global offering - :: hkex :: hkexnews ::

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

Stock code : 1158

Zhejiang New Century Hotel Management Co., Ltd.浙江開元酒店管理股份有限公司

GLOBAL OFFERING

Joint Sponsors, Joint Global Coordinators, Joint Bookrunners, Joint Lead Managers

Joint Global Coordinators, Joint Bookrunners, Joint Lead Managers

Joint Bookrunners, Joint Lead Managers

If you are in any doubt about any of the contents of this prospectus, you should obtain independent professionaladvice.


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

GLOBAL OFFERINGNumber of Offer Shares : 70,000,000 H Shares (subject to the

Over-allotment Option)Number of Hong Kong Offer Shares : 7,000,000 H Shares (subject to

adjustment)Number of International Offer Shares : 63,000,000 H Shares (subject to

adjustment and the Over-allotmentOption)

Maximum Offer Price : HK$20.05 per H Share, plus brokerageof 1%, SFC transaction levy of0.0027% and Stock Exchange tradingfee of 0.005% (payable in full onapplication in Hong Kong dollars,subject to refund on final pricing)

Nominal Value : RMB1.00 per H ShareStock Code : 1158

Joint Sponsors, Joint Global Coordinators,Joint Bookrunners, Joint Lead Managers

Joint Global Coordinators, Joint Bookrunners,Joint Lead Managers

Joint Bookrunners, Joint Lead Managers

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

A copy of this prospectus, having attached thereto the documents specified in “Documents Delivered to the Registrar of Companies in Hong Kong and Available forInspection” in Appendix VIII to this prospectus, has been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies(Winding Up and Miscellaneous Provisions) Ordinance, Chapter 32 of the Laws of Hong Kong. The Securities and Futures Commission of Hong Kong and theRegistrar of Companies in Hong Kong take no responsibility as to the contents of this prospectus or any other documents referred to above.

The Offer Price is expected to be fixed by agreement between us and the Joint Global Coordinators (for themselves and on behalf of the Underwriters) on the PriceDetermination Date. The Price Determination Date is expected to be on or around March 1, 2019 (Hong Kong Time) and, in any event, not later than March 5, 2019(Hong Kong Time). The Offer Price will not be more than HK$20.05 and is currently expected to be not less than HK$13.37 unless otherwise announced. If, for anyreason, the Offer Price is not agreed between us and the Joint Global Coordinators (for themselves and on behalf of the Underwriters) by March 5, 2019, the HongKong Public Offering will not proceed and will lapse.

The Joint Global Coordinators (for themselves and on behalf of the Underwriters) may, with our consent, reduce the number of Offer Shares and/or the indicativeOffer Price range (which is HK$13.37 to HK$20.05 per Offer Share) at any time prior to the morning of the last day for lodging applications under the Hong KongPublic Offering. In such a case, notices of the reduction in the number of Offer Shares and/or the indicative Offer Price range will be published in the South ChinaMorning Post (in English) and Hong Kong Economic Times (in Chinese), and on the Stock Exchange’s website at www.hkexnews.hk and our Company’s websiteat www.kaiyuanhotels.com not later than the morning of the last day for lodging applications under the Hong Kong Public Offering. If applications for the HongKong Offer Shares have been submitted prior to the last day for lodging applications under the Hong Kong Public Offering, then even if the number of Offer Sharesand/or the Offer Price range is so reduced such applications cannot be subsequently withdrawn. Further details are set out in the sections headed “Structure andConditions of the Global Offering” and “How to Apply for the Hong Kong Offer Shares” in this prospectus.

The obligations of the Hong Kong Underwriters under the Hong Kong Underwriting Agreement to subscribe for, and to procure applicants for the subscription for,the Hong Kong Offer Shares, are subject to termination by the Joint Global Coordinators (for themselves and on behalf of the Hong Kong Underwriters) if certaingrounds arise prior to 8:00 a.m. on the Listing Date. Such grounds are set out in the section headed “Underwriting” in this prospectus. It is important that you referto that section for further details.

We are incorporated, and all of our businesses are located, in the PRC. Potential investors should be aware of the differences in the legal, economic and financialsystems between the PRC and Hong Kong and the different risks relating to investment in PRC incorporated companies. Potential investors should also be aware thatthe regulatory framework in the PRC is different from the regulatory framework in Hong Kong and should take into consideration the different market nature of ourH Shares. Such differences and risk factors are set out in the sections headed “Risk Factors”, “Appendix V – Summary of Principal PRC and Hong Kong Legal andRegulatory Provisions” and “Appendix VI – Summary of the Articles of Association” in this prospectus.

The Offer Shares have not been and will not be registered under the U.S. Securities Act or any state securities law in the United States and may not be offered, sold,pledged or transferred within the United States. There will be no public offer of the securities of our Company in the United States.

IMPORTANT

February 26, 2019

If there is any change in the following expected timetable of the Global Offering, wewill issue an announcement in Hong Kong to be published on the websites of the StockExchange at www.hkexnews.hk and our Company at www.kaiyuanhotels.com.

Hong Kong Public Offering commences andWHITE and YELLOW Application Forms availablefrom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9.00 a.m. on Tuesday,

February 26, 2019

Latest time to complete electronic applicationsunder HK eIPO White Form service throughthe designated website www.hkeipo.hk(2) . . . . . . . . . . . . . . . . . . . . .11:30 a.m. on Friday,

March 1, 2019

Application lists of the Hong Kong Public Offering open(3) . . . . . . . .11:45 a.m. on Friday,March 1, 2019

Latest time to lodge WHITE and YELLOWApplication Forms and giving electronicapplications instructions to HKSCC(4) . . . . . . . . . . . . . . . . . . . . . .12:00 noon on Friday,

March 1, 2019

Latest time to complete payment of HK eIPOWhite Form applications by effectinginternet banking transfer(s) or PPS payment transfer(s) . . . . . . . . . .12:00 noon on Friday,

March 1, 2019

Application lists of the Hong Kong Public Offering close(3) . . . . . . . .12:00 noon on Friday,March 1, 2019

Expected Price Determination Date(5) . . . . . . . . . . . . . . . . . . . . . . . . .Friday, March 1, 2019

Announcement of:

• the Offer Price;

• an indication of the level of interest in the International Offering;

• the level of applications in the Hong Kong Public Offering; and

• the basis of allocation of the Hong Kong Offer Shares

to be published in the South China Morning Post(in English) and Hong Kong Economic Times(in Chinese), and on the websites ofthe Stock Exchange at www.hkexnews.hkand our Company at www.kaiyuanhotels.com(6)

on or before. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Friday,March 8, 2019

EXPECTED TIMETABLE(1)

– i –

Announcement of results of allocations in the Hong Kong Public Offering(including successful applicants’ identification documentnumbers or business registration numbers, where appropriate)to be available through a variety of channels described inthe section headed “How to Apply for the Hong Kong Offer Shares”in this prospectus from . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Friday,

March 8, 2019

Results of allocations for the Hong Kong Public Offering will be availableat www.tricor.com.hk/ipo/result, with a “search by ID” function from . . . . . . . . . .Friday,

March 8, 2019

Despatch/collection of H Share certificates in respectof wholly or partially successful applications pursuantto the Hong Kong Public Offering on or before(7) & (9) . . . . . . . . . . . . . . . . . . . . . .Friday,

March 8, 2019

Despatch/collection of refund cheque ande-Auto Refund payment instructions in respect ofwholly or partially successful application(if applicable) or wholly or partially unsuccessfulapplication pursuant to the Hong Kong Public Offeringon or before(8) & (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Friday,

March 8, 2019

Dealings in H Shares on the Stock Exchange expectedto commence at . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9:00 a.m. on Monday,

March 11, 2019

Notes:

1. All times and dates refer to Hong Kong local time and date, except as otherwise stated.

2. You will not be permitted to submit your application under the HK eIPO White Form service through thedesignated website at www.hkeipo.hk after 11:30 a.m. on the last day for submitting applications. If you havealready submitted your application and obtained a payment reference number from the designated website priorto 11:30 a.m., you will be permitted to continue the application process (by completing payment of applicationmonies) until 12:00 noon on the last day for submitting applications, when the application lists close.

3. If there is a tropical cyclone warning signal number 8 or above, or a “black” rainstorm warning in force inHong Kong at any time between 9:00 a.m. and 12:00 noon on Friday, March 1, 2019, the application lists willnot open on that day. See “How to Apply for the Hong Kong Offer Shares – 10. Effect of bad weather on theopening of application lists” in this prospectus for further details.

4. Applicants who apply for Hong Kong Offer Shares by giving electronic application instructions to HKSCCshould see “How to Apply for the Hong Kong Offer Shares – 6. Applying by giving electronic applicationinstructions to HKSCC via CCASS” in this prospectus for further details.

5. The Price Determination Date is expected to be on Friday, March 1, 2019 and, in any event, not later thanTuesday, March 5, 2019. If, for any reason, the Offer Price is not agreed between the Joint Global Coordinators(for themselves and on behalf of the Underwriters) and our Company, the Global Offering will not proceed andwill lapse.

6. None of the website or any of the information contained on the website forms part of this prospectus.


– ii –

7. H Share certificates are expected to be issued on Friday, March 8, 2019 but will only become valid providedthat the Global Offering has become unconditional in all respects and neither of the Underwriting Agreementshas been terminated in accordance with its terms, which is scheduled to be at around 8:00 a.m. on Monday,March 11, 2019. Investors who trade Shares on the basis of publicly available allocation details before thereceipt of the H Share certificates and before they become valid do so entirely at their own risk.

8. e-Auto Refund payment instructions/refund cheques will be issued in respect of wholly or partiallyunsuccessful applications and in respect of wholly or partially successful applications if the Offer Price is lessthan the price per Offer Share payable on application. Part of your Hong Kong identity card number/passportnumber, or, if you are joint applicants, part of the Hong Kong identity card number/passport number of thefirst-named applicant, provided by you may be printed on your refund cheque, if any. Such data would alsobe transferred to a third party to facilitate your refund. Your banker may require verification of your HongKong identity card number/passport number before encashment of your refund cheque. Inaccurate completionof your Hong Kong identity card number/passport number may lead to delay in encashment of your refundcheque or may invalidate your refund cheque. Further information is set out in the section headed “How toApply for the Hong Kong Offer Shares” in this prospectus.

Applicants who apply through the HK eIPO White Form service and paid their applications monies throughsingle bank account may have refund monies (if any) despatched to their application payment bank account,in the form of e-Auto Refund payment instructions. Applicants who apply through the HK eIPO White Formservice and paid their application monies through multiple bank accounts may have refund monies (if any)despatched to the address as specified in their application instructions to the HK eIPO White Form ServicesProvider, in the form of refund cheques, by ordinary post at their own risk.

9. Applicants who apply for 1,000,000 Hong Kong Offer Shares or more may collect H Share certificates (ifapplicable) and/or refund cheques (if applicable) in person and may do so from our H Share Registrar, TricorInvestor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong from 9:00 a.m.to 1:00 p.m. on Friday, March 8, 2019 or any other date as notified by us in the newspapers as the date ofdispatch of H Share certificate/e-Auto Refund payment instructions/refund cheques. Applications beingindividuals who opt for personal collection must not authorize any other person to make their collection ontheir behalf. Applicants being corporations who opt for personal collection must attend by sending theirauthorized representatives each bearing a letter of authorization from his corporation stamped with thecorporation’s chop. Both individuals and authorized representatives (if applicable) must produce, at the timeof collection, evidence of identity acceptable to our H Share Registrar, Tricor Investor Services Limited.Applicants who have applied on YELLOW Application Forms may collect their refund cheques (ifapplicable), in person but may not collect their H Share certificates, which will be deposited into CCASS forcredit of their designated CCASS Participants’ stock accounts or CCASS Investor Participant stock accounts,as appropriate. Uncollected H Share certificates and refund cheques will be dispatched by ordinary post to theaddresses specified in the relevant applications at the applicant’s own risk. Further information is set out inthe section headed “How to Apply for the Hong Kong Offer Shares” in this prospectus.

You should read carefully “Underwriting”, “Structure and Conditions of the Global

Offering” and “How to Apply for the Hong Kong Offer Shares” for details relating to the

structure of the Global Offering, procedures on the applications for Hong Kong Offer Shares

and the expected timetable, including conditions, effect of bad weather and the despatch of

refund monies and H Share certificates.


– iii –

IMPORTANT NOTICE TO PROSPECTIVE INVESTORS

We have issued this prospectus solely in connection with the Global Offering and the

Offer Shares and does not constitute an offer to sell or a solicitation of an offer to buy

any securities other than the Offer Shares offered by this prospectus pursuant to the

Global Offering. This prospectus may not be used for the purposes of, and does not

constitute, an offer or invitation in any other jurisdiction or in any other circumstances.

No action has been taken to permit a public offering of the Offer Shares in any

jurisdiction other than Hong Kong and no action has been taken to permit the distribution

of this prospectus in any jurisdiction other than Hong Kong. The distribution of this

prospectus for purposes of a public offering and the offering of the Offer Shares in other

jurisdictions are subject to restrictions and may not be made except as permitted under

the applicable securities laws of such jurisdictions pursuant to registration with or

authorization by the relevant securities regulatory authorities or an exemption therefrom.

You should rely only on the information contained in this prospectus and the

Application Forms to make your investment decision. The Global Offering is made solely

on the basis of the information contained and the representations made in this prospectus.

We have not authorized anyone to provide you with information that is different from

what is contained in this prospectus. Any information or representation not contained nor

made in this prospectus and the Application Forms must not be relied on by you as having

been authorized by our Company, the Joint Global Coordinators, the Joint Sponsors, the

Joint Bookrunners, the Joint Lead Managers, any of the Underwriters, any of their

respective directors, officers, employees, agents or representatives of any of them or any

other parties involved in the Global Offering. Information contained on the website of our

Company at www.kaiyuanhotels.com does not form part of this prospectus.

Page

Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

CONTENTS

– iv –

Waivers from Strict Compliance with the Listing Rules and Exemption fromStrict Compliance with the Companies (Winding Up and MiscellaneousProvisions) Ordinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Information about this Prospectus and the Global Offering . . . . . . . . . . . . . . . . . 71

Directors, Supervisors and Parties Involved in the Global Offering . . . . . . . . . . . 76

Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

History, Reorganization and Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . . 107

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Relationship with Our Controlling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 223

Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

Directors, Supervisors and Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 251

Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

Cornerstone Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281

Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286

Future Plans and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354

Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359

Structure and Conditions of the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . . 370

How to Apply for the Hong Kong Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 381

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

Appendix IIA Unaudited Pro Forma Financial Information . . . . . . . . . . . . IIA-1

Appendix IIB Profit Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IIB-1

CONTENTS

– v –

Appendix III Property Valuation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1

Appendix IV Taxation and Foreign Exchange . . . . . . . . . . . . . . . . . . . . . . . IV-1

Appendix V Summary of Principal PRC and Hong Kong Legal and

Regulatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1

Appendix VI Summary of the Articles of Association . . . . . . . . . . . . . . . . . VI-1

Appendix VII Statutory and General Information. . . . . . . . . . . . . . . . . . . . . VII-1

Appendix VIII Documents Delivered to the Registrar of Companies in

Hong Kong and Available for Inspection . . . . . . . . . . . . . . VIII-1

CONTENTS

– vi –

OVERVIEW

We are one of the leading hotel groups in the PRC, and we principally engage in theoperation and management of mid-scale to upscale hotel chains in the PRC. As at August 31,2018, we operated and/or managed 140 hotels throughout 22 provinces, municipalities andautonomous regions, with over 31,000 hotel rooms in total and out of which, 81 hotels andaround 17,000 hotel rooms were located in the Zhejiang Province. According to the HorwathReport, as at March 31, 2018, in terms of number of hotel rooms in operation in China, we werethe seventh largest hotel group and second largest domestic hotel group according to thenumber of upscale hotel rooms, and were the eighth largest hotel group and the fourth largestdomestic hotel group according to the number of upscale and mid-scale hotel rooms. In termsof hotel rooms both in operation and under pipeline in China, we were the third largest hotelgroup and the largest domestic hotel group according to the number of upscale hotel rooms, andwere the seventh largest hotel group and the fourth largest domestic hotel group according tothe number of upscale and mid-scale hotel rooms. As at August 31, 2018, we have a pipelineof 135 hotels (including 129 full service management agreements, four hotel lease agreementsand two franchise agreements) with over 33,000 rooms that are expected to commenceoperation within the next five years.

Since our inception in Hangzhou, Zhejiang Province, in 1988, we have established thehomegrown, widely recognized “New Century (開元)” brand series that principally target theupscale leisure and business travel markets, offering hospitality services of internationalstandards complemented by local Chinese elements. We principally operate hotels that areleased to us, and also adopt an “asset-light” business model through managing hotels under fullservice management agreements and franchised hotels, as we believe such models allow us toconcentrate on our core capabilities – the business of hotel operation and management and willhelp us expand our presence and scale throughout the PRC more effectively and efficiently.

As at August 31, 2018, we had a portfolio of 12 hotel brands, amongst which nine brandswere in operation and three new brands were under development, covering the mid-scale toupscale spectrum of hotels. Our Group manages and/or operates the upscale hotels under fourbrands, namely “Grand New Century (開元名都)”, “New Century Resort (開元度假村)”, “NewCentury Grand House (開元觀堂)” and “New Century Wonderland (開元芳草地鄉村酒店)”. Wealso operate mid-scale hotels to serve the fast-growing number of value-conscious travelers,and boutique hotels targeting leisure travelers and corporate travelers. Under our contractedhotels under pipeline, we expect to introduce new hotel brands including “A.T.K Hotel (阿緹客)”, “Mayart Hotel (開元美途)” and “New Century Senbo (開元森泊)”, targeting leisure andcorporate travelers, all of which are expected to be in operation by 2019. We have receivednumerous awards and recognition in China and worldwide, such as the inclusion as one of theTop 30 Global Hotel Groups (全球酒店集團前30位) under the “Hotels 325 ranking” conductedby Hotels magazine (the official publication of The International Hotel & RestaurantAssociation) for three consecutive years in 2015, 2016 and 2017. Please see the sub-sectionheaded “History, Reorganization and Corporate Structure – Key Milestones” on key businessmilestones and achievements in the business development of our hotels.

BUSINESS MODEL

We currently operate hotels that are either owned or leased by us and we also manage andfranchise hotels.

Hotel operation

(i) Leased hotels. As at August 31, 2018 we had 29 leased hotels with 7,117 hotelrooms, accounting for approximately 22.3% of the hotel rooms in operation. Weoperate these leased hotels and bear all of the operating expenses. We areresponsible for (i) recruiting, training and supervising hotel managers and hotelstaff, (ii) rent and hotel renovation expenses, and (iii) purchasing hotel supplies andother required equipment. The terms of our hotel lease agreements typically rangefrom ten to 20 years. It typically takes two to ten months from the execution of ahotel lease agreement to hotel opening, provided that the hotel has completedconstruction and renovation by the time the hotel is handed over to our managementteam.

SUMMARY

– 1 –

(ii) Owned hotels. As at August 31, 2018, we owned two hotels with 382 hotel rooms,accounting for approximately 1.2% of the hotel rooms in operation. The two ownedhotels are both under our brand of “New Century Wonderland (開元芳草地鄉村酒店)”. We own and operate these hotels and bear all of the expenses. We areresponsible for recruiting, training and supervising hotel managers and employees,paying for hotel renovation expenses, and purchasing hotel supplies and otherrequired equipment.

Our overall occupancy rate, ADR, and RevPAR are affected by factors including ourproduct mix, ramp up period required for new hotels, seasonality factors and the overallindustry trend.

The following table sets out a breakdown of the occupancy rate, ADR and RevPAR of ouroperated hotels for the periods indicated:

For the year ended December 31,For the eight months

ended August 31,

2015 2016 2017 2017 2018

Occupancy rate 59.4% 61.4% 64.6% 64.6% 62.0%ADR (RMB) 447.4 439.0 447.1 448.6 456.0RevPAR (RMB) 265.5 267.0 288.9 289.9 282.6

According to the Horwath Report, the average occupancy rate of upscale hotels in thePRC increased from 58.0% in 2015 to 63.0% in 2017 whilst occupancy rate for mid-scalehotels remained relatively stable ranging from 64.0% to 66.0% during 2015 to 2017. In linewith the overall industry trend, the overall average occupancy rate of our Group’s operatedhotels increased from 59.4% in 2015 to 64.6% in 2017. This led to the increase in the RevPARof our Group’s operated hotels from RMB265.5 in 2015 to RMB288.9 in 2017. The occupancyrate of our Group’s operated hotels has decreased from 64.6% for the eight months endedAugust 31, 2017 to 62.0% for the eight months ended August 31, 2018 due to the relativelylower occupancy rate for our four newly-opened mid-scale select service leased hotels, whichin turn caused our average RevPAR to decrease from RMB289.9 to RMB282.6 for thecorresponding period.

Hotel management(i) Full service managed hotels. As at August 31, 2018, we had 96 hotels under full

service management agreements, with 20,938 hotel rooms, accounting forapproximately 65.6% of the hotel rooms in operation. Under our full servicemanagement, we are responsible for hotel openings preparation, conduct trialoperations, appoint management personnel and manage the hotel according to ourstandards and procedures. Hotel owners are responsible for making capitalcontributions in relation to hotel construction, decoration and operations and annualbudget proposal approval. A full service management agreement typically has aninitial term of ten to 15 years and may be extended, upon further negotiation. Ittypically takes ten to 40 months from the execution of a full service managementagreement to hotel opening, depending on construction schedules and progresscontrolled by third-party hotel owners.

(ii) Franchised hotels. As at August 31, 2018, we had granted franchises to 13 hotelsowned by Independent Third Parties with 3,465 hotel rooms, accounting forapproximately 10.9% of the hotel rooms in operation. Pursuant to the franchiseagreement, the franchisee will be granted the use of the “New Century (開元)” brandname and the relevant registered trademarks during the term of the agreement. Weare responsible for providing training to the hotel staff and supervising the openingand operation of the franchised hotel. The franchised hotels would be operated bythe franchisee unless they hire third-party hotel management companies to operatetheir hotels. A franchise agreement typically ranges from three to ten years and maybe extended by mutual agreement generally before six months prior to expiration ofthe franchise agreement.

SUMMARY

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The table below sets forth a breakdown of our revenue generated by our owned and leasedhotels for the periods indicated:

For the years ended December 31,

For the eightmonths ended

August 31,

Business models 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Hotel operationOwned hotels – 19,662 35,914 56,528Leased hotels 1,343,190 1,417,361 1,431,429 910,352

Revenue generated by ouroperated hotels 1,343,190 1,437,023 1,467,343 966,880

Others(Note) 57,402 53,116 60,523 46,768

Revenue of our hoteloperation segment 1,400,592 1,490,139 1,527,866 1,013,648

Note: This primarily includes revenue that cannot be directly attributable to a particular operated hotelincluding revenue from (i) sales of goods or products such as wine, seafood, moon cakes and ricedumplings; and (ii) the provision of room reservation services, in aggregate amounted to RMB57.4million, RMB53.1 million, RMB60.5 million and RMB46.8 million for the years ended December 31,2015, 2016 and 2017 and the eight months ended August 31, 2018, respectively.

The table below sets forth a breakdown of our revenue generated by our full-servicemanaged and franchised hotels for the periods indicated:



August 31,

Business models 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Hotel managementFull-service managed hotels 118,465 106,205 130,584 100,428Franchised hotels 3,025 5,662 6,193 5,173

Revenue generated by ourmanaged hotels 121,490 111,867 136,777 105,601

SUMMARY

– 3 –

The tables below set forth the breakdowns of our revenue generated by our operatedhotels by (i) category and brand; and (ii) city tiers for the periods indicated:



August 31,Hotel categories 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Upscale business hotels

Grand New Century 779,699 841,850 840,449 539,401

Revenue generated by ourupscale business hotels 779,699 841,850 840,449 539,401

Upscale resort hotels

New Century Resort 57,547 64,553 71,479 50,720New Century Grand House 39,570 44,182 43,659 19,089New Century Wonderland – 19,662 35,914 56,528

Revenue generated by ourupscale resort hotels 97,117 128,397 151,052 126,337

Mid-scale full service hotels

New Century Hotel 361,783 376,655 375,840 229,595Maison New Century 19,596 17,277 15,173 7,932

Revenue generated by ourmid-scale full service hotels 381,379 393,932 391,013 237,527

Mid-scale select service hotels

New Century Manju 84,995 72,844 79,462 60,584New Century Wonderland RV

Camp – – 5,367 3,031

Revenue generated by ourmid-scale select servicehotels 84,995 72,844 84,829 63,615




August 31,

City tiers 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

First-tier cities 81,203 81,737 65,975 24,769New first-tier cities(Note) 837,762 889,329 931,635 642,151Second-tier cities 358,943 373,912 360,566 216,486Third-tier cities 65,282 92,045 109,167 83,474


Note: city categorization of new first-tier cities according to the Horwath Report, which is based on the reportpublished by YICAI (Yicai Media Group (第一財經), which was founded in 2003 and is one of thelargest financial media conglomerate in China) in May 2017.

SUMMARY

– 4 –

The table below sets forth a breakdown of our gross profit and gross profit margingenerated by our owned and leased hotels for the periods indicated:



August 31,

Business model 2015 2016 2017 2018

Grossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin

RMB’000 % RMB’000 % RMB’000 % RMB’000 %

Hotel operationOwned hotels – – (4,165) N/A 6,027 16.8 12,923 22.9Leased hotels 112,219 8.4 198,526 14.0 274,678 19.2 135,071 14.8

Gross profit and gross profit margin generatedby our operated hotels(Note) 112,219 8.4 194,361 13.5 280,705 19.1 147,994 15.3

Note: This primarily excludes gross profit and gross profit margin that cannot be directly attributable to a particularoperated hotel including gross profit and gross profit margin from (i) sales of goods or products such as wine,seafood, moon cakes and rice dumplings; and (ii) the provision of room reservation services.

The table below sets forth a breakdown of our gross profit and gross profit margingenerated by our full service managed and franchised hotels for the periods indicated:



August 31,

Business model 2015 2016 2017 2018

Grossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin

RMB’000 % RMB’000 % RMB’000 % RMB’000 %

Hotel managementFull-service managed hotels 103,412 87.3 95,255 89.7 118,315 90.6 91,865 91.5Franchised hotels 2,641 87.3 5,078 89.7 5,611 90.6 4,732 91.5

Gross profit and gross profit margin generatedby our managed hotels 106,053 87.3 100,333 89.7 123,926 90.6 96,597 91.5

SUMMARY

– 5 –

The tables below set forth the breakdown of our gross profit and gross profit margingenerated by our operated hotels by (i) category and brand; and (ii) city tiers for the periodsindicated:




Grossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginRMB’000 % RMB’000 % RMB’000 % RMB’000 %

Upscale business hotelsGrand New Century 56,717 7.3 125,272 14.9 149,250 17.8 84,880 15.7

Gross profit and gross profit margin generated byour upscale business hotels 56,717 7.3 125,272 14.9 149,250 17.8 84,880 15.7

Upscale resort hotelsNew Century Resort 4,388 7.6 6,406 9.9 9,896 13.8 6,341 12.5New Century Grand House 9,125 23.1 7,830 17.7 10,618 24.3 (3,753) N/ANew Century Wonderland – – (4,165) N/A 6,027 16.8 12,923 22.9

Gross profit and gross profit margin generated byour upscale resort hotels 13,513 13.9 10,071 7.8 26,541 17.6 15,511 12.3

Mid-scale full service hotelsNew Century Hotel 26,523 7.3 52,853 14.0 82,353 21.9 40,182 17.5Maison New Century (1,787) N/A (1,631) N/A 3,819 25.2 1,904 24.0

Gross profit and gross profit margin generated byour mid-scale full service hotels 24,736 6.5 51,222 13.0 86,172 22.0 42,086 17.7

Mid-scale select service hotelsNew Century Manju 17,253 20.3 7,796 10.7 18,309 23.0 5,157 8.5New Century Wonderland RV Camp – – – – 433 8.1 360 11.9

Gross profit and gross profit margin generated byour mid-scale select service hotels 17,253 20.3 7,796 10.7 18,742 22.1 5,517 8.7

Gross profit and gross profit margin generatedby our operated hotels 112,219 8.4 194,361 13.5 280,705 19.1 147,994 15.3



August 31,City tiers 2015 2016 2017 2018

Grossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit


First-tier cities 8,935 11.0 12,086 14.8 24,488 37.1 6,268 25.3New first-tier cities(Note) 61,993 7.4 120,019 13.5 173,762 18.7 85,389 13.3Second-tier cities 32,053 8.9 51,341 13.7 60,209 16.7 37,766 17.4Third-tier cities 9,238 14.2 10,915 11.9 22,246 20.4 18,571 22.2Gross profit and gross profit margin

generated by our operated hotels 112,219 8.4 194,361 13.5 280,705 19.1 147,994 15.3

Note: city categorization of new first-tier cities according to the Horwath Report, which is based on the reportpublished by YICAI (Yicai Media Group (第一財經), which was founded in 2003 and is one of the largestfinancial media conglomerate in China) in May 2017.

Please also refer to section headed “Business – Sales and Marketing” in this prospectusfor the breakdown of the number of room nights sold through our reservation channels duringthe Track Record Period.

SUMMARY

– 6 –

COMPETITIVE STRENGTHSWe believe the following competitive strengths provide the foundation for our position as

one of the leading upscale hotel groups in China: (i) one of the leading upscale hotel groupsin China with strong brand recognition; (ii) a broad and strong portfolio of hotel brands withextensive network in the PRC and with strong pipeline of new hotel projects; (iii) distinctsynergy in executing a business model combining both hotel operation and hotel managementbusinesses; (iv) significant experience as a hotel group in China; (v) our diverse and effectivehotel reservation channels and loyalty program provides us with wide hotel guest exposure; and(vi) experienced and professional management team and a dedicated workforce.STRATEGIES

Our vision is to provide our hotel guests with an attractive and healthy sojourn experienceand to conceptualize the “Poetical Dwelling” (人詩意地棲居) notion by the efficient use ofhuman and natural resources including space and building materials. The successfulaccomplishment of this mission depends greatly on our sincere, dedicated and creativeworkforce. Our value system will always be putting the needs of our customers, thedevelopment of our employees and enhancing value for our shareholders as our core priorities.We intend to achieve our objectives by implementing the following strategies: (i) attract, retainand promote a dedicated, efficient and creative workforce; (ii) enhance our leading position inthe upscale business and resort hotels market through our hotel operation and hotelmanagement business models; (iii) further expand our business in mid-scale hotel chains; (iv)increase marketing activities and crossover marketing initiatives to maintain our strong brandrecognition and expand our guests base; and (v) further investment and development ininnovative digital strategies and improving operational efficiency.OUR INDUSTRY AND COMPETITIVE LANDSCAPE

According to the Horwath Report, the total number of upscale and mid-scale hotel roomsis on the rise and it is estimated that by 2021, the supply of mid-scale and upscale market isexpected to increase by more than 5,000 hotels with over 700,000 hotel rooms as compared to2017. Among all hotel rooms, the increase of mid-scale hotel rooms is expected to be more than638,000, and the increase of upscale hotel rooms is expected to be more than 135,000. Averageoccupancy rate of upscale hotel market in the PRC increased steadily from 56% in 2013 to 63%in 2017, whilst ADR has remained relatively stable within the range from RMB727 to RMB778during the same period. Due to the increase in occupancy for upscale hotels in the PRC,RevPAR has also increased steadily from RMB428 in 2013 to RMB465 in 2017. From 2013 to2017, average occupancy rate for mid-scale hotel market in the PRC have remained relativelystable, ranging from 64% in 2013 to 66% in 2017. RevPAR for mid-scale hotel market in thePRC decreased slightly from RMB285 in 2013 to RMB266 in 2017 due to decrease in ADRfrom RMB443 in 2013 to RMB404 in 2017.

There is intense competition in the hotel industry in the first-, new first- and second-tiercities in which we operate. Our principal competitors are other hotel operators, in particular,other major Star-rated hotel chains with well-established and recognized brands. Currently, weface competition from well-established international brands and leading Chinese hotel chainoperators. We also compete against independent owners or operators of local five Star-ratedhotels. We expect that our mid-scale hotels will compete against other business hotel chains.Please refer to section headed “Industry Overview” in this prospectus for more details of ourindustry and the ranking data of the key market players.PRICING POLICIES

The management fees payable to us under our full service management agreement mainlycomprise (i) basic management fee; (ii) an incentive management fee; and (iii) marketing andpromotion fee. The franchise fees payable to us under our franchise agreement would mainlycomprise, among others, the brand usage fee, operation management audit fee and staff trainingfee. As for the room rates, they are determined based on various factors, including the hotelrating and class, the service and facilities being provided, the location and local marketconditions and demand, the occupancy levels and seasonality. In determining our F&B prices,we make reference to the costs of raw materials and food ingredients, seasonal factors,competitions, spending patterns and purchasing power of our hotel guests and other restaurantexpenses and costs (such as labor costs and utility expenses). Please refer to sub-section headed“Business – Our Business Operations – Pricing Policies” in this prospectus for more details.

SUMMARY

– 7 –

OUR CUSTOMERS AND SUPPLIERS

Our customers primarily comprise hotel owners, travel agencies, OTAs and corporateclients. For the years ended December 31, 2015, 2016 and 2017 and the eight months endedAugust 31, 2018, our five largest customers in aggregate accounted for 8.7%, 6.9%, 6.9% and8.0%, respectively, of our total revenue, of which one of them includes the relevant closeassociates of Mr. Chen Miaolin, one of our Controlling Shareholders. Save for that, none of ourDirectors, their respective close associates, or any Shareholder who, to the knowledge of ourDirectors, owns more than 5.0% of our issued capital, had any interest in any of our five largestcustomers during the Track Record Period.

Our suppliers primarily comprise lessors under our hotel operation business, rawmaterials suppliers, laundry services providers and utilities vendors. For the years endedDecember 31, 2015, 2016 and 2017 and the eight months ended August 31, 2018, our fivelargest lessor suppliers, in aggregate accounted for 23.3%, 22.9%, 23.8% and 23.0%,respectively, of our total cost of sales, of which one of them, New Century REIT, is a closeassociate of Mr. Chen Miaolin, one of our Controlling Shareholders. Save for that, none of ourDirectors, their respective close associates, or any Shareholder who, to the knowledge of ourDirectors, owns more than 5% of our issued capital, had any interest in any of our five largestlessor suppliers during the Track Record Period. For the years ended December 31, 2015, 2016and 2017 and for the eight months ended August 31, 2018, our five largest other suppliers inaggregate accounted for 4.0%, 3.7%, 4.4% and 4.8%, respectively, of our total cost of sales.Save for one of them which includes the relevant close associates of Mr. Chen Miaolin, one ofour Controlling Shareholders, none of our Directors, their respective close associates, or anyShareholder who, to the knowledge of our Directors, owns more than 5.0% of our issuedcapital, had any interest in any of our five largest other suppliers during the Track RecordPeriod. Please refer to the sub-sections headed “Business – Customers” and “Business –Suppliers” in this prospectus for more details.

Hotel guests are able to make room reservations either through our direct or indirectdistribution channels. For further details on the different types of sales distribution channels,please see sub-section headed “Business – Sales and Marketing” in this prospectus.

VALUATION OF OUR PROPERTIES

Our independent property valuer, Cushman & Wakefield Limited, valued our propertiesbased on the assumption that (i) our Group has an enforceable title to the properties and hasfree and uninterrupted rights to use, occupy or assign the properties for the whole of therespective unexpired land use term as granted and that any premium payable has already beenfully paid; (ii) all consents, approvals and licenses from relevant government authorities for thedevelopments have been obtained without onerous conditions or delays; and (iii) the design andconstruction of the properties are in compliance with the local planning regulations and havebeen approved by the relevant authorities.

In valuing the properties which are hotels operated by our Group in the PRC, Cushman& Wakefield has used discounted cash flow method. In valuing the properties which are heldby our Group for own use in the PRC, Cushman & Wakefield has used market comparisonmethod. The properties which are leased to our Group in the PRC are considered to have nocommercial value.

Cushman & Wakefield has valued our property interests and the total market value of theproperties which are hotels operated by our Group in the PRC and the properties which are heldby our Group for own use in the PRC to be RMB442.0 million and RMB85.8 million,respectively as at November 30, 2018. Please see section headed “Appendix III – PropertyValuation Report” for more details of our properties. For risks associated with assumptionsmade in the valuation of our properties, please see sub-section headed “Risk Factors – Risksrelating to our business and operations – The appraised value of our properties may bematerially different from their actual realizable value and are subject to change” in thisprospectus.

SUMMARY

– 8 –

SUMMARY OF FINANCIAL INFORMATION

The following tables set out a breakdown of our summary of financial information for theperiods indicated and should be read together with the consolidated financial information inAppendix I to this prospectus, including the accompanying notes, and the information set outin the section headed “Financial Information” in this prospectus.

Summary of Consolidated Statements of Comprehensive Income

For the years ended December 31,For the eight months

ended August 31,

2015 2016 2017 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000(unaudited)

Revenue 1,522,082 1,602,006 1,664,643 1,067,753 1,119,249

Gross profit 244,103 319,735 431,941 250,048 249,939

Operating profit 55,814 119,651 225,021 127,596 139,498

Profit before income tax 58,294 117,230 223,022 123,922 142,196

Profit and totalcomprehensive incomefor the year/period 29,641 84,055 166,567 89,196 111,555

Note: Since May 2016, the business tax regime was replaced by the VAT regime in the PRC, which amongother factors, contributed to the increase in net profit for the years ended December 31, 2016 and 2017as compared to the year ended December 31, 2015. Primarily as a result of such tax regime change, taxesand levies expenses recognised in our cost of sales decreased from RMB84.0 million for the year endedDecember 31, 2015 to RMB33.9 million for the year ended December 31, 2016 and further to RMB4.1million for the year ended December 31, 2017.

Revenue by Segment

The table below sets forth a breakdown of our revenue by segment for the periodsindicated:


ended August 31,

2015 2016 2017 2017 2018


SegmentHotel Operation 1,400,592 1,490,139 1,527,866 982,353 1,013,648Hotel Management 121,490 111,867 136,777 85,400 105,601

Total Revenue 1,522,082 1,602,006 1,664,643 1,067,753 1,119,249

Cost of Sales

Our cost of sales primarily consists of (i) operating lease rentals, (ii) costs of materialsconsumption, (iii) employee benefit expenses, (iv) utilities and electricity, (v) taxes and levies,and (vi) depreciation of property, plant and equipment.

SUMMARY

– 9 –

Gross Profit and Gross Profit Margin by Segment

The table below sets forth a breakdown of our gross profit and gross profit margin bysegment for the periods indicated:

For the years ended December 31, For the eight months ended August 31,

2015 2016 2017 2017 2018

Grossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin

RMB’000 % RMB’000 % RMB’000 % RMB’000 % RMB’000 %(unaudited)

SegmentHotel Operation 138,050 9.9 219,402 14.7 308,015 20.2 173,163 17.6 153,342 15.1Hotel Management 106,053 87.3 100,333 89.7 123,926 90.6 76,885 90.0 96,597 91.5

Total Gross Profit andGross Profit margin 244,103 16.0 319,735 20.0 431,941 25.9 250,048 23.4 249,939 22.3

Summary of Consolidated Balance Sheets

As at December 31,As at

August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Total non-current assets 485,504 573,351 622,659 711,282Total current assets 649,349 679,634 689,992 722,977

Total assets 1,134,853 1,252,985 1,312,651 1,434,259

Total equity 262,974 317,029 529,093 601,435

Total non-current liabilities 181,029 232,090 181,851 214,644Total current liabilities 690,850 703,866 601,707 618,180

Total liabilities 871,879 935,956 783,558 832,824

Total equity and liabilities 1,134,853 1,252,985 1,312,651 1,434,259

Net current (liabilities)/assets (41,501) (24,232) 88,285 104,797

SUMMARY

– 10 –

We had net current liabilities of RMB41.5 million and RMB24.2 million as at December31, 2015 and 2016, respectively, and net current assets of RMB88.3 million and RMB104.8million as at December 31, 2017 and August 31, 2018, respectively. Our current liabilityposition as at December 31, 2015 and 2016 primarily consisted of (i) trade and other payables,(ii) short-term bank borrowings, and (iii) contract liabilities. The improvement from net currentliability position as at 31 December 2015 and 2016 to net assets position as at December 31,2017 and August 31, 2018 was primarily due to (i) the decrease in our short-term borrowingsand (ii) the increase in our cash and cash equivalents.

Although we recorded a net asset position of RMB263.0 million as at December 31, 2015and generated profit and total comprehensive income of RMB29.6 million for the year endedDecember 31, 2015, we had net current liabilities of RMB41.5 million as at the same date,primarily due to the expenditure of RMB88.6 million in cash primarily in connection with theconstruction of Changxing New Century Wonderland Resort (長興開元芳草地鄉村酒店),including purchase of land use right and construction of building and facilities, which wereaccounted as non-current assets.

Despite recording a net assets position of RMB317.0 million as at December 31, 2016 andgenerating a profit and total comprehensive income of RMB84.1 million for the year endedDecember 31, 2016, we had a net current liabilities position of RMB24.2 million as atDecember 31, 2016, representing a 41.7% decrease as compared to the net current liabilitiesof RMB41.5 million as at December 31, 2015, primarily due to the expenditure of RMB118.2million in cash primarily in connection with the construction of Changxing New CenturyWonderland Resort (長興開元芳草地鄉村酒店) and Hangzhou Fuchun New CenturyWonderland Resort (杭州富春開元芳草地鄉村酒店), which were accounted as non-currentassets.

Please see sub-section headed “Financial Information – Liquidity and Capital Resources– Net Current Assets and Liabilities” in this prospectus.

Summary of Consolidated Statements of Cash FlowsFor the years ended

December 31,For the eight months

ended August 31,

2015 2016 2017 2017 2018


Net cash generated from operatingactivities 97,442 168,931 268,073 87,883 33,594

Net cash (used in)/generated frominvesting activities (90,574) (85,377) 86,885 61,943 (143,420)

Net cash (used in)/generated fromfinancing activities (35,148) (33,775) (107,013) (131,613) (26,041)

Net (decrease)/increase in cash andcash equivalents (28,280) 49,779 247,945 18,213 (135,867)

Cash and cash equivalents at thebeginning of the year/period 154,665 126,385 176,164 176,164 424,109

Cash and cash equivalents at the endof the year/period 126,385 176,164 424,109 194,377 288,242

SUMMARY

– 11 –

Although we generated net cash of RMB97.4 million from operating activities for the yearended December 31, 2015, we recorded a net cash outflow of RMB28.3 million during thesame period primarily due to cash used in (i) the payment of approximately RMB88.6 millionprimarily in connection to the construction of Changxing New Century Wonderland Resort (長興開元芳草地鄉村酒店), and (ii) the repayment of other financing instruments of RMB160.7million, partially offset by the contributions to subsidiaries by the Controlling Shareholders ofRMB60.0 million and net proceeds from borrowings of RMB36.0 million.

Despite the generation of net cash of RMB33.6 million from operating activities, we alsorecorded a net cash outflow of RMB135.9 million during the eight months ended August 31,2018 primarily due to the cash used in investing activities comprising (i) the payment ofRMB91.5 million for property, plant and equipment, land use rights, intangible assets and otherlong-term assets for the operation of Hangzhou Fuchun New Century Wonderland Resort (杭州富春開元芳草地鄉村酒店), (ii) the investment in short-term wealth management products ofRMB60.0 million, and (iii) the dividends distributed to the shareholders of RMB41.2 million,partially offset by the proceeds of RMB35.0 million from borrowings.

Key Financial Ratios

The table below sets forth a summary of the key financial ratios for the periods indicated.

For the years ended/As at December 31,

For the eight monthsended/As at August 31,

2015 2016 2017 2017 2018

(unaudited)

Gross Profit Margin(1) 16.0% 20.0% 25.9% 23.4% 22.3%Net Profit Margin(2) 1.9% 5.2% 10.0% 8.4% 10.0%Return on equity(3) 15.4% 29.8% 39.6% N/A N/ACurrent Ratio(4) 0.9x 1.0x 1.1x N/A 1.2xGearing Ratio(5) 27.3% 28.3% 12.6% N/A 13.7%

Notes:

1. Gross profit margin is calculated by dividing gross profit by revenue.

2. Net profit margin is calculated by dividing profit and total comprehensive income by revenue.

3. Return on equity is calculated by dividing profit and total comprehensive income attributable to ownersof our Company for the period by the average total equity attributable to owners of our Company at thebeginning and the end of the period.

4. Current ratio is calculated by dividing currents assets by current liabilities at the end of the period.

5. Gearing ratio is calculated by dividing total borrowings by total assets at the end of the period.

SUMMARY

– 12 –

Non-IFRS Measures

The following table sets out our EBITDA, EBITDA margin, EBITDAR and EBITDARmargin, all of which are non-IFRS measures:


ended August 31,

2015 2016 2017 2017 2018

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

Profit and total comprehensiveincome for the year/period 29,641 84,055 166,567 89,196 111,555

Adjusted for:Income tax expense 28,653 33,175 56,455 34,726 30,641Finance costs 30,220 16,049 10,406 9,140 6,769Depreciation and

amortization 53,120 56,936 59,879 39,899 38,090Finance income (30,968) (12,193) (5,402) (3,937) (5,140)

EBITDA(1) 110,666 178,022 287,905 169,024 181,915

EBITDA Margin(2) 7.3% 11.1% 17.3% 15.8% 16.3%

Adjusted for:Operating lease expenses 403,026 399,850 374,067 256,384 255,388

EBITDAR(3) 513,692 577,872 661,972 425,408 437,303

EBITDAR Margin(4) 33.7% 36.1% 39.8% 39.8% 39.1%

Notes:

1. EBITDA is profit before income tax, finance income, finance costs and depreciation and amortization.

2. EBITDA margin is calculated by dividing EBITDA by revenue.

3. EBITDAR is calculated by EBITDA added by operating lease expenses.

4. EBITDAR margin is calculated by dividing EBITDAR by revenue.

5. EBITDA and EBITDAR are used by management as the primary measurement of operating performanceof our Group’s hotels and are used as a common performance measurement to compare results orestimate valuations across companies in the hotel industry. By computing the operating income beforededucting interest, taxes, depreciation and amortization in the case of EBITDA and also the rentexpenses in the case of EBITDAR, its management or potential investors in the hotel industry would beable to more effectively compare and assess the actual underlying operating performance of differenthotel operators, by excluding the effect on net profitability position as a result of different capitalstructure (for example, the use of equity versus debt when developing new hotels) and/or ownershipstructure (for example, leasing versus owning of hotel assets) adopted by hotel operators.

The measures of financial performance described in this section are non-IFRS measuresand accordingly are not audited, not included in the financial statements and not presented inaccordance with IFRS. Although these measures of financial performance are reconcilable toline items on the financial statements, they may not be equivalent to similarly named measuresused by other companies and should not be considered as measures comparable to incomestatement items in the financial statements. They have limitations as analytical tools and shouldnot be considered in isolation from, or as a substitute for, an analysis of our financial resultspresented under IFRS.

SUMMARY

– 13 –

DISTRIBUTABLE RESERVES

As at January 1, 2015 and December 31, 2015, we recorded an accumulated loss ofRMB59.2 million and RMB29.1 million, respectively. This was primarily due to (i) theadjustments arisen from the New Century Hotel Investment Reorganization after thedistribution of dividend to its then shareholders in 2012, which turned our retained earningposition as at January 1, 2012 to an accumulated loss position as at December 31, 2012 underthe consolidated PRC GAAP financial statement of our Group; and (ii) the hotel industry in thePRC experiencing a downturn in 2013 to 2014, which in turn adversely affected our Group’sprincipal business particularly our upscale hotel operations. The recovery in the overall marketconditions of the hotel industry and the implementation of cost control measures by our Groupled to the improved financial performance of our Group since 2015 and we recorded a net profitof RMB29.6 million, RMB84.1 million and RMB166.6 million for the years ended December31, 2015, 2016 and 2017, respectively. As at December 31, 2016 and August 31, 2018, werecorded RMB55.2 million and RMB105.2 million respectively in retained earnings, asdetermined under IFRS, available for distribution to our shareholders.

OUR HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Our Company principally engages in the operation and management of mid-scale toupscale hotel chains in the PRC. Our Predecessor, New Century Hotel Management, was firstestablished in the PRC as a limited liability company with a registered capital ofRMB5,000,000 by New Century Hotel Investment and New Century Tourism on December 17,2008, and it was subsequently converted into a joint stock company with limited liability onJune 28, 2017 as part of our Reorganization. Please refer to section headed “History,Reorganization and Corporate Structure” in this prospectus for more information about ourhistory, our Reorganization, our Pre-IPO Investors and our corporate structure.

For the acquisitions and disposals of our Group that had taken place during and after theTrack Record Period, please refer to sub-section headed “History, Reorganization andCorporate Structure – Acquisitions and Disposals during the Track Record Period” and“History, Reorganization and Corporate Structure – Acquisition after the Track Record Period”in this prospectus.

RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

Immediately following the completion of the Global Offering, New Century Tourism willcontrol approximately 48.3% of our share capital, assuming the Over-allotment Option is notexercised, and will continue to be our direct Controlling Shareholder. New Century Tourism isin turn indirectly held as to 85.2% by Mr. Chen Miaolin, 8.5% by Mr. Chen Canrong and 6.3%by Mr. Zhang Guanming, which form a group of Controlling Shareholders, given that Mr. ChenMiaolin, Mr. Chen Canrong and Mr. Zhang Guanming hold their interests in our Companycollectively through New Century Tourism.

Except as disclosed in the section headed “Relationship with our ControllingShareholders” in this prospectus, none of our Controlling Shareholders is interested in anybusiness which is, whether directly or indirectly, in competition with our business. Each of theControlling Shareholders has entered into the Deed of Non-Competition in favor of ourCompany to the effect that each of them will not, and will procure each of their respectiveassociates not to, directly or indirectly participate in, or hold any right or interest, or otherwisebe involved in any business which may be in competition with our business. Please refer to thesection headed “Relationship with our Controlling Shareholders” in this prospectus for moredetails.

We have entered into a number of agreements with our connected persons which willconstitute continuing connected transactions under Chapter 14A of the Listing Rules uponListing. Please refer to the section headed “Connected Transactions” in this prospectus formore details. Our Company has also applied to the Stock Exchange and obtained a waiver fromstrict compliance with the relevant requirements under Chapter 14A of the Listing Rules.

SUMMARY

– 14 –

PRE-IPO INVESTMENTS

On December 11, 2015, Hangzhou Qianhe Qiju Investment Management Partnership(Limited Partnership)* (杭州謙和祺聚投資管理合夥企業(有限合夥)) subscribed for registeredcapital in the amount of RMB8.7 million, representing approximately 5.0% equity interests, inNew Century Hotel Management. On November 17, 2016, Clear Ocean Holdings Limited(“Clear Ocean”) entered into an equity transfer agreement with (i) NC Hotels InvestmentHolding Pte. Ltd., (ii) Shanghai Bohui Investment Center (Limited Partnership)* (上海鉑卉投資中心(有限合夥)) (currently known as Shanghai Ouling Bohui Investment Center (LimitedPartnership)* (上海鷗翎鉑卉投資中心(有限合夥)) (“Bohui Investment”) and (iii) OceanCentury Hotels Limited (“OC Hotels”), pursuant to which Clear Ocean agreed to transfer itsequity interests in New Century Hotel Management to NC Hotels, Bohui Investment and OCHotels, respectively. On April 24, 2017, Bohui Investment entered into an equity transferagreement with Ningbo Meishan Bonded Area Kairui Shiqi Investment ManagementPartnership (Limited Partnership)* (寧波梅山保稅港區開瑞世祺投資管理合夥企業(有限合夥))(“Kairui Shiqi”), pursuant to which Bohui Investment agreed to transfer certain of its equityinterests in New Century Hotel Management to Kairui Shiqi. On the same date, pursuant to acapital increase agreement entered into between New Century Hotel Management, Kairui Shiqiand Ningbo Meishan Bonded Area Kaihui Taiheng Investment Management Partnership(Limited Partnership)* (寧波梅山保稅港區開匯泰亨投資管理合夥企業(有限合夥)) (“KaihuiTaiheng”), Kairui Shiqi and Kaihui Taiheng subscribed for registered capital in New CenturyHotel Management in the amount of RMB15.1 million in aggregate.

On June 9, 2017, Mr. Chen Miaolin, New Century Tourism, Qianhe Qiju, NC Hotels,Bohui Investment, OC Hotels, Kairui Shiqi and Kaihui Taiheng entered into a supplementalpromoters’ agreement. Pursuant to the terms of the supplemental promoters’ agreement, QianheQiju, NC Hotels, Bohui Investment, OC Hotels, Kairui Shiqi and Kaihui Taiheng have beengranted certain special rights, each of which has been suspended as at the Latest PracticableDate and will be automatically terminated upon the Listing Date.

For further details on the principal terms of the pre-IPO investments and special rightsgranted to the pre-IPO investors, please refer to the sub-section headed “History,Reorganization and Corporate Structure – Pre-IPO Investments” in this prospectus.

RECENT DEVELOPMENT AND NO MATERIAL ADVERSE CHANGE

Our business operations had remained stable after the Track Record Period and up to theLatest Practicable Date as there were no material changes to our business model and thegeneral economic and regulatory environment in which we operate.

During the period from August 31, 2018 up to December 31, 2018, we have increased ourtotal hotel portfolio to 150 hotels with around 34,200 hotel rooms, of which 31 hotels andaround 7,400 hotel rooms are operated by us and 119 hotels and around 26,800 hotel rooms aremanaged by us. During the same period, we have also increased our pipeline from 135 hotelsas at August 31, 2018 to 169 hotels.

Our Directors have confirmed that there has been no material adverse change in ourfinancial or trading position since August 31, 2018, the date of our consolidated financialstatements set out in the Accountant’s Report included in Appendix I to this prospectus, and upto the date of this prospectus.

SUMMARY

– 15 –

OFFERING STATISTICSAll statistics in this table are based on the assumption that the Over-allotment Option is

not exercised.Based on minimum

indicative Offer Price ofHK$13.37 per

Offer Share

Based on maximumindicative Offer Price of

HK$20.05 perOffer Share

Market capitalization of theH Shares (Note) HK$935.9 million HK$1,403.5 million

Note: The calculation of market capitalization is based on 70,000,000 H Shares to be issued under the GlobalOffering.

UNAUDITED PRO FORMA CONSOLIDATED NET TANGIBLE ASSETSThe following unaudited pro forma consolidated net tangible assets prepared in

accordance with Rule 4.29 of the Listing Rules are set out below to illustrate the effect of theGlobal Offering on our net tangible assets as at August 31, 2018 as if they had taken place onthat date. The unaudited pro forma consolidated net tangible assets of our Group have beenprepared for illustrative purposes only and, because of their hypothetical nature, may not givea true picture of our net tangible assets had the Global Offering been completed as at August31, 2018 or at any future date.

AuditedConsolidated Net

Tangible Assetsof our Group

attributable tothe equity

holders of theCompany as at

August 31,2018(1)

Estimated NetProceeds from

the GlobalOffering(2)

UnauditedPro Forma

adjustedNet Tangible

Assets ofour Group


holders of ourCompany

Unaudited Pro FormaConsolidated Net Tangible

Assets per Share(3)

RMB’000 RMB’000 RMB’000 RMB HK$

Based on the minimum indicativeOffer Price of HK$13.37per Offer Share 570,195 753,252 1,323,447 4.73 5.41

Based on the maximum indicativeOffer Price of HK$20.05per Offer Share 570,195 1,147,360 1,717,555 6.13 7.02

Notes:

1. The audited consolidated net tangible assets information of our Group attributable to the equity holdersof our Company as at August 31, 2018 is extracted from the Accountant’s Report set out in AppendixI, which is based on the audited consolidated net assets of our Group attributable to the equity holdersof our Company as at August 31, 2018 of RMB582,532,000 with an adjustment for the intangible assetsattributable to the equity holders of our Company as at August 31, 2018 of RMB12,337,000.

2. The estimated net proceeds to be received by our Company from the Global Offering are based on theindicative Offer Price of HK$13.37 and HK$20.05 per Share, respectively, after deduction of theunderwriting fees and other related expenses payable by our Company and takes no account of anyShares which may fall to be issued upon the exercise of the Over-allotment Option.

3. The unaudited pro forma net tangible assets per Share is arrived at after the adjustments referred to inthe preceding paragraphs and on the basis that 280,000,000 Shares were in issue assuming that theGlobal Offering has been completed on August 31, 2018 but takes no account of any Shares which mayfall to be issued upon the exercise of the Over-Allotment Option.

4. For further details, please refer to the section headed “Appendix IIA – Unaudited Pro Forma FinancialInformation” in this prospectus.

SUMMARY

– 16 –

DIVIDENDS

As at the Latest Practicable Date, we did not have a formal dividend policy. Our Boardis responsible for submitting proposals in respect of dividend payments to the shareholders’general meeting for approval. The determination of whether to pay a dividend and in whatamount is based on our general business conditions, our financial results, our capitalrequirements, payment by our subsidiaries of cash dividends to our Company, interests of ourshareholders and any other factors which our Board may deem relevant.

We generally do not distribute dividends in a year in which there is no profit available fordistribution. The payment of any dividend by us must also be approved at a shareholders’general meeting. We are not allowed to distribute profits to our Shareholders until we havemade up our losses and made appropriations to our statutory reserves. The statutory reserve canbe utilized to offset prior years’ losses, if any, and may be converted into paid-in-capital.

During the Track Record Period, a dividend of RMB59,690,000 and RMB41,238,000were declared on April 24, 2017 and June 15, 2018, respectively, to the shareholders of ourCompany and fully paid subsequently. For details, please refer to sub-section headed“Financial Information – Dividends” in this prospectus.

LISTING EXPENSES

Listing expenses represent professional fees, underwriting commissions and other feesincurred in connection with the Listing and the Global Offering. Assuming an Offer Price ofHK$16.71 per Offer Share (being the mid-point of the stated range of the Offer Price ofbetween HK$13.37 and HK$20.05 per Offer Share), listing expenses to be borne by us areestimated to be approximately RMB71.3 million (equivalent to HK$81.6 million), of whichRMB64.5 million (equivalent to HK$73.9 million) is directly attributable to the issue of HShares to the public and to be capitalized, whereas the remainder is expected to be reflectedin the consolidated statements of comprehensive income for the year ending December 31,2019. Our Directors do not expect such expenses to materially impact our results of operationsfor 2018 and 2019.

USE OF PROCEEDS

Assuming an Offer Price of HK$16.71 per Offer Share (being the mid-point of the statedrange of the Offer Price of between HK$13.37 and HK$20.05 per Offer Share), we estimatethat we will receive net proceeds of approximately HK$1,088.0 million from the GlobalOffering, assuming the Over-allotment Option is not exercised, after deducting theunderwriting commissions and other estimated expenses in connection with the GlobalOffering payable by our Company. We intend to use the net proceeds from the Global Offeringfor the following purposes and in the amounts set out below, subject to changes in light of ourevolving business needs and changing market conditions:

Amount of the estimated net proceeds Intended use of net proceedsApproximately 25.0% or HK$272.0

millionThe development of our upscale businessand resort hotels

Approximately 35.0% or HK$381.0million

The development of our mid-scale hotels


Brand building and promotion includingbut not limited to, engaging in marketingand promotional activities, sponsorshipof industry events and advertising


Recruitment of more talent andstrengthening our implementation oftraining to our staff and recruitmentprograms for supporting our businessexpansion


Development of our informationtechnology system by upgrading existingoperational and IT system infrastructure

SUMMARY

– 17 –

Amount of the estimated net proceeds Intended use of net proceedsApproximately 10.0% or HK$109.0

millionOur general corporate purposes andworking capital

For further details, please see the section headed “Future Plans and Use of Proceeds” inthis prospectus.

RISK FACTORS

There are certain risks and uncertainties involved in our business and operations and inconnection with the Global Offering. We believe that the following are some of the major risksthat we face: (i) we operate in a highly competitive industry, thus our revenues, profits ormarket share could be harmed if we are unable to compete successfully; (ii) there is noassurance that we will be able to achieve our current business goals and plans for growth; (iii)we may not be successful in expanding into the geographic areas that we do not currently serve;(iv) our full service management or franchise agreements with third-party hotel owners orfranchisees may be affected or terminated if third-party hotel owners or franchisees fail tomake investments necessary to maintain or improve their properties to the requisite standardor are unable to afford the mortgages; and (v) we are exposed to the risks resulting fromsignificant investments in owned and leased hotels, which may increase our costs, reduce ourprofits, limit our ability to respond to market conditions or restrict our growth strategy.

As different interpretations and standards may be applied for determining the materialityof a risk, you should carefully consider all of the information set out in this prospectus,including the risks and uncertainties described in the section headed “Risk Factors” in thisprospectus.

HISTORICAL NON-COMPLIANCE INCIDENTS

Our Directors confirm that we have complied with all applicable laws and regulations inall material respects in the PRC (being the principal jurisdiction in which we operate) duringthe Track Record Period and up to the Latest Practicable Date. We have historically hadincidents of non-compliance with PRC laws and regulations. Please refer to sub-sectionsheaded “Business – Legal and Regulatory Matters” and “Business – Properties” for moredetails.

PROFIT ESTIMATE FOR THE YEAR ENDED DECEMBER 31, 2018

Estimated unaudited consolidated profit attributable toowners of our Company(1)

not less thanRMB185.0 million

Unaudited pro forma estimated earnings per Share(2) not less than RMB0.66

Notes:

1. The bases on which the above profit estimate for the year ended December 31, 2018 has been preparedare summarized in Appendix IIB to this prospectus. The estimated unaudited consolidated profitattributable to owners of our Company for the year ended December 31, 2018 is based on the auditedconsolidated results of our Group for the eight months ended August 31, 2018, the unauditedconsolidated results based on management accounts of our Group for the three months endedNovember 30, 2018 and an estimate of the consolidated results of our Group for the month endedDecember 31, 2018. The profit estimate has been prepared on a basis consistent in all material respectswith the accounting policies presently adopted by our Group as set out in note 2.1 of the Accountant’sReport, the text of which is set out in Appendix I to this prospectus.

2. The calculation of the unaudited pro forma estimated earnings per Share is based on the estimatedunaudited consolidated profit attributable to owners of our Company for the year ended December 31,2018 and the weighted average number of 280,000,000 Shares that are outstanding during the year endedDecember 31, 2018 and on the assumption that the Global Offering had been completed on January 1,2018, but takes no account of any Shares which may fall to be issued upon the exercise of theOver-Allotment Option.

SUMMARY

– 18 –

In this prospectus, unless the context otherwise requires, the following terms shall

have the meanings set out below.

“Accountant’s Report” the report of our reporting accountants, the text of which

is set out in Appendix I to this prospectus

“affiliate” any other person, directly or indirectly, controlling or

controlled by or under or indirect common control with

such specific person

“Application Form(s)” WHITE Application Form(s), YELLOW Application

Form(s) and GREEN Application Form(s), or where the

context so requires, any of them, relating to the Hong

Kong Public Offering

“Articles” or “Articles of

Association”

our amended and restated articles of association, adopted

by our Shareholders on June 15, 2018, which will become

effective upon the Listing, the same may be amended,

supplemented or otherwise modified from time to time, a

summary of which is set forth in Appendix VI to this

prospectus

“associate(s)” has the meaning ascribed thereto under the Listing Rules

“Audit Committee” the audit committee of our Board of Directors

“Base Rent” the base rent guaranteed by our Company or New

Century Hotel Management (as the case may be) to New

Century Hotel Investment pursuant to the Master Hotel

Lease and Management Agreement

“Beijing Gehua” Beijing Gehua New Century Hotel Co., Ltd.* (北京歌華開元大酒店有限公司), a company incorporated in the

PRC on September 19, 2005, and is owned as to 49% by

our Company and 51% by Beijing Huabei Hotel

Management Center* (北京華北酒店管理中心), an

Independent Third Party

“Birot by New Century” Birot by New Century, a company incorporated in France

on December 11, 2014, and is indirectly owned as to

83.9% by Mr. Chen Miaolin

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

DEFINITIONS

– 19 –

“Business Day” or

“business day”

any day (other than a Saturday, Sunday or public holiday)

on which banks in Hong Kong are generally open to the

public for normal banking business

“BVI” the British Virgin Islands

“CAGR” compound annual growth rate

“CCASS” the Central Clearing and Settlement System established

and operated by HKSCC

“CCASS Clearing Participant” a person admitted to participate in CCASS as a direct

clearing or a general clearing participant

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

participant

“CCASS Investor Participant” a person admitted to participate in CCASS as an investor

participant who may be an individual or joint individuals

or a corporation

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

Participant or a CCASS Investor Participant

“China” or “PRC” the People’s Republic of China, excluding, for the

purpose of this prospectus, Hong Kong, the Macao

Special Administrative Region of the People’s Republic

of China and Taiwan

“close associate(s)” has the meaning ascribed to it under the Listing Rules

“Companies Ordinance” the Companies Ordinance (Chapter 622 of the Laws of

Hong Kong), as amended, supplemented or otherwise

modified from time to time

“Companies (Winding Up and

Miscellaneous Provisions)

Ordinance”

the Companies (Winding Up and Miscellaneous

Provisions) Ordinance (Chapter 32 of the Laws of Hong

Kong) as amended, supplemented or otherwise modified

from time to time

DEFINITIONS

– 20 –

“Company”, “our Company”,“we” or “us”

Zhejiang New Century Hotel Management Co., Ltd. (浙江開元酒店管理股份有限公司), a joint stock companywith limited liability incorporated in the PRC on June 28,2017, and except where the context indicates otherwise,includes (i) our predecessors and (ii) with respect to theperiod before our Company became the holding companyof its present subsidiaries, the businesses operated by itand its present subsidiaries or (as the case may be) theirpredecessors

“connected person(s)” has the meaning ascribed to it under the Listing Rules

“Controlling Shareholder(s)”or “a group of ControllingShareholders”

has the meaning ascribed to it under the Listing Rules andfor the purposes of this prospectus, means New CenturyTourism, Mr. Chen Canrong, Mr. Chen Miaolin andMr. Zhang Guanming

“core connected person(s)” has the meaning ascribed to it under the Listing Rules

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

“Deed of Non-Competition” a deed of non-competition dated February 12, 2019executed by our Controlling Shareholders in favor of ourCompany (for itself and as trustee for the benefit of itssubsidiaries), the particulars of which are set out in thesub-section headed “Relationship with our ControllingShareholders – Non-Competition Undertaking” in thisprospectus

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

“Domestic Share(s)” ordinary shares in our capital, with the nominal value ofRMB1.00 each, which are subscribed for and paid up inRenminbi

“EIT Law” the Enterprise Income Tax Law of the PRC (中華人民共和國企業所得稅法) amended by the NPC and becameeffective on February 24, 2017

“GDP” gross domestic product (all references to GDP growthrates are real as opposed to nominal rates of GDP growth)

“Global Offering” the Hong Kong Public Offering and the InternationalOffering

DEFINITIONS

– 21 –

“GREEN Application Form(s)” the application form(s) to be completed by the HK eIPOWhite Form Service Provider

“Group” or “our Group” our Company and its subsidiaries or, in respect of the

period before our Company became the holding company

of such subsidiaries, the entities which carried on the

business of the present Group at the relevant time

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

“H Share(s)” overseas listed foreign shares in our ordinary share

capital with a nominal value of RMB1.00 each, to be

subscribed for and traded in Hong Kong dollars and listed

on the Stock Exchange

“H Share Registrar” Tricor Investor Services Limited

“HK eIPO White Form” the application for Hong Kong Offer Shares to be issued

in the applicant’s own name by submitting applications

online through the designated website of HK eIPOWhite Form at www.hkeipo.hk

“HK eIPO White Form Service

Provider”

the HK eIPO White Form service provider designated

by us, as specified on the designated website

www.hkeipo.hk

“HKSCC” Hong Kong Securities Clearing Company Limited, a

wholly-owned subsidiary of Hong Kong Exchanges and

Clearing Limited

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

of HKSCC

“Hong Kong” or “HK” the Hong Kong Special Administrative Region of the

People’s Republic of China

“Hong Kong Offer Shares” the 7,000,000 H Shares being initially offered by our

Company for subscription at the Offer Price pursuant to

the Hong Kong Public Offering, subject to reallocation as

described in the section headed “Structure and

Conditions of the Global Offering” in this prospectus

DEFINITIONS

– 22 –

“Hong Kong Public Offering” the offer for subscription of the Hong Kong Offer Shares

to the public in Hong Kong (subject to reallocation as

described in the section headed “Structure and

Conditions of the Global Offering” in this prospectus) at

the Offer Price (plus brokerage of 1%, SFC transaction

levy of 0.0027% and Stock Exchange trading fee of

0.005%) on the terms and conditions described in this

prospectus and the Application Forms

“Hong Kong Underwriters” the underwriters of the Hong Kong Public Offering listed

in the sub-section headed “Underwriting – Hong Kong

Underwriters” in this prospectus

“Hong Kong Underwriting

Agreement”

the underwriting agreement dated February 22, 2019 and

entered into by, among others, our Company, the Joint

Global Coordinators, the Joint Bookrunners, the Joint

Lead Managers and the Hong Kong Underwriters, further

details of which are contained in the sub-section headed

“Underwriting – Underwriting Arrangement and

Expenses” in this prospectus

“Horwath” Horwath HTL (Beijing) Co., Ltd. (浩華酒店管理顧問(北京)有限公司), a market research consultant engaged by

us and an Independent Third Party

“Hotel Lease and Management

Agreement(s)”

separate hotel lease and management agreement(s) in

respect of each of the New Century REIT Hotel

Properties entered into pursuant to the Master Hotel

Lease and Management Agreement

“IFRS” the International Financial Reporting Standards, which

include standards, amendments and interpretations issued

by the International Accounting Standards Board

“Independent Third Party(ies)” an individual(s) or a company(ies) who, as far as our

Directors are aware after having made all reasonable

enquiries, is/are not connected persons of our Company

within the meaning of the Listing Rules

“International Offer Shares” the H Shares offered pursuant to the International

Offering

DEFINITIONS

– 23 –

“International Offering” the conditional offering of the International Offer Shares

by the International Underwriters with professional,

institutional and other investors by the International

Underwriters on behalf of our Company as described in

the section headed “Structure and Conditions of the

Global Offering” in this prospectus

“International Underwriters” the group of international underwriters who are expected

to enter into the International Underwriting Agreement to

underwrite the International Offering

“International Underwriting

Agreement”

the underwriting agreement expected to be entered into

on or before March 1, 2019 by, among others, the Joint

Global Coordinators, the Joint Bookrunners, the Joint

Lead Managers, the International Underwriters and our

Company in respect of the International Offering, as

further described in the sub-section headed

“Underwriting – Underwriting Arrangements and

Expenses” in this prospectus

“Joint Bookrunners” China Galaxy International Securities (Hong Kong) Co.,

Limited, BOCOM International Securities Limited,

Morgan Stanley Asia Limited (in relation to the Hong

Kong Public Offering only), Morgan Stanley & Co.

International plc (in relation to the International Offering

only) and ICBC International Capital Limited

“Joint Global Coordinators” China Galaxy International Securities (Hong Kong) Co.,

Limited, BOCOM International Securities Limited, and

Morgan Stanley Asia Limited

“Joint Lead Managers” China Galaxy International Securities (Hong Kong) Co.,

Limited, BOCOM International Securities Limited,

Morgan Stanley Asia Limited (in relation to the Hong

Kong Public Offering only), Morgan Stanley & Co.

International plc (in relation to the International Offering

only), ICBC International Securities Limited, CGS-

CIMB Securities (Hong Kong) Limited, Golden Rich

Securities Limited, Lead Securities (HK) Limited, Mason

Securities Limited and TUS Corporate Finance Limited

(in relation to the Hong Kong Public Offering only)

“Joint Sponsors” China Galaxy International Securities (Hong Kong) Co.,

Limited and BOCOM International (Asia) Limited

DEFINITIONS

– 24 –

“Latest Practicable Date” February 17, 2019, being the latest practicable date for

the purpose of ascertaining certain information contained

in this prospectus prior to its publication

“Listing” the listing of the H Shares on the Main Board of the Stock

Exchange

“Listing Committee” the Listing Committee of the Stock Exchange

“Listing Date” the date expected to be on or about March 11, 2019, on

which the H Shares are listed and from which dealings

therein are permitted to take place on the Stock Exchange

“Listing Rules” the Rules Governing the Listing of Securities on The

Stock Exchange of Hong Kong Limited, as amended,

supplemented or otherwise modified from time to time

“Main Board” the stock exchange (excluding the option market)

operated by the Stock Exchange which is independent

from and operated in parallel with GEM of the Stock

Exchange

“Mandatory Provisions” the Mandatory Provisions for Articles of Association of

Companies to be Listed Overseas (到境外上市公司章程必備條款), for inclusion in the articles of association of

companies incorporated in the PRC to be listed overseas,

promulgated by the former State Council Securities

Commission and other PRC Government departments on

August 27, 1994, as amended, supplemented or otherwise


“Master Hotel Lease and

Management Agreement”

a framework agreement dated June 14, 2013 entered into

between New Century Hotel Investment, New Century

Hotel Management, New Century Tourism and New

Century Asset Management Limited, which sets out the

general guidelines and principles for the lease and

management of the New Century REIT Hotel Properties

DEFINITIONS

– 25 –

“Mid-scale Hotel” the mid-scale hotels mainly refer to the three and four

Star-rated hotels by China National Star Rating System

which are rated by China Tourism Hotel Association, as

well as the hotels which have similar product positioning

and quality, service quality, and relatively comprehensive

facilities as three and four Star-rated hotels rated by

China National Star Rating System

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

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

“Mr. Chen Miaolin” one of our non-executive Directors and our Controlling

Shareholders

“NDRC” the National Development and Reform Commission of

the PRC (中華人民共和國國家發展和改革委員會)

“New Century Group” New Century Holdings Group and New Century Tourism

Group

“New Century Holdings” New Century Holdings Group Ltd* (開元控股集團有限公司), a company established in the PRC on April 6,

2004, and is owned as to 85.2% by Mr. Chen Miaolin,

8.5% by Mr. Chen Canrong and 6.3% by Mr. Zhang

Guanming

“New Century Holdings Group” New Century Holdings and its subsidiaries

“New Century Hotel Investment” Zhejiang New Century Hotel Investment and

Management Group Co., Ltd.* (浙江開元酒店投資管理集團有限公司), a company established in the PRC on

November 30, 2001 and owned as to 60.05% and 39.95%

by Spearhead Investments Ltd and Sky Town Investment

Ltd, respectively, both of which are indirectly wholly-

owned by New Century REIT

“New Century Hotel Investment

Reorganization”

the reorganization undergone by our Controlling

Shareholders in preparation for the listing of New

Century REIT in 2013, details of which are set out in the

section headed “History, Reorganization and Corporate

Structure – Our Company” in this prospectus

DEFINITIONS

– 26 –

“New Century REIT” New Century Real Estate Investment Trust, a Hong Kong

collective investment scheme constituted as a unit trust

and authorized under section 104 of the SFO, the units of

which are listed on the Stock Exchange (Stock code:

1275), a connected person by virtue of being an associate

of Mr. Chen Miaolin

“New Century REIT Group” New Century REIT and its subsidiaries

“New Century REIT Hotel

Property(ies)”

New Century Grand Hotel Hangzhou* (杭州開元名都大酒店), New Century Hotel Xiaoshan Zhejiang* (浙江開元蕭山賓館), New Century Resort Qiandao Lake

Hangzhou* (杭州千島湖開元度假村), New Century

Grand Hotel Ningbo* (寧波開元名都大酒店) and New

Century Grand Hotel Changchun* (長春開元名都大酒店)

“New Century Tourism” New Century Tourism Group Co., Ltd.* (開元旅業集團有限公司), a company established in the PRC on January 9,

2001, and is one of our Controlling Shareholders and is

indirectly owned as to 85.2% by Mr. Chen Miaolin, 8.5%

by Mr. Chen Canrong and 6.3% by Mr. Zhang Guanming

“New Century Tourism Group” New Century Tourism and its subsidiaries

“Nomination Committee” the nomination committee of the Board

“NPC” the National People’s Congress of the PRC (中華人民共和國全國人民代表大會)

“Offer Price” the final offer price per H Share in Hong Kong dollars

(exclusive of brokerage of 1%, SFC transaction levy

0.0027% and Stock Exchange trading fee of 0.005%) at

which the H Shares are to be subscribed for and issued

pursuant to the Global Offering, to be determined as

further described in the sub-section headed “Structure

and Conditions of the Global Offering – Pricing and

Allocation” in this prospectus

“Offer Share(s)” the H Shares offered in the Global Offering and, where

relevant, any additional H Shares to be issued pursuant to

the exercise of the Over-allotment Option

DEFINITIONS

– 27 –

“Over-allotment Option” the option to be granted by our Company to the

International Underwriters exercisable by the Joint

Global Coordinators on behalf of the International

Underwriters pursuant to the International Underwriting

Agreement, at any time from the Listing Date until

30 days after the last day for the lodging of applications

under the Hong Kong Public Offering, to require

our Company to allot and issue up to an aggregate

of 10,500,000 additional Shares representing 15% of the

initial Offer Shares, at the Offer Price described in the

section headed “Structure and Conditions of the Global

Offering” in this prospectus

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

“PRC Company Law” the Company Law of the PRC as amended and adopted by

the Standing Committee of the Tenth National People’s

Congress on December 28, 2013 and effective on March

1, 2014, as amended, supplemented and otherwise


“PRC GAAP” the Accounting Standards for Business Enterprises issued

by the MOF of the PRC in 2006, and other related

regulations issued by the MOF

“PRC Government” the central government of the PRC, including all

governmental subdivisions (including provincial,

municipal and other regional or local government

entities) and instrumentalities or, as the context requires,

any of them

“PRC Legal Adviser” King & Wood Mallesons, our Company’s legal adviser as

to PRC law

“Predecessor” or

“New Century Hotel

Management”

Zhejiang New Century Hotel Management Limited*

(浙江開元酒店管理有限公司), a limited liability

company established in the PRC on December 17, 2008,

the predecessor of our Company

“Price Determination Agreement” the agreement to be entered into among our Company and

the Joint Global Coordinators (for themselves and on

behalf of the Underwriters) on the Price Determination

Date to record and fix the Offer Price

DEFINITIONS

– 28 –

“Price Determination Date” the date, expected to be on or around March 1, 2019 but

no later than March 5, 2019 on which the Offer Price is

fixed by the Joint Global Coordinators (for themselves

and on behalf of the Underwriters) and us for the

purposes of the Global Offering

“Property Valuation Report” the property valuation report prepared by Cushman &

Wakefield Limited, an independent property valuer, as set

out in “Appendix III – Property Valuation Report” to this

prospectus

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

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

“Remuneration Committee” the remuneration committee of our Board of Directors

“Reorganization” the reorganization undergone by our Group in preparation

for Listing as described in the section headed “History,

Reorganization and Corporate Structure –

Reorganization” in this prospectus

“SAFE” the State Administration of Foreign Exchange of the PRC

(中華人民共和國國家外匯管理局)

“SAIC” the State Administration for Industry & Commerce of the

PRC (中華人民共和國國家工商行政管理總局)

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

“SCNPC” the Standing Committee of the National People’s

Congress of the PRC (中華人民共和國全國人民代表大會常務委員會)

“SFC” the Securities and Futures Commission of Hong Kong

“SFO” the Securities and Futures Ordinance (Chapter 571 of the

Laws of Hong Kong), as amended, supplemented or

otherwise modified from time to time

“Share(s)” ordinary shares of our Company with a nominal value of

RMB1.00 each, including our Domestic Shares, Unlisted

Foreign Shares and H Shares

DEFINITIONS

– 29 –

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

“sq.m.” square meter

“Stabilizing Manager” China Galaxy International Securities (Hong Kong) Co.,

Limited

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

“Stock Exchange” The Stock Exchange of Hong Kong Limited

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

“substantial shareholder” has the meaning ascribed to it under the Listing Rules

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

“Takeovers Code” The Codes on Takeovers and Mergers and Share Buy-

backs issued by the SFC, as amended, supplemented or

otherwise modified from time to time

“Track Record Period” the years ended December 31, 2015, 2016 and 2017 and

the eight months ended August 31, 2018

“US$” or “U.S. dollars” United States dollars, the lawful currency of the United

States

“U.S.” or “United States” the United States of America, its territories, its

possessions and all areas subject to its jurisdiction

“Underwriters” the Hong Kong Underwriters and the International

Underwriters

“Underwriting Agreements” the Hong Kong Underwriting Agreement and the

International Underwriting Agreement

“Unlisted Foreign Share(s)” ordinary shares in our capital, with the nominal value of

RMB1.00 each and are held by persons other than PRC

nationals or PRC incorporated entities and are not listed

on any stock exchange

DEFINITIONS

– 30 –

“Upscale Hotel” the upscale hotels mainly refer to hotels by China

National Star Rating System as five Star-rated hotels

which are rated by China Tourism Hotel Association, as

well as hotels which have similar product positioning and

quality, service quality, and comprehensive facilities as

the five Star-rated hotels rated by China National Star

Rating System

“U.S. Securities Act” the U.S. Securities Act of 1933, as amended,

supplemented or otherwise modified from time to time,

and the rules and regulations promulgated thereunder

“VAT” value-added tax

“WHITE Application Form(s)” the application form(s) for use by the public who

require(s) such Hong Kong Offer Shares to be issued in

the applicant’s own name

“YELLOW Application Form(s)” the application form(s) for use by the public who

require(s) such Hong Kong Offer Shares to be deposited

directly into CCASS

“Yuyao Manju” Yuyao New Century Manju Hotel Management Co.,

Ltd.* (余姚開元曼居酒店管理有限公司), a company

incorporated in the PRC on November 23, 2015, and

owned as to 55.7% by Zhejiang New Century Manju

Hotel Management Co., Ltd., our wholly-owned

subsidiary, and as to 44.3% by five employees of our

Group and six individuals who are Independent Third

Parties

“Zhejiang Haogu” Zhejiang Haogu Internet Technology Co., Ltd.* (浙江皓谷網絡科技有限公司), a company incorporated in the

PRC on May 20, 2016, owned as to 20% by our Company

and as to 20% by each of New Beacon Hotel Group

(Wuhan) Co., Ltd.* (紐賓凱酒店集團(武漢)有限公司),

Guangdong International Hotel Management (China) Co.,

Ltd.* (粵海國際酒店管理(中國)有限公司), Shuguang

Hotel Management (Shanghai) Co., Ltd.* (曙光酒店管理(上海)有限公司), and Huatian Hotel Group Co., Ltd.* (華天酒店集團股份有限公司), all of which are Independent

Third Parties

“%” per cent

DEFINITIONS

– 31 –

Certain amounts and percentage figures included in this prospectus have been subject to

rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an

arithmetic aggregation of the figures preceding them.

If there is any inconsistency between the Chinese names of entities or enterprises

established in China and their English translations, the Chinese names shall prevail. The

English translation of company names in Chinese or another language which are marked with

“*” and the Chinese translation of company names in English which are marked with “*” is

for identification purpose only.

DEFINITIONS

– 32 –

This glossary contains explanations and definitions of certain technical terms used

in this prospectus in connection with our business. These terms and their given meanings

may not correspond to standard industry definitions or usage of these terms.

“ADR” average daily rate, which means room revenue divided by

rooms in use

“available room(s)” number of rooms available for a hotel after deducting

permanent house use

“CRS” central reservation system

“DRMS” disaster recovery management system

“EBITDA” profit before income tax, interest income, finance costs,

share of results of associates and jointly controlled

entities, depreciation and amortization, other gains and

other non-recurring items

“EBITDAR” profit before income tax, interest income, finance costs,

share of results of associates and jointly controlled

entities, depreciation and amortization, other gains, other

non-recurring items, and lease rental expenses

“first-tier cities”(1) Beijing and Shanghai

“F&B” operating activities in connection with food and beverage

“GFA” gross floor area

“GOP” gross operating profit

“IT” information technology

“LPS” loyalty program system

“MICE” meeting, incentive, conference and exhibition

“mid-scale full service hotels” Mid-scale Hotels which offer full range of hotel services

Note:

(1) only include cities that our Group had operated and managed hotels during the Track Record Period.

GLOSSARY

– 33 –

“mid-scale select service hotels” Mid-scale Hotels which offer selected hotel services

“new first-tier cities”(1)(2) Nanjing, Dalian, Tianjin, Ningbo, Chengdu, Hangzhou,Suzhou, Xi’an, Zhengzhou, Chongqing, Changsha,Qingdao

“OPERA system” OPERA enterprise solution, a scalable suite of productsconsisting of modules for the hotel industry

“occupancy rate” rooms in use divided by available rooms for a givenperiod

“OTA” online travel agency

“PMS” property management system

“permanent house use” guestrooms which have been removed from the saleableinventory for a period longer than six months

“RevPAR” revenue per available room, calculated by room revenueduring a period divided by the available room of suchhotel during the same period

“third-tier cities”(1) Sanya, Sanming, Shangrao, Linyi, Lishui, Lijiang,Jiujiang, Baoding, Baotou, Jilin, Tangshan, Xiaogan,Zhuzhou, Gulin, Cangzhou, Tai’an, Taizhou, Huai’an,Huzhou, Zhangzhou, Yancheng, Zhoushan, Quzhou,Lianyungang, Zhenjiang, Ma’anshan, Longyan

“second-tier cities”(1) Lanzhou, Nanchang, Nantong, Taizhou, Hefei, Jiaxing,Changzhou, Xuzhou, Yangzhou, Wuxi, Jinan, Haikou,Wenzhou, Yantai, Shaoxing, Jinhua, Changchun

“Star-rated” number of stars conferred by the PRC Tourism Board toa hotel according to the Star-rating Standard Manual anda Star-rated hotel refers to a hotel with star-ratingconferred as mentioned above

Notes:

(1) only include cities that our Group had operated and managed hotels during the Track Record Period.

(2) city categorization of new first-tier cities according to the Horwath Report, which is based on the reportpublished by YICAI (Yicai Media Group (第一財經), which was founded in 2003 and is one of the largestfinancial media conglomerate in China) in May 2017.

GLOSSARY

– 34 –

This prospectus contains forward-looking statements and information. Such forward-

looking statements relate to events that are subject to significant risks and uncertainties,

including the risks described in the section headed “Risk Factors” in this prospectus. These

forward-looking statements include (but are not limited to) words and expressions such as

“aim”, “expect”, “believe”, “plan”, “intend”, “project”, “seek”, “anticipate”, “may”, “will”,

“should”, “would” and “could” or similar words, expressions or statements or the negative

thereof, in particular, in the sections headed “Business” and “Financial Information” in this

prospectus in relation to future events, including our strategies, plans, objectives, goals,

targets, future financial, business or other performance and development, the future

development of our industry and the future development of the general economy of our key

markets, as well as the national and global economy.

These statements are based on numerous assumptions regarding our present and future

business strategy and the environment in which we will operate in the future and the

information currently available to our management. These forward-looking statements reflect

our current views with respect to future events and are not a guarantee of future performance,

which is subject to known and unknown risks, uncertainties, assumptions and other factors,

some of which are beyond our control, and may cause our actual results, performance or

achievements, or industry results to be materially different from any future results,

performance or achievements expressed or implied by the forward-looking statements. These

risks and uncertainties include, but are not limited to, those discussed under “Risk Factors” and

the following:

(i) the competition in the market in which we operate;

(ii) our business development, operating results and performance and financial

condition;

(iii) future development, trends and environment of the industry and markets in which

we operate;

(iv) general domestic and global economic conditions, including those related

specifically to China;

(v) changes in the regulatory policies of the PRC Government and other relevant

government authorities relating to the industries discussed herein and their potential

impact on our business;

(vi) the effects of domestic and overseas competition in our industry and their potential

impact on our business;

FORWARD-LOOKING STATEMENTS

– 35 –

(vii) changes in pricing for our services;

(viii) our ability to expand and manage our business and to introduce new services;

(ix) our ability to attract customers and further enhance our brand recognition;

(x) our financial conditions, operating results and performance;

(xi) our ability to reduce costs; and

(xii) our capital expenditure plans.

We caution you not to place undue reliance on these forward-looking statements, which

reflect our management’s view only as at the date of this prospectus. We undertake no

obligation to update or revise any forward-looking statements, whether as a result of new

information, future events or otherwise. In light of these risks, uncertainties and assumptions,

the forward-looking events discussed in this prospectus might not occur. All forward-looking

statements contained in this prospectus are qualified by reference to the cautionary statements

set out in this section.

FORWARD-LOOKING STATEMENTS

– 36 –

You should carefully consider all of the information in this prospectus, including the

risks and uncertainties described below, before making an investment in our H Shares.

These risks could materially adversely affect our business, financial condition and results

of operations. The trading price of our H Shares could significantly decrease if any of

these risks materializes, and you may lose all or part of your investment. You should note

that we are a PRC company governed by a legal and regulatory regime that differs from

that of other countries. For more information concerning PRC and certain related

matters discussed below, please see the sections headed “Supervision and Regulation”

and “Appendix VI – Summary of the Articles of Association” to this prospectus.

There are certain risks and uncertainties involved in our business and operations and in

connection with the Global Offering. These risks and uncertainties can be categorized as: (i)

risks relating to our business and operations; (ii) risks relating to the hotel industry; (iii) risks

relating to conducting business in the PRC; and (iv) risks relating to the Global Offering.

Additional risks and uncertainties that are not presently known to us or that we currently deem

immaterial may develop and become material and could also harm our business, financial

position and results of operations.

RISKS RELATING TO OUR BUSINESS AND OPERATIONS

We operate in a highly competitive industry, thus our revenues, profits or market sharecould be harmed if we are unable to compete successfully.

The segments of the hotel industry in which we operate are subject to intense competition.

Our principal competitors are other hotel groups, including other major hospitality chains with

well-established and recognized brands. If we are unable to compete successfully, our revenues

or profits may decline or our ability to maintain or increase our market share may be

diminished.

We compete for hotel guests based primarily on brand recognition and reputation,

location, guest satisfaction, room rates, quality of service, amenities and quality of

accommodations. Some of our competitors are larger than we are based on the number of

properties they manage, franchise, lease or own, or based on the number of rooms or

geographic locations where they operate. Our competitors may also have greater financial and

marketing resources than we do, which could allow them to improve their properties and

expand and improve their marketing efforts in ways that could affect our ability to compete for

guests effectively.

We compete to enter into full service management agreements and franchise agreements.

Our ability to compete successfully is based primarily on the value and quality of our

management services, brand recognition and reputation, availability of suitable properties in

certain geographic areas which meet our selection criteria for hotel operation or management

(such as those which are in central or highly accessible locations), and the overall economic

terms of our agreements and the economic advantages to the property owner of retaining our

RISK FACTORS

– 37 –

management services and using our brands. The location of the properties for our hotel

operation and management would directly affect the performance of our hotels as hotel guests

would normally consider the accessibility of the hotel as one of the factors when choosing

hotels as accommodation. If the properties that we manage or franchise perform less

successfully than those of our competitors or if we are unable to offer terms as favorable as

those offered by our competitors, our ability to compete successfully for new full service

management agreements or franchise agreements could be reduced.

Further, we also compete with other hotel chains to enter into hotel lease agreements with

third-party hotel owners. Our ability to compete is dependent mainly on the level of rent to be

paid by us, value and quality of our management services, brand recognition and reputation,

availability of suitable properties in certain geographic areas, and the overall economic terms

of our agreements and the economic advantages to the property owner. If we are unable to offer

terms as favorable as those offered by our competitors, or if the availability of suitable

properties is limited, our ability to compete successfully for new hotel lease agreements could

be affected.

There is no assurance that we will be able to achieve our current business goals and plansfor growth.

We currently plan to increase our profits and revenues by entering into more full service

management agreements or hotel lease agreements. In 2015, 2016, 2017 and the eight months

ended August 31, 2018, we entered into 23, 33, 48 and 45 new full service management

agreements, respectively. We also entered into one, two, seven and two new hotel lease

agreement(s) in 2015, 2016, 2017 and the eight months ended August 31, 2018, respectively.

As at August 31, 2018, we had (i) 29 leased hotels with 7,117 hotel rooms, (ii) 96 full service

managed hotels with 20,938 hotel rooms in operation and (iii) 13 franchised hotels with 3,465

hotel rooms. The identification and completion of new full service management agreements or

hotel lease agreements are dependent upon various factors, including (a) satisfactory

completion of due diligence, (b) negotiation of the terms and conditions of the definitive

agreements with the hotel owners and (c) our ability to compete with other competitors in

obtaining suitable full service management agreements or entering into hotel lease agreements.

Our ability to implement business plans and realize business goals is further subject to a range

of uncertainties, including economic conditions, obtaining the requisite financing, the timely

delivery of supplies by contractors and other third-party suppliers, the receipt of required

government and shareholders’ approvals, value and quality of our management services, our

ability to fulfill the performance standards under the full service management agreements, the

recognition and reputation of our brands, the pricing of our management fees and the terms and

conditions of our full service management agreements.

We cannot assure you that we will be able to enter into suitable full service management

agreements and/or hotel lease agreements in the future, or that we will have sufficient capital

to fund such operations. If we are unable to implement these plans or we fail to achieve these

goals, our expansion may not yield the planned benefits, which could have a material adverse

effect on our growth and financial performance and the trading price of our H Shares.

RISK FACTORS

– 38 –

As at August 31, 2018, our hotel network comprised 140 hotels with over 31,000 rooms

in the PRC. During the Track Record Period, we had experienced: (i) one hotel lease agreement

that was terminated due to the hotel owner selling the hotel to a third party; and (ii) 12 full

service management agreements that were terminated due to, amongst others: (a) the hotel was

not able to satisfy the standard as required by our management team, or (b) the hotel owner

decided to sell the hotel or change the business model of the hotel, or (c) financial difficulties

of the hotel owner. The commitments of owners with whom we have agreements are subject

to numerous conditions, and the eventual development and construction of our pipeline not

currently under construction is subject to numerous risks, including, in certain cases, obtaining

governmental and regulatory approvals and adequate financing. Further, the full service

management agreements or hotel lease agreements that we have contracted but have not yet

commenced operations may encounter delays in opening schedule, change of number of rooms

being built or early termination of agreements. As a result, we cannot assure you that our entire

development pipeline will develop into new hotels as scheduled or at all, which may in turn

affect our financial performance. Further, any early termination of our full service management

agreement or hotel lease agreement may also affect our results of operations and financial

condition.

We may not be successful in expanding into the geographic areas that we do not currentlyserve.

While we had, in the past, primarily focused on building our business and operations in

second- and third-tier cities in the Yangtze River Delta and surrounding regions, we have also

expanded into Beijing, Shanghai, and other cities, including a number of first-, new first-,

second-and third-tier cities in other provinces and areas. We are currently seeking new business

opportunities in other tourist destinations and commercial and business zones throughout

China. Our expansion, and the need to integrate operations arising from our expansion into

other cities and provinces, may place a significant strain on our managerial, operational and

financial resources and may further increase our financing requirements. In addition, we may

encounter strong competition from other hotel operators who are already well-established in

these cities. If our plans to expand into the geographical areas that we do not currently serve

are unsuccessful, our growth and financial performance may be materially and adversely

affected.

Our full service management or franchise agreements with third-party hotel owners orfranchisees may be affected or terminated if third-party hotel owners or franchisees of theproperties fail to make investments necessary to maintain or improve their properties tothe requisite standard or are unable to afford the mortgages.

We manage and franchise properties owned by third parties under the terms of the full

service management agreements or franchise agreements. All of these agreements require

third-party hotel owners to comply with standards that are essential to maintaining our brand

integrity and reputation. We depend on third-party hotel owners to comply with these

requirements by maintaining and improving properties through investments, including

investments in furniture, fixtures, amenities and personnel.

RISK FACTORS

– 39 –

Third-party hotel owners or franchisees may not inject capital into the hotel for therequisite improvement on the hotel when necessary, even if it is required by the terms of ourfull service management or franchise agreements. If our third-party hotel owners or franchiseesfail to make investments necessary to maintain or improve the properties we manage orfranchise, our brand preference and reputation may suffer. In addition, if third-party hotelowners or franchisees breach the terms of our agreements with them, we may elect to exerciseour termination rights.

Further, if the third-party hotel owners or franchisees are unable to afford the mortgagesfor their properties, this may lead to adverse effect to their title to the properties and in turnmay affect the operation of the hotels on the properties. We cannot assure you that our hotellease agreements, full service management agreements or franchise agreements will not beterminated prior to the expiration or will be renewed when their terms expire. Termination ornon-renewal of the abovementioned agreements could have a material adverse impact on ourbusiness, financial position and results of operations.

We are exposed to the risks resulting from significant investments in owned and leasedproperties, which may increase our costs, reduce our profits, limit our ability to respondto market conditions or restrict our growth strategy.

As at August 31, 2018, we had two owned hotels and 29 leased hotels. Hotel operationis subject to risks not applicable to our managed hotels, including:

(i) governmental regulations relating to real estate ownership;

(ii) real estate, insurance, zoning, tax, environmental and eminent domain laws;

(iii) the ongoing need for owner funded capital improvements and expenditures tomaintain or upgrade properties;

(iv) risks associated with mortgage debt, including the possibility of default, fluctuatinginterest rate levels and the availability of replacement financing;

(v) fluctuations in real estate values or potential impairments in the value of our assets;and

(vi) the relative illiquidity of real estate compared to other assets.

The negative impact on profitability and cash flow generation from a decline in revenueis significant in owned properties due to their high fixed-cost structure. The need to maintainand renovate owned and leased properties can present challenges, especially when cashgenerated from operations has declined. These challenges could hinder our plans fordeveloping or renovating our leased or owned properties. The effectiveness of any cost-cuttingefforts is limited by the fixed-cost nature of our business. As a result, we may not be able tooffset further revenue reductions through cost cutting, which could further reduce our margins.During times of economic distress, declining demand and declining earnings often result indeclining asset values.

RISK FACTORS

– 40 –

Our Group’s business and reputation can be affected by mismanagement of any of its

hotels by franchisees.

As at August 31, 2018, there were 140 hotels in operation that are operated or managed

by our Group, of which 13 were operated under the franchise agreement. Even though we

require all hotel owners to comply with our standards that are essential to maintaining our

brand integrity and reputation, we do not exercise full control over the actions of such

franchisees pursuant to the franchise agreements. If any of such franchisees fail to comply with

the terms of the franchise agreements and perform to the standards of our hotels, or if such

franchisees fail to obtain proper title certificates for their respective properties and are required

to vacate such premises, the hotels managed by them will lose hotel guests and revenues, which

in turn could have an adverse effect on the revenue and reputation of our Group.

In addition, if the trademarks of our Group are misused by certain franchisees, there may

be an adverse impact on our Group’s business reputation and brand image. Some defaulting

franchisees may not be in a financial position to compensate for any direct and indirect losses

which our Group may suffer as a result of any wrongdoing of such franchisees. There is also

a risk of third party lawsuits against our Group for any wrongdoing of the franchisees, and our

Group may incur additional litigation costs and expenses to defend such litigation. Such

additional costs and expenses may have an adverse impact on our Group’s business, financial

conditions and results of operations. In addition, our Group may, from time to time, be the

subject of complaints from dissatisfied hotel guests who are unhappy with the standard of

service provided by franchisees. All complaints, regardless of their validity, may affect the

reputation of our Group, thereby adversely affecting the results of operations of our Group.

If we fail to maintain our relationships with our third-party distribution channels

(including OTAs and travel agencies) for the sales of our hotel rooms, our business and

growth prospects could be materially and adversely affected.

Historically, we have derived a portion of our revenues from our indirect reservation

channels mainly comprising hotel reservation websites maintained by third-party operators and

our cooperation arrangements with travel agencies. In 2015, 2016 and 2017 and the eight

months ended August 31, 2018, we sold in aggregate 18.2%, 20.6%, 20.9% and 19.8%,

respectively, of our room nights through our indirect reservation channels.

We cannot assure you that we are able to maintain our relationship with the OTAs and that

our corporate account clients and tourists group clients will agree to renew the relevant

cooperation agreements upon their expiration, or enter into new agreements with us on

substantially similar terms. If we fail to enhance or maintain our relationships with the above

stakeholders, and the frequency of member stays at our hotels declines as a result, or if our

corporate account clients decline to renew their cooperation agreements or propose new

agreements with commercial terms less favorable to us, our business and growth prospects

could be materially and adversely affected.

RISK FACTORS

– 41 –

We are exposed to geographical concentration risks as a majority of our hotels arecurrently located in Zhejiang Province.

As at August 31, 2018, 81 of our 140 hotels were located in Zhejiang Province. The

revenue generated from our operated hotels located in Zhejiang Province represented 66.4%,

68.2%, 68.2% and 68.8% of our total revenue for the year ended December 31, 2015, 2016,

2017 and the eight months ended August 31, 2018, respectively. While we may expand into

other cities and provinces in the future, we anticipate that the vast majority of our business

operations in the foreseeable future will likely be concentrated in Zhejiang Province, and hotels

in this region will continue to generate a significant majority of our revenue. As such, if any

event negatively affecting the hotel and tourism industries in Zhejiang Province occur, such as

negative changes in local government policies relating to tourism industry, a serious economic

downturn, a natural disaster or epidemic, our business and financial condition, result of

operations and growth prospects could be materially and adversely affected.

We may not be able to maintain our historical growth rates or profit margins, and ouroperating results may fluctuate significantly as a result of factors beyond our control.

We experienced growth in our revenue and net profit during the Track Record Period. Our

revenue increased from RMB1,522.1 million in 2015 to RMB1,664.6 million in 2017,

representing a CAGR of 4.6%. We recorded a net profit of RMB29.6 million in 2015, RMB84.1

million in 2016 and RMB166.6 million in 2017, representing a CAGR of 137.1%. Our net

profit margin increased from 1.9% in 2015 to 5.2% in 2016 and further to 10.0% in 2017. We

cannot assure you that we will be able to maintain our revenue, profit growth or profit margins

at historical levels, or at all.

Our operating results may fluctuate significantly as a result of non-recurring events or

factors beyond our control. We may be required to pay the salaries of the general manager and

financial controller being assigned to the full service managed hotels, which such costs will

subsequently be reimbursed to us by hotel owners. Under such arrangement, as the employee

benefit expenses of our hotel management segment would be increased, this may impact on the

gross profit margin of our hotel management segment. These conditions could make our

operating results difficult to predict. Fluctuations in our operating results may also result in

substantial volatility in the trading price of our H Shares. We operate in a rapidly changing and

evolving industry and, as a result, you should not rely on our historical operating or financial

results as an indication of our future performance.

We recorded net current liabilities during the Track Record Period and may not generatesufficient cash flows in the future to fulfill our ability to expand our business.

We had incurred net current liabilities of RMB41.5 million and RMB24.2 million as at

December 31, 2015 and 2016, respectively. Our net current liability positions as at December

31, 2015 and 2016 primarily consisted of (i) trade and other payables; (ii) short-term bank

borrowings and (iii) contract liabilities. Our net current liabilities position would expose us to

liquidity risk, and could constrain our operational flexibility and adversely affect our ability to

RISK FACTORS

– 42 –

expand our business. We cannot assure you that we will be able to obtain adequate financing

to meet our future working capital requirements, or that we will be able to maintain our net

current assets position in the future. If we do not have sufficient working capital and are unable

to generate sufficient revenues or raise additional funds, we may significantly reduce the scope

of our current business plan or substantially curtail our operations, any of which could

materially and adversely affect our business, financial conditions and results of operations.

Please see the sub-section headed “Financial Information – Liquidity and Capital Resources –

Net Current Assets and Liabilities” in this prospectus for further information.

Our finance costs are subject to fluctuations in interest rates.

Fluctuations in interest rates have affected and will continue to affect our financing costs.

For the years ended December 31, 2015, 2016 and 2017 and the eight months ended August 31,

2018, our finance costs were RMB30.2 million, RMB16.0 million, RMB10.4 million and

RMB6.8 million, respectively. As all of our bank borrowings are denominated in RMB, the

interest rates on our bank borrowings are primarily impacted by the benchmark interest rates

set by the PBOC. As at the Latest Practicable Date, the one-year and above-five-year

benchmark lending rates were 4.4% and 4.9%, respectively. Future increases in the PBOC

benchmark interest rates may raise lending rates, which would increase our financing costs and

could materially and adversely affect our business, financial conditions and results of

operations.

The operating results of our Group may be adversely affected by the departure of our

Directors and senior management.

We have been, and will continue to be, dependent on the continued efforts of our

Directors, senior management team and other key employees, such as our hotel managers for

our success. In particular, we rely heavily on the expertise and experience of our Directors,

most of whom have played major roles in our Group since its establishment as described in the

section headed “Directors, Supervisors and Senior Management” in this prospectus. Our

Directors devise our strategic direction and manage our businesses, and the loss of a substantial

number of them could impair our ability to operate our business and execute our strategies. Our

Directors and senior management have significant experience in hotel operation and

management in China.

The continued success of our Group also depends upon our ability to attract and retain a

group of skilled employees who are experienced in hotel operations and management business.

Qualified and talented individuals are scarce and in high demand. Our ability to retain

experienced employees will, to a certain extent, depend on the adoption of appropriate

remuneration (including salary, housing or other benefits) and incentive schemes by our Group.

The loss of a substantial number of our Directors or senior management or our inability to

recruit and retain a sufficient number of experienced employees could have a material and

adverse effect on the business, financial conditions and results of operations of our Group.

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Any failure to develop, maintain and protect our brands and trademarks could have anadverse impact on our business.

We have developed our (i) upscale business hotels under our “Grand New Century (開元名都)” brand; (ii) upscale resort hotels under four brands, namely, “New Century Resort (開元度假村)”, “New Century Grand House (開元觀堂)”, “New Century Wonderland (開元芳草地鄉村酒店)” and “New Century Senbo (開元森泊)”; (iii) mid-scale full service hotels under twobrands, namely “New Century Hotel (開元大酒店)” and “Maison New Century (開元名庭)”;and (iv) mid-scale select service hotels under five brands, namely “New Century Manju Hotel(開元•曼居酒店)”, “Kaiyuan Life (開元頤居)”, “Wonderland RV Camp (芳草青青房車營地)”,“Mayart Hotel (開元美途)” and “A.T.K Hotel (阿緹客)”. We believe that the development andprotection of our brands are critical to the growth and success of our business. “New Century(開元)” is our primary trademark. As at the Latest Practicable Date, we have registered 58trademarks and have submitted applications for the registration of 34 additional trademarks inthe PRC.

According to PRC regulations, the owner of trademarks registered with the StateIntellectual Property Office is entitled to the exclusive use of those trademarks. We may notbe successful in further developing our brand identity and reputation. The brands we use andhave established over the years may be damaged by actions taken by third parties, and oncedamaged, may be very difficult to rebuild. Moreover, any infringement or unauthorized use ofour brands by others could adversely affect our business and prospects. The measures we taketo protect our brands and trademarks may not be adequate to prevent their unauthorized use.Furthermore, the application of laws governing intellectual property rights in the PRC isuncertain and evolving. Historically, China has not protected intellectual property rights to thesame extent as other developed countries, and infringement of intellectual property rightscontinues to pose a serious risk of doing business in China. Monitoring and preventingunauthorized use of our intellectual property rights may be difficult. If we are unable toadequately develop and protect our brands and trademarks, we may lose these rights and ourbusiness, in particular our business under the franchise model, financial condition and resultsof operation may be materially and adversely affected.

Refurbishment or further development of our existing leased and owned properties fromtime to time could result in cost overruns and disruptions to our hotel operations.

We believe, as a hotel group, our success in maintaining and enhancing the recognitionof our brand depends, to a large extent, on our ability to provide consistent and high-qualityaccommodation and services across our hotel portfolio, as well as our ability to respond tocompetitive pressures. In addition, we must maintain our hotels’ condition and appearance,which requires ongoing renovations and other improvements, including periodic repair andreplacement of furniture, fixtures and equipment. Such renovations or refurbishments may bemore costly than expected and are subject to the risk of delays and cost overruns. In addition,even though hotels under refurbishment may not need to be closed down entirely, there maybe instances where refurbishment would seriously disrupt hotel operations and adversely affectthe revenues of the relevant hotels. The disruptions and other risks associated withrefurbishments and further development or our failure to improve and maintain the conditionsof the hotels could have an adverse effect on our business, financial conditions and results ofoperations.

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Our hotel licenses are subject to renewal.

The hotel industry in China is subject to a number of laws and regulations, including lawsand regulations relating specifically to hotel operation and management as well as thoserelating to environmental and consumer protection. We cannot assure you that the conditionsor requirements we may be required to satisfy or meet will not change or become morestringent from year-to-year. If we are unable to renew our licenses in a timely manner or if therelevant government authority does not approve our application for a renewal of licenses in thefuture, we may be subject to fines or penalties and may be required to cease our hoteloperations, which may have an adverse effect on our financial condition and results ofoperations.

Our business, financial condition and results of operations may be adversely affected asa result of the failure of hotel owners to obtain certain permits for our managed hotels.

As advised by our PRC Legal Adviser, the permits required to be obtained by hotelowners for our managed hotels before commencement of their operations include FoodDistribution Permit, Special Trade Permit, Public Place Sanitation Permit and Certificate ofqualified fire safety inspection over a public gathering place before it is put into use or openfor business (“Fire Safety Certificate”). Pursuant to the relevant laws and regulations and theprovisions of the relevant hotel management agreements, the hotel owners are the partiesresponsible for obtaining these four types of permits. In particular, as advised by our PRCLegal Adviser, the lack of the Special Trade Permit, Public Place Sanitation Permit or the FireSafety Certificate could result in warning or fines for the hotel owners, and in the worst casescenario, the operations of the relevant hotels will be suspended until the relevant permits areobtained. As at the Latest Practicable Date, the relevant hotel owners have not yet obtained theFood Distribution Permit, the Special Trade Permit, the Public Place Sanitation Permit and/orthe Fire Safety Certificate for 23 of our managed hotels that were in operation as at August 31,2018.

During the Track Record Period, the hotel management fee we received from these 23managed hotels with outstanding permits as set out above amounted to RMB13.7 million,RMB12.0 million, RMB13.7 million and RMB10.8 million, respectively, representing 0.9%,0.7%, 0.8% and 1.0% of the total revenue of our Group for the years ended December 31, 2015,2016 and 2017 and the eight months ended August 31, 2018, respectively. We cannot assureyou that no actions will be taken against the relevant managed hotels or the hotel owners byany governmental authorities in relation to the lack of the Food Distribution Permit, the PublicPlace Sanitation Permit, the Fire Safety Certificate and/or Special Trade Permit in the future.As we provide management services to the hotel owners in return for management fees,suspension of business for such hotels may result in loss of our hotel management income.Pursuant to the relevant hotel management agreements and as confirmed by our PRC LegalAdviser, we are entitled to seek compensation from the hotel owners for our losses arising fromtheir failure to obtain such permits. If actions are taken against our managed hotels or us or thatwe seek compensation from the hotel owners, we may have to incur substantial legal costs. Wecannot assure you that we will be able to recover all our losses from hotel owners. Ourbusiness, financial condition and results of operations may be adversely affected as a result ofthese actions and our inability to recover all our losses from hotel owners.

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Our leased and owned hotel properties are located on land which is under long-term landuse rights granted by the PRC Government.

All of our leased and owned hotel properties are situated on land that is subject tolong-term land use rights granted by the PRC Government. These land use rights generallyexpire in 40 to 50 years. These land use rights do not have automatic rights of renewal andrequire application for renewal of the land use right one year prior to the expiration of its term.If the PRC Government approves the renewal, the land will be regranted to us, and we shallpay the land use rights grant fee and other relevant fees for the land.

In certain circumstances, the PRC Government may, where it considers it to be in thepublic interest, terminate a land use right before the expiration of its term. In addition, the PRCGovernment has the right to terminate long-term land use rights and expropriate the land in theevent the grantee fails to observe or perform certain terms and conditions pursuant to the landuse rights grant contracts. The imposition of terms and conditions, or the non-renewal of theland use rights grant contracts by the PRC Government, may have an adverse effect on ourhotel business, financial condition and results of operations.

We may incur additional operating expenses and depreciation expenses from ourexpansion plan, which may adversely affect our financial conditions.

In view of our business strategies and expansion plans, we anticipate that our futureoperating expenses will increase as our hotel portfolio grows and develops. We anticipate thatour capital expenditure will also increase as we will, amongst others, renovate and purchasefixed assets, supplies and other required equipments for development of our hotel portfolio,and also carry out on-going maintenance and upgrading of our existing hotels. Such capitalexpenditure may result in increase in depreciation expenses, which may in turn adversely affectour financial conditions. Based on our current expansion plan, our depreciation andamortisation expenses are expected to increase by RMB32.7 million from new operated hotelsin 2019 provided that such hotels will be developed in accordance with our expansion plan.

We have limited insurance to cover potential losses and claims.

Our hotel operations may be affected by a number of risks, including business

interruption or potential damage to our facilities and equipment caused by inclement weather,

human error, terrorist attacks, pollution, labor disputes or war. In addition, we face risks

relating to the provision of services to customers, including damage to customer property. We

do not maintain insurance against all risks associated with our operation, either because we

have deemed it commercially unfeasible to do so, or because our insurers have excluded certain

risk events from coverage under their standard policies. These risk events include, but are not

limited to, the loss of any business resulting from negative effects on the changing business

cycles and the loss of business arising from increased competition or supply of rooms. Should

an incident occur in relation to which we have inadequate insurance coverage, our business,

financial position and operating results could be materially and adversely affected. Further, we

cannot assure you that we will be able to renew existing insurance coverage on commercially

reasonable terms, or at all.

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There are certain types of losses, such as due to earthquakes, typhoons, flooding, war and

civil disorder, for which insurance coverage is not available on what we believe to be

commercially reasonable terms in China. If we suffer any losses, damages or liabilities in the

course of our business operations, we may incur a significant amount of cash outflow to cover

such losses, damages or liabilities or to replace any property that has been destroyed.

Therefore, there may be instances when we will sustain losses, damages and liabilities because

of our limited insurance coverage, which may in turn adversely affect our financial condition

and results of operations.

We may be subject to administrative fines, or our right to use our leased or ownedproperties may be materially and adversely affected, resulting from certainnon-compliances with relevant PRC laws and regulations in relation to our leased andowned properties.

As at November 30, 2018, we owned nine properties in the PRC, amongst which we had

not obtained the building title certificate to a hotel building owned by our subsidiary, Jiande

New Century Wonderland Resort Co., Ltd.* (建德開元芳草地酒店有限公司). As at November

30, 2018, we leased 31 properties, amongst which the lessor of one leased property had not

obtained the building title certificate. We are in the process of applying for the building title

certificate for such property and/or working with our landlords to obtain the relevant building

title certificate,but the timing for obtaining such relevant certificates is beyond our control.

Before we or our landlords obtain the proper building title certificates, our rights in relation

such properties might not be entirely protected. If we or our landlords cannot obtain the

relevant building title certificates in a timely manner and our legal right to use or occupy the

relevant properties is challenged, we may have to find alternative properties, incur additional

relocation costs, or our business operations may be disrupted, any of which may have an

adverse effect on our business, financial condition, results of operations and prospects.

In addition, the specified use of land on the relevant land use rights certificates for five

of our hotels which we lease from third-party landlords is inconsistent with the operation of

such hotels. Our PRC Legal Adviser has advised us that under relevant PRC laws and

regulations, the purpose of land use shall not be changed, with the exception of the change

being approved by competent authorities, the contract on transfer of land being re-executed and

additional land premium being paid. If the authority in charge of land administration issues an

order to revoke the grant of the land use rights certificate of these hotels, the relevant landlords

may be required to terminate their hotel lease agreement with us. The termination of these hotel

lease agreements and the operation of these hotels may have an adverse effect on our business,

results of operations and financial position.

Furthermore, as at the Latest Practicable Date, we had not completed the administrative

filings of the hotel lease agreements relating to 13 properties we leased. According to

applicable PRC administrative regulations, a lease agreement is required to be filed with

relevant governmental authorities within 30 days after the execution of the lease agreement. If

the filing is not made, the governmental authorities may require that the filing be made within

a stated period of time, failing which, they may impose a fine ranging from RMB1,000 to

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RMB10,000 for each lease agreement that has not been properly filed. It is not clear under PRClaw if the fine will be borne by the lessor or lessee. According to applicable PRC administrativeregulations, lessors of the related leases need to provide us with certain documents (such astheir business licenses or identification information) in order to complete the administrativefiling. There can be no assurance that the lessors of our leased properties will be cooperativein the process of completing the filings. If we fail to complete the administrative filings withina period required by the relevant governmental authorities and it is determined that we shallbe liable for the aforesaid possible fines to be imposed on our Group, such imposition may havean adverse effect on our business, results of operations and financial position.

For further details, please refer to the sub-section headed “Business – Properties” in thisprospectus.

We may be involved in legal and other disputes from time to time arising out of ouroperations and may face significant liabilities as a result.

We may be involved in disputes with various parties involved in the operation anddevelopment of our hotels, including contractual disputes with third-party hotel owners orfranchisees in relation to the hotel lease agreement, full service management agreement orfranchise agreement or third-party intellectual property infringement claims. These disputesmay lead to legal, administrative or other proceedings, damage to our reputation, additionaloperational costs and diversion of resources and management attention from our core businessactivities. We may have compliance issues with regulatory bodies in the course of ouroperations, which may subject us to administrative proceedings and unfavorable decrees thatresult in pecuniary liabilities. We may be involved in legal and other proceedings in the futurethat may have a material adverse effect on our financial condition, results of operations or cashflow.

Interruption or failure of our hotel management systems and information technologysystems (“IT systems”) could impair our ability to effectively provide services andmaintain customer data, which could damage our reputation or subject us to lawsuits.

Our ability to provide consistent and high-quality services and effectively manage

operations across our hotel chain depends on the continued operation of our IT systems. Any

damage to, or failure of, our IT systems could interrupt our services and daily operations. Our

IT systems are vulnerable to damage or interruption as a result of power loss,

telecommunication failures, computer viruses, hackers, fires, floods, earthquakes, interruptions

in access to our toll-free numbers, or other attempts to harm our systems, and similar events.

Some of our systems are not fully backed up and our disaster recovery planning cannot account

for all possible scenarios. In addition, our IT systems and related technologies may become

outdated and we may not be able to replace or introduce upgrades as quickly as our competitors

or within budgeted costs for such upgrades. If we experience frequent, prolonged or persistent

IT system failures, the quality of our services and our reputation could be harmed. The steps

we need to take to increase the reliability of our IT systems may be costly, which could reduce

our operating margins, and may not be successful in reducing the frequency or duration of any

failures or service interruptions.

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Our business involves collecting and retaining large volume of internal and customer

data, including credit card numbers and other personal information as our various information

technology systems enter, process, summarize and report such data. We also maintain

information about various aspects of our operations as well as our employees. We are required

by applicable laws to keep strictly confidential the personal information that we collect, and

to take adequate security measures to safeguard such information. Our security measures and

those of our third-party service providers may not be adequate for the protection of data on our

Company, customers and employees.

In addition, computer hackers, foreign governments or cyber terrorists may attempt to

penetrate our network security and our website. Unauthorized access to our proprietary internal

and customer data may be obtained through break-ins, sabotage, breach of our secure network

by an unauthorized party, computer viruses, computer denial-of-service attacks, employee theft

or misuse, breach of the security of the networks of our third-party service providers, or other

misconduct. The laws and regulations applicable to security and privacy are becoming

increasingly important in China. The theft, loss, fraudulent or unlawful use of data on our

Company, customers and employees could harm our reputation or result in remedial and other

costs, liabilities, fines or lawsuits.

The restaurants operated by our hotels face risks related to instances of food-borneillnesses and other food safety accidents.

Some of our hotels directly operate the restaurant located therein. The restaurant business

is susceptible to food-borne illnesses and other food safety accidents. We cannot assure you

that our internal controls and training will be fully effective in preventing all food-borne

illnesses. The service of food and beverage products for human consumption involves an

inherent risk of injury or illness to consumers. Such injuries or illnesses may result from

tampering by unauthorized third parties or product contamination or degeneration, including

the presence of foreign contaminants, chemicals, substances or other agents or residues during

the various stages of the procurement, production and serving. While food and beverage

operations are subject to governmental inspection and regulations, we cannot assure you that

our service of food and beverages will not cause injury or illness in the future, or that we will

not be subject to claims or lawsuits relating to such matters. Our insurance coverage may not

be adequate to cover the financial damage and our reputation, business, financial condition and

results of operations may be adversely affected.

Furthermore, our reliance on third-party food suppliers and distributors increases the risk

that food-borne illness incidents could be caused by third-party food suppliers and distributors

outside of our control and the risk of multiple locations being affected rather than a single

restaurant. Reports in the media of instances of food-borne illnesses could, if highly

publicized, negatively impact restaurant sales, forcing the closure of some restaurants and

affect our customers’ confidence in our hotel business. Furthermore, other illnesses, such as

hand, foot and mouth disease or avian influenza, could adversely affect the supply of some of

the restaurants’ food products and significantly increase such restaurants’ costs, which may

also adversely affect the results of operations of the relevant hotels.

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We may be subject to fines or penalties under PRC laws and regulations for our failureto register for and/or make appropriate contributions to social insurance and housingprovident funds on behalf of some of our employees.

During the Track Record Period, we did not register for and/or fully contribute to thesocial insurance and housing provident funds for certain employees. As advised by our PRCLegal Adviser, the relevant PRC authorities may demand that we pay the outstanding socialinsurance contributions by a stipulated deadline and we may be liable to a late payment feeequal to 0.05% of the outstanding amount for each day of delay; if we fail to make suchpayments, we may be liable to a fine of one to three times the amount of the outstandingcontributions. Our PRC Legal Adviser has also advised us that, under the relevant PRC lawsand regulations, we may be ordered to pay the outstanding housing provident fundcontributions within a prescribed time period, and if we fail to make such payments,application may be made to a People’s Court in the PRC for compulsory enforcement.

We cannot assure you that the relevant PRC authorities would not notify and require usin the future to complete registration and/or pay the outstanding contributions by a stipulateddeadline. In the case we fail to pay the outstanding contributions, or to complete the housingfund registration in accordance with PRC laws and as required by the relevant PRC authorities,we may be subject to a penalty fine and/or an order from the relevant people’s court to enforcesuch payment. For further details, please refer to the sub-section headed “Business – Legal andRegulatory Matters – Historical Non-compliance Incidents” in this prospectus.

The appraised value of our properties may differ materially from their actual realizablevalue and are subject to change.

The appraised value of our properties as contained in the Property Valuation Report wasprepared by Cushman & Wakefield Limited based on multiple assumptions containing elementsof subjectivity and uncertainty, including, among other things, that:

(i) our Group has an enforceable title to the properties and has free and uninterruptedrights to use, occupy or assign the properties for the whole of the respectiveunexpired land use term as granted and that any premium payable has already beenfully paid;

(ii) all consents, approvals and licenses from relevant government authorities for thedevelopments have been obtained without onerous conditions or delays;

(iii) the design and construction of the properties are in compliance with the localplanning regulations and have been approved by the relevant authorities;

(iv) no allowance has been made for any charges, mortgages or amounts owing on theproperties nor any expenses or taxation which may be incurred in effecting a sale;and

(v) the properties are free from encumbrances, restrictions and outgoings of any onerousnature which could affect their values.

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The assumptions adopted by Cushman & Wakefield Limited when preparing the Property

Valuation Report may prove to be incorrect. As a result, the appraised values of our properties

may differ materially from the price we could receive in an actual sale of the properties in the

market and should not be taken as their actual realizable value or a forecast of their realizable

value. Unforeseeable changes to the development of the property development projects, as well

as national and local economic conditions, may affect the value of our properties.

Negative publicity, including adverse information on the internet, about us or our

Controlling Shareholders and affiliates, may have a material adverse effect on our

business, reputation and the trading price of our H Shares.

Negative publicity about us or our Controlling Shareholders and affiliates, may arise from

time to time. Any degradation or adverse market developments relating to the “New Century

(開元)” brand name or the New Century Tourism Group in general may adversely affect the

results of operations of our hotels since most of our hotels includes the “New Century” name.

Any future financial challenges experienced by the New Century Tourism Group may in some

circumstances result in negative perceptions of our Group, which could have a material adverse

effect on our Group’s financial condition, operating results and, in turn, its ability to make

distributions to our Shareholders.

Our business operations and management may appear in internet postings and other media

sources from time to time and we cannot assure you that other types of negative publicity will

not arise in the future. Any such negative publicity, regardless of veracity, may have a material

adverse effect on our business, our reputation and the trading price of our H Shares.

Our Controlling Shareholders have the ability to exercise substantial control over us and

can influence our business in ways which may not be in the best interests of our other

Shareholders.

Our Controlling Shareholders (through New Century Tourism) will control approximately

48.3% of the issued share capital of our Company upon completion of the Global Offering

assuming no exercise of the Over-allotment Option (or approximately 46.6% assuming the

Over-allotment Option is exercised in full). Accordingly, our Controlling Shareholders, in

particular Mr. Chen Miaolin who holds a majority stake in New Century Tourism, will (subject

to the Articles of Association and the applicable laws and regulations) be able to control or

otherwise influence our major policy decisions in ways that may not always be in the interests

of other Shareholders, including overall strategic and investment decisions, dividend plans,

issuances of securities and adjustments to the capital structure and other actions that require the

approval of the Shareholders, which could result in decisions which may not be in the interests

of our other Shareholders.

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The application of IFRS 16 may affect our financial position and results of operations

when it becomes effective due to our operating lease arrangements.

IFRS 16 was published in January 2016 and will be effective for accounting periods

beginning on or after 1 January 2019. It addresses the definition of a lease, recognition and

measurement of leases and principles for reporting useful information to users of financial

information about the leasing activities of both lessees and lessors. It will result in almost all

leases being recognized on the balance sheet, as the distinction between operating and finance

leases is removed. During the Track Record Period, our Group acted as lessee in relation to

various properties and equipment, which are currently classified as operating leases. As at

August 31, 2018, our operating lease commitment amounted to RMB2,527.3 million. IFRS 16

provides new provisions for the accounting treatment of leases and will in the future no longer

allow lessees to recognize certain leases outside of the balance sheets. Instead, all non-current

leases must be recognised in the form of an asset (for the right of use) and a financial liability

(for the payment obligation). It is expected therefore that the new standard under IFRS 16 will

result in an increase in right-of-use assets and financial liabilities in the consolidated balance

sheets. This will affect related ratios, such as an increase in debt to equity ratio. As for the

impact on our results of operations in the consolidated statements of comprehensive income,

it is expected that our operating lease expenses will decrease, while depreciation and

amortization and interest expense will increase.

The uncertainty relating to recoverability of deferred tax assets may adversely affect our

financial results.

In the application of our accounting policies, our management is required to make

judgments, estimates and assumptions about the carrying amounts of certain assets and

liabilities that are not readily apparent from other sources. The estimates and associated

assumptions are based on historical experience and other factors that are considered to be

relevant. Therefore, actual results may differ from these accounting estimates. Our deferred tax

assets amounted to RMB24.7 million, RMB25.2 million, RMB19.6 million and RMB25.3

million as at December 31, 2015, 2016 and 2017 and August 31, 2018, respectively.

Based on our accounting policies, deferred tax assets relating to certain temporary

differences and tax losses are recognized when management considers to be probable that

future taxable profit will be available against which the temporary differences or tax losses can

be utilized. The outcome of their actual utilization may be different. If there is a significant

adverse change in our performance, some or all of the relevant deferred tax assets may need

to be written-off and charged to the income statement, which could have an adverse effect on

our financial condition. Moreover, utilization of deferred tax assets significantly depends on

our management’s judgment as to whether sufficient profits or taxable temporary differences

will be available in the future.

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Our financial position and results of operations may be adversely affected by the

performance of our investments in joint ventures and associates.

As of December 31, 2015, 2016 and 2017 and August 31, 2018, our investments in a joint

venture and associates amounted to RMB108.4 million, RMB115.9 million, RMB118.4 million

and RMB119.3 million, respectively and the share of net profit of associates and joint ventures

accounted for using the equity method were RMB1.7 million, RMB1.4 million, RMB3.0

million and RMB4.3 million, respectively. The success of a joint venture and an associated

company depends on a number of factors, some of which are beyond our control. As a result,

we may not be able to realize the anticipated economic and other benefits from our joint

venture and associated companies.

In addition, our investment in associates and joint ventures are subject to liquidity risk.

Our investments in associates and joint ventures are not as liquid as other investment products

as there is no cash flow until dividends are received even if our associates and joint ventures

reported profits under the equity accounting. Furthermore, our ability to promptly sell one or

more of our interests in the associates or joint ventures in response to changing economic,

financial and investment conditions is limited. The market is affected by various factors, such

as general economic conditions, availability of financing, interest rates and supply and

demand, many of which are beyond our control. We cannot predict whether we will be able to

sell any of our interests in the associates or joint ventures for the price or on the terms set by

us, or whether any price or other terms offered by a prospective purchaser would be acceptable

to us. We also cannot predict the length of time needed to find a purchaser and to complete the

relevant transaction. Therefore, the illiquidity nature of our investment in associates or joint

ventures may significantly limit our ability to respond to adverse changes in the performance

of our associates and joint ventures.

In addition, if there is no share of results or dividends from our associates or joint

ventures, we will also be subjected to liquidity risk and our financial condition or result of

operations could be materially affected.

The compensation income that we received during the Track Record Period are

non-recurring in nature.

For the year ended December 31, 2017 and the eight months ended August 31, 2018, we

received compensation income of RMB19.6 million and RMB8.4 million, respectively. These

compensation income mainly represents the compensation made by a third party lessor who

early terminated a hotel lease agreement with us.

As such compensation income would only arise when hotel lease agreement is being

terminated, the compensation income are non-recurring in nature and if we do not receive any

compensation income in the future, it may have an adverse effect on our results of operations

and profitability.

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Accidents, injuries or prohibited activities in our hotels may adversely affect ourreputation and subject us to liability.

There are inherent risks of accidents, injuries or prohibited activities (such as illegal druguse, gambling, violence or prostitution by guests) that take place in hotels. The occurrence ofone or more accidents, injuries or prohibited activities at any of our hotels could adverselyaffect our reputation among guests, harm our brand, decrease our overall occupancy rates, andincrease our costs by requiring us to implement additional safety measures. In addition, ifaccidents, injuries or prohibited activities occur at any of our hotels, we may be held liable forcosts or damages and fines. Our current property and liability insurance policies may notprovide adequate or any coverage for such losses, and we may be unable to renew our insurancepolicies or obtain new insurance policies without increases in premiums and deductibles ordecreases in coverage levels, or at all. Further, in the event that any of our customers conductillegal activities, our reputation may be affected.

Acts of God, epidemics, war, and other disasters could affect our business.

Natural disasters, epidemics, acts of God and other disasters that are beyond our controlmay materially and adversely affect the economy, infrastructure and livelihood of the peoplein the PRC. Some cities in the PRC are under the threat of floods, earthquakes, sandstorms ordroughts, for example, Sichuan Province, Qinghai Province, and Yunnan Province experiencedearthquakes in 2008, 2010 and 2011, respectively. If a natural disaster occurs in areas wherewe operate our business, our business, financial conditions and operating results may bematerially and adversely affected.

Epidemics threaten people’s lives and may materially and adversely affect their livelihoodas well as their living and consumption patterns and may have a significant impact on people’swillingness to travel. The occurrence of an epidemic is beyond our control, and there is noassurance that another outbreak of severe acute respiratory syndrome or avian influenza willnot occur. If an epidemic or pandemic occurs in areas in which we operate, or even in areasin which we do not operate, our operations may be disrupted, and the number of guests in ourGroup’s hotels may decrease, which may materially and adversely affect our business, financialcondition and operating results.

RISKS RELATING TO THE HOTEL INDUSTRY

We are subject to the business, financial, and operating risks inherent to the hotelindustry, any of which could reduce our revenues and limit opportunities for growth.

Our business is also subject to a number of business, financial and operating risksinherent to the hotel industry, including:

(i) significant competition from multiple hotel groups in the PRC;

(ii) changes in tax and governmental regulations that influence or set wages, prices,interest rates or maintenance procedures and costs;

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(iii) the costs and administrative burdens associated with complying with applicable laws

and regulations;

(iv) the availability and cost of capital necessary for us and third-party hotel owners to

fund investments, capital expenditures and service debt obligations;

(v) delays in or cancellations of planned or future development or refurbishment

projects, which in the case of our managed and franchised hotels are generally not

within our control;

(vi) the quality of services provided by franchisees;

(vii) the financial condition of third-party hotel owners and franchisees;

(viii) relationships with third-party hotel owners and franchisees, including the risk that

owners may terminate our hotel lease agreements, full service management

agreements or franchise agreements;

(ix) changes in desirability of geographic regions of the hotels, geographic concentration

of our operations and customers, and shortages of desirable locations for

development;

(x) changes in the supply and demand for hotel services (including rooms, food and

beverage, and other products and services);

(xi) the ability of third-party internet and other travel intermediaries to attract and retain

customers; and

(xii) decreases in the frequency of business travel as a result of alternatives to in-person

meetings, including virtual meetings hosted on-line or over private teleconferencing

networks.

Any of these factors could increase our costs or limit or reduce the prices we are able to

charge for hotel services, or otherwise affect our ability to maintain existing properties or

develop new properties. As a result, any of these factors can reduce our revenues and limit our

opportunities for growth.

The PRC hotel industry is subject to intense and growing competition.

Our success is substantially dependent on our ability to compete in an industry

characterized by intense and growing competition. Our principal competitors are other

operators of Star-rated hotels, in particular, other major hotel chains with well-established and

recognized international and domestic brands. We also compete against independent owners or

operators of local mid-scale to upscale hotels and international and domestic business hotel

chains.

RISK FACTORS

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We compete for guests based primarily on brand recognition and reputation, location,

customer satisfaction, room rates, quality of service, amenities and quality of accommodations.

Many of our competitors have operated in the industry for substantially longer periods of time

than us and have accumulated more operational, managerial, sales and marketing experience,

brand recognition, human resources and financial resources. Further, the barriers to entry into

the hotel industry for new participants, particularly in the value and mid-scale categories, are

relatively low given the limited capital required to convert or re-develop existing buildings into

value and mid-scale hotels. We cannot assure you that some or many of our competitors will

not engage in significant building of new hotels in markets in which we operate or plan to

operate, which will increase the supply of available hotel rooms in those areas and thereby

increase competition and negatively impact occupancy levels and room rates. We also cannot

assure you that we will be able to successfully compete against our current and future

competitors. In particular, if our more established competitors engage in significant and

sustained price discounting to attract customers and we are forced to substantially reduce our

own prices to maintain occupancy levels, it would have a material adverse effect on our

revenues, profit margins and results of operations.

Our hotel business may be adversely affected by a reduction in business travelers, affluentleisure travelers or discretionary consumer spending as a result of a downturn in the PRCor global economy or any acts or threats of terrorism.

Our hotel business may be adversely affected by a reduction in business travelers, affluent

leisure travelers or discretionary consumer spending as a result of a downturn in the PRC or

global economy. Consumer demand for hotel accommodations, trade show and convention

amenities provided by us are particularly sensitive to downturns in the economy. In particular,

a significant portion of our revenue is derived from our upscale and mid-scale hotels and is

vulnerable to a decline in demand from business and affluent leisure travelers. Changes in

consumer preferences, the level of business travel, or discretionary consumer spending brought

about by factors such as fear of war and future acts of terrorism, deterioration in general

economic conditions, decreases in disposable consumer income, fear of recession or decline in

consumer confidence in the economy may adversely affect our business. Furthermore, any

increase in anti-terrorism measures and the tightening of visa or other entry requirements may

also deter our customers from travelling. These factors could reduce consumers’ demand for

the products and leisure services provided by us, and consequently will have an adverse effect

on our business, financial conditions and results of operations.

Labor shortages could restrict our ability to operate our hotels or grow our business orresult in increased labor costs that could reduce our profits.

Our success depends in large part on our ability to attract, retain, train and manage our

employees. As at August 31, 2018, our hotels have 88 general managers, 68 of whom have been

with our hotels for over five years. Any unanticipated departure of members of the

management team without appropriate replacement may have a material adverse impact on our

business operation and future growth. Our hotels are staffed 24 hours a day, seven days a week.

We had 5,135 full time employees as at August 31, 2018, all located in the PRC. As we face

RISK FACTORS

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intense and growing competition from other international and domestic hotel brands, if we areunable to attract, retain, train and manage our skilled employees, our ability to manage andstaff our hotels adequately could be impaired, which could reduce customer satisfaction.Staffing shortages could also hinder our ability to grow and expand our business. As payrollcosts are a major component of the operating expenses at our hotels, a shortage of skilled laborcould also require us to pay higher wages, which would reduce our profits and have a materialadverse effect on our operation results and financial performance.

The seasonality of the hotel industry could materially and adversely affect our revenuesand financial condition.

The hotel industry, particularly the resort hotel business, is seasonal in nature. Based uponthe historical results, our upscale business hotels and mid-scale full service hotels typicallygenerate higher revenue during the fourth quarter of each year. We typically witness higherdemand for our ballroom and conference room facilities at our upscale and mid-scale fullservice hotel in the fourth quarter of each year, primarily due to the year-end festivity seasonsuch as the golden week holiday in October and end of year demand for business functions andannual dinners. Our upscale resort hotels typically generate higher revenue during the thirdquarter of each year which coincide with the summer season and school summer holidays inthe PRC. The revenue of our mid-scale select service hotels remains relatively stablethroughout the year. This seasonality can be expected to cause periodic fluctuations in our hotelroom and restaurant revenues, occupancy levels, room rates and operating expenses. We canprovide no assurances that our cash flows will be sufficient to offset any shortfalls that occuras a result of these fluctuations, and we may have to enter into short-term borrowings in orderto enhance our cash flow position at any time during the financial year. As a result, volatilityin our financial performance resulting from the seasonality of the hotel industry could have amaterial adverse effect on our revenues and financial position.

RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC

As all of our operations are conducted in the PRC, any adverse change in the PRC’spolitical, economic and social conditions and government policies may have a materialand adverse effect on us.

During the Track Record Period, our business operations were conducted in the PRC andall our revenue was derived from the PRC. As a result, we are susceptible to changes in theeconomic, political and social conditions in the PRC. The economy of the PRC differs from theeconomies of most developed countries in many respects, including but not limited to:

(i) structure;

(ii) level of governmental involvement;

(iii) level of development;

(iv) growth rate;

RISK FACTORS

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(v) control of foreign exchange; and

(vi) allocation of resources.

In the past, the PRC Government has implemented measures emphasising the utilisation

of market forces for economic reform. However, the PRC Government continues to play a

significant role in regulating industrial development and the allocation, production, pricing and

management of resources. We may not in all cases be able to capitalise on the economic reform

measures adopted by the PRC Government. In addition, the implementation of PRC laws and

regulations involves a degree of uncertainty. We cannot predict the future development of the

PRC legal system, including any promulgation of new laws, change to existing laws or the

interpretation or enforcement thereof, or the pre-emption of local regulations by national laws,

and the effect it may have on us. Changes in the economic, political and social conditions or

the relevant policies of the PRC Government, such as changes in laws and regulations (or the

interpretation thereof) and fiscal or financial measures, could have an adverse effect on the

overall economic growth of the PRC, which could subsequently hinder our business, growth

strategies, financial condition and results of operations.

Our business operations may be affected by regulatory changes.

The establishment and many aspects of the business operations of our PRC subsidiaries

are governed by various local, provincial and national regulations. The PRC legal framework,

qualification requirements and enforcement trends in the hotel industry may change, and we

may not be able to respond to such changes in a timely manner. Such changes may also cause

the compliance cost to increase, which may materially and adversely affect our business,

financial conditions and results of operations.

Uncertainties with respect to the PRC legal system could have a material and adverseeffect on our business and operations.

Our business and operations are conducted in the PRC and governed by PRC laws and

regulations. The PRC legal system is a civil law system based on written statutes and their

interpretations in terms of application and enforcement by relevant legislative and judicial

authorities, various administrative regulations and decrees. There is only a limited number of

published court decisions which may be cited for reference and in any case, unlike in the

common law system, prior cases have limited precedential value in deciding subsequent cases

in the civil law legal system. Since the late 1970s, the PRC Government has committed to

building up a socialistic legal system to regulate business practices and the overall economic

order of the country. The PRC has made significant progress in the promulgation of laws and

regulations dealing with business and commercial affairs of various participants of the

economy, involving shareholders’ rights, foreign investment, corporate organization and

governance, commercial transactions, taxation and trade. However, the PRC has not developed

a fully-integrated legal system, and its laws and regulations may not sufficiently cover all

aspects of economic activity in the PRC, including those governing the resolution of disputes

arising from the PRC issuer’s articles of association and the transfer of the PRC issuer’s shares.

RISK FACTORS

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As many of these laws and regulations are relatively new, and given the limited volume ofpublished decisions and the involvement of different enforcement bodies of the relevant lawsand regulations and the non-binding nature of prior court decisions and administrative rulings,the interpretation and enforcement of these laws and regulations involve significantuncertainties.

Agreements which are governed under PRC laws may be more difficult to enforce bylegal or arbitral proceedings in the PRC than in countries with more mature legal systems. Evenif the agreements generally provide for arbitral proceedings for disputes arising out of theagreements to be in another jurisdiction, it may be difficult for us to obtain effectiveenforcement in the PRC of an arbitral award obtained in that jurisdiction.

You may experience difficulty in effecting service of legal process, enforcing foreignjudgments or bringing original actions in the PRC based on foreign laws against us andour Directors and senior management.

We are a company incorporated under the laws of the PRC and all of our assets and allof our subsidiaries are located in the PRC. Most of our Directors, Supervisors and seniormanagement reside within the PRC. Most of the assets of these Directors, Supervisors andsenior management may also be located within the PRC. As a result, it may not be possible toeffect service of process outside the PRC upon most of our Directors, Supervisors and seniormanagement. Moreover, the PRC does not have treaties providing for reciprocal recognitionand enforcement of court judgments in the United States, the United Kingdom, Japan or mostother countries. In addition, Hong Kong has no arrangement for the reciprocal enforcement ofjudgments with the United States. As a result, in the PRC or Hong Kong, recognition andenforcement of court judgments from the jurisdictions mentioned above may be difficult orimpossible in relation to any matter that is not subject to a binding arbitration provision. OnJuly 14, 2006, the Supreme People’s Court of the PRC and the Government of Hong Kongsigned an Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil andCommercial Matters (《關於內地與香港特別行政區法院相互認可和執行當事人協議管轄的民商事案件判決的安排》). Under this arrangement, where any designated People’s Court of thePRC or Hong Kong court has made an enforceable final judgment requiring payment of moneyin a civil and commercial case pursuant to a choice of court agreement, any party concernedmay apply to the relevant People’s Court of the PRC or Hong Kong court for recognition andenforcement of the judgment. Although this arrangement became effective on August 1, 2008,the outcome and effectiveness of any action brought under the arrangement remain uncertain.

Our Articles of Association provide that disputes between holders of our H Shares and ourCompany, our Directors, Supervisors or senior management, arising out of our Articles ofAssociation, the PRC Company Law and related regulations, concerning the affairs of ourCompany, are to be resolved through arbitration by the China International Economic andTrade Arbitration Commission or the Hong Kong International Arbitration Centre. Awardsmade by PRC arbitral authorities recognized under the Hong Kong Arbitration Ordinance canbe enforced in Hong Kong. Hong Kong arbitral awards are also enforceable in the PRC, subjectto the satisfaction of certain PRC legal requirements. However, it is uncertain whether anyaction brought in the PRC to enforce an arbitral award made in favor of holders of H Shareswould succeed.

RISK FACTORS

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The PRC Government’s control over foreign currency conversion may limit our foreignexchange transactions, including dividend payment to holders of our H Shares.

Currently, RMB cannot be freely converted into any foreign currency, and conversion and

remittance of foreign currencies are subject to PRC foreign exchange regulations. There is no

assurance that we will have sufficient foreign exchange to meet our foreign exchange

requirements. Under the current PRC foreign exchange control system, foreign exchange

transactions under the current account conducted by us, including the payment of dividends, do

not require advance approval from SAFE, but we are required to present documentary evidence

of such transactions and conduct such transactions at designated foreign exchange banks within

the PRC that have the requisite licenses to conduct foreign exchange business. Foreign

exchange transactions under the capital account conducted by us, however, must be approved

in advance by SAFE.

Under the existing foreign exchange regulations, following the completion of the Global

Offering, we will be able to pay dividends in foreign currencies without prior approval from

SAFE by complying with certain procedural requirements. However, there is no assurance that

these foreign exchange policies regarding payment of dividends in foreign currencies will

continue in the future. In addition, any insufficiency of foreign exchange may restrict our

ability to obtain sufficient foreign exchange for dividend payments to shareholders or to satisfy

other foreign exchange requirements. If we fail to obtain approval from SAFE to convert RMB

into any foreign exchange for any of the above purposes, our capital expenditure plans and our

business, operating results and financial conditions, may be materially and adversely affected.

Dividends is subject to PRC withholding tax.

Under the applicable PRC tax laws, dividends of a PRC resident enterprise paid to, and

gains realized through the sale or transfer by other means of shares in a PRC resident enterprise

by, a non-PRC resident individual are both subject to PRC individual income tax at a rate of

20%. Pursuant to the Circular on Questions Concerning the Collection of Individual Income

Tax following the Repeal of Guo Shui Fa [1993]045 (《關於國稅發[1993]045號文件廢止後有關個人所得稅徵管問題的通知》) dated June 28, 2011 issued by the SAT, dividends paid by H

Share issuers to a non-PRC resident individual holder of H Shares are subject to PRC

individual income tax at the rates determined in accordance with applicable tax treaties or

arrangements between the PRC and the jurisdiction in which the shareholder resides. Such tax

rates range from 5% to 20%. This circular further provides that, in general, the tax rate

applicable to dividend income as stipulated in relevant tax treaties or arrangements is 10%;

therefore, H Share issuers can withhold 10% of the dividend without seeking prior consent

from competent tax authorities.

Any shareholder residing in a jurisdiction where the applicable tax rate for such

dividends, as stipulated in the relevant tax treaties or arrangements, is lower than 10% shall be

entitled to a refund of the excess tax withheld by H Share issuers; however, such refund shall

be applied for by the shareholder directly or through a tax agent and will be subject to the

approval of the competent tax authority. For a shareholder residing in a jurisdiction where the

RISK FACTORS

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applicable tax rate for such dividends, as stipulated in the relevant tax treaties or arrangements,

is more than 10% but less than 20%, H Share issuers shall withhold the individual income tax

at the actual tax rate, as stipulated in the relevant tax treaties or arrangements, without seeking

prior consent from competent tax authorities. For a shareholder residing in a jurisdiction where

the applicable tax rate for such dividends, as stipulated in the relevant tax treaties or

arrangements, is 20% or where there is no relevant tax treaty or arrangement with the PRC, H

Share issuers shall withhold the individual income tax at the rate of 20%.

Despite these arrangements, there are significant uncertainties as to the interpretation and

application of applicable PRC tax laws and rules due to several factors, including the relatively

short history of such laws and rules, and whether the relevant preferential tax treatment will

be revoked in the future such that all non-PRC resident individual holders of H Shares will be

subject to PRC individual income tax at a flat rate of 20%.

According to the PRC Enterprise Income Tax Law and the rules relating to the

implementation thereof, non-PRC resident enterprises that do not have any establishment or

premises within the PRC are subject to enterprise income tax at a rate of 10% on any income

generated within the PRC. Furthermore, pursuant to the Notice of Withholding and Payment of

Enterprise Income Tax for PRC Resident Enterprises Paying Dividends to Overseas

Nonresident Enterprise Shareholders of H Shares (《關於中國居民企業向境外H股非居民企業股東派發股息代扣代繳企業所得稅有關問題的通知》) issued by the SAT on November 6,

2008, PRC resident enterprises are required to withhold enterprise income tax at a flat rate of

10% on distributions of dividends to overseas non-PRC resident enterprise holders of H Shares

for the year 2008 and thereafter.

According to relevant PRC tax laws, non-PRC resident enterprise holders of H Shares are

subject to enterprise income tax at a rate of 10% on profit from the sale or transfer of H Shares

as well as dividends received from H Shares. In addition, it is also unclear whether and how

the PRC individual income tax and enterprise income tax on gains realized by non-PRC

resident holders of H Shares through the sale, or transfer by other means, of H Shares will be

collected by the PRC tax authorities in the future. Considering these uncertainties, non-PRC

resident holders of our H Shares should be aware that they may be obligated to pay PRC

income tax on gains realized through the sale, or transfer by other means of our H Shares.

Payment of dividends is subject to restrictions under PRC Law.

Under PRC law, we may only pay dividends out of distributable profits. Distributable

profits are our after-tax profits as determined under PRC GAAP or IFRS, whichever is lower,

less any recovery of accumulated losses and appropriations to statutory and other reserves that

we require to make. As a result, we may not have sufficient or any distributable profit to enable

us to make dividend distributions to our Shareholders, including periods in which our financial

statements indicate we are profitable. Any distributable profit not distributed in a given year

is retained and available for distribution in subsequent years.

RISK FACTORS

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Moreover, because the calculation of distributable profits under PRC GAAP is differentfrom the calculation under IFRS in certain respects, our operating subsidiaries may not havedistributable profits as determined under PRC GAAP, even if they have profits for that year asdetermined under IFRS, or vice versa. Accordingly, we may not receive sufficient distributionsfrom our subsidiaries. Failure by our operating subsidiaries to pay us dividends couldmaterially and adversely impact our cash flow and ability to make dividend distributions to ourShareholders in the future, including periods in which our financial statements indicate we areprofitable.

RISKS RELATING TO THE GLOBAL OFFERING

There has been no prior public market for our H Shares, thus an active or liquid tradingmarket for the Shares may not develop and the trading price of our H Shares may bevolatile.

Prior to the Global Offering, there has been no public market of our H Shares. The initialOffer Price for our H Shares to the public will be agreed by us and the Underwriters, and theOffer Price may differ significantly from the market price of the H Shares following this GlobalOffering. We have applied to the Stock Exchange for the listing of, and permission to deal in,our H Shares. A listing on the Stock Exchange, however, does not guarantee that an active andliquid trading market for our H Shares will develop, or if it does develop, that it will besustained. In addition, the trading price and trading volume of our H Shares may be subject tosignificant volatility as a result of various factors, including:

(i) variations in our operating results or differences between our operating results andthose expected by investors and analysts;

(ii) changes in securities analysts’ estimates of our financial performance;

(iii) announcements made by us or our competitors;

(iv) regulatory developments or market changes in the PRC affecting us or our industry;

(v) any business interruptions resulting from natural disasters or accidents;

(vi) investors’ perception of us and of the investment environment in Asia, includingHong Kong and the PRC;

(vii) announcements of or completions of acquisitions, strategic alliances, or jointventures by us or our competitors;

(viii) addition or departure of our key personnel;

(ix) release or expiration of lock-up or other transfer restrictions on our H Shares;

(x) liability claims brought against us;

RISK FACTORS

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(xi) involvement in litigation; and

(xii) general political, economic, financial, social development and stock market

conditions and other factors.

Moreover, in recent years, stock markets in general, and the H shares issued by other

issuers in the PRC and listed on the Stock Exchange both have experienced price and volume

fluctuations, some of which were unrelated or did not fully correspond to the operating

performance of related companies. These broad market and industry fluctuations may

adversely affect the market price of our H Shares in a similar manner.

Future sales, or market perception of sales, of substantial amounts of our H Shares or

other securities relating to our H Shares in the public market could materially and

adversely affect the prevailing market price of our H Shares.

Any future sale or availability for sale of the Shares could have an adverse effect on the

Share price. The sale of a significant amount of Shares in the public market after the Global

Offering, or the perception that such sales may occur, could adversely affect the market price

of the Shares. Future sale of a significant amount of our H Shares or other related securities

in the public market, or issuance of new H Shares or other related securities in the public

market, or the perception that such sales or issuance may occur, after the expiration of relevant

restrictions, could make the market price of our H Shares decline. In addition, such sales may

make it more difficult for us to issue new Shares in the future at a time and price we deem

appropriate, thereby limiting our ability to raise capital.

According to the stipulations by the State Council’s securities regulatory authority and the

Articles of Association, our Domestic Shares and Unlisted Foreign Shares may be converted

into H Shares and such converted H Shares may be listed or traded on an overseas stock

exchange, provided that prior to the conversion and trading of such converted shares, the

requisite internal approval processes have been duly completed and the approval from the

relevant PRC regulatory authorities, including the CSRC, have been obtained. In addition, such

conversion, trading and listing shall in all respects comply with the regulations prescribed by

the State Council’s securities regulatory authorities and the regulations, requirements and

procedures prescribed by the relevant overseas stock exchange. We can apply for the listing of

all or any portion of our Domestic Shares or Unlisted Foreign Shares on the Stock Exchange

as H Shares in advance of any proposed conversion to ensure that the conversion process can

be completed promptly upon notice to the Stock Exchange and delivery of shares for entry on

the H Share register. This could further increase the supply of H Shares in the market, and

future sales, or perceived sales, of the converted Shares may adversely affect the trading price

of H Shares.

RISK FACTORS

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There can be no assurance of the accuracy or comparability of facts and statistics

contained in this prospectus with respect to the PRC, its economy or its hotel industry.

Facts and statistics in this prospectus relating to the PRC, its economy and its hotel

industry, including its market share information, are derived from various official and other

publicly available sources which are generally believed by us to be reliable. However, there can

be no assurance as to the quality and reliability of such official source materials. In addition,

these facts and statistics have not been independently verified by us, the Joint Sponsors, the

Joint Global Coordinators, the Joint Bookrunners, the Joint Lead Managers or their advisers

and therefore none of us, the Joint Sponsors, the Joint Global Coordinators, the Joint

Bookrunners and the Joint Lead Managers or its advisers makes any representation as to the

accuracy or fairness of such facts and statistics, which may not be consistent with other

information compiled within or outside the PRC and may not be complete or up to date. We

have taken reasonable care in reproducing or extracting the information from such sources.

However, because of possibly flawed or ineffective methodologies underlying the published

information or discrepancies between the published information and market practice and other

problems, these facts and other statistics may be inaccurate or may not be comparable from

period to period or be comparable to facts or statistics produced for other economies and

should not be unduly relied upon by investors.

There will be a time gap of several business days between pricing and trading of our H

Shares offered under the Global Offering.

The Offer Price of our H Shares sold to the public under the Global Offering will be

determined on the Price Determination Date. However, trading of our H Shares on the Stock

Exchange will not commence until they are delivered, which is expected to be several business

days after the Price Determination Date. During that period, investors of our H Shares may not

be able to sell or otherwise deal in our H Shares. Accordingly, holders of our H Shares may

be subject to the risk that our H Share trading price could fall before trading begins as a result

of adverse market conditions or other unfavorable circumstances that may arise during the

period between the Price Determination Date and the date on which the dealing begins.

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

Following completion of the Global Offering, our Shareholders will be entitled to receive

dividends only when declared at a Shareholders’ meeting. The payment and the amount of any

future dividend will be decided of Shareholders’ meetings and will depend on, among others,

our earnings, financial condition, cash requirement and availability, and other factors as our

Directors may deem relevant. As such, factors and the payment of dividends are at the

discretion of our Board which reserves the right to change its plan on the payment of dividends,

there can be no assurance that any particular dividend amount, or any dividend at all, will be

declared and paid in the future. Prospective investors should note that historical dividend

payments should not be regarded as an indication of our future dividend policy.

RISK FACTORS

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We have significant discretion as to how we will use the net proceeds of the Global

Offering, and you may not necessarily agree with how we use them.

Our management may use the net proceeds of the Global Offering in ways with which you

may disagree with or that do not yield a favorable return to the Shareholders. We plan to use

the net proceeds of the Global Offering to enhance our core capital to support our business

growth. See the sub-section headed “Future Plans and Use of Proceeds – Use of Proceeds” in

this prospectus. However, our management will have the discretion as to the actual use of the

net proceeds. You are entrusting your funds to our management with respect to the specific use

of the net proceeds from the Global Offering.

You should rely only on this prospectus, and not place any reliance on any information

contained in press articles or other media, in making your investment decision.

We have not authorized anyone to provide you with information that is not contained in,

or is different from information contained in, this prospectus. Prior or subsequent to the

publication of the prospectus, there may have been or may be press and media coverage

regarding us and the Global Offering, in addition to marketing materials we have published in

compliance with the Listing Rules. We have not authorized any such press and media reports,

and the financial information, financial projections, valuations and other information about us

in unauthorized press and media coverage may be untrue and may not reflect what is disclosed

in this prospectus.

We make no representation as to the appropriateness, accuracy, completeness or

reliability of any such information or publication, and accordingly do not accept any

responsibility for any such press or media coverage or the inaccuracy or incompleteness of any

such information. If any information in the press and media is inconsistent or conflicts with the

information in this prospectus, we disclaim it, and you should not rely on any such information.

In making your decision as to whether to purchase our H Shares, you should rely only on the

information included in this prospectus and the Application Forms.

RISK FACTORS

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In preparation for the Global Offering, we have applied for the following waivers from

strict compliance with the relevant provisions for the Listing Rules and exemption from strict

compliance with the relevant provisions of the Companies (Winding Up and Miscellaneous

Provisions) Ordinance.

MANAGEMENT PRESENCE IN HONG KONG

Rules 8.12 and 19A.15 of the Listing Rules require a PRC-incorporated issuer to have

sufficient management presence in Hong Kong. This normally means that at least two of the

PRC incorporated issuer’s executive directors must be ordinarily resident in Hong Kong.

Currently, none of our executive directors resides in Hong Kong. Since our principal operations

are in China, we do not and, for the foreseeable future, will not have executive directors who

are ordinarily resident in Hong Kong for the purposes of satisfying the requirements of Rules

8.12 and 19A.15 of the Listing Rules.

Accordingly, we have applied to the Stock Exchange for, and the Stock Exchange has

granted, a waiver from strict compliance with Rules 8.12 and 19A.15 of the Listing Rules,

subject to among other conditions, our appointment of:

(i) two authorized representatives, Mr. Jin Wenjie and Ms. Chan Suet Lam, who will act

at all times as our principal channel of communication with the Stock Exchange; and

(ii) our compliance adviser, BOCOM International (Asia) Limited who will act as our

principal channel of communication with the Stock Exchange, in addition to our

authorized representatives, pursuant to Rules 3A.19 and 19A.06(4) of the Listing

Rules.

We have made arrangements to maintain effective communication with the Stock

Exchange as follows:

(i) each of our authorized representatives referred to above will have access to our

Board and senior management at all times as and when the Stock Exchange wishes

to contact them for any matter. All of our Directors have provided their respective

mobile phone numbers, office phone numbers, email addresses and facsimile

numbers to the Stock Exchange. We will also inform the Stock Exchange promptly

in respect of any change in our authorized representatives;

(ii) Ms. Chan Suet Lam, one of our authorized representatives and joint company

secretaries, ordinarily resides in Hong Kong and will be readily contactable by the

Stock Exchange at all times for any matters. All Directors who are not ordinary

residents in Hong Kong have confirmed that they possess or may apply for valid

travel documents to visit Hong Kong for business purposes and would be able to

meet with the Stock Exchange in Hong Kong upon reasonable notice; and

WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES AND EXEMPTION FROM STRICTCOMPLIANCE WITH THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE

– 66 –

(iii) in accordance with Rules 3A.19 and 19A.05 of the Listing Rules, we have appointed

BOCOM International (Asia) Limited as our compliance adviser for the period

commencing on the date of Listing and ending on the date on which we comply with

Rule 13.46 of the Listing Rules in respect of our financial results for the first full

financial year commencing after the date of Listing. The compliance adviser will act

as our additional channel of communication with the Stock Exchange and the

compliance adviser shall have access at all times to our authorized representatives,

our Directors and other officers to ensure that they are in a position to promptly

respond to queries or requests from the Stock Exchange.

QUALIFICATION OF COMPANY SECRETARY

Pursuant to Rules 3.28 and 8.17 of the Listing Rules, the company secretary must be an

individual who, by virtue of his academic or professional qualifications or relevant experience,

is, in the opinion of the Stock Exchange, capable of discharging the functions of the company

secretary. Pursuant to Note (1) to Rule 3.28 of the Listing Rules, the Stock Exchange considers

the following academic or professional qualifications to be acceptable:

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

(ii) a solicitor or barrister as defined in the Legal Practitioners Ordinance (Chapter 159

of the Laws of Hong Kong); or

(iii) a certified public accountant as defined in the Professional Accountants Ordinance

(Chapter 50 of the Laws of Hong Kong).

Pursuant to Note (2) to Rule 3.28 of the Listing Rules, in assessing “relevant experience”,

the Stock Exchange will consider the individual’s:

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

played;

(ii) familiarity with the Listing Rules and other relevant law and regulations including

the Securities and Futures Ordinance, Companies Ordinance, Companies (Winding

Up and Miscellaneous Provisions) Ordinance and the Takeovers Code;

(iii) relevant training taken and/or to be taken in addition to the minimum requirement

under Rule 3.29 of the Listing Rules; and

(iv) professional qualifications in other jurisdictions.


– 67 –

Mr. Li Donglin has been the secretary to the Board since January 2017 and was appointed

as a joint company secretary in July 2018 with effect from the Listing Date. As Mr. Li does

not have the qualifications stipulated under Rules 3.28 and 8.17 of the Listing Rules, we have

appointed Ms. Chan Suet Lam, who is an associate of The Hong Kong Institute of Chartered

Secretaries and is ordinarily resident in Hong Kong. Ms. Chan therefore has the requisite

knowledge and experience under Rules 3.28 and 8.17 of the Listing Rules, to act as the joint

company secretary and assist Mr. Li in discharging his duties as our company secretary. This

appointment has a term of three years with effect from the Listing Date. We will also

implement procedures to provide Mr. Li with appropriate training in order to enable him to

acquire such necessary experience upon the expiry of the three-year period.

We have applied to the Stock Exchange for, and the Stock Exchange has granted us, a

waiver from strict compliance with requirements of Rules 3.28 and 8.17 of the Listing Rules

for a three-year period on the condition that Ms. Chan is appointed as a joint company secretary

of our Company. The waiver will be revoked if Ms. Chan ceases to be the other joint company

secretary and we fail to appoint another qualified joint company secretary to assist Mr. Li

during the three years after the Listing Date. Upon the expiry of the three-year period, we will

re-evaluate whether Mr. Li has acquired the skills necessary to carry out the duties of company

secretary and the relevant experience within the meaning of Rule 3.28 of the Listing Rules so

that a further waiver will not be necessary.

CONTINUING CONNECTED TRANSACTIONS

Our Company has entered into, and expect to continue after the Listing, certain

transactions which will constitute non-exempt continuing connected transactions under the

Listing Rules upon the Listing. Our Company has applied to the Stock Exchange for and has

been granted, a waiver from strict compliance with the relevant requirements under Chapter

14A of the Listing Rules in respect of these non-exempt continuing connected transactions. For

further details, see the section headed “Connected Transactions” in this prospectus.

FINANCIAL STATEMENTS REQUIRED TO BE INCLUDED IN THIS PROSPECTUS

Rule 4.04(1) of the Listing Rules requires that the accountant’s report to be included in

a listing document must include the consolidated results of the listing applicant in respect of

each of the three financial years immediately preceding the issue of the listing document or

such shorter period as may be acceptable to the Stock Exchange.

Section 342(1)(b) of the Companies (Winding Up and Miscellaneous Provisions)

Ordinance requires all prospectuses to include an accountant’s report which contains the

matters specified in the Third Schedule to the Companies (Winding Up and Miscellaneous

Provisions) Ordinance.


– 68 –

Paragraph 27 of Part I of the Third Schedule to the Companies (Winding Up andMiscellaneous Provisions) Ordinance requires that a statement as to the gross trading incomeor sales turnover of the listing applicant for each of the three financial years preceding the issueof this prospectus including an explanation of the method used for the computation of suchincome or turnover, and a reasonable breakdown between the more important trading activities,be included in this prospectus.

Paragraph 31 of Part II of the Third Schedule to the Companies (Winding Up andMiscellaneous Provisions) Ordinance further requires that a report by the auditors of the listingapplicant with respect to (i) the profits and losses of the listing applicant for each of the threefinancial years immediately preceding the issue of this prospectus; and (ii) the assets andliabilities of the listing applicant at the last date to which the accounts of the listing applicantwere made up, be included in this prospectus.

Pursuant to section 342A(1) of the Companies (Winding Up and MiscellaneousProvisions) Ordinance, the SFC may issue, subject to such conditions (if any) as the SFC thinksfit, a certificate of exemption from compliance with any or all of the requirements of therelevant provisions under the Companies (Winding Up and Miscellaneous Provisions)Ordinance if, having regard to the circumstances, the SFC considers that the exemption will notprejudice the interest of the investing public and compliance with any or all of suchrequirements would be irrelevant or unduly burdensome, or is otherwise unnecessary orinappropriate.

The Accountant’s Report of our Group for each of the three financial years endedDecember 31, 2017 and the eight months ended August 31, 2018 has been prepared and is setout in Appendix I to this prospectus.

However, as this prospectus is issued within a short period of the time after December 31,2018, the Accountant’s Report of our Group will not be prepared for the full year endedDecember 31, 2018. In such circumstance, we have applied for, and the Stock Exchange hasgranted, a waiver from strict compliance with Rules 4.04(1) of the Listing Rules subject to thefollowing conditions:

(a) this prospectus will be issued on or before February 26, 2019 and our H Shares willbe listed on the Stock Exchange on or before March 31, 2019 (i.e. within threemonths after the end of the Company’s latest financial year immediately precedingthe issue of this prospectus);

(b) we will obtain a certificate of exemption from the SFC from strict compliance withsection 342(1)(b) of the Companies (Winding Up and Miscellaneous Provisions)Ordinance in relation to Paragraph 27 of Part I and Paragraph 31 of Part II of theThird Schedule to the Companies (Winding Up and Miscellaneous Provisions)Ordinance (the “Ordinance Requirements”); and

(c) this prospectus contains a profit estimate of our Group for the Group’s latestfinancial year (i.e. the year ended December 31, 2018) prepared in compliance withRules; 11.17 to 11.19 of the Listing Rules; and


– 69 –

(d) this prospectus contains our Directors’ statement that after performing all duediligence work which they consider appropriate, there is no material adverse changeto our Group’s financial and trading positions or prospects, with specific referenceto our trading results from the end of the stub period (i.e. August 31, 2018) to theGroup’s latest financial year end (i.e. December 31, 2018).

We have also applied for, and the SFC has agreed to grant us, a certificate of exemptionfrom strict compliance with the Ordinance Requirements on the conditions that: (a) particularsof the exemption are set out in this prospectus; (b) this prospectus will be issued on or beforeFebruary 26, 2019; and (c) our H Shares will be listed on the Stock Exchange on or beforeMarch 31, 2019.

The applications to Stock Exchange for a waiver from strict compliance with Rule 4.04(1)of the Listing Rules and to the SFC for a certificate of exemption from strict compliance withthe Ordinance Requirements were made on the grounds, among others, that strict compliancewith the above requirements would be unduly burdensome and the exemption would notprejudice the interests of the investing public as:

(a) there would not be sufficient time for us to prepare the full year financial statementsfor the year ended December 31, 2018 and for our reporting accountants to completethe audit thereon prior to the issue of this prospectus;

(b) in accordance with Guidance Letter HKEx-GL-25-11, an estimate of theconsolidated profit of our Group for the year ended December 31, 2018 has beenincluded in this prospectus. The investing public would thus be given some guidanceas to our Group’s financial performance for the year ended December 31, 2018;

(c) our Directors have confirmed that sufficient due diligence has been performed andthat up to December 31, 2018 (being the latest financial year end), there has beenno material adverse change in our Group’s financial or trading position since August31, 2018 (being the date to which the latest consolidated financial statements of ourGroup were made up) and there has been no event since August 31, 2018 whichwould materially affect the information shown in the Accountant’s Report of ourGroup (as set out in Appendix I to this prospectus), the profit estimate for the yearended December 31, 2018 and the section headed “Financial Information” in thisprospectus and other parts of this prospectus;

(d) based on the due diligence work performed by the Joint Sponsors, the Joint Sponsorsconcur with the views of our Directors expressed under paragraph (c) above;

(e) our Directors and the Joint Sponsors confirm that all information which is necessaryfor the investing public to make an informed assessment of our Group’s business,assets and liabilities, financial position, trading position, management and prospectshas been included in this prospectus; and

(f) we will comply with Rules 13.46(1) and 13.49(1) of the Listing Rules in respect ofthe publication of our annual results announcement and annual report after theListing.


– 70 –

DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS

This prospectus, for which our Directors collectively and individually accept full

responsibility, includes particulars given in compliance with the Companies Ordinance,

Companies (Winding Up and Miscellaneous Provisions) Ordinance, the Securities and Futures

(Stock Market Listing) Rules (Chapter 571V of the Laws of Hong Kong) and the Listing Rules

for the purpose of giving information with regard to us. Our Directors, having made all

reasonable enquiries, confirm that to the best of their knowledge and belief, the information

contained in this prospectus is accurate and complete in all material respects and is neither

misleading nor deceptive, and there are no other matters the omission of which would render

any statement herein or this prospectus as a whole misleading.

CSRC APPROVAL

We have obtained approval of the CSRC for the listing of the H Shares on the Stock

Exchange on November 15, 2018. In granting such consent, the CSRC does not accept any

responsibility for our financial soundness or for the accuracy of any of the statements made or

opinions expressed in this prospectus or in the Application Forms.

INFORMATION ON THE GLOBAL OFFERING

The Offer Shares are offered solely on the basis of information contained and

representations made in this prospectus and the Application Forms, and on and subject to the

terms and conditions set out herein and therein. No person is authorized to give any

information in connection with the Global Offering or make any representation not contained

in this prospectus and the Application Forms, and any information or representation not

contained herein and therein must not be relied upon as having been authorized by our

Company, the Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners, the Joint

Lead Managers, the Underwriters, any of their respective directors, officers, representatives,

employees, agents or professional advisers or any other person or party involved in the Global

Offering. Neither the delivery of this prospectus nor any offer, sale or delivery made in

connection with the Offer Shares should, under any circumstances, constitute a representation

that there has been no change or development reasonably likely to involve a change in our

affairs since the date of this prospectus or imply that the information contained in this

prospectus is correct as of any date subsequent to the date of this prospectus.

Details of the structure of the Global Offering are set out in “Structure and Conditions of

the Global Offering” in this prospectus, and the procedures for applying for the Hong Kong

Offer Shares are set out in “How to Apply for the Hong Kong Offer Shares” in this prospectus

and the Application Forms.

INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING

– 71 –

UNDERWRITING

This prospectus is published solely in connection with the Hong Kong Public Offering,which forms part of the Global Offering. For applicants under the Hong Kong Public Offering,the application procedure for Hong Kong Offer Shares is set out in “How to Apply for the HongKong Offer Shares” and the Application Forms.

The Listing is sponsored by the Joint Sponsors. The Hong Kong Public Offering is fullyunderwritten by the Hong Kong Underwriters under the terms and conditions of the Hong KongUnderwriting Agreement, subject to agreement on the Offer Price between our Company andthe Joint Global Coordinators (for themselves and on behalf of the Underwriters) on the PriceDetermination Date. The International Offering is expected to be fully underwritten by theInternational Underwriters subject to the terms and conditions of the InternationalUnderwriting Agreement, which is expected to be entered into on or around March 1, 2019.

For further information about the Underwriters and the underwriting arrangements, see“Underwriting” in this prospectus.

RESTRICTIONS ON OFFER OF THE OFFER SHARES

Each person acquiring the Offer Shares under the Hong Kong Public Offering will berequired to, or be deemed by his acquisition of the Hong Kong Offer Shares to, confirm thathe is aware of the restrictions on offer and sale of the Offer Shares described in this prospectusand the Application Forms.

No action has been taken to permit a public offering of the Offer Shares in anyjurisdiction other than in Hong Kong, or the distribution of this prospectus and/or theApplication Forms in any jurisdiction other than in Hong Kong. Accordingly, this prospectusand/or the Application Forms may not be used for the purpose of, and does not constitute, anoffer or invitation in any jurisdiction or in any circumstances in which such an offer orinvitation is not authorized or to any person to whom it is unlawful to make such an offer orinvitation. The distribution of this prospectus and/or the Application Forms and the offer andsale of the Offer Shares in jurisdictions other than in Hong Kong are subject to restrictions andmay not be made except as permitted under the applicable securities laws of such jurisdictionspursuant to registration with or authorization by the relevant securities regulatory authoritiesor an exemption therefrom. In particular, the Offer Shares have not been publicly offered orsold, directly or indirectly, in the PRC.

APPLICATION FOR LISTING OF THE H SHARES ON THE STOCK EXCHANGE

We have applied to the Listing Committee for the granting of the listing of, andpermission to deal in, the H Shares in issue and to be issued pursuant to the Global Offering,

including the H Shares which may be issued pursuant to the exercise of the Over-allotment

Option. No part of the shares or loan capital of our Company is listed on or dealt in on any

other stock exchange and no such listing or permission to list is being or proposed to be sought

in the near future.


– 72 –

REGISTRATION OF SUBSCRIPTION, PURCHASE AND TRANSFER OF H SHARES

We have instructed the H Share Registrar, and the H Share Registrar has agreed, not to

register the subscription, purchase or transfer of any H Shares in the name of any particular

holder unless the holder delivers a signed form to the H Share Registrar in respect of those H

Shares bearing statements to the effect that the holder:

(i) agrees with us and each of our Shareholders, and we agree with each Shareholder,

to observe and comply with the PRC Company Law, the Special Regulations and our

Articles of Association;

(ii) agrees with us, each of our Shareholders, Directors, Supervisors, managers and

officers, and we, acting for ourselves and for each of our Directors, Supervisors,

managers and officers, agree with each Shareholder, to refer all differences and

claims arising from our Articles of Association or any rights or obligations conferred

or imposed by the PRC Company Law or other relevant laws and administrative

regulations concerning our affairs to arbitration in accordance with our Articles of

Association, and any reference to arbitration shall be deemed to authorize the

arbitration tribunal to conduct hearings in open session and to publish its award,

which shall be final and conclusive;

(iii) agrees with us and each of our Shareholders that our H Shares are freely transferable

by the holders of our H Shares; and

(iv) authorizes us to enter into a contract on his or her behalf with each of our Directors,

Supervisors, managers and officers whereby such Directors, Supervisors, managers

and officers undertake to observe and comply with their obligations to our

Shareholders as stipulated in our Articles of Association.

H SHARE REGISTRAR AND STAMP DUTY

All of the H Shares to be issued pursuant to the Global Offering and any H Shares to be

issued upon the exercise of the Over-allotment Option will be registered on our Company’s H

Share register of members to be maintained in Hong Kong by our H Share Registrar, Tricor

Investor Services Limited. Our Company’s principal register of members will be maintained by

us at our head office in China.

Dealings in the H Shares registered in our H Share register of members will be subject

to Hong Kong stamp duty.


– 73 –

OFFER SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS

If the Stock Exchange grants the listing of, and permission to deal in, our H Shares on the

Stock Exchange and we comply with the stock admission requirements of HKSCC, our

H Shares will be accepted as eligible securities by HKSCC for deposit, clearance and

settlement in CCASS with effect from the Listing Date or any other date as determined by

HKSCC. Settlement of transactions between participants of the Stock Exchange is required to

take place in CCASS on the second Business Day after any trading day.

All activities under CCASS are subject to the General Rules of CCASS and CCASS

Operational Procedures in effect from time to time.

Investors should seek the advice of their stockbroker or other professional adviser for

details of the settlement arrangements as such arrangements may affect their rights and

interests.

All necessary arrangements have been made enabling the Shares to be admitted into

CCASS.

PROFESSIONAL TAX ADVICE RECOMMENDED

Potential investors in the Global Offering are recommended to consult their professional

advisers if they are in any doubt as to the taxation implications of subscribing for, purchasing,

holding or disposal of, dealing in or exercising any rights attached to the H Shares. None of

our Company, the Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners, the

Joint Lead Managers, the Underwriters, any of their respective directors, officers,

representatives, employees, agents or professional advisers or any other person or party

involved in the Global Offering accepts responsibility for any tax effects on, or liabilities of,

any person resulting from the subscription for, purchase, holding or disposal of, dealing in or

exercising any rights attached to the H Shares.

APPLICATION PROCEDURE FOR THE HONG KONG OFFER SHARES

The application procedure for the Hong Kong Offer Shares is set out in “How to Apply

for the Hong Kong Offer Shares” in this prospectus and the Application Forms.

OVER-ALLOTMENT OPTION

Further details of the arrangements relating to the Over-allotment Option are set out in the

sub-section headed “Structure and Conditions of the Global Offering – Over-allotment Option”

in this prospectus. Unless otherwise specified, all relevant information in this prospectus

assumes no exercise of the Over-allotment Option.


– 74 –

CURRENCY TRANSLATIONS

Solely for your convenience, this prospectus contains conversions among certain amounts

denominated in Hong Kong dollars, Renminbi and U.S. dollars at specified rates. No

representation is made that the amounts denominated in one currency could actually be

converted into Hong Kong dollar amounts at the rates indicated or at all. Unless we indicate

otherwise, (i) the translation of Renminbi into Hong Kong dollars was made at the rate of

RMB1.00 to HK$1.145; and (ii) the translation of U.S. dollars and Hong Kong dollars was

made at the rate of US$1.00 to HK$7.8469.

LANGUAGE

If there is any inconsistency between the English version of this prospectus and its

Chinese translation, the English version of this prospectus shall prevail. If there is any

inconsistency between the Chinese names of PRC nationals, entities, departments, facilities,

certificates, titles, laws, regulations and the like mentioned in this prospectus and their English

translations, the Chinese names shall prevail.

ROUNDING

In this prospectus, where information is presented in hundreds, thousands, ten thousands,

millions, hundred millions or billions, certain amounts of less than one hundred, one thousand,

ten thousand, one million, a hundred million or a billion, as the case may be, have been rounded

to the nearest hundred, thousand, ten thousand, million, hundred million or billion,

respectively. Unless otherwise stated, all the numerical figures are rounded to one decimal

place. Any discrepancies in any table or chart between totals and sums of amounts listed

therein are due to rounding.


– 75 –

DIRECTORS

Name Address Nationality

Executive Directors

Mr. Jin Wenjie (金文杰) Room 1204

13, Lane 718, Huamu Road

Pudong New District, Shanghai

PRC

Chinese

Mr. Chen Miaoqiang (陳妙強) Room 202

34, Hengshiban Lane

Chengxiang Street

Xiaoshan District

Hangzhou, Zhejiang Province

PRC

Chinese

Non-executive Directors

Mr. Chen Miaolin (陳妙林) Room 2703

J Residence

60 Johnston Road, Wanchai

Hong Kong

Chinese

Mr. Chen Canrong (陳燦榮) Room 2603

Block 1, New Century Grand City

Beigan Street

Xiaoshan District


PRC

Chinese

Mr. Jiang Tianyi (江天一) Room 2501

8, Lane 989, Xikang Road

Shanghai

PRC

Chinese

Mr. Zhang Chi (張弛) Room C

8/F, Block 1, Phase 4

Residence Bel-Air

Hong Kong

Chinese

DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING

– 76 –

Independent non-executive Directors

Mr. Zhang Rungang (張潤鋼) 2-1-1402

Block 28, Shilipu Beili

Chaoyang District, Beijing

PRC

Chinese

Mr. Khoo Wun Fat William

(丘煥法)

Room E

5/F, Block 3, The Sherwood

8 Fuk Hang Tsuen Road

Tuen Mun

Hong Kong

Chinese

Ms. Qiu Yun (邱妘) Room 401

101, Block 33, Tianshui Home

Jiangbei District

Ningbo, Zhejiang Province

PRC

Chinese

Supervisors

Ms. Zha Xianghong (查向宏) Room 202

West Building 5, Tongda Community

Xintang Street

Xiaoshan District


PRC

Chinese

Mr. Guo Mingchuan (郭名川) Room 1301

2, Lane 999, Dongxiu Road

Shanghai

PRC

Chinese

Ms. Liu Hong (劉虹) Room 1002

Block 15, Jasmine Court, Taihe Garden

Gaoqiao Road

Xiaoshan District


PRC

Chinese

For further information, please refer to the section headed “Directors, Supervisors and

Senior Management” in this prospectus.


– 77 –

PARTIES INVOLVED IN THE GLOBAL OFFERING

Joint Sponsors China Galaxy International Securities(Hong Kong) Co., Limited20th Floor, Wing On Centre

111 Connaught Road Central

Sheung Wan

Hong Kong

BOCOM International (Asia) Limited9/F, Man Yee Building

68 Des Voeux Road Central

Hong Kong

Joint Global Coordinators China Galaxy International Securities(Hong Kong) Co., Limited20th Floor, Wing On Centre


Sheung Wan

Hong Kong

BOCOM International Securities Limited9/F, Man Yee Building


Hong Kong

Morgan Stanley Asia Limited46/F, International Commerce Centre

1 Austin Road West

Kowloon

Hong Kong

Joint Bookrunners China Galaxy International Securities(Hong Kong) Co., Limited20th Floor, Wing On Centre


Sheung Wan

Hong Kong



Hong Kong


– 78 –

Morgan Stanley Asia Limited(in relation to the Hong Kong Public Offering

only)

46/F, International Commerce Centre

1 Austin Road West

Kowloon

Hong Kong

Morgan Stanley & Co. International plc(in relation to the International Offering only)

25 Cabot Square, Canary Wharf

London E14 4QA

United Kingdom

ICBC International Capital Limited37/F, ICBC Tower

3 Garden Road

Hong Kong

Joint Lead Managers China Galaxy International Securities(Hong Kong) Co., Limited20th Floor, Wing On Centre


Sheung Wan

Hong Kong



Hong Kong

Morgan Stanley Asia Limited(in relation to the Hong Kong Public Offering

only)

46/F, International Commerce Centre

1 Austin Road West

Kowloon

Hong Kong

Morgan Stanley & Co. International plc(in relation to the International Offering only)

25 Cabot Square, Canary Wharf

London E14 4QA

United Kingdom


– 79 –

ICBC International Securities Limited37/F, ICBC Tower

3 Garden Road

Hong Kong

CGS-CIMB Securities (Hong Kong) Limited25/F, Gloucester Tower

The Landmark

15 Queen’s Road Central

Hong Kong

Golden Rich Securities Limited22/F, Siu On Centre

188 Lockhart Road

Wan Chai

Hong Kong

Lead Securities (HK) LimitedUnit A, 23/F

The Wellington

198 Wellington Street

Sheung Wan

Hong Kong

Mason Securities Limited19/F, Lee Garden Three

1 Sunning Road

Causeway Bay

Hong Kong

TUS Corporate Finance Limited(in relation to the Hong Kong Public Offering

only)

15/F, Shanghai Commercial Bank Tower

12 Queen’s Road Central

Central

Hong Kong


– 80 –

Legal advisers to our Company As to Hong Kong law:

Dechert31/F Jardine House

One Connaught Place

Central

Hong Kong

As to PRC law:

King & Wood Mallesons17/F, One ICC, Shanghai ICC

999 Middle Huai Hai Road

Xuhui District

Shanghai

PRC

Legal advisers to the Joint Sponsorsand the Underwriters

As to Hong Kong law:

Stephenson Harwood18/F United Centre

95 Queensway

Hong Kong

As to PRC law:

Chen & Co. Law Firm51/F, Shanghai World Financial Center

100 Century Avenue

Pudong New District

Shanghai

PRC

Auditor and reporting accountant PricewaterhouseCoopersCertified Public Accountants

22/F, Prince’s Building

Central

Hong Kong

Industry expert Horwath HTL (Beijing) Co., LtdUnit 903-904, Tower E3

Oriental Plaza

No. 1 East Chang-An Avenue

Dongcheng District

Beijing

PRC


– 81 –

Property valuer Cushman & Wakefield Limited16/F, Jardine House

One Connaught Place

Central

Hong Kong

Compliance Adviser BOCOM International (Asia) Limited9/F, Man Yee Building


Hong Kong

Receiving bank Bank of China (Hong Kong) Limited1 Garden Road

Hong Kong


– 82 –

Registered office 18th FloorNo. 818 Shixinzhong RoadBeigan SubdistrictXiaoshan DistrictHangzhouZhejiang ProvincePRC

Principal place of business in the PRC 18th FloorNo. 818 Shixinzhong RoadBeigan SubdistrictXiaoshan DistrictHangzhouZhejiang ProvincePRC

Principal place of business in Hong Kong 54/F, Hopewell Centre183 Queen’s Road EastHong Kong

Company’s website http://www.kaiyuanhotels.com(A copy of this prospectus is available onour Company’s website. Except for theinformation contained in the prospectus,none of the other information contained onour Company’s website forms part of thisprospectus)

Joint company secretaries Mr. Li Donglin (李東林)Room 403, Unit 3-2New Century Flower Garden1105 Gudun RoadXihu DistrictHangzhouZhejiang ProvincePRC

Ms. Chan Suet Lam (陳雪霖) (HKICS, ICSA)

54/F, Hopewell Centre

183 Queen’s Road East

Hong Kong

Authorized representatives Mr. Jin Wenjie (金文杰)

Room 1204

13, Lane 718, Huamu Road

Pudong New District

Shanghai

PRC

CORPORATE INFORMATION

– 83 –

Ms. Chan Suet Lam (陳雪霖)



Hong Kong

Audit Committee Ms. Qiu Yun (邱妘) (Chairperson)

Mr. Jiang Tianyi (江天一)

Mr. Khoo Wun Fat William (丘煥法)

Nomination Committee Mr. Zhang Rungang (張潤鋼) (Chairperson)

Mr. Chen Canrong (陳燦榮)

Mr. Khoo Wun Fat William (丘煥法)

Remuneration Committee Mr. Zhang Rungang (張潤鋼) (Chairperson)

Mr. Chen Miaolin (陳妙林)

Ms. Qiu Yun (邱妘)

H Share Registrar Tricor Investor Services LimitedLevel 22, Hopewell Centre


Hong Kong

Principal Bankers Agricultural Bank of China, XiaoshanBranchNo. 156 Renmin Road

Xiaoshan District

Hangzhou

Zhejiang Province

PRC

Bank of Communications, Zhong’anBranchNo. 173 Qingchun Road

Shangcheng District

Hangzhou

Zhejiang Province

PRC

Industrial and Commercial Bank ofChina, Xiaoshan BranchNo. 54 Chenghe Street

Xiaoshan District

Hangzhou

Zhejiang Province

PRC

CORPORATE INFORMATION

– 84 –

The information that appears in this section contains information and statistics on theindustry in which we operate and reflects estimates of market conditions based publiclyavailable sources and trade opinion surveys, as well as a commission report from HorwathHTL (Beijing) Co., Ltd. (the “Horwath Report”), and is prepared primarily as a marketresearch tool. References to the Horwath Report should not be considered as the opinion ofHorwath HTL (Beijing) Co., Ltd. as to the value of any security or the advisability ofinvesting in our Group. We believe that the sources of information contained in this sectionare appropriate sources for such information and have taken reasonable care in extractingand reproducing such information. We have no reason to believe that such information isfalse or misleading or that any material fact has been omitted that would render suchinformation false or misleading. The information prepared by Horwath HTL (Beijing) Co.,Ltd. and set out in this section has not been independently verified by our Group, the JointSponsors, the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead Managers,the Underwriters or any other party involved in the Global Offering (which, for the purposeof this paragraph, excludes Horwath HTL (Beijing) Co., Ltd.) and neither do we give anyrepresentations as to its accuracy and the information should not be relied upon in making,or refraining from making, any investment decisions.

SOURCE OF INFORMATION, KEY BASES AND ASSUMPTIONS

We commissioned Horwath, an independent market research consultancy firm, to conducta detailed analysis of the hotel industry in China.

Established in 1915, Horwath is a leading provider of global market intelligence,providing strategy research for both consumer and industrial markets. It has 46 offices in 35countries and has served over 100 clients. We are contracted to pay a fee of RMB650,000 toHorwath in connection with its preparation of the Horwath Report. We have extracted certaininformation and statistics from the Horwath Report in this section, as well as in the sectionsheaded “Summary”, “Risk Factors”, “Business” and “Financial Information” to provide ourpotential investors with a more comprehensive presentation of the industry in which weoperate.

In connection with the preparation of the Horwath Report, Horwath performed bothprimary and secondary researches, and obtained latest data, projected data, insights on futuretrends involving the hotel industry in China. Primary research involves interviews with asample of leading industry participants and industry experts. Secondary research involvesreviewing published sources, including PRC national and local statistics and official sources,company reports and data from Horwath’s proprietary research database.

The major findings and conclusions are based, in part, on the following criticalassumptions: (i) there will be no political or administrative developments that will significantlyimpact general confidence in China, specifically in Zhejiang, Jiangsu, and Shanghai to thedetriment of business activities, tourist arrivals and domestic travel; (ii) support infrastructuresuch as fresh water, sewage treatment, electricity and gas will be supplied/generated at aconsistent and reliable level to maintain end-user satisfaction; (iii) the existing transportationsystem to, from and within China, especially Zhejiang, Jiangsu and Shanghai will bemaintained or improved to meet the accessibility requirements; and (iv) the economies of themajor trading, investor and tourist generating countries to the PRC, specifically Zhejiang,Jiangsu and Shanghai, will not experience significant and sustained recession in the nearfuture.

Our Directors confirm that, after making reasonable enquiries, there is no materialadverse change in the overall market information since the date of the Horwath Report thatwould materially qualify, contradict or have an impact on such information.

MACROECONOMY IN CHINA

In 2017, China’s GDP reached approximately RMB82.7 trillion, with a CAGR of 8.6%from 2013 to 2017. By the end of 2017, the contribution of China’s GDP to the world economyhas risen from 12.5% in 2013 to 15.3%. According to “Thirteenth Five-Year Plan”, China’sGDP is expected to exceed RMB90 trillion by 2020. China’s economic growth will also resultin the growing affluence of the increasing population. China’s per capita GDP and disposableincome has recorded a rapid growth representing a CAGR of 8.0% and 9.1% respectively from2013 to 2017. The growing GDP and sustainable macro-economic development have laid asolid foundation for the growth of the tourism industry.

INDUSTRY OVERVIEW

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China’s Macroeconomy Performance, 2013-2017

2013 2014 2015 2016 2017 CAGR

GDP (RMB Billion) 59,524 64,397 68,905 74,359 82,712 8.6%GDP Per Capita (RMB) 43,852 47,203 50,251 53,935 59,660 8.0%Disposable Income Per

Capita (RMB) 18,311 20,167 21,966 23,821 25,974 9.1%Fixed Assets Investment

(RMB Billion) 44,629 51,202 56,200 60,647 64,124 9.5%

Source: National Bureau of Statistics, Horwath Report

THE TOURISM INDUSTRY IN CHINA

Global Tourism Overview and Tourism Revenue by Country

According to the Horwath Report, China, India and the United States ranked top 3globally in terms of tourist arrivals in 2017. China accounted for 38.1% of the global touristarrivals in 2017, followed by U.S. and India, which accounted for 13.0% and 10.5%respectively. Based on the Horwath Report, it is expected that China will remain the topdestination for tourist arrivals in the foreseeable future.

Ranking of Global Tourist Arrivals in 2017 (in percentage)

China IndiaUnitedStates Japan France Indonesia Spain Brazil Germany

UnitedKingdom

38.1% 13.0% 10.5% 2.7% 2.4% 2.2% 1.7% 1.5% 1.4% 1.3%

Source: World Tourism Cities Federation, Horwath Report

China’s Tourism Industry Development Overview

The continuing growth of China’s macroeconomy in the past years has contributed to thedevelopment of China’s tourism industry. According to data released by National TourismAdministration Policy and Regulation Department, China’s total tourism revenue hasmaintained a rapid growth with a CAGR of 16.3% from 2013 to 2017.

China Tourism Revenue (RMB Billion), 2013-2017

–2013 2014 2015 2016 2017

2,000

1,000

4,000

3,000

6,000

5,000

2,950

3,7304,130

4,690

5,400

CAGR: 16.3%

Source: National Tourism Administration Policy and Regulation Department, Horwath Report

Boom in tourism is expected to drive the continued development of hotel industry inChina. According to the Tourism Development Plan of the Thirteenth Five-Year Plan, thenumber of domestic tourists (which includes business and leisure travelers) and tourismrevenue is expected to reach 6.4 billion and RMB7,000 billion by 2020, respectively. Theoverall tourism industry in China is expected to maintain a healthy growth trend. The hotelindustry, as an important component of tourism industry, will also be expected to grow.

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China Tourism Industry Development Goals during “the Thirteenth Five-year Plan ”

2020 Goal CAGR

Domestic Tourists (Billion) 6.4 9.9%International Arrivals (Million) 150 2.3%Outbound Tourists (Million) 150 5.1%Total Tourism Revenue (RMB Billion) 7,000 11.2%Tourism Investment Scale (Billion) 2,000 14.7%Contribution of Tourism to Total GDP (%) 12% N/A

Source: Tourism Development Plan of the Thirteenth Five-year Plan, Horwath Report

International Arrivals in China

Over the past five years, the total international tourist arrivals in China has increasedsteadily from 129 million in 2013 to 139 million in 2017 at a CAGR of 1.9%. Tourism revenuefrom international arrives has grown from US$114 billion in 2015 to US$123 billion in 2017growing at a CAGR of 3.9%.

International Arrivals in China (Million),2013-2017

20

40

60

80

100

120

140

160

129

CAGR = 1.9%

128139

134

2013 2014 2015 2016 2017

138

–

International Tourism Revenue in China(US$ Billion), 2015-2017

114

CAGR = 3.9%

128

123120

2015 2016 2017

138

0

20

40

60

80

100

120

140

Source: National Tourism Bureau Data Center, Horwath Report

Domestic Tourists in China

Significant increase in the number of domestic tourists has led to a strong growth inChina’s tourism revenue. According to data from the National Bureau of Statistics, the numberof domestic tourists increased from 3.3 billion in 2013 to 5.0 billion in 2017, with a CAGR of10.9%. Domestic tourism revenue increased from RMB2,628 billion in 2013 to RMB4,566billion in 2017, with a CAGR of 14.8%. The continuing growth of China’s disposable incomeper capita, the rapid development of transport infrastructure and the changes in people’slifestyle and consumption patterns have all contributed to the sustainable development ofChina’s domestic tourism industry. It is estimated that by 2020, the total domestic tourists willreach 6.4 billion, and domestic tourism revenue will be at approximately RMB7.0 trillion.

Domestic Tourists (Billion),2013-2017

3.3

CAGR = 10.9%

3.6

5.0

4.0

2013 2014 2015 2016 2017

4.4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Domestic Tourism Revenue (RMB Billion),2013-2017

2,628

CAGR = 14.8%

3,031

4,566

3,420

2013 2014 2015 2016 2017

3,939

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Source: National Tourism Bureau Data Center, Horwath Report

According to the Horwath Report, the major destination cities for China domestic touristsin 2017 are Beijing, Chongqing, Shanghai, Tianjin, Guangzhou, Chengdu, Wuhan, Hangzhou,Suzhou, Nanjing. Popular domestic tourism cities generally have abundant tourism resources,strong economic foundation, fully developed transport infrastructure, and well-equippedtourism facilities.

INDUSTRY OVERVIEW

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HOTEL INDUSTRY IN CHINA

Hotel Supply Overview

According to the Horwath Report, the total number of upscale and mid-scale hotel roomshas been increasing during the period from 2013 to 2017. In an environment where theinvestment and consumer markets are active, the supply of rooms in the overall hotel markethas been increasing during the period from 2013 to 2017, and the overall market remainsactive.

According to Horwath Report, the total number of upscale and mid-scale hotel roomsincreased from 1.75 million in 2013 to 2.11 million in 2017, with a CAGR of 4.8%. It isexpected that the new supply of upscale and mid-scale hotel room number will continue toincrease rapidly at 2.76 million rooms in 2021 with a CAGR of 6.9%. It is estimated that thenumber of upscale hotel rooms and midscale hotel rooms would reach around 0.79 million and1.97 million respectively by 2021. With the growth rate difference between upscale andmid-scale hotels, the market share of mid-scale hotels will increase.

Number of Upscale and Mid-Scale Hotel Rooms (Thousand), 2013-2017 and2018 & 2021 (Forecast)

CAGR(2013-2017): Upscale Hotels = 6.3%; Mid-scale Hotels = 4.0% Total of Upscale & Mid-Scale Hotels = 4.8%

729657

2013 2014 2015 2016 2021F2018F2017

571

1,181

623

1,1971,342 1,330 1,383

2,112

758

1,433

2,191

793

1,968

2,761

1,9871,994

1,752 1,820

652

Upscale Hotel Mid-Scale Hotel Total

0

600

1,200

1,800

2,400

3,000

Source: Horwath Report

According to Horwath, based on the total hotel room supply by the end of 2017, the hotelrooms per 1,000 people of U.S. are 12.56 and that of China are 1.52, which indicates there isstill considerable room for hotel development in China.

Hotel Market Size

According to Horwath, the hospitality industry revenue is highly related to the totalnumber of hotel rooms and RevPAR. The revenue of upscale hotels in China increased fromRMB176.8 billion in 2013 to RMB236.5 billion in 2017, representing a CAGR of 7.5%. Formid-scale hotels in China, the total revenue had a modest increase from RMB220.9 billion toRMB227.4 billion at a CAGR of 0.7%. According to Horwath, with the continued growth ofmacroeconomy and tourism market in China, the total revenue of upscale and mid-scale hotelsis expected to maintain a long term growth trend.

Revenue of the Upscale and Mid-scale Hotels in China (RMB Billion)

Upscale Hotels

176.8

CAGR = 7.5%

189.1

236.5

204.6

2013 2014 2015 2016 2017

198.7

0.0

50.0

100.0

150.0

200.0

250.0

Mid-scale Hotels

220.9

CAGR = 0.7%

234.9 227.4246.3

2013 2014 2015 2016 2017

233.2

0.0

50.0

100.0

150.0

200.0

300.0

250.0

Source: Hotel management companies’ annual reports, China Hotel Chain Development and InvestmentReport, China Hotel Association star statistics, Horwath report

INDUSTRY OVERVIEW

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Distribution Channels

In terms of distribution channels for upscale and mid-scale hotels in 2013 and 2017, theproportion of direct inquiry and corporate account declined at different degrees, while theproportion of OTA channel increased significantly. For the upscale hotel market, the proportionof OTA channel bookings increased by 6% from 2013 to 2017, which is higher than the increasein the mid-scale market at 4%. In recent years, with the rapid development of OTA and itsever-increasing market influence, hotel guests can conduct one-stop search through OTAchannel and make reservations at lower cost. Therefore, this booking channel is increasinglyfavoured by guests. In addition, with the booming demand of business meetings from small andmedium-sized companies and upscale individual tourist demand, more and more guests arewilling to make reservations through OTA.

Our Group has an established sales platform network which enable us to promote roomsales through online and offline channels such as websites, mobile client apps, and salesoffices, which can improve the overall operating margin. In addition, the corporate bookingchannel percentage of our Group is higher than the average of comparable hotels,demonstrating the strength in our sale team.

Distribution Channels, 2013 & 2017

Upscale Hotels

2013 2017

26% 23%

38%

7%

1%

12%

11%

5%

2%

10%

17%

5%

7%

36%

0%

20%

40%

60%

80%

100%

Mid-Scale Hotels

2013 2017

21% 19%

43%

7%

1%

10%

15%

3%

2%

11%

19%

3%

7%

39%

Direct Inquiry

Hotel Own Website

Travel Agent/Tour Operator

Corporate Account

Independent Reservation System

OTA

Global Distribution System (GDS)

0%

20%

40%

60%

80%

100%


Hotel Operating Performance

Operating Performance

Average occupancy rate of upscale hotel market in the PRC increased steadily from 56%in 2013 to 63% in 2017, whilst ADR has remained relatively stable within the range fromRMB727 to RMB778 during the same period. Due to the increase in occupancy, upscale hotel’sRevPAR has also increased steadily from RMB428 in 2013 to RMB465 in 2017 representinga CAGR of 2.1%. From 2013 to 2017, average occupancy rate for mid-scale hotel market inthe PRC have remained relatively stable, ranging from 64% in 2013 to 66% in 2017. RevPARfor mid-scale hotel market decreased slightly from RMB285 in 2013 to RMB266 in 2017 dueto decrease in the ADR from RMB443 in 2013 to RMB404 in 2017.

Operating Performance, 2013-2017

Upscale Hotels

ADR RevPAR Occupancy Rate

769 778 739772

63%60%

2013 2014 2015 2016 2017

56%

428 437 446 435465

56% 58%

727

0

100

200

300

400

500

600

700

800

900

0%

10%

20%

30%

40%

50%

60%

70%

CAGR: ADR = -1.0%, RevPAR = 2.1%


Mid-Scale Hotels

ADR RevPAR Occupancy Rate

443 442

404421

66%64%

2013 2014 2015 2016 2017

64%

285 285 276 276 266

65% 66%

430

0%

10%

20%

30%

40%

50%

60%

70%

0

50

100

150

200

250

300

350

400

450

500

CAGR: ADR = -2.3%, RevPAR = -1.7%

INDUSTRY OVERVIEW

– 89 –

Hotel Revenue BreakdownThe revenue breakdown of upscale hotels was relatively stable during the past five years.

Room revenue continued to be the major source of total revenue, followed by food andbeverage (F&B) revenue, with lower proportion than the rooms revenue by around 10%. In themid-scale hotel market, room revenue has accounted for higher revenue contribution thanupscale market. In addition, the proportion of room revenue has increased slightly in recentyears, which has increasingly highlighted the importance of room revenue in the mid-scalehotel market.

Hotel Revenue Breakdown, 2013-2017

Upscale Hotels Mid-Scale Hotels

0%

20%

40%

60%

80%

100%

Room Revenue F&B Revenue Other

2014 2015 2016 20172013

50%

42%

8% 6% 6% 6% 6%

41% 42% 42% 42%

53% 52% 52% 52%

0%

20%

40%

60%

80%

100%

Room Revenue F&B Revenue Other

2014 2015 2016 20172013

56%

35%

9% 11% 11% 9% 8%

36% 34% 34% 33%

53% 55% 57% 59%


THE ECONOMY AND HOTEL INDUSTRY OF THE ZHEJIANG PROVINCEZhejiang Province Economy

The macroeconomic development in Zhejiang province remains buoyant with mostindicators higher than the national average, laying a strong economic foundation for thedevelopment of various industries in Zhejiang Province. According to the Zhejianggovernment, GDP of Zhejiang is expected to reach RMB7,000 billion by 2022.

Zhejiang Macroeconomy Performance, 2013-2017

2013 2014 2015 2016 2017 CAGR

GDP (RMB Billion) 3,776 4,017 4,289 4,725 5,177 8.2%GDP Per Capita (RMB) 68,805 73,002 77,644 84,916 92,057 7.5%Disposable Income Per

Capita (RMB) 29,775 32,658 35,537 38,529 42,046 9.0%Fixed Assets Investment

(RMB Billion) 2,078 2,426 2,732 3,028 3,113 10.6%Source: Zhejiang Provincial Bureau of Statistics, Horwath Report

Zhejiang Tourism Industry

Zhejiang has a strong and vibrant economy, abundant natural resources and pleasantclimate. Its local consumer spending is also strong. The total tourist arrivals and total tourismrevenue in Zhejiang have maintained a high growth rate in recent five years. The domestictourism arrivals and tourism revenue in Zhejiang had a CAGR of 9.7% and 13.9%, respectivelyfrom 2013 to 2017. During the same period, the international tourism arrivals and tourismrevenue in Zhejiang had a CAGR of 8.6% and 11.3%. It is expected in the future that basedon a vibrant regional economy and abundant natural resources, the tourism and hotel industryin Zhejiang will maintain its momentum of vigorous growth. Especially in the field of leisureand vacation, with the advantage of having unique resources, more featured leisure andvacation products will be developed in Zhejiang.

Domestic Tourist Arrivals in Zhejiang(Million), 2013-2017

Domestic Tourism Revenue in Zhejiang(RMB Billion), 2013-2017

2013 2014 2015 2016 2017

434

479

573

629

-

100

200

300

400

500

600

700

528

CAGR = 9.7%

02013 2014 2015 2016 2017

200

400

600

800

1,000

520595

672

760

876CAGR = 13.9%

INDUSTRY OVERVIEW

– 90 –

International Tourist Arrivals in Zhejiang(Million), 2013-2017

International Tourism Revenue inZhejiang (US$ Billion), 2013-2017

2013 2014 2015 2016 2017

8.79.3

10.111.2

12.1

0

5

10

15 CAGR = 8.6%

7.4

8.3

2013 2014 2015 2016 2017

5.4

6.8

5.8

0

1

2

3

4

5

6

7

8

9 CAGR = 11.3%

Source: Tourism Bureau of Zhejiang Province, Horwath Report

Hotel Industry in Zhejiang

According to Horwath, the number of Star-rated upscale hotel rooms in Zhejiang hasshowed a growing trend from 2013 to 2017 at a CAGR of 3.6%. Various upscale hotel brandshave entered the market and the overall hotel market will maintain vigorous development in thefuture. Notwithstanding a decline in the number of Zhejiang’s Star-rated mid-scale hotel roomsfrom 2013 to 2017, according to Horwath, the mid-scale hotels market has significantdevelopment potential and the number of mid-scale hotel rooms is expected to grow in thefuture due to sustainable development of tourism industry and consumption upgrade.

Number of Star-rated* Upscale and Mid-Scale Hotel Rooms 2013-2017

26,54427,300

2013 2014 2015 2016 2017

23,052

133,376

23,976

113,400 113,226

98,340 102,425

128,969125,640

140,826

156,428

137,376

27,600

Upscale Mid-Scale

–

100,000

60,000

40,000

120,000

140,000

160,000

180,000

20,000

80,000

Total

CAGR: Upscale = 3.6%; Mid-scale = -6.4%; Total = -4.7%

Source: Ministry of Culture and Tourism of PRC, local tourism bureau of individual cities, Horwath Report

* Due to a lack of official data compilation on the total number of upscale and mid-scale hotels and hotelrooms outside the China National Star Rating System in Zhejiang Province, therefore only officially starrated upscale and mid-scale hotel rooms are included above. According to Horwath, the total numberof hotel rooms under the upscale and mid-scale category is expected to be more than the Star-ratedfigures, given the robust economy and tourism industry in Zhejiang Province.

Hotel Market Size

According to Horwath, total revenue of Star-rated upscale hotels in Zhejiang Provinceincreased from RMB7.7 billion in 2013 to RMB8.0 billion in 2017 with a CAGR of 1.0%. Inthe mean time, total revenue of Star-rated mid-scale hotels in Zhejiang Province decreasedfrom RMB29.3 billion in 2013 to RMB21.7 billion in 2017. This decrease is mainly due to thedecreased number of Star-rated mid-scale hotels, because an increasing number of mid-scalehotels with great quality of facilities, environment, service and relatively high market influencedecide not to participate in or drop out of the star-rating system as the rigorous grading criteriasuch as qualified swimming pools or ballroom/meeting rooms. Notwithstanding a modestincrease in upscale hotels revenue and downtrend in mid-scale hotels revenue in ZhejiangProvince, according to Horwath, as one of the most economically developed provinces in Chinaand major tourism destination region, Zhejiang has shown great potential in hospitalityindustry and the revenue of upscale and mid-scale market are expected to grow in the future.

INDUSTRY OVERVIEW

– 91 –

Revenue of the Star-rated* Upscale and Mid-scale Hotels in Zhejiang (RMB Billion)

Upscale Hotels

7.7

CAGR = 1.0%

7.58.08.1

2013 2014 2015 2016 2017

8.2

0.0

2.0

4.0

6.0

8.0

10.0

Mid-scale Hotels

29.3

CAGR = 7.2%

26.5

21.7

26.5

2013 2014 2015 2016 2017

22.3

0.0

10.0

5.0

15.0

20.0

25.0

35.0

30.0

Source: China Hotel Association star statistics, and Horwath HTL* Due to a lack of official data compilation on the total number of upscale and mid-scale hotels outside

the China National Star Rating System in Zhejiang Province, therefore only officially Star-rated upscaleand mid-scale hotel revenue are included above. According to Horwath, the total revenue under theupscale and mid-scale category is expected to be more than the revenue attributed to star-rated hotels,given the robust economy and tourism industry in Zhejiang Province.

Hotel Operating Performance in ZhejiangIn terms of hotel operating performance in Zhejiang. The upscale hotels occupancy rate

has increased steadily from 52% to 59% during the past five years. Notwithstanding the ADRhas decreased from 2013 to 2017, the RevPAR has bottomed out in 2015 and increased steadilyin 2016 and 2017. ADR and occupancy rate of mid-scale hotels slightly fluctuated over the pastfive years. The RevPAR peaked in 2015, followed by a modest drop in 2016 and 2017.

Hotel Operating Performance in Zhejiang, 2013-2017Upscale Hotels

0%

10%

20%

30%

40%

50%

60%

70%

0

100

200

300

400

500

600

700

0

2013

782

406

805

409

702 696658

2014 2015 2016 2017

200

400

600

800

1,000

372 386 389

52% 51%53%

56% 59%

ADR RevPAR Occupancy

CAGR: ADR = -4.2%, RevPAR = -1.1%


Mid-Scale Hotels

0%

10%

20%

30%

40%

50%

60%

70%

0

100

200

300

400

500

600

700

0

2013

417

240 253

438416

428

2014 2015 2016 2017

100

200

300

400

500

282 268 267

58%57% 64% 64% 62%

ADR RevPAR Occupancy

441

CAGR: ADR = 0.7%, RevPAR = 2.7%

Hotel Revenue Breakdown in ZhejiangIn terms of upscale hotels revenue breakdown, the proportions of room and F&B revenues

both remained stable over the past five years. For mid-scale hotels, the proportion of roomsrevenue has shown upward trend from 40% in 2013 to 46% in 2017 while proportion of F&Brevenue slightly decreased.

Hotel Revenue Breakdown in Zhejiang, 2013-2017

Upscale Hotels

0%

2013

44%

49%

48%

47%

46% 47% 47%

2014 2015 2016 2017

20%

40%

60%

80%

100%

48% 48% 47%

7% 5% 6% 5% 6%

Rooms Revenue F&B Revenue Other


Mid-Scale Hotels

2013

40%

52%

40%

53%

44% 43% 46%

2014 2015 2016 2017

50% 50% 48%

8% 7% 6% 7% 6%

Rooms Revenue F&B Revenue Other

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

INDUSTRY OVERVIEW

– 92 –

Market Drivers, Trends and Further Opportunities in China

The following are the key market drivers of the hotel market in China:

• Brand influence and reputationUnder the trend of integration and the transformation among the hotel industry in

China, the well-recognized hotel brand with track record can largely ensure thecomprehensive customer experience. Moreover, with the wide application of socialmedia, especially the tourism user generated content and rating platform, the hotel groupswill get more attention and thus gain more market share.• Business travel market growth

The total business travel expenses in China has taken over the first position from theU.S. since 2016, and it is expected that the total business travel expenses will continueto grow rapidly in next five years. Besides, increasing business activities taken place inmore developed cities and areas in China will require more mid to upscale hotels whichcan provide the required hospitality services.• Consumption upgrade

Driven by the consumption upgrade in recent years, consumers have a strongerawareness of the hospitalities quality and have put forward more requirements on hotelequipments and services. As a result, the change of consumption emphasis has speededup the hospitality industry innovation and iterative upgrade.• New technology development

The application of technology in hotels can effectively improve operation efficiencyand reduce labor costs by online check in/out and order room service system throughmobile apps. In addition, new technologies such as artificial intelligence and cloudcomputing technology can help collect and analyze the customer preferences to meet theirindividualized and customized demand and further enhance guests experience duringstays and bring about increasing revisits.• OTA

The OTA is rapidly penetrating the market share of the traditional travel services inChina, which have improved the scale of China’s hotel industry in recent years. The hotelgroups have gained earning certainty, risk decentralization and stable occupancy ratethrough working with OTA.

Analysis of Hotel Market Demand in China

The following are the major factors affecting market demand:

• With continued increase in national income level and upgrade in consumptionstructure, level of domestic tourism has increased driving increase in tourismdemand and continue to lay a good foundation for tourists’ travel needs. In terms ofbusiness demand, despite the 2008 financial crisis, the number of actual enterprisesin China has maintained a rapid growth and especially after the reform of thecommercial system in 2014 (商事制度改革), the business travel market has becomemore active and business demand is expected to grow steadily.

• According to the statistics of the World Travel & Tourism Council, leisure andbusiness travel consumption in the PRC will maintain a medium to high growth rate.Such increase in spending power will contribute to boost the overall hotel industryrevenue growth:

China Tourism Related Spending & Forecast

Spending Type 2016 2028CAGR

2016-2028(USD billion) (USD billion)

Leisure Spending 536 1,620 9.7%Business Spending 127 377 9.5%Total 663 1,997 9.6%

Source: The World Travel & Tourism Council, Horwath

INDUSTRY OVERVIEW

– 93 –

• According to Horwath, as reported by the Economist Intelligent Unit, by 2030, it isexpected that around 75% of Chinese urban consumers (or around 1.1 billionpeople) will be classified as middle class as compared to 60% (or around 0.8 billionpeople) in 2015. That means that discerning and experienced travelers who are ableand willing to pay higher prices for higher quality accommodation will soon becomethe backbone of the hotel market. While upscale and mid-scale hotels will benefitfrom the rising of middle class, it is expected that mid-scale hotels will not onlyneed to be able to provide quality facilities but also be stylish and cost-effective.

ENTRY BARRIERS

There are significant entry barriers in a large-scale hotel management group. Principalentry barriers include:

(i) Initial capital for newly set-up investment on self-owned or rental property,renovation cost, equipment cost and staff recruiting;

(ii) Hotel differentiation such as brand positioning and range of facilities provided;

(iii) Management capability and resources including service standard and operationalrequirements in order to ensure hotel room and services quality, a diverse range ofdistribution channel to reach a wide pool of potential hotel guests;

(iv) Hotel management technology including membership management system andcentral purchasing system to ensure supply quality and to control costs, in order toensure operational efficiency and profitability; and

(v) Strong management team and stable hotel professionals required for daily operationand management in order to be competitive.

Such track record is important to both hotel guests and hotel owners looking for hotelmanagement partners. New entrants whom do not have enough experience and resources tobuild up such operational track record will find it difficult to attract hotel owners as businesspartners and hotel guests.

COMPETITIVE LANDSCAPE

Market Share in China

The mid to upscale hotel market in China which includes both domestic and internationalmarket players is highly fragmented. The total room number (in operation and under pipeline)market share of top 11 market players is 32.8% as at March 31, 2018, and our Group ranked7th. As of upscale hotel market share, our Group ranked 3rd in China and had the highestmarket share among domestic hotel groups. According to Horwath, as at March 31, 2018, interms of number of hotel rooms in operation in China, we were the seventh largest hotel groupand second largest domestic hotel group ranked according to the number of upscale hotelrooms, and were the eighth largest hotel group and the fourth largest domestic hotel groupranked according to the number of upscale and mid-scale hotel rooms. The leading marketshare of our Group is supported by, including but not limited to, our strong portfolio of hotelbrands, increasing market reputation and established sales distribution channels and systems.

INDUSTRY OVERVIEW

– 94 –

Market Share in China Ranking by Number of Rooms(In operation, as at March 31, 2018)

Ranking Company Mid to upscale1 Company A 5.7%2 Company B 4.5%3 Company D 4.3%4 Company C 4.1%5 Company F 3.1%6 Company E 3.0%7 Company G 1.6%8 OUR GROUP 1.5%9 Company J 1.0%

10 Company H 0.6%11 Company I 0.6%

Ranking Company Upscale1 Company C 9.7%2 Company B 6.4%3 Company D 3.4%4 Company E 2.8%5 Company J 2.8%6 Company G 2.7%7 OUR GROUP 2.6%8 Company F 2.4%9 Company H 1.8%

10 Company I 1.5%11 Company A 0.8%

Ranking Company Mid-scale1 Company A 8.3%2 Company D 4.8%3 Company E 3.7%4 Company F 3.4%5 Company B 3.4%6 Company C 1.2%7 Company G 1.0%8 OUR GROUP 0.9%9 Company I 0.1%

10 Company J –11 Company H –

Market Share in China Ranking by Number of Rooms(In operation and under pipeline, as at March 31, 2018)

Ranking Company Mid to upscale1 Company A 6.1%2 Company B 4.9%3 Company C 4.8%4 Company D 3.7%5 Company E 3.1%6 Company F 2.8%7 OUR GROUP 2.3%8 Company G 1.9%9 Company H 1.1%

10 Company I 1.1%11 Company J 1.0%

Ranking Company Upscale1 Company C 12.4%2 Company B 7.5%3 OUR GROUP 4.3%4 Company H 3.7%5 Company I 3.7%6 Company D 3.4%7 Company E 3.3%8 Company J 3.3%9 Company G 3.2%

10 Company F 2.6%11 Company A 0.9%

Ranking Company Mid-scale1 Company A 8.1%2 Company D 3.9%3 Company B 3.8%4 Company E 3.4%5 Company F 2.9%6 Company C 1.7%7 OUR GROUP 1.4%8 Company G 1.4%9 Company H –

10 Company I –11 Company J –


Notes:

1 Among ranking company, domestic hotel groups has been shaded.

2 Identities: Company A is a domestic hotel group which mostly concentrated in mid-scale hotel market;Company B is a European international hotel group and has operations in more than 100 countries across theglobe; Company C is an American multinational diversified hotel group that manages and franchises a broadportfolio of hotels and related lodging facilities.; Company D is a domestic hotel management company whichhas wide range of hotel brands covering mid to upscale market; Company E is one of the world’s leading andmost diverse hotel group, encompassing hotels in more than 80 countries under a series of hotel brands;Company F is a domestic hotel group which covers mid to upscale hotel brands; Company G is an internationalhotel group founded in the U.S. with properties across 90 countries; Company H is a domestic hotel groupwhich has single brand positioning as a high-end hotel; Company I is a domestic tourism company, whose hotelsegment are concentrated in upscale hotels; Company J, as the largest hotel group in Europe, is a Frenchmultinational hotel management company that owns, manages and franchises hotels, resorts, and vacationproperties.

Competitive Landscape by Individual City Tiers

First-tier cities: The first-tier cities have solid economic foundation and highlydeveloped transportation infrastructure, providing a relatively mature market environment tohotel industry and driving hotel industry to a healthy development stage. In terms of hotelsupply and demand increment, because of the high development level and limited availableland in central areas of first-tier cities, hotel supply of first-tier cities has grown slowly inrecent years. However, with the optimization of industrial structure and consumption upgrade,the hotel demand continues to increase. Driven by strong demand, hotels in first-tier cities havereached great performance and entered a rising period. With brand popularity and high productquality, the international hotel brands reach a considerable premium in first-tier cities’ hotelmarket, bringing great competitive advantages for those brands. In the foreseeable future, hotelmarket of first-tier cities will continue to maintain a positive development momentum.International hotel management companies will further strengthen their competitiveness byimproving their advantages in product, brand and operation.

INDUSTRY OVERVIEW

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New first-tier cities(Note): The economic development of the new first-tier cities stepsinto an expansion period. Infrastructure construction such as transportation and exhibitionsspeeds up. Various types of favourable policies continue to emerge. Such active marketenvironment has brought the hotel industry into a phase of explosive growth in supply. Due tothe relatively concentrated supply of hotels in new first-tier cities, short-term hotelperformance faces great pressure. Although many international hotel brands have entered newfirst-tier cities, brand premium is limited due to the competitive pressure brought by rapidsupply growth. As a result, the gap between international hotel brands and domestic brands isnot as obvious as that of first-tier cities. It is expected that in the short to medium term, thehotel market in new first-tier cities will continue to expand, and international hotelmanagement companies will further strengthen their penetration in new first-tier cities hotelmarkets to enlarge market share. As for domestic brands, they will take the advantage oflocalization to acquire chances to occupy a place in intense market competition.

Second-tier cities: Compared with the new first-tier cities, the economic vitality ofsecond-tier cities is relatively low, and the optimizing adjustment of industrial structure isslower. Moreover, because of the vast territory, the development pace of second-tier citiesvaries in the coastal, central and western regions. As a result, hotel markets of differentsecond-tier cities are at different stages of the rising period. Limited by the scale of hotelmarket demand and hotel guest’s ability to pay, hotel performance has reached bottleneck.Although international hotel brands have gradually entered second-tier cities, because of thepressure from improvement of hotel performance, especially ADR, the brand value cannot beeffectively recognized. However, domestic hotel brands have accelerated the speed ofdeveloping high quality hotel products and services through their geographical advantages andkeen perception of market trends. Therefore, the difference of hotel performance betweendomestic hotel brands and international brands has narrowed significantly in second-tier cities.In the short to medium term, even though the development speed of the second-tier city hotelmarket will still be slower than that of the new first-tier cities and the hotel operation willcontinue to face certain challenges, as regional development centres, second-tier cities willremain to be the focus of domestic and international hotel management companies.

Third-tier cities and others: The overall economic scale of the third- or fourth-tier citiesis small, and the hotel market is still at an early stage of development. As the limited hotelmarket capacity of the third- or fourth-tier cities and slow growth of demand, the overall hoteloperating performance of these cities is poor and ADR falls at a low level. Although in recentyears, in response to the consumption level, mid-scale international brands have accelerated thepenetration to the massive third- and fourth-tier cities, domestic brands still have strongercompetitive advantages due to greater regional influence. In the near future, the hotel marketin the third- or fourth-tier cities has opportunities for development. However, limited by thecity scale, industrial structure and consumption level, the hotel development at third- orfourth-tier cities will be dominated by mid-scale hotel brands. Domestic managementcompanies’ competitive advantages will contribute to enhance their penetration level in third-and fourth-tier cities.TRENDS OF LABOR COSTS

The labor cost of upscale hotels experienced a relatively stable increase from 2013 to2017 while mid-scale hotels labor has shown a slight downward trend. Both upscale andmid-scale hotel labor costs are expected to fluctuate modestly, with CAGR of -0.6% and 1.1%respectively from 2017 to 2022. Due to ongoing development of hospitality related technologyand improvement of hotel management efficiency, the labor supply is expected to meet thehotel operation requirements in the foreseeable future. According to Horwath, the overallindustry staff turnover ratio ranged between 20% to 40% in 2017.

Payroll cost (RMB Per Available Room Per Year), 2013-2022E

2013 2014 2015 2016 2017

2013-2017

CAGR 2022E

2017-2022ECAGR

Upscale 85,723 88,204 91,467 89,965 95,734 2.8% 92,745 -0.6%Mid-Scale 55,445 60,867 58,039 58,675 54,055 -0.6% 57,053 1.1%


Note: city categorization of new first-tier cities which is based on the report published by YICAI (Yicai Media Group(第一財經), which was founded in 2003 and is one of the largest financial media conglomerate in China) inMay 2017.

INDUSTRY OVERVIEW

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This section sets forth a summary of the most significant rules and regulations that affectour business activities in China or our shareholders’ rights to receive dividends and otherdistributions from us.

The hotel industry in China is subject to a number of laws and regulations, including lawsand regulations relating specifically to hotel operation and management and commercialfranchising, as well as those relating to environmental and consumer protection. As with otherindustries in China, regulations governing the hotel industry in China are still developing andevolving and might be amended, upgraded or reenacted from time to time. As a result, whenany prevailing regulations are amended or upgraded, the hotel industry may be required to meetnew or stricter standards, criteria or requirements. This section summarizes the principal PRCregulations currently relevant to our business and operations. Laws and regulations relating totaxation and foreign exchange in the PRC are discussed separately in “Appendix IV – Taxationand Foreign Exchange” to this prospectus.

REGULATIONS ON FOREIGN OWNERSHIP

The principal and most current regulations governing foreign ownership of hotelbusinesses in the PRC is the Special Management Measures (Negative List) for the Access ofForeign Investment (2018) (《外商投資准入特別管理措施》(負面清單) issued on June 28,2018 and effective as of July 28, 2018, both by the NDRC and MOFCOM. Pursuant to thisregulation, there are no restrictions on foreign investment in hotel businesses in China asidefrom business licenses and other permits that every hotel must obtain.

In addition, under the Interim Provisions on the Investment of Foreign-investedCompanies in China (《關於外商投資企業境內投資的暫行規定》) promulgated on July 25,2000 and amended on October 28, 2015, any foreign invested enterprise that intends to investwithin the territory of China shall abide by the state laws and regulations, and the investmentby the foreign invested enterprises shall follow the Foreign Investment Industrial GuidanceCatalog as updated from time to time by reference, according to which, foreign investedenterprises are not permitted to invest in fields where foreign investment is prohibited, such asInternet news information services and online publication services.

Furthermore, under the Interim Administrative Measures for the Record-filing of theIncorporation and Change of Foreign-invested Enterprises (Revised in 2018) (《外商投資企業設立及變更備案管理暫行辦法》) which was promulgated and entered into effect on June 30,2018, if foreign-invested enterprises or their investors conduct investment and operationactivities in restricted investment sectors listed in the special access administrative measuresprescribed by the state without approval, the competent commerce departments shall orderthem to make corrections within a prescribed time limit, and impose a fine of less thanRMB30,000. In the case of violation of other laws and regulations, the relevant departmentsshall investigate the corresponding legal liability. In addition, if foreign-invested enterprises ortheir investors conduct investment and operation activities in forbidden investment sectorslisted in the special access administrative measures prescribed by the state, the competentcommerce departments shall order them to make corrections within a prescribed time limit, andimpose a fine of less than RMB30,000. In the case of violation of other laws and regulations,the relevant departments shall investigate the corresponding legal liability.

SUPERVISION AND REGULATION

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As a foreign-invested company, our company has acquired necessary regulatory approvalsfor the Reorganization and internal approvals for the Global Offering and Listing. Please referto section headed “History, Reorganization and Corporate Structure” and section headed“Appendix VII – Statutory and General Information” in this prospectus for further details.

REGULATIONS ON HOTEL OPERATION

Regulations on Security Control

In November 1987, the Ministry of Public Security issued the Measures for the Controlof Security in the Hotel Industry (《旅館業治安管理辦法》) which was subsequently revisedon November 8, 2011, and in June 2004, the State Council promulgated the Decision of theState Council on Establishing Administrative License for the Administrative Examination andApproval Items Really Necessary To Be Retained (《國務院對確需保留的行政審批項目設定行政許可的決定》), which was amended on August 25, 2016. Under these two regulations,anyone who applies to operate a hotel is subject to examination and approval by the localpublic security authority and must obtain a special industry license. The Measures for theControl of Security in the Hotel Industry impose certain security control obligations on theoperators. For example, the hotel must examine the identification card of any guest to whomaccommodation is provided and make an accurate registration. The hotel must also report to thelocal public security authority if it discovers anyone violating the law or behaving suspiciouslyor an offender wanted by the public security authority. The Law of the PRC on Penalties forthe Violation of Public Security Administration (《中華人民共和國治安管理處罰法》)(Revised in 2012) was promulgated on October 26, 2012 and entered into force on January 1,2013. Pursuant to the Measures for the Control of Security in the Hotel Industry, the Law ofthe PRC on Penalties for the Violation of Public Security Administration and relevant localregulations, operating a hotel business without having obtained a special industry license maysubject the operator to being banned, detention of between 10 and 15 days as well as fines of

RMB500 to RMB1,000. Operators of hotel businesses who obtained the special industry

license but have violated applicable administrative regulations, may also be subject to

revocation of such license in serious circumstances.

Regulations on Public Area Hygiene

In April 1987, the State Council promulgated the Public Area Hygiene Administration

Regulation (《公共場所衛生管理條例》) which was subsequently amended on February 6,

2016, and on March 10, 2011, the Ministry of Health promulgated the Implementing Measures

for the Public Area Hygiene Administration Regulation (《公共場所衛生管理條例實施細則》)

and the National Health and Family Planning Commission amended this regulation on January

19, 2016 and December 26, 2017. According to these regulations, a hotel must obtain a public

area hygiene license before opening for business. Pursuant to these regulations, hotels failing

to obtain a public area hygiene license or comply with other requirements set forth in such

regulations may be subject to the following administrative penalties depending on the

seriousness of their respective activities: (i) warnings; (ii) fines between RMB500 and

RMB30,000; (iii) orders to correction within a stipulated period or (iv) orders to suspend

operations for rectification, or to revoke the public hygiene license.


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Regulations on Food Safety

With the purpose of guaranteeing food safety and safeguarding the health and life safety

of the public, SCNPC, enacted the PRC Law on Food Safety (《中華人民共和國食品安全法》)

in February 2009 which was amended on April 24, 2015. Also, the State Council adopted the

Implementation Rules of the Food Safety Law (《中華人民共和國食品安全法實施條例》)

which came into effect on July 20, 2009 and was amended on February 6, 2016. In August

2015, the China Food and Drug Administration (“the CFDA”) promulgated the Administrative

Measures for Food Operation Licensing (《食品經營許可管理辦法》) which was subsequently

amended on November 17, 2017. Also, the CFDA adopted the Announcement on Launching the

Use of Food Business License (《關於啟用<食品經營許可證>的公告》) which came into

effect on September 30, 2015. Under above measures, a food operation permit shall be obtained

in accordance with the law to engage in food selling and catering services within the territory

of the People’s Republic of China. The former food catering service or circulation license will

be de-registered by the authority that has issued the license upon its expiration. However, a

former food catering service or circulation license that does not expire will continue to be

valid; if, during the validity period thereof, the food business operator applies for replacing it

with food business license, the licensing authority shall make the replacement according to

relevant provisions. Each of our hotels providing food catering services is required to obtain

a food business or catering service or food circulation license in order to offer food services.

Pursuant to the PRC Law on Food Safety, hotels failing to obtain a food service license (or

formerly food hygiene license) may be subject to: (i) confiscation of illegal gains, food

illegally produced for sale and tools, facilities and raw materials used for illegal production;

and (ii) fines between RMB50,000 and RMB100,000 if the value of food illegally produced is

less than RMB10,000 or fines equal to 10 to 20 times of the value of food if such value is equal

to or more than RMB10,000.

Regulations on Fire Prevention

The PRC legal framework governing fire prevention is set forth in the Fire Prevention

Law (《中華人民共和國消防法》) which was adopted on April 29, 1998 and amended on

October 28, 2008 by SCNPC. According to the Fire Prevention Law and other relevant laws

and regulations of the PRC, the Ministry of Public Security and its local counterparts at or

above county level shall monitor and administer the fire prevention affairs. The Fire Prevention

Law provides that the fire prevention design or construction of a construction project must

conform to the national fire prevention technical standards. Before construction and decoration

of a hotel, the construction entity shall submit the fire prevention design documents to the local

fire prevention department of the public security authority for examination and approval. Upon

completion, the construction entity must go through the fire prevention acceptance check with

the relevant fire prevention department and no construction may be put into use before it is

accepted by the relevant authorities. For each public assembly venue such as a hotel, the

construction entity or entity using such venue shall, prior to use and operation of any business

thereof, apply for a safety check on fire prevention with the relevant fire prevention department

under the public security authority at or above the county level where the venue is located, and

such place could not be put into use and operation if it fails to pass the safety check on fire


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prevention or fails to conform to the safety requirements for fire prevention after such check.

Pursuant to these regulations, hotels failing to obtain approval of fire prevention design plans

or failing fire prevention safety inspections (including acceptance check and safety check on

fire prevention) may be subject to: (i) orders to suspend the construction of projects, use or

operation of business; and (ii) fines between RMB30,000 and RMB300,000. Pursuant to the

Administrative Regulations Concerning Supervision on the Fire Safety of Construction

Projects (《建設工程消防監督管理規定》) and Regulations Concerning Supervision and

Inspection on Fire Safety (《消防監督檢查規定》), both as amended on July 17, 2012 and

effective on November 1, 2012, for each hotel with a construction area of no less than 10

thousand square meters, the construction entity or entity operating such hotel shall, prior to

putting it in use and operating it for business, submit the fire prevention design documents to

the fire prevention department of the public security authority for approval, go through

acceptance check on fire prevention thereby and thereafter go through fire safety inspection on

public assembly venues; for each hotel with a construction area of less than 10 thousand square

meters, the construction entity or entity operating such hotel shall, prior to putting it in use and

operating it for business, submit the documents in relation to the fire prevention design and

acceptance check on fire prevention to the fire prevention department of the public security

authority for filing purpose, and go through fire safety inspection on public assembly venues.

Each hotel passing the fire safety inspection on public assembly venues will obtain a certificate

for fire safety inspection on public assembly venues.

Save as disclosed in the section headed “Business – Licenses, Permits and Approvals” in

this prospectus, our subsidiaries/branches have obtained aforementioned certificates necessary

for hotel operation. Please refer to section headed “Business” in this prospectus for further

details.

Regulations on Hotels Rating

In 1988, the National Tourism Administration of China promulgated the PRC Regulations

on the Assessment of the Star Rating of (Foreign-related) Tourist Hotels and amended the same

on February 6, 2016, or (“the Star Rating Regulations”) (《中華人民共和國評定旅遊(涉外)飯店星級的規定》). Under the Star Rating Regulations, all hotels with operations of over one

year are eligible to apply for a star rating assessment. There are five ratings from one star to

five stars for tourist hotels, assessed based on the level of facilities, management standards and

quality of service. According to the Classification and Assessment of the Star Rating of Tourist

Hotels (GB/T14308-2010) (《旅遊飯店星級的劃分與評定》) issued by the National Tourism

Administration of China, a star rating, once granted, is valid for three years. All of the

foregoing regulations on hotel operation apply to our company as the operator of our

leased-and-operated hotels.


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REGULATIONS ON LEASING

Under the Law on Urban Real Estate Administration (《中華人民共和國城市房地產管理法(2009修正)》) promulgated by the SCNPC, which took effect as of January 1995 with the

latest amendment in August 2009, lessors and lessees are required to enter into a written lease

contract, containing such provisions as the term of the lease, the use of the premises, liability

for rent and repair, and other rights and obligations of both parties, which is required to

registered with the real estate administration department.

In March 1999, the National People’s Congress, the China legislature, passed the PRC

Contract Law(《中華人民共和國合同法》), of which Chapter 13 governs hotel lease

agreements. According to the PRC Contract Law, subject to consent of the lessor, the lessee

may sublease the leased item to a third party. Where the lessee subleases the lease item, the

leasing contract between the lessee and the lessor remains valid. The lessor is entitled to

terminate the contract if the lessee subleases the lease item without the consent of the lessor.

On December 1, 2010, the Ministry of Housing and Urban-Rural Development

promulgated the Administrative Measures for Commodity Housing Tenancy (《商品房屋租賃管理辦法》), which took effect on February 1, 2011. Under this regulation, a property may not

be leased in some circumstances, including if the designated use of the property is changed in

violation of applicable regulations. This regulation further provides that the competent real

estate departments of the people’s governments of the municipalities directly under the central

government, cities and counties shall urge those who violate above provisions to make

corrections within a specified time limit, and impose a fine below RMB5,000 on those who

have not obtained illegal income. A fine between one and three times the amount of illegal

income up to RMB30,000 may be imposed on those who have obtained illegal gains.

In March 16, 2007, the National People’s Congress passed the PRC Property Law (《中華人民共和國物權法》), pursuant to which where a mortgagor leases the mortgaged property

before the mortgage contract is concluded, the previously established leasing relation shall not

be affected; and where a mortgagor leases the mortgaged property after the creation of the

mortgage interest, the leasing interest will be subordinated to the registered mortgage interest.

REGULATIONS ON USAGE OF LAND OR PROPERTY

The regulations governing the land or property usage mainly include the Land

Administration Law of the People’s Republic of China (《中華人民共和國土地管理法》)

adopted by the Standing Committee of the National People’s Congress on June 25, 1986, and

most recently amended on August 28, 2004, and the Regulations on the Implementation of the

Land Administration Law of the People’s Republic of China (《中華人民共和國土地管理法實施條例(2014修訂)》) promulgated according to the Order of the State Council No. 256 on

December 27, 1998 and further revised in accordance with the Decision of the State Council

on Revising Certain Administrative Regulations on July 29, 2014.


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According to the above regulations, construction entities shall use state-owned land

according to the stipulations of the land use right lease contract or according to the provisions

of the approval documents relevant to the allocation of land use rights. The conversion of the

construction purposes of the land shall receive the consent of the competent land administrative

departments of relevant people’s governments and be submitted to the people’s governments

that originally granted land use approval. When changing the purpose of land within urban

planning areas, consent shall be obtained from the relevant urban planning administration

departments before submission; without such approvals, the use of land specified in the

relevant overall land utilization plan shall not be changed. Under these regulations, failure to

comply with the approved usage may subject the owners of such properties and/or the tenants

to fines or other penalties, including potentially being required to cease such non-compliant

operations and being requested by the relevant land administrative authority to return the land.

REGULATIONS ON CONSUMER PROTECTION

In October 1993, the SCNPC promulgated the Law on the Protection of the Rights and

Interests of Consumers (“the Consumer Protection Law”) (《中華人民共和國消費者權益保護法》) which has been amended on October 25, 2013. Under the Consumer Protection Law, a

business operator providing a commodity or service to a consumer is subject to a number of

requirements, including the following:

• to ensure that commodities and services meet with certain safety requirements;

• to disclose serious defects of a commodity or a service and to adopt preventive

measures against damage occurrence;

• to provide consumers with accurate information and to refrain from conducting false

advertising;

• not to set unreasonable or unfair terms for consumers or alleviate or release itself

from civil liability for harming the legal rights and interests of consumers by means

of standard contracts, circulars, announcements, shop notices or other means; and

• not to insult or slander consumers or to search the person of, or articles carried by,

a consumer or to infringe upon the personal freedom of a consumer.

Business operators may be subject to civil liabilities for failing to fulfill the obligations

discussed above. These liabilities include restoring the consumer’s reputation, eliminating the

adverse effects suffered by the consumer, and offering an apology and compensation for any

losses incurred. The following penalties may also be imposed upon business operators for the

infraction of these obligations: issuance of a warning, confiscation of any illegal income,

imposition of a fine, an order to cease and rectify business operation, revocation of its business

license or imposition of criminal liabilities under circumstances that are specified in laws and

statutory regulations.


– 102 –

On December 26, 2003, the PRC Supreme People’s Court published the Interpretation of

Some Issues Concerning the Application of Law for the Trial of Cases on Compensation for

Personal Injury (《最高人民法院關於審理人身損害賠償案件適用法律若干問題的解釋》)

which took effect on May 1, 2004. On December 26, 2009, the SCNPC promulgated the Tort

Law of the People’s Republic of China (《中華人民共和國侵權責任法》) which took effect on

July 1, 2010. The above interpretation and law further increase the liabilities of business

operators engaged in the operation of hotels, restaurants, or entertainment facilities and subject

such operators to compensatory liabilities for failing to fulfill their statutory obligations to a

reasonable extent or to guarantee the personal safety of others.

REGULATIONS ON ENVIRONMENTAL PROTECTION

According to the Environmental Protection Law of the People’s Republic of China (《中華人民共和國環境保護法》) promulgated by the SCNPC on December 26, 1989 and amended

on April 24, 2014 and the Environmental Impact Assessment Law of the People’s Republic of

China (《中華人民共和國環境影響評價法》) promulgated by the SCNPC on October 28, 2002

and amended on July 2, 2016, environmental impact assessment shall be carried out pursuant

to the environmental protection law for the construction of projects which have an impact on

environment. Where the environmental impact assessment documents of a construction project

are not examined or approved by the relevant examination and approval authorities, the

construction unit shall not commence construction. Relevant entities may be subject to

punishments such as fines, an order to obtain approval within a specified time limit in violation

of the aforementioned laws.

REGULATIONS ON COMMERCIAL FRANCHISING

Franchise operations are subject to the supervision and administration of the MOC, and

its regional counterparts. Such activities are currently regulated by the Regulations for

Administration of Commercial Franchising (《商業特許經營管理條例》) promulgated by the

State Council on February 6, 2007, effective as of May 1, 2007. The Regulations for

Administration of Commercial Franchising were supplemented by the new Administrative

Measures for Archival Filing of Commercial Franchises (《商業特許經營備案管理辦法》)

which were issued by the MOC on December 12, 2011 and took effect on February 1, 2012 and

the new Administrative Measures for Information Disclosure of Commercial Franchises (《商業特許經營信息披露管理辦法》) which were issued by the MOC on February 23, 2012 and

took effect on April 1, 2012.

Under the above applicable regulations, a franchisor must have certain prerequisites

including a mature business model, the capability to provide long-term business guidance and

training services to franchisees and ownership of at least two directly-managed storefronts that

have been in operation for at least one year within China. Franchisors engaged in franchising

activities without satisfying the above requirements may be subject to penalties such as forfeit

of illegal income and imposition of fines between RMB100,000 and RMB500,000 and may be

bulletined by the MOC or its local counterparts. Franchise contracts shall include certain

required provisions, such as terms, termination rights and payments.


– 103 –

A franchisor is required to file its business license, sample franchise agreement and other

documents to the provincial commerce authority where it is registered for record within fifteen

days following the execution of its first franchise agreement with a franchisee inside the PRC.

If the franchisor conducts franchise business in two or more municipalities, provinces or

autonomous regions, it is required to file with the MOC. Franchisors who comply with the

provisions of the above applicable regulations shall, in accordance with the law, make filing

through commercial franchise information management system established by the Ministry of

Commerce. Moreover, the franchisor shall file information regarding the execution,

withdrawal, renewal of and amendment to franchise agreements to the commerce authority for

record before March 31 of each year.

Any changes in the recorded information of the franchisor should also be filed with the

relevant commerce authority following the occurrence of these changes. For a franchisor

failing to file in accordance with these regulations, the relevant commerce authority may order

it to comply within a designated time frame and impose a fine ranging from RMB10,000 to

RMB50,000. If the franchisor fails to comply as ordered, the relevant commerce authority may

impose another fine ranging from RMB50,000 to RMB100,000 and publicly announce the

franchisor’s violation.

According to the 2008 Handbook of Market Access of Foreign Investment (《外商投資准入管理指引手冊》(2008年版)) promulgated by the MOFCOM in December 2008, if an

existing foreign-invested company wishes to operate a franchise in China, it must apply to the

appropriate commerce authorities to expand its business scope to include “engaging in

commercial activities by way of franchise.”

REGULATIONS ON INTELLECTUAL PROPERTY RIGHTS

The PRC has adopted comprehensive legislation governing intellectual property rights,

including copyrights, patents, trademarks and domain names.

Copyright. Copyright in the PRC, including copyrighted software, is principally

protected under the Copyright Law (《中華人民共和國著作權法》) and related rules and

regulations. Under the Copyright Law, the term of protection for copyrighted software is 50

years.

Trademark. The PRC Trademark Law (《中華人民共和國商標法》) and its

implementation rules protect registered trademarks. The PRC Trademark Law has adopted a

“first-to-file” principle with respect to trademark registration. The Trademark Office under the

SAIC is responsible for the registration and administration of trademarks throughout the PRC,

and grants a term of ten years to registered trademarks and another ten years if requested upon

expiry of the initial or extended term. Trademark license agreements must be filed with the

Trademark Office for record.


– 104 –

Patent. Pursuant to the PRC Patent Law (《中華人民共和國專利法》) and its

implementation rules, once a patent for an invention or utility model has been granted, unless

otherwise provided by the Patent Law, no entity or individual may use the patent, patented

product or patented process for production or business purposes without the authorization of

the patent owner. Once a patent has been granted for a design, no entity or individual may

manufacture, sell or import any product containing the patented design without the permission

of the patent owner. If a patent is found to have been infringed, the infringer must, in

accordance with relevant regulations, cease such infringement, take remedial action and pay

damages.

Domain Name. Domain names are protected under the Administrative Measures on

Internet Domain Names (《互聯網域名管理辦法》) promulgated by the Ministry of Industry

and Information Technology of PRC (the “MIIT”) in August 24, 2017 and took effect on

November 1, 2017. The MIIT is the major regulatory authority responsible for the

administration of the PRC Internet domain names. The registration of domain names in PRC

is on a “first-apply-first-registration” basis. A domain name applicant will become the domain

name holder upon the completion of the application procedure.

REGULATIONS ON DIVIDEND DISTRIBUTION

The principal regulation governing distribution of dividends of foreign-invested

enterprises is the Company Law.

Under the Company Law, companies shall contribute 10% of the profits into their

statutory surplus reserve upon distribution of their post-tax profits of the current year. A

company may discontinue the contribution when the aggregate sum of the statutory surplus

reserve is more than 50% of its registered capital.

REGULATIONS ON PREPAID CARDS

In August 18 2016, the MOFCOM promulgated Administrative Measures on Single-

purpose Commercial Prepaid Cards (Trial Implementation). According to this regulation,

enterprise legal persons in retail industry, accommodation and catering industry and residential

services industry issuing prepaid cards shall complete filing formalities within 30 days from

the date of carrying out single-purpose card businesses. The type of card-issuer consists of

group card-issuer, brand card-issuer and large-scale card-issuer and the company shall be

confirmed as one type of card-issuer on the basis of prepaid cards business type. Besides that,

this regulation also stipulates rules of card purchase agreement, pattern of cards, limits of each

registered and non-registered card, use of prepaid monies, the ratio of balance of prepaid

monies to the company’s main business income in the preceding accounting year, the

company’s depository system and the proportion of deposited funds or guarantee insurance

amounts to the balance of prepaid monies in the previous quarter, prepaid money management

system and policies and so on. A company may be subject to administrative punishments,

orders to correction within a stipulated period as well as fines of RMB10,000 to RMB30,000

in violation of terms in this regulation.


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REGULATIONS RELATING TO EMPLOYMENT

The PRC National People’s Congress promulgated the Labor Contract Law (《中華人民共和國勞動合同法》) which became effective on January 1, 2008 and was amended on

December 28, 2012, and the State Council promulgated implementing rules for the labor

contract law (《勞動合同法實施條例》) on September 18, 2008. The labor contract law and

the implementing rules impose requirements concerning, among others, the execution of

written contracts between employers and employees, the time limits for probationary periods,

and the length of employment contracts. Also, under the labor contract law an employer is not

permitted to establish staffing companies to place workers with themselves or their

subsidiaries, and no enterprises is permitted to provide work placement business without

obtaining a work placement license, for an enterprise that acts in violation of such provisions,

the labor administrative department shall order it to stop the illegal act, confiscate all illegal

gains and impose a fine between one and five times the amount of illegal gains, if there is no

illegal gain, a fine of no more than RMB50,000 shall be imposed.

On October 28, 2010, the National People’s Congress of China promulgated the PRC

Social Insurance Law (《中華人民共和國社會保險法》), which became effective on July 1,

2011. In accordance with the PRC Social Insurance Law and other relevant laws and

regulations, enterprises in China are required by PRC laws and regulations to participate in

certain employee benefit plans, including social insurance funds, namely a pension plan, a

medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan,

a maternity insurance plan, a housing provident fund, and a handicapped employment security

fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries,

including bonuses and allowances, of the employees as specified by the local government from

time to time at locations where they operate their businesses or where they are located.

According to the Social Insurance Law, an employer that fails to make social insurance

contributions may be ordered to rectify the non-compliance and pay the required contributions

within a stipulated deadline and be subject to a late fee of up to 0.05% or 0.2% per day, as the

case may be. If the employer still fails to rectify the failure to make social insurance

contributions within the stipulated deadline, it may be subject to a fine ranging from one to

three times the amount overdue. In addition, the PRC Individual Income Tax Law (《中華人民共和國個人所得稅法》) requires companies operating in China to withhold individual

income tax on employees’ salaries based on the actual salary of each employee upon payment.


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BACKGROUND

Our Company principally engages in the operation and management of mid-scale to

upscale hotel chains in the PRC. Our predecessor, New Century Hotel Management, was first

established in the PRC as a limited liability company with a registered capital of

RMB5,000,000 by New Century Hotel Investment (which is indirectly wholly owned by New

Century REIT) and New Century Tourism (which is indirectly owned as to 85.2% by Mr. Chen

Miaolin, 8.5% by Mr. Chen Canrong and 6.3% by Mr. Zhang Guanming) on December 17,

2008, and it was subsequently converted into a joint stock company with limited liability on

June 28, 2017 as part of our Reorganization. Please refer to the section headed “Directors,

Supervisors and Senior Management” for details on the background of our founder, Mr. Chen

Miaolin.

KEY MILESTONES

The following events illustrate certain key business milestones and achievements in the

business development of our hotels:

January 1988 Xiaoshan Guesthouse, our first “New Century (開元)”

hotel, opened for business.

April 1992 Our first resort hotel, Hangzhou Zhijiang Holiday Resort

(杭州之江度假村), was developed and launched for

operation.

August 1998 We entered into a contractual agreement to manage

Ningbo New Century Hotel (寧波開元大酒店). This

marked our entry into hotel markets beyond Hangzhou.

April 2004 Our first five Star-rated resort hotel, Hangzhou Qiandao

Lake New Century Resort (千島湖開元度假村), opened

for business.

January 2005 Our first five Star-rated business hotel, New Century

Grand Hotel Hangzhou (杭州開元名都大酒店), opened

for business.

December 2008 New Century Hotel Management was established.

January 2010 Our first mid-scale select service hotel, New Century

Manju Hotel (開元•曼居酒店), opened for business.

January 2011 Our first upscale resort hotel under the brand of “New

Century Grand House (開元觀堂)” opened for business.

HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

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2015 to 2017 We were named as one of the Top 30 Global Hotel Groups

in the Hotels magazine, the official publication of the

International Hotel & Restaurant Association.

May 2016 Our first upscale resort hotel under the brand of “New

Century Wonderland (開元芳草地鄉村酒店)” opened for

business.

June 2017 Our predecessor New Century Hotel Management was

restructured into a joint stock company with limited

liability.

September 2017 We were named as the 2017 China’s Most Popular Hotel

Brand* (2017年度中國最受歡迎酒店品牌) from the 21st

Century Business Herald* (《21世紀經濟報道》) and the

Business Travel* (《商務旅行》).

For a list of key awards and accolades for our hotel business, please refer to the

sub-section headed “Business – Awards and Accreditations” in this prospectus.

CORPORATE HISTORY

Our Company has a number of subsidiaries incorporated in the PRC. Details of our

Company and its principal subsidiaries and their respective corporate history are set out below.

OUR COMPANY

On December 17, 2008, our Predecessor, New Century Hotel Management, was

established in the PRC as a limited liability company with a registered capital of RMB5 million

by New Century Hotel Investment and New Century Tourism. Upon incorporation, New

Century Hotel Investment and New Century Tourism held 90.0% and 10.0% equity interests in

New Century Hotel Management, respectively. On December 25, 2008, a resolution was passed

at a shareholders’ meeting of New Century Hotel Management to increase the registered share

capital of New Century Hotel Management to RMB65 million, and New Century Tourism

subsequently transferred its interests in New Century Hotel Management to New Century Hotel

Investment for a consideration of RMB500,000, which was determined with reference to the

amount of corresponding registered capital pursuant to an equity transfer agreement dated

February 15, 2009.

Pursuant to an equity transfer agreement dated January 22, 2013, New Century Hotel

Investment transferred its entire equity interest in New Century Hotel Management to New

Century Tourism for a consideration of RMB65.0 million which was determined with reference

to the amount of the then registered capital of New Century Hotel Management. Pursuant to

a share transfer and capital increase agreement dated April 26, 2013, New Century Tourism

transferred approximately 40.0% equity interests in New Century Hotel Management to Clear


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Ocean Holdings Limited (“Clear Ocean”), an investment holding company held by the Carlyle

Group, a global alternative asset manager, for a consideration of approximately RMB26.0

million, which was determined with reference to the amount of corresponding registered

capital of New Century Hotel Management, after which Clear Ocean became a strategic

investor of our Group. The transfer took place as a part of the reorganization undergone by our

Controlling Shareholders in preparation for the listing of New Century REIT in 2013, which

also included (i) New Century Hotel Investment transferring to our Company its then

subsidiaries that were engaged in the operation of leased and managed hotels except for the

subsidiaries that held the New Century REIT Hotel Properties; and (ii) New Century Hotel

Investment and its subsidiaries (the “New Century Hotel Investment Group”) transferred to

the Company all employees, assets, transferrable liabilities and contractual obligations of all

hotel management and operation related business that were not required for the operations of

the New Century Hotel Investment Group, whereby New Century Hotel Investment was being

used as the new holding company of the New Century REIT Hotel Properties (the “NewCentury Hotel Investment Reorganization”). Upon completion of the New Century Hotel

Investment Reorganization in June 2013, New Century Hotel Investment became the

wholly-owned subsidiary of New Century REIT and retained the relevant subsidiaries owning

the New Century REIT Hotel Properties whereas our Company held all hotel management and

operation related businesses. New Century Tourism and Clear Ocean also increased the

registered capital of New Century Hotel Management from RMB65.0 million to RMB165.0

million on a pro rata basis pursuant to the terms of the share transfer and capital increase

agreement, on April 26, 2013.

On December 11, 2015, Hangzhou Qianhe Qiju Investment Management Partnership

(Limited Partnership)* (杭州謙和祺聚投資管理合夥企業(有限合夥)) (“Qianhe Qiju”)

subscribed for registered capital in the amount of RMB8.7 million, representing approximately

5.0% equity interests, in New Century Hotel Management for a consideration of RMB10.0

million, which was determined based on the then net asset value of New Century Hotel

Management. The cash consideration for the subscription was fully settled on December 30,

2015. After the subscription, the registered capital of New Century Hotel Management

increased from RMB165.0 million to RMB173.7 million. As a result, New Century Tourism,

Clear Ocean and Qianhe Qiju held 57.1%, 38.0% and 5.0% equity interestsNote in New Century

Hotel Management, respectively. For further details on the background of Qianhe Qiju, please

refer to the sub-section headed “History, Reorganization and Corporate Structure – Information

on our current Shareholders” in this prospectus.

On November 17, 2016, Clear Ocean entered into an equity transfer agreement with: (i)

NC Hotels Investment Holding Pte. Ltd. (“NC Hotels”); (ii) Shanghai Bohui Investment

Center (Limited Partnership)* (上海鉑卉投資中心(有限合夥)) (currently known as Shanghai

Ouling Bohui Investment Center (Limited Partnership)* (上海鷗翎鉑卉投資中心(有限合夥)))

(“Bohui Investment”); and (iii) Ocean Century Hotels Limited (“OC Hotels”), pursuant to

which Clear Ocean agreed to transfer its (a) 21.0% equity interests in New Century Hotel

Note: Certain percentage figures have been subject to rounding adjustments. Accordingly, the arithmetic aggregationof figures shown may not be 100.0%.


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Management to NC Hotels for a consideration of RMB324.8 million; (b) 11.9% equity interests

in New Century Hotel Management to Bohui Investment for a consideration of RMB184.4

million; and (c) 5.1% equity interests in New Century Hotel Management to OC Hotels for a

consideration of RMB79.1 million. The consideration was determined based on arm’s length

negotiations between Clear Ocean, NC Hotels, Bohui Investment and OC Hotels respectively,

and also based on the market value of New Century Hotel Management being approximately

RMB1,550.3 million at the time. The transfer of the abovementioned equity interests by Clear

Ocean was undertaken by Clear Ocean directly due to the expiry of the investment period for

Clear Ocean with respect to its investment in New Century Hotel Management. The cash

consideration for the aforementioned transfers was fully settled on December 5, 2016. As a

result, New Century Tourism, NC Hotels, Bohui Investment, OC Hotels and Qianhe Qiju held

57.1%, 21.0%, 11.9%, 5.1% and 5.0% equity interestsNote in New Century Hotel Management,

respectively. For further details on the background of NC Hotels, Bohui Investment and OC

Hotels, please refer to the sub-section headed “History, Reorganization and Corporate

Structure – Information on our current Shareholders” in this prospectus.

New Century Tourism and Mr. Chen Miaoqiang wished to increase their respective

shareholdings in New Century Hotel Management, and therefore, after arm’s length negotiation

with the parties, on April 24, 2017, Bohui Investment entered into separate equity transfer

agreements with New Century Tourism and Ningbo Meishan Bonded Area Kairui Shiqi

Investment Management Partnership (Limited Partnership)* (寧波梅山保稅港區開瑞世祺投資管理合夥企業(有限合夥)) (“Kairui Shiqi”), pursuant to which Bohui Investment (i)

transferred its 8.0% equity interests in New Century Hotel Management to New Century

Tourism for a consideration of RMB125.6 million; and (ii) transferred its 2.0% equity interests

in New Century Hotel Management to Kairui Shiqi for a consideration of RMB31.4 million.

The cash consideration for the aforementioned transfers of equity interests by Bohui

Investment to New Century Tourism and Kairui Shigi was determined after arm’s length

negotiations and based on the market value of New Century Hotel Management, being

RMB1,570.0 million at the time, and was fully settled on April 27, 2017. For further details on

the background of New Century Tourism and Kairui Shiqi, please refer to the sub-section

headed “History, Reorganization and Corporate Structure – Information on our current

Shareholders” in this prospectus.

On April 24, 2017, New Century Hotel Management, Kairui Shiqi and Ningbo Meishan

Bonded Area Kaihui Taiheng Investment Management Partnership (Limited Partnership)* (寧波梅山保稅港區開匯泰亨投資管理合夥企業(有限合夥)) (“Kaihui Taiheng”) entered into a

capital increase agreement, pursuant to which Kairui Shiqi subscribed for registered capital in

the amount of RMB3.0 million, representing 1.6% equity interests, in New Century Hotel

Management for a consideration of RMB27.3 million, and Kaihui Taiheng subscribed for

registered capital in the amount of RMB12.1 million, representing 6.4% equity interests, in

New Century Hotel Management for a consideration of RMB109.2 million. The cash

consideration for the aforementioned subscriptions was determined based on the market value

of New Century Hotel Management, being RMB1,570 million at the time, and was fully settled

on April 28, 2017. In view of such capital injection, the registered capital of New Century

Hotel Management increased from RMB173.7 million to RMB188.8 million and subsequently


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New Century Tourism, NC Hotels, Kaihui Taiheng, OC Hotels, Qianhe Qiju, Kairui Shiqi and

Bohui Investment held 59.8%, 19.3%, 6.4%, 4.7%, 4.6%, 3.4% and 1.7% equity interestsNote

in New Century Hotel Management, respectively. For further details on the background of

Kaihui Taiheng, please refer to the sub-section headed “History, Reorganization and Corporate

Structure – Information on our current Shareholders” in this prospectus.

All consideration in respect of above-mentioned transfers have been fully settled and the

transactions were legally completed.

After above-mentioned equity transfers, as at the Latest Practicable Date, the

shareholding of our Company is as follows:

Name of Shareholder Class of Shares No. of Shares heldApproximate percentage of

share capital(Note)

(%)

New Century Tourism Domestic Shares 125,676,180 59.8NC Hotels Unlisted Foreign

Shares

40,482,540 19.3

Kaihui Taiheng Domestic Shares 13,437,900 6.4OC Hotels Unlisted Foreign

Shares

9,857,820 4.7

Qianhe Qiju Domestic Shares 9,655,590 4.6Kairui Shiqi Domestic Shares 7,223,580 3.4Bohui Investment Domestic Shares 3,666,390 1.7

Total 210,000,000 100.0

Note: Certain percentage figures have been subject to rounding adjustments. Accordingly, figures shown astotals in the table above may not be an arithmetic aggregation of the figures preceding them.

INFORMATION ON OUR CURRENT SHAREHOLDERS

New Century Tourism

New Century Tourism is primarily engaged in investment in and operation of tourism-

related businesses. New Century Tourism is a company incorporated in the PRC with limited

liability on January 9, 2001. As at the Latest Practicable Date, New Century Tourism was

indirectly owned as to 85.2% by Mr. Chen Miaolin, 8.5% by Mr. Chen Canrong and 6.3% by

Mr. Zhang Guanming. Mr. Chen Miaolin is the founder of our Group. Mr. Chen Miaolin, Mr.

Chen Canrong and Mr. Zhang Guanming form a group of Controlling Shareholders, given that

Mr. Chen Miaolin, Mr. Chen Canrong and Mr. Zhang Guanming hold their interests in our


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Company collectively through New Century Tourism. For further details on the background ofMr. Chen Miaolin and Mr. Chen Canrong, please refer to the sub-section headed “Directors,Supervisors and Senior Management – Directors” in this prospectus.

NC Hotels

NC Hotels was incorporated on September 15, 2016 as a private company limited byshares in Singapore. As at the Latest Practicable Date, it was a wholly-owned company ofGeneral Atlantic Singapore Fund Pte. Ltd., a private investment fund that is part of the GeneralAtlantic private equity group, a global growth equity firm providing capital and strategicsupport for growth companies.

Kaihui Taiheng

Kaihui Taiheng is a limited partnership formed on April 18, 2017 in the PRC by Mr. JinWenjie, our executive Director and chairman of the Board, Ms. Ye Lv and Mr. Li Donglin,amongst which, as at the Latest Practicable Date: (i) Mr. Jin Wenjie was the general partner andheld 60.0% partnership interests; (ii) Ms. Ye Lv, a member of the senior management of ourCompany, held 20.0% limited partnership interests; and (iii) Mr. Li Donglin, one of the jointcompany secretaries and a member of the senior management of our Company, held 20.0%limited partnership interests, respectively.

OC Hotels

OC Hotels was incorporated on October 18, 2016 in Hong Kong as a private limitedliability company, and as at the Latest Practicable Date, was wholly-owned by Ocean AsiaHotels Limited. Mr. Jiang Tianyi, our non-executive Director, is the sole director of OC Hotels.Ocean Asia Hotels Limited is a private limited liability company incorporated in the CaymanIslands which is wholly-owned by Ocean Imagination L.P., an exempted limited liabilitypartnership registered in the Cayman Islands. All of OC Hotels, Ocean Asia Hotels Limited andOcean Imagination L.P. are Independent Third Parties.

Qianhe Qiju

Qianhe Qiju is a limited partnership formed on December 9, 2015 in the PRC by certainmembers of the senior management and employees of our Group, amongst which, as at theLatest Practicable Date: (i) Hangzhou Qiju Qian Investment Management Co., Ltd.* (杭州祺聚謙投資管理有限公司) (“Qiju Qian Investment”), a company indirectly wholly-owned byNew Century Tourism and the general partner of the limited partnership, held 32.8%partnership interests; (ii) Mr. Jin Wenjie, our chairman of the Board and executive Director,held 14.2% limited partnership interests; (iii) Mr. Chen Miaoqiang, our president and executiveDirector, held 5.0% limited partnership interests; and (iv) the remaining 48.0% limited

partnership interests were held by 33 employees of our Group. Given that Qiju Qian Investment

as a general partner controls the voting rights in Qianhe Qiju, New Century Tourism (through

Qiju Qian Investment) controls the 9,655,590 Shares, representing 4.6% equity interests in our

Company as at the Latest Practicable Date, held by Qianhe Qiju.


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Kairui Shiqi

Kairui Shiqi is a limited partnership formed on April 18, 2017 in the PRC by Mr. Chen

Miaoqiang and his close relatives, amongst which, as at the Latest Practicable Date: (i) Mr.

Chen Miaoqiang was the general partner and held 60.0% partnership interests; (ii) Ms. Lu Jun,

the spouse of Mr. Chen Miaoqiang, held 20.0% limited partnership interests; and (iii) Ms. Chen

Shu, the daughter of Mr. Chen Miaoqiang, held 20.0% limited partnership interests,

respectively.

Bohui Investment

Bohui Investment was established on September 7, 2015 in the PRC. As at the Latest

Practicable Date, Shanghai Ouling Boqiang Investment Advisory Center (Limited

Partnership)* (上海鷗翎鉑薔投資諮詢中心(有限合夥)) (“Shanghai Ouling Boqiang”) was the

general partner of Bohui Investment. Shanghai Ouling Bobi Investment Consulting Co., Ltd.*

(上海鷗翎鉑碧投資諮詢有限公司) (“Shanghai Ouling Bobi”) is the general partner of

Shanghai Ouling Boqiang. All of Bohui Investment, Shanghai Ouling Boqiang and Shanghai

Ouling Bobi are Independent Third Parties.

OUR PRINCIPAL SUBSIDIARIES AND BRANCHES

The major corporate developments of our subsidiaries and our branches which were

material to our performance during the Track Record Period are set out below:

Our Principal Subsidiaries

Zhejiang New Century Manju Hotel Management Co., Ltd.* (浙江開元曼居酒店管理有限公司) (“Zhejiang Manju”)

Zhejiang Manju was established in the PRC on September 20, 2010 with a registered

capital of RMB27.0 million and is principally engaged in hotel management. As at the date of

its establishment, it was wholly-owned by New Century Hotel Investment. The entire equity

interests of Zhejiang Manju was then transferred to New Century Hotel Management by New

Century Hotel Investment for a consideration of RMB30.0 million on December 19, 2012 and

the registered capital of Zhejiang Manju increased to RMB30.0 million on the same date. On

October 26, 2015, Zhejiang Manju has reduced its registered capital to RMB27.0 million.


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Zhejiang Jinshanzi Network Technology Co., Ltd.* (浙江金扇子網絡科技有限公司)

(“Zhejiang Jinshanzi”)

Zhejiang Jinshanzi was established in the PRC on November 6, 2013 with a registered

capital of RMB12.5 million and is principally engaged in computer software, hardware and

network design and development. As at the date of its establishment, it was wholly-owned by

Shanghai Songjiang Grand New Century Hotel Co., Ltd.* (上海松江開元名都大酒店有限公司)

(“Shanghai Songjiang”), a wholly-owned subsidiary of New Century Hotel Investment at the

time. The entire equity interest in Zhejiang Jinshanzi was subsequently transferred to New

Century Hotel Management by Shanghai Songjiang on December 11, 2013. On June 19, 2017,

Ningbo Meishan Bonded Area Meiyuangu Investment Management Partnership (Limited

Partnership)* (寧波梅山保稅港區美源穀投資管理合夥企業(有限合夥)), which is wholly-

owned by 12 individuals, all of whom are employees of our Group, subscribed for new

registered capital of RMB2.5 million, representing 20.0% equity interests in Zhejiang

Jinshanzi, for a consideration of RMB2.5 million. As a result of such subscription, as at the

Latest Practicable Date, our Group held 80.0% equity interests in Zhejiang Jinshanzi.

Hangzhou New Century Hotel Supplies Co., Ltd.* (杭州開元酒店用品有限公司) (“Hangzhou

Hotel Supplies”)

Hangzhou Hotel Supplies was established in the PRC on September 9, 1998 with an initial

registered capital of RMB500,000 and is principally engaged in the sales of hotel supplies. As

at the date of its establishment, it was owned as to 51.0% shareholding by New Century

Tourism, 25.0% by Zhejiang Xiaoshan Guesthouse Co., Ltd.* (浙江蕭山賓館股份有限公司)

(“Zhejiang Xiaoshan Guesthouse”) and 24.0% by Zhejiang Xiaoshan New Century

Investment Property Co., Ltd.* (浙江蕭山開元投資置業有限公司) (formerly known as

Zhejiang Xiaoshan New Century Property Management Co., Ltd.* (浙江蕭山開元物業管理有限公司)) (“Xiaoshan Investment”). In December 2003, New Century Tourism transferred

51.0% shareholding in Hangzhou Hotel Supplies to Xiaoshan Investment. In June 2007, both

Zhejiang Xiaoshan Guesthouse and Xiaoshan Investment transferred its respective 25.0% and

75.0% shareholding in Hangzhou Hotel Supplies to New Century Hotel Investment for a

consideration of RMB125,000 and RMB375,000 respectively. On December 21, 2012, New

Century Hotel Investment transferred its entire equity interest in Hangzhou Hotel Supplies to

New Century Hotel Management for a consideration of RMB500,000. On February 5, 2013, the

registered capital of Hangzhou Hotel Supplies was increased from RMB500,000 to RMB10.0

million. As a result, as at the Latest Practicable Date, our Group held 100.0% equity interests

in Hangzhou Hotel Supplies.

Please refer to Note 12A to the Accountant’s Report as set out in Appendix I to this

prospectus for a list of our subsidiaries.


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Our Principal Branches

Our Company had the following principal branches during Track Record Period, each ofwhich operated its respective hotels as set out as follows:

Name of Branches Name of Hotel Date of Establishment

Zhejiang New Century HotelManagement Co. Ltd. HangzhouGrand New Century (浙江開元酒店管理股份有限公司杭州開元名都大酒店)

Hangzhou Grand NewCentury

May 28, 2013

Zhejiang New Century HotelManagement Co. Ltd. XiaoshanGuesthouse (浙江開元酒店管理股份有限公司蕭山賓館)

Xiaoshan Guesthouse May 22, 2013

Zhejiang New Century HotelManagement Co. Ltd. Ningbo GrandNew Century (浙江開元酒店管理股份有限公司寧波開元名都大酒店)

Ningbo Grand New Century May 29, 2013

Zhejiang New Century HotelManagement Co. Ltd. Shaoxing GrandNew Century (浙江開元酒店管理股份有限公司紹興開元名都大酒店)

Shaoxing Grand New Century December 25, 2008

Zhejiang New Century HotelManagement Co. Ltd. HangzhouXiacheng Branch (浙江開元酒店管理股份有限公司杭州下城分公司)

Sanli Grand New Century December 20, 2013

ACQUISITIONS AND DISPOSALS DURING THE TRACK RECORD PERIOD

Acquisitions

Jiande New Century Wonderland Resort Co., Ltd.* (建德開元芳草地酒店有限公司)

On November 7, 2016, New Century Hotel Management entered into a share transferagreement with New Century Tourism, our Controlling Shareholder, pursuant to which NewCentury Hotel Management acquired 100% equity interests in Jiande New Century WonderlandResort Co., Ltd.* (建德開元芳草地酒店有限公司) from New Century Tourism for aconsideration of RMB30.0 million, which was determined based on the valuation conducted byan independent valuer. The consideration was settled on November 24, 2016. New CenturyHotel Management acquired the entire equity interest in Jiande New Century WonderlandResort Co., Ltd.* (建德開元芳草地酒店有限公司) in order to gain greater autonomy andcontrol over the operation of New Century Wonderland resorts, which was a new branddeveloped by our Group in 2016.


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Changxing New Century Wonderland Resort Co., Ltd.* (長興開元芳草地酒店有限公司)

On March 31, 2017, New Century Hotel Management entered into a share transfer

agreement with New Century Tourism, and Hangzhou New Century Senbo Tourism Investment

Co., Ltd.* (杭州開元森泊旅遊投資有限公司) (“Hangzhou Senbo”), a subsidiary of New

Century Tourism, pursuant to which New Century Hotel Management acquired 40.0% equity

interests and 60.0% equity interests in Changxing New Century Wonderland Resort Co., Ltd.*

(長興開元芳草地酒店有限公司) from New Century Tourism and Hangzhou Senbo,

respectively for an aggregate consideration of RMB40.0 million, which was determined based

on the valuation conducted by an independent valuer. The consideration was settled on April

11, 2017. New Century Hotel Management acquired the entire equity interest in Changxing

New Century Wonderland Resort Co., Ltd.* (長興開元芳草地酒店有限公司) in order to gain

greater autonomy and control over the operation of New Century Wonderland resorts, which

was a new brand developed by our Group in 2016.

Acquisition and Disposal of interest in Yuyao New Century Manju Hotel Management Co.,

Ltd.* (余姚開元曼居酒店管理有限公司) (“Yuyao Manju”)

On December 28, 2015, New Century Hotel Management entered into an equity transfer

agreement with 16 individuals, nine of whom were employees of our Group and the remaining

of whom were Independent Third Parties, pursuant to whom New Century Hotel Management

disposed approximately 64.2% equity interests in Yuyao Manju to those 16 individuals for a

consideration of RMB5.5 million, which was determined taking into account the amount of

corresponding registered capital, the costs involved in preliminary preparations for

construction, capital expenditures and the generally positive business performance of Yuyao

Manju. The consideration was fully settled upon the execution of the share transfer agreement.

New Century Hotel Management disposed of 64.2% equity interests in Yuyao Manju as such

individuals intended to invest in Yuyao Manju.

On June 27, 2018, in order to increase its shareholding in Yuyao Manju, Zhejiang New

Century Manju Hotel Management Co., Ltd. (浙江開元曼居酒店管理有限公司) (“New

Century Manju Management”) entered into five separate equity transfer agreements with five

individuals respectively, four of whom are employees of our Group and the remaining of whom

is an Independent Third Party, pursuant to which New Century Manju Management acquired

approximately 19.8% equity interests in aggregate in Yuyao Manju for an aggregate

consideration of RMB1.9 million. The consideration was determined based on arm’s length

negotiations with reference to the valuation of Yuyao Manju conducted by an independent

valuer. The cash consideration was fully settled on July 9, 2018. After the acquisition, Yuyao

Manju was indirectly held as to approximately 55.7% by our Company and has been

reclassified from an associate to a subsidiary of our Company. Please refer to Note 36 of

Section II and Section IV to the Accountant’s Report as set out in Appendix I to this prospectus

for further details.


– 116 –

Please refer to Note 12A(a) to the Accountant’s Report as set out in Appendix I to this

prospectus for further details on the acquisitions during the Track Record Period. No separate

pre-acquisition financial information is required to be prepared under Rule 4.05A of the Listing

Rules given that none of such acquisitions would be classified as a major transaction or a very

substantial acquisition for our Company under the Listing Rules.

Disposals

Shaoxing Dayu New Century Resort Co., Ltd.* (紹興大禹開元度假村有限公司)

On September 15, 2017, our Company entered into a share transfer agreement with

Shaoxing Yuzhuang New Century Hotel Management Co., Ltd* (紹興禹莊開元酒店管理有限公司) (“Shaoxing Yuzhuang”), a subsidiary of New Century Tourism, one of our Controlling

Shareholders, pursuant to which our Company disposed of its 100% equity interests in

Shaoxing Dayu New Century Resort Co., Ltd.* (紹興大禹開元度假村有限公司) (“Shaoxing

Dayu”) to Shaoxing Yuzhuang for a consideration of RMB11.0 million, which was determined

based on the registered capital of Shaoxing Dayu. The consideration was settled on September

26, 2017. New Century Hotel Management disposed the entire equity interest in Shaoxing

Dayu because New Century Tourism had invested in the land adjacent to Shaoxing Dayu New

Century Grand House, which was operated as our leased hotel at the relevant time, for the

purpose of integrated hotel property development. Upon the completion of the hotel

development on the adjacent piece of land by Shaoxing Yuzhuang, our Company, after

assessing the economics between leasing or managing both the hotels as a whole, decided to

enter into a full service management agreement with Shaoxing Yuzhuang to manage both

hotels. As such, Shaoxing Yuzhuang became the company that leases the property where

Shaoxing Dayu New Century Grand House is situated.

Suzhou Qiju Hotel Management Co., Ltd.* (蘇州祺聚酒店管理有限公司)

On October 31, 2017, our Company entered into a share transfer agreement with Suzhou

Olin Chuntian Business Hotel Co., Ltd.* (蘇州市奧林春天商務酒店有限公司) (“Suzhou

Olin”), an Independent Third Party, pursuant to which our Company disposed of its 100%

equity interests in Suzhou Qiju Hotel Management Co., Ltd.* (蘇州祺聚酒店管理有限公司), to

Suzhou Olin for a consideration of RMB3.2 million, which was determined based on arm’s

length negotiation between the parties. The consideration was settled on November 3, 2017.

Suzhou Qiju Hotel Management Co., Ltd was the lessee of a hotel that we used to operate in

Suzhou and we decided to cease the operation of the hotel due to challenging market

conditions.


– 117 –

Shanghai Ruiya Hotel Management Co., Ltd.* (上海瑞亞酒店管理有限公司)

On January 25, 2018, Shanghai Yuege Hotel Operation Co., Ltd.* (上海悅閣酒店經營有限公司) (“Shanghai Yuege”), a subsidiary of our Company, entered into a share transfer

agreement with Ms. Wu Zhifeng, an Independent Third Party, pursuant to which Shanghai

Yuege disposed 100% equity interests in Shanghai Ruiya Hotel Management Co., Ltd.* (上海瑞亞酒店管理有限公司) (“Shanghai Ruiya”) to Ms. Wu Zhifeng for a consideration of

RMB1,000, which was determined based on the net asset value of Shanghai Ruiya. The

consideration was settled on March 22, 2018. Shanghai Yuege disposed the entire equity

interests in Shanghai Ruiya Hotel Management Co., Ltd.* (上海瑞亞酒店管理有限公司) due to

the expiry of the hotel lease agreement entered into by Shanghai Yuege Hotel Operation Co.,

Ltd, upon which we decided not to renew the lease upon expiry because we were not able to

reach an agreement with the lessor on the commercial terms of the proposed new lease.

Disposal of interest in Chongqing Dazu District New Century Grand House Hotel Co., Ltd.*

(重慶市大足區開元觀堂酒店有限公司) (“Chongqing Dazu”)

On June 30, 2018, our Company entered into a share transfer agreement with Chonqing

Zhongzhou Travel Information Consultancy Co. Ltd.* (重慶中州旅遊信息諮詢有限公司)

(“Chongqing Zhongzhou”), an Independent Third Party, pursuant to which our Company

disposed of 100% equity interests in Chongqing Dazu to Chongqing Zhongzhou for a

consideration of RMB10.0 million, which was determined based on the registered capital of

Chongqing Dazu. The consideration was fully settled on July 17, 2018. The said disposal took

place due to a change in the business model of Grand House Chongqing Dazu Shike (重慶大足石刻開元觀堂) from originally being operated by our Group under a hotel lease agreement

to being operated as our franchised hotel with effect from July 20, 2018. After the disposal, we

ceased to hold any interests in Chongqing Dazu and Chonqing Dazu ceased to be a subsidiary

of our Group.

All consideration in respect of above-mentioned transfers have been fully settled and the

transactions were properly and legally completed. For further details on our corporate structure

immediately after the Reorganization and as at the Latest Practicable Date, please refer to the

sub-section headed “History, Reorganization and Corporate Structure – Corporate Structure” in

this prospectus.

ACQUISITION AFTER TRACK RECORD PERIOD

Shanghai Yuege Hotel Operation Co., Ltd.* (上海悅閣酒店經營有限公司) (“ShanghaiYuege”)

On June 29, 2018, the Company successfully bid for the remaining 34.9999% equity

interests in Shanghai Yuege a subsidiary of our Company, through judicial auction for a

consideration of RMB5.0 million. The consideration was settled on July 18, 2018 and the

registration of the share transfer was completed on November 15, 2018. As a result, equity

interests in Shanghai Yuege held by the Company increased from 65% to 99.9999%.


– 118 –

As Shanghai Yuege has been a subsidiary of the Company during the Track RecordPeriod, the financial statements of Shanghai Yuege have been included in the consolidatedfinancial statements of the Group during the Track Record Period. No separate pre-acquisitionfinancial information is required to be prepared under Rule 4.05A of the Listing Rules giventhat the acquisition would not be classified as a major transaction or a very substantialacquisition for our Company under the Listing Rules.

PRE-IPO INVESTMENTS

Investment by Qianhe Qiju

On December 11, 2015, Qianhe Qiju subscribed for registered capital in the amount ofRMB8.7 million, representing approximately 5.0% equity interests, in New Century HotelManagement (the “First Round Investment”).

Name of investor Qianhe Qiju

Date of subscription December 11, 2015

Amount of considerationpaid

RMB10.0 million

Payment date ofconsideration

December 30, 2015

Shareholding interestacquired

approximately 5.0% of the then equity interests in New CenturyHotel Management

Shareholding of QianheQiju in our Companyupon Listing (assumingthe Over-allotment Optionis not exercised)

approximately 3.4%

Basis of determination ofconsideration

The consideration was determined based on the then net assetvalue of New Century Hotel Management.

Investment cost per Shareand discount over mid-point of the indicativeOffer Price range(assuming the Over-allotment Option is notexercised)

Approximately RMB1.0 per Share (equivalent to approximatelyHK$1.2 per Share), representing a discount of approximately92.8% to the mid-point of the indicative Offer Price range ofHK$13.37 to HK$20.05.

Use of proceeds The consideration of RMB10.0 million was used as workingcapital towards business operations of New Century HotelManagement. As at the Latest Practicable Date, the net proceedsfrom the investment by Qianhe Qiju paid to the Company havebeen fully utilized.

Strategic benefits of theFirst Round Investment

The investment by Qianhe Qiju resulted in Qianhe Qiju acting asa shareholding platform for our Directors and/or members ofsenior management.


– 119 –

Investments by NC Hotels, Bohui Investment and OC Hotels

On November 17, 2016, Clear Ocean entered into an equity transfer agreement with (i)

NC Hotels, (ii) Bohui Investment and (iii) OC Hotels, pursuant to which Clear Ocean agreed

to transfer its equity interests in New Century Hotel Management to NC Hotels, Bohui

Investment and OC Hotels, respectively (together the “Second Round Investors”) (the

“Second Round Investment”).

Principal terms of the Second Round Investment

The below table summarizes the principal terms of the Second Round Investment by the

Second Round Investors:

Name of Second RoundInvestors

NC Hotels, Bohui Investment and OC Hotels

Date of equity transfer NC Hotels, Bohui Investment and OC Hotels: November 17,2016

Amount of considerationpaid

NC Hotels: RMB324.8 million

Bohui Investment: RMB184.4 million

OC Hotels: RMB79.1 million

Payment date ofconsideration

NC Hotels: December 5, 2016

Bohui Investment: January 24, 2017 and January 26, 2017

OC Hotels: December 5, 2016

Shareholding interestacquired

NC Hotels: approximately 21.0% of the then equity interests inNew Century Hotel Management

Bohui Investment: approximately 11.9% of the then equityinterests in New Century Hotel Management

OC Hotels: approximately 5.1% of the then equity interests inNew Century Hotel Management

Shareholding of the SecondRound Investors in ourCompany upon Listing(assuming the Over-allotment Option is notexercised)

NC Hotels: approximately 14.5%

Bohui Investment: approximately 1.3%(Note)

OC Hotels: approximately 3.5%

Note: For further details on changes in Bohui Investment’s shareholding interests in New Century HotelManagement, please refer to the sub-section headed “History, Reorganization and Corporate Structure– Our Company” in this prospectus.


– 120 –

Basis of determination ofconsideration

NC Hotels, Bohui Investment and OC Hotels: The considerationwas determined after arm’s length negotiations between ClearOcean, NC Hotels, Bohui Investment and OC Hotels, and basedon the market value of our Company (being approximatelyRMB1,550.3 million).

Investment cost per Shareand discount over mid-point of the indicativeOffer Price range(assuming the Over-allotment Option is notexercised)

NC Hotels: Approximately RMB8.0 per Share (equivalent toapproximately HK$9.2 per Share), representing a discount ofapproximately 44.9% to the mid-point of the indicative OfferPrice range of HK$13.37 to HK$20.05.

Bohui Investment: Approximately RMB8.0 per Share (equivalentto approximately HK$9.2 per Share), representing a discount ofapproximately 44.9% to the mid-point of the indicative OfferPrice range of HK$13.37 to HK$20.05.

OC Hotels: Approximately RMB8.0 per Share (equivalent toapproximately HK$9.2 per Share), representing a discount ofapproximately 44.9% to the mid-point of the indicative OfferPrice range of HK$13.37 to HK$20.05.

Use of proceeds No proceeds were received by New Century Hotel Managementfrom NC Hotels, Bohui Investment and OC Hotels’ investment.

Investments by Kairui Shiqi and Kaihui Taiheng

On April 24, 2017, Bohui Investment entered into an equity transfer agreement withKairui Shiqi, pursuant to which Bohui Investment agreed to transfer certain of its equityinterests in New Century Hotel Management to Kairui Shiqi (the “2017 Transfer”). On thesame date, pursuant to a capital increase agreement entered into between New Century HotelManagement, Kairui Shiqi and Kaihui Taiheng, Kairui Shiqi and Kaihui Taiheng (together the“Third Round Investors”) subscribed for registered capital in New Century HotelManagement in the amount of RMB15.1 million in aggregate (together with the 2017 Transfer,the “Third Round Investment”).

Principal terms of the Third Round Investment

The below table summarizes the principal terms of the Third Round Investment by theThird Round Investors:

Name of Third Round

Investors

Kairui Shiqi and Kahui Taiheng

Date of equity transfer and

subscription

April 24, 2017

Amount of consideration

paid

Kairui Shiqi: (i) 2017 Transfer – RMB31.4 million; (ii)

subscription – RMB27.3 million

Kaihui Taiheng: RMB109.2 million


– 121 –

Payment date of

consideration

2017 Transfer: April 27, 2017

Subscriptions by the Third Round Investors: April 28, 2017

Shareholding interest

acquired

Kairui Shiqi: approximately 3.4% of the then equity interests in

New Century Hotel Management

Kaihui Taiheng: approximately 6.4% of the then equity interests

in New Century Hotel Management

Shareholding of the

Investors in our

Company upon Listing

(assuming the Over-

allotment Option is

not exercised)

Kairui Shiqi: approximately 2.6%

Kaihui Taiheng: approximately 4.8%

Basis of determination of

consideration

2017 Transfer: The consideration was determined after arm’s

length negotiations between Bohui Investment and Kairui Shiqi

and based on the market value of our New Century Hotel

Management (being RMB1,570.0 million at the time).

Subscription by the Third Round Investors: The cash

consideration for the subscriptions was determined based on the

overall valuation of New Century Hotel Management (being

RMB1,570.0 million at the time).

Investment cost per

Share and discount

over mid-point of the

indicative Offer Price

range (assuming the

Over-allotment Option

is not exercised)

Kairui Shiqi: (i) 2017 Transfer – approximately RMB8.1 per

Share (equivalent to approximately HK$9.3 per Share),

representing a discount of approximately 44.3% to the mid-point

of the indicative Offer Price range of HK$13.37 to HK$20.05;

(ii) subscription – approximately RMB8.1 per Share (equivalent

to approximately HK$9.3 per Share), representing a discount of

approximately 44.3% to the mid-point of the indicative Offer

Price range of HK$13.37 to HK$20.05.

Kaihui Taiheng: Approximately RMB8.1 per Share (equivalent to

approximately HK$9.3 per Share), representing a discount of

approximately 44.3% to the mid-point of the indicative Offer

Price range of HK$13.37 to HK$20.05.


– 122 –

Use of proceeds No proceeds were received by New Century Hotel Management

from the 2017 Transfer.

The aggregate consideration of RMB136.5 million for the

subscription by the Third Round Investors was used as working

capital towards business operations of New Century Hotel

Management. As at the Latest Practicable Date, the net proceeds

from the investment by the Third Round Investors paid to our

Company have been fully utilized.

Strategic benefits of

the Third Round

Investment

The investments by the Third Round Investors resulted in each of

Kairui Shiqi and Kaihui Taiheng acting as a shareholding

platform for our Directors and/or members of senior management

(as the case may be).

Special rights granted to Qianhe Qiju, the Second Round Investors and the Third Round

Investors

On June 9, 2017, Mr. Chen Miaolin, New Century Tourism, Qianhe Qiju, the Second

Round Investors and the Third Round Investors entered into a supplemental promoters’

agreement (the “Supplemental Promoters’ Agreement”). Pursuant to the terms of the

Supplemental Promoters’ Agreement, Qianhe Qiju, the Second Round Investors and the Third

Round Investors have been granted the following rights, each of which has been suspended as

at the Latest Practicable Date and will be automatically terminated upon the Listing Date:

(i) Director appointment rights. NC Hotels is entitled to appoint one person as a

Director to the Board, whereas Bohui Investment and OC Hotels are collectively

entitled to appoint one person as a Director to the Board. None of the parties to the

Supplemental Promoters’ Agreement may, without the consent of NC Hotels, Bohui

Investment and OC Hotels (as the case may be), vote in favor of any resolutions

(whether at a Shareholders’ meeting or otherwise) which propose to remove or

replace any of such Directors appointed by NC Hotels, Bohui Investment or OC

Hotels (as the case may be).

(ii) Supervisor appointment rights. NC Hotels, Bohui Investment and OC Hotels are

collectively entitled to appoint one person as Supervisor. Where NC Hotels, Bohui

Investment and OC Hotels are unable to reach a unanimous decision on the

candidate for such appointment, NC Hotels shall have the right to appoint such

Supervisor. None of the parties to the Supplemental Promoters’ Agreement may,

without the consent of NC Hotels, Bohui Investment and OC Hotels (as the case may

be), vote in favor of any resolutions (whether at a Shareholders’ meeting or

otherwise) which propose to remove or replace any of such Supervisors appointed

by NC Hotels, Bohui Investment or OC Hotels (as the case may be).


– 123 –

(iii) Liquidation committee member appointment rights. NC Hotels is entitled to appoint

one person as a member to our Company’s liquidation committee, whereas Bohui

Investment and OC Hotels are collectively entitled to appoint one person as a

member to our Company’s liquidation committee. None of the parties to the

Supplemental Promoters’ Agreement may, without the consent of NC Hotels, Bohui

Investment and OC Hotels (as the case may be), vote in favor of any resolutions

(whether at a Shareholders’ meeting or otherwise) which propose to remove or

replace any of such committee members appointed by NC Hotels, Bohui Investment

or OC Hotels (as the case may be).

(iv) Reserved matters. Our Company shall not, and parties to the Supplemental

Promoters’ Agreement shall cause any Directors so appointed by them (if

applicable) not to, take certain actions without the affirmative written consent or

approval of Shareholders who in aggregate hold 75% or more interests in our

Company. These matters include, among others:

(a) amendment or modification to our Company’s Articles;

(b) termination or dissolution of our Company, or the termination of our

operations, or extension of our term of operation;

(c) any increase or decrease of the investment amount or registered capital of our

Company;

(d) any consolidation, split or filing for winding-up of our Company;

(e) approval of our annual budget and the declaration and/or payment of

dividends;

(f) any investment, capital expenditure, borrowing, asset investment, or merger

and acquisition outside of the approval annual budget, in excess of RMB20.0

million individually;

(g) appointment, replacement or removal of any members of senior management of

our Company (including the general manager and deputy general manager) and

any decision relating to their compensation and related welfare system and

policies; approval or amendment of any senior management or employee Share

ownership plan;

(h) any related party transaction in excess of RMB5.0 million individually (save

for those already identified in the annual budget);


– 124 –

(i) issuance of Shares and listing of our Company, reorganization and selection of

underwriters;

(j) issuance of any bonds, convertible bonds or other securities of our Company;

(k) establishment of the liquidation committee;

(l) selection, appointment or change of external auditors; and

(m) change in principal business activities.

(v) Information and inspection rights. The parties to the Supplemental Promoters’

Agreement shall have the right to receive periodic financial information of our

Group, including monthly operation reports, quarterly consolidated management

accounts and annual audited financial statements of our Group, and any other

information relating to the operations or financials of our Group as requested by any

party. Any party to the Supplemental Promoters’ Agreement (including Directors

appointed by such party) shall also be entitled to have access to, among others, our

financial and accounting information and other books and records.

(vi) Participation right. If we issue new equity securities, convertible securities or the

right to acquire securities, NC Hotels, Bohui Investment, OC Hotels and other

Shareholders are entitled to a right of first refusal to subscribe for the new securities.

(vii) Right of first refusal. If any of New Century Tourism, Qianhe Qiju, Kairui Shiqi or

Kaihui Taiheng proposes to transfer any of its Shares, or Mr. Chen Miaolin proposes

to transfer (whether directly or indirectly) his equity interests in New Century

Tourism, NC Hotels, Bohui Investment and OC Hotels shall have a right of first

refusal to purchase such sale Shares pursuant to the transfer notice given by the

selling Shareholder.

(viii) Tag-along right. In the event that Mr. Chen Miaolin proposes to transfer (whether

directly or indirectly) any Shares (the “Sale Shares”) to a third party, each of NC

Hotels, Bohui Investment and OC Hotels is entitled to a tag-along right to

participate in the proposed transfer, requiring the transferee to purchase the Sale

Shares from each of Mr. Chen Miaolin, NC Hotels, Bohui Investment and OC

Hotels, for the same consideration per Share and upon the same terms and

conditions, on a pro rata basis based on their then shareholding in our Company. If

the proposed transfer by Mr. Chen Miaolin will result in Mr. Chen Miaolin’s losing

control over our Company, each of NC Hotels, Bohui Investment and OC Hotels is

entitled to sell all of their Shares for the same consideration per Share and upon the

same terms and conditions.


– 125 –

(ix) Exit protection. If the Listing does not take place prior to the end of the year ending

December 31, 2021, Mr. Chen Miaolin and New Century Tourism shall cause our

Company to provide all co-operation and support in relation to any proposed transfer

of Shares by NC Hotels, Bohui Investment and OC Hotels (save that Mr. Chen

Miaolin and New Century Tourism shall have a right of first refusal in relation to

such proposed transfer(s)).

Lock-up and public float

Pursuant to the terms of a commitment dated July 10, 2018 signed by each of our

promoters, namely (i) New Century Tourism, (ii) NC Hotels, (iii) OC Hotels, (iv) Bohui

Investment, (v) Qianhe Qiju, (vi) Kairui Shiqi, and (vii) Kaihui Taiheng (collectively, the

“Promoters”), the Domestic Shares or Unlisted Foreign Shares held by Qianhe Qiju, the

Second Round Investors and Third Round Investors are not transferrable within one year from

the Listing Date. For further details, please refer to the sub-section headed “History,

Reorganization and Corporate Structure – Lock-up arrangement” in this prospectus.

The Shares held by each of Qianhe Qiju, the Second Round Investors and the Third Round

Investors will not be considered as part of the public float, as the Shares held by such

Shareholders are Domestic Shares or Unlisted Foreign Shares, which will not be converted into

H Shares and listed following the completion of the Global Offering.

Joint Sponsors’ Confirmation

The Joint Sponsors are of the view that the investments made by Qianhe Qiju, NC Hotels,

OC Hotels, Bohui Investment, Kairui Shiqi and Kaihui Taiheng in New Century Hotel

Management are in compliance with the Interim Guidance on Pre-IPO Investments

(HKEx-GL29-12) and the Guidance on Pre-IPO Investments (HKEx-GL43-12).

REORGANIZATION

In preparation for the Global Offering, our Company was established through

reorganization by converting New Century Hotel Management, our Predecessor, into a joint

stock company with limited liability. On June 9, 2017, our Promoters, executed a promoters’

agreement pursuant to which our Company (i) was established with a registered capital of

RMB210 million and (ii) retained all of the assets, liabilities and equity interests of New

Century Hotel Management.


– 126 –

The shares in our Company were converted based on the net asset value of New Century

Hotel Management as at April 30, 2017. Upon establishment, our Company had a total of

159,659,640 Domestic Shares and 50,340,360 Unlisted Foreign Shares. The Reorganization

was completed on June 28, 2017. Our PRC Legal Adviser is of the view that the Reorganization

was properly and legally completed and was approved by the competent PRC authorities.

LOCK-UP ARRANGEMENT

The Domestic Shares or Unlisted Foreign Shares held by our Promoters (as the case may

be) constitute promoter shares as defined in the PRC Company Law. By virtue of the PRC

Company Law, the Shares issued by our Company prior to the Global Offering, including the

Domestic Shares or Unlisted Foreign Shares held by our Promoters, are not transferrable within

one year from the Listing Date.

Each of our Directors and senior management members holding our Shares directly or

indirectly has given, among others, the following undertakings relating to the lock-up

arrangement of the Shares in our Company: (i) the Shares in our Company held by him/her

directly or indirectly shall not be transferrable within one year from the Listing Date; (ii)

within six months from his/her ceasing to hold office in our Company, he/she shall not transfer

any Shares in our Company held by him/her directly or indirectly; and (iii) during the period

when he/she holds office in our Company, his/her transfer of Shares in our Company held by

him/her directly or indirectly shall not exceed 25.0% of the total number of Shares in our

Company held by him/her.

The above undertakings are subject to the compliance with the changes made to the

applicable laws and regulations from time to time, or can be waived or amended upon the

obtaining of waiver or approval from the competent authority.


– 127 –

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– 131 –

OVERVIEW

We are one of the leading hotel groups in the PRC, and we principally engage in the

operation and management of mid-scale to upscale hotel chains in the PRC. As at August 31,

2018, we operated and/or managed 140 hotels throughout 22 provinces, municipalities and

autonomous regions, with over 31,000 hotel rooms in total and out of which, 81 hotels and

around 17,000 hotel rooms were located in the Zhejiang Province. According to the Horwath

Report, as at March 31, 2018, in terms of number of hotel rooms in operation in China, we were

the seventh largest hotel group and second largest domestic hotel group according to the

number of upscale hotel rooms, and were the eighth largest hotel group and the fourth largest

domestic hotel group according to the number of upscale and mid-scale hotel rooms. In terms

of hotel rooms both in operation and under pipeline in China, we were the third largest hotel

group and the largest domestic hotel group according to the number of upscale hotel rooms, and

were the seventh largest hotel group and the fourth largest domestic hotel group according to

the number of upscale and mid-scale hotel rooms. As at August 31, 2018, we have a pipeline

of 135 hotels (including 129 full service management agreements, four hotel lease agreements

and two franchise agreements) with over 33,000 rooms that are expected to commence

operation within the next five years.

Since our inception in Hangzhou, Zhejiang Province, in 1988, we have established the

homegrown, widely recognized “New Century (開元)” brand series that principally target the

upscale leisure and business travel markets, offering hospitality services of international

standards that are complemented by local Chinese elements. Our Directors believe that such

brand heritage and history have not only allowed us to build up a leading presence in affluent

tourist destinations in the PRC including the Zhejiang Province, but also facilitated our

nationwide expansion during the Track Record Period. We principally operate hotels that are

leased to us, and also adopt an “asset-light” business model through managing hotels under full

service management agreements and franchised hotels, as we believe such models allow us to

concentrate on our core capabilities – the business of hotel operation and management, and will

help us expand our presence and scale throughout the PRC more effectively and efficiently.

Whilst we primarily adopt the above business models, depending on our strategic business

needs and market conditions, we may from time to time also develop our own hotels. Such

situation could arise when we wish to retain a greater ownership and operational control during

the initial phase of the development of a new brand. We currently own two hotels under the

brand name of “New Century Wonderland (開元芳草地鄉村酒店)”, one of our upscale resort

hotel brands that was newly developed in 2016.

We currently operate hotels that are either owned or leased by us and we also manage and

franchise hotels. Under our hotel operation business, we operate these hotels and bear all of the

accompanying hotel operating expenses. We are responsible for recruiting, training and

supervising hotel managers and employees, hotel renovation expenses, and purchasing hotel

supplies and other required equipment. Under our hotel management business, within our full

service management agreements, we provide services to the hotel owners similar to those

provided under our hotel operation business except that the respective hotel owners shall bear

the full operating expenses of the hotel operation. For our franchised hotels, we grant the

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franchisees the limited right to use our name, trademarks and operational system in the

operation of the franchised hotels in return for a fixed franchise fee. We do not directly

participate in the management of the franchised hotels but franchisees are required to operate

the franchised hotels in consistent with our brand standard.

As at August 31, 2018, we operated or managed 140 hotels, including: (i) 31 operated

hotels, amongst which 29 hotels under hotel lease agreements and two self-owned hotels; and

(ii) 109 managed hotels, amongst which 96 hotels under full service management agreements

and 13 hotels under franchise agreements. During the Track Record Period, the total number

of hotels under our operation and management grew from 65 to 140 hotels and number of hotel

rooms grew from over 17,000 to over 31,000. Amongst which, the number of hotels under full

service management agreements increased from 43 to 96 hotels and from over 11,000 to over

20,000 hotel rooms.

As at August 31, 2018, we had a portfolio of 12 hotel brands, amongst which nine brands

were in operation and three new brands were under development, covering the mid-scale to

upscale spectrum of hotels. Our Group manages and/or operates the upscale hotels under four

brands, namely “Grand New Century (開元名都)”, “New Century Resort (開元度假村)”, “New

Century Grand House (開元觀堂)” and “New Century Wonderland (開元芳草地鄉村酒店)”. We

also operate mid-scale hotels to serve the fast-growing number of value-conscious travelers,

and boutique hotels targeting leisure travelers and corporate travelers. Under our contracted

hotels under pipeline, we expect to introduce new hotel brands including “A.T.K Hotel (阿緹客)”, “Mayart Hotel (開元美途)” and “New Century Senbo (開元森泊)”, targeting leisure and

corporate travelers, all of which are expected to be in operation by 2019. For more information

on our hotel products, see the sub-section headed “Our Hotel Portfolio” below. We have

received numerous awards and recognition in China and worldwide, such as inclusion in the

Top 10 China Hotel Management Company in the 17th and 18th China Hotel Golden Horse

Award organized by China Hotel magazine and the All-China Federation of Industry and

Commerce and has been ranked in the Top 30 Global Hotel Groups (全球酒店集團前30位)

under the “Hotels 325 ranking” by Hotels magazine (the official publication of The

International Hotel & Restaurant Association) for three consecutive years in 2015, 2016 and

2017.

For the years ended December 31, 2015, 2016 and 2017 and the eight months ended

August 31, 2018, our revenue amounted to RMB1,522.1 million, RMB1,602.0 million,

RMB1,664.6 million and RMB1,119.2 million, respectively. During the same periods, our

profit and total comprehensive income for the period was RMB29.6 million, RMB84.1 million,

RMB166.6 million and RMB111.6 million, respectively.

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COMPETITIVE STRENGTHS

We believe the following competitive strengths provide the foundation for our position as

one of the leading upscale hotel groups in China:

One of the leading upscale hotel groups in China with strong brand recognition

Our history can be traced back to 1988, and over the years we have grown to be one of

the leading hotel groups in China. As at August 31, 2018, we operated or managed 140 hotels

with over 31,000 hotel rooms. According to the Horwath Report, as at March 31, 2018, we

were the third largest hotel group and the largest domestic hotel group in terms of number of

upscale hotel rooms in operation and under pipeline in China and were the seventh largest hotel

group and the fourth largest domestic hotel group in terms of number of upscale and mid-scale

hotel rooms in operation and under pipeline in China. Our hotel portfolio consists of a wide

range of brands which are highly recognized worldwide and have a strong brand recognition

among the hotel industry and the hotel guests.

According to the Hotels magazine, the official publication of the International Hotel &

Restaurant Association, our Group has been ranked Top 30 Global Hotel Groups (全球酒店集團前30位) under “Hotels 325 ranking” for three consecutive years in 2015, 2016 and 2017 and

for the year 2017, our Group was ranked in 10th place for PRC hotel groups. We were also

awarded 2017 China’s Best Employer awarded by China Tourist Hotels Association* (中國旅遊飯店業協會), 2017 China’s Most Popular Hotel Brand* (2017年度中國最受歡迎酒店品牌)

from the 21st Century Business Herald* (《21世紀經濟報道》) and the Business Travel* (《商務旅行》) in 2017 and Top 60 Hotel Group in China* (中國飯店集團60強) from the China

Tourist Hotels Association* (中國旅遊飯店業協會) in 2015, 2016 and 2017, which our Group

was ranked amongst the top 15 for 2017. “New Century (開元)” was recognized as a

well-known trademark in China (中國馳名商標) in 2015. Our mid-scale hotel brands, such as

“New Century Manju Hotel (開元•曼居酒店)”, are also well-received by the market and have

received accolades including 2017 Emerging Hotel Brand of the Year (2017中國新銳酒店品牌)

and 2017 Outstanding Brand Image (2017傑出品牌形象獎).

We believe our highly recognized brands as evident from the numerous awards and

recognition received by our Group over the years and our positive hotel guests reviews would

allow us to attract hotel guests in the PRC and also overseas. According to the Horwath Report,

our comprehensive favorable ratings have generally posed an upward trend and ranked

amongst the top hotel groups in the PRC during the Track Record Period.

A broad and strong portfolio of hotel brands with extensive network in the PRC and withstrong pipeline of new hotel projects

Our Group manages and/or operates upscale hotels under four brands, namely “Grand

New Century (開元名都)”, “New Century Resort (開元度假村)”, “New Century Grand House

(開元觀堂)” and “New Century Wonderland (開元芳草地鄉村酒店)”. We also operate mid-

scale hotels under the brand of “New Century Manju (開元曼居)” to serve the fast-growing

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number of value-conscious travelers, and boutique hotels targeting leisure travelers and

corporate travelers. As at August 31, 2018, we have nine brands that were in operation and

three brands that were under development including New Century Senbo (開元森泊), Mayart

Hotel (開元美途) and A.T.K Hotels (阿緹客). Both New Century Senbo (開元森泊) and Mayart

Hotel (開元美途) target the middle class consumers in the PRC. According to the Horwath

Report, the number of middle class consumers continues to expand and is expected to drive

market demand, and they will normally choose hotels not only based on quality of the facilities

but also its style and cost-effectiveness, whereas our A.T.K Hotels (阿緹客) targets young

travelers who are more value-conscious. We believe, alongside with our existing nine upscale

and mid-scale hotel brands, we are able to offer the best suited lodging experience to the

respective clientele and help raising our Group’s profile among different groups of potential

hotel guests. We believe that by providing a more extensive range of hotels as compared to our

competitors, our diverse product offering could enable us to cross-sell different brands to our

loyal hotel guests who are attracted by our consistent quality and service standards and the

membership benefits. Our multi-brand strategy also allows each of our brands to have a more

specific target group of hotel guests, which gives our potential hotel owners more flexibility

and options in the brands that they can cooperate with us and also allows us aligning the

investment aim and the target return with our potential hotel owners. Therefore, a multi-brand

strategy can consolidate and build up our hotel guest base and at the same time broaden our

range of potential hotel owners that we can cooperate in anticipation of the future growth of

our hotel network.

Through 30 years of development, we have established strong presence in the PRC with

our upscale hotel chains, with particular strong coverage in the Zhejiang Province. As at

August 31, 2018, we operated and/or managed 140 hotels throughout 22 provinces,

municipalities and autonomous regions, with over 31,000 hotel rooms in total and out of which,

81 hotels and around 17,000 hotel rooms were located in the Zhejiang Province. According to

the Horwath Report, the number of tourist arrivals and total tourism revenue of Zhejiang

Province have maintained at a moderately high growth rate for years and there is significant

demand for mid-scale to upscale hotels arising from robust businesses and leisure needs in the

hotel industry. It is expected that, based on the vibrant regional economy, the tourism and hotel

industry in Zhejiang Province will maintain its strong growth in the future. Our significant

presence in Zhejiang Province allows us to capitalize on the strong economic development and

the growing tourism industry in the region and provides us with a solid platform to continue

our expansion in the PRC.

Based on our existing pipeline of 135 hotels with over 33,000 hotel rooms as at August

31, 2018, we expect to have around 275 hotels with over 64,000 rooms in operation within our

hotel network in the next five years. We believe our strong presence and extensive network of

hotels enable us to capture a wider range of potential markets and meet the needs of diverse

groups of hotel guests in the PRC.

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Distinct synergy in executing a business model combining both hotel operation and hotelmanagement businesses

We currently operate hotels that are either owned or leased by us and we also provide our

hotel management service to hotels through our full service management service or granting of

franchise. As at August 31, 2018, there were a total of 140 hotels in operation that are operated

or managed by our Group, including: (i) 31 hotels operated by our Group, amongst which 29

hotels were operated under lease and two hotels were operated by our Group as our owned

properties; and (ii) 109 hotels were managed by our Group, amongst which 96 hotels were

under our full service management agreements and 13 hotels were under our franchise

agreements.

Under our hotel management segment, we generate revenues from both franchise fees and

management fees and other ancillary fees related to our hotel management services. This

business model allows us to expand our hotel portfolio and geographic reach without incurring

significant capital expenditure and operating expenses. We believe by leveraging on our

understanding on the needs of the hotel guests in the Chinese market, our relatively lower cost

structure as compared to other hotel operators in China especially the international hotel

groups, our established hotel brand name and operational expertise, we are able to provide

value-for-money hotel management services to hotel owners. Alternatively, hotel owners may

opt to lease their hotels to us under which model we will manage and operate these hotels and

bear all of the operating expenses whereby rent will be paid to the hotel owners. For the

operated hotels, we will be able to enjoy the operational income from the hotel operations but

at the same time we also bear all operating costs.

Our distinct business synergy is our flexibility in electing the type of hotel operating or

managing model that is to the mutual benefit of both hotel owners and us. Such choice of

service allows hotel owners in deciding the business model that would be best suited to their

investment targets and needs when cooperating with us. This business model differentiates us

from other key competitors especially in the PRC upscale hotel market not only because we

offer a choice to hotel owners, but also allows us to establish a more efficient platform, through

standardizing operational standards, centralizing procurement and booking systems and staff

training, to scale our operations more effectively and achieve greater economies of scale and

cost efficiency.

Significant experience as a hotel group in China

Our Group is one of the first operators of upscale hotels in China. Since our inception in

Hangzhou, Zhejiang Province, in 1988, we have established the homegrown, widely recognized

“New Century (開元)” brand series that principally target the upscale leisure and business

travel markets, offering hospitality services of international standards complemented by local

Chinese elements. Our history can be tracked back to January 1988, when Xiaoshan

Guesthouse (蕭山賓館), our first hotel, commenced business in Xiaoshan, Hangzhou. We then

opened our first resort hotel, Hangzhou Zhijiang Holiday Resort (杭州之江度假村) in 1992.

Subsequently, we placed our emphasis on the operation of upscale hotels, when our first five

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Star-rated resort hotel, Hangzhou Qiandao Lake New Century Resort (杭州千島湖開元度假村),

was opened in April 2004 and our first five Star-rated hotel, New Century Grand Hotel

Hangzhou (杭州開元名都), was opened in January 2005. We believe our profound knowledge

of the Chinese hotel industry and in-depth operating experience better position us to meet the

increasing demand for mid-scale to upscale lodging, and capture market opportunities in local

markets.

We continuously innovate and standardize our service. Our Service Standard for Banquets

of New Century Hotels has been adopted as the standard for hotel industry in China. The “New

Century (開元)” brand has also grown into a benchmark for domestic hotel industry in respect

of quality control system for service, technical standard of branding, information management.

We are the first hotel group to introduce the food safety system for hotels in Zhejiang Province.

This is evident as our hotel group was named as National Standardization Demonstration Unit

for Tourism (全國旅遊標準化示範單位) by the National Tourism Administration of China (國家旅遊局) in 2014 and as National Pilot Unit for Tourism Service Quality (全國旅遊服務質量標桿單位) by General Administration of Quality Supervision, Inspection and Quarantine (國家質量監督檢驗檢疫總局) and National Tourism Administration of China (國家旅遊局) in 2014.

During the Track Record Period, we hosted a number of large scale conferences in our

hotels, including the G20 Summit Petition Meeting, European Union China Winter Sports

Cooperation Exchange Conference, the 13th Beijing International Sports Movie Week Opening

Ceremony and China Soong Ching Ling Foundation conference.

Brand name, track record and operational expertise are important factors that hotel

owners will consider when choosing a hotel operator or manager. We believe that we are well

positioned for future expansion with our established hotel operation platform given our strong

brand heritage and significant experience in hotel operation and management. As we continue

to expand our hotel network and our hotel guests base by entering into lease or full service

management agreements with third-party hotel owners instead of acquiring or investing in

properties, our ability to provide standardized high-quality services enables us to better achieve

economies of scale to further improve our profitability level and return on capital. We believe

that our years of experience and proven results in the operation of mid-scale to upscale hotels

can continue to attract third-party hotel owners to either entrust us with the management of

their hotels by way of management or franchise or leasing their hotels to us.

Our diverse and effective hotel reservation channels and loyalty program provides us withwide hotel guest exposure

We offer both direct and indirect reservation channels for our hotel guests to secure our

hotel rooms. We have established a strong centralized direct distribution channel network

system, which includes: (i) our in-house online reservation channel consisting of our official

website www.kaiyuanhotels.com, our Century Club mobile application and our WeChat

account, which provide comprehensive real time reservation and membership service

capabilities and are able to launch marketing and promotional activities to our potential hotel

guests from time to time, our centralised reservation center, which provides one-stop service

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for our members including room reservation, membership service and guest feedbacks; and our

in-house developed proprietary online joint sales system, which allows our corporate guests the

convenience and flexibility to make reservation directly through their designated corporate

account on our online platform, in addition to being able to make reservations through our hotel

sales manager. By utilizing our online sales system, our corporate guests would be able to

assess our entire hotel portfolio nationwide, which would also provide opportunities for

different hotels under our Group to cross sell our hotels and related services on the online joint

sales system; and (ii) our regional sales offices in five key cities namely, Beijing, Shanghai,

Guangzhou, Chengdu and Hangzhou, with dedicated sales team for each of our hotels, through

which we could reach out to large and medium-sized companies, travel agencies and MICE to

establish cooperating relationship. We believe that such diversity enables us to reach and

attract hotel guests from different sources more effectively and provides us with a strong

distribution platform as we continue to expand our hotel portfolio.

We have also established business relationships with both domestic and international

OTAs operated by third parties, such as ctrip.com, qunar.com, alitrip.com, meituan.com,

elong.com, ly.com, lvmama.com and agoda.com and travel agencies, which constitute our

indirect reservation channels. Further, our hotel guests base is also supported by the members

under our Century Club reward program. The number of our Century Club reward program

members has grown substantially from approximately 2.9 million members as at December 31,

2015 to approximately 6.9 million members as at August 31, 2018.

Hotel guests are therefore able to make room reservations either through our direct or

indirect distribution channels, where all of such orders will be entered into our centralized

reservation system and in turn input into our PMS, which would improve our hotel guests’

experience at our hotels and at the same time improve our operational efficiency.

Experienced and professional management team and a dedicated workforce

Our founder and non-executive Director, Mr. Chen Miaolin, has over 30 years of

experience in hotel operation and management. Mr. Chen Miaolin was one of the senior

management of the Xiaoshan Guesthouse when it commenced business in January 1988. He has

been responsible for the overall strategic development and overall strategies of our Group. He

is also the vice-chairman of China Travel Association and the chairman of Zhejiang Province

Travel Association. Mr. Jin Wenjie, our executive Director and chairman of the Board, has

joined our Group for over ten years and is responsible for our overall general management and

strategic planning and development. His extensive experience in corporate finance prior to

joining our Group contributed to our strategic development over the past decade. Mr. Chen

Miaoqiang, our executive Director and President, has over 25 years of experience in hotel

operation and management and is primarily responsible for the daily operation and

management of our hotels. He has held general manager positions in a number of our hotels

since 1994.

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Our management team also has extensive experience in hotel operation and management

in China. A number of our senior management team have been with New Century Tourism

Group, our Controlling Shareholder (and its subsidiaries) since 1990. Our senior management

team has an average of over 15 years’ experience in hotel operation and management and many

of our general managers heading the operations of our hotels have worked with us for more

than ten years. Please refer to the section headed “Directors, Supervisors and Senior

Management” in this prospectus for further details regarding the experience of our

management team.

Our existing presence and experience in the hotel operation and management in the PRC,

in particular our extensive hotel network in new first-tier cities or other lower tier cities,

provide us with a strong brand recognition and awareness as one of the leading hotel groups

in the PRC and allow us to attract the available pool of local talents in the locations where our

hotels are situated. We believe our brand recognition and awareness in the PRC, our corporate

culture and focus in developing our employees, and our provision of extensive and regular

training programs through our in-house training center, New Century Academy, enable us to

recruit and retain a team of skilled and committed senior managerial and other employees at

each of our hotels. Our ability to recruit and retain our skilled workforce is evident by our

Group being named as one of the 2017 China’s Best Employer by China Tourist Hotels

Association* (中國旅遊飯店業協會). As at August 31, 2018, our hotels have 88 general

managers, 68 of whom have been with our hotels for over five years, managing over 18,500

hotel staff, including the hotels managed by us. Our stable and growing hotel management team

and work force serve as a strong and essential platform for our rapid growth throughout China.

We have extensive training programs offered to our employees through our in-house

training center, the New Century Academy, and conduct periodic reviews for managerial and

other staff. Our systematic internal training programs have supplied sufficient technical

knowledge to qualified managerial and other employees to meet our continuing needs to keep

pace with our rapid growth. We worked with Tourism College of Zhejiang in preparing training

materials for our hotel staff in 2015. We have also established an internal online learning

platform, which provides nearly 2,000 courses to facilitate self-learning by our hotel staff. We

have an incentive scheme combining both a performance-based bonus and a career

development platform. To ensure all of our hotels are performing at optimal levels, we have

established a performance evaluation system based on a comprehensive set of key performance

indicators that are aligned to a corresponding compensation structure. We believe our

performance-linked compensation structure, career-oriented training and career advancement

opportunities are the key drivers that motivate our employees.

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STRATEGIES

Our vision is to provide our hotel guests with an attractive and healthy sojourn experience

and to conceptualize the “Poetical Dwelling” (人詩意地棲居) notion by the efficient use of

human and natural resources including space and building materials. The successful

accomplishment of this mission depends greatly on our sincere, dedicated and creative

workforce. Our value system will always be putting the needs of our customers, the

development of our employees and enhancing value for our shareholders as our core priorities.

We intend to achieve our objectives by implementing the following strategies:

Attract, retain and promote a dedicated, efficient and creative workforce

We will continue to recruit, train and develop our hotel managers and staff to uphold our

corporate value in delivering exceptional service to our hotel guests. We have developed a

competitive incentive system for our hotel managers and staff at our hotels and systematically

monitor our hotel staff performance by our performance evaluation system based on a

comprehensive set of key performance indicators and align their interest with those of our

management and shareholders. We believe such measures would allow us to retain and

incentivize quality and talented hotel staff to maintain our service standards and enable us to

remain competitive in the long run.

We also believe that developing and maintaining a team of capable and motivated hotel

managers and staff is critical to our success. In 2015, we set up our in-house training center,

New Century Academy, which provides on-going extensive training programs to our

managerial and other hotel staff. We developed our own “three-tier talent training system”,

which focused on (i) fostering mid-level managers to become the general managers of our

Company in the future; (ii) developing junior staff with managerial potential, with a view to

promoting them to mid-level managers; and (iii) cultivating new employees and building a

reserve of general managers in anticipation of our future expansion. We believe our

performance-based compensation structure, career-oriented training and career advancement

opportunities are the key drivers that motivate our hotel staff and will continue to attract

talented and creative workforce to join our Group.

Enhance our leading position in the upscale business and resort hotels market through

our hotel operation and hotel management business models

We aim to consolidate our leading position in the upscale business and resort hotels

market in China and expand our hotels portfolio through our flexible hotel operation and

management business models. Our ability to offer services of international standards with local

Chinese elements positions us well to capture the opportunities in China’s second- and

third-tier cities. Leveraging on our experience in hotel operation within China’s second- and

third-tier cities, we aim to expand our presence on the upscale hotels in the first-tier cities, new

first-tier cities, second-tier cities and third-tier cities.

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We believe that our profound experience in operating and managing hotels, together with

the strength of the “New Century (開元)” brand, will allow us to increase our market share

through securing more full service management agreements and franchise agreements or by

leasing suitable properties from third-party hotel owners in the long run. On average, we target

to grow our hotel services network together with our corresponding ancillary services such as

F&B services by increasing the number of upscale business hotels by around ten each year for

the next five years. As at August 31, 2018, we had 135 hotels under pipeline, amongst which

28 and 27 of those are expected to be developed into upscale business hotels and upscale resort

hotels, respectively, under our respective upscale hotel brands. In addition to the current

pipeline, we are planning to enter into at least four new hotel lease agreements for the opening

of two new upscale business hotels under the brand of “Grand New Century (開元名都)” and

two new upscale resort hotels under the brands of “New Century Resort (開元度假村)” and

“New Century Wonderland (開元芳草地鄉村酒店)” in or before 2021. According to the

Horwath Report, both first-tier and new first-tier cities have strong demand in hotel services.

The international brands have a considerable premium over the domestic brands in the first-tier

cities whereas the brand premium is relatively limited for international brands in new first-tier

cities and lower-tier cities. As compared to first-tier and new first-tier cities, even though the

economic vitality of second- and third-tier cities are relatively lower, the growth potential of

second- and third-tier cities has seen gradual entry of international hotel brands in recent years.

However, due to perceived lack of in-depth understanding in the local markets which vary

greatly between different cities and the relatively higher ADR charged for its hotel rooms, it

is noted that brand value of international hotel brands has not been effectively recognized and

therefore domestic hotel groups could significantly narrow the gap with international hotel

groups and have competitive advantages over international hotel groups in the second- and

third-tier cities. By maintaining our advantages in the market under the second- and third-tier

cities, leveraging our existing presence and experience in the hotel operation and management

in the first-tier and new first-tier cities and utilizing our understanding of the domestic demand

in the hotel industry in the PRC, we believe we are able to further expand into the first-, new

first-, second- and third-tier cities, and in turn would be able to further enhance our leading

position as one of the largest upscale hotel groups in China. As a market leader in the domestic

upscale hotel sector, we have achieved significant brand recognition among our existing and

target hotel guests. We intend to continue to enhance the “New Century (開元)” brand series

by maintaining the consistency of our high-quality product and service offerings.

Further expand our business in mid-scale hotel chains

Leveraging on our strong brand recognition of the “New Century (開元)” brand, we will

expand and develop our mid-scale full service and select service hotel chains to meet the

fast-growing demand in this market in the PRC. We establish our presence in the mid-scale

hotel market through introducing our “New Century Hotel (開元大酒店)” brand in 1988 and

our “Maison New Century (開元名庭)” brand in 2015, both of which are mid-scale full service

hotels. As at August 31, 2018, we had 25 “New Century Hotels (開元大酒店)” and four

“Maison New Century (開元名庭)” with 6,339 and 863 hotel rooms in operation, respectively.

We also seek to expand our presence in the mid-scale hotel market by developing our mid-scale

select service hotel brands and have established a strong foothold in this market through our

BUSINESS

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success in our 11 leased hotels as at August 31, 2018 operated under our “New Century Manju

Hotel (開元•曼居酒店)” in seven cities throughout the PRC. We believe our success in our

leased hotels operated under “New Century Manju Hotel (開元•曼居酒店)” will attract

third-party owned hotels to operate these brands through full service management agreements

or franchise agreements and hence enhance our presence in the mid-scale hotel markets. We

intend to increase the number of hotels operated under our mid-scale full service hotel brands

and our mid-scale select service hotel brands, in particular our “New Century Manju Hotel (開元•曼居酒店)” brand, primarily through operating or managing third-party owned hotels under

our hotel lease agreements or full service management agreements.

We will also be introducing new mid-scale hotel brands, including “A.T.K Hotel (阿緹客)” and “Mayart Hotel (開元美途)”, all of which shall be in operation by 2019 in order to

increase the number of our mid-scale hotels. As at August 31, 2018, out of the 135 hotels under

pipeline, 80 will be developed into mid-scale hotels. We plan to double the total number of our

mid-scale hotels and hotel rooms in operation and under pipeline as at August 31, 2018 in the

next five years. In addition to our existing pipeline, we target to enter into new hotel lease

agreements for the opening of 17 new “New Century Manju Hotel (開元•曼居酒店)”, all of

which will be expected to commence operation in or before 2021.

Increase marketing activities and crossover marketing initiatives to maintain our strong

brand recognition and expand our guests base

We aim to devote our resources to reinforce the reputation and recognition of our “New

Century (開元)” brands. We plan to implement brand value through launching new brands,

enriching amenities and updating technologies in our hotel rooms. We intend to integrate and

promote the “New Century (開元)” brand by revitalizing media resources and disseminate

through multiple channels such as traditional media, social media, including our official Weibo

account and our official WeChat account and our in-house media. At the same time, we also

aim to enhance our brand awareness and reputation through the launch of new products,

membership events, industry summits and other activities. We will increase our marketing

resources through OTAs with an aim to increase our presence and coverage in the OTAs which

in turn may generate more hotel bookings.

We actively implement and explore cross-industries cooperation and cross-disciplinary

marketing with joint marketing and brand cohesion promotion, such as, the establishment of

Chinese hotel alliance and the issue of co-branded credit card with the PRC banks. In order to

enhance our brand image and popularity, similar strategic cooperation opportunities will be

continuously explored in the future.

BUSINESS

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Further investment and development in innovative digital strategies and improving

operational efficiency

With rapid iteration of consumer behavior and mobile technology, innovative digital

strategies have become more indispensable, therefore, we will continue to develop our data

analytics and technological capabilities in the following areas: (i) cloudization: by investing

and developing our main marketing and core business systems, including traditional CRS and

PMS of hotel and related business contents, which can achieve higher efficiency for the entire

data operation; (ii) datamation of user behaviour: defining user labels based on their attributes,

booking behaviors, spending power to achieve more objective user portraits, which will allow

us to have a better understanding of the preference of our hotel guests with big data analytics

to enhance our services to our hotel guests; (iii) mobile socialization: hotel guests can utilize

all online and offline services through our Century Club mobile application or our official

WeChat account, with real-time access to corresponding hotel staff, which can greatly improve

efficiency of hotel services; (iv) intelligence: with self-service equipment or services such as

robots, front-end automatic self-service machines, smart hotel rooms, self-service food

ordering of restaurants, experience of hotel guests can be improved while labor costs of hotels

can be reduced.

With a view to improve our operational efficiency and facilitate the decision making

process of our management team, we plan to upgrade our centralized data system which shall

integrate the functions of the existing data collection systems such as loyalty program system,

management reporting system and central reservation system. This centralized data system will

collect and store relevant hotel operational data which can then analyze various consumption

patterns and habits of our hotel guests in order to provide in-depth data analysis for our

management team. We also aim to optimize and upgrade our financial management system,

human resources system and procurement management system and establish a regional

management center and financial data sharing center, which shall be conducive to optimizing

our staffing function and improving our operational efficiency.

We are currently in the process of introducing our “smart hotel rooms” which aim to

deliver bespoke in-room experiences that enable hotel guests to operate the room facilities via

our Century Club mobile application or through voice control. Our Century Club mobile

application allows hotel guests to control all in-room functions including mood lighting,

curtains and room temperature through the control panel built into to our Century Club mobile

application. Further, through the voice control function, our hotel guests would be able to

control the entertainment system and interactive media installed in the room. We also plan to

introduce keyless entry system to our hotel rooms. We will continually seek out ideas to give

our hotel guests the best and most satisfying guest experience.

BUSINESS

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In order to improve the operational efficiency of our hotel operations, we are also

planning to introduce the self check-in kiosk, which was developed through the cooperation

between our Group and a PRC-listed information technology company specializing in

information security. The self check-in kiosk will be installed at the receptions of our hotels

for hotel guests to proceed to check-in/out by themselves without the need to do so with our

front desk. Hotel guests will also be able to choose the room types and the room settings from

the kiosk at the time of check-in. We believe the above hotel related technologies could

improve guest experience at our hotels and we intend to continue our development on hotel

operation related technologies in order to explore ways to improve our operational efficiency

and improve our services to our hotel guests.

OUR BUSINESS OPERATIONS

We principally engage in the operation and management of mid-scale to upscale hotel

chains in the PRC during Track Record Period. The following table shows our revenue

breakdown by each business segment and as a percentage of the total revenue for the years

ended December 31, 2015, 2016 and 2017 and the eight months ended August 31, 2017 and

2018.


2015 2016 2017 2017 2018

RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue

(unaudited)

Hotel operation 1,400,592 92.0 1,490,139 93.0 1,527,866 91.8 982,353 92.0 1,013,648 90.6Hotel management 121,490 8.0 111,867 7.0 136,777 8.2 85,400 8.0 105,601 9.4

Total 1,522,082 100.0 1,602,006 100.0 1,664,643 100.0 1,067,753 100.0 1,119,249 100.0

Our Hotels

As at August 31, 2018, our hotel portfolio consisted of 140 hotels in operation with over

31,000 rooms throughout the PRC. Amongst the 140 hotels in operation, (i) 96 were under full

service management agreements, (ii) 13 were under franchise agreements, (iii) two were owned

hotels and (iv) 29 were under hotel lease agreements. Based on our existing pipeline as at

August 31, 2018, we plan to increase the total number of hotels operated and/or managed by

us to at least 275 hotels within the next five years, which will include 114 upscale hotels and

161 mid-scale hotels.

BUSINESS

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We will expand into a new city strategically if it meets our selection criteria, including

the potential for economic growth and geographic location. As a result of our strategic focus

on building a network of hotels in the most affluent regions in China with high growth

potential, 57.9% of our hotels were located in the Zhejiang Province as at August 31, 2018.

Within these regions, we select locations to achieve a stable and reasonable rental rate and

RevPAR, which are mostly located in the second- and third-tier cities, thereby ensuring

attractive returns for our operated or managed hotels. As at August 31, 2018, nine of our 140

hotels were located in first-tier cities (6.4%), 45 in new first-tier cities (32.1%), 40 in

second-tier cities (28.6%), 28 in third-tier cities (20.0%) and 18 in other cities (12.9%).

The following map sets forth the geographic coverage of our hotels in operation and under

pipeline as at August 31, 2018:

1-3 hotels

4-8 hotels

9-11 hotels

Over 12 hotels

Over 50 hotels

Operated: Hotels / hotel rooms

Pipeline: Hotels / hotel rooms

Shaanxi: 5

Inner Mongolia: 1

Liaoning: 1

Gansu: 1

Sichuan: 2

Guizhou: 8

Henan: 9

Shanxi

Jiangxi: 12

Fujian: 4

Taiwan

Hainan: 5

Ningxia

Yunnan: 3

Xinjiang

Qinghai: 1

Tibet

Jilin: 3

Heilongjiang

Guangxi: 4

Hunan: 5

Hebei: 4

Guangdong

Hubei: 4

Anhui: 13

Shandong: 7

Jiangsu: 34

Shanghai: 11 7/1,427

1/302

2/733

4/694

3/750

2/429

3/1,005

2/3972/195

3/650

81/17,510

53/12,454

14/2,988

3/858

3/948

1/249

5/774

1/284

20/4,577

1/263

1/210

1/160

8/1,7164/1,238

2/609

1/400

3/700

1/250

2/450 7/2,032

5/1,459

2/762

4/937

2/550

2/8673/880

3/690

1/550

9/2,397

1/298

Zhejiang: 134

Chongqing: 1

Tianjin: 1

Beijing: 2

1/166

1/148

BUSINESS

– 145 –

The following table sets forth the number of hotels and hotel rooms in operation as at

December 31, 2015, 2016 and 2017 and August 31, 2018.

As at December 31, As at August 31,

2015 2016 2017 2018

No. ofHotels

No. ofHotel

RoomsNo. ofHotels

No. ofHotel

RoomsNo. ofHotels

No. ofHotel

RoomsNo. ofHotels

No. ofHotel

Rooms

Operated hotels 26 6,659 27 6,923 25 6,528 31 7,499Managed hotels 48 13,369 70 17,375 91 20,928 109 24,403

Total 74 20,028 97 24,298 116 27,456 140 31,902

The following table sets forth a breakdown of our hotels by geographic locations as atAugust 31, 2018.

No. ofoperated

hotels (No.of hotelrooms)

No. ofmanaged


No. ofoperated

hotels (No.of hotelrooms)under

pipeline

No. ofmanaged


pipeline

Total no. ofhotels (No.

of hotelrooms) inoperation

and underpipeline

Zhejiang Province 20 (5,211) 61 (12,299) 2 (466) 51 (11,988) 134 (29,964)Jiangsu Province 4 (918) 10 (2,070) – 20 (4,577) 34 (7,565)Anhui Province – 5 (774) – 8 (1,716) 13 (2,490)Jiangxi Province – 3 (948) – 9 (2,397) 12 (3,345)Henan Province – 2 (733) – 7 (2,032) 9 (2,765)Shanghai Municipality 3 (421) 4 (1,006) 1 (156) 3 (538) 11 (2,121)Shandong Province – 3 (858) – 4 (937) 7 (1,795)Guizhou Province – 3 (1,005) – 5 (1,459) 8 (2,464)Hainan Province – 2 (867) – 3 (880) 5 (1,747)Hunan Province 1 (153) 1 (276) – 3 (650) 5 (1,079)Guangxi Province – 2 (397) – 2 (550) 4 (947)Yunan Province – 2 (195) – 1 (550) 3 (745)Hubei Province – – – 4 (1,238) 4 (1,238)Others 3 (796) 11 (2,975) 1 (210) 11 (2,710) 26 (6,691)

Total 31 (7,499) 109 (24,403) 4 (832) 131 (32,222) 275 (64,956)

BUSINESS

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The following table sets forth a breakdown of our hotels by first-, new first-, second-,

third-tier and other cities as at August 31, 2018.

No. ofoperated


No. ofmanaged


No. ofoperated


pipeline

No. ofmanaged


pipeline

Total no. ofhotels (No.

of hotelrooms) inoperation

and underpipeline

First-tier cities 3 (421) 6 (1,768) 1 (156) 3 (538) 13 (2,883)New first-tier cities 14 (4,025) 31 (6,186) 1 (210) 32 (6,919) 78 (17,340)Second-tier cities 10 (2,259) 30 (7,046) – 27 (6,674) 67 (15,979)Third-tier cities 4 (794) 24 (5,007) 2 (466) 39 (9,922) 69 (16,189)Others(Note) – 18 (4,396) – 30 (8,169) 48 (12,565)

Total 31 (7,499) 109 (24,403) 4 (832) 131 (32,222) 275 (64,956)

Note: Others include Xinyu, Fuzhou, Enshi, Heze, Shangqiu, Zunyi, Zhangjiajie, Wencang, Suzhou, Yichun,Zhangzhou, Xuancheng, Shiyan, Xishuangbanna, Shaoyang, Anshun, Lu’an, Kaifeng, Chizhou,Beihai, Huangshi, Yingtan, Zhumadian, Chizhou and Qiandongnanzhou.

Our Business Models

Our hotel business consists of hotel operation and hotel management. Under hotel

operation, we operate hotels that are either owned or leased by us. Under hotel management,

we manage hotels pursuant to the full service management agreements or grant franchisee right

to use “New Century (開元)” brand under the terms under the franchise agreements. Our strong

capabilities in operating and managing hotels under both the hotel management and operation

models provide flexibility to hotel owners in deciding the business model which would be best

suited to their investment target and needs when engaging us as the operator of their hotels. The

adaptability to different business models allows us to work with hotel owners either by way of

leasing or through our full service management agreements or franchise agreements.

BUSINESS

– 147 –

The following table sets forth the hotels and rooms by hotel segments of our Group bycategory as at August 31, 2018.

OperatedHotels

ManagedHotels

Total hotels inoperation

Contractedto-be

operated hotelsunder pipeline

Contractedto-be

managed hotelsunder pipeline

BrandsNo. ofHotels

No. ofHotel

RoomsNo. ofHotels

No. ofHotel

RoomsNo. ofHotels

No. ofHotel

RoomsNo. ofHotels

No. ofHotel

RoomsNo. ofHotels

No. ofHotel

Rooms

Upscalebusiness hotels

7 2,840 35 11,891 42 14,731 1 306 27 8,854

Upscaleresort hotels

4 830 13 2,839 17 3,669 – – 27 7,271

Mid-scale fullservice hotels

8 2,197 21 5,005 29 7,202 – – 47 12,729

Mid-scaleselect servicehotels

12 1,632 40 4,668 52 6,300 3 526 30 3,368

Total 31 7,499 109 24,403 140 31,902 4 832 131 32,222

BUSINESS

– 148 –

Hotel Operation

The tables below set forth breakdown of our revenue, gross profit and gross profit margingenerated by our owned and leased hotels for the periods indicated:


For theeight

monthsended

August 31,

Business model 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Hotel operationOwned hotels – 19,662 35,914 56,528Leased hotels 1,343,190 1,417,361 1,431,429 910,352


Others(Note) 57,402 53,116 60,523 46,768

Revenue of our hoteloperation segment 1,400,592 1,490,139 1,527,866 1,013,648

Note: This primarily includes revenue that cannot be directly attributable to a particular operated hotel,including revenue from (i) sales of goods or products such as wine, seafood, moon cakes and ricedumplings; and (ii) the provision of room reservation services, in aggregate amounted to RMB57.4million, RMB53.1 million, RMB60.5 million and RMB46.8 million for the years ended December 31,2015, 2016 and 2017 and the eight months ended August 31, 2018, respectively.



August 31,

Business model 2015 2016 2017 2018

Grossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin

RMB’000 % RMB’000 % RMB’000 % RMB’000 %

Hotel operationOwned hotels – – (4,165) N/A 6,027 16.8 12,923 22.9Leased hotels 112,219 8.4 198,526 14.0 274,678 19.2 135,071 14.8

Gross profit and gross profitmargin generated by ouroperated hotels(Note) 112,219 8.4 194,361 13.5 280,705 19.1 147,994 15.3

Note: This primarily excludes gross profit and gross profit margin that cannot be directly attributable to aparticular operated hotel, including gross profit and gross profit margin from (i) sales of goods orproducts such as wine, seafood, moon cakes and rice dumplings; and (ii) the provision of roomreservation services.

BUSINESS

– 149 –

The tables below set forth breakdown of our revenue, gross profit and gross profit margin

generated by our operated hotels by category and brand for the periods indicated:



August 31,

Hotel categories 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000


Grand New Century 779,699 841,850 840,449 539,401

Revenue generated by our upscale businesshotels 779,699 841,850 840,449 539,401


New Century Resort 57,547 64,553 71,479 50,720New Century Grand House 39,570 44,182 43,659 19,089New Century Wonderland – 19,662 35,914 56,528

Revenue generated by our upscale resorthotels 97,117 128,397 151,052 126,337


New Century Hotel 361,783 376,655 375,840 229,595Maison New Century 19,596 17,277 15,173 7,932

Revenue generated by our mid-scale fullservice hotels 381,379 393,932 391,013 237,527


New Century Manju 84,995 72,844 79,462 60,584New Century Wonderland RV Camp – – 5,367 3,031

Revenue generated by our mid-scale selectservice hotels 84,995 72,844 84,829 63,615

Revenue generated by our operated hotels 1,343,190 1,437,023 1,467,343 966,880

BUSINESS

– 150 –




Grossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit



Grand New Century 56,717 7.3 125,272 14.9 149,250 17.8 84,880 15.7

Gross profit and gross profit margingenerated by our upscale businesshotels 56,717 7.3 125,272 14.9 149,250 17.8 84,880 15.7


New Century Resort 4,388 7.6 6,406 9.9 9,896 13.8 6,341 12.5New Century Grand House 9,125 23.1 7,830 17.7 10,618 24.3 (3,753)(ii) N/ANew Century Wonderland – – (4,165) N/A 6,027 16.8 12,923 22.9

Gross profit and gross profit margingenerated by our upscale resort hotels 13,513 13.9 10,071 7.8 26,541 17.6 15,511 12.3


New Century Hotel 26,523 7.3 52,853 14.0 82,353 21.9 40,182 17.5Maison New Century (1,787) N/A (1,631) N/A 3,819 25.2 1,904 24.0

Gross profit and gross profit margingenerated by our mid-scale full servicehotels 24,736 6.5 51,222 13.0 86,172 22.0 42,086 17.7


New Century Manju 17,253 20.3 7,796 10.7 18,309 23.0 5,157 8.5New Century Wonderland RV Camp – – – – 433 8.1 360 11.9

Gross profit and gross profit margingenerated by our mid-scale selectservice hotels 17,253 20.3 7,796 10.7 18,742 22.1 5,517 8.7

Gross profit and gross profit margingenerated by our operated hotels 112,219 8.4 194,361 13.5 280,705 19.1 147,994 15.3

Notes:

(i) The financial performance is subject to factors including our product mix, ramp up period required for newhotels, seasonality factors and the overall industry trend.

(ii) The decrease in gross profit was primarily due to the operating loss recorded by Grand House Chongqing DazuShike, a newly opened hotel in 2018, that was recently disposed by our Group on June 30, 2018 due to changein business model by the hotel owner. Please see sub-section headed “History, Reorganization and CorporateStructure – Acquisitions and Disposals during the Track Record Period – Disposals” in this prospectus forfurther details.

(iii) Despite having nine brands in operation as at August 31, 2018, our “Kaiyuan Life (開元頤居)” currently onlyoperates as our full service managed hotels and therefore its financial results are not applicable to the tableabove.

BUSINESS

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The tables below set forth breakdown of our revenue, gross profit and gross profit margingenerated by our operated hotels by city tiers for the periods indicated:


For theeight

monthsended

August 31,

City tiers 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

First-tier cities 81,203 81,737 65,975 24,769New first-tier cities 837,762 889,329 931,635 642,151Second-tier cities 358,943 373,912 360,566 216,486Third-tier cities 65,282 92,045 109,167 83,474




August 31,

City tiers 2015 2016 2017 2018

Grossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin

RMB’000 % RMB’000 % RMB’000 % RMB’000 %

First-tier cities 8,935 11.0 12,086 14.8 24,488 37.1 6,268 25.3New first-tier cities 61,993 7.4 120,019 13.5 173,762 18.7 85,389 13.3Second-tier cities 32,053 8.9 51,341 13.7 60,209 16.7 37,766 17.4Third-tier cities 9,238 14.2 10,915 11.9 22,246 20.4 18,571 22.2

Gross profit and gross profitmargin generated by ouroperated hotels 112,219 8.4 194,361 13.5 280,705 19.1 147,994 15.3

Leased Hotels

As at August 31, 2018, we had 29 leased hotels with 7,117 hotel rooms, accounting forapproximately 22.3% of the hotel rooms in operation. We operate these leased hotels and bearall of the operating expenses. We are responsible for (i) recruiting, training and supervisinghotel managers and hotel staff, (ii) paying for rent and hotel renovation expenses, and (iii)purchasing all supplies and other required equipment. For the years ended December 31, 2015,2016 and 2017 and the eight months ended August 31, 2018, we entered into 1, 2, 7 and 2 hotellease agreement(s), respectively, out of which 1, 2, 6 and 2 hotels have commenced operationas at the Latest Practicable Date, respectively, and the remaining contracted hotel is expected

BUSINESS

– 152 –

to commence operation by March 2019. Amongst the 29 leased hotels as at August 31, 2018,five of which were leased from New Century REIT pursuant to the Hotel Lease andManagement Agreements. Save for the New Century REIT Hotel Properties, all the remaining24 lessors under these hotel lease agreements are Independent Third Parties. During the TrackRecord Period, there was only one hotel lease agreement that was terminated by the hotelowner due to the hotel being sold by the hotel owner to a third-party, and we were fullycompensated for the termination of the hotel lease agreement by the hotel owner pursuant tothe terms under the hotel lease agreement.

The terms of our hotel lease agreements typically range from ten to 20 years. Save for theHotel Lease and Management Agreements, all of our hotel lease agreements are renewableunder their terms. Rent is generally paid on a monthly, quarterly or yearly basis and is fixedfor the first one to three years of the lease term. Thereafter, we are subject to periodic rentincreases. Our hotel lease agreements usually allow extensions by mutual agreement negotiatedbefore expiration. If a lessor terminates the hotel lease agreement unilaterally, we are typicallyentitled to liquidated damages up to two years’ rent and/or all renovation expenses incurred byus. In addition, our lessors are typically required to notify us for a period up to 45 days inadvance if they intend to dispose of their properties, which in certain case we have the rightof first refusal to purchase the properties on equivalent terms and conditions as those offeredby the prospective purchaser. Under the PRC law, all hotel lease agreements are required to beregistered with the local housing bureau. Our standard hotel lease agreement generally requiresthe lessor to make such registration.

As for the Hotel Lease and Management Agreements, the rent for each of the NewCentury REIT Hotel Properties is an individual rent which is payable monthly in arrear. Theindividual rent is calculated at 20.0% of the total monthly operating revenue plus 34.0% of thegross operating profit for the month. The aggregate of all individual rent for each yearconstitutes the total rent (the “Total Rent”). If the Total Rent is less than the agreed amountof the Base Rent, our Company will make up for any shortfall within 30 days from the issuanceof the audited annual accounts of our Company. Please refer to the sub-section headed“Connected Transactions – Continuing Connected Transactions subject to the reporting, annualreview, announcement and independent Shareholders’ approval requirement” in this prospectusfor further details on the Hotel Lease and Management Agreements.

We seek properties that are in central or highly accessible locations in selected cities inorder to maximize room and occupancy rates. After identifying a proposed site, we conductthorough due diligence and typically negotiate hotel lease agreements concurrently withprospective lessors. Once a hotel lease agreement has been executed, we will carry outpre-opening activities with the corresponding cost borne by us as lessee. For certain properties,we engage independent design firms and construction companies to begin work on leaseholdimprovements. Our construction management team works closely with these firms on planningand architectural design and supervises construction work. Our contracts with constructioncompanies typically contain warranties for quality and requirements for timely completion ofconstruction. Contractors are typically required to compensate us in the event of delays or poorquality. It typically takes two to ten months from the execution of a hotel lease agreement tohotel opening, provided that the hotel has completed construction and renovation by the timethe hotel is handed over to our management team. There is normally a rent-free period of fourto eight months between the execution of a hotel lease agreement and the opening of the hotel.

BUSINESS

– 153 –

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6.154

.025

1.745

2.760

.527

3.846

4.853

.825

0.0

4.Gr

andN

ewCe

ntury

Hotel

Chan

gchu

n45

,624.7

328

Chan

gchu

n,Jil

inPr

ovinc

e20

08Up

scale

busin

essho

tel20

13–2

023

563.1

58.0

326.7

523.7

62.5

327.4

483.4

67.4

325.9

472.5

62.5

295.2

5.Gr

andN

ewCe

ntury

Hotel

Zhuji

Yaoji

ang

58,55

1.536

0Zh

uji,Z

hejia

ngPr

ovinc

e20

08Up

scale

busin

essho

tel20

18–2

028

499.2

52.0

259.2

468.2

52.3

244.7

462.0

57.0

263.1

448.0

55.3

247.8

6.Gr

andN

ewCe

ntury

Hotel

Zheji

angS

anli

48,00

0.041

8Ha

ngzh

ou,

Zheji

ang

Prov

ince

2014

Upsca

lebu

siness

hotel

2014

–202

748

2.768

.332

9.646

5.671

.733

4.148

8.075

.536

8.550

2.971

.235

8.0

7.Ni

ngha

iJinh

aiGr

and

New

Centu

ryHo

tel44

,187.9

268

Ning

bo,

Zheji

ang

Prov

ince

2012

Upsca

lebu

siness

hotel

2012

–202

258

6.251

.029

8.752

8.961

.632

5.752

8.770

.237

1.150

4.163

.431

9.8

8.Ne

wCe

ntury

Reso

rtHa

ngzh

ouQi

anda

oLa

ke

35,74

4.922

7Ha

ngzh

ou,

Zheji

ang

Prov

ince

2004

Upsca

leres

ortho

tel20

13–2

023

808.1

49.0

395.9

716.0

61.6

441.2

735.1

65.9

484.2

751.8

68.7

516.4

9.Ne

wCe

ntury

Gran

dhou

seYa

ngua

n20

,540.0

221

Jiaxin

g,Zh

ejian

gPr

ovinc

e

2014

Upsca

leres

ortho

tel20

17–2

037

443.3

30.3

134.1

447.6

30.3

135.7

448.9

39.7

178.3

388.5

49.5

192.3

10.

Zheji

angN

ewCe

ntury

Xiao

shan

Guest

hous

e35

,009.7

375

Hang

zhou

,Zh

ejian

gPr

ovinc

e

1988

Mid-

scale

full

servic

ehote

l20

13–2

023

319.8

66.8

213.6

327.2

65.4

214.0

335.7

75.3

252.9

339.7

72.6

246.7

BUSINESS

– 154 –

Fort

heye

arse

nded

Dece

mber

31,

Fort

heeig

htmo

nths

ende

dAu

gust

31,2

018

2015

2016

2017

Hotel

Total

GFA

No.o

fRo

oms

Loca

tion

Inop

erati

onsin

ceBr

and

class

Exist

ingLe

ase

Term

ADR

Occu

panc

yRa

teRe

vPAR

ADR

Occu

panc

yRa

teRe

vPAR

ADR

Occu

panc

yRa

teRe

vPAR

ADR

Occu

panc

yRa

teRe

vPAR

(sq.m

.)(R

MB)

(%)

(RMB

)(R

MB)

(%)

(RMB

)(R

MB)

(%)

(RMB

)(R

MB)

(%)

(RMB

)

11.

New

Centu

ryHo

telNi

ngha

iNew

Centu

ry27

,928.5

245

Ning

bo,

Zheji

ang

Prov

ince

2003

Mid-

scale

full

servic

ehote

l20

13–2

023

372.1

51.5

191.7

326.8

57.5

187.9

314.3

65.2

204.8

300.0

56.2

168.7

12.

New

Centu

ryHo

telSh

aoxin

gJinc

hang

22,29

5.129

5Sh

aoxin

g,Zh

ejian

gPr

ovinc

e

2007

Mid-

scale

full

servic

ehote

l20

17–2

027

351.2

58.2

204.5

326.5

56.5

184.5

322.3

61.9

199.6

320.8

59.0

189.2

13.

New

Centu

ryHo

telXi

angs

hanS

hipu

24,98

1.619

9Ni

ngbo

,Zh

ejian

gPr

ovinc

e

2009

Mid-

scale

full

servic

ehote

l20

09–2

019

379.7

55.3

209.9

357.5

51.8

185.2

384.4

62.0

238.2

363.0

57.8

209.9

14.

New

Centu

ryHo

telNa

njing

29,99

4.524

6Na

njing

,Jia

ngsu

Prov

ince

2010

Mid-

scale

full

servic

ehote

l20

10–2

030

373.7

58.2

217.3

368.1

68.6

252.4

398.8

79.5

317.2

414.6

71.2

295.0

15.

New

Centu

ryM

aison

Chan

gzho

uTaih

uBay

23,49

2.219

3Ch

angz

hou,

Jiang

suPr

ovinc

e

2008

Mid-

scale

full

servic

ehote

l20

10–2

030

394.3

34.7

136.6

373.3

31.5

117.5

362.5

37.1

134.4

320.0

43.9

140.5

16.

New

Centu

ryHo

telJu

rong

52,82

1.534

2Ju

rong,

Jiang

suPr

ovinc

e20

12M

id-sca

leful

lser

viceh

otel

2011

–202

129

9.558

.617

5.429

3.464

.318

8.631

3.765

.320

4.933

5.170

.023

4.6

17.

New

Centu

ryHo

telTi

anjin

Ruiw

an37

,581.1

302

Binh

aiDi

strict

,Ti

anjin

City

2013

Mid-

scale

full

servic

ehote

l20

13–2

027

461.7

48.7

224.8

437.0

57.2

249.8

442.7

57.8

255.7

448.5

67.5

302.6

18.

Man

juSh

angh

aiYu

ege

(not

e)8,9

87.2

165

Pudo

ngDi

strict

,Sh

angh

aiCi

ty

2011

mid-s

cale

selec

t-ser

viceh

otels

2004

–202

440

7.969

.428

2.942

2.967

.528

5.443

2.968

.729

7.443

2.363

.927

6.3

19.

Man

juSh

angh

aiRu

iyue

4,085

.088

Jinga

nDist

rict,

Shan

ghai

City

2008

mid-s

cale

selec

t-ser

viceh

otels

2008

–202

230

9.285

.926

5.731

7.283

.226

3.933

3.480

.426

7.934

0.585

.729

1.6

20.

Man

juSh

aoxin

g(Ke

qiao)

8,831

.714

0Sh

aoxin

g,Zh

ejian

gPr

ovinc

e

2012

mid-s

cale

selec

t-ser

viceh

otels

2012

–202

229

1.487

.625

5.128

3.985

.324

2.130

5.286

.926

5.231

6.685

.727

1.2

21.

Man

juW

uxi

7,800

.013

7W

uxi,

Jiang

suPr

ovinc

e20

13mi

d-sca

lesel

ect-

servic

ehote

ls20

13–2

028

275.2

57.6

158.6

260.3

61.7

160.5

252.9

57.9

146.4

246.0

60.5

148.7

BUSINESS

– 155 –

Fort

heye

arse

nded

Dece

mber

31,

Fort

heeig

htmo

nths

ende

dAu

gust

31,2

018

2015

2016

2017

Hotel

Total

GFA

No.o

fRo

oms

Loca

tion

Inop

erati

onsin

ceBr

and

class

Exist

ingLe

ase

Term

ADR

Occu

panc

yRa

teRe

vPAR

ADR

Occu

panc

yRa

teRe

vPAR

ADR

Occu

panc

yRa

teRe

vPAR

ADR

Occu

panc

yRa

teRe

vPAR

(sq.m

.)(R

MB)

(%)

(RMB

)(R

MB)

(%)

(RMB

)(R

MB)

(%)

(RMB

)(R

MB)

(%)

(RMB

)

22.

Man

juYu

yao

9,118

.914

7Ni

ngbo

,Zh

ejian

gPr

ovinc

e

2014

mid-s

cale

selec

t-ser

viceh

otels

2014

–203

233

5.765

.722

0.432

1.974

.724

0.527

8.577

.221

4.930

5.771

.621

9.0

23.

Man

juNi

ngbo

(East

ernNe

wCi

ty)11

,172.8

157

Ning

bo,

Zheji

ang

Prov

ince

2016

mid-s

cale

selec

t-ser

viceh

otels

2016

–203

2N/

AN/

AN/

A30

8.341

.412

7.532

0.568

.321

8.935

8.477

.127

6.4

24.

Man

juZh

oush

an7,5

62.6

121

Zhou

shan

,Zh

ejian

gPr

ovinc

e

2017

mid-s

cale

selec

t-ser

viceh

otels

2017

–203

2N/

AN/

AN/

AN/

AN/

AN/

A31

8.527

.286

.538

4.356

.821

8.3

25.

Wond

erlan

dRV

Camp

Yang

uan

1,187

.257

Jiaxin

g,Zh

ejian

gPr

ovinc

e

2017

mid-s

cale

selec

t-ser

viceh

otels

2017

–203

7N/

AN/

AN/

AN/

AN/

AN/

A63

8.247

.630

3.960

8.854

.333

0.8

26.

Man

juSh

angh

ai(M

inhan

g)9,0

82.0

168

Chon

gming

Distr

ict,

Shan

ghai

City

2018

mid-s

cale

selec

t-ser

viceh

otels

2018

–203

1N/

AN/

AN/

AN/

AN/

AN/

AN/

AN/

AN/

A36

7.424

.690

.4

27.

Man

juNi

ngbo

(Lao

waita

n)9,5

44.2

133

Ning

bo,

Zheji

ang

Prov

ince

2018

mid-s

cale

selec

t-ser

viceh

otels

2018

–203

3N/

AN/

AN/

AN/

AN/

AN/

AN/

AN/

AN/

A32

8.559

.519

5.3

28.

Man

juZh

uzho

u13

,476.9

153

Zhuz

hou,

Huna

nPr

ovinc

e

2018

mid-s

cale

selec

t-ser

viceh

otels

2018

–203

7N/

AN/

AN/

AN/

AN/

AN/

AN/

AN/

AN/

A23

0.417

.440

.1

29.

Man

juDa

lian

9,500

.016

6Da

lian,

Liao

ning

Prov

ince

2018

mid-s

cale

selec

t-ser

viceh

otels

2018

–203

2N/

AN/

AN/

AN/

AN/

AN/

AN/

AN/

AN/

A39

9.559

.023

5.9

Total

835,7

60.0

7,117

Not

e:

1.O

urC

ompa

nyac

quir

edS

hang

haiY

uege

Hot

elO

pera

tion

Co.

,Ltd

*,th

eho

tel

oper

atin

gco

mpa

nyof

Sha

ngha

iYue

ge•

Hot

el(t

oget

her

wit

hth

eho

tel

leas

eag

reem

ent

ofS

hang

hai

Yue

ge•

Hot

el)

in20

10,

assu

chM

anju

Sha

ngha

iY

uege

only

star

ted

oper

atio

nun

der

our

“New

Cen

tury

(開元

)”br

and

sinc

e20

10de

spit

eth

eho

tel

leas

eag

reem

ent

was

alre

ady

ente

red

into

in20

04.

BUSINESS

– 156 –

Owned Hotels

As at August 31, 2018, we owned two hotels with 382 hotel rooms, accounted for

approximately 1.2% of the hotel rooms in operation. The two owned hotels are both under our

brand of “New Century Wonderland (開元芳草地鄉村酒店)”, namely Changxing New Century

Wonderland Resort (長興開元芳草地鄉村酒店) and Hangzhou Fuchun New Century

Wonderland Resort (杭州富春開元芳草地鄉村酒店), which commenced operation in May 2016

and January 2018, respectively. We own and operate these hotels and bear all of the operating

expenses. We are responsible for recruiting, training and supervising hotel managers and

employees, hotel renovation expenses, and purchasing hotel supplies and other required

equipment. Although our Group currently owns two “ New Century Wonderland (開元芳草地鄉村酒店)” hotel resorts, the ownership of these hotels is for us to gain greater autonomy and

control over the development of this new hotel brand, which we hope will act as a showcase

for us to expand our “New Century Wonderland (開元芳草地鄉村酒店)” brand portfolio in the

future by entering into more hotel lease agreements and full service management agreements.

Ownership of hotel properties is not the principal activity of our Group and it is our intention

to focus our business only on the operation and management of hotels in the PRC by way of

lease, full service management and/or franchise.

We believe the operation of our two “New Century Wonderland (開元芳草地鄉村酒店)”

hotel resorts with high-quality facilities and accommodation could reinforce our hotel image

and enhance our brand recognition. For the hotels owned by us, we outsource the design and

construction work to independent design firms and construction companies. The decision to

award a contract is vested with the relevant hotel operation departments and is made on the

basis of the candidate firm’s capability to satisfy our requirements, its reputation for quality

and price. We conduct periodic reviews to avoid budget overrun. Our contracts with

construction companies typically contain warranties for quality and requirements for timely

completion of construction. The relevant contractor will be required to compensate us in the

event of delays or defects caused by the contractor. Please refer to the sub-section headed

“History, Reorganization and Corporate Structure – Acquisitions and Disposals During the

Track Record Period – Acquisitions” for the details of our acquisitions of our owned hotels.

BUSINESS

– 157 –

The following is a brief description of our two owned hotels as at August 31, 2018:

Changxing New Century Wonderland Resort (長興開元芳草地鄉村酒店)

Changxing New Century Wonderland Resort (長興開元芳草地鄉村酒店) is operated

under our brand of “New Century Wonderland (開元芳草地鄉村酒店)” and is located

approximately 180 km from Shanghai municipality at Changxing county, Zhejiang Province.

With a GFA of 8,473.22 sq.m., the hotel has 178 rooms mainly featuring characteristic chalets

and resort-style villas with open lawns surrounded by tea farms, bamboo forests and river

streams. It is also equipped with a number of meeting rooms for corporate or private events and

recreational facilities such as animal farms, children playgrounds, tennis courts, indoor heated

swimming pools and gyms for guests’ entertainment and leisure.

Hangzhou Fuchun New Century Wonderland Resort (杭州富春開元芳草地鄉村酒店)

Hangzhou Fuchun Wonderland Resort (杭州富春開元芳草地鄉村酒店) is operated under

our brand of “New Century Wonderland (開元芳草地鄉村酒店)”. The hotel is located

approximately 120 km from Hangzhou City Center, on the bank of the Fuchun River in the Qili

Scenic Area of Jiande City, Zhejiang Province and is surrounded by natural woodland. The

hotel seeks to create a travel and leisure tourism complex which combines the element of

culture and art for travelers who are looking for a peaceful lifestyle. With a GFA of 18,726.45

sq.m., the hotel has 204 rooms mainly featuring characteristic chalets and resort-style villas

with a small number of boat houses and tree houses. The hotel is also fully equipped with

comprehensive conference and banquet facilities, including three meeting rooms that can

accommodate around nearly 1,000 guests to fulfil the potential demand for corporate events,

conferences or weddings. The hotel commenced operation in January 2018 and, shortly after,

has been awarded the Best Suburban Resort Hotel in the 14th China Hotel and Tourism

Conference in 2018.

BUSINESS

– 158 –

The

foll

owin

gta

ble

sets

fort

hde

tail

sof

our

owne

dho

tels

inop

erat

ion

asat

Aug

ust

31,

2018

.

Fort

heye

arse

nded

Dece

mber

31,

Fort

heeig

htmo

nths

ende

dAug

ust3

1,20

1820

1520

1620

17

Hotel

Equit

yint

erest

Total GFA

No.o

fRo

oms

Loca

tion

Inop

erati

onsin

ceBr

and

class

ADR

Occu

panc

yRa

teRe

vPAR

ADR

Occu

panc

yRa

teRe

vPAR

ADR

Occu

panc

yra

teRe

vPAR

ADR

Occu

panc

yRa

teRe

vPAR

(sq.m

.)(R

MB)

(%)

(RMB

)(R

MB)

(%)

(RMB

)(R

MB)

(%)

(RMB

)(R

MB)

(%)

(RMB

)

1.Ch

angx

ingNe

wCe

ntury

Wond

erlan

dRe

sort

100%

8,473

.217

8Ch

angx

ing,

Zheji

ang

Prov

ince

2016

Upsca

leres

ortho

telN/

AN/

AN/

A79

2.733

.126

2.477

5.848

.637

7.285

0.952

.945

0.4

2.Ha

ngzh

ouFu

chun

New

Centu

ryWo

nderl

and

Reso

rt

100%

18,72

6.520

4Ha

ngzh

ou,

Zheji

ang

Prov

ince

2018

Upsca

leres

ortho

telN/

AN/

AN/

AN/

AN/

AN/

AN/

AN/

AN/

A83

6.452

.243

6.9

Total

27,19

9.738

2

BUSINESS

– 159 –

Our overall occupancy rate, ADR, and RevPAR are affected by factors including our

product mix, ramp up period required for new hotels, seasonality factors and the overall

industry trend.

The key performance indicators of our operated hotels (including owned and leased) for

the years ended December 31, 2015, 2016 and 2017 and eight months ended August 31, 2018

are as follows:


ended August 31,

2015 2016 2017 2018

Weighted Average Weighted Average Weighted Average Weighted AverageOccupancy ADR RevPAR Occupancy ADR RevPAR Occupancy ADR RevPAR Occupancy ADR RevPAR

(%) (RMB) (RMB) (%) (RMB) (RMB) (%) (RMB) (RMB) (%) (RMB) (RMB)

Upscale business

hotels 60.2 517.9 311.8 63.4 498.5 316.0 68.2 501.8 342.5 64.6 501.3 324.0Upscale resort

hotels 45.9 887.2 407.3 44.4 737.5 327.6 52.0 695.9 361.8 52.2 696.6 363.7Mid-scale full

service hotels 55.3 359.4 198.8 58.2 346.1 201.3 64.4 355.1 228.5 63.8 358.0 228.5Mid-scale select

service hotels 69.6 330.3 229.8 69.9 335.6 234.6 64.1 347.6 222.7 65.2 361.1 235.6

Upscale business hotels and upscale resort hotels

According to the Horwath Report, the average occupancy rate of upscale hotels in the

PRC increased from 58.0% in 2015 to 63.0% in 2017 whilst the ADR decreased from

RMB772.0 in 2015 to RMB739.0 in 2017. Our upscale business hotels and upscale resort

hotels were both largely in line with the overall industry trend, which the occupancy rate of our

upscale business hotels increased from 60.2% in 2015 to 68.2% in 2017 and the occupancy rate

of our upscale resort hotels decreased slightly from 45.9% in 2015 to 44.4% in 2016 but then

increased to 52.0% in 2017. The increase of occupancy rate was also partly due to our pricing

policy in decreasing the room rate in some of our upscale business hotels and upscale resort

hotels, with the ADR of upscale business hotels decreased slightly from RMB517.9 in 2015 to

RMB501.8 in 2017 and the ADR of upscale resort hotels decreased from RMB887.2 in 2015

to RMB695.9 in 2017. The above contributed to an increase in RevPAR of our upscale business

hotels from RMB311.8 in 2015 to RMB342.5 in 2017 but a decrease in RevPAR of our upscale

resort hotel from RMB407.3 in 2015 to RMB327.6 in 2016 followed by a slight increase to

RMB361.8 in 2017.

BUSINESS

– 160 –

The occupancy rate of our upscale business hotels declined from 68.2% in 2017 to 64.6%

for the eight months ended August 31, 2018, which caused the RevPAR of our upscale business

hotels to decrease correspondingly from RMB342.5 to RMB324.0 during the same period. As

for our upscale resort hotels, both the occupancy rate and the ADR recorded a slight increase

from 2017 to the eight months ended August 31, 2018, which contributed to the slight increase

in RevPAR from RMB361.8 to RMB363.7 during the same period.

Mid-scale full service hotels and mid-scale select service hotels

According to the Horwath Report, the occupancy rate for mid-scale hotels remain

relatively stable ranging from 64.0% to 66.0% during 2015 to 2017 for mid-scale hotels and

in particular, ranging from 67.0% to 69.0% for mid-scale select service hotels. As for the ADR,

both mid-scale full service hotels and mid-scale select service hotels posed a slight increase in

ADR in 2016 as compared to 2015 but then recorded a decrease in 2017. The occupancy rate

of our mid-scale full service hotels increased from 55.3% in 2015 to 58.2% and 64.4% in 2016

and 2017 respectively whereas the occupancy rate of our mid-scale select service hotel

increased from 69.6% in 2015 to 69.9% in 2016 and then decreased by 5.8% to 64.1% in 2017.

The occupancy rate of our mid-scale full service hotel in 2015 and 2016 were below the

industry average due to the decreased local demand for hotel accommodation in certain regions

in Zhejiang and Jiangsu Province where our mid-scale full service hotels are situated. The ADR

of our mid-scale full service hotels decreased from RMB359.4 in 2015 to RMB346.1 in 2016

and then increased to RMB355.1 in 2017 whereas our mid-scale select service hotels’ ADR

posted an upward trend from RMB330.3 in 2015 to RMB347.6 in 2017. The above contributed

to an increase in RevPAR of our mid-scale full service hotels from RMB198.8 in 2015 to

RMB228.5 in 2017 and an increase in RevPAR of mid-scale select service hotels from

RMB229.8 in 2015 to RMB234.6 in 2016 followed by a slight decrease to RMB222.7 in 2017.

Despite the slight decrease in the occupancy rate of our mid-scale full service hotels from

64.4% in 2017 to 63.8% for the eight months ended August 31, 2018, the increase in ADR from

RMB355.1 to RMB358 led to the RevPAR of our mid-scale full service hotels to remain at

RMB228.5 during the same period. As for our mid-scale select service hotels, boosted by the

increase in both the occupancy rate and the ADR, the RevPAR increased from RMB222.7 in

2017 to RMB235.6 for the eight months ended August 31, 2018. The occupancy rate of our

mid-scale select service hotel in 2017 was slightly lower than the industry average due to the

opening of two new mid-scale select service hotels that require a ramp up period in order for

their occupancy rate to reach the expected level.

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Hotel Management

The tables below set forth breakdown of our revenue, gross profit and gross profit margin

generated by our full-service managed and franchised hotels for the periods indicated:



August 31,

2015 2016 2017 2018

RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue

Full-service managed hotels 118,465 97.5 106,205 94.9 130,584 95.5 100,428 95.1Franchised hotels 3,025 2.5 5,662 5.1 6,193 4.5 5,173 4.9

Revenue generated by our managedhotels 121,490 100.0 111,867 100.0 136,777 100.0 105,601 100.0



August 31,

2015 2016 2017 2018

Grossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin

RMB’000 % RMB’000 % RMB’000 % RMB’000 %

Full-service managed hotels 103,412 87.3 95,255 89.7 118,315 90.6 91,865 91.5Franchised hotels 2,641 87.3 5,078 89.7 5,611 90.6 4,732 91.5

Gross profit and gross profit margingenerated by our managed hotels 106,053 87.3 100,333 89.7 123,926 90.6 96,597 91.5

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Full Service Managed Hotels

As at August 31, 2018, we had 96 hotels under full service management agreements, with20,938 hotel rooms, accounting for approximately 65.6% of the hotel rooms in operation. Weoperate most of these hotels under our “New Century (開元)” brands. To capitalize ourwell-recognized brands and well-established operating platforms, we plan to increase our hotelportfolio primarily by managing third-party hotels, as we believe this model will help usexpand our hotel chains and enhance our brand recognition without incurring large capitalexpenditures. For the years ended December 31, 2015, 2016 and 2017 and the eight monthsended August 31, 2018, we entered into 23, 33, 48 and 45 full service management agreements,respectively. It typically takes ten to 40 months from the execution of a full servicemanagement agreement to hotel opening, depending on construction schedules and progresscontrolled by third-party hotel owners.

The following table sets forth the movement of the number of managed hotels under ourfull service management agreements during the Track Record Period:


For theeight months

endedAugust 31,

2015 2016 2017 2018

Hotels in operation at thebeginning of the relevant period 38 44 62 80Add: Hotels that commenced operation

during the relevant period 13 25 24 20Less: Full service management

agreements that were terminatedduring the relevant period 4(i) 3(ii) 2(iii) 3(iv)

Less: Full service managementagreements that were expired duringthe relevant period 1 – 1 –

Less: Full service managementagreements that were converted intofranchise agreements during therelevant period 2 4 3 1

Hotels in operation at the endof the relevant period 44 62 80 96

Notes:

(i) The full service management agreements were terminated either due to (a) change in the business model of thehotel owner or (b) the hotel being sold to third-party by the hotel owner.

(ii) The full service management agreements were terminated due to (a) the hotel being leased to third-party bythe hotel owner; (b) the hotel owner failed to pay the management fee on time; and (c) the construction of thehotel did not meet the standard stipulated by our Group.

(iii) The full service management agreements were terminated due to (a) change in the business model of the hotelowner; and (b) the change of public policy as the property is a military asset.

(iv) Two full service management agreements were terminated due to the construction and the facilities of the hoteldid not meet the standard stipulated by our Group; and one full service management agreement was convertedinto lease agreement.

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The individual terms of our full service management agreements are subject to

negotiation with individual hotel owners. The general terms of our hotel full service

management agreements are summarized below.

(i) Scope of services: Under our full service management, we prepare for hotel

openings, conduct trial operations, appoint management personnel and manage the

hotel according to our standards and procedures. We also provide optional

pre-opening consultation services that may include hotel design, construction and/or

management consulting services in addition to our full service management whereby

separate technical fee will be charged. While hotel owners are not involved in hotel

management, they are responsible for applying for business license and permits,

making capital contributions in relation to hotel constructions, decorations and

operations. Hotel owners also bear the operating expenses. Hotel owners have the

right to examine and approve the annual budget of a hotel prepared and submitted

by us. Appointment of key management, including the general manager, financial

controller and other management personnel, is subject to the hotel owners’ approval.

Although the personnel of the key management team will still be under the

employment contract with our Group, all salaries, benefits and other related

employment costs shall be borne by the hotel owners. The social insurance

contributions of the personnel of the key management team paid by our Group will

also be reimbursed to us by the hotel owners. Depending on the needs of the hotel

owners, the salaries of the general manager and financial controller may also be paid

by our Group, which will then be reimbursed to us by the hotel owners.

(ii) Term of service: A full service management agreement typically has an initial term

of ten to 15 years and may be extended for two to ten year periods by mutual

agreement generally negotiated and reached six months prior to expiration of the full

service management agreement. Please see the table below in this sub-section in

relation to the number of full service management agreements and rooms by expiry

date as at August 31, 2018.

(iii) Management fee: Management fees payable to us mainly comprise three parts: (a)

basic management fees equal to a fixed percentage, which is normally 2% to 5%, of

the total revenue of the hotel payable on a monthly or quarterly basis; (b) an

incentive management fee equal to a certain percentage, typically 4% to 6%, of the

gross operating profit of the hotel payable on a monthly or quarterly basis and, as

at August 31, 2018, 23 hotels are subject to adjustment based on the achievement

status of pre-determined targets, which are normally the anticipated gross operating

profit of a hotel (adjustments including (1) discount to the incentive management

fee; (2) deduction of the difference between the pre-determined gross operating

profit target and the actual gross operating profit from the incentive management

fee; and (3) incentive management fee would only be received if the pre-determined

target is achieved), and during the Track Record Period, 2, 9, 11 and 5 full service

managed hotels failed to achieve the pre-determined targets respectively and hence

the incentive management fee were being adjusted according to the terms of their

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respective full service management agreement(note); and (c) marketing and

promotion fees for marketing and promotion campaigns and services provided,

which equal to the sum of a fixed percentage, typically 0.5% of the total revenue of

a hotel. Under certain full service management agreements, we collect from

third-party hotel owners a reservation service fee on a per-room-night basis for

using our CRS. Our optional pre-opening consultation services typically charge a

fee ranging from RMB0.8 million to RMB1.5 million annually in the years our

services are rendered depending on the type of services provided.

Note: A majority of these full service managed hotels that failed to achieve the pre-determined targetswere newly opened hotels which required a ramp up period to reach the expected operating level.

The following table sets forth the revenue breakdown of the management fees paid to us

under the full service management agreements during the Track Record Period:


For the

eight

months

ended

August 31,

2015 2016 2017 2018

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

Basic management fee 48,374 51,274 58,397 46,097

Incentive management fee 19,495 22,293 31,817 21,682

Marketing and promotion fee 7,857 9,740 8,399 5,734

Pre-opening consultation fee 35,464 14,113 20,256 18,818

Other management fee(Note) 7,275 8,785 11,715 8,097

Total 118,465 106,205 130,584 100,428

Note: Other management fee comprises of (i) membership management fee; (ii) room reservation incentivefee; (iii) social insurance contribution reimbursement; and (iv) other ancillary fees.

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(iv) Termination: Most of our full service management agreements grant early

termination rights to third-party hotel owners upon the occurrence of a specified

event, such as the sale of the hotel or our failure to meet a specified performance

test. Generally, termination rights under performance tests are based on the hotel’s

individual performance or its performance when compare to a specified set of

comparable hotels under other hotel operators, or both. These termination rights are

usually triggered if we do not meet the performance tests over a number of years.

For example, if a hotel does not pass the star-rating test or fails the star-rating review

within two or three years upon opening, or it fails to achieve 80% of the

pre-determined gross operating profit for two consecutive years starting from the

third anniversary of the opening, the third-party hotel owner has the right to

terminate the full service management agreement; furthermore, if more than

one-third of the hotel area is required by competent authorities to be closed for more

than 15 days, the third-party hotel owner has the termination right. Some of our full

service management agreements also provide a specified indemnity up to RMB3.0

million if we operate other hotels under the same brand in the same district of the

city. As at the Latest Practicable Date, we had not experienced any such termination

or incurred such indemnity. If a hotel owner fails to provide the hotel that conforms

to our standards to our satisfaction on a date specified in the full service

management agreement, the full service management agreement may be terminated

upon the payment of a specified sum by the hotel owner to us. In case of a breach

of contract, the non-defaulting party, without prejudicing its entitlement to other

compensation under the PRC law, may terminate the contract and be indemnified by

the defaulting party.

The following table sets forth the number of hotels and hotel rooms in operation underthe full service management agreements by the expiry date/period as at August 31, 2018:

No. of hotel(s) No. of hotel rooms

In 2018 1 237In 2019 5 1,468In 2020 2 507Between 2021 and 2025 23 6,001Between 2026 and 2030 34 9,193Beyond 2030 31 3,532

The following tables set forth certain information of the top five managed hotels in terms

of management fee income contribution for the periods as indicated. The aggregated

management fee income from the top five managed hotels for the years ended December 31,

2015, 2016 and 2017 and the eight months ended August 31, 2018 were RMB39.8 million,

RMB29.6 million, RMB35.0 million and RMB25.0 million, respectively, and representing

32.8%, 26.4%, 25.6% and 23.7% of our revenue under our hotel management business for the

abovementioned periods, respectively.

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For the year ended December 31, 2015

Hotel LocationNo. ofrooms Brand Tier Term

Huzhou DongwuGrand NewCentury Hotel

Huzhou, ZhejiangProvince

603 Grand NewCenturyHotels

Upscalebusinesshotel

2010 – 2024

Shanghai SongjiangGrand NewCentury Hotel

SongjiangDistrict,Shanghai City



2014 – 2024

Xuzhou Grand NewCentury Hotel

Xuzhou, JiangsuProvince



2013 – 2027

Deqing New CenturySenbo Resort(1)


N/A New CenturySenboHotels

Upscale resorthotel

2015 – 2016

Beijing GrandNew Century(2)

Xicheng District,Beijing City



2006 – 2016

Notes:

1. This was a pre-opening consultancy agreement entered into between the hotel owner and our Company inrelation to Deqing New Century Senbo Resort, for the provision of pre-opening consulting services. The hotelowner subsequently entered into the full service management agreement with our Group in 2018 in relation toDeqing New Century Senbo Resort with a term of ten years.

2. As the hotel owner changed the use of the property from hotel to office building, the agreement was terminatedin 2016.






Upscalebusinesshotels

2010 – 2024





2014 – 2024





2013 – 2027

Beijing Gehua NewCentury Hotel

ChaoyangDistrict,Beijing City



2009 – 2021

Zheshang Grand NewCentury Hotel

Hangzhou,ZhejiangProvince



2010 – 2025

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2010 – 2024

Beijing Gehua NewCentury Hotel

ChaoyangDistrict,Beijing City



2009 – 2021

Zheshang Grand NewCentury Hotel

Hangzhou,ZhejiangProvince



2010 – 2025





2013 – 2027





2014 – 2024

For the eight months ended August 31, 2018


Huzhou Dongwu

Grand New

Century Hotel

Huzhou, Zhejiang

Province

603 Grand New

Century

Hotels

Upscale

business

hotel

2010 – 2024

Beijing Gehua New

Century Hotel

Chaoyang

District,

Beijing City

353 Grand New

Century

Hotels

Upscale

business

hotel

2009 – 2021

Zheshang Grand New

Century Hotel

Hangzhou,

Zhejiang

Province

412 Grand New

Century

Hotels

Upscale

business

hotel

2010 – 2025

Xuzhou Grand New

Century Hotel

Xuzhou, Jiangsu

Province

357 Grand New

Century

Hotels

Upscale

business

hotel

2013 – 2027

Shanghai Songjiang

Grand New

Century Hotel

Songjiang

District,

Shanghai City

446 Grand New

Century

Hotels

Upscale

business

hotel

2014 – 2024

BUSINESS

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Franchised hotels

We only grant hotel owners with limited operational discretion to run their hotels on afranchising basis to the extent that we can maintain our control over the standard and qualityof the hotel under the “New Century (開元)” brand. Despite our rapid development, we havealways been upholding our quality-oriented value by, for years, selecting just a few hotelprojects that meet our brand criteria for franchise. We constantly monitor the operationalperformance and the service quality standard of our franchised hotels in order to ensure thatour operating requirements and standards are met.

As at August 31, 2018, we granted franchises to 13 hotels with 3,465 hotel rooms, all ofwhich are in operation and are owned by Independent Third Parties, accounting forapproximately 10.9% of our hotel rooms in operation. These hotels are operated by the hotelowners under our “New Century (開元)” brands, and most of them are five Star-rated hotels inselected cities. For the years ended December 31, 2015, 2016 and 2017 and the eight monthsended August 31, 2018, we entered into 3, 4, 4 and 2 franchise agreements, respectively, all ofwhich are in operation.

The individual terms of the franchise agreements are subject to negotiation withindividual hotel owners. The general terms of our franchise agreements are summarized below.

(i) Scope of service: Pursuant to the franchise agreement, the franchisee will be grantedthe use of the “New Century (開元)” brand name and the relevant registeredtrademarks during the term of the agreement. The franchised hotels will be operatedby the franchisee unless they hire third-party hotel management companies tooperate their hotels. Once the franchisee agrees to join us as our franchised hotel,the franchised hotel owner will appoint management personnel and we will providethose management personnel and hotel staff with relevant training in our standardsand procedures as a “New Century (開元)” franchised hotel. We will only undertakea supervisory role for the franchised hotel’s opening and operation to ensure themanagement personnel and hotel staff adhere to the service standard of our Groupthroughout the operation of the franchised hotel through performing annual audit onthe operation and management of the franchised hotel, unannounced inspection onthe service and facilities of the hotel and customer satisfaction survey. Thefranchised hotel owners will be involved in hotel management, making capitalcontributions in relation to hotel constructions, decorations and operations andbearing the operating expenses.

(ii) Term of service: A franchise agreement typically ranges from three to ten years andmay be extended by mutual agreement six months prior to the expiration of thefranchise agreement. Please see the table below in this sub-section in relation to thenumber of franchise agreements and rooms by the expiry date as at August 31, 2018.

(iii) Franchise fee: The franchise fee will comprise: (i) brand name usage fee, a fixed feenormally payable on a monthly basis as consideration for allowing the franchisee theuse of the “New Century (開元)” brand name; (ii) operation management audit fee,a fixed fee payable on an annual basis for the performance of annual audit on the

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operation and management of the franchisee’s business; (iii) unannouncedinspection fee, a fixed fee payable on an annual basis for our Group to engage athird-party hotel expert to inspect on the service standard, hygiene, food safety andfire control facilities of the franchised hotel; (iv) customer satisfaction survey fee,a fixed fee payable on an annual basis for our Group to carry out an annual surveyto the franchised hotel’s customers on their satisfaction about their stay at thefranchised hotel; (v) employee satisfaction survey fee, a fixed fee payable on anannual basis for our Group to carry out an annual survey to the franchised hotel’sstaff on their job satisfaction; (vi) the staff training fee, a lump sum fee to be agreedbetween our Group and the franchisee for providing appropriate employee trainingto the franchised hotel staff based on their operational needs; and (vii) CRS fee, areservation service fee on a per-room-night basis for using our CRS. During theTrack Record Period, the management fee generated from a franchised hoteltypically ranged from RMB0.2 million to RMB1.3 million.

(iv) Termination: Most of our franchise agreements grant early termination rights to thefranchisee upon the occurrence of a relevant event, such as the deregistration of thetrademark for the “New Century (開元)” brand, malfunction of the CRS, and thesufferance of the franchisee from a material damage to its goodwill as a result of theuse of the “New Century (開元)” brand. We also have the right to terminate thefranchise agreement if the franchisee fails to use our trademark in accordance to ourstandard and cause material damage to our brand. During the Track Record Periodand up to the Latest Practicable Date, there was no franchise agreement beingterminated and only one franchise agreement that was not being renewed upon theexpiry of the term of agreement.

The following table sets forth the number of hotels and hotel rooms in operation underthe franchise agreements by the expiry date/period as at August 31, 2018:

No. of hotel(s) No. of room(s)

Between 2021 and 2025 9 2,707

Between 2026 and 2030 4 758

SEASONALITY AND CYCLICALITY

The hotel industry, particularly the resort hotel business, is seasonal in nature and followsthe general economic cycles. Based upon the historical results, the revenue of our upscalebusiness hotels and mid-scale full service hotels typically generate higher revenue during thefourth quarter of each year. We typically witness higher demand for our ballroom andconference room facilities at our upscale and mid-scale full service hotels in the fourth quarterof each year, primarily due to the year end festivity season such as the golden week holidayin October and end of year demand for business functions and annual dinners. Our upscaleresort hotels typically generate higher revenue during the third quarter of each year whichcoincide with the summer season and school summer holidays in the PRC. The revenue of ourmid-scale select service hotels remains relatively stable throughout the year. There is a historyof increase and decrease in demand for hotel rooms, in occupancy levels and in rates through

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economic cycles. Please refer to the sub-section headed “Risk Factors – Risks Relating to theHotel Industry – Our hotel business may be adversely affected by a reduction in businesstravelers, affluent leisure travelers or discretionary consumer spending as a result of adownturn in the PRC or global economy or any acts or threats of terrorism” on the risks relatingto the general economic conditions that may affect our hotel business.

PRICING POLICIES

Management and Franchise Fees

The management fees payable to us under our full service management agreement mainlycomprise (i) basic management fee, which is equal to a fixed percentage of the total revenueof the hotel payable on a monthly or quarterly basis, (ii) an incentive management fee, whichis equal to a certain percentage of the gross operating profit of the hotel payable on a monthlyor quarterly basis, which may be subject to adjustment based on the achievement status ofpre-determined targets that are normally the anticipated total revenue or gross operating profitof a hotel; and (iii) marketing and promotion fees, which is equal to the sum of a fixedpercentage, typically 0.5% of the total revenue of a hotel. We may also charge technical servicefees through providing the optional pre-opening consultation services, which the fees chargedare mainly affected by the type and scope of services provided. The franchise fees payable tous under our franchise agreement mainly comprise, among others, the brand usage fee, theoperation management audit fee which are charged as a fixed fee on an annual basis and thestaff training fee which is charged as a lump sum fee agreed with the hotel owner upon theirrequest.

Room Rates

The room rates of our hotels are determined, and adjusted from time to time, based onvarious factors, including the hotel rating and class, the services and facilities being provided,the location and the local market conditions and demand, the occupancy levels and seasonality.We expect to determine our room rates based on similar factors in the future. Based on the typeof hotel guests and market segment, the hotel guests groups are categorized into walk-in hotelguests, corporate hotel guests, hotel guests reserving through our website, members of ourloyalty program, third-party booking networks and travel agencies. We offer the mostpreferential room rates to our Century Club members, hotel guests reserving through ourwebsite and our major corporate hotel Century Club guests so as to improve the loyalty of suchkey hotel guests group of the hotels. For further details on the different types of salesdistribution channels, please see sub-section headed “– Sales and Marketing” below in thissection.

F&B

In determining our F&B pricing, we make reference to the costs of raw materials and foodingredients, seasonal factors, competitions, spending patterns and purchasing power of ourhotel guests and other restaurant expenses and costs (such as labor costs and utility expenses).Our operated hotels normally feature a Chinese restaurant, a western restaurant and ballroomsfor F&B services and the pricing of our food and services vary depending on the style of diningbeing served.

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OUR HOTEL PORTFOLIO

We operate and manage “New Century (開元)” branded hotels and resorts throughout

China. Our key hotel brands are as follows:

Grand New Century Hotels (開元名都)

Grand New Century Hangzhou (杭州開元名都)

Launched in 2005, our Grand New Century Hotels feature large-scale, distinctive five

Star-rated hotels primarily in second- or third-tier gateway cities and resort destinations. They

typically have 250 or more rooms with a total GFA of over 35,000 sq.m. with banquet halls of

at least 800 sq.m. to satisfy various demands for large scale conferences and banquets. The

Grand New Century Hotels provide affluent business and leisure travelers with luxury

accommodation and serve the large, upscale convention and banquet needs from both the

public and private sectors. Signature elements of the Grand New Century Hotels include

luxurious decoration, innovative dining options, free Internet access and comprehensive

business and meeting facilities. As at December 31, 2015, 2016, 2017 and August 31, 2018, we

had 31, 34, 39 and 42 Grand New Century Hotels with 11,238, 12,302, 13,644 and 14,731 hotel

rooms in operation, respectively. As at August 31, 2018, we had 28 Grand New Century Hotels

with 9,160 rooms in our pipeline, which were under development and all of which were

expected to commence operation within the next five years.

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New Century Resorts (開元度假村)

New Century Resort Hangzhou Qiandao Lake (杭州千島湖開元度假村)

Launched in 1992, our New Century Resorts are our upscale resort hotel brand with the

longest history, the largest number of hotels and the most full service management agreements

with our Group. New Century Resorts feature large-scale, distinctive five Star-rated luxury

resorts in scenic locations, such as famous lakes and hot springs, targeting affluent leisure

travelers and resort vacationers, and upscale conventions and banquets. Leveraging the unique

natural environment around the New Century Resorts, our Group, cooperating with well-

established architectural firms, aims to create outstanding leisure and vacation atmosphere

through architectural designs and interior styles that integrate local features into modern

aesthetics. These resorts usually have 200 or more rooms with a total GFA exceeding 35,000

sq.m. Signature elements of the New Century Resorts include a full range of catering and

entertainment facilities, particularly spa and fitness centers and ballrooms with a minimum

GFA of 500 sq.m. Launched in 2004, one of our New Century Resorts, New Century Resort

Hangzhou Qiandao Lake was the first standard five Star-rated resort hotel in Qiandao Lake at

that time. As at December 31, 2015, 2016, 2017 and August 31, 2018, we had seven, ten, 11

and nine New Century Resorts with 1,551, 2,311, 2,480 and 2,303 hotel rooms in operation,

respectively. As at August 31, 2018, we had 16 New Century Resorts with 4,209 rooms in our

pipeline, which were under development and all of which are expected to commence operation

within the next five years.

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New Century Grand House (開元觀堂)

Shaoxing Dayu New Century Grand House

(紹興大禹開元觀堂)

New Century Grand House is one of the brand series as our upscale resort hotel. Launched

in 2011, our New Century Grand House is a brand of hotels located in ancient towns, villages,

or scenic regions with historical and unique cultural heritage. This brand of hotels aims to

reconstruct the modern Chinese aesthetic life in historical and cultural buildings in China.

Through unique design, delicate products and special cultural experiences, our New Century

Grand House hotels aim to provide the traveler groups in pursuance of “cultural exploration”

with gracious, warm, emotional and inheritable cultural experiences with different features. As

at December 31, 2015, 2016 and 2017 and August 31, 2018, we had four, four, four and five

New Century Grand House with 726, 726, 726 and 874 hotel rooms in operation, respectively.

As at August 31, 2018, we had seven hotels under the “New Century Grand House (開元觀堂)”

label with 940 rooms in our pipeline which were under development and are expected to

commence operation within the next five years.

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New Century Wonderland (開元芳草地鄉村酒店)

Hangzhou Fuchun New Century Wonderland Resort (杭州富春開元芳草地鄉村酒店)

Launched in 2016, our New Century Wonderland resort hotels feature natural

surroundings with tea gardens, bamboo forests with beautiful scenery, ecological nature and

convenient transportation. These resorts usually have featured rooms in the form of

characteristic cabins, straw huts and tents. The hotel, with featured log cabins, boat houses, turf

houses, tents and other creative resort products at its core, is equipped with playgrounds, farms

and ranches, stud farms, nature education, children development center and other leisure, living

facilities. Since the launch in 2016, our New Century Wonderland Resorts have been highly

recognized and favored by the market, and our second New Century Wonderland, Hangzhou

Fuchun New Century Wonderland Resort, has been rewarded the Best Suburb Resort Hotel in

the 14th China Hotel and Tourism Conference in 2018. As at December 31, 2015, 2016 and

2017 and August 31, 2018, we had nil, one, one and three New Century Wonderland resort

hotels with nil, 178, 178 and 492 hotel room(s) in operation, respectively. As at August 31,

2018, we had two New Century Wonderland resort hotels with 420 rooms in our pipeline which

were under development and is expected to commence operation within the next five years.

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New Century Hotel (開元大酒店)

Hangzhou Qiandao Lungcort New Century Hotel (杭州千島龍庭開元大酒店)

Launched in 1988, our New Century Hotels are typically four Star-rated hotels primarily

located in second- or third-tier cities. They offer a full range of services and facilities tailored

to serve the needs of business and leisure travelers, conventions and banquets. These hotels

usually have 200 or more rooms with a total GFA exceeding 20,000 sq.m. New Century Hotels

feature comprehensive business and entertainment facilities, including ballrooms with a

minimum GFA of 500 sq.m. New Century Hotels offer value for money accommodation to its

mid- to upscale hotel guests through their unique location, well-equipped facilities and

competitive consumer experiences. As at December 31, 2015, 2016 and 2017 and August 31,

2018, we had 18, 20, 24 and 25 New Century Hotels with 4,788, 5,245, 6,209 and 6,339 hotel

rooms in operation, respectively. As at August 31, 2018, we had 29 New Century Hotels with

7,628 rooms in our pipeline, which were under development and all of them are expected to

commence operation within the next five years.

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New Century Manju Hotel (開元•曼居酒店)

Manju Ningbo International Exhibition Center East Yintai City (開元曼居•寧波國際會展中心東部銀泰城店)

Launched in 2010, our New Century Manju Hotels mainly offer limited services to the

fast-growing number of value-conscious travelers. These hotels usually have around 130

rooms, providing limited services such as food and beverage services to the hotel guests. New

Century Manju Hotel, being a mid-scale select service hotel brand, is committed to establish

itself as the leading operation and service provider of selective accommodation and leisure life

space. As at December 31, 2015, 2016 and 2017 and August 31, 2018, we had 11, 18, 30 and

43 New Century Manju Hotels with 1,461, 2,443, 3,959 and 5,769 hotel rooms in operation,

respectively. As at August 31, 2018, we had 17 New Century Manju Hotels with 2,133 rooms

in our pipeline, which were under development and all of which are expected to commence

operation within the next five years.

Other Hotel Brands

Our hotel brand portfolio also includes (i) our other upscale resort hotels, namely “New

Century Senbo (開元森泊)”; (ii) our other mid-scale full service hotel brands, namely “Maison

New Century (開元名庭)”; and (iii) our other mid-scale select service hotel brands, namely

“Kaiyuan Life (開元頤居)”, “Mayart Hotel (開元美途)”, “Wonderland RV Camp (芳草青青房車營地)” and “A.T.K Hotel (阿緹客)”.

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OUR HOTEL SERVICES

Our hotels uphold the consistent quality of “New Century (開元)” and aim to provide

guests with services combining both oriental culture and international standards. With the

business philosophy of “focus on customers, dedication to services, create features and build

brands”, our hotels are committed to provide guests with enthusiastic services in the “New

Century (開元)” style.

The table below shows the revenue breakdown of our hotel operations in the years ended

December 31, 2015, 2016 and 2017 and the eight months ended August 31, 2017 and 2018.


2015 2016 2017 2017 2018

RMB

% of

total

revenue RMB

% of

total

revenue RMB

% of

total

revenue RMB

% of

total

revenue RMB

% of

total

revenue

(RMB in thousands, except for percentages)

(unaudited)

HotelOperationRoom 652,586 46.6 666,038 44.7 732,890 48.0 494,210 50.4 482,285 47.6F&B services 568,679 40.6 633,513 42.5 583,156 38.2 371,580 37.8 400,545 39.5Ancillary

services(1) 139,344 9.9 151,923 10.2 178,087 11.6 96,745 9.8 107,163 10.6Rental income 39,983 2.9 38,665 2.6 33,733 2.2 19,818 2.0 23,655 2.3

Total segment

revenue 1,400,592 100.0 1,490,139 100.0 1,527,866 100.0 982,353 100.0 1,013,648 100.0

Note:

1. Primarily includes (i) hotel-related value-added services such as leisure and fitness services and carparking services; (ii) sales of goods or products such as wine, seafood, moon cakes and rice dumplings;and (iii) room reservation services via our CRS or other reservation channels provided to the third-partyhotel owners charged on a per-room-night basis.

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Based on the market position and the target group of hotel guests of our respective brandsabove, our hotels offer the below range of services:

Accommodation and Services

We provide consistent, high-quality services to our hotel guests across our hotels toenable them to enjoy the comforts of home while staying at our hotels. To achieve this goal,we have created a comprehensive set of procedural manuals relating to all aspects of our hoteloperations to guide our employees in the same standard, thereby ensuring the same quality ofservices across our hotels. We have established multi-channel, round-the-clock reservationsystem which our hotel guests can reserve our hotel rooms conveniently through various onlineor offline channels such as our website, Century Club mobile application and third-partydistribution channels. We record the hobby and consumption preferences for each customer inour advanced PMS system. We also provide high quality amenities, such as clean andcomfortable bedding, wireless Internet, minibar, fine bath and personal care supplies, andvalue-added services, such as express hotel check-in and check-out service, laundry services,tour guides and flight booking services. We collaborate with well-known domestic andoverseas mattress companies and cotton fabric companies to jointly create high qualitymattresses and bedding for use at our hotels.

Since 2012, our hotels have fully implemented the “New Century’s Back to Nature (還木開元)” environmental protection plan. Under the said plan, all disposable consumables aremade of recyclable and degradable materials.

Our hotels also extend its service to the guests after they check out, including theestablishment of after-stay service links, and extension of the scope of services. By leveragingthe travel arrangements, accommodation for guests’ special needs, relationship maintenance,guest satisfaction survey and other services, we strive to make our guests feel the meticulous“New Century Care” services.

F&B Services

The following table shows certain operating data of our F&B services for the years endedDecember 31, 2015, 2016 and 2017 and the eight months ended August 31, 2017 and 2018,respectively.


ended August 31,

2015 2016 2017 2017 2018

F&B service:Average spending per

guest (RMB) 125.9 126.8 125.9 119.8 125.4

Utilization rate of seats(1) 64.2% 68.6% 69.3% 70.2% 71.3%

Revenue per sq.m. ofbanquet rooms (RMB) 12,431.6 14,616.6 11,891.1 7,106.9 7,820.5

Average daily revenue(RMB’000)(2) 1,558.0 1,735.7 1,597.7 1,529.1 1,648.3

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Notes:

1. Utilization rate of seats is calculated based on the number of customer visits per day divided by thenumber of seats.

2. Average daily revenue is calculated by dividing the F&B revenue by the total number of operating days.

From the year ended December 31, 2015 to the year ended December 31, 2016, the

increase in average spending per guest from RMB125.9 to RMB126.8, the utilization rate of

seats from 64.2% to 68.6% and the revenue per sq.m. of banquet rooms from RMB12,431.6 to

RMB14,616.6 led to the increase in average daily revenue from RMB1,558,000 to

RMB1,735,700. However, from the year ended December 31, 2016 to the year ended

December 31, 2017, despite the further increase in the utilization rate of seats from 68.6% to

69.3%, the average daily revenue decreased to RMB1,597,700 due to the decrease in average

spending per guest from RMB126.8 to RMB125.9 and the decrease in revenue per sq.m. of

banquet rooms from RMB14,616.6 to RMB11,891.1. This was due to the increased local

demand for our wedding banquet service in 2016 as compared to 2015 and 2017. The

utilization rate of seats continued to increase from 69.3% for the years ended December 31,

2017 to 71.3% for the eight months ended August 31, 2018 and the average daily revenue also

increased from RMB1,597,700 to RMB1,648,300 for the same period.

As at August 31, 2018, a total of over 7,800 seats at our restaurants and a total GFA of

31,556 sq.m. of banquet rooms in our leased and owned hotels were managed directly by us.

As at August 31, 2018, there were self-operated restaurants in our leased and owned hotels,

which contributed to our F&B revenue. Save for a limited number of restaurants and ballrooms

with total GFA of 6,350.6 sq.m. which are leased to independent third-party F&B services

operator, all of the restaurants in our operated hotels are operated by our Group. As at the

Latest Practicable Date, no trademark was owned, used or registered by our Group solely for

the purpose of our F&B services.

Our F&B services consist of banquet catering, restaurants, conferences and business

meals and in-room dining services. Since the opening of our first hotel in Hangzhou, Zhejiang

Province in 1988, we have endeavored to promote and improve our innovative catering of fine

Chinese cuisine. We also offer Japanese, western and southeast Asian cuisine. Our restaurants

are managed by our F&B directors and our executive chefs that possess relevant experience in

the respective cuisine. We believe our hotels have developed high-quality F&B services,

offering diverse and appealing choices for our hotel guests. Our catering services appeal to

both local hotel guests, who have banquets, celebrations or weddings in our hotel ballrooms,

and business travelers who attend conferences at our hotels. Most of our hotels provide in-room

dining services, including breakfasts and in-room dining services as well as a mini-bar. We

believe our strong F&B service capability distinguishes us from our competitors.

BUSINESS

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We provide leading hotel banquet service and we have been involved in the formulation

of the Hotel Banquet Service Standard commissioned by the Supervision and Management

Department of the National Tourism Administration. In response to the guests’ high demand for

banquet services, we have pioneered the “Quality Banquet Service Ambassador” training

system to our hotel staff in order to provide well-trained, professional and unique banquet

services to our hotel guests. Our F&B staff will also assist in the planning of the banquet by

designing and coordinating the banquet and the banquet planning process.

We generated RMB568.7 million, RMB633.5 million, RMB583.2 million and RMB400.5

million from our F&B services, representing 40.6%, 42.5%, 38.2% and 39.5% of our revenue

derived from our hotel operation segment, for the years ended December 31, 2015, 2016, and

2017 and the eight months ended August 31, 2018, respectively.

Recreational and other facilities

Our hotels promote a healthy lifestyle, with health clubs equipped in our upscale hotels,

providing fitness facilities and swimming pools for hotel guests. Most of these health clubs are

self-operated by our own hotels, with some exception where independent third-party fitness

brands were introduced to provide professional fitness guidance and services for guests.

Our upscale business hotels, upscale resort hotels and mid-scale full service hotels would

normally feature a spa center, most of which are operated by Independent Third Parties. Some

of our hotels would also offer business center services and car parking facilities for our hotel

guests.

We derive a small portion of our revenue from businesses that support our hotel

operations and management, including revenue from sales of goods and products and provision

of room reservation services. Goods and products sold by us include gift food and beverage

items and packages for various festivals such as moon cakes, rice dumplings and wine. For

room reservation service, we collect from third-party hotel owners a reservation service fee on

a per-room-night basis for using our CRS.

We generate certain rental income through leasing portion of our hotel space to

third-party retail shops, fitness brands, spa center and a limited number of restaurants and

ballrooms.

DEVELOPMENT AND EXPANSION OF OUR HOTEL BUSINESS

The hotel owners under our hotel operation and management business models are

typically state-owned enterprises and private enterprises in the PRC. We typically source our

owner customers from hotel industry summits held or participated by our Group, hotel industry

forums, our brand promotion events and referrals from industry leading design and

construction companies, well-known consultancy firms, government investment and industry

authorities. Potential customers would also contact us through our sales center, or through

word-of-mouth referrals made by our existing customers, to explore cooperation opportunities.

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Due to our dual capabilities in both hotel operation and hotel management, we also maintain

close contact with current hotel owners as we could, from time to time, depending on the then

prevailing needs of the hotel owners and our internal assessment of underlying economics of

operating a leased or managed hotel, agree with the hotel owners to convert a full service

management agreement to an operated hotel under hotel lease agreement or vice versa.

Operated Hotels

We seek properties that are in central or highly accessible locations in selected cities in

order to maximize room and occupancy rates. After identifying a proposed site, we conduct

thorough due diligence and typically negotiate hotel lease agreements concurrently with

prospective lessors. Once a hotel lease agreement has been executed, we start to carry out

pre-opening activities. For certain properties, we engage independent design firms and

renovation companies to begin work on leasehold improvements. Our construction

management team works closely with these firms on planning and design and supervises

renovation work. Our contracts with renovation companies typically contain warranties for

quality and requirements for timely completion of renovation. Contractors are typically

required to compensate us in the event of delays or defects. It typically takes two to ten months

from the execution of a hotel lease agreement to hotel opening, provided that the hotel has

completed construction and renovation by the time the hotel is handed over to our management

team.

An owned or leased hotel typically require some level of maintenance and upgrade work

in areas such as hotel room renovation, dining area renovation and ballroom renovation every

eight to ten years, and a major structural renovation work in areas such as exterior renovation

and maintenance on air-conditioning every six to eight years and 15 to 20 years respectively

depending on the conditions of the respective facilities.

A newly-opened hotel or a hotel that entered into a new lease agreement generally require

a breakeven period of two to three years given that (i) for a newly-opened hotel, time is

required to build up the necessary track record and hotel guest base; and (ii) for hotels that

entered into new lease agreements, landlords would typically set a higher rental rate than the

previous lease agreement by referencing to, among other things, the then prevailing local rental

market conditions and what they would theoretically earn as a hotel operator or owner if they

were to operate the hotels by themselves or engage third-party hotel management company.

Therefore upon signing such lease agreements, we typically need a certain ramp up period in

order to break even. In addition, the profitability at each hotel for any given year or period may

be affected by (i) fluctuation of F&B revenue including changes in the level of F&B demand

locally; and (ii) seasonality factor of our hotel operations. As at December 31, 2015, 2016 and

2017 and August 31, 2018, we had 16, 13, 9 and 8 loss-making operated hotels, primarily

comprising of newly-opened hotels and hotels that entered into new lease agreements.

BUSINESS

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We believe that our ability to execute a business model combining both hotel operation

and hotel management businesses is one of our key competitive strengths, and as such in

addition to growing our portfolio of managed hotels, we will continue to selectively seek

expansion of our operated hotel network. Operating our owned and leased hotels allow us to

have greater control and autonomy over the hotel design and renovation, operations,

positioning and the brand itself whilst allowing us to enjoy the growth potential of our

operational income from operated hotels beyond the initial ramp up period. Such control and

autonomy is important for brand building and could act as a showcase of our hotel operational

ability, helping us to expand into new areas where we have no previous presence or areas where

our brand is relatively less established. As such, we are planning to enter into at least 21 new

hotel lease agreements for the opening of two new upscale business hotels, two upscale resort

hotels and 17 mid-scale select service hotels in or before 2021. Majority of these projected new

leased hotels are expected to be located at provincial capitals in the PRC outside Zhejiang

Province, as we continue to expand our nationwide footprint.

Managed Hotels

We formulate the business model for the hotel based on the background information on

the hotel provided by the hotel owner and our evaluation and research on the hotel properties.

For franchised hotels in particular, once we receive applications from potential franchisee on

its intention to join our franchising system, we shall conduct due diligence on the potential

franchisee as to whether the hotel owned by the potential franchisee is suitable as a franchised

hotel under the “New Century (開元)” brand. After execution of either the full service

management agreement or franchise agreement, based on the type of service, we would appoint

the management team and provide a series of pre-opening services including renovation

supervision, conduct trial operations and provide hotel owners with our hotel management

standards and procedural manuals.

The hotel business development processes involved for each of the full service

management and the franchise service are as follows:

Full service management

Confirm

Target

Market

Hotel

Location

Due

diligence

negotiation

Approval

of

agreement

Hotel

Renovation

Supervision

Assist

staff

employment

Commencement

of business

Appoint

General

Manager

and

management

team

Franchise service

Franchise

applicationNegotiation

Franchise

approval

Execution

of

franchise

agreement

Hotel

Renovation

Standardization

Service

Hotel

Staff

Training

Pre-opening

Evaluation

Commencement

of business

On-going

Quality

Control

Review

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Our Pipeline

According to Horwath, the total number of upscale and mid-scale hotel rooms is on the

rise and it is estimated that by 2021, the supply of up-scale and mid-scale hotel market is

expected to increase by more than 5,000 hotels with over 700,000 hotel rooms as compared to

2017. Among all hotel rooms, the increase of up-scale hotel rooms is expected to be more than

135,000 and the increase of mid-scale hotel rooms is expected to be more than 638,000.

To support our growth strategy, we continue to expand our development pipeline in order

to support our growth strategy. As at August 31, 2018, we had a total of 135 hotels in our

development pipeline, representing over 33,000 hotel rooms in our pipeline and are expected

to commence operation within the next five years. Of the 135 hotels under pipeline, 53 hotels

including two operated hotels, representing 39.3% of the pipeline, were located in the Zhejiang

Province. Further, 129 of the hotels in our pipeline as at August 31, 2018 are under our full

service management agreements, representing 95.6% of the total number of hotels under our

pipeline, and the remaining are four hotels under our hotel lease agreements and two under

our franchise agreements. All the agreements that were entered into for our hotels under our

pipeline are legally binding. Please refer to the subsection headed “Business – Our Business

Operations – Our Business Models” in this prospectus for further details on the principal terms

of the hotel lease agreements and the full service management agreements. In terms of hotel

segments, as at August 31, 2018, of the total 135 hotels under pipeline, 28 are for upscale

business hotel, 27 are for upscale resort hotels, 47 are for mid-scale full service hotels and 33

are for mid-scale select service hotels. For the capital expenditure requirements in relation to

our growth strategy, please refer to section headed “Future Plans and Use of Proceeds” in this

prospectus.

Our full service management agreements are designed to expand our business by utilizing

our brand standard, our operating system and hotel management expertise. The capital required

to build and maintain hotels that we manage is typically provided by the owner of the

respective hotel. Additionally, prior to approving the addition of new hotels to our pipeline, we

evaluate the economic viability of the hotel based on the geographic location, the credit quality

of the third-party owner, and other factors. As a result, increasing the number of full service

managed hotels by entering into full service management agreements with third-party hotel

owners could achieve a stable growth in our operating income through the increase in

management fees whilst minimizing our own investment risk upfront and at the same time

expanding our hotel network in the PRC.

BUSINESS

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The following table sets forth the movement of the number of operated and managedhotels in our hotel pipeline during the Track Record Period:


ended August 31,

2015 2016 2017 2018

OperatedHotels

ManagedHotels

OperatedHotels

ManagedHotels

OperatedHotels

ManagedHotels

OperatedHotels

ManagedHotels

Hotels contracted to be underdevelopment at thebeginning ofthe relevant period 1 64 3 74 3 82 8 107Add: New development

pipeline contracted duringthe relevant period (note) 2 24 2 33 7 49 2 46

Less: Hotels that commenceoperation during therelevant period 0 14 2 25 2 24 6 22

Hotels contracted to be underdevelopment at the end ofthe relevant period 3 74 3 82 8 107 4 131

Note: This excludes the full service management agreements that were converted into franchise agreements duringthe relevant period.

The following table sets forth the number of operated hotels, full service managed hotels

and franchised hotels under pipeline as at August 31, 2018 by expected year of commencement

of operation:

No. of operated hotels No. of managed hotels

Full service

managed hotels Franchised hotels

In 2018 – 12 1

In 2019 4 43 1

In 2020 – 51 –

In 2021 – 8 –

In 2022 – 14 –

In 2023 – 1 –

Total 4 129 2

Note: The breakdown of operated hotels, full service managed hotels and franchised hotels is based on theexisting lease agreements, full service management agreements and franchise agreements that havealready been entered into and the actual commencement date may be subject to further changes.

BUSINESS

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We believe that such growth plan (including hotels under existing pipeline as at

August 31, 2018 and the 21 projected new leased hotels) is feasible for the following reasons:

(a) out of the 21 projected new leased hotels, 17 of them will be developed into

mid-scale select service hotels. Since mid-scale select service hotels primarily

provide accommodation services with fewer hotel rooms and offer only limited F&B

services, our investment cost per hotel in developing a mid-scale select service hotel

is comparatively lower than developing a full service hotel and the scale and

complexity of the renovation required before hotel opening would also be less

sophisticated as compared to our upscale hotel. As most of the projected new leased

hotels would potentially be located in areas outside Zhejiang Province with the

locations mostly dispersed in different cities, it reduces the risk of potential

cannibalization of our hotel brands in any particular area;

(b) the hotel supply, in particular the mid-scale hotel market, still has considerable room

for growth. According to Horwath, the number of hotel rooms is expected to increase

from 1,382,851 in 2017 to 1,967,956 in 2021 for the mid-scale hotel market in the

PRC, representing an increase of 585,105 or a CAGR of 9.2%. Our Group’s

expected increase in mid-scale hotel rooms based on the pipeline as at August 31,

2018 of 16,623 rooms only represented 2.8% of the expected increase in the market

described above.

(c) for the upscale hotel market, the local economic and financial conditions of the

second- and third-tier cities have improved over the years and hence driving the

demand for local hotel services. We are in a better position to expand our hotel

network in those locations by leveraging our presence and experience in the second-

and third-tier cities as a domestic hotel group and our relatively lower cost structure

as compared to the international hotel groups;

(d) by taking the advantage of localization compared to other international hotel groups

and providing hotel guests with value-for-money hotel services, we have also been

able to establish our presence in the new first-tier cities, with 14 out of our 31

operated hotels and 31 out of our 109 managed hotels located in new first-tier cities

as at August 31, 2018. The occupancy rates of our operated upscale and mid-scale

hotels located in the new first-tier cities in 2017 were 71.5% and 66.3% respectively,

which were both higher than the PRC market average occupancy rate of the upscale

and mid-scale hotels in 2017 of 63.0% and 66.0%, respectively. The number of our

managed hotels in operation and located in new first-tier cities also increased from

12 as at December 31, 2015 to 31 as at August 31, 2018. This demonstrates the

demand for hotel services from our operated hotels and the proven growth rate of

our managed hotels in the new first-tier cities, which is further supported by our

established presence of our hotel network in Hangzhou, Zhejiang Province; and

BUSINESS

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(e) as at January 1, 2015, our Group has 65 hotels in operation, and such numberincreased to 140 as at August 31, 2018. From January 1, 2015 to August 31, 2018,our Group has opened 92 new hotels, representing an average annual growth of 25new hotels each year. Based on the 135 hotels under pipeline as at August 31, 2018,we have projected an average annual growth of at least 25 hotels each year fromAugust 31, 2018 to December 31, 2022, which is at a similar growth rate to theperiod from January 1, 2015 to August 31, 2018.

We believe that we have the ability to manage such growth on the basis that:

(a) we have already built a track record in operating our owned and leased hotels overthe years and as such, we believe we have built up adequate capabilities in terms ofbusiness execution and knowledge. Furthermore, our planned expansion of ouroperated hotels will be phased out over at least a three-year period, and there willbe dedicated teams specializing in rolling out operated hotels under each brand. Theplanned pace of growth of our hotel network is similar to our historical pace ofexpansion as detailed above. As such, we believe we are able to manage the pace ofour projected expansion of our operated hotels;

(b) based on the existing pipeline as at August 31, 2018, 97.0% of new hotels growth(in terms of hotel number) is expected to come from our Group’s hotel managementbusiness. We believe that we have shown our ability to manage and grow our hotelmanagement business in the past. During the Track Record Period, the number ofhotels under operation and management increased from 65 as at January 1, 2015 to140 as at August 31, 2018, representing an increase of 115.4%. For illustrativepurpose, for the 25 operated hotels that were in operation throughout year 2015 to2017, the total revenue and the average revenue per hotel for the year endedDecember 31, 2015 were RMB1,330.7 million and RMB53.2 million respectively,which were then increased to RMB1,416.0 million and RMB56.6 millionrespectively for the year ended December 31, 2016 and eventually increased toRMB1,416.1 million and RMB56.6 million respectively for the year endedDecember 31, 2017; (b) for the 27 operated hotels that were in operation in both year2016 and 2017, the total revenue and the average revenue per hotel for the yearended December 31, 2016 were RMB1,437.0 million and RMB53.2 millionrespectively, which were then increased to RMB1,466.6 million and RMB54.3million respectively for the year ended December 31, 2017; (c) for the 40 fullservice hotels that were in operation throughout year 2015 to 2017, the totalmanagement fee income and the average management fee income per hotel for theyear ended December 31, 2015 were RMB71.5 million and RMB1.8 millionrespectively, which were then increased to RMB80.4 million and RMB2.0 millionrespectively for the year ended December 31, 2016 and eventually increased toRMB88.7 million and RMB2.2 million respectively for the year ended December 31,2017; and (d) for the 62 full service hotels that were in operation in both year 2016and 2017, the total management fee income and the average management fee incomeper hotel for the year ended December 31, 2016 were RMB86.3 million and RMB1.4million respectively, which were then increased to RMB103.7 million and RMB1.7million respectively for the year ended December 31, 2017;

BUSINESS

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(c) the hotel management business is a relatively asset light business model. We areonly in charge of appointment of key management such as general managers andfinancial controllers and responsible for the overall hotel management. The hotelowners in turn bear the operating expenses and are responsible for applying forbusiness licenses and permits, making capital contribution, decoration andoperations. As at August 31, 2018, out of the pipeline of 131 managed hotels, 101are full service hotels and 30 are select service hotels. Our Group currently has apool of 56 employees that are undergoing the hotel manager training program underthe “three-tier talent training system” run by our New Century Academy and thesemanagers upon successful graduation from the program would be expected to bedespatched to be hotel managers for our pipeline of full-service hotels. As for thepipeline of 30 select service hotels, we already have a pool of 38 managers that isready to be despatched if required. In addition, we would continue to train anddevelop hotel managers through our New Century Academy from its own pool ofemployees. We will also recruit new employees to cope with our future growth ofour hotel network; and

(d) besides the requirement for competent key hotel management staff to be assigned toour managed hotels, we would not require other significant investment to grow ourportfolio of managed hotels given that any new managed hotel added would be ableto leverage on our established set of information and operational system.

Brand Development

Our strategic brand innovation and marketing center was established to provide ourmanagement with the strategic research and feasibility reports on the analysis of the hotelindustry, market development and trends in order to assist the management in formulating thestrategic planning for the launch of new brands in order to attract different types of hotel guestsand widen the products offering depending on their needs. Once our management has decidedon the strategic development of a new brand for a particular type of hotel guests, our strategicbrand innovation and marketing center shall formulate the execution plan for the launch of thenew brand including the brand positioning, brand experience analysis, brand conceptdevelopment, naming of the brand, brand logo design, promotion campaign and marketingactivities. We also strive to engage our staff in deciding how we can better serve our guests,and what we can do to improve guest satisfaction and brand building.

With the growth of China’s middle class and the changes in consumption demand of thenew generation, we have been actively studying the new market needs and implementingtransformations to create new products that can lead lifestyles and have introduced relativelynewer hotel brands, such as “New Century Grand House (開元觀堂)”, a cultural and thematicproduct brand, “New Century Wonderland (開元芳草地鄉村酒店)”, an eco-village resort brand,“Wonderland RV Camp (芳草青青房車營地)”, a new generation of travel accommodationbrand and “New Century Senbo (開元森泊)”, a tourism and resort complex brand. As at theLatest Practicable Date, a total of 12 hotel brands have been established. Under our contractedpipeline hotels, we expect to introduce new upscale and mid-scale hotel brands including“A.T.K Hotel (阿緹客)”,“Mayart Hotel (開元美途)” and “New Century Senbo (開元森泊)”, inorder to cater for potential new hotel guests for our mid-scale hotels and upscale resort hotelsand expand our guests base.

BUSINESS

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OPERATIONAL MANAGEMENT OF HOTELS

We believe a skilled management team is a critical element to succeed in our hotel

operations. The majority of our senior hotel management have extensive experience in the

hospitality and related services industries. Senior management teams at our headquarter are

responsible for monitoring day-to-day operations at an individual hotel, strategic planning,

finance, project development, sales and marketing, information technology and providing legal

advice for the overall operations. Each of the above operations are headed by experienced

personnel and seasoned team members with strong expertise in their respective areas. These

divisions provide support to an individual hotel’s day-to-day operations by monitoring

operations, providing accounting and budgeting services, sales and revenue management,

marketing and promotional support, cost controls, property management tools and other

resources. We develop, maintain and use our centralized corporate office resources efficiently

and effectively.

Budgeting and Monitoring

Utilizing the financial analysis system at our headquarter, based on our long term

strategic target, the historical operating performance of the hotel, planned marketing activities,

refurbishment of hotel products, changes to the local market, our headquarter personnel work

with the management of each hotel to set a detailed annual budget for the revenue and cost of

each hotel, including income and cost target and sales and marketing budget with the budgeting

control strategy. Through the use of our management reporting systems, we are able to track

each hotel’s daily occupancy, average daily rates, RevPAR and other operating data. As a

result, we can effectively and timely monitor the actual performance of each hotel. By having

current hotel operating information available on a timely basis, we can adjust sales efforts and

other resources in time to take advantage of market changes and to improve our profitability.

Quality Control

We are dedicated to providing value and consistent quality services to our hotel guests.

We have established quality standards for the different aspects of our hotel operations that

cover, among other areas, housekeeping, safety, F&B and entertainment facilities. To ensure

compliance with our quality standards, we have developed a comprehensive set of procedural

manuals relating to different aspects of our hotel operations to ensure that our employees

follow the same standards. We have implemented comprehensive training programs to ensure

the effectiveness and uniformity of our employee performance.

We designate a management team of around six to nine members to each newly opened

hotel. To keep pace with our rapid growth, we will further improve our training program to

address our continuing need for qualified managerial and other employees. We have devised

plans to train and establish an integrated group of staff for each of our hotels.

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We have implemented the following measures to ensure the quality of our services at ourhotels:

(i) a closed loop quality management system comprising multiple brands and channelshas been established, with focus on the five major systems including “organization,standardization, supervision, performance management, and information analysis”and various quality control measures including “secret guest visits, business visits,obtaining guest satisfaction, gathering online comments and official websitecomments, group complaints, remote monitoring, and public opinion monitoring”;

(ii) each hotel continues to identify quality problems of our hotels through dedicatedquality officers by conducting quality control inspection and other qualitymanagement measures. In addition, monthly quality control reports identify qualityissues will be prepared by each hotel to analyze the causes of such quality problemswith remedial measures and timetables proposed. The relevant quality controlreports will be submitted to the quality control director of our standardizedmanagement center;

(iii) through capitalizing on the measurements adaptive to our subordinate hotels inconsideration of the actual conditions of these hotels, our Company has developedpersonalized quality objectives and implemented the quality and performanceassessment system. Based on the extensive quality control model with continuousfocus on online, offline, remote, internal, and external issues, our Company haspromoted day-to-day and phasal communication of the hotels with “DynamicQuality Report” and “Dynamic Monthly Quality Management Report” asinformation carrier; and

(iv) with our internal guest satisfaction tracking system (including automatically-distributed satisfaction questionnaires to hotel guests, feedbacks from hotel guests,hotel online reviews, hotel guests’ comments by scanning QR code, and complaintson our Group’s call center), and secret guests engaged by a professional third-partyinstitution to assess the services of each hotel based on their comprehensive product

experience, improvements on the hotels and their compliance with our quality

standards will be continuously monitored.

We require most of our employees to make periodic assessments to ensure compliance

with our pre-set quality standards. In addition, our practice of tracking customer comments

through guest comment cards, third-party surveys, and the direct solicitation of guest opinions

regarding specific items, allows us to improve the services and amenities at each hotel across

our hotel chains.

To maintain our competitiveness and enhance our hotels’ appeal to targeted market

segments, we also require each of our hotels to allocate a fixed percentage of its revenue for

periodic renovation and replacement of furnishings and equipment to maintain the quality and

standards of our facilities. We base recommendations on capital spending decisions on

customer feedback, strategic needs, and our targeted financial return on a given project.

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To ensure the quality of the raw materials for our F&B services, all ingredients are onlypurchased from pre-approved suppliers that meet our standards and our periodic evaluation. Wewill also obtain from the pre-approved suppliers their licences and qualifications including butnot limited to the relevant up-to-date business licence, hygiene permit and food circulationcertificate held by them under the statutory requirements. All ingredients delivered to us areinspected by our staff at the time of delivery to ensure the ingredients meet our qualitystandards for that specific type of ingredient. Those ingredients that do not meet our qualityrequirements are returned to the supplier and such supplier may potentially be removed fromour pre-approved supplier list if it does not obtain a satisfactory result from our periodicevaluation.

Centralized Procurement

Our wholly-owned subsidiary, Hangzhou New Century Hotel Supplies Company, isresponsible for sourcing, purchasing and arranging for delivery of supplies for our hotels. Wehave implemented a centralized procurement system for some of our commodity goodsincluding hotel room supplies, construction materials, electrical appliances or other types ofcustomized products. Our centralized procurement system allows us to select pre-approvedsuppliers, negotiate for prices, fix payment terms and arrange for delivery. Our inventoriesmainly consist of foods and beverage, consumables and supplies and finished goods. As for thehotel supplies that are not sourced centrally through our centralized procurement system, thehotels may procure the relevant supplies through our list of suppliers which have beenpre-approved by our management or the hotels may source those supplies directly. Hotelsnormally source food, fruits and vegetables for F&B service directly from suppliers as theseproducts require certain degree of freshness. These arrangements ensure stable supply ofcertain hotel supplies but at the same provide flexibility to our hotels to purchase suppliesaccording to their actual needs and budget.

As one of the leading hotel groups in China, we are able to leverage on our economiesof scale and obtain competitive prices from our suppliers in order to minimize operatingexpenses for both our operated hotels and managed hotels. As at August 31, 2018, wemaintained a supplier list of over 150 suppliers, all of which are from the PRC save for someof our wine products which are sourced from France, and our typical supply agreement has aterm of one year subject to review and renewal. These agreements are on non-committed basisand as such there is no minimum purchase amount for our Group to order from these suppliers.Depending on actual operational needs, we place purchase orders under the supply agreementwhich set forth the amount or quantity, quality specifications, payment terms and deliveryschedule.

For supplies of our F&B services, we usually purchase on an “as-needed” basis. The rawmaterials for our F&B services mainly include perishable foods such as seafood, meat andvegetables. Our fresh ingredients typically have shelf life of several hours to several days withfrozen food and dried food normally have a longer shelf life up to months. Our inventory ismanaged on a first-in-first-out system. We keep record of the delivery dates of each batch ofingredients and periodically monitor the quality and expiry dates of inventory to ensure thefood inventory is utilized within their shelf lives. We also formulate internal guidelines ontemperatures for storing different categories of food ingredients.

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We engage our suppliers through tendering process, under which typically at least threesuppliers are invited for tendering and will be examined based on their product quality, pricing,delivery and production capacity. We would also conduct site visit at the supplier’s factory aspart of our evaluation. We maintain a list of pre-approved suppliers, which we keep record ofeach supplier’s qualification, product quality information, financial performance, ourevaluation results on its quality control and customer’s satisfaction level, pricing, service andproduction capacity to ensure the supplier maintains its standard of service. We conductevaluation and review periodically on our suppliers to ensure the hotel supplies are incompliance to our requisite standards.

Hotel Information and Operational Systems

The principal objectives of our hotel operations are to generate higher RevPAR, controlcosts and increase the net operating income of our hotels, while providing our hotel guests withquality services and value. Our integrated proprietary information and operational systems aredesigned to help us operate efficiently and cost-effectively and accommodate future growth.Our investment in system infrastructure has several key benefits: broader customer base,optimized customer channel mix, better customer service, simplification of the storage andprocessing of large amounts of data, facilitation of the large-scale operation and automation ofthe administration of our business and generating financial and operational information foreach hotel to assist our corporate management in adjusting business strategies on a timelybasis.

Our hotel information and operational systems include the following:

Property Management System. Our proprietary PMS is designed to help our hotelsmaximize profitability and compete more effectively by actively managing their roominventory, rates and reservations. The PMS synchronizes each hotel’s room inventory with ourreservation system, giving our reservation agents the capability to sell available rooms at ourhotels. The PMS also includes a revenue management feature that calculates and suggestsoptimum rates based on each hotel’s past performance and projected occupancy rate. Thesetools enhance our ability to effectively manage our hotel operations and maximize RevPAR.

Central Reservation System. We have a CRS that provides a comprehensive view ofinventory, while allowing for adjustment of rates based on market demand and customer type.Our CRS connects the databases of all of our hotels and provides real-time updates of hotelroom inventories in the PMS once a booking is confirmed. Through this system, we are ableto allow direct bookings of all of our hotels by our guests, via telephone through our callcenters or our website at www.kaiyuanhotels.com. Our 24-hour centralized reservation callcenter is located in Hangzhou, Zhejiang Province and operates seven days a week. Hotel guestscan call our nationwide toll free numbers to receive real-time hotel information and make hotelbookings through our call center staff.

Loyalty Program System. Our LPS can manage basic information of our hotel guests andalso track hotel guests’ consumption behaviors and preferences. Information collected by ourLPS enables us to analyze hotel guests’ data in order to formulate more specific and targetedmarketing strategy and determine the benefits including discounts and gifts received by ourCentury Club members.

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Management Reporting System. We have designed a proprietary web-based management

reporting system at each of our hotels and at our corporate office to monitor the daily financial

and operating performance of each of our hotels. This system allows us to track each hotel’s

daily occupancy, average daily rates, RevPAR and other operating and financial data.

Disaster Recovery Management System. Our disaster recovery management center at

Hangzhou provides a backup for our operating data on a real-time basis and enables us to

maintain normal operations when major failures occur at the main data center. One of our

ongoing primary objectives is to prevent material disruption to our business from partial or

complete failure of any of our IT systems or communication networks. The DRMS enables us

to consistently obtain accurate and reliable transaction data and provide proper functioning of

our financial control, risk management, operating analysis and reporting, accounting, and

customer services, which are critical to our business.

Duty manager system. We have a duty manager management system to provide hotel

guests with 24-hour service. In order to provide timely feedback and efficient customer

services, in addition to usual hotel staff, a duty manager is required to be responsible for the

work after normal business hours to ensure the hotel operations are running smoothly. The duty

manager’s work includes the standardization of hotel operations and guest services. Through

the software system, the 24-hour service is monitored by our duty manager with the relevant

information being documented.

Satisfaction evaluation system. Our guest satisfaction evaluation system allows our hotel

guests to provide valuable feedback on the hotel’s services real time after entering our hotel.

Through the system we will be able to analyze the customer’s needs and timely attend to their

requests and at the same time record the relevant information in order to improve our service.

Smart hotel rooms technology. We are currently in the process of introducing our “smart

hotel rooms” which aim to deliver bespoke in-room experiences that enable hotel guests to

operate the room facilities via our Century Club mobile application or through voice control.

Our Century Club mobile application allows hotel guests to control all in-room functions

including mood lighting, curtains and room temperature through the control panel built in to

our Century Club mobile application. Further, through the voice control function, our hotel

guests could control the entertainment system and interactive media installed in the room. In

order to improve the operational efficiency of our hotel operations, we are also planning to

introduce our in-house developed smart check-in/out service kiosk, which will be installed in

the receptions of our hotels for hotel guests to proceed to check-in/out by themselves without

the need to do so with our front desk. Hotel guests would also be able to choose the room types

and the room settings from the kiosk at the time of check-in.

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SALES AND MARKETING

Our sales and marketing team is primarily responsible for planning and developing our

overall marketing strategy, conducting market research, coordinating our sales and marketing

activities to attract new hotel guests, and maintaining and strengthening our relationships with

existing guests base.

Our core targeted hotel guests groups consist of mainly (i) individual hotel guests which

include our members of our Century Club reward program or business and leisure travelers and

affluent vacationers; (ii) corporate guests; and (iii) MICE groups. Our corporate sales,

marketing and advertising programs are designed to reinforce consumer recognition and

loyalty for our “New Century (開元)” brands. Our sales, marketing and advertising campaign

includes outdoor advertisements, television and Internet advertising, print advertising in

consumer media and promotional events, special holiday promotions and joint promotional

activities. From time to time, we would depending on our marketing needs and plans, launch

promotional activities such as marketing conferences, members exclusive events and gift card

programs. During the Track Record Period, among other promotional events, we have

organized a marketing conference for our corporate clients, MICE and travel agencies at our

Hangzhou Fuchun New Century Wonderland resort hotel in March 2018, organized a member

exclusive trip to our Hainan Qiziwan New Century Resort in November 2017 and launched a

gift card program from February to September 2015 to incentivise spending by our premium

hotel guests who participated in the gift card program.

With our large guest accommodation capacity, well-equipped meeting facilities together

with flexible room configurations, we believe we are well positioned to provide MICE services

in China. Each of our full service hotels has its own meeting or function room facilities, which

can accommodate parties, meetings, conferences and other functions for individual hotel guests

and corporate clients. We have a group of event organizers who coordinate and arrange

conferences and meetings according to the requirements of our hotel guests. Our well-trained

senior banquet planners provide attendees with high quality catering services. We believe our

upscale tailor-made MICE services have attracted a group of loyal corporate clients. During the

Track Record Period, there were a number of large scale conferences held in our hotels,

including the G20 Summit Petition Meeting, European Union China Winter Sports Cooperation

Exchange Conference, the 13th Beijing International Sports Movie Week Opening Ceremony

and China Soong Ching Ling Foundation conference.

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The following table sets forth the number of room nights sold through our reservationchannels during the periods indicated:

Distribution Channels For the years ended December 31,


August 31,

2015 2016 2017 2018

Room

Nights

% of

total

room

nights

Room

Nights

% of

total

room

nights

Room

Nights

% of

total

room

nights

Room

Nights

% of

total

room

nights

Direct:Call center, website and

in-house reservation

system 709,270 22.7 1,002,680 25.2 1,353,134 27.1 1,064,479 28.7Sales department 1,471,534 47.0 1,730,800 43.4 2,149,497 43.1 1,594,083 42.9Walk-ins 378,367 12.1 430,846 10.8 442,977 8.9 319,871 8.6

Indirect:Third-party websites and

other intermediaries 393,922 12.6 591,103 14.8 764,836 15.4 586,213 15.8Travel agencies 171,754 5.5 227,900 5.7 266,876 5.4 145,811 3.9Other: 3,929 0.1 5,257 0.1 3,363 0.1 1,670 0.1

Total 3,128,776 100.0 3,988,586 100.0 4,980,683 100.0 3,712,127 100.0

Note: The figures are calculated by the number of room nights booked through the respective distribution channels.

Direct Reservation Channels

In-house online reservation

Our in-house online reservation channels include our central reservation call center,website, our Century Club mobile application, our social media platforms and our onlineintegrated sales system. Our centralized reservation call center is located in Hangzhou, Chinaand operates around the clock. Hotel guests can call our nationwide toll-free numbers toconsult with our reservation agents, receive real-time hotel information and make hotelbookings. We also provide our hotel guests with convenient reservation services through ourreservation website www.kaiyuanhotels.com and our Century Club mobile application and oursocial media platform. Further, our in-house developed online integrated sales system providesa convenient platform for our corporate hotel guests in making reservation for different hotelsunder our Group allowing us to cross-sell our hotels and related services in our portfolio. Hotelguests can receive real-time hotel information and make hotel bookings through our in-houseonline reservation channels. Different level of discount may be offered to hotel guestsdepending on whether the room rate is prepaid in full at the time of booking, time ofreservation and total number of nights reserved.

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Sales department

We have sales offices in Hangzhou, Shanghai, Beijing, Guangzhou and Chengdu, with

dedicated sales team for each of our hotels which are designated to explore potential hotel

guests in engaging our accommodation, F&B or other services. We have entered into

partnership agreements with over 250 corporate clients, pursuant to which the guests

designated by the corporate clients are charged at corporate room rates. Our sales team at our

headquarter and our hotel managers jointly develop tailored marketing plans to drive sales for

each hotel in the various markets. Each of our key corporate guests is assigned a specific sales

representative. Our sales staff visit and communicate with our corporate guests regularly to

maintain close contact and to keep abreast of the requirements of our corporate guests. Our

dedicated sales, marketing and promotion team, consisting of over 350 personnel as at

August 31, 2018. Our sales team would typically negotiate corporate room rates with our

corporate, government or diplomatic guests, MICE or long staying guests on a case by case

basis.

Walk-in guests

Our front desks at our hotels would accept direct reservation from walk-in guests. The

room rates for our walk-in guests are determined based on various factors, including the hotel

rating and class, the service and facilities being provided, the location and the local market

conditions, the occupancy levels and seasonality. Based on the above factors, our room rate for

walk-in guests will be adjusted from time to time.

Indirect Reservation Channels

Hotel reservation websites maintained by third-party operators

As at August 31, 2018, we had established business relationships with leading domestic

and international OTAs, such as ctrip.com, qunar.com, alitrip.com, meituan.com, elong.com,

ly.com, lvmama.com and agoda.com. The OTAs can obtain real-time hotel information and

make hotel bookings through our CRS. We enter into framework cooperation agreements with

the OTAs, with a term ranging from one to two years, pursuant to which our hotels would offer

hotel rooms to the OTAs for sale on their systems. The OTAs would typically charge us a

service fee ranging from 8% to 15% of the revenue generated from the sale of our hotel rooms.

Our access to these channels allows us to market to a wider potential customer group and

further enhance the occupancy rates of our hotels on a day-to-day basis. We review our hotel

pricing from time to time and our rating managers may adjust room rates based on local market

conditions and our operational status.

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Travel agencies

A third-party travel agent may reserve hotel rooms through our centralized reservation

call center, or through our reservation website www.kaiyuanhotels.com by using assigned

reservation codes. We set our pricing policy to the travel agencies based on local market

condition and our operational status. We typically enter into a yearly framework cooperation

agreement with the travel agencies whereby the level of service fee payable would typically

depend on the expected number of hotel rooms reservation.

Century Club

We operate a loyalty membership program named the Century Club reward program. This

program generates returning guest business by rewarding frequently returning guests with

points toward free hotel nights and other rewards. Century Club members will receive different

type of benefits based on their membership class and can earn points based on their eligible

spending at our hotels. Century Club points can be redeemed at all hotels across our brands for

room accommodation, food and beverages or gifts on our official website and can also be

converted into airline miles with any participating airlines. Members of the Century Club are

entitled to benefits and privileges, such as priority hotel check-in and check-out service,

complimentary refreshments, priority room booking and a complimentary welcome drink. We

issue prepaid cards to our hotel guests that can be used at our hotels where pre-payments made

by our hotel guests represent advances from hotel guests and such pre-payments will not be

recognized as our revenue until the hotel guests pay for our hotel services using the balance

in their pre-paid cards. All the holders of prepaid cards are also members of our Century Club

reward program. In addition to the benefits and privileges available to the Century Club

members, prepaid card holders are entitled to discounts on room rates and F&B services.

This following table sets forth the movement of number of Century Club members during

the Track Record Period:


For theeight months

endedAugust 31,

2015 2016 2017 2018

(approximately in ’000)

Newly joined members duringthe period 1,000 790 1,780 1,385

Total number of members(as at the end of each period) 2,910 3,700 5,480 6,865

Total number of activemembers(Note) (as at the end ofeach period) 97 140 260 233

Note: Members are considered active members if they use their membership card for purchases at our hotels orparticipate in our promotional activities within the calendar year.

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As at August 31, 2018, our Century Club had approximately 6,865,000 individual

members and approximately 108,000 joint program members affiliated with our loyalty

program partners, which are loyalty program members of the cooperative partners of our

Century Club but will be able to enjoy certain benefits under the Century Club reward program.

For the years ended December 31, 2015, 2016, 2017 and the eight months ended August 31,

2018, 15.4%, 15.5%, 18.9% and 21.0% of our room nights were booked by our Century Club

members, respectively.

Advertising and marketing

We promote the “New Century (開元)” hotel brand by utilising media resources and

disseminating through multiple channels such as traditional media, social media, including our

official Weibo account and our official WeChat account and our in-house social media . These

media allow users to receive the latest information from our hotels and also to book hotel

rooms directly. At the same time, we also enhance our brand awareness and reputation through

the launch of new products, membership events, industry summits and other activities.

CREDIT POLICY

Our credit policy for hotel guests, which may vary depending on the type of sales

distribution channels through which room reservation is made, is generally as follows:

Sales distribution channel Payment terms

Direct Reservation Channel

In-house online reservation Payment in full upon hotel guests’

departure, unless the payment has been

prepaid

Sales department Payment in full upon hotel guests’

departure, unless prior credit facilities

have been arranged

Indirect Reservation Channel

Walk-in guests Payment in full upon guests’ departure

Hotel reservation websites maintained by

third-party operators

Hotel guests are required to provide

guarantee for the room price upon

booking and settle the payment in full

upon hotel guests’ departure

Travel agencies Payment in full in advance unless prior

credit facilities have been arranged,

invoices are sent to the travel agents for

settlement

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We accept payments by hotel guests (including those for F&B services) by way of cash

and credit cards. Payments from travel agents and corporate hotel guests are generally made

to us by bank transfer and by cash upon the hotel guests’ departure. Certain corporate guests,

hotel reservation websites maintained by third-party OTAs and travel agencies are generally

granted a credit period of 30 to 90 days.

CUSTOMERS


August 31, 2018, our five largest customers in aggregate accounted for 8.7%, 6.9%, 6.9% and

8.0%, respectively, of our total revenue. The top five customers primarily comprise hotel

owners, travel agencies, OTAs and corporate clients and one of the top five customers comprise

of companies controlled by the Controlling Shareholders and close family member of the

Controlling Shareholders. We have maintained business relationship with our five largest

customers for the Track Record Period for more than seven years on average. As at the Latest

Practicable Date, we were not aware of any information or arrangements which would lead to

cessation or termination of our relationships with any of our five largest customers for the

Track Record Period. One of the top five customers includes the relevant close associates of

Mr. Chen Miaolin, one of our Controlling Shareholders, which accounted for 4.8%, 3.5%, 3.1%

and 3.1% of our total revenue for the years ended December 31, 2015, 2016 and 2017 and the

eight months ended August 31, 2018, respectively. Save for that, none of our Directors, their

respective close associates, or any Shareholder who, to the knowledge of our Directors, owns

more than 5.0% of our issued capital, had any interest in any of our five largest customers

during the Track Record Period.

To the extent the five largest customers are hotel owners of the hotels under our full

service management, we have entered into full service management agreements which such

hotel owners. Please see sub-section headed “– Our Business Operations – Our Business

Models – Hotel Management – Full service managed hotels” in this section for further details

on full service management agreements. We enter into fixed term agreements, typically for a

term of around one year, with travel agents and the OTAs, pursuant to which pricing policy for

the room rates provided to the travel agents and the OTAs is determined. These agreements are

on non-committed basis as there would be no guarantee of minimum number of room

reservations required form the travel agents and the OTAs and our hotels do not need to commit

to provide a minimum number of rooms to the travel agents and the OTAs either. Please refer

to sub-section headed “– Credit Policy” in this section on the credit policy for the travel agents

and the OTAs.

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SUPPLIERS

Our suppliers primarily comprise lessors under our hotel operation business,

raw materials suppliers, laundry services providers and utilities vendors.

Lessor suppliers

Lessors leased their properties to us for operation of hotels during the Track Record

Period. For the years ended December 31, 2015, 2016 and 2017 and the eight months ended

August 31, 2018, our five largest lessor suppliers, in aggregate accounted for 23.3%, 22.9%,

23.8% and 23.0%, respectively, of our total cost of sales. We have established on-going

business relationships and co-operations with our top five lessor suppliers for the Track Record

Period for more than seven years on average. We entered into hotel lease agreements with all

of our five largest lessor suppliers, the typical terms of which were described in the sub-section

headed “– Our Business Operations – Our Business Models – Hotel Operation – Leased

Hotels” in this section. As at the Latest Practicable Date, we were not aware of any information

or arrangements which would lead to cessation or termination of our relationships with any of

our five largest lessor suppliers for the Track Record Period. Save for New Century REIT, a

close associate of Mr. Chen Miaolin, one of our Controlling Shareholders and one of our top

five lessor suppliers, which accounted for 16.8%, 16.5%, 17.1% and 15.9% of the total cost of

sales during the Track Record Period, none of our Directors, their respective close associates,

or any Shareholder who, to the knowledge of our Directors, owns more than 5.0% of our issued

capital, had any interest in any of our five largest lessor suppliers during the Track Record

Period.

Other suppliers


August 31, 2018, our five largest other suppliers in aggregate accounted for 4.0%, 3.7%, 4.4%

and 4.8%, respectively, of our total cost of sales. The top five other suppliers primarily

comprise raw materials (including food) suppliers, laundry services providers and utilities

vendors. We have maintained business relationship with our five largest other suppliers for the

Track Record Period for more than five years on average. Our typical supply agreement have

a term of one year subject to review and renewal. As at the Latest Practicable Date, we were

not aware of any information or arrangements which would lead to cessation or termination of

our relationships with any of our five largest other suppliers for the Track Record Period. Save

for one of our top five other suppliers which includes the relevant close associates of Mr. Chen

Miaolin, one of our Controlling Shareholders, which accounted for 1.4%, 1.3%, 1.5% and 1.2%

of our total cost of sales for the years ended December 31, 2015, 2016 and 2017 and the eight

months ended August 31, 2018, respectively, none of our Directors, their respective close

associates, or any Shareholder who, to the knowledge of our Directors, owns more than 5.0%

of our issued capital, had any interest in any of our five largest other suppliers during the Track

Record Period.

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The sourcing of the hotel supplies of our hotels are managed centrally by our centralized

procurement system. Please see sub-section headed “– Operational Management of Hotels –

Centralized Procurement” in this section for further details. During the Track Record Period

and up to the Latest Practicable Date, we have not experienced any material problems with the

quality of services or products provided by our suppliers (including our suppliers for our F&B

services), any shortage of supply or any delay in delivery of services or products that

significantly affected our operations.

Raw materials of F&B services

Raw materials and consumables used by our restaurants for our F&B services are food

ingredients and beverages. Our major food ingredients include meat, seafood and vegetables.

For the years ended December 31, 2015, 2016 and 2017 and the eight months ended August 31,

2018, the costs of F&B services amounted to RMB223.3 million, RMB194.7 million,

RMB167.5 million and RMB116.8 million, respectively. A sensitivity analysis of the

hypothetical fluctuation of costs of F&B services is set out in the sub-section headed “Financial

Information – Factors affecting our results of operation and financial condition – Ability to

improve Operational Cost Efficiency” in this prospectus. We monitor and control the cost of

our food ingredients regularly by obtaining quotations of the food ingredients from different

suppliers and adjusting our pricing for our F&B services if there is any material fluctuation in

costs. Our Directors are of the view that there was no material fluctuation in the costs of F&B

services during the Track Record Period.

We employ a centralized procurement system to ensure the quality and maintain the

cost-efficiency of our F&B supplies. Our centralized procurement system would normally

procure a range of F&B supplies for our hotels including catering equipment, imported wine,

mooncakes, dumplings or other customized products. As for the F&B supplies that are not

sourced centrally through our centralized procurement system, the hotels may procure the

relevant F&B supplies through our list of suppliers which have been pre-approved by our

management or the hotels may source those F&B supplies separately. This is to ensure stable

supply of the F&B products but at the same time provide flexibility to our hotels to purchase

F&B supplies according to their actual needs and budget. Moreover, we have a food safety

management system to closely monitor the processes from receiving to preparing, cooking and

serving to hotel guests. We have established a strict food safety system with a international

certification company to supervise and control every step of the entire dining process to ensure

stability and safety.

There is no rebate arrangement with our suppliers and, to the best of our Directors’

knowledge, we had not encountered any incidents that any of our Directors or employees was

involved in any bribery or kickback arrangements with our suppliers during the Track Record

Period. To prevent any kickback arrangements with our suppliers, we have implemented

internal control policies, such as sourcing from pre-approved suppliers according to the

standard procedures and setting out tendering process and necessary approvals to prevent

bribery and corruption in our Company’s policy.

BUSINESS

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COMPETITION

There is intense competition in the hotel industry in the first- and second-tier cities inwhich we operate. Our principal competitors are other hotel operators, in particular, othermajor Star-rated hotel chains with well-established and recognized brands. Currently, we facecompetition from well-established international brands and leading Chinese hotel chainoperators. We also compete against independent owners or operators of local five Star-ratedhotels. We expect that our mid-scale business hotels will compete against other business hotelchains.

We compete for guests based primarily on the scale of our hotel chain, our architectureand design, quality of accommodation, quality of F&B and MICE services, convenience of ourCRS, recognition of our brand name and reputation, location, and room rates.

We compete for hotel lease agreements and full service management agreements basedprimarily on the value and quality of our management services, our brand name recognition andreputation, our strong ability to maintain customer relations and the level of our managementfees. Other competitive factors for full service management agreements include relationshipswith property owners and investors, marketing support, logistics support and the efficiency ofour CRS.

We believe that our strong customer base, well-established brand recognition, strategicproperty locations, high-quality service and management have enabled us to competeeffectively. For additional information on the industry and markets that we operate in, pleaserefer to the section headed “Industry Overview” in this prospectus.

EMPLOYEES AND TRAINING

We believe that developing and maintaining a team of capable and motivated managerialand other employees is critical to our success. Because our managerial and other employeesmanage our hotels and properties and interact with our customers on a daily basis, they arecritical to maintaining the quality and consistency of our services as well as our brand andreputation. We aim to recruit, train and retain the best talent through a multi-step recruiting andtraining process while offering competitive performance-linked compensation packages andcareer advancement opportunities.

We seek to hire managerial employees with background and experience in hotelmanagement and operation and other customer service industries with a customer-firstmentality. We have extensive training programs and periodically review our managerial andother staff. We established our in-house training center, New Century Academy, in 2015. Eachof our new employees is required to complete over 30 hours of training which include classeson corporate culture, food safety, risk management and client service. We provide periodictraining programs to selected employees to whom we offer promotion opportunities tomanagement positions, which they are required to undertake 12 standard training courses. Wealso require our middle level management employees to participate in training programs,including various internal and external electronic learning courses, so that they can stay abreastof changes in our operations, consumer preferences and market trends.

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We also have trained on-site managers in many of our hotels to provide continuoustraining to our staff. We developed our own “three-tier talent training system”, which focuseson (i) fostering mid-level managers to become the general managers of our Company in thefuture; (ii) developing junior staff with managerial potential, with a view to promoting themas mid-level managers; and (iii) cultivating new employees and building a reserve of generalmanagers in anticipation of our future expansion. Our New Century Academy would alsoprovide hotel management consultancy service or training to third-party companies whichrecognize our hotel management and training skills.

Our hotels have closely cooperated with higher education institutions involving thetourism industry in Zhejiang Province and other provinces and cities in respect of thepreparation of materials and books for industry training. In 2007, we worked together withZhejiang Business College and completed the Practice Course Book for Hotel Service, whichwas published by China Travel & Tourism Press. In 2017, we cooperated with Tourism Collegeof Zhejiang in preparing the Human Resources Management in Hotel – Theories, Practices andTools, which was put into use as a textbook for human resources management of the hotelindustry.

To ensure that all of our hotels have optimal and satisfactory performance, we have anestablished performance evaluation system based on a comprehensive set of key performanceindicators that are aligned with a corresponding compensation structure. We believe ourperformance-based compensation structure, career-oriented training and career advancementopportunities are the key drivers that motivate our employees.

As required under PRC law, we provide our employees with welfare benefits, includingmedical care and unemployment and occupational injury insurance and make contributions tosocial insurance fund (including pension fund) and housing provident fund for the benefit ofour employees. During the Track Record Period, our Company and some of its PRCsubsidiaries did not make in full contribution to the social insurance fund and housingprovident fund as required under PRC law. See the section headed “Risk Factors – RisksRelating to our Business and Operations – We may be subject to fines or penalties under PRClaws and regulations for our failure to register for and/or make appropriate contributions tosocial insurance fund and housing provident funds on behalf of some of our employees” in thisprospectus and “– Legal and regulatory matters – Historical Non-compliance Incidents” belowfor details.

We had 5,251 full time employees as at the Latest Practicable Date, all located in thePRC. The following table sets out the breakdown of our employees by business segment as atthe Latest Practicable Date:

Employees % of Total

Hotel operation segment 5,016 95.5

Hotel management segment 235 4.5

Total 5,251 100.0

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The following table sets out the breakdown of our employees by functions as at

August 31, 2018:

Functions

Employees % of Total

Hotel Management and Administration 596 11.6

Sales and Marketing 348 6.8

Information, Engineering and Technology 487 9.5

Finance and Audit 331 6.4

Hotel Services Staff 3,373 65.7

Total 5,135 100.0

We believe that we maintain a good working relationship with our workforce. According

to Horwath, the overall industry staff turnover ratio ranged from 20.0% to 40.0% in 2017. Our

Group’s employees turnover rates were approximately 24.3%, 23.8%, 24.8% and 16.5% for the

years ended December 31, 2015, 2016 and 2017 and the eight months ended August 31, 2018,

respectively, which is within the industry average. The turnover rate of our general managers

for the years ended December 31, 2015, 2016, 2017 and the eight months ended August 31,

2018 were approximately 4.8%, 9.4%, 8.5% and 8.0%, respectively. During the Track Record

Period, we did not experience any strikes or significant labor disputes which materially

affected our business, financial condition or results of operations. Our employees are unionized

in accordance with local labor laws. As at the Latest Practicable Date, we have not experienced

any major labor disputes or other labor disturbances that have interfered with our operations.

LABOR DISPATCH AND LABOR SOURCING ARRANGEMENTS

During the Track Record Period, we entered into labor dispatch agreements and labor

sourcing agreements with labor service providers, which are Independent Third Parties, for

terms ranging from one to three years. As at December 31, 2015, 2016 and 2017 and August

31, 2018, we had 60, 74, 51 and 27 hotel staff working in our hotels pursuant the labor dispatch

or labor sourcing arrangements. Under the labor dispatch and labor sourcing agreements, we

pay service fees to the labor service providers and they will provide suitable workers based on

our requirements. Pursuant to the labor dispatch and labor sourcing agreements, the labor

service provider will bear the social insurance fund and housing provident fund and other

welfare benefits of the workers in accordance with relevant PRC laws and regulations. For the


we paid service fees to the labor service provider in the amount of RMB0.2 million, RMB0.3

million, RMB0.2 million and RMB44,507, respectively. Given the seasonality nature of our

industry and to cope with sudden increase of hotel guests from time to time, we believe the

engagement of hotel staff from labor dispatch and labor sourcing arrangements for temporary,

auxiliary and low-level positions from time to time can enhance efficiency and flexibility to

cope with our business operation.

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Pursuant to the Interim Provisions on Labour Dispatch (《勞務派遣暫行規定》) (the“Provisions”) which came into effect on March 1, 2014, “if the number of dispatched staffutilised by an employer exceeds 10% of the total number of its workers prior to the effectivedate of these Provisions, such employer shall develop a scheme for employment adjustmentsto reduce the proportion to the specified level within two years from the effective date of theseProvisions.” As advised by our PRC Legal Adviser, there is no contractual relationship betweenus and the workers under the labour dispatch arrangement and labor outsourcing arrangement.The workers under these arrangements are employed by the labor service provider, but not ourGroup. Our PRC Legal Adviser is of the view that these arrangements with the labor serviceprovider are in compliance with the applicable PRC laws and regulations in all materialrespects during the Track Record Period.

AWARDS AND ACCREDITATIONS

We operate and manage “New Century (開元)” branded hotels and resorts in China. Webelieve that we are well-known for our high-quality hospitality services and satisfying guestexperience. We have received numerous awards and recognitions in China and worldwide,including:

(i) Zhejiang Government Quality Nomination Award (浙江省政府質量獎提名獎) by thePeople’s Government of Zhejiang Province (浙江省人民政府) in 2013, 2015 and2018;

(ii) National Standardization Demonstration Unit for Tourism (全國旅遊標準化示范單位) issued by the National Tourism Administration of China (國家旅遊局) in 2014;

(iii) National Pilot Unit for Tourism Service Quality (全國旅遊服務質量標桿單位)issued by General Administration of Quality Supervision, Inspection and Quarantine(國家質量監督檢驗檢疫總局) and National Tourism Administration of China (國家旅遊局) in 2014;

(iv) Top 10 Hotel Group Brand (十佳連鎖飯店集團品牌) from China HospitalityAssociation 中國飯店協會 in 2017;

(v) Top 60 Hotel Group in China* (中國飯店集團60強) from the China Tourist HotelsAssociation* (中國旅遊飯店業協會) in 2015, 2016 and 2017, which our Group wasranked amongst the top 15 for 2017;

(vi) Top 30 Global Hotel Groups (全球酒店集團前30位) from the Hotels magazine, theofficial publication of the International Hotel & Restaurant Association under the“Hotels 325 Ranking” in 2015, 2016 and 2017;

(vii) 2017 China’s Most Popular Hotel Brand * (2017年度中國最受歡迎酒店品牌) fromthe 21st Century Business Herald* (《21世紀經濟報道》) and the Business Travel*(《商務旅行》) in 2017; and

(viii) “2017 Best Employer in China” from the China Tourist Hotels Association (中國旅遊飯店業協會) in 2018.

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LICENSES, PERMITS AND APPROVALS

We are required to obtain and maintain certain licenses for the operation of our hotels,

including but not limited to the Food Distribution Permit, Special Trade Permit, Public Place

Sanitation Permit and Certificate of qualified fire safety inspection over a public gathering

place before it is put into use or open for business (“Fire Safety Certificate”). Please refer to

the section headed “Supervision and Regulation” of this prospectus for further details. We are

required to apply with the relevant authorities from time to time for the renewal of the requisite

licenses for the operation of our hotels. In the event that the application for renewal of the

relevant license is rejected, the operation of our hotels without a valid license will result in

breach of relevant laws and regulations and we may be required to suspend all or part of the

operation of such hotels. Please refer to the sub-section headed “Risk Factors – Risks relating

to our Business and Operations – Our hotel licenses are subject to renewal” of this prospectus

for further details.

The following table sets forth details of the material licenses and permits that are required

for our operations as at the Latest Practicable Date:

Status as at LatestPracticable Date

FoodDistributionPermit (食品經營許可證)

Special TradePermit (特種行業許可證)(1)

Public PlaceSanitationPermit (公共場所衛生許可證)

Certificate ofqualified firesafety inspectionover a publicgathering placebefore it is putinto use or openfor business (公眾聚集場所投入使用、營業前消防安全檢查合格證)(2)

Our subsidiariesChangxing New Century

Wonderland ResortCo., Ltd* (長興開元芳草地酒店有限公司)

In effect, expiringon July 10,2023

In effect In effect, expiringon January 14,2020

In effect(3)

Haining Yanguan AncientCity New CenturyResort Hotel Co., Ltd*(海寧鹽官古城開元度假酒店有限公司)

In effect, expiringon April 25,2021

In effect In effect, expiringon June 15,2019

In effect

Jiande New CenturyWonderland ResortCo., Ltd* (建德開元芳草地酒店有限公司)

In effect, expiringon December18, 2022


In effect

Ninghai Jinhai Grand NewCentury Hotel Co., Ltd*(寧海金海開元名都大酒店有限公司)

In effect, expiringon October 18,2021

In effect In effect expiringon July 9, 2021

In effect

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Zhoushan New CenturyManju HotelManagementCo., Ltd* (舟山開元曼居酒店管理有限公司)

In effect, expiringon October 25,2022

In effect In effect, expiringon October 26,2021

In effect

Tianjin Ruiwan NewCentury HotelManagementCo., Ltd* (天津瑞灣開元酒店管理有限公司)

In effect, expiringon January 11,2022

In effect In effect, expiringon August 22,2021

In effect

Ningbo New CenturyManju HotelManagementCo., Ltd* (寧波開元曼居酒店管理有限公司)

In effect, expiringon February 28,2022


In effect

Shanghai Yuege HotelOperation Co., Ltd*(上海悅閣酒店經營有限公司)

In effect,expiring onNovember 13,2019

In effect In effect,expiring onSeptember 10,2022

In effect

Shanghai Ruiyue HotelCo., Ltd* (上海瑞悅酒店有限公司)

In effect, expiringon August 29,2021

In effect In effect, expiringon April 3,2022

–(4)

Shanghai Yueshang HotelManagement Co., Ltd*(上海閱尚酒店管理有限公司)



In effect

Hangzhou New CenturyHotel Supplies Co.,Ltd.* (杭州開元酒店用品有限公司)

In effect, expiringon June 2,2021

N/A N/A N/A

Ningbo New CenturyManfei HotelManagement Co., Ltd.*(寧波開元曼菲酒店管理有限公司)



In effect

Hunan Manju HotelManagement Co., Ltd.*(湖南曼居酒店管理有限責任公司)



In effect

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Dalian New CenturyManju HotelManagement Co., Ltd.*(大連開元曼居酒店管理有限公司)

In effect expiringon July 8, 2023


In effect

Yuyao New Century HotelManagement Co., Ltd.*(余姚開元曼居酒店管理有限公司)

In effect, expiringon May 8, 2022

In effect In effect, expiringon July 8, 2019

In effect

Our branchesNinghai Jinhai Grand New

Century Hotel Co., Ltd.Ninghai New CenturyXinshiji Hotel Branch*(寧海金海開元名都大酒店有限公司寧海開元新世紀大酒店分公司)

In effect, expiringon May 1, 2022

In effect In effect, expiringon May 21,2020

In effect

Zhejiang New CenturyHotel Management Co.,Ltd. Hangzhou GrandNew Century* (浙江開元酒店管理股份有限公司杭州開元名都大酒店)

In effect, expiringon June 27,2021


In effect

Zhejiang New CenturyHotel Management Co.,Ltd. XiaoshanGuesthouse*(浙江開元酒店管理股份有限公司蕭山賓館)



In effect

Zhejiang New CenturyHotel Management Co.,Ltd. ChangzhouBranch* (浙江開元酒店管理股份有限公司常州分公司)

In effect, expiringon September 8,2021

In effect In effect, expiringon March 3,2020

In effect

Zhejiang New CenturyHotel Management Co.,Ltd. Qiandao Lake NewCentury Resort* (浙江開元酒店管理股份有限公司千島湖開元度假村)

In effect, expiringon September21, 2021

In effect In effect, expiringon July 27,2021

In effect

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Zhejiang New CenturyHotel Management Co.,Ltd. Shaoxing GrandNew Century Hotel* (浙江開元酒店管理股份有限公司紹興開元名都大酒店)


In effect In effect, expiringon November26, 2021

In effect

Zhejiang New CenturyHotel Management Co.,Ltd. Zhuji YaojiangGrand New Century*(浙江開元酒店管理股份有限公司諸暨耀江名都大酒店)


In effect In effect expiringon August 12,2022

In effect

Zhejiang New CenturyHotel Management Co.,Ltd. Xiangshan ShipuNew Century HotelBranch*(浙江開元酒店管理股份有限公司象山石浦開元大酒店分公司)


In effect In effect, expiringon December 8,2019

In effect

Zhejiang New CenturyHotel Management Co.,Ltd. Shaoxing JinchangNew Century Hotel* (浙江開元酒店管理股份有限公司紹興金昌開元大酒店)



In effect

Zhejiang New CenturyHotel Management Co.,Ltd. Shaoxing KeqiaoBranch* (浙江開元酒店管理股份有限公司紹興柯橋分公司)

In effect, expiringon September 7,2022

In effect In effect, expiringon September 5,2021

In effect

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Zhejiang New CenturyHotel Management Co.,Ltd. HangzhouXiacheng Branch* (浙江開元酒店管理股份有限公司杭州下城分公司)



In effect

Zhejiang New CenturyHotel Management Co.,Ltd. Jurong Branch* (浙江開元酒店管理股份有限公司句容分公司)


In effect In effect, expiringon June 5, 2020

In effect

Zhejiang New CenturyHotel Management Co.,Ltd. Changchun GrandNew Century* (浙江開元酒店管理股份有限公司長春開元名都大酒店)

In effect, expiringon December 1,2021


In effect

Zhejiang New CenturyHotel Management Co.,Ltd. Ningbo Grand NewCentury* (浙江開元酒店管理股份有限公司寧波開元名都大酒店)


In effect In effect, expiringon March 10,2020

In effect

Zhejiang New CenturyManju HotelManagement Co., Ltd.Wuxi New CenturyManju Hotel* (浙江開元曼居酒店管理有限公司無錫開元曼居酒店)

In effect, expiringon November18, 2023

In effect In effect, expiringon April 17,2022

In effect

Zhejiang New CenturyHotel Management Co.,Ltd. Nanjing PukouBranch* (浙江開元酒店管理股份有限公司南京浦口分公司)


In effect In effect, expiringon September22, 2019

In effect

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Notes:

1. As advised by our PRC Legal Adviser, the Control of Security in the Hotel Industry (《旅館業治安管理辦法》) has not stipulated expiry date for the Special Trade Permit (特種行業許可證).

2. As advised by our PRC Legal Adviser, the Fire Prevention Law (《中華人民共和國消防法》) has notstipulated expiry date for the certificate of qualified fire safety inspection over a public gathering placebefore it is put into use or open for business (公眾聚集場所投入使用、營業前消防安全檢查合格證).

3. We have not received the certificate for certain ancillary operating facilities. Those ancillary operatingfacilities have not been subject to any administrative penalties during the Track Record Period and upto the Latest Practicable Date. The total area of the such ancillary operating facilities amount to 629.3sq.m, around 7.4% of total gross floor area of Changxing New Century Wonderland Resort. The Grouphas only utilised such area for storage purposes and such facilities have not been used for hotel operationand therefore no revenue was generated from such buildings during the Track Record Period. As advisedby our PRC Legal Adviser, given those ancillary operating facilities of the hotel are not material to theoperation of the hotel, the absence of the certificate would not have any material effect on our business,operations or financial position. The Company will only use such area for storage purpose given theabsence of the Fire Safety Certificate. In the event that such area will be used for hotel operationpurpose in the future, the Company will ensure that the relevant Fire Safety Certificate be obtained priorto operation.

4. The hotel has passed the fire inspection at the time of commencement of business in 2009 and hasreceived a fire inspection opinion (消防驗收意見書) issued by competent authority but has not receivedthe certificate as the actual use of the leased property is inconsistent with the planned use of the leasedproperty. Despite the lack of Certificate of Fire Safety Certificate, the Group has, in accordance withthe standard set by the relevant authority, formulated fire safety regulations together with fireextinguishment and emergency evacuation plans, configured fire protection facilities and equipment,installed fire safety signs and other necessary fire prevention facilities. In addition, according to the fireinspection opinion issued by the relevant authority at the time of commencement of business of the hotelin 2009, the fire safety layout of the hotel was in compliance with the fire prevention requirements setby the competent authority. The Company also confirmed that during the Track Record Period, no fireaccident has occurred. This subsidiary has not been subject to any administrative penalties pursuant tothe sample inspection carried out by the relevant authority or due to any breach of fire safety laws andregulations during the Track Record Period and up to the Latest Practicable Date. As advised by our PRCLegal Adviser, given the revenue and profit contribution from this hotel to our Group were relativelylow, the absence of the certificate would not have any material adverse effect on our business, operationsor financial condition.

For our managed hotels, under the relevant laws and regulations, the respective hotel

owners are responsible for obtaining the necessary licenses and permits. However, there are

certain permits for some of our managed hotels, which the hotel owners are responsible for

obtaining and have not yet obtained. As advised by the PRC Legal Adviser, as the party

responsible for obtaining such permits for the managed hotels are the hotel owners, such hotel

owners (but not our Group) could be subject to warning, penalties or suspension of business

as a result of failure to obtain such licences or permits. We have always requested that hotel

owners shall obtain all underlying licenses and permits including Food Distribution Permit,

Special Trade Permit, Public Place Sanitation Permit and Fire Safety Certificate according to

the terms of our hotel management agreements. However, the responsibility of obtaining the

abovementioned licenses and permits lies solely with the respective hotel owners of our

managed hotels. For those managed hotels lacking the relevant underlying licenses or permits

that come to our attention, we will continue to take practicable and reasonable steps to

constantly monitor and remind the relevant hotel owners to obtain the outstanding permits as

soon as practicable. Going forward, we shall increase awareness of the hotel owners of our

managed hotels on the importance of obtaining all required permits in addition to the business

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license, during our assessment of hotel owners’ application and pre-opening stages for our

hotel management business, in order to ensure to the best of our ability, that our managed

hotels obtain all the required licenses and permits prior to commencement of hotel operation.

Please refer to the sub-section headed “Risk Factors – Risks relating to our Business and

Operations – Our business, financial condition and results of operations may be adversely

affected as a result of the failure of hotel owners or franchisors to obtain certain licenses for

managed hotels managed by us” in this prospectus.

As at the Latest Practicable Date, save for the absence of the certificates or permits as

disclosed above, our Group has obtained all material requisite licenses, permits and approval

for our operations and we were not aware of any facts which may prevent the renewal by us,

or render to the cancellation, revocation by the relevant authorities, of the above licenses in the

future.

PROPERTIES

Owned properties

As at November 30, 2018, we owned nine properties, including our two owned hotels,

offices, staff dormitories, in the PRC with a total GFA of approximately 35,064.3 sq.m., which

we held for self-use or hotel operation (in the case of the two owned hotels).

As at the Latest Practicable Date, a hotel building owned by our subsidiary, Jiande New

Century Wonderland Resort Co., Ltd.* (建德開元芳草地酒店有限公司), which has a GFA of

18,426.5 sq.m., is still in the progress of obtaining the building title certificate. We have

however successfully obtained the project quality completion inspection record (單位工程質量竣工驗收記錄). Such building has obtained the land use rights certificate, construction land

planning permit, construction works planning permit and construction works commencement

permit. The hotel commenced operation in January 2018 and for the eight months ended

August 31, 2018, the revenue generated from this hotel amounted to RMB28.7 million,

representing 2.6% of our total revenue. As advised by our PRC Legal Adviser, given that we

have obtained written confirmation from the relevant authorities confirming that there is no

obstacle in obtaining the building title certificate and there is no actual or potential disputes

on the ownership of such property, there is no legal impediment for us to obtain the building

title certificate. Our PRC Legal Adviser has confirmed that prior to obtaining the building title

certificate, there might be legal impediment for our Company to dispose of or create security

over such property.

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Considering that all the property is in safe condition, our PRC Legal Adviser’s advice

above, the revenue contribution to our Group as a whole and upon consultation with the

relevant authorities, our Directors are of the view that (i) the above lack of building title

certificate does not and will not have any material financial or operational impact on our

Company; (ii) there is no expected obstacle in obtaining the building title certificate, which we

expect to be obtained in 2019; and (iii) the cost of the property is not expected to have any

material difference had the relevant building title certificate been obtained. Save as disclosed

above, we have obtained the building title certificates for all the properties we own.

Leased properties

As at November 30, 2018, we leased 31 properties (five of which are leased from New

Century REIT) with a total GFA of approximately 887,302.6 sq.m., which we primarily leased

as our operated hotels. These hotel lease agreements generally have terms ranging from ten to

20 years. The validity and enforceability of the hotel lease agreements are subject to the

legality of the landlord’s title to the relevant land and buildings.

As at the Latest Practicable Date:

(i) the lessor of one leased property with an aggregate GFA of approximately 10,135.5

sq.m. had not obtained the building title certificate, which under the hotel lease

agreement, the lessor provided undertakings that the requisite building title

certificate would be obtained and the property can be used for hotel operation and

the lessor has also undertaken to indemnify any loss incurred by us due to the

defective title in connection with the leased property and we can claim for damages

based on the PRC Contract Law (《中華人民共和國合同法》) in the case of the

lessor violating the hotel lease agreement due to the aforementioned defective title

of the leased properties;

(ii) the actual use of five leased properties with an aggregate GFA of approximately

40,243.72 sq.m. were inconsistent with the planned use of such leased properties,

which prior approval should be obtained from the relevant authority for such

alteration of land use, and under the hotel lease agreements, the lessor of three

leased properties had undertaken to indemnify any loss incurred by us resulted from

such inconsistent land use and we can claim for damages based on the PRC Contract

Law (《中華人民共和國合同法》) in the case of the lessors violating the hotel lease

agreements due to the aforementioned defective title of the leased properties;

(iii) the land under one leased property with an aggregate GFA of approximately

11,866.8 sq.m. was allotted land, and the lessor did not fulfil necessary procedures

required to lease such leased property to us, moreover, according to the hotel lease

agreement, the lessor has already undertaken to indemnify any loss incurred by us

due to the defective title in connection with the leased property and the lessor would

be liable for damages to our Group if the lessor unilaterally terminate the hotel lease

agreement;

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(iv) four leased properties with an aggregate GFA of approximately 115,448.9 sq.m.

were mortgaged at the time when the properties were leased to us, which means the

mortgagee would have a better title on the properties against us; and

(v) the lessor of one leased property with an aggregate GFA of approximately 9,500

sq.m. has not completed the registration of land transfer and as such only the

building has been registered under the name of the lessor.

For the years ended December 31, 2015, 2016 and 2017 and eight months ended

August 31, 2018, the total revenue generated from the abovementioned defective leased

properties constituted 3.9%, 4.6%, 5.5% and 6.4% of our total revenue, respectively.

As advised by our PRC Legal Adviser, given that (i) we had not received any notice from

any regulatory authority with respect to the potential administrative penalties or enforcement

actions in relation to any of the defective properties under the hotel lease agreements described

above as at the Latest Practicable Date; (ii) most of the lessors above have undertaken to

indemnify us for any losses we suffer as a result of the termination of the hotel lease

agreements; and (iii) the aggregate revenue contribution from the hotels in relation to the

abovementioned defective titles as a percentage of the total revenue of our Group was

relatively low, the termination of the hotel lease agreements would not individually or

collectively have any material adverse effect on our business operations.

Our Directors is of the view that all the above properties are in safe condition as (a) the

property as described under sub-paragraph (i) above has obtained a written confirmation from

the relevant authority that there should be no obstacle in obtaining the building title certificate;

and (b) all other defective leased properties as described above have obtained the building title

certificate.

Considering that all the above properties are in safe condition, our PRC Legal Adviser’s

advice above, the revenue contribution to our Group as a whole and the above recourse

available to us against the lessors, our Directors are of the view that (a) the above title defects,

individually and collectively, do not and will not have any material financial or operational

impact on our Company; (b) the defective properties, individually and collectively, are not

crucial to our business operation; and (c) the rental of the properties is not expected to have

any material difference. Save as disclosed above, all of our landlords have legal titles to the

land and buildings, and our Group is entitled to occupy and use these buildings. As confirmed

by our PRC Legal Advisers, save for the lease agreements concerning the leased properties of

defective titles as disclosed under sub-paragraphs (i) and (ii) above, all our lease agreements

are legally valid.

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As at the Latest Practicable Date, 13 out of our 31 lease agreements have not been

registered with the relevant authorities, primarily due to a lack of cooperation from the

landlords in registering the relevant lease agreements, which was beyond our control. Our PRC

Legal Advisor has advised us that the failure to register the above lease agreements would not

affect the validity of the lease agreements. As at the Latest Practicable Date, we had not

received any notice from any regulatory authority with respect to potential administrative

penalties or enforcement actions as a result of our failure to file the lease agreements described

above. According to applicable PRC administrative regulations, the lessor and the lessee of a

lease agreement are required to file the lease agreement with relevant governmental authorities

within 30 days after the execution of the lease agreement. If the filing is not made, the

governmental authorities may require that the filing be made within a stated period of time,

failing which, they may impose a fine ranging from RMB1,000 to RMB10,000 for each

agreement that has not been properly filed. The maximum potential liabilities of our Group

therefore amounted to RMB130,000. Our Directors consider that such lack of lease registration

and the maximum potential fines has no material adverse operational and financial impact on

our Group. However, we will continue to take practicable and reasonable steps to work with

the relevant landlords and will endeavor to register the leases as soon as practicable, given that

the registration of such leases will require cooperation of our landlords.

Internal Control Measures

We have implemented internal control measures to prevent future occurrence of property

issues, including but not limited to the following:

(i) As part of the review process for the new hotel projects, our hotel opening

evaluation team will be responsible for ensuring all necessary title certificates are

obtained by the relevant hotel property prior to operation. When property defects

cannot be resolved due to historical issues or lack of governmental approval, we will

require the lessor to rectify defective titles within a designated time period or to

otherwise provide adequate remedy. When no such action can be taken, legal advice

on possible penalties and financial exposure should be obtained for further

consideration.

(ii) Our senior management team and our external legal counsel will be responsible for

assisting in reviewing the relevant title certificates and documents to ensure that the

relevant hotel property is free from material title defects when we lease additional

properties.

(iii) We will continue to seek cooperation from the landlords of the leased hotels to

register executed hotel lease agreements with the relevant PRC government

authorities and will adopt a variety of risk control measures to mitigate such

regulatory risk in the future.

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(iv) We keep record of our leased hotels with detailed information, including the status

of the lease registration, to ensure timely registration of our leased hotels.

(v) We will timely seek advice from our external PRC legal advisers when necessary to

provide assistance on any legal and compliance matters relating to our owned or

leased properties.

(vi) The internal audit department is responsible for conducting an annual inspection

regarding compliance with the above measures. The inspection is part of the internal

audit work and the results will be reported to our Board.

After the implementation of the abovementioned internal control measures, none of the

leased properties under the lease agreements that have been entered into by our Group since

April 30, 2018 have any property defects. We believe that we can effectively monitor and

manage property defect issues and reduce our exposure to associated risks through the above

measures.

Our Property Valuer has conducted a valuation on the market value of our owned and

leased properties. For further information regarding the valuation, please refer to “Appendix III

– Property Valuation Report”.

INSURANCE

We maintain public liability and asset insurance policies for our properties, the common

facilities and the hotel operating areas of our properties. In addition, we carry social insurance

for our employees.

We believe that we have sufficient insurance coverage in place and that the terms of our

insurance policies are in line with industry practice in China. We will review and assess our

risks and make necessary adjustments to our insurance coverage in line with our needs and

industry practice in the PRC. However, there is a risk that we do not have sufficient insurance

coverage for losses and damages that may arise in our business operations. See the sub-section

headed “Risk Factors – Risks relating to our Business and Operations – We have limited

insurance to cover potential losses and claims” and the section headed “Supervision and

Regulations” in this prospectus for further details.

ENVIRONMENTAL MATTERS

In connection with our operation and management of hotels, we are subject to various

national and local laws, ordinances and regulations relating to environmental protection. Under

some of these laws, an owner or operator of a real property may be held liable for the costs of

investigation or remedying hazardous or toxic substances or waste on, under or in such real

property, as well as third-party sites where the owner or operator sends waste for disposal.

Furthermore, a person who arranges for the disposal, treatment or transportation of a hazardous

or toxic substance at a property owned by another, or who transports such substance to or from

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such property, may be liable for the costs of removing or remedying any such substance that

is released into the environment at the disposal or treatment facility. Although we are not aware

of any current material obligations for investigating or remedying hazardous substances or

waste at our owned properties, the future discovery of substances or waste at any of our owned

properties, or the failure to properly remedy such contaminated property, could adversely affect

our ability to develop or sell such property, or use such property as collateral for our

borrowings. In addition, the cost of investigation or remediating the land contamination, at our

properties or at properties where we send substances or waste for disposal, may be substantial.

We are also subject to various requirements, required for our operations, governing air

emissions, effluent discharges, the use, management and disposal of hazardous substances and

waste and health and safety. Due to the nature of our business, our Group’s operational

activities do not directly generate industrial pollutants and our Group did not incur any

substantial cost of compliance with applicable environmental protection laws and regulations

directly during the Track Record Period. Assuming there are no material changes in applicable

environmental laws and regulations, we do not expect our Group to incur significant costs for

compliance with applicable environmental protections laws and regulations directly in the

future. Our PRC Legal Advisor advised that no material administrative penalties have been

imposed on us as a result of violation of national and local environmental laws and regulations

of the PRC during the Track Record Period. Additional operating costs and capital

expenditures could be incurred if additional or more stringent environmental regulatory

requirements are enacted in the future.

INTELLECTUAL PROPERTY RIGHTS

As at the Latest Practicable Date, we were not aware of any infringement of intellectual

property rights of third parties in the PRC or Hong Kong related to our adoption of the name

“New Century (開元)”.

Our brand, trade names, trademarks, trade secrets and other intellectual property rights

distinguish and protect our technology platforms, services and products from those of our

competitors, and contribute to our competitive advantage in the high Star-rated hotel segment

of the hotel industry in China. To protect our brand and other intellectual property, we rely on

a combination of trademark, trade secret and copyright laws as well as imposing confidentiality

obligations on our employees, contractors and others. As at the Latest Practicable Date, we

have a total of 58 registered trademarks in China, including “開元”, one patent, ten software

copyrights, 23 copyrights and 19 domain names and are applying for registration of 34 new

trademarks in China. “開元” was recognized as a well-known trademark in China (中國馳名商標) in 2015. We have registered domain name www.kaiyuanhotels.com. Please refer to the

sub-section headed “Appendix VII – Statutory and General Information – B. Further

Information about Our Business – 2. Intellectual property rights of our Company” in this

prospectus for details.

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HEALTH AND SAFETY MATTERS

Occupational Health and Safety

The safety of our hotel guests is paramount to us. We have taken measures to ensure thehealth and safety standards of our hotels. We are subject to various PRC laws and regulationswith respect to safety and work-related incidents. We have established a set of guidelines onissues relating to occupational health and safety. In addition, we provide regular training to ourhotel staffs on topics relating to occupational health and safety to enhance their awareness andknowledge.

Under PRC law, a hotel is required to obtain fire safety approval prior to operation. Finesmay be imposed on both the party responsible for the non-compliant hotel for any failure toobtain fire safety approval. The PRC fire safety authorities have the power to order anynon-compliant hotel to suspend its operations unless it rectifies the non-compliance inaccordance with requirements of the local fire safety authorities. No material administrativepenalties were imposed on us or our subsidiaries/branches by the competent fire safetyauthorities during the Track Record Period and up to the Latest Practicable Date.

Health and Safety of our Hotel Guests

We have established a set of guidelines on reporting incidents and complaints relating tothe health and safety of our hotel staffs and our hotel guests: (i) once we receive the complaintfrom hotel guests through our customer service center, the complaint would be registered andour staff at the customer service center would inform our responsible hotel staff at the relevanthotel to handle the complaint within 24 hours; (ii) after communicating with the hotel guests,the relevant hotel staff would record the incident and inform the customer service center of theoutcome; (iii) the customer service center manager would re-visit the hotel guests who filed thecomplaint and see whether the incident was handled to their satisfaction; and (iv) if the hotelguests are not content with how the incident was handled, the customer service center managerwill need to report the incident to the senior management for further handling and formulatefuture strategy in dealing with similar complaint in order to improve our customer service.

To the best knowledge of our Directors, we are not aware of any material incidence ofcompliant requesting for compensation in relation to our F&B services that could have amaterial adverse effect on our business, results of operations or financial condition during theTrack Record Period and up to the Latest Practicable Date.

No material investigation or administrative penalties were imposed on us or our

subsidiaries/branches by the competent hygiene authorities during the Track Record Period and

up to the Latest Practicable Date. We have formulated and implemented food safety measures,

which include periodic checks and various criteria to ensure the quality of food served in our

hotels. We believe that the measures adopted by us to comply with the applicable laws and

regulations relevant to social responsibility are consistent with the standard practices of our

industry. We have not experienced material instances of non-compliance with our health and

safety measures during the Track Record Period and up to the Latest Practicable Date.

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LEGAL AND REGULATORY MATTERS

Legal Proceedings

As at the Latest Practicable Date, we and our Directors were not a party to any litigation,arbitration or administrative proceedings that we expect would materially adversely affect ourbusiness or results of operations and, to the best of our knowledge, we are not aware of anymaterial pending or threatened litigation, arbitration or legal proceedings. However, we mayfrom time to time become a party to various legal or administrative proceedings arising in theordinary course of our business.

Regulatory Matters

Save for the relevant circumstances which have been disclosed above, we have obtainedall material requisite permits, licenses and approvals necessary for our operations. OurDirectors confirm that we have complied with all applicable laws and regulations in allmaterial respects in the PRC (being the principal jurisdiction in which we operate) during theTrack Record Period and up to the Latest Practicable Date.

Historical Non-compliance Incidents

In respect of compliance matters relating to our property interests, please refer to thesub-section headed “Properties” in this section.

During the Track Record Period, our Company and some of our PRC subsidiaries andbranch offices failed to make full contribution to the social insurance fund and housingprovident fund for some of our employees as required under PRC law. As at August 31, 2018,the estimated aggregate amount incurred and accrued was RMB9.4 million.

These non-compliance incidents were primarily due to (i) some of our employees werenon-local workers and were not willing to participate in the social insurance program of thecity in which they migrate temporarily; (ii) the staff who were formerly in charge of this matterdid not fully understand the different regulatory requirements in areas where we operated; (iii)mandatory enforcement on employees in making full contribution may lead to risk in employeeturnover; (iv) no contribution was required for retirees; (v) some newly-employed staff werein the process of social insurance and housing provident fund transfer; and (vi) someemployees have participated in the “new rural social pension insurance” and were reluctant tomake contributions to social insurance and housing provident funds.

According to the relevant PRC laws and regulations, in respect of overdue socialinsurance contributions, (i) the relevant PRC authorities may demand us to pay the outstandingsocial insurance contributions before a stipulated deadline and we may be liable to a latepayment fee equivalent to 0.05% of the outstanding amount for each day of delay; if we failto make such payments, we may be liable to a fine of one to three times the amount of theoutstanding contributions; and (ii) in respect of outstanding housing provident fundcontributions, we may be ordered to pay the outstanding housing provident fund contributionswithin a prescribed time period.

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Our Company and our PRC subsidiaries and branch offices have obtained written

confirmations from local social insurance and housing provident fund authorities, each stating

that: (i) no material administrative penalty has been imposed during the Track Record Period;

and (ii) the relevant subsidiary/branch office was in compliance with the respective laws and

regulations. We are advised by our PRC Legal Adviser that such confirmations were made by

the competent authorities.

Based on (i) written confirmations issued by local social insurance and housing provident

fund authorities; and (ii) the fact that no material administrative penalty has been imposed on

our Group, our PRC Legal Adviser is of the view that the likelihood that we will be subject to

administrative penalty by the social security insurance and housing provident fund competent

authority to pay the outstanding social insurance fund and housing provident fund contribution

is relatively low and that such non-compliance will not have a material impact on the business

operations of our Group and the Listing.

In order to prevent future potential non-compliance incidents in relation to social

insurance fund contributions, we have adopted various measures since July 2018 including:

(i) adopting internal policy to ensure our ongoing compliance with the relevant laws

and regulations on social insurance fund and housing provident fund contributions

including establishing a standard procedure for our human resources department and

finance department in conducting regular review on the total number of employees

that are required to make contribution to the social insurance and housing provident

fund, which will be supervised by Mr. Lv Gang, the human resources director of our

Group;

(ii) specifying in our employment contracts that our Group and employees shall comply

with the laws and regulations relating to social security insurance and housing

provident fund contributions at all times;

(iii) increasing the awareness of our employees on the importance of contributing to the

social security insurance and housing provident fund and providing regular reminder

on the contribution;

(iv) conducting regular review to ensure we have complied with the relevant laws and

regulations on the social security insurance and housing provident fund; and

(v) seeking advice from external legal advisers on the updates to the applicable PRC

laws and regulations.

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Our Directors are of the opinion that this incident will not have a material adverse impact

on our business or results of operations for the following reasons: (i) the written confirmations

obtained from the relevant competent local authorities described above; (ii) during the Track

Record Period and up to the Latest Practicable Date, our Group did not receive any orders or

demands from the relevant government authority requesting us to pay the shortfall in social

security insurance contributions or any penalties; (iii) our Group has made provisions in

respect of the accrued amount during the Track Record Period. As at August 31, 2018, the

accrued amount was RMB9.4 million; (iv) our PRC Legal Adviser’s opinion that such

non-compliance incidents will not have material impact on the business of our Group and the

Listing; (v) we have strengthened our internal control policy to ensure our ongoing compliance

with the relevant laws and regulations on social security insurance and housing provident fund

contributions; and (vi) we will convey the relevant requirements to make relevant social

security insurance and housing provident fund contributions clearly to new employees prior to

hiring them and continue to communicate with existing employees on the importance of

making such contributions. In addition, to ensure that we comply with relevant laws and

regulations regarding contributions to relevant social insurance and housing provident fund, we

will review our contributions periodically and report to our Board should any material

non-compliance occur.

In addition, New Century Tourism, one of our Controlling Shareholders, has agreed to

indemnify us for monetary fine, settlement payments and any associated costs and expenses

which would be incurred or suffered by us in connection with the aforesaid non-compliance

and payment of any unpaid social insurance fund and housing provident fund contributions to

the extent not covered by the above provision.

INTERNAL CONTROL AND RISK MANAGEMENT

We have implemented various risk management policies and measures to identify, assess

and manage risks arising from our operations. Details on risk categories identified by our

management, internal and external reporting mechanism, remedial measures and contingency

management have been codified in our policies. For details of the major risks identified by our

management, see sub-section headed “Risk Factors – Risks Relating to our Business and

Industry” in this prospectus.

To monitor the ongoing implementation of our risk management policies and corporate

governance measures after the Listing, we have adopted or will adopt, among other things, the

following risk management and internal control measures:

(i) the establishment of an audit committee responsible for overseeing our financial

records, internal control procedures and risk management systems. See sub-section

headed “Directors, Supervisors and Senior Management – Board Committees –

Audit Committee” for the qualifications and experience of these committee

members as well as a detailed description of the responsibility of our audit

committee;

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(ii) the appointment of Mr. Li Donglin as our joint company secretary and Ms. Chan

Suet Lam as our other joint company secretary to ensure the compliance of our

operation with relevant laws and regulations. For their biographical details, see

section headed “Directors, Supervisors and Senior Management”;

(iii) the appointment of BOCOM International (Asia) Limited as our compliance adviser

upon the Listing to advise us on compliance with the Listing Rules; and

(iv) the engagement of external legal advisers to advise us on compliance with the

Listing Rules and to ensure our compliance with relevant regulatory requirements

and applicable laws, where necessary.

We have also adopted measures to protect customer data, operational, financial and other

confidential information of our Company. In particular, during the course of operation of our

hotels, we collect the personal information of hotel guests including names, passport number

and contact details. In order to prevent leakage of personal data of our hotel guests, we have

established a confidentiality policy which requires our employees not to disclose any

confidential information, including but not limited to, non-public information of our Group or

personal data of our hotel guests to any person outside of our Group. We have also included

the confidentiality clause in the employment contracts for all our employees to avoid any data

leakage. During the Track Record Period and up to the Latest Practicable Date, we did not

experience any breach of customer data or any other confidential information which could

cause a material adverse effect on our business, financial conditions or results of operations.

Our Directors are of the view that we have taken reasonable steps to establish internal

control system and procedures to enhance the internal control environment at both working and

monitoring levels, and the enhanced internal control measures adopted by us are adequate and

effective.

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OVERVIEW

Our Company was established as a limited liability company on December 17, 2008,which has subsequently converted into a joint stock limited liability company on June 28, 2017in accordance with the PRC laws. Upon our establishment as a joint stock limited liabilitycompany, our Company had a total of 159,659,640 issued Domestic Shares and 50,340,360Unlisted Foreign Shares, with a nominal value of RMB1.00 each. Immediately following thecompletion of the Global Offering, New Century Tourism will control approximately 48.3% ofour share capital, assuming no Over-allotment Option is exercised, and will continue to be ourdirect Controlling Shareholder. New Century Tourism is in turn indirectly held as to 85.2% byMr. Chen Miaolin, 8.5% by Mr. Chen Canrong and 6.3% by Mr. Zhang Guanming.

Having considered the following factors, we are satisfied that we can carry on ourbusiness independently of our Controlling Shareholders.

INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS

Our Controlling Shareholders, apart from their interests in our Group, have also beenengaged in, among other things, the investment in and the development of hotel properties inthe PRC through their close associates including New Century Tourism, New Century Holdingsand New Century REIT. New Century Holdings is held as to 85.2% by Mr. Chen Miaolin, 8.5%by Mr. Chen Canrong and 6.3% by Mr. Zhang Guanming, all being our ControllingShareholders. New Century REIT is indirectly interested as to 60.2% unitholding by HugeHarvest International Limited, a limited liability company incorporated in the BVI and isindirectly interested by Mr. Chen Miaolin as to 83.9%, Mr. Chen Canrong as to 9.3% and Mr.Zhang Guanming as to 6.8%.

The structure chart below shows the relationship between Mr. Chen Miaolin, Mr. ChenCanrong and Mr. Zhang Guanming, New Century Tourism, New Century Holdings, NewCentury REIT and our Company immediately prior to Listing:

Tecway Real

Estate Limited

100.0%

New Century

Holdings

Zhejiang New

Century Real

Estate Limited

100.0%

Our

Company

9.3%

(indirect)

83.9%

(indirect)

6.8%

(indirect)

60.2% (indirect)

New Century

REIT

Mr. Chen Miaolin Mr. Zhang GuanmingMr. Chen Canrong

8.5% 85.2% 6.3%

Mr. Chen MiaolinMr. Chen Canrong

Huge Harvest

International

Limited

New Century

Tourism

59.8%

Mr. Zhang Guanming


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Our Group principally engages in the operation and management of hotels in the PRC. As

at the Latest Practicable Date, our Controlling Shareholders, through their close associates

namely New Century Tourism (excluding any interest held through our Group), New Century

Holdings and New Century REIT (i) held interest in 17 hotels in operation (including 15 hotels

in the PRC, one hotel in Germany and one hotel in the Netherlands) and leased two hotels in

operation in the PRC; and (ii) held interest in five hotels under construction in the PRC. All

of the owned and leased hotels of New Century Tourism Group, New Century Holdings Group

and New Century REIT Group in the PRC are currently, and will be, either leased or managed

by us. Please refer to the sub-section headed “– Non-competition Undertaking” in this section

for further details on the Deed of Non-competition and the section headed “Connected

Transactions” in this prospectus for further details on the arrangements of the hotels of our

Controlling Shareholders that are leased or managed by us. As at the Latest Practicable Date,

New Century Tourism had equity interest in two companies, namely Shaoxing Yuzhuang New

Century Hotel Management Co., Ltd.* (紹興禹莊開元酒店管理有限公司) (“Shaoxing

Yuzhuang”) and Ningbo Shiqifang New Century Resorts Co., Ltd.* (寧波十七房開元度假村有限公司) (“Ningbo Shiqifang”), each of which invested in the operation of hotels by leasing the

hotel property from independent third-party hotel owner but outsourced the management of the

hotels to our Group.

(i) Shaoxing Yuzhuang

Shaoxing Yuzhuang, a company established in the PRC and wholly-owned by New

Century Tourism, is engaged in the hotel operation of Shaoxing Dayu New Century Grand

House* (紹興大禹開元觀堂) and entered into a hotel lease agreement on September 15, 2017

with Shaoxing Tourism Group Co., Ltd.* (紹興市旅遊集團有限公司), an Independent Third

Party, pursuant to which Shaoxing Yuzhuang leased Shaoxing Dayu New Century Grand House

for a term of 20 years, covering a total area of 13,500 sq.m., from the date of the agreement.

Shaoxing Dayu New Century Grand House has been managed by our Group pursuant to the full

service management agreement entered into between Shaoxing Yuzhuang and our Group since

September 15, 2017 for a term of 20 years. As at the Latest Practicable Date, save for Shaoxing

Dayu New Century Grand House, Shaoxing Yuzhuang has not operated any other hotels.

(ii) Ningbo Shiqifang

Ningbo Shiqifang, a company established in the PRC and wholly-owned by New Century

Tourism, is engaged in the hotel operation of Ningbo Shiqifang New Century Resort (寧波十七房開元度假村) and entered into a hotel lease agreement on January 1, 2014 with an

Independent Third Party, pursuant to which Ningbo Shiqifang leased Ningbo Shiqifang New

Century Resort* (寧波十七房開元度假村) for a term of 20 years, covering a total area of

36,705 sq.m., from the date of the agreement. Ningbo Shiqifang New Century Resort has been

managed by our Group pursuant to the full service management agreement entered into

between Ningbo Shiqifang and our Group since January 1, 2014 for a term of 20 years. As at

the Latest Practicable Date, save for Ningbo Shiqifang New Century Resort, Ningbo Shiqifang

has not operated any other hotels.


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New Century Tourism retained the equity interests in Shaoxing Yuzhuang and Ningbo

Shiqifang as New Century Tourism had invested in the respective land physically adjacent to

each of Shaoxing Dayu New Century Grand House and Ningbo Shiqifang New Century Resort

for the purpose of integrated hotel property development and aimed to consolidate the control

of the lease of the two hotels and the ownership of the respective adjacent land under New

Century Tourism to develop the properties under the same “New Century (開元)” brand. New

Century Tourism subsequently entered into the full service management agreements with us to

manage the said hotels after we assessed the economic benefits between leasing or managing

both hotels as a whole.

New Century Tourism, through its wholly-owned subsidiary, also leased Grand New

Century Hotel Kaifeng* (開封開元大酒店) from the New Century REIT Group pursuant to the

lease agreement dated June 29, 2015, for an initial term of ten years and the hotel is also

managed by our Group. Given all of Shaoxing Dayu New Century Grand House, Ningbo

Shiqifang New Century Resort and Grand New Century Hotel Kaifeng have engaged our Group

to provide the full service hotel management services, which means the day-to-day operation

and material decisions in relation to the operation of the said hotels shall be under the absolute

discretion of our Group, our Directors consider that the lease of hotels by the New Century

Tourism Group does not constitute a direct competition of the businesses with our Group.

Business delineation between our Group and the New Century Group

There is a clear delineation of business between the New Century Group (excluding our

Group) and our Group, which the New Century Group (excluding our Group) will focus on the

investment and development of hotel properties in the PRC whereas our Group will focus on

the operation and management of hotel properties in the PRC (the “Restricted Activity”). All

hotels owned or leased by the New Century Group (excluding our Group) in the PRC have been

managed by our Group under the full service management agreement.

Although our Group currently owns two resorts under the brand “New Century

Wonderland (開元芳草地鄉村酒店)”, namely Changxing New Century Wonderland Resort (長興開元芳草地鄉村酒店) and Hangzhou Fuchun New Century Wonderland Resort (杭州富春開元芳草地鄉村酒店), investment and development of hotel properties is not and will not be the

principal activities of our Group and it is our intention to focus our business in the operation

and management of hotels in the PRC by way of hotel lease agreement, full service

management agreement and/or franchise agreement. For the years ended December 31, 2015,

2016 and 2017 and the eight months ended August 31, 2018, revenue generated from these two

resort hotels amounted to nil, RMB19.7 million, RMB36.0 million and RMB56.5 million,

respectively, representing nil, 1.2%, 2.2% and 5.0% of the total revenue of our Group,

respectively. Apart from the two owned “New Century Wonderland (開元芳草地鄉村酒店)”

resort hotels, our Group does not own any of the other hotels that we operate and/or manage.

In addition, our Controlling Shareholders do not own any “New Century Wonderland (開元芳草地鄉村酒店)” resort hotel.


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New Century Tourism Group also owned New Century Hotel Frankfurt Offenbach,located in Frankfurt, Germany, which is held by New Century Hotel Management (Germany)Co. Ltd., a subsidiary of New Century Tourism, but has engaged an independent hotel managerfor the hotel management service of the hotel. The business of the said hotel and the businessesof our Group is clearly delineated based on the geographical locations as our Group will onlyconduct the Restricted Activity in the PRC. Such geographical delineation will ring-fence theoperations of our Group from any potential competition from the hotels owned by ourControlling Shareholders and managed by third-party hotel managers in Germany.

Business delineation between our Group and New Century REIT

New Century REIT is a collective investment scheme in Hong Kong constituted as a unittrust and authorized under section 104 of the SFO subject to applicable conditions from timeto time, the units of which are listed on the Main Board of the Stock Exchange. New CenturyREIT principally owns an investment portfolio of hotel properties. There will be a cleardelineation of business between New Century REIT and our Group, as New Century REIT willonly hold the ownership of the hotel properties whereas our Group will focus on the RestrictedActivity. All hotels owned by New Century REIT in the PRC have been either leased to ormanaged by our Group.

New Century REIT also owns Holiday Inn Eindhoven, located in Eindhoven, theNetherlands but has leased the hotel to an independent hotel operation group for the operationof the said hotel. The business of the said hotel and the business of our Group is clearlydelineated based on the geographical locations as our Group will only conduct the RestrictedActivity in the PRC. Such geographical delineation will ring-fence the operations of our Groupfrom any potential competition from the hotels owned by New Century REIT and operated bythird-party hotel group in the Netherlands.

Based on the above, there is a clear delineation between the businesses of the NewCentury Group and New Century REIT and the business of our Group and our Directors are ofthe view that there is no significant overlap or competition of the business of our Group andthe businesses of the New Century Group and New Century REIT.

Save as described above, as at the Latest Practicable Date, none of our Controlling

Shareholders had interests in any business which is, whether directly or indirectly, in

competition with our business.

Despite there is no substantive competition that exists between our Group and our

Controlling Shareholders, in order to avoid any possible future competition between our Group

and our Controlling Shareholders, our Controlling Shareholders have entered into the Deed of

Non-Competition in favour of our Company pursuant to which each of our Controlling

Shareholders has undertaken not to engage in the Restricted Activity and all hotels owned or

leased by the New Century Group in the PRC has been and will be either leased to our Group

or managed by our Group under the full service management agreement. Details of the Deed

of Non-Competition are set out in the sub-section headed “Deed of Non-Competition” below

in this prospectus.


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Financial independence

Our accounting and finance department is independent from our Controlling

Shareholders, and composed of independent finance staff. Its responsibilities include, among

others, financial control, accounting, financial reporting, group credit, internal control. None

of our finance staff works for our Controlling Shareholders and/or their respective close

associates. We are capable of making financial decisions independently, and our Controlling

Shareholders will not interfere with our use of funds. We have established an independent audit

system, a standardized financial and accounting system and a comprehensive financial

management system. In addition, we manage our bank accounts independently, and do not

share any bank accounts with our Controlling Shareholders and/or their respective close

associates.

As part of the preparation for listing of New Century REIT in 2013, in order to provide

additional protection to the unitholders in the New Century REIT in the event that the Company

is unable to secure the Bank Guarantee (as defined below) and is also unable to pay the Base

Rent, New Century Tourism, our Controlling Shareholder, has also provided a guarantee (the

“Guarantee”) to New Century Hotel Investment with respect to the obligations of our

Company under the Hotel Lease and Management Agreements. Pursuant to the terms of the

Hotel Lease and Management Agreements, our Company is also required to procure an

irrevocable guarantee from an independent financial institution for an amount up to the Base

Rent in favor of New Century REIT with respect our payment obligations. Such arrangements

which remain so long as the Hotel Lease and Management Agreements are effective and as

such will continue after Listing. Please refer to sub-section headed “Connected Transactions –

Continuing Connected Transactions subject to the reporting, annual review, announcement and

independent Shareholders’ approval requirement” in this prospectus for further details.

Notwithstanding the existence of the Guarantee, our Company is and will continue to be

financially independent from its controlling shareholder, New Century Tourism, for the

following reasons:

(i) throughout the past five year term of the Hotel Lease and Management Agreements,

our Company has been able to perform and make all payment obligations under the

Hotel Lease and Management Agreements without any financial assistance from

New Century Tourism;

(ii) our Company had a strong financial position with our business operations in a

relatively matured and developed market. As at December 31, 2018, our Group has

unutilized banking facilities of RMB120.0 million, together with our Group’s cash

position (excluding restricted cash) of RMB369.7 million, which can fully cover the

maximum obligation under the Hotel Lease and Management Agreements under the

Base Rent scenario of RMB200 million;


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(iii) the rent (taking into account the hotel operation and management functions to be

performed by our Group for the New Century REIT Hotel Properties) payable by our

Company under the Hotel Lease and Management Agreements are calculated by

reference to the hotels’ operating revenue and gross operating profit. As such, if our

Company is required to pay a higher amount of rent, it implies that the hotels (which

contributed to the revenue and profit of our Company) are performing well

financially; and

(iv) our Company’s obligation for payment of rents under the Hotel Lease and

Management Agreements are secured by a bank guarantee issued by independent

financial institution up to the amount of the Base Rent (the “Bank Guarantee”). In

the event that our Company is unable to make the shortfall payment, our Company

will be able to rely on the Bank Guarantee.

Please refer to sub-section headed “Connected Transactions – Continuing Connected

Transactions subject to the reporting, annual review, announcement and independent

Shareholders’ approval requirement” in this prospectus for more details on the Hotel Lease and

Management Agreements.

Our Directors confirm that all related party balances as at August 31, 2018 which are

non-trade in nature has been fully settled as at October 31, 2018. Save as disclosed above, as

at the Latest Practicable Date, we had no outstanding loans, non-trade balances, financial

assistance or financing in any other forms due to or from our Controlling Shareholders or their

close associates; and had not provided any outstanding securities, loans or any other forms of

financial assistance to our Controlling Shareholders or their respective close associates.

Therefore, our Directors believe that we are financially independent from our Controlling

Shareholders.

Management independence

Our board of Directors comprises two executive Directors, four non-executive Directors

and three independent non-executive Directors. Our Directors and members of senior

management possess relevant management and/or industry-related experience to act as

Directors or senior management of our Company. Each of our Directors is aware of his/her

fiduciary duties which require, among other things, that he/she acts for the benefit of and in

the best interests of our Company and not allow any conflict between his/her duties as a

director and his/her personal interests. Please see the section headed “Directors, Supervisors

and Senior Management” in this prospectus for details of our Directors and senior

management.


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Three members of our Board, namely Mr. Jin Wenjie, Mr. Chen Miaolin and Mr. ChenCanrong, currently also hold positions in New Century Tourism, one of our ControllingShareholders, or its close associates including New Century Holdings and New Century REIT.Set out below is a summary of (i) the Directors’ roles within our Group; and (ii) positionscurrently held by these Directors in New Century Tourism and its close associates includingNew Century Holdings and New Century REIT as at the Latest Practicable Date:

Name Role within our Company

Role within New CenturyTourism and its close associatesincluding New CenturyHoldings and New CenturyREIT

Mr. Jin Wenjie Executive Director, andChairman of the Board

Non-executive director of NewCentury Tourism; and thechairman and non-executivedirector of the manager ofNew Century REIT

Mr. Chen Miaoqiang Executive Director,and President

Nil

Mr. Chen Miaolin Non-executive Director Director of New CenturyTourism and certain of itssubsidiaries; and director ofNew Century Holdings andcertain of its subsidiaries

Mr. Chen Canrong Non-executive Director Chairman, president and directorof New Century Tourism anddirector of certain subsidiariesof New Century Tourism; anddirector of New CenturyHoldings and certain of itssubsidiaries

Mr. Jiang Tianyi Non-executive Director Nil

Mr. Zhang Chi Non-executive Director Nil

Mr. Zhang Rungang Independent non-executiveDirector

Nil

Mr. Khoo Wun Fat William Independent non-executiveDirector

Nil

Ms. Qiu Yun Independent non-executiveDirector

Nil


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As at the Latest Practicable Date, Mr. Chen Canrong is a director of Ningbo New Century

Hotel Co., Ltd.* (寧波開元大酒店有限公司), a company held as to 20% interest by New

Century Tourism. Other than Mr. Jin Wenjie, Mr. Chen Miaoqiang, Mr. Chen Miaolin and Mr.

Chen Canrong, none of our other Directors hold any directorship or senior management role

in the New Century Tourism Group or close associates of our Controlling Shareholders

including the New Century Holdings and New Century REIT Group. Mr. Jin Wenjie is a

non-executive director of New Century Tourism and the chairman and non-executive director

of the manager of New Century REIT and is not involved in the day-to-day management or

affairs and operations of New Century Tourism or New Century REIT. Each of Mr. Chen

Miaolin and Mr. Chen Canrong is a non-executive Director in our Company and is not involved

in the day-to-day management or affairs and operations of our businesses.

The independent senior management team of our Group is led by a core management team

comprising Mr. Chen Miaoqiang, Mr. Hou Frank Feng, Mr. Li Donglin, Ms. Ye Lv, Ms. Zhao

Huajuan, Mr. Dai Jianping and Mr. Chen Wenfang, some of whom have served our Group for

many years with over ten years of working experience in the field of hotel operation and

management. They form part of our core management team together and made material

decisions in our business operation during the Track Record Period. Mr. Li Donglin and Ms.

Zhao Huajuan hold supervisory roles in certain subsidiaries of New Century Tourism and are

not involved in the day-to-day management or affairs and operations of those subsidiaries.

Except as disclosed above, there is no overlapping personnel between the senior management

team of our Group and the senior management team of the New Century Group and the New

Century REIT Group.

Our Directors consider that our Group can function independently from the New Century

Group and the New Century REIT Group notwithstanding that some of our Directors also hold

positions in the New Century Group and the New Century REIT Group for the following

reasons:

(i) the decision-making mechanism of our board of Directors as set out in our Articles

of Association includes provisions for the avoidance of conflicts of interest by

providing, among other things, that (a) each Director will be entitled to one vote at

our meeting of Board of Directors and decisions of our Board of Directors shall be

passed by majority vote; and (b) where there is conflicts of interest, the relevant

Director(s) shall abstain from voting, shall not be counted towards quorum in

respect of the relevant resolution(s) at such Board meeting, particularly when the

transactions are related to New Century REIT Group, Mr. Jin Wenjie as the chairman

and non-executive director of the manager of New Century REIT shall observe the

above restrictions at the board meeting;

(ii) each of our Directors is aware of his fiduciary duties as a director which require,

among others, that he must act for the benefit and in the best interests of our

Company and the Shareholders as a whole and must not allow any conflict to arise

between his duties as a Director and his personal interest or his roles in other

corporation, including New Century Tourism and New Century REIT. If there is any


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potential conflict of interest arising out of any transactions to be entered intobetween our Group and any Directors or his respective close associates, suchinterested Director is required to abstain from voting at the relevant board meetingsof our Company in respect of such transactions and will not be counted in thequorum;

(iii) six out of nine members of the Board do not hold any board seat or involve in anyoperation in the New Century Group and the New Century REIT Group uponListing. Accordingly, a majority of the members of the Board are independent fromthe New Century Group and the New Century REIT Group and our Directors whoalso hold positions in the New Century Group and the New Century REIT Group donot have and will not, whether acting alone or collectively, have an absolutemajority to pass any resolution of the Board;

(iv) three out of nine Directors, i.e. one-third of the Board, are independent non-executive Directors and there is no overlapping of the independent non-executivedirectors of our Company and of New Century Tourism, which is in line withcorporate governance best practice in Hong Kong. None of the independentnon-executive Directors has any position or role previously in New Century Tourismand none of the criteria of affecting independence under Rule 3.13 of the ListingRules applies to them. The independent non-executive Directors either haveappropriate academic qualifications or extensive experience in their respectablespecialty areas, and have been appointed for the diversity in skills and backgroundthey may add to the Board. The independent non-executive Directors are expectedto bring impartial and independent judgment to the Board and to take the lead inmatters to be discussed by the Board where potential conflicts of interests (betweenNew Century Tourism and our Company) may arise. In addition, the majority of the

members of the Audit Committee, the Nomination Committee and Remuneration

Committee of our Company are independent non-executive Directors;

(v) Mr. Jin Wenjie only takes up non-executive roles in New Century Tourism and New

Century REIT and his roles are mainly to preside over and participate in board

meetings to make decisions on material matters and hence is not involved in the

day-to-day management or affairs and operations of New Century Tourism or New

Century REIT. Mr. Jin will spend majority of his time in the overall management of

our Group;

(vi) Mr. Chen Miaolin and Mr. Chen Canrong only take up non-executive role in our

Company and are only responsible for the provision of guidance for the overall

development of our Group and are not involved in the day-to-day management or

affairs and operations of our Company; and

(vii) we have adopted a series of corporate governance measures to manage conflicts of

interest, if any, between our Group and our Controlling Shareholders or their close

associates which would support our independent management. Please see “–

Corporate Governance Measures” in this section for further information.


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Our Company has also adopted the Corporate Governance Code (the “Code”) as set outin Appendix 14 of the Listing Rules. The Code sets out principles of good corporategovernance in relation to, amongst other matters, Directors, the chairman and chief executiveofficer, Board composition, the appointment, re-election and removal of Directors, theirresponsibilities and remuneration and communications with shareholders. We will state in ourinterim and annual reports whether we have complied with the Code, and will provide detailsof, and reasons for, any deviations from it in the Corporate Governance Report. Our Companyis also required to comply with the Model Code for Securities Transactions by Directors ofListed Issuers which provides, amongst other matters, prohibitions on Directors’ dealings insecurities and protection of minority shareholders’ rights. Further, following the Listing, ourBoard of Directors will be required to comply with provisions under the Listing Rules andcertain matters, such as connected transactions, are subject to review by our independentnon-executive Directors. Our Directors are of the view that the significant proportion ofindependent non-executive Directors comprising our Board should enhance our overallcorporate governance standards.

Our Board is therefore satisfied that sufficient corporate governance measures have beenput in place to manage conflicts of interests between our Group and each of our ControllingShareholders, and to protect minority shareholders’ rights after the Listing.

Based on the above, our Directors are satisfied that our Board of Directors as a wholetogether with our management team are able to manage our Company independently of ourControlling Shareholders and their close associates.

Operational Independence

Although our Controlling Shareholders will retain a controlling interest in our Companyafter the Listing, the Board has full rights to make all decisions on, and to carry out, its ownbusiness operations independently.

Our Company has its own management team, of which most members are independentfrom our Controlling Shareholders. Moreover, our Company (through its subsidiaries) holds allrelevant licenses necessary to carry on its businesses, and has sufficient capital, equipment andemployees to operate its business independently from our Controlling Shareholders. Our Grouphas independent access to sources of customers and suppliers. Our Group has also establisheda set of internal control procedures which facilitate the effective operation of our business.Further, our Group has our own operating facilities and resources.

The section headed “Connected Transactions” in this prospectus sets out the continuingconnected transactions between our Group and our Controlling Shareholders or their associateswhich will continue after the completion of the Global Offering. All such transactions aredetermined after arm’s length negotiations and on normal commercial terms. Save as thosedisclosed in the section headed “Connected Transaction” in this prospectus, our Directorscurrently do not expect that following the Listing, there will be other material connectedtransactions between our Company and our Controlling Shareholders or their respectiveassociates. Our Directors confirm that we will fully comply with Chapter 14A of the ListingRules if any other connected transaction arises in the future.


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Based on the above, our Directors believe that there is no operational dependence by us

on our Controlling Shareholders.

NON-COMPETITION UNDERTAKING

Each of our Controlling Shareholders jointly and severally, entered into the Deed of

Non-Competition in our favor, pursuant to which each of our Controlling Shareholders has

undertaken to us that, during the Non-Compete Period (as defined below), he or it will not,

whether as principal or agent and whether undertaken directly or indirectly (including through

any close associate (as defined in the Listing Rules from time to time), subsidiary, partnership,

joint venture or other contractual arrangement of his or its) and whether for profit or otherwise,

carry on, engage, invest, participate or otherwise be interested in any business of operating or

managing hotels in the PRC (the “Restricted Business”).

Notwithstanding the foregoing, each of our Controlling Shareholders may:

(i) have interests in shares or other securities (whether or not listed on any stock

exchange) of a company conducting any Restricted Business, provided that the

relevant Controlling Shareholder and his or its close associates taken together are

not so interested as to be able to exercise or control the exercise of 10% or more of

the voting power at the general meetings of such company; and

(ii) at all times there is another independent shareholder who either alone is, or together

with its or its close associates taken together are, directly or indirectly interested so

as to be able to exercise or control the exercise of a greater amount of voting power

at general meetings of such company than he/she is able, or control the composition

of a majority of the board of directors of such company.

The “Non-Compete Period” stated in the Deed of Non-Competition refers to the period

commencing on the Listing Date and ending on the earlier of:

(i) the date on which the relevant Controlling Shareholder, individually or collectively,

ceases to be a Controlling Shareholder of our Company within the meaning of the

Listing Rules; and

(ii) the date on which the Shares cease to be listed on the Stock Exchange.

Each of our Controlling Shareholders has further undertaken that it shall first refer to our

Company or make available to our Company any commercial opportunity relating to the

Restricted Business (the “Business Opportunity”) that is identified by, or offered by a

third-party to, it or its close associates or connected persons in the following manner:

(i) he/it shall and shall procure that his/its close associates (excluding our Group) and

connected persons provide our Company a written notice of such Business

Opportunity (the “Opportunity Notice”) together with all information relating to


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the Business Opportunity in his or its possession including the nature of theBusiness Opportunity, the investment or acquisition costs and other detailsreasonably necessary for our Company to consider whether such BusinessOpportunity constitute competition with our Group’s business and whether it is inthe interest of our Group to pursue such Business Opportunity;

(ii) our Company shall inform our Directors (including the independent non-executiveDirectors) of such Business Opportunity in writing immediately upon receiving theOpportunity Notice;

(iii) our Company, after review and approval by the non-interested Directors of ourCompany, including the independent non-executive Directors or shareholders of ourCompany as required under relevant laws and regulations, shall within 30 days fromreceipt of the Opportunity Notice notify the Controlling Shareholders in writing ofany decision taken to pursue or decline such new business opportunity;

(iv) the relevant Controlling Shareholder shall be entitled to carry on, engage in, investin, participate in or otherwise be interested in such Business Opportunity, or appointa third-party to conduct such Business Opportunity if (i) he/it has received a noticefrom our Company declining such Business Opportunity or (ii) he/it has not receivedany notice or request for more time from our Company within 30 business days fromthe date on which our Company received the written notice of such BusinessOpportunity given by the relevant Controlling Shareholder, provided that theprincipal terms by which any Controlling Shareholders (or his or its relevant closeassociate(s) subsequently engages in, invests in, participates in or otherwise isinterested in such Restricted Business, or appoint, a third-party to conduct suchRestricted Business are not more favorable in any material aspect than thosedisclosed to our Company; and

(v) if there is any material change in the nature of such Business Opportunity pursuedby the relevant Controlling Shareholders, he/it will refer such Business Opportunityas so revised to our Company in the aforesaid manner as if it were a new BusinessOpportunity.

CORPORATE GOVERNANCE MEASURES

Our Directors believe that there are adequate corporate governance measures in place to

ensure compliance by our Controlling Shareholders (including New Century Tourism, Mr.

Chen Miaolin, Mr. Chen Canrong and Mr. Zhang Guanming) of their non-competition

undertakings set out above, and to manage any potential conflict of interests arising from the

business of our Controlling Shareholders and to safeguard the interests of our Shareholders,

including:

(i) any conflicted Director, meaning any Director who is also a director or member of

the senior management of each of our Controlling Shareholders, will abstain from

voting in any meeting of the shareholders and/or the Board where there is any actual


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or potential conflicting interest, including matters relating to the exercise of the

rights of first refusal granted in favor of our Company or any other connected

transactions pursuant to contractual arrangements with any of our Controlling

Shareholders;

(ii) our independent non-executive Directors will review, on an annual basis, pre-

emptive rights granted by our Controlling Shareholders, the compliance with the

undertakings by each of our Controlling Shareholders under their respective

non-competition undertakings (the “Competition Matters”);

(iii) our Controlling Shareholders will provide all information requested by our

Company that is necessary for the annual review by our independent non-executive

Directors of the Competition Matters, including the disclosure of details of their

compliance with and the enforcement of their non-competition undertakings

consistent with the principles of voluntary disclosure in the Corporate Governance

Report contained in Appendix 14 to the Listing Rules;

(iv) our Company will disclose decisions on matters reviewed by our independent

non-executive Directors relating to the Competition Matters, including (i)

compliance and enforcement of our Controlling Shareholders’ non-competition

undertakings; (ii) the exercise of the pre-emption rights where a business

opportunity is referred to our Group; and/or (iii) any decision on the enforcement of

breaches of our Controlling Shareholders’ non-competition undertakings either

through the annual reports of our Company, or by way of public announcement;

(v) we believe that our Board has a balanced composition of executive Directors,

non-executive Directors and independent non-executive Directors so that there is a

strong element on the Board that can effectively exercise independent judgment.

With expertise in different professional fields, our Directors believe that our

independent non-executive Directors have the necessary caliber and expertise to

form and exercise independent judgment in the event that conflicts of interest

between our Group and our Controlling Shareholders arise; and

(vi) in the event that potential conflicts of interest may materialize, the relevant

Controlling Shareholder will abstain from voting in the Shareholders’ meeting of our

Company with respect to the relevant resolution(s).


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We have entered into a number of agreements with our connected persons the details ofwhich are set out below. The transactions disclosed in this section will constitute continuingconnected transactions under Chapter 14A of the Listing Rules upon Listing.

CONTINUING CONNECTED TRANSACTIONS FULLY EXEMPT FROM THEREPORTING, ANNUAL REVIEW, ANNOUNCEMENT AND INDEPENDENTSHAREHOLDERS’ APPROVAL REQUIREMENTS

Onshore Trademark Agreement

On June 14, 2013 a trademark licensing agreement was entered into between ourCompany and New Century Hotel Investment (the “Onshore Trademark Agreement”)pursuant to which New Century Hotel Investment transferred, free of any royalty or otherpayments, to our Company, an exclusive right to use the PRC Trademarks. Pursuant to theOnshore Trademark Agreement, our Company agreed to grant New Century Hotel Investmentand its subsidiaries with a right to use the PRC Trademarks, free of any royalty or otherpayments, for the benefit of the business of each of the New Century REIT Hotel Properties.Our Company’s grant of the use of the PRC Trademarks shall be valid for a period of ten yearsand may be renewed at New Century Hotel Investment’s option. During the period of the grant,our Company shall maintain the registration of the PRC Trademarks. Our Company has alsoagreed to increase the scope of the relevant trademark registrations if required by New CenturyHotel Investment. Details of the PRC Trademarks are set forth in the sub-section (i)(a) under“Appendix VII – Statutory and General Information – B. Further Information about ourBusiness – 2. Intellectual property rights of our Company” in this prospectus.

Our Directors are of the view that as the exclusive right to use PRC Trademarks weretransferred to our Company free of any royalty or other payments by New Century HotelInvestment in the first place, the grant of the right to use the PRC Trademarks to New CenturyHotel Investment, free of any royalty or other payments is fair and reasonable and a term ofmore than three years is normal business practice for agreements of this type to be of suchduration.

New Century Hotel Investment is a company controlled by New Century REIT, which is

in turn under the common control of one of our Controlling Shareholders, Mr. Chen Miaolin.

New Century Hotel Investment is therefore a connected person of our Company by virtue of

being an associate of Mr. Chen Miaolin. As such, the transactions contemplated under the

Onshore Trademark Agreement which will continue after the Listing shall constitute continuing

connected transactions of our Company under Chapter 14A of the Listing Rules.

As the right to use the PRC Trademarks are granted to New Century Hotel Investment on

a royalty – free basis under the Onshore Trademark Agreement, the transaction contemplated

under the Onshore Trademark Agreement was entered into on normal commercial terms and the

applicable percentage ratio calculated for the purpose of Chapter 14A of the Listing Rules will

be less than 0.1% on an annual basis. By virtue of Rule 14A.76(1) of the Listing Rules, this

transaction will be exempt from the reporting, annual review, announcement and independent

Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

CONNECTED TRANSACTIONS

– 236 –

Deed of Hong Kong Trademark License

On August 20, 2018, a deed of trademark licence was entered into between our Company

and Tecway Real Estate Limited (“Tecway Real Estate”) (the “Deed of Hong Kong

Trademark License”), pursuant to which Tecway Real Estate agreed to grant to our Company

and other members of our Group a non-exclusive and non-transferable right and license to use

its trademarks registered in Hong Kong (the “New Century Hong Kong Trademarks”) for a

perpetual term commencing from the date of the Deed of Hong Kong Trademark License,

which is subject to the renewal of the licensed trademarks, on a royalty-free basis. Details of

the New Century Hong Kong Trademarks are set forth in the sub-section (i)(b) under

“Appendix VII – Statutory and General Information – B. Further Information about Our

Business – 2. Intellectual property rights of our Company” in this prospectus.

Our Directors believe that entering into the Deed of Hong Kong Trademark License with

a term of more than three years can ensure the stability of our operations, and is beneficial to

the interests of our Company and our Shareholders as a whole. Our Directors are of the view

that it is normal business practice for agreements of this type to be of such duration.

Tecway Real Estate is held by our Controlling Shareholders. Tecway Real Estate is

therefore a connected person of our Company by virtue of being an associate of our Controlling

Shareholders. As such, the transactions contemplated under the Deed of Hong Kong Trademark

License which will continue after the Listing shall constitute continuing connected transactions

of our Company under Chapter 14A of the Listing Rules.

As the right to use the New Century Hong Kong Trademark is granted to our Company

on a royalty-free basis under the Deed of Hong Kong Trademark License, the transaction

contemplated under the Deed of Hong Kong Trademark License was entered into on normal

commercial terms and the applicable percentage ratio calculated for the purpose of Chapter

14A of the Listing Rules will be less than 0.1% on an annual basis. By virtue of Rule 14A.76(1)

of the Listing Rules, this transaction will be exempt from the reporting, annual review,

announcement and independent Shareholders’ approval requirements under Chapter 14A of the

Listing Rules.

Other de minimis transactions

We have entered into the following continuing connected transaction which is expected

to continue after the Listing. Since (i) the highest relevant percentage of the following

transaction is expected to be below 5.0%; (ii) the value of the following transactions on an

annual basis is expected to be less than HK$3.0 million; and (iii) the following transaction is

on normal commercial terms or better, the following transaction will be fully exempt pursuant

to Rule 14A.76(1) of the Listing Rules from the reporting, annual review, announcement and

independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.


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Supply of carpet from Chaoyi Carpet

During the Track Record Period and after, our Group purchased carpets and the related

services from Hangzhou Xiaoshan Chaoyi Carpet Co., Ltd.* (杭州蕭山超藝地毯有限公司)

(“Chaoyi Carpet”) from time to time for the purpose of its hotel renovation and decoration.

Chaoyi Carpet is owned as to 90.0% by Ms. Huang Yuee, spouse of Mr. Chen Miaolin, one of

our Controlling Shareholders and therefore is a connected person of our Company under the

Listing Rules.

Buying or selling of consumer services and goods

Our Group from time to time procures or provides the following services and goods

from/to our connected persons (such as associates of our Controlling Shareholders, our

Directors or our Supervisors), which are of a type ordinarily supplied for private use or

consumption for the purpose of Chapter 14A of the Listing Rules:

Selling of consumer services and goods: our Group provides to our connected persons

hotel services, including but not limited to hotel accommodation and services, food and

beverage services and MICE services, and consumer goods at our operated hotels.

Buying of consumer services and goods: the New Century Group provides to the

employees of our Group hotel services, including but not limited to food and beverage services,

and consumer goods at hotels owned or leased by the New Century Group.

Our procurement or provision of the above consumer services and goods are (i) made in

its ordinary and usual course of business; (ii) made on equivalent terms as those to independent

third-party consumers procuring or providing such consumer services and goods from or to

such connected persons in the open market; and (iii) for the consumption by our employees or

our connected persons and not for resale. Each of the above transactions will therefore be fully

exempt pursuant to Rule 14A.97 of the Listing Rules from the reporting, annual review,

announcement and independent Shareholders’ approval requirements under Chapter 14A of the

Listing Rules.

CONTINUING CONNECTED TRANSACTIONS SUBJECT TO THE REPORTING,ANNUAL REVIEW, ANNOUNCEMENT REQUIREMENTS BUT EXEMPT FROM THEINDEPENDENT SHAREHOLDERS’ APPROVAL REQUIREMENT

Full Service Management Services Framework Agreement

On February 12, 2019, our Group entered into a full service management services

framework agreement (the “Full Service Management Services Framework Agreement”)

with New Century Tourism and New Century Holdings, pursuant to which our Group agreed

to provide to the New Century Tourism Group and the New Century Holdings Group full

service hotel management services, including but not limited to integrated hotel technical and

operational management services which consist of market research, development planning,


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construction advisory, hotel opening preparation and hotel operation management services,staff training services, room reservation services and IT services (the “Full Service HotelManagement Services”), for a term commencing from the Listing Date until December 31,2021.

Reasons for the transactions

The provision of hotel management services is the core business of our Group and wework with around 200 hotel owners as at August 31, 2018 for our hotel management business,of which New Century Tourism Group and New Century Holdings Group (as a group) is onlyone of many hotel owners who we worked with. Our Directors consider that the provision ofthe hotel management services under the Full Service Management Services FrameworkAgreement is consistent with the business and commercial objectives of our Group as a serviceprovider in hotel management industry in the PRC, and beneficial to our Company and ourshareholders as a whole.

Historical amount

As at December 31, 2015, 2016, 2017 and August 31, 2018, there were 13, nine, nine andnine full service managed hotels that were covered under the Full Service ManagementServices Framework Agreement, respectively. For the years ended December 31, 2015, 2016and 2017 and eight months ended August 31, 2018, the total amount of fees paid by the NewCentury Tourism Group and the New Century Holdings Group for the Full Service HotelManagement Services provided by our Group, excluding those discontinued related partytransactions as set out in the sub-section headed “Financial Information – Related PartyTransactions and Balances – Material Related Party Transaction – Discontinued Related PartyTransactions” in this prospectus, amounted to RMB47.7 million, RMB23.9 million, RMB29.2million and RMB24.4 million, respectively.

Pricing policy

The fees to be received by our Group for the provision of Full Service Hotel ManagementServices shall be determined after arm’s-length negotiations taking into account the location ofthe hotel and the scope of service required, with reference to the fees for similar services andsimilar type of projects in the market. The service fees shall not be set on a less favorable termsas compared to what we typically charge hotel owners who are Independent Third Parties.

Annual cap and basis for annual cap

Our Directors estimate that there will be 12, 12 and 13 full service managed hotels as atDecember 31, 2019, 2020 and 2021 respectively that will be covered under the Full ServiceManagement Services Framework Agreement and the maximum annual fee payable by the New

Century Tourism Group and the New Century Holdings Group in relation to the services to be

provided by our Group under the Full Service Management Services Framework Agreement for

each of the three years ending December 31, 2021 will not exceed RMB43.0 million, RMB50.0

million and RMB57.0 million, respectively.


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The proposed annual caps are estimated based on fees our Group is expected to receive

for provision of hotel management services and primarily depend on (i) the number of existing

hotels that our Company currently manage; (ii) the number of new hotels that our Company

expects to manage; (iii) the historical level of management fees collected for each hotel; (iv)

expected level revenue and GOP performance these existing and new hotels are expected to

generate; and (v) the range of services such as staff training, room reservation and IT services

our Group is expected to provide.

The increase in proposed annual caps from 2019 to 2021 is primarily driven by (i) organic

growth in the level of management fee of relatively established hotels based on their expected

revenue and GOP growth; (ii) increase in additional management fee to be collected from

recently opened hotels in 2017 (one hotel) and September 2018 (one hotel) respectively as

these two relatively new hotels progressed through the initial ramp up period; and (iii) three

new hotels under existing contracted pipeline, which are expected to commence operation in

2019 (two hotels) and 2021 (one hotel).

Our Directors have considered the following factors in arriving at the above annual caps

which are considered to be fair and reasonable and justifiable in the circumstances:

(i) the historical transaction amounts during the Track Record Period and the unaudited

transaction amount for the year ended December 31, 2018;

(ii) the estimated revenue to be recognized in relation to the Full Service Hotel

Management Services provided by our Group pursuant to existing contracts; and

(iii) the hotel pipeline that our Group has already contracted for and expected to be

contracted with the New Century Tourism Group and the New Century Holdings

Group.

Sale of Goods and Services Framework Agreement

On February 12, 2019, our Group entered into a sale of goods and services framework

agreement (the “Sale of Goods Framework Agreement”) with New Century Tourism and New

Century Holdings, pursuant to which our Group agreed to provide to the New Century Tourism

Group and the New Century Holdings Group certain goods and services, including but not

limited to hotel supplies and red wine (the “Sale of Goods and Services”), for a term

commencing from the Listing Date until December 31, 2021.


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Reasons for the transactions

We utilize a centralized procurement system which is responsible for procurement and

supply of hotel supplies to all our hotels in our portfolio, including those we managed on behalf

of the New Century Tourism Group and the New Century Holdings Group. The supply of hotel

supplies through our centralized procurement system can ensure the quality and maintain the

cost-efficiency of our hotel supplies. We would also be able to leverage on our economies of

scale and obtain more competitive prices from our suppliers which could in turn minimize the

operating expenses for our hotels, which we believe would be beneficial to our Company and

our Shareholders as a whole.

Historical amount

As at December 31, 2015, 2016, 2017 and August 31, 2018, there were nine, ten, nine and

nine full service managed hotels that were covered under the Sale of Goods and Services

Framework Agreement respectively. For the years ended December 31, 2015, 2016 and 2017

and eight months ended August 31, 2018, the total amount of fees paid by the New Century

Tourism Group and the New Century Holdings Group for the Sale of Goods and Services

provided by our Group, excluding those discontinued related party transactions as set out in the

sub-section headed “Financial Information – Related Party Transactions and Balances –

Material Related Party Transaction – Discontinued Related Party Transactions” in this

prospectus, amounted to RMB8.4 million, RMB15.8 million, RMB14.2 million and RMB8.7

million, respectively.

Pricing policy

The fees to be received by our Group for the provision of Sale of Goods and Services shall

be determined with reference to the prevailing market price after arm’s-length negotiations

taking into account the relevant procurement cost, our operational expenses and the then

prevailing market conditions. Our Group will issue a recommended price list to hotels in its

portfolio for each type of hotel supplies periodically and the prices of the products to be sold

will be made with reference to such price list. The fees shall be not lower than the fees to be

received from Independent Third Parties.


Our Directors estimate that there will be 12, 12 and 13 full service managed hotels as at

December 31, 2019, 2020 and 2021 respectively that will be covered under the Sale of Goods

and Services Framework Agreement and the maximum annual fee payable by the New Century

Tourism Group and the New Century Holdings Group in relation to the goods and services to

be provided by our Group under the Sale of Goods and Services Framework Agreement for

each of the three years ending December 31, 2021 will not exceed RMB22.0 million, RMB25.0

million and RMB28.0 million, respectively.


– 241 –

The proposed annual caps are estimated based on fees our Group is expected to receive

for sales of goods and services and primarily depend on (i) the number of existing hotels that

our Company currently provides sales and services; (ii) the number of new hotels that our

Company expects to provide sales and services; and (iii) the expected food and beverage

revenue from these existing and new hotels to generate; and (iv) the historical procurement

amount from our Group and the expected procurement amount going forward.

The increase in proposed annual caps from 2019 to 2021 is primarily driven by (i) organic

growth in the level of procurement of relatively established hotels based on their historical

operational performance; (ii) increase in procurement amount from recently opened hotel in

2018 (one hotel) as this relatively new hotel progressed through the initial ramp up period; and

(iii) three new hotels under existing contracted pipeline, which are expected to commence

operation in 2019 (two hotels) and 2021(one hotel).


which are considered to be reasonable and justifiable in the circumstances:



(ii) the number of hotels we expect to manage for the New Century Tourism Group and

the New Century Holdings Group and the expected level of demand for goods and

services; and

(iii) price of hotel supplies we supply to other independent third-party hotel owners.

Supply of Hotel Services and Goods Framework Agreement

On February 12, 2019, our Group entered into a supply of hotel services and goods

framework agreement (the “Supply of Hotel Services and Goods Framework Agreement”)

with New Century Tourism, pursuant to which New Century Tourism Group agreed to provide

to our Group certain hotel services, including but not limited cleaning services and electrical

wiring products, (the “Supply of Hotel Services and Goods”), for a term commencing from

the Listing Date until December 31, 2021.


– 242 –

Reasons for transactions

As part of our ordinary and usual course of business, our Group rely on third-partyproviders, including New Century Tourism Group, of certain ancillary hotel services andcertain hotel goods and supplies from time to time. We have been using the services andproducts provided by the New Century Tourism Group in the past and the New CenturyTourism Group has been able to provide us with a long-term stable supply of such services andgoods. As a result, the New Century Tourism Group understands our business and operationalrequirements well. We believe that it is beneficial to maintain a stable and quality supply ofgeneral hotel services and goods for our existing and future operation and we believe the NewCentury Tourism Group can efficiently fulfill our requirements with stable and quality supplyof the requisite hotel related services and goods.

Historical amount

As at December 31, 2015, 2016, 2017 and August 31, 2018, there were eight, ten, eightand ten leased hotels that were covered by the Supply of Hotel Services and Goods FrameworkAgreement respectively. For the years ended December 31, 2015, 2016 and 2017 and eightmonths ended August 31, 2018, the total amount of fees paid by our Group for the Supply ofHotel Services and Goods to the New Century Tourism Group, excluding those discontinuedrelated party transactions as set out in the sub-section headed “Financial Information – RelatedParty Transactions and Balances – Material Related Party Transaction – Discontinued RelatedParty Transactions” in this prospectus, amounted to RMB10.9 million, RMB11.7 million,RMB12.0 million and RMB8.3 million, respectively.

Pricing policy

The fees to be paid for the Supply of Hotel Services and Goods shall be determined afterarm’s-length negotiations taking into account the market price in the prevailing market forsimilar services and goods for hotels of similar standard provided by independent servicesproviders in the open market by: (i) in respect of the cleaning services, the price of cleaningcharged by another independent supplier which is of comparable size and operation to theservice provided by New Century Tourism Group; and (ii) in respect of other services andgoods, the prices of services and goods charged by at least two other independent suppliers inthe market for similar services and goods. The fees shall not be higher than the standard feesto be charged by Independent Third Parties.


Our Directors estimate that there will be nine, nine and nine leased hotels as at December

31, 2019, 2020 and 2021 respectively that will be covered under the Supply of Hotel Services

and Goods Framework Agreement and the maximum annual fee payable by our Group in

relation to the Supply of Hotel Services and Goods to be provided by the New Century Tourism

Group under the Supply of Hotel Services and Goods Framework Agreement for each of the

three years ending December 31, 2021 will not exceed RMB15.0 million, RMB15.0 million and

RMB15.0 million, respectively.


– 243 –

The proposed annual caps are estimated based on fees our Group is expected to pay for

the use of hotel services such as cleaning services and electrical wiring products and primarily

depend on (i) the number of existing hotels that our Group operates which are currently

utilizing such services for; (ii) the number of new hotels that our Company expects to use such

services; and (iii) the historical utilization for such services and the expected scope of services

required going forward.

The proposed annual cap for the three years ending December 31, 2021 are expected to

be relatively stable which amounted to RMB15.0 million as the number of hotels covered by

the Supply of Hotel Services and Goods Framework Agreement is expected to remain at nine

hotels for the three years ending December 31, 2021.





(ii) the number of hotels under our hotel pipeline;

(iii) the price charged by the New Century Tourism Group for similar services and goods

in the prevailing market to its other customers; and

(iv) the price charged by other independent third-party providers for similar services and

goods in the prevailing market.

New Century Tourism is one of our Controlling Shareholders and therefore is a connected

person of our Company under the Listing Rules. New Century Holdings is owned as to 85.2%

by Mr. Chen Miaolin, our non-executive Director and one of our Controlling Shareholders and

therefore is an associate of Mr. Chen Miaolin and hence a connected person of our Company

under the Listing Rules. Accordingly, the transactions under the Full Service Management

Services Framework Agreement, Sale of Goods and Services Framework Agreement and

Supply of Hotel Services and Goods Framework Agreement will constitute continuing

connected transactions for our Company under Chapter 14A of the Listing Rules upon Listing.

Supply of Wine Products Framework Agreement

On February 12, 2019, our Group entered into a supply of wine products framework

agreement (the “Supply of Wine Products Framework Agreement”) with Birot by New

Century, pursuant to which Birot by New Century agreed to provide to our Group certain wine

products, including but not limited to red wine (the “Supply of Wine Products”), for a term

commencing from the Listing Date until December 31, 2021.


– 244 –

Reasons for transactions

As part of our ordinary and usual course of business, our Group rely on third-party

providers, including Birot by New Century, of certain wine products from time to time. Birot

by New Century is the owner of a wine vineyard in Bordeaux, France and is indirectly owned

by Mr. Chen Miaolin as to 83.9%. We have been using the wine products provided by Birot by

New Century in the past and Birot by New Century has been able to provide us with a

long-term stable supply of such wine products. Due to the demand from our F&B services, we

believe that it is beneficial to maintain a stable and quality supply of wine products for our

existing and future operation and we believe Birot by New Century can efficiently fulfill our

requirements with stable and quality supply of the requisite wine products.

Historical amount


August 31, 2018, the total amount of fees paid by our Group for the Supply of Wine Products

to Birot by New Century amounted to RMB6.2 million, RMB5.2 million, RMB7.2 million and


Pricing policy

The fees to be paid for the Supply of Wine Products shall be determined after

arm’s-length negotiations taking into account the price of wine products that Birot by New

Century charges to other independent third-party customers. Our Group will obtain at least two

quotations charged by Birot by New Century to other independent third-party customers for

similar wine products to ensure the fees paid by our Group to Birot by New Century shall not

be higher than the fees paid to Birot by New Century by Independent Third Parties.


Our Directors estimate that the maximum annual fee payable by our Group in relation to

the Supply of Wine Products to be provided by Birot by New Century under the Supply of Wine

Products Framework Agreement for each of the three years ending December 31, 2021 will not

exceed RMB7.5 million, RMB7.5 million and RMB7.5 million, respectively.





(ii) the number of hotels under our hotel pipeline; and

(iii) the price charged by Birot by New Century for similar wine products in the

prevailing market to other independent third-party customers.


– 245 –

Birot by New Century is indirectly interested as to 83.9% by Mr. Chen Miaolin, our

non-executive Director and one of our Controlling Shareholders and therefore is an associate

of Mr. Chen Miaolin and hence a connected person of our Company under the Listing Rules.

Accordingly, the transactions under the Supply of Wine Products Framework Agreement will

constitute continuing connected transactions for our Company under Chapter 14A of the

Listing Rules.

As each of the applicable ratios under the Listing Rules in respect of the respective annual

caps in relation to the Full Service Management Services Framework Agreement, Sale of

Goods and Services Framework Agreement, Supply of Hotel Services and Goods Framework

Agreement and Supply of Wine Products Framework Agreement, is expected to be less than

5.0%, the transactions under the Full Service Management Services Framework Agreement,

Sale of Goods and Services Framework Agreement, Supply of Hotel Services and Goods

Framework Agreement and Supply of Wine Products Framework Agreement will be exempt

from the independent Shareholders’ approval requirement but subject to the reporting, annual

review and announcement requirements under Chapter 14A of the Listing Rules.

CONTINUING CONNECTED TRANSACTIONS SUBJECT TO THE REPORTING,ANNUAL REVIEW, ANNOUNCEMENT AND INDEPENDENT SHAREHOLDERS’APPROVAL REQUIREMENT

Master Hotel Lease and Management Agreement

New Century Hotel Investment, New Century Hotel Management, New Century Tourism

and New Century Asset Management Limited (the “REIT Manager”) entered into a

framework agreement dated June 14, 2013 (the “Master Hotel Lease and ManagementAgreement”) on June 14, 2013, which sets out the general guidelines and principles for the

lease and management of the five New Century REIT Hotel Properties under the separate Hotel

Lease and Management Agreements for each New Century REIT Hotel Property.

On June 14, 2013, (i) New Century Hotel Investment, (ii) Changchun New Century Grand

Hotel Co., Ltd.* (長春開元名都大酒店有限公司), (iii) Ningbo New Century Grand Hotel Co.,

Ltd.* (寧波開元名都大酒店有限公司), (iv) Chun’an Qiandao Lake New Century Spearhead

Investment Co., Ltd.* (淳安千島湖開元銳至投資有限公司), and (v) Zhejiang Xiaoshan Hotel

Co., Ltd.* (浙江蕭山賓館股份有限公司) (the “Property Companies”), being companies

controlled by New Century REIT and registered owners of the New Century REIT Hotel

Properties, entered into separate Hotel Lease and Management Agreements with New Century

Hotel Management for the lease and management of each of the New Century REIT Hotel

Properties. New Century Hotel Management is the lessee and the hotel manager under the

Hotel Lease and Management Agreements.

Each of the Hotel Lease and Management Agreements is for a term of ten years

commencing from July 10, 2013, the listing date of New Century REIT on the Stock Exchange

(the “REIT Listing Date”), and expiring on the tenth anniversary of the REIT Listing Date (the

“First Ten – Year Term”). New Century Hotel Management has also granted the REIT


– 246 –

Manager an option, exercisable solely at the REIT Manager’s discretion to renew the Hotel

Lease and Management Agreements for a further term of ten years (the “Renewed Ten – Year

Term”), with a renewed market rental package to be determined by an independent

professional property valuer to be jointly appointed by New Century Hotel Investment and

New Century Hotel Management.

Pricing policy

For the first five years of the Master Hotel Lease and Management Agreement

commencing from July 10, 2013 to July 9, 2018, New Century Hotel Management is required

to pay a minimum aggregate annual base rent of RMB216 million pursuant to the terms under

the Master Hotel Lease and Management Agreement, unless the Total Rent (as defined below)

is more than the Base Rent in which case the Total Rent is payable.

From the sixth to tenth years of the Hotel Lease and Management Agreements (the

“Subsequent Period”), the Base Rent will be the aggregate annual base rent for the sixth to

the tenth years of the Master Hotel Lease and Management Agreement which will be

determined by an independent professional property valuer to be jointly appointed by New

Century Hotel Investment and New Century Hotel Management (the “Market Base Rent”) at

least seven months prior to the commencement of each year. In determining the renewed

market rental package, the independent professional property valuer to be appointed shall value

the market rental value of the underlying New Century REIT Hotel Properties in accordance

with the then prevailing valuation standards of The Hong Kong Institute of Surveyors, which

will form the basis to the Market Base Rent, and other elements of the market rental package,

including the amount or calculation of the Individual Rents (as defined below), the amount of

security deposit required and the amount to be covered by irrevocable guarantee(s) to be issued

by licensed bank(s) in the PRC. If the Market Base Rent is lower than 85.0% of the average

annual rent received from New Century Hotel Management for the New Century REIT Hotel

Properties for the preceding four years, the Base Rent with respect to the New Century REIT

Hotel Properties during the Subsequent Period will be 85% of such annual average rent

received from New Century Hotel Management for the preceding four years instead of the

Market Base Rent, being no less than RMB183.6 million.

Historical amount

Since the minimum amount of the annual rent received from New Century Hotel

Management for each of the preceding four years, from 2014 to 2017, of the Hotel Lease and

Management Agreements is RMB216.0 million, the Base Rent for each year during the

Subsequent Period would be RMB183.6 million (being 85.0% of the Base Rent for the

preceding four years). As disclosed in the announcement made by the REIT Manager on

January 18, 2018, Zhejiang New Century Hotel and New Century Hotel Management have

jointly appointed Savills, an independent property valuer, to conduct a rent review to determine

the Market Base Rent for year 2018, which has been set at RMB200.0 million.


– 247 –

Annual cap and basis of annual cap

The rent for each of the New Century REIT Hotel Properties is an Individual Rent which

is payable monthly in arrear. The individual rent is calculated at 20.0% of the relevant New

Century REIT Hotel Property’s total monthly operating revenue plus 34.0% of the relevant

New Century REIT Hotel Property’s Gross Operating Profit for that month (the “IndividualRent”). The aggregate of all individual rents (as adjusted) for each year constitute the total rent

(the “Total Rent”). If the Total Rent (as adjusted based on the audited annual accounts of the

Company) is less than the agreed amount of the Base Rent, the Company is obligated to make

up for any shortfall within 30 days from the issuance of the audited annual accounts of New

Century Hotel Management.

Our Directors estimate that the maximum annual rent payable by our Group in relation to

the Master Hotel Lease and Management Agreement for each of the five years ending

December 31, 2023 will not exceed RMB237.0 million, RMB244.0 million, RMB251.0

million, RMB259.0 million and RMB267.0 million, respectively. Our Directors have

considered the following factors in arriving at the above annual caps which are considered to

be reasonable and justifiable in the circumstances:



(ii) the estimated operating revenue and gross operating profit to be recognized by each

of the New Century REIT Hotel Properties for the five years ending December 31,

2023; and

(iii) the PRC’s projected inflation rates and expected market demand for hotel services

in the locations that the New Century REIT Hotel Properties are situated.

If the REIT Manager opts to renewal the Hotel Lease and Management Agreements for

the Renewed Ten-Year Term upon the expiry of the abovementioned proposed annual caps on

December 31, 2023, our Company will re-comply with all applicable requirements under

Chapter 14A of the Listing Rules as and when appropriate.

Cushman & Wakefield Limited, the property valuer of our Company, has confirmed that,

the terms of the Hotel Lease and Management Agreements are at arm’s length, on normal

commercial terms and consistent with normal business practice for contracts of the relevant

type. On the other hand, the considerations in formulating the proposed annual caps are fair and

reasonable and consistent with market practice.

Implications under the Listing Rules

New Century Hotel Investment and the Property Companies, are companies controlled byNew Century REIT, which is in turn under the common control of one of our ControllingShareholders, Mr. Chen Miaolin. New Century Hotel Investment and the Property Companies


– 248 –

are therefore connected persons of our Company by virtue of being associates of Mr. ChenMiaolin. As such, the transactions contemplated under the Hotel Lease and ManagementAgreements, which will continue after the Listing, constitute continuing connected transactionsof our Company and will be subject to the reporting, annual review, announcement andindependent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. Ifour Group leases any other hotel properties from our Controlling Shareholders or any of theirassociates in the future, such transactions will constitute continuing connected transactions ofour Company and the Company will comply with all relevant requirements under Chapter 14Aof the Listing Rules as and when appropriate.

As each of the applicable ratios under the Listing Rules in respect of the respective annualcap in relation to the Master Hotel Lease and Management Agreement is expected to be above5%, the transactions under the Master Hotel Lease and Management Agreement is subject toreporting, annual review, announcement and independent Shareholders’ approval requirement.

According to Rule 14A.52 of the Listing Rules, the duration of the Hotel Lease andManagement Agreements must not exceed three years except in special circumstances wherethe nature of the transaction requires the Hotel Lease and Management Agreements to be of aduration which is longer than three years. Cushman & Wakefield Limited, the property valuerof our Company, confirms that it is a normal business practice for hotel lease agreements in thehotel industry in the PRC to have a duration of between 10 and 20 years. The Joint Sponsorsare of the opinion that the duration under the Hotel Lease and Management Agreements is anormal commercial term for a transaction of this nature and it is normal business practice forcontracts of this type to be of such duration and is in compliance with Rule 14A.52 of theListing Rules.

APPLICATION FOR WAIVER

The transactions described under the sub-section headed “– Continuing connectedtransactions subject to the reporting, annual review, announcement requirements but exemptfrom the independent Shareholders’ approval requirement” in this section constitute ourcontinuing connected transactions under the Listing Rules, which are exempt from theindependent Shareholders’ approval requirements but subject to the reporting, annual review,announcement requirements of the Listing Rules and the transactions described under thesub-section headed “– Continuing connected transactions subject to the reporting, annualreview, announcement and independent Shareholders’ approval requirement” in this sectionconstitute our continuing connected transactions under the Listing Rules, which are subject tothe reporting, annual review, announcement and independent shareholders’ approvalrequirements of the Listing Rules.

In respect of these continuing connected transactions, pursuant to Rule 14A.105 of the

Listing Rules, we have applied for, and the Stock Exchange has granted, waivers exempting us

from strict compliance with (i) the announcement requirement under Chapter 14A of the

Listing Rules in respect of the continuing connected transactions as disclosed in “– Continuing

connected transactions subject to the reporting, annual review, announcement requirements but

exempt from the independent shareholders’ approval requirement” in this section, subject to the

condition that the aggregate amounts of the continuing connected transactions for each


– 249 –

financial year shall not exceed the relevant amounts set forth in the respective annual caps (as

stated above); and (ii) the announcement and independent shareholders’ approval requirement

under Chapter 14A of the Listing Rules in respect of the continuing connected transactions as

disclosed in “– continuing connected transactions subject to the reporting, annual review,

announcement and independent Shareholders’ approval requirement” in this section, subject to

the condition that the aggregate amounts of the continuing connected transactions for each

financial year shall not exceed the relevant amounts set forth for the annual caps (as stated

above).

OUR DIRECTOR’S VIEWS

Our Directors (including our independent non-executive Directors) consider that all the

continuing connected transactions described under the sub-sections headed “– Continuing

connected transactions subject to the reporting, annual review, announcement and independent

Shareholders’ approval requirement” and “– Continuing connected transactions subject to the

reporting, annual review, announcement requirements but exempt from the independent

Shareholders’ approval requirement” have been and will be carried out: (i) in the ordinary and

usual course of our business, (ii) on normal commercial terms or better, and (iii) in accordance

with the respective terms that are fair and reasonable and in the interests of our Company and

our Shareholders as a whole.

Our Directors (including our independent non-executive Directors) are also of the view

that the annual caps of the continuing connected transactions under the sub-section headed

“– Continuing connected transactions subject to the reporting, annual review, announcement

requirements but exempt from the independent Shareholders’ approval requirement” and “–

Continuing connected transactions subject to the reporting, annual review, announcement and

independent Shareholders’ approval requirement” in this section are fair and reasonable and are

in the interests of our Shareholders as a whole.

THE JOINT SPONSORS’ VIEWS

The Joint Sponsors are of the view (i) that the continuing connected transactions

described under the sub-sections headed “– Continuing connected transactions subject to the

reporting, annual review, announcement and independent Shareholders’ approval requirement”

and “– Continuing Connected Transactions subject to the reporting, annual review,

announcement requirements but exempt from the independent Shareholders’ approval

requirement” in this section have been and will be entered into in the ordinary and usual course

of our business, on normal commercial terms that are fair and reasonable and in the interests

of our Company and our Shareholders as a whole, and (ii) that the proposed annual caps of such

continuing connected transactions are fair and reasonable and in the interests of our Company

and our Shareholders as a whole.

Please also refer to the sub-section headed “Financial Information – Related Party

Transactions and Balances – Material Related Party Transactions – Discontinued related party

transactions” in this prospectus.


– 250 –

DIRECTORS

Our Board of Directors consists of two executive Directors, four non-executive Directorsand three independent non-executive Directors. Our Board is responsible for and has generalpowers for the management and conduct of the business of our Group. The appointments of ourDirectors are subject to the provisions of retirement and rotation at annual general meetings ofour Company in accordance with the Articles of Association. The table below sets forth certaininformation in respect of the members of the Board of Directors:

Name Age

Date ofjoiningour Group

Date ofappointmentas Director

Present positionin our Company

Roles andresponsibilitiesin our Group

Relationship withother Directors,Supervisors ormembers of thesenior management

Executive DirectorsMr. Jin Wenjie

(金文杰)49 August 10,

2008January 9,

2017Executive Director,

and Chairman ofthe Board

Overall generalmanagement andstrategic planningand development ofour Group

None

Mr. Chen Miaoqiang(陳妙強)

55 December 17,2008

December 17,2008

Executive Director,and President

Overall managementand operation ofthe hotels of ourGroup

Younger brother ofMr. Chen Miaolin,non-executiveDirector of ourCompany

Non-executive DirectorsMr. Chen Miaolin

(陳妙林)66 December 17,

2008December 17,

2008Non-executive

DirectorFormulation of

developmentstrategies andprovision ofguidance forthe overalldevelopment ofour Group

Elder brother of Mr.Chen Miaoqiang,executive Directorand President ofour Company

Mr. Chen Canrong(陳燦榮)

55 December 17,2008

December 17,2008

Non-executiveDirector

Provision of guidancefor the overalldevelopment ofour Group

None

Mr. Jiang Tianyi(江天一)

36 November 23,2016

November 23,2016



None

DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

– 251 –

Name Age

Date ofjoiningour Group

Date ofappointmentas Director

Present positionin our Company


Relationship withother Directors,Supervisors ormembers of thesenior management

Mr. Zhang Chi(張弛)

43 November 23,2016

November 23,2016



None

Independent non-executive DirectorsMr. Zhang Rungang

(張潤鋼)60 June 28, 2017 June 28, 2017 Independent

non-executiveDirector

Provision ofindependent adviceto our Board

None

Mr. Khoo Wun FatWilliam (丘煥法)

38 August 13,2018

August 13,2018

Independentnon-executiveDirector


None

Ms. Qiu Yun(邱妘)

55 June 28, 2017 June 28, 2017 Independentnon-executiveDirector


None

Executive Directors

Mr. Jin Wenjie (金文杰), aged 49, has been a Director and the Chairman of the Board of

our Company since January 9, 2017, being responsible for the overall general management and

strategic planning and development of our Group. He was re-designated as our executive

Director in July 2018. He joined our Group in August 2008 and served as the deputy general

manager of the Predecessor until January 2017, being mainly responsible for management of

the daily operations of our Group.

Mr. Jin has over ten years of experience in corporate finance and over nine years of

experience in hotel operation and management. Prior to joining our Group, Mr. Jin worked at

Goldbond Venture Management Limited (金榜融資有限公司), an investment institution in the

PRC, as general manager from October 2003 to October 2007, where he was mainly

responsible for investment and financing. He then joined Piper Jaffray & Co.’s Shanghai office,

an investment institution, from November 2007 to June 2008 as director and the head of China

corporate finance. Since February 2016, Mr. Jin has been the vice president of New Century

Tourism, being mainly responsible for finance and operations. Since May 2017, he has been

serving as the chairman of the board of directors and a non-executive Director of New Century

Asset Management Limited, the manager of New Century REIT, where he is mainly

responsible for the overall strategic oversight and corporate governance of New Century REIT.


– 252 –

Mr. Jin obtained his bachelor’s degree in energy engineering from Shanghai Jiao Tong

University (上海交通大學) in Shanghai in July 1990 and obtained his master’s degree in law

from Tongji University (同濟大學) in Shanghai in May 2004. He obtained his lawyer’s

qualification certificate in August 1997 issued by the Ministry of Justice (司法部) of China.

Mr. Jin was a director of the following companies which were incorporated in the PRC

and were deregistered. The relevant details are as follows:

Name of the company

Nature ofbusiness ofthe company

Nature ofproceeding

Date ofdissolution

Reason ofdissolution

Jinbang Enterprise Financial

Consultant (Shanghai) Co.,

Ltd.* (金榜企業財務顧問(上海)有限公司)

Financial

management

and investment

consulting

Voluntary

deregistration

September 30,

2007

Corporate

restructuring

Jinbang Hualu Investment

Consulting Co., Ltd. Jinan

Representative Office*

(金榜華魯投資諮詢有限公司濟南代表處)

Provision of

consulting and

liaison

services

Voluntary

deregistration

September 30,

2007

Corporate

restructuring

Mr. Chen Miaoqiang (陳妙強), aged 55, has been a Director of our Company since

December 17, 2008 and the president of our Company since January 2017, being responsible

for the overall management and operation of the hotels of our Group. He was re-designated as

our executive Director in July 2018. He is also currently undertaking the following roles in the

respective subsidiaries of our Group:

Name of subsidiaryAppointmentSince Position(s)

Hangzhou New Century Hotel Supplies Co., Ltd.*

(杭州開元酒店用品有限公司)

September 1998 Director

Shanghai Yuege Hotel Operation Co., Ltd.*

(上海悅閣酒店經營有限公司)

January 2010 Director

Zhejiang New Century Manju Hotel Management Co.,

Ltd.* (浙江開元曼居酒店管理有限公司)

September 2010 Director

Ninghai Jinhai Grand New Century Hotel Co., Ltd.*

(寧海金海開元名都大酒店有限公司)

March 2012 Director


– 253 –

Name of subsidiaryAppointmentSince Position(s)

Tianjin Ruiwan New Century Hotel Management Co.,

Ltd.* (天津瑞灣開元酒店管理有限公司)

December 2012 Director

Hangzhou New Century Chuanqi Property Leasing Co.,

Ltd.* (杭州開元傳祺房屋租賃有限公司)

April 2013 Director, General

Manager

Zhejiang Jinshanzi Network Technology Co., Ltd.*

(浙江金扇子網絡科技有限公司)

November 2013 Director

Haining Yanguan Ancient City New Century Resort

Hotel Co., Ltd.* (海寧鹽官古城開元度假酒店有限公司)

March 2014 Director

Hangzhou Kaiyuan Life Hotel Management

Co., Ltd.* (杭州開元頤居酒店管理有限公司)

August 2014 Director

Ningbo New Century Manju Hotel Management Co.,

Ltd.* (寧波開元曼居酒店管理有限公司)

March 2016 Director

Tianjin Manju Hotel Management Co., Ltd.*

(天津曼居酒店管理有限公司)

December 2016 Director

Shanghai New Century Manju Hotel Management Co.,

Ltd.* (上海開元曼居酒店管理有限公司)

April 2017 Director

Changxing Grand New Century Hotel Co., Ltd.*

(長興開元名都大酒店有限公司)

July 2018 Director

Mr. Chen has over 25 years of experience in hotel operation and management. Mr. Chen

was the manager of the facilities department at our Hangzhou Zhijiang Holiday Resort, the

predecessor of Zhijiang New Century Resort, from January 1994 to February 1998. He was

then appointed as the property investment supervision manager at New Century Tourism from

May 1998 to March 1999. He was the general manager of our Ningbo Grand New Century

Hotel from January 2000 to January 2004.

Mr. Chen graduated from Hangzhou Normal University (杭州師範大學, formerly known

as Hangzhou Normal College (杭州師範學院)) with a bachelor’s degree in physics in July 1985

and graduated from Zhejiang University (浙江大學) with an executive master’s degree in

business administration in December 2011. Mr. Chen is the younger brother of Mr. Chen

Miaolin, one of our non-executive Directors.


– 254 –

Mr. Chen was a director of the following companies which were incorporated in the PRCand were deregistered due to cessation of business. The relevant details are as follows:

Name of the companyNature of businessof the company

Nature ofproceeding

Date ofdissolution

Shanghai Yuanfei InvestmentConsulting Co., Ltd.*(上海鳶飛投資諮詢有限公司)

Investmentconsulting

Voluntaryderegistration

September 8, 2003

Shanghai Guangju InvestmentConsulting Co., Ltd.*(上海廣聚投資諮詢有限公司)

Investmentconsulting


April 15, 2004

Shanghai Yuanfei InvestmentConsulting Co., Ltd. Branch*(上海鳶飛投資諮詢有限公司分公司)

Real estate agency Voluntaryderegistration

July 19, 2004

Zhejiang New Century SteelStructure Co., Ltd.*(浙江開元鋼結構有限公司)

Production,installation anddesign of steelproducts


October 11, 2006

Shanghai New Century HotelCo., Ltd.* (上海開元大酒店有限公司)

Provision ofaccommodationand cateringservices


April 11, 2011

Nanjing Pukou Jiuyue HotelCo., Ltd.* (南京浦口久悅大酒店有限公司)



May 08, 2013

Changzhou New Century ResortCo., Ltd.* (常州開元度假村有限公司)

Retail foodprepackaging


May 22, 2013

Ninghai County New CenturyGrand Century Hotel Co., Ltd.*(寧海縣開元新世紀大酒店有限公司)



June 7, 2016

Hangzhou Xiaoshan New CenturyBowling Co., Ltd.* (杭州蕭山開元保齡球有限公司)

Retail of bowlingequipment


April 17, 2006


– 255 –

Mr. Chen Miaolin (陳妙林), aged 66, has been a Director of our Company sinceDecember 17, 2008, being mainly responsible for the formulation of development strategiesand provision of guidance for the overall development of our Group, and is the founder and oneof the Controlling Shareholders of our Group. He was re-designated as a non-executiveDirector of our Company in July 2018.

Mr. Chen has over 31 years of experience in hotel operation and management. He was thegeneral manager of Xiaoshan Guesthouse from January 1987 to March 1998, being responsiblefor the general management of the said guesthouse. Mr. Chen was also the general manager ofXiaoshan New Century Tourism Co., Ltd.* (蕭山開元旅業總公司) from February 1994 toMarch 1998, being responsible for overall management of the said company. From January1998 to January 2001, he was appointed as the chairman of the board of directors of HangzhouNew Century Real Estate Group Co., Ltd.* (杭州開元房地產集團有限公司), a companyengaged in the development of real estate. From January 2001 to July 2010, Mr. Chen servedas the chairman and the president of New Century Tourism. Since January 2001, Mr. Chen hasalso been a director of New Century Tourism. From July 2013 to May 2017, he served as thechairman of the board of directors of New Century Asset Management Limited, the managerof New Century REIT.

He has been a member of the Zhejiang Province People’s Congress(浙江省人民代表大會) since 2003 and a member of the Xiaoshan District People’s Congress(蕭山區人民代表大會) since 1980. Mr. Chen has also been the vice chairman of the ChinaTourism Association (中國旅遊協會) since January 2009, the chairman of Zhejiang ProvinceTravel Association (浙江省旅遊協會) since November 2016 and the Deputy Chairman of theHangzhou Federation of Industry & Commerce (杭州市工商業聯合會) since June 2006.

Mr. Chen obtained his master’s degree in business management from Macau Universityof Science and Technology (澳門科技大學) in April 2005. He is a senior economist recognizedby the Zhejiang Provincial Bureau of Personnel (浙江省人事廳). He is the elder brother of Mr.Chen Miaoqiang, an executive Director of our Company.

In recognition of his leadership in the community and dedication to the hotel industry, Mr.Chen has received the following awards in the recent years: He was awarded “Top 10 Figuresof Hotel Investment in China for the year 2010” (2010年度中國酒店投資十大風雲人物) byHotel Professional Executive magazine in January 2010, “Leading Figure of Hotel Industry inZhejiang Province for the year of 2011” (中國(浙商)酒店業領軍人物) by Zheshang NationalCouncil and National Merchant and Media Alliance* (全國商人媒體聯盟) as established by,among others, Zheshang magazine in December 2011, “Meritorious Entrepreneur in China forthe year of 2012” (2012年度中國創業功勛領袖) by World Hotel Association in November2012, “EY Entrepreneur of the year in China” (安永中國企業家獎) by Ernst & Young inNovember 2013, “Outstanding Entrepreneur of Hangzhou” (傑出杭商) by Asia Hotel Forum inApril 2014, “Outstanding Entrepreneur in Hotel Industry in China” (中國酒店業傑出企業家獎)by the China Hotel Starlight Awards Organizing Committee (中國酒店星光獎組委會) and theAsia Hotel Forum (亞洲酒店論壇中心) in April 2015, “Outstanding Figures with Contributionto Tourism Industry of China” (中國旅遊產業傑出貢獻獎飛馬獎) by China National TourismAdministration (中華人民共和國國家旅遊局) in May 2015, and the “National Model Worker ofTourism Industry” (全國旅遊系統勞動模範) by China National Tourism Administration (中華人民共和國國家旅遊局) in December 2016.


– 256 –

Mr. Chen was a director of the following companies which were incorporated in the PRC

and were deregistered due to cessation of business. The relevant details are as follows:


Nature ofproceeding

Date ofdissolution

Xiaoshan New CenturyDecoration Engineering Co.,Ltd.* (蕭山開元裝飾工程公司)

Indoor and outdoordecoration andfurniture design


December 1, 1999

Zhejiang Xiaoshan New CenturyTourism Industry Co., Ltd.*(浙江蕭山開元旅業總公司)

Hotel management Voluntaryderegistration

January 9, 2001

Xiaoshan Guesthouse ShoppingCenter* (蕭山賓館商場)

Retail Voluntaryderegistration

March 23, 2001

Zhejiang Xiaoshan New CenturyTourism Industry AutomobileRental Branch* (浙江蕭山開元旅業總公司汽車出租分公司)

Tourism passengertransport


March 23, 2001

Xiaoshan New Century EconomicDevelopment Co., Ltd.*(蕭山開元經濟發展公司)

Retail of chemicalraw materialsand products


March 28, 2001

Hangzhou Qiandao Lake NewCentury Resort Hotel Co.,Ltd.* (杭州千島湖開元度假酒店有限公司)

Hotel projectdevelopment


October 26, 2004

Zhejiang New CenturyInternational HotelManagement Co., Ltd.*(浙江開元國際酒店管理有限公司)

Hotel management Voluntaryderegistration

May 26, 2005

Ninghai County New CenturyTravel Agency Co., Ltd.*(寧海縣開元旅行社有限公司)

Domestic tourismservice


August 24, 2005

Hangzhou Xiaoshan New CenturyBowling Co., Ltd.*(杭州蕭山開元保齡球有限公司)



April 17, 2006


– 257 –


Nature ofproceeding

Date ofdissolution

Zhejiang New Century SteelStructure Co., Ltd.*(浙江開元鋼結構有限公司)

Production,installation anddesign of steelproducts


October 11, 2006

Ninghai County New CenturyGrand Century Hotel Co., Ltd.*(寧海縣開元新世紀大酒店有限公司)



February 16, 2009

Hangzhou Jiangnan New CenturyReal Estate DevelopmentCo., Ltd.* (杭州江南開元房地產開發有限公司)

Real estatedevelopment


February 25, 2010

Shanghai Songjiang Fuyang RealEstate Project DevelopmentCo., Ltd.* (上海松江晟陽房地產項目開發有限公司分公司)

Real estatedevelopment


October 19, 2010

Zhejiang New Century DeweiTourism Investment Co., Ltd.*(浙江開元德威旅游投資有限公司)

Tourism projectmanagementconsulting


January 28, 2013

Zhejiang New Century TianyangTourism Investment Co., Ltd.*(浙江開元天陽旅游投資有限公司)



January 28, 2013

Zhejiang Senbo New CenturyTourism DevelopmentCo., Ltd.* (浙江森泊開元旅游開發有限公司)



December 7, 2015

Hangzhou New CenturyAgricultural DevelopmentCo., Ltd.* (杭州開元農業開發有限公司)

Agriculturaltechnologydevelopment


June 7, 2016

Hangzhou New Century ZhijiangResort Co., Ltd.* (杭州開元之江度假村有限公司)

Resort and hotelmanagement


March 7, 2018


– 258 –

Mr. Chen Canrong (陳燦榮), aged 55, has been a Director of our Company sinceDecember 17, 2008, being responsible for the provision of guidance for the overalldevelopment, business strategy and corporate governance of our Group. He is one of theControlling Shareholders of our Company. He was re-designated as a non-executive Directorof our Company in July 2018.

Mr. Chen has over 31 years of experience in hotel operation and management. Mr. Chenserved at Xiaoshan Guesthouse from September 1987 to December 2000, where he held variouspositions including deputy general manager, executive deputy general manager, and generalmanager. Since January 2000, he has successively held several positions in New CenturyTourism, including vice president, president and director. Mr. Chen has been a director andchairman of the board of directors of Zhejiang New Century Property Management Limited, acompany listed on the National Equities Exchange and Quotations (stock code: 831971) in July2014.

Mr. Chen obtained his master’s degree in business management from Macau Universityof Science and Technology (澳門科技大學) in April 2005. He has been the deputy chairman ofthe China Tourist Hotel Association (中國旅遊飯店業協會) since March 2009 and the deputychairman of the Zhejiang Hotel Association (浙江飯店業協會) since December 2008.

Mr. Chen was a director/manager of the following companies which were incorporated inthe PRC and were deregistered due to cessation of business. The relevant details are as follows:


Nature ofproceeding

Date ofdissolution

Hangzhou Xiaoshan New CenturyBowling Co., Ltd.* (杭州蕭山開元保齡球有限公司)



April 17, 2006

Shanghai New Century TiangenInvestment Co., Ltd.*(上海開元天亘投資有限公司)

Investmentmanagement andconsulting services


May 25, 2006

Hangzhou Xiaoshan TheaterOperation Co., Ltd.*(杭州蕭山劇院經營有限公司)

Provision oftheatricalperformances andretail of dailynecessities


March 28, 2008

New Century InternationalHotel Management Co., Ltd.Hangzhou Representative Office*(開元國際酒店管理有限公司杭州代表處)

International Liaisonof our Company


March 31, 2009

Kaifeng New Century LongshengReal Estate Co., Ltd.* (開封開元龍盛置業有限公司)

Real Estatedevelopment andsales


November 12,2015


– 259 –


Nature ofproceeding

Date ofdissolution

Hangzhou Senyuante TourismDevelopment Co., Ltd.*(杭州森元特旅遊開發有限公司)

Tourism projectdevelopment


January 18,2016

Hangzhou New Century AgriculturalDevelopment Co., Ltd.* (杭州開元農業開發有限公司)

Agriculturaltechnologydevelopment


June 7, 2016

Ninghai County New Century GrandCentury Hotel Co., Ltd.* (寧海縣開元新世紀大酒店有限公司)



June 7, 2016

Deqing New Century Investmentand Management Co., Ltd.New Century Business Hotel*(德清開元投資管理有限公司開元商務酒店)



November 10,2016

Shanghai Songjiang Shengyang RealEstate Project DevelopmentCo., Ltd.* (上海松江晟陽房地產項目開發有限公司)

Real Estatedevelopment andmanagement


February 15,2017

Changxing Taihu New CenturySenbo Cultural TourismDevelopment Co., Ltd.*(長興太湖開元森泊文化旅遊開發有限公司)

Tourism attractionsdevelopment


April 24, 2017

Hangzhou Baida ArchitecturalEngineering Design ConsultingCo., Ltd.* (杭州佰達建築工程設計諮詢有限公司)

Architecturalengineeringconsulting


May 2, 2017

Hangzhou Yuelun InvestmentManagement Co., Ltd.*(杭州躍倫投資管理有限公司)

Investmentmanagement andconsulting services


July 28, 2017

Deqing New Century InvestmentManagement Co., Ltd.*(德清開元投資管理有限公司)

Investmentconsulting services


November 13,2017

Hangzhou New Century ZhijiangResort Co., Ltd.* (杭州開元之江度假村有限公司)



March 7, 2018


– 260 –

Mr. Jiang Tianyi (江天一), aged 36, has been a Director of our Company since November23, 2016, being responsible for the provision of guidance for the overall development, businessstrategy and corporate governance of our Group. He was re-designated as our non-executiveDirector in July 2018. Mr. Jiang has been the Co-Founder and Partner of Ocean Link PartnersLimited (“Ocean Link”), a private equity firm focusing on travel related sectors in China sinceApril 2016, and he is board director of several portfolio companies of Ocean Link. Mr. Jianghas been a director of Beijing Century Mind Education Technology Co., Ltd.* (北京世紀明德教育科技股份有限公司), a company principally engaged in educational tours and educationconsultancy and listed on the National Equities Exchange and Quotations (stock code: 839264),since April 2016.

Mr. Jiang has over 12 years of experience in private equity investment. Mr. Jiang servedas an analyst at Deutsche Bank in Hong Kong from May 2004 to August 2006, beingresponsible for equity and debt financing, mergers and acquisitions and consulting. He laterheld the position of director in The Carlyle Group from August 2006 to March 2016, beingresponsible for investments in Asia. Mr. Jiang obtained his bachelor’s degree in science fromColumbia University, the United States of America, in May 2004.

Mr. Zhang Chi (張弛), aged 43, has been a Director of our Company since November 23,2016, being responsible for provision of guidance for the overall development, businessstrategy and corporate governance of our Group. He was re-designated as our non-executiveDirector in July 2018.

Mr. Zhang was a vice president in the investment banking division at China InternationalCapital Corporation Limited (中國國際金融有限公司) in Beijing, the PRC, from December1999 to May 2005. From August 2005 to June 2006, he served as a vice president of mergersand acquisitions division of Credit Suisse (Hong Kong) Limited. Mr. Zhang was the formerglobal partner and managing director of The Carlyle Group from July 2006 to May 2016, wherehe focused on Asia buyout opportunities. Since May 2016, Mr. Zhang has been serving as themanaging director and the head of China at General Atlantic LLC, an American worldwidegrowth equity firm, being responsible for the overall management of its investment in China.Mr. Zhang held directorships in the following listed companies during the three yearsimmediately prior to the date of this prospectus:

Name of listed company Term Position

Yashili International Holdings Limited,a company listed on the Main Board ofthe Stock Exchange (stock code: 01230)

October 2010 toAugust 2013

Non-Executive Director

New Century Asset Management Limited,the manager of New Century REIT

July 2013 to May 2016 Non-Executive Director

58.com Inc. a company listed onThe New York Exchange(stock code: WUBA)

December 2015 to present Independent Director

Xiabuxiabu Catering Management (China)Holdings Co., Ltd, a company listed onthe Main Board of the Stock Exchange(stock code: 00520)

August 2017 to present Non-Executive Director


– 261 –

Mr. Zhang obtained his bachelor’s degree in economics from Hefei University ofTechnology (合肥工業大學) in July 1997 and a master’s degree in economics from ShanghaiUniversity of Finance and Economics (上海財經大學) in Shanghai, the PRC, in January 2000.

Independent Non-Executive Directors

Dr. Zhang Rungang (張潤鋼), aged 60, was appointed as an independent non-executiveDirector on June 28 2017, being responsible for the provision of independent advice to ourBoard.

Dr. Zhang has over 33 years of experience in the hospitality and tourism industry. Priorto joining our Group, he was the deputy general manager in Kunlun Hotel Beijing (北京昆侖飯店) from February 1985 to March 1995, being responsible for the management of the hotel.From November 1996 to November 2000, he served as deputy general manager of theinvestment management department in the Bank of China, being responsible for the generalmanagement of the department. He was the deputy chief of the Quality Specification andManagement Department of the China National Tourism Administration (中國國家旅遊局質量規範與管理司) from November 2000 to September 2004, being responsible for themanagement of the national hotel industry. From January 2005 to February 2016, Dr. Zhangwas the director of BTG-Jianguo Hotel Management Co., Ltd.* (首旅建國酒店管理有限公司).He also served as a director of Beijing Tourism Group Co., Ltd.* (北京首都旅遊集團有限責任公司) from March 2014 to December 2015. He has been serving as (i) the vice president ofChina Tourism Association (中國旅遊協會) since February 2016, and (ii) an independentdirector of Zhejiang Zhoushan Tourism Co., Ltd.* (浙江舟山旅遊股份有限公司) formerlyknown as Putuoshan Tourism Development Co., Ltd.* (普陀山旅遊發展股份有限公司) sinceMay 2017.

Dr. Zhang held directorships in the following listed companies during the three yearsimmediately prior to the date of this prospectus:


BTG Hotels Group Co., Ltd, a company

listed on the main board of the

Shanghai Stock Exchange

(stock code: 600258)

May 2012 to present Director

May 2012 to

January 2017

Chairman of the

board of directors

China International Travel Service

Corporation Limited, a company listed

on the main board of the Shanghai

Stock Exchange (stock code: 601888)

March 2017 to present Independent

Director

Dr. Zhang graduated from International Institute of Politics (國際政治學院) in Beijing,the PRC with a bachelor’s degree in July 1982. He obtained a doctoral degree in systemsengineering from the South China University of Technology (華南理工大學), the PRC, in July2000.


– 262 –

Dr. Zhang was a director of following company which was incorporated in the PRC and

was deregistered due to cessation of business:

Name of the companyNature of business ofthe company

Nature ofproceeding

Date ofdissolution

Beijing Jinyingang Restaurant

Co., Ltd.* (北京金銀港酒樓有限公司)

Provision of catering

services

Voluntary

deregistration

December 4,

2009

Mr. Khoo Wun Fat William (丘煥法), aged 38, was appointed as an independent

non-executive Director on August 13, 2018, being responsible for the provision of independent

advice to our Board.

Mr. Khoo has over 11 years of experience in the legal industry. He worked at P.C. Woo

& Co., a solicitors’ firm in Hong Kong, as a trainee solicitor from July 2007 to July 2009, as

a paralegal from July 2009 to October 2009 and as an assistant solicitor from October 2009 to

April 2010. Mr. Khoo later joined Charltons, a solicitors’ firm in Hong Kong, as an assistant

solicitor from May 2010 to April 2011. From April 2011 to March 2014, he worked as an

associate at DLA Piper Hong Kong, an international law firm. In December 2014, Mr. Khoo

founded Khoo & Co, a solicitors’ firm in Hong Kong, and has been a partner of the firm since

then. Since December 2017, he has been an independent non-executive director of Z-Obee

Holdings Ltd., a company listed on the Main Board of the Stock Exchange (stock code: 948),

being responsible for providing independent advice to the board of directors of the said

company.

Mr. Khoo graduated from the Chinese University of Hong Kong in December 2003 with

a bachelor’s degree in chemistry. He subsequently obtained a bachelor’s degree in law from the

City University of Hong Kong in November 2006. In July 2007, he obtained a postgraduate

certificate in laws from the City University of Hong Kong. In September 2009, Mr. Khoo was

admitted as a solicitor of the High Court of Hong Kong.

Ms. Qiu Yun (邱妘), aged 55, was appointed as an independent non-executive Director

on June 28, 2017, being responsible for the provision of independent advice to our Board.

Ms. Qiu has more than 33 years of experience in the academic field. Ms. Qiu has been

a professor in the principles of accounting and financial management at the business school of

Ningbo University (寧波大學商學院) since July 2015. She started her academic career as a

teaching assistant at the business school of Ningbo University in July 1986, and became an

associate professor in December 1999. Ms. Qiu worked as an associate professor in the

principles of accounting and financial management and was the vice dean of the International

College of Ningbo University (寧波大學國際交流學院) from January 2001 to March 2005,

where she was then promoted to professor and then the dean of the college from April 2005 to

June 2015.


– 263 –

Ms. Qiu obtained her bachelor’s degree in economic management from Fudan University(復旦大學) in Shanghai, the PRC, in July 1986 and a master’s degree in business administrationfrom the McGill University in July 1997. Ms. Qiu was qualified as a professor in accountingby Provincial Normal High School Teacher Senior Technical Expert Qualifications Board (省普通高校教師高級專業技術資格評審委員會) in November 2004.

Ms. Qiu held directorships in the following listed companies during the three yearsimmediately prior to the date of this prospectus:


Ningbo Cixing Co., Ltd., a companylisted on the main board of ShenzhenStock Exchange (stock code: 300307)

December 2010 toSeptember 2015

Independent Director

Yinyi Real Estate Co., Ltd., a companylisted on the main board of ShenzhenStock Exchange (stock code: 000981)

July 2011 toOctober 2017

Independent Director

Youngor Group Company Limited,a company listed on the main boardof the Shanghai Stock Exchange(stock code: 600177)

May 2014 to present IndependentNon-Executive Directorand the chairman ofaudit committee

Rongan Property Co., Ltd, a companylisted on the main board of theShenzhen Stock Exchange(stock code: 000517)

June 2014 to present IndependentNon-Executive Directorand the chairman ofaudit committee

Ningbo Powerway Alloy MaterialCompany Incorporated, a companylisted on the main board of theShanghai Stock Exchange(stock code: 601137)

July 2015 to present IndependentNon-Executive Directorand the chairman ofaudit committee

As disclosed above:

1. Ms. Qiu has been an independent director of PRC listed companies since December2010 and chairman of audit committee of PRC listed companies since May 2014,where she has been responsible for reviewing the financial information of publiccompanies, reviewing of risk management and internal control systems andreviewing and monitoring the performance of the auditors of those publiccompanies;

2. she is currently an independent director and chairman of audit committee of threePRC listed companies; and

3. she has extensive academic experience in accounting and financial management.


– 264 –

Taking into account the functions performed by Ms. Qiu in her role as independent

director and chairman of audit committee in public companies, her academic accomplishments

in the area of accounting and financial management and the totality of Ms. Qiu’s education and

expertise, our Directors are of the view, which the Joint Sponsors concur, that (i) Ms. Qiu has

the relevant experience with internal controls and reviewing and analysing audited financial

statements of listed companies; and (ii) Ms. Qiu possesses the appropriate accounting and

related financial management expertise required under Rule 3.10(2) and Rule 3.21 of the

Listing Rules.

SUPERVISORS

In accordance with the PRC Company Law, the Board of Supervisors is responsible for

supervising the board of directors and senior management on fulfilling their respective duties,

financial performance, internal control management and risk management of the corporation.

The details information of our Supervisors are listed below.

Name Age

Date ofjoining ourGroup

Presentpositionin ourCompany

Date ofappointmentas Supervisor


Relationship withother Directors,Supervisorsor members of theseniormanagement

Ms. ZhaXianghong(查向宏)

46 November23, 2016

Supervisor November 23,2016

Presiding the workof the supervisorycommittee of ourCompany, supervisionof the Board and thesenior management ofour Company

None

Mr. GuoMingchuan(郭名川)

39 November23, 2016

Supervisor November 23,2016

Supervision of theBoard and thesenior managementof our Company

None

Ms. Liu Hong(劉虹)

48 October 1,2014

EmployeerepresentativeSupervisor

June 28,2017

Supervision of the Boardand the seniormanagement of ourCompany

None

Ms. Zha Xianghong (查向宏), aged 46, has been the chairman of the Board of

Supervisors of our Company since November 23, 2016, being responsible for presiding the

work of the Board of Supervisors and supervising the Board and the senior management of our

Company.


– 265 –

Ms. Zha has over 20 years of experience in financial management. Since May 1998, she

has successively undertaken various positions within New Century Tourism where she has

worked as a supervising auditor from May 1998 to April 2003, as an audit manager from May

2003 to January 2008, as an audit director from February 2008 to March 2015, and as an

assistant to general manager of finance department and general manager of finance department

since March 2015, being currently responsible for overseeing financial and accounting

operations of the New Century Tourism Group.

Ms. Zha obtained her master’s degree in business management in Hunan University (湖南大學), Changsha, the PRC, in October 2014. She has been a qualified accountant in the PRC

since April 2007.

Ms. Zha was a supervisor of the following companies which were incorporated in the PRC

and were deregistered due to cessation of business. The relevant details are as follows:


Nature ofproceeding

Date ofdissolution

Hangzhou New Century Zhijiang ResortCo., Ltd.*(杭州開元之江度假村有限公司)



March 7, 2018

Shanghai Rongduan Trading Co., Ltd.*(上海榮端貿易有限公司)

Retail of packagingmaterials, hotelsupplies anddaily necessities


May 4, 2018

Mr. Guo Mingchuan (郭名川), aged 39, has been a Supervisor of our Company since

November 23, 2016, being responsible for supervising the Board and the senior management

of our Company.

Mr. Guo has over ten years of experience in private equity investment. From January 2008

to July 2009, he served as an analyst at Morgan Stanley Private Equity. He was appointed as

the deputy director at American International Group Investment Corporation from October

2009 to August 2011. He later served as a senior investment manager at The Carlyle Group,

from September 2011 to December 2014. From January 2015 to March 2016, he joined AGIC

Capital (漢德資本) as an investment director. He has been serving as a supervisor and an

investment director at Shanghai Ocean Link Investment Management Co., Ltd.* (上海鷗翎投資管理有限公司) since April 2016.

Mr. Guo obtained his bachelor’s degree in computer science and technology and a

master’s degree in computer science from Shanghai Jiao Tong University (上海交通大學) in

June 2002 and in March 2005, respectively.

Ms. Liu Hong (劉虹), aged 48, has been a employee representative Supervisor of our

Company since June 28, 2017, being responsible for supervising the board and the senior

management of our Company and has been the Director of Human Resources of our Company

since October 2014.


– 266 –

Ms. Liu has over 30 years of experience in the hotel industry. Ms. Liu undertook various

position at Xiaoshan Guesthouse, New Century City Hotel (開元城市酒店), Grand Hotel

Hangzhou (杭州名都) from January 1988 to June 2005, being the director of housekeeping as

her last position, where she was responsible for general management of housekeeping matters.

She then served as the director of human resources at the New Century Grand Hotel Hangzhou

(杭州開元名都大酒店) from June 2005 to July 2012, where she was responsible for human

resources management. Ms. Liu was appointed as the deputy director of general office of the

labor union of New Century Tourism from July 2012 to September 2014, being responsible for

assisting the director of general office with office personnel matters, attendance assessment

and other daily administrative tasks.

Ms. Liu obtained a bachelor’s degree in law from Zhejiang University (浙江大學) in July

2000. Ms. Liu has been qualified as an Enterprise Human Resources Administrator (class 1) (一級企業人力資源管理師) since December 2012.

Ms. Liu was a director of the following company which was incorporated in the PRC and

of which the business license was revoked as the annual inspection of enterprises of such

company had not been carried out. The relevant details are as follows:


Nature ofproceeding

Date ofdissolution

Hangzhou Yongguan DecorationEngineering Co., Ltd.*(杭州永冠裝飾工程有限公司)

Production andinstallation ofplastic steel doorand windows

Business licenserevoked

April 23, 2004

SENIOR MANAGEMENT

Our senior management consists of our executive Directors and the following employees

who are responsible for the day-to-day management of our business.

Name AgeDate of joiningour Group

Presentposition inour Company

Date ofappointmentto presentposition


Relationshipwith otherDirectors,Supervisors ormembers of thesenior management

Mr. Hou FrankFeng (侯峰)

56 July 1, 2010 Vice President July 1, 2010 Management of thedaily operation ofour hotels

None

Mr. Li Donglin(李東林)

43 December 17,2008

Vice President andsecretary to theBoard

June 26, 2017 Overseeing ourGroup’s financialand accountingoperations andsecretarial matters ofour Company

None

Ms. Ye Lv(葉綠)

46 December 17,2008

Vice President June 26, 2017 Overseeing the humanresources of ourGroup

None


– 267 –

Name AgeDate of joiningour Group

Presentposition inour Company

Date ofappointmentto presentposition


Relationshipwith otherDirectors,Supervisors ormembers of thesenior management

Ms. Zhao Huajuan(趙華娟)

45 December 17,2008

Chief FinancialOfficer

January 1, 2014 Overseeing ourGroup’s financialand accountingoperations

None

Mr. Dai Jianping(戴建平)

46 December 17,2008

Vice president andgeneral manager ofthe upscalebusiness hoteldevelopment andmanagementbusiness division

October 26, 2017 Overseeing thebusinessdevelopment andmanagement of ourupscale businesshotels

None

Mr. Chen Wenfang(陳文放)

40 January 1, 2011 Vice president andgeneral manager ofresort hoteldevelopment andmanagementbusiness division

October 26, 2017 Overseeing thebusinessdevelopment andmanagement of ourresort hotels

None

Mr. Hou Frank Feng (侯峰), aged 56, has been a vice president of our Company since

July 2010, being responsible for the management of the daily operations of our Group.

Mr. Hou has over 26 years of experience in the hotel industry. Prior to joining our Group,

Mr. Hou has served as a trainee hotel manager, hotel audit manager, hotel finance deputy

manager and director of the investment department at Wyndham Hotel Group LLC from

December 1992 to July 1995. Mr. Hou later worked as deputy director of finance department

of the Central America region in the headquarters of the Hilton Hotel Group in the United

States of America from July 1995 to August 1997. He then took the position of director of

finance department in AON Plc. in the United States from August 1997 to August 1999.

Subsequently, he joined the investment division of Morgan Stanley as finance analyst from

August 1999 to December 2004, being responsible for project management and development

of the group. Mr. Hou undertook the role of general manager at Nanjing Jinling Holdings Ltd.*

(南京金陵飯店集團有限公司) from October 2005 to June 2010, where he was responsible for

its overall operation, development and management.

Mr. Hou obtained his diploma in hotel management and tourism in Shanghai Institute of

Tourism (上海旅遊高等專科學校) in Shanghai, the PRC, in July 1983 and obtained his master’s

degree in hospitality management in Houston University in Houston, the United States of

America in May 1993.


– 268 –

Mr. Li Donglin (李東林), aged 43, has been a vice general manager of our Company fromJanuary 2014 to June 2017 and a vice president since June 2017. Mr. Li has also been thesecretary to the Board since January 2017, being responsible for oversight of our Group’sfinancial and accounting operations and overall secretarial matters of our Company. Mr. Li hasbeen appointed as one of the joint company secretaries of our Company in July 2018. Mr. Lijoined our Group in December 17, 2008 and worked as an assistant to the chief financialofficer, assistant to the general manager, vice general manager and vice president successively.

Mr. Li has over 23 years of experience in financial management. Prior to joining ourGroup, he was an accounting officer and a chief accountant at Hangzhou Xingyuan FilterTechnology Co., Ltd.* (杭州興源過濾機有限公司), a filter manufacturer, from January 1996 toDecember 2000, where he was mainly responsible for general accounting matters. From March2001 to June 2003, Mr. Li worked for Zhejiang Huafu Huafang Group* (浙江華孚華紡集團) asan accounting manager, audit manager and capital resources manager successively, beingmainly responsible for financial management and capital resources management. From June2003 to December 2007, he has successively worked as the assistant to the financial generalmanager and the audit director of New Century Tourism. From January 2008 to December2008, he worked as an assistant to the chief financial officer at New Century Hotel Investment.

Mr. Li obtained a diploma of accounting from Jiangxi University of Finance andEconomics (江西財經學院) in Nanchang, Jiangxi Province, the PRC, in June 1995. He thenstudied at the graduate school of Shanghai University of Finance and Economics (上海財經大學) from March 2001 to January 2003 and obtained a postgraduate diploma in corporatemanagement. Mr. Li has been awarded the postgraduate diploma in corporate finance andinvestment management by The University of Hong Kong in February 2018.

Mr. Li has been an international certified financial engineer of the American CertificationInstitute since May 2011. He was accredited as a financial engineer by Overseas EducationCollege Shanghai Jiaotong University (上海交通大學海外教育學院) in April 2011. He was alsoaccredited as a qualified company secretary by the Shanghai Stock Exchange and the ShenzhenStock Exchange in May 2016 and in May 2017, respectively.

Mr. Li was a supervisor/director of the following companies which were incorporated inthe PRC and were deregistered for corporate restructuring purposes. The relevant details are asfollows:

Name of the company


Nature ofproceeding Date of dissolution

Shanghai New CenturyCo., Ltd* (上海開元大酒店有限公司)



October 22, 2012

Changzhou New CenturyResort Co., Ltd* (常州開元度假村有限公司)



May 22, 2013

Nanjing Pukou Jiuyue HotelCo., Ltd.* (南京浦口久悅大酒店有限公司)



May 2013


– 269 –

Ms. Ye Lv (葉綠), aged 46, has been a vice president of our Company since June 2017,

being responsible for overseeing the human resources of our Group. Ms. Ye joined our Group

in December 2008 as a housekeeping director.

Ms. Ye has over 21 years of experience in the hotel industry. Ms. Ye was a room

reservation director at the New Century Resort Hangzhou* (杭州開元之江度假村) from

December 1997 to April 2003. Ms. Ye then worked in New Century Hotel Investment from

April 2003 to December 2008 as a room reservation director. After working as the

housekeeping director in our Company, she was promoted to vice general manager in January

2013 and held the position until June 2017.

Ms. Ye obtained a diploma in economic management from Zhejiang University (浙江大學), Hangzhou, the PRC, in July 1999.

Ms. Zhao Huajuan (趙華娟), aged 45, has been the chief financial officer of our Group

since January 2014, being responsible for overseeing our Group’s financial and accounting

operations.

Ms. Zhao has over 25 years of experience in financial management. Ms. Zhao served as

an accountant in Xiaoshan Grocery Company of Sugar, Cigarette and Alcohol* (蕭山糖業煙酒副食品公司) from August 1993 to April 1998, and served various positions within the New

Century Tourism Group including an accountant supervisor at the Zhejiang New Century Food

& Entertainment City Co., Ltd.* (浙江蕭山開元美食娛樂城有限公司) from May 1998 to

December 2002, a finance manager at the Hangzhou New Century Sunshine Leisure Villa* (杭州開元陽光休閒山莊) from January 2003 to May 2004. From June 2004 to December 2008,

Ms. Zhao worked as an audit officer at New Century Hotel Investment. Since January 2009,

Ms. Zhao has successively undertaken the positions of audit officer, assistant of financial

officer, vice financial officer and chief financial officer at our Company.

Ms. Zhao obtained a diploma in accounting from the Open University of China (中央廣播電視大學) in January 2007. She has been certified by the Institute of Internal Auditors as a

Certified Internal Auditor since November 2008 and has been a senior accountant as awarded

by the senior accountant qualification approval committee of Zhejiang Province since

December 2017. Ms. Zhao obtained her qualification as a certified management accountant of

the Institute of Certified Management Accountants of the United States of America in

September 2017.


– 270 –

Mr. Dai Jianping (戴建平), aged 46, has been the vice president and the general manager

of upscale business hotel development and management business division of our Company

since October 2017, being mainly responsible for the management and business development

of our upscale business hotels.

Mr. Dai has over 23 years of experience in hotel operation and management. Prior to

joining our group, Mr. Chen served as an assistant to general manager of Zhejiang Golden

Horse Hotel* (浙江金馬飯店) from July 1995 to March 2001, where he was mainly responsible

for catering and recreation operations and management. From March 2001 to July 2001, Mr.

Dai held the position of assistant to general manager of New Century Resort Hangzhou

Zhijiang* (杭州開元之江度假村), being mainly responsible for assisting the general manager

with daily operations. From July 2001 to January 2006, he was in charge of the daily

management of the hotel as a deputy general manager of New Century Xiaoshan Guesthouse.

Mr. Dai was appointed as the general manager of New Century Resort Hangzhou Zhijiang* (杭州開元之江度假村) from February 2006 to March 2008, being mainly responsible for its

overall management. From March 2008 to October 2017, Mr. Dai has been the general manager

of Shaoxing Grand New Century* (紹興開元名都大酒店) and the general manager of Shaoxing

district of our Company.

Mr. Dai obtained a professional certificate in tourism management in Zhejiang University

(浙江大學), Hangzhou, the PRC, in January 2001 and a master’s degree in hotel and tourism

management in the Hong Kong Polytechnic University, Hong Kong, in October 2013.

Mr. Dai was a supervisor of the following company which was incorporated in the PRC

and was deregistered due to cessation of business. The relevant details are as follows:

Name of the company


Nature ofproceeding Date of dissolution

Hangzhou New CenturyZhijiang Resort Co., Ltd.*(杭州開元之江度假村有限公司)



March 7, 2018

Mr. Chen Wenfang (陳文放), aged 40, has been the vice president and general manager

of resort hotel development and management business division of our Company since October

2017, being mainly responsible for the management and business development of our resorts.

Mr. Chen joined our Group in January 2011, since when he has successively undertaken

various positions within our Group, including the sales director of our Company from January

2011 to January 2013, the president of sales and marketing of our Company from January 2013

to August 2014, the general manager of Ningbo Shiqifang New Century Resort* (寧波十七房開元度假村) from August 2014 to August 2015, and was the general manager of New Century

Resort Hangzhou Qiandao Lake* (杭州千島湖開元度假村) from August 2015 to October 2017.


– 271 –

Mr. Chen obtained an associate degree in tourism management from Shanghai Normal

University (上海師範大學), Shanghai, the PRC, in December 2002.

Except as disclosed in this prospectus, none of our Directors has any interests in any

business, which competes or is likely to compete, either directly or indirectly, with our

business.

Except as disclosed in this prospectus, none of our Directors, Supervisors and senior

management members is related to other Directors, Supervisors and senior management

members.

Except as disclosed above, none of our Directors, Supervisors and senior management

members has been a director of any public company, the securities of which are listed on any

securities market in Hong Kong or overseas in the three years immediately preceding the date

of this prospectus.

Except as disclosed herein, there is no other information that needs to be brought to the

attention to the Shareholders under Rule 13.51(2) of the Listing Rules.

JOINT COMPANY SECRETARIES

Mr. Li Donglin (李東林) is one of our joint company secretaries. Please refer to “– Senior

Management” in this section for his biography. As Mr. Li does not possess the qualifications

stipulated under Rules 3.28 of Listing Rules, we have applied for, and Stock Exchange has

granted, a waiver from strict compliance with the rules. Please see sub-section headed

“Waivers from strict compliance with the Listing Rules – Qualification of Company Secretary”

in this prospectus for details.

Ms. Chan Suet Lam (陳雪霖) is one of our joint company secretaries. She was appointed

as one of the joint company secretaries of our Company in July 2018, with effect from the

Listing Date. Ms. Chan has over 13 years of experience in providing company secretarial and

compliance services to numerous Hong Kong listed companies as well as multinational, private

and offshore companies. Ms. Chan currently serves as a manager, corporate services division

of Tricor Investor Services Limited, a global professional services provider specializing in

integrated business, corporate and investor services.

Ms. Chan graduated from University of Portsmouth with a bachelor’s degree in

accountancy studies in July 2002. She was admitted as an associate of The Hong Kong Institute

of Chartered Secretaries in September 2009 and an associate of The Institute of Chartered

Secretaries and Administrators in the United Kingdom in September 2009.


– 272 –

BOARD COMMITTEES

Audit Committee

Our Company established the audit committee with written terms of reference in

compliance with Rule 3.21 of the Listing Rules and the Corporate Governance Code as set out

in Appendix 14 to the Listing Rules (the “Corporate Governance Code”). The audit

committee has three members, namely Ms. Qiu Yun, our independent non-executive Director,

Mr. Jiang Tianyi, our non-executive Director and Mr. Khoo Wun Fat William, our independent

non-executive Director. Ms. Qiu Yun has been appointed as the chairperson of the audit

committee, and is our independent non-executive Director possessing the appropriate

professional qualifications. The primary duties of the audit committee include, among other

things, making recommendations to the Board on the appointment, reappointment and removal

of the external auditor, reviewing our Group’s financial information, overseeing our Group’s

financial reporting system, risk management and internal control systems.

Nomination Committee

Our Company established the nomination committee with written terms of reference in

compliance with the Corporate Governance Code. The nomination committee has three

members, namely, Mr. Zhang Rungang, our independent non-executive Director, Mr. Chen

Canrong, our executive Director and Mr. Khoo Wun Fat William, our independent non-

executive Director. Mr. Zhang Rungang has been appointed as the chairperson of the

Nomination Committee. The primary duties of the nomination committee include, among other

things, reviewing the structure, size and composition of the Board, assessing the independence

of independent non-executive Directors and making recommendations to the Board on matters

relating to the appointment of Directors.

Remuneration Committee

Our Company established the remuneration committee with written terms of reference in

compliance with Rule 3.25 of the Listing Rules and the Corporate Governance Code. The

remuneration committee has three members, namely Mr. Zhang Rungang, our independent

non-executive Director, Mr. Chen Miaolin, our non-executive Director and Ms. Qiu Yun, our

independent non-executive Director. Mr. Zhang Rungang has been appointed as the chairperson

of the remuneration committee. The primary duties of the remuneration committee include,

among other things, making recommendations to the Board on our Group’s policy and structure

for all Directors’ and senior management’s remuneration and on the establishment of a formal

and transparent procedure for developing our Group’s remuneration policy and on the

remuneration packages of individual executive Directors and senior management.


– 273 –

Corporate governance functions

For the purpose of performing the corporate governance functions in accordance withprovision D.3 of the Corporate Governance Code, the Board has adopted written terms ofreference in accordance with provision D.2 of the Corporate Governance Code which providefor, among others, (i) developing and reviewing our Group’s policies and practices oncorporate governance and making recommendations to the Board; (ii) reviewing andmonitoring the training and continuous professional development of our Directors and seniormanagement; (iii) reviewing and monitoring our Group’s policies and practices on compliancewith legal and regulatory requirements; (iv) developing, reviewing and monitoring the code ofconduct and compliance manual (if any) applicable to employees and our Directors; and (v)reviewing our Company’s compliance with the Corporate Governance Code and disclosure inthe annual reports of our Company.

REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT

The compensation packages of our Directors and senior management comprise basicsalaries, pension, housing fund and other benefits. They are also entitled to medical insuranceprovided by our Group. Our Group determines the compensation packages of our Directors andsenior management by reference to, among other things, their qualifications, experience, dutiesand responsibilities with our Group, prevailing market rates and performance of our Group.After Listing, the remuneration committee will review annually and make recommendations tothe Board on the overall remuneration policy and structure relating to all Directors and seniormanagement with reference to the factors mentioned above.

Details of our Directors’ remuneration are set out in note 10 to the Accountant’s Reportas set out in Appendix I to this prospectus.

For each of the years ended December 31, 2015, 2016 and 2017 and the eight monthsended August 31, 2018, the aggregate remuneration (including wages, salaries, contribution topension schemes, housing fund, discretionary bonuses and other allowances and other benefitsin kind) paid to our Group’s five highest paid individuals, including our Directors, wereapproximately RMB9,335,000, RMB5,475,000, RMB9,060,000 and RMB4,481,000,respectively.

No payment was made by our Group to our Directors or the five highest paid individualsas an inducement to join or upon joining our Group or as compensation for loss of office duringthe Track Record Period. Further, none of our Directors has waived or agreed to waive anyremuneration during the same period.

Under the arrangements currently in force and pursuant to our Directors’ serviceagreements and letters of appointment, the aggregate remuneration payable to our Directors forthe financial year ended December 31, 2018 was approximately RMB2.8 million and for thefinancial year ending December 31, 2019 are estimated to be approximately RMB3.0 million.For more particulars on the Director’s service agreements and letters of appointment, pleaserefer to the sub-section headed “Appendix VII – Statutory and General Information – C.Further information about Directors, substantial Shareholders and experts – 3. Servicecontracts” in this prospectus.


– 274 –

Save as disclosed above, in the sub-section headed “Appendix VII – Statutory and

General Information – C. Further information about Directors, substantial Shareholders and

experts – 4. Directors’ and Supervisors’ remuneration” in this prospectus and in note 10 to the

Accountant’s Report as set out in Appendix I to this prospectus, no other payments have been

made or are payable in respect of the Track Record Period by any of member of our Group to

any of our Directors.

COMPLIANCE ADVISER

We have appointed BOCOM International (Asia) Limited as our Company’s compliance

adviser in compliance with Rule 3A.19 of the Listing Rules. Pursuant to Rule 3A.23 of the

Listing Rules, we will consult with and seek advice from our compliance adviser in the

following circumstances:

(i) before the publication of any regulatory announcement, circular or financial report;

(ii) where a transaction, which might be a notifiable or connected transaction, is

contemplated including share issues and share buyback;

(iii) where our Company proposes to use the proceeds of the initial public offering in a

manner different from that detailed in the prospectus or where the business

activities, developments or results of our Company deviate from any forecast,

estimate, or other information in the prospectus; and

(iv) where the Stock Exchange makes an inquiry of our Company regarding unusual

movements in the price or trading volume of the securities of our Company, the

possible development of a false market in the securities of our Company, any inside

information which needs to be disclosed under Part XIVA of the SFO or any other

matters.

The term of the appointment shall commence on the Listing Date and is expected to end

on the date on which our Company distributes its annual report in respect of its financial results

for the first full financial year commencing after the Listing Date. Our Company may terminate

the appointment of its compliance adviser if, amongst others, the compliance adviser’s work

is of an unacceptable standard or if there is a material dispute (which cannot be resolved within

30 days) over fees payable by our Company to our compliance adviser. Our Company will

exercise such a right in compliance with Rule 3A.26 of the Listing Rules.


– 275 –

So far as our Directors are aware, as at the Latest Practicable Date and immediatelyfollowing completion of the Global Offering, the following persons/entities will have interestsor short positions in our Shares or underlying Shares which would fall to be disclosed to us andthe Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or be,directly or indirectly, interested in 10% or more of the nominal value of any class of sharecapital carrying rights to vote in all circumstances at general meetings of any member of ourGroup:

Shares held as at theLatest Practicable Date

and immediately prior tothe Global Offering

Shares held immediately following thecompletion of the Global Offering (assuming

no exercise of the Over-allotment Option)

Shares held immediately following thecompletion of the Global Offering (assumingfull exercise of the Over-allotment Option)

Name ofShareholder Nature of Interest

Class ofShares Number

Approximate% in the

total sharecapital of our

Company Number

Approximate% of interest

in therelevant class

of Shares


in the totalshare capital

of ourCompany Number



of Shares



of ourCompany

New CenturyTourism

Beneficial owner UnlistedShares(2)

125,676,180 59.8 125,676,180 59.8 44.9 125,676,180 59.8 43.3

Interest in acontrolledcorporation(3)

UnlistedShares

9,655,590 4.6 9,655,590 4.6 3.4 9,655,590 4.6 3.3

Mr. Chen Miaolin Interest in acontrolledcorporation(3)(4)

UnlistedShares

135,331,770 64.4 135,331,770 64.4 48.3 135,331,770 64.4 46.6

NC HotelsInvestmentHolding Pte. Ltd.

Interest in acontrolledcorporation

UnlistedShares

40,482,540 19.3 40,482,540 19.3 14.5 40,482,540 19.3 13.9

Notes:

1. All interests stated are long positions.

2. Unlisted Shares include Domestic Shares and Unlisted Foreign Shares. Based on the advice of our PRC LegalAdviser, the holders of Unlisted Foreign Shares and Domestic Shares are entitled to the same rights. Holdersof Unlisted Foreign Shares and Domestic Shares will be treated as if they are in the same class of shares underthe SFO upon the completion of the Global Offering.

3. New Century Tourism is a general partner of and has full control over Hangzhou Qianhe Qiju InvestmentManagement Partnership (Limited Partnership)* (杭州謙和祺聚投資管理合夥企業(有限合夥) (“QianheQiju”). New Century Tourism is deemed under the SFO to be interested in the Shares held by Qianhe Qiju.

4. Mr. Chen Miaolin indirectly owns as to 85.2% of the equity interests in New Century Tourism and Mr. ChenMiaolin is deemed under the SFO to be interested in the Shares held by New Century Tourism.

SUBSTANTIAL SHAREHOLDERS

– 276 –

BEFORE THE GLOBAL OFFERING

As at the Latest Practicable Date, our registered capital was RMB210,000,000,comprising 159,659,640 Domestic Shares and 50,340,360 Unlisted Foreign Shares as set outas follows:

ClassNumber of

Shares

Approximatepercentage of

issued sharecapital

Domestic Shares(1) 159,659,640 76.0%Unlisted Foreign Shares(2) 50,340,360 24.0%

210,000,000 100%

UPON COMPLETION OF THE GLOBAL OFFERING

Immediately upon the completion of the Global Offering, assuming that the Over-allotment Option is not exercised, our share capital would be as follows:

ClassNumber of

Shares


issued sharecapital

Domestic Shares(1) 159,659,640 57.0%Unlisted Foreign Shares(2) 50,340,360 18.0%H Shares issued pursuant to

the Global Offering 70,000,000 25.0%

Total 280,000,000 100%

Immediately following completion of the Global Offering and assuming that theOver-allotment Option is exercised in full, our share capital would be as follows:

ClassNumber of

Shares


issued sharecapital

Domestic Shares(1) 159,659,640 55.0%Unlisted Foreign Shares(2) 50,340,360 17.3%H Shares issued pursuant to

the Global Offering 80,500,000 27.7%

Total 290,500,000 100%

SHARE CAPITAL

– 277 –

Notes:

1. These Domestic Shares are held by existing Shareholders, namely, (i) New Century Tourism, (ii) NingboMeishan Bonded Area Kaihui Taiheng Investment Management Partnership (Limited Partnership)* (寧波梅山保稅港區開匯泰亨投資管理合夥企業(有限合夥)), (iii) Hangzhou Qianhe Qiju InvestmentManagement Partnership (Limited Partnership)* (杭州謙和祺聚投資管理合夥企業(有限合夥)), (iv)Ningbo Meishan Bonded Area Kairui Shiqi Investment Management Partnership (Limited Partnership)*(寧波梅山保稅港區開瑞世祺投資管理合夥企業(有限合夥)) and (v) Shanghai Ouling Bohui InvestmentCentre (Limited Partnership)* (上海鷗翎鉑卉投資中心(有限合伙)); and may be converted into HShares. Please see sub-section headed “Conversion of our unlisted Shares into H Shares” in this section.

2. These Unlisted Foreign Shares are held by NC Hotels Investment Holding Pte. Ltd. and Ocean CenturyHotels Limited, which will not be converted into H Shares immediately after the completion of theGlobal Offering, and therefore will not be listed on the Stock Exchange. However, these UnlistedForeign Shares may be converted into H Shares in the future, please see sub-section headed “Conversionof our unlisted Shares into H Shares” in this section.

CONVERSION OF OUR UNLISTED SHARES INTO H SHARES

Conversion of Unlisted Shares

Upon the completion of the Global Offering, we will have three classes of ordinary

shares, H Shares, Domestic Shares and Unlisted Foreign Shares. All of our Domestic Shares

and Unlisted Foreign Shares are unlisted Shares which are not listed or traded on any stock

exchange, therefore, the scope of our unlisted Shares is the same as the scope of our Domestic

Shares and Unlisted Foreign Shares. The term “unlisted Shares” is used to describe whether

certain Shares are listed on a stock exchange.

According to the stipulations by the State Council’s securities regulatory authority and the

Articles of Association, our unlisted Shares may be converted into H Shares, and such

converted H Shares may be listed or traded on an overseas stock exchange provided that prior

to the conversion and trading of such converted H Shares, the requisite internal approval

processes (but without the necessity of Shareholders’ approval by class) have been duly

completed and the approval from the relevant PRC regulatory authorities, including the CSRC,

have been obtained. In addition, such conversion, trading and listing shall in all respects

comply with the regulations prescribed by the State Council’s securities regulatory authorities

and the regulations, requirements and procedures prescribed by the relevant overseas stock

exchange.

If any of our unlisted Shares are to be converted and to be traded as H Shares on the Stock

Exchange, such conversion will be subject to the approval of the relevant PRC regulatory

authorities including the CSRC. Approval of the Stock Exchange is required for the listing of

such converted Shares on the Stock Exchange. Based on the methodology and procedures for

the conversion of our unlisted Shares into H Shares as described in this section, we can apply

for the listing of all or any portion of our unlisted Shares on the Stock Exchange as H Shares

in advance of any proposed conversion to ensure that the conversion process can be completed

promptly upon notice to the Stock Exchange and delivery of shares for entry on the H Share

register. As any listing of additional shares after our initial listing on the Stock Exchange is

ordinarily considered by the Stock Exchange to be a purely administrative matter, it does not

require such prior application for listing at the time of our initial listing in Hong Kong.

SHARE CAPITAL

– 278 –

No Shareholder voting by class is required for the listing and trading of the converted

Shares on an overseas stock exchange. Any application for listing of the converted Shares on

the Stock Exchange after our initial listing is subject to prior notification by way of

announcement to inform our Shareholders and the public of any proposed conversion.

See sub-section “Risk Factors – Risks Relating to the Global Offering – Future sales, or

market perception of sales, of substantial amounts of our H Shares or other securities relating

to our H Shares in the public market could materially and adversely affect the prevailing

market price of our H Shares” for further details.

Mechanism and Procedures for Conversion

After all the requisite approvals have been obtained, the following procedures will need

to be completed in order to effect the conversion: the relevant unlisted Shares will be

withdrawn from the Domestic Share or the Unlisted Foreign Share registers and we will

re-register such Shares on our H Share register maintained in Hong Kong and instruct the H

Share Registrar to issue H Share certificates. Registration on our H Share register will be

conditional on (i) our H Share Registrar lodging with the Stock Exchange a letter confirming

the proper entry of the relevant H Shares on the H Share register and the due dispatch of H

Share certificates and (ii) the admission of the H Shares to trade on the Stock Exchange

complying with the Listing Rules, the General Rules of CCASS and the CCASS Operational

Procedures in force from time to time. Until the converted shares are re-registered on our H

Share register, such Shares would not be listed as H Shares.

So far as our Directors are aware, none of our existing Shareholders currently proposes

to convert any of the Domestic Shares or Unlisted Foreign Shares held by it into H Shares. Our

PRC Legal Adviser advised that the Articles of Association is not inconsistent with the relevant

PRC laws and regulations with respect to the requirements regarding the conversion.

RANKING

Domestic Shares, Unlisted Foreign Shares and H Shares are ordinary shares in the share

capital of our Company. However, unless otherwise approved by relevant authorities, H Shares

cannot be subscribed for by, or traded between, legal or natural persons of the PRC. Domestic

Shares, on the other hand, can only be subscribed for by, and traded between, legal or natural

persons of the PRC or qualified foreign institutional investors or eligible foreign strategic

investors, and must be traded in RMB. Unlisted Foreign Shares can be subscribed for by, and

traded between, non-Chinese legal or natural persons, in any foreign currency except for RMB.

All dividends or distributions declared, paid or made in respect of the Domestic Shares,

Unlisted Foreign Shares and H Shares after the date of this prospectus will rank pari passu with

each other. All dividends in respect of the H Shares are to be paid by us in Hong Kong dollars

whereas (i) all dividends in respect of Domestic Shares are to be paid by us in RMB and (ii)

all dividends in respect of Unlisted Foreign Shares are to be paid by us in foreign currency

except for RMB.

SHARE CAPITAL

– 279 –

Except as described above and in relation to the dispatch of notices and financial reports

to the shareholders, dispute resolution, registration of shares on different registers of

shareholders, the method of share transfer and the appointment of dividend receiving agents,

are all provided for in our Articles of Association and summarized in Appendix VI to this

prospectus.

TRANSFER OF SHARES PRIOR TO THE LISTING DATE

The PRC Company Law provides that in relation to the public offer of a company, the

shares issued by a company prior to the public offering of shares shall not be transferred within

a period of one year from the date on which the publicly offered shares are traded on any stock

exchange. Accordingly, Shares issued by our Company prior to the Listing Date shall be

subject to this statutory restriction and not be transferred within a period of one year from the

Listing Date.

REGISTRATION OF SHARES NOT LISTED ON OVERSEAS EXCHANGE

According to the Notice of Centralized Registration and Deposit of Non-overseas Listed

Shares of Companies Listed on an Overseas Stock Exchange (關於境外上市公司非境外上市股份集中登記存管有關事宜的通知) issued by the CSRC, an overseas listed company is required

to register its shares that are not listed on the overseas stock exchange with China Securities

Depository and Clearing Corporation Limited within 15 working days upon listing.

SHAREHOLDERS’ GENERAL MEETINGS AND CLASS MEETINGS

For details of circumstances under which the Shareholders’ general meeting and

Shareholders’ class meeting are required, see sub-section “The PRC Company Law, the Special

Regulations and the Mandatory Provisions – Shareholders’ General Meetings” in Appendix V

to this prospectus.

SHARE CAPITAL

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THE CORNERSTONE PLACING

We have entered into cornerstone investment agreements (each a “Cornerstone

Investment Agreement”, and together the “Cornerstone Investment Agreements”) with the

cornerstone investors set out below (each a “Cornerstone Investor”, and together, the

“Cornerstone Investors”), pursuant to which the Cornerstone Investors have agreed to

subscribe, subject to certain conditions, at the Offer Price for such number of Offer Shares

(rounded down to the nearest whole board lot of 200 Shares) that may be purchased for an

aggregate amount of US$62.0 million (the “Cornerstone Placing”).

The Cornerstone Placing will form part of the International Offering. The Offer Shares to

be subscribed for by the Cornerstone Investors will rank pari passu in all respects with other

fully paid Shares then in issue upon completion of the Global Offering and to be listed on the

Stock Exchange and will be counted towards the public float of our Company under Rule 8.24

of the Listing Rules. The Cornerstone Investors will not subscribe for any Offer Shares under

the Global Offering (other than pursuant to the Cornerstone Investment Agreement).

Immediately following the completion of the Global Offering, the Cornerstone Investors will

not have any representation on our Board, nor will the Cornerstone Investors become

substantial shareholders (as defined under the Listing Rules) of our Company. The Cornerstone

Investors do not have any preferential rights as compared with other public Shareholders in the

Cornerstone Investment Agreement. To the best knowledge of our Company, each Cornerstone

Investor is independent of each other, is an Independent Third Party, is not a connected person

(as defined under the Listing Rules) of our Company, and is not an existing Shareholder or

close associates of our Company.

The Offer Shares to be subscribed by the Cornerstone Investors may be affected by

reallocation of the Offer Shares between the International Offering and the Hong Kong Public

Offering in the event of over-subscription under the Hong Kong Public Offering as described

in the section headed “Structure and Conditions of the Global Offering – Hong Kong Public

Offering – Reallocation and Clawback” in this prospectus. Details of the actual number of the

Offer Shares to be allocated to the Cornerstone Investors will be disclosed in the allotment

results announcement to be issued by our Company on or around March 8, 2019.

CORNERSTONE INVESTORS

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OUR CORNERSTONE INVESTORS

We have entered into the Cornerstone Investment Agreements with the Cornerstone

Investors in respect of the Cornerstone Placing:

Based on the Offer Price of HK$13.37 (being the low-end of the indicative Offer Price range)

Approximate % of total number ofOffer Shares

Approximate % of total Shares inissue immediately following the

completion of the Global Offering

Cornerstone InvestorInvestment

Amount

Number of OfferShares (roundeddown to nearestwhole board lot

of 200 Shares)

Assuming theOver-allotment

Option is notexercised


Option isexercised in full





(US$ in million)

Ctrip Hong Kong 32.0 18,780,800 26.8 23.3 6.7 6.5GreenTree 30.0 17,607,000 25.2 21.9 6.3 6.1

Total 62.0 36,387,800 52.0 45.2 13.0 12.6

Note: In the event that the Offer Price is set at the low-end of the indication Offer Price range, the allocation of thenumber of H Shares to the Cornerstone Investors will be adjusted to ensure compliance with Rule 8.08(3) ofthe Listing Rules such that no more than 50% of the H Shares in public hands on the Listing Date can bebeneficially owned by the three largest public shareholders of H Shares.

Based on the Offer Price of HK$16.71 (being the mid-point of the indicative Offer Price range)





Amount


of 200 Shares)









(US$ in million)


Total 62.0 29,114,400 41.6 36.2 10.4 10.0


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Based on the Offer Price of HK$20.05 (being the high-end of the indicative Offer Price range)





Amount


of 200 Shares)









(US$ in million)


Total 62.0 24,264,400 34.7 30.2 8.7 8.3

The information about our Cornerstone Investors set forth below have been provided by

the respective Cornerstone Investor in connection with the Cornerstone Placing.

Ctrip.com (Hong Kong) Limited (“Ctrip Hong Kong”)

Pursuant to the Cornerstone Investment Agreement entered into between our Company,

the Joint Sponsors, the Joint Global Coordinators and Ctrip Hong Kong dated February 19,

2019, Ctrip Hong Kong has agreed to subscribe for such number of Offer Shares equal to Hong

Kong dollar equivalent of US$32.0 million at the Offer Price, rounded down to the nearest

whole board lot of 200 Shares (excluding brokerage and the levies which the relevant

Cornerstone Investor will pay in respect of the Offer Shares to be subscribed for).

Ctrip.com (Hong Kong) Limited is a limited liability company incorporated under the

laws of Hong Kong on June 11, 1999, and a wholly-owned subsidiary of Ctrip.com

International, Ltd. Ctrip.com International, Ltd. is a leading provider of travel related services

including accommodation reservation, transportation ticketing, packaged-tour, corporate travel

management services in the PRC, and its American Depositary Shares are listed on the

NASDAQ (stock symbol: CTRP).

GreenTree Hospitality Group Ltd. (“GreenTree”)

Pursuant to the Cornerstone Investment Agreement entered into between our Company,

the Joint Sponsors, the Joint Global Coordinators and GreenTree dated February 19, 2019,

GreenTree has agreed to subscribe for such number of Offer Shares equal to Hong Kong dollar

equivalent of US$30.0 million at the Offer Price, rounded down to the nearest whole board lot

of 200 Shares (excluding brokerage and the levies which the relevant Cornerstone Investor will

pay in respect of the Offer Shares to be subscribed for).


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GreenTree is an exempted company incorporated in the Cayman Islands and the AmericanDepositary Share of which is listed on the New York Stock Exchange under the symbol “GHG.”

GreenTree is a leading franchised hotel operator in China. As of September 30, 2018,GreenTree had 2,558 hotels, among which 2,528 are franchised and managed hotels. GreenTreehad the highest proportion of franchised-and-managed hotels among the top four economy tomid-scale hotel networks in China. In 2017, GreenTree was the fourth largest economy tomid-scale hotel group in China in terms of number of hotels according to China HospitalityAssociation. GreenTree has built a strong suite of brands including its flagship “GreenTreeInns” brand as a result of its long-standing dedication to the hospitality industry in China andconsistent quality of its services, signature hotel designs, broad geographic coverage andconvenient locations. GreenTree has positioned its brands to appeal to value-and-quality-conscious business travelers and leisure travelers.

CLOSING CONDITIONS

The subscription obligations of the Cornerstone Investors are subject to, among otherthings, the following closing conditions:

(a) the underwriting agreements for the Hong Kong Public Offering and theInternational Offering being entered into and having become effective andunconditional (in accordance with their respective original terms or as subsequentlywaived or varied by agreement of the parties thereto) by no later than the time anddate as specified in these underwriting agreements;

(b) neither of the aforesaid underwriting agreements having been terminated;

(c) the Listing Committee of the Stock Exchange having granted the listing of, andpermission to deal in, the Offer Shares as well as other applicable waivers andapprovals and such approval, permission or waiver having not been revoked prior tothe commencement of dealings in the Offer Shares on the Stock Exchange;

(d) the Offer Price having been agreed according to underwriting agreements and price

determination agreement to be signed among the parties thereto in connection with

the Global Offering;

(e) no laws shall have been enacted or promulgated by any governmental authority

which prohibits the consummation of the transactions contemplated in the Hong

Kong Public Offering, the International Offering or herein and there shall be no

orders or injunctions from a court of competent jurisdiction in effect precluding or

prohibiting consummation of such transactions; and

(f) the respective representations, warranties, acknowledgements, undertakings and

confirmations of the Cornerstone Investors under the respective Cornerstone

Investment Agreement are (as of the date of the respective Cornerstone Investment

Agreements) and will be (as of the Listing Date or the delayed delivery date as

notified by Joint Global Coordinators, as applicable) accurate and true in all respects

and not misleading and that there is no breach of the Cornerstone Investment

Agreements on the part of the Cornerstone Investors.


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RESTRICTIONS ON THE CORNERSTONE INVESTORS

The Cornerstone Investors have agreed that it will not, and will cause its affiliates not to,

whether directly or indirectly, at any time during the period of six months starting from and

inclusive of the Listing Date (the “Lock-up Period”) (i) dispose of, in any way, any of Offer

Shares subscribed by the Cornerstone Investors pursuant to the Cornerstone Investment

Agreements, and any shares or other securities or interest in the Company which are derived

therefrom pursuant to any rights issue, capitalization issue or other form of capital

reorganization (whether such transactions are to be settled in cash or otherwise) and any

interest therefrom (the “Relevant Shares”); (ii) allow itself to undergo a change of control (as

defined in The Codes on Takeovers and Mergers and Share Buy-backs promulgated by the

SFC) at the level of its ultimate beneficial owner(s); or (iii) enter into any transactions directly

or indirectly with the same economic effect as any aforesaid transaction, save for certain

limited circumstances, such as transfers to any of its wholly-owned subsidiaries who will be

bound by the same obligations of such Cornerstone Investor, including the Lock-up Period

restriction.


– 285 –

You should read this section in conjunction with our consolidated financial

information included in “Appendix I – Accountant’s Report” and “Appendix IIA –

Unaudited Pro Forma Financial Information”, in each case together with the

accompanying notes, and “Appendix IIB – Profit Estimate”. The financial statements

have been prepared in accordance with IFRS, which may differ in material aspects from

generally accepted accounting principles in other jurisdictions.

The following discussion and analysis contain certain forward-looking statements

that involve risks and uncertainties. These statements are based on assumptions and

analyses made by us in light of our experience and perception of historical trends, current

conditions and expected future developments, as well as other factors that we believe are

appropriate under the circumstances. However, whether the actual outcome and

developments will meet our expectations and predictions depends on a number of risks

and uncertainties over which we do not have control. You should review the section

headed “Risk Factors” for a discussion of important factors that could cause our actual

results to differ materially from the results described in or implied by the forward-looking

statements.

OVERVIEW

We are one of the leading hotel groups in the PRC, and we principally engaged in theoperation and management of mid-scale to upscale hotel chains in the PRC. As at August 31,2018, we operated and/or managed 140 hotels throughout 22 provinces, municipalities andautonomous regions, with over 31,000 hotel rooms in total and out of which, 81 hotels andaround 17,000 hotel rooms were located in the Zhejiang Province. According to the HorwathReport, as at March 31, 2018, in terms of number of hotel rooms in operation in China, we werethe seventh largest hotel group and second largest domestic hotel group according to thenumber of upscale hotel rooms, and were the eighth largest hotel group and the fourth largestdomestic hotel group according to the number of upscale and mid-scale hotel rooms. In termsof hotel rooms both in operation and under pipeline in China, we were the third largest hotelgroup and the largest domestic hotel group according to the number of upscale hotel rooms andwere the seventh largest hotel group and the fourth largest domestic hotel group according tothe number of upscale and mid-scale hotel rooms. As at August 31, 2018, we have a pipelineof 135 hotels (including 129 full service management agreements, four leased agreements andtwo franchised agreements) with over 33,000 rooms that are expected to commence operationwithin the next five years.

We currently operate hotels that are either owned or leased by us and we also manage andfranchise hotels. Under our hotel operation business, we operate these hotels and bear all of theaccompanying hotel operating expenses. We are responsible for recruiting, training andsupervising hotel managers and employees, hotel renovation expenses, and purchasing hotelsupplies and other required equipment. Under our hotel management business, within our fullservice management agreements, we provide services to the hotel owners similar to thoseprovided under our hotel operation business except that the respective hotel owners shall bearthe full operating expenses of the hotel operation. For our franchised hotels, we grant thefranchisees the limited right to use our name, trademarks and operational system in the

FINANCIAL INFORMATION

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operation of the franchised hotels in return for a fixed franchise fee. We do not directly

participate in the management of the franchised hotels but franchisees are required to operate

the franchised hotels consistent with our brand standard.


August 31, 2018, our revenue was RMB1,522.1 million, RMB1,602.0 million, RMB1,664.6

million, and RMB1,119.2 million, respectively. For the years ended December 31, 2015, 2016

and 2017 and the eight months ended August 31, 2018, we had a profit and total comprehensive

income of RMB29.6 million, RMB84.1 million, RMB166.6 million, and RMB111.6 million,

respectively, and had a profit and total comprehensive income attributable to owners of our

Company of RMB30.1 million, RMB84.3 million, RMB163.0 million, and RMB110.0 million

during the corresponding periods, respectively.

Set out below is a brief introduction of our two business segments.

Hotel Operation

As at August 31, 2018, we operated 31 hotels, including 29 hotels under hotel lease

agreements and two self-owned hotels. Apart from room revenue, we also generated a

substantial portion of our revenue from the provision of F&B services. For the years ended

December 31, 2015, 2016 and 2017 and for the eight months ended August 31, 2018, revenue

from our hotel operation segment was RMB1,400.6 million, RMB1,490.1 million, RMB1,527.9

million, and RMB1,013.6 million, respectively, representing approximately 92.0%, 93.0%,

91.8%, and 90.6% of our total revenue for the corresponding periods, respectively and during

the corresponding periods, our segment gross profit was approximately RMB138.1 million,

RMB219.4 million, RMB308.0 million, and RMB153.3 million, respectively. For further

details on our hotel operation segment, please see sub-section headed “Business – Our

Business Operations – Our Business Models – Hotel Operation” in this prospectus.

Hotel Management

As at August 31, 2018, we managed 109 hotels, amongst which 96 hotels under full

service management agreements and 13 hotels under franchise agreements. For the years ended

December 31, 2015, 2016 and 2017 and the eight months ended August 31, 2018, revenue from

our hotel management segment was approximately RMB121.5 million, RMB111.9 million,

RMB136.8 million, and RMB105.6 million, representing approximately 8.0%, 7.0%, 8.2%, and

9.4% of our total revenue for the corresponding periods, respectively, and for the

corresponding periods, our gross profit generated from our hotel management segment was

RMB106.1 million, RMB100.3 million, RMB123.9 million, and RMB96.6 million,

respectively. For further details on the activities of the businesses in our hotel management

segment, please see sub-section headed “Business – Our Business Operations – Our Business

Models – Hotel Management” in this prospectus.


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BASIS OF PREPARATION OF FINANCIAL INFORMATION

The historical financial information of our Group for the years ended December 31, 2015,

2016 and 2017, and the eight months ended August 31, 2018 (the “Historical FinancialInformation”) has been prepared in accordance with the IFRS and the disclosure requirements

of the Listing Rules. We prepared the Historical Financial Information under the historical cost

convention, with the revaluation of financial assets at fair value through profit or loss carried

at fair value.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Historical Financial Information has been prepared in accordance with IFRS. We

have identified certain accounting policies that are critical to the preparation of our financial

information. These accounting policies are important for an undertaking of our financial

position and results of operations and are set forth in Note 2 of the Accountant’s Report in

Appendix I to this prospectus.

In addition, the preparation of the Historical Financial Information requires our

management to make significant and subjective estimates, assumptions and judgments that

affect the reported amounts of revenues, expenses, assets and liabilities, for the years ended

December 31, 2015, 2016 and 2017 and the eight months ended August 31, 2018. However,

uncertainties about these assumptions, estimates and judgments could result in outcomes that

require a material adjustment to the carrying amounts of the assets and liabilities in the future.

These key estimates and judgments are set forth in Note 4 of the Accountant’s Report in

Appendix I to this prospectus.

Below is a summary of our critical accounting policies and estimates.

Revenue Recognition

Our Group provides hotel management services and operations of hotels including sales

of goods.

Revenue is recognized when or as the control of the asset is transferred to the customer.

Depending on the terms of the contract and the laws that apply to the contract, control of the

asset may transfer over time or at a point of time. Control of the asset is transferred over time

if our Group’s performance:

• provides all of the benefits received and consumed simultaneously by the customer;

or

• creates and enhances an asset that the customer controls as our Group performs; or

• do not create an asset with an alternative use of our Group and our Group has an

enforceable right to payment for performance completed to date.


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If control of the asset transfers over time, revenue is recognized over the period of the

contract by reference to the progress towards complete satisfaction of that performance

obligation.

Otherwise, revenue is recognized at a point of time when the customer obtains the control

of an asset.

The progress towards complete satisfaction of the performance obligation is measured

based on our Group’s efforts or inputs to the satisfaction of the performance obligation, by

reference to the contract costs incurred up to the end of reporting period as a percentage of total

estimated costs for each contract.

An entity is a principal if it controls the promised good or service before transferring it

to the customer. An entity is an agent if its role is to arrange for another entity to provide goods

or service. Our Group considers it is a principal in providing its services.

Hotel management services

Revenue arising from hotel management services is recognized over time in the

accounting period in which the services are rendered because all of the benefits are received

and consumed simultaneously by the customer as our Group performs. Our Group bills the

hotel management fee for each month of service provided to its customer and recognizes as

revenue in the amount to which our Group has a right to invoice and corresponds directly with

the value of performance completed.

Hotel operation services

Revenue from hotel operation services mainly comprises of room, food and beverage and

ancillary services. Except for the revenue from food and beverage which is recognized at a

point of time when the services are rendered, revenue from other hotel operation services is

recognized over time in the accounting period in which the service are rendered.

Sales of goods

Revenue from sales of goods are recognized at a point of time when the control of the

goods has transferred to the customers, being when the goods are delivered to the customers,

there is no unfulfilled obligation that could affect the customers’ acceptance of the goods. And

the customer has obtained the physical possession or the legal title of the goods and our Group

has present right to payment and the collection of the consideration is probable.


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Impairment of Trade and Other Receivables

Our Group applies the simplified approach to providing for expected credit losses

prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade

and other receivables. To measure the expected credit losses, trade and other receivables have

been grouped based on shared credit risk characteristics and the days past due. To manage risk

arising from trade receivables, our Group established policies in place to ensure that credit

terms are made to counterparties with an appropriate credit history and the management

performs ongoing credit evaluations of its counterparties. The credit period and the credit

quality of the customers are assessed, which takes into account their financial position, past

experience and other factors. The management make periodic collective assessments as well as

individual assessment on the recoverability of trade receivables taking into account their

historical settlement records, financial position, past experience and other factors.

Current Income Taxes and Deferred Tax

Significant judgment is required in determining the provision for income taxes. There are

many transactions and calculations for which the ultimate tax determination is uncertain. We

recognize liabilities for anticipated tax audit issues based on estimates of whether additional

taxes will be due. Where the final tax outcome of these matters is different from the amounts

that were initially recorded, such differences will impact the current and deferred income tax

assets and liabilities in the period in which such determination is made.

Deferred tax assets relating to certain temporary differences and tax losses are recognized

when management considers to be probable that future taxable profit will be available against

which the temporary differences or tax losses can be utilized. The outcome of their actual

utilization may be different.

IMPACT OF ADOPTION OF CERTAIN ACCOUNTING POLICIES ANDAMENDMENTS THERETO

IFRS 9 and IFRS 15

IFRS 9, ‘Financial instruments’ and IFRS 15, ‘Revenue from contracts with customers’

have been adopted by the Group in the preparation of the Historical Financial Information

throughout the Track Record Period.

We have assessed the effects of the adoption of IFRS 9 and IFRS 15 on our financial

statements and identified the following areas that have been affected:

• Adoption of new impairment model. IFRS 9 requires the recognition of impairment

provisions of financial assets measured at amortised cost based on expected credit

losses. The Group assessed that the adoption of the new impairment methodology

would not result in significant difference on bad debt provision.


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• Presentation of contract liabilities in the consolidated balance sheets. IFRS 15requires separate presentation of contract liabilities in the consolidated balancesheets. This has resulted in some reclassification in relation to our unsatisfiedperformance obligations. As of 31 December 2015, 2016, 2017 and 31 August 2018,contract liabilities of RMB161.3 million, RMB186.7 million, RMB192.4 millionand RMB208.7 million respectively, should have been presented as “Advances fromcustomers” and “Deferred revenue” should IAS 18 be applied throughout the TrackRecord Period.

Based on our above assessment, we consider that the adoption of IFRS 9 and IFRS 15 didnot have significant impact on our financial position and performance during the Track RecordPeriod.

IFRS 16 – Leases

IFRS 16, which is not expected to apply until the financial year 2019, addresses thedefinition of a lease, recognition and measurement of leases and principles for reporting usefulinformation to users of financial information about the leasing activities of both lessees andlessors. It will result in almost all leases being recognized on the balance sheet, as thedistinction between operating and finance leases is removed. Under the new standard, an asset(the right to use the leased item) and a financial liability to pay rentals are recognized byleasees. The only exceptions are short-term and low-value leases. The accounting for lessorswill not significantly change. Our Group is a lessee of various properties and equipments whichare currently classified as operating leases. Our Group’s current accounting policy for suchleases is set out in Note 2.31 of the Accountant’s Report in Appendix I to this prospectus withour Group’s future operating lease commitments, which are not reflected in the consolidatedbalance sheet, set out in Note 33(b) of the Accountant’s Report in Appendix I. IFRS 16provides new provisions for the accounting treatment of leases and will in the future no longerallow lessees to recognize certain leases outside of the balance sheets. Instead, almost all leasesmust be recognized in the form of an asset (for the right of use) and a financial liability (forthe payment obligation). Short-term leases of less than twelve months and leases of low-valueassets are exempt from the recognition obligation. The new standard will therefore result in anincrease in assets and financial liabilities in the consolidated balance sheets. As for thefinancial performance impact in the consolidated statements of comprehensive income, theoperating lease expenses will decrease, while depreciation and amortization and interestexpense will increase.

KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIALCONDITION

Our results of operations and financial condition have been and will continue to beaffected by a number of factors including the following:

Global and PRC Economic Conditions and Market Demand

The business and financial performance of all our business segments are closely tied toglobal and PRC economic conditions.


– 291 –

Our hotel business may be adversely affected by a reduction in business travelers, affluent

leisure travelers or discretionary consumer spending as a result of a downturn in the PRC or

global economy, since the consumer demand for hotel services provided by us are considerably

sensitive to the recession of the economy. In particular, a significant portion of our revenue is

derived from our upscale and mid-scale hotels and is vulnerable to a decline in demand from

business and affluent leisure travelers. Changes in consumer preferences, the level of business

travel, or discretionary consumer spending caused by deterioration in general economic

conditions and decline in consumer confidence in the economy may adversely affect our

business and financial performance. Additionally, decline in hotel profitability during an

economic downturn directly impacts the incentive portion of our management fees which are

calculated based on hotel operating profit of the hotels managed by us. As a result, changes in

consumer demand and general economic cycles can subject our revenues to significant

volatility. For further details, please see sub-section headed “Risk Factors – Risks relating to

our Business and Operations – Our hotel business may be adversely affected by a reduction in

business travelers, affluent leisure travelers or discretionary consumer spending as a result of

a downturn in the PRC or global economy or any acts or threats of terrorism” in this

prospectus.

Intensive Market Competition in the PRC Hotel Industry

We face an intensive competition in the hotel industry in the first-tier cities and several

new first-tier cities and second-tier cities in which we operate. Our principal competitors are

those Star-rated hotel chains operators with well-established and recognized brands including

international and domestic hotel chain operators. We also compete against independent owners

or operators of local five Star-rated hotels. In addition to competing for hotel guests, we also

compete for recruitment and retention of hotel staff. Employee benefit expenses are one of the

largest components in our cost structure which amounted to RMB359.2 million, RMB398.9

million, RMB440.3 million, and RMB310.6 million for the years ended December 31, 2015,

2016 and 2017 and the eight months ended August 31, 2018, respectively, representing 24.4%,

26.6%, 29.8%, and 30.8% of total expenses for the corresponding periods. We believe that our

high-quality service, strong customer base, established track record, prominent brand

recognition, comprehensive staff training program and strategic property locations have

enabled us to compete effectively in the hotel industry.

Ability to Maintain Existing Lease Agreements

Our operated hotels are mostly leased hotels and therefore, the sustainability of our leased

hotel business largely depends on the lessors’ willingness to maintain the existing hotel lease

agreements with us. We typically incur a net loss for the first two or three years of operations

of a new hotel, and if a lessor terminates the hotel lease agreement with us when a new hotel

starts to generate profit after the ramp up period, profit we generate from the leased hotel will

be much lower than our estimated profit for the entire term of the hotel lease agreement, even

if we receive compensation from the lessor for early termination of the hotel lease agreement.

We believe that we have established strong relationships with our lessors and are committed

to maintaining and developing these relationships. These relationships exist with a diverse


– 292 –

group of lessors and are not heavily concentrated with any particular lessors. During the Track

Record Period, there was only one hotel lease agreement that was terminated by the hotel

owner due to the hotel being sold by the hotel owner to a third-party, and we were fully

compensated for the termination of the hotel lease agreement by the hotel owner pursuant to

the terms under the hotel lease agreement.

Ability to Maintain Existing Agreements with Hotel Owners

We depend on our management agreements with hotel owners for our hotel management

services. The sustainability of our managed hotel business largely depends on our performance

under our management agreements and the maintenance of good relationships with third-party

hotel owners. We believe that we have established strong relationships with our third-party

owners and are committed to maintaining and developing these relationships. These

relationships exist with a diverse group of owners and are not heavily concentrated with any

particular hotel owners.

Our Ability to Enter into New Lease Agreements and Management Agreements

During the Track Record Period, our growth was contributed by the increasing number of

hotels operated and managed by us, amongst which the number of operated hotels increased

from 26 as at December 31, 2015 to 31 as at August 31, 2018, whilst the number of managed

hotels increased from 48 as at December 31, 2015 to 109 as at August 31, 2018. As at

August 31, 2018, our pipeline consisted of four leased hotels, 129 full service managed hotels

and two franchised hotels. Our results of operations will continue to be affected by our ability

to engage new hotels under our hotel operation and/or management business.

Business and Leisure Travel

Revenues from our hotel operation segment mainly comprises room revenue and revenue

generated from F&B services. Changes in room revenue are mainly driven by the following

four performance indicators that are commonly used in the hotel industry:

(i) total occupied room nights;

(ii) occupancy rate;

(iii) ADR; and

(iv) RevPAR.

Total occupied room nights, the occupancy rate, ADR, RevPAR and revenue of our hotels

have been directly affected by the levels of business and leisure travel, which was driven by

the development of local economies and the leisure industry, conferences and events in the

areas where we operate. We anticipate our results of operations will continue to depend on

demand from business and leisure travelers and the attractiveness of our hotels to guests.


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Demand for Upscale F&B Services

In addition to room revenue, revenue from F&B services accounted for 40.6%, 42.5%,

38.2%, and 39.5% of the revenue derived from our hotel operation segment for the years ended

December 31, 2015, 2016 and 2017 and the eight months ended August 31, 2018, respectively.

Market demand and consumption levels of upscale banquets and by our hotel guests are the

main drivers of our F&B services.

Changes in F&B services revenue are mainly driven by the following four performance

indicators:

(i) total available seats;

(ii) utilization rate of seats;

(iii) spending per guest; and

(iv) revenue per sq.m. of banquet rooms.

Utilization rate of seats, average customer spending and revenue per sq.m. of banquet

rooms have been directly affected by local market demand and consumption capacity of

upscale catering for banquets, which in turn driven by local income levels and local customs.

The terms of the full service management agreement

Depending on the needs of the hotel owners, the salaries of the general manager and

financial controller being assigned to the full service managed hotels may be paid by our

Group, which will then be reimbursed to us by the hotel owners. The employee benefit

expenses of our hotel management segment would therefore be increased despite such expenses

would eventually be recovered from the hotel owners and this would potentially impact the

gross profit margin of our hotel management segment.

Ability to Improve Operational Cost Efficiency

Parts of our operational expenses are relatively fixed regardless of the fluctuation of our

revenue, such as those fixed operating lease expenses with fixed terms, depreciation and

employee benefit expenses recognized in our cost of sales. Due to the nature of these expenses,

our expenses will not increase in proportion to our revenue growth. As a result, our profit

margin will tend to increase with the growth in revenue if we are able to increase our RevPar.

However, if we are unable to reduce these costs significantly or rapidly when demand for our

hotels decreases, the decline in our revenue can have a particularly adverse effect on our net

cash flow, margins and profits. This effect can be especially pronounced during periods of

economic contraction or slow economic growth. Economic downturns generally affect the

results of our operated hotels more significantly than the results of our managed hotels due to

the high fixed costs associated with operating an owned or leased hotel. The effectiveness of


– 294 –

cost-cutting efforts is limited due to the fixed-cost nature of our business. As a result, we may

not always be able to offset the reductions in revenue through cost cutting. In addition, efforts

to reduce costs, or to defer or cancel capital improvements, could adversely affect the

economic value of our hotels and brands. We intend to manage our cost structure at levels

appropriate for the degree of demand and revenue generated at our hotels.

For illustration purpose only, the tables below set forth a sensitivity analysis for the

impacts on our profit before income tax if the operating lease expenses, costs of F&B service

and employee benefit expenses, the major components of our overall segment expenses, had

hypothetically been 5%, 10%, and 15% higher or lower, given that other variables were held

constant.

Change in operatinglease expenses For the year ended December 31,

For the eight monthsended August 31,

2015 2016 2017 2017 2018


+/-5% -/+20,151.3 -/+19,992.5 -/+18,703.4 -/+12,819.2 -/+12,769.4+/-10% -/+40,302.6 -/+39,985.0 -/+37,406.7 -/+25,638.4 -/+25,538.8+/-15% -/+60,453.9 -/+59,977.5 -/+56,110.1 -/+38,457.6 -/+38,308.2

Change in costs ofF&B service For the year ended December 31,


2015 2016 2017 2017 2018


+/-5% -/+11,166.1 -/+9,736.1 -/+8,376.5 -/+5,034.5 -/+5,840.3+/-10% -/+22,332.2 -/+19,472.1 -/+16,753.0 -/+11,268.9 -/+11,680.5+/-15% -/+33,498.3 -/+29,208.2 -/+25,129.5 -/+16,903.4 -/+17,520.8

Change in costs ofemployee benefitexpenses For the year ended December 31,


2015 2016 2017 2017 2018


+/-5% -/+17,958.4 -/+19,945.4 -/+22,016.5 -/+14,137.3 -/+15,530.6+/-10% -/+35,916.8 -/+39,890.8 -/+44,032.9 -/+28,274.6 -/+31,061.2+/-15% -/+53,875.2 -/+59,836.2 -/+66,049.4 -/+42,411.9 -/+46,591.8


– 295 –

SELECTED HISTORICAL FINANCIAL INFORMATION OF OUR GROUP

The table below sets out the consolidated statements of comprehensive income for the

periods as indicated, which is extracted from the Accountant’s Report set out in Appendix I to

this prospectus.


ended August 31,

2015 2016 2017 2017 2018


Revenue 1,522,082 1,602,006 1,664,643 1,067,753 1,119,249Cost of sales (1,277,979) (1,282,271) (1,232,702) (817,705) (869,310)

Gross profit 244,103 319,735 431,941 250,048 249,939

Selling and marketing expenses (61,617) (70,947) (85,457) (44,181) (48,234)Administrative expenses (134,861) (148,776) (160,543) (90,124) (90,308)Other income 5,031 12,315 10,436 7,219 7,376Other gains – net 3,158 7,324 28,644 4,634 20,725

Operating profit 55,814 119,651 225,021 127,596 139,498

Finance income 30,968 12,193 5,402 3,937 5,140Finance costs (30,220) (16,049) (10,406) (9,140) (6,769)

Finance income/(costs) – net 748 (3,856) (5,004) (5,203) (1,629)Share of net profit of associates and

joint ventures accounted for usingthe equity method 1,732 1,435 3,005 1,529 4,327

Profit before income tax 58,294 117,230 223,022 123,922 142,196Income tax expense (28,653) (33,175) (56,455) (34,726) (30,641)


Profit and total comprehensiveincome/(loss) attributable to:– Owners of our Company 30,107 84,324 163,042 87,719 109,974– Non-controlling interests (466) (269) 3,525 1,477 1,581

29,641 84,055 166,567 89,196 111,555

Earnings per share for profitattributable to the owners of ourCompany for the year/period –Basic/Diluted(in RMB per share) 0.14 0.40 0.78 0.42 0.52


– 296 –

DESCRIPTION OF SELECTED STATEMENT OF COMPREHENSIVE INCOMEITEMS

Revenue by Segment

We derive our revenue from the following business segments: (i) hotel operation and (ii)hotel management.


2015 2016 2017 2017 2018

RMB’000

% of total

revenue RMB’000

% of total

revenue RMB’000

% of total

revenue RMB’000

% of total

revenue RMB’000

% of total

revenue(unaudited)

Hotel operation 1,400,592 92.0 1,490,139 93.0 1,527,866 91.8 982,353 92.0 1,013,648 90.6Hotel management 121,490 8.0 111,867 7.0 136,777 8.2 85,400 8.0 105,601 9.4

1,522,082 100.0 1,602,006 100.0 1,664,643 100.0 1,067,753 100.0 1,119,249 100.0

Hotel Operation. The following table shows a breakdown of our revenue by each hotel

operation product and service and as a percentage of the total revenue of our hotel operation

segment for the periods indicated.


2015 2016 2017 2017 2018

RMB’000

% ofsegmentrevenue RMB’000




% ofsegmentrevenue

(unaudited)

HotelOperationRoom 652,586 46.6 666,038 44.7 732,890 48.0 494,210 50.4 482,285 47.6F&B services 568,679 40.6 633,513 42.5 583,156 38.2 371,580 37.8 400,545 39.5Ancillary

services(1) 139,344 9.9 151,923 10.2 178,087 11.6 96,745 9.8 107,163 10.6Rental income 39,983 2.9 38,665 2.6 33,733 2.2 19,818 2.0 23,655 2.3

Segment revenue 1,400,592 100.0 1,490,139 100.0 1,527,866 100.0 982,353 100.0 1,013,648 100.0

Note:

1. Primarily includes (i) hotel-related value-added services such as conference arrangement service, andfitness service, (ii) sales of goods or products such as wine, seafood, moon cakes and rice dumplings,and (iii) room reservation services via our CRS or other reservation channels charged on aper-room-night basis.


– 297 –

The following table sets out a breakdown of the occupancy rate, ADR and RevPAR of our

operated hotels for the periods indicated:


ended August 31,

2015 2016 2017 2017 2018

Occupancy rate 59.4% 61.4% 64.6% 64.6% 62.0%ADR (RMB) 447.4 439.0 447.1 448.6 456.0RevPAR (RMB) 265.5 267.0 288.9 289.9 282.6

For the years ended December 31, 2015, 2016 and 2017, and the eight months ended

August 31, 2018, hotel operation segment revenue derived from our related parties was RMB

19.0 million, RMB31.1 million, RMB29.9 million, and RMB18.5 million, respectively,

representing 1.2%, 1.9%, 1.8%, and 1.7% of our total revenue during the same periods,

respectively.

Hotel Management. Revenue from our hotel management segment is derived from

providing hotel management service under (i) our full service hotel management agreements,

and (ii) our franchise agreements. During the Track Record Period, revenue generated from our

hotel management segment was RMB121.5 million, RMB111.9 million, RMB136.8 million,

and RMB105.6 million.

For our full service hotel management services, management fees payable to us mainly

comprise three parts, namely (i) basic management fees, (ii) incentive management fees and

(iii) marketing and promotion fees. Basic management fees equal to a fixed percentage,

normally 2.0% to 5.0% of the total revenue of the hotels payable on a monthly or quarterly

basis. Incentive management fees equal to a certain percentage, typically 4.0% to 6.0% of the

gross operating profit of the hotel payable on a monthly or quarterly basis and, for a limited

number of hotels, such basic management fee is subject to adjustment based on the

achievement status of pre-determined targets, which are normally the anticipated total revenue

or gross operating profit of the hotels. Marketing and promotion fees for campaigns and

services provided, which equal to the sum of a fixed percentage, typically 0.5% of the total

revenue of a hotel. We also provide pre-opening consultation services which include hotel

design, construction and management consulting services to hotel owners. In exchange for such

services, the hotel owners typically pay us a fee ranging from RMB0.8 million to RMB1.5

million annually in the years our services are rendered depending on the type of services

provided.


– 298 –

For our services under our franchise agreements, the franchise fees comprise (i) brand

name usage fee, a fixed fee normally payable on a monthly basis as consideration for allowing

the franchisee the use of the “New Century (開元)” brand name, (ii) operation management

audit fee, payable on an annual basis for the performance of annual audit on the operation and

management of the franchisee’s business, (iii) unannounced inspection fee, payable on an

annual basis for our Group to engage a third-party hotel expert to inspect on the service

standard, hygiene, food safety and fire control facilities of the franchised hotel, (iv) customer

satisfaction survey fee, payable on an annual basis for our Group to carry out an annual survey

to the franchised hotel’s customers on their satisfaction on their stay at the franchised hotel,

(v) employee satisfaction survey fee, payable on an annual basis for our Group to carry out an

annual survey to the franchised hotel’s staff on their job satisfaction, and (vi) the staff training

fee, a lump sum fee to be agreed upon between our Group and the franchisee for providing

appropriate employee training to the franchised hotel staff based on their operational needs.


August 31, 2018, the revenue derived from our management of the hotels on behalf of our

related parties was RMB59.4 million, RMB34.4 million, RMB35.5 million, and RMB24.9

million, respectively, representing 3.9%, 2.1%, 2.1%, and 2.2% of our total revenue during the

same periods, respectively.

During the Track Record Period, the rate of revenue growth for the hotel management

segment may appear to be slower than the rate of increase in the number of managed hotels

mainly due to: (i) newly-opened hotel takes around one to three years to ramp up operation,

build up reputation and hotel guest base before it can generate the expected level of revenue

and gross operating profit; (ii) the Group has been expanding and developing the mid-scale

select service hotel brands which offer accommodation services with fewer hotel rooms as

compared to hotels that offer full service and does not provide any F&B services, hence

mid-scale select service hotels normally generate less revenue and gross operating profit in

comparison with our upscale hotels and mid-scale full service hotels; and (iii) despite the

increase in number of franchised hotels from four as at December 31, 2015 to 11 as at

December 31, 2017, the average franchise fee (comprised mainly of fixed fees) generated from

a franchised hotel is less than the average management fee generated from a full service

managed hotel, and hence the increase in franchised hotels had a less positive impact on our

Group’s financial performance than the increase in full service managed hotels.


– 299 –

Cost of Sales

Our cost of sales primarily consists of (i) operating lease rentals, (ii) costs of materials

consumption, (iii) employee benefit expenses, (iv) utilities and electricity, (v) taxes and levies,

and (vi) depreciation of property, plant and equipment. The table below sets forth the

components of our cost of sales for the periods indicated.


ended August 31,

2015 2016 2017 2017 2018


(unaudited)

Operating lease rentals 400,671 397,701 371,567 254,990 252,954Costs of materials consumption 345,279 362,594 350,527 214,247 239,061Employee benefit expenses 236,740 265,229 282,222 192,424 221,118Utilities and electricity 98,662 92,044 90,216 61,327 60,538Taxes and levies 83,988 33,864 4,106 2,417 3,373Depreciation of property, plant

& equipment 42,981 46,532 51,555 34,472 32,916Maintenance cost 18,387 23,568 24,199 14,502 15,561Laundry cost 14,528 14,506 14,659 9,614 10,658Travelling and communication

expenses 13,968 14,343 14,596 9,861 10,908Miscellaneous(1) 22,775 31,890 29,055 23,851 22,223

Total 1,277,979 1,282,271 1,232,702 817,705 869,310

Note:

1. Miscellaneous includes depreciation of investment properties, amortization of intangible assets,amortization of land use right, transportation expenses, outsourcing service expenses, uniform expenses,

and other items.

Gross Profit and Gross Profit Margin

During the Track Record Period, gross profit margin of hotel management segment wassignificantly higher than that of hotel operation segment, primarily because during the TrackRecord Period, the cost of sales for our hotel management service primarily included only alimited amount of employee benefit expenses, while hotel operation segment incurredsignificant amounts of expenses, including (i) operating lease expenses, (ii) costs of materialconsumptions, (iii) employee benefit expenses and (iv) utilities cost, which in total representeda significant portion of cost of sales. The table below sets forth a breakdown of our gross profitand gross profit margin for the periods indicated.


– 300 –


2015 2016 2017 2017 2018

SegmentGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginRMB’000 % RMB’000 % RMB’000 % RMB’000 % RMB’000 %

(unaudited)

Hotel operation 138,050 9.9 219,402 14.7 308,015 20.2 173,163 17.6 153,342 15.1Hotel management 106,053 87.3 100,333 89.7 123,926 90.6 76,885 90.0 96,597 91.5

Total gross profit andgross profit margin 244,103 16.0 319,735 20.0 431,941 25.9 250,048 23.4 249,939 22.3

Selling and Marketing Expenses

Our selling and marketing expenses primarily consist of employee benefit expenses and

marketing and promotion expenses. The table below sets forth a breakdown of our selling and

marketing expenses.


ended August 31,

2015 2016 2017 2017 2018


Employee benefit expenses 27,557 31,738 39,316 19,771 23,179Marketing and promotion

expenses 32,056 37,405 44,643 23,727 24,420Travelling and communication

expenses 1,313 1,408 1,205 683 635Miscellaneous 691 396 293 – –

Total 61,617 70,947 85,457 44,181 48,234

Administrative Expenses

The administrative expenses primarily consist of employee benefit expenses, bank

charges, travelling and communication expenses, and operating lease rentals. The table below

sets out the components of our administrative expenses for the periods indicated.


– 301 –


ended August 31,

2015 2016 2017 2017 2018


Employee benefit expenses 94,871 101,941 118,791 70,551 66,315Travelling and communication

expenses 5,152 6,378 8,925 4,749 5,944Bank charges 6,870 8,471 3,939 2,703 2,941Operating lease rentals 2,355 2,149 2,473 1,394 2,434Transportation expenses 1,158 1,865 1,990 1,244 1,433Depreciation of property, plant

& equipment 2,913 2,540 2,380 1,395 384Taxes and levies 2,372 1,900 1,585 953 1,011Allowance/(reversal) for

impairment of trade and otherreceivables 4,951 5,267 958 (129) 1,579

Miscellaneous(1) 14,219 18,265 19,502 7,264 8,267

Total 134,861 148,776 160,543 90,124 90,308

Note:

1. Miscellaneous includes utilities and electricity expenses, uniform expenses, amortization of intangibleassets, costs of materials consumption, maintenance cost, professional fees, auditor’s remuneration and

other items.

Other Income

Our other income consists of government grants which were provided to some of our

subsidiaries with an aim to encourage business investments in the PRC and income from

financial assets at fair value through profit or loss. The following table sets out a breakdown

of our other income for the periods indicated.


ended August 31,

2015 2016 2017 2017 2018


Government grants 5,031 4,438 2,272 1,060 2,893Income from financial assets at

fair value through profit orloss – 7,877 8,164 6,159 4,483

5,031 12,315 10,436 7,219 7,376


– 302 –

Other Gains, Net

Our other gains, net, primarily consist of gains on disposal of subsidiaries, losses/gainson disposal of property, plant and equipment, and compensation income and waived payablesdue to third parties. The following table sets out a breakdown of our other gains for the periodsindicated.


ended August 31,

2015 2016 2017 2017 2018


(unaudited)

Net (losses)/gains on disposal

of property, plant and

equipment (53) (106) 1,094 1,798 (54)Net gains on disposal of

subsidiaries – 5,261 3,104 – 10,794Compensation income(1) – – 19,600 – 8,400Waived payables due to third

parties(2) 2,317 1,203 3,588 2,386 965Others 894 966 1,258 450 620

Total other gains, net 3,158 7,324 28,644 4,634 20,725

Notes:

1. Compensation income mainly represents the compensation made by a third-party lessor who earlyterminated a hotel lease agreement with us.

2. Waived payables due to third-parties mainly represents the cash deposits made by hotel guests leftuncollected for over 3 years.

The significant increase in other gains, net, for the year ended December 31, 2017 ascompared to 2016 was mainly due to RMB19.6 million compensation income received from athird-party lessor who terminated the hotel lease agreement with our Group early due to thethird-party lessor selling the hotel to a third-party, and we were fully compensated for thetermination of the hotel lease agreement by the hotel owner pursuant to the terms under thehotel lease agreement. The increase in other gains, net, for the year ended December 31, 2016compared to 2015 was mainly due to the net gains of RMB5.3 million from our disposal ofapproximately 64.2% interest in our then wholly-owned subsidiary Yuyao Manju in January2016.

Finance Income/(Costs), Net

Our finance income consists of interest income derived from bank deposits and interestincome derived from loan to related parties. Our finance costs primarily consist of interestexpenses on bank and other borrowings and interest expenses on borrowings from relatedparties.


– 303 –

The following table sets out our net finance income and costs for the periods indicated.


ended August 31,

2015 2016 2017 2017 2018


(unaudited)

Finance income/

(costs) – net 748 (3,856) (5,004) (5,203) (1,629)

Income Tax Expense

Income tax is recognized in profit or loss, except to the extent that it relates to items

recognized in other comprehensive income or directly in equity. Our income tax expenses

during the Track Record Period comprises current and deferred PRC enterprise income tax. All

of our PRC subsidiaries were subject to income tax rates of 25.0% during the Track Record

Period. We expect that our subsidiaries will continue to be subject to the same tax rates in the

next three years.

Our effective income tax rate was approximately 49.2%, 28.3%, 25.3% and 21.5% for theyears ended December 31, 2015, 2016 and 2017, and the eight months ended August 31, 2018,respectively. The following table sets out a breakdown of our income tax expense for theperiods indicated.


ended August 31,

2015 2016 2017 2017 2018


Current income tax 27,844 33,358 52,165 34,089 36,391Deferred income tax 809 (183) 4,290 637 (5,750)

Income tax expense 28,653 33,175 56,455 34,726 30,641

The 49.2% effective income tax rate, which was significantly higher for the year ended

December 31, 2015 as compared to our statutory income tax rate of 25%, was primarily

because (i) we did not recognize tax credit of RMB8.3 million for the tax losses incurred by

some loss-making subsidiaries in 2015, and (ii) we did not recognize tax credit of RMB4.8

million for temporary differences mainly arising from share-based payment of RMB20.0

million in 2015 which was not tax deductible.


– 304 –

RESULTS OF OPERATIONS

The following discussion is based on our historical results of operations as described in

the sub-section headed “– Selected Historical Financial Information of our Group” in this

section. All segment numbers below are after inter-segment elimination.

For the eight months ended August 31, 2017 compared to the eight months ended August31, 2018

Revenue

Revenue increased by 4.8% from RMB1,067.8 million for the eight months ended August

31, 2017 to RMB1,119.2 million for the eight months ended August 31, 2018.

Hotel Operation

Revenue for the hotel operation segment increased by 3.2% from RMB982.4 million for

the eight months ended August 31, 2017 to RMB1,013.6 million for the eight months ended

August 31, 2018, primarily due to (i) a 7.8% increase in revenue from F&B services from

RMB371.6 million to RMB400.5 million, (ii) a 10.8% increase in the revenue from our

ancillary services from RMB96.7 million to RMB107.2 million, and (iii) a 19.4% increase in

rental income from RMB19.8 million to RMB23.7 million. However, these items were partially

offset by a 2.4% decrease in room revenue from RMB494.2 million to RMB482.3 million.

The 7.8% increase in the revenue from our F&B services was largely due to the increase

in market demand in Zhejiang Province for banquet services, which further led to (i) a 10.0%

increase in the revenue per sq.m. of banquet rooms from RMB7,106.9 for the eight months

ended August 31, 2017 to RMB7,820.5 for the eight months ended August 31, 2018 and (ii) a

4.7% increase in average spending per guest from RMB119.8 to RMB125.4 during the same

periods.

The 10.8% increase in the revenue from our ancillary services was primarily due to (i) a

5.4% increase in hotel-related value-added services from RMB61.7 million to RMB65.0

million during the same periods, (ii) 23.4% increase in sales of goods and products from

RMB20.1 million to RMB24.8 million during the same periods, and (iii) a 15.3% increase in

room reservation revenue from RMB12.5 million to RMB14.4 million during the same periods,

which was primarily due to a 26.1% increase in the total room nights reserved via our CRS and

other reservation channels, generally corresponding to a 32.9% in the number of hotels we

managed.

The 2.4% decrease in the room revenue was generally in line with an 4.2% decrease in

number of total occupied room nights of our operated hotels from 1,083,737 for the eight

months ended August 31, 2017 to 1,038,489 for the eight months ended August 31, 2018,

respectively, primarily because of (i) the expiration of the hotel lease agreement of Shanghai

Ruiya Hotel* (上海瑞亞酒店) (“Shanghai Ruiya”) in June 2017, (ii) the disposal of 100%


– 305 –

equity interests in Shaoxing Dayu on September 15, 2017, (iii) the disposal of 100% equity

interests in Suzhou Qiju on November 16, 2017, and (iv) the early termination of the lease

agreement of Shanghai Puxi by the lessor on September 7, 2017. During the same periods, the

occupancy rate decreased from 64.6% to 62.0% and the RevPAR decreased from RMB289.9 to

RMB282.6, primarily because we initiated the operations of five hotels during the eight months

ended August 31, 2018. These newly established hotels should normally take one to three years

to ramp up operation, build up reputation and hotel guest base and therefore, they did not offset

the decrease in revenue of hotel operation segment caused by the cease in operations of the

leased hotels aforementioned.

Hotel Management

Revenue for the hotel management segment increased by 23.7% from RMB85.4 million

for the eight months ended August 31, 2017 to RMB105.6 million for the eight months ended

August 31, 2018, primarily due to (i) the expansion of our hotel management business, which

led to the 32.9% increase in the number of hotels managed by us from 82 as at August 31, 2017

to 109 as at August 31, 2018, among which, the number of our full service managed hotels

increased from 72 to 96 and that of our franchised hotel increased from 10 to 13 during the

same period, and (ii) the increase in the underlying revenue and gross operating profit we

managed to generate from our full service managed hotels, which led to an increase in the hotel

management fee we received from hotel owners in return.

Cost of Sales

The cost of sales increased by 6.3% from RMB817.7 million for the eight months ended

August 31, 2017 to RMB869.3 million for the eight months ended August 31, 2018. The

increase was primarily due to (i) an increase of RMB28.7 million in employment benefit

expenses, and (ii) an increase of RMB24.8 million in costs of materials consumption. Such

increases were partially offset by a decrease of RMB2.0 million in operating lease expenses.

During the Track Record Period, employee benefit expenses primarily comprised basic

wages and bonuses tied to the profitability of our Group. The increase in employee benefit

expenses was mainly due to (i) a 5.2% increase in the average weighted number of our

employees from 4,992 for the eight months ended August 31, 2017 to 5,254 for the eight

months ended August 31, 2018, which was to accommodate the expansion of our growing

business, and (ii) an increase in monthly average employee salary from RMB7,080.0 for the

eight months ended August 31, 2017 to RMB7,389.9 for the eight months ended August 31,

2018.

Our operating lease expenses decreased by RMB2.0 million, mainly due to (i) the

expiration of the hotel lease agreement of Shanghai Ruiya in June 2017, (ii) the disposal of

100% equity interests in Shaoxing Dayu on September 15, 2017, (iii) the disposal of 100%

equity interests in Suzhou Qiju on November 16, 2017 and (iv) the early termination of the

lease of Shanghai Puxi by the lessor on September 7, 2017, which was partially offset by four

newly-leased hotels that commenced operation during the eight months ended August 31, 2018.


– 306 –


Our gross profit remained stable at RMB250.0 million and RMB249.9 million for theeight months ended August 31, 2017 and 2018, respectively. The gross profit margin alsoremained fairly stable at 23.4% and 22.3% for the corresponding periods, respectively.

Hotel Operation

Gross profit for the hotel operation segment decreased by 11.4% from RMB173.2 millionfor the eight months ended August 31, 2017 to RMB153.3 million for the eight months endedAugust 31, 2018 and gross profit margin decreased from 17.6% to 15.1% during thecorresponding periods, primarily due to the 2.4% decrease in room revenue while the operatinglease expenses only decreased by 0.8%. The 7.8% increase in F&B revenue only partially offsetthe decrease in gross profit. However, since our F&B revenue had relatively stable gross profitmargin, our overall hotel operation gross profit margin decreased slightly nevertheless.

Hotel Management

Gross profit for the hotel management segment increased by 25.6% from RMB76.9million for the eight months ended August 31, 2017 to RMB96.6 million for the eight monthsended August 31, 2018, which was generally in line with the 23.7% increase in revenue derivedfrom the hotel management segment from RMB85.4 million for the eight months ended August31, 2017 to RMB105.6 million for the eight months ended August 31, 2018. Gross profitmargin for the eight months ended August 31, 2017 and 2018 remained steady at 90.0% and91.5%, respectively.


Selling and marketing expenses increased by 9.2% from RMB44.2 million for the eightmonths ended August 31, 2017 to RMB48.2 million for the eight months ended August 31,2018. The increase was primarily due to a 17.2% increase in employee benefit expenses,primarily because during the same period, (i) we hired more selling and marketing personnelsto enhance our market efforts during the same periods, and (ii) the average salary of the sellingand marketing department of our Group increased due to (a) the increase in bonus accrued inline with the increase in our revenue and (b) the increase in average basic wage of selling andmarketing personnels.


Administrative expenses remained stable at RMB90.1 million and RMB90.3 million forthe eight months ended August 31, 2017 and 2018, respectively.

Other Income

Other income remained stable at RMB7.2 million and RMB7.4 million for the eightmonths ended August 31, 2017 and 2018, respectively.


– 307 –

Other Gains, Net

Other gains, net, increased by RMB16.1 million from RMB4.6 million for the eight

months ended August 31, 2017 to RMB20.7 million for the eight months ended August 31,

2018, mainly due to (i) a compensation income of RMB8.4 million received from the

third-party lessor due to early termination of the hotel lease agreement of Shanghai Puxi, and

(ii) the net gains of RMB10.1 million from the disposal of Chongqing Dazu in June 2018.

Finance Income/(Costs)

Finance costs – net decreased from RMB5.2 million for the eight months ended

August 31, 2017 to RMB1.6 million for the eight months ended August 31, 2018, primarily due

to (i) an increase of RMB2.1 million in interest income derived from bank deposits, (ii) a

decrease of RMB0.9 million in interest expenses on banks and other borrowings and (iii) a

decrease of RMB1.5 million in interest expenses on borrowings from related parties.

Share of Net Results of Associates and Joint Ventures

Our share of results of associates represents our share of profit or loss of unlisted

associate companies and a joint venture that we invested in and are accounted for using the

equity method. For further information of our holdings in these unlisted companies, see

“Appendix I – Accountant’s Report – Note 12B”. For the eight months ended August 31, 2017

and 2018, our share of results of associates and a joint venture were RMB1.5 million and


Income Tax Expense

Though the profit before tax increased by 14.7% from RMB123.9 million for the eight

months ended August 31, 2017 to RMB142.2 million for the eight months ended August 31,

2018, income tax expense decreased by 11.8% from RMB34.7 million to RMB30.6 million

during the same periods, primarily due to the utilization of previous unrecognized tax losses

of RMB5.9 million for the eight months ended August 31, 2018, as compared RMB2.2 million

utilized for the same period in 2017 due to the increase in profitability of certain previously

loss-making subsidiaries during the same periods. Our effective income tax rate decreased from

28.0% to 21.5% during the same periods.

Profit and Total Comprehensive Income and net profit margin for the Period

As a result of the foregoing, our profit and total comprehensive income increased by

25.1% from RMB89.2 million for the eight months ended August 31, 2017 to RMB111.6

million for the eight months ended August 31, 2018. Our net profit margin increased from 8.4%

for the eight months ended August 31, 2017 to 10.0% for the eight months ended August 31,

2018.


– 308 –

Year ended December 31, 2016 Compared to Year ended December 31, 2017

Revenue

Revenue increased by 3.9% from RMB1,602.0 million for the year ended December 31,

2016 to RMB1,664.6 million for the year ended December 31, 2017.

Hotel Operation

Revenue for the hotel operation segment increased by 2.5% from RMB1,490.1 million for

the year ended December 31, 2016 to RMB1,527.9 million for the year ended December 31,

2017, primarily due to (i) a 10% increase in the room revenue from RMB666.0 million to

RMB732.9 million and (ii) an increase of 17.2% in the revenue from our ancillary services,

partially offset by an 7.9% decrease in the revenue from our F&B services from RMB633.5

million to RMB583.2 million.

The 10.0% increase in the room revenue of operated hotels was largely due to (i) a 8.8%

increase in number of total occupied room nights of our operated hotels from 1,480,417 to

1,611,201 and (ii) a 8.2% increase in RevPAR from RMB267.0 to RMB288.9. Most of our

operated upscale and mid-scale hotels in Zhejiang Province, experienced an increase in

occupancy rate and RevPAR in 2017.

The 17.2% increase in the revenue of our ancillary services was primarily due to (i) the

increase in the number of our hotel guests in line with increase in our occupancy rate, which

led to the increase in demand for ancillary service, and (ii) the increase in room reservation

revenue which was primarily due to 27.0% increase in the total room nights reserved via our

CRS and other reservation channels, corresponding to a 30.0% increase in the number of hotels

we managed.

The 7.9% decrease in the revenue from our F&B services of our operated hotels was

largely due to the decrease in market demand in Zhejiang Province for the banquet services

during the year ended December 31, 2017. Correspondingly, revenue per sq.m. of banquet

rooms decreased by 18.6% from RMB14,616.6 for the year ended December 31, 2016 to

RMB11,891.1 for the year ended December 31, 2017, and average spending per guest slightly

decreased from RMB126.8 for the year ended December 31, 2016 to RMB125.9 for the year

ended December 31, 2017.

Hotel Management

Revenue for the hotel management segment increased by 22.3% from RMB111.9 million

for the year ended December 31, 2016 to RMB136.8 million for the year ended December 31,

2017. The increase was primarily due to (i) the expansion of our hotel management business,

which led to the 30.0% increase in the number of managed hotels from 70 as at December 31,

2016 to 91 as at December 31, 2017, among which, the number of our full service managed

hotels increased from 62 as at December 31, 2016 to 80 as at December 31, 2017 and that of


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our franchised hotels increased from 8 as at December 31, 2016 to 11 as at December 31, 2017,and (ii) increase in the underlying revenue and gross operating profit that we managed togenerate from our full service managed hotels, which led to an increase in the hotelmanagement fee we received from hotel owners in return.

Cost of Sales

Cost of sales decreased by 3.9% from RMB1,282.3 million for the year ended December31, 2016 to RMB1,232.7 million for the year ended December 31, 2017, primarily due to (i)a 6.6% decrease in operating lease rentals from RMB397.7 million to RMB371.6 million, (ii)an 87.9% decrease in taxes and levies from RMB33.9 million to RMB4.1 million, and (iii) a3.3% decrease in costs of materials consumption primarily from RMB362.6 million toRMB350.5 million, corresponding to the 7.9% decrease in F&B revenue during the sameperiods. Such decrease was partially offset by (i) a 6.4% increase in employee benefit expensesfrom RMB265.2 million to RMB282.2 million and (ii) a 10.8% increase in depreciation ofproperty, plant and equipment from RMB46.5 million to RMB51.6 million.

The decreases in taxes and levies are primarily due to the replacement of the business taxregime with the VAT regime in the PRC since May 2016, under which we are able to net offinput VAT incurred by our purchase of services required for our business operations againstoutput VAT payable incurred by our sales of services, whereas under the previous business taxregime, we shall pay the relevant business tax while any tax incurred by our purchase ofservices shall be fully borne by us.

Our operating lease expenses decreased by 6.6%, primarily due to (i) the replacement ofthe business tax regime with the VAT regime in the PRC since May 2016, under which the inputVAT incurred by operating lease expenses can be used to net off against output VAT payable,whereas under the previous business tax regime, any tax incurred by operating lease expensesshall be borne in full by us, (ii) the expiration of the hotel lease agreement of Shanghai Ruiyain June 2017, (iii) the disposal of 100% equity interests in Shaoxing Dayu on September 15,2017, (iv) the disposal of 100% equity interests in Suzhou Qiju on November 16, 2017 and (v)the early termination of the lease of Shanghai Puxi with the lessor on September 7, 2017, whichwas partially offset by (i) an increase in the number of new hotel lease agreements and (ii) theincrease in rental expenses of some leased hotels.

The 6.4% increase in employee benefit expenses was primarily due to (i) a 2.1% increasein the weighted average number of employees from 4,911 as at December 31, 2016 to 5,013as at December 31, 2017, and (ii) an 8.1% increase in monthly average employee salary fromRMB6,769.0 for the year ended December 31, 2016 to RMB7,319.8 for the year endedDecember 31, 2017, which was to accommodate our expansion of business and to maintain ourcompetitive remuneration package to attract and retain talents.


As a result of the foregoing, our gross profit increased by 35.1% from RMB319.7 millionfor the year ended December 31, 2016 to RMB431.9 million for the year ended December 31,2017. The gross profit margin increased from 20.0% to 25.9% during the correspondingperiods.


– 310 –

Hotel Operation

Gross profit for our hotel operation segment increased by 40.4% from RMB219.4 millionfor the year ended December 31, 2016 to RMB308.0 million for the year ended December 31,2017 and gross profit margin increased from 14.7% to 20.2% during the same periods,primarily due to (i) the increase of RMB66.9 million in our room revenue for the year endedDecember 31, 2017, as compared to the year ended December 31, 2016, while the operatinglease expenses accounted as cost of sales decreased by RMB26.1 million for the year endedDecember 31, 2017, as compared to the year ended December 31, 2016, (ii) the 7.9% decreasein F&B revenue, which had relatively stable gross profit margin, for the year ended December31, 2017, as compared to the year ended December 31, 2016, and (iii) the decrease of RMB29.8million in taxes and levies accounted as cost of sales for the year ended December 31, 2017,as compared to the year ended December 31, 2016.

Hotel Management

Gross profit for the hotel management segment increased by 23.5% from RMB100.3million for the year ended December 31, 2016 to RMB123.9 million for the year endedDecember 31, 2017, generally in line with the 22.3% increase in revenue derived from the hotelmanagement segment from RMB111.9 million for the year ended December 31, 2016 toRMB136.8 million for the year ended December 31, 2017. Gross profit margin increasedslightly from 89.7% for the year ended December 31, 2016 to 90.6% for the year endedDecember 31, 2017.


Selling and marketing expenses increased by 20.5% from RMB70.9 million for the yearended December 31, 2016 to RMB85.5 million for the year ended December 31, 2017. Theincrease was primarily due to (i) an increase of RMB7.6 million in employee benefit expensesand (ii) an increase of RMB7.2 million in marketing and promotion expenses. As we continuedto expand our business, we have hired more selling and marketing employees for the yearended December 31, 2017, and continued to increase our marketing and promotion efforts.


Administrative expenses increased by 7.9% from RMB148.8 million for the year endedDecember 31, 2016 to RMB160.5 million for the year ended December 31, 2017.Administrative expenses as a percentage of revenue increased from 9.3% for the year endedDecember 31, 2016 to 9.6% for the year ended December 31, 2017. The increase was primarilydue to a 16.5% increase in employee benefit expenses from the year ended December 31, 2016to the year ended December 31, 2017, which was offset by a decrease of RMB4.5 million or53.5% in bank charge from the year ended December 31, 2016 to the year ended December 31,2017. The decrease in bank charge was resulted from (i) the replacement of the business taxregime with the VAT in the PRC since May 2016, under which the input VAT incurred by bankcharge can be used to net off against output VAT payable, whereas under the previous businesstax regime, any tax incurred by bank charges shall be borne in full by us, and (ii) the decreasein rate of bank charges.


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Other Income

Other income was RMB10.4 million for the year ended December 31, 2017, compared toRMB12.3 million for the year ended December 31, 2016, representing a decrease of 15.3%.The decrease was mainly due to the decrease in government grants of RMB2.2 million. Thegovernment grants received were one-off subsidies offered to a number of our subsidiaries,which were provided with an aim to encourage business investments in the PRC.

Other Gains, Net

Other gains, net, were RMB28.6 million for the year ended December 31, 2017, comparedto RMB7.3 million for the year ended December 31, 2016, representing an increase of 291.1%.The significant increase was mainly due to an one-off compensation income of RMB19.6million received from a third-party lessor who has early terminated its hotel lease agreementof Shanghai Puxi with us in 2017.


Our net finance cost increased by RMB1.1 million from RMB3.9 million for the yearended December 31, 2016, to RMB5.0 million for the year ended December 31, 2017, primarilydue to a decrease of RMB6.9 million in interest income derived from loan to related parties,as our loan receivables and other receivables due from related parties decreased by RMB66.9million. It was partially offset by a decrease of RMB5.0 million in interest expenses on bankborrowings due to a decrease in the amount of our outstanding loan balance.

Share of Net Profit of Associates and Joint Ventures

Share of net profit of associates and joint ventures accounted for using the equity methodincreased by 109.4% from RMB1.4 million for the year ended December 31, 2016 to RMB3.0million for the year ended December 31, 2017, primarily due to the increased net profitcontributed by Beijing Gehua.

Income Tax Expense

Income tax expense increased by 70.2% from RMB33.2 million for the year endedDecember 31, 2016 to RMB56.5 million for the year ended December 31, 2017, primarily dueto the increase in our profit before income tax. Our effective income tax rate decreased from28.3% to 25.3% during the same periods.

Profit and total comprehensive income and net profit margin for the Year

As a result of the foregoing, our profit and total comprehensive income for the yearincreased by 98.2% from RMB84.1 million for the year ended December 31, 2016 toRMB166.6 million for the year ended December 31, 2017. Our net profit margin increasedfrom 5.2% for the year ended December 31, 2016 to 10.0% for the year ended December 31,2017.


– 312 –

Year ended December 31, 2015 Compared to Year ended December 31, 2016

Revenue

Revenue increased by 5.3% from RMB1,522.1 million for the year ended December 31,

2015 to RMB1,602.0 million for the year ended December 31, 2016.

Hotel Operation

Revenue for the hotel operation segment increased by 6.4% from RMB1,400.6 million for

the year ended December 31, 2015 to RMB1,490.1 million for the year ended December 31,

2016. The increase was primarily due to (i) an increase of 11.4% in the revenues from F&B

services, (ii) an increase of a 2.1% in our room revenue, and (iii) an increase of 9.0% in

revenue from ancillary services.

The 11.4% increase in the revenue from our F&B services was largely due to (i) the

increase in demand from the local markets in Zhejiang Province for banquet services, which

further led to the increase in utilization rate of seats from 64.2% for the year ended December

31, 2015 to 68.6% for the year ended December 31, 2016, (ii) the increase in average spending

per guest from RMB125.9 for the year ended December 31, 2015 to RMB126.8 for the year

ended December 31, 2016, and (iii) the 17.6% increase in revenue per sq.m. of banquet rooms

from RMB12,431.6 for the year ended December 31, 2015 to RMB14,616.6 for the year ended

December 31, 2016.

The 2.1% increase in the room revenue was largely due to (i) an increase in the number

of the operated hotels from 26 as at December 31, 2015 to 27 as at December 31, 2016, (ii) an

increase in our overall occupancy rate from 59.4% for the year ended December 31, 2015 to

61.4% for the year ended December 31, 2016, and (iii) an increase in RevPAR from RMB265.5

for the year ended December 31, 2015 to RMB267.0 for the year ended December 31, 2016.

The 9.0% increase in the revenue from ancillary services was primarily due to (i) the

increase in number of our hotel guests in line with increase in our occupancy rate, which led

to the increase in demand for ancillary service, and (ii) the increase in room revenue which was

primarily due to the 53.6% increase in the total room nights reserved by our CRS and other

reservation channels from the year ended December 31, 2015 to the corresponding period in

2016, corresponding to 45.8% increase in number of hotels which we managed.

Hotel Management

Revenue for the hotel management segment decreased by 7.9% from RMB121.5 million

for the year ended December 31, 2015 to RMB111.9 million for the year ended December 31,

2016, primarily because a hotel owner engaged us to provide comprehensive hotel pre-opening

consulting services such as site appraisal, hotel brand positioning and investment cost analysis

for a series of potential hotel projects under evaluation, contributed RMB20.0 million to the

segment revenue in 2015. For illustration purpose, if such hotel pre-opening consulting


– 313 –

revenue had been excluded from the calculation of segment revenue for the year ended

December 31, 2015, the segment revenue for the year ended December 31, 2016 would have

been increased by 10.2%, primarily due to (i) a 45.8% significant increase in the number of the

managed hotels from 48 as at December 31, 2015 to 70 as at December 31, 2016 among which,

the number of our full service managed hotels increased from 44 to 62 and that of our

franchised hotels increased from 4 to 8, and (ii) the increase in the underlying revenue and

gross operating profit that we managed to generate from our full service managed hotels, which

led to an increase in the hotel management fee we received from hotel owners in return.

Cost of sales

Cost of sales slightly increased by 0.3% from RMB1,278.0 million for the year ended

December 31, 2015 to RMB1,282.3 million for the year ended December 31, 2016. The

increase was primarily due to (i) an increase of RMB28.5 million in employee benefit expenses

for the year ended December 31, 2016, (ii) an increase of RMB17.3 million in costs of

materials consumption for the year ended December 31, 2016, corresponding to the 11.4%

increase in F&B revenue, and (iii) a RMB5.2 million increase in maintenance fees in 2016 as

we spent more in maintaining our facilities in 2016 than in 2015 to accommodate the expansion

of our hotel operation business. However, such increases were partially offset by the decrease

of RMB50.1 million in taxes and levies for the year ended December 31, 2016 due to the

replacement of business tax regime with the VAT regime in the PRC since May 2016.

The 12.0% increase in employee benefit expenses was primarily due to (i) a 2.9% increase

in the weighted average number of employees from 4,772 as at December 31, 2015 to 4,911

as at December 31, 2016, and (ii) a 7.9% increase in average monthly employee salary from

RMB6,272.1 to RMB6,769.0 during the corresponding period, which was to accommodate the

expansion of our business and to maintain our competitive remuneration package to attract and

retain talents.

The decrease in taxes and levies are primarily due to the replacement of the business tax

regime with the VAT regime in the PRC since May 2016, under which we are able to net off

input VAT incurred by our purchase of goods and services required for our business operations

against output VAT payable by our revenue generated, whereas under the previous business tax

regime, we shall pay the relevant business tax and at the same time, any tax incurred by our

purchase of services and goods shall be fully borne by us.


As a result of the foregoing, gross profit increased by 31.0% from RMB244.1 million for

the year ended December 31, 2015 to RMB319.7 million for the year ended December 31,

2016. Our gross profit margin increased from 16.0% for the year ended December 31, 2015 to

20.0% for the year ended December 31, 2016.


– 314 –

Hotel Operation

Gross profit for the hotel operation segment increased by 58.9% from RMB138.1 millionfor the year ended December 31, 2015 to RMB219.4 million for the year ended December 31,2016 and gross profit margin increased from 9.9% for the year ended December 31, 2015 to14.7% for the year ended December 31, 2016. The increase in our gross profit and gross profitmargin was primarily due to the (i) the increase of RMB13.5 million for the year endedDecember 31, 2016 as compared to the same period in 2015 in our room revenue while theoperating lease expenses decreased by RMB3.0 million for the year ended December 31, 2016as compared to the same period in 2015, and (ii) the decrease of RMB50.1 million in taxes andlevies for the year ended December 31, 2016 as compared to the same period in 2015 as a resultof the replacement of the business tax regime with the VAT regime in the PRC since May 2016.

Hotel Management

Gross profit for the hotel management segment decreased by 5.4% from RMB106.1million for the year ended December 31, 2015 to RMB100.3 million for the year endedDecember 31, 2016 due to the decrease of RMB9.6 million or 7.9% in our hotel managementrevenue. Gross profit margin slightly increased from 87.3% for the year ended December 31,2015 to 89.7% for the year ended December 31, 2016.


In order to strengthen our marketing efforts, we have hired more marketing personnelduring the year ended December 31, 2016 and established an operating center under JinshanziNetwork to manage our regional marketing, our customers loyalty program, our relationshipwith corporate customers, room reservation system and our relationship with third-partydistribution channels. Therefore, our selling and marketing expenses increased by 15.1% fromRMB61.6 million for the year ended December 31, 2015 to RMB70.9 million for the yearended December 31, 2016. The increase was primarily due to (i) an increase of 15.2% inemployee benefit expenses from RMB27.6 million for the year ended December 31, 2015 toRMB31.7 million for the year ended December 31, 2016 and (ii) an increase of 16.7% inmarketing and promotion expenses from RMB32.1 million for the year ended December 31,2015 to RMB37.4 million for the year ended December 31, 2016.


Administrative expenses increased by 10.3% from RMB134.9 million for the year endedDecember 31, 2015 to RMB148.8 million for the year ended December 31, 2016.Administrative expenses as a percentage of revenue increased from 8.9% for the year endedDecember 31, 2015 to 9.3% for the year ended December 31, 2016. The increase was primarilydue to (i) an increase of RMB7.1 million in employee benefit expenses for the year endedDecember 31, 2016 as compared to the same period in 2015 which was to improve ourcompetitive remuneration package to attract and retain talents, (ii) a 23.3% increase in bankcharges for the year ended December 31, 2016 as compared to the same period in 2015, and(iii) a 23.8% increase in travelling and communication expenses for the year ended December31, 2016 as compared to the same period in 2015.


– 315 –

Other Income

Other income was RMB12.3 million for the year ended December 31, 2016, as comparedto RMB5.0 million for the year ended December 31, 2015, representing an increase of 144.8%.The increase comprised an increase of RMB7.9 million from the financial assets at fair valuethrough profit or loss for the year ended December 31, 2016 as compared to the same periodin 2015. Such increase in other income was slightly offset by the decrease in government grantsfrom RMB5.0 million for the year ended December 31, 2015 to RMB4.4 million for the yearended December 31, 2016. The government grants received were one-off subsidies offered toa number of our subsidiaries, which were provided with an aim to encourage businessinvestments in the PRC.

Other Gains, Net

Other gains, net, increased by 131.9% from RMB3.2 million for the year ended December31, 2015 to RMB7.3 million for the year ended December 31, 2016, primarily due to the netgains of RMB5.3 million from our disposal of approximately 64.2% interest in our thenwholly-owned subsidiary Yuyao Manju, which is non-recurring in nature.


We recorded net finance costs of RMB3.9 million for the year ended December 31, 2016,as compared to net finance income of RMB0.7 million for the year ended December 31, 2015,primarily due to a decrease of RMB17.9 million in interest income derived from loan to relatedparties, as the loan of RMB170.0 million due from one of our related parties, Taizhou NewCentury Grand Real Estate Co., Ltd.* (台州開元名都置業有限公司) (“Taizhou NewCentury”) as at December 31, 2015 was fully settled in 2016, partially offset by a decrease ofRMB15.4 million in interest expenses on bank and other borrowings for the year endedDecember 31, 2016 as compared to the same period in 2015.

Share of Net Results of Associates and Joint Ventures

Share of net profit of associates and joint ventures accounted for using the equity methoddecreased by 17.1% from RMB1.7 million for the year ended December 31, 2015 to RMB1.4million for the year ended December 31, 2016, due to the decrease in our net profit generatedfrom Beijing Gehua, partially offset by the increase of RMB0.4 million in share of result dueto the increases in net profit generated from Zhejiang Haogu and Yuyao Manju.

Income Tax Expense

Income tax expense increased by 15.8% from RMB28.7 million for the year endedDecember 31, 2015 to RMB33.2 million for the year ended December 31, 2016, primarily dueto an increase in our profit before income tax. Our effective income tax rate significantlydecreased from 49.2% to 28.3% during the same periods. The 49.2% effective income tax ratewhich was significantly higher for the year ended December 31, 2015 as compared to the sameperiod in 2016, was primarily because we did not recognize (i) tax credit of RMB8.3 millionfor tax losses incurred by some loss-making subsidiaries in 2015 and (ii) tax credit of RMB4.8million for temporary differences arising from share-based payment of RMB20.0 million in2015 which was not tax deductible.


– 316 –

Profit and Total Comprehensive Income and net profit margin for the Year

As a result of the foregoing, our profit and total comprehensive income for the yearincreased by 183.6%, from RMB29.6 million for the year ended December 31, 2015 toRMB84.1 million for the year ended December 31, 2016. Our net profit margin increased from1.9% for the year ended December 31, 2015 to 5.2% for the year ended December 31, 2016.

DESCRIPTION OF SELECTED BALANCE SHEET ITEMS

The consolidated balance sheets as at December 31, 2015, 2016 and 2017 and August 31,2018, extracted from the Accountant’s Report set out in Appendix I to this prospectus, are setout below.


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

AssetsNon-current assets

Property, plant and equipment 272,777 343,803 408,053 502,197Investment properties 954 939 925 915Land use rights 30,682 47,330 46,142 45,322Intangible assets 23,884 18,137 15,037 14,715Investments accounted for using

equity method 108,351 115,857 118,388 119,261Other non-current assets 24,117 22,125 14,554 3,527Deferred tax assets 24,739 25,160 19,560 25,345

Total non-current assets 485,504 573,351 622,659 711,282

Current assetsInventories 24,206 22,086 26,793 27,750Trade, other receivables and

prepayments 408,755 253,394 239,090 334,885Financial assets at fair value through

profit or loss – 155,590 – –Cash and cash equivalent 126,385 176,164 424,109 288,242Restricted cash 72,400 72,400 – 72,100

631,746 679,634 689,992 722,977Assets classified as held for sale 17,603 – – –

Total current assets 649,349 679,634 689,992 722,977

Total assets 1,134,853 1,252,985 1,312,651 1,434,259


– 317 –


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Equity and liabilitiesEquity attributable to owners of our

CompanyPaid-in capital/share capital 173,680 173,680 210,000 210,000Other reserves 111,531 81,531 267,355 267,355(Accumulated losses)/retained

earnings (29,121) 55,203 36,441 105,177

Total equity attributable to owners ofour Company 256,090 310,414 513,796 582,532Non-controlling interests 6,884 6,615 15,297 18,903

Total equity 262,974 317,029 529,093 601,435

LiabilitiesNon-current liabilities

Borrowings 175,000 219,000 160,000 194,200Deferred income 6,000 12,823 21,714 20,444Deferred tax liabilities 29 267 137 –

Total non-current liabilities 181,029 232,090 181,851 214,644

Current liabilitiesContract liabilities 161,284 186,695 192,352 208,673Borrowings 135,000 135,000 5,000 3,000Trade and other payables 372,518 365,872 380,088 393,396Current income tax liabilities 7,755 15,593 23,561 11,925Current portion of long-term liabilities – 706 706 1,186

676,557 703,866 601,707 618,180Liabilities classified as held for sale 14,293 – – –

Total current liabilities 690,850 703,866 601,707 618,180




– 318 –

Property, Plant and Equipment

During the Track Record Period, our property, plant and equipment comprised leasehold

improvements, construction in progress, buildings and facilities, machinery and equipment,

office and electronic equipment and vehicles. The table below sets forth the net book amount

for each of these components of property, plant and equipment as at the dates indicated.


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Leasehold improvements 174,993 186,136 155,080 190,926Construction in progress 31,213 9,765 100,299 5,972Building and facilities 20,284 88,698 84,162 201,008Machinery and equipment 13,763 20,548 20,711 33,710Office and electronic equipment 29,033 34,826 43,974 66,630Vehicles 3,491 3,830 3,827 3,951

Total 272,777 343,803 408,053 502,197

Our property, plant and equipment amounted to RMB272.8 million, RMB343.8 million,

RMB408.1 million and RMB502.2 million as at December 31, 2015, 2016 and 2017 and August

31, 2018, respectively, representing 24.0%, 27.4%, 31.1% and 35.0% of our total assets as at

the respective dates. Certain buildings and facilities with carrying amount of RMB55.2 million

and RMB54.0 million were pledged as collaterals for our bank borrowings as at December 31,

2017 and as at August 31, 2018, respectively.

The increase in building and facilities from RMB20.3 million as at December 31, 2015

to RMB88.7 million as at December 31, 2016 was primarily due to the completion of

construction of Changxing New Century Wonderland Resort (長興開元芳草地鄉村酒店) in

2016, resulting in a corresponding decrease in construction in progress during the same

periods.

The significant increase of RMB90.5 million in construction in progress from RMB9.8

million as at December 31, 2016 to RMB100.3 million as December 31, 2017, was primarily

due to the commencement of construction of Hangzhou Fuchun New Century Wonderland

Resort (杭州富春開元芳草地鄉村酒店).

The increase in building and facilities from RMB84.2 million as at December 31, 2017

to RMB201.0 million as at August 31, 2018 was primarily due to the completion of the

construction of Hangzhou Fuchun New Century Wonderland Resort (杭州富春開元芳草地鄉村酒店) which commenced operation in January 2018, resulting in a corresponding decrease in

construction in progress during the same periods.


– 319 –

The increase in total property, plant and equipment from RMB408.1 million as at

December 31, 2017 to RMB502.2 million as at August 31, 2018, was primarily due to (i) the

completion of construction of Hangzhou Fuchun New Century Wonderland Resort (杭州富春開元芳草地鄉村酒店) which commenced operation in January 2018 and (ii) the renovation

work performed on some of our leased hotels during the eight months ended August 31, 2018,

which further led to the increases in the balance of leasehold improvements and machinery and

equipment.

Intangible assets

As at December 31 2015, 2016, 2017 and August 31 2018, the carrying amount of our

intangible assets was RMB23.9 million, RMB18.1 million, RMB15.0 million and RMB14.7

million, respectively, which consisted mainly of software, favorable lease contracts and

goodwill. The goodwill of RMB2.1 million as at August 31 2018, represented 0.15% of the

Group’s total assets, and 1.49% of the consolidated profit before tax for the eight months ended

31 August 2018. The goodwill resulted from the Company’s acquisition of its subsidiary Yuyao

Manju, which was completed on August 31, 2018, and the Directors consider that there is no

impairment indicator and believe that there is no impairment in the value of the goodwill as

at August 31 2018.

Investments Accounted for Using Equity Method

Investments accounted for using equity method during the Track Record Period

comprised our Group’s investments in Beijing Gehua, and its associates, Zhejiang Haogu and

Yuyao Manju. The table below sets out the balance of these investments accounted for using

equity method as at the dates indicated.


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Investments in a joint

venture, Beijing Gehua 108,351 109,414 112,297 116,299Investments in associates,

Zhejiang Haogu and

Yuyao Manju(1) – 6,443 6,091 2,962

108,351 115,857 118,388 119,261

Note:

(1) As at August 31, 2018, our investment in associate solely comprised the investment in Zhejiang Haogu.


– 320 –

The increase of RMB7.5 million from December 31, 2015 to December 31, 2016 was

mainly due to the disposal of 64% interest in our then wholly-owned subsidiary Yuyao Manju

in January 2016. The increases of RMB2.5 million from December 31, 2016 to December 31,

2017 was primarily driven by the share of net profits of respective investees recognized under

equity method. It was further increased to RMB119.3 million, due to the increase of RMB4.0

million in our interest in Beijing Gehua, partially offset by the decrease of RMB3.1 million in

our investment in associates primarily because we acquired approximately 19.8% equity

interests in aggregate in Yuyao Manju, since which Yuyao Manju was indirectly held as to

approximately 55.7% by our Company and has been reclassified from an associate to a

subsidiary of our Company.

Financial Assets at Fair Value through Profit or Loss

We held financial assets at fair value through profit or loss amounting to RMB155.6

million as at December 31, 2016, and did not hold any such financial assets as at December

31, 2015 and 2017 and August 31, 2018.

Our financial assets at fair value through profit or loss are short-term wealth management

products issued by PRC commercial banks. These wealth management products, denominated

in RMB, with expected rates of return ranging from 6.9% to 7.2% per annum during the Track

Record Period, had initial terms ranging from 91 days to 289 days, and the returns on all of

these wealth management products are not guaranteed. Therefore they are measured at fair

value through profit or loss.

Inventories

Our inventories consist of foods and beverage and consumables, supplies and others. As

at December 31, 2015, 2016, 2017 and August 31, 2018, our inventories amounted to

approximately RMB24.2 million, RMB22.1 million, RMB26.8 million and RMB27.8 million,

respectively. The following table sets out a breakdown of our inventory balances as at the dates

indicated:


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Foods and beverage 15,764 13,408 17,625 18,898Consumables, supplies and

others 8,442 8,678 9,168 8,852

24,206 22,086 26,793 27,750


– 321 –

The balance of our inventories as at December 31, 2016 was lower than that as at

December 31, 2015 and 2017 primarily due to an increase in the level of consumption of foods

and beverage which was generally in line with our higher F&B revenue for the year ended

December 31, 2016 as compared to the same period in 2015 and 2017.

The average turnover days for inventory during the Track Record Period were as below:


For theeight months

endedAugust 31,

2015 2016 2017 2018

Turnover days for

inventory(1) 25.1 22.9 25.0 27.3

Note:

(1) Turnover days for inventory is calculated based on the average balances at the beginning and the endof the year/period divided by total costs of materials consumption for the relevant year/period multiplied

by 360/240 days.

Our average turnover days for inventories decreased from 25.1 days for the year ended

December 31, 2015 to 22.9 days for the year ended December 31, 2016, primarily due to an

increase in demand for F&B services, corresponding to the 11.4% increase in revenue of our

F&B revenue. The average turnover days for inventories increased from 22.9 days for the year

ended December 31, 2016 to 25.0 days for the year ended December 31, 2017, primarily due

to a decrease in demand for F&B services, corresponding to the 8.0% decrease in F&B revenue.

The average turnover days for inventories increased from 25.0 days for the year ended

December 31, 2017 to 27.3 days for the eight months ended August 31, 2018. As at December

31, 2018, RMB18.1 million or 65.2% of our inventories outstanding as at August 31, 2018 were

utilised or sold.

Trade, Other Receivables and Prepayments

Our trade, other receivables and prepayments amounted to RMB408.8 million, RMB253.4

million, RMB239.1 million and RMB334.9 million as at December 31, 2015, 2016 and 2017

and August 31, 2018, respectively. As of each of these dates, all of our trade and other

receivables and prepayments were non-interest bearing and were denominated in Renminbi.


– 322 –

The table below sets out a summary of the balance of our trade and other receivables andprepayments as at the dates indicated.


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade receivables – net 65,087 58,849 67,228 86,648Other receivables – net 320,853 164,420 132,454 181,921Prepayments 22,815 30,125 39,408 66,316

Total, and other receivables

and prepayments 408,755 253,394 239,090 334,885

Trade Receivables

Our trade receivables primarily consist of management fees receivable and receivablefrom our corporate customers for room and MICE services.

The following table sets out a breakdown of the trade receivables as at dates indicated.


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade receivables due fromthird parties 61,597 56,257 68,216 83,006

Trade receivables due fromrelated parties 9,033 6,822 4,235 7,301

70,630 63,079 72,451 90,307Less: provision for

impairment (5,543) (4,230) (5,223) (3,659)

Trade receivables – net 65,087 58,849 67,228 86,648

Before provision for impairment, our trade receivables decreased by RMB7.6 millionfrom RMB70.6 million as at December 31, 2015 to RMB63.1 million as at December 31, 2016.

As at December 31, 2017, our trade receivables increased by RMB9.4 million fromRMB63.1 million as at December 31, 2016 to RMB72.5 million, which was in line with theincrease in revenue in 2017.


– 323 –

As at August 31, 2018, our trade receivables increased by RMB17.9 million fromRMB72.5 million as at December 31, 2017 to RMB90.3 million as at August 31, 2018,resulting in our average turnover days for trade receivables to increase from 13.6 days for theyear ended December 31, 2017 to 16.5 days for the eight months ended August 31, 2018. Asat December 31, 2018, RMB83.5 million, representing 92.5% of our trade receivablesoutstanding as at August 31, 2018, were settled.

Provisions for impairment of trade receivables have been made for estimatedirrecoverable amounts from the sales of goods/rendering of service during the Track RecordPeriod. We made provisions for impairment of trade receivables of RMB5.5 million, RMB4.2million, RMB5.2 million and RMB3.7 million as at December 31, 2015, 2016 and 2017 andAugust 31, 2018, respectively. These provisions have been determined with reference to theexpected credit losses and considering whether there has been a significant change in creditquality and whether the balances are fully recoverable.

We normally grant to customers a credit period of 30 to 90 days. The ageing analysis oftrade receivables based on invoice dates, before provision for impairment, as at December 31,2015, 2016 and 2017 and August 31, 2018 is as follows:


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

– Up to 3 months 53,977 49,989 62,272 77,364– 3 months to 1 year 10,902 5,539 4,987 9,786– 1 year to 2 years 2,955 5,652 2,473 1,381– 2 years to 3 years 1,406 1,254 1,085 324– Over 3 years 1,390 645 1,634 1,452

70,630 63,079 72,451 90,307

The average turnover days for trade receivables during the Track Record Period were asbelow:


For theeight

monthsended

August 31,

2015 2016 2017 2018

Turnover days for trade

receivables(1) 15.4 13.9 13.6 16.5


– 324 –

Note:

1. Turnover days for trade receivable is calculated based on the average balances of trade receivable at thebeginning and the end of the year/period divided by the total revenue for the relevant year/periodmultiplied by 360/240 days.

Our average turnover days for trade receivables remained relatively stable at 15.4 days,13.9 days, 13.6 days and 16.5 days during the Track Record Period, which are within the creditperiod granted to our customers.

Other Receivables and Prepayments

Other receivables are mainly composed of (i) deposits to suppliers, which primarilyrepresented the deposits to existing lessors, (ii) VAT recoverables, and (iii) loan receivablesand other receivables due from related parties. The table below sets out the breakdown of theother trade receivables and prepayments as at the dates indicated.


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Deposits to suppliers 42,428 44,138 54,753 55,314Loans receivables and

other receivables due fromrelated parties 251,321 87,418 20,518 20,837

VAT recoverable 391 5,371 21,361 33,525Interest receivable 3,183 6,209 – 229Financial assets at amortized

cost – – – 60,000Others 24,478 26,097 40,323 19,660

321,801 169,233 136,955 189,565Less: provision for other

receivables (948) (4,813) (4,501) (7,644)

Other receivables – net 320,853 164,420 132,454 181,921

Prepayments 22,815 30,125 39,408 66,316

343,668 194,545 171,862 248,237

The significant decrease of RMB156.4 million in other receivables – net from RMB320.9million as at December 31, 2015 to RMB164.4 million as at December 31, 2016 was primarilydue to the repayment of an entrusted loan of RMB170.0 million in March 2016 by Taizhou NewCentury, one of our related parties.


– 325 –

Our other receivables – net decreased by RMB32.0 million from RMB164.4 million as atDecember 31, 2016 to RMB132.5 million as at December 31, 2017, primarily due to therepayment of RMB66.9 million of loan receivables and other receivables by related parties in2017, partially offset by (i) an increase of RMB10.6 million in deposits to suppliers in 2017,primarily due to the increase in the number of our leased hotels under pipeline, and (ii) anincrease of RMB16.0 million in VAT recoverable in 2017 due to new VAT regime launchedfrom May 2016.

Our other receivables – net increased by RMB49.5 million from December 31, 2017 toAugust 31, 2018, primarily due to (i) an increase of RMB60.0 million financial assets atamortized cost as a result of our investment in wealth management product and (ii) an increaseof RMB12.2 million in VAT recoverable during the same periods, which was partially offset bya decrease of RMB20.7 million in others during the same periods primarily as a result of areturn of our rental prepayment in January 2018 from the lessor who early terminated the leaseagreement of Shanghai Puxi with us.

The prepayment increased from RMB39.4 million as at December 31, 2017 to RMB66.3million August 31, 2018, primarily due to the prepayment of listing expenses during the eightmonths ended August 31, 2018.

The wealth management product of RMB60 million was investment in financialinstruments issued by reputable banks which had guaranteed principal and return, hence itscontractual cash flows qualify for solely payments of principal and interest. Therefore they aremeasured at amortised cost.

We adopt a strict and prudent investment and treasury policy, under which we carefullyassess the risks of investment and the amount of cash that we need for operational and liquiditypurpose, and aim at earning low-risk return by utilizing our idle cash. We invest in short-termwealth management products with features of structured deposits that possess considerably lowrisks (being principal-protected and return-guaranteed product and therefore as an alternativeto bank fixed deposits) from reputable licensed banking institutions in the PRC only when ourinternal cash flow and liquidity budget indicate that we have sufficient capital resources for ourshort-term operating activities and capital expenditure needs. The decision to purchase thesewealth management products will need to be assessed by the relevant finance manager, whowill submit the analysis and proposal to the chief financial officer of the Company and thepresident of the Company for consent before obtaining final approval from the chief executiveofficer of the Company. Our finance department would then record and update all ourinvestment activities.

Our current financing manager, Ms. Shen Hongyan, graduated from The Open Universityof China (中央廣播電視大學) with Bachelor’s degree in accounting, and has obtained thecertificate of junior accountant (初級會計師資格證) granted by Ministry of Finance of thePRC. She has over 20 years of experience in financial management and is responsible forobtaining loan financing and sourcing low risk investment products for the Group. For therelevant qualifications and experience of our chief executive officer, our president and chieffinancial officer, please refer to the subsections headed “Directors, Supervisors, and SeniorManagement – Directors” and “Directors, Supervisors, and Senior Management – SeniorManagement” in this prospectus.


– 326 –

During the Track Record Period, others primarily represented the amounts to be collectedfrom the third-party payment channels for customers that made payments through credit cardsor other third-party payment platforms. Specifically, as at December 31, 2017, otherscomprised (i) the amounts to be collected from the third-party payment channels and (ii) therental prepayment of approximate RMB19.9 million to be returned from the lessor who earlyterminated the lease agreement of Shanghai Puxi with us. Such prepayment was fully settledin January 2018.

Trade and Other Payables

Our trade and other payables amounted to RMB372.5 million, RMB365.9 million,RMB380.1 million and RMB393.4 million as at December 31, 2015, 2016 and 2017 and August31, 2018, respectively. As at December 31, 2015, 2016 and 2017 and August 31, 2018, all ofour trade and other payables were non-interest bearing and were denominated in Renminbi.

The table below sets out the components of our trade payables and other payables as atthe dates indicated.


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade payables:– Due to third parties 127,897 153,857 164,667 158,823– Due to related parties 50,193 30,036 22,323 19,613

178,090 183,893 186,990 178,436Other payables due to related

parties 20,095 18,449 10,397 12,799Payables for purchase of

property, plant and

equipment 4,815 24,167 35,428 74,035Customers’ deposits 35,637 34,357 32,845 32,867Accrued expenses 21,444 23,807 26,113 25,189Staff salaries and welfare

payables 56,134 78,089 85,760 67,034Accrued taxes other than

income tax 8,090 2,713 2,401 2,737Interest payables 438 397 154 299Dividend payable 295 – – –Others 47,480 – – –

372,518 365,872 380,088 393,396


– 327 –

Trade payables consist of (i) payables due to third parties and related parties in respect

of leasing hotels and (ii) payables due to third parties and related parties in respect of purchase

of goods and services. The fluctuation in trade payables due to related parties was primarily

due to changes in the outstanding lease rental payments at the end of each year/period payable

to New Century Hotel Investment, manager to the REIT for the five hotels that we leased under

the Master Hotel Lease and Management Agreement. Please refer to the sub-section headed

“Connected Transactions – Continuing Connected Transactions Subject to the Reporting,

Annual Review, Announcement and Independent Shareholders’ Approval Requirement” in this

prospectus for more details on the Hotel Lease and Management Agreements.

Others represented the present value of deposits received from customers under a gift card

promotion program launched from February 2015 to September 2015. All outstanding deposits

were refunded to the customers in 2016 due to expiry of the promotion program.

As at December 31, 2018, RMB125.7 million or 70.4% of our trade payables outstanding

as at August 31, 2018 were settled.

The ageing analysis of the trade payables during the Track Record Period is as follows:


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

– Within 1 year 169,466 180,801 175,556 159,425– 1 year to 2 years 7,417 1,626 10,237 12,685– 2 years to 3 years 611 617 599 5,636– Over 3 years 596 849 598 690

178,090 183,893 186,990 178,436

The average turnover days for trade payables during the Track Record Period were as

below:



August 31,

2015 2016 2017 2018

Turnover days fortrade payables(1) 50.2 50.8 54.2 50.4

Note:

1. Turnover days for trade payable is calculated based on the average balances of trade payable at thebeginning and the end of the year/period divided by the total costs of sales for the relevant year/periodmultiplied by 360/240 days.


– 328 –

The credit period provided by our suppliers ranges from 45 days to 90 days (except the

rental in respect of hotels leased, which shall be settled by the 10th of each month). Our

average turnover days for trade payables during the Track Record Period remained stable at

50.2 days, 50.8 days, 54.2 days and 50.4 days, respectively, and are within the credit period

offered by our suppliers.

Contract Liabilities

Our contract liabilities substantially comprised the advances from customers with minor

contribution from the customer loyalty program. Advances from customers primarily

represented prepayment received from prepaid card holders and advances from banquet

customers. Customer loyalty program primarily represented a promotion program under which

customers accumulate points for hotel service purchases made which entitle them to discounts

on future hotel service purchases. The following table sets forth a breakdown of the contract

liabilities as at the dates indicated.


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Advances from customers 157,688 181,476 187,086 200,291Customer loyalty program 3,596 5,219 5,266 8,382

161,284 186,695 192,352 208,673

During the Track Record Period, our contract liabilities increased from RMB161.3

million as at December 31, 2015 to RMB208.7 million as at August 31, 2018, mainly due to

the increase in the number of our prepaid cards issued under Century Club reward program

from approximately 18,000 as at December 31, 2015 to approximately 41,000 as at August 31,

2018 corresponding to our continuous efforts to attract and enhance the loyalty of our hotel

guests.

LIQUIDITY AND CAPITAL RESOURCES

During the Track Record Period and up to the Latest Practicable Date, we have funded our

growth principally from cash generated from operations, debt financings, and advances and

capital contributions from shareholders and we had generated sufficient cash and cash

equivalent to meet our capital requirements. Our cash requirements relate primarily to

operation of our business, investments and acquisitions and debt repayment. Our liquidity

primarily depends on our ability to generate cash flows from operations and obtain external

financing to meet our debt obligations as they become due, as well as our future capital

expenditures.


– 329 –

Going forward, we believe that our liquidity requirements will be satisfied by cashgenerated from our operating activities, banking facilities available to us, and the net proceedsreceived from the Global Offering.

Cash Flow Information

The following table sets out selected cash flow data from our consolidated statements ofcash flows for the years ended December 31, 2015, 2016 and 2017 and the eight months endedAugust 31, 2017 and 2018:

For the years endedDecember 31,


2015 2016 2017 2017 2018


(unaudited)

Net cash generated

from operating

activities 97,442 168,931 268,073 87,883 33,594Net cash (used

in)/generated from

investing activities (90,574) (85,377) 86,885 61,943 (143,420)Net cash (used in)

financing activities (35,148) (33,775) (107,013) (131,613) (26,041)

Net (decrease)/increase

in cash and cash

equivalents (28,280) 49,779 247,945 18,213 (135,867)Cash and cash

equivalents at the

beginning of the

year/period 154,665 126,385 176,164 176,164 424,109

Cash and cash

equivalents at the

end of the

year/period 126,385 176,164 424,109 194,377 288,242

Cash Flow Generated from Operating Activities

Net cash from operating activities primarily represented cash generated from operationsminus income tax paid and interest paid. Cash generated from operations primarily comprisedprofit before income tax adjusted by non-cash expenses and changes in working capital.


– 330 –

Net cash generated from our operating activities was RMB33.6 million for the eight

months ended August 31, 2018, representing cash generated from operations of RMB88.3

million minus income tax paid of RMB48.0 million and interest paid of RMB6.6 million. Cash

generated from operations was primarily attributable to profit before tax of RMB142.2 million,

as (i) positively adjusted for depreciation of property, plant and equipment of RMB33.3

million, (ii) negatively adjusted for net gains on disposal of subsidiaries of RMB10.8 million

and (iii) negatively adjusted for change in working capital of RMB69.2 million. The change in

working capital primarily consisted of (i) an increase of RMB32.7 million of trade and other

debtors (ii) an increase of RMB66.0 million in restricted cash, which represented term deposit,

guaranteed deposits held in separate reserve accounts pledged as security deposits under bank

borrowing agreements and some hotel lease agreements, (iii) an increase of RMB30.8 million

in trade and other creditors.

Net cash generated from our operating activities was RMB268.1 million for the year

ended December 31, 2017, representing cash generated from operations of RMB323.8 million

minus income tax paid of RMB44.2 million and interest paid of RMB11.6 million. Cash

generated from operations was primarily attributable to profit before tax of RMB223.0 million


million, and (ii) positively adjusted for change in the working capital of RMB25.9 million. The

change in working capital primarily consisted of (i) a decrease in restricted cash of RMB32.4

million, (ii) an increase in trade and other debtors of RMB13.2 million and (iii) an increase of

RMB11.4 million in trade and other creditors.

Net cash generated from our operating activities was RMB168.9 million for the year

ended December 31, 2016, representing cash generated from operations of RMB209.4 million

minus income tax paid of RMB25.5 million and interest paid of RMB14.9 million. Cash

generated from operations was primarily attributable to profit before tax of RMB117.2 million


million, and (ii) positively adjusted for change in the working capital of RMB26.7 million. The

change in working capital primarily consisted of (i) an increase in trade and other debtors of

RMB14.5 million and (ii) an increase in trade and other creditors of RMB39.0 million.

Net cash generated from our operating activities was RMB97.4 million for the year ended

December 31, 2015, representing cash generated from operations of RMB141.8 million minus

income tax paid of RMB28.2 million and interest paid of RMB16.2 million. Cash generated

from operations was primarily attributable to profit before tax of RMB58.3 million as (i)

positively adjusted for depreciation of property, plant and equipment of RMB46.0 million, (ii)

positively adjusted for non-cash share-based payment of RMB20.0 million, and (iii) positively

adjusted for change in working capital of RMB7.8 million. The change in working capital

primarily consisted of (i) an increase in trade and other debtors of RMB20.5 million and (ii)

an increase in trade and other creditors of RMB31.5 million.


– 331 –

Cash Flow Generated from/Used in Investing Activities

Net cash used in investing activities was RMB143.4 million for the eight months endedAugust 31, 2018, primarily due to (i) the payment of RMB91.5 million for property, plant andequipment, land use rights, intangible assets and other long-term assets for the for the operationof Hangzhou Fuchun New Century Wonderland Resort (杭州富春開元芳草地鄉村酒店), and(ii) the purchase of short-term wealth management products of RMB60.0 million.

Net cash generated from our investing activities was RMB86.9 million for the year endedDecember 31, 2017, which was primarily due to cash generated from (i) net proceeds from saleof financial assets at fair value through profit or loss of RMB317.9 million and (ii) repaymentof loan of RMB56.0 million by related parties. These items were partially offset by cash usedin (i) payments for property, plant and equipment, land use rights, intangible assets and otherlong-term assets of RMB150.4 million primarily for the operation of Hangzhou Fuchun NewCentury Wonderland Resort (杭州富春開元芳草地鄉村酒店), and (ii) payment for short-termwealth management products of approximately RMB162.9 million.

Net cash used in our investing activities was RMB85.4 million for the year endedDecember 31, 2016, which was primarily due to cash used in (i) payments for short-termwealth management products of approximately of RMB155.0 million and (ii) payments forproperty, plant and equipment, land use rights, intangible assets and other long-term assets ofRMB118.2 million, primarily for the construction of Changxing New Century WonderlandResort (長興開元芳草地鄉村酒店) and Hangzhou Fuchun New Century Wonderland Resort (杭州富春開元芳草地鄉村酒店). These items were partially offset by cash generated fromrepayment of loans by related parties of RMB170.0 million.

Net cash used in our investing activities was RMB90.6 million for the year endedDecember 31, 2015, which was primarily due to cash used in (i) the payments for property,plant and equipment, land use rights, intangible assets and other long-term assets of RMB88.6million primarily for the construction of Changxing New Century Wonderland Resort (長興開元芳草地鄉村酒店), and (ii) the provisions of loans to related parties of RMB80.0 million.These items were partially offset by cash generated from (i) repayments of loan of RMB40.0million by related parties, and (ii) interests received from loans to related parties of RMB26.2million.

Cash Flow Generated from/Used in Financing Activities

Net cash used in financing activities was RMB26.0 million for the eight months endAugust 31, 2018, primarily due to (i) the dividends paid to the shareholders of RMB41.2million, (ii) the repayment of borrowings of RMB9.5 million, and (iii) the payment for listingexpenses of RMB9.8 million, partially offset by the proceeds from the borrowings of RMB35.0 million.

Net cash used in our financing activities was RMB107.0 million for the year endedDecember 31, 2017, which was primarily due to the cash used in (i) repayment of borrowingsof RMB509.1 million, and (ii) dividends paid to Company’s shareholders of RMB59.7 million.These items were partially offset by cash generated from (i) proceeds from borrowings ofRMB320.1 million, and (ii) proceeds of capital injection from shareholders of RMB136.6million.


– 332 –

Net cash used in our financing activities was RMB33.8 million for the year endedDecember 31, 2016, primarily due to the cash used in (i) repayment of borrowings ofRMB135.0 million, (ii) repayment of other financing instruments of RMB47.5 million, and (iii)the consideration payment of RMB30.0 million for a related-party acquisition of Jiande NewCentury Wonderland Resort Co., Ltd.* (建德開元芳草地酒店有限公司), partially offset by thecash generated from net proceeds from borrowings of RMB179.0 million.

Net cash used in our financing activities was RMB35.1 million for the year endedDecember 31, 2015, which was primarily due to the cash used in (i) repayment of RMB328.0million of borrowings and (ii) repayment of other financing instruments of RMB160.7 millioncomprised of the refund of deposits to the holders of gift cards, which was partially offset bycash generated from proceeds from borrowings of RMB364.0 million.

Net Current Assets and Liabilities

The table below sets out our current assets, current liabilities and net current (liabilities)/

assets as at the dates indicated:


August 31,As at

December 31,

2015 2016 2017 2018 2018


Current assetsInventories 24,206 22,086 26,793 27,750 28,322Trade and other receivables

and prepayments 408,755 253,394 239,090 334,885 282,289Financial assets at fair value

through profit or loss – 155,590 – – –Cash and cash equivalent 126,385 176,164 424,109 288,242 369,688Restricted cash 72,400 72,400 – 72,100 66,000Assets classified as held for

sale 17,603 – – – –

649,349 679,634 689,992 722,977 746,299

Current LiabilitiesContract liabilities 161,284 186,695 192,352 208,673 194,194Borrowings 135,000 135,000 5,000 3,000 500Trade and other payables 372,518 365,872 380,088 393,396 443,130Current income tax

liabilities 7,755 15,593 23,561 11,925 19,054Current portion of long-term

liabilities – 706 706 1,186 6,186Liabilities classified as held

for sale 14,293 – – – –

690,850 703,866 601,707 618,180 663,064

Net current(liabilities)/assets (41,501) (24,232) 88,285 104,797 83,235


– 333 –

We had net current liabilities of RMB41.5 million and RMB24.2 million as at December31, 2015 and 2016, respectively, and net current assets of RMB88.3 million and RMB104.8million as at December 31, 2017 and August 31, 2018, respectively.

Although we recorded a net asset position of RMB263.0 million as at December 31, 2015and generated profit and total comprehensive income of RMB29.6 million for the year endedDecember 31, 2015, we had net current liabilities of RMB41.5 million as at the same date,primarily due to the expenditure of RMB88.6 million in cash primarily in connection with theconstruction of Changxing New Century Wonderland Resort (長興開元芳草地鄉村酒店),including purchase of land use right and construction of building and facilities, which wereaccounted as non-current assets.

Despite recording a net assets position of RMB317.0 million as at December 31, 2016 andgenerating a profit and total comprehensive income of RMB84.1 million for the year endedDecember 31, 2016, we had a net current liabilities position of RMB24.2 million as atDecember 31, 2016, representing a 41.7% decrease as compared to the net current liabilitiesof RMB41.5 million as at December 31, 2015, primarily due to the expenditure of RMB118.2million in cash primarily in connection with the construction of Changxing New CenturyWonderland Resort (長興開元芳草地鄉村酒店) and Hangzhou Fuchun New CenturyWonderland Resort (杭州富春開元芳草地鄉村酒店), which were accounted as non-currentassets.

As at December 31, 2017, we had net current assets of RMB88.3 million, as compared tonet current liabilities of RMB24.2 million as December 31, 2016, which was primarily due to(i) an increase of RMB247.9 million in cash and cash equivalent in 2017 and (ii) a significantdecrease of RMB130.0 million in borrowings in 2017, partially offset by a decrease ofRMB155.6 million in financial assets at fair value through profit or loss in 2017.

Our net current assets increased by RMB16.5 million from RMB88.3 million as atDecember 31, 2017 to RMB104.8 million as at August 31, 2018, primarily due to (i) theincrease in trade, other receivables and prepayments of RMB95.8 million and (ii) the increasein restricted cash of RMB72.1 million for the eight months ended August 31, 2018. Yet it waspartially offset by the decrease in cash and cash equivalent of RMB135.9 million.

Our net current assets decreased from RMB104.8 million as at August 31, 2018 toRMB83.2 million as at December 31, 2018 primarily due to (i) decrease in trade and otherreceivables and prepayments of RMB52.6 million, and (ii) the increase in trade and otherpayables of RMB49.7 million, partially offset by an increase in cash and cash equivalent ofRMB81.4 million.

Working Capital Sufficiency

We finance our working capital needs primarily through cash flow from operations andbank borrowings. During the Track Record Period, we had generated sufficient cash and cashequivalent to meet our capital requirements. Taking into account the net proceeds available tous from the Global Offering, banking facilities available to us and our operating cash flows,our Directors confirm, and the Joint Sponsors concur with our Directors, that we havesufficient working capital for our present requirements and for the next 12 months from thedate of this prospectus. Save as disclosed in this prospectus and other than the Global Offering,we currently have no other external financing plan.


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CONTRACTUAL OBLIGATIONS AND CAPITAL COMMITMENTS

Capital Commitments

Capital expenditure which we have contracted for at the end of the year/period, but not

yet incurred was as follows:


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Property, plant and equipment 200 – 6,464 9,324

The significant increase in capital commitments from RMB6.5 million as at December 31,

2017 to RMB9.3 million as at August 31, 2018 was primarily due to renovation work expected

to be performed on our hotels in operations and under pipeline.

Operating Lease Commitments

We lease hotels to operate under hotel lease agreements. The leases have varying terms,

escalation clauses and renewal rights. The future aggregate minimum lease payments under

these operating leases are set out as follows:


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Within one year 372,927 364,723 375,609 353,468Later than one year but not

later than five years 1,309,168 1,349,461 1,474,013 1,366,796Later than five years 1,235,091 1,119,384 946,753 807,053

2,917,186 2,833,568 2,796,375 2,527,317

The increase of our operating lease commitments during the Track Record Period was

primarily due to the increase in number of hotels we leased.


– 335 –

INDEBTEDNESS

Banking Facilities

As at December 31, 2018, we have a total banking facilities of RMB310.0 million, of

which the unutilized banking facilities amounted to RMB120.0 million.

Borrowings

Our interest-bearing bank loans and other borrowings as at the dates indicated are set out

in the table below.


August 31,As at

December 31,

2015 2016 2017 2018 2018


(unaudited)

Non-currentBank borrowings 150,000 150,000 160,000 187,500 185,000Loans from a related

party 25,000 69,000 – 6,700 –

175,000 219,000 160,000 194,200 185,000

CurrentBank borrowings 135,000 135,000 5,000 3,000 5,500

Total borrowings 310,000 354,000 165,000 197,200 190,500

All of our borrowings during the Track Record Period were denominated in Renminbi.

During the Track Record Periods, we had loans of RMB25.0 million, RMB69.0 million and

RMB6.7 million provided by New Century Tourism as at December 31, 2015 and 2016, and

August 31, 2018, respectively. The balance as at December 31, 2015 and 2016 was fully repaid

in 2017 and the balance as at August 31, 2018 was fully repaid as at September 30, 2018.

Certain of our bank borrowings were secured by property, plant and equipment and land use

rights, banks deposits, and guaranteed by related parties. All financial guarantees provided by

the related parties have been fully released in July 2018.

As at December 31, 2018, the aggregate amount of our borrowings was RMB190.5

million.


– 336 –

The following table sets out a breakdown of the maturity profile of our total borrowings

as at the dates indicated.


August 31,As at

December 31,

2015 2016 2017 2018 2018


On demand or within 1 year 135,000 135,000 5,000 3,000 5,500Between 1 and 2 years – 175,000 5,000 70,000 115,000Between 2 and 5 years 175,000 44,000 145,000 91,700 45,000Over 5 years – – 10,000 32,500 25,000

310,000 354,000 165,000 197,200 190,500

The weighted average effective interest rates of our current and non-current bank

borrowings during the Track Record Period were as follows:


For theeight

monthsended

August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Borrowings – current– RMB 5.89% 5.01% 4.67% 4.67%

Borrowings – non-current– RMB 5.52% 5.11% 4.77% 4.83%


– 337 –

Financial Guarantees and Collateral

The borrowings of RMB285.0 million, RMB285.0 million, RMB165.0 million and

RMB90.5 million as at December 31, 2015, 2016 and 2017 and August 31, 2018, respectively,

were secured by property, plant and equipment, land use rights, bank deposits, and guaranteed

by related parties. Under the terms of these secured borrowings, upon our failure to make

payments when they become due, we will make payments to reimburse the lenders and/or the

lenders will have the right to take possession of the collateral, sell the collateral and use the

sale proceeds to pay off the amounts owing and due in respect of our bank borrowings. All

financial guarantees provided by the related parties have been fully released in July 2018.


August 31,As at

December 31,

2015 2016 2017 2018 2018


Guaranteed by relatedparties 249,000 249,000 100,000 – –

Secured by bank deposit 36,000 36,000 – – –Secured by property, plant

and equipment and landuse rights – – 65,000 90,500 90,500

285,000 285,000 165,000 90,500 90,500

Our Directors confirm that as of the Latest Practicable Date, there was no material

covenant on any of our outstanding debt and there was no breach of any covenants during the

Track Record Period and up to the Latest Practicable Date. Our Directors further confirmed

that our Group did not experience any difficulty or default in payment of our borrowings or

breach of covenants during the Track Record Period and up to the Latest Practicable Date.

Except as disclosed above, as at December 31, 2018, being the latest practicable date for

determining our indebtedness, we did not have any loan capital issued and outstanding or

agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under

acceptances or acceptable credits, debentures, mortgages, charges, hire purchases

commitments, guarantees or other material contingent liabilities.

Our Directors confirm that there has not been any material change in our indebtedness

since December 31, 2018 and up to the Latest Practicable Date.


– 338 –

Contingent Liabilities

As at December 31, 2018, we did not have any material contingent liabilities or any

litigations or claims of material importance, pending or threatened against any member of our

Group. Our Directors have confirmed that there has not been any material change in the

contingent liabilities of our Group since December 31, 2018 and up to the Latest Practicable

Date.

Off-balance Sheet Commitments and Arrangements

As at the Latest Practicable Date, we did not have any off-balance sheet commitments and

arrangements, except capital commitment and operating lease commitment as disclosed in this

section.

KEY FINANCIAL RATIOS

The table below sets forth a summary of the key financial ratios for the periods and/or as

at the dates indicated.

For the years ended/As at December 31,

For the eight monthsended/As at August 31,

2015 2016 2017 2017 2018

(unaudited)

Gross Profit Margin(1) 16.0% 20.0% 25.9% 23.4% 22.3%Net Profit Margin(2) 1.9% 5.2% 10.0% 8.4% 10.0%Return on equity(3) 15.4% 29.8% 39.6% N/A N/ACurrent Ratio(4) 0.9x 1.0x 1.1x N/A 1.2xGearing Ratio(5) 27.3% 28.3% 12.6% N/A 13.7%

Notes:

1. Gross profit margin is calculated by dividing gross profit by revenue. For underlying reasons forfluctuations of gross profit margin during the Track Record Period, please see sub-section headed“Results of Operations” in this section.

2. Net profit margin is calculated by dividing profit and total comprehensive income by revenue. Forunderlying reasons for fluctuations of net profit margin during the Track Record Period, please seesub-section headed “Results of Operations” in this section.

3. Return on equity is calculated by dividing profit and total comprehensive income attributable to ownersof our Company for the period by the average total equity attributable to owners of our Company at thebeginning and the end of the period.

4. Current ratio is calculated by dividing currents assets by current liabilities at the end of the period.

5. Gearing ratio is calculated by dividing total borrowings by total assets at the end of the period.


– 339 –

Return on Equity

Return on equity increased from 15.4% for the year ended December 31, 2015 to 29.8%

for the year ended December 31, 2016, mainly due to a 180.1% increase in profit and total

comprehensive income attributable to owners of our Company. For the year ended December

31, 2017, return on equity further increased to 39.6% mainly due to a 93.4% increase in profit

and total comprehensive income attributable to owners of our Company.

Current Ratio

Our current ratio as at December 31, 2015, 2016 and 2017 and August 31, 2018 remained

relatively stable at 0.9x, 1.0x, 1.1x and 1.2x, respectively.

Gearing Ratio

Our gearing ratio increased to 28.3% as at December 31, 2016 mainly due to a 25.1%

increase in non-current borrowing. Our gearing ratio decreased to 12.6% as at December 31,

2017 mainly due to a decrease of RMB130.0 million in current borrowing and a decrease of

RMB59.0 million in non-current borrowing. Our gearing ratio slightly increased to 13.7% as

at August 31, 2018.

NON-IFRS MEASURES

The measures of financial performance described in this section are non-IFRS measures

and accordingly are not audited, not included in the financial statements and not presented in

accordance with IFRS. We present these financial measures as they are used by our

management to evaluate our operating performance. We also believe that these financial

measures provide useful information to investors in understanding and evaluating our

consolidated results of operation in the same manner as our management.


– 340 –

The following table sets out the reconciliation of our EBITDA, EBITDA margin,

EBITDAR and EBITDAR margin, all of which are non-IFRS measures:


ended August 31,

2015 2016 2017 2017 2018


Profit and total comprehensive

income for the year/period 29,641 84,055 166,567 89,196 111,555Adjusted for:

Income tax expense 28,653 33,175 56,455 34,726 30,641Finance costs 30,220 16,049 10,406 9,140 6,769Depreciation and

amortization 53,120 56,936 59,879 39,899 38,090Finance income (30,968) (12,193) (5,402) (3,937) (5,140)

EBITDA(1) 110,666 178,022 287,905 169,024 181,915

EBITDA Margin(2) 7.3% 11.1% 17.3% 15.8% 16.3%

Adjusted for:Operating lease expenses 403,026 399,850 374,067 256,384 255,388

EBITDAR(3) 513,692 577,872 661,972 425,408 437,303

EBITDAR Margin(4) 33.7% 36.1% 39.8% 39.8% 39.1%

Notes:

1. EBITDA is profit before income tax, finance income, finance costs and depreciation and amortization.

2. EBITDA margin is calculated by dividing EBITDA by revenue.

3. EBITDAR is calculated by EBITDA added by operating lease expenses.

4. EBITDAR margin is calculated by dividing EBITDAR by revenue.

5. EBITDA and EBITDAR are used by management as the primary measurement of operating performanceof our Group’s hotels and are used as a common performance measurement to compare results orestimate valuations across companies in the hotel industry. By computing the operating income beforededucting interest, taxes, depreciation and amortization in the case of EBITDA and also the rentexpenses in the case of EBITDAR, its management or potential investors in the hotel industry would beable to more effectively compare and assess the actual underlying operating performance of differenthotel operators, by excluding the effect on net profitability position as a result of different capitalstructure (for example, the use of equity versus debt when developing new hotels) and/or ownershipstructure (for example, leasing versus owning of hotel assets) adopted by hotel operators.


– 341 –

RELATED PARTY TRANSACTIONS AND BALANCES

Material Related Party Transactions

The following table sets out a breakdown of the overall amounts of transactions with

related parties for the years ended December 31, 2015, 2016 and 2017, and the eight months

ended August 31, 2017 and 2018.


ended August 31,

2015 2016 2017 2017 2018


Related party incomeHotel management revenue 59,423 34,380 35,530 23,764 24,854Hotel operation revenue 1,192 2,165 2,645 1,383 1,696Rental income 1,600 1,555 1,528 1,098 166Sales of goods 10,755 20,366 17,607 8,447 9,787Interest charged 25,674 7,799 907 907 –Other service income 5,428 7,032 8,139 5,277 6,870

104,072 73,297 66,356 40,876 43,373

Related party expensesPurchase of goods 7,093 5,622 7,705 6,111 3,678Purchase of services 10,918 11,292 11,477 6,457 7,369Purchase of non-current assets 5,263 24,882 2,432 811 927Interest paid 890 2,124 1,520 1,520 –Rental expenses payable/paid 217,344 213,656 214,020 137,599 140,073

241,508 257,576 237,154 152,498 152,047

Related party guaranteesBorrowings guaranteed by

related parties 249,000 249,000 100,000 100,000 –

Provision of hotel management and related services

For the years ended December 31, 2015, 2016 and 2017, and the eight months endedAugust 31, 2017 and 2018, we recorded revenue from provision of hotel management servicesto related parties amounting to RMB59.4 million, RMB34.4 million, RMB35.5 million,RMB23.8 million and RMB24.9 million, respectively. These are the full service hotelmanagement services provided by our Group to the New Century Tourism Group andcompanies controlled by our Controlling Shareholders.


– 342 –


August 31, 2017 and 2018, we recorded revenue from provision of other services to related

parties amounting to RMB5.4 million, RMB7.0 million, RMB8.1 million, RMB5.3 million and

RMB6.9 million, respectively. Such services include hotel supplies sourcing services by our

Group to the New Century Tourism Group and companies controlled by our Controlling

Shareholders.

Please refer to Note 35 of the Accountant’s Report in Appendix I to this prospectus for

further details on the companies controlled by our Controlling Shareholders.

Sales of goods


August 31, 2017 and 2018, we recorded revenue from sales of goods to related parties

amounting to RMB10.8 million, RMB20.4 million, RMB17.6 million, RMB8.4 million and

RMB9.8 million, respectively. These are the sale of certain goods including hotel supplies and

red wine by our Group to the New Century Tourism Group and companies controlled by our

Controlling Shareholders.



Purchase of services


August 31, 2017 and 2018, our purchase of services from related parties amounted to RMB10.9

million, RMB11.3 million, RMB11.5 million, RMB6.5 million and RMB7.4 million,

respectively. These are the sale of certain services including cleaning services and renovation

and maintenance services by the New Century Tourism Group to our Group and companies

controlled by our Controlling Shareholders.



Rental expenses payable/paid


August 31, 2017 and 2018, we incurred rental expenses payable and paid to related parties

amounting to RMB217.3 million, RMB213.7 million, RMB214.0 million, RMB137.6 million

and RMB140.1 million. These are primarily related to rent paid by our Group to New Century

REIT for leasing of the five New Century REIT Hotel Properties.


– 343 –

Discontinued related party transactions

During the Track Record Period, our Group purchased renovation materials from

Hangzhou New Century Decorating Co., Ltd.* (杭州開元裝飾工程有限公司), a company

controlled by New Century Tourism, one of our Controlling Shareholders, which amounted to

RMB5.2 million, RMB22.8 million and RMB0.4 million for the years ended December 31,

2015, 2016 and 2017, respectively. We had ceased to purchase renovation materials from this

company in 2018.

During the Track Record Period, we recorded a portion of rental income of RMB0.6

million, RMB0.6 million, RMB0.6 million and RMB0.4 million from Hangzhou Qiandao Lake

Resort Yacht Club Co., Ltd.* (杭州千島湖開元度假村遊艇俱樂部有限公司), a company then

controlled by New Century Tourism, one of our Controlling Shareholders, for the years ended

December 31, 2015, 2016 and 2017 and the eight months ended August 31, 2017, respectively.

It ceased to be our related party in February 2018 due to disposal of interest in this company

by New Century Tourism.

During the Track Record Period, we generated a portion of hotel management revenue of

RMB0.5 million and RMB0.6 million from Deqing New Century Investment and Management

Co., Ltd. New Century Business Hotel* (德清開元投資管理有限公司開元商務酒店) for the

years ended December 31, 2015 and 2016. It ceased to be our related party in December 2017

due to the deregistration in December 2017.

During the Track Record Period, we generated a portion of hotel operation revenue of

RMB0.1 million, RMB0.3 million and RMB0.1 million from Hangzhou New Century

International Tourism Co., Ltd.* (杭州開元國際旅行社有限公司) a company controlled by

New Century Holdings, an associate of Mr. Chen Miaolin, one of our Controlling Shareholders,

for the years ended December 31, 2015, 2016 and 2017. It ceased to be our related party in

September 2017 due to the disposal of interest in this company by New Century Holdings.

During the Track Record Period, the transaction amounts between our Group and Beijing

New Century Grand Hotel Management Co., Ltd.* (北京開元名都大酒店管理有限公司), a

company controlled by our Controlling Shareholders, were RMB6.5 million and RMB4.4

million for the years ended December 31, 2015 and 2016. It ceased to be our related party in

September 2016 due to disposal of interest in this company by our Controlling Shareholders.

During the Track Record Period, Zhejiang New Century Property Management Co., Ltd.

and the New Century Holdings Group had leased two staff dormitories to our Group. For the


the total amount of rental expenses paid by our Group amounted to approximately RMB1.6

million, RMB1.9 million, RMB2.6 million and RMB0.9 million, respectively. These two lease

agreements had been terminated by August 2018 and hence will not constitute the continuing

connected transactions upon Listing.


– 344 –

During the Track Record Period, we provided hotel management services and goods to

Shanghai Songjiang Grand New Century Hotel Co., Ltd.* (上海松江開元名都大酒店有限公司)

(“Shanghai Songjiang”), a company then controlled by the daughter of Mr. Chen Miaolin, one

of the Controlling Shareholders. For the years ended December 31, 2015, 2016 and 2017 and

the eight months ended August 31, 2017, the transaction amounts between our Group and

Shanghai Songjiang were RMB9.6 million, RMB9.7 million, RMB6.3 million and RMB4.9

million, respectively. In December 2017, Shanghai Songjiang was disposed by the daughter of

Mr. Chen Miaolin to Independent Third Parties and hence the transactions with Shanghai

Songjiang will not constitute continuing connected transaction upon Listing.

During the Track Record Period, our Group purchased printed goods from time to time

to replenish its hotel supplies, from Hangzhou Huangshi Chaoyi Printing Co., Ltd.* (杭州黃氏超藝印刷有限公司) (“Chaoyi Printing”), a company wholly-owned by Mr. Huang Yong,

brother-in-law of Mr. Chen Miaolin, our Controlling Shareholders, which amounted to RMB0.6

million, RMB0.4 million, RMB0.4 million and RMB0.2 million for the years ended December

31, 2015, 2016 and 2017 and the eight months ended August 31, 2018, respectively. It ceased

to be our related party in July 2018 as Mr. Huang Yong transferred all his interest in Chaoyi

Printing to an Independent Third Party.

Balances with related parties

The following table sets out a breakdown of the overall amounts of balances with related

parties as at December 31, 2015, 2016 and 2017, and as at August 31, 2017 and 2018.


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Receivables from related partiesTrade receivables 9,033 6,822 4,235 7,301Loan receivables and

other receivables 251,328 87,418 20,518 20,837Prepayment 932 960 1,144 301Interest receivables 70 85 – –

261,363 95,285 25,897 28,439

Payables due to related partiesTrade payable 50,193 30,036 22,323 19,613Other payables 22,387 18,449 10,397 12,799Advances 1,756 986 501 606

74,336 49,471 33,221 33,018


– 345 –

Our Directors confirm that each of the related party transactions set out in Note 35 to theAccountant’s Report in Appendix I to this prospectus was conducted in the ordinary course ofbusiness on an arm’s length basis with normal commercial terms between the relevant parties.Our Directors confirm that our related party transactions during the Track Record Period wouldnot distort our track record results or make our historical results not reflective of our futureperformance. Except for the loans with related parties, all the balances are trade in nature. OurDirectors confirm that all related parties balances which are non-trade in nature have been fullysettled as at October 31, 2018. For further details on related party balances and transactions,please refer to Note 35 of the Accountant’s Report in Appendix I to this prospectus.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We are exposed to various market risks in the ordinary course of business, includinginterest rate risk, foreign exchange risk, credit risk and liquidity risk.

Interest Rate Risk

As we have no significant interest-bearing assets except for cash and cash equivalents,restricted cash and interest bearing receivables, our income and operating cash flows aresubstantially independent of changes in market interest rates.

Our interest rate risk arises from borrowings. Borrowings obtained at variable ratesexpose us to cash flow interest rate risk. Borrowings obtained at fixed rates expose us to fairvalue interest rate risk. We have not hedged our cash flow or fair value interest rate risk. Theinterest rates and terms of repayments of borrowings are disclosed in Appendix I to thisprospectus. As at December 31, 2015, 2016 and 2017 and August 31, 2018, if the interest rateon borrowings had been higher or lower by 0.5%, the net profit for each year would havedecreased or increased by RMB0.4 million, RMB0.2 million, RMB0.4 million and RMB0.4million, respectively.

The fair value of our future cash flow fluctuates when the interest rates of our financialinstruments change.

Foreign Exchange Risk

We receive substantially all of our income from hotel operation and management inRenminbi, which is not freely convertible into other currencies. Our assets and liabilities areall denominated in Renminbi. We have only minimal exposure to foreign exchange fluctuation.In 2005, the PRC Government changed its Renminbi policy to permit fluctuations within amanaged band against a basket of foreign currencies. This change in policy has resulted in theappreciation of the Renminbi against the U.S. dollar. We do not currently use any foreigncurrency forward contracts to hedge our exposure to foreign exchange risk. However,fluctuations in exchange rates generally may adversely affect the value, translated or convertedinto Hong Kong dollars, of our net assets, earnings and any dividends we declare.

An increase or decrease of 5.0% in the exchange rate between U.S. dollar and Renminbiwould have no material impact on our profit or loss during the Track Record Period and wouldhave no impact on our equity.


– 346 –

Credit Risk

As at December 31, 2015, 2016 and 2017 and August 31, 2018, all cash and cash

equivalents and restricted cash were deposited in major financial institutions in the PRC, which

our Directors believe are of high credit quality.

We have established policies to ensure that provision of services and sales of properties

are made to customers with an appropriate credit history and we assess the creditworthiness

and financial strength of our customers as well as considering prior dealings with the customers

and volume of sales. For the ageing analysis of our trade and other receivables, see Note 9 to

the Accountant’s Report set out in Appendix I to this prospectus. Our management makes

periodic collective assessments as well as individual assessments on the recoverability of trade

and other receivables based on historical payment records, the length of the overdue period, the

financial strength of the debtors and whether there are any trade disputes.

Liquidity Risk

Our objective is to maintain sufficient cash and sources of funding through committed

credit facilities. To manage the liquidity risk, management monitors rolling forecasts of our

liquidity reserve (comprising undrawn banking facilities) and cash and cash equivalents on the

basis of expected cash flow. We expect to fund the future cash flow needs through internally

generated cash flows from operations and borrowings from financial institutions.

The table below analyzes our financial liabilities that will be settled on a net basis into

relevant maturity groups based on the remaining period from August 31, 2018 to the

contractual maturity date. The amounts disclosed in the table are the contractual undiscounted

cash flows.

Less than1 year

Between1-2 years

Between2-3 years

Over3 years Total


As at August 31, 2018Bank borrowings 3,000 70,000 55,000 62,500 190,500Loan from a related

party – – 6,700 – 6,700Interest payables on

borrowings 10,098 9,453 4,001 6,208 29,760Trade and other payables 298,137 – – – 298,137

311,235 79,453 65,701 68,708 525,097


– 347 –

Our approach to managing liquidity risk is to ensure that we have sufficient liquidity to

meet our liabilities when they fall due, under normal and stressed situations, without incurring

unacceptable losses or risking reputational damage. Taking into account these factors, our

expected cash generated from operating activities and our planned business expansion, our

Directors believe that we will not have material difficulties in meeting our liquidity needs

within the twelve months following the date of this prospectus.

Capital Risk Management

Our objectives when managing capital are to safeguard our ability to continue as a going

concern in order to provide returns for Shareholders and benefits for other stakeholders and to

maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, we may adjust the amount of dividends

paid to Shareholders, return capital to Shareholders, issue new shares or sell assets to reduce

debt.

Consistent with others in the industry, we monitor capital based on our gearing ratio. This

ratio is calculated as total borrowings divided by total assets. Total borrowings include

non-current borrowings and current borrowings.

The gearing ratios as at December 31, 2015, 2016 and 2017 and August 31, 2018 are as

follows:


August 31,

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Total borrowings 310,000 354,000 165,000 197,200Total assets 1,134,853 1,252,985 1,312,651 1,434,259

Gearing ratio 27.3% 28.3% 12.6% 13.7%

Inflation

Inflation in China has not materially impacted our results of operations in recent years.

According to the National Bureau of Statistics of China, the change in the Consumer Price

Index in China was 1.9%, 1.4%, 2.0% and 1.6% in 2014, 2015, 2016 and 2017, respectively.

Although inflation has not materially affected our operations, higher rates of inflation in China

may affect our business in the future. For example, certain operating costs and expenses, such

as the cost of raw materials, travel expenses, and labor expenses may increase as a result of

higher inflation.


– 348 –

LISTING EXPENSES

Listing expenses represent professional fees, underwriting commissions and other feesincurred in connection with the Listing and the Global Offering. Listing expenses to be borneby us are estimated to be approximately RMB71.3 million (equivalent to HK$81.6 million)(assuming an Offer Price of HK$16.71 per Offer Share, being the mid-point of the price rangestated in this prospectus), of which RMB64.5 million (equivalent to HK$73.9 million) isdirectly attributable to the issue of H Shares to the public and to be capitalized, whereas theremainder is expected to be reflected in the consolidated statement of comprehensive incomefor the year ending December 31, 2019. Our Directors do not expect such expenses tomaterially impact our results of operations for 2018 and 2019.

DISCLOSURE UNDER RULES 13.13 TO 13.19 OF THE LISTING RULES

Our Directors confirm that as at the Latest Practicable Date, there were no circumstancesthat would give rise to the disclosure requirements under Rules 13.13 to 13.19 of the ListingRules had the Shares been listed on the Stock Exchange on that date.

RECENT DEVELOPMENT

Our business operations had remained stable after the Track Record Period and up to theLatest Practicable Date as there were no material changes to our business model and thegeneral economic and regulatory environment in which we operate.

DIVIDENDS

Our board of directors is responsible for submitting proposals in respect of dividendpayments to the shareholders’ general meeting for approval. The determination of whether topay a dividend and in what amount is based on our general business conditions, our financialresults, our capital requirements, payment by our subsidiaries of cash dividends to ourCompany, interests of our shareholders and any other factors which the Board may deemrelevant.

We may distribute dividends in the form of cash, shares or a combination of cash andshares. Under the PRC Company Law and our Articles of Association, all of our shareholdersholding the same class of share have equal rights to dividends and other distributionsproportionate to their shareholding. Under the PRC Company Law, we may only pay dividendsout of our profit after tax as determined in accordance with generally acceptable accountingprinciples in the PRC, after we have made the following appropriations:

(i) recovery of accumulated losses from previous years, if any; and

(ii) appropriations to the statutory surplus reserve equal to certain percentage of theannual statutory net profits after offsetting any prior years’ losses as determinedunder the generally acceptable accounting standards in the PRC.

After the completion of the Global Offering, dividends may be paid only out ofdistributable profits as determined in accordance with generally acceptable accountingstandards in the PRC. Any distributable profits that are not distributed in a given year areretained and available for distribution in subsequent years.


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We generally do not distribute dividends in a year in which there is no profit available fordistribution. The payment of any dividend by us must also be approved at a shareholders’general meeting. We are not allowed to distribute profits to our shareholders until we havemade up our losses and made appropriations to our statutory reserves as described above. Thestatutory surplus reserve can be utilized to offset prior years’ losses, if any, and may beconverted into paid-in-capital.

During the Track Record Period, we declared and fully paid the following dividends:

• On April 24, 2017, a dividend of RMB59,690,000 was declared to the shareholdersof our Company and fully paid subsequently.

• On June 15, 2018, a dividend of RMB41,238,000 was declared to the shareholdersof our Company and fully paid subsequently.

Our historical dividends may not be indicative of the future payments.

UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

The following unaudited pro forma adjusted net tangible assets prepared in accordancewith Rule 4.29 of the Listing Rules are set out below to illustrate the effect of the GlobalOffering on the consolidated net tangible assets of our Group attributable to the equity holdersof our Company as at August 31, 2018 as if the Global Offering had taken place on that date.

The unaudited pro forma adjusted net tangible assets have been prepared for illustrativepurposes only and, because of its hypothetical nature, it may not give a true picture of theconsolidated net tangible assets of our Group had the Global Offering been completed as atAugust 31, 2018 or at any future dates.

AuditedConsolidated Net

Tangible Assetsof our Group


holders of ourCompany as at

August 31,2018(1)

Estimated NetProceeds from


UnauditedPro Forma

adjustedNet Tangible

Assets ofour Group


holders of ourCompany

Unaudited Pro FormaConsolidated Net Tangible

Assets per Share(3)


Based on the minimum indicativeOffer Price of HK$13.37per Offer Share 570,195 753,252 1,323,447 4.73 5.41

Based on the maximum indicativeOffer Price of HK$20.05per Offer Share 570,195 1,147,360 1,717,555 6.13 7.02


– 350 –

Notes:

1. The audited consolidated net tangible assets information of our Group attributable to the equity holdersof our Company as at August 31, 2018 is extracted from the Accountant’s Report set out in AppendixI, which is based on the audited consolidated net assets of our Group attributable to the equity holdersof our Company as at August 31, 2018 of RMB582,532,000 with an adjustment for the intangible assetsattributable to the equity holders of our Company as at August 31, 2018 of RMB12,337,000.

2. The estimated net proceeds to be received by our Company from the Global Offering are based on theindicative Offer Price of HK$13.37 and HK$20.05 per Share, respectively, after deduction of theunderwriting fees and other related expenses payable by our Company and takes no account of anyShares which may fall to be issued upon the exercise of the Over-allotment Option.

3. The unaudited pro forma net tangible assets per Share is arrived at after the adjustments referred to inthe preceding paragraphs and on the basis that 280,000,000 Shares were in issue assuming that theGlobal Offering has been completed on August 31, 2018 but takes no account of any Shares which mayfall to be issued upon the exercise of the Over-Allotment Option.

For the purpose of this unaudited pro forma adjusted net tangible assets, the amounts stated in RMB areconverted into Hong Kong dollars at a rate of RMB1.00 to HK$1.145. No representation is made thatRenminbi amounts have been, could have been or may be converted to Hong Kong dollars, or vice versa,at that rate.

4. No adjustment has been made to reflect any trading result or other transactions of our Group entered intosubsequent to August 31, 2018.

PROFIT ESTIMATE FOR THE YEAR ENDED DECEMBER 31, 2018

Estimated unaudited consolidated profit attributable to

owners of our Company(1)

not less than

RMB185.0 millionUnaudited pro forma estimated earnings per Share(2) not less than RMB0.66

Notes:

1. The bases on which the above profit estimate for the year ended December 31, 2018 has been preparedare summarized in Appendix IIB to this prospectus. The estimated unaudited consolidated profitattributable to owners of our Company for the year ended December 31, 2018 is based on the auditedconsolidated results of the Group for the eight months ended August 31, 2018, the unauditedconsolidated results based on management accounts of the Group for the three months ended November30, 2018 and an estimate of the consolidated results of the Group for the month ended December 31,2018. The profit estimate has been prepared on a basis consistent in all material respects with theaccounting policies presently adopted by the Group as set out in note 2.1 of the Accountant’s Report,the text of which is set out in Appendix I to this prospectus.

2. The calculation of the unaudited pro forma estimated earnings per Share is based on the estimatedunaudited consolidated profit attributable to owners of our Company for the year ended December 31,2018 and the weighted average number of 280,000,000 Shares that are outstanding during the year endedDecember 31, 2018 and on the assumption that the Global Offering had been completed on January 1,2018, but takes no account of any Shares which may fall to be issued upon the exercise of theOver-Allotment Option.


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DISTRIBUTABLE RESERVES

As at January 1, 2015 and December 31, 2015, we recorded an accumulated loss of

RMB59.2 million and RMB29.1 million, respectively. This was primarily due to (i) the

adjustments arisen from the New Century Hotel Investment Reorganization after the

distribution of dividend to its then shareholders in 2012, which turned our retained earning

position as at January 1, 2012 to an accumulated loss position as at December 31, 2012 under

the consolidated PRC GAAP financial statement of our Group; and (ii) the hotel industry in the

PRC experiencing a downturn in 2013 to 2014, which in turn adversely affected our Group’s

principal business particularly our upscale hotel operations. The recovery in the overall market

conditions of the hotel industry and the implementation of cost control measures by our Group

led to the improved financial performance of our Group since 2015 and we recorded a net profit

of RMB29.6 million, RMB84.1 million and RMB166.6 million for the years ended December

31, 2015, 2016 and 2017, respectively. As at December 31, 2016 and August 31, 2018, we

recorded RMB55.2 million and RMB105.2 million respectively in retained earnings, as

determined under IFRS, available for distribution to our shareholders.

PROPERTY INTERESTS AND PROPERTY VALUATION

Particulars of our property interests are set out in Appendix III to this prospectus.

Cushman & Wakefield Limited, an independent property valuer, has valued our property

interests as at November 30, 2018. The full text of its letter, summary of valuations and

valuation report in connection with such property interests are set out in Appendix III to this

prospectus.

The table below sets forth the reconciliation of aggregate carrying amounts of property

interests from our financial information as at August 31, 2018 to November 30, 2018 and the

revalued amount of our property interests as at November 30, 2018.

RMB in

thousands

Net book value of property interests as at August 31, 2018 201,008Less: Depreciation of building and facilities during the period from

August 31, 2018 to November 30, 2018 2,360

Net book value of property interests as at November 30, 2018 198,648Valuation surplus as at November 30, 2018 329,122

Valuation as at November 30, 2018 527,770


– 352 –

NO MATERIAL ADVERSE CHANGE

Our Directors have confirmed that there has been no material adverse change in our

financial or trading position since August 31, 2018, the date of our latest consolidated financial

results set forth in the Accountant’s Report in Appendix I to this prospectus, up to the date of

this prospectus.


– 353 –

FUTURE PLANS AND BUSINESS STRATEGIES

Please refer to the sub-section headed “Business – Strategies” in this prospectus or adetailed description of our Group’s business objectives and strategies.

USE OF PROCEEDS

The table below sets out the estimate of the net proceeds of the Global Offering which wewill receive after deduction of underwriting commissions and other estimated expenses inconnection with the Global Offering payable by our Company:





Assuming an Offer Price of HK$13.37per Offer Share (being the low end of theOffer Price range stated in this prospectus)

ApproximatelyHK$863.0 million

ApproximatelyHK$1,003.0 million

Assuming an Offer Price of HK$16.71per Offer Share (being the mid-point ofthe Offer Price range stated in thisprospectus)



Assuming an Offer Price of HK$20.05per Offer Share (being the high end of theOffer Price range stated in this prospectus)



We intend to use the net proceeds from the Global Offering for the following purposes(assuming an Offer Price of HK$16.71 per Offer Share, being the mid-point of the Offer Pricerange stated in this prospectus, after deduction of underwriting commissions and otherestimated expenses in connection with the Global Offering and the Over-allotment Option isnot exercised) and in the amounts set out below, subject to changes in light of our evolvingbusiness needs and changing market conditions:

(a) approximately HK$272.0 million, or approximately 25.0%, of the net proceeds fromthe Global Offering will be used for the development of our upscale business andresort hotel segment, of which:

(i) HK$200.0 million, will be allocated towards expanding our hotel portfoliothrough entering into new hotel lease agreements. We target to lease andoperate (1) two new upscale business hotels under the brand of “Grand NewCentury (開元名都)” with around 550 hotel rooms in total, expected to belocated in the Zhejiang and Hunan Province, all of which are expected tocommence operation in or before 2021; and (2) two new upscale resort hotelsunder the brands of “New Century Resort (開元度假村)” and “New CenturyWonderland (開元芳草地鄉村酒店)” with around 400 hotel rooms in total,expected to be located in Southern or South-western region of the PRC, all of

FUTURE PLANS AND USE OF PROCEEDS

– 354 –

which are expected to commence operation in or before 2021. For leasedhotels, we would be responsible for hotel renovation expenses, and purchasingall related fixed assets, supplies and other required equipment. The projectedaggregate hotel renovation and sourcing expenditure for our two new upscalebusiness hotels and two new upscale resort hotels are approximately HK$160.0million (amongst which HK$142.0 million will be used for the hotel renovationcost and HK$18.0 million for the sourcing expenditure) and HK$40.0 million(amongst which HK$25.0 million will be used for the hotel renovation cost andHK$15.0 million for the sourcing expenditure), respectively. The estimatedrenovation cost per hotel room for our upscale hotels typically range fromRMB75,000 to RMB400,000, depending on the location of the hotel, size ofthe operating area of the hotel and the level and scale of fitting out worksrequired to get the leased properties operationally ready; and

(ii) HK$72.0 million, will be allocated towards on-going maintenance and upgradeof our existing upscale business and resort hotels owned or leased by us,including seven existing upscale business hotels, with a projected aggregatemaintenance cost of HK$50.0 million and four existing upscale resort hotels,with a projected aggregate maintenance cost of HK$22.0 million. Of theabovementioned eleven hotels, seven business and three resort hotels havebeen opened for an average of 7.5 years and since 2016, have underwenton-going maintenance and upgrade work in areas such as renovation of hotelrooms, conference rooms and ballrooms and kitchen facilities, divided inphases to minimize disruption to our daily hotel operations. Such maintenanceand upgrade work is expected to continue and expected to be completed by2021. The maintenance and upgrade work in areas such as the construction ofoutdoor swimming pool for the remaining resort hotel which has been openedsince 2018 is expected to commence in 2019 and completed by 2021.

Please see section headed “Business – Strategies – Enhance our leading position inthe upscale business and resort hotels market through our hotel operation and hotelmanagement business models” in this prospectus.

(b) approximately HK$381.0 million, or approximately 35.0%, of the net proceeds fromthe Global Offering will be used for the development of our mid-scale hotelsegment, of which:

(i) HK$331.0 million, will be allocated towards expanding our hotel portfoliothrough entering into new hotel lease agreements. We target to lease andoperate 17 new mid-scale select service hotels under the brand of “NewCentury Manju Hotel (開元•曼居酒店)”, with around 2,200 hotel rooms intotal, expected to be in 16 different cities including Beijing, Shanghai,Hangzhou, Nanning and Guangzhou, all of which are expected to commenceoperation in or before 2021. Our investment would be required in renovationand purchase of relevant fixed assets, supplies and other required equipment.The projected aggregate hotel renovation and sourcing expenditure for our 17new mid-scale select service hotels are approximately HK$331.0 million


– 355 –

(amongst which HK$187.0 million will be used for the hotel renovation cost

and HK$144.0 million for the sourcing expenditures). The estimated

renovation cost per hotel room for our mid-scale select hotels typically range

from RMB110,000 to RMB160,000, depending on the location of the hotel, the

size of the operating area of the hotel and the level and scale of fitting out

works required to get the leased properties operationally ready; and

(ii) HK$50.0 million, will be allocated towards on-going maintenance and upgrade

of existing mid-scale select service hotels leased by us, including seven

mid-scale full service hotels, with a projected aggregate maintenance cost of

HK$45.0 million and four existing mid-scale select service hotels, with a

projected aggregate maintenance cost of HK$5.0 million. Of the

abovementioned eleven hotels, seven full-service and one limited service

mid-scale hotels have been opened for an average of 9.5 years and since 2016,

have underwent on-going maintenance and upgrade work in areas such as

renovation of hotel rooms and dining area and replacement of carpets, divided

in phases to minimize disruption to our daily hotel operations. Such

maintenance and upgrade work is expected to continue and expected to be

completed by 2021. The maintenance and upgrade work in areas such as

renovation of hotel rooms and replacement of carpets and furnitures for the

remaining three mid-scale limited service hotels, which have been opened for

an average of 5.3 years, is expected to commence in 2020 and completed by

2021.

Please see section headed “Business – Strategies – Further expand our business in

mid-scale hotel chains” in this prospectus.

(c) approximately HK$109.0 million, or approximately 10.0%, of the net proceeds from

the Global Offering will be used for brand building and promotion including but not

limited to, engaging in marketing and promotional activities, sponsorship of

industry events and advertising, of which:

(i) HK$60.0 million will be allocated towards brand building, including but not

limited to producing brand advertising videos, upgrading brand designs and

other production expenses; and

(ii) HK$49.0 million, will be allocated towards marketing and campaign expenses,

including but not limited to advertising in various media, and engaging in

promotional activities and sponsorship in various industry events.

Please see section headed “Business – Strategies – Increase marketing activities and

crossover marketing initiatives to maintain our strong brand recognition and expand

our guests base” in this prospectus.


– 356 –

(d) approximately HK$54.0 million, or approximately 5.0%, of the net proceeds fromthe Global Offering will be used for recruitment of more talent and strengtheningour implementation of training to our staff and recruitment programs for supportingour business expansion, of which:

(i) HK$30.0 million, will be allocated towards employee training and trainingcourses development including organization of programs under our “three-tiertalent training system” and for providing on-going training for our generalmanagers in anticipation of our future expansion; and

(ii) HK$24.0 million, will be allocated towards recruitment expenses including theengagement of recruitment agencies and publication of recruitmentadvertisements for the hiring of a total of 148 senior level managerial staffincluding: (1) seven senior management and 42 general managers for thedevelopment of our upscale and mid-scale full service hotels; and (2) four vicepresidents, 60 hotel project development managers, seven marketing andpromotion directors, a quality control manager, a finance director, a brandpromotion director and 25 hotel supplies general managers for the developmentof our mid-scale select service hotels in anticipation for our future expansion.

Please see section headed “Business – Strategies – Attract, retain and promote adedicated, efficient and creative workforce” in this prospectus.

(e) approximately HK$163.0 million, or approximately 15.0%, of the net proceeds fromthe Global Offering will be used for development of our information technologysystem by upgrading existing operational and IT system infrastructure, including butnot limited to, strengthening and upgrading our centralized data system andexpanding our range of hotel operation related technologies to improve experienceof hotel guests such as keyless entry, voice control and use of mobile application,of which:

(i) HK$40.0 million, will be allocated towards upgrade of management system,including but not limited to development and upgrade of our financial andhuman resources system, and development of big data system;

(ii) HK$50.0 million, will be allocated towards development of PMS system;

(iii) HK$30.0 million, will be allocated towards development and upgrade ofmembership management system; and

(iv) HK$43.0 million, will be allocated towards renovation and upgrade of smartguestrooms, including but not limited to keyless entry, voice control and use ofmobile application.

Please see section headed “Business – Strategies – Further investment anddevelopment in innovative digital strategies and improving operational efficiency”in this prospectus.


– 357 –

(f) approximately HK$109.0 million, representing approximately 10.0% of our net

proceeds from the Global Offering will be used for our general corporate purposes

and working capital.

In the event that the Offer Price per Share is not finally determined to be HK$16.71 (being

the mid-point of the stated range of the Offer Price of between HK$13.37 and HK$20.05 per

Offer Share), the amount of proceeds for each use set out above will be increased or reduced,

as the case may be, on a pro-rata basis.

In the event that the Over-allotment Option is exercised in full, we estimate we would

receive additional net proceeds of approximately HK$175.46 million, assuming an Offer Price

of HK$16.71 per Share, being the mid-point of the Offer Price range stated in this prospectus.

We intend to use the additional net proceeds for the aforesaid purposes in the same proportion

as disclosed above.

To the extent our net proceeds are not sufficient to fund the purposes set out above, we

intend to fund the balance through a variety of means, including but not limited to, cash

generated from operations and bank financing.

To the extent our net proceeds are not immediately used for the aforesaid purposes or if

we are unable to effect any part of our future plans, we may hold such net proceeds in deposits

with certain financial institutions.

REASONS FOR LISTING

Based on the reasons set out below, we believe that the Listing on the Stock Exchange

will increase our competitiveness and enhance our business development, market share,

financial results and business prospect. We believe that the Listing would facilitate the

implementation of our business strategies. As stated in the sub-section headed “Business –

Strategies” in this prospectus, we plan to enhance our leading position in the upscale business

hotels market, further expand our business in mid-scale hotel chains and resort hotels, increase

marketing activities and crossover marketing initiatives, introduce smart hotel room

technology and further invest and develop innovative digital strategies.

Furthermore, considering that many of our competitors have their respective parent

company, group companies or itself listed on the Stock Exchange or other exchanges, we

believe that the Listing on the Stock Exchange will also enable us to increase market awareness

of our brand name, maintain our competitive advantages in the PRC and to increase our level

of competitiveness in the PRC hotel industry, in view of the fact that Hong Kong is a gateway

to mainland China.

For the reasons stated above, our Directors believe that the Listing is commercially

sensible and justifiable.


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HONG KONG UNDERWRITERS

China Galaxy International Securities (Hong Kong) Co., LimitedBOCOM International Securities LimitedMorgan Stanley Asia LimitedICBC International Securities LimitedCGS-CIMB Securities (Hong Kong) LimitedGolden Rich Securities LimitedLead Securities (HK) LimitedMason Securities LimitedTUS Corporate Finance Limited

UNDERWRITING ARRANGEMENTS AND EXPENSES

Hong Kong Public Offering

Hong Kong Underwriting Agreement

Pursuant to the Hong Kong Underwriting Agreement, our Company is offering the HongKong Offer Shares for subscription by the public in Hong Kong on and subject to the terms andconditions of this prospectus, the Application Forms and the Hong Kong UnderwritingAgreement.

The Hong Kong Underwriting Agreement is conditional upon and subject to, amongstothers, the International Underwriting Agreement becoming unconditional and not having beenterminated.

Subject to the Listing Committee granting approval for the listing of, and permission todeal in, the H Shares to be issued pursuant to the Global Offering (including any H Shareswhich may be issued pursuant to the exercise of the Over-allotment Option) as mentioned inthis prospectus and to certain other conditions set out in the Hong Kong UnderwritingAgreement, the Hong Kong Underwriters have agreed to subscribe or procure subscribers tosubscribe for the Hong Kong Offer Shares which are not taken up under the Hong Kong PublicOffering, on and subject to the terms and conditions of this prospectus, the Application Formsand the Hong Kong Underwriting Agreement.

Grounds for termination

The Joint Global Coordinators (for themselves and on behalf of the Hong KongUnderwriters) shall, after consultation with our Company, have the sole and absolutediscretion, upon the giving notice in writing to our Company and/or New Century Tourism andMr. Chen Miaolin (the “Warranting Shareholders”), terminate the Hong Kong UnderwritingAgreement with immediate effect if any of the following events occur at any time prior to 8:00a.m. on the Listing Date:

(a) there has come to the notice of the Joint Sponsors or the Joint Global Coordinators(for and on behalf of the Hong Kong Underwriters) that:

(i) any statement, contained in this prospectus and the Application Forms(collectively “Hong Kong Public Offering Documents”) and/or in, anynotices, announcements, advertisements, communications or any other

UNDERWRITING

– 359 –

documents issued or used by or on behalf of our Company in connection withthe Hong Kong Public Offering and the International Offering (including anysupplement or amendment thereto) considered by the Joint GlobalCoordinators (for themselves and on behalf of the Hong Kong Underwriters) intheir sole and absolute opinion to be material in the context of the GlobalOffering, was, when it was issued, or has become, untrue, incorrect ormisleading in any respect or that any forecast, expression of opinion, intentionor expectation expressed in any of the Hong Kong Public Offering Documentsis not, in the sole and absolute opinion of the Joint Global Coordinators, in allmaterial respects, fair and honest and based on reasonable assumptions, whentaken as a whole; or

(ii) any matter has arisen or has been discovered which would or might, had itarisen or been discovered immediately before the date of this prospectus,constitute a material omission therefrom; or

(iii) any of the representations and warranties given by our Company or theWarranting Shareholders in the Hong Kong Underwriting Agreement or theInternational Underwriting Agreement is (or would when repeated be) was orhas become untrue, inaccurate or misleading or having been breached in amaterial respect; or

(iv) any material breach of any of the obligations or undertakings imposed uponany party (other than the Joint Global Coordinators or any of the Underwriters)to any of the Underwriting Agreements which is considered by the Joint GlobalCoordinators (for themselves and on behalf of the Hong Kong Underwriters) tobe material in the context of the Global Offering; or

(v) approval by the Listing Committee of the listing of, and permission to deal in,the H Shares is refused or not granted, other than subject to customaryconditions, or if granted, the approval is subsequently withdrawn, qualified(other than by customary conditions) or withheld; or

(vi) our Company withdraws any of the Hong Kong Public Offering Documents orthe Global Offering; or

(vii) any matter, event, act or omission which gives or is likely to give rise to anyliability of our Company or the Warranting Shareholders pursuant to theindemnities contained in the Hong Kong Underwriting Agreement if suchliability materially and adversely affects the business or financial positions ofthe Group; or

(viii) any of the experts in relation to the Global Offering as set out under thesub-section headed “Appendix VII – Statutory and General Information – D.Other information – 7. Consents of experts” in this prospectus has withdrawnits respective consent to being named in this prospectus or to the issue of thisprospectus with the inclusion of their reports, letters, summaries of valuationsand/or legal opinions (as the case may be) and references to its name includedin the form and context in which they respectively appears; or

UNDERWRITING

– 360 –

(ix) material contravention by our Company of the Listing Rules or applicable

laws; or

(x) material non-compliance of this prospectus (or any other documents used in

connection with the contemplated offer for subscription and issue of the H

Shares) or any aspect of the Global Offering with the Listing Rules or any other

applicable laws or regulation; or

(b) there shall develop, occur, exist or come into effect:

(i) any change or development involving a prospective change in, or any event or

series of events resulting or likely to result in or representing any change or

development involving a prospective change, in local, national, regional or

international financial, political, military, industrial, legal, economic, currency

market, fiscal or regulatory or market matters or conditions (including, without

limitation, conditions in stock markets, money and foreign exchange markets,

a change in the system under which the value of the Hong Kong currency is

linked to that of the currency of the United States) in or affecting Hong Kong,

the PRC, the Cayman Islands, the BVI, the United States, the European Union

(or any member thereof), Singapore, Japan or any other jurisdictions relevant

to our Group, any member of our Group and/or the Global Offering

(collectively, the “Relevant Jurisdictions”, and each a “Relevant

Jurisdiction”); or

(ii) any new law or regulation or any change or development involving a

prospective change in any existing law or regulation, or any change or

development involving a prospective change in the interpretation or

application thereof by any court or other competent authority in or affecting

any Relevant Jurisdiction; or

(iii) any event or series of events in the nature of force majeure (including, without

limitation, acts of government, strikes, lock-outs, fire, explosion, flooding,

civil commotion, acts of war, riot, public disorder, acts of terrorism (whether

or not responsibility has been claimed), acts of God, epidemic, outbreak of

infectious disease (including without limitation SARS, avian influenza A

(H5N1) and swine influenza (H1N1)), in or affecting any of the Relevant

Jurisdictions; or

(iv) any local, national, regional or international outbreak or escalation of

hostilities (whether or not war is or has been declared) or other state of

emergency or calamity or crisis in or affecting any of the Relevant

Jurisdictions; or

UNDERWRITING

– 361 –

(v) any moratorium, suspension or restriction or limitation in or on trading in

shares or securities generally on the Stock Exchange, the New York Stock

Exchange, the Nasdaq National Market, the London Stock Exchange, the

Singapore Stock Exchange, the Shanghai Stock Exchange, the Shenzhen Stock

Exchange, the Tokyo Stock Exchange; or

(vi) any general moratorium on commercial banking activities in any of the

Relevant Jurisdictions declared by the relevant authorities, or a disruption in

commercial banking activities or foreign exchange trading or securities

settlement or clearance services in or affecting any of the Relevant

Jurisdictions; or

(vii) any material adverse change or development or event involving a prospective

material adverse change in taxation or exchange controls (or the

implementation of any exchange control), currency exchange rates or foreign

investment regulations in any of the Relevant Jurisdictions; or

(viii) any material adverse change or development or event involving a prospective

material adverse change in our Group’s business, assets, liabilities, profit,

losses, financial, trading performance, condition, position or prospects; or

(ix) the commencement by any judicial or regulatory body or organization of any

public action against a Director or an announcement by any judicial or

regulatory body or organization that it intends to take any such action; or

(x) other than with the approval or prior written consent of the Joint Global

Coordinators, the issue or requirement to issue by our Company of any

supplement or amendment to this prospectus (or to any other documents used

in connection with the contemplated offer for subscription and issue of the H

Shares) pursuant to the Companies Ordinance, the Companies (Winding Up

and Miscellaneous Provisions) Ordinance or the Listing Rules or any

requirement or request of the Stock Exchange, the SFC and/or the CSRC; or

(xi) an order or petition for the winding up or liquidation of any member of our

Group or any composition or arrangement made by any member of our Group

with its creditors or a scheme of arrangement entered into by any member of

our Group or any resolution for the winding-up of any member of our Group

or the appointment of a provisional liquidator, receiver or manager over all or

part of the assets or undertaking of any member of our Group or anything

analogous thereto occurring in respect of any member of our Group; or

UNDERWRITING

– 362 –

(xii) a valid demand by any creditor for repayment or payment of any of our

Company’s indebtedness or those of any of its subsidiaries or in respect of

which our Company or any of its subsidiaries are liable prior to its stated

maturity, or any loss or damage sustained by our Company or any of its

subsidiaries (howsoever caused and whether or not the subject of any insurance

or claim against any person); or

(xiii) any material litigation or claim being threatened or instigated against any

member of our Group; or

(xiv) a Director being charged with an indictable offence or prohibited by operation

of law or otherwise disqualified from taking part in the management of a

company; or

(xv) the chairman or chief executive officer of our Company vacating his office; or

(xvi) any government authority or a political body or organization in any Relevant

Jurisdiction commencing any investigation or other action, or announcing an

intention to investigate or take other action, against any member of our Group;

or

(xvii) a governmental or regulatory prohibition on our Company for whatever reason

from allotting or selling the H Shares pursuant to the terms of the Global

Offering;

and which, individually or in the aggregate, in the sole opinion of the Joint Global Coordinators

(for themselves and on behalf of the Hong Kong Underwriters):

(a) has or will have or may have a material adverse effect on the assets, liabilities,

business, affairs, management, prospects, shareholders’ equity, profits, losses,

results of operations, position or condition, financial or otherwise, or performance

of our Group as a whole; or

(b) has or will have or may have a material adverse effect on the success of the Global

Offering or the level of applications under the Hong Kong Public Offering or the

level of interest under the International Offering and/or make it impracticable or

inadvisable for any part of the Hong Kong Underwriting Agreement, the Hong Kong

Public Offering or the Global Offering to be performed or implemented as envisaged

or for the Global Offering to proceed or to market the Global Offering; or

(c) has or will have or may have or is likely to have the effect of making any part of

the Hong Kong Underwriting Agreement (including underwriting) incapable of

performance in accordance with its terms or preventing the processing of

applications and/or payments pursuant to the Global Offering or pursuant to the

underwriting thereof.

UNDERWRITING

– 363 –

Other undertakings

Undertakings by our Company

Pursuant to Rule 10.08 of the Listing Rules, our Company has undertaken to the Stock

Exchange that no further Shares or securities convertible into equity securities of our Company

(whether or not of a class already listed) may be issued or form the subject of any agreement

to such issue within six months from the Listing Date (whether or not such issue of Shares or

securities of our Company will be completed within six months from the Listing Date), except

under the Global Offering (including the exercise of the Over-allotment Option) for the

circumstances provided under Rule 10.08 of the Listing Rules.

Pursuant to the Hong Kong Underwriting Agreement, our Company has undertaken to

each of the Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners, the Joint

Lead Managers and the Hong Kong Underwriters that our Company shall not, and shall procure

that each other member of our Group shall not, except for the issue of Shares pursuant to the

Global Offering, exercise of the Over-allotment Option or with the prior written consent of the

Joint Sponsors and the Joint Global Coordinators (for themselves and on behalf of the Hong

Kong Underwriters) and unless in compliance with the requirements of the Listing Rules, at

any time within the period commencing from the date of the Hong Kong Underwriting

Agreement up to and including the date which is six months from the Listing Date (the “FirstSix-month Period”), (a) offer, accept subscription for, pledge, issue, sell, lend, mortgage,

assign, charge, contract to issue or sell, sell any option or contract to sell, grant or agree to

grant any option, right or warrant to purchase or subscribe for, lend or otherwise transfer,

dispose of or create an encumbrance over, either directly or indirectly, conditionally or

unconditionally, any such share capital or other securities of our Company or any interest

therein (including, but not limited to, any securities that are convertible into or exchangeable

or exercisable for, or that represent the right to receive any such capital or securities or any

interest therein) or deposit any Shares or other securities of our Company, with a depository

in connection with the issue of any depository receipts; or (b) enter into any swap or other

arrangement that transfers to another, in whole or in part, any of the economic consequences

of ownership of any such capital or securities or any interest therein; or (c) enter into any

transaction with the same economic effect as any transaction described in (a) and (b) above;

or (d) agree or contract to, or publicly announce any intention to enter into, any transaction

described in (a), (b) and (c) above, in each case, whether any such transaction described in (a),

(b) and (c) above is to be settled by delivery of Shares or other securities, in cash or otherwise.

Further, pursuant to the Hong Kong Underwriting Agreement, our Company undertakes

to each of the Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners, the Joint

Lead Managers and the Hong Kong Underwriters that at any time during the period of six

months immediately following the expiry of the First Six-month Period (the “SecondSix-month Period”), it shall not, and shall procure that each other member of the Group shall

not enter into, or agree to enter into, any transaction described in (a), (b) and (c) above, or offer

to agree to or announce any intention to effect any transaction described in (a), (b) and (c)

above, in each case, whether any of the transactions so specified is to be settled by delivery

UNDERWRITING

– 364 –

of Shares or other securities of the Company, or in cash or otherwise, where such transaction

would result in any of the Warranting Shareholders, directly or indirectly, ceasing to be a

controlling shareholder (as defined in the Listing Rules) of our Company.

Undertakings by our Controlling Shareholders

Each of our Controlling Shareholders have undertaken to the Stock Exchange pursuant to

the Rule 10.07 of the Listing Rules and our Company that it will not, and shall procure that

the registered holder(s) controlled by each of our Controlling Shareholders (if any) will not,

without the prior written consent of the Stock Exchange, except pursuant to the Global

Offering and the Over-allotment Option or unless otherwise in compliance with the applicable

requirements of the Listing Rules:

(a) in the period commencing on the date by reference (the “Reference Date”) to which

disclosure of its/his shareholdings in our Company are made in this prospectus and

ending on the date (the “End Date”) which is six months from Listing Date, dispose

of, nor enter into any agreement to dispose of or otherwise create any options, rights,

interests or encumbrances in respect of, any of the H Shares or securities of the

Company in respect of which it is shown by this prospectus to be the beneficial

owner(s) (the “Relevant Securities”); and

(b) in the period of six months commencing from the End Date, dispose of, nor enter

into any agreement to dispose of, or otherwise create any options, rights, interests

or encumbrances in respect of, the Relevant Securities to such an extent that,

immediately following such disposal, or upon the exercise or enforcement of such

options, rights, interests or encumbrances, it/he would cease to be a controlling

shareholder (as defined in the Listing Rules) of our Company.

Each of our Controlling Shareholders has further undertaken to each of the Stock

Exchange pursuant to Note 3 to Rule 10.07(2) of the Listing Rules and our Company that

within the period commencing on the Reference Date and ending on the date which is 12

months from the Listing Date, it will:

(i) when it pledges or charges any securities of our Company beneficially owned by it

in favour of an authorized institution pursuant to Note (2) to Rule 10.07(2) of the

Listing Rules, immediately inform our Company in writing of such pledge or charge

together with the number of securities so pledged or charged; and

(ii) when it receives indications, either verbal or written, from the pledgee or chargee

that any of the pledged or charged securities of our Company will be disposed of,

immediately inform our Company of such indications.

UNDERWRITING

– 365 –

Our Company will inform the Stock Exchange in writing as soon as it has been informed

of any of the matters referred to above (if any) by any of our Controlling Shareholders and

disclose such matters in accordance with the publication requirements under Rule 2.07C of the

Listing Rules as soon as possible.

Pursuant to the Hong Kong Underwriting Agreement, each of the Warranting

Shareholders has undertaken to each of our Company, the Joint Sponsors, the Joint Global

Coordinators, the Joint Bookrunners, the Joint Lead Managers and the Hong Kong

Underwriters that:

(i) during the First Six-month Period, it shall not, and shall procure that the relevant

registered holder(s) and its associates and companies controlled by it and any

nominee or trustee holding in trust for it shall not, without the prior written consent

of the Joint Global Coordinators (for themselves and on behalf of the Hong Kong

Underwriters) and unless otherwise in compliance with the requirements of the

Listing Rules, (a) offer, pledge, charge (other than any pledge or charge of our

Company’s issued share capital after the Global Offering (assuming the Over-

allotment Option is not exercised) in favour of an authorised institution as defined

in the Hong Kong Banking Ordinance for a bona fide commercial loan), sell, sell any

option or contract to purchase, purchase any option or contract to sell, grant or agree

to grant any option, right or warrant to purchase or subscribe for, lend or otherwise

transfer, dispose of or create an encumbrance over, either directly or indirectly,

conditionally or unconditionally, any of the Shares in respect of which such

Warranting Shareholder is shown by this prospectus to be the beneficial owner

(whether direct or indirect) (the “Lock-up Securities”); or (b) enter into any swap

or other arrangement that transfers to another, in whole or in part, any of the

economic consequences of ownership of any Lock-up Securities; or (c) agree,

conditionally or unconditionally, to enter into any transaction with the same

economic effect as any transaction described in (a) and (b) above; or (d) agree or

contract to, or announce any intention to enter into, any transaction described in (a),

(b) and (c) above, whether any such transaction is to be settled by delivery of such

capital or securities, in cash or otherwise;

(ii) during Second Six-month Period, it shall not, and shall procure that the relevantregistered holder(s) of the Lock-up Securities shall not, enter into, or agree to enterinto any of the transactions specified in (i)(a), (b) and/or (c) above or agree orcontract to or publicly announce any intention to enter into any such transaction ineach case, where such transaction would result in any of the WarrantingShareholders directly or indirectly ceasing to be a controlling shareholder (asdefined in the Listing Rules) of our Company; and

(iii) until the expiry of the Second Six-month Period, in the event that it enters into anysuch transactions specified in (i)(a), (b) or (c) above or agrees or contracts to, orpublicly announces any intention to enter into any such transactions, it will take allreasonable steps to ensure that it will not create a disorderly or false market in thesecurities of our Company.

UNDERWRITING

– 366 –

Pursuant to the Hong Kong Underwriting Agreement, each of the Warranting

Shareholders has further undertaken to each of our Company, the Joint Sponsors, the Joint

Global Coordinators, the Joint Bookrunners, the Joint Lead Managers and the Hong Kong

Underwriters that, from the date of the Hong Kong Underwriting Agreement up to and

including the expiry of the Second Six-month Period, it will:

(a) when it pledges or charges any securities or interests in the securities of our

Company, immediately inform our Company and the Joint Global Coordinators in

writing of such pledge or charge together with the number of securities and nature

of interest so pledged or charged; and

(b) if and when it receives indications, either verbal or written, from any pledgee or

chargee that any of the pledged or charged securities or interests in the securities of

our Company will be sold, transferred or disposed of, immediately inform our

Company and the Joint Global Coordinators in writing of such indications.

Hong Kong Underwriters’ interests in our Company

Save for their interests and obligations under the Hong Kong Underwriting Agreement,

none of the Hong Kong Underwriters is interested beneficially or non-beneficially in any

shares in any member of our Group or has any right (whether legally enforceable or not) or

option to subscribe for, or to nominate persons to subscribe for, any shares in any member of

our Group.

The International Offering

In connection with the International Offering, it is expected that our Company will enter

into the International Underwriting Agreement with, among others, the International

Underwriters. Under the International Underwriting Agreement, the International Underwriters

would, subject to certain conditions set out therein, agree to subscribe for the International

Offer Shares being offered pursuant to the International Offering or procure subscribers to

subscribe for such International Offer Shares.

Our Company is expected to grant to the International Underwriters the Over-allotment

Option, exercisable by the Joint Global Coordinators on behalf of the International

Underwriters on or before the date which is the 30th day from the date of the last day of lodging

application under the Hong Kong Public Offering, to require our Company to issue up to and

not more than 10,500,000 additional H Shares (representing 15% of the total number of the

Offer Shares initially available under the Global Offering) at the Offer Price to cover

over-allocations in the International Offering.

UNDERWRITING

– 367 –

Commission and expenses

The Joint Global Coordinators (for themselves and on behalf of the Underwriters) will

receive (i) an underwriting commission of 3.0% of the aggregate Offer Price of all the Offer

Shares (including Shares to be issued pursuant to the Over-Allotment Option); and (ii) an

additional incentive fee (payable at the sole discretion of our Company) of 0.5% of the

aggregate Offer Price of all the Offer Shares (including Shares to be issued pursuant to the

Over-Allotment Option). In addition, the Joint Sponsors will receive a sponsorship and

documentation fee in relation to the Global Offering. The underwriting commission, financial

advisory and documentation fees, listing fees, the Stock Exchange trading fee, the SFC

transaction levy, legal and other professional fees together with printing and other expenses

relating to the Global Offering, assuming an Offer Price of HK$16.71 (being the mid-point of

Offer Price range between HK$13.37 per Offer Share and HK$20.05 per Offer Share), are

estimated to amount to approximately HK$81.6 million in total (assuming that the Over-

allotment Option is not exercised).

Indemnity

Our Company and the Warranting Shareholders have agreed to indemnify the Joint

Sponsors, the Joint Global Coordinators, the Joint Lead Managers, the Joint Bookrunners, the

Hong Kong Underwriters and their respective affiliates and delegated persons against certain

losses which they may suffer, such as, losses arising from the performance of their obligations

under the Hong Kong Underwriting Agreement and any breach by us of the Hong Kong

Underwriting Agreement.

ACTIVITIES BY THE UNDERWRITERS

The Underwriters and their respective affiliates may each individually undertake a variety

of activities (as further described below) which do not form part of the underwriting or

stabilizing process. These entities are diversified financial institutions with relationships in and

outside Hong Kong. These entities engage in a wide range of commercial and investment

banking, brokerage, funds management, trading, hedging, investing and other activities for

their own accounts and for the account of others. In relation to the H Shares, other activities

could include acting as agent for buyers and sellers of the H Shares, entering into transactions

with other buyers and sellers in a principal capacity, proprietary trading in the H Shares, and

entering into over the counter or listed derivative transactions or listed and unlisted securities

transactions (including issuing securities such as derivative warrants listed on a stock

exchange) which have as their underlying assets including the H Shares. Those activities may

require hedging activity by those entities involving, directly or indirectly, buying and selling

the H Shares. All such activities could occur in Hong Kong and elsewhere in the world and may

result in the Underwriters and their respective affiliates holding long and/or short positions in

the H Shares, in baskets of securities or indices including the H Shares, in units of funds that

may purchase the H Shares, or in derivatives related to any of the foregoing.

UNDERWRITING

– 368 –

In relation to issues by the Underwriters or their respective affiliates of any listed

securities having the H Shares as their or part of their underlying assets, whether on the Stock

Exchange or on any other stock exchange, the rules of the relevant stock exchange may require

the issuer of other securities (or one of its affiliates or agents) to act as a market maker or

liquidity provider in the security, and these will also result in hedging activity in the H Shares

in most cases.

All these activities may occur both during and after the end of the stabilizing period

described in the section headed “Structure and Conditions of the Global Offering –

Stabilization” in this prospectus. These activities may affect the market price or value of the

H Shares, the liquidity or trading volume in the H Shares, and the volatility of our Share price,

and the extent to which this occurs from day to day cannot be estimated.

It should be noted that when engaging in any of these activities, the Underwriters or their

respective affiliates will be subject to certain restrictions, including the following:

(a) the Underwriters or their respective affiliates (other than the Stabilizing Manager or

any person acting for it) must not, in connection with the distribution of the Offer

Shares, effect any transactions (including issuing or entering into any option or other

derivative transactions relating to the Offer Shares), whether in the open market or

otherwise, with a view to stabilizing or maintaining the market price of any of the

Offer Shares at levels other than those which might otherwise prevail in the open

market; and

(b) the Underwriters or their respective affiliates must comply with all applicable laws

and regulations, including the market misconduct provisions of the SFO, including

the provisions prohibiting insider dealing, false trading, price rigging and stock

market manipulation.

UNDERWRITING

– 369 –

THE GLOBAL OFFERING

The Global Offering comprises:

• the Hong Kong Public Offering of 7,000,000 H Shares (subject to reallocation as

mentioned below) in Hong Kong as described below under the sub-section headed

“Hong Kong Public Offering”; and

• the International Offering of 63,000,000 H Shares (subject to reallocation and the

Over-allotment Option as mentioned below).

The Hong Kong Public Offering is open to all members of the public in Hong Kong as

well as to institutional and professional investors in Hong Kong. The International Offering

will involve selective marketing of the International Offer Shares to institutional and

professional investors and other investors expected to have a sizeable demand for the

International Offer Shares in Hong Kong and other jurisdictions outside the United States in

reliance on Regulation S. The Hong Kong Underwriters have severally agreed to underwrite the

Hong Kong Offer Shares under the terms of the Hong Kong Underwriting Agreement. The

International Underwriters will severally underwrite the International Offer Shares pursuant to

the terms of the International Underwriting Agreement. Further details of the underwriting are

set out in the section headed “Underwriting” in this prospectus.

Investors may apply for the Hong Kong Offer Shares under the Hong Kong Public

Offering or indicate an interest, if qualified to do so, for the International Offer Shares under

the International Offering, but may not do both.

References in this prospectus to applications, Application forms, application monies or

the procedure for applications relate solely to the Hong Kong Public Offering.

PRICING AND ALLOCATION

The International Underwriters will be soliciting from prospective investors’ indications

of interest in acquiring the Offer Shares in the International Offering. Prospective professional

and institutional investors will be required to specify the number of the Offer Shares under the

International Offering they would be prepared to acquire either at different prices or at a

particular price. This process, known as “book-building”, is expected to continue up to, and to

cease on or around, the last day for lodging applications under the Hong Kong Public Offering.

The Offer Price is expected to be fixed by the Price Determination Agreement to be

entered into between the Joint Global Coordinators (for themselves and on behalf of the

Underwriters) and our Company on or before the Price Determination Date, when the market

demand for the Offer Shares will be ascertained. The Price Determination Date is currently

expected to be on March 1, 2019 and, in any event, no later than March 5, 2019.

STRUCTURE AND CONDITIONS OF THE GLOBAL OFFERING

– 370 –

The Offer Price will not be more than HK$20.05 per Offer Share and is expected to benot less than HK$13.37 per Offer Share. The Offer Price will fall within the Offer Price rangeas stated in this prospectus unless otherwise announced, as further explained below, no laterthan the morning of the last day for lodging applications under the Hong Kong Public Offering.Prospective investors should be aware that the Offer Price to be determined on or before thePrice Determination Date may be, but is not expected to be, lower than the indicative OfferPrice range as stated in this prospectus.

If, for any reason, the Joint Global Coordinators (for themselves and on behalf of theUnderwriters) and our Company are unable to enter into the Price DeterminationAgreement by the Price Determination Date, the Global Offering will not becomeunconditional and will not proceed.

The Joint Global Coordinators (for themselves and on behalf of the Underwriters) may,where considered appropriate, based on the level of interest expressed by prospectiveprofessional, institutional and private investors during the book-building process, and with theconsent of our Company, reduce the number of Offer Shares and/or the indicative Offer Pricerange below that stated in this prospectus, at any time prior to the morning of the last day forlodging applications under the Hong Kong Public Offering.

In such a case, our Company will, as soon as practicable following the decision to makesuch reduction, and in any event no later than the morning of March 1, 2019, being the last dayfor lodging applications under the Hong Kong Public Offering, cause there to be published inthe South China Morning Post (in English) and Hong Kong Economic Times (in Chinese), andto be posted on the Stock Exchange’s website at www.hkexnews.hk and our Company’swebsite at www.kaiyuanhotels.com notice of reduction in the number of Offer Shares and/orthe indicative Offer Price range and will, as soon as practicable following the decision to makesuch reduction, issue a supplemental prospectus updating investors of the change in the number

of Offer Shares being offered under the Global Offering and/or the indicative Offer Price range,

extend the period under which the Hong Kong Public Offering was opened for acceptance to

allow potential investors sufficient time to consider their subscriptions or reconsider their

submitted subscriptions, and give potential investors who had applied for the Hong Kong Offer

Shares the right to withdraw their applications under the Hong Kong Public Offering. Such

notice and supplemental prospectus will also include confirmation or revision, as appropriate,

of the offering statistics, and the future plans and use of proceeds as currently set out in

“Summary” and any other financial information which may change as a result of such

reduction.

Before submitting applications for the Hong Kong Offer Shares, applicants should have

regard to the possibility that any announcement of a reduction in the number of Offer Shares

and/or the indicative Offer Price range may not be made until the day which is the last day for

lodging applications under the Hong Kong Public Offering.

If the number of the Offer Shares being offered under the Global Offering and/or the

indicative Offer Price range is so reduced, applicants who have already submitted an

application may or may not (depending on the information contained in the announcement) be


– 371 –

notified that they are required to confirm their applications. All applicants who have already

submitted an application need to confirm their applications in accordance with the procedures

set out in the announcement and all unconfirmed applications will not be valid. The Offer

Price, if agreed upon, will be fixed within such revised Offer Price range. In the absence of any

notice being published of a reduction in the number of the Offer Shares being offered under

the Global Offering stated in this prospectus and the Application Forms, respectively, on or

before the last day for lodging applications under the Hong Kong Public Offering, the Offer

Price, once agreed upon, will under no circumstances be higher than the maximum Offer Price

as stated in the Application Forms.

In the event of a reduction in the number of the Offer Shares, the Joint Global

Coordinators (for themselves and on behalf of the Underwriters) may, at their discretion,

reallocate the number of the Offer Shares to be offered in the Hong Kong Public Offering and

the International Offering, provided that the number of the Offer Shares comprised in the Hong

Kong Public Offering shall not be less than 10% of the total number of Offer Shares available

under the Global Offering. The Offer Shares to be offered in the Hong Kong Public Offering

and the Offer Shares to be offered in the International Offering may, in certain circumstances,

be reallocated between these offerings at the discretion of the Joint Global Coordinators (for

themselves and on behalf of the Underwriters) on the basis as described in the sub-section

headed “Reallocation and clawback” in this section.

In the absence of any notice being published in the South China Morning Post (in English)

and Hong Kong Economic Times (in Chinese), and on the Stock Exchange’s website at

www.hkexnews.hk and our Company’s website at www.kaiyuanhotels.com of a reduction in

the indicative Offer Price range as stated in this prospectus on or before the morning of the last

day for lodging applications under the Hong Kong Public Offering, the Offer Price, if agreed

upon by the Joint Global Coordinators (for themselves and on behalf of the Underwriters) and

our Company, will not be set outside the Offer Price range as stated in this prospectus.

An announcement of the final Offer Price, together with indication of the level of interests

in the International Offering, the results of application under the Hong Kong Public Offering

and the basis and results of allocation of the Hong Kong Offer Shares is expected to be

published on March 8, 2019 in the South China Morning Post (in English) and Hong Kong

Economic Times (in Chinese), and to be posted on the website of our Company at

www.kaiyuanhotels.com and the website of the Stock Exchange at www.hkexnews.hk.

UNDERWRITING ARRANGEMENTS

The Hong Kong Public Offering is fully underwritten by the Hong Kong Underwriters

under the terms of the Hong Kong Underwriting Agreement and is subject to our Company and

the Joint Global Coordinators (for themselves and on behalf of the Underwriters) agreeing on

the Offer Price.

We expect to enter into the International Underwriting Agreement relating to the

International Offering on the Price Determination Date.


– 372 –

The Hong Kong Underwriting Agreement and the International Underwriting Agreement

are summarised in the section headed “Underwriting” in this prospectus.

PRICE PAYABLE ON APPLICATION

The Offer Price will not be more than HK$20.05 per Offer Share and is expected to be

not less than HK$13.37 per Offer Share, unless otherwise announced no later than the morning

of the last day for lodging applications under the Hong Kong Public Offering as set out above.

Prospective investors should be aware that the Offer Price as determined on the Price

Determination Date may be lower than the indicative Offer Price as stated in this prospectus.

Applicants under the Hong Kong Public Offering should pay, on application, the

maximum price of HK$20.05 per Offer Share and 1.0000% brokerage, 0.0050% Stock

Exchange trading fee and 0.0027% SFC transaction levy. That means a total of HK$4,050.41

is payable for every board lot of 200 Shares. The Application Forms have tables showing the

exact amount payable for certain numbers of Hong Kong Offer Shares. If the Offer Price, as

finally determined in the manner as described above, is lower than the maximum price of

HK$20.05 per Offer Share, appropriate refund payments (including the related brokerage, the

Stock Exchange trading fee and the SFC transaction levy attributable to the excess application

money) will be made to applicants, without interest. Further details are set out in the section

headed “How to Apply for the Hong Kong Offer Shares” in this prospectus.

CONDITIONS OF THE GLOBAL OFFERING

Acceptance of the application for the Offer Shares pursuant to the Hong Kong Public

Offering is conditional upon:

1. Listing

The Listing Committee granting listing of, and permission to deal in, the H Shares in issue

and to be issued as mentioned in this prospectus on the Stock Exchange and such approval not

subsequently having been revoked prior to the commencement of dealings in the Shares.

2. Underwriting Agreements

(i) The obligations of the Underwriters under the Underwriting Agreements becoming

unconditional, and not being terminated in accordance with the terms thereof; and

(ii) the execution and delivery of the International Underwriting Agreement prior to or

on the Price Determination Date.

3. Price determination

The Offer Price having been determined and the execution of the Price Determination

Agreement on or around the Price Determination Date.


– 373 –

If any of the conditions is not fulfilled or waived on or before the times specified above,

the Global Offering will lapse and the application money will be returned to the applicants,

without interest. The terms on which the application money will be returned to the applicants

are set out in the sub-section headed “Refund of your monies” in the relevant Application

Forms.

In the meantime, the application money will be held in one or more separate bank

accounts with the receiving banker or other bank(s) in Hong Kong, licensed under the Hong

Kong Banking Ordinance.

HONG KONG PUBLIC OFFERING

Our Company is initially offering 7,000,000 Hong Kong Offer Shares for subscription(subject to reallocation) by members of the public in Hong Kong under the Hong Kong PublicOffering, representing 10% of the total number of Offer Shares initially offered under theGlobal Offering. The Hong Kong Public Offering is fully underwritten by the Hong KongUnderwriters subject to the Offer Price is agreed on or before Price Determination Date.Applicants for the Hong Kong Offer Shares are required on application to pay the maximumOffer Price of HK$20.05 per Share plus 1.0000% brokerage, 0.0050% Stock Exchange tradingfee and 0.0027% SFC transaction levy.

Completion of the Hong Kong Public Offering is subject to the conditions set out in“Conditions of the Global Offering” below.

Applications

The Hong Kong Public Offering is open to all members of the public in Hong Kong. Eachapplicant under the Hong Kong Public Offering will be required to give an undertaking andconfirmation in the application submitted by him/her/it that he/she/it has not applied for nortaken up any Offer Shares under the International Offering nor otherwise participated in theInternational Offering. Applicants should note that if such undertaking and/or confirmationgiven by an applicant is breached and/or is untrue (as the case may be), such applicant’sapplication under the Hong Kong Public Offering is liable to be rejected.

Allocation

For allocation purposes only, the total number of the Hong Kong Offer Shares will bedivided equally into two pools: pool A and pool B. The Hong Kong Offer Shares in pool A willconsist of 3,500,000 Shares and will be allocated on an equitable basis to applicants who haveapplied for the Hong Kong Offer Shares in the value of HK$5 million (excluding the brokerage,the Stock Exchange trading fee and the SFC transaction levy thereon) or less. The Hong KongOffer Shares available in pool B will consist of 3,500,000 Shares and will be allocated on anequitable basis to applicants who have applied for Hong Kong Offer Shares in the value ofmore than HK$5 million (excluding the brokerage, the Stock Exchange trading fee and the SFCtransaction levy) and up to the value of pool B.


– 374 –

Investors should be aware that the allocation ratios for applications in the two pools, aswell as the allocation ratios for applications in the same pool, are likely to be different. Whereone of the pools is under-subscribed, the surplus Hong Kong Offer Shares will be transferredto satisfy demand in the other pool and be allocated accordingly. Applicants can only receivean allocation of Hong Kong Offer Shares from any one pool but not from both pools and canonly make applications to either pool A or pool B. Any application made for more than 100%of the Hong Kong Offer Shares initially available under pool A or pool B will be rejected.

Allocation of the Hong Kong Offer Shares to investors under the Hong Kong PublicOffering will be based solely on the level of valid applications received under the Hong KongPublic Offering. When there is over-subscription under the Hong Kong Public Offering,allocation of the Hong Kong Offer Shares may involve balloting, which would mean that someapplicants may be allotted more Hong Kong Offer Shares than others who have applied for thesame number of the Hong Kong Offer Shares, and those applicants who are not successful inthe ballot may not receive any Hong Kong Offer Shares.

Reallocation and Clawback

The allocation of the Offer Shares between the Hong Kong Public Offering and the

International Offering is subject to reallocation. Paragraph 4.2 of Practice Note 18 of the

Listing Rules requires a clawback mechanism to be put in place which would have the effect

of increasing the number of Offer Shares under the Hong Kong Public offering to a certain

percentage of the total number of Offer Shares offered under the Global Offering if certain

prescribed total demand levels are reached. If the number of Offer Shares validly applied for

under the Hong Kong Public Offering represents (a) 15 times or more but less than 50 times,

(b) 50 times or more but less than 100 times and (c) 100 times or more of the total number of

Offer Shares initially available under the Hong Kong Public Offering, then Offer Shares will

be reallocated to the Hong Kong Public Offering from the International Offering. As a result

of such reallocation, the total number of Offer Shares available under the Hong Kong Public

Offering will be increased to 21,000,000 Offer Shares (in the case of (a)), 28,000,000 Offer

Shares (in the case of (b)) and 35,000,000 Offer Shares (in the-case of (c)), representing

approximately 30%, 40% and 50% of the total number of Offer Shares initially available under

the Global Offering, respectively. In each case, the additional Offer Shares reallocated to the

Hong Kong Public Offering will be allocated between pool A and pool B and the number of

Offer Shares allocated to the International Offering will be correspondingly reduced in such

manner as the Joint Global Coordinators deem appropriate.

In addition to the reallocation above, the Joint Global Coordinators reserve their rights to

reallocate Offer Shares from the International Offering to the Hong Kong Public Offering to

satisfy valid applications in pool A and pool B under the Hong Kong Public Offering. However,

according to Guidance Letter HKEX-GL91-18 issued by the Stock Exchange if (a) the

International Offering is undersubscribed and the Hong Kong Public Offering are fully

subscribed or oversubscribed irrespective of the number of times or (b) when the International

Offering is fully subscribed or oversubscribed and the Hong Kong Public Offering is

oversubscribed by less than 15 times the total number of Offer Shares initially available under

the Hong Kong Public Offering, then in any of these circumstances, the Joint Global


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Coordinators may only reallocate Offer Shares from the International Offering to the Hong

Kong Public Offering other than pursuant to Practice Note l8 of the Listing Rules on the

following conditions (the “Allocation Cap”):

(i) the total number of Offer Shares that may be reallocated from the International

Offering to the Hong Kong Public Offering shall be not more than the number of

Offer Shares initially allocated to the Hong Kong Public Offering i.e. 7,000,000

Offer Shares, representing approximately 10.0% of the number of the Offer Shares

being offered under the Global Offering, so that the total number of Offer Shares for

subscription under the Hong Kong Public Offering will increase to 14,000,000

Shares, representing two times the number of Hong Kong Offer Shares initially

available under the Hong Kong Public Offering and 20.0% of the number of Offer

Shares initially available under the Global Offering; and

(ii) the final Offer Price must be fixed at the bottom end of the indicative offer price

range stated in this prospectus (i.e. HK$13.37 per Offer Share).

If the Hong Kong Public Offering is not fully subscribed and the International Offering

is not undersubscribed, the Joint Global Coordinators may reallocate all or any unsubscribed

Hong Kong Offer Shares to the International Offering, in such proportions as the Joint Global

Coordinators deem appropriate. Allocation Cap will not be triggered. In each case, the

additional Offer Shares reallocated to the Hong Kong Public Offering will be allocated between

pool A and pool B and the number of Offer Shares allocated to the International Offering will

be correspondingly reduced in such manner as the Joint Global Coordinators deem appropriate.

In addition, the Joint Global Coordinators may allocate Offer Shares from the International

Offering to the Hong Kong Public Offering to satisfy valid applications under the Hong Kong

Public Offering.

If the Hong Kong Public Offering is not fully subscribed, the Joint Global Coordinators

have the authority to reallocate all or any unsubscribed Hong Kong Public Offer Shares to the

International Offering, in such proportions as the Joint Global Coordinators deem appropriate.

INTERNATIONAL OFFERING

Number of Offer Shares initially offered

Our Company is expected to offer initially 63,000,000 International Offer Shares (subjectto reallocation and the Over-allotment Option) at the Offer Price under the InternationalOffering. The number of International Offer Shares expected to be initially available forapplication under the International Offering represents 90% of the total number of Offer Sharesbeing initially offered under the Global Offering. The International Offering is expected to befully underwritten by the International Underwriters subject to the Offer Price being agreed onor before the Price Determination Date. Investors subscribing for the International Offer Sharesare also required to pay the maximum Offer Price of HK$20.05 per Share plus 1.0000%brokerage, 0.0050% Stock Exchange trading fee and 0.0027% SFC transaction levy of theOffer Price.


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Allocation

It is expected that the International Underwriters, or selling agents nominated by them,on behalf of our Company, will conditionally place the International Offer Shares at the OfferPrice with selected professional, institutional and private investors. Professional andinstitutional investors generally include brokers, dealers, companies (including fund managers)whose ordinary business involves dealing in shares and other securities and corporate entitieswhich regularly invest in shares and other securities. Private investors applying through banksor other institutions who sought the International Offer Shares in the International Offeringmay also be allocated the International Offer Shares.

Allocation of the International Offer Shares will be based on a number of factors,including the level and timing of demand and whether or not it is expected that the relevantinvestor is likely to acquire further Shares and/or hold or sell its Shares after the Listing. Suchallocation is intended to result in a distribution of the International Offer Shares on a basiswhich would lead to the establishment of a solid shareholder base to the benefit of ourCompany and its shareholders as a whole. Investors to whom International Offer Shares areoffered will be required to undertake not to apply for Shares under the Hong Kong PublicOffering.

Our Company, our Directors, the Joint Sponsors and the Joint Global Coordinators (forthemselves and on behalf of the Underwriters) are required to take reasonable steps to identifyand reject applications under the Hong Kong Public Offering from investors who receiveShares under the International Offering, and to identify and reject indications of interest in theInternational Offering from investors who receive Shares under the Hong Kong PublicOffering.

The International Offering is expected to be subject to the conditions as stated in thesub-section headed “Conditions of the Global Offering” of this section.

The total number of Offer Shares to be issued or sold pursuant to the InternationalOffering may change as a result of the clawback arrangement described in the section headed“Hong Kong Public Offering – Reallocation and clawback” above, the exercise of theOver-allotment Option in whole or in part and/or any reallocation of unpurchased Offer Sharesoriginally included in the Hong Kong Public Offering at the discretion of the Joint GlobalCoordinators (for themselves and on behalf of the Underwriters).

Over-allotment Option

In connection with the Global Offering, our Company is expected to grant to the

International Underwriters, exercisable by Joint Global Coordinators (for themselves and on

behalf of the International Underwriters) the Over-allotment Option at any time from the

Listing Date until 30 days after the date of the last day of lodging application under the Hong

Kong Public Offering. Pursuant to the Over-allotment Option, our Company may be required

by the Joint Global Coordinators (for themselves and on behalf of the International

Underwriters) to allot and issue up to and not more than 10,500,000 additional H Shares

(representing 15% of the total number of the Offer Shares initially available under the Global

Offering) at the Offer Price to cover over-allocations in the International Offering. The Joint

Global Coordinators (for themselves and on behalf of the International Underwriters) may also


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cover such over-allocations by, among other means, purchasing Shares in the secondary market

or by a combination of these means or otherwise as may be permitted under the applicable laws

and regulatory requirements. Any such secondary market purchases will be made in compliance

with all applicable laws, rules and regulations. If the Over-allotment Option is exercised in full,

the additional 10,500,000 H Shares will represent 15% of our Company’s enlarged issued share

capital immediately after completion of the Global Offering and the exercise of the

Over-allotment Option. In the event that the Over-allotment Option is exercised or expired, an

announcement will be made by our Company.

STABILIZATION

Stabilization is a practice used by underwriters in some markets to facilitate the

distribution of securities. To stabilize, the underwriters may bid for, or purchase, the newly

issued securities in the secondary market, during a specified period of time, to retard and, if

possible, prevent a decline in the initial public market price of the securities below the offer

price. In Hong Kong, the stabilization price is not permitted to exceed the offer price.

In connection with the Global Offering, the Stabilizing Manager or its affiliates or any

person acting for it, for itself and on behalf of the Underwriters, may over-allocate Shares or

effect transactions with a view to stabilizing or maintaining the market price of the H Shares

at a level higher than that which might otherwise prevail for a limited period after the Listing

Date. The number of H Shares that may be over-allocated will be up to, but not more than, an

aggregate of 10,500,000 additional H Shares, being the number of the H Shares that may be

issued under the Over-allotment Option. Such stabilizing actions may include over-allocating

International Offer Shares and covering such over allocations by exercising the Over-allotment

Option or by making purchases in the secondary market or through a combination of these

means or otherwise. However, there is no obligation on the Stabilizing Manager, its affiliates

or any person acting for it to conduct any such stabilization action. Such stabilization action,

if commenced, will be conducted at the absolute discretion of the Stabilizing Manager, its

affiliates or any person acting for it and may be discontinued at any time, and required to be

brought to an end within 30 days after the last day for lodging of applications under the Hong

Kong Public Offering. Such transactions may be effected in all jurisdictions where it is

permissible to do so, in each case in compliance with all applicable laws and regulatory

requirements.

Stabilizing action will be entered into in accordance with the laws, rules and regulations

in place in Hong Kong on stabilization. Subject to and under the Securities and Futures (Price

Stabilizing) Rules of the SFO, the Stabilizing Manager (for itself and on behalf of the

Underwriters) may take all or any of the following actions (“primary stabilizing action”) with

respect to any Shares during the stabilization period, which should end on March 31, 2019:

(1) purchase, or agree to purchase, any of the Shares;


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(2) offer or attempt to do anything as described in paragraph (1), for the sole purposeof preventing or minimising any reduction in the market price of the Shares, TheStabilizing Manager (for itself and on behalf of the Underwriters) may also, inconnection with any primary stabilizing action, take all or any of the followingactions:

(a) for the purpose of preventing or minimising any reduction in the market priceof the Shares;

(i) allocate a greater number of Shares than the number that is initiallyoffered under the Global Offering; or

(ii) sell or agree to sell Shares so as to establish a short position in them;

(b) pursuant to an option or other right to purchase or subscribe for Shares,purchase or subscribe for or agree to purchase or subscribe for Shares in orderto close out any position established under paragraph (a);

(c) sell or agree to sell any Shares acquired by it in the course of the primarystabilizing action in order to liquidate any position that has been established bysuch action; and/or

(d) offer or attempt to do anything as described in paragraphs (a)(ii), (b) or (c).

Investors should be aware:

• that the Stabilizing Manager (for itself and on behalf of the Underwriters) may, inconnection with the stabilizing action, maintain a long position in the Shares;

• that there is no certainty regarding the extent to which and the time period for whichthe Stabilizing Manager will maintain such a long position;

• of possible impact in the case of liquidation of such a long position by theStabilizing Manager;

• that stabilizing action cannot be taken to support the price of the Shares for longerthan the stabilizing period which begins on the Listing Date and ends on the earlierof the 30th day after the last day for the lodging of applications under the HongKong Public Offering or the commencement of trading of the Shares on the StockExchange, that the stabilizing period is expected to expire on March 31, 2019, andthat after this date, when no further stabilizing action may be taken, demand for theShares, and therefore its price could fall; and

• that the price of the Shares cannot be assured to stay at or above the Offer Price bythe taking of any stabilizing action; and that stabilizing bids may be made ortransactions effected in the course of the stabilizing action at any price at or belowthe Offer Price, which means that stabilizing bids may be made or transactionseffected at a price below the price the investor has paid for the Shares.


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Over-allocation

Following any over-allocation of Shares in connection with the Global Offering, the Joint

Global Coordinators, or any person acting for them may cover such over-allocation by, among

other methods, using Shares purchased by the Stabilizing Manager, its affiliates or any person

acting for it in the secondary market, exercising the Over-allotment Option in full or in part,

by a combination of these means. Any such purchases will be made in accordance with the

laws, rules and regulations in place in Hong Kong, including in relation to stabilization, the

Securities and Futures (Price Stabilizing) Rules, as amended, made under the SFO.

DEALING

Assuming that the Hong Kong Public Offering becomes unconditional at or before 8:00

a.m. in Hong Kong on Monday, March 11, 2019, it is expected that dealings in the H Shares

on the Stock Exchange will commence at 9:00 a.m. on Monday, March 11, 2019. The H Shares

will be traded in board lots of 200 H Shares each and the stock code of the H Shares will be

1158.


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1. HOW TO APPLY

If you apply for the Hong Kong Offer Shares, then you may not apply for or indicate an

interest for the International Offer Shares.

To apply for the Hong Kong Offer Shares, you may:

• use a WHITE or YELLOW Application Form;

• apply online via the HK eIPO White Form service at www.hkeipo.hk; or

• electronically cause HKSCC Nominees to apply on your behalf.

None of you or your joint applicant(s) may make more than one application, except where

you are a nominee and provide the required information in your application.

Our Company, the Joint Sponsors, the Joint Global Coordinators, the HK eIPO WhiteForm Service Provider and their respective agents may reject or accept any application in full

or in part for any reason at their discretion.

2. WHO CAN APPLY

You can apply for Hong Kong Offer Shares on a WHITE or YELLOW Application Form

if you or the person(s) for whose benefit you are applying:

• are 18 years of age or older;

• have a Hong Kong address;

• are outside the United States, and are not a United States Person (as defined in

Regulation S under the U.S. Securities Act); and

• are not a legal or natural person of the PRC.

If you apply online through the HK eIPO White Form service, in addition to the above,

you must also: (i) have a valid Hong Kong identity card number and (ii) provide a valid e-mail

address and a contact telephone number.

If you are a firm, the application must be in the individual members’ names. If you are

a body corporate, the application form must be signed by a duly authorised officer, who must

state his representative capacity, and stamped with your corporation’s chop.

If an application is made by a person under a power of attorney, the Joint Global

Coordinators may accept it at their discretion and on any conditions they think fit, including

evidence of the attorney’s authority.

HOW TO APPLY FOR THE HONG KONG OFFER SHARES

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The number of joint applicants may not exceed four and they may not apply by means of

the HK eIPO White Form service for the Hong Kong Offer Shares.

Unless permitted by the Listing Rules, you cannot apply for any Hong Kong Offer Shares

if you are:

• an existing beneficial owner of Shares in our Company and/or any its subsidiaries;

• a Director or chief executive officer of our Company and/or any of its subsidiaries;

• an associate and/or close associate of any of the above;

• a connected person and/or core connected person of our Company or will become a

connected person and/or core connected person of our Company immediately upon

completion of the Global Offering; and

• have been allocated or have applied for any International Offer Shares or otherwise

participate in the International Offering.

3. APPLYING FOR HONG KONG OFFER SHARES

Which Application Channel to Use

For Hong Kong Offer Shares to be issued in your own name, use a WHITE Application

Form or apply online through www.hkeipo.hk.

For Hong Kong Offer Shares to be issued in the name of HKSCC Nominees and deposited

directly into CCASS to be credited to your or a designated CCASS Participant’s stock account,

use a YELLOW Application Form or electronically instruct HKSCC via CCASS to cause

HKSCC Nominees to apply for you.

Where to Collect the Application Forms

You can collect a WHITE Application Form and a prospectus during normal business

hours from 9:00 a.m. on Tuesday, February 26, 2019 until 12:00 noon on Friday, March 1, 2019

from:

(i) the following offices of the Hong Kong Underwriters:

China Galaxy International Securities (Hong Kong) Co., Limited20th Floor, Wing On Centre


Sheung Wan

Hong Kong


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BOCOM International Securities Limited9th FloorMan Yee Building68 Des Voeux Road CentralHong Kong

Morgan Stanley Asia Limited46/F, International Commerce Centre1 Austin Road WestKowloonHong Kong

ICBC International Securities Limited37/F, ICBC Tower3 Garden RoadHong Kong

CGS-CIMB Securities (Hong Kong) Limited25/F, Gloucester TowerThe Landmark15 Queen’s Road CentralHong Kong

Golden Rich Securities Limited22/F, Siu On Centre188 Lockhart RoadWan ChaiHong Kong

Lead Securities (HK) LimitedUnit A, 23/FThe Wellington198 Wellington StreetSheung WanHong Kong

Mason Securities Limited19/F, Lee Garden Three1 Sunning RoadCauseway BayHong Kong

TUS Corporate Finance Limited15/F, Shanghai Commercial Bank Tower12 Queen’s Road CentralCentralHong Kong


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(ii) any of the designated branches of the receiving bank:

Bank of China (Hong Kong) Limited

District Branch Name Address

Hong Kong Island Bank of China Tower Branch

King’s Road Branch

1 Garden Road, Hong Kong

131-133 King’s Road,

North Point, Hong Kong

Kowloon Sham Shui Po (On Ning

Building) Branch

147-149 Castle Peak Road,

Sham Shui Po, Kowloon

New Territories Metro City Branch Shop 209, Level 2,

Metro City Phase 1,

Tseung Kwan O,

New Territories

Yuen Long (Hang Fat

Mansion) Branch

8-18 Castle Peak Road,

Yuen Long, New Territories

You can collect a YELLOW Application Form and a prospectus during normal business

hours from 9:00 a.m. on Tuesday, February 26, 2019 until 12:00 noon on Friday, March 1, 2019

from the Depository Counter of HKSCC at 1/F, One & Two Exchange Square, 8 Connaught

Place, Central, Hong Kong or from your stockbroker.

Time for Lodging Application Forms

Your completed WHITE or YELLOW Application Form, together with a cheque or a

banker’s cashier order attached and marked payable to “BANK OF CHINA (HONG KONG)

NOMINEES LIMITED – NEW CENTURY HOTEL MANAGEMENT PUBLIC OFFER”

for the payment, should be deposited in the special collection boxes provided at any of the

designated branches of the receiving bank listed above, at the following times:

Tuesday, February 26, 2019 – 9:00 a.m. to 5:00 p.m.Wednesday, February 27, 2019 – 9:00 a.m. to 5:00 p.m.

Thursday, February 28, 2019 – 9:00 a.m. to 5:00 p.m.Friday, March 1, 2019 – 9:00 a.m. to 12:00 noon

The application lists will be open from 11:45 a.m. to 12:00 noon on Friday, March 1,

2019, the last application day or such later time as described in the sub-section “Effect of Bad

Weather on the Opening of the Applications Lists” in this section.


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4. TERMS AND CONDITIONS OF AN APPLICATION

Follow the detailed instructions in the Application Form carefully; otherwise, your

application may be rejected.

By submitting an Application Form or applying through the HK eIPO White Form

service among other things, you:

(i) undertake to execute all relevant documents and instruct and authorise our Company

and/or the Joint Global Coordinators (or their respective agents or nominees), as

agents of our Company, to execute any documents for you and to do on your behalf

all things necessary to register any Hong Kong Offer Shares allocated to you in your

name or in the name of HKSCC Nominees as required by our Articles of

Association;

(ii) agree to comply with the Companies (Winding Up and Miscellaneous Provisions)

Ordinance, the Companies Ordinance and our Articles of Association;

(iii) confirm that you have read the terms and conditions and application procedures set

out in this prospectus and in the Application Form and agree to be bound by them;

(iv) confirm that you have received and read this prospectus and have only relied on the

information and representations contained in this prospectus in making your

application and will not rely on any other information or representations except

those in any supplement to this prospectus;

(v) confirm that you are aware of the restrictions on the Global Offering in this

prospectus;

(vi) agree that none of our Company, the Joint Sponsors, the Joint Global Coordinators,

the Joint Bookrunners, the Joint Lead Managers, the Underwriters, their respective

directors, officers, employees, partners, agents, advisers and any other parties

involved in the Global Offering is or will be liable for any information and

representations not in this prospectus (and any supplement to it);

(vii) undertake and confirm that you or the person(s) for whose benefit you have made

the application have not applied for or taken up, or indicated an interest for, and will

not apply for or take up, or indicate an interest for, any Offer Shares under the

International Offering nor participated in the International Offering;


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(viii) agree to disclose to our Company, our H Share Registrar, receiving bank, the Joint

Sponsors, the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead

Managers, the Underwriters and/or their respective advisers and agents any personal

data which they may require about you and the person(s) for whose benefit you have

made the application;

(ix) if the laws of any place outside Hong Kong apply to your application, agree and

warrant that you have complied with all such laws and none of our Company, the

Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead

Managers and the Underwriters nor any of their respective officers or advisers will

breach any law outside Hong Kong as a result of the acceptance of your offer to

purchase, or any action arising from your rights and obligations under the terms and

conditions contained in this prospectus and the Application Form;

(x) agree that once your application has been accepted, you may not rescind it because

of an innocent misrepresentation;

(xi) agree that your application will be governed by the laws of Hong Kong;

(xii) represent, warrant and undertake that (i) you understand that the Hong Kong Offer

Shares have not been and will not be registered under the U.S. Securities Act; and

(ii) you and any person for whose benefit you are applying for the Hong Kong Offer

Shares are outside the United States (as defined in Regulation S) or are a person

described in paragraph (h)(3) of Rule 902 of Regulation S;

(xiii) warrant that the information you have provided is true and accurate;

(xiv) agree to accept the Hong Kong Offer Shares applied for, or any lesser number of

such Shares allocated to you under the application;

(xv) authorise our Company to place your name(s) or the name of the HKSCC Nominees,

on our Company’s register of members as the holder(s) of any Hong Kong Offer

Shares allocated to you, and our Company and/or our agents to send any Share

certificate(s) and/or any e-Auto Refund payment instructions and/or any refund

cheque(s) to you or the first-named applicant for joint application by ordinary post

at your own risk to the address stated on the application, unless you have fulfilled

the criteria mentioned in “Despatch/Collection of Share certificates and refund

monies” in this section to collect the Share certificate(s) and/or refund cheque(s) in

person;


– 386 –

(xvi) declare and represent that this is the only application made and the only application

intended by you to be made to benefit you or the person for whose benefit you are

applying;

(xvii) understand that our Company and the Joint Global Coordinators will rely on your

declarations and representations in deciding whether or not to make any allotment

of any of the Hong Kong Offer Shares to you and that you may be prosecuted for

making a false declaration;

(xviii) (if the application is made for your own benefit) warrant that no other application

has been or will be made for your benefit on a WHITE or YELLOW Application

Form or by giving electronic application instructions to HKSCC or to the HK

eIPO White Form Service Provider by you or by any one as your agent or by any

other person; and

(xix) (if you are making the application as an agent for the benefit of another person)

warrant that (i) no other application has been or will be made by you as agent for

or for the benefit of that person or by that person or by any other person as agent

for that person on a WHITE or YELLOW Application Form or by giving electronic

application instructions to HKSCC; and (ii) you have due authority to sign the

Application Form or give electronic application instructions on behalf of that

other person as their agent.

Additional Instructions for YELLOW Application Form

You may refer to the YELLOW Application Form for details.

5. APPLYING THROUGH HK eIPO WHITE FORM SERVICE

General

Individuals who meet the criteria in “Who can apply” section, may apply through the HK

eIPO White Form service for the Hong Kong Offer Shares to be allotted and registered in their

own names through the designated website at www.hkeipo.hk.

Detailed instructions for application through the HK eIPO White Form service are on

the designated website. If you do not follow the instructions, your application may be rejected

and may not be submitted to our Company. If you apply through the designated website, you

authorise the HK eIPO White Form Service Provider to apply on the terms and conditions in

this prospectus, as supplemented and amended by the terms and conditions of the HK eIPO

White Form service.


– 387 –

Time for Submitting Applications under the HK eIPO White Form

You may submit your application to the HK eIPO White Form Service Provider at

www.hkeipo.hk (24 hours daily, except on the last application day) from 9:00 a.m. on Tuesday,

February 26, 2019 until 11:30 a.m. on Friday, March 1, 2019 and the latest time for completing

full payment of application monies in respect of such applications will be 12:00 noon on

Friday, March 1, 2019 or such later time under the “Effects of Bad Weather on the Opening of

the Applications Lists” in this section.

No Multiple Applications

If you apply by means of HK eIPO White Form, once you complete payment in respect

of any electronic application instruction given by you or for your benefit through the HK

eIPO White Form service to make an application for Hong Kong Offer Shares, an actual

application shall be deemed to have been made. For the avoidance of doubt, giving an

electronic application instruction under HK eIPO White Form more than once and

obtaining different payment reference numbers without effecting full payment in respect of a

particular reference number will not constitute an actual application.

If you are suspected of submitting more than one application through the HK eIPO White

Form service or by any other means, all of your applications are liable to be rejected.

Section 40 of the Hong Kong Companies (Winding Up and Miscellaneous Provisions)

Ordinance

For the avoidance of doubt, our Company and all other parties involved in the preparation

of this prospectus acknowledge that each applicant who gives or causes to give electronic

application instructions is a person who may be entitled to compensation under Section 40 of

the Hong Kong Companies (Winding Up and Miscellaneous Provisions) Ordinance (as applied

by Section 342E of the Companies Winding Up and Miscellaneous Provisions Ordinance).

6. APPLYING BY GIVING ELECTRONIC APPLICATION INSTRUCTIONS TO

HKSCC VIA CCASS

General

CCASS Participants may give electronic application instructions to apply for the Hong

Kong Offer Shares and to arrange payment of the money due on application and payment of

refunds under their participant agreements with HKSCC and the General Rules of CCASS and

the CCASS Operational Procedures.


– 388 –

If you are a CCASS Investor Participant, you may give these electronic applicationinstructions through the CCASS Phone System by calling 2979 7888 or through the CCASSInternet System (https://ip.ccass.com) (using the procedures in HKSCC’s “An OperatingGuide for Investor Participants” in effect from time to time).

HKSCC can also input electronic application Instructions for you if you go to:

Hong Kong Securities Clearing Company LimitedCustomer Service Centre

1/F, One & Two Exchange Square8 Connaught Place, Central

Hong Kong

and complete an input request form.

You can also collect a copy of this prospectus from this address.

If you are not a CCASS Investor Participant, you may instruct your broker or custodianwho is a CCASS Clearing Participant or a CCASS Custodian Participant to give electronicapplication instructions via CCASS terminals to apply for the Hong Kong Offer Shares onyour behalf.

You will be deemed to have authorised HKSCC and/or HKSCC Nominees to transfer thedetails of your application to our Company, the Joint Global Coordinators and our H ShareRegistrar.

Giving Electronic Application Instructions to HKSCC via CCASS

Where you have given electronic application instructions to apply for the Hong KongOffer Shares and a WHITE Application Form is signed by HKSCC Nominees on your behalf:

(i) HKSCC Nominees will only be acting as a nominee for you and is not liable for anybreach of the terms and conditions of the WHITE Application Form or thisprospectus;

(ii) HKSCC Nominees will do the following things on your behalf:

• agree that the Hong Kong Offer Shares to be allotted shall be issued in thename of HKSCC Nominees and deposited directly into CCASS for the creditof the CCASS Participant’s stock account on your behalf or your CCASSInvestor Participant’s stock account;

• agree to accept the Hong Kong Offer Shares applied for or any lesser numberof such Shares allocated;

• undertake and confirm that you have not applied for or taken up, will not applyfor or take up, or indicate an interest for, any Offer Shares under theInternational Offering;


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• (if the electronic application instructions are given for your benefit) declarethat only one set of electronic application instructions has been given foryour benefit;

• (if you are an agent for another person) declare that you have only given oneset of electronic application instructions for the other person’s benefit andare duly authorised to give those instructions as an agent;

• confirm that you understand that our Company, our Directors and the JointGlobal Coordinators will rely on your declarations and representations indeciding whether or not to make any allotment of any of the Hong Kong OfferShares to you and that you may be prosecuted if you make a false declaration;

• authorise our Company to place HKSCC Nominees’ name on our Company’sregister of members as the holder of the Hong Kong Offer Shares allocated toyou and to send H Share certificate(s) and/or refund monies under thearrangements separately agreed between us and HKSCC;

• confirm that you have read the terms and conditions and application proceduresset out in this prospectus and agree to be bound by them;

• confirm that you have received and/or read a copy of this prospectus and haverelied only on the information and representations in this prospectus in causingthe application to be made, save as set out in any supplement to thisprospectus;

• agree that none of our Company, the Joint Sponsors, the Joint GlobalCoordinators, the Joint Bookrunners, the Joint Lead Managers, theUnderwriters, their respective directors, officers, employees, partners, agents,advisers and any other parties involved in the Global Offering, is or will beliable for any information and representations not contained in this prospectus(and any supplement to it);

• agree to disclose your personal data to our Company, our H Share Registrar,receiving bank, the Joint Sponsors, the Joint Global Coordinators, the JointBookrunners, the Joint Lead Managers, the Underwriters and/or theirrespective advisers and agents;

• agree (without prejudice to any other rights which you may have) that onceHKSCC Nominees’ application has been accepted, it cannot be rescinded forinnocent misrepresentation;

• agree that any application made by HKSCC Nominees on your behalf isirrevocable before the fifth day after the time of the opening of the applicationlists (excluding any day which is a Saturday, Sunday or public holiday in HongKong), such agreement to take effect as a collateral contract with us and to


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become binding when you give the instructions and such collateral contract tobe in consideration of our Company agreeing that it will not offer any HongKong Offer Shares to any person before the fifth day after the time of theopening of the application lists (excluding any day which is a Saturday, Sundayor public holiday in Hong Kong), except by means of one of the proceduresreferred to in this prospectus. However, HKSCC Nominees may revoke theapplication before the fifth day after the time of the opening of the applicationlists (excluding for this purpose any day which is a Saturday, Sunday or publicholiday in Hong Kong) if a person responsible for this prospectus underSection 40 of the Companies (Winding Up and Miscellaneous Provisions)Ordinance gives a public notice under that section which excludes or limits thatperson’s responsibility for this prospectus;

• agree that once HKSCC Nominees’ application is accepted, neither that

application nor your electronic application instructions can be revoked, and

that acceptance of that application will be evidenced by our Company’s

announcement of the Hong Kong Public Offering results;

• agree to the arrangements, undertakings and warranties under the participant

agreement between you and HKSCC, read with the General Rules of CCASS

and the CCASS Operational Procedures, for giving electronic applicationinstructions to apply for Hong Kong Offer Shares;

• agree with our Company, for itself and for the benefit of each Shareholder (and

so that our Company will be deemed by our acceptance in whole or in part of

the application by HKSCC Nominees to have agreed, for itself and on behalf

of each of the Shareholders, with each CCASS Participant giving electronicapplication instructions) to observe and comply with the Companies

(Winding Up and Miscellaneous Provisions) Ordinance, the Companies

Ordinance and our Articles of Association; and

• agree that your application, any acceptance of it and the resulting contract will

be governed by the laws of Hong Kong.

Effect of Giving Electronic Application instructions to HKSCC via CCASS

By giving electronic application instructions to HKSCC or instructing your broker or

custodian who is a CCASS Clearing Participant or a CCASS Custodian Participant to give such

instructions to HKSCC, you (and, if you are joint applicants, each of you jointly and severally)

are deemed to have done the following things. Neither HKSCC nor HKSCC Nominees shall be

liable to our Company or any other person in respect of the things mentioned below:

• instructed and authorised HKSCC to cause HKSCC Nominees (acting as nominee

for the relevant CCASS Participants) to apply for the Hong Kong Offer Shares on

your behalf;


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• instructed and authorised HKSCC to arrange payment of the maximum Offer Price,

brokerage, SFC transaction levy and the Stock Exchange trading fee by debiting

your designated bank account and, in the case of a wholly or partially unsuccessful

application and/or if the Offer Price is less than the maximum Offer Price per Offer

Share initially paid on application, refund of the application monies (including the

brokerage, the SFC transaction levy and the Stock Exchange trading fee) by

crediting your designated bank account; and

• instructed and authorised HKSCC to cause HKSCC Nominees to do on your behalf

all the things stated in the WHITE Application Form and in this prospectus.

Minimum Purchase Amount and Permitted Numbers

You may give or cause your broker or custodian who is a CCASS Clearing Participant or

a CCASS Custodian Participant to give electronic application instructions for a minimum of

200 Hong Kong Offer Shares. Instructions for more than 200 Hong Kong Offer Shares must be

in one of the numbers set out in the table in the Application Forms. No application for any other

number of Hong Kong Offer Shares will be considered and any such application is liable to be

rejected.

Time for Inputting Electronic Application Instructions(1)

CCASS Clearing/Custodian Participants can input electronic application instructions at

the following times on the following dates:

Tuesday, February 26, 2019 – 9:00 a.m. to 8:30 p.m.Wednesday, February 27, 2019 – 8:00 a.m. to 8:30 p.m.

Thursday, February 28, 2019 – 8:00 a.m. to 8:30 p.m.Friday, March 1, 2019 – 8:00 a.m. to 12:00 noon

CCASS Investor Participants can input electronic application instructions from 9:00

a.m. on Tuesday, February 26, 2019 until 12:00 noon on Friday, March 1, 2019 (24 hours daily,

except on Friday, March 1, 2019, the last application day).

The latest time for inputting your electronic application instructions will be 12:00 noon

on Friday, March 1, 2019, the last application day or such later time as described in the

sub-section headed “Effect of Bad Weather on the Opening of the Application Lists” in this

section.

Note:

(1) The times in this sub-section are subject to change as HKSCC may determine from time to time withprior notification to CCASS Clearing/Custodian Participants and/or CCASS Investor Participants.


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No Multiple Applications

If you are suspected of having made multiple applications or if more than one applicationis made for your benefit, the number of Hong Kong Offer Shares applied for by HKSCCNominees will be automatically reduced by the number of Hong Kong Offer Shares for whichyou have given such instructions and/or for which such instructions have been given for yourbenefit. Any electronic application instructions to make an application for the Hong KongOffer Shares given by you or for your benefit to HKSCC shall be deemed to be an actualapplication for the purposes of considering whether multiple applications have been made.

Section 40 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance

For the avoidance of doubt, our Company and all other parties involved in the preparationof this prospectus acknowledge that each CCASS Participant who gives or causes to giveelectronic application instructions is a person who may be entitled to compensation underSection 40 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (asapplied by Section 342E of the Companies (Winding Up and Miscellaneous Provisions)Ordinance).

Personal Data

The section in the Application Form headed “Personal Data” applies to any personal dataheld by our Company, the H Share Registrar, the receiving bank, the Joint Sponsors, the JointGlobal Coordinators, the Joint Bookrunners, the Joint Lead Managers, the Underwriters andany of their respective advisers and agents about you in the same way as it applies to personaldata about applicants other than HKSCC Nominees.

7. WARNING FOR ELECTRONIC APPLICATIONS

The subscription of the Hong Kong Offer Shares by giving electronic applicationinstructions to HKSCC is only a facility provided to CCASS Participants. Similarly, theapplication for Hong Kong Offer Shares through the HK eIPO White Form service is alsoonly a facility provided by the HK eIPO White Form Service Provider to public investors.Such facilities are subject to capacity limitations and potential service interruptions and youare advised not to wait until the last application day in making your electronic applications.Our Company, our Directors, the Joint Sponsors, the Joint Global Coordinators, the JointBookrunners, the Joint Lead Managers and the Underwriters take no responsibility for suchapplications and provide no assurance that any CCASS Participant or person applying throughthe HK eIPO White Form service will be allotted any Hong Kong Offer Shares.

To ensure that CCASS Investor Participants can give their electronic applicationinstructions, they are advised not to wait until the last minute to input their instructions to thesystems. In the event that CCASS Investor Participants have problems in the connection toCCASS Phone System/CCASS Internet System for submission of electronic applicationinstructions, they should either (i) submit a WHITE or YELLOW Application Form, or (ii)go to HKSCC’s Customer Service Centre to complete an input request form for electronicapplication instructions before 12:00 noon on Friday, March 1, 2019.


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8. HOW MANY APPLICATIONS CAN YOU MAKE

Multiple applications for the Hong Kong Offer Shares are not allowed except bynominees. If you are a nominee, in the box on the Application Form marked “For nominees”you must include:

• an account number; or

• some other identification code,

for each beneficial owner or, in the case of joint beneficial owners, for each joint beneficialowner. If you do not include this information, the application will be treated as being made foryour benefit.

All of your applications will be rejected if more than one application on a WHITE orYELLOW Application Form or by giving electronic application instructions to HKSCC orthrough the HK eIPO White Form service, is made for your benefit (including the part of theapplication made by HKSCC Nominees acting on electronic application instructions). If anapplication is made by an unlisted company and:

• the principal business of that company is dealing in securities; and

• you exercise statutory control over that company,

then the application will be treated as being for your benefit.

“Unlisted company” means a company with no equity securities listed on the StockExchange.

“Statutory control” means you:

• control the composition of the board of directors of the company;

• control more than half of the voting power of the company; or

• hold more than half of the issued share capital of the company (not counting any partof it which carries no right to participate beyond a specified amount in a distributionof either profits or capital).

9. HOW MUCH ARE THE HONG KONG OFFER SHARES

The WHITE and YELLOW Application Forms have tables showing the exact amountpayable for Shares.

You must pay the maximum Offer Price, brokerage, SFC transaction levy and the StockExchange trading fee in full upon application for Shares under the terms set out in theApplication Forms.


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You may submit an application using a WHITE or YELLOW Application Form or

through the HK eIPO White Form service in respect of a minimum of 200 Hong Kong Offer

Shares. Each application or electronic application instruction in respect of more than 200

Hong Kong Offer Shares must be in one of the numbers set out in the table in the Application

Form, or as otherwise specified on the designated website at www.hkeipo.hk.

If your application is successful, brokerage will be paid to the Exchange Participants, and

the SFC transaction levy and the Stock Exchange trading fee will be paid to the Stock

Exchange (in the case of the SFC transaction levy, collected by the Stock Exchange on behalf

of the SFC).

10. EFFECT OF BAD WEATHER ON THE OPENING OF THE APPLICATION LISTS

The application lists will not open if there is:

• a tropical cyclone warning signal number 8 or above; or

• a “black” rainstorm warning signal,

in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Friday, March 1, 2019.

Instead they will open between 11:45 a.m. and 12:00 noon on the next Business Day which

does not have either of those warnings in Hong Kong in force at any time between 9:00 a.m.

and 12:00 noon.

If the application lists do not open and close on Friday, March 1, 2019 or if there is a

tropical cyclone warning signal number 8 or above or a “black” rainstorm warning signal in

force in Hong Kong that may affect the dates mentioned in the section headed “Expected

Timetable” in this prospectus, an announcement will be made in such event.

11. PUBLICATION OF RESULTS

Our Company expects to announce the final Offer Price, the level of indication of interest

in the International Offering, the level of applications in the Hong Kong Public Offering and

the basis of allocation of the Hong Kong Offer Shares on Friday, March 8, 2019, in the South

China Morning Post (in English) and Hong Kong Economic Times (in Chinese), and on our

Company’s website at www.kaiyuanhotels.com and the website of the Stock Exchange at

www.hkexnews.hk.

The results of allocations and the Hong Kong identity card/passport/Hong Kong business

registration numbers of successful applicants under the Hong Kong Public Offering will be

available at the times and date and in the manner specified below:

• in the announcement to be posted on our Company’s website at

www.kaiyuanhotels.com and the Stock Exchange’s website at www.hkexnews.hkby no later than 9:00 a.m. on Friday, March 8, 2019;


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• from the designated results of allocations website at www.tricor.com.hk/ipo/resultwith a “search by ID” function on a 24-hour basis from 8:00 a.m. on Friday,

March 8, 2019 to 12:00 midnight on Thursday, March 14, 2019;

• by telephone enquiry line by calling (852) 3691 8488 between 9:00 a.m. and 6:00

p.m. from Friday, March 8, 2019 to Wednesday, March 13, 2019 (excluding

Saturday, Sunday and Hong Kong public holiday);

• in the special allocation results booklets which will be available for inspection

during opening hours from Friday, March 8, 2019 to Monday, March 11, 2019 at all

the designated receiving bank branches.

If our Company accepts your offer to purchase (in whole or in part), which it may do by

announcing the basis of allocations and/or making available the results of allocations publicly,

there will be a binding contract under which you will be required to purchase the Hong Kong

Offer Shares if the conditions of the Global Offering are satisfied and the Global Offering is

not otherwise terminated. Further details are contained in the section headed “Structure and

Conditions of the Global Offering” in this prospectus.

You will not be entitled to exercise any remedy of rescission for innocent

misrepresentation at any time after acceptance of your application. This does not affect any

other right you may have.

12. CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOTTED HONG KONGOFFER SHARES

You should note the following situations in which the Hong Kong Offer Shares will not

be allotted to you:

(i) If your application is revoked:

By completing and submitting an Application Form or giving electronic applicationinstructions to HKSCC or to the HK eIPO White Form Service Provider, you agree that your

application or the application made by HKSCC Nominees on your behalf cannot be revoked on

or before the fifth day after the time of the opening of the application lists (excluding for this

purpose any day which is Saturday, Sunday or public holiday in Hong Kong). This agreement

will take effect as a collateral contract with our Company.

Your application or the application made by HKSCC Nominees on your behalf may only

be revoked on or before such fifth day if a person responsible for this prospectus under Section

40 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (as applied by

Section 342E of the Companies (Winding Up and Miscellaneous Provisions) Ordinance) gives

a public notice under that section which excludes or limits that person’s responsibility for this

prospectus.


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If any supplement to this prospectus is issued, applicants who have already submitted anapplication will be notified that they are required to confirm their applications. If applicantshave been so notified but have not confirmed their applications in accordance with theprocedures to be notified, all unconfirmed applications will be deemed revoked.

If your application or the application made by HKSCC Nominees on your behalf has beenaccepted, It cannot be revoked. For this purpose, acceptance of applications which are notrejected will be constituted by notification in the press of the results of allocation, and wheresuch basis of allocation is subject to certain conditions or provides for allocation by ballot,such acceptance will be subject to the satisfaction of such conditions or results of the ballotrespectively.

(ii) If our Company or our agents exercise our discretion to reject your application:

Our Company, the Joint Global Coordinators, the HK eIPO White Form ServiceProvider and their respective agents and nominees have full discretion to reject or accept anyapplication, or to accept only part of any application, without giving any reasons.

(iii) If the allotment of Hong Kong Offer Shares is void:

The allotment of Hong Kong Offer Shares will be void if the Listing Committee does notgrant permission to list the H Shares either:

• within three weeks from the closing date of the application lists; or

• within a longer period of up to six weeks if the Listing Committee notifies ourCompany of that longer period within three weeks of the closing date of theapplication lists.

(iv) If:

• you make multiple applications or suspected multiple applications;

• you or the person for whose benefit you are applying have applied for or taken up,or indicated an interest for, or have been or will be placed or allocated (includingconditionally and/or provisionally) Hong Kong Offer Shares and International OfferShares;

• your Application Form is not completed in accordance with the stated instructions;

• your electronic application instructions through the HK eIPO White Formservice are not completed in accordance with the instructions, terms and conditionson the designated website;

• your payment is not made correctly or the cheque or banker’s cashier order paid byyou is dishonoured upon its first presentation;


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• the Underwriting Agreements do not become unconditional or are terminated;

• our Company, the Joint Global Coordinators or the Joint Sponsors believe that by

accepting your application, we or they would violate applicable securities or other

laws, rules or regulations; or

• your application is for more than 50% of the Hong Kong Offer Shares initially

offered under the Hong Kong Public Offering.

13. REFUND OF APPLICATION MONIES

If an application is rejected, not accepted or accepted in part only, or if the Offer Price

as finally determined is less than the maximum offer price of HK$20.05 per Offer Share

(excluding brokerage, SFC transaction levy and the Stock Exchange trading fee thereon), or if

the conditions of the Hong Kong Public Offering are not fulfilled in accordance with “Structure

and Conditions of the Global Offering – Conditions of the Global Offering” in this prospectus

or if any application is revoked, the application monies, or the appropriate portion thereof,

together with the related brokerage, SFC transaction levy and the Stock Exchange trading fee,

will be refunded, without interest or the cheque or banker’s cashier order will not be cleared.

Any refund of your application monies will be made on Friday, March 8, 2019.

14. DESPATCH/COLLECTION OF SHARE CERTIFICATES AND REFUND MONIES

You will receive one share certificate for all Hong Kong Offer Shares allotted to you

under the Hong Kong Public Offering (except pursuant to applications made on YELLOWApplication Forms or by electronic application instructions to HKSCC via CCASS where the

share certificates will be deposited into CCASS as described below).

No temporary document of title will be issued in respect of the H Shares. No receipt will

be issued for sums paid on application, if you apply by WHITE or YELLOW Application

Form, subject to personal collection as mentioned below, the following will be sent to you (or,

in the case of joint applicants, to the first-named applicant) by ordinary post, at your own risk,

to the address specified on the Application Form:

• share certificate(s) for all the Hong Kong Offer Shares allotted to you (for

YELLOW Application Forms, share certificates will be deposited into CCASS as

described below); and

• refund cheque(s) crossed “Account Payee Only” in favour of the applicant (or, in the

case of joint applicants, the first-named applicant) for (i) all or the surplus

application monies for the Hong Kong Offer Shares, wholly or partially

unsuccessfully applied for; and/or (ii) the difference between the Offer Price and the

maximum Offer Price per Offer Share paid on application in the event that the Offer

Price is less than the maximum Offer Price (including brokerage, SFC transaction


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levy and the Stock Exchange trading fee but without interest). Part of the Hong

Kong identity card number/passport number, provided by you or the first-named

applicant (if you are joint applicants), may be printed on your refund cheque, if any.

Your banker may require verification of your Hong Kong identity card

number/passport number before encashment of your refund cheque(s). Inaccurate

completion of your Hong Kong identity card number/passport number may

invalidate or delay encashment of your refund cheque(s).

Subject to arrangement on dispatch/collection of H Share certificates and refund monies

as mentioned below, any refund cheques and H Share certificates are expected to be posted on

or around Friday, March 8, 2019. The right is reserved to retain any H Share certificate(s) and

any surplus application monies pending clearance of cheque(s) or banker’s cashier’s order(s).

Share certificates will only become valid at 8:00 a.m. on the Listing Date provided that

the Global Offering has become unconditional and the right of termination described in the

“Underwriting” section in this prospectus has not been exercised. Investors who trade shares

prior to the receipt of H Share certificates or the H Share certificates becoming valid do so at

their own risk.

Personal Collection

(i) If you apply using a WHITE Application Form

If you apply for 1,000,000 or more Hong Kong Offer Shares and have provided all

information required by your Application Form, you may collect your refund cheque(s) and/or

H Share certificate(s) from the H Share Registrar, Tricor Investor Services Limited at Level 22,

Hopewell Centre, 183 Queen’s Road East, Hong Kong from 9:00 a.m. to 1:00 p.m. on Friday,

March 8, 2019 or such other date as notified by us in the newspapers.

If you are an individual who is eligible for personal collection, you must not authorise any

other person to collect for you. If you are a corporate applicant which is eligible for personal

collection, your authorised representative must bear a letter of authorisation from your

corporation stamped with your corporation’s chop. Both individuals and authorised

representatives must produce, at the time of collection, evidence of identity acceptable to the

H Share Registrar.

If you do not collect your refund cheque(s) and/or H Share certificate(s) personally within

the time specified for collection, they will be despatched promptly to the address specified in

your Application Form by ordinary post at your own risk.

If you apply for less than 1,000,000 Hong Kong Offer Shares, your refund cheque(s)

and/or H Share certificate(s) will be sent to the address on the relevant Application Form on

or before Friday, March 8, 2019, by ordinary post and at your own risk.


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(ii) If you apply using a YELLOW Application Form

If you apply for 1,000,000 Hong Kong Offer Shares or more, please follow the sameinstructions as described above for collection of your refund cheque(s). If you have applied forless than 1,000,000 Hong Kong Offer Shares, your refund cheque(s) will be sent to the addresson the relevant Application Form on or before Friday, March 8, 2019, by ordinary post and atyour own risk.

If you apply by using a YELLOW Application Form and your application is wholly orpartially successful, your share certificate(s) will be issued in the name of HKSCC Nomineesand deposited into CCASS for credit to your or the designated CCASS Participant’s stockaccount as stated in your Application Form on Friday, March 8, 2019, or upon contingency, onany other date determined by HKSCC or HKSCC Nominees.

• If you apply through a designated CCASS participant (other than a CCASS investorparticipant)

For Hong Kong Offer Shares credited to your designated CCASS participant’s stockaccount (other than CCASS Investor Participant), you can check the number of HongKong Offer Shares allotted to you with that CCASS participant.

• If you are applying as a CCASS investor participant

Our Company will publish the results of CCASS Investor Participants’ applicationstogether with the results of the Hong Kong Public Offering in the manner described in“Publication of Results” above. You should check the announcement published by ourCompany and report any discrepancies to HKSCC before 5:00 p.m. on Friday, March 8,2019 or any other date as determined by HKSCC or HKSCC Nominees. Immediately afterthe credit of the Hong Kong Offer Shares to your stock account, you can check your newaccount balance via the CCASS Phone System and CCASS Internet System.

(iii) If you apply through the HK eIPO White Form service

If you apply for 1,000,000 Hong Kong Offer Shares or more and your application iswholly or partially successful, you may collect your H Share certificate(s) from the H ShareRegistrar at, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s RoadEast, Hong Kong, from 9:00 a.m. to 1:00 p.m. on Friday, March 8, 2019, or such other date asnotified by our Company in the newspapers as the date of despatch/collection of H Sharecertificates/e-Auto Refund payment instructions/refund cheques.

If you do not collect your H Share certificate(s) and/or refund cheque personally withinthe time specified for collection, they will be sent to the address specified in your applicationinstructions by ordinary post at your own risk.

If you apply for less than 1,000,000 Hong Kong Offer Shares, your H Share certificate(s)(where applicable) will be sent to the address specified in your application instructions onFriday, March 8, 2019 by ordinary post at your own risk.


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If you apply and pay the application monies from a single bank account, any refund

monies will be despatched to that bank account in the form of e-Auto Refund payment

instructions. If you apply and pay the application monies from multiple bank accounts, any

refund monies will be despatched to the address as specified in your application instructions

in the form of refund cheque(s) by ordinary post at your own risk.

(iv) If you apply via Electronic Application Instructions to HKSCC

Allocation of Hong Kong Offer Shares

For the purposes of allocating Hong Kong Offer Shares, HKSCC Nominees will not

be treated as an applicant. Instead, each CCASS Participant who gives electronicapplication instructions or each person for whose benefit instructions are given will be

treated as an applicant.

Deposit of Share Certificates into CCASS and Refund of Application Monies

• If your application is wholly or partially successful, your Share certificate(s)

will be issued in the name of HKSCC Nominees and deposited into CCASS for

the credit of your designated CCASS Participant’s stock account or your

CCASS Investor Participant stock account on Friday, March 8, 2019, or, on any

other date determined by HKSCC or HKSCC Nominees.

• Our Company expects to publish the application results of CCASS Participants

(and where the CCASS Participant is a broker or custodian, our Company will

include information relating to the relevant beneficial owner), your Hong Kong

identity card number/passport number or other identification code (Hong Kong

business registration number for corporations) and the basis of allotment of the

Hong Kong Public Offering in the manner specified in “Publication of Results”

above on Friday, March 8, 2019. You should check the announcement

published by our Company and report any discrepancies to HKSCC before 5:00

p.m. on Friday, March 8, 2019 or such other date as determined by HKSCC or

HKSCC Nominees.

• If you have instructed your broker or custodian to give electronic applicationinstructions on your behalf, you can also check the number of Hong Kong

Offer Shares allotted to you and the amount of refund monies (if any) payable

to you with that broker or custodian.

• If you have applied as a CCASS investor Participant, you can also check the

number of Hong Kong Offer Shares allotted to you and the amount of refund

monies (if any) payable to you via the CCASS Phone System and the CCASS

Internet System (under the procedures contained in HKSCC’s “An Operating

Guide for Investor Participants” in effect from time to time) on Friday,

March 8, 2019. Immediately following the credit of the Hong Kong Offer


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Shares to your stock account and the credit of refund monies to your bank

account, HKSCC will also make available to you an activity statement showing

the number of Hong Kong Offer Shares credited to your CCASS Investor

Participant stock account and the amount of refund monies (if any) credited to

your designated bank account.

• Refund of your application monies (if any) in respect of wholly and partially

unsuccessful applications and/or difference between the Offer Price and the

maximum Offer Price per Offer Share initially paid on application (including

brokerage, SFC transaction levy and the Stock Exchange trading fee but

without interest) will be credited to your designated bank account or the

designated bank account of your broker or custodian on Friday, March 8, 2019.

15. ADMISSION OF THE H SHARES INTO CCASS

If the Stock Exchange grants the listing of, and permission to deal in, the H Shares and

we comply with the stock admission requirements of HKSCC, the H Shares will be accepted

as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect

from the date of commencement of dealings in the H Shares or any other date HKSCC chooses.

Settlement of transactions between Exchange Participants (as defined in the Listing Rules) is

required to take place in CCASS on the second Business Day after any trading day.

All activities under CCASS are subject to the General Rules of CCASS and CCASS

Operational Procedures in effect from time to time.

Investors should seek the advice of their stockbroker or other professional adviser for

details of the settlement arrangement as such arrangements may affect their rights and interests.

All necessary arrangements have been made enabling the H Shares to be admitted into

CCASS.


– 402 –

The following is the text of a report set out on pages I-1 to I-3, received from the

Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants,

Hong Kong, for the purpose of incorporation in this prospectus. It is prepared and addressed

to the directors of the Company and to the Joint Sponsors pursuant to the requirements of Hong

Kong Standard on Investment Circular Reporting Engagements 200, Accountants’ Reports on

Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of

Certified Public Accountants.

ACCOUNTANT’S REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE

DIRECTORS OF ZHEJIANG NEW CENTURY HOTEL MANAGEMENT CO., LTD.,

CHINA GALAXY INTERNATIONAL SECURITIES (HONG KONG) CO., LIMITED

AND BOCOM INTERNATIONAL (ASIA) LIMITED

Introduction

We report on the historical financial information of Zhejiang New Century Hotel

Management Co., Ltd. (the “Company”) and its subsidiaries (together, the “Group”) set out on

pages I-4 to I-101, which comprises the consolidated balance sheets as at December 31, 2015,

2016, 2017 and August 31, 2018, the Company’s balance sheets as at December 31, 2015, 2016,

2017 and August 31, 2018, and the consolidated statements of comprehensive income, the

consolidated statements of changes in equity and the consolidated statements of cash flows for

each of the periods then ended (the “Track Record Period”) and a summary of significant

accounting policies and other explanatory information (together, the “Historical Financial

Information”). The Historical Financial Information set out on pages I-4 to I-101 forms an

integral part of this report, which has been prepared for inclusion in the prospectus of the

Company dated February 26, 2019 (the “Prospectus”) in connection with the initial listing of

shares of the Company on the Main Board of The Stock Exchange of Hong Kong Limited.

Directors’ responsibility for the Historical Financial Information

The directors of the Company are responsible for the preparation of the Historical

Financial Information that gives a true and fair view in accordance with the basis of preparation

set out in Note 2.1 to the Historical Financial Information, and for such internal control as the

directors determine is necessary to enable the preparation of the Historical Financial

Information that is free from material misstatement, whether due to fraud or error.

APPENDIX I ACCOUNTANT’S REPORT

– I-1 –

Reporting accountant’s responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to

report our opinion to you. We conducted our work in accordance with Hong Kong Standard on

Investment Circular Reporting Engagements 200, Accountants’ Reports on Historical

Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified

Public Accountants (“HKICPA”). This standard requires that we comply with ethical standards

and plan and perform our work to obtain reasonable assurance about whether the Historical

Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and

disclosures in the Historical Financial Information. The procedures selected depend on the

reporting accountant’s judgement, including the assessment of risks of material misstatement

of the Historical Financial Information, whether due to fraud or error. In making those risk

assessments, the reporting accountant considers internal control relevant to the entity’s

preparation of the Historical Financial Information that gives a true and fair view in accordance

with the basis of preparation set out in Note 2.1 to the Historical Financial Information in order

to design procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the entity’s internal control. Our work also

included evaluating the appropriateness of accounting policies used and the reasonableness of

accounting estimates made by the directors, as well as evaluating the overall presentation of

the Historical Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a

basis for our opinion.

Opinion

In our opinion, the Historical Financial Information gives, for the purposes of the

accountant’s report, a true and fair view of the financial position of the Company as at

December 31, 2015, 2016, 2017 and August 31, 2018 and the consolidated financial position

of the Group as at December 31, 2015, 2016, 2017 and August 31, 2018 and of its consolidated

financial performance and its consolidated cash flows for the Track Record Period in

accordance with the basis of preparation set out in Note 2.1 to the Historical Financial

Information.

Review of stub period comparative financial information

We have reviewed the stub period comparative financial information of the Group which

comprises the consolidated statement of comprehensive income, the consolidated statement of

changes in equity and the consolidated statement of cash flows for the eight months ended

August 31, 2017 and other explanatory information (the “Stub Period Comparative Financial

Information”). The directors of the Company are responsible for the preparation and

presentation of the Stub Period Comparative Financial Information in accordance with the

basis of preparation set out in Note 2.1 to the Historical Financial Information. Our


– I-2 –

responsibility is to express a conclusion on the Stub Period Comparative Financial Information

based on our review. We conducted our review in accordance with International Standard on

Review Engagements 2410, Review of Interim Financial Information Performed by the

Independent Auditor of the Entity issued by the International Auditing and Assurance Standards

Board (“IAASB”). A review consists of making inquiries, 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 International

Standards on Auditing and consequently does not enable us to obtain assurance that we would

become aware of all significant matters that might be identified in an audit. Accordingly, we

do not express an audit opinion. Based on our review, nothing has come to our attention that

causes us to believe that the Stub Period Comparative Financial Information, for the purposes

of the accountant’s report, is not prepared, in all material respects, in accordance with the basis

of preparation set out in Note 2.1 to the Historical Financial Information.

Report on matters under the Rules Governing the Listing of Securities on The Stock

Exchange of Hong Kong Limited (the “Listing Rules”) and the Companies (Winding Up

and Miscellaneous Provisions) Ordinance

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying

Financial Statements as defined on page I-4 have been made.

Dividends

We refer to Note 15 to the Historical Financial Information which contains information

about the dividends paid by the Company in respect of the Track Record Period.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong

February 26, 2019


– I-3 –

I HISTORICAL FINANCIAL INFORMATION OF THE GROUP

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

accountant’s report.

The financial statements of the Group for the Track Record Period, on which the

Historical Financial Information is based, were audited by PricewaterhouseCoopers Zhong

Tian LLP (普華永道中天會計師事務所(特殊普通合夥)) in accordance with International

Standards on Auditing issued by the IAASB (“Underlying Financial Statements”).

The Historical Financial Information is presented in Renminbi (“RMB”) and all values

are rounded to the nearest thousand (RMB’000) except when otherwise indicated.


– I-4 –

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



Notes 2015 2016 2017 2017 2018RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(unaudited)

Revenue 5 1,522,082 1,602,006 1,664,643 1,067,753 1,119,249Cost of sales 8 (1,277,979) (1,282,271) (1,232,702) (817,705) (869,310)

Gross profit 244,103 319,735 431,941 250,048 249,939Selling and marketing expenses 8 (61,617) (70,947) (85,457) (44,181) (48,234)Administrative expenses 8 (134,861) (148,776) (160,543) (90,124) (90,308)Other income 6 5,031 12,315 10,436 7,219 7,376Other gains – net 7 3,158 7,324 28,644 4,634 20,725

Operating profit 55,814 119,651 225,021 127,596 139,498Finance income 11 30,968 12,193 5,402 3,937 5,140Finance costs 11 (30,220) (16,049) (10,406) (9,140) (6,769)

Finance income/(costs) – net 11 748 (3,856) (5,004) (5,203) (1,629)Share of net profit of associates

and joint ventures accountedfor using the equity method 12B 1,732 1,435 3,005 1,529 4,327

Profit before income tax 58,294 117,230 223,022 123,922 142,196Income tax expense 13 (28,653) (33,175) (56,455) (34,726) (30,641)


Profit and total comprehensiveincome/(loss) attributable to:– Owners of the Company 30,107 84,324 163,042 87,719 109,974– Non-controlling interests (466) (269) 3,525 1,477 1,581

29,641 84,055 166,567 89,196 111,555

Earnings per share for profitattributable to theowners of the Company forthe year/period –Basic/Diluted (in RMBper share) 14 0.14 0.40 0.78 0.42 0.52


– I-5 –

CONSOLIDATED BALANCE SHEETS


August 31,Notes 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000


Property, plant and equipment 16 272,777 343,803 408,053 502,197Investment properties 954 939 925 915Land use rights 17 30,682 47,330 46,142 45,322Intangible assets 18 23,884 18,137 15,037 14,715Investments accounted for using

the equity method 12B 108,351 115,857 118,388 119,261Other non-current assets 19 24,117 22,125 14,554 3,527Deferred tax assets 30 24,739 25,160 19,560 25,345


Current assetsInventories 20 24,206 22,086 26,793 27,750Trade, other receivables and

prepayments 21 408,755 253,394 239,090 334,885Financial assets at fair value through

profit or loss 22 – 155,590 – –Cash and cash equivalent 23 126,385 176,164 424,109 288,242Restricted cash 23 72,400 72,400 – 72,100

631,746 679,634 689,992 722,977Assets classified as held for sale 31(a) 17,603 – – –


Total assets 1,134,853 1,252,985 1,312,651 1,434,259

Equity and liabilitiesEquity attributable to owners of

the CompanyPaid-in capital/share capital 25 173,680 173,680 210,000 210,000Other reserves 26 111,531 81,531 267,355 267,355(Accumulated losses)/retained earnings (29,121) 55,203 36,441 105,177

Total equity attributable to owners ofthe Company 256,090 310,414 513,796 582,532

Non-controlling interests 6,884 6,615 15,297 18,903

Total equity 262,974 317,029 529,093 601,435


– I-6 –


August 31,Notes 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000


Borrowings 28 175,000 219,000 160,000 194,200Deferred income 29 6,000 12,823 21,714 20,444Deferred tax liabilities 30 29 267 137 –


Current liabilitiesContract liabilities 5(c) 161,284 186,695 192,352 208,673Borrowings 28 135,000 135,000 5,000 3,000Trade and other payables 27 372,518 365,872 380,088 393,396Current income tax liabilities 7,755 15,593 23,561 11,925Current portion of long-term liabilities 29 – 706 706 1,186

676,557 703,866 601,707 618,180Liabilities classified as held for sale 31(a) 14,293 – – –





– I-7 –

COMPANY BALANCE SHEETS


August 31,Notes 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000


Property, plant and equipment 16 104,292 91,211 87,550 93,445Investment properties 954 939 925 915Intangible assets 18 1,089 679 1,686 1,824Investments in subsidiaries 12A 170,260 205,815 220,440 262,240Investments accounted for using

the equity method 12B 108,351 113,972 115,246 119,261Other non-current assets 19 24,117 20,333 14,202 754Deferred tax assets 30 10,379 11,210 6,605 5,084


Current assetsInventories 20 16,654 14,342 13,887 14,693Trade, other receivables and prepayments 21 433,993 237,622 337,159 401,418Financial assets at fair value through

profit or loss 22 – 129,000 – –Cash and cash equivalent 23 38,314 71,253 184,968 100,588Restricted cash 23 72,400 72,400 – 72,100


Total assets 980,803 968,776 982,668 1,072,322

Equity and liabilitiesEquity attributable to owners of

the CompanyPaid-in capital/share capital 25 173,680 173,680 210,000 210,000Other reserves 26 54,207 54,262 256,200 256,200Retained earnings 33,121 117,765 93,570 167,762

Total equity 261,008 345,707 559,770 633,962


Borrowings 150,000 150,000 100,000 100,000


Current liabilitiesBorrowings 135,000 135,000 5,000 500Trade and other payables 27 321,284 228,842 214,405 229,191Contract liabilities 109,325 98,944 86,850 98,634Current income tax liabilities 4,186 10,283 16,643 10,035



Total equity and liabilities 980,803 968,776 982,668 1,072,322


– I-8 –

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Attributable to owners of the Company

NotesPaid-incapital

Otherreserves

(Accumulatedlosses)/

Retainedearnings Total

Non-controlling

interestsTotal

EquityRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

As at January 1, 2015 165,000 30,261 (59,228) 136,033 8,045 144,078Comprehensive

income/(loss)Profit/(loss) for the year – – 30,107 30,107 (466) 29,641

Total comprehensiveincome/(loss) – – 30,107 30,107 (466) 29,641

Transactions with ownersin their capacity asownersCapital injections from

shareholders 8,680 1,320 – 10,000 1,000 11,000Dividends provided for

or paid – – – – (1,695) (1,695)Others

Employee share-basedcompensations 26 – 19,950 – 19,950 – 19,950

Business combinationunder common control 12A – 60,000 – 60,000 – 60,000

As at December 31, 2015 173,680 111,531 (29,121) 256,090 6,884 262,974

Comprehensiveincome/(loss)Profit/(loss) for the year – – 84,324 84,324 (269) 84,055

Total comprehensiveincome/(loss) – – 84,324 84,324 (269) 84,055

OthersBusiness combination

under common control 12A – (30,000) – (30,000) – (30,000)

As at December 31, 2016 173,680 81,531 55,203 310,414 6,615 317,029


– I-9 –


Notes

Paid-incapital/

sharecapital

Otherreserves

Retainedearnings Total

Non-controlling

interestsTotal


As at January 1, 2017 173,680 81,531 55,203 310,414 6,615 317,029Comprehensive income

Profit for the year – – 163,042 163,042 3,525 166,567

Total comprehensiveincome – – 163,042 163,042 3,525 166,567

Transactions with ownersin their capacityas ownersCapital injections from


or paid 15 – – (59,690) (59,690) (1,433) (61,123)Appropriation to statutory

reserve – 2,985 (2,985) – – –Others

Employee share-basedcompensation 26 – 3,510 – 3,510 – 3,510

Conversion into a jointstock company 25 21,220 97,909 (119,129) – – –

Business combinationunder common control 12A – (40,000) – (40,000) – (40,000)

As at December 31, 2017 210,000 267,355 36,441 513,796 15,297 529,093


– I-10 –


NotesPaid-incapital

Otherreserves

Retainedearnings/

(Accumulatedlosses) Total

Non-controlling

interestsTotal


As at January 1, 2017 173,680 81,531 55,203 310,414 6,615 317,029Profit for the period – – 87,719 87,719 1,477 89,196


Transactions withowners in theircapacity as ownersCapital injections from


or paid 15 – – (59,690) (59,690) (1,433) (61,123)Appropriation to statutory

reserve – 2,985 (2,985) – – –Others

Employee share-basedcompensation 26 – 3,510 – 3,510 – 3,510

Conversion into a jointstock company 25 21,220 97,909 (119,129) – – –

Business combinationunder common control 12A – (40,000) – (40,000) – (40,000)

As at August 31, 2017(unaudited) 210,000 267,355 (38,882) 438,473 12,649 451,122


NotesShare

capitalOther

reservesRetainedearnings Total

Non-controlling

interestsTotal


As at January 1, 2018 210,000 267,355 36,441 513,796 15,297 529,093Profit for the period – – 109,974 109,974 1,581 111,555


Transactions withowners in theircapacity as ownersCapital injections from

non-controllingshareholders – – – – 1,200 1,200

Dividends provided foror paid 15 – – (41,238) (41,238) (1,659) (42,897)

OthersAcquisition of a

subsidiary 32 – – – – 2,484 2,484

As at August 31, 2018 210,000 267,355 105,177 582,532 18,903 601,435


– I-11 –

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the year ended

December 31,For the eight months

ended August 31,Notes 2015 2016 2017 2017 2018


Cash flows from operating activitiesCash generated from operations 33(a) 141,802 209,388 323,831 137,493 88,266Interest paid (16,164) (14,937) (11,561) (9,462) (6,624)Income tax paid (28,196) (25,520) (44,197) (40,148) (48,048)

Net cash generated from operating activities 97,442 168,931 268,073 87,883 33,594

Cash flows from investing activitiesPayments for the investments of associates 12B – (3,000) – – –Payments for financial assets at fair value through

profit or loss – (155,000) (162,897) (162,897) (376,849)Payments for property, plant and equipment,

land use rights, intangible assets and otherlong-term assets (88,574) (118,221) (150,425) (59,182) (91,492)

Loans to related parties (80,000) – – – –Change of restricted cash for term deposit – – – (7,000) (6,100)Payment for financial instruments with guaranteed

principal & return – – – – (60,000)Payment for acquisition of a subsidiary, net of cash

acquired 32 – – – – (1,545)Proceeds from sale of financial assets at

fair value through profit or loss 11,139 – 317,897 224,726 376,849Proceeds from sale of property, plant and equipment 33(b) 634 649 3,469 3,554 1,637Proceed from the repayment of loans to

related parties 40,000 170,000 56,000 56,000 –Dividends received from associates and

joint ventures – – 474 474 136Interest received from loans to related parties 26,227 7,784 992 992 –Interest received from financial assets at

fair value through profit or loss – 7,287 8,754 5,276 4,483Proceeds from disposal of subsidiaries, net of cash

disposed 31 – 5,124 12,621 – 9,461

Net cash (used in)/generated frominvesting activities (90,574) (85,377) 86,885 61,943 (143,420)

Cash flows from financing activitiesPayment for business combination under common

control 12A – (30,000) (40,000) (40,000) –Payment for listing expenses – – – – (9,844)Contributions to subsidiaries by the controlling

shareholders 60,000 – – – –Proceeds from borrowings 364,000 179,000 320,100 220,100 35,000Repayment of borrowings (328,000) (135,000) (509,100) (433,100) (9,500)Repayment of other financing instruments (160,748) (47,480) – – –Dividends paid to the Company’s shareholders 15 – – (59,690) (59,690) (41,238)Dividends paid to non-controlling interests

in subsidiaries (1,400) (295) (1,433) (1,433) (1,659)Change of restricted cash pledged for

bank borrowings 23 20,000 – 40,000 40,000 –Proceeds of capital injection from shareholders 10,000 – 136,520 136,520 –Proceeds from capital injection of

non-controlling interests in subsidiaries 1,000 – 6,590 5,990 1,200

Net cash used in financing activities (35,148) (33,775) (107,013) (131,613) (26,041)

Net (decrease)/increase in cash andcash equivalents (28,280) 49,779 247,945 18,213 (135,867)

Cash and cash equivalents at beginning ofthe year/period 23 154,665 126,385 176,164 176,164 424,109

Cash and cash equivalents at end ofthe year/period 23 126,385 176,164 424,109 194,377 288,242


– I-12 –

II NOTES TO THE FINANCIAL INFORMATION

1 GENERAL INFORMATION

The Company, initially known as Zhejiang New Century Hotel Management Limited (浙江開元酒店管理有限公司, the “Company”) was incorporated in People’s Republic of China (the “PRC”) on December 15, 2008 as alimited liability company. On June 25, 2017, the Company was converted into a joint stock company with limitedliabilities under the Company law of the PRC and changed its name to Zhejiang New Century Hotel Management Co.,Ltd. (浙江開元酒店管理股份有限公司). The Company and its subsidiaries (together, the “Group”) are principallyengaged in hotel operation and management business in the PRC. The parent company of the Group is New CenturyTourism Group Co., Ltd. and Mr. Chen Miaolin (陳妙林) is the founder and one of the controlling shareholders ofthe Group.

The address of the Company’s registered office is 18/F, 818 Shixin Middle Road, Xiaoshan District, Hangzhou,Zhejiang Province, the PRC.

The English names of companies mentioned in this report represented the best effort by directors of theCompany in translating their Chinese names as they may not have official English names.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of Historical Financial Information are set outbelow. These policies have been consistently applied throughout the Track Record Period, unless otherwise stated.

2.1 Basis of preparation

The Historical Financial Information of the Group has been prepared in accordance with all applicableInternational Financial Reporting Standards (“IFRSs”) issued by International Accounting Standards Board(“IASB”). The Historical Financial Information has been prepared under the historical cost convention, as modifiedby the revaluation of financial assets at fair value through profit or loss, which are carried at fair value.

The preparation of Historical Financial Information in conformity with IFRSs requires the use of certaincritical accounting estimates. It also requires management to exercise its judgement in the process of applying theGroup’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas whereassumptions and estimates are significant to the Historical Financial Information, are disclosed in Note 4.

2.1.1 Issued but not yet effective IFRSs

New standards and interpretations have not yet been adopted:

Effective for annualperiods beginning onor after

IFRS 16 Leases January 1, 2019IFRIC 23 Uncertainty over income tax treatments January 1, 2019IAS 19 Employee benefits on plan amendment,

curtailment or settlementJanuary 1, 2019

Amendments toIFRS 10 and IAS 28

Sale or contribution of assets between aninvestor and its associate or joint venture

To be determined

IFRS 17 Insurance contracts January 1, 2021Amendments to IFRS 9 Prepayment features with negative

compensationJanuary 1, 2019

Amendments to IAS 28 Long-term interests in associates and jointventures

January 1, 2019

Annual improvements toIFRS Standards2015-2017 cycle

Amendments to IFRS 3, IFRS 11,IAS 12 and IAS 23

January 1, 2019


– I-13 –

None of these IFRSs is expected to have a significant effect on the Historical FinancialInformation of the Group, except for the following as set out below:

IFRS 16 – Leases (“IFRS 16”)

IFRS 16 addresses the definition of a lease, recognition and measurement of leases and principlesfor reporting useful information to users of financial information about the leasing activities of bothlessees and lessors. It will result in almost all leases being recognized on the balance sheet, as thedistinction between operating and finance leases is removed. Under the new standard, an asset (the rightto use the leased item) and a financial liability to pay rentals are recognized by lessees. The onlyexceptions are short-term and low-value leases. The accounting for lessors will not significantly change.The Group is a lessee of various properties and equipments which are currently classified as operatingleases. The Group’s current accounting policy for such leases is set out in Note 2.31 with the Group’sfuture operating lease commitments, which are not reflected in the consolidated balance sheet, set outin Note 34(b). IFRS 16 provides new provisions for the accounting treatment of leases and will in thefuture no longer allow lessees to recognize certain leases outside of the balance sheets. Instead, almostall leases must be recognized in the form of an asset (for the right of use) and a financial liability (forthe payment obligation). Short-term leases of less than twelve months and leases of low-value assets areexempt from the recognition obligation. The new standard will therefore result in an increase in assetsand financial liabilities in the consolidated balance sheets. As for the financial performance impact inthe consolidated statements of comprehensive income, the operating lease expenses will decrease, whiledepreciation and amortization and interest expense will increase. The new standard is not expected toapply until the financial year 2019.

2.2 Subsidiaries

2.2.1 Consolidation

A subsidiary is an entity (including a structured entity) over which the Group has control. The Groupcontrols an entity when the Group is exposed to, or has rights to, variable returns from its involvement withthe entity and has the ability to affect those returns through its power over the entity. Subsidiaries areconsolidated from the date on which control is transferred to the Group. They are deconsolidated from the datethat control ceases.

Intra-Group transactions, balances and unrealized gains on transactions between group companies areeliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment ofthe transferred assets. Profits and loss resulting from inter-company transactions that are recognized in assetsare also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with theGroup’s accounting policies.

Non-controlling interests in the results and equity of subsidiaries are shown separately in theconsolidated statement of comprehensive income, statement of changes in equity and balance sheetrespectively.

(a) Business combinations

The Group applies the acquisition method to account for business combinations except forbusiness combination under common control. The consideration transferred for the acquisition of asubsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of theacquiree and the equity interests issued by the Group. The consideration transferred includes the fairvalue of any asset or liability resulting from a contingent consideration arrangement. Identifiable assetsacquired and liabilities and contingent liabilities assumed in a business combination are measuredinitially at their fair values at the acquisition date.

The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of therecognized amounts of acquiree’s identifiable net assets.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of theacquirer’s previously held equity interests in the acquiree is remeasured to fair value at the acquisitiondate; any gains or losses arising from such remeasurement are recognized in profit or loss.


– I-14 –

Any contingent consideration to be transferred by the Group is recognized at fair value at theacquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed tobe an asset or liability is recognized in accordance with IFRS 9 either in profit or loss or as a changeto other comprehensive income. Contingent consideration that is classified as equity is not remeasured,and its subsequent settlement is accounted for within equity.

The excess of the consideration transferred, the amount of any non-controlling interest in theacquiree and the acquisition-date fair value of any previous equity interests in the acquiree over the fairvalue of the identifiable net assets acquired is recorded as goodwill. If those amount are less than thefair value of the net assets of the business acquired in the case of a bargain purchase, the difference isrecognized directly in the profit or loss.

(b) Common control combinations

For common control combinations, the consolidated financial statements incorporate the financialentities of the combining entities or businesses as if they had been combined from the date when thecombining entities or businesses first came under the control of the controlling party. The net assets ofthe combining entities or businesses are combined using the existing book values from the controllingparties’ perspective. No amount is recognized in consideration of goodwill or excess of acquirer’sinterest in the net fair value of acquirer’s identifiable assets, liabilities and contingent liabilities overcost at the time of common control combinations, to the extent of the continuation of the controllingparty’s interest.

The statement of comprehensive income includes the results of each of the combining entities orbusinesses from the earliest date presented or since the date when the combining entities or businessesfirst came under the common control, where there is a shorter period, regardless of the date of thecommon control combination.

Transaction costs, including professional fees, registration fees, etc., incurred in relation to thecommon control combination that is to be accounted for by using merger accounting is recognized asan expense in the year in which it is incurred.

(c) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in a loss of control are accountedfor as equity transactions – that is, as transactions with the owners of the subsidiary in their capacityas owners. The difference between fair value of any consideration paid and the relevant share acquiredof the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposalsto non-controlling interests are also recorded in equity.

(d) Disposal of subsidiaries

When the Group ceases to have control, any retained interest in the entity is re-measured to itsfair value at the date when control is lost, with the change in carrying amount recognized in profit orloss. The fair value is the initial carrying amount for the purposes of subsequently accounting for theretained interest as an associate, joint venture or financial asset. In addition, any amounts previouslyrecognized in other comprehensive income in respect of that entity are accounted for as if the Group haddirectly disposed of the related assets or liabilities. This may mean that amounts previously recognizedin other comprehensive income are reclassified to profit or loss.

2.2.2 Separate financial statements

Investments in subsidiaries (including controlled structured entities) are accounted for at cost lessimpairment. Cost includes direct attributable cost of investment. The results of subsidiaries are accounted forby the Company on the basis of dividend received and receivable.

Impairment testing of the investments in subsidiaries is required upon receiving a dividend from theseinvestments if the dividend exceeds the total comprehensive income of the subsidiary in the period thedividend is declared or if the carrying amount of the investment in the separate financial statements exceedsthe carrying amount in the consolidated financial information of the investee’s net assets including goodwill.


– I-15 –

2.3 Associates

Associates are all entities over which the Group has significant influence but not control, generallyaccompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accountedfor using the equity method of accounting in accordance with IAS 28.

Under the equity method, the investment is initially recognized at cost, and the carrying amount is increasedor decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition. TheGroup’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss.Upon the acquisition of the ownership interest in an associate, any difference between the cost of the associate andthe Group’s share of the net fair value of the associate’s identifiable assets and liabilities is accounted for as goodwill.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionateshare of the amounts previously recognized in other comprehensive income is reclassified to the profit or loss whereappropriate.

The Group’s share of associate’s post-acquisition profit or loss is recognized in the profit or loss, and its shareof post-acquisition movements in other comprehensive income is recognized in other comprehensive income. Thecumulative post-acquisition movements are adjusted against the carrying amount of the investment. When theGroup’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecuredreceivables, the Group does not recognize further losses, unless it has incurred legal or constructive obligations ormade payments on behalf of the associate.

The Group determines at each reporting date whether there is any objective evidence that the investment in theassociate is impaired. If this is the case, the Group calculates the amount of impairment as the difference betweenthe recoverable amount of the associate and its carrying value and recognizes the amount in “share of net profit/(loss)of associates and joint ventures accounted for using the equity method” in the statement of comprehensive income.

Profits and losses resulting from upstream and downstream transactions between the Group and its associateare recognized in the Group’s consolidated financial statements only to the extent of unrelated investor’s interests inthe associates. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the assettransferred. Accounting policies of associates have been changed where necessary to ensure consistency with thepolicies adopted by the Group.

Dilution gains and losses arising in investments in associates are recognized in the profit or loss.

2.4 Joint arrangements

Joint ventures are all entities over which the Group has joint control but not solo control. Investments in jointventures are accounted for using the equity method of accounting. Under the equity method of accounting, interestsin joint ventures are initially recognized at cost and adjusted thereafter to recognize the Group’s share of thepost-acquisition of profits or losses and movements in other comprehensive income. Dividends received or receivablefrom joint venture are recognized as a reduction in the carrying amount of a joint venture.

When the Group’s share of losses in a joint venture equals or exceeds its interests in the entity, including anyother unsecured long-term receivables, the Group does not recognize further losses, unless it has incurred obligationsor made payments on behalf of the other entity.

The Group’s investment in joint ventures includes goodwill identified on acquisition, net of any accumulatedimpairment loss. If the ownership interest in a joint venture is reduced but joint control is retained, only aproportionate share of the amounts previously recognized in other comprehensive income is reclassified to profit orloss where appropriate.

Unrealized gains on transactions between the Group and its joint ventures are eliminated to the extent of theGroup’s interest in the joint ventures. Unrealized losses are also eliminated unless the transaction provides evidenceof an impairment of the asset transferred. Accounting policies of the joint ventures have been changed wherenecessary to ensure consistency with the policies adopted by the Group.

The Group determines at each reporting date whether there is any objective evidence that the investment in thejoint venture is impaired. If this is the case, the Group calculates the amount of impairment as the difference betweenthe recoverable amount of the joint venture and its carrying value and recognizes the amount to the “share of netprofit/(loss) of associates and joint ventures accounted for using the equity method” in the consolidated statementsof comprehensive income.


– I-16 –

2.5 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chiefoperating decision-maker. The chief operating decision-maker, who is responsible for allocating resources andassessing performance of the operating segments, has been identified as the executive directors of the Company thatmakes strategic decisions.

2.6 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial information of each of the entities are measured using the currency ofthe primary economic environment in which the entity operates (“the functional currency”). The HistoricalFinancial Information are presented in RMB, which is the Group’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange ratesprevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gainsand losses resulting from the settlement of such transactions and from the translation at year-end exchangerates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presentedin the consolidated statement of comprehensive income within “finance income/(costs) – net” and “otherincome”. All other foreign exchange gains and losses are presented in the consolidated statement ofcomprehensive income within “other income”.

Translation differences on non-monetary financial assets and liabilities held at fair value through profitor loss are recognized in profit or loss as part of the fair value changes. Translation differences on monetaryfinancial assets, such as debt securities classified as available for sale, are recognized in profit or loss.Translation differences on non-monetary financial assets, such as equities classified as available for sale, areincluded in other comprehensive income.

2.7 Property, plant and equipment

Property, plant and equipment other than construction-in-progress are stated at historical cost less accumulateddepreciation and impairment, if any. Historical cost includes expenditure that is directly attributable to the acquisitionof the items.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate,only when it is probable that future economic benefits associated with the item will flow to the Group and the costof the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs andmaintenance are charged to profit or loss during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost to their residual values over theirestimated useful lives, as follows:

Buildings and facilities 20 to 60 yearsMachinery and equipment 5 to 10 yearsOffice and electronic equipment 5 yearsVehicles 5 yearsLeasehold improvements 3 to 15 years, but not exceeding the lease period

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheetdate.

Construction-in-progress mainly represents properties under construction and is stated at actual constructioncost less accumulated impairment losses, if any. Construction-in-progress is transferred to appropriate categories ofproperty, plant and equipment upon the completion of their respective construction and depreciated over theirrespective estimated useful lives.


– I-17 –

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carryingamount is greater than its estimated recoverable amount (Note 2.11).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and arerecognized within “other gains – net” in the statement of comprehensive income.

2.8 Investment properties

Investment properties comprise buildings, held for long-term rental yields or for capital appreciation or bothand not occupied by the Group, and is measured initially at its cost, including related transaction costs. After initialrecognition, the Group chooses the cost model to measure all of its investment properties, which are stated athistorical costs less accumulated depreciation and accumulated impairment losses, if any. Depreciation of buildingsis calculated using the straight-line method to allocate their costs to their residual values over their estimated usefullives of 65 years.

The investment properties’ residual values and useful lives are reviewed, and adjusted if appropriate, at eachbalance sheet date. An investment property’s carrying amount is written down immediately to its recoverable amountif the investment property’s carrying amount is greater than its estimated recoverable amount. Gains and losses ondisposals are determined by comparing proceeds with carrying amount and are recognized in the profit or loss.

2.9 Land use rights

Land use rights represent the upfront payments made for the land use rights in the PRC for the developmentof hotel buildings and self-use buildings. It is stated at cost initially and expensed to the profit or loss on astraight-line basis over the period of the leases of 40 years, net of any impairment losses, if any.

2.10 Intangible assets

(a) Computer software

Computer software is the acquired software used for operation and financial reporting. Computersoftware are initially recognized and measured at costs incurred to acquire and bring them to use. The computersoftware are amortized on a straight-line basis over their estimated useful lives, and recorded in amortizationin profit or loss over their estimated useful lives from 2 to 10 years, which are estimated by the Group basedon the functionality equipped by the software and the daily operation needs.

(b) Favorable lease contracts

Favorable lease contracts represent the fair value of favorable contractual hotel lease agreements arisingfrom the acquisition of subsidiaries which is amortized over the remaining period of the hotel lease agreementfrom 7 to 15 years.

(c) Goodwill

Goodwill is measured as described in Note 2.11. Goodwill on acquisitions of subsidiaries is included inintangible assets. Goodwill is not amortized but it is tested for impairment annually, or more frequently ifevents or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulatedimpairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwillrelating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation ismade to those cash-generating units or groups of cash-generating units that are expected to benefit from thebusiness combination in which the goodwill arose. The units or groups of units are identified at the lowest levelat which goodwill is monitored for internal management purposes, being the operating segments as describedin Note 5.


– I-18 –

2.11 Impairment of non-financial assets

Assets that have an indefinite useful life, for example goodwill, are not subject to amortization, which are atleast tested annually for impairment. Other assets that are subject to amortization are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Animpairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes ofassessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows(“CGUs”). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversalof the impairment at each reporting date.

Impairment testing of the investments in subsidiaries, associates or joint ventures are required upon receivingdividends from these investments if the dividend exceeds the total comprehensive income of the subsidiary orassociate or jointly controlled entities in the period the dividend is declared or if the carrying amount of theinvestments in the separate financial statements exceeds the carrying amount in the consolidated financial statementsof the investee’s net assets including goodwill.

2.12 Financial assets

(a) Classification

The Group classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value (either through other comprehensive income, orthrough profit or loss); and

• those to be measured at amortized cost.

The classification depends on the Group’s business model for managing the financial assets and thecontractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or othercomprehensive income. For investments in debt instruments, this will depend on the business model in whichthe investment is held. For investments in equity instruments that are not held for trading, this will be dependon whether the Group has made an irrevocable election at the time of initial recognition to account for theequity investment at fair value through other comprehensive income.

See Note 24 for details of each type of financial asset.

The Group reclassifies debt investments when and only when its business model for managing thoseassets changes.

(b) Measurement

At initial recognition, the Group measures a financial assets at its fair value plus, in the case of afinancial asset not at fair value through profit or loss, transaction costs that are directly attributable to theacquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit orloss are recorded in profit or loss.

Financial assets with embedded derivatives are considered in their entirety when determining whethertheir cash flows are solely payment of principal and interest.

Debt instruments

Subsequent measurement of debt instruments depends on the Group’s business model formanaging the asset and the cash flow characteristics of the asset. There are three measurementcategories into which the Group classifies its debt instruments:

• Amortized cost: Assets that are held for collection of contractual cash flows where thosecash flows represent solely payments of principal and interest are measured at amortizedcost. A gain or loss on a debt investment that is subsequently measured at amortized cost


– I-19 –

and is not part of a hedging relationship is recognized in profit or loss when the asset isderecognized or impaired. Interest income from these financial assets is included in financeincome using the effective interest method.

• Fair value through other comprehensive income (“FVOCI”): Assets that are held forcollection of contractual cash flows and for selling the financial assets, where the assets’cash flows represent solely payments of principal and interest, are measured at FVOCI.Movements in the carrying amount are taken through OCI, except for the recognition ofimpairment gains or losses, interest income and foreign exchange gains and losses whichare recognized in profit or loss. When the financial asset is derecognized, the cumulativegains or loss previously recognized in OCI is reclassified from equity to profit or loss.Interest income from these financial assets is included in finance income using theeffective interest method. Foreign exchange gains and losses and impairment expenses arepresented in “other gains/(losses) – net”.

• Fair value through profit or loss: Assets that do not meet the criteria for amortized cost orFVOCI are measured at fair value through profit or loss. A gain or loss on a debtinvestment that is subsequently measured at fair value through profit or loss and is not partof a hedging relationship is recognized in profit or loss in the period in which it arises.

Equity instruments

The Group subsequent measures all equity investments at fair value. Where the Group’smanagement has elected to present fair value gains and losses on equity investments in othercomprehensive income, there is no subsequent reclassification of fair value gains and losses to profit orloss following the derecognition of the investment. Dividends from such investments continue to berecognized in profit or loss.

Changes in the fair value of financial assets at fair value through profit or loss are recognized inprofit or loss. Impairment losses (and reversal of impairment losses) on equity investments measured atFVOCI are not reported separately from other changes in fair value.

(c) Impairment

The Group has types of financial assets subjects to IFRS 9’s new expected credit loss model:

• loan receivables;

• trade receivables for provision of services or sales of goods; and

• other receivables

The Group assesses on a forward looking basis the expected credit losses associated with its debtinstruments carried at amortized cost including loan receivables, and with the exposure arising from financialguarantee contracts. The impairment methodology applied depends on whether there has been a significantincrease in credit risk. Note 3.1(b) details how the Group determines whether there has been a significantincrease in credit risk.

For trade receivables, the Group applies the simplified approach permitted in IFRS 9, which requiresexpected lifetime losses to be recognized from initial recognition of the receivables.

Impairment on other receivables is measured as either 12-month expected credit losses or lifetimeexpected credit loss, depending on whether there has been a significant increase in credit risk since initialrecognition. If a significant increase in credit risk of a receivable has occurred since initial recognition, thenimpairment is measured as lifetime expected credit losses.


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(d) Derecognition

Financial assets

The Group derecognizes a financial asset, if the part being considered for the derecognition meetsone of the following conditions: (i) the contractual rights to receive the cash flows from the financialasset expire; or (ii) the contractual rights to receive the cash flows of the financial asset have beentransferred, the Group transfers substantially all the risks and rewards of ownership of the financialasset; or (iii) the Group retains the contractual rights to receive the cash flows of the financial asset, butassumes a contractual obligation to pay the cash flows to the eventual recipient in an agreement thatmeets all the conditions of derecognition of transfer of cash flows (“pass through” requirements) andtransfers substantially all the risks and rewards of ownership of the financial asset.

When a transfer of a financial asset in its entirety meets the criteria for derecognition, thedifference between the two amounts below is recognized in profit or loss:

• the carrying amount of the financial asset transferred; and

• the sum of the consideration received from the transfer and any cumulative gain or loss thathas been recognized directly in equity.

If the Group neither transfers nor retains substantially all the risks and rewards of ownership andcontinues to control the transferred asset, the Group continues to recognize the asset to the extent of itscontinuing involvement and recognizes an associated liability.

Other financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged,canceled, or expires. When an existing financial liability is replaced by another from the same lenderon substantially different terms, or the terms of an existing liability are substantially modified, such anexchange or modification is treated as a derecognition of the original liability and a recognition of a newliability, and the difference between the respective carrying amounts is recognized in profit or loss.

2.13 Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weightedaverage method. The cost of finished goods comprises all costs of purchase, cost of conversion and other costsincurred in bringing the inventories to their present location and condition. Net realizable value is the estimatedselling price in the ordinary course of business, less applicable variable selling expenses and related tax.

2.14 Trade and other receivables

Trade receivables are amounts due from customers for products sold or services performed in the ordinarycourse of business. If collection of trade and other receivables is expected in one year or less, they are classified ascurrent assets. If not, they are presented as non-current assets.

Trade and other receivables are recognized initially at fair value and subsequently measured at amortized costusing the effective interest method, less provision for impairment. See Note 2.12(c) for a description of the Group’simpairment policy for trade and other receivables.

2.15 Cash and cash equivalents

In the consolidated statements of cash flows, cash and cash equivalents comprise cash in hand, deposits heldat call with banks, and other short-term highly liquid investments with original maturities of three months or less.Restricted cash is excluded from cash and cash equivalent.

2.16 Restricted cash

Restricted cash represents guaranteed deposits held in a separate reserve account to be pledged to the bank assecurity deposits under bank borrowing agreement. Such restricted cash will be released when the Group repays therelated bank loans or lease agreement expires.


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2.17 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax,from the proceeds.

2.18 Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course ofbusiness from suppliers. Trade and other payables are classified as current liabilities if payment is due within oneyear or less. If not, they are presented as non-current liabilities.

Trade and other payables are recognized initially at fair value and subsequently measured at amortized costusing the effective interest method.

2.19 Contract assets and contract liabilities

Upon entering into a contract with a customer, the Group obtains rights to receive consideration from thecustomer and assumes performance obligations to transfer goods or to provide services to the customer. Thecombination of those rights and performance obligations gives rise to a net asset or a net liability depending on therelationship between the remaining rights and the performance obligations. A contract asset is the Group’s right toconsideration in exchange for services that the Group has transferred to a customer. Incremental costs incurred toobtain a contract, if recoverable, are capitalized and presented as assets and subsequently amortized when the relatedrevenue is recognized. If a customer pays consideration or the Group has a right to an amount of consideration thatis unconditional, before the Group transfers services to the customer, the Group presents the contract as a contractliability when the payment is received or a receivable is recorded (whichever is earlier). A contract liability is theGroup’s obligation to transfer services to a customer for which the Group has received consideration (or an amountof consideration is due) from the customer. A receivable is recorded when the Group has an unconditional right toconsideration. A right to consideration is unconditional if only the passage of time is required before payment of thatconsideration is due. The contract liabilities of the Group mainly included advance payments made by customers andreward points under the customer loyalty program. For the advance payments made by customers, revenue isrecognized when the underlying services are provided.

Customer loyalty program

The Group operates a loyalty program where customers accumulate points for hotel service purchasesmade which entitle them to discounts on future hotel service purchases. The reward points are recognized asa separately identifiable component of the initial sale transaction by allocating the fair value of theconsideration received between the award points and the other components of the sale such that the rewardpoints are initially recognized as deferred income at their fair value. Revenue from the reward points isrecognized when the points are redeemed or the points expire. Breakage is recognized as reward points areredeemed based upon expected redemption rates. Reward points expire 12 to 24 months after the initial sale.

2.20 Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings aresubsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and theredemption value is recognized in profit or loss over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extentthat it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until thedraw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawndown, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility towhich it relates.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlementof the liability for at least 12 months after the end of the reporting period.

2.21 Borrowing costs

General and specific borrowing costs directly attributable to the acquisition, construction or production ofqualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intendeduse or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intendeduse or sale.


– I-22 –

Investment income earned on the temporary investment of specific borrowings pending their expenditure onqualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

2.22 Dividend distribution

Dividend distribution to the Company’s shareholders is recognized as a liability in the Group’s consolidatedbalance sheet in the period in which the dividends are approved by the Company’s shareholders or directors, whereappropriate.

2.23 Current and deferred income tax

The income tax expense for the period comprises current and deferred tax. Income tax is recognized in profitor loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity.In this case, the income tax is also recognized in other comprehensive income or directly in equity, respectively.

(a) Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enactedat the balance sheet date in the countries where the Company and its subsidiaries, joint ventures and associatesoperate and generate taxable income. Management periodically evaluates positions taken in tax returns withrespect to situations in which applicable tax regulation is subject to interpretation. It establishes provisionswhere appropriate on the basis of amounts expected to be paid to the tax authorities.

(b) Deferred income tax

Inside basis differences

Deferred income tax is recognized, using the liability method, on temporary differences arisingbetween the tax bases of assets and liabilities and their carrying amounts in the consolidated financialstatements. However, the deferred tax liabilities are not recognized if they arise from initial recognitionof goodwill, the deferred income tax is not accounted for if it arises from the initial recognition of anasset or liability in a transaction other than a business combination that at the time of the transactionaffects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates(and laws) that have been enacted or substantially enacted by the balance sheet date and are expectedto apply when the related deferred income tax asset is realized or the deferred income tax liability issettled.

Deferred income tax assets are recognized to the extent that it is probable that future taxableprofit will be available against which the temporary differences can be utilized.

Outside basis differences

Deferred income tax liabilities are provided on taxable temporary differences arising frominvestments in subsidiaries, associates and joint ventures, except for deferred income tax liability wherethe Group controls the timing of the reversal of the temporary difference and it is probable that thetemporary difference will not reverse in the foreseeable future. Generally the Group is unable to controlthe reversal of the temporary difference for associates. Only when there is an agreement in place thatgives the Group the ability to control the reversal of the temporary differences arising from theassociate’s undistributed profits is not recognized.

Deferred income tax assets are recognized on deductible temporary differences arising frominvestments in subsidiaries and associates only to the extent that it is probable the temporary differencewill reverse in the future and there is sufficient taxable profit available against which the temporarydifference can be utilized.

(c) Offsetting

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offsetcurrent tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relateto income taxes levied by the same taxation authority on either the taxable entity or different taxable entitieswhere there is an intention to settle the balances on a net basis.


– I-23 –

2.24 Employee benefits

(a) Pension obligations

The PRC employees of the Group covered by various PRC government-sponsored define-contributionpension plans under which the employees become entitled to a monthly pension based on certain formulas. Therelevant government agencies are responsible for the pension liability to these employees when they retire. TheGroup contributes on a monthly basis to these pension plans for the employees which are determined at acertain percentage of their salaries up to a maximum fixed monetary amount, as stipulated by the relevantgovernment authorities. Under these plans, the Group has no obligation for post-retirement benefits beyond thecontribution made. Contributions to these plans are expenses as incurred. The government authoritiesundertake to assume the retirement benefit obligations payable to all existing and future retired employeesunder these plans. The non-PRC employees are covered by other defined-contribution pension plans sponsoredby local government.

(b) Housing benefits

The PRC employees of the Group are entitled to participate in various government-sponsored housingfunds. The Group contributes on a monthly basis to these funds based on certain percentages of the employees’salaries. The Group’s liability in respect of these funds is limited to the contribution payable in each period.The non-PRC employees are not covered by the housing benefits.

2.25 Share-based compensation benefits

The Group operates the equity-settled, share-based compensation plan, under which the entities receivesservices from employees as consideration for equity instruments of the Group. The fair value of the services receivedin exchange for the grant of the equity instruments is recognized as an expense on the consolidated statement ofcomprehensive income with a corresponding increase in equity.

In terms of the equity instruments awarded to employees, the total amount to be expensed is determined byreference to the fair value of equity instruments granted:

• including any market performance conditions;

• excluding the impact of any service and non-market performance vesting conditions; and

• including the impact of any non-vesting conditions.

Non-marketing performance and service conditions are included in calculation of the number of the equityinstruments that are expected to vest. The total amount expensed is recognized over the vesting period, which is theperiod over which all of the specified vesting conditions are satisfied.

At the end of each reporting period, the Group revises its estimates of the number of the equity instrumentsthat are expected to vest based on the non-marketing performance and service conditions. It recognizes the impactof the revision to original estimates, if any, in the profit or loss, with a corresponding adjustment to equity.

2.26 Government grants

Grants from the government are recognized at their fair value where there is a reasonable assurance that thegrant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognized in profit or loss over the period necessary tomatch them with the costs that they are intended to compensate. Government grants relating to the purchase ofproperty, plant and equipment and other non-current assets are included in non-current liabilities as deferred incomeand are recognized in profit or loss on a straight line basis over the expected lives of the related assets.

2.27 Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of pastevents; it is probable that an outflow of resources will be required to settle the obligation; and the amount has beenreliably estimated. Provisions are not recognized for future operating losses.


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Where there are a number of similar obligations, the likelihood that an outflow will be required in settlementis determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood ofan outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligationusing a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to theobligation. The increase in the provision due to passage of time is recognized as interest expense.

2.28 Revenue recognition

The Group provides hotel management services, operation of hotels and sales of goods.

Revenue is recognized when or as the control of the asset is transferred to the customer. Depending on theterms of the contract and the laws that apply to the contract, control of the asset may transfer over time or at a pointof time. Control of the asset is transferred over time if the Group’s performance:

• provides all of the benefits received and consumed simultaneously by the customer; or

• creates and enhances an asset that the customer controls as the Group performs; or

• does not create an asset with an alternative use of the Group and the Group has an enforceable right topayment for performance completed to date.

If control of the asset transfers over time, revenue is recognized over the period of the contract by referenceto the progress towards complete satisfaction of that performance obligation.

Otherwise, revenue is recognized at a point of time when the customer obtains the control of an asset.

The progress towards complete satisfaction of the performance obligation is measured based on the Group’sefforts or inputs to the satisfaction of the performance obligation, by reference to the contract costs incurred up tothe end of reporting period as a percentage of total estimated costs for each contract.

An entity is a principal if it controls the promised good or service before transferring it to the customer. Andan entity is an agent if its role is to arrange for another entity to provide goods or service. The Group considers itis a principal in providing its services.

(a) Hotel management services

Revenue arising from hotel management services is recognized over time in the accounting period inwhich the services are rendered because all of the benefits are received and consumed simultaneously by thecustomer as the Group performs. The Group bills the hotel management fee for each month of service providedto its customer and recognizes as revenue in the amount to which the Group has a right to invoice andcorresponds directly with the value of performance completed.

(b) Hotel operation

Revenue from hotel operation services mainly comprises of room, food and beverage and ancillaryservices. Except for the revenue from food and beverage which is recognized at a point of time when theservices are rendered, revenue from other hotel operation services is recognized over time in the accountingperiod in which the service are rendered.

(c) Sales of goods

Revenue from sales of goods is recognized at a point of time when the control of the goods hastransferred to the customers, being when the goods are delivered to the customers, there is no unfulfilledobligation that could affect the customers’ acceptance of the goods. And the customer has obtained the physicalpossession or the legal title of the goods and the Group has present right to payment and the collection of theconsideration is probable.


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2.29 Interest income

Interest income is recognized using the effective interest method. When a loan and receivable is impaired, theGroup reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at theoriginal effective interest rate of the instrument, and continues unwinding the discount at interest income.

2.30 Dividend income

Dividend income is recognized when the right to receive payment is established.

2.31 Lease

(a) The Group is the lessee

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessorare classified as operating leases. Payments made under operating leases (net of any incentives received fromthe lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

(b) The Group is the lessor

When assets are leased out under operating lease, the assets are included in the balance sheet based onthe nature of the assets. Rental income is recognized in the profit or loss on a straight-line basis over the termof the lease.

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk,and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on theunpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financialperformance. Risk management is carried out by the senior management of the Group, who manages and monitorsthese risk exposures to ensure appropriate measures are implemented in a timely and effective manner.

(a) Market risk

(i) Foreign exchange risk

As the Group’s operation is in the PRC, most of the transactions, assets and liabilities aredenominated in RMB. As at December 31, 2015, 2016, 2017 and August 31, 2018, all assets andliabilities are denominated in RMB. The Group’s exposure to foreign exchange fluctuation is notmaterial.

(ii) Interest rate risk

The Group has no significant interest-bearing assets except for cash and cash equivalents,restricted cash and interest bearing receivables temporarily lent to related parties. Therefore, theGroup’s interest rate risk mainly arises from borrowings, cash and cash equivalents, restricted cash andinterest bearing receivables temporarily lent to related parties. Borrowings, cash and cash equivalents,restricted cash and interest bearing receivables temporarily lent to related parties obtained at variablerates expose the Group to cash flow interest rate risk. Borrowings, cash and cash equivalents, restrictedcash and interest bearing receivables temporarily lent to related parties obtained at fixed rates exposethe Group to fair value interest rate risk.


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As at December 31, 2015, 2016, 2017 and August 31, 2018, if the interest rates on borrowingswith floating rate, interest bearing receivables temporarily lent to related parties, short-term bankdeposits, cash and cash equivalents and restricted cash had been 50 basis points higher/lower with allother variables held constant, the change of the post-tax profit would be disclosed as follows:

The Group



August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Year/period endedNet profit

decreased/(increased)– Increase in interest rates 443 182 406 369– Decrease in interest rates (443) (182) (406) (369)

The Group and the Company regularly monitors its interest rate risk to ensure there is no undueexposure to significant interest rate movements.

(b) Credit risk

The Group is exposed to credit risk in relation to its cash and cash equivalents, restricted cash, interestbearing receivables temporarily lent to related parties, trade and other receivables. The carrying amount ofeach class of the above financial assets represent the Group’s maximum exposure to credit risk in relation tofinancial assets.

As at December 31, 2015, 2016, 2017 and August 31, 2018, all cash and cash equivalents and restrictedcash were deposited in the major reputable financial institutions in the PRC, which the directors of theCompany believe are of high credit quality and do not expect any losses from non-performance by thecounterparties.

• Group 1 – Top 4 banks in the PRC;

• Group 2 – Other major listed banks in the PRC; and

• Group 3 – Regional banks in the PRC

The Group


August 31,Category 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Group 1 104,736 189,422 141,289 179,896Group 2 59,790 54,966 279,238 175,518Group 3 33,085 2,600 1,669 3,287

197,611 246,988 422,196 358,701

The directors of the Company do not expect any losses from non-performance by these counterparties.


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To manage risk arising from trade and other receivable, the Group established policies in place to ensurethat credit terms are made to counterparties with an appropriate credit history and the management performsongoing credit evaluations of its counterparties. The credit period granted to the customers is usually no morethan 30-90 days and the credit quality of these customers is assessed, which takes into account their financialposition, past experience and other factors. The management make periodic collective assessments as well asindividual assessment on the recoverability of trade and other receivables taking into account their historicalsettlement records, financial position, past experience and other factors.

(c) Liquidity risk

The Group’s objective is to maintain sufficient cash and sources of funding through committed creditfacility. To manage the liquidity risk, management monitors rolling forecasts of the Group’s liquidity reserve(comprising undrawn banking facilities) and cash and cash equivalents on the basis of expected cash flow. TheGroup expected to fund the future cash flow needs through internally generated cash flows from operations,borrowings from financial institutions.

The following table below analyzed the Group’s financial liabilities that will be settled on a net basisinto relevant maturity grouping based on the remaining period at each balance sheet date to the contractualmaturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

The Group

Less than1 year

Between1-2 years

Between2-3 years

Over3 years Total


As at December 31, 2015Bank borrowings 135,000 – 150,000 – 285,000Loan from a related


borrowings 12,695 8,400 4,159 – 25,254Trade and other payables 286,412 – – – 286,412

434,107 8,400 179,159 – 621,666

As at December 31, 2016Bank borrowings 135,000 150,000 – – 285,000Loan from a related

party – 25,000 44,000 – 69,000Interest payables on

borrowings 14,773 6,741 694 – 22,208Trade and other payables 260,866 – – – 260,866

410,639 181,741 44,694 – 637,074

As at December 31, 2017Bank borrowings 5,000 5,000 115,000 40,000 165,000Interest payables on


278,653 12,673 120,614 42,886 454,826

As at August 31, 2018Bank borrowings 3,000 70,000 55,000 62,500 190,500Loan from a related



311,235 79,453 65,701 68,708 525,097


– I-28 –

3.2 Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a goingconcern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimalcapital structure to enhance shareholders’ value in long-term.

The Group monitors capital by regularly reviewing the capital structure. As a part of this review, the Groupmay adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, repurchasethe Company’s shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratiois calculated as total borrowings divided by total assets. Total borrowings include non-current borrowings and currentborrowings.

The gearing ratio as at December 31, 2015, 2016, 2017 and August 31, 2018 are as follows:


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Total borrowings 310,000 354,000 165,000 197,200Total assets 1,134,853 1,252,985 1,312,651 1,434,259Gearing ratio 27% 28% 13% 14%

3.3 Fair value estimation

The table below analyzes financial instruments carried at fair value by valuation method. The different levelshave been defined as follows:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, eitherdirectly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

• Inputs for the asset or liability that are not based on observable market data (that is, unobservableinputs) (level 3).

As at December 31, 2015, 2017 and August 31, 2018, the Group did not have any financial assets or liabilitiesthat were measured at fair value. The fair value measurements by level of the fair value measurement hierarchy asat December 31, 2016 were as follows:

The Group

Level 1 Level 2 Level 3 TotalRMB’000 RMB’000 RMB’000 RMB’000

AssetsFinancial assets at fair value

through profit or loss – 155,590 – 155,590

(a) Fair value measurements using quoted prices (Level 1)

The fair value of financial instruments traded in active markets is based on quoted market prices at eachof the balance sheet date. A market is regarded as active if quoted prices are readily and regularly availablefrom an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those pricesrepresent actual and regularly occurring market transactions on an arm’s length basis. The quoted market priceused for financial assets held by the Group is the current bid price. These instruments are included in level 1.


– I-29 –

(b) Valuation techniques used to derive fair value (Level 2)

The fair value of financial instruments that are not traded in an active market (for example,over-the-counter derivatives) is determined by using valuation techniques. These valuation techniquesmaximize the use of observable market data where it is available and rely as little as possible on entity specificestimates. If all significant inputs required to fair value an instrument are observable, the instrument isincluded in level 2.

(c) Fair value measurements using significant unobservable inputs (Level 3)

If one or more of the significant inputs is not based on observable market data, the instrument isincluded in level 3.

Specific valuation techniques used to value financial instruments include:

• quoted market prices or dealer quotes for similar instruments;

• discounted cash flow model and unobservable inputs mainly including assumptions of expectedfuture cash flows and discounted rate; and

• a combination of observable and unobservable inputs, including risk-free rate, expected volatility,discount rate for lack of marketability, market multiples, etc.

There were no transfers among different levels during the Track Record Period.

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

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

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will,by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk ofcausing a material adjustment to the carrying amounts of assets and liabilities within the next financial year areaddressed below.

(a) Useful lives of property, plant and equipment, land use rights and intangible assets

The Group determines the estimated useful lives for its properties, plant and equipment, land use rights andintangible assets (other than goodwill) based on the historical experience of the actual useful lives of property, plantand equipment, land use rights and intangible assets of similar nature and functions. The Group will revise thedeprecation charges where useful lives are different from previously estimated, or it will write off or write downtechnically obsolete or non-strategic assets that have been abandoned or sold.

(b) Current income taxes and deferred tax

The Group is subject to income taxes in different areas in the PRC. Significant judgement is required indetermining the provision for income taxes in various jurisdictions. There are many transactions and calculations forwhich the ultimate tax determination is uncertain. The Group recognizes liabilities for anticipated tax audit issuesbased on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is differentfrom the amounts that were initially recorded, such differences will impact the current and deferred income tax assetsand liabilities in the period in which such determination is made.

Deferred tax assets relating to certain temporary differences and tax losses are recognized when managementconsiders to be probable that future taxable profit will be available against which the temporary differences or taxlosses can be utilized. The outcome of their actual utilization may be different.

(c) Impairment of trade and other receivables

The Group follows the guidance of IFRS 9 to determine when a trade and other receivable is impaired. Thisdetermination requires significant judgement and estimation. In making this judgement and estimation, the Groupevaluates, among other factors, the duration of receivables and the financial health collection history of individualdebtors and expected future change of credit risks, including the consideration of factors such as general economymeasure, change in macro economic indicators etc.


– I-30 –

5 SEGMENT INFORMATION AND REVENUE

The chief operating decision-maker has been identified as senior executive management. Senior executivemanagement reviews the Group’s internal reporting in order to assess performance and allocate resources. Seniorexecutive management has determined the operating segment based on these reports.

As a result of this evaluation, the Group determined that it has operating segments as follows:

• Hotel operation; and

• Hotel management.

Revenue from hotel operations primarily comprise revenues from providing room, food and beverage, sales ofgoods and products, providing room reservation services and other ancillary services.

Revenue from hotel management are derived from providing hotel management services.

Senior executive management considers the business from a business perspective, and assesses theperformance of operating segments based on segment revenue and profit before income tax without allocation offinance income/(costs), share of gains/(losses) of investments accounted for using equity method, other income andother gains.

There was no information on separate segment assets and segment liabilities provided by senior executivemanagement, as senior executive management does not use such information to allocate resources to or evaluate theperformance of the operating segments.

(a) Segment revenues

The revenue of the Group for the Track Record Period is set out as follows:


ended August 31,2015 2016 2017 2017 2018


Hotel operationRoom 652,586 666,038 732,890 494,210 482,285Food and beverage 568,679 633,513 583,156 371,580 400,545Ancillary services 139,344 151,923 178,087 96,745 107,163Rental income 39,983 38,665 33,733 19,818 23,655

Subtotal of hoteloperation 1,400,592 1,490,139 1,527,866 982,353 1,013,648

Hotel Management 121,490 111,867 136,777 85,400 105,601

1,522,082 1,602,006 1,664,643 1,067,753 1,119,249

Revenue from contractswith customers:– Recognized at a point

of time 630,515 696,952 652,011 394,116 428,248– Recognized over time 851,584 866,389 978,899 653,819 667,346

1,482,099 1,563,341 1,630,910 1,047,935 1,095,594

Revenue from otherresources:– Rental income 39,983 38,665 33,733 19,818 23,655


– I-31 –

(b) Segment information

The segment information provided to senior executive management for the business segments for the TrackRecord Period are as follows:


Business segmentsHotel

operationHotel

management TotalRMB’000 RMB’000 RMB’000

RevenueSegment revenue 1,404,312 121,817 1,526,129Inter-segment sales (3,720) (327) (4,047)

Segment revenue fromexternal customers 1,400,592 121,490 1,522,082

Cost of sales (1,262,542) (15,437) (1,277,979)Selling and marketing expenses (57,983) (3,634) (61,617)Administrative expenses (107,379) (27,482) (134,861)

Segment (loss)/profit (27,312) 74,937 47,625



operationHotel


RevenueSegment revenue 1,496,788 116,927 1,613,715Inter-segment sales (6,649) (5,060) (11,709)



Segment profit 29,736 70,276 100,012



operationHotel





Segment profit 109,094 76,847 185,941


– I-32 –

For the eight months ended August 31, 2017(unaudited)


operationHotel


RevenueSegment revenue 988,340 89,312 1,077,652Inter-segment sales (5,987) (3,912) (9,899)

Segment revenue fromexternal customers 982,353 85,400 1,067,753

Cost of sales (809,190) (8,515) (817,705)Selling and marketing expenses (36,783) (7,398) (44,181)Administrative expenses (69,190) (20,934) (90,124)

Segment profit 67,190 48,553 115,743



operationHotel




Cost of sales (860,306) (9,004) (869,310)Selling and marketing expenses (38,804) (9,430) (48,234)Administrative expenses (65,663) (24,645) (90,308)

Segment profit 48,875 62,522 111,397

(c) Contract liabilities

The Group has recognized the following revenue – related contract liabilities.


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Advances from customers 157,688 181,476 187,086 200,291Customer loyalty program

(Note 2.19) 3,596 5,219 5,266 8,382

161,284 186,695 192,352 208,673


– I-33 –

(i) Revenue recognized in relation to contract liabilities

The following table shows how much of the revenue recognized in the Track Record Period relates tocarried-forward contract liabilities:


For the eightmonths

endedAugust 31,

2015 2016 2017 2018RMB’000 RMB’000 RMB’000 RMB’000

Revenue recognized that wasincluded in the contractliability balance at thebeginning of the yearAdvances from customers 141,765 157,688 181,476 187,086Customer loyalty program 3,628 3,596 5,219 5,266

145,393 161,284 186,695 192,352

(ii) Unsatisfied long-term franchise hotel contracts

The following table shows unsatisfied performance obligations resulting from fixed-price long-termfranchise hotel contracts:


For the eightmonths

endedAugust 31,

2015 2016 2017 2018RMB’000 RMB’000 RMB’000 RMB’000

Aggregate amount of thetransaction price allocatedto long-term franchise hotelcontracts that theperformance obligations ofwhich are partially or fullyunsatisfied at the end ofeach year/period

Expected to be recognizedover one year 26,681 30,583 43,279 37,813

Expected to be recognizedwithin one year 3,952 5,082 6,979 8,020

30,633 35,665 50,258 45,833

The amount disclosed above does not include variable consideration which is constrained.

All other hotel management contracts are billed based on the actual performance of the managed hotels. Forhotel operation services, they are rendered in short period of time and there is no unsatisfied performance obligationat the end of respective periods.


– I-34 –

6 OTHER INCOME


ended August 31,2015 2016 2017 2017 2018


Government grants 5,031 4,438 2,272 1,060 2,893Income from financial

assets at fair valuethrough profit or loss(Note 22) – 7,877 8,164 6,159 4,483

5,031 12,315 10,436 7,219 7,376

7 OTHER GAINS – NET


ended August 31,2015 2016 2017 2017 2018


Net (losses)/gains ondisposal of property,plant and equipment (53) (106) 1,094 1,798 (54)

Net gains on disposal ofsubsidiaries (Note 31) – 5,261 3,104 – 10,794

Compensation income (a) – – 19,600 – 8,400Waived payables due to

third parties 2,317 1,203 3,588 2,386 965Others 894 966 1,258 450 620

3,158 7,324 28,644 4,634 20,725

(a) It represented the compensation payment received from a third party lessor who has early terminated thehotel lease agreement with the Group.


– I-35 –

8 EXPENSES BY NATURE


ended August 31,2015 2016 2017 2017 2018


Operating lease expenses 403,026 399,850 374,067 256,384 255,388Costs of materials

consumption 346,646 363,574 352,150 214,815 239,906Employee benefit

expenses (Note 9) 359,168 398,908 440,329 282,746 310,612Utility cost 99,115 92,417 90,563 61,348 60,762Taxes and levies (a) 86,403 35,796 5,691 3,370 4,384Depreciation of property,

plant and equipment(Note 16) 46,036 49,084 53,949 35,867 33,300

Marketing and promotionexpenses 32,247 38,946 45,447 24,526 25,723

Repairs and maintenance 20,368 25,652 26,144 15,000 16,240Travelling and

communication expenses 20,433 22,129 24,726 15,293 17,487Laundry costs 14,854 14,820 15,007 9,850 10,946Allowance/(reversal) for

impairment of trade andother receivables(Note 21) 4,951 5,267 958 (129) 1,579

Bank charges 6,870 8,471 3,939 2,703 2,941Amortization of intangible

assets (Note 18) 6,483 6,985 4,727 3,257 3,960Out-sourcing service 3,156 3,847 4,994 2,771 3,360Uniform expenses 3,043 3,245 3,597 2,195 2,094Transportation expenses 2,595 3,621 3,486 2,125 2,419Professional fees 617 3,199 4,227 2,818 1,383Auditor’s remuneration 1,358 1,283 1,326 884 600Amortization of land use

rights (Note 17) 586 852 1,188 765 820Depreciation of investment

properties 15 15 15 10 10Miscellaneous 16,487 24,033 22,172 15,412 13,938

Total cost of sales, sellingand marketing andadministrative expenses 1,474,457 1,501,994 1,478,702 952,010 1,007,852

(a) Pursuant to the “Circular on the Overall Promotion of Pilot Program of Levying VAT in place ofBusiness Tax” (“Cai Shui 2016 No. 36”) jointly issued by the Ministry of Finance and the StateAdministration of Taxation, the Group were subject to value added tax (“VAT”) on their revenues ofhotel operation and hotel management instead of business tax since May 1, 2016, which were subjectto business tax before then.


– I-36 –

9 EMPLOYEE BENEFIT EXPENSES (INCLUDING DIRECTOR’S EMOLUMENTS)


ended August 31,2015 2016 2017 2017 2018


Wages, salaries andbonuses 271,307 319,280 340,783 214,391 237,426

Pension costs – definedcontribution plan 19,476 21,265 25,792 15,778 18,173

Housing fund, medicalinsurance and othersocial insurance 19,716 21,102 25,160 10,626 12,543

Other employee benefits 28,719 37,261 45,084 38,441 42,470Share-based compensation

expenses (Note 26) 19,950 – 3,510 3,510 –

359,168 398,908 440,329 282,746 310,612

(a) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group during the Track Record Period included1 director whose emoluments are reflected in the analysis shown in Note 10. The emoluments payable to theremaining 4 individuals during the Track Record Period are as follows:


ended August 31,2015 2016 2017 2017 2018


Wages, salaries andbonuses 3,748 3,809 4,251 2,834 3,258

Pension costs – definedcontribution plan 90 93 98 65 71

Housing fund, medicalinsurance and othersocial insurance andother employee benefits 158 172 189 126 140

Share-based compensationexpenses (Note 26) 2,839 – 2,632 2,632 –

6,835 4,074 7,170 5,657 3,469


– I-37 –

The number of highest paid non-director individuals whose remuneration fell within the following bands is setout below:

Number of individuals


ended August 31,2015 2016 2017 2017 2018


RMB0 to RMB500,000 – – – – –RMB500,000 to

RMB1,000,000 – 3 – – –RMB1,000,000 to

RMB1,500,000 3 1 3 3 4RMB1,500,000 to

RMB3,500,000 1 – 1 1 –

4 4 4 4 4

10 DIRECTORS’ EMOLUMENTS

The emoluments paid or payable to the directors and chief-executive of the Company (including theemoluments for services as employee/director of the group entities prior to becoming the directors of the Company)by entities comprising the Group during the Track Record Period are disclosed as below:


Director’sfee

Salariesand bonuses

Pensioncosts –

definedcontribution

plan

Otheremployee

benefit andshare-based

compensationexpense Total


Executive directorsMr. Jin Wenjie – – – 998 998Mr. Chen Miaoqiang – 1,434 22 1,044 2,500Non-executive directorsMr. Chen Miaolin – – – – –Mr, Chen Canrong – – – – –Mr. Zhang Guanming – – – – –Mr. Wen Wei – – – – –Mr. Feng Junyuan – – – – –

– 1,434 22 2,042 3,498


– I-38 –


Director’sfee

Salariesand bonuses

Pensioncosts –

definedcontribution

plan

Otheremployee

benefit andshare-based



Executive directorsMr. Jin Wenjie – – – – –Mr. Chen Miaoqiang – 1,328 23 50 1,401Non-executive directorsMr. Chen Miaolin – – – – –Mr, Chen Canrong – – – – –Mr. Zhang Guanming (i) – – – – –Mr. Wen Wei (i) – – – – –Mr. Feng Junyuan (i) – – – – –Mr. Jiang Tianyi (ii) – – – – –Mr. Zhang Chi (ii) – – – – –

– 1,328 23 50 1,401

(i) Resigned from non-executive directors since November 2016.

(ii) Non-executive directors since November 2016.


Director’sfee

Salariesand bonuses

Pensioncosts –

definedcontribution

plan

Otheremployee

benefits andshare-based



Executive directorsMr. Jin Wenjie – 299 6 258 563Mr. Chen Miaoqiang – 1,569 25 296 1,890Non-executive directorsMr. Chen Miaolin – – – – –Mr. Chen Canrong – – – – –Mr. Jiang Tianyi – – – – –Mr. Zhang Chi – – – – –Independent non-

executive directorsMr. Zhang Rungang (i) 60 – – – 60Mr. Li Zhiqiang (i) 60 – – – 60Ms. Qiu Yun (i) 60 – – – 60

180 1,868 31 554 2,633

(i) Independent non-executive directors since June 2017.


– I-39 –

For the eight months ended August 31, 2017 (Unaudited)

Director’sfee

Salariesand bonuses

Pensioncosts –

definedcontribution

plan

Otheremployee




Executive directorsMr. Jin Wenjie – 199 4 11 214Mr. Chen Miaoqiang – 983 16 37 1,036Non-executive directorsMr. Chen Miaolin – – – – –Mr. Chen Canrong – – – – –Mr. Jiang Tianyi – – – – –Mr. Zhang Chi – – – – –Independent non-

executive directorsMr. Zhang Rungang 20 – – – 20Mr. Li Zhiqiang 20 – – – 20Ms. Qiu Yun 20 – – – 20

60 1,182 20 48 1,310


Director’sfee

Salariesand

allowancesDiscretionary

bonuses

Otheremployee


payment TotalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Executive directorsMr. Jin Wenjie – 200 2 277 479Mr. Chen Miaoqiang – 860 18 134 1,012Non-executive directorsMr. Chen Miaolin – – – – –Mr, Chen Canrong – – – – –Mr. Jiang Tianyi – – – – –Mr. Zhang Chi – – – – –

Independent non-executivedirectors

Mr. Zhang Rungang 80 – – – 80Mr. Li Zhiqiang (i) 80 – – – 80Ms. Qiu Yun 80 – – – 80Mr. Qiu Huanfa (ii) – – – – –

240 1,060 20 411 1,731

(i) Resigned from independent non-executive directors since August 2018.

(ii) Independent non-executive directors since August 2018.


– I-40 –

(a) Directors’ termination benefits

No directors’ retirement or termination benefits subsisted at the end of the year or at any time during the TrackRecord Period.

(b) Directors’ benefits and interests

No directors’ benefits and interests subsisted at the end of the year or at any time during the Track RecordPeriod.

(c) Consideration provided to third parties for making available directors’ services

No consideration provided to third parties for making available directors’ services subsisted at the end of theyear or at any time during the Track Record Period.

(d) Information about loans, quasi-loans and other dealings in favor of directors, controlling bodiescorporate by and connected entities with such directors

No loans, quasi-loans or other dealings in favor of directors, controlled bodies corporate by and connectedentities with such directors subsisted at the end of the year or at any time during the Track Record Period.

(e) Directors’ material interests in transactions, arrangements or contracts

No significant transactions, arrangements and contracts in relation to the Company’s business to which theCompany was a party and in which a director of the Company had a material interest, whether directly or indirectly,subsisted at the end of the year or at any time during the Track Record Period.

11 FINANCE INCOME/(COSTS) – NET


ended August 31,2015 2016 2017 2017 2018


Finance income– Interest income derived

from bank deposits 5,294 4,394 4,495 3,030 5,140– Interest income derived

from loan to relatedparties (Note 35) 25,674 7,799 907 907 –

30,968 12,193 5,402 3,937 5,140

Finance costs– Interest expenses on

bank and otherborrowings (29,330) (13,925) (8,886) (7,620) (6,769)

– Interest expenses onborrowings from relatedparties (Note 35) (890) (2,124) (1,520) (1,520) –

(30,220) (16,049) (10,406) (9,140) (6,769)

Finance income/(costs)– net 748 (3,856) (5,004) (5,203) (1,629)

Finance costs have been capitalized on qualifying assets at average interest rates of 5.10%, 5.14%, 4.31%,4.63% with amount of RMB395,000, RMB934,000, RMB912,000, RMB118,000 for the years ended December 31,2015, 2016, 2017 and for the eight months ended August 31, 2017, respectively (for the eight months ended August31, 2018:nil).


– I-41 –

12A INVESTMENTS IN SUBSIDIARIES

As at December 31, 2015, 2016, 2017, August 31, 2018, the Company had the following subsidiaries (includingdirect and indirect held):

Name of subsidiariesDate ofestablishment

Place ofestablishment

Principalactivities

Registeredcapital

Equity interest held bythe Company

Directly/indirectlyheld


August 31,2015 2016 2017 2018

(RMB)

Ninghai Jinhai GrandNew Century HotelCo., Ltd. (寧海金海開元名都大酒店有限公司)

2012-03-23 Zhejiang,China

Hotel operation 10,000,000 100% 100% 100% 100% Directly

Zhejiang New CenturyManju HotelManagement Co.,Ltd. (浙江開元曼居酒店管理有限公司)


Hotelmanagement

27,000,000 100% 100% 100% 100% Directly

Shanghai Yuege HotelOperation Co., Ltd.(上海悅閣酒店經營有限公司)

2010-01-21 Shanghai,China


Shanghai Ruiya HotelManagement Co.,Ltd. (“ShanghaiRuiya”) (上海瑞亞酒店管理有限公司)


Hotel operation 5,000,000 65% 65% 65% N/A Indirectly

Shanghai RuiyueHotel Co., Ltd. (上海瑞悅酒店有限公司)


Hotel operation 5,000,000 65% 65% 65% 65% Indirectly

Hangzhou NewCentury HotelSupplies Co., Ltd.(杭州開元酒店用品有限公司)


Hotel suppliessales

10,000,000 100% 100% 100% 100% Directly

Hangzhou Biluo WineCo., Ltd. (杭州璧蘿酒業有限公司)


Wine sales 1,000,000 100% 100% 100% 100% Indirectly

Hangzhou NewCentury InformationSystem Co., Ltd.(杭州開元信息系統有限公司)


Computersoftware,hardware andnetworkproducts

5,000,000 100% 100% 100% 100% Directly

Zhejiang JinshanziNetworkTechnology Co.,Ltd. (浙江金扇子網絡科技有限公司)


Computersoftware,hardware andnetworkdesign anddevelopment

12,500,000 100% 100% 80% 80% Directly


– I-42 –



Principalactivities

Registeredcapital




August 31,2015 2016 2017 2018

(RMB)

Tianjin Ruiwan NewCentury HotelManagementCo., Ltd. (天津瑞灣開元酒店管理有限公司)

2012-12-28 Tianjin,China

Hotelmanagement& consultingservice

10,000,000 100% 100% 100% 100% Directly

Hangzhou NewCentury ChuanqiProperty LeasingCo., Ltd. (杭州開元傳祺房屋租賃有限公司)


Property service& lease ofproperty

26,800,000 100% 100% 100% 100% Directly

Haining YanguanAncient City NewCentury ResortHotel Co., Ltd.(海寧鹽官古城開元度假酒店有限公司)



Jiande New CenturyWonderland ResortCo., Ltd. (“JiandeWonderland”) (a)(建德開元芳草地酒店有限公司)


Hotel operation 30,000,000 Note (a) 100% 100% 100% Directly

Changxing NewCentury WonderlandResort Co., Ltd.(“ChangxingWonderland”) (a)(長興開元芳草地酒店有限公司)


Hotel operation 30,000,000 Note (a) Note (a) 100% 100% Directly

Suzhou Qiju HotelManagementCo., Ltd.(“Suzhou Qiju”) (蘇州祺聚酒店管理有限公司)

2010-09-03 Jiangsu,China

Hotel operation 5,000,000 100% 100% Note 31 Note 31 Directly

Shaoxing Dayu NewCentury ResortCo., Ltd.(“Shaoxing Dayu”)(紹興大禹開元度假村有限公司)


Hotel operation 10,000,000 100% 100% Note 31 Note 31 Directly

Hangzhou KaiyuanLife HotelManagement Co.,Ltd. (杭州開元頤居酒店管理有限公司)


Hotelmanagementand consultingservicesinvestmentmanagement

5,000,000 55% 55% 55% 55% Indirectly


– I-43 –



Principalactivities

Registeredcapital




August 31,2015 2016 2017 2018

(RMB)

Yuyao New CenturyManju HotelManagementCo., Ltd.(“Yuyao Manju”)(余姚開元曼居酒店管理有限公司)


Hotelmanagementand operation

3,000,000 100% Note 31 Note 31 55.66%(Note 32)

Directly

Ningbo New CenturyManju HotelManagementCo., Ltd. (寧波開元曼居酒店管理有限公司)


Hotelmanagement

1,000,000.00 N/A 100% 100% 100% Indirectly

Tianjin Manju HotelManagement Co.,Ltd. (天津曼居酒店管理有限公司)

2016-12-08 Tianjin,China


200,000 N/A 100% 100% 100% Indirectly

Zhoushan NewCentury ManjuHotel ManagementCo., Ltd. (舟山開元曼居酒店管理有限公司)



5,000,000 N/A N/A 100% 100% Indirectly

Shanghai NewCentury ManjuHotel ManagementCo., Ltd. (上海開元曼居酒店管理有限公司)


Hotelmanagement

5,000,000 N/A N/A 70% 70% Indirectly

Beijing New CenturyManju HotelManagementCo., Ltd. (北京開元曼居酒店管理有限公司)

2017-06-21 Beijing,China

Hotelmanagement

10,000,000 N/A N/A 70% 70% Indirectly

Chongqing NewCentury ManjuHotel ManagementCo., Ltd. (重慶開元曼居酒店管理有限公司)

2017-06-13 Chongqing,China

Hotelmanagement

3,000,000 N/A N/A 70% 70% Indirectly

Dalian New CenturyManju HotelManagement Co.,Ltd. (大連開元曼居酒店管理有限公司)

2017-11-13 Liaoning,China


5,000,000 N/A N/A 100% 100% Indirectly


– I-44 –



Principalactivities

Registeredcapital




August 31,2015 2016 2017 2018

(RMB)

Chongqing DazuDistrict NewCentury GrandHouse Hotel Co.,Ltd. (重慶市大足區開元觀堂酒店有限公司)

2017-08-10 Chongqing,China

Hotel operation 10,000,000 N/A N/A 100% N/A(Note 31)

Directly

Zhejiang New CenturyCateringManagementCo., Ltd. (浙江開元餐飲管理有限公司)


Cateringservices

10,000,000 N/A N/A 100% 100% Directly

Zhejiang MeizhenHotel ManagementCo., Ltd. (浙江美鎮酒店管理有限公司)


Hotelmanagement& consultingservice

10,000,000 N/A N/A 60% 60% Directly

Shanghai YueshangHotel ManagementCo., Ltd. (上海閱尚酒店管理有限公司)



500,000 N/A N/A 70% 70% Indirectly

Hunan Manju HotelManagement Co.,Ltd. (湖南曼居酒店管理有限責任公司)

2018-01-24 Hunan, China Hotelmanagementand operation

5,000,000 N/A N/A N/A 100% Indirectly

Chengdu Liju HotelManagement Co.,Ltd. (成都麗居酒店管理有限公司)

2018-03-20 Sichuan,China



Ningbo New CenturyManfei HotelManagement Co.,Ltd. (寧波開元曼菲酒店管理有限公司)




Changxing Grand NewCentury Hotel Co.,Ltd. (長興開元名都大酒店有限公司)


Hotel operation 50,000,000 N/A N/A N/A 100% Directly

Changxing NewCentury MayartHotel Co., Ltd.(長興開元美途酒店有限公司)


Hotel operation 5,000,000 N/A N/A N/A 100% Directly


– I-45 –

(a) During the Track Record Period, the Company has acquired the total share of Jiande Wonderland andChangxing Wonderland from New Century Tourism Group Co., Ltd. on October 31, 2016 and March 31, 2017respectively. The purchase considerations for the acquisitions of Jiande Wonderland and ChangxingWonderland were RMB30,000,000 and RMB40,000,000 (Note 26(b)), respectively. The Company, JiandeWonderland and Changxing Wonderland are under common control of New Century Tourism Group Co., Ltd.both before and after the acquisitions, the acquisitions are therefore regarded as a common control combination(Note 2.2.1(b)). Since completion of the acquisitions, the financial statements of Jiande Wonderland andChangxing Wonderland have been included in the consolidated financial statements of the Group during theTrack Record Period as if the acquisitions had occurred from the date when Jiande Wonderland and ChangxingWonderland first came under the control of New Century Tourism Group Co., Ltd., the capital injections fromNew Century Tourism Group Co., Ltd. to Jiande Wonderland and Changxing Wonderland in 2015 with amountof RMB60,000,000 were recorded in “Capital reserve” (Note 26(b)) as contribution to subsidiaries by thecontrolling shareholders.

12B INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

The Group and the Company


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Investments in a joint venture (a) 108,351 109,414 112,297 116,299Investments in associates (b) – 6,443 6,091 2,962

108,351 115,857 118,388 119,261

(a) Investments in a joint venture


ended August 31,2015 2016 2017 2017 2018


Beginning of theyear/period 106,619 108,351 109,414 109,414 112,297

Share of result 1,732 1,063 2,883 1,509 4,002

End of theyear/period 108,351 109,414 112,297 110,923 116,299

Particulars of the joint venture of the Group during the Track Record Period, which is unlisted, is setout as below:

Company NamePlace ofestablishment

Date ofestablishment

Principalactivities

Equity interest held by theCompany


August 31,2015 2016 2017 2018

Beijing Gehua NewCentury Hotel Co., Ltd.(北京歌華開元大酒店有限公司, “Beijing Gehua”)

Beijing, China 2005-09-19 Hotel operationand management

49% 49% 49% 49%


– I-46 –

Summarized key financial information for the joint venture is as follows:


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Current assets 8,982 11,297 18,305 33,958

Including: Cash and cashequivalents 5,025 5,446 10,330 20,555

Non-current assets 276,934 246,149 217,941 200,891

Total assets 285,916 257,446 236,246 234,849

Current liabilities (39,797) (43,158) (44,076) (49,511)Non-current liabilities (77,000) (43,000) (15,000) –

Total liabilities (116,797) (86,158) (59,076) (49,511)

Net assets 169,119 171,288 177,170 185,338

Reconciliation to carryingamount:

Opening net assets 165,584 169,119 171,288 177,170Net profit for the year/period 3,535 2,169 5,882 8,168

Closing net assets 169,119 171,288 177,170 185,338

Group’s share in % 49% 49% 49% 49%Group’s share in RMB 82,868 83,931 86,814 90,816Goodwill 25,483 25,483 25,483 25,483

Carrying amount 108,351 109,414 112,297 116,299


ended August 31,2015 2016 2017 2017 2018


Revenue 116,790 124,316 130,880 83,552 90,549Interest income 14 20 26 11 15Interest expense (5,839) (3,406) (1,508) (1,433) (385)Income tax – (1,705) (1,615) (1,081) (476)Net profit after tax

and totalcomprehensiveincome 3,535 2,169 5,882 3,080 8,168

Share of result 1,732 1,063 2,883 1,509 4,002


– I-47 –

(b) Investments in associates


ended August 31,2015 2016 2017 2017 2018


Beginning of theyear/period – – 6,443 6,443 6,091

New investments inassociates – 3,000 – – –

Transferred from asubsidiary to anassociates(Note 31(a)) – 3,071 – – –

Transferred from anassociate to asubsidiary(Note 32) – – – – (3,318)

Share of result – 372 122 20 325Declaration of

dividends – – (474) (474) (136)

End of theyear/period – 6,443 6,091 5,989 2,962

Particulars of the associates of the Group during the Track Record Period, which is unlisted, is set outas below:

CompanyName

Registeredcapital

Date ofestablishment

Principalactivities

Equity interest held by the Company


August 31,2015 2016 2017 2018

RMB

Zhejiang HaoguInternetTechnologyCo., Ltd. (浙江皓谷網絡科技有限公司)

15,000,000 2016-05-20 Internettechnologydevelopment

N/A 20% 20% 20%

Yuyao Manju 3,000,000 2015-11-23 Hotelmanagementand operation

Note 12A 35.83% 35.83% Note 12A andNote 31

13 INCOME TAX EXPENSE


ended August 31,2015 2016 2017 2017 2018


Current income tax 27,844 33,358 52,165 34,089 36,391Deferred income tax

(Note 30) 809 (183) 4,290 637 (5,750)

Income tax expenses 28,653 33,175 56,455 34,726 30,641


– I-48 –

The tax on the Group’s profit before income tax differs from the theoretical amount that could arise using thestatutory corporate income tax rate of 25% in the PRC during the Track Record Period is as follows:


ended August 31,2015 2016 2017 2017 2018


Profit before income tax 58,294 117,230 223,022 123,922 142,196Tax calculated at statutory

tax rates applicable toeach of the Group’sentity 14,574 29,308 55,756 30,981 35,549

Tax effect of:Expenses not deductible

for income tax purpose 1,482 154 824 824 839Tax losses for which no

deferred income taxassets were recognized 8,256 2,876 1,990 3,486 1,061

Temporary difference forwhich no deferredincome tax assets wererecognized 4,774 1,196 2,024 2,048 188

Utilization of previousunrecognized tax losses – – (3,388) (2,231) (5,914)

Effect of exclusion ofshare of profit tax ofjoint ventures andassociates (433) (359) (751) (382) (1,082)

Income tax expenses 28,653 33,175 56,455 34,726 30,641

(a) PRC corporate income tax

Enterprises incorporated in the PRC are subject to income tax rates of 25% throughout the Track RecordPeriod. The income tax provision of the Group has been calculated at the applicable tax rate on the estimatedassessable profits for the Track Record Period based on existing legislations, interpretations and practices.

14 EARNINGS PER SHARE

On June 25, 2017, the Company was converted into a joint stock company with limited liability with registeredcapital of RMB210,000,000 and 210,000,000 shares in issue. In calculating earnings per share, it is assumed that210,000,000 shares had been issued at the beginning of year 2015.

Basic earnings per share of the Track Record Period are calculated by dividing the profit attributable to theowners of the Company by the weighted average number of shares in issue or deemed to be in issue during the TrackRecord Period. Diluted earnings per share is calculated by adjusting the weighted average number of sharesoutstanding to assume conversion of all dilutive potential shares. The fully diluted earnings per share for the TrackRecord Period is the same as the basic earnings per share as there is no dilutive potential share during the TrackRecord Period.


– I-49 –


ended August 31,2015 2016 2017 2017 2018

(unaudited)

Profit attributable toowners of the Company(in RMB’000) 30,107 84,324 163,042 87,719 109,974

Weighted average numberof ordinary shares inissue or deemed to be inissue (in ’000 shares) 210,000 210,000 210,000 210,000 210,000

Basic earnings per share(in RMB per share) 0.14 0.40 0.78 0.42 0.52

15 DIVIDENDS

On April 24, 2017, a dividend of RMB59,690,000 was declared to certain shareholders of the Company. Thedividends were presented as dividends provided for or paid to the shareholders in the consolidated statements ofchanges in equity.

On June 15, 2018, a dividend of RMB41,238,000 was declared to certain shareholders of the Company. Thedividends were presented as dividends provided for or paid to the shareholders in the consolidated statements ofchanges in equity.

Other than the above, no dividend was paid or declared by the Company during the Track Record Period.

16 PROPERTY, PLANT AND EQUIPMENT

The Group

Buildingsand

facilities

Machineryand

equipment

Office andelectronic

equipment VehiclesLeasehold

improvementsConstruction

in progress TotalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

As at January 1, 2015Cost 21,446 38,803 102,990 10,614 314,346 3,803 492,002Accumulated depreciation (701) (22,873) (64,100) (6,155) (117,362) – (211,191)

Net book amount 20,745 15,930 38,890 4,459 196,984 3,803 280,811

For the year endedDecember 31, 2015

Opening net book amount 20,745 15,930 38,890 4,459 196,984 3,803 280,811Additions 69 1,568 4,663 750 10,304 38,052 55,406Transferred from construction

in progress – 240 372 – 10,030 (10,642) –Disposals – (111) (365) (211) – – (687)Reclassified as assets held

for sale (Note 31) – (198) (2,970) (2) (13,547) – (16,717)Depreciation charge (Note 8) (530) (3,666) (11,557) (1,505) (28,778) – (46,036)

Closing net book amount 20,284 13,763 29,033 3,491 174,993 31,213 272,777

As at December 31, 2015Cost 21,515 39,944 102,980 10,775 319,327 31,213 525,754Accumulated depreciation (1,231) (26,181) (73,947) (7,284) (144,334) – (252,977)

Net book amount 20,284 13,763 29,033 3,491 174,993 31,213 272,777


– I-50 –

Buildingsand

facilities

Machineryand

equipment






Opening net book amount 20,284 13,763 29,033 3,491 174,993 31,213 272,777Additions 39 5,020 11,669 1,855 27,631 74,651 120,865Transferred from construction

in progress 71,339 6,210 5,415 – 13,135 (96,099) –Disposals (37) (54) (417) (247) – – (755)Depreciation charge (Note 8) (2,927) (4,391) (10,874) (1,269) (29,623) – (49,084)



Net book amount 88,698 20,548 34,826 3,830 186,136 9,765 343,803


Opening net book amount 88,698 20,548 34,826 3,830 186,136 9,765 343,803Additions 318 4,258 21,985 1,214 12,467 116,592 156,834Transferred from construction

in progress 28 1,913 393 – 23,724 (26,058) –Disposals (1,137) (308) (793) (137) – – (2,375)Disposal of subsidiaries – (1,397) (924) (78) (33,861) – (36,260)Depreciation charge (Note 8) (3,745) (4,303) (11,513) (1,002) (33,386) – (53,949)



Net book amount 84,162 20,711 43,974 3,827 155,080 100,299 408,053

For the eight months endedAugust 31, 2017(unaudited)

Opening net book amount 88,698 20,548 34,826 3,830 186,136 9,765 343,803Additions 149 4,893 15,498 479 18,952 37,467 77,438Transferred from construction

in progress – 1,729 393 – 3,886 (6,008) –Disposals (1,116) (152) (462) (26) – – (1,756)Depreciation charge (Note 8) (2,527) (3,447) (7,339) (703) (21,851) – (35,867)


As at August 31, 2017(unaudited)

Cost 91,829 56,805 131,277 10,631 368,448 41,224 700,214Accumulated depreciation (6,625) (33,234) (88,361) (7,051) (181,325) – (316,596)

Net book amount 85,204 23,571 42,916 3,580 187,123 41,224 383,618


– I-51 –

Buildingsand

facilities

Machineryand

equipment





For the eight months endedAugust 31, 2018

Opening net book amount 84,162 20,711 43,974 3,827 155,080 100,299 408,053Additions 14,083 22,520 21,653 1,130 10,211 58,796 128,393Acquisition of a subsidiary

(Note 32) – 592 1,102 1 9,969 – 11,664Transferred from construction

in progress 108,144 – 14,325 – 30,654 (153,123) –Disposals – (317) (1,332) (42) – – (1,691)Disposal of subsidiaries

(Note 31) – (6,304) (4,378) (240) – – (10,922)Depreciation charge (Note 8) (5,381) (3,492) (8,714) (725) (14,988) – (33,300)


As at August 31, 2018Cost 214,198 66,895 155,415 10,268 360,238 5,972 812,986Accumulated depreciation (13,190) (33,185) (88,785) (6,317) (169,312) – (310,789)

Net book amount 201,008 33,710 66,630 3,951 190,926 5,972 502,197

As at December 31, 2017 and August 31, 2018, certain buildings and facilities with carrying amount ofRMB55,212,975 and RMB54,006,699 were pledged as collaterals for the Group’s bank borrowings (Note 28)(December 31, 2015 and 2016: nil).

Depreciation of property, plant and equipment have been charged to profit or loss (Note 8) as follows:


ended August 31,2015 2016 2017 2017 2018


Administrative expenses 1,876 1,658 1,595 1,336 979Cost of sales 44,160 47,426 52,354 34,531 32,321

46,036 49,084 53,949 35,867 33,300

The Company

Buildingsand

facilities

Machineryand

equipment





As at January 1, 2015Cost 1,066 29,608 59,749 7,445 173,458 120 271,446Accumulated depreciation (152) (18,625) (40,201) (4,443) (85,616) – (149,037)

Net book amount 914 10,983 19,548 3,002 87,842 120 122,409


– I-52 –

Buildingsand

facilities

Machineryand

equipment






Opening net book amount 914 10,983 19,548 3,002 87,842 120 122,409Additions 29 955 2,436 13 2,007 120 5,560Transferred from construction

in progress – 240 – – – (240) –Disposals – (20) (377) (193) – – (590)Depreciation charge (110) (2,644) (5,408) (959) (13,966) – (23,087)

Closing net book amount 833 9,514 16,199 1,863 75,883 – 104,292

As at December 31, 2015Cost 1,095 30,585 61,538 6,897 175,465 – 275,580Accumulated depreciation (262) (21,071) (45,339) (5,034) (99,582) – (171,288)

Net book amount 833 9,514 16,199 1,863 75,883 – 104,292


Opening net book amount 833 9,514 16,199 1,863 75,883 – 104,292Additions 25 1,022 3,676 1,087 5,189 – 10,999Disposals – (35) (33) (125) – – (193)Depreciation charge (149) (2,813) (5,522) (692) (14,711) – (23,887)

Closing net book amount 709 7,688 14,320 2,133 66,361 – 91,211

As at December 31, 2016Cost 1,120 31,394 64,870 6,077 180,654 – 284,115Accumulated depreciation (411) (23,706) (50,550) (3,944) (114,293) – (192,904)

Net book amount 709 7,688 14,320 2,133 66,361 – 91,211


Opening net book amount 709 7,688 14,320 2,133 66,361 – 91,211Additions 240 1,447 4,652 – 3,245 13,458 23,042Transferred from construction

in progress – – 393 – 3,888 (4,281) –Disposals (21) (227) (613) (117) – – (978)Depreciation charge (132) (2,721) (4,724) (475) (17,673) – (25,725)

Closing net book amount 796 6,187 14,028 1,541 55,821 9,177 87,550

As at December 31, 2017Cost 1,304 32,183 67,491 4,915 187,787 9,177 302,857Accumulated depreciation (508) (25,996) (53,463) (3,374) (131,966) – (215,307)

Net book amount 796 6,187 14,028 1,541 55,821 9,177 87,550


– I-53 –

Buildingsand

facilities

Machineryand

equipment





For the eight months endedAugust 31, 2017(unaudited)

Opening net book amount 709 7,688 14,320 2,133 66,361 – 91,211Additions 240 1,188 3,037 80 2,409 10,572 17,526Transferred from construction

in progress – – 393 – 3,886 (4,279) –Disposals – (79) (299) (6) – – (384)Depreciation charge (86) (1,962) (3,541) (343) (10,160) – (16,092)


As at August 31, 2017(unaudited)

Cost 1,360 32,439 67,712 6,035 184,608 6,293 298,447Accumulated depreciation (497) (25,604) (53,802) (4,171) (122,112) – (206,186)

Net book amount 863 6,835 13,910 1,864 62,496 6,293 92,261


Opening net book amount 796 6,187 14,028 1,541 55,821 9,177 87,550Additions 301 1,954 5,905 419 4,105 5,323 18,007Transferred from construction

in progress – – 538 – 12,194 (12,732) –Disposals – (312) (1,069) (40) – – (1,421)Depreciation charge (106) (839) (2,382) (376) (6,988) – (10,691)


As at August 31, 2018Cost 1,605 33,586 71,082 5,086 189,994 1,768 303,121Accumulated depreciation (614) (26,596) (54,062) (3,542) (124,862) – (209,676)

Net book amount 991 6,990 17,020 1,544 65,132 1,768 93,445

17 LAND USE RIGHTS

The Group

Land use rights represent prepaid operating lease payments for land located in the PRC, which are held onleases of 40 years. The net book values are analyzed as below:


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

In the PRC– Lease of 40 years 30,682 47,330 46,142 45,322


– I-54 –


ended August 31,2015 2016 2017 2017 2018


Beginning of theyear/period – 30,682 47,330 47,330 46,142

Additions 31,268 17,500 – – –Amortization charges

(Note 8) (586) (852) (1,188) (765) (820)

End of the year/period 30,682 47,330 46,142 46,565 45,322

As at December 31, 2017 and August 31, 2018, certain land use rights with a carrying amount ofRMB46,142,000 and RMB45,322,000 were pledged as collaterals for the Group’s bank borrowings (Note 28)(December 31, 2015 and 2016: nil).

The amortization of land use rights have been charged to profit or loss (Note 8) as follows:


ended August 31,2015 2016 2017 2017 2018


Cost of sales 586 852 1,188 765 820

18 INTANGIBLE ASSETS

The Group

Computersoftware

Favorableoperating lease Total

RMB’000 RMB’000 RMB’000

As at January 1, 2015Cost 28,646 30,454 59,100Accumulated amortization (16,159) (14,124) (30,283)

Net book amount 12,487 16,330 28,817

For the year ended December 31, 2015Opening net book amount 12,487 16,330 28,817Additions 1,588 – 1,588Reclassified as assets held for sale (Note 31) (38) – (38)Amortization charge (Note 8) (3,557) (2,926) (6,483)

Closing net book amount 10,480 13,404 23,884

As at December 31, 2015Cost 28,968 30,454 59,422Accumulated amortization (18,488) (17,050) (35,538)

Net book amount 10,480 13,404 23,884


– I-55 –

Computersoftware

Favorableoperating lease Total

RMB’000 RMB’000 RMB’000

For the year ended December 31, 2016Opening net book amount 10,480 13,404 23,884Additions 1,238 – 1,238Amortization charge (Note 8) (4,059) (2,926) (6,985)



Net book amount 7,659 10,478 18,137

For the year ended December 31, 2017Opening net book amount 7,659 10,478 18,137Additions 2,223 – 2,223Disposal of subsidiaries (18) (578) (596)Amortization charge (Note 8) (2,531) (2,196) (4,727)



Net book amount 7,333 7,704 15,037

For the eight months ended August 31, 2017(unaudited)

Opening net book amount 7,659 10,478 18,137Additions 1,037 – 1,037Amortization charge (Note 8) (2,390) (867) (3,257)


As at August 31, 2017 (unaudited)Cost 30,997 30,454 61,451Accumulated amortization (24,691) (20,843) (45,534)

Net book amount 6,306 9,611 15,917


– I-56 –

Computersoftware

Favorableoperating

lease Goodwill TotalRMB’000 RMB’000 RMB’000 RMB’000


Opening net book amount 7,333 7,704 – 15,037Additions 1,706 – – 1,706Acquisition of a subsidiary

(Note 32) – – 2,132 2,132Disposal of subsidiaries (Note 31) (200) – – (200)Amortization charge (Note 8) (3,051) (909) – (3,960)

Closing net book amount 5,788 6,795 2,132 14,715

As at August 31, 2018Cost 32,118 18,696 2,132 52,946Accumulated amortization (26,330) (11,901) – (38,231)

Net book amount 5,788 6,795 2,132 14,715

The amortization of intangible assets have been charged to profit or loss (Note 8) as follows:


ended August 31,2015 2016 2017 2017 2018


Administrative expenses 1,653 1,386 1,378 772 772Cost of sales 4,830 5,599 3,349 2,485 3,188

6,483 6,985 4,727 3,257 3,960

The Company

ComputersoftwareRMB’000

As at January 1, 2015Cost 4,103Accumulated amortization (3,316)

Net book amount 787

For the year ended December 31, 2015Opening net book amount 787Additions 841Amortization charge (539)

Closing net book amount 1,089

As at December 31, 2015Cost 3,776Accumulated amortization (2,687)

Net book amount 1,089


– I-57 –

ComputersoftwareRMB’000

For the year ended December 31, 2016Opening net book amount 1,089Additions 363Amortization charge (773)

Closing net book amount 679


Net book amount 679

For the year ended December 31, 2017Opening net book amount 679Additions 1,571Amortization charge (564)




For the eight months ended August 31, 2017 (unaudited)Opening net book amount 679Additions 264Amortization charge (361)

Closing net book amount 582

As at August 31, 2017 (unaudited)Cost 4,253Accumulated amortization (3,671)

Net book amount 582

For the eight months ended August 31, 2018Opening net book amount 1,686Additions 1,052Amortization charge (914)


As at August 31, 2018Cost 5,537Accumulated amortization (3,713)



– I-58 –

19 OTHER NON-CURRENT ASSETS

Other long-term assets represent prepayment of operating lease expenses.

The Group


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Prepayment of operating leaseexpenses 24,117 22,125 14,554 3,527

The Company


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Prepayment of operating leaseexpenses 24,117 20,333 14,202 754

20 INVENTORIES

The Group


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Foods and beverage 15,764 13,408 17,625 18,898Consumables, supplies

and others 8,442 8,678 9,168 8,852

24,206 22,086 26,793 27,750Less: provision for impairment – – – –

24,206 22,086 26,793 27,750

The Company


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Foods and beverage 11,995 9,023 9,057 9,894Consumables, supplies

and others 4,659 5,319 4,830 4,799

16,654 14,342 13,887 14,693Less: provision for impairment – – – –

16,654 14,342 13,887 14,693


– I-59 –

21 TRADE, OTHER RECEIVABLES AND PREPAYMENTS

The Group


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade receivables due fromthird parties 61,597 56,257 68,216 83,006

Trade receivables due from relatedparties (Note 35(c)) 9,033 6,822 4,235 7,301

70,630 63,079 72,451 90,307Less: provision for impairment

(Note 8) (5,543) (4,230) (5,223) (3,659)


Deposits to suppliers 42,428 44,138 54,753 55,314Loans receivables and other

receivables due from relatedparties (Note 35(c)) 251,321 87,418 20,518 20,837

VAT recoverable 391 5,371 21,361 33,525Interest receivable 3,183 6,209 – 229Financial instruments with

guaranteed principal & return – – – 60,000Others 24,478 26,097 40,323 19,660

321,801 169,233 136,955 189,565

Less: provision for other receivables(Note 8) (948) (4,813) (4,501) (7,644)


Prepayments 22,815 30,125 39,408 66,316

Total trade, otherreceivables and prepayments 408,755 253,394 239,090 334,885


– I-60 –

(a) Trade receivables

During the Track Record Period, the fair values of the trade receivables of the Group approximately theircarrying amount and the carrying amounts of all the Group’s trade receivables are denominated in RMB.

The Group allows a credit period of within 30-90 days to its customers. Aging analysis of trade receivablesbased on invoice date, before provision for impairment, were as follows:


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

– Up to 3 months 53,977 49,989 62,272 77,364– 3 months to 1 year 10,902 5,539 4,987 9,786– 1 year to 2 years 2,955 5,652 2,473 1,381– 2 years to 3 years 1,406 1,254 1,085 324– Over 3 years 1,390 645 1,634 1,452

70,630 63,079 72,451 90,307

Movements in the provision for impairment of trade receivables that are assessed for impairment collectivelyare as follows:


ended August 31,2015 2016 2017 2017 2018


Beginning of theyear/period (1,771) (5,543) (4,230) (4,230) (5,223)

(Additions)/reversal(Note 8) (4,168) (1,375) (1,267) 297 1,564

Write-off 396 2,688 274 219 –

End of the year/period (5,543) (4,230) (5,223) (3,714) (3,659)

The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, whichpermits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses,trade receivables have been grouped based on shared credit risk characteristics and the days past due. The lossallowance provision as at December 31, 2015, 2016, 2017 and August 31, 2018 is determined as follows, the expectedcredit losses below also incorporate forward looking information.

Relatedparties

Withincredit

period

Up to3 monthspast due

3 monthsto 1 yearpast due

1 to 2years

past due

2 to 3years

past due

Above3 years

past due Total

As at December 31,2015

Expected loss rate 1.00% 0.92% 3.91% 9.54% 21.80% 69.00% 100.00%Gross carrying amount

(RMB’000) 9,033 8,626 37,908 9,312 2,955 1,406 1,390 70,630Loss allowance

provision (RMB’000) (90) (79) (1,482) (888) (644) (970) (1,390) (5,543)


– I-61 –

Relatedparties

Withincredit

period



1 to 2years

past due

2 to 3years

past due

Above3 years

past due Total



(RMB’000) 6,822 15,286 32,666 754 5,652 1,254 645 63,079Loss allowance

provision (RMB’000) (68) (139) (1,271) (61) (1,190) (856) (645) (4,230)



(RMB’000) 4,235 16,414 41,700 4,910 2,473 1,085 1,634 72,451Loss allowance

provision (RMB’000) (42) (160) (1,660) (462) (518) (747) (1,634) (5,223)

As at August 31, 2018Expected loss rate 1.00% 0.96% 3.95% 9.38% 20.95% 68.44% 100.00%Gross carrying amount

(RMB’000) 7,301 58,196 17,807 3,846 1,381 324 1,452 90,307Loss allowance

provision (RMB’000) (73) (559) (703) (361) (289) (222) (1,452) (3,659)

(b) Other receivables

Other receivables are measured at amortized costs. The receivables are mainly composed of the deposits tosuppliers, VAT recoverable, interest receivables, receivables due from related parties and financial instruments withguaranteed principal & return, which were considered to be low credit risk, and thus the impairment provisionrecognized during Track Record Period was limited to 12 months expected losses.

Movements in the provision for impairment of other receivables are as follows:


ended August 31,2015 2016 2017 2017 2018


Beginning of theyear/period (165) (948) (4,813) (4,813) (4,501)

(Additions)/reversal(Note 8) (783) (3,892) 309 (168) (3,143)

Write-off – 27 3 – –

End of the year/period (948) (4,813) (4,501) (4,981) (7,644)


– I-62 –

Relatedparties

Financialinstruments

withguaranteed

principal& return

Withincredit

period



1 to 2years

past due

2 to 3years

past due

Above3 years

past due Total

As at December 31, 2015Expected loss rate 0.05% – 0.04% 0.50% 1.00% 3.00% 36.50% 40.39%Gross carrying amount

(RMB’000) 251,321 – 52,007 4,997 49 12,395 215 817 321,801Loss allowance provision

(RMB’000) (126) – (18) (25) – (371) (78) (330) (948)


(RMB’000) 87,418 – 56,770 8,961 4,353 43 11,219 469 169,233Loss allowance provision

(RMB’000) (44) – (24) (45) (44) (1) (4,445) (210) (4,813)


(RMB’000) 20,518 – 70,140 29,227 3,791 3,968 20 9,291 136,955Loss allowance provision

(RMB’000) (10) – (30) (146) (38) (119) (8) (4,150) (4,501)

As at August 31, 2018Expected loss rate 0.05% 0.05% 0.04% 0.50% 1.00% 3.00% 39.69% 62.25%Gross carrying amount

(RMB’000) 20,837 60,000 66,655 23,479 4,589 2,173 75 11,757 189,565Loss allowance provision

(RMB’000) (10) (30) (27) (117) (46) (65) (30) (7,319) (7,644)

The Company


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade receivables due from thirdparties 47,923 41,304 47,856 56,615

Trade receivables due from relatedparties 9,659 4,560 7,334 12,843

57,582 45,864 55,190 69,458Less: provision for impairment (5,246) (3,248) (4,204) (2,551)


Deposits to suppliers 33,401 33,975 34,620 37,158Loan and other receivables due from

related parties 320,281 130,715 200,468 185,656VAT recoverable – 545 2,107 1,935Interest receivable 3,647 7,370 2,026 1,038Financial assets at amortized cost – – – 60,000Others 16,086 17,659 36,653 12,590

373,415 190,264 275,874 298,377Less: provision for other receivables (874) (4,752) (4,413) (5,056)


Prepayments 9,116 9,494 14,712 41,190

Total trade, other receivables andprepayments 433,993 237,622 337,159 401,418


– I-63 –

22 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

The Group


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Financial assets at fair value throughprofit or loss – 155,590 – –

The Company


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Financial assets at fair value throughprofit or loss – 129,000 – –

The financial assets at fair value through profit or loss are wealth management products, denominated in RMB,with expected rates of return ranging from 6.90% to 7.20% per annum during the Track Record Period. They hadinitial terms ranging from 91 days to 289 days. The returns on all of these wealth management products are notguaranteed, hence their contractual cash flows do not qualify for solely payments of principal and interest. Thereforethey are measured at fair value through profit or loss.

23 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

The Group


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Cash at bank and in hand 198,785 248,564 424,109 360,342Less: restricted cash (a) (72,400) (72,400) – (72,100)

Cash and cash equivalents 126,385 176,164 424,109 288,242

During the Track Record Period, all the cash at bank and in hand are denominated in RMB.


– I-64 –

(a) Restricted cash represents term deposit, guaranteed deposits held in separate reserve accounts pledgedas security deposits under bank borrowing agreements (Note 28) and certain hotel lease agreements.


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Deposits pledged for the bankborrowings 40,000 40,000 – –

Deposits pledged for issued ofletter of guarantee 32,400 32,400 – 66,000

Term deposit – – – 6,100

72,400 72,400 – 72,100

The Company


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Cash at bank and in hand 110,714 143,653 184,968 172,688Less: restricted cash (72,400) (72,400) – (72,100)

Cash and cash equivalents 38,314 71,253 184,968 100,588

24 FINANCIAL INSTRUMENTS BY CATEGORY

As at December 31, 2015Assets at fair

value throughprofit or loss

Assets atamortized cost Total

RMB’000 RMB’000 RMB’000

Assets as per consolidated balance sheetsTrade and other receivables (excluding VAT

recoverable and prepayments) – 385,549 385,549Restricted cash – 72,400 72,400Cash and cash equivalent – 126,385 126,385

Total – 584,334 584,334


– I-65 –




RMB’000 RMB’000 RMB’000


recoverable and prepayments) – 217,898 217,898Restricted cash – 72,400 72,400Cash and cash equivalent – 176,164 176,164Financial assets at fair value through

profit or loss 155,590 – 155,590

Total 155,590 466,462 622,052




RMB’000 RMB’000 RMB’000


recoverable and prepayments) – 178,321 178,321Cash and cash equivalent – 424,109 424,109

Total – 602,430 602,430

As at August 31, 2018Assets at fair



RMB’000 RMB’000 RMB’000


recoverable and prepayments) – 235,044 235,044Restricted cash – 72,100 72,100Cash and cash equivalent – 288,242 288,242

Total – 595,386 595,386


– I-66 –

As at December 31, 2015Liabilities at

fair valuethrough

profit or lossLiabilities at

amortized cost TotalRMB’000 RMB’000 RMB’000

Liabilities as per consolidated balance sheetsBank and other borrowings – 310,000 310,000Trade and other payables (excluding accrued

expenses, tax payables and salary payables) – 286,850 286,850

Total – 596,850 596,850


fair valuethrough





Total – 615,263 615,263


fair valuethrough





Total – 430,814 430,814

As at August 31, 2018Liabilities at

fair valuethrough





Total – 495,636 495,636


– I-67 –

25 PAID-IN CAPITAL/SHARE CAPITAL

The paid-in capital of the Company as at December 31, 2015 and 2016 was both RMB173,680,000.

In 2015 and 2017, the Company increased its paid-in capital by amount of RMB8,680,000 and RMB15,100,000respectively, the excess of the cash consideration received for the capital injection over the paid-in capital withamount of RMB1,320,000 and RMB121,420,000 were recorded in “other reserve” as capital reserve (Note 26).

On June 25, 2017, the Company was converted into a joint-stock company with limited liability by convertingtotal equity as at April 30, 2017 into 210,000,000 ordinary shares of nominal value of RMB1.00 each. Excess of totalequity of the Company over nominal value of total issued share capital with the amount of RMB97,909,000 has beenrecognized as “other reserves” in the consolidated balance sheets (Note 26).


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Paid-in capital/share capital 173,680 173,680 210,000 210,000

26 OTHER RESERVES

The Group


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Statutory reserve (a) 12,788 12,788 15,773 15,773Capital reserve (b) 78,793 48,793 228,122 228,122Share-based compensation

reserve (c) 19,950 19,950 23,460 23,460

Total 111,531 81,531 267,355 267,355

(a) Statutory Reserve

In accordance with the Articles of Association and board resolutions of the Company and its PRCsubsidiaries, certain percentage of the annual statutory net profits is appropriated after offsettingaccumulated losses as determined under the PRC accounting standards, to the statutory surplus reservefund before distributing any dividends. The statutory surplus reserve can be used to offset accumulatedlosses, if any, and may be converted into paid-in-capital.


– I-68 –

(b) Capital reserve

RMB’000

As at January 1, 2015 17,473Excess of the cash consideration received over the paid-in capital (Note 25) 1,320Contributions to subsidiaries by the controlling shareholders (Note 12A) 60,000

As at December 31, 2015 78,793Payment for acquisition of a subsidiary under common control (Note 12A) (30,000)

As at December 31, 2016 48,793Excess of the cash consideration received over the paid-in capital (Note 25) 121,420Conversion into a joint stock company (Note 25) 97,909Payment for acquisition of a subsidiary under common control (Note 12A) (40,000)

As at December 31, 2017 and August 31, 2018 228,122

(c) Share-based compensation reserve

In 2015, Hangzhou Qianhe Qiju Investment and Management Partnership (Limited Partnership) (“杭州謙和祺聚投資管理合夥企業(有限合夥)”) was set up by certain long serviced employees, and hasacquired 5% newly issued shares of the Company. As there were no vesting periods for the equityinterests granted, the difference between the fair value of the equity interest at the grant date and thecash consideration for the capital injection with amount of RMB19,950,000 was recorded as an expensein the consolidated statements of comprehensive income in 2015 (Note 9).

In 2017, Ningbo Meishan Bonded Area Meiyuangu Investment Management Partnership (LimitedPartnership) (“寧波梅山保稅港區美源穀投資管理合夥企業(有限合夥)”) was set up by certain longserviced employees, and has acquired 20% newly issued shares of Zhejiang Jinshanzi NetworkTechnology Co., Ltd., the subsidiary of the Company. As there were no vesting periods for the equityinterests granted, the difference between the fair value of the equity interest at the grant date and thecash consideration for the capital injection with amount of RMB3,510,000 was recorded as an expensein the consolidated statements of comprehensive income in 2017 (Note 9).

The Company has engaged the independent valuers to determine the fair values of the equity interestsgranted to the employees, and income approach has been applied in the determination of the fair valueof the equity interests.

The key assumptions used in determining the fair value of the equity interests granted mainly included:

Equity interests of theCompany granted in 2015

Equity interests of ZhejiangJinshanzi Network Technology

Co., Ltd. granted in 2017

Growth rate 1.00% to 8.00% 4.66% to 4.71%Discount rate 12.57% to 15.37% 14.00%


– I-69 –

During the Track Record Period, expenses arising from the share-based compensation plans were asbelow:


ended August 31,2015 2016 2017 2017 2018


Administrativeexpenses 19,950 – 3,510 3,510 –

The Company


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Statutory reserve 12,788 12,788 12,788 12,788Capital reserve 21,469 21,524 223,462 223,462Share-based compensation reserve 19,950 19,950 19,950 19,950

Total 54,207 54,262 256,200 256,200

27 TRADE AND OTHER PAYABLES

The Group


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade payables:– Due to third parties 127,897 153,857 164,667 158,823– Due to related parties (Note 35(c)) 50,193 30,036 22,323 19,613

178,090 183,893 186,990 178,436Other payables due to related parties

(Note 35(c)) 20,095 18,449 10,397 12,799Payables for purchase of property,

plant and equipment 4,815 24,167 35,428 74,035Customers’ deposits 35,637 34,357 32,845 32,867Accrued expenses 21,444 23,807 26,113 25,189Staff salaries and welfare payables 56,134 78,089 85,760 67,034Accrued taxes other than income tax 8,090 2,713 2,401 2,737Interest payables 438 397 154 299Dividend payable 295 – – –Others (a) 47,480 – – –

372,518 365,872 380,088 393,396


– I-70 –

(a) The balance represented the present value of deposits received from customers under a gift cardpromotion program launched in February to September 2015. Such deposits were refunded to thecustomers one year after the dates of receipts. During the promotion period, the customers under thisgift card promotion program were entitled to free services like room rental, food and beverage and otherancillary services in the hotels operated by the Group, the total nominal value of which was equivalentto 12% of the deposits placed by the holders. Any unutilized amount of free services expired after oneyear.

The deposits received were initially recognized at fair value based on cash flows discounted at prevailingmarket interest rate for similar period, and subsequently amortized using the effective interest method. Thedifferences between gross amount of the deposits received and the fair value of the payable upon initial recognitionwere recognized as contract liabilities and realized in profit or loss upon the delivery of the related services duringthe service period of one year.

All the deposits received were paid in 2016 and no such promotion program launched since 2016.

As at December 31, 2015, 2016, 2017 and August 31, 2018, all trade and other payables of the Group werenon-interest bearing. Their fair values, which are not financial liabilities, approximate to their carrying amounts dueto their short maturities.

As at December 31, 2015, 2016, 2017 and August 31, 2018, trade and other payables were all denominated inRMB.

As at December 31, 2015, 2016, 2017 and August 31, 2018, the aging analysis of the trade payables of theGroup based on invoice date were as follows:


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

– Within 1 year 169,466 180,801 175,556 159,425– 1 year to 2 years 7,417 1,626 10,237 12,685– 2 years to 3 years 611 617 599 5,636– Over 3 years 596 849 598 690

178,090 183,893 186,990 178,436

The Company


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade payables:– Due to third parties 84,253 85,195 89,391 77,717– Due to related parties 51,861 32,508 24,563 22,458

136,114 117,703 113,954 100,175Other payables due to related parties 66,856 11,525 5,407 53,349Payables for purchase of property,

plant and equipment 1,765 1,258 7,964 7,841Customers’ deposits 20,596 16,470 14,302 14,910Accrued expenses 22,590 25,221 14,118 10,076Staff salaries and welfare payables 37,622 54,887 57,247 40,686Accrued taxes other than income tax 6,781 1,393 1,259 2,007Interest payables 438 385 154 147Others 28,522 – – –

321,284 228,842 214,405 229,191


– I-71 –

28 BORROWINGS

The Group


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Non-currentBank borrowings – secured (a) 150,000 150,000 160,000 87,500Bank borrowings – unsecured – – – 100,000Loans from a related party (b) 25,000 69,000 – 6,700

175,000 219,000 160,000 194,200

CurrentBank borrowings – secured (a) 135,000 135,000 5,000 3,000

The carrying amounts of the Group’s borrowings are all denominated in RMB.

The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates or maturitydate whichever is earlier during the Track Record Period are as follows:

6 monthsor less

Between6 and 12

months Over 1 year TotalRMB’000 RMB’000 RMB’000 RMB’000

As at December 31, 2015 285,000 – 25,000 310,000As at December 31, 2016 285,000 – 69,000 354,000As at December 31, 2017 165,000 – – 165,000As at August 31, 2018 190,500 – 6,700 197,200

The maturity of the borrowings is as follows:


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

On demand or within 1 year 135,000 135,000 5,000 3,000Between 1 and 2 years – 175,000 5,000 70,000Between 2 and 5 years 175,000 44,000 145,000 91,700Over 5 years – – 10,000 32,500

310,000 354,000 165,000 197,200


– I-72 –

The weighted average effective interest rates during the Track Record Period were as follows:


For theeight months

endedAugust 31,

2015 2016 2017 2018RMB’000 RMB’000 RMB’000 RMB’000

Borrowings – current– RMB 5.89% 5.01% 4.67% 4.67%

Borrowings – non-current– RMB 5.52% 5.11% 4.77% 4.83%

The fair values of current borrowings equal their carrying amounts as the discounting impact is not significant.

The carrying amounts and fair values of the non-current borrowings are as follows:


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Carrying amountBank borrowings 150,000 150,000 160,000 187,500Loans from a related party 25,000 69,000 – 6,700

175,000 219,000 160,000 194,200

Fair valueBank borrowings 153,804 161,131 162,942 196,359Loans from a related party 25,374 72,226 – 7,458

179,178 233,357 162,942 203,817

The fair value of bank borrowings and loans from a related party are based on cash flows discounted using theannual interest rate published by the People’s Bank of China for long-term bank loans prevailing at each balance sheetdate and are within level 2 of the fair value hierarchy.

The Group had the following undrawn bank borrowing facilities:


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

RMB Facilities – – 274,000 215,000


– I-73 –

(a) Bank borrowings – secured and guaranteed

The details of bank borrowings that were secured and guaranteed are as follows:


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Guaranteed by related parties(Note 35(b)) 249,000 249,000 100,000 –

Secured by bank deposit(Note 23) 36,000 36,000 – –

Secured by property,plant and equipment and landuse rights (Note 16, 17) – – 65,000 90,500

285,000 285,000 165,000 90,500

(b) Loans from a related party

As at December 31, 2015, 2016 and August 31, 2018, loans from a related party comprisedRMB25,000,000, RMB69,000,000 and RMB6,700,000 provided by New Century Tourism Group Co.,Ltd., with an interest rate of 5.1% – 8.5% per annum. The balances as at December 31, 2015 and 2016were fully repaid in 2017 and the balance as at August 31, 2018 were fully repaid in October 2018.

29 DEFERRED INCOME

The Group


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Non-current deferred incomeAssets related government grants (a) 6,000 12,823 21,714 20,444

Current portion of long-term liabilitiesAssets related government grants (a) – 706 706 1,186

Total deferred income 6,000 13,529 22,420 21,630

(a) Assets related government grants

It represents government grants relating to certain assets, which is deferred and recognized in profit orloss on a straight-line basis over the expected useful lives of the related assets. The movements ofdeferred income are as below:

For the years ended December 31,For the eight months ended

August 31,2015 2016 2017 2017 2018


Beginning of theyear/period – 6,000 13,529 13,529 22,420

Additions 6,000 8,000 9,597 – –Credited to profit or

loss – (471) (706) (469) (790)



– I-74 –

30 DEFERRED INCOME TAX ASSETS AND DEFERRED INCOME TAX LIABILITIES

The Group

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset and whenthe deferred income taxes related to the same tax authority. The net deferred income tax balance after offsetting areas follows:


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Deferred income tax assetsTo be recovered after more than

12 months 3,188 4,829 3,214 1,097To be recovered within 12 months 21,551 20,331 16,346 24,248

24,739 25,160 19,560 25,345

Deferred income tax liabilitiesTo be recovered after more than

12 months (29) (267) (137) –

24,710 24,893 19,423 25,345

The movement on the net deferred income tax assets is as follows:


ended August 31,2015 2016 2017 2017 2018



(Charged)/credited to profitor loss (Note 13) (809) 183 (4,290) (637) 5,750

Acquisition of a subsidiary(Note 32) – – – – 172

Disposal of subsidiaries – – (1,180) – –



– I-75 –

Movements in deferred tax assets and deferred tax liabilities during the Track Record Period without takinginto consideration of offsetting of balance within the same jurisdiction, are as follows:

Deferred income tax assets

Tax lossescarried

forward

Rental expenserecognition

differencebetweentax and

accounting Provisions

Depreciationdifference

betweentax and

accounting

Othertemporarydifferences Total

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

As at January 1, 2015 1,742 13,418 478 8,708 2,005 26,351(Charged)/credited to profit or loss (1,409) 639 1,131 (182) (564) (385)

As at December 31, 2015 333 14,057 1,609 8,526 1,441 25,966(Charged)/credited to profit or loss (302) 1,396 621 (94) (900) 721

As at December 31, 2016 31 15,453 2,230 8,432 541 26,687Disposal of subsidiaries – (1,203) – – – (1,203)(Charged)/credited to profit or loss (31) (4,006) 190 (797) (297) (4,941)

As at December 31, 2017 – 10,244 2,420 7,635 244 20,543Credited/(charged) to profit or loss 6,307 1,359 (237) (116) 46 7,359Acquisition of a subsidiary (Note 32) – – – 172 – 172

As at August 31, 2018 6,307 11,603 2,183 7,691 290 28,074

Deferred income tax liabilities

Rental revenuerecognition


accounting

Fair valuechange of

financial assetsat fair value

throughprofit or loss


betweentax and

accounting

Othertemporarydifference Total


As at January 1, 2015 (808) – – (24) (832)(Charged)/credited to profit or loss (429) – – 5 (424)

As at December 31, 2015 (1,237) – – (19) (1,256)Credited/(charged) to profit or loss 256 (149) – (645) (538)

As at December 31, 2016 (981) (149) – (664) (1,794)Disposal of subsidiaries 23 – – – 23(Charged)/credited to profit or loss (123) 149 – 625 651

As at December 31, 2017 (1,081) – – (39) (1,120)(Charged)/credited to profit or loss (130) – (1,499) 20 (1,609)

As at August 31, 2018 (1,211) – (1,499) (19) (2,729)

Deferred income tax assets are recognized for tax losses carry-forwards to the extent that the realization of therelated tax benefit through the future taxable profits is probable. The Group did not recognize deferred income taxassets for the tax loss of RMB13,064,250, RMB14,242,500, RMB13,781,500 and RMB16,816,000, as at December31, 2015, 2016, 2017 and August 31, 2018 in respect of losses amounting to RMB52,257,000, RMB56,970,000,RMB55,126,000 and RMB67,265,000 that can be carried forward against future taxable income.


– I-76 –

The Company

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset and whenthe deferred income taxes related to the same tax authority. The net deferred income tax balance after offsetting areas follows:


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Net deferred income tax assets– To be recovered after more than

12 months 2,666 2,834 2,576 276– To be recovered within 12 months 7,713 8,376 4,029 4,808

10,379 11,210 6,605 5,084

The movement on the net deferred income tax assets is as follows:


ended August 31,2015 2016 2017 2017 2018



Credited/(charged) to profitor loss 38 831 (4,605) (1,787) (1,521)


Movements in deferred tax assets and deferred tax liabilities during the Track Record Period without takinginto consideration of offsetting of balance within the same jurisdiction, are as follows:

Deferred income tax assets

Rental expenserecognition


accounting Provisions


betweentax and

accounting

Othertemporarydifferences Total


As at January 1, 2015 8,870 464 1,497 – 10,831(Charged)/credited to profit or loss (76) 1,066 (571) – 419

As at December 31, 2015 8,794 1,530 926 – 11,250(Charged)/credited to profit or loss (56) 1,910 (666) 88 1,276

As at December 31, 2016 8,738 3,440 260 88 12,526(Charged)/credited to profit or loss (3,540) (1,286) (260) (88) (5,174)

As at December 31, 2017 5,198 2,154 – – 7,352Credited/(charged) to profit or loss 158 (266) – – (108)

As at August 31, 2018 5,356 1,888 – – 7,244


– I-77 –

Deferred income tax liabilities

Rental revenuerecognition


accounting


betweentax and

accounting

Otherstemporarydifferences Total

RMB’000 RMB’000 RMB’000 RMB’000

As at January 1, 2015 (467) – (23) (490)(Charged)/credited to profit or loss (385) – 4 (381)

As at December 31, 2015 (852) – (19) (871)Credited/(charged) to profit or loss 187 – (632) (445)

As at December 31, 2016 (665) – (651) (1,316)(Charged)/credited to profit or loss (44) – 613 569

As at December 31, 2017 (709) – (38) (747)(Charged)/credited to profit or loss 66 (1,499) 20 (1,413)

As at August 31, 2018 (643) (1,499) (18) (2,160)

31 DISPOSALS OF SUBSIDIARIES AND ASSETS CLASSIFIED AS HELD FOR SALE

During the Track Record Period, the Group disposed the interests in a number of subsidiaries to certain thirdparties and related party controlled by the controlling shareholders. Details of the disposals are as follows:

(a) Disposal of Yuyao Manju

In December 2015, the Group decided to dispose 64.17% interest in its wholly-owned subsidiary – YuyaoManju and Yuyao Manju has become an associate of the Company since then (Note 12B). The associated assets andliabilities were consequently presented as held for sale as at December 31, 2015.

The following table summarized the assets and liabilities that were reclassified as held for sale in relation tothe disposal of Yuyao Manju as at December 31, 2015:

As atDecember 31,

2015RMB’000

Assets classified as held for sale– Property, plant and equipment 16,717– Intangible assets 38– Cash and cash equivalent 376– Trade, other receivables and prepayments 342– Inventories 130

Total assets classified as held for sale 17,603

Liabilities classified as held for sale– Trade, other payables and other current liabilities 4,701– Other payables due to related parties 2,292– Loans from a related party 7,300

Total liabilities classified as held for sale 14,293

Net assets 3,310


– I-78 –

The disposal date of Yuyao Manju was January 1, 2016 and the total consideration of the disposal isRMB5,500,000. The difference between the carrying value of net assets disposed and the total consideration inrelation to the disposal has been included in “other gains – net” (Note 7) of the consolidated statement of thecomprehensive income for the year ended December 31, 2016.

Disposal consideration– Cash received 5,500– Fair value of the remaining interests in Yuyao Manju (Note 12B) 3,071

Less: net assets disposed (3,310)

Gains on disposal of Yuyao Manju (Note 7) 5,261

Cash proceeds on the disposal from the third party 5,500– Cash and cash equivalents in Yuyao Manju (376)

Net cash inflow on the disposal 5,124

(b) Disposal of Shaoxing Dayu and Suzhou Qiju

On September 15, 2017, The Group disposed all its equity interest in Shaoxing Dayu to New Century TourismGroup Co., Ltd., and on October 31, 2017, the Group disposed all its equity interest in Suzhou Qiju to a third party.

The following table summarized the consideration received and the carrying value of net assets disposed at thedisposal date, as well as the net cash flow arising from the disposals. The difference between the carrying value ofnet assets disposed and the total consideration in relation to the disposal has been included in “other gains – net”(Note 7) of the consolidated statements of the comprehensive income for the year ended December 31, 2017.

Shaoxing Dayu Suzhou Qiju TotalRMB’000 RMB’000 RMB’000

Disposal consideration – cash received 11,000 3,245 14,245Less:

– Current assets 3,724 379 4,103– Non-current assets 34,749 3,307 38,056– Current liabilities (29,925) (1,070) (30,995)– Non-current liabilities (23) – (23)

Total net assets disposed 8,525 2,616 11,141

Gains on disposal of subsidiaries (Note 7) 2,475 629 3,104

Cash proceeds from disposal:– From a related party 11,000 – 11,000– From a third party – 3,245 3,245

Cash and cash equivalents in subsidiaries (1,292) (332) (1,624)

Net cash inflow on the disposal 9,708 2,913 12,621


– I-79 –

(c) Disposal of Shanghai Ruiya Hotel Management Co., Ltd. (“Shanghai Ruiya”) and Chongqing DazuDistrict New Century Grand House Hotel Co., Ltd. (“Chongqing Dazu”)

On March 31, 2018 and June 30, 2018, The Group disposed all its equity interest in Shanghai Ruiya andChongqing Dazu to third parties respectively.

The following table summarized the consideration received and the carrying value of net assets disposed at thedisposal date, as well as the net cash flow arising from the disposals. The difference between the carrying value ofnet assets disposed and the total consideration in relation to the disposals has been included in “other gains – net”(Note 7) of the consolidated statements of the comprehensive income for the eight months ended August 31, 2018.

ShanghaiRuiya

ChongqingDazu Total

RMB’000 RMB’000 RMB’000

Disposal consideration – cash received 1 10,000 10,001Less:

– Current assets 2,012 6,829 8,841– Non-current assets – 33,013 33,013– Current liabilities (2,684) (39,963) (42,647)

Total net liabilities disposed (672) (121) (793)

Gains on disposal of the subsidiaries (Note 7) 673 10,121 10,794

Cash proceeds on the disposal from the thirdparties 1 10,000 10,001

Less: Cash and cash equivalents in subsidiaries – (540) (540)

Net cash inflow on the disposal 1 9,460 9,461

32 BUSINESS COMBINATION

On August 31, 2018 (“Acquisition Date”), the Company completed its acquisition of an additional 19.83%equity interest of Yuyao Manju, which was an associate of the Company before the acquisition. After the acquisition,the Group held 55.66% equity interest of Yuyao Manju and Yuyao Manju changed from an associate to a subsidiaryof the Company thereafter.

The purchase consideration for the acquisition of 19.83% equity interest was RMB1,871,000, which was allsettled by cash. The acquisition has been accounted for using the acquisition method.


– I-80 –

The following table summarizes the consideration paid, the net assets acquired and goodwill, also the net cashoutflow arising on the acquisition:

Fair valueRMB’000

Property, plant and equipment (Note 16) 11,664Deferred tax assets (Note 30) 172Trade and other receivables and prepayments 2,821Inventories 104Cash and cash equivalents 326Borrowings (6,700)Contract liabilities (534)Trade and other payables (2,250)

Net identifiable assets of Yuyao Manju 5,603Less: non-controlling interest (2,484)

3,119

Add: Goodwill (Note 18) 2,132

Net assets acquired 5,251

Consideration for additional 19.83% equity interest 1,871The fair value of previously held equity interest 3,380

Total purchase consideration 5,251

Net cash outflow arising on acquisition:Cash consideration 1,871Cash and cash equivalent in the subsidiary acquired (326)

1,545

The goodwill of RMB2,132,000 arising from the acquisition is attributable to the work force of the acquiredbusiness. None of the goodwill recognized is expected to be deductible for income tax purposes.

Had the Yuyao Manju been consolidated from January 1, 2018, the consolidated revenue and profit of theGroup would be increased by approximately RMB8,169,000 and RMB873,000 respectively.


– I-81 –

33 CASH FLOW INFORMATION

(a) Cash generated from operations


ended August 31,2015 2016 2017 2017 2018


Profit before income tax 58,294 117,230 223,022 123,922 142,196

Adjustments for:– Depreciation of property, plant and

equipment (Note 8) 46,036 49,084 53,949 35,867 33,300– Depreciation of investment

properties (Note 8) 15 15 15 10 10– Amortization of land use

rights (Note 8) 586 852 1,188 765 820– Amortization of intangible

assets (Note 8) 6,483 6,985 4,727 3,257 3,960– Allowance for impairment of trade

receivables and other receivables(Note 8) 4,951 5,267 958 (129) 1,579

– Income from financial assetsat fair value through profitor loss (Note 6) – (7,877) (8,164) (6,159) (4,483)

– Share of net profits of associatesand joint ventures accounted forusing the equity method (1,732) (1,435) (3,005) (1,529) (4,327)

– Net gains on disposal ofsubsidiaries (Note 7) – (5,261) (3,104) – (10,794)

– Net losses/(gains) on disposal ofproperty, plant and equipment andintangible assets (Note 7) 53 106 (1,094) (1,798) 54

– Non-cash share-basedpayments (Note 9) 19,950 – 3,510 3,510 –

– Net finance expenses (Note 11) 4,546 8,250 9,499 8,233 6,769– Deferred income (Note 29(a)) 6,000 7,529 8,891 (469) (790)– Other non-current assets

(Note 19) (11,190) 1,992 7,571 1,821 (10,863)

Change in working capitals:– Restricted cash (Note 23) – – 32,400 32,400 (66,000)– Trade and other debtors (20,465) (14,465) (13,231) (46,734) (32,727)– Inventories (Note 20) (3,240) 2,120 (4,707) (2,810) (1,198)– Trade and other creditors 31,515 38,996 11,406 (12,664) 30,760

Cash generated from operations 141,802 209,388 323,831 137,493 88,266


– I-82 –

(b) Proceeds from disposal of property, plant and equipment

In the consolidated cash flow statements, proceeds from disposal of property, plant and equipment comprise:


ended August 31,2015 2016 2017 2017 2018


Net book amount (Note 16) 687 755 2,375 1,756 1,691Net (losses)/gains on disposal of

property, plant and equipment(Note 7) (53) (106) 1,094 1,798 (54)

Proceeds from disposal ofproperty, plant and equipment 634 649 3,469 3,554 1,637

(c) Net debt reconciliation


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Cash and cash equivalents 126,385 176,164 424,109 288,242Restricted cash 72,400 72,400 – 72,100Borrowings – repayable within one year (135,000) (135,000) (5,000) (3,000)Borrowings – repayable after

one year (150,000) (150,000) (160,000) (187,500)Loan due to a related party (25,000) (69,000) – (6,700)Dividend payable (295) – – –

Net debt (111,510) (105,436) 259,109 163,142

Cash, restricted cash andliquid investments 198,785 248,564 424,109 360,342

Gross debt – fixed interest rates (160,000) (135,000) (5,000) (6,700)Gross debt – variable

interest rates (150,000) (219,000) (160,000) (190,500)Dividend payable (295) – – –

Net debt (111,510) (105,436) 259,109 163,142


– I-83 –

Assets Liabilities

Total

Cashand cash

equivalentRestricted

cash

Borrowingsdue within

1 year

Borrowingsdue after

1 year

Loan dueto a related

partyDividend

payableRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

As at January 1, 2015 154,665 92,400 (274,000) – – – (26,935)Cash flows (28,280) (20,000) 139,000 (150,000) (25,000) 1,400 (82,880)Non-cash change– Dividend declared – – – – – (1,695) (1,695)

As at December 31, 2015 126,385 72,400 (135,000) (150,000) (25,000) (295) (111,510)

Cash flows 49,779 – – – (44,000) 295 6,074

As at December 31, 2016 176,164 72,400 (135,000) (150,000) (69,000) – (105,436)

Cash flows 247,945 (72,400) 130,000 (10,000) 69,000 61,123 425,668Non-cash change– Dividend declared – – – – – (61,123) (61,123)

As at December 31, 2017 424,109 – (5,000) (160,000) – – 259,109

As at January 1, 2017 176,164 72,400 (135,000) (150,000) (69,000) – (105,436)Cash flows 18,213 (67,200) 94,000 50,000 69,000 61,123 225,136Non-cash change– Dividend declared – – – – – (61,123) (61,123)– Reclassification – – (40,000) 40,000 – – –

As at August 31, 2017(unaudited) 194,377 5,200 (81,000) (60,000) – – 58,577

As at January 1, 2018 424,109 – (5,000) (160,000) – – 259,109Cash flows (135,867) 72,100 4,500 (30,000) – 42,897 (46,370)Non-cash change– Dividend declared – – – – – (42,897) (42,897)– Reclassification – – (2,500) 2,500 – – –– Acquisition of a subsidiary – – – – (6,700) – (6,700)

As at August 31, 2018 288,242 72,100 (3,000) (187,500) (6,700) – 163,142

(d) Non-cash transaction

The Group had no significant non-cash transactions during the Track Record Period.


– I-84 –

34 COMMITMENTS AND CONTINGENT LIABILITIES

(a) Capital commitments

Capital expenditure contracted for at the end of year/period, but not yet incurred was as follows:


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Property, plant and equipment 200 – 6,464 9,324

(b) Operating lease commitments


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Within one year 372,927 364,723 375,609 353,468Later than one year but not later

than five years 1,309,168 1,349,461 1,474,013 1,366,796Later than five years 1,235,091 1,119,384 946,753 807,053

2,917,186 2,833,568 2,796,375 2,527,317

(c) Contingent liabilities

As at December 31, 2015, 2016, 2017 and August 31, 2018, the Group did not have any significant contingentliabilities.

35 RELATED PARTY TRANSACTIONS

(a) Name and relationship with related parties

Controlling Shareholders

Mr. Chen Miaolin, Mr. Chen Canrong and Mr. Zhang Guanming

Controlled by the Controlling Shareholders

Chinese name

New Century Tourism Group Co., Ltd. 開元旅業集團有限公司New Century Holdings Group Co., Ltd. 開元控股集團有限公司Zhejiang New Century Hotel Investment and Management

Group Co., Ltd.浙江開元酒店投資管理集團有限公司

Kaifeng New Century Grand Hotel Co., Ltd. 開封開元名都大酒店有限公司Zhejiang Spearhead Investment Co., Ltd. 浙江銳至投資股份有限公司Ningbo New Century Spearhead Investment Co., Ltd. 寧波開元銳至投資有限公司Changchun New Century Spearhead Investment and

Management Co., Ltd.長春開元銳至投資管理有限公司

Chun’an Qiandao Lake New Century SpearheadInvestment Co., Ltd.

淳安千島湖開元銳至投資有限公司

Hangzhou New Century Decorating Co., Ltd. 杭州開元裝飾工程有限公司New Century Birot by Winery Not applicableHangzhou New Century Zhijiang Cleaning Chain Co., Ltd. 杭州開元之江清洗連鎖有限公司


– I-85 –

Chinese name

Taizhou New Century Hotel Co., Ltd. 台州開元大酒店有限公司Chun’an Qiandao Lake New Century Property

Management Co., Ltd.淳安千島湖開元物業管理有限公司

Hainan Hengshengyuan Qiziwan New Century Resort Co.,Ltd.

海南恒盛元棋子灣開元度假村有限公司

Hangzhou New Century Real Estate Group Co., Ltd. 杭州開元房地產集團有限公司Taizhou New Century Grand Real Estate Co., Ltd. 台州開元名都置業有限公司Zhejiang New Century Equity Investment Co., Ltd. 浙江開元股權投資有限公司Zhejiang New Century Property Management Co., Ltd. 浙江開元物業管理股份有限公司Hangzhou New Century International Tourism Co., Ltd.

(Till September 2017)杭州開元國際旅行社有限公司

Changjiang Hengshengyuan Qiziwan Tourism Real EstateCo., Ltd.

昌江恒盛元棋子灣旅遊置業有限公司

Xuzhou New Century Grand Hotel Co., Ltd. 徐州開元名都大酒店有限公司New Century Grand Hotel Kaifeng Business Company Co.,

Ltd.開封開元名都商務酒店有限公司

Shaoxing Yuzhuang New Century Hotel Management Co.,Ltd.

紹興禹莊開元酒店管理有限公司

Hangzhou Jinjian Intelligent Technology Co., Ltd. 杭州金鍵智慧科技有限公司Hangzhou New Century Tourism Development Co., Ltd. 杭州開元旅遊開發有限公司New Century East Nursing Home, Jinnan District, Tianjin 天津市津南區開元東方養老院Ningbo Jiulong Lake New Century Resort Co., Ltd. 寧波九龍湖開元華城度假村有限公司Beijing New Century Deming Hotel Management Co., Ltd. 北京開元德明酒店管理有限公司Ningbo Shiqifang New Century Resort Co., Ltd. 寧波十七房開元度假村有限公司Hangzhou Qiandao Lake Resort Yacht Club Co., Ltd.

(Till February 2018)杭州千島湖開元度假村遊艇俱樂部有限公司

Hangzhou Ledu Property Services Co., Ltd. 杭州樂都物業服務有限公司Beijing New Century Grand Hotel Management Co., Ltd.

(Till August 2016)北京開元名都大酒店管理有限公司

New Century Hotel Management (Germany) GmbH Not applicableShanghai New Century Enterprise Operation Management

Co., Ltd.上海開元企業經營管理有限公司

Haining New Century Grand Real Estate Co., Ltd. 海寧開元名都置業有限公司Hangzhou New Century Senbo Tourism Investment

Co., Ltd.杭州開元森泊旅遊投資有限公司

Xuzhou New Century Grand Real Estate Co., Ltd. 徐州開元名都置業有限公司Henan New Century Grand Real Estate Co., Ltd. 河南開元名都置業有限公司Hangzhou New Century Real Estate Co., Ltd. 杭州開元世紀置業有限公司Hangzhou New Century Yuege Restaurant Management

Co., Ltd.杭州開元悅閣餐飲管理有限公司

Ningbo Zhenhai New Century Heya Real Estate Co., Ltd. 寧波鎮海開元和雅置業有限公司Deqing New Century Senbo Holiday Development Co.,

Ltd.德清開元森泊度假開發有限公司

Deqing Yixin Investment and Management Co., Ltd. 德清益新投資管理有限公司Deqing New Century Investment and Management Co.,

Ltd. New Century Business Hotel (Till December 2017)德清開元投資管理有限公司開元商務酒店

Ningbo New Century Hotel Co., Ltd. 寧波開元大酒店有限公司

Controlled by close family member of the Controlling Shareholders

Chinese name

Hangzhou Xiaoshan Chaoyi Carpet Co., Ltd. 杭州蕭山超藝地毯有限公司Hangzhou Huangshi Chaoyi Printing Co., Ltd. (Till 30 July

2018)杭州黃氏超藝印刷有限公司

Shanghai Songjiang New Century Grand Hotel Co., Ltd.(Till December 2017)

上海松江開元名都大酒店有限公司


– I-86 –

Joint ventures of the Group

Chinese name

Beijing Gehua 北京歌華開元大酒店有限公司

Associates of the Group

Chinese name

Yuyao Manju (from 1 January 2016 to 31 August 2018) 余姚開元曼居酒店管理有限公司

(b) Transactions with related parties

Hotel management revenue



2015 2016 2017 2017 2018RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(unaudited)

Beijing Gehua 2,376 5,299 8,260 5,398 5,962Xuzhou New Century Grand Hotel

Co., Ltd. 5,455 5,666 6,006 3,788 3,734Taizhou New Century Hotel Co., Ltd. 3,120 3,471 3,960 2,429 2,496Shanghai Songjiang New Century Grand

Hotel Co., Ltd. 7,043 5,720 3,631 3,214 –Ningbo Jiulong Lake New Century

Resort Co., Ltd. 3,122 2,117 3,396 2,378 2,492New Century Grand Hotel Kaifeng

Business Company Co., Ltd. 3,425 3,096 3,320 2,028 2,142Hainan Hengshengyuan Qiziwan New

Century Resort Co., Ltd. – 576 1,440 948 979Hangzhou New Century Tourism

Development Co., Ltd. – 26 1,137 763 997Ningbo Shiqifang New Century Resort

Co., Ltd. 920 844 965 645 561Ningbo New Century Hotel Co., Ltd. 4,207 852 859 471 483Yuyao Manju – 678 700 452 442Changjiang Hengshengyuan Qiziwan

Tourism Real Estate Co., Ltd. 4,100 472 637 637 2,453Deqing Yixin Investment and

Management Co., Ltd. – 141 588 397 273Shaoxing Yuzhuang New Century Hotel

Management Co., Ltd. – – 375 – 1,758Hangzhou New Century Yuege

Restaurant Management Co., Ltd. 50 130 143 103 82Haining New Century Grand Real Estate

Co., Ltd. – 808 113 113 –Beijing New Century Grand Hotel

Management Co., Ltd. 5,001 2,921 – – –Beijing New Century Deming Hotel

Management Co., Ltd. – 988 – – –Deqing New Century Investment and

Management Co., Ltd. New CenturyBusiness Hotel 549 575 – – –

New Century Tourism Group Co., Ltd. 15,055 – – – –Deqing New Century Senbo Holiday

Development Co., Ltd. 5,000 – – – –

59,423 34,380 35,530 23,764 24,854


– I-87 –

Hotel operation revenue




(unaudited)

New Century Tourism Group Co., Ltd. 689 876 1,295 813 947Hangzhou New Century Real Estate

Group Co., Ltd. 131 299 636 430 592Zhejiang New Century Property

Management Co., Ltd. 157 651 568 118 157Hangzhou New Century International

Tourism Co., Ltd. 85 311 128 4 –Shanghai Songjiang New Century Grand

Hotel Co., Ltd. 130 28 18 18 –

1,192 2,165 2,645 1,383 1,696

Rental income




(unaudited)

New Century East Nursing Home,Jinnan District, Tianjin 1,000 974 962 721 166

Hangzhou Qiandao Lake ResortYacht Club Co., Ltd. 600 581 566 377 –

1,600 1,555 1,528 1,098 166

Sales of goods




(unaudited)

Taizhou New Century Hotel Co., Ltd. 768 2,213 3,872 1,916 1,508Ningbo New Century Hotel Co., Ltd. 1,492 2,594 2,216 809 650Zhejiang New Century Property

Management Co., Ltd. 954 465 1,761 1,073 1,190Shanghai Songjiang New Century Grand

Hotel Co., Ltd. 822 2,450 1,698 925 –Beijing Gehua 1,079 1,396 1,670 661 1,099Xuzhou New Century Grand Hotel Co.,

Ltd. 479 1,438 1,472 790 1,376Ningbo Jiulong Lake New Century

Resort Co., Ltd. 1,233 1,567 1,262 678 563New Century Grand Hotel Kaifeng

Business Company Co., Ltd. 703 975 840 243 377New Century Tourism Group Co., Ltd. 298 202 660 461 193


– I-88 –




(unaudited)

Ningbo Shiqifang New Century ResortCo., Ltd. 416 364 481 233 161

Shaoxing Yuzhuang New Century HotelManagement Co., Ltd. 52 17 260 – 1,496

Changjiang Hengshengyuan QiziwanTourism Real Estate Co., Ltd. 25 114 194 37 99

Hangzhou New Century Real EstateGroup Co., Ltd. 74 55 168 137 93

Hangzhou New Century YuegeRestaurant Management Co., Ltd. 83 156 131 94 90

Haining New Century Grand Real EstateCo., Ltd. 231 171 58 37 72

Hangzhou New Century Real Estate Co.,Ltd. 133 109 45 32 32

Hainan Hengshengyuan Qiziwan NewCentury Resort Co., Ltd. 413 680 27 15 76

Hangzhou New Century TourismDevelopment Co., Ltd. 413 1,125 57 34 18

Henan New Century Grand Real EstateCo., Ltd. 260 156 13 13 66

New Century Hotel Management(Germany) GmbH – 1,835 – – –

Beijing New Century Deming HotelManagement Co., Ltd. – 931 – – –

Beijing New Century Grand HotelManagement Co., Ltd. 428 667 – – –

Yuyao Manju – 82 58 – –Others 399 604 664 259 628

10,755 20,366 17,607 8,447 9,787

Interest charged to related parties




(unaudited)

Zhejiang New Century EquityInvestment Co., Ltd. 3,976 3,912 629 629 –

Shanghai Songjiang New Century GrandHotel Co., Ltd. 999 894 278 278 –

Taizhou New Century Grand Real EstateCo., Ltd. 20,683 2,515 – – –

New Century Tourism Group Co., Ltd. 16 478 – – –

25,674 7,799 907 907 –


– I-89 –

Other service income




(unaudited)

Beijing Gehua 650 809 1,137 780 822Zhejiang New Century Property

Management Co., Ltd. 442 805 738 143 701Shanghai Songjiang New Century Grand

Hotel Co., Ltd. 520 630 661 447 –Ningbo Jiulong Lake New Century

Resort Co., Ltd. 332 612 646 471 553Ningbo New Century Hotel Co., Ltd. 444 494 588 387 596Xuzhou New Century Grand Hotel

Co., Ltd. 226 477 553 441 540Hangzhou New Century Tourism

Development Co., Ltd. 45 243 537 401 380Ningbo Shiqifang New Century Resort

Co., Ltd. 292 326 506 372 290Taizhou New Century Hotel Co., Ltd. 154 259 325 298 371New Century Grand Hotel Kaifeng

Business Company Co., Ltd. 122 239 286 152 242Haining New Century Grand Real Estate

Co., Ltd. 153 187 238 159 287Xuzhou New Century Grand Real Estate

Co., Ltd. 153 195 229 153 221Shanghai New Century Enterprise

Operation Management Co., Ltd. 170 170 221 147 272Ningbo Zhenhai New Century Heya Real

Estate Co., Ltd. – – 170 113 170Hainan Hengshengyuan Qiziwan New

Century Resort Co., Ltd. – 63 168 113 147Henan New Century Grand Real Estate

Co., Ltd. 187 195 136 91 –Beijing New Century Grand Hotel

Management Co., Ltd. 991 795 – – –Shaoxing Yuzhuang New Century Hotel

Management Co., Ltd. – – 423 371 680Yuyao Manju – 61 94 63 98Others 547 472 483 175 500

5,428 7,032 8,139 5,277 6,870

Purchase of goods




(unaudited)

New Century Birot by Winery 6,150 5,159 7,238 5,817 3,501Hangzhou Huangshi Chaoyi Printing

Co., Ltd. 605 437 444 271 153New Century Tourism Group Co., Ltd. 338 26 23 23 24

7,093 5,622 7,705 6,111 3,678


– I-90 –

Purchase of Services




(unaudited)

Hangzhou New Century ZhijiangCleaning Chain Co., Ltd. 8,680 9,189 9,157 4,856 5,699

Ningbo New Century Hotel Co., Ltd. 1,819 1,948 1,955 1,319 1,182Hangzhou Ledu Property Services

Co., Ltd. 57 93 330 262 284Beijing Gehua 145 20 24 15 37Shanghai Songjiang New Century Grand

Hotel Co., Ltd. 112 24 11 5 –Shaoxing Yuzhuang New Century Hotel

Management Co., Ltd. – – – – 167Beijing New Century Grand Hotel

Management Co., Ltd. 105 18 – – –

10,918 11,292 11,477 6,457 7,369

Purchase of non-current assets




(unaudited)

Hangzhou Xiaoshan Chaoyi CarpetCo., Ltd. 38 1,581 1,544 811 –

Hangzhou New Century DecoratingCo., Ltd. 5,225 22,835 355 – –

Hangzhou Jinjian Intelligent TechnologyCo., Ltd. – 466 533 – 927

5,263 24,882 2,432 811 927

Interest paid to related parties




(unaudited)

New Century Tourism Group Co., Ltd. 890 2,124 1,520 1,520 –


– I-91 –

Rental expenses payable/paid to related parties




(unaudited)

Zhejiang New Century Hotel Investmentand Management Group Co., Ltd.(i) 88,599 88,582 86,440 54,015 59,516

Zhejiang Spearhead Investment Co.,Ltd.(i) 34,081 35,579 36,022 22,939 23,278

Ningbo New Century SpearheadInvestment Co., Ltd.(i) 44,695 43,272 42,894 26,844 26,188

Chun’an Qiandao Lake New CenturySpearhead Investment Co., Ltd.(i) 20,799 20,510 23,047 17,239 17,154

Changchun New Century SpearheadInvestment and Management Co.,Ltd.(i) 26,896 23,240 22,447 14,559 12,530

Zhejiang New Century PropertyManagement Co., Ltd. 1,494 1,694 2,393 1,476 833

New Century Tourism Group Co., Ltd. 619 619 619 433 454New Century Holdings Group Co., Ltd. 161 160 158 94 55Hangzhou New Century Senbo Tourism

Investment Co., Ltd. – – – – 65

217,344 213,656 214,020 137,599 140,073

(i) The lease agreements signed by the Group and above related parties, subsidiaries of New Century RealEstate Investment Trust (“New Century REIT”), were guaranteed by New Century Tourism Group Co.,Ltd.

Borrowings guaranteed by related parties




(unaudited)

New Century Tourism Group Co., Ltd. 150,000 150,000 100,000 100,000 –Hangzhou New Century Real Estate

Group Co., Ltd. 99,000 99,000 – – –

249,000 249,000 100,000 100,000 –

The above bank borrowings guaranteed by related parties were all released in July 2018.

The above related party transactions were carried out in accordance with the term of the underlyingagreements.


– I-92 –

(c) Balances with related parties

In addition to the loans from a related party disclosed in Note 28, other significant related party balances aredisclosed as below:

Trade receivables due from – trade in nature


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Ningbo New Century Hotel Co., Ltd. 3,782 203 207 65Changjiang Hengshengyuan Qiziwan

Tourism Real Estate Co., Ltd. 1,285 1,282 – 2,600Hangzhou New Century Tourism

Development Co., Ltd. 627 618 64 231Taizhou New Century Hotel Co., Ltd. 459 536 725 414Shanghai Songjiang New Century Grand

Hotel Co., Ltd. 451 657 – –Xuzhou New Century Grand Hotel Co.,

Ltd. 428 503 419 576Zhejiang New Century Property

Management Co., Ltd. 420 194 92 247Beijing Gehua 342 1,149 720 1,015Hangzhou Qiandao Lake Resort Yacht

Club Co., Ltd. 341 46 300 –Kaifeng New Century Grand Hotel Co.,

Ltd. 290 31 – –New Century Tourism Group Co., Ltd. 90 295 320 139Ningbo Jiulong Lake New Century

Resort Co., Ltd. 81 298 164 695Ningbo Shiqifang New Century Resort

Co., Ltd. 56 123 63 104Hangzhou New Century Real Estate

Group Co., Ltd. 38 113 139 48New Century Grand Hotel Kaifeng

Business Company Co., Ltd. – 257 207 274Hainan Hengshengyuan Qiziwan New

Century Resort Co., Ltd. – 112 120 116Shaoxing Yuzhuang New Century Hotel

Management Co., Ltd. – – 139 362Hangzhou New Century International

Tourism Co., Ltd. – 131 – 9Henan New Century Grand Real Estate

Co., Ltd. 2 1 – 110Others 341 273 556 296

9,033 6,822 4,235 7,301


– I-93 –

Loan receivables and other receivables due from


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Taizhou New Century Grand Real EstateCo., Ltd. (i) 170,001 – – –

Zhejiang New Century EquityInvestment Co., Ltd. (ii) 40,000 40,000 – –

Zhejiang New Century Hotel Investmentand Management Group Co., Ltd. (iv) 20,447 20,447 20,447 20,436

Shanghai Songjiang New Century GrandHotel Co., Ltd. (iii) 16,030 16,051 – –

Ningbo New Century Hotel Co., Ltd. 3,612 378 2 52Chun’an Qiandao Lake New Century

Property Management Co., Ltd. 985 953 – 78New Century Tourism Group Co.,

Ltd. (v) 7 9,214 – 9Others 246 375 69 262

251,328 87,418 20,518 20,837

(i) The balance represented unsecured loan of RMB170,000,000 as at December 31, 2015, provided toTaizhou New Century Grand Real Estate Co., Ltd., through China CITIC Bank, an independent thirdparty, at an interest of 12% per annum, which was received in March 2016;

(ii) The balance represented unsecured loan of RMB40,000,000 as at December 31, 2015 and 2016,provided to Zhejiang New Century Equity Investment Co., Ltd., through a subsidiary of the Group, atan interest of 10% per annum, which was received in March 2017;

(iii) The balance represented unsecured loan of RMB16,000,000 as at December 31, 2015 and 2016,provided to Shanghai Songjiang New Century Grand Hotel Co., Ltd. at an interest of 10% per annum,which was received in May 2017;

(iv) The balance mainly represented the rental deposit of RMB20,000,000 to Zhejiang New Century HotelInvestment and Management Group Co., Ltd.;

(v) The balance represented interest-free receivables of RMB9,000,000 as at December 31, 2016 providedto New Century Tourism Group Co., Ltd., which was received in May 2017.

Except for (i), (ii), (iii), and (v) which are non-trade in nature, all are trade in nature.

Prepayment due from – trade in nature


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

New Century Birot by Winery 713 807 887 –Zhejiang New Century Hotel Investment

and Management Group Co., Ltd. 151 45 185 212Changchun New Century Spearhead

Investment and Management Co., Ltd. – 107 – –Hangzhou Ledu Property Services Co.,

Ltd. – – 2 –New Century Tourism Group Co., Ltd. – – – 61Hangzhou Xiaoshan Chaoyi Carpet Co.,

Ltd. 68 – – –Others – 1 70 28

932 960 1,144 301


– I-94 –

Interest receivables due from – non-trade in nature


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Shanghai Songjiang New Century GrandHotel Co., Ltd. 70 85 – –

Trade payables due to – trade in nature


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Zhejiang New Century Hotel Investmentand Management Group Co., Ltd. 21,928 15,384 9,552 5,025

Ningbo New Century SpearheadInvestment Co., Ltd. 9,869 5,821 4,636 3,385

Zhejiang Spearhead Investment Co.,Ltd. 8,269 5,226 4,205 2,190

Changchun New Century SpearheadInvestment and Management Co., Ltd. 5,219 53 1,612 2,381

Chun’an Qiandao Lake New CenturySpearhead Investment Co., Ltd. 3,328 1,700 841 5,040

Hangzhou New Century ZhijiangCleaning Chain Co., Ltd. 459 910 488 796

Hangzhou New Century Decorating Co.,Ltd. 844 542 434 –

Chun’an Qiandao Lake New CenturyProperty Management Co., Ltd. – – 268 –

Ningbo New Century Hotel Co., Ltd. 183 152 160 227Zhejiang Haogu Internet Technology

Co., Ltd. – – – 89Beijing Gehua 7 44 1 24Ningbo Jiulong Lake New Century

Resort Co., Ltd. – 1 2 24Hangzhou Huangshi Chaoyi Printing

Co., Ltd. 70 99 90 74New Century Tourism Group Co., Ltd. 1 4 12 117Xuzhou New Century Hotel Co., Ltd. – – 2 74Others 16 100 20 167

50,193 30,036 22,323 19,613


– I-95 –

Other payables due to – trade in nature


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Ningbo New Century Hotel Co., Ltd. 11,126 4,239 308 184Hangzhou New Century Decorating

Co., Ltd. 5,944 8,937 5,394 5,824Beijing Gehua 1,090 1,686 1,330 1,216Beijing New Century Deming Hotel

Management Co., Ltd. 978 14 – –Shanghai Songjiang New Century Grand

Hotel Co., Ltd. 788 1,220 – –Shaoxing Yuzhuang New Century Hotel

Management Co., Ltd. – – 667 1,101Zhejiang New Century Hotel Investment

and Management Group Co., Ltd. 376 – – –Hangzhou New Century Zhijiang

Cleaning Chain Co., Ltd. 354 152 – –Zhejiang New Century Property

Management Co., Ltd. 333 – – –Kaifeng New Century Grand Hotel

Co., Ltd. 332 302 4 –Xuzhou New Century Grand Hotel

Co., Ltd. 237 377 498 354Taizhou New Century Hotel Co., Ltd. 170 289 319 297New Century Holdings Group Co., Ltd. 166 – – –Ningbo Jiulong Lake New Century

Resort Co., Ltd. 98 407 343 980Ningbo Shiqifang New Century Resort

Co., Ltd. 70 367 253 317Hainan Hengshengyuan Qiziwan New

Century Resort Co., Ltd. – 106 142 450Hangzhou New Century Tourism

Development Co., Ltd. 29 143 289 372Hangzhou Jinjian Intelligent Technology

Co., Ltd. – 10 514 1,185Yuyao Manju – 26 65 –Hangzhou Xiaoshan Chaoyi Carpet

Co., Ltd. – – 16 51Others 296 174 255 468

22,387 18,449 10,397 12,799


– I-96 –

Advances due from – trade in nature


August 31,2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Hangzhou New Century InternationalTourism Co., Ltd. 1,320 – – –

New Century East Nursing Home,Jinnan District, Tianjin 250 – – –

Beijing Gehua 147 2 – –Ningbo Jiulong Lake New Century

Resort Co., Ltd. – 600 103 –Ningbo New Century Hotel Co., Ltd. – 172 – –Shanghai Songjiang New Century Grand

Hotel Co., Ltd. – 150 – –Xuzhou New Century Grand Hotel

Co., Ltd. 38 – 257 –Shaoxing Yuzhuang New Century Hotel

Management Co., Ltd. – – – 201Haining New Century Grand Real Estate

Co., Ltd. – – – 303New Century Tourism Group Co., Ltd. – – – 78Others 1 62 141 24

1,756 986 501 606

(d) Key management compensation


ended August 31,2015 2016 2017 2017 2018


Wages, salaries and bonuses 3,748 3,809 4,251 2,834 3,616Pension costs – defined

contribution plan 21 22 25 17 22Housing fund, medical insurance

and other social insurance andother employee benefits 92 102 128 85 114

Share-based compensationexpenses 2,839 – 2,632 2,632 –

6,700 3,933 7,036 5,568 3,752


– I-97 –

36 STATUTORY AUDITORS OF PRINCIPAL SUBSIDIARIES

The companies that have audited statutory financial statements during the Track Record Periods and the nameof the auditors are as follows:

Name of statutory auditorsCompany name 2015 2016 2017

Ninghai Jinhai GrandNew Century HotelCo., Ltd. (寧海金海開元名都大酒店有限公司)

寧波安全三江會計師事務所有限公司 (NingboAn Quan San JiangUnion Alpha CertifiedPublic AccountantsCo., Ltd.)

寧波安全三江會計師事務所有限公司(Ningbo AnQuan San Jiang UnionAlpha Certified PublicAccountants Co., Ltd.)

寧波安全三江會計師事務所有限公司(Ningbo AnQuan San Jiang UnionAlpha Certified PublicAccountants Co., Ltd.)

Zhejiang New CenturyManju HotelManagement Co., Ltd.(浙江開元曼居酒店管理有限公司)

杭州蕭然會計師事務所有限公司 (HangzhouXiaoran CertifiedPublic AccountantsCo., Ltd.)



Shanghai Yuege HotelOperation Co., Ltd.(上海悅閣酒店經營有限公司)

上海宏華會計師事務所有限公司 (ShanghaiHonghua CertifiedPublic AccountantsCo., Ltd.)



Shanghai Ruiya HotelManagement Co., Ltd.(上海瑞亞酒店管理有限公司)




Shanghai Ruiyue HotelCo., Ltd. (上海瑞悅酒店有限公司)




Hangzhou New CenturyHotel Supplies Co.,Ltd. (杭州開元酒店用品有限公司)




Hangzhou Biluo WineCo., Ltd. (杭州璧蘿酒業有限公司)




Hangzhou New CenturyInformation SystemCo., Ltd. (杭州開元信息系統有限公司)




Zhejiang JinshanziNetwork TechnologyCo., Ltd. (浙江金扇子網絡科技有限公司)





– I-98 –


Tianjin Ruiwan NewCentury HotelManagement Co., Ltd.(天津瑞灣開元酒店管理有限公司)

天津濱海火炬會計師事務所有限公司 (TianJinBinhai Torch CertifiedAccountants InstituteCo., Ltd.)

天津市希地有限責任會計師事務所 (TianJinShiXiDi Limited LiabilityCertified PublicAccountants)

天津市希地有限責任會計師事務所 (TianJinShiXiDi Limited LiabilityCertified PublicAccountants)

Hangzhou New CenturyChuanqi PropertyLeasing Co., Ltd.(杭州開元傳祺房屋租賃有限公司)




Haining Yanguan AncientCity New CenturyResort Hotel Co., Ltd.(海寧鹽官古城開元度假酒店有限公司)




Jiande New CenturyWonderland ResortCo., Ltd. (建德開元芳草地酒店有限公司)

Not applicable Not applicable 建德信安會計師事務所(Jiande XinAnLeatilied PublicAccountants)

Changxing New CenturyWonderland ResortCo., Ltd. (長興開元芳草地酒店有限公司)

湖州金陵永達會計師事務所 (Huzhou JinLingYongda CertifiedPublic Accountants)

湖州天衡聯合會計師事務所 (United CertifiedPublic AccountantsFirms of HuzhouTianheng)

湖州天衡聯合會計師事務所 (United CertifiedPublic AccountantsFirms of HuzhouTianheng)

Suzhou Qiju HotelManagement Co., Ltd.(蘇州祺聚酒店管理有限公司)

嘉泰聯合會計師事務所(Justice UnitedCertified PublicAccountants)


Not applicable

Shaoxing Dayu NewCentury Resort Co.,Ltd. (紹興大禹開元度假村有限公司)



Not applicable

Hangzhou Kaiyuan LifeHotel ManagementCo., Ltd. (杭州開元頤居酒店管理有限公司)




Yuyao New CenturyManju HotelManagement Co., Ltd.(余姚開元曼居酒店管理有限公司)




Ningbo New CenturyManju HotelManagement Co., Ltd.(寧波開元曼居酒店管理有限公司)

Not applicable 杭州蕭然會計師事務所有限公司 (HangzhouXiaoran CertifiedPublic AccountantsCo., Ltd.)



– I-99 –


Tianjin Manju HotelManagement Co., Ltd.(天津曼居酒店管理有限公司)

Not applicable Not applicable 天津市希地有限責任會計師事務所 (TianJinShiXiDi Limited LiabilityCertified PublicAccountants)

Zhoushan New CenturyManju HotelManagement Co., Ltd.(舟山開元曼居酒店管理有限公司)

Not applicable Not applicable 杭州蕭然會計師事務所有限公司 (HangzhouXiaoran CertifiedPublic AccountantsCo., Ltd.)

Shanghai New CenturyManju HotelManagement Co., Ltd.(上海開元曼居酒店管理有限公司)

Not applicable Not applicable 上海宏華會計師事務所(Shanghai HonghuaCertified PublicAccountants)

Beijing New CenturyManju HotelManagement Co., Ltd.(北京開元曼居酒店管理有限公司)


Chongqing New CenturyManju HotelManagement Co., Ltd.(重慶開元曼居酒店管理有限公司)


Dalian New CenturyManju HotelManagement Co., Ltd.(大連開元曼居酒店管理有限公司)


Chongqing Dazu DistrictNew Century GrandHouse Hotel Co., Ltd.(重慶市大足區開元觀堂酒店有限公司)

Not applicable Not applicable 重慶索原會計師事務所(普通合夥)(ChongQing SuoYuanCertified PublicAccountants LLP)

Zhejiang New CenturyCatering ManagementCo., Ltd. (浙江開元餐飲管理有限公司)

Not applicable Not applicable Not applicable

Zhejiang Meizhen HotelManagement Co., Ltd.(浙江美鎮酒店管理有限公司)


Shanghai Yueshang HotelManagement Co., Ltd.(上海閱尚酒店管理有限公司)



– I-100 –


Hunan Manju HotelManagement Co., Ltd.(湖南曼居酒店管理有限責任公司)


Chengdu Liju HotelManagement Co., Ltd.(成都麗居酒店管理有限公司)


Ningbo New CenturyManfei HotelManagement Co., Ltd.(寧波開元曼菲酒店管理有限公司)


Changxing Grand NewCentury Hotel Co.,Ltd. (長興開元名都大酒店有限公司)


Changxing New CenturyMayart Hotel Co., Ltd.(長興開元美途酒店有限公司)


III SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or its subsidiaries in

respect of any period subsequent to August 31, 2018 and up to the date of this report. Save as

disclosed in this report, no dividend or distribution has been declared or made by the Company

or its subsidiaries in respect of any period subsequent to August 31, 2018.


– I-101 –

I. UNAUDITED PRO FORMA FINANCIAL INFORMATION

The information set out in this Appendix does not form part of the Accountant’s Report

from PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, the reporting

accountant of the Company, as set out in Appendix I, and is included herein for illustrative

purposes only. The unaudited pro forma financial information should be read in conjunction

with “Financial Information” and Appendix I.

A. UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS

The following unaudited pro forma adjusted net tangible assets prepared in accordance

with Rule 4.29 of the Listing Rules are set out below to illustrate the effect of the Global

Offering on the consolidated net tangible assets of the Group attributable to the equity holders

of the Company as of August 31, 2018 as if the Global Offering had taken place on that date.

The unaudited pro forma adjusted net tangible assets have been prepared for illustrative

purposes only and, because of its hypothetical nature, it may not give a true picture of the

consolidated net tangible assets of the Group had the Global Offering been completed as at

August 31, 2018 or at any future dates.

Auditedconsolidated net

tangible assetsof the Group

attributableto the equity

holders of theCompany as at

August 31,2018(1)

Estimated netproceeds from


Unauditedpro forma

adjusted nettangible assets

of the Groupattributable

to the equityholders of the

Company

Unauditedpro forma adjustednet tangible assets

per Share(3)


Based on the minimum


of HK$13.37

per Offer Share 570,195 753,252 1,323,447 4.73 5.41

Based on the maximum


of HK$20.05

per Offer Share 570,195 1,147,360 1,717,555 6.13 7.02

APPENDIX IIA UNAUDITED PRO FORMA FINANCIAL INFORMATION

– IIA-1 –

Notes:

(1) The audited consolidated net tangible assets information of the Group attributable to the equity holdersof the Company as at August 31, 2018 is extracted from the Accountant’s Report set out in AppendixI, which is based on the audited consolidated net assets of the Group attributable to the equity holdersof the Company as at August 31, 2018 of RMB582,532,000 with an adjustment for the intangible assetsattributable to the equity holders of the Company as at August 31, 2018 of RMB12,337,000.

(2) The estimated net proceeds to be received by the Company from the Global Offering are based on theindicative Offer Price of HK$13.37 and HK$20.05 per Share, respectively, after deduction of theunderwriting fees and other related expenses payable by the Company and takes no account of anyShares which may fall to be issued upon the exercise of the Over-allotment Option.

(3) The unaudited pro forma net tangible assets per Share is arrived at after the adjustments referred to inthe preceding paragraphs and on the basis that 280,000,000 Shares were in issue assuming that theGlobal Offering has been completed on August 31, 2018 but takes no account of any Shares which mayfall to be issued upon the exercise of the Over-allotment Option.

For the purpose of this unaudited pro forma adjusted net tangible assets, the amounts stated in RMB areconverted into Hong Kong dollars at a rate of RMB1.00 to HK$1.145. No representation is made thatRenminbi amounts have been, could have been or may be converted to Hong Kong dollars, or vice versa,at that rate.

(4) No adjustment has been made to reflect any trading result or other transactions of the Group entered intosubsequent to August 31, 2018.

B. UNAUDITED PRO FORMA ESTIMATED EARNINGS PER SHARE

The following unaudited pro forma estimated earnings per Share for the year endedDecember 31, 2018 has been prepared in accordance with paragraph 29(8) of Chapter 4 of theListing Rules and on the bases set out in the note below for the purpose of illustrating the effectof the Global Offering as if it had taken place on January 1, 2018. The unaudited pro formaestimated earnings per Share has been prepared for illustrative purpose only and because of itshypothetical nature, it may not give a true picture of the financial results of the Groupfollowing the Global Offering or for any future periods.

Profit estimate for the year ended December 31, 2018

Estimated unaudited consolidated profit attributable toowners of the Company for the year ended December31, 2018 (1)

Not less than RMB185.0million

Unaudited pro forma estimated earnings per Share forthe year ended December 31, 2018 (2)

Not less than RMB0.66

Notes:

(1) The bases on which the above profit estimate for the year ended December 31, 2018 has been preparedare summarized in Appendix IIB to this prospectus. The estimated unaudited consolidated profitattributable to owners of our Company for the year ended December 31, 2018 is based on the auditedconsolidated results of the Group for the eight months ended August 31, 2018, the unauditedconsolidated results based on management accounts of the Group for the three months endedNovember 30, 2018 and an estimate of the consolidated results of the Group for the month endedDecember 31, 2018.

(2) The calculation of the unaudited pro forma estimated earnings per Share is based on the estimatedunaudited consolidated profit attributable to owners of our Company for the year ended December 31,2018 and the weighted average number of 280,000,000 Shares that are outstanding during the year endedDecember 31, 2018 and on the assumption that the Global Offering had been completed on January 1,2018, but takes no account of any Shares which may fall to be issued upon the exercise of theOver-Allotment Option.


– IIA-2 –

C. ACCOUNTANT’S REPORT ON THE UNAUDITED PRO FORMA FINANCIALINFORMATION

The following is the text of a report received from PricewaterhouseCoopers, CertifiedPublic Accountants, Hong Kong, for the purpose of incorporation in this prospectus.

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THECOMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

To the Directors of Zhejiang New Century Hotel Management Co., Ltd.

We have completed our assurance engagement to report on the compilation of unauditedpro forma financial information of Zhejiang New Century Hotel Management Co., Ltd. (the“Company”) and its subsidiaries (collectively the “Group”) by the directors for illustrativepurposes only. The unaudited pro forma financial information consists of the unaudited proforma statement of adjusted net tangible assets of the Group as at August 31, 2018 and theunaudited pro forma estimated earnings per Share for the year ended December 31, 2018, andrelated notes (the “Unaudited Pro Forma Financial Information”) as set out on pages IIA-1 toIIA-2 of the Company’s prospectus dated February 26, 2019, in connection with the proposedinitial public offering of the shares of the Company. The applicable criteria on the basis ofwhich the directors have compiled the Unaudited Pro Forma Financial Information aredescribed on pages IIA-1 to IIA-2.

The Unaudited Pro Forma Financial Information has been compiled by the directors toillustrate the impact of the proposed initial public offering on the Group’s financial position asat August 31, 2018 and the Group’s estimated earnings per Share for the year ended December31, 2018 as if the proposed initial public offering had taken place at August 31, 2018 andJanuary 1, 2018, respectively. As part of this process, information about the Group’s financialposition and financial performance has been extracted by the directors from the Group’sfinancial information for the period ended August 31, 2018, on which an accountant’s reporthas been published, and the Group’s profit estimate for the year ended December 31, 2018, onwhich a letter from the reporting accountant has been published, respectively.

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The directors are responsible for compiling the Unaudited Pro Forma FinancialInformation in accordance with paragraph 4.29 of the Rules Governing the Listing of Securitieson The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference toAccounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion inInvestment Circulars (“AG 7”) issued by the Hong Kong Institute of Certified PublicAccountants (“HKICPA”).


– IIA-3 –

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the Code of

Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamentalprinciples of integrity, objectivity, professional competence and due care, confidentiality andprofessional behaviour.

Our firm applies Hong Kong Standard on Quality Control 1 issued by the HKICPA andaccordingly maintains a comprehensive system of quality control including documentedpolicies and procedures regarding compliance with ethical requirements, professionalstandards and applicable legal and regulatory requirements.

Reporting Accountant’s Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of theListing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion toyou. We do not accept any responsibility for any reports previously given by us on anyfinancial information used in the compilation of the Unaudited Pro Forma FinancialInformation beyond that owed to those to whom those reports were addressed by us at the datesof their issue.

We conducted our engagement in accordance with Hong Kong Standard on AssuranceEngagements 3420, Assurance Engagements to Report on the Compilation of Pro Forma

Financial Information Included in a Prospectus, issued by the HKICPA. This standard requiresthat the reporting accountant plans and performs procedures to obtain reasonable assuranceabout whether the directors have compiled the Unaudited Pro Forma Financial Information inaccordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by theHKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing anyreports or opinions on any historical financial information used in compiling the Unaudited ProForma Financial Information, nor have we, in the course of this engagement, performed anaudit or review of the financial information used in compiling the Unaudited Pro FormaFinancial Information.

The purpose of unaudited pro forma financial information included in a prospectus issolely to illustrate the impact of a significant event or transaction on unadjusted financialinformation of the entity as if the event had occurred or the transaction had been undertakenat an earlier date selected for purposes of the illustration. Accordingly, we do not provide anyassurance that the actual outcome of the proposed initial public offering at August 31, 2018,or January 1, 2018 would have been as presented.


– IIA-4 –

A reasonable assurance engagement to report on whether the unaudited pro formafinancial information has been properly compiled on the basis of the applicable criteriainvolves performing procedures to assess whether the applicable criteria used by the directorsin the compilation of the unaudited pro forma financial information provide a reasonable basisfor presenting the significant effects directly attributable to the event or transaction, and toobtain sufficient appropriate evidence about whether:

• the related pro forma adjustments give appropriate effect to those criteria; and

• the unaudited pro forma financial information reflects the proper application ofthose adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgment, having regard tothe reporting accountant’s understanding of the nature of the company, the event or transactionin respect of which the unaudited pro forma financial information has been compiled, and otherrelevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the unaudited proforma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide abasis for our opinion.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by thedirectors of the Company on the basis stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the adjustments are appropriate for the purposes of the Unaudited Pro FormaFinancial Information as disclosed pursuant to paragraph 4.29(1) of the ListingRules.

PricewaterhouseCoopersCertified Public Accountants

Hong Kong, February 26, 2019


– IIA-5 –

The estimated consolidated profit of the Company for the year ended December 31, 2018

is set out in the section headed “Financial Information – Profit Estimate for the Year Ended

December 31, 2018” in this prospectus.

A. BASES

We have prepared our estimate of the consolidated profit attributable to the owners of the

Company for the year ended December 31, 2018 based on (i) the audited consolidated results

of the Group for the eight months ended August 31, 2018; (ii) the unaudited consolidated

results of the Group based on the management accounts for the three months ended November

30, 2018 and (iii) an estimate of the consolidated results of the Group for the remaining one

month ended December 31, 2018. Our profit estimate has been prepared on a basis consistent

in all material respects with the accounting policies normally adopted by the Group as set out

in our Accountant’s Report, the text of which is set out in Appendix I to this prospectus.

APPENDIX IIB PROFIT ESTIMATE

– IIB-1 –

B. LETTER FROM THE REPORTING ACCOUNTANT

The following is the text of a letter received from PricewaterhouseCoopers, CertifiedPublic Accountants, Hong Kong, for the purpose of incorporation in this prospectus.

The Board of DirectorsZhejiang New Century Hotel Management Co., Ltd.China Galaxy International Securities (Hong Kong) Co., LimitedBOCOM International (Asia) Limited

Dear Sirs,

Zhejiang New Century Hotel Management Co., Ltd. (the “Company”)

Profit Estimate for Year Ended December 31, 2018

We refer to the estimate of the consolidated profit attributable to owners of the Companyfor the year ended December 31, 2018 (the “Profit Estimate”) set forth in the section headedFinancial Information in the prospectus of the Company dated February 26, 2019 (the“Prospectus”).

Directors’ Responsibilities

The Profit Estimate has been prepared by the directors of the Company based on theaudited consolidated results of the Company and its subsidiaries (collectively referred to as the“Group”) for the eight months ended August 31, 2018, the unaudited consolidated results basedon the management accounts of the Group for the three months ended November 30, 2018 andan estimate of the consolidated results of the Group for the remaining one month endedDecember 31, 2018.

The Company’s directors are solely responsible for the Profit Estimate.

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the Code ofEthics for Professional Accountants issued by the Hong Kong Institute of Certified PublicAccountants (“HKICPA”), which is founded on fundamental principles of integrity, objectivity,professional competence and due care, confidentiality and professional behaviour.


– IIB-2 –

Our firm applies Hong Kong Standard on Quality Control 1 issued by the HKICPA and

accordingly maintains a comprehensive system of quality control including documented

policies and procedures regarding compliance with ethical requirements, professional

standards and applicable legal and regulatory requirements.

Reporting Accountant’s Responsibilities

Our responsibility is to express an opinion on the accounting policies and calculations of

the Profit Estimate based on our procedures.

We conducted our engagement in accordance with Hong Kong Standard on Investment

Circular Reporting Engagements 500, Reporting on Profit Forecasts, Statements of Sufficiency

of Working Capital and Statements of Indebtedness and with reference to Hong Kong Standard

on Assurance Engagements 3000 (Revised), Assurance Engagements Other Than Audits or

Reviews of Historical Financial Information issued by the HKICPA. Those standards require

that we plan and perform our work to obtain reasonable assurance as to whether, so far as the

accounting policies and calculations are concerned, the Company’s directors have properly

compiled the Profit Estimate in accordance with the bases adopted by the directors and as to

whether the Profit Estimate is presented on a basis consistent in all material respects with the

accounting policies normally adopted by the Group. Our work is substantially less in scope

than an audit conducted in accordance with Hong Kong Standards on Auditing issued by the

HKICPA. Accordingly, we do not express an audit opinion.

Opinion

In our opinion, so far as the accounting policies and calculations are concerned, the Profit

Estimate has been properly compiled in accordance with the bases adopted by the directors as

set out in Appendix IIB of the Prospectus and is presented on a basis consistent in all material

respects with the accounting policies normally adopted by the Group as set out in our

accountant’s report dated February 26, 2019, the text of which is set out in Appendix I of the

Prospectus.

Yours faithfully,

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, February 26, 2019


– IIB-3 –

C. LETTER FROM THE JOINT SPONSORS

The following is the text of a letter, prepared for inclusion in this prospectus by the JointSponsors, in connection with the estimate of the consolidated profit attributable to the ownersof the Company for the year ended December 31, 2018.

China Galaxy InternationalSecurities (Hong Kong) Co., Limited20th Floor, Wing On Centre111 Connaught Road CentralSheung WanHong Kong

BOCOM International (Asia)Limited9/F, Man Yee Building68 Des Voeux Road CentralHong Kong

The DirectorsZhejiang New Century Hotel Management Co., Ltd.

February 26, 2019

Dear Sirs,

We refer to the estimate of the consolidated profit attributable to the owners of ZhejiangNew Century Hotel Management Co., Ltd. (the “Company”, together with its subsidiaries,collectively referred to as the “Group”) for the year ended December 31, 2018 (the “ProfitEstimate”), for which the directors of the Company (the “Directors”) are solely responsible,as set out in the section headed “Financial Information” in the prospectus of the Companydated February 26, 2019 (the “Prospectus”).

The Profit Estimate has been prepared by the Directors based on (i) the auditedconsolidated results of the Group for the eight months ended August 31, 2018 as set out in theAccountant’s Report in Appendix I to the Prospectus; (ii) the unaudited consolidated resultsbased on the management accounts of the Group for the three months ended November 30,2018; and (iii) an estimate of the consolidated results of the Group for the remaining one monthended December 31, 2018.

We have discussed with you the bases made by the Directors as set out in Appendix IIBto the Prospectus, upon which the Profit Estimate has been made. We have also considered theletter dated February 26, 2019 addressed to yourselves and ourselves from the Company’sreporting accountant, PricewaterhouseCoopers regarding the accounting policies andcalculations upon which the Profit Estimate has been made.

On the basis of the information comprising the Profit Estimate and on the basis of theaccounting policies and calculations adopted by you and reviewed by PricewaterhouseCoopers,we are of the opinion that the Profit Estimate, for which you as the Directors are solelyresponsible, has been made after due and careful enquiry.

For and on behalf ofChina Galaxy International

Securities (Hong Kong) Co., LimitedTan Soon Hoe

Executive Director

For and on behalf ofBOCOM International (Asia) Limited

Conrad ChengManaging Director


– IIB-4 –

The following is the text of a letter, summary of valuations and valuation report prepared

for the purpose of incorporation in this prospectus received from Cushman & Wakefield

Limited, an independent property valuer, in connection with its opinion of value of the property

interests of the Group as at November 30, 2018.

February 26, 2019

The Directors

Zhejiang New Century Hotel Management Co., Ltd.



Wan Chai

Hong Kong

Dear Sirs,

Re: Portfolio Valuation

INSTRUCTIONS, PURPOSE & VALUATION DATE

In accordance with the instructions from Zhejiang New Century Hotel Management Co.,

Limited (the “Company”) for us to value the properties in which the Company or its

subsidiaries (collectively the “Group”) has interests in the People’s Republic of China (the

“PRC”) (as more particularly described in the attached valuation report), we confirm that we

have inspected the properties, made relevant enquiries and obtained such further information

as we consider necessary for the purpose of providing you with our opinion of the values of

such properties as at November 30, 2018.

VALUATION BASIS

Our valuation of each of the properties represents its market value which in accordance

with the HKIS Valuation Standards 2017 Edition issued by The Hong Kong Institute of

Surveyors is defined as “the estimated amount for which an asset or liability should exchange

on the valuation date between a willing buyer and a willing seller in an arm’s length

transaction, after proper marketing and where the parties had each acted knowledgeably,

prudently and without compulsion”.

We confirm that the valuations are undertaken in accordance with the requirements set out

in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The

Stock Exchange of the Hong Kong Limited and the HKIS Valuation Standards 2017 Edition

issued by the Hong Kong Institute of Surveyors.

Our valuation of each of the properties is on an entirety interest basis.

APPENDIX III PROPERTY VALUATION REPORT

– III-1 –

VALUATION ASSUMPTIONS

Our valuation of each of the properties excludes an estimated price inflated or deflated

by special terms or circumstances such as atypical financing, sale and leaseback arrangements,

special considerations or concessions granted by anyone associated with the sale, or any

element of value available only to a specific owner or purchaser.

In the course of our valuation of the properties, we have relied on the information and

advice given by the Company’s legal adviser, King & Wood Mallesons, regarding the titles to

the properties and the interests of the Company in the properties in the PRC. Unless otherwise

stated in the respective legal opinion, in valuing the properties, we have assumed that the

Group has an enforceable title to the properties and has free and uninterrupted rights to use,

occupy or assign the properties for the whole of the respective unexpired land use term as

granted and that any premium payable has already been fully paid.

In respect of the properties situated in the PRC, the status of titles and grant of major

certificates, approvals and licences, in accordance with the information provided by the

Company are set out in the notes of the respective valuation report. We have assumed that all

consents, approvals and licences from relevant government authorities for the developments

have been obtained without onerous conditions or delays. We have also assumed that the design

and construction of the properties are in compliance with the local planning regulations and

have been approved by the relevant authorities.

No allowance has been made in our valuations for any charges, mortgages or amounts

owing on the properties nor any expenses or taxation which may be incurred in effecting a sale.

Unless otherwise stated, it is assumed that the properties are free from encumbrances,

restrictions and outgoings of any onerous nature which could affect their values.

METHOD OF VALUATION

In valuing the properties in Group I which are hotels operated by the Group in the PRC,

we have used Discounted Cash Flow (“DCF”) Method. DCF Method involves discounting

future net cash flow after operation-related and property-related taxes (i.e. net operating

income) of each hotel portion by reference to the current and anticipated market conditions

until the end of the respective unexpired land use term to its present value by using an

appropriate discount rate that reflects the rate of return required by a third party investor for

an investment of this type.

The discount rates adopted in DCF Method reflect the rates of return required by a third

party investor for an investment of similar use type. In determining the discount rates which

reflect the inherent risks associated with investment in the property, we take into consideration

compensation for risks inherent in future cash flows, inflation, revenue growth, our

understanding of the return expected by investors for similar properties as well as the level of

discount rates used in valuations of similar types of properties. The discount rates adopted are

reasonable and in line with the market norm having regard to the relevant analysis.


– III-2 –

In valuing the properties in Group II which are held by the Group for own use in the PRC,

we have used Market Comparison Method by reference to comparable sales evidence as

available in the relevant market subject to appropriate adjustments including but not limited to

location, accessibility, age, quality, size, time and other relevant factors. Given that the

properties are mostly strata residential units, comparable sales transactions are frequent and

information about such sales is readily available, we have therefore used Market Comparison

Method which is in line with the market practice.

The properties in Group III which are leased to the Group in the PRC are considered to

have no commercial value due to the prohibitions against assignment of the property interests

or otherwise due to the lack of substantial profit rents.

SOURCE OF INFORMATION

We have relied to a very considerable extent on the information given by the Company

and have accepted advice given to us on such matters as planning approvals, statutory notices,

easements, tenures, identification of land and buildings, completion date of buildings,

particulars of occupancy, site and floor areas, site and floor plans, number of parking spaces,

trading information, interests attributable to the Group and all other relevant matters.

Dimensions, measurements and areas included in the valuation report are based on the

copies of documents or other information provided to us by the Company and are therefore

only approximations. No on-site measurement has been carried out. We have had no reason to

doubt the truth and accuracy of the information provided to us by the Group which is material

to the valuations. We were also advised by the Group that no material facts have been omitted

from the information provided.

We would point out that the copies of documents of the properties in the PRC provided

to us are mainly compiled in Chinese characters and the transliteration into English represents

our understanding of the contents. We would therefore advise you to make reference to the

original Chinese editions of the documents and consult your legal adviser regarding the legality

and interpretation of these documents.

TITLE INVESTIGATION

We have been provided by the Company with extracts of documents in relation to the

titles to the properties in the PRC but have not carried out any title searches. However, we have

not inspected the original documents to ascertain any amendments which may not appear on

the copies handed to us for all properties. We are also unable to ascertain the title of the

properties in the PRC and we have therefore relied on the advice given by the Company or its

legal adviser regarding the Company’s interests in the PRC properties.


– III-3 –

SITE INSPECTION

We have inspected the exterior and, whenever possible, the interior of each of theproperties. However, no structural survey has been made, but in the course of our inspections,we did not note any serious defects. We are, however, not able to report that the properties arefree of rot, infestation or any other structural defects. No tests were carried out to any of theservices. Unless otherwise stated, we have not been able to carry out detailed on-sitemeasurements to verify the site and floor areas of the properties and we have assumed that theareas shown on the documents handed to us are correct.

The site inspections of valued properties were carried out by 15 valuers of 7 offices,ranking from Assistant Valuer to Associate Director with experience of 2 to 16 years, in theperiod between May and November 2018.

CURRENCY

Unless otherwise stated, all monetary sums stated in our valuations are in Renminbi(“RMB”) for the PRC properties, the official currency of the PRC.

OTHER DISCLOSURE

We hereby confirm that Cushman & Wakefield Limited and the valuers conducting thevaluations have no pecuniary or other interests that could conflict with the proper valuationsof the properties or could reasonably be regarded as being capable of affecting our ability togive an unbiased opinion. We confirm that we are an independent qualified valuer, as referredto Rule 5.08 of the Rules Governing the Listing of Securities on the Stock Exchange of HongKong Limited.

INTENDED USE OF REPORT

This valuation report is issued for the use of the Company for its listing purpose only.

We enclose herewith a summary of valuations and valuation report for your attention.

Yours faithfully,For and on behalf of

Cushman & Wakefield LimitedAndrew K.F. Chan

MSc, MRICS, MHKIS, MCIREA, RPS (GP)

Regional Director

Valuation & Advisory Services, Greater China

Note: Mr. Andrew K.F. Chan is a Member of the Royal Institution of Chartered Surveyors, a Member of the HongKong Institute of Surveyors, a Registered Professional Surveyor (General Practice) and a Registered ChinaReal Estate Appraiser. Mr. Chan has over 30 years of experience in the professional property valuation andadvisory services in the Greater China region and various overseas countries. Mr. Chan has sufficient currentnational knowledge of the market, and the skills and understanding to undertake the valuations competently.


– III-4 –

SUMMARY OF VALUATIONS

Property

Market valuein existingstate as at

November 30,2018

Interestattributable

to the Group

Market valuein existing state

attributable tothe Group as at

November 30,2018

(RMB) (%) (RMB)

Group I – Properties held by the Group for operation in the PRC

1. Changxing New CenturyWonderland Resort,Huizhouzhuang Village,Shuikou,Changxing,Zhejiang Province,the PRC

176,000,000 100% 176,000,000

2. Hangzhou Fuchun NewCentury WonderlandResort, Meicheng TownWushitan,Jiande,Zhejiang Province,the PRC

266,000,000 100% 266,000,000

Sub-total of Group I: 442,000,000

Group II – Properties held by the Group for own use in the PRC

3. 2 units in Jinjiang Park,Junction of ChunchengStreet and Jingyang Road,Lvyuan District,Changchun,Jilin Province,the PRC

1,400,000 100% 1,400,000

4. A unit in WanxinCommunity,Jingan Road,Lvyuan District,Changchun,Jilin Province,the PRC

980,000 100% 980,000


– III-5 –

Property


November 30,2018


to the Group



November 30,2018

(RMB) (%) (RMB)

5. Room 2,No. 118 Xin’an Road,Qiandao Lake Town,Chun’an,Zhejiang Province,the PRC

4,110,000 100% 4,110,000

6. No. 111 Xin’an Road,Qiandao Lake Town,Chun’an,Zhejiang Province,the PRC

13,360,000 100% 13,360,000

7. 31 units of Block 3,Jiuqu residential areas,Shounan Street,Yinzhou District, Ningbo,Zhejiang Province,the PRC

64,670,000 100% 64,670,000

8. Room 2415,Building 14,North Area ofShaoxing Guomao Center,No. 1277Jinkeqiao Avenue,Keqiao District,Shaoxing,Zhejiang Province,the PRC

350,000 100% 350,000

9. Room 1001,Unit 1, Building 1,Ruixiang Guoji Mingdu,South Rulin Road,Xianghe Town,Quanjiao,Anhui Province,the PRC

900,000 100% 900,000

Sub-total of Group II: 85,770,000


– III-6 –

Property


November 30,2018


to the Group



November 30,2018

(RMB) (%) (RMB)

Group III – Properties leased to the Group in the PRC

10. Grand New Century HotelHangzhou,No. 818 Shixin Road,Xiaoshan District,Hangzhou,Zhejiang Province,the PRC

No commercialvalue

– No commercialvalue

11. Grand New Century HotelNingbo,No. 666 ShounanzhongRoad,Yinzhou District,Ningbo,Zhejiang Province,the PRC

No commercialvalue


12. Zhejiang New CenturyXiaoshan Guesthouse,No. 77 Renming Road,Xiaoshan District,Hangzhou,Zhejiang Province,the PRC

No commercialvalue


13. Grand New Century HotelChangchun Jinjiang Hotel,Chuncheng Street,Lvyuan District,Changchun,Jilin Province,the PRC

No commercialvalue


14. New Century ResortHangzhou Qiandao Lake,Chun’an Town,Hangzhou,Zhejiang Province,the PRC

No commercialvalue



– III-7 –

Property


November 30,2018


to the Group



November 30,2018

(RMB) (%) (RMB)

15. Grand New Century HotelShaoxing,No. 278 RenmindongRoad,Yuecheng District,Shaoxing,Zhejiang Province,the PRC

No commercialvalue


16. Grand New Century HotelZhuji Yaojiang,No. 207 HuanchengEast Road,Zhuji,Zhejiang Province,the PRC

No commercialvalue


17. New Century Hotel Jurong,North of Chongming Road,Economic DevelopmentZone, Jurong,Jiangsu Province,the PRC

No commercialvalue


18. New Century MaisonChangzhou Taihu Bay,Taihu Lake Bay TouristResort,Zhushan Street,Wujin District,Changzhou,Jiangsu Province,the PRC

No commercialvalue


19. Grand New Century HotelZhejiang Sanli,No. 538 Shaoxing Road,Hangzhou,Zhejiang Province,the PRC

No commercialvalue



– III-8 –

Property


November 30,2018


to the Group



November 30,2018

(RMB) (%) (RMB)

20. New Century HotelNanjing,No. 35 Wende East Road,Jiangpu Street,Pukou District,Nanjing,Jiangsu Province,the PRC

No commercialvalue


21. New Century HotelShaoxing Jinchang,No. 1277 JinkeqiaoAvenue,Keqiao District,Shaoxing,Zhejiang Province,the PRC

No commercialvalue


22. New Century HotelXiangshan Shipu,No. 1 Huangcheng Avenue,Shipu Xiangshan,Ningbo,Zhejiang Province,the PRC

No commercialvalue


23. Manju Shaoxing (Keqiao)Inn,No. 999 Yumin Road,Keqiao District,Shaoxing,Zhejiang Province,the PRC

No commercialvalue


24. New Century GrandhouseYanguan,Yanguan Town,Haining,Zhejiang Province,the PRC

No commercialvalue



– III-9 –

Property


November 30,2018


to the Group



November 30,2018

(RMB) (%) (RMB)

25. New Century HotelTianjin Ruiwan,No. 2527 XingangNo. 1 Road,Binhai New Area,Tianjin,the PRC

No commercialvalue


26. Grand New Century HotelNinghai Jinhai,No. 399 Jinshui Road,Ninghai,Zhejiang Province,the PRC

No commercialvalue


27. New Century HotelNinghai New Century,No. 159 TaoyuanMiddle Road,Ninghai,Zhejiang Province,the PRC

No commercialvalue


28. Manju Shanghai Yuege,No. 1609 Luoshan Road,Pudong New Area,Shanghai,the PRC

No commercialvalue


29. Manju Shanghai Ruiyue,No. 35 Meiyuan Road,Jingan District,Shanghai,the PRC

No commercialvalue



– III-10 –

Property


November 30,2018


to the Group



November 30,2018

(RMB) (%) (RMB)

30. Manju Hotel Minhang Inn,No. 1280Zhuanxing Road,Minhang District,Shanghai,the PRC

No commercialvalue


31. Manju Hotel Wuxi Inn,Guangyi Road,Liangxi District,Wuxi,Jiangsu Province,the PRC

No commercialvalue


32. Manju Hotel Ningbo(Eastern New City),No. 369 Heqingbei Road,Jiangdong District,Ningbo,Zhejiang Province,the PRC

No commercialvalue


33. Manju Hotel Zhoushan,No. 127 Shatian Street,Donggang Subdistrict,Zhoushan,Zhejiang Province,the PRC

No commercialvalue


34. Wonderland RV CampYanguan,Yanguan Town,Haining,Zhejiang Province,the PRC

No commercialvalue



– III-11 –

Property


November 30,2018


to the Group



November 30,2018

(RMB) (%) (RMB)

35. Changxing New Century,Wonderland Resort,Huizhouzhuang Village,Shuikou,Changxing,Zhejiang Province,the PRC

No commercialvalue


36. Manju Hotel Dalian,Municipality Inn,No. 78 Xinkai Road,Xigang District,Dalian,Liaoning Province,the PRC

No commercialvalue


37. Manju HotelChengdu Inn,No. 986 Julong Road,Wuhou District,Chengdu,Sichuan Province,the PRC

No commercialvalue


38. Manju Hotel Yuyao SouthNanlei Road Inn,No. 398South Nanlei Road,Yuyao,Zhejiang Province,the PRC

No commercialvalue



– III-12 –

Property


November 30,2018


to the Group



November 30,2018

(RMB) (%) (RMB)

39. Manju HotelNingbo Waitan Inn,No. 85 Renming Road,Jiangbei District,Ningbo,Zhejiang Province,the PRC

No commercialvalue


40. Manju Hotel Zhuzhou Inn,Building 19,Henghao Cuigu City,No. 299 Jiangshan Road,Tianyuan District,Zhuzhou,Hunan Province,the PRC

No commercialvalue


Sub-total of Group III: No commercialvalue

Grand-total: 527,770,000


– III-13 –

VALUATION REPORT

Group I – Properties held by the Group for operation in the PRC

Property Description and tenureParticulars ofoccupancy

Market value inexisting state as at

November 30, 2018

1. Changxing NewCenturyWonderlandResort,HuizhouzhuangVillage,Shuikou Country,Changxing,Zhejiang Province,the PRC

The property was completedin 2015 and is erected upon2 parcels of land with a total sitearea of 49,995.00 sq m.

The property is the guest roomportion of ChangxingNew Century Wonderland Resortwhich comprises 50 individuallog cabins having a total grossfloor area with title of 8,473.22sq m.

The complex building portion isleased to the Group from anindependent third party. Detailsare set out in the valuation reportof Property No. 35.

As at the valuationdate, the property wasoperated as a upscalehotel.

RMB176,000,000

(Renminbi OneHundred And Seventy

Six Million)

(100% interestattributable

to the Group:RMB176,000,000)

The property is located in thesuburbs area of ChangxingCounty, Huzhou City, about 6 kmfrom the downtown of ChangxingCounty.

The land use rights of theproperty have been granted forterms due to expire on April 27,2055 for commercial use.

Notes:

(1) Details of the room configuration are summarized as follows:–

Room Type Number of Rooms(Typical Floors)

Superior Garden-view Twin Room 14Superior Garden-view Queen Room 13Bamboo-view Twin Room 64Log Cabin Suite 6Deluxe Log Cabin Suite 4Deluxe Villa 12Family Suite 2Log Cabin Villa 7Deluxe Log Cabin Villa 11Family Theme Room 2Double Bedroom Suite 27Double Bedroom Villa 16

Total 178


– III-14 –

(2) According to 2 Real Estate Title Certificates, the real estate title of the property having a total gross floor areawith title of 8,473.22 sq m has been vested in Changxing New Century Wonderland Resort Co., Ltd with detailsas follows:

Certificate No. Portion UseGross floor

area Site area(sq m) (sq m)

0001181 Guesthouse Commercial 4,880.42 24,355.000005286 Guesthouse Commercial 3,592.80 25,640.00

Total 8,473.22 49,995.00

(3) According to Business Licence No. 91330522329965510Y dated July 27, 2017, Changxing New CenturyWonderland Resort Co., Ltd has been established with a registered capital of RMB30,000,000 for an operationperiod from December 24, 2014 to December 23, 2064.

(4) We have been provided with a legal opinion issued by the Company’s legal adviser, which contains, inter alia,the following information:

(a) Changxing New Century Wonderland Resort Co., Ltd. is the legal owner of the property;

(b) Changxing New Century Wonderland Resort Co., Ltd. is in possession of a proper legal title to theproperty and is entitled to occupy, use, lease, transfer, mortgage and dispose of the property togetherwith the residual term of its land use rights according to the PRC laws; and

(c) The property is subject to mortgages, with Industrial and Commercial Bank of China, Xiaoshan Branchbeing the mortgagee.

(5) The status of title and grant of major approvals and licences in accordance the information provided by theGroup are as follows:

Real Estate Title Certificates YesBusiness Licence Yes

(6) Our key assumptions used in the DCF valuation are summarized as follows:–

(a) Average daily room rate (“ADR”) : 2018 – RMB780(b) Annual growth in ADR : 5%; Stabilized at 3%(c) Occupancy rate on available room basis : 2018 – 55%; Stabilized at 65%(d) Discount rate : 9%(e) Terminal growth rate : 3%


– III-15 –

VALUATION REPORT



November 30, 2018

2. Hangzhou FuchunNew CenturyWonderlandResort,Meicheng TownWushitan,Jiande City,Zhejiang Province,the PRC

The hotel consists of 58 villasstanding on a parcel of land withsite area of 37,318.15 sq m.

The hotel was completed inDecember 2017 and has beenoperated since April 2018.

The hotel currently provides 204guest rooms and a restaurant.

Pursuant to the Planning Permitfor Construction Works, the hotelhas a total gross floor area of18,726.45 sq m.

Pursuant to the survey report, thehotel has a total operating areaof approximately 18,518.76 sq m.

The land use rights of theproperty have been granted forterms of 40 years due to expireon November 23, 2056 foraccommodation and cateringuses.

As at the valuationdate, the property wasoperated as a upscalehotel.

RMB266,000,000

(Renminbi TwoHundred And Sixty

Six Million)



Notes:

(1) Details of the room configuration are summarized as follows:–

Room Type Size Number of Rooms(sq m) (Typical Floors)

Townhouse Standard Room 36 100Town house King Room 36 18Town house Single Room 50 42Town house Two Bedroom 83 18Boat house 53 5Villa single Room 65 15Villa two Bedroom 110 4Tree house King room 29 1Tree house suite 49 1

Total 204

(2) Details of the facilities and amenities are summarized as follows:–

Food and Beverage Outlet Size Numbers

Front Office 820 1Public Area 35 5

Total 6


– III-16 –

(3) Pursuant to 13 State-owned Land Use Rights Certificates dated November 29, 2016 issued by the Jiande RealEstate Administration Bureau, the land use rights of the property having a site area of 37,318.15 sq m havebeen vested in Jiande New Century Wonderland Resort Co., Ltd. for accommodation and catering uses withdetails as follows:–

Certificate No. Site Area(sq m)

0003601 10,669.240003588 4,203.520003589 1,246.350003591 4,000.730003594 570.060003590 1,529.130003602 2,833.030003592 1,457.800003593 987.190003604 1,614.010003603 1,647.040003621 3,167.810003571 3,392.24

37,318.15

(4) Pursuant to Grant Contract of Land Use Rights No. 3301822016A21008 dated June 24, 2016, the Jiande LandResources Administration Bureau has agreed to transfer the land use rights of the land lot (2016)03 situatedin Jiande City, Zhejiang Province, with a total site area of approximately 37,318.15 sq m, to Jiande NewCentury Wonderland Resort Co., Ltd. The land grant fee is RMB16,990,000.

(5) Pursuant to Planning Permit for Construction Works No. (2017) 016005 issued by the Jiande Planning andConstruction Bureau on January 25, 2017, the construction works of the property, comprising a total grossfloor area of 18,726.45 sq m, are in compliance with the urban planning requirements and are approved.


(a) Jiande New Century Wonderland Resort Co., Ltd owns the property and has no property rights disputeor potential dispute. There is no legal obstacle for the property to obtain the Real Estate TitleCertificates; and

(b) The property is subject to mortgages in favour of Industrial and Commercial Bank of China, JiandeBranch.


State-owned Land Use Rights Certificates YesGrant Contract of Land Use Rights YesPlanning Permit for Construction Works YesBusiness Licence Yes

(8) Our key assumptions used in the DCF valuation are summarized as follows:–

(a) Average daily room rate (“ADR”) : 2018 – RMB800(b) Annual growth in ADR : 5%; Stabilized at 3%(c) Occupancy rate on available room basis : 2018 – 60%; Stabilized at 65%(d) Discount rate : 8%(e) Terminal growth rate : 3%


– III-17 –

VALUATION REPORT

Group II – Properties held by the Group for own use in the PRC



November 30, 2018

3. 2 units in JinjiangPark,Junction ofChuncheng StreetandJingyang Road,Lvyuan District,Changchun,Jilin Province,the PRC

The property comprises2 residential units of a 17-storeyresidential building completed in2006.

The property has a total grossfloor area of 201.19 sq m forresidential use.

The property is in the urban areaof Changchun. The surroundingarea comprises residentialdevelopments such as ZhongxinPark, Xicheng InternationalMansion and Crystal City etc.

The land use rights of theproperty have been granted forterm due to expire onDecember 31, 2039 forresidential use.

As at the valuationdate, the property wasoccupied by theGroup for staffquarter use.

RMB1,400,000

(Renminbi OneMillion And Four

Hundred Thousand)



Notes:

(1) According to 2 State-owned Land Use Rights Certificates, the land use rights of the property comprising a totalsite area of 56.00 sq m have been vested in Hangzhou Kaiyuan Chuanqi House Renting Co., Ltd. with detailsas follows:–

Certificate No. Issue date UseLand use termexpiry Site area

(sq m)

(2015)060003806 March 30, 2015 Residential December 31, 2039 27.00(2015)060003807 March 30, 2015 Residential December 31, 2039 29.00

(2) According to 2 Real Estate Title Certificates, the building ownership of the property having a total gross floorarea with title of 201.19 sq m has been vested in Hangzhou Kaiyuan Chuanqi House Renting Co., Ltd. withdetails as follows:–

Certificate No. Issue date Use Gross floor area(sq m)

201503240816 March 24, 2015 Residential 97.88201503240813 March 24, 2015 Residential 103.31


– III-18 –

(3) According to Business Licence No. 913301090639998358 dated July 23, 2018, Hangzhou Kaiyuan ChuanqiHouse Renting Co., Ltd. has been established with a registered capital of RMB26,800,000 for an operationperiod from April 24, 2013 to November 17, 2024.


(a) Hangzhou Kaiyuan Chuanqi House Renting Co., Ltd. is the legal owner of the property;

(b) Hangzhou Kaiyuan Chuanqi House Renting Co., Ltd. is in possession of a proper legal title to theproperty and is entitled to occupy, use, lease, transfer, mortgage and dispose of the property togetherwith the residual term of its land use rights according to the PRC laws; and

(c) The property is not subject to any mortgage.


State-owned Land Use Rights Certificate YesReal Estate Title Certificate YesBusiness Licence Yes

(6) In valuing the property, we have assumed about RMB7,000 per sq m.

In undertaking our valuation, we have made reference to sales prices of similar properties in the neighbourhoodwhich have characteristics comparable to the property. The prices of residential premises range from aboutRMB7,200 to RMB8,100 per sq m. The unit rate assumed by us is consistent with the relevant comparablesafter due adjustments including locality, accessibility, transportation, size, floor and other relevant factors.


– III-19 –

VALUATION REPORT



November 30, 2018

4. A unit in WanxinCommunity,Jingan Road,Lvyuan District,Changchun,Jilin Province,the PRC

The property comprises aresidential unit of a 7-storeyresidential building completed in2004.

The property has a gross floorarea of 143.49 sq m forresidential use.

The property is located in theurban area of Changchun. Thesurrounding area comprisesresidential developments such asZhongxin Park, XichengInternational Mansion andCrystal City etc.

The land use rights of theproperty have been granted for aterm due to expire onDecember 31, 2039 forresidential use.

As at the valuationdate, the property wasoccupied by theGroup for residentialuse.

RMB980,000

(Renminbi NineHundred And Eighty

Thousand)


to the Group:RMB980,000)

Notes:

(1) According to a State-owned Land Use Rights Certificate, the land use rights of the property comprising a sitearea of 58.00 sq m have been vested in Hangzhou Kaiyuan Chuanqi House Renting Co., Ltd. with details asfollows:–

Certificate No. Issue date UseLand use termexpiry Site area

(sq m)

(2015)060003805 March 30, 2015 Residential December 31, 2039 58.00

(2) According to a Real Estate Title Certificate, the building ownership of the property having a total gross floorarea with title of 143.49 sq m has been vested in Hangzhou Kaiyuan Chuanqi House Renting Co., Ltd. withdetails as follows:–

Certificate No. Issue date Use Gross floor area(sq m)

201503240814 March 24, 2015 Residential 143.49

(3) According to Business Licence No. 913301090639998358 dated July 23, 2018, Hangzhou Kaiyuan ChuanqiHouse Renting Co., Ltd. has been established with a registered capital of RMB26,800,000 for an operationperiod from April 24, 2013 to November 17, 2024.


– III-20 –






State-owned Land Use Rights Certificate YesReal Estate Title Certificate YesBusiness Licence Yes


In undertaking our valuation, we have made reference to sales prices of similar properties in the neighbourhoodwhich have characteristics comparable to the property. The prices of residential premises range from aboutRMB7,500 to RMB7,700 per sq m. The unit rate assumed by us is consistent with the relevant comparablesafter due adjustments including locality, accessibility, size, floor and other relevant factors.


– III-21 –

VALUATION REPORT



November 30, 2018

5. Room 2,No. 118Xin’an Road,Qiandao LakeTown,Chun’an,Zhejiang Province,the PRC

The property comprises a 1st-floor commercial unit of 6-storeycomplex building completed in1989.

The property has a total grossfloor area of 122.81 sq m fornon-residential use.

The property is situated inQiandao Lake Town, Chun’an.Developments in the vicinitycomprise mainly residential andcommercial buildings such asQiandao Lake Square, QingchengShanju, Jingxiu Huayuan etc. Theproperty is served by public busroutes.

The land use rights of theproperty have been granted for aterm of 40 years due to expire onNovember 25, 2042 foraccommodation and cateringuses.

As at the valuationdate, the property wassubject to a tenancydue to expire onOctober 31, 2019 atan annual rent ofRMB480,000.

RMB4,110,000

(Renminbi FourMillion One Hundred

And Ten Thousand)



Notes:

(1) Pursuant to Certificate for the Use of State-owned Land No. (2014) 004910 issued by the Chun’an ProvincialDepartment of Land Resources on October 28, 2014, the land use rights of the property having a site area of20.47 sq m have been vested in Hangzhou New Century Chuanqi Property Management Limited for a term of40 years until November 25, 2042 for accommodation and catering uses.

(2) Pursuant to Building Ownership Certificate No. 243162 issued by the Chun’an Real Estate AdministrationBureau on September 17, 2014, the building ownership of the property having a gross floor area of 122.81 sqm has been vested in Hangzhou New Century Chuanqi Property Management Limited for non-residential use.






– III-22 –


Certificate for the Use of State-owned Land YesBuilding Ownership Certificate Yes


In undertaking our valuation, we have made reference to sales prices of similar properties in the neighbourhoodwhich have characteristics comparable to the property. The prices of commercial premises range from aboutRMB28,000 to RMB38,000 per sq m. The unit rate assumed by us is consistent with the relevant comparablesafter due adjustments including locality, accessibility, size, floor and other relevant factors.


– III-23 –

VALUATION REPORT



November 30, 2018

6. No. 111Xin’an Road,Qiandao LakeTown,Chun’an,Zhejiang Province,the PRC

The property comprises anon-residential unit of a 6-storeycomplex building completed in1994.

The property has a total grossfloor area of 3,002.70 sq m fornon-residential use.

The property is situated inQiandao Lake Town, Chun’an.Developments in the vicinitycomprise mainly residential andcommercial buildings such asQiandao Lake Square, QingchengShanju, Jingxiu Garden etc. Theproperty is served by public busroutes.

The land use rights of theproperty have been granted for aterm of 40 years due to expire onNovember 25, 2042 foraccommodation and cateringuses.

As at the valuationdate, the property wassubject to a tenancydue to expire onDecember 31, 2020 atan annual rent ofRMB300,000.

RMB13,360,000

(Renminbi ThirteenMillion Three

Hundred And SixtyThousand)



Notes:

(1) Pursuant to Certificate for the Use of State-owned Land No. (2014) 004914 issued by the Chun’an ProvincialDepartment of Land Resources on October 28, 2014, the land use rights of the property having a site area of519.84 sq m have been vested in Hangzhou New Century Chuanqi Property Management Limited for a termof 40 years until November 25, 2042 for accommodation and catering uses.

(2) Pursuant to Building Ownership Certificate No. 243163 issued by the Chun’an Real Estate AdministrationBureau on September 17, 2014, the building ownership of the property having a gross floor area of 3,002.70sq m has been vested in Hangzhou New Century Chuanqi Property Management Limited for non-residentialuse.






– III-24 –




In undertaking our valuation, we have made reference to sales prices of similar properties in the neighbourhoodwhich have characteristics comparable to the property. The prices of office premises range from aboutRMB6,600 to RMB8,000 per sq m. The unit rate assumed by us is consistent with the relevant comparablesafter due adjustments including locality, accessibility, size, floor and other relevant factors.


– III-25 –

VALUATION REPORT



November 30, 2018

7. 31 units ofBlock 3,Jiuqu residentialareas,Shounan Street,Yinzhou District,Ningbo,Zhejiang Province,the PRC

The property comprises 31 unitsof a 9-storey residential buildingcompleted in 2005.

The property has a total grossfloor area of 4,121.37 sq m forresidential use.

The property is situated inYinzhou District, Ningbo.Developments in the vicinitycomprise mainly residential andcommercial buildings such asMilky Way Bay, Xiangdi Shuian,Ningbo Universal City etc. Theproperty is served by public busroutes.

The land use rights of theproperty have been granted forterms of 70 years due to expireon July 9, 2078 for residentialuse.

As at the valuationdate, the property wasused as a staffquarter.

RMB64,670,000

(Renminbi Sixty FourMillion Six Hundred

And SeventyThousand)

(100% interestattributable to

the Group:RMB64,670,000)

Notes:

(1) Pursuant to 31 Certificates for the Use of State-owned Land issued by the Ningbo Provincial Department ofLand Resources on September 17, 2015, the land use rights of the property having a total site area of 406.81sq m have been vested in Hangzhou New Century Chuanqi Property Management Limited for terms of 70 yearsuntil July 9, 2078 for residential use. Details are as follows:

Location Certificate No. Site area(sq m)

Room 101, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17683 12.45Room 301, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17669 12.45Room 401, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17684 12.45Room 501, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17691 12.45Room 601, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17689 12.45Room 701, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17680 12.45Room 801, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17664 12.45Room 901, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17676 19.15Room 102, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17663 12.90Room 202, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17666 12.90Room 302, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17679 12.90Room 402, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17667 12.90Room 502, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17686 12.90Room 602, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17665 12.90Room 702, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17668 12.90Room 103, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17677 12.90Room 203, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17688 12.90Room 303, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17675 12.90Room 504, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17681 12.45


– III-26 –

Location Certificate No. Site area(sq m)

Room 403, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17678 12.90Room 503, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17670 12.90Room 603, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17672 12.90Room 803, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17673 12.90Room 903, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17674 20.31Room 104, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17682 12.45Room 204, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17661 12.45Room 304, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17671 12.45Room 404, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17693 12.45Room 604, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17692 12.45Room 704, Unit 5, Block 3, Jiuqu residential areas 2015 No. 99-17685 12.45Room 201, Unit 6, Block 3, Jiuqu residential areas 2015 No. 99-17687 12.45

(2) Pursuant to 31 Building Ownership Certificates issued by the Ningbo Real Estate Administration Bureau onSeptember 10, 2015, the building ownership of the property having a total gross floor area of 4,121.37 sq mhas been vested in Hangzhou New Century Chuanqi Property Management Limited for residential use. Detailsare as follows:

Location Certificate No. Gross floor area(sq m)

Room 101, Unit 6, Block 3, Jiuqu residential areas No. 201556156 126.1Room 301, Unit 6, Block 3, Jiuqu residential areas No. 201556153 126.1Room 401, Unit 6, Block 3, Jiuqu residential areas No. 201556166 126.1Room 501, Unit 6, Block 3, Jiuqu residential areas No. 201556165 126.1Room 601, Unit 6, Block 3, Jiuqu residential areas No. 201555929 126.1Room 701, Unit 6, Block 3, Jiuqu residential areas No. 201556493 126.1Room 801, Unit 6, Block 3, Jiuqu residential areas No. 201556492 126.1Room 901, Unit 6, Block 3, Jiuqu residential areas No. 201556502 193.99Room 102, Unit 6, Block 3, Jiuqu residential areas No. 201556241 130.72Room 202, Unit 6, Block 3, Jiuqu residential areas No. 201555776 130.72Room 302, Unit 6, Block 3, Jiuqu residential areas No. 201556240 130.72Room 402, Unit 6, Block 3, Jiuqu residential areas No. 201556238 130.72Room 502, Unit 6, Block 3, Jiuqu residential areas No. 201556237 130.72Room 602, Unit 6, Block 3, Jiuqu residential areas No. 201556408 130.72Room 702, Unit 6, Block 3, Jiuqu residential areas No. 201556152 130.72Room 103, Unit 5, Block 3, Jiuqu residential areas No. 201556149 130.72Room 203, Unit 5, Block 3, Jiuqu residential areas No. 201556148 130.72Room 303, Unit 5, Block 3, Jiuqu residential areas No. 201556147 130.72Room 504, Unit 5, Block 3, Jiuqu residential areas No. 201556145 126.1Room 403, Unit 5, Block 3, Jiuqu residential areas No. 201556143 130.72Room 503, Unit 5, Block 3, Jiuqu residential areas No. 201556142 130.72Room 603, Unit 5, Block 3, Jiuqu residential areas No. 201556141 130.72Room 803, Unit 5, Block 3, Jiuqu residential areas No. 201556407 130.72Room 903, Unit 5, Block 3, Jiuqu residential areas No. 201556409 205.8Room 104, Unit 5, Block 3, Jiuqu residential areas No. 201555767 126.1Room 204, Unit 5, Block 3, Jiuqu residential areas No. 201555765 126.1Room 304, Unit 5, Block 3, Jiuqu residential areas No. 201555625 126.1Room 404, Unit 5, Block 3, Jiuqu residential areas No. 201556164 126.1Room 604, Unit 5, Block 3, Jiuqu residential areas No. 201556161 126.1Room 704, Unit 5, Block 3, Jiuqu residential areas No. 201555626 126.1Room 201, Unit 6, Block 3, Jiuqu residential areas No. 201556139 126.1


– III-27 –










– III-28 –

VALUATION REPORT



November 30, 2018

8. Room 2415,Building 14,North Areaof ShaoxingGuomao Center,No. 1277Jinkeqiao Avenue,Keqiao District,Shaoxing,Zhejiang Province,the PRC

The property comprises an officeunit of a 29-storey officebuilding completed in 2007.

The property has a total grossfloor area of 47.11 sq m forcommercial and office uses.

The property is situated inKeqiao District, Shaoxing.Developments in the vicinitycomprise mainly commercial andoffice buildings such as FortuneBuilding, The Oriental Tower,Modern Building etc. Theproperty is served by public busroutes.

The land use rights of theproperty have been granted for aterm of 40 years due to expire onMay 9, 2045 for office andcommercial uses.

As at the valuationdate, the property wassubject to a tenancydue to expire on18 February 2019 atan annual rent ofRMB18,000.

RMB350,000

(RenminbiThree Hundred And

Fifty Thousand)


the Group:RMB350,000)

Notes:

(1) Pursuant to Certificate for the Use of State-owned Land No. (12-33-0-333) 99958 issued by the ShaoxingCounty Land and Resources Bureau on October 23, 2012, the land use rights of the property having a site areaof 18.98 sq m have been vested in Zhejiang New Century Hotel Management Co., Limited Shaoxing JinchangNew Century Hotel for a term of 40 years until May 9, 2045 for office and commercial uses.

(2) Pursuant to Building Ownership Certificate No. 44911 issued by the Shaoxing County Real EstateManagement Office on August 27, 2009, the building ownership of the property having a gross floor area of47.11 sq m has been vested in Zhejiang New Century Hotel Management Co., Limited Shaoxing Jinchang NewCentury Hotel for commercial and office uses.


(a) Zhejiang New Century Hotel Management Co., Limited Shaoxing Jinchang New Century Hotel is thelegal owner of the property;

(b) Zhejiang New Century Hotel Management Co., Limited Shaoxing Jinchang New Century Hotel is inpossession of a proper legal title to the property and is entitled to occupy, use, lease, transfer, mortgageand dispose of the property together with the residual term of its land use rights according to the PRClaws; and



– III-29 –




In undertaking our valuation, we have made reference to sales prices of similar properties in the neighbourhoodwhich have characteristics comparable to the property. The prices of office premises range from aboutRMB7,300 to RMB8,300 per sq m. The unit rate assumed by us is consistent with the relevant comparablesafter due adjustments including locality, accessibility, size, floor and other relevant factors.


– III-30 –

VALUATION REPORT



November 30, 2018

9. Room 1001,Unit 1, Building 1,Ruixiang GuojiMingdu,South Rulin Road,Xianghe Town,Quanjiao,Anhui Province,the PRC

The property comprises aresidential unit of an 11-storeyresidential building completed in2014.

The property has a total grossfloor area of 225.96 sq m forresidential use.

The property is situated inXianghe Town, Quanjiao County.It is located at South Rulin Road.Developments in the vicinitycomprise mainly residentialbuildings such as ShengshiHaoting, Quanjiao Shidaicheng,Quanjiao Biguiyuan etc. Theproperty is served by public busroutes.

The land use rights of theproperty have been granted for aterm of 70 years due to expire onDecember 25, 2077 for urbanresidential use.

As at the valuationdate, the property wasvacant.

RMB900,000

(Renminbi NineHundred Thousand)


the Group:RMB900,000)

Notes:

(1) Pursuant to Real Estate Certificate No. (2015) 0000992 issued by the Quanjiao County Land Resources andHousing Administration on November 3, 2015, the land use rights of the property having a site area of 98.7sq m and the building ownership of the property having a gross floor area of 225.96 sq m have been vestedin Zhejiang New Century Hotel Management Co., Ltd for a term of 70 years until December 25, 2077 for urbanresidential use. The transaction price is RMB1,000,000.


(a) Zhejiang New Century Hotel Management Co., Ltd. is the legal owner of the property;

(b) Zhejiang New Century Hotel Management Co., Ltd. is in possession of a proper legal title to theproperty and is entitled to occupy, use, lease, transfer, mortgage and dispose of the property togetherwith the residual term of its land use rights according to the PRC laws; and



– III-31 –


Real Estate Certificate Yes




– III-32 –

VALUATION REPORT

Group III – Properties leased to the Group in the PRC

Property Description and tenancy particulars


November 30, 2018

10. Grand NewCentury HotelHangzhou,No. 818Shixin MiddleRoad,Xiaoshan District,Hangzhou,Zhejiang Province,the PRC

The property comprises a 45-storey hotel building erectedupon two basements. The total leased area is 102,408.36sq m.

Grand New Century Hotel Hangzhou was completed in2005 and has been operated since January 2005. GrandNew Century Hotel Hangzhou currently provides 699 guestrooms, 555 car parking spaces (includingloading/unloading spaces), food and beverage outlets, abar, a café, three Chinese restaurants, a Japaneserestaurant, a fitness center with indoor swimming pool, aspa, banquet and function rooms and a business center.

The property is leased to the Group from a connectedparty (Zhejiang New Century Hotel InvestmentManagement Group Co., Ltd.) under a tenancy agreementfor a term of 10 years commencing on July 10, 2013 andexpiring on July 9, 2023 at a rent payable monthly basedon 20% of monthly operating revenue plus 34% ofmonthly gross operating profit.

No commercial value


– III-33 –

VALUATION REPORT



November 30, 2018

11. Grand NewCentury HotelNingbo,No. 666,ShounanzhongRoad,Yinzhou District,Ningbo,Zhejiang Province,the PRC

The property comprises a 24-storey hotel building erectedupon two basements. The total leased area is 66,107.27 sqm.

Grand New Century Hotel Ningbo was completed in 2007and has been operated since December 2007. The hotelcurrently provides 396 guest rooms, 231 car parkingspaces (including loading/unloading spaces), food andbeverage outlets, a bar, a café, two Chinese restaurants, afitness center with indoor swimming pool, a spa, banquetand function rooms and a business center.

The property is leased to the Group from a connectedparty (Ningbo New Century Spearhead Investment Co.,Ltd. (formerly known as Ningbo New Century Hotel Co.,Ltd)) under a tenancy agreement for a term of 10 yearscommencing on July 10, 2013 and expiring on July 9,2023 at a rent payable monthly based on 20% of monthlyoperating revenue plus 34% of monthly gross operatingprofit.

No commercial value


– III-34 –

VALUATION REPORT



November 30, 2018

12. Zhejiang NewCentury XiaoshanGuesthouse,No. 77 RenmingRoad,Xiaoshan district,Hangzhou,Zhejiang Province,the PRC

The property comprises an 18-storey hotel building. Thetotal leased area is 35,009.69 sq m.

Zhejiang New Century Xiaoshan Guesthouse wascompleted and opened in 1988. Zhejiang New CenturyXiaoshan Guesthouse currently provides 375 guest rooms,food and beverage outlets, a bar, a café, a westernrestaurant, two Chinese restaurants, a fitness center, a spa,banquet and function rooms and a business center.

The property is leased to the Group from a connectedparty (Zhejiang Spearhead Investment Co., Ltd (formerlyknown as Zhejiang Xiaoshan Guesthouse Co., Ltd)) undera tenancy agreement for a term of 10 years commencingon July 10, 2013 and expiring on July 9, 2023 at a rentpayable monthly based on 20% of monthly operatingrevenue plus 34% of monthly gross operating profit.

No commercial value


– III-35 –

VALUATION REPORT



November 30, 2018

13. Grand NewCentury HotelChangchunJinjiang Hotel,Chuncheng street,Lvyuan District,Changchun,Jilin Province,the PRC

The property comprises a 17-storey hotel building erectedupon a basement. The total leased area is 45,624.74 sq m.

Grand New Century Hotel Changchun was completed andopened in 2008. New Century Grand Hotel Changchuncurrently provides 328 guest rooms, food and beverageoutlets, a wine bar, a fitness center with indoor swimmingpool, a show bar, a spa, banquet and function rooms and abusiness center.

The property is leased to the Group from a connectedparty (Changchun New Century Spearhead Investment andManagement Co., Ltd (formerly known as Changchun NewCentury Grand Hotel Limited)) under a tenancy agreementfor a term of 10 years commencing on July 10, 2013 andexpiring on July 9, 2023 at a rent payable monthly basedon 20% of monthly operating revenue plus 34% ofmonthly gross operating profit.

No commercial value


– III-36 –

VALUATION REPORT



November 30, 2018

14. New CenturyResort HangzhouQiandao Lake,Chun’an Town,Hangzhou,Zhejiang Province,the PRC

The property comprises a 6-storey hotel building. The totalleased area is 35,744.90 sq m.

New Century Resort Hangzhou Qiandao Lake wascompleted and opened in 2004. The hotel currentlyprovides 227 guest rooms, 120 car parking spaces, foodand beverage outlets, an outdoor swimming pool, a fitnesscenter with indoor swimming pool, a show bar, a spa,chess rooms and banquet and function rooms.

The property is leased to the Group from a connectedparty (Chun’an Qiandao Lake New Century SpearheadInvestment Co., Ltd) under a tenancy agreement for a termof 10 years commencing on July 10, 2013 and expiring onJuly 9, 2023 at a rent payable monthly based on 20% ofmonthly operating revenue plus 34% of monthly grossoperating profit.

No commercial value


– III-37 –

VALUATION REPORT



November 30, 2018

15. Grand NewCentury HotelShaoxing,No. 278Renmindong Road,Yuecheng District,Shaoxing,Zhejiang Province,the PRC


Grand New Century Hotel Shaoxing was completed in2005 and has been operated since November 2007. Thehotel currently provides 371 guest rooms, 270 car parkingspaces, food and beverage outlets, a fitness center withindoor swimming pool, a restaurant, an entertainmentcenter, office rooms, staff areas, banquet and functionrooms and a business center.

The property is leased to the Group from an independentthird party under a tenancy agreement for a term of 15years. The details of lease terms and annual rents are setout below:

No commercial value

Lease term Annual rent(RMB)

2007/2/20 – 2017/2/19 14,840,0002017/2/20 – 2018/2/19 15,260,0002018/2/20 – 2019/2/19 15,690,0002019/2/20 – 2020/2/19 16,140,0002020/2/20 – 2021/2/19 16,600,0002021/2/20 – 2022/2/19 17,070,000

The Group is entitled to an option to renew a tenancyagreement through negotiation.


– III-38 –

VALUATION REPORT



November 30, 2018

16. Grand NewCentury HotelZhuji Yaojiang,No. 207HuanchengEast Road, Zhuji,Zhejiang Province,the PRC


Grand New Century Hotel Zhuji Yaojiang was completedin 2007 and has been operated since June 2008. The hotelcurrently provides 360 guest rooms, 401 car parkingspaces (including loading/unloading spaces), food andbeverage outlets, a wine bar, a fitness center, a show bar, aspa, banquet and function rooms and a business center.


No commercial value


2018/6/1 – 2023/5/31 20,000,0002023/6/1 – 2028/5/31 21,000,000



– III-39 –

VALUATION REPORT



November 30, 2018

17. New CenturyHotel Jurong,North ofChongming Road,EconomicDevelopmentZone,Jurong,Jiangsu Province,the PRC


New Century Hotel Jurong was completed and opened in2012. The hotel currently provides 342 guest rooms, 553car parking spaces (including loading/unloading spaces),food and beverage outlets, a wine bar, a fitness center withindoor swimming pool, a show bar, a spa, banquet andfunction rooms and a business center.

The property is leased to the Group from an independentthird party under a tenancy agreement for a term of 15years commencing on December 28, 2011 and expiring onDecember 31, 2026 at a yearly rent of RMB10,500,000.The Group is entitled to an option to renew a tenancyagreement through negotiation.

No commercial value


– III-40 –

VALUATION REPORT



November 30, 2018

18. New CenturyMaisonChangzhou TaihuBay,Taihu Lake BayTourist Resort,Wujin District,Changzhou,Jiangsu Province,the PRC


New Century Maison Changzhou Taihu Bay was completedand opened in 2008. The hotel currently provides 193guest rooms, 26 car parking spaces (includingloading/unloading spaces), food and beverage outlets, abar, a fitness center with indoor swimming pool, a showbar, a spa, banquet and function rooms and a businesscenter.


No commercial value


2010/11/25 – 2011/11/24 4,000,0002011/11/25 – 2012/11/24 4,500,0002012/11/25 – 2013/11/24 5,000,0002013/11/25 – 2014/11/24 5,500,0002014/11/25 – 2015/11/24 6,000,0002015/11/25 – 2016/11/24 6,300,0002016/11/25 – 2018/11/24 6,600,0002018/11/25 – 2020/11/24 6,900,0002020/11/25 – 2022/11/24 7,200,0002022/11/25 – 2024/11/24 7,500,0002024/11/25 – 2026/11/24 7,800,0002026/11/25 – 2028/11/24 8,100,0002028/11/25 – 2030/11/24 8,400,000



– III-41 –

VALUATION REPORT



November 30, 2018

19. Grand NewCentury HotelZhejiang Sanli,No. 538,Shaoxing Road,Hangzhou,Zhejiang Province,the PRC


Grand New Century Hotel Zhejiang Sanli was completedin 2013 and has been operated since January 2014. Thehotel currently provides 418 guest rooms, 525 car parkingspaces (including loading/unloading spaces), food andbeverage outlets, a wine bar, a fitness center, a show bar, aspa, banquet and function rooms and a business center.


No commercial value


2014/1/1 – 2015/12/31 32,500,0002016/1/1 – 2020/12/31 33,250,0002021/1/1 – 2023/12/31 33,500,0002024/1/1 – 2025/12/31 34,100,0002026/1/1 – 2027/12/31 34,255,000



– III-42 –

VALUATION REPORT



November 30, 2018

20. New CenturyHotel Nanjing,No. 35 WendeEast Road,Jiangpu Street,Pukou District,Nanjing,Jiangsu Province,the PRC


New Century Hotel Nanjing was completed and opened in2010. The hotel currently provides 246 guest rooms, 94 carparking spaces (including loading/unloading spaces), foodand beverage outlets, a wine bar, a fitness center withindoor swimming pool, a show bar, a spa, banquet andfunction rooms and a business center.


No commercial value


2010/12/1 – 2013/11/30 6,000,0002013/12/1 – 2016/11/30 6,500,0002016/12/1 – 2019/11/30 7,000,0002019/12/1 – 2022/11/30 8,000,0002022/12/1 – 2025/11/30 9,000,0002025/12/1 – 2028/11/30 10,000,0002028/12/1 – 2030/11/30 11,000,000



– III-43 –

VALUATION REPORT



November 30, 2018

21. New CenturyHotel ShaoxingJinchang,No. 1277Jinkeqiao Avenue,Keqiao District,Shaoxing,Zhejiang Province,the PRC


New Century Hotel Shaoxing Jinchang was completed andopened in 2007. The hotel currently provides 295 guestrooms, 132 car parking spaces, food and beverage outlets, afitness center, an entertainment center, office rooms, staffareas, banquet and function rooms and a business center.


No commercial value


2017/12/22 – 2022/12/21 6,100,0002022/12/22 – 2027/12/21 8,500,000



– III-44 –

VALUATION REPORT



November 30, 2018

22. New CenturyHotel XiangshanShipu,No. 1 HuangchengAvenue,Shipu Xiangshan,Ningbo,Zhejiang Province,the PRC


New Century Hotel Xiangshan Shipu was completed andopened in 2009. The hotel currently provides 199 guestrooms, car parking spaces on the ground floor, food andbeverage outlets, one Chinese restaurant, a fitness centerwith in-door swimming pool, entertainment center, officerooms, staff areas, banquet and function rooms and abusiness center.


No commercial value


2009/9/28 – 2014/9/27 5,000,0002014/9/28 – 2019/9/27 8,000,000



– III-45 –

VALUATION REPORT



November 30, 2018

23. Manju Shaoxing(Keqiao) Inn,No. 999 YuminRoad,Keqiao District,Shaoxing,Zhejiang Province,the PRC


Manju Shaoxing (Keqiao) Inn was completed and opened in2012. The hotel currently provides 140 guest rooms, 61 carparking spaces, food and beverage outlets, office rooms andstaff areas.


No commercialvalue


2012/4/1 – 2013/3/31 2,250,0002013/4/1 – 2017/3/31 4,000,0002017/4/1 – 2022/3/31 4,680,000



– III-46 –

VALUATION REPORT



November 30, 2018

24. New CenturyGrandhouseYanguan,Yanguan Town,Haining,Zhejiang Province,the PRC

The property comprises a 2-storey hotel building. The totalleased area is 20,540 sq m.

New Century Grandhouse Yanguan was completed in 2010and has been operated since March 2014. It currentlyprovides 221 guest rooms, 154 car parking spaces, food andbeverage outlets, a fitness center, chess rooms and banquetand function rooms.


No commercialvalue


2017/12/1 – 2020/11/30 200,0002020/12/1 – 2023/11/30 1,200,0002023/12/1 – 2026/11/30 1,284,0002026/12/1 – 2029/11/30 1,373,8002029/12/1 – 2032/11/30 1,470,0002032/12/1 – 2035/11/30 1,572,9002035/12/1 – 2037/11/30 1,683,000



– III-47 –

VALUATION REPORT



November 30, 2018

25. New CenturyHotel TianjinRuiwan,No. 2527XingangNo. 1 Road,Binhai New Area,Tianjinthe PRC


New Century Hotel Tianjin Ruiwan was completed in 2006and has been operated since January 2013. The hotelcurrently provides 302 guest rooms, a cafe, a lobby bar, aChinese restaurant, a Japanese restaurant, a fitness centerwith indoor swimming pool, a show bar, a spa, banquetand function rooms and a business center.

The property is leased to the Group from an independentthird party under a tenancy agreement for a term of 15years commencing on January 1, 2013 and expiring onDecember 31, 2027 at an annul rent of RMB12,000,000.The Group is entitled to an option to renew a tenancyagreement through negotiation.

No commercial value


– III-48 –

VALUATION REPORT



November 30, 2018

26. Grand NewCentury HotelNinghai Jinhai,No. 399 JinshuiRoad,Ninghai,Zhejiang Province,the PRC


Grand New Century Hotel Ninghai Jinhai was completed in2011 and has been operated since March 2012. The hotelcurrently provides 268 guest rooms, 250 car parking spaces(including 80 underground and 170 above ground), food andbeverage outlets, a wine bar, a fitness center with indoorswimming pool, a show bar, a spa, banquet and functionrooms and a business center.


No commercialvalue


2012/3/1 – 2015/2/28 17,100,0002015/3/1 – 2016/2/28 17,710,0002016/3/1 – 2017/2/28 18,350,0002017/3/1 – 2018/2/28 19,000,0002018/3/1 – 2019/2/28 19,680,0002019/3/1 – 2020/2/28 20,380,0002020/3/1 – 2021/2/28 21,120,0002021/3/1 – 2022/2/29 21,870,000



– III-49 –

VALUATION REPORT



November 30, 2018

27. New CenturyHotel NinghaiNew Century,No. 159 TaoyuanMiddle Road,Ninghai,Zhejiang Province,the PRC

The property comprises an 18-storey hotel building erectedupon a basement. The total leased area is 27,928.51 sq m.

New Century Hotel Ninghai New Century was completed in2001 and has been operated since April 2003. The hotelcurrently provides 245 guest rooms, 250 car parking spaces,food and beverage outlets, a fitness center, an outdoorswimming pool, a spa, banquet and function rooms and 2conference halls.


No commercialvalue


2013/4/1 – 2018/3/31 10,000,0002018/4/1 – 2023/3/31 12,000,000



– III-50 –

VALUATION REPORT



November 30, 2018

28. Manju ShanghaiYuege,No. 1609 LuoshanRoad,Pudong New Area,Shanghai,the PRC


Manju Shanghai Yuege was completed in 2005 and has beenoperated since January 2011. The hotel currently provides165 guest rooms, food and beverage outlets, and otherfunction rooms.


No commercialvalue


2004/11/1 – 2009/10/31 1,900,0002009/11/1 – 2014/10/31 2,050,0002014/11/1 – 2019/10/31 2,200,0002019/11/1 – 2024/10/31 2,350,000



– III-51 –

VALUATION REPORT



November 30, 2018

29. Manju ShanghaiRuiyue,No. 35 MeiyuanRoad,Jingan District,Shanghai,the PRC


Manju Shanghai Ruiyue was completed and opened in 2008.The hotel currently provides 88 guest rooms, food andbeverage outlets, and other function rooms.

The property is leased to the Group from an independentthird party under a tenancy agreement for a term of15 years. The details of lease terms and annual rents are setout below:

No commercialvalue


2008/1/1 – 2010/12/31 1,800,0002011/1/1 – 2013/12/31 1,890,0002014/1/1 – 2016/12/31 1,984,5002017/1/1 – 2019/12/31 2,083,7252020/1/1 – 2022/12/31 2,187,911



– III-52 –

VALUATION REPORT



November 30, 2018

30. Manju HotelMinhang Inn,No. 1280Zhuanxing Road,Minhang District,Shanghai,the PRC


Manju Hotel Minhang Inn was completed in 2015 and hasbeen operated since June 2018. The hotel currently provides168 guest rooms, 30 car parking spaces, food and beverageoutlets, and other function rooms.


No commercialvalue


2018/5/12 – 2023/5/11 225,0002023/5/12 – 2028/5/11 245,0002028/5/12 – 2031/5/11 265,000



– III-53 –

VALUATION REPORT



November 30, 2018

31. Manju HotelWuxi Inn,Guangyi Road,Liangxi District,Wuxi,Jiangsu Province,the PRC

The property comprises a 6-storey hotel building erectedupon two basements. The total leased area is 7,800.00 sq m.

Manju Hotel Wuxi Inn was completed and opened in 2013.The hotel currently provides 137 guest rooms, 40 carparking spaces (including loading/unloading spaces), foodand beverage outlets, function rooms and a business center.


No commercialvalue


2013/6/1 – 2016/5/31 3,131,7002016/6/1 – 2019/5/31 3,274,0502019/6/1 – 2022/5/31 3,444,8702022/6/1 – 2025/5/31 3,615,6902025/6/1 – 2028/5/31 3,786,510



– III-54 –

VALUATION REPORT



November 30, 2018

32. Manju HotelNingbo (EasternNew City),No. 369Heqingbei Road,Jiangdong District,Ningbo,Zhejiang Province,the PRC


Manju Hotel Ningbo (Eastern New City) was completed andopened in 2016. The hotel currently provides 157 guestrooms, 48 car parking spaces (including loading/unloadingspaces), food and beverage outlets, a fitness center, functionrooms and a business center.

The property is leased to the Group from an independentthird party under a tenancy agreement for a term of about16.7 years. The details of lease terms and annual rents areset out below:

No commercialvalue


2016/2/15 – 2017/2/14 2,039,0382017/2/15 – 2019/2/14 4,893,6912019/2/15 – 2022/2/14 5,138,3752022/2/14 – 2025/2/14 5,395,2942025/2/15 – 2028/2/14 5,665,0592028/2/15 – 2031/2/14 5,948,3122031/2/15 – 2032/10/27 6,245,727



– III-55 –

VALUATION REPORT



November 30, 2018

33. Manju Hotel,Zhoushan,No. 850Haiyin Street,DonggangSubdistrict,Zhoushan,Zhejiang Province,the PRC


Manju Hotel Zhoushan was completed and opened in 2017.The hotel currently provides 121 guest rooms, 50 carparking spaces (including loading/unloading spaces), foodand beverage outlets and a meeting room.


No commercialvalue


2017/11/9 – 2020/11/8 3,020,0002020/11/9 – 2023/11/8 3,171,0002023/11/9 – 2026/11/8 3,329,5502026/11/9 – 2029/11/8 3,496,0282029/11/9 – 2032/11/8 3,670,829



– III-56 –

VALUATION REPORT



November 30, 2018

34. Wonderland RVCamp Yanguan,Yanguan TownHaining,Zhejiang Province,the PRC

The property comprises a 2-storey building with gross floorarea of 1,187.22 sq m and a parcel of land with site area of25,137 sq m.

Wonderland RV Camp Yanguan has been operated sinceMay 2017. The hotel currently provides 57 guest rooms, 48car parking spaces, food and beverage outlets, chess roomsand a banquet and function room.


No commercial value


2017/12/1 – 2019/11/30 300,0002019/12/1 – 2021/11/30 350,0002021/12/1 – 2023/11/30 400,0002023/12/1 – 2025/11/30 450,0002025/12/1 – 2027/11/30 500,0002027/12/1 – 2029/11/30 600,0002029/12/1 – 2031/11/30 600,0002031/12/1 – 2033/11/30 600,0002033/12/1 – 2035/11/30 600,0002035/12/1 – 2037/11/30 600,000



– III-57 –

VALUATION REPORT



November 30, 2018

35. Changxing NewCenturyWonderlandResort,HuizhouzhuangVillage,Shuikou,Changxing,Zhejiang Province,the PRC

The property comprises a 4-storey building erected upon abasement. The total leased area is 11,866.84 sq m.

Changxing New Century Wonderland Resort wascompleted and opened in 2015. The property currentlyprovides a gymnasium, a swimming pool, food andbeverage outlets, chess rooms, a KTV room, and banquetand function rooms.

The property is leased to the Group from an independentthird party under a tenancy agreement for a term of 20years commencing on April 28, 2015 and expiring onApril 27, 2035 at an annual rent of RMB1,800,000. TheGroup is entitled to an option to renew a tenancyagreement through negotiation.

No commercial value


– III-58 –

VALUATION REPORT



November 30, 2018

36. Manju HotelDalianMunicipality Inn,No. 78 XinkaiRoad,Xigang District,Dalian,Liaoning Province,the PRC

The property is located on the 4th to 11th floors of a 12-storey (including a basement) reinforced concrete building.The total leased area is 9,500.00 sq m.

Manju Hotel Dalian Municipality Inn was completed andopened in 2018. The hotel provides 166 guest rooms.

The property is leased to the Group from an independentthird party under a tenancy agreement for a term of 14.35years. The details of lease terms and annual rents are setout below:

No commercialvalue


2018/5/15 – 2020/9/14 5,548,0002020/9/15 – 2023/9/14 5,825,4002023/9/15 – 2026/9/14 6,116,6002026/9/15 – 2029/9/14 6,422,4002029/9/15 – 2032/9/14 6,743,500



– III-59 –

VALUATION REPORT



November 30, 2018

37. Manju HotelChengdu Inn,Group 3 of GaoBei Village,group 6 ofShunjiang Village,Cujin subdistrictoffice,Wuhou District,Chengdu,Sichuan Province,the PRC

The property is located on the 1st and 5th to 12th floors ofa 16-storey (including two basements) reinforced concretebuilding. The total leased area is 14,538.82 sq m.

Manju Hotel Chengdu Inn will be completed in 2019. Uponcompletion, the hotel will provide 202 guest rooms and 60car parking spaces.

The property is contracted to be leased to the Group froman independent third party under a tenancy agreement for aterm of 20 years. The details of lease terms and annualrents are set out below:

No commercial value


2018/3/1 – 2019/2/28 –2019/3/1 – 2022/2/28 7,092,1492022/3/1 – 2025/2/28 7,446,7572025/3/1 – 2028/2/29 7,818,7012028/3/1 – 2031/2/28 8,209,5572031/3/1 – 2034/2/28 8,620,9022034/3/1 – 2037/2/28 9,051,1592037/3/1 – 2038/2/28 9,503,480



– III-60 –

VALUATION REPORT



November 30, 2018

38. Manju HotelYuyao SouthNanlei Road Inn,No. 398 SouthNanlei Road,Yuyao,Zhejiang Province,the PRC

The property is located on the 4th to 10th floors of a 31-storey (including two basements) reinforced concretebuilding. The total leased area is 9,118.90 sq m.

Manju Hotel Yuyao South Nanlei Road Inn was completedand opened in 2014. The hotel currently provides 147 guestrooms, 50 car parking spaces, a coffee bar, a conferenceroom and a cafe.


No commercial value


2014/3/11 – 2015/3/10 776,6262015/3/11 – 2016/3/10 2,135,7222016/3/11 – 2018/3/10 2,242,5082018/3/11 – 2020/3/10 2,568,8582020/3/11 – 2022/3/10 2,697,0012022/3/11 – 2024/3/10 2,832,1342024/3/11 – 2026/3/10 2,973,5912026/3/11 – 2028/3/10 3,122,3712028/3/11 – 2030/3/10 3,278,4732030/3/11 – 2032/3/10 3,442,230



– III-61 –

VALUATION REPORT



November 30, 2018

39. Manju HotelNingboWaitan Inn,No. 85Renming Road,Jiangbei District,Ningbo,Zhejiang Province,the PRC

The property comprises a 10-storey building erected upon abasement. The total leased area is 9,544.18 sq m.

Manju Hotel Ningbo Waitan Inn was re-opened in 2018.Formerly known as Jianghua hotel. The hotel currentlyprovides 133 guest rooms, 22 car parking spaces, a coffeebar and a conference room.

The property is leased to the Group from an independentthird party under a tenancy agreement for a term of 15.26years. The details of lease terms and annual rents are setout below:

No commercial value


2018/5/1 – 2021/7/31 5,900,0002021/8/1 – 2024/7/31 6,180,0002024/8/1 – 2027/7/31 6,474,0002027/8/1 – 2030/7/31 6,782,6002030/8/1 – 2033/7/31 7,106,900



– III-62 –

VALUATION REPORT



November 30, 2018

40. Manju HotelZhuzhou Inn,Building 19,Henghao CuiguCity, No. 299Jiangshan Road,Tianyuan District,Zhuzhou,Hunan Province,the PRC

The property is located on the 1st to 16th floors of a 25-storey reinforced concrete building. The total leased area is13,476.85 sq m.

Manju Hotel Zhuzhou Inn was completed and opened in2018. The hotel currently provides 153 guest rooms, 84 carparking spaces, food and beverage outlets, a fitness center,a book center, a coffee bar, office rooms, conferencerooms, a cafe and a business center.


No commercial value


2018/1/1 – 2019/12/31 1,930,2662020/1/1 – 2021/12/31 2,713,8122022/1/1 – 2023/12/31 2,975,0062024/1/1 – 2025/12/31 3,236,2002026/1/1 – 2027/12/31 3,497,3942028/1/1 – 2029/12/31 4,542,1692030/1/1 – 2031/12/31 5,064,5942032/1/1 – 2033/12/31 5,325,7152034/1/1 – 2035/12/31 5,586,9092036/1/1 – 2037/12/31 6,109,334



– III-63 –

TAXATION OF SECURITY HOLDERS

The taxation of income and capital gains of holders of H Shares is subject to the laws and

practices of the PRC and of jurisdictions in which holders of H Shares are resident or otherwise

subject to tax. The following summary of certain relevant taxation provisions based on current

laws and practices is subject to change and does not constitute legal or tax advice. The

discussion has no intention to cover all possible tax consequences resulting from the

investment in H Shares, nor does it take into account the specific circumstances of any

particular investor, some of which may be subject to special regulations. Accordingly, you

should consult your own tax advisor regarding the tax consequences of an investment in H

Shares. The discussion is based upon laws and relevant interpretations in effect as of the date

of this prospectus, which is subject to change and may have retrospective effect.

No issues on PRC or Hong Kong taxation other than income tax, capital gain and profit

tax, business tax/appreciation tax, stamp duty and estate duty was referred in the discussion.

Prospective investors are urged to consult their financial advisors regarding the PRC, Hong

Kong and other tax consequences of owning and disposing of H Shares.

PRC TAXATION

Taxation on Dividends

Individual investors

According to the Individual Income Tax Law of the PRC (中華人民共和國個人所得稅法)

(the “IIT Law”), as amended, and its implementation rules, dividends paid to individuals by

PRC companies are generally subject to an individual income tax levied at a flat rate of 20%.

For a foreign individual who is not a resident of the PRC, his/her receipt of dividends from a

PRC company is normally subject to PRC withholding tax of 20% unless specifically exempted

by the taxation authority of the State Council or exempted or reduced by an international

convention or applicable tax treaty which the PRC Government has signed or acceded to.

Pursuant to the Circular on Questions Concerning the Collection of Individual Income

Tax Following the Repeal of Guo Shui Fa [1993] No. 045 (Guo Shui Han [2011] No. 348)

(關於國稅發[1993]045號文件廢止後有關個人所得稅徵管問題的通知) promulgated for

implementation by the State Administration of Taxation of the PRC (中國國家稅務總局) (the

“SAT”) on June 28, 2011, foreign resident individual investors are entitled to enjoy the relevant

preferential tax treatments in accordance with the taxation arrangements entered into between

their respective countries and the PRC for public offer by non-foreign invested PRC enterprises

in Hong Kong. Generally, the PRC individual income tax at the rate of 10% is applicable to

dividends paid by a non-foreign invested PRC enterprise (the “Relevant Non-foreign Invested

PRC Enterprise”) to foreign individual investors (the “Relevant Individual Investors”) holding

shares publicly offered by the Relevant Non-foreign PRC Enterprise in Hong Kong and no

application for approval from the taxation authority in the PRC is required. In case the 10% tax

rate is not applicable, the Relevant Non-foreign Invested PRC Enterprise shall: (i) apply on

APPENDIX IV TAXATION AND FOREIGN EXCHANGE

– IV-1 –

behalf of the investors to seek entitlement of the preferential tax treatment for lower tax rates

if the countries of the Relevant Individual Investors have entered into income tax treaties with

the PRC with tax rates lower than 10%, and arrange for refund of if the countries of the

Relevant Individual Investors have entered into income tax treaties with the PRC with tax rates

higher than 10% but lower than 20%, and no application is required; (ii) withhold the tax at

the rate of 20% if the countries of the Relevant Individual Investors have not entered into any

taxation treaties with the PRC or otherwise.

Enterprises

In accordance with Enterprise Income Tax Law of the PRC (中華人民共和國企業所得稅法) (the “EIT Law”), amended on February 24, 2017, and the Implementation Rules of the

Enterprise Income Tax Law of the PRC (中華人民共和國企業所得稅法實施條例), effective on

January 1, 2008, a non-PRC resident enterprise is generally subject to a 10% enterprise income

tax on PRC-sourced income, including dividends received from a PRC resident enterprise

whose shares are issued and listed in Hong Kong, if such non-PRC resident enterprise does not

have an establishment or premises in the PRC, or has an establishment or premises in the PRC

but the PRC-sourced income is not actually connected with such establishment or premises in

the PRC. Such withholding tax may be reduced or eliminated under an applicable treaty for the

avoidance of double taxation. The aforesaid income tax payable by the non-PRC resident

enterprises shall be withheld at source by the company paying the dividend as the withholding

agent.

Notice on the Issues Concerning Withholding and Remitting Enterprise Income Tax on

the Dividends Payable by PRC Resident Enterprises to Overseas Non-PRC Resident Enterprise

Shareholders of H Share (關於中國居民企業向境外H股非居民企業股東派發股息代扣代繳企業所得稅有關問題的通知) (Guo Shui Han [2008] No. 897) issued by the SAT on November 6,

2008, further clarified that a PRC resident enterprise must withhold enterprise income tax at

a rate of 10% on dividends paid to non-PRC resident enterprise shareholders of H Shares which

are derived out of profit generated since January 1, 2008. A non-PRC resident enterprise which

is entitled to a preferential tax rate under an applicable tax treaty or arrangement may, directly

or through its agent, apply to the competent tax authorities for a refund of the excess amount

of tax withheld.

Tax Treaties or Arrangements

Non-PRC resident investors residing in countries which have entered into treaties with the

PRC for the avoidance of double taxation or residing in Hong Kong or Macau may be entitled

to preferential treatment of the withholding tax imposed on dividends received by such

investors from the PRC company. For example, according to the Agreement of the Arrangement

between the Mainland of China and the Hong Kong Special Administrative Region for the

Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Tax on

Income (內地和香港特別行政區關於對所得避免雙重徵稅和防止偷漏稅的安排) signed on

August 21, 2006, the PRC Government may impose tax on dividends paid to a Hong Kong

resident (including natural person and legal entity) by a PRC company, but such tax shall not


– IV-2 –

exceed 10% of the gross amount of the dividends payable. If a Hong Kong resident directly

holds 25% or more of equity interest in a PRC company, such tax shall not exceed 5% of the

gross amount of dividends payable by that PRC company.

The PRC has entered into arrangements for the avoidance of double taxation with Hong

Kong and Macau, respectively, and has entered into treaties for the avoidance of double

taxation with Germany, Japan, Malaysia, Netherlands, Singapore, the United Kingdom and the

United States. A non-PRC resident enterprise which is entitled to a preferential tax rate under

a relevant income tax treaty or arrangement may apply to the PRC tax authorities for a refund

of the difference between the amount of tax withheld and tax computed based on the treaty rate.

Taxation on Gains from Share Transfer

Individual Investors

In accordance with the IIT Law and its implementation rules, individuals are subject to

individual income tax at the rate of 20% on gains realized on the sale of equity interests in PRC

resident enterprises. Under the Circular Declaring that Individual Income Tax Continues to Be

Exempted over Individual Income from Transfer of Shares (財政部、國家稅務總局關於個人轉讓股票所得繼續暫免徵收個人所得稅的通知) (Cai Shui Zi [1998] No. 61) issued by the MOF

and the SAT on March 30, 1998, gains of individuals from the transfer of shares of listed

enterprises continues to be exempted from individual income tax with effect from January 1,

1997. However, on December 31, 2009, the MOF, the SAT and the CSRC jointly issued the

Circular on Relevant Issues Concerning the Collection of Individual Income Tax over the

Income Received by Individuals from Transfer of Listed Shares Subject to Sales Limitation (關於個人轉讓上市公司限售股所得徵收個人所得稅有關問題的通知) (Cai Shui [2009] No. 167),

which provides that individuals’ income from transferring listed shares on certain domestic

exchanges shall continue to be exempted from the individual income tax, except for certain

shares which are subject to sales limitations (as defined in the supplementary notice of such

Circular (Cai Shui [2010] No. 70) issued on November 10, 2010).

On December 7, 2014, the SAT promulgated the Administrative Measures for Individual

Income Tax on Equity Transfer Incomes (Provisional) (股權轉讓所得個人所得稅管理辦法(試行)), which became effective on January 1, 2015. The foregoing measures provide that the

transfer of equity interest in the enterprises or entities incorporated in the PRC by individuals

are subject to the individual income tax. These measures are not applicable to transfer of shares

of companies listed on the Shanghai Stock Exchange or Shenzhen Stock Exchange which are

acquired from public offering or the stock transfer market by individuals, transfer of shares that

are subject to sales limitations, and other equity interest transfers that are subject to special

provisions.

However, the aforesaid provisions have not expressly provided that individual income tax

shall be collected from non-PRC resident individuals on the sale of shares of PRC resident

enterprises listed on overseas stock exchanges.


– IV-3 –

Enterprises

In accordance with the EIT Law and its implementation rules, a non-PRC resident

enterprise is generally subject to enterprise income tax at the rate of 10% with respect to

PRC-sourced income, including gains derived from the disposition of shares in a PRC resident

enterprise, if it does not have an establishment or premises in the PRC, or has an establishment

or premises in the PRC but the PRC-sourced income is not actually connected with such

establishment or premises in the PRC. Such tax may be reduced or eliminated under applicable

tax treaties or arrangements.

PRC stamp duty

Under the Provisional Regulations of the PRC Concerning Stamp Duty (中華人民共和國印花稅暫行條例) amended on January 8, 2011 and the Implementation Rules of Provisional

Regulations of the PRC Concerning Stamp Duty (中華人民共和國印花稅暫行條例施行細則),

effective on October 1, 1988 and amended by Notice on Revision of the Administrative

Measures on Payment of Stamp Duties on a Regular and Consolidated Basis (財政部、國家稅務總局關於改變印花稅按期匯總繳納管理辦法的通知) on November 5, 2004, PRC stamp duty

is imposed on documents that are legally binding in the PRC and governed by the PRC laws.

Therefore, PRC stamp duty does not apply to acquisitions or dispositions of H shares outside

the PRC.

HONG KONG TAXATION

Tax on Dividends

Under the current practice of the Inland Revenue Department of Hong Kong, no tax is

payable in Hong Kong in respect of dividends paid by us.

Capital Gains and Profit Tax

No tax is imposed in Hong Kong in respect of capital gains from the sale of H shares.

However, trading gains from the sale of the H Shares by persons carrying on a trade, profession

or business in Hong Kong, where such gains derived from or arose in Hong Kong from such

trade, profession or business will be subject to Hong Kong profits tax, which is currently

imposed at the maximum rate of 16.5% on corporations and at the maximum rate of 15% on

unincorporated businesses. Certain categories of taxpayers (such as financial institutions,

insurance companies and securities dealers) are likely to be regarded as deriving trading gains

rather than capital gains, unless these taxpayers can prove that the security investment are held

for long-term investment purposes.

Trading gains from sales of the H Shares effected on the Stock Exchange will be

considered to be derived from or arose in Hong Kong. Liability for Hong Kong profits tax

would thus arise in respect of trading gains from sale of H Shares effected on the Stock

Exchange by persons carrying on a business of trading or dealing in securities in Hong Kong.


– IV-4 –

Stamp Duty

Hong Kong stamp duty, currently charged at the ad valorem rate of 0.1% on the higher

of the consideration for or the market value of the H Shares, will be payable by the purchaser

on every purchase and by the seller on every sale of any Hong Kong securities, including H

Shares (in other words, a total of 0.2% is currently payable on a typical sale and purchase

transaction involving H Shares). In addition, a fixed stamp duty of HK$5.00 is currently

payable on any instrument of transfer of H Shares. Where one of the parties is a non-Hong

Kong resident and does not pay the ad valorem duty due by it, the duty not paid will be assessed

pursuant to the instrument of transfer (if any) and will be payable by the transferee. If no stamp

duty is paid on or before the due date, a penalty of up to 10 times of the tax payable may be

imposed.

Estate Duty

The Revenue (Abolition of Estate Duty) Ordinance 2005 abolished the provisions on

estate duty of deaths occurring on or after February 11, 2006.

MAJOR TAXES ON THE COMPANY IN THE PRC

Income tax

According to the EIT Law, enterprises and other organizations generating income within

the territory of the PRC are subject to enterprise income tax at the rate of 25%.

Value-added tax

Pursuant to the Interim Regulations on Value-added Tax of the PRC (中華人民共和國增值稅暫行條例) promulgated on November 10, 2008 and further amended on November 19,

2017, and the Detailed Rules for the Implementation of the Provisional Regulations of the PRC

on Value-Added Tax (中華人民共和國增值稅暫行條例實施細則), entities or individuals

engaging in sale of goods, provision of processing services, repairs and replacement services

and importation of goods within the territory of the PRC are subject to the payment of

value-added tax (the “VAT”). The VAT payable is calculated as “output VAT” minus “input

VAT”. The VAT rate is 17% for entities that engage in the sales of goods. Domestic entities and

individuals who engage in cross-border sales of services or intangible assets that are within the

scope prescribed by the State Council shall be subject to zero-rated VAT.

Pursuant to the Pilot Plan for Levying Value-added Tax in Lieu of Business Tax (營業稅改徵增值稅試點方案) promulgated by the MOFCOM and SAT, effective on November 16,

2011, starting from January 1, 2012, the State started the pilot taxation reform of collecting

VAT in lieu of business tax in certain regions (including Shanghai and Beijing) and in certain

pilot industries (including transportation and certain modern service industries).


– IV-5 –

Pursuant to the Notice on Implementing the Pilot Plan for Levying Value-added Tax in lieuof Business Tax Nationwide (關於全面推開營業稅改徵增值稅試點的通知) issued by theMOFCOM and SAT on March 23, 2016 and effective from May 1, 2016, from May 1, 2016onwards, the pilot reform for the transition from business tax to VAT (“Business Tax to VAT”)is implemented nationwide. Pursuant to the Implementation Measures for Transition fromBusiness Tax to Value-added Tax (營業稅改徵增值稅試點實施辦法), unless otherwise providedin the implementation measures, the tax rate is generally 6% for tax payers who conductedtaxable behaviors.

TAXATION OF OUR COMPANY IN HONG KONG

Our Directors do not consider that any of our Company’s income is derived from or arosein Hong Kong for the purpose of Hong Kong taxation. Our Company will therefore not besubject to Hong Kong taxation.

FOREIGN EXCHANGE CONTROLS OF THE PRC

Renminbi is the lawful currency of the PRC, which is subject to foreign exchange controlsand is not freely exchangeable. The State Administration of Foreign Exchange of the PRC (中華人民共和國國家外匯管理局) (the “SAFE”), under the authorization of the People’s Bank ofChina (中國人民銀行) (the “PBOC”), is empowered with the functions of administering allmatters relating to foreign exchange, including the enforcement of foreign exchange controlregulations.

On January 29, 1996, the State Council promulgated the Regulations for the Control ofForeign Exchange of the PRC (中華人民共和國外匯管理條例) (“Foreign Exchange ControlRegulations”) which became effective from April 1, 1996. The Foreign Exchange ControlRegulations classifies all international payments and transfers into current account items andcapital account items. Most of the current account items are not subject to SAFE approvalwhile capital account items are. The Foreign Exchange Control Regulations were subsequentlyamended on January 14, 1997 and August 5, 2008. The latest amended Foreign ExchangeControl Regulations clarifies that the State Council does not impose restrictions oninternational payments and transfers under the current account items (as described below).

On June 20, 1996, the PBOC promulgated the Regulations for Administration ofSettlement, Sale and Payment of Foreign Exchange (結匯、售匯及付匯管理規定) (“SettlementRegulations”) which became effective on July 1, 1996. The Settlement Regulations abolishedall other restrictions on convertibility of foreign exchange in respect of current account itemswhile retaining the existing restrictions on foreign exchange transactions in respect of capitalaccount items.

On October 25, 1998, the PBOC and the SAFE jointly promulgated the NoticeConcerning the Discontinuance of Foreign Exchange Swapping Business (關於停辦外匯調劑業務的通知), pursuant to which and with effect from December 1, 1998, all foreign exchangeswapping business in the PRC for foreign-invested enterprises shall be discontinued, while thetrading of foreign exchange by foreign-invested enterprise shall come under the bankingsystem for the settlement and sale of foreign exchange.


– IV-6 –

On July 21, 2005, the PBOC promulgated the Announcement on Improving the Reform

of the Renminbi Exchange Rate Formation Mechanism (中國人民銀行關於完善人民幣匯率形成機制改革的公告) (PBOC Announcement [2005] No. 16), which became effective on the

same date. The PRC would implement a regulated and managed floating exchange rate system

in which the exchange rate would be determined based on market supply and demand and with

reference to a basket of currencies. The Renminbi exchange rate is no longer pegged to the U.S.

dollar. The PBOC shall publish the closing price of a foreign currency such as the U.S. dollar

traded against the Renminbi in the inter-bank foreign exchange market on each trading day

after the closing of the market, and shall fix the central parity for the transaction of such

foreign currency against Renminbi on the following trading day.

Since January 4, 2006, the PBOC improved the quotation of the mid exchange rate of

Renminbi by introducing an enquiry system while keeping the match-making system in the

inter-bank foreign exchange spot market. In addition, the liquidity of the foreign exchange

market was also improved by adopting a market-making system in the inter-bank foreign

exchange market.

On August 5, 2008, the State Council promulgated the revised Regulations for the Control

of Foreign Exchange of the PRC (中華人民共和國外匯管理條例) (“Revised Foreign Exchange

Control Regulations”), which have made substantial changes to the foreign exchange

regulatory system of the PRC. First, the Revised Foreign Exchange Control Regulations

adopted an approach of balancing the inflow and outflow of foreign exchange fund. Foreign

exchange income received overseas can be repatriated or deposited overseas, and foreign

exchange and foreign exchange settlement funds under the capital account are required to be

used only for purposes as approved by the competent authorities and foreign exchange

administration authorities. Second, the Revised Foreign Exchange Control Regulations

improved the mechanism for determining the Renminbi exchange rate based on market supply

and demand. Third, the Revised Foreign Exchange Control Regulations enhanced the

monitoring of cross-border foreign exchange fund flows. In the event that revenues and costs

in connection with international transactions suffer or may suffer a material misbalance, or the

national economy encounters or may encounter a severe crisis, the State may adopt necessary

safeguard or control measures. Fourth, the Revised Foreign Exchange Control Regulations

enhanced the supervision and administration of foreign exchange transactions and granted

extensive authority to the SAFE to strengthen its supervisory and administrative ability.

Pursuant to the relevant rules and regulations of the State, all foreign exchange income

generated from current account transactions of the PRC enterprises may be either retained or

sold to financial institutions engaging in the settlement or sale of foreign exchange. Foreign

exchange income from loans issued by organizations or from the issuance of bonds and shares

outside the territory of the PRC is not required to be sold to designated foreign exchange banks

and can be deposited into foreign exchange accounts at the designated foreign exchange banks.


– IV-7 –

The PRC enterprises (including foreign-invested enterprises) which require foreign

exchange for transactions relating to current account items, may, without the approval of the

SAFE, effect payment from their foreign exchange accounts at the designated foreign exchange

banks with the support of valid receipts and proof. Foreign-invested enterprises which need

foreign exchange for the distribution of profits to their shareholders, and PRC enterprises (like

us) which, in accordance with regulations, are required to pay dividends to shareholders in

foreign exchange, may on the strength of board resolutions or shareholders’ resolutions on the

distribution of profits, effect payment from their foreign exchange accounts or convert and pay

at the designated foreign exchange banks.

The Decision of the State Council on Cancelling and Adjusting a Group of Administrative

Approval Items and Other Matters (國務院關於取消和調整一批行政審批項目等事項的決定)

(Guo Fa [2014] No. 50), which was issued and became effective on October 23, 2014,

cancelled the administrative approval by the SAFE and its branches over matters concerning

the repatriation and settlement of foreign exchange of overseas-raised funds through overseas

listing.

According to the Circular on Relevant Issues Concerning the Foreign Exchange

Administration of Overseas Listing (關於境外上市外匯管理有關問題的通知) issued by SAFE

on December 26, 2014, a domestic issuer shall, within 15 working days after the completion

of the offering of shares for its overseas listing, register overseas listing with the local Foreign

Exchange Bureau at the place of its incorporation. The proceeds raised from overseas listing

of a domestic issuer can be repatriated to PRC or deposited overseas, and the usage of such

proceeds shall be consistent with the purpose as specified in the prospectus and other

disclosure documents.

On February 13, 2015, the SAFE issued the Circular of the State Administration of

Taxation on Further Simplifying and Improving the Foreign Exchange Management Policies

for Direct Investment (國家外匯管理局關於進一步簡化和改進直接投資外匯管理政策的通知)

(the “SAFE Circular”), which came into effect on June 1, 2015. The SAFE Circular cancels the

foreign exchange registration approval under domestic direct investment and foreign exchange

registration approval under overseas direct investment, and requires the banks to review and

carry out foreign exchange registration under domestic direct investment and foreign exchange

registration under overseas direct investment directly. SAFE and its branches shall implement

indirect supervision over foreign exchange registration of direct investment via the banks.

Furthermore, according to the SAFE Circular, new overseas enterprises established or

controlled by overseas enterprises established or controlled by domestic investors through

re-investment are not required to go through the foreign exchange filing procedures.

On March 30, 2015, the SAFE promulgated the Notice of the State Administration of

Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital

of Foreign-invested Enterprises (“SAFE Circular 19”) (《關於改革外商投資企業外匯資本金結匯管理方式的通知》), to expand the reform nationwide. Under SAFE Circular 19, the

foreign exchange capital in the capital account of foreign-invested enterprises upon the

confirmation of rights and interests of monetary contribution by the local foreign exchange


– IV-8 –

bureau (or the book-entry registration of monetary contribution by the banks) can be settled at

the banks based on the actual operation needs of the enterprises. The proportion of

discretionary settlement of foreign exchange capital of foreign-invested enterprises is currently

100%. SAFE can adjust such proportion in due time based on the circumstances of

international balance of payments.

Pursuant to the Circular on Reforming and Regulating Policies on the Control over

Foreign Exchange Settlement of Capital Accounts (國家外匯管理局關於改革和規範資本項目結匯管理政策的通知) (the “SAFE Circular 16”) issued by SAFE on June 9, 2016, enterprises

registered in PRC may also convert their foreign debts from foreign currency into Renminbi

on a self-discretionary basis. The SAFE Circular 16 provides an integrated standard for

conversion of foreign exchange under capital account items (including but not limited to

foreign currency capital and foreign debts) on a self-discretionary basis, which applies to all

enterprises registered in the PRC. The SAFE Circular 16 reiterates the principle that Renminbi

converted from foreign currency-denominated capital of a company may not be directly or

indirectly used for purposes beyond its business scope and may not be used for investments in

securities or other investment with the exception of bank financial products that can guarantee

the principal within the PRC unless otherwise specifically provided. Besides, the converted

Renminbi shall not be used to make loans for non-related enterprises unless it is within the

business scope or to build or to purchase any real estate that is not for the enterprise’s own use

with the exception of the real estate enterprise.

However, SAFE Circular 19 and SAFE Circular 16 continue to, prohibit foreign-invested

enterprises from, among other things, using RMB fund converted from its foreign exchange

capitals for expenditure beyond its business scope, securities investment (except for security

investment or guarantee products issued by bank), providing loans to non-affiliated enterprises

or constructing or purchasing real estate not for self-use.


– IV-9 –

This Appendix sets out summaries of certain aspects of PRC laws and regulations, which

are relevant to the Company’s operations and business, as well as certain major differences

between PRC Company Law, the Companies Ordinance and the Companies (Winding up and

Miscellaneous Provisions) Ordinance. Laws and regulations relating to taxation in the PRC are

discussed separately in “Appendix IV – Taxation and Foreign Exchange” to this prospectus.

The principal objective of this summary is to provide potential investors with an overview of

the principal laws and regulatory provisions applicable to the Company. This summary is not

intended to include all the data which may be important to the potential investors. For

discussion of laws and regulations which are relevant to our business, see “Supervision and

Regulation” in this prospectus.

PRC LAWS AND REGULATIONS

The PRC Legal System

The PRC legal system is based on the PRC Constitution (the “Constitution”) and is made

up of written laws, administrative regulations, local regulations, autonomous regulations,

separate regulations, rules and regulations of State Council departments, rules and regulations

of local governments, laws of special administrative regions and international treaties of which

the PRC Government is a signatory and other regulatory documents. Court judgments do not

constitute legally binding precedents, although they are used for the purposes of judicial

reference and guidance.

The National People’s Congress (the “NPC”) and its Standing Committee are empowered

to exercise the legislative power of the State in accordance with the Constitution and the PRC

Legislation Law (the “Legislation Law”). The NPC has the power to formulate and amend

basic laws governing State organs, civil, criminal and other matters. The Standing Committee

of the NPC formulates and amends laws other than those required to be enacted by the NPC

and to supplement and amend parts of the laws enacted by the NPC during the adjournment of

the NPC, provided that such supplements and amendments are not in conflict with the basic

principles of such laws.

The State Council is the highest organ of state administration and has the power to

formulate administrative regulations based on the Constitution and laws.

The people’s congresses of the provinces, autonomous regions and municipalities and

their standing committees may formulate local regulations based on the specific circumstances

and actual needs of their respective administrative areas, provided that such local regulations

do not contravene any provision of the Constitution, laws or administrative regulations. The

people’s congresses of cities divided into districts and their respective standing committees

may formulate local regulations on aspects such as urban and rural construction and

management, environmental protection and historical and cultural protection based on the

specific circumstances and actual needs of such cities, provided that such local regulations do

not contravene any provision of the Constitution, laws, administrative regulations and local

APPENDIX V SUMMARY OF PRINCIPAL PRC AND HONG KONGLEGAL AND REGULATORY PROVISIONS

– V-1 –

regulations of their respective provinces or autonomous regions. If the law provides otherwiseon the matters concerning formulation of local regulations by cities divided into districts, thoseprovisions shall prevail. Such local regulations will become enforceable after being reportedto and approved by the standing committees of the people’s congresses of the relevantprovinces or autonomous regions. The standing committees of the people’s congresses of theprovinces or autonomous regions examine the legality of local regulations submitted forapproval, and such approval should be granted within four months if they are not in conflictwith the Constitution, laws, administrative regulations and local regulations of such provincesor autonomous regions. Where, during the examination for approval of local regulations ofcities divided into districts by the standing committees of the people’s congresses of theprovinces or autonomous regions, conflicts are identified with the rules and regulations of thepeople’s governments of the provinces or autonomous regions concerned, a decision should bemade by the standing committees of the people’s congresses of provinces or autonomousregions to resolve the issue. People’s congresses of national autonomous areas have the powerto enact autonomous regulations and separate regulations in light of the political, economic andcultural characteristics of the ethnic groups in the areas concerned.

The ministries and commissions of the State Council and the subordinate institutions with

administrative functions directly under the State Council may formulate departmental rules

within the jurisdiction of their respective departments based on the laws and administrative

regulations, and the decisions and orders of the State Council. Provisions of departmental rules

should be the matters related to the enforcement of the laws and administrative regulations, and

the decisions and orders of the State Council. The people’s governments of the provinces,

autonomous regions, municipalities and cities or autonomous prefectures divided into districts

may formulate rules and regulations based on the laws, administrative regulations and local

regulations of such provinces, autonomous regions and municipalities.

According to the Constitution, the power to interpret laws is vested in the Standing

Committee of the NPC. Pursuant to the Resolution of the Standing Committee of the NPC

Providing an Improved Interpretation of the Law (全國人民代表大會常務委員會關於加強法律解釋工作的決議) passed on June 10, 1981, issues related to the application of laws in a court

trial should be interpreted by the Supreme People’s Court, issues related to the application of

laws in a prosecution process of a procuratorate should be interpreted by the Supreme People’s

Procuratorate, and the other issues related to laws other than the above-mentioned should be

interpreted by the State Council and the competent authorities. The State Council and its

ministries and commissions are also vested with the power to give interpretations of the

administrative regulations and departmental rules which they have promulgated. At the

regional level, the power to interpret regional laws is vested in the regional legislative and

administrative authorities which promulgate such laws.

The PRC Judicial System

Under the Constitution and the Law of Organization of the People’s Courts of the PRC

(中華人民共和國人民法院組織法), the PRC judicial system is made up of the Supreme

People’s Court, the local people’s courts, the military courts and other special people’s courts.


– V-2 –

The local people’s courts are divided into three levels, namely, the basic people’s courts, the

intermediate people’s courts and the higher people’s courts. The basic people’s courts may set

up civil, criminal and economic divisions, and certain people’s courts based on the facts of the

region, population and cases. The intermediate people’s courts have divisions similar to those

of the basic people’s courts and may set up other special divisions, such as the intellectual

property division, if needed. These two levels of people’s courts are subject to supervision by

people’s courts at higher levels. The Supreme People’s Procuratorate is authorized to supervise

the judgment and ruling of the people’s courts at all levels which have been legally effective,

and the people’s procuratorate at a higher level is authorized to supervise the judgment and

ruling of a people’s court at lower levels which have been legally effective. The Supreme

People’s Court is the highest judicial authority in the PRC. It supervises the administration of

justice by the people’s courts at all levels and special people’s courts.

A people’s court takes the rule of the second instance as the final rule, that is, the

judgments or rulings of the second instance at a people’s court are final. A party may appeal

against the judgment or ruling of the first instance of a local people’s court. The people’s

procuratorate may present a protest to the people’s court at the next higher level in accordance

with the procedures stipulated by the laws. In the absence of any appeal by the parties and any

protest by the people’s procuratorate within the stipulated period, the judgments or rulings of

the people’s court are final. Judgments or rulings of the second instance of the intermediate

people’s courts, the higher people’s courts and the Supreme People’s Court, and judgments or

rulings of the first instance of the Supreme People’s Court are final. However, if the Supreme

People’s Court finds some definite errors in a legally effective judgment, ruling or conciliation

statement of the people’s court at any level, or if the people’s court at a higher level finds such

errors in a legally effective judgment, ruling or conciliation statement of the people’s court at

a lower level, it has the authority to review the case itself or to direct the lower-level people’s

court to conduct a retrial. If the chief judge of all levels of people’s courts finds some definite

errors in a legally effective judgment, ruling or conciliation statement, and considers a retrial

is preferred, such case shall be submitted to the judicial committee of the people’s court at the

same level for discussion and decision.

The Civil Procedure Law of the PRC (中華人民共和國民事訴訟法) (the “PRC Civil

Procedure Law”) adopted on April 9, 1991 and amended three times on October 28, 2007,

August 31, 2012 and June 27, 2017 prescribes the conditions for instituting a civil action, the

jurisdiction of the people’s courts, the procedures for conducting a civil action, and the

procedures for enforcement of a civil judgment or ruling. All parties to a civil action conducted

within the PRC must abide by the PRC Civil Procedure Law. A civil case is generally heard

by the court located in the defendant’s place of domicile. The court of jurisdiction in respect

of a civil action may also be chosen by explicit agreement among the parties to a contract,

provided that the people’s court having jurisdiction should be located at places substantially

connected with the disputes, such as the plaintiff’s or the defendant’s place of domicile, the

place where the contract is executed or signed or the place where the object of the action is

located. However, such choice shall not in any circumstances contravene the regulations of

differential jurisdiction and exclusive jurisdiction.


– V-3 –

A foreign individual, a person without nationality, a foreign enterprise or a foreignorganization is given the same litigation rights and obligations as a citizen, a legal person orother organizations of the PRC when initiating actions or defending against litigations at a PRCcourt. Should a foreign court limit the litigation rights of PRC citizens or enterprises, the PRCcourt may apply the same limitations to the citizens and enterprises of such foreign country.A foreign individual, a person without nationality, a foreign enterprise or a foreign organizationmust engage a PRC lawyer in case he or it needs to engage a lawyer for the purpose of initiatingactions or defending against litigations at a PRC court. In accordance with the internationaltreaties to which the PRC is a signatory or participant or according to the principle ofreciprocity, a people’s court and a foreign court may request each other to serve documents,conduct investigation and collect evidence and conduct other actions on its behalf. A PRC courtshall not accommodate any request made by a foreign court which will result in the violationof sovereignty, security or public interests of the PRC.

All parties to a civil action shall perform the legally effective judgments and rulings. Ifany party to a civil action refuses to abide by a judgment or ruling made by a people’s courtor an award made by an arbitration tribunal in the PRC, the other party may apply to thepeople’s court for the enforcement of the same within two years subject to application forpostponed enforcement or revocation. If a party fails to satisfy within the stipulated period ajudgment which the court has granted an enforcement approval, the court may, upon theapplication of the other party, mandatorily enforce the judgment on the party.

In accordance with the international treaties to which the PRC is a signatory or in which

the PRC is a participant or the principle of reciprocity, a PRC court and a foreign court may

request each other to serve legal documents, conduct investigation and collect evidence and

conduct other actions on its behalf. Where a party applies for enforcement of a legally effective

judgment or ruling made by a people’s court, and the opposite party or his property is not

within the territory of the People’s Republic of China, the applicant may directly apply to a

foreign court with jurisdiction for recognition and enforcement of the judgment or ruling, or

the people’s court may, in accordance with the provisions of international treaties to which the

PRC is a signatory or in which the PRC is a participant or the principle of reciprocity, request

recognition and enforcement by a foreign court, unless the people’s court considers that the

recognition or enforcement of such judgment or ruling would violate the basic legal principles

of the PRC, its sovereignty or national security or the public’s interests.

Shareholders may experience difficulty in effecting service of PRC legal process. Please

refer to section headed “Risk Factors” in this prospectus for further details.

The PRC Company Law, the Special Regulations and the Mandatory Provisions

The PRC Company Law was adopted by the 5th meeting of the Standing Committee of

the 8th National People’s Congress Session on December 29, 1993 and came into effect on

July 1, 1994. It was amended on December 25, 1999, August 28, 2004, October 27, 2005 and

December 28, 2013. The latest revised PRC Company Law was implemented on March 1,

2014.


– V-4 –

The Special Regulations of the State Council on the Overseas Offering and the Listing of

Shares by Joint Stock Limited Companies (國務院關於股份有限公司境外募集股份及上市的特別規定) (the “Special Regulations”) were passed at the 22nd Standing Committee Meeting of

the State Council on July 4, 1994 and promulgated and implemented on August 4, 1994. The

Special Regulations include provisions in respect of the overseas share offering and listing of

joint stock limited companies.

The Mandatory Clauses of the Articles of Association of Companies Seeking Overseas

Listing (the “Mandatory Provisions”) jointly promulgated by the former Securities

Commission of the State Council and the former State Commission for Restructuring the

Economic System on August 27, 1994 prescribe that the provisions should be incorporated in

the articles of association of joint stock limited companies to be listed overseas stock

exchanges. Accordingly, the Mandatory Provisions have been incorporated in the Articles of

Association. References to a “company” made in this Appendix are to a joint stock limited

company established under the Company Law with H Shares to be issued.

Set out below is a summary of the major provisions of the PRC Company Law, the Special

Regulations and the Mandatory Provisions.

General

A “joint stock limited company” (“company”) refers to a corporate legal person

incorporated in China under the PRC Company Law with independent legal person properties

and entitlements to such legal person properties. The liability of the company for its own debts

is limited to all the properties it owns and the liability of its shareholders for the company is

limited to the extent of the shares they subscribe for.

Incorporation

A company may be established by promotion or subscription. A company shall have a

minimum of two but no more than 200 people as its promoters, and over half of the promoters

must be resident within the PRC. Companies established by promotion are companies of which

the registered capital is the total share capital subscribed for by all the promoters registered

with the company’s registration authorities. No share offering shall be made before the shares

subscribed for by the promoters are fully paid up. For companies established by subscription,

the registered capital is the total paid-up share capital as registered with the company’s

registration authorities. If laws, administrative regulations and State Council decisions provide

otherwise on paid-in registered capital and the minimum registered capital, the company

should follow such provisions.

For companies incorporated by way of promotion, the promoters shall subscribe in

writing for the shares required to be subscribed for by them and pay up their capital

contributions under the articles of association. Procedures relating to the transfer of titles to

non-monetary assets shall be duly completed if such assets are to be contributed as capital.


– V-5 –

Promoters who fail to pay up their capital contributions in accordance with the foregoingprovisions shall assume default liabilities in accordance with the covenants set out in thepromoters’ agreement. After the promoters have subscribed for the capital contribution underthe articles of association, a board of directors and a supervisory board shall be elected and theboard of directors shall apply for registration of establishment by filing the articles ofassociation with relevant administration for industry and commerce, and other documents asrequired by the law or administrative regulations.

Where companies are incorporated by subscription, not less than 35% of their totalnumber of shares must be subscribed for by the promoters, unless otherwise provided by thelaws or administrative regulations. A promoter who offers shares to the public must announcea share offering prospectus and prepare a share subscription form to be completed, signed andsealed by subscribers, specifying the number and amount of shares to be subscribed for and thesubscribers’ addresses. The subscribers shall pay up monies for the shares they subscribe for.Where a promoter is offering shares to the public, such offer shall be underwritten by securitycompanies established under PRC law, and underwriting agreements shall be entered into. Apromoter offering shares to the public shall also enter into agreements with banks in relationto the receipt of subscription monies. The receiving banks shall receive and keep in custody thesubscription monies, issue receipts to subscribers who have paid the subscription monies andis obliged to furnish evidence of receipt of those subscription monies to relevant authorities.After the subscription monies for the share issue have been paid in full, a capital verificationinstitution established under PRC law must be engaged to conduct a capital verification andfurnish a certificate thereof. The promoters shall preside over and convene an inaugurationmeeting within 30 days from the date of the full payment of subscription monies. Theinauguration meeting shall be formed by the promoters and subscribers. Where the sharesissued remain undersubscribed by the cut-off date stipulated in the share offering prospectus,or where the promoter fails to convene an inauguration meeting within 30 days of thesubscription monies for the shares issued being fully paid up, the subscribers may demand thatthe promoters refund the subscription monies so paid together with the interest at bank ratesof a deposit for the same period. Within 30 days of the conclusion of the inauguration meeting,the board of directors shall apply to the company registration authority for registration of theestablishment of the company. A company is formally established and has the capacity of alegal person after approval of registration has been given by the relevant administration forindustry and commerce and a business license has been issued.

A company’s promoter shall be liable for the followings:

• the debts and expenses incurred in the establishment process jointly and severally ifthe company cannot be incorporated;

• the refund of subscription monies paid by the subscribers together with interest atbank rates of deposit for the same period jointly and severally if the company cannotbe incorporated; and

• the compensation of any damages suffered by the company as a result of thepromoters’ fault in the course of its establishment.


– V-6 –

Share Capital

The promoters may make a capital contribution in currencies, or non-monetary assetssuch as in kind or intellectual property rights or land use rights which can be appraised withmonetary value and transferred lawfully, except for assets which are prohibited from beingcontributed as capital by the laws or administrative regulations. If a capital contribution ismade in non-monetary assets, a valuation of the assets contributed must be carried out pursuantto the provisions of the laws or administrative regulations on valuation without anyover-valuation or under-valuation.

The issuance of shares shall be conducted in a fair and equitable manner. The same classof shares must carry equal rights. For shares issued at the same time and within the same class,the conditions and price per share must be the same; for the shares subscribed by an entity oran individual, the price per share paid must be the same. The share offering price may be equalto or greater than the nominal value of the share, but may not be less than the nominal value.

A company must obtain the approval of CSRC to offer its shares to the overseas public.According to the Special Regulations and the Mandatory Provisions, the shares issued toforeign investors and listed overseas by a company shall be in registered form, denominatedin Renminbi and subscribed for in foreign currency. Shares issued to foreign investors(including the investors from the territories of Hong Kong, Macau and Taiwan) and listed inHong Kong are classified as H Shares, and those shares issued to investors within the PRC,except these regions above, are known as domestic shares. Under the Special Regulations, uponapproval of CSRC, a company may agree, in the underwriting agreement in respect of an issueof H Shares, to retain not more than 15% of the aggregate number of such overseas listedforeign shares proposed to be issued in addition to the number of underwritten shares.

Under the PRC Company Law, a company issuing registered share certificates shallmaintain a shareholder registry which sets forth the following matters:

• the name and domicile of each shareholder;

• the number of shares held by each shareholder;

• the serial numbers of shares held by each shareholder; and

• the date on which each shareholder acquired the shares.

Increase in Share Capital

Under the PRC Company Law, where a company is issuing new shares, resolutions shallbe passed at general meeting in accordance with the articles of association in respect of theclass and amount of the new shares, the issue price of the new shares, the commencement andend dates for the issue of the new shares and the class and amount of the new shares proposedto be issued to existing shareholders.


– V-7 –

When a company launches a public issue of new shares upon the approval by CSRC, a

new share offering prospectus and financial accounting report must be published and a

subscription form must be prepared. After the issue of new share the company has been paid

up, the change must be registered with the relevant administration bureau for industry and

commerce and a public announcement must be made accordingly. Where an increase in

registered capital of a company is made by means of an issue of new shares, the subscription

of new shares by shareholders shall be made in accordance with the relevant provisions on the

payment of subscription monies for the establishment of a company.

Reduction of Share Capital

A company may reduce its registered capital in accordance with the following procedures

prescribed by the PRC Company Law:

• the company shall prepare a balance sheet and an inventory of assets;

• the reduction of registered capital must be approved by shareholders at general

meeting;

• the company shall notify its creditors of the reduction in share capital within 10 days

and publish the relevant announcement in newspapers within 30 days of the

resolution approving the reduction being passed;

• the creditors of the company may require the company to repay its debts or provide

guarantees for covering the debts within 30 days of receipt of the notification or

within 45 days of the date of the announcement if he/she/it has not received any

notification; and

• the company must apply to the relevant administration bureau for industry and

commerce for registration of the change on the reduction of registered capital.

Repurchase of Shares

Under the PRC Company Law, a company may not repurchase its own shares other than

for one of the following purposes:

• reducing its registered capital;

• merging with other company which holds its shares;

• granting shares to its employees as incentives; and

• acquiring its own shares at the request of its shareholders who vote in a

shareholders’ general meeting against a resolution regarding a merger or division.


– V-8 –

The acquisition by a company of its own shares on the grounds set out in the first item

to the third item above must be approved by way of a resolution of a shareholders’ general

meeting. Following the acquisition by a company of its own shares in accordance with these

requirements, such shares must be cancelled within 10 days of the date of the acquisition in the

case of the first item and transferred or cancelled within six months in the case of the second

item or the fourth item.

The acquisition by a company of its own shares in accordance with the third item under

the first paragraph of this sub-section shall not exceed 5% of the total number of issued shares

of the company. Such acquisition shall be financed by funds allocated from the company’s

profits after taxation, and the shares so acquired shall be transferred to the employees within

one year.

Transfer of Shares

Shares held by shareholders may be transferred legally. Under the PRC Company Law, a

shareholder should effect a transfer of his shares on a stock exchange established in accordance

with laws or by any other means as required by the State Council. Registered shares may be

transferred after the shareholders endorse the back of the share certificates or in any other

manner specified by the laws or administrative regulations. Following the transfer, the

company shall enter the names and domiciles of the transferees into its share register. No

changes of registration in the share register described above shall be effected during a period

of 20 days prior to convening a shareholders’ general meeting or 5 days prior to the record date

for the purpose of determining entitlements to dividend distributions, unless otherwise

stipulated by laws on the registration of changes in the share register of listed companies. The

transfer of bearer share certificates shall become effective upon the delivery of the certificates

to the transferee by the shareholder. The Mandatory Provision provides that changes due to

share transfer should not be made to shareholder registry within 30 days before a shareholders’

general meeting or within 5 days before the record date for the purpose of determining

entitlements to dividend distributions.

Under the PRC Company Law, shares held by promoters may not be transferred within

one year of the establishment of the company. Shares of the company issued prior to the public

issuance of shares may not be transferred within one year of the date of the company’s listing

on a stock exchange. Directors, supervisors and the senior management of a company shall

declare to the company their shareholdings in it and any changes in such shareholdings. During

their terms of office, they may transfer no more than 25% of the total number of shares they

hold in the company every year. They shall not transfer the shares they hold within one year

of the date of the company’s listing on a stock exchange, nor within six months after they leave

their positions in the company. The articles of association may set out other restrictive

provisions in respect of the transfer of shares in the company held by its directors, supervisors

and the senior management.


– V-9 –

Shareholders

Under the PRC Company Law, the rights of shareholders include the rights:

• to receive a return on assets, participate in significant decision-making and select

management personnel;

• to petition the people’s court to revoke any resolution passed at a shareholders’

general meeting or a meeting of board of directors that has not been convened in

compliance with the laws, administrative regulations or the articles of association or

whose voting has been conducted in an invalid manner, or any resolution the

contents of which is in violation of the articles of association, provided that such

petition shall be submitted within 60 days of the passing of such resolution;

• to transfer the shares of the shareholders legally;

• to attend or appoint a proxy to attend shareholders’ general meetings and vote at the

meetings;

• to inspect the articles of association, share register, counterfoil of company

debentures, minutes of shareholders’ general meetings, board resolutions,

resolutions of the supervisory board and financial and accounting reports and to

make suggestions or inquiries in respect of the company’s operations;

• to receive dividends in respect of the number of shares held;

• to participate in residual properties of the company in proportion to their

shareholdings upon the liquidation of the company; and

• any other shareholders’ rights provided for in laws, administrative regulations, other

regulatory documents and the articles of association.

The obligations of shareholders include the obligation to abide by the company’s articles

of association, to pay the subscription monies in respect of the shares subscribed for, to be

liable for the company’s debts and liabilities to the extent of the amount of subscription monies

agreed to be paid in respect of the shares taken up by them and any other shareholder obligation

specified in the articles of association.


– V-10 –

Shareholders’ General Meetings

The general meeting is the organ of authority of the company, which exercises its powers

in accordance with the PRC Company Law. The general meeting may exercise its powers:

• to decide on the company’s operational objectives and investment plans;

• to elect and dismiss the directors and supervisors (not being representative(s) of

employees) and to decide on the matters relating to the remuneration of directors and

supervisors;

• to review and approve the reports of the board of directors;

• to review and approve the reports of the supervisory board;

• to review and approve the company’s annual financial budgets and final accounts;

• to review and approve the company’s profit distribution proposals and loss recovery

proposals;

• to decide on any increase or reduction of the company’s registered capital;

• to decide on the issue of corporate bonds;

• to decide on merger, division, dissolution and liquidation of the company or change

of its corporate form;

• to amend the company’s articles of association; and

• to exercise any other authority stipulated in the articles of association.

A shareholders’ general meeting is required to be held once every year. An extraordinary

general meeting is required to be held within two months of the occurrence of any of the

following:

• the number of directors is less than the number stipulated by the PRC Company Law

or less than two-thirds of the number specified in the articles of association;

• the outstanding losses of the company amounted to one-third of the company’s total

paid-in share capital;

• shareholders individually or in aggregate holding 10% or more of the company’s

shares request that an extraordinary general meeting is convened;


– V-11 –

• the board deems necessary;

• the supervisory board proposes to hold; or

• any other circumstances as provided for in the articles of association.

A shareholders’ general meeting shall be convened by the board of directors, and presided

over by the chairman of the board of directors. In the event that the chairman is incapable of

performing or is not performing his duties, the meeting shall be presided over by the vice

chairman. In the event that the vice chairman is incapable of performing or is not performing

his duties, a director nominated by half or more of the directors shall preside over the meeting.

Where the board of directors is incapable of performing or is not performing its duties to

convene the general meeting, the supervisory board shall convene and preside over

shareholders’ general meeting in a timely manner. If the supervisory board fails to convene and

preside over shareholders’ general meeting, shareholders individually or in aggregate holding

10% or more of the company’s shares for 90 days or more consecutively may unilaterally

convene and preside over shareholders’ general meeting.

In accordance with the PRC Company Law, a notice of the general meeting stating the

date and venue of the meeting and the matters to be considered at the meeting shall be given

to all shareholders 20 days before the meeting. A notice of extraordinary general meeting shall

be given to all shareholders 15 days prior to the meeting. For the issuance of bearer share

certificates, the time and venue of and matters to be considered at the meeting shall be

announced 30 days before the meeting. A single shareholder who holds, or several shareholders

who jointly hold, three percent or more of the shares of the company may submit an interim

proposal in writing to the board of directors ten days before the general meeting is held. The

board of directors shall notify other shareholders within two days upon receipt of the proposal,

and submit the said interim proposal to the general meeting for deliberation. The contents of

the interim proposal shall fall within the scope of powers of the general meeting, and the

proposal shall have a clear agenda and specific matters on which resolutions are to be made.

The general meeting shall not make any resolution in respect of any matter not set out in the

above-mentioned two types of notices. Holders of bearer share certificates who wish to attend

a general meeting shall deposit their share certificates with the company five days before the

meeting and till the conclusion of the meeting.

In accordance with the Mandatory Provisions, a written notice of the general meeting

stating, among other things, matters to be considered at the meeting and the time and venue of

the meeting shall be given to all shareholders 45 days before the meeting. A shareholder who

intends to attend the meeting shall deliver his written reply regarding his attendance of the

meeting to the company 20 days before the date of the meeting.


– V-12 –

There is no specific provision in the PRC Company Law regarding the number of

shareholders constituting a quorum in a shareholders’ general meeting, although the Special

Regulations and the Mandatory Provisions provide that a company’s general meeting may be

convened when written replies to the notice of that meeting from shareholders holding shares

representing no less than 50% of the voting rights in the company have been received 20 days

before the proposed date. If that 50% level is not achieved, the company shall within five days

notify shareholders again by announcement of the matters to be considered at the meeting and

the date and venue of the meeting, and the general meeting may be held by the company

thereafter.

Under the PRC Company Law, shareholders present at a shareholders’ general meeting

have one vote for each share they hold, save that the company’s shares held by the company

are not entitled to any voting rights.

An accumulative voting system may be adopted for the election of directors and

supervisors at the general meeting pursuant to the provisions of the articles of association or

a resolution of the general meeting. Under the accumulative voting system, each share shall be

entitled to the number of votes equivalent to the number of directors or supervisors to be

elected at the general meeting, and shareholders may consolidate their votes for one or more

directors or supervisors when casting a vote.

Under the PRC Company Law, resolutions of the general meeting must be passed by more

than half of the voting rights held by shareholders present at the meeting, with the exception

of matters relating to merger, division or dissolution of the company, increase or reduction of

registered share capital, change of corporate form or amendments to the articles of association,

which in each case must be passed by at least two-thirds of the voting rights held by the

shareholders present at the meeting. Where the PRC Company Law and the articles of

association provide that the transfer or acquisition of significant assets or the provision of

external guarantees by the company and the other matters must be approved by way of

resolution of the general meeting, the directors shall convene a shareholders’ general meeting

promptly to vote on such matters by shareholders’ general meeting.

Minutes shall be prepared in respect of matters considered at the general meeting and the

chairperson and directors attending the meeting shall endorse such minutes by signature. The

minutes shall be kept together with the shareholders’ attendance register and the proxy forms.

According to the Mandatory Provisions, the increase or reduction of share capital, the

issuance of shares of any class, warrants or other similar securities and bonds, the division,

merger, dissolution and liquidation of the company, the amendments to the articles of

association and any other matters, which, as resolved by way of an ordinary resolution of the

general meeting, may have a material impact on the company and require adoption by way of

a special resolution, must be approved through special resolutions by no less than two-thirds

of the voting rights held by shareholders (including proxies thereof) present at the meeting.


– V-13 –

The Mandatory Provisions require a special resolution to be passed at the general meetingand a class meeting to be held in the event of a variation or derogation of the class rights ofa shareholder class. For this purpose, holders of domestic shares and H shares are deemed tobe shareholders of different classes.

Board

A company shall have a board, which shall consist of 5 to 19 members. Members of theboard may include staff representatives, who shall be democratically elected by the company’sstaff at a staff representative assembly, general staff meeting or otherwise. The term of adirector shall be stipulated in the articles of association, provided that no term of office shalllast for more than three years. A director may serve consecutive terms if re-elected. A directorshall continue to perform his/her duties as a director in accordance with the laws,administrative regulations and the articles of association until a duly reelected director takesoffice, if re-election is not conducted in a timely manner upon the expiry of his/her term ofoffice or if the resignation of directors results in the number of directors being less than thequorum.

Under the PRC Company Law, the board of directors may exercise its powers:

• to convene shareholders’ general meetings and report on its work to theshareholders’ general meetings;

• to implement the resolutions passed by the shareholders at the shareholders’ generalmeetings;

• to decide on the company’s operational plans and investment proposals;

• to formulate proposal for the company’s annual financial budgets and final accounts;

• to formulate the company’s profit distribution proposals and loss recoveryproposals;

• to formulate proposals for the increase or reduction of the company’s registeredcapital and the issue of corporate bonds;

• to formulate proposals for the merger, division or dissolution of the company orchange of corporate form;

• to decide on the setup of the company’s internal management organs;

• to appoint or dismiss the company’s manager and decide on his/her remunerationand, based on the manager’s recommendation, to appoint or dismiss any deputygeneral manager and financial officer of the company and to decide on theirremunerations;


– V-14 –

• to formulate the company’s basic management system; and


Meetings of the board of directors shall be convened at least twice each year. Notices of

meeting shall be given to all directors and supervisors 10 days before the meeting. Interim

board meetings may be proposed to be convened by shareholders representing more than 10%

of the voting rights, more than one-third of the directors or the supervisory board. The

chairman shall convene the meeting within 10 days of receiving such proposal, and preside

over the meeting. The board may otherwise determine the means and the period of notice for

convening an interim board meeting. Meetings of the board of directors shall be held only if

more than half of the directors are present. Resolutions of the board shall be passed by more

than half of all directors. Each director shall have one vote for a resolution to be approved by

the board. Directors shall attend board meetings in person. If a director is unable to attend for

any reason, he/she may appoint another director to attend the meeting on his/her behalf by a

written power of attorney specifying the scope of authorization.

If a resolution of the board of directors violates the laws, administrative regulations or the

articles of association or resolutions of the general meeting, and as a result of which the

company sustains serious losses, the directors participating in the resolution are liable to

compensate the company. However, if it can be proved that a director expressly objected to the

resolution when the resolution was voted on, and that such objection was recorded in the

minutes of the meeting, such director shall be relieved from that liability.

Under the PRC Company Law, the following person may not serve as a director in a

company:

• a person who is unable or has limited ability to undertake any civil liabilities;

• a person who has been convicted of an offense of corruption, bribery, embezzlement,

misappropriation of property or destruction of the socialist economic order, or who

has been deprived of his political rights due to his crimes, in each case where less

than five years have elapsed since the date of completion of the sentence;

• a person who has been a former director, factory manager or manager of a company

or an enterprise that has entered into insolvent liquidation and who was personally

liable for the insolvency of such company or enterprise, where less than three years

have elapsed since the date of the completion of the bankruptcy and liquidation of

the company or enterprise;


– V-15 –

• a person who has been a legal representative of a company or an enterprise that hashad its business license revoked due to violations of the law or has been ordered toclose down by law and the person was personally responsible, where less than threeyears have elapsed since the date of such revocation; and

• a person who is liable for a relatively large amount of debts that are overdue.

Where a company elects or appoints a director to which any of the above circumstancesapplies, such election or appointment shall be null and void. A director to which any of theabove circumstances applies during his/her term of office shall be released of his/her duties bythe company.

Other circumstances under which a person is disqualified from acting as a director of acompany are set out in the Mandatory Provisions.

Under the PRC Company Law, the board shall appoint a chairman and may appoint a vicechairman.

The chairman and the vice chairman shall be elected with approval of more than half ofall the directors. The chairman shall convene and preside over board meetings and review theimplementation of board resolutions. The vice chairman shall assist the chairman to performhis/her duties. Where the chairman is incapable of performing or is not performing his/herduties, the duties shall be performed by the vice chairman. Where the vice chairman isincapable of performing or is not performing his/her duties, a director nominated by more thanhalf of the directors shall perform his/her duties.

Supervisory Board

A company shall have a supervisory board composed of not less than three members. Thesupervisory board shall consist of representatives of the shareholders and an appropriateproportion of representatives of the company’s staff, of which the proportion of representativesof the company’s staff shall not be less than one-third, and the actual proportion shall bedetermined in the articles of association. Representatives of the company’s staff at thesupervisory board shall be democratically elected by the company’s staff at the staffrepresentative assembly, general staff meeting or otherwise. Directors and senior managementshall not act concurrently as supervisors.

The supervisory board shall appoint a chairman and may appoint a vice chairman. Thechairman and the vice chairman of the supervisory board shall be elected by more than half ofthe supervisors. According to the Reply of the Overseas Listing Department of the ChinaSecurities Regulatory Commission (the “CSRC”) and the Production System Department of theState Commission for Restructuring the Economic System on Opinions Concerning theSupplement and Amendment to Articles of Association by Companies to Be Listed in HongKong (中國證監會海外上市部、國家體改委生產體制司關於到香港上市公司對公司章程作補充修改的意見的函), the chairman of the supervisory board shall be selected by more thantwo-thirds of the supervisors.


– V-16 –

The chairman of the supervisory board shall convene and preside over supervisory board

meetings. Where the chairman of the supervisory board is incapable of performing or is not

performing his/her duties, the vice chairman of the supervisory board shall convene and preside

over supervisory board meetings. Where the vice chairman of the supervisory board is

incapable of performing or is not performing his/her duties, a supervisor recommended by

more than half of the supervisors shall convene and preside over supervisory board meetings.

Each term of office of a supervisor is three years and he/she may serve consecutive terms

if reelected. A supervisor shall continue to perform his/her duties as a supervisor in accordance

with the laws, administrative regulations and the articles of association until a duly re-elected

supervisor takes office, if re-election is not conducted in a timely manner upon the expiry of

his/her term of office or if the resignation of supervisors results in the number of supervisors

being less than the quorum.

The supervisory board may exercise its powers:

• to review the company’s financial position;

• to supervise the directors and senior management in their performance of their

duties and to propose the removal of directors and senior management who have

violated laws, regulations, the articles of association or resolutions of the

shareholders’ general meetings;

• when the acts of a director or senior management personnel are detrimental to the

company’s interests, to require the director and senior management to correct these

acts;

• to propose the convening of extraordinary shareholders’ general meetings and to

convene and preside over shareholders’ general meetings when the board fails to

perform the duty of convening and presiding over shareholders’ general meetings

under the PRC Company Law;

• to submit proposals to the shareholders’ general meetings;

• to bring actions against directors and senior management personnel pursuant to the

relevant provisions of the PRC Company Law; and


Supervisors may be present at board meetings and make inquiries or proposals in respect

of the resolutions of the board. The supervisory board may investigate any irregularities

identified in the operation of the company and, when necessary, may engage an accounting firm

to assist its work at the cost of the company.


– V-17 –

Manager and Senior Management

Under the PRC Company Law, a company shall have a manager who shall be appointedor removed by the board of directors. The manager, who reports to the board of directors, mayexercise his/her powers:

• to manage the production and operation and administration of the company andarrange for the implementation of the resolutions of the board of directors;

• to arrange for the implementation of the company’s annual operation plans andinvestment proposals;

• to formulate proposals for the establishment of the company’s internal managementorgans;

• to formulate the fundamental management system of the company;

• to formulate the company’s specific rules and regulations;

• to recommend the appointment or dismissal of any deputy manager and anyfinancial officer of the company;

• to appoint or dismiss management personnel (other than those required to beappointed or dismissed by the board of directors); and

• to exercise any other authority granted by the board of directors.

Other provisions in the articles of association on the manager’s powers shall also becomplied with. The manager shall be present at meetings of the board of directors. However,the manager shall have no voting rights at meetings of the board of directors unless he/sheconcurrently serves as a director.

According to the PRC Company Law, senior management refers to the manager, deputymanager, financial officer, secretary to the board of a listed company and other personnel asstipulated in the articles of association.

Duties of Directors, Supervisors, General Managers and Other Senior Management

Directors, supervisors and senior management are required under the PRC Company Lawto comply with the relevant laws, administrative regulations and the articles of association, andcarry out their duties of loyalty and diligence.

Directors, supervisors and senior management are prohibited from abusing their authorityin accepting bribes or other unlawful income and from misappropriating the company’sproperty.


– V-18 –

Directors and senior management are prohibited from:

• misappropriating company funds;

• depositing company funds into accounts under their own names or the names of

other individuals to deposit;

• loaning company funds to others or providing guarantees in favor of others

supported by company’s property in violation of the articles of association or

without approval of the general meeting or the board of directors;

• entering into contracts or transactions with the company in violation of the articles

of association or without approval of the general meeting;

• using their position to procure business opportunities for themselves or others that

should have otherwise been available to the company or operating businesses similar

to that of the company for their own benefits or on behalf of others without approval

of the general meeting;

• accepting commissions paid by a third party for transactions conducted with the

company;

• unauthorized divulgence of confidential information of the company; and

• other acts in violation of their duty of loyalty to the company.

Income generated by directors or senior management in violation of aforementioned shall

be returned to the company.

A director, supervisor or senior management who contravenes law, administrative

regulation or articles of association in the performance of his/her duties resulting in any loss

to the company shall be liable to the company for compensation.

Where a director, supervisor or senior management is required to attend a shareholders’

general meeting, such director, supervisor or senior management shall attend the meeting and

answer the inquiries from shareholders. Directors and senior management shall furnish all true

information and data to the supervisory board, without impeding the discharge of duties by the

supervisory board or supervisors.

Where a director or senior management contravenes law, administrative regulation or

articles of association in the performance of his/her duties resulting in any loss to the company,

shareholder(s) holding individually or in aggregate no less than 1% of the company’s shares

consecutively for at least 180 days may request in writing that the supervisory board institute

litigation at a people’s court on its behalf. Where the supervisory violates the laws or


– V-19 –

administrative regulations or the articles of association in the discharge of its duties resultingin any loss to the company, such shareholder(s) may request in writing that the board ofdirectors institute litigation at a people’s court on its behalf. If the supervisory board or theboard of directors refuses to institute litigation after receiving this written request from theshareholder(s), or fails to institute litigation within 30 days of the date of receiving the request,or in case of emergency where failure to institute litigation immediately will result inirrecoverable damage to the company’s interests, such shareholder(s) shall have the power toinstitute litigation directly at a people’s court in its own name for the company’s benefit. Forother parties who infringe the lawful interests of the company resulting in loss to the company,such shareholder(s) may institute litigation at a people’s court in accordance with the proceduredescribed above. Where a director or senior management contravenes any laws, administrativeregulations or the articles of association in infringement of shareholders’ interests, ashareholder may also institute litigation at a people’s court.

The Special Regulations and the Mandatory Provisions provide that a company’sdirectors, supervisors, manager and other senior management shall have duty of loyalty to thecompany. They are required to faithfully perform their duties, to protect the interests of thecompany and not to use their positions in the company for their own benefits. The MandatoryProvisions contain detailed stipulations on these duties.

Finance and Accounting

A company shall establish its own financial and accounting systems according to the laws,administrative regulations and the regulations of the competent financial departments of theState Council. At the end of each financial year, a company shall prepare a financial reportwhich shall be audited by an accounting firm in accordance with the laws. The financial andaccounting reports shall be prepared in accordance with the laws, administrative regulationsand the regulations of the financial departments of the State Council.

The company’s financial reports shall be made available for shareholders’ inspection atthe company 20 days before the convening of an annual general meeting. A joint stock limitedcompany that makes public stock offerings shall publish its financial reports.

When distributing each year’s profits after taxation, the company shall set aside 10% ofits profits after taxation for the company’s statutory common reserve fund until the fund hasreached 50% or more of the company’s registered capital. When the company’s statutorycommon reserve fund is not sufficient to make up for the company’s losses for the previousyears, the current year’s profits shall first be used to make good the losses before any allocationis set aside for the statutory common reserve fund. After the company has made allocations tothe statutory common reserve fund from its profits after taxation, it may, upon passing aresolution at a shareholders’ general meeting, make further allocations from its profits aftertaxation to the discretionary common reserve fund. After the company has made good its lossesand made allocations to its discretionary common reserve fund, the remaining profits aftertaxation shall be distributed in proportion to the number of shares held by the shareholders,except for those which are not distributed in a proportionate manner as provided by the articlesof association.


– V-20 –

Profits distributed to shareholders by a resolution of a shareholders’ general meeting or

the board of directors before losses have been made good and allocations have been made to

the statutory common reserve fund in violation of the requirements described above must be

returned to the company. The company shall not be entitled to any distribution of profits in

respect of shares held by it.

The premium over the nominal value of the shares of the company earned from the issue

of share and other income as required by CSRC to be treated as the capital reserve fund shall

be accounted for as the capital reserve fund. The common reserve fund of a company shall be

applied to make good the company’s losses, expand its business operations or increase its

capital. The capital reserve fund, however, shall not be used to make good the company’s

losses. Upon the transfer of the statutory common reserve fund into capital, the balance of the

fund shall not be less than 25% of the registered capital of the company before such transfer.

The company shall have no accounting books other than the statutory books. The

company’s assets shall not be deposited in any account opened under the name of an individual.

Appointment and Retirement of Auditors

Pursuant to the PRC Company Law, the engagement or dismissal of an accounting firm

responsible for the company’s auditing shall be determined by a shareholders’ general meeting

or the board of directors in accordance with the articles of association. The accounting firm

should be allowed to make representations when the general meeting or the board of directors

conduct a vote on the dismissal of the accounting firm. The company should provide true and

complete accounting evidence, accounting books, financial and accounting reports and other

accounting information to the engaged accounting firm without any refusal or withholding or

falsification of information.

The Special Regulations require a company to engage an independent qualified

accounting firm to audit the company’s annual reports and to review and check other financial

reports of the company. The accounting firm’s term of office shall commence from the end of

the shareholders’ annual general meeting to the end of the next shareholders’ annual general

meeting.

Profit Distribution

According to the PRC Company Law, a company shall not distribute profits before losses

are covered and the statutory common reserve fund is provided. The Special Regulations

require that any dividend and other distribution to shareholders of H Shares shall be declared

and calculated in RMB and paid in foreign currency.

Under the Mandatory Provisions, a company shall make foreign currency payments to

shareholders through receiving agents.


– V-21 –

Amendments to the Articles of Association

Pursuant to PRC Company Law, the resolution of a shareholders’ general meeting

regarding any amendment to a company’s articles of association requires affirmative votes by

at least two-thirds of the votes held by shareholders attending the meeting. Pursuant to the

Mandatory Provisions, the company may amend its articles of association according to the

laws, administrative regulations and the articles of association. The amendment to articles of

association involving content of the Mandatory Provisions will only be effective upon approval

of the department in charge of company examination and approval and the securities regulatory

department of the State Council authorized by the State Council, while the amendment to

articles of association involving matters of company registration must be registered with the

relevant authority in accordance with applicable laws.

Dissolution and Liquidation

Under the PRC Company Law, a company shall be dissolved for any of the following

reasons:

• the term of its operation set out in the articles of association has expired or other

events of dissolution specified in the articles of association have occurred;

• the shareholders have resolved at a shareholders’ general meeting to dissolve the

company;

• the company is dissolved by reason of its merger or division;

• the business license of the company is revoked or the company is ordered to close

down or to be dissolved in accordance with the laws; or

• the company is dissolved by a people’s court in response to the request of

shareholders holding shares that represent more than 10% of the voting rights of all

shareholders of the company, on the grounds that the operation and management of

the company has suffered serious difficulties that cannot be resolved through other

means, rendering ongoing existence of the company a cause for significant losses to

the shareholders.

In the event of paragraph 1 above, the company may carry on its existence by amending

its articles of association. The amendments to the articles of association in accordance with the

provisions described above shall require the approval of more than two-thirds of voting rights

of shareholders attending a shareholders’ general meeting.


– V-22 –

Where the company is dissolved under the circumstances set forth in paragraph 1, 2, 4 or5 above, it should establish a liquidation committee within 15 days of the date on which thedissolution matter occurs. The liquidation committee shall be composed of directors or anyother person determined by a shareholders’ general meeting. If a liquidation committee is notestablished within the prescribed period, the company’s creditors may file an application witha people’s court to appoint relevant personnel to form a liquidation committee to administer theliquidation. The people’s court should accept such application and form a liquidationcommittee to conduct liquidation in a timely manner.

The sort out committee may exercise following powers during the liquidation:

• to sort out the company’s assets and to prepare a balance sheet and an inventory ofassets;

• to notify the company’s creditors or publish announcements;

• to deal with any outstanding business related to the liquidation;

• to pay any overdue tax together with any tax arising during the liquidation process;

• to settle the company’s claims and liabilities;

• to handle the company’s remaining assets after its debts have been paid off; and

• to represent the company in any civil procedures.

The liquidation committee shall notify the company’s creditors within 10 days of itsestablishment, and publish an announcement in newspapers within 60 days.

A creditor shall lodge his claim with the liquidation committee within 30 days of receiptof the notification or within 45 days of the date of the announcement if he has not received anynotification. A creditor shall report all matters relevant to his claimed creditor’s rights andfurnish relevant evidence. The liquidation committee shall register such creditor’s rights. Theliquidation committee shall not make any settlement to creditors during the period of the claim.

Upon disposal of the company’s property and preparation of the required balance sheetand inventory of assets, the liquidation committee shall draw up a liquidation plan and submitthis plan to a shareholders’ general meeting or a people’s court for endorsement. The remainingpart of the company’s assets, after payment of liquidation expenses, employee wages, socialinsurance expenses and statutory compensation, outstanding taxes and the company’s debts,shall be distributed to shareholders in proportion to shares held by them. The company shallcontinue to exist during the liquidation period, although it cannot conduct operating activitiesthat are not related to the liquidation. The company’s property shall not be distributed toshareholders before repayments are made in accordance with the requirements describedabove.


– V-23 –

Upon liquidation of the company’s property and preparation of the required balance sheet

and inventory of assets, if the liquidation committee becomes aware that the company does not

have sufficient assets to meet its liabilities, it must apply to a people’s court for a declaration

of bankruptcy in accordance with the laws. Following such declaration by the people’s court,

the liquidation committee shall hand over the administration of the liquidation to the people’s

court.

Upon completion of the liquidation, the liquidation committee shall prepare a liquidation

report and submit it to the shareholders’ general meeting or a people’s court for confirmation

of its completion. Following such confirmation, the report shall be submitted to the company

registration authority to cancel the company’s registration, and an announcement of its

termination shall be published. Members of the liquidation committee are required to discharge

their duties in good faith and perform their obligation in compliance with laws. Members of

the liquidation committee shall be prohibited from abusing their authority in accepting bribes

or other unlawful income and from misappropriating the company’s properties. Members of the

liquidation committee are liable to indemnify the company and its creditors in respect of any

loss arising from their willful or material default.

Liquidation of a company declared bankrupt according to laws shall be processed in

accordance with the laws on corporate bankruptcy.

Overseas Listing

The shares of a company shall only be listed overseas after obtaining approval from

CSRC, and the listing must be arranged in accordance with procedures specified by the State

Council. Pursuant to the Special Regulations, a company may issue shares to overseas investors

and list its shares overseas upon approval from CSRC. Subject to approval of the company’s

plans to issue overseas-listed foreign shares and domestic shares by CSRC, the board of

directors of the company may make arrangement to implement such plans for issuance of the

foreign shares and domestic shares, respectively, within fifteen months from the date of

approval by CSRC.

Loss of Share Certificates

A shareholder may, in accordance with the public notice procedures set out in the PRC

Civil Procedure Law, apply to a people’s court if his share certificate(s) in registered form is

either stolen, lost or destroyed, for a declaration that such certificate(s) will no longer be valid.

After the people’s court declares that such certificate(s) will no longer be valid, the shareholder

may apply to the company for the issue of a replacement certificate(s).

A separate procedure regarding the loss of share certificates and H Share certificates of

the overseas-listed foreign shareholders of the PRC is provided for in the Mandatory

Provisions, details of which are set out in the articles of association.


– V-24 –

Merger and Division

A merger agreement shall be signed by merging companies and the involved companies

shall prepare respective balance sheets and inventory of assets. The companies shall within 10

days of the date of passing the resolution approving the merger notify their respective creditors

and publicly announce the merger in newspapers within 30 days. A creditor may, within 30

days of receipt of the notification, or within 45 days of the date of the announcement if he has

not received the notification, request the company to settle any outstanding debts or provide

relevant guarantees. In case of a merger, the credits and debts of the merging parties shall be

assumed by the surviving or the new company.

In case of a division, the company’s assets shall be divided and a balance sheet and an

inventory of assets shall be prepared. When a resolution regarding the company’s division is

approved, the company should notify all its creditors within 10 days of the date of passing such

resolution and publicly announce the division in newspapers within 30 days. Unless an

agreement in writing is reached with creditors before the company’s division in respect of the

settlement of debts, the liabilities of the company which have accrued prior to the division shall

be jointly borne by the divided companies.

Changes in the business registration of the companies as a result of the merger or division

shall be registered with the relevant administration authority for industry and commerce.

In accordance with the laws, cancelation of a company shall be registered when a

company is dissolved and incorporation of a company shall be registered when a new company

is incorporated.

The PRC Securities Laws, Regulations and Regulatory Regimes

The PRC has promulgated a number of regulations that relate to the issue and trading of

the Shares and disclosure of information of companies. In October 1992, the State Council

established the Securities Committee and CSRC. The Securities Committee is responsible for

coordinating the drafting of securities regulations, formulating securities-related policies,

planning the development of securities markets, directing, coordinating and supervising all

securities-related institutions in the PRC and administering CSRC. CSRC is the regulatory arm

of the Securities Committee and is responsible for the drafting of regulatory provisions

governing securities markets, supervising securities companies, regulating public offerings of

securities by PRC companies in the PRC or overseas, regulating the trading of securities,

compiling securities-related statistics and undertaking relevant research and analysis. In April

1998, the State Council consolidated the Securities Committee and CSRC and reformed CSRC.


– V-25 –

On April 22, 1993, the State Council promulgated the Provisional Regulations

Concerning the Issue and Trading of Shares (股票發行與交易管理暫行條例) governing the

application and approval procedures for public offerings of shares, issuance of and trading in

shares, the acquisition of listed companies, deposit, clearing and transfer of shares, the

disclosure of information, investigation, penalties and dispute resolutions with respect to a

listed company.

On December 25, 1995, the State Council promulgated the Regulations of the State

Council Concerning Domestic Listed Foreign Shares of Joint Stock Limited Companies (國務院關於股份有限公司境內上市外資股的規定). These regulations principally govern the issue,

subscription, trading and declaration of dividends and other distributions of domestic listed

foreign shares and disclosure of information of joint stock limited companies having domestic

listed foreign shares.

The Securities Law of the PRC (中華人民共和國證券法) (the “PRC Securities Law”) took

effect on July 1, 1999 and was revised as at August 28, 2004, October 27, 2005, June 29, 2013

and August 31, 2014, respectively. It was the first national securities law in the PRC, and is

divided into 12 chapters and 240 articles comprehensively regulating activities in the PRC

securities market, including the issue and trading of securities, takeovers by listed companies,

securities exchanges, securities companies and the duties and responsibilities of the State

Council’s securities regulatory authorities. Article 238 of the PRC Securities Law provides that

domestic enterprises must obtain prior approval from the State Council Securities regulatory

authorities to list shares outside the PRC. Currently, the issue and trading of foreign issued

securities (including shares) are principally governed by the regulations and rules promulgated

by the State Council and CSRC.

Arbitration and Enforcement of Arbitral Awards

The Arbitration Law of the PRC (中華人民共和國仲裁法) (the “PRC Arbitration Law”)

was enacted by the Standing Committee of the NPC on August 31, 1994, which became

effective on September 1, 1995 and was amended on August 27, 2009. It is applicable to,

among other matters, economic disputes involving foreign parties where all parties have

entered into a written agreement to resolve disputes by arbitration before an arbitration

committee constituted in accordance with the PRC Arbitration Law. The PRC Arbitration Law

provides that an arbitration committee may, before the promulgation of arbitration regulations

by the PRC Arbitration Association, formulate interim arbitration rules in accordance with the

PRC Arbitration Law and the PRC Civil Procedure Law. Where the parties have agreed to settle

disputes by means of arbitration, a people’s court will refuse to handle a legal proceeding

initiated by one of the parties at such people’s court, unless the arbitration agreement has

lapsed.


– V-26 –

The Listing Rules and the Mandatory Provisions require an arbitration clause to beincluded in the articles of association of a company listed in Hong Kong and, in the case of theListing Rules, also in contracts between the company and each director or supervisor. Pursuantto such clause, whenever a dispute or claim arises from any right or obligation provided in thearticles of association, the PRC Company Law or other relevant laws and administrativeregulations concerning the affairs of the company between (i) a holder of overseas listedforeign shares and the company; (ii) a holder of overseas listed foreign shares and a holder ofdomestic shares; or (iii) a holder of overseas listed foreign shares and the company’s directors,supervisors or other management personnel, such parties shall be required to refer such disputeor claim to arbitration at either the China International Economic and Trade ArbitrationCommission (“CIETAC”) or the Hong Kong International Arbitration Centre (“HKIAC”).Disputes in respect of the definition of shareholder and disputes in relation to the company’sshareholder registry need not be resolved by arbitration. If the party seeking arbitration electsto arbitrate the dispute or claim at the HKIAC, then either party may apply to have sucharbitration conducted in Shenzhen in accordance with the securities arbitration rules of theHKIAC.

Under the PRC Arbitration Law and PRC Civil Procedure Law, an arbitral award shall befinal and binding on the parties involved in the arbitration. If any party fails to comply withthe arbitral award, the other party to the award may apply to a people’s court for itsenforcement. The people’s court can issue a ruling prohibiting the enforcement of an arbitralaward made by an arbitration commission after verification by collegial bench formed by thepeople’s court if there is any procedural irregularity (including but not limited to irregularityin the composition of the arbitration tribunal or arbitration proceedings, the jurisdiction of thearbitration commission, or the making of an award on matters beyond the scope of thearbitration agreement).

Any party seeking to enforce an award of a foreign affairs arbitral body of the PRCagainst a party who or whose property is not located within the PRC may apply to a foreigncourt with jurisdiction over the case for recognition and enforcement of the award. Likewise,an arbitral award made by a foreign arbitral body may be recognized and enforced by a PRCcourt in accordance with the principle of reciprocity or any international treaties concluded oracceded to by the PRC.

The PRC acceded to the Convention on the Recognition and Enforcement of ForeignArbitral Awards (the “New York Convention”) adopted on June 10, 1958 pursuant to aresolution passed by the Standing Committee of the NPC on December 2, 1986. The New YorkConvention provides that all arbitral awards made in a state which is a party to the New YorkConvention shall be recognized and enforced by other parties thereto subject to their rights torefuse enforcement under certain circumstances, including where the enforcement of thearbitral award is against the public policy of that state. At the time of the PRC’s accession tothe Convention, the Standing Committee of the NPC declared that (i) the PRC will only applythe Convention to the recognition and enforcement of arbitral awards made in the territories ofother parties based on the principle of reciprocity; and (ii) the New York Convention will onlybe applied to disputes deemed under PRC laws to be arising from contractual or non-contractual mercantile legal relations.


– V-27 –

An arrangement for mutual enforcement of arbitral awards between Hong Kong and the

Supreme People’s Court of China was reached. The Supreme People’s Court of China adopted

the Arrangements on the Mutual Enforcement of Arbitral Awards between the Mainland and the

Hong Kong Special Administrative Region on June 18, 1999, which went into effect on

February 1, 2000. The arrangements reflects the spirit of the New York Convention. Under the

arrangements, the awards by the Mainland arbitral bodies recognized by Hong Kong may be

enforced in Hong Kong and the awards by the Hong Kong arbitral bodies according to the

Arbitration Ordinance of Hong Kong SAR may also be enforced in the Mainland China. If the

Mainland court finds that the enforcement of awards made by the Hong Kong arbitral bodies

in the Mainland will be against public interests of the Mainland, or the court of Hong Kong

SAR decides that the enforcement of the arbitral awards in Hong Kong SAR will be against

public policies of Hong Kong SAR, the awards may not be enforced.

HONG KONG LAWS AND REGULATIONS

Summary of Material Differences between Hong Kong and PRC Company Law

The Hong Kong law applicable to a company incorporated in Hong Kong is based on the

Hong Kong Companies Ordinance and the Hong Kong Companies (Winding Up and

Miscellaneous Provisions) Ordinance and is supplemented by common law and the rules of

equity that are applicable to Hong Kong. As a joint stock limited company established in the

PRC, we are governed by the PRC Company Law and all other rules and regulations

promulgated pursuant to the PRC Company Law.

Set out below is a summary of certain material differences between Hong Kong company

law applicable to a company incorporated in Hong Kong and the PRC Company Law

applicable to a joint stock limited company incorporated and validly existing under the PRC

Company Law. This summary is, however, not intended to be an exhaustive comparison.

Corporate Existence

Under Hong Kong company law, a company with share capital, is incorporated by the

Registrar of Companies in Hong Kong and the company will acquire an independent corporate

existence upon its incorporation. A company may be incorporated as a public company or a

private company. Pursuant to the Hong Kong Companies Ordinance, the articles of association

of a private company incorporated in Hong Kong shall contain provisions with respect to the

right of first refusal. A public company’s articles of association do not contain such provision.

Under the PRC Company Law, a joint stock limited company may be incorporated by

promotion or public subscription. Unless specially required by any other laws, administrative

regulations and the State Council’s decisions, there is no minimum capital requirement for a

joint stock limited company. Hong Kong law does not prescribe any minimum capital

requirement for a Hong Kong company.


– V-28 –

Share Capital

Under Hong Kong law, the directors of a Hong Kong company may, with the prior

approval of the shareholders, if required, issue new shares of the company. The PRC Company

Law does not prescribe any authorized capital requirement (except for registered capital). If a

joint stock limited company is incorporated by promotion, its registered capital shall be the

total amount of capital subscribed by all promoters as registered with the registration authority

to which the company relates. If a joint stock limited company is incorporated by public

subscription, its registered capital shall be the total amount of paid-in capital registered with

the registration authority to which the company relates. Any increase in our registered capital

must be approved by our shareholders at a shareholders’ general meeting and the relevant PRC

Government and regulatory authorities (if applicable).

Under the PRC Securities Law, a company which is authorized by the relevant securities

regulatory authority to list its shares on a stock exchange must have a total share capital of not

less than RMB30 million. Hong Kong law does not prescribe any minimum capital

requirements for companies incorporated in Hong Kong.

Under the PRC Company Law, the shares may be subscribed for in the form of money or

non-monetary assets that can be used for monetary valuation and can be transferred according

to laws. For non-monetary assets to be used as capital contributions, appraisals and verification

must be carried out to ensure no over-valuation or under-valuation of the assets. There is no

such restriction on a Hong Kong company under Hong Kong law.

Restrictions on Shareholding and Transfer of Shares

Under PRC law, domestic shares of a joint stock limited company (the “Domestic

Shares”), which are denominated and subscribed for in Renminbi, may be subscribed for or

traded by the PRC domestic investors and qualified foreign institutional investors. Since April

2013, investors from Hong Kong, Macau and Taiwan may also open an A share account.

Overseas listed foreign shares of a joint stock limited company, which are denominated in

Renminbi and subscribed for in foreign currency, may only be subscribed for, and trade by,

investors from Hong Kong, Macau and Taiwan or any country and territory outside the PRC,

and other qualified domestic institutions.

Under the PRC Company Law, a promoter of a joint stock limited company is not allowed

to transfer the shares it holds for a period of one year after the date of establishment of the

company. Shares in issue prior to our public offering shall not be transferred within one year

from the listing of the shares on the Stock Exchange. Shares in a joint stock limited liability

company held by its directors, supervisors and senior management and transferred each year

during their term of office shall not exceed 25% of the total shares they held in the company,

and the shares they held in the company shall not be transferred within one year from the listing

date of the shares, and also shall not be transferred within half a year after the said personnel

has left office. The articles of association may set other restrictive requirements on the transfer


– V-29 –

of the company’s shares held by its directors, supervisors and senior management. There are

no such restrictions on shareholdings and transfers of shares under Hong Kong law apart from

the six-month lockup on the company’s issue of shares and the 12-month lockup on controlling

shareholders’ disposal of shares.

Financial Assistance for Acquisition of Shares

The PRC Company Law does not prohibit or restrict a joint stock limited company or its

subsidiaries from providing financial assistance for the purpose of an acquisition of its own or

its holding company’s shares. However, the Mandatory Provisions contain certain restrictions

on a company and its subsidiaries on providing such financial assistance similar to those under

the Hong Kong company law.

Variation of Class Rights

The PRC Company Law has no special provision relating to variation of class rights.

However, the State Council can promulgate regulations relating to other kinds of shares. The

Mandatory Provisions contain elaborate provisions relating to the circumstances which are

deemed to be variations of class rights and the approval procedures required to be followed in

respect thereof. These provisions have been incorporated in the Articles of Association, which

are summarized in Appendix V to this prospectus.

Under the Hong Kong Companies Ordinance, no rights attached to any class of shares can

be varied except (i) with the approval of a special resolution of the holders of the relevant class

at a separate meeting, (ii) with the consent in writing of the holders representing at least 75%

of the nominal value of shares in the class in question, (iii) with the consent of all shareholders

of a Hong Kong company, or (iv) if there are provisions in the articles of association relating

to the variation of those rights, then in accordance with those provisions.

Directors

The PRC Company Law, unlike Hong Kong company law, does not contain any

requirements relating to the declaration of directors’ interests in material contracts, restrictions

on the rights of directors in making major disposals, restrictions on companies providing

certain benefits in respect of the prohibitions against compensation for loss of office without

shareholders’ approval. The PRC Company Law restricts any interested directors to vote in

respect of any board resolutions involving any companies in which such directors have an

interest or a connected relationship. The Mandatory Provisions, however, contain certain

provisions and restrictions on major disposals and specify the circumstances under which a

director may receive compensation for loss of office. The relevant provisions have been

included in the Articles of Association, a summary of which has been included in Appendix V

to this prospectus.


– V-30 –

Supervisory committee

Under the PRC Company Law, a joint stock limited company’s directors and senior

management are subject to the supervision of a supervisory committee. There is no mandatory

requirement for the establishment of a supervisory committee for a company incorporated in

Hong Kong. The Mandatory Provisions provide that each supervisor owes a duty, in the

exercise of his rights or performance of his obligations, to act in good faith and honestly in

what he considers to be in the best interests of the company and to exercise the care, diligence

and skill that a reasonably prudent person would exercise in comparable circumstances.

Derivative Action by Minority Shareholders

Hong Kong law permits minority shareholders to initiate a derivative action on behalf of

all shareholders against directors who have committed a breach of their fiduciary duties to the

company if the directors control a majority of votes at a general meeting, thereby effectively

preventing a company from suing the directors in breach of their duties in its own name. The

PRC Company Law provides that in the event where the directors and senior management

violate their fiduciary obligation to the company, the shareholders individually or jointly

holding over 1% of the shares in the company for more than 180 consecutive days may request

in writing the supervisory committee to initiate proceedings in the people’s court. In the event

that the supervisory committee violates the fiduciary obligation to the company, the above said

shareholders may send written request to the board of directors to initiate proceedings in the

people’s court.

Upon receipt of such written request from the shareholders, if the supervisory committee

or the board of directors refuses to initiate such proceedings, or has not initiated proceedings

within 30 days upon receipt of the request, or if under contingent circumstances, failure of

initiating immediate proceeding may cause irremediable damages to the company, the above

said shareholders shall, for the benefit of the company’s interests, have the right to initiate

proceedings directly to the people’s court in their own name.

Moreover, the PRC Company Law provides that to the extent that the directors or senior

management of the company violate the laws, administrative regulations or the requirements

of the articles of association and cause harm to the interest of shareholders as a result, the

shareholders may also initiate proceedings. The Mandatory Provisions provide further

remedies against the directors, supervisors and senior management who breach their duties to

the company. In addition, as a condition to the listing of Overseas Listed Foreign Shares on the

Stock Exchange, each director and supervisor of a joint stock limited company is required to

give an undertaking for observing the articles of association in favor of the company. This

allows minority shareholders to take action against directors and supervisors in default.


– V-31 –

Protection of Minorities

Under Hong Kong law, a shareholder who complains that the affairs of a company

incorporated in Hong Kong are conducted in a manner unfairly prejudicial to his interests may

petition to the court to either liquidate such company or make an appropriate order regulating

the affairs of the company. In addition, on the application of a specified number of members,

the Financial Secretary of Hong Kong may appoint inspectors who are given extensive

statutory powers to investigate the affairs of a company incorporated in Hong Kong. The PRC

Company Law provides that any shareholders holding 10% or above of voting rights of all

issued shares of a company may request a people’s court to dissolve the company to the extent

that the operation or management of the company experiences any serious difficulties and its

continuous existence would cause serious losses to them, and no other alternatives can resolve

such difficulties. The Mandatory Provisions, however, contain provisions that a controlling

shareholder may not exercise its voting rights in a manner prejudicial to the interests of the

shareholders generally or of a proportion of the shareholders of a company to relieve a director

or supervisor of his duty to act honestly in the best interests of the company or to approve the

expropriation by a director or supervisor of the company’s assets or the individual rights of

other shareholders.

Notice of Shareholders’ General Meetings

Under the PRC Company Law, notice of a shareholders’ annual general meeting must be

given not less than 20 days before the meeting, whereas notice of a shareholders’ special

general meeting must be given not less than 15 days before the meeting. If a company issues

bearer shares, notice of a shareholders’ general meeting must be given at least 30 days prior

to the meeting. Under the Special Regulations and the Mandatory Provisions, at least 45 days’

written notice must be given to all shareholders, and shareholders who wish to attend the

general meeting must return the written reply slip for attending the meeting to the company at

least 20 days before the date of the meeting. For a company incorporated in Hong Kong, the

minimum periods of notice are 14 days and 21 days in the case of a general meeting to be

convened for the adoption of an ordinary resolution and a special resolution. The notice period

is 21 days in the case of an annual general meeting.

Quorum for Shareholders’ General Meetings

Under Hong Kong company law, the quorum for a general meeting must be at least two

members unless the articles of association of the company otherwise provide. For companies

with only one member, the quorum must be one member.

The PRC Company Law does not specify any quorum requirement for a shareholders’

general meeting, but the Special Regulations and the Mandatory Provisions provide that a

company shall calculate the total number of voting shares represented by shareholders who

intend to attend a shareholders’ general meeting based on the written replies to the notice of

that meeting received at least 20 days prior to the meeting. When the number of voting shares


– V-32 –

represented by shareholders who intend to attend the meeting is more than 50% of the total

number of voting rights of the company, the company may convene the shareholders’ general

meeting. Otherwise, the company shall within five days notify its shareholders again by way

of a public announcement and the shareholders’ general meeting may be held thereafter.

Voting

Under Hong Kong company law, an ordinary resolution is passed by a simple majority of

votes cast by the shareholders attending a shareholders’ general meeting in person or by proxy,

and a special resolution is passed by a majority of at least 75% of votes cast by shareholders

attending a the shareholders’ general meeting in person or by proxy. Under the PRC Company

Law, the passing of any resolution at a shareholders’ general meeting requires affirmative votes

of shareholders representing more than half of the voting rights represented by the shareholders

who attend the general meeting in person or by proxy, except in cases of proposed amendments

to a company’s articles of association, increase or reduction of registered capital, merger,

division or dissolution of a joint stock limited company, or change of company form, which

require affirmative votes of shareholders representing more than two-thirds of the voting rights

represented by the shareholders who attend the general meeting in person.

Financial Disclosure

Under the PRC Company Law, a company is required to make available at the company

for inspection by shareholders its financial report 20 days before its shareholders’ annual

general meeting. In addition, a company of which the shares are publicly offered must publish

its financial condition in accordance with the PRC Company Law. The annual balance sheet

shall be verified by its certified accountant. The Companies Ordinance of Hong Kong requires

a company incorporated in Hong Kong to send every shareholder a copy of its financial

statements, auditors’ report and directors’ report, which are to be presented before the company

in its annual general meeting, not less than 21 days before the annual general meeting. A

company is required under the PRC law to prepare its financial statements in accordance with

the PRC GAAP. The Mandatory Provisions require that a company must, in addition to

preparing financial statements according to the PRC GAAP, have its financial statements

prepared and audited in accordance with international or Hong Kong accounting standards and

its financial statements must also contain a statement of the financial effect of the material

differences (if any) from the financial statements prepared in accordance with the PRC GAAP.

The Special Regulations require that there should not be any inconsistency between the

information disclosed within and outside the PRC and that, to the extent that there are

differences in the information disclosed in accordance with the relevant PRC and overseas

laws, regulations and requirements of the relevant stock exchanges, such differences should

also be disclosed simultaneously.


– V-33 –

Information on Directors and Shareholders

The PRC Company Law gives shareholders the right to inspect the company’s articles ofassociation, minutes of the shareholders’ general meetings, and financial and accountingreports. Under the articles of association, shareholders have the right to inspect and copy (atreasonable charges) certain information on shareholders and on directors which is similar to theinformation provided to shareholders of Hong Kong companies under Hong Kong law.

Receiving Agent

Under the PRC Company Law and Hong Kong law, dividends once declared are debtspayable to shareholders. The limitation period for debt recovery action under Hong Kong lawis six years, while under the PRC law this limitation period is two years. The MandatoryProvisions require the relevant company to appoint a trust company registered under the HongKong Trustee Ordinance (Chapter 29 of the Laws of Hong Kong) as a receiving agent to receiveon behalf of holders of shares dividends declared and all other monies owed by the companyin respect of its overseas shares.

Corporate Reorganization

Corporate reorganization involving a company incorporated in Hong Kong may beeffected in a number of ways, such as a transfer of the whole or part of the business or propertyof the company in the course of voluntary winding up to another company pursuant to Section237 of the Hong Kong Companies (Winding Up and Miscellaneous Provisions) Ordinance ora compromise or arrangement between the company and its creditors or between the companyand its members under Division 2 of Part 13 of the Hong Kong Companies Ordinance, whichrequires the sanction of the court. Under PRC Company Law, merger, division, dissolution orchange of company form of a company has to be approved by shareholders in general meeting.

Dispute Arbitration

In Hong Kong, disputes between shareholders on the one hand, and a companyincorporated in Hong Kong or its directors on the other, may be resolved through legalproceedings in the courts. The Mandatory Provisions provide that such disputes should besubmitted to arbitration at either the HKIAC or the CIETAC, at the claimant’s choice.

Mandatory Deductions

Under the PRC Company Law, a company, in distributing profits after tax to theshareholders, is required to make transfers equivalent to 10% of its after tax profit to thestatutory common reserve fund. When the accumulated amount of the statutory commonreserve fund of the company reaches 50% of the registered capital of the company, it may ceaseto transfer any amount to the statutory common reserve fund. Following the transfer to thestatutory common reserve fund from its after tax profit, the company may transfer applicableamount to the discretionary common reserved fund from its after tax profit. There are nocorresponding provisions under Hong Kong law.


– V-34 –

Remedies of the Company

Under the PRC Company Law, if a director, supervisor or senior management officer in

carrying out his duties infringes any law, administrative regulation or the articles of association

of a company, which results in damage to the company, that director, supervisor or senior

management officer shall be liable to the company for such damages. In addition, the Listing

Rules require listed companies’ articles to provide for remedies of the company similar to those

available under Hong Kong law (including rescission of the relevant contract and recovery of

profits from a director, supervisor or senior management officer).

Dividends

Under Hong Kong law, the limitation period for an action to recover a debt (including the

recovery of dividends) is six years, whereas under PRC laws, the relevant limitation period is

two years. The company must not exercise its powers to forfeit any unclaimed dividend in

respect of Overseas Listed Foreign Shares until after the expiry of the applicable limitation

period.

Fiduciary Duties

In Hong Kong, there is the common law concept of the fiduciary duty of directors. Under

the PRC Company Law and the Special Regulations, directors, supervisors and senior

management of a company shall undertake a fiduciary obligation to the company and are not

allowed to conduct any activities that are in competition with or detrimental to the interest of

the company.

Closure of Register of Shareholders

The Hong Kong Companies Ordinance requires that the register of shareholders of a

company must not generally be closed for the registration of transfers of shares for more than

30 days (extendable to 60 days in certain circumstances) in a year, whereas, as required by the

Mandatory Provisions and the Special Regulations, share transfers shall not be registered

within 30 days before the date of a shareholders’ general meeting or within five days before

the benchmark date set for the purpose of distribution of dividends.

Listing Rules

The Listing Rules provide additional requirements which apply to an issuer incorporated

in the PRC as a joint stock limited company and seeking a primary listing or whose primary

listing is on the Stock Exchange. Set out below is a summary of the principal provisions

containing the additional requirements which apply to the Company.


– V-35 –

Compliance Advisor

A company seeking listing on the Stock Exchange is required to appoint a compliance

advisor acceptable to the Stock Exchange for the period from its listing date up to the date of

the publication of its financial results for the first full financial year commencing after the

listing date so as to provide professional advice on continuous compliance with the Listing

Rules and all other applicable laws and regulations, rules, codes and guidelines, and to act at

all times, in addition to its two authorized representatives, as the principal channel of

communication with the Stock Exchange. The appointment of the compliance advisor may not

be terminated until a replacement acceptable to the Stock Exchange has been appointed.

If the Stock Exchange is not satisfied that the compliance advisor in fulfilling its

responsibilities adequately, it may require the company to terminate the compliance advisor’s

appointment and appoint a replacement. The compliance advisor must keep the company

informed on a timely basis of changes in the Listing Rules and any new or amended law,

regulation or code in Hong Kong applicable to the company. He/she must act as the company’s

principal channel of communication with the Hong Kong Stock Exchange if the authorized

representatives of the company are expected to be frequently outside Hong Kong.

Accountant’s Report

Unless the accounts relating to the accountant’s report have been audited pursuant to the

standards similar to the requirements of Hong Kong, international audit standards or PRC audit

standards, the Stock Exchange will generally not accept an accountant’s report of a PRC issuer.

The relevant report must normally be drawn up in conformity with HKFRS or IFRS or China

Accounting Standards for Business Enterprises (“CASBE”) in the case of a PRC issuer that has

adopted CASBE for the preparation of its annual financial statements.

Process Agent

The Company is required to appoint and maintain a person authorized to accept service

of process and notices on its behalf in Hong Kong throughout the period during which its

securities are listed on the Stock Exchange and must notify the Stock Exchange of his, her or

its appointment, the termination or his, her or its appointment and his, her or its contact

particulars.

Public Shareholding

If at any time there are issued securities of a PRC issuer other than foreign invested shares

which are listed on the Stock Exchange (the “Foreign Invested Shares”), the Listing Rules

require that the aggregate amount of such Foreign Invested Shares held by the public must

constitute not less than 25% of the PRC issuer’s issued share capital and that the Foreign

Invested Shares for which listing is sought must not be less than 15% of the issuer’s total issued

share capital, having an expected market capitalization at the time of listing of not less than


– V-36 –

HK$50 million. The Stock Exchange may, at its discretion, accept a lower percentage of

between 15% and 25% if the Company is expected to have a market capitalization at the time

of listing of more than HK$10 billion.

Independent Non-Executive Directors and Supervisors

Independent non-executive directors of a PRC issuer are required to demonstrate an

acceptable standard of competence and adequate commercial or professional expertise to

ensure that the interests of its shareholders as a whole can be adequately represented.

Supervisors of a PRC issuer must have the character, expertise and integrity and be able to

demonstrate the standard of competence commensurate with their position as supervisors.

Mandatory Provisions

In order strengthen the protection of investors, the Stock Exchange provides that a PRC

company whose primary listing place is on the Stock Exchange shall incorporate the

Mandatory Provisions, as well as the provisions with respect to the change, removal and

resignation of an auditor, shareholders’ general meetings of class of securities and acts of the

supervisory committee of the company into its articles of association. Such provisions have

been included into the Articles of Association, a summary of which is set out in Appendix V

to this prospectus.

Redeemable Shares

The Company shall not issue any redeemable shares unless the Stock Exchange is

satisfied that the relative rights of its holders of Foreign Invested Shares are adequately

protected.

Pre-emptive Rights

Except in the circumstances mentioned below, directors of the Company are required to

obtain approval by way of a special resolution of shareholders at general meeting, and the

approvals by way of special resolutions of the holders of Domestic Shares and Foreign Invested

Shares (each being otherwise entitled to vote at general meetings) at separate class meetings

conducted in accordance with and as required by its articles of association, prior to the

following: (1) authorizing, allotting, issuing or granting shares or convertible securities, or

share options, warrants or similar rights to subscribe for any shares or such convertible

securities; or (2) any such authorization, allotment, issuance or grant given by any major

subsidiaries of the Company, which would materially dilute the percentage of shareholdings

owned by the Company and its shareholders in the relevant subsidiaries.


– V-37 –

No such approval (subject to the extent of such approval) will be required to the extent

that the existing shareholders of a company have by special resolution in general meeting given

a mandate to the board of directors, either unconditionally or subject to such terms and

conditions as may be specified in the resolution, to authorize, allot or issue, either separately

or concurrently once every twelve months, not more than 20% of each of the existing issued

Domestic Shares and Foreign Invested Shares as at the date of the passing of the relevant

special resolution, or such shares are issued as part of the company’s plan at the time of its

establishment to issue Domestic Shares and Foreign Invested Shares and which plan is

implemented within fifteen months from the date of approval by the CSRC; or after the

approval by the securities regulatory and management authority of the State Council.

Supervisors

The Company shall adopt rules governing dealings by the Supervisors in securities of the

Company on terms no less exacting than those of the Model Code (as set out in Appendix 10

to the Listing Rules) issued by the Stock Exchange.

To the Company shall obtain the approval of its shareholders at a general meeting (at

which the relevant supervisor and his associates must abstain from voting on the matter) prior

to the company or any of its subsidiaries entering into a service contract of the following nature

with a supervisor or proposed supervisor of the Company or any of its subsidiaries: (1) the term

of the contract exceeds three years; or (2) the contract expressly requires the Company to give

more than one year’s notice or to pay compensation or make other payments equivalent to the

remuneration more than one year in order for it to terminate the contract.

The remuneration committee of the Company or an independent board committee must

form a view in respect of service contracts that require shareholders’ approval and advise

shareholders (other than shareholders with a material interest in the service contracts and their

associates) as to whether the terms are fair and reasonable, advise whether such contracts are

in the interests of the Company and its shareholders as a whole and advise shareholders on how

to vote.

Amendment to Articles of Association

The Company shall not permit or cause any amendment to be made to its articles of

association which would contravene the Listing Rules and the Mandatory Provisions or the

PRC Company Law.


– V-38 –

Documents for Inspection

The Company shall make available at a place in Hong Kong for inspection by the public

and shareholders of the Company free of charge, and for copying by its shareholders at

reasonable charges of the following:

• a complete duplicate register of shareholders;

• a report showing the status of its issued share capital;

• its latest audited financial statements and the reports of the directors, auditors and

supervisors, if any, thereon;

• its special resolutions;

• reports showing the number and nominal value of securities repurchased by the

Company since the end of the last financial year, the aggregate amount paid for such

securities and the maximum and minimum prices paid in respect of each class of

securities repurchased (with a breakdown between Domestic Shares and H Shares);

• copy of the latest annual report filed with the SAIC or other competent PRC

authorities; and

• for shareholders only, copies of minutes of shareholders’ general meetings.

Receiving Agents

The Company shall appoint one or more receiving agents in Hong Kong and pay to such

agent(s) dividends declared and other monies owed in respect of the H shares to be held,

pending payment, in trust for the holders of such H shares.

Statements in Share Certificates

The Company shall ensure that all of its listing documents and share certificates of H

shares include the statements stipulated below and instruct and cause each of its share

registrars to register the subscription, purchase or transfer of any of its shares in the name of

any particular holder after such holder delivers to the share registrar a signed form in respect

of such shares bearing statements to the following effect, that the acquirer of shares:

• agrees with the Company and each of its shareholder, and it agrees with each of its

shareholder, to observe and comply with the PRC Company Law, the Special

Regulations, its articles of association, and other relevant laws and administrative

regulations;


– V-39 –

• agrees with the Company, each shareholder, Director, Supervisor, manager and other

senior management officer, and the Company (acting both for itself and for each

Director, Supervisor, manager and other senior management officer), agree with

each Shareholder to refer all differences and claims arising from the Articles of

Association or any rights or obligations conferred or imposed by the PRC Company

Law or other relevant laws and administrative regulations concerning the

Company’s affairs to arbitration in accordance with the Articles of Association. Any

reference to arbitration shall be deemed to authorize the arbitration tribunal to

conduct hearings in open session and to publish its award. Such arbitration shall be

final and conclusive;

• agrees with the Company and each Shareholder that Shares are freely transferable

by the holder thereof; and

• authorizes the Company to enter into a contract on his behalf with each Director,

Supervisor and senior management officer whereby such Directors, Supervisors and

senior management undertake to observe and comply with their obligations to

Shareholder as stipulated in the Articles of Association.

Compliance with the PRC Company Law, the Special Regulations and Articles of

Association

The Company is required to observe and comply with the PRC Company Law, the Special

Regulations and the Articles of Association.

Contract between the Company and its Directors, Senior Management and Supervisors

The Company is required to enter into a contract in writing with every Director and senior

management containing at least the following provisions:

• an undertaking by the Director or senior management to itself to observe and comply

with the PRC Company Law, the Special Regulations, the Articles of Association,

the Takeovers Code and an agreement that it must have the remedies provided in the

Articles of Association and that neither the contract nor his office is capable of

assignment;

• an undertaking by the Director or senior management to the Company acting as

agent for each Shareholder to observe and comply with his obligations to our

Shareholders as stipulated in the Articles of Association;


– V-40 –

• an arbitration clause which provides that whenever any disputes or claims arise from

the contract, its Articles of Association or any rights or obligations conferred or

imposed by the PRC Company Law or other relevant law and administrative

regulations concerning affairs between the Company and its Directors or senior

management and between a holder of H shares and a Director or senior management,

such disputes or claims will be referred to arbitration at either the CIETAC in

accordance with its rules or the HKIAC in accordance with its Securities Arbitration

Rules, at the election of the claimant and that once a claimant refers a dispute or

claim to arbitration, the other party shall submit to the arbitral tribunal elected by

the claimant. Such arbitration will be final and conclusive;

• If the party seeking arbitration elects to arbitrate the dispute or claim at HKIAC,

then either party may apply to have such arbitration conducted in Shenzhen,

according to the Securities Arbitration Rules of the HKIAC;

• PRC laws shall govern the arbitration of disputes or claims referred to above, unless

otherwise provided by law or administrative regulations;

• The award of the arbitral tribunal is final and shall be binding on the parties thereto;

and

• Disputes over who is a Shareholder and over the share register do not have to be

resolved through arbitration.

A PRC issuer is also required to enter into a contract in writing with every Supervisor

containing statements in substantially the same terms.

English Translation

All notices or other documents required under the Listing Rules to be sent by a PRC issuer

to the Stock Exchange or to holders of the H shares are required to be in English, or

accompanied by a certified English translation.

General

If any change in the PRC law or market practices materially alters the validity or accuracy

of any basis upon which the additional requirements have been prepared, the Stock Exchange

may impose additional requirements or make listing of H shares by a PRC issuer subject to

special conditions as the Stock Exchange may consider appropriate. Whether or not any such

changes in the PRC law or market practices occur, the Stock Exchange retains its general power

under the Listing Rules to impose additional requirements and make special conditions in

respect of the Listing.


– V-41 –

OTHER LEGAL AND REGULATORY PROVISIONS

Upon the listing on the Stock Exchange, the provisions of the SFO, the Takeovers Code

and such other relevant ordinances and regulations will apply to the Company.

SECURITIES ARBITRATION RULES

Pursuant to the Articles of Association, any claims arising from the Articles of

Association, the PRC Company Law and any other applicable laws shall be submitted to

CIETAC or HKIAC for arbitration in accordance with the respective arbitration rules. The

Securities Arbitration Rules of the HKIAC contain provisions allowing an arbitral tribunal to

conduct a hearing in Shenzhen for cases involving the affairs of companies incorporated in the

PRC and listed on the Stock Exchange so that PRC parties and witnesses may attend. Where

any party applies for a hearing to take place in Shenzhen, the tribunal shall, where satisfied that

such application is based on bona fide grounds, order the hearing to take place in Shenzhen

conditional upon all parties, including witnesses and arbitrators, being permitted to enter

Shenzhen for the purpose of the hearing. Where a party, other than a PRC party, or any of its

witnesses or any arbitrator is not permitted to enter Shenzhen, then the tribunal shall order that

the hearing be conducted in any practicable manner, including the use of electronic media. For

the purpose of the Securities Arbitration Rules, a PRC party means a party domiciled in the

PRC other than the territories of Hong Kong, Macau and Taiwan.

Any person wishing to have detailed advice on PRC law or the laws of any jurisdiction

is recommended to seek independent legal advice.


– V-42 –

Set out herein is a summary of the Articles of Association, the principal objective ofwhich is to provide potential investors with an overview of the Articles of Association. As theinformation contained herein is in summary form, it may not contain all the information thatis important to potential investors.

1 DIRECTORS AND BOARD OF DIRECTORS

(1) Power to allocate and issue shares

The Articles of Association does not contain clauses that authorize the Board of Directorsto allocate or issue shares. The Board of Directors shall prepare suggestions for share allotmentor issue, which are subject to approval by the shareholders at the shareholders’ general meetingin the form of a special resolution. Any such allotment or issue shall be in accordance with theprocedures stipulated in appropriate laws, administrative regulations and supervision rules ofshares listed region.

(2) Power to dispose assets of our Company or our subsidiaries

In any case that the Board of Directors intends to dispose assets, if the sum of theexpected value of the fixed assets to be disposed of, and the amount or value of the costreceived from the fixed assets of our Company disposed of within the four months immediatelypreceding this suggestion for disposal exceeds 33% of the value of fixed assets of our Companyindicated on the latest audited balance sheet submitted at the shareholders’ meeting, the Boardof Directors shall not dispose of or agree to dispose of such fixed assets without the priorapproval of shareholders at the shareholders’ general meeting.

The above disposal refers to the transfer of rights and interests in certain assets, but doesnot include the provision of guarantees with fixed assets.

The validity of the transactions with respect to the disposal of fixed assets of ourCompany shall not be affected by the violation of the above restrictions contained in theArticles of Association.

(3) Indemnification or compensation for loss of office

As provided in the written contract entered into between our Company and the Directorsor Supervisors in connection with their emoluments, they are entitled to compensation or otherpayments for loss of office or retirement as a result of the acquisition of our Company, subjectto the approval of the shareholders at the general shareholders’ meeting in advance.

Acquisition of our Company refers to any of the following circumstances:

i. An offer made by any person made to all the shareholders; or

ii. An offer is made by any person such that the offeror will become the Controllingshareholder of our Company. The definition of controlling shareholder is the sameas defined in the Articles of Association).

APPENDIX VI SUMMARY OF THE ARTICLES OF ASSOCIATION

– VI-1 –

If the relevant Director or Supervisor fails to comply with the above requirements, any

payment received shall belong to the person who sells the shares for accepting the aforesaid

offer. The Director or Supervisor shall bear all expenses arising from the distribution of such

payments to the person in a proportional manner and all related expenses shall not be deducted

from these payments distributed.

(4) Loans to Directors, Supervisors or other management personnel

Our Company shall neither provide the Directors, Supervisors or senior management of

our Company or our parent company with loans or loan guarantees either directly or indirectly

nor provide persons related to the above personnel with loans or loan guarantees. In the event

that our Company provides loans in violation of this restriction, the person who receives the

loan(s) must payoff the loan(s) immediately, regardless of the conditions of loans. Any loan

provided by our Company in violation of the above requirements shall not be mandatorily

enforced against us, unless under the following circumstances:

i. The loan provider unknowingly provides loans to personnel related to the Directors,

Supervisors or senior management of our Company or its parent company; or

ii. The collateral provided by our Company is sold lawfully by the lender to the buyer

in good faith.

The following transactions are exempted from the above clauses:

i. Our Company provides our subsidiaries with loans or loan guarantees;

ii. Our Company provides any of the Directors, Supervisors or senior management with

loans, loan guarantees or any other fund pursuant to the employment contracts

approved at the shareholders’ meeting to pay all expenses incurred for the purpose

of our Company or performing his duties owed to our Company; and

iii. In case that the normal scope of business of our Company covers the provision of

loans or loan guarantees, our Company may provide any of the Directors,

Supervisors or senior management or other related personnel with loans or loan

guarantees, provided that the conditions governing the above loans or loan

guarantees shall be normal commercial conditions.

For the purpose of the above provisions, “guarantee” includes the acts of the guarantor

bearing the liabilities or providing properties to ensure that the obligor performs the

obligations.


– VI-2 –

(5) Provide financial aid for acquiring the shares or shares of any of our subsidiaries

Pursuant to the Articles of Association:

i. Our Company or our subsidiaries (including our affiliated enterprises) shall notprovide any financial assistance at any time or in any manner to personnel thatacquires or plans to acquire our shares. Such personnel include any who undertakeobligations, directly or indirectly, from acquiring the shares; and

ii. Our Company or any of our subsidiaries (including our affiliated enterprises) shallnot provide personnel mentioned in the preceding paragraph with financial aid atany time or in any manner, to mitigate or exempt the obligations of the abovepersonnel.

“Assuming obligations” includes obligator undertaking obligations by signingagreements or making arrangements (no matter whether the agreements or arrangements areenforceable on demand or bearing the obligations by itself or jointly with any other person) orchanging its financial status in any other manner.

For the purpose of the above provisions, “Financial aid” includes, but is not limited to:

i. Gifts;

ii. Guarantees (including acts of the guarantor assuming liabilities or providingproperties to ensure that the obligor performs the obligations), compensation(excluding compensation arising from mistakes of our Company), release or waiverof rights;

iii. Provision of loans or signing of contracts whereby our Company performs someobligations before others, change of the parties to the loans/contracts as well as theassignment of the rights in the loans/contracts; and

iv. Financial aid provided by our Company in any other manner when it is insolvent,has no net assets, or will suffer significant decreases in net assets.

The following transactions are not prohibited:

i. Related financial aid provided by our Company which is in good faith in our interestand the main purpose of the financial aid is not to acquire our shares or is anincidental part of a master plan of our Company;

ii. The lawful distribution of our properties by way of dividend;

iii. Distribution of dividends in the form of shares;

iv. Reducing the registered capital, redeeming the shares or adjusting the equitystructure pursuant to the Articles of Association;


– VI-3 –

v. Our Company granting loans within our scope of business and in the ordinary course

of our business, provided that such loans shall not result in reduction in the net

assets of our Company or even if the net assets are reduced, such financial aid is paid

from the profit available for distribution; and

vi. Our Company providing the employee stock ownership plan with fund, provided

that such loans shall not result in reduction in the net assets of our Company or, even

if the net assets are reduced, such financial aid is paid from the profit available for

distribution.

(6) Disclose matters relating to the contract rights of our Company and voting on the

contracts

When any of the Directors, Supervisors and senior management has material interests in

the contracts, transactions or arrangements that our Company has entered into or plans to enter

into in any manner directly or indirectly (except for employment contracts that our Company

has entered into with the Directors, Supervisors and senior management), the above personnel

shall disclose the nature and degree of their interests to the Board of Directors as soon as

possible no matter whether the above contracts, transactions, arrangements or suggestions are

subject to the approval of the Board of Directors in normal circumstances.

With respect to any contract, transaction or arrangement in which a Director or his

associates have a material interest, the Director shall not vote and shall not be included in the

quorum. Unless the Directors, Supervisors and senior management who have interests have

made disclosure to the Board of Directors in accordance with the above requirements and the

Board of Directors approves the matters at the meeting in which they are not included in the

quorum nor participate in voting, our Company shall have the right to cancel the contracts,

transactions or arrangements, except where the opposite party is a party in good faith without

knowledge of the acts of related Directors, Supervisors and senior management violating their

obligations. Where related personnel of the Directors, Supervisors and senior management

have interests in certain contracts, transactions and arrangements, the relevant Directors,

Supervisors and senior management shall be deemed to have interests.

Prior to our company’s first considering of the relevant contracts, transactions or

arrangements, if the Directors, Supervisors and senior management have notified the Board of

Directors in written and state that with regard to the content of such notice, they have interest

in certain contracts, transactions and arrangements thereafter. And within the scope specified

by such notice, the relevant Directors, Supervisors and senior management have made

disclosures which are in according with this Article of Association.


– VI-4 –

(7) Remuneration

Our Company shall sign written agreements with the Directors, Supervisors and senior

management regarding remuneration, which shall be subject to prior approval of the general

shareholders’ or Board of Directors’ meeting, including:

i. Remuneration for providing services as the Directors, Supervisors or senior

management of our Company;

ii. Remuneration for providing services as the Directors, Supervisors or senior

management of our subsidiaries;

iii. Remuneration for providing other services for management of our Company and our

subsidiaries; and

iv. Compensation received by the Directors or Supervisors as a result of loss of position

or retirement.

No Director or Supervisor shall institute any litigation against our Company over any

interests payable relative to the above unless provided for in the above contracts.

(8) Resignation, Appointment and Dismissal

None of the following persons shall serve as our Director, Supervisor or senior

management:

i. Anyone who has no civil capacity or has limited civil capacity;

ii. Anyone who has been convicted of the offense of corruption, bribery,

embezzlement, larceny, or disrupting the social economic order and is within five

years of the expiry date of punishment or has been deprived of political rights

because of this conviction and is within five years of the expiry date of the sentence;

iii. Anyone who has served as director, factory manager or manager of a company or

enterprise that is bankrupt and liquidated as a result of improper management, was

personally liable for the bankruptcy of our Company or enterprise, and is within

three years of the date of completion of bankruptcy and liquidation of our Company

or enterprise;

iv. Anyone who has served as the legal representative of a company or enterprise whose

business license was revoked or was ordered to close due to violation of laws, was

personally liable, and is within three years of the date on which the business license

of such company or enterprise was revoked;

v. Anyone who has a large sum of debt, which was not paid at maturity;


– VI-5 –

vi. Anyone who is investigated by the judicial agencies for violation of criminal law

and whose case is pending;

vii. Persons who are subject to the competent authority of securities of the State

Council’s punishment which prohibit them from entering into the securities market

for a period which has not yet expired;

viii. Anyone who may not serve as a head of the company pursuant to the provisions of

the laws and administrative regulations, or regulations of the competent authorities;

ix. Anyone judged by the competent agencies to have violated the provisions of

relevant securities laws, has been involved in deceptive or dishonest acts and is

within five years of the date on which the judgment was made;

x. Anyone who is not a natural person;

xi. Other circumstances which are applicable pursuant to the provisions of the laws and

administrative regulations, regulations of the competent authorities or the securities

regulators or stock exchanges where our Company’s shares are listed.

The validity of the acts of the Directors or senior management on behalf of our Company

to bona fide third parties shall not be affected by any irregularities in their appointment,

election or qualifications.

The Board of Directors consists of nine Directors, three of which are Independent

Non-executive Directors. The Board of the Director has one chairman of the Board. The

shareholders’ meeting can decide whether a vice chairman of the Board shall be elected and the

way of election via ordinary resolution. Directors are elected at the general shareholders’

meeting. The Directors need not hold any of our shares. It shall be at least 7 days in advance

for issuance written notice to our company regarding nomination of Director candidate and

regarding the candidate’s acceptance of such nomination. Nomination of each candidate for the

Director shall be made in a single proposal.

The chairman and vice chairman of the Board shall be elected and dismissed by a vote

of more than one half of the Directors. The general shareholders’ meeting may remove any

Director whose term has not expired by an ordinary resolution without affecting any claim for

damages that may be made pursuant to any contract.

The chairman, vice chairman of the Board and other Directors serve three-year terms.

Upon expiration of the term, the Director may be re-elected. Director can be the general

manager or other senior management personnel at the same time. However, the amount of the

Directors who are also general manager or other senior management personnel and the Director

who represents employees can not be less half of the amount of the Directors.


– VI-6 –

(9) Responsibilities

The Directors, Supervisors and senior management shall bear the obligations of good

faith and diligence towards our Company. In the event of violation of obligations owed to our

Company by the Directors, Supervisors and senior management, we shall have the right to take

the following measures in addition to various rights and remedial measures stipulated in legal

and administrative regulations:

i. Require related Directors, Supervisors or senior management to compensate our

Company for losses sustained as a result of their neglect of duty;

ii. Cancel any contract or transaction entered into between our Company and related

Directors, Supervisors or senior management as well as any contract or transaction

entered into between our Company and any third person when the third person knew

or should have known that the Directors, Supervisors or senior management acting

on behalf of our Company violated their obligations owed to our Company;

iii. Require the relevant Directors, Supervisors or senior management to turn over the

proceeds obtained from the violation of their obligations;

iv. Recover funds collected by the relevant Directors, Supervisors or senior

management that should have been collected for our Company, including but not

limited to commissions;

v. Require the relevant Directors, Supervisors or senior management to return the

interest earned or that may be earned from funds that should have been paid to our

Company;

vi. Require the Directors, Supervisors or senior management to return properties

obtained from violation of their obligations through legal procedure and verdicts.

When performing their responsibilities, the Directors, Supervisors and senior

management must comply with the principle of integrity and shall not put themselves in

situations where their own interests may conflict with the obligations they have undertaken.

This principle includes, but is not limited to, performing the following obligations:

i. Sincerely taking the best interests of our Company as the starting point of any

action;

ii. Exercising one’s rights within but not exceeding the scope of authority;

iii. Exercising conferred discretionary powers personally without being manipulated by

others; not transferring discretionary powers to other persons unless permitted by

laws and administrative regulations or with the informed consent of shareholders

given in a general meeting;


– VI-7 –

iv. Treating shareholders of the same class equally and shareholders of different classesfairly;

v. Entering into any contract, transaction or arrangement with our Company is notallowed, unless in line with the Articles of Association or otherwise by the approvalof the general shareholders’ meeting with its full knowledge;

vi. Seeking private gain using the properties of our Company in any manner is notallowed, unless agreed by the general shareholders’ meeting with its full knowledge;

vii. Using one’s position to take bribes or other illegal gains is not allowed, nor is anyform of embezzlement of our property, including, but not limited to, opportunitiesbeneficial to our Company;

viii. Accepting commissions associated with transactions of our Company is not allowedunless agreed by the general shareholders’ meeting with its full knowledge;

ix. Compliance with the Articles of Association, discharging duties in a faithful manner,safeguarding the interests of our Company rather than seeking private gain by takingadvantage of one’s position and authority in our Company;

x. Unless agreed by the shareholders at the general shareholders’ meeting with its fullknowledge, competing with our Company in any manner is not allowed; takeadvantage of position, take business opportunity which should have belonged to ourCompany for themselves or others, or conduct business that is similar with ourcompany by themselves or cooperating with others is not allowed, either;

xi. Misappropriation of our funds or lending these funds to others is not allowed, noris depositing the assets of our Company in an account opened in one’s own name orother names;

xii. Not to, in violation of the provisions of this Articles of Association, lend ourCompany’s funds to any other person or provide security for our Company’sshareholders or other persons with any properties of our Company, without theconsent of the general meeting or Board of Directors;

xiii. Not to harm the interests of our Company through use of his/her connectedrelationship;

xiv. Disclosure of any confidential information relating to our Company obtained duringemployment without the consent of the general shareholders’ meeting with its fullknowledge; unless in the interest of our Company, using such information is also notallowed; however, under the following circumstances the information may bedisclosed to a court or other competent government agencies as required by (1) theprovisions of the law; (2) the public interest; (3) the interest of the Directors,Supervisors or senior management; and


– VI-8 –

xv. Other behaviors violating the principle of loyalty to the Company.

The relevant personnel shall return the income obtained from violation of the aboveprovisions to our Company and shall bear the liability of compensation if our Company suffersdamage.

The Directors, Supervisors and senior management may not direct the followingpersonnel or institutions (“related personnel”) to do acts that the Directors, Supervisors andsenior management is prohibited from doing:

i. Spouses or minor children of the Directors, Supervisors and senior management;

ii. Trustors of the Directors, Supervisors and senior management or the personsmentioned in (i);

iii. Partners of the Directors, Supervisors and senior management or persons mentionedin (i) and (ii);

iv. Companies under de facto control by the Directors, Supervisors and seniormanagement individually or jointly with the persons or other directors, supervisorsand senior management of companies mentioned in (i), (ii) and (iii);

v. Directors, Supervisors or senior management of the controlled companies mentionedin (iv).

The good faith obligation owed by the Directors, Supervisors and senior managementmay not necessarily terminate with the expiration of their terms; their obligation to keep thetrade secrets of our Company in confidence shall survive the expiration of their terms, untilsuch secrets become publicly available. The duration of other obligations shall be determinedin accordance with the principle of fairness, depending on the length of time from theoccurrence of the events to the time of resignation, as well as the circumstances and conditionsunder which the relationship with our Company is terminated.

Except as otherwise provided in the Articles of Association, liabilities of Directors,Supervisors and senior management arising from the violation of specific duties may bereleased by informed shareholders in general meetings.

Apart from the obligations set forth in related laws, administrative regulations or thelisting rules of the stock exchange where the shares are listed, the Directors, Supervisors orsenior management shall assume the following obligations for each of the shareholders whenexercising their rights and performing their responsibilities:

i. They shall sincerely take the best interests of our Company as the starting point ofany action;

ii. They may not deprive our Company of our properties in any manner, including, butnot limited to, opportunities beneficial to our Company; and


– VI-9 –

iii. They shall not deprive the shareholders of personal rights and interests, including,but not limited to, the right to receive dividends distributed and to vote, except forrestructuring of our Company approved at the shareholders’ meeting pursuant to theprovisions of the Articles of Association.

The Directors, Supervisors and senior management have the responsibility whenexercising their rights or carrying out their obligations to act with the care, diligence and skilldue from a reasonably prudent person under similar circumstances.

Where Directors and senior management violate laws, regulations or the Articles ofAssociation in their duty performance and cause loss to our Company, the shareholders holding10% or more shares separately or jointly for consecutive 180 days may submit a written requestto the Board of Supervisors to file an action with the competent people’s court. Wheresupervisors violate laws, regulations or the Articles of Association in their duty performanceand cause loss to our Company, the shareholders may submit a written request to the Board ofDirectors to file an action with the competent people’s court.

Where the Board of Supervisors or if the Board of Directors refuse to file an action uponreceipt of the shareholders’ written request specified in the preceding paragraph, or fail to filean action within 30 days upon receipt thereof, or where the failure to immediately file an actionin an emergency case will cause irreparable damage to the interests of our Company, theshareholder(s) specified in the preceding paragraph may, in their own name, directly file anaction to the competent people’s court for the interest of our Company.

Where any other person infringes upon the legitimate rights and interests of our Companyand causes losses thereto, the shareholder(s) specified in this Articles of Association may filean action with the competent people’s court pursuant to the provisions of the preceding twoparagraphs.

2 MODIFICATION OF THE ARTICLES OF ASSOCIATION

We may amend the Articles of Association based on the provisions of the relevant laws,administrative regulations and Articles of Association. Where the amendments to the Articlesof Association passed by the general meetings need the examination and approval of thecompetent authorities, these amendments shall be submitted hereto for approval. Where theamendment of the Articles of Association involves our registration, it shall be necessary tocarry out the lawfully prescribed procedures for registration change.

3 RIGHTS CHANGES OF CURRENT SHARES AND CLASSIFIED SHARES

Any plan of our Company to change or abolish the rights of a classified shareholder is

subject to the approval of the general shareholders’ meeting in the form of a special resolution

and the approval of the affected classified shareholders at a separately convened shareholders’

meeting in accordance with the Articles of Association before it can be implemented, except

when provided in the Articles of Association that the unlisted shares held by our shareholders

become listed for trading on an overseas stock exchange.


– VI-10 –

Where the change or abolishment of the right of a classified shareholder is due to the

change of laws, administrative regulations or listing rules of the stock exchange where the

shares are listed, whether within or without the border, the approval of the general

shareholders’ meeting in the form of a special resolution or the approval of the affected

classified shareholders at a separately convened shareholders’ meeting is not needed.

The rights of a classified shareholder shall be viewed as changed or abolished under any

of the following circumstances:

i. Increase or reduce the number of the classified shares, or increase or reduce the

number of classified shares with equal or more voting rights, distribution rights or

other privileges than this type of classified shares;

ii. Convert all or part of the classified shares into other types or convert another type

of shares, partly or wholly, into this type of classified shares or grant such

conversion right;

iii. Cancel or reduce the right of the classified shares to obtain dividends generated or

cumulative dividends;

iv. Reduce or cancel the right of the classified shares to receive dividends on a priority

basis or the priority right to receive property distribution in the liquidation of our

Company;

v. Increase or cancel or reduce the right of the classified shares to convert share rights,

options rights, voting rights, transfer rights, and pre-emptive rights, or the right to

obtain the securities of our Company;

vi. Cancel or reduce the right of the classified shares to receive funds payable of our

Company in specified currencies;

vii. Create new classified shares entitled to equal or more voting rights, distribution

rights, or other privileges than the classified shares;

viii. Impose restrictions on the transfer or ownership of the classified shares or increase

such restrictions;

ix. Issue subscription or conversion rights for this or other classified shares;

x. Increase the rights and privileges of other types of shares;

xi. The restructuring plan of our Company may constitute different types of

shareholders to assume responsibilities disproportionately; and

xii. Amend or abolish clauses stipulated in our Articles of Association.


– VI-11 –

Whether or not the affected classified shareholders have voting rights at the shareholders’

meeting, in the event of matters described above from (ii) through (viii), (xi) and (xii), they

have voting rights at the classified shareholders’ meeting, but the shareholders that have

interests at stake shall have no voting rights at the classified shareholders’ meeting.

Shareholders that have interests at stake include:

i. In the event that a shareholder makes an offer to all the shareholders at the same

ratio according to this Articles of Association or purchase their own shares through

public transaction in a Stock Exchange, shareholders that have interests at stake

shall have the same meaning with Controlling shareholders as defined in this

Articles of Association;

ii. Where our Company purchase its own shares through reaching an agreement outside

the Stock Exchange and in accordance with this Articles of Association,

shareholders that have interests at stake shall mean the shareholders who are

relevant to such agreement;

iii. In our Company’s re-organization plan, shareholders that have interests at stake

shall mean shareholder who bear liability at a rate that is lower than other

shareholders in the same class or who hold different interests with other

shareholders in the same class.

The resolution of the classified shareholders’ meeting shall be passed by votes

representing more than two thirds of shareholders with voting rights attending the classified

shareholders’ meeting.

When convening a classified shareholders’ meeting, 45 days before the meeting is

convened, our Company shall send a written notice to inform all registered holders of the

classified shares on matters to be deliberated at the meeting, as well as the date and venue of

the meeting. Shareholders planning to attend the meeting shall send our Company a written

reply concerning attendance at the meeting 20 days before the meeting.

In the event that the number of shares with voting power represented by shareholders

planning to attend the meeting accounts for more than one half of the total number of said

classified shares with voting power at the meeting, our Company may convene a classified

shareholders’ meeting. If this number is not reached, our Company shall again inform the

shareholders of the matters to be deliberated as well as the date and venue of the meeting

within five days in the form of an announcement and our Company may convene a classified

shareholders’ meeting once the announcement is delivered. Where there are special rules in the

listing rules of the stock exchange where the shares are listed, the special rules prevails. The

notice of the classified meeting needs only to be sent to the shareholders who have the right

to vote at the meeting.


– VI-12 –

Insofar as possible, any classified meeting shall be held in accordance with the same

procedures as those of the shareholders’ meeting, and unless otherwise provided in the Articles

of Association, any clause that relates to the procedures for convening the shareholders’

meeting in the Articles of Association shall apply to any classified shareholders’ meeting.

Apart from the holders of other classified shares, the holders of domestic shares, holders

of unlisted foreign shares and the holders of overseas listed foreign shares are considered as

different classified shareholders.

The special procedures for voting by the classified shareholders shall not apply under the

following circumstances:

i. Upon the approval by a special resolution at the general shareholders’ meeting, our

Company either separately or concurrently issues domestic shares, unlisted foreign

shares and overseas listed foreign shares once every 12 months, and the number of

those shares to be issued shall not account for more than 20% of each of its

outstanding shares;

ii. The plan to issue domestic shares, unlisted foreign shares and overseas listed foreign

shares upon the establishment of our Company is completed within 15 months of the

date of approval by the securities regulatory authorities of the State Council; and

iii. Upon the approval by the securities regulatory authorities of the State Council, the

unlisted shares held by our shareholders become listed or traded on an overseas

stock exchange.

4 SPECIAL RESOLUTIONS NEEDED TO BE ADOPTED BY MAJORITY VOTE

The resolutions of the shareholders’ meeting are categorized as ordinary resolutions and

special resolutions.

An ordinary resolution can be adopted by a simple majority of the votes held by the

shareholders (including proxies) attending the general shareholders’ meeting.

A special resolution can be adopted by a two-thirds majority of the votes held by the

shareholders (including proxies) attending the general shareholders’ meeting.

5 VOTING RIGHTS (GENERALLY ON A POLL AND RIGHT TO DEMAND APOLL)

The ordinary shareholders have the right to attend or appoint a proxy to attend and vote

at the general shareholders’ meeting. When voting at the general shareholders’ meeting, the

shareholder (including proxy) may exercise his or her voting rights in accordance with the

number of shares with voting power held with each share representing one vote.


– VI-13 –

General meeting adopt open ballot. When voting at a general meeting, shareholders

(including their proxies) who are entitled to two or more votes are not required to vote against

or in favor with their total number of votes.

When the number of dissenting votes equals the number of supporting votes, the chairman

of the meeting is entitled to one additional vote.

6 RULES ON GENERAL SHAREHOLDERS’ MEETINGS

The general shareholders’ meetings are divided into annual general shareholders’

meetings and extraordinary general meetings. The annual general shareholders’ meeting shall

be convened once a year and be held within six months of the end of the previous fiscal year.

7 ACCOUNTING AND AUDITS

(1) Financial and accounting policies

Our Company shall develop its financial accounting policies pursuant to laws,

administrative regulations, as well as accounting standards developed by the competent

department in charge of finance under the State Council.

The Board of Directors shall submit the financial reports of our Company, as required by

the laws, administrative regulations or directives promulgated by local governments and

competent authorities to be prepared by our Company, at every annual shareholders’ meetings.

Apart from the China Accounting Standards For Business Enterprises and regulations, the

financial reports of our Company shall also conform to international accounting standards or

the accounting standards of overseas areas where the shares are listed. In the event of any major

discrepancy between the financial reports prepared in accordance with the two accounting

standards, such difference must be provided in the notes to the financial reports. As to the

distribution of after-tax profits of our Company in a fiscal year, the after-tax profits indicated

on the two financial reports, whichever is lower, shall prevail.

Our Company shall make its financial reports available for inspection by the shareholders

20 days before the annual general shareholders’ meeting is convened. Each shareholder is

entitled to obtain one copy of the financial report.

Our Company shall send the aforesaid reports to each of the holders of overseas listed

foreign shares by postage-paid mail or by the manner as allowed in laws and regulation of the

region where our Company lists shares and listing rule of the stock exchange where the shares

are listed at least 21 days before the annual general shareholders’ meeting is convened (in any

event no more than four months from the end of the relevant financial year).


– VI-14 –

Our Company’s interim results or financial information published or disclosed by our

Company shall at the same time be prepared in accordance with PRC accounting standards,

regulations as well as international accounting standards or the accounting standards of the

overseas area in which the shares are listed.

Our Company must publish the financial reports twice in each fiscal year. Interim

financial reports shall be published within 60 days of the end of the first six months of a fiscal

year, while the annual financial report shall be published within 120 days of the end of each

fiscal year.

Our Company shall not keep any accounting books other than those specified by law.

(2) Appointment and Dismissal of Accountants

Our Company shall appoint an accounting firm with independent qualifications that meets

appropriate requirements of the PRC to be responsible for auditing its annual report and

reviewing and checking its other financial reports.

The first accounting firm of our Company can be appointed by the founding meeting

before the first annual general shareholders’ meeting and the term of the appointment will

expire at the close of the first annual general shareholders’ meeting. In event that the founding

meeting does not exercise such power, the Board of Directors shall take it.

The term of the accounting firm appointed by our Company shall start at the close of the

annual general shareholders’ meeting and continue until the close of the next annual


If the position of an appointed accounting firm is vacant, the Board of Directors may

appoint an accounting firm before the start of annual general shareholders’ meeting. However,

if during the vacant period, our Company has other incumbent accounting firm, such

accounting firm may take the vacant.

Except the circumstances as above said, our Company shall appoint an accounting firm

by the decision of the shareholders’ meeting. The Board of Directors shall not appoint

accounting firm before shareholders’ meeting. Without prejudice to the right of the accounting

firm to claim for compensation (if any) for being dismissed and replaced, the shareholders may

replace the accounting firm through an ordinary resolution at the general shareholders’ meeting

prior to the expiration of the term of any accounting firm notwithstanding the terms and

conditions of the contract howsoever entered into between our Company and the accounting

firm.

In the event that the accounting firm requests to resign, it shall declare to the general

shareholders’ meeting whether our Company is affected by any improprieties.


– VI-15 –

The accounting firm shall resign by sending a written resignation notice to ourCompany’s legal address. The notice shall take effect on the date of delivery to that addressor on the date specified in the notice, whichever is later. The notice shall include the followingstatements:

i. Its resignation does not include any statement that should be disclosed to theshareholders or creditors of our Company; or

ii. Any statement that should be disclosed.

Within 14 days of receipt of the notice mentioned above, our Company shall send thecopy of the notice to related competent authorities. If the notice includes statements mentionedin (ii) of the preceding paragraph, our Company shall retain a copy thereof for perusal by theshareholders and send a copy of the above-mentioned statements to all shareholders who areentitled to receive our Company’s financial reports in accordance with the addresses registeredon the register of shareholders by postage-prepaid mail or subject to applicable laws,regulations and listing rules, post such information at our Company website or a site specifiedby the stock exchange of the place in which our Company’s shares are listed.

In the event that the resignation notice of the accounting firm includes any statement thatshould be disclosed to the shareholders or creditors, the accounting firm may request the Boardof Directors to convene an extraordinary general meeting to hear its explanations regarding theresignation.

8 NOTICE AND AGENDA OF GENERAL SHAREHOLDERS’ MEETINGS

The general shareholders’ meeting is the authorized organ of our Company that canperform duties and exercise powers in accordance with the law.

Apart from special circumstances such as where our Company is in crisis, without theapproval of a special resolution of the general shareholders’ meeting, our Company shall notenter into a contract with any person other than the Directors, Supervisors and seniormanagement that would make a person responsible for the management of all or part of themain business of our Company.

General shareholders’ meetings include annual general shareholders’ meeting andextraordinary general meeting. Under any of the following circumstances, the Board ofDirectors shall convene an extraordinary general meeting within two months:

i. The number of Directors is less than the number specified in our Company Law orless than two thirds of the number required in the Articles of Association;

ii. The uncovered losses of our Company reach one-third of its total paid-in sharecapital;

iii. The shareholders holding 10% or more shares separately or jointly request toconvene an extraordinary general meeting in writing;


– VI-16 –

iv. The Board of Directors considers it necessary or the Board of Supervisors proposes

convening an extraordinary general meeting;

v. Suggested by the Board of Supervisors; or

vi. Any other circumstances stipulated in laws, administrative regulations, regulations

of the competent authorities, the Articles of Association and the listing rules of the

place in which our Company’s shares are listed.

Independent Non-executive Directors and the Board of Supervisors may make a proposal

about convening an extraordinary general meeting. The Board of Directors shall issue a written

feedback about whether it agrees with such proposal or not within 10 days after receiving such

proposal in accordance with laws, administrative regulations and the Articles of Association.

In the event that the Board of Director agree to convene an extraordinary general meeting, the

notice of convening extraordinary general meeting shall be issued within 5 days after the Board

of Directors made a relevant resolution. With regard to the proposal of convening an

extraordinary general meeting made by the Independent Non-executive Director, the Board of

Directors shall explain the reasons and make a publication if rejection was made. With regard

to the proposal of convening an extraordinary general meeting made by the Board of

Supervisors, if the Board of Directors made a rejection or does not respond within 10 days after

it receiving the proposal, it shall be view as the Board of Directors is unable to or fails to

perform its duty of convening the general meeting and the Board of Supervisors may convene

and preside over the meeting by it own.

Shareholders who separately or jointly hold 10% or more of the shares may request the

Board of Supervisors to convene an extraordinary general meeting in accordance with the

following procedures:

i. Signing a written requirement or several copies with the same format to request an

extraordinary general meeting or classified shareholders’ meeting and to illustrate

the subject of the meetings. The Board of Directors shall issue a written feedback

about whether it agrees with such proposal or not within 10 days after receiving such

proposal in accordance with laws, administrative regulations and the Articles of

Association. The aforesaid number of shareholdings is calculated as at the date of

the submission of the written requirement by the shareholders;

ii. In the event that the Board of Directors agree to convene an extraordinary general

meeting, the notice of convening extraordinary general meeting shall be issued

within 5 days after the Board of Directors made a relevant resolution. Any revise

made to the origin request shall get the approval of the relevant shareholders;


– VI-17 –

iii. If the Board of Directors made a rejection or does not respond within 10 days after

it receiving the proposal, shareholders who separately or jointly hold 10% or more

of the shares may request the Board of Supervisors in written to convene an

extraordinary general meeting;

iv. In the event that the Board of Supervisors agree to convene an extraordinary general

meeting, the notice of convening extraordinary general meeting shall be issued

within 5 days after the Board of Supervisors made a relevant resolution. Any

revision made to the origin request shall get the approval of the relevant

shareholders;

v. If the Board of Supervisors fails to issue a meeting notice in the required period, it

is deemed that the Board of Supervisors will not convene nor preside over the

general shareholders’ meeting and the shareholders holding 10% or more shares

separately or jointly for consecutive 90 days may convene and preside over the

meeting by themselves. The number of shares holdings by the convening

shareholder before the date of the publication of meeting resolutions shall not be

less than 10%. The convening shareholder shall submit relevant proofs materials to

securities administrative authorities of region where our Company registers and the

Stock Exchange at the same time with the issuance of notice of the shareholders’

meeting and publication of meeting resolutions.

In the event that the general shareholders’ meeting is on schedule, the Board of Directors,

the Board of Supervisors and shareholders who separately or jointly hold more than 3% of the

shares of our Company may submit a proposal.

When convening a general shareholders’ meeting, our Company shall send a written

notice to inform all registered shareholders of the matters to be deliberated at the meeting as

well as the date and venue of the meeting 45 days before it is convened. Shareholders planning

to attend shall send to our Company a written reply 20 days before the meeting is held.

Our Company shall calculate the number of shares with voting power represented by the

shareholders planning to attend the general shareholders’ meeting in accordance with the

written replies received 20 days before the meeting is convened. In the event that the number

of shares with voting power represented by the shareholders planning to attend reaches more

than one half of our total number of shares with voting power, our Company may convene the

general shareholders’ meeting. If this number is not reached, our Company shall again inform

the shareholders of the matters to be deliberated and the date and venue of the meeting within

five days in the form of an announcement before the general shareholders’ meeting may be

convened. The extraordinary general meeting shall not decide on issues which are not listed in

the notice.


– VI-18 –

The notice of the general shareholders’ meeting shall include the following contents:

i. Specified venue, date and duration of the meeting;

ii. Specified matters and resolutions to be deliberated at the meeting;

iii. Provision to the shareholders of the materials and explanations necessary for the

shareholders to make sound decisions about the matters to be deliberated. This

principle includes, but is not limited to, the provision of the detailed terms and

contract, if any, of the proposed transactions and proper explanations about related

causes and effects when our Company proposes merger/s, redemption of shares,

restructuring of stock capital or other restructuring;

iv. In the event that any of the Directors, Supervisors, managers or other senior

management has material interests at stake in matters to be deliberated, the nature

and extent of the interests at stake shall be disclosed. If the matters to be deliberated

affect any Director, Supervisor, managers or other senior management as a

shareholder in a manner different from how they affect other shareholders of the

same type, the difference shall be explained;

v. Inclusion of the full text of any special resolution to be proposed for adoption at the

meeting;

vi. A clear explanation that all shareholder is entitled to attend and vote at the general

shareholders’ meeting, or to appoint one or more entrusted representative to attend

and vote at the meeting on his or her behalf and that such may not necessarily be

shareholders;

vii. Record date for shareholders who are entitled to attend the meeting;

viii. Name and telephone number of the contact person;

ix. Specified delivery time and place of the power of attorney for proxy voting of the

meeting.

The notice of the general shareholders’ meeting shall be sent in person or by postage-paid

mail to the shareholders (regardless of whether such shareholders have the right to vote at the

general shareholders’ meeting). Each recipient’s address shall be according to the address

indicated on the register of shareholders or subject to applicable laws, regulations and listing

rules, post such information at our Company website or a site specified by the stock exchange

of the place in which our Company’s shares are listed. For holders of domestic shares and

holders of unlisted foreign shares, the notice of our general shareholders’ meeting may be given

in the form of an announcement.


– VI-19 –

This announcement shall be published in one or more newspapers designated by thesecurities governing authority of the State Council within a period of 45 to 50 days before themeeting is convened. Once the announcement is made, all holders of domestic shares andunlisted foreign shares shall be deemed to have received the notice of our general shareholders’meeting. In the event that the notice of the meeting is not sent to persons entitled to receiveit due to accident or oversight, or such persons fail to receive notice of the meeting, the meetingand resolutions made at the meeting shall not be thereby affected.

The general shareholders’ meeting shall not be postponed or canceled and the proposalslisted in the notice shall not be canceled without just cause after the notice of generalshareholders’ meeting was made. If any circumstance that may result in delay or cancellationoccur, convener shall make publication and explain the reasons at least 2 working days beforethe original convening day.

The resolution of the general shareholders’ meeting includes ordinary resolution andspecial resolution. The following matters shall be approved by the general shareholders’meeting through ordinary resolutions:

i. Work report of the Board of Directors and the Board of Supervisors;

ii. Plans of earnings distribution and loss make-up schemes drafted by the Board ofDirectors;

iii. Appointment or dismissal of the members of the Board of Directors and the Boardof Supervisors who are not assumed by staff representatives;

iv. Remuneration and payment methods of the members of the Board of Directors andthe Board of Supervisors;

v. Annual budget and final account report;

vi. Annual report of our Company; and

vii. Other matters in addition to those approved by special resolution stipulated in thelaws, administrative regulations, listing rules of the stock exchange where the sharesare listed or the Articles of Association.

The following matters shall be approved by special resolution at the general shareholders’meeting:

i. Our Company’s capital stock increases or decreases and issues of any type of shares,warrants and other similar securities;

ii. Issues our Company’s bond;

iii. Division, merger, dissolution and liquidation of our Company and the change ofform of our Company;


– VI-20 –

iv. Amendment of the Articles of Association;

v. Substantial assets acquired or disposed of or guarantee granted for an amount

exceeding 30% of the latest audited total assets of our Company within one year;

vi. Share equity incentive plan;

vii. Other matters as required by the laws, administrative regulations, listing rules of the

stock exchange where the shares are listed or the Articles of Association, and as

approved by ordinary resolution of the general shareholders’ meeting which are

believed could materially affect our Company and need to be approved by special

resolution.

Pursuant to the laws, administrative regulations, listing rules of the stock exchange where

the shares are listed, with regard to any resolution, if any shareholder shall be abstained from

voting or required to vote for or against the resolution only, any voting violation conducted by

the shareholder (or its representative) shall not be credited to the vote.

In the event that our Company’s shareholders’ meeting or resolution of the Board of

Directors violates laws or administrative regulations, any shareholder is entitled to request the

court to deem it as invalid.

In the event that the convening procedure or voting formula of our Company’s

shareholders meeting or meeting of the Board of Directors is in violation of laws,

administrative regulations or the Articles of Association, or resolution of which violates the

Articles of Association, any shareholder is entitled to ask the court to overturn within 60 days

after the resolution was made.

9 SHARE TRANSFERS

The shares of our Company holding by the promoters thereof shall not be transferred

within one year of the date of establishment of our Company. The shares issued before the

public issuance of shares by our Company shall not be transferred within one year of the date

on which the stocks of our Company are listed and traded on a securities exchange.

The directors, supervisors, and senior management personnel of our Company shall

declare, to our Company, information on their holdings of the shares of our Company and the

changes thereto. The shares transferrable by them during each year of their term of office shall

not exceed 25 percent of their total holdings of the shares of our Company. The shares that they

held in our Company shall not be transferred within one year of the date on which the stocks

of our Company are listed and traded. The aforesaid persons shall not transfer their shares of

our Company within six months of their departure from our Company.


– VI-21 –

Where a director, supervisor or senior manager of our Company, or a shareholder who

holds 5% or more of the shares of our Company sells the shares of our Company within six

months of purchasing such shares, or repurchases the shares within six months of selling such

shares, the gains therefrom, if any, shall belong to our Company, and the Board of Directors

of our Company shall recover such gains.

Where the Board of Directors of our Company fails to take action in accordance with the

provisions of the preceding paragraph, the shareholders shall have the right to demand it to act

within 30 days. Where the Board of directors of our Company fails to take action within the

said time limit, the shareholders shall have the right to initiate, in their own name, a lawsuit

directly in a people’s court for the benefit of our Company.

Where the Board of Directors of our Company fails to take action in accordance with the

above paragraph, the Directors who are accountable thereto shall be held jointly and severally

liable pursuant to law.

With regard to the H shares that capital of which has been full-paid, transfer without any

limitation is allowed in accordance with the Articles of Association. However, unless such

shares meet the following conditions, the Board of Directors may refuse to recognize any

transfer document without giving any reason:

i. Any document that related to share ownership or transfer documents that are related

to or may affect the ownership of the shares shall be registered and shall pay to our

Company of certain fee per item of transfer document or a higher fee required by the

Board of Director, but such payment shall not exceed the maximum fee provided by

the Stock Exchange of Hong Kong in its Listing Rules from time to time;

ii. The transfer documents only involve shares listed in Hong Kong;

iii. The stamp duty chargeable on the transfer documents has been paid;

iv. The relevant share certificate, and upon the reasonable request of the Board of

Directors, any evidence in relation to the right of the transferor to transfer the shares

has been submitted;

v. If the shares are to be transferred to joint holders, the number of the joint holders

shall not exceed four; and

vi. Our Company does not have any lien on the relevant shares.


– VI-22 –

10 RIGHTS OF OUR COMPANY TO BUY BACK OUR OUTSTANDING ISSUEDSHARES

Under any of the following circumstances, our Company may buy back our outstandingissued shares pursuant to the Articles of Association:

i. Cancellation of the shares to reduce our Company’s share capital;

ii. Merger with other companies which hold our shares;

iii. Granting shares to the staff of our Company as incentives;

iv. Buying back the shares from shareholders who vote against any resolutions adoptedat the general shareholders’ meeting concerning the merger and division of ourCompany; or

v. Other circumstances as required by the laws, administrative regulations.

In the event our Company buys back the shares for reasons stated in (i), (ii), (iv) of thepreceding paragraph, our Company shall cancel or transfer such shares in the required periodpursuant to laws, administrative regulations and listing rules. In the event our Company buysback the shares for reasons stated in (iii) of the preceding paragraph, the ratio shall not exceedthe 5% provided by the laws and administrative regulations. The fund used for such buybackmust be allocated from the after-tax net profit of our Company and shall transfer to employeesin the required period.

After approved by the State relevant administrative authorities, Our Company may buyback shares in any of the following ways:

i. Making a comprehensive buyback offer in the same proportion to all shareholders;

ii. Buying back shares through public trading on the securities exchange;

iii. Buying back shares by an agreement outside a stock exchange;

iv. In other ways approved by the competent authorities.

Where our Company buys back the shares by an agreement outside a stock exchange, itshall obtain prior approval at the general shareholders’ meeting pursuant to the Articles ofAssociation. Likewise, subject to the prior approval of the general shareholders’ meeting, ourCompany may cancel or amend the contract signed in the aforesaid manner or waive any of itsrights in the contract. The contract that buys back the shares includes, but is not limited to, anagreement that consents to undertake the obligation to buy back the shares and obtain the rightsto buy them back.

Our Company shall not transfer any contract that buys back the shares or any rightsconferred under the contract.


– VI-23 –

Unless our Company has entered into the liquidation process, we must observe thefollowing provisions for the buyback of issued shares:

i. Where our Company buys back shares at book value, the funds shall be deductedfrom the book balance of our distributable earnings and the proceeds obtained fromthe issue of new shares to buy back the old shares;

ii. Where our Company buys back the shares at a premium to the book value, theportion of funds equivalent to book value shall be deducted from the book balanceof our distributable earnings and the proceeds obtained from the issue of new sharesmade for the purpose of buying back of shares, while the portion of funds higherthan book value shall be dealt with in the following manner:

(1) Where the shares bought back were issued at book value, the funds shall bededucted from the book balance of our distributable earnings;

(2) Where the shares bought back were issued at a premium to the book value, thefunds shall be deducted from the book balance of our distributable earningsand the proceeds obtained from the issue of new shares made for the purposeof buying back of shares. However, the amount deducted from the proceedsobtained from the issue of new shares shall not exceed the total premiumamount obtained when the shares bought back were issued or the amount in ourpremium account (including capital reserve account) when the shares arebought back (including the premium amount of the issue of new shares).

iii. The funds paid by our Company for the following purposes shall be allocated fromour distributable earnings:

(1) To obtain the right to buy back the shares;

(2) To modify any contract to buy back the shares;

(3) To release any obligation of our Company under the share buyback contract.

iv. After the total book value of the cancelled shares is deducted from our registeredcapital pursuant to the relevant provisions, the amount deducted from thedistributable earnings for paying up the book value portion of the shares boughtback shall be credited to our premium account (or capital reserve account).

11 DIVIDEND AND DISTRIBUTION METHODS

Our Company may distribute dividends by way of cash or shares or such other mannerpermitted by laws, administrative regulations, departmental rules and regulations and theregulatory rules of the locality where the listing is made (or adopt both ways simultaneously).

Shareholder is entitled to receive interest with regard to payment of the shares which waspaid before reminder notice. However, advance payment of the shares is not subject to anydividend thereof.


– VI-24 –

Our Company shall appoint receiving agents on behalf of shareholders of overseas listed

foreign shares. Receiving agents shall receive dividends and other payable funds that are

distributed with respect to our overseas listed foreign shares for the shareholders of overseas

listed foreign shares.

12 SHAREHOLDER PROXIES

Any shareholder who is entitled to attend and vote at our general shareholders’ meeting

has the right to appoint one or more persons (who may not necessarily be shareholders) as his

or her shareholder proxy to attend and vote at the meeting in his or her place. Pursuant to the

authorization of the shareholder, the proxy may exercise the following rights:

i. Speak for the shareholder at the general shareholders’ meeting;

ii. Demand a poll individually or with others;

iii. Except otherwise provided by the applicable listing rules or other securities laws and

regulations, exercise the right to vote by a show of hands or a poll, but the

shareholder proxy may only exercise the right to vote by a poll when more than one

proxy is appointed.

The shareholder proxy appointment shall be in writing and shall be signed by the

appointor or a person duly authorized in writing. Where the appointor is a legal person, the

stamp of the legal person shall be affixed, or signed by the Director or a duly authorized agent.

The power of attorney must be kept at the residential address or other location designated

in the notice convening the meeting no later than 24 hours before the meeting at which the

power of attorney is put to vote is convened or 24 hours before the designated time at which

the resolution is adopted. If the power of attorney is signed by another person authorized by

the appointor by means of power of attorney or other instrument of authorization, the power

of attorney or other instrument must be verified by a notary. The power of attorney or other

instrument verified by the notary must be kept together with the power of attorney appointing

the entrusted representative at our residential address or other location designated at the notice

convening the meeting.

A legal person shareholder should attend the meeting by its legal representatives or the

proxy appointed by the legal representative.

Any form sent by the Directors to the shareholder for appointing a shareholder proxy shall

allow the shareholder, according to his or her free will, to instruct the proxy to vote and provide

instructions separately for matters to be put to vote on each item on the meeting agenda. The

power of attorney shall specify that the shareholder proxy may vote at his or her own discretion

if the shareholder does not provide instructions.


– VI-25 –

The votes of the shareholder proxy given pursuant to the terms of an instrument of proxyshall remain valid notwithstanding the previous death, loss of capacity of the appointor orrevocation of the proxy or of the authority under which the proxy was executed, or the transferof the shares in respect of which the proxy is given, provided that our Company does notreceive written notice concerning such matters before the related meeting is convened.

13 REVIEW THE REGISTER OF SHAREHOLDERS AND OTHER RIGHTS OFSHAREHOLDERS

Our Company shall make a register of shareholders in accordance with evidentiarydocuments provided by the securities registration authorities.

Pursuant to the understanding reached and agreement entered into between the competentagency in charge of securities under the State and the overseas securities regulatory authorities,our Company may keep the original register of the shareholders of the overseas listed foreignshares overseas and entrust an overseas entity to manage it. The original register of theshareholders of the overseas listed foreign shares listed in Hong Kong shall be kept in HongKong.

Our Company shall keep a copy of the register of the holders of the overseas listed foreignshares at our residential address. The overseas entrusted entity shall at all times maintainconsistency between the original and copy of the register of the holders of the overseas listedforeign shares. In case of inconsistency between the original and copy of the register of theholders of the overseas listed foreign shares, the original shall prevail.

Our Company must keep a complete register of shareholders. The register of Shareholdersshall include the following:

i. Register of shareholders kept at our residential address other than those specified in(ii) and (iii);

ii. Register of the holders of our overseas listed foreign shares kept at the location ofthe stock exchange where such shares are listed; and

iii. Register of shareholders kept in other locations according to the decision of theBoard of Directors as required for the listing of the shares.

Different parts of the shareholders’ register shall not overlap. The transfer of sharesregistered in a certain part of the register of shareholders shall not be registered elsewhere inthe register of shareholders as long as the shares remain registered.

Any alteration or rectification to any part of the register of shareholders shall be made inaccordance with the laws in the place where such part of the register of shareholders ismaintained.

No change of the register of shareholders as a result of share transfer shall be made within30 days before the general shareholders’ meeting is convened or within five days prior to therecord date on which our Company decides to pay dividends.


– VI-26 –

When our Company convenes the general shareholders’ meeting, pays dividends, goes

into liquidation or is involved in other actions that require the confirmation of equities, the

Board of Directors or the convenor of the general shareholders’ meeting shall fix a date as the

equity registration date, upon expiration of which the shareholders whose names appear on the

register of shareholders shall be the shareholders.

Any person who objects to the register of shareholders and requests to register his or her

name (title) in the register of shareholders or to remove his or her name (title) from the register

of shareholders may apply to the court with jurisdiction to amend the register of shareholders.

The shareholders are entitled to obtain the following information, including but not

limited to:

i. The Articles of Association after paying the cost;

ii. The right to inspect and copy the following after paying a reasonable fee:

(1) All parts of the register of shareholders;

(2) Personal data of the Directors, Supervisors and senior management;

(3) Status of the issued share capital of our Company;

(4) Report on the total book value, quantity, maximum and minimum prices of

each class of own shares repurchased by our Company since the previous

accounting year and all expenses paid by our Company for this purpose;

(5) Bond counterfoil of our Company, minutes of the general meeting, special

resolutions, resolutions of the Board of Directors’ meeting, resolutions of the

Board of Supervisors’ meeting, financial accounting report;

(6) The latest audited financial statements, and reports of the Board of Directors,

the auditors and the Board of Supervisors;

(7) Copy of the latest annual inspection report submitted to the competent

administration for industry and commerce or other competent authorities for

filing (if applicable).

Whenever a shareholder proposes to inspect the relevant information as described above

or requests materials, he or she shall provide our Company with written documents certifying

the type and number of the shares held. Our Company shall provide the relevant information

and materials in accordance with the requirements of the shareholder after verifying his or her

identity and may charge a reasonable fee for providing such copies of the materials.


– VI-27 –

14 QUORUM OF GENERAL SHAREHOLDERS’ MEETINGS

In the event that the number of shares with voting power represented by the shareholders

planning to attend reaches more than one half of our total number of shares with voting power,

our Company may convene the general shareholders’ meeting. If this number is not reached,

our Company shall again inform the shareholders of the matters to be deliberated and the date

and venue of the meeting within five days in the form of an announcement. Our Company may

convene a general shareholders’ meeting once the announcement is delivered.

In the event that the number of shares with voting power represented by the shareholders

planning to attend reaches more than one half of our total number of classified shares with

voting power, our Company may convene the classified shareholders’ meeting. If this number

is not reached, our Company shall again inform the shareholders of the matters to be

deliberated and the date and venue of the meeting within five days in the form of an

announcement. Our Company may convene a classified shareholders’ meeting once the

announcement is delivered.

15 RESTRICTIONS ON RIGHTS OF THE CONTROLLING SHAREHOLDERS

Apart from the obligations required in laws, administrative regulations, or the listing rules

of the stock exchange on which our shares are listed, the Controlling shareholder shall not

make any decision that is detrimental to the interest of all or part of the shareholders on the

following issues by exercising his or her shareholder voting rights:

i. Releasing the Directors and Supervisors from the responsibility of acting honestly

in the best interest of our Company;

ii. Permitting the Directors and Supervisors (for their own or others’ interests) to

deprive our Company of assets in any form, including, but not limited to, any

opportunity that is beneficial to our Company; and

iii. Permitting the Directors and Supervisors (for their own or others’ interests) to

deprive other shareholders of their personal rights and interests, including, but not

limited to, any dividend distribution or voting right, but excluding the restructuring

of our Company approved at the general shareholders’ meeting pursuant to the

Articles of Association.

16 COMPANY LIQUIDATION

Under any of the following circumstances, our Company shall be lawfully dissolved and

liquidated:

i. Cause of dissolution stipulated in the Articles of Association occur;

ii. The general shareholders’ meeting adopts a resolution to dissolve our Company;


– VI-28 –

iii. Our Company needs to be dissolved for the purpose of merger or division;

iv. Our Company is declared legally bankrupt as a result of failure to pay debts as theyfall due;

v. The business license is revoked, or our Company is ordered to close or be eliminatedaccording to applicable law;

vi. Where our Company encounters significant difficulties in business and management,continuous survival may be significantly detrimental to the interests of theshareholders, and the difficulties may not be overcome through other means,shareholders who hold more than 10% of the shares carrying voting rights mayrequest the court to dissolve our Company.

Where our Company is dissolved due to the provisions set forth in (i), (ii), (v) and above,the liquidation team shall be established within 15 days and the personnel of the liquidationteam shall be consist of the persons determined by the Directors or the general shareholders’meeting. In the event the liquidation team is not established during such period, the creditorscan request the people’s court to appoint relevant personnel to establish the liquidation teamfor liquidation. In the event that our Company is dissolved in accordance with the provisionsset forth in (v) above, the people’s court shall organize the shareholders, related agencies andprofessionals to form the liquidation team pursuant to relevant provisions of the law.

If the Board of Directors decides to liquidate our Company (except where our Companyis liquidated after declaring bankruptcy), the Board of Directors shall state in the notice of thegeneral shareholders’ meeting convened for this purpose that the Board of Directors hasperformed a comprehensive investigation of the status of our Company and believes that ourCompany is able to pay off all of our debts within 12 months of the start of liquidation.

After the resolution to liquidate our Company is adopted by the general shareholders’meeting, the powers and duties of the Board of Directors shall terminate immediately.

In accordance with the instructions of the general shareholders’ meeting, the liquidationteam shall at least once a year report at the general shareholders’ meeting on the income andexpenditure of the liquidation team, progress of the business and liquidation of our Company,and submit a final report at the general shareholders’ meeting upon completion of liquidation.

Within 10 days of the establishment of the liquidation team, the creditors shall be notifiedand an announcement shall be published in newspaper recognized the stock exchange whereour Company listed within 60 days. The creditors shall declare their claims to the liquidationteam within 30 days of the date on which the notice is received or 45 days of the date ofannouncement if the notice is not received.

Creditors who declare claims shall state relevant issues related to the claims and provideproofs. The liquidation team shall carry out registration of the creditors’ claims. During theperiod for declaration of claims, the liquidation group shall not make any repayment to any ofthe creditors.


– VI-29 –

The liquidation team shall exercise the following powers during the liquidation period:

i. Take stock of our Company’s assets and prepare a balance sheet and a list of assets

respectively;

ii. Notify or publish an announcement to creditors;

iii. Deal with and liquidate any pending business associated with our Company;

iv. Pay off all outstanding taxes and taxes in connection with liquidation;

v. Settle claims and debts;

vi. Dispose of the remaining assets of our Company after paying up all the debts; and

vii. Represent our Company in any civil litigation proceedings.

After taking stock of the assets of our Company and preparing the balance sheet and list

of properties, the liquidation team shall draw up a liquidation scheme and submit it to the

shareholders’ meeting or the people’s court for recognition.

After paying off the liquidation expenses, the salaries, social insurance premiums and the

statutory compensations of the staff members, the due and payable taxes and the debts of our

Company, the liquidation group shall distribute the remaining property in proportion to the

shares held by each shareholder.

During the liquidation, our Company shall continue to exist, but shall not carry out

business activities irrelevant to the liquidation. The property of our Company shall not be

distributed to any shareholder before full payments have been made out of the property.

In the event of liquidation in connection with dissolution of our Company and the

liquidation team finds that, after taking stock of our Company’s assets and preparing the

balance sheet and list of assets, that the assets are insufficient to pay the debts, it shall

immediately apply to the people’s court to declare bankruptcy.

After our Company is declared insolvent by ruling of the people’s court, the liquidation

team shall turn over matters regarding the liquidation to the people’s court.

Upon completion of liquidation of our Company, the liquidation team shall prepare a

liquidation report, income and expenditure report and financial record during the liquidation

period, which, after being verified by a China-registered accountant, shall be submitted to our

general meeting or the people’s court for recognition. Within 30 days of the date of approval

by the shareholders’ meeting or people’s court, the liquidation team shall submit the

above-mentioned documents to our Company registration authority and apply for cancellation

of our registration and publish an announcement on our termination.


– VI-30 –

17 OTHER IMPORTANT PROVISIONS FOR OUR COMPANY OR THESHAREHOLDERS

(1) General Provisions

Our Company is a permanently existing joint stock limited company.

Our Company may invest in other limited liability companies or joint stock limitedcompany, provided that except as otherwise provided by law, the liabilities of our Company tobe invested in are limited to the amount of its capital contribution.

The Articles of Association stipulate our Company’s organization and conduct guidanceand is binding on our Company, the shareholders, Directors, Supervisors and seniormanagement. Subject to no violation of the relevant provisions of the Articles of Association,shareholders may sue shareholders; shareholders may sue the Directors, Supervisors and seniormanagement; shareholders may sue our Company, and our Company may sue shareholders,Directors, Supervisors and senior management.

The above said suing includes filing an action or applying for an arbitration with anarbitral institution.

(2) Share and Transfer

Our Company may increase stock capital by the following means:

i. Issuing new shares to unspecified investors;

ii. Placing new shares with existing shareholders;

iii. Giving new shares to existing shareholders;

iv. Converting the reserve funds into share capital;

v. Other means approved by the laws, administrative regulations, regulations of theauthorities.

Upon approval to increase our Company’s capital via an issue of new shares according tothe provisions of the Articles of Association, the matter shall be dealt with in accordance withthe procedures of related laws, administrative regulations of the State and supervision rules ofthe region where our share listed.

Our Company may decrease our registered share capital and shall comply with theprocedures stipulated in Company Law of the PRC, other related regulations and the Articlesof Association.

If our Company decreases our registered capital, we must prepare a balance sheet and alist of properties.


– VI-31 –

Our company shall notify creditors, publish an announcement, repay the debts or providethe corresponding guaranty when required by the creditors in accordance with Company Lawof the PRC when undertaking reduction of the registered capital.

After our Company’s reduction in capital, our registered capital may not be less than thestatutory minimum amount.

Upon approval by the competent securities department of the State Council, our Companymay issue shares to domestic and overseas investors.

For the purpose of the preceding paragraph, overseas investors shall refer to investorsfrom foreign countries, Hong Kong, Macao or Taiwan region who subscribe for shares issuedby our Company; domestic investors shall refer to investors within the territory of the PRC(excluding investors from Hong Kong, Macau or Taiwan region) who subscribe for sharesissued by our Company.

Upon approval by the competent securities department of the State Council, the domesticshares and unlisted foreign shares of the Company can be listed and traded on an overseas stockexchange and can be converted into foreign shares which are listed overseas. After suchdomestic shares and unlisted foreign shares have been converted into foreign shares which arelisted overseas, they can be listed and traded on an overseas stock exchange, in compliancewith the regulatory procedures, provisions and requirements of overseas stock exchanges.

(3) Shareholders

The shareholders are persons lawfully holding the shares and whose names (titles) arealready listed in the register of shareholders. Shareholder is entitled to rights and assumesobligations pursuant to the classification and ratio of his or her shares. Shareholder holding thesame classified share has the same rights and assumes the same obligations.

The rights of our ordinary shareholders are as follows:

i. To receive distribution of dividends and other forms of benefits according to thenumber of shares held;

ii. To legally require, convene, preside over, participate in or appoint a shareholderproxy to participate in and exercise voting rights at the shareholders’ meeting;

iii. To supervise and manage our business and operational activities, providesuggestions or submit queries;

iv. To transfer, grant and pledge the shares held according to the provisions of the laws,administrative regulations, listing rule of the stock exchange where our stocks arelisted and the Articles of Association;

v. To obtain relevant information according to the provisions of the Articles ofAssociation;


– VI-32 –

vi. To participate in the distribution of the remaining assets of our Company accordingto the number of shares held upon our termination or liquidation;

vii. To ask our Company to buy back the shares from shareholders voting against anyresolutions adopted at the general shareholders’ meeting concerning the merger anddivision of our Company; and

viii. Other rights conferred by laws, administrative regulations, department rules and theArticles of Association.

When any person is interested directly or indirectly in the shares of our Company, ourCompany shall not freeze or otherwise impair any of the rights attaching to any share by reasononly that the person has not disclosed his interests to our Company.

The share certificates are signed by the chairman of the Board of Directors. Where thestock exchange on which the shares are listed requires our other senior management to sign theshare certificates, they shall also be signed by other such personnel. The share certificates shallbecome effective after being affixed with the stamp of our Company or print-stamped. Affixingour Company stamp to the share certificates is subject to the authorization of the Board ofDirectors. The signature of the chairman of the Board of Directors or other related seniormanagement may also be printed on the share certificates. Under conditions of paperlessissuance and trading, the provisions of securities administrative authorities of the region whereour shares listed shall apply.

If any person whose name appears in the register of shareholders or requests to registerhis or her name (title) in the register of shareholders loses his or her share certificates (that is,“original share certificates”), he or she may apply to our Company to reissue new sharecertificates for those shares.

In the event holder of domestic shares and unlisted foreign shares applies to our Companyfor a reissue after losing the share certificates, the matter shall be dealt with pursuant to relatedprovisions of the Company Law.

In the event a holder of overseas listed foreign shares applies to our Company for reissueafter losing the share certificates, the matter shall be dealt with pursuant to the laws and rulesof the stock exchange where the original register of holders of the overseas listed foreignshares is kept, or other related provisions.

If a holder of H shares loses share certificates and applies for a replacement issue, theshare certificates shall be issued in compliance with the following requirements:

i. The applicant shall submit the application in the standard format designated by ourCompany and attach a notary certificate or legal declaration. The contents of thenotary certificate or legal declaration shall include the reason for the applicant’srequest, circumstances and evidence of loss of share certificates, as well as astatement that nobody else may request to be registered as a shareholder with respectto the pertinent shares;


– VI-33 –

ii. Before deciding to issue new share certificates, our Company does not receive any

statement in which any person other than the applicant requests to be registered as

the shareholder with respect to the shares;

iii. If our Company decides to issue new share certificates to the applicant, we shall

publish an announcement in newspapers designated by the Board of Directors

indicating that we plan to reissue new share certificates. The announcement period

shall be 90 days and the announcement shall be published at least once every 30

days;

iv. Before publishing the announcement indicating that we plan to re-issue new share

certificates, our Company shall submit a copy of the announcement to be published

to the stock exchange on which the shares are listed and may publish the

announcement after receiving a reply from the stock exchange confirming that the

announcement has been displayed at the stock exchange. The period of displaying

the announcement at the stock exchange is 90 days. If the registered shareholders of

the related shares do not approve the application for reissue of new share

certificates, our Company shall mail the copy of the announcement to be published

to the shareholders;

v. In the event that nobody raises any objection to the reissue of new share certificates

to our Company, upon expiration of the 90-day display period of the announcement

specified in (iii) and (iv) above, the new share certificates may be reissued according

to the application;

vi. When re-issuing new share certificates, our Company shall immediately cancel the

original share certificates and register the cancellation and replacement issue on the

register of shareholders;

vii. All expenses incurred by our Company from the cancellation of the original share

certificates and replacement issue of the new share certificates shall be borne by the

applicant. Before the applicant has provided reasonable security, our Company shall

have the right to refuse to take any action.

(4) Shareholders Failing to be Contacted

In compliance with the provisions of related laws and regulations of the PRC and rules

of Stock Exchange, our Company may expropriate unclaimed dividend. However, our

Company can only exercise such expropriate right after the expiration of the applicable period

which started after the distribution of dividend was declared.

Our Company may terminate sending dividend coupons by mail to any holder of the

overseas listed shares. However, the said termination can only be made after the holder fails

to withdraw from the dividend coupons for consecutive two times or the dividend coupons can

not be delivered to the receiver and returned thereof.


– VI-34 –

Our Company is entitled to reclaim without payment the shares of a Shareholder of H

shares failing to be contacted under the circumstances indicated below and sell them to any

other persons:

i. Our Company has paid dividends at least three times on these shares within 12 years,

but no one has claimed the dividends during that period;

ii. Upon expiration of the 12-year period, our Company publishes an announcement in

a newspaper, indicating our intention to sell the shares and notifies the stock

exchange where such shares are listed of such intention.

(5) The Board of Directors

The Board of Directors is responsible to the general shareholders’ meeting and exercises

the following powers:

i. To convene the general shareholders’ meeting and report on work to the general

shareholders’ meeting;

ii. Implement the resolutions of the general shareholders’ meeting;

iii. Determine our business and investment plans;

iv. Devise our annual financial budget and closing account plans;

v. Devise our earnings distribution and loss offset plans;

vi. Formulate the plans for increasing or decreasing our registered capital, the issuance

of corporate bonds or other securities, as well as the listing of the stock of our

Company;

vii. Formulate plans for corporate merger, separation, changing the form and dissolution

of our Company;

viii. Formulate plans for major acquisitions, the acquisition of shares of our Company;

ix. Determine such matters as our external investment, purchase or sale of assets, asset

pledge, external guarantee, entrusting wealth management and connected

transaction within the scope authorized by the general shareholders’ meeting;

x. Decide on the setup of our Company’s internal management organization;

xi. Decide on the composition of special committees under the Board of Directors and

appoint or dismiss the chairmen (convener) of the special committees under the

Board of Directors;


– VI-35 –

xii. Appoint or dismiss the president of our Company, the secretary of the Board of

Directors and the Secretary of the Company; based on the nomination of the

president, appoint or dismiss our managing president, vice president, the chief

financial officer; appoint or dismiss the secretary of the Board of Directors, and

determine their remuneration;

xiii. Set our basic management systems;

xiv. Make the modification plan to this Articles of Association;

xv. Decide on the equity incentive plan;

xvi. Manage the disclosure of company information;

xvii. Propose the appointment or replacement of the accounting firm that performs audits

for our Company at the general Shareholders’ meeting;

xviii. Attend to the work report of our president and review the work of the president;

xix. Review and decide on external guarantees excluding those shall be approved by the

general shareholders’ meeting pursuant to the Articles of Association;

xx. Review and supervise our Company’s policies and rules with regard to compliance

with laws and supervising regulations;

xxi. Review and supervise the training and continuous expertise development of

Directors, Supervisors and senior management;

xxii. Review company’s compliance with the enterprise management rules stipulated in

the listing rules and the disclosure of enterprise management rules;

xxiii. Decide on other major matters and administrative affairs other than those specified

in the laws, administrative regulations, regulations of the competent authorities and

the Articles of Association to be decided by the general shareholders’ meeting and

sign other important agreements;

xxiv. Other powers and duties authorized by the laws, administrative regulations,

regulations of the competent authorities, listing rules of the place where the shares

of our Company are listed and this Articles of Association as well as the general


The aforesaid matters that can be exercised by the Board of Directors, or other

transactions or arrangements, if according to the listing rules of the stock exchange where the

shares of our Company are listed, shall be reviewed and approved by the general shareholders’

meeting.


– VI-36 –

All of the above resolutions adopted by the Board of Directors, except those in (vi), (vii)

and (xiv) must be approved by more than a two-thirds vote of the Directors, may be approved

by a simple majority of votes by the Directors.

Meetings of the Board of Directors shall be convened at least four times a year and be

called by the chairman of the Board of Directors. Meetings of the Board of Directors shall be

attended by more than one-half of the Directors (including Directors that appoint in writing

other Directors to attend the Board of Directors in their place pursuant to the provisions of the

Articles of Association) before the Board of Directors meeting can be convened.

Where Directors have associated relationship with the enterprises mentioned in any

resolution made by the Board of Directors, such directors shall neither vote on the said

resolutions nor act as proxies for other directors to exercise their voting right upon the said

resolutions. Such meetings of the Board of Directors may not be held unless attended by more

than half of all the non-associated Directors, and resolutions adopted at such meeting shall be

passed by more than half of all the non-associated Directors. Where the number of the

non-associated Directors attending the meeting of the Board of Directors is less than three, the

matters shall be submitted to the general shareholders’ meeting for examination and

deliberation.

The meeting of the Board of Directors shall require the attendance of the Directors in

person. Where the Directors are with good reason unable to attend the meeting, they may in

writing entrust other Directors to do so. The written power of attorney shall indicate the name

of each proxy, entrusted matters, scope of authorization and validity, and shall be signed by or

marked with the seal of each principal. Directors who attend the meeting of the Board of

Directors as proxies shall exercise their rights in capacity of Director within the scope of

authorization. Where the Directors fail to attend the meeting of the Board of Directors and

further fail to entrust representatives to do so on their behalf, it shall be deemed that they have

waived their voting rights at such meeting.

Where the Directors fail to attend in person two consecutive meetings of the Board of

Directors and further fail to entrust other Directors to attend the meeting, they shall be deemed

incapable of performing their duties and the Board of Directors shall propose a general

shareholders’ meeting to replace such Directors.

Each Director has one vote. When the number of affirmative votes equals the number of

dissenting votes, the chairman of the Board of Directors is entitled to one additional vote.

(6) Independent Non-executive Director

At least one-third of member of the Board of Directors shall be the independent

non-executive Directors and the amount shall not be less than three. At least one independent

non-executive Director shall have applicable professional qualification or are equipped with

applicable accounting or relevant financial management expertise. At least one independent

non-executive Director resides in Hong Kong.


– VI-37 –

(7) Secretary of the Board of Directors

Our Company shall have one secretary of the Board of Directors. The secretary of the

Board of Directors must be a natural person with the requisite expertise and experience and be

appointed by the Board of Directors.

(8) Secretary of the Company

Our Company shall have one Secretary of the Company to make sure that the Directors

achieve good communication and have complied with the policies and procedures of the Board

of Directors. The Board of Directors is responsible for selection, appoint or dismissal of the

Secretary of the Company and shall approval the relevant decision through meetings of the

Board of Directors rather than through written resolution.

The Secretary of the Company shall be the one that equipped with applicable education

and academic background, expertise and qualification or experience that in view of the HKEx,

can make it qualified as the Secretary of the Company. Our Company can select the Secretary

of the Company from employees who are familiar with the daily business of the Company or

hire a service agency as the Secretary of the Company.

(9) Board of Supervisors

Our Company shall set up a Board of Supervisors.

The Board of Supervisors consists of three Supervisors and includes one chairman. The

chairman of the Board of Supervisors shall be elected and dismissed by more than a two-thirds

vote of the members of the Board of Supervisors.

The Board of Supervisors shall consist of shareholder representative Supervisors and

employee representative Supervisors which account for no less than one-third of the Board of

Supervisors of our Company. The Supervisors assumed by the employee representatives shall

be elected and dismissed democratically by the employees.

Meetings of the Board of Supervisors shall be attended by more than half of the

Supervisors before it may be convened. Resolutions of the Board of Supervisors shall require

approval from two-third of all the Supervisors.

The Supervisors serve three-year terms. The Supervisors may, after the expiration of the

term of office, be re-elected and re-appointed.

The Directors and senior management shall not also serve as Supervisors.


– VI-38 –

The Board of Supervisors is responsible to the general Shareholders’ meeting and

lawfully exercises the following powers:

i. Examine the financial standing of our Company;

ii. Supervise the duties performing of Directors and senior management so as to ensure

that said Directors and senior management shall not be in violation of any laws,

administrative regulations or the Articles of Association of the Company when

performing their duties, and put forward suggestions for dismissing any Directors or

senior management who are in breach of the laws, administrative regulations, the

Articles of Association or resolutions of the general Shareholders’ meetings;

iii. Require the Directors and senior management to take corrective measures when their

actions are detrimental to our interests;

iv. Verify the financial information such as the financial reports, business reports and

profit distribution plans to be submitted by the Board to the general shareholders’

meetings and, should any queries arise, to authorize, in the name of our Company,

a re-examination by the certified public accountants and practicing auditors;

v. Propose to convene an extraordinary general meeting, where the Board of Directors

fails to perform the duties in relation to convening or presiding over the general

shareholders’ meeting, to convene and preside over the general Shareholders’

meeting;

vi. Submit proposals at the general shareholders’ meetings;

vii. Propose to convene extraordinary meetings of the Board of Directors;

viii. Represent our Company in negotiating with or in bringing actions against the

Directors and senior management in accordance with Company Law;

ix. Investigate into any abnormalities in operation of our Company; if necessary, to

engage accounting firms, law firms and other professional institutions to assist its

work, and the expenses shall be borne by our Company;

x. Other powers and duties stipulated in the Articles of Association.

The Supervisors may attend the meetings of the Board of Directors, query or provide

suggestions on the resolutions of the Board meeting.


– VI-39 –

(10) President

Our Company has one president, appointed or dismissed by the Board of Directors.

The president is responsible to the Board of Directors and exercises the following powers:

i. Be in charge of the producing and operational management of our Company and

report to the Board of Directors on work;

ii. To organize the enforcement of resolutions of the Board of Directors;

iii. Organize the implementation of the annual operation plans and investment schemes

decided by the Board of Directors;

iv. Formulate the structure scheme of the internal management agency of our Company;

v. Formulate the structure scheme of the branch of our Company;

vi. Formulate the substantial management system of our Company;

vii. Formulate the detailed rules of our Company;

viii. Propose the appointment or dismissal of the executive vice president, vice president,

financial officer to the Board of Directors;

ix. Appoint or dismiss other management personnel except those who shall be

appointed or dismissed by the Board of Directors;

x. Other responsibilities authorized by the Articles of Association and the Board of

Directors.

(11) Reserves

When the annual after-tax earnings of our Company are distributed, our Company must

allocate 10% of the earnings to our statutory reserve.

When the total amount of the statutory reserve reaches or exceeds 50% of our Company’s

registered capital, no more allocations need to be provided.

If our statutory reserve is insufficient to offset our losses incurred during the previous

year, the earnings generated during the current year must be used to make up the losses before

allocating the statutory reserve in accordance with the requirements set forth in the preceding

paragraph.


– VI-40 –

After allocation to the statutory reserve from the after-tax earnings of our Company, we

may also allocate to the reserves at will from after-tax earnings in line with the resolution(s)

adopted at the general shareholders’ meeting.

After our Company has made up its losses and made allocations to its common reserve

fund, the remaining profits are distributed in proportion to the number of shares held by the

shareholders, unless otherwise specified by these Articles of Association.

If the general shareholders’ meeting violates the provisions in the preceding paragraph

and profits are distributed to the shareholders before the company makes up for losses or makes

allocations to the statutory reserve fund, the profits distributed in violation of the provisions

must be returned by such shareholders to the company.

The shares held by our Company itself shall not be subject to profit distribution.

Our reserves must be used only for offsetting our losses, expanding the scale of business

and operations or for conversion into capital to increase our capital, but the capital reserve shall

not be used to offset our losses.

Where the statutory reserve converses into capital, the remaining statutory reserve shall

not be less than 25% of the registered capital of our Company before such conversion.

(12) Settlement of Dispute

Our Company shall comply with the following rules governing the settlement of disputes:

i. Whenever there occur any dispute or claim between holders of the overseas listed

foreign shares and our Company, holders of the overseas listed foreign shares and

our Company’s Directors, Supervisors, president or other senior management, or

holders of the overseas listed foreign shares and holders of domestic shares and

unlisted foreign shares regarding the rights or obligations relating to the affairs of

our Company conferred or imposed by the Articles of Association, the Company

Law or any other relevant laws and administrative regulations, such disputes or

claims shall be referred by the relevant parties to arbitration.

Where the aforesaid dispute or claim of rights is referred to arbitration, the entire

claim or the dispute as a whole must be referred to arbitration, and any parties who

have a cause of action based on the same facts giving rise to the dispute or the claim

or whose participation is necessary for the settlement of such dispute or claim, are

bound by the award of the arbitration provided that such person is our Company or

a shareholder of our Company, a Director, a Supervisor, president or other senior

management.

Disputes in relation to the definition of shareholders and disputes in relation to the

shareholders’ register need not be resolved by arbitration;


– VI-41 –

ii. A claimant may elect for arbitration at either the China International Economic and

Trade Arbitration Commission in accordance with its rules or the Hong Kong

International Arbitration Centre (“HKIAC”) in accordance with its Securities

Arbitration Rules. Once a claimant refers a dispute or claim to arbitration, the other

party must submit to the arbitral body so elected by the claimant.

If a claimant elects for arbitration at HKIAC, any party to the dispute or claim may

request the arbitration to be conducted in Shenzhen in accordance with the

Securities Arbitration Rules of the HKIAC;

iii. The laws of the PRC are applicable to the arbitration for the disputes or claims of

rights referred to in paragraph (i), unless otherwise provided in the laws and

administrative regulations;

iv. The award of an arbitration body shall be final and binding on all parties.


– VI-42 –

A. FURTHER INFORMATION ABOUT OUR COMPANY AND OUR SUBSIDIARIES

1. Incorporation

On December 17, 2008, our Predecessor was established in the PRC with an initial

registered capital of RMB5,000,000. It was restructured into a joint stock company with

limited liability and our Company was established in the PRC on June 28, 2017. We have a

registered a place of business in Hong Kong at 54/F, Hopewell Centre, 183 Queen’s Road East,

Hong Kong and registered as a non-Hong Kong company in Hong Kong on August 14, 2018

under Part 16 of the Companies Ordinance. Ms. Cheung Yuet Fan and Ms. Chan Suet Lam have

been appointed as our authorized representatives for the acceptance of service of process and

notices in Hong Kong.

As our Company was incorporated in the PRC, it is subject to the relevant PRC laws and

regulations and the Articles of Association. Accordingly, our corporate structure and Articles

of Association are subject to the PRC Company Law and other relevant laws of the PRC. A

summary of our Articles of Association is set out in Appendix VI to this prospectus.

2. Changes in the registered capital of our Company and subsidiaries

The following alterations of the registered capital of our Company and its subsidiaries

have taken place within the two years preceding the date of this prospectus:

Our Company (including the Predecessor)

(i) On April 24, 2017, the registered capital of the Predecessor increased from

RMB173,680,000 to RMB188,780,000.

(ii) On June 28, 2017, we converted our net asset equivalent to RMB210,000,000 into

210,000,000 Shares, at the price of RMB1.00 per Share.

Zhejiang Jinshanzi Network Technology Co., Ltd.* (浙江金扇子網絡科技有限公司)

(“Zhejiang Jinshanzi”)

On June 19, 2017, the registered capital of Zhejiang Jinshanzi increased from

RMB10,000,000 to RMB12,500,000.

Ningbo New Century Manju Hotel Management Co., Ltd.* (寧波開元曼居酒店管理有限公司) (“Ningbo Manju”)

On June 29, 2017, the registered capital of Ningbo Manju increased from RMB1,000,000

to RMB5,000,000.

APPENDIX VII STATUTORY AND GENERAL INFORMATION

– VII-1 –

3. Shareholders’ resolutions

On June 15, 2018, resolutions were passed by our Shareholders pursuant to which,amongst others:

(i) the issue by our Company of the H Shares of nominal value of RMB1.00 each upto 25% of the total issued share capital after the issuing of the H Shares andsubsequent listing of such H Shares on the Stock Exchange;

(ii) the granting of the Over-Allotment Option in respect of no more than 15% of thenumber of H Shares issued as above-mentioned;

(iii) subject to the completion of the Global Offering, the Articles of Association havebeen approved and adopted (which shall only become effective from the ListingDate) and the Board has been authorized to amend the Articles of Association inaccordance with any comments from the Stock Exchange and the PRC Government;

(iv) approving the Board to handle all matters relating to, among other things, the issueof the H Shares and the listing of H Shares on the Stock Exchange.

4. Reorganization

The companies comprising our Group underwent a reorganization in preparation for theListing. Please refer to the section headed “History, Reorganization and Corporate Structure”in this prospectus for further details.

B. FURTHER INFORMATION ABOUT OUR BUSINESS

1. Summary of material contracts

The following contracts (not being contracts entered into in the ordinary course ofbusiness) were entered in to by our Company within the two years preceding the date of thisprospectus and are or may be material:

(i) a equity interests transfer agreement dated March 31, 2017 executed between NewCentury Hotel Management, New Century Tourism and Hangzhou New CenturySenbo Tourism Investment Co., Ltd.* (杭州開元森泊旅遊投資有限公司)(“Hangzhou Senbo”), pursuant to which New Century Tourism and HangzhouSenbo agreed to transfer their respective 40.0% and 60.0% equity interests inChangxing New Century Wonderland Resort Co., Ltd.* (長興開元芳草地酒店有限公司) at an aggregate consideration of RMB40.0 million;

(ii) a capital increase agreement dated April 24, 2017 executed between New CenturyHotel Management, Ningbo Meishan Bonded Area Kairui Shiqi InvestmentManagement Partnership (Limited Partnership)* (寧波梅山保稅港區開瑞世祺投資管理合夥企業(有限合夥)) (“Kairui Shiqi”) and Ningbo Meishan Bonded AreaKaihui Taiheng Investment Management Partnership (Limited Partnership)* (寧波梅山保稅港區開匯泰亨投資管理合夥企業(有限合夥)) (“Kaihui Taiheng”), pursuantto which Kairui Shiqi agreed to subscribe for registered capital in the amount of


– VII-2 –

approximately RMB3.0 million and Kaihui Taiheng agreed to subscribe forregistered capital in the amount of approximately RMB12.1 million in New CenturyHotel Management;

(iii) a equity interests transfer agreement dated September 15, 2017 executed betweenour Company and Shaoxing Yuzhuang New Century Hotel Management Co., Ltd.*(紹興禹莊開元酒店管理有限公司) (“Shaoxing Yuzhuang”), pursuant to which ourCompany agreed to transfer its 100% equity interests in Shaoxing Dayu NewCentury Resort Co., Ltd.* (紹興大禹開元度假村有限公司) to Shaoxing Yuzhuang ata consideration of RMB11.0 million;

(iv) a equity interests transfer agreement dated October 31, 2017 executed between ourCompany and Suzhou Olin Chuntian Business Hotel Co., Ltd.* (蘇州市奧林春天商務酒店有限公司) (“Suzhou Olin”), pursuant to which our Company agreed totransfer 100% equity interests in Suzhou Qiju Hotel Management Co., Ltd.* (蘇州祺聚酒店管理有限公司) to Suzhou Olin at a consideration of approximatelyRMB3.2 million;

(v) an indemnity undertaking dated July 15, 2018 executed by New Century Tourismwith respect to unpaid social insurance fund and housing provident fundcontributions;

(vi) a deed of Hong Kong trademark license dated August 20, 2018 executed by TecwayReal Estate Limited in favor of our Company (for itself and as trustee for the benefitof each of the other members of our Group) with respect to the grant of the right touse certain trademarks in Hong Kong free of royalty (the “Deed of Hong KongTrademark License”);

(vii) the Deed of Non-Competition;

(viii) a cornerstone investment agreement entered into between our Company, Ctrip.com(Hong Kong) Limited, China Galaxy International Securities (Hong Kong) Co.,Limited, BOCOM International (Asia) Limited, BOCOM International SecuritiesLimited and Morgan Stanley Asia Limited dated February 19, 2019, pursuant towhich Ctrip.com (Hong Kong) Limited has agreed to, among other things, subscribefor the H Shares in the share capital of the Company having a nominal value ofRMB1.00 each, at the Offer Price, in the amount of the Hong Kong dollar equivalentof US$32,000,000;

(ix) a cornerstone investment agreement entered into between our Company, GreenTreeHospitality Group Ltd., China Galaxy International Securities (Hong Kong) Co.,Limited, BOCOM International (Asia) Limited, BOCOM International SecuritiesLimited and Morgan Stanley Asia Limited dated February 19, 2019, pursuant towhich GreenTree Hospitality Group Ltd. has agreed to, among other things,subscribe for the H Shares in the share capital of the Company having a nominalvalue of RMB1.00 each, at the Offer Price, in the amount of the Hong Kong dollarequivalent of US$30,000,000; and

(x) the Hong Kong Underwriting Agreement.


– VII-3 –

2. Intellectual property rights of our Company

(i) Trademarks

(a) As at the Latest Practicable Date, our Company had registered the followingtrademarks in the PRC which we consider to be material to our business:

No.RegistrationNo. Trademark

RegisteredOwner Class Period of Validity

1. 1055880 Our Company 42 July 14, 1997 –July 13, 2027

2. 4949494 Our Company 43 October 14, 2009 –October 13, 2019


4. 9102368 Our Company 43 February 7, 2012 –February 6, 2022




8. 9102458 Our Company 41 June 14, 2016 –June 13, 2022


10. 9095425 Our Company 43 May 21, 2012 –May 22, 2022



– VII-4 –





14. 10024899 Our Company 30 November 28, 2012 –November 27, 2022




18. 14092050 Our Company 43 August 28, 2015 –August 27, 2025


20. 14986144 Our Company 43 December 28, 2015 –December 27, 2025

21. 821929 Our Company 42 March 7, 1996 –March 6, 2026









30. 17612833 Our Company 43 September 28, 2016 –September 27, 2026




– VII-5 –









39. 14189194 Our Company 43 January 21, 2018 –January 20, 2028

40. 14189258 Our Company 43 January 20, 2018 –January 20, 2028


42. 13758089 ZhejiangJinshanzi

42 February 21, 2015 –February 20, 2025



45. 22665331 Our Company 20 September 7, 2018 –September 6, 2028




49. 27460424 Zhejiang NewCentury HotelManagementCo., Ltd. ZhujiYaojiang GrandNew Century*(浙江開元酒店管理股份有限公司諸暨耀江名都大酒店)

43 October 21, 2018 –October 20, 2028


– VII-6 –





42 December 7, 2018 –December 6, 2028












(b) Pursuant to the Deed of Hong Kong Trademark License, Tecway Real Estate Limitedhas granted, free of any royalty or other payments, to our Company and othermembers of our Group, a non-exclusive and non-transferable right and license to usethe following trademarks registered in Hong Kong under its name in connection withthe business of our Group. For further information, see the section headed“Connected Transactions” in this prospectus.

No. Registration No. Trademark Class Expiry Date

1. 300313244 41, 42, 43 November 3,2024

2. 301848439 KaiYuan/Kaiyuan/Kai Yuan(in series)

36, 37, 39, 40, 41and 43

March 2, 2021

3. 301856359 開元 36, 37, 39, 40, 41and 43

March 10, 2021

4. 301856377

(in series)

36, 37, 39, 40, 41and 43

March 10, 2021

5. 301856368

(in series)

36, 37, 39, 40, 41and 43

March 10, 2021

6. 301865674 36, 37, 39, 40, 41and 43

March 21, 2021


– VII-7 –

(c) As at the Latest Practicable Date, we made applications for the registration of thefollowing trademarks in the PRC which we consider to be material to our businessand the applications were effective as at the Latest Practicable Date:

No. Trademark No. Trademark Applicant Class Application Date

1. 24406590 Our Company 43 May 31, 2017

2. 28822913 Our Company 43 January 22, 2018


4. 34322647 Our Company 43 October 29, 2018




8. 35146901 Our Company 43 December 6, 2018


(ii) Patents

As at the Latest Practicable Date, we have registered the following patents in the

PRC under the name of New Century Hotel Management:

No. Name Class Patent No.ApplicationDate

PatentPublicationDate

Period ofValidity

1. Packing case (New Century

Zhenbao – Mid-Autumn

version)* (包裝盒(開元臻寶-醉中秋))

Appearance

Design

2016302262583 June 7, 2016 July 21, 2017 10 years


– VII-8 –

(iii) Software copyrights

As at the Latest Practicable Date, we have registered the following softwarecopyrights in the PRC under the name of Zhejiang Jinshanzi which are material in relationto our business:

No. Name of SoftwareRegistrationNo.

DevelopmentCompletion Date

FirstPublication Date

1. Jinshanzi Smart SMS TriggerPlatform Software*(金扇子(SHANDS)智慧短信觸發平台軟件 V1.0)

2014SR147146 January 15, 2014 January 15, 2014

2. Jinshanzi Business SmartManagement Software*(金扇子(SHANDS)商務智能管理軟件 V1.0)

2014SR138465 April 18, 2014 April 20, 2014

3. Jinshanzi Hotel Industry BusinessSmart Analysis System*(金扇子SHANDS酒店行業商務智能分析系統 V1.0)

2016SR359985 July 29, 2016 Not yet published

4. Jinshanzi Duty ArrangementSoftware* (金扇子MOD值班達人軟件 V1.0)


5. Jinshanzi Hotel BreakfastManagement System*(金扇子SHANDS BAS酒店早餐管理系統 V3.1)

2017SR645704 May 30, 2014 May 30, 2014

6. Jinshanzi USL Joint SalesSystem*(金扇子USL聯合銷售系統V3.9.0)

2017SR647434 January 1, 2017 Not yet published

7. Jinshanzi Valuable TicketManagement System*(金扇子ETS有價票券管理系統V3.5.1)

2017SR647429 December 29,2016

Not yet published

8. Jinshanzi Shangqi YuexuanPoints Mall System*(金扇子商祺悅送積分商城系統V1.0)


9. Shanzi review software*(扇子歡評軟件)

2018SR602309 March 15, 2018 Not yet published

10. Shanzi Business travel system*(扇子商旅系統)

2018SR706140 December 26,2017

January 12, 2018


– VII-9 –

(iv) Copyrights

As at the Latest Practicable Date, our Company has registered the following

copyrights in the PRC which are material in relation to our business:

No. Name of Copyright Registration No.DevelopmentCompletion Date

FirstPublication Date Registered Owner

1. Marble Crystal(Video)* (大理石結晶(視頻))

國作登字-2017-I-00460081

November 1,2016

November 1,2016

New Century HotelManagement

2. Fish Cooking(Video)* (整魚服務(視頻))

國作登字-2017-I-00460248

November 1,2016

November 1,2016


3. Red Wine Service(Video)* (紅葡萄酒服務(視頻))

國作登字-2017-I-00460246

November 1,2016

November 1,2016


4. Conference DeskDesign and ServiceTechnique (PPT)*(會議台型設計與服務技巧(PPT))

國作登字-2017-I-00460092

November 1,2016

November 1,2016


5. Dust Wiping forGuestrooms(Video)*客房抹塵(視頻)

國作登字-2017-I-00460084

November 1,2016

November 1,2016


6. Food Serving(Video)*(派菜服務(視頻))

國作登字-2017-I-00460082

November 1,2016

November 1,2016


7. Landline Disinfection(Video)*(電話機消毒(視頻))

國作登字-2017-I-00459440

November 1,2016

November 1,2016


8. White Wine Service(Video)* (白葡萄酒服務(視頻))

國作登字-2017-I-00460247

November 1,2016

November 1,2016


9. Banquet Design andService Technique(PPT)* (宴會設計與服務技巧(PPT))

國作登字-2017-I-00460091

November 1,2016

November 1,2016


10. Wood FloorWaxing (Video)*木地板打蠟(視頻)

國作登字-2017-I-00460083

November 1,2016

November 1,2016


11. Technique of WipingGoblet (Video)*(擦拭高腳杯的方法(視頻))

國作登字-2017-I-00460086

November 1,2016

November 1,2016


12. Carpet Cleaning(Video)*(地毯除漬(視頻))

國作登字-2017-I-00460089

November 1,2016

November 1,2016


13. Marble DailyMaintenance(Video)* (大理石日常保養(視頻))

國作登字-2017-I-00460087

November 1,2016

November 1,2016



– VII-10 –

No. Name of Copyright Registration No.DevelopmentCompletion Date

FirstPublication Date Registered Owner

14. Carpet Wash(Video)*(地毯抽洗(視頻))

國作登字-2017-I-00460088

November 1,2016

November 1,2016


15. Wine Display andOpening (Video)*(葡萄酒的展示與開啟(視頻))

國作登字-2017-I-00460090

November 1,2016

November 1,2016


16. Dust Cleaning(Video)*(推塵(視頻))

國作登字-2017-I-00460077

November 1,2016

November 1,2016


17. GuestroomMaintenance(Video)*(客房保養(視頻))

國作登字-2017-I-00460085

November 1,2016

November 1,2016


18. Carpet Dry-clean(Video)*(地毯乾洗(視頻))

國作登字-2017-I-00460074

November 1,2016

November 1,2016


19. Washroom Cleaning(Video)*(衛生間清潔(視頻))

國作登字-2017-I-00460076

November 1,2016

November 1,2016


20. Method of Cleaningthe Decanter(Video)* 清洗醒酒器的方法(視頻)

國作登字-2017-I-00460079

November 1,2016

November 1,2016


21. Food Serving(Video)*

(上菜服務(視頻))

國作登字-2017-I-00460078

November 1,2016

November 1,2016


22. Vacuum Cleaning andVacuum CleanerMaintenance(Video)* (吸塵與吸塵器保養(視頻))

國作登字-2017-I-00488473

November 1,2016

November 1,2016


23. New CenturyFangcaodi Panggu*(開元芳草地胖咕)

浙作登字11-2017-F-9836

July 19, 2017 Not yet published Our Company


– VII-11 –

(v) Domain names

As at the Latest Practicable Date, our Company has registered the following domainnames which we consider to be material to our business:

No. Domain Name Expiry Date

1. 10105050.cn July 5, 20222. 10105050.com.cn July 5, 20223. centuryclub.cn August 6, 20204. centuryhotels.cn August 6, 20205. centuryhotels.com.cn August 6, 20206. Kaiyuancareer.cn March 22, 20237. Kaiyuancareer.com March 22, 20238. Kaiyuancareer.com.cn March 22, 20239. Kaiyuanhotels.cn August 6, 202010. Kaiyuanhotels.com.cn August 6, 202011. Kaiyuanhotels.net August 10, 202212. ncreit.cn April 16, 202113. ncreit.com.cn April 16, 202114. nchotels.cn August 10, 202215. nchotels.com.cn August 10, 202216. newcenturyhotels.cn August 10, 202217. newcenturyhotels.com.cn August 10, 202218. shands.cn March 20, 202019. shands.com.cn March 20, 2020

Except as disclosed in this sub-section headed “2. Intellectual property rights of our

Company”, there are no other trade or service marks, patents, other intellectual property

rights which are or may be material in relation to our business.


– VII-12 –

C. FURTHER INFORMATION ABOUT DIRECTORS, SUBSTANTIAL SHAREHOLDERSAND EXPERTS

1. Disclosure of interests

Immediately following completion of the Global Offering, the interests and shortpositions of each of our Directors and chief executive in the Shares, underlying Shares ordebentures of our Company or any associated corporation (within the meaning of Part XV ofthe SFO) which will have to be notified to us and the Stock Exchange pursuant to Divisions7 and 8 of Part XV of the SFO (including interests and/or short positions which they are takenor deemed to have under such provisions of the SFO) once the H Shares are listed, or whichwill be required, pursuant to the Model Code for Securities Transactions by Directors of ListedCompanies in the Listing Rules to be notified to us and the Stock Exchange or which will berequired pursuant to section 352 of the SFO to be entered in the register referred to therein oncethe H Shares are listed, will be as follows:

Shares held as at theLatest Practicable Date

and immediately prior tothe Global Offering

Shares held immediately following thecompletion of the Global Offering (assuming

no exercise of the Over-allotment Option)

Shares held immediately following thecompletion of the Global Offering (assumingfull exercise of the Over-allotment Option)

Name of Director Nature of InterestClass ofShares Number

Approximate% in the

total sharecapital of our

Company Number



of Shares



of ourCompany Number



of Shares



of ourCompany

Mr. Jin Wenjie Interest of acontrolledcorporation(2)

UnlistedShares(3)

13,437,900 6.4 13,437,900 6.4 4.8 13,437,900 6.4 4.6

Mr. Chen Miaoqiang Interest of acontrolledcorporation(4)

UnlistedShares

7,223,580 3.4 7,223,580 3.4 2.6 7,223,580 3.4 2.5

Interest ofspouse(5)

UnlistedShares

7,223,580 3.4 7,223,580 3.4 2.6 7,223,580 3.4 2.5

Notes:


2. Mr. Jin Wenjie is a general partner of and has full control over Ningbo Meishan Bonded Area Kaihui TaihengInvestment Management Partnership (Limited Partnership)* (寧波梅山保稅港區開匯泰亨投資管理合夥企業(有限合夥) (“Kaihui Taiheng”). Mr. Jin Wenjie is deemed under the SFO to be interested in the Shares heldby Kaihui Taiheng.

3. Unlisted Shares include Domestic Shares and Unlisted Foreign Shares. Based on the advice of our PRC LegalAdviser, holders of Unlisted Foreign Shares and Domestic Shares are entitled to the same rights. Holders ofUnlisted Foreign Shares and Domestic Shares will be treated as if they are in the same class of shares underthe SFO upon the completion of the Global Offering.

4. Mr. Chen Miaoqiang is a general partner of and has full control over Ningbo Meishan Bonded Area KairuiShiqi Investment Management Partnership (Limited Partnership)* (寧波梅山保稅港區開瑞世祺投資管理合夥企業(有限合夥) (“Kairui Shiqi”). Mr. Chen Miaoqiang is deemed under the SFO to be interested in the Sharesheld by Kairui Shiqi.

5. Ms. Lu Jun, the spouse of Mr. Chen Miaoqiang, owns as to 20.0% limited partnership interests in Kairui Shiqi,and as such, Mr. Chen Miaoqiang is deemed under the SFO to be interested in the Shares held by Kairui Shiqi.


– VII-13 –

2. Substantial Shareholders

So far as our Director are aware, immediately following the completion of the Global

Offering and assuming the Over-allotment Option is not exercised, the following persons will

have an interest or short position in the Shares or underlying Shares of our Company which

would fall to be disclosed to us under the provisions of Divisions 2 and 3 of Part XV of the

SFO.

Name of Shareholder Nature of InterestClass ofShares Number


in the relevantclass of Shares


in the totalshare capital of

our Company

New Century Tourism Beneficial owner UnlistedShares(2)

125,676,180 59.8 44.9

Interest of acontrolledcorporation(3)

UnlistedShares

9,655,590 4.6 3.4

Mr. Chen Miaolin Interest of acontrolledcorporation(3)(4)

UnlistedShares

135,331,770 64.4 48.3

NC Hotels InvestmentHolding Pte. Ltd.

Interest of acontrolledcorporation

UnlistedShares

40,482,540 19.3 14.5

Notes:


2. Unlisted Shares include Domestic Shares and Unlisted Foreign Shares. Based on the advice of our PRC LegalAdviser, the holders of Unlisted Foreign Shares and Domestic Shares are entitled to the same rights. Holdersof Unlisted Foreign Shares and Domestic Shares will be treated as if they are in the same class of shares underthe SFO upon the completion of the Global Offering.

3. New Century Tourism is a general partner of and has full control over Hangzhou Qianhe Qiju InvestmentManagement Partnership (Limited Partnership)* (杭州謙和祺聚投資管理合夥企業(有限合夥)) (“QianheQiju”). New Century Tourism is deemed under the SFO to be interested in the Shares held by Qianhe Qiju.

4. Mr. Chen Miaolin indirectly owns as to 85.2% of the equity interests in New Century Tourism and Mr. Chen

Miaolin is deemed under the SFO to be interested in the Shares held by New Century Tourism.

3. Service contracts

We have entered into a service contract with each of our Directors and Supervisors in

respect of, among other things, compliance with relevant laws and regulations, observation of

the Articles of Association and provisions on arbitration. Except as disclosed above, we have

not entered, and do not propose to enter, into any service contracts with any of our Directors

or Supervisors in their respective capacities as Directors/Supervisors (other than contracts

expiring or determinable by the employer within one year without the payment of

compensation (other than statutory compensation)).


– VII-14 –

4. Directors’ and Supervisors’ remuneration

The aggregate remuneration before tax (including fees, salaries, contributions to pensionschemes, benefits in kind and discretionary bonuses) paid to our Directors and Supervisors forthe year ended December 31, 2017 and the eight months ended August 31, 2018 wasapproximately RMB2.8 million and RMB1.6 million, respectively.

Under arrangements currently in force, we estimate the total compensation before taxpayable to our Directors and Supervisors for the year ended December 31, 2018 wasapproximately RMB3.3 million.

5. Agency fees or commissions received

Save as disclosed in the sub-section headed “D. Other information – 2. Joint Sponsors”in this appendix, none of our Directors nor the experts named in the sub-section headed “D.Other information – 7. Consents of experts” in this appendix had received any agency fee orcommission from our Company within the two years preceding the date of this prospectus.

6. Disclaimers

Except as disclosed in this prospectus:

(i) our Directors are not aware of any person (not being a Director or chief executiveof our Company) who will, immediately following completion of the GlobalOffering, have an interest or short position in Shares or underlying Shares whichwould fall to be disclosed to our Company and the Stock Exchange under theprovisions of Divisions 2 and 3 of Part XV of the SFO, or who will be directly orindirectly interested in 10% or more of the nominal value or any class of sharecapital carrying rights to vote in all circumstances at general meetings of ourCompany or any of its subsidiaries;

(ii) none of our Directors or chief executive of our Company has any interest or shortposition in shares, underlying shares or debentures of our Company or any of itsassociated corporations (within the meaning of Part XV of the SFO) which wouldhave to be notified to our Company and the Stock Exchange under Divisions 7 and8 of Part XV of the SFO (including any interests and short positions which they aretaken or deemed to have under such provisions of the SFO) or would be required,pursuant to section 352 of the SFO, to be entered in the register referred to therein,or would be required, pursuant to the Model Code for Securities Transactions byDirectors of Listed Companies in the Listing Rules to be notified to us and the StockExchange, in each case once the Shares are listed on the Stock Exchange;

(iii) none of the Directors nor the experts named in the sub-section headed “D. Otherinformation – 5. Qualification of experts” in this appendix is interested in thepromotion, or in any assets which, within the two years immediately preceding theissue of this prospectus, have been acquired or disposed of by, or leased to, anymember of our Group, or are proposed to be acquired or disposed of by or leased toany member of our Group;


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(iv) none of the Directors nor the experts named in the sub-section headed “D. Otherinformation – 5. Qualification of experts” in this appendix is materially interestedin any contract or arrangement subsisting at the date of this prospectus which issignificant in relation to the business of our Group taken as a whole;

(v) none of the Directors nor the experts named in the sub-section headed “D. Otherinformation – 5. Qualification of experts” in this appendix has any shareholding inany member of our Group nor the right (whether legally enforceable or not) tosubscribe for or to nominate persons to subscribe for securities in any member of ourGroup;

(vi) so far as is known to our Directors, none of our Directors, their respective associatesor our Shareholders who are interested in more than 5% of the issued share capitalof our Company has any interests in our five largest customers or our five largestsuppliers of our Company; and

(vii) none of our Directors has any existing or proposed service contracts with anymember of our Company (which is not determinable by the employer within oneyear without payment of compensation (other than statutory compensation)).

D. OTHER INFORMATION

1. Litigation

Our Directors confirmed that, during the Track Record Period and up to the LatestPracticable Date, no member of our Group is engaged in any litigation or arbitration of materialimportance and no litigation or claim of material importance is pending or threatened by oragainst any member of our Group.

2. Joint Sponsors

China Galaxy International Securities (Hong Kong) Co., Limited, being one of the JointSponsors, has provided a loan to Huge Harvest International Limited, a limited liabilitycompany incorporated in the BVI which is owned as to 83.90% by Mr. Chen Miaolin, one ofour non-executive Directors and Controlling Shareholders and as such, China GalaxyInternational Securities (Hong Kong) Co., Limited is not an independent sponsor according tothe independence criteria applicable to sponsors set out in Rule 3.07 of the Listing Rules.

Apart from China Galaxy International Securities (Hong Kong) Co., Limited, the otherJoint Sponsor, BOCOM International (Asia) Limited satisfies the independence criteriaapplicable to sponsors set out in Rule 3.07 of the Listing Rules.

The aggregate sponsor fee of the Joint Sponsors is HK$5.5 million, and is payable by ourCompany.

The Joint Sponsors have made an application on behalf of our Company to the StockExchange for listing of and permission to deal in the Shares in issue and to be issued asmentioned herein. All necessary arrangements have been made to enable the relevant Sharesto be admitted into CCASS.


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3. Promoters

The information about our promoters is as follows:

No. Name of the promoters

1. Zhejiang Xiaoshan Kaiyuan Tourism Group Co., Ltd* (開元旅業集團有限公司)2. NC Hotels Investment Holding Pte. Ltd.3. Ningbo Meishan Bonded Area Kaihui Taiheng Investment Management

Partnership (Limited Partnership)* (寧波梅山保稅港區開匯泰亨投資管理合夥企業(有限合夥))

4. Ocean Century Hotels Limited5. Hangzhou Qianhe Qiju Investment Management Partnership (Limited Partnership)*

(杭州謙和祺聚投資管理合夥企業(有限合夥))6. Ningbo Meishan Bonded Area Kairui Shiqi Investment Management Partnership

(Limited Partnership)* (寧波梅山保稅港區開瑞世祺投資管理合夥企業(有限合夥))7. Shanghai Ouling Bohui Investment Center (Limited Partnership)* (上海鷗翎鉑卉

投資中心(有限合夥))

Save for the Global Offering and as disclosed in this prospectus, within the two yearsimmediately preceding the date of this prospectus, no cash, security or benefit has been paid,allotted or given or is proposed to be paid, allotted or given to the promoters named above inconnection with the Global Offering or the related transactions described in this prospectus.

4. Preliminary expenses

We have not incurred any preliminary expenses.

5. Qualification of experts

The qualifications of the experts (as defined under the Listing Rules and the Companies(Winding Up and Miscellaneous Provisions) Ordinance) who have given their opinions oradvice in this prospectus are as follows:

Name Qualifications

China Galaxy InternationalSecurities (Hong Kong)Co., Limited

a licensed corporation licensed to conduct type 1(dealing in securities), type 4 (advising onsecurities) and type 6 (advising on corporatefinance) regulated activities under the SFO

BOCOM International (Asia)Limited

a licensed corporation licensed to conduct type 1(dealing in securities) and type 6 (advising oncorporate finance) regulated activities under theSFO

PricewaterhouseCoopers certified public accountants


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Name Qualifications

King & Wood Mallesons PRC legal adviser

Cushman & Wakefield Limited property valuer

Horwath HTL (Beijing) Co., Ltd. industry expert

6. Compliance adviser

Our Company has agreed to appoint BOCOM International (Asia) Limited as ourcompliance adviser upon Listing in compliance with Rule 3A.19 of the Listing Rules.

7. Consents of experts

Each of the parties listed in the sub-section headed “D. Other Information – 5.Qualification of experts” in this appendix has given and has not withdrawn its written consentto the issue of this prospectus, with the inclusion of its letters and/or reports and/or opinionsand/or summary thereof (as the case may be) and/or references to its name included herein inthe form and context in which they respectively appear.

8. Binding effect

This prospectus shall have the effect, if an application is made in pursuance hereof, ofrendering all persons concerned bound by all the provisions (other than the penal provisions)of sections 44A and 44B of the Companies (Winding Up and Miscellaneous Provisions)Ordinance so far as applicable.

9. No material adverse change

Our Directors confirm that there has been no material adverse change in the financial ortrading position or prospects of our Company or our subsidiaries since August 31, 2018 and upto the date of this prospectus.

10. Miscellaneous

Save as disclosed in this prospectus:

(i) Within the two years preceding the date of this prospectus:

(a) no share or loan capital of our Company or any of its subsidiaries has beenissued, agreed to be issued or is proposed or intended to be issued fully orpartly paid either for cash or for a consideration other than cash;

(b) no commissions, discounts, brokerages or other special terms have beengranted or agreed to be granted in connection with the issue or sale of any shareor loan capital of our Company or any of its subsidiaries and no commissionhas been paid or is payable in connection with the issue or sale of any capitalof our Company or any of its subsidiaries; and


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(c) no commission has been paid or is payable to any person for subscribing oragreeing to subscribe, or procuring or agreeing to procure subscriptions, forany Shares or debenture of our Company or any of its subsidiaries;

(ii) no founder, management or deferred shares or any debentures of our Company orany of our subsidiaries have been issued or agreed to be issued;

(iii) no share or loan capital of our Company is under option or is agreed conditionallyor unconditionally to be put under option;

(iv) our Company has no outstanding convertible debt securities or debentures;

(v) there are no arrangements under which future dividends are waived or agreed to bewaived;

(vi) there are no procedures for the exercise of any right of pre-emption or transferabilityof subscription rights;

(vii) there are no contracts for hire or hire purchase of plant to or by us for a period ofover one year which are substantial in relation to our business;

(viii) there have been no interruptions in our business which may have or have had asignificant effect on our financial position in the last 12 months;

(ix) none of the experts named in the sub-section headed “D. Other Information – 5.Qualification of experts” in this appendix:

(a) is interested beneficially or non-beneficially in any securities in any memberof our Group, including the Shares; or

(b) has any right or option (whether legally enforceable or not) to subscribe for orto nominate persons to subscribe for any securities in any member of ourGroup, including the Shares;

(x) our Company currently does not intend to apply for the status of a sino-foreigninvestment joint stock limited liability company and does not expect to be subjectto the Law of the PRC on Sino-foreign Equity Joint Ventures;

(xi) no company within our Group is presently listed on any stock exchange or traded onany trading system; and

(xii) in case of any discrepancies between the English language version and the Chineselanguage version of this prospectus, the English version shall prevail.

Our Directors have been advised that no material liability for estate duty is likely to fallon our Company or any of its subsidiaries.


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DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES

The documents attached to a copy of this prospectus and delivered to the Registrar ofCompanies in Hong Kong for registration were:

(a) copies of the WHITE, YELLOW and GREEN Application Forms;

(b) the written consents referred to in the sub-section headed “Appendix VII – Statutoryand General Information – D. Other Information – 7. Consents of experts” in thisprospectus; and

(c) copies of each of the material contracts referred to in the sub-section headed“Appendix VII – Statutory and General Information – B. Further Information aboutour Business – 1. Summary of material contracts” in this prospectus.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office ofDechert at 31/F, Jardine House, One Connaught Place, Central, Hong Kong during normalbusiness hours up to and including the date which is 14 days from the date of this prospectus:

(a) the Articles of Association;

(b) the accountant’s report from PricewaterhouseCoopers, the text of which is set out inAppendix I to this prospectus;

(c) the report on the unaudited pro forma financial information of our Group fromPricewaterhouseCoopers, the text of which is set out in Appendix IIA to thisprospectus;

(d) the letters from PricewaterhouseCoopers and the Joint Sponsors relating to the profitestimate, the texts of which are set out in Appendix IIB to this prospectus;

(e) the audited consolidated financial statements of our Group for the years endedDecember 31, 2015, 2016 and 2017 and the eight months ended August 31, 2018;

(f) the property valuation report prepared by Cushman & Wakefield Limited relating tothe property interests of our Group, the text of which is set out in Appendix III tothis prospectus;

(g) the PRC legal opinion(s) dated the prospectus date issued by King & WoodMallesons, our legal advisers as to PRC laws;

(h) the material contracts referred to in the sub-section headed “Appendix VII –Statutory and General Information – B. Further Information about our Business – 1.Summary of material contracts” in this prospectus;

APPENDIX VIII DOCUMENTS DELIVERED TO THE REGISTRAR OFCOMPANIES IN HONG KONG AND AVAILABLE FOR INSPECTION

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(i) the written consents referred to in the sub-section headed “Appendix VII – Statutory

and General Information – D. Other Information – 7. Consents of experts” in this

prospectus;

(j) the service contracts referred to in the sub-section headed “Appendix VII – Statutory

and General Information – C. Further information about Directors, substantial

Shareholders and experts – 3. Service contracts” in this prospectus;

(k) the PRC Company Law, together with its unofficial English translation;

(l) the Mandatory Provisions, together with its unofficial English translation;

(m) the Special Regulations of the State Council on the Overseas Offering and Listing

of Shares by Joint Stock Limited Companies, together with its unofficial English

translation; and

(n) the industry report prepared by Horwath HTL (Beijing) Co., Ltd..

APPENDIX VIII DOCUMENTS DELIVERED TO THE REGISTRAR OFCOMPANIES IN HONG KONG AND AVAILABLE FOR INSPECTION

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