile Sales Services Co., Ltd.

Fellow subsidiary

Dongguan SCAS Automobile Sales Service Co., Ltd.

Fellow subsidiary

Foshan Aoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Foshan Dingbaohang Automobile Sales Services Co., Ltd.

Fellow subsidiary

Foshan Baoyunhang Automobile Sales Services Co., Ltd.

Fellow subsidiary

Foshan Zheng Tong Zhong Rui Automobile Sales Services Co., Ltd.

Fellow subsidiary

Fujian SCAS Automobile Sales Services Co., Ltd.

Fellow subsidiary

Fuzhou Dingwo Automobile Sales Services Co., Ltd.

Fellow subsidiary

Ganzhou Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Guangdong SCAS Shengwo Automobile Sales Services Co., Ltd.

Fellow subsidiary

Guangdong SCAS Automobile Sales Service Co., Ltd.

Fellow subsidiary

Guangzhoushi Hengyuehang Automobile Sales Services Co., Ltd.

Fellow subsidiary

Guangzhou Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Hainan SCAS Automobile Sales Services Co., Ltd.

Fellow subsidiary

Henan Jintangsheng Automobile Co., Ltd.

Fellow subsidiary

Hengyang Luze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Hunan SCAS Xingsha Automobile Sales Services Co., Ltd.

Fellow subsidiary

Hubei Aoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Hubei Bocheng Automobile Sales Services Co., Ltd.

Fellow subsidiary

Hubei Dingjie Automobile Sales Services Co., Ltd.

Fellow subsidiary

Hubei Jierui Automobile Sales Services Co., Ltd.

Fellow subsidiary

Hubei Xinrui Automobile Sales Services Co., Ltd.

Fellow subsidiary

Huhhot Jieyun Automobile Sales Services Co., Ltd.

Fellow subsidiary

Huhhot Qibao Automobile Sales Services Co., Ltd.

Fellow subsidiary

Hunan SCAS Automobile Sales Services Co., Ltd.

Fellow subsidiary

Inner Mongolia Dingze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Inner Mongolia Dingjie Automobile Trading Co., Ltd.

Fellow subsidiary

Jiangxi Deao Automobile Sales Services Co., Ltd.

Fellow subsidiary

Jiangxi Zhengtong Zetian Automobile Sales Services Co., Ltd.

Fellow subsidiary

Jieyang Dingjie Automobile Sales Services Co., Ltd.

Fellow subsidiary

Jieyang Luze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Jingmen Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Langfangshi Luze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Nanchang Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Qingdao Huacheng Automobile Services Co., Ltd.

Fellow subsidiary

Qingdao Aoze Automobile Sales Service Co., Ltd.

Fellow subsidiary

Qingyuan Aoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Qingyuan SCAS Hezhong Automobile Sales Services Co., Ltd.

Fellow subsidiary

Qingyuan SCAS Toyota Motor Sales Services Co., Ltd.

Fellow subsidiary

Shantou Hongxiang Materials Co., Ltd.

Fellow subsidiary

Shantou Lujie Automobile Sales Services Co., Ltd.

Fellow subsidiary

Shanghai Aohui Automobile Sales Services Co., Ltd.

Fellow subsidiary

Shanghai Luda Automobile Sales Services Co., Ltd.

Fellow subsidiary

Shanghai Shenxie Automobile Trading Co., Ltd.

Fellow subsidiary

56 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

24 MATERIAL RELATED PARTY TRANSACTIONS (CONTINUED)

  1. Names and relationships with related parties (continued)

Company

Relationship

Shanghai Qize Automobile Sales Service Co., Ltd.

Fellow subsidiary

Shanghai Qibao Automobile Sales Services Co., Ltd.

Fellow subsidiary

Shangrao Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Shangrao Luze Automobile Sales Service Co., Ltd.

Fellow subsidiary

Shantou Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Shenzhen Aoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Shenzhen Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Shenzhen Dingwo Automobile Sales Services Co., Ltd.

Fellow subsidiary

Shenzhen Hengshuo Advisory Services Co., Ltd.

Fellow subsidiary

Shenzhen SCAS Tenglong Automobile Sales Services Co., Ltd.

Fellow subsidiary

Shenzhen SCAS Infiniti Automobile Sales Services Co., Ltd.

Fellow subsidiary

Shenzhen SCAS Electric Machinery Co., Ltd.

Fellow subsidiary

Shengzhou Aoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Shenzhenshi SCAS Huawo Automobile Sales Services Co., Ltd.

Fellow subsidiary

Suzhou Anzhixing Automobile Sales Services Co., Ltd.

Fellow subsidiary

Tianjin SCAS Automobile Sales Services Co., Ltd.

Fellow subsidiary

Tianjin Automobile Industry SCAS Sales Co., Ltd.

Fellow subsidiary

Weihai Luze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Wuhan Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Wuhan Zhengtong United Industrial Investment Group Co., Ltd.

Fellow subsidiary

Wuhan Luze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Wuhan Kaitai Automobile Sales Services Co., Ltd.

Fellow subsidiary

Xiangtan Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Xiangyang Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Yichang Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Yichun Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Zhanjiang Zhengtong Kaidi Automobile Sales Services Co., Ltd.

Fellow subsidiary

Zhengzhou Aoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Zhengzhou Dingwo Automobile Sales Services Co., Ltd.

Fellow subsidiary

Zhongshan SCAS Automobile Sales Services Co., Ltd.

Fellow subsidiary

Zhuhai Baoze Automobile Sales Services Co., Ltd.

Fellow subsidiary

Zhuhai SCAS Jielu Automobile Sales Services Co., Ltd.

Fellow subsidiary

Zhuhai SCAS Automobile Sales Service Co., Ltd.

Fellow subsidiary

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

57

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

24 MATERIAL RELATED PARTY TRANSACTIONS (CONTINUED)

  1. Significant transactions with related parties
    In the opinion of the executive directors of the Company, the related party transactions were carried out in the normal course of business and at terms negotiated between the Company and the respective parties.

Six months ended 30 June

Note

2020

2019

RMB'000

RMB'000

Subsidies receipt for retail loans

(i)

852

33,827

Interest income

(i)

118,803

140,068

Interest expenses

-

(133)

Operating expenses

(73)

(151)

Additions of deposits from shareholders

-

362,280

Decrease of deposits from shareholders

-

(962,280)

    1. Subsidies receipt for retail loans included subsidies received from the automaker which are settled through related parties pursuant to the pass-through arrangement. Interest income included the subsidies amortised to the income statement during the reporting period.
  1. Balances with related parties
    As at the end of the reporting period, the Company had the following balances with related parties:

At

At

30 June

31 December

Note

2020

2019

RMB'000

RMB'000

Assets

Dealer's loans (including accrued interest)

(i)

1,520,693

1,497,265

Subsidies for retail loans

(ii)

(36,197)

(80,656)

Mortgage service fees

(ii)

844

1,559

Other assets

345

345

Liabilities

Guarantee deposits

75,000

75,000

Other liabilities

932

1,073

Off-balance sheet items

Guarantees received for dealer's loans

(iii)

1,520,693

1,497,265

  1. In the first half of 2020, the Company granted extension to certain dealer's loan borrowers affected by COVID-19 to defer the loan interest payment by a quarter, which including dealer's loans principal and accrued interest with related parties amounted to RMB1,481,367 thousands and RMB39,326 thousands as of 30 June 2020 respectively.
  2. The subsidies for retail loans and mortgage service fees are initially recognised in loans and receivables at amortised method.
  3. The guarantees were provided by fellow subsidiaries of the Company for repayment of dealer's loans. These guarantees expire on the same date as the related loans.

All balances with related parties are related to main business of the Company except for other liabilities due to fellow subsidiaries amounting to RMB932 thousands and RMB1,073 thousands as of 30 June 2020 and 31 December 2019, respectively.

58 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

24 MATERIAL RELATED PARTY TRANSACTIONS (CONTINUED)

  1. Directors and key management personnel remuneration
    Remuneration for key management personnel of the Company is as follows:

Six months ended 30 June

2020

2019

RMB'000

RMB'000

Remuneration of key management personnel

4,087

4,735

25 SEGMENT REPORTING

  1. Business segment
    The Company manages its businesses by business segments. In a manner consistent with the way in which information is reported internally to the Company's most senior executive management for the purposes of resource allocation and performance assessment, the Company has presented the following reportable segments:
    • Retail business: this segment represents the Company's retail business provided to automotive end customers. The Company's retail business facilitates its customers' purchase of passenger vehicles. These products and services include direct loans where the Company issues automobile retail loans to customers with its own funding and charge interests on the loans, loan facilitation services, joint loan arrangement and direct lease services;
    • Dealer's loan business: This segment represents the Company's dealer's loans provided to automobile dealers to facilitate their purchase of vehicles and accessories; and
    • Others: These represent any other business which cannot form a single reportable segment.

Six months ended 30 June 2020

Retail

Dealer's loan

Business

Business

Others

Total

RMB'000

RMB'000

RMB'000

RMB'000

Net interest income

201,791

85,541

1,454

288,786

Net fee and commission income

39,726

-

-

39,726

Other net income

-

-

9,828

9,828

Operating income

241,517

85,541

11,282

338,340

Operating expenses

(40,415)

(15,167)

-

(55,582)

Impairment losses

(78,262)

(13,048)

-

(91,310)

Finance costs

(745)

(280)

-

(1,025)

Profit before taxation

122,095

57,046

11,282

190,423

Other segment information

- Depreciation and amortisation

6,902

2,591

-

9,493

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

59

INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

25 SEGMENT REPORTING (CONTINUED)

  1. Business segment (continued)

At 30 June 2020

Retail

Dealer's loan

Business

Business

Others

Total

RMB'000

RMB'000

RMB'000

RMB'000

Reportable segment assets/total

assets

5,525,720

2,677,307

298,346

8,501,373

Reportable segment liabilities/total

liabilities

(3,386,317)

(868,762)

(93,998)

(4,349,077)

Six months ended 30 June 2019

Retail

Dealer's loan

Business

Business

Others

Total

RMB'000

RMB'000

RMB'000

RMB'000

Net interest income

189,050

24,967

7,981

221,998

Net fee and commission income

128,234

-

-

128,234

Other net income

-

-

36,601

36,601

Operating income

317,284

24,967

44,582

386,833

Operating expenses

(62,889)

(6,296)

-

(69,185)

Impairment losses

(40,805)

(6,741)

-

(47,546)

Finance costs

(710)

(71)

-

(781)

Profit before taxation

212,880

11,859

44,582

269,321

Other segment information

- Depreciation and amortisation

7,837

785

-

8,622

At 31 December 2019

Dealer's loan

Retail Business

Business

Others

Total

RMB'000

RMB'000

RMB'000

RMB'000

Reportable segment assets/total

assets

7,419,766

2,653,217

255,060

10,328,043

Reportable segment liabilities/total

liabilities

(4,894,400)

(1,203,270)

(220,798)

(6,318,468)

  1. Geographical information
    Geographically, the Company conducts its business in the PRC. The non-current assets are located in the PRC as well.

60 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT

(Express in thousands of Renminbi, unless otherwise stated)

  1. SEGMENT REPORTING (CONTINUED)
    1. Information about major customers
      During the reporting period, there was no revenue from transactions with a single external customer amounting to 10% or more of the Company's total revenue.
  2. CONTINGENCIES

The Company did not have any material contingent liabilities at the end of the reporting period.

27 NON-ADJUSTING EVENT AFTER THE REPORTING PERIOD

Pledge of loans and advances to customers

On 1 July 2020, the Company signed a pledge contract with Bank of Shanghai Co., Ltd. ("Bank of Shanghai"). According to the contract, the Company has pledged its retail loans amounting to RMB1.5 billion as collateral to certain placements from Bank of Shanghai to the Company.

Potential disposal of parent company's shares by its controlling shareholder

On 30 July 2020, China ZhengTong Auto Services Holding Limited ("the parent company") announced that it was informed by Joy Capital Holdings Limited ("Joy Capital"), the controlling shareholder of the parent company, which holds 1,383,516,820 shares of the parent company (representing approximately 51.29% of the total issued shares of the parent company as at 30 July 2020), that on 29 July 2020, Joy Capital entered into a memorandum of understanding (the "MOU") with Xiamen ITG Holding Group Co., Ltd ("ITG Holding"), an independent third party, pursuant to which Joy Capital intends to sell, and ITG Holding intends to purchase, approximately 29.9% interests of the parent company, subject to formal agreement to be signed by Joy Capital and ITG Holding.

The MOU is not legally binding, save for the provisions regarding confidentiality, exclusivity, enforceability, governing law and arbitration. The MOU shall be effective from the date of the MOU and shall automatically terminate on 1 October 2020 if no legally binding agreement is entered into and the parties do not agree to further extend the term of the MOU.

Except for the above, the Company has no material events for disclosure subsequent to 30 June 2020 and up to the date of approval to the interim financial report.

28 COMPARATIVE FIGURES

For disclosure purposes of the interim financial report, the Company made reclassification adjustments to some comparative figures.

SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD.

61

INTERIM REPORT 2020

DEFINITIONS

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

"Audit Committee"

audit committee of the Board

"Board"

the board of Directors of the Company

"CBIRC"

the China Banking and Insurance Regulatory Commission (中國銀行保險監督管理委

員會)

"Company"

Shanghai Dongzheng Automotive Finance Co., Ltd*. (上海東正汽車金融股份有限公

), a joint stock company incorporated in the PRC with limited liability and whose

H Shares are listed on the Stock Exchange (stock code: 2718)

"Corporate Governance Code"

the Corporate Governance Code and Corporate Governance Report as set out in

Appendix 14 to the Listing Rules

"Director(s)"

the director(s) of the Company

"Domestic Share(s)"

issued ordinary share(s) in the share capital of the Company with a nominal value of

RMB1.00 each, which are subscribed for or credited as fully paid in Renminbi

"H Share(s)"

issued ordinary share(s) in the share capital of the Company with a nominal value of

RMB1.00 each, which are subscribed for and traded in Hong Kong dollars and

listed on the Stock Exchange

"Hong Kong"

the Hong Kong Special Administrative Region of the PRC

"Hong Kong dollars" or "HK$"

Hong Kong dollars, the lawful currency of Hong Kong

"Listing Rules"

the Rules Governing the Listing of Securities on the Stock Exchange

"Model Code"

the Model Code for Securities Transactions by Directors of Listed Issuers set out in

Appendix 10 to the Listing Rules

"PRC" or "China"

the People's Republic of China, and for the purpose of this report only, excludes

Hong Kong, Macau Special Administrative Region of the PRC and Taiwan

"PRC GAAP"

the accounting policies generally accepted in the PRC

"Renminbi" or "RMB"

Renminbi, the lawful currency of the PRC

"SFO"

the Securities and Futures Ordinance of Hong Kong (Chapter 571 of the Laws of

Hong Kong)

"Share(s)"

ordinary shares in the share capital of the Company, including Domestic Shares,

Unlisted Foreign Shares and H Shares

"Shareholder(s)"

the shareholder(s) of the Company

"Stock Exchange"

The Stock Exchange of Hong Kong Limited

62 SHANGHAI DONGZHENG AUTOMOTIVE FINANCE CO., LTD. INTERIM REPORT 2020

DEFINITIONS

"Supervisor(s)"

the supervisor(s) of the Company

"Unlisted Foreign Share(s)"

issued ordinary share(s) in the share capital of the Company with a nominal value of

RMB1.00 each, which are subscribed for and held by persons other than PRC

nationals or PRC-incorporated entities and are not listed on any stock exchange

"ZhengTong"

China ZhengTong Auto Services Holdings Limited (中國正通汽車服務控股有限公司),

a controlling shareholder of the Company, a company incorporated on 9 July 2010

as an exempted company with limited liability under the laws of the Cayman Islands

and the shares of which are listed on the main board of the Stock Exchange (stock

code: 1728)

"%"

per cent.

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Shanghai Dongzheng Automotive Finance Co. Ltd. published this content on 17 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 September 2020 08:54:01 UTC